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, 2002

                                       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, 2002 were $5,896,396.

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of August 20, 2002, was $3,771,247.

The number of shares  outstanding  of the  issuer's  common  stock,  without par
value, as of August 20, 2002, was 1,356,050 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders  are
incorporated by reference in Part III.

                           Exhibit Index on Page E-1
                                Page 1 of 51 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 Properties..........................................29
Item  3.   Legal Proceedings..................................................30
Item  4.   Submission of Matters to a Vote of Security Holders................30
Item  4.5. Executive Officers.................................................30

PART II

Item  5.   Market for Common Equity and Related Stockholder Matters...........31
Item  5.5. Selected Financial Data............................................33
Item  6.   Management's Discussion and Analysis of Financial
             Condition and Results of Operation...............................34
Item  7.   Financial Statements...............................................34
Item  7A.  Quantitative and Qualitative Disclosures About Market Risk.........46
Item  8.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure..............................47
PART III

Item 9.    Directors and Executive Officers...................................48
Item 10.   Executive Compensation.............................................48
Item 11.   Security Ownership of Certain Beneficial Owners
             and Management...................................................48
Item 12.   Certain Relationships and Related Transactions.....................48

PART IV

Item 13.   Exhibits, Financial Statement Schedules, and Reports
              on Form 8-K.....................................................48
Signatures....................................................................49
Certifications................................................................50
Exhibit Index.................................................................51

<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.  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 the major focus of
the Bank's loan origination activities,  representing 50.28% of the Bank's total
loan  portfolio  at June 30,  2002.  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 11.06% and 14.02% of the Bank's total loan portfolio
at  June  30,  2002,  respectively.   Mortgage  loans  secured  by  multi-family
properties  and  nonresidential  real  estate  totaled  approximately  0.84% and
19.47%,  respectively,  of the Bank's  total loan  portfolio  at June 30,  2002.
Consumer loans  constituted  approximately  3.17%, and commercial and industrial
loans totaled approximately 1.17% of the Bank's total loan portfolio at June 30,
2002.

     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.

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.

<TABLE>
<CAPTION>

                                                                     At June 30,
                                       -----------------------------------------------------------------------
                                              2002                       2001                      2000
                                       ------------------         ------------------        ------------------
                                                  Percent                    Percent                   Percent
                                       Amount    of Total         Amount    of Total        Amount    of Total
                                       ------    --------         ------    --------        ------    --------
                                                                (Dollars in thousands)
TYPE OF LOAN
Mortgage loans:
<S>                                   <C>         <C>            <C>         <C>            <C>         <C>
   Residential                        $26,926     50.27%         $27,082     49.26%         $23,494     50.76%
   Combo                                7,511     14.02            7,230     13.15            6,584     14.23
   Nonresidential                      10,430     19.47           13,758     25.02           11,926     25.76
   Multi-family                           451      0.84              528      0.96            1,017      2.20
Mobile home loans                       5,924     11.06            3,172      5.77            1,322      2.86
Commercial and industrial loans           629      1.17              485      0.88              264      0.57
Consumer loans                          1,695      3.17            2,725      4.96            1,674      3.62
                                      -------    ------          -------    ------          -------    ------
      Gross loans receivable          $53,566    100.00%         $54,980    100.00%         $46,281    100.00%
                                      =======    ======          =======    ======          =======    ======

TYPE OF SECURITY
   Residential real estate            $26,926     50.27%         $27,082     49.26%         $23,494     50.76%
   Mobile home and land                 7,511     14.02            7,230     13.15            6,584     14.23
   Nonresidential real estate          10,430     19.47           13,758     25.02           11,926     25.76
   Multi-family real estate               451      0.84              528      0.96            1,017      2.20
   Mobile home                          5,924     11.06            3,172      5.77            1,322      2.86
   Deposits                                73      0.14              125      0.23              121      0.26
   Other security                       2,251      4.20            3,085      5.61            1,817      3.93
                                      -------    ------          -------    ------          -------    ------
      Gross loans receivable           53,566    100.00           54,980    100.00           46,281    100.00

Deduct:
Allowance for loan losses..               344      0.65              392      0.71              372      0.80
Loans in process and
   deferred loan costs                    515      0.98              344      0.63              568      1.23
                                      -------    ------          -------    ------          -------    ------
   Net loans receivable               $52,707     98.37%         $54,244     98.66%         $45,341     97.97%
                                      =======    ======          =======    ======          =======    ======

Mortgage Loans:
   Adjustable-rate                    $16,555     36.53%         $23,279     47.90%         $25,717     59.78%
   Fixed-rate                          28,763     63.47           25,319     52.10           17,304     40.22
                                      -------    ------          -------    ------          -------    ------
     Total                            $45,318    100.00%         $48,598    100.00%         $43,021    100.00%
                                      =======    ======          =======    ======          =======    ======
</TABLE>

     The  following  table  sets forth  certain  information  at June 30,  2002,
regarding the dollar amount of loans maturing in the Bank's loan portfolio based
on the contractual terms to maturity.  Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less.  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                                  2006        2008      2013     2018
                             at June 30,                                   to          to        to      and
                                 2002       2003      2004      2005      2007        2012      2017   following
                             -----------------------------------------------------------------------------------
                                                                        (In thousands)
Mortgage loans:
<S>                            <C>         <C>      <C>        <C>        <C>        <C>        <C>      <C>
   Residential.............    $26,926     $1,632   $1,741     $1,202     $1,841     $1,955     $2,677   $15,878
   Combo...................      7,511        351      631        333        712        605        733     4,146
   Nonresidential..........     10,430        426      249          5        231      3,212      1,040     5,267
   Multi-family............        451        104      ---        ---         64        150        133       ---
Mobile home loans..........      5,924          5        8         49         98        660      1,655     3,449
Commercial and
   industrial loans........        629        254      ---        ---          4         85        286       ---
Consumer loans.............      1,695      1,148      161        194        154         26         12       ---
                               -------     ------   ------     ------     ------     ------     ------   -------
  Total    ...............     $53,566     $3,920   $2,790     $1,783     $3,104     $6,693     $6,536   $28,740
                               =======     ======   ======     ======     ======     ======     ======   =======
</TABLE>

     The following  table sets forth,  as of June 30, 2002, the dollar amount of
all loans due after one year which have fixed  interest  rates and  floating  or
adjustable rates.
<TABLE>
<CAPTION>

                                                                              Due After June 30, 2003
                                                                  -------------------------------------------
                                                                  Fixed Rates    Variable Rates         Total
                                                                  -----------    --------------         -----
                                                                                 (In thousands)
Mortgage loans:
<S>                                                                 <C>              <C>               <C>
   Residential................................................      $20,755           $ 4,539          $25,294
   Combo .....................................................        5,519             1,641            7,160
   Nonresidential.............................................        2,219             7,785           10,004
   Multi-family...............................................          191               156              347
Mobile home loans.............................................        5,919               ---            5,919
Commercial and
   industrial loans...........................................          375               ---              375
Consumer loans................................................          547               ---              547
                                                                    -------           -------          -------
   Total                                                            $35,525           $14,121          $49,646
                                                                    =======           =======          =======
</TABLE>


     One- to- Four Family Residential Loans. Residential loans consist primarily
of one- to- four family loans.  Approximately  $26.9  million,  or 50.28% of the
Bank's  portfolio of loans at June 30,  2002,  consisted of one- to- four family
residential  mortgage loans, of which  approximately  23% had adjustable  rates.
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.  At June
30,  2002,  77% of the  Bank's  residential  mortgage  loans had fixed  rates of
interest.

     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, 2002,  residential  loans  amounting  to $577,000,  or 1.08% 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, 2002,  $7.5 million,  or 14.0% of the Bank's total
loan  portfolio,  consisted of Combo  Loans,  of which  approximately  25.0% had
adjustable  rates. 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, 2002,  75.0% of the Bank's Combo Loans had fixed
rates of interest.

     Mobile Home Loans.  The Bank  originates  loans for the purchase of new and
used mobile homes. At June 30, 2002, approximately $5.9 million, or 11.1% 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  $62,000  were  included  in  non-performing  assets at June 30,  2002.
Repossessed collateral included four mobile homes at June 30, 2002.

     Nonresidential Real Estate Loans. At June 30, 2002, $10.4 million, or 19.5%
of the Bank's  total loan  portfolio,  consisted of  nonresidential  real estate
loans, of which $868,000  constituted loans secured by unimproved land only. The
nonresidential  real estate loans included in the Bank's portfolio are primarily
secured by real estate that includes a motel, a warehouse, a medical facility, a
funeral  home,  several  churches and one  residential  real estate  development
project. At June 30, 2002, $459,000,  or 4.4% of the Bank's  nonresidential loan
portfolio, was secured by churches. 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,
2002  was  $831,000,  net of  participation  portion  sold.  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 $451,000, or 0.8% of the Bank's portfolio
of loans at June 30, 2002,  consisted of multi-family  loans.  All of the Bank's
multi-family  loans  were  fully  performing  as of June 30,  2002.  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
$1.7  million as of June 30, 2002,  or 3.2% 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, 2002,  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,
however,  of  attempting  to sell such  loans.  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  and
information  on  the  historical  and  projected  income  and  expenses  of  its
borrowers.  Mortgage  loans up to $250,000 and mobile home loans 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, 2002, the Bank
had sold  participations  in a  non-residential  mortgage  loan in the amount of
$607,000.

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

<TABLE>
<CAPTION>

                                                                           For the Year Ended June 30,
                                                                    -----------------------------------------
                                                                     2002             2001              2000
                                                                     ----             ----              ----
                                                                                 (In thousands)
<S>                                                                 <C>             <C>               <C>
Gross loans receivable at beginning of period.................      $54,980         $46,281           $39,189
                                                                    -------         -------           -------
Originations:
   Mortgage loans:
     Residential..............................................       11,820          11,822             8,645
     Other....................................................        1,795           3,399             6,152
                                                                    -------         -------           -------
       Total mortgage loans...................................       13,615          15,221            14,797
                                                                    -------         -------           -------
   Mobile home loans..........................................        3,505           1,448               300
   Consumer loans:
     Installment..............................................          872           1,517             1,545
     Share....................................................           37             141                27
                                                                    -------         -------           -------
       Total consumer loans...................................          909           1,658             1,572
                                                                    -------         -------           -------
            Total originations................................       18,029          18,327            16,669
Purchases (sales) of participation loans......................         (615)           (400)           (2,363)
Repayments and other deductions...............................      (18,828)         (9,228)           (7,214)
                                                                    -------         -------           -------
   Gross loans receivable at end of period                          $53,566         $54,980           $46,281
                                                                    =======         =======           =======
</TABLE>


     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
MAC(R) regional network and the CIRRUS(R)  nationwide network.  The Company does
not derive significant income from the ATM cards.

     Mortgage-Backed  Securities. At June 30, 2002, the Bank had $3.8 million of
mortgage-backed  securities  outstanding,   all  of  which  were  classified  as
available  for sale and had a market  value of $3.9  million.  These  fixed-rate
mortgage-backed securities may be 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.

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

<TABLE>
<CAPTION>

                                                                       At June 30,
                                     --------------------------------------------------------------------------
                                               2002                        2001                      2000
                                     ---------------------       --------------------      --------------------
                                     Amortized       Fair        Amortized      Fair       Amortized      Fair
                                        Cost         Value         Cost         Value        Cost         Value
                                     ---------       -----       ---------      -----      ---------      -----
                                                                   (In thousands)
Total mortgage-backed
<S>                                    <C>          <C>            <C>         <C>           <C>         <C>
  securities                           $3,841       $3,913         $5,663      $5,582        $7,573      $7,247
</TABLE>


     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, 2002.


<TABLE>
<CAPTION>

                                                      Amount at June 30, 2002, 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)
Mortgage-backed securities
<S>                                                                                             <C>           <C>
   available for sale                   ---           ---          ---            ---           $3,841        6.9%
</TABLE>


     The  following  table sets forth the changes in the Bank's  mortgage-backed
securities portfolio for the years ended June 30, 2002, 2001 and 2000.


<TABLE>
<CAPTION>

                                                                            For the Year Ended June 30,
                                                                    -----------------------------------------
                                                                     2002             2001              2000
                                                                     ----             ----              ----
                                                                                 (In thousands)
<S>                                                                 <C>              <C>               <C>
Beginning balance.............................................      $5,582           $7,247            $7,570
Purchases.....................................................         ---              ---               825
Sales    .....................................................         ---             (826)              ---
Monthly repayments............................................      (1,780)          (1,073)           (1,011)
Premium and discount amortization, net........................         (43)             (25)              (12)
Investment securities gains...................................         ---               14               ---
Unrealized gain (loss) on securities available for sale.......         154              245              (125)
                                                                    ------           ------            ------
Ending balance                                                      $3,913           $5,582            $7,247
                                                                    ======           ======            ======
</TABLE>


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 been commenced are placed on non-accrual status.

     Non-performing  assets.  At  June  30,  2002,  $639,000,  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 $1.1 million, or 1.55%, of total assets
at June 30, 2001. At June 30, 2002,  residential  loans and consumer mobile home
loans accounted for 90.3% and 9.7%, respectively, of non-performing loans. There
were no non-accruing investments at June 30, 2002. As of June 30, 2002 and 2001,
the Bank held $278,000 and $37,000,  respectively,  of Real Estate Owned ("REO")
properties.  Other  repossessed  property  included  four  mobile  homes and two
modular  homes with a fair market value  estimated at $149,000 at June 30, 2002.
No repossessed property other than REO was held at June 30, 2001.

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

<TABLE>
<CAPTION>


                                                                                    At June 30,
                                                                 -----------------------------------------------
                                                                     2002             2001              2000
                                                                 ------------     ------------      ------------
                                                                                 (In thousands)
<S>                       <C>                                       <C>              <C>               <C>
Accruing loans delinquent 90 days.............................      $  ---           $  277            $  ---
Non-accruing loans (1)........................................         639              789               395
Real estate owned.............................................         427               37                35
                                                                    ------           ------            ------
    Total non-performing assets...............................       1,066            1,103               430
Non-performing loans to total loans...........................        1.20%            1.95%             0.86%
Non-performing assets to total assets.........................        1.60%            1.60%             0.72%
</TABLE>
------------------------
(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, 2002,  $577,000
     of  non-accruing  loans were  residential  loans and $62,000 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 $43,000 for the year ended
     June 30, 2002. At June 30, 2002,  there were no residential  loans 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,
                                     -----------------------------------------------------------------------------
                                               2002                      2001                     2000
                                     -------------------------  ------------------------  ------------------------
                                                       Percent                   Percent                   Percent
                                                      of total                  of total                  of total
                                     Number   Amount    loans   Number  Amount    loans   Number  Amount    loans
                                     ------   -----   --------  ------  ------  --------  ------  ------  --------
                                                                (Dollars in thousands)
Loans delinquent  for (1):
<S>   <C>                              <C>   <C>        <C>       <C>  <C>        <C>       <C>     <C>     <C>
   30-89 days.......................   30    $1,022     1.93%     51   $1,247     2.28%     24      $598    1.31%
   90 days and over.................   13       639     1.20      32    1,066     1.95      13       395    0.86
                                       --    ------     ----      --   ------     ----      --      ----    ----
     Total delinquent loans.........   43    $1,661(2)  3.13%     83   $2,313     4.23%     37      $993    2.17%
                                       ==    ======     ====      ==   ======     ====      ==      ====    ====
</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
     $331,000 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, 2002, 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, 2002
                                                        ----------------
                                                         (In thousands)
Substandard loans.....................................        $1,774
Doubtful loans........................................            62
Loss loans............................................           ---
Special mention loans.................................         2,025
                                                              ------
     Total classified loans...........................        $3,861
                                                              ======
General loss allowances...............................        $  344
Specific loss allowances..............................           ---
                                                              ------
     Total allowances                                         $  344
                                                              ======


     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, 2002.  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, 2002.

<TABLE>
<CAPTION>

                                                                       Year Ended June 30,
                                               --------------------------------------------------------------
                                                   2002         2001          2000         1999         1998
                                                   ----         ----          ----         ----         ----
                                                                     (Dollars in thousands)
Balance of allowance at beginning
<S>                                                 <C>          <C>          <C>           <C>         <C>
   of period....................................    $392         $372         $336          $320        $231
                                                    ----         ----         ----          ----        ----
Less charge offs:
Mortgage loans..................................    (105)         (17)         ---           (26)         (6)
Consumer loans..................................    (110)         (23)         (18)           (2)         (7)
Add recoveries:
Consumer loans..................................     ---          ---          ---           ---         ---
                                                    ----         ----         ----          ----        ----
Net (charge-offs) recoveries....................    (215)         (40)         (18)          (28)        (13)
Provisions for losses on loans..................     167           60           54            44         102
                                                    ----         ----         ----          ----        ----
Balance of allowance at end of period...........    $344         $392         $372          $336        $320
                                                    ====         ====         ====          ====        ====
Net charge-offs to total average
   loans receivable for period..................    0.40%        0.08%        0.04%         0.08%       0.04%
Allowance at end of period to
   net loans receivable at end
   of period (1)................................    0.65         0.72         0.81          0.88        0.94
Allowance to total non-performing
   loans at end of period.......................   53.83        36.77        94.18        425.32      114.70
------------------------
</TABLE>
(1)  Total loans less net loans in process and deferred loan costs.

     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.

<TABLE>
<CAPTION>

                                                                        At June 30,
                                      ------------------------------------------------------------------------
                                             2002                        2001                     2000
                                      -------------------        -------------------        ------------------
                                                  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:
<S>                                    <C>         <C>             <C>        <C>            <C>        <C>
Residential......................      $  66       50.27%          $130       49.26%         $113       50.76%
Combo  ..........................         22       14.02             15       13.15            13       14.23
Nonresidential...................        134       19.47            130       25.02           105       25.76
Multi-family.....................          3        0.84              3        0.96             2        2.20
Mobile home loans................         74       11.06             44        5.77            11        2.86
Commercial and industrial
   loans.........................          3        1.17              4        0.88             2        0.57
Consumer loans...................         42        3.17             60        4.96            30        3.62
Unallocated......................        ---         ---              6        ---             96         ---
                                       -----      ------           ----      ------          ----      ------
   Total.........................      $ 344      100.00%          $392      100.00%         $372      100.00%
                                       =====      ======           ====      ======          ====      ======
</TABLE>


Investments and FHLB Stock

     The Company's investment portfolio (excluding  mortgage-backed  securities)
consists of a federal agency bond,  equity securities and Federal Home Loan Bank
("FHLB") stock. At June 30, 2002,  approximately  $2.1 million,  or 3.18% 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, 2002.

     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,
                                      -----------------------------------------------------------------------
                                            2002                        2001                      2000
                                      ------------------         ------------------        ------------------
                                      Amortized    Fair          Amortized    Fair         Amortized    Fair
                                        Cost       Value           Cost       Value          Cost       Value
                                      ---------    -----         ----------   -----        ---------    -----
                                                                  (In thousands)
Securities available for sale (1):
<S>                                    <C>         <C>            <C>         <C>           <C>       <C>
   Federal agencies..............      $  500      $  505         $  ---      $  ---        $  ---    $  ---
   Marketable equity securities..         521         208            701         565           719       465
                                       ------      ------         ------      ------        ------    ------
     Total securities
       available for sale........       1,021         713            701         565           719       465
FHLB stock (2)...................       1,100       1,100          1,100       1,100           835       835
                                       ------      ------         ------      ------        ------    ------
     Total investments...........      $2,121      $1,813         $1,801      $1,665        $1,554    $1,300
                                       ======      ======         ======      ======        ======    ======
-----------------------
</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  rarely pays a fee for any
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.

     An analysis of the Bank  deposit  accounts by type,  maturity,  and rate at
June 30, 2002, is as follows:

<TABLE>
<CAPTION>


                                                  Minimum         Balance at                          Weighted
                                                  Opening          June 30,           % of             Average
Type of Account                                   Balance            2002           Deposits            Rate
---------------                               ---------------  ---------------- ----------------  ----------------
                                                                (In thousands)
Withdrawable:
<S>                                               <C>             <C>                <C>                <C>
   Savings accounts.....................            $   10         $ 4,780           11.53%             1.50%
   Money market accounts................             5,000           1,241            2.99              1.49
   NOW accounts and other
     transaction accounts...............                50           4,881           11.78              0.68
                                                                   -------          ------
     Total withdrawable.................                           $10,902           26.30              1.13
Certificates (original terms):
   3 months.............................               500             154            0.37              1.75
   6 months.............................               500           2,021            4.88              2.03
   12 months............................               500           8,389           20.24              2.91
   18 months............................               500           3,985            9.61              4.38
   24 months............................               500           3,330            8.03              4.26
   30 months............................               500           4,918           11.86              4.21
   36 months............................               500             926            2.23              4.28
   48 months............................               500           1,558            3.76              4.89
   60 months............................               500           4,689           11.31              5.41
IRAs (original terms):
   12 months............................               500             171            0.41              3.13
   36 months............................               500             191            0.46              6.20
   60 months............................               500             222            0.54              5.02
                                                                   -------          ------
     Total certificates and IRAs........                            30,554           73.70              3.96
                                                                   -------          ------
     Total deposits.....................                           $41,456          100.00%             3.21%
                                                                   =======          ======
</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,
                         -----------------------------------------------
                             2002             2001              2000
                         ------------     ------------      ------------
                                         (In thousands)
2.00% and under........     $ 1,628           $   ---          $   ---
2.01 - 4.00%...........      14,108               107              ---
4.01 - 6.00 %..........      13,951            24,665           17,312
6.01 - 8.00%...........         867             7,279           13,775
                            -------           -------          -------
   Total...............     $30,554           $32,051          $31,087
                            =======           =======          =======

     The following table  represents,  by various interest rate categories,  the
amounts of time deposits  maturing during each of the three years following June
30, 2002, and the total amount maturing  thereafter.  Matured certificates which
have not been  renewed  as of June 30,  2002,  have been  allocated  based  upon
certain rollover assumptions:

<TABLE>
<CAPTION>


                                                              Amounts At June 30, 2002, Maturing in
                                                 ---------------------------------------------------------------
                                                 One Year             Two             Three         Greater Than
                                                  or Less            Years            Years          Three Years
                                                 --------            -----            -----         ------------
                                                                         (In thousands)
<C>                                               <C>             <C>               <C>              <C>
2.00% and under.........................          $  1,628        $     ---         $     ---        $     ---
2.01 - 4.00%............................             8,668            3,460             1,874              106
4.01 - 6.00 %...........................             5,088            2,309             3,704            2,850
6.01-8.00%..............................               494               49               234               90
                                                  --------        ---------         ---------        ---------
         Total    ......................          $ 15,878        $   5,818         $   5,812        $   3,046
                                                  ========        =========         =========        =========
</TABLE>


     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,
2002.



                                                              At June 30, 2002
                                                              ----------------
Maturity                                                       (In thousands)
--------
Three months or less.........................................      $  1,843
Greater than three months through six months.................         2,264
Greater than six months through twelve months................         2,123
Over twelve months...........................................         5,937
                                                                  ---------
     Total...................................................       $12,167
                                                                  =========

     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
                                                   2002       Deposits        2001          2001      Deposits
                                                ----------    --------     ---------    ----------    --------
                                                                     (Dollars in thousands)
Withdrawable:
<S>                                               <C>          <C>          <C>          <C>             <C>
   Savings accounts.............................   $ 4,780     11.53%       $   953       $ 3,827        9.31%
   Money market accounts........................     1,241      2.99            306           935        2.27
   NOW accounts and other transaction
     accounts...................................     4,881     11.78            583         4,298       10.46
                                                   -------    ------        -------       -------      ------
     Total withdrawable.........................    10,902     26.30          1,842         9,060       22.04
Certificates (original terms):
   91 days......................................       154      0.37         (1,633)        1,787        4.34
   6 months.....................................     2,021      4.88           (396)        2,417        5.88
   12 months....................................     8,389     20.24         (2,659)       11,048       26.87
   18 months....................................     3,985      9.61           (611)        4,596       11.18
   24 months....................................     3,330      8.03         (2,881)        6,211       15.11
   30 months....................................     4,918     11.86          3,847         1,071        2.61
   36 months....................................       926      2.23            733           193        0.47
   48 months....................................     1,558      3.76            947           611        1.49
   60 months....................................     4,689     11.31            984         3,705        9.01
IRAs (original terms):
   12 months....................................       171      0.41             15           156        0.38
   36 months....................................       191      0.46              2           189        0.46
   60 months....................................       222      0.54            155            67        0.16
                                                   -------    ------        -------       -------      ------
     Total certificates and IRAs................    30,554     73.70         (1,497)       32,051       77.96
                                                   -------    ------        -------       -------      ------
                  Total deposits................   $41,456    100.00%       $   345       $41,111      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, 2002, the Bank
had $18.5 million in borrowings from the FHLB of  Indianapolis,  which mature on
various dates during the years 2002 through 2007 and have interest rates ranging
from 2.76% to 5.97%.  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  $35.0  million  in  eligible  assets  available  as
collateral for advances from the FHLB of Indianapolis as of June 30, 2002. Based
on  the  Bank's  blanket  collateral  agreements,  advances  from  the  FHLB  of
Indianapolis  must be collateralized by not less than 145% of eligible loans and
105% of eligible  securities.  Therefore,  the Bank's eligible  collateral would
have  supported  approximately  $25.2  million  in  advances  from  the  FHLB of
Indianapolis as of June 30, 2002. However,  the Bank's Board of Directors has by
resolution limited the amount of authorized  borrowings to $26.0 million at June
30, 2002.

     The following  table presents  certain  information  relating to the Bank's
FHLB borrowings for the years ended June 30, 2002, 2001 and 2000.

<TABLE>
<CAPTION>

                                                                         At or for the Year Ended June 30,
                                                                    ------------------------------------------
                                                                     2002             2001              2000
                                                                     ----             ----              ----
                                                                                 (In thousands)
FHLB Advances:
<S>                                                                 <C>               <C>              <C>
   Average balance outstanding.......................               $19,038           $18,008          $14,325
   Maximum amount outstanding at any
     month-end during the period.....................               $22,000           $22,000          $16,700
   Weighted average interest rate during the period..                  5.14%             5.63%            5.85%
   Weighted average interest rate at end of period...                  5.07%             5.38%            5.91%

</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,  2002,  outstanding  contracts  on BSF
subdivision lots were:


Name of Subdivision                  Number of Contracts        Contract Balance
-------------------                  -------------------        ----------------
10 O'Clock Line..................            2                     $  21,157
Greene Woods.....................            2                        27,821
Autumn Hills.....................            8                        76,232
Coon Path........................            2                        26,105
Quarry Woods.....................            5                       130,161
                                            --                     ---------
 Total outstanding contracts                19                     $ 281,476
                                            ==                     =========

     At June 30, 2002,  BSF had two unsold lots in Coon Path,  with a sale price
of $24,500.

     BSF has been  developing  Hancock  Corner as a subdivision  to  accommodate
modular  homes.   As  of  June  30,  2002,  ten  lots  had  sold  for  $456,533.
Additionally,  this development had 17 tracts of ground in inventory with a sale
price of $337,000.

     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.  Currently,  the Bank has no mobile  homes on lots  waiting for
sale.

     During  fiscal year 2001,  BSF  purchased  257 acres known as Quarry  Woods
located two miles north of Spencer. By June 30, 2002, BSF had sold six lots with
a sale price of $168,200.  At June 30, 2002, this development had 10 residential
lots in inventory with a sale price of $318,100. Quarry Woods had one commercial
lot of 75 acres priced at $275,000, and two other commercial lots of five and 18
acres priced at $16,500 and $54,000, respectively, at June 30, 2002.

     During  fiscal  year  2002,  BSF  purchased  two  parcels  of land known as
Sherfield  Farm.  The  parcels of one and eight  acres were priced at $7,500 and
$19,950 at June 30, 2002.

     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, 2002, the Bank's aggregate  investment in BSF was $412,000.  As
of that  date,  the  Bank  had an  inter-company  loan to BSF in the  amount  of
$475,000.  Excluding certain  administrative costs not specifically allocated to
its operations,  BSF net income for the years ended June 30, 2002, 2001 and 2000
was $39,000, $59,000 and $10,000,  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.

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,  2002,   the  total   capitalized   building,   land  and
organizational  costs for the project were  $1,398,000.  The Bank's share of net
operating losses from the project during the year was $56,000,  reducing its net
investment  to $558,000  at June 30,  2002.  Income tax credits  related to this
investment  reduced  the  Company's  federal  income tax  expense by $107,000 in
fiscal year 2002.

Employees

     As of June 30, 2002, the Company  employed 26 persons on a full-time  basis
and three  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  (formerly known as Financial  Institutions  Retirement
Fund) 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. To date, several
bank holding company  acquisitions of savings  associations in Indiana have been
completed.  Affiliations between banks and healthy 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, 2002, was $19,497.

     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,  2002,  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.

     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.

     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, 2002, 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, 2002,  dividends paid by FHLB to the Bank totaled
$72,000, for an annual rate of 6.5%.

Insurance of Deposits

     The FDIC is an independent federal agency that insures the deposits,  up to
prescribed  statutory limits, of banks and thrifts and safeguards the safety and
soundness  of the  banking  and  thrift  industries.  The FDIC  administers  two
separate  insurance  funds,  the Bank  Insurance Fund (the "BIF") for commercial
banks and state savings banks and the SAIF for savings  associations such as the
Bank and banks that have acquired deposits from savings  associations.  The FDIC
is  required  to maintain  designated  levels of  reserves  in each fund.  As of
September  1996,  the reserves of the SAIF were below the level required by law,
primarily  because a significant  portion of the assessments  paid into the SAIF
have been used to pay the cost of prior thrift  failures,  while the reserves of
the BIF met the level required by law in May, 1995.  However, in September 1996,
provisions designed to recapitalize the SAIF and eliminate the premium disparity
between the BIF and SAIF were signed into law, as further described below.

     The FDIC is authorized to establish  separate annual  assessment  rates for
deposit  insurance for members of the BIF and members of the SAIF.  The FDIC may
increase  assessment  rates for either fund if  necessary  to restore the fund's
ratio of reserves to insured  deposits to the target  level  within a reasonable
time and may decrease these rates if the target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members.  Under
this system, assessments vary depending on the risk the institution poses to its
deposit  insurance fund. An institution's  risk level is determined based on its
capital level and the FDIC's level of supervisory concern about the institution.

     In 1996,  legislation  was enacted which  included  provisions  designed to
recapitalize the SAIF and largely  eliminate the significant  premium  disparity
between  the BIF and the SAIF.  Beginning  January  1, 1997,  the Bank's  annual
deposit  insurance  premium  was reduced  from .23% to .06% of total  assessable
deposits.  Although this legislation  narrowed the premium disparity between BIF
and SAIF institutions,  BIF institutions continued to pay lower assessments than
comparable SAIF institutions  because BIF institutions paid only 20% of the rate
being paid by SAIF  institutions  on their  deposits with respect to obligations
issued  by  the  federally-chartered  corporation  which  provided  some  of the
financing  to  resolve  the  thrift  crisis in the 1980s  ("FICO").  Legislation
enacted in 1999 eliminated this remaining  disparity and,  effective  January 1,
2000, FICO obligations have been shared equally by BIF members and SAIF members.

     Although Congress has considered merging the SAIF and the BIF, until such a
merger occurs, savings associations with SAIF deposits may not transfer deposits
into the BIF system without paying various exit and entrance fees. Such exit and
entrance fees need not be paid if a SAIF institution  converts to a bank charter
or merges with a bank, as long as the resulting bank continues to pay applicable
insurance  assessments to the SAIF, and as long as certain other  conditions are
met.

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, 2002, the Bank was in
compliance with all capital requirements imposed by law.

     The OTS has  promulgated  a rule  which  sets  forth  the  methodology  for
calculating an interest rate risk  component to be used by savings  associations
in calculating  regulatory  capital.  The OTS has delayed the  implementation of
this rule, however.  The rule requires savings  associations with "above normal"
interest rate risk  (institutions  whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain  additional capital for interest rate risk under the
risk-based capital framework.  Even though the OTS has delayed implementing this
rule, the Bank  nevertheless  measures its interest rate risk in conformity with
the OTS  regulation.  As of June 30,  2002,  the Bank's  interest  rate risk was
considered  "minimal"  within the parameters set forth in the  regulation.  (See
"MD&A --- Quantitative and Qualitative Analysis").

     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,
2002,  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

     OTS regulations restrict the amount of "capital  distributions" that may be
made by savings associations. These regulations define a capital distribution as
a distribution of cash or other property to a savings association's owners, made
on account of their ownership.  This definition includes a savings association's
payment  of  cash  dividends  to  shareholders,  or  any  payment  by a  savings
association  to  repurchase,  redeem,  retire,  or otherwise  acquire any of its
shares or debt instruments that are included in total capital, and any extension
of credit to finance an  affiliate's  acquisition  of those shares or interests.
The amended regulation does not apply to dividends  consisting only of a savings
association's shares or rights to purchase such shares.

     The  regulation  permits  certain  savings  associations  to  make  capital
distributions under certain  circumstances  without first filing either a notice
or an application with the OTS. The regulation requires a savings association to
file an application for approval of a proposed capital distribution with the OTS
if  the  association  is  not  eligible  for  expedited  treatment  under  OTS's
application   processing   rules,   or  if  the  total  amount  of  all  capital
distributions,  including the proposed capital distribution,  for the applicable
calendar  year would  exceed an amount  equal to the savings  association's  net
income for that year to date plus the savings association's  retained net income
for the preceding two years (the  "retained net income  standard").  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,  2002 was  zero.  A savings
association  must also file an  application  for approval of a proposed  capital
distribution if, following the proposed distribution,  the association would not
be at least  adequately  capitalized  under  the OTS  prompt  corrective  action
regulations,  or if  the  proposed  distribution  would  violate  a  prohibition
contained  in any  applicable  statute,  regulation,  or  agreement  between the
association and the OTS or the FDIC.

     The OTS capital distribution regulation requires a savings association that
is not otherwise  required to file an application to file a notice of a proposed
capital  distribution if the association or the proposed capital distribution do
not meet the conditions  described above, and: (1) the savings  association will
not be at least well  capitalized  (as defined  under the OTS prompt  corrective
action  regulations)  following  the  capital  distribution;   (2)  the  capital
distribution  would  reduce the  amount  of, or retire  any part of the  savings
association's  common or preferred stock, or retire any part of debt instruments
such as notes or debentures included in the association's  capital under the OTS
capital regulation;  or (3) the savings association is a subsidiary of a savings
and loan holding company. Because the Bank is a subsidiary of a savings and loan
holding  company,  this latter provision  requires that, at a minimum,  the Bank
must  file a  notice  with  the  OTS  thirty  days  before  making  any  capital
distributions to the Holding Company.

     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.

Liquidity

     The Financial  Regulatory Relief and Economic Efficiency Act of 2000, which
was  signed  into law on  December  27,  2000,  repealed  the  former  statutory
requirement that all savings  associations  maintain an average daily balance of
liquid assets in a minimum  amount of not less than 4% or more than 10% of their
withdrawable  accounts plus  short-term  borrowings.  The OTS adopted an interim
final rule in March 2001 that  implemented this revised  statutory  requirement,
although savings associations remain subject to the OTS regulation that requires
them to maintain sufficient liquidity to ensure their safe and sound operation.

Safety and Soundness Standards

     In February 1995,  the federal  banking  agencies  adopted final safety and
soundness  standards for all insured  depository  institutions.  The  standards,
which were issued in the form of guidelines rather than  regulations,  relate to
internal   controls,   information   systems,   internal  audit  systems,   loan
underwriting  and  documentation,  compensation  and interest rate exposure.  In
general,  the standards are designed to assist the federal  banking  agencies in
identifying and addressing  problems at insured depository  institutions  before
capital becomes impaired.  If an institution fails to meet these standards,  the
appropriate  federal  banking  agency may  require the  institution  to submit a
compliance  plan.  Failure to submit a compliance plan may result in enforcement
proceedings.  In August 1996, the federal  banking  agencies added asset quality
and earning standards to the safety and soundness guidelines.

Real Estate Lending Standards

     OTS  regulations  require  savings  associations  to establish and maintain
written  internal  real estate  lending  policies.  Each  association's  lending
policies  must  be  consistent  with  safe  and  sound  banking   practices  and
appropriate  to the size of the  association  and the  nature  and  scope of its
operations.   The  policies  must  establish   loan  portfolio   diversification
standards;  establish prudent underwriting  standards,  including  loan-to-value
limits, that are clear and measurable;  establish loan administration procedures
for the  association's  real  estate  portfolio;  and  establish  documentation,
approval,   and  reporting   requirements   to  monitor   compliance   with  the
association's  real estate  lending  policies.  The  association's  written real
estate lending policies must be reviewed and approved by the association's board
of directors at least annually. Further, each association is expected to monitor
conditions  in its real  estate  market  to  ensure  that its  lending  policies
continue to be appropriate for current market conditions.

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,  2002,  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.

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 Section  7701(a)(19) of the Code or the asset
composition test of Section 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.

     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.

                                    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.

Item 2.    Description of Properties.

     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, 2002:

<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>              <C>
279 East Morgan Street             Owned           1987             $37,005           $999             11,300
Spencer, IN  47460
(including annex)

102 South Main Street              Owned           1998            $  4,451           $833               6,000
Cloverdale, IN  46120
</TABLE>



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

     As of June 30,  2002,  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, 2002.

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, 2002.

Item 4.5. Executive Officers.

     Presented below is certain information  regarding the executive officers of
the Holding Company:

      Name                     Position
      -------------------      ----------------------------------
      Kurt D. Rosenberger      President, Chief Executive Officer and Treasurer
      Gary M. Monnett          Executive Vice President, Chief Financial Officer
                                        and Secretary

     Kurt D. Rosenberger  (age 43) became President and Chief Executive  Officer
of the Holding Company and of the Bank on July 1, 2002.  Previously he served as
Vice President and Chief  Financial  Officer of the Holding  Company since 1996,
and as Vice  President  of the Bank since 1994.  Prior to joining  the Bank,  he
served as Senior  Financial  Analyst  for the  Office of Thrift  Supervision  in
Indianapolis, Indiana, from 1990 to 1994.

     Gary M. Monnett (age 42) became  Executive Vice President,  Chief Financial
Officer and Secretary of the Holding  Company and the Bank in July 2002,  having
served as a director of both institutions since 1998, and the Comptroller of the
Bank since 2000. Prior to establishing  employment with the Bank, he served as a
self-employed  certified public  accountant based in Cloverdale,  Indiana,  from
1989 to 2000.


                                     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, 1999           $4.000           $3.438              $0.015
December 31, 1999             3.563            3.063               0.015
March 31, 2000                3.375            2.531               0.015
June 30, 2000                 3.125            2.594               0.015

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

Holders

     As of August 20, 2002, there were  approximately 250 registered  holders of
the Holding Company's Common Stock. Management estimates at least 182 additional
stockholders held shares in broker accounts on August 20, 2002.

Stockholder Matters

     The book value of the Holding  Company's Common Stock was $4.71 at June 30,
2002.  On this same date,  the price of the Holding  Company's  Common Stock was
$3.890 per share,  representing a 82.6%  price-to-book value ratio. For the year
ended June 30, 2002,  quarterly  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 and retired 3,000 shares of its Common Stock at an
average  cost of $3.91 per share during  fiscal year 2002.  As of June 30, 2002,
the Company had  repurchased  a total of 667,654  shares,  or 33.0% of the total
number of Common Stock shares originally offered to the public.  Further, on May
25, 2000, the Company announced its third consecutive  repurchase  initiative to
repurchase up to 5% of the Corporation's  outstanding  shares on the date of the
announcement,  adjusted for the stock split.  Pursuant to this  initiative,  the
Company may initiate additional purchases, from time to time, on the open market
up to 83,000 shares.  At June 30, 2002,  there were  1,356,050  shares of Common
Stock outstanding.

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.

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, 2002.

<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, 2002
                        warrants and rights as of         options, warrants           (excluding securities
                              June 30, 2002                  and rights              reflected in column (a))
Plan category                      (a)                          (b)                           (c)
-------------           -------------------------         -----------------          ------------------------
Equity compensation
   plans approved by
<S>                           <C>     <C>                     <C>   <C>                     <C>    <C>
   security holders           115,800 (1)                     $4.24 (1)                     86,568 (1)
                                9,200 (2)                     $0.00 (2)                      9,628 (2)

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

Total                         125,000                         $4.24 (3)                      96,196
------------------
</TABLE>
(1) Home Financial Bancorp Stock Option Plan.
(2) Home Financial  Bancorp  Recognition  and Retention Plan and Trust ("RRP").
     Column (a) includes  9,200 shares granted to management but not yet vested.
     In addition,  62,120 shares  granted to management  have fully vested,  and
     shares have been issued to management in connection therewith.
(3)  The total in Column (b) includes only the  weighted-average  price of stock
     options,  as the  restricted  shares  awarded  under  the RRP plan  have no
     exercise price.


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
                                         ----------------------------------------------------------
                                          2002        2001          2000          1999         1998
                                          ----        ----          ----          ----         ----
                                                              (Dollars in thousands)
Summary of Financial Condition:
<S>                                     <C>         <C>           <C>           <C>          <C>
Total assets                            $66,746     $68,792       $59,451       $53,136      $42,560
Loans receivable, net                    52,707      54,244        45,341        38,238       33,959
Cash and cash equivalents                 3,601       3,214         1,716         2,475        3,802
Securities available for sale             4,626       6,147         7,712         8,288        1,918
Deposits                                 41,456      41,111        38,542        32,657       26,649
Federal Home Loan Bank advances
         and other borrowings            18,505      21,300        13,500        13,200        8,200
Stockholders' equity                      6,381       5,946         7,182         7,123        7,506
</TABLE>

<TABLE>
<CAPTION>

                                                              Year Ended  June 30
                                         -----------------------------------------------------------
                                          2002        2001          2000          1999         1998
                                          ----        ----          ----          ----         ----
                                                            (Dollars in thousands)

Summary of Operating Results:
<S>                                      <C>         <C>           <C>           <C>          <C>
Interest and dividend income             $5,662      $5,764        $4,773        $3,883       $3,690
Interest expense                          2,697       3,210         2,577         2,032        1,812
                                         ------      ------        ------        ------       ------
   Net interest income                    2,965       2,554         2,196         1,851        1,878
Provision for loan losses                   167          60            54            44          102
                                         ------      ------        ------        ------       ------
   Net interest income after provision
       for loan losses                    2,798       2,494         2,142         1,807        1,776
                                         ------      ------        ------        ------       ------
Other income:
   Service charges on deposit accounts      219         177           151            84           55
   Gain on sale of real estate acquired
        for development                      78          98            25             6            7
   Net realized gain (loss) on sales of
        available for sale securities       (46)        107           (18)            3          141
   Loss on low-income housing investment    (56)        (48)          (34)          ---          ---
   Other                                     39          32            30            32           64
                                         ------      ------        ------        ------       ------
      Total other income                    234         366           154           125          267
Other expenses:
   Salaries and employee benefits         1,216       1,116           924           819          723
   Net occupancy expense                    171         177           145           110           85
   Equipment expense                         97         109           139           115           58
   Deposit insurance expense                  7           8            13            17           16
   Computer processing expense              247         225           185           152          120
   Printing and office supplies              50          56            43            65           41
   Advertising                               46          56            46            60           47
   Legal and professional fees              189         185           137           105          123
   Directors and committee fees              61          58            57            56           43
   Other                                    300         271           204           190          188
                                         ------      ------        ------        ------       ------
      Total other expenses                2,384       2,261         1,893         1,689        1,444
                                         ------      ------        ------        ------       ------
Income before income tax                    648         599           403           243          599
Income tax expense                          148         137            54            99          206
                                         ------      ------        ------        ------       ------
   Net income                            $  500      $  462        $  349        $  144       $  393
                                         ======      ======        ======        ======       ======

</TABLE>

<TABLE>
<CAPTION>


                                                              Year Ended June 30
                                         ----------------------------------------------------------
                                          2002        2001          2000          1999         1998
                                          ----        ----          ----          ----         ----
                                                              (Dollars in thousands)
Supplemental Data (1):
<S>                                      <C>        <C>            <C>          <C>          <C>
Basic earnings per share                 $  .39     $   .31        $  .22       $   .09      $   .24
Diluted earnings per share                  .39         .31           .22           .09          .24
Book value per common share
   at end of year                          4.71        4.38          4.19          4.02         4.04
Dividends per share                         .12         .09           .06           .06          .05
Dividend payout ratio                     30.77%      29.03%        27.27%        66.67%       21.28%
Return on assets (2)                       0.74        0.71          0.61          0.30          .93
Return on equity (3)                       8.12        6.69          4.92          1.99         5.34
Interest rate spread (4)                   4.43        3.72          3.62          3.61         3.87
Net yield on interest-earning assets (5)   4.67        4.10          4.06          4.17         4.65
Other expenses to average assets           3.50        3.48          3.30          3.52         3.42
Net interest income to other expenses      1.24x       1.13x         1.16x         1.10x        1.30x
Equity-to-assets (6)                       9.56        8.64%        12.08%        13.41%       17.66%
Average equity to average total assets     9.05       10.63         12.37         15.08        17.42
Average interest-earning assets to average
   interest-bearing liabilities            1.06x       1.07x         1.09x         1.13x        1.17x
Non-performing assets to total assets      1.60%       1.60%          .72%          .16%        1.17%
Non-performing loans to total loans        1.20        1.95           .86           .20          .81
Loan loss allowance to total loans, net     0.65        .72           .81           .88          .94
Loan loss allowance to non-performing
   loans                                  53.83       36.77         94.18        425.32       114.70
Net charge-offs to average loans           0.40         .08           .04           .08          .04
</TABLE>
---------------------------
(1)  All per share  amounts have been  restated to reflect a 2-for-1 stock split
     effective  January 6, 1998, and 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 of Financial Condition and Results
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 unitary  Bank  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.

<TABLE>
<CAPTION>

                                                                    Average Balance Sheet/Yield Analysis

                                                                              Year Ended June 30,
                                      ----------------------------------------------------------------------------------------------
                                               2002                                 2001                              2000
                                      -----------------------------      ----------------------------    ---------------------------
                                      Average                Yield/      Average               Yield/    Average              Yield/
                                      Balance    Interest     Cost       Balance    Interest    Cost     Balance    Interest   Cost
                                      -------    --------    ------      -------    --------   ------    -------    --------  ------
                                                                        (Dollars in thousands)
Assets:
Interest-earning assets:
<S>                                   <C>         <C>          <C>       <C>        <C>         <C>      <C>         <C>       <C>
   Interest-earning deposits          $ 3,528     $   77      2.17%      $ 2,206    $  109      4.94%    $ 2,580     $  157    6.09%
   Investment securities (1)            5,360        272      5.07         7,353       447      6.08       8,435        530    6.28
   Loans receivable (2)                53,487      5,241      9.80        51,772     5,132      9.91      42,243      4,023    9.52
   Stock in FHLB of Indianapolis        1,100         72      6.57           949        76      8.01         787         63    8.01
                                      -------     ------                 -------    ------               -------     ------
     Total interest-earning assets     63,475     $5,662      8.92        62,280    $5,764      9.25      54,045     $4,773    8.83
                                                  ------                            ------                           ------
Non-interest earning assets, net of
   allowance for loan losses and
   including unrealized gain
   (loss) on securities
   available for sale                   4,543                              2,710                           3,289
                                      -------                            -------                         -------
     Total assets                     $68,018                            $64,990                         $57,334
                                      =======                            =======                         =======
Liabilities and stockholders'
   equity:
Interest-bearing liabilities:
   Savings accounts                   $ 4,322         83      1.93%      $ 3,893       103      2.65%    $ 3,837        101    2.63%
   NOW and money market accounts        4,977         87      1.75         3,818        99      2.59       3,596         85    2.36
   Certificates of deposit             31,562      1,520      4.82        30,959     1,848      5.97      27,502      1,533    5.57
   FHLB advances and other
      borrowings                       19,251      1,007      5.23        19,351     1,160      5.99      14,565        858    5.89
                                      -------     ------                 -------    ------               -------     ------
     Total interest-bearing
        liabilities                    60,112      2,697      4.49        58,021     3,210      5.53      49,500      2,577    5.21
                                                  ------                            ------                           ------

Other liabilities                       1,749                                 61                             743
                                      -------                            -------                         -------
     Total liabilities                 61,861                             58,082                          50,243
                                      -------                            -------                         -------
Stockholders' equity                    6,306                              7,080                           7,423
Net unrealized gain/(loss) on
   securities available for sale         (149)                              (172)                           (332)
                                      -------                            -------                         -------
     Total stockholders' equity         6,157                              6,908                           7,091
                                      -------                            -------                         -------
     Total liabilities and
        stockholders' equity          $68,018                            $64,990                         $57,334
                                      =======                            =======                         =======
Net interest-earning assets           $ 3,363                            $ 4,259                         $ 4,545
                                      =======                            =======                         =======
Net interest income                              $ 2,965                            $2,554                           $2,196
                                                 =======                            ======                           ======
Interest rate spread                                           4.43                             3.72                           3.62
Net yield on weighted average
   interest-earning assets                                     4.67                             4.10                           4.06
Average interest-earning
   assets to average
   interest-bearing liabilities            105.59%                        107.34%                         109.18%
---------------------------
(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>
<TABLE>
<CAPTION>

                                                 Interest Rate Spread Analysis

                                                                        Year Ended June 30,
                                             At June 30,        ------------------------------------
                                                2002            2002            2001            2000
                                             -----------        ----            ----            ----

Weighted average interest rate earned on:
<S>                                             <C>             <C>             <C>             <C>
  Interest-earning deposits                     1.73%           2.17%           4.94%           6.09%
  Investment securities                         6.25            5.07            6.08            6.28
  Loans receivable                              9.41            9.80            9.91            9.52
  Stock in FHLB of Indianapolis                 6.25            6.57            8.01            8.01
    Total interest-earning assets               8.71            8.92            9.25            8.83

Weighted average interest rate cost of:
  Savings accounts                              1.50            1.93            2.65            2.63
  NOW and money market accounts                 1.13            1.75            2.59            2.36
  Certificates of deposit                       3.96            4.82            5.97            5.57
  FHLB advances and other borrowings            5.07            5.23            5.99            5.92
     Total interest-bearing liabilities         3.95            4.49            5.53            5.21

Interest rate spread (1)                        4.76            4.43            3.72            3.62
Net yield on weighted average
  interest-earning assets (2)                                   4.67            4.10            4.06
--------------------------------
</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,
     2002, because the computation of net yield is applicable only over a period
     rather than at a specific date.

     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.

<TABLE>
<CAPTION>

                              Rate/Volume Analysis

                                             Increase (Decrease) in Net Interest Income
                                             ------------------------------------------
                                             Due to           Due to            Total Net
                                             Volume            Rate              Change
                                             ------           ------            ---------
                                                      (Dollars in thousands)
Year ended June 30, 2002 compared to
  Year ended June 30, 2001
---------------------------------------------------------------------------------------
Interest-earning assets:
<S>                                           <C>              <C>               <C>
   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
                                              =====            =====             =====

Year ended June 30, 2000 compared to
  Year ended June 30, 1999
----------------------------------------------------------------------------------------
Interest-earning assets:
   Interest-earning deposits...............   $ (36)           $  36             $ ---
   Investment securities...................     147               48               195
   Loans receivable........................     734              (57)              677
   Stock in FHLB of Indianapolis...........      18              ---                18
                                              -----            -----             -----
     Total.................................     863               27               890
                                              -----            -----             -----
Interest-bearing liabilities:
   Savings accounts........................       7               (3)                4
   NOW and money market accounts...........     (21)             (17)              (38)
   Certificates of deposit.................     343              (25)              318
   FHLB advances and other borrowings......     255                6               261
                                              -----            -----             -----
     Total.................................     584              (39)              545
                                              -----            -----             -----
Change in net interest income..............   $ 279            $  66             $ 345
                                              =====            =====             =====
</TABLE>



Critical Accounting Policies

     Below and in the notes to the consolidated  financial  statements presented
on pages F-7 through F-8 of the Annual Report to Shareholders for the year ended
June 30, 2002, 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  asset 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,
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.

Changes in Financial  Position  and Results of  Operations - Year Ended June 30,
2001, Compared to Year Ended June 30, 2000:

     General. The Holding Company earned record net income totaling $462,000 for
the year ended June 30, 2001, representing a $113,000 or 32.4% increase compared
to $349,000  for the year ended June 30,  2000.  The  increase in net income was
primarily  a product of  increases  in loan  interest  income  and  non-interest
income.

     Each entity of the Holding Company contributed  significantly to the record
year.  Non-interest  income  was  higher  partially  due to gains on the sale of
equity  investments  held by the  Holding  Company.  Interest  income  increased
because of the Bank's loan growth and a higher  average yield on loans.  And the
Bank's subsidiary,  BSF Inc., generated additional  non-interest income from the
sale of developed real estate.

     The  return on average  assets  for the year ended June 30,  2001 was .71%,
compared to .61% the prior year.  The return on average equity was 6.69% for the
year ended June 30,  2001,  compared to 4.92% for the year ended June 30,  2000.
Earnings  per share were $.31 for the year ended June 30,  2001 and $.22 for the
year ended June 30, 2000.

     Assets. Total assets increased $9,341,000,  or 15.7% to $68,792,000 at June
30, 2001,  compared to $59,451,000 at June 30, 2000.  Cash and cash  equivalents
increased  $1,498,000  or 87.3%,  to  $3,214,000  at June 30, 2001,  compared to
$1,716,000 a year earlier.  Investment  securities  available for sale decreased
$1,565,000 or 20.3% to  $6,147,000  at June 30, 2001,  compared to $7,712,000 at
June 30, 2000. Total loans increased $8,924,000 or 19.5% during fiscal 2001. The
largest portion of this increase came from  residential  mortgage  loans,  which
grew by  $3,588,000  or 15.3%,  to  $27,082,000  at June 30,  2001,  compared to
$23,494,000  at June 30, 2000.  Posting an increase of  $1,850,000,  mobile home
loans more than doubled to $3,172,000  at June 30, 2001,  compared to $1,322,000
at  June  30,  2000.  In  addition,   nonresidential  mortgage  loans  increased
$1,832,000 or 15.4%, to $13,758,000 at June 30, 2001, compared to $11,926,000 at
June 30,  2000.  At June 30,  2001 total  loans  were  $54,636,000  compared  to
$45,712,000 at prior year-end June 30, 2000.

     The year-end level of stock in the FHLB of Indianapolis stood at $1,100,000
and  $835,000  for 2001 and  2000,  respectively.  Net  premises  and  equipment
decreased $61,000 or 3.2%, to $1,860,000 at June 30, 2001 compared to $1,920,000
at June 30, 2000. Foreclosed real estate and repossessed assets increased $2,000
to $37,000  compared  to $35,000 at June 30,  2000.  The total at June 30,  2001
consists of one lot and a mobile home.

     Average assets  increased  $7,656,000 or 13.4%, to $64,990,000 for the year
ended June 30, 2001,  compared to $57,334,000 for the prior  year-ended June 30,
2000.  Average   interest-earning  assets  increased  $8,235,000  or  15.2%,  to
$62,280,000  for the year ended June 30, 2001 and  represented  95.8% of average
assets.  The bulk of this  increase  was due to average  loans  which  increased
$9,529,000 or 22.6%, to $51,772,000  for the year ended June 30, 2001,  compared
to $42,243,000 for the year ended June 30, 2000.  Average Federal Home Loan Bank
stock also increased  $162,000 or 20.6%, to $949,000 for the year ended June 30,
2001.  The overall  increase in average  interest-earning  assets was  partially
offset by decreases in investment securities and interest-earning  deposits. The
average  balance of investment  securities  decreased by $1,082,000 or 12.8%, to
$7,353,000,  and average interest-earning deposit balances decreased by $374,000
or 14.5%, to $2,206,000 for the year ended June 30, 2001.

     Liabilities  and  Stockholders'  Equity.  Deposits from the Cloverdale Bank
branch  increased  by 14.5% during the year and totaled  $6,898,000  at June 30,
2001. For the entire Bank, deposits increased $2,569,000 or 6.7%. Total deposits
were  $41,111,000 at June 30, 2001 and  $38,542,000 at June 30, 2000. The change
was reflected in several deposit  categories.  Certificates of deposit increased
$964,000 or 3.1% to  $32,051,000  at June 30, 2001,  compared to  $31,087,000 at
June 30, 2000.  Transaction  accounts increased $653,000 or 17.9%, to $4,298,000
at June 30, 2001 compared to $3,645,000 at June 30, 2000. Passbook and statement
savings  deposits  increased  $304,000  or 8.6% to  $3,827,000  at June 30, 2001
compared to  $3,523,000  at June 30, 2000.  In addition,  money market  deposits
increased $648,000 to $935,000 at June 30, 2001.

     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
increased $6,800,000 or 51.5% to $20,000,000 at June 30, 2001. Other borrowings,
primarily  for the  purpose  of  funding  purchases  of  real  estate  held  for
development,  also increased  during the year. Total borrowings were $21,300,000
at June 30, 2001, compared to $13,500,000 at June 30, 2000.

     Average liabilities  increased  $7,839,000 or 15.6%, to $58,082,000 for the
year ended June 30, 2001,  compared to $50,243,000  for the year-ended  June 30,
2000. Average  interest-bearing  liabilities  increased  $8,521,000 or 17.2%, to
$58,021,000  for the year ended June 30, 2001. The increase was primarily due to
increases  in  average  certificates  of  deposit  and  FHLB  advances.  Average
certificates  of deposit  increased by $3,457,000 or 12.6% to $30,959,00 for the
year ended June 30, 2001,  compared to  $27,502,000  for the year ended June 30,
2000.  Average FHLB advances increased by $5,026,000 or 35.1% to $19,351,000 for
the year ended June 30, 2001,  compared to $14,325,000  for the prior year ended
June 30, 2000.

     On March 7, 2001, the Company  acquired 338,650 or 19.9% of its outstanding
shares of common stock for  $1,863,000 in an  unsolicited  privately  negotiated
transaction.  During fiscal year 2001, the Company repurchased 355,750 shares or
20.8% of its outstanding common stock for $1,912,000. These transactions reduced
total shareholders'  equity and total shares outstanding.  Stockholders'  equity
decreased  $1,236,000  or 17.2%,  to  $5,946,000  at June 30, 2001,  compared to
$7,182,000 at June 30, 2000.

     Other factors  impacting  total  stockholders'  equity during the year were
cash dividends, net income, and a net increase in the market value of investment
securities.  Reduction in  stockholders'  equity for cash dividends  declared in
fiscal year 2001 totaled $122,000,  compared to $95,000 in fiscal year 2000. The
overall decrease in  stockholders'  equity was partially offset by net income of
$462,000  during the year, and a $219,000  decrease in net unrealized  losses on
securities  available for sale. The  amortization  of employee  stock  ownership
plans also partially offset the overall decrease in stockholders' equity.

     Despite  the  decrease in total  stockholders'  equity,  the  corresponding
reduction in shares  outstanding led to an increase in book value per share. The
Company's book value per share  increased $.19 or 4.5% to $4.38 at June 30, 2001
based on 1,359,050 shares outstanding.  A year earlier, book value per share was
$4.19 with 1,714,800 shares outstanding.

     Net Interest Income.  Net interest income  increased  $358,000 or 16.3%, to
$2,554,000 for the year ended June 30, 2001, compared to $2,196,000 for the year
ended June 30, 2000. Impacting net interest income were interest rate changes on
rate-sensitive  assets and  liabilities  during the  current  period and average
balance increases or decreases  applicable to the rate-sensitive  portion of the
balance sheet.  As a result of these factors,  total interest  income  increased
$991,000 or 20.8%  while total  interest  expense  increased  $633,000 or 24.5%,
compared to the same period a year earlier.

     Interest  income on loans  totaled  $5,132,000  for the year ended June 30,
2001,  compared to  $4,024,000  for the year ended June 30, 2000; an increase of
$1,108,000 or 27.5%.  The increase can be attributed to a larger average balance
of loans  receivable  outstanding  for the current year,  and an increase in the
average yield earned, compared to the same period one year ago.

     Interest and dividend income from investments and interest-earning deposits
decreased  $131,000  or 19.1% to  $556,000  for the year  ended  June 30,  2001,
compared to  $687,000  for the year ended June 30,  2000.  The  decrease  can be
traced to lower average balances of investment  securities and  interest-earning
deposits held during 2001 and a decrease in the average  yield earned,  compared
to 2000. At June 30, 2001,  investment securities included a balance of $701,000
in equity  securities,  some of which earn dividends.  Equity securities totaled
$719,000 at June 30, 2000. Dividend income on FHLB stock totaled $76,000 for the
year ended June 30, 2000,  compared to $63,000 for the year ended June 30, 2000;
an increase of $13,000 or 20.6%.  The  increase  can be  attributed  to a larger
average  balance  outstanding  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, 2001  increased  to 9.25%,  compared to
8.83% for the prior year ended June 30, 2000.

     Interest expense on deposits increased $330,000 or 19.2%, to $2,050,000 for
the year ended June 30, 2001, compared to $1,720,000 for the year ended June 30,
2000.  The change was the result of an increase in the average  deposit  balance
outstanding  for the current year and an increase in the  weighted  average rate
paid on certificates of deposit compared to the same period a year earlier.  The
average  cost of deposits  increased  to 5.30% for the year ended June 30, 2001,
compared  to 5.00% for the year  ended  2000.  Interest  expense  on  borrowings
increased by $302,000 or 35.2%,  to $1,160,000 for the year ended June 30, 2001,
compared to $858,000  for the year ended June 30,  2000.  The  increase  was the
result of a larger  average  balance  outstanding  for the current year,  and an
increase in the average cost of other borrowings.  The combined weighted average
rate paid on deposits and borrowings was 5.53% for the year ended June 30, 2001,
compared to 5.21% for the prior year.

     The Company's  interest rate spread  increased 10 basis points to 3.72% for
the year  ended  June 30,  2001,  compared  to 3.62% for the year ended June 30,
2000.  The net  interest  margin  increased to 4.10% for the year ended June 30,
2001,  compared  to 4.06% for the year  ended June 30,  2000.  The  increase  in
interest  rate spread was the result of an  increase  in the average  balance of
loans  receivable  for the current year compared to the same period in 2000, and
an increase in the yield earned on loans.  The increase in interest  rate margin
was due to a larger  relative  increase in net interest  income  compared to the
increase in average balances of interest-earning assets for the year.

     Provisions  for Loan  Losses.  For the year ended June 30,  2001,  the Bank
provided $60,000 for loan losses.  During the prior year,  provisions of $54,000
were made. The allowance for loan losses  totaled  $392,000 or .72% of net loans
at June 30, 2001, compared to $372,000 or .81% of net loans at June 30, 2000; an
increase of $20,000 or 5.4%.  Management considers the Bank's allowance for loan
losses to be  adequate  based on general  economic  conditions,  historical  net
charge-offs and other factors such as the size, condition and characteristics of
the loan portfolio. In assessing loan loss allowance adequacy,  consideration is
also given to the volume and composition of loan portfolio growth.

     Non-interest Income. Non-interest income increased by $212,000 or 137.7% to
$366,000  for the year ended June 30,  2001,  compared to $154,000 for the prior
year  ended  June 30,  2000.  Much of this  increase  came  from gain on sale of
investment  securities available for sale, which totaled $107,000 for the twelve
months ended June 30, 2001.  Investment securities sold during the period a year
earlier  resulted  in a loss of  $18,000.  Gain on sale of real  estate held for
investment  increased to $98,000 for the year ended June 30,  2001,  compared to
$25,000  for the year ended  June 30,  2000.  In  addition,  service  charges on
deposit accounts  increased $26,000 or 17.2% to $177,000 for the year ended June
30, 2001,  compared to $151,000  for the year ended June 30,  2000.  The overall
increase in non-interest  income was partially offset by net operating losses of
$48,000  recognized during the year ended June 30, 2001 on the Bank's investment
in Cunot Apartments,  L.P.,  compared to recognized losses of $34,000 during the
year ended June 30, 2000.

     Non-interest Expense.  Non-interest expense increased by $368,000 or 19.4%,
to $2,261,000  for the year ended June 30, 2001,  compared to $1,893,000 for the
year ended June 30, 2000.  This  increase is the result of expense  increases in
several  operating  categories and is attributed to the Bank's continued overall
growth. Salaries and employee benefits increased $192,000 or 20.8% due to higher
group insurance  premiums,  wage  increases,  and new employees hired during the
year. Legal and professional fees increased $48,000 or 35.0% to $185,000 for the
year ended June 30, 2001, compared to $137,000 for the year ended June 30, 2000.
Computer  processing  fees  increased  $40,000 or 21.6% to $225,000 for the year
ended June 30, 2001,  compared to $185,000 for the year ended June 30, 2000. The
overall  increase in non-interest  expense was partially  offset by a $30,000 or
21.6%  decrease in  equipment  expense to  $109,000  for the year ended June 30,
2001, compared to $139,000 for the prior year ended June 30, 2000.

     Income Tax Expense.  Income tax expense  increased  $83,000 to $137,000 for
the year ended June 30,  2001,  compared  to $54,000 for the year ended June 30,
2000.  The increase was due to an increase in income before taxes of $196,000 or
48.6% to $599,000 for the year ended June 30, 2001, compared to $403,000 for the
prior  year  ended  June 30,  2000.  Income  tax  credits  related to the Bank's
investment in low-income  housing  reduced  income tax expense by  approximately
$107,000 in both fiscal year 2001 and fiscal year 2000.  The effective  combined
federal and state income tax rate was 22.8% for the year ended June 30, 2001 and
13.4% for the year ended June 30, 2000.

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.

Current Accounting Issues

     In August 2001,  the  Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards (SFAS) No. 144, Accounting for the
Impairment  or  Disposal of  Long-Lived  Assets.  SFAS No. 144 carries  over the
recognition and measurement  provisions in SFAS No. 121. Accordingly,  an entity
should  recognize an impairment loss if the carrying value of a long-lived asset
or asset group (a) is not recoverable and (b) exceeds its fair value. Similar to
SFAS No.  121,  SFAS No. 144  requires an entity to test an asset or asset group
for impairment  whenever  events or changes in  circumstances  indicate that its
carrying amount may not be  recoverable.  SFAS No. 144 differs from SFAS No. 121
in  that  it  provides   guidance  on  estimating  future  cash  flows  to  test
recoverability.  An entity may use  either a  probability-weighted  approach  or
best-estimate   approach  in   developing   estimates   of  cash  flow  to  test
recoverability.  SFAS No. 144 is effective for financial  statements  issued for
fiscal years  beginning after December 15, 2001 and interim periods within those
fiscal years.  Management  adopted SFAS No. 144 effective April 1, 2002, without
material effect on our financial condition or results of operations.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal  Activities.  SFAS No. 146 nullifies  Emerging Issues Task
Force  (EITF)  Issue  No.  94-3  Liability   Recognition  for  Certain  Employee
Termination  Benefits  and  Other to Exit an  Activity.  SFAS No.  146  improves
financial  reporting by requiring that a liability for a cost associated with an
exit or disposal  activity be  recognized  and measured  initially at fair value
only when the  liability  is incurred.  The  accounting  for similar  events and
circumstances  will  be  the  same,  thereby  improving  the  comparability  and
representational  faithfulness of reported financial  information.  SFAS No. 146
specifies  that a  liability  for a cost  associated  with an  exit or  disposal
activity is incurred when the definition of a liability in Concepts  Statement 6
is met. SFAS No. 146 differs from EITF Issue No. 94-3 in that a liability for an
exit cost as defined in Issue No. 94-3 was recognized at the date of an entity's
commitment  to an exit plan.  SFAS No.  146 is  effective  for exit or  disposal
activities that are initiated  after December 31, 2002,  with early  application
encouraged.

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.

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

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

     It is estimated that at June 30, 2002, MV would decrease 22.7% in the event
of a 200 basis point increase in market  interest  rates,  compared to 22.7% for
the same increase at June 30, 2001,  and 51.5% in the event of a 400 basis point
increase,  compared to 56.0% for the same increase at June 30, 2001.  The Bank's
MV at June 30,  2002,  would  increase  12.7% in the event of a 200 basis  point
decrease in market  rates,  compared to a 10.7%  decrease at June 30, 2001.  The
Bank's MV at June 30,  2002,  would  increase  23.5% in the event of a 400 basis
point  decrease in market rates.  A year earlier,  a 400 basis point decrease in
market rates would have decreased MV 14.3%.

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

     Presented below, as of June 30, 2002 and 2001, is an analysis of the Bank's
interest rate risk as measured by changes in MV for  instantaneous and sustained
parallel shifts of 200 and 400 basis point increments in market interest rates.

                                 June 30, 2002
                        Market Value Summary Performance
                                                          MV as % of
                                                      Present Value (PV)
                        Market Value                    of Assets
  Change     ------------------------------      ------------------------
  In Rates   $ Amount   $ Change   % Change      MV Ratio         Change
  --------   --------   --------   --------      --------         ------
                   (Dollars in thousands)

  +400 bp*   $3,406     $(3,613)    (51.47)%       5.61%         (481) bp
  +200 bp     5,427      (1,592)    (22.68)        8.45          (197) bp
     0 bp     7,020           0       0.00        10.42           ---
  -200 bp     7,913         893      12.73        11.32            90  bp
  -400 bp     8,672       1,652      23.53        12.04           162  bp

             Interest Rate Risk Measures:   200 Basis Point Rate Shock

         Pre-Shock MV Ratio: MV as % of PV of Assets          10.42%
         Exposure Measure: Post-Shock MV Ratio                 8.45%
         Sensitivity Measure: Change in MV Ratio              197 bp



                                 June 30, 2001
                        Market Value Summary Performance
                                                          MV as % of
                                                      Present Value (PV)
                        Market Value                    of Assets
  Change     ------------------------------      ------------------------
  In Rates   $ Amount   $ Change   % Change      MV Ratio         Change
  --------   --------   --------   --------      --------         ------
                   (Dollars in thousands)

  +400 bp*   $2,608     $(3,314)    (55.96)%       4.18%         (447) bp
  +200 bp     4,581      (1,342)    (22.65)        6.97          (168) bp
     0 bp     5,922           0       0.00         8.65           ---  bp
  -200 bp     5,291        (631)    (10.66)        7.63          (102) bp
  -400 bp     5,075        (847)    (14.30)        7.20          (145) bp


               Interest Rate Risk Measures:   200 Basis Point Rate Shock

         Pre-Shock MV Ratio: MV as % of PV of Assets          8.65%
         Exposure Measure: Post-Shock MV Ratio                6.97%
         Sensitivity Measure: Change in MV Ratio             168 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.


                                    PART III

Item 9. Directors and Executive Officers.

     The  information  required  by this  item  with  respect  to  directors  is
incorporated  by reference to pages 3 through 5 of the Holding  Company's  Proxy
Statement for its 2002 Shareholder  Annual Meeting (the "2002 Proxy Statement").
Information  concerning the Holding Company's  executive officers is included in
Item  4.5 in Part I of  this  report.  Information  concerning  compliance  with
Section 16(a) of the Exchange Act is  incorporated by reference to page 9 of the
2002 Proxy Statement.

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 2002 Proxy
Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The information required by this item is incorporated by reference to pages
2 through 4 of the 2002 Proxy Statement.

Item 12. Certain Relationships and Related Transactions.

     The information  required by this item is incorporated by reference to page
7 of the 2002 Proxy Statement.


                                     PART IV


Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)  Financial Statements:

     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-2

          Consolidated Balance Sheets at June 30, 2002, and 2001          F-3

          Consolidated Statement of Income for the Years Ended
              June 30, 2002, 2001 and 2000                                F-4

          Consolidated Statement of Stockholders' Equity
              for the Years Ended June 30, 2002, 2001 and 2000            F-5

          Consolidated Statement of Cash Flows for the Years Ended
              June 30, 2002, 2001 and 2000                                F-6

          Notes to Consolidated Financial Statements                      F-7

     (b)  Reports on Form 8-K.

          The  Holding  Company  filed no reports on Form 8-K during the quarter
          ended June 30, 2002.

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

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



<PAGE>

                                   SIGNATURES


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

                                          HOME FINANCIAL BANCORP



Date:  September 9, 2002               By:   /s/ Kurt D. Rosenberger
                                             -----------------------------------
                                             Kurt D. Rosenberger, President and
                                                Chief Executive Officer


     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the small  business  issuer and in the  capacities  indicated on this 9th day of
September, 2002.



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



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



/s/ John T. Gillaspy
--------------------------------------
John T. Gillaspy, Director



/s/ Stephen Parrish
--------------------------------------
Stephen Parrish, Director


/s/ Robert W. Raper
--------------------------------------
Robert W. Raper, Vice Chairman


/s/ Frank R. Stewart
--------------------------------------
Frank R. Stewart, Chairman


/s/ Tad Wilson
--------------------------------------
Tad Wilson, Director



<PAGE>

                                 CERTIFICATION

I, Kurt D. Rosenberger, certify that:

     1. I have  reviewed  this annual  report on Form  10-KSB of Home  Financial
Bancorp;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date:  September 9, 2002            /s/ Kurt D. Rosenberger
       ------------------------     --------------------------------------------
                                    Kurt D. Rosenberger, Chief Executive Officer


                                 CERTIFICATION

I, Gary M. Monnett, certify that:

     1. I have  reviewed  this annual  report on Form  10-KSB of Home  Financial
Bancorp;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Dated: September 9, 2002            /s/ Gary M. Monnett
       -----------------------      --------------------------------------------
                                    Gary M. Monnett, Chief Financial Officer


                                  CERTIFICATION

     By  signing  below,  each  of the  undersigned  officers  hereby  certifies
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002,  that,  to his  knowledge,  (i) this  report  fully
complies  with the  requirements  of  Section  13(a) or 15(d) of the  Securities
Exchange Act of 1934 and (ii) the  information  contained in this report  fairly
presents,  in all material  respects,  the  financial  condition  and results of
operations of Home Financial Bancorp.

     Signed this 9th day of September, 2002.


/s/ Gary M. Monnett                       /s/ Kurt D. Rosenberger
---------------------------------         --------------------------------------
(Signature of Authorized Officer)           Signature of Authorized Officer)


Gary M. Monnett                           Kurt D. Rosenberger
---------------------------------         --------------------------------------
(Typed Name)                              (Typed Name)


Executive Vice President
    and Chief Financial Officer           President and Chief Executive Officer
---------------------------------         --------------------------------------
(Title)                                   (Title)


<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 J.
          Meier  is   incorporated   by  reference  to  Exhibit   10(5)  to  the
          Registration Statement on Form S-1 (Registration No. 333-1746).

10(4)     Employment  Agreement  between Owen Community  Bank,  s.b. and Kurt D.
          Rosenberger  is  incorporated  by  reference  to Exhibit  10(6) to the
          Registration Statement on Form S-1 (Registration No. 333-1746).

10(5)     Employment  Contract  between Owen Community  Bank,  s.b. and Frank R.
          Stewart  is   incorporated  by  reference  to  Exhibit  10(7)  to  the
          Registration Statement on Form S-1 (Registration No. 333-1746).

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


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



*    Management  contracts  and  plans  required  to be  filed as  exhibits  are
     included as Exhibits 10(1) - 10(6).

<PAGE>

                             Home Financial Bancorp
                          June 30, 2002, 2001 and 2000

                                    Contents

Independent Accountants' Report                                              F-2
Financial Statements
     Consolidated Balance Sheets                                             F-3
     Consolidated Statements of Income                                       F-4
     Consolidated Statements of Stockholders' Equity                         F-5
     Consolidated Statements of Cash Flows                                   F-6
     Notes to Consolidated Financial Statements                              F-7

<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, 2002 and 2001, and the related consolidated statements of
income,  stockholders'  equity and cash flows for each of the three years in the
period ended June 30, 2002.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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 described above present
fairly, in all material  respects,  the consolidated  financial position of Home
Financial  Bancorp  as of  June  30,  2002  and  2001,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 2002, in conformity with accounting  principles  generally  accepted in
the United States of America.


BKD, LLP

Indianapolis, Indiana
August 8, 2002

<PAGE>


                             Home Financial Bancorp
                          Consolidated Balance Sheets
                             June 30, 2002 and 2001

                                                   2002             2001
--------------------------------------------------------------------------------
Assets
  Cash                                         $   344,170      $   503,109
  Short-term interest-bearing deposits           3,256,798        2,711,297
                                               ----------------------------
        Total cash and cash equivalents          3,600,968        3,214,406
  Investment securities - available for sale     4,626,293        6,147,494
  Loans, net of allowance for loan losses of
     $344,110 and $392,268                      52,706,921       54,244,477
  Real estate acquired for development             608,416          757,766
  Premises and equipment                         1,832,315        1,859,558
  Federal Home Loan Bank of Indianapolis stock   1,100,000        1,100,000
  Interest receivable                              423,738          377,634
  Other assets                                   1,847,725        1,090,261
                                               ----------------------------
        Total assets                           $66,746,376      $68,791,596
                                               ============================

Liabilities
  Deposits
     Noninterest-bearing                       $ 1,456,601      $   966,636
     Interest-bearing deposits                  39,999,730       40,143,923
                                               ----------------------------
        Total deposits                          41,456,331       41,110,559
  Borrowings                                    18,504,900       21,300,038
  Other liabilities                                403,833          434,761
                                               ----------------------------
        Total liabilities                       60,365,064       62,845,358
                                               ----------------------------

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 and 1,359,050 shares           3,059,159        3,066,659
  Additional paid-in capital                       158,060          127,623
  Retained earnings                              3,498,891        3,146,094
  Unearned compensation                            (59,665)         (90,711)
  Unearned ESOP shares                            (132,795)        (172,151)
  Accumulated other comprehensive loss            (142,338)        (131,276)
                                               ----------------------------

        Total stockholders' equity               6,381,312        5,946,238
                                               ----------------------------

        Total liabilities and
           stockholders' equity                $66,746,376      $68,791,596
                                               ============================

See Notes to Consolidated Financial Statements

<PAGE>

<TABLE>
<CAPTION>
                             Home Financial Bancorp
                       Consolidated Statements of Income
                    Years Ended June 30, 2002, 2001 and 2000

                                                    2002             2001             2000
---------------------------------------------------------------------------------------------
Interest Income
<S>                                             <C>              <C>               <C>
  Loans                                         $5,241,512       $5,131,709        $4,023,634
  Deposits with financial institutions              76,525          109,122           157,035
  Investment securities                            272,030          447,129           529,895
  Federal Home Loan Bank stock                      72,231           76,150            62,816
                                                ---------------------------------------------
     Total interest and dividend income          5,662,298        5,764,110         4,773,380
                                                ---------------------------------------------

Interest Expense
  Deposits                                       1,690,468        2,050,056         1,719,769
  Federal Home Loan Bank advances                  988,754        1,014,160           837,573
  Other interest expense                            17,749          145,831            20,514
                                                ---------------------------------------------
     Total interest expense                      2,696,971        3,210,047         2,577,856
                                                ---------------------------------------------

Net Interest Income                              2,965,327        2,554,063         2,195,524
  Provision for loan losses                        167,000           60,000            54,000
                                                ---------------------------------------------

Net Interest Income After
   Provision for Loan Losses                     2,798,327        2,494,063         2,141,524
                                                ---------------------------------------------

Other Income
  Service charges on deposit accounts              219,281          177,345           150,875
  Gain on sale of real estate
     acquired for development                       77,640           98,040            24,908
  Net realized gain (loss) on
     available-for-sale securities                 (46,268)         107,310           (17,700)
  Equity in losses of limited partnership          (56,000)         (48,000)          (33,613)
  Other income                                      39,445           31,178            30,280
                                                ---------------------------------------------
     Total other income                            234,098          365,873           154,750
                                                ---------------------------------------------

Other Expenses
  Salaries and employee benefits                 1,215,728        1,116,354           923,628
  Net occupancy expenses                           171,022          177,455           145,003
  Equipment expenses                                96,854          109,304           139,202
  Computer processing fees                         247,002          224,573           185,279
  Printing and office supplies                      50,161           55,895            43,340
  Legal and professional fees                      189,035          185,201           136,554
  Director and committee fees                       60,650           58,000            57,000
  Advertising expense                               45,804           56,226            45,707
  Other expenses                                   308,012          278,083           217,394
                                                ---------------------------------------------
     Total other expenses                        2,384,268        2,261,091         1,893,107
                                                ---------------------------------------------

Income Before Income Tax                           648,157          598,845           403,167
  Income tax expense                               147,670          136,549            54,124
                                                ---------------------------------------------

Net Income                                      $  500,487       $  462,296        $  349,043
                                                ==============================================

Net Income Per Share - basic and diluted        $      .39       $      .31        $      .22
</TABLE>

See Notes to Consolidated Financial Statements

<PAGE>
<TABLE>
<CAPTION>

Home Financial Bancorp
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2002, 2001 and 2000


                                        Common Stock        Additional
                                     ---------------------   Paid-in      Comprehensive     Retained       Unearned        ESOP
                                     Shares         Amount    Capital         Income        Earnings     Compensation     Shares
------------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                 <C>           <C>         <C>                           <C>             <C>          <C>
Balances, July 1, 1999             1,772,400     $4,100,034  $ 88,667                      $3,613,425      $(181,456)   $(257,908)
  Comprehensive income
     Net income                                                              $349,043         349,043
     Other comprehensive income,
     net of tax
       Unrealized loss on
        securities, net of
        reclassification
        adjustment                                                           (110,806)
                                                                             ---------
  Comprehensive income                                                       $238,237
                                                                             ========
  Cash dividends
     ($.06 per share)                                                                         (95,170)
  ESOP shares earned                                           12,475                                                      44,054
  RRP shares earned                                                                                           44,075
  Purchase of stock                  (57,600)      (144,000)                                  (38,976)
  Tax expense on RRP shares                                    (1,444)
                                   ----------------------------------        -------------------------------------------------------
Balances, June 30, 2000            1,714,800      3,956,034    99,698                       3,828,322       (137,381)    (213,854)
  Comprehensive income
     Net income                                                              $462,296         462,296
     Other comprehensive income,
       net of tax
       Unrealized gain on
         securities, net of
         reclassification
         adjustment                                                           219,069
                                                                             --------
  Comprehensive income                                                       $681,365
                                                                             ========
  Cash dividends
    ($.09 per share)                                                                         (121,872)
  ESOP shares earned                                           17,343                                                      41,703
  RRP shares earned                                                                                           46,670
  Purchase of stock                 (355,750)      (889,375)                               (1,022,652)
  Tax benefit on RRP shares                                    10,582
                                   ----------------------------------        -------------------------------------------------------
Balances, June 30, 2001            1,359,050      3,066,659   127,623                       3,146,094        (90,711)    (172,151)
  Comprehensive income
    Net income                                                               $500,487         500,487
    Other comprehensive income,
     net of tax
      Unrealized gain on
       securities, net of
       reclassification
       adjustment                                                             (11,062)
                                                                             --------
  Comprehensive income                                                       $489,425
                                                                             ========
  Cash dividends
     ($.12 per share)                                                                        (143,448)
  ESOP shares earned                                           25,894                                                      39,356
  RRP shares earned                                                                                           31,046
  Purchase of stock                   (3,000)        (7,500)                                   (4,242)
  Tax benefit on RRP shares                                     4,543
                                 ------------------------------------        -------------------------------------------------------
Balances, June 30, 2002            1,356,050     $3,059,159  $158,060                      $3,498,891      $ (59,665)   $(132,795)
                                 ====================================        =======================================================

</TABLE>
<PAGE>
                                   Accumulated
                                      Other
                                   Comprehensive
                                      (Loss)         Total
-------------------------------------------------------------
Balances, July 1, 1999              $(239,539)     $7,123,223
  Comprehensive income
     Net income                                       349,043
     Other comprehensive income,
     net of tax
       Unrealized loss on
        securities, net of
        reclassification
        adjustment
                                     (110,806)       (110,806)
  Comprehensive income

  Cash dividends
     ($.06 per share)                                 (95,170)
  ESOP shares earned                                   56,529
  RRP shares earned                                    44,075
  Purchase of stock                                  (182,976)
  Tax expense on RRP shares                            (1,444)
                                   --------------------------

Balances, June 30, 2000              (350,345)      7,182,474
  Comprehensive income
     Net income                                       462,296
     Other comprehensive income,
       net of tax
       Unrealized gain on
         securities, net of
         reclassification
         adjustment                   219,069         219,069

  Comprehensive income

  Cash dividends
    ($.09 per share)                                 (121,872)
  ESOP shares earned                                   59,046
  RRP shares earned                                    46,670
  Purchase of stock                                (1,912,027)
  Tax benefit on RRP shares                            10,582
                                   --------------------------
Balances, June 30, 2001              (131,276)      5,946,238
  Comprehensive income
    Net income                                        500,487
    Other comprehensive income,
     net of tax
      Unrealized gain on
       securities, net of
       reclassification
       adjustment                     (11,062)        (11,062)

  Comprehensive income

  Cash dividends
     ($.12 per share)                                (143,448)
  ESOP shares earned                                   65,250
  RRP shares earned                                    31,046
  Purchase of stock                                   (11,742)
  Tax benefit on RRP shares                             4,543
                                 ----------------------------
Balances, June 30, 2002             $(142,338)     $6,381,312
                                 ============================


See Notes to Consolidated Financial Statements


<PAGE>

<TABLE>
<CAPTION>

                             Home Financial Bancorp
                     Consolidated Statements of Cash Flows
                    Years Ended June 30, 2002, 2001 and 2000

                                                                    2002             2001             2000
------------------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                             <C>              <C>              <C>
  Net income                                                   $   500,487      $   462,296      $   349,043
  Items not requiring (providing) cash
    Provision for loan losses                                      167,000           60,000           54,000
    Investment securities amortization, net                         42,927           25,173           11,902
    ESOP shares earned                                              65,250           59,046           56,529
    RRP shares earned                                               31,046           46,670           44,075
    Depreciation                                                   141,540          158,369          196,664
    Deferred income tax benefit                                     11,168                8          (35,700)
    Gain on sale of real estate acquired for development           (77,640)         (98,040)         (24,908)
    Gain on sale of foreclosed assets                              (32,142)         (12,979)          (5,560)
    Investment securities (gains) losses                            46,268         (107,310)          17,700
    Losses from limited partnership                                 56,000           48,000           33,613
    Net change in interest receivable                              (46,104)         (40,367)         (19,026)
    Other adjustments                                             (453,414)          73,955          176,481
                                                               ---------------------------------------------
     Net cash provided by operating activities                     452,386          674,821          854,813
                                                               ---------------------------------------------

Investing Activities
  Purchases of securities available for sale                      (580,640)      (1,781,964)        (824,860)
  Proceeds from sales of securities available for sale             214,384        2,718,943           76,909
  Proceeds from maturities and paydowns of securities
           available for sale                                    1,779,944        1,072,495        1,110,819
  Net changes in loans                                             598,788       (9,137,989)      (7,246,088)
  Improvements to foreclosed assets                                    ---              ---           (5,121)
  Proceeds from sale of foreclosed assets                          534,506          377,602           71,318
  Purchase of premises and equipment                              (114,297)         (97,475)        (132,274)
  Purchase of real estate acquired for development and
           development cost                                       (113,509)        (631,074)        (451,678)
  Proceeds from sale of real estate acquired for development       219,646          218,164           57,000
  Purchase of FHLB of Indianapolis stock                               ---         (265,000)        (175,000)
                                                               ---------------------------------------------
     Net cash provided by (used in) investing activities         2,538,822       (7,526,298)      (7,518,975)
                                                               ---------------------------------------------

Financing Activities
  Net change in
    NOW and savings deposits                                     1,842,373        1,605,006       (1,335,449)
    Certificates of deposit                                     (1,496,601)         964,043        7,219,526
    Short-term borrowings                                       (1,295,138)       1,000,038          300,000
  Proceeds from other borrowings                                10,500,000       29,500,000       15,000,000
  Repayment of other borrowings                                (12,000,000)     (22,700,000)     (15,000,000)
  Purchase of stock                                                (11,742)      (1,912,027)        (182,976)
  Dividends paid                                                  (143,538)        (106,987)         (95,932)
                                                               ---------------------------------------------
      Net cash provided by (used in) financing activities       (2,604,646)       8,350,073        5,905,169
                                                               ---------------------------------------------

Net Change in Cash and Cash Equivalents                            386,562        1,498,596         (758,993)

Cash and Cash Equivalents, Beginning of Year                     3,214,406        1,715,810        2,474,803
                                                               ---------------------------------------------

Cash and Cash Equivalents, End of Year                         $ 3,600,968      $ 3,214,406      $ 1,715,810
                                                               =============================================

Additional Cash Flows and Supplementary Information
  Interest paid                                                $ 2,732,723      $ 3,148,243        2,570,356
  Income tax paid                                                  196,120          103,809           41,916
  Transfers from loans to foreclosed assets                        892,931          367,305           89,183

</TABLE>

See Notes to Consolidated Financial Statements

<PAGE>


                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2002, 2001 and 2000
                      (Table Dollar Amounts in Thousands)

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 Bank 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 Bank
considers its investment in one-to-four  family  residential  loans and consumer
loans to be homogeneous and therefore excluded from separate  identification for
evaluation of impairment.  Interest income is accrued on the principal  balances
of  loans.  The  accrual  of  interest  on  impaired  and  nonaccrual  loans  is
discontinued when, in management's  opinion,  the borrower may be unable to meet
payments as they become due. When interest accrual is  discontinued,  all unpaid
accrued interest is reversed when considered  uncollectible.  Interest income is
subsequently  recognized only to the extent cash payments are received.  Certain
loan fees and direct costs are being  deferred and amortized as an adjustment of
yield on the loans over the contractual  lives of the loans. When a loan is paid
off or sold, any unamortized loan origination fee balance is credited to income.

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

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic environment and market conditions.  Management believes that as of June
30,  2002,  the  allowance  for loan  losses is  adequate  based on  information
currently  available.  A worsening or  protracted  economic  decline in the area
within which the Bank  operates  would  increase the  likelihood  of  additional
losses due to credit and market risks and could  create the need for  additional
loss reserves.

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

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

Federal Home Loan Bank (FHLB) stock is a required  investment  for  institutions
that are members of the 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 are granted for a fixed  number of shares with an exercise  price
equal to the fair value of the shares at the date of grant. The Company accounts
for and will continue to account for stock option grants in accordance  with APB
Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and,  accordingly,
recognizes no compensation expense for the stock option grants.

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, 2002, was $22,000.


Note 3:   Investment Securities
<TABLE>
<CAPTION>


                                                                                2002
                                                     ------------------------------------------------------------
                                                                        Gross             Gross
                                                     Amortized       Unrealized        Unrealized          Fair
                                                       Cost             Gains            Losses            Value
-----------------------------------------------------------------------------------------------------------------
Available for sale
<S>                                                  <C>                  <C>             <C>             <C>
   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>


<TABLE>
<CAPTION>

                                                                                2001
                                                     -------------------------------------------------------------
                                                                        Gross             Gross
                                                     Amortized       Unrealized        Unrealized          Fair
                                                       Cost             Gains            Losses            Value
-----------------------------------------------------------------------------------------------------------------
Available for sale
<S>                                                  <C>                  <C>             <C>             <C>
   Marketable equity securities..................     $  701              $  7            $(143)           $  565
   Mortgage-backed securities....................      5,663                 4              (85)            5,582
                                                      -----------------------------------------------------------

    Total investment securities                       $6,364              $ 11            $(228)           $6,147
                                                      ===========================================================

</TABLE>


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

Securities  with a carrying value of $4,418,000  and $5,582,000  were pledged at
June 30, 2002 and 2001 to secure FHLB advances.

Proceeds from sales of securities  available for sale during 2002, 2001 and 2000
were $214,000,  $2,719,000  and $77,000.  Gross gains of $10,000 and $271,000 in
2002 and 2001 and gross losses of $31,000,  $164,000  and $18,000 in 2002,  2001
and 2000 were  realized  on the  sales.  In  addition,  losses of  $25,000  were
recorded  during 2002 due to the  permanent  decline in the value of a security.
The tax expense  (benefit) for net gains (losses) on security  transactions  for
2002, 2001 and 2000 was $(18,000), $42,000 and $(7,000).

Note 4:   Loans and Allowance


                                                   2002                  2001
------------------------------------------------------------------------------
Real estate mortgage loans
   Residential............................        $26,929              $27,085
   Mobile home and land...................          7,511                7,230
   Nonresidential.........................         10,430               13,758
   Multi-family...........................            451                  528
Mobile home loans.........................          5,924                3,172
Commercial and industrial.................            629                  485
Consumer loans............................          1,695                2,725
                                                  ----------------------------
                                                   53,569               54,983
                                                  ----------------------------
Undisbursed portion of loans..............           (518)                (347)
Allowance for loan losses.................           (344)                (392)
                                                  ----------------------------
                                                     (862)                (739)
                                                  ----------------------------

                  Total loans                     $52,707              $54,244
                                                  ============================


                                                  2002       2001          2000
--------------------------------------------------------------------------------

Allowance for loan losses
   Balances, July 1.........................      $392      $372          $336
   Provision for loan losses................       167        60            54
   Recoveries...............................         4       ---           ---
   Loans charged off........................      (219)      (40)          (18)
                                                  ----------------------------
      Balances, June 30                           $344      $392          $372
                                                  ============================


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


                                                          2002           2001
------------------------------------------------------------------------------
Accruing loans delinquent 90 days or more...........    $---          $ 277
Non-accruing loans..................................     639            789
                                                      ---------------------
    Net                                                 $639         $1,066
                                                        ===================
Note 5:   Premises and Equipment

                                                  2002                 2001
---------------------------------------------------------------------------
Land     ..............................         $  348               $  341
Buildings..............................          2,028                1,968
Equipment..............................            865                  818
                                                ---------------------------
   Total cost..........................          3,241                3,127
Accumulated depreciation...............         (1,409)              (1,267)
                                                ---------------------------
    Net                                         $1,832               $1,860
                                                ===========================

Note 6:   Investment in Limited Partnership

An investment in a limited partnership of $558,000 and $614,000 at June 30, 2002
and 2001  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,  2002,  2001 and
2000. Condensed financial statements for Cunot at June 30, 2002 and 2001 and for
the three years in the period ended June 30, 2002 are as follows:


                                                         2002             2001
------------------------------------------------------------------------------
Condensed balance sheets
   Assets
     Cash.....................................         $   89           $   62
     Land and property........................          1,342            1,390
     Other assets.............................              7                8
                                                       -----------------------
       Total assets...........................         $1,438           $1,460
                                                       =======================
Liabilities
   Notes payable..............................         $  610           $  610
   Other liabilities..........................            254              222
                                                       -----------------------
       Total liabilities......................            864              832

Partners' equity..............................            574              628
                                                       -----------------------
       Total liabilities and partners' equity          $1,438           $1,460
                                                       =======================


                                             2002          2001        2000
---------------------------------------------------------------------------

Condensed statements of operations
   Total revenue........................... $  60        $  57       $  56
   Total expenses..........................  (114)        (104)        (77)
                                            -----------------------------
     Net loss                               $ (54)       $ (47)      $(21)
                                            ===============================
Note 7:   Deposits

                                                         2002             2001
--------------------------------------------------------------------------------
Noninterest-bearing demand......................       $  1,457       $     967
Interest-bearing demand.........................          3,424           3,331
Money market deposits...........................          1,241             935
Savings  .......................................          4,780           3,827
Certificates of $100,000 or more................         12,167          11,293
Other certificates..............................         18,387          20,758
                                                       ------------------------
    Total deposits                                     $ 41,456       $  41,111
                                                       ========================


Certificates maturing in years ending June 30:

   2003  .............................................   $15,878
   2004  .............................................     5,818
   2005  .............................................     5,812
   2006  .............................................     1,321
   2007  .............................................     1,725
                                                         -------
                                                         $30,554
                                                         =======


Note 8:   Borrowings

                                                      2002           2001
--------------------------------------------------------------------------
Federal Home Loan Bank advances..............        $18,500       $20,000
Line of credit...............................              5           691
Loans sold under repurchase agreements.......            ---           609
                                                     ---------------------
    Total                                            $18,505       $21,300
                                                     =====================

FHLB advances maturities in years ending June 30:
   2003  .......................................................   $ 7,500
   2004  .......................................................     6,500
   2005  .......................................................     3,000
   2006  .......................................................       500
   2007  .......................................................       500
   2008  .......................................................       500
                                                                   -------
                                                                   $18,500

The Federal Home Loan Bank advances are secured by mortgage loans and investment
securities totaling  $35,616,000.  Advances, at interest rates from 2.76 to 5.97
percent, are subject to restrictions or penalties in the event of prepayment.

BSF has a line of credit for $700,000 from another  financial  institution  that
matures on March 15, 2003 and carries an interest  rate of 50 basis points above
prime. At June 30, 2002, the  outstanding  balance was $5,000 and was guaranteed
by the Bank.

The Company has a $300,000  line of credit with another  financial  institution.
The line which matures March 15, 2003,  bears  interest at 50 basis points above
the Wall Street  Journal  Prime Rate and is  guaranteed by the Bank. At June 30,
2002, there were no borrowings against the line.

Loans sold under repurchase agreements represents the Company's right under loan
participation  agreements to unilaterally  repurchase the interest in loans sold
to other financial institutions.

Note 9:   Income Tax

                                          2002        2001       2000
----------------------------------------------------------------------
Income tax expense
   Currently payable
     Federal....................         $  89      $  86        $47
     State......................            48         51         43
   Deferred
     Federal....................             7         (3)       (30)
     State......................             4          3         (6)
                                         ---------------------------

       Total income tax expense          $ 148      $ 137        $54
                                         ===========================

<TABLE>
<CAPTION>

                                                                          2002              2001             2000
------------------------------------------------------------------------------------------------------------------

Reconciliation of federal statutory to actual tax expense
<S>                                <C>                                    <C>              <C>               <C>
   Federal statutory income tax at 34%..........................          $220             $204              $137
   Effect of state income taxes.................................            34               36                24
   Business tax credits.........................................          (107)            (107)             (107)
   Other .......................................................             1                4               ---
                                                                          ----------------------------------------
     Actual tax expense.........................................          $148             $137              $ 54
                                                                          =======================================
Effective tax rate                                                        22.8%            22.8%             13.4%
</TABLE>

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


                                                       2002           2001
---------------------------------------------------------------------------
Assets
   Allowance for loan losses....................       $137           $150
   Deferred compensation........................         19             28
   Securities available for sale................         93             86
   Other .......................................         17            ---
                                                      --------------------
     Total assets...............................        266            264
                                                      --------------------

Liabilities
   Depreciation.................................       (27)           (20)
   State income tax.............................       (10)           (11)
   Loan fees....................................        (1)            ---
   Other .......................................        ---            (1)
                                                      --------------------
     Total liabilities..........................       (38)           (32)
                                                      --------------------
                                                      $228           $232
                                                      ===================

No valuation allowance was necessary for the years ended June 30, 2001 and 2000.

Retained earnings at June 30, 2002, 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, 2002.

<TABLE>
<CAPTION>

Note 10:   Other Comprehensive Income

                                                                                        2002
                                                                   ----------------------------------------------
                                                                   Before-Tax            Tax           Net-of-Tax
                                                                     Amount            Benefit           Amount
------------------------------------------------------------------------------------------------------------------
Unrealized losses on securities
<S>                                                                 <C>              <C>               <C>
   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)
                                                                    =========================================
</TABLE>
<TABLE>
<CAPTION>


                                                                                        2001
                                                                   ----------------------------------------------

                                                                   Before-Tax            Tax           Net-of-Tax
                                                                     Amount            Benefit           Amount
-----------------------------------------------------------------------------------------------------------------
Unrealized gains on securities
<S>                                                                 <C>               <C>               <C>
   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>
<TABLE>
<CAPTION>


                                                                                        2000
                                                                   ----------------------------------------------
                                                                   Before-Tax            Tax           Net-of-Tax
                                                                     Amount            Benefit           Amount
------------------------------------------------------------------------------------------------------------------
Unrealized losses on securities
<S>                                                                  <C>             <C>                <C>
   Unrealized holding losses arising during the year............     $(201)          $   79             $(122)
   Less: reclassification adjustment for losses realized in
     net income.................................................       (18)               7               (11)
                                                                     ------------------------------------------

   Other comprehensive loss                                          $(183)          $   72             $(111)
                                                                     =========================================
</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 Bank's exposure to credit
loss  in the  event  of  nonperformance  by the  other  party  to the  financial
instruments  for  commitments to extend credit is represented by the contractual
or notional amount of those instruments.  The Bank uses the same credit policies
in making such  commitments as it does for instruments  that are included in the
consolidated balance sheets.

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

                                                     2002                 2001
-------------------------------------------------------------------------------
   Commitments to extend credit...........         $2,268               $3,076
   Unused lines of credit.................            453                  458
   Standby letters of credit..............            ---                  212

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

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.

The Bank 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 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 agreements
were effective July 1, 1996.

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

Note 12:   Stockholders' Equity

On December 5, 2000,  the Company  announced a 2-for-1 stock split,  under which
every share of its common stock outstanding at the close of business on December
18,  2000  was  converted  into two  shares  of  common  stock.  The  additional
certificates  were  distributed to stockholders on January 10, 2001. As a result
of the stock split, the number of shares  outstanding  increased from 849,100 to
1,698,200 shares. Unless otherwise noted, all share and per share data have been
restated for the 2-for-1 stock split.

The Company's Board of Directors has approved the repurchase of up to 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.  During the years ended June 30,
2002, 2001 and 2000, the Company  repurchased  3,000,  355,750 and 57,600 of its
outstanding shares.

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,  2002,  total  stockholder's  equity  of the  Bank  was  $5,833,000.
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, 2002 and 2001, the
Bank was categorized as well  capitalized  and met all subject capital  adequacy
requirements.  There  are no  conditions  or  events  since  June 30,  2002 that
management believes has changed the Bank's classification.

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

<TABLE>
<CAPTION>

                                                                             2002
                                            --------------------------------------------------------------------

                                                                          Required             Required
                                                                        for Adequate          To Be Well
                                                    Actual               Capital(1)         Capitalized(1)
----------------------------------------------------------------------------------------------------------------
                                                Amount    Ratio      Amount     Ratio      Amount    Ratio
----------------------------------------------------------------------------------------------------------------
Total risk-based capital(1) (to risk
<S>                                             <C>        <C>       <C>         <C>       <C>        <C>
   weighted assets).........................    $5,243     12.4%     $3,396      8.0%      $4,245     10.0%
Tier I capital(1) (to risk weighted assets).     4,899     11.5       1,698      4.0        2,547      6.0
Core capital(1) (to adjusted total assets)..     4,899      7.5       2,610      4.0        3,263      5.0
Core capital(1) (to adjusted tangible
   assets)..................................     4,899      7.5       1,305      2.0          N/A      N/A
Tangible capital(1) (to adjusted total
   assets)..................................     4,899      7.5         979      1.5          N/A      N/A



                                                                             2001
                                            --------------------------------------------------------------------

                                                                          Required             Required
                                                                        for Adequate          To Be Well
                                                    Actual               Capital(1)         Capitalized(1)
----------------------------------------------------------------------------------------------------------------
                                                Amount    Ratio      Amount     Ratio      Amount    Ratio
----------------------------------------------------------------------------------------------------------------
Total risk-based capital(1) (to risk
   weighted assets).........................    $5,248     12.1%     $3,462      8.0%      $4,328     10.0%
Tier I capital(1) (to risk weighted assets).     4,856     11.2       1,731      4.0        2,597      6.0
Core capital(1) (to adjusted total assets)..     4,856      7.2       2,684      4.0        3,355      5.0
Core capital(1) (to adjusted tangible
   assets)..................................     4,856      7.2       1,342      2.0          N/A      N/A
Tangible capital(1) (to adjusted total
   assets)..................................     4,856      7.2       1,007      1.5          N/A      N/A
-------------------------
(1) As defined by the regulatory agencies
</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 $50,000,  $32,000 and $25,000 for the years ended June 30, 2002,  2001
and 2000. The plan provides pension benefits for substantially all of the Bank's
employees.

The Bank has a retirement savings Section 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 50 percent of the first 6 percent of base salary contributed by participants.
The Bank's  expense for the plan was $19,000,  $14,000 and $15,000 for the years
ended June 30, 2002, 2001 and 2000.

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  will  be  distributed  to
participants,  are  treated as  compensation  expense.  Compensation  expense is
recorded equal to the fair market value of the stock when  contributions,  which
are  determined  annually by the Board of Directors of the Bank, are made to the
ESOP. The expense under the ESOP was $65,000,  $59,000 and $57,000 for the years
ended June 30,  2002,  2001 and 2000.  At June 30,  2002 and 2001,  the ESOP had
100,676 and 84,463  allocated  shares;  53,583 and 69,327 suspense  shares;  and
7,637 and 8,106 committed-to-be  released shares. The fair value of the unearned
ESOP shares at June 30, 2002 and 2001 was $208,000 and $267,000.

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,  2002,  71,320  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 $31,000, $47,000 and $44,000 for the years ended June 30, 2002, 2001 and
2000.

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, June 30, 2001...............................................     $380
   New loans, including renewals......................................      188
   Payments, etc. including renewals..................................     (302)
                                                                           ----
Balances, June 30, 2002...............................................     $266
                                                                           ====


Deposits from related parties held by the Bank at June 30, 2001 and 2000 totaled
$748,000 and $914,000.

Note 17: Stock Option Plan

On October 14, 1997, the  stockholders  approved a stock option plan,  reserving
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.
The plan is accounted for in accordance with Accounting Principles Board Opinion
(APB)  No.  25,   Accounting   for  Stock  Issued  to  Employees,   and  related
interpretations.

Since the plan's adoption,  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.  These options became  exercisable in full on
April 14, 1998. 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.
These options were  exercisable in full on April 14, 1998 and February 25, 1999.
The exercise price of each option was equal to the market price of the Company's
stock on the date of grant; therefore, no compensation expense was recognized.

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, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                            2002                 2001                2000
                                 --------------------------------------------------------------------
                                                Weighted-            Weighted-            Weighted-
                                                 Average              Average              Average
                                                Exercise             Exercise             Exercise
                                      Shares     Price     Shares     Price     Shares     Price
-----------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>      <C>         <C>      <C>        <C>
Outstanding, beginning of year...    115,800      $4.24    115,800     $4.24    138,600    $4.25
Granted  ........................        ---                   ---                  ---
Forfeited........................        ---                   ---              (22,800)    4.25
                                     -------               -------              -------

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


As of June 30, 2002, 112,800 options outstanding have an exercise price of $4.25
and a remaining  contractual  life of six years,  and 3,000 options  outstanding
have an  exercise  prices of $4.13  and a  remaining  contractual  life of seven
years.  There were 86,568 shares  available for the grant at June 30, 2002.

Note 18: Earnings Per Share

Earnings per share were computed as follows:

                                                              2002
                                                 -------------------------------
                                                            Weighted-      Per-
                                                  Net       Average       Share
                                                 Income      Shares       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Share
   Income available to common stockholders.....   $500     1,269,892      $.39

Effect of Dilutive Securities
   Stock options and awards....................    ---         2,082
                                                  ------------------

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


                                                              2001
                                                 -------------------------------
                                                            Weighted-      Per-
                                                  Net       Average       Share
                                                 Income      Shares       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Share
   Income available to common stockholders.....   $462     1,473,810       $.31

Effect of Dilutive Securities
   Stock options and awards....................    ---         4,109
                                                  ------------------

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


                                                              2000
                                                 -------------------------------
                                                            Weighted-      Per-
                                                  Net       Average       Share
                                                 Income      Shares       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Share
   Income available to common stockholders.....   $349     1,600,022       $.22

Effect of Dilutive Securities
   Stock options and awards....................    ---           196
                                                  ------------------

Diluted Earnings Per Share
   Income available to common stockholders and
     assumed conversions.......................   $349     1,600,218       $.22
                                                  ==============================

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.

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

                                           2002                    2001
                                  ----------------------------------------------
                                    Carrying     Fair       Carrying     Fair
                                     Amount      Value       Amount      Value
--------------------------------------------------------------------------------
Assets
   Cash and cash equivalents......  $ 3,601    $  3,601    $  3,214    $  3,214
   Securities available for sale..    4,626       4,626       6,147       6,147
   Loans, net.....................   52,707      53,542      54,244      55,180
   Stock in FHLB..................    1,100       1,100       1,100       1,100
   Interest receivable............      424         424         378         378

Liabilities
   Deposits.......................   41,456      40,975      41,111      41,341
   Borrowings.....................   18,505      18,945      21,300      21,420

Off-Balance Sheet Assets
   Commitments to extend credit


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
                                                          2002          2001
--------------------------------------------------------------------------------
Assets
   Cash and cash equivalents......................      $  188        $   94
   Securities available for sale..................         208           565
   Premises and equipment.........................           4             8
   Investment in subsidiary.......................       5,833         5,180
   Other assets...................................         265           132
                                                        --------------------
     Total assets.................................      $6,498        $5,979
                                                        ====================
Liabilities - other...............................      $  117        $   33
Stockholders' Equity..............................       6,381         5,946
                                                        ---------------------
     Total liabilities and stockholders' equity...      $6,498        $5,979
                                                        ====================

                         Condensed Statements of Income


                                                        2002      2001    2000
--------------------------------------------------------------------------------
Income
   Interest income...................................   $ 21    $   34    $  42
   Dividends from subsidiary........................ .    75     2,013      125
   Net realized gains (losses) on available for sale
     securities......................................    (46)      115      (18)
                                                        ------------------------
       Total income..................................     50     2,162      149
                                                        ------------------------
Expenses
   Salaries and employee benefits....................     44        33       26
   Legal and professional fees.......................     60        63       66
   Other expenses....................................     27        91       36
                                                        ------------------------
       Total expenses................................    131       187      128
                                                        ------------------------

Income before income tax benefit and equity in
   undistributed income of subsidiary................    (81)    1,975       21

Income tax benefit (expense).........................     61        11      (38)
                                                        ------------------------

Income before equity in undistributed income of
   subsidiary........................................    (20)    1,986       59

Equity in undistributed (distribution in excess of)
   income of subsidiary..............................    520    (1,524)     290
                                                        ------------------------
Net Income                                              $500    $  462     $349
                                                        ========================


<TABLE>
<CAPTION>
                       Condensed Statements of Cash Flows

                                                            2002      2001       2000
--------------------------------------------------------------------------------------
Operating Activities
<S>                                                         <C>      <C>         <C>
   Net income............................................   $500     $  462      $349
   Items not requiring (providing) cash..................   (383)     1,463      (200)
                                                            --------------------------
     Net cash provided by operating activities...........    117      1,925       149
                                                            -------------------------

Investing Activities
   Purchases of securities available for sale............    (81)    (1,669)      ---
   Proceeds from sales of securities available for sale..    214      1,801        77
                                                            -------------------------
     Net cash provided by investing activities...........    133        132        77
                                                            -------------------------

Financing Activities
   Dividends paid........................................   (144)      (107)      (96)
   Purchase of stock.....................................    (12)    (1,912)     (183)
                                                            -------------------------
     Net cash used in financing activities...............   (156)    (2,019)     (279)
                                                            -------------------------

Net Change in Cash and Cash Equivalents..................     94         38       (53)

Cash and Cash Equivalents at Beginning of Year...........     94         56       109
                                                            -------------------------
Cash and Cash Equivalents at End of Year....                $188     $   94     $  56
                                                            =========================
</TABLE>