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                                 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, 2004

                                       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. [ ]

The issuer's revenues for the fiscal year ended June 30, 2004 were $4,633,137.

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of August 25, 2004, was $4,008,144.

The number of shares  outstanding  of the  issuer's  common  stock,  without par
value, as of August 25, 2004, was 1,356,050 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2004 Annual Meeting of Shareholders  are
incorporated by reference in Part III.

Transitional Small Business Disclosure Format: YES ___ NO _X_

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

                             HOME FINANCIAL BANCORP
                                   Form 10-KSB
                                      INDEX


                                                                            Page

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

PART I
Item  1.   Description of Business ........................................   3
Item  2.   Description of Property ........................................  29
Item  3.   Legal Proceedings ..............................................  29
Item  4.   Submission of Matters to a Vote of Security Holders ............  29

PART II
Item  5.   Market for Common Equity, Related Stockholder Matters and
              Small Business Issuer Purchases of Equity Securities ........  30
Item  5.5. Selected Financial Data ........................................  32
Item  6.   Management's Discussion and Analysis or Plan of Operation ......  33
Item  7.   Financial Statements ...........................................  46
Item  7A.  Quantitative and Qualitative Disclosures About Market Risk .....  46
Item  8.   Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure .........................  47
Item 8A.   Controls and Procedures ........................................  48
Item 8B.   Other Information  .............................................  48

PART III
Item 9.    Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act ...........  48
Item 10.   Executive Compensation .........................................  48
Item 11.   Security Ownership of Certain Beneficial Owners and
              Management  and Related Stockholder Matters .................  48
Item 12.   Certain Relationships and Related Transactions .................  49
Item 13.   Exhibits  ......................................................  49
Item 14.   Principal Accountant Fees and Services .........................  49

Signatures  ...............................................................  50
Exhibit Index ............................................................. E-1



                                       2
<PAGE>

                           FORWARD LOOKING STATEMENTS

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


                                     PART I

Item 1. Description of Business.

                                    BUSINESS

General

     Home Financial  Bancorp (the "Holding  Company"  together with the Bank (as
defined below), the "Company") is an Indiana  corporation  organized in February
1996, to become a bank holding  company upon its  acquisition  of all the issued
and  outstanding  capital  stock of Owen  Community  Bank,  s.b. (the "Bank") in
connection  with the Bank's  conversion  from mutual to stock form.  The Holding
Company became the Bank's holding  company on July 1, 1996. The principal  asset
of the Holding Company currently  consists of 100% of the issued and outstanding
shares of common stock of the Bank.  The Bank was organized  under the name Owen
County  Savings and Loan  Association  in 1911. In 1972, the Bank converted to a
federally-chartered savings and loan and changed its name to Owen County Federal
Savings  and  Loan   Association,   and  in  1989,   the  Bank  converted  to  a
federally-chartered  savings bank known as Owen Federal  Savings  Bank. In 1994,
the Bank became an Indiana savings bank known as Owen Community Bank, s.b. As of
May 1, 1999,  the Bank  converted  back to a federal  stock savings bank and the
Company became a unitary savings and loan holding company.  The Bank's principal
business consists of attracting deposits from the general public and originating
long-term loans secured primarily by first mortgage liens on one- to four-family
residential  real estate and by mobile homes or a combination of land and mobile
homes.  The Bank's deposit  accounts are insured up to applicable  limits by the
Savings Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC").

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



                                       3
<PAGE>

     The Bank  historically  has  concentrated  its  lending  activities  on the
origination  of  loans  secured  by  first  mortgage  liens  for  the  purchase,
construction  or refinancing of one- to four-family  residential  real property.
One- to four-family  residential  mortgage loans continue to be a major focus of
the Bank's loan origination activities,  representing 48.83% of the Bank's total
loan  portfolio  at June 30,  2004.  The Bank also  offers  mobile  home  loans,
multi-family  mortgage  loans,  nonresidential  real estate loans,  Combo Loans,
consumer loans and commercial and industrial loans.  Mobile home loans and Combo
Loans totaled approximately 13.85% and 18.46% of the Bank's total loan portfolio
at  June  30,  2004,  respectively.   Mortgage  loans  secured  by  multi-family
properties  and  nonresidential  real  estate  totaled  approximately  0.31% and
16.57%,  respectively,  of the Bank's  total loan  portfolio  at June 30,  2004.
Consumer loans  constituted  approximately  1.38%, and commercial and industrial
loans totaled approximately 0.60% of the Bank's total loan portfolio at June 30,
2004.

     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,
                                           ------------------------------------------------------------------
                                                 2004                     2003                   2002
                                           ------------------       ------------------     ------------------
                                                      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 .........................  $25,445      48.83%      $23,492     47.71%      $26,929     50.27%
   Combo ...............................    9,621      18.46         8,744     17.76         7,511     14.02
   Nonresidential ......................    8,633      16.57         9,060     18.40        10,430     19.47
   Multi-family ........................      161       0.31           208      0.42           451      0.84
Mobile home loans ......................    7,218      13.85         6,703     13.61         5,924     11.06
Commercial and industrial loans ........      313       0.60           340      0.69           629      1.17
Consumer loans .........................      716       1.38           695      1.41         1,695      3.17
                                          -------     ------       -------    ------       -------    ------
               Gross loans receivable...  $52,107     100.00%      $49,242    100.00%      $53,569    100.00%
                                          =======     ======       =======     ======      =======    ======

TYPE OF SECURITY
   Residential real estate .............  $25,445      48.83%      $23,492     47.71%      $26,929     50.27%
   Mobile home and land ................    9,621      18.46         8,744     17.76         7,511     14.02
   Nonresidential real estate ..........    8,633      16.57         9,060     18.40        10,430     19.47
   Multi-family real estate ............      161       0.31           208      0.42           451      0.84
   Mobile home .........................    7,218      13.85         6,703     13.61         5,924     11.06
   Deposits ............................      172       0.33            54      0.11            73      0.14
   Other security ......................      857       1.65           981      1.99         2,251      4.20
                                          -------     ------       -------    ------       -------    ------
         Gross loans receivable.........   52,107     100.00        49,242    100.00        53,564    100.00

Deduct:
Allowance for loan losses ..............      396       0.76           316      0.65           344      0.65
Loans in process and
   deferred loan costs .................      990       1.90           426      0.88           518      0.98
                                          -------     ------       -------    ------       -------    ------
   Net loans receivable ................  $50,721      97.34%      $48,500     98.47%      $52,707     98.37%
                                          =======     ======       =======     ======      =======    ======
</TABLE>

                                       4
<PAGE>

     The  following  table  sets forth  certain  information  at June 30,  2004,
regarding the dollar amount of agricultural  and commercial and industrial loans
maturing  in the  Bank's  loan  portfolio  based  on the  contractual  terms  to
maturity.  This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale  clauses.  Management expects  prepayments will cause
actual maturities to be shorter.

<TABLE>
<CAPTION>


                                                  Due during years ended June 30,
                         Balance     -------------------------------------------------------
                       Outstanding                           2008    2010    2015    2020
                       at June 30,                            to      to      to      and
                          2004       2005    2006    2007    2009    2014    2019  following
                       -----------   ----    ----    ----    ----    ----    ----  ---------
                                                (In thousands)

<S>                      <C>         <C>      <C>     <C>    <C>      <C>    <C>      <C>
Agricultural .........   $1,253      $--      $31     $--    $13      $55    $163     $991
Commercial and
   industrial loans...      313       50       --      --     --       --     263       --
                         ------      ---      ---     ---    ---      ---    ----     ----
      Total ..........   $1,566      $50      $31     $--    $13      $55    $426     $991
                         ======      ===      ===     ===    ===      ===    ====     ====

</TABLE>

     The following  table sets forth,  as of June 30, 2004, the dollar amount of
agricultural  and commercial and industrial  loans due after one year which have
fixed interest rates and floating or adjustable rates.

                                     Due After June 30, 2005
                           ----------------------------------------
                           Fixed Rates    Variable Rates      Total
                           -----------    --------------      -----
                                          (In thousands)

Agricultural ..........      $1,049           $204           $1,253
Commercial and
   industrial loans....         263             --              263
                             ------           ----           ------
      Total............      $1,312           $204           $1,516
                             ======           ====           ======


     One- to Four-Family Residential Loans.  Residential loans consist primarily
of one- to four-family  loans.  Approximately  $25.4  million,  or 48.83% of the
Bank's  portfolio  of loans at June 30, 2004,  consisted of one- to  four-family
residential  mortgage loans.  Pursuant to federal  regulations,  such loans must
require  at least  semi-annual  payments  and be for a term of not more  than 40
years, and, if the interest rate is adjustable, the rate must be correlated with
changes in a readily verifiable index.

     The  Bank  currently  offers  three  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.


                                       5
<PAGE>


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

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

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

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

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

     At June 30, 2004,  residential  loans  amounting  to $234,000,  or 0.46% 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  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 years,  the Bank does not generally  require a new
appraisal.



                                       6
<PAGE>

     Combo Loans. At June 30, 2004, $9.6 million,  or 18.46% of the Bank's total
loan portfolio,  consisted of Combo Loans. The Bank currently offers three 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, 2004,  Combo Loans  amounting  to $187,000,  or
0.37%  of  total   loans,   were   included  on   non-performing   assets.   See
"--Non-Performing Assets."

     Mobile Home Loans.  The Bank  originates  loans for the purchase of new and
used mobile homes. At June 30, 2004,  approximately  $7.2 million,  or 13.85% 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.  Four of the Bank's mobile home loans
totaling  $134,000  were  included in  non-performing  assets at June 30,  2004.
Repossessed collateral included fourteen mobile homes at June 30, 2004.

     Nonresidential Real Estate Loans. At June 30, 2004, $8.6 million, or 16.57%
of the Bank's  total loan  portfolio,  consisted of  nonresidential  real estate
loans,  of which  $567,000  constituted  loans secured by unimproved  land.  The
nonresidential  real estate loans included in the Bank's portfolio are primarily
secured by real  estate  that  includes a  warehouse,  a funeral  home,  several
churches, a mobile home park and various commercial buildings. At June 30, 2004,
$1.3 million, or 15.12% of the Bank's nonresidential loan portfolio, was secured
by several farm properties.  The Bank generally  originates  nonresidential real
estate loans as one-year adjustable-rate and monthly floating-rate loans indexed
to the prime rate with a margin of 1% to 3% above such index.  In addition,  the
maximum rate adjustments per adjustment period and over the life of the loan are
typically unrestricted. The Bank underwrites these loans on a case-by-case basis
and, in addition to its normal  underwriting  criteria,  the Bank  evaluates the
borrower's  ability to  service  the debt from the net  operating  income of the
property.  The largest  nonresidential  real estate loan on June 30,  2004,  was
$900,000.  None of the Bank's  nonresidential real estate loans were included in
non-performing assets at that date.



                                       7
<PAGE>

     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  $161,000,  or  0.31%  of  the  Bank's
portfolio of loans at June 30, 2004, consisted of multi-family loans. All of the
Bank's  multi-family loans were fully performing as of June 30, 2004. 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
$716,000 as of June 30, 2004, or 1.38% 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, 2004, six consumer  installment  loans totaling  $50,000
were  included  in  non-performing  assets.  See  "--Non-Performing  and Problem
Assets." There can be no assurances, however, that additional delinquencies will
not occur in the future.

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

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

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



                                       8
<PAGE>


     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." At June 30, 2004, the
Bank had sold participations in a non-residential mortgage loan in the amount of
$450,000. The Bank also occasionally purchases  participations in nonresidential
real estate and multi-family  loans from other financial  institutions.  At June
30,  2004,  the  number  of  Bank-purchased   participations  consisted  of  one
multi-family mortgage loan in the amount of $900,000.

     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,
                                                       ---------------------------
                                                        2004       2003      2002
                                                        ----       ----      ----
                                                             (In thousands)

<S>                                                   <C>        <C>        <C>
Gross loans receivable at beginning of period........ $49,242    $53,569    $54,980
                                                      -------    -------    -------
Originations:
   Mortgage loans:
     Residential.....................................  12,205      7,021     11,823
     Other...........................................     278        927      1,795
                                                      -------    -------    -------
       Total mortgage loans..........................  12,483      7,948     13,618
                                                      -------    -------    -------
   Mobile home loans.................................   1,791      2,004      3,505
   Consumer loans:
     Installment.....................................     501        488        872
     Share...........................................     208         79         37
                                                      -------    -------    -------
       Total mobile and consumer loans...............   2,500      2,571      4,414
                                                      -------    -------    -------
            Total originations.......................  14,983     10,519     18,032
Purchases (sales) of participation loans.............     900         --       (615)
Repayments and other deductions...................... (13,018)   (14,846)   (18,828)
                                                      -------    -------    -------
   Gross loans receivable at end of period .......... $52,107    $49,242    $53,569
                                                      =======    =======    =======

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



                                       9
<PAGE>


     Mortgage-Backed  Securities. At June 30, 2004, the Bank had $1.5 million of
mortgage-backed  securities  outstanding,   all  of  which  were  classified  as
available  for sale and had a market  value of $1.6  million.  These  fixed-rate
mortgage-backed  securities are used as collateral for borrowings  and,  through
repayments, as a source of liquidity. Mortgage-backed securities generally offer
yields above those  available for  investments of comparable  credit quality and
duration.

     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,
                               -----------------------------------------------------------------
                                        2004                   2003                  2002
                               -------------------    -------------------    -------------------
                               Amortized     Fair     Amortized     Fair     Amortized     Fair
                                  Cost       Value       Cost       Value      Cost        Value
                               ---------     -----    ---------     -----    ---------     -----
                                                             (In thousands)
<S>                              <C>        <C>         <C>        <C>         <C>         <C>
Total mortgage-backed
   securities .............      $1,511     $1,554      $2,664     $2,736      $3,841      $3,913

</TABLE>
<TABLE>
<CAPTION>

     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, 2004.

                                                        Amount at June 30, 2004, which matures in
                                -------------------------------------------------------------------------------------------
                                Less than one year    Two through five years   Six through ten years      After ten years
                                -------------------   ----------------------   ---------------------   --------------------
                                           Weighted                Weighted                Weighted                Weighted
                                Amortized  Average     Amortized   Average     Amortized   Average     Amortized   Average
                                  Cost      Yield        Cost       Yield        Cost       Yield        Cost       Yield
                                ---------  --------    ---------   --------    ---------   --------    ---------   --------
                                                                 (In thousands)
<S>                               <C>                     <C>         <C>         <C>                    <C>         <C>
Mortgage-backed securities
   available for sale.........    $ --       --%          $35         7.5%        $ --        --%        $1,476      6.8%

</TABLE>
<TABLE>
<CAPTION>

     The  following  table sets forth the changes in the Bank's  mortgage-backed
securities portfolio for the years ended June 30, 2004, 2003 and 2002.

                                                                            For the Year Ended June 30,
                                                                    -------------------------------------------
                                                                     2004              2003               2002
                                                                     ----              ----               ----
                                                                                 (In thousands)
<S>                                                                 <C>               <C>                <C>
Beginning balance.............................................      $2,736            $3,913             $5,582
Purchases.....................................................           --            1,084                 --
Sales    .....................................................           --               --                 --
Monthly repayments............................................      (1,125)           (2,208)            (1,780)
Premium and discount amortization, net........................         (28)              (53)               (43)
Investment securities gains...................................           --               --                 --
Unrealized gain (loss) on securities available for sale.......         (29)               --                154
                                                                    ------            ------             ------

Ending balance................................................      $1,554            $2,736             $3,913
                                                                    ======            ======             ======

</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.



                                       10
<PAGE>

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

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

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

     Non-performing  assets.  At  June  30,  2004,  $636,000,  or  1.00%  of the
Company's total assets, were non-performing loans (loans delinquent more than 90
days and non-accruing loans) compared to $520,000,  or 0.84%, of total assets at
June 30, 2003.  At June 30, 2004,  residential  loans,  Combo Loans and consumer
mobile  home loans  accounted  for  36.8%,  29.4% and  21.2%,  respectively,  of
non-performing  loans. There were no non-accruing  investments at June 30, 2004.
As of June 30, 2004 and 2003, the Bank held $725,000 and $340,000, respectively,
of Real Estate Owned ("REO")  properties.  Other  repossessed  property included
fourteen mobile homes with a fair market value estimated at $264,000 at June 30,
2004.  Repossessed  property other than REO included  twelve mobile homes with a
fair market value estimated at $265,000 at June 30, 2003.

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


                                                          At June 30,
                                               -------------------------------
                                                2004        2003         2002
                                                ----        ----         ----
                                                       (In thousands)

Accruing loans delinquent 90 days..........    $   --      $   51       $   --
Non-accruing loans (1).....................       636         469          639
Real estate owned..........................       990         608          427
                                               ------      ------       ------
    Total non-performing assets............     1,626       1,128        1,066
Non-performing loans to total loans........      1.24%       1.07%        1.21%
Non-performing assets to total assets......      2.56%       1.83%        1.60%
--------------
(1)  he Bank  generally  places  loans on a  non-accruing  status when the loans
     become  contractually past due 90 days or more. At June 30, 2004,  $420,000
     of  non-accruing  loans were  residential  loans and $134,000 were consumer
     mobile home loans. Additional interest income that would have been recorded
     had income on non-accruing loans been considered  collectible and accounted
     for in accordance  with their original terms was $31,000 for the year ended
     June 30, 2004. At June 30, 2004,  there were no loans  included in accruing
     loans delinquent 90 days or more.





                                       11
<PAGE>
<TABLE>
<CAPTION>

     The following table reflects the amount of loans in a delinquent  status as
of the dates indicated:


                                                                       June 30,
                                     -----------------------------------------------------------------------------
                                                2004                     2003                     2002
                                     -------------------------  ------------------------  ------------------------
                                                       Percent                   Percent                   Percent
                                                      of total                  of total                  of total
                                     Number   Amount    loans   Number  Amount    loans   Number  Amount    loans
                                     ------   ------  --------  ------  ------  --------  ------  ------  ---------
                                                                (Dollars in thousands)
<S>   <C>                              <C>   <C>        <C>       <C>    <C>      <C>       <C>   <C>       <C>
Loans delinquent  for (1):
   30-89 days.......................   31    $  879     1.72%     33     $1,100   2.27%     30    $1,022    1.94%
   90 days and over.................   21       636     1.24      13        520   1.07      13       639    1.21
                                       --     -----     ----      --      -----   ----      --    ------    ----
     Total delinquent loans.........   52    $1,515(2)  2.96%     46     $1,620   3.34%     43    $1,661    3.15%
                                       ==    ======     ====      ==     ======   ====      ==    ======    ====
-----------
(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, $1.1 million consisted of residential real estate loans and
     $398,000 consisted of nonresidential real estate and consumer loans.

</TABLE>


     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, 2004, 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, 2004
                                              ----------------
                                               (In thousands)

Substandard loans.........................          $1,460
Doubtful loans............................              44
Loss loans................................              --
Special mention loans.....................           1,387
                                                    ------
     Total classified loans...............          $2,891
                                                    ======
General loss allowances...................          $  396
Specific loss allowances..................              --
                                                    ------
     Total allowances.....................          $  396


     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.



                                       12
<PAGE>

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, 2004.  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 one-year  periods ended June
30, 2004.

<TABLE>
<CAPTION>
                                                                       Year Ended June 30,
                                                   ---------------------------------------------------------
                                                   2004         2003          2002         2001         2000
                                                   ----         ----          ----         ----         ----
                                                                     (Dollars in thousands)
<S>                                                <C>          <C>          <C>           <C>          <C>
Balance of allowance at beginning
   of period....................................   $ 316        $ 344        $ 392         $ 372        $ 336
                                                   -----        -----        -----         -----        -----
Less charge offs:
Mortgage loans..................................     (45)         (80)        (105)          (17)          --
Consumer loans..................................    (120)        (178)        (110)          (23)         (18)
Add recoveries:
Consumer loans..................................       5            --          --            --           --
                                                   -----        -----        -----         -----        -----
Net (charge-offs) recoveries....................    (160)        (258)        (215)          (40)         (18)
Provisions for losses on loans..................     240          230          167            60           54
                                                   -----        -----        -----         -----        -----
Balance of allowance at end of period...........   $ 396        $ 316        $ 344         $ 392        $ 372
                                                   =====        =====        =====         =====        =====
Net charge-offs to total average
   loans receivable for period..................    0.33%        0.51%        0.40%         0.08%        0.04%
Allowance at end of period to
   net loans receivable at end
   of period (1)................................    0.78         0.65         0.65          0.72         0.81
Allowance to total non-performing
   loans at end of period.......................   62.26        60.77        53.83         36.77        94.18
----------------------
(1) Total loans less net loans in process and deferred loan costs.

</TABLE>




                                       13
<PAGE>
<TABLE>
<CAPTION>

     Allocation of Allowance for Loan Losses.  The following  table  presents an
analysis of the allocation of the Bank's  allowance for loan losses at the dates
indicated.
                                                                     At June 30,
                                       ------------------------------------------------------------------------
                                             2004                       2003                       2002
                                       ------------------        -------------------        -------------------
                                                  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)
<S>                                    <C>         <C>            <C>         <C>           <C>         <C>
Balance at end of period
   applicable to:
Residential......................      $  62       48.83%         $  36       47.71%        $  66       50.27%
Combo  ..........................         31       18.46             61       17.76            22       14.02
Nonresidential...................         90       16.57             88       18.40           134       19.47
Multi-family.....................          1        0.31              1        0.42             3        0.84
Mobile home loans................        157       13.85             98       13.61            74       11.06
Commercial and industrial
   loans.........................          4        0.60              3        0.69             3        1.17
Consumer loans...................         51        1.38             24        1.41            42        3.17
Unallocated......................         --          --              5          --            --          --
                                        ----      ------           ----      ------          ----      ------
   Total.........................       $396      100.00%          $316      100.00%         $344      100.00%
                                        ====      ======           ====      ======          ====      ======
</TABLE>


Investments and FHLB Stock

     The Company's investment portfolio (excluding  mortgage-backed  securities)
consists of Federal agency bonds,  equity  securities and Federal Home Loan Bank
("FHLB") stock. At June 30, 2004,  approximately  $2.1 million,  or 3.29% 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, 2004.

     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,
                                      ------------------------------------------------------------------------
                                            2004                         2003                      2002
                                      -------------------        -------------------       -------------------
                                      Amortized    Fair          Amortized    Fair         Amortized    Fair
                                        Cost       Value           Cost       Value          Cost       Value
                                      ---------    ------        ---------    ------       ---------    ------
                                                                  (In thousands)
<S>                                    <C>         <C>            <C>         <C>           <C>       <C>
Securities available for sale (1):
   Federal agencies..............      $  757      $  730         $   --      $   --        $  500    $  505
   Marketable equity securities..         162         155            343         133           521       208
                                       ------      ------         ------      ------        ------    ------
     Total securities
       available for sale........         919         885            343         133         1,021       713
FHLB stock (2)...................       1,170       1,170          1,115       1,115         1,100     1,100
                                       ------      ------         ------      ------        ------    ------
     Total investments...........      $2,089      $2,055         $1,458      $1,248        $2,121    $1,813
                                       ======      ======         ======      ======        ======    ======
-------------------
(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.

</TABLE>



                                       14
<PAGE>
<TABLE>
<CAPTION>

     The  following  table sets forth the amount of federal  agency  bonds which
mature during each of the periods  indicated and the weighted average yields for
each range of maturities at June 30, 2004.


                                                        Amount at June 30, 2004, which matures in
                               ----------------------------------------------------------------------------------------------
                                Less than one year    Two through five years    Six through ten years       After ten years
                               -------------------    ----------------------    ---------------------      ------------------
                                          Weighted                 Weighted                 Weighted                 Weighted
                               Amortized   Average      Amortized   Average      Amortized   Average       Amortized  Average
                                  Cost      Yield         Cost       Yield         Cost       Yield          Cost      Yield
                               ---------  --------      ---------  --------      ---------  --------       ---------  -------
                                                                 (In thousands)
<S>                               <C>                     <C>                      <C>       <C>             <C>
Federal agency securities
   available for sale.........    $  --      --%          $ --        --%          $757      5.00%           $ --       --%

</TABLE>

Sources of Funds

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

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

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

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



                                       15
<PAGE>

     An analysis of the Bank  deposit  accounts by type,  maturity,  and rate at
June 30, 2004, is as follows:

                                   Minimum     Balance at               Weighted
                                   Opening      June 30,       % of      Average
Type of Account                    Balance        2004       Deposits     Rate
---------------                    -------     ----------    --------   --------
                                             (In thousands)
Withdrawable:
   Savings accounts................  $   10     $ 5,448       14.01%      0.25%
   Money market accounts...........   5,000       2,351        6.04       1.00
   NOW accounts and other
     transaction accounts..........      50       5,522       14.20       0.09
                                                -------      ------       ----
     Total withdrawable............              13,321       34.25       0.32
Certificates (original terms):
   3 months........................     500         261        0.67       0.98
   6 months........................     500       1,577        4.05       1.09
   12 months.......................     500       4,669       12.00       1.49
   18 months.......................     500       2,175        5.59       2.09
   24 months.......................     500       1,303        3.35       2.29
   30 months.......................     500       4,509       11.59       3.93
   36 months.......................     500       2,648        6.81       3.44
   48 months.......................     500       1,555        4.00       4.22
   60 months.......................     500       6,049       15.55       4.30
IRAs (original terms):
   12 months.......................     500         208        0.54       1.32
   36 months.......................     500         331        0.85       2.97
   60 months.......................     500         290        0.75       4.63
                                                -------      ------       ----
     Total certificates and IRAs...              25,575       65.75       3.07
                                                -------      ------       ----
     Total deposits................             $38,896      100.00%      2.13%
                                                =======      ======       ====


     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,
                              ------------------------------------------
                               2004             2003              2002
                              ------           ------            ------
                                           (In thousands)

2.00% and under........       $ 8,098           $ 6,067          $ 1,628
2.01 - 4.00%...........        10,436            11,490           14,108
4.01 - 6.00 %..........         6,728             8,822           13,951
6.01 - 8.00%...........           313               316              867
                              -------           -------          -------
   Total...............       $25,575           $26,695          $30,554
                              =======           =======          =======


     The following table represents the amounts of time deposits maturing during
each of the three years  following June 30, 2004, and the total amount  maturing
thereafter.  Matured  certificates  which  have not been  renewed as of June 30,
2004, have been allocated based upon certain rollover assumptions:


                              Amounts At June 30, 2004, Maturing in
                       ---------------------------------------------------
                       One Year       Two         Three       Greater Than
                        or Less      Years        Years        Three Years
                       --------      -----        -----       ------------
                                        (In thousands)

Time deposits.......    $13,899      $4,487       $2,923         $4,266






                                       16
<PAGE>

     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,
2004.


                                                            At June 30, 2004
Maturity                                                    ----------------
--------                                                     (In thousands)
Three months or less......................................         $  630
Greater than three months through six months..............          3,133
Greater than six months through twelve months.............          1,383
Over twelve months........................................          4,609
                                                                   ------
     Total................................................         $9,755
                                                                   ======

     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
                                                    2004      Deposits        2003          2003      Deposits
                                                 ----------   --------      --------     ----------   --------
                                                                     (Dollars in thousands)
<S>                                               <C>          <C>         <C>           <C>            <C>
Withdrawable:
   Savings accounts.............................   $ 5,448     14.01%       $   459       $ 4,989       12.94%
   Money market accounts........................     2,351      6.04          1,126         1,225        3.18
   NOW accounts and other transaction
     accounts...................................     5,522     14.20           (108)        5,630       14.61
                                                   -------    ------        -------       -------      ------
     Total withdrawable.........................    13,321     34.25          1,477        11,844       30.73
Certificates (original terms):
   3 months.....................................       261      0.67             18           243        0.63
   6 months.....................................     1,577      4.05            226         1,351        3.51
   12 months....................................     4,669     12.00           (728)        5,397       14.00
   18 months....................................     2,175      5.59           (270)        2,445        6.34
   24 months....................................     1,303      3.35         (1,016)        2,319        6.02
   30 months....................................     4,509     11.59            (93)        4,602       11.94
   36 months....................................     2,648      6.81            954         1,694        4.40
   48 months....................................     1,555      4.00             59         1,496        3.88
   60 months....................................     6,049     15.55           (343)        6,392       16.59
IRAs (original terms):
   12 months....................................       208      0.54             38           170        0.44
   36 months....................................       331      0.85             71           260        0.67
   60 months....................................       290      0.75            (36)          326        0.85
                                                   -------    ------        -------       -------      ------
     Total certificates and IRAs................    25,575     65.75         (1,120)       26,695       69.27
                                                   -------    ------        -------       -------      ------
                  Total deposits................   $38,896    100.00%       $   357       $38,539      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, 2004, the Bank
had $17.0 million in borrowings from the FHLB of  Indianapolis,  which mature on
various dates during the years 2004 through 2009 and have interest rates ranging
from 1.44% to 5.45%.  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  $32.3  million  in  eligible  assets  available  as
collateral for advances from the FHLB of Indianapolis as of June 30, 2004. Based
on  the  Bank's  blanket  collateral  agreements,  advances  from  the  FHLB  of
Indianapolis  must be collateralized by not less than 155% of eligible loans and
105% of eligible  securities.  Therefore,  the Bank's eligible  collateral would
have  supported  approximately  $21.5  million  in  advances  from  the  FHLB of
Indianapolis as of June 30, 2004.



                                       17
<PAGE>


     The following  table presents  certain  information  relating to the Bank's
FHLB borrowings for the years ended June 30, 2004, 2003 and 2002.

<TABLE>
<CAPTION>

                                                             At or for the Year Ended June 30,
                                                        -----------------------------------------
                                                         2004             2003              2002
                                                        ------           ------            ------
                                                                     (In thousands)
<S>                                                     <C>               <C>              <C>
FHLB Advances:
   Average balance outstanding.......................   $15,333           $17,583          $19,038
   Maximum amount outstanding at any
     month-end during the period.....................   $17,000           $20,500          $22,000
   Weighted average interest rate during the period..      4.22%             4.94%            5.14%
   Weighted average interest rate at end of period...      3.36%             4.46%            5.07%

</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,  2004,  outstanding  contracts  on BSF
subdivision lots were:


Name of Subdivision                     Number of Contracts    Contract Balance
-------------------                     -------------------    ----------------
Greene Woods.......................             1                  $  6,751
Autumn Hills.......................             5                    55,913
Coon Path..........................             2                    24,660
Quarry Woods.......................             3                   130,199
                                               --                  --------
    Total outstanding contracts....            11                  $217,523
                                               ==                  ========


     BSF has been  developing  Hancock  Corner as a subdivision  to  accommodate
modular homes. During the fiscal year ended June 30, 2004, no lots were sold. At
June 30, 2004, this development had 15 tracts of ground in inventory with a sale
price of $291,000.

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

     BSF from time to time keeps a number of its tracts of land for mobile  home
repossession.  BSF  purchases  repossessed  mobile  homes  from the Bank at book
value, which would approximate market value. The mobile homes are then placed on
the  vacant  tracts of land and sold by BSF,  thereby  protecting  the Bank from
related  losses.  As of June 30,  2004,  no mobile  homes  were  located on lots
waiting for sale.

     During fiscal 2004, BSF sold the remaining five  residential lots in Quarry
Woods for  $170,000.  As of June 30,  2004,  Quarry  Woods  remaining  inventory
consisted of two commercial lots with a sale price of $291,500.

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


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



                                       18
<PAGE>


     At June 30, 2004, the Bank's aggregate  investment in BSF was $471,000.  As
of that  date,  the  Bank  had an  inter-company  loan to BSF in the  amount  of
$150,000.  Excluding certain  administrative costs not specifically allocated to
its operations,  BSF net income for the years ended June 30, 2004, 2003 and 2002
was $19,000, $40,000 and $39,000,  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,  2004,  land and  property  held by Cunot  Apartments,  L.P.
totaled  $1,239,000.  The Bank's share of net operating  losses from the project
during the year was $60,000, reducing its net investment to $459,000 at June 30,
2004.  Income tax  credits  related to this  investment  reduced  the  Company's
federal income tax expense by $107,000 in fiscal year 2004.


Employees

     As of June 30, 2004, the Company  employed 22 persons on a full-time  basis
and four  persons on a  part-time  basis.  None of the  Company's  employees  is
represented by a collective bargaining group.  Management considers its employee
relations to be excellent.

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

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


                                  COMPETITION

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

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

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



                                       19
<PAGE>

     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, 2004, was $11,951.

     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.



                                       20
<PAGE>


     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,  2004,  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.



                                       21
<PAGE>

     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 12
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, 2004, the Bank's  investment in
stock of the FHLB of Indianapolis was $1.2 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, 2004,  dividends paid by FHLB to the Bank totaled
$53,000, for an annual rate of 4.5%.


Federal Reserve System

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

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



                                       22
<PAGE>

Insurance of Deposits

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

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

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

     In addition to the assessment for deposit insurance,  savings  institutions
are  required  to  pay on  bonds  issued  in the  late  1980s  by the  Financing
Corporation to  recapitalize  the  predecessor to the SAIF. By law,  payments on
Financing  Corporation  obligations have been shared equally between the members
of both  insurance  funds  since  January 1, 2000.  The  Bank's  annual  deposit
insurance  premium for the year ended June 30,  2004,  including  the  Financing
Corporation  payments,  was  approximately  $12,000  based upon its current risk
classification  and the new assessment  schedule for SAIF insured  institutions.
These premiums are subject to change in future  periods.

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


Regulatory Capital

     Currently,  savings  associations  are  subject to three  separate  minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The OTS requires a core capital level of 3% of total adjusted assets for savings
associations that receive the highest rating for safety and soundness, and 4% to
5% for other savings  associations.  Under the tangible capital  requirement,  a
savings  association  must  maintain  tangible  capital  (core  capital less all
intangible  assets  except  purchased  mortgage  servicing  rights  which may be
included  after  making the  above-noted  adjustment  in an amount up to 100% of
tangible capital) of at least 1.5% of total assets. Under the risk-based capital
requirements,  a  minimum  amount of  capital  must be  maintained  by a savings
association to account for the relative risks inherent in the type and amount of
assets held by the  savings  association.  The  risk-based  capital  requirement
requires a savings  association to maintain capital (defined generally for these
purposes as core capital  plus general  valuation  allowances  and  permanent or
maturing capital instruments such as preferred stock and subordinated debt, less
assets required to be deducted) equal to 8.0% of  risk-weighted  assets.  Assets
are ranked as to risk in one of four  categories  (0-100%).  A credit  risk-free
asset,  such as cash,  requires  no  risk-based  capital,  while an asset with a
significant  credit risk, such as a non-accrual loan,  requires a risk factor of
100%.  Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital,  tangible capital and risk-based capital requirements,
its entire  investment in and loans to a subsidiary  engaged in  activities  not
permissible for a national bank (other than exclusive agency  activities for its
customers or mortgage banking  subsidiaries).  At June 30, 2004, the Bank was in
compliance with all capital requirements imposed by law.


                                       23
<PAGE>

     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,
2004,  the Bank was  categorized as "well  capitalized,"  meaning that its total
risk-based  capital  ratio  exceeded  10%, its Tier I risk-based  capital  ratio
exceeded  6%,  its  leverage  ratio  exceeded  5%,  and it was not  subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.

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


Capital Distributions Regulation

     An OTS regulation imposes  limitations upon all "capital  distributions" by
savings  institutions,  including cash dividends,  payments by an institution to
repurchase or otherwise acquire its shares,  payments to shareholders of another
institution  in a  cash-out  merger  and  other  distributions  charged  against
capital.  The OTS  regulations  permit a savings  institution  to make a capital
distribution  to its  shareholders  in a maximum amount that does not exceed the
institution's  undistributed  net income for the prior two years plus the amount
of its  undistributed  income for the current year.  The rule requires a savings
institution,  such as the  Bank,  that is a  subsidiary  of a  savings  and loan
holding  company  to file a notice  with the OTS  thirty  days  before  making a
capital distribution up to the maximum amount described above. The proposed rule
would also require all savings  institutions,  whether a holding company or not,
to file an  application  with the OTS prior to making any  capital  distribution
where the association is not eligible for "expedited  processing"  under the OTS
"Expedited  Processing  Regulation," where the proposed  distribution,  together
with any other  distributions  made in the same year,  would exceed the "maximum
amount"  described  above,  where  the  institution  would be under  capitalized
following the distribution or where the distribution would otherwise be contrary
to a statute,  regulation  or agreement  with the OTS.  The Bank's  retained net
income standard at June 30, 2004, was $1.0 million.



                                       24
<PAGE>

     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.


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.


                                       25
<PAGE>

     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, 2004,  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.



                                       26
<PAGE>

     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 ss.  7701(a)(19)  of the Code or the asset
composition test of ss. 7701(c) of the Code.  Branching that would result in the
formation of a multiple  savings and loan holding  company  controlling  savings
associations  in more  than one  state is  permitted  if the law of the state in
which the savings association to be acquired is located specifically  authorizes
acquisitions   of  its   state-chartered   associations   by  state-   chartered
associations  or their  holding  companies  in the  state  where  the  acquiring
association or holding company is located.  Moreover,  Indiana banks and savings
associations   are   permitted  to  acquire  other  Indiana  banks  and  savings
associations and to establish branches throughout Indiana.

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

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


Community Reinvestment Act Matters

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


Recent Legislative Developments

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



                                       27
<PAGE>

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


                                    TAXATION

Federal Taxation

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

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

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



                                       28
<PAGE>

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 for the three years ended June 30,
2004, are in the process of being audited by the Indiana Department of Revenue.


Item 2.    Description of Property.

     The  Company  conducts  business  from its main  office at 279 East  Morgan
Street, Spencer,  Indiana 47460, and its branch office at 102 South Main Street,
Cloverdale,  Indiana 46120. The Company owns both of its offices.  The following
table provides certain  information with respect to the Company's  offices as of
June 30, 2004:

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

<C>                                     <C>        <C>              <C>               <C>
279 East Morgan Street       Owned      1987       $31,432          $1,347            11,300
Spencer, IN  47460
(including annex)

102 South Main Street        Owned      1998       $ 7,464          $  773             6,000
Cloverdale, IN  46120

</TABLE>


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

     As of June 30,  2004,  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,  which was acquired in March 2004 by
Fidelity  Integrated  Financial  Solutions,  a  division  of  Fidelity  National
Financial Company.  The cost of these data processing services was approximately
$13,000 per month for the twelve months ended June 30, 2004.


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, 2004.



                                       29
<PAGE>

                                    PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
        Issuer Purchases of Equity Securities.

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

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

      September 30, 2003        5.810          5.020           0.030
      December 31, 2003         6.400          5.200           0.030
      March 31, 2004            6.360          5.500           0.030
      June 30, 2004             6.350          5.360           0.030


Holders

     As of August 25, 2004, there were  approximately 235 registered  holders of
the Holding Company's Common Stock. Management estimates at least 265 additional
stockholders held shares in broker accounts on August 25, 2004.


Stockholder Matters

     The book value of the Holding Company's Common Stock was $5.25 per share at
June 30,  2004.  On this same date,  the price of the Holding  Company's  Common
Stock was $6.29 per share,  representing a 119.8% price-to-book value ratio. For
the year ended June 30, 2004,  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  sold no equity  securities  during the period  covered by this
report that were not registered under the Securities Act of 1933.


Stock Repurchases

     The Company  repurchased  no shares of its Common Stock during  fiscal year
2004.  The  Company has 83,000  shares  which may be  repurchased  in the future
pursuant to a previously  authorized stock repurchase program. At June 30, 2004,
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.






                                       30
<PAGE>

     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.





                                       31
<PAGE>
<TABLE>
<CAPTION>

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.


                                                                          At  June 30
                                                   -----------------------------------------------------------
                                                    2004         2003         2002         2001         2000
                                                   -------      -------      -------      -------      -------
                                                                     (Dollars in thousands)
<S>                                                <C>          <C>          <C>          <C>          <C>
Summary of Financial Condition:
Total assets....................................   $63,426      $61,671      $66,746      $68,792      $59,451
Loans receivable, net...........................    50,721       48,500       52,707       54,244       45,341
Cash and cash equivalents.......................     3,635        4,612        3,601        3,214        1,716
Securities available for sale...................     2,438        2,869        4,626        6,147        7,712
Deposits........................................    38,896       38,539       41,456       41,111       38,542
Federal Home Loan Bank advances
   and other borrowings.........................    17,000       16,000       18,505       21,300       13,500
Stockholders' equity............................     7,126        6,721        6,381        5,946        7,182


                                                                      Year Ended  June 30
                                                   -----------------------------------------------------------
                                                    2004         2003         2002         2001         2000
                                                   -------      -------      -------      -------      -------
                                                                     (Dollars in thousands)
Summary of Operating Results:
Interest and dividend income....................    $4,570       $5,117       $5,662       $5,764       $4,773
Interest expense................................     1,526        2,039        2,697        3,210        2,577
                                                    ------       ------       ------       ------       ------
   Net interest income..........................     3,044        3,078        2,965        2,554        2,196
Provision for loan losses.......................       240          230          167           60           54
                                                    ------       ------       ------       ------       ------
   Net interest income after provision for
          loan losses...........................     2,804        2,848        2,798        2,494        2,142
                                                    ------       ------       ------       ------       ------
Other income:
   Service charges on deposit accounts..........       199          218          219          177          151
   Gain on sale of real estate acquired
        for development.........................        30           70           78           98           25
   Net realized gain (loss) on sales of
       available for sale securities ...........      (180)        (178)         (46)         107          (18)
   Loss on low-income housing investment........       (60)         (58)         (56)         (48)         (34)
   Other........................................        74           80           39           32           30
                                                    ------       ------       ------       ------       ------
      Total other income........................        63          132          234          366          154
Other expenses:
   Salaries and employee benefits...............     1,254        1,282        1,216        1,116          924
   Net occupancy expense........................       125          155          171          177          145
   Equipment expense............................        76           95           97          109          139
   Repossessed property expense.................       229          113           75           31           10
   Computer processing expense..................       241          258          247          225          185
   Printing and office supplies.................        53           50           50           56           43
   Advertising..................................        54           33           46           56           46
   Legal and professional fees..................       190          108          189          185          137
   Directors and committee fees.................        58           51           61           58           57
   Other........................................       283          338          232          248          207
                                                    ------       ------       ------       ------       ------
        Total other expenses....................     2,563        2,483        2,384        2,261        1,893
                                                    ------       ------       ------       ------       ------
Income before income tax........................       304          497          648          599          403
Income tax expense..............................       (57)         152          148          137           54
                                                    ------       ------       ------       ------       ------
   Net income...................................    $  361       $  345       $  500       $  462       $  349
                                                    ======       ======       ======       ======       ======



                                       32
<PAGE>

                                                                      Year Ended  June 30
                                                   -----------------------------------------------------------
                                                    2004         2003         2002         2001         2000
                                                   -------      -------      -------      -------      -------
                                                                     (Dollars in thousands)
Supplemental Data (1):
Basic earnings per share....................    $    .28     $    .27      $    .39     $    .31     $    .22
Diluted earnings per share..................         .27          .27           .39          .31          .22
Book value per common share at end of year..        5.25         4.96          4.71         4.38         4.19
Dividends per share.........................         .12          .12           .12          .09          .06
Dividend payout ratio.......................       42.86%       44.44%        30.77%       29.03%       27.27%
Return on assets (2) .......................        0.59         0.53          0.74         0.71         0.61
Return on equity (3)........................        5.21         5.26          8.12         6.69         4.92
Interest rate spread (4) ...................        5.18         4.87          4.43         3.72         3.62
Net yield on interest-earning assets (5)....        5.40         5.09          4.67         4.10         4.06
Other expenses to average assets ...........        4.17         3.80          3.50         3.48         3.30
Net interest income to other expenses.......        1.19x        1.24x         1.24x        1.13x        1.16x
Equity-to-assets (6)........................       11.23        10.90          9.56         8.64%       12.08%
Average equity to average total assets......       11.28        10.04          9.05        10.63        12.37
Average interest-earning assets to average
   interest-bearing liabilities.............        1.08x        1.06x         1.06x        1.07x        1.09x
Non-performing assets to total assets.......        2.56%        1.83%         1.60%        1.60%         .72%
Non-performing loans to total loans.........        1.24         1.07          1.21         1.97          .86
Loan loss allowance to total loans, net.....        0.77         0.65          0.65          .72          .81
Loan loss allowance to non-performing loans.       62.26        60.77         53.83        36.77        94.18
Net charge-offs to average loans ...........        0.33         0.51          0.40          .08          .04
-----------------
(1)  All per share  amounts have been  restated to reflect a 2-for-1 stock split
     effective January 10, 2001.
(2)  Net income divided by average total assets.
(3)  Net income divided by average total equity.
(4)  Interest rate spread is calculated by subtracting combined weighted average
     interest rate cost from combined  weighted average interest rate earned for
     the period indicated.
(5)  Net interest income divided by average interest-earning assets.
(6)  Total equity divided by total assets.

</TABLE>


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

General

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

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

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



                                       33
<PAGE>
<TABLE>
<CAPTION>
                                              Average Balance Sheet*/Yield Analysis

                                                                                Year Ended June 30,
                                             ---------------------------------------------------------------------------------------
                                                         2004                          2003                          2002
                                             ---------------------------   ---------------------------   ---------------------------
                                             Average              Yield/   Average              Yield/   Average              Yield/
                                             Balance   Interest    Cost    Balance   Interest    Cost    Balance   Interest    Cost
                                             -------   --------   ------   -------   --------   ------   -------   --------   ------
                                                                               (Dollars in thousands)
<S>                                          <C>         <C>       <C>     <C>        <C>        <C>     <C>        <C>        <C>
Assets:
Interest-earning assets:
   Interest-earning deposits .............   $ 3,919     $   40    1.02%   $ 4,452    $   66     1.48%   $ 3,528    $   77     2.17%
   Investment securities (1) .............     2,424        117    4.83      4,004       202     5.05      5,360       272     5.07
   Loans receivable (2)(3) ...............    48,843      4,360    8.93     50,976     4,785     9.39     53,487     5,241     9.80
   Stock in FHLB of Indianapolis .........     1,142         53    4.64      1,104        64     5.78      1,100        72     6.57
                                             -------     ------            -------    ------             -------    ------
     Total interest-earning assets .......    56,328      4,570    8.11     60,536     5,117     8.45     63,475    $5,662     8.92
                                                         ------                       ------                        ------
Non-interest earning assets, net of
   allowance for loan losses and including
   unrealized gain (loss) on securities
   available for sale ....................     5,131                         4,815                         4,543
                                             -------                       -------                       -------
     Total assets ........................   $61,459                       $65,351                       $68,018
                                             =======                       =======                       =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
   Savings accounts ......................   $ 5,151         23    0.45%   $ 4,926        45     0.91%   $ 4,322        83     1.93%
   NOW and money market accounts .........     5,578         42    0.75      5,411        52     0.96      4,977        87     1.75
   Certificates of deposit ...............    25,806        814    3.15     29,049     1,074     3.70     31,562     1,520     4.82
   FHLB advances and other borrowings ....    15,600        647    4.15     17,583       868     4.94     19,251     1,007     5.23
                                             -------     ------            -------    ------             -------    ------
     Total interest-bearing liabilities ..    52,135      1,526    2.93     56,969     2,039     3.58     60,112     2,697     4.49
                                                         ------                       ------                        ------

Other liabilities ........................     2,394                         1,817                         1,749
                                             -------                       -------                       -------
     Total liabilities ...................    54,529                        58,786                        61,861
                                             -------                       -------                       -------
Stockholders' equity .....................     6,968                         6,673                         6,306
Net unrealized gain/(loss) on securities
   available for sale ....................       (38)                         (110)                         (149)
                                             -------                       -------                       -------
     Total stockholders' equity ..........     6,930                         6,563                         6,157
                                             -------                       -------                       -------
     Total liabilities and
         stockholders' equity ............   $61,459                       $65,349                       $68,018
                                             =======                       =======                       =======
Net interest-earning assets ..............   $ 4,193                       $ 3,567                       $ 3,363
                                             =======                       =======                       =======
Net interest income ......................              $ 3,044                      $ 3,078                       $ 2,965
                                                        =======                      =======                       =======
Interest rate spread .....................                         5.18                          4.87                          4.43
Net yield on weighted average
   interest-earning assets ...............                         5.40                          5.09                          4.67
Average interest-earning assets to
   average interest-bearing liabilities ..    108.04%                       106.26%                       105.59%
-----------------
*    Average  balances are computed using  beginning and ending balances of each
     of the four quarters included in the fiscal year.
(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.
(3)  Includes loan fees, which amounts are not material.

</TABLE>




                                       34
<PAGE>
<TABLE>
<CAPTION>
                         Interest Rate Spread Analysis

                                                                   Year Ended June 30,
                                                At June 30,    ----------------------------
                                                   2004        2004        2003        2002
                                                -----------    ----        ----        ----
<S>                                                 <C>        <C>         <C>         <C>
Weighted average interest rate earned on:
   Interest-earning deposits................        1.34%      1.02%       1.48%       2.17%
   Investment securities....................        5.25       4.83        5.05        5.07
   Loans receivable.........................        8.62       8.93        9.39        9.80
   Stock in FHLB of Indianapolis............        4.50       4.64        5.78        6.57
     Total interest-earning assets..........        7.97       8.11        8.45        8.92

Weighted average interest rate cost of:
   Savings accounts.........................        0.25       0.45        0.91        1.93
   NOW and money market accounts............        0.52       0.75        0.96        1.75
   Certificates of deposit..................        3.10       3.15        3.70        4.82
   FHLB advances and other borrowings.......        3.36       4.15        4.94        5.23
     Total interest-bearing liabilities.....        2.55       2.93        3.58        4.49

Interest rate spread (1)....................        5.42       5.18        4.87        4.43
Net yield on weighted average
   interest-earning assets (2)..............                   5.40        5.09        4.67
-----------------------
(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,
     2004, because the computation of net yield is applicable only over a period
     rather than at a specific date.

</TABLE>

     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.





                                       35
<PAGE>
<TABLE>
<CAPTION>
                                 Rate/Volume Analysis

                                                    Increase (Decrease) in Net Interest Income
                                                    ------------------------------------------
                                                        Due to      Due to      Total Net
                                                        Volume       Rate        Change
Year ended June 30, 2004 compared to                   --------    --------     ---------
   Year ended June 30, 2003                                  (Dollars in thousands)
------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>          <C>
Interest-earning assets:
   Interest-earning deposits.........................    $  (7)      $ (19)       $ (26)
   Investment securities.............................      (77)         (8)         (85)
   Loans receivable..................................     (196)       (229)        (425)
   Stock in FHLB of Indianapolis.....................        2         (13)         (11)
                                                         -----       -----        -----
     Total...........................................     (278)       (269)        (547)
Interest-bearing liabilities:
   Savings accounts..................................        2         (24)         (22)
   NOW and money market accounts.....................        2         (12)         (10)
   Certificates of deposit...........................     (112)       (148)        (260)
   FHLB advances and other borrowings................      (91)       (130)        (221)
                                                         -----       -----        -----
     Total...........................................     (199)       (314)        (513)
                                                         -----       -----        -----
Change in net interest income........................    $ (79)      $  45        $ (34)
                                                         =====       =====        =====

Year ended June 30, 2003 compared to
   Year ended June 30, 2002
------------------------------------------------------------------------------------------
Interest-earning assets:
   Interest-earning deposits.........................    $  17       $ (28)       $ (11)
   Investment securities.............................      (68)         (2)         (70)
   Loans receivable..................................     (241)       (215)        (456)
   Stock in FHLB of Indianapolis.....................       --          (8)          (8)
                                                         -----       -----        -----
     Total...........................................     (292)       (253)        (545)
Interest-bearing liabilities:
   Savings accounts..................................       10         (48)         (38)
   NOW and money market accounts.....................        7         (42)         (35)
   Certificates of deposit...........................     (114)       (332)        (446)
   FHLB advances and other borrowings................      (84)        (55)        (139)
                                                         -----       -----        -----
     Total...........................................     (181)       (477)        (658)
                                                         -----       -----        -----
Change in net interest income........................    $(111)      $ 224        $ 113
                                                         =====       =====        =====

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

</TABLE>



                                       36
<PAGE>

Critical Accounting Policies

     Below and in the notes to the consolidated  financial  statements presented
on pages F-6 through F-8 of the Annual Report to Shareholders for the year ended
June 30, 2004, is a summary of the Company's  significant  accounting  policies.
Certain of these  policies  are  important  to the  portrayal  of the  Company's
financial condition, since they require management to make difficult, complex or
subjective  judgments,  some of which may relate to matters that are  inherently
uncertain.  Management  believes that its critical  accounting  policies include
determining  the allowance for loan losses,  the valuation of foreclosed  assets
and real estate  acquired for  development  and the  accounting  for  investment
securities.

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

     The determination of the adequacy of the allowance for loan losses is based
on estimates that are  particularly  susceptible  to significant  changes in the
economic  environment and market conditions.  A worsening or protracted economic
decline would  increase the  likelihood  of additional  losses due to credit and
market risk and could create the need for additional  loss reserves.

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

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


Changes in Financial  Position  and Results of  Operations - Year Ended June 30,
2004, Compared to Year Ended June 30, 2003:

     General.  Company earnings are primarily  dependent upon, and driven by net
interest  income,  which is the difference  between interest income and interest
expense. The Company's prosperity is generally,  yet not completely,  determined
by how much loan and investment  revenue  exceeds  deposit and borrowing  costs.
During  most of 2004,  the volume of earning  assets  decreased  while the yield
earned  on  these  assets  also  decreased.  Consequently,  much  less  loan and
investment interest income was earned in 2004 than in 2003. However,  due to the
prolonged period of low market interest rates, interest expense for deposits and
borrowings also  experienced a remarkable  decrease.  The end result was a small
reduction in net interest  income,  despite large changes in the components that
generate net interest income.

     Weak credits originated in prior years,  combined with lingering effects of
a  soft  economy  produced  a  continuation  of  costly   delinquent  loans  and
repossession  activity  in fiscal  2004.  In  addition  to the  direct  costs of
acquiring,  repairing and disposing of repossessed property, the cost of holding
large  amounts of  non-earning  assets also had an adverse  impact on the bottom
line.  At June 30, 2004  repossessed  property  totaled  nearly $1.0 million and
another  $636,000  was  invested in  non-performing  loans.



                                       37
<PAGE>

     Net income was also adversely  impacted by investment losses for the second
consecutive  year.  Recovery  of prior  year  tax  benefits  plus  tax  benefits
generated in 2004  combined to  substantially  reduce income tax expense for the
year.  Management  believes that  recognition  of  impairment on certain  equity
securities was consistent with generally  accepted  accounting  guidance and was
simply  the  right  thing  to do.  Although  future  performance  is  uncertain,
management  believes  remaining  equity  securities  are unlikely to  experience
future losses of similar magnitude.

     Net income of $361,000  was earned for the year ended June 30,  2004.  This
4.8%  increase  compares to net income of  $345,000  for the year ended June 30,
2003. The return on average assets for 2004 was .59%, compared to .53% for 2003.
The  return  on  average  equity  was 5.21% for the year  ended  June 30,  2004,
compared to 5.26% for the year ended June 30, 2003.  The Company  reported  $.28
basic and $.27  diluted  earnings  per share for the year  ended  June 30,  2004
compared to $.27 basic and diluted earnings per share for the prior year.

     Assets.  Total assets  increased due to a rise in mortgage loan  production
during  the fourth  quarter.  The  increase  in new loans  coincided  with a new
marketing plan and more competitive loan rates.  Efforts to restructure  balance
sheet  liabilities were rewarded with an increase in lower-costing  deposits and
low-rate long-term borrowings.  The shift in cost and composition of liabilities
provided a welcome  opportunity to increase loan  production  volume and quality
without unacceptable exposure to interest rate changes.

     At June 30, 2004,  assets  increased  $1,755,000,  or 2.8% to  $63,426,000,
compared to $61,671,000 at June 30, 2003.  Cash and cash  equivalents  decreased
$977,000 or 21.2%, to $3,635,000 at year-end 2004, compared to $4,612,000 a year
earlier. Investment securities available for sale decreased $431,000 or 15.0% to
$2,438,000  at June 30, 2004,  compared to  $2,869,000  at June 30,  2003.  This
decrease  reflected a $178,000  write-down  of impaired  equity  securities  and
prepayments on mortgage-backed  securities. Real estate acquired for development
decreased  $99,000 or 18.4% to $439,000 due to land sales during the year by the
Bank's service corporation, BSF, Inc.

     Total loans  increased  $2,301,000  or 4.7% during fiscal 2004. At June 30,
2004,  total loans were  $51,117,000  compared to  $48,816,000 at prior year-end
June 30,  2003.  Loans  increased  during the  fourth  quarter  in  response  to
effective advertising and a decision to offer competitive mortgage loan rates.

     Because all loans are  traditionally  retained on the Bank's 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.  However,  efforts to manage  liabilities  produced  an increase in core
deposit balances,  less dependence on volatile  certificates of deposit, and low
long-term  rates on borrowed  funds.  Although risks  associated with lower-rate
long-term loans clearly remain, management believes that liability restructuring
has moderated these risks to acceptable levels.

     At year-end, stock in the FHLB of Indianapolis stood at $1,170,000 for 2004
and $1,115,000 for 2003. Net premises and equipment  increased  $89,000 or 4.4%,
to  $2,120,000  at June 30,  2004  compared  to  $2,031,000  at June  30,  2003.
Foreclosed real estate and  repossessed  assets  increased  $382,000 to $990,000
compared to $608,000 at June 30, 2003.  The total at June 30, 2004  consisted of
fourteen residences with real estate and fourteen mobile or modular homes.

     Average assets  decreased  $3,892,000 or 6.0%, to $61,459,000  for the year
ended June 30, 2004,  compared to $65,351,000  for the prior year ended June 30,
2003.  Average   interest-earning   assets  decreased  $4,208,000  or  7.0%,  to
$56,328,000  for the year ended June 30, 2004 and  represented  91.7% of average
assets.  Half  of  this  decrease  was  due to  average  loans  which  decreased
$2,133,000 or 4.2%, to $48,843,000 for the year ended June 30, 2004, compared to
$50,976,000  for the year ended June 30,  2003.  Average  Federal Home Loan Bank
stock increased 3.4% to $1,142,000 for the year ended June 30, 2004. The average
balance of investment  securities  decreased $1,580,000 or 39.5%, to $2,424,000,
and average  interest-earning  deposit balances  decreased $533,000 or 12.0%, to
$3,919,000 for the year ended June 30, 2004.



                                       38
<PAGE>

     Liabilities and Stockholders' Equity.  Deposits increased $357,000 or 0.9%.
Total  deposits were  $38,896,000  at June 30, 2004 and  $38,539,000 at June 30,
2003.  Certificates  of deposit  decreased  $1,120,000 or 4.2% to $25,575,000 at
June 30, 2004,  compared to $26,695,000 at June 30, 2003.  Transaction  accounts
decreased  $108,000  or 1.9%,  to  $5,522,000  at June  30,  2004,  compared  to
$5,630,000 at June 30, 2003.  Passbook and statement savings deposits  increased
$460,000 or 9.2% to $5,448,000 at June 30, 2004,  compared to $4,988,000 at June
30, 2003. In addition,  money market deposits  increased  $1,126,000 or 91.9% to
$2,351,000 at June 30, 2004.

     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 $1,000,000 or 6.3% to $17,000,000 at June 30, 2004.

     Average  liabilities  decreased  $4,257,000 or 7.2%, to $54,529,000 for the
year ended June 30, 2004,  compared to $58,786,000  for the year-ended  June 30,
2003.  Average  interest-bearing  liabilities  decreased  $4,834,000 or 8.5%, to
$52,135,000  for the year ended June 30, 2004. The decrease was primarily due to
a decrease in average  certificates of deposit.  Average certificates of deposit
decreased  $3,243,000 or 11.2% to $25,806,000  for the year ended June 30, 2004,
compared to $29,049,000 for the year ended June 30, 2003.

     Average NOW and money  management  accounts  increased  $167,000 or 3.1% to
$5,578,000  for the year ended June 30, 2004 compared to $5,411,000 for the year
ended June 30,  2003.  Average  FHLB  advances  and other  borrowings  decreased
$1,983,000 or 11.3% to $15,600,000 for the year ended June 30, 2004, compared to
$17,583,000 for the prior year ended June 30, 2003.

     Stockholders'  equity increased $404,000 or 6.0%, to $7,125,000 at June 30,
2004,  compared  to  $6,721,000  at  June  30,  2003.  Factors  impacting  total
stockholders'  equity during the year were cash dividends of $.12 per share, net
income, an $88,000 net increase in the market value of securities  available for
sale, and the amortization of costs associated with stock-based employee benefit
plans. Net income added $361,000 to equity while cash dividends paid amounted to
$143,000 in fiscal year 2004.  Amortization  of employee stock ownership and RRP
plans contributed $98,000 to the increase in stockholders' equity.

     The Company's book value per share  increased $.29 or 5.8% to $5.25 at June
30, 2004 based on 1,356,050 shares outstanding.  A year earlier,  book value per
share was $4.96 with the same 1,356,050 shares outstanding.

     Net Interest  Income.  Net interest  income  before the  provision for loan
losses decreased $34,000 or 1.1% to $3,044,000 for the year ended June 30, 2004,
compared  to  $3,078,000  for the year  ended  June 30,  2003.  Influencing  net
interest  income  were  interest  rate  changes  on  rate-sensitive  assets  and
liabilities during 2004 and average balance increases or decreases applicable to
the rate-sensitive portion of the balance sheet.

     Interest from loans fell $426,000 or 8.9% to $4,360,000  for the year-ended
June 30, 2004,  compared to $4,786,000  for the year-ended  June 30, 2003.  Loan
revenue declined primarily due to a lower weighted average yield earned on loans
during  the year.  A lower  average  balance  of loans  receivable  in 2004 also
contributed  to the  decrease.  During the fourth  quarter  ended June 30, 2004,
total  loans  increased  for the first time in six  quarters  and  exceeded  the
year-end  balance  reported a year earlier.

     Other earning assets also generated less income in 2004 than in 2003.  This
decrease  resulted  from  a  decline  in  the  average  balance  of  investments
securities  and lower average  yields earned on Federal Home Loan Bank stock and
interest-earning deposits. Income from these three sources decreased $122,000 or
36.8% to $210,000 for fiscal year 2004.

     At June 30, 2004,  investment  securities included a balance of $155,000 in
equity  securities,  some of which earn  dividends.  Equity  securities  totaled
$133,000 at June 30, 2003. Dividend income on FHLB stock totaled $53,000 for the
year ended June 30, 2004,  compared to $64,000 for the year ended June 30, 2003;
a decrease of $11,000 or 17.2%. The decrease can be attributed to a reduction in
the dividend  yield in 2004  compared to a year earlier.  The combined  weighted
average yield on the balance of interest-earning assets outstanding for the year
ended June 30,  2004  decreased  to 8.11%,  compared to 8.45% for the prior year
ended June 30, 2003.




                                       39
<PAGE>

     Total  interest  expense  decreased  $513,000  or 25.2%  compared to a year
earlier.  For the most part,  lower market  interest rates led to the decline in
interest  expense,   which  nearly  matched  the  drop  in  interest  income.  A
lower-costing  deposit mix and lower  average  balances  of borrowed  funds also
contributed to lower interest expense.

     Interest expense on deposits  decreased  $292,000 or 24.9%, to $879,000 for
the year ended June 30, 2004, compared to $1,171,000 for the year ended June 30,
2003. 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 2.41% for the year ended June 30, 2004,
compared to 3.05% for the year ended 2003.

     Interest expense on borrowings  decreased by $221,000 or 25.5%, to $647,000
for the year ended June 30,  2004,  compared to $868,000 for the year ended June
30, 2003. The decrease was the result of both a decrease in the average  balance
of borrowings  outstanding  and a decrease in the average cost of FHLB advances.
The combined weighted average rate paid on deposits and borrowings was 2.93% for
the year ended June 30, 2004, compared to 3.58% for the prior year.

     The Company's  interest rate spread  increased 31 basis points to 5.18% for
the year  ended  June 30,  2004,  compared  to 4.87% for the year ended June 30,
2003.  The net  interest  margin  increased to 5.40% for the year ended June 30,
2004,  compared  to 5.09% for the year ended June 30,  2003.  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 2004 compared to 2003.

     Provisions  for Loan  Losses.  For the year ended June 30,  2004,  the Bank
provided $240,000 for loan losses. During the prior year, provisions of $230,000
were made. The allowance for loan losses increased $80,000 or 25.3% to $396,000,
which was .78% of net loans at June 30, 2004. A year earlier,  the allowance for
loan losses totaled $316,000 or .65% of net loans. The allowance for loan losses
at June 30, 2004 was 62.3% of non-performing  loans compared to 60.8% as of June
30, 2003. See "--- Non-Performing and Problem Assets."

     Periodic  provisions to loan loss allowances  reflect  management's view of
risk in the Bank's  entire loan  portfolio  due to a number of dynamic  factors.
Management  considered  the  allowance  for loan  losses at June 30,  2004 to be
adequate to cover estimated  losses inherent in the loan portfolio at that date.
This  judgment  was  influenced  by the fact that a majority  of the Bank's loan
portfolio is comprised of residential  mortgage loans, which generally possess a
lower risk profile than most other types of loans. At June 30, 2004, residential
mortgage  loans  (including  Combo  Loans)  represented  67.29%  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  $68,000 or 51.9% to
$63,000 for the year ended June 30, 2004,  from $131,000 for the year ended June
30, 2003.  Non-interest  income in both fiscal years 2004 and 2003 were lower as
the  result  of  charges  to  recognize  deteriorated  market  value  of  equity
securities.  Investment securities sold or written-down during the twelve months
ended June 30, 2004  resulted in loss of $180,000,  compared to loss of $178,000
for the  twelve  months  ended  June 30,  2003.

     BSF Inc., the Bank's service corporation  subsidiary ("BSF"), was organized
in 1989 and has  historically  engaged in the purchasing and developing of large
tracts of real estate for residential  use.  Management has utilized the sale of
lots to provide  home  financing  opportunities  for the Bank and an  additional
source of  income  for the  Company  as a whole.  The  level of income  from BSF
fluctuates  widely since it is  primarily  dependent on the volume of lots sold,
and profits on residential properties.  Gain on sale of real estate acquired for
development  decreased $40,000 or 57.1% to $30,000 for 2004, compared to $70,000
in 2003.



                                       40
<PAGE>

     Net operating losses of $60,000 were recognized  during the year ended June
30,  2004 on the  Bank's  investment  in Cunot  Apartments,  L.P.,  compared  to
recognized losses of $58,000 during the year ended June 30, 2003.  Additionally,
income from service  charges on deposit  accounts  decreased  $18,000 or 8.3% to
$200,000 for the twelve months ended June 30, 2004, compared to $218,000 for the
twelve months ended June 30, 2003.

     Non-interest  Expense.  Non-interest  expense  increased $79,000 or 3.2% to
$2,562,000 for the year ended June 30, 2004, compared to $2,483,000 for the year
ended June 30,  2003.  An  increase in  foreclosure  and  repossession  activity
contributed to the overall increase in non-interest  expense.  Costs of handling
problem assets continued to consume increasing amounts of Company resources. The
net cost to acquire, repair and dispose of repossessed loan collateral more than
doubled to $229,000 for 2004, compared to $113,000 for 2003.

     With  adjustments to underwriting  standards  implemented over the past two
years and success attracting lower risk-profile  borrowers,  management believes
an  improvement in overall loan quality will lead to fewer problem  assets,  and
related  costs,  in years to come.  However,  it is uncertain  when the costs of
dealing  with  weaker  credits  already  in the  portfolio  will cease to have a
significant adverse impact on Company financial results.

     Legal and other  professional  fees increased  $82,000 or 75.9% to $190,000
for the year ended June 30,  2004,  compared to $108,000 for the year ended June
30, 2003. Some of this increase resulted from contracted services that fluctuate
with loan  origination  volume,  which  realized  an overall  increase  in 2004.
Management  expects the cost for  professional  advice and services  required to
comply  with SEC,  NASDAQ and OTS laws and  regulations  to increase in 2005 and
beyond.

     Salaries and employee benefits  decreased $27,000 or 2.1% to $1,254,000 for
the year ended June 30, 2004, compared to $1,281,000 for the year ended June 30,
2003. Net occupancy expense  decreased  $30,000 or 19.3% to $125,000.  Equipment
expenses decreased $19,000 or 20.0% to $76,000 for 2004, compared to $95,000 for
2003.  In  addition,  computer  processing  fees  decreased  $17,000  or 6.6% to
$241,000 for the twelve-month  period ended June 30, 2004,  compared to $258,000
for the same period a year earlier.  Decreases in these expense items  partially
offset the overall increase in non-interest expense.

     Income Tax Expense.  The Company  realized a $57,000 tax benefit for fiscal
year 2004  compared to a tax expense of  $152,000  for fiscal year 2003.  During
third quarter 2004,  corporate  tax  liability was reduced  $68,000  through the
elimination of previously  established  deferred tax asset  valuation  reserves.
That,  combined  with lower  pre-tax  income and tax benefits of capital  losses
recognized  during fiscal 2004,  resulted in a $209,000  decrease in tax expense
compared  to 2003.  Income  tax  credits  related to the  Bank's  investment  in
low-income  housing  Cunot  Apartments,  L.P.,  reduced  income  tax  expense by
approximately $107,000 in both fiscal years 2004 and 2003.


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

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



                                       41
<PAGE>

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

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

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

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

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

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

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

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

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

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



                                       42
<PAGE>

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

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

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

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

     Stockholders'  equity increased $340,000 or 5.3%, to $6,721,000 at June 30,
2003,  compared  to  $6,381,000  at  June  30,  2002.  Factors  impacting  total
stockholders'  equity during the year were cash  dividends,  net income,  and an
increase in the market value of investment securities. Net income added $345,000
to equity while cash  dividends  paid  amounted to $143,000 in fiscal year 2003.
Amortization  of  employee  stock  ownership  plans  contributed  $79,000 to the
increase in stockholders'  equity. A decrease in unrealized losses on securities
available for sale increased stockholders' equity by $59,000.

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

     Net Interest  Income.  Net interest income  increased  $113,000 or 3.8%, to
$3,078,000 for the year ended June 30, 2003, compared to $2,965,000 for the year
ended June 30, 2002. Impacting net interest income were interest rate changes on
rate-sensitive  assets and  liabilities  during the  current  period and average
balance increases or decreases  applicable to the rate-sensitive  portion of the
balance sheet.  As a result of these factors,  total interest  income  decreased
$545,000  or 9.6% while  total  interest  expense  decreased  $658,000 or 24.4%,
compared to a year earlier.

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

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



                                       43
<PAGE>

     At June 30, 2003,  investment  securities included a balance of $133,000 in
equity  securities,  some of which earn  dividends.  Equity  securities  totaled
$522,000 at June 30, 2002. Dividend income on FHLB stock totaled $64,000 for the
year ended June 30, 2003,  compared to $72,000 for the year ended June 30, 2002;
a decrease of $8,000 or 11.1%.  The decrease can be attributed to a reduction in
the dividend  yield in 2003  compared to a year earlier.  The combined  weighted
average yield on the balance of interest-earning assets outstanding for the year
ended June 30,  2003  decreased  to 8.45%,  compared to 8.92% for the prior year
ended June 30, 2002.

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

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

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

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

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

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



                                       44
<PAGE>

     BSF Inc., the Bank's service corporation  subsidiary ("BSF"), was organized
in 1989 and has  historically  engaged in the purchasing and developing of large
tracts of real estate for residential  use.  Management has utilized the sale of
lots to provide  home  financing  opportunities  for the Bank and an  additional
source of  income  for the  Company  as a whole.  The  level of income  from BSF
fluctuates  widely since it is  primarily  dependent on the volume of lots sold,
and  profits on  residential  properties.  Gain on sale of real  estate held for
investment  decreased to $70,000 for the year ended June 30,  2003,  compared to
$78,000 for the year ended June 30, 2002.

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

     An increase in foreclosure  activity contributed to the overall increase in
non-interest expense. The net cost to acquire, repair and dispose of repossessed
loan  collateral  increased  73.0% to $113,000 for 2003,  compared to $75,000 in
2002. Several  non-recurring  expenses related to a computer conversion in early
fiscal  2003,  including  $43,000 in  one-time  software  licensing  fees,  also
contributed  to  higher  overhead  expense.  Decreases  in  advertising  and net
occupancy expense partially offset the overall increase in non-interest expense.

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


Off-Balance Sheet Arrangements

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


Impact of Inflation

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

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



                                       45
<PAGE>

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


Impact of Accounting Changes

     In March 2004, the SEC issued Staff Accounting  Bulletin No. 105 (SAB 105),
Application of Accounting  Principles to Loan  Commitments.  Current  accounting
guidance requires that the commitment to originate mortgage loans to be held for
sale be  recognized on the balance  sheet at fair value from  inception  through
expiration or funding. SAB 105 requires that the fair-value  measurement include
only differences between the guaranteed interest rate in the loan commitment and
a market interest rate,  excluding any expected future cash flows related to the
customer relationship or loan servicing. SAB 105 is effective for commitments to
originate  mortgage  loans to be held for sale that are entered into after March
31,  2004.  Its  adoption  did not have a  material  impact on the  consolidated
financial position or results of operations of the Company.

     In March 2004, the FASB's Emerging Issues Task Force reached a consensus of
EITF Issue No.  03-1,  The Meaning of  Other-Than-Temporary  Impairment  and Its
Application to Certain  Investments.  The guidance prescribes a three-step model
for  determining  whether an investment is  other-than-temporarily  impaired and
requires  disclosures  about  unrealized  losses on investments.  The accounting
guidance is effective for reporting periods beginning after June 15, 2004, while
the disclosure  requirements are effective for annual  reporting  periods ending
after June 15, 2004. The adoption of this EITF did not have a material effect on
the consolidated financial position or results of operation of the Company.


Item 7.  Financial Statements.

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

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

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



                                       46
<PAGE>

     Generally,  NPV is the discounted  present value of the difference  between
incoming  cash flows on  interest-earning  assets and other  assets and outgoing
cash  flows  on   interest-bearing   liabilities  and  other  liabilities.   The
application of this methodology  attempts to quantify  interest rate risk as the
change in the NPV which would result from theoretical changes in market interest
rates.

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

     At June 30, 2004, it was estimated  that the Bank's NPV would decrease 8.7%
and 34.6% in the event of 100 and 300 basis point  increases in market  interest
rates  respectively.  It was  estimated  that the same 100 and 300  basis  point
increases in market  interest  rates would have caused NPV to decrease  2.1% and
12.4%  respectively  at June 30,  2003.  The Bank's  NPV at June 30,  2004 would
increase 4.5% in the event of a 100 basis point decrease in market rates. A year
earlier,  a 100 basis point  decrease in market rates would have  increased  NPV
2.5%.

     Presented below, as of June 30, 2004 and 2003, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
shifts in market interest rates.


                                  June 30, 2004
                     Net Portfolio Value Summary Performance

                                                          NPV as % of
                                                      Present Value (PV)
                      Net Portfolio Value                 of Assets
  Change      ---------------------------------    -----------------------
 In Rates     $ Amount     $ Change    % Change    NPV Ratio       Change
 --------     --------     --------    --------    ---------      --------
              (Dollars in thousands)
 +300 bp*      $ 7,145     $(3,776)    (34.58)%    11.39%         (485) bp
 +100 bp         9,968        (953)     (8.73)     15.12          (112) bp
    0 bp        10,921           0       0.00      16.24             --
 -100 bp        11,416         495       4.53      16.73            49  bp

          Interest Rate Risk Measures:   200 Basis Point Rate Shock
    Pre-Shock NPV Ratio:  NPV as % of PV of Assets....................   16.24%
    Exposure Measure:  Post-Shock NPV Ratio...........................   13.43%
    Sensitivity Measure:  Change in NPV Ratio.........................   282 bp



                                  June 30, 2003
                     Net Portfolio Value Summary Performance

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

 +300 bp*      $ 8,766     $(1,240)    (12.39)%    13.88%         (120) bp
 +100 bp         9,801        (205)     (2.05)     14.96           (12) bp
    0 bp        10,006           0       0.00      15.08             --
 -100 bp        10,252         246       2.46      15.24            16  bp

          Interest Rate Risk Measures:   200 Basis Point Rate Shock
    Pre-Shock NPV Ratio:  NPV as % of PV of Assets....................   15.08%
    Exposure Measure:  Post-Shock NPV Ratio...........................   14.67%
    Sensitivity Measure:  Change in NPV Ratio.........................    41 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.



                                       47
<PAGE>

Item 8A. Controls and Procedures.

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

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


Item 8B. Other Information.

     There is no  information  required  to be  reported on Form 8-K but not yet
reported.


                                    PART III

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

     The  information  required  by this  item with  respect  to  directors  and
executive  officers is  incorporated  by  reference  to pages 3 through 5 of the
Holding  Company's Proxy Statement for its 2004 Shareholder  Annual Meeting (the
"2004 Proxy Statement"). Information concerning compliance with Section 16(a) of
the  Exchange  Act is  incorporated  by  reference  to page 9 of the 2004  Proxy
Statement.

     The  Company  has a separate  Audit  Committee.  Its  members  are  Stephen
Parrish, Tad Wilson, and John T. Gillaspy.

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

     The Company has adopted a Code of Ethics that applies, among other persons,
to its principal  executive  officer,  principal  financial  officer,  principal
accounting officer or controller,  or persons  performing  similar functions.  A
copy of the Code of Ethics was filed as an exhibit to the Company's  2003 Annual
Report on Form 10-KSB.


Item 10. Executive Compensation.

     The   information   required  by  this  item  with   respect  to  executive
compensation  is  incorporated  by  reference to pages 6 and 7 of the 2004 Proxy
Statement.


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

     The information required by this item is incorporated by reference to pages
1 through 5 of the 2004 Proxy Statement.



                                       48
<PAGE>

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, 2004.

<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, 2004
                                  warrants and rights as of      options, warrants       (excluding securities
                                        June 30, 2004               and rights         reflected in column (a))
Plan category                                (a)                        (b)                        (c)
-------------------------------  ---------------------------     -----------------     ------------------------
<S>                                        <C>                        <C>                      <C>
Equity compensation plans
  approved by security holders:
    Home Financial Bancorp
      Stock Option Plan........            79,800                     $4.24                    122,570
Equity compensation plans not
  approved by security holders.                --                        --                         --

Total .........................            79,800                     $4.24                    122,570

</TABLE>


Item 12. Certain Relationships and Related Transactions.

     The information  required by this item is incorporated by reference to page
8 of the 2004 Proxy Statement.


Item 13. Exhibits.

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

     Financial Statements                                               Page No.
     --------------------                                               --------

     Independent Auditor's Report                                          F-1

     Consolidated Balance Sheets at June 30, 2004 and 2003                 F-2

     Consolidated Statement of Income for the Years Ended
          June 30, 2004, 2003 and 2002                                     F-3

     Consolidated Statement of Stockholders' Equity
          for the Years Ended June 30, 2004, 2003 and 2002                 F-4

     Consolidated Statement of Cash Flows for the Years Ended
          June 30, 2004, 2003 and 2002                                     F-5

     Notes to Consolidated Financial Statements                            F-6


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

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


Item 14. Principal Accountant Fees and Service.

     The information required by this item is incorporated by reference to pages
8 and 9 of the 2004 Proxy Statement.



                                       49
<PAGE>


                                   SIGNATURES

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


                                        HOME FINANCIAL BANCORP


Date: September 9, 2004                 By: /s/ Kurt D. Rosenberger
                                            ------------------------------------
                                            Kurt D. Rosenberger, President and
                                               Chief Executive Officer



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


/s/ Kurt D. Rosenberger                                 September 9, 2004
--------------------------------------------------
Kurt D. Rosenberger
President, Chief Executive Officer and
Director (Principal Executive Officer)

/s/ Gary M. Monnett                                     September 9, 2004
--------------------------------------------------
Gary M. Monnett
Executive Vice President, Chief Financial
Officer and Director (Principal Financial Officer)

/s/ John T. Gillaspy                                    September 9, 2004
--------------------------------------------------
John T. Gillaspy, Director

/s/ Stephen Parrish                                     September 9, 2004
--------------------------------------------------
Stephen Parrish, Director

/s/ Robert W. Raper                                     September 9, 2004
--------------------------------------------------
Robert W. Raper, Vice Chairman

/s/ Frank R. Stewart                                    September 9, 2004
--------------------------------------------------
Frank R. Stewart, Chairman

/s/ Tad Wilson                                          September 9, 2004
--------------------------------------------------
Tad Wilson, Director




                                       50

<PAGE>


                                  EXHIBIT INDEX

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

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

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

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

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

    10(3)      Employment  Agreement  between Owen Community Bank, s.b. and Kurt
               D.  Rosenberger,  dated July 1, 1999, and Amendment thereto dated
               December 17, 2002, are incorporated by reference to Exhibit 10(3)
               to the Report on Form 10-KSB for the year ended June 30, 2003.

    10(4)      Employment  Agreement  between Owen Community Bank, s.b. and Gary
               M. Monnett, dated December 17, 2002, is incorporated by reference
               to Exhibit  10(4) to the Report on Form 10-KSB for the year ended
               June 30, 2003.

    10(5)      Employment  Contract  between Owen Community Bank, s.b. and Frank
               R. Stewart,  dated July 1, 1999, is  incorporated by reference to
               Exhibit  10(5) to the  Report on Form  10-KSB  for the year ended
               June 30, 2003.

    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.

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

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

    23         Consent of Independent Auditor

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

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

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

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




                                      E-1
<PAGE>




             Report of Independent Registered Public Accounting Firm


Audit Committee, Board of Directors and Stockholders
Home Financial Bancorp
Spencer, Indiana


We have audited the accompanying  consolidated  balance sheets of Home Financial
Bancorp as of June 30, 2004 and 2003, and the related consolidated statements of
income,  stockholders'  equity and cash flows for each of the three years in the
period ended June 30, 2004. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Home  Financial
Bancorp as of June 30, 2004 and 2003,  and the results of its operations and its
cash flows for each of the three  years in the period  ended June 30,  2004,  in
conformity with accounting principles generally accepted in the United States of
America.



/s/ BKD, LLP

Indianapolis, Indiana
August 6, 2004




                                       F-1
<PAGE>
<TABLE>
<CAPTION>

                             Home Financial Bancorp
                           Consolidated Balance Sheets
                             June 30, 2004 and 2003


Assets

                                                                                 2004                  2003
                                                                         --------------------- ---------------------
<S>                                                                        <C>                   <C>
    Cash                                                                   $        818,890      $        372,753
    Short-term interest-bearing deposits                                          2,816,208             4,239,305
                                                                           ----------------      ----------------
               Total cash and cash equivalents                                    3,635,098             4,612,058
    Investment securities - available for sale                                    2,438,445             2,868,964
    Loans, net of allowance for loan losses of $395,923 and
       $316,418                                                                  50,721,150            48,499,586
    Real estate acquired for development                                            438,771               537,654
    Premises and equipment                                                        2,120,358             2,031,132
    Federal Home Loan Bank of Indianapolis stock                                  1,169,600             1,114,500
    Interest receivable                                                             347,400               380,163
    Other assets                                                                  2,555,591             1,626,551
                                                                           ----------------      ----------------

               Total assets                                                $     63,426,413      $     61,670,608
                                                                           ================      ================

Liabilities
    Deposits
        Noninterest-bearing                                                $      2,413,553      $      2,154,824
        Interest-bearing deposits                                                36,482,892            36,383,786
                                                                           ----------------      ----------------
               Total deposits                                                    38,896,445            38,538,610
    Borrowings                                                                   17,000,000            16,000,000
    Other liabilities                                                               404,274               410,691
                                                                           ----------------      ----------------
               Total liabilities                                                 56,300,719            54,949,301
                                                                           ----------------      ----------------

Commitments and Contingencies

Stockholders' Equity
    Preferred stock, without par value
        Authorized and unissued - 2,000,000 shares
    Common stock, without par value
        Authorized - 5,000,000 shares
        Issued and outstanding - 1,356,050 shares                                 3,059,159             3,059,159
    Additional paid-in capital                                                      235,918               188,065
    Retained earnings                                                             3,918,668             3,700,469
    Unearned compensation                                                           (32,886)              (47,407)
    Unearned ESOP shares                                                            (59,947)              (95,784)
    Accumulated other comprehensive income (loss)                                     4,782               (83,195)
                                                                           ----------------      ----------------
               Total stockholders' equity                                         7,125,694             6,721,307
                                                                           ----------------      ----------------

               Total liabilities and stockholders' equity                  $     63,426,413      $     61,670,608
                                                                           ================      ================



See Notes to Consolidated Financial Statements


                                       F-2

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                        Home Financial Bancorp
                                                   Consolidated Statements of Income
                                               Years Ended June 30, 2004, 2003 and 2002


                                                                 2004                2003               2002
                                                          -----------------------------------------------------------
<S>                                                         <C>                <C>                 <C>
      Interest Income
          Loans                                             $     4,360,101    $     4,785,665     $     5,241,512
          Deposits with financial institutions                       39,789             66,028              76,525
          Investment securities                                     116,897            202,016             272,030
          Federal Home Loan Bank stock                               53,056             63,786              72,231
                                                            ---------------    ---------------     ---------------
                 Total interest and dividend income               4,569,843          5,117,495           5,662,298
                                                            ---------------    ---------------     ---------------

      Interest Expense
          Deposits                                                  879,416          1,171,178           1,690,468
          Federal Home Loan Bank advances                           646,736            867,658             988,754
          Other interest expense                                         --                269              17,749
                                                            ---------------    ---------------     ---------------
                 Total interest expense                           1,526,152          2,039,105           2,696,971
                                                            ---------------    ---------------     ---------------

      Net Interest Income                                         3,043,691          3,078,390           2,965,327
          Provision for loan losses                                 240,000            230,000             167,000
                                                            ---------------    ---------------     ---------------

      Net Interest Income After Provision for Loan Losses         2,803,691          2,848,390           2,798,327
                                                            ---------------    ---------------     ---------------

      Other Income
          Service charges on deposit accounts                       199,553            218,272             219,281
          Gain on sale of real estate acquired for
            development                                              29,820             69,737              77,640
          Net loss on available-for-sale securities                (179,829)          (178,494)            (46,268)
          Equity in losses of limited partnership                   (60,000)           (58,239)            (56,000)
          Other income                                               73,750             80,216              39,445
                                                            ---------------    ---------------     ---------------
                 Total other income                                  63,294            131,492             234,098
                                                            ---------------    ---------------     ---------------

      Other Expenses
          Salaries and employee benefits                          1,253,601          1,280,515           1,215,728
          Net occupancy expenses                                    125,282            155,317             171,022
          Equipment expenses                                         76,105             95,171              96,854
          Computer processing fees                                  240,487            257,943             247,002
          Printing and office supplies                               53,445             49,954              50,161
          Legal and professional fees                               189,720            108,101             189,035
          Director and committee fees                                57,600             51,000              60,650
          Advertising expense                                        54,249             33,361              45,804
          Repossessed property expense                              229,386            112,990              74,529
          Other expenses                                            282,560            338,438             233,483
                                                            ---------------    ---------------     ---------------
                 Total other expenses                             2,562,435          2,482,790           2,384,268
                                                            ---------------    ---------------     ---------------

      Income Before Income Tax                                      304,550            497,092             648,157
          Income tax expense (benefit)                              (56,948)           152,217             147,670
                                                            ---------------    ---------------     ---------------

      Net Income                                            $       361,498    $       344,875     $       500,487
                                                            ===============    ===============     ===============

      Net Income Per Share
          Basic                                             $           .28    $           .27                 .39
          Diluted                                                       .27                .27                 .39



See Notes to Consolidated Financial Statements




                                       F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                             Home Financial Bancorp
                 Consolidated Statements of Stockholders' Equity
                    Years Ended June 30, 2004, 2003 and 2002

                                                                                Additional                              Unearned
                                                            Common Stock         Paid-in      Retained     Unearned       ESOP
                                                         Shares      Amount      Capital      Earnings   Compensation    Shares
                                                      ----------------------------------------------------------------------------
<S>            <C>                                      <C>         <C>          <C>         <C>           <C>          <C>
Balances, July 1, 2001                                  1,359,050   $3,066,659   $ 127,623   $3,146,094    $  (90,711)  $(172,151)
    Comprehensive income
       Net income                                                                               500,487
       Other comprehensive loss, net of tax
           Unrealized loss on securities, net of
              reclassification adjustment
    Comprehensive income
    Cash dividends ($.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)
    Comprehensive income
       Net income                                                                               344,875
       Other comprehensive income, net of tax
           Unrealized gain on securities, net of
              reclassification adjustment
    Comprehensive income
    Cash dividends ($.12 per share)                                                            (143,297)
    ESOP shares earned                                                              30,005                                 37,011
    RRP shares earned                                                                                          12,258
                                                        ---------   ----------   ---------   ----------    ----------   ---------


Balances, June 30, 2003                                 1,356,050    3,059,159     188,065    3,700,469       (47,407)    (95,784)
    Comprehensive income
       Net income                                                                               361,498
       Other comprehensive income, net of tax
           Unrealized gain on securities, net of
              reclassification adjustment
    Comprehensive income
    Cash dividends ($.12 per share)                                                            (143,299)
    ESOP shares earned                                                              47,853                                 35,837
    RRP shares earned                                                                                          14,521
                                                        ---------   ----------   ---------   ----------    ----------   ---------


Balances, June 30, 2004                                 1,356,050   $3,059,159   $ 235,918   $3,918,668    $  (32,886)  $ (59,947)
                                                        =========   ==========   =========   ==========    ==========   =========

[TABLE CONTINUED ON FOLLOWING PAGE]
<PAGE>

                                                        Accumulated
                                                           Other
                                                       Comprehensive
                                                           Income
                                                           (Loss)        Total
                                                      -----------------------------
Balances, July 1, 2001                                   $  (131,276)  $5,946,238
    Comprehensive income
       Net income                                                         500,487
       Other comprehensive loss, net of tax
           Unrealized loss on securities, net of
              reclassification adjustment                    (11,062)     (11,062)
                                                                       ----------
    Comprehensive income                                                  489,425
                                                                       ----------
    Cash dividends ($.12 per share)                                      (143,448)
    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
    Comprehensive income
       Net income                                                         344,875
       Other comprehensive income, net of tax
           Unrealized gain on securities, net of
              reclassification adjustment                     59,143       59,143
                                                                       ----------
    Comprehensive income                                                  404,018
                                                                       ----------
    Cash dividends ($.12 per share)                                      (143,297)
    ESOP shares earned                                                     67,016
    RRP shares earned                                                      12,258
                                                         -----------   ----------


Balances, June 30, 2003                                      (83,195)   6,721,307
    Comprehensive income
       Net income                                                         361,498
       Other comprehensive income, net of tax
           Unrealized gain on securities, net of
              reclassification adjustment                     87,977       87,977
                                                                       ----------
    Comprehensive income                                                  449,475
                                                                       ----------
    Cash dividends ($.12 per share)                                      (143,299)
    ESOP shares earned                                                     83,690
    RRP shares earned                                                      14,521
                                                         -----------   ----------


Balances, June 30, 2004                                  $     4,782   $7,125,694
                                                         ===========   ==========


See Notes to Consolidated Financial Statements



                                       F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                    Home Financial Bancorp
                                                             Consolidated Statements of Cash Flows
                                                           Years Ended June 30, 2004, 2003 and 2002


                                                                    2004              2003               2002
                                                               ---------------- ------------------ ------------------
<S>                                                              <C>              <C>                <C>
    Operating Activities
        Net income                                               $    361,498     $    344,875       $    500,487
        Items not requiring (providing) cash
           Provision for loan losses                                  240,000          230,000            167,000
           Investment securities amortization, net                     27,694           52,775             42,927
           ESOP shares earned                                          83,690           67,016             65,250
           RRP shares earned                                           14,521           12,258             31,046
           Depreciation                                               118,593          142,237            141,540
           Deferred income tax benefit                                     --               --             11,168
           Gain on sale of real estate acquired for
              development                                             (29,820)         (69,737)           (77,640)
           Foreclosed asset (gains) losses                             24,972          (76,382)           (32,142)
           Investment securities losses                               179,829          178,494             46,268
           Losses from limited partnership                             60,000           39,512             56,000
           Net change in interest receivable                           32,764           43,575            (46,104)
           Other adjustments                                         (202,815)         666,749           (453,414)
                                                                 ------------     ------------       ------------
               Net cash provided by operating activities              910,926        1,631,372            452,386
                                                                 ------------     ------------       ------------

    Investing Activities
        Purchases of securities available for sale                   (757,522)      (1,083,361)          (580,640)
        Proceeds from sales of securities available for sale              737               --            214,384
        Proceeds from maturities and paydowns of securities
          available for sale                                        1,125,429        2,707,392          1,779,944
        Net changes in loans                                       (3,811,181)       2,552,895            598,788
        Proceeds from sale of foreclosed assets                       547,331        1,006,215            534,506
        Purchase of premises and equipment                           (207,819)        (341,054)          (114,297)
        Purchase of real estate acquired for development and
          development cost                                            (81,149)         (71,137)          (113,509)
        Proceeds from sale of real estate acquired for
          development                                                 136,852          189,187            219,646
        Purchase of FHLB of Indianapolis stock                        (55,100)         (14,500)                --
                                                                 ------------     ------------       ------------
               Net cash provided by (used in) investing
                  activities                                       (3,102,422)       4,945,637          2,538,822
                                                                 ------------     ------------       ------------

    Financing Activities
        Net change in
           NOW and savings deposits                                   258,729          698,223          1,842,373
           Certificates of deposit                                     99,106       (3,615,945)        (1,496,601)
           Short-term borrowings                                           --           (4,900)        (1,295,138)
        Proceeds from other borrowings                              8,000,000        6,500,000         10,500,000
        Repayment of other borrowings                              (7,000,000)      (9,000,000)       (12,000,000)
        Purchase of stock                                                  --               --            (11,742)
        Dividends paid                                               (143,299)        (143,297)          (143,538)
                                                                 ------------     ------------       ------------
               Net cash provided by (used in) financing
                  activities                                        1,214,536       (5,565,919)        (2,604,646)
                                                                 ------------     ------------       ------------

    Net Change in Cash and Cash Equivalents                          (976,960)       1,011,090            386,562

    Cash and Cash Equivalents, Beginning of Year                    4,612,058        3,600,968          3,214,406
                                                                 ------------     ------------       ------------


    Cash and Cash Equivalents, End of Year                       $  3,635,098     $  4,612,058       $  3,600,968
                                                                 ============     ============       ============

    Additional Cash Flows and Supplementary Information
        Interest paid                                            $  1,534,043     $  2,069,870       $  2,732,723
        Income tax paid                                               201,788          143,465            196,120
        Transfers from loans to foreclosed assets                   1,217,110        1,307,972            892,931



                                       F-5
</TABLE>
<PAGE>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


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

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

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

          The  Company is a savings and loan  holding  company  whose  principal
          activity  is the  ownership  and  management  of the  Bank.  The  Bank
          operates  under a federal  thrift  charter,  known as a federal  stock
          savings  bank,  and  provides  full banking  services.  As a federally
          chartered  thrift,  the Bank is subject to regulation by the Office of
          Thrift Supervision and the Federal Deposit Insurance Corporation.

          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.



                                       F-6
<PAGE>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


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

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

          The  determination of the adequacy of the allowance for loan losses is
          based on estimates  that are  particularly  susceptible to significant
          changes in the economic environment and market conditions.  Management
          believes  that as of June 30, 2004,  the  allowance for loan losses is
          adequate  based on  information  currently  available.  A worsening or
          protracted  economic  decline  in the area  within  which the  Company
          operates  would  increase the  likelihood of additional  losses due to
          credit and market risks and could create the need for additional  loss
          reserves.

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

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

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


                                       F-7
<PAGE>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


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

          Stock  options - The Company has a stock-based  employee  compensation
          plan,  which is described more fully in Note 17. The Company  accounts
          for this plan under the recognition and measurement  principles of APB
          Opinion No. 25, Accounting for Stock Issued to Employees,  and related
          interpretations.   No  stock-based   employee   compensation  cost  is
          reflected in net income,  as all options granted under the plan had an
          exercise  price  equal to the market  value of the  underlying  common
          stock on the grant  date.  No options  were  granted  during the three
          years in the period  ended June 30,  2004 and all  previously  granted
          shares were fully vested prior to July 1, 2000.

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

          Earnings per share have been computed based upon the  weighted-average
          common  shares and  potential  common  shares  outstanding  during the
          period.  Unearned  Employee  Stock  Ownership  Plan (ESOP)  shares and
          unvested RRP 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, 2004
          was $72,000.



Note 3:   Investment Securities
<TABLE>
<CAPTION>
                                                                                  2004
                                                                         Gross           Gross
                                                        Amortized     Unrealized      Unrealized         Fair
                                                          Cost           Gains           Losses          Value
                                                     --------------- --------------- --------------- ---------------

           Available for sale
<S>                                                    <C>             <C>              <C>             <C>
               Marketable equity securities            $       162     $       --      $       (8)     $      154
               Federal agencies                                757             --             (27)            730
               Mortgage-backed securities                    1,511             43              --           1,554
                                                       -----------     ----------      ----------      ----------

                  Total investment securities          $     2,430     $       43      $      (35)     $    2,438
                                                       ===========     ==========      ==========      ==========


                                       F-8
<PAGE>
                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


                                                                                  2003
                                                                         Gross           Gross
                                                        Amortized     Unrealized      Unrealized         Fair
                                                          Cost           Gains           Losses          Value
                                                     --------------- --------------- --------------- ---------------

           Available for sale
               Marketable equity securities            $       343     $       --      $     (210)     $      133
               Mortgage-backed securities                    2,664             72              --           2,736
                                                       -----------     ----------      ----------      ----------

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

</TABLE>



          Federal agencies outstanding at June 30, 2004 mature in January 2014.

          Securities  with a carrying value of $2,284,000  and  $2,736,000  were
          pledged at June 30, 2004 and 2003 to secure FHLB advances.

          Proceeds from sales of  securities  available for sale during 2004 and
          2002 were  $1,000  and  $214,000.  Gross  gains of $10,000 in 2002 and
          gross  losses of $2,000 and $31,000 in 2004 and 2002 were  realized on
          the sales. In addition, losses of $178,000,  $178,000 and $25,000 were
          recorded  during 2004,  2003 and 2002 due to the permanent  decline in
          the value of  securities.  The tax  benefit for net losses on security
          transactions for 2004, 2003 and 2002 was $71,000, $3,000 and $18,000.

          Certain  investments  in debt and  marketable  equity  securities  are
          reported  in the  financial  statements  at an amount  less than their
          historical  cost.  Total fair value of these  investments  at June 30,
          2004,  was  $814,000,  which is  approximately  33.4% of the Company's
          investment  portfolio.  These declines  primarily resulted from recent
          increases in market interest rates and failure of certain  investments
          to  maintain  consistent  credit  quality  ratings  or meet  projected
          earnings targets.

          Based on evaluation of available evidence, including recent changes in
          market  interest  rates,  credit rating  information  and  information
          obtained from regulatory filings,  management believes the declines in
          fair value for these securities are temporary.

          Should the  impairment  of any of these  securities  become other than
          temporary,  the cost basis of the  investment  will be reduced and the
          resulting   loss   recognized   in  net   income  in  the  period  the
          other-than-temporary impairment is identified.



                                       F-9
<PAGE>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)

          The following table shows our investments' gross unrealized losses and
          fair value,  aggregated by investment category and length of time that
          individual  securities  have  been  in a  continuous  unrealized  loss
          position at June 30, 2004:
<TABLE>
<CAPTION>


                                    Less than 12 Months          12 Months or More                Total
         Description of             Fair       Unrealized       Fair       Unrealized       Fair       Unrealized
           Securities              Value         Losses        Value         Losses        Value         Losses
       -------------------------------------------------------------------------------------------------------------

<S>                              <C>           <C>           <C>            <C>            <C>           <C>
         Marketable equity       $        85   $       (8)   $         --   $         --   $        85   $        (8)
         U. S. Government
          agencies                       729          (27)             --             --           729           (27)
                                 -----------   ----------    ------------   ------------   -----------   -----------
           Total temporarily
              impaired
              securities         $       814   $      (35)   $         --   $         --   $       814   $       (35)
                                 ===========   ==========    ============   ============   ===========   ===========
</TABLE>
<TABLE>
<CAPTION>


Note 4:   Loans and Allowance

                                                                                     2004               2003
                                                                             ----------------------------------------

<S>                                                                            <C>                 <C>
             Real estate mortgage loans
                 Residential                                                   $        25,445     $        23,492
                 Mobile home and land                                                    9,621               8,744
                 Nonresidential                                                          8,633               9,060
                 Multi-family                                                              160                 208
             Mobile home loans                                                           7,218               6,703
             Commercial and industrial                                                     313                 340
             Consumer loans                                                                716                 695
                                                                               ---------------     ---------------
                                                                                        52,106              49,242
                                                                               ---------------     ---------------

             Undisbursed portion of loans                                                 (989)               (426)
             Allowance for loan losses                                                    (396)               (316)
                                                                               ---------------     ---------------
                                                                                        (1,385)               (742)
                                                                               ---------------     ---------------

                    Total loans                                                $        50,721     $        48,500
                                                                               ===============     ===============

</TABLE>

                                       F-10
<PAGE>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


<TABLE>
<CAPTION>

                                                                 2004                2003               2002
                                                          -----------------------------------------------------------
<S>                             <C>                         <C>                <C>                 <C>
             Allowance for loan losses
                 Balances, July 1                           $           316    $           344     $           392
                 Provision for loan losses                              240                230                 167
                 Recoveries                                               5                 --                   4
                 Loans charged off                                     (165)              (258)               (219)
                                                            ---------------    ---------------     ---------------

                 Balances, June 30                          $           396    $           316     $           344
                                                            ===============    ===============     ===============
</TABLE>

          The  following  table sets forth the  amounts  and  categories  of the
          Company's non-performing loans at June 30.
<TABLE>
<CAPTION>
                                                                                      2004               2003
                                                                             ----------------------------------------
<S>                                    <C>                                     <C>                  <C>
             Accruing loans delinquent 90 days or more                         $             --    $             51
             Non-accruing loans                                                             636                 469
                                                                               ----------------    ----------------

                    Net                                                        $            636    $            520
                                                                               ================    ================
</TABLE>
<TABLE>
<CAPTION>

Note 5:  Premises and Equipment

                                                                                     2004               2003
                                                                             ----------------------------------------
<S>                                                                            <C>                 <C>
             Land                                                              $            348    $            348
             Buildings                                                                    2,505               2,037
             Construction in progress                                                        --                 272
             Equipment                                                                      937                 925
                                                                               ----------------    ----------------
                    Total cost                                                            3,790               3,582
             Accumulated depreciation                                                    (1,670)             (1,551)
                                                                               ----------------    ----------------

                    Net                                                        $          2,120    $          2,031
                                                                               ================    ================
</TABLE>

                                       F-11
<PAGE>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 6:   Investment in Limited Partnership

          An  investment  in a limited  partnership  of $459,000 and $519,000 at
          June 30,  2004 and 2003  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, 2004,  2003 and 2002.
          Condensed  unaudited  financial  statements for Cunot at June 30, 2004
          and 2003 and for the three years in the period ended June 30, 2004 are
          as follows:

<TABLE>
<CAPTION>
                                                                                   2004                2003
                                                                            ----------------------------------------
<S>                                                                           <C>                <C>
           Condensed balance sheets
               Assets
                  Cash                                                        $            118   $            120
                  Land and property                                                      1,239              1,294
                  Other assets                                                               2                  4
                                                                              ----------------   ----------------

                     Total assets                                             $          1,359   $          1,418
                                                                              ================   ================

               Liabilities
                  Notes payable                                               $            610   $            610
                  Other liabilities                                                        294                289
                                                                              ----------------   ----------------
                     Total liabilities                                                     904                899

               Partners' equity                                                            455                519
                                                                              ----------------   ----------------

                     Total liabilities and partners' equity                   $          1,359   $          1,418
                                                                              ================   ================
</TABLE>
<TABLE>
<CAPTION>


                                                                2004               2003                2002
                                                         -----------------------------------------------------------
<S>                                                        <C>                <C>                <C>
           Condensed statements of operations
               Total revenue                               $            63    $            66    $            60
               Total expenses                                         (127)              (121)              (114)
                                                           ---------------    ---------------    ---------------

                  Net loss                                 $           (64)   $           (55)   $           (54)
                                                           ===============    ===============    ===============
</TABLE>

                                       F-12
<PAGE>
<TABLE>
<CAPTION>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 7:   Deposits

                                                                   2004               2003
                                                             --------------------------------------
<S>                                                          <C>                 <C>
             Noninterest-bearing demand                      $          2,414    $          2,155
             Interest-bearing demand                                    3,108               3,475
             Money market deposits                                      2,351               1,225
             Savings                                                    5,448               4,989
             Certificates of $100,000 or more                           9,755               9,802
             Other certificates                                        15,820              16,893
                                                             ----------------    ----------------

                    Total deposits                           $         38,896    $         38,539
                                                             ================    ================


          Certificates maturing in years ending June 30:

             2005                                            $         13,899
             2006                                                       4,487
             2007                                                       2,923
             2008                                                       3,109
             2009                                                       1,157
                                                             ----------------
                                                             $         25,575
                                                             ================
Note 8:   Borrowings

          FHLB advance maturities in years ending June 30:

             2005                                            $         6,000
             2006                                                      4,000
             2007                                                      3,500
             2008                                                      2,000
             2009                                                      1,500
                                                             ----------------
                                                             $        17,000
                                                             ================

          The Federal Home Loan Bank advances are secured by mortgage  loans and
          investment  securities  totaling  $32,296,000.  Advances,  at interest
          rates  from 1.44 to 5.45  percent,  are  subject  to  restrictions  or
          penalties in the event of prepayment.



                                       F-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 9:   Income Tax

                                                                 2004                2003               2002
                                                          -----------------------------------------------------------
<S>                                                         <C>                <C>                 <C>
             Income tax expense
                 Currently payable
                    Federal                                 $            (1)   $           120     $            89
                    State                                                33                 42                  48
                 Deferred
                    Federal                                             (80)                (8)                  7
                    State                                                (9)                (2)                  4
                                                            ---------------    ---------------     ---------------

                       Total income tax expense (benefit)   $           (57)   $           152     $           148
                                                            ===============    ===============     ===============




                                                                 2004                2003               2002
                                                          -----------------------------------------------------------

             Reconciliation of federal statutory to
                actual tax expense (benefit)
                 Federal statutory income tax at 34%        $           104    $           169     $           220
                 Effect of state income taxes                            16                 26                  34
                 Business tax credits                                  (107)              (107)               (107)
                 Valuation allowance                                    (68)                68                  --
                 Other                                                   (2)                (4)                  1
                                                            ---------------    ---------------     ---------------

                    Actual tax expense (benefit)            $           (57)   $           152     $           148
                                                            ===============    ===============     ===============

             Effective tax rate                                      (18.7)%             30.6%               22.8%



</TABLE>

                                       F-14
<PAGE>
<TABLE>
<CAPTION>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


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


                                                                                   2004                2003
                                                                            ----------------------------------------
<S>                                                                         <C>                  <C>
           Assets
               Allowance for loan losses                                    $             175    $           141
               Deferred compensation                                                       23                 24
               Securities available for sale                                                3                 55
               Capital loss in equity securities                                          117                 93
                                                                            -----------------    ---------------
                  Total assets                                                            318                313
                                                                            -----------------    ---------------

           Liabilities
               Depreciation                                                               (26)               (26)
               State income tax                                                           (17)               (15)
               Loan fees                                                                   (7)                (4)
               FHLB stock                                                                 (29)                --
               Other                                                                       (2)                --
                                                                            -----------------    ---------------
                  Total liabilities                                                       (81)               (45)
                                                                            -----------------    ---------------
                  Net deferred tax asset before valuation allowance                       237                268
               Valuation allowance                                                         --                (68)
                                                                            -----------------    ---------------

                  Net deferred tax asset                                    $             237    $           200
                                                                            =================    ===============

          Retained earnings at June 30, 2004, 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, 2004.

          The  Corporation  has a capital  loss  carryforward  of $135,000  that
          begins to expire in 2008.  Management  believes  that the capital loss
          will  be  utilized  within  the  carryforward  period;   therefore,  a
          valuation allowance is no longer necessary.




                                       F-15

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 10:  Other Comprehensive Income

                                                                                        2004
                                                                   Before-Tax Amount     Tax          Net-of-Tax
                                                                                       Benefit          Amount
                                                                  --------------------------------------------------
<S>                                                                 <C>              <C>             <C>
           Unrealized gains on securities
               Unrealized holding losses arising during the year    $         (34)   $         14    $        (20)
               Less:  reclassification adjustment for losses
                 realized in net income                                      (180)             72            (108)
                                                                    -------------    ------------    ------------

                  Other comprehensive income                        $         146    $        (58)   $         88
                                                                    =============    ============    ============


                                                                                        2003
                                                                  Before-Tax Amount      Tax          Net-of-Tax
                                                                                       Benefit          Amount
                                                                  --------------------------------------------------

           Unrealized gains on securities
               Unrealized holding losses arising during the year    $         (80)   $         32    $        (48)
               Less: reclassification adjustment for losses
                 realized in net income                                      (178)             71            (107)
                                                                    -------------    ------------    ------------

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


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

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

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


                                       F-16
</TABLE>
<PAGE>


                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 11:  Commitments and Contingent Liabilities

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

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


                                                2004       2003
                                              --------    --------

           Commitments to extend credit       $ 8,821      $3,763
           Unused lines of credit                 195         176

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

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

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



                                       F-17
<PAGE>


                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 12:  Stockholders' Equity

          The Company's  Board of Directors has approved the repurchase of up to
          15 percent of the Company's  outstanding  shares of common stock. Such
          purchases will be made subject to market  conditions in open market or
          block transactions.



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, 2004,  total  stockholder's  equity of the Bank was
          $6,514,000  of  which   $5,489,000   was   restricted   from  dividend
          distribution to the Company. Although well capitalized,  under current
          regulations in effect,  the Bank is required to apply to the Office of
          Thrift Supervision to pay dividends to the Company.



Note 14:  Regulatory Capital

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





                                       F-18
<PAGE>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


          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, 2004 and 2003,  the Bank was  categorized  as
          well  capitalized and met all subject capital  adequacy  requirements.
          There are no conditions or events since June 30, 2004 that  management
          believes has changed the Bank's classification.

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

<TABLE>
<CAPTION>

                                                                                2004
                                                                              Required              Required
                                                                            for Adequate           To Be Well
                                                        Actual                Capital              Capitalized
                                                   Amount      Ratio      Amount     Ratio      Amount      Ratio
                                                 ----------- ---------- ----------- --------- ----------- ----------
<S>                                                <C>           <C>      <C>         <C>       <C>           <C>
           Total risk-based capital (to
              risk-weighted assets)                $  6,280      15.0%    $  3,360    8.0%      $ 4,200       10.0%
           Tier I capital (to risk-weighted
              assets)                                 5,884      14.0        1,680    4.0         2,520        6.0
           Core capital (to adjusted total
              assets)                                 5,884       9.5        2,489    4.0         3,111        5.0
           Core capital (to adjusted tangible
              assets)                                 5,884       9.5        1,244    2.0           N/A        N/A
           Tangible capital (to adjusted total
              assets)                                 5,884       9.5          933    1.5           N/A        N/A


                                                                                2003
                                                                              Required              Required
                                                                            for Adequate           To Be Well
                                                        Actual                Capital              Capitalized
                                                   Amount      Ratio      Amount     Ratio      Amount      Ratio
                                                 ----------- ---------- ----------- --------- ----------- ----------

           Total risk-based capital (to
              risk-weighted assets)                $  5,762      14.3%    $  3,226    8.0%      $ 4,032   10.0 %
           Tier I capital (to risk-weighted
              assets)                                 5,425      13.5        1,613    4.0         2,419        6.0
           Core capital (to adjusted total
              assets)                                 5,425       9.0        2,420    4.0         3,026        5.0
           Core capital (to adjusted tangible
              assets)                                 5,425       9.0        1,210    2.0           N/A        N/A
           Tangible capital (to adjusted total
              assets)                                 5,425       9.0          908    1.5           N/A        N/A

</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 $79,000,  $59,000 and
          $50,000 for the years  ended June 30,  2004,  2003 and 2002.  The plan
          provides  pension  benefits  for   substantially  all  of  the  Bank's
          employees.



                                       F-19
<PAGE>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


          The  Company has a  retirement  savings  Section  401(k) plan in which
          substantially  all  employees  may  participate.  The Company  matches
          employees'  contributions  at the rate of 50  percent  of the  first 6
          percent of base salary  contributed  by  participants.  The  Company's
          expense  for the plan was  $16,000,  $13,000 and $19,000 for the years
          ended June 30, 2004, 2003 and 2002.

          The Company has an ESOP  covering  substantially  all employees of the
          Bank. The ESOP acquired  161,896 shares of the Company's  common stock
          at $2.50 per share with  funds  provided  by a loan from the  Company.
          Accordingly,  the unearned  common stock acquired by the ESOP is shown
          as a  reduction  of  stockholders'  equity.  Shares  are  released  to
          participants  proportionately  as the  loan is  repaid.  Dividends  on
          allocated  shares are  recorded as  dividends  and charged to retained
          earnings. Dividends on unallocated shares, which may be distributed to
          participants  or used to repay the loan,  are treated as  compensation
          expense.  Compensation  expense is  recorded  equal to the fair market
          value of the stock when  contributions,  which are determined annually
          by the  Board of  Directors  of the Bank,  are made to the  ESOP.  The
          expense under the ESOP was $84,000,  $67,000 and $65,000 for the years
          ended June 30,  2004,  2003 and 2002.  At June 30, 2004 and 2003,  the
          ESOP had  130,285  and  115,950  allocated  shares;  24,913 and 38,779
          suspense shares; and 6,698 and 7,167 committed-to-be  released shares.
          The fair value of the  unearned  ESOP shares at June 30, 2004 and 2003
          was $157,000 and $200,000.

          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,  2004,  80,948
          shares of common  stock  have been  awarded to  management.  Nonvested
          shares  have been  recorded as  unearned  compensation  and shown as a
          reduction to stockholders' equity.  Expense under the RRP was $15,000,
          $12,000 and $31,000 for the years ended June 30, 2004, 2003 and 2002.



Note 16:  Related Party Transactions

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


           Balances, July 1, 2003                                 $ 157
               New loans, including renewals                         13
               Payments, etc. Including renewals                    (70)
                                                                  -----
          Balances, June 30, 2004                                 $ 100
                                                                  =====

          Deposits  from  related  parties held by the Bank at June 30, 2004 and
          2003 totaled $528,000 and $681,000.


                                       F-20
<PAGE>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 17:  Stock Option Plan

          The  Company  has  reserved  202,370  shares of Company  stock for the
          granting  of  options  to certain  directors,  officers  and other key
          employees of the Company and the Bank.

          Incentive  stock  options for 52,800  shares of common stock have been
          granted  with  ten  year  terms  that  expire  October  13,  2007  and
          non-qualified  options for 24,000 and 3,000  shares have been  granted
          with ten year terms that expire October 14, 2007 and August 25, 2008.

          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:

<TABLE>
<CAPTION>


                                                  2004                     2003                      2002
                                                     Weighted-                Weighted-                 Weighted-
                                                      Average                  Average                   Average
                Options                   Shares   Exercise Price  Shares   Exercise Price  Shares   Exercise Price
---------------------------------------------------------------------------------------------------------------------
<S>                                         <C>      <C>            <C>       <C>            <C>       <C>
           Outstanding, beginning of
              year                          85,800   $      4.24    115,800   $      4.24    115,800   $      4.24
           Forfeited                        (6,000)                 (30,000)                      --
                                            ------                  -------                  -------


           Outstanding and
              exercisable,
              end of year                   79,800          4.24     85,800          4.24    115,800          4.24
                                            ======                   ======                  =======

</TABLE>

          There were no option grants or exercises during the three years in the
          period  ended  June 30,  2004.  As of June 30,  2004,  76,800  options
          outstanding   have  an  exercise   price  of  $4.25  and  a  remaining
          contractual life of three years, and 3,000 options outstanding have an
          exercise  prices of $4.13  and a  remaining  contractual  life of four
          years.  There were 122,570 shares  available for the grant at June 30,
          2004.





                                       F-21
<PAGE>
<TABLE>
<CAPTION>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


Note 18:  Earnings Per Share

          Earnings per share were computed as follows:


                                                                                      2004
                                                                                                        Per-
                                                                    Net        Weighted-Average        Share
                                                                   Income           Shares             Amount
                                                              ------------------------------------------------------
<S>                                                             <C>                  <C>           <C>
           Basic Earnings Per Share
               Income available to common stockholders          $        361         1,309,896     $        .28

           Effect of Dilutive Stock Options                               --            22,449
                                                                ------------         ---------

           Diluted Earnings Per Share
               Income available to common stockholders and
                 assumed conversions                            $        361         1,332,345     $        .27
                                                                ============         =========     ============


                                                                                      2003
                                                                                                        Per-
                                                                    Net        Weighted-Average        Share
                                                                   Income           Shares             Amount
                                                              ------------------------------------------------------

           Basic Earnings Per Share
               Income available to common stockholders          $        345         1,292,421     $        .27

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

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


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

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

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

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

</TABLE>


                                       F-22
<PAGE>

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.




                                       F-23
<PAGE>

                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


          The estimated fair values of the Company's  financial  instruments are
          as follows:
<TABLE>
<CAPTION>

                                                                 2004                             2003
                                                      Carrying           Fair           Carrying          Fair
                                                       Amount            Value           Amount          Value
                                                   ---------------- ---------------- --------------- ---------------
<S>                                                  <C>              <C>              <C>             <C>
           Assets
               Cash and cash equivalents             $      3,635     $    3,635       $    4,612      $    4,612
               Securities available for sale                2,438          2,438            2,869           2,869
               Loans, net                                  50,721         53,782           48,500          52,766
               Stock in FHLB                                1,170          1,170            1,115           1,115
               Interest receivable                            347            347              380             380

           Liabilities
               Deposits                                    38,896         38,904           38,539          39,322
               Borrowings                                  17,000         17,043           16,000          16,716

           Off-Balance Sheet Assets
               Commitments to extend credit

</TABLE>


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:

<TABLE>
<CAPTION>


                            Condensed Balance Sheets

                                                                         2004               2003
                                                                  ---------------------------------------
<S>                                                                 <C>                <C>
           Assets
               Cash and cash equivalents                            $           86     $           94
               Securities available for sale                                   155                133
               Premises and equipment                                          542                 --
               Investment in subsidiary                                      6,514              6,270
               Other assets                                                    423                352
                                                                    --------------     --------------

                  Total assets                                      $        7,720     $        6,849
                                                                    ==============     ==============

           Liabilities                                              $          594     $          128

           Stockholders' Equity                                              7,126              6,721
                                                                    --------------     --------------

                  Total liabilities and stockholders' equity        $        7,720     $        6,849
                                                                    ==============     ==============




                                       F-24
</TABLE>
<PAGE>



                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)

<TABLE>
<CAPTION>

                         Condensed Statements of Income

                                                                     2004             2003              2002
                                                              ------------------------------------------------------
<S>                                                             <C>               <C>              <C>
           Income
               Dividends from Bank                              $         247     $         146    $          75
               Net losses on available-for-sale securities               (180)             (178)             (46)
               Interest and other income                                   16                16               21
                                                                -------------     -------------    -------------
                  Total income                                             83               (16)              50
                                                                -------------     -------------    -------------

           Expenses
               Salaries and employee benefits                              79                70               44
               Legal and professional fees                                 58                 3               60
               Other expenses                                              59                37               27
                                                                -------------     -------------    -------------
                  Total expenses                                          196               110              131
                                                                -------------     -------------    -------------

           Loss before income tax benefit and equity in
              undistributed income of subsidiary                         (113)             (126)             (81)
           Income tax benefit                                             210                43               61
                                                                -------------     -------------    -------------

           Income (loss) before equity in undistributed
              income of subsidiary                                         97               (83)             (20)
           Equity in undistributed income of subsidiary                   264               428              520
                                                                -------------     -------------    -------------

           Net Income                                           $         361     $         345    $         500
                                                                =============     =============    =============



                                       F-25
</TABLE>
<PAGE>


                             Home Financial Bancorp
                   Notes to Consolidated Financial Statements
                          June 30, 2004, 2003 and 2002
             (Table Dollar Amounts in Thousands, Except Share Data)


<TABLE>
<CAPTION>



                       Condensed Statements of Cash Flows

                                                                       2004             2003            2002
                                                                 ---------------------------------------------------

<S>                                                                <C>              <C>             <C>
           Operating Activities
               Net income                                          $        361     $        345    $        500
               Items not providing cash                                    (227)            (296)           (383)
                                                                   ------------     -------------   ------------
                  Net cash provided by operating activities                 134               49             117

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

           Financing Activities
               Dividends paid                                              (143)            (143)           (144)
               Purchase of stock                                             --               --             (12)
                                                                   ------------     -------------   ------------
                  Net cash used in financing activities                    (143)            (143)           (156)
                                                                   ------------     -------------   ------------

           Net Change in Cash and Cash Equivalents                           (8)             (94)             94

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

           Cash and Cash Equivalents at End of Year                $         86     $         94    $        188
                                                                   ============     ============    ============

</TABLE>

                                       F-26