FORM 10-K
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(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, 2000

                                       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
             (Exact name of registrant as specified 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)

Registrant's  telephone number  including area code:  (812) 829-2095  Securities
Registered Pursuant to Section 12(b) of the Act:

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

Securities Registered Pursuant to Section 12(g) of the Act:

                         Common Stock, without par value
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (ss.  229.405 of this chapter) is not contained  herein,  and
will not 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-K or any amendment to this Form 10-K.

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of August 21, 2000, was $3,675,975.

The  number of shares of the  Registrant's  Common  Stock,  without  par  value,
outstanding as of August 21, 2000, was 852,100 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders  are
incorporated in Part III.

                            Exhibit Index on Page E-1
                               Page 1 of 46 Pages

<PAGE>

                             HOME FINANCIAL BANCORP
                                    Form 10-K
                                      INDEX

                                                                            Page

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

PART I

Item  1.          Business...................................................  3
Item  2.          Properties................................................. 28
Item  3.          Legal Proceedings.......................................... 29
Item  4.          Submission of Matters to a Vote of Security Holders........ 29
Item  4.5.        Executive Officers of Registrant........................... 29
PART II

Item  5.          Market for Registrant's Common Equity and Related
                    Stockholder Matters...................................... 29
Item  6.          Selected Financial Data.................................... 31
Item  7.          Management's Discussion and Analysis of Financial
                    Condition and Results of Operation....................... 32
Item  7A.         Quantitative and Qualitative Disclosures About Market Risk. 43
Item  8.          Financial Statements and Supplementary Data................ 44
Item  9.          Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure...................... 44
PART III

Item 10.          Directors and Executive Officers of Registrant............. 44
Item 11.          Executive Compensation..................................... 45
Item 12.          Security Ownership of Certain Beneficial Owners
                    and Management........................................... 45
Item 13.          Certain Relationships and Related Transactions............. 45

PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports
                    on Form 8-K.............................................. 45
                  Signatures................................................. 46
                  Exhibit Index..............................................E-1


<PAGE>

                           FORWARD LOOKING STATEMENTS

         This Annual Report on Form 10-K ("Form 10-K") 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-K 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-K 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-K
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.       Business.

General

         Home Financial  Bancorp (the "Holding  Company" and,  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; therefore, historical
financial  and other data  contained  herein for  periods  prior to July 1, 1996
relate solely to the Bank, while  historical  financial and other data contained
herein for the periods  after July 1, 1996 relate to the Company.  The principal
asset of the  Holding  Company  currently  consists  of 100% of the  issued  and
outstanding shares of common stock 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 savings and loan holding company. The Bank's principal business
consists  of  attracting  deposits  from  the  general  public  and  originating
long-term  adjustable-rate  loans secured  primarily by first  mortgage liens on
one-to-four  family real estate.  The Bank's deposit  accounts are insured up to
applicable limits by the Savings Association  Insurance Fund (the "SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC").

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

         The Bank  historically has  concentrated its lending  activities on the
origination  of  loans  secured  by  first  mortgage  liens  for  the  purchase,
construction  or refinancing of one-to-four  family  residential  real property.
One-to- four family residential mortgage loans continue to be the major focus of
the Bank's loan origination  activities,  representing 50.8% of the Bank's total
loan  portfolio  at June 30,  2000.  The Bank also  offers  mobile  home  loans,
multi-family  mortgage loans,  nonresidential real estate loans, Combo Loans and
consumer loans. Mobile home loans and Combo Loans totaled approximately 2.9% and
14.2%  of the  Bank's  total  loan  portfolio  at June 30,  2000,  respectively.
Mortgage loans secured by multi-family properties and nonresidential real estate
totaled  approximately  2.2% and 25.8%,  respectively,  of the Bank's total loan
portfolio at June 30, 2000. Consumer loans constituted approximately 3.6% of the
Bank's total loan portfolio at June 30, 2000.
<PAGE>

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,
                                          -----------------------------------------------------------------------------
                                                   2000                       1999                          1998
                                          ---------------------      ----------------------         -------------------
                                                       Percent                      Percent                     Percent
                                            Amount    of Total        Amount       of Total          Amount    of Total
                                          ---------   ---------      --------      --------         --------   --------
                                                                       (Dollars in thousands)
TYPE OF LOAN
<S>                                        <C>          <C>           <C>            <C>            <C>           <C>
Mortgage loans:
   Residential..........................   $23,494      50.76%        $20,952        53.46%         $19,563       56.76%
   Combo................................     6,584      14.23           5,331        13.60            4,666       13.52
   Nonresidential.......................    11,926      25.76           9,323        23.79            7,614       22.07
   Multi-family.........................     1,017       2.20           1,096         2.80              904        2.62
Mobile home loans.......................     1,322       2.86             950         2.43              831        2.43
Commercial and industrial loans.........       264       0.57             538         1.37              242        0.70
Consumer loans..........................     1,674       3.62             999         2.55              655        1.90
                                           -------     ------         -------       ------          -------      ------
     Gross loans receivable.............   $46,281     100.00%        $39,189       100.00%         $34,475      100.00%
                                           =======     ======         =======       ======          =======      ======

TYPE OF SECURITY
   Residential real estate..............   $23,494      50.76%        $20,952        53.46%         $19,563       56.76%
   Mobile home and land.................     6,584      14.23           5,331        13.60            4,666       13.52
   Nonresidental real estate............    11,926      25.76           9,323        23.79            7,614       22.07
   Multi-family real estate.............     1,017       2.20           1,096         2.80              904        2.62
   Mobile home..........................     1,322       2.86             950         2.43              831        2.43
   Deposits.............................       121       0.26             154         0.39              152         .44
   Other security.......................     1,817       3.93           1,383         3.53              745        2.16
                                           -------     ------         -------       ------          -------      ------
     Gross loans receivable.............    46,281     100.00          39,189       100.00           34,475      100.00

Deduct:

Allowance for loan losses...............       372       0.80             336         0.86              320        0.93
Loans in process and
   deferred loan costs..................       568       1.23             615         1.57              196        0.57
                                           -------     ------         -------       ------          -------      ------
   Net loans receivable.................   $45,341      97.97%        $38,238        97.57%         $33,959       98.50%
                                           =======      =====         =======        =====          =======       =====
Mortgage Loans:

   Adjustable-rate......................   $25,717      59.78%        $23,748        64.70%         $21,502       65.69%
   Fixed-rate...........................    17,304      40.22          12,954        35.30           11,245       34.31
                                           -------     ------         -------       ------          -------      ------
     Total..............................   $43,021     100.00%        $36,702       100.00%         $32,747      100.00%
                                           =======     ======         =======       ======          =======      ======
</TABLE>

     The  following  table  sets forth  certain  information  at June 30,  2000,
regarding the dollar amount of loans maturing in the Bank's loan portfolio based
on the contractual terms to maturity.  Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less.  This schedule does not reflect the effects of possible  prepayments or
enforcement of due-on-sale  clauses.  Management expects  prepayments will cause
actual maturities to be shorter.
<TABLE>
<CAPTION>
                                                                         Due during years ended June 30,
                                         Balance    ---------------------------------------------------------------------
                                       Outstanding                                  2004     2006      2011       2016
                                       at June 30,                                   to       to        to        and
                                          2000        2001       2002      2003     2005     2010      2015     following
                                          ----        ----       ----      ----     ----     ----      ----     ---------
                                                                             (In thousands)
Mortgage loans:
<S>                                      <C>         <C>         <C>      <C>    <C>        <C>      <C>        <C>
   Residential.....................      $23,494     $  36       $112     $  50  $   539    $2,345   $3,412     $17,000
   Combo...........................        6,584        45         34         7       85       641    1,064       4,708
   Nonresidential..................       11,926         1        386         4    3,187       743    4,655       2,950
   Multi-family....................        1,017       ---        ---       ---       16       307      368         326
Mobile home loans..................        1,322       ---          7        46      145       254      382         488
Commercial and industrial loans....          264         5        223       ---      ---       ---       36         ---
Consumer loans.....................        1,674       848        122       160      367       137       40         ---
                                         -------      ----       ----      ----   ------    ------   ------     -------
     Total.........................      $46,281      $935       $884      $267   $4,339    $4,427   $9,957     $25,472
                                         =======      ====       ====      ====   ======    ======   ======     =======

         The following  table sets forth, as of June 30, 2000, the dollar amount
of all loans due after one year which have fixed  interest rates and floating or
adjustable rates.

                                                 Due After June 30, 2001
                                     -------------------------------------------
                                     Fixed Rates    Variable Rates       Total
                                     -----------    --------------       -----
                                                    (In thousands)

Mortgage loans:
   Residential.....................   $11,653          $11,805          $23,458
   Combo...........................     3,909            2,630            6,539
   Nonresidential..................     1,468           10,457           11,925
   Multi-family....................       384              633            1,017
Mobile home loans..................     1,322              ---            1,322
Commercial and industrial loans....       259              ---              259
Consumer loans.....................       826              ---              826
                                      -------          -------          -------
     Total.........................   $19,821          $25,525          $45,346
                                      =======          =======          =======

         One-to-Four  Family   Residential  Loans.   Residential  loans  consist
primarily of one-to-four family loans.  Approximately $23.5 million, or 50.8% of
the Bank's portfolio of loans at June 30, 2000,  consisted of one-to-four family
residential  mortgage loans, of which  approximately 49.8% had adjustable rates.
Pursuant to federal  regulations,  such loans must require at least  semi-annual
payments and be for a term of not more than 40 years,  and, if the interest rate
is adjustable,  the rate must be correlated with changes in a readily verifiable
index.

         The  Bank   currently   offers  three  (3)  types  of   adjustable-rate
one-to-four  family  residential  mortgage loans ("ARMs").  The Bank offers ARMs
which adjust  annually  and are indexed to the Auction  Average of One Year U.S.
Treasury  Bills as published  monthly by the Federal  Reserve Board ("FRB") (the
"Average One Year  T-Bill").  The maximum rate  adjustment per year and over the
life of the  loan  for the  Bank's  one-year  ARMs  are 1% to 1.5% and 4% to 5%,
respectively. These ARMs are generally underwritten for terms of up to 25 years.
The Bank also  offers  three-year  and  five-year  ARMs 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") and have maximum rate adjustments per adjustment period and over
the life of the  loan of 3% and 5%,  respectively.  The  Bank's  three-year  and
five-year ARMs 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  then-current  index rate (i.e., the Average One Year T-Bill for
one-year ARMs or the National Average Contract Rate for three-year and five-year
ARMs) 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.

         Adjustable-rate  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, adjustable-rate
loans have features  which  restrict  changes in interest  rates on a short-term
basis and over the life of the loan.  At the same time,  the market value of the
underlying property may be adversely affected by higher interest rates.

         The Bank also currently  offers  fixed-rate loans which provide for the
payment of principal and interest over a period not to exceed 20 years.  At June
30,  2000,  50.2% of the Bank's  residential  mortgage  loans had fixed rates of
interest.

         The Bank does not currently 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 not originated on terms and
conditions and using  documentation that 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, 2000,  residential loans amounting to $388,000, or 0.84% of
total loans, were included in non-performing  assets. See "-- Non-Performing and
Problem Assets."

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

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

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

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

         Combo Loans.  At June 30, 2000,  $6.6  million,  or 14.2% of the Bank's
total loan portfolio, consisted of Combo Loans, of which approximately 40.2% had
adjustable  rates. The Bank currently offers three (3) types of  adjustable-rate

<PAGE>

Combo Loans. The Bank's one-year  adjustable-rate Combo Loans are indexed to the
Average One Year T-Bill and have maximum rate  adjustments per year and over the
life of the loan of 1.5% and 3%,  respectively.  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 per adjustment  period
and over the life of the loan of 3% and 5%, respectively. 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, 2000,  59.8% of the Bank's Combo Loans had fixed
rates of interest.

         Mobile Home Loans.  The Bank  originates  loans for the purchase of new
and used mobile homes. At June 30, 2000,  approximately $1.3 million, or 2.9% 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 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.  One of the Bank's mobile home loans was
included in non-performing assets at June 30, 2000.

         Nonresidential  Real Estate Loans. At June 30, 2000, $11.9 million,  or
25.8% of the Bank's  total loan  portfolio,  consisted  of  nonresidential  real
estate loans,  of which $849,000  constituted  loans secured by unimproved  land
only. The nonresidential  real estate loans included in the Bank's portfolio are
primarily  secured by real estate that includes a motel, a warehouse,  a medical
facility,  a funeral home,  several  churches and three  residential real estate
development  projects.  At June 30, 2000,  $3.2 million,  or 26.8% of the Bank's
nonresidential  loan  portfolio,  was secured by real estate being developed for
residential  housing.  At the  same  date,  $523,000,  or  4.4%  of  the  Bank's
nonresidential  loan  portfolio,  was secured by  churches.  The Bank  currently
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 adjustment per adjustment period
and over the life of the loan is 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, 2000 was $1.1 million, net of participation  portion sold. None
of the Bank's  nonresidential  real estate loans was included in  non-performing
assets at that date.

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

         Multi-Family  Loans.  Approximately $1.0 million, or 2.2% of the Bank's
portfolio  of loans at June 30,  2000,  consisted  of  multi-family  loans.  The
largest  multi-family  loan at June 30, 2000 had a balance of  $483,000  and was
secured by an apartment complex. All of the Bank's multi-family loans were fully
performing as of June 30, 2000.  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%.

         Consumer  Loans.  The Bank's consumer  loans,  consisting  primarily of
installment,  auto and share loans, aggregated $1.7 million as of June 30, 2000,
or 3.6% 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, 2000,  consumer loans amounting to $7,000 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 are not in
conformity  with  the  standard  criteria  of the  Federal  Home  Loan  Mortgage
Corporation  ("FHLMC") or Federal National Mortgage Association  ("FNMA"). If it
desired to sell its mortgage  loans,  the Bank might  experience some difficulty
selling such non-conforming  loans quickly in the secondary market. The Bank has
no intention,  however,  of attempting to sell such loans.  The Bank's ARMs 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 Owen,
Putnam and  surrounding  counties in Indiana.  At June 30,  2000,  no loans were
secured by property located outside of Indiana. The Bank's loan originations are
generated from referrals  from real estate dealers and existing  customers,  and
newspaper and periodical  advertising.  All loan  applications are processed and
underwritten at the Bank's main office.

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

         The Bank  generally  requires  appraisals on all property  securing its
loans and  requires  title  insurance  and a valid  lien on its  mortgaged  real
estate.  Appraisals for  residential  real property valued at less than $250,000
are performed by an in-house  appraiser.  Appraisals for residential  properties
valued in excess of $250,000 and appraisals for all  nonresidential  real estate
are performed by an appraiser who is a state-licensed residential 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.


<PAGE>

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

         The Bank historically has sold  participations in its mortgage loans on
a  limited  number  of  occasions  to ensure  compliance  with the  loans-to-one
borrower restrictions.  See "Regulation -- Loans to One Borrower." The Bank also
occasionally   purchases   participations  in  nonresidential  real  estate  and
multi-family loans from other financial institutions. At June 30, 2000, the Bank
had sold  participations  in a  non-residential  mortgage  loan in the amount of
$1,789,000.

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

                                                            For the Year Ended
                                                                  June 30,
                                               -------------------------------------------
                                                  2000             1999              1998
                                                  ----             ----              ----
                                                              (In thousands)
<S>                                             <C>               <C>              <C>
Gross loans receivable
   at beginning of period...................... $39,189           $34,475          $34,777
                                                -------           -------          -------
Originations:
   Mortgage loans:
     Residential...............................   8,645             9,660            5,664
     Other.....................................   6,152             2,044              641
                                                -------           -------          -------
       Total mortgage loans....................  14,797            11,704            6,305
                                                -------           -------          -------
   Mobile home loans...........................     300               317              164
   Consumer loans:
     Installment...............................   1,545               810              793
     Share.....................................      27               101               97
                                                -------           -------          -------
       Total consumer loans....................   1,572               911              890
                                                -------           -------          -------
            Total originations.................  16,669            12,932            7,359
Purchases (sales) of participation loans.......  (2,363)              ---              ---
Repayments and other deductions................   7,214             8,218            7,661
                                                -------           -------          -------
   Gross loans receivable at end of period..... $46,281           $39,189          $34,475
                                                =======           =======          =======
</TABLE>

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

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

         Mortgage-Backed Securities. At June 30, 2000, the Bank had $7.6 million
of  mortgage-backed  securities  outstanding,  all of which were  classified  as
available  for sale and had a market  value of $7.2  million.  These  fixed-rate
mortgage-backed securities may be used as collateral for borrowings and, through
repayments, as a source of liquidity. Mortgage-backed securities generally offer
yields above those  available for  investments of comparable  credit quality and
duration.
<PAGE>

         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,
                                          ------------------------------------------------------------------------
                                                 2000                        1999                      1998
                                          --------------------      --------------------      --------------------
                                          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............               $7,573      $7,247          $7,771      $7,570         $537         $543
</TABLE>

     The  following  table sets forth the amount of  mortgage-backed  securities
which  mature  during each of the periods  indicated  and the  weighted  average
yields for each range of maturities at June 30, 2000.
<TABLE>
<CAPTION>
                                                            Amount at June 30, 2000, which matures in
                                          -------------------------------------------------------------------------
                                            Less than 1 year        Two through five years      Over five years
                                          --------------------      -----------------------   ---------------------
                                                      Weighted                   Weighted                  Weighted
                                          Amortized    Average      Amortized     Average     Amortized     Average
                                             Cost       Yield          Cost        Yield         Value       Yield
                                          ---------   --------      ---------    --------     ---------    --------
                                                                         (In thousands)
<S>                                         <C>         <C>             <C>          <C>        <C>          <C>
   Mortgage-backed securities
     available for sale....                  ---          ---            ---          ---        $7,573      6.9%
</TABLE>


     The  following  table sets forth the changes in the Bank's  mortgage-backed
securities portfolio for the years ended June 30, 2000, 1999 and 1998.

                                            For the Year Ended June 30,
                                     -----------------------------------------
                                      2000             1999             1998
                                     ------            ------           ------
                                                  (In thousands)

Beginning balance.................   $7,570           $   543           $  793
Purchases.........................      825             8,600              ---
Sales  ...........................      ---               ---              ---
Monthly repayments................   (1,011)           (1,320)            (249)
Premium and discount
   amortization, net..............      (12)              (46)              (1)
Unrealized loss on securities
   available for sale.............     (125)             (207)             ---
                                     ------            ------           ------
Ending balance....................   $7,247            $7,570           $  543
                                     ======            ======           ======

Non-Performing and Problem Assets

         Mortgage  loans are  reviewed  by the Bank on a  regular  basis and are
placed on a non-accrual  status when the loans become  contractually past due 90
days or more.  It is the  policy of the Bank  that all  earned  but  uncollected
interest on all loans be reviewed  monthly to determine  if any portion  thereof
should be classified as  uncollectible  for any loan past due less than 90 days.
Delinquency  notices are sent three times per month with respect to all mortgage
loans for which payments have not been  received.  Contact by phone or in person
is made, if feasible,  with respect to all such loans. When loans are 40 days in
default,  an additional  delinquency notice is sent and personal contact is made
with the borrower to establish an acceptable repayment schedule.  When loans are
60 days in  default,  contact is again made with the  borrower to  establish  an
acceptable  repayment  schedule.  The Bank also provides  free  in-house  credit
counseling to all  borrowers.  Management is authorized to commence  foreclosure
proceedings  for any loan upon making a  determination  that it is prudent to do
so. All loans for which  foreclosure  proceedings have been commenced are placed
on non-accrual status.

         Non-performing  assets.  At June 30,  2000,  $395,000,  or 0.66% of the
Company's total assets, were non-performing loans (loans delinquent more than 90
days and non-accruing  loans) compared to $79,000,  or 0.15%, of total assets at
June 30, 1999. At June 30, 2000,  residential loans and consumer loans accounted
for  98.2%  and 1.8%,  respectively,  of  non-performing  loans.  There  were no
non-accruing  investments  at June 30, 2000. As of June 30, 2000,  the Bank held
$35,000  of Real  Estate  Owned  ("REO")  properties  and no  other  repossessed
properties.
<PAGE>

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

                                                     At June 30,
                                           ------------------------------
                                           2000         1999         1998
                                           -----       ------      -------
                                                   (In thousands)

Non-accruing loans (1)................     $395           $79         $279
Total non-performing assets...........      430            85          499
Non-performing loans to total loans...     0.86%         0.20%        0.81%
Non-performing assets to total assets.     0.72%         0.16%        1.17%
---------------
(1)  The Bank  generally  places loans on a  non-accruing  status when the loans
     become  contractually past due 90 days or more. At June 30, 2000,  $388,000
     of  non-accruing  loans were  residential  loans and $7,000  were  consumer
     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 $21,000 for the year ended June
     30, 2000.

     The following table reflects the amount of loans in a delinquent  status as
of the dates indicated:
<TABLE>
<CAPTION>
                                                                       June 30,
                                 --------------------------------------------------------------------------------
                                          2000                           1999                      1998
                                 -------------------------    -------------------------   -----------------------
                                                   Percent                      Percent                    Percent
                                                  of total                     of total                   of total
                                 Number  Amount     loans     Number    Amount   loans    Number  Amount    loans
                                 ------  ------     -----     ------    ------   -----    ------  ------    -----
                                                                (Dollars in thousands)

<S>                                 <C> <C>         <C>         <C>     <C>      <C>         <C>     <C>    <C>
Loans delinquent
   for (1):
     30-89 days..........           24  $  598      1.31%       25      $630     1.61%       12      $293   0.86%
     90 days and over....           13     395      0.86        10        79     0.20        11       279   0.81
                                    --  ------ --   ----        --      ----     ----        --      ----   ----
       Total delinquent
          loans..........           37  $  993 (2)  2.17%       35      $709     1.81%       23      $572   1.67%
                                    ==  ====== ==   ====        ==      ====     ====        ==      ====   ====
</TABLE>

(1)  The  number  of days a loan is  delinquent  is  measured  from  the day the
     payment was due under the terms of the loan agreement.

(2)  Of such amount,  $899,000  consisted of  residential  real estate loans and
     $94,000 consisted of nonresidential real estate and consumer loans.

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

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

         At June 30, 2000, 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, 2000
                                                          ----------------
                                                           (In thousands)

Substandard loans................................              $240
Doubtful loans...................................                89
Loss loans.......................................               ---
Special mention loans............................               555
                                                               ----
   Total classified loans........................              $884
                                                               ====
General loss allowances..........................              $372
Specific loss allowances.........................               ---
                                                               ----
   Total allowances..............................              $372
                                                               ====

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

Allowance for Loan Losses

         The allowance  for loan losses is maintained  through the provision for
loan losses,  which is charged to  earnings.  The  provision  for loan losses is
determined in  conjunction  with  management's  review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio,  loan delinquencies (current status as
well as past and  anticipated  trends) and adequacy of collateral  securing loan
delinquencies,  historical and estimated net  charge-offs,  and other  pertinent
information  derived  from a  review  of the  loan  portfolio.  In  management's
opinion,  the Bank's allowance for loan losses is adequate to absorb anticipated
future  losses from loans at June 30, 2000.  However,  there can be no assurance
that  regulators,  when reviewing the Bank's loan portfolio in the future,  will
not require  increases  in its  allowances  for loan  losses or that  changes in
economic conditions will not adversely affect the Bank's loan portfolio.

         Summary of Loan Loss  Experience.  The following table analyzes changes
in the allowance for loan losses during the past five (5) one-year periods ended
June 30, 2000.
<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
                                                   ------------------------------------------------------------------
                                                   2000           1999            1998            1997           1996
                                                   ----           -----           ----            ----          -----
                                                                         (Dollars in thousands)
<S>                                                <C>            <C>             <C>             <C>           <C>
Balance of allowance at beginning
   of period................................       $336           $320            $231            $150          $   57
                                                   ----           ----            ----            ----            ----
Less charge offs:
Mortgage loans..............................        ---            (26)             (6)            ---             ---
Consumer loans..............................        (18)            (2)             (7)             (4)             (1)
Add recoveries:
Consumer loans..............................        ---            ---             ---             ---             ---
                                                   ----           ----            ----            ----            ----
Net (charge-offs) recoveries................        (18)           (28)            (13)             (4)             (1)
Provisions for losses on loans..............         54             44             102              85              94
                                                   ----           ----            ----            ----            ----
Balance of allowance at end of period.......       $372           $336            $320            $231            $150
                                                   ====           ====            ====            ====            ====
Net charge-offs to total average
   loans receivable for period..............       0.04%          0.08%           0.04%            0.01%           --- %
Allowance at end of period to
   net loans receivable at end
   of period (1)............................        0.81          0.88            0.94              0.67           0.55
Allowance to total non-performing
   loans at end of period...................       94.18        425.32          114.70             41.10          41.78
</TABLE>
------------
(1)  Total loans less net loans in process and deferred loan costs.

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

                                                                        At June 30,
                                     ---------------------------------------------------------------------------------
                                            2000                            1999                         1998
                                     --------------------           --------------------          --------------------
                                                  Percent                        Percent                        Percent
                                                 of loans                       of loans                       of loans
                                                  in each                        in each                        in each
                                                 category                       category                       category
                                                 of total                       of total                       of total
                                     Amount        loans            Amount        loans           Amount         loans
                                     ------        -----            ------        -----           ------         -----
                                                                  (Dollars in thousands)

Balance at end of period
   applicable to:
<S>                                    <C>          <C>             <C>           <C>              <C>          <C>
Residential.........................   $113         50.76%          $  45         53.46%           $  35        56.76%
Combo...............................     13         14.23              30         13.60               33        13.52
Nonresidential......................    105         25.76              45         23.79               32        22.07
Multi-family........................      2          2.20              20          2.80               12         2.62
Mobile home loans...................     11          2.86              45          2.43               35         2.43
Commercial and industrial
   loans............................      2          0.57              15          1.37                6         0.70
Consumer loans......................     30          3.62              25          2.55               19         1.90
Unallocated.........................     96           ---             111           ---              148          ---
                                       ----        ------            ----        ------             ----       ------
     Total..........................   $372        100.00%           $336        100.00%            $320       100.00%
                                       ====        ======            ====        ======             ====       ======
</TABLE>


Investments and FHLB Stock

         The   Company's   investment   portfolio   (excluding   mortgage-backed
securities) consists of U.S. government agency securities, equity securities and
Federal Home Loan Bank  ("FHLB")  stock.  At June 30, 2000,  approximately  $1.6
million,  or 2.6% 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, 2000.

         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,
                                                ---------------------------------------------------------------
                                                        2000                  1999                  1998
                                                -------------------   -------------------   -------------------
                                                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.........................   $    ---    $   ---       $100       $101       $100       $103
   Marketable equity securities.............        719        465        813        617      1,320      1,272
                                                 ------     ------     ------     ------     ------     ------
     Total securities
       available for sale...................        719        465        913        718      1,420      1,375
                                                 ------     ------     ------     ------     ------     ------
FHLB stock (2)..............................        835        835        660        660        500        500
                                                 ------     ------     ------     ------     ------     ------
     Total investments......................     $1,554     $1,300     $1,573     $1,378     $1,920     $1,875
                                                 ======     ======     ======     ======     ======     ======
</TABLE>

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

(2)  Fair value approximates carrying value.
<PAGE>

Sources of Funds

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

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

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

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

     An analysis of the Bank  deposit  accounts by type,  maturity,  and rate at
June 30, 2000, is as follows:
<TABLE>
<CAPTION>
                                                           Minimum         Balance at                          Weighted
                                                           Opening          June 30,           % of             Average
Type of Account                                            Balance            2000           Deposits            Rate
---------------                                            --------        ----------        --------          --------
                                                                              (Dollars in thousands)
Withdrawable:
<S>                                                        <C>               <C>               <C>               <C>
   Savings accounts..................................      $    10           $3,523            9.14%             2.52%
   Money market accounts.............................        5,000              287            0.74              4.25%
   NOW and other transaction accounts................           50            3,645            9.46              1.64%
                                                                             ------           -----
     Total withdrawable..............................                        $7,455           19.34%             2.17%
                                                                             ------           -----
Certificates (original terms):
   91 days...........................................        1,000            1,316            3.41              4.57%
   6 months..........................................        1,000            4,014           10.41              6.86%
   12 months.........................................        1,000           12,681           32.90              6.00%
   18 months.........................................          500              712            1.85              6.95%
   24 months.........................................        1,000            6,507           16.88              5.81%
   30 months.........................................        1,000            1,118            2.90              5.28%
   36 months.........................................        1,000              214            0.56              5.31%
   48 months.........................................        1,000              545            1.41              5.60%
   60 months.........................................        1,000            3,649            9.47              5.81%
IRAs (original terms):
   12 months.........................................        1,000               99            0.26              5.79%
   36 months.........................................        1,000              174            0.45              6.20%
   60 months.........................................        1,000               58            0.16              5.18%
                                                                            -------          ------
     Total certificates and IRAs.....................                        31,087           80.66              5.97%
                                                                            -------          ------
     Total deposits..................................                       $38,542          100.00%             5.23%
                                                                            =======          ======              ====
</TABLE>

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

                                           Year Ended June 30,
                            ---------------------------------------------
                               2000               1999            1998
                            ----------         ----------       ---------
                                             (In thousands)

4.00% and under..........    $   ---             $   ---         $     65
4.01 - 6.00 %............     17,312              19,682           14,971
6.01 - 8.00%.............     13,775               4,185            4,020
                             -------             -------          -------
Total  ..................    $31,087             $23,867          $19,056
                             =======             =======          =======

         The following table  represents,  by various  interest rate categories,
the amounts of time deposits  maturing  during each of the three years following
June 30, 2000, and the total amount maturing  thereafter.  Matured  certificates
which have not been renewed as of June 30, 2000,  have been allocated based upon
certain rollover assumptions:

                                                  Amounts At
                                          June 30, 2000, Maturing in
                              -----------------------------------------------
                              One Year        Two        Three   Greater Than
                               or Less       Years       Years    Three Years
                               -------       -----       -----    -----------
                                             (In thousands)

4.00% and under..........      $   ---      $  ---       $  ---      $  ---
4.01 - 6.00 %............       10,133       4,224          922       2,032
6.01-8.00%...............       10,563       2,569          366         278
                               -------      ------       ------      ------
Total  ..................      $20,696      $6,793       $1,288      $2,310
                               =======      ======       ======      ======


<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,
2000.

                 Maturity                          (In thousands)
          ----------------------                   --------------
          Three months or less..................       $1,951
          Greater than three months
               through six months...............        2,392
          Greater than six months
               through twelve months............        3,128
          Over twelve months....................        2,145
                                                       ------
               Total............................       $9,616
                                                       ======


         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                       Increase
                                                             (Decrease)                     (Decrease)
                                        Balance at              from   Balance at              from   Balance at
                                         June 30,     % of    June 30,  June 30,     % of    June 30,  June 30,    % of
                                           2000     Deposits    1999      1999     Deposits    1998      1998    Deposits
                                        ---------------------------------------------------------------------------------
                                                                           (Dollars in thousands)

Withdrawable:
<S>                                         <C>       <C>   <C>       <C>            <C>        <C>    <C>          <C>
   Savings accounts.....................    $3,523    9.14% $    (259)$   3,782      11.58%     $511   $3,271       12.28%
   Money market accounts................       287    0.74     (1,428)    1,715       5.25       203    1,512        5.67
   NOW accounts and
     other transaction accounts.........     3,645    9.46        352     3,293      10.08       483    2,810       10.54
                                           -------  ------     ------   -------     ------    ------  -------      ------
     Total withdrawable.................     7,455   19.34     (1,335)    8,790      26.91     1,197    7,593       28.49
Certificates (original terms):
   91 days..............................     1,316    3.41      1,123       193       0.59        61      132        0.50
   6 months.............................     4,014   10.41      3,096       918       2.81       209      709        2.66
   12 months............................    12,681   32.90        865    11,816      36.18     4,625    7,191       26.98
   18 months............................       712    1.85        712       ---         ---      ---      ---          ---
   24 months............................     6,507   16.88      3,596     2,911       8.91       547    2,364        8.87
   30 months............................     1,118    2.90     (1,454)    2,572       7.88      (251)   2,823       10.59
   36 months............................       214    0.56       (202)      416       1.27        11      405        1.52
   48 months............................       545    1.41       (126)      671       2.06       (50)     721        2.71
   60 months............................     3,649    9.47       (368)    4,017      12.30      (609)   4,626       17.36
IRAs (original terms):
   12 months............................        99    0.26       (166)      265       0.81       193       72        0.27
   36 months............................       174    0.45        166         8       0.02         1        7        0.03
   60 months............................        58    0.16        (22)       80       0.25        74        6        0.02
                                           -------  ------     ------   -------     ------    ------  -------      ------
     Total certificates and IRAs........    31,087   80.66      7,220    23,867      73.08     4,811   19,056       71.51
                                           -------  ------     ------   -------     ------    ------  -------      ------
       Total deposits...................   $38,542  100.00%    $5,885   $32,657     100.00%   $6,008  $26,649      100.00%
                                           =======  ======     ======   =======     ======    ======  =======      ======
</TABLE>


         Borrowings.  The Bank focuses on generating loans by utilizing the best
source of funding from deposits,  investments  or borrowings.  At June 30, 2000,
the Bank had $13.2 million in borrowings  from the FHLB of  Indianapolis,  which
mature on various  dates  primarily  during the years 2000 through 2005 and have
interest  rates ranging from 5.17% to 6.90%.  The Bank does not  anticipate  any
difficulty in obtaining  advances  appropriate to meet its  requirements  in the
future.  The Bank had $34.9 million in eligible  assets  available as collateral
for advances  from the FHLB of  Indianapolis  as of June 30, 2000.  Based on the
Bank's blanket  collateral  agreements,  advances from the FHLB of  Indianapolis
must be  collateralized  by 160%  of  eligible  assets.  Therefore,  the  Bank's
eligible collateral would have supported approximately $21.8 million in advances
from the FHLB of Indianapolis as of June 30, 2000. However,  the Bank's Board of
Directors has by resolution limited the amount of authorized borrowings to $19.0
million at June 30, 2000.
<PAGE>

         The following table presents certain information relating to the Bank's
FHLB borrowings for the years ended June 30, 2000, 1999 and 1998.

                                                    At or for the Year
                                                      Ended June 30,
                                           ------------------------------------
                                             2000          1999          1998
                                           -------       ---------      -------
                                            (Dollars in thousands)

FHLB Advances:
   Average balance outstanding............ $14,325        $10,242      $ 8,592
   Maximum amount outstanding at any
     month-end during the period..........  16,700         13,200       10,000
   Weighted average interest rate
     during the period....................    5.85%          5.83%        6.16%
   Weighted average interest rate
     at end of period.....................    5.91%          5.61%        6.01%

Service Corporation Subsidiary

         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. 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, 2000,  outstanding contracts
on BSF subdivision lots were:

     Name of Subdivision                 Number of Contracts   Contract Balance
     -------------------                 -------------------   ----------------
     Hancock Corner                               1                $  20,237
     10 O'Clock Line                              3                   37,658
     Greene Woods                                 1                    6,705
     Autumn Hills                                 9                  101,583
     Coon Path                                    2                   17,977
     Purchased contracts                          1                    2,948
                                                 --                 --------
          Total outstanding contracts            17                 $187,108
                                                 ==                 ========

         Additionally, at June 30, 2000, BSF had three unsold lots in Coon Path,
with a sale price of $32,400 and cost of $15,663.

         BSF has been developing  Hancock Corner as a subdivision to accommodate
modular  homes.  As of June 30, 2000, BSF had sold two lots with a sale price of
$45,000  and a cost of  $26,000.  Additionally,  BSF had 28  tracts of ground in
inventory with a price of $730,000 and a cost of $353,000.

         BSF held title to three  commercial  lots in Cloverdale  with a cost of
$135,000  and a listed  price of  $200,000.  While  awaiting  sale of this  real
estate, it is rented for commercial use.

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

         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
                  Charles W. Chambers                  Secretary and Treasurer
<PAGE>

         At June 30, 2000, the Bank's aggregate  investment in BSF was $315,000.
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.

         The following  are a condensed  balance sheet for BSF at June 30, 2000,
1999 and 1998, and a condensed income statement for BSF for the years ended June
30, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
                                                                Condensed Balance Sheet
                                                                       June 30,
                                                   ---------------------------------------------
                                                   2000                  1999               1998
                                                   ----                  ----               ----
                                                                    (In thousands)
Assets:
<S>                                                <C>                 <C>                 <C>
   Cash.................................           $  4                $   72              $   14
   Investment securities................            ---                   ---                  85
   Loans, net...........................            187                   223                 329
   Land acquired for development........            440                    20                  21
                                                   ----                  ----                ----
       Total assets.....................           $631                  $315                $449
                                                   ====                  ====                ====
Liabilities:
   Borrowings...........................           $300                $  ---              $  ---
   Other liabilities....................             16                    10                  10
                                                   ----                  ----                ----
       Total liabilities................            316                    10                  10
Equity Capital..........................            315                   305                 439
                                                   ----                  ----                ----
       Total liabilities and
         equity capital.................           $631                  $315                $449
                                                   ====                  ====                ====

                                                              Condensed Income Statement
                                                                       June 30,
                                                   ---------------------------------------------
                                                   2000                  1999               1998
                                                   ----                  ----               ----
                                                                    (In thousands)

Interest income.........................          $  25                   $35               $  39
Interest expense........................             20                   ---                 ---
                                                   ----                  ----                ----
   Net interest income..................              5                    35                  39
                                                   ----                  ----                ----
Income from sale of real estate.........             25                     6                   7
                                                   ----                  ----                ----
Non-interest expense:
   Salaries and employee benefits.......              5                     5                   4
   Printing and office supplies.........              1                     1                 ---
   Other expenses.......................              8                     8                   7
                                                   ----                  ----                ----
       Total non-interest expense.......             14                    14                  11
                                                   ----                  ----                ----
Income before income tax................             16                    27                  35
   Income tax expense...................              6                    11                  14
                                                   ----                  ----                ----
       Net income.......................           $ 10                  $ 16               $  21
                                                   ====                  ====               =====
</TABLE>


Income Tax Credits

         The  Company's  subsidiary  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.
Funds were  dispersed by  installments  during project  construction,  which 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,  2000,  the  total  capitalized  building,  land  and
organizational  costs for the project were  $1,452,018.  The Bank's share of net
operating losses from the project during the year was $34,000,  reducing its net
investment  to $662,000  at June 30,  2000.  Income tax credits  related to this
investment  reduced  the  Company's  federal  income tax  expense by $108,000 in
fiscal year 2000.
<PAGE>

         On April 25, 2000, the Cunot Apartments sustained severe fire damage to
one of three buildings in the 24-unit complex. The project's general partner has
taken steps  necessary to begin  reconstructing  the  eight-unit  building  with
insurance  proceeds.  Management  has been  advised  that  future  tax  credits,
estimated at approximately $108,000 annually,  will not be adversely affected by
the fire  damaged  property,  provided  the  structure  is rebuilt and  achieves
acceptable occupancy prior to June 30, 2001.

Employees

         As of June 30,  2000,  the  Company  employed 23 persons on a full-time
basis and five persons on a part-time basis. None of the Company's  employees is
represented by a collective bargaining group.  Management considers its employee
relations to be excellent.

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

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

                                   COMPETITION

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

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

         Under  current  law,  bank  holding   companies  may  acquire   savings
associations.  Savings associations may also acquire banks under federal law. To
date,  several bank holding  company  acquisitions  of savings  associations  in
Indiana have been  completed.  Affiliations  between  banks and healthy  savings
associations  based in Indiana may also  increase the  competition  faced by the
Company.

         Because of recent changes in 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.


<PAGE>

                                   REGULATION

General

         The Bank,  as a federally  chartered  savings  bank, is a member of the
Federal Home Loan Bank System ("FHLB  System"),  its deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") and it is a member of the Savings
Association Insurance Fund (the "SAIF"),  which is administered by the 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, 2000, was $10,331.

         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
their 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 5 percent of the
voting shares of a savings association or holding company thereof which is not a
subsidiary.  Except  with the prior  approval  of the  Director  of the OTS,  no
director or officer of a savings and loan  holding  company or person  owning or
controlling by proxy or otherwise more than 25% of such company's stock may also
acquire control of any savings institution, other than a subsidiary institution,
or any other savings and loan holding company.

         The Holding  Company  currently  operates as a unitary savings and loan
holding company.  Prior to the enactment of the Gramm-Leach-Bliley Act (the "GLB
Act") on  November  12,  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 to 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.
<PAGE>

         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,  2000,  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 pursuant to the authority to
approve  emergency  thrift   acquisitions  and  where  each  subsidiary  savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than the Bank or other subsidiary savings  associations)
would  thereafter be subject to further  restrictions.  The HOLA provides  that,
among other things,  no multiple  savings and loan holding company or subsidiary
thereof  which is not a savings  association  shall  commence or continue  for a
limited  period of time  after  becoming  a multiple  savings  and loan  holding
company or subsidiary  thereof,  any business activity other than (i) furnishing
or performing  management  services for a subsidiary savings  association,  (ii)
conducting an insurance agency or escrow business,  (iii) holding,  managing, or
liquidating assets owned by or acquired from a subsidiary  savings  institution,
(iv) holding or managing  properties  used or occupied by a  subsidiary  savings
institution,  (v) acting as trustee under deeds of trust,  (vi) those activities
previously  directly  authorized by the FSLIC by regulation as of March 5, 1987,
to be  engaged  in by  multiple  holding  companies  or (vii)  those  activities
authorized  by the FRB as  permissible  for bank holding  companies,  unless the
Director  of the OTS by  regulation  prohibits  or limits  such  activities  for
savings and loan holding  companies.  Those activities  described in (vii) above
must also be approved by the Director of the OTS prior to being  engaged in by a
multiple holding company.

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

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

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

Federal Home Loan Bank System

         The  Bank is a  member  of the  FHLB of  Indianapolis,  which is one of
twelve  regional  FHLBs.  Each FHLB serves as a reserve or central  bank for its
member savings associations and other financial institutions within its assigned
region.  It is funded  primarily  from  funds  deposited  by banks  and  savings
associations and proceeds  derived from the sale of consolidated  obligations of

<PAGE>

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  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  equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts, or similar
obligations  at the beginning of each year.  The Bank is currently in compliance
with this  requirement.  At June 30, 2000, the Bank's investment in stock of the
FHLB of  Indianapolis  was $835,000.  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  twelve  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, 2000,  dividends paid by FHLB to the Bank totaled
$63,000, for an annual rate of 8.01%.

Insurance of Deposits

         The FDIC is an independent federal agency that insures the deposits, up
to prescribed  statutory  limits, of banks and thrifts and safeguards the safety
and soundness of the banking and thrift  industries.  The FDIC  administers  two
separate  insurance  funds,  the Bank  Insurance Fund (the "BIF") for commercial
banks and state savings banks and the SAIF for savings  associations such as the
Bank and banks that have acquired deposits from savings  associations.  The FDIC
is  required  to maintain  designated  levels of  reserves  in each fund.  As of
September  30, 1996,  the reserves of the SAIF were below the level  required by
law,  primarily  because a significant  portion of the assessments paid into the
SAIF have been used to pay the cost of prior thrift failures, while the reserves
of the BIF met the level required by law in May, 1995. However, on September 30,
1996,  provisions  designed to  recapitalize  the SAIF and eliminate the premium
disparity  between the BIF and SAIF were  signed into law, as further  described
below.

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

         In 1996,  legislation was enacted which included provisions designed to
recapitalize the SAIF and eliminate the significant  premium  disparity  between
the BIF and the SAIF. Under the new law, the Bank was charged a one-time special
assessment equal to $.657 per $100 in assessable deposits at March 31, 1995. The
Bank recognized this one-time assessment as a non-recurring operating expense of
$142,000  ($86,000 after tax) during the three-month  period ended September 30,
1996. The assessment was fully  deductible for both federal and state income tax
purposes. Beginning January 1, 1997, the Bank's annual deposit insurance premium
was reduced from .23% to .06% of total assessable deposits. BIF institutions pay
lower assessments than comparable SAIF institutions because BIF institutions pay
only 20% of the rate  being paid by SAIF  institutions  on their  deposits  with
respect  to  obligations  issued by the  federally-chartered  corporation  which

<PAGE>

provided  some of the  financing  to  resolve  the  thrift  crisis in the 1980's
("FICO").  Although Congress has considered  merging the SAIF and the BIF, until
such a merger occurs,  savings  associations with SAIF deposits may not transfer
deposits into the BIF system  without paying various exit and entrance fees, and
SAIF institutions  will continue to pay higher FICO  assessments.  Such exit and
entrance fees need not be paid if a SAIF institution  converts to a bank charter
or merges with a bank, as long as the resulting bank continues to pay applicable
insurance  assessments to the SAIF, and as long as certain other  conditions are
met.

Regulatory Capital

         Currently,  savings  associations are subject to three separate minimum
capital-to-assets  requirements:  (i) a leverage limit,  (ii) a tangible capital
requirement,  and (iii) a risk-based  capital  requirement.  The leverage  limit
requires that savings  associations  maintain  "core  capital" of at least 3% of
total assets. Core capital is generally defined as common  shareholders'  equity
(including retained income), noncumulative perpetual preferred stock and related
surplus,   certain  minority  equity   interests  in  subsidiaries,   qualifying
supervisory  goodwill,  purchased mortgage servicing rights and purchased credit
card relationships  (subject to certain limits) less nonqualifying  intangibles.
The OTC recently  amended this requirement to require 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.
This  amendment  became  effective  April 1, 1999.  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, 2000, the Bank was in
compliance with all capital requirements imposed by law.

         The OTS has  promulgated  a rule which sets forth the  methodology  for
calculating an interest rate risk  component to be used by savings  associations
in calculating  regulatory  capital.  The OTS has delayed the  implementation of
this rule, however.  The rule requires savings  associations with "above normal"
interest rate risk  (institutions  whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain  additional capital for interest rate risk under the
risk-based capital framework.  Even though the OTS has delayed implementing this
rule, the Bank  nevertheless  measures its interest rate risk in conformity with
the OTS  regulation.  As of June 30,  2000,  the Bank's  interest  rate risk was
considered "moderate" within the parameters set forth in the regulation.

         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

<PAGE>

five capital tiers: well capitalized, adequately capitalized,  undercapitalized,
significantly  undercapitalized,  and critically  undercapitalized.  At June 30,
2000,  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

         The OTS adopted a regulation,  which became effective on April 1, 1999,
that revised the restrictions  that apply to "capital  distributions" by savings
associations.  The  amended  regulation  defines  a  capital  distribution  as a
distribution of cash or other property to a savings  association's  owners, made
on account of their ownership.  This definition includes a savings association's
payment  of  cash  dividends  to  shareholders,  or  any  payment  by a  savings
association  to  repurchase,  redeem,  retire,  or otherwise  acquire any of its
shares or debt instruments that are included in total capital, and any extension
of credit to finance an  affiliate's  acquisition  of those shares or interests.
The amended regulation does not apply to dividends  consisting only of a savings
association's shares or rights to purchase such shares.

         The amended  regulation  exempts certain savings  associations from the
requirement  under the previous  regulation that all savings  associations  file
either  a notice  or an  application  with the OTS  before  making  any  capital
distribution.  As revised, the regulation requires a savings association to file
an application for approval of a proposed capital  distribution  with the OTS if
the association is not eligible for expedited  treatment under OTS's application
processing  rules, or the total amount of all capital  distributions,  including
the proposed capital distribution, for the applicable calendar year would exceed
an amount  equal to the savings  association's  net income for that year to date
plus the savings  association's  retained net income for the preceding two years
(the "retained net income standard").  At June 30, 2000, the Bank's retained net
income  standard  was  $524,000.   A  savings  association  must  also  file  an
application for approval of a proposed  capital  distribution  if, following the
proposed  distribution,  the  association  would  not  be  at  least  adequately
capitalized  under  the OTS  prompt  corrective  action  regulations,  or if the
proposed  distribution  would violate a prohibition  contained in any applicable
statute,  regulation,  or agreement  between the  association and the OTS or the
FDIC.

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

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


<PAGE>

Limitations on Rates Paid for Deposits

      Regulations  promulgated by the FDIC pursuant to FedICIA place limitations
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.

Safety and Soundness Standards

         On February 2, 1995, the federal banking  agencies adopted final safety
and soundness standards for all insured depository institutions.  The standards,
which were issued in the form of guidelines rather than  regulations,  relate to
internal   controls,   information   systems,   internal  audit  systems,   loan
underwriting  and  documentation,  compensation  and interest rate exposure.  In
general,  the standards are designed to assist the federal  banking  agencies in
identifying and addressing  problems at insured depository  institutions  before
capital becomes impaired.  If an institution fails to meet these standards,  the
appropriate  federal  banking  agency may  require the  institution  to submit a
compliance  plan.  Failure to submit a compliance plan may result in enforcement
proceedings.  On August 27,  1996,  the  federal  banking  agencies  added asset
quality and earning standards to the safety and soundness guidelines.

Real Estate Lending Standards

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

Loans to One Borrower

         Under OTS regulations, the Bank may not make a loan or extend credit to
a single or  related  group of  borrowers  in  excess  of 15% of its  unimpaired
capital and  surplus.  Additional  amounts may be lent,  not in excess of 10% of
unimpaired capital and surplus,  if such loans or extensions of credit are fully
secured by readily  marketable  collateral,  including  certain  debt and equity
securities but not including real estate.  In some cases, a savings  association
may lend up to 30 percent of unimpaired  capital and surplus to one borrower for
purposes  of  developing  domestic  residential   housing,   provided  that  the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded lending  authority.  At June 30, 2000, the Bank
did not have any loans or  extensions  of credit to a single or related group of
borrowers  in excess of its lending  limits.  The Bank does not believe that the
loans-to-one-borrower  limits  will have a  significant  impact on its  business
operations or earnings.

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.


<PAGE>

Federal Securities Law

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

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

Qualified Thrift Lender

         Savings  associations  must meet a QTL test.  If the Bank  maintains an
appropriate   level  of  qualified  thrift   investments   ("QTIs")   (primarily
residential    mortgages   and   related    investments,    including    certain
mortgage-related  securities)  and  otherwise  qualifies as a QTL, the Bank will
continue to enjoy full borrowing  privileges from the FHLB of Indianapolis.  The
required  percentage of QTIs is 65% of portfolio  assets  (defined as 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 and paid to 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;  (iii) it shall  not be  eligible  for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting  payment of  dividends.  Three years  after  failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national  bank and a savings  association  and (ii) repay all  outstanding  FHLB
advances.  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, 2000,  91.6% of the Bank's  portfolio assets (as defined on
that date) were  invested in qualified  thrift  investments  (as defined on that
date), and therefore 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.

<PAGE>

Savings  associations  acquired by bank  holding  companies  may be converted to
banks if they continue to pay SAIF premiums,  but as such they become subject to
branching and activity restrictions applicable to banks.

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

         The OTS has adopted  regulations which permit  nationwide  branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association  meets the
domestic  building  and loan  test in 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.

         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 March 15, 1996.

Community Reinvestment Act Matters

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

                                    TAXATION

Federal Taxation

         Historically,  savings  banks have been  permitted  to compute bad debt
deductions using either the bank experience  method or the percentage of taxable
income method. However, for years beginning after December 31, 1995, the Bank is
not able to use the  percentage  of  taxable  income  method  of  computing  its
allocable  tax bad debt  deduction.  The Bank will be  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");  or (ii)
the Bank pays out excess dividends or distributions.

         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

<PAGE>

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

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

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

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

Item 2.  Properties.

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

         The following table provides  certain  information  with respect to the
Company's offices as of June 30, 2000:

                                                      Net Book Value
                                                       of Property,  Approximate
                         Owned or   Year      Total     Furniture &     Square
Description and Address   Leased   Opened   Deposits     Fixtures       Footage
-----------------------   ------   ------   --------     --------   ------------
                                       (Dollars in thousands)
279 East Morgan Street     Owned    1987     $32,516      $1,043        11,300
Spencer, IN  47460
(including annex)

102 South Main Street      Owned    1998     $6,026        $878          6,000
Cloverdale, IN  46120

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

         As of June 30,  2000,  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 On-Line Financial Services,  Inc. in Oak Brook, Illinois,  which was
acquired  in April 1999 by GFS  Holdings  Co. The cost of these data  processing
services was approximately $9,000 per month for the twelve months ended June 30,
2000.

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, 2000.

Item 4.5.  Executive Officers of the Registrant.

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

       Name                    Position
       -------------------     --------------
       Kurt J. Meier           President, Chief Executive Officer and Treasurer
       Kurt D. Rosenberger     Vice President and Chief Financial Officer
       Charles W. Chambers     Secretary

         Kurt J.  Meier  (age 50) is  President,  Chief  Executive  Officer  and
Treasurer of the Holding Company.  Mr. Meier has also served as President of the
Bank since 1994.  Theretofore,  he served as  Managing  Officer of the Bank from
1990 to 1994.

         Kurt D.  Rosenberger  (age 41) is Vice  President  and Chief  Financial
Officer  of the  Holding  Company.  Mr.  Rosenberger  has  also  served  as Vice
President  of the Bank since 1994.  Theretofore,  he served as Senior  Financial
Analyst for the Office of Thrift Supervision in Indianapolis, Indiana, from 1990
to 1994.

         Charles W. Chambers (age 85) is Secretary of the Holding  Company.  Mr.
Chambers has also served as a Staff  Appraiser of the Bank from 1991 to 1996 and
as Secretary of the Bank since 1990.

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

         The Holding Company's common stock, without par value ("Common Stock"),
is quoted on the National  Association of Securities Dealers Automated Quotation
System  ("NASDAQ"),  SmallCap Market,  under the symbol "HWEN." As of August 21,
2000, there were 262 registered  holders of the Holding  Company's Common Stock.
Management estimates at least 200 additional  stockholders held shares in broker
accounts on August 21, 2000.

         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, 1998    $ 9             $ 7  5/8      $   0.025
         December 31, 1998       7 7/8           6  1/2          0.030
         March 31, 1999          8               7               0.030
         June 30, 1999           7 7/8           7               0.030

         September 30, 1999      8               6  7/8          0.030
         December 31, 1999       7 1/8           6  1/8          0.030
         March 31, 2000          6 3/4           5  1/16         0.030
         June 30, 2000           6 1/4           5  3/16         0.030

Stockholder Matters

         The book value of HFB Common Stock was $8.38 at June 30, 2000.  On this
same date,  the price of HFB Common  Stock was $5.69 per share,  representing  a
67.9%  price-to-book  value ratio.  For the year ended June 30, 2000,  quarterly
dividends totaling $.12 per share were paid to shareholders.

         The Company  repurchased  and retired 28,800 shares of its Common Stock
at an average  cost of $6.35 per share during  fiscal year 2000.  As of June 30,
2000, the Company had purchased a total of 154,452, or 15.3% of the total number
of Common Stock shares  originally  offered to the public.  Further,  on May 25,
2000, the Company announced its third  consecutive  repurchase  initiative.  The
Company plans additional purchases,  from time to time, on the open market up to
43,000, or approximately 5% of the Corporation's  outstanding shares on the date
of the announcement. At June 30, 2000, there were 857,400 shares of Common Stock
outstanding.

         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.

Item 6.       Selected Financial Data.

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

<TABLE>
<CAPTION>
At  June 30                                            2000          1999         1998         1997         1996
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Summary of Financial Condition:
<S>                                                   <C>           <C>          <C>          <C>           <C>
Total assets.......................................   $59,451       $53,136      $42,560      $42,508       $39,426
Loans receivable, net..............................    45,341        38,238       33,959       34,117        27,125
Cash and cash equivalents..........................     1,716         2,475        3,802        4,184         5,721
Securities available for sale......................     7,712         8,288        1,918        2,102         4,901
Securities held to maturity........................       ---           ---          ---          ---           ---
Deposits...........................................    38,542        32,657       26,649       26,157        28,726
Federal Home Loan Bank advances
   and other borrowings............................    13,500        13,200        8,200        9,000         7,200
Stockholders' equity...............................     7,182         7,123        7,506        7,197         3,410

Year Ended June 30                                       2000          1999         1998         1997         1996
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Summary of Operating Results:
Interest and dividend income.....................      $4,773        $3,883       $3,690       $3,397        $2,955
Interest expense.................................       2,577         2,032        1,812        1,703         1,593
                                                       ------        ------       ------       ------        ------
   Net interest income...........................       2,196         1,851        1,878        1,694         1,362
Provision for loan losses........................          54            44          102           85            94
                                                       ------        ------       ------       ------        ------
   Net interest income after provision for
        loan losses..............................       2,142         1,807        1,776        1,609         1,268
                                                       ------        ------       ------       ------        ------
Other income:
   Service charges on deposit accounts...........         151            84           55           43            37
   Gain on sale of real estate acquired
        for development..........................          25             6            7           31            57
   Net realized gain on sales of available
       for sale securities ......................         (18)            3          141           37           ---
   Loss on low-income housing investment.........         (34)          ---          ---          ---           ---
   Other.........................................          30            32           64           53            47
                                                       ------        ------       ------       ------        ------
      Total other income.........................         154           125          267          164           141
                                                       ------        ------       ------       ------        ------
Other expenses:
   Salaries and employee benefits................         924           819          723          521           374
   Net occupancy expense.........................         145           110           85           71            67
   Equipment expense.............................         139           115           58           61            55
   Deposit insurance expense.....................          13            17           16          165            54
   Computer processing expense...................         185           152          120           95            75
   Printing and office supplies..................          43            65           41           38            33
   Advertising...................................          46            60           47           34            24
   Legal and professional fees...................         137           105          123          172            47
   Directors and committee fees..................          57            56           43           42            41
   Other.........................................         204           190          188          169           155
                                                       ------        ------       ------       ------        ------
        Total other expenses.....................       1,893         1,689        1,444        1,368           925
                                                       ------        ------       ------       ------        ------
Income before income tax.........................         403           243          599          405           484
Income tax expense...............................          54            99          206          153           196
                                                       ------        ------       ------       ------        ------
   Net income....................................        $349          $144       $  393      $   252       $   288
                                                       ======        ======       ======       ======        ======
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Year Ended June 30                                       2000          1999         1998         1997         1996
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Supplemental Data (1):
<S>                                                    <C>             <C>       <C>         <C>
Basic earnings per share.........................      $  .44          $.18      $   .47     $    .27           ---
Diluted earnings per share.......................         .44           .18          .47          .27           ---
Book value per common share at end of year.......        8.38          8.04         8.08         7.66           ---
Dividends per share..............................         .12           .12          .10          .08           ---
Dividend payout ratio............................       27.27%        66.67%       21.28%       29.63%          ---
Return on assets (2) ............................        0.61          0.30          .93          .63           .84%
Return on equity (3).............................        4.92          1.99         5.34         3.31          8.71
Interest rate spread (4) ........................        3.62          3.61         3.87         3.56          3.78
Net yield on interest-earning assets (5).........        4.06          4.17         4.65         4.41          4.13
Other expenses to average assets ................        3.30          3.52         3.42         3.40          2.70
Net interest income to other expenses............        1.16x         1.10x        1.30x        1.24x         1.47x
Equity-to-assets (6).............................       12.08%        13.41%       17.66%       16.93%         8.65%
Average equity to average total assets...........       12.37         15.08        17.42        18.90          9.64
Average interest-earning assets to average
   interest-bearing liabilities..................        1.09x         1.13x        1.17x        1.19x         1.07x
Non-performing assets to total assets............         .72%          .16%        1.17%        1.76%         1.03%
Non-performing loans to total loans..............         .86           .20          .81         1.65          1.32
Loan loss allowance to total loans, net..........         .81           .88          .94          .68           .55
Loan loss allowance to non-performing loans......       94.18        425.32       114.70        41.10         41.78
Net charge-offs to average loans ................         .04           .08          .04          .01             *
</TABLE>

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

(2)      Net income divided by average total assets.

(3)      Net income divided by average total equity.

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

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

(6)      Total equity divided by total assets.

*    Less than .01%

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

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

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

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

                      Average Balance Sheet/Yield Analysis
<TABLE>
<CAPTION>

Year Ended June 30,                            2000                        1999                          1998
------------------------------------------------------------------------------------------------------------------------
                                    Average             Yield/    Average           Yield/     Average            Yield/
                                    Balance  Interest    Cost     Balance Interest   Cost      Balance  Interest   Cost
                                    ------------------------------------------------------------------------------------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S>                                 <C>      <C>         <C>  <C>        <C>         <C>    <C>       <C>           <C>
   Interest-earning deposits....... $2,580   $   157     6.09%$   3,242  $   157     4.84%  $  3,214  $    177      5.51%
   Investment securities (1).......  8,435       530     6.28%    6,022      335     5.55%     2,318       167      7.20%
   Loans receivable (2)............ 42,243     4,023     9.52%   34,547    3,346     9.69%    34,366     3,306      9.62%
   Stock in FHLB of Indianapolis...    787        63     8.01%      562       45     8.01%       500        40      8.00%
                                    ------     -----             ------    -----              ------     -----
     Total interest-earning assets. 54,045     4,773     8.83%   44,373    3,883     8.75%    40,398     3,690      9.13%
                                               -----                       -----                         -----
Non-interest earning assets, net of
   allowance for loan
   losses and including
   unrealized gain (loss)
   on securities
   available for sale..............  3,289                        3,676                        1,860
                                   -------                      -------                      -------
     Total assets..................$57,334                      $48,049                      $42,258
                                   =======                      =======                      =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
   Savings accounts................$ 3,837       101     2.63% $  3,559       97     2.73%    $3,399       103      3.03%
   NOW accounts....................  3,596        85     2.36%    4,402      123     2.79%     3,998       124      3.10%
   Certificates of deposit......... 27,502     1,533     5.57%   21,364    1,215     5.69%    18,482     1,056      5.71%
   FHLB advances................... 14,325       838     5.85%   10,242      597     5.83%     8,592       529      6.16%
   Other borrowings................    240        20     8.33%      ---      ---      ---        ---       ---       ---
                                    ------     -----             ------    -----              ------     -----
     Total interest-bearing
        liabilities...............  49,500     2,577     5.21%   39,567    2,032     5.14%    34,471     1,812      5.26%
                                               -----                       -----                         -----
Other liabilities..................    743                        1,237                          426
                                   -------                      -------                      -------
     Total liabilities............. 50,243                       40,804                       34,897
                                   -------                      -------                      -------
Stockholders' equity...............  7,423                        7,376                        7,316
Net unrealized gain/(loss)
   on securities
   available for sale..............   (332)                        (131)                          45
                                   -------                      -------                      -------
     Total stockholders' equity....  7,091                        7,245                        7,361
                                   -------                      -------                      -------
     Total liabilities and
         stockholders' equity......$57,334                      $48,049                      $42,258
                                   =======                      =======                      =======
Net interest-earning assets........$ 4,545                    $   4,806                     $  5,927
                                   =======                    =========                     ========
Net interest income................         $  2,196                         $1, 851                   $ 1,878
                                            ========                         === ===                   =======
Interest rate spread...............                       3.62%                      3.61%                          3.87%
Net yield on weighted average
   interest-earning assets.........                       4.06%                      4.17%                          4.65%
Average interest-earning assets to
   average interest-bearing
   liabilities..................... 109.18%                      112.97%                      117.19%
</TABLE>

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

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

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

                          INTEREST RATE SPREAD ANALYSIS
<TABLE>
<CAPTION>

                                                                     Year Ended June 30,
                                             At June 30,   -------------------------------------
                                                2000         2000           1999           1998
------------------------------------------------------------------------------------------------

Weighted average interest rate earned on:

<S>                                             <C>          <C>             <C>            <C>
   Interest-earning deposits.................   6.07%        6.09%           4.84%          5.51%
   Investment securities.....................   6.43         6.28            5.55           7.20
   Loans receivable..........................   9.76         9.52            9.69           9.62
   Stock in FHLB of Indianapolis.............   8.00         8.01            8.01           8.00
     Total interest-earning assets...........   9.19         8.83            8.75           9.13

Weighted average interest rate cost of:

   Savings accounts..........................   2.52         2.63            2.73           3.03
   NOW and money market accounts.............   2.20         2.36            2.79           3.10
   Certificates of deposit...................   5.97         5.57            5.69           5.71
   FHLB advances and other borrowings........   5.97         5.92            5.83           6.16
     Total interest-bearing liabilities......   5.50         5.21            5.14           5.26

Interest rate spread (1).....................   3.69         3.62            3.61           3.87
Net yield on weighted average
   interest-earning assets (2)...............                4.06            4.17           4.65
</TABLE>

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

(2)  The net yield on weighted average  interest-earning assets is calculated by
     dividing net interest income by weighted  average  interest-earning  assets
     for the period indicated.  No net yield percentage is presented at June 30,
     2000, because the computation of net yield is applicable only over a period
     rather than at a specific date.

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

                              Rate/Volume Analysis
<TABLE>
<CAPTION>


                                                                   Increase (Decrease) in Net Interest Income
                                                                -------------------------------------------------
                                                                  Due to             Due to             Total Net
                                                                  Volume              Rate               Change
-----------------------------------------------------------------------------------------------------------------
Year ended June 30, 2000
compared  to Year ended June 30,  1999
(In  thousands)
Interest-earning assets:
<S>                                                              <C>                <C>               <C>
   Interest-earning deposits..............................       $ (36)             $  36             $      0
   Investment securities..................................         147                 48                  195
   Loans receivable.......................................         734                (57)                 677
   Stock in FHLB of Indianapolis..........................          18                  0                   18
                                                                 -----              -----             --------
     Total................................................         887                  3                  890
                                                                 -----              -----             --------
Interest-bearing liabilities:
   Savings accounts.......................................           7                 (3)                   4
   NOW and money market accounts..........................         (21)               (17)                 (38)
   Certificates of deposit................................         343                (25)                 318
   FHLB advances and other borrowings.....................         255                  6                  261
                                                                 -----              -----             --------
     Total................................................         584                (39)                 545
                                                                 -----              -----             --------
Change in net interest income.............................        $303               $ 42               $  345
                                                                 =====              =====             ========

Year ended June 30, 1999
compared  to Year ended June 30, 1998
(In  thousands)
Interest-earning assets:
   Interest-earning deposits..............................     $     2              $ (22)               $ (20)
   Investment securities..................................         214                (46)                 168
   Loans receivable.......................................          17                 23                   40
   Stock in FHLB of Indianapolis..........................           5                ---                    5
                                                                 -----              -----             --------
     Total................................................         238                (45)                 193
                                                                 -----              -----             --------
Interest-bearing liabilities:
   Savings accounts.......................................           5                (11)                  (6)
   NOW and money market accounts..........................          12                (12)                 ---
   Certificates of deposit................................         164                 (6)                 158
   FHLB advances..........................................          97                (29)                  68
                                                                 -----              -----             --------
     Total................................................         278                (58)                 220
                                                                 -----              -----             --------
Change in net interest income.............................       $ (40)            $   13                $ (27)
                                                                 =====              =====             ========

Year ended June 30, 1998
compared  to Year ended June 30,  1997
(In  thousands)
Interest-earning assets:
   Interest-earning deposits..............................       $  28             $   12               $   40
   Investment securities..................................        (186)                38                 (148)
   Loans receivable.......................................         380                 14                  394
   Stock in FHLB of Indianapolis..........................           5                  2                    7
                                                                 -----              -----             --------
     Total................................................         227                 66                  293
                                                                 -----              -----             --------
Interest-bearing liabilities:
   Savings accounts.......................................         (16)                 5                  (11)
   NOW and money market accounts..........................          57                 (4)                  53
   Certificates of deposit................................           1                 24                   25
   FHLB advances..........................................          54                (12)                  42
                                                                 -----              -----             --------
     Total................................................          96                 13                  109
                                                                 -----              -----             --------
Change in net interest income.............................        $131              $  53                 $184
                                                                 =====              =====             ========
</TABLE>

<PAGE>

Changes in Financial  Position  and Results of  Operations - Year Ended June 30,
2000, Compared to Year Ended June 30, 1999:

         General.  HFB earned net income  totaling  $349,000  for the year ended
June 30,  2000,  compared  to  $144,000  for the year  ended June 30,  1999.  In
addition  to  increasing  net income by 142.4%,  the  Company  achieved an 18.6%
increase in loans  outstanding  and an 18.0% increase in deposits for the twelve
months  ended June 30,  2000.  Management  attributes  these and other  positive
results  for  fiscal  year  2000 to  strategic  investments  initiated  in prior
periods.

         Federal  income  taxes for the year were  significantly  reduced as the
result of tax credits  earned on an investment the Bank initiated in March 1997.
The Bank's sole branch office,  which opened in October 1998,  made  substantial
contributions to the Bank's overall loan and deposit growth during the year. Lot
sales from the Bank's real estate development subsidiary,  which was reactivated
with the conversion of the Company and the Bank to federally  chartered entities
in May 1999, helped boost income in fourth quarter 2000 and should contribute to
profits throughout fiscal year 2001. See "See Forward Looking Statements."

         The return on average assets for the year ended June 30, 2000 was .61%,
compared to .30% the prior year.  The return on average equity was 4.92% for the
year ended June 30,  2000,  compared to 1.99% for the year ended June 30,  1999.
Earnings  per share were $.44 for the year ended June 30,  2000 and $.18 for the
year ended June 30, 1999.

         Assets. Total assets increased $6,315,000,  or 11.9%, to $59,451,000 at
June  30,  2000,  compared  to  $53,136,000  at June  30,  1999.  Cash  and cash
equivalents  decreased  $759,000,  or 30.7%,  to  $1,716,000  at June 30,  2000,
compared to $2,475,000 a year earlier. The decrease in cash and cash equivalents
combined  with  cash  inflows  from  deposits,  loan  payments,   proceeds  from
investments,  and  new  borrowings  were  used  to fund  loan  growth,  purchase
mortgage-backed  securities,  and  acquire  land  for  real  estate  development
activities.  Investment securities decreased $576,000, or 6.9%, to $7,712,000 at
June 30, 2000,  compared to $8,288,000 at June 30, 1999.  Total loans  increased
$7,138,000,  or 18.5%,  during  fiscal  2000.  At June 30, 2000 total loans were
$45,712,000, compared to $38,574,000 at June 30, 1999.

         The year-end levels of stock in the FHLB of Indianapolis  were $835,000
and  $660,000  for fiscal  years 2000 and 1999,  respectively.  Net premises and
equipment  decreased $65,000,  or 3.4%, to $1,920,000 at June 30, 2000, compared
to $1,985,000 at June 30, 1999.  Foreclosed real estate and  repossessed  assets
increased $29,000 to $35,000,  compared to $6,000 at June 30, 1999. The total at
June 30, 2000 consists of one lot and one mobile home.

         Average assets increased  $9,285,000,  or 19.3%, to $57,334,000 for the
year ended June 30, 2000,  compared to $48,049,000 for the prior year-ended June
30, 1999. Average  interest-earning  assets increased  $9,672,000,  or 21.8%, to
$54,045,000 for the year ended June 30, 2000, and  represented  94.3% of average
assets.  The bulk of this  increase was due to average  loans,  which  increased
$7,696,000,  or 22.3%, to $42,243,000 for the year ended June 30, 2000, compared
to  $34,547,000  for the year  ended  June  30,  1999.  Average  mortgage-backed
securities increased $2,669,000, or 53.6%, to $7,651,000 for the year ended June
30, 2000. Also,  average Federal Home Loan Bank stock increased by $225,000,  or
40.0%,  to $787,000  for the year ended June 30, 2000.  The overall  increase in
average  interest-earning  assets  was  partially  offset by a  decrease  in the
average  balance  of  interest-earning   deposits  of  $662,000,  or  20.4%,  to
$2,580,000.

         Liabilities and Stockholders' Equity. Deposits from the Cloverdale bank
branch nearly doubled  during the year and totaled  $6,026,000 at June 30, 2000.
For the entire Bank,  deposits  increased  $5,885,000,  or 18.0%. Total deposits
were  $38,542,000 at June 30, 2000, and $32,657,000 at June 30, 1999. The change
is in part a result of a  $7,220,000,  or 30.3%,  increase  in  certificates  of
deposit to  $31,087,000  at June 30, 2000,  compared to  $23,867,000 at June 30,
1999.  Transaction accounts increased $352,000,  or 10.7%, to $3,645,000 at June
30, 2000,  compared to $3,293,000  at June 30, 1999.  Partially  offsetting  the
overall increase in deposits,  passbook and statement savings deposits decreased
by $259,000,  or 6.9%, and amounted to $3,523,000 at June 30, 2000. Money market
deposits also decreased by $1,428,000,  or 83.3%,  to $287,000 at June 30, 2000,
compared to $1,715,000  at June 30, 1999.  Much of this decrease in money market
deposits reflects a shift of funds to higher earning short-term  certificates of
deposit and the impact of local rate competition.

         In addition to deposits,  FHLB advances are an important source of both
short-term and long-term  funding for the Bank. While the level of FHLB advances
at June 30, 2000 was unchanged from a year earlier at $13,200,000, borrowings of
$300,000 by the Bank's  subsidiary  increased total borrowings to $13,500,000 at
June 30, 2000.

         Average liabilities increased $9,439,000,  or 23.1%, to $50,243,000 for
the year ended June 30, 2000,  compared to $40,804,000 for the prior  year-ended
June 30, 1999. Average  interest-bearing  liabilities increased  $9,933,000,  or
25.1%,  to  $49,500,000  for the year  ended June 30,  2000.  The  increase  was
primarily due to increases in average certificates of deposit and FHLB advances.
Average   certificates  of  deposit  increased  by  $6,138,000,   or  28.7%,  to
$27,502,000  for the year ended June 30, 2000,  compared to $21,364,000  for the
year ended June 30, 1999.  Average FHLB  advances  increased by  $4,083,000,  or
39.9%, to $14,325,000 for the year ended June 30, 2000,  compared to $10,242,000
for the prior year ended June 30, 1999.

         HFB's stockholders' equity increased $59,000, or 0.8%, to $7,182,000 at
June 30, 2000, compared to $7,123,000 at June 30, 1999. Several factors combined
to produce the net increase in stockholders'  equity.  Significant  decreases in
stockholders'  equity  during the twelve  months  ended June 30,  2000  included
common  stock  repurchases  totaling  $183,000,  an  increase of $111,000 in net
unrealized  losses on  securities  available  for sale,  and cash  dividends  of
$95,000.  However, net income of $349,000 and the amortization of employee stock
ownership  plans offset these  decreases.  Due  primarily to the large  relative
increase in assets, the ratio of stockholders'  equity to total assets decreased
to 12.1% at June 30, 2000, compared to 13.4% at June 30, 1999.

         Net  Interest  Income.  Net  interest  income  increased by $345,000 or
18.6%,  to $2,196,000  for the year ended June 30, 2000,  compared to $1,851,000
for the year ended June 30, 1999.  Impacting  net interest  income were interest
rate changes on rate-sensitive  assets and liabilities during the current period
and average  balance  increases or decreases  applicable  to the  rate-sensitive
portion of the  balance  sheet.  As a result of these  factors,  total  interest
income increased by $890,000,  or 22.9%,  while total interest expense increased
by $545,000, or 26.8%, compared to the same period a year earlier.

         Interest income on loans totaled $4,024,000 for the year ended June 30,
2000,  compared to  $3,346,000  for the year ended June 30, 1999; an increase of
$678,000,  or 20.3%.  The increase can be attributed to a larger average balance
of loans receivable outstanding for the current year, which was partially offset
by a decline in the average yield  earned,  compared to the same period one year
ago.

         Interest and dividend income from total investments increased $195,000,
or 58.2%, to $530,000 for the year ended June 30, 2000, compared to $335,000 for
the year ended June 30, 1999.  The  increase  can be traced to a larger  average
balance of investment  securities held during fiscal 2000 and an increase in the
average  yield  earned,  compared to fiscal 1999.  At June 30, 2000,  investment
securities  included a balance of $719,000 in equity  securities,  some of which
earn dividends.  Equity securities  totaled $813,000 at June 30, 1999.  Dividend
income on FHLB stock totaled $63,000 for the year ended June 30, 2000,  compared
to $45,000 for the year ended June 30, 1999;  an increase of $18,000,  or 40.0%.
The increase can be attributed to a larger average balance outstanding  compared
to the same period a year earlier.  The combined  weighted  average yield on the
balance of interest-earning assets outstanding for the year ended June 30, 2000,
increased to 8.83%, compared to 8.75% for the prior year ended June 30, 1999.

         Interest  expense  on  deposits  increased   $285,000,   or  19.9%,  to
$1,720,000 for the year ended June 30, 2000, compared to $1,435,000 for the year
ended June 30,  1999.  The change was the result of an  increase  in the average
deposit  balance  outstanding for the current year compared to the same period a
year earlier. The average cost of deposits increased to 4.92% for the year ended
June 30, 2000,  compared to 4.89% for the year ended 1999.  Interest  expense on
borrowings increased by $261,000,  or 43.7%, to $858,000 for the year ended June
30, 2000,  compared to $597,000  for the year ended June 30, 1999.  The increase
was the result of a larger average balance  outstanding for the current year and
an increase in the average cost of  borrowings.  The combined  weighted  average
rate paid on deposits and borrowings was 5.21% for the year ended June 30, 2000,
compared to 5.14% for the prior year.

         The Company's interest rate spread increased 1 basis point to 3.62% for
the year  ended  June 30,  2000,  compared  to 3.61% for the year ended June 30,
1999.  The net  interest  margin  decreased to 4.06% for the year ended June 30,
2000,  compared  to 4.17% for the year  ended June 30,  1999.  The  increase  in
interest  rate spread was the result of an  increase  in the average  balance of
loans  receivable  for the current year compared to the same period in 1999, and
an increase in the yield earned on earning assets other than loans. The decrease
in  interest  rate  margin was the result of larger  average  balances in higher
costing liabilities, such as certificates of deposit and borrowings.

         Provisions for Loan Losses.  For the year ended June 30, 2000, the Bank
provided  $54,000 for future loan losses.  During the prior year,  provisions of
$44,000 were made. The allowance for loan losses totaled  $372,000,  or .81%, of
net loans at June 30, 2000, compared to $336,000,  or .88%, of net loans at June
30, 1999;  an increase of $36,000,  or 10.7%.  Management  considers  the Bank's
allowance for loan losses to be adequate based on general  economic  conditions,
historical  net  charge-offs  and other factors such as the size,  condition and
characteristics  of  the  loan  portfolio.  In  assessing  loan  loss  allowance
adequacy,  consideration  is also given to the volume  and  composition  of loan
portfolio growth.

         Noninterest Income.  Noninterest income increased by $29,000, or 23.2%,
to $154,000 for the year ended June 30, 2000, compared to $125,000 for the prior
year ended June 30,  1999.  The largest  portion of this  increase  was due to a
$67,000,  or 79.8%,  increase in income from service charges on deposit accounts
to $151,000 for the year ended June 30, 2000,  compared to $84,000 for the prior
year ended June 30, 1999.  This increase can be attributed to an increase in the
number  of  service  fee  producing  deposit  accounts,   particularly  checking
accounts. Gains on the sale of real estate acquired for development for the year
ended June 30, 2000,  increased  $19,000 to $25,000,  compared to $6,000 for the
prior year ended June 30, 1999. The overall  increase in noninterest  income for
the year ended June 30, 2000,  was partially  offset by net operating  losses of
$34,000  recognized on the Bank's  investment in Cunot  Apartments,  L.P. and an
$18,000 loss on the sale of investment securities.  During fiscal year 1999, the
Cunot Apartments were not yet operating and securities sold resulted in a $3,000
gain.

         BSF Inc.,  the  Bank's  service  corporation  subsidiary  ("BSF"),  was
organized in 1989 and has historically  engaged in the purchasing and developing
of large  tracts of real  estate.  Management  has utilized the sale of lots and
residences  to  provide  home  financing  opportunities  for  the  Bank  and  an
additional  source of income for the Company as a whole.  In connection with the
Bank's  conversion to an Indiana  mutual savings bank in 1996, the FDIC required
the Bank to cease  BSF's land  acquisitions  and divest of BSF's  non-conforming
real estate  holdings  within five years,  among other  conditions.  In order to
permit the Company to continue its profitable real estate development activities
through BSF, the Company and the Bank  successfully  sought charter  conversions
under authority  granted to the Office of Thrift  Supervision.  Effective May 1,
1999, the Company became a federally  chartered savings and loan holding company
and the Bank became a federal stock savings bank.

         The level of income from BSF  fluctuates  widely  since it is primarily
dependent  on the  volume of lots sold and  profits on  residential  properties.
Income from this source  declined in recent years due to operating  restrictions
imposed by the Bank's charter. During fiscal year 2000, BSF purchased, developed
and began  selling lots in a 27-lot  subdivision.  This renewed BSF  development
activity  directly  led to an  increase  in gains on the sale of real estate for
development  for the year ended June 30,  2000,  compared to recent prior years.
Gains on the sale of real estate for  development  totaled  $25,000 for the year
ended June 30, 2000,  compared to $6,000 and $7,000 for the years ended June 30,
1999 and 1998,  respectively.  Management  is  optimistic  that the Company will
continue to benefit from the  resumption of BSF activity.  See "Forward  Looking
Statements."

         Noninterest  Expense.  Noninterest  expense  increased by $204,000,  or
12.1%,  to $1,893,000  for the year ended June 30, 2000,  compared to $1,689,000
for the year ended June 30, 1999.  The increase is due to expense  increases for
staff, equipment and general overhead to support the Company's growth during the
fiscal  year ended June 30,  2000.  Salaries  and  employee  benefits  increased
$105,000,  or 12.8%,  to $924,000 for the year ended June 30, 2000,  compared to
$819,000 for the prior year ended June 30, 1999. This increase was the result of
normal salary  increases  and new staff members hired during the year.  Computer
processing fees increased $33,000,  or 21.7%, to $185,000,  compared to $152,000
for the prior year.  Equipment expenses increased $24,000, or 20.9%, to $139,000
for the year ended June 30,  2000,  compared to $115,000 for the year ended June
30, 1999.  Further,  legal and  professional  fees increased to $137,000 for the
year ended June 30, 2000, compared to $105,000 for the prior year ended June 30,
1999.  Other  increases  related  to net  occupancy  and  director  fees.  These
increases were partially  offset by a decline in printing and supplies  expenses
of  $22,000,  or 33.8%,  and a decline  of  $14,000,  or 23.3%,  in  advertising
expenses for the year ended June 30, 2000 compared to the prior year.

         Income Tax Expense.  Income tax expense decreased $45,000, or 45.5%, to
$54,000 for the year ended June 30, 2000, compared to $99,000 for the prior year
ended June 30, 1999.  The decrease was due to tax credits that offset income tax
related to an increase in income before taxes of $160,000, or 65.8%, to $403,000
for the year ended June 30,  2000,  compared to $99,000 for the prior year ended
June 30, 1999. Income tax credits of $108,000  decreased the effective  combined
federal  and state  income tax rate to 13.4% for the year  ended June 30,  2000,
compared to 40.9% for the same period a year ago.

Changes in Financial  Position  and Results of  Operations - Year Ended June 30,
1999, Compared to Year Ended June 30, 1998:

         General.  HFB earned net income  totaling  $144,000  for the year ended
June 30,  1999,  compared  to  $393,000  for the year ended June 30,  1998.  The
investment of current  resources for the goal of long-term  growth and expansion
lowered net earnings for the year ended June 30, 1999.  During fiscal year 1999,
the Company experienced various cost increases  associated with constructing and
operating  a new  branch  office as well as  higher  overall  interest  expenses
related to leveraged loan and investment growth.

         The return on average assets for the year ended June 30, 1999 was .30%,
compared to .93% the prior year.  The return on average equity was 1.99% for the
year ended June 30,  1999,  compared  to 5.34% for the prior year ended June 30,
1998.  Earnings per share were $.18 for the year ended June 30,  1999,  and $.47
for the year ended June 30, 1998.

         Assets.  Total assets at June 30, 1999, were  $53,136,000,  compared to
total  assets  of  $42,560,000  at June 30,  1998.  Cash  and  cash  equivalents
decreased  $1,327,000,  or 34.9%,  to $2,475,000  at June 30, 1999,  compared to
$3,802,000 a year earlier.  The decrease in cash and cash  equivalents  combined
with cash  inflows  from  deposits  and new  borrowings  were  used to  purchase
mortgage-backed securities, fund loan growth and acquire additional premises and
equipment.  Investment securities increased $6,370,000 to $8,288,000 at June 30,
1999, compared to $1,918,000 at June 30, 1998. Total loans increased $4,295,000,
or 12.5%,  during fiscal 1999. At June 30, 1999,  total loans were  $38,574,000,
compared to $34,279,000 at prior year-end June 30, 1998.

         The year-end levels of stock in the FHLB of Indianapolis  were $660,000
and  $500,000  for fiscal  years 1999 and 1998,  respectively.  Net premises and
equipment increased $298,000, or 17.7%, to $1,985,000 at June 30, 1999, compared
to $1,687,000 at June 30, 1998. This increase is due to costs for the completion
of  construction  for the Bank's  first branch  office,  which is located in the
Putnam County town of Cloverdale.  Foreclosed real estate and repossessed assets
decreased $214,000, or 97.3%, to $6,000,  compared to $220,000 at June 30, 1998.
The total at June 30, 1999 consists of one mobile home.

         Average assets increased  $5,791,000,  or 13.7%, to $48,049,000 for the
year ended June 30, 1999,  compared to $42,258,000 for the prior year-ended June
30, 1998. Average  interest-earning  assets increased  $4,300,000,  or 10.6%, to
$44,373,000  for the year ended June 30, 1999,  and  represented  92.4% of total
average assets. The increase was due to average mortgage-backed securities which
increased $4,295,000 to $4,982,000 for the year ended June 30, 1999, compared to
$687,000  for the  year  ended  June  30,  1998.  The  average  level  of  other
interest-earning  assets  was  $39,391,000  for the year  ended  June 30,  1999,
compared to  $39,711,000  for the same period ended June 30,  1998.  Much of the
loan growth in fiscal year 1999  occurred in the fourth  quarter,  reducing  the
impact on the average loans receivable calculation for the year.

         Liabilities  and  Stockholders'  Equity.   Primarily  attributed  to  a
successful beginning for the new branch, all deposit categories posted increases
as of June  30,  1999,  as  compared  to a year  earlier.  Total  deposits  were
$32,657,000 at June 30, 1999, a $6,008,000,  or 22.5%, increase from $26,649,000
at June 30, 1998.  The change is in part the result of a  $4,809,000,  or 25.2%,
increase in certificates of deposit to $23,867,000 at June 30, 1999, compared to
$19,058,000 at June 30, 1998.  Passbook and statement savings deposits increased
by $511,000,  or 15.6%.  Transaction  deposits increased by $561,000,  or 20.0%,
while money market deposits also increased by $203,000, or 13.4%. In addition to
deposits, FHLB advances are an important source of both short-term and long-term
funding for the Bank. FHLB advances increased $5,000,000 and totaled $13,200,000
at June 30, 1999, compared to $8,200,000 at June 30, 1998.

         Average liabilities increased $5,907,000,  or 16.9%, to $40,804,000 for
the year ended June 30, 1999,  compared to $34,897,000  for the prior year ended
June 30, 1998. Average  interest-bearing  liabilities increased  $5,096,000,  or
14.8%,  to  $39,567,000  for the year  ended June 30,  1999.  The  increase  was
primarily due to increases in average certificates of deposit and FHLB advances.
Average certificates of deposit increased by $2,882,000, or 15.6%, to $21,364,00
for the year ended June 30,  1999,  compared to  $18,482,000  for the year ended
June 30, 1998.  Average FHLB  advances  increased by  $1,650,000,  or 19.2%,  to
$10,242,000  for the year ended June 30, 1999,  compared to  $8,592,000  for the
prior year ended June 30, 1998.

         HFB's stockholders'  equity decreased $383,000,  or 5.1%, to $7,123,000
at June 30, 1999,  compared to $7,506,000 at June 30, 1998.  Contributing to the
decrease  were  common  stock  repurchases  totaling  $340,000,  an  increase of
$216,000 in net  unrealized  losses on securities  available for sale,  and cash
dividends  of  $94,000.  The  decrease  was  partially  offset by net  income of
$144,000 and the  amortization of employee stock ownership  plans.  The ratio of
stockholders'  equity  to total  assets  decreased  to  13.4% at June 30,  1999,
compared to 17.6% at June 30, 1998.

         Net Interest Income. Net interest income decreased by $27,000, or 1.4%,
to $1,851,000  for the year ended June 30, 1999,  compared to $1,878,000 for the
year ended June 30, 1998.  Impacting  net  interest  income were  interest  rate
changes on rate-sensitive  assets and liabilities  during the current period and
average balance increases or decreases applicable to the rate-sensitive  portion
of the  balance  sheet.  As a result of these  factors,  total  interest  income
increased  by  $193,000,  or 5.2%,  while total  interest  expense  increased by
$220,000, or 12.1%, compared to the same period a year earlier.

         Interest income on loans totaled $3,346,000 for the year ended June 30,
1999,  compared to  $3,306,000  for the year ended June 30, 1998; an increase of
$40,000,  or 1.2%. The increase can be attributed to a larger average balance of
loans receivable outstanding for the current year and an increase in the average
yield earned, compared to the same period ended June 30, 1998.

         Interest and dividend income from total investments  increased $266,000
to $334,000 for the year ended June 30, 1999,  compared to $167,000 for the year
ended June 30,  1998.  The  increase  can be  attributed  to an  increase in the
average balance outstanding for the fiscal year 1999, which was partially offset
by an decline in the average  yield  compared to the same period a year earlier.
At June 30, 1999,  investment securities included an average balance of $946,000
in equity stock, some of which earned  dividends.  Dividend income on FHLB stock
totaled  $45,000 for the year ended June 30,  1999,  compared to $40,000 for the
year ended June 30, 1998; an increase of $5,000,  or 12.5%.  The increase can be
attributed to a larger average balance outstanding compared to the same period a
year  earlier.   The  combined   weighted   average  yield  on  the  balance  of
interest-earning  assets outstanding for the year ended June 30, 1999, decreased
to 8.75%, compared to 9.13% for the prior year ended June 30, 1998.

         Interest  expense  on  deposits  increased   $152,000,   or  11.8%,  to
$1,435,000 for the year ended June 30, 1999, compared to $1,283,000 for the year
ended June 30,  1998.  The change was the result of an  increase  in the average
deposit  balance  outstanding for fiscal year 1999 compared to fiscal year 1998.
The average cost of deposits declined to 4.89% for the year ended June 30, 1999,
compared  to 4.96% for the year  ended  1998.  Interest  expense  on  borrowings
increased  by $68,000,  or 12.9%,  to $597,000 for the year ended June 30, 1999,
compared to $529,000  for the year ended June 30,  1998.  The  increase  was the
result of a larger  average  balance  outstanding  for  fiscal  1999,  which was
partially  offset by a decline in the average cost of  borrowings.  The combined
weighted  average  rate paid on deposits  and  borrowings  was 5.1% for the year
ended June 30, 1999, compared to 5.3% for the prior year.

         The Company's  interest rate spread  decreased 26 basis points to 3.61%
for the year ended June 30, 1999,  compared to 3.87% for the year ended June 30,
1998.  The net  interest  margin  decreased to 4.17% for the year ended June 30,
1999,  compared  to 4.65% for the year ended June 30,  1998.  Decreases  in both
interest rate spread and interest rate margin were the result of larger  average
balances of mortgage-backed securities and a decline in the average yield earned
on all investment securities. The decreases in interest rate spread and interest
rate margin were partially offset by larger average balances in loans receivable
earning a higher average yield than a year earlier,  and larger average balances
in lower costing liabilities, such as transaction accounts.

         Provisions for Loan Losses.  For the year ended June 30, 1999, the Bank
provided  $44,000 for future loan losses.  During the prior year,  provisions of
$102,000 were made. The allowance for loan losses totaled $336,000,  or .88%, of
net loans at June 30, 1999, compared to $320,000,  or .94%, of net loans at June
30, 1998;  an increase of $16,000,  or 5.0%.  Management  considered  the Bank's
allowance for loan losses to be adequate based on general  economic  conditions,
historical  net  charge-offs  and other factors such as the size,  condition and
characteristics  of  the  loan  portfolio.  In  assessing  loan  loss  allowance
adequacy,  consideration  was also given to the volume and  composition  of loan
portfolio growth as well as the level of allowances maintained by peers.

         Noninterest Income. Noninterest income decreased by $142,000, or 53.2%,
to $125,000 for the year ended June 30, 1999, compared to $267,000 for the prior
year  ended  June 30,  1998.  A major  reason  for the  decrease  was a $138,000
decrease in gains on the sale of  investments  to $3,000 for the year ended June
30,  1999,  compared to  $141,000  for the year ended June 30,  1998.  Partially
offsetting  this  decrease  and a decrease  in other  income was an  increase of
$29,000,  or 52.7%, in service fee income to $84,000 for the year ended June 30,
1999, compared to $55,000 for the prior year ended June 30, 1998.

         BSF Inc.,  the  Bank's  service  corporation  subsidiary  ("BSF"),  was
organized in 1989 and has historically  engaged in the purchasing and developing
of large  tracts of real  estate.  Management  has utilized the sale of lots and
residences  to  provide  an  additional  source of income  for the  Company.  In
connection with the Bank's conversion to an Indiana mutual savings bank in 1996,
the FDIC required the Bank to cease BSF's land  acquisitions and divest of BSF's
non-conforming  real estate holdings within five years,  among other conditions.
In  order  to  permit  the  Company  to  continue  its  profitable  real  estate
development activities through BSF, the Company and the Bank successfully sought
charter conversions under authority granted to the Office of Thrift Supervision.
Effective May 1, 1999, the Company became a federally chartered savings and loan
holding company and the Bank became a federal stock savings bank.

         The level of income from BSF  fluctuates  widely  since it is primarily
dependent  on the volume of lots sold,  and profits on  residential  properties.
Income from this source  declined in recent years due to operating  restrictions
imposed by the Bank's charter.  Gains on the sale of real estate for development
was $6,000 for the year ended June 30, 1999,  and $7,000 for the year ended June
30, 1998.

         Noninterest  Expense.  Noninterest  expense  increased by $245,000,  or
17.0%,  to $1,689,000  for the year ended June 30, 1999,  compared to $1,444,000
for the year ended June 30, 1998.  The increase is due to expense  increases for
staff, equipment and general overhead to support the Company's growth during the
fiscal  year ended June 30,  1999.  Salaries  and  employee  benefits  increased
$96,000,  or 13.3%,  to $819,000 for the year ended June 30,  1999,  compared to
$723,000 for the prior year ended June 30, 1998.  The increase was primarily the
result of new staff members hired for the Bank's Cloverdale branch. Also related
to the new branch,  equipment expenses increased $57,000,  or 98.3%, to $115,000
for the year ended June 30,  1999,  compared  to $58,000 for the year ended June
30, 1998.  Further,  computer  processing fees increased  $32,000,  or 26.7%, to
$152,000 compared to $120,000 for the prior year. Other increases related to net
occupancy, advertising, and director fees. These increases were partially offset
by a decline in legal and  professional  fees of $18,000,  or 14.6%, to $105,000
for the year ended June 30,  1999,  compared to $123,000 for the year ended June
30, 1998.

         Income Tax Expense. Income tax expense decreased $107,000, or 51.9%, to
$99,000 for the year ended June 30,  1999,  compared  to $206,000  for the prior
year ended June 30, 1998.  The  decrease was due to a decrease in income  before
taxes of $356,000, or 59.4%. The effective combined federal and state income tax
rate increased to 40.9% for the year ended June 30, 1999,  compared to 34.4% for
the year ended June 30, 1998.

Impact of Inflation

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

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

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

Current Accounting Issues

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

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

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

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

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

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

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

     SFAS No. 133 was to be effective for all fiscal years  beginning after June
15, 1999. The implementation date has been deferred and SFAS No. 133 will now be
effective for all fiscal  quarters for all fiscal years beginning after June 15,
2000.  The  adoption  of this  Statement  is not  currently  expected  to have a
material  impact on the Company's  financial  statements.  Early  application is
encouraged;  however,  this  Statement  may  not  be  applied  retroactively  to
financial statements of prior periods.

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

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

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

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

     It is estimated that at June 30, 2000, MV would decrease 30.4% and 66.8% in
the  event  of 200 and 400  basis  point  increases  in  market  interest  rates
respectively,  compared  to 9.5% and  26.2% for the same  increases  at June 30,
1999.  The Bank's MV at June 30, 2000 would increase 11.1% and 6.3% in the event
of 200 and 400 basis  point  decreases  in  market  rates  respectively.  A year
earlier,  200 and 400 basis point decreases in market rates would have decreased
MV 10.9% and 19.5% respectively.

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

     Presented below, as of June 30, 2000 and 1999, is an analysis of the Bank's
interest rate risk as measured by changes in MV for  instantaneous and sustained
parallel shifts of 200 and 400 basis point increments in market interest rates.


<PAGE>

                                  June 30, 2000
                        Market Value Summary Performance
                                                              MV as % of
                                                           Present Value (PV)
      Change                    Market Value                   of Assets
     In Rates      $ Amount       $ Change     % Change   MV Ratio     Change
--------------------------------------------------------------------------------
(Dollars in thousands)
    + 400 bp*        $2,067      $(4,157)       (66.78)%    4.01%     (670)  bp
    + 200 bp          4,333       (1,891)       (30.38)     7.88      (283)  bp
        0 bp          6,224            0          0.00     10.71       ---
    - 200 bp          6,916          692         11.12     11.52        81   bp
    - 400 bp          6,617          393          6.32     10.86        15   bp

             Interest Rate Risk Measures: 200 Basis Point Rate Shock
 Pre-Shock MV Ratio: MV as % of PV of Assets......................   10.71%
 Exposure Measure: Post-Shock MV Ratio............................    7.88%
 Sensitivity Measure: Change in MV Ratio..........................     283 bp

                                  June 30, 1999
                        Market Value Summary Performance
                                                           MV as % of
                                                        Present Value (PV)
      Change                 Market Value                   of Assets
     In Rates    $ Amount      $ Change     % Change   MV Ratio     Change
-------------------------------------------------------------------------------
                    (Dollars in thousands)

    + 400 bp*      $4,956     $(1,762)       (26.23)%   10.22%      (248)  bp
    + 200 bp        6,077        (641)        (9.54)    11.94        (76)  bp
        0 bp        6,718           0          0.00     12.70        ---
    - 200 bp        5,987        (731)       (10.88)    11.17       (153)  bp
    - 400 bp        5,406      (1,312)       (19.53)     9.93       (277)  bp

             Interest Rate Risk Measures: 200 Basis Point Rate Shock

     Pre-Shock MV Ratio: MV as % of PV of Assets............   12.70%
     Exposure Measure: Post-Shock MV Ratio..................   11.17%
     Sensitivity Measure: Change in MV Ratio................     153bp
--------
* Basis points.

Item 8.       Financial Statements and Supplementary Data.

         The Company's  Consolidated  Financial  Statements  and Notes as listed
under Item 14,  appear in a separate  section of this Annual Report on Form 10-K
beginning on page F-1.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

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

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

         The  information  required by this item with  respect to  directors  is
incorporated  by reference to pages 2 through 4 of the Company's Proxy Statement
for  its  2000  Shareholder   Annual  Meeting  (the  "2000  Proxy   Statement").
Information  concerning the Holding Company's  executive officers is included in
Item  4.5 in Part I of  this  report.  Information  concerning  compliance  with
Section 16(a) of the Exchange Act is  incorporated by reference to page 7 of the
2000 Proxy Statement.

Item 11. Executive Compensation.

         The  information  required  by this  item  with  respect  to  executive
compensation is incorporated by reference to pages 5 through 6 of the 2000 Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

         The  information  required by this item is incorporated by reference to
pages 2 through 3 of the 2000 Proxy Statement.

Item 13.      Certain Relationships and Related Transactions.

         The  information  required by this item is incorporated by reference to
page 6 of the 2000 Proxy Statement.

                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)      Financial Statements:

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

              Financial Statements                                      Page No.

              Independent Auditor's Report                                 F-2

              Consolidated Statement of Financial Condition
                  at June 30, 2000, and 1999                               F-3

              Consolidated Statement of Income for the Years Ended
                  June 30, 2000, 1999, and 1998                            F-4

              Consolidated Statement of Stockholders' Equity
                  for the Years Ended June 30, 2000, 1999, and 1998        F-5

              Consolidated Statement of Cash Flows for the Years Ended
                  June 30, 2000, 1999, and 1998                            F-6

              Notes to Consolidated Financial Statements                   F-7

     (b)  Reports on Form 8-K.

     The Company  filed no reports on Form 8-K during the quarter ended June 30,
2000.

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

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


                                   SIGNATURES

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

                                      HOME FINANCIAL BANCORP



Date:  August 23, 2000                By: /s/ Kurt J. Meier
                                          --------------------------------------
                                           Kurt J. Meier, President,
                                           Chief Executive Officer and Treasurer

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 23rd day of August, 2000.

/s/ Kurt J. Meier
------------------------------
Kurt J. Meier
President, Chief Executive Officer,
Treasurer and Director
(Principal Executive Officer)

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

/s/ Charles W. Chambers
------------------------------
Charles W. Chambers, Secretary and Director

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

/s/ Gary M. Monnett
------------------------------
Gary M. Monnett, Comptroller and Director

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

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

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

/s/ Tad Wilson
------------------------------
Tad Wilson, Director
<PAGE>


                                  EXHIBIT INDEX

Exhibit Index*

          3(1)   The Articles of  Incorporation  of the Registrant 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   Registrant   are
                 incorporated  by  reference  to  Exhibit  3(2) to the
                 Report on Form 10-Q for the  period  ended  March 31,
                 1997.

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

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

          10(3)  Employment  Agreement  between Owen  Community  Bank,
                 s.b. and Kurt J. Meier is  incorporated  by reference
                 to Exhibit  10(5) to the  Registration  Statement  on
                 Form S-1 (Registration No. 333-1746).

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

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

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

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

          23     Consent of Independent Auditor

          27     Financial Data Schedule (filed electronically).

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

<PAGE>

                        Home Financial Bancorp

              INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                               CONTENTS

              Independent Auditor's Report                                  F-2

              Consolidated Statement of Financial Condition
                  at June 30, 2000, and 1999                                F-3

              Consolidated Statement of Income for the Years Ended
                  June 30, 2000, 1999, and 1998                             F-4

              Consolidated Statement of Stockholders' Equity
                  for the Years Ended June 30, 2000, 1999, and 1998         F-5

              Consolidated Statement of Cash Flows for the Years Ended
                  June 30, 2000, 1999, and 1998                             F-6

              Notes to Consolidated Financial Statements                    F-7





<PAGE>


                          Independent Auditor's Report



Board of Directors
Home Financial Bancorp
Spencer, Indiana


We have  audited the  consolidated  statement  of  financial  condition  of Home
Financial  Bancorp and subsidiary as of June 30,  2000 and 1999, and the related
consolidated statements of income,  stockholders equity and cash flows for each
of the  three  years in the  period  ended  June 30,  2000.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion,  the consolidated  financial  statements described above present
fairly, in all material  respects,  the consolidated  financial position of Home
Financial  Bancorp and subsidiary as of June 30,  2000 and 1999, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30,  2000, in conformity  with generally  accepted  accounting
principles.



/s/ Olive LLP
Indianapolis, Indiana
August 1, 2000

<PAGE>


                 HOME FINANCIAL BANCORP AND SUBSIDIARY

             Consolidated Statement of Financial Condition
<TABLE>
<CAPTION>

June 30                                                                      2000              1999
--------------------------------------------------------------------------------------------------------
Assets
<S>                                                                       <C>               <C>
   Cash                                                                   $    500,970      $    296,490
   Short-term interest-bearing deposits                                      1,214,840         2,178,313
                                                                        ---------------------------------
       Total cash and cash equivalents                                       1,715,810         2,474,803
   Investment securities--available for sale                                 7,712,073         8,288,028
   Loans, net of allowance for loan losses of $371,793 and $336,235         45,340,588        38,237,683
   Real estate acquired for development                                        440,020            20,434
   Premises and equipment                                                    1,920,452         1,984,842
   Federal Home Loan Bank of Indianapolis stock                                835,000           660,000
   Interest receivable                                                         337,267           318,241
   Other assets                                                              1,149,487         1,152,419
                                                                        ---------------------------------
       Total assets                                                        $59,450,697       $53,136,450
                                                                        =================================

Liabilities
   Deposits
     Noninterest bearing                                                 $     663,747      $    578,267
     Interest-bearing deposits                                              37,877,763        32,079,166
                                                                        ---------------------------------
       Total deposits                                                       38,541,510        32,657,433
   Other borrowings                                                         13,500,000        13,200,000
   Other liabilities                                                           226,713           155,794
                                                                        ---------------------------------
       Total liabilities                                                    52,268,223        46,013,227
                                                                        ---------------------------------
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--857,400 and 886,200 shares                                      3,956,034         4,100,034
   Additional paid-in capital                                                   99,698            88,667
   Retained earnings                                                         3,828,322         3,613,425
   Unearned compensation                                                      (137,381)         (181,456)
   Unearned ESOP shares                                                       (213,854)         (257,908)
   Accumulated other comprehensive loss                                       (350,345)         (239,539)
                                                                        ---------------------------------
       Total stockholders' equity                                            7,182,474         7,123,223
                                                                        ---------------------------------
       Total liabilities and stockholders' equity                          $59,450,697       $53,136,450
                                                                        =================================
</TABLE>


See notes to consolidated financial statements.


<PAGE>

                 HOME FINANCIAL BANCORP AND SUBSIDIARY
                   CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>


Year Ended June 30                                                     2000               1999             1998
---------------------------------------------------------------------------------------------------------------------
Interest Income
<S>                                                                   <C>              <C>               <C>
   Loans                                                              $4,023,634       $3,346,281        $3,305,864
   Deposits with financial institutions                                  157,035          156,845           177,192
   Investment securities--taxable                                        529,895          334,463           166,965
   Federal Home Loan Bank stock                                           62,816           44,994            40,315
                                                                -----------------------------------------------------
         Total interest and dividend income                            4,773,380        3,882,583         3,690,336
                                                                -----------------------------------------------------
Interest Expense
   Deposits                                                            1,719,769        1,434,612         1,282,778
   Federal Home Loan Bank advances                                       837,573          596,927           529,325
   Other interest expense                                                 20,514
                                                                -----------------------------------------------------
         Total interest expense                                        2,577,856        2,031,539         1,812,103
                                                                -----------------------------------------------------

Net Interest Income                                                    2,195,524        1,851,044         1,878,233
   Provision for loan losses                                              54,000           44,000           102,000
                                                                -----------------------------------------------------

Net Interest Income After
   Provision for Loan Losses                                           2,141,524        1,807,044         1,776,233
                                                                -----------------------------------------------------

Other Income
   Service charges on deposit accounts                                   150,875           84,148            55,182
   Gain on sale of real estate acquired for development                   24,908            5,973             7,108
   Net realized gain (loss) on sales of available-for-sale securities    (17,700)           3,325           140,925
   Equity in losses of limited partnerships                              (33,613)
   Other income                                                           30,280           31,963            63,736
                                                                -----------------------------------------------------
         Total other income                                              154,750          125,409           266,951
                                                                -----------------------------------------------------

Other Expenses
   Salaries and employee benefits                                        923,628          819,296           722,886
   Net occupancy expenses                                                145,003          110,326            84,653
   Equipment expenses                                                    139,202          115,268            57,932
   Computer processing fees                                              185,279          151,936           120,133
   Printing and office supplies                                           43,340           64,670            40,839
   Legal and professional fees                                           136,554          104,660           123,218
   Director and committee fees                                            57,000           56,450            43,450
   Advertising expense                                                    45,707           60,403            46,931
   Other expenses                                                        217,394          206,107           204,098
                                                                -----------------------------------------------------
         Total other expenses                                          1,893,107        1,689,116         1,444,140
                                                                -----------------------------------------------------

Income Before Income Tax                                                 403,167          243,337           599,044
   Income tax expense                                                     54,124           99,603           206,266
                                                                -----------------------------------------------------

Net Income                                                           $   349,043      $   143,734       $   392,778
                                                                =====================================================
Net Income Per Share
   Basic                                                                    $.44             $.18              $.47
   Diluted                                                                   .44              .18               .47

</TABLE>
See notes to consolidated financial statements.
<PAGE>

                 HOME FINANCIAL BANCORP AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

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

<S>                         <C>      <C>          <C>        <C>        <C>          <C>         <C>         <C>         <C>
Balances, July 1, 1997      939,052  $4,364,294   $25,404               $3,409,288   $(264,781)  $(364,264)  $  27,193   $7,197,134
   Comprehensive income
     Net income                                              $392,778      392,778                                          392,778
     Other comprehensive
       income, net of tax
       Unrealized loss on
         securities, net
         of reclassification
         adjustment                                           (50,913)                                         (50,913)     (50,913)
                                                             --------
   Comprehensive income                                      $341,865
                                                             ========
   Cash dividends
      ($.10 per share)                                                     (85,082)                                         (85,082)
   ESOP shares earned                              32,923                                           59,954                   92,877
   RRP shares earned                                                                    36,612                               36,612
   Purchase of stock        (10,000)    (50,000)                           (27,500)                                         (77,500)
                            -----------------------------               -----------------------------------------------------------

Balances, June 30, 1998     929,052   4,314,294    58,327                3,689,484    (228,169)   (304,310)    (23,720)   7,505,906
   Comprehensive income
     Net income                                              $143,734      143,734                                          143,734
     Other comprehensive
       loss, net of tax
       Unrealized loss on
         securities, net of
         reclassification
         adjustment                                          (215,819)                                        (215,819)    (215,819)
                                                            ---------
   Comprehensive loss                                       $ (72,085)
                                                            =========
   Cash dividends
     ($.115 per share)                                                     (94,386)                                         (94,386)
   ESOP shares earned                              23,718                                           46,402                   70,120
   RRP shares earned                                                                    46,713                               46,713
   Purchase of stock        (42,852)   (214,260)                          (125,407)                                        (339,667)
   Tax benefit on RRP shares                        6,622                                                                     6,622
                            -----------------------------               -----------------------------------------------------------

Balances, June 30, 1999     886,200   4,100,034    88,667                3,613,425    (181,456)   (257,908)   (239,539)   7,123,223
   Comprehensive income
     Net income                                              $349,043      349,043                                          349,043
     Other comprehensive
        income, net of tax
       Unrealized loss on
         securities, net of
         reclassification
         adjustment                                          (110,806)                                        (110,806)    (110,806)
                                                             --------
   Comprehensive income                                      $238,237
                                                             ========
   Cash dividends
     ($.12 per share)                                                      (95,170)                                         (95,170)
   ESOP shares earned                              12,475                                           44,054                   56,529
   RRP shares earned                                                                    44,075                               44,075
   Purchase of stock        (28,800)   (144,000)                           (38,976)                                        (182,976)
   Tax expense on RRP shares                       (1,444)                                                                   (1,444)
                            -----------------------------               -----------------------------------------------------------
Balances, June 30, 2000     857,400  $3,956,034   $99,698               $3,828,322   $(137,381)  $(213,854)  $(350,345)  $7,182,474
                            =============================               ===========================================================

</TABLE>

See notes to consolidated financial statements.
<PAGE>

                 HOME FINANCIAL BANCORP AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>


Year Ended June 30                                                       2000              1999             1998
---------------------------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                                <C>               <C>                <C>
   Net income                                                      $     349,043     $    143,734       $   392,778
   Adjustments to reconcile net income to net cash
     provided by operating activities
     Provision for loan losses                                            54,000           44,000           102,000
     Investment securities amortization, net                              11,902           46,163               981
     ESOP shares earned                                                   56,529           70,120            92,877
     RRP shares earned                                                    44,075           46,713            36,612
     Depreciation                                                        196,664          149,874            87,912
     Deferred income tax benefit                                         (35,700)          (4,336)          (50,485)
     Gain on sale of real estate acquired for development                (24,908)          (5,973)           (7,108)
     Gain on sale of foreclosed assets                                    (5,560)         (37,466)          (35,016)
     Investment securities (gains) losses                                 17,700           (3,325)         (140,925)
     Losses from limited partnerships                                     33,613
     Net change in interest receivable                                   (19,026)         (54,382)            4,789
     Other adjustments                                                   176,481         (197,688)          112,703
                                                                   --------------------------------------------------
         Net cash provided by operating activities                       854,813          197,434           597,118
                                                                   --------------------------------------------------
Investing Activities

   Purchases of securities available for sale                           (824,860)      (8,658,915)       (1,905,142)
   Proceeds from sales of securities available for sale                   76,909          568,350         1,895,041
   Proceeds from maturities and paydowns of securities
     available for sale                                                1,110,819        1,320,049           250,523
   Net changes in loans                                               (7,246,088)      (4,090,925)         (258,317)
   Improvements to foreclosed assets                                      (5,121)                           (31,552)
   Proceeds from sale of foreclosed assets                                71,318           13,000           345,119
   Purchase of premises and equipment                                   (132,274)        (447,361)         (811,610)
   Purchase of real estate acquired for development                     (340,000)
   Proceeds from sale of real estate acquired for development             57,000            6,298             7,108
   Purchase of FHLB of Indianapolis stock                               (175,000)        (160,000)
   Land development costs                                               (111,678)
   Other investing activities                                                            (650,000)
                                                                   --------------------------------------------------
         Net cash used by investing activities                        (7,518,975)     (12,099,504)         (508,830)
                                                                   --------------------------------------------------
Financing Activities
   Net change in
     NOW and savings deposits                                         (1,335,449)       1,199,675          (467,983)
     Certificates of deposit                                           7,219,526        4,809,148           960,077
   Proceeds from other borrowings                                     15,300,000        7,000,000         5,000,000
   Repayment of other borrowings                                     (15,000,000)      (2,000,000)       (5,800,000)
   Purchase of stock                                                    (182,976)        (339,667)          (77,500)
   Dividends paid                                                        (95,932)         (94,386)          (85,082)
                                                                   --------------------------------------------------
         Net cash provided (used) by financing activities              5,905,169       10,574,770          (470,488)
                                                                   --------------------------------------------------
Net Change in Cash and Cash Equivalents                                 (758,993)      (1,327,300)         (382,200)

Cash and Cash Equivalents, Beginning of Year                           2,474,803        3,802,103         4,184,303
                                                                   --------------------------------------------------
Cash and Cash Equivalents, End of Year                                $1,715,810       $2,474,803        $3,802,103
                                                                   --------------------------------------------------
Additional Cash Flows and Supplementary Information
   Interest paid                                                      $2,570,356       $2,021,539        $1,805,250
   Income tax paid                                                        41,916          211,053           174,710
   Transfers from loans to foreclosed assets                              89,183          231,628           314,438
</TABLE>

See notes to consolidated financial statements.


<PAGE>



                 HOME FINANCIAL BANCORP AND SUBSIDIARY
              Notes to Consolidated Financial Statements
                  (Table Dollar Amounts in Thousands)

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

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

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

The Company is a savings and loan holding  company whose  principal  activity is
the  ownership  and  management of the Bank.  Commencing  May 1, 1999,  the Bank
operates under a federal thrift charter,  known as a federal stock savings bank,
and provides  full banking  services.  Prior to May 1, 1999,  the Bank  operated
under a state thrift  charter,  known as a stock  savings  bank.  As a federally
chartered  thrift,  the Bank is  subject to  regulation  by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation (FDIC).

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

BSF engages in purchasing and developing large tracts of real estate. After land
is purchased,  BSF subdivides the real estate into lots, makes improvements such
as  streets,  and sells  individual  lots,  usually  on  contract  for deed.  In
connection with the Bank's conversion to an Indiana mutual savings bank in 1995,
the FDIC  required  the Bank to cease BSF's land  acquisitions,  divest of BSF's
nonconforming  real estate holdings by November 16, 2000 and maintain the Bank's
capital  at  levels  sufficient  to  classify  the  Bank  as a  well-capitalized
institution.  Prior to May 1, 1999, BSF had ceased land  acquisitions and was in
the process of divesting of its real estate holdings.  Effective with the Bank's
change to a federal thrift charter on May 1, 1999 discussed  above,  BSF resumed
its normal activities.

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

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.


<PAGE>



                      Home Financial Bancorp and Subsidiary
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

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

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

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic environment and market conditions.  Management believes that as of June
30,  2000,  the  allowance  for loan  losses is  adequate  based on  information
currently  available.  A worsening or  protracted  economic  decline in the area
within which the Bank  operates  would  increase the  likelihood  of  additional
losses due to credit and market risks and could  create the need for  additional
loss reserves.

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

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

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

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

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


<PAGE>



                 HOME FINANCIAL BANCORP AND SUBSIDIARY
              Notes to Consolidated Financial Statements
                  (Table Dollar Amounts in Thousands)

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

Earnings per share have been  computed  based upon the weighted  average  common
shares and  potential  common  shares  outstanding  during the period.  Unearned
Employee  Stock  Ownership  Plan  (ESOP)  shares  have  been  excluded  from the
computation of average common shares and potential common shares outstanding.

Reclassifications  of  certain  amounts  in  the  1999  consolidated   financial
statements have been made to conform to the 2000 presentation.

Note 2 --   Investment Securities
<TABLE>
<CAPTION>

                                                                                  2000
                                                ---------------------------------------------------------------------
                                                                         Gross             Gross
                                                      Amortized       Unrealized        Unrealized          Fair
June 30                                                 Cost             Gains            Losses            Value
---------------------------------------------------------------------------------------------------------------------
Available for sale
<S>                                                   <C>                  <C>            <C>               <C>
   Marketable equity securities                       $   719              $4             $(258)            $   465
   Mortgage-backed securities                           7,573                              (326)              7,247
                                                ---------------------------------------------------------------------

              Total investment securities              $8,292              $4             $(584)             $7,712
                                                =====================================================================


                                                                                  1999
                                                ---------------------------------------------------------------------
                                                                         Gross             Gross
                                                      Amortized       Unrealized        Unrealized          Fair
June 30                                                 Cost             Gains            Losses            Value
---------------------------------------------------------------------------------------------------------------------
Available for sale
   Federal agencies                                   $   100              $1                               $   101
   Marketable equity securities                           813               2             $(198)                617
   Mortgage-backed securities                           7,771               3              (204)              7,570
                                                ---------------------------------------------------------------------
              Total investment securities              $8,684              $6             $(402)             $8,288
                                                =====================================================================
</TABLE>


Securities  with a carrying value of $7,247,000  and $7,600,000  were pledged at
June 30, 2000 and 1999 to secure FHLB advances.

Proceeds from sales of securities  available for sale during 2000, 1999 and 1998
were $77,000,  $569,000 and  $1,895,000.  Gross gains of $12,000 and $141,000 in
1999 and 1998 and  gross  losses  of  $18,000  and  $9,000 in 2000 and 1999 were
realized  on the sales.  The tax  expense  (benefit)  for net gains  (losses) on
security transactions for June 30, 2000, 1999 and 1998 was $(7,000),  $1,000 and
$56,000, respectively.


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 3 --  Loans and Allowance

June 30                                              2000             1999
--------------------------------------------------------------------------------
Real estate mortgage loans
     Residential                                    $ 23,494        $ 20,952
     Mobile home and land                              6,584           5,331
     Nonresidential                                   11,926           9,323
     Multi-family                                      1,017           1,096
Mobile home loans                                      1,322             950
Commercial and industrial                                264             538
Consumer loans                                         1,674             999
                                                --------------------------------
                                                      46,281          39,189
                                                --------------------------------
Undisbursed portion of loans                            (571)           (619)
Deferred loan costs                                        3               4
Allowance for loan losses                               (372)           (336)
                                                --------------------------------
                                                        (940)           (951)
                                                --------------------------------
              Total loans                           $ 45,341        $ 38,238
                                                ================================

Year Ended June 30                             2000         1999         1998
--------------------------------------------------------------------------------
Allowance for loan losses
        Balances, July 1                       $ 336        $ 320        $ 231
        Provision for loan losses                 54           44          102
        Loans charged off                        (18)         (28)         (13)
                                             -----------------------------------
        Balances, June 30                      $ 372        $ 336        $ 320
                                             ===================================

Note 4 -- Premises and Equipment

June 30                                                  2000           1999
--------------------------------------------------------------------------------
Land                                                    $   377        $   302
Buildings                                                 1,881          1,846
Equipment                                                   771            749
                                                        ------------------------
        Total cost                                        3,029          2,897
Accumulated depreciation                                 (1,109)          (912)
                                                        ------------------------
        Net                                             $ 1,920        $ 1,985
                                                        ========================

<PAGE>

                     Home Financial Bancorp and Subsidiary
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 5 --      Investment In Limited Partnership

The investment in limited  partnership of $662,000 and $696,000 at June 30, 2000
and 1999  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 $108,000
for the year ended June 30, 2000.  Condensed financial  statements for Cunot are
as follows:

June 30                                                      2000         1999
--------------------------------------------------------------------------------
Condensed statement of financial condition
   Assets
     Cash                                                    $   30       $   48
     Land and property                                        1,441        1,336
     Other assets                                                11           14
                                                        ------------------------
       Total assets                                          $1,482       $1,398
                                                        ========================
   Liabilities
     Notes payable                                           $  610       $  563
     Other liabilities                                          214          156
                                                        ------------------------
       Total liabilities                                        824          719
   Partners' equity                                             658          679
                                                        ------------------------
       Total liabilities and partners' equity                $1,482       $1,398
                                                        ========================

Year Ended June 30                                            2000        1999
--------------------------------------------------------------------------------
Condensed statement of operations
   Total revenue                                              $ 56        $  3
   Total expenses                                              (77)        (23)
                                                        ------------------------
       Net loss                                               $(21)       $(20)
                                                        ========================

<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 6 --      Deposits

June 30                                                     2000          1999
--------------------------------------------------------------------------------
Noninterest bearing demand                                 $   664       $   578
Interest-bearing demand                                      2,981         2,715
Money market deposits                                          287         1,715
Savings                                                      3,523         3,782
Certificates of $100,000 or more                             9,616         5,148
Other certificates                                          21,471        18,719
                                                        ------------------------
      Total deposits                                       $38,542       $32,657
                                                        ========================
Certificates maturing in years ending June 30:

2001                                                       $20,696
2002                                                         6,793
2003                                                         1,288
2004                                                         1,771
2005                                                           539
                                                           -------
                                                           $31,087
                                                           =======

Note 7 --  Other Borrowings

June 30                                                     2000          1999
--------------------------------------------------------------------------------
Federal Home Loan Bank advances                            $13,200       $13,200
Line of credit                                                 300
                                                           ---------------------
      Total                                                $13,500       $13,200
                                                           =====================


<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>

                                                          2000                                  1999
                                                ------------------------------------------------------------------
                                                                   Weighted-                            Weighted-
                                                                    Average                              Average
June 30                                           Amount             Rate                 Amount          Rate
------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                    <C>            <C>
FHLB advances maturities in years ending
   2000                                                                                  $  3,000          5.85%
   2001                                          $  6,000            6.51%                  3,000          5.90
   2002                                             5,000            5.17                   5,000          5.17
   2003                                             2,000            5.85                   2,000          5.85
   2006                                               200            6.86                     200          6.86
                                                 --------                                 -------
                                                  $13,200            5.91%                $13,200          5.61%
                                                 ========                                 =======
</TABLE>

The Federal  Home Loan Bank  advances  are secured by first  mortgage  loans and
investment securities totaling $34,868,000.

On  September 1, 1999,  BSF obtained a line of credit for $500,000  from another
financial institution. The line of credit matures on August 31, 2000 and carries
an interest rate of .50% above prime. At June 30, 2000, the outstanding  balance
was $300,000 and was guaranteed by the Bank.

Note 8 --      Income Tax

Year Ended June 30                              2000         1999         1998
--------------------------------------------------------------------------------
Income tax expense
    Currently payable
        Federal                                 $  47        $  82        $ 199
        State                                      43           22           57
    Deferred
        Federal                                   (30)          (6)         (39)
        State                                      (6)           2          (11)
                                                --------------------------------
           Total income tax expense             $  54        $ 100        $ 206
                                                ================================


<PAGE>



                 HOME FINANCIAL BANCORP AND SUBSIDIARY
              Notes to Consolidated Financial Statements
                  (Table Dollar Amounts in Thousands)

Year Ended June 30                               2000         1999         1998
--------------------------------------------------------------------------------
Reconciliation of federal
  statutory to actual tax expense
Federal statutory income tax at 34%             $ 137        $  83        $ 204
Effect of state income taxes                       24           16           31
Business tax credits                             (107)
Tax-exempt dividends and interest                  (4)          (5)         (24)
Other                                               4            6           (5)
                                                --------------------------------
        Actual tax expense                      $  54        $ 100        $ 206
                                                ================================

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

June 30                                                       2000         1999
--------------------------------------------------------------------------------
Assets
     Allowance for loan losses                               $ 139        $ 117
     Deferred compensation                                      25           23
     Securities available for sale                             129          157
     Other                                                      12            1
                                                        ------------------------
         Total assets                                          305          298
                                                        ------------------------
Liabilities
     Depreciation                                              (16)         (19)
     State income tax                                          (12)         (10)
     Loan fees                                                  (2)          (2)
                                                        ------------------------
         Total liabilities                                     (30)         (31)
                                                        ------------------------
                                                              $275         $267
                                                        ========================


No valuation allowance was necessary for the years ended June 30, 2000 and 1999.

Retained earnings at June 30, 2000, include approximately  $700,000 for which no
deferred  federal  income  tax  liability  has  been  recognized.   This  amount
represents an  allocation  of income to bad debt  deductions as of June 30, 1988
for tax purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses including  redemption of bank stock or excess dividends,  or
loss of "bank status" would create  income for tax purposes  only,  which income
would be subject to the  then-current  corporate income tax rate. The unrecorded
deferred  federal  income tax liability on the above  amounts was  approximately
$280,000 at June 30, 2000.


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 9 --      Other Comprehensive Income
<TABLE>
<CAPTION>


                                                                                  2000
                                                      ----------------------------------------------------------
                                                         Before-Tax                Tax               Net-of-Tax
Year Ended June 30                                         Amount                Benefit               Amount
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                     <C>                 <C>
Unrealized losses on securities
     Unrealized holding losses arising during the year     $(201)                  $79                 $(122)
     Less: reclassification adjustment for
         losses realized in net income                       (18)                    7                   (11)
                                                      ----------------------------------------------------------
     Other comprehensive loss                              $(183)                  $72                 $(111)
                                                      ==========================================================


                                                                                  1999
                                                      ----------------------------------------------------------
                                                         Before-Tax                Tax               Net-of-Tax
Year Ended June 30                                         Amount                Benefit               Amount
----------------------------------------------------------------------------------------------------------------
Unrealized losses on securities
     Unrealized holding losses arising during the year     $(354)                 $140                 $(214)
     Less: reclassification adjustment for
         gains realized in net income                          3                    (1)                    2
                                                      ----------------------------------------------------------
     Other comprehensive loss                              $(357)                 $141                 $(216)
                                                      ==========================================================


                                                                                  1998
                                                      ----------------------------------------------------------
                                                         Before-Tax                Tax               Net-of-Tax
Year Ended June 30                                         Amount                Benefit               Amount
----------------------------------------------------------------------------------------------------------------
Unrealized gains on securities
     Unrealized holding gains arising during the year        $84                  $(33)                  $51
     Less: reclassification adjustment for gains
         realized in net income                              141                   (39)                  102
                                                      ----------------------------------------------------------
     Other comprehensive loss                               $(57)                 $  6                  $(51)
                                                      ==========================================================
</TABLE>


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 10 --     Commitments and Contingent Liabilities

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

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

                                                         2000              1999
--------------------------------------------------------------------------------
Commitments to extend credit                            $2,729            $1,712
Unused lines of credit                                     332               717
Standby letters of credit                                  861

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

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

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

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


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 11 --     Stockholders' Equity

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

The Company's Board of Directors has approved the repurchase of up to 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.  During the
years ended June 30, 2000,  1999 and 1998, the Company had  repurchased  28,800,
42,852 and 10,000 of its outstanding shares.

Note 12 --     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. The Bank normally restricts
dividends to a lesser amount because of the need to maintain an adequate capital
structure.

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

At June 30, 2000,  total  stockholder's  equity of the Bank was  $6,498,000,  of
which approximately $524,000 was available for the payment of dividends.


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 13 --     Regulatory Capital

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

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material  effect on a bank's  operations.  At June 30, 2000 and 1999, the
Bank is categorized as well  capitalized  and met all subject  capital  adequacy
requirements.  There  are no  conditions  or  events  since  June 30,  2000 that
management believes has changed the Bank's classification.

The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>


                                                                     2000
                                  ---------------------------------------------------------------------------
                                                                  Required
                                                                 for Adequate                 To Be Well
                                         Actual                    Capital 1                 Capitalized 1
                                  ---------------------------------------------------------------------------
June 30                            Amount        Ratio       Amount        Ratio          Amount        Ratio
-------------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>        <C>            <C>            <C>          <C>
Total risk-based capital1
   (to risk weighted assets)       $6,752         18.6%      $2,903         8.0%           $3,629       10.0%
Tier I capital1
   (to risk weighted assets)        6,380         17.6        1,452         4.0             2,177        6.0
Core capital1
   (to adjusted total assets)       6,380         10.9        2,343         4.0             2,929        5.0
Core capital1
   (to adjusted tangible assets)    6,380         10.9        1,171         2.0               N/A        N/A
Tangible capital1
   (to adjusted total assets)       6,380         10.9          879         1.5               N/A        N/A

                                                                     1999
                                  ---------------------------------------------------------------------------
                                                                  Required
                                                                 for Adequate                 To Be Well
                                         Actual                    Capital 1                 Capitalized 1
                                  ---------------------------------------------------------------------------
June 30                            Amount        Ratio       Amount        Ratio          Amount        Ratio
-------------------------------------------------------------------------------------------------------------
Total risk-based capital1
   (to risk weighted assets)       $6,699         21.6%      $2,476         8.0%           $3,095       10.0%
Tier I capital1
   (to risk weighted assets)        6,363         20.6        1,238         4.0             1,857        6.0
Core capital1
   (to adjusted total assets)       6,363         12.1        2,103         4.0             2,629        5.0
Core capital1
   (to adjusted tangible assets)    6,363         12.1        1,052         2.0               N/A        N/A
Tangible capital1
   (to adjusted total assets)       6,363         12.1          789         1.5               N/A        N/A

</TABLE>
  1 As defined by the regulatory agencies


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 14 --     Employee Benefit Plans

The Bank is a participant  in a pension fund known as the Pentegra  Group.  This
plan is a multi-employer  plan; separate actuarial  valuations are not made with
respect to each participating  employer.  According to the plan  administrators,
the market value of the fund's assets  exceeded the value of vested  benefits in
the aggregate as of June 30, 2000, the date of the latest  actuarial  valuation.
The plan required contributions in the amount of $25,200, $11,900 and $2,700 for
the years ended June 30, 2000, 1999 and 1998. The plan provides pension benefits
for substantially all of the Bank's employees.

The Bank has a retirement savings Section 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 50 percent of the first 6 percent of base salary contributed by participants.
The Bank's expense for the plan was $14,700 and $8,900 and $12,000 for the years
ended June 30, 2000, 1999 and 1998.

The Company has an ESOP covering  substantially  all employees of the Bank.  The
ESOP acquired  40,474 (before  restatement for the 2-for-1 stock split discussed
in Note 12)  shares of the  Company's  common  stock at $10 per share with funds
provided by a loan from the  Company.  Accordingly,  the  unearned  common stock
acquired by the ESOP is shown as a reduction of stockholders' equity. Shares are
released to  participants  proportionately  as the loan is repaid.  Dividends on
allocated  shares are  recorded as dividends  and charged to retained  earnings.
Dividends on unallocated shares, which will be distributed to participants,  are
treated as compensation  expense.  Compensation expense is recorded equal to the
fair market value of the stock when contributions, which are determined annually
by the Board of Directors of the Bank,  are made to the ESOP.  The expense under
the ESOP was  $57,000,  $70,000 and  $93,000 for the years ended June 30,  2000,
1999 and  1998.  At June 30,  2000 and  1999,  the ESOP had  33,655  and  24,609
allocated  shares,  43,005  and  51,816  suspense  shares  and  4,288  and 4,523
committed-to-be  released shares.  The fair value of the unearned ESOP shares at
June 30, 2000 and 1999 was $244,589 and $408,048.

The Company has a Recognition  and Retention  Plan and Trust (RRP).  The RRP may
acquire  up to  40,474  shares  of the  Company's  common  stock  for  awards to
management.  Shares  awarded  to  management  under the RRP vest at a rate of 20
percent  at the end of each full 12 months of  service  with the Bank  after the
date of grant.  As of June 30,  2000,  30,356  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 $44,000, $47,000 and $37,000 for the years ended June 30, 2000, 1999 and
1998.


<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Note 15 --     Related Party Transactions

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

--------------------------------------------------------------------------------
Balances, June 30, 1999                                                   $ 328
New loans, including renewals                                                 5
Payments, etc. including renewals                                           (14)
Balances, June 30, 2000                                                   $ 319

Deposits from related parties held by the Bank at June 30, 2000 and 1999 totaled
$656,801 and $609,882.

Note 16 --     Stock Option Plan

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

Since the plan's  adoption,  incentive stock options for 55,000 shares of common
stock have been granted  with ten year terms that expire  October 13, 2007 and a
exercise price of $8.50 per share.  These options became  exercisable in full on
April 14, 1998. In addition,  non-qualified  options for 15,000 shares and 1,500
have been  granted  with ten year terms that expire  October 14, 2007 and August
25,  2008 with an  exercise  price of $8.50 and $8.25 per  share,  respectively.
These options were  exercisable in full on April 14, 1998 and February 25, 1999.
The exercise price of each option was equal to the market price of the Company's
stock on the date of grant; therefore, no compensation expense was recognized.

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

                                                               1999       1998
--------------------------------------------------------------------------------
Risk-free interest rates                                       5.07%       6.12%
Dividend yields                                                1.42%       1.17%
Volatility factors of expected market price of common stock   20.50%      16.67%
Weighted-average expected life of the options                6 years     6 years

<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

Under  SFAS No.  123,  compensation  cost is  recognized  in the  amount  of the
estimated  fair value of the options and  amortized to expense over the options'
vesting  period.  The pro forma  effect on net income and  earnings per share of
this statement are as follows:

                                                       1999             1998
--------------------------------------------------------------------------------
Net income                        As reported          $144              $393
                                  Pro forma             140               238
Basic earnings per share          As reported           .18               .47
                                  Pro forma             .17               .28
Diluted earnings per share        As reported           .18               .47
                                  Pro forma             .17               .28

The following is a summary of the status of the Company's  stock option plan and
changes in that plan as of and for the years ended June 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>


Year Ended June 30                              2000                       1999                      1998
-----------------------------------------------------------------------------------------------------------------------
                                                      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            69,300      $8.50         70,000       $8.50
Granted                                                              1,500        8.25         70,400       $8.50
Forfeited                                (11,400)                   (2,200)       8.50           (400)       8.50
                                        --------                   -------                    -------
Outstanding and exercisable,
   end of year                            57,900       8.49         69,300        8.50         70,000        8.50
                                        ========                   =======                    =======
Weighted-average fair value of
   options granted during the year                                               $2.22                      $2.41
</TABLE>

As of June 30, 2000, 56,400 options  outstanding have an exercise price of $8.50
and a remaining  contractual life of eight years, and 1,500 options  outstanding
have an exercise prices of $8.25 and a remaining contractual life of nine years.
There were 43,284 shares available for grant at June 30, 2000.


<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
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Note 17 --     Earnings Per Share

Earnings per share were computed as follows:
<TABLE>
<CAPTION>


                                                                        Year Ended June 30, 2000
                                                           ---------------------------------------------------
                                                                                Weighted                Per-
                                                             Net                 Average                Share
                                                           Income                Shares                Amount
--------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>                    <C>
Basic Earnings Per Share
   Income available to common stockholders                  $349                 800,011                $.44

Effect of Dilutive Securities
   Stock options and awards                                                           98
                                                            -----------------------------
Diluted Earnings Per Share
   Income available to common stockholders
     and assumed conversions                                $349                 800,109                $.44
                                                            =================================================

                                                                        Year Ended June 30, 1999
                                                           ---------------------------------------------------
                                                                                Weighted                Per-
                                                             Net                 Average                Share
                                                           Income                Shares                Amount
--------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
   Income available to common stockholders                  $144                 814,803                $.18

Effect of Dilutive Securities
   Stock options and awards                                                          631
                                                            -----------------------------
Diluted Earnings Per Share
   Income available to common stockholders
     and assumed conversions                                $144                 815,434                $.18
                                                            ==================================================


                                                                        Year Ended June 30, 1998
                                                           ---------------------------------------------------
                                                                                Weighted                Per-
                                                             Net                 Average                Share
                                                           Income                Shares                Amount
--------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
   Income available to common stockholders                  $393                 837,087                $.47

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

<PAGE>



                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
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Note 18 --     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.


<PAGE>

                      HOME FINANCIAL BANCORP AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
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The estimated fair values of the Company's  financial  instruments are
as follows:
<TABLE>
<CAPTION>


                                                2000                          1999
                                      --------------------------------------------------------
                                       Carrying          Fair        Carrying          Fair
June 30                                 Amount           Value        Amount           Value
----------------------------------------------------------------------------------------------
Assets
<S>                                      <C>            <C>            <C>             <C>
Cash and cash equivalents                $1,716         $1,716         $2,475          $2,475
Securities available for sale             7,712          7,712          8,288           8,288
Loans, net                               45,341         45,282         38,238          38,885
Stock in FHLB                               835            835            660             660
Interest receivable                         337            337            318             318

Liabilities

Deposits                                 38,542         38,494         32,657          32,937
Other borrowings                         13,500         13,331         13,200          13,127

Off-Balance Sheet Assets
  Commitments to extend credit

</TABLE>
Note 19 --     Condensed Financial Information (Parent Company Only)

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

                        Condensed Balance Sheet

June 30                                                       2000         1999
--------------------------------------------------------------------------------
Assets
    Cash and cash equivalents                                $   56       $  109
    Securities available for sale                               465          617
    Premises and equipment                                       11           14
    Investment in subsidiary                                  6,498        6,242
    Other assets                                                206          143
                                                        ------------------------
          Total assets                                       $7,236       $7,125
                                                        ========================
Liabilities
    Other liabilities                                        $   54       $    2
Stockholders' Equity                                          7,182        7,123
                                                        ------------------------
          Total liabilities and stockholders' equity         $7,236       $7,125
                                                        ========================


<PAGE>

                     Home Financial Bancorp and Subsidiary
                   Notes to Consolidated Financial Statements
                       (Table Dollar Amounts in Thousands)

                     Condensed Statement of Income
<TABLE>
<CAPTION>

Year Ended June 30                                                2000         1999         1998
--------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>          <C>
Income
   Interest income                                               $  42        $  48        $ 137
   Dividends from subsidiary                                       125          100
   Net realized gains (losses) on sales of
     available for sale securities                                 (18)           4          141
                                                                ----------------------------------
        Total income                                               149          152          278
                                                                ----------------------------------
Expenses
   Salaries and employee benefits                                   26           39           60
   Legal and professional fees                                      66           38           64
   Other expenses                                                   36           40           56
                                                                ----------------------------------
        Total expenses                                             128          117          180
                                                                ----------------------------------
Income before income tax benefit and equity in
   undistributed income of subsidiary                               21           35           98
Income tax benefit (expense)                                       (38)         (23)           7
                                                                ----------------------------------
Income before equity in undistributed income of subsidiary          59           58           91
Equity in undistributed income of subsidiary                       290           86          302
                                                                ----------------------------------
Net Income                                                       $ 349        $ 144        $ 393
                                                                ==================================
</TABLE>

<TABLE>
<CAPTION>


                   Condensed Statement of Cash Flows

Year Ended June 30                                              2000           1999           1998
-----------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                           <C>            <C>            <C>
   Net income                                                 $   349        $   144        $   393
   Adjustments to reconcile net income to net cash
     provided by operating activities                            (200)           (40)          (289)
                                                         ----------------------------------------------
        Net cash provided by operating activities                 149            104            104
                                                         ----------------------------------------------
Investing Activities
   Purchases of securities available for sale                     (58)        (1,848)
   Proceeds from sales of securities available for sale            77            485          1,895
   Purchases of premises and equipment                                                           (1)
                                                         ----------------------------------------------
Net cash provided by investing activities                          77            427             46
                                                         ----------------------------------------------
Financing Activities
   Dividends paid                                                 (96)           (94)           (85)
   Purchase of stock                                             (183)          (340)           (78)
                                                         ----------------------------------------------
        Net cash used by financing activities                    (279)          (434)          (163)
                                                         ----------------------------------------------
Net Change in Cash and Cash Equivalents                           (53)            97            (13)
Cash and Cash Equivalents at Beginning of Year                    109             12             25
                                                         ----------------------------------------------
Cash and Cash Equivalents at End of Year                      $    56        $   109        $    12
                                                         ==============================================
</TABLE>