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                                  FORM 10-KSB

                                 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, 2001

                                       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 ( 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-KSB
or any amendment to this Form 10-KSB. [ X ]

The aggregate market value of the issuer's voting stock held by  non-affiliates,
as of August 20, 2001, was $3,104,180.

The  number of shares of the  Registrant's  Common  Stock,  without  par  value,
outstanding as of August 20, 2001, was 1,359,050 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2001 Annual Meeting of Shareholders  are
incorporated in Part III.

                           Exhibit Index on Page E-1
                               Page 1 of 49 Pages
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<PAGE>

                             HOME FINANCIAL BANCORP
                                  Form 10-KSB
                                     INDEX

                                                                           Page
                                                                           ----
Forward Looking Statements ...............................................   3

PART I

Item  1.        Business .................................................   3

Item  2.        Properties ...............................................  29

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

Item  4.        Submission of Matters to a Vote of Security Holders ......  29

Item  4.5.      Executive Officers of Registrant .........................  30

PART II

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

Item  6.        Selected Financial Data ..................................  32

Item  7.        Management's Discussion and Analysis of Financial
                  Condition and Results of Operation .....................  33

Item  7A.       Quantitative and Qualitative Disclosures
                  About Market Risk ......................................  45

Item  8.        Financial Statements and Supplementary Data ..............  46

Item  9.        Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure ....................  46

PART III

Item 10.        Directors and Executive Officers of Registrant ...........  47

Item 11.        Executive Compensation ...................................  47

Item 12.        Security Ownership of Certain Beneficial Owners
                  and Management .........................................  47

Item 13.        Certain Relationships and Related Transactions ...........  47

PART IV

Item 14.        Exhibits, Financial Statement Schedules, and Reports
                  on Form 8-K ............................................  47

                Signatures ...............................................  48

                Exhibit Index ............................................  49
<PAGE>

                           FORWARD LOOKING STATEMENTS

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

                                     PART I

Item 1.  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. The principal  asset
of the Holding Company currently  consists of 100% of the issued and outstanding
shares of common stock of the Bank.  The Bank was organized  under the name Owen
County  Savings and Loan  Association  in 1911. In 1972, the Bank converted to a
federally chartered savings and loan and changed its name to Owen County Federal
Savings and Loan  Association,  and in 1989,  the Bank  converted to a federally
chartered  savings bank known as Owen Federal  Savings Bank.  In 1994,  the Bank
became an Indiana  savings bank known as Owen Community  Bank, s.b. As of May 1,
1999,  the Bank  converted  back to a federal stock savings bank and the Company
became a unitary savings and loan holding company. The Bank's principal business
consists  of  attracting  deposits  from  the  general  public  and  originating
long-term loans secured primarily by first mortgage liens on one-to-four  family
real estate.  The Bank's deposit accounts are insured up to applicable limits by
the Savings  Association  Insurance  Fund (the  "SAIF") of the  Federal  Deposit
Insurance Corporation (the "FDIC").

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

     The Bank  historically  has  concentrated  its  lending  activities  on the
origination  of  loans  secured  by  first  mortgage  liens  for  the  purchase,
construction  or refinancing of one-to-four  family  residential  real property.
One-to- four family residential mortgage loans continue to be the major focus of
the Bank's loan origination  activities,  representing 49.3% of the Bank's total
loan  portfolio  at June 30,  2001.  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 5.8% and
13.2%  of the  Bank's  total  loan  portfolio  at June 30,  2001,  respectively.
Mortgage loans secured by multi-family properties and nonresidential real estate
totaled  approximately  1.0% and 25.0%,  respectively,  of the Bank's total loan
portfolio at June 30, 2001. Consumer loans constituted approximately 5.0% of the
Bank's total loan portfolio at June 30, 2001.

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,
                                    ----------------------------------------------------------------
                                            2001                   2000                   1999
                                    -------------------     ------------------     -----------------
                                               Percent               Percent                Percent
                                    Amount     of Total     Amount   of Total      Amount   of Total
                                    ------     --------     ------   --------      ------   --------
                                                          (Dollars in thousands)
TYPE OF LOAN
Mortgage loans:
<S>                                 <C>          <C>        <C>         <C>        <C>        <C>
  Residential .................     $27,082      49.26%     $23,494     50.76%     $20,952    53.46%
  Combo .......................       7,230      13.15        6,584     14.23        5,331    13.60
  Nonresidential ..............      13,758      25.02       11,926     25.76        9,323    23.79
  Multi-family ................         528       0.96        1,017      2.20        1,096     2.80
Mobile home loans .............       3,172       5.77        1,322      2.86          950     2.43
Commercial and industrial loans         485       0.88          264      0.57          538     1.37
Consumer loans ................       2,725       4.96        1,674      3.62          999     2.55
                                    -------     ------      -------    ------      -------   ------
    Gross loans receivable ....     $54,980     100.00%     $46,281    100.00%     $39,189   100.00%
                                    =======     ======      =======    ======      =======   ======
TYPE OF SECURITY
Residential real estate .......     $27,082      49.26%     $23,494     50.76%     $20,952    53.46%
Mobile home and land ..........       7,230      13.15        6,584     14.23        5,331    13.60
Nonresidential real estate ....      13,758      25.02       11,926     25.76        9,323    23.79
Multi-family real estate ......         528       0.96        1,017      2.20        1,096     2.80
Mobile home ...................       3,172       5.77        1,322      2.86          950     2.43
Deposits ......................         125       0.23          121      0.26          154     0.39
Other security ................       3,085       5.61        1,817      3.93        1,383     3.53
                                    -------     ------      -------    ------      -------   ------
  Gross loans receivable ......      54,980     100.00       46,281    100.00       39,189   100.00

Deduct:
Allowance for loan losses .....         392       0.71          372      0.80          336     0.86
Loans in process and
  deferred loan costs .........         344       0.63          568      1.23          615     1.57
                                    -------     ------      -------    ------      -------   ------
  Net loans receivable ........     $54,244      98.66%     $45,341     97.97%     $38,238    97.57%
                                    =======     ======      =======    ======      =======   ======
Mortgage Loans:
  Adjustable-rate .............     $23,279      47.90%     $25,717     59.78%     $23,748    64.70%
  Fixed-rate ..................      25,319      52.10       17,304     40.22       12,954    35.30
                                    -------     ------      -------    ------      -------   ------
    Total .....................     $48,598     100.00%     $43,021    100.00%     $36,702   100.00%
                                    =======     ======      =======    ======      =======   ======
</TABLE>

     The  following  table  sets forth  certain  information  at June 30,  2001,
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.


<PAGE>

<TABLE>
<CAPTION>
                                    Balance                                      Due during years ended June 30,
                                  Outstanding   -------------------------------------------------------------------------------
                                  at June 30,                                         2005        2007        2012      2017
                                                                                       to          to          to        and
                                      2001        2002         2003        2004       2006        2011        2016    following
                                  ------------  ---------   ----------  ---------  ---------   ----------   --------- ---------
                                                                       (In thousands)
Mortgage loans:
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
  Residential .................     $27,082     $   476     $    13     $    75     $   278     $ 2,207     $ 5,850     $18,183
  Combo .......................       7,230          50           5          38          79         674       1,809       4,575
  Nonresidential ..............      13,758       1,215           2          37       1,864         605       6,323       3,712
  Multi-family ................         528         ---         ---         ---         ---         218         139         171
Mobile home loans .............       3,172           2          28          30         120         436       1,146       1,410
Commercial and industrial loans         485         124         ---         ---         ---          66         295         ---
Consumer loans ................       2,725       1,497         163         306         388         277          85           9
                                    -------     -------     -------     -------     -------     -------     -------     -------
                  Total .......     $54,980     $ 3,364     $   211     $   486     $ 2,729     $ 4,483     $15,647     $28,060
                                    =======     =======     =======     =======     =======     =======     =======     =======
</TABLE>

     The following  table sets forth,  as of June 30, 2001, 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 ...................   $17,411          $ 9,195          $26,606
  Combo .........................     4,922            2,258            7,180
  Nonresidential ................     2,202           10,341           12,543
  Multi-family ..................       258              270              528
Mobile home loans ...............     3,170              ---            3,170
Commercial and industrial loans..       361              ---              361
Consumer loans ..................     1,228              ---            1,228
                                    -------          -------          -------
                  Total .........   $29,552          $22,064          $51,616
                                    =======          =======          =======

     One-to-Four Family  Residential Loans.  Residential loans consist primarily
of one-to-four family loans. Approximately $27.1 million, or 49.3% of the Bank's
portfolio of loans at June 30, 2001, consisted of one-to-four family residential
mortgage  loans, of which  approximately35%  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 for the Bank's one-year ARMs is
1% to 1.5%, and the maximum rate  adjustment  over the life of the loan is 4% to
5%. 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").  The  three-year and five-year  ARMS have maximum rate  adjustments  per
adjustment  period  of 3% and  over  the  life  of the  loan of 5%.  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,  2001,  65% 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, 2001, residential loans amounting to $971,000, or 1.8% of total
loans, were included in non-performing assets. See "--Non-Performing and Problem
Assets."

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

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

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

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

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

     Combo Loans. At June 30, 2001,  $7.2 million,  or 13.2% of the Bank's total
loan  portfolio,  consisted  of  Combo  Loans,  of which  approximately  31% had
adjustable  rates. The Bank currently offers three (3) types of  adjustable-rate
Combo Loans. The Bank's one-year  adjustable-rate Combo Loans are indexed to the
Average One Year T-Bill and have maximum rate  adjustments  per year of 1.5% and
over the life of the loan of 3%. 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 of 3% and over the
life of the loan of 5%. 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,  2001,  69% 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, 2001,  approximately $3.2 million, or 5.8% 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, 2001.

     Nonresidential Real Estate Loans. At June 30, 2001, $13.8 million, or 25.0%
of the Bank's  total loan  portfolio,  consisted of  nonresidential  real estate
loans, of which $883,000  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 two  residential  real estate  development
projects.  At June 30, 2001, $920,000, or 6.7% of the Bank's nonresidential loan
portfolio,  was secured by real estate being developed for residential  housing.
At the same date, $596,000, or 4.3% 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 adjustments per adjustment period and over the life of the loan are
typically unrestricted. The Bank underwrites these loans on a case-by-case basis
and, in addition to its normal  underwriting  criteria,  the Bank  evaluates the
borrower's  ability to  service  the debt from the net  operating  income of the
property.  The  largest  nonresidential  real  estate  loan on June 30, 2001 was
$952,000,  net of participation  portion sold. One of the Bank's  nonresidential
real estate loans totaling $19,000 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.

     Multi-Family Loans. Approximately $528,000, or 1.0% of the Bank's portfolio
of loans at June 30, 2001,  consisted of multi-family  loans.  All of the Bank's
multi-family  loans  were  fully  performing  as of June 30,  2001.  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 $2.7 million as of June 30, 2001,
or 5.0% 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, 2001,  consumer loans amounting to $95,000 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 its  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
South-Central   Indiana.  At  June  30,  2001,  13  residential  loans  totaling
approximately  $440,000 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  appraiser.  The Bank requires
fire and extended coverage  insurance in amounts at least equal to the principal
amount of the loan and requires  vandalism coverage on all mobile home loans. It
also requires flood  insurance to protect the property  securing its interest if
the property is in a flood plane.  The Bank does not require escrow  accounts to
be established  by its borrowers for the payment of insurance  premiums or taxes
and does not require private mortgage insurance for its loans.

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

     The Bank  historically has sold  participations  in its mortgage loans on a
limited number of occasions to ensure compliance with the loans-to-one  borrower
restrictions.   See  "Regulation--   Loans  to  One  Borrower."  The  Bank  also
occasionally   purchases   participations  in  nonresidential  real  estate  and
multi-family loans from other financial institutions. At June 30, 2001, the Bank
had sold  participations  in a  non-residential  mortgage  loan in the amount of
$609,000.

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

                                                    For the Year Ended June 30,
                                                --------------------------------
                                                  2001        2000         1999
                                                --------    --------     -------
                                                         (In thousands)

Gross loans receivable at beginning of period ..$ 46,281    $ 39,189    $ 34,475
                                                --------    --------    --------
Originations:
  Mortgage loans:
    Residential ................................  11,822       8,645       9,660
    Other ......................................   3,399       6,152       2,044
                                                --------    --------    --------
      Total mortgage loans .....................  15,221      14,797      11,704
                                                --------    --------    --------
  Mobile home loans ............................   1,448         300         317
  Consumer loans:
    Installment ................................   1,517       1,545         810
    Share ......................................     141          27         101
                                                --------    --------    --------
      Total consumer loans .....................   1,658       1,572         911
                                                --------    --------    --------
         Total originations ....................  18,327      16,669      12,932
Purchases (sales) of participation loans .......    (400)     (2,363)       --
Repayments and other deductions ................   9,228       7,214       8,218
                                                --------    --------    --------
  Gross loans receivable at end of period ......$ 54,980    $ 46,281    $ 39,189
                                                ========    ========    ========
<PAGE>

     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, 2001, the Bank had $5.7 million of
mortgage-backed  securities  outstanding,   all  of  which  were  classified  as
available  for sale and had a market  value of $5.6  million.  These  fixed-rate
mortgage-backed securities may be used as collateral for borrowings and, through
repayments, as a source of liquidity. Mortgage-backed securities generally offer
yields above those  available for  investments of comparable  credit quality and
duration.

     The  following  table sets forth the  amortized  cost and fair value of the
Bank's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
                                                         At June 30,
                            ---------------------------------------------------------------------
                                    2001                    2000                     1999
                            ------------------       ------------------       -------------------
                            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 ............... $5,663     $5,582       $7,573      $7,247       $7,771      $7,570
</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, 2001.
<TABLE>
<CAPTION>
                                         Amount at June 30, 2001, which matures in
                            ---------------------------------------------------------------------
                              Less than 1 year     Two through five years       Over five years
                            -------------------   ------------------------    -------------------
                                       Weighted                 Weighted                 Weighted
                            Amortized  Average      Amortized   Average      Amortized   Average
                              Cost      Yield         Cost       Yield         Cost       Yield
                            -------------------   ------------------------   --------------------
                                                      (In thousands)
<S>                          <C>        <C>          <C>         <C>          <C>         <C>
Mortgage-backed securities
   available for sale ......    ---        ---          ---         ---       $5,664        6.9%
</TABLE>

     The  following  table sets forth the changes in the Bank's  mortgage-backed
securities portfolio for the years ended June 30, 2001, 2000 and 1999.
<TABLE>
<CAPTION>
                                                                  For the Year Ended June 30,
                                                          -----------------------------------------
                                                             2001            2000           1999
                                                          ----------      ----------     ----------
                                                                        (In thousands)
<S>                                                         <C>             <C>            <C>
Beginning balance .......................................   $ 7,247         $ 7,570        $   543
Purchases ...............................................        --             825          8,600
Sales ...................................................      (826)             --             --
Monthly repayments ......................................    (1,073)         (1,011)        (1,320)
Premium and discount amortization, net ..................       (25)            (12)           (46)
Investment securities gains .............................        14              --             --
Unrealized gain (loss) on securities available for sale .       245            (125)          (207)
                                                            -------         -------        -------
Ending balance ..........................................   $ 5,582         $ 7,247        $ 7,570
                                                            =======         =======        =======
</TABLE>
<PAGE>

Non-Performing and Problem Assets

     Mortgage  loans  are  reviewed  by the  Bank  on a  regular  basis  and are
generally  placed on a  non-accrual  status when the loans become  contractually
past due 90 days or more. However, loans past due 90 days or more that have been
reviewed and deemed to be in the process of collection with a low probability of
loss may remain on accruing status. It is the policy of the Bank that all earned
but  uncollected  interest on all loans be reviewed  monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due less
than 90 days. Delinquency notices are sent three times per month with respect to
all mortgage loans for which  payments have not been received.  Contact by phone
or in person is made,  if feasible,  with respect to all such loans.  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, 2001,  $1.1  million,  or 1.55% of the
Company's total assets, were non-performing loans (loans delinquent more than 90
days and non-accruing loans) compared to $395,000,  or 0.66%, of total assets at
June 30, 2000. At June 30, 2001,  residential loans and consumer loans accounted
for  91.5%  and 8.5%,  respectively,  of  non-performing  loans.  There  were no
non-accruing  investments  at June 30, 2001.  As of June 30, 2001 and 2000,  the
Bank held  $37,000  and  $35,000,  respectively,  of Real Estate  Owned  ("REO")
properties and no other repossessed properties.

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

                                                    At June 30,
                                          -------------------------------
                                           2001        2000        1999
                                          -------     -------     -------
                                                  (In thousands)
Accruing loans delinquent 90 days ...      $  277      $ ---      $ ---
Non-accruing loans (1) ..............         789        395         79
Real estate owned ...................          37         35          6
                                           ------      -----      -----
    Total non-performing assets .....       1,103        430         85
Non-performing loans to total loans .        1.95%      0.86%      0.20%
Non-performing assets to total assets        1.60%      0.72%      0.16%

---------------
(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, 2001,  $694,000
     of  non-accruing  loans were  residential  loans and $95,000 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 $34,000 for the year ended June
     30,  2001.  At June 30, 2001,  accruing  loans  delinquent  90 days or more
     included $277,000 of residential loans.

     The following table reflects the amount of loans in a delinquent  status as
of the dates indicated:
<TABLE>
<CAPTION>
                                                                         June 30,
                                     --------------------------------------------------------------------------------
                                              2001                         2000                       1999
                                     --------------------------------------------------------------------------------
                                                        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                          51    $1,247       2.28%     24     $598     1.31%     25      $630    1.61%
   90 days and over                    32     1,066       1.95      13      395     0.86      10        79    0.20
                                       --     -----       ----      --      ---     ----      --    ------    ----
     Total delinquent loans            83     $2,313 (2)  4.23%     37     $993     2.17%     35      $709    1.81%
                                       ==     ======      ====      ==     ====     ====      ==      ====    ====
</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, $2.0 million consisted of residential real estate loans and
     $305,000 consisted of nonresidential real estate and consumer loans.
<PAGE>

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

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

     At June 30, 2001, 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, 2001
                                                                ----------------
                                                                 (In thousands)
Substandard loans ..........................................         $  692
Doubtful loans .............................................              2
Loss loans .................................................             --
Special mention loans ......................................          1,889
                                                                     ------
         Total classified loans ............................          2,583
                                                                     ======
General loss allowances ....................................         $  392
Specific loss allowances ...................................             --
                                                                     ------
         Total allowances ..................................         $  392
                                                                     ======


     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, 2001.  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, 2001.
<TABLE>
<CAPTION>

                                                             Year Ended June 30,
                                         -----------------------------------------------------------
                                            2001        2000        1999        1998        1997
                                         ----------  ----------  ----------  ----------  ----------
                                                            (Dollars in thousands)
<S>                                         <C>         <C>         <C>         <C>         <C>
Balance of allowance at beginning
  of period ............................    $ 372       $ 336       $ 320       $ 231       $ 150
                                            -----       -----       -----       -----       -----
Less charge offs:
Mortgage loans .........................      (17)         --         (26)         (6)         --
Consumer loans .........................      (23)        (18)         (2)         (7)         (4)
Add recoveries:
Consumer loans .........................       --          --          --          --          --
                                            -----       -----       -----       -----       -----
Net (charge-offs) recoveries ...........      (40)        (18)        (28)        (13)         (4)
Provisions for losses on loans .........       60          54          44         102          85
                                            -----       -----       -----       -----       -----
Balance of allowance at end of period ..    $ 392       $ 372       $ 336       $ 320       $ 231
                                            =====       =====       =====       =====       =====
Net charge-offs to total average
  loans receivable for period ..........     0.08%       0.04%       0.08%       0.04%       0.01%
Allowance at end of period to
  net loans receivable at end
  of period (1) ........................     0.72        0.81        0.88        0.94        0.67
Allowance to total non-performing
  loans at end of period ...............    36.77       94.18      425.32      114.70       41.10
</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,
                             --------------------------------------------------------
                                  2001                2000                1999
                             ----------------  ------------------  ------------------
                                     Percent             Percent             Percent
                                     of loans            of loans            of loans
                                     in each             in each             in each
                                     category            category            category
                                     of total            of total            of total
                             Amount   loans    Amount     loans    Amount     loans
                             ------  --------  ------    --------  ------    --------
                                             (Dollars in thousands)
<S>                           <C>     <C>       <C>       <C>       <C>       <C>
Balance at end of period
   applicable to:
Residential .............     $130    49.26%    $113      50.76%    $ 45      53.46%
Combo ...................       15    13.15       13      14.23       30      13.60
Nonresidential ..........      130    25.02      105      25.76       45      23.79
Multi-family ............        3     0.96        2       2.20       20       2.80
Mobile home loans .......       44     5.77       11       2.86       45       2.43
Commercial and industrial
   loans ................        4     0.88        2       0.57       15       1.37
Consumer loans ..........       60     4.96       30       3.62       25       2.55
Unallocated .............        6       --       96         --      111         --
                              ----    ------    ----     ------     ----     ------
    Total ...............     $392    100.00%   $372     100.00%    $336     100.00%
                              ====    ======    ====     ======     ====     ======
</TABLE>


Investments and FHLB Stock

     The Company's investment portfolio (excluding  mortgage-backed  securities)
consists of equity securities and Federal Home Loan Bank ("FHLB") stock. At June
30, 2001,  approximately  $1.8 million,  or 3.1% 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, 2001.

     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,
                                  --------------------------------------------------------------
                                          2001                   2000                  1999
                                  ------------------     -----------------     -----------------
                                  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
  Marketable equity securities        701        565        719        465        813        617
                                   ------     ------     ------     ------     ------     ------
    Total securities
      available for sale .....        701        565        719        465        913        718
FHLB stock (2) ...............      1,100      1,100        835        835        660        660
                                   ------     ------     ------     ------     ------     ------
    Total investments ........     $1,801     $1,665     $1,554     $1,300     $1,573     $1,378
                                   ======     ======     ======     ======     ======     ======
</TABLE>

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

Sources of Funds

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

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

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

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

     An analysis of the Bank  deposit  accounts by type,  maturity,  and rate at
June 30, 2001, is as follows:
<TABLE>
<CAPTION>
                                        Minimum    Balance at                 Weighted
                                        Opening    June 30,        % of        Average
Type of Account                         Balance      2001        Deposits       Rate
---------------                       ----------- ------------ ------------  ----------
                                                    (Dollars in thousands)
<S>                                      <C>        <C>              <C>       <C>
Withdrawable:
  Savings accounts .................     $   10     $ 3,827          9.31%     2.58%
  Money market accounts ............      5,000         935          2.27      3.95
  NOW and other transaction accounts         50       4,298         10.46      1.56
                                                    -------        ------
    Total withdrawable .............                $ 9,060         22.04      2.24
Certificates (original terms):
  91 days ..........................        500       1,787          4.34      4.22
  6 months .........................        500       2,417          5.88      5.05
  12 months ........................        500      11,048         26.87      5.58
  18 months ........................        500       4,596         11.18      6.38
  24 months ........................        500       6,211         15.11      5.79
  30 months ........................        500       1,071          2.61      5.35
  36 months ........................        500         193          0.47      5.24
  48 months ........................        500         611          1.49      5.75
  60 months ........................        500       3,705          9.01      5.80
IRAs (original terms):
  12 months ........................        500         156          0.38      5.50
  36 months ........................        500         189          0.46      6.18
  60 months ........................        500          67          0.16      5.25
                                                    -------        ------
    Total certificates and IRAs ....                 32,051         77.96      5.64
                                                    -------        ------
    Total deposits .................                $41,111        100.00%     4.89%
                                                    =======        ======
</TABLE>

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

                                                   At June 30,
                                  --------------------------------------------
                                     2001             2000             1999
                                  ----------      -----------      -----------
                                                (In thousands)
4.00% and under .............      $   107          $    --          $    --
4.01 - 6.00 % ...............       24,665           17,312           19,682
6.01 - 8.00% ................        7,279           13,775            4,185
                                   -------          -------          -------
   Total ....................      $32,051          $31,087          $23,867
                                   =======          =======          =======

     The following table  represents,  by various interest rate categories,  the
amounts of time deposits  maturing during each of the three years following June
30, 2001, and the total amount maturing  thereafter.  Matured certificates which
have not been  renewed  as of June 30,  2001,  have been  allocated  based  upon
certain rollover assumptions:

                                  Amounts At June 30, 2001, Maturing in
                        --------------------------------------------------------
                         One Year          Two        Three        Greater Than
                         or Less          Years       Years        Three Years
                        ----------     ---------     ---------    --------------
                                            (In thousands)
4.00% and under .......   $   107        $   --        $   --        $   --
4.01 - 6.00 % .........    17,617         4,371         1,978           699
6.01-8.00% ............     6,361           543            46           329
                          -------        ------        ------        ------
         Total ........   $24,085        $4,914        $2,024        $1,028
                          =======        ======        ======        ======
<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,
2001.


                                                                At June 30, 2001
                                                                ----------------
Maturity                                                         (In thousands)
--------
Three months or less ..........................................      $ 2,247
Greater than three months through six months ..................        3,609
Greater than six months through twelve months .................        2,665
Over twelve months ............................................        2,772
                                                                     -------
         Total ................................................      $11,293
                                                                     =======

     The following table sets forth the dollar amount of savings deposits in the
various types of deposits  programs  offered by the Bank at the dates indicated,
and the amount of  increase  or  decrease  in such  deposits  as compared to the
previous period.
<TABLE>
<CAPTION>
                                                          Deposit Activity
                                      -----------------------------------------------------------
                                                             Increase
                                                            (Decrease)
                                      Balance at               from       Balance at
                                      June 30,      % of     June 30,      June 30,      % of
                                        2001       Deposit     2000         2000       Deposits
                                      ----------   -------   --------     ----------   --------
                                                       (Dollars in thousands)
<S>                                   <C>             <C>      <C>         <C>           <C>
Withdrawable:
  Savings accounts ............       $ 3,827         9.31%    $   304     $ 3,523         9.14%
  Money market accounts .......           935         2.27         648         287         0.74
  NOW accounts and
    other transaction accounts          4,298        10.46         653       3,646         9.46
                                      -------       ------     -------     -------       ------
    Total withdrawable ........         9,060        22.04       1,605       7,456        19.34%
Certificates (original terms):
  91 days .....................          ,787         4.34         471       1,316         3.41
  6 months ....................         2,417         5.88      (1,597)      4,014        10.41
  12 months ...................        11,048        26.87      (1,633)     12,681        32.90
  18 months ...................         4,596        11.18       3,884         712         1.85
  24 months ...................         6,211        15.11        (296)      6,507        16.88
  30 months ...................         1,071         2.61         (47)      1,118         2.90
  36 months ...................           193         0.47         (21)        214         0.56
  48 months ...................           611         1.49          66         545         1.41
  60 months ...................         3,705         9.01          56       3,649         9.47
IRAs (original terms):
  12 months ...................           156         0.38          57          99         0.26
  36 months ...................           189         0.46          15         174         0.45
  60 months ...................            67         0.16           9          58         0.16
                                      -------       ------     -------     -------       ------
    Total certificates and IRAs        32,051        77.96         964      31,087        80.66
                                      -------       ------     -------     -------       ------
      Total deposits ..........       $41,111       100.00%    $ 2,569     $38,543       100.00%
                                      =======       ======     =======     =======       ======
</TABLE>

     Borrowings.  The Bank focuses on generating  loans by using the best source
of funding from deposits,  investments or borrowings. At June 30, 2001, the Bank
had $20.0 million in borrowings from the FHLB of  Indianapolis,  which mature on
various  dates  primarily  during the years 2001 through 2006 and have  interest
rates ranging from 4.74% to 6.28%.  The Bank does not  anticipate any difficulty
in obtaining  advances  from the FHLB of  Indianapolis  appropriate  to meet its
requirements  in the  future.  The Bank had $37.8  million  in  eligible  assets
available as collateral  for advances from the FHLB of  Indianapolis  as of June
30, 2001. Based on the Bank's blanket collateral  agreements,  advances from the
FHLB of Indianapolis  must be  collateralized  by not less than 145% of eligible
loans and 105% of eligible securities. Therefore, the Bank's eligible collateral
would have  supported  approximately  $27.6 million in advances from the FHLB of
Indianapolis as of June 30, 2001. However,  the Bank's Board of Directors has by
resolution limited the amount of authorized  borrowings to $26.0 million at June
30, 2001.

     The following  table presents  certain  information  relating to the Bank's
FHLB borrowings for the years ended June 30, 2001, 2000 and 1999.
<TABLE>
<CAPTION>

                                                                   At or for the Year Ended June 30,
                                                            ------------------------------------------------
                                                               2001              2000              1999
                                                            ------------     ------------       ------------
                                                                            (In thousands)
<S>                                                          <C>               <C>               <C>
FHLB Advances:
Average balance outstanding .......................          $18,008           $14,325           $10,242
Maximum amount outstanding at any
  month-end during the period .....................           22,000            16,700            13,200
Weighted average interest rate during the period ..             5.63%             5.85%             5.83%
Weighted average interest rate at end of period ...             5.38%             5.91%             5.61%
</TABLE>


Service Corporation Subsidiary

     BSF, Inc., the Bank's service corporation subsidiary ("BSF"), was organized
in 1989 and has  historically  engaged in purchasing and developing large tracts
of real estate.  After land was acquired,  BSF  subdivided  the real estate into
lots, made  improvements such as streets,  and sold individual lots,  usually on
contract.  Each subdivision has separate restrictive covenants,  but most permit
mobile or modular  homes.  As of June 30,  2001,  outstanding  contracts  on BSF
subdivision lots were:

Name of Subdivision                 Number of Contracts        Contract Balance
-------------------                 -------------------        ----------------
Hancock Corner                              3                      $131,297
10 O'Clock Line                             3                        35,003
Greene Woods                                1                         6,622
Autumn Hills                                9                        94,529
Coon Path                                   2                        27,090
Purchased contracts                         1                           924
Jerrel Property                             1                        24,288
Quarry Woods                                1                        20,475
                                           --                      --------
   Total outstanding contracts             21                      $340,228
                                           ==                      ========

     At June 30, 2001,  BSF had two unsold lots in Coon Path,  with a sale price
of $22,450.

     BSF has been  developing  Hancock  Corner as a subdivision  to  accommodate
modular  homes.  As  of  June  30,  2001,  four  lots  had  sold  for  $216,500.
Additionally,  this development had 21 tracts of ground in inventory with a sale
price of $541,500.

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

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

     During  fiscal year 2001,  BSF  purchased  257 acres known as Quarry  Woods
located two miles north of Spencer.  By June 30, 2001, BSF had sold one lot with
a sale price of $22,750.  At June 30, 2001, this  development had 13 residential
lots in inventory with a sale price of $471,000. Quarry Woods had one commercial
lot of 75 acres  priced at  $275,000,  and a second  commercial  lot of 27 acres
priced at $50,000 at June 30, 2001.

     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

     At June 30, 2001,  the Bank's  aggregate  investment  in BSF was  $373,000.
Excluding  certain  administrative  costs  not  specifically  allocated  to  its
operations,  BSF net income for the years ended June 30, 2001, 2000 and 1999 was
$59,000,  $10,000 and $16,000,  respectively.  Net of such costs, net income was
approximately  $20,000 in 2001, a net loss in 2000,  and breakeven in 1999.  The
consolidated  statements  of  income  of the  Bank and its  subsidiary  included
elsewhere  herein  include the operations of BSF. All  significant  intercompany
balances and transactions have been eliminated in the consolidation.

Income Tax Credits

     The  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,  2001,   the  total   capitalized   building,   land  and
organizational  costs for the project were  $1,398,000.  The Bank's share of net
operating losses from the project during the year was $48,000,  reducing its net
investment  to $614,000  at June 30,  2001.  Income tax credits  related to this
investment  reduced  the  Company's  federal  income tax  expense by $107,000 in
fiscal year 2001.

Employees

     As of June 30, 2001, the Company  employed 24 persons on a full-time  basis
and six  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.

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

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

                                   REGULATION

General

     The Bank, 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, 2001, was $11,917.

     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") in November 1999,  there were no restrictions on the permissible  business
activities of a unitary savings and loan holding company. The GLB Act included a
provision  that  prohibits  any new unitary  savings and loan  holding  company,
defined as a company that acquires a thrift after May 4, 1999,  from engaging in
commercial  activities.  This  provision  also  includes a  grandfather  clause,
however,  that permits a company that was a savings and loan holding  company as
of May 4,  1999,  or had an  application  to become a savings  and loan  holding
company 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.

     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,  2001,  the Bank's  asset
composition  exceeded  that  required to qualify the Bank as a Qualified  Thrift
Lender.

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

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

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

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

Federal Home Loan Bank System

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

     Prior to the enactment of the GLB Act, a federal  savings  association  was
required to become a member of the FHLB for the  district in which the thrift is
located. The GLB Act abolished this requirement,  effective six months following
the  enactment of the  statute.  At that time,  membership  with the FHLB became
voluntary.  Any savings  association that chooses to become (or remain) a member
of the FHLB following the  expiration of this six-month  period must qualify for
membership  under the criteria  that existed  prior to the  enactment of the GLB
Act. The Bank 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, 2001, the Bank's investment in stock of the
FHLB of Indianapolis was $1.1 million.  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, 2001,  dividends paid by FHLB to the Bank totaled
$76,000, for an annual rate of 8.0%.

Insurance of Deposits

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

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

     In 1996,  legislation  was enacted which  included  provisions  designed to
recapitalize the SAIF and 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
provided  some of the  financing  to  resolve  the  thrift  crisis  in the 1980s
("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  in April 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, 2001, 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,  2001,  the Bank's  interest  rate risk was
considered "minimal" 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
five capital tiers: well capitalized, adequately capitalized,  undercapitalized,
significantly  undercapitalized,  and critically  undercapitalized.  At June 30,
2001,  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,  effective  in April 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").  On February 28, 2001, the Bank received
OTS approval to pay cash dividends of $2,012,575 to its parent  holding  company
during calendar year 2001. Of this amount, $1,862,575 was used by the Company to
repurchase and retire 338,650 shares of its common stock. The remaining  portion
of the cash dividend was  allocated for payment of corporate and  administrative
expenses.  Due to these capital  distributions,  the Bank's  retained net income
standard  at June 30,  2001 was zero.  A savings  association  must also file an
application for approval of a proposed  capital  distribution  if, following the
proposed  distribution,  the  association  would  not  be  at  least  adequately
capitalized  under  the OTS  prompt  corrective  action  regulations,  or if the
proposed  distribution  would violate a prohibition  contained in any applicable
statute,  regulation,  or agreement  between the  association and the OTS or the
FDIC.

     The 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.

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.

Liquidity

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

Safety and Soundness Standards

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

Real Estate Lending Standards

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

Loans to One Borrower

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

     The Bank's loans-to-one-borrower ("LTOB") limit has been reduced due to the
reduction  in its capital base during the year.  At June 30, 2001,  the Bank had
one loan that exceeded the LTOB limit at the time of origination and three loans
that  complied  with  the  LTOB  limit at the  time of  origination  and  became
"non-conforming"  due to the  reduction in the Bank's LTOB limit.  Regarding the
three non-conforming loans,  regulators have notified the Bank that no action is
required  by  management  to achieve  LTOB  compliance.  Management  is actively
exploring  available  remedies to bring the one loan originated in excess of the
LTOB limit into regulatory  compliance.  Management is confident that regulatory
compliance  can be achieved in a timely  manner.  The Bank does not believe that
the LTOB limits will have a  significant  impact on its business  operations  or
earnings. 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.

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,  2001,  the  Bank's  asset  composition  was in  excess of that
required  to  qualify  the Bank as a QTL.  Also,  the Bank  does not  expect  to
significantly  change its lending or  investment  activities in the near future.
The Bank expects to continue to qualify as a QTL,  although there can be no such
assurance.

Acquisitions or Dispositions and Branching

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

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

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

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

Community Reinvestment Act Matters

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

                                    TAXATION

Federal Taxation

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

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

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

State Taxation

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

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

Item 2.  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, 2001:
<TABLE>
<CAPTION>

                                                                        Net Book Value
                                                                         of Property,
                               Owned or      Year           Total         Furniture &       Approximate
Description and Address         Leased      Opened        Deposits         Fixtures       Square Footage
-----------------------       ----------    ------        --------      --------------    --------------
                                                           (Dollars in thousands)
<S>                             <C>          <C>           <C>              <C>               <C>
279 East Morgan Street          Owned        1987          $34,213          $1,040            11,300
Spencer, IN  47460
(including annex)

102 South Main Street           Owned        1998          $ 6,898          $  819             6,000
Cloverdale, IN 46120
</TABLE>

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

     As of June 30,  2001,  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 company GFS Holdings was subsequently  merged with
Aurum Technology  Inc., of Plano,  Texas, on January 16, 2001. The cost of these
data  processing  services  was  approximately  $11,000 per month for the twelve
months ended June 30, 2001.

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, 2001.

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 51) 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 42) 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 86) 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 Nasdaq Stock Market's  SmallCap Market under the symbol "HWEN." As
of August 20,  2001,  there were  approximately  260  registered  holders of the
Holding  Company's  Common Stock.  Management  estimates at least 275 additional
stockholders held shares in broker accounts on August 20, 2001.

     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        $4.500          $3.813              $0.013
      December 31, 1998          3.938           3.250               0.015
      March 31, 1999             4.000           3.500               0.015
      June 30, 1999              3.938           3.500               0.015
      September 30, 1999         4.000           3.438               0.015
      December 31, 1999          3.563           3.063               0.015
      March 31, 2000             3.375           2.531               0.015
      June 30, 2000              3.125           2.594               0.015
      September 30, 2000         3.625           2.500               0.020
      December 31, 2000          5.375           3.375               0.020
      March 31, 2001             7.000           3.250               0.020
      June 30, 2001              4.550           3.450               0.030

Stockholder Matters

     The book value of HFB Common Stock was $4.38 at June 30, 2001. On this same
date,  the price of HFB Common Stock was $3.99 per share,  representing  a 91.1%
price-to-book value ratio. For the year ended June 30, 2001, quarterly dividends
totaling $.09 per share were paid to shareholders.

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

     The Company  repurchased  and retired 355,750 shares of its Common Stock at
an average  cost of $5.37 per share  during  fiscal year 2001.  Of such  shares,
338,650  shares were  acquired  by the Company on March 7, 2001,  in a privately
negotiated transaction with two affiliated shareholders owning 19.9% of the then
outstanding shares.  Those two shareholders offered their entire position to the
Company.  As of June 30, 2001, the Company had purchased a total of 664,654,  or
32.8% of the total  number of Common  Stock  shares  originally  offered  to the
public.  Further,  on May 25, 2000, the Company  announced its third consecutive
repurchase  initiative to repurchase up to 5% of the  Corporation's  outstanding
shares on the date of the announcement,  adjusted for the stock split.  Pursuant
to this initiative,  the Company may initiate additional purchases, from time to
time, on the open market up to 86,000.  At June 30, 2001,  there were  1,359,050
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.

<PAGE>


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
                                              -------------------------------------------------------------
                                                 2001          2000          1999        1998        1997
                                              ----------    ----------    ---------   ---------   ---------
                                                                     (Dollars in thousands)
<S>                                            <C>           <C>           <C>         <C>         <C>
Summary of Financial Condition:
Total assets .............................     $ 68,792      $ 59,451      $53,136     $42,560     $42,508
Loans receivable, net ....................       54,244        45,341       38,238      33,959      34,117
Cash and cash equivalents ................        3,214         1,716        2,475       3,802       4,184
Securities available for sale ............        6,147         7,712        8,288       1,918       2,102
Deposits .................................       41,111        38,542       32,657      26,649      26,157
Federal Home Loan Bank advances
   and other borrowings ..................       21,300        13,500       13,200       8,200       9,000
Stockholders' equity .....................        5,946         7,182        7,123       7,506       7,197


                                                                      Year Ended  June 30
                                              -------------------------------------------------------------
                                                 2001          2000          1999        1998        1997
                                              ----------    ----------    ---------   ---------   ---------
                                                                     (Dollars in thousands)
Summary of Operating Results:
Interest and dividend income .............     $  5,764      $  4,773      $ 3,883     $ 3,690     $ 3,397
Interest expense .........................        3,210         2,577        2,032       1,812       1,703
                                               --------      --------      -------     -------     -------
   Net interest income ...................        2,554         2,196        1,851       1,878       1,694
Provision for loan losses ................           60            54           44         102          85
                                               --------      --------      -------     -------     -------
   Net interest income after provision for
          loan losses ....................        2,494         2,142        1,807       1,776       1,609
                                               --------      --------      -------     -------     -------
Other income:
   Service charges on deposit accounts ...          177           151           84          55          43
   Gain on sale of real estate acquired
        for development ..................           98            25            6           7          31
   Net realized gain on sales of available
       for sale securities ...............          107           (18)           3         141          37
   Loss on low-income housing investment .          (48)          (34)          --          --          --
   Other .................................           32            30           32          64          53
                                               --------      --------      -------     -------     -------
      Total other income .................          366           154          125         267         164
Other expenses:
   Salaries and employee benefits ........        1,116           924          819         723         521
   Net occupancy expense .................          177           145          110          85          71
   Equipment expense .....................          109           139          115          58          61
   Deposit insurance expense .............            8            13           17          16         165
   Computer processing expense ...........          225           185          152         120          95
   Printing and office supplies ..........           56            43           65          41          38
   Advertising ...........................           56            46           60          47          34
   Legal and professional fees ...........          185           137          105         123         172
   Directors and committee fees ..........           58            57           56          43          42
   Other .................................          271           204          190         188         169
                                               --------      --------      -------     -------     -------
        Total other expenses .............        2,261         1,893        1,689       1,444       1,368
                                               --------      --------      -------     -------     -------
Income before income tax .................          599           403          243         599         405
Income tax expense .......................          137            54           99         206         153
                                               --------      --------      -------     -------     -------
         Net income ......................     $    462      $    349      $   144     $   393     $   252
                                               ========      ========      =======     =======     =======
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                      Year Ended  June 30
                                                ---------------------------------------------------------------
                                                   2001         2000          1999         1998         1997
                                                ----------   ----------    ----------   ----------   ----------
                                                                     (Dollars in thousands)
<S>                                             <C>         <C>         <C>          <C>          <C>
Supplemental Data (1):
Basic earnings per share ..................     $     .31   $     .22   $      .09   $      .24   $     .14
Diluted earnings per share ................           .31         .22          .09          .24         .14
Book value per common share at end of year           4.38        4.19         4.02         4.04        3.83
Dividends per share .......................           .09         .06          .06          .05         .04
Dividend payout ratio .....................         29.03%      27.27%       66.67%       21.28%      29.63%
Return on assets (2) ......................          0.71        0.61         0.30          .93         .63
Return on equity (3) ......................          6.69        4.92         1.99         5.34        3.31
Interest rate spread (4) ..................          3.72        3.62         3.61         3.87        3.56
Net yield on interest-earning assets (5) ..          4.10        4.06         4.17         4.65        4.41
Other expenses to average assets ..........          3.48        3.30         3.52         3.42        3.40
Net interest income to other expenses .....          1.13x       1.16x       1.10x        1.30x        1.24x
Equity-to-assets (6) ......................          8.64%      12.08%       13.41%       17.66%      16.93%
Average equity to average total assets ....         10.63       12.37        15.08        17.42       18.90
Average interest-earning assets to average
   interest-bearing liabilities ...........          1.07x       1.09x        1.13x        1.17x       1.19x
Non-performing assets to total assets .....          1.60%        .72%         .16%        1.17%       1.76%
Non-performing loans to total loans .......          1.95         .86          .20          .81        1.65
Loan loss allowance to total loans, net ...           .72         .81          .88          .94         .68
Loan loss allowance to non-performing loans         36.77       94.18       425.32       114.70       41.10
Net charge-offs to average loans ..........           .08         .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, and a 2-for-1 stock split effective January 10,
     2001.
(2)  Net income divided by average total assets.
(3)  Net income divided by average total equity.
(4)  Interest rate spread is calculated by subtracting combined weighted average
     interest rate cost from combined  weighted average interest rate earned for
     the period indicated.
(5)  Net interest income divided by average interest-earning assets.
(6)  Total equity divided by total assets.


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

                                                                  Year Ended June 30,
                                      -------------------------------------------------------------------------------------
                                               2001                           2000                          1999
                                      --------------------------   --------------------------   ---------------------------
                                      Average             Yield/   Average             Yield/   Average             Yield/
                                      Balance Interest     Cost    Balance   Interest   Cost    Balance   Interest   Cost
                                      ------- --------    ------   -------   --------  ------   -------   --------  ------
                                                                (Dollars in thousands)
<S>                                   <C>       <C>         <C>    <C>       <C>         <C>    <C>       <C>         <C>
Assets:
Interest-earning assets:
   Interest-earning deposits ......   $ 2,206   $  109      4.94%  $ 2,580   $  157      6.09%  $ 3,242   $  157      4.84%
   Investment securities (1) ......     7,353      447      6.08     8,435      530      6.28     6,022      335      5.55
   Loans receivable (2) ...........    51,772    5,132      9.91    42,243    4,023      9.52    34,547    3,346      9.69
   Stock in FHLB of Indianapolis ..       949       76      8.01       787       63      8.01       562       45      8.01
                                      -------   ------             -------   ------             -------   ------
     Total interest-earning assets.    62,280   $5,764      9.25    54,045    4,773      8.83    44,373    3,883      8.75
                                                ------                       ------                       ------
Non-interest earning assets, net of
   allowance for loan losses and
   including unrealized gain (loss)
   on securities available for sale     2,710                        3,289                        3,676
                                      -------                      -------                      -------
     Total assets .................   $64,990                      $57,334                      $48,049
                                      =======                      =======                      =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
   Savings accounts ...............    $3,893      103      2.65%  $ 3,837      101      2.63% $  3,559       97      2.73%
   NOW accounts ...................     3,818       99      2.59     3,596       85      2.36     4,402      123      2.79
   Certificates of deposit ........    30,959    1,848      5.97    27,502    1,533      5.57    21,364    1,215      5.69
   FHLB advances and other borrowings  19,351    1,160      5.99    14,565      858      5.89    10,242      597      5.83
                                      -------   ------             -------   ------            --------   ------
     Total interest-bearing
        liabilities ...............    58,021    3,210      5.53    49,500    2,577      5.21    39,567    2,032      5.14
                                      -------   ------                       ------                       ------

Other liabilities .................        61                          743                        1,237
                                      -------                      -------                      -------
     Total liabilities ............    58,082                       50,243                       40,804
                                      -------                      -------                      -------
Stockholders' equity ..............     7,080                        7,423                        7,376
Net unrealized gain/(loss) on
   securities available for sale ..      (172)                        (332)                        (131)
                                      -------                      -------                      -------
     Total stockholders' equity ...     6,908                        7,091                        7,245
                                      -------                      -------                      -------
     Total liabilities and
         stockholders' equity .....   $64,990                      $57,334                      $48,049
                                      =======                      =======                      =======
Net interest-earning assets .......     4,259                      $ 4,545                      $ 4,806
                                      =======                     ========                      =======
Net interest income ...............             $2,554                       $2,196                      $1, 851
                                                ======                       ======                      =======
Interest rate spread ..............                         3.72                         3.62                         3.61
Net yield on weighted average
   interest-earning assets ........                         4.10                         4.06                         4.17
Average interest-earning assets to
   average interest-bearing
   liabilities ....................    107.34%                      109.18%                      112.97%
</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.

<PAGE>


     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

                                               At June 30,   Year Ended June 30,
                                                          ----------------------
                                                  2001    2001    2000    1999
                                                 ------  ------  ------  ------

Weighted average interest rate earned on:
   Interest-earning deposits ..................   3.34%   4.94%   6.09%   4.84%
   Investment securities ......................   6.34    6.08    6.28    5.55
   Loans receivable ...........................   9.75    9.91    9.52    9.69
   Stock in FHLB of Indianapolis ..............   7.75    8.01    8.01    8.01
     Total interest-earning assets ............   9.11    9.25    8.83    8.75

Weighted average interest rate cost of:
   Savings accounts ...........................   2.58    2.65    2.63    2.73
   NOW and money market accounts ..............   1.99    2.59    2.36    2.79
   Certificates of deposit ....................   5.64    5.97    5.57    5.69
   FHLB advances and other borrowings .........   5.70    5.99    5.92    5.83
     Total interest-bearing liabilities .......   5.17    5.53    5.21    5.14

Interest rate spread (1) ......................   3.94    3.72    3.62    3.61
Net yield on weighted average
   interest-earning assets (2) ................           4.10    4.06    4.17

---------------------
(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,
     2001, 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.

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

Year ended June 30, 2000 compared to
   Year ended June 30, 1999
--------------------------------------------------------------------------------
Interest-earning assets:
   Interest-earning deposits .........$ (36)      $  36       $     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
--------------------------------------------------------------------------------
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)
                                      =====       =====       =======


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

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

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

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

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

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

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

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

     In addition to deposits,  FHLB  advances  are an  important  source of both
short-term  and  long-term  funding  for the Bank.  The  level of FHLB  advances
increased $6,800,000 or 51.5% to $20,000,000 at June 30, 2001. Other borrowings,
primarily  for the  purpose  of  funding  purchases  of  real  estate  held  for
development,  also increased  during the year. Total borrowings were $21,300,000
at June 30, 2001, compared to $13,500,000 at June 30, 2000.

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

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

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

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

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

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

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

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

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

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

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

     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  unitary  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.
During fiscal year 2000,  BSF  purchased,  developed and began selling lots in a
27-lot  subdivision.  During fiscal year 2001 BSF purchased  over 250 acres that
will be developed  and sold for  commercial  and  residential  use. This renewed
development  activity led to an increase in income from BSF  operations  for the
year ended June 30, 2001,  compared to recent prior years.  Gains on the sale of
real estate for  development  totaled  $98,000 for the year ended June 30, 2001,
compared  to $25,000  the year ended June 30, 2000 and $6,000 for the year ended
June 30, 1999.

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

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

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 "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 $.22 for the year ended June 30,  2000 and $.09 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 reflected 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 year ended June 30,  2000,  which was
partially offset by a decline in the average yield earned,  compared to the same
period one year earlier.

     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 year ended  June 30,  2000,  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 year
ended June 30,  2000,  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 year ended June 30,  2000,  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%.

     Non-interest Income. Non-interest 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 non-interest  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 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.

     Non-interest Expense. Non-interest 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 earlier.

Impact of Inflation

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

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

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

Current Accounting Issues

     Accounting  for Business  Combination.  Statement  of Financial  Accounting
Standards  ("SFAS") No. 141 requires  that all business  combinations  should be
accounted for using the purchase method of accounting; use of the pooling method
is prohibited.  A business combination occurs when an enterprise acquires all or
a portion of the net assets that  constitutes  a business or equity  interest of
one or more  other  enterprises  and  obtains  control  over the  enterprise  or
enterprises.  All two-party and  multi-party  business  combinations,  including
"roll-up"  and  "put-together"  transactions  are  included in the scope of this
Statement.

     This Statement  requires that goodwill be initially  recognized as an asset
in the financial statement and measured as the excess of the cost of an acquired
entity over the net of the amount assigned to  identifiable  assets acquired and
liabilities  assumed. In addition,  SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.

     The  provisions  of  Statement  No.  141 are  effective  for  any  business
combination that is initiated after June 30, 2001.

     Accounting  for Goodwill.  Under the  provisions of SFAS No. 142,  goodwill
should not be amortized  but should be tested for  impairment  at the  reporting
unit level. Impairment test of goodwill should be done on an annual basis unless
events or circumstances  indicate impairment has occurred in the interim period.
The annual  impairment test can be performed at any time during the year as long
as the measurement date is used consistently from year to year.

     Impairment testing is a two-step process. The first step is a comparison of
the fair value of a reporting unit to its carrying amount including goodwill. If
the fair  value of the  reporting  unit is  greater  than  its  carrying  value,
goodwill is not  impaired  and no further  work is  required.  Companies  should
perform the first step of the impairment  test on all goodwill within six months
of initially applying the Statement.  If the fair value is less, the second step
should be performed. The second step is to compare the fair value of goodwill to
its  carrying  amount.  If the fair value of goodwill is less than its  carrying
value,  then  the  goodwill  is  deemed  impaired  and a  loss  recognized.  Any
impairment loss recognized as a result of completing the transitional impairment
test should be treated as a change in accounting principle and recognized in the
first interim period financial statements.

     The  provisions  of Statement  No. 142 would be effective  for fiscal years
beginning  after  December  15, 2001.  Early  adoption  would be  permitted  for
companies with a fiscal year beginning  after March 15, 2001,  provided that the
first quarter  financial  statements  have not been  previously  issued.  In all
cases,  the  Statement  must be adopted as of the  beginning  of a fiscal  year.
Goodwill and intangible assets acquired in a transaction complete after June 30,
2001, but before this  Statement is initially  applied would be accounted for in
accordance  with  the  amortization  and   nonamortization   provisions  of  the
Statement.  The useful economic life of previously  recognized intangible assets
should be reassessed upon adoption of the Statement,  and remaining amortization
periods  should be adjusted  accordingly.  Intangible  assets  deemed to have an
indefinite life would no longer be amortized.

     Since  the  Company  has no legacy  goodwill  and is not  currently  in the
process of acquiring another company, the adoption of SFAS 141 and 142 will have
no impact on the Company's financial statements.

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, 2001, MV would decrease 22.7% in the event
of a 200 basis point increase in market  interest  rates,  compared to 30.4% for
the same increase at June 30, 2000,  and 56.0% in the event of a 400 basis point
increase,  compared to 66.8% for the same increase at June 30, 2000.  The Bank's
MV at June 30,  2001,  would  decrease  10.7% in the event of a 200 basis  point
decrease in market rates,  compared to an 11.1%  increase at June 30, 2000.  The
Bank's MV at June 30,  2001,  would  decrease  14.3% in the event of a 400 basis
point  decrease in market rates.  A year earlier,  a 400 basis point decrease in
market rates would have increased MV 6.3%.

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

<PAGE>


     Presented below, as of June 30, 2001 and 2000, is an analysis of the Bank's
interest rate risk as measured by changes in MV for  instantaneous and sustained
parallel shifts of 200 and 400 basis point increments in market interest rates.

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

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

          Interest Rate Risk Measures:   200 Basis Point Rate Shock
       Pre-Shock MV Ratio: MV as % of PV of Assets ................ 8.65%
       Exposure Measure: Post-Shock MV Ratio ...................... 6.97%
       Sensitivity Measure: Change in MV Ratio .................... 168 bp



                                  June 30, 2000
                        Market Value Summary Performance
                                                                MV as % of
                                                            Present Value (PV)
                           Market Value                          of Assets
  Change       -------------------------------------      ----------------------
 In Rates      $ Amount     $ Change        % Change      MV Ratio     Change
 --------      --------     --------        --------      --------     ------
               (Dollars in thousands)
+400 bp         $2,067       $(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 ...................  283bp

--------
* 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-KSB
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 5 of the Company's Proxy Statement
for  its  2001  Shareholder   Annual  Meeting  (the  "2001  Proxy   Statement").
Information  concerning the Holding Company's  executive officers is included in
Item  4.5 in Part I of  this  report.  Information  concerning  compliance  with
Section 16(a) of the Exchange Act is  incorporated by reference to page 9 of the
2001 Proxy Statement.

Item 11. Executive Compensation.

     The   information   required  by  this  item  with   respect  to  executive
compensation is incorporated by reference to pages 6 through 7 of the 2001 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 2001 Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

     The information  required by this item is incorporated by reference to page
7 of the 2001 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  separate  section of this
Annual Report on Form 10-KSB beginning on the pages referenced below:

       Financial Statements                                             Page No.
       --------------------                                             --------
       Independent Auditor's Report                                       F-2
       Consolidated Statement of Financial Condition
                at June 30, 2001, and 2000                                F-3
       Consolidated Statement of Income for the Years Ended
                June 30, 2001, 2000 and 1999                              F-4
       Consolidated Statement of Stockholders' Equity
                for the Years Ended June 30, 2001, 2000 and 1999          F-5
       Consolidated Statement of Cash Flows for the Years Ended
                June 30, 2001, 2000 and 1999                              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, 2001.

   (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:  September 7, 2001           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 7th day of September,
2001.

/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

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


<PAGE>

                      Home Financial Bancorp and Subsidiary
                               Table of Contents
                                                                           Page
--------------------------------------------------------------------------------
Independent Accountants' Report                                            F-2
Financial Statements
         Consolidated statement of financial condition                     F-3
         Consolidated statement of income                                  F-4
         Consolidated statement of stockholders' equity                    F-5
         Consolidated statement of cash flows                              F-6
     Notes to consolidated financial statements                            F-7

<PAGE>

                        Independent Accountants' Report

Board of Directors
Home Financial Bancorp
Spencer, Indiana

We have audited the accompanying  consolidated  statement of financial condition
of Home  Financial  Bancorp and subsidiary as of June 30, 2001 and 2000, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for  each  of  the  three  years  in the  period  ended  June  30,  2001.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion,  the consolidated  financial  statements described above present
fairly, in all material  respects,  the consolidated  financial position of Home
Financial  Bancorp and  subsidiary as of June 30, 2001 and 2000, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 2001, in conformity with accounting  principles  generally
accepted in the United States of America.

BKD, LLP

Indianapolis, Indiana
July 30, 2001


                                      F-2
<PAGE>

                     Home Financial Bancorp and Subsidiary
                 Consolidated Statement of Financial Condition
June 30                                               2001                2000
-------------------------------------------------------------------------------
Assets
  Cash .......................................   $    503,109      $    500,970
  Short-term interest-bearing deposits .......      2,711,297         1,214,840
                                                 ------------------------------
    Total cash and cash equivalents ..........      3,214,406         1,715,810
  Investment securities available for sale ...      6,147,494         7,712,073
  Loans, net of allowance for loan losses of
    $392,268 and $371,793 ....................     54,244,477        45,340,588
  Real estate acquired for development .......        757,766           440,020
  Premises and equipment .....................      1,859,558         1,920,452
  Federal Home Loan Bank of Indianapolis stock      1,100,000           835,000
  Interest receivable ........................        377,634           337,267
  Other assets ...............................      1,090,261         1,149,487
                                                 ------------------------------
    Total assets .............................   $ 68,791,596      $ 59,450,697
                                                 ==============================
Liabilities
  Deposits
    Noninterest-bearing ......................   $    966,636      $    663,747
    Interest-bearing deposits ................     40,143,923        37,877,763
                                                 ------------------------------
      Total deposits .........................     41,110,559        38,541,510
  Borrowings .................................     21,300,038        13,500,000
  Other liabilities ..........................        434,761           226,713
                                                 ------------------------------
    Total liabilities ........................     62,845,358        52,268,223
                                                 ------------------------------
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 - 1,359,050 and 1,714,800 shares ..      3,066,659         3,956,034
  Additional paid-in capital .................        127,623            99,698
  Retained earnings ..........................      3,146,094         3,828,322
  Unearned compensation ......................        (90,711)         (137,381)
  Unearned ESOP shares .......................       (172,151)         (213,854)
  Accumulated other comprehensive loss .......       (131,276)         (350,345)
                                                 ------------------------------
    Total stockholders' equity ...............      5,946,238         7,182,474
                                                 ------------------------------
    Total liabilities and stockholders' equity   $ 68,791,596      $ 59,450,697
                                                 ==============================

See notes to consolidated financial statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                     Home Financial Bancorp and Subsidiary
                        Consolidated Statement of Income
Year Ended June 30                                             2001              2000              1999
---------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>              <C>
Interest Income
  Loans .................................................   $ 5,131,709      $ 4,023,634      $ 3,346,281
  Deposits with financial institutions ..................       109,122          157,035          156,845
  Investment securities .................................       447,129          529,895          334,463
  Federal Home Loan Bank stock ..........................        76,150           62,816           44,994
                                                            ---------------------------------------------
    Total interest and dividend income ..................     5,764,110        4,773,380        3,882,583
                                                            ---------------------------------------------
Interest Expense
  Deposits ..............................................     2,050,056        1,719,769        1,434,612
  Federal Home Loan Bank advances .......................     1,014,160          837,573          596,927
  Other interest expense ................................       145,831           20,514
                                                            ---------------------------------------------
    Total interest expense ..............................     3,210,047        2,577,856        2,031,539
                                                            ---------------------------------------------

Net Interest Income .....................................     2,554,063        2,195,524        1,851,044
  Provision for loan losses .............................        60,000           54,000           44,000
                                                            ---------------------------------------------
Net Interest Income After Provision for Loan Losses .....     2,494,063        2,141,524        1,807,044
                                                            ---------------------------------------------
Other Income
  Service charges on deposit accounts ...................       177,345          150,875           84,148
  Gain on sale of real estate acquired for development ..         8,040           24,908            5,973
  Net realized gain (loss) on sales of available-for-sale
    securities ..........................................       107,310          (17,700)           3,325
  Equity in losses of limited partnerships ..............       (48,000)         (33,613)
  Other income ..........................................        31,178           30,280           31,963
                                                            ---------------------------------------------
    Total other income ..................................       365,873          154,750          125,409
                                                            ---------------------------------------------
Other Expenses
 Salaries and employee benefits .........................     1,116,354          923,628          819,296
 Net occupancy expenses .................................       177,455          145,003          110,326
 Equipment expenses .....................................       109,304          139,202          115,268
 Computer processing fees ...............................       224,573          185,279          151,936
 Printing and office supplies ...........................        55,895           43,340           64,670
 Legal and professional fees ............................       185,201          136,554          104,660
 Director and committee fees ............................        58,000           57,000           56,450
 Advertising expense ....................................        56,226           45,707           60,403
 Other expenses .........................................       278,083          217,394          206,107
                                                            ---------------------------------------------
    Total other expenses ................................     2,261,091        1,893,107        1,689,116
                                                            ---------------------------------------------
Income Before Income Tax ................................       598,845          403,167          243,337
  Income tax expense ....................................       136,549           54,124           99,603
                                                            ---------------------------------------------
Net Income ..............................................   $   462,296      $   349,043      $   143,734
                                                            =============================================

Net Income Per Share
  Basic .................................................   $       .31      $       .22      $       .09
  Diluted ...............................................           .31              .22              .09
</TABLE>


See notes to consolidated financial statements.


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

                                                Home Financial Bancorp and Subsidiary
                                           Consolidated Statement of Stockholders' Equity

                                                                                                             Accumulated
                                                                                                                Other
                                Common Stock      Additional Comprehensive                        Unearned   Comprehensive
                              -----------------    Paid-in     Income     Retained    Unearned      ESOP        Income
                              Shares      Amount    Capital    (Loss)     Earnings  Compensation   Shares      (Loss)       Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>         <C>      <c>         <C>         <C>         <C>         <C>         <C>
Balances, July 1, 1998 ...... 1,858,104  $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 ($.058 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 .........   (85,704)   (214,260)                       (125,407)                                       (339,667)
  Tax benefit on RRP shares .                          6,622                                                                  6,622
                              ------------------------------             ----------------------------------------------------------
Balances, June 30, 1999 ..... 1,772,400   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 ......                                 $238,237
                                                              ========
  Cash dividends ($.06 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 .........   (57,600)   (144,000)                        (38,976)                                       (182,976)
  Tax expense on RRP shares .                         (1,444)                                                                (1,444)
                              ------------------------------             ----------------------------------------------------------

Balances, June 30, 2000 ..... 1,714,800   3,956,034   99,698              3,828,322   (137,381)   (213,854)   (350,345)   7,182,474
  Comprehensive income
    Net income ..............                                 $462,296      462,296                                         462,296
    Other comprehensive income,
      net of tax
        Unrealized gain on
        securities, net of
        reclassification
        adjustment ..........                                  219,069                                         219,069      219,069
                                                               -------
  Comprehensive income ......                                 $681,365
                                                              ========
  Cash dividends ($.09 per share)                                          (121,872)                                       (121,872)
  ESOP shares earned ........                         17,343                                        41,703                   59,046
  RRP shares earned                                                                     46,670                               46,670
  Purchase of stock .........  (355,750)   (889,375)                     (1,022,652)                                     (1,912,027)
  Tax benefit on RRP shares .                         10,582                                                                 10,582
                              ------------------------------             ----------------------------------------------------------
Balances, June 30, 2001 ..... 1,359,050  $3,066,659 $127,623             $3,146,094  $ (90,711)  $(172,151)  $(131,276)  $5,946,238
                              ==============================             ==========================================================
</TABLE>

See notes to consolidated financial statements.



                                      F-5

<PAGE>
<TABLE>
<CAPTION>
                     Home Financial Bancorp and Subsidiary
                      Consolidated Statement of Cash Flows
Year Ended June 30                                                    2001              2000              1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>               <C>
Operating Activities
  Net income ...............................................     $    462,296      $    349,043      $    143,734
  Adjustments to reconcile net income to net cash provided
    by operating activities
    Provision for loan losses ..............................           60,000            54,000            44,000
    Investment securities amortization, net ................           25,173            11,902            46,163
    ESOP shares earned .....................................           59,046            56,529            70,120
    RRP shares earned ......................................           46,670            44,075            46,713
    Depreciation ...........................................          158,369           196,664           149,874
    Deferred income tax benefit ............................                8           (35,700)           (4,336)
    Gain on sale of real estate acquired for development ...          (98,040)          (24,908)           (5,973)
    Gain on sale of foreclosed assets ......................          (12,979)           (5,560)          (37,466)
    Investment securities (gains) losses ...................         (107,310)           17,700            (3,325)
    Losses from limited partnerships .......................           48,000            33,613
    Net change in interest receivable ......................          (40,367)          (19,026)          (54,382)
    Other adjustments ......................................           73,955           176,481          (197,688)
                                                                 ------------------------------------------------
      Net cash provided by operating activities ............          674,821           854,813           197,434
                                                                 ------------------------------------------------

Investing Activities
  Purchases of securities available for sale ...............       (1,781,964)         (824,860)       (8,658,915)
  Proceeds from sales of securities available for sale .....        2,718,943            76,909           568,350
  Proceeds from maturities and paydowns of securities
    available for sale .....................................        1,072,495         1,110,819         1,320,049
  Net changes in loans .....................................       (9,137,989)       (7,246,088)       (4,090,925)
  Improvements to foreclosed assets ........................                             (5,121)
  Proceeds from sale of foreclosed assets ..................          377,602            71,318            13,000
  Purchase of premises and equipment .......................          (97,475)         (132,274)         (447,361)
  Purchase of real estate acquired for development and
    development cost .......................................         (631,074)         (451,678)
  Proceeds from sale of real estate acquired for development          218,164            57,000             6,298
  Purchase of FHLB of Indianapolis stock ...................         (265,000)         (175,000)         (160,000)
  Other investing activities ...............................                                             (650,000)
                                                                 ------------------------------------------------
     Net cash used by investing activities .................       (7,526,298)       (7,518,975)      (12,099,504)
                                                                 ------------------------------------------------

Financing Activities
  Net change in
    NOW and savings deposits ...............................        1,605,006        (1,335,449)        1,199,675
    Certificates of deposit ................................          964,043         7,219,526         4,809,148
    Short-term borrowings ..................................        1,000,038           300,000
  Proceeds from other borrowings ...........................       29,500,000        15,000,000         7,000,000
  Repayment of other borrowings ............................      (22,700,000)      (15,000,000)       (2,000,000)
  Purchase of stock ........................................       (1,912,027)         (182,976)         (339,667)
  Dividends paid ...........................................         (106,987)          (95,932)          (94,386)
                                                                 ------------------------------------------------
     Net cash provided by financing activities .............        8,350,073         5,905,169        10,574,770
                                                                 ------------------------------------------------

Net Change in Cash and Cash Equivalents ....................        1,498,596          (758,993)       (1,327,300)

Cash and Cash Equivalents, Beginning of Year ...............        1,715,810         2,474,803         3,802,103
                                                                 ------------------------------------------------

Cash and Cash Equivalents, End of Year .....................     $  3,214,406      $  1,715,810      $  2,474,803
                                                                 ================================================

Additional Cash Flows and Supplementary Information
  Interest paid ............................................     $  3,148,243      $  2,570,356      $  2,021,539
  Income tax paid ..........................................          103,809            41,916           211,053
  Transfers from loans to foreclosed assets ................          367,305            89,183           231,628
</TABLE>

See notes to consolidated financial statements.


                                      F-6
<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  accounting  principles
generally  accepted  in the United  States of America  and  reporting  practices
followed  by the thrift  industry.  The more  significant  of the  policies  are
described below.

The preparation of financial  statements in conformity  with 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.

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,  2001,  the  allowance  for loan  losses is  adequate  based on  information
currently  available.  A worsening or  protracted  economic  decline in the area
within which the Bank  operates  would  increase the  likelihood  of  additional
losses due to credit and market risks and could  create the need for  additional
loss reserves.

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

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

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

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

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

Income tax in the consolidated  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  2000  consolidated   financial
statements have been made to conform to the 2001 presentation.
<PAGE>

Note 2 -- Investment Securities
                                                            2001
                                ------------------------------------------------
                                                   Gross       Gross
                                      Amortized  Unrealized  Unrealized   Fair
June 30                                 Cost       Gains       Losses     Value
--------------------------------------------------------------------------------
Available for sale
  Marketable equity securities ...     $  701     $    7     $ (143)     $  565
  Mortgage-backed securities .....      5,663          4        (85)      5,582
                                       ----------------------------------------

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

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

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

Securities  with a carrying value of $5,582,000  and $7,247,000  were pledged at
June 30, 2001 and 2000 to secure FHLB advances.

Proceeds from sales of securities  available for sale during 2001, 2000 and 1999
were  $2,719,000,  $77,000 and $569,000.  Gross gains of $271,000 and $12,000 in
2001 and 1999 and gross losses of $164,000, $18,000 and $9,000 in 2001, 2000 and
1999  were  realized  on the  sales.  The tax  expense  (benefit)  for net gains
(losses) on security  transactions for June 30, 2001, 2000 and 1999 was $42,000,
$(7,000) and $1,000, respectively.

Note 3 -- Loans and Allowance

June 30                                              2001                 2000
--------------------------------------------------------------------------------
Real estate mortgage loans
  Residential ............................          $ 27,082           $ 23,494
  Mobile home and land ...................             7,230              6,584
  Nonresidential .........................            13,758             11,926
  Multi-family ...........................               528              1,017
Mobile home loans ........................             3,172              1,322
Commercial and industrial ................               485                264
Consumer loans ...........................             2,725              1,674
                                                    ---------------------------
                                                      54,980             46,281
                                                    ---------------------------
Undisbursed portion of loans .............              (347)              (571)
Deferred loan costs ......................                 3                  3
Allowance for loan losses ................              (392)              (372)
                                                    ---------------------------
                                                        (736)              (940)
                                                    ---------------------------
    Total loans ..........................          $ 54,244           $ 45,341
                                                    ===========================

<PAGE>


Year Ended June 30                               2001         2000         1999
--------------------------------------------------------------------------------
Allowance for loan losses
   Balances, July 1 .....................       $ 372        $ 336        $ 320
   Provision for loan losses ............          60           54           44
   Loans charged off ....................         (40)         (18)         (28)
                                                -------------------------------
   Balances, June 30 ....................       $ 392        $ 372        $ 336
                                                ===============================

Note 4 -- Premises and Equipment

June 30                                                2001               2000
--------------------------------------------------------------------------------
Land .....................................           $   341            $   327
Buildings ................................             1,968              1,931
Equipment ................................               818                771
                                                     --------------------------
   Total cost ............................             3,127              3,029
Accumulated depreciation .................            (1,267)            (1,109)
                                                     --------------------------
   Net ...................................           $ 1,860            $ 1,920
                                                     ==========================

Note 5 -- Investment in Limited Partnership

The investment in limited  partnership of $614,000 and $662,000 at June 30, 2001
and 2000  included  in other  assets  represents  a 99  percent  equity in Cunot
Apartments (Cunot) a limited  partnership  organized to build, own and operate a
24-unit apartment complex for senior living. In addition to recording its equity
in the losses of Cunot,  the  Company  has  recorded  the  benefit of low income
housing  tax  credits of  $107,000  for the years  ended June 30, 2001 and 2000.
Condensed financial statements for Cunot are as follows:

June 30                                                     2001         2000
-------------------------------------------------------------------------------
Condensed statement of financial condition
  Assets
    Cash .............................................     $   62       $   30
    Land and property ................................      1,390        1,441
    Other assets .....................................          8           11
                                                           -------------------
      Total assets ...................................     $1,460       $1,482
                                                           ===================
  Liabilities
    Notes payable ....................................     $  610       $  610
    Other liabilities ................................        222          214
                                                           -------------------
      Total liabilities ..............................        832          824

Partners' equity .....................................        628          658
                                                           -------------------
      Total liabilities and partners' equity .........     $1,460       $1,482
                                                           ===================


Year Ended June 30                       2001             2000             1999
--------------------------------------------------------------------------------

Condensed statement of operations
Total revenue ...............           $  57            $  56            $   3
Total expenses ..............            (104)             (77)             (23)
                                        ---------------------------------------

  Net loss ..................           $ (47)           $ (21)           $ (20)
                                        =======================================
<PAGE>

Note 6 -- Deposits

June 30                                                2001             2000
--------------------------------------------------------------------------------
Noninterest-bearing demand ...................       $   967          $   664
Interest-bearing demand ......................         3,331            2,981
Money market deposits ........................           935              287
Savings ......................................         3,827            3,523
Certificates of $100,000 or more .............        11,293            9,616
Other certificates ...........................        20,758           21,471
                                                     ------------------------

         Total deposits ......................       $41,111          $38,542
                                                     ========================

Certificates maturing in years ending June 30:
2002 .........................................       $24,085
2003 .........................................         4,914
2004 .........................................         2,024
2005 .........................................           705
2006 .........................................           323
                                                     -------
                                                     $32,051
                                                     =======

Note 7 -- Borrowings

June 30                                                    2001            2000
--------------------------------------------------------------------------------
Federal Home Loan Bank advances ................         $20,000         $13,200
Line of credit .................................             691             300
Loans sold under repurchase agreements .........             609
                                                         -----------------------

  Total ........................................         $21,300         $13,500
                                                         =======================


                                                2001                2000
                                          --------------------------------------
                                                    Weighted            Weighted
                                                    Average             Average
June 30                                    Amount     Rate    Amount      Rate
--------------------------------------------------------------------------------
FHLB advances maturities in years ending

   2001 ..............................                       $  6,000     6.51%
   2002 ..............................    $ 6,500     5.31%     5,000     5.17
   2003 ..............................      7,000     5.44      2,000     5.85
   2004 ..............................      5,500     5.37
   2005 ..............................      1,000     5.45
   2006 ..............................                            200     6.86
                                          -------            --------
                                          $20,000     5.38%  $ 13,200     5.91%
                                          =======            ========


The Federal Home Loan Bank advances are secured by mortgage loans and investment
securities totaling $37,772,000.

On March 15,  2001,  BSF  obtained a line of credit for  $700,000  from  another
financial institution.  The line of credit matures on March 15, 2002 and carries
an interest rate of .50% above prime. At June 30, 2001, the outstanding  balance
was $691,000 and was guaranteed by the Bank.

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

The Company has a $300,000  line of credit with another  financial  institution.
The line which  matures  March 15, 2002,  bears  interest at .50% above the Wall
Street Journal Prime Rate and is secured by a guaranty by corporation  signed by
the Bank. At June 30, 2001, there were no borrowings against the line.

Note 8 -- Income Tax

Year Ended June 30                             2001          2000          1999
--------------------------------------------------------------------------------
Income tax expense
  Currently payable
    Federal ..........................        $  86         $  47         $  82
    State ............................           51            43            22
  Deferred
    Federal ..........................           (3)          (30)           (6)
    State ............................            3            (6)            2
                                              ---------------------------------

      Total income tax expense .......        $ 137         $  54         $ 100
                                              =================================


Year Ended June 30                             2001          2000          1999
--------------------------------------------------------------------------------

Reconciliation of federal statutory to
  actual tax expense
Federal statutory income tax at 34% ........  $ 204         $ 137         $  83
Effect of state income taxes ...............     36            24            16
Business tax credits .......................   (107)         (107)
Tax-exempt dividends and interest ..........     (3)           (4)           (5)
Other ......................................      7             4             6
                                              ---------------------------------

  Actual tax expense .......................  $ 137         $  54         $ 100
                                              =================================

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

June 30                                                   2001             2000
--------------------------------------------------------------------------------
Assets
  Allowance for loan losses ..................           $ 150            $ 139
  Deferred compensation ......................              28               25
  Securities available for sale ..............              86              129
  Other ......................................                               12
                                                         ----------------------
    Total assets .............................             264              305
                                                         ----------------------

Liabilities
  Depreciation ...............................             (20)             (16)
  State income tax ...........................             (11)             (12)
  Loan fees ..................................                               (2)
  Other ......................................              (1)
                                                         ----------------------
    Total liabilities ........................             (32)             (30)
                                                         ----------------------
                                                         $ 232            $ 275
                                                         ======================


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

Retained earnings at June 30, 2001, 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, 2001.

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

                                                                      2001
                                                        --------------------------------
                                                        Before-Tax     Tax    Net-of-Tax
Year Ended June 30                                        Amount     Expense    Amount
----------------------------------------------------------------------------------------
<S>                                                        <C>       <C>        <C>
Unrealized gains on securities
  Unrealized holding gains arising during the year ...     $ 470     $(186)     $ 284
  Less: reclassification adjustment for gains realized
    in net income ....................................       107       (42)        65
                                                           --------------------------

  Other comprehensive income .........................     $ 363     $(144)     $ 219
                                                           ==========================

                                                                      2000
                                                        --------------------------------
                                                        Before-Tax     Tax    Net-of-Tax
Year Ended June 30                                        Amount     Expense    Amount
----------------------------------------------------------------------------------------
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     Expense    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)
                                                           ==========================
</TABLE>


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.

<PAGE>

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

                                                      2001             2000
-----------------------------------------------------------------------------
Commitments to extend credit .................       $3,076           $2,729
Unused lines of credit .......................          458              332
Standby letters of credit ....................          212              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.

Note 11 -- Stockholders' Equity

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

The Company's Board of Directors has approved the repurchase of up to 15 percent
of the Company's outstanding shares of common stock. Such purchases will be made
subject to market conditions in open market or block transactions.  In addition,
during the year ended June 30, 2001, the Company's  Board of Directors  approved
the  acquisition  of  338,650  shares  of  the  Company's  common  stock  in  an
unsolicited  privately negotiated  transaction.  During the years ended June 30,
2001, 2000 and 1999, the Company repurchased  355,750,  57,600 and 85,704 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,  2001,  total  stockholder's  equity  of the  Bank  was  $5,180,000.
Although well  capitalized,  under current  regulations  in effect,  the Bank is
required to apply to the Office of Thrift  Supervision  to pay  dividends to the
Company.

Note 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, 2001 and 2000, the
Bank is categorized as well  capitalized  and met all subject  capital  adequacy
requirements.  There  are no  conditions  or  events  since  June 30,  2001 that
management believes has changed the Bank's classification.

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

                                                                             2001
                                          -----------------------------------------------------------------------
                                                                            Required                 Required
                                                                          for Adequate              To Be Well
                                                   Actual                  Capital (1)            Capitalized (1)
                                          -----------------------------------------------------------------------
June 30                                      Amount       Ratio        Amount     Ratio        Amount      Ratio
-----------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>         <C>         <C>         <C>
Total risk-based capital (1) (to risk
   weighted assets) ....................     $5,248       12.1%        $3,462      8.0%        $4,328      10.0%
Tier I capital (1) (to risk weighted
   assets) .............................      4,856       11.2          1,731      4.0          2,597       6.0
Core capital (1) (to adjusted total
   assets) .............................      4,856        7.2          2,684      4.0          3,355       5.0
Core capital (1) (to adjusted tangible
   assets) .............................      4,856        7.2          1,342      2.0            N/A       N/A
Tangible capital (1) (to adjusted total
   assets) .............................      4,856        7.2          1,007      1.5            N/A       N/A


                                                                             2000
                                          -----------------------------------------------------------------------
                                                                            Required                 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)                          $6,752       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

</TABLE>

---------------------
(1)  As defined by the regulatory agencies


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 $31,600,  $25,200 and $11,900
for the years ended June 30,  2001,  2000 and 1999.  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  $14,400,  $14,700 and $8,900 for the years
ended June 30, 2001, 2000 and 1999.

The Company has an ESOP covering  substantially  all employees of the Bank.  The
ESOP acquired  161,896  shares of the Company's  common stock at $2.50 per share
with funds provided by a loan from the Company. Accordingly, the unearned common
stock  acquired by the ESOP is shown as a  reduction  of  stockholders'  equity.
Shares  are  released  to  participants  proportionately  as the loan is repaid.
Dividends on allocated  shares are recorded as dividends and charged to retained
earnings.  Dividends  on  unallocated  shares,  which  will  be  distributed  to
participants,  are  treated as  compensation  expense.  Compensation  expense is
recorded equal to the fair market value of the stock when  contributions,  which
are  determined  annually by the Board of Directors of the Bank, are made to the
ESOP. The expense under the ESOP was $59,000,  $57,000 and $70,000 for the years
ended June 30,  2001,  2000 and 1999.  At June 30,  2001 and 2000,  the ESOP had
84,463 and 67,310 allocated shares; 69,327 and 86,010 suspense shares; and 8,106
and 8,576  committed-to-be  released shares. The fair value of the unearned ESOP
shares at June 30, 2001 and 2000 was $267,000 and $245,000.

The Company has a Recognition  and Retention  Plan and Trust (RRP).  The RRP may
acquire  up to  80,948  shares  of the  Company's  common  stock  for  awards to
management.  Shares  awarded  to  management  under the RRP vest at a rate of 20
percent  at the end of each full 12 months of  service  with the Bank  after the
date of grant.  As of June 30,  2001,  65,820  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 $47,000, $44,000 and $47,000 for the years ended June 30, 2001, 2000 and
1999.

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, 2000 ...............................................    $319
   New loans, including renewals ......................................     183
   Payments, etc. including renewals ..................................    (122)
                                                                           ----

Balances, June 30, 2001 ...............................................    $380
                                                                           ====

Deposits from related parties held by the Bank at June 30, 2001 and 2000 totaled
$914,000 and $657,000.

Note 16 -- Stock Option Plan

On October 14, 1997, the  stockholders  approved a stock option plan,  reserving
202,368  shares  of  Company  stock  for the  granting  of  options  to  certain
directors,  officers and other key employees of the Company and its  subsidiary.
The plan is accounted for in accordance with Accounting Principles Board Opinion
(APB)  No.  25,   Accounting   for  Stock  Issued  to  Employees,   and  related
interpretations.

Since the plan's adoption,  incentive stock options for 110,000 shares of common
stock have been granted  with ten year terms that expire  October 13, 2007 and a
exercise price of $4.25 per share.  These options became  exercisable in full on
April 14, 1998. In addition,  non-qualified  options for 30,000 and 3,000 shares
have been  granted  with ten year terms that expire  October 14, 2007 and August
25,  2008 with an  exercise  price of $4.25 and $4.13 per  share,  respectively.
These options were  exercisable in full on April 14, 1998 and February 25, 1999.
The exercise price of each option was equal to the market price of the Company's
stock on the date of grant; therefore, no compensation expense was recognized.

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

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


                                                                           1999
--------------------------------------------------------------------------------
Net income                                                 As reported     $144
                                                             Pro forma      140
Basic earnings per share                                   As reported      .09
                                                             Pro forma      .09
Diluted earnings per share                                 As reported      .09
                                                             Pro forma      .09


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, 2001, 2000 and 1999:
<TABLE>
<CAPTION>

Year Ended June 30                                  2001                     2000                    1999
------------------------------------------------------------------------------------------------------------------

                                                        Weighted-                Weighted-               Weighted-
                                                         Average                  Average                 Average
                                                        Exercise                 Exercise                Exercise
                                             Shares       Price       Shares       Price      Shares       Price
------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>         <C>         <C>         <C>          <C>
Outstanding, beginning of year ........     115,800       $4.24       138,600     $4.25       140,000      $4.25
Granted ...............................                                                         3,000       4.13
Forfeited .............................                               (22,800)     4.25        (4,400)      4.25
                                            -------                   -------                 -------

Outstanding and exercisable, end
  of year .............................     115,800        4.24       115,800      4.24       138,600       4.25
                                            =======                   =======                 =======

Weighted-average fair value of
  options granted during the year .....                                                                    $1.11
</TABLE>


As of June 30, 2001, 112,800 options outstanding have an exercise price of $4.25
and a remaining  contractual life of seven years, and 3,000 options  outstanding
have an  exercise  prices of $4.13  and a  remaining  contractual  life of eight
years. There were 86,568 shares available for the grant at June 30, 2001.

Note 17 -- Earnings Per Share

Earnings per share were computed as follows:

                                                     Year Ended June 30, 2001
                                                --------------------------------
                                                            Weighted-      Per-
                                                  Net        Average      Share
                                                Income       Shares       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Share
  Income available to common stockholders ...      $462     1,473,810     $ .31

Effect of Dilutive Securities
  Stock options and awards ..................                   4,109
                                                   ------------------
Diluted Earnings Per Share
  Income available to common stockholders and
    assumed conversions .....................      $462     1,477,919     $ .31
                                                   ============================


                                                     Year Ended June 30, 2000
                                                --------------------------------
                                                            Weighted-      Per-
                                                  Net        Average      Share
                                                Income       Shares       Amount
--------------------------------------------------------------------------------
Basis Earnings Per Share
  Income available to common stockholders ...      $349     1,600,022      $.22

Effect of Dilutive Securities
  Stock options and awards ..................                     196
                                                   ------------------
Diluted Earnings Per Share
  Income available to common stockholders and
    assumed conversions .....................      $349     1,600,218      $.22
                                                   ============================


                                                     Year Ended June 30, 1999
                                                --------------------------------
                                                            Weighted-      Per-
                                                  Net        Average      Share
                                                Income       Shares       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Share
  Income available to common stockholders ...      $144     1,629,606      $.09

Effect of Dilutive Securities
  Stock options and awards ..................                   1,262
                                                   ------------------

Diluted Earnings Per Share
  Income available to common stockholders and
    assumed conversions .....................      $144     1,630,868      $.09
                                                   =============================

<PAGE>

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.

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

                                                                2001                               2000
-----------------------------------------------------------------------------------------------------------------

                                                     Carrying           Fair            Carrying           Fair
June 30                                               Amount            Value            Amount            Value
-----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>              <C>               <C>
Assets
   Cash and cash equivalents ................         $3,214            $3,214           $1,716            $1,716
   Securities available for sale ............          6,147             6,147            7,712             7,712
   Loans, net ...............................         54,244            55,180           45,341            45,282
   Stock in FHLB ............................          1,100             1,100              835               835
   Interest receivable ......................            378               378              337               337

Liabilities
   Deposits .................................         41,111            41,341           38,542            38,494
   Borrowings ...............................         21,300            21,420           13,500            13,331

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

<PAGE>

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                                                       2001         2000
--------------------------------------------------------------------------------
Assets
  Cash and cash equivalents ..........................       $   94       $   56
  Securities available for sale ......................          565          465
  Premises and equipment .............................            8           11
  Investment in subsidiary ...........................        5,180        6,498
  Other assets .......................................          132          206
                                                             -------------------
    Total assets .....................................       $5,979       $7,236
                                                             ===================

Liabilities--other ...................................       $   33       $   54

Stockholders' Equity .................................        5,946        7,182
                                                             -------------------

     Total liabilities and stockholders' equity ......       $5,979       $7,236
                                                             ===================
<TABLE>
<CAPTION>
                          Condensed Statement of Income

Year Ended June 30                                             2001         2000         1999
----------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>          <C>
Income
   Interest income .....................................     $    34      $    42      $    48
   Dividends from subsidiary ...........................       2,013          125          100
   Net realized gains (losses) on sales of available for
   sale securities .....................................         115          (18)           4
                                                             ---------------------------------
     Total income ......................................       2,162          149          152
                                                             ---------------------------------

Expenses
   Salaries and employee benefits ......................          33           26           39
   Legal and professional fees .........................          63           66           38
   Other expenses ......................................          91           36           40
                                                             ---------------------------------
     Total expenses ....................................         187          128          117
                                                             ---------------------------------

Income before income tax benefit and equity in
   undistributed income of subsidiary ..................       1,975           21           35
Income tax benefit (expense) ...........................          11          (38)         (23)
                                                             ---------------------------------

Income before equity in undistributed income of
   subsidiary ..........................................       1,986           59           58
Equity in undistributed (distribution in excess of)
   income of subsidiary ................................      (1,524)         290           86
                                                             ---------------------------------

Net Income .............................................     $   462      $   349      $   144
                                                             =================================
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                        Condensed Statement of Cash Flows

Year Ended June 30                                             2001         2000         1999
----------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>          <C>
Operating Activities
  Net income .........................................       $   462      $   349      $   144
  Adjustments to reconcile net income to net cash
    provided by operating activities .................         1,463         (200)         (40)
                                                             ---------------------------------
      Net cash provided by operating activities ......         1,925          149          104
                                                             ---------------------------------

Investing Activities
  Purchases of securities available for sale .........        (1,669)         (58)
  Proceeds from sales of securities available for sale         1,801           77          485
                                                             ---------------------------------
      Net cash provided by investing activities ......           132           77          427
                                                             ---------------------------------

Financing Activities
  Dividends paid .....................................          (107)         (96)         (94)
  Purchase of stock ..................................        (1,912)        (183)        (340)
                                                             ---------------------------------
     Net cash used by financing activities ...........        (2,019)        (279)        (434)
                                                             ---------------------------------

Net Change in Cash and Cash Equivalents ..............            38          (53)          97

Cash and Cash Equivalents at Beginning of Year .......            56          109           12
                                                             ---------------------------------

Cash and Cash Equivalents at End of Year .............       $    94      $    56      $   109
                                                             =================================

</TABLE>