“So, how’s banking?”  I get that question at least once a week these days.  Usually, my response is a bit guarded.  “Do you mean Our Community Bank, or the banking industry?”

The temptation is to list the scandals characterizing the broader industry.  There is no shortage of depressing topics to discuss:  too-big-to-fail, crony capitalism, robo-signing, LIBOR rate-rigging, corporate corruption, to mention a few.  These scandals damage the reputation of the industry, but they don’t reflect how we operate.

Excessive risk and bad actors at mega-banks seem to always result in punishment for our entire industry.  In response to the most recent overhaul of banking law, the director’s converted the Bank to an Indiana commercial bank charter.  Regardless of all the changes in both the banking industry and its own operations, the Bank’s focus continues to be helping people achieve the dream of home ownership.  In addition, reliance on prudent business practices has helped it remain strong in both good and challenging economic times.

I am pleased to report, 2012 was a good year for Home Financial Bancorp.  Earnings were solid.  Asset quality continued to move in the right direction.  All capital ratios are double digit.  The transition to our new banking name, new charters and new regulators proceeded smoothly.  Our staff demonstrated resiliency and worked very hard to excel in a time of extraordinary change and uncertainty.

The key to better earnings continues to be asset quality.  Although weak loan demand resulted in lower volume than we prefer, loan quality maintains a positive trend.  The average credit score of new mortgages in fiscal 2012 was 740.  As we reduce the balance of older, weaker credits, the level of required loan loss provisions should decrease; improving prospects for greater profit growth.

A particularly stubborn obstacle is soft real estate values.  Many borrowers have mortgage debt that exceeds what they can sell their home for in today’s market.  Struggling borrowers, who in normal times might sell their property to satisfy their mortgage, are limited to tough choices.  When properties are surrendered to the Bank, we incur heavy costs in the disposition process.  Until the economy improves and real estate values rebound, handling repossessed property will limit our bottom-line.

Despite the long period of low interest rates, net-interest-margin remains well above 4%.  Our yield on earning assets has eroded incrementally, but funding costs have declined more.  We expect this trend to support core earnings in fiscal 2013.

Roughly coinciding with a drop-off in loan demand and increasing deposits, our investment portfolio grew substantially; from $1.0 million in 2008, to $7.5 million in 2012.  A significant portion of this growth is comprised of tax-exempt municipal bonds from Indiana issuers.  Tax-adjusted yields on these securities compare favorably to low-yield taxable alternatives.  Combined with tax credits earned through the Bank’s investment in Indiana low-income housing projects, the Company’s effective income tax rate decreased from 35% for 2011, to 24% for 2012.  We expect benefits from these tax-favored assets to also help us manage tax expense in 2013.

Starting a second century of service to our community, we are proud of our heritage.  The traditional values and principles that built a safe, reliable institution for 100 years are still firmly embraced today.  We practice an old-fashioned approach to people that is based on respect and integrity.  We will continue to treat others as we would want to be treated.  We are Community Bankers intent on protecting our local reputation and giving banking a good name in the communities we serve.

Amid justifiable anxiety and uncertainty felt throughout the country, we face 2013 with confidence.  We are financially strong.  We have an excellent staff of community bankers.  And we have strong Board leadership.  I appreciate the opportunity to be a part of this special team. And I am honored to welcome our newest director, Robert Livingston to the Board.  Bob brings extensive business knowledge and a long record of community service to his new role with Home Financial.  We are fortunate to have him on our team.

Thank you to all shareholders and friends who have encouraged and supported our efforts through the years.

Kurt D. Rosenberger

President and Chief Executive Officer

Home Financial Bancorp’s common stock trades publicly
and is quoted under the symbol "HWEN.PK" as a pink sheet stock.

Stock Transfer Agent and Registrar

Shareholders requiring a change of name, address or ownership of stock, as well as information about shareholder records, lost or stolen certificates, dividend checks, and dividend direct deposit should contact:

Registrar and Transfer Company
            10 Commerce Drive
            Cranford, NJ 07016-3572 (800) 368-5948