****






SECURITIES & EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




**FORM
      10-K**





(Mark One)





[X]  **Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934**





For the fiscal year ended December
      31, 2006





or





**[**   
**]** **Transition
      report pursuant to Section 13 or 15(d) or the Securities Exchange Act of
      1934**





For the transition period from ___________ to _____________








Commission file number:   0-18847




**HOME FEDERAL BANCORP**


****(Exact
      name of registrant as specified in its charter)





**** **Indiana**        **35-1807839**


(State or other
      jurisdiction   (I.R.S.
      Employer


of incorporation or
      organization)  Identification
      No.)





**** **501
      Washington Street, Columbus,
      Indiana** **47201**


(Address of Principal Executive
      Offices)     (Zip
      Code)





Registrant’s telephone number including area code: **(812)
      522-1592**





Securities
      registered pursuant to Section 12(b) of the Act:





**** **None**





Securities
      registered pursuant to Section 12(g) of the Act:





**Common Stock, no par value**




(Title of Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the


Securities Act. YES [  ] NO **[X]**





Indicate by check mark if the registrant is not required to file reports
      pursuant to Section 13 or Sectio


15(d) of the Act. YES [  ] NO **[X]**





Indicate by check mark whether the
      Registrant (l) 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-K or any amendment to this Form 10-K. **[X]**




Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accerlerated


filer.
      See definition of “accelerated filer and
      large accelerated file” in Rule 12b-2 of the Exchange
      Act.











Large accelerated filer [
 ] Accelerated filer **[X]** Non-accelerated filer [  ]





Indicate by check mark whether the registrant is a shell company (as defined
      in
      Rule 12b-2 of the Act).


YES [  ]  NO **[X]**





The
      aggregate market value of the issuer's voting stock held by non-affiliates,
      as
      of June 30,
      2006 ,
      was
      $ 92.9 million.





The
      number of shares of the registrant's Common Stock, no par value, outstanding
      as
      of March
      07,
      2007 ,
      was 3,579,739 shares.





DOCUMENTS
      INCORPORATED BY REFERENCE





Portions
      of the Annual Report to Shareholders for the year ended December
      31, 2006 ,
      are
      incorporated into Part II.


Portions
      of the Proxy Statement for the annual meeting of shareholders to be held on April
      24,
      2007 ,
      are
      incorporated


into
      Part I and Part III.




-
          2 -




**HOME
                  FEDERAL BANCORP****FORM
                  10-K****INDEX**Forward
                  Looking Statements
              4Item
                  1.
              Business
              4Item
                  1A.
              Risk
                  Factors
              28Item
                  1B.
              Unresolved
                  Staff Comments
              29Item
                  2.
              Properties
              30Item
                  3
              Legal
                  Proceedings
              32Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              32Item
                  4.5
              Executive
                  Officers of Home Federal Bancorp
              32Item
                  5.
              Market
                  for Registrant's Common Equity, Related Stockholder Matters, And
                  Issuer
                  Purchasesof
                  Equity Securities
              32Item
                  6.
              Selected
                  Financial Data
              33Item
                  7.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              33Item
                  7.A
              Quantitative
                  and Qualitative Disclosures About Market Risk
              34Item
                  8.
              Financial
                  Statements and Supplementary Data
              34Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              34Item
                  9A.
              Controls
                  and Procedures
              34Item
                  9B.
              Other
                  information
              34Item
                  10.
              Directors
                  and Executive Officers of the Registrant
              34Item
                  11.
              Executive
                  Compensation
              35Item
                  12
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              35Item
                  13.
              Certain
                  Relationships and Related Transactions
              36Item
                  14.
              Principal
                  Accountant Fees and Services
              36Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              36Signatures
              
              37


-
          3 -

















**FORWARD
      LOOKING STATEMENTS**





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





**PART
      I**





**Item
      1.**  **Business**





**General**





Home
      Federal Bancorp (the "Company" or "HFB") is an Indiana corporation organized
      as
      a bank holding company authorized to engage in activities permissible for a
      financial holding company. The principal asset of the Company consists of 100%
      of the issued and outstanding capital stock of HomeFederal Bank ("HomeFederal"
      or the "Bank").





HomeFederal
      Bank began operations in Seymour, Indiana under the name New Building and Loan
      Association in 1908. The Bank received its federal charter and changed its
      name
      to Home Federal Savings and Loan Association in 1950. On November 9, 1983,
      Home
      Federal Savings and Loan Association became a federal savings bank and its
      name
      was changed to Home Federal Savings Bank. On January 14, 1988, Home Federal
      Savings Bank converted to stock form and on March 1, 1993, Home Federal Savings
      Bank reorganized by converting each outstanding share of its common stock into
      one share of common stock of the Company, thereby causing the Company to be
      the
      holding company of Home Federal Savings Bank. On December 31, 2001 HomeFederal
      Bank, a member of the Federal Reserve System, completed a charter conversion
      to
      an Indiana commercial bank. On September 24, 2002, the Company announced a
      change in its fiscal year end from June 30 to December 31.





On
      October 22, 2002, Home Federal Savings Bank changed its name to HomeFederal
      Bank. HomeFederal Bank currently provides services through its main office
      at
      501 Washington Street in Columbus, Indiana, eighteen full service branches
      located in south central Indiana and the STAR network of automated teller
      machines at thirteen locations in Seymour, Columbus, North Vernon, Salem,
      Madison, Batesville, Edinburgh, Greensburg, Greenwood and Indianapolis. As
      a
      result, HomeFederal serves primarily Bartholomew, Jackson, Jefferson, Jennings,
      Scott, Ripley, Decatur, Marion, Johnson and Washington Counties in Indiana.
      HomeFederal also participates in the nationwide electronic funds transfer
      networks known as Plus System, Inc. and Cirrus System.





Online
      banking and telephone banking are also available to HomeFederal Bank customers.
      Online Banking, including Online Bill Payment, services are accessed through
      the
      Company’s website, www.homf.com . In
      addition to online banking services, the Company also makes available, free
      of
      charge at the website, the Company’s annual report on Form 10-K, quarterly
      reports on Form 10-Q, current reports on Form 8-K and any amendments to those
      reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange
      Act
      of 1934 as soon as reasonably practicable after such material is electronically
      filed with the SEC. The information on the Company’s website is not incorporated
      into this Form 10-K.





Management
      analyzes the operation of Home Federal Bancorp assuming one operating segment,
      community banking services. HomeFederal Bank directly and, through its service
      corporation subsidiary indirectly, offers a wide range of consumer and
      commercial community banking services. These services include: (i) residential
      and commercial real estate loans; (ii) checking accounts; (iii) regular and
      term
      savings accounts and savings certificates; (iv) full-service securities
      brokerage services; (v) consumer loans; (vi) debit cards; (vii) business credit
      cards; (viii) annuity and life insurance products; (ix) Individual Retirement
      Accounts and Keogh plans; (x) commercial loans; (xi) trust services: and (xii)
      commercial demand deposit accounts.






-
          4 -





HomeFederal
      Bank’s primary source of revenue is interest from lending activities. Its
      principal lending activity is the origination of commercial real estate loans
      secured by mortgages on the underlying property and commercial loans through
      the
      cultivation of profitable business relationships. These loans constituted 49.1 %
      of the
      Bank’s loans at December
      31, 2006 .
      HomeFederal also originates one-to-four family residential loans, the majority
      of which are sold servicing released. At December 31, 2006, one-to-four family
      residential loans were 22.0 %
      of the
      Bank’s lending portfolio. In addition, HomeFederal Bank makes secured and
      unsecured consumer related loans including consumer auto, second mortgage,
      home
      equity, mobile home, and savings account loans. At December
      31, 2006 ,
      approximately 20.2 %
      of its
      loans were consumer-related loans. HomeFederal Bank also makes construction
      loans, which constituted 8.5 %
      of
      HomeFederal Bank's loans at December
      31, 2006 .


-
          5 -


**Loan
      Portfolio Data**





The
      following two tables set forth the composition of HomeFederal Bank’s loan
      portfolio by loan type and security type as of the dates indicated. The third
      table represents a reconciliation of gross loans receivable after consideration
      of unearned income and the allowance for loan losses.


**Dec
                  31, 2006**
              
              **Dec
                  31, 2005**
              
              **Dec
                  31, 2004**
              
              **Dec
                  31, 2003**
              
              **Dec
                  31, 2002****Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent****TYPE
                  OF LOAN**
              
              
              
              
              
              
              
              (Dollars
                  in Thousands)First
                  mortgage loans:One-to-four
                  family residential loans
              
              $
              150,639
              
              
              22.0
              %
              $
              162,212
              
              
              26.3
              %
              $
              172,479
              
              
              27.1
              %
              $
              178,276
              
              
              27.9
              %
              $
              194,365
              
              
              30.6
              %Commercial
                  and multi family
              
              
              183,288
              
              
              26.9
              %
              
              177,748
              
              
              28.9
              %
              
              180,165
              
              
              28.2
              %
              
              171,361
              
              
              26.8
              %
              
              183,990
              
              
              28.9
              %Loans
                  on property under construction
              
              
              58,013
              
              
              8.5
              %
              
              44,321
              
              
              7.2
              %
              
              61,907
              
              
              9.7
              %
              
              72,172
              
              
              11.3
              %
              
              46,315
              
              
              7.3
              %Loans
                  on unimproved acreage
              
              
              1,496
              
              
              0.2
              %
              
              1,615
              
              
              0.3
              %
              
              2,730
              
              
              0.4
              %
              
              3,201
              
              
              0.5
              %
              
              2,795
              
              
              0.4
              %Second
                  mortgage, home equity
              
              
              102,713
              
              
              15.1
              %
              
              87,893
              
              
              14.3
              %
              
              80,346
              
              
              12.6
              %
              
              80,044
              
              
              12.6
              %
              
              80,379
              
              
              12.6
              %Commercial
                  loans
              
              
              151,781
              
              
              22.2
              %
              
              105,825
              
              
              17.2
              %
              
              105,494
              
              
              16.5
              %
              
              99,099
              
              
              15.5
              %
              
              90,061
              
              
              14.1
              %Consumer
                  loans
              
              
              3,949
              
              
              0.6
              %
              
              3,988
              
              
              0.6
              %
              
              4,159
              
              
              0.7
              %
              
              4,235
              
              
              0.7
              %
              
              4,693
              
              
              0.7
              %Auto
                  loans
              
              
              26,356
              
              
              3.9
              %
              
              27,335
              
              
              4.4
              %
              
              24,921
              
              
              3.9
              %
              
              23,244
              
              
              3.6
              %
              
              25,149
              
              
              4.0
              %Mobile
                  home loans
              
              
              1,806
              
              
              0.3
              %
              
              2,537
              
              
              0.4
              %
              
              3,289
              
              
              0.5
              %
              
              4,365
              
              
              0.7
              %
              
              5,834
              
              
              0.9
              %Savings
                  accounts loans
              
              
              2,372
              
              
              0.3
              %
              
              2,266
              
              
              0.4
              %
              
              2,340
              
              
              0.4
              %
              
              2,736
              
              
              0.4
              %
              
              3,018
              
              
              0.5
              %Gross
                  loans receivable
              
              $
              682,413
              
              
              100.0
              %
              $
              615,740
              
              
              100.0
              %
              $
              637,830
              
              
              100.
              %
              $
              638,733
              
              
              100.0
              %
              $
              636,599
              
              
              100.0
              %**Type
                  of Security**Residential:One-to-four
                  family
              
              $
              267,623
              
              
              39.2
              %
              $
              265,322
              
              
              43.1
              %
              $
              267,998
              
              
              42.0
              %
              $
              273,203
              
              
              42.8
              %
              $
              287,718
              
              
              45.2
              %Multi-dwelling
                  units
              
              
              18,621
              
              
              2.7
              %
              
              19,612
              
              
              3.2
              %
              
              27,018
              
              
              4.2
              %
              
              22,034
              
              
              3.4
              %
              
              22,767
              
              
              3.6
              %Commercial
                  real estate
              
              
              208,409
              
              
              30.6
              %
              
              187,240
              
              
              30.4
              %
              
              199,881
              
              
              31.4
              %
              
              206,616
              
              
              32.4
              %
              
              194,564
              
              
              30.6
              %Commercial
              
              
              151,781
              
              
              22.2
              %
              
              105,825
              
              
              17.2
              %
              
              105,494
              
              
              16.5
              %
              
              99,099
              
              
              15.5
              %
              
              90,061
              
              
              14.1
              %Mobile
                  home
              
              
              1,806
              
              
              0.3
              %
              
              2,537
              
              
              0.4
              %
              
              3,289
              
              
              0.5
              %
              
              4,365
              
              
              0.7
              %
              
              5,834
              
              
              0.9
              %Savings
                  account
              
              
              2,372
              
              
              0.3
              %
              
              2,266
              
              
              0.4
              %
              
              2,340
              
              
              0.4
              %
              
              2,736
              
              
              0.4
              %
              
              3,018
              
              
              0.5
              %Auto
              
              
              26,356
              
              
              3.9
              %
              
              27,335
              
              
              4.4
              %
              
              24,921
              
              
              3.9
              %
              
              23,244
              
              
              3.6
              %
              
              25,149
              
              
              4.0
              %Other
                  consumer
              
              
              3,949
              
              
              0.6
              %
              
              3,988
              
              
              0.6
              %
              
              4,159
              
              
              0.7
              %
              
              4,235
              
              
              0.7
              %
              
              4,693
              
              
              0.7
              %Land
                  acquisition
              
              
              1,496
              
              
              0.2
              %
              
              1,615
              
              
              0.3
              %
              
              2,730
              
              
              0.4
              %
              
              3,201
              
              
              0.5
              %
              
              2,795
              
              
              0.4
              %Gross
                  loans receivable
              
              $
              682,413
              
              
              100.0
              %
              $
              615,740
              
              
              100.0
              %
              $
              637,830
              
              
              100.
              %
              $
              638,733
              
              
              100.0
              %
              $
              636,599
              
              
              100.0
              %**Loans
                  Receivable-Net**Gross
                  loans receivable
              
              $
              682,413
              
              
              101.0
              %
              $
              615,740
              
              
              101.1
              %
              $
              637,830
              
              
              101.3
              %
              $
              638,733
              
              
              101.3
              %
              $
              636,599
              
              
              101.2
              %Deduct:Unearned
                  income
              
              
              (153
              )
              
              0.0
              %
              
              (299
              )
              
              0.0
              %
              
              (476
              )
              
              -0.1
              %
              
              (555
              )
              
              -0.1
              %
              
              (544
              )
              
              -0.1
              %Allowance
                  for loan losses
              
              
              (6,598
              )
              
              -1.0
              %
              
              (6,753
              )
              
              -1.1
              %
              
              (7,864
              )
              
              -1.2
              %
              
              (7,506
              )
              
              -1.2
              %
              
              (7,172
              )
              
              -1.1
              %Net
                  loans receivable
              
              $
              675,662
              
              
              100.0
              %
              $
              608,688
              
              
              100.0
              %
              $
              629,490
              
              
              100.0
              %
              $
              630,672
              
              
              100.0
              %
              $
              628,883
              
              
              100.
              %








-
          6 -





The
      following tables summarize the contractual maturities for HomeFederal Bank’s
      loan portfolio (including participations and mortgage-backed certificates)
      for
      the fiscal periods indicated and the interest rate sensitivity of loans due
      after one year:




**Balance**
              
              
              
              
              
              **Maturities
                  in Fiscal****Outstanding**
              
              
              
              
              
              
              
              **2010**
              
              **2012**
              
              **2017**
              
              **2021****At
                  Dec 31,**
              
              
              
              
              
              
              
              **To**
              
              **to**
              
              **to**
              
              **and****2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2011**
              
              **2016**
              
              **2021**
              
              **thereafter**Real
                  estate
              
              $
              335,423
              
              $
              1,938
              
              $
              11,343
              
              $
              14,577
              
              $
              20,414
              
              $
              117,485
              
              $
              37,688
              
              $
              131,978Mortgage-backedcertificatescollateralizedmortgage
                  obligations
              
              
              21,565
              
              
              -
              
              
              -
              
              
              390
              
              
              2,071
              
              
              6,425
              
              
              9,336
              
              
              3,343Construction
                  loans
              
              
              58,013
              
              
              16,287
              
              
              16,932
              
              
              3,790
              
              
              1,930
              
              
              6,186
              
              
              1,668
              
              
              11,220Commercial
                  loans
              
              
              151,781
              
              
              86,722
              
              
              18,861
              
              
              8,232
              
              
              17,641
              
              
              17,007
              
              
              3,070
              
              
              248Other
                  loans
              
              
              137,196
              
              
              12,067
              
              
              8,435
              
              
              9,337
              
              
              22,763
              
              
              38,280
              
              
              14,488
              
              
              31,826Total
              
              $
              703,978
              
              $
              117,014
              
              $
              55,571
              
              $
              36,326
              
              $
              64,819
              
              $
              185,383
              
              $
              66,250
              
              $
              178,615











Interest
                Rate Sensitivity:**Due
                After****December
                31, 2007****Fixed**
            
            **Variable
                Rate****Rate**
            
            **And
                Balloon****(Dollars
                in Thousands)**Real
                estate
            
            $
            36,276
            
            $
            297,209Mortgage-backed
                certificates,collateralized
                mortgage obligations
            
            
            21,461
            
            
            104Construction
                loans
            
            
            5,859
            
            
            35,867Commercial
                loans
            
            
            20,942
            
            
            44,117Other
                Loans
            
            
            88,672
            
            
            36,457Total
            
            $
            173,210
            
            $
            413,754








**Residential
      Mortgage Loans**





HomeFederal
      Bank is authorized to make one-to-four family residential loans without any
      limitation as to interest rate amount (within State usury laws) or number of
      interest rate adjustments. Pursuant to federal regulations, if the interest
      rate
      is adjustable, the interest rate must be correlated with changes in a readily
      verifiable index. HomeFederal Bank also makes residential and commercial
      mortgage loans secured by mid-size multi-family dwelling units and apartment
      complexes. The residential mortgage loans included in HomeFederal Bank’s
      portfolio are primarily conventional loans. As of December 31, 2006 $ 166.0 million,
      or 24.3 %,
      of
      HomeFederal Bank's total loan portfolio consisted of residential first mortgage
      loans, $ 150.6 million,
      or 22.0 %,
      of
      which were secured by one-to-four family homes.





Many
      of
      the residential mortgage loans currently offered by HomeFederal Bank have
      adjustable rates. These loans generally have interest rates that adjust (up
      or
      down) semi-annually or annually, with maximum rates that vary depending upon
      when the loans are written and contractual floors and ceilings. The adjustment
      for the majority of these loans is currently based upon the weekly average
      of
      the one-year Treasury constant maturity rate.





The
      rates
      offered on HomeFederal Bank's adjustable-rate and fixed-rate residential
      mortgage loans are competitive with the rates offered by other financial
      institutions in its south central and central Indiana market area.




-
          7 -





Although
      HomeFederal Bank's residential mortgage loans are written for amortization
      terms
      up to 30 years, due to prepayments and refinancing, its residential mortgage
      loans in the past have generally remained outstanding for a substantially
      shorter period of time than the maturity terms of the loan
      contracts.





All
      of
      the residential mortgages HomeFederal Bank currently originates include "due
      on
      sale" clauses, which give HomeFederal 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. HomeFederal Bank utilizes the due on sale clause as a means
      of protecting the funds loaned by insuring payoff on sale of the property
      collateralizing the loan.





Under
      applicable banking policies, HomeFederal Bank must establish loan-to-value
      ratios consistent with supervisory loan-to-value limits. The supervisory limits
      are 65% for raw land loans, 75% for land development loans, 80% for construction
      loans consisting of commercial, multi-family and other non-residential
      construction, and 85% for improved property. Multi-family construction includes
      condominiums and cooperatives. A loan-to-value limit has been established at
      100% total loan-to-value for permanent mortgage or home equity loans on
      owner-occupied one-to-four family residential property. However, for any such
      loan with a loan-to-value ratio that exceeds 90% at origination, an institution
      should require appropriate credit enhancement in the form of either mortgage
      insurance or readily marketable collateral. The Board of Directors of
      HomeFederal Bank approved a set of loan-to-value ratios consistent with these
      supervisory limits.





It
      may be
      appropriate in individual cases to originate loans with loan-to-value ratios
      in
      excess of the FDIC limits based on the support provided by other credit factors.
      The aggregate amount of all loans in excess of these limits should not exceed
      100% of total capital. Moreover, loans for all commercial, agricultural,
      multi-family or other non-one-to-four family residential properties in excess
      of
      the FDIC limits should not exceed 30% of total capital. As of December 31, 2006 ,
      the
      Bank was in compliance with the above limits.





**Commercial
      Mortgage Loans**





At
      December 31, 2006,
      33.3 %
      of
      HomeFederal Bank's total loan portfolio consisted of mortgage loans secured
      by
      commercial real estate, of which 6.4 %
      were
      commercial construction loans. These properties consisted primarily of
      condominiums, apartment buildings, office buildings, warehouses, motels,
      shopping centers, nursing homes, manufacturing plants, and churches located
      in
      central or south central Indiana. The commercial mortgage loans are generally
      adjustable-rate loans, written for terms not exceeding 20 years,
      and require an 85 %
      loan-to-value ratio. Commitments for these loans in excess of $ 1.5 million
      must be approved in advance by HomeFederal Bank’s Board of Directors. The
      largest such loan as of December 31, 2006 had a
      balance of $ 3.5 million .
      At that
      date, all of HomeFederal Bank's commercial real estate loans consisted of loans
      secured by real estate located in Indiana.





Generally,
      commercial mortgage loans involve greater risk to HomeFederal Bank than
      residential loans. Commercial mortgage loans typically involve large loan
      balances to single borrowers or groups of related borrowers. In addition, the
      payment experience on loans secured by income-producing properties is typically
      dependent on the successful operation of the related project and thus may be
      subject to adverse conditions in the real estate market or in the general
      economy.





**Construction
      Loans**





HomeFederal
      Bank offers conventional short-term construction loans. At December 31, 2006 , 8.5 %
      of
      HomeFederal Bank's total loan portfolio consisted of construction loans.
      Normally, a 95% or less loan-to-value ratio is required from owner-occupants
      of
      residential property, an 80% loan-to-value ratio is required from persons
      building residential property for sale or investment purposes, and an 80%
      loan-to-value ratio is required for commercial property. Construction loans
      are
      also made to builders and developers for the construction of residential or
      commercial properties on a to-be-occupied or speculative basis. Construction
      normally must be completed in six to nine months for residential loans. The
      largest such loan on December 31, 2006 was
      $ 7.2 million.





**Consumer
      Loans**





Consumer-related
      loans, consisting of second mortgage and home equity loans, mobile home loans,
      automobile loans, loans secured by savings accounts and other consumer loans
      were $ 137.2 million
      on December 31, 2006 or
      approximately 20.2 %
      of
      HomeFederal Bank's total loan portfolio.





Second
      mortgage loans are made for terms of 1 - 20 years, and are fixed-rate, fixed
      term or variable- rate line of credit loans. HomeFederal Bank's minimum for
      such
      loans is $5,000. HomeFederal Bank will loan up to 100% of the




-
          8 -




appraised
      value based on the product and borrower qualifications of the property, less
      the
      existing mortgage amount(s). As of December 31, 2006 ,
      HomeFederal Bank had $ 60.3 million
      of second mortgage loans, which equaled 8.9 %
      of its
      total loan portfolio. HomeFederal Bank markets home equity credit lines, which
      are adjustable-rate loans. As of December 31, 2006 ,
      HomeFederal Bank had $ 42.4 million
      drawn on its home equity credit lines, or 6.2 %
      of its
      total loan portfolio, with $ 52.6 million
      of additional credit available to its borrowers under existing home equity
      credit lines.





Automobile
      loans are generally made for terms of up to six years. The vehicles are required
      to be for personal or family use only. As of December 31, 2006 ,
      $ 26.4 million,
      or 3.9 %,
      of
      HomeFederal Bank's total loan portfolio consisted of automobile
      loans.





As
      of
      December 31, 2006 ,
      $1 .8 million,
      or 0.3 %,
      of
      HomeFederal Bank's total loan portfolio consisted of mobile home loans.
      Generally, these loans are made for terms of one year for each $1,000 of the
      sales price, with a maximum term of 15 years. On new mobile home loans,
      HomeFederal Bank permits a loan-to-value ratio of up to 125% of the
      manufacturer's invoice price plus sales tax or up to 90% of the actual sales
      price, whichever is lower. Also, HomeFederal Bank makes loans for previously
      occupied mobile homes up to a 90% loan-to-value ratio based upon the actual
      sales price or value as appraised, whichever is lower.





Loans
      secured by savings account deposits may be made up to 95% of the pledged savings
      collateral at a rate 2% above the rate of the pledged savings account or a
      rate
      equal to HomeFederal Bank's highest seven-year certificate of deposit rate,
      whichever is higher. The loan rate will be adjusted as the rate for the pledged
      savings account changes. As of December 31, 2006 ,
      $ 2.4 million,
      or 0.3 %,
      of
      HomeFederal Bank's total loan portfolio consisted of savings account
      loans.





Although
      consumer-related loans generally involve a higher level of risk than one-to-four
      family residential mortgage loans, their relatively higher yields, lower average
      balance, and shorter terms to maturity are believed to be helpful in HomeFederal
      Bank's asset/liability management.





**Commercial
      Loans**





Collateral
      for HomeFederal Bank's commercial loans includes manufacturing equipment, real
      estate, inventory, accounts receivable, and securities. Terms of these loans
      are
      normally for up to ten years and have adjustable rates tied to the reported
      prime rate and treasury indexes. Generally, commercial loans are considered
      to
      involve a higher degree of risk than residential real estate loans. However,
      commercial loans generally carry a higher yield and are made for a shorter
      term
      than real estate loans. As of December 31, 2006 ,
      $ 151.8 million,
      or 22.2 %,
      of
      HomeFederal Bank's total loan portfolio consisted of commercial
      loans.





**Origination,
      Purchase and Sale of Loans**





HomeFederal
      Bank originates residential loans in conformity with standard underwriting
      criteria of the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the
      Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
      Bank (“FHLB”), to assure maximum eligibility for possible resale in the
      secondary market. Although HomeFederal Bank currently has authority to lend
      anywhere in the United States, it has confined its loan origination activities
      primarily to the central and south central Indiana area. HomeFederal Bank's
      loan
      originations are generated primarily from referrals from real estate brokers,
      builders, developers and existing customers, newspaper, radio and periodical
      advertising and walk-in customers. HomeFederal 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.





HomeFederal
      Bank studies the employment, credit history, and information on the historical
      and projected income and expenses of its individual mortgagors to assess their
      ability to repay its mortgage loans. Additionally, HomeFederal Bank utilizes
      Freddie Mac's Loan Prospector and Fannie Mae’s Desktop Underwriter as
      origination, processing, and underwriting tools. It uses independent appraisers
      to appraise the property securing its loans. It requires title insurance
      evidencing HomeFederal Bank's valid lien on its mortgaged real estate and a
      mortgage survey or survey coverage on all first mortgage loans and on other
      loans when appropriate. HomeFederal Bank requires fire and extended coverage
      insurance in amounts at least equal to the value of the insurable improvements
      or the principal amount of the loan, whichever is lower. It may also require
      flood insurance to protect the property securing its interest. When private
      mortgage insurance is required, borrowers must make monthly payments to an
      escrow account from which HomeFederal Bank makes disbursements for taxes and
      insurance. Otherwise, such escrow arrangements are optional.





-
          9 -


The
      procedure for approval of loans on property under construction is the same
      as
      for residential mortgage loans, except that the appraisal obtained evaluates
      the
      building plans, construction specifications and estimates of construction costs,
      in conjunction with the land value. HomeFederal Bank also evaluates the
      feasibility of the construction project and the experience and track record
      of
      the builder or developer.





Consumer
      loans are underwritten on the basis of the borrower's credit history and an
      analysis of the borrower's income and expenses, ability to repay the loan and
      the value of the collateral, if any.





In
      order
      to generate loan fee and servicing income and recycle funds for additional
      lending activities,


HomeFederal
      Bank seeks to sell loans in the secondary market. Loan sales can enable
      HomeFederal Bank to recognize significant fee income and to reduce interest
      rate
      risk while meeting local market demand. HomeFederal Bank sold $ 96.4 million
      of fixed-rate loans in the fiscal year ended December 31, 2006 .
      HomeFederal Bank's current lending policy is to sell fixed-rate residential
      mortgage loans exceeding 10-year maturities. In addition, when in the opinion
      of
      management cash flow demands and asset/liability concerns warrant, HomeFederal
      Bank will consider keeping fixed-rate loans with up to 15-year maturities.
      Typically HomeFederal Bank retains adjustable-rate loans in its portfolio.
      HomeFederal Bank may sell participating interests in commercial real estate
      loans in order to share the risk with other lenders. Mortgage loans held for
      sale are carried at the lower of cost or market value, determined on an
      aggregate basis. The servicing is retained only on certain adjustable and fixed
      rate loans and construction loans. Most loans are sold with the servicing
      released on conforming loans, Veteran's Administration ("VA"), Federal Housing
      Administration ("FHA") and Indiana Housing Finance Authority ("IHFA")
      loans.





Management
      believes that purchases of loans and loan participations may be desirable and
      evaluates potential purchases as opportunities arise. Such purchases can enable
      HomeFederal Bank to take advantage of favorable lending markets in other parts
      of the state, diversify its portfolio and limit origination expenses. Any
      participation it acquires in commercial real estate loans requires a review
      of
      financial information on the borrower, a review of the appraisal on the property
      by a local designated appraiser, an inspection of the property by a senior
      loan
      officer, and a financial analysis of the loan. The seller generally performs
      servicing of loans purchased. At December 31, 2006 ,
      others
      serviced approximately 2.2 %,
      or
      $ 14.8 million,
      of HomeFederal Bank's gross loan portfolio.





The
      following table shows loan activity for HomeFederal Bank during the periods
      indicated:




**Dec
                  31, 2006**
              
              **Dec
                  31, 2005**
              
              **Dec
                  31, 2004****(Dollars
                  in Thousands)**Gross
                  loans receivable at beginning of period
              
              $
              615,740
              
              $
              637,830
              
              $
              638,733Loans Originated:Mortgage loans and contracts:Construction loans:Residential
              
              
              43,298
              
              
              29,598
              
              
              30,373Commercial
              
              
              33,143
              
              
              39,416
              
              
              26,558Permanent loans:Residential
              
              
              50,990
              
              
              50,028
              
              
              59,468Commercial
              
              
              29,598
              
              
              29,194
              
              
              39,201Refinancing
              
              
              34,762
              
              
              44,672
              
              
              92,140Other
              
              
              1,197
              
              
              2,062
              
              
              1,092Total
              
              
              192,988
              
              
              194,970
              
              
              248,832Commercial
              
              
              127,004
              
              
              81,800
              
              
              81,819Consumer
              
              
              24,344
              
              
              27,713
              
              
              25,416Total loans originated
              
              
              344,336
              
              
              304,483
              
              
              356,067Loans
                  purchased:Residential
              
              
              -
              
              
              -
              
              
              -Other
              
              
              11,268
              
              
              1,720
              
              
              9,116Total loans originated and purchased
              
              
              355,604
              
              
              306,203
              
              
              365,183Real
                  estate loans sold
              
              
              96,389
              
              
              97,079
              
              
              143,661Loan
                  repayments and other deductions
              
              
              192,542
              
              
              231,214
              
              
              222,425Total loans sold, loan repayments and other deductions
              
              
              288,931
              
              
              328,293
              
              
              366,086Net
                  loan activity
              
              
              66,673
              
              
              (22,090
              )
              
              (903
              )Gross
                  loans receivable at end of period
              
              
              682,413
              
              
              615,740
              
              
              637,830Adjustments
              
              
              (6,751
              )
              
              (7,052
              )
              
              (8,340
              )Net
                  loans receivable at end of period
              
              $
              675,662
              
              **$**
              **608,688**
              
              **$**
              **629,490**







-
          10 -


A
      commercial bank generally may not make any loan to a borrower or its related
      entities if the total of all such loans by the commercial bank exceeds 15%
      of
      its capital (plus up to an additional 10% of capital in the case of loans fully
      collateralized by readily marketable collateral). The maximum amount that
      HomeFederal Bank could have loaned to one borrower and the borrower’s related
      entities at December 31, 2006 ,
      under
      the 15% of capital limitation was $ 13.5 million.
      At that date, the highest outstanding balance of loans by HomeFederal Bank
      to
      one borrower and related entities was approximately $ 11.5 million,
      an amount within such loans-to-one borrower limitations.








**Origination
      and Other Fees**





HomeFederal
      Bank realizes income from loan related fees for originating loans, collecting
      late charges and fees for other miscellaneous loan services. HomeFederal Bank
      charges origination fees that range from 0% to 1.0% of the
      loan amount. HomeFederal Bank also charges processing fees of $ 150 to
      $ 225 ,
      underwriting fees from $ 0 to
      $ 150 and a
      $ 50 fee for
      any loan closed by HomeFederal Bank personnel. In addition, HomeFederal Bank
      makes discount points available to customers for the purpose of obtaining a
      discounted interest rate. The points vary from loan to loan and are quoted
      on an
      individual basis. In accordance with Financial Accounting Standards Board
      Statement No. 91, *Accounting
      for Non Refundable*  *Fees
      and Costs Associated with Originating or Acquiring Loans and Initial Direct
      Costs of Leases* ,
      the
      Bank amortizes costs and fees associated with originating a loan over the life
      of the loan as an adjustment to the yield earned on the loan. Late charges
      are
      assessed fifteen days after payment is due.








**Non-performing
      Assets**





HomeFederal
      Bank assesses late charges on mortgage loans if a payment is not received by
      the
      15th day following its due date. Any borrower whose payment was not received
      by
      this time is mailed a past due notice. At the same time the notice is mailed,
      the delinquent account is downloaded to a PC- based collection system and
      assigned to a specific loan service representative. The loan service
      representative will attempt to make contact with the customer via a phone call
      to resolve any problem that might exist. If contact by phone is not possible,
      mail, in the form of preapproved form letters, will be used commencing on the
      25th day following a specific due date. Between the 30th and 45th day following
      any due date, or at the time a second payment has become due, if no contact
      has
      been made with the customer, a personal visit will be conducted by a Loan
      Service Department employee to interview the customer and inspect the property
      to determine the borrower's ability to repay the loan. Prompt follow up is
      a
      goal of the Loan Service Department with any and all delinquencies.





When
      an
      advanced stage of delinquency appears (generally around the 60th day of
      delinquency) and if repayment cannot be expected within a reasonable amount
      of
      time, HomeFederal Bank will make a determination of how to proceed to protect
      the interests of both the customer and the Bank. It may be necessary for the
      borrower to attempt to sell the property at HomeFederal Bank's request. If
      a
      resolution cannot be arranged, HomeFederal Bank will consider avenues necessary
      to obtain title to the property which includes foreclosure and/or accepting
      a
      deed-in-lieu of foreclosure, whichever may be most appropriate. However,
      HomeFederal Bank attempts to avoid taking title to the property if at all
      possible.





HomeFederal
      Bank has acquired certain real estate in lieu of foreclosure by acquiring title
      to the real estate and then reselling it. HomeFederal Bank performs an updated
      title check of the property and, if needed, an appraisal on the property before
      accepting such deeds.





On
      December 31, 2006 ,
      HomeFederal Bank held $ 436,000 of real
      estate and other repossessed collateral acquired as a result of foreclosure,
      voluntary deed, or other means. Such assets are classified as "real estate
      owned" until sold. When property is so acquired, it is recorded at the lower
      of
      cost or fair market value less estimated cost to sell at the date of
      acquisition, and any subsequent write down resulting from this is charged to
      losses on real estate owned. Interest accrual ceases on the date of acquisition.
      All costs incurred from the acquisition date in maintaining the property are
      expensed.





Consumer
      loan borrowers who fail to make payments are contacted promptly by the Loan
      Service Department
      in an effort to cure any delinquency. A notice of delinquency is sent 10 days
      after any specific due date when no payment has been received. The delinquent
      account is downloaded to a PC-based collection system and




-
          11 -




assigned
      to a specific loan service representative. The loan service representative
      will
      then attempt to contact the borrower via a phone call.





Continued
      follow-up in the form of phone calls, letters, and personal visits (when
      necessary) will be conducted
      to resolve delinquency. If a consumer loan delinquency continues and advances
      to
      the 60-90 days past due status, a determination will be made by HomeFederal
      Bank
      on how to proceed. When a consumer loan reaches 90 days past due, HomeFederal
      Bank determines the loan-to-value ratio by performing an inspection of the
      collateral (if any). HomeFederal Bank may initiate action to obtain the
      collateral (if any), or collect the debt through available legal remedies.
      Collateral obtained as a result of loan default is retained by HomeFederal
      Bank
      as an asset until sold or otherwise disposed.




The
      table
      below sets forth the amounts and categories of HomeFederal Bank's non-performing
      assets (non-accrual loans, loans past due 90 days or more, real estate owned
      and
      other repossessed assets) for the last five years. It is the policy of
      HomeFederal Bank that all earned but uncollected interest on conventional loans
      be reviewed monthly to determine if any portion thereof should be classified
      as
      uncollectible, for any portion that is due but uncollected for a period in
      excess of 90 days. The
      determination is based upon factors such as the loan amount outstanding as
      a
      percentage of the appraised value of the property and the delinquency record
      of
      the borrower.


-
          12 -








**Dec
                31, 2006**
            
            **Dec
                31, 2005**
            
            **Dec
                31, 2004**
            
            **Dec
                31, 2003**
            
            **Dec
                31, 2002**Non-performing
                Assets:Loans:Non-accrual
            
            $
            2,852
            
            $
            3,070
            
            $
            9,535
            
            $
            2,499
            
            $
            3,264Past
                due 90 days or more and still accruing
            
            
            459
            
            
            456
            
            
            168
            
            
            1,130
            
            
            1,166Restructured
                loans
            
            
            440
            
            
            809
            
            
            3,141
            
            
            258
            
            
            316Total
                non-performing loans
            
            
            3,751
            
            
            4,335
            
            
            12,844
            
            
            3,887
            
            
            4,746Real
                estate owned, net (1)
            
            
            416
            
            
            266
            
            
            2,009
            
            
            1,729
            
            
            1,416Other
                repossessed assets, net
            
            
            20
            
            
            5
            
            
            10
            
            
            10
            
            
            56Total
                non-performing assets (2)
            
            $
            4,187
            
            $
            4,606
            
            $
            14,863
            
            $
            5,626
            
            $
            6,218Total
                non-performing assets to total assets
            
            
            0.46
            %
            
            0.54
            %
            
            1.71
            %
            
            0.66
            %
            
            0.70
            %Non-performing
                loans with interest reversed
            
            $
            2,935
            
            $
            3,070
            
            $
            9,535
            
            $
            2,521
            
            $
            3,343








(1)
      Refers to real estate acquired by HomeFederal Bank through foreclosure or
      voluntary deed foreclosure, net of reserve.





(2)
      At
      December 31, 2006,
      50.0% of
      HomeFederal Bank’s non-performing assets consisted of residential mortgage
      loans, 4.8% consisted
      of home equities/second mortgages, 9.9% consisted of commercial real


estate
      loans, 11.7% consisted of commercial loans, 2.7 % consisted of consumer-related loans, 10.5% consisted
      of restructured loans, 7.5% consisted of residential real estate owned, 2.4% consisted of


commercial
      real estate owned and 0.5% consisted of other repossessed assets.





For
      the
      year ended December 31, 2006 ,
      the
      income that would have been recorded under original terms on the above
      non-accrual and restructured loans was $ 372,000 compared
      to actual income recorded of $ 133,000 .
      At
      December 31, 2006 ,
      HomeFederal Bank had approximately $ 5.6 million
      in loans that were 30-89 days past due. Total
      non-performing assets decreased $419,000 to
      $ 4.2 million
      at December 31, 2006 .
      This
      decrease resulted from a $ 584,000
      decrease in
      non-performing loans and by an increase  of $165,000 in
      real
      estate owned.




**Investments**





HomeFederal
      Bank's investment portfolio consists primarily of mortgage-backed securities,
      collateralized mortgage obligations, overnight funds with the FHLB of
      Indianapolis, U.S. Treasury obligations, U.S. Government agency obligations,
      corporate debt and municipal bonds. At December
      31,  2006 ,
      December 31, 2005 and December 31, 2004, HomeFederal Bank had approximately $125.0 million,  $148.3  million
      and $154.2 million in investments, respectively.





HomeFederal
      Bank's investment portfolio is managed by its officers in accordance with an
      investment policy approved by the Board of Directors. The Board reviews all
      transactions and activities in the investment portfolio on a quarterly basis.
      HomeFederal Bank does not purchase corporate debt securities which are not
      rated
      in one of the top four investment grade categories by one of several generally
      recognized independent rating agencies. HomeFederal Bank's investment strategy
      has enabled it to (i) shorten the average term to maturity of its assets, (ii)
      improve the yield on its investments, (iii) meet federal liquidity requirements
      and (iv) maintain liquidity at a level that assures the availability of adequate
      funds.





Effective
      March 31, 2002, HomeFederal Bank transferred the management of approximately
      $90
      million in securities to its wholly-owned subsidiary, Home Investments, Inc.
      Home Investments, Inc., a Nevada corporation, holds, services, manages, and
      invests that portion of the Bank’s investment portfolio as may be transferred
      from time to time by the Bank to Home Investments, Inc. Home Investments, Inc’s
      investment policy mirrors that of the Bank. At December 31, 2006, of the
      $ 125.0 million
      in consolidated investments owned by HomeFederal Bank, $ 50.2 million
      was held by Home Investments, Inc.





During
      the third quarter of 2006, the Company sold $65.5 million of Investment
      Securities resulting in a pre-tax loss of $2.0 million.





-
          13 -





**Source
      Of Funds**





**General**





Deposits
      have traditionally been the primary source of funds of HomeFederal Bank for
      use
      in lending and investment activities. In addition to deposits, HomeFederal
      Bank
      derives funds from loan amortization, prepayments, borrowings from the FHLB
      of
      Indianapolis and income on earning assets. While loan amortization 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, money
      market conditions and levels of competition. Borrowings may be used to
      compensate for reductions in deposits or deposit inflows at less than projected
      levels and may be used on a longer-term basis to support expanded activities.
      See "-- Borrowings."








**Deposits**





Consumer
      and commercial deposits are attracted principally from within HomeFederal Bank's
      primary market area through the offering of a broad selection of deposit
      instruments including checking accounts, fixed-rate certificates of deposit,
      NOW
      accounts, individual retirement accounts, savings accounts and commercial demand
      deposit accounts. HomeFederal Bank does not actively solicit or advertise for
      deposits outside of the counties in which its branches are located, with the
      exception of brokered deposits. 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. To attract funds, HomeFederal Bank
      may
      pay higher rates on larger balances within the same maturity class.





Under
      regulations adopted by the FDIC, well-capitalized insured depository
      institutions (those with a ratio of total capital to risk-weighted assets of
      not
      less than 10%, with a ratio of core capital to risk-weighted assets of not
      less
      than 6%, with a ratio of core capital to total assets of not less than 5% and
      which have not been notified that they are in troubled condition) may accept
      brokered deposits without limitations. Undercapitalized institutions (those
      that
      fail to meet minimum regulatory capital requirements) are prohibited from
      accepting brokered deposits. Adequately capitalized institutions (those that
      are
      neither well-capitalized nor undercapitalized) are prohibited from accepting
      brokered deposits unless they first obtain a waiver from the FDIC. Under these
      standards, HomeFederal Bank would be deemed a well-capitalized institution.
      At
      December 31, 2006 HomeFederal had $22.4 million in brokered deposits.





An
      undercapitalized institution may not solicit deposits by offering rates of
      interest that are significantly higher than the prevailing rates of interest
      on
      insured deposits (i) in such institution's normal market areas or (ii) in the
      market area in which such deposits would otherwise be accepted.





HomeFederal
      Bank on a periodic basis establishes interest rates paid, maturity terms,
      service fees and withdrawal penalties. Determination of rates and terms are
      predicated on funds acquisition and liquidity requirements, rates paid by
      competitors, growth goals, federal regulations, and market area of
      solicitation.





The
      following table sets forth, by nominal interest rate categories, the composition
      of


Deposits
      of HomeFederal Bank at the dates indicated:





**Dec
                  31, 2006**
              
              **Dec
                  31, 2005**
              
              **Dec
                  31, 2004****(Dollars
                  in Thousands)**Non-interest
                  bearing and below 2.00%
              
              $
              186,952
              
              $
              234,362
              
              $
              402,1302.00%
                  - 2.99%
              
              
              10,935
              
              
              128,498
              
              
              123,9423.00%
                  - 3.99%
              
              
              144,823
              
              
              168,931
              
              
              19,0394.00%
                  - 4.99%
              
              
              229,021
              
              
              90,050
              
              
              51,4215.00%
                  - 5.99%
              
              
              154,217
              
              
              33,787
              
              
              38,013Over
                  6.00%
              
              
              1,211
              
              
              1,711
              
              
              5,636**Total**
              
              $
              727,159
              
              **$**
              **657,339**
              
              **$**
              **640,181**





-
          14 -




The
      following table sets forth the change in dollar amount of deposits in the
      various accounts offered by HomeFederal Bank for the periods
      indicated.





**DEPOSIT
                ACTIVITY****(Dollars
                in Thousands)****Balance**
            
            
            
            
            
            **Balance**
            
            
            
            
            
            **Balance****at**
            
            
            
            
            
            **at**
            
            
            
            
            
            **at****Dec
                31,**
            
            **%
                of**
            
            **Increase**
            
            **Dec
                31,**
            
            **%
                of**
            
            **Increase**
            
            **Dec
                31,**
            
            **%
                of**
            
            **Increase****2006**
            
            **Deposits**
            
            **(Decrease)**
            
            **2005**
            
            **Deposits**
            
            **(Decrease)**
            
            **2004**
            
            **Deposits**
            
            **(Decrease)**Withdrawable:Non-interest
                bearing
            
            $
            72,804
            
            
            10.0
            %
            $
            8,535
            
            $
            64,269
            
            
            9.8
            %
            $
            4,119
            
            $
            60,150
            
            
            9.4
            %
            $
            4.615Statement
                savings
            
            
            41,710
            
            
            5.7
            %
            
            (4,304
            )
            
            46,014
            
            
            7.0
            %
            
            (3,821
            )
            
            49,835
            
            
            7.8
            %
            
            (434
            )Money
                market savings
            
            
            165,605
            
            
            22.8
            %
            
            3,255
            
            
            162,350
            
            
            24.8
            %
            
            29,987
            
            
            132,363
            
            
            20.7
            %
            
            19,566Checking
            
            
            129,025
            
            
            17.8
            %
            
            46,034
            
            
            82,991
            
            
            12.7
            %
            
            (5,256
            )
            
            88,247
            
            
            13.7
            %
            
            20,714Total
                Withdrawable
            
            
            409,144
            
            
            56.3
            %
            
            53,520
            
            
            355,624
            
            
            54.3
            %
            
            25,029
            
            
            330,595
            
            
            51.6
            %
            
            44,461Certificates:Less
                than one year
            
            
            127,888
            
            
            17.6
            %
            
            60,047
            
            
            67,841
            
            
            10.3
            %
            
            12,654
            
            
            55,187
            
            
            8.6
            %
            
            3,67112
                to 23 months
            
            
            34,709
            
            
            4.7
            %
            
            (2,487
            )
            
            37,196
            
            
            5.7
            %
            
            (9,361
            )
            
            46,557
            
            
            7.3
            %
            
            8,28724
                to 35 months
            
            
            72,849
            
            
            10.0
            %
            
            (20,131
            )
            
            92,980
            
            
            14.2
            %
            
            307
            
            
            92,673
            
            
            14.4
            %
            
            (3,992
            )36
                to 59 months
            
            
            10,084
            
            
            1.4
            %
            
            (3,969
            )
            
            14,053
            
            
            2.1
            %
            
            (9,570
            )
            
            23,623
            
            
            3.7
            %
            
            (6,998
            )60
                to 120 months
            
            
            72,485
            
            
            10.0
            %
            
            (15,135
            )
            
            87,620
            
            
            13.4
            %
            
            (3.926
            )
            
            91,546
            
            
            14.4
            %
            
            6,086Total
                certificate accounts
            
            
            318,015
            
            
            43.7
            %
            
            18,325
            
            
            299,690
            
            
            45.7
            %
            
            (9,896
            )
            
            309,586
            
            
            48.4
            %
            
            7,054Total
                deposits
            
            $
            727,159
            
            
            100.0
            %
            $
            71,845
            
            $
            655,314
            
            
            100.0
            %
            $
            15,133
            
            $
            640,181
            
            
            100.0
            %
            $
            51,515








The
      following table represents, by various interest rate categories, the amount
      of
      deposits maturing during each of the three years following December 31, 2006 ,
      and the
      percentage of such maturities to total deposits. Matured certificates which
      have
      not been renewed as of December 31, 2006 have
      been allocated based upon certain rollover assumptions.




**DEPOSIT
                  MATURITIES****(Dollars
                  in Thousands)****1.99%**
              
              **2.00%**
              
              **3.00%**
              
              **4.00%**
              
              **5.00%****or**
              
              **or**
              
              **or**
              
              **or**
              
              **or**
              
              **Over**
              
              
              
              **Percent
                  of****less**
              
              **2.99%**
              
              **3.99**
              
              **4.99%**
              
              **5.99%**
              
              **6.00%**
              
              **Total**
              
              **Total****Certificate
                  accounts maturing in the year ending:****December
                  31, 2007**
              
              $
              579
              
              $
              10,507
              
              $
              41,747
              
              $
              46,125
              
              $
              135,060
              
              $
              652
              
              $
              234,670
              
              $
              73.8
              %**December
                  31, 2008**
              
              
              -
              
              
              428
              
              
              12,043
              
              
              22,862
              
              
              15,614
              
              
              424
              
              
              51,371
              
              
              16.1
              %**December
                  31, 2009**
              
              
              -
              
              
              -
              
              
              3,226
              
              
              12,876
              
              
              2,204
              
              
              135
              
              
              18,441
              
              
              5.8
              %**Thereafter**
              
              
              -
              
              
              -
              
              
              2,991
              
              
              9,203
              
              
              1,339
              
              
              -
              
              
              13,533
              
              
              4.3
              %**Total**
              
              $
              579
              
              $
              10,935
              
              $
              60,007
              
              $
              91,066
              
              $
              154,217
              
              $
              1,211
              
              $
              318,015
              
              $
              100.0
              %





-
          15 -




Included
      in the deposit totals in the above table are savings certificates of deposit
      with balances exceeding $100,000. The majority of these deposits are from
      regular customers of HomeFederal Bank, excluding $22.4 million,
      which were from brokered deposits. The following table provides a maturity
      breakdown at December
      31, 2006 ,
      of
      certificates of deposits with balances greater than $100,000, by various
      interest rate categories.





**ACCOUNTS GREATER THAN $100,000**
                **(Dollars in
                  Thousands)****1.99%**
              
              **2.00%**
              
              **3.00%**
              
              **4.00%**
              
              **5.00%****or**
              
              **or**
              
              **or**
              
              **or**
              
              **or**
              
              **Over**
              
              
              
              **Percent
                  of****less**
              
              **2.99%**
              
              **3.99**
              
              **4.99%**
              
              **5.99%**
              
              **6.00%**
              
              **Total**
              
              **Total****Certificate
                  accounts maturing in the year ending:****December
                  31, 2007**
              
              $
              166
              
              $
              1,333
              
              $
              6,627
              
              $
              14,368
              
              $
              45,902
              
              $
              117
              
              $
              68,513
              
              $
              72.0
              %**December
                  31, 2008**
              
              
              0
              
              
              0
              
              
              2,229
              
              
              7,337
              
              
              5,364
              
              
              371
              
              
              15,301
              
              
              16.1
              %**December
                  31, 2009**
              
              
              0
              
              
              0
              
              
              606
              
              
              6,732
              
              
              1,727
              
              
              135
              
              
              9,200
              
              
              9.6
              %**Thereafter**
              
              
              0
              
              
              0
              
              
              0
              
              
              1,607
              
              
              601
              
              
              0
              
              
              2,208
              
              
              2.3
              %**Total**
              
              $
              166
              
              $
              1,333
              
              $
              9,462
              
              $
              30,044
              
              $
              53,594
              
              $
              623
              
              $
              95,222
              
              $
              100.0
              %





**Borrowings**





HomeFederal
      Bank relies upon advances (borrowings) from the FHLB of Indianapolis to
      supplement its supply of lendable funds, meet deposit withdrawal requirements
      and to extend the term of its liabilities.


This
      facility has historically been HomeFederal Bank's major source of borrowings.
      Advances from the FHLB of Indianapolis are typically secured by HomeFederal
      Bank's stock in the FHLB of Indianapolis and a portion of HomeFederal Bank's
      mortgage loans.





Each
      FHLB
      credit program has its own interest rate, which may be fixed or variable, and
      a
      range of maturities. Subject to the express limits in FIRREA, the FHLB of
      Indianapolis may prescribe the acceptable uses to which these advances may
      be
      put, as well as limitations on the size of the advances and repayment
      provisions. At December 31, 2006 ,
      HomeFederal Bank had advances totaling $ 68.7 million
      outstanding from the FHLB of Indianapolis.





On
      September 15, 2006, the Company entered into several agreements providing for
      the private placement of $15,000,000 of Capital Securities due September 15,
      2036 (the “Capital Securities”). The Capital Securities were issued by the
      Company’s newly formed Delaware trust subsidiary, Home Federal Statutory Trust I
      (the “Trust”), to Bear, Sterns & Co., Inc. (the “Purchaser”). The Company
      bought $464,000 in Common Securities (the “Common Securities”) from the Trust.
      The proceeds of the sale of Capital Securities and Common Securities were used
      by the Trust to purchase $15,464,000 in principal amount of Junior Subordinated
      Debt Securities (the “Debentures”) from the Company pursuant to an Indenture
      (the “Indenture”) between the Company and LaSalle Bank National Association, as
      trustee (the “Trustee”).





The
      Common Securities and Capital Securities will mature in 30 years, will require
      quarterly distributions and will bear a floating variable rate equal to the
      prevailing three-month LIBOR rate plus 1.65% per annum. Interest on the Capital
      Securities and Common Securities is payable quarterly in arrears each December
      15, March 15, June 15 and September 15, commencing December 15, 2006. The
      Company may redeem the Capital Securities and the Common Securities, in whole
      or
      in part, without penalty, on or after September 15, 2011, or earlier upon the
      occurrence of certain events described below with the payment of a premium
      upon
      redemption.





The
      Debentures bear interest at the same rate and on the same dates as interest
      is
      payable on the Capital Securities and the Common Securities. The Company has
      the
      option, as long as it is not in default under the Indenture, at any time and
      from time to time, to defer the payment of interest on the Debentures for up
      to
      twenty consecutive quarterly interest payment periods. During any such deferral
      period, or while an event of default exists under the Indenture, the Company
      may
      not declare or pay dividends or distributions on, redeem, purchase, or make
      a
      liquidation payment with respect to, any of its capital stock, or make payments
      of principal, interest or premium on, or repay or repurchase, any other debt
      securities that rank equal or junior to the Debentures, subject to certain
      limited exceptions.





-
          16 -


The
      Debentures mature 30 years after their date of issuance, and can be redeemed
      in
      whole or in part by the Company, without penalty, at any time after September
      15, 2011. The Company may also redeem the Debentures upon the occurrence of
      a
“capital treatment event,” an “investment company event” or a “tax event” as
      defined in the Indenture, but if such redemption occurs prior to September
      15,
      2011, a premium will be payable to Debenture holders upon the redemption. The
      payment of principal and interest on the Debentures is subordinate and subject
      to the right of payment of all “Senior Indebtedness” of the Company as described
      in the Indenture.





The
      Company has a revolving note with LaSalle Bank N.A with an available balance
      of
      $17.5 million. The balance was zero at December 31, 2006. The note accrues
      interest at a variable rate based on the ninety-day LIBOR index, on the date
      of
      the draw, plus 140 basis points. Interest payments are due ninety days after
      the
      date of any principal draws made on the loan and every ninety days thereafter.
      The assets of the Company collateralized the note. Under terms of the agreement,
      the Company was bound by certain restrictive debt covenants relating to
      earnings, net worth and various financial ratios.





The
      following table sets forth the maximum amount of each category of short-term
      borrowings (borrowings with remaining maturities of one year or less)
      outstanding at any month-end during the periods shown and the average aggregate
      balances of short-term borrowings for such periods.








**Year**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**(Dollars
                in Thousands)
            
            **Dec
                31,********2006**
            
            **Dec
                31, 2005**
            
            **Dec
                31, 2004**Official
                check overnight remittance
            
            $
            478
            
            $
            172
            
            $
            6,364FHLB
                advances
            
            $
            53,400
            
            $
            57,053
            
            $
            48,150Average
                amount of total
              short-term
                borrowings outstanding
            
            $
            36,812
            
            $
            50,695
            
            $
            36,520








The
      following table sets forth the amount of short-term FHLB advances outstanding
      at
      period end


during
      the period shown and the weighted average rate of such FHLB
      advances.








(Dollars
                in Thousands)
            
            **Dec
                31, 2006**
            
            **Dec
                31, 200****5**
            
            **Dec
                31, 2004**FHLB
                advances:Amount
            
            $
            9,250
            
            $
            32,403
            
            $
            48,150Weighted
                average rate
            
            
            5.0
            %
            
            5.5
            %
            
            5.0
            %




**Service
      Corporation and Other Subsidiaries**





On
      December 31, 2001 HomeFederal Bank changed its charter from a Federal savings
      bank charter to an Indiana commercial bank charter. Commercial banks are not
      permitted to participate in real estate development joint ventures. The Company
      had invested in real estate development joint ventures through its subsidiary,
      Home Savings Corporation ("HSC"). HSC divested of the three remaining real
      estate joint venture partnerships during 2006. HSC, an Indiana corporation,
      is
      currently engaged in full-service securities brokerage services
      activities.




HSC
      markets Raymond James Financial Services full-service securities brokerage
      services. For the year ended December 31, 2006 ,
      HSC
      received $1 ,359,000 in
      commissions from its Raymond James financial activities.





At
      December 31, 2006 ,
      HomeFederal Bank's aggregate investment in HSC, including loans, was $23,000.
      For the year ended December 31, 2006 ,
      HSC
      reported pretax income of $ 27,000 from
      these operations. HSC's office is located at 501 Washington Street, Columbus,
      Indiana. The consolidated statements of operations of HomeFederal Bank and
      its
      subsidiaries included elsewhere herein includes the operations of HSC.
      Intercompany balances and transactions have been eliminated in the
      consolidation.





In
      November 1989, HSC invested $184,000 as a limited partner in Heritage Woods
      II,
      a low income housing project of 22 rental apartments in Columbus, Indiana.
      HSC
      received low-income housing tax credits for 10 years from this project and
      must
      maintain the investment for 15 years to avoid any tax credit recapture. As
      of
      December 31, 2006 HSC’s equity investment in Heritage Woods II was
      $23,000





-
          17 -





HomeFederal
      Bank also organized a subsidiary under Nevada law, Home Investments, Inc.,
      (“HII”). Effective March 31, 2002, HomeFederal Bank transferred the management
      of approximately $90 million in securities to HII. Home Investments, Inc. holds,
      services, manages, and invests that portion of the Bank’s investment portfolio
      as may be transferred from time to time by the Bank to HII. Home Investments
      Inc.’s, investment policy mirrors that of the Bank. At December 31, 2006 ,
      of the
      $ 125.0 million
      in consolidated investments owned by HomeFederal Bank, $50 .2 million
      was held by Home Investments, Inc.




The
      Company owns another corporation organized under Indiana law, HomeFed Financial
      Corp, (“HFF”). At December 31, 2006 ,
      the
      Company’s aggregate investment in HFF was $ 787,000 .
      HFF has
      a 14 %
      interest in Consortium Partners, a Louisiana partnership, which owns 50% of
      the
      outstanding shares of the Family Financial Holdings, Inc. of New Orleans,
      Louisiana ("Family Financial"). The remaining 50% of the outstanding shares
      of
      Family Financial is owned proportionately by the partners of Consortium
      Partners. Family Financial administers for debt protection programs for the
      customers of the partners' parent-thrifts and banks, and reinsures some of
      the
      risk involved in such programs with other entities, including Family Financial
      Reinsurance Company, LTD, a nexus - domiciled reinsurer formed by Family
      Financial. HFF receives (1) dividends paid on Family Financial shares owned
      directly by it, (2) a pro rata allocation of dividends received on shares held
      by Consortium Partners, which are divided among the partners based on the
      actuarially determined value of Family Financials various debt protection
      policies generated by customers of these partners, and (3) commissions on sales
      of debt protection policies made to customers. For the year ended December
      31, 2006 ,
      the
      Company had income of $ 185,000 ,
      on a
      consolidated basis, from commissions and dividends paid on Family Financial
      activities.





**Employees**





As
      of
      December 31, 2006 ,
      the
      Company employed 270 persons
      on a full-time basis and 19 persons
      on a part-time or temporary basis. None of the Company’s employees are
      represented by a collective bargaining group. Management considers its employee
      relations to be excellent.





**Competition**





HomeFederal
      Bank operates in south central Indiana and makes almost all of its loans to,
      and
      accepts almost all of its deposits from, residents of Bartholomew, Jackson,
      Jefferson, Jennings, Johnson, Scott, Ripley, Washington, Decatur and Marion
      counties in Indiana.





HomeFederal
      Bank is subject to competition from various financial institutions, including
      state and national banks, state and federal thrift associations, credit unions
      and other companies or firms, including brokerage houses, that provide similar
      services in the areas of HomeFederal Bank's home and branch offices. Also,
      in
      Seymour, Columbus, North Vernon, Batesville, and the Greenwood area, HomeFederal
      Bank must compete with banks and savings institutions in Indianapolis. To a
      lesser extent, HomeFederal Bank competes with financial and other institutions
      in the market areas surrounding Cincinnati, Ohio and Louisville, Kentucky.
      HomeFederal Bank also competes with money market funds that currently are not
      subject to reserve requirements, and with insurance companies with respect
      to
      its Individual Retirement and annuity accounts.





Under
      current law, bank holding companies may acquire thrifts. Thrifts may also
      acquire banks under federal law. Affiliations between banks and thrifts based
      in
      Indiana have increased the competition faced by HomeFederal Bank and the
      Company. See “Branching and Acquisitions.”





The
      Gramm-Leach-Bliley Act allows insurers and other financial service companies
      to
      acquire banks; removes various restrictions that previously applied to bank
      holding company ownership of securities firms and mutual fund advisory
      companies; and establishes the overall regulatory structure applicable to bank
      holding companies that also engage in insurance and securities operations.
      These
      provisions in the Act may increase the level of competition HomeFederal Bank
      faces from securities firms and insurance companies.





The
      primary factors influencing competition for deposits are interest rates, service
      and convenience of office locations. 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 that are not readily
      predictable.





**REGULATION**





Both
      the
      Company and HomeFederal operate in highly regulated environments and are subject
      to supervision, examination and regulation by several governmental regulatory
      agencies, including the Board of Governors of the




-
          18 -




Federal
      Reserve System (the “Federal Reserve”), the Federal Deposit Insurance
      Corporation (the “FDIC”), and the Indiana Department of Financial Institutions
      (the “DFI”). The laws and regulations established by these agencies are
      generally intended to protect depositors, not shareholders. Changes in
      applicable laws, regulations, governmental policies, income tax laws and
      accounting principles may have a material effect on the Company’s business and
      prospects. The following summary is qualified by reference to the statutory
      and
      regulatory provisions discussed.





**Home
      Federal Bancorp**





*The
      Bank Holding Company Act* .
      Because
      the Company owns all of the outstanding capital stock of HomeFederal, it is
      registered as a bank holding company under the federal Bank Holding Company
      Act
      of 1956 and is subject to periodic examination by the Federal Reserve and
      required to file periodic reports of its operations and any additional
      information that the Federal Reserve may require.





*Investments,
      Control, and Activities* .
      With
      some limited exceptions, the Bank Holding Company Act requires every bank
      holding company to obtain the prior approval of the Federal Reserve before
      acquiring another bank holding company or acquiring more than 5% of the voting
      shares of a bank (unless it already owns or controls the majority of such
      shares).





Bank
      holding companies are prohibited, with certain limited exceptions, from engaging
      in activities other than those of banking or of managing or controlling banks.
      They are also prohibited from acquiring or retaining direct or indirect
      ownership or control of voting shares or assets of any company which is not
      a
      bank or bank holding company, other than subsidiary companies furnishing
      services to or performing services for their subsidiaries, and other
      subsidiaries engaged in activities which the Federal Reserve determines to
      be so
      closely related to banking or managing or controlling banks as to be incidental
      to these operations. The Bank Holding Company Act does not place territorial
      restrictions on such nonbank activities.





Effective
      March 11, 2000, the Gramm-Leach Bliley Act of 1999, which was signed into law
      on
      November 12, 1999, allows a bank holding company to qualify as a “financial
      holding company” and, as a result, be permitted to engage in a broader range of
      activities that are “financial in nature” and in activities that are determined
      to be incidental or complementary to activities that are financial in nature.
      The Gramm-Leach-Bliley Act amends the Bank Holding Company Act of 1956 to
      include a list of activities that are financial in nature, and the list includes
      activities such as underwriting, dealing in and making a market in securities,
      insurance underwriting and agency activities and merchant banking. The Federal
      Reserve is authorized to determine other activities that are financial in nature
      or incidental or complementary to such activities. The Gramm-Leach-Bliley Act
      also authorizes banks to engage through financial subsidiaries in certain of
      the
      activities permitted for financial holding companies.





In
      order
      for a bank holding company to engage in the broader range of activities that
      are
      permitted by the Gramm-Leach-Bliley Act (1) all of its depository institutions
      must be well capitalized and well managed and (2) it must file a declaration
      with the Federal Reserve that it elects to be a “financial holding company.” In
      addition, to commence any new activity permitted by the Gramm-Leach-Bliley
      Act,
      each insured depository institution of the financial holding company must have
      received at least a “satisfactory” rating in its most recent examination under
      the Community Reinvestment Act. The Company has elected to be a financial
      holding company.





*Dividends* .
      The
      Federal Reserve’s policy is that a bank holding company experiencing earnings
      weaknesses should not pay cash dividends exceeding its net income or which
      could
      only be funded in ways that weaken the bank holding company’s financial health,
      such as by borrowing. Additionally, the Federal Reserve possesses enforcement
      powers over bank holding companies and their non-bank subsidiaries to prevent
      or
      remedy actions that represent unsafe or unsound practices or violations of
      applicable statutes and regulations. Among these powers is the ability to
      proscribe the payment of dividends by banks and bank holding
      companies.





*Source
      of Strength* .
      In
      accordance with Federal Reserve policy, the Company is expected to act as a
      source of financial strength to HomeFederal and to commit resources to support
      HomeFederal in circumstances in which the Company might not otherwise do
      so.





**HomeFederal
      Bank**





*General
      Regulatory Supervision* .
      HomeFederal as an Indiana commercial bank and a member of the Federal Reserve
      System is subject to examination by the DFI and the Federal Reserve. The DFI
      and
      the Federal Reserve regulate or monitor virtually all areas of HomeFederal’s
      operations. HomeFederal must undergo regular on-site examinations by the Federal
      Reserve and DFI and must submit periodic reports to the Federal Reserve and
      the
      DFI.





-
          19 -


*Lending
      Limits* .
      Under
      Indiana law, HomeFederal 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. At
      December 31, 2006, HomeFederal did not have any loans or extensions of credit
      to
      a single or related group of borrowers in excess of its lending
      limits.





*Deposit
      Insurance* .
      Deposits in HomeFederal are insured by the FDIC up to a maximum amount, which
      is
      generally $100,000 per depositor subject to aggregation rules, **** provided
      that this amount may increase beginning April 1, 2010, and will be adjusted
      every five years thereafter, based on an inflation adjustment process
      established in recent legislation. See "Recent Legislative Developments."
      HomeFederal is subject to deposit insurance assessments by the FDIC pursuant
      to
      its regulations establishing a risk-related deposit insurance assessment system,
      based upon the institution’s capital levels and risk profile. HomeFederal is
      also subject to assessment for the Financing Corporation (FICO) to service
      the
      interest on its bond obligations. The amount assessed on individual
      institutions, including HomeFederal, by FICO is in addition to the amount paid
      for deposit insurance according to the risk-related assessment rate schedule.
      HomeFederal paid deposit insurance assessments of $84,000 during
      the year ended December 31, 2006 .
      Future
      increases in deposit insurance premiums or changes in risk classification would
      increase HomeFederal’s deposit related costs.





The
      FDIC
      may terminate the deposit insurance of any insured depository institution if
      the
      FDIC determines, after a hearing, that the institution has engaged or is
      engaging in unsafe or unsound practices, is in an unsafe and unsound condition
      to continue operations or has violated any applicable law, regulation, order
      or
      any condition imposed in writing by, or written agreement with, the FDIC. The
      FDIC may also suspend deposit insurance temporarily during the hearing process
      for a permanent termination of insurance if the institution has no tangible
      capital.





*Transactions
      with Affiliates and Insiders* .
      HomeFederal is subject to limitations on the amount of loans or extensions
      of
      credit to, or investments in, or certain other transactions with, affiliates
      and
      on the amount of advances to third parties collateralized by the securities
      or
      obligations of affiliates. Furthermore, within the foregoing limitations as
      to
      amount, each covered transaction must meet specified collateral requirements.
      Compliance is also required with certain provisions designed to avoid the
      acquisition of low quality assets. HomeFederal is also prohibited from engaging
      in certain transactions with certain affiliates unless the transactions are
      on
      terms substantially the same, or at least as favorable to such institution
      or
      its subsidiaries, as those prevailing at the time for comparable transactions
      with nonaffiliated companies.





Extensions
      of credit by HomeFederal to its executive officers, directors, certain principal
      shareholders, and their related interests must be made on substantially the
      same
      terms, including interest rates and collateral, as those prevailing at the
      time
      for comparable transactions with third parties, and not involve more than the
      normal risk of repayment or present other unfavorable features.





*Dividends* .
      Under
      Indiana law, HomeFederal is prohibited from paying dividends in an amount
      greater than its undivided profits, or if the payment of dividends would impair
      HomeFederal’s capital. Moreover, HomeFederal is required to obtain the approval
      of the DFI and the Federal Reserve for the payment of any dividend if the
      aggregate amount of all dividends paid by HomeFederal during any calendar year,
      including the proposed dividend, would exceed the sum of HomeFederal’s retained
      net income for the year to date combined with its retained net income for the
      previous two years. For this purpose, “retained net income” means the net income
      of a specified period, calculated under the consolidated report of income
      instructions, less the total amount of all dividends declared for the specified
      period.





Federal
      law generally prohibits HomeFederal from paying a dividend to its holding
      company if the depository institution would thereafter be undercapitalized.
      The
      FDIC may prevent an insured bank from paying dividends if the bank is in default
      of payment of any assessment due to the FDIC. In addition, payment of dividends
      by a bank may be prevented by the applicable federal regulatory authority if
      such payment is determined, by reason of the financial condition of such bank,
      to be an unsafe and unsound banking practice.





*Branching
      and Acquisitions* .
      Branching by HomeFederal requires the approval of the Federal Reserve and the
      DFI. Under current law, Indiana chartered banks may establish branches
      throughout the state and in other states, subject to certain limitations.
      Congress authorized interstate branching, with certain limitations, beginning
      in
      1997. Indiana law authorizes an Indiana bank to establish one or more branches
      in states other than Indiana through interstate merger transactions and to
      establish one or more interstate branches through de novo branching or the
      acquisition of a branch. There are some states where the establishment of de
      novo branches by out-of-state financial institutions is prohibited.





-
          20 -


*Capital
      Regulations* .
      The
      federal bank regulatory authorities have adopted risk-based capital guidelines
      for banks and bank holding companies that are designed to make regulatory
      capital requirements more sensitive to differences in risk profiles among banks
      and bank holding companies and account for off-balance sheet items. Risk-based
      capital ratios are determined by allocating assets and specified off-balance
      sheet commitments to four risk weighted categories of 0%, 20%, 50%, or 100%,
      with higher levels of capital being required for the categories perceived as
      representing greater risk.





The
      capital guidelines divide a bank holding company’s or bank’s capital into two
      tiers. The first tier (“Tier I”) includes common equity, certain non-cumulative
      perpetual preferred stock and minority interests in equity accounts of
      consolidated subsidiaries, less goodwill and certain other intangible assets
      (except mortgage servicing rights and purchased credit card relationships,
      subject to certain limitations). Supplementary (“Tier II”) capital includes,
      among other items, cumulative perpetual and long-term limited-life preferred
      stock, mandatory convertible securities, certain hybrid capital instruments,
      term subordinated debt and the allowance for loan and lease losses, subject
      to
      certain limitations, less required deductions. Banks and bank holding companies
      are required to maintain a total risk-based capital ratio of 8%, of which 4%
      must be Tier I capital. The federal banking regulators may, however, set higher
      capital requirements when a bank’s particular circumstances warrant. Banks
      experiencing or anticipating significant growth are expected to maintain capital
      ratios, including tangible capital positions, well above the minimum
      levels.





Also
      required by the regulations is the maintenance of a leverage ratio designed
      to
      supplement the risk-based capital guidelines. This ratio is computed by dividing
      Tier I capital, net of all intangibles, by the quarterly average of total
      assets. The minimum leverage ratio is 3% for the most highly rated institutions,
      and 1% to 2% higher for institutions not meeting those standards. Pursuant
      to
      the regulations, banks must maintain capital levels commensurate with the level
      of risk, including the volume and severity of problem loans, to which they
      are
      exposed.





The
      following is a summary of the Company’s and HomeFederal’s regulatory capital and
      capital requirements at December 31, 2006 .







**To
                Be Categorized As****“Well
                Capitalized”****Under
                Prompt****For
                Capital**
            
            **Corrective
                Action****Actual**
            
            **Adequacy
                Purposes**
            
            **Provisions****Amount**
            
            **Ratio**
            
            **Amount**
            
            **Ratio**
            
            **Amount**
            
            **Ratio**As
                of December 31,2006Total
                risk-based capital
              (to
                risk-weighted assets)HomeFederal
                Bank
            
            $
            89,811
            
            
            11.83%
            
            $
            60,759
            
            
            8.0%
            
            $
            75,948
            
            
            10.0
            %Home
                Federal Bancorp Consolidated
            
            $
            91,972
            
            
            12.09%
            
            $
            60,845
            
            
            8.0%
            
            $
            76,056
            
            
            10.0
            %Tier
                1 risk-based capital
              (to
                risk-weighted assets)HomeFederal
                Bank
            
            $
            83,213
            
            
            10.96%
            
            $
            30,379
            
            
            4.0%
            
            $
            45,569
            
            
            6.0
            %Home
                Federal Bancorp Consolidated
            
            $
            85,374
            
            
            11.23%
            
            $
            30,423
            
            
            4.0%
            
            $
            45,634
            
            
            6.0
            %Tier
                1 leverage capital
              (to
                average assets)HomeFederal
                Bank
            
            $
            83,213
            
            
            9.43%
            
            $
            35,308
            
            
            4.0%
            
            $
            44,135
            
            
            5.0
            %Home
                Federal Bancorp Consolidated
            
            $
            85,374
            
            
            9.66%
            
            $
            35,347
            
            
            4.0%
            
            $
            44,184
            
            
            5.0
            %





*Prompt
      Corrective Regulatory Action.* Federal
      law provides the federal banking regulators with broad powers to take prompt
      corrective action to resolve the problems of undercapitalized institutions.
      The
      extent of the regulators’ powers depends on whether the institution in question
      is “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized,” or “critically undercapitalized,” as defined
      by regulation. Depending upon the capital category to which an institution
      is
      assigned, the regulators’ corrective powers include: requiring the submission of
      a capital restoration plan; placing limits on asset growth and restrictions
      on
      activities; requiring the institution to issue additional capital stock
      (including additional voting stock) or to be acquired; restricting transactions
      with affiliates; restricting the interest rate the institution may pay on
      deposits; ordering a new election of directors of the institution; requiring
      that senior executive officers or directors be dismissed; prohibiting the
      institution from accepting deposits from correspondent banks; requiring the
      institution to divest certain subsidiaries; prohibiting the payment of principal
      or interest on subordinated debt; and, ultimately, appointing a receiver for
      the
      institution. At December 31, 2006 ,




-
          21 -




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





*Other
      Regulations* .
      Interest and other charges collected or contracted for by HomeFederal are
      subject to state usury laws and federal laws concerning interest rates.
      HomeFederal’s loan operations are also subject to federal laws applicable to
      credit transactions, such as the:


·Truth-In-Lending
                  Act, governing disclosures of credit terms to consumer
                  borrowers;·Home
                  Mortgage Disclosure Act of 1975, requiring financial institutions
                  to
                  provide informationto enable the public and public officials to determine whether
                  a financial
                  institution is fulfillingits obligation to help meet the housing needs of the community
                  it
                  serves;·Equal
                  Credit Opportunity Act, prohibiting discrimination on the basis
                  of race,
                  creed or otherprohibited
                  factors in extending credit;·Fair
                  Credit Reporting Act of 1978, governing the use and provision of
                  information to creditreporting agencies;·Fair
                  Debt Collection Act, governing the manner in which consumer debts
                  may be
                  collected byollection agencies; and·Rules
                  and regulations of the various federal agencies charged with the
                  responsibility ofimplementing such federal laws.The
                  deposit operations of HomeFederal also are subject to
                  the:·Right
                  to Financial Privacy Act, which imposes a duty to maintain confidentiality
                  of consumerfinancial records and prescribes procedures for complying with
                  administrative subpoenas offinancial records; and·Electronic
                  Funds Transfer Act, and Regulation E issued by the Federal Reserve
                  to
                  implementthat Act, which governs automatic deposits to and withdrawals from
                  deposit
                  accounts andcustomers’ rights and liabilities arising from the use of automated teller
                  machines and other electronicbanking
                  services.


*State Bank Activities.* Under
      federal law, as implemented by regulations adopted by the FDIC, FDIC-insured
      state banks are prohibited, subject to certain exceptions, from making or
      retaining equity investments of a type, or in an amount, that are not
      permissible for a national bank. Federal law, as implemented by FDIC
      regulations, also prohibits FDIC-insured state banks and their subsidiaries,
      subject to certain exceptions, from engaging as principal in any activity that
      is not permitted for a national bank or its subsidiary, respectively, unless
      the
      bank meets, and could continue to meet, its minimum regulatory capital
      requirements and the FDIC determines that the activity would not pose a
      significant risk to the deposit insurance fund of which the bank is a member.
      Impermissible investments and activities must be divested or discontinued within
      certain time frames set by the FDIC. It is not expected that these restrictions
      will have a material impact on the operations of HomeFederal.





*Enforcement Powers* .
      Federal
      regulatory agencies may assess civil and criminal penalties against depository
      institutions and certain “institution-affiliated parties,” including management,
      employees, and agents of a financial institution, as well as independent
      contractors and consultants such as attorneys and accountants and others who
      participate in the conduct of the financial institution’s affairs. In addition,
      regulators may commence enforcement actions against institutions and
      institution-affiliated parties. Possible enforcement actions include the
      termination of deposit insurance. Furthermore, regulators may issue
      cease-and-desist orders to, among other things, require affirmative action
      to
      correct any harm resulting from a violation or practice, including restitution,
      reimbursement, indemnifications or guarantees against loss. A financial
      institution may also be ordered to restrict its growth, dispose




-
          22 -




of
      certain assets, rescind agreements or contracts, or take other actions as
      determined by the regulator to be appropriate.





*Recent Legislative Developments.* On July
      30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
      “Sarbanes-Oxley Act”). The Sarbanes-Oxley Act represents a comprehensive
      revision of laws affecting corporate governance, accounting obligations and
      corporate reportings. The Sarbanes-Oxley Act is applicable to all companies
      with
      equity or debt securities registered under the Securities Exchange Act of 1934.
      In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for
      audit committees, including independence, expertise, and responsibilities;
      (ii)
      additional responsibilities regarding financial statements for the Chief
      Executive Officer and Chief Financial Officer of the reporting company; (iii)
      new standards for auditors and regulation of audits; (iv) increased disclosure
      and reporting obligations for the reporting company and their directors and
      executive officers; and (v) new and increased civil and criminal penalties
      for
      violation of the securities laws.





The Securities and Exchange Commission has adopted final rules implementing
      Section 404 of the
      Sarbanes-Oxley Act of
      2002.
      In each Form 10-K, it files, the Company is required to include a report of
      management on the Company’s internal control over financial reporting. The
      internal control report must include a statement of management’s responsibility
      for establishing and maintaining adequate control over financial reporting
      of
      the Company, identify the framework used by management to evaluate the
      effectiveness of the Company’s internal control over financial reporting,
      provide management’s assessment of the effectiveness of the Company’s internal
      control over financial reporting and state that the Company’s independent
      accounting firm has issued an attestation report on management’s assessment of
      the Company’s internal control over financial reporting. Significant efforts
      were required to comply with Section 404 in 2005 and the Company anticipates
      additional efforts will be required in future years. The costs of such
      compliance are described in Management’s Discussion and Analysis of Financial
      Condition and Results of Operations in the Company’s Shareholder Annual Report
      included as Exhibit 13 to this Form 10-K. In addition, the Securities and
      Exchange Commission in 2006 adopted significant changes to its proxy statement
      disclosure rules relating to executive compensation. Among other things, several
      tables, more detailed narrative disclosures, and a new compensation discussion
      and analysis section are required in proxy statements. These changes have
      required and will require a significant commitment of managerial resources
      and
      will result in increased costs to the Company which would adversely affect
      results of operations, or cause fluctuations in results of operations, in the
      future.





On February 8, 2006, President Bush signed into law the Federal Deposit
      Insurance Reform Act of 2005. This statute reforms the deposit insurance system
      by:





**·**
            merging
                the Bank Insurance Fund and the Savings Association Insurance Fund
                into a
                new Deposit Insurance Fund ("DIF") no later than July 1,
                2006;




**·**
            keeping
                the insurance coverage limit for individual accounts and municipal
                accounts at $100,000 but providing an inflation adjustment process
                which
                permits an adjustment effective January 1, 2011 and every five years
                thereafter based on the Personal Consumption Expenditures Index (with
                2005
                as the base year of comparison), unless the FDIC concludes such adjustment
                would be inappropriate for reasons relating to risks to the
                DIF;




**·**
            increasing
                insurance coverage limits for retirement accounts to $250,000, subject
                to
                the same inflation adjustment process described
                above;




**·**
            prohibiting
                undercapitalized members from accepting employee benefit plan
                deposits;




**·**
            providing
                for the payment of credits based on a member's share of the assessment
                base as of December 31, 1996 and equal to an aggregate of $4.7 billion
                for
                all members, which credits can offset FDIC assessments subject to
                certain
                limits;




**·**
            providing
                for the declaration of dividends to members (based on a member's share of
                the assessment base on December 31, 1996, and premiums paid after
                that
                date) equal to 50% of the amount in the DIF in excess of a reserve
                ratio
                of 1.35% and 100% of such amount in excess of a reserve ratio of
                1.5%,
                subject to the FDIC's right to suspend or limit dividends based on
                risks
                to the DIF; and




**·**
            eliminating
                the mandatory assessment (up to 23 basis points) if the DIF falls
                below
                1.25% of insured deposits and retaining assessments based on risk,
                needs
                of the DIF, and the effect on the members' capital and earnings.
                The FDIC
                is authorized to set a reserve ratio of between 1.15% and 1.5% and
                will
                have five years to restore the DIF if the ratio falls below 1.15%.
                On
                November 2, 2006, the FDIC adopted final regulations that set the
                designated reserve ratio for the DIF at 1.25% beginning January 1,
                2007.







-
          23 -




Insured depository institutions that were in existence on December 31, 1996
      and
      paid assessments prior to that date (or their successors) are entitled to a
      one-time credit against future assessments based on their past contributions
      to
      the BIF or SAIF. In 2006, the Bank received a one-time credit of $712,000
      against future assessments.





Also on November 2, 2006, the FDIC adopted final regulations that establish
      a
      new risk-based premium system. Under the new system, the FDIC will evaluate
      each
      institution's risk based on three primary sources of information: supervisory
      ratings for all insured institutions, financial ratios for most institutions,
      and long-term debt issuer ratings for large institutions that have such ratings.
      An institution’s assessments will be based on the insured institution's ranking
      in one of four risk categories. Effective January 1, 2007, well-capitalized
      institutions with the CAMELS ratings of 1 or 2 are grouped in Risk Category
      I
      and will be assessed for deposit insurance at an annual rate of between five
      and
      seven cents for every $100 of domestic deposits. Institutions in Risk Categories
      II, III and IV will be assessed at annual rates of 10, 28 and 43 cents,
      respectively. An increase in assessments could have a material adverse effect
      on
      the Company’s earnings.





FDIC-insured institutions remain subject to the requirement to pay assessments
      to the FDIC to fund interest payments on bonds issued by the Financing
      Corporation ("FICO"), an agency of the Federal government established to
      recapitalize the predecessor to the SAIF. These assessments will continue until
      the FICO bonds mature in 2017. For the quarter ended December 31, 2006, the
      FICO
      assessment rate was equal to 1.24 cents for each $100 in domestic deposits
      maintained at an institution.





*Effect of Governmental Monetary Policies* .
      HomeFederal’s earnings are affected by domestic economic conditions and the
      monetary and fiscal policies of the United States government and its agencies.
      The Federal Reserve’s monetary policies have had, and are likely to continue to
      have, an important impact on the operating results of commercial banks through
      its power to implement national monetary policy in order, among other things,
      to
      curb inflation or combat a recession. The monetary policies of the Federal
      Reserve have major effects upon the levels of bank loans, investments and
      deposits through its open market operations in United States government
      securities and through its regulation of the discount rate on borrowings of
      member banks and the reserve requirements against member bank deposits. It
      is
      not possible to predict the nature or impact of future changes in monetary
      and
      fiscal policies.





**Federal
      Home Loan Bank System**





HomeFederal 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 members
      within its assigned region. The FHLB 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.




As a member of the FHLB, HomeFederal 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. At December 31, 2006 ,
      HomeFederal's investment in stock of the FHLB of Indianapolis was $ 8.3 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.





The FHLBs are required to provide funds for the resolution of troubled savings
      associations and to contribute to affordable housing programs through direct
      loans or interest subsidies on advances targeted for community investment and
      low- and moderate-income housing projects. For the year ended December 31, 2006 ,
      dividends paid by the FHLB of Indianapolis to HomeFederal totaled approximately
      $ 463,000 ,
      for an
      annualized rate of 4.9 %.





-
          24 -




**Limitations
      on Rates Paid for Deposits**





Regulations promulgated by the FDIC 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 federal law. Management does not believe that these
      regulations will have a materially adverse effect on HomeFederal's current
      operations.





**Federal
      Reserve System**





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





**Federal
      Securities Law**





The
      shares of Common Stock of the Company are registered with the Securities and
      Exchange Commission, (the “SEC”) under the Securities Exchange Act of 1934 (the
      "1934 Act"). The 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 Company has fewer than 300 shareholders,
      it
      may deregister its 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 Company may not be resold
      without registration unless sold in accordance with the resale restrictions
      of
      Rule 144 under the Securities Act of 1933 (the "1933 Act"). If the Company
      meets
      the current public information requirements under Rule 144, each affiliate
      of
      the Company who complies with the other conditions of Rule 144 (including a
      one-year holding period for restricted securities and conditions that require
      the affiliate's sale to be aggregated with those of certain other persons)
      will
      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 Company or (ii) the average weekly volume of trading
      in such shares during the preceding four calendar weeks.





**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 -- using terms such as satisfactory and
      unsatisfactory -- 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 homebuyers. The FHLBs have established
      an "Affordable Housing Program" to subsidize the interest rate of advances
      to
      member associations engaged in lending for long-term, low- and moderate-income,
      owner-occupied and affordable rental housing at subsidized rates. HomeFederal
      is
      participating in this program. The examiners have determined that HomeFederal
      has a satisfactory record of meeting community credit needs.





**Taxation**





**Federal
      Taxation**





Beginning
      with the six months ended December 31, 2002, the Company and its subsidiary
      began to file a consolidated federal income tax return on the accrual basis
      for
      a fiscal year ending December 31. Previously, the Company’s fiscal and tax years
      ended June 30th. The consolidated federal income tax return has the effect
      of
      eliminating intercompany distributions, including dividends, in the computation
      of consolidated taxable income. Income of the Company generally would not be
      taken into account in determining the bad debt deduction allowed to HomeFederal,
      regardless of whether a consolidated tax return is filed. However, certain
      "functionally related" losses of the Company would be required to be taken
      into
      account in determining the permitted bad debt deduction which, depending upon
      the particular circumstances, could reduce the bad debt deduction.





-
          25 -





Historically, HomeFederal had 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, HomeFederal was
      no
      longer able to use the percentage of taxable income method of computing its
      allocable tax bad debt deduction. HomeFederal 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. HomeFederal
      began recapturing approximately $2.3 million over a six-year period beginning
      in
      fiscal 1999. In addition, the pre-1988 reserve, on which no deferred taxes
      have
      been recorded, will not have to be recaptured into income unless (i) HomeFederal
      no longer qualifies as a bank under the Code, or (ii) excess dividends are
      paid
      out by HomeFederal.





Depending
      on the composition of its items of income and expense, a bank may be subject
      to
      the alternative minimum tax. A bank 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 that
      is attributable to most preferences (although not to post-August 7, 1986
      tax-exempt interest) can be credited against regular tax due in later
      years.





**State
      Taxation**





HomeFederal
      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
      Internal Revenue 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 Company’s Indiana effective tax
      rate was reduced in 2006 due to the impact of the sale of available for sale
      securities resulting in a decrease to the state apportionment factor for
      Indiana. Other applicable state taxes include generally applicable sales and
      use
      taxes plus real and personal property taxes.





HomeFederal's
      state income tax returns were audited in 2006 and all issues relating to the
      audit have been resolved.





**Item
      1A. Risk Factors**





In
      analyzing whether to make or continue an investment in the Company, investors
      should consider, among other factors, the following:





*Federal and State Government Regulations.* The
      banking industry is heavily regulated. These regulations are intended to protect
      depositors, not shareholders. As discussed in this Form 10-K, the Company and
      its subsidiaries are subject to regulation and supervision by the FDIC, the
      Board of Governors of the Federal Reserve System, the Indiana Department of
      Financial Institutions, and the SEC. The burden imposed by federal and state
      regulations puts banks at a competitive disadvantage compared to less regulated
      competitors such as finance companies, mortgage banking companies and leasing
      companies. In particular, the monetary policies of the Federal Reserve Board
      have had a significant effect on the operating results of banks in the past,
      and
      are expected to continue to do so in the future. Among the instruments of
      monetary policy used by the Federal Reserve Board to implement its objectives
      are changes in the discount rate charged on bank borrowings and changes in
      the
      reserve requirements on bank deposits. It is not possible to predict what
      changes, if any, will be made to the monetary polices of the Federal Reserve
      Board or to existing federal and state legislation or the effect that such
      changes may have on the future business and earnings prospects of the
      Company.





*Legislation.* Because
      of concerns relating to the competitiveness and the safety and soundness of
      the
      industry, Congress continues to consider a number of wide-ranging proposals
      for
      altering the structure, regulation, and competitive relationships of the
      nation’s financial institutions. Among such bills are proposals to combine banks
      and thrifts under a unified charter and to combine regulatory agencies.
      Management cannot predict whether or in what form any of these proposals will
      be
      adopted or the extent to which the business of the Company and its subsidiaries
      may be affected thereby.





-
          26 -




*Credit Risk.* One of
      the greatest risks facing lenders is credit risk -- that is, the risk of losing
      principal and interest due to a borrower’s failure to perform according to the
      terms of a loan agreement. While management attempts to provide an allowance
      for
      loan losses at a level adequate to cover probable incurred losses based on
      loan
      portfolio growth, past loss experience, general economic conditions, information
      about specific borrower situations, and other factors, future adjustments to
      reserves may become necessary, and net income could be significantly affected,
      if circumstances differ substantially from assumptions used with respect to
      such
      factors.





*Exposure to Local Economic Conditions.* Company's primary market area for deposits and loans encompasses counties in
      southern Indiana, where all of its offices are located. Most of the Company's
      business activities are within this area. This concentration exposes the Company
      to risks resulting from changes in the local economy. An economic slowdown
      in
      these areas could have the following consequences, any of which could hurt
      our
      business:





·
            Loan
                delinquencies may increase;


·
            Problem
                assets and foreclosures may
                increase;


·
            Demand
                for the products and services of HomeFederal may decline;
                and


·
            Collateral
                for loans made by HomeFederal, especially real estate, may decline
                in
                value, in turn reducing customers' borrowing power, and reducing
                the value
                of assets and collateral associated with existing loans of
                HomeFederal.





*Interest Rate Risk.* The
      Company's earnings depend to a great extent upon the level of net interest
      income, which is the difference between interest income earned on loans and
      investments and the interest expense paid on deposits and other borrowings.
      Interest rate risk is the risk that the earnings and capital will be adversely
      affected by changes in interest rates. While the Company attempts to adjust
      its
      asset/liability mix in order to limit the magnitude of interest rate risk,
      interest rate risk management is not an exact science. Rather, it involves
      estimates as to how changes in the general level of interest rates will impact
      the yields earned on assets and the rates paid on liabilities. Moreover, rate
      changes can vary depending upon the level of rates and competitive factors.
      From
      time to time, maturities of assets and liabilities are not balanced, and a
      rapid
      increase or decrease in interest rates could have an adverse effect on net
      interest margins and results of operations of the Company. Volatility in
      interest rates can also result in disintermediation, which is the flow of funds
      away from financial institutions into direct investments, such as U.S.
      Government and corporate securities and other investment vehicles, including
      mutual funds, which, because of the absence of federal insurance premiums and
      reserve requirements, generally pay higher rates of return than financial
      institutions.





*Competition.* The
      Company faces strong competition from other banks, savings institutions and
      other financial institutions that have branch offices or otherwise operate
      in
      the Company’s market area, as well as many other companies now offering a range
      of financial services. Many of these competitors have substantially greater
      financial resources and larger branch systems than the Company. In addition,
      many of HomeFederal’s competitors have higher legal lending limits than does
      HomeFederal. Particularly intense competition exists for sources of funds
      including savings and retail time deposits and for loans, deposits and other
      services that HomeFederal offers. As a result of the repeal of the Glass
      Steagall Act, which separated the commercial and investment banking industries,
      all banking organizations face increasing competition.





**Item
      1B. Unresolved Staff Comments**





Not
      Applicable





**Item
      2.**  **Properties.**





At
      December 31, 2006 ,
      HomeFederal conducted its business from its main office at 501 Washington
      Street, Columbus, Indiana and 18 other
      full-service branches and a commercial loan office in Indianapolis. HomeFederal
      owns two buildings that it uses for certain administrative operations located
      at
      211 North Chestnut Street, Seymour and 3801 Tupelo Drive, Columbus. The
      headquarters of its securities operations, conducted through one of its
      subsidiaries, are located at 501 Washington Street, Columbus, Indiana.
      Information concerning these properties, as of December 31, 2006 ,
      is
      presented in the following table:


-
          27 -





**Net
                Book Value****of
                Property,**
            
            **Approximate****Description
                and**
            **Owned
                or**
            
            
            **Furniture
                and**
            
            **Square**
            
            **Lease****Address**
            **Leased**
            
            
            **Fixtures**
            
            **Footage**
            
            **Expiration**Principal
                Office
              501
                Washington Street
            Owned
            
            $
            3,793,827
            
            21,600
            
            N/AAdministrative
                Operations Offices:211
                North Chestnut, Seymour
            Owned
            
            $
            264,067
            
            5,130
            
            N/A3801
                Tupelo Drive, Columbus
            Owned
            
            $
            3,263,971
            
            16,920
            
            N/ABranch
                Offices:Columbus
                Branches:1020
                Washington Street
            Owned
            
            $
            371,860
            
            800
            
            N/A3805
                25thStreet
            Owned
            
            $
            235,095
            
            5,800
            
            N/A2751
                Brentwood Drive
            Owned
            
            $
            370,380
            
            3,200
            
            N/A4330
                West Jonathon Moore Pike
            Owned
            
            $
            483,172
            
            2,600
            
            N/AHope
                Branch
              8475
                North State Road 9, Suite 4
            Leased
            
            $
            86,132
            
            1,500
            
            03/2007Austin
                Branch
              67
                West Main Street
            Owned
            
            $
            43,645
            
            3,600
            
            N/ABrownstown
                Branch
              101
                North Main Street
            Leased
            
            $
            9,914
            
            2,400
            
            Month
                to MonthNorth
                Vernon Branches111
                North State Street
            Owned
            
            $
            208,599
            
            1,900
            
            N/A1540
                North State Street
            Leased
            
            $
            12,464
            
            1,600
            
            10/2007Osgood
                Branch
              820
                South Buckeye Street
            Owned
            
            $
            109,782
            
            1,280
            
            N/ASalem
                Branch
              1208
                South Jackson
            Owned
            
            $
            566,209
            
            1,860
            
            N/ASeymour
                Branches222
                W. Second Street
            Owned
            
            $
            1,141,647
            
            9,200
            
            N/A1117
                East Tipton Street
            Owned
            
            $
            322,017
            
            6,800
            
            N/ABatesville
                Branch
              114
                State Rd 46 East
            Owned
            
            $
            481,541
            
            2,175
            
            N/AMadison
                Branch
              201
                Clifty Drive
            Owned
            
            $
            374,047
            
            2,550
            
            N/AGreensburg
                Branch
              1801
                Greensburg Crossing
            Owned
            
            $
            692,047
            
            1,907
            
            N/AIndianapolis
                Branches8740
                South Emerson Avenue
            Owned
            
            $
            2,032,210
            
            5,000
            
            N/A1510
                West Southport Road
            Owned
            
            $
            1,957,097
            
            3,100
            
            N/AIndianapolis
                Commercial Loan Office10
                West Market Street, Suite 1600
            Leased
            
            $
            212,603
            
            5,632
            
            10/2011Building
                Held for Investment218
                West Second Street, Seymour
            Owned
            
            $
            200,000
            
            20,000
            
            N/A





HomeFederal
      owns its computer and data processing equipment that is used for accounting,
      financial forecasting, and general ledger work. HomeFederal also has contracted
      for the data processing and reporting services of Open Solutions, Inc.
      headquartered in Glastonbury, Connecticut. The
      contract with Open Solutions, Inc. expires in October 2009.




-
          28 -




**Item
      3.**  **Legal Proceedings.**





The
      Company and the Bank are involved from time to time as plaintiff or defendant
      in
      various legal actions arising in the normal course of business. While the
      ultimate outcome of these proceedings cannot be predicted with certainty, it
      is
      the opinion of management that the resolution of these proceedings should not
      have a material effect on the Company’s consolidated financial position or
      results of operations.





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





No
      matter
      was submitted to a vote of the Company’s shareholders during the quarter ended
      December 31, 2006.





**Item
      4.5. Executive Officers of Home Federal Bancorp.**





Presented
      below is certain information regarding the executive officers of HFB who are
      not
      also directors.




**Position
                  with HFB**Mark
                  T. Gorski
              Executive
                  Vice President, Treasurer, andChief
                  Financial Officer and SecretaryCharles
                  R. Farber
              Executive
                  Vice President


Mark
      T.
      Gorski ( age
      42 )
      has
      been employed by HomeFederal as Executive Vice President, Treasurer and Chief
      Financial Officer since July 1, 2005. **** From
      January 2001 to June 2002 he served as the Chief Financial Officer of Fifth
      Third Bank, Indianapolis. From June 2002 to June 2003 he served as Internal
      Reporting and Budgeting Manager of Fifth Third Bank, Cincinnati. From June
      2003
      to June 2005, he served as Director of Private Client Services of Fifth Third
      Bank, Indianapolis.




Charles
      R. Farber ( age
      57 )
      has
      been employed by HomeFederal since March 2002 as its Executive Vice President.
      He served as Law Firm Administrator for the Indianapolis, Indiana law firm
      Locke
      Reynolds LLP from 2000 to 2002. Prior thereto, he served for 28 years at Peoples
      Bank and Trust Company in Indianapolis, Indiana, with his final position at
      Peoples Bank and Trust being Executive Vice President.





**PART
      II**





**Item
      5.**  **Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer
      Purchases of Equity Securities.**





HFB's
      common stock ("Common Stock") is quoted on the National Association of
      Securities Dealers Automated Quotation System ("NASDAQ"), National Market
      System, under the symbol "HOMF." For certain information related to the stock
      prices and dividends paid by HFB, see “Quarterly Results of Operations" on page
      9 of HFB's
      Shareholder Annual Report for the year ended December 31, 2006 (the
      "Shareholder Annual Report"). As of December 31, 2006 ,
      there
      were 396 shareholders of record of HFB's Common Stock.





It
      is
      currently the policy of HFB's Board of Directors to continue to pay quarterly
      dividends, but any future dividends are subject to the Board's discretion based
      on its consideration of HFB's operating results, financial condition, capital,
      income tax considerations, regulatory restrictions and other
      factors.





Since
      HFB
      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 ability of HomeFederal to pay
      dividends to the Company. For a discussion of the regulatory limitations on
      HomeFederal’s ability to pay dividends see Item 1, “Business-Regulation -
      HomeFederal Bank - Dividends”, and on the Company’s ability to pay dividends,
      see Item 1, “Business-Regulation - Home Federal Bancorp -
      Dividends”.





Income
      of
      HomeFederal appropriated to bad debt reserves and deducted for federal income
      tax purposes is not available for payment of cash dividends or other
      distributions to HFB without the payment of federal income taxes by HomeFederal
      on the amount of such income deemed removed from the reserves at the
      then-current income tax rate.




-
          29 -




At
      December 31, 2006 ,
      none of
      HomeFederal's retained income represented bad debt deductions for which no
      federal income tax provision had been made. See "Taxation--Federal Taxation"
      in
      Item 1 hereof.





The
      Company sold no equity securities during the period covered by this report
      that
      were not registered under the Securities Act of 1933.





The
      following table provides information on the Company’s repurchases of shares of
      its common stock during the quarter
      ended December 31, 2006.





(a)
            
            (b)
            
            (c)
            
            (d)Period
            
            Total
                number of shares purchased
            
            Average
                price paid per share
            
            Total
                number of shares purchased as part of publicly announced plans or
                programs
                (1)
            
            Maximum
                number of shares that may yet be purchased under the plans or programs
                (1)October
                2006
            
            
            5,000
            
            $
            28.45
            
            
            5,000
            
            
            204,081November
                2006
            
            
            45,990
            
            $
            28.57
            
            
            45,990
            
            
            158,091December
                2006
            
            
            23,910
            
            $
            28.60
            
            
            23,910
            
            
            134,181**Fourth
                Quarter**
            
            
            **74,900**
            
            **$**
            **28.57**
            
            
            **74,900**
            
            
            **134,181**





(1)
            On
                October 24, 2006, the Company announced a stock repurchase program
                to
                repurchase on the open


market
      up
      to 5% of the Company’s outstanding shares of common stock or 183,417 such
      shares. Such


purchases
      will be made in block or open market transactions, subject to market conditions.
      The program


has
      no
      expiration date.





The
      disclosures regarding equity compensation plans required by Reg. § 229.201(d) is
      set forth in Item 12 hereof.





**Item
      6.**  **Selected Financial Data.**





The
      information required by this item is incorporated by reference to the material
      under the heading "Summary of Selected Consolidated Financial Data" on page
      8 of the
      Shareholder Annual Report.





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





The
      information required by this item
      is incorporated by reference to pages 10 to 23 of the Shareholder Annual
      Report.





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





The
      information required by this item is incorporated by reference to page
      17 of the
      Shareholder Annual Report.





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





The
      Company's Consolidated Financial
      Statements and Notes thereto contained on pages 26 to 49 of the Shareholder
      Annual Report are incorporated herein by reference. HFB's Quarterly Results
      of
      Operations contained on page 9 of the Shareholder Annual Report are incorporated
      herein by reference.





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





There
      are
      no such changes and disagreements during the applicable period.





**Item
      9A. Controls and Procedures.**





*Evaluation
      of Disclosure Controls and Procedures* . **** As
      of
      December 31, 2006, an
      evaluation was carried out under the supervision and with the participation
      of
      the Company’s management, including our Chief Executive Officer and Chief
      Financial Officer, of the effectiveness of our disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive
      Officer and Chief Financial Officer have concluded that as of December 31,
      2006,
      the Company’s disclosure controls and procedures are effective to ensure that
      information required to be disclosed by the Company in reports




-
          30 -




that
      it
      files or submits under the Exchange Act is recorded, processed, summarized
      and
      reported within the time periods
      specified in Securities and Exchange Commission rules and forms and are
      designed to ensure that information required to be disclosed in these reports
      is
      accumulated and communicated to management as appropriate to allow timely
      decisions regarding required disclosure **.**





*Annual
      Report on Internal Control Over Financial Reporting* .
      Management’s Report on Internal Controls is included on page
      23 of
      the
      Shareholder’s Annual Report and is incorporated herein by reference.





*Attestation
      Report of Registered Public Accounting Firm* .
      The
      Attestation Report of the Company’s independent registered public accounting
      firm is included on page
      24 of the
      Shareholder’s Annual Report and is incorporated herein by reference.





*Changes
      in Internal Controls* .
      Our
      Chief Executive Officer and Chief Financial Officer have concluded that, during
      the Company’s fiscal quarter ended December 31, 2006 ,
      there
      have been no changes in the Company’s internal control over financial reporting
      identified in connection with the Company’s
      evaluation of controls that occurred
      during the Company's last fiscal quarter that have materially affected, or
      are
      reasonably likely to materially affect, the Company's internal control over
      financial reporting **.**





**Item
      9B. Other Information**





Not
      applicable.





**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 page
      3 to
      5 of the
      Company's Proxy Statement for its annual shareholder meeting to be held in April
      2006 (the
      " 2006 Proxy
      Statement"). Information concerning the Company's executive officers who are
      not
      also directors is included in Item 4.5 in Part I of this report.





The
      information required by this item with respect to the compliance with Section
      16(a) of the Securities Exchange Act of 1934 is incorporated by reference to
      the
      section entitled “Section 16(a) Beneficial Ownership Reporting” of
      the  2006 Proxy
      Statement .





The
      information concerning director nominating procedures is incorporated by
      reference to page 6 of the 2006 proxy statement.





The
      information required by this item with respect to members of the Company’s Audit
      Committee, the Audit Committee Report, and whether any such members qualify
      as
      an Audit Committee Financial Expert is incorporated by reference to pages
      5
      and 25 - 26 of
      the 2006 Proxy
      Statement.





The
      Company has adopted an Ethics Policy that applies to all officers, employees,
      and directors of the Company and its subsidiaries.





**Item
      11. Executive Compensation.**





The
      information required by this item with respect to executive compensation is
      incorporated by reference to page 6 through
      page 24 of the 2006 Proxy
      Statement, and to the section entitled “Compensation Committee Report” in the
      2006 Proxy Statement.





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





Other
      information required by this item is incorporated by reference to pages
      3
      to 4 of the 2006 Proxy
      Statement.





**Equity
      Compensation Plan Information**





The
      following table provides the information about the Company’s common stock that
      may be issued upon the exercise of options and rights under all existing equity
      compensation plans as of December 31, 2006 .





-
          31 -





**Plan
                category**
            
            **Number
                of securities**
              **to
                be issued**
              **upon
                exercise of outstanding options, warrants and rights**
              **as
                of**
              **December
                31,****2006**
              **(a)**
            
            **Weighted-average**
              **exercise
                price**
              **of
                outstanding**
              **options,
                warrants**
              **and
                rights**
              **(b)**
            
            **Number
                of securities**
              **remaining
                available for future issuance under**
              **equity
                compensation**
              **plans
                as of**
              **December
                31,****2006**
              **(excluding
                securities**
              **reflected
                in**
              **column
                (a))**
              **(c)**Equity
                compensation plans approved by security holders
            
            607,493(1)
            
            $
                23.17(1)
            
            177,131(1)Equity
                compensation plans not approved by security holders
            
            ---
            
            ---
            
            ---Total
            
            607,493
            
            $
                23.17
            
            177,131





(1)
      Includes the following plans: the Company’s 1993 stock option plan, 1995 stock
      option plan, 1997 stock option plan and 2001 stock option plan, and individual
      awards of options to directors.





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





The
      information required by this item is incorporated by reference to the section
      entitled “Transactions with Related Persons” in the 2006 Proxy
      Statement.





**Item
      14. Principal Accountant Fees and Services.**





The
      information required by this item is incorporated by reference to the section
      titled “Accountant’s Fees” in the 2006 Proxy Statement.





**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules.**





(a)
      List
      the following documents filed as a part of the report:


Financial
                  Statements
              Page
                  in2006ShareholderAnnual
                  ReportReport
                  of Deloitte & Touche LLP Independent Registered Public Accounting
                  Firm
              25Consolidated
                  Balance Sheets as of December 31,2006and December 31,2005
              26Consolidated
                  Statements of Income for the yearsended
                  December 31,
                  2006,December
                  31,
                  2005and
                  December 31,2004.
              27Consolidated
                  Statements of Shareholders’ Equity for the yearsendedDecember
                  31,2006,
                  December 31,2005and December 31,2004.
              28Consolidated
                  Statements of Cash Flows for the years ended December 31,
                  2006,December
                  31,2005and
                  December 31,2004.
              29Notes
                  to Consolidated Financial Statements
              30(b) The exhibits filed herewith or incorporated by reference herein
                  are setforth on the Exhibit Index on page36.(c) All schedules are omitted as the required information either
                  is not
                  applicable or isincluded in the Consolidated Financial Statements or related
                  notes.


-
          32 -





SIGNATURESPursuant
                  to the requirements of Section 13 or 15(d) 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, this 15thday ofMarch
                  2007.HOME
                  FEDERAL BANCORPDATE:March15,
                  2007
              By:/S/
                  John K. Keach, Jr.John
                  K. Keach, Jr., President andChief
                  Executive OfficerPursuant
                  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 15thday ofMarch
                  2007./s/
                  Mark T. Gorski
              /s/ John K. Keach, Jr.Mark
                  T Gorski, Executive
              John
                  K. Keach, Jr.,Vice
                  President, Treasurer
              Chairman
                  of the Board,Chief
                  Financial Officer and Secretary
              President
                  and Chief(Principal
                  Financial Officer)
              Executive
                  Officer(Principal
                  Executive Officer)/s/
                  Melissa A. McGill
              /s/ John K. Keach, Jr.Melissa
                  A. McGill,
              John
                  K. Keach, Jr., DirectorSr.
                  Vice President and Controller(Principal
                  Accounting Officer)/s/
                  Harvard W. Nolting, Jr.
              /s/ John T. BearryHarvard
                  W. Nolting, Jr., Director
              John
                  T. Beatty, Director/s/
                  David W. Laitinen
              /s/ Harold ForceDavid
                  W. Laitinen, Director
              Harold
                  Force, Director/s/
                  John M. Miller
              /s/ William J. BlaserJohn
                  M. Miller, Director
              William
                  J. Blaser, Director







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**EXHIBIT
      INDEX**


Reference
      to


Regulation
      S-K  Sequential


Exhibit
      Number  Document  Page
      Number





3(a)  Articles
      of Incorporation (incorporated by reference from Exhibit B to
      Registrant's


Registration
      Statement on Form S-4 (Registration No. 33-55234)).




3(b)  Code
      of
      By-Laws (incorporated by reference from Exhibit C to Registrant's


Registration
      Statement on From S-4 (Registration No. 33-55234)); amendment


thereto
      dated October 22, 2002 (incorporated by reference from Exhibit 3(b)
      of


Registrant’s
      Transition Report on Form 10-K Transition Report for the six months


ended
      December 31, 2002)




4(a)  Articles
      of Incorporation (incorporated by reference from Exhibit B to
      Registrant's


Registration
      Statement on Form S-4 (Registration No.33-55234)).




4(b)  Code
      of
      By-Laws (incorporated by reference from Exhibit C to Registrant's


Registration
      Statement on From S-4 (Registration No. 33-55234); amendment


Thereto
      dated October 22, 2002 (incorporated by reference from Exhibit 3(b)
      of


Registrant’s
      Transition Report on Form 10-K Transition Report for the six months


Ended
      December 31, 2002).





10(a)  Stock
      Option Plan (incorporated by reference from Exhibit 10(a) to
      Registrant's


Registration
      Statement on Form S-4 (Registration No. 33-55234).




10(b)  1993
      Stock Option Plan (incorporated by reference from Exhibit 10(b) to
      Registrant's


Form
      10-K
      for the year ended June 30, 1994) ;
      amendment thereto is incorporated by


reference
      t o Exhibit 10.1
      of
      the Registrant's Form 8-K dated March 28, 2005.




10(d)  Form
      of
      Home Federal Bancorp Indianapolis Market Growth Plan (incorporated


by
      reference to Exhibit 10.1 of Registrant’s Form 8-K dated November 28,
      2006).




10(f)  HomeFederal
      Savings Bank Excess Benefit Plan Agreement with John K. Keach, Jr.


dated
      April 1, 2001 (incorporated by reference to Exhibit 10 (f) of
      Registrant’s


Form
      10-K
      for the year ended June 30, 2001).





10(g)  1999
      Stock option plan incorporated by reference to Exhibit J to the registrant’s
      proxy


statement
      for its 1999 Annual shareholder’s meeting; amendment
      thereto is


incorporated
      by reference to Exhibit 10.1 of the Registrant's Form 8-K dated


March
      28,
      2005




10(h)  Home
      Federal Bancorp Long-Term Incentive Plan (incorporated by reference
      to


Exhibit
      10.1 to Registrant’s Form 8-K dated May 24 2005).




10(i)  Form
      of
      Home Federal Bancorp Long-Term Incentive Plan (incorporated by
      reference


To
      Exhibit 10.2 to Registrant’s Form 8-K dated May 24, 2005).




10(j)  Supplemental
      Executive Retirement Agreement with Mark T. Gorski effective


July
      1,2005 (incorporated by reference to Exhibit 10.4 to Registrant’s Form 8-K
      dated


November
      22, 2005); first amendment thereto dated November 3, 2005
      (incorporated


by
      reference to Exhibit 10(j) of Registrant’s Form 10-K for the fiscal year ended
      December


31,
      2005).




10(k)  HomeFederal
      Bank Supplemental Executive Retirement Agreement with Elaine
      Pollert


effective
      July 1, 2005 (incorporated by reference to Exhibit 10.5 to
      Registrant's


Form
      8-K
      dated November 22, 2005).





10(n)  Supplemental
      Executive Retirement Plan with John K. Keach, Jr. dated April 1,
      2001


(incorporated
      by reference from Exhibit 10(n) to Registrant’s Form 10-K for the
      year


ended
      June 30, 2002).




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          34
          -





10(o)  Supplemental
      Executive Retirement Plan with Lawrence E. Welker dated April 1,
      2001


(incorporated
      by reference from Exhibit 10(o) to Registrant’s Form 10-K for the
      year


ended
      June 30, 2002).




10(p)  Supplemental
      Executive Retirement Plan with Elaine Pollert dated April 1, 2001


(incorporated
      by reference from Exhibit 10(p) to Registrant’s Form 10-K for the
      year


ended
      June 30, 2002).




10(v)  Deferred
      Compensation Agreement with John K. Keach, Sr (incorporated by
      reference


from
      Exhibit 10(v) to HomeFederal Bank Form 10-K for the fiscal year
      ended


June
      30,
      1992) and First Amendment to Deferred Compensation Agreement


(incorporated
      by Reference from Exhibit 10(v) to Registrant's Form 10-K for the
      year


ended
      June 30, 1994) and Second Amendment to Deferred Compensation
      Agreement


(incorporated
      by reference from Exhibit 10(v) to Registrant's Form 10-K for the
      year


ended
      June 30, 1998).




10(w)  Employment
      Agreement with S. Elaine Pollert (incorporated by reference from


Exhibit
      l0(w) to HomeFederal Bank Form 10-K for the fiscal year ended June 30,
      1998);


and
      First
      Amendment to Employment Agreement (incorporated by reference from


Exhibit
      10(w) to Registrant's Form 10-K for the year ended June 30, 1998);
      second


amendment
      thereto (incorporated by reference from Exhibit 10(w) to Registrant’s
      Form


10-K
      for
      the year ended June 30, 2002); third amendment to Employment
      Agreement


(incorporated
      by reference from Exhibit l0(w) to Registrant’s Form 10-K for the
      fiscal


year
      ended June 30, 2002).




10(x)  Supplemental
      Executive Retirement Plan with Gerald L. Armstrong dated April 1,
      2001


(incorporated
      by reference from Exhibit 10(x) to Registrant’s Form 10-K for the
      year


ended
      June 30, 2002).




10(ac)  HomeFederal
      Bank Deferred Compensation Agreement with John Beatty (incorporated


by
      reference to Exhibit 10.2 of Registrant’s Form 8-K dated November 22,
      2005).




10(ad)  Director
      Deferred Compensation Agreement with Lewis Essex (incorporated by


reference
      from Exhibit 10(ad) to HomeFederal Bank Form 10-K for the fiscal
      year


ended
      June 30, 1992); first and second amendments thereto (incorporated
      by


reference
      from Exhibit 10(ad) to Registrant's Form 10-K for the year ended


June
      30,
      1998).




10(ae)  HomeFederal
      Bank Director Deferred Compensation Agreement with Harold Force


(incorporated
      by reference to Exhibit 10.1 of Registrant’s Form 8-K dated


November
      22, 2005).




10(af)  HomeFederal
      Bank Director Deferred Compensation Agreement with David W.
      Laitinen


(incorporated
      by reference to Exhibit 10.3 of Registrant’s 8-K dated November 22,
      2005).




10(ag)  Director
      Deferred Compensation Agreement with William Nolting (incorporated
      by


reference
      from Exhibit 10(ag) to HomeFederal Bank Form 10-K for the fiscal
      year


ended
      June 30, 1992); ); first and second amendments thereto (incorporated
      by


reference
      from Exhibit 10(ag) to Registrant's Form 10-K for the year ended


June
      30,
      1998).





10(ar)  Form
      of
      Non-Qualified Stock Option Agreement (incorporated by reference to
      Exhibit


10.2
      to
      Registrant’s form 8-K dated March 28, 2005).




10(as)  1995
      Stock Option Plan (incorporated by reference from Exhibit A to Registrant's
      Proxy


Statement
      for its 1995 annual shareholder meeting); amendment thereto is (incorporated
      by


reference
      to Exhibit 10.1 of Registrant’s Form 8-K dated March 28, 2005).




10(at)  2001
        Stock Option Plan (incorporated by reference from Exhibit B to the
        Registrant's


Proxy
      Statement for its 2001 annual shareholder meeting); amendment thereto
      is


incorporated
      by reference to Exhibit 10.1 of Registrant’s Form 8-K dated March 28,
      2005.




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          35
          -





10(au)  Employment
      Agreement with Charles R. Farber (incorporated by reference from Exhibit
      l0(au)


to
      Registrant’s Form 10-K for the fiscal year ended June 30, 2002).





10(av)  Executive
      Supplemental Retirement Income Agreement with Charles R. Farber
      dated


November
      1, 2002 (incorporates by reference to Exhibit 10(av) to Registrant’s
      Transition


Report
      on
      Form 10-K for the six months ended December 31, 2003).





10(aw)  Form
      of
      Incentive Stock Option Agreement





10(ax)  Form
      of
      Bonus Plan (incorporated
      by reference to Exhibit 10(ax) of **** Registrant’s
      Form


10-K
      for
      the fiscal year ended December 31, 2004).





10(ay)  Employment
      Agreement with Mark T. Gorski (incorporated by reference to Exhibit


10ay
      to
      the Registrant's Form 10-Q for the fiscal quarter ended June 30,
      2005).





10(az)  Form
      of
      Award Agreement under Home Federal Bancorp Indianapolis Market
      Growth


Plan
      (incorporated by reference from Exhibit 10.2 to Registrant’s Form 8-K dated
      November


28,
      2006)





10(b)(a)  Agreement
      for Purchase and Sale of Servicing dated November 30, 2006, between
      HomeFederal


Bank
      and
      EverBank (incorporated by reference from Exhibit 10.1 to Registrant’s Form
      8-K


dated
      November 30, 2006)





10(b)(b)  Placement
      Agreement, dated September 13, 2006, among Home Federal Bancorp,
      the


HomeFederal
      Statutory Trust I, and Cohen & Company (incorporated by reference
      to


Exhibit
      1.1 of Registrant’s Form 8-K dated September 15, 2006)





10(b)(c)  Indenture
      dated as of September 15, 2006, between Home Federal Bancorp and
      LaSalle


Bank
      National Association as Trustee (incorporated by reference to Exhibit 4.1 of
      Registrant’s


Form
      8-K
      dated September 15, 2006)





10(b)(d)  Amended
      and Restated Declaration of Trust of HomeFederal Statutory Trust I, dated
      as


of
      September 15, 2006 ((incorporated by reference to Exhibit 4.2 of Registrant’s
      Form 8-K


dated
      September 15, 2006)





10(b)(e)  Guarantee
      Agreement of Home Federal Bancorp dated as of September 15, 2006
      (incorporated


by
      reference to Exhibit 10.1 of Registrant’s Form 8-K dated September 15,
      2006)




13  Home
      Federal Bancorp Annual Report December 31, 2005.




14  Code
      of
      Ethics  (incorporated
      by reference to Exhibit 14 of Registrant’s Form10-K for


the
      fiscal year ended December 31, 2003).





21  Subsidiaries
      of the Registrant (incorporated by reference to Exhibit 21 of the
      Registrant’s


Transition
      Report on Form 10-K for the six months ended December 31, 2002).




23.1  Independent
      Registered Public Accounting Firm Consent.





31.1  Certification
      of John K. Keach, Jr. required by 12 C.F.R. § 240.13a-14(a)





31.2  Certification
      of Mark T. Gorski required by 12 C.F.R. § 240.13a-14(a)





32  Certification
      pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of
      the


Sarbanes-Oxley
      Act of 2002.


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          36
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