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, 2007





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:




Title of each
class:                              Name
of each exchange on which registered:


Common
Stock                              
        The NASDAQ Stock Market
LLC





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





None














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 Section


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.  [  ]





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
accelerated filer [  ]     Accelerated filer
[X]     Non-accelerated
filer [  ]     Smaller reporting company
[  ]





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, 2007, was $89.5 million.





The
number of shares of the registrant's Common Stock, no par value, outstanding as
of March 7, 2008, was 3,358,079 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the Annual Report to Shareholders for the year ended December 31, 2007, are
incorporated into Part II.  Portions of the Proxy Statement for the
annual meeting of shareholders to be held on April 22, 2008, are incorporated
into Part I and Part III.





- 2
-


HOME
      FEDERAL BANCORPFORM
      10-KINDEXForward
      Looking Statements
                  4Item
      1.
                  Business
                  4Item
      1A.
                  Risk
      Factors
                  24Item
      1B.
                  Unresolved
      Staff Comments
                  25Item
      2.
                  Properties
                  25Item
      3
                  Legal
      Proceedings
                  27Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  27Item
      4.5
                  Executive
      Officers of Home Federal Bancorp
                  27Item
      5.
                  Market
      for Registrant's Common Equity, Related Stockholder Matters, And Issuer
      Purchasesof
      Equity Securities
                  27Item
      6.
                  Selected
      Financial Data
                  28Item
      7.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  28Item
      7.A
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  28Item
      8.
                  Financial
      Statements and Supplementary Data
                  28Item
      9.
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                  28Item
      9A.
                  Controls
      and Procedures
                  29Item
      9B.
                  Other
      information
                  29Item
      10.
                  Directors
      and Executive Officers of the Registrant
                  29Item
      11.
                  Executive
      Compensation
                  29Item
      12
                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                  30Item
      13.
                  Certain
      Relationships and Related Transactions
                  30Item
      14.
                  Principal
      Accountant Fees and Services
                  30Item
      15.
                  Exhibits
      and Financial Statement Schedules
                  30Signatures
                  
                  32
  - 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 Indiana Bank and Trust Company (the
“Bank”).





Indiana Bank and Trust Company 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 the 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.





On March 1, 2008, HomeFederal Bank
changed its name to Indiana Bank and Trust Company.  The Bank
currently provides services through its main office at 501 Washington Street in
Columbus, Indiana, nineteen full service branches located in south central
Indiana and the STAR network of automated teller machines at fourteen locations
in Seymour, Columbus, North Vernon, Salem, Madison, Batesville, Edinburgh,
Greensburg, Greenwood and Indianapolis.  As a result, the Bank serves
primarily Bartholomew, Jackson, Jefferson, Jennings, Scott, Ripley, Decatur,
Marion, Johnson and Washington Counties in Indiana.  The Bank 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 the Bank customers.  Online Banking services,
including Online Bill Payment, are accessed through the Company’s website, www.myindianabank.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.  The Bank directly, and through its subsidiaries 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
-







The 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 53.3% of the Bank’s
loans at December 31, 2007.  The Bank also originates one-to-four
family residential loans, the majority of which are sold servicing
released.  At December 31, 2007, one-to-four family residential loans
were 16.6% of the Bank’s lending portfolio.  In addition, the Bank
makes secured and unsecured consumer related loans including consumer auto,
second mortgage, home equity, mobile home, and savings account
loans.  At December 31, 2007, approximately 17.4% of its loans were
consumer-related loans.  The Bank also makes construction loans, which
constituted 12.4% of the Bank's loans at December 31, 2007.





Loan
Portfolio Data





The
following two tables set forth the composition of the 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, 2007
            
            Dec
      31, 2006
            
            
            Dec
      31, 2005
            
            Dec
      31, 2004
            
            Dec
      31, 2003Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentTYPE
      OF LOAN
            
            
            
            
            
            
            
            
            
            
            (Dollars
      in Thousands)First
      mortgage loans:One-to-four
      family residential loans
            
            $
            124,088
            
            
            
            16.6
            %
            
            $
            150,639
            
            
            
            22.0
            %
            
            $
            162,212
            
            
            
            26.3
            %
            
            $
            172,479
            
            
            
            27.1
            %
            
            $
            178,276
            
            
            
            27.9
            %Commercial
      and multi family
            
            
            192,104
            
            
            
            25.6
            %
            
            
            183,288
            
            
            
            26.9
            %
            
            
            177,748
            
            
            
            28.9
            %
            
            
            180,165
            
            
            
            28.2
            %
            
            
            171,361
            
            
            
            26.8
            %Loans
      on property under construction
            
            
            92,982
            
            
            
            12.4
            %
            
            
            58,013
            
            
            
            8.5
            %
            
            
            44,321
            
            
            
            7.2
            %
            
            
            61,907
            
            
            
            9.7
            %
            
            
            72,172
            
            
            
            11.3
            %Loans
      on unimproved acreage
            
            
            2,342
            
            
            
            0.3
            %
            
            
            1,496
            
            
            
            0.2
            %
            
            
            1,615
            
            
            
            0.3
            %
            
            
            2,730
            
            
            
            0.4
            %
            
            
            3,201
            
            
            
            0.5
            %Second
      mortgage, home equity
            
            
            103,560
            
            
            
            13.8
            %
            
            
            102,713
            
            
            
            15.1
            %
            
            
            87,893
            
            
            
            14.3
            %
            
            
            80,346
            
            
            
            12.6
            %
            
            
            80,044
            
            
            
            12.6
            %Commercial
      loans
            
            
            207,590
            
            
            
            27.7
            %
            
            
            151,781
            
            
            
            22.2
            %
            
            
            105,825
            
            
            
            17.2
            %
            
            
            105,494
            
            
            
            16.5
            %
            
            
            99,099
            
            
            
            15.5
            %Consumer
      loans
            
            
            4,011
            
            
            
            0.5
            %
            
            
            3,949
            
            
            
            0.6
            %
            
            
            3,988
            
            
            
            0.6
            %
            
            
            4,159
            
            
            
            0.7
            %
            
            
            4,235
            
            
            
            0.7
            %Auto
      loans
            
            
            20,609
            
            
            
            2.7
            %
            
            
            26,356
            
            
            
            3.9
            %
            
            
            27,335
            
            
            
            4.4
            %
            
            
            24,921
            
            
            
            3.9
            %
            
            
            23,244
            
            
            
            3.6
            %Mobile
      home loans
            
            
            1,258
            
            
            
            0.2
            %
            
            
            1,806
            
            
            
            0.3
            %
            
            
            2,537
            
            
            
            0.4
            %
            
            
            3,289
            
            
            
            0.5
            %
            
            
            4,365
            
            
            
            0.7
            %Savings
      accounts loans
            
            
            1,467
            
            
            
            0.2
            %
            
            
            2,372
            
            
            
            0.3
            %
            
            
            2,266
            
            
            
            0.4
            %
            
            
            2,340
            
            
            
            0.4
            %
            
            
            2,736
            
            
            
            0.4
            %Gross
      loans receivable
            
            $
            750,011
            
            
            
            100.0
            %
            
            $
            682,413
            
            
            
            100.0
            %
            
            $
            615,740
            
            
            
            100.0
            %
            
            $
            637,830
            
            
            
            100.
            %
            
            $
            638,733
            
            
            
            100.0
            %Type
      of SecurityResidential:One-to-four
      family
            
            $
            245,015
            
            
            
            32.7
            %
            
            $
            267,623
            
            
            
            39.2
            %
            
            $
            265,322
            
            
            
            43.1
            %
            
            $
            267,998
            
            
            
            42.0
            %
            
            $
            273,203
            
            
            
            42.8
            %Multi-dwelling
      units
            
            
            19,597
            
            
            
            2.6
            %
            
            
            18,621
            
            
            
            2.7
            %
            
            
            19,612
            
            
            
            3.2
            %
            
            
            27,018
            
            
            
            4.2
            %
            
            
            22,034
            
            
            
            3.4
            %Commercial
      real estate
            
            
            248,122
            
            
            
            33.1
            %
            
            
            208,409
            
            
            
            30.6
            %
            
            
            187,240
            
            
            
            30.4
            %
            
            
            199,881
            
            
            
            31.4
            %
            
            
            206,616
            
            
            
            32.4
            %Commercial
            
            
            207,590
            
            
            
            27.7
            %
            
            
            151,781
            
            
            
            22.2
            %
            
            
            105,825
            
            
            
            17.2
            %
            
            
            105,494
            
            
            
            16.5
            %
            
            
            99,099
            
            
            
            15.5
            %Mobile
      home
            
            
            1,258
            
            
            
            0.2
            %
            
            
            1,806
            
            
            
            0.3
            %
            
            
            2,537
            
            
            
            0.4
            %
            
            
            3,289
            
            
            
            0.5
            %
            
            
            4,365
            
            
            
            0.7
            %Savings
      account
            
            
            1,467
            
            
            
            0.2
            %
            
            
            2,372
            
            
            
            0.3
            %
            
            
            2,266
            
            
            
            0.4
            %
            
            
            2,340
            
            
            
            0.4
            %
            
            
            2,736
            
            
            
            0.4
            %Auto
            
            
            20,609
            
            
            
            2.7
            %
            
            
            26,356
            
            
            
            3.9
            %
            
            
            27,335
            
            
            
            4.4
            %
            
            
            24,921
            
            
            
            3.9
            %
            
            
            23,244
            
            
            
            3.6
            %Other
      consumer
            
            
            4,011
            
            
            
            0.5
            %
            
            
            3,949
            
            
            
            0.6
            %
            
            
            3,988
            
            
            
            0.6
            %
            
            
            4,159
            
            
            
            0.7
            %
            
            
            4,235
            
            
            
            0.7
            %Land
      acquisition
            
            
            2,342
            
            
            
            0.3
            %
            
            
            1,496
            
            
            
            0.2
            %
            
            
            1,615
            
            
            
            0.3
            %
            
            
            2,730
            
            
            
            0.4
            %
            
            
            3,201
            
            
            
            0.5
            %Gross
      loans receivable
            
            $
            750,011
            
            
            
            100.0
            %
            
            $
            682,413
            
            
            
            100.0
            %
            
            $
            615,740
            
            
            
            100.0
            %
            
            $
            637,830
            
            
            
            100.
            %
            
            $
            638,733
            
            
            
            100.0
            %Loans
      Receivable-NetGross
      loans receivable
            
            $
            750,011
            
            
            
            101.0
            %
            
            $
            682,413
            
            
            
            101.0
            %
            
            $
            615,740
            
            
            
            101.1
            %
            
            $
            637,830
            
            
            
            101.3
            %
            
            $
            638,733
            
            
            
            101.3
            %Deduct:Unearned
      income
            
            
            (165
            )
            
            
            0.0
            %
            
            
            (153
            )
            
            
            0.0
            %
            
            
            (299
            )
            
            
            0.0
            %
            
            
            (476
            )
            
            
            -0.1
            %
            
            
            (555
            )
            
            
            -0.1
            %Allowance
      for loan losses
            
            
            (6,972
            )
            
            
            -1.0
            %
            
            
            (6,598
            )
            
            
            -1.0
            %
            
            
            (6,753
            )
            
            
            -1.1
            %
            
            
            (7,864
            )
            
            
            -1.2
            %
            
            
            (7,506
            )
            
            
            -1.2
            %Net
      loans receivable
            
            $
            742,874
            
            
            
            100.0
            %
            
            $
            675,662
            
            
            
            100.0
            %
            
            $
            608,688
            
            
            
            100.0
            %
            
            $
            629,490
            
            
            
            100.0
            %
            
            $
            630,672
            
            
            
            100.0
            %











- 5
-





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








Balance
            
            
            
            
            
            
            
            
            Maturities
      in FiscalOutstanding
            
            
            
            
            
            
            
            
            
            
            
            2011
            
            
            2013
            
            
            2018
            
            
            2022At
      Dec 31,
            
            
            
            
            
            
            
            
            
            
            
            To
            
            
            to
            
            
            to
            
            
            and2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2012
            
            
            2017
            
            
            2022
            
            
            thereafterReal
      estate
            
            $
            318,534
            
            
            $
            10,629
            
            
            $
            8,548
            
            
            $
            7,991
            
            
            $
            29,702
            
            
            $
            129,240
            
            
            $
            27,110
            
            
            $
            105,314Construction
      loans
            
            
            92,982
            
            
            
            38,057
            
            
            
            14,261
            
            
            
            8,052
            
            
            
            4,275
            
            
            
            962
            
            
            
            15,555
            
            
            
            11,820Commercial
      loans
            
            
            207,590
            
            
            
            110,969
            
            
            
            23,142
            
            
            
            20,041
            
            
            
            23,048
            
            
            
            28,576
            
            
            
            1,745
            
            
            
            69Other
      loans
            
            
            130,905
            
            
            
            9,649
            
            
            
            5,676
            
            
            
            6,899
            
            
            
            16,231
            
            
            
            40,377
            
            
            
            16,262
            
            
            
            35,811Total
            
            $
            750,011
            
            
            $
            169,304
            
            
            $
            51,627
            
            
            $
            42,983
            
            
            $
            73,256
            
            
            $
            199,155
            
            
            $
            60,672
            
            
            $
            153,014














Interest
      Rate Sensitivity:Due
      After December 31, 2008Fixed
            
            
            Variable
      RateRate
            
            
            And
      Balloon(Dollars
      in Thousands)Real
      estate
            
            $
            27,249
            
            
            $
            280,656Construction
      loans
            
            
            2,814
            
            
            
            52,111Commercial
      loans
            
            
            39,040
            
            
            
            57,581Other
      Loans
            
            
            86,348
            
            
            
            34,908Total
            
            $
            155,451
            
            
            $
            425,256





Residential
Mortgage Loans





The 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.  The 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 the Bank’s
portfolio are primarily conventional loans.  As of December 31, 2007
$142.5 million, or 19.0%, of the Bank's total loan portfolio consisted of
residential first mortgage loans, $124.1 million, or 16.6%, of which were
secured by one-to-four family homes.





Many of the residential mortgage loans
currently offered by the Bank have adjustable rates. These loans generally have
interest rates that adjust (up or down) 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 the 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.





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




- 6
-








Under applicable banking policies, the
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 equals or 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 the 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, 2007, the Bank was in compliance with the above
limits.





Commercial
Mortgage Loans





At December 31, 2007, 35.9% of the
Bank's total loan portfolio consisted of mortgage loans secured by commercial
real estate.  Commercial construction loans were 10.1% of the total
loan portfolio.  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 $5.0 million must
be approved in advance by the Bank’s Board of Directors.  The largest
such loan as of December 31, 2007 had a balance of $3.4 million.  At
that date, all of the Bank's commercial real estate loans consisted of loans
secured by real estate located in Indiana.





Generally, commercial mortgage loans
involve greater risk to the 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





The Bank offers conventional short-term
construction loans.  At December 31, 2007, 12.4% of the 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, 2007 was
$9.3 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 $130.9 million on December 31, 2007 or approximately 17.4% of the 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.  The Bank's minimum for such loans is $5,000. The Bank
will loan up to 100% of the appraised value based on the product and borrower
qualifications of the property, less the existing mortgage
amount(s).  As of December 31, 2007, the Bank had $61.9 million of
second mortgage loans, which equaled 8.2% of its total loan
portfolio.  The Bank markets home equity credit lines, which are
adjustable-rate loans.  As of December 31, 2007, the Bank had $41.7
million drawn on its home equity credit lines, or 5.6% of its total loan
portfolio, with $44.5 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, 2007, $20.6 million,
or 2.7%, of the Bank's total loan portfolio consisted of automobile
loans.




- 7
-





As of December 31, 2007, $1.3 million,
or 0.2%, of the 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, the 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, the 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 the 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, 2007, $1.5 million, or
0.2%, of the 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 helpful in the Bank's asset/liability
management.





Commercial
Loans





Collateral for the 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, 2007, $207.6 million, or 27.7%, of the Bank's total loan portfolio consisted
of commercial loans.





Origination,
Purchase and Sale of Loans





The 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 the
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.  The Bank's loan originations are generated
primarily from referrals from real estate brokers, builders, developers and
existing customers, newspaper, radio and periodical advertising, the internet
and walk-in customers.  The Bank's loan approval process is intended
to assess the borrower's ability to repay the loan, the viability of the loan
and the adequacy of the value of the property that will secure the
loan.





The 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, the 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
the 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.  The 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 the Bank makes disbursements for taxes and
insurance.  Otherwise, such escrow arrangements are
optional.





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.  The 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 income
and recycle funds for additional lending activities, the Bank seeks to sell
loans in the secondary market.  Loan sales can enable the Bank to
recognize significant fee income and to reduce interest rate risk while meeting
local market demand. The Bank sold $111.9 million of fixed-rate loans in the
fiscal year ended December 31, 2007.  The Bank's current lending
policy is to sell residential mortgage loans exceeding 10-year




- 8
-





maturities.  In
addition, when in the opinion of management cash flow demands and
asset/liability concerns warrant, the Bank will consider keeping fixed-rate
loans with up to 15-year maturities.  Typically the Bank retains
adjustable-rate loans that are non salable, non owner occupied, or in
construction in its portfolio.  The 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.  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 the 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, 2007, others serviced
approximately 3.1%, or $23.1 million, of the Bank's gross loan
portfolio.





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








Dec
      31, 2007
            
            
            Dec
      31, 2006
            
            
            Dec
      31, 2005(Dollars
      in Thousands)Gross
      loans receivable at beginning of period
            
            $
            682,413
            
            
            $
            615,740
            
            
            $
            637,830Loans
      Originated:Mortgage
      loans and contracts:Construction
      loans:Residential
            
            
            29,812
            
            
            
            43,298
            
            
            
            29,598Commercial
            
            
            76,255
            
            
            
            33,143
            
            
            
            39,416Permanent
      loans:Residential
            
            
            46,189
            
            
            
            50,990
            
            
            
            50,028Commercial
            
            
            34,162
            
            
            
            29,598
            
            
            
            29,194Refinancing
            
            
            33,718
            
            
            
            34,762
            
            
            
            44,672Other
            
            
            2,045
            
            
            
            1,197
            
            
            
            2,062Total
            
            
            221,181
            
            
            
            192,988
            
            
            
            194,970Commercial
            
            
            154,877
            
            
            
            127,004
            
            
            
            81,800Consumer
            
            
            17,384
            
            
            
            24,344
            
            
            
            27,713Total
      loans originated
            
            
            394,442
            
            
            
            344,336
            
            
            
            304,483Loans
      purchased:Residential
            
            
            -
            
            
            
            -
            
            
            
            -Other
            
            
            18,515
            
            
            
            11,268
            
            
            
            1,720Total
      loans originated and purchased
            
            
            412,957
            
            
            
            355,604
            
            
            
            306,203Real
      estate loans sold
            
            
            111,948
            
            
            
            96,389
            
            
            
            97,079Loan
      repayments and other deductions
            
            
            233,411
            
            
            
            192,542
            
            
            
            231,214Total
      loans sold, loan repayments and other deductions
            
            
            345,359
            
            
            
            288,931
            
            
            
            328,293Net
      loan activity
            
            
            67,598
            
            
            
            66,673
            
            
            
            (22,090
            )Gross
      loans receivable at end of period
            
            
            750,011
            
            
            
            682,413
            
            
            
            615,740Unearned
      Income and Allowance for Loan Losses
            
            
            (7,137
            )
            
            
            (6,751
            )
            
            
            (7,052
            )Net
      loans receivable at end of period
            
            $
            742,874
            
            
            $
            675,662
            
            
            $
            608,688








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 the Bank could have
loaned to one borrower and the borrower’s related entities at December 31, 2007,
under the 15% of capital limitation was $12.9 million.  At that date,
the highest outstanding balance of loans by the Bank to one borrower and related
entities was approximately $12.6 million, an amount within such loans-to-one
borrower limitations.




- 9
-








Origination
and Other Fees





The Bank realizes income from loan
related fees for originating loans, collecting late charges and fees for other
miscellaneous loan services.  The Bank charges origination fees that
range from 0% to 1.0% of the loan amount.  The Bank also charges
processing fees of $150 to $225, underwriting fees from $0 to $150 and a $125
fee for any loan closed by the Bank personnel.  In addition, the 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





The 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, the 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 the Bank's request.  If a resolution cannot be
arranged, the 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, the Bank
attempts to avoid taking title to the property if at all possible.





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





On December 31, 2007, the Bank held
$311,000 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 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 the
Bank on how to proceed.  When a consumer loan reaches 90 days past
due, the Bank determines the loan-to-value ratio by performing an inspection of
the collateral (if any).  The 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 the Bank as an asset until sold or otherwise disposed.





The table below sets forth the amounts
and categories of the 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 the 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




- 10
-





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.








Dec 31, 2007
            
            
            Dec
      31, 2006
            
            
            Dec
      31, 2005
            
            
            Dec
      31, 2004
            
            
            Dec
      31, 2003Non-performing
      Assets:Loans:Non-accrual
            
            $
            10,516
            
            
            $
            2,852
            
            
            $
            3,070
            
            
            $
            9,535
            
            
            $
            2,499Past
      due 90 days or more and still accruing
            
            
            64
            
            
            
            459
            
            
            
            456
            
            
            
            168
            
            
            
            1,130Restructured
      loans
            
            
            874
            
            
            
            440
            
            
            
            809
            
            
            
            3,141
            
            
            
            258Total
      non-performing loans
            
            
            11,454
            
            
            
            3,751
            
            
            
            4,335
            
            
            
            12,844
            
            
            
            3,887Real
      estate owned, net (1)
            
            
            286
            
            
            
            416
            
            
            
            266
            
            
            
            2,009
            
            
            
            1,729Other
      repossessed assets, net
            
            
            25
            
            
            
            20
            
            
            
            5
            
            
            
            10
            
            
            
            10Total
      non-performing assets (2)
            
            $
            11,765
            
            
            $
            4,187
            
            
            $
            4,606
            
            
            $
            14,863
            
            
            $
            5,626Total
      non-performing assets to total assets
            
            
            1.29
            %
            
            
            0.46
            %
            
            
            0.54
            %
            
            
            1.71
            %
            
            
            0.66
            %Non-performing
      loans with uncollected interest
            
            $
            10,986
            
            
            $
            2,935
            
            
            $
            3,070
            
            
            $
            9,535
            
            
            $
            2,521








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





(2)  At
December 31, 2007, 20.0% of the Bank’s non-performing assets consisted of
residential


mortgage
loans, 4.0% consisted of home equities/second mortgages, 17.1% consisted of
commercial real


estate
loans, 47.7% consisted of commercial loans, 1.2% consisted of consumer-related
loans, 7.4%


consisted
of restructured loans, 1.6% consisted of residential real estate owned, 0.8%
consisted of


commercial
real estate owned and 0.2% consisted of other repossessed assets.





For the year ended December 31, 2007,
the income that would have been recorded under original terms on the above
non-accrual and restructured loans was $958,000 compared to actual income
recorded of 252,000.  At December 31, 2007, the Bank had approximately
$6.8 million in loans that were 30-89 days past due.  Total
non-performing assets increased $7.6 million to $11.8 million at December 31,
2007.The
increase was primarily the result of two commercial loan relationships totaling
$6.1 million which were transferred to non-accrual status during
2007.  One commercial relationship is a manufacturing company in
southern Indiana totaling approximately $3.1 million which is secured by real
estate, inventory and equipment.  The other commercial relationship is
a residential land development loan on the south side of Indianapolis totaling
$3.0 million which is secured by partially developed land.  In
addition, non-accrual residential mortgage and second and home equity loans
increased $647,000 and $266,000, respectively.





Securities





The 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, 2007, December 31, 2006 and December 31, 2005,
the Bank had approximately $84.3 million, $125.0 million and $148.3 million in
investments, respectively.





The 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.  The 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.  The 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, the 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, 2007, of the $84.3
million in consolidated investments owned by the Bank, $55.6 million was held by
Home Investments, Inc.




- 11
-







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.





Source
Of  Funds





General





Deposits have traditionally been the
primary source of funds of the Bank for use in lending and investment
activities.  In addition to deposits, the 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 the 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.  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, the 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, the Bank would be deemed a well-capitalized
institution.  At December 31, 2007 the Bank had $9.2 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.





The 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 the Bank at the dates indicated:





Dec
      31, 2007
            
            
            Dec
      31, 2006
            
            
            Dec
      31, 2005(Dollars
      in Thousands)Non-interest
      bearing and below 2.00%
            
            
            $
            174,152
            
            
            $
            186,952
            
            
            $
            234,3622.00%
      - 2.99%
            
            
            
            63,019
            
            
            
            10,935
            
            
            
            128,4983.00%
      - 3.99%
            
            
            146,480
            
            
            
            144,823
            
            
            
            168,9314.00%
      - 4.99%
            
            
            
            164,649
            
            
            
            229,021
            
            
            
            90,0505.00%
      - 5.99%
            
            
            
            158,705
            
            
            
            154,217
            
            
            
            33,787Over
      6.00%
            
            
            
            546
            
            
            
            1,211
            
            
            
            1,711Total
            
            
            $
            707,551
            
            
            $
            727,159
            
            
            $
            657,339











- 12
-














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





DEPOSIT
      ACTIVITY(Dollars
      in Thousands)Balance
                
                
                
                
                
                
                
                
                Balance
                
                
                
                
                
                
                
                
                Balanceat
                
                
                
                
                
                
                
                
                at
                
                
                
                
                
                
                
                
                atDec
      31,
                
                
                %
      of
                
                
                Increase
                
                
                Dec
      31,
                
                
                %
      of
                
                
                Increase
                
                
                Dec
      31,
                
                
                %
      of
                
                
                Increase2007
                
                
                Deposits
                
                
                (Decrease)
                
                
                2006
                
                
                Deposits
                
                
                (Decrease)
                
                
                2005
                
                
                Deposits
                
                
                (Decrease)Withdrawable:Non-interest
      bearing
                
                $
                69,728
                
                
                
                9.9
                %
                
                $
                (3,076
                )
                
                $
                72,804
                
                
                
                10.0
                %
                
                $
                8,535
                
                
                $
                64,269
                
                
                
                9.8
                %
                
                $
                4,119Statement
      savings
                
                
                37,513
                
                
                
                5.3
                %
                
                
                (4,197
                )
                
                
                41,710
                
                
                
                5.7
                %
                
                
                (4,304
                )
                
                
                46,014
                
                
                
                7.0
                %
                
                
                (3,821
                )Money
      market savings
                
                
                185,803
                
                
                
                26.3
                %
                
                
                20,198
                
                
                
                165,605
                
                
                
                22.8
                %
                
                
                3,255
                
                
                
                162,350
                
                
                
                24.8
                %
                
                
                29,987Checking
                
                
                103,624
                
                
                
                14.6
                %
                
                
                (25,401
                )
                
                
                129,025
                
                
                
                17.8
                %
                
                
                46,034
                
                
                
                82,991
                
                
                
                12.7
                %
                
                
                (5,256
                )Total
      Withdrawable
                
                
                396,668
                
                
                
                56.1
                %
                
                
                (12,476
                )
                
                
                409,144
                
                
                
                56.3
                %
                
                
                53,520
                
                
                
                355,624
                
                
                
                54.3
                %
                
                
                25,029Certificates:Less
      than one year
                
                
                199,324
                
                
                
                28.2
                %
                
                
                71,436
                
                
                
                127,888
                
                
                
                17.6
                %
                
                
                60,047
                
                
                
                67,841
                
                
                
                10.3
                %
                
                
                12,65412
      to 23 months
                
                
                15,016
                
                
                
                2.1
                %
                
                
                (19,693
                )
                
                
                34,709
                
                
                
                4.7
                %
                
                
                (2,487
                )
                
                
                37,196
                
                
                
                5.7
                %
                
                
                (9,361
                )24
      to 35 months
                
                
                46,934
                
                
                
                6.6
                %
                
                
                (25,915
                )
                
                
                72,849
                
                
                
                10.0
                %
                
                
                (20,131
                )
                
                
                92,980
                
                
                
                14.2
                %
                
                
                30736
      to 59 months
                
                
                7,510
                
                
                
                1.1
                %
                
                
                (2,574
                )
                
                
                10,084
                
                
                
                1.4
                %
                
                
                (3,969
                )
                
                
                14,053
                
                
                
                2.1
                %
                
                
                (9,570
                )60
      to 120 months
                
                
                42,099
                
                
                
                5.9
                %
                
                
                (30,386
                )
                
                
                72,485
                
                
                
                10.0
                %
                
                
                (15,135
                )
                
                
                87,620
                
                
                
                13.4
                %
                
                
                (3.926
                )Total
      certificate accounts
                
                
                310,883
                
                
                
                43.9
                %
                
                
                (7,132
                )
                
                
                318,015
                
                
                
                43.7
                %
                
                
                18,325
                
                
                
                299,690
                
                
                
                45.7
                %
                
                
                (9,896
                )Total
      deposits
                
                $
                707,551
                
                
                
                100.0
                %
                
                $
                (19,608
                )
                
                $
                727,159
                
                
                
                100.0
                %
                
                $
                71,845
                
                
                $
                655,314
                
                
                
                100.0
                %
                
                $
                15,133





The
following table represents, by various interest rate categories, the amount of
deposits maturing during each of the three years following December 31, 2007,
and the percentage of such maturities to total deposits.  Matured
certificates which have not been renewed as of December 31, 2007 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 ofless
            
            
            
            2.99
            %
            
            
            3.99
            %
            
            
            4.99
            %
            
            
            5.99
            %
            
            
            6.00
            %
            
            Total
            
            
            TotalCertificate
      accounts maturing in the year ending:December 31, 2008
            
            $
            186
            
            
            $
            1,249
            
            
            $
            43,381
            
            
            $
            83,612
            
            
            $
            134,002
            
            
            $
            411
            
            
            $
            262,841
            
            
            $
            84.5
            %December 31, 2009
            
            
            -
            
            
            
            -
            
            
            
            5,185
            
            
            
            19,068
            
            
            
            3,745
            
            
            
            135
            
            
            
            28,133
            
            
            
            9.1
            %December 31, 2010
            
            
            -
            
            
            
            72
            
            
            
            2,884
            
            
            
            3,391
            
            
            
            446
            
            
            
            -
            
            
            
            6,793
            
            
            
            2.2
            %Thereafter
            
            
            -
            
            
            
            -
            
            
            
            845
            
            
            
            10,147
            
            
            
            2,124
            
            
            
            -
            
            
            
            13,116
            
            
            
            4.2
            %Total
            
            $
            186
            
            
            $
            1,321
            
            
            $
            52,295
            
            
            $
            116,218
            
            
            $
            140,317
            
            
            $
            546
            
            
            $
            310,883
            
            
            $
            100.0
            %








- 13
-







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 the Bank, excluding $9.2 million, which were from
brokered deposits.  The following table provides a maturity breakdown
at December 31, 2007, 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 ofless
            
            
            
            2.99
            %
            
            
            3.99
            %
            
            
            4.99
            %
            
            
            5.99
            %
            
            
            6.00
            %
            
            Total
            
            
            TotalCertificate
      accounts maturing in the year ending:December 31, 2008
            
            $
            114
            
            
            $
            104
            
            
            $
            9,177
            
            
            $
            21,580
            
            
            $
            40,080
            
            
            $
            358
            
            
            $
            71,413
            
            
            $
            83.3
            %December 31, 2009
            
            
            -
            
            
            
            -
            
            
            
            514
            
            
            
            7,372
            
            
            
            2,949
            
            
            
            135
            
            
            
            10,970
            
            
            
            12.8
            %December 31, 2010
            
            
            -
            
            
            
            -
            
            
            
            189
            
            
            
            472
            
            
            
            206
            
            
            
            -
            
            
            
            867
            
            
            
            1.0
            %Thereafter
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,777
            
            
            
            702
            
            
            
            -
            
            
            
            2,479
            
            
            
            2.9
            %Total
            
            $
            114
            
            
            $
            104
            
            
            $
            9,880
            
            
            $
            31,201
            
            
            $
            43,937
            
            
            $
            493
            
            
            $
            85,729
            
            
            $
            100.0
            %






Borrowings





The 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 the Bank's major
source of borrowings.  Advances from the FHLB of Indianapolis are
typically secured by the Bank's stock in the FHLB of Indianapolis and a portion
of the 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, 2007, the Bank had advances totaling
$99.3 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
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.  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.





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




- 14
-





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,
2007.  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
            
            
            YearEnded
            
            
            Ended
            
            
            Ended(Dollars
      in Thousands)
            
            Dec
      31, 2007
            
            
            Dec
      31, 2006
            
            
            Dec
      31, 2005Official
      check overnight remittance
            
            $
            232
            
            
            $
            478
            
            
            $
            172FHLB
      advances
            
            $
            31,850
            
            
            $
            53,400
            
            
            $
            57,053LaSalle
      short term borrowings
            
            $
            985
            
            
            $
            -
            
            
            $
            -Average
      amount of total
              short-term
      borrowings outstanding
            
            $
            23,668
            
            
            $
            36,812
            
            
            $
            50,695





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, 2007
            
            
            Dec
      31, 2006
            
            
            Dec
      31, 2005FHLB
      advances:Amount
            
            $
            31,850
            
            
            $
            9,250
            
            
            $
            32,403Weighted
      average rate
            
            
            4.9
            %
            
            
            5.0
            %
            
            
            5.5
            %





Subsidiaries
and Other Operations





The Bank organized a subsidiary under
Nevada law, Home Investments, Inc., (“HII”).  Effective March 31,
2002, the 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,
2007, of the $84.3 million in consolidated investments owned by the Bank, $55.6
million was held by Home Investments, Inc.





The Company owns another corporation
organized under Indiana law, HomeFed Financial Corp, (“HFF”).  At
December 31, 2007, the Company’s aggregate investment in HFF was
$836,000.  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 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 Financial’s 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, 2007, the Company had income of $117,000, on a consolidated basis, from
commissions and dividends paid on Family Financial activities.





The Bank is also engaged in
full-service securities brokerage services activities through an arrangement
with Raymond James Financial Services.  For the year ended December
31, 2007, the Bank received $1,870,000 in commissions from its Raymond James
financial activities.




- 15
-








Employees





As of December 31, 2007, the Company
employed 257 persons on a full-time basis and 20 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





The 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.





The 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 the
Bank's home and branch offices.  Also, in Seymour, Columbus, North
Vernon, Batesville, and the Greenwood area, the Bank must compete with banks and
savings institutions in Indianapolis.  To a lesser extent, the Bank
competes with financial and other institutions in the market areas surrounding
Cincinnati, Ohio and Louisville, Kentucky.  The 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 the 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 the 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 the Bank 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 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 the Bank, 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




- 16
-





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.





The Gramm-Leach Bliley Act of 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 the Bank and to
commit resources to support the Bank in circumstances in which the Company might
not otherwise do so.





Indiana
Bank and Trust Company





General Regulatory
Supervision.  The Bank 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 the Bank’s operations.  The Bank must
undergo regular on-site examinations by the Federal Reserve and DFI and must
submit periodic reports to the Federal Reserve and the DFI.





Lending
Limits.  Under Indiana law, the Bank may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus.  Additional amounts may be lent, not
in excess of 10% of unimpaired capital and surplus, if such loans or extensions
of credit are fully secured by readily marketable collateral, including certain
debt and equity securities but not including real estate.  At December
31, 2007, the Bank did not have any loans or extensions of credit to a single or
related group of borrowers in excess of its lending limits.





Deposit
Insurance.  Deposits in the Bank 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."  The
Bank 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.  The
Bank 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 the Bank, by FICO is in addition to the
amount paid for deposit insurance according to the risk-related assessment rate
schedule.  The Bank paid deposit insurance assessments of $84,000
during the year ended December 31, 2007.  Future increases in deposit
insurance premiums or changes in risk classification would increase the Bank’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.




- 17
-





Transactions with Affiliates and
Insiders.  The Bank 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.  The Bank 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 the Bank 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, the Bank is prohibited from paying dividends in an amount greater
than its undivided profits, or if the payment of dividends would impair the
Bank’s capital.  Moreover, the Bank 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 the Bank during any calendar year,
including the proposed dividend, would exceed the sum of the Bank’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 the
Bank 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 the Bank 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.





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.




- 18
-







The
following is a summary of the Company’s and the Bank’s regulatory capital and
capital requirements at December 31, 2007.





To
      Be Categorized As“Well
      Capitalized”Under
      PromptFor
      Capital
            
            
            Corrective
      ActionActual
            
            
            Adequacy
      Purposes
            
            
            ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            RatioAs
      of December 31, 2007Total
      risk-based capital
              (to
      risk-weighted assets)Indiana
      Bank and Trust Company
            
            $
            86,130
            
            
            
            10.65
            %
            
            $
            64,673
            
            
            
            8.0
            %
            
            $
            80,842
            
            
            
            10.0
            %Home
      Federal Bancorp Consolidated
            
            $
            88,289
            
            
            
            10.91
            %
            
            $
            64,759
            
            
            
            8.0
            %
            
            $
            80,949
            
            
            
            10.0
            %Tier
      1 risk-based capital
              (to
      risk-weighted assets)Indiana
      Bank and Trust Company
            
            $
            79,158
            
            
            
            9.79
            %
            
            $
            32,337
            
            
            
            4.0
            %
            
            $
            48,505
            
            
            
            6.0
            %Home
      Federal Bancorp Consolidated
            
            $
            81,317
            
            
            
            10.05
            %
            
            $
            32,380
            
            
            
            4.0
            %
            
            $
            48,569
            
            
            
            6.0
            %Tier
      1 leverage capital
              (to
      average assets)Indiana
      Bank and Trust Company
            
            $
            79,158
            
            
            
            8.95
            %
            
            $
            35,375
            
            
            
            4.0
            %
            
            $
            44,219
            
            
            
            5.0
            %Home
      Federal Bancorp Consolidated
            
            $
            81,317
            
            
            
            9.18
            %
            
            $
            35,423
            
            
            
            4.0
            %
            
            $
            44,279
            
            
            
            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, 2007, the Bank was categorized as "well
capitalized," meaning that the Bank’s total risk-based capital ratio exceeded
10%, the Bank’s Tier I risk-based capital ratio exceeded 6%, the Bank’s leverage
ratio exceeded 5%, and the Bank was not subject to a regulatory order, agreement
or directive to meet and maintain a specific capital level for any capital
measure.




- 19
-







Other
Regulations.  Interest and other charges collected or
contracted for by the Bank are subject to state usury laws and federal laws
concerning interest rates.  The Bank’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 bycollection agencies; and·Rules
      and regulations of the various federal agencies charged with the
      responsibility ofimplementing such federal laws.The deposit operations of the Bank 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 the Bank.





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





- 20
-







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%.  The designated reserve ratio for the
      DIF is 1.25% for 2008.







- 21
-







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, 2007, the FICO assessment
rate was equal to 1.14 cents for each $100 in domestic deposits maintained
at an institution.





Effect of Governmental Monetary
Policies.  The Bank’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





The Bank is a member of the FHLB of
Indianapolis, which is one of twelve regional FHLBs.  Each FHLB serves
as a reserve or central bank for its 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, the Bank is
required to purchase and maintain stock in the FHLB of Indianapolis in an amount
equal to at least 1% of its aggregate unpaid residential mortgage loans, home
purchase contracts, or similar obligations at the beginning of each
year.  At December 31, 2007, the Bank'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, 2007, dividends paid by the
FHLB of Indianapolis to the Bank totaled approximately $386,000, for an
annualized rate of 4.6%.





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




- 22
-





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 the Bank's current
operations.





Federal
Reserve System





Under regulations of the Federal
Reserve, the Bank 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 the
Bank's cost of funds. The Bank 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 six-month 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.  The
Bank is participating in this program.  The examiners have determined
that the Bank has a satisfactory record of meeting community credit
needs.





Taxation





Federal
Taxation





The Company and its subsidiaries file a
consolidated federal income tax return.  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 the Bank, 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.





The Bank is required to compute its
allocable deduction using the experience 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.  The Bank began recapturing approximately $2.3 million over a
six-year period beginning in fiscal 1999, and has now included all of those
reserves in its income.  In addition, the pre-1988 reserve, in which
no deferred taxes have been recorded, will not have to be recaptured into income
unless (i) the Bank no longer qualifies as a bank under the Code, or (ii) excess
dividends are paid out by the Bank.




- 23
-





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





The Bank 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.





The Bank's state income tax returns
were audited in 2003 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.





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.  During 2007, the banking industry experienced increasing
trends in problem assets and credit losses which resulted from weakening
national economic trends and a decline in housing values. The
Company’s home equity and home equity line of credit portfolios have experienced
some increase in delinquency and foreclosures have occurred; driven primarily by
mortgage foreclosures on loans serviced by non-company owned first
mortgages.  The potential for foreclosures instituted by outside
servicers represents additional potential credit risk.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.




- 24
-








Exposure to Local Economic Conditions.  Company's primary
market area for deposits and loans encompasses counties in central and southern
Indiana, where all of its offices are located.  Most of the Company's
business activities are within this area. The Company has experienced growth of
the commercial and commercial real estate portfolios, primarily in the
Indianapolis market.   This area of the Company’s market has
experienced more difficulties in the residential and development areas than the
rest of our market area. These concentrations expose the Company to risks
resulting from changes in the local economies. Additionally, pressure has
intensified on consumer


budgets
due to sharp increases in fuel prices and property taxes in the Company’s market
areas.  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 the Bank may decline;
  and


·
            Collateral
      for loans made by the Bank, 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 the
      Bank.





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 the Bank’s competitors
have higher legal lending limits than does the Bank. Particularly intense
competition exists for sources of funds including savings and retail time
deposits and for loans, deposits and other services that the Bank
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, 2007, the Bank
conducted its business from its main office at 501 Washington Street, Columbus,
Indiana and 19 other
full-service branches and a commercial loan office in
Indianapolis.  The Bank 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, 2007, is presented in the following
table:


- 25
-





Net
      Book Valueof
      Property,
            
            ApproximateDescription
      and
            Owned
      or
            
            
            Furniture
      and
            
            Square
            
            LeaseAddress
            Leased
            
            
            Fixtures
            
            Footage
            
            ExpirationPrincipal
      Office
              501
      Washington Street
            Owned
            
            $
            3,633,738
            
            21,600
            
            N/AAdministrative
      Operations Offices:211
      North Chestnut, Seymour
            Owned
            
            $
            569,201
            
            5,130
            
            N/A3801
      Tupelo Drive, Columbus
            Owned
            
            $
            3,156,937
            
            16,920
            
            N/ABranch
      Offices:Columbus
      Branches:1020
      Washington Street
            Owned
            
            $
            355,838
            
            800
            
            N/A3805
      25th
      Street
            Leased
            
            $
            71,772
            
            5,800
            
            09/20222751
      Brentwood Drive
            Leased
            
            $
            35,883
            
            3,200
            
            09/20224330
      West Jonathon Moore Pike
            Owned
            
            $
            453,265
            
            2,600
            
            N/A1901
      Taylor Road
            Leased
            
            $
            30,510
            
            400
            
            03/2012Hope
      Branch
              8475
      North State Road 9, Suite 4
            Leased
            
            $
            74,647
            
            1,500
            
            03/2012Austin
      Branch
              67
      West Main Street
            Owned
            
            $
            37,500
            
            3,600
            
            N/ABrownstown
      Branch
              101
      North Main Street
            Leased
            
            $
            7,372
            
            2,400
            
            Month
      to MonthNorth
      Vernon Branches111
      North State Street
            Owned
            
            $
            213,806
            
            1,900
            
            N/A1540
      North State Street
            Leased
            
            $
            9,169
            
            1,600
            
            Month
      to MonthOsgood
      Branch
              820
      South Buckeye Street
            Owned
            
            $
            95,507
            
            1,280
            
            N/ASalem
      Branch
              1208
      South Jackson
            Owned
            
            $
            543,945
            
            1,860
            
            N/ASeymour
      Branches222
      W. Second Street
            Leased
            
            $
            299,576
            
            9,200
            
            09/20221117
      East Tipton Street
            Leased
            
            $
            51,116
            
            6,800
            
            09/2022Batesville
      Branch
              114
      State Rd 46 East
            Owned
            
            $
            457,909
            
            2,175
            
            N/AMadison
      Branch
              201
      Clifty Drive
            Owned
            
            $
            356,076
            
            2,550
            
            N/AGreensburg
      Branch
              1801
      Greensburg Crossing
            Owned
            
            $
            651,843
            
            1,907
            
            N/AIndianapolis
      Branches8740
      South Emerson Avenue
            Owned
            
            $
            1,960,054
            
            5,000
            
            N/A1510
      West Southport Road
            Owned
            
            $
            1,879,904
            
            3,100
            
            N/AIndianapolis
      Commercial Loan Office10
      West Market Street, Suite 1600
            Leased
            
            $
            182,721
            
            5,632
            
            10/2011Property
      Purchased for New Branch1420
      North State Street, North Vernon
            Owned
            
            $
            470,428
            
            N/A
            
            N/A





The Bank owns its computer and data
processing equipment that is used for accounting, financial forecasting, and
general ledger work.  The Bank 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.




- 26
-








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,
2007.





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.





Positionwith HFBMark
      T. Gorski
            Executive
      Vice President, Treasurer, andChief
      Financial Officer and SecretaryCharles
      R. Farber
            Executive
      Vice President andIndianapolis
      Market President





Mark T. Gorski (age 43) has been
employed by the Bank 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 58) has been
employed by the Bank since March 2002 as its Executive Vice President and
Indianapolis Market 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.





The Company’s common stock ("Common
Stock") is quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), National Global Market, under the symbol
"HOMF."  For certain information related to the stock prices and
dividends paid by the Company, see “Quarterly Results of Operations" on page 9
of Home Federal Bancorp's Shareholder Annual Report for the year ended December
31, 2007 (the "Shareholder Annual Report").  As of December 31, 2007,
there were 376 shareholders of record of the Company'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 the Bank to pay dividends to the Company.  For a discussion
of the regulatory limitations on the Bank’s ability to pay dividends see Item 1,
“Business-Regulation – Indiana Bank and Trust Company - Dividends”, and on the
Company’s ability to pay dividends, see Item 1, “Business-Regulation – Home
Federal Bancorp - Dividends”.





Income of the Bank 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 the Bank on the amount of such income deemed removed
from the reserves at the then-current income tax
rate.  At




- 27
-








December
31, 2007, none of the Bank'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, 2007.





(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
      2007
            
            
            0
            
            
            $
            00.00
            
            
            
            0
            
            
            
            95,226November
      2007
            
            
            53,030
            
            
            $
            26.19
            
            
            
            53,030
            
            
            
            42,196December
      2007
            
            
            41,906
            
            
            $
            25.40
            
            
            
            41,906
            
            
            
            290Fourth
      Quarter
            
            
            94,936
            
            
            $
            25.84
            
            
            
            94,936
            
            
            
            290


(1)
            On
      April 24, 2007, 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 175,628 such
shares.  Such


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


was
closed on December 26, 2007 with 290 shares remaining that were not
repurchased.





On January 22, 2008, 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 168,498 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.  The Company’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.




- 28
-





Item
9A.  Controls and Procedures.





Evaluation of Disclosure Controls
and Procedures.  As of December 31, 2007, 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, 2007, the
Company’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports 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, 2007, 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, Executive Officers and Corporate
Governance.





The information required by this item
with respect to directors is incorporated by reference to page 4 to 6 of
the Company's Proxy Statement for its annual shareholder meeting to be held in
April 2008 (the "2008 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 2008 Proxy Statement.





The information concerning director
nominating procedures is incorporated by reference to page 6 of the 2008
proxy statement.





The information required by this item
with respect to members of the Company’s Audit Committee and whether any such
members qualify as an Audit Committee Financial Expert is incorporated by
reference to pages 5 and 25 - 26 of the 2008 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
7 through page 24 of the 2008 Proxy Statement, and to the sections
entitled “Compensation Committee Report” and “Compensation Committee Interlocks
and Insider Participation” in the 2008 Proxy Statement.






- 29
-





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 5 of the 2008 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, 2007.





Plan
      category
            
            Number
      of securities
              to
      be issued
              upon
      exercise of outstanding options, warrants and rights
              as
      of
              December
      31, 2007
              (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, 2007
              (excluding
      securities
              reflected
      in
              column
      (a))
              (c)Equity
      compensation plans approved by security holders
            
            405,952(1)
            
            $
      23.11(1)
            
            230,662(1)Equity
      compensation plans not approved by security holders
            
            ---
            
            ---
            
            ---Total
            
            405,952
            
            $
      23.11
            
            230,662





(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 2008 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
2008 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
      in 2007
              Shareholder
              Annual
      ReportReport
      of Deloitte & Touche LLP Independent Registered Public Accounting
      Firm
            25Consolidated
      Balance Sheets as of December 31, 2007 and December 31,
    2006
            26Consolidated
      Statements of Income for the years ended December 31,
2007,December
      31, 2006 and December 31, 2005.
            27Consolidated
      Statements of Shareholders’ Equity for the years endedDecember
      31, 2007, December 31, 2006 and December 31, 2005.
            28Consolidated
      Statements of Cash Flows for the years ended December 31,
      2007,December
      31, 2006 and December 31, 2005.
            29Notes
      to Consolidated Financial Statements
            30(b)  The
      exhibits filed herewith or incorporated by reference herein are
      setforth
      on the Exhibit Index on page 38.(c)  All
      schedules are omitted as the required information either is not applicable
      or isincluded
      in the Consolidated Financial Statements or related notes.







- 30
-








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 14th
      day of March 2008.HOME
      FEDERAL BANCORPDATE: March 14,
      2008
            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 14th
      day of March 2008./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.
      BeattyHarvard
      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








- 31
-


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 3.1 to
Registrant's


Form 8-K filed November 27, 2007)




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 3.1 to
Registrant's


Form 8-K
dated November 27, 2007





10(a)      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(b)      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(c)       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





10(d)       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(e)        Form
of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10(aw)
to


Registrant’s Form 10-K for the
fiscal year ended December 31, 2005).





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


Exhibit 10.1 to Registrant’s
Form 8-K filed May 31, 2005)





10(i)         Form
of Home Federal Bancorp Long-Term Incentive Plan Award Agreement
(incorporated


by reference to Exhibit 10.2 to
Registrant’s Form 8-K filed May 31, 2005)





10(j)         Excess
Benefit Plan Agreement between the Bank and 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); First Amendment thereto effective


January 1, 2005, is
incorporated by reference to Exhibit 10.4 to Registrant’s Form


8-K filed July 27,
2007





10(k)        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); First
Amendment thereto effective January 1, 2005, is incorporated


by reference to Exhibit 10.5 to
Registrant’s Form 8-K filed July 24, 2007




- 32
-







10(l)         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); second amendment
thereto effective July 1, 2005, is incorporated by reference


to Exhibit 10.6 to Registrant’s
Form 8-K filed July 27, 2007





10(m)        Amended
and Restated Supplemental Executive Retirement Income Agreement for
Charles


R. Farber effective January 1,
2005 (incorporated by reference to Exhibit 10.8 to Registrant’s


Form 8-K filed July 27,
2007)





10(n)        Second
Amended and Restated Supplemental Executive Retirement Agreement
between


the Bank and S. Elaine Pollert
effective January 1, 2005 (incorporated by reference to


Exhibit 10.10 to Registrant's
Form 8-K filed July 27, 2007)





10(o)        Director
Deferred Fee Agreement between the Bank and John Beatty
(incorporated


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


Amendment thereto effective January
1, 2006 is incorporated by reference to Exhibit


10.1 to Registrant’s Form 8-K filed
July 24, 2007




10(p)        Director Deferred
Fee Agreement between the Bank and Harold Force (incorporated by


reference to Exhibit 10.1 of
Registrant’s Form 8-K dated November 22, 2005);


First Amendment thereto effective
January 1, 2006, is incorporated by reference to


Exhibit 10.2 to Registrant’s Form 8-K
filed July 24, 2007





10(q)        Director
Deferred Fee Agreement between the Bank and David W. Laitinen


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


First Amendment thereto is
incorporated by reference to Exhibit 10.3 to Registrant’s


Form 8-K filed July 24,
2007





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


reference from Exhibit 10(ag)
to Registrant’s 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(s)        Change
in Control Agreement with Mark T. Gorski (incorporated by reference to
Exhibit


10.1 to the Registrant's Form
8-K filed January 23, 2008)





10(t)        Change
in Control Agreement with Charles R. Farber (incorporated by reference from
Exhibit l0.2


to Registrant’s Form 8-K filed
January 23, 2008)





10(u)        Agreement,
General Release, and Confidentiality Statement dated February 16, 2007,
between


the Bank and S. Elaine Pollert
(incorporated by reference to Exhibit 10.1 to the Registrant’s


Form 8-K filed February 16,
2007)





10(v)        Agreement
for Purchase and Sale of Servicing dated November 30, 2006, between
the


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


dated November 30,
2006)





10(w)        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(x)        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(y)        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)




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10(z)        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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