UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                  FORM 10-KSB

       [X]      Annual Report Under Section 13 or 15(d)
                  of the Securities Exchange Act of 1934
                  For the fiscal year ended December 31, 1995

                                           or

       [ ]      Transition Report Under Section 13 or 15(d)
                  of the Securities Exchange Act of 1934
                  For the transition period from ____ to ____.

                     Commission File Number:  0-16463

                         HOME FEDERAL CORPORATION
               (Name of Small Business Issuer in its charter)

     Maryland                                         52-1636831
(State or other jurisdiction or                  (I.R.S. Employer
 incorporation or organization)            Identification Number)

   122-128 West Washington Street, Hagerstown, Maryland  21740
        (Address of principal executive offices)      (Zip Code)

Issuer's telephone number: (301)733-6300

Securities registered under Section 12(b) of the Act: Not Applicable

Securities registered under Section 12(g) of the Act:
                     Common Stock ($1.00 par value per share)
                               (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months and (2) has been
subject to such filing requirements for the past 90 days.  Yes _X_    No ___

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.   [X]

Issuer's revenues for the year ended December 31, 1995:  $17,966,735

As of March 15, 1996, the aggregate market value of the 2,519,010 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
218,644 shares held by all directors and officers of the Registrant as a group,
was approximately $18.4 million. This figure is based on the closing price of
$8.00 per share of the Registrant's Common Stock on March 13, 1996.

Number of Shares of Common Stock outstanding as of December 31, 1995:  2,519,010

                     DOCUMENTS INCORPORATED BY REFERENCE

     List hereunder the following documents incorporated by reference and the
Part of the Form 10-KSB into which the document is incorporated:
(1)  Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 are incorporated into Part II, Items 5 - 8 of this Form
10-KSB.
(1)  Portions of the definitive proxy statement for the 1996 Annual Meeting of
Stockholders are incorporated into Part III, Items 9 - 12 of this Form 10-KSB.

Transitional Small Business Issuers Format:  Yes ___   No _X_.

<PAGE>
PART I

Item 1. Description of Business

The Corporation

     Home Federal Corporation ("HFC" or the "Corporation"), a Maryland business
corporation located in Hagerstown, Maryland, is the savings and loan holding
company of Home Federal Savings Bank ("Home Federal" or the "Bank"). The
Corporation owns all of the outstanding common stock of the Bank, which is its
primary asset. On a consolidated basis, at December 31, 1995, HFC had total
assets of $214.6 million, total liabilities of $196.2 million and total
stockholders' equity of $18.4 million or $7.30 per share based on 2,519,010
shares of common stock $1.00 par value per share ("Common Stock") outstanding. 
HFC had net income of $2.5 million for the year ended December 31, 1995.

     The Bank's principal business presently consists of attracting deposits
from the general public and using these funds, together with other available
funds, to originate residential real estate loans, residential construction
loans and consumer loans, including automobile and property improvement loans.
Home Federal's operations also include stockbrokerage, insurance and other
financial services.

     The Corporation, as a registered savings and loan holding company, is
subject to examination and regulation by the Office of Thrift Supervision
("OTS"), a department of the United States ("U.S.") Treasury, and is subject to
various reporting and other requirements under Federal securities laws and
regulations administered by the Securities and Exchange Commission ("SEC"). Home
Federal, as a federally chartered savings bank, is subject to examination and
comprehensive regulation by the OTS, and by the Federal Deposit Insurance
Corporation ("FDIC"). Customer deposits with the Bank are insured to the maximum
extent provided by law through the Savings Association Insurance Fund ("SAIF"),
which is administered by the FDIC. Home Federal is a member of the Federal Home
Loan Bank ("FHLB") of Atlanta, which is one of 12 regional banks comprising the
FHLB System. Home Federal also is subject to regulations administered by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board")
regarding reserves required to be maintained against deposits and certain other
matters.

     The Corporation's and the Bank's principal executive offices are located at
122-128 West Washington Street, Hagerstown, Maryland 21740 and their telephone
number is (301) 733-6300.


Lending Activities

     Loan Portfolio Composition.  Home Federal's net loan and mortgage-backed
securities portfolio ("loan portfolio") totaled $184.4 million at December 31,
1995, representing approximately 85.9% of total assets at such date. 

     At December 31, 1995, single-family loans amounted to $71.8 million or
39.0% of the loan portfolio, loans on single-family residential properties are
primarily long-term and are either conventional (not insured or guaranteed by a
federal agency) or insured by the Federal Housing Administration ("FHA") or
partially guaranteed by the Department of Veterans Affairs ("VA"). The
mortgage-backed securities portfolio, which amounted to $46.8 million or 25.4%,
consists of Government National Mortgage Association ("GNMA") securities,
Federal Home Loan Mortgage Corporation ("FHLMC") participation certificates and
Federal National Mortgage Association ("FNMA") securities. GNMAs are guaranteed
by the full faith and credit of the U.S. while FNMA and FHLMC securities are
guaranteed by the respective quasi-governmental agency.

     Over the periods presented the aggregate loan portfolio balance declined by
$40.1 million or 17.9%, as the Bank decreased its aggregate construction loans,
which include commercial and land acquisition and development loans, by $27.5
million or 56.1%. Significant portions of this portfolio in the early 1990's
became non-performing assets and real estate owned. See "- Nonperforming Loans,
Troubled Debt Restructurings and Real Estate Owned." However, in recent years
the Bank's loan portfolio has increased with major change in the Bank's
single-family loans and mortgage-backed securities. During the four year period
ended December 31, 1995 mortgage-backed securities increased from 3.1% of the
loan portfolio as of December 31, 1991 to 25.4% of the loan portfolio as of
December 31, 1995.

     The following table sets forth the composition of the Bank's loan and
mortgage-backed securities portfolio by type of loan and mortgage-backed
security, respectively, as of the dates indicated.

<TABLE>
<CAPTION>
                                     December 31, 1995      December 31, 1994
                                     ------------------     ------------------
Real estate loans:                   Amount     Percent     Amount     Percent
                                     --------   -------     --------   -------
                                               (Dollars in Thousands)
<S>                                  <C>          <C>       <C>          <C>
  Residential:
    Single-family                    $  71,821     38.95%   $  60,970     34.53%
    Multi-family                        11,824      6.41       13,259      7.51
                                      --------   -------     --------   -------
      Total residential                 83,645     45.36       74,229     42.04 
                                      --------   -------     --------   -------
  Commercial                            16,921      9.18       20,588     11.66 
                                      --------   -------     --------   -------
  Construction:                                                  
    Residential                         12,683      6.88       13,999      7.93 
    Commercial                             350      0.19          700      0.40 
    Land acquisition and development     8,469      4.59       11,373      6.44 
                                      --------   -------     --------   -------
      Total construction                21,502     11.66       26,072     14.77 
                                      --------   -------     --------   -------
  Land                                   1,838      1.00        3,766      2.13 
                                      --------   -------     --------   -------
      Total real estate loans          123,906     67.20      124,655     70.60 
                                      --------   -------     --------   -------
Consumer loans:                                                  
    Automobile                           5,241      2.84        4,901      2.77 
    Mobile home                         10,742      5.83       10,359      5.87 
    Personal                             2,643      1.43        2,477      1.40 
    Other                                4,426      2.40        4,339      2.46 
                                      --------   -------     --------   -------
      Total consumer loans              23,052     12.50       22,076     12.50 
                                      --------   -------     --------   -------
Commercial business loans                1,429      0.77        1,593      0.90
                                      --------   -------     --------   -------
Accrued interest receivable                840      0.46          813      0.46
                                      --------   -------     --------   -------
      Total loans receivable           149,227     80.93      149,137     84.46
Less:                                        
    Loans in process                    (7,741)    (4.20)      (7,351)    (4.16)
    Allowances for possible
      loan losses                       (3,632)    (1.97)      (5,641)    (3.19)
    Deferred fee income                   (246)    (0.13)        (211)    (0.12)
    Unearned discounts                    (345)    (0.19)        (381)    (0.21)
                                      --------   -------     --------   -------
      Total loans receivable-net       137,263     74.44      135,553     76.78
                                      --------   -------     --------   -------
Mortgage-backed securities:                                      
  GNMA                                  13,176      7.15        3,281      1.86
  FHLMC                                 13,998      7.59       16,291      9.23
  FNMA                                  19,630     10.65       21,188     12.00
                                      --------   -------     --------   -------
    Total mortgage-backed securities    46,804     25.39       40,760     23.09
                                                                    
Accrued interest receivable                321      0.17          277      0.16 
Less - unearned discounts                   (4)    (0.00)         (33)    (0.03)
                                      --------   -------     --------   -------
    Total mortgage-backed
      securities - net                  47,121     25.56       41,004     23.22
                                      --------   -------     --------   -------
    Total loans receivable and                                  
      mortgage-backed 
      securities - net               $ 184,384    100.00%   $ 176,557    100.00%
                                      ========   =======     ========   =======
                                                                  
<CAPTION>
                                     December 31,  1993     December 31,  1994
                                     ------------------     ------------------
Real estate loans:                   Amount     Percent     Amount     Percent
                                     --------   -------     --------   -------
<S>                                  <C>          <C>       <C>          <C>
  Residential:                            (Dollars in Thousands)
    Single-family                    $  51,427     33.01%   $  58,496     32.09%
    Multi-family                        11,399      7.32       11,984      6.58 
                                      --------   -------     --------   -------
      Total residential                 62,826     40.33       70,480     38.67 
                                      --------   -------     --------   -------
  Commercial                            19,552     12.55       24,330     13.35 
                                      --------   -------     --------   -------
  Construction:                                             
    Residential                         15,233      9.78       13,263      7.28 
    Commercial                           2,300      1.48        2,300      1.26 
    Land acquisition and development    12,136      7.79       14,288      7.84 
                                      --------   -------     --------   -------
      Total construction                29,669     19.05       29,851     16.38 
                                      --------   -------     --------   -------
  Land                                   6,129      3.93        6,624      3.63 
                                      --------   -------     --------   -------
      Total real estate loans          118,176     75.86      131,285     72.03 
                                      --------   -------     --------   -------
Consumer loans:                                             
    Automobile                           6,395      4.11        9,432      5.18
    Mobile home                          9,472      6.08        8,003      4.39
    Personal                             2,668      1.71        2,669      1.46
    Other                                4,392      2.82        5,148      2.83
                                      --------   -------     --------   -------
      Total consumer loans              22,927     14.72       25,252     13.86
                                      --------   -------      --------   -------

Commercial business loans                2,179      1.40        2,434      1.34 
                                      --------   -------     --------   -------
Accrued interest receivable                777      0.50          933      0.51 
                                      --------   -------     --------   -------
      Total loans receivable           144,059     92.48      159,904     87.74 
Less:                                                       
    Loans in process                    (9,685)    (6.22)      (7,697)    (4.22)
    Allowances for possible loan                            
      losses                            (6,491)    (4.17)      (5,915)    (3.25)
    Deferred fee income                   (286)    (0.18)        (248)    (0.14)
    Unearned discounts                    (366)    (0.23)        (427)    (0.23)
                                      --------   -------     --------   -------
      Total loans receivable-net       127,231     81.68      145,617     79.90 
                                      --------   -------     --------   -------
Mortgage-backed securities:                                 
  GNMA                                     798      0.51        1,076      0.59
  FHLMC                                 10,846      6.96       14,241      7.81
  FNMA                                  16,760     10.76       21,151     11.61
                                      --------   -------     --------   -------
    Total mortgage-backed securities    28,404     18.23       36,468     20.01
                                                             
Accrued interest receivable                170      0.11          231      0.12
                                                              
Less - unearned discounts                  (34)    (0.02)         (61)    (0.03)
                                      --------   -------     --------   -------
    Total mortgage-backed                                    
      securities - net                  28,540     18.32       36,638     20.10 
                                      --------   -------     --------   -------
    Total loans receivable and                              
      mortgage-backed                                      
      securities - net               $ 155,771    100.00%   $ 182,255    100.00%
                                      ========   =======     ========   =======
<CAPTION>
                                            December 31, 1991
                                            ------------------
Real estate loans:                           Amount    Percent  
                                            --------   -------
                                          (Dollars in Thousands)
<S>                                        <C>          <C>
  Residential:
    Single-family                          $ 101,243     45.11% 
    Multi-family                              14,060      6.27  
                                            --------   -------
      Total residential                      115,303     51.38  
                                            --------   -------
  Commercial                                  31,880     14.20  
                                            --------   -------
  Construction:
    Residential                               18,655      8.31  
    Commercial                                 2,510      1.12  
    Land acquisition and development          27,839     12.40  
                                            --------   -------
      Total construction                      49,004     21.83  
                                            --------   -------
  Land                                         4,967      2.21  
                                            --------   -------
      Total real estate loans                201,154     89.62  
                                            --------   -------

Consumer loans:
    Automobile                                14,138      6.30  
    Mobile home                                6,230      2.78  
    Personal                                   3,190      1.42  
    Other                                      7,744      3.45  
                                            --------   -------
      Total consumer loans                    31,302     13.95  
                                            --------   -------

Commercial business loans                      3,235      1.44  
                                            --------   -------
Accrued interest receivable                    1,332      0.59  
                                            --------   -------
      Total loans receivable                 237,023    105.60  
Less:
    Loans in process                         (11,074)    (4.93) 
    Allowances for possible loan losses       (7,669)    (3.42) 
    Deferred fee income                         (537)    (0.24) 
    Unearned discounts                          (268)    (0.12) 
                                            --------   -------
      Total loans receivable-net             217,475     96.89  
                                            --------   -------

Mortgage-backed securities:
  GNMA                                         1,448      0.64  
  FHLMC                                        5,466      2.44  
  FNMA                                            --        --  
                                            --------   -------
    Total mortgage-backed securities           6,914      3.08  

Accrued interest receivable                      104      0.05  

Less - unearned discounts                        (37)    (0.02) 
                                            --------   -------
    Total mortgage-backed securities - net     6,981      3.11  
                                            --------   -------
    Total loans receivable and
      mortgage-backed securities - net     $ 224,456    100.00% 
                                            ========   =======
</TABLE>

     Contractual Maturities.  The following table sets forth the scheduled
contractual maturities of the Bank's loans and mortgage-backed securities at
December 31, 1995. Demand loans, loans having no stated schedule of repayments
and no stated maturity and overdraft loans are reported as due in one year or
less. The amounts shown for each period do not take into account loan
prepayments and normal amortization of the Bank's loan portfolio. 

<TABLE>
<CAPTION>
                              Real Estate Loans            Consumer
              -------------------------------------------- and
                      Mortgaged-                           Commercial
              Single-   backed   Multi-  Comm-   Constuc-  Business
              family  securities family  ercial  tion      Loans     Total
              ------- ---------- ------- ------  --------- --------- -------
                                 (Dollars in Thousands)
<S>           <C>      <C>       <C>     <C>        <C>     <C>      <C>
Amounts due in:
  One year
    or less   $   527  $    --   $   418 $ 2,778    $20,592 $ 9,338  $33,653 
  After one
    year
    through
    five
    years       6,137   17,445     6,946  11,841        910   4,171   47,450
  After 
    five 
    years      65,157   29,359     4,460   4,140         --  10,972  114,088
               ------   ------    ------  ------     ------ ------- --------
    Total<F1> $71,821  $46,804   $11,824 $18,759<F2>$21,502 $24,481 $195,191<F3>
               ======   ======    ======  ======     ======  ======  =======
<FN>
<F1> Does not include adjustments relating to loans in process, allowances for
possible loan losses, accrued interest, deferred fee income and unearned
discounts.
<F2> Includes $1.8 million in land loans.
<F3> Of the total loans due to mature after December 31, 1996, $87.8 million
have fixed-rates of interest and $73.7 million have floating or adjustable-rates
of interest.
</FN>
</TABLE>

     Scheduled contractual maturities of loans and mortgage-backed securities do
not necessarily reflect the actual maturities of such assets. The average
maturity of loans is substantially less than their average contractual terms
because of loan payments and prepayments and, in the case of conventional
mortgage loans, due-on-sale clauses, which give the Bank the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase when current
mortgage loan rates are substantially higher than rates on existing mortgage
loans and, conversely, decrease when current mortgage loan rates are
substantially lower than rates on existing mortgages (due to refinancings of
adjustable-rate and fixed-rate loans at lower rates). Under the latter
circumstances, the weighted average yield on loans decreases as higher yielding
loans are repaid or refinanced at lower rates.

     Origination, Purchase and Sale of Loans.  The Bank's primary lending area
is the State of Maryland, particularly Washington and Allegany Counties, and, to
a lesser extent, south central Pennsylvania, northern Virginia and the eastern
panhandle of West Virginia. In addition, the Bank has originated loans with
significant balances secured by property located in eastern Ohio and southern
New Jersey. The Bank's present policy is to emphasize the origination for
portfolio of 10-15 year fixed rate residential mortgage loans and loan products
such as adjustable-rate residential mortgage loans, short-term residential
construction loans to individuals and a variety of consumer loans. With respect
to Home Federal's single-family residential loan originations, the Bank
originates both fixed-rate and adjustable-rate loans. Single-family, 30 year
fixed-rate loans are originated primarily for resale in the secondary market,
thereby reducing the Bank's interest rate risk. The Bank generally retains
single-family adjustable-rate loans in portfolio. During 1995, 1994 and 1993,
the Bank originated $18.3 million, $18.1 million and $13.4 million,
respectively, of single-family residential loans which provided for periodic
adjustment of interest rates which constituted 61.7%, 60.0% and 36.1%,
respectively, of single-family residential originations. The Bank did not
actively engage in the purchase of loans during the three year period ended
December 31, 1995.

     Residential and construction loan originations are attributable to
referrals from real estate brokers, builders and customers. Commercial real
estate loans are obtained primarily by direct solicitation or from mortgage
brokers. Consumer loan originations are attributable largely to depositors and
walk-in customers who have been made aware of Home Federal's programs by
advertising and through the purchase of existing consumer products.

     During 1995, 1994 and 1993, the Bank undertook various actions (which
included purchasing mortgage-backed securities) in order to restructure its
assets and reduce its risk-weighted assets to enhance regulatory capital. The
Bank purchased $9.9 million, $22.4 million and $15.5 million of mortgage-backed
securities during 1995, 1994 and 1993, respectively, which was partially funded
by FHLB advances, principal repayments, loan sales and the sale of mortgage-
backed securities during 1993.

     The following table shows origination, purchase and sale activity of the
Bank with respect to loans and mortgage-backed securities during the periods
indicated.

<TABLE>
<CAPTION>
                                                Year Ended December 31,    
                                            -------------------------------
                                             1995        1994       1993  
                                            -------     -------    -------
                                                    (In Thousands)
<S>                                        <C>         <C>          <C>
Real estate loan originations:
  Residential:
    Single-family                          $ 29,525    $ 29,453    $ 37,225
    Multi-family                                552       3,320       2,588
    Land                                      1,201         963         578
  Commercial                                  2,420         821       1,324
  Construction: 
    Residential                               9,647      10,145      10,815
    Commercial                                  100         517          --
                                            -------     -------     -------
      Total real estate loan
        originations                         43,445      45,219      52,530
Consumer                                     11,960      11,008      11,365
Commercial business                           3,628       3,239       4,728
                                            -------     -------     -------
      Total loan originations                59,033      59,466      68,623
 
Purchase of whole loans and participations -
  Single-family                                 100         623          --
Purchase of mortgage-backed securities        9,970      22,372      15,446
                                            -------     -------     -------
      Total originations and purchases       69,103      82,461      84,069

Less:
  Principal loan repayments                  52,872      52,565      69,928
  Sales of single-family whole loans          7,843       8,410      29,260
  Sales of commercial real estate loans         304          --          --
  Sales of mortgage-backed securities            --          --       7,716
  Unrealized loss (gain) on mortgage-backed
    securities available for sale            (2,209)      2,299         195
  Transferred to real estate owned            3,820       1,945       1,144
  Transferred from real estate owned             --          --        (231)
  Loans in process                              390      (2,634)      1,988
  Other, net                                 (1,744)       (910)        553
                                            -------     -------     -------
    Net increase (decrease)                $  7,827    $ 20,786    $(26,484)
                                            =======     =======     =======
</TABLE>

     Loan Underwriting Policies.  On all loan transactions, the Bank obtains
detailed loan applications to determine the borrower's ability to repay. The
more significant items on these applications generally are verified through the
use of credit reports, financial statements and confirmations. After analysis of
the loan application and the property involved, including an appraisal of the
property by appraisers approved by the Bank's Board of Directors, the lending
decision is made in accordance with the written, non-discriminatory underwriting
guidelines of the Bank.

     Federal regulations limit the amount that thrift institutions may lend to
specified percentages of the value of the real property securing the loans, as
determined by an appraisal at the time the loan is originated (referred to as
"loan-to-value ratios"). A real estate loan may not exceed 100% of the appraised
value of the security property at the time of origination. With respect to home
mortgage loans originated or refinanced in excess of 90% of the appraised value
of the security property, that part of the unpaid principal balance that exceeds
80% of the property's appraised value must be insured or guaranteed by a
mortgage insurance company approved by the FHLMC. Federal law does permit a
federally chartered thrift institution to originate loans in an amount up to 5%
of assets which do not otherwise conform to the above-referenced regulatory
requirements. Home Federal has in the past originated loans, in certain limited
circumstances, in an amount up to 95% of the property's appraised value without
requiring the borrower to obtain private mortgage insurance. As of December 31,
1995, the Bank had $4.8 million or 2.3% of its assets invested in loans which
did not conform to the loan-to-value regulations, of which $288,000 are
nonperforming.

     It is the Bank's present policy to require borrowers to obtain title
insurance policies insuring that the Bank has a valid first lien on the
mortgaged residential real estate and that the property is free of encroachments
not disclosed to the Bank. Borrowers must also obtain hazard insurance policies
prior to closing and, when the real estate is located in a flood hazard area
designated by the Department of Housing and Urban Development, flood insurance
policies. Borrowers may be required to advance funds on a monthly basis together
with payment of principal and interest to a mortgage escrow account from which
the Bank makes disbursements for items such as real estate taxes, hazard
insurance premiums and private mortgage insurance premiums as they fall due.

     Loan Concentrations.  Under federal law, the permissible amount of
loans-to-one borrower may not exceed 15% of the Bank's unimpaired capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully secured by readily
marketable securities. The maximum amount which the Bank could have loaned to
one borrower and the borrower's related entities at December 31, 1995 was
approximately $3.2 million.

     As of December 31, 1995, the Bank had loans outstanding to one borrower 
in excess of its loans-to-one borrower limitation. However, all extensions of
credit to such borrower were originated or committed to prior to the enactment
of, or under the exceptions contained within current laws and regulations. At
such date, loans and letters of credit in an aggregate amount of $6.4 million,
including the undisbursed portion thereof, or 3.0% of the Bank's loan portfolio
were outstanding to the borrower. In recent years, the Bank has refocused its
lending activities on single-family residential mortgage lending and consumer
lending and as a result, the Bank believes that significant loan concentration
will be avoided in the future.

     Residential Real Estate Lending.  Home Federal historically has been, and
continues to be, an originator of single-family residential real estate loans in
its primary market area. At December 31, 1995, $71.8 million or 39.0% of Home
Federal's loan portfolio consisted of single-family residential loans. Of this
amount, approximately $26.3 million or 36.6% of the single-family residential
loan portfolio had fixed-rates of interest and $45.5 million or 63.4% had
adjustable-rates of interest. In addition, at December 31, 1995, mortgage-backed
securities amounted to $46.8 million or 25.4% of the Bank's loan and
mortgage-backed securities portfolio.

     Fixed-rate residential loans are generally originated by Home Federal with
25- to 30-year terms, although fixed-rate loans with 10-year, 15-year and
20-year terms are also offered by the Bank. Most of the Bank's fixed-rate
residential loans are originated in accordance with FHLMC terms, conditions and
documentation so that such loans may be sold in the secondary market. However,
the Bank has begun to originate for portfolio single-family fixed-rate loans
with terms of 10 and 15 years. Substantially all of the Bank's long-term,
fixed-rate residential mortgage loans have included "due-on-sale" clauses, which
are provisions giving the Bank the right to declare a loan immediately due and
payable in the event, among other things, that the borrower sells or otherwise
disposes of the real property subject to the mortgage and the loan is not
repaid.

     The Bank's residential real estate loans have been originated predominately
in amounts up to 80% of appraised value for owner-occupied residences, although
Home Federal will originate loans up to the lesser of 95% of the property's
appraised value or the sales price if private mortgage insurance is obtained by
the borrower.

     In addition to standard fixed-rate mortgage loans, the Bank has offered
various types of adjustable rate mortgage loans ("ARMs") on which the interest
rate adjusts every six months, one, three or five years based upon various
indices which generally reflect market rates of interest. The ARMs presently
originated by the Bank have interest rates which adjust annually based on the
rates paid on U.S. Treasury securities. The amount of any increase or decrease
in the interest rate is presently limited to two percentage points per annum and
six percentage points over the life of the loan. The Bank's ARMs contain minimum
rate provisions which limit the decrease in the interest rate on the loan to the
interest rate on the date of origination. Many of the ARMs offered by the Bank
contain an option to convert to a fixed-rate loan within the first 59 months of
the term of the loan. The conversion interest rate is determined by the FHLMC
interest rate at the time of conversion. During 1995 and 1994, $4.0 million and
$4.3 million, respectively, of adjustable-rate loans converted to fixed-rate
loans. As borrowers exercise their option to convert to a fixed-rate loan, the
Bank generally sells the loans to the FHLMC without recourse and with servicing
retained. The ARMs offered by Home Federal, as well as many other thrift
institutions, generally provide for initial rates of interest below the rates
which would prevail were the index used for repricing applied initially. Home
Federal expects to continue to emphasize ARMs in order to reduce the impact on
its operations of rapid increases in market rates of interest. Such loans,
however, generally do not adjust as rapidly as changes in the Bank's cost of
funds.

     Multi-family residential mortgage loans are primarily secured by
multi-family rental units. The underwriting criteria used by the Bank when
evaluating such loans are designed to minimize risk to the Bank.  In order to
evaluate a multi-family residential mortgage loan, the Bank conducts an analysis
of the project's cash flow to determine if the income from the completed project
will be sufficient to support the related debt and other associated costs. The
Bank also considers the market value of the completed project as well as the
costs to develop the project. At December 31, 1995, the Bank's multi-family
residential loan portfolio amounted to $11.8 million or 6.4% of the loan
portfolio. The portfolio of multi-family loans consists of 37 loans, three of
which have outstanding balances over $1.0 million. All three loans were
performing at December 31, 1995. The 37 loans have an average outstanding
balance of $320,000.

     Multi-family residential real estate loans originated by the Bank are
generally priced at prevailing market interest rates on an adjustable rate
basis. These rates adjust every one, three or five years and are indexed to the
U.S. Treasury securities of comparable maturities or the FHLB of Atlanta rate
for comparable borrowings. Such loans include a floor and ceiling with respect
to the rate of interest that may be charged. The term of such loans is generally
ten years with a repayment schedule based on a 25- or 30-year amortization.

     The Bank also offers home equity loans, which are secured by equity in the
borrower's residence. After taking into account first mortgage balances, the
Bank will lend up to 80% of the value of owner-occupied property. The rate of
interest charged is indexed to the six month U.S. Treasury Bill rate, adjusted
semi-annually. The Bank charges a minimum rate of interest on such loans. Such
loans are included under "single-family residential loans" and amounted to $5.9
million at December 31, 1995.

     Construction Lending.  Home Federal previously provided construction loans
for single-family and multi-family residential properties, including land
acquisition and development loans to developers for the purchase of land and the
subsequent development of such property for residential uses. The Bank has
significantly curtailed its construction lending and since 1990 has discontinued
speculative construction lending and lending on larger land acquisition and
development projects. Total construction loans have decreased from $49.0 million
or 21.8% of the loan portfolio at December 31, 1991 to $21.5 million or 11.7% of
such portfolio at December 31, 1995. The Bank's construction loan originations
have consisted primarily of loans to individuals to construct their own homes
through a pre-approved builder. The remaining portion of loan originations
consist of disbursements or extensions of non-owner-occupied construction loans
originated prior to such time and, during 1993, a $1.5 million construction line
of credit which was increased to $2.2 million during 1994 in connection with
the sale of real estate owned. The Bank has, in the past, originated
construction loans for commercial properties, including hotels and motels, small
shopping centers, office buildings and warehouses. During 1995 and 1994, the
Bank originated commercial construction loans totaling $100,000 and $517,000,
respectively, in connection with the sale of a real estate owned properties.

     The portfolio of construction loans consists of 74 loans, four of which
have outstanding balances greater than $1.0 million. These four loans have an
average outstanding balance of $1.7 million. The Bank has three construction
loan relationships aggregating $6.1 million (including the undisbursed portion),
which is comprised of six loans, all of which were performing at December 31,
1995. At December 31, 1995, the largest construction loan amounted to $2.5
million (including the undisbursed portion) which is secured by residential and
commercial property located in Maryland. For a discussion of this loan, see "-
Potential Problem Assets and Other Items." At December 31, 1995, $3.8 million or
17.4% of the Bank's construction loan portfolio was nonperforming. See "-
Nonperforming Loans, Troubled Debt Restructurings and Real Estate Owned."

     The Bank's construction loans to individuals are made in connection with
the granting of the permanent financing on the property. Residential
construction loans convert to an adjustable rate loan at the end of the one-year
construction term. Advances are generally made to the borrower to cover actual
construction costs. Construction loans originated by the Bank generally are for
a term of 12 to 18 months, although extensions may be granted for additional
consideration. Advances are generally made to the borrower to cover actual
construction costs incurred and may include a reserve for paying the stated
interest due on the loan. The Bank generally limits its exposure to 80% of the
projected market value of the completed project. These loans typically represent
80% to 100% of actual project costs.

     Prior to making disbursements, Home Federal's processing procedures require
that construction and development loans be reviewed by in-house or outside
inspectors, which may include a review by independent architects or engineers
doing business where the property is located. Members of senior management also
make periodic visits to such projects.

     Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. If the estimate of construction costs proves to be inaccurate,
Home Federal may be required to advance funds beyond the amount originally
committed to permit completion of the development. If the estimate of value
proves to be inaccurate, Home Federal may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment.

     The underwriting criteria used by Home Federal are designed to evaluate the
risks of each construction loan. Among other things, Home Federal considers an
appraisal of the project, the reputation of the borrower and the contractor, the
amount of the borrower's equity in the project, independent valuations and
review of cost estimates, plans and specifications, preconstruction sales and
leasing information, current and expected economic conditions in the area of the
project, cash flow projections of the borrower, and guarantees by the borrower
and/or third parties with sufficient financial strength to service the debt and
operating/construction expenses. In an attempt to reduce the risk inherent in
construction lending, Home Federal may also require a cash reserve from the
borrower or bonds securing performance of construction contracts.

     Commercial Real Estate Lending.  The Bank's commercial real estate loans
are generally secured by motels and hotels, office buildings, small shopping
centers, warehouses and other income-producing properties. Such loans are
primarily secured by properties located in Maryland. The Bank's commercial real
estate loans amounted to $16.9 million at December 31, 1995 compared to $31.9
million at December 31, 1991. The Bank has significantly decreased this type of
lending since 1990. Originations and purchases of such loans amounted to $2.4
million, $821,000 and $1.3 million, respectively, during 1995, 1994 and 1993.
During 1995, the Bank originated two loans totaling $2.2 million in connection
with the sale of real estate owned properties.

     Permanent commercial real estate loans originated for the Bank's portfolio
are priced at prevailing market interest rates. These rates are adjusted
generally over one or five years and are priced at net yields to the Bank over
an index, which is generally the U.S. Treasury Constant Maturity Index for the
period of comparable maturity. A majority of such loans are originated with
either five year balloon payment requirements or are subject to renegotiation at
the expiration of a five year term. Most of such loans also include a floor and
ceiling with respect to the rate of interest that may be charged. The maximum
term is generally not more than ten years with a repayment schedule based on not
more than a 25 year amortization.

     At December 31, 1995, the commercial real estate loan portfolio consisted
of $8.7 million of loans secured by office buildings, $2.9 million secured by
motels or hotels, $1.4 million secured by industrial/warehouse property,
$833,000 secured by medical buildings and $3.1 million secured by other
commercial real estate property. As of such date, the portfolio of commercial
real estate loans consisted of 53 loans, four of which have outstanding balances
greater than $1.0 million. The four loans have an average outstanding balance of
$1.4 million. At December 31, 1995, the largest commercial real estate loan
amounted to $1.6 million which is secured by a motel in Ohio. This loan was
current at December 31, 1995. At such date, $769,000 or 4.5% of the Bank's
commercial real estate loan portfolio was nonperforming. See "- Nonperforming
Loans, Troubled Debt Restructurings and Real Estate Owned."

     The Bank's loan-to-appraised value ratio on commercial real estate loans is
generally 80% or less. Appraised values are estimated by independent,
professionally designated qualified appraisers to determine that the property to
be mortgaged satisfies these loan-to-value requirements. Decisions to lend are
based on the economic viability of the property and the creditworthiness of the
borrower. Creditworthiness is determined by considering the character,
experience, management and financial strength of the borrower, and the ability
of the property to generate adequate funds to cover both operating expenses and
debt service. In evaluating the security property for a commercial real estate
loan, the Bank places great emphasis on the ratio of net cash flow to debt
service for the security property and generally requires a net cash flow to debt
service ratio of at least 115% in the first and second years, computed after
deduction for a vacancy factor deemed appropriate by the Bank.  Generally, the
Bank requires the personal guarantee of the principal by the borrower and/or
cash reserves until the project achieves the required debt service coverage for
a minimum specified period.

     Commercial real estate lending entails significant additional risk as
compared with residential mortgage lending. Commercial real estate lending
typically involves large loan balances concentrated in a single borrower 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 real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market or in the economy
generally.

     Consumer Lending.  The Bank has been actively originating consumer loans in
recent years in order to provide a wide range of financial services to its
customers and because the shorter term and normally higher interest rates on
such loans help it maintain a profitable spread between its average loan yield
and its cost of funds. Originations of such loans amounted to $12.0 million,
$11.0 million and $11.4 million or 20.3%, 18.5% and 16.6% of total originations
during 1995, 1994 and 1993, respectively. Consumer loans generally involve
greater risk than mortgage loans because of the type and nature of the
collateral and, in certain cases, the absence of collateral. As a result,
consumer lending collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, personal bankruptcy and by adverse economic conditions.

     The Bank offers a variety of consumer loans at interest rates generally
competitive with other financial institutions in Home Federal's market areas,
including personal loans, home improvement loans, and loans that are secured by
personal property, including automobiles. The Bank's automobile loans are
secured by liens on new and used vehicles, generally with terms of up to five
years for new cars and up to four years for used cars. In addition, the Bank
makes loans secured by new and used mobile homes. Loans on new mobile homes are
generally made with terms of 15 years although the Bank will extend the term to
20 years if the loan is in excess of $25,000 and is also secured by land. The
term for a loan on a used mobile home is limited to ten years. The Bank has not
experienced any significant payment difficulties with respect to its mobile home
loans. Loans are also made to depositors in an amount equal to up to 90% of
their account balances, with such borrowings secured by their deposit accounts.
Such loans are made at a rate equal to 200 basis points over the account rate.
On all consumer loans originated, the Bank's underwriting standards include a
determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to meet existing obligations and payment
on the proposed loans.

     Commercial Business Lending.  At December 31, 1995, the Bank's commercial
business loans included $1.4 million of revolving secured lines of credit, of
which $979,000 was outstanding to automobile dealers for purposes of floor
planning. Floor plan loans are generally made at an interest rate indexed to the
prime rate of a local Maryland bank, have maximum limits established under the
line for each dealer, and are secured by the dealer's inventory. Commercial
business loan decisions are based on an evaluation of the borrower's ability to
repay from the normal operation of the business or from the liquidation of the
assets pledged to secure the loan.

     Nonperforming Loans, Troubled Debt Restructurings and Real Estate Owned. 
When a borrower fails to make a required loan payment on a real estate loan for
15 days, Home Federal generally will charge a late fee and send a first notice
to the borrower unless the loan is less than six months old, in which case the
borrower is contacted by telephone. When a borrower fails to make a required
loan payment to Home Federal for 30 days on a contractual basis, the loan is
classified as delinquent. Loans are placed on non-accrual status when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.

     If the delinquency persists and is not cured through Home Federal's normal
collection procedures, Home Federal will institute measures to remedy the
default including restructuring the loan, accepting from the mortgagor a
voluntary deed to the security property in lieu of foreclosure or commencing a
foreclosure action. If a foreclosure action is instituted, and the loan is not
reinstated, paid in full or refinanced, the property is sold at a judicial sale
at which, in some instances, Home Federal will acquire the property. 
Thereafter, such acquired property is listed in Home Federal's REO account until
the property is resold. In some cases, such resales are financed by "loans to
facilitate," which involve a lower down payment or a longer term than would
generally be allowed by Home Federal's underwriting standards. 

     When property is acquired, at the date of acquisition, it is recorded at
the lower of its recorded investment or estimated fair market value and any
writedown resulting therefrom is charged to the allowances for possible loan
losses. Between the date a loan becomes delinquent and the date it is acquired
by the Bank, all costs incurred in maintaining the Bank's interest in the
property are capitalized in an amount which may not exceed the estimated fair
value. After the date of acquisition, all costs incurred in maintaining the
property are expensed and costs incurred for the improvement or development of
such property are capitalized in an amount which may not exceed the estimated
fair value less the estimated disposition costs.

     In 1992, Home Federal adopted the American Institute of Certified Public
Accountants' Statement of Position ("SOP 92-3") which provided guidance on
measuring value for foreclosed assets and in-substance foreclosed assets after
foreclosure. The statement applies to all assets obtained through foreclosure or
repossession, except for inventories, marketable equity securities and real
estate previously owned by the lender under certain conditions. Under SOP 92-3,
companies are required to adjust the carrying value of foreclosed assets held
for sale to the lower of (i) fair value minus estimated costs to sell, or (ii)
cost. In years prior to 1992, the Bank initially recorded REO at the lower of
cost or estimated fair value and subsequently at the lower of (i) the initially
recorded amount plus capitalized costs less accumulated depreciation or (ii) net
realizable value. Under Statement of Financial Accounting Standards ("SFAS") No.
114 and 118, Home Federal is required to measure impaired loans on the present
value of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. Home Federal
adopted SFAS No. 114 and SFAS No. 118 in 1994.

     For REO properties, the Bank obtains appraisals at the time the asset is
classified as REO, or utilizes appraisals obtained within one year of such date.
Such properties consist primarily of commercial real estate and residential
development properties for which there is not an active market, or for which the
marketplace sets prices by discounting cash flows. As such, the Bank generally
valued such assets by projecting expected cash flows (which were discounted to
reflect the risk of commercial real estate or residential development properties
and the holding cost of the property) minus the estimated cost to sell the
property. Such projections of discounted cash flows were determined as part of
an independent appraisal, or by Bank personnel, updated on a quarterly basis.

     The following table sets forth information regarding nonperforming loans
(net of the undisbursed portion), REO (net of related reserves), and troubled
debt restructurings at the dates indicated. At the dates shown, the Bank did not
have any loans 90 days or more delinquent on which it was accruing interest.

<TABLE>
<CAPTION>
                                                 December 31,
                                -----------------------------------------------
                                1995      1994      1993      1992      1991
                                -------   -------   -------   -------   -------
                                            (Dollars in Thousands)
<S>                             <C>       <C>       <C>       <C>       <C>
Nonperforming loans:
Non-accrual loans:
  Real estate loans:
    Residential                 $   602   $   499   $ 3,369   $ 8,959   $ 4,091
    Commercial                       38        38     3,129     4,074     4,874
    Construction                     --        --     3,231     2,804     8,739
  Consumer and commercial           146        88       511       775       830
                                 ------    ------    ------    ------    ------
Total non-accrual loans             786       625    10,240    16,612    18,534
                                 ------    ------    ------    ------    ------
Impaired loans:<F1>
  Real estate loans:
    Residential                     562     4,081     4,747     3,684     2,367
    Commercial                      731     4,920     1,960     2,420     3,017
    Construction                  3,712     6,292     3,521     4,229    11,230
    Consumer and commercial          --       242        --        --        --
                                 ------    ------    ------    ------    ------
Total impaired loans              5,005    15,535    10,228    10,333    16,614
                                 ------    ------    ------    ------    ------
Total nonperforming loans       $ 5,791   $16,160   $20,468   $26,945   $35,148
                                 ======    ======    ======    ======    ======
Real estate owned held for sale:
  Acquired by foreclosure:
    Residential                 $ 2,822    $  816   $   870   $   945   $ 1,323
    Commercial                    3,917     4,723     3,323     3,879     1,013
    Construction                  1,952     3,436     6,226     6,183     2,722
                                 ------    ------    ------    ------    ------
Total REO, gross                  8,691     8,975    10,419    11,007     5,058
Less: 
  Allowance for losses            1,492     2,337     2,308     2,231       624
  Accumulated depreciation          124       188       133       186        65
                                 ------    ------    ------    ------    ------
Total REO, net                  $ 7,075   $ 6,450   $ 7,978   $ 8,590   $ 4,369
                                 ======    ======    ======    ======    ======
Total troubled debt  
  restructurings                $    --   $    --   $    --   $ 1,502   $ 9,057
                                 ======    ======    ======    ======    ======
Total nonperforming loans, 
  troubled debt restructurings
  and REO, net                  $12,866   $22,610   $28,446   $37,037   $48,574
                                 ======    ======    ======    ======    ======
Total nonperforming loans to
  total loans receivable-net<F2>   4.22%    11.92%    16.09%    18.50%    16.16%
                                  =====     =====     =====     =====     =====
Total nonperforming loans,
  troubled debt restructurings
  and REO, net, to total
  assets<F1>                       5.99%    10.95%    14.60%    17.71%    18.29%
                                  =====     =====     =====     =====     =====
<FN>
<F1> SFAS No. 114 provides that a loan is impaired when, based on current       
information and events, it is probable that the creditor will be unable to       
collect all amounts due according to the contractual terms (both principal      
and interest). Accordingly, the Bank reclassified $10.2 million, $10.3      
million and $16.6 million as of December 31, 1993, 1992 and 1991 from real      
estate owned (in substance foreclosed) to loans receivable.
<F2> From December 31, 1991 to December 31, 1995, total assets of the
Corporation declined by $51.0 million, or 19.2%, and total loans, net declined
by $80.2 million, or 36.9%. Because of such decreases, the reductions in
nonperforming loans and nonperforming assets, when considered as a percent of
total loans or total assets, may not be as apparent as they would have been had
total assets and total loans, net remained relatively constant during such
periods. 
</FN>
</TABLE>

     If the nonperforming loans at December 31, 1995 had been current in
accordance with their original terms for the period then ended (or from the date
of origination if originated during such period), the total interest income on
such loans for the year ended December 31, 1995 would have been $397,000.
Actual interest income collected and recognized on such loans totaled $166,000
which was recognized as income.

     As a result of the significant difficulties experienced by the Bank
beginning in 1990, the Bank established a Special Assets Department to determine
an appropriate course of action with respect to each developer and/or project.
The significant additional resources employed by the Bank to resolve its problem
assets has resulted in substantial additional operating expenses since 1990.
During 1995 and 1994, such expenses (i.e., employee compensation and benefits,
occupancy and equipment and other) amounted to $323,000 and $295,000,
respectively.

     The Board of Directors has also established a Special Assets and Real
Estate Owned Policy to provide a structure for dealing with the Bank's problem
assets. Pursuant to that policy, detailed asset classification reports are
prepared for loan relationships in excess of $500,000 and business plans are
prepared for all REO and for significant nonperforming loan relationships. In
addition, if the loan amount is in excess of $500,000, the Bank conducts a cash
flow analysis on a quarterly basis. All asset classification reports and
business plans are reviewed by a committee of senior management that includes
the President, Senior Vice President, Chief Financial Officer, and Executive
Vice President, Special Assets, and by a committee of the Board of Directors.
These committees also meet at least monthly to discuss changes that occur.

     As a result of the foregoing actions, the Bank's total nonperforming loans,
troubled debt restructurings and REO, net, has decreased from a high of $55.1
million at September 30, 1991 to $12.9 million at December 31, 1995.

     Potential Problem Assets and Other Items. The Bank had 12 loans outstanding
to various borrowers with aggregate principal balances equal to $8.5 million at
December 31, 1995; these loans have been slow making payments, have experienced
slow sales during 1995 or have other potential weaknesses or risk
characteristics that could result in future problems. In addition, at December
31, 1995, the Bank had 128 consumer loans and 52 single-family residential loans
aggregating $974,000 and $1.9 million, respectively, with similar deficiencies.
At December 31, 1995, the largest potential problem asset related to a $2.5
million line of credit to finance the purchase and construction of 135
townhouses in Maryland. The Bank's cash flow analysis of this property and an
updated 1995 land appraisal indicates a value in excess of the loan balance. The
second largest potential problem asset relationship involves two loans to one
borrower with an aggregate principal balance equal to $2.3 million secured by
approximately 166 acres in West Virginia of mixed use commercial and residential
property, which is subdivided into a planned unit development. The Bank's cash
flow analysis of this property and a 1995 appraisal indicates a value in excess
of the aggregate loan balance. At December 31, 1995, the two largest potential
problem assets were performing.

     Allowances for Possible Loan and Real Estate Owned Losses.  For financial
statement purposes, the Bank calculates its allowances for possible loan losses
based upon management's evaluation of the pertinent factors underlying the types
and the quality of loans, current and anticipated economic conditions,
collection experience, detailed analysis of individual loans for which full
collectibility may not be reasonably assured, and determination of the estimated
fair value of the loan collateral and guarantees securing such loans. REO is
reviewed regularly and valuation allowances are adjusted to reflect the carrying
values of the property at the estimated fair value less disposition costs. The
amounts the Bank could ultimately recover from the sale of REO could differ from
the amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the Bank's control. These evaluations are
inherently subjective as it requires material estimates that may be susceptible
to significant change.

     During the year ended December 31, 1995, the Bank recovered $349,000 and
provided $479,000 to the allowances for possible loan and REO losses,
respectively, compared to providing $278,000 and $339,000, respectively, for the
year ended December 31, 1994. The decrease in the provision to the allowances
for possible loan losses in 1995 was due to the significant decline in
nonperforming loans and troubled debt restructurings from $16.2 million at
December 31, 1994 to $5.8 million at December 31, 1995 and to the increase in
the allowances for possible loan losses as a percent of nonperforming loans and
troubled debt restructuring from 34.9% at December 31, 1994 to 62.7% at December
31, 1995. While the allowances for possible loan losses as a percent of
nonperforming loans and troubled debt restructurings has increased over the four
year period from December 31, 1991 to December 31, 1995 from 21.8% to 62.7%,
respectively, the Bank has experienced quarterly fluctuations in such ratio due
to uneven economic and market conditions which have affected the ability of
certain of the Bank's largest borrowers to make payments on their loan
obligations.

     Although management believes that the Bank's allowances for possible loan
losses were adequate at December 31, 1995 and further believes that it uses the
best information available to recognize losses on loans and to determine the
fair value of REO, no assurance can be given that future significant additions
to the allowances for possible loan losses or further reductions in the net
carrying values may be necessary if economic conditions or other factors differ
substantially from the assumptions used in making the initial determinations.
Arriving at an appropriate level of allowances for possible losses on loans and
REO necessarily involves a high degree of judgment. In addition, the OTS and the
FDIC, as an integral part of their examination process, periodically review the
Bank's allowances for possible loan losses and the net carrying values of REO.
Such agencies may require the Bank to recognize additions to the allowances or
reductions in net carrying values based on their judgments about information
available to them at the time of examination. An examination of the Corporation
and the Bank was initiated by the OTS in February, 1996. The OTS examination was
based on financial and other information as of and for the period ended
December 31, 1995, respectively. The Bank's provision for loan losses in the
future will depend on, among others, the level of nonperforming loans and market
and economic conditions.

     The following tables present information concerning Home Federal's
allowances for possible loan losses, allowance for losses on REO, charge-offs
and recoveries during the periods presented.

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                     ------------------------------------------
                                     1995     1994     1993     1992     1991
                                     ------   ------   ------   ------   ------
                                               (Dollars in Thousands)
<S>                                  <C>      <C>      <C>      <C>      <C>
Real Estate Loans:
Balance, beginning of period<F1>     $4,880   $5,575   $4,832   $6,686   $5,710
  Provision for possible loan losses   (349)     278    1,687      278    6,511
  Recoveries                            408       --      317      356        3
  Reallocation of reserves from 
    consumer and commercial
    loan losses                         244       --       --       --       --
  Charge-offs:
     Construction                      (160)      --     (155)  (1,178)  (4,353)
     Commercial                        (808)    (328)     (35)  (1,188)    (703)
     Single-family                     (530)     (63)    (161)     (18)     (11)
     Multi-family                      (100)    (141)    (910)      --     (471)
     Land                              (453)    (441)      --     (104)      --
                                     ------   ------   ------   ------   ------
Balance, end of period               $3,132   $4,880   $5,575   $4,832   $6,686
                                     ======   ======   ======   ======   ======
Other Loans: 
Balance, beginning of period         $  761   $  916   $1,083   $  983   $  450
  Additional provision                   --       --       --      441      715
  Reallocation of reserves to 
    real estate loans                  (244)      --       --       --       --
  Recoveries - consumer loans           104       64       35       30       17
  Charge-offs - consumer loans         (121)    (219)    (202)    (371)    (199)
                                     ------   ------   ------   ------   ------
Balance, end of period               $  500   $  761   $  916   $1,083   $  983
                                     ======   ======   ======   ======   ======
Real Estate Owned:
Balance, beginning of period<F1>     $2,337   $2,308   $2,231   $  624   $  311
  Additional provision                  479      339      369    2,223    2,017
  Recoveries                              2       69      126      101      106 
  Charge-offs                        (1,326)    (379)    (418)    (717)  (1,810)
                                     ------   ------   ------   ------   ------
Balance, end of period               $1,492   $2,337   $2,308   $2,231   $  624
                                     ======   ======   ======   ======   ======
Certain Ratios:
Allowances for possible loan
  losses as a percent of loans, net   2.65%    4.16%    5.10%    4.06%    3.53%
                                      ====     ====     ====     ====     ====
Allowances for possible loan losses
  as a percent of nonperforming
  loans and troubled debt
  restructurings                      62.72%   34.91%   31.71%   21.95%   21.82%
                                      =====    =====    =====    =====    =====
Charge offs to average loans
  receivable outstanding during
  the period                           1.59%    0.91%    1.07%    1.57%    2.41%
                                       ====     ====     ====     ====     ====
<FN>
<F1> During 1994, the Bank adopted SFAS No. 114 and accordingly reclassified
$2.6 million, $1.1 million, $935,000 and $160,000 from allowance for loss on
real estate owned held for sale to allowance for possible loan losses at
December 31, 1993, 1992, 1991 and 1990.
</FN>
</TABLE>

     The following tables present the allocation of the allowances for possible
loan losses at the dates indicated.
<TABLE>
<CAPTION>
                                             December 31,
                     -----------------------------------------------------------
                           1995                 1994                 1993
                    ------------------   ------------------   ------------------
                           % of Loans           % of Loans           % of Loans
                               to                   to                   to
                    Amount Total Loans   Amount Total Loans   Amount Total Loans
                    ------ -----------   ------ -----------   ------ -----------
                                       (Dollars in Thousands)
<S>                 <C>      <C>         <C>      <C>         <C>       <C>
Real estate loans:
  Residential       $  439    57.61%     $  809    52.59%     $2,162    48.13%
  Commercial         1,059    11.40       2,417    13.88       1,823    13.64
  Construction
    (including land
    acquisition and
    development)     1,634    14.49       1,654    17.58       1,590    20.71
Consumer loans         439    15.54         671    14.88         709    16.00
Commercial loans        61     0.96          90     1.07         207     1.52
                    ------   ------      ------   ------      ------   ------
                    $3,632   100.00%     $5,641   100.00%     $6,491   100.00%
                    ======   ======      ======   ======      ======   ======

<CAPTION>
                                                         December 31,
                                               ------------------------------
                                                    1992             1991
                                               -------------- ---------------
                                                       % of             % of
                                                       Loans            Loans 
                                                       to               to     
                                                       Total            Total
                                               Amount  Loans   Amount   Loans
                                               ------  -----   ------   ------
                                                    (Dollars in Thousands)
<S>                                           <C>      <C>      <C>     <C>
Residential and commercial real estate loans  $4,832    82.58%  $6,686   85.35%
Consumer and commercial business loans         1,083    17.42      983   14.65
                                              ------  ------    ------  ------
Total                                         $5,915   100.00%  $7,669  100.00%
                                              ======   ======   ======  ======
</TABLE>

Investment Activities

     The Bank's investment securities historically have been comprised primarily
of U.S. Treasury and U.S. government agency securities. The following table sets
forth the carrying value of investment securities of the Bank at the dates
indicated.
<TABLE>
<CAPTION>
                                                 December 31,
                                         ----------------------------
                                          1995       1994      1993
                                         ------     ------     ------
                                                (In Thousands)
<S>                                      <C>        <C>        <C>
U. S. Treasury and U.S. government
  agency obligations                     $   --     $5,000     $   --
Accrued Interest                             --         64         --
                                         ------     ------     ------
    Total                                $   --     $5,064     $   --
                                         ======     ======     ======
</TABLE>

     The decrease in the Bank's investment securities between 1995 and 1994 was
from the call of U.S. government agency obligations during 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity" in the Annual Report for a discussion of the Bank's
liquidity position.

Sources of Funds

     General.  Savings deposits are the primary source of the Bank's funds for
use in lending and for other general business purposes. In addition to savings
deposits, the Bank derives funds from amortization and prepayments of
outstanding loans and mortgage-backed securities, sales of loans and
mortgage-backed securities, from advances from the FHLB of Atlanta and other
borrowings. Amortization and prepayments of outstanding loans and 
mortgage-backed securities are a relatively stable source of funds, while
savings inflows are significantly influenced by general interest rates and money
market conditions. Borrowings may be used on a short-term basis to compensate
for reductions in normal sources of funds such as savings inflows at less than
projected levels. They may also be used on a longer-term basis to support
expanded activities.

     Deposits.  The Bank emphasizes fixed-rate certificate accounts and other
types of deposits. The Bank has a number of different programs designed to
attract both short-term and long-term deposits of the general public by
providing a wide assortment of accounts and rates consistent with OTS
regulations. These programs include regular savings, NOW (checking) accounts,
Super NOW accounts, commercial (noninterest-bearing) checking accounts, money
market accounts and certificates of deposit ranging in terms from seven days to
five years. Included among these programs are individual retirement accounts
("IRAs"), simplified employee pension plans ("SEPs") and Keogh retirement
accounts.

     The following table shows the distribution of, and certain other
information relating to, the Bank's deposits by type of deposit as of the dates
indicated.

<TABLE>
<CAPTION>
                                                    December 31,
                                      ----------------------------------------
                                             1995                 1994
                                      ------------------    ------------------
                                      Amount     Percent    Amount     Percent
                                      --------   -------    --------   -------
                                                (Dollars in Thousands)
<S>                                   <C>         <C>       <C>         <C>
Savings deposits                      $ 10,280      6.28%   $ 10,211      6.75%
Money market deposit accounts           29,186     17.83      31,606     20.90
Time deposits                           88,924     54.33      75,450     49.90
NOW and Super NOW accounts              35,178     21.50      33,860     22.40
Accrued interest                            95       .06          76      0.05
                                      --------    ------    --------    ------
    Total deposits at end of period   $163,663    100.00%   $151,203    100.00%
                                      ========    ======    ========    ======
</TABLE>

     The following table presents, by various interest rate categories, the
amount of certificate accounts at December 31, 1995 and 1994, and the amounts at
December 31, 1995 which mature during the periods indicated. 

<TABLE>
<CAPTION>
                                             Amounts at December 31, 1995
                                                    Maturing Within
                                        ---------------------------------------
  Certificate        December 31,       One       Two       Three
   Accounts         1995      1994      Year      Years     Years    Thereafter
-----------------   -------   -------   -------   -------   -------  ----------
                                   (Dollars in Thousands)
<S>                 <C>       <C>       <C>       <C>       <C>       <C>
 2.500% to  5.24%   $17,192   $55,096   $14,512   $   880   $ 1,129   $   671
 5.250% to  7.00%    66,959    18,189    38,959    18,326     2,387     7,287
 7.001% to  9.00%     4,758     2,152       925       111       701     3,021
11.001% to 13.00%        15        13        --        --        --        15
-----------------   -------   -------   -------   -------   -------   -------
Total certificate
  accounts          $88,924   $75,450   $54,396   $19,317   $ 4,217   $10,994
                    =======   =======   =======   =======   =======   =======
</TABLE>

     The following table presents the average balance of each deposit type and
the average rate paid on each deposit type for the periods indicated.

<TABLE>
<CAPTION>
                                             December 31,
                       --------------------------------------------------------
                              1995               1994               1993
                       --------------------------------------------------------
                                 Average            Average            Average
                       Average    Rate    Average    Rate    Average     Rate
                       Balance    Paid    Balance    Paid    Balance     Paid
                       --------   -----   --------   -----   --------    -----
                                      (Dollars in Thousands)
<S>                    <C>        <C>     <C>        <C>     <C>         <C>
Savings deposits       $ 10,190    2.96%  $ 10,937   3.00%   $ 11,092    3.18%
NOW and Super NOW 
  accounts               33,662    1.88     32,462   1.99      29,520    2.16
Money market deposit 
  accounts               29,226    3.22     32,694   3.15      29,976    3.31
Time deposits            85,154    5.61     72,854   4.39      78,460    4.61
Accrued interest            109      --         84     --          85      --
                       --------    ----   --------   ----    --------    ----
    Total deposits     $158,341    4.20%  $149,031   3.49%   $149,133    3.76%
                       ========    ====   ========   ====    ========    ====
</TABLE>

     The following table presents certain information concerning the Bank's
deposit accounts at December 31, 1995 and the scheduled quarterly maturities of
its certificate accounts.

<TABLE>
<CAPTION>
                                                                  Weighted
                                               Percentage of      Average
                                   Amount      Total Deposits   Nominal Rate
                                  --------     --------------   ------------
                               (In Thousands)
<S>                               <C>              <C>              <C>
Savings deposits                  $ 10,280           6.28%          2.95%
NOW and Super NOW accounts          35,178          21.50           1.77 
Money market deposit accounts       29,186          17.83           3.17
                                  --------          -----
Total                               74,644          45.61           2.48
                                  --------          -----
Certificate accounts maturing
  by quarter:
    March 31, 1996                  17,234          10.53           5.51
    June 30, 1996                   12,707           7.76           5.68
    September 30, 1996              13,223           8.08           5.75
    December 31, 1996               11,232           6.86           5.56
    March 31, 1997                   6,322           3.86           6.08
    June 30, 1997                    5,807           3.55           6.00
    September 30, 1997               3,618           2.21           5.87
    December 31, 1997                3,570           2.18           5.67
    March 31, 1998                   1,847           1.13           6.50
    June 30, 1998                      933           0.57           5.91
    September 30, 1998                 781           0.48           5.52
    December 31, 1998                  656           0.40           5.25
    Thereafter                      10,994           6.72           6.52
                                   -------          -----           ----
      Total certificate accounts    88,924          54.33           5.82
                                   -------          -----           ----
     Accrued interest                   95            .06             --
                                   -------         ------           ----
      Total deposits              $163,663         100.00%          4.29%
                                  ========         ======           ====
</TABLE>

     Certificates maturing within one year consist primarily of six month and
one and two year certificates. The Bank believes that by competitively pricing
certificates, deposit levels deemed appropriate by management can be achieved on
a continuing basis.

     The following table sets forth the net savings flows of the Bank during the
periods indicated.
<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                        ----------------------------------
                                        1995         1994          1993
                                        --------     --------     --------
                                                  (In Thousands)
<S>                                     <C>          <C>          <C>
Increase (Decrease) before 
  interest credited                     $  6,749     $ (1,852)    $ (5,785)
Interest credited                          5,711        4,658        5,413
                                        --------     --------     --------
Net savings increase (decrease)         $ 12,460     $  2,806     $   (372)
                                        ========     ========     ========
</TABLE>

     During 1995, the Bank experienced an increase in savings before interest
credited of $6.7 million. Such increase was due to the public's acceptance of
the Bank's checking account programs and its varied certificate of deposit
programs, the general economic conditions and the competitive rates offered by
the Bank on its deposits.

     As of December 31, 1995, time certificates of deposit in amounts of
$100,000 or more in the Bank amounted to $5.0 million. The following table sets
forth the distribution of time deposits of $100,000 or more in the Bank at
December 31, 1995 by time remaining to maturity.

<TABLE>
<CAPTION>
                                               Amounts in Thousands
                                               --------------------
     <S>                                           <C>
     Three months or less                          $1,539
     Over three months through six months             810
     Over six months through 12 months              2,181
     Over 12 months                                   438
                                                   ------
                                                   $4,968
                                                   ======
</TABLE>

     Borrowings.  Home Federal obtains advances from the FHLB of Atlanta upon
the security of its capital stock in the FHLB of Atlanta, certain of its
mortgage loans and mortgage-backed securities, provided certain standards
related to credit worthiness have been met. See "Regulation -Regulation of the
Bank - Federal Home Loan Bank System." Such advances are made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on either a fixed percentage of assets or the FHLB assessment
of the Bank's creditworthiness. At December 31, 1995, Home Federal had FHLB
advances totaling $30.2 million at a weighted average interest rate of 6.3%,
with maturities of $17.7 million in 1996, $5.7 million in 1997, $728,000 in
1998, $1.7 million in 1999, $728,000 in 2000, $1.7 million in 2001 and $1.6
million thereafter. Accrued interest payable amounted to $157,000 on FHLB
advances at December 31, 1995.

     The Bank has in the past also obtained funds from sales of securities to
institutional investors under agreements to repurchase, or institutional
repurchase agreements, which are considered borrowings secured by the securities
sold. The advantage of institutional repurchase agreements derives from the
relatively low cost of this source of funds. The principal disadvantage of this
type of borrowing is the potential risk of the lender defaulting at the maturity
of the agreement and not returning the collateral. In order to minimize this
potential risk, the Bank only deals with large, established investment brokerage
firms when entering into these transactions. At December 31, 1995, the Bank did
not have any securities sold under agreements to repurchase. The Bank has not
engaged in reverse repurchase transactions since 1990.

     The following table sets forth certain information regarding the borrowings
of the Bank as of the dates indicated.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     -------------------------------
                                     1995        1994        1993
                                     -------     -------     -------
                                              (In Thousands)
<S>                                  <C>         <C>         <C>
Advances from FHLB of Atlanta        $30,157     $38,184     $27,637
Other borrowings                          --          --          92
                                     -------     -------     -------
  Total borrowings                   $30,157     $38,184     $27,729
                                     =======     =======     =======
</TABLE>

     The following table presents certain information regarding short-term
borrowings of the Bank for the periods indicated.

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                            1995      1994      1993
                                            -------   -------   -------
                                                   (In Thousands)
<S>                                         <C>       <C>       <C>
Securities sold under agreements to
  repurchase and other borrowings
    Average balance outstanding             $    --   $     7   $   283
    Maximum amount outstanding at any 
      month-end during the period                --        92       430
    Weighted average interest rate
      during the period <F1>                     --%      7.7%      9.5%
    Amount outstanding at end of period                    --        92
    Weighted average rate at end of period       --%       --%      8.5%

Short-term FHLB advances
  Average balance outstanding               $26,686   $22,833   $18,544
  Maximum amount outstanding at any
    month-end during the period              32,500    33,000    23,170
  Weighted average interest rate
    during the period                           6.3%      5.7%      5.1%
  Amount outstanding at end of period       $17,728   $33,000   $19,500
  Weighted average rate at end of period        6.5%      6.1%      5.5%

<FN>
<F1>  Weighted average interest rate calculated by monthly average.
</FN>
</TABLE>

Subsidiaries

     At December 31, 1995, the Bank was authorized to have a maximum investment
of approximately $4.3 million in its subsidiaries, exclusive of an ability to
invest 1% of assets for community or inner-city purposes and an ability to make
conforming loans. As of such date, the Bank had aggregate investments in its
service corporation subsidiaries of $256,000 in stock, $622,000 in advances and
($1.6) million in undistributed earnings. The Bank did not have any conforming
loans outstanding to its subsidiary service corporations at December 31, 1995.

     The Bank has four wholly-owned service corporation subsidiaries, Home
Appraisals, Inc. ("HAI"), Family Home Insurance Agency, Inc. ("FHI"), Maryland
General Insurance Agency, Inc. and Ronald Harris Parker Associates, Inc.
("RHP"), all of which are incorporated in the State of Maryland. The Bank has
two other subsidiaries, described herein, which were formed to obtain title to a
real estate project.

     HAI is a corporation which previously performed property appraisals and
currently operates as a stockbrokerage company. HAI has a wholly-owned
subsidiary, T.J.W. Associates, Inc. ("TJW"), which is a real estate investment
company. TJW is presently inactive.

     FHI and Maryland General Insurance Agency Inc. ("MGI") are Maryland-
licensed general insurance agencies. MGI in 1993 sold its commercial line and
recorded a gain on sale of $63,000. In addition, FHI and RHP hold title to
foreclosed real estate properties. The Bank also formed two additional
subsidiaries, RLC Associates, Inc. and CLC Associates, Inc. in 1988 in order to
obtain title to a real estate project in Pennsylvania. The project is presently
a 28 acre commercial site with a recorded investment of $1.3 million at December
31, 1995. In addition, RLC Associates, Inc. was utilized to take title to an
office building that the Bank had foreclosed upon in 1991.

Employees

     At December 31, 1995, the Corporation had four executive officers, none of
whom were paid salaries. At December 31, 1995, the Bank and its subsidiaries had
113 full-time employees, including its executive officers, as well as 28
part-time employees. None of these employees are represented by a collective
bargaining agent, and the Bank has enjoyed harmonious relations with its
personnel.

<PAGE>
                                    REGULATION

     Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Corporation and the Bank. The description
of these laws and regulations, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.

Regulation of the Corporation

     Federal Regulation-General.  The Corporation is a savings and loan holding
company within the meaning of the Home Owners' Loan Act. As such, the
Corporation was required to register with the OTS and is subject to OTS
regulations, examinations, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Bank is subject to certain
restrictions in its dealings with the Corporation and affiliates thereof.

     Federal Activities Restrictions.  There are generally no restrictions on
the activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the Director of the OTS determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings association; (ii)
transactions between the savings association and its affiliates; and (iii) any
activities of the savings association that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings association. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
association subsidiary of such a holding company fails to meet the Qualified
Thrift Lender ("QTL") test, then such unitary holding company also shall become
subject to the activities restrictions applicable to multiple savings and loan
holding companies and, unless the savings association requalifies as a QTL
within one year thereafter, shall register as, and become subject to the
restrictions applicable to, a bank holding company. See "- Regulation of the
Bank -Qualified Thrift Lender Test."

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

     Federal Limitations on Transactions with Affiliates.  Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings association is any company or
entity which controls, is controlled by or is under common control with the
savings association. In a holding company context, the parent holding company of
a savings association (such as the Corporation) and any companies which are
controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B (i) limit the extent to which the
savings association or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such association's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the association or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of
transactions. In addition to the restrictions imposed by Sections 23A and 23B,
no savings association may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities which are permissible
for bank holding companies, or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings association.

     In addition, Sections 22(h) and (g) of the Federal Reserve Act places
restrictions on loans by savings associations to executive officers, directors
and principal stockholders of the Corporation and the Bank. Under Section 22(h),
loans to a director, an executive officer and to a greater than 10% stockholder
of a savings association or the company that controls the savings association,
and certain affiliated interests of such insiders, may not exceed, together with
all other outstanding loans to such person and affiliated interests, the
association's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons and also requires prior board approval for certain loans. In addition,
the aggregate amount of extensions of credit by a savings association to all
insiders cannot exceed the association's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 1995, the Bank was in compliance with the above
restrictions.

     Restrictions on Acquisitions.  Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings association or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings association or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings association, other than
a subsidiary savings association, or of any other savings and loan holding
company.

     The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state if (i) the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office located in the state of the association to be acquired as of March 5,
1987, (ii) the acquiror is authorized to acquire control of the savings
association pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"), or (iii) the statutes of the state in which the
association to be acquired is located specifically permit institutions to be
acquired by the state-chartered associations or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings associations).

     The Federal Reserve Board may approve an application by a bank holding
company to acquire control of a savings association. A bank holding company that
controls a savings association may also merge or consolidate the assets and
liabilities of a savings association with, or transfer assets and liabilities
to, any subsidiary bank which is a member of the Bank Insurance Fund ("BIF")
with the approval of the appropriate federal banking agency and the Federal
Reserve Board. Federal savings associations may also now acquire or be acquired
by any insured depository institution. As a result of these provisions, there
have been a number of acquisitions of savings associations by bank holding
companies in recent years.


Regulation of the Bank

     General.  The OTS has extensive authority over the operations of savings
associations. As part of this authority, savings associations are required to
file periodic reports with the OTS and are subject to periodic examinations by
the OTS and the FDIC. The investment and lending authority of savings
associations are prescribed by federal laws and regulations and they are
prohibited from engaging in any activities not permitted by such laws and
regulations. Those laws and regulations generally are applicable to all
federally chartered savings associations and may also apply to state-chartered
savings associations. Such regulation and supervision is primarily intended for
the protection of depositors.

     The OTS' enforcement authority over all savings associations includes,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to initiate injunctive actions. In general,
these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS.

     Insurance of Accounts.  The deposits of the Bank are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the U.S. Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the OTS an opportunity to take such
action.

     Both the SAIF and BIF are statutorily required to be capitalized to a ratio
of 1.25% of insured reserve deposits. While the BIF has reached the required
reserve ratio, the SAIF is no expected to be recapitalized until 2002 at the
earliest. Legislation has authorized $8 billion for the SAIF; however, such
funds only become available to the SAIF if the FDIC determines that the funds
are needed to cover losses of the SAIF and several other stringent criteria are
met.

     The FDIC has established a new assessment rate schedule of 4-31 basis
points for BIF members which began on September 30, 1995. Under that schedule, a
substantial majority of members are now paying the lowest assessment rate of 4
basis points, while the existing assessment rate of 23-31 basis points
applicable to SAIF member institutions, described below, has been retained.

     Under current FDIC regulations, SAIF member institutions are assigned to
one of three capital groups which are based solely on the level of an
institution's capital -- "well capitalized," "adequately capitalized," and
"undercapitalized." These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging from .23% for well capitalized, healthy
institutions to .31% for undercapitalized institutions with substantial
supervisory concerns. The insurance premiums for the Bank for 1995 was .26% (per
annum) of insured deposits.

     The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which could result in
termination of the Bank's deposit insurance.

     Regulatory Capital Requirements.  Federally insured savings institutions
are required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual institutions on a case-
by-case basis.

     Current OTS capital standards require savings institutions to satisfy three
different capital requirements. Under these standards, savings institutions must
maintain "tangible" capital equal to at least 1.5% of adjusted total assets,
"core" capital equal to at least 3.0% of adjusted total assets and "total"
capital (a combination of core and "supplementary" capital) equal to at least
8.0% of "risk-weighted" assets. For purposes of the regulation, core capital
generally consists of common stockholder's equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Tangible capital is given the same definition as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all the savings institution's intangible assets, with only a limited exception
for purchased mortgage servicing rights. The Bank had $286,000 in goodwill and
no other intangible assets at December 31, 1995. Both core and tangible capital
are further reduced by an amount equal to a savings institution's debt and
equity investments in subsidiaries engaged in activities not permissible to
national banks (other than subsidiaries engaged in activities undertaken as
agent for customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies). These adjustments do not materially
affect the Bank's regulatory capital.

     In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of hybrid capital instruments; perpetual preferred
stock which is not eligible to be included as core capital; subordinated debt
and intermediate-term preferred stock; and general allowances for loan losses up
to a maximum of 1.25% of risk-weighted assets. In determining the required
amount of risk-based capital, total assets, including certain off-balance sheet
items, are multiplied by a risk weight based on the risks inherent in the type
of assets. The risk weights assigned by the OTS for principal categories of
assets are (i) 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S. Government; (ii)
20% for securities (other than equity securities) issued by U.S. Government-
sponsored agencies and mortgage-backed securities issued by, or fully guaranteed
as to principal and interest by, the FNMA or the FHLMC, except for those classes
with residual characteristics or stripped mortgage-related securities; (iii) 50%
for prudently underwritten permanent one- to four-family first lien mortgage
loans not more than 90 days delinquent and having a loan-to-value ratio of not
more than 80% at origination unless insured to such ratio by an insurer approved
by the FNMA or the FHLMC, qualifying residential bridge loans made directly for
the construction of one- to four-family residences and qualifying multi-family
residential loans; and (iv) 100% for all other loans and investments, including
consumer loans, commercial loans, and one- to four-family residential real
estate loans more than 90 days delinquent, and for repossessed assets.

     In August 1995, the OTS and other federal banking agencies published a
final rule modifying their existing risk-based capital standards to provide for
consideration of interest rate risk when assessing capital adequacy of a bank.
Under the final rule, the OTS must explicitly include a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
as a factor in evaluating a bank's capital adequacy. In addition, in August
1995, the OTS and the other federal banking agencies published a joint policy
statement for public comment that describes the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates. Under the policy statement, the OTS will consider
results of supervisory and interest rate risk models as one factor in evaluating
capital adequacy. The OTS intends, at a future date, to incorporate explicit
minimum requirements for interest rate risk in its risk-based capital standards
through the use of a model developed from the policy statement, a future
proposed rule and the public comments received therefrom.

     Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment of a conservator or
receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.

     The following table sets forth a reconciliation between the Bank's
stockholder's equity and each of its three capital requirements at December 31,
1995.

<TABLE>
<CAPTION>
                                           Tangible     Core        Risk-Based
                                           Capital      Capital     Capital<F1>
                                           --------     -------     ----------
                                                (Dollars in Thousands)
<S>                                        <C>          <C>          <C>
Total stockholder's equity                 $18,160      $18,160      $18,160

Plus unrealized loss on mortgage-backed
  securities available for sale, net           175          175          175

Minus nonallowable assets:
  Intangible assets                            286          286          286
  Deferred tax assets                           --           --           --
  Equity investments                            --           --           --

Plus general valuation allowances               --           --        1,679
                                           -------      -------      -------
Total regulatory capital                   $18,049      $18,049      $19,728
Minimum required capital                     3,207        6,413        9,120
                                           -------      -------      -------
Excess regulatory capital                  $14,842      $11,636      $10,608
                                           =======      =======      =======

Regulatory capital as a percentage<F1>        8.44%        8.44%       14.88%

Minimum capital required as a percentage<F1>  1.50         3.00         8.00

Excess regulatory capital as a                ----         ----         ----
  percentage in excess of requirement         6.94%        5.44%        6.88%
                                              ====         ====         ====
<FN>
<F1> Tangible and core capital are computed as a percentage of adjusted total
assets of $213.8 million. Risk-based capital is computed as a percentage of
adjusted risk-weighted assets of $132.6 million.
</FN>
</TABLE>

     Liquidity Requirements.  All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 5%. Short-term liquid assets currently must constitute at least
1% of an association's average daily balance of net withdrawable deposit
accounts and current borrowings. Monetary penalties may be imposed upon
associations for violations of liquidity requirements. For information
concerning the Bank's compliance with the foregoing requirements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity" in the Annual Report.

     QTL Test. The Home Owners' Loan Act requires savings institutions to meet a
qualified thrift lender ("QTL") test. Under the QTL test, a savings association
is required to maintain at least 65% of its "portfolio assets" (total assets
less (i) specified liquid assets up to 20% of total assets, (ii) intangibles,
including goodwill, and (iii) the value of property used to conduct business) in
certain "qualified thrift investments" (primarily residential mortgages and
related investments, including certain mortgage-backed and related securities)
on a monthly basis in 9 out of every 12 months.

     A savings association that fails the QTL test must either convert to a bank
charter or operate under certain restrictions. As of December 31, 1995, the Bank
maintained 85.4% of its portfolio assets in qualified thrift investments and,
therefore, met the QTL test.

     Limitations on Capital Distributions.  OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Association") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters; provided that the institution would not be undercapitalized, as
that term is defined in the OTS Prompt Corrective Action regulations, following
the capital distribution. Any additional capital distributions would require
prior regulatory approval. In the event the Bank's capital fell below its
fully-phased in requirement or the OTS notified it that it was in need of more
than normal supervision, the Bank's ability to make capital distributions could
be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.

     Assessments.  Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
institution's latest quarterly thrift financial report. The assessment paid by
the Bank for the years ended December 31, 1995 and 1994, totaled $74,000 and
$87,000, respectively.

     Branching.  Under OTS regulations, federally chartered savings associations
are permitted to branch nationwide to the extent allowed by federal statute.
This permits federal savings associations with interstate networks to diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings associations.

     Community Reinvestment.  Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA rating system identifies four levels of performance
that may describe an institution's record of meeting community needs:
outstanding, satisfactory, needs to improve and substantial noncompliance. The
CRA also requires all institutions to make public disclosure of their CRA
ratings. The Bank received a "Satisfactory" CRA rating in its most recent
federal examination by the OTS.

     Enforcement.  The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring enforcement action against all
"institution-related parties," including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Civil
penalties cover a wide range of violations and actions and range up to $25,000
per day unless a finding of reckless disregard is made, in which case penalties
may be as high as $1 million per day. Criminal penalties for most financial
institution crimes include fines of up to $1 million and imprisonment for up to
30 years. In addition, regulators have substantial discretion to impose
enforcement action on an institution that fails to comply with its regulatory
requirements, particularly with respect to the capital requirements. Possible
enforcement action ranges from the imposition of a capital plan and capital
directive to receivership, conservatorship or the termination of deposit
insurance. Under the FDIA, the FDIC has the authority to recommend to the
Director of OTS that enforcement action be taken with respect to a particular
savings institution. If action is not taken by the director, the FDIC has
authority to take such action under certain circumstances.

     Federal Home Loan Bank System.  The Bank is a member of the FHLB of
Atlanta, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations and commercial banks. Each FHLB serves
as a source of liquidity for its members within its assigned region. It is
funded primarily from 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 its Board of Directors. As of
December 31, 1995, the Bank's advances from the FHLB of Atlanta amounted to
$30.2 million or 14.1% of its total assets.

     As a member, the Bank is required to purchase and maintain stock in the
FHLB of Atlanta in an amount equal to the greater of 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of total advances. At December 31, 1995, the
Bank had $1.5 million in FHLB stock, which was in compliance with this
requirement.

     As a result of Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), 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. These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB stock in the future. For the year ended December 31,
1995, dividends paid by the FHLB of Atlanta to the Bank totaled $122,000.

     Federal Reserve System.  The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts) and non-personal time deposits. At
December 31, 1995, the Bank was in compliance with such requirements.

     The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy applicable liquidity requirements.
Because required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an association's earning assets. The amount of
funds necessary to satisfy this requirement has not had a material affect on the
Bank's operations.

     Miscellaneous.  In addition to requiring a new system of risk-based
insurance assessments and a system of prompt corrective action with respect to
undercapitalized banks, as discussed above, recent legislation requires federal
banking regulators to adopt regulations in a number of areas to ensure bank
safety and soundness, including: internal controls; credit underwriting; asset
growth; management compensation; ratios of classified assets to capital; and
earnings. Recent legislation also restricts the activities of state-chartered
insured banks; amends various consumer banking laws; limits the ability of
"undercapitalized banks" to borrow from the Federal Reserve Board's discount
window; and requires regulators to perform annual on-site bank examinations and
set standards for real estate lending.


                                     TAXATION

Federal Taxation

     General.  The Corporation and the Bank are subject to the generally
applicable corporate tax provisions of the Internal Revenue Code of 1986, as
amended ("Code"), as well as certain additional provisions of the Code which
apply to thrift and other types of financial institutions. The following
discussion of Federal taxation is intended only to summarize certain pertinent
income tax matters and is not a comprehensive description of the tax rules
applicable to the Corporation and the Bank.

     Method of Accounting.  The Corporation and the Bank maintain their books
and records for federal income tax purposes using the accrual method of
accounting. The accrual method of accounting generally requires that items of
income be recognized when all events have occurred that establish the right to
receive the income and the amount can be determined with reasonable accuracy and
that items of expense be deducted at the later of (i) the time when all events
have occurred that establish the liability to pay the expense and the amount of
such liability can be determined with reasonable accuracy or (ii) the time when
economic performance with respect to the item of expense has occurred.

     Bad Debt Reserves.  Savings institutions, such as Home Federal, which meet
certain definitional tests primarily relating to their assets and the nature of
their businesses, are permitted to establish a reserve for bad debts and to make
annual additions to the reserve. These additions may, within specified formula
limits, be deducted in arriving at the Bank's taxable income. For purposes of
computing the deductible addition to its bad debt reserve, the Bank's loans are
separated into "qualifying real property loans" (generally those loans secured
by certain interests in real property) and all other loans ("non-qualifying
loans"). The deduction with respect to nonqualifying loans must be computed
under the experience method as described below, while a deduction with respect
to qualifying loans may be computed using a percentage based on actual loss
experience, or a percentage of taxable income. Additions to the reserve for
losses on nonqualifying loans must be based upon actual loss experience and
would reduce the current year's addition to the reserve for losses on qualifying
real property loans, unless that addition is also determined under the
experience method. The sum of the additions to each reserve for each year is the
Bank's annual bad debt deduction.

     Under the experience method, the deductible annual addition to Home
Federal's bad debt reserves is the amount necessary to increase the balance of
the reserve at the close of the taxable year to the greater of (a) the amount
which bears the same ratio to loans outstanding at the close of the taxable year
as the total net bad debts sustained during the current and five preceding
taxable years bear to the sum of the loans outstanding at the close of those six
years, or (b) the lower of (i) the balance of the reserve account at December
31, 1987 (the "base year"), or (ii) if the amount of loans outstanding at the
close of the taxable year is less than the amount of loans outstanding at the
close of the base year, the amount which bears the same ratio to loans
outstanding at the close of the taxable year as the balance of the reserve at
the close of the base year bears to the amount of loans outstanding at the close
of the base year.

     Under the percentage of taxable income method, for taxable years beginning
on or after January 1, 1987, the portion of taxable income that may be deducted
as an addition to a reserve for bad debts under the percentage of taxable income
method is 8%. Any savings institution at least 60% of whose assets are
qualifying assets, as defined in the Code, is eligible for the full 8% of
taxable income deduction. As of December 31, 1995, at least 60% of the Bank's
assets were "qualifying assets" as defined in the Code, and the Bank anticipates
that at least 60% of its assets will continue to be qualifying assets in the
immediate future. If this ceases to be the case, the Bank may be required to
restore some portion of its bad debt reserve to taxable income in the future.

     Under the percentage of taxable income method, the bad debt deduction for
an addition to the reserve for qualifying real property loans cannot exceed the
amount necessary to increase the balance in this reserve to an amount equal to
6% of such loans outstanding at the end of the taxable year. The bad debt
deduction is also limited to the amount which when added to the addition to the
reserve for loan losses on nonqualifying loans, equals the amount by which 12%
of deposits at the close of the year exceeds the sum of surplus, undivided
profits and reserves at the beginning of the year. Based on experience, it is
not expected that these restrictions will be a limiting factor for the Bank in
the foreseeable future. In addition, the deduction for qualifying real property
loans is reduced by an amount equal to all or part of the deduction for
non-qualifying loans.

     Home Federal had generally used the percentage of taxable income method
with respect to qualifying real property loans. However, it used the experience
method in 1990 through 1994 and it is anticipated that the Bank will use the
experience method in the 1995 tax return. In future years, the Bank intends to
utilize whatever available method provides the maximum tax benefits. At December
31, 1995, the federal income tax reserves of the Bank included $7.1 million for
which no federal income tax has been provided.

     Distributions. If the Bank distributes cash or property to its stockholder,
and the distribution is treated as being from its accumulated bad  debt
reserves, the distribution will cause the Bank to have additional taxable
income. A distribution is deemed to have been made from accumulated bad debt
reserves to the extent that (a) the reserves exceed the amount that would have
been accumulated on the basis of actual loss experience, and (b) the
distribution is a "nondividend distribution." A distribution with respect to
stock is a non-dividend distribution to the extent that, for federal income
tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, exceeds the
current and post-1951 accumulated earnings and profits. The amount of additional
taxable income created by a nondividend distribution is an amount that when
reduced by the tax attributable to it is equal to the amount of the
distribution.

     Minimum Tax.  The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent that such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method. The
other items of tax preference that constitute AMTI include (a) tax exempt
interest on private activity bonds other than certain qualified bonds and (b)
75% of the excess (if any) of adjusted current earnings as defined in the Code,
over AMTI (determined without regard to this preference and prior to reduction
by net operating losses).

     Corporate Dividends-Received Deduction.  The Corporate dividends-received
deduction is 80% in the case of dividends received from corporations with which
a corporate recipient does not file a consolidated tax return and corporations
which own less than 20% of the stock of a corporation distributing a dividend
may deduct only 70% of dividends received or accrued on their behalf. However, a
corporation may deduct 100% of dividends from a member of the same affiliated
group of corporations.

     Other Matters.  The Corporation and the Bank file consolidated federal
income tax returns, which has the effect of eliminating or deferring the tax
consequences of intercompany distributions, including dividends, in the
computation of consolidated taxable income. Any income of the Corporation would
not be subject to the bad debt deduction allowed the Bank, whether or not
consolidated tax returns are filed. However, any losses of the Corporation, its
subsidiaries or the Bank's subsidiaries included in consolidated tax returns may
reduce the bad debt deduction allowed the Bank if a deduction is claimed under
the percentage of taxable income method.

State Taxation

     As a Maryland Corporation, the Corporation is subject to Maryland corporate
income tax at a rate of 7%.
     Home Federal is subject to a Maryland annual franchise tax computed at a
rate of 7% of its net earnings allocated to Maryland. For the purpose of the 7%
franchise tax, net earnings are defined as the net income of Home Federal as
determined for state corporate income tax purposes, plus (i) interest income
from obligations of the United States, of any state, including Maryland, and of
any county, municipal or public corporation authority, special district or
political subdivision of any state, including Maryland, and (ii) any profit
realized from the sale or exchange of bonds issued by the State of Maryland or
any of its political subdivisions.


Item 2.  Description of Property.

     The following table presents property owned and leased by the Corporation,
the Bank and the Bank's subsidiaries.

<TABLE>
<CAPTION>
                                                  Net Book Value at
Location                                          December 31, 1995
--------                                          -----------------
<S>                                                  <C>
Home Federal Corporation                             $       --
122-128 West Washington Street
Hagerstown, MD  21740

Home Federal Savings Bank:

Main Office:<F1>
  122-128 West Washington Street
  Hagerstown, MD  21740                               1,883,371

Virginia Avenue Branch:
  17708 Virginia Avenue
  Hagerstown, MD  21740                                 752,248

Pennsylvania Avenue Branch:
  1413 Pennsylvania Avenue
  Hagerstown, MD  21742                                 274,811

Dual Highway Branch:
  1700 Dual Highway
  Hagerstown, MD  21740                                 645,500

Hancock Branch<F2>:
  333 East Main Street
  Hancock, MD  21750                                    450,276

County Market Branch<F3>:
  835 Hill Crest Road
  Hagerstown, MD  21742                                  47,786

Allegany County Locations:
  County Market Branch<F4>
  1230 National Highway
  LaVale, MD  21502                                      46,180

  Loan Center<F5>
  8 East Main Street
  Frostburg, MD  21532                                    7,328
                                                     ----------
                                                     $4,107,500
                                                     ==========
                  
<FN>
<F1> The Bank has three lease agreements for automated teller space.
<F2> The Bank leases the land on which the office is located. The present lease
term expires on April 30, 1997 with an option to extend the lease for two
additional five year periods. 
<F3> The Bank leases the premises. The present lease expires on December 31,
1997 with an option to extend the lease for an additional five year term.
<F4> The Bank leases the premises. The present lease expires on April 15, 1999
with an option to extend the lease for an additional five year term.
<F5> The Bank leases the Frostburg Loan Center. The present lease expires on
April 30, 1997.
</FN>
</TABLE>

Item 3.  Legal Proceedings.

     The Corporation and its subsidiaries are not involved in any pending legal
proceedings other than routine, nonmaterial legal proceedings occurring in the
ordinary course of business.


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

     Not applicable.


                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters.

     The information required herein is incorporated by reference from page 33
of the Corporation's Annual Report to Stockholders which is filed herewith as
Exhibit 13 ("1995 Annual Report").


Item 6.  Management's Discussion and Analysis or Plan of Operation.

     The information required herein is incorporated by reference from page 6 of
the 1995 Annual Report.


Item 7.  Financial Statements.

     The information required herein is incorporated by reference from page 5
and pages 13 to 32 of the 1995 Annual Report.


Item 8.  Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.

     Not applicable.


                                     PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act.

     The information required herein is incorporated by reference from the
definitive proxy statement of the Corporation filed with the SEC within 120
days of the Corporation's year end ("definitive proxy statement").


Item 10.  Executive Compensation.

     The information required herein is incorporated by reference from the
definitive proxy statement.


Item 11.  Security Ownership of Certain Beneficial Owners and Management.

     The information required herein is incorporated by reference from the
definitive proxy statement.


Item 12.  Certain Relationships and Related Transactions.

     The information required herein is incorporated by reference from the
definitive proxy statement.


Item 13.  Exhibits and Reports on Form 8-K.

     (a)  Documents Filed as Part of this Report

          (1)  The following financial statements are incorporated by reference
               from Item 7 hereof:

               Independent Auditor's Report

               Consolidated Statements of Financial Condition as of December 31,
               1995 and 1994

               Consolidated Statements of Changes in Stockholders' Equity for
               the Years Ended December 31, 1995, 1994 and 1993

               Consolidated Statements of Income for the Years Ended December
               31, 1995, 1994 and 1993

               Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1995, 1994 and 1993

               Notes to Consolidated Financial Statements

          (2)  All other schedules for which provision is made in the
               applicable accounting regulation of the SEC are omitted because
               of the absence of conditions under which they are required or
               because the required information is included in the consolidated
               financial statements and related notes thereto.

          (3)  The following exhibits are filed as part of the Form 10-K and
               this list includes the Exhibit Index.

  No.                            Exhibits                              Page
 3(i)      Certificate of Incorporation                                   *
 3(ii)     Bylaws                                                         *
 4         Specimen of Stock Certificate                                  *
10.1(a)    Key Employee Stock Compensation Program                       **
10.1(b)    1988 Stock Option and Stock Appreciation Rights Plan         ***
10.2(a)    Employment Agreement between Home Federal Corporation
             and Richard W. Phoebus, Sr.                               E-1   
10.2(b)    Employment Agreement between Home Federal Savings Bank
             and Richard W. Phoebus, Sr.                               E-12
10.2(c)    Employment Agreement between Home Federal Corporation
             and Salvatore M. Savino                                   E-24
10.2(d)    Employment Agreement between Home Federal Savings Bank
             and Salvatore M. Savino                                   E-36
10.2(e)    Employment Agreement between Home Federal Corporation
             and Steven G. Hull                                        ****  
10.2(f)    Employment Agreement between Home Federal Savings Bank
             and Steven G. Hull                                        ****
10.2(g)    Employment Agreement between Home Federal Savings Bank
             and Celia S. Ausherman                                    ****
10.2(h)    Employment Agreement between Home Federal Savings Bank
             and Celia S. Ausherman                                    ****
10.2(i)    Consulting Agreement between Home Federal Savings Bank
             and William H. Gelbach, Jr.                              *****
13         1995 Annual Report to Stockholders                          E-48
21         Subsidiaries -- Reference is made to Item 1, 
             "Business - Subsidiaries" for the required information
23         Consent of Independent Auditor                              E-82


*     Exhibit is incorporated herein by reference from the Registrant's Form 8-B
        Registration Statement filed with the SEC on August 1, 1989.
**    Exhibit is incorporated herein by reference from the Registrant's Form 8-B
        Registration Statement filed with the SEC on December 31, 1987.
***   Exhibit is incorporated herein by reference from the Registrant's      
        definitive proxy statement for its 1988 Annual Meeting of Stockholders,
        dated March 30, 1988, filed with the SEC on March 30, 1988.
****  Employment agreements for Mr. Hull and Ms. Ausherman are similar to that
        of Mr. Savino.
***** Exhibit is incorporated herein by reference from the Registrant's Form S-1
        Registration Statement, Registration No. 33-22768, filed with the SEC on
        June 24, 1988.

     (b)  Reports on Form 8-K.           Not applicable.

     (c)  See (a)(3) above for all exhibits filed herewith and the Exhibit
          Index.

     (d)  There are no other financial statements and financial statement
          schedules which are excluded from the Annual Report to Stockholders
          which are required to be included herein.
<PAGE>
     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   HOME FEDERAL CORPORATION

March 28, 1996                     By:  /s/Richard W. Phoebus, Sr.
Date                                      Richard W. Phoebus, Sr.
                                          President and Chief
                                          Executive Officer

     In accordance with Section 13 or 15(d) of the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

/s/Benjamin F. Kunkleman                           March 28, 1996
  Benjamin F. Kunkleman, Chairman of the Board     Date

/s/Richard W. Phoebus, Sr.                         March 28, 1996
Richard W. Phoebus, Sr., President and             Date
  Chief Executive Officer, Director

/s/Salvatore M. Savino                             March 28, 1996
  Salvatore M. Savino, Vice President and          Date
  Treasurer, Chief Financial Officer, Director
  (principal accounting and financial officer)

/s/Howard B. Bowen                                 March 28, 1996 
  Howard B. Bowen, Director                        Date

/s/William H. Gelbach, Jr.                         March 28, 1996 
  William H. Gelbach, Jr., Director                Date

/s/Lois S. Harrison                                March 28, 1996 
  Lois S. Harrison, Director                       Date

/s/John J. McElwee, Jr.                            March 28, 1996 
  John J. McElwee, Jr., Director                   Date

/s/J. Franklin Shank                               March 28, 1996 
  J. Franklin Shank, Director                      Date

/s/Ronald Z. Sulchek                               March 28, 1996
  Ronald Z. Sulchek, Director                      Date
<PAGE>