10-K

SECURITIES & EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

        (Mark One)

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

For the fiscal year ended December 31, 2005

or

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

For the transition period from ___________ to _____________

Commission file number:  0-18847

HOME FEDERAL BANCORP

(Exact name of registrant as specified in its charter)

                                                                                    Indiana                                 35-1807839

                                              (State or other jurisdiction of incorporation or organization)                            (I.R.S. Employer Identification No.)

                      501 Washington Street, Columbus, Indiana                           47201

                                     (Address of Principal Executive Offices)                                                                                 (Zip Code)

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

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

None

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

Common Stock, no par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [  ] NO [x]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [  ] NO [x]

Indicate by check mark whether the Registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES [x] NO [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

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

Large accelerated filer [ ]                                Accelerated filer [x]                                Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES [ ]  NO [x]

The aggregate market value of the issuer's voting stock held by non-affiliates, as of June 30, 2005, was $84.4 million.

The number of shares of the registrant's Common Stock, no par value, outstanding as of March 8, 2006, was 3,795,657 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31, 2005, are incorporated into Part II. Portions of the Proxy Statement for the annual meeting of shareholders to be held on April 25, 2006, are incorporated into Part I and Part III.

Exhibit Index on Page 38

Page 2 of 41 Pages

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

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FORWARD LOOKING STATEMENTS

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

PART I

Item 1. Business

General

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

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

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

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and Washington Counties in Indiana. HomeFederal also participates in the nationwide electronic funds transfer networks known as Plus System, Inc. and Cirrus System.

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

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

HomeFederal Bank’s primary source of revenue is interest from lending activities. Its principal lending activity is the origination of conventional mortgage loans to enable borrowers to purchase or refinance one-to-four family residential real property. These loans are generally secured by first mortgages on the property and constituted 25.7% of the Bank’s loans at December 31, 2005. Virtually all of the real estate loans originated by HomeFederal Bank are secured by properties located in Indiana, although HomeFederal Bank has authority to make or purchase real estate loans throughout the United States. In addition, HomeFederal Bank makes secured and unsecured consumer related loans (including consumer auto, second mortgage, home equity, mobile home, and savings account loans) and commercial loans secured by mortgages on the underlying property. At December 31, 2005, approximately 19.8% of its loans were consumer-related loans, and 28.3% of its loans were commercial mortgage and multi-family loans. HomeFederal Bank also makes construction loans, which constituted 9.1% of HomeFederal Bank's loans at December 31, 2005. Finally, HomeFederal Bank makes commercial loans, which constituted 16.8% of its loans at December 31, 2005.

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Lending Activities
Loan Portfolio Data
The following two tables set forth the composition of HomeFederal Bank's loan porfolio by loan type and security type as of the dates indicated. The third table represents a reconciliation of gross loans receivable after
consideration of undisbursed portions of loans in process, deferred loans, and the allowance for loan losses.
	Dec 31, 2005						Dec 31, 2004						Dec 31, 2003						Dec 31, 2002						June 30, 2002						June 30, 2001
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
TYPE OF LOAN																(Dollars in Thousands)
First mortgage loans:
One-to-four family residential loans	$	161,936			25.7	%	$	172,738			26.1	%	$	178,159			27.0	%	$	195,255			29.9	%	$	214,565			32.6	%	$	270,124			38.2	%
Commercial and multi-family		177,748			28.3	%		180,175			27.2	%		171,397			25.9	%		183,369			28.1	%		172,495			26.2	%		153,169			21.6	%
Loans on property under construction		57,161			9.1	%		84,655			12.8	%		94,431			14.3	%		63,017			9.6	%		54,639			8.3	%		67,789			9.6	%
Loans on unimproved acreage		1,615			0.3	%		2,730			0.4	%		3,201			0.5	%		2,795			0.4	%		4,712			0.7	%		5,017			0.7	%
Second mortgage, home equity		87,893			14.0	%		80,346			12.2	%		80,044			12.1	%		80,274			12.3	%		85,819			13.0	%		94,140			13.3	%
Commercial loans		105,827			16.8	%		105,495			16.0	%		99,085			15.0	%		90,063			13.8	%		86,435			13.1	%		74,687			10.5	%
Consumer loans		3,814			0.6	%		4,157			0.6	%		4,221			0.6	%		4,681			0.7	%		4,535			0.7	%		5,864			0.8	%
Auto loans		27,335			4.4	%		24,921			3.8	%		23,244			3.5	%		25,149			3.8	%		25,355			3.9	%		25,852			3.6	%
Mobile home loans		2,537			0.4	%		3,289			0.5	%		4,365			0.7	%		5,834			0.9	%		6,625			1.0	%		8,308			1.2	%
Savings accounts loans		2,266			0.4	%		2,340			0.4	%		2,736			0.4	%		3,018			0.5	%		3,092			0.5	%		3,738			0.5	%
Gross loans receivable	$	628,132			100.0	%	$	660,846			100.0	%	$	660,883			100.0	%	$	653,455			100.0	%	$	658,272			100.0	%	$	708,688			100.0	%
TYPE OF SECURITY
Residential:
One-to-four family	$	271,135			43.1	%	$	277,095			41.9	%	$	280,942			42.5	%	$	293,886			45.0	%	$	320,256			48.6	%	$	388,770			55.0	%
Multi-dwelling units		19,612			3.1	%		27,018			4.1	%		22,034			3.3	%		22,767			3.5	%		29,640			4.5	%		34,008			4.8	%
Commercial real estate		193,991			30.9	%		213,801			32.3	%		221,055			33.5	%		205,262			31.4	%		177,622			27.0	%		162,444			22.9	%
Commercial		105,827			16.8	%		105,495			16.0	%		99,085			15.0	%		90,063			13.8	%		86,435			13.1	%		74,687			10.5	%
Mobile home		2,537			0.4	%		3,289			0.5	%		4,365			0.7	%		5,834			0.9	%		6,625			1.0	%		8,308			1.2	%
Savings account		2,266			0.4	%		2,340			0.4	%		2,736			0.4	%		3,018			0.5	%		3,092			0.5	%		3,738			0.5	%
Auto		27,335			4.4	%		24,921			3.8	%		23,244			3.5	%		25,149			3.8	%		25,355			3.9	%		25,852			3.6	%
Other consumer		3,814			0.6	%		4,157			0.6	%		4,221			0.6	%		4,681			0.7	%		4,535			0.7	%		5,864			0.8	%
Land acquisition		1,615			0.3	%		2,730			0.4	%		3,201			0.5	%		2,795			0.4	%		4,712			0.7	%		5,017			0.7	%
Gross loans receivable	$	628,132			100.0	%	$	660,846			100.0	%	$	660,883			100.0	%	$	653,455			100.0	%	$	658,272			100.0	%	$	708,688			100.0	%
LOANS RECEIVABLE-NET
Gross loans receivable	$	628,132			103.2	%	$	660,846			105.0	%	$	660,883			104.8	%	$	653,455			103.9	%	$	658,272			104.2	%	$	708,688			105.1	%
Deduct:
Undisbursed portion of loans in process		(12,562	)		-2.1	%		(23,016	)		-3.7	%		(22,150	)		-3.5	%		(16,856	)		-2.7	%		(19,498	)		-3.1	%		(27,999	)		-4.2	%
Deferred net loan fees		(261	)		0.0	%		(476	)		-0.1	%		(555	)		-0.1	%		(544	)		-0.1	%		(508	)		-0.1	%		(447	)		-0.1	%
Allowance for loan losses		(6,753	)		-1.1	%		(7,864	)		-1.2	%		(7,506	)		-1.2	%		(7,172	)		-1.1	%		(6,451	)		-1.0	%		(5,690	)		-0.8	%
Net loans receivable	$	608,556			100.0	%	$	629,490			100.0	%	$	630,672			100.0	%	$	628,883			100.0	%	$	631,815			100.0	%	$	674,552			100.0	%

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The following tables summarize the contractual maturities for HomeFederal Bank's loan portfolio (including participations and mortgage-backed certificates) for the fiscal periods indicated and the interest rate sensitivity of loans due
after one year:
	Balance								Maturities in Fiscal
	Outstanding								2009		2011		2016		2020
	At December 31,								to		to		to		and
	2005		2006		2007		2008		2010		2015		2020		thereafter
							(Dollars in Thousands)
Real estate	$	341,299	$	2,684	$	2,380	$	12,114	$	26,570	$	114,179	$	40,523	$	142,849
Mortgage-backed certificates, collateralized mortgage obligations		51,199		-		418		-		5,546		24,483		8,186		12,566
Construction loans		57,161		13,904		14,121		2,900		6,665		149		1,107		18,315
Commercial loans		105,827		55,859		7,146		6,630		20,428		8,636		5,216		1,912
Other loans		123,845		8,844		8,959		13,045		27,043		29,003		12,590		24,361
Total	$	679,331	$	81,291	$	33,024	$	34,689	$	86,252	$	176,450	$	67,622	$	200,003

Interest Rate Sensitivity:
	Due After December 31, 2006
	Fixed		Variable Rate
	Rate		And Balloon
	(Dollars in Thousands)
Real estate	$	38,079	$	300,536
Mortgage-backed certificates, collaterized mortgage obligations		51,086		113
Construction loans		1,741		41,516
Commercial loans		19,073		30,895
Other Loans		80,232		34,769
Total	$	190,211	$	407,829

Residential Mortgage Loans

HomeFederal Bank is authorized to make one-to-four family residential loans without any limitation as to interest rate (within State usury laws) amount or number of interest rate adjustments. Pursuant to federal regulations, if the interest rate is adjustable, the interest rate must be correlated with changes in a readily verifiable index. HomeFederal Bank also makes residential and commercial mortgage loans secured by mid-size multi-family dwelling units and apartment complexes. The residential mortgage loans included in HomeFederal Bank’s portfolio are primarily conventional loans. As of December 31, 2005 $184.6 million, or 29.4%, of HomeFederal Bank's total loan portfolio consisted of residential first mortgage loans, $161.9 million, or 25.7%, of which were secured by one-to-four family homes.

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

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

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

All of the residential mortgages HomeFederal Bank currently originates include "due on sale" clauses, which give HomeFederal Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. HomeFederal Bank utilizes the due on sale clause as a means of protecting the funds loaned by insuring payoff on sale of the property collateralizing the loan.

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

It may be appropriate in individual cases to originate loans with loan-to-value ratios in excess of the FDIC limits based on the support provided by other credit factors. The aggregate amount of all loans in excess of these limits should not exceed 100% of total capital. Moreover, loans for all commercial, agricultural, multi-family or other non-one-to-four family residential properties should not exceed 30% of total capital.  As of December 31, 2005, the Bank is in compliance with the above limits.

Commercial Mortgage Loans

At December 31, 2005, 34.1% of HomeFederal Bank's total loan portfolio consisted of mortgage loans secured by commercial real estate, of which 5.7% were commercial construction loans. These properties consisted primarily of condominiums, apartment buildings, office buildings, warehouses, motels, shopping centers, nursing homes, manufacturing plants, and churches located in central or south central Indiana. The commercial mortgage loans are generally adjustable-rate loans, written for terms not exceeding 20 years, and require an 85% loan-to-value ratio. Commitments for these loans in excess of $1.5 million must be approved in advance by HomeFederal Bank’s Board of Directors. The largest such loan as of December 31, 2005 had a balance of $3.9 million. At that date, all of HomeFederal Bank's commercial real estate loans consisted of loans secured by real estate located in Indiana.

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

Construction Loans

HomeFederal Bank offers conventional short-term construction loans. At December 31, 2005, 9.1% of HomeFederal Bank's total loan portfolio consisted of construction loans. Normally, a 95% or less loan-to-value ratio is required from owner-occupants of residential property, an 80% loan-to-value ratio is required from persons building residential property for sale or investment purposes, and an

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80% loan-to-value ratio is required for commercial property. Construction loans are also made to builders and developers for the construction of residential or commercial properties on a to-be-occupied or speculative basis. Construction normally must be completed in six to nine months for residential loans. The largest such loan on December 31, 2005 was $8.9 million.

Consumer Loans

Consumer-related loans, consisting of second mortgage and home equity loans, mobile home loans, automobile loans, loans secured by savings accounts and other consumer loans were $123.8 million on December 31, 2005 or approximately 19.8% of HomeFederal Bank's total loan portfolio.

Second mortgage loans are made for terms of 1 - 20 years, and are fixed-rate, fixed term or variable- rate line of credit loans. HomeFederal Bank's minimum for such loans is $5,000. HomeFederal Bank will loan up to 100% of the appraised value based on the product and borrower qualifications of the property, less the existing mortgage amount(s). As of December 31, 2005, HomeFederal Bank had $47.2 million of second mortgage loans, which equaled 7.5% of its total loan portfolio. HomeFederal Bank markets home equity credit lines, which are adjustable-rate loans. As of December 31, 2005, HomeFederal Bank had $40.7 million drawn on its home equity credit lines, or 6.5% of its total loan portfolio, with $58.8 million of additional credit available to its borrowers under existing home equity credit lines.

Automobile loans are generally made for terms of up to six years. The vehicles are required to be for personal or family use only. As of December 31, 2005, $27.3 million, or 4.4%, of HomeFederal Bank's total loan portfolio consisted of automobile loans.

As of December 31, 2005, $2.5 million, or 0.4%, of HomeFederal Bank's total loan portfolio consisted of mobile home loans. Generally, these loans are made for terms of one year for each $1,000 of the sales price, with a maximum term of 15 years. On new mobile home loans, HomeFederal Bank permits a loan-to-value ratio of up to 125% of the manufacturer's invoice price plus sales tax or up to 90% of the actual sales price, whichever is lower. Also, HomeFederal Bank makes loans for previously occupied mobile homes up to a 90% loan-to-value ratio based upon the actual sales price or value as appraised, whichever is lower.

Loans secured by savings account deposits may be made up to 95% of the pledged savings collateral at a rate 2% above the rate of the pledged savings account or a rate equal to HomeFederal Bank's highest seven-year certificate of deposit rate, whichever is higher. The loan rate will be adjusted as the rate for the pledged savings account changes. As of December 31, 2005, $2.3 million, or 0.4%, of HomeFederal Bank's total loan portfolio consisted of savings account loans.

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

Commercial Loans

Collateral for HomeFederal Bank's commercial loans includes manufacturing equipment, real estate, inventory, accounts receivable, and securities. Terms of these loans are normally for up to ten years and have adjustable rates tied to the reported prime rate and treasury indexes. Generally, commercial loans are considered to involve a higher degree of risk than residential real estate loans. However, commercial loans generally carry a higher yield and are made for a shorter term than real estate loans. As of December 31, 2005, $105.8 million, or 16.8%, of HomeFederal Bank's total loan portfolio consisted of commercial loans.

Origination, Purchase and Sale of Loans

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

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

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

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

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

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

HomeFederal Bank seeks to sell loans in the secondary market. Loan sales can enable HomeFederal Bank to recognize significant fee income and to reduce interest rate risk while meeting local market demand. HomeFederal Bank sold $97.1 million of fixed-rate loans in the fiscal year ended December 31, 2005. HomeFederal Bank's current lending policy is to sell fixed-rate residential mortgage loans exceeding 10-year maturities. In addition, when in the opinion of management cash flow demands and asset/liability concerns warrant, HomeFederal Bank will consider keeping fixed-rate loans with up to 15-year maturities. Typically HomeFederal Bank retains adjustable-rate loans in its portfolio. HomeFederal Bank may sell participating interests in commercial real estate loans in order to share the risk with other lenders. Mortgage loans held for sale are carried at the lower of cost or market value, determined on an aggregate basis. The servicing is retained on most loan sales except Veteran's Administration ("VA"), Federal Housing Administration ("FHA") and Indiana Housing Finance Authority ("IHFA") loans.

When loans are sold, HomeFederal Bank typically retains the responsibility for collecting and remitting loan payments, inspecting the properties securing the loans, making certain that monthly principal and interest payments and escrow payments are made on behalf of borrowers, and otherwise servicing the loans. HomeFederal Bank receives a servicing fee for performing these services. The amount of fees received by HomeFederal Bank varies, but is generally calculated as an amount equal to 25 basis points per annum on the outstanding principal amount of the loans serviced. The servicing fee is recognized as income over the life of the loans. At December 31, 2005, HomeFederal Bank serviced $588.5 million of loans sold to other parties. Gains and losses on sale of loans, loan participations and mortgage-backed securities are recognized at the time of sale.

Management believes that purchases of loans and loan participations may be desirable and evaluates potential purchases as opportunities arise. Such purchases can enable HomeFederal Bank to take advantage of favorable lending markets in other parts of the state, diversify its portfolio and limit origination expenses. Any participation it acquires in commercial real estate loans requires a review of financial information on the borrower, a review of the appraisal on the property by a local designated appraiser, an inspection of the property by a senior loan officer, and a financial analysis of the loan. The seller generally performs servicing of loans purchased. At December 31, 2005, others serviced approximately 1.6%, or $10.3 million, of HomeFederal Bank's gross loan portfolio.

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The following table shows loan activity for HomeFederal Bank during the periods indicated:
	Dec 31, 2005			Dec 31, 2004			Dec. 31, 2003
	(Dollars in Thousands)
Gross loans receivable at beginning of period	$	660,846		$	660,883		$	653,455
Loans Originated:
Mortgage loans and contracts:
Construction loans:
Residential		29,598			30,373			28,253
Commercial		39,416			26,558			33,643
Permanent loans:
Residential		50,028			59,468			60,225
Commercial		29,194			39,201			18,721
Refinancing		44,672			92,140			333,727
Other		2,062			1,092			1,227
Total		194,970			248,832			475,796
Commercial		81,800			81,819			65,823
Consumer		27,543			25,416			24,200
Total loans originated		304,313			356,067			565,819
Loans purchased:
Residential		-			-			-
Other		1,720			9,116			10,605
Total loans originated and purchased		306,033			365,183			576,424
Real estate loans sold		97,079			143,661			381,900
Loan repayments and other deductions		241,668			221,559			187,096
Total loans sold, loan repayments and other deductions		338,747			365,220			568,996
Net loan activity		(32,714	)		(37	)		7,428
Gross loans receivable at end of period		628,132			660,846			660,883
Adjustments		(19,576	)		(31,356	)		(30,211	)
Net loans receivable at end of period	$	608,556		$	629,490		$	630,672

      A commercial bank generally may not make any loan to a borrower or its related entities if the total of all such loans by the commercial bank exceeds 15% of its capital (plus up to an additional 10% of capital in the case of loans fully collateralized by readily marketable collateral). The maximum amount that HomeFederal Bank could have loaned to one borrower and the borrower’s related entities at December 31, 2005, under the 15% of capital limitation was $13.4 million. At that date, the highest outstanding balance of loans by HomeFederal Bank to one borrower and related entities was approximately $12.4 million, an amount within such loans-to-one borrower limitations.

Origination and Other Fees

HomeFederal Bank realizes income from loan related fees for originating loans, collecting late charges and fees for other miscellaneous loan services. HomeFederal Bank charges origination fees that range from 0% to 1.0% of the loan amount. HomeFederal Bank also charges processing fees of $150 to $225, underwriting fees from $0 to $150 and a $50 fee for any loan closed by HomeFederal Bank personnel. In addition, HomeFederal Bank makes discount points available to customers for the purpose of obtaining a discounted interest rate. The points vary from loan to loan and are quoted on an individual basis. In accordance with Financial Accounting Standards Board Statement No. 91, Accounting for Non Refundable Fees and Costs Associated with Originating or Acquiring Loans and

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Initial Direct Costs of Leases, the Bank amortizes costs and fees associated with originating a loan over the life of the loan as an adjustment to the yield earned on the loan. Late charges are assessed fifteen days after payment is due.

Non-performing Assets

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

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

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

On December 31, 2005, HomeFederal Bank held $271,000 of real estate and other repossessed collateral acquired as a result of foreclosure, voluntary deed, or other means. Such assets are classified as "real estate owned" until sold. When property is so acquired, it is recorded at the lower of cost or fair market value less estimated cost to sell at the date of acquisition, and any subsequent write down resulting from this is charged to the allowance for losses on real estate owned. Interest accrual ceases on the date of acquisition. All costs incurred from the acquisition date in maintaining the property are expensed.

Consumer loan borrowers who fail to make payments are contacted promptly by the Loan Service

Department in an effort to cure any delinquency. A notice of delinquency is sent 10 days after any specific due date when no payment has been received. The delinquent account is downloaded to a PC-based collection system and assigned to a specific loan service representative. The loan service representative will then attempt to contact the borrower via a phone call.

Continued follow-up in the form of phone calls, letters, and personal visits (when necessary) will be

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

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

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	Dec 31, 2005			Dec 31, 2004			Dec 31, 2003			Dec 31, 2002			June 30, 2002			June 30, 2001
Non-performing Assets:							(Dollars in Thousands)
Loans:
Non-accrual	$	3,070		$	9,535		$	2,499		$	3,264		$	2,281		$	6,351
Past due 90 days or more and still accruing		456			168			1,130			1,166			1,110			-
Restructured loans		809			3,141			258			316			374			879
Total non-performing loans		4,335			12,844			3,887			4,746			3,765			7,230
Real estate owned, net (1)		266			2,009			1,729			1,416			2,168			1,238
Other repossessed assets, net		5			10			10			56			71			60
Total non-performing assets (2)	$	4,606		$	14,863		$	5,626		$	6,218		$	6,004		$	8,528
Total non-performing assets to total assets		0.54	%		1.71	%		0.66	%		0.70	%		0.70	%		0.99	%
Loans with allowance for uncollected interest	$	3,070		$	9,535		$	2,521		$	3,343		$	2,295		$	6,440

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

(2)   At December 31, 2005, 45.8% of HomeFederal Bank's non-performing assets consisted of residential mortgage loans, 6.7% consisted of home equities/second mortgages, 4.6% consisted of commercial real estate loans, 16.4% consisted of commercial loans, 3.0% consisted of consumer-related loans, 17.6% consisted of restructured loans, 3.6% consisted of residential real estate owned, 2.2% consisted of commercial real estate owned and 0.1% consisted of other repossessed assets.

For the year ended December 31, 2005, the income that would have been recorded under original terms on the above non-accrual and restructured loans was $465,000 compared to actual income recorded of $160,000. At December 31, 2005, HomeFederal Bank had approximately $5.2 million in loans that were 30-89 days past due. Total non-performing assets decreased $10.3 million to $4.6 million at December 31, 2005. This decrease resulted from a $8.5 million decrease in non-performing loans and by a decrease of $1.8 million in real estate owned. The decrease in non-performing loans related primarily to two commercial loans that are discussed in the Allowance for Loan Losses section incorporated by reference from pages 13 and 14 of the 2005 Shareholder Annual Report. These two loans totaled $7.2 million.

Investments

HomeFederal Bank's investment portfolio consists primarily of mortgage-backed securities, collateralized mortgage obligations, overnight funds with the FHLB of Indianapolis, U.S. Treasury obligations, U.S. Government agency obligations, corporate debt and municipal bonds. At December 31, 2005, December 31, 2004 and December 31, 2003 HomeFederal Bank had approximately $148.3 million, $154.2 million and $136.9 million in investments, respectively.

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

Effective March 31, 2002, HomeFederal Bank transferred the management of approximately $90 million in securities to its wholly-owned subsidiary, Home Investments, Inc. Home Investments, Inc., a Nevada corporation, holds, services, manages, and invests that portion of the Bank’s investment portfolio as may be transferred from time to time by the Bank to Home Investments, Inc. Home Investments, Inc’s investment policy mirrors that of the Bank. At December 31, 2005, of the $148.3 million in consolidated investments owned by HomeFederal Bank, $106.0 million was held by Home Investments, Inc.

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Source Of Funds

General

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

Deposits

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

Under regulations adopted by the FDIC, well-capitalized insured depository institutions (those with a ratio of total capital to risk-weighted assets of not less than 10%, with a ratio of core capital to risk-weighted assets of not less than 6%, with a ratio of core capital to total assets of not less than 5% and which have not been notified that they are in troubled condition) may accept brokered deposits without limitations. Undercapitalized institutions (those that fail to meet minimum regulatory capital requirements) are prohibited from accepting brokered deposits. Adequately capitalized institutions (those that are neither well-capitalized nor undercapitalized) are prohibited from accepting brokered deposits unless they first obtain a waiver from the FDIC. Under these standards, HomeFederal Bank would be deemed a well-capitalized institution. At December 31, 2005 HomeFederal had $22.6 million in brokered deposits.

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

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

The following table sets forth, by nominal interest rate categories, the composition of deposits of HomeFederal Bank at the dates indicated:
	Dec 31, 2005		Dec 31, 2004		Dec 31, 2003
			(Dollars in Thousands)
Non-interest bearing and below 2.00%	$	234,362	$	402,130	$	375,815
2.00% - 2.99%		128,498		123,942		47,912
3.00% - 3.99%		168,931		19,039		59,853
4.00% - 4.99%		90,050		51,421		54,985
5.00% - 5.99%		33,787		38,013		42,163
Over 6.00%		1,711		5,636		7,938
Total	$	657,339	$	640,181	$	588,666

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The following table sets forth the change in dollar amount of deposits in the various accounts offered by HomeFederal Bank for the
periods indicated.
									DEPOSIT ACTIVITY
									(Dollars in Thousands)
	Balance								Balance								Balance
	at								at								at
	Dec 31,		% of			Increase			Dec 31,		% of			Increase			Dec 31,		% of			Increase
	2005		Deposits			(Decrease)			2004		Deposits			(Decrease)			2003		Deposits			(Decrease)
Withdrawable:
Non-interest bearing	$	66,294		10.1	%	$	6,144		$	60,150		9.4	%	$	4,615		$	55,535		9.4	%	$	3,815
Statement savings		46,014		7.0	%		(3,821	)		49,835		7.8	%		(434	)		50,269		8.5	%		2,460
Money market savings		147,218		22.4	%		14,855			132,363		20.7	%		19,566			112,797		19.2	%		(8,147	)
Checking		98,123		14.9	%		9,876			88,247		13.7	%		20,714			67,533		11.5	%		(6,157	)
Total Withdrawable		357,649		54.4	%		27,054			330,595		51.6	%		44,461			286,134		48.6	%		(8,029	)
Certificates:
Less than one year		67,841		10.3	%		12,654			55,187		8.6	%		3,671			51,516		8.8	%		6,477
12 to 23 months		37,196		5.7	%		(9,361	)		46,557		7.3	%		8,287			38,270		6.5	%		(10,650	)
24 to 35 months		92,980		14.2	%		307			92,673		14.4	%		(3,992	)		96,665		16.4	%		(11,404	)
36 to 59 months		14,053		2.1	%		(9,570	)		23,623		3.7	%		(6,998	)		30,621		5.2	%		(13,144	)
60 to 120 months		87,620		13.3	%		(3,926	)		91,546		14.4	%		6,086			85,460		14.5	%		16,058
Total certificate accounts		299,690		45.6	%		(9,896	)		309,586		48.4	%		7,054			302,532		51.4	%		(12,663	)
Total deposits	$	657,339		100.0	%	$	17,158		$	640,181		100.0	%	$	51,515		$	588,666		100.0	%	$	(20,692	)

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The following table represents, by various interest rate categories, the amounts of deposits maturing during each of the three years following December 31, 2005, and the percentage of such maturities to total deposits.  Matured
certificates which have not been renewed as of December 31, 2005 have been allocated based upon certain rollover assumptions.
								DEPOSIT MATURITIES
								(Dollars in Thousands)
	1.99%		2.00%			3.00%		4.00%		5.00%
	or		to			to		to		to		Over				Percent of
	less		2.99%			3.99%		4.99%		5.99%		6.00%		Total		Total
Certificate accounts maturing in
the year ending:
December 31, 2006	$	6,568	$	56,159		$	61,347	$	42,410	$	7,434	$	480	$	174,398		58.2	%
December 31, 2007		-		12,271			24,013		22,711		22,119		629		81,743		27.3	%
December 31, 2008		-		491			7,535		4,161		2,061		435		14,683		4.9	%
Thereafter		-		-			7,501		19,025		2,173		167		28,866		9.6	%
Total	$	6,568	$	68,921		$	100,396	$	88,307	$	33,787	$	1,711	$	299,690		100.0	%
Included in the deposit totals in the above table are savings certificates of deposit with balances exceeding $100,000. The majority of these deposits are from regular customers of HomeFederal Bank, excluding $22.6 million, which
were from brokered deposits.  The following table provides a maturity breakdown at December 31, 2005, of certificates of deposits with balances greater than $100,000, by various interest rate categories.
					ACCOUNTS GREATER THAN $100,000
					(Dollars in Thousands)
		1.99%		2.00%			3.00%		4.00%		5.00%
		or		to			to		to		to		Over				Percent of
		less		2.99%			3.99%		4.99%		5.99%		6.00%		Total		Total
Certificate accounts maturing in
the year ending:
December 31, 2006	$	653	$	6,436		$	20,718	$	15,991	$	1,742	$	100	$	45,640		49.8	%
December 31, 2007		-		1,563			4,558		9,233		12,122		117		27,593		30.1	%
December 31, 2008		-		-			1,771		3,509		817		383		6,480		7.1	%
Thereafter		-		-			1,362		8,723		1,707		167		11,959		13.0	%
Total	$	653	$	7,999		$	28,409	$	37,456	$	16,388	$	767	$	91,672		100.0	%

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Borrowings

HomeFederal Bank relies upon advances (borrowings) from the FHLB of Indianapolis to supplement its supply of lendable funds, meet deposit withdrawal requirements and to extend the term of its liabilities. This facility has historically been HomeFederal Bank's major source of borrowings. Advances from the FHLB of Indianapolis are typically secured by HomeFederal Bank's stock in the FHLB of Indianapolis and a portion of HomeFederal Bank's mortgage loans.

Each FHLB credit program has its own interest rate, which may be fixed or variable, and a range of maturities. Subject to the express limits in FIRREA, the FHLB of Indianapolis may prescribe the acceptable uses to which these advances may be put, as well as limitations on the size of the advances and repayment provisions. At December 31, 2005, HomeFederal Bank had advances totaling $86.6 million outstanding from the FHLB of Indianapolis.

      The Company has a revolving note with LaSalle Bank N.A. whereby the Company may borrow $17.5 million. The note accrues interest at a variable rate based on the ninety-day LIBOR index, on the date of the draw, plus 150 basis points. The ninety-day LIBOR index was 4.54% at December 31, 2005. Interest payments are due ninety days after the date of any principal draws made on the loan and every ninety days thereafter. The Company used the funds to buy back shares of the Company's common stock. The assets of the Company collateralize the note. Under terms of the agreement, the Company is bound by certain restrictive debt covenants relating to earnings, net worth and various financial ratios. As of December 31, 2005, the Company was in compliance with the debt covenants. The revolving note matured on February 15, 2006 and was renewed for a 3 year term. The new note accrues interest at a variable rate based on the ninety-day LIBOR index, on the date of the draw, plus 140 basis points. The borrowing limit, collateralization and debt covenants on the new note mirror the terms discussed above.

      As of December 31, 2005, the Company has a cash flow swap agreement with LaSalle Bank N.A. The Company has agreed to make fixed rate payments at 5.77% and receive variable rate payments at the three-month LIBOR on a notional amount of $4.6 million. The interest rate swap is settled on a net basis. The Company is exposed to credit loss, in the event of nonperformance by LaSalle Bank N.A., for the net interest rate differential when floating rates exceed the fixed maximum rate. However, the Company does not anticipate nonperformance by the counter party. The swap agreement matured on February 1, 2006 and was not renewed by the Company.

     Other than the FHLB advances and the Senior Debt, HomeFederal Bank's only borrowings in recent years have been short-term borrowings. The following table sets forth the maximum amount of each category of short-term borrowings (borrowings with remaining maturities of one year or less) outstanding at any month-end during the periods shown and the average aggregate balances of short-term borrowings for such periods.

		Year		Year		Year
		Ended		Ended		Ended
(Dollars in Thousands)		Dec 31, 2005		Dec 31, 2004		Dec 31, 2003
Official check overnight remittance	$	172	$	6,364	$	6,419
FHLB advances	$	57,053	$	48,150	$	37,200
FHLB overnight remittance	$	-	$	-	$	2,043
Average amount of total short-term borrowings outstanding	$	50,695	$	36,520	$	31,491

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The following table sets forth the amount of short-term FHLB advances outstanding at period end during the period shown and the weighted average rate of such FHLB advances.

(Dollars in Thousands)		Dec 31, 2005		Dec 31, 2004		Dec 31, 2003
FHLB advances:
Amount	$	32,403	$	48,150	$	37,200
Weighted average rate		5.5%		5.0%		5.4%

Service Corporation and Other Subsidiaries

On December 31, 2001 HomeFederal Bank changed its charter from a Federal savings bank charter to an Indiana commercial bank charter. Commercial banks are not permitted to participate in real estate development joint ventures. One of HomeFederal Bank's subsidiaries, Home Savings Corporation ("HSC"), is a partner in three real estate development joint ventures for which exit strategies are either developed, or are currently being developed. HFB is currently mandated to divest itself of these activities by December 31, 2006. HSC, an Indiana corporation, is currently engaged in two types of activities: (i) real estate development and (ii) full-service securities brokerage services. With the exception of its securities brokerage services, all of HSC's activities are conducted through joint ventures in which it is an equity investor.

HSC markets Raymond James Financial Services full-service securities brokerage services. For the year ended December 31, 2005, HSC received $1,117,000 in commissions from its Raymond James financial activities.

At December 31, 2005, HomeFederal Bank's aggregate investment in HSC, including loans, was $1.7 million. For the year ended December 31, 2005, HSC reported pretax income of $443,000 from these operations. HSC's office is located at 501 Washington Street, Columbus, Indiana. The consolidated statements of operations of HomeFederal Bank and its subsidiaries included elsewhere herein includes the operations of HSC. Intercompany balances and transactions have been eliminated in the consolidation.

The following table sets forth certain information regarding each of the joint ventures in which HSC was involved at December 31, 2005.

		Date				Loans from Home
		HSC				Savings Corp.
		Entered				Outstanding
		into the		Equity		December 31,
Name	Type of Project	Project		Investment		2005
Heritage Woods II	Rental apartment project of low income housing (22 units)	11/15/89	$	27,000	$	-
McCullough’s Run	Real estate development in Columbus, Indiana	7/1/94	$	1,074,000	$	1,407,000
Bloomington Technology Park, LLC	Industrial park in Bloomington, Indiana	11/10/97	$	43,000	$	-
Courtyard Homes at Sycamore Springs, LLC	Single family homes in Indianapolis, Indiana	6/14/99	$	550,000	$	145,000

In November 1989, HSC invested $184,000 as a limited partner in Heritage Woods II, a low income housing project in Columbus, Indiana. HSC received low-income housing tax credits for 10 years from this project and must maintain the investment for 15 years to avoid any tax credit recapture.

On July 1, 1994, HSC entered into a joint venture agreement with Breeden Investment Group, Inc. to develop a 320 lot starter home subdivision with additional multi-family and commercial land

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("McCullough's Run"). McCullough's Run is located on the east side of Columbus, Indiana. Loan documents were executed on July 1, 1994 for land acquisition and development of phases I and II. Subsequent closings have encompassed the balance of six phases and on March 6, 2000, loan documents were executed in an amount not to exceed $2.1 million. The outstanding loan balance of $1.4 million as of December 31, 2005 reflects the development costs to date of all six phases, the condominium site and commercial acreage. HSC is entitled to 50% of the profit from sale of lots within McCullough's Run.

On November 10, 1997 HSC entered into an LLC agreement with Wininger-Stolberg HC, II, Inc. to develop the Bloomington Technology Park in Bloomington, IN. The City of Bloomington and Monroe County are providing an $800,000 grant to build infrastructure. HSC provided a matching amount, which has been repaid along with a fee of $150,000. The eighty-two acre site was purchased from Otis Elevator Company, Inc. and work started late spring, 1998. HSC is entitled to 50% of all profit from the sale of lots in Bloomington Technology Park.

On June 14, 1999, HSC entered into an LLC agreement with Curtis Enterprises, Inc. to build 54 homes at Courtyard Homes at Sycamore Springs, a planned community in Indianapolis, Indiana. The LLC purchased the land and will develop lots and build the homes. HSC has provided a line of credit in the amount of $2 million to build the homes, and is entitled to one third of the profits from the home sales.

HomeFederal Bank also organized a subsidiary under Nevada law, Home Investments, Inc., (“HII”). Effective March 31, 2002, HomeFederal Bank transferred the management of approximately $90 million in securities to HII. Home Investments, Inc. holds, services, manages, and invests that portion of the Bank’s investment portfolio as may be transferred from time to time by the Bank to HII. Home Investments Inc.’s, investment policy mirrors that of the Bank. At December 31, 2005, of the $148.3 million in consolidated investments owned by HomeFederal Bank, $106.0 million was held by Home Investments, Inc.

The Company owns another corporation organized under Indiana law, HomeFed Financial Corp, (“HFF”). At December 31, 2005, the Company’s aggregate investment in HFF was $792,000. HFF has a 14% interest in Consortium Partners, a Louisiana partnership, which owns 50% of the outstanding shares of the Family Financial Holdings, Inc. of New Orleans ("Family Financial"). The remaining 50% of the outstanding shares of Family Financial is owned proportionately by the partners of Consortium Partners. Family Financial administers programs for debt protection services, life, accident, and health insurance as well as annuity products to the customers of the partners' parent-thrifts and banks. HFF receives (1) dividends paid on Family Financial shares owned directly by it, (2) a pro rata allocation of dividends received on shares held by Consortium Partners, which are divided among the partners based on the actuarially determined value of Family Financial's various lines of insurance generated by customers of these partners, and (3) commissions on sales of insurance products made to customers. For the year ended December 31, 2005, the Company had income of $200,000, on a consolidated basis, from commissions and dividends paid on Family Financial activities.

Employees

As of December 31, 2005, the Company employed 288 persons on a full-time basis and 8 persons on a part-time basis. None of the Company’s employees are represented by a collective bargaining group. Management considers its employee relations to be excellent.

Competition

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

HomeFederal Bank is subject to competition from various financial institutions, including state and national banks, state and federal thrift associations, credit unions and other companies or firms, including brokerage houses, that provide similar services in the areas of HomeFederal Bank's home and branch offices. Also, in Seymour, Columbus, North Vernon, Batesville, and the Greenwood area,

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HomeFederal Bank must compete with banks and savings institutions in Indianapolis. To a lesser extent, HomeFederal Bank competes with financial and other institutions in the market areas surrounding Cincinnati, Ohio and Louisville, Kentucky. HomeFederal Bank also competes with money market funds that currently are not subject to reserve requirements, and with insurance companies with respect to its Individual Retirement and annuity accounts.

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

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

The primary factors influencing competition for deposits are interest rates, service and convenience of office locations. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels, and other factors that are not readily predictable.

REGULATION

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

Home Federal Bancorp

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

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

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

Effective March 11, 2000, the Gramm-Leach Bliley Act of 1999, which was signed into law on November 12, 1999, allows a bank holding company to qualify as a “financial holding company” and, as a result, be permitted to engage in a broader range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary to activities that are financial in nature. The Gramm-Leach-Bliley Act amends the Bank Holding Company Act of 1956 to include a list of activities that are financial in nature, and the list includes activities such as underwriting, dealing in and making a

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market in securities, insurance underwriting and agency activities and merchant banking. The Federal Reserve is authorized to determine other activities that are financial in nature or incidental or complementary to such activities. The Gramm-Leach-Bliley Act also authorizes banks to engage through financial subsidiaries in certain of the activities permitted for financial holding companies.

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

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

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

HomeFederal Bank

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

Lending Limits. Under Indiana law, HomeFederal may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are fully secured by readily marketable collateral, including certain debt and equity securities but not including real estate. At December 31, 2005, HomeFederal did not have any loans or extensions of credit to a single or related group of borrowers in excess of its lending limits.

Deposit Insurance. Deposits in HomeFederal are insured by the FDIC up to a maximum amount, which is generally $100,000 per depositor subject to aggregation rules, provided that this amount may increase beginning April 1, 2010, and will be adjusted every five years thereafter, based on an inflation adjustment process established in recent legislation. See "Recent Legislative Developments." HomeFederal is subject to deposit insurance assessments by the FDIC pursuant to its regulations establishing a risk-related deposit insurance assessment system, based upon the institution’s capital levels and risk profile. HomeFederal is also subject to assessment for the Financing Corporation (FICO) to service the interest on its bond obligations. The amount assessed on individual institutions, including HomeFederal, by FICO is in addition to the amount paid for deposit insurance according to the risk-related assessment rate schedule. HomeFederal paid deposit insurance assessments of $88,000 during the year ended December 31, 2005. Future increases in deposit insurance premiums or changes in risk classification would increase HomeFederal’s deposit related costs.

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

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

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

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

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

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

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

The capital guidelines divide a bank holding company’s or bank’s capital into two tiers. The first tier (“Tier I”) includes common equity, certain non-cumulative perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets (except mortgage servicing rights and purchased credit card relationships, subject to certain limitations). Supplementary (“Tier II”) capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Banks and bank holding companies are required to maintain a total risk-based

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capital ratio of 8%, of which 4% must be Tier I capital. The federal banking regulators may, however, set higher capital requirements when a bank’s particular circumstances warrant. Banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

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

The following is a summary of the Company’s and HomeFederal’s regulatory capital and capital requirements at December 31, 2005.

								To Be Categorized As
								“Well Capitalized”
					For Capital			Under Prompt
		Actual			Adequacy Purposes			Corrective Action Provisions
		Amount	Ratio		Amount	Ratio		Amount	Ratio
As of December 31, 2005
Total risk-based capital     (to risk-weighted assets)
HomeFederal Bank	$	89,532	13.58%	$	52,759	8.0%	$	65,949	10.0%
Home Federal Bancorp Consolidated	$	79,734	12.08%	$	52,822	8.0%	$	66,028	10.0%
Tier 1 risk-based capital     (to risk-weighted assets)
HomeFederal Bank	$	82,779	12.55%	$	26,379	4.0%	$	39,569	6.0%
Home Federal Bancorp Consolidated	$	72,981	11.05%	$	26,411	4.0%	$	39,617	6.0%
Tier 1 leverage capital     (to average assets)
HomeFederal Bank	$	82,779	9.82%	$	33,724	4.0%	$	42,155	5.0%
Home Federal Bancorp Consolidated	$	72,981	8.65%	$	33,760	4.0%	$	42,201	5.0%

Prompt Corrective Regulatory Action. Federal law provides the federal banking regulators with broad powers to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and, ultimately, appointing a receiver for the institution. At December 31, 2005, HomeFederal was categorized as "well capitalized," meaning that HomeFederal’s total risk-based capital ratio exceeded 10%, HomeFederal’s Tier I risk-based capital ratio exceeded 6%, HomeFederal’s leverage ratio exceeded 5%, and HomeFederal was not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure.

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

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◦           Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

◦           Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information

            to enable the public and public officials to determine whether a financial institution is fulfilling

            its obligation to help meet the housing needs of the community it serves;

◦           Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other

            prohibited factors in extending credit;

◦           Fair Credit Reporting Act of 1978, governing the use and provision of information to credit

            reporting agencies;

◦           Fair Debt Collection Act, governing the manner in which consumer debts may be collected by

            collection agencies; and

◦           Rules and regulations of the various federal agencies charged with the responsibility of

            implementing such federal laws.

            The deposit operations of HomeFederal also are subject to the:

◦           Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer

            financial records and prescribes procedures for complying with administrative subpoenas of

            financial records; and

◦           Electronic Funds Transfer Act, and Regulation E issued by the Federal Reserve to implement

            that Act, which governs automatic deposits to and withdrawals from deposit accounts and

            customers’ rights and liabilities arising from the use of automated teller machines and other

            electronic banking services.

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

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

Recent Legislative Developments. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 -- federal legislation which modernizes the laws governing the financial services industry. The new law establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. As a result of this legislation, bank holding companies are permitted to engage in a wider variety of financial activities than permitted under prior law, particularly with respect to insurance and securities activities. To the extent the law permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This could

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result in a growing number of larger financial institutions that offer wider varieties of financial services than are currently offered by the Company and that could aggressively compete in the markets currently served by the Company. The law also increases commercial banks’ access to loan funding by the Federal Home Loan Bank System, and includes new provisions in the privacy area, restricting the ability of financial institutions to share nonpublic personal customer information with third parties.

On October 26, 2001, President Bush signed the USA Patriot Act of 2001 (the “Patriot Act”). The Patriot Act is intended to strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions is significant and wide-ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures with respect to, or additional measures designed to address, any or all the following matters, among others: money laundering, suspicious activities and currency transaction reporting, and currency crimes. In addition, financial institutions are required under this statute to adopt reasonable procedures to verify the identity of any person seeking to open an account and maintain records to verify such person’s identity.

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

The Securities and Exchange Commission has adopted final rules implementing Section 404 of the Sarbanes-Oxley Act of 2002. In each Form 10-K, it files, the Company is required to include a report of management on the Company’s internal control over financial reporting. The internal control report must include a statement of management’s responsibility for establishing and maintaining adequate control over financial reporting of the Company, identify the framework used by management to evaluate the effectiveness of the Company’s internal control over financial reporting, provide management’s assessment of the effectiveness of the Company’s internal control over financial reporting and state that the Company’s independent accounting firm has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. Significant efforts were required to comply with Section 404 in 2005 and the Company anticipates additional efforts will be required in future years. The costs of such compliance are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Shareholder Annual Report included as Exhibit 13 to this Form 10-K.

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

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

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

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

·   prohibiting undercapitalized members from accepting employee benefit plan deposits

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

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

·   eliminating the mandatory assessment (up to 23 basis points) if the DIF falls below 1.25% of insured deposits and retaining assessments based on risk, needs of the DIF, and the effect on the members' capital and earnings. The FDIC will set a reserve ratio of between 1.15% and 1.5% and will have five years to restore the DIF if the ratio falls below 1.15%.

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

Federal Home Loan Bank System

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

 As a member of the FHLB, HomeFederal is required to purchase and maintain stock in the FHLB of Indianapolis in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts, or similar obligations at the beginning of each year. At December 31, 2005, HomeFederal's investment in stock of the FHLB of Indianapolis was $10.0 million. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate-related collateral to 30% of a member's capital and limiting total advances to a member. Interest rates charged for advances vary depending upon maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the borrowing.

 The FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. For the year ended December 31, 2005, dividends paid by the FHLB of Indianapolis to HomeFederal totaled approximately $430,000, for an annualized rate of 4.3%.

Limitations on Rates Paid for Deposits

Regulations promulgated by the FDIC place limitations on the ability of insured depository institutions to accept, renew or roll over deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in the institution's normal market area. Under these regulations, "well-capitalized"

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depository institutions may accept, renew or roll such deposits over without restriction, "adequately capitalized" depository institutions may accept, renew or roll such deposits over with a waiver from the FDIC (subject to certain restrictions on payments of rates) and "undercapitalized" depository institutions may not accept, renew or roll such deposits over. The regulations contemplate that the definitions of "well-capitalized," "adequately-capitalized" and "undercapitalized" will be the same as the definition adopted by the agencies to implement the corrective action provisions of federal law. Management does not believe that these regulations will have a materially adverse effect on HomeFederal's current operations.

Federal Reserve System

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

Federal Securities Law

The shares of Common Stock of the Company are registered with the Securities and Exchange Commission, (the “SEC”) under the Securities Exchange Act of 1934 (the "1934 Act"). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the 1934 Act and the rules of the SEC thereunder. If the Company has fewer than 300 shareholders, it may deregister its shares under the 1934 Act and cease to be subject to the foregoing requirements.

Shares of Common Stock held by persons who are affiliates of the Company may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933 (the "1933 Act"). If the Company meets the current public information requirements under Rule 144, each affiliate of the Company who complies with the other conditions of Rule 144 (including a one-year holding period for restricted securities and conditions that require the affiliate's sale to be aggregated with those of certain other persons) will be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) l % of the outstanding shares of the Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks.

Community Reinvestment Act Matters

Federal law requires that ratings of depository institutions under the Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes both a four-unit descriptive rating -- using terms such as satisfactory and unsatisfactory -- and a written evaluation of each institution's performance. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLBs. The standards take into account a member's performance under the CRA and its record of lending to first-time homebuyers. The FHLBs have established an "Affordable Housing Program" to subsidize the interest rate of advances to member associations engaged in lending for long-term, low- and moderate-income, owner-occupied and affordable rental housing at subsidized rates. HomeFederal is participating in this program. The examiners have determined that HomeFederal has a satisfactory record of meeting community credit needs.

Taxation

Federal Taxation

Beginning with the six months ended December 31, 2002, the Company and its subsidiary began to file a consolidated federal income tax return on the accrual basis for a fiscal year ending December 31. Previously, the Company’s fiscal and tax years ended June 30th. The consolidated federal income tax return has the effect of eliminating intercompany distributions, including dividends, in the computation of consolidated taxable income. Income of the Company generally would not be taken into account in determining the bad debt deduction allowed to HomeFederal, regardless of whether a

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consolidated tax return is filed. However, certain "functionally related" losses of the Company would be required to be taken into account in determining the permitted bad debt deduction which, depending upon the particular circumstances, could reduce the bad debt deduction.

Historically, HomeFederal had been permitted to compute bad debt deductions using either the bank experience method or the percentage of taxable income method. However, for years beginning after December 31, 1995, HomeFederal was no longer able to use the percentage of taxable income method of computing its allocable tax bad debt deduction. HomeFederal is required to compute its allocable deduction using the experience method. As a result of the repeal of the percentage of taxable income method, reserves taken after 1987 using the percentage of taxable income method generally must be included in future taxable income over a six-year period, although a two-year delay may be permitted for institutions meeting a residential mortgage loan origination test. HomeFederal began recapturing approximately $2.3 million over a six-year period beginning in fiscal 1999. In addition, the pre-1988 reserve, in which no deferred taxes have been recorded, will not have to be recaptured into income unless (i) HomeFederal no longer qualifies as a bank under the Code, or (ii) excess dividends are paid out by HomeFederal.

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

State Taxation

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

HomeFederal's state income tax returns were audited in 2005 and all issues relating to the audit have been resolved.

Item 1A. Risk Factors

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

Federal and State Government Regulations. The banking industry is heavily regulated. These regulations are intended to protect depositors, not shareholders. As discussed in this Form 10-K, the Company and its subsidiaries are subject to regulation and supervision by the FDIC, the Board of Governors of the Federal Reserve System, the Indiana Department of Financial Institutions, and the SEC. The burden imposed by federal and state regulations puts banks at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking companies and leasing companies. In particular, the monetary policies of the Federal Reserve Board have had a significant effect on the operating results of banks in the past, and are expected to continue to do so in the future. Among the instruments of monetary policy used by the Federal Reserve Board to implement its objectives are

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changes in the discount rate charged on bank borrowings and changes in the reserve requirements on bank deposits. It is not possible to predict what changes, if any, will be made to the monetary polices of the Federal Reserve Board or to existing federal and state legislation or the effect that such changes may have on the future business and earnings prospects of the Company.

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

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

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

·   Loan delinquencies may increase;

·   Problem assets and foreclosures may increase;

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

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

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

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

Item 1B. Unresolved Staff Comments

Not Applicable

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Item 2.  Properties.

At December 31, 2005, HomeFederal conducted its business from its main office at 501 Washington Street, Columbus, Indiana and 18 full-service branches. HomeFederal owns three buildings that it uses for certain administrative operations located at 218 West Second Street, Seymour, 211 North Chestnut Street, Seymour and 3801 Tupelo Drive, Columbus. The headquarters of its securities operations, conducted through one of its subsidiaries, are located at 501 Washington Street, Columbus, Indiana. Information concerning these properties, as of December 31, 2005, is presented in the following table:

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	Net Book Value
			of Property,	Approximate
Description and	Owned or		Furniture and	Square	Lease
Address	Leased		Fixtures	Footage	Expiration
Principal Office   501 Washington Street	Owned	$	3,918,500	21,600	N/A
Administrative Operations Offices:   218 West Second Street, Seymour	Owned	$	622,692	20,000	N/A
211 North Chestnut, Seymour	Owned	$	461,312	5,130	N/A
3801 Tupelo Drive, Columbus	Owned	$	3,065,895	16,920	N/A
Branch Offices:
Columbus Branches:
1020 Washington Street	Owned	$	394,030	800	N/A
3805 25th Street	Owned	$	239,439	5,800	N/A
2751 Brentwood Drive	Owned	$	386,673	3,200	N/A
4330 West Jonathon Moore Pike	Owned	$	515,797	2,600	N/A
Hope Branch   8475 North State Road 9, Suite 4	Leased	$	96,825	1,500	03/2007
Austin Branch   67 West Main Street	Owned	$	46,068	3,600	N/A
Brownstown Branch   101 North Main Street	Leased	$	3,796	2,400	Month to Month
North Vernon Branches
111 North State Street	Owned	$	228,146	1,900	N/A
1540 North State Street	Leased	$	16,183	1,600	Month to Month
Osgood Branch   820 South Buckeye Street	Owned	$	88,960	1,280	N/A
Salem Branch   1208 South Jackson	Owned	$	602,287	1,860	N/A
Seymour Branches
222 W. Second Street	Owned	$	986,160	9,200	N/A
1117 East Tipton Street	Owned	$	333,721	6,800	N/A
Batesville Branch   114 State Rd 46 East	Owned	$	511,550	2,175	N/A
Madison Branch   201 Clifty Drive	Owned	$	387,954	2,550	N/A
Greensburg Branch   1801 Greensburg Crossing	Owned	$	728,095	1,907	N/A
Indianapolis Branches
8740 South Emerson Avenue	Owned	$	2,109,087	5,000	N/A
1510 West Southport Road	Owned	$	2,038,296	3,100	N/A

        HomeFederal owns its computer and data processing equipment that is used for accounting, financial forecasting, and general ledger work. HomeFederal also has contracted for the data processing

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and reporting services of Bisys headquartered in Cherry Hill, New Jersey. The contract with Bisys expires in October 2006.

Item 3.  Legal Proceedings.

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

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

No matter was submitted to a vote of the Company’s shareholders during the quarter ended December 31, 2005.

Item 4.5. Executive Officers of Home Federal Bancorp.

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

                                                                                           Position with HFB

                                   S. Elaine Pollert                         Executive Vice President

                                   Mark T. Gorski                          Executive Vice President, Treasurer,

                                                                                       Chief Financial Officer and Secretary

                                   Charles R. Farber                      Executive Vice President

S. Elaine Pollert (age 46) has been employed by HomeFederal since 1986. She was elected Vice President Branch Administration in 1989, Senior Vice President Retail Banking in 1996 and Executive Vice President in 1998.

Mark T. Gorski (age 41) has been employed by HomeFederal as Executive Vice President, Treasurer and Chief Financial Officer since July 1, 2005. From January 2001 to June 2002 he served as the Chief Financial Officer of Fifth Third Bank, Indianapolis. From June 2002 to June 2003 he served as Internal Reporting and Budgeting Manager of Fifth Third Bank, Cincinnati. From June 2003 to June 2005, he served as Director of Private Client Services of Fifth Third Bank, Indianapolis.

Charles R. Farber (age 56) has been employed by HomeFederal since March 2002 as its Executive Vice President. He served as Law Firm Administrator for the Indianapolis, Indiana law firm Locke Reynolds LLP from 2000 to 2002. Prior thereto, he served for 28 years at Peoples Bank and Trust Company in Indianapolis, Indiana, with his final position at Peoples Bank and Trust being Executive Vice President.

PART II

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

HFB's common stock ("Common Stock") is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), National Market System, under the symbol "HOMF." For certain information related to the stock prices and dividends paid by HFB, see “Quarterly Results of Operations" on page 9 of HFB's Shareholder Annual Report for the year ended December 31, 2005 (the "Shareholder Annual Report"). As of December 31, 2005, there were 423 shareholders of record of HFB's Common Stock.

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

Since HFB has no independent operations or other subsidiaries to generate income, its ability to accumulate earnings for the payment of cash dividends to its shareholders is directly dependent upon the ability of HomeFederal to pay dividends to the Company. For a discussion of the regulatory limitations on HomeFederal’s ability to pay dividends see Item 1, “Business-Regulation - HomeFederal Savings Bank - Dividends”, and on the Company’s ability to pay dividends, see Item 1, “Business-Regulation - Home Federal Bancorp - Dividends”.

Income of HomeFederal appropriated to bad debt reserves and deducted for federal income tax purposes is not available for payment of cash dividends or other distributions to HFB without the payment of federal income taxes by HomeFederal on the amount of such income deemed removed from the reserves at the then-current income tax rate. At December 31, 2005, none of HomeFederal's retained income represented bad debt deductions for which no federal income tax provision had been made. See "Taxation--Federal Taxation" in Item 1 hereof.

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

The following table provides information on the Company’s repurchases of shares of its common stock during the quarter ended December 31, 2005.

	(a)		(b)	(c)	(d)
Period	Total number of shares purchased		Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs (1)	Maximum number of shares that may yet be purchased under the plans or programs (1)
October 2005	-	$	0.00	-	134,000
November 2005	15,000	$	25.13	15,000	119,000
December 2005	46,000	$	25.18	46,000	73,000
Fourth Quarter	61,000	$	25.18	61,000	73,000

(1)   On July 26, 2005, the Company announced a new stock repurchase program to repurchase on the open market up to 5% of the Company’s outstanding shares of common stock or 193,000 such shares.  Such purchases will be made in block or open market transactions, subject to market conditions.  The program has no expiration date.

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

Item 6.  Selected Financial Data.

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

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

The information required by this item is incorporated by reference to pages 10 to 22 of the Shareholder Annual Report.

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

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

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Item 8.  Financial Statements and Supplementary Data.

The Company's Consolidated Financial Statements and Notes thereto contained on pages 26 to 46 of the Shareholder Annual Report are incorporated herein by reference. HFB's Quarterly Results of Operations contained on page 9 of the Shareholder Annual Report are incorporated herein by reference.

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

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

Item 9A. Controls and Procedures.

 Evaluation of Disclosure Controls and Procedures. As of December 31, 2005, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2005, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and are designed to ensure that information required to be disclosed in these reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

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

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

Changes in Internal Controls. Our Chief Executive Officer and Chief Financial Officer have concluded that, during the Company’s fiscal quarter ended December 31, 2005, there have been no changes in the Company’s internal control over financial reporting identified in connection with the Company’s evaluation of controls that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information required by this item with respect to directors is incorporated by reference to page 2 to 3 of the Company's Proxy Statement for its annual shareholder meeting to be held in April 2005 (the "2005 Proxy Statement"). Information concerning the Company's executive officers who are not also directors is included in Item 4.5 in Part I of this report.

The information required by this item with respect to the compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to page 14 of the 2005 Proxy Statement.

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The information required by this item with respect to members of the Company’s Audit Committee and whether any such members qualify as an Audit Committee Financial Expert is incorporated by reference to page 5 of the 2005 Proxy Statement.

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

Item 11. Executive Compensation.

The information required by this item with respect to executive compensation is incorporated by reference to page 6 through page 14 of the 2005 Proxy Statement.

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

Other information required by this item is incorporated by reference to pages 1 to 3 of the 2005 Proxy Statement.

Equity Compensation Plan Information

The following table provides the information about the Company’s common stock that may be issued upon the exercise of options and rights under all existing equity compensation plans as of December 31, 2005.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights as of December 31, 2005 (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans as of December 31, 2005 (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	617,717(1)	$ 21.86(1)	271,631(1)
Equity compensation plans not approved by security holders	---	---	---
Total	617,717	$21.86	271.631

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

Item 13. Certain Relationships and Related Transactions.

The information required by this item is incorporated by reference to page 14 of the 2005 Proxy Statement.

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Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference to page 15 of the 2005 Proxy Statement. 

PART IV

Item 15. Exhibits and Financial Statement Schedules.

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

Financial Statements	Page in 2005
	Shareholder
	Annual Report
Report of Deloitte & Touche LLP Independent Registered Public Accounting Firm	25
Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004	26
Consolidated Statements of Income for the years ended December 31, 2005, December 31, 2004 and December 31, 2003.	27
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, December 31, 2004 and December 31, 2003.	28
Consolidated Statements of Cash Flows for the years ended December 31, 2005, December 31, 2004 and December 31, 2003.	29
Notes to Consolidated Financial Statements	30
(b)The exhibits filed herewith or incorporated by reference herein are set forth on the Exhibit Index on page 38.
(c) All schedules are omitted as the required information either is not applicable or is included in the Consolidated Financial Statements or             related notes.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf of the undersigned, thereto duly authorized, this 15^th day of March 2006.

HOME FEDERAL BANCORP

Date: March 15, 2006	By: /s/ John K. Keach, Jr.
	John K. Keach, Jr.,  President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 15th day of March 2006.

/s/ Mark T. Gorski	/s/ John K. Keach, Jr.
Mark T. Gorski, Executive Vice President, Treasurer, Chief Financial Officer and Secretary	John K.Keach, Jr. Chairman of the Board, President and Chief Executive Officer
(Principal Financial Officer)
(Principal Executive Officer)
/s/ Melissa A. McGill	/s/ John K. Keach, Jr.
Melissa A. McGill	John K. Keach, Jr., Director
Senior Vice President and Controller
(Principal Accounting Officer)
/s/ Harvard W. Nolting, Jr.	/s/ John T. Beatty
Harvard W. Nolting, Jr., Director	John T. Beatty, Director
/s/ David W. Laitinen	/s/ Harold Force
David W. Laitinen, Director	Harold Force, Director
/s/ John M. Miller
John M. Miller, Director

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EXHIBIT INDEX

Reference to

Regulation S-K Sequential

Exhibit NumberDocument Page Number

3(a)Articles of Incorporation (incorporated by reference from

Exhibit B to Registrant's Registration Statement on Form S-4

(Registration No. 33-55234)).

3(b)Code of By-Laws (incorporated by reference from Exhibit C

to Registrant's Registration Statement on From S-4

(Registration No. 33-55234)); amendment thereto dated

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

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

six months ended December 31, 2002)

4(a)Articles of Incorporation (incorporated by reference

from Exhibit B to Registrant's Registration Statement on Form S-4

(Registration No.33-55234)).

4(b)Code of By-Laws (incorporated by reference from

Exhibit C to Registrant's Registration Statement on From S-4

(Registration No. 33-55234); amendment thereto dated October 22,

2002 (incorporated by reference from Exhibit 3(b) of Registrant’s

Transition Report on Form 10-K Transition Report for the six months

Ended December 31, 2002).

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

Registrant's Registration Statement on Form S-4

(Registration No. 33-55234).

10(b)1993 Stock Option Plan (incorporated by reference from Exhibit 10(b)

to Registrant's Form 10-K for the year ended June 30, 1994); amendment

thereto is incorporated by reference to Exhibit 10.1 of the Registrant's

Form8-K dated March 28, 2005.

10(d)Employment Agreement with John K. Keach, Jr. (incorporated by

reference from Exhibit 10(d) to Registrant's Registration Statement

                           on Form S-4 (Registration No. 33-55234)); first, second and third

amendments thereto (incorporated by reference to Exhibit 10(d) of

Registrant’s Form 10-K for the year ended June 30, 1998); fourth

amendment thereto (incorporated by reference to Exhibit 10 (d) of

Registrant’s Form 10-K for the year ended June 30, 2001); fifth

amendment thereto (incorporated by reference from Exhibit l0(d)

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

10(f)HomeFederal Savings Bank Excess Benefit Plan Agreement

with John K. Keach, Jr. dated April 1, 2001 (incorporated by reference

to Exhibit 10 (f) of Registrant’s Form 10-K for the year ended

June 30, 2001).

10(g)1999 Stock option plan incorporated by reference to Exhibit J to the

registrant’s proxy statement for its 1999 Annual shareholder’s meeting;

amendment thereto is incorporated by reference to Exhibit 10.1 of the

Registrant's Form 8-K dated March 28, 2005

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

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

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

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

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

July 1,2005 (incorporated by reference to Exhibit 10.4 to Registrant’s

Form 8-K dated November 22, 2005); first amendment thereto dated

November 3, 2005

         10(k)HomeFederal Bank Supplemental Executive Retirement Agreement with

Elaine Pollert effective July 1, 2005 (incorporated by reference to Exhibit 10.5

to Registrant's Form 8-K dated November 22, 2005).

10(n)Supplemental Executive Retirement Plan with John K. Keach, Jr.

dated April 1, 2001(incorporated by reference from Exhibit 10(n) to

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

10(o)Supplemental Executive Retirement Plan with Lawrence E. Welker

dated April 1, 2001 (incorporated by reference from Exhibit 10(o) to

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

10(p)Supplemental Executive Retirement Plan with Elaine Pollert dated

April 1, 2001(incorporated by reference from Exhibit 10(p) to

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

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

(incorporated by reference from Exhibit 10(v) to HomeFederal

Bank Form 10-K for the fiscal year ended June 30, 1992) and First

Amendment to Deferred Compensation Agreement (incorporated by

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

ended June 30, 1994) and Second Amendment to Deferred

Compensation Agreement (incorporated by reference from Exhibit 10(v)

to Registrant's Form 10-K for the year ended June 30, 1998).

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

from Exhibit l0(w) to HomeFederal Bank Form 10-K for the fiscal year

ended June 30, 1998); and First Amendment to Employment Agreement

(incorporated by reference from Exhibit 10(w) to Registrant's Form 10-K

for the year ended June 30, 1998); second amendment thereto

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

for the year ended June 30, 2002); third amendment to Employment

Agreement (incorporated by reference from Exhibit l0(w) to Registrant’s

Form 10-K for the fiscal year ended June 30, 2002).

10(x)Supplemental Executive Retirement Plan with Gerald L. Armstrong dated

April 1, 2001(incorporated by reference from Exhibit 10(x) to Registrant’s

Form 10-K for the year ended June 30, 2002).

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

(incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K

dated November 22, 2005).

       10(ad)Director Deferred Compensation Agreement with Lewis Essex

(incorporated by reference from Exhibit 10(ad) to HomeFederal

Bank Form 10-K for the fiscal year ended June 30, 1992);

first and second amendments thereto (incorporated by reference

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

June 30, 1998).

10(ae)HomeFederal Bank Director Deferred Compensation Agreement with

Harold Force (incorporated by reference to Exhibit 10.1 of Registrant’s

Form 8-K dated November 22, 2005).

10(af)HomeFederal Bank Director Deferred Compensation Agreement with

David W. Laitinen (incorporated by reference to Exhibit 10.3 of

Registrant’s 8-K dated November 22, 2005).

10(ag)Director Deferred Compensation Agreement with William Nolting

(incorporated by reference from Exhibit 10(ag) to HomeFederal

Bank Form 10-K for the fiscal year ended June 30, 1992); );

first and second amendments thereto (incorporated by reference from

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

June 30, 1998).

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

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

10(as)1995 Stock Option Plan (incorporated by reference from Exhibit A

to Registrant's Proxy Statement for its 1995 annual shareholder meeting);

amendment thereto is (incorporated by reference to Exhibit 10.1 of Registrant’s

Form 8-K dated March 28, 2005).

 10(at)2001 Stock Option Plan (incorporated by reference from Exhibit B

to the Registrant's Proxy Statement for its 2001 annual shareholder meeting);

amendment thereto is incorporated by reference to Exhibit 10.1 of Registrant’s

Form 8-K dated March 28, 2005.

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

from Exhibit l0(au) to Registrant’s Form 10-K for the

fiscal year ended June 30, 2002).

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

dated November 1, 2002 (incorporates by reference to Exhibit 10(av) to

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

December 31, 2003).

10(aw)Form of Incentive Stock Option Agreement

10(ax)Form of Bonus Plan (incorporated by reference to Exhibit 10(ax) of

Registrant’s Form 10-K for the fiscal year ended December 31, 2004).

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

Exhibit 10ay to the Registrant's Form 10-Q for the fiscal quarter ended

June 30, 2005).

13Home Federal Bancorp Annual Report December 31, 2005.

14Code of Ethics(incorporated by reference to Exhibit 14 of Registrant’s

Form10-K for the fiscal year ended December 31, 2003).

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

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

ended December 31, 2002).

23.1Independent Registered Public Accounting Firm Consent.

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

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

32Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.J

                       Exhibit 10-J

FIRST AMENDMENT

TO THE

HOMEFEDERAL BANK

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

DATED NOVEMBER 3, 2005

FOR

MARK T. GORSKI

THIS AMENDMENT is adopted this ____28th____ day of ______February, _____2006____, by and between HOMEFEDERAL BANK, a state commercial bank located in

        Columbus, Indiana (the “Bank”) and MARK T. GORSKI (the “Executive”).

The Bank and the Executive executed the HOMEFEDERAL BANK SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT on November 3, 2005 (the “Agreement”).

The undersigned hereby amend, in part, said Agreement for the purpose of providing an additional death benefit. Therefore, the following change shall be made:

     Section 3.4 shall be added to the Agreement as follows:

     3.4Additional Death Benefit - Burial Expense.  In addition to the above-described death benefits, upon his death, the Executive’s Beneficiary shall be entitled to receive

     a one-time lump sum death benefit in the amount of Fifteen Thousand ($15,000) Dollars.

IN WITNESS OF THE ABOVE, the Executive and the Bank hereby consent to this First Amendment.

        Executive:BANK:

                                                                                                             HOMEFEDERAL BANK

       /s/Mark T. Gorski__________________________By /s/ Pennie Stancombe____________________

       MARK T. GORSKI

    Title ___VP of  Human Resources____________

EX-10.AW

 Exhibit 10.aw

          Date:______________

Form Of Incentive Stock Option Agreement            

Under Home Federal Bancorp

____ Stock Option Plan

Name:

You are hereby granted the option to purchase a total of __________ shares of the Common Stock, without par value (“Common Stock”), of Home Federal Bancorp (the “Corporation”) over the next ten years pursuant to the Corporation’s _____ Stock Option Plan (the “Plan”), on the following terms and conditions:

1.The purchase price of the shares of Common Stock subject to this option is $______ per share. You must pay this purchase price in cash at the time this option is exercised; provided, however, that with the approval of the Corporation’s Stock Option Committee (the “Committee”), you may exercise your option by tendering to the Corporation whole shares of the Corporation’s Common Stock owned by you, or any combination of whole shares of the Corporation’s Common Stock owned by you and cash, having a fair market value equal to the mean between the highest and lowest quoted selling prices for the shares on the date of exercise of the option (or if there were no sales on such date the weighted average of the means between the highest and lowest quoted selling prices on the nearest date before and the nearest date after the date of exercise of the option), as reported in The Wall Street Journal or a similar publication selected by the Committee. To exercise this option, you must send written notice to the Corporation’s Secretary at the address noted in Section 12 hereof. Such notice shall state the number of shares in respect of which the option is being exercised, shall identify the option exercised as an incentive stock option, and shall be signed by the person or persons so exercising the option. Such notice shall be accompanied by payment of the full cash option price for such shares or, if the Committee has authorized the use of the stock swap feature provided for above, such notice shall be followed as soon as practicable by the delivery of the option price for such shares. Certificates evidencing shares of Common Stock will not be delivered to you until payment has been made. Under certain circumstances, the Plan permits you to deliver a notice to your broker to deliver the cash to the Corporation upon the receipt of such cash from the sale of the Corporation’s Common Stock. Contact the Secretary of the Corporation for further information about this procedure if you are interested in it.

2.The term of this option (the “Option Term”) shall be for a period of ten years from the date of this letter, subject to earlier termination as provided in paragraphs 3 and 4 hereof. Except as otherwise provided below, the option may be exercised at any time, or from time to time, in whole or in part, until the Option Term expires, but in no case may fewer than 100 such shares be purchased at any one time, except to purchase a residue of fewer than 100 shares.

3.If you cease to be an employee of the Corporation or any of its subsidiaries for any reason other than retirement, permanent and total disability, or death, this option shall forthwith terminate. If your employment by the Corporation or any of its subsidiaries is terminated by reason of retirement (which means such termination of employment as shall entitle you to early or normal retirement benefits under any then existing pension plan of the Corporation or one of its subsidiaries), you may exercise this option in whole or in part within three years after such retirement, but not later than the date upon which this option would otherwise expire; provided that if you remain a director or director emeritus of the Corporation, the option may be exercised until the later of three years after such retirement or six months after your service as a director and/or director emeritus terminates, but not later than the date the option would otherwise expire. If you cease to be an employee of the Corporation or any of its subsidiaries because of your permanent and total disability, you may exercise this option in whole or in part at any time within one year after such termination of employment by reason of such disability, but no later than the date upon which this option would otherwise expire.

4.If you die while employed by the Corporation or any of its subsidiaries, within three years after the termination of your employment because of retirement (or if later, six months following your termination of service as a director or director emeritus of the Corporation if you were serving as such at the time of your retirement), or within one year after the termination of your employment because of permanent and total disability, this option may be exercised in whole or in part by your executor, administrator, or estate beneficiaries at any time within one (1) year after the date of your death but not later than the date upon which this option would otherwise expire.

5.This option is non-transferable otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. It may be exercised only by you, or, if you die, by your executor, administrator, or beneficiaries of your estate who are entitled to your option.

6.All rights to exercise this option will expire, in any event, ten years from the date of this letter.

7.Certificates evidencing shares issued upon exercise of this option may bear a legend setting forth among other things such restrictions on the disposition or transfer of the shares of the Corporation as the Corporation may deem consistent with applicable federal and state laws.

8.Nothing in this option shall restrict the right of the Corporation or its subsidiaries to terminate your employment at any time with or without cause.

9.This option is subject to all the terms, provisions and conditions of the Plan, which is incorporated herein by reference, and to such regulations as may from time to time be adopted by the Corporation’s Stock Option Committee. A copy of the Plan has been furnished to you and an additional copy may be obtained from the Corporation. In the event of any conflict between the provisions of the Plan and the provisions of this letter, the terms, conditions and provisions of the Plan shall control, and this letter shall be deemed to be modified accordingly.

10.This Stock Option Agreement is intended to grant an option which meets all of the requirements of incentive stock options as defined in Section 422A of the Internal Revenue Code. Subject to and upon the terms, conditions and provisions of the Plan, each and every provision of this Agreement shall be administered, construed and interpreted so that the option granted herein shall so qualify as an incentive stock option. Each provision of this Stock Option Agreement which would prevent this option from qualifying as an incentive stock option, if any, shall be void.

11.You agree to advise the Corporation immediately upon any sale or transfer of any shares of Common Stock received upon exercise of this option to the extent such sale or transfer takes place prior to the later of (a) two years from the date of grant, or (b) one year from the date of exercise of this option.

12.All notices by you to the Corporation and your exercise of the option herein granted, shall be addressed to Home Federal Bancorp, 222 West Second Street, P.O. Box 648, Seymour, Indiana 47274-0648, Attention: Secretary, or such other address as the Corporation may, from time to time, specify.

13.This option may not be exercised until the Corporation has been advised by counsel that all applicable legal requirements have been met.

Very truly yours,

HOME FEDERAL BANCORP

By:

John K. Keach, Jr.

             President and Chief Executive Officer

Accepted on the date above written:

Name

EX-13

 

1	Letter to Shareholders
8	Selected Consolidated Financial Data
9	Quarterly Results of Operations
10	Management’s Discussion & Analysis
23	Management’s Assessment as to the Effectiveness of Internal Control over Financial Reporting
24	Reports of Independent Registered Public Accounting Firm
26	Consolidated Balance Sheets
27	Consolidated Statements of Income
28	Consolidated Statements of Shareholders’ Equity
29	Consolidated Statements of Cash Flows
30	Notes to Consolidated Financial Statements
47	Board of Directors & Officers of Home Federal Bancorp & Executive Officers of HomeFederal Bank

To Our Shareholders

For all of us associated with Home Federal Bancorp, the year 2005 was marked by steady progress, as well as reflective analysis of our recent performance, our markets, and our plans for a purposeful and profitable future.

Our achievements last year were encouraging and provide a solid foundation for such planning. Earnings grew by 18 percent during the year and earnings per share by 26 percent. An increase of $58.1 million in retail deposits represented a 10 percent gain over the previous year, and we saw a return of our credit quality ratios to historical levels. Given the economic environment and competition in today’s marketplace, we are pleased with our accomplishments in 2005.

“A progressive bank is a builder of communities, regional economies and personal prosperity—an institution that creates growth and grows in turn from the economic activities it helps generate.”

—John K. Keach, Jr.

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Home Federal: FRAMEWORK for the Future

To many, a bank is in essence an organization that manages and lends money. To the knowledgeable observer, however, a progressive bank is a builder of communities, regional economies and personal prosperity—an institution that creates growth and grows in turn from the economic activities it helps generate. That is the role that we, and our predecessors, have cast for HomeFederal Bank for almost 100 years.

Travel in any direction through our market area and you will see the results of our work—the thousands of businesses and homes that represent the professional and personal success of our customers. Because of this ongoing economic development, it follows that we must continually adapt to the changing business environment we help set in motion. Looking at it another way, we realize that we must occasionally update our own economic development model as we help others implement theirs.

During 2005 we reviewed a number of our own growth strategies, taking into consideration the trends depicted by our recent performance as well as a pragmatic appraisal of the economic evolution of the markets we serve. The results of this “remodeling” provide the cornerstones for our work in 2006.

               

- 2 -

 

Our two newest offices, including the Southport branch shown here, provide us with a strong position in the growing southern Indianapolis market. We are pleased with the success we have had in introducing a new customer base to our retail and commercial product lines.

Building profitability and shareholder value

In our highly competitive industry, profitability is the result of selectively providing those products most useful to our customer base, at a fair price. Rather than simply expanding our offerings, we have chosen to narrow our focus. For example, we have promoted—and continue to actively promote—contemporary programs such as high-balance money market accounts and free checking. One result of these promotions was net growth in retail checking accounts of 4.7 percent in 2005. The substantial growth in retail deposits was designed to replace wholesale funding, serving to lower our costs and increase our franchise value.

Last July, the Board of Directors approved the Bancorp’s ninth stock repurchase program. We believe such stock repurchases can increase long-term shareholder value through their positive impact on earnings per share and return on equity. Under this program, we repurchased 321,400 shares during the 2005 fiscal year.

- 3 -

Building new markets

At HomeFederal Bank, we do not endorse growth for growth’s sake, but we do actively seek opportunities in new markets that can benefit from our blend of flexible products and personalized service. We have made substantial commitments to one such market, the southern Indianapolis metropolitan region, and have been pleased with the success of our new initiatives there. The number of households served in this sector has grown to almost 900, and deposit balances have exceeded our expectations and now total over $30 million.

This year, we will implement a number of additional marketing efforts, many of which will be targeted to customers in the southern Indianapolis region. Already in 2006, we had great success with a certificate of deposit promotion, which was responsible for expanding our customer base in this growing market. In addition, we are enhancing the sales training and management tools available to our employees who are working to develop opportunities in this and other market areas.

Jan Sprague is the owner of nine Holiday Inn Express & Suites, Hampton Inn & Suites, and Comfort Inn hotels. She is a successful entrepreneur we are privileged to work with, and we are proud to be her partner. Jan is pictured with Senior Vice President John Schilling.

- 4 -

Delbert Kilgas, founder of Excel Manufacturing in Seymour Indiana, is shown here with Senior Vice President Chris Harrison. Excel Manufacturing serves a loyal customer base with local, national, and international reach. We are honored to have them as our valued customer.

Building business loans and deposits

With little growth in the commercial real estate markets, we have focused on repositioning our commercial credits and have placed greater emphasis on enhancing credit quality. At the same time, we have purposefully decreased the size of our portfolio, demonstrating greater discipline in the quality of the transactions we pursue. One result was a significant improvement in the quality of our assets—to levels we will strive to maintain in the future. We have also adopted stronger credit administration policies and have added more experienced lenders and support personnel in this critical area.

Through the addition of highly-qualified managers with years of commercial banking experience, we have embarked on a structured sales campaign to develop additional high-quality commercial business. During 2005 we completed more than 5,000 calls to present and potential customers, enhancing the quality of our service, growing market share, and building on our already-strong reputation as a reliable provider of top-quality products and customer service.

- 5 -

Business Development Manager Lou Ann Woodall, Senior Vice President Keith Luken, and Assistant Vice President Diane Trout-Cummins are representative of the many knowledgeable and dedicated employees at HomeFederal Bank. They have contributed to the Bank’s success through market share growth, significant mortgage originations, and innovative marketing campaigns.

Building non-interest income

In 2005, we set the stage for providing new streams of non-interest income. We marketed aggressively to promote our retail checking products, thus creating significant account growth and an opportunity to earn service fees on these transaction-oriented accounts.

In the year ahead, we will continue the retail checking promotion as well as introduce a high-yield checking product. Another area of growth is that of the trust and brokerage operations. In 2005, we partnered with a respected financial services advisor who brings his loyal and satisfied client base. As a result of this partnership and of additional business development efforts in this service area, our assets under management grew from just under $173 million to almost $255 million for net growth of over 47 percent last year.

Building trust through regulatory compliance

In recent years, we have found ourselves in an even more demanding regulatory environment that impacts organizations and their customers throughout the business community. To assure others of our continuing compliance with the many complex laws and regulations that govern our work in the financial services industry, we are investing in software enhancements that will assist in monitoring compliance in critical areas; requiring ongoing training for HomeFederal employees; and expanding our compliance department to meet the needs of our organization in this increasingly complex regulatory environment. We feel strongly that there is no substitute for trust in business relationships, particularly those that involve the transfer and safekeeping of financial assets.

- 6 -

Building management strength

Any blueprint for new construction is only as strong as the talent, dedication and execution of the architects and builders who transform it into something of value. In many different areas, including finance, marketing, and information technology, we have worked diligently to attract new employees, searching for those with skill sets that both complement and enhance those of the existing management team. Building organizational strength through management strength remains one of our top priorities.

In addition to recognizing those who are part of our team, I would like to take this opportunity to thank Larry Welker, who retired as Executive Vice President and Chief Financial Officer in June of 2005 after having served HomeFederal for over 25 years. We wish him continued success and a most enjoyable retirement.

Building a better future for all our stakeholders

Big plans are not necessarily grandiose, but they are meaningful, forward-looking tools of any scale that allow leaders to maximize their organization’s performance. That aptly describes the plans we have put in place to build upon that which we have invested in for almost 100 years, and to guide HomeFederal toward a more rewarding and more prosperous future.

Sincerely,

/s/ John K. Keach, Jr.

John K. Keach, Jr.

Chairman of the Board

and Chief Executive Officer

- 7 -

SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands except per share data)

	Year Ended			Year Ended			Year Ended			Six Months Ended			Year Ended			Year Ended
	Dec 2005			Dec 2004			Dec 2003			Dec 2002			June 2002			June 2001
Selected Balance Sheet Data:
Total assets	$	850,654		$	868,207		$	853,328		$	886,505		$	856,012		$	863,393
Cash and cash equivalents		53,736			52,320			34,178			53,692			44,478			35,424
Loans held for sale		4,795			2,617			6,272			30,560			6,302			12,383
Securities available for sale		123,351			124,790			123,638			114,440			114,989			80,316
Securities held to maturity		1,806			1,779			1,828			3,026			3,493			7,296
Loans receivable, net		608,556			629,490			630,672			628,883			631,815			674,552
Deposits		657,339			640,181			588,666			609,358			577,480			576,543
Borrowings		101,041			139,899			169,162			187,744			188,680			207,608
Shareholders' equity		73,038			77,364			84,022			77,794			77,086			72,044
Selected Operations Data:
Interest income	$	44,976		$	42,746		$	45,602		$	26,240		$	56,298		$	64,757
Interest expense		19,817			19,159			22,264			13,145			30,635			39,516
Net interest income		25,159			23,587			23,338			13,095			25,663			25,241
Provision for loan losses		808			1,770			1,268			1,221			1,423			1,680
Net interest income after provision for loan losses		24,351			21,817			22,070			11,874			24,240			23,561
Gain on sale of loans		1,539			2,651			7,628			3,740			4,456			1,975
Gain (loss) on sale of securities		-			-			(83	)		4			92			(196	)
Other income		8,757			7,032			7,133			3,125			7,841			7,241
Other expense		25,576			23,793			22,085			10,375			20,045			17,513
Income before income taxes		9,071			7,707			14,663			8,368			16,584			15,068
Income tax provision		2,969			2,544			5,020			3,071			6,245			5,519
Net Income	$	6,102		$	5,163		$	9,643		$	5,297		$	10,339		$	9,549
Basic earnings per common share	$	1.57		$	1.25		$	2.26		$	1.23		$	2.34		$	2.13
Diluted earnings per common share	$	1.53		$	1.21		$	2.15		$	1.17		$	2.25		$	2.07
Cash dividends per share	$	0.75		$	0.75		$	0.70		$	0.31		$	0.58		$	0.55
Selected Financial and Statistical Data:
Return on average assets (2)		0.71	%		0.60	%		1.10	%		1.21	%		1.20	%		1.12	%
Return on average shareholders' equity (2)		8.19	%		6.50	%		11.95	%		13.59	%		13.73	%		13.76	%
Interest rate spread during the period (2)		3.19	%		2.97	%		2.84	%		3.19	%		3.20	%		3.13	%
Net interest margin on average earning assets (2)		3.22	%		3.00	%		2.91	%		3.26	%		3.27	%		3.22	%
Average shareholders' equity to average assets		8.68	%		9.17	%		9.20	%		8.93	%		8.76	%		8.15	%
Efficiency ratio (1)		73.77	%		71.53	%		67.03	%		57.01	%		57.02	%		50.75	%
Nonperforming loans to total loans		0.70	%		2.01	%		0.60	%		0.71	%		0.57	%		1.02	%
Nonperforming assets to total assets		0.54	%		1.71	%		0.66	%		0.70	%		0.70	%		0.99	%
Loss allowance to nonperforming loans		155.78	%		61.23	%		193.11	%		151.12	%		171.34	%		78.70	%
Loss allowance to total loans		1.09	%		1.23	%		1.16	%		1.08	%		1.01	%		0.82	%
Dividend payout ratio		47.67	%		59.22	%		31.08	%		25.12	%		24.45	%		25.53	%
Loan servicing portfolio	$	588,503		$	605,040		$	611,636		$	564,856		$	551,402		$	484,628
Allowance for loan losses	$	6,753		$	7,864		$	7,506		$	7,172		$	6,451		$	5,690
Number of full service offices		19			18			18			17			17			17

(1) Operating expenses as a percentage of the sum of net interest income and non-interest income, excluding real estate income and expenses, securities gains and losses, gains and losses on sale of loans, amortization of intangibles, mortgage servicing rights ("MSR") amortization, impairment of MSR and non-recurring items.

(2) For comparative purposes, the December 2002 ratios have been annualized.

- 8 -

QUARTERLY RESULTS OF OPERATIONS

(in thousands except share data)

The following table presents certain selected unaudited data relating to results of operations for the three month periods ending on the dates indicated.

	Three Months Ended
Fiscal Year Ended December 31, 2005	March 31, 2005		June 30, 2005		Sept 30, 2005		Dec 31, 2005
Total interest income	$	10,773	$	11,142	$	11,504	$	11,557
Total interest expense		4,703		4,791		5,071		5,252
Net interest income		6,070		6,351		6,433		6,305
Provision for loan losses		146		112		331		219
Net interest income after provision for loan losses		5,924		6,239		6,102		6,086
Gain on sale of loans		343		346		459		391
Other income		2,089		2,171		2,165		2,332
Other expense		6,345		6,567		6,303		6,361
Income before income taxes		2,011		2,189		2,423		2,448
Income tax provision		662		736		815		756
Net Income	$	1,349	$	1,453	$	1,608	$	1,692
Basic earnings per common share	$	0.34	$	0.37	$	0.42	$	0.44
Diluted earnings per common share	$	0.33	$	0.36	$	0.41	$	0.43
Cash dividends per share	$	0.188	$	0.188	$	0.188	$	0.188
Stock sales price range:  High (1)	$	26.10	$	25.49	$	25.45	$	25.60
Low	$	25.00	$	24.00	$	24.25	$	24.28

	Three Months Ended
Fiscal Year Ended December 31, 2004	March 31, 2004		June 30, 2004		Sept 30, 2004			Dec 31, 2004
Total interest income	$	10,722	$	10,634	$	10,534		$	10,856
Total interest expense		4,940		4,784		4,741			4,694
Net interest income		5,782		5,850		5,793			6,162
Provision for loan losses		246		35		1,887			(398	)
Net interest income after provision for loan losses		5,536		5,815		3,906			6,560
Gain on sale of loans		683		939		435			594
Other income		1,709		1,918		1,681			1,724
Other expense		5,797		5,783		5,715			6,498
Income before income taxes		2,131		2,889		307			2,380
Income tax provision		744		975		(29	)		854
Net Income	$	1,387	$	1,914	$	336		$	1,526
Basic earnings per common share	$	0.32	$	0.46	$	0.08		$	0.38
Diluted earnings per common share	$	0.31	$	0.45	$	0.08		$	0.37
Cash dividends per share	$	0.188	$	0.188	$	0.188		$	0.188
Stock sales price range:  High (1)	$	28.22	$	27.17	$	25.88		$	25.75
Low	$	26.00	$	24.90	$	24.46		$	23.46

(1) The Company's common stock trades on the NASDAQ National Market under the symbol "HOMF."

As of December 31, 2005, the Company had 423 holders of record of its shares.

- 9 -

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

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

The following financial information presents an analysis of the asset and liability structure of Home Federal Bancorp and a discussion of the results of operations for each of the periods presented in the Annual Report as well as a discussion of Home Federal Bancorp’s sources of liquidity and capital resources.

HOLDING COMPANY BUSINESS

Home Federal Bancorp (the “Company") is organized as a bank holding company authorized to engage in activities permissible for a financial holding company and owns all of the outstanding capital stock of HomeFederal Bank (the “Bank"). The business of the Bank and therefore, the Company, is providing consumer and business banking services to certain markets in the south-central portions of the State of Indiana. The Bank does business through 19 full service banking offices.

GENERAL

The Bank's earnings in recent years reflect the fundamental changes that have occurred in the regulatory, economic and competitive environment in which commercial banks operate. The Bank's earnings are primarily dependent upon its net interest income. Interest income is a function of the average balances of loans and investments outstanding during a given period and the average yields earned on such loans and investments. Interest expense is a function of the average amount of deposits and borrowings outstanding during the same period and the average rates paid on such deposits and borrowings. Net interest income is the difference between interest income and interest expense.

The Bank is subject to interest rate risk to the degree that its interest-bearing liabilities, primarily deposits and borrowings with short- and medium-term maturities, mature or reprice more rapidly, or on a different basis, than its interest-earning assets. While having liabilities that mature or reprice more frequently on average than assets will be beneficial in times of declining interest rates, such an asset/liability structure will result in lower net income or net losses during periods of rising interest rates, unless offset by other factors such as non-interest income. The Bank's net income is also affected by such factors as fee income and gains or losses on sale of loans.

OVERVIEW

In reviewing the Company’s performance in 2005 several factors contributed to the results for the year. The two primary areas of focus during 2005 were to improve the net interest margin and to improve credit quality. To improve net interest margin in the face of a rising interest rate environment, the Company focused on generating retail deposit growth and used this additional funding to repay higher cost Federal Home Loan Bank (FHLB) advances and wholesale deposits. During 2005, retail deposits grew $58.1 million while FHLB advances decreased $38.8 million and wholesale deposits decreased $40.5 million. By shifting funding to less costly retail deposits, the Company was able to minimize the increase in interest cost during 2005. The rate paid on interest bearing liabilities increased by 10 basis points during 2005 while the yield on interest earning assets increased by 32 basis points resulting in a 22 basis point increase in net interest margin to 3.22% for 2005. To improve credit quality, management focused on the resolution of two large commercial credits totaling $7.2 million which were originally classified as non-performing during the third quarter of 2004. The final disposition of assets related to the two large commercial loans occurred during the second quarter of 2005. As a result, total non-performing assets decreased $10.2 million or 69.0% to $4.6 million at December 31, 2005. Non-performing assets to total assets decreased to .54% at December 31, 2005 from 1.71% at December 31, 2004, while non-performing loans to total loans decreased to .70% at December 31, 2005 from 2.01% at December 31, 2004. The current non-performing asset ratios are more indicative of the historical quality of the loan portfolio.

- 10 -

Total other income increased $613,000 in 2005 due primarily to increases in deposit fees and investment advisory revenue. Deposit fees increased 16.5% for the year due to strong deposit account growth while investment advisory revenue increased 17.1% for the year due to increased production in established markets. In addition, retail brokerage revenue was enhanced in the fourth quarter through the acquisition of a book of business located on the south side of Indianapolis.

Total other expenses increased $1.8 million for 2005 in large part due to increased compensation expense and marketing expenses associated primarily with additional expansion in the two branch office locations on the south side of Indianapolis. The Company ended 2005 with $27.8 million in retail deposits in these locations - an increase of $17.6 million for the year.

In summary, the Company faces several challenges in 2006 and subsequent years. The major challenges for 2006 will be loan growth, the impact of the interest rate environment on net interest margins and the increasing cost of regulatory compliance. Loan growth has been a challenge in recent years. However, the two locations on the south side of Indianapolis provide opportunities for commercial and retail loan growth. With 2006 beginning with an inverted yield curve, there will continue to be pressure to maintain current levels of net interest margin. Thus, earning asset growth along with continued efforts to shift the balance sheet away from residential mortgage loans and wholesale funding sources toward commercial loans and retail deposits will have a major impact on net interest margins for 2006. Finally, the Company will closely monitor expenses in 2006, but costs associated with regulatory compliance - added personnel and system costs - are expected to continue to increase.

ASSET/LIABILITY MANAGEMENT

The Bank follows a program designed to decrease its vulnerability to material and prolonged increases in interest rates. This strategy includes 1) selling certain longer term, fixed rate loans from its portfolio; 2) increasing the origination of adjustable rate loans; 3) improving its interest rate gap by increasing the interest rate sensitivity by shortening the maturities of its interest-earning assets and extending the maturities of its interest-bearing liabilities; and 4) increasing its non-interest income.

A significant part of the Bank's program of asset and liability management has been the increased emphasis on the origination of adjustable rate and/or short-term loans, which include adjustable rate residential mortgages and construction loans, commercial loans, and consumer-related loans. The Bank continues to offer fixed rate residential mortgage loans. The Bank retains the servicing on most of the 15-year and 30-year loans sold, thereby increasing non-interest income. The proceeds of these loan sales are used to reinvest in other interest-earning assets or to repay wholesale borrowings.

The Bank continues to assess methods to stabilize interest costs and match the maturities of liabilities to assets. Retail deposit specials are competitively priced to attract deposits in the Bank’s market area. When retail deposit funds become unavailable due to competition, the Bank employs FHLB advances and brokered deposits to maintain the necessary liquidity to fund lending operations.

The Bank has endeavored to spread its maturities of FHLB advances over a three to five year period so that only a limited amount of advances comes due each year. This avoids a concentration of maturities in any one year and thus reduces the risk of having to renew all advances when rates may not be favorable.

The Bank applies early withdrawal penalties to protect the maturity and cost structure of its deposits and utilizes longer term fixed rate borrowings when the cost and availability permit the proceeds of such borrowings to be invested profitably.

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INTEREST RATE SPREAD

The following table sets forth information concerning the Bank's interest-earning assets, interest-bearing liabilities, net interest income, interest rate spreads and net yield on average interest-earning assets during the periods indicated (including amortization of net deferred fees which are considered adjustments of yields). Average balance calculations were based on daily balances. (dollars in thousands)

	Year Ended								Year Ended								Year Ended
	Dec 2005								Dec 2004								Dec 2003
	Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate
Interest-earning assets:
Residential mortgage loans	$	185,815		$	10,828		5.83	%	$	198,228		$	10,926		5.51	%	$	219,059		$	13,155		6.01	%
Commercial real estate mortgages		217,251			13,697		6.30	%		229,131			13,811		6.03	%		221,860			13,927		6.28	%
Home equities/ second mortgages		82,416			5,656		6.86	%		77,868			5,439		6.98	%		76,754			5,708		7.44	%
Commercial loans		105,550			6,939		6.57	%		99,294			5,544		5.58	%		93,713			5,414		5.78	%
Consumer loans		34,846			2,490		7.15	%		34,437			2,652		7.70	%		36,167			3,109		8.60	%
Securities		131,046			4,652		3.55	%		125,743			4,109		3.27	%		123,273			3,932		3.19	%
Interest-bearing deposits		23,299			714		3.06	%		20,518			265		1.29	%		30,567			357		1.17	%
Total interest-earning assets (1)	$	780,223		$	44,976		5.76	%	$	785,219		$	42,746		5.44	%	$	801,393		$	45,602		5.69	%
Interest-bearing liabilities:
Deposits
Transaction accounts		340,964		$	2,981		0.87	%	$	314,519		$	1,442		0.46	%	$	296,267		$	2,060		0.70	%
Certificate accounts		306,789			10,284		3.35	%		303,917			9,390		3.09	%		305,506			10,144		3.32	%
FHLB advances		108,525			5,743		5.29	%		141,210			7,627		5.40	%		163,369			9,221		5.64	%
Other borrowings		14,346			809		5.64	%		15,127			700		4.63	%		16,312			839		5.14	%
Total interest-bearing liabilities	$	770,624		$	19,817		2.57	%	$	774,773		$	19,159		2.47	%	$	781,454		$	22,264		2.85	%
Net Interest Income				$	25,159							$	23,587							$	23,338
Net Interest Rate Spread							3.19	%							2.97	%							2.84	%
Net Earning Assets	$	9,599							$	10,446							$	19,939
Net Interest Margin (2)							3.22	%							3.00	%							2.91	%
Average Interest-earning
Assets to Average
Interest-bearing Liabilities		101.25	%							101.35	%							102.55	%

(1) Average balances are net of non-performing loans.

(2) Net interest income divided by the average balance of interest-earning assets.

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RATE/VOLUME ANALYSIS

The following table sets forth the changes in the Bank's interest income and interest expense resulting from changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities. Changes not solely attributable to volume or rate changes have been allocated in proportion to the changes due to volume or rate. (in thousands)

	Year Ended									Year Ended
	Dec 2005 vs. Dec 2004									Dec 2004 vs. Dec 2003
	Increase/(Decrease)									Increase/(Decrease)
	Due to Rate			Due to Volume			Total Change			Due to Rate			Due to Volume			Total Change
Interest Income on Interest-Earning Assets:
Residential mortgage loans	$	1,038		$	(1,136	)	$	(98	)	$	(1,033	)	$	(1,196	)	$	(2,229	)
Commercial real estate loans		894			(1,008	)		(114	)		(656	)		540			(116	)
Home equities/second mortgages		(92	)		309			217			(354	)		85			(269	)
Commercial loans		1,030			365			1,395			(169	)		299			130
Consumer loans		(193	)		31			(162	)		(313	)		(144	)		(457	)
Securities		365			178			543			97			80			177
Interest-bearing deposits		409			40			449			44			(136	)		(92	)
Total		3,451			(1,221	)		2,230			(2,384	)		(472	)		(2,856	)
Interest Expense on Interest-Bearing Liabilities:
Deposits - Transaction accounts		1,409			130			1,539			(754	)		136			(618	)
Certificate accounts		804			90			894			(701	)		(53	)		(754	)
FHLB advances		(151	)		(1,733	)		(1,884	)		(384	)		(1,210	)		(1,594	)
Other borrowings		143			(34	)		109			(81	)		(58	)		(139	)
Total		2,205			(1,547	)		658			(1,920	)		(1,185	)		(3,105	)
Net Change in Net Interest Income	$	1,246		$	326		$	1,572		$	(464	)	$	713		$	249

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RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2005 and Year Ended December 31, 2004:

General

The Company reported net income of $6.1million for the year ended December 31, 2005. This compared to net income of $5.2 million for the year ended December 31, 2004, representing an increase of $939,000 or 18.2%.

Net Interest Income

Net interest income increased $1.6 million, or 6.7%, for the year ended December 31, 2005, compared to the year ended December 31, 2004. The increase in net interest income was primarily due to the changing mix of the Bank’s interest earning assets and interest bearing liabilities. Total interest income for the year ended December 31, 2005, increased $2.2 million, or 5.2%, as compared to the year ended December 31, 2004. The average balance of total interest earning assets decreased $5.0 million for the year. However, this decrease was offset by a 32 basis point increase in yield on interest-earning assets for the year due primarily to the impact of rising interest rates throughout 2005. The balances of lower yielding residential mortgage loans and commercial real estate mortgage loans decreased $9.1 million and $20.1 million, respectively, while home equity loans increased $7.5 million. Total interest expense for the year ended December 31, 2005 increased $658,000, or 3.4%, as compared to the year ended December 31, 2004. The increase was due primarily to the impact of rising interest rates throughout 2005. During periods of rising interest rates, banks generally see rates on interest bearing liabilities increase more rapidly than rates on interest earning assets. However, during 2005, growth in retail deposits provided funds to repay higher cost wholesale funding sources. The continued growth in checking and money market accounts increased the balance of interest bearing transaction accounts $27.6 million while retail certificates of deposit increased $30.5 million for the year. The increase in retail deposits was used to pay down higher costing FHLB advances which decreased $38.8 million during the year ended December 31, 2005. As a result of the mix shift noted above along with rising interest rates during the year, the yield on interest earning assets increased 32 basis points for the year while the rate paid on interest bearing liabilities increased 10 basis points. The Company was able to minimize the increase in rates paid on interest bearing liabilities which resulted in an increase in net interest margin of 22 basis points to 3.22% for 2005.

Provision for Loan Losses

Provision for loan losses was $808,000 for the year ended December 31, 2005, a decrease of $962,000 from $1.8 million in 2004. The decrease in provision for loan losses resulted from the overall improvement in the credit quality of the loan portfolio as compared to the prior year. Non-performing assets to total assets decreased to .54% at December 31, 2005 from 1.71% at December 31, 2004 and nonperforming loans to gross loans decreased to .70% at December 31, 2005 from 2.01% at December 31, 2004. During 2004, two large commercial loans totaling $7.2 million were classified as non-performing and additional provision for loan losses was recorded to cover anticipated losses on these loans. The final disposition of these two commercial loans occurred during 2005 and there was no significant impact of these loans on the provision for loan losses during 2005.

Other Income

Other income was $10.3 million for the year ended December 31, 2005, an increase of $613,000, or 6.3%, compared to the year ended December 31, 2004. The increase in other income was due primarily to increases in deposit service fees and investment advisory revenue. Total deposit fees increased $486,000 or 16.5% during 2005 due primarily to growth in transaction accounts for the year. Total investment advisory revenue increased $311,000 or 17.1% during 2005 due primarily to increased retail brokerage fee income. During 2005, retail brokerage fee income increased $132,000 or 13.4% due to increased production in established markets along with fee income from a book of business acquired in the Indianapolis market during the fourth quarter. Retail brokerage fee income is anticipated to increase during 2006 as fee income from the newly acquired book of business was only included in the results for two months of 2005. In addition, income from joint ventures increased $271,000 to $443,000 for 2005. Sales results from these projects were stronger in 2005 resulting in the increased income. However, due to the current status of the remaining projects along with the requirement for the Bank to divest of any remaining investments in joint venture projects by the end of 2006, income from these projects is expected to decrease in 2006.

During 2005, fee income associated with mortgage banking activities has fluctuated significantly as compared to 2004. Mortgage banking fee income is comprised of two primary sources - gain on sale of loans originated and sold in the secondary market and loan servicing income. Gain on sale of loans was $1.5 million for the year ended December 31, 2005, a decrease of $1.1 million or 41.9%, compared to the year ended December 31, 2004. The decrease is due primarily to significantly lower levels of mortgage originations in 2005 compared to 2004. Mortgage loan origination levels during the first half of 2004 were inflated by higher levels of refinance activity due to historically low interest rate levels. Loan servicing income was $1.4 million for the year ended December 31, 2005, an increase of $700,000 or 107.0%, compared to the year ended December 31, 2004. The primary reason for the increase in loan servicing fees related to the timing and fluctuation in the impairment charge/recovery. The originated mortgage servicing rights asset is reviewed for impairment each quarter. The impairment charge is the recognition of the change in the value of mortgage servicing rights that result from changes in interest rates and loan prepayment speeds. For 2005, the impairment recovery was $549,000 compared to $95,000 in 2004. The remaining balance of impairment reserve at December 31, 2005 was $425,000. Future impairment charges or recoveries will depend on future interest rate changes and the effect that they have on prepayment speeds. If rates decline, there may be more impairment charges; if rates rise, impairment charges previously recorded may be recovered.

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Other Expenses

Other expenses totaled $25.6 million for the year ended December 31, 2005, an increase of $1.8 million or 7.5%, compared to the year ended December 31, 2004. The expense increases were primarily related to compensation and employee benefits, occupancy and equipment, and marketing. Compensation and employee benefits increased $1.1 million due to personnel cost associated with staffing of new branch office locations on the south side of Indianapolis and increased expenses related to the Bank’s pension plans. Occupancy and equipment expenses increased $513,000 due to the addition of a new branch office on the south side of Indianapolis and costs associated with the relocation of the Company’s operations center to a new facility during 2005. Marketing expense increased $392,000 due primarily to additional amounts spent to promote new branch offices on the south side of Indianapolis and to promote the free checking product. Miscellaneous expenses decreased $298,000 due primarily to a reduction in professional fees. In the prior year, non-recurring professional fees were incurred to assist in the implementation, documentation and testing related to compliance with requirements of Sarbanes Oxley legislation.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2004 and Year Ended December 31, 2003:

General

The Company reported net income of $5.2 million for the year ended December 31, 2004. This compared to net income of $9.6 million for the year ended December 31, 2003, representing a decrease of $4.5 million or 46.5%.

Net Interest Income

Net interest income increased $249,000, or 1.1%, for the year ended December 31, 2004, compared to the year ended December 31, 2003. The increase in net interest income was primarily due to the changing mix of the Bank’s average assets and liabilities. Total interest income for the year ended December 31, 2004, decreased $2.9 million, or 6.3%, as compared to the year ended December 31, 2003. The decrease in interest income was due primarily to the 25 basis point decrease in yield on interest-earning assets for the year ended December 31, 2004 as compared to the prior year. In addition, the increase in non-performing loans contributed to the decline in net interest income. Total interest expense for the year ended December 31, 2004 decreased $3.1 million, or 14.0%, as compared to the year ended December 31, 2003. This decrease was due to a 38 basis point decrease in the cost of interest-bearing liabilities for the year ended December 31, 2004 as compared to the prior year. The continued growth in checking and money market accounts increased the average balance of lower cost interest bearing transaction accounts $18.3 million. The average balance of higher cost FHLB advances decreased $22.2 million as retail deposits were used to repay advances during the year. The result of the balance sheet mix was a 9 basis point increase in net interest margin as a result of the cost of interest-bearing liabilities declining more rapidly than the yield on assets. As the Federal Reserve raised short term interest rates in 2004, it had the effect of slowing the decline in yields of interest-bearing assets while the cost of interest-bearing liabilities continued to decline because of longer term liabilities maturing and repricing at what were still relatively low rates.

Provision for Loan Losses

Provision for loan losses was $1.8 million for the year ended December 31, 2004, an increase of $502,000 from $1.3 million in 2003. The increase in the provision from loan losses during 2004 resulted primarily for the deterioration in asset quality of two commercial loans totaling $7.2 million.

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Other Income

Other income was $9.7 million for the year ended December 31, 2004, a decrease of $5.0 million, or 34.0%, compared to the year ended December 31, 2003. This decrease was due primarily to a decrease of $5.0 million in gain on sale of loans that was due to reduced loan originations and reduced loan sales. The year ended December 31, 2003 was a record year for the Company in both loan originations and sale of loans. The reduction in originations and sales of loans during 2004 was due to a slightly higher loan rate environment in 2004 that reduced loan refinancing activity, as fewer homeowners had mortgages with rates higher than prevailing market rates. Additional increases in service fees on deposit accounts, loan servicing income, and investment advisory revenue were offset by decreases in income from joint ventures. The joint venture income decreased because of a large gain on a project sale in 2003 which did not recur in 2004.

Other Expenses

Other expenses totaled $23.8 million for the year ended December 31, 2004, an increase of $1.7 million, or 7.7%, compared to the year ended December 31, 2003. The expense increase was primarily related to compensation and employee benefits. Compensation and employee benefits increased $1.3 million due to various factors including increased staffing, normal salary increases, and increased expenses related to the Bank’s pension plans. The amount of contra personnel expense deferred in loan origination costs decreased $1.0 million compared to the prior year which had the effect of raising compensation expense by the same amount. The reduced loan activity in 2004 caused the decrease in the amount of deferred loan origination costs. The decrease in contra personnel expense was partially offset by reduced loan commissions of approximately $479,000. Occupancy and equipment expense increased due to increased technology expenditures and the opening of a new branch on the south side of Indianapolis.

For the year ended December 31, 2004, miscellaneous expenses increased $151,000. Included in these expenses were professional fees of $598,000 associated with the required implementation of Sarbanes Oxley legislation. Approximately $406,000 were one time costs associated with the initial implementation of Sarbanes Oxley.

FINANCIAL CONDITION

The Company's total assets decreased $17.6 million to $850.7 million at December 31, 2005, from $868.2 million at December 31, 2004. Total loans decreased $20.9 million due to a $29.2 million decrease in commercial and residential mortgage loans partially offset by a $7.5 million increase in home equity loans. The decrease in commercial real estate loans resulted from efforts to improve credit quality which resulted in some large loans being refinanced by other institutions in addition to prepayment on a few large projects that were completed more quickly than anticipated. The decrease in residential mortgage loans resulted from customer preference for fixed rate mortgage loans during the recent low interest rate environment. As the Bank sells fixed rate mortgage loans, the balances in the portfolio declined during the year as new adjustable rate mortgage originations did not keep pace with repayments of existing loans. Total retail deposits increased $58.1 million compared to December 31, 2004. The increase in retail deposits was comprised of a $6.1 million increase in non-interest bearing checking accounts, a $21.5 million increase in interest bearing transaction accounts and a $30.5 million increase in consumer certificates of deposit. The increase in retail deposits has been used to pay down higher cost wholesale deposits and FHLB advances, which have declined $40.5 million and $38.8 million respectively during the year.

Shareholders’ equity decreased $4.3 million to $73.0 million. During 2005, the Company repurchased 321,400 shares representing approximately 8.0% of shares outstanding at a total cost of $8.1 million.

INTEREST RATE SENSITIVITY

Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Interest rate sensitivity for the Company is a result of repricing, option, and basis risks. Repricing risk represents timing mismatches in the Company’s ability to alter contractual rates earned on financial assets or paid on liabilities in response to changes in market interest rates. For example, if interest-bearing liabilities reprice or mature more quickly than interest-earning assets, an increase in market rates could adversely affect net interest income. Conversely, if interest-bearing liabilities reprice or mature more quickly than interest-earning assets, a decrease in market rates could positively affect net interest income. Option risk arises from embedded options present in many financial instruments such as loan prepayment options and deposit early withdrawal options. These provide customers opportunities to take advantage of directional changes in rates, which could have an adverse impact on the Company’s net interest income. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of the spread earned on a loan or investment relative to its cost of funds.

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Net interest income represents the Company’s principal component of income. Consistency of the Company’s net interest income is largely dependent upon the effective management of interest rate risk. The Company has established risk measures, limits and policy guidelines in its Interest Rate Risk Management Policy. The responsibility for management of interest rate risk resides with the Company’s Asset/Liability Committee, (“ALCO”), with oversight by the Board of Directors. The Company uses an earnings simulation analysis that measures the sensitivity of net interest income to various interest rate movements. The base-case scenario is established using current interest rates. The comparative scenarios assume an immediate parallel shock in increments of 100 basis point rate movements. The interest rate scenarios are used for analytical purposes and do not necessarily represent management’s view of future market movements. Rather, these are intended to provide a measure of the degree of volatility interest rate movements may introduce into the earnings of the Company. Modeling the sensitivity of earnings to interest rate risk is highly dependent on numerous assumptions embedded in the model. These assumptions include, but are not limited to, management’s best estimates of the effect of changing interest rates on the prepayment speeds of certain assets and liabilities, projections for activity levels in each of the product lines offered by the Company and historical behavior of deposit rates and balances in relation to changes in interest rates. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions. The Company’s 12-month net interest income sensitivity profile as of fiscal year-end December 31, 2005 is as follows:

Changes in Rates	Net Interest Income % Change
+ 300 basis points	3.14
+ 200 basis points	2.63
+ 100 basis points	1.05
- 100 basis points	(2.14)
- 200 basis points	(4.26)
- 300 basis points	(5.79)

ASSET QUALITY

In accordance with the Company's classification of assets policy, management evaluates the loan and investment portfolio each month to identify substandard assets that may contain the potential for loss. In addition, management evaluates the adequacy of its allowance for possible loan losses.

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NON-PERFORMING ASSETS

The following table sets forth information concerning non-performing assets of the Bank. Real estate owned includes property acquired in settlement of foreclosed loans that is carried at net realizable value. (dollars in thousands)

As Of	Dec 2005			Dec 2004			Dec 2003			Dec 2002			June 2002
Non-accruing loans:
Residential mortgages	$	1,656		$	1,249		$	832		$	1,749		$	795
Commercial real estate mortgages		212			5,633			247			137			96
Home equities/second mortgages		308			410			591			606			740
Commercial		754			2,094			647			566			461
Consumer		140			149			182			206			189
Total		3,070			9,535			2,499			3,264			2,281
Accruing loans:
Residential mortgages		456			168			1,125			1,166			1,094
Commercial		-			-			5			-			-
Consumer		-			-			-			-			16
Total		456			168			1,130			1,166			1,110
Troubled debt restructured		809			3,141			258			316			374
Total non-performing loans		4,335			12,844			3,887			4,746			3,765
Real estate owned		271			2,019			1,739			1,472			2,239
Total Non-Performing Assets	$	4,606		$	14,863		$	5,626		$	6,218		$	6,004
Non-performing assets to total assets		0.54	%		1.71	%		0.66	%		0.70	%		0.70	%
Non-performing loans to loans		0.70	%		2.01	%		0.60	%		0.71	%		0.57	%
Allowance for loan losses to non-performing loans		155.78	%		61.23	%		193.11	%		151.12	%		171.34	%

In addition, at December 31, 2005 and 2004, there were $14.8 million and $19.6 million, respectively, in current performing loans that were classified as special mention or substandard for which potential weaknesses exist, which may result in the future inclusion of such items in the non-performing category.

Total non-performing assets decreased $10.3 million to $4.6 million at December 31, 2005. This decrease resulted from an $8.5 million decrease in non-performing loans and from a decrease of $1.8 million in real estate owned. The decrease in non-performing loans related primarily to two commercial loans that are discussed in the following Allowance for Loan Losses section. These two loans totaled $7.2 million.

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ALLOWANCE FOR LOAN LOSSES

The provision for loan losses for the fiscal year ended December 31, 2005 was $808,000, which resulted in an allowance for loan losses balance of $6.8 million as of December 31, 2005 as compared to $7.9 million as of December 31, 2004. The decrease to the allowance for loan losses resulted from the final disposition during the second quarter of 2005 of two large commercial loans which were classified as non-performing in 2004. A portion of the charge offs related to the two large commercial loans was recorded in 2005; however, these amounts had been provided for in the previous year. Therefore, there was no significant impact of these loans on the provision for loan losses during 2005.

The allowance for loan losses as a percentage of total loans decreased to 1.09% at December 31, 2005 from 1.23% at December 31, 2004. The reduction in this ratio is representative of the improvement in the overall credit quality of the loan portfolio. The improvement in credit quality is best reflected by the reduction in total non-performing assets. As a result of the decrease in non-performing assets, the Bank’s asset quality ratios reflected in the table above have returned to historical levels.

The following table sets forth an analysis of the allowance for possible loan losses.

As Of	Dec 2005			Dec 2004			Dec 2003			Dec 2002			June 2002
Balance at beginning of period	$	7,864		$	7,506		$	7,172		$	6,451		$	5,690
Provision for loan losses		808			1,770			1,268			1,221			1,423
Loan charge-offs:
Residential mortgages		(264	)		(88	)		(176	)		(74	)		(137	)
Commercial real estate mortgages		(893	)		(28	)		(60	)		-			(86	)
Home equities/second mortgages		(158	)		(136	)		(163	)		(44	)		(138	)
Commercial		(422	)		(993	)		(255	)		(240	)		(38	)
Consumer		(311	)		(279	)		(425	)		(186	)		(331	)
Total charge-offs		(2,048	)		(1,524	)		(1,079	)		(544	)		(730	)
Recoveries:
Residential mortgages		10			16			28			18			3
Commercial real estate mortgages		42			9			-			-			-
Home equities/second mortgages		1			2			-			-			1
Commercial		26			51			65			1			8
Consumer		50			34			52			25			56
Total recoveries		129			112			145			44			68
Net charge-offs		(1,919	)		(1,412	)		(934	)		(500	)		(662	)
Balance at end of period	$	6,753		$	7,864		$	7,506		$	7,172		$	6,451
Net charge-offs to average loans		0.31	%		0.22	%		0.14	%		0.08	%		0.10	%
Allowance balance to total loans		1.09	%		1.23	%		1.16	%		1.08	%		1.01	%

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ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The following table indicates the portion of the loan loss reserve management has allocated to each loan type at December 31, 2005: (dollars in thousands)

Loan type	Allowance
Residential mortgages	$	1,858
Commercial real estate		1,718
Home equities/second mortgages		567
Commercial other		1,813
Consumer loans		797
Total allowance for loan losses	$	6,753

LIQUIDITY AND CAPITAL RESOURCES

The Bank maintains its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. Cash for these purposes is generated through the sale or maturity of securities and loan prepayments and repayments, and may be generated through increases in deposits or borrowings. Loan payments are a relatively stable source of funds, while deposit flows are influenced significantly by the level of interest rates and general money market conditions.

Borrowings may be used to compensate for reductions in other sources of funds such as deposits. As a member of the FHLB System, the Bank may borrow from the FHLB of Indianapolis. At December 31, 2005, the Bank had $86.6 million in borrowings from the FHLB of Indianapolis. As of that date, the Bank had commitments of approximately $135.9 million to fund lines of credit and undisbursed portions of loans in process, loan originations of approximately $19.2 million, letters of credit of $4.0 million, and commitments to sell loans of $12.9 million. In the opinion of management, the Bank has sufficient cash flow and borrowing capacity to meet current and anticipated funding commitments.

The Bank's liquidity, represented by cash and cash equivalents, is a result of its operating, investing and financing activities. During the fiscal year ended December 31, 2005, there was a net increase of $1.4 million in cash and cash equivalents. The major uses of cash during the year were: originations of mortgages held for sale of $97.7 million; purchases of investment and mortgage-backed securities of $37.7 million; and repayment of FHLB advances of $52.8 million. The major sources of cash provided during the year included $97.1 million from selling fixed rate mortgage loans primarily to Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”); maturities and sales of investment securities of $36.4 million; and increases in deposits of $17.2 million.

SIGNIFICANT COMMITMENTS

In the normal course of business, the Bank is a party to various activities that contain credit and market risk that are not reflected in the financial statements. Such activities include commitments to extend credit, selling loans, borrowing funds, and standby letters of credit. Commitments or extend credit, including loan commitments and standby letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon. Commitments are summarized as follows: (in thousands)

CONTRACTUALLY OBLIGATED PAYMENTS AND OTHER COMMITMENTS

	Less Than 1 year		1-3 years		4-5 years		Greater Than 5 years		Total
Contractually obligated payments due by period:
Certificates of Deposits	$	174,398	$	96,426	$	24,991	$	3,875	$	299,690
Long Term Debt		32,403		21,100		27,492		19,880		100,875
Purchase obligations		219		445		424		1,289		2,377
Commitments to extend credit:
Commercial		75,368		-		-		-		75,368
Residential real estate		19,159		-		-		-		19,159
Revolving home equity lines of credit		58,818		-		-		-		58,818
Other		1,754		-		-		-		1,754
Standby letters of credit		3,991		-		-		-		3,991
Commitments to sell loans:
Mortgage		6,439		-		-		-		6,439
Commercial		6,413		-		-		-		6,413
Total	$	378,962	$	117,971	$	52,907	$	25,044	$	574,884

Commitments to borrow or extend credit, including loan commitments and standby letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

 

- 20 -

OFF-BALANCE SHEET ARRANGEMENTS

The term “off-balance sheet arrangement” generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. The Company does not have any off-balance sheet arrangements with unconsolidated entities that have or are reasonably likely to have a current or future effect on the Company’s financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

JOINT VENTURES

The Company has invested in joint ventures through its subsidiaries, Home Savings Corporation (“HSC”) and HomeFed Financial Corp. On December 31, 2001, the Bank changed its charter from a Federal savings bank charter to an Indiana commercial bank charter. Commercial banks are not permitted to participate in real estate development joint ventures. HSC is a partner in three real estate development joint ventures for which exit strategies have been either developed, or are currently being developed. The Company, as mandated by its charter change, is in the process of divesting itself of these investments by December 31, 2006. The investments are accounted for by the equity method.

DERIVATIVE FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 133, (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts requires all derivatives, whether designated as a hedge, or not, to be recorded on the balance sheet at fair value. The Company designates its fixed rate and variable rate interest rate swaps as fair value and cash flow hedge instruments, respectively. If the derivative is designated as a fair value hedge, the changes in fair value of the derivative are recognized in earnings. If the derivative is designated as a cash flow hedge, the changes in fair value of the derivative are recorded in accumulated other comprehensive income (“OCI”), net of income taxes. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. See Note 1 for further discussion of derivative financial instruments.

IMPACT OF INFLATION

The consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. The primary assets and liabilities of commercial banks such as the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the price of goods and services. In the current interest rate environment, liquidity, maturity structure and quality of the Bank's assets and liabilities are critical to the maintenance of acceptable performance levels.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 123 - R, (“SFAS 123-R”), Revised 2004, is effective as of the beginning of the first interim or annual reporting period of the registrants’ first fiscal year beginning on or after June 15, 2005. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Management does not believe the adoption of SFAS No. 123 - R will have a material effect on its consolidated financial statements.

Emerging Issues Task Force, (“EITF”), Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” provides guidance for determining when an investment is considered impaired (when fair value is less than cost), for evaluating whether impairment is other-than-temporary, and, if other-than-temporary, requiring recognition of an impairment loss equal to the difference between the investment's cost and its fair value.   Generally, an impairment is considered other-than-temporary unless:  (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for a forecasted recovery of fair value equal to (or more than) the cost of the investment; and (b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary.  The Financial Accounting Standards Board, (“FASB”), delayed the effective date for the measurement and recognition guidance contained in paragraphs 10 - 20 of EITF Issue 03-1 by FASB Staff Position, (“FSP”), EITF Issue 03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," posted September 30, 2004. The delay of the effective date for paragraphs 10-20 will be superseded concurrent with the final issuance of proposed FSP EITF Issue 03-1-a, "Implication Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.“ Gross unrealized losses on available for sale securities and held to maturity securities were $2,863,000 and $21,000, respectively, at December 31, 2005.  Management has determined the adoption of EITF 03-1 and FSP EITF Issue 03-1-1 did not have a material effect on its consolidated financial statements.

FSP Nos. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, was posted November 3, 2005. This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Management has determined the adoption of FSP Nos. FAS 115-1 and FAS 124-1 did not have a material effect on its consolidated financial statements.

- 21 -

CRITICAL ACCOUNTING POLICIES

The notes to the consolidated financial statements contain a summary of the Company’s significant accounting policies. Certain of these policies are critical to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include a determination of the allowance for loan losses and the valuation of mortgage servicing rights.

Allowance for Loan Losses

A loan is considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the loan’s observable market price or the estimated fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses. Loan losses are charged against the allowance when management believes the loans are uncollectible. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level management considers to be adequate to absorb probable loan losses inherent in the portfolio, based on evaluations of the collectibility and historical loss experience of loans. The allowance is based on ongoing assessments of the probable estimated losses inherent in the loan portfolio. The Company’s methodology for assessing the appropriate allowance level consists of several key elements, as described below.

All delinquent loans that meet regulatory requirements are included on the Asset Watch List. The Asset Watch List is reviewed quarterly by the Asset Watch Committee for any classification beyond the regulatory rating based on a loan’s delinquency.

Commercial and commercial real estate loans are individually risk rated pursuant to the loan policy. Homogeneous loans such as consumer and residential mortgage loans are not individually risk rated by management. They are risk rated based on historical portfolio data that management believes will provide a good basis for the loans' quality. For all loans not listed individually on the Asset Watch List, historical loss rates based on the last four years are the basis for developing expected charge-offs for each pool of loans.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the local economy, trends in the nature and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans), changes in the internal lending policies and credit standards, collection practices, and examination results from bank regulatory agencies and the Company’s credit review function.

Finally, a portion of the allowance is maintained in recognition of the inherent inability to precisely determine the loss potential based on factors such as current economic conditions, trends in the Company’s loan portfolio delinquency, losses and recoveries, level of under performing and nonperforming loans, and concentrations of loans in any one industry.

Valuation of Mortgage Servicing Rights

The Company recognizes the rights to service mortgage loans as separate assets, which are included in other assets in the consolidated balance sheet. The total cost of loans when sold is allocated between loans and MSR’s based on the relative fair values of each. MSR’s are subsequently carried at the lower of the initial carrying value, adjusted for amortization, or fair value. MSR’s are evaluated for impairment based on the fair value of those rights. The Company uses a present value cash flow valuation model to establish the fair value of the MSR’s. Factors included in the calculation of fair value of the MSR’s include estimating the present value of future net cash flows, market loan prepayment speeds for similar loans, discount rates, servicing costs, and other economic factors. Servicing rights are amortized over the estimated period of net servicing revenue. It is likely that these economic factors will change over the life of the MSR’s, resulting in different valuations of the MSR’s. The differing valuations will affect the carrying value of the MSR’s on the balance sheet as well as the income recorded from loan servicing in the income statement.

- 22 -

Management's Assessment as to the Effectiveness of Internal Control over Financial Reporting

The management of Home Federal Bancorp is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13A-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of  the company are being made only in accordance with authorizations of management and directors of the company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, management believes that, as of December 31, 2005, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on our assessment of the Company’s internal control over financial reporting. This report follows.

- 23 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Home Federal Bancorp

Columbus, Indiana

We have audited management’s assessment, included in the accompanying Management’s Assessment as to the Effectiveness of Internal Control over Financial Reporting that Home Federal Bancorp and its subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing, and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2005, and our report dated February 28, 2006 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

Indianapolis, Indiana

February 28, 2006

- 24 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Home Federal Bancorp

Columbus, Indiana

We have audited the accompanying consolidated balance sheets of Home Federal Bancorp and its subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Home Federal Bancorp and subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

Indianapolis, Indiana

February 28, 2006

- 25 -

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

	Dec 2005			Dec 2004
Assets:
Cash	$	30,642		$	24,729
Interest-bearing deposits		23,094			27,591
Total cash and cash equivalents		53,736			52,320
Securities available for sale at fair value (amortized cost $126,146 and $125,086)		123,351			124,790
Securities held to maturity at amortized cost (fair value $1,796 and $1,801)		1,806			1,779
Loans held for sale (fair value $4,859 and$2,653)		4,795			2,617
Loans receivable, net of allowance for loan losses of $6,753 and $7,864		608,556			629,490
Investments in joint ventures		2,486			3,550
Federal Home Loan Bank stock		9,965			9,965
Accrued interest receivable, net		3,942			3,700
Premises and equipment, net		17,781			15,855
Real estate owned		271			2,019
Prepaid expenses and other assets		9,351			8,909
Cash surrender value of life insurance		12,919			11,818
Goodwill, net		1,695			1,395
Total Assets	$	850,654		$	868,207
Liabilities and Shareholders' Equity:
Liabilities:
Deposits	$	657,339		$	640,181
Federal Home Loan Bank advances		86,633			125,446
Senior debt		14,242			14,242
Other borrowings		166			211
Advance payments by borrowers for taxes and insurance		121			48
Accrued expenses and other liabilities		19,115			10,715
Total liabilities		777,616			790,843
Commitsments and contingencies
Shareholders' equity
No par preferred stock; Authorized: 2,000,000 shares
Issued and outstanding: None
No par common stock; Authorized: 15,000,000 shares
Issued and outstanding: 3,815,657 and 4,027,991		15,152			13,514
Retained earnings, restricted		59,723			64,138
Accumulated other comprehensive loss, net		(1,837	)		(288	)
Total shareholders' equity		73,038			77,364
Total Liabilities and Shareholders' Equity	$	850,654		$	868,207

See notes to consolidated financial statements

- 26 -

CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per share data)

	Year Ended		Year Ended		Year Ended
	Dec 2005		Dec 2004		Dec 2003
Interest Income:
Loans receivable	$	39,610	$	38,372	$	41,313
Securities available for sale and held to maturity		4,652		4,109		3,932
Other interest income		714		265		357
Total interest income		44,976		42,746		45,602
Interest Expense:
Deposits		13,265		10,832		12,204
Advances from Federal Home Loan Bank		5,743		7,627		9,221
Other borrowings		809		700		839
Total interest expense		19,817		19,159		22,264
Net interest income		25,159		23,587		23,338
Provision for loan losses		808		1,770		1,268
Net interest income after provision for loan losses		24,351		21,817		22,070
Other Income:
Gain on sale of loans		1,539		2,651		7,628
Gain (loss) on sale of securities available for sale		-		-		(83	)
Income from joint ventures		443		172		668
Insurance, annuity income, other fees		2,134		1,823		1,677
Service fees on checking accounts		3,436		2,950		2,715
Net gain on real estate owned		123		211		197
Loan servicing income, net of impairments		1,354		654		575
Miscellaneous		1,267		1,222		1,301
Total other income		10,296		9,683		14,678
Other Expenses:
Compensation and employee benefits		14,502		13,419		12,110
Occupancy and equipment		3,679		3,166		3,027
Service bureau expense		1,103		1,008		957
Federal insurance premium		88		90		95
Marketing		1,110		718		655
Miscellaneous		5,094		5,392		5,241
Total other expenses		25,576		23,793		22,085
Income before income taxes		9,071		7,707		14,663
Income tax provision		2,969		2,544		5,020
Net Income	$	6,102	$	5,163	$	9,643
Basic Earnings per Common Share	$	1.57	$	1.25	$	2.26
Diluted Earnings per Common Share	$	1.53	$	1.21	$	2.15

See notes to consolidated financial statements

- 27 -

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands except share data)

	Shares Outstanding			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance at December 2002		4,228,859		$	9,184		$	68,156		$	454		$	77,794
Comprehensive income:
Net income								9,643						9,643
Change in unrealized gain on securities available for sale, net of reclassification adjustment and tax effect											(687	)		(687	)
Change in fair value of cash flow hedge, net of tax											203			203
Total comprehensive income														9,159
Stock options exercised		224,346			3,128									3,128
Stock repurchased		(140,400	)		(209	)		(3,366	)					(3,575	)
Tax benefit related to exercise of non-qualified stock options					513									513
Cash dividends ($.700 per share)								(2,997	)					(2,997	)
Balance at December 2003		4,312,805			12,616			71,436			(30	)		84,022
Comprehensive income:
Net income								5,163						5,163
Change in unrealized loss on securities available for sale, net of reclassification adjustment and tax effect											(449	)		(449	)
Change in fair value of cash flow hedge, net of tax											191			191
Total comprehensive income														4,905
Stock options exercised		83,485			1,293									1,293
Stock repurchased		(368,299	)		(549	)		(9,404	)					(9,953	)
Tax benefit related to exercise of non-qualified stock options					154									154
Cash dividends ($.750 per share)								(3,057	)					(3,057	)
Balance at December 2004		4,027,991			13,514			64,138			(288	)		77,364
Comprehensive income:
Net income								6,102						6,102
Change in unrealized loss on securities available for sale, net of reclassification adjustment and tax effect											(1,637	)		(1,637	)
Change in fair value of cash flow hedge, net of tax											88			88
Total comprehensive income														4,553
Stock options exercised		109,066			1,846									1,846
Stock repurchased		(321,400	)		(478	)		(7,608	)					(8,086	)
Tax benefit related to exercise of non-qualified stock options					270									270
Cash dividends ($.750 per share)								(2,909	)					(2,909	)
Balance at December 2005		3,815,657		$	15,152		$	59,723		$	(1,837	)	$	73,038

See notes to consolidated financial statements

- 28 -

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended			Year Ended			Year Ended
	Dec 2005			Dec 2004			Dec 2003
Cash Flows From Operating Activities:
Net income	$	6,102		$	5,163		$	9,643
Adjustments to reconcile net income to net cash from operating activities:
Accretion of discounts, amortization and depreciation		1,808			2,161			2,212
Provision for loan losses		808			1,770			1,268
Net gain from sale of loans		(1,539	)		(2,651	)		(7,628	)
Net (gain) loss from sale of securities available for sale		-			-			83
Income from joint ventures and net gain from real estate owned		(566	)		(384	)		(865	)
Net loan fees recognized		(216	)		(79	)		(22	)
Proceeds from sale of loans held for sale		97,079			143,661			381,900
Origination of loans held for sale		(97,717	)		(137,355	)		(349,984	)
Increase in accrued interest and other assets		(1,177	)		(1,522	)		(2,805	)
Increase (decrease) in other liabilities		7,713			(370	)		336
Net Cash From Operating Activities		12,295			10,394			34,138
Cash Flows From Investing Activities:
Net principal received on loans		22,062			8,607			7,570
Proceeds from:
Maturities/Repayments of:
Securities held to maturity		461			523			1,304
Securities available for sale		25,895			26,266			131,136
Sales of:
Securities available for sale		10,048			23,256			40,078
Real estate owned and other asset sales		1,706			1,422			2,328
Purchases of:
Loans		(1,720	)		(9,116	)		(10,605	)
Securities available for sale		(37,208	)		(51,998	)		(182,214	)
Securities held to maturity		(490	)		(471	)		(100	)
Investment in joint ventures, net		1,507			2,124			1,877
Investment in cash surrender value of life insurance		(655	)		-			-
Acquisition of property and equipment		(2,353	)		(3,400	)		(2,557	)
Net Cash From Investing Activities		19,253			(2,787	)		(11,183	)
Cash Flows From Financing Activities:
Net increase (decrease) in deposits		17,158			51,515			(20,443	)
Proceeds from advances from Federal Home Loan Bank		14,000			19,500			14,700
Repayment of advances from Federal Home Loan Bank		(52,813	)		(48,350	)		(32,039	)
Net decrease from overnight borrowings		(45	)		(413	)		(1,243	)
Common stock options exercised, net of fractional shares paid		1,846			1,293			3,128
Repurchase of common stock		(8,086	)		(9,953	)		(3,575	)
Payment of dividends on common stock		(2,192	)		(3,057	)		(2,997	)
Net Cash From Financing Activities		(30,132	)		10,535			(42,469	)
Net increase (decrease) in cash and cash equivalents		1,416			18,142			(19,514	)
Cash and cash equivalents, beginning of period		52,320			34,178			53,692
Cash and Cash Equivalents, End of Period	$	53,736		$	52,320		$	34,178
Supplemental Information:
Cash paid for interest	$	19,955		$	19,207		$	22,398
Cash paid for income taxes	$	2,236		$	1,939		$	5,840
Assets acquired through foreclosure	$	1,262		$	2,086		$	3,606
Goodwill and identifiable intangible assets	$	400		$	-		$	-
Real estate owned transferred to property and equipment, net	$	1,173		$	-		$	-
Dividends payable	$	717		$	-		$	-

See notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended December 31, 2005, 2004 And 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of Home Federal Bancorp (the “Company") conform to accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. A summary of the more significant accounting policies follows:

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, HomeFed Financial Corp. and HomeFederal Bank (the “Bank") and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Description of Business

The Company is a bank holding company. The Bank provides financial services to south-central Indiana through its main office in Columbus and 18 other full service banking offices.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Estimates most susceptible to change in the near term include the allowance for loan losses, the valuation of mortgage servicing rights, the valuation of investments in joint ventures and the fair value of securities.

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

Securities

Securities are required to be classified as held to maturity, available for sale or trading. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity. Debt and equity securities not classified as either held to maturity or trading securities are classified as available for sale. Only those securities classified as held to maturity are reported at amortized cost, with those available for sale and trading reported at fair value with unrealized gains and losses included in shareholders' equity or income, respectively. Premiums and discounts are amortized over the contractual lives of the related securities using the level yield method. Gain or loss on sale of securities is based on the specific identification method.

Loans Held for Sale

Loans held for sale consist of fixed rate mortgage loans conforming to established guidelines and held for sale to the secondary market. Mortgage loans held for sale are carried at the lower of cost or fair value determined on an aggregate basis. Gains and losses on the sale of these mortgage loans are included in other income.

Mortgage Servicing Rights

The Company recognizes the rights to service mortgage loans as separate assets, which are included in other assets in the consolidated balance sheet. The total cost of loans when sold is allocated between loans and MSR’s, based on the relative fair values of each. MSR’s are subsequently carried at the lower of the initial carrying value, adjusted for amortization, or fair value. MSR’s are evaluated for impairment based on the fair value of those rights. The Company uses a present value cash flow valuation model to establish the fair value of the MSR’s. Factors included in the calculation of fair value of the MSR’s include estimating the present value of future net cash flows, market loan prepayment speeds for similar loans, discount rates, servicing costs, and other economic factors. Servicing rights are amortized over the estimated period of net servicing revenue. It is likely that these economic factors will change over the life of the MSR’s, resulting in different valuations of the MSR’s. The differing valuations will affect the carrying value of the MSR’s on the balance sheet as well as the income recorded from loan servicing in the income statement.

Loans

Interest on real estate, commercial and installment loans is accrued over the term of the loans on a level yield basis. The recognition of interest income is discontinued when, in management’s judgment, the interest will not be collectible in the normal course of business.

Loan Origination Fees

Nonrefundable origination fees, net of certain direct origination costs, are deferred and recognized as a yield adjustment over the life of the underlying loan. Any unamortized fees on loans sold are credited to gain on sale of loans at the time of sale.

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Uncollected Interest

An allowance for the loss of uncollected interest is generally provided on loans which are more than 90 days past due. The only loans which are 90 days past due and do not have an allowance for the loss of interest, are loans where the Bank is guaranteed reimbursement of interest by either a mortgage insurance contract or by a government agency. If neither of these criteria is met, an allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments returns to normal, in which case the loan is returned to accrual status.

Allowance for Loan Losses

A loan is considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the loan’s observable market price or the estimated fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses. Loan losses are charged against the allowance when management believes the loans are uncollectible. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level management considers to be adequate to absorb probable loan losses inherent in the portfolio, based on evaluations of the collectibility and historical loss experience of loans. The allowance is based on ongoing assessments of the probable estimated losses inherent in the loan portfolio. The Company’s methodology for assessing the appropriate allowance level consists of several key elements, as described below.

All delinquent loans that meet regulatory requirements are included on the Asset Watch List. The Asset Watch List is reviewed quarterly by the Asset Watch Committee for any classification beyond the regulatory rating based on the loans' delinquency.

Commercial and commercial real estate loans are individually risk rated pursuant to the loan policy. Homogeneous loans such as consumer and residential mortgage loans are not individually risk rated by management. They are risk rated based on historical portfolio data that management believes will provide a good basis for the loans' quality. For all loans not listed individually on the Asset Watch List, historical loss rates based on the last four years are the basis for developing expected charge-offs for each pool of loans.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the local economy, trends in the nature and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans), changes in the internal lending policies and credit standards, collection practices, and examination results from bank regulatory agencies and the Company’s credit review function.

Finally, a portion of the allowance is maintained in recognition of the inherent inability to precisely determine the loss potential based on factors such as current economic conditions, trends in the Company’s loan portfolio delinquency, losses and recoveries, level of under performing and nonperforming loans, and concentrations of loans in any one industry.

Real Estate Owned

Real estate owned represents real estate acquired through foreclosure or deed in lieu of foreclosure and is recorded at the lower of fair value or carrying amount. When property is acquired, it is recorded at net realizable value at the date of acquisition, with any resulting write-down charged against the allowance for loan losses. Any subsequent deterioration of the property is charged directly to real estate owned expense. Costs relating to the development and improvement of real estate owned are capitalized, whereas costs relating to holding and maintaining the properties are charged to expense.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over estimated useful lives that range from three to thirty-nine years.

Derivative Financial Instruments

Statement of Financial Accounting Standards, (“SFAS”), No. 133, “Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts. The Company records all derivatives, whether designated as a hedge, or not, on the balance sheet at fair value. The Company designates its fixed rate and variable rate interest rate swaps as fair value and cash flow hedge instruments, respectively. If the derivative is designated as a fair value hedge, the changes in fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the changes in fair value of the derivative and of the hedged item attributable to the hedged risk are recorded in accumulated OCI, net of income taxes.

- 31 -

The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company has entered into interest rate swap agreements as a means of managing its interest rate exposure on certain fixed rate commercial loans and variable rate debt obligations. As of December 31, 2005, the notional amount of the Company’s two outstanding fair value interest rate swaps on commercial loans was $4.9 million with maturities in 2008 and 2009, as discussed in Note 3. The notional amount of the Company’s outstanding cash flow interest rate swap on debt obligations was $4.6 million with maturity in 2006, as discussed in Note 10.

As of December 31, 2005, the fair value of the fair value hedge was a liability of $181,000. As of December 31, 2005, the fair value of the cash flow hedge was a liability of $18,000. The total income statement impact resulting from the fair value and cash flow hedges was zero, as management has determined there to be no ineffectiveness in accordance with SFAS No. 133.

Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company annually evaluates goodwill for impairment. Management determined that there was no impairment charge resulting from its annual impairment test.

In the fourth quarter of 2005, the Company purchased a retail brokerage book of business on the south side of Indianapolis. This purchase increased goodwill $300,000.

Income Taxes

The Company and its wholly-owned subsidiaries file consolidated income tax returns. Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities recorded for financial reporting purposes and basis of such assets and liabilities as measured by tax laws and regulations.

Earnings per Common Share

Earnings per share of common stock are based on the weighted average number of basic shares and dilutive shares outstanding during the year.

The following is a reconciliation of the weighted average common shares for the basic and diluted earnings per share computations:

	Year Ended Dec 2005		Year Ended Dec 2004		Year Ended Dec 2003
Basic Earnings per Share:
Weighted average common shares		3,897,501		4,117,085		4,267,257
Diluted Earnings per Share:
Weighted average common shares		3,897,501		4,117,085		4,267,257
Dilutive effect of stock options		95,554		146,038		216,088
Weighted average common and incremental shares		3,993,055		4,263,123		4,483,345

Anti-dilutive options are summarized as follows:

As Of	Dec 2005		Dec 2004		Dec 2003
Anti-dilutive options		128,974		92,599		-

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Comprehensive Income

The following is a summary of the Company's comprehensive income: (dollars in thousands)

	Year Ended Dec 2005			Year Ended Dec 2004			Year Ended Dec 2003
Net Income	$	6,102		$	5,163		$	9,643
Other comprehensive income (loss):
Unrealized holding losses from securities available for sale		(2,500	)		(691	)		(1,127	)
Reclassification adjustment for losses realized in income		-			-			83
Unrealized gains from cash flow hedge		145			317			336
Net unrealized losses		(2,355	)		(374	)		(708	)
Tax effect		806			116			224
Other comprehensive loss, net of tax		(1,549	)		(258	)		(484	)
Comprehensive Income	$	4,553		$	4,905		$	9,159

Segments

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” management has concluded that the Company is comprised of a single operating segment, community banking activities, and has disclosed all required information relating to its one operating segment. Management considers parent company activity to represent an overhead function rather than an operating segment. The Company operates in one geographical area and does not have a single external customer from which it derives 10 percent or more of its revenue.

Stock Based Compensation

The Company has stock-based employee compensation plans, which are described more fully in Note 14. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. (dollars in thousands)

(dollars in thousands, except share data)	Year Ended Dec 2005			Year Ended Dec 2004			Year Ended Dec 2003
Net income, as reported	$	6,102		$	5,163		$	9,643
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(226	)		(55	)		(206	)
Pro forma net income	$	5,876		$	5,108		$	9,437
Earnings per share:
Basic---as reported	$	1.57		$	1.25		$	2.26
Basic---pro forma	$	1.51		$	1.24		$	2.21
Diluted---as reported	$	1.53		$	1.21		$	2.15
Diluted---pro forma	$	1.47		$	1.20		$	2.10

The pro forma amounts are not representative of the effects on reported net income for future years.

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New Accounting Pronouncements

SFAS 123-R (Revised 2004) is effective as of the beginning of the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Management does not believe the adoption of SFAS No. 123 - R will have a material effect on its consolidated financial statements.

EITF Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” provides guidance for determining when an investment is considered impaired (when fair value is less than cost), for evaluating whether impairment is other-than-temporary, and, if other-than-temporary, requiring recognition of an impairment loss equal to the difference between the investment's cost and its fair value.   Generally, an impairment is considered other-than-temporary unless:  (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for a forecasted recovery of fair value equal to (or more than) the cost of the investment; and (b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary.  The FASB, delayed the effective date for the measurement and recognition guidance contained in paragraphs 10 - 20 of EITF Issue 03-1 by FSP EITF Issue 03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," posted September 30, 2004. The delay of the effective date for paragraphs 10-20 will be superseded concurrent with the final issuance of proposed FSP EITF Issue 03-1-a, "Implication Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.“ Gross unrealized losses on available for sale securities and held to maturity securities were $2,863,000 and $21,000, respectively, at December 31, 2005.  Management has determined the adoption of EITF 03-1 and FSP EITF Issue 03-1-1 did not have a material effect on its consolidated financial statements.

FSP Nos. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, was posted November 3, 2005. This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Management has determined the adoption of FSP Nos. FAS 115-1 and FAS 124-1did not have a material effect on its consolidated financial statements.

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2. SECURITIES

Securities are summarized as follows: (in thousands)

	December 31, 2005									December 31, 2004
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Held to Maturity:
Municipal bonds	$	775	$	-	$	-		$	775	$	1,020	$	4	$	-		$	1,024
Certificate of deposit		100		-		-			100		100		-		-			100
Mortgage backed securities		931		11		(21	)		921		659		20		(2	)		677
Total Held to Maturity	$	1,806	$	11	$	(21	)	$	1,796	$	1,779	$	24	$	(2	)	$	1,801
Available for Sale:
Agency bonds	$	44,742	$	-	$	(847	)	$	43,895	$	40,073	$	35	$	(182	)	$	39,926
Municipal bonds		22,834		14		(349	)		22,499		15,293		162		(9	)		15,446
Collateralized mortgage obligations		23,645		2		(598	)		23,049		31,064		58		(216	)		30,906
Mortgage backed securities		28,117		52		(950	)		27,219		31,272		153		(273	)		31,152
Corporate debt		1,929		-		(33	)		1,896		1,926		45		(31	)		1,940
Equity mutual funds		4,804		-		(86	)		4,718		5,383		-		(38	)		5,345
Equity securities		75		-		-			75		75		-		-			75
Total Available for Sale	$	126,146	$	68	$	(2,863	)	$	123,351	$	125,086	$	453	$	(749	)	$	124,790

Certain securities, with amortized cost of $6.6 million and fair value of $6.5 million at December 31, 2005 and amortized cost and fair value of $8.9 million at December 31, 2004 were pledged as collateral for the Bank's treasury, tax and loan account at the Federal Reserve, for Federal Home Loan Bank Advances, and for certain trust, IRA and KEOGH accounts.

The amortized cost and fair value of securities at December 31, 2005 by contractual maturity are summarized as follows: (in thousands)

	Held to Maturity							Available for Sale
	Amortized Cost		Fair Value		Yield			Amortized Cost		Fair Value		Yield
Agency bonds:
Due in one year or less	$	-	$	-		-		$	11,497	$	11,429		2.97	%
Due after 1 year through 5 years		-		-		-			33,245		32,466		3.62	%
Due after 10 years		-		-		-			-		-		-
Municipal bonds:
Due in one year or less		-		-		-			-		-		-
Due after 1 year through 5 years		-		-		-			9,551		9,386		4.03	%
Due after 5 years through 10 years		535		535		7.43	%		12,966		12,803		5.39	%
Due after 10 years		240		240		7.77	%		317		310		5.50	%
Certificate of deposit:
Due in one year or less		100		100		4.30	%		-		-		-
Collateralized mortgage obligations		-		-		-			23,645		23,049		3.91	%
Mortgage backed securities		931		921		5.74	%		28,117		27,219		4.10	%
Corporate debt:
Due after 10 years		-		-		-			1,929		1,896		4.01	%
Equity mutual funds		-		-		-			4,804		4,718		3.97	%
Equity securities		-		-		-			75		75		-
Total	$	1,806	$	1,796		6.43	%	$	126,146	$	123,351		3.96	%

Activities related to the sales of securities available for sale and called securities are summarized as follows: (in thousands)

	Year Ended		Year Ended		Year Ended
	Dec 2005		Dec 2004		Dec 2003
Proceeds from sales	$	10,048	$	23,256	$	40,078
Gross gains on sales		-		-		37
Gross losses on sales		-		-		120

Taxable interest income and non-taxable interest income earned on the investment portfolio is summarized as follows: (in thousands)

	Year Ended		Year Ended		Year Ended
	Dec 2005		Dec 2004		Dec 2003
Taxable interest income	$	4,111	$	3,614	$	3,564
Non-taxable interest income		541		495		368
Total interest income	$	4,652	$	4,109	$	3,932

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The majority of unrealized losses in the portfolio resulted from increases in market interest rates and not from deterioration in the creditworthiness of the issuer. The total number of security positions in the investment portfolio that were in an unrealized loss position at December 31, 2005 is 139.

Investments that have been in a continuous unrealized loss position for longer than one month as of December 31, 2005 are summarized as follows: (in thousands)

	Less than Twelve Months					Twelve Months Or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Agency bonds	$	16,856	$	(261	)	$	26,041	$	(587	)	$	42,897	$	(848	)
Collateralized mortgage obligations		1,364		(17	)		21,077		(580	)		22,441		(597	)
Mortgage backed securities		6,574		(178	)		19,417		(793	)		25,991		(971	)
Corporate debt		-		-			1,896		(33	)		1,896		(33	)
Municipal bonds		11,715		(205	)		5,005		(96	)		16,720		(301	)
Equity mutual funds		-		-			3,710		(86	)		3,710		(86	)
Total Temporarily Impaired Securities	$	36,509	$	(661	)	$	77,146	$	(2,175	)	$	113,655	$	(2,836	)

3. LOANS RECEIVABLE

Loans receivable are summarized as follows: (in thousands)

As Of	Dec 2005			Dec 2004
First mortgage loans:
Residential single family	$	161,936		$	172,738
Commercial and multi-family		177,748			180,175
Property under construction		57,161			84,655
Unimproved land		1,615			2,730
Home equity		40,710			37,132
Second mortgage		47,183			43,214
Commercial		105,827			105,495
Mobile home		2,537			3,289
Automobile		27,335			24,921
Consumer		3,814			4,157
Savings account		2,266			2,340
Gross loans receivable		628,132			660,846
Allowance for loan losses		(6,753	)		(7,864	)
Deferred loan fees, net		(261	)		(476	)
Undisbursed loan proceeds		(12,562	)		(23,016	)
Loans Receivable, Net	$	608,556		$	629,490

The Bank originates both adjustable and fixed rate loans. The adjustable rate loans have interest rate adjustment limitations and are indexed to various indices. Adjustable residential mortgages are generally indexed to the one year Treasury constant maturity rate; adjustable consumer loans are generally indexed to the prime rate; adjustable commercial loans are generally indexed to either the prime rate or the one, three or five year Treasury constant maturity rate. Future market factors may affect the correlation of the interest rates the Bank pays on the short-term deposits that have been primarily utilized to fund these loans.

The principal balance of loans on nonaccrual status totaled approximately $3.1 million at December 31, 2005 and $9.5 million at December 31, 2004. The Bank would have recorded interest income of $465,000 and$906,000 for the years ended December 31, 2005 and 2004 if loans on non-accrual status had been current in accordance with their original terms. Actual interest received was $160,000 and $407,000for the years ended December 31, 2005 and 2004, respectively. The Bank agreed to modify the terms of certain loans to customers who were experiencing financial difficulties. Modifications included forgiveness of interest, reduced interest rates and/or extensions of the loan term. The principal balance at December 31, 2005 and December 31, 2004 on these restructured loans was $809,000 and $3.1 million, respectively.

The Bank's primary lending area is south-central Indiana. Virtually all of the Bank's loans originated and purchased are to borrowers located within the state of Indiana. The Bank originates and purchases commercial real estate loans, which totaled $177.7 million and $180.2 million at December 31, 2005 and 2004, respectively. These loans are considered by management to be of somewhat greater risk of collectibility due to the dependency on income production or future development of the real estate. Of the commercial real estate loans, $19.6 million and $27.0 million were collateralized by multi-family residential property at December 31, 2005 and 2004, respectively. The Bank also purchases and originates commercial loans. Collateral for HomeFederal Bank's commercial loans includes manufacturing equipment, real estate, inventory, accounts receivable, and securities. Terms of these loans are normally for up to ten years and have adjustable rates tied to the reported prime rate and treasury indices. Generally, commercial loans are considered to involve a higher degree of risk than residential real estate loans. However, commercial loans generally carry a higher yield and are made for a shorter term than real estate loans. As of December 31, 2005 and 2004, HomeFederal Bank's total loan portfolio consisted of commercial loans of $105.8 million and $105.5 million, respectively.

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The Company has entered into two fair value interest rate swap agreements with KeyBank on two fixed rate commercial loans. In the first agreement the Company will receive variable rate payments at the thirty-day London inter bank offering rate (“LIBOR”) index and make fixed rate payments at 6.28%. The notional amount on the swap was $3.1 million as of December 31, 2005. The thirty-day LIBOR was 4.39% at December 31, 2005. The termination date of the first swap agreement is July 1, 2008. In the second agreement the Company will receive variable rate payments at thirty day LIBOR and make fixed rate payments at 6.24%. The notional amount of the swap was $1.8 million as of December 31, 2005. The termination date of the second swap agreement is January 2, 2009. The two interest rate swaps are settled on a net basis. The Company is exposed to losses, in the event of nonperformance by KeyBank, for the net interest rate differential when floating rates exceed the fixed maximum rate. However, the Company does not anticipate nonperformance by the counter party.

Under the capital standards provisions of FIRREA, the loans-to-one-borrower limitation is generally 15% of unimpaired capital and surplus, which, for the Bank, was approximately $13.4 million and $13.8 million at December 31, 2005 and 2004, respectively. As of December 31, 2005 and 2004, the Bank was in compliance with this limitation.

Aggregate loans to officers and directors included above were $3.9 million and $5.2 million as of December 31, 2005 and 2004, respectively. Such loans are made in the ordinary course of business and are made on substantially the same terms as those prevailing at the time for comparable transactions with other borrowers. For the year ended December 31, 2005, loans of $2.6 million were disbursed to officers and directors and repayments of $3.9 million were received from officers and directors.

An analysis of the allowance for loan losses is as follows: (in thousands)

	Year Ended			Year Ended			Year Ended
	Dec 2005			Dec 2004			Dec 2003
Beginning balance	$	7,864		$	7,506		$	7,172
Provision for loan losses		808			1,770			1,268
Charge-offs		(2,048	)		(1,524	)		(1,079	)
Recoveries		129			112			145
Ending Balance	$	6,753		$	7,864		$	7,506

The following is a summary of information pertaining to impaired loans: (in thousands)

As Of	Dec 2005		Dec 2004
Impaired loans with a valuation reserve	$	178	$	7,247
Impaired loans with no valuation reserve		13,085		10,457
Total Impaired Loans	$	13,263	$	17,704
Valuation reserve on impaired loans	$	137	$	912
Average impaired loans	$	15,817	$	16,263

4. MORTGAGE BANKING ACTIVITIES

At December 31, 2005 and 2004, the Bank was servicing loans for others amounting to $588.5 million and $605.0 million, respectively. Net gain on sale of loans, exclusive of gain attributable to retained MSR’s was $983,000 for the year ended December 31, 2005 and $1.6 million for the year ended December 31, 2004. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Loan servicing income includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees.

The Bank is obligated to repurchase certain loans sold to and serviced for others that become delinquent as defined by the various agreements. At December 31, 2005 and 2004, these obligations were limited to approximately $499,000 and $70,000, respectively.

The following analysis reflects the changes in mortgage servicing rights retained: (in thousands)

Period Ended	Dec 2005			Dec 2004
Beginning carrying value	$	2,974		$	3,383
Additions		556			1,038
Amortization		(1,354	)		(1,542	)
Net change in valuation allowance		549			95
Ending Carrying Value	$	2,725		$	2,974

The carrying value approximates fair value at December 31, 2005 and 2004. Fair value is estimated by discounting the net servicing income to be received over the estimated servicing term using a current market rate. The significant risk characteristics of the underlying loans used to stratify MSRs for impairment measurement were term and rate of note. The valuation allowance as of December 31, 2005 and 2004 was $425,000 and $974,000, respectively. The estimated annual amortization expense for each of the next five years is $915,000,$662,000, $420,000, $280,000, and $216,000.

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5. INVESTMENTS IN JOINT VENTURES

The Company has invested in joint ventures through its subsidiaries, Home Savings Corporation (“HSC”) and HomeFed Financial Corp. On December 31, 2001, the Bank changed its charter from a Federal savings bank charter to an Indiana commercial bank charter. Commercial banks are not permitted to participate in real estate development joint ventures. At December 31, 2005, HSC is a partner in three real estate development joint ventures for which exit strategies are either developed, or are currently being developed. The Company, as mandated by the regulators, is in the process of divesting itself of these investments by December 31, 2006. The Company is not required to divest itself of its investment in Family Financial Holdings, Inc. or Heritage Woods. The investments are accounted for by the equity method. The Company’s interest in these investments is as follows: (in thousands)

As Of	Equity Interest		Dec 2005		Dec 2004
Family Financial Holdings, Inc.		14%	$	792	$	792
Heritage Woods		33%		27		37
Home-Breeden		50%		1,074		1,410
Sycamore Springs		33%		550		1,189
Bloomington Technology		50%		43		122
Total Investment			$	2,486	$	3,550

Summarized condensed unaudited financial statements for these joint ventures are as follows: (in thousands)

As Of	Dec 2005		Dec 2004
Balance Sheets:
Cash	$	2,064	$	1,308
Investments		2,639		3,289
Property and equipment, net		531		557
Inventory of developed lots		3,206		4,383
Other assets		1,134		1,010
Total Assets	$	9,574	$	10,547
Notes payable	$	2,009	$	3,226
Insurance liabilities		136		-
Other liabilities		108		175
Total liabilities		2,253		3,401
Shareholders’ equity		7,321		7,146
Total Liabilities and Shareholders’ Equity	$	9,574	$	10,547

	Year Ended Dec 2005		Year Ended Dec 2004		Year Ended Dec 2003
Income Statements
Income:
Insurance premiums & commissions	$	261	$	335	$	1,353
Investment income		230		145		201
Net lot sales		1,508		673		2,189
Other income		116		119		136
Total income		2,115		1,272		3,879
Expenses:
Commissions		270		230		883
Insurance benefits		70		98		394
Interest expense		128		120		148
Other expense		668		781		920
Total expense		1,136		1,229		2,345
Net Income	$	979	$	43	$	1,534

The notes payable included $1.6 million and $2.5 million due to HSC and $202,000 and $423,000 due to the Bank at December 31, 2005 and 2004, respectively.

6. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consists of the following: (in thousands)

As Of	Dec 2005		Dec 2004
Loans, net of allowance of $164 and $452	$	3,089	$	2,942
Securities		802		713
Interest-bearing deposits		51		45
Total Accrued Interest Receivable	$	3,942	$	3,700

7. PREMISES AND EQUIPMENT

Premises and equipment consists of the following: (in thousands)

As Of	Dec 2005			Dec 2004
Land	$	2,903		$	2,949
Buildings and improvements		19,380			16,926
Furniture and equipment		9,556			8,740
Total		31,839			28,615
Accumulated depreciation		(14,058	)		(12,760	)
Total Premises and Equipment	$	17,781		$	15,855

Depreciation expense included in operations for the years ended December 31, 2005, 2004 and 2003 totaled $1.6 million, $1.5 million, and $1.5 million, respectively.

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8. DEPOSITS

Deposits are summarized as follows: (in thousands)

	Dec 2005					Dec 2004
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Non-interest bearing	$	66,294				$	60,150
Checking accounts		98,123		1.34	%		88,247		0.63	%
Statement savings		46,014		0.15	%		49,835		0.15	%
Money market savings		147,218		2.51	%		132,363		1.09	%
Total transaction accounts		357,649		1.42	%		330,595		0.63	%
Certificates of deposit:
Less than one year		67,841		3.59	%		55,187		2.00	%
12-23 months		37,196		3.23	%		46,557		1.90	%
24-35 months		92,980		3.04	%		92,673		2.35	%
36-59 months		14,053		3.47	%		23,623		3.98	%
60-120 months		87,620		4.73	%		91,546		4.85	%
Total certificate accounts		299,690		3.70	%		309,586		3.09	%
Total Deposits	$	657,339		2.46	%	$	640,181		1.82	%

At December 31, 2005 and 2004, certificates of deposit in amounts of $100,000 or more totaled $91.7 million and $121.1 million, respectively.

A summary of certificate accounts by scheduled maturities at December 31, 2005 is as follows: (in thousands)

	2006		2007		2008		2009		2010		Thereafter		Total
1.99% or less	$	6,568	$	-	$	-	$	-	$	-	$	-	$	6,568
2.00% - 2.99%		56,159		12,271		491		-		-		-		68,921
3.00% - 3.99%		61,347		24,013		7,535		3,566		3,308		627		100,396
4.00% - 4.99%		42,410		22,711		4,161		12,833		3,008		3,184		88,307
5.00% - 5.99%		7,434		22,119		2,061		2,099		10		64		33,787
Over 6.00%		480		629		435		167		-		-		1,711
Total Certificate Amounts	$	174,398	$	81,743	$	14,683	$	18,665	$	6,326	$	3,875	$	299,690

A summary of interest expense on deposits is as follows: (in thousands)

	Year Ended Dec 2005		Year Ended Dec 2004		Year Ended Dec 2003
Checking accounts	$	467	$	283	$	176
Statement savings		76		92		243
Money market savings		2,437		1,067		1,277
Certificates of deposit		10,285		9,390		10,508
Total Interest Expense	$	13,265	$	10,832	$	12,204

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9. FEDERAL HOME LOAN BANK ADVANCES

The Bank was eligible to receive advances from the FHLB up to $112.6 million and $156.6 million at December 31, 2005 and 2004. The Bank has pledged qualifying mortgage loans, securities and Federal Home Loan Bank stock as collateral on the following advances from the Federal Home Loan Bank: (in thousands)

Maturing During Year Ended December	Amount		Weighted Average Rate
2006	$	32,403		5.49	%
2007		9,250		5.04	%
2008		11,850		4.26	%
2009		2,000		4.32	%
2010		11,250		5.08	%
Thereafter		19,880		5.20	%
Total FHLB Advances	$	86,633		5.12	%

10. OTHER BORROWINGS

Senior Debt

The Company has a revolving note with LaSalle Bank N.A. whereby the Company may borrow $17.5 million. The note accrues interest at a variable rate based on the ninety-day LIBOR index, on the date of the draw, plus 150 basis points. The ninety-day LIBOR index was 4.54% at December 31, 2005. Interest payments are due ninety days after the date of any principal draws made on the loan and every ninety days thereafter. The Company used the funds to buy back shares of the Company's common stock. The assets of the Company collateralize the note. Under terms of the agreement, the Company is bound by certain restrictive debt covenants relating to earnings, net worth and various financial ratios. As of December 31, 2005, the Company was in compliance with the debt covenants. The revolving note matured on February 15, 2006 and was renewed for a 3 year term. The new note accrues interest at a variable rate based on the ninety-day LIBOR index, on the date of the draw, plus 140 basis points. The borrowing limit, collateralization and debt covenants on the new note mirror the terms discussed above.

As of December 31, 2005, the Company has a cash flow swap agreement with LaSalle Bank N.A. The Company has agreed to make fixed rate payments at 5.77% and receive variable rate payments at the three-month LIBOR on a notional amount of $4.6 million. The interest rate swap is settled on a net basis. The Company is exposed to credit loss, in the event of nonperformance by LaSalle Bank N.A., for the net interest rate differential when floating rates exceed the fixed maximum rate. However, the Company does not anticipate nonperformance by the counter party. The swap agreement matured on February 1, 2006 and was not renewed by the Company.

Other Borrowings

In addition to the other borrowings scheduled below, the Bank has a $5.0 million overdraft line of credit with the Federal Home Loan Bank, none of which was used as of December 31, 2005 or 2004. The Bank also had a letter of credit for $225,000 and $226,000, as of December 31, 2005 and 2004, respectively, none of which was used as of either year end. (in thousands)

As Of	Dec 2005		Dec 2004
Official check overnight remittance	$	166	$	211
Total Other Borrowings	$	166	$	211

11. INCOME TAXES

An analysis of the income tax provision is as follows: (in thousands)

	Year Ended		Year Ended			Year Ended
	Dec 2005		Dec 2004			Dec 2003
Current:
Federal	$	2,514	$	2,541		$	3,020
State		281		521			549
Deferred		174		(518	)		1,451
Income Tax Provision	$	2,969	$	2,544		$	5,020

The difference between the financial statement provision and amounts computed by using the statutory rate of 34% is reconciled as follows: (in thousands)

Period Ended	Dec 2005			Dec 2004			Dec 2003
Income tax provision at federal statutory rate	$	3,084		$	2,621		$	4,986
State tax, net of federal tax benefit		256			207			568
Tax exempt interest		(206	)		(234	)		(180	)
Increase in cash surrender value of life insurance		(152	)		(156	)		(176	)
Other, net		(13	)		106			(178	)
Income Tax Provision	$	2,969		$	2,544		$	5,020

The Company is allowed to deduct an addition to a reserve for bad debts in determining taxable income. This addition differs from the provision for loan losses for financial reporting purposes. No deferred taxes have been provided on the income tax bad debt reserves which total $6.0 million, for years prior to 1988. This tax reserve for bad debts is included in taxable income of later years only if the bad debt reserves are subsequently used for purposes other than to absorb bad debt losses. Because the Company does not intend to use the reserves for purposes other than to absorb losses, deferred income taxes of $2.4million were not provided at December 31, 2005 and 2004, respectively. Pursuant to Statement of Financial Accounting Standards No. 109 (“SFAS 109”), ”Accounting for Income Taxes,” the Company has recognized the deferred tax consequences of differences between the financial statement and income tax treatment of allowances for loan losses arising after June 30, 1987.

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The Company’s deferred income tax assets and liabilities, included in prepaid expenses and other assets, are as follows: (in thousands)

As Of	Dec. 2005		Dec. 2004
Deferred tax assets:
Bad debt reserves, net	$	2,687	$	3,062
Unrealized loss on securities available for sale		970		106
Other		67		130
Deferred compensation		1,415		1,262
Total deferred tax assets		5,139		4,560
Deferred tax liabilities:
Difference in basis of fixed assets		511		472
FHLB dividend		169		166
Deferred fees		325		347
Originated mortgage servicing rights		843		885
Other		-		33
Total deferred tax liabilities		1,848		1,903
Net Deferred Tax Asset	$	3,291	$	2,657

12. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possible additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory guidance. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures that have been established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table), of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). As of December 31, 2005, the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2005, the most recent notifications from the Federal Reserve categorized the Company and the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized” the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed either entity’s category.

- 41 -

A summary of capital amounts and ratios as of December 31, 2005 and 2004:

(dollars in thousands)

	Actual					For Capital Adequacy Purposes					To Be Categorized As “Well Capitalized” Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2005
Total risk-based capital
(to risk-weighted assets)
HomeFederal Bank	$	89,532		13.58	%	$	52,759		8.0	%	$	65,949		10.0	%
Home Federal Bancorp Consolidated	$	79,734		12.08	%	$	52,822		8.0	%	$	66,028		10.0	%
Tier 1 risk-based capital
(to risk-weighted assets)
HomeFederal Bank	$	82,779		12.55	%	$	26,379		4.0	%	$	39,569		6.0	%
Home Federal Bancorp Consolidated	$	72,981		11.05	%	$	26,411		4.0	%	$	39,617		6.0	%
Tier 1 leverage capital
(to average assets)
HomeFederal Bank	$	82,779		9.82	%	$	33,724		4.0	%	$	42,155		5.0	%
Home Federal Bancorp Consolidated	$	72,981		8.65	%	$	33,760		4.0	%	$	42,201		5.0	%

	Actual					For Capital Adequacy Purposes					To Be Categorized As “Well Capitalized” Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2004
Total risk-based capital
(to risk-weighted assets)
HomeFederal Bank	$	92,117		13.60	%	$	54,173		8.0	%	$	67,717		10.0	%
Home Federal Bancorp Consolidated	$	84,122		12.41	%	$	54,238		8.0	%	$	67,798		10.0	%
Tier 1 risk-based capital
(to risk-weighted assets)
HomeFederal Bank	$	84,253		12.44	%	$	27,087		4.0	%	$	40,630		6.0	%
Home Federal Bancorp Consolidated	$	76,258		11.25	%	$	27,119		4.0	%	$	40,679		6.0	%
Tier 1 leverage capital
(to average assets)
HomeFederal Bank	$	84,253		9.65	%	$	34,921		4.0	%	$	43,652		5.0	%
Home Federal Bancorp Consolidated	$	76,258		8.76	%	$	34,804		4.0	%	$	43,505		5.0	%

Dividend Restrictions

The principal source of income and funds for the Company are dividends from the Bank. The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. In 2005, the Bank requested and received regulatory approval to pay $8.2 million to its sole shareholder Home Federal Bancorp. In 2006, the Bank anticipates requesting regulatory approval to pay dividends to the Company.

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13. EMPLOYEE BENEFIT PLANS

Multi-employer Pension Plan

The Bank participates in a noncontributory multi-employer pension plan covering all qualified employees. The trustees of the Financial Institutions Retirement Fund administer the plan. There is no separate valuation of the plan benefits or segregation of plan assets specifically for the Bank, because the plan is a multi-employer plan and separate actuarial valuations are not made with respect to each employer. However, as of June 30, 2005, the latest actuarial valuation, the total plan assets exceeded the actuarially determined value of accrued benefits. The Bank had contribution expenses of $1.3 million, $1.2 million and $815,000 for the years ended December 2005, 2004 and 2003, respectively. Cash contributions to the multi-employer pension plan for these same periods were $1.4 million, $2.1 million and $471,000, respectively.

Supplemental Retirement Plan

The Bank has entered into supplemental retirement agreements for certain officers. These agreements are unfunded.  However, the Bank has entered into life insurance contracts to offset the expense of these agreements. Benefits under these arrangements are generally paid over a 15 year period. The following table sets forth the Plan's funded status and amount recognized in the Company's consolidated statements of income for the years ended December 31, 2005, 2004 and 2003:

	Dec 2005			Dec 2004			Dec 2003
Economic assumptions:
Discount rate		5.8	%		6.5	%		6.5	%
Salary rate		4.0	%		4.0	%		4.0	%
Components of net periodic pension expense:
Interest cost on projected benefit obligation	$	196,547		$	182,845		$	176,676
Service cost		91,425			67,743			64,914
Prior service cost		53,051			217,161			129,705
Net periodic pension expense	$	341,023		$	467,749		$	371,295

A reconciliation of the prior and ending balances of the Projected Benefit Obligation, ("PBO") for 2005 and 2004 is as follows:

	Dec 2005			Dec 2004
Projected benefit obligation at beginning of year	$	3,111,976		$	3,002,400
Interest cost		196,547			182,845
Service cost		91,425			67,743
Amendments		10,615			-
Change in discount rate		248,283			-
Actuarial loss		53,313			19,331
Benefits paid during year		(189,669	)		(160,343	)
Projected benefit obligation at end of year (unfunded status)	$	3,522,490		$	3,111,976

A summary of the Plan's funded status at December 31, 2005 and 2004 is as follows:

	Dec 2005			Dec 2004
Projected benefit obligation	$	3,522,490		$	3,111,976
Unrecognized prior service cost		(562,272	)		(604,711	)
Unrecognized net acturarial loss		(431,915	)		(130,319	)
Accrued pension liability	$	2,528,303		$	2,376,946

Prior service cost is amortized over the estimated remaining employee service lives of approximately nine years. The Bank expects to make contributions of $358,000 to the plan in 2006. The Bank anticipates paying benefits over the next five years and in the aggregate for the five years thereafter as follows: 2006 - $219,000, 2007 - $219,000, 2008 - $226,000, 2009 - $212,000, 2010 - $212,000 and 2011 through 2015 - $1,289,000.

401(k) Plan

The Bank has an employee thrift plan established for substantially all full-time employees. The Bank has elected to make matching contributions equal to 50% of the employee contributions up to a maximum of 1.5% of an individual's total eligible salary. The Bank contributed $121,000, $130,000 and $120,000, during the years ended December 31, 2005, 2004 and 2003, respectively, to this plan.

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14. STOCK OPTIONS

The Company has stock option plans for the benefit of officers, other key employees and directors. As of December 31, 2005, the plans were authorized to grant additional options to purchase 271,631 shares of the Company's common stock. The option price is not to be less than the fair market value of the common stock on the date the option is granted, and the stock options are exercisable at any time within the maximum term of 10 years and one day from the grant date. The options are nontransferable and are forfeited upon termination of employment.

The following is the stock option activity for the years ended December 31, 2005, 2004 and 2003 and the stock options outstanding at the end of the respective periods:

Options	Shares			Weighted Average Exercise Price
Outstanding December 31, 2002		1,006,302		$	18.87
Granted		8,724			27.23
Forfeited		(19,412	)		23.03
Exercised		(224,346	)		13.94
Outstanding December 31, 2003		771,268			20.30
Forfeited		(1,125	)		26.56
Exercised		(83,485	)		15.49
Outstanding December 31, 2004		686,658			20.87
Granted		50,000			25.07
Forfeited		(9,875	)		24.05
Exercised		(109,066	)		16.93
Outstanding December 31, 2005		617,717			21.86

The following table is an analysis of the remaining weighted average life as of December 31, 2005 of the outstanding options within various exercise price ranges:

Exercise Price	Number of Options		Average Life
$13.560 - $18.485		181,347		4.2
$20.900 - $23.063		285,948		3.7
$23.125 - $27.400		150,422		4.8
Total		617,717		4.1

The weighted average fair value of options granted was $5.00 for the year ended December 31, 2005. No options were granted during the year ended December 31, 2004. The weighted average fair value of options granted was $5.91 for the year ended December 31, 2003. The fair value of the option grants was estimated on the date of grant using an option pricing model with the following assumptions: dividend yield ranging from 2.74% to 3.07%, risk-free interest rates ranging from 3.23% to 4.11%, expected volatility ranging from 22.13% to 25.77% and expected life of 5.65 to 5.91 years.

15. COMMITMENTS

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Bank makes various commitments to extend credit that are not reflected in the accompanying consolidated financial statements. At December 31, 2005 and 2004, the Bank had loan commitments approximating $33.4 million and $16.3million, respectively, excluding undisbursed portions of loans in process. Loan commitments at December 31, 2005, included commitments to originate fixed rate loans with interest rates ranging from 5.0% to 8.0% totaling $7.6 million and adjustable rate loan commitments with interest rates ranging from 5.8% to 9.6% totaling $25.8 million. Commitments, which are disbursed subject to certain limitations, extend over various periods of time. Generally, unused commitments are cancelled upon expiration of the commitment term as outlined in each individual contract.

Outstanding letters of credit were $4.0 million and $2.5 million at December 31, 2005 and 2004, respectively. Additionally, the Bank had approximately $6.4 million in commitments to sell fixed rate residential loans and $6.4 million in commitments to sell adjustable rate commercial loans at December 31, 2005.

The Bank's exposure to credit loss in the event of nonperformance by the other parties to the financial instruments for commitments to extend credit is represented by the contract amount of those instruments. The Bank uses the same credit policies and collateral requirements in making commitments as it does for on-balance sheet instruments.

Employment Agreements

The Company has entered into employment agreements with certain executive officers. Under certain circumstances provided in the agreements, the Company may be obligated to continue the officer's salary for a period of up to three years.

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16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The disclosure of the estimated fair value of financial instruments is as follows: (in thousands)

	December 2005						December 2004
	Carrying Value			Fair Value			Carrying Value			Fair Value
Assets:
Cash	$	30,642		$	30,642		$	24,729		$	24,729
Interest-bearing deposits		23,094			23,094			27,591			27,591
Securities available for sale		123,351			123,351			124,790			124,790
Securities held to maturity		1,806			1,796			1,779			1,801
Loans held for sale		4,795			4,859			2,617			2,653
Loans, net		608,556			607,867			629,490			638,566
Accrued interest receivable		3,942			3,942			3,700			3,700
Federal Home Loan Bank stock		9,965			9,965			9,965			9,965
Liabilities:
Deposits		657,339			657,493			640,181			642,397
Federal Home Loan Bank advances		86,633			96,329			125,446			128,231
Senior debt		14,242			14,237			14,242			14,242
Other borrowings		166			166			211			211
Advance payments by borrowers for taxes and insurance		121			121			48			48
Accrued interest payable		714			714			852			852
Commitments		-			-			-			-
Financial Instruments:
Interest rate swaps		(199	)		(199	)		(594	)		(594	)

The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair values of financial instruments. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash, Interest-bearing Deposits, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance, Accrued Interest Payable and Other Borrowings

The carrying amount as reported in the Consolidated Balance Sheets is a reasonable estimate of fair value.

Securities Held to Maturity and Available for Sale

Fair values are based on quoted market prices and dealer quotes.

Loans Held for Sale and Loans, net

The fair value is estimated by discounting the future cash flows using the current rates for loans of similar credit risk and maturities.

Federal Home Loan Bank Stock

The fair value is estimated to be the carrying value, which is par.

Deposits

The fair value of demand deposits, savings accounts and money market deposit accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated, by discounting future cash flows, using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Advances

The fair value is estimated by discounting future cash flows using rates currently available to the Company for advances of similar maturities.

Senior Debt

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Interest Rate Swaps

The fair value is derived from proprietary models based upon well-recognized financial principles which management believes provide a reasonable approximation of the fair value of the interest rate swap transactions.

Commitments

The commitments to originate and purchase loans have terms that are consistent with current market conditions. Accordingly, the Company estimated that the face amounts of these commitments approximate carrying values.

The fair value estimates presented herein are based on information available to management at December 31, 2005 and 2004. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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17. PARENT COMPANY FINANCIAL STATEMENTS

The condensed financial statements of Home Federal Bancorp are as follows: (in thousands)

As of	Dec 2005		Dec 2004
Condensed Balance Sheets (Parent Company only)
Assets:
Cash	$	4,366	$	5,640
Investment in subsidiary		83,688		86,299
Other		72		121
Total Assets	$	88,126	$	92,060
Liabilities:
Senior debt	$	14,242	$	14,242
Other		846		454
Total liabilities		15,088		14,696
Shareholders' equity		73,038		77,364
Total Liabilities and Shareholders' Equity	$	88,126	$	92,060

Period Ended	Dec 2005			Dec 2004			Dec 2003
Condensed Statements of Income(Parent Company only)
Dividends from subsidiary	$	8,172		$	11,152		$	7,750
Other		176			89			560
Total income		8,348			11,241			8,310
Interest on senior debt		808			698			838
Other expenses		971			1,163			751
Total expenses		1,779			1,861			1,589
Income before taxes and change in undistributed earnings of subisidiary		6,569			9,380			6,721
Applicable income tax credit		(507	)		(703	)		(403	)
Income before change in undistributed earnings of subsidiary		7,076			10,083			7,124
Increase (decrease) in undistributed earnings of subsidiary		(974	)		(4,920	)		2,519
Net Income	$	6,102		$	5,163		$	9,643

Period Ended	Dec 2005			Dec 2004			Dec 2003
Condensed Statements of Cash Flows(Parent Company only)
Operating Activities:
Net income	$	6,102		$	5,163		$	9,643
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in other assets		49			163			162
Increase in accrued expenses and other liabilities		750			254			85
Increase (decrease) in undistributed earnings of subsidiary		974			4,920			(2,519	)
Net cash provided by operating activities		7,875			10,500			7,371
Financing Activities:
Payment of dividends		(2,909	)		(3,057	)		(2,997	)
Repurchase shares of common stock		(8,086	)		(9,953	)		(3,575	)
Exercise of stock options, net of fractional shares paid		1,846			1,293			3,128
Net cash used in financing activities		(9,149	)		(11,717	)		(3,444	)
Net (decrease) increase in cash		(1,274	)		(1,217	)		3,927
Cash at beginning of period		5,640			6,857			2,930
Cash at End of Period	$	4,366		$	5,640		$	6,857

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Board of Directors		Shareholder
& Officers of		Information
Home Federal Bancorp
		Stock Listing
Board of Directors	Officers	The common stock of Home Federal
John K. Keach, Jr.	John K. Keach, Jr.	Bancorp is traded on the National
Chairman of the Board, President and	Chairman of the Board, President and	Association of Securities Dealers Auto-
Chief Executive Officer,	Chief Executive Officer	mated Quotation System, National Market
Home Federal Bancorp		System, under the symbol HOMF. Home
	Charles R. Farber	Federal Bancorp stock appears in The
John T. Beatty	Executive Vice President	Wall Street Journal under the abbreviation
President,		HomFedBcpIN, and in other publications
Beatty Insurance, Inc.	Mark T. Gorski	under the abbreviation HFdBcp.
	Executive Vice President,
Harold Force	Chief Financial Officer,	Transfer Agent & Registrar
President,	Treasurer and Secretary	To change name, address or
Force Construction Company, Inc.		ownership of stock, to report lost
	S. Elaine Pollert	certificates, or to consolidate
David W. Laitinen, MD	Executive Vice President	accounts, contact:
Orthopedic Surgeon
		LaSalle Bank N.A.
John R. Miller	Executive Officers	c/o Corporate Trust Operations
President,	of HomeFederal Bank	135 South LaSalle Street, Room 1960
Best Beers, Inc.		Chicago, Illinois 60603
	John K. Keach, Jr.	(800) 246-5761
Harvard W. Nolting, Jr.	Chairman of the Board, President and
Retired from Nolting	Chief Executive Officer	General Counsel
Foods, Inc.		Barnes & Thornburg
	Charles R. Farber	11 South Meridian Street
John K. Keach, Sr.	Executive Vice President	Indianapolis, IN 46204
Chairman Emeritus
Retired	Mark T. Gorski	Shareholder & General Inquiries
	Executive Vice President,	Home Federal Bancorp is required to file
The Directors of	Chief Financial Officer,	an Annual Report on Form 10-K for its
Home Federal Bancorp	Treasurer and Secretary	fiscal year ended December 31, 2005,
also serve as Directors of		with the Securities and Exchange
HomeFederal Bank.	S. Elaine Pollert	Commission.
	Executive Vice President
		For copies of the Home Federal
	Melissa A. McGill	Bancorp Annual Report, contact:
	Senior Vice President	Donna Maxie
	Controller	Home Federal Bancorp
		222 West Second Street
		P.O. Box 648
		Seymour, IN 47274
		(812) 522-1592
		(877) 626-7000
		For financial information and security
		analyst inquiries, please contact:
		Mark T. Gorski
		Home Federal Bancorp
		501 Washington Street
		Columbus, IN 47201
		(812) 522-1592
		(877) 626-7000
		For an online annual report or
		shareholder inquiries on the Web,
		visit us at:
		www.homf.com
		Visit our Web site at
		www.homf.com or call us
		toll free at (877) 626-7000.

- 47 -

          Office Locations   Seymour 222 W. Second Street 1117 E. Tipton Street   Columbus 501 Washington Street 1020 Washington Street 3805 25th Street 2751 Brentwood Drive 4330 W. Jonathan Moore Pike   Hope 8475 N. State Road 9   Austin 67 W. Main Street   North Vernon 111 N. State Street 1540 N. State Street   Osgood 820 S. Buckeye Street   Batesville 114 State Road 46 East   Madison 201 Clifty Drive   Brownstown 101 N. Main Street   Salem 1208 S. Jackson Street   Greensburg 1801 Greensburg Crossing   Indianapolis/Greenwood 8740 S. Emerson Avenue 1510 W. Southport Road   Visit our Web site at www.homf.com or call us toll free at (877) 626-7000.

EX-23.1

                          Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement numbers 33-58912, 33-76036, 33-99096, 333-35122, and 333-81916 of Home Federal Bancorp on Form S-8 of our reports dated February 28, 2006, relating to the financial statements of Home Federal Bancorp, and management’s report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of Home Federal Bancorp for the year ended December 31, 2005.

/s/ Deloitte & Touche, LLP

Indianapolis, Indiana

March 15, 2006

EX-31.1

                    Exhibit 31.1

                                                                CERTIFICATION

I, John K. Keach, Jr, certify that:

1.I have reviewed this annual report on Form 10-K of Home Federal Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material

fact or omit to state a material fact necessary to make the statements made, in light of the

circumstances under which such statements were made, not misleading with respect to

the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all material respects the financial condition, results

of operations and cash flows of the registrant as of, and for, the periods presented in this

report;

4.The registrant’s other certifying officer and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-

15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange

Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure

controls and procedures to be designed under our supervision, to ensure that

material information relating to the registrant, including its consolidated

subsidiaries, is made known to us by others within those entities, particularly during

the period in which this report is being prepared;

(b)Designed such internal controls over financial reporting, or caused such internal

control over financial reporting to be designed under our supervision, to provide

reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with

generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures

and presented in this report our conclusions about the effectiveness of the

disclosure controls and procedures, as of the end of the period covered by this

report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial

Reporting that occurred during the registrant’s most recent fiscal quarter (the

registrant’s fourth fiscal quarter in the case of an annual report) that has materially

affected, or is reasonably likely to materially affect, the registrant’s internal control

over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the registrant’s auditors and the

audit committee of the registrant’s board of directors (or persons performing the

            equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal

control over financial reporting which are reasonably likely to adversely affect the

registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who

Have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2006                                                              /s/ John K. Keach, Jr.

                                                                                                John K. Keach, Jr., President and

                                                                                               Chief Executive Officer                                                                                               

EX-31.2

                                                                                                                                      & #160;  Exhibit 31.2

CERTIFICATION

I, Mark T. Gorski, certify that:

1.I have reviewed this annual report on Form 10-K of Home Federal Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material

fact or omit to state a material fact necessary to make the statements made, in light of the

circumstances under which such statements were made, not misleading with respect to

the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all material respects the financial condition, results

of operations and cash flows of the registrant as of, and for, the periods presented in this

report;

4.The registrant’s other certifying officer and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-

15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange

Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure

controls and procedures to be designed under our supervision, to ensure that

material information relating to the registrant, including its consolidated

subsidiaries, is made known to us by others within those entities, particularly during

the period in which this report is being prepared;

(b)Designed such internal controls over financial reporting, or caused such internal

control over financial reporting to be designed under our supervision, to provide

reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with

generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures

and presented in this report our conclusions about the effectiveness of the

disclosure controls and procedures, as of the end of the period covered by this

report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial

Reporting that occurred during the registrant’s most recent fiscal quarter (the

registrant’s fourth fiscal quarter in the case of an annual report) that has materially

affected, or is reasonably likely to materially affect, the registrant’s internal control

over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the registrant’s auditors and the

audit committee of the registrant’s board of directors (or persons performing the

            equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal

control over financial reporting which are reasonably likely to adversely affect the

registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who

Have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2006                                                                                   /s/ Mark T. Gorski

                                                                                                                    Mark T. Gorski, Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

By signing below, each of the undersigned officers hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i)

this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial

condition and results of operations of Home Federal Bancorp.

Signed this 15th day of March 2006.

/s/ Mark T. Gorski	/s/ John K. Keach, Jr.
(Signature of Authorized Officer)	(Signature of Authorized Officer)
Mark T. Gorski	John K. Keach, Jr.
(Typed Name)	(Typed Name)
Chief Financial Officer	President and Chief Executive Officer
(Title)	(Title)

A signed original of this written statement required by Section 906 has been provided to and is being retained by Home Federal Bancorp and will be forwarded to the Securities and Exchange Commission or its staff upon request.