S-1/A 1 homefed_s1a2.txt AMENDMENT NO. 2 As filed with the Securities and Exchange Commission on July 19, 2004 Registration No. 333-113731 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 HOME FEDERAL BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Federal 6035 20-0945587 ------------------------------- ---------------------------- ---------------- (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 ---------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) John F. Breyer, Jr., Esquire Breyer & Associates PC 8180 Greensboro Drive, Suite 785 McLean, Virginia 22102 (703) 883-1100 --------------------------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]

Calculation of Registration Fee ============================================================================================================================= Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of to be Registered Registered (1) Offering Price Per Unit Aggregate Offering Price (1) Registration Fee ----------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value 5,416,960 $10.00 $54,169,600 (2) $6,864 (3)(4) =============================================================================================================================

(1) Estimated solely for purposes of calculating the registration fee. As described in the prospectus, the actual number of shares to be issued and sold are subject to adjustment based upon the estimated pro forma market value of the registrant and market and financial conditions. (2) In addition, pursuant to Rule 416(c) under the Securities Act, this registration statement also covers an indeterminate amount of interests to be offered or sold pursuant to the Home Federal Savings and Loan Association of Nampa 401(k) Savings Plan. (3) The securities of Home Federal Bancorp, Inc. to be purchased by the Home Federal Savings and Loan Association of Nampa 401(k) Savings Plan are included in the amount shown for Common Stock. Accordingly, pursuant to Rule 457(h) of the Securities Act, no separate fee is required for the participation interests. Pursuant to such rule, the amount being registered has been calculated on the basis of the number of shares of Common Stock that may be purchased with the current assets of such Plan. (4) Previously paid. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. PART I - INFORMATION REQUIRED IN PROSPECTUS Cross Reference Sheet showing the location in the Prospectus of the Items of Form S-1 Item 1. Forepart of the Registration Statement and Forepart of the Registration Statement; Outside Front Outside Front Cover of Prospectus Cover Page Item 2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Outside Back Cover Page Prospectus Item 3. Summary Information, Risk Factors and Ratio of Summary; Risk Factors Earnings to Fixed Charges Item 4. Use of Proceeds How We Intend to Use the Proceeds From this Offering; Capitalization Item 5. Determination of Offering Price Home Federal's Reorganization and Stock Issuance - How We Determined Our Price and the Number of Shares to be Issued in the Stock Offering Item 6. Dilution * Item 7. Selling Security Holders * Item 8. Plan of Distribution Home Federal's Reorganization and Stock Issuance Item 9. Description of Securities to be Registered Description of Capital Stock of Home Federal Bancorp Item 10. Interests of Named Experts and Counsel Legal and Tax Opinions; Experts Item 11. Information with Respect to the Registrant (a) Description of Business Business of Home Federal MHC, Business of Home Federal Bancorp, Inc.; Business of Home Federal (b) Description of Property Business of Home Federal - Properties (c) Legal Proceedings Business of Home Federal - Legal Proceedings (d) Market Price of and Dividends on the Outside Front Cover Page; Market for the Common Stock; Registrant's Common Equity and Related Our Policy Regarding Dividends Stockholder Matters (e) Financial Statements Consolidated Financial Statements; Pro Forma Data (f) Selected Financial Data Selected Financial and Other Data (g) Supplementary Financial Information * (h) Management's Discussion and Analysis of Management's Discussion and Analysis of Financial Financial Condition and Results of Operations Condition and Results of Operations I - 1 (i) Changes in and Disagreements with * Accountants on Accounting and Financial Disclosure (j) Quantitative and Qualitative Disclosures Management's Discussion and Analysis of Financial About Market Risk Condition and Results of Operations - Asset and Liability Management and Market Risk (k) Directors, Executive Officers, Promoters Management and Control Persons (l) Executive Compensation Management - Executive Compensation; Management - Benefits (m) Security Ownership of Certain Beneficial * Owners and Management (n) Certain Relationships and Related Management - Loans and Other Transactions with Officers Transactions and Directors Item 12. Disclosure of Commission Position on Part II, Item 17 Indemnification for Securities Act Liabilities ---------- *Item is omitted because answer is negative or item inapplicable. I - 2 PROSPECTUS SUPPLEMENT ================================================================================ HOME FEDERAL BANCORP, INC. HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF NAMPA 401(K) SAVINGS PLAN AND TRUST This prospectus supplement relates to the election by participants in the Home Federal Savings and Loan Association of Nampa 401(k) Savings Plan to direct the plan trustee to invest all or a portion of their funds in the plan in the common stock of Home Federal Bancorp, Inc. ("Home Federal Bancorp"). The Home Federal Savings and Loan Association of Nampa 401(k) Savings Plan is referred to in this prospectus supplement as the 401(k) Plan. The common stock may be purchased through an additional investment option called the Employer Stock Fund. The interests offered under this prospectus supplement are conditioned on the completion of the mutual holding company reorganization of Home Federal Savings and Loan Association of Nampa ("Home Federal"). Your investment in the Employer Stock Fund in connection with the reorganization of Home Federal is also governed by the purchase priorities contained in Home Federal's plan of reorganization. The 401(k) Plan permits you, as a participant, to direct the trustee of the Employer Stock Fund to purchase Home Federal Bancorp common stock with amounts in the 401(k) Plan attributable to your accounts. This prospectus supplement relates solely to the initial election of a participant to direct the purchase of Home Federal Bancorp common stock in the mutual holding company reorganization and not to any future purchases under the 401(k) Plan or otherwise. The prospectus dated _______, 2004 of Home Federal Bancorp, which is being delivered with this prospectus supplement, includes detailed information with respect to Home Federal Bancorp, the reorganization, Home Federal Bancorp common stock and the financial condition, results of operations and business of Home Federal Bancorp. This prospectus supplement, which provides detailed information with respect to the 401(k) Plan, should be read only in conjunction with the prospectus. ---------- For a discussion of certain factors that you should consider before investing, see "Restrictions on Resale" at page 12 in this prospectus supplement and "Risk Factors" beginning on page 1 in the prospectus. ---------- The securities offered hereby are not deposits or accounts and are not federally insured or guaranteed. The securities offered hereby have not been approved or disapproved by the Securities and Exchange Commission, the Office of Thrift Supervision, or any state securities commission or agency, nor have these agencies passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense. The date of this prospectus supplement is ________, 2004. This prospectus supplement contains information you should consider when making your investment decision. You should rely only on the information provided in this prospectus supplement. Home Federal Bancorp has not authorized anyone else to provide you with different information. Home Federal Bancorp is not making an offer of its common stock in any state where an offer is not permitted. The information in this prospectus supplement is accurate only as of the date of this prospectus supplement, regardless of the time of delivery of this prospectus supplement or any sale of Home Federal Bancorp common stock. TABLE OF CONTENTS THE OFFERING .............................................................. 1 Election to Purchase Home Federal Bancorp Common Stock in the Reorganization and Stock Offering....................................... 1 Securities Offered....................................................... 1 Method of Directing Transfer............................................. 2 Time for Directing Transfer.............................................. 2 Irrevocability of Transfer Direction..................................... 2 Subsequent Elections..................................................... 2 Purchase Price of Home Federal Bancorp Common Stock...................... 2 Nature of a Participant's Interest in Home Federal Bancorp Common Stock.. 2 Voting and Tender Rights of Home Federal Bancorp Common Stock............ 2 DESCRIPTION OF THE 401(k) PLAN ............................................ 3 Introduction............................................................. 3 Eligibility and Participation............................................ 3 Contributions Under the 401(k) Plan...................................... 3 Limitations on Contributions............................................. 4 Investment of Contributions.............................................. 5 Financial Data........................................................... 7 Administration of the 401(k) Plan........................................ 8 Benefits Under the 401(k) Plan........................................... 9 Withdrawals and Distributions from the 401(k) Plan....................... 9 Reports to 401(k) Plan Participants...................................... 9 Amendment and Termination................................................ 10 Federal Income Tax Consequences ......................................... 10 ERISA and Other Qualifications........................................... 11 Restrictions on Resale................................................... 11 Securities and Exchange Commission Reporting and Short-Swing Profit Liability............................................................... 12 LEGAL OPINIONS ............................................................ 12 ELECTION FORM ............................................................. A-1 i THE OFFERING Election to Purchase Home Federal Bancorp Common Stock in the Reorganization and Stock Offering In connection with the Home Federal mutual holding company reorganization, the 401(k) Plan will permit each participant to direct that all or part of the funds in his or her accounts under the 401(k) Plan be transferred to the Employer Stock Fund and used to purchase Home Federal Bancorp common stock in the stock offering. The trustee of the Employer Stock Fund will follow the participants' directions and exercise subscription rights to purchase the common stock in the stock offering to the extent provided in our plan of reorganization. Funds in the 401(k) Plan that you do not want to be used to purchase Home Federal Bancorp common stock will remain invested in accordance with your investment instructions in effect at the time. Respective purchases by the 401(k) Plan in the stock offering will be counted as purchases by the individual participants at whose election they are made, and will be subject to the purchase limitations applicable to the individual, rather than being counted in determining the maximum amount that the Home Federal Bancorp tax-qualified employee plans (as defined in the prospectus) may purchase in the aggregate. See "Home Federal's Reorganization and Stock Offering - Subscription Offering" in the prospectus. All plan participants are eligible to direct a transfer of funds to the Employer Stock Fund. However, these directions are subject to the purchase priorities in the plan of reorganization of Home Federal. Your order will be filled based on your status as an eligible account holder or supplemental eligible account holder in the stock offering. An eligible account holder is a depositor whose deposit account(s) totaled $50.00 or more on December 31, 2002. A supplemental eligible account holder is a depositor whose deposit account(s) totaled $50.00 or more on June 30, 2004. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of Home Federal Bancorp common stock in the subscription offering and you may use funds in the 401(k) Plan account to pay for the shares of Home Federal Bancorp common stock that you are eligible to purchase. If we receive subscriptions for more shares than are to be sold in the offering, shares will be allocated to subscribers in the order of the priorities established in the Home Federal Bancorp plan of reorganization under a formula outlined within the plan of reorganization. In that case, as a result of the allocation, the trustee for the 401(k) Plan may not be able to purchase all of the common stock you requested in the stock offering. The trustee would purchase in the stock offering as many shares as it is able and would pro-rate those shares to each participant's account based on the purchase priorities contained in the Home Federal Bancorp plan of reorganization and outlined above. Securities Offered The securities offered in connection with this prospectus supplement are participation interests in the 401(k) Plan. In connection with the mutual holding company reorganization, and subject to any limits set out in the plan of reorganization, up to 100 percent of the assets of the 401(k) Plan may be used by the 401(k) Plan trustee to acquire our common stock for the accounts of employees participating in the 401(k) Plan. Based on the asset value of the 401(k) Plan as of December 31, 2003 and the offering price, up to 270,729 shares of our common stock could be acquired by the 401(k) Plan. Home Federal Bancorp is the issuer of the common stock and only the employees of Home Federal Bancorp and Home Federal may participate in the 401(k) Plan. Information relating to the 401(k) Plan is contained in this prospectus supplement and information relating to Home Federal Bancorp, the reorganization and the financial condition, results of operations and business of Home Federal Bancorp is contained in the prospectus delivered with this prospectus supplement. The address of our principal executive office is 500 12th Avenue South, Nampa, Idaho 83653, and our telephone number is (208) 466-4634. As of December 31, 2003, the market value of the assets of the 401(k) Plan equaled approximately $2.7 million. The plan administrator has informed each participant of the value of his or her beneficial interest in the 401(k) Plan. The value of 401(k) Plan assets represents past contributions to the 401(k) Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals. 1 Method of Directing Transfer Included with this prospectus supplement is an election and investment form. If you wish to direct some or all of your beneficial interest in the assets of the 401(k) Plan into the Employer Stock Fund to purchase Home Federal Bancorp common stock in the reorganization, you should indicate that decision by checking the appropriate box of the election form and completing this part of the election form. If you do not wish to make an election at this time, you do not need to take any action. Time for Directing Transfer The deadline for submitting a direction to transfer amounts to the Employer Stock Fund in order to purchase Home Federal Bancorp common stock in the stock offering is _________, 2004, unless extended. Your completed election form must be returned to the stock information center, 500 12th Avenue South, Nampa, Idaho 83653, by 12:00 Noon, Mountain time on that date. Irrevocability of Transfer Direction Once received in proper form, your executed election form may not be modified, amended or revoked without our consent unless the stock offering has not been completed within 45 days after the end of the subscription and community offering. See also "Investment of Contributions - Home Federal Bancorp Common Stock Investment Election Procedures" below. Subsequent Elections After the offering, you will continue to be able to direct the investment of past balances and current contributions in the investment options available under the 401(k) Plan, including the Employer Stock Fund (the percentage invested in any option must be a whole percent). The allocation of your interest in the various investment options offered under the 401(k) Plan may be changed daily. Special restrictions may apply to transfers directed to or from the Employer Stock Fund by those participants who are our executive officers and principal stockholders and are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended. In addition, executive officers of Home Federal Bancorp and Home Federal will not be able to transfer their initial investment out of the Employer Stock Fund for a period of one year following consummation of the reorganization and stock offering. Purchase Price of Home Federal Bancorp Common Stock Shares of Home Federal Bancorp common stock purchased through the 401(k) Plan will be held in the Employer Stock Fund. Based on the requirements of the trustee, units in this Fund will consist of shares of Home Federal common stock and cash. The funds transferred to the Employer Stock Fund for the purchase of Home Federal Bancorp common stock in the stock offering will be used by the trustee to purchase shares of the common stock. Because of the cash component of the Employer Stock Fund, the price paid for the shares of Home Federal Bancorp common stock will be $10.70 per share, as compared to the $10.00 per share paid by all other persons who purchase our common stock in the stock offering. Nature of a Participant's Interest in Home Federal Bancorp Common Stock Home Federal Bancorp common stock will be held in the name of the trustee of the Employer Stock Fund, in its capacity as trustee. Because the 401(k) Plan actually purchases the shares, you will acquire a "participation interest" in the shares and not own the shares directly. The trustee will maintain individual accounts reflecting each participant's individual interest in the Employer Stock Fund. 2 Voting and Tender Rights of Home Federal Bancorp Common Stock The plan administrator generally will exercise voting rights attributable to all of the common stock held by the Employer Stock Fund. With respect to matters involving tender offers for Home Federal Bancorp, the plan administrator will vote shares allocated to participants in the 401(k) Plan, as directed by participants with interests in the Employer Stock Fund. The trustee will provide to you voting instruction rights reflecting your proportional interest in the Employer Stock Fund. The number of shares of common stock held in the Employer Stock Fund that the trustee votes in the affirmative and negative on each matter will be proportionate to the voting instructions given by the participants. Where no voting or tender offer instructions are given by the participant, the shares shall be voted or tendered in the manner directed by the plan administrator. DESCRIPTION OF THE 401(k) PLAN Introduction The 401(k) Plan was adopted by Home Federal and is formally named the "Home Federal Savings and Loan Association of Nampa 401(k) Savings Plan." This profit sharing plan contains a cash-or-deferred feature described at Section 401(k) of the Internal Revenue Code of 1986, as amended, to encourage employee savings and to allow eligible employees to supplement their income upon retirement. Reference to Full Text of 401(k) Plan. The following statements are summaries of certain provisions of the 401(k) Plan. They are not meant to be a complete description of these provisions and are qualified in their entirety by the full text of the 401(k) Plan. Copies of the 401(k) Plan are available to all employees. You should submit your request to the plan administrator, Home Federal Savings and Loan Association of Nampa, 500 12th Avenue South, Nampa, Idaho 83653. We encourage you to read carefully the full text of the 401(k) Plan to understand your rights and obligations under the plan. Tax and Securities Laws. Participants should consult with legal counsel regarding the tax and securities laws implications of participation in the 401(k) Plan. Any officers or beneficial owners of more than 10% of the outstanding shares of common stock should consider the applicability of Sections 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended, to his or her participation in the 401(k) Plan. See "Securities and Exchange Commission Reporting and Short Swing Profit Liability" on page 14 of this prospectus supplement. Eligibility and Participation All employees of Home Federal Bancorp or a subsidiary are eligible to participate in the cash or deferred portion (i.e., that portion of the Plan under which 401(k) deferrals are made) as of the first day of the month following the commencement of employment. All employees of Home Federal Bancorp or a subsidiary who have completed at one Year of Service are eligible to participate in the profit sharing and matching contribution portions of the 401(k) Plan, as of the next following January 1 or July 1. As of December 31, 2003, there were approximately 232 employees eligible to participate in the cash or deferred portion of the 401(k) Plan, and 109 employees had elected to participate in the cash or deferred portion of the 401(k) Plan. Contributions Under the 401(k) Plan 401(k) Contributions. The 401(k) Plan permits each participant to defer receipt of up to 100 percent of their annual compensation, not to exceed $13,000 (for 2004), and to have that compensation contributed to the 401(k) Plan. Generally, the plan describes a participant's annual compensation as total compensation while the employee is a participant, taking into account pre-tax deferrals and excluding fringe benefits. However, no more than $205,000 of compensation may be taken into account for purposes of determining 401(k) contributions (and matching contributions) for 2004. You may modify the rate of your future 401(k) contributions by filing a new deferral agreement with the plan administrator. Modifications to your rate of 401(k) contributions may take effect as soon as practicable following when you make your revised deferral election. 3 Catch-Up 401(k) Contributions. The 401(k) Plan permits each participant who has attained age 50 to defer up to an additional $3,000 (for 2004) into the 401(k) Plan. Catch-up 401(k) contributions are not subject to any limitations other than the $3,000 dollar limitation. Matching Contributions. The 401(k) Plan currently provides for matching contributions to the 401(k) Plan. The annual matching contribution amount is determined by Home Federal Bancorp (and may be zero). Profit Sharing Contributions. The 401(k) Plan currently permits Home Federal Bancorp to make discretionary profit sharing contributions to the Plan. To be eligible for a profit sharing contribution in any year, you must be actively employed with Home Federal Bancorp or Home Federal on the last day of the Plan Year, or have terminated employment during the year having completed at least 501 hours of service during the Plan Year. Profit sharing contributions are allocated proportionally among eligible participants based on compensation. Rollover Contributions. You may also rollover or directly transfer accounts from another qualified plan or an individual retirement account ("IRA"), provided the rollover or direct transfer complies with applicable law. If you want to make a rollover contribution or direct transfer, you should contact the plan administrator. Limitations on Contributions Limitations on 401(k) Contributions. Although the 401(k) Plan allows you to defer receipt of up to 100% of your compensation each year as a 401(k) contribution, federal law limits your total 401(k) contributions under the 401(k) Plan, and any similar plans, to $13,000 for 2004. This annual limitation will increase by $1,000 for each subsequent year until 2006, when the annual deferral limit will be $15,000. 401(k) contributions in excess of this limitation are considered excess deferrals, and will be included in an affected participant's gross income for federal income tax purposes in the year the 401(k) contribution is made. In addition, any excess deferral will again be subject to federal income tax when distributed by the 401(k) Plan to the participant, unless the excess deferral, together with any income earned on the excess deferral, is distributed to the participant not later than the first April 15th following the close of the taxable year in which the excess deferral is made. Any income on the excess deferral that is distributed not later than such date shall be treated, for federal income tax purposes, as earned and received by the participant in the taxable year in which the distribution is made. Limitations on Annual Additions and Benefits. Pursuant to the requirements of the Internal Revenue Code, the 401(k) Plan provides that the total amount of all contributions and forfeitures (annual additions) allocated to participants during any plan year may not exceed the lesser of 100% of the participant's compensation for the plan year, or $41,000. The $41,000 limit will be increased from time to time to reflect increases in the cost of living. Annual additions for this purpose generally include 401(k) deferrals, matching contributions and employer contributions to this or any other qualified plan sponsored by Home Federal Bancorp. Annual additions do not include rollover contributions. Limitation on 401(k) and Matching Contributions for Highly Compensated Employees. Sections 401(k) and 401(m) of the Internal Revenue Code limit the amount of 401(k) contributions and matching contributions that may be made to the 401(k) Plan in any plan year on behalf of highly compensated employees (defined below) in relation to the amount of 401(k) contributions and matching contributions made by or on behalf of all other employees eligible to participate in the 401(k) Plan. Specifically, the percentage of 401(k) contributions made on behalf of a participant who is a highly compensated employee shall be limited so that the average actual deferral percentage for the group of highly compensated employees for the current plan year does not exceed the greater of (i) the average actual deferral percentage for the group of eligible employees who are non-highly compensated employees for the prior plan year multiplied by 1.25; or (ii) the average actual deferral percentage for the group of eligible employees who are non-highly compensated employees for the prior plan year, multiplied by two (2); provided that the difference in the average actual deferral percentage for eligible non-highly compensated employees does not exceed 2%. Similar discrimination rules apply to matching contributions. The discrimination rules do not apply to 401(k) catch-up contributions. 4 In general, a highly compensated employee includes any employee who was a 5% owner of the employer at any time during the year or preceding year or had compensation for the preceding year in excess of $90,000. The dollar amount in the foregoing sentence is for the plan year ended December 31, 2004. This amount may be adjusted to reflect increases in the cost of living. Contributions allocated to highly compensated employees that exceed the average deferral limitation in any plan year are referred to as excess contributions. In order to prevent the disqualification of the 401(k) Plan, any excess 401(k) contributions, together with any income earned on these excess contributions, must be distributed to the highly compensated employees before the close of the following plan year. However, the employer will be subject to a 10% excise tax on any excess contributions unless the excess contributions, together with any income earned on these excess contributions, are distributed before the close of the first 2 1/2 months following the plan year to which the excess contributions relate. Matching contributions that relate to the returned deferral contributions will be forfeited (if not vested) or distributed (if vested) at the same time as the excess deferral contributions are returned to you. Regarding matching contributions that do not satisfy the limitation tests described above, in order to prevent the disqualification of the 401(k) Plan, any excess matching contributions, together with any income earned on these excess contributions, must be distributed to the highly compensated employees before the close of the following plan year. Excess matching contributions, plus income allocable thereto, will be forfeited (if not vested) or distributed (if vested). There are specific rules for determining which highly compensated employees will be affected by the excess contribution return rules, and the amount of excess 401(k) contributions and matching contributions that must be returned to the affected employees. Deduction Limits. Matching and profit sharing contributions are subject to and limited by Internal Revenue Code deduction rules. Contributions will not be made to the extent they would be considered nondeductible. 401(k) contributions are neither subject to nor limited by the Internal Revenue Code deduction rules. Top-Heavy Plan Requirements. If for any plan year the 401(k) Plan is a top-heavy plan, then minimum contributions may be required to be made to the 401(k) Plan on behalf of non-key employees. Contributions otherwise being made under the Plan may apply to satisfy these requirements. In general, the 401(k) Plan will be regarded as a "top-heavy plan" for any plan year if, as of the last day of the preceding plan year, the aggregate balance of the accounts of participants who are key employees exceeds 60% of the aggregate balance of the accounts of all participants. Key employees generally include any employee who, at any time during the plan year, is (1) an officer of Home Federal Bancorp or its subsidiaries having annual compensation in excess of $130,000 who is in an officer in an administrative or policy-making capacity, (2) a 5% owner of Home Federal Bancorp (i.e., owns directly or indirectly more than 5% of the stock of Home Federal Bancorp, or stock possessing more than 5% of the total combined voting power of all stock of Home Federal Bancorp) or (3) a 1% owner of Home Federal Bancorp having annual compensation in excess of $150,000. The $130,000 dollar amount (but not the $150,000 amount) in the foregoing sentence are for 2004, and will adjusted in the future for cost of living increases. Investment of Contributions Investment Options. All amounts credited to participants' accounts under the 401(k) Plan are held in trust. The trust is administered by a trustee appointed by Home Federal Bancorp's Board of Directors. You must instruct the trustee as to how funds held in your account are to be invested. In addition to the Employer Stock Fund, which will consist of shares of Home Federal Bancorp common stock and cash, participants may elect to instruct the trustee to invest such funds in any or all of the following investment options: . ING VP Money Market Portfolio, Class I - seeks to provide high current return, consistent with preservation of capital and liquidity by investing in high-quality money market instruments. . ING VP Bond Portfolio, Class I Fund - seeks to provide as high a level of total return as is consistent with reasonable risk, primarily through investment in a diversified portfolio of 5 investment-grade corporate bonds and debt securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. . ING Governmental Fund, Class A - seeks to provide income consistent with the preservation of capital through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. . ING Fixed Account - seeks to provide stability; guarantees a minimum rate of interest for the life of the contract, and may credit a higher interest rate from time to time. . Templeton Global Bond Fund, Class A - seeks to provide capital appreciation and growth of income. . ING VP Index Plus LargeCap Portfolio - seeks to outperform the total return performance of the Standard & Poor's 500 Composite Index (S&P 500), while maintaining a market level of risk. . Oppenheimer Main Street Fund, Class A - seeks a high total return. . Pioneer Fund, Class A - seeks reasonable income and capital growth. . Fidelity VIP Contrafund Portfolio, Initial Class - seeks long-term capital appreciation. . MFS Capital Opportunities Fund, Class A - seeks capital appreciation. . Fidelity Advisor Mid Cap Fund, Class T - seeks long-term capital growth. . Franklin Small-Mid Cap Growth Fund, Class A - seeks long-term capital growth. . ING VP Index Plus SmallCap Portfolio - seeks to outperform the total return performance of the Standard and Poor's Small-Cap 600 Index (S&P 600), while maintaining a market level of risk. . Lord Abbett Series Fund, Mid-Cap Value Portfolio, Class VC - seeks capital appreciation through investments, primarily in equity securities, which are believed to be undervalued in the marketplace. . ING VP International Value Portfolio, Class I - seeks long-term capital appreciation. . Janus Aspen Series Worldwide Growth Portfolio, Institutional Shares - seeks long-term growth of capital in a manner consistent with the preservation of capital. . ING American Century Small Cap Value Portfolio, Initial Class - seeks long-term growth of capital; income is a secondary objective. . ING Baron Small Cap Growth Portfolio, Initial Class - seeks capital appreciation. . ING VP Index Plus MidCap Portfolio, Class I - seeks to outperform the total return performance of the Standard & Poor's MidCap 400 Index (S&P 400), while maintaining a market level of risk. . Washington Mutual Investors Fund, Class R3 - seeks to produce income and to provide an opportunity through growth of principal consistent with sound common stock investing. . American Balanced Fund, Class R3 - seeks conservation of capital, current income and long-term growth of capital and income. 6 For descriptions of these other investment options available to 401(k) Plan participants, you may request a prospectus for each of the investment options from the plan administrator. If no investment direction is given, all contributions to a participant's account will be invested in the Money Market Fund. The investment in Home Federal Bancorp common stock involves certain risks. No assurance can be given that units in the Employer Stock Fund purchased pursuant to the 401(k) Plan will thereafter be able to be sold at a price equal to or in excess of the purchase price. See also "Risk Factors" in the prospectus. Home Federal Bancorp Common Stock Investment Election Procedures. You may instruct the trustee to purchase Home Federal Bancorp common stock by redirecting funds from your existing accounts into the Employer Stock Fund by filing an election form with the plan administrator on or prior to the election deadline. The amount of funds redirected into the Employer Stock Fund must be allocated in whole dollar increments from investment options containing the participant's 401(k) Plan funds. When you instruct the trustee to redirect the funds in your existing accounts into the Employer Stock Fund in order to purchase units in the Employer Stock Fund, the trustee will liquidate funds from the appropriate investment option(s) and apply such redirected funds as requested, in order to effect the new allocation. Approximately 93% of the elected funds will be invested in Home Federal Bancorp common stock and the remaining 7% will be invested in a money market account. For example, you may fund an election to purchase $1,000 worth of the Employee Stock Fund by redirecting the aggregate purchase price of $1,000 for the shares from the following investment options (provided the necessary funds are available in such Investment Options): (i) 10% from the ING VP Money Market Fund, (ii) 30% from the ING Bond Fund, and (iii) 60% from the Lord Abbett Mid-Cap Value Fund. In such case, the trustee would liquidate $100 of the participant's funds from the Money Market Fund, $300 from funds in the Bond Fund and $600 from funds in the Mid-Cap Value Fund to raise the $1,000 aggregate purchase price. If your instructions cannot be fulfilled because you do not have the required funds in one or more of the investment options to purchase the shares of Home Federal Bancorp common stock subscribed for, you will be required to file a revised election form with the plan administrator by the election deadline. Once received in proper form, an executed election form may not be modified, amended or rescinded without our consent unless the stock offering has not been completed within 45 days after the end of the subscription and community offering. Adjusting Your Investment Strategy. Until changed in accordance with the terms of the 401(k) Plan, future allocations of your contributions would remain unaffected by the election to purchase units in the Employer Stock Fund through the 401(k) Plan in the reorganization. You may modify a prior investment allocation election or request the transfer of funds to another investment vehicle by telephone at (800) 584-6001 or on the Internet at www.ingretirementplans.com. After the reorganization and stock offering, modifications and fund transfers relating to the Employer Stock Fund will be permitted on a daily basis. Valuation of Accounts. The 401(k) Plan uses a unit system for valuing each investment fund. Under this system, your share in any investment fund is represented by units. The unit value is determined as of the close of business each regular business day. The total dollar value of your share in any investment fund as of any valuation date is determined by multiplying the number of units held by you by the unit value of the fund on that date. The sum of the values of the funds you select represents the total value of your 401(k) Plan account. 7 Financial Data Employer Contributions. For the plan year ended December 31, 2003, we made matching contributions totaling approximately $129,000 into the 401(k) Plan. No profit sharing contribution was made to the 401(k) Plan for the plan year ended December 31, 2003. If we adopt other stock-based benefit plans, such as an employee stock ownership plan or a restricted stock plan, then we may decide to reduce our matching contribution and/or our discretionary contribution under the 401(k) Plan in order to reduce overall expenses. We are currently planning to adopt an employee stock ownership plan. If we adopt a restricted stock plan, the plan would not be submitted for stockholder approval for at least six months following completion of the reorganization. Performance of Home Federal Bancorp Common Stock. As of the date of this prospectus supplement, no shares of Home Federal Bancorp common stock have been issued or are outstanding and there is no established market for our common stock. Accordingly, there is no record of the historical performance of Home Federal Bancorp common stock. Performance of Investment Options. The following table provides performance data with respect to the investment options available under the 401(k) Plan, based on information provided to Home Federal Bancorp by ING. The information set forth below with respect to the investment options has been reproduced from materials supplied by ING, which administers the 401(k) Plan and is responsible for providing investment alternatives under the Plan other the Employer Stock Fund. Home Federal Bancorp and Home Federal take no responsibility for the accuracy of such information. Additional information regarding the investment options may be available from ING or Home Federal Bancorp. Participants should review any available additional information regarding these investments before making an investment decision under the 401(k) Plan. The total percentage return for the prior three years is provided for each of the following funds. NET INVESTMENT PERFORMANCE

For the Year Ended December 31, ----------------------------- 2003 2002 2001 ------ ------ ------ ING VP Money Market Portfolio, Class I 0.10% 0.81% 3.11% ING VP Bond Portfolio, Class I 5.88 7.90 8.31 ING Governmental Fund, Class A 1.61 8.33 6.63 ING Fixed Account 4.92 5.65 6.03 Templeton Global Bond Fund, Class A 20.62 19.37 3.60 ING VP Index Plus Large Cap Portfolio, Class I 25.64 -21.84 -13.97 Oppenheimer Main Street Fund, Class A 26.25 -19.86 -10.96 Pioneer Fund, Class A 23.89 -20.78 -11.53 Fidelity VIP Contrafund Portfolio, Initial Class 27.57 -9.98 -12.86 MFS Capital Opportunities Fund, Class A 26.90 -30.73 -25.23 Fidelity Advisor Mid Cap Fund, Class T 43.17 -19.04 -20.97 Franklin Small-Mid Cap Growth Fund, Class A 36.92 -29.97 -20.97 ING VP Index Plus Small Cap Portfolio, Class I 31.92 -12.44 2.00 Lord Abbett Series Fund, Mid-Cap Value Portfolio, Class VC 23.89 -10.41 7.30 ING VP International Value Portfolio, Class I 29.40 -15.71 -12.02 Janus Aspen Series Worldwide Growth Portfolio, Institutional Shares 23.13 -26.02 -22.98 ING American Century Small Cap Value Portfolio, Initial Class 35.03 N/A N/A ING Baron Small Cap Growth, Initial Class 33.07 N/A N/A

8

ING VP Index Plus MidCap Portfolio, Class I 35.03 -12.44 -1.72 Washington Mutual Investors Fund, Class R3 24.79 -16.04 0.75 American Balanced Fund, Class R3 21.08 -6.96 7.41

Each participant should note that past performance is not necessarily an indicator of future results. Administration of the 401(k) Plan Trustees. The trustee is appointed by the Board of Directors of Home Federal Bancorp to serve at its pleasure. Currently, ING is the trustee for all funds and upon the conclusion of the common stock offering by Home Federal Bancorp, ING will also serve as the trustee of the Employer Stock Fund. The trustee receives and holds the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the provisions of the 401(k) Plan. The trustee is responsible for following participant direction, effectuating the investment of the assets of the trust in the Employer Stock Fund and the other investment options. Benefits Under the 401(k) Plan Plan Benefits. Your 401(k) Plan benefit is based on the value of the vested portion of your 401(k) Plan accounts as of the valuation date next preceding the date of distribution to you. Vesting. You will always have a fully vested (nonforfeitable) interest in your 401(k) contribution account and rollover account. Your matching contribution account and profit sharing contribution account will vest at a rate of 20% for each year of service after you complete two years of service (that is, 100% vested after six years of service). Generally, a year of service is a plan year (January 1 to December 31) during which you perform at least 1,000 hours of service for Home Federal Bancorp, Home Federal or an affiliated employer. You also will become 100% vested in your matching contribution account and profit sharing contribution account if you are actively employed on your retirement date, death or disability. Withdrawals and Distributions from the 401(k) Plan Withdrawals Prior to Termination of Employment. You may elect to receive an in-service distribution from your rollover account at any time. You may also receive an in-service distribution if you have a hardship. Whether a hardship has occurred in determined in accordance with IRS rules. Distribution Upon Retirement or Disability. Upon your retirement or disability, you will receive a lump sum payment from the Plan. Distribution Upon Death. If you die prior to your benefits being paid from the 401(k) Plan, your benefits will be paid to your surviving spouse or beneficiary in a lump sum payment. Distribution Upon Termination for any Other Reason. If you terminate employment for any reason other than retirement, disability or death and your vested 401(k) Plan account balances exceed $5,000, the trustee will make your distribution on your normal retirement date, unless you request an earlier or later distribution date. Your vested 401(k) Plan accounts will be distributed in a lump sum payment. If your vested account balances do not exceed $5,000, the trustee will generally distribute your benefits to you as soon as administratively practicable in a lump sum following your termination of employment. Form of Distribution. Distributions from the 401(k) Plan will generally be in the form of cash. However, you have the right to request that your distribution from the Employer Stock Fund be in the form of Home Federal Bancorp common stock. 9 Nonalienation of Benefits. Except with respect to federal income tax withholding and as provided with respect to a qualified domestic relations order, benefits payable under the 401(k) Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan shall be void. Reports to 401(k) Plan Participants As soon as practicable after the end of each calendar quarter, the plan administrator will furnish to each participant a statement showing (i) balances in the participant's accounts as of the end of that period, (ii) the amount of contributions allocated to his or her accounts for that period, and (iii) the number of units in each of the funds. Participants may also access information regarding their 401(k) Plan Accounts by using internet access made available by ING, the plan investment manager. Amendment and Termination We intend to continue to participate in the 401(k) Plan. Nevertheless, we may amend or terminate the 401(k) Plan at any time. If the 401(k) Plan is terminated in whole or in part, then, regardless of other provisions in the 401(k) Plan, each participant affected by the termination shall become fully vested in all of his or her accounts. Federal Income Tax Consequences The following is a brief summary of the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. Please consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the plan. As a "tax-qualified retirement plan," the Internal Revenue Code affords the 401(k) Plan special tax treatment, including: . the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the plan each year; . participants pay no current income tax on amounts contributed by the employer on their behalf; and . earnings of the Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments. We will administer the 401(k) Plan to comply with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. Taxation of Distributions. Generally, 401(k) Plan distributions are taxable as ordinary income for federal income tax purposes. Common Stock Included in a Lump Sum Distribution. If a lump sum distribution includes common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to the common stock. Net unrealized appreciation is the excess of the value of the common stock at the time of the distribution over its cost or other basis to the trust. The tax basis of the common stock for purposes of computing gain or loss on its subsequent sale equals the value of the common stock at the time of distribution less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of the common stock up to the amount of net unrealized 10 appreciation at the time of distribution will be considered long-term capital gain regardless of the holding period of the common stock. Any gain on a subsequent sale or other taxable disposition of the common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term or long-term capital gain depending upon the length of the holding period of the common stock. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution to the extent allowed by the regulations issued by the Internal Revenue Service. Rollovers and Direct Transfers to Another Qualified Plan or to an IRA; Mandatory Tax Withholding. Except as discussed below, you may roll over virtually all distributions from the 401(k) Plan to another tax-favored plan or to a standard IRA without regard to whether the distribution is a lump sum distribution or a partial distribution. You have the right to elect to have the trustee transfer all or any portion of an "eligible rollover distribution" directly to another qualified retirement plan (subject to the provisions of the recipient qualified plan) or to an IRA. If you do not elect to have an "eligible rollover distribution" transferred directly to another qualified plan or to an IRA, the distribution will be subject to a mandatory federal withholding tax equal to 20% of the taxable distribution. Your state may also impose tax withholding on your taxable distribution. An "eligible rollover distribution" means any amount distributed from the plan except: (1) a distribution that is (a) one of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives of you and your designated beneficiary, or (b) for a specified period of ten years or more; (2) any amount required to be distributed under the minimum distribution rules; and (3) any other distributions excepted under applicable federal law. If you elect to rollover or directly transfer common stock, you may not take advantage of the favorable net unrealized appreciation that applies to common stock, discussed above. Ten-Year Averaging Rules. Under a special grandfather rule, if you have completed at least five years of participation in the 401(k) Plan before the taxable year in which the distribution is made, and you turned age 50 by 1986, you may elect to have your lump sum distribution taxed using a "ten-year averaging" rule. The election of the special averaging rule applies only to one lump sum distribution you or your beneficiary receive, provided such amount is received on or after you attain age 59 1/2 and you elect to have any other lump sum distribution from a qualified plan received in the same taxable year taxed under the ten-year averaging rule or receive a lump sum distribution on account of your death. Additional Tax on Early Distributions. A participant who receives a distribution from the 401(k) Plan prior to attaining age 59 1/2 will be subject to an additional income tax equal to 10% of the amount of the distribution. The 10% additional income tax will not apply, however, in certain cases, including (but not limited) to distributions rolled over or directly transferred into an IRA or another qualified plan, or the distribution is (i) made to a beneficiary (or to the estate of a participant) on or after the death of the participant, (ii) attributable to the participant's being disabled within the meaning of Section 72(m)(7) of the Internal Revenue Code, (iii) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the participant or the joint lives (or joint life expectancies) of the participant and his beneficiary, (iv) made to the participant after separation from service under the 401(k) Plan after attainment of age 55, (v) made to pay medical expenses to the extent deductible for federal income tax purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made to effect the distribution of excess contributions or excess deferrals. This is a brief description of federal income tax aspects of the 401(k) Plan which are of general application under the Internal Revenue Code. It is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you are urged to consult a tax advisor concerning the federal, state and local tax consequences that may be particular to you of participating in and receiving distributions from the 401(k) Plan. ERISA and Other Qualification As noted above, the 401(k) Plan is subject to certain provisions of ERISA, the primary federal law governing retirement plans, and is intended to be a qualified retirement plan under the Internal Revenue Code. 11 Restrictions on Resale Any person receiving shares of Home Federal Bancorp common stock under the 401(k) Plan who is an "affiliate" of Home Federal Bancorp or Home Federal as the term "affiliate" is used in Rules 144 and 405 under the Securities Act of 1933 (e.g., directors, officers and significant stockholders of Home Federal Bancorp and Home Federal) may re-offer or resell such shares only pursuant to a registration statement or, assuming the availability thereof, pursuant to Rule 144 or some other exemption from the registration requirements of the Securities Act of 1933. Any person who may be an "affiliate" of Home Federal Bancorp may wish to consult with counsel before transferring any Home Federal Bancorp common stock owned by him or her. In addition, participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934 which may restrict the sale of Home Federal Bancorp common stock acquired under the 401(k) Plan, or other sales of Home Federal Bancorp common stock. Securities and Exchange Commission Reporting and Short-Swing Profit Liability Section 16 of the Securities Exchange Act of 1934 imposes reports and liability requirements on officers, directors and persons beneficially owning more than 10% of public companies such as Home Federal Bancorp. Section 16(a) of the Securities Exchange Act of 1934 requires the filing of reports of beneficial ownership. Within ten days of becoming a person subject to the reporting requirements of Section 16(a), a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission. Certain changes in beneficial ownership, such as purchases, sales and participation in savings and retirement plans must be reported on a Form 4 within two business days of when a change occurs. Certain other changes in beneficial ownership, such as gifts and inheritances, may be reported on a Form 4 or annually on a Form 5 within 45 days after the close of our fiscal year. Participation in the Employer Stock Fund of the 401(k) Plan by our officers, directors and persons beneficially owning more than 10% of the outstanding Home Federal Bancorp common stock must be reported to the Securities and Exchange Commission at least annually on a Form 4 or Form 5 by such individuals. Section 16(b) of the Securities Exchange Act of 1934 provides for the recovery by us of any profits realized by an officer, director or any person beneficially owning more than 10% of the Home Federal Bancorp common stock resulting from the purchase and sale or sale and purchase of Home Federal Bancorp common stock within any six-month period. The Securities and Exchange Commission rules provide an exemption from the profit recovery provisions of Section 16(b) for certain transactions within an employee benefit plan, such as the 401(k) Plan, provided certain requirements are met. If you are subject to Section 16, you should consult with counsel regarding the applicability of Section 16 to specific transactions involving the 401(k) Plan. LEGAL OPINIONS The validity of the issuance of Home Federal Bancorp common stock will be passed upon by Breyer & Associates PC, McLean, Virginia, which firm acted as special counsel for Home Federal Bancorp and Home Federal in connection with Home Federal Bancorp's reorganization and stock offering. 12 PROSPECTUS Up to 4,600,000 Shares of Common Stock Home Federal Bancorp, Inc. (Proposed Holding Company for Home Federal Savings and Loan Association of Nampa) ================================================================================ Home Federal Bancorp, Inc. is offering its common stock for sale in connection with the reorganization of Home Federal Savings and Loan Association of Nampa into the mutual holding company structure. The shares being offered for sale will represent 40.00% of the outstanding common stock of Home Federal Bancorp, Inc. after the completion of this stock offering. Home Federal Bancorp, Inc. has been formed to be the holding company for Home Federal Savings and Loan Association of Nampa. Home Federal MHC has been formed to be the holding company for Home Federal Bancorp, Inc. and will own 59.04% of the outstanding common stock of Home Federal Bancorp, Inc. The remaining 0.96% will be held by a charitable foundation that will be established by Home Federal Bancorp, Inc. Home Federal Bancorp, Inc. expects its common stock to be listed for trading on the Nasdaq National Market under the symbol "HOME." ================================================================================ TERMS OF THE OFFERING Price Per Share: $10.00; Minimum Subscription: 25 shares or $250

Maximum, Minimum Maximum as adjusted (1) ------------ ------------ --------------- Number of Shares............................... 3,400,000 4,600,000 5,290,000 Underwriting Commission ....................... $ 376,511 $ 525,240 $ 610,759 Other Expenses................................. $ 1,017,400 $ 1,017,400 $ 1,017,400 Net Proceeds to Home Federal Bancorp, Inc...... $ 32,606,089 $ 44,457,360 $ 51,271,841 Net Proceeds Per Share......................... $ 9.59 $ 9.66 $ 9.69

-------- (1) Represents an amount that is 15% more than the maximum of the offering range as a result of changes in financial or market conditions. The sale of stock at this amount does not require the resolicitation of subscribers. For a discussion of material risks you should consider, please refer to "Risk Factors" beginning on page 1 of this prospectus. Keefe, Bruyette & Woods will use its best efforts to assist Home Federal Bancorp, Inc. in selling at least the minimum number of shares shown above, but does not guarantee that this number will be sold. Keefe, Bruyette & Woods is not obligated to purchase any shares of common stock in the offering. Keefe, Bruyette & Woods intends to make a market in the common stock. Home Federal Bancorp, Inc. will establish a charitable foundation, which it will fund with cash and stock equal to 3% of the gross proceeds of shares sold in the offering. Of the contribution, 80% will be made in stock and 20% will be made in cash. At the maximum of the offering range, 110,400 shares will be contributed to the foundation. These shares will be issued in addition to the shares being sold in the offering. In addition, the employee stock ownership plan of Home Federal Bancorp, Inc. will purchase in the offering a number of shares equal to 3.3% of the number of shares issued in the reorganization, including those issued to Home Federal MHC, or if shares are not available, in the open market after the stock offering. Directors and executive officers of Home Federal Bancorp, Inc., together with the employee stock ownership plan, intend to purchase $7.5 million and $9.0 million in the offering, or 22.0% and 19.5%, respectively, of the offering based on the minimum and the maximum of the total shares to be sold to the public. These purchases will count towards the minimum purchases needed to complete the offering, and will be made for investment purposes only and not for resale. The offering will begin on _____ __, 2004 and will end at 12:00 Noon, Mountain time, on _____ __, 2004. We may also commence a direct community offering and a syndicated community offering concurrently with, during or promptly after the subscription offering. We may extend the offerings, without notice to you, but they must be completed or terminated by _____ __, 2004, unless the Office of Thrift Supervision approves a later date, which may not be beyond _____ __, 2006. Home Federal Bancorp, Inc. will hold all subscribers' funds in an interest-bearing savings account at Home Federal Savings and Loan Association of Nampa until the stock offering is completed or terminated. Funds will be returned promptly with interest if the offering is terminated. These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation nor any other federal agency or state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. For information on how to subscribe, call the stock information center at (208) 468-5025. ------------------------------------ KEEFE, BRUYETTE & WOODS ------------------------------------ _____ __, 2004 [MAP APPEARS HERE] [GRAPHIC OMITTED] -------------------------------------------------------------------------------- SUMMARY This summary highlights selected information from this prospectus and may not contain all the information that is important to you. To completely understand the stock offering, you should read this entire prospectus carefully, including the consolidated financial statements and the notes to the consolidated financial statements. The Companies: Home Federal Bancorp, Inc. 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 Home Federal Bancorp, Inc. ("Home Federal Bancorp") will be formed a federally-chartered stock corporation for the purpose of acquiring all of the capital stock that Home Federal Savings and Loan Association of Nampa ("Home Federal") will issue upon its reorganization into a mutual holding company structure. Following the reorganization, a majority of the outstanding common stock of Home Federal Bancorp will be held by Home Federal MHC, a federally-chartered mutual holding company. As part of the reorganization, Home Federal Bancorp is offering for sale up to 5,290,000 shares of common stock, subject to adjustment. These shares will represent 40.00% of the outstanding common stock of Home Federal Bancorp after the completion of the reorganization and stock offering. Home Federal Bancorp will form a charitable foundation, to which it will contribute cash and stock equal to 3% of the gross proceeds of shares sold in the offering. Of the contribution, 80% will be made in stock and 20% will be made in cash. Home Federal MHC will own the remainder of the outstanding common stock of Home Federal Bancorp. The following chart shows the corporate structure after completion of the reorganization and stock offering. Home Federal MHC Public Stockholders of Home Federal Home Federal Bancorp Foundation, Inc. 59.04% 40.00% 0.96% Home Federal Bancorp 100.00% Home Federal Home Federal MHC 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 Home Federal MHC will be formed as a federally-chartered mutual holding company in connection with the mutual holding company reorganization of Home Federal. Following completion of the reorganization, Home Federal MHC will own 59.04% of the outstanding common stock of Home Federal Bancorp. So long as Home Federal MHC is in existence, it will at all times own at least a majority of the outstanding common stock of Home Federal Bancorp. i -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Home Federal Savings and Loan Association of Nampa 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 Home Federal was founded in 1920 as a building and loan association and reorganized as a federal mutual savings and loan association in 1936. We are a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area. We engage primarily in the business of attracting deposits from the general public and using these funds to originate loans. We emphasize the origination of loans secured by first mortgages on owner-occupied, residential real estate, residential development and construction, and commercial real estate. To a lesser extent, we originate other types of real estate loans, commercial business loans and consumer loans. See "Business of Home Federal - Lending Activities." We serve the Treasure Valley region of southwestern Idaho, which includes Ada, Canyon, Elmore and Gem Counties, through our 14 full-service banking offices, two loan centers, 15 automated teller machines and Internet banking services. Included in our 14 full-service banking offices are five Wal-Mart in-store branch locations and an office located in the Hispanic Cultural Center of Idaho. At March 31, 2004, we had total assets of $496.8 million, deposit accounts of $329.5 million and equity of $42.4 million. Through the reorganization, we are changing our corporate structure by becoming a federally-chartered stock savings bank and also are changing our name to "Home Federal Bank." Our Operating Strategy Our mission is to operate and grow a profitable community-oriented financial institution serving individuals and commercial real estate customers in our market area. We plan to achieve this by executing our strategy of: o maintaining favorable asset quality reflected primarily by a low level of nonperforming assets, low charge-offs and adequacy of loan loss reserves; o seeking to improve net interest margin through a combination of reduced funding costs and improved pricing relative to asset risk; o analyzing profitability of products and business lines and allocating resources to those areas offering the greatest potential for future profits; o expanding the number of households we serve through internal expansion of the branch network and possible selective acquisitions of financial service providers in existing or surrounding markets; o pursuing further loan portfolio diversification, with an emphasis on credit risk management; o continuing an internal management culture which is driven by a focus on profitability, productivity and accountability for results and which responds proactively to the challenge of change; o providing our staff members with the knowledge and skills necessary to perform their job functions and develop their career potential; o enhancing the perception of Home Federal with both the retail and commercial banking public as the bank of choice; o maintaining a sales and service culture based on an understanding of the customer's needs and reflecting our commitment to excellence; ii -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- o reducing future reliance on net interest income by creating additional sources of fee income from products and services we offer; and o utilizing technology to gain efficiencies in processing customer information, to provide a competitive tool to assist the sales process and to allow the efficient integration of acquired businesses. The Reorganization and Stock Offering In connection with Home Federal's reorganization into the mutual holding company form of organization, it is offering the common stock of Home Federal Bancorp to the public primarily to allow it to grow through expanded operations, particularly in the area of commercial real estate lending, as well as through increased branching within our current market area. The stock form of organization will also give us more flexibility to increase our capital position and to offer stock-based employee compensation which will provide greater incentive to improve corporate performance. Home Federal also considered reorganizing as the wholly-owned subsidiary of a stock holding company, known as a standard conversion, rather than as a second-tier subsidiary of a mutual holding company. The amount of equity capital that would be raised in a standard conversion, however, would be substantially more than the amount raised in a minority stock offering by a subsidiary of a mutual holding company. As a result, the capital raised in a standard conversion would be significantly in excess of the amount needed for business operations, thereby making it more difficult for Home Federal Bancorp to achieve acceptable returns on equity. See "Home Federal's Reorganization and Stock Offering - Our Reasons for the Reorganization and Stock Offering." We are offering between 3,400,000 and 4,600,000 shares of Home Federal Bancorp common stock at $10.00 per share, which corresponds to the offering range based on our independent appraisal after the contribution of shares to the charitable foundation formed by Home Federal Bancorp and shares that will be held by Home Federal MHC. Home Federal Bancorp will contribute cash and stock equal to 3% of the gross proceeds of shares sold in the offering to the Home Federal Foundation, Inc. ("Home Federal Foundation"). Of this contribution, 80% will be made in stock and 20% will be made in cash. Home Federal MHC will own 59.04% of the outstanding common stock of Home Federal Bancorp. In the event of subsequent developments in the financial condition of Home Federal Bancorp or Home Federal or general financial market conditions before we complete the stock offering, the number of shares we offer may increase up to 5,290,000 shares with the approval of the Office of Thrift Supervision and without any notice to you. If so, you will not have the chance to change or cancel your stock order. Keefe, Bruyette & Woods will assist us in selling the stock. For further information about the role of Keefe, Bruyette & Woods in the offering, see "Home Federal's Reorganization and Stock Offering - Marketing Arrangements." Terms of the Stock Offering We are offering the shares of common stock to those with subscription rights in the following order of priority: (1) Depositors who held at least $50 with us on December 31, 2002. (2) The Home Federal Bancorp, Inc. employee stock ownership plan. (3) Depositors who held at least $50 with us on June 30, 2004. (4) Depositors with us as of _____ __, 2004 and borrowers as of March 16, 2004 whose loans continue to be outstanding as of _____ __, 2004. Shares of common stock not subscribed for in the subscription offering will be offered to the general public in a direct community offering with a preference to natural persons residing in Ada, Canyon, Elmore and Gem iii -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Counties, Idaho and, if necessary, a syndicated community offering. The direct community offering and syndicated community offering, if any, shall begin at the same time as, during or promptly after the subscription offering. See "Home Federal's Reorganization and Stock Offering - Subscription Offering and Subscription Rights," "- Direct Community Offering" and "- Syndicated Community Offering." If we receive subscriptions for more shares than are to be sold in this offering, shares will be allocated in order of the priorities described above under a formula outlined in the plan of reorganization and stock issuance. If we increase the number of shares to be sold above 4,600,000, the employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See "Home Federal's Reorganization and Stock Offering - Subscription Offering and Subscription Rights" for a description of the allocation procedure. How We Determined the Offering Range and the $10.00 Price Per Share The independent appraisal by RP Financial, LC. ("RP Financial"), dated as of May 21, 2004, established the offering range. This appraisal was based on our financial condition and operations and the effect of the additional capital raised in the stock offering. The $10.00 price per share was determined by our Board of Directors and is the price most commonly used in stock offerings involving reorganizations of mutual savings institutions. The appraisal incorporated an analysis of a peer group of publicly traded mid-tier thrift holding companies and mutual holding companies that RP Financial deemed comparable to Home Federal. This analysis included an evaluation of the average and median price-to-earnings and price-to-tangible book value ratios indicated by the market prices of the peer group companies. RP Financial applied the peer group's pricing ratios, as adjusted for certain qualitative valuation factors to account for differences between Home Federal and the peer group, to Home Federal's pro forma earnings and book value to derive the estimated pro forma market value of Home Federal. RP Financial has estimated that as of May 21, 2004, the pro forma market value of Home Federal Bancorp on a fully converted basis, including the effect of the contribution of cash and stock to the Home Federal Foundation, ranged from a minimum of $85.0 million to a maximum of $115.0 million. Based on this valuation and the $10.00 per share price, the number of shares of common stock to be issued by Home Federal Bancorp will range from a minimum of 8,500,000 shares to a maximum of 11,500,000 shares. Home Federal Bancorp is offering 40.00% of these shares, or between 3,400,000 and 4,600,000 or $34.0 million to $46.0 million, for sale to eligible members of Home Federal, the Home Federal Bancorp, Inc. Employee Stock Ownership Plan and possibly to the general public in a community offering. In addition, the charitable foundation established by Home Federal Bancorp will be funded with cash and stock equal in value to 3% of the shares sold in the offering. It is intended that 80% of the foundation funding will be made by means of a stock contribution and 20% of the foundation funding will be made by means of a cash contribution. Accordingly, based on the minimum and maximum of the offering range, respectively, a minimum of 81,600 shares to a maximum of 110,400 shares will be contributed in stock and a minimum of $204,000 to a maximum of $276,000 will be contributed in cash. Home Federal MHC will own between 5,018,400 and 6,789,600 shares, or 59.04%, of Home Federal Bancorp at the completion of the stock offering. The establishment of the charitable foundation has the effect of reducing the valuation of Home Federal Bancorp. See "Comparison of Valuation and Pro Forma Information With and Without Charitable Foundation." The following tables present a summary of selected pricing ratios for the peer group companies and the resulting pricing ratios for Home Federal Bancorp. The estimated appraised value and the resulting premium/discount took into consideration the potential financial impact of the stock offering of Home Federal Bancorp. iv -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Recent and projected stock trading multiples. The following table presents the pricing ratios for the peer group companies in their current structure, as publicly traded mutual holding companies, and the pro forma pricing ratios for Home Federal Bancorp. Price-to-earnings Price-to-tangible multiple book value ratio ----------------- ----------------- Home Federal Bancorp (pro forma) Maximum............................ 24.9x 143.9% Minimum............................ 18.1 121.7 Valuation of peer group companies as of May 21, 2004 (1) Averages........................... 23.1x 200.5% Medians............................ 23.1 203.2 -------------- (1) Reflects earnings of the most recent 12 month period for which data is publicly available. Stock trading multiples of mutual holding companies on a fully-converted basis. The following table presents pro forma pricing ratios for the peer group companies, assuming they had completed a second-step conversion, and for Home Federal Bancorp, assuming it had also fully converted. RP Financial's calculations of the fully-converted pricing multiples for the peer group companies assume the pro forma impact of selling the mutual holding company shares of each of the peer group companies at their respective trading prices as of May 21, 2004. RP Financial's calculation of the fully-converted pricing multiples for Home Federal Bancorp assumes the pro forma impact of selling 100% of the shares to be issued to the public at $10.00 per share. Pro forma Pro forma price-to-earnings price-to-tangible multiple book value ratio ----------------- ----------------- Home Federal Bancorp Maximum...................... 25.2x 82.6% Minimum...................... 18.2 74.6 Valuation of peer group companies as of May 21, 2004 (1) Averages...................... 25.4x 99.0% Medians....................... 20.7 95.5 -------------- (1) Reflects earnings of the most recent 12 month period for which data is publicly available. The pro forma fully-converted calculations for Home Federal Bancorp and the peer group companies include the following assumptions: o 8.0% of the shares sold would be purchased by an employee stock ownership plan, with the expense to be amortized over ten years; o 4.0% of the shares sold would be purchased by a restricted stock plan, with the expense to be amortized over five years; and o offering expenses would equal 2.0% of the gross proceeds of the offering. With respect to Home Federal Bancorp, the pro forma fully-converted calculations also assume the impact of the establishment of a charitable foundation, funded at the rate of 3.0% of the gross proceeds of the offering. v -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Based on the results of the appraisal, compared to the average pricing of the peer group on a fully-converted basis, Home Federal Bancorp's fully-converted pro forma pricing ratios at the maximum of the offering range indicated a discount of 0.8% on a price-to-earnings basis and a discount of 16.6% on a price-to-book basis. The independent appraisal is not necessarily indicative of the post-stock offering trading value. Do not assume or expect that the valuation of Home Federal Bancorp as indicated above means that the common stock will trade at or above the $10.00 purchase price after the stock offering is completed. The independent valuation must be updated before we complete the stock offering. The amount of common stock being offered may be increased by up to 15% without notice to persons who have subscribed for stock, so that a total of 5,290,000 shares would be sold in the offering. We received authorization from the Office of Thrift Supervision to conduct the stock offering on _____ __, 2004. The updated independent valuation will be subject to the further approval of the Office of Thrift Supervision before we can complete the stock offering. If the updated independent valuation would result in more than 5,290,000 shares being sold, we would notify persons who have subscribed for stock and they would have the opportunity to confirm, change or cancel their subscription orders. See "Pro Forma Data." After-Market Performance Information Provided by Independent Appraiser The following information was provided to the Board of Directors by RP Financial as part of its appraisal review. The table presents for all mutual holding company reorganizations with a minority stock issuance from October 1, 2003 to May 21, 2004, and from January 1, 2002 to May 21, 2004, the average and median percentage stock appreciation from the initial trading date of the offering to the dates presented in the table. The Board did not consider this data particularly relevant to Home Federal's appraisal given that the information relates to stock appreciation experienced by other companies that reorganized in different markets and that may have issued more or less than 40.00% of their outstanding common stock. In addition, the companies may have no similarities to Home Federal with regard to the market in which Home Federal competes, earnings quality and growth potential, among other factors. Finally, the amount of proceeds raised as a percentage of pro forma stockholders' equity for Home Federal Bancorp is substantially higher than the amount of proceeds raised as a percentage of pro forma stockholders' equity for the institutions represented in the table. The substantial proceeds raised as a percentage of pro forma stockholders' equity may have a negative effect on our stock price performance. See "Risk Factors - After this offering, our return on equity will be low compared to other companies and our compensation expenses will increase. This could negatively impact the price of our stock." This table is not intended to indicate how our stock may perform. Stock appreciation is affected by many factors, including, but not limited to, the factors set forth below. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the Risk Factors beginning on page 1.

Average Percentage Stock Price Appre- Median Percentage Stock Price Appre- ciation from Initial Public Offering Price ciation from Initial Public Offering Price ------------------------------------------- ------------------------------------------ Through Through Number of After One After One May 21, After One After One May 21, Transactions Day Month 2004 Day Month 2004 ------------ -------------- ------------ ------------- -------------- ------------ ------------ October 1, 2003- May 21, 2004 8 36.2% 31.8% 21.6% 31.4% 25.5% 18.8% January 1, 2002 -May 21, 2004 12 33.7% 31.1% 42.8% 29.4% 25.3% 21.8%

Data presented in the table were calculated on a small sample. The data, therefore, may not be meaningful for investors. While stock prices of reorganizing institutions have, on average, increased for the period presented, there can be no assurance that our stock price will appreciate the same amount, if at all. There can also be no assurance that our stock price will not trade below $10.00 per share, as has been the case for some thrift institutions that have formed mutual holding companies. In addition, the transactions from vi -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- which the data are arrived occurred primarily during a falling interest rate environment, during which the market for financial institutions typically increases. If interest rates rise, our net interest income and the value of our assets likely would be reduced, negatively affecting our stock price. See "Risk Factors - A significant decline or rise in rising interest rates may hurt our profits and net portfolio value." The increase in any particular company's stock price is subject to various factors, including the amount of proceeds a company raises (see "Risk Factors - After this offering, our return on equity will be low compared to other companies and our compensation expenses will increase. This could negatively impact the price of our stock."), the quality of management and management's ability to deploy proceeds (such as through investments, the acquisition of other financial institutions or other businesses, the payment of dividends and common stock repurchases). In addition, stock prices may be affected by general market conditions, the interest rate environment, the market for financial institutions and merger or takeover transactions, the presence of professional and other investors who purchase stock on speculation, as well as other unforeseeable events not necessarily in the control of management. The Board of Directors carefully reviewed the information provided to it by RP Financial through the appraisal process, but did not make any determinations regarding whether or not prior mutual to stock conversions have been undervalued on a price-to-tangible-book value basis, nor did the Board draw any conclusions regarding how the historical data reflected above may impact Home Federal's appraisal. Instead, the Board hired RP Financial to help it understand the regulatory process and to advise the Board as to how much capital Home Federal Bancorp would likely be required to raise under the Office of Thrift Supervision's appraisal guidelines. The Board's ability to control the amount of capital Home Federal will raise in the stock offering is limited by the regulatory framework established by the Office of Thrift Supervision, which requires that Home Federal hire an independent appraiser and permit the independent appraiser to arrive at a value without undue influence from outside parties, including Home Federal. The Board fully complied with the Office of Thrift Supervision's guidelines and permitted RP Financial to arrive at the appraised value of Home Federal independently, which the Board also understood would be subject to Office of Thrift Supervision review and approval. RP Financial, an independent appraisal firm expert in the appraisal guidelines of the Office of Thrift Supervision, considered all factors that may appropriately be considered under the Office of Thrift Supervision's appraisal guidelines when arriving at the appraised value of Home Federal. The Board of Directors recognized the duty of care it owes to Home Federal and its members to proceed with the reorganization transaction in an informed manner with the best interests of Home Federal and its members in the forefront of its deliberations and decision making. The Board worked closely with RP Financial to understand RP Financial's methodology and to consider the appropriateness of RP Financial's assumptions in determining the appraised value. The Board understood that if RP Financial's assumptions were appropriate and the methodology employed was consistent with the Office of Thrift Supervision's appraisal guidelines, the appraisal, once approved by the Office of Thrift Supervision, would fairly estimate the pro forma market value of Home Federal. Termination of the Offering The subscription offering will end at 12:00 Noon, Mountain time, on _____ __, 2004, unless extended. The direct community offering and syndicated community offering, if any, will also end at 12:00 Noon, Mountain time, on _____ __, 2004, unless extended. If fewer than the minimum number of shares are subscribed for in the subscription offering and we do not get orders for at least the minimum number of shares by _____ __, 2004, we will either: (1) promptly return any payment you made to us, with interest, or cancel any withdrawal authorization you gave us; or (2) extend the offering, if allowed, and give you notice of the extension and of your rights to confirm, change or cancel your order. If we extend the offering and you do not respond to the notice, then we will cancel your order and return your payment, with interest, or cancel any withdrawal authorization you gave us. We must complete or terminate the offering by _____ __, 2006. vii -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- How We Will Use the Proceeds Raised from the Sale of Common Stock We intend to use the net proceeds received from the stock offering as follows:

Maximum, Minimum Maximum as adjusted --------- --------- ----------- (In Thousands) Gross proceeds............................................ $ 34,000 $ 46,000 $ 52,900 Less: Estimated underwriting commission....................... 377 526 611 Estimated other offering expenses....................... 1,017 1,017 1,017 --------- --------- ----------- Net proceeds.............................................. 32,606 44,457 51,272 Less: Net proceeds to Home Federal............................ 16,303 22,229 25,636 Loan to our employee stock ownership plan............... 2,785 3,768 4,334 Cash contribution to the Home Federal Foundation........ 204 276 317 Funding of the restricted stock plan.................... 2,486 3,363 3,868 --------- --------- ----------- Net cash proceeds retained by Home Federal Bancorp........ $ 10,828 $ 14,821 $ 17,117 ========= ========= ===========

The net proceeds retained by Home Federal Bancorp and Home Federal may ultimately be used to support lending and investment activities, and future expansion of operations through the establishment or acquisition of additional banking offices or other financial service providers, although no such acquisitions are specifically being considered at this time. We intend to use the proceeds for future lending and investment activities, repurchasing stock and payment of dividends, in addition to general and other corporate purposes. See "Risk Factors" and "How We Intend to Use the Proceeds from this Offering." We May Pay a Cash Dividend in the Future We may pay cash dividends in the future, however, the amount and timing of any dividends has not yet been determined. Although future dividends are not guaranteed, based on our pro forma net income and stockholders' equity, we believe Home Federal Bancorp will be capable of paying a dividend after completion of this offering. Based on the minimum and maximum of net proceeds expected to be retained, Home Federal Bancorp will have between $10.8 million and $14.8 million available for payment of dividends. Home Federal Bancorp can also pay dividend from dividends it receives from Home Federal. As of May 21, 2004, all of the companies that comprised the peer group for the independent appraisal paid regular cash dividends with implied dividend yields ranging from 1.08% to 4.86%. As of May 21, 2004, the median dividend yield paid by the peer group companies equaled 2.37%. We currently have no intention to pay or take any steps to pay a tax-free dividend which qualifies as a return of capital. Regulations of the Office of Thrift Supervision prohibit a return of capital during the term of the three-year business plan submitted by Home Federal to the Office of Thrift Supervision in connection with the reorganization and stock offering. Plans to List the Common Stock for Trading on the Nasdaq National Market We plan to list our common stock for trading on the Nasdaq National Market under the symbol "HOME." Our application to list our stock on the Nasdaq National Market is currently pending. However, because of the unpredictability of the stock market and other factors, persons purchasing shares may not be able to sell their shares when they want to, or at a price equal to or above $10.00. viii -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Limitations on the Purchase of Common Stock in the Stock Offering The minimum purchase is 25 shares. The maximum purchase in the subscription offering by any person or group of persons through a single deposit account is $250,000 of common stock, which equals 25,000 shares. The maximum purchase by any person in the direct community offering is $250,000 of common stock, which equals 25,000 shares. The maximum purchase in the subscription offering, direct community offering and syndicated community offering combined by any person, related persons or persons acting together is one percent of the shares sold in the offering. At the maximum of the offering range, this equals $529,000 of common stock, or 52,900 shares. If any of the following persons purchase common stock, their purchases when combined with your purchases cannot exceed one percent of the shares sold in the offering: o your spouse or relatives of you or your spouse living in your house; o companies, trusts or other entities in which you have an interest or hold a position; or o other persons who may be acting in concert with you. How to Purchase Common Stock Note: Once we receive your order, you cannot cancel or change it without our consent. If Home Federal Bancorp intends to sell fewer than 3,400,000 shares or more than 5,290,000 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest or will cancel any withdrawal authorization you gave us. If you want to subscribe for shares, you must complete an original stock order form and drop it off at any Home Federal branch office or send it, together with full payment or withdrawal authorization, to Home Federal in the postage-paid envelope provided. You must sign the certification that is part of the stock order form. We must receive your stock order form before the end of the offering period. You may pay for shares in any of the following ways: o By check or money order made payable to Home Federal Bancorp, Inc. o By authorizing a withdrawal from an account at Home Federal, including certificates of deposit, designated on the stock order form. To use funds in an individual retirement account at Home Federal, you must transfer your account to an unaffiliated institution or broker. Please contact the stock information center at (208) 468-5025 as soon as possible for assistance. o In cash, if delivered in person to any Home Federal branch office. We will pay interest on your subscription funds at the rate Home Federal pays on regular savings accounts from the date we receive your funds until the stock offering is completed or terminated. Payments for shares subscribed for, other than withdrawals from a deposit account at Home Federal, will be deposited in a segregated deposit account at Home Federal. All funds authorized for withdrawal from deposit accounts with Home Federal will earn interest at the applicable account rate until the stock offering is completed. There will be no early withdrawal penalty for withdrawals from certificates of deposit at Home Federal used to pay for stock. ix -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- You may subscribe for shares of common stock using funds in your individual retirement account ("IRA") at Home Federal or elsewhere. However, common stock must be held in a self-directed retirement account. Home Federal's IRAs are not self-directed, so they cannot be invested in common stock. If you wish to use some or all of the funds in your Home Federal IRA to purchase common stock, the applicable funds must be transferred to a self-directed account reinvested by an independent trustee, such as a brokerage firm. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and processing of retirement fund orders takes additional time, we recommend that you contact the stock information center promptly, preferably at least two weeks before the end of the offering period, for assistance with purchases using your IRA or other retirement account. Whether you may use these funds for the purchase of shares in the stock offering may depend on timing constraints and possible limitations imposed by the institution where the funds are held. For further discussion regarding the stock ordering procedures, see "Home Federal's Reorganization and Stock Offering - Procedure for Purchasing Shares in the Subscription Offering." Purchases of Common Stock by Home Federal Officers and Directors Home Federal's directors and executive officers intend to subscribe for 332,500 shares regardless of the number of shares sold in the offering. This number equals 7.2% of the 4,600,000 shares that would be sold at the maximum of the offering range. If fewer shares are sold in the stock offering, then officers and directors will own a greater percentage of Home Federal Bancorp. Directors and executive officers will pay the same $10.00 per share price for these shares as everyone else who purchases shares in the stock offering. Tax Consequences of the Reorganization As a general matter, the reorganization will not be a taxable transaction for purposes of federal or state income taxes to Home Federal MHC, Home Federal Bancorp or Home Federal or persons who receive or exercise subscription rights. Our special counsel, Breyer & Associates PC, has issued an opinion to us that, among other items, for federal income tax purposes: o the reorganization will qualify as a tax free reorganization; o it is more likely than not that the fair market value of the subscription rights is zero and accordingly, no gain or loss will be recognized by recipients of subscription rights; and o no gain or loss will be recognized for federal income tax purposes by Home Federal MHC, Home Federal Bancorp or Home Federal as a result of the reorganization to mutual holding company structure. Home Federal has also received an opinion from Penland Munther Goodrum, Chartered, stating that, assuming the reorganization does not result in any federal income tax liability to Home Federal, its account holders, Home Federal Bancorp or Home Federal MHC, the reorganization will not result in any Idaho income tax liability to those entities or persons. For a further discussion of the tax consequences of the reorganization and stock offering, see "Home Federal's Reorganization and Stock Offering - Effects of the Reorganization and Stock Offering - Tax Effects." Benefits to Management from the Offering We intend to establish an employee stock ownership plan, which will purchase in the offering 3.3% of the aggregate shares issued in the reorganization, including those issued to Home Federal MHC, or if shares are not available, in the open market after the stock offering. A loan from Home Federal Bancorp to the plan, funded by a portion of the proceeds from this offering, will be used to purchase these shares. The loan will accrue interest at the prime rate in effect at the time the employee stock ownership loan is entered into. The employee stock ownership x -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- plan will provide a retirement benefit to all employees eligible to participate in the plan. The establishment of the employee stock ownership plan will result in additional compensation expense to Home Federal Bancorp. See "Pro Forma Data" for an illustration of the effects of this plan. We also intend to adopt a stock option plan and a restricted stock plan for the benefit of our directors, officers and employees, subject to stockholder approval. If we adopt the restricted stock plan, some of these individuals will be awarded stock at no cost to them. As a result, both the employee stock ownership plan and the restricted stock plan will increase the voting control of management without a cash outlay by the recipient of shares. The establishment of the restricted stock plan and the stock option plan will result in additional compensation expense to Home Federal. At this time, no determination has been made regarding whether any options that may be granted will be expensed; however, if we were to expense options, it would negatively affect net income. The value of the stock options that would be issued under a stock option plan will be affected by the price of the Home Federal Bancorp stock at the time the stock option plan is implemented and the options are granted. If a stock option plan were to award stock options for 7.3% of the maximum amount of shares that could be issued in the reorganization based on RP Financial's appraisal, the total shares subject to options would be 621,814 shares, 731,546 shares, 841,277 shares and 967,469 shares, respectively, at the minimum, midpoint, maximum and maximum, as adjusted, of the valuation range. The following table presents the total estimated value of the shares of common stock, assuming 11,500,000 shares are issued in the reorganization at the maximum of the offering range, which would be acquired by the employee stock ownership plan and the total value of all shares to be available for award and issuance under the restricted stock plan. The table assumes that the value of the shares is $10.00 per share. The table does not include a value for the options because the price paid for the option shares will be equal to the fair market value of the common stock on the day that the options are granted. As a result, financial gains can be realized under an option only if the market price of the common stock increases. Estimated Percentage of Number of Shares Value of Shares Shares Issued ---------------- --------------- ------------- (Dollars in Thousands) Employee stock ownership plan. 376,832 $ 3,768 3.3% Restricted stock awards....... 336,323 3,363 2.9 Stock options................. 841,277 8,413 7.3 ---------------- --------------- ------------- Total....................... 1,554,432 $ 15,544 13.5% ================ =============== ============= The value of the shares obtained for the restricted stock plan will be based on the price of Home Federal Bancorp's common stock at the time those shares are purchased or issued, which, subject to stockholder approval, cannot be implemented until at least six months after the reorganization and offering. The following table presents the total value of all shares to be available for award and issuance under the restricted stock plan, assuming the shares for the plan are purchased or issued in a range of market prices from $8.00 per share to $14.00 per share. xi -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

248,586 Shares 336,323 Shares 386,771 Shares Awarded at 292,456 Shares Awarded at Awarded at Minimum of Awarded at Maximum of Maximum of Share Price Range Midpoint of Range Range Range, As Adjusted ----------- -------------- ----------------- -------------- ------------------ (Dollars in Thousands) $ 8.00 $ 1,989 $ 2,340 $ 2,691 $ 3,094 $ 10.00 2,486 2,925 3,363 3,868 $ 12.00 2,983 3,509 4,036 4,641 $ 14.00 3,480 4,094 4,709 5,415

In addition, upon completion of the stock offering, we intend to enter into an employment agreement with Daniel L. Stevens, President and Chief Executive Officer, and severance agreements with Robert A. Schoelkoph, Roger D. Eisenbarth, Lynn A. Sander, Denis J. Trom and Karen Wardwell. The agreements are designed to assist us in maintaining a stable and competent management team after the stock offering. The agreements will have a term of three years and provide for a severance payment in the event of a change in control of Home Federal Bancorp or Home Federal. The employment and severance agreements to be entered into provide no additional compensation to members of management as the employment agreement maintains Mr. Stevens' current annual salary of $205,000 and the severance agreements do not provide for a benefit, except under certain circumstances, such as a change in control. For a further discussion of benefits to management, see "Management." Stock Information Center If you have any questions regarding the offering or our conversion to stock form, please call the stock information center at (208) 468-5025. Subscription Rights Subscription rights are not allowed to be transferred, and we will act to ensure that you do not do so. We will not accept any stock orders that we believe involve the transfer of subscription rights. Home Federal Bancorp Has Established a Charitable Foundation In connection with the reorganization, Home Federal Bancorp has established a charitable foundation, the Home Federal Foundation, in order to further its commitment to the local community. The foundation is anticipated to distribute at least 5% of its assets each year to support charitable organizations and activities that enhance the quality of life for residents within its market area. The Home Federal Foundation will allow the local communities to share in the anticipated future success of Home Federal and Home Federal Bancorp through cash dividends payable on the common stock and potential appreciation of the value of the common stock, as well as enable Home Federal Bancorp and its related entities to develop a unified charitable donation strategy. Directors of the foundation will be charged with the specific development of a donation strategy consistent with the regulations set forth in Section 501(c)(3) of the Internal Revenue Code. Home Federal Bancorp will fund the foundation with a contribution of cash and stock equal in value to 3% of the shares sold in the offering. It is intended that 80% of the foundation funding will be made by means of a stock contribution and 20% of the foundation funding will be made by means of a cash contribution. Accordingly, based on the minimum and maximum of the offering range, respectively, a minimum of 81,600 shares to a maximum of 110,400 shares will be contributed in stock and a minimum of $204,000 to a maximum of $276,000 will be contributed in cash. There are no plans by Home Federal Bancorp to provide additional funding beyond this initial funding to the foundation over the next three years. xii -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- As a result of the foundation's establishment and funding, the appraisal will be reduced and Home Federal Bancorp will sell fewer shares of common stock than if the reorganization were completed without the foundation. See "Comparison of Valuation and Pro Forma Information With and Without Charitable Foundation" and "Home Federal Foundation." Important Risks in Owning Home Federal Bancorp's Common Stock Before you decide to purchase stock, you should read the "Risk Factors" section on pages 1 to 4 of this prospectus. Possible Conversion of Home Federal MHC to Stock Form In the future, Home Federal MHC may convert from the mutual to capital stock form, in a transaction commonly known as a "second-step conversion." This second-step conversion may be undertaken in order to, among other things, raise additional capital for Home Federal or facilitate an acquisition transaction. Home Federal MHC is not fully converting to stock form at this time because the expected net proceeds from the stock offering are sufficient in our opinion to support the growth of Home Federal MHC and Home Federal anticipated at this time. In a second-step conversion, members of Home Federal MHC would have subscription rights to purchase common stock in an offering of new shares to be conducted by Home Federal Bancorp or its successor, the shares of Home Federal Bancorp would be cancelled and the public stockholders of Home Federal Bancorp would be entitled to exchange their shares of common stock for an equal percentage of new shares of the converted Home Federal MHC. This percentage may be adjusted to reflect any assets owned by Home Federal MHC. Home Federal Bancorp's public stockholders, therefore, would own approximately the same percentage of the resulting entity as they owned prior to the second-step conversion. The Board of Directors has no current plans to undertake a "second-step conversion" transaction. Restrictions on Acquisition of Home Federal Bancorp and Home Federal Federal law restricts the ability of any person, firm or entity to acquire Home Federal Bancorp, Home Federal or their respective capital stock. No person, firm or entity may acquire more than 25% of any class of voting stock of Home Federal Bancorp or Home Federal without approval by the Office of Thrift Supervision. In addition, for a period of three years following completion of the stock offering, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the stock of Home Federal Bancorp or Home Federal without approval from the Office of Thrift Supervision. Certain provisions in the charter and bylaws of Home Federal Bancorp and Home Federal affect the ability of any person, firm or entity or acquire control of Home Federal Bancorp and Home Federal. These provisions include limitations on voting rights of persons owning more than 10% of any class of outstanding voting stock of Home Federal Bancorp or Home Federal. xiii -------------------------------------------------------------------------------- RISK FACTORS You should consider these risk factors, in addition to the other information in this prospectus, before deciding whether to make an investment in Home Federal Bancorp's stock. A significant decline or rise in interest rates may hurt our profits and net portfolio value. Interest rates are at historically low levels with most deposit rates well below 2%. If interest rates were to rapidly decline further, Home Federal may not be able to reduce the rates it pays on its deposits and other interest-bearing liabilities in the same proportion or as rapidly as the decline it would experience on the rates it receives on its loans and other interest-earning assets. The difference between the rates received on interest-earning assets and the rates paid on interest-bearing liabilities is referred to as our interest rate spread. When our interest rate spread decreases, so does our profitability. When interest rates rise, our net interest income and the value of our assets could be significantly reduced if interest paid on interest-bearing liabilities, such as deposits and borrowings, increases more quickly than interest received on interest-earning assets, such as loans, investment securities and mortgage-backed securities. For example, if we experienced an immediate 200 basis point increase in interest rates as of March 31, 2004, the market value of our portfolio equity could decrease by $10.0 million or 19.1%. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management and Market Risk." In addition, rising interest rates may hurt our income because they may reduce the demand for loans such as real estate loan refinancings and the resulting interest income. Management also expects reduced income from secondary marketing activities in a rising rate environment with corresponding reductions in the gains on the sale of loans. Our loan portfolio possesses increased risk due to our substantial outstanding balances of construction and development, commercial real estate and consumer loans, which could increase the level of our provision for loan losses. Our outstanding construction and land development, commercial real estate and consumer loans accounted for more than 34.5% of our total loan portfolio as of March 31, 2004. We have had a significant increase in commercial real estate loans since we began originating these loans in 1997. Generally, we consider construction and development, commercial real estate and consumer loans to involve a higher degree of risk compared to first mortgage loans on one- to four-family, owner-occupied residential properties. These loans have higher risks for the following reasons: o Construction and Development Loans. Repayment depends on the successful completion and if applicable, sale, of the improvements to the land. o Commercial Real Estate Loans. Repayment depends on income being generated in amounts sufficient to cover operating expenses and debt service. o Consumer Loans. Consumer loans (such as automobile loans) are collateralized, if at all, with assets that may not provide an adequate source of repayment of the loan due to depreciation, damage or loss. Because we plan to increase our emphasis on construction and development, commercial real estate and consumer loans, we may determine it necessary to increase the level of our provision for loan losses. Increased provisions for loan losses would reduce our profits. For further information concerning the risks associated with construction and development, commercial real estate and consumer lending, see "Business of Home Federal - Lending Activities" and "- Asset Quality." The value of our mortgage servicing rights declines during periods of falling interest rates. We have a loan servicing portfolio that consists of the right to service (i.e., collect the principal and interest) on loans that we originated and sold to investors. At March 31, 2004 and at September 30, 2003, we 1 serviced $258.3 million and $246.0 million, respectively, of loans for others and these mortgage servicing rights had a value of $3.0 million and $3.1 million, respectively, at those dates. The value of the loans we service for others is significantly affected by interest rates. In general, during periods of falling interest rates such as we recently experienced, mortgage loans prepay at faster rates and the value of the mortgage servicing declines. Conversely, during periods of rising interest rates, the value of the mortgage servicing rights generally increases as a result of slower rates of prepayment. We may be required to recognize this decrease in value by taking a charge against our earnings, which would cause our profits to decrease. We have experienced an increase in prepayments of mortgages as interest rates have decreased dramatically during the past two years, which has impacted the value of our servicing asset. Accordingly, we recognized impairment charges on our servicing portfolio of $249,000 and $1.5 million for the years ended September 30, 2003 and 2002, respectively. We believe, based on historical experience, that the amount of prepayments and related impairment charges should decrease as interest rates increase. After this offering, our return on equity will be low compared to other companies and our compensation expenses will increase. This could negatively impact the price of our stock. The proceeds we will receive from the sale of Home Federal Bancorp's common stock will significantly increase our capital and it will take us time to fully use this capital in our business operations. Therefore, we expect our return on equity to be below our historical level and less than our regional and national peers. For the six months ended March 31, 2004 and the year ended September 30, 2003, our return on equity was 9.38% (on an annualized basis) and 13.39%, respectively. On a pro forma basis, at the maximum of the offering range, our return on equity would have been 4.43% on an annualized basis for the six months ended March 31, 2004, and 6.51% for the year ended September 30, 2003 as compared to industry (all fully converted publicly-traded thrifts) of 8.07% and 9.67%, respectively. This low return on equity could hurt our stock price. We cannot guarantee when or if we will achieve returns on equity that are comparable to industry peers. For further information regarding pro forma income and expenses, see "Pro Forma Data." Strong competition within our market area may limit our growth and profitability. Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual fund companies, insurance companies, and investment brokerage and financial planning firms operating locally and elsewhere. Many of these competitors have substantially greater resources and lending limits than we do and may offer certain services that we do not or cannot provide. Our profitability depends upon our continued ability to successfully compete in our market. Persons who purchase stock in the offering will own a minority of Home Federal Bancorp's common stock and will not be able to exercise voting control over most matters put to a vote of stockholders. Public stockholders will own a minority or 40.96% of the outstanding shares of Home Federal Bancorp's common stock after the stock offering. The same directors and executive officers who manage Home Federal Bancorp also manage Home Federal MHC, which will own 59.04% of the outstanding common stock of Home Federal Bancorp. The Board of Directors of Home Federal MHC will be able to exercise voting control over most matters put to a vote of stockholders because Home Federal MHC will own a majority of Home Federal Bancorp's common stock. For example, Home Federal MHC may exercise its voting control to prevent a sale of Home Federal Bancorp in which the public stockholders could receive a premium for their shares. In addition, Home Federal Bancorp's directors, executive officers and their associates are expected to purchase approximately 332,500 shares sold in the offering, which represents 7.2% of the shares sold at the maximum of the offering range. These purchases, together with the purchase of 3.3% of the shares issued in the reorganization by the Home Federal Bancorp, Inc. Employee Stock Ownership Plan will result in the inside ownership of Home Federal Bancorp common stock of 6.2% at the maximum of the offering range. Furthermore, if stockholders of Home Federal Bancorp approve the restricted stock plan and the stock option plan, and provided that all shares under the restricted stock plan are awarded and all options under the stock option plan are awarded and 2 exercised, directors and executive officers may own up to an additional 25.6% of the shares of the stock sold in the offering. See "Management - Benefits" and "Proposed Purchases by Management." The contribution to the Home Federal Foundation will reduce earnings and your ownership interest. In connection with the reorganization, Home Federal Bancorp has established the Home Federal Foundation and will contribute, based on the maximum of the offering range, a maximum of 110,400 of its shares sold in the offering and $276,000 in cash. This contribution will be a significant one-time expense to Home Federal Bancorp and will decrease operating results for the year ending September 30, 2004. Home Federal Bancorp, based on the maximum of the offering range, will recognize a one-time expense of $1.4 million before taxes upon making its contribution to the foundation. The $1.4 million expense will reduce net income on an after tax basis by $840,000. Net income after taxes for the year ended September 30, 2003 was $5.5 million. Net income for the year ended September 30, 2003 would have been $4.6 million if the foundation expense of $840,000 after taxes had been recorded in the year ended September 30, 2003. In addition, the contribution of stock to the foundation will reduce your ownership percentage in Home Federal Bancorp. For additional information, see "Comparison of Valuation and Pro Forma Information With and Without Charitable Foundation." Holders of Home Federal Bancorp common stock may not be able to sell their shares when desired if a liquid trading market does not develop, or for $10.00 or more per share even if a liquid trading market develops. We have never issued common stock to the public. Consequently, there is no established market for the common stock. We expect Home Federal Bancorp's common stock to be listed for trading on the Nasdaq National Market under the symbol "HOME." We cannot predict whether a liquid trading market in shares of Home Federal Bancorp's common stock will develop or how liquid that market might become. Persons purchasing shares may not be able to sell their shares when they desire if a liquid trading market does not develop and may not be able to sell them at a price equal to or above $10.00 per share even if a liquid trading market develops. We intend to grant stock options and restricted stock to the Board of Directors and certain employees following the stock offering which will likely reduce your ownership interest. If approved by a vote of the stockholders, we intend to establish a stock option plan with a number of shares equal to 7.3% of the shares issued in the reorganization and a restricted stock plan with a number of shares equal to 2.9% of the shares issued in the reorganization. These stock benefit plans are being established for the benefit of selected directors, officers and employees of Home Federal Bancorp and Home Federal and are worth a total of $11.8 million at the purchase price, based on the maximum of the estimated offering range. Awards under these plans will likely reduce the ownership interest of all stockholders by increasing the number of shares outstanding. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under the stock option plan and the restricted stock plan would dilute the voting interests of existing stockholders, by up to 6.8% and 2.8%, respectively. For further discussion regarding these plans, see "Pro Forma Data" and "Management - Benefits - Other Stock Benefit Plans." Implementation of new benefit plans will increase our future compensation expense, which will reduce our profitability and stockholders' equity. We will recognize additional annual material employee compensation and benefit expenses as a result of the shares purchased or granted to employees and executives under new benefit plans. We cannot predict the actual amount of these new expenses because applicable accounting practices require that they be based on the fair market value of the shares of common stock at specific points in the future. We would recognize expenses for our employee stock ownership plan when shares are committed to be released to participants' accounts and would recognize expenses for restricted stock awards over the vesting period of awards made to recipients. These expenses have been estimated in the pro forma financial information under "Pro Forma Data" assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of Home Federal Bancorp's common stock. In addition, changes in accounting guidelines may require us to recognize 3 expenses relating to stock option grants. For further discussion of these plans, see "Management - Benefits - Other Stock Benefit Plans." The economy in our local market area may adversely affect our operations. Our financial results may be adversely affected by changes in prevailing economic conditions, including: decreases in real estate values, changes in interest rates and adverse employment conditions; the monetary and fiscal policies of the federal government; and other significant external events. Because we hold a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral for these loans. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. In this regard, approximately 88.5% of our loans are to individuals and businesses in our primary market area. A WARNING ABOUT FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward-looking statements include: o statements of our goals, intentions and expectations; o statements regarding our business plans, prospects, growth and operating strategies; o statements regarding the quality of our loan and investment portfolios; and o estimates of our risks and future costs and benefits. These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors: o general economic conditions, either nationally or in our market area, that are worse than expected; o changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments; o increased competitive pressures among financial services companies; o changes in consumer spending, borrowing and savings habits; o legislative or regulatory changes that adversely affect our business; o adverse changes in the securities markets; and o changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board. Any of the forward-looking statements that we make in this prospectus and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed. 4 SELECTED FINANCIAL AND OTHER DATA The summary information presented below under "Financial Condition Data" and "Operating Data" for, and as of the end of, each of the years ended September 30 is derived from our audited consolidated financial statements. Information as of March 31, 2004 and the six months ended March 31, 2004 and 2003 is unaudited but we believe it reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of such information. The results of operations for the six months ended March 31, 2004 are not necessarily indicative of the results to be achieved for the fiscal year ending September 30, 2004. The following information is only a summary and you should read it in conjunction with our consolidated financial statements and related notes beginning on page F-1.

At September 30, At March 31, -------------------------------------------------------------- 2004 2003 2002 2001 2000 1999 ----------------------- ---------- ---------- ---------- ---------- ---------- FINANCIAL CONDITION DATA: (In Thousands) Total assets ...................... $ 496,773 $ 450,196 $ 416,543 $ 382,504 $ 325,922 $ 271,143 Investment securities, available for sale, at fair value .......... 6,404 5,440 2,507 8,266 1,395 1,661 Mortgage-backed securities, held to maturity ...................... 55,033 24,425 44,325 36,630 46,129 54,671 Loans receivable, net ............. 383,950 372,629 318,297 289,385 243,122 189,128 Loans held for sale ............... 3,160 5,066 12,722 9,367 4,781 2,139 Total deposit accounts ............ 329,515 301,273 279,772 266,316 232,747 209,302 Advances from Federal Home Loan Bank .................. 113,074 96,527 91,008 73,394 54,498 28,785 Equity capital .................... 42,356 40,399 34,961 32,866 31,058 26,731

Six Months Ended March 31, Year Ended September 30, ----------------------- -------------------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: (In Thousands) Interest and dividend income ...... $ 13,217 $ 13,670 $ 26,896 $ 26,904 $ 26,514 $ 22,438 $ 17,964 Interest expense .................. 4,682 4,922 9,705 11,465 14,480 11,023 8,451 Net interest income ............... 8,535 8,748 17,191 15,439 12,034 11,415 9,513 Provision for loan losses ......... 600 287 615 277 748 600 575 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses ........ 7,935 8,461 16,576 15,162 11,286 10,815 8,938 Noninterest income ................ 4,341 5,319 11,188 5,767 6,319 6,243 4,879 Noninterest expense ............... 9,218 9,796 18,885 17,178 14,594 10,641 9,079 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes ........ 3,058 3,984 8,879 3,751 3,011 6,417 4,738 Income tax expense ................ 1,105 1,559 3,423 1,644 1,223 2,085 1,766 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income ........................ $ 1,953 $ 2,425 $ 5,456 $ 2,107 $ 1,788 $ 4,332 $ 2,972 ========== ========== ========== ========== ========== ========== ==========

At September 30, At March 31, -------------------------------------------------------------- OTHER DATA: 2004 2003 2002 2001 2000 1999 ----------------------- ---------- ---------- ---------- ---------- ---------- Number of: Real estate loans outstanding ... 3,006 3,053 2,565 2,360 2,210 1,901 Deposit accounts ................ 57,513 56,308 54,459 50,087 43,856 39,232 Full-service offices ............ 15 14 14 15 13 9

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At or For the Six Months Ended At or For the Year Ended March 31, September 30, ----------------------- -------------------------------------------------------------- KEY FINANCIAL RATIOS: 2004 (1) 2003 (1) 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Performance Ratios: Return on assets (2) .............. 0.83% 1.13% 1.23% 0.53% 0.50% 1.45% 1.20% Return on equity (3) .............. 9.38 12.83 13.39 6.03 5.44 14.99 11.77 Equity-to-assets ratio (4) ........ 8.85 8.80 9.17 8.74 9.20 9.68 10.17 Interest rate spread (5) .......... 3.70 4.17 3.93 3.98 3.29 3.70 3.71 Net interest margin (6) ........... 3.94 4.42 4.19 4.23 3.69 4.15 4.16 Efficiency ratio (7) .............. 71.59 69.64 66.55 81.01 79.52 60.26 63.08 Average interest-earning assets to average interest-bearing liabilities ...................... 111.00 109.97 110.96 107.83 108.84 111.13 112.16 Noninterest expense as a percent of average total assets .......... 3.92 4.55 4.25 4.29 4.09 3.56 3.66 Capital Ratios: Tier 1 (core) capital (to risk-weighted assets) ........ 8.46 8.37 8.89 8.50 8.60 9.49 9.83 Total risk-based capital (to risk-weighted assets) ........ 13.81 13.59 14.18 13.79 14.46 16.35 18.16 Tier 1 risk-based capital (to risk-weighted assets) ........ 13.07 14.16 13.56 13.27 13.85 15.75 17.72 Asset Quality Ratios: Nonaccrual and 90 days or more past due loans as a percent of total loans ........... 0.15 0.09 0.04 0.14 1.22 0.36 0.03 Nonperforming assets as a percent of total assets .......... 0.11 0.12 0.03 0.17 0.97 0.28 0.02 Allowance for losses as a percent of gross loans receivable ........ 0.62 0.45 0.49 0.41 0.47 0.45 0.32 Allowance for losses as a percent of nonperforming loans ........... 425.97 517.63 1393.23 295.94 48.21 127.14 1192.31 Net charge-offs to average outstanding loans ................ 0.01 0.03 0.04 0.10 0.16 0.04 0.08

---------- (1) Ratios for the six-month periods have been annualized, where applicable. (2) Net income divided by average total assets. (3) Net income divided by average equity. (4) Average equity divided by average total assets. (5) Difference between weighted average yield on interest-earning assets and weighted average rate on interest-bearing liabilities. (6) Net interest income as a percentage of average interest-earning assets. (7) Noninterest expense divided by total noninterest income and net interest income before provision for loan loss. 6 RECENT DEVELOPMENTS The following tables set forth certain information concerning our consolidated financial position and results of operations at the dates and for the periods indicated. Information at June 30, 2004 and March 31, 2004 and the three and nine months ended June 30, 2004 and 2003 are unaudited, but, in the opinion of management, contain all adjustments (none of which were other than normal recurring entries) necessary for a fair presentation of the results of these periods. The results of operations for the three and nine month periods ended June 30, 2004 are not necessarily indicative of the results of operations which may be expected for the year ending September 30, 2004. This information should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this prospectus.

At June 30, At March 31, At September 30, FINANCIAL CONDITION DATA: 2004 2004 2003 ------------ ------------ ------------ (In Thousands) Total assets .................................. $ 519,251 $ 496,773 $ 450,196 Investment securities, available for sale, at fair value ............................... 893 6,404 5,440 Mortgage-backed securities, held to maturity .. 82,653 55,033 24,425 Loans receivable, net ......................... 386,837 383,950 372,695 Loans held for sale ........................... 1,813 3,160 5,066 Total deposit accounts ........................ 333,522 329,515 301,273 Advances from Federal Home Loan Bank .......... 131,756 113,074 96,527 Equity capital ................................ 43,676 42,356 40,399

Three Months Ended Nine Months Ended June 30, June 30, --------------------------- --------------------------- OPERATING DATA: 2004 2003 2004 2003 ------------ ------------ ------------ ------------ (In Thousands) Interest and dividend income ... $ 6,884 $ 6,753 $ 20,101 $ 20,424 Interest expense ............... 2,391 2,421 7,073 7,343 Net interest income ............ 4,493 4,332 13,028 13,081 Provision for loan losses ...... 300 150 900 437 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses .... 4,193 4,182 12,128 12,644 Noninterest income ............. 2,616 2,976 6,957 8,295 Noninterest expense ............ 4,721 3,913 13,939 13,711 ------------ ------------ ------------ ------------ Income before income taxes ..... 2,088 3,245 5,146 7,228 Income tax expense ............. 770 1,397 1,875 2,955 ------------ ------------ ------------ ------------ Net income ..................... $ 1,318 $ 1,848 $ 3,271 $ 4,273 ============ ============ ============ ============

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At or For the At or For the Three Months Ended Nine Months Ended June 30, June 30, ------------------------ ------------------------ KEY FINANCIAL RATIOS: 2004 (1) 2003 (1) 2004 (1) 2003 (1) ---------- ---------- ---------- ---------- Performance Ratios: Return on assets (2) ..................... 1.05% 1.62% 0.91% 1.30% Return on equity (3) ..................... 12.64 19.92 10.10 14.36 Equity-to-assets ratio (4) ............... 8.28 8.15 8.97 9.04 Interest rate spread (5) ................. 3.63 3.80 3.66 4.04 Net interest margin (6) .................. 3.87 4.07 3.90 4.30 Efficiency ratio (7) ..................... 66.41 53.54 69.75 64.14 Average interest-earning assets to average interest-bearing liabilities ... 111.21 111.77 111.33 110.59 Noninterest expense as a percent of average total assets ................... 3.75 3.44 5.79 6.25 Capital Ratios: Tier I (core) capital (to risk-weighted assets) .............. 8.35 8.32 8.35 8.32 Total risk-based capital (to risk-weighted assets) .............. 13.61 13.75 13.61 13.75 Tier 1 risk-based capital (to risk-weighted assets) .............. 12.83 13.18 12.83 13.18 Asset Quality Ratios: Nonaccrual and 90 days or more past due loans as a percent of total loans .. 0.17 0.01 0.17 0.01 Nonperforming assets as a percent of total assets ........................... 0.15 0.04 0.15 0.04 Allowance for losses as a percent of gross loans receivable ................. 0.69 0.46 0.69 0.46 Allowance for losses as a percent of nonperforming loans .................... 400.30 3,315.69 400.30 3,315.69 Net charge-offs to average outstanding loans .................................. 0.01 0.04 0.02 0.05 ----------

(1) Ratios for the three and nine month periods have been annualized, where applicable (2) Net earnings divided by average total assets. (3) Net earnings divided by average equity. (4) Average equity divided by average total assets. (5) Difference between weighted average yield on interest-earning assets and weighted average rate on interest- bearing liabilities. (6) Net interest income as a percentage of average interest-earning assets. (7) Noninterest expense divided by total noninterest income and net interest income before provision for loan loss. 8 Regulatory Capital The table below sets forth Home Federal's capital position relative to its Office of Thrift Supervision capital requirements at June 30, 2004. The definitions used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision. See "How We Are Regulated - Regulation and Supervision of Home Federal - Capital Requirements." At June 30, 2004 ----------------------- Percent of Amount Assets (1) ---------- ---------- (Dollars in Thousands) Equity capital under general accepted accounting principles ("GAAP") ........................ $ 43,676 8.41% ========== ========== Tier 1 risk-based capital ....... 43,356 12.83 Requirement ..................... 13,521 4.00 ---------- ---------- Excess .......................... 29,835 8.83 ========== ========== Tier 1 (core) capital ........... 43,356 8.35 Requirement ..................... 20,782 4.00 ---------- ---------- Excess .......................... 22,574 4.35 ========== ========== Total risk-based capital ........ 46,002 13.61 Risk-based requirement .......... 27,041 8.00 ---------- ---------- Excess .......................... $ 18,961 5.61% ========== ========== MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS Comparison of Financial Condition at June 30, 2004 and September 30, 2003 General. Our total assets increased $69.1 million, or 15.3%, to $519.3 million at June 30, 2004 compared to $450.2 million at September 30, 2003. Asset growth was concentrated primarily in mortgage-backed securities, which increased $58.2 million, and loans originated in our local market area, which increased $14.2 million. The growth was funded by $32.2 million in increased deposits, $35.2 million in additional borrowings from the Federal Home Loan Bank of Seattle and $3.3 million in net income. In connection with our asset and liability management practices, we use asset and liability duration measures as a component of interest rate risk measurement. Duration measures cash flows that are generated from investments, loans or deposits by weighting the present value of the cash flows according to the periods of time when the cash flows are received with the result being an average date when the cash flows are received or paid. We use months as the measure of time. Our goal is to manage the mismatch between the duration maturities of cash inflows that comes from loans and investments, and cash outflows that comes from deposits and borrowings. We accomplish this by reducing our asset durations, or cash inflows, and lengthening our liability durations, or cash outflows, so that the net duration mismatch between assets and liabilities is within our policy guidelines. During the nine months ended June 30, 2004, total asset duration decreased 3.93 months to 38.87 months, and liability duration decreased 5.23 months to 22.25 months for a net duration gap of 16.62 months, up 1.3 months from September 30, 2003. 9 Assets. During the nine months ended June 30, 2004, total assets increased $69.1 million. The changes were primarily concentrated in the following asset categories:

Increase/(Decrease) Balance at from Percentage June 30, 2004 September 30, 2003 Increase/(Decrease) ------------- ------------------ ------------------- (Dollars in Thousands) Cash and amounts due from depository institutions ....... $ 13,694 $ 2,576 23.2% Securities available for sale, at fair value ................. 893 (4,547) (83.6) Mortgage-backed securities, held to maturity .............. 82,653 58,228 238.4 Loans held for sale (1) ......... 1,813 (3,253) (64.2) Loans receivable, net ........... 386,837 14,208 3.8

------------- (1) Loans held for sale includes one- to four-family residential loans that have been sold into the secondary market awaiting delivery to the purchaser. Cash and amounts due from depository institutions increased $2.6 million primarily as the result of an increase in customer checking account deposit clearing items that were due from other banks. In addition, cash balances held at the Federal Home Loan Bank of Seattle increased. During the nine months ended June 30, 2004, we purchased Fannie Mae and Freddie Mac mortgage-backed securities in order to leverage the balance sheet and achieve the desired level of total interest-earning assets. Mortgage-backed securities have payment characteristics that are similar to those of residential loans. The net increase of $58.2 million represented 84.3% of our total asset growth. Loans receivable, net increased $14.2 million from loans originated in our local area. Deposits. Deposits increased $32.2 million during the nine months ended June 30, 2004. Deposit growth resulted from increases in demand deposits and certificates of deposits. The following table details the source of that growth:

Increase/(Decrease) Balance at from Percentage June 30, 2004 September 30, 2003 Increase/(Decrease) ------------- ------------------ ------------------- (Dollars in Thousands) Savings deposits.............. $ 25,104 $ 681 2.8% Demand deposits............... 149,956 18,178 13.8 Certificates of deposit....... 158,462 13,390 9.2 ------------ ----------- ---------- Total deposit accounts........ $ 333,522 $ 32,249 10.7% ============ =========== ==========

Demand deposits increased $18.2 million during the nine months ended June 30, 2004, and accounted for 56.4% of the $32.2 million in total deposit growth. Noninterest-bearing demand deposits grew $2.0 million and interest-bearing demand deposits grew $16.2 million. Certificates of deposit increased $13.4 million primarily as a result of local advertised specials for certificate accounts with maturities ranging from nineteen to thirty-nine months. Borrowings. Advances from the Federal Home Loan Bank of Seattle increased $35.2 million, or 36.5%, to $131.8 million during the nine months ended June 30, 2004. We use advances from the Federal Home Loan Bank of Seattle as an alternative funding source to deposits in order to manage funding costs, 10 reduce interest rate risk and to leverage the balance sheet. The net effect was to fund increases in total interest-earning assets, thereby incrementally increasing our net interest income. Equity. Total equity increased $3.3 million, or 8.1%, to $43.7 million at June 30, 2004 as compared to $40.4 million at September 30, 2003. The source of the increase was $3.3 million in net income for the nine months ended June 30, 2004. Our total tier 1 (core) capital ratio was 8.35% and our total tier 1 risk-based capital ratio was 13.61% at June 30, 2004. Comparison of Operating Results for the Three Months ended June 30, 2004 and June 30, 2003 General. Our net income for the three months ended June 30, 2004 was $1.3 million, a decrease of $530,000 from the three months ended June 30, 2003. The reduction in net income was caused, in part, by an increase in the provision for loan losses of $150,000, a decrease in total noninterest income of $360,000 and an increase in total noninterest expense of $808,000. This was partially offset by an increase in net interest income of $161,000 and a decrease in income tax expense of $627,000. Net Interest Income. Our net interest income increased $161,000 for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. Average total interest-earning assets increased $39.6 million between the two three month time periods. Loan refinancing driven by low interest rates resulted in a 43 basis point decline in our average asset yields. During that same period, our average cost of funds declined 26 basis points, resulting in a 17 basis point decrease in our net interest spread. Interest and Dividend Income. Total interest and dividend income for the three months ended June 30, 2004 increased $131,000 to $6.9 million compared to the three months ended June 30, 2003. The following table compares detailed average earning asset balances, associated yields and resulting changes in interest and dividend income for the three months ended June 30, 2004 and 2003:

Three Months Ended June 30, ---------------------------------------------------------------- 2004 2003 Increase/ ----------------------- ----------------------- (Decrease) in Interest and Dividend Average Average Income from Balance Yield Balance Yield 2003 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Loans receivable, net ....................... $ 384,123 6.01% $ 357,192 6.61% $ (132) Loans held for sale ......................... 3,246 5.57 2,879 5.56 21 Investment securities, available for sale, including interest-bearing deposits in other banks ............................... 4,346 1.84 27,825 2.14 (129) Mortgage-backed securities, held to maturity ............................... 66,380 5.12 31,263 5.95 384 Federal Home Loan Bank stock ................ 6,711 3.99 6,086 5.26 (13) ---------- ---------- ---------- ---------- ---------- Total interest-earning assets ............... $ 464,806 5.92% $ 425,245 6.35% $ 131 ========== ========== ========== ========== ==========

We had a 43 basis point decline in the average yield on total interest-earning assets, however, the increase in average total interest-earning assets of $39.6 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003 resulted in an increase of $131,000 in total interest income. Continuing low interest rates and customer loan refinancings resulted in a 60 basis point reduction in the average yield on loans receivable, net and a $132,000 reduction in related interest income. Rapid prepayments received on higher coupon mortgage-backed securities and decreased reinvestment rates for purchased securities resulted in an 83 basis point reduction in the associated average yield. Mortgage-backed 11 security interest income increased $384,000 as a result of the $35.1 million or 112.3% increase in the average balance between the three months ended June 30, 2004 and 2003. Interest Expense. Total interest expense for the three months ended June 30, 2004 was $2.4 million, virtually unchanged from the three months ended June 30, 2003. The following table details average balances, cost of funds and the change in interest expense for the three months ended June 30, 2004 and 2003:

Three Months Ended June 30, ---------------------------------------------------------------- 2004 2003 Increase/ ----------------------- ----------------------- (Decrease) in Interest Average Average Expense Balance Cost Balance Cost from 2003 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Savings accounts .................... $ 24,971 0.19% $ 24,988 0.40% $ (13) Interest-bearing demand accounts .... 87,291 0.24 73,148 0.22 12 Money market accounts ............... 33,734 0.70 31,689 0.67 6 Certificates of deposit ............. 156,547 2.84 142,635 3.14 (10) Federal Home Loan Bank advances ..... 115,425 4.01 108,001 4.38 (25) ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities .. $ 417,968 2.29% $ 380,461 2.55% $ (30) ========== ========== ========== ========== ==========

The average balance of total interest-bearing liabilities increased $37.5 million for the three months ended June 30, 2004 compared to that of the three months ended June 30, 2003, however, our average cost of funds for total interest-bearing liabilities decreased 26 basis points, and total interest expense decreased $30,000. The average balance of certificates of deposit increased $13.9 million during the same time period, however, the average cost of funds decreased 30 basis points and interest expense decreased $10,000. Similarly, the average balance of interest- bearing demand deposits increased $14.1 million and the average cost of funds increased 2 basis points, resulting in a $12,000 increase in related interest expense. The current low interest rate environment is the primary cause of the reduction of the cost of funds. Provision for Loan Losses. Our Asset Liability Committee assesses the adequacy of the allowance for loan losses on a quarterly basis. The Committee analyzes several different factors, including delinquency, charge- off rates and the changing risk profile of our loan portfolio, as well as local economic conditions including unemployment rates, bankruptcies and vacancy rates of business and residential properties. Our methodology for analyzing the allowance for loan losses consists of three components: formula, specific and general allowances. The formula allowance is determined by applying an estimated loss percentage to various groups of loans. The loss percentages are generally based on various historical measures such as the amount and type of classified loans, past due ratios and loss experience, which could affect the collectibility of the respective loan types. The specific allowance component is created when management believes that the collectibility of a specific large loan, such as a real estate or multi-family or commercial real estate loan, has been impaired and a loss is probable. The general allowance component is established to ensure the adequacy of the allowance for loan losses in situations where the Asset Liability Management Committee believes that there are risk factors associated with the collectibility of the portfolio that may not be adequately addressed in the formula or specific allowance components. Information considered for the general allowance element includes regional economic and employment data. Our provision for loan losses increased $150,000 for the three months ended June 30, 2004 compared to the same period in the prior year. The following table details selected activity associated with the allowance for loan losses for the three months ended June 30, 2004 and 2003: 12

At or For the Three Months Ended June 30, ------------------------ 2004 2003 ---------- ---------- (Dollars in Thousands) Provisions for loan losses ........................... $ 300 $ 150 Net charge-offs ...................................... 13 35 Allowance for loan losses ............................ 2,706 1,691 Allowance for losses as a percentage of total loans outstanding at a the end of the period ............. 0.69% 0.46% Allowance for loan losses as a percentage of nonperforming loans at end of period ............... 400.30% 3,315.69% Nonperforming loans .................................. 676 51 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable ..................... 0.17% 0.01% Total loans, net ..................................... 388,650 370,305 Total commercial real estate and construction loans .. 117,402 97,270

The increase in the provision was due to an $18.3 million increase in net loans receivable at June 30, 2004 as compared to June 30, 2003, increased risk associated with the continued growth of our commercial real estate and construction loan portfolio as a percentage of total gross loans, and the increase in nonperforming loans from $51,000 at June 30, 2003 to $676,000 at June 30, 2004. Total commercial real estate and construction loans represented 30.3% of our total net loans receivable at June 30, 2004 compared to 26.3% at June 30, 2003. Nonaccrual and 90 days or more past due loans as a percentage of loans receivable at June 30, 2004 and 2003 were 0.17% and 0.01% respectively. Management expects the allowance for loan losses as a percentage of loans receivable to continue to increase in the future as the concentration of commercial real estate and construction loans increases in the portfolio. Noninterest Income. Noninterest income for the three months ended June 30, 2004 was $2.6 million, a decrease of $360,000, or 12.1%, from the three months ended June 30, 2003. The following table provides a detailed analysis of the changes in components of noninterest income:

Three Months Ended Increase/(Decrease) Percentage June 30, 2004 from June 30, 2003 Increase/(Decrease) ------------- ------------------ ------------------- (Dollars in Thousands) Service fees and charges ......... $ 2,198 $ (265) (10.8)% Increase in cash surrender value of life insurance ........ 122 (177) (59.2) Mortgage servicing rights, net ... 287 (21) (6.8) Other ............................ 9 103 N/A ---------- ---------- ---------- Total noninterest income ......... $ 2,616 $ (360) (12.1)% ========== ========== ==========

Service fees and charges declined mainly due to lower debit card fee income. Income from the increase in the cash surrender value of life insurance decreased due to lower interest rates. Mortgage servicing rights, net was $287,000 for the three months ended June 30, 2004, a decrease of $21,000 compared to the three months ended June 30, 2003. Mortgage servicing rights, net is an accounting estimate that represents the present value of the future servicing fees from the right to service mortgage loans for others. It is impacted by prepayment speeds of the underlying mortgages and interest rates. In general, during periods of falling interest rates such as we experienced during the three months ended June 30, 2004, mortgage loans prepay faster and the value of our mortgage-servicing asset declines. On a quarterly basis, we perform an independent valuation review of mortgage servicing rights in order to determine if there has been a decline in its fair market value. 13 Noninterest Expense. Total noninterest expense for the three months ended June 30, 2004 was $4.7 million, an increase of $808,000 or 20.6% compared to the three months ended June 30, 2003. The following table provides a detailed analysis of the changes in components of noninterest expense:

Three Months Ended Increase/(Decrease) Percentage June 30, 2004 from June 30, 2003 Increase/(Decrease) ------------- ------------------ ------------------- (Dollars in Thousands) Compensation and benefits .... $ 2,753 $ 727 35.9% Occupancy and equipment ...... 686 (45) (6.2) Data processing .............. 374 39 11.6 Advertising .................. 309 41 15.3 Postage and supplies ......... 193 (11) (5.4) Other ........................ 406 57 16.3 ---------- ---------- ---------- Total noninterest expense .... $ 4,721 $ 808 20.6% ========== ========== ==========

Compensation and benefits accounted for $727,000 in increased noninterest expense. Compensation increased due to salary increases and an increase in the number of employees. Data processing expense increased principally as a result of an increase in the expense to operate our Internet banking system. Advertising expense increased primarily due to production costs of television advertising. Income Tax Expense. Income tax expense for the three months ended June 30, 2004 was $770,000, which represented a decrease of $627,000 from the three months ended June 30, 2003. Income before income taxes was $2.1 million for the three months ended June 30, 2004 compared to $3.2 million for the three months ended June 30, 2003, a decrease of $1.2 million, or 35.7%. Income recognized from the increase in the cash surrender value of life insurance is generally not subject to income tax and this reduced income tax by $48,000 and $117,000 for the three months ended June 30, 2004 and 2003, respectively. The effective income tax rate for the three months ended June 30, 2004 was 34% for federal and 7.6% for the State of Idaho. Comparison of Operating Results for the Nine Months ended June 30, 2004 and June 30, 2003. General. Our net income for the nine months ended June 30, 2004 was $3.3 million, a decrease of $1.0 million compared to the nine months ended June 30, 2003. Income and expense items that contributed to the reduction in net income include decreases in net interest income and total noninterest income of $53,000 and $1.3 million, respectively, and increases in the provision for loan losses and total noninterest expense of $463,000 and $228,000, respectively. This was partially offset by a decease in income tax expense of $1.1 million. Net Interest Income. Our net interest income was $13.0 million for the nine months ended June 30, 2004 compared to $13.1 million for the nine months ended June 30, 2003, a decrease of $53,000. Average total interest- earning assets increased $39.1 million between the two nine month time periods as a result of a record number of customer loan refinancings driven by historically low interest rate; however, lower interest rates resulted in a 69 basis point decline in our average asset yields. During that same period, our average cost of funds declined only 31 basis points, resulting in a 38 basis point reduction in our net interest spread. Interest and Dividend Income. Total interest and dividend income for the nine months ended June 30, 2004 decreased $323,000 to $20.1 million compared to the nine months ended June 30, 2003. The following table compares detailed average earning asset balances, associated yields and resulting changes in interest and dividend income for the nine months ended June 30, 2004 and 2003: 14

Nine Months Ended June 30, ---------------------------------------------------------------- 2004 2003 Increase/ ----------------------- ----------------------- (Decrease) in Interest and Dividend Average Average Income from Balance Yield Balance Yield 2003 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Loans receivable, net ....................... $ 381,052 6.20% $ 344,608 6.99% $ (349) Loans held for sale ......................... 3,036 5.78 3,171 5.73 (6) Investment securities, available for sale, including, interest-bearing deposits in other banks ............................... 6,809 1.96 15,436 2.05 (137) Mortgage-backed securities, held to maturity ............................... 47,500 5.32 37,013 6.04 221 Federal Home Loan Bank stock ................ 6,620 4.33 5,648 6.30 (52) ---------- ---------- ---------- ---------- ---------- Total interest-earning assets ............... $ 445,017 6.02% $ 405,876 6.71% $ (323) ========== ========== ========== ========== ==========

Average total interest-earning assets increased $39.1 million during the nine months ended June 30, 2004 when compared to the nine months ended June 30, 2003; however, we had a 69 basis point decrease in the average yield on total interest-earning assets and a decrease of $323,000 in total interest income. Historically low interest rates and a record number of customer loan refinancings resulted in a 79 basis point reduction in the average yield on loans receivable, net and a $349,000 reduction in related interest income. Rapid repayments received on higher coupon mortgage-backed securities and decreased reinvestment rates for purchased securities resulted in a 72 basis points reduction in the associated average yield. Interest Expense. Total interest expense for the nine months ended June 30, 2004 was $7.1 million, a decrease of $270,000 from that of the nine months ended June 30, 2003. The following table details average balances, cost of funds and the resulting decrease in interest expense for the nine months ended June 30, 2004 and 2003:

Nine Months Ended June 30, ---------------------------------------------------------------- 2004 2003 Increase/ ----------------------- ----------------------- (Decrease) in Interest Average Average Expense Balance Cost Balance Cost from 2003 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Savings accounts ..................... $ 24,262 0.26% $ 24,279 0.47% $ (38) Interest-bearing demand accounts ..... 81,277 0.24 70,052 0.31 (19) Money market accounts ................ 32,636 0.64 33,231 0.80 (43) Certificates of deposit .............. 150,678 2.89 137,578 3.32 (158) Federal Home Loan Bank advances ...... 110,892 4.16 101,879 4.54 (12) ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities ... $ 399,745 2.36% $ 367,019 2.67% $ (270) ========== ========== ========== ========== ==========

The average balance of total interest-bearing liabilities increased $32.7 million for the nine months ended June 30, 2004 compared to June 30, 2003; however, our average total cost of funds decreased 31 basis points and total interest expense decreased $270,000. The average balance of certificates of deposit increased $13.1 million during the same period, however the average cost of funds decreased 43 basis points and interest expense declined $158,000. Similarly, the average balance of interest-bearing demand deposits increased 15 $11.2 million, however, the average cost of funds decreased 7 basis points, resulting in a $19,000 reduction in related interest expense. In addition, the average balance of money market deposits decreased $595,000 and the average cost of funds decreased 16 basis points. The current low interest rate environment has resulted in a significant reduction in our average cost of funds and total interest expense. Provision for Loan Losses. Our provision for loan losses for the nine months ended June 30, 2004 was $900,000, an increase of $463,000 over that of the nine months ended June 30, 2003. The following table details selected activity associated with the allowance for loan loss for the nine months ended June 30, 2004 and 2003:

At or For the Nine Months Ended June 30, ------------------------ 2004 2003 ---------- ---------- (Dollars in Thousands) Provisions for loan losses ............................ $ 900 $ 437 Net charge-offs ....................................... 64 136 Allowance for loan losses ............................. 2,706 1,691 Allowance for losses as a percentage of total loans outstanding at a the end of the period .............. 0.69% 0.46% Allowance for loan losses as a percentage of nonperforming loans at end of period ................ 400.30% 3,315.69% Nonperforming loans ................................... 676 51 Nonaccrual and 90 days or more past due loans as a percentage of total loans ........................... 0.17% 0.01% Total net loans receivable ............................ 388,650 370,305 Total commercial real estate and construction loans ... 117,402 97,270

The increase in the provision for loan losses was due to an $18.3 million increase in loans net at June 30, 2004 as compared to June 30, 2003, increased risk associated with the growth of our commercial real estate and construction loan portfolio as a percentage of total gross loans and the increase in nonperforming loans from $51,000 at June 30, 2003 to $676,000 at June 30, 2004. Total commercial real estate and construction loans represented 30.3% of our total net loans receivable at June 30, 2004, compared to 26.3% at June 30, 2003. Noninterest Income. Noninterest income for the nine months ended June 30, 2004 was $7.0 million, a decrease of $1.3 million, or 16.1%, from the nine months ended June 30, 2003. The following table provides a detailed analysis of the changes in components of noninterest income:

Nine Months Ended Increase/(Decrease) Percentage June 30, 2004 from June 30, 2003 Increase/(Decrease) ------------- ------------------ ------------------- (Dollars in Thousands) Service fees and charges .......... $ 6,004 $ (109) (1.8)% Gain on sale of loans ............. 421 (172) (29.0) Mortgage servicing rights, net .... 173 (863) (83.3) Other ............................. 359 (194) (31.5) ---------- ---------- ---------- Total noninterest income .......... $ 6,957 $ (1,338) (16.1)% ========== ========== ==========

Service fees and charges totaled $6.0 million for the nine months ended June 30, 2004, a decrease of $109,000, or 1.8%, over the comparable nine months ended June 30, 2003. Service fees and charges represented 86.3% of total noninterest income for the nine months ended June 30, 2004 up from 73.7% for the nine months ended June 30, 2003. 16 Gain on the sale of loans was $421,000 for the nine months ended June 30, 2004, a decrease of $172,000 from that of the nine months ended June 30, 2003. Gain on the sale of loans is directly related to mortgage loan originations sold in the secondary market. The reduction in the income was the result of a $67.4 million, or 59.0%, reduction in the sale of mortgage loans during the nine months ended June 30, 2004 as compared to the nine months ended June 30, 2003. Mortgage servicing rights, net was $173,000 for the nine months ended June 30, 2004, a decrease of $863,000 compared to the nine months ended June 30, 2003. The volume of consumer mortgage loans sold declined $67.4 million, or 59.0%, to $46.8 million for the nine months ended June 30, 2004 compared to the same period in 2003. Noninterest Expense. Total noninterest expense for the nine months ended June 30, 2004 was $13.9 million compared to $13.7 million for the nine months ended June 30, 2003, an increase of $228,000. The following table provides a detailed analysis of the changes in components of noninterest expense:

Nine Months Ended Increase/(Decrease) Percentage June 30, 2004 from June 30, 2003 Increase/(Decrease) ------------- ------------------ ------------------- (Dollars in Thousands) Compensation and benefits.......... $ 8,094 $ 238 3.0% Occupancy and equipment............ 2,062 (144) (6.5) Data processing.................... 1,098 98 9.8 Advertising........................ 824 (66) (7.4) Postage and supplies............... 601 34 6.0 Other.............................. 1,260 68 5.7 ---------- ---------- ---------- Total noninterest expense.......... $ 13,939 $ (228) 1.7% ========== ---------- ----------

Compensation and benefits accounted for $238,000 in increased noninterest expense. The deferral of salary and benefit expense related to mortgage originations was the primary cause of the increase in compensation and benefits expense. This deferral decreased from $1.1 million for the nine months ended June 30, 2003 to $571,000 for the same period in 2004. Commissions and incentive compensation expense decreased $306,000 and $121,000, respectively, for the nine months ended June 30, 2004 compared to the nine months ended June 30, 2003. Commissions are paid to our loan originators based on residential mortgage dollar origination volumes; those volumes decreased $160.6 million, or 66.1%, for the nine months ended June 30, 2004 compared to the nine months ended June 30, 2003. Occupancy expense declined $144,000 principally as a result of decreased rent expense as we closed three Wal-Mart branch locations in the nine months ending June 30, 2003. Data processing expense increased $98,000 due to increased expense to operate our Internet banking system. Advertising expense was $824,000 for the nine months ended June 30, 2004, a $66,000 decrease from the $890,000 in expense for the nine months ended June 30, 2003. The primary reason for the decrease was a $53,000 reduction in market research expense. Income Tax Expense. Income tax expense for the nine months ended June 30, 2004 was $1.9 million, a decrease of $1.1 million from that of the nine months ended June 30, 2003. Income before income taxes was $5.1 million for the nine months ended June 30, 2004 compared to $7.2 million for the nine months ended June 30, 2003, a decrease of $2.1 million, or 28.8%. Income recognized from the increase in the cash surrender value of life insurance is generally not subject to income tax and this reduced income tax by $145,000 and $195,000 for the three months ended June 30, 2004 and 2003, respectively. The effective income tax rate for the nine months ended June 30, 2004 was 34% for federal and 7.6% for the State of Idaho. HOME FEDERAL BANCORP Home Federal Bancorp will be incorporated under federal law to hold all of the stock of Home Federal. Initially, Home Federal Bancorp will not be an operating company and will have no significant assets other than all 17 of the outstanding shares of common stock of Home Federal, the net proceeds it keeps from the offering and its loan to the Home Federal employee stock ownership plan. Home Federal Bancorp will have no significant liabilities. See "How We Intend to Use the Proceeds From this Offering." Initially, the management of Home Federal Bancorp and Home Federal will be substantially the same. Home Federal Bancorp intends to utilize the support staff and offices of Home Federal and will pay Home Federal for these services. If Home Federal Bancorp expands or changes its business in the future, it may hire its own employees. We believe the proposed holding company structure will give us more flexibility to enhance our business activities by forming new companies that we own, or by acquiring other companies, including other financial institutions and financial services companies. We do not, however, have any current plans to do these things. Home Federal Bancorp intends to pay for its business activities with the proceeds it keeps from the offering and the money it earns from investing these proceeds, as well as from dividends from Home Federal. See "Our Policy Regarding Dividends." The principal executive offices of Home Federal Bancorp are located at 500 12th Avenue South, Nampa, Idaho 83653 and its telephone number is (208) 466-4634. HOME FEDERAL MHC Home Federal MHC will be a federally-chartered mutual holding company formed in connection with the mutual holding company reorganization of Home Federal. Following completion of the reorganization, it will be a mutual holding company registered with the Office of Thrift Supervision. Following completion of the reorganization, Home Federal MHC's principal assets will be a majority of the outstanding common stock of Home Federal Bancorp and $50,000 in cash it received from Home Federal Bancorp as its initial capitalization. At the present time, we expect that Home Federal MHC will not engage in any business activity other than its investment in a majority of the common stock of Home Federal Bancorp. Federal law and regulations require that as long as Home Federal MHC is in existence, it must own a majority of Home Federal Bancorp's common stock. Following completion of the reorganization and stock offering, Home Federal MHC will own 59.04% of Home Federal Bancorp's outstanding common stock. Federal law and regulation, and the plan of reorganization and stock issuance permit Home Federal MHC to convert to the stock form of organization. For additional information regarding a stock conversion of Home Federal MHC, see "How We Are Regulated - Regulation and Supervision of Home Federal Bancorp - Conversion of Home Federal MHC to Stock Form." The principal executive offices of Home Federal MHC are located at 500 12th Avenue South, Nampa, Idaho 83653 and its telephone number is (208) 466-4634. HOME FEDERAL Home Federal is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area. We engage primarily in the business of attracting deposits from the general public and using these funds to originate loans. We emphasize the origination of loans secured by first mortgages on owner-occupied, residential real estate, residential development and construction, and commercial real estate. To a lesser extent, we originate other types of real estate loans, commercial business loans and consumer loans. See "Business of Home Federal - Lending Activities." We serve the Treasure Valley region of southwestern Idaho, which includes Ada, Canyon, Elmore and Gem Counties, through our 14 full-service banking offices, two loan centers, 15 automated teller machines and Internet banking services. Included in our 14 full-service banking offices are five Wal-Mart in-store branch locations and an office located in the Hispanic Cultural Center of Idaho. Home Federal was founded in 1920 as a building and loan association and reorganized as a federal mutual savings and loan association in 1936. At March 31, 2004, we had total assets of $496.8 million, deposit accounts of $329.5 million and equity of $42.4 million. Through the reorganization and stock offering, we are changing our 18 corporate structure by becoming a federally-chartered stock savings bank and also are changing our name to "Home Federal Bank." Home Federal is examined and regulated by the Office of Thrift Supervision, its primary regulator. Home Federal is also regulated by the Federal Deposit Insurance Corporation ("FDIC"). Home Federal is required to have certain reserves set by the Board of Governors of the Federal Reserve System and is a member of the Federal Home Loan Bank of Seattle, which is one of the 12 regional banks in the Federal Home Loan Bank System. The principal executive offices of Home Federal are located at 500 12th Avenue South, Nampa, Idaho 83653 and its telephone number is (208) 466-4634. HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING Although the actual net proceeds from the sale of the shares of common stock cannot be determined until the stock offering is completed, we presently anticipate that the net proceeds will be between $32.6 million at the minimum of the offering range and $44.5 million at the maximum of the offering range, and may be up to $51.3 million assuming an increase in the estimated offering range by 15%. See "Pro Forma Data" and "Home Federal's Reorganization and Stock Offering - How We Determined Our Price and the Number of Shares to Be Issued in the Stock Offering" as to the assumptions used to arrive at these amounts. We intend to use the net proceeds received from the stock offering as follows:

Maximum, Minimum Maximum as adjusted ---------- ---------- ----------- (In Thousands) Gross proceeds .................................................. $ 34,000 $ 46,000 $ 52,900 Less: Estimated underwriting commission............................. 377 526 611 Estimated other offering expenses ............................. 1,017 1,017 1,017 ---------- ---------- ----------- Estimated net proceeds .......................................... 32,606 44,457 51,272 Less: Net proceeds to Home Federal .................................. 16,303 22,229 25,636 Loan to our employee stock ownership plan ..................... 2,785 3,768 4,334 Cash contribution to the Home Federal Foundation .............. 204 276 317 Funding of the restricted stock plan .......................... 2,486 3,363 3,868 ---------- ---------- ----------- Net cash proceeds retained by Home Federal Bancorp .............. $ 10,828 $ 14,821 $ 17,117

Home Federal Bancorp will retain 50% of the net stock offering proceeds and will purchase all of the capital stock of Home Federal to be issued in the reorganization in exchange for the remaining 50% of the net stock offering proceeds. Home Federal Bancorp intends to use a portion of the net proceeds to make a loan directly to the employee stock ownership plan to enable it to purchase up to 3.3% of the aggregate shares of common stock issued in the reorganization, or if shares are not available, in the open market after the stock offering. Based upon the sale of 3,400,000 shares of common stock in the offering at the minimum of the estimated offering range and the sale of 4,600,000 shares of common stock in the offering at the maximum of the estimated offering range, the loan to the Home Federal Bancorp, Inc. employee stock ownership plan would be $2.8 million and $3.8 million, respectively. See "Management - Benefits - Employee Stock Ownership Plan." Home Federal Bancorp will contribute to the Home Federal Foundation a combination of cash and stock equal to 3% of the gross proceeds of the shares sold in the offering. Eighty percent of the total contribution will be made in stock and 20% will be made in cash. In addition, Home Federal Bancorp intends to adopt a restricted stock plan, subject to stockholder approval, and will use a portion of its proceeds to fund the purchase of shares in the open market for the plan. The restricted stock plan intends to purchase 2.9% of the aggregate shares issued in the 19 reorganization, or $2.5 million and $3.4 million at the minimum and maximum of the estimated offering range, respectively, assuming a $10.00 per share purchase price. The remaining net proceeds retained by Home Federal Bancorp initially may be used to invest in mortgage-backed or other securities, U.S. Government and federal agency securities of various maturities, deposits in either Home Federal or other financial institutions, or a combination thereof. The net proceeds may ultimately be used: o to support the growth in Home Federal's core retail business activities within its geographical market; o to provide funding for Home Federal's lending activities; o to support the future expansion of operations through the establishment or acquisition of additional banking offices or other customer facilities; o to acquire other financial service providers, although no acquisitions are specifically being considered at this time; o to diversify Home Federal's activities as opportunities become available; o for other business and investment purposes, including the payment of regular or special cash dividends, possible repurchases of the common stock or returns of capital, although we have no current plans to declare or pay any return of capital on the common stock; or o for general corporate purposes. Following the completion of the stock offering, to the extent permitted by the Office of Thrift Supervision and based upon then existing facts and circumstances, Home Federal Bancorp's Board of Directors may determine to repurchase shares of common stock, subject to any applicable statutory and regulatory requirements. Facts and circumstances which may lead us to repurchase shares include but are not limited to: o market and economic factors such as the price at which the stock is trading in the market, the volume of trading, the attractiveness of other investment alternatives in terms of the rate of return and risk involved in the investment, the ability to increase the book value and/or earnings per share of the remaining outstanding shares, and an improvement in Home Federal Bancorp's return on equity; o the avoidance of dilution to stockholders by not having to issue additional shares to cover the exercise of stock options or to fund employee stock benefit plans; and o any other circumstances in which repurchases would be in the best interests of Home Federal Bancorp and its stockholders. Any stock repurchases will be subject to the determination of our Board of Directors that Home Federal will be capitalized in excess of all applicable regulatory requirements after any repurchases. The portion of the net proceeds used by Home Federal Bancorp to purchase the capital stock of Home Federal will be added to Home Federal's general funds to be used for general corporate purposes, including increased lending and investment activities. While the amount of net proceeds received by Home Federal will further strengthen Home Federal's capital position, its capital position already exceeds all regulatory requirements. After the stock offering, based upon the maximum of the estimated offering range, Home Federal's tangible capital ratio will be approximately 11.0%. As a result, Home Federal will continue to be a well-capitalized institution. 20 The net proceeds may vary because total expenses of the stock offering may be more or less than those estimated. The net proceeds will also vary if the number of shares to be sold in the stock offering is adjusted to reflect a change in the estimated pro forma market value of Home Federal. Payments for shares made through withdrawals from existing deposit accounts at Home Federal will not result in the receipt of new funds for investment by Home Federal but will result in a reduction of Home Federal's interest expense and liabilities as funds are transferred from interest-bearing certificates or other deposit accounts. OUR POLICY REGARDING DIVIDENDS The Board of Directors of Home Federal Bancorp may pay cash dividends on the common stock in the future. However, the amount and timing of any dividends has not yet been determined. The payment of dividends will depend upon a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, dividends will not be reduced or eliminated in future periods. Special cash dividends, stock dividends or returns of capital may, to the extent permitted by the Office of Thrift Supervision policy and regulations, be paid in addition to, or in lieu of, regular cash dividends. Home Federal Bancorp may file consolidated tax returns with Home Federal. Accordingly, it is anticipated that any cash distributions made by Home Federal Bancorp to its stockholders would be treated as cash dividends and not as a return of capital for federal and state tax purposes. Dividends from Home Federal Bancorp will depend, in large part, upon receipt of dividends from Home Federal, because Home Federal Bancorp initially will have limited sources of income other than dividends from Home Federal, earnings from the investment of proceeds retained by Home Federal Bancorp from the sale of shares of common stock and interest payments with respect to Home Federal Bancorp's loan to its employee stock ownership plan. A regulation of the Office of Thrift Supervision imposes limitations on "capital distributions" by savings institutions. See "How We Are Regulated - Regulation and Supervision of Home Federal - Limitations on Dividends and Other Capital Distributions." If we pay dividends to stockholders of Home Federal Bancorp, it is anticipated that any dividends payable to Home Federal MHC would be waived by Home Federal MHC, subject to Office of Thrift Supervision approval. Under Office of Thrift Supervision regulations, such dividends would not result in dilution to public stockholders if Home Federal MHC converts to stock form in the future. See "How We Are Regulated - Regulation and Supervision of Home Federal - Limitations on Dividends and Other Capital Distributions." Home Federal Bancorp currently has no intention to initiate any action which leads to a return of capital (as distinguished from a dividend) to its stockholders. Regulations of the Office of Thrift Supervision prohibit a return of capital during the three-year term of the business plan submitted by Home Federal to the Office of Thrift Supervision in connection with the stock offering. MARKET FOR THE COMMON STOCK Home Federal Bancorp and Home Federal have never issued capital stock, and, consequently, there is no established market for the common stock at this time. Home Federal Bancorp has applied to have its common stock listed on the Nasdaq National Market under the symbol "HOME." There can be no assurance, however, that Home Federal Bancorp will meet Nasdaq's listing requirements. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within the control of Home Federal Bancorp, Home Federal or any market maker. Accordingly, the number of active buyers and sellers of the common stock at any particular time may be limited. Home Federal Bancorp intends to meet the requirements for listing on the Nasdaq National Market. There can be no assurance that purchasers will be able to sell their shares at or above the initial purchase price of $10.00 per share. See "Risk Factors." 21 CAPITALIZATION The following table presents the capitalization of Home Federal at March 31, 2004, and the pro forma consolidated capitalization of Home Federal Bancorp after giving effect to the reorganization and stock offering, including the issuance of shares to the charitable foundation and excluding assumed earnings on the net proceeds, based upon the sale of the number of shares shown below and the other assumptions set forth under "Pro Forma Data."

Home Federal Bancorp - Pro Forma Based Upon Sale at $10.00 Per Share --------------------------------------------------------------- Home Federal 5,290,000 Capitalization 3,400,000 4,000,000 4,600,000 Shares (1) At Shares Shares Shares (Maximum of March 31, (Minimum (Midpoint (Maximum Range, as 2004 of Range) of Range) of Range) Adjusted) -------------- ------------ ------------ ------------ ------------ (In Thousands) Deposits (2) ............................... $ 329,515 $ 329,515 $ 329,515 $ 329,515 $ 329,515 Borrowings ................................. 113,074 113,074 113,074 113,074 113,074 -------------- ------------ ------------ ------------ ------------ Total deposits and borrowings .............. 442,589 442,589 442,589 442,589 442,589 ============== ============ ============ ============ ============ Stockholders' equity Preferred stock, $.01 par value per share, 5,000,000 shares authorized, none issued ............................ $ -- $ -- $ -- $ -- $ -- Common stock, $.01 par value per share, 50,000,000 shares authorized, shares to be issued as reflected ....... -- 850 1,000 1,150 1,323 Additional paid-in capital (3) ........... -- 32,572 38,492 44,411 51,219 Retained earnings (4) .................... 42,368 42,318 42,318 42,318 42,318 Net unrealized gain (loss) ............... (12) (12) (12) (12) (12) Less: Contribution to the Home Federal Foundation .............................. -- (1,020) (1,200) (1,380) (1,587) Common stock to be acquired by the employee stock ownership plan (5) ....... -- (2,785) (3,277) (3,768) (4,334) Common stock to be acquired by the restricted stock plan (6) ............... -- (2,486) (2,925) (3,363) (3,868) Plus: Tax benefit of contribution to the Home Federal Foundation (7) ............. -- 399 469 540 621 -------------- ------------ ------------ ------------ ------------ Total stockholders' equity ................. $ 42,356 $ 69,836 $ 74,866 $ 79,895 $ 85,680 ============== ============ ============ ============ ============ Equity-to-assets ratio (8) ................. 8.53% 13.32% 14.14% 14.95% 15.86%

-------- (1) As adjusted to give effect to an increase in the number of shares which could be offered due to an increase in the estimated offering range of up to 15% to reflect changes in market and financial conditions following the commencement of the stock offering. (2) Does not reflect withdrawals from deposit accounts for the purchase of common stock in the stock offering. Any withdrawals would reduce pro forma deposits by the amount of the withdrawals. (footnotes continued on following page) 22 (3) Reflects the issuance of the shares of common stock to be sold in the offering, less the offering expenses and commission. No effect has been given to the issuance of additional shares of common stock pursuant to the proposed stock option plan. Shares of Home Federal Bancorp's common stock assumed sold in the offering at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range were 3,400,000, 4,000,000, 4,600,000 and 5,290,000, respectively. See "Pro Forma Data" and "Management - Benefits - Other Stock Benefit Plans." (4) Retained earnings are substantially restricted by applicable regulatory capital requirements. (5) Assumes that 3.3% of the common stock issued in the reorganization will be purchased by the employee stock ownership plan, which is reflected as a reduction of stockholders' equity. The employee stock ownership plan shares will be purchased with funds loaned to the plan by Home Federal Bancorp. See "Pro Forma Data" and "Management - Benefits - Employee Stock Ownership Plan." (6) Home Federal Bancorp intends to adopt a restricted stock plan and to submit the plan to stockholders at an annual or special meeting of stockholders held at least six months following the completion of the stock offering. If the plan is approved by stockholders, Home Federal Bancorp intends to contribute sufficient funds to the restricted stock plan to enable the plan to purchase a number of shares of common stock equal to 2.9% of the common stock issued in the reorganization. This assumes that stockholder approval has been obtained and that the shares have been purchased in the open market at a purchase price of $10.00 per share. However, if Home Federal Bancorp issues authorized but unissued shares of common stock to the restricted stock plan in the amount of 2.9% of the common stock issued in the reorganization, the voting interests of existing stockholders would be diluted approximately 2.8%. The shares are reflected as a compensation expense resulting in a reduction of stockholders' equity. See "Pro Forma Data" and "Management - Benefits - Other Stock Benefit Plans." (7) Assumes that the one-time expense for establishing the foundation will create a tax benefit at a 39.1% tax rate. In order to fully realize this net deferred tax asset, Home Federal Bancorp will need to generate sufficient future taxable income. While management has projected future income to utilize the credit, there can be no assurances that such levels of taxable income will be generated. See "Home Federal Foundation." (8) Total equity divided by total assets. HOME FEDERAL EXCEEDS ALL REGULATORY CAPITAL REQUIREMENTS At March 31, 2004, Home Federal exceeded all of its applicable regulatory capital requirements. The table on the following page sets forth the regulatory capital of Home Federal at March 31, 2004 and the pro forma regulatory capital of Home Federal after giving effect to the reorganization and stock offering, based upon the sale of the number of shares shown in the table. The pro forma regulatory capital amounts reflect the receipt by Home Federal of 50% of the net stock proceeds, after expenses. The pro forma risk-based capital amounts assume the investment of the net proceeds received by Home Federal in assets that have a risk-weight of 20% under applicable regulations, as if such net proceeds had been received and so applied at March 31, 2004. 23

Pro Forma at March 31, 2004 -------------------------------------------------- 3,400,000 Shares 4,000,000 Shares At Sold at Sold at March 31, 2004 $10.00 per Share $10.00 per Share ----------------------- ----------------------- ----------------------- Percent of Percent of Percent of Amount Assets (1) Amount Assets Amount Assets ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Equity capital under generally accepted accounting principles ("GAAP") ................... $ 42,335 8.52% $ 53,387 10.39% $ 55,420 10.73% ========== ========== ========== ========== ========== ========== Tier 1 risk-based capital .............. $ 42,066 13.07% $ 53,098 16.34% $ 55,131 16.93% Requirement .......................... 12,870 4.00 13,000 4.00 13,024 4.00 ---------- ---------- ---------- ---------- ---------- ---------- Excess ............................... $ 29,196 9.07% $ 40,098 12.34% $ 42,107 12.93% ========== ========== ========== ========== ========== ========== Tier 1 (core) capital .................. $ 42,066 8.46% $ 53,098 10.34% $ 55,131 10.68% Requirement .......................... 19,881 4.00 20,533 4.00 20,651 4.00 ---------- ---------- ---------- ---------- ---------- ---------- Excess ............................... $ 22,185 4.46% $ 32,565 6.34% $ 34,480 6.68% ========== ========== ========== ========== ========== ========== Risk-based capital ..................... $ 44,417 13.81% $ 55,449 17.06% $ 57,482 17.65% Risk-based requirement ............... 25,740 8.00 26,000 8.00 26,048 8.00 ---------- ---------- ---------- ---------- ---------- ---------- Excess ............................... $ 18,677 5.81% $ 29,449 9.06% $ 31,434 9.65% ========== ========== ========== ========== ========== ========== Reconciliation of capital infused into Home Federal: Net proceeds infused ................... $ 16,303 $ 19,266 Less: Common stock acquired by employee stock ownership plan ....... 2,785 3,277 Common stock acquired by restricted stock plan ............... 2,486 2,925 Pro forma increase in GAAP and regulatory capital .................... $ 11,032 $ 13,065 ========== ==========

Pro Forma at March 31, 2004 -------------------------------------------------- 4,600,000 Shares 5,290,000 Shares Sold at Sold at $10.00 per Share $10.00 per Share ----------------------- ----------------------- Percent of Percent of Amount Assets Amount Assets ---------- ---------- ---------- ---------- (Dollars in Thousands) Equity capital under generally accepted accounting principles ("GAAP") ................... $ 57,452 11.06% $ 59,790 11.43% ========== ========== ========== ========== Tier 1 risk-based capital .............. $ 57,163 17.52% $ 59,501 18.20% Requirement .......................... 13,048 4.00 13,075 4.00 ---------- ---------- ---------- ---------- Excess ............................... $ 44,115 13.52% $ 46,426 14.20% ========== ========== ========== ========== Tier 1 (core) capital .................. $ 57,163 11.01% $ 59,501 11.38% Requirement .......................... 20,770 4.00 20,906 4.00 ---------- ---------- ---------- ---------- Excess ............................... $ 36,393 7.01% $ 38,595 7.38% ========== ========== ========== ========== Risk-based capital ..................... $ 59,514 18.25% $ 61,852 18.92% Risk-based requirement ............... 26,095 8.00 26,150 8.00 ---------- ---------- ---------- ---------- Excess ............................... $ 33,419 10.25% $ 35,702 10.92% ========== ========== ========== ========== Reconciliation of capital infused into Home Federal: Net proceeds infused ................... $ 22,229 $ 25,636 Less: Common stock acquired by employee stock ownership plan ....... 3,768 4,334 Common stock acquired by restricted stock plan ............... 3,363 3,868 Pro forma increase in GAAP and regulatory capital .................... $ 15,097 $ 17,435 ========== ==========

-------- (1) Adjusted total or adjusted risk-weighted assets, as appropriate. 24 PRO FORMA DATA We cannot determine the actual net proceeds from the sale of our common stock until the stock offering is completed. However, we estimate that net proceeds will be between $32.6 million and $44.5 million, or $51.3 million if the estimated offering range is increased by 15%, based upon the following assumptions: o all shares of common stock will be sold through non-transferable rights to subscribe for the common stock, in order of priority, to: o eligible account holders, who are depositors of Home Federal with account balances of at least $50 as of the close of business on December 31, 2002; o the proposed employee stock ownership plan, which will purchase 3.3% of the shares of common stock issued in the reorganization; o supplemental eligible account holders, who are depositors of Home Federal with account balances of at least $50 as of the close of business on June 30, 2004; and o other members, who are depositors of Home Federal as of the close of business on ________ __, 2004 and borrowers as of March 16, 2004 whose loans continue to be outstanding as of _______ __, 2004, other than eligible account holders or supplemental eligible account holders. o Keefe, Bruyette & Woods will receive a success fee equal to 1.35% of the gross proceeds from the offering, excluding shares of common stock sold to directors, officers, employees and the employee stock ownership plan, and shares contributed to the charitable foundation; and o total expenses, excluding the success fee paid to Keefe, Bruyette & Woods, are estimated to be approximately $1,017,400, although actual expenses may vary from those estimated. Pro forma consolidated net income and stockholders' equity of Home Federal Bancorp have been calculated for the year ended September 30, 2003 and the six months ended March 31, 2004 as if the common stock to be sold in the stock offering had been sold at the beginning of the period and the net proceeds had been invested at 1.15% and 1.20%, respectively, which represents the yield on one-year U.S. Government securities at September 30, 2003 and March 31, 2004, respectively. This rate is used because we believe it reflects the yield that we will receive on the net proceeds of the stock offering. The effect of withdrawals from deposit accounts for the purchase of common stock has not been reflected. A tax rate of 39.1% has been assumed for the periods resulting in after-tax yields of 0.70% and 0.73% for the year ended September 30, 2003 and the six months ended March 31, 2004, respectively. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of common stock, as adjusted to give effect to the shares purchased by the employee stock ownership plan. See Note 2 to the following tables. As discussed under "How We Intend to Use the Proceeds from this Offering," Home Federal Bancorp intends to retain 50% of the net proceeds from the stock offering from which it will make a loan to fund the purchase of 3.3% of the common stock issued in the reorganization by the employee stock ownership plan. No effect has been given in the tables to the issuance of additional shares of common stock pursuant to the proposed stock option plan. See "Management - Benefits - Other Stock Benefit Plans." The table below gives effect to the restricted stock plan, which is expected to be adopted by Home Federal Bancorp following the stock offering and presented along with the stock option plan to stockholders for approval at an annual or special meeting of stockholders to be held at least six months following the completion of the stock offering. If the restricted stock plan is approved by stockholders, the restricted stock plan intends to acquire an amount of common stock equal to 2.9% of the shares of common stock issued in the reorganization, either through open market purchases or from authorized but unissued shares of common stock, if permissible. The following tables assume that stockholder approval has been obtained, as to which there can be no assurance, and that the shares acquired by the restricted stock plan are 25 purchased in the open market at $10.00 per share. No effect has been given to Home Federal Bancorp's results of operations after the stock offering, the market price of the common stock after the offering or a less than 2.9% purchase by the restricted stock plan. The pro forma stockholders' equity is not intended to represent the fair market value of the common stock and may be different than amounts that would be available for distribution to stockholders in the event of liquidation. The following pro forma information may not be representative of the financial effects of the foregoing transactions at the dates on which such transactions actually occur and should not be taken as indicative of future results of operations. Pro forma stockholders' equity represents the difference between the stated amount of assets and liabilities of Home Federal Bancorp computed in accordance with GAAP.

At or For the Six Months Ended March 31, 2004 ---------------------------------------------------------------------------- 3,400,000 4,000,000 4,600,000 5,290,000 Shares Sold at Shares Sold at Shares Sold at Shares Sold at $10.00 Per $10.00 Per $10.00 Per $10.00 Per Share Share Share Share (Maximum of (Minimum (Midpoint (Maximum Range, as of Range) of Range) of Range) Adjusted) (1) ---------------- ---------------- ---------------- ---------------- (Dollars in Thousands) Gross proceeds ................................... $ 34,000 $ 40,000 $ 46,000 $ 52,900 Plus shares issued to the Home Federal Foundation .............................. 816 960 1,104 1,270 ---------------- ---------------- ---------------- ---------------- Pro forma market capitalization .................. $ 34,816 $ 40,960 $ 47,104 $ 54,170 ================ ================ ================ ================ Gross proceeds ................................... $ 34,000 $ 40,000 $ 46,000 $ 52,900 Less: Offering expenses and commissions .......... 1,394 1,468 1,543 1,628 ---------------- ---------------- ---------------- ---------------- Estimated net stock offering proceeds ............ 32,606 38,532 44,457 51,272 Less: Cash contribution to the Home Federal Foundation ........................ (204) (240) (276) (317) Shares purchased by the employee stock ownership plan (2) .................. (2,785) (3,277) (3,768) (4,334) Shares purchased by the restricted stock plan (3) ............................ (2,486) (2,925) (3,363) (3,868) ---------------- ---------------- ---------------- ---------------- Net investable proceeds (4) .................... $ 27,131 $ 32,091 $ 37,049 $ 42,753 ================ ================ ================ ================ Net income: Historical ................................. $ 1,953 $ 1,953 $ 1,953 $ 1,953 Pro forma income on net proceeds ........... 99 117 135 156 Pro forma employee stock ownership plan adjustment (2) ............. (85) (100) (115) (132) Pro forma restricted stock plan adjustment (3) ....................... (151) (178) (205) (236) ---------------- ---------------- ---------------- ---------------- Pro forma net income ....................... $ 1,816 $ 1,792 $ 1,768 $ 1,741 ================ ================ ================ ================ Net income per share: Historical ................................. $ 0.24 $ 0.20 $ 0.18 $ 0.15 Pro forma income on net proceeds, as adjusted ..................... 0.01 0.01 0.01 0.01 Pro forma employee stock ownership plan adjustment (3) ............. (0.01) (0.01) (0.01) (0.01) Pro forma restricted stock plan adjustment (5) ............................ (0.02) (0.02) (0.02) (0.02) ---------------- ---------------- ---------------- ---------------- Pro forma net income per share (3)(5)(6) ... $ 0.22 $ 0.18 $ 0.16 $ 0.13 ================ ================ ================ ================ Offering price as a percentage of pro forma net annualized earnings per share ............... 22.7% 27.8% 31.3% 38.5%

(table continued on following page) (Footnotes on page 30) 26

At or For the Six Months Ended March 31, 2004 ---------------------------------------------------------------------------- 3,400,000 4,000,000 4,600,000 5,290,000 Shares Sold at Shares Sold at Shares Sold at Shares Sold at $10.00 Per $10.00 Per $10.00 Per $10.00 Per Share Share Share Share (Maximum of (Minimum (Midpoint (Maximum Range, as of Range) of Range) of Range) Adjusted) (1) ---------------- ---------------- ---------------- ---------------- (Dollars in Thousands) Stockholders' equity: Historical ................................. $ 42,356 $ 42,356 $ 42,356 $ 42,356 Estimated net proceeds ..................... 32,606 38,532 44,457 51,272 Less: Capitalization of Home Federal MHC ......................... (50) (50) (50) (50) Plus: Stock issued to the Home Federal Foundation .................. 816 960 1,104 1,270 Less: Stock contribution to the Home Federal Foundation .................. (816) (960) (1,104) (1,270) Less: Cash contribution to the Home Federal Foundation .................. (204) (240) (276) (317) Plus: Tax benefit of the contribution to the Home Federal Foundation ......... 399 469 540 621 Less: Common stock acquired by the employee stock ownership plan (2) .. (2,785) (3,277) (3,768) (4,334) Less: Common stock to be acquired by the restricted stock plan (3) .... (2,486) (2,925) (3,363) (3,868) ---------------- ---------------- ---------------- ---------------- Pro forma stockholders' equity (2)(3)(7).... $ 69,836 $ 74,866 $ 79,895 $ 85,680 ================ ================ ================ ================ Stockholders' equity per share: Historical ................................. $ 4.98 $ 4.24 $ 3.68 $ 3.20 Estimated net proceeds ..................... 3.84 3.85 3.87 3.88 Less: Capitalization of Home Federal MHC ... (0.01) (0.01) -- -- Plus: Stock issued to the Home Federal Foundation .................. 0.10 0.10 0.10 0.10 Less: Stock contribution to the Home Federal Foundation .................. (0.10) (0.10) (0.10) (0.10) Less: Cash contribution to the Home Federal Foundation .................. (0.02) (0.02) (0.02) (0.02) Plus: Tax benefit of the contribution to the Home Federal Foundation ......... 0.05 0.05 0.05 0.05 Less: Common stock acquired by the employee stock ownership plan (2) .. (0.33) (0.33) (0.33) (0.33) Less: Common stock to be acquired by the restricted stock plan (3) .... (0.29) (0.29) (0.29) (0.29) ---------------- ---------------- ---------------- ---------------- Pro forma stockholders' equity per share (3)(5)(6)(7)......................... $ 8.22 $ 7.49 $ 6.96 $ 6.49 ================ ================ ================ ================ Offering price as a percentage of pro forma stockholders' equity (5) .................. 121.65% 133.51% 143.68% 154.08% Number of shares outstanding for pro forma stockholders' equity per share calculations (5) . 8,235,398 9,688,704 11,142,010 12,813,311 ================ ================ ================ ================

(Footnotes on page 30) 27

At or For the Year Ended September 30, 2003 ---------------------------------------------------------------------------- 3,400,000 4,000,000 4,600,000 5,290,000 Shares Sold at Shares Sold at Shares Sold at Shares Sold at $10.00 Per $10.00 Per $10.00 Per $10.00 Per Share Share Share Share (Maximum of (Minimum (Midpoint (Maximum Range, as of Range) of Range) of Range) Adjusted) (1) ---------------- ---------------- ---------------- ---------------- (Dollars in Thousands) Gross proceeds ................................... $ 34,000 $ 40,000 $ 46,000 $ 52,900 Plus shares issued to the Home Federal Foundation .............................. 816 960 1,104 1,270 ---------------- ---------------- ---------------- ---------------- Pro forma market capitalization .................. $ 34,816 $ 40,960 $ 47,104 $ 54,170 ================ ================ ================ ================ Gross proceeds ................................... $ 34,000 $ 40,000 $ 46,000 $ 52,900 Less: Offering expenses and commissions .......... 1,394 1,468 1,543 1,628 ---------------- ---------------- ---------------- ---------------- Estimated net stock offering proceeds ............ 32,606 38,532 44,457 51,272 Less: Cash contribution to the Home Federal Foundation ........................ (204) (240) (276) (317) Shares purchased by the employee stock ownership plan (2) .................. (2,785) (3,277) (3,768) (4,334) Shares purchased by the restricted stock plan (3) ............................ (2,486) (2,925) (3,363) (3,868) ---------------- ---------------- ---------------- ---------------- Net investable proceeds (4) .................... $ 27,131 $ 32,091 $ 37,056 $ 42,753 ================ ================ ================ ================ Net income: Historical ................................. $ 5,456 $ 5,456 $ 5,456 $ 5,456 Pro forma income on net proceeds ........... 190 224 259 299 Pro forma employee stock ownership plan adjustment (2) ............. (170) (200) (229) (264) Pro forma restricted stock plan adjustment (3) ....................... (303) (356) (410) (471) ---------------- ---------------- ---------------- ---------------- Pro forma net income ....................... $ 5,173 $ 5,124 $ 5,076 $ 5,020 ================ ================ ================ ================ Net income per share: Historical ................................. $ 0.66 $ 0.56 $ 0.49 $ 0.43 Pro forma income on net proceeds, as adjusted ..................... 0.02 0.02 0.02 0.02 Pro forma employee stock ownership plan adjustment (3) ............. (0.02) (0.02) (0.02) (0.02) Pro forma restricted stock plan adjustment (5) ............................ (0.04) (0.04) (0.04) (0.04) ---------------- ---------------- ---------------- ---------------- Pro forma net income per share (3)(5)(6) ... $ 0.62 $ 0.52 $ 0.45 $ 0.38 ================ ================ ================ ================ Offering price as a percentage of pro forma net annualized earnings per share ............... 16.1% 19.2% 22.2% 25.6%

(table continued on following page) (Footnotes on page 30) 28

At or For the Year Ended September 30, 2003 ---------------------------------------------------------------------------- 3,400,000 4,000,000 4,600,000 5,290,000 Shares Sold at Shares Sold at Shares Sold at Shares Sold at $10.00 Per $10.00 Per $10.00 Per $10.00 Per Share Share Share Share (Maximum of (Minimum (Midpoint (Maximum Range, as of Range) of Range) of Range) Adjusted) (1) ---------------- ---------------- ---------------- ---------------- (Dollars in Thousands) Stockholders' equity: Historical ................................. $ 40,399 $ 40,399 $ 40,399 $ 40,399 Estimated net proceeds ..................... 32,606 38,532 44,457 51,272 Less: Capitalization of Home Federal MHC ......................... (50) (50) (50) (50) Plus: Stock issued to the Home Federal Foundation .................. 816 960 1,104 1,270 Less: Stock contribution to the Home Federal Foundation .................. (816) (960) (1,104) (1,270) Less: Cash contribution to the Home Federal Foundation .................. (204) (240) (276) (317) Plus: Tax benefit of the contribution to the Home Federal Foundation ......... 399 469 540 621 Less: Common stock acquired by the employee stock ownership plan (2) .. (2,785) (3,277) (3,768) (4,334) Less: Common stock to be acquired by the restricted stock plan (3) .... (2,486) (2,925) (3,363) (3,868) ---------------- ---------------- ---------------- ---------------- Pro forma stockholders' equity (2)(3)(7).... $ 67,879 $ 72,909 $ 77,938 $ 83,723 ================ ================ ================ ================ Stockholders' equity per share: Historical ................................. $ 4.75 $ 4.04 $ 3.51 $ 3.05 Estimated net proceeds ..................... 3.84 3.85 3.87 3.88 Less: Capitalization of Home Federal MHC ... (0.01) (0.01) -- -- Plus: Stock issued to the Home Federal Foundation .................. 0.10 0.10 0.10 0.10 Less: Stock contribution to the Home Federal Foundation .................. (0.10) (0.10) (0.10) (0.10) Less: Cash contribution to the Home Federal Foundation .................. (0.02) (0.02) (0.02) (0.02) Plus: Tax benefit of the contribution to the Home Federal Foundation ......... 0.05 0.05 0.05 0.05 Less: Common stock acquired by the employee stock ownership plan (2) .. (0.33) (0.33) (0.33) (0.33) Less: Common stock to be acquired by the restricted stock plan (3) .... (0.29) (0.29) (0.29) (0.29) ---------------- ---------------- ---------------- ---------------- Pro forma stockholders' equity per share (3)(5)(6)(7)......................... $ 7.99 $ 7.29 $ 6.79 $ 6.34 ================ ================ ================ ================ Offering price as a percentage of pro forma stockholders' equity (5) .................. 125.16% 137.17% 147.28% 157.73% Number of shares outstanding for pro forma stockholders' equity per share calculations (5) . 8,249,325 9,705,088 11,160,851 12,834,979

(Footnotes on page 30) 29 ------------ (1) As adjusted to give effect to an increase in the number of shares which could be offered due to an increase in the estimated offering range of up to 15% to reflect changes in market and financial conditions following the commencement of the stock offering. (2) It is assumed that 3.3% of the shares of common stock issued in the reorganization will be purchased by the employee stock ownership plan with funds loaned by Home Federal Bancorp. Home Federal intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the principal and interest requirement of the debt. The pro forma net earnings assumes (1) that the loan to the employee stock ownership plan is payable over ten years, with the employee stock ownership plan shares having an average fair value of $10.00 per share in accordance with Statement of Position 93-6 of the American Institute of Certified Public Accounting, entitled "Employers' Accounting for Employee Stock Ownership Plans," and (2) the effective tax rate was 39.1% for the period. See "Management - Benefits - Employee Stock Ownership Plan." (3) Gives effect to the restricted stock plan we expect to adopt following the offering for the benefit of directors, officers and employees. This plan intends to acquire, following stockholder approval of the plan, a number of shares of common stock equal to 2.9% of the shares of common stock issued in the reorganization or 248,586, 292,456, 336,323 and 386,777 shares of common stock at the minimum, midpoint, maximum and adjusted maximum of the estimated offering range, respectively. Funds used by the restricted stock plan to purchase the shares initially will be contributed by Home Federal Bancorp. It is further assumed that the shares were acquired by the restricted stock plan at the beginning of the period presented in open market purchases at 10% and 20% of the amount contributed, net of taxes, was an amortized expense during the six months ended March 31, 2004 and the year ended September 30, 2003, respectively. The issuance of authorized but unissued shares of common stock pursuant to the restricted stock plan in the amount of 2.9% of the common stock issued in the reorganization would dilute the voting interests of existing stockholders by approximately 2.8% and under such circumstances, pro forma net earnings per share would be $0.21, $0.18, $0.15 and $0.13, and $0.60, $0.51 $0.43 and $0.37 at the minimum, midpoint, maximum and 15% above the maximum of the estimated offering range for the six months ended March 31, 2004 and for the year ended September 30, 2003, respectively, and pro forma stockholders' equity per share would be $8.27, $7.58, $7.05 and $6.59, and $8.05, $7.39, $6.88 and $6.45 at the minimum, midpoint, maximum and 15% above the maximum of such range for the six months ended March 31, 2004 and the year ended September 30, 2003, respectively. There can be no assurance that the actual purchase price of shares purchased by or issued to the restricted stock plan will be $10.00 per share. See "Management - Benefits - Other Stock Benefit Plans." (4) Estimated proceeds available for investment consists of the estimated net proceeds from the stock offering less (1) the proceeds attributable to the purchase by the employee stock ownership plan, (2) the contribution to the charitable foundation and (3) the value of the shares to be purchased by the restricted stock plan, subject to stockholder approval, after the offering at an assumed purchase price of $10.00 per share. (5) The per share calculations are determined by adding the number of shares sold in the offering and for purposes of calculating net income per share, in accordance with Statement of Position 93-6, subtracting 264,202 shares, 311,296 shares, 357,990 shares and 411,689 shares; and 250,675 shares, 294,912 shares, 339,149 shares and 390,021 shares at the minimum, midpoint, maximum and 15% above the maximum of the offering range, representing the employee stock ownership plan shares which have not been committed for release during the six months ended March 31, 2004 and the year ended September 30, 2003, respectively. See note 3 above. For purposes of calculating pro forma stockholders' equity per share, it is assumed that shares outstanding total 8,500,000 shares at the minimum of the estimated pro forma market value of Home Federal on a fully converted basis, of the estimated valuation range, 10,000,000 shares at the midpoint of the range, 11,500,000 shares at the maximum of the range and 13,225,000 shares at 15% above the maximum of the range. (6) No effect has been given to the issuance of additional shares of common stock pursuant to the stock option plan, which will be adopted by Home Federal Bancorp following the stock offering and presented for approval by stockholders at an annual or special meeting of stockholders of Home Federal Bancorp held at least six months following the completion of the offering. If the stock option plan is approved by stockholders, an amount equal to 7.3% of the common stock issued in the reorganization, or 621,814 shares at the minimum of the estimated offering range, 731,546 shares at the midpoint of the range, 841,277 shares at the maximum of the range and 967,469 shares at 15% above the maximum of the range will be reserved for future issuance upon the exercise of options to be granted under the stock option plan. The issuance of common stock pursuant to the exercise of (footnotes continue on the following page) 30 options under the stock option plan will result in the dilution of existing stockholders' voting interests by approximately 6.8%. Assuming stockholder approval of the stock option plan, that all these options were exercised at the beginning of the period at an exercise price of $10.00 per share and that the shares to fund the restricted stock plan are acquired through open market purchases at a purchase price of $10.00 per share, pro forma net earnings per share would be $0.19, $0.16, $0.14 and $0.12, and $0.58, $0.49, $0.42 and $0.36 at the minimum, midpoint, maximum and 15% above the maximum of the estimated offering range for the six months ended March 31, 2004 and the year ended September 30, 2003, respectively, and pro forma stockholders' equity per share would be $8.37, $7.71, $7.23 and $6.81, and $8.16, $7.53, $7.08 and $6.67 at the minimum, midpoint, maximum and 15% above the maximum of the range at March 31, 2004 and at September 30, 2003, respectively. See "Management - Benefits - Other Stock Benefit Plans." (7) Pro forma stockholders' equity and pro forma stockholders' equity per share do not give effect to the bad debt reserves established by Home Federal for federal income tax purposes in the event of liquidation. 31 COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT CHARITABLE FOUNDATION As reflected in the table below, if the charitable foundation was not established and funded as part of the reorganization, RP Financial has estimated that the pro forma valuation of Home Federal Bancorp would be greater, and as a result, a greater number of shares of common stock would be sold in the offering. At the minimum, midpoint and maximum of the valuation range, the pro forma valuation of Home Federal Bancorp equaled $85.0 million, $100.0 million and $115.0 million, as compared to $86.7 million, $102.0 million and $117.3 million, respectively, without the foundation. There is no assurance that if the foundation were not formed, the appraisal prepared at that time would have concluded that the pro forma market value of Home Federal Bancorp would be the same as that estimated here. Any appraisal prepared at that time would be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions. For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios, at the minimum, midpoint, maximum and adjusted maximum of the estimated valuation range, assuming the reorganization was completed at May 21, 2004, with and without the foundation. The valuation amounts referred to in the table below relate to the value of the shares sold to members of Home Federal and the public, excluding shares issued to Home Federal MHC.

At the Minimum At the Midpoint ---------------------------- ---------------------------- With No With No Foundation Foundation Foundation Foundation ------------ ------------ ------------ ------------ (Dollars in Thousands) Estimated offering amount .............. $ 34,000 $ 35,512 $ 40,000 $ 41,779 Pro forma market capitalization ........ 34 ,816 35,512 40,960 41,779 Total assets ........................... 524,253 525,445 529,283 530,686 Total liabilities ...................... 454,417 454,417 454,417 454,417 Pro forma stockholders' equity ......... 69,836 71,028 74,866 76,269 Pro forma consolidated net income ...... 1,816 1,817 1,792 1,793 Pro forma stockholders' equity per share ............................. 8.22 8.19 7.49 7.48 Pro forma consolidated net income per share ............................. 0.22 0.21 0.18 0.18 Pro forma pricing ratios: Offering price as a percentage of Pro forma stockholders' equity per share ......................... 121.65% 122.10% 133.51% 133.69% Offering price to pro forma net income per share .................. 22.73 23.81 27.78 27.78 Pro forma market capitalization to assets Pro forma financial ratios: Return on assets ..................... 0.69% 0.69% 0.68% 0.68% Return on stockholders' equity ....... 5.20% 5.12% 4.79% 4.70% Stockholders' equity to assets ....... 13.32% 13.52% 14.14% 14.37% Total shares issued

At the Maximum, At the Maximum As Adjusted ---------------------------- ---------------------------- With No With No Foundation Foundation Foundation Foundation ------------ ------------ ------------ ------------ (Dollars in Thousands) Estimated offering amount .............. $ 46,000 $ 48,046 $ 52,900 $ 55,253 Pro forma market capitalization ........ 47,104 48,046 54,170 55,253 Total assets ........................... 534,312 535,926 540,097 541,952 Total liabilities ...................... 454,417 454,417 454,417 454,417 Pro forma stockholders' equity ......... 79,895 81,509 85,680 87,535 Pro forma consolidated net income ...... 1,768 1,770 1,741 1,743 Pro forma stockholders' equity per share ............................. 6.96 6.95 6.49 6.49 Pro forma consolidated net income per share ............................. 0.16 0.15 0.13 0.13 Pro forma pricing ratios: Offering price as a percentage of Pro forma stockholders' equity per share ......................... 143.68% 143.68% 154.08% 154.08% Offering price to pro forma net income per share .................. 31.25 33.33 38.46 38.46 Pro forma market capitalization to assets Pro forma financial ratios: Return on assets ..................... 0.66% 0.66% 0.64% 0.64% Return on stockholders' equity ....... 4.43% 4.34% 4.06% 3.98% Stockholders' equity to assets ....... 14.95% 15.21% 15.86% 16.15% Total shares issued

32 PROPOSED PURCHASES BY MANAGEMENT The following table sets forth, for each of Home Federal's directors and executive officers and for all of the directors and executive officers as a group, the proposed purchases of common stock, assuming sufficient shares are available to satisfy their subscriptions. The amounts include shares that may be purchased through individual retirement accounts and by associates. These purchases are intended for investment purposes only, and not for resale. Directors, officers, their associates and employees will pay the same price as all other subscribers for the shares for which they subscribe.

At the Minimum of the At the Maximum of Estimated Offering Range Estimated Offering Range --------------------------- --------------------------- As a Percent As a Percent Number of Shares Number of Shares Name Amount of Shares Offered of Shares Offered ---------------------------------------- ------------ ------------ ------------ ------------ ------------ Directors: ---------- Daniel L. Stevens (1) .................. $ 500,000 50,000 1.47% 50,000 1.09% Fred H. Helpenstell, M.D ............... 300,000 30,000 0.88 30,000 0.65 Thomas W. Malson ....................... 250,000 25,000 0.74 25,000 0.54 N. Charles Hedemark .................... 250,000 25,000 0.74 25,000 0.54 Richard J. Schrandt .................... 250,000 25,000 0.74 25,000 0.54 James R. Stamey ........................ 100,000 10,000 0.29 10,000 0.22 Robert A. Tinstman ..................... 500,000 50,000 1.47 50,000 1.09 Executive Officers: ------------------- Robert A. Schoelkoph ................... 200,000 20,000 0.59 20,000 0.43 Roger D. Eisenbarth .................... 200,000 20,000 0.59 20,000 0.43 Lynn A. Sander ......................... 250,000 25,000 0.74 25,000 0.54 Denis J. Trom .......................... 350,000 35,000 1.03 35,000 0.76 Karen Wardwell ......................... 175,000 17,500 0.51 17,500 0.38 ------------ ------------ ------------ ------------ ------------ All directors and executive officers as a group (12 persons) ...... $ 3,325,000 332,500 9.78% 332,500 7.23% ============ ============ ============ ============ ============

---------- (1) Mr. Stevens is also an executive officer of Home Federal. 33 HOME FEDERAL AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME The following condensed consolidated statements of income are based on the consolidated statements of income of Home Federal and subsidiary for the fiscal years ended September 30, 2003, 2002 and 2001 audited by Moss Adams LLP, independent certified public accountants, whose report thereon appears elsewhere herein. The condensed consolidated statements of income for the six months ended March 31, 2004 and 2003, are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results of operations for those periods. All such adjustments are of a normal recurring nature. The results of operations for the six months ended March 31, 2004 are not necessarily indicative of the results of which may be expected for the entire year or any other subsequent period. These condensed consolidated statements of income should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein.

Six Months Ended March 31, Year Ended September 30, ----------------------- ------------------------------------ 2004 2003 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- (unaudited) (In Thousands) Interest and dividend income ...... $ 13,217 $ 13,670 $ 26,896 $ 26,904 $ 26,514 Interest expense .................. 4,682 4,922 9,705 11,465 14,480 ---------- ---------- ---------- ---------- ---------- Net interest income ............... 8,535 8,748 17,191 15,439 12,034 Provision for loan losses ......... 600 287 615 277 748 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses ........ 7,935 8,461 16,576 15,162 11,286 Noninterest income ................ 4,341 5,319 11,188 5,767 6,319 Noninterest expense ............... 9,218 9,796 18,885 17,178 14,594 ---------- ---------- ---------- ---------- ---------- Income before income taxes ........ 3,058 3,984 8,879 3,751 3,011 Income tax expense ................ 1,105 1,559 3,423 1,644 1,223 ---------- ---------- ---------- ---------- ---------- Net Income ........................ $ 1,953 $ 2,425 $ 5,456 $ 2,107 $ 1,788 ========== ========== ========== ========== ==========

34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Our results of operations depend primarily on revenue generated as a result of our net interest income and noninterest income. Net interest income is the difference between the interest income we earn on our interest-earning assets (consisting primarily of loans and investment securities) and the interest we pay on our interest-bearing liabilities (consisting primarily of customer savings and money market accounts, time deposits and borrowings). Noninterest income consists primarily of service charges on deposit and loan accounts, gains on the sale of loans and investments, loan servicing fees, and investment and mortgage servicing income. Our results of operations are also affected by our provisions for loan losses and other expenses. Other expenses consist primarily of noninterest expense, including compensation and benefits, occupancy, equipment, data processing, advertising, postage and supplies, professional services and, when applicable, deposit insurance premiums. Compensation and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes and expenses for retirement and other employee benefits. Occupancy and equipment expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance and costs of utilities. Our results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities. Business Strategy Our strategy is to operate as an independent community-based financial institution dedicated to serving the needs of customers and the local community. We focus on providing exceptional service and quality products and services, as well as convenient access to generate a high level of customer satisfaction. Our principal business consists of attracting retail deposits from the general public which we invest primarily in loans secured by first mortgages on owner-occupied, one- to four-family residences. We also originate multi-family loans, commercial real estate loans and a variety of consumer loans. We intend to continue implementing this strategy while pursuing further loan portfolio diversification, with an emphasis on credit risk management. Our commitment is to provide a reasonable range of products and services to meet the needs of our customers. As part of this commitment, we will continue the course established over the past few years of increasing commercial real estate lending and consumer lending with a particular emphasis on home equity loans. Our goal is to grow Home Federal while providing exceptional and effective services to customers and the local community. Operating Strategy Our mission is to operate and grow a profitable community-oriented financial institution serving individuals and commercial real estate customers in our market area. We plan to achieve this by executing our strategy of: o maintaining favorable asset quality reflected primarily by a low level of non-performing assets, low charge-offs and adequacy of loan loss reserves; o seeking to improve net interest margin through a combination of reduced funding costs and improved pricing relative to asset risk; o analyzing profitability of products and business lines and allocating resources to those areas offering the greatest potential for future profits; 35 o expanding the number of households we serve through internal expansion of the branch network and possible selective acquisitions of financial service providers in existing or surrounding markets; o pursuing further loan portfolio diversification, with an emphasis on credit risk management; o continuing an internal management culture which is driven by a focus on profitability, productivity and accountability for results and which responds proactively to the challenge of change; o providing our staff members with the knowledge and skills necessary to perform their job functions and develop their career potential; o enhancing the perception of Home Federal with both the retail and commercial banking public as the bank of choice; o maintaining a sales and service culture based on an understanding of the customer's needs and reflecting our commitment to excellence; o reducing future reliance on net interest income by creating additional sources of fee income from products and services we offer; and o utilizing technology to gain efficiencies in processing customer information, to provide a competitive tool to assist the sales process and to allow the efficient integration of acquired businesses. Maintaining favorable asset quality reflected primarily by a low level of non-performing assets, low charge-offs and adequacy of loan loss reserves. We believe that high asset quality is a key to long-term financial success. We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards we believe are conservative. At March 31, 2004, our nonaccrual and 90 days or more past due loans as a percentage of loans receivable was only 0.15%. Although we intend to increase our multi-family and commercial real estate lending after the stock offering, we intend to continue our philosophy of managing large loan exposures through our conservative approach to lending. Seeking to improve net interest margin through a combination of reduced funding costs and improved pricing relative to asset risk. We intend to manage our net interest income and net interest margin in order to ensure that the balance sheet reflects an optimum mix of assets and liabilities that result in the maximization of the net interest income and net portfolio value within the limits of acceptable credit risk. On the asset side of the balance sheet, we intend to originate residential and commercial real estate and consumer loans in our local area. In addition, we may purchase mortgage-backed securities when loan origination levels are not adequate to fund necessary asset growth. We will fund asset growth with deposits and borrowings that have pricing and cash flow characteristics that are similar to the asset side of the balance sheet. Analyzing profitability of products and business lines and allocating resources to those areas offering the greatest potential for future profits. We have implemented comprehensive cost accounting and customer information systems to provide the data necessary to build effective product and customer profitability reporting for all of our lines of business. We intend to use this profitability data as we build business plans to support the expansion of current lines of business and in the implementation of new products and services. Expanding the number of households we serve through internal expansion of the branch network and possible selective acquisitions of financial service providers in existing or surrounding markets. We continually monitor the growth in our four-county market area and work closely with commercial real estate experts to target sites for future branch locations. We currently are planning to open a branch in Eagle, Idaho, a suburb of Boise. The property has been purchased and construction is planned for mid-2005. We plan to place a temporary 36 office on the site as early as October 2004. Our long-term strategy is to build one branch per year if appropriate sites can be identified and obtained. As a result of the conversion from mutual to stock form, we will also actively search for appropriate acquisitions to enhance our ability to deliver products and services in our existing markets and to expand into surrounding markets. Pursuing further loan portfolio diversification, with an emphasis on credit risk management. We have developed an excellent team of lenders across our market area who focus on realtor and builder relationships as well as direct marketing to individual buyers. We anticipate expanding the real estate markets in Ada and Canyon Counties and we are well positioned to increase our market share in these areas. We continue to increase our presence in the small- to mid-size commercial real estate market as a result of the strength of our products and the quality of our service. Continuing an internal management culture which is driven by a focus on profitability, productivity and accountability for results and which responds proactively to the challenge of change. The primary method for reinforcing our culture is the comprehensive application of our "Pay for Performance" total compensation program. Every employee at Home Federal has clearly defined accountabilities and performance standards that tie directly or indirectly to the profitability of Home Federal. All incentive compensation is based on specific profitability measures or sales volume goals. This approach encourages all employees to focus on the profitability of Home Federal and has created an environment that embraces new products, services and delivery systems. Providing our staff members with the knowledge and skills necessary to perform their job functions and develop their career potential. We understand the relationship between effective training and employee satisfaction. Although we have always provided appropriate technical training, we have expanded our focus to include comprehensive supervisory and leadership training. Our goal is to provide development opportunities for every employee who wants to grow with Home Federal and to fill future leadership positions with qualified internal candidates whenever possible. Enhancing the perception of Home Federal with both the retail and commercial banking public as the bank of choice. We have a long tradition of focusing on the needs of consumers in the communities we serve and a strong reputation as an active corporate citizen. We deliver personalized service and respond with flexibility to customer needs. We believe our community orientation is attractive to our customers and distinguishes us from the large national banks that operate in our market area. We fully intend to maintain this community focus as we grow. Maintaining a sales and service culture based on an understanding of the customer's needs and reflecting our commitment to excellence. We use a sophisticated, professional approach to measuring and continually improving our sales and service culture. Our primary tool is a well-developed sales and service training curriculum focused on identifying and meeting customer needs and supported by an intensive coaching program. We assess our employees' level of sales and service skills on an annual basis using a trainer to approach the employee as a customer. These annual assessments are used to identify specific training opportunities and to set sales and service improvement goals for the following year. Reducing future reliance on net interest income by creating additional sources of fee income from products and services we offer. We have created cross-functional teams who continually monitor the market for new product and service opportunities on both the asset and liability sides of the business. We intend to broaden the scope of these teams to actively seek new sources of fee income and non-interest revenue, build business plans to support these sources, and implement the plans to generate increased income. Utilizing technology to gain efficiencies in processing customer information, to provide a competitive tool to assist the sales process and to allow the efficient integration of acquired businesses. In preparation for the mutual to stock conversion, we have focused on developing and acquiring the appropriate in-house expertise to manage and leverage our technology investments to meet the needs of a rapidly changing organization. We intend to 37 continue to manage our technology resources internally in order to remain more flexible and responsive than our competition to new opportunities in the market. Critical Accounting Policies We use estimates and assumptions in our financial statements in accordance with generally accepted accounting principles. Material or critical estimates that are susceptible to significant change include the determination of the allowance for loan losses and the associated provision for loan losses, and the fair market value of capitalized mortgage servicing rights, as well as deferred income taxes and the associated income tax expense. Management reviews the allowance for loan losses for adequacy on a quarterly basis and establishes a provision for loan losses that is sufficient for the loan portfolio growth expected and the loan quality of the existing portfolio. Income tax expense and deferred income taxes are calculated using an estimated tax rate and are based on management's and our tax advisor's understanding of our effective tax rate and the tax code. These estimates are reviewed by our independent auditors on an annual basis and by our regulators when they examine Home Federal. Allowance for Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. Our Asset Liability Management Committee assesses the allowance for loan losses on a quarterly basis. The Committee analyzes several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions including unemployment rates, bankruptcies and vacancy rates of business and residential properties. We believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period requiring management to make assumptions about future losses on loans; and the impact of a sudden large loss could deplete the allowance and potentially require increased provisions to replenish the allowance, which would negatively affect earnings. Our methodology for analyzing the allowance for loan losses consists of three components: formula, specific and general allowances. The formula allowance is determined by applying an estimated loss percentage to various groups of loans. The loss percentages are generally based on various historical measures such as the amount and type of classified loans, past due ratios and loss experience, which could affect the collectibility of the respective loan types. The specific allowance component is created when management believes that the collectibility of a specific large loan, such as a real estate, multi-family or commercial real estate loan, has been impaired and a loss is probable. The general allowance element relates to assets with no well-defined deficiency or weakness (i.e., assets classified pass or watch) and takes into consideration loss that is inherent within the portfolio but has not been realized. Borrowers are impacted by events well in advance of a lender's knowledge that may ultimately result in a loan default and eventual loss. Examples of such loss-causing events in the case of consumer or one- to four-family residential loans would be a borrower job loss, divorce or medical crisis. Examples in commercial or construction loans may be the loss of customers due to competition or changes in the economy. General allowances for each major loan type are determined by applying to the associated loan balance loss factors that take into consideration past loss experience, asset duration, economic conditions and overall portfolio quality. The allowance is increased by the provision for loan losses, which is charged against current period operating results and decreased by the amount of actual loan charge-offs, net of recoveries. Mortgage Servicing Rights. Mortgage servicing rights represent the present value of the future servicing fees from the right to service loans in the portfolio. The most critical accounting policy associated with mortgage servicing is the methodology used to determine the fair value of capitalized mortgage servicing rights, which requires the development of a number of estimates, the most critical of which is the mortgage loan prepayment speeds 38 assumption. The mortgage loan prepayment speeds assumption is significantly impacted by interest rates. In general, during periods of falling interest rates, the mortgage loans prepay faster and the value of our mortgage servicing asset declines. Conversely, during periods of rising rates, the value of mortgage servicing rights generally increases due to slower rates of prepayments. The amount and timing of mortgage servicing rights amortization is adjusted quarterly based on actual results and updated projections. In addition, on a quarterly basis, we perform an independent valuation review of mortgage servicing rights for potential declines in value. Based on the significance of any changes in assumptions since the preceding independent appraisal, this valuation may include an independent appraisal of the fair value of our servicing portfolio. This quarterly valuation review entails applying current assumptions to the portfolio stratified by predominant risk characteristics such as loan type, interest rate and loan term. Deferred Income Taxes. Deferred income taxes are reported for temporary differences between items of income or expense reported in the financial statements and those reported for income tax purposes. Deferred taxes are computed using the asset and liability approach as prescribed in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, a deferred tax asset or liability is determined based on the enacted tax rates that will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in an institution's income tax returns. The deferred tax provision for the year is equal to the net change in the net deferred tax asset from the beginning to the end of the year, less amounts applicable to the change in value related to investments available for sale. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. The primary differences between financial statement income and taxable income result from depreciation expense, mortgage servicing rights, loan loss reserves and dividends received from the Federal Home Loan Bank. Deferred income taxes do not include a liability for pre-1988 bad debt deductions allowed to thrift institutions which may be recaptured if the institution fails to qualify as a bank for income tax purposes in the future. Comparison of Financial Condition at March 31, 2004 and September 30, 2003 General. Our total assets increased $46.6 million, or 10.4%, to $496.8 million at March 31, 2004 compared to $450.2 million at September 30, 2003. The asset growth resulted mainly from an increase in purchases of mortgage-backed securities of $30.6 million and an increase in loans originated in our local market area of $9.4 million. This growth was funded by $28.2 million in increased deposits, $16.5 million in borrowings from the Federal Home Loan Bank of Seattle and $2.0 million in net income. We use asset and liability duration measures as a component of interest rate risk measurement. As described above, duration measures cash flows that are generated from investments, loans or deposits by weighting the present value of the cash flows according to the periods of time when the cash flows are received with the result being an average date when the cash flows are received or paid. During the six month period ended March 31, 2004, total asset duration decreased 4.1 months to 38.7 months, and liability duration decreased 2.1 months to 25.4 months for a net duration gap of 13.3 months, down 2.0 months from September 30, 2003. Assets. Total assets increased $46.6 million during the six months ended March 31, 2004. The increase was primarily concentrated in the following interest-earning asset categories: 39

Balance at Increase from March 31, 2004 September 30, 2003 Percentage Increase -------------- ------------------ ------------------- (Dollars in Thousands) Cash and amounts due from depository institutions ............. $ 15,992 $ 4,874 43.8% Securities available for sale, at fair value ....................... 6,404 964 17.7 Mortgage-backed securities, held to maturity .................... 55,033 30,608 125.3 Loans receivable, net ................ 383,950 11,321 3.0 Loans held for sale (1) .............. 3,160 (1,906) (37.6) Properties and equipment, net ........ 10,101 343 3.5

---------- (1) Loans held for sale includes one- to four-family residential loans that have been sold into the secondary market awaiting delivery to the purchaser. Cash and amounts due from depository institutions increased $4.9 million primarily as a result of an increase in customer checking account deposit clearing items that were due from other banks. In addition, teller cash on hand increased as a result of a regular weekly cash order received from the Federal Reserve at March 31, 2004. Home Federal maintains cash balances at branch and ATM locations in order to meet customer cash withdrawal needs. During the six months ended March 31, 2004, we purchased Fannie Mae and Freddie Mac mortgage-backed securities in order to leverage the balance sheet and achieve the desired level of total interest-earning assets. Mortgage-backed securities have payment characteristics that are similar to those of residential loans. The net increase of $30.6 million represented 65.7% of total asset growth. Loans receivable, net increased $11.3 million from loans originated in our local area. During the six months ended March 31, 2004, properties and equipment, net increased $343,000 net of accumulated depreciation. This increase consisted of $494,000 in costs incurred to complete the construction of our new Caldwell branch which opened in January 2004. The remaining change in properties and equipment was the result of $804,000 of depreciation expense. As part of our ongoing business activities, we remodel our existing facilities, build new branches, improve technology and improve our infrastructure in order to provide the best possible customer service. As a result of these activities, we will from time to time enter into contracts committing to various asset purchases and construction projects. At March 31, 2004, we did not have any asset purchase or construction commitments outstanding. Deposits. During the six months ended March 31, 2004, deposits increased $28.2 million. The following table details the sources of that growth:

Balance at Increase from March 31, 2004 September 30, 2003 Percentage Increase -------------- ------------------ ------------------- (Dollars in Thousands) Savings deposits ..................... $ 24,620 $ 197 0.8% Demand deposits ...................... 149,299 17,521 13.3 Certificates of deposit .............. 155,596 10,524 7.3 ----------- ----------- -------- Total deposit accounts ............... $ 329,515 $ 28,242 9.4% =========== =========== ========

40 Demand deposits increased $17.5 million during the six months ended March 31, 2004, and accounted for 62.0% of the $28.2 million in total deposit growth. Noninterest-bearing demand deposits grew $3.6 million and interest-bearing demand deposits grew $13.9 million. Certificates of deposit grew $10.5 million during the six months ended March 31, 2004. Of this growth, $1.9 million in certificates were opened in connection with the announcement of our reorganization, and the remaining $8.6 million in certificates resulted from locally advertised specials. Borrowings. We use borrowings from the Federal Home Loan Bank of Seattle as an alternative funding source to deposits to manage funding costs and reduce interest rate risk and to leverage the balance sheet. The net effect was to fund increases in total interest-earning assets, thereby incrementally increasing our net interest income. The Federal Home Loan Bank of Seattle provides term borrowings at competitive interest rates and terms ranging from overnight to 30 years. Total borrowings at March 31, 2004 were $113.1 million, an increase of $16.5 million, or 17.1%, from September 30, 2003. Equity. Total equity increased $2.0 million, or 4.8%, to $42.4 million at March 31, 2004 from $40.4 million at September 30, 2003. The source of increase in our equity was $2.0 million from net income for the six months ended March 31, 2004. Our tier 1 capital ratio was 8.46% and our total risk-based capital ratio was 13.07% at March 31, 2004. Comparison of Operating Results for the Six Months Ended March 31, 2004 and March 31, 2003 General. Our net income for the six months ended March 31, 2004 was $2.0 million, a decrease of $472,000 from the comparable period in the prior year. The decrease in net income was the result of a $213,000 decrease in net interest income, a $313,000 increase in the provision for loan losses and a $978,000 decrease in total noninterest income, offset by a reduction of $578,000 in noninterest expense and $454,000 in income tax expense. Net Interest Income. Our net interest income decreased $213,000 for the six month period ended March 31, 2004 to $8.5 million, compared to $8.7 million for the comparable period in the prior year. Average total interest-earning assets increased $37.4 million between the two six month time periods, however, a record number of loan refinances driven by historically low interest rates resulted in an 80 basis point decline in our average asset yields. During that same period, our average cost of funds declined only 33 basis points resulting in a 47 basis point reduction in our interest rate spread. Interest and Dividend Income. Total interest and dividend income for the six months ended March 31, 2004 decreased $453,000 to $13.2 million from the comparable period of the prior year. The following table compares detailed average earning asset balances, associated yields and resulting changes in interest and dividend income for the six months ended March 31, 2004 and 2003: 41

Six Months Ended March 31, --------------------------------------------------------------------------- 2004 2003 Increase/ --------------------------- --------------------------- (Decrease) in Interest and Dividend Average Average Income from Balance Yield Balance Yield 2003 ------------ ------------- ------------ ------------ ------------- (Dollars in Thousands) Loans receivable, net .......................... $ 379,533 6.21% $ 338,350 7.08% $ (210) Loans held for sale ............................ 2,927 5.65 3,316 5.95 (32) Investment securities, available for sale, including, interest-bearing deposits in other banks ................................... 6,499 2.46 9,240 1.90 (8) Mortgage-backed securities, held to maturity ................................... 38,112 5.50 39,889 6.08 (164) Federal Home Loan Bank stock ................... 6,575 4.50 5,430 6.89 (39) ------------ -------- ------------ -------- ------------- Total interest-earning assets .................. $ 433,646 6.10% $ 396,225 6.90% $ (453) ============ ======== ============ ======== =============

Average total interest-earning assets increased $37.4 million during the six months ended March 31, 2004 compared to the six months ended March 31, 2003, however we had an 80 basis point drop in the average yield on total interest-earning assets resulting in a decrease of $453,000 in total interest income. Historically low interest rates and a record number of customer loan refinances resulted in a 87 basis point reduction in the average yield on loans receivable, net and a $210,000 reduction in related interest income. Rapid repayments received on higher coupon mortgage-backed securities, and decreased reinvestment rates for purchased securities resulted in a 58 basis point reduction in the associated average yield. Interest Expense. Total interest expense for the six month period ended March 31, 2004 was $4.7 million, a decrease of $240,000 from the comparable period in the prior year. The following table details average balances, cost of funds and resulting decrease in interest expense for the six months ended March 31, 2004 and 2003:

Six Months Ended March 31, --------------------------------------------------------------------------- 2004 2003 Increase/ --------------------------- --------------------------- (Decrease) in Interest Average Average Expense from Balance Cost Balance Cost 2003 ------------ ------------- ------------ ------------ ------------- (Dollars in Thousands) Savings accounts ............................... $ 23,910 0.29% $ 23,925 0.51% $ (26) Interest-bearing demand accounts ............... 78,286 0.24 68,505 0.36 (30) Money market accounts .......................... 32,090 0.61 34,002 0.86 (49) Certificates of deposit ........................ 147,759 2.92 135,050 3.42 (149) Federal Home Loan Bank advances ................ 108,637 4.23 98,818 4.62 14 ------------ ------------- ------------ ------------ ------------- Total interest-bearing liabilities ............. $ 390,682 2.40% $ 360,300 2.73% $ (240) ============ ============= ============ ============ =============

The average balance of total interest-bearing liabilities increased $30.4 million for the six months ended March 31, 2004 compared to March 31, 2003; however, our total interest expense decreased $240,000 as a result of a 33 basis point decrease in our average total cost of funds. The average balance of certificates of deposit increased $12.7 million during the same period, however the average cost of funds decreased 50 basis points and interest expense declined $149,000. Similarly, the average balance of interest-bearing demand deposits increased $9.8 42 million, however the average cost of funds decreased 12 basis points resulting in a $30,000 reduction in related interest expense. Additionally, the average balance of money market deposits declined $1.9 million and the average cost of funds decreased 25 basis points. The current low interest rate environment has resulted in a significant reduction in our average cost of funds and total interest expense. Provision for Loan Losses. Our Asset Liability Management Committee assesses the allowance for loan losses on a quarterly basis. As described above, the Committee analyzes several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions including unemployment rates, bankruptcies and vacancy rates of business and residential properties. The following table details activity associated with the allowance for loan losses for the six month periods ended March 31, 2004 and 2003:

At or For the Six Months Ended March 31, ----------------------------- 2004 2003 ------------- ------------ (Dollars in Thousands) Provisions for loan losses ............................ $ 600 $ 287 Net charge-offs ....................................... 42 98 Allowance for loan losses ............................. 2,411 1,574 Allowance for losses as a percentage of total loans outstanding at a the end of the period ............... 0.62% 0.45% Allowance for loan losses as a percentage of nonperforming loans at end of period ................. 425.97% 517.63% Total nonaccrual and 90 days or more past due loans ... 566 304 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable ....................... 0.15% 0.09%

Our provision for loan losses for the six months ended March 31, 2004 was $600,000, an increase of $313,000 compared to the six months ended March 31, 2003. This increase is a direct result of a $262,000 increase in total nonaccrual and 90 days or more past due loans and is related to the addition a delinquent one- to four-family residential loan to nonaccrual status. The ratio of the allowance for loan losses as a percentage of nonperforming loans decreased from 517.63% at March 31, 2003 to 425.97% at March 31, 2004. Although management uses the best information available in determining the allowance for loan losses, future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions that may be beyond our control. Any increase or decrease in the provision for loan losses has a corresponding negative or positive effect on net income. Noninterest Income. Noninterest income decreased $978,000, or 18.4%, to $4.3 million for the six month period ended March 31, 2004 from the comparable period of the prior year. The following table provides a detailed analysis of the changes in the components of noninterest income: 43

Six Months Ended Increase/(Decrease) Percentage March 31, 2004 from March 31, 2003 Increase/(Decrease) ---------------- ------------------- ------------------- (Dollars in Thousands) Service fees and charges .......... $ 3,807 $ 157 4.3% Gain on sale of loans ............. 344 (243) (41.4) Increase in cash surrender value of life insurance .......... 249 48 23.9 Mortgage servicing rights, net .... (114) (842) (115.7) Other ............................. 55 (98) (64.1) ----------- ----------- ---------- Total noninterest income .......... $ 4,341 $ (978) (18.4)% =========== =========== ==========

Service fees and charges totaled $3.8 million for the six months ended March 31, 2004, an increase of $157,000, or 4.3%, over the six months ended March 31, 2003. Service fees and charges represented 87.7% of total noninterest income for the six months ended March 31, 2004, up from 68.6% for the six months ended March 31, 2003. Mortgage servicing rights, net was ($114,000) for the six months ended March 31, 2004, a decrease of $842,000 compared to the six months ended March 31, 2003. Mortgage servicing rights, net is an accounting estimate that represents the present value of the future servicing rights from the right to service mortgage loans for others. It is affected by prepayment speeds of the underlying mortgages and interest rates. In general, during periods of falling interest rates like those experienced during the six months ended March 31, 2004, mortgage loans repay faster and the value of our mortgage-servicing asset declines. On a quarterly basis, we perform an independent valuation of mortgage servicing rights in order to determine if there has been a decline in its fair market value. An independent appraisal was performed on March 31, 2004 and required us to reduce the carrying value of the mortgage-servicing asset by $230,000. Gain on the sale of loans was $344,000 for the six months ended March 31, 2004, a decrease of $243,000 from the six months ended March 31, 2003. Gain on the sale of loans is directly related to mortgage loan originations that are sold in the secondary market. The reduction in the income was the result of a $49.7 million or 56.8% reduction in the sale of mortgage loans during the six months ended March 31, 2004 as compared to the six months ended March 31, 2003. During the six months ended March 31, 2003, we experienced record loan volumes associated with customer mortgage loan refinances that were directly related to historically low interest rates. We do not expect the refinancing trend to continue at those volumes during the remaining months of our current fiscal year and our future origination activities will be more dependent on the sale of homes in the local area. Noninterest Expense. Noninterest expense decreased $578,000 during the six months ended March 31, 2004 to $9.2 million, compared to $9.8 million for the comparable period of the prior year. The following table provides an analysis of the changes in the components of noninterest expense: 44

Six Months Ended Increase/(Decrease) Percentage March 31, 2004 from March 31, 2003 Increase/(Decrease) ---------------- ---------------------- -------------------- (Dollars in Thousands) Compensation and benefits........ $ 5,340 $ (490) (8.4)% Occupancy and equipment.......... 1,375 (100) (6.8) Data processing.................. 724 59 8.9 Advertising...................... 515 (108) (17.3) Postage and supplies............. 408 44 12.1 Other............................ 856 17 2.0 --------- ---------- --------- Total noninterest expense........ $ 9,218 $ (578) (5.9)% ========= ========== =========

The $490,000 reduction in compensation and benefits accounted for the majority of the decrease in noninterest expense for the six months ended March 31, 2004. Commissions expense decreased $229,000 for the six months ended March 31, 2004. Commissions are paid to our loan originators based on residential mortgage dollar origination volumes; those volumes decreased $109.7 million, or 67.0%, for the six months ended March 31, 2004. Management intends to concentrate on mortgage loan originations generated from the sale of homes in our local market area and does not anticipate a continuation of the prior year record refinancing mortgage loan volumes for the remainder of the fiscal year ending September 30, 2004. In addition, we terminated deferred compensation plans for vice presidents resulting in a $155,000 reduction in compensation expense for the six months ended March 31, 2004. Advertising expense was $515,000 for the six months ended March 31, 2004, a $108,000 decrease from the $623,000 in expense for the six months ended March 31, 2003. The primary reason for the decrease was a $153,000 reduction in premiums paid to attract new checking account customers. Income Tax Expense. Income tax expense decreased $454,000 for the six months ended March 31, 2004 to $1.1 million from $1.6 million for the six months ended March 31, 2003. Income before income taxes was $3.1 million for the six months ended March 31, 2004, compared to $4.0 million for the six months ended March 31, 2003, a decrease of $926,000 or 23.2%. Income recognized from the increase in the cash surrender value of bank owned life insurance is not generally subject to income tax and this reduced income tax expense by $97,000 and $78,000 for the six months ended March 31, 2004 and 2003, respectively. The effective income tax rate for the six months ended March 31, 2004 was 34% for federal and 7.6% for the State of Idaho. Comparison of Financial Condition at September 30, 2003 and September 30, 2002 General. Total assets increased $33.7 million, or 8.1%, during the year ended September 30, 2003. Record mortgage loan originations, brought on by record low interest rates, provided a $54.3 million increase in loans receivable, net. Asset growth was funded by an increase of $21.5 million in deposits and $5.5 million in borrowings from the Federal Home Loan Bank of Seattle. From an asset and liability perspective, total asset duration increased 10.5 months to 42.8 months, and liability duration increased 11.5 months to 27.5 months for a net duration gap of 15.3 months, down 1.0 month from September 30, 2002. Assets. Asset growth was primarily concentrated in the following interest-earning asset categories: 45

Balance at Increase/(Decrease) Percentage September 30, 2003 from September 30, 2002 Increase/(Decrease) ------------------ ----------------------- ------------------- (Dollars in Thousands) Securities available for sale, at fair value........................ $ 5,440 $ 2,933 117.0% Mortgage-backed securities, held to maturity..................... 24,425 (19,900) (44.9) Loans receivable, net of allowance for loan losses............ 372,629 54,332 17.1 Loans held for sale................... 5,066 (7,656) (60.2) Mortgage servicing rights, net........ 3,130 1,370 77.8

During the year ended September 30, 2003, we originated $289.2 million in one- to four-family mortgage loans of which $164.3 million were sold in the secondary market and $143.3 million in principal was received from loan amortizations. We also originated $21.2 million in commercial real estate and multi-family mortgages, $32.9 million in real estate construction loans, $17.2 million in consumer loans and $1.2 million in commercial/business loans. The mortgage-backed securities portfolio decreased $19.9 million as we concentrated on residential mortgage growth. The value of mortgage servicing rights increased $1.4 million as a result of the record sales of residential mortgage loans in the secondary market. We service residential mortgage loans for Freddie Mac, Fannie Mae and the Federal Home Loan Bank of Seattle. The principal balance of the loans we service for others increased $39.9 million, or 19.4%, to $246.0 million at September 30, 2003. Deposits. During the year ended September 30, 2003, deposits increased $21.5 million, which is detailed in the following table:

Balance at Increase from September 30, 2003 September 30, 2002 Percentage Increase ------------------ ------------------ ------------------- (Dollars in Thousands) Savings deposits............ $ 24,423 $ 1,216 5.2% Demand deposits............. 131,778 5,440 4.3 Certificates of deposit..... 145,072 14,845 11.4 ---------- ----------- --------- Total deposit accounts...... $ 301,273 $ 21,501 7.7% ========== =========== =========

The majority of certificate account growth resulted from offering of the "Escalator CD," a four-year step-rate certificate of deposit with predetermined step-up rates and the customer option of a one-time penalty-free withdrawal at each six month interval until maturity. These accounts contributed $12.2 million to the $14.8 million increase in certificate accounts. Checking account growth consisted of $3.7 million in interest-bearing checking and $3.4 million in medical savings accounts, offset by a decline of $3.4 million in money market accounts. Borrowings. During the year ended September 30, 2003, $30.1 million in Federal Home Loan Bank of Seattle borrowings matured and we borrowed $35.6 million in additional Federal Home Loan Bank of Seattle advances which resulted in a net increase in borrowings of $5.5 million, or 6.1%. We took advantage of the historically low interest rate environment and borrowed funds with longer terms to maturity, increasing the duration of total borrowings from 17.3 months at September 30, 2002 to 51.4 months at September 30, 2003. In addition to extending the duration, our cost of funds decreased 21 basis points to 4.53% at the end of the fiscal year. The borrowings were used to fund a portion of the $54.3 million growth in our loans receivable, net with durations that more closely match the terms of the loans. 46 Equity. Equity increased $5.4 million from net income for the year ended September 30, 2003 offset by a small decrease related to the change in the market value of available-for-sale securities. Our Tier 1 (core) and total risk-based capital (to risk-weighted assets) ratios were 8.89% and 13.56%, respectively, at September 30, 2003. Comparison of Operating Results for the Years Ended September 30, 2003 and September 30, 2002 General. Net income for the year ended September 30, 2003 was $5.5 million, a $3.3 million or 158.9% increase from the prior year. The two primary factors that contributed to the increase in net income were: o an increase of $1.8 million in net interest income; and o an increase of $5.4 million in noninterest income. Noninterest expense increased $1.7 million and income tax expense increased $1.8 million during the year ended September 30, 2003 compared to the prior year, partially offsetting the gains in net interest and noninterest income. Net Interest Income. Net interest income for the year ended September 30, 2003 was $17.2 million, a $1.8 million increase from the prior year. Total interest and dividend income remained level with the prior year while total interest expense decreased $1.8 million. Interest rates declined during the year ended September 30, 2003. During this period, our balance sheet was liability sensitive so the decline in interest rates resulted in a more rapid repricing of our liabilities as compared to the asset side of the balance sheet. Therefore, in a declining rate environment as we experienced during the year ended September 30, 2003, interest expense declined more rapidly than interest income. As a result of these record low interest rates, increased loan prepayment rates and decreased asset reinvestment rates limited opportunities for increased yields on our assets. The same factors contributed to the significant decline in total interest expense. Interest and Dividend Income. Total interest and dividend income for the year ended September 30, 2003 remained largely unchanged from the previous year. The following table compares detailed average earning asset balances, associated yields and resulting change in interest and dividend income for the years ended September 30, 2003 and 2002:

Year Ended September 30, --------------------------------------------------------------------------- 2003 2002 Increase/ --------------------------- --------------------------- (Decrease) in Interest and Dividend Average Average Income from Balance Yield Balance Yield 2002 ------------ ------------- ------------ ------------ ------------- (Dollars in Thousands) Loans receivable, net .......................... $ 352,124 6.81% $ 301,507 7.66% $ 869 Loans held for sale ............................ 3,721 5.99 11,045 6.32 (475) Investment securities available for sale, including interest-bearing deposits in other banks ....................... 14,842 2.03 6,137 3.18 107 Mortgage-backed securities, held to maturity ................................... 33,893 6.02 41,690 6.28 (577) Federal Home Loan Bank stock ................... 5,841 6.03 4,634 6.13 68 ------------ ------------- ------------ ------------ ------------ Total interest-earning assets .................. $ 410,421 6.55% $ 365,013 7.37% $ (8) ============ ============= ============ ============ ============

47 Record low interest rates and high loan volumes from refinanced mortgage loans resulted in an 85 basis point decline in yield on our loans receivable portfolio and a 33 basis point decline in yield on our loans held for sale for the year ended September 30, 2003. However, as a result of a $43.3 million increase in the total average outstanding balances of both our loan portfolio and loans held for sale during the same time period, the combined interest income received increased by $394,000. Rapid prepayments received on higher coupon mortgage-backed securities, and decreased reinvestment rates for purchased mortgage-backed securities resulted in a 26 basis point reduction in the yield on mortgage-backed securities. The reduction in yield combined with the $7.8 million decrease in the average balance outstanding in mortgage-backed securities portfolio resulted in a $577,000 decrease in related interest income for securities. During the year ended September 30, 2003, we increased our average investment securities available for sale portfolio by $8.7 million, which resulted in a net increase of $107,000 in related interest income. Interest Expense. Total interest expense for the year ended September 30, 2003 was $9.7 million, a decrease of $1.8 million from the prior fiscal year. The following table details average balances, cost of funds and resulting change in interest expense for the years ended September 30, 2003 and 2002:

Year Ended September 30, --------------------------------------------------------------------------- 2003 2002 Increase/ --------------------------- --------------------------- (Decrease) in Interest Average Average Expense from Balance Cost Balance Cost 2002 ------------ ------------- ------------ ------------ ------------- (Dollars in Thousands) Savings deposits ............................... $ 24,354 0.43% $ 22,633 0.87% $ (94) Interest-bearing demand accounts ............... 70,956 0.27 62,773 0.87 (353) Money market accounts .......................... 33,159 0.73 36,963 1.86 (444) Certificates of deposit ........................ 139,254 3.26 129,556 4.31 (1,046) Federal Home Loan Bank advances ................ 102,173 4.53 86,577 5.14 177 ------------ ------------- ------------ ------------ ------------- Total interest-bearing liabilities ............. $ 369,896 2.62% $ 338,502 3.39% $ (1,760) ============ ============= ============ ============ =============

The total cost of funds for total interest-bearing liabilities at September 30, 2003 decreased 77 basis points from the year ended September 30, 2002. Historically low interest rates allowed us to fund balance sheet growth with a $31.4 million increase in the average balance of interest-bearing liabilities at a $1.8 million decrease in interest expense. Provision for Loan Losses. The provision for loan losses increased $338,000, or 122.0%, to $615,000 for the year ended September 30, 2003. The allowance for loan losses as a percentage of total loans outstanding increased eight basis points to 0.49% at September 30, 2003. The following table details activity and information related to the allowance for loan losses for the years ended September 30, 2003 and 2002: 48

At or For the Year Ended September 30, ---------------------------- 2003 2002 ------------ ------------ (Dollars in Thousands) Provisions for loan losses ............................... $ 615 $ 277 Net charge-offs .......................................... 147 323 Allowance for loan losses ................................ 1,853 1,385 Allowance for loan losses as a percentage of total loans outstanding at the end of period .................. 0.49% 0.41% Allowance for loan losses as a percentage of nonperforming loans at end of period .................... 1,393.23% 295.94% Total nonaccrual and 90 days or more past due loans ...... 133 468 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable .................... 0.04% 0.14% Loans receivable, net .................................... 372,629 318,297 Total loans originated ................................... $ 361,666 $ 234,547

The decrease in net charge-offs and nonaccrual and 90 days past due loans from September 30, 2002 to September 30, 2003 resulted from the completion of our work out of loan quality issues which began in 2000. During fiscal 2001, 2002 and 2003, we worked through the collection process on several one- to four-family residential construction loans and a large single-family residential loan resulting in total charge-offs of approximately $900,000. We increased our provision for loan losses for the year ended September 30, 2003 compared to the prior year in connection with the unseasoned nature of our loan portfolio that resulted from a record volume of refinanced mortgage loans. Total loan originations were $234.5 million and $361.7 million during the years ended September 30, 2002 and 2003, respectively. In management's judgment, this resulted in an increase in the level of unseasoned loans within the loan portfolio thereby increasing the inherent risk of loss to Home Federal. As a result, management increased the general allowance to allow for the additional inherent risk of the loan portfolio. Noninterest Income. Noninterest income increased $5.4 million, or 94.0%, during the year ended September 30, 2003 from the prior year. The following table provides a detailed analysis of the changes in components of noninterest income:

Year Ended Increase from September 30, 2003 September 30, 2002 Percentage Increase ------------------ ------------------ ------------------- (Dollars in Thousands) Service fees and charges ......................... $ 8,120 $ 2,155 36.1% Gain on sale of loans ............................ 1,044 368 54.4 Increase in cash surrender value of life insurance ............................... 601 185 44.5 Mortgage servicing rights, net ................... 1,370 2,417 230.9 Other ............................................ 53 296 121.8 ------------ ----------- -------- Total noninterest income ......................... $ 11,188 $ 5,421 94.0% ============ =========== ========

Mortgage servicing rights, net increased $2.4 million as a result of a 77.1% increase in residential mortgage loan sales on the secondary market and a $1.5 million impairment of the mortgage servicing rights for the year ended September 30, 2002. An impairment is recorded when the market value of the mortgage servicing asset is reduced as a result of market conditions. In general, during periods of falling interest rates, mortgage loans prepay rapidly and the value of mortgage servicing assets declines. We contracted with an outside appraisal firm in order to establish the market value for our mortgage servicing rights for fiscal years 2002 and 2003. 49 Service fees and charges increased by $2.2 million during the year ended September 30, 2003 compared to fiscal 2002. The increase resulted mainly from $915,000 in increased debit card fees and $814,000 in increased checking account fees. Gain on sale of loans increased $368,000 in fiscal 2003 as a result of a $71.5 million increase in loans sold on the secondary market. Residential loan sales for fiscal 2003 amounted to $164.3 million, compared to $92.8 million for fiscal 2002. Noninterest Expense. Noninterest expense increased $1.7 million during the year ended September 30, 2003 from the prior fiscal year. The following table provides a detailed breakdown of the components of noninterest expense for fiscal 2003 and the increases or decreases from the prior year:

Year Ended Increase from September 30, 2003 September 30, 2002 Percentage Increase ------------------ ------------------ ------------------- (Dollars in Thousands) Compensation and benefits.......... $ 10,980 $ 938 9.3% Occupancy and equipment............ 2,909 119 4.3 Data processing.................... 1,366 369 37.0 Advertising........................ 1,256 92 7.9 Other.............................. 2,374 189 8.6 ---------- --------- ---------- Total noninterest expense.......... $ 18,885 $ 1,707 9.9% ========== ========= ==========

Compensation and benefits increased $938,000 for the year ended September 30, 2003 compared to the prior year. Sales commissions paid to our mortgage loan officers and originators increased $279,000 due to an increase of $127.5 million in total real estate loan originations. Retirement expense increased $572,000 based on the cumulative increased vesting of non-qualified retirement plan participants and a $120,000 adjustment to the director indexed retirement plans. Data processing expense increased $369,000 primarily due to increased expenses for computer software maintenance of $97,000, internet banking of $88,000 and debit cards of $129,000. Other expenses increased $189,000 for the year ended September 30, 2003 from the prior year. Professional services, included in other expenses, increased $167,000 primarily as a result of increased audit fees of $42,000, fees for commercial loan reviews of $34,000 and consulting fees of $32,000 related to the implementation of our performance-based compensation system. Income Tax Expense. Income tax expense increased $1.8 million during the year ended September 30, 2003 compared to fiscal 2002. Income tax expense increased primarily as a result of a $5.1 million increase in net income before tax. Income recognized from the increase in the cash surrender value of bank owned life insurance is not generally subject to income tax. This reduced income tax expense by $243,000 for the year ended September 30, 2003 and $162,000 for the year ended September 30, 2002. The effective income tax rate is 34.0% for federal and 7.6% for the State of Idaho. Comparison of Operating Results for the Years Ended September 30, 2002 and September 30, 2001 General. Net income for the year ended September 30, 2002 was $2.1 million, a $319,000 or 17.8% increase over the prior year. Net Interest Income. Net interest income increased $3.4 million during the year ended September 30, 2002 from the prior year. Interest and dividend income increased $390,000 as a result of the increase in 50 interest-earning assets offset by the decline in interest rates. In addition, interest expense decreased $3.0 million as a result of the decline in interest rates. Interest and Dividend Income. Total interest and dividend income for the year ended September 30, 2002 increased $390,000 from the prior year. The following table compares detailed average earning asset balances and associated yields for the years ended September 30, 2002 and 2001:

Year Ended September 30, --------------------------------------------------------------------------- 2002 2001 Increase/ --------------------------- --------------------------- (Decrease) in Interest and Dividend Average Average Income from Balance Yield Balance Yield 2001 ------------ ------------- ------------ ------------ ------------- (Dollars in Thousands) Loans receivable, net .......................... $ 301,507 7.66% $ 267,532 8.46% $ 480 Loans held for sale ............................ 11,045 6.32 7,074 7.21 188 Investment securities, available for sale, including interest-bearing deposits in other banks ....................... 6,137 3.18 5,945 5.08 (107) Mortgage-backed securities, held to maturity ................................... 41,690 6.28 42,041 6.68 (193) Federal Home Loan Bank stock ................... 4,634 6.13 3,852 6.80 22 ------------ ------------- ------------ ------------ ------------- Total interest-earning assets .................. $ 365,013 7.37% $ 326,444 8.12% $ 390 ============ ============= ============ ============ =============

Declining interest rates and strong loan volumes at lower rates resulted in an 80 basis point decrease in the yield on the loans receivable portfolio and an 89 basis point decrease on the loans held for sale for the year ended September 30, 2002. Average balances in loans receivable and loans held for sale increased $34.0 million and $4.0 million, respectively, offset by decreases in yields, resulting in increases of only $480,000 and $188,000, respectively, in interest income from loans receivable. Increasing prepayment rates on higher coupon mortgage-backed securities resulted in a 40 basis point reduction in the yield on mortgage-backed securities. The reduction in yield in addition to the $351,000 decrease in the average outstanding balances resulted in a $193,000 decrease in interest income for the securities. We increased the average portfolio of available-for-sale investment securities and interest-bearing deposits in other banks $192,000, however, the 190 basis point decrease in yield resulted in a $107,000 decrease in income from the investment securities. Interest Expense. Total interest expense for the year ended September 30, 2002 was $11.5 million, a decrease of $3.0 million from the prior fiscal year. The following table details average balances, cost of funds and resulting change in interest expense for the years ended September 30, 2002 and 2001: 51

Year Ended September 30, --------------------------------------------------------------------------- Increase/ 2002 2001 (Decrease) in --------------------------- --------------------------- Interest Average Average Expense from Balance Cost Balance Cost 2002 ------------ ------------- ------------ ------------ ------------- (Dollars in Thousands) Savings deposits ............................... $ 22,633 0.87% $ 23,078 2.11% $ (289) Interest-bearing demand deposits ............... 62,773 0.87 53,735 1.89 (468) Money market demand deposits ................... 36,963 1.86 25,839 3.75 (283) Certificates of deposit ........................ 129,556 4.31 130,362 5.97 (2,194) Federal Home Loan Bank advances ................ 86,577 5.14 66,910 6.32 219 ------------ ------------- ------------ ------------ ------------- Total interest-bearing liabilities ............. $ 338,502 3.39% $ 299,924 4.83% $ (3,015) ============ ============= ============ ============ =============

The total cost of funds of total interest-bearing liabilities for the year ended September 30, 2002 decreased 144 basis points from the year ended September 30, 2001. A rapidly declining interest rate environment allowed us to increase average liability funding balance $38.6 million, while reducing interest expense $3.0 million. The average balance in certificates of deposit decreased $806,000 and the associated cost of funds declined 166 basis points for a $2.2 million decrease in interest expense. The average balance in interest-bearing demand deposits increased $9.0 million in 2002 while the average cost of funds fell 102 basis points for a decrease of $468,000 in interest expense. Provision for Loan Losses. The following table details activity and information related to the provision for loan losses for the years ended September 30, 2002 and 2001:

At or For the Year Ended September 30, ---------------------------- 2002 2001 ------------ ------------ (Dollars in Thousands) Provisions for loan losses ............................ $ 277 $ 748 Net charge-offs ....................................... 323 446 Allowance for loan losses ............................. 1,385 1,431 Allowance for loan losses as a percentage of total loans outstanding at the end of period ............... 0.41% 0.47% Allowance for loan losses as a percentage of nonperforming loans at end of period ................. 295.94% 48.21% Total nonaccrual and 90 days or more past due loans ... 468 3,658 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable .................. 0.14% 1.22% Loans receivable, net ................................. 318,297 289,385 Total real estate construction loans .................. $ 14,570 $ 25,247

The provision for loan losses decreased from $748,000 for the year ended September 30, 2001 to $277,000 for the year ended September 30, 2002. This decrease was the result of improved loan quality in our loan portfolio. At September 30, 2001, we were in the process of working out several one- to four-family residential construction loans with aggregate loan balances of over $2.0 million. During the year ended September 30, 2002, we completed the work out of these loan problems as evidenced by the significant reduction in the total of nonaccrual loans and loans 90 days past due loans from $3.7 million at September 30, 2001 to $468,000 at September 30, 2002. 52 The decrease in the provision is also the result of a 42.3%, or $10.7 million, reduction in total real estate construction loans outstanding at September 30, 2002 as compared to September 30, 2001. Real estate construction loans have greater credit risk than permanent one- to four-family residential loans and therefore are given a greater weight in determining the allowance for loan loss analysis. This analysis is performed by management on a quarterly basis. Noninterest Income. Noninterest income decreased $552,000 during the year ended September 30, 2002 from the prior year. The following table provides a detailed analysis of the changes in components of noninterest income:

Year Ended Increase/(Decrease) from Percentage September 30, 2002 September 30, 2001 Increase/(Decrease) ------------------ ------------------------ ------------------- (Dollars in Thousands) Service fees and charges ............. $ 5,965 $ 1,201 25.2% Gain on sale of loans ................ 676 390 136.4 Increase in cash surrender value of life insurance ................... 416 84 25.3 Mortgage servicing rights, net ....... (1,047) (1,925) (219.2) Other ................................ (243) (302) (511.9) ----------- ------------ --------- Total noninterest income ............. $ 5,767 $ (552) (8.7)% =========== ============ =========

Mortgage servicing rights, net decreased $1.9 million due in part to a $1.5 million impairment of the mortgage servicing rights for the year ended September 30, 2002 and a decline in the valuation of mortgage servicing rights for mortgage loan production for the same year. We contracted with an outside appraisal firm in order to establish the market value for our mortgage servicing rights for fiscal year 2002. Service fees and charges increased by $1.2 million during the year ended September 30, 2002 compared to fiscal 2001. The increase resulted primarily from increased checking account fees. Gain on sale of loans increased $390,000 in fiscal 2002 as the result of a $22.9 million increase in loans sold on the secondary market. Residential loan sales for fiscal 2002 were $92.8 million. Noninterest Expense. Noninterest expense increased $2.6 million during year ended September 30, 2002 from the prior fiscal year. The following table provides a detailed breakdown of the components of noninterest expense for fiscal 2002 and the increases or decreases from the prior year:

Year Ended Increase/(Decrease) from Percentage September 30, 2002 September 30, 2001 Increase/(Decrease) ------------------ ------------------------ ------------------- (Dollars in Thousands) Compensation and benefits........... $ 10,042 $ 1,787 21.6% Occupancy and equipment............. 2,790 437 18.6 Data processing..................... 997 191 23.7 Advertising......................... 1,164 126 12.1 Other............................... 2,185 43 2.0 ----------- ---------- --------- Total noninterest expense........... $ 17,178 $ 2,584 17.7% =========== ========== =========

Compensation and benefits expense increased $1.8 million as a result of increased salary expense of $963,000, incentive and commissions of $386,000, payroll taxes of $115,000, medical and dental insurance of $116,000, training of $59,000, and other items, net of $112,000. The increase in salary expense is attributable to the 53 opening of eight new Wal-Mart in-store branch locations starting in August 2001 through September 30, 2002. Data processing expense increased during the year ended September 30, 2002 as a result of higher internet banking expense and debit card fees. Income Tax Expense. Income tax expense for the year ended September 30, 2002 increased $421,000 from the prior fiscal year. Income tax expense increased primarily a result of higher net income before tax (up $740,000). The effective income tax rate was 34.0% for federal and 7.6% for the State of Idaho in 2002 and 8.0% in 2001. Impact of Benefit Plans Following the completion of the stock offering, we will have an employee stock ownership plan. We also intend to adopt, subject to stockholder approval, a restricted stock plan and a stock option plan. The implementation of the employee stock ownership plan and the restricted stock plan will affect our results of operations as a component of employee compensation expense. The employee stock ownership plan will result in employee compensation expense equal to the current market price of the shares being released and allocated to the participants in the plan for that year. The effect the restricted stock plan will have on employee compensation expense will be equal to the current market price of the shares being awarded to the employees receiving the shares recognized as compensation expense over the vesting period of the shares. Home Federal may currently elect to account for stock option awards issued to employees under Accounting Principles Board Opinion No. 25, which requires recognition of compensation expense based on the intrinsic value of the award at the measurement date, which is generally the date of grant. The intrinsic value is equal to the difference between the current market price of the stock and the exercise prices of the stock option award. Because the options to be issued are intended to have an exercise price equal to the current market price of the stock, there will be no compensation expense recognized on these awards. See "Pro Forma Data." 54 Average Balances, Interest and Average Yields/Cost The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances have been calculated using the average of daily balances during the period. Interest and dividends are reported on a tax-equivalent basis. During the time periods presented, we did not own any tax-exempt investment securities.

Six Months Ended March 31, ---------------------------------------------------------------------------------------- 2004 2003 --------------------------------------------------- --------------------------------- Interest Interest Average and Yield/ Average and Balance (1) Dividends Cost (2) Balance (1) Dividends --------------- --------------- ------------ --------------- --------------- (Dollars in Thousands) Interest-earning assets: Loans receivable, net .............. $ 379,533 $ 11,776 6.21% $ 338,350 $ 11,986 Loans held for sale ................ 2,927 165 5.65 3,316 197 Investment securities, available for sale, including interest- bearing deposits in other banks .................... 6,499 80 2.46 9,240 88 Mortgage-backed securities, held to maturity ................. 38,112 1,048 5.50 39,889 1,212 Federal Home Loan Bank stock ....... 6,575 148 4.50 5,430 187 --------------- --------------- --------------- --------------- Total interest-earning assets..... 433,646 13,217 6.10 396,225 13,670 --------------- --------------- Noninterest earning assets ........... 36,902 34,176 --------------- --------------- Total average assets ............... $ 470,548 $ 430,401 =============== =============== Interest-bearing liabilities: Savings deposits ................... $ 23,910 $ 35 0.29 $ 23,925 $ 61 Interest-bearing demand deposits ... 78,286 93 0.24 68,505 123 Money market accounts .............. 32,090 98 0.61 34,002 147 Certificates of deposit ............ 147,759 2,157 2.92 135,050 2,306 --------------- --------------- ------------ --------------- --------------- Total deposits ................... 282,045 2,383 1.69 261,482 2,637

Six Months Ended Year Ended March 31, September 30, --------------- ---------------------------------------------------------------------- 2003 2003 2002 --------------- --------------------------------------------------- --------------- Interest Yield/ Average and Yield/ Average Cost (2) Balance (1) Dividends Cost Balance (1) --------------- --------------- --------------- -------------- --------------- Interest-earning assets: Loans receivable, net .............. 7.08% $ 352,124 $ 23,979 6.81% $ 301,507 Loans held for sale ................ 5.95 3,721 223 5.99 11,045 Investment securities, available for sale, including interest- bearing deposits in other banks .................... 1.90 14,842 302 2.03 6,137 Mortgage-backed securities, held to maturity ................. 6.08 33,893 2,040 6.02 41,690 Federal Home Loan Bank stock ....... 6.89 5,841 352 6.03 4,634 --------------- --------------- --------------- Total interest-earning assets..... 6.90 410,421 26,896 6.55 365,013 --------------- --------------- Noninterest earning assets ........... 33,985 35,237 --------------- --------------- Total average assets ............... $ 444,406 $ 400,250 =============== =============== Interest-bearing liabilities: Savings deposits ................... 0.51 $ 24,354 104 0.43 $ 22,633 Interest-bearing demand deposits ... 0.36 70,956 194 0.27 62,773 Money market accounts .............. 0.86 33,159 242 0.73 36,963 Certificates of deposit ............ 3.42 139,254 4,540 3.26 129,556 --------------- --------------- --------------- -------------- --------------- Total deposits ................... 2.02 267,723 5,080 1.90 251,925

Year Ended September 30, ----------------------------------------------------------------------------------------- 2002 2001 ---------------------------------- --------------------------------------------------- Interest Interest and Yield/ Average and Yield/ Dividends Cost Balance (1) Dividends Cost --------------- ------------- --------------- --------------- --------------- Interest-earning assets: Loans receivable, net .............. $ 23,110 7.66% $ 267,532 $ 22,630 8.46% Loans held for sale ................ 698 6.32 7,074 510 7.21 Investment securities, available for sale, including interest- bearing deposits in other banks .................... 195 3.18 5,945 302 5.08 Mortgage-backed securities, held to maturity ................. 2,617 6.28 42,041 2,810 6.68 Federal Home Loan Bank stock ....... 284 6.13 3,852 262 6.80 --------------- --------------- --------------- --------------- Total interest-earning assets..... 26,904 7.37 326,444 26,514 8.12 --------------- --------------- Noninterest earning assets ........... 30,498 --------------- Total average assets ............... $ 356,942 =============== Interest-bearing liabilities: Savings deposits ................... 198 0.87 $ 23,078 487 2.11 Interest-bearing demand deposits ... 547 0.87 53,735 1,015 1.89 Money market accounts .............. 686 1.86 25,839 969 3.75 Certificates of deposit ............ 5,586 4.31 130,362 7,780 5.97 --------------- ------------- --------------- --------------- --------------- Total deposits ................... 7,017 2.79 233,014 10,251 4.40

(table continues on following page) 55

Six Months Ended March 31, ------------------------------------------------------------------------ 2004 2003 ----------------------------------- ---------------------------------- Interest Interest Average and Yield/ Average and Yield/ Balance (1) Dividends Cost (2) Balance (1) Dividends Cost (2) ----------- --------- -------- ----------- --------- -------- (Dollars in Thousands) Federal Home Loan Bank advances....... 108,637 2,299 4.23 98,818 2,285 4.62 ----------- --------- -------- ----------- --------- -------- Total interest-bearing liabilities.... 390,682 4,682 2.40 360,300 4,922 2.73 Noninterest-bearing liabilities....... 38,218 32,209 ----------- ----------- Total average liabilities........... 428,900 392,509 Average equity........................ 41,648 37,892 ----------- ----------- Total liabilities and equity........ $ 470,548 $ 430,401 =========== =========== Net interest income................... $ 8,535 $ 8,748 Interest rate spread.................. 3.70% 4.17% Net interest margin (3)............... 3.94% 4.42% Ratio of average interest-earning assets to average interest-bearing liabilities.......................... 111.00% 109.97%

Year Ended September 30, ------------------------------ ------------------------------ ------------------------------ 2003 2002 2001 ------------------------------ ------------------------------ ------------------------------ Interest Interest Interest Average and Yield/ Average and Yield/ Average and Yield/ Balance (1) Dividends Cost Balance (1) Dividends Cost Balance (1) Dividends Cost ----------- --------- ------ ----------- --------- ------ ----------- --------- ------ (Dollars in Thousands) Federal Home Loan Bank advances..... 102,173 4,625 4.53 86,577 4,448 5.14 66,910 4,229 6.32 ----------- --------- ------ ----------- --------- ------ ----------- --------- ------ Total interest-bearing liabilities 369,896 9,705 2.62 338,502 11,465 3.39 299,924 14,480 4.83 Noninterest-bearing liabilities..... 33,769 26,781 24,163 ----------- ----------- ----------- Total average liabilities......... 403,665 365,283 324,087 Average equity...................... 40,741 34,967 32,855 ----------- ----------- ----------- Total liabilities and equity...... $ 444,406 $ 400,250 $ 356,942 =========== =========== =========== Net interest income................. 17,191 15,439 12,034 Interest rate spread................ 3.93% 3.98% 3.29% Net interest margin (3)............. 4.19% 4.23% 3.69% Ratio of average interest-earning assets to average interest-bearing liabilities........................ 110.96% 107.83% 108.84%

---------- (1) The average loans receivable, net balances include non-accruing loans. (2) Rates for the three months have been annualized. (3) Net interest margin, otherwise known as yield on interest earning assets, is calculated as net interest income divided by average interest-earning assets. 56 Yields Earned and Rates Paid The following table sets forth (on a consolidated basis) for the periods and at the dates indicated, the weighted average yields earned on our assets, the weighted average interest rates paid on our liabilities, together with the net yield on interest-earning assets.

At Six Months Ended March 31, March 31, Year Ended September 30, --------- ---------------- -------------------------- 2004 2004 2003 2003 2002 2001 --------- ------ ------ ------ ------ ------ Weighted average yield on: ....................... Loans receivable, net .......................... 6.02% 6.21% 7.08% 6.81% 7.66% 8.46% Loans held for sale ............................ 5.44 5.65 5.95 5.99 6.32 7.21 Investment securities, available for for sale, including interest-bearing deposits in other banks ....................... 2.33 2.46 1.90 2.03 3.18 5.08 Mortgage-backed securities, held to maturity ................................... 5.23 5.50 6.08 6.02 6.28 6.68 Federal Home Loan Bank stock ................... 4.00 4.50 6.89 6.03 6.13 6.80 Total interest-earning assets ................ 5.84 6.10 6.90 6.55 7.37 8.12 Weighted average rate paid on: Savings deposits ............................... 0.20 0.29 0.51 0.43 0.87 2.11 Interest-bearing demand deposits ............... 0.26 0.24 0.36 0.27 0.87 1.89 Money market accounts .......................... 0.64 0.61 0.86 0.73 1.86 3.75 Certificates of deposit ........................ 2.60 2.92 3.42 3.26 4.31 5.97 Total average deposits ....................... 1.52 1.69 2.02 1.90 2.79 4.40 Federal Home Loan Bank advances ................ 4.08 4.23 4.62 4.53 5.14 6.32 Total interest-bearing liabilities ........... 2.22 2.40 2.73 2.62 3.39 4.83 Interest rate spread (spread between weighted average rate on all interest-earning assets and all interest-bearing liabilities) ................... 3.62 3.70 4.17 3.93 3.98 3.29 Net interest margin (net interest income (expense) as a percentage of average interest-earning assets) ............. N/A 3.94 4.42 4.19 4.23 3.69

57 Rate/Volume Analysis The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to: (1) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (2) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (3) changes in rate/volume are allocated proportionately to the changes in rate and volume.

Six Months Ended March 31, 2004 Compared to Six Months Year Ended September 30, 2003 Ended March 31, 2003 Compared to September 30, 2002 Increase (Decrease) Increase (Decrease) Due to Due to ---------------------------------- -------------------------------- Rate Volume Total Rate Volume Total ---------- -------- -------- -------- -------- -------- (In Thousands) Interest-earning assets: Loans receivable, net .............. $ (10,777) $ 10,567 $ (210) $ (1,721) $ 2,590 $ 869 Loans held for sale ................ (9) (23) (32) (36) (439) (475) Investment securities, available for sale, including interest-bearing deposits in other banks ........... -- (8) (8) (36) 143 107 Mortgage-backed securities, held to maturity ...................... (112) (52) (164) (104) (473) (577) Federal Home Loan Bank stock ....... (98) 59 (39) (5) 73 68 ---------- -------- -------- -------- -------- -------- Total net change in income on interest-earning assets ............. $ (10,996) $ 10,543 $ (453) $ (1,902) $ 1,894 $ (8) ========== ======== ======== ======== ======== ======== Interest-bearing liabilities: Savings deposits ................... $ (26) $ -- $ (26) $ (110) $ 16 $ (94) Interest-bearing demand deposits ... (53) 23 (30) (436) 83 (353) Money market accounts .............. (41) (8) (49) (380) (64) (444) Certificates of deposit ............ (423) 274 (149) (1,510) 464 (1,046) ---------- -------- -------- -------- -------- -------- Total average deposits ........... (543) 289 (254) (2,436) 499 (1,937) Federal Home Loan Bank advances .... (82) 96 14 (344) 521 177 ---------- -------- -------- -------- -------- -------- Total net change in expense on interest-bearing liabilities ....... $ (625) $ 385 $ (240) $ (2,780) $ 1,020 $ (1,760) ========== ======== ======== ======== ======== ======== Net change in net interest income .... $ (213) $ 1,752 ======== ========

Year Ended September 30, 2002 Compared to September 30, 2001 Increase (Decrease) Due to -------------------------------- Rate Volume Total -------- -------- -------- Interest-earning assets: Loans receivable, net .............. $ (1,360) $ 1,840 $ 480 Loans held for sale ................ (53) 241 188 Investment securities, available for sale, including interest-bearing deposits in other banks ........... (117) 10 (107) Mortgage-backed securities, held to maturity ...................... (170) (23) (193) Federal Home Loan Bank stock ....... (21) 43 22 -------- -------- -------- Total net change in income on interest-earning assets ............. $ 1,721 $ 2,111 $ 390 ======== ======== ======== Interest-bearing liabilities: Savings deposits ................... $ (280) $ (9) $ (289) Interest-bearing demand deposits ... (680) 212 (468) Money market accounts .............. (1,916) 1,633 (283) Certificates of deposit ............ (2,146) (48) (2,194) -------- -------- -------- Total average deposits ........... (5,023) 1,789 (3,234) Federal Home Loan Bank advances .... (384) 603 219 -------- -------- -------- Total net change in expense on interest-bearing liabilities ....... $ (5,407) $ 2,392 $ (3,015) ======== ======== ======== Net change in net interest income .... $ 3,405 ======== 58 Asset and Liability Management and Market Risk General. Our Board of Directors has established an asset and liability management policy to guide management in maximizing net interest rate spread by managing the differences in terms between interest-earning assets and interest-bearing liabilities while maintaining acceptable levels of liquidity, capital adequacy, interest rate sensitivity, credit risk and profitability. The policy includes the use of an Asset Liability Management Committee whose members include certain members of senior management. The Committee's purpose is to communicate, coordinate and manage our asset/liability positions consistent with our business plan and Board-approved policies, as well as to price savings and lending products, and to develop new products. The Asset Liability Management Committee meets weekly to review various areas including: o economic conditions; o interest rate outlook; o asset/liability mix; o interest rate risk sensitivity; o current market opportunities to promote specific products; o historical financial results; o projected financial results; and o capital position. The Committee also reviews current and projected liquidity needs, although not necessarily on a weekly basis. As part of its procedures, the Asset Liability Management Committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential change in market value of portfolio equity that is authorized by the Board of Directors. Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk. How We Measure the Risk of Interest Rate Changes. We measure our interest rate sensitivity on a monthly basis utilizing an internal model. Management uses various assumptions to evaluate the sensitivity of our operations to changes in interest rates. Although management believes these assumptions are reasonable, the interest rate sensitivity of our assets and liabilities on net interest income and the market value of portfolio equity could vary substantially if different assumptions were used or actual experience differs from such assumptions. Although certain assets and liabilities may have similar maturities or periods of repricing, they may react differently to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities lag behind changes in market interest rates. Non-uniform changes and fluctuations in market interest rates across various maturities will also affect the results presented. In addition, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed. The assumptions we use are based upon proprietary and market data and reflect historical results and current market 59 conditions. These assumptions relate to interest rates, prepayments, deposit decay rates and the market value of certain assets under the various interest rate scenarios. An independent service was used to provide market rates of interest and certain interest rate assumptions to determine prepayments and maturities of loans, investments and borrowings, and used its own assumptions on deposit decay rates except for time deposits. Time deposits are modeled to reprice to market rates upon their stated maturities. We assumed that non-maturity deposits can be maintained with rate adjustments not directly proportionate to the change in market interest rates. Our historical deposit decay rates were used, which are substantially lower than market decay rates. In the past, we have demonstrated that the tiering structure of our deposit accounts during changing rate environments results in relatively low volatility and less than market rate changes in our interest expense for deposits. Our deposit accounts are tiered by balance and rate, whereby higher balances within an account earn higher rates of interest. Therefore, deposits that are not very rate sensitive (generally, lower balance tiers) are separated from deposits that are rate sensitive (generally, higher balance tiers). When interest rates rise, we do not have to raise interest rates proportionately on less rate sensitive accounts to retain these deposits. These assumptions are based upon an analysis of our customer base, competitive factors and historical experience. The Office of Thrift Supervision provides us with the information presented in the following table, which is based on information we have provided to the Office of Thrift Supervision in determining our interest rate sensitivity. The table shows the change in our net portfolio value at March 31, 2004 that would occur upon an immediate change in interest rates based on the Office of Thrift Supervision assumptions, but without giving effect to any steps that we might take to counteract that change. The net portfolio value is calculated based upon the present value of the discounted cash flows from assets and liabilities. The difference between the present value of assets and liabilities is the net portfolio value and represents the market value of equity for the given interest rate scenario. Net portfolio value is useful for determining, on a market value basis, how much equity changes in response to various interest rate scenarios. Large changes in net portfolio value reflect increased interest rate sensitivity and generally more volatile earnings streams.

Net Portfolio as % of Net Portfolio Value ("NPV") Portfolio Value of Assets ---------------------------------- --------------------------- Basis Point Asset Market Change in Rates Amount $ Change (1) % Change NPV Ratio (2) % Change (3) Value --------------- --------- ------------ -------- ------------- ----------- ------------ (Dollars in Thousands) 300 $ 35,396 $ (16,939) (32.37)% 7.38% (2.80)% $ 479,524 200 42,344 (9,991) (19.09) 8.61 (1.56) 491,722 100 48,386 (3,949) (7.55) 9.61 (0.57) 503,477 0 52,335 -- -- 10.18 Base 514,088 (100) 53,071 736 1.41 10.18 -- 521,085 (200) 57,707 5,372 10.26 10.84 0.66 532,551 (300) 57,330 4,995 9.54 10.65 0.47 538,214 Pre-Shock NPV Ratio 10.18 Post-Shock NPV Ratio 8.61 Static Sensitivity Measure - decline in NPV Ratio 1.56 Policy Maximum 3.00%

---------- (1) Represents the increase (decrease) of the estimated net portfolio value at the indicated change in interest rates compared to the net portfolio value assuming no change in interest rates. (2) Calculated as the estimated net portfolio value divided by the portfolio value of total assets. (3) Calculated as the increase (decrease) of the net portfolio value ratio assuming the indicated change in interest rates over the estimated net portfolio value ratio assuming no change in interest rates. 60 The following table illustrates the change in net interest income at March 31, 2004 that would occur in the event of an immediate change in interest rates, with no effect given to any steps that might be taken to counter the effect of that change in interest rates. Net Interest Income ------------------------------------ Basis Point Change in Rates Amount $ Change (1) % Change --------------- --------- ------------ ---------- (Dollars in Thousands) 300 $ 18,802 $ (167) (0.88)% 200 18,923 (46) (0.24) 100 19,033 64 (0.34) 0 18,969 Base Base (100) 18,454 (515) (2.71) (200) 17,782 (1,187) (6.26) (300) 16,842 (2,127) (11.21) -------- (1) Represents the decrease of the estimated net interest income at the indicated change in interest rates compared to net interest income assuming no change in interest rates. We use certain assumptions in assessing our interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in the market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table. Liquidity and Commitments We are required to have enough cash flow in order to maintain sufficient liquidity to ensure a safe and sound operation. Historically, we have maintained cash flow above the minimum level believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. On a quarterly basis, we review and update cash flow projections to ensure that adequate liquidity is maintained. Our primary sources of funds are from customer deposits, loan repayments, loan sales, maturing investment securities and advances from the Federal Home Loan Bank of Seattle. These funds, together with retained earnings and equity, are used to make loans, acquire investment securities and other assets, and fund continuing operations. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by the level of interest rates, economic conditions and competition. We believe that our current liquidity position, and our forecasted operating results are sufficient to fund all of our existing commitments. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or mortgage-backed securities. On a longer term basis, we maintain a strategy of investing in various lending products as described in greater detail under "Business of Home Federal - Lending Activities." At March 31, 2004, the total approved loan origination 61 commitments outstanding amounted to $12.0 million. At the same date, unused lines of credit were $19.0 million. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities. Certificates of deposit scheduled to mature in one year or less at March 31, 2004 totaled $57.4 million. Although the average cost of deposits has decreased throughout fiscal 2003, management's policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing deposits will remain with Home Federal. In addition, we had the ability at March 31, 2004 to borrow an additional $85.6 million from the Federal Home Loan Bank of Seattle as a funding source to meet commitments and for liquidity purposes. We measure our liquidity based on our ability to fund our assets and to meet liability obligations when they come due. Liquidity (and funding) risk occurs when funds cannot be raised at reasonable prices, or in a reasonable time frame, to meet our normal or unanticipated obligations. We regularly monitor the mix between our assets and our liabilities to manage effectively our liquidity and funding requirements. Our primary source of funds is our deposits. When deposits are not available to provide the funds for our assets, we use alternative funding sources. These sources include, but are not limited to: cash management from the Federal Home Loan Bank of Seattle, wholesale funding, brokered deposits, federal funds purchased and dealer repurchase agreements, as well as other short-term alternatives. Alternatively, we may also liquidate assets to meet our funding needs. On a quarterly basis, we estimate our liquidity sources and needs for the coming three-month, six-month, and one-year time periods. Also, we determine funding concentrations and our need for sources of funds other than deposits. This information is used by our Asset Liability Management Committee in forecasting funding needs and investing opportunities. Capital Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a "well capitalized" institution in accordance with regulatory standards. Total equity capital was $42.4 million at March 31, 2004, or 8.5%, of total assets on that date. As of March 31, 2004, we exceeded all regulatory capital requirements. Our regulatory capital ratios at March 31, 2004 were as follows: Tier 1 capital 8.5%; Tier 1 (core) risk-based capital 13.1%; and total risk-based capital 13.8%. The regulatory capital requirements to be considered well capitalized are 5%, 6% and 10%, respectively. See "How We Are Regulated - Regulation and Supervision of Home Federal - Capital Requirements." Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission rules, and have not had any such arrangements during the six months ended March 31, 2004 or the three years ended September 30, 2003. Impact of Inflation The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles generally 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. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. The primary impact of inflation is reflected in the increased cost of our operations. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods 62 and services. In a period of rapidly rising interest rates, the liquidity and maturity structures of our assets and liabilities are critical to the maintenance of acceptable performance levels. The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of noninterest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in dollar value of the collateral securing loans that we have made. Our management is unable to determine the extent, if any, to which properties securing loans have appreciated in dollar value due to inflation. Recent Accounting Pronouncements During 2003, the Financial Accounting Standard Board issued the following accounting standards related to the financial services industry: Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standard Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement is effective for certain contracts entered into or modified after June 30, 2003, and for certain hedging relationships designated after June 30, 2003. Implementation of this Statement is not expected to have a material impact on our financial position or results of operations. Statement of Financial Accounting Standard No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. Implementation of this Statement is not expected to have a material impact on our financial position or results of operations. Financial Accounting Standards Board Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation requires the guarantor to recognize as a liability the fair value of the obligation at the inception of the guarantee. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The recognition provisions are to be applied on a prospective basis to guarantees issued after December 31, 2002. The adoption of the recognition provisions of this Interpretation has not had a material impact on our financial statements or results of operations. Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities." This Interpretation defined a variable interest entity as a corporation, partnership, trust or any other legal structure used for the business purpose that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. This Interpretation will require a variable interest entity to be consolidated by a bank if that bank is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual return. The provisions of this Interpretation are required to be applied immediately to variable interest entities created after January 31, 2003. We do not have any variable interest entities and accordingly the implementation of this Interpretation did not result in any impact on our financial position or results of operations. The Emerging Issues Task Force researched a consensus in Emerging Issues Task Force 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The consensus was that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available for sale or held to maturity under Financial Accounting Standards Board Statement Nos. 115 and 124, 63 that are impaired at the balance sheet date but for which an other-than temporary impairment has not been recognized. This Emerging Issues Task Force consensus is effective for fiscal years ending after December 15, 2003. It is not anticipated that the adoption of the Emerging Issues Task Force consensus will result in an impact on our statement of financial position or results of operations. BUSINESS OF HOME FEDERAL MHC Home Federal MHC will be a federally-chartered mutual holding company formed in connection with the mutual holding company reorganization of Home Federal. Following completion of the reorganization, it will be a mutual holding company registered with the Office of Thrift Supervision. Following completion of the reorganization, Home Federal MHC's principal assets will be a majority of the outstanding common stock of Home Federal Bancorp and $50,000 in cash it received from Home Federal Bancorp as its initial capitalization. At the present time, we expect that Home Federal MHC will not engage in any business activity other than its investment in a majority of the common stock of Home Federal Bancorp. Federal law and regulations require that as long as Home Federal MHC is in existence, it must own a majority of Home Federal Bancorp's common stock. Following completion of the reorganization and stock offering, Home Federal MHC will own 59.04% of Home Federal Bancorp's outstanding common stock. Federal law and regulation, and the plan of reorganization and stock issuance permit Home Federal MHC to convert to the stock form of organization. For additional information regarding a stock conversion of Home Federal MHC, see "How We Are Regulated - Regulation and Supervision of Home Federal Bancorp - Conversion of Home Federal MHC to Stock Form." BUSINESS OF HOME FEDERAL BANCORP Home Federal Bancorp is a federally-chartered stock corporation formed as part of the mutual holding company reorganization of Home Federal. Following completion of the reorganization, it will be a savings and loan holding company registered with the Office of Thrift Supervision. Initially following the completion of the stock offering, Home Federal Bancorp will not be an operating company and will have no significant assets other than 100% of the outstanding common stock of Home Federal and 50% of the net proceeds from the stock offering. Home Federal Bancorp will use a portion of the net proceeds to make a loan to the employee stock ownership plan and will invest its initial capital as discussed in "How We Intend to Use the Proceeds from this Offering." At a later date, it may use a portion of the net proceeds to pay dividends to stockholders and to repurchase shares of common stock, subject to regulatory limitations. In the future, as the holding company of Home Federal, Home Federal Bancorp will be authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies, which may include the acquisition of banking and financial services companies. See "How We Are Regulated - Regulation and Supervision of Home Federal Bancorp" for a discussion of the activities that are permitted for savings and loan holding companies. We currently have no plans regarding any specific acquisition transaction. Initially, Home Federal Bancorp will neither own nor lease any property but will instead use the premises, equipment and furniture of Home Federal with the payment of appropriate rental fees, as required by applicable law. At the present time, Home Federal Bancorp intends to employ only persons who are officers of Home Federal to serve as officers of Home Federal Bancorp. It also plans to use the support staff of Home Federal from time to time, however, it will not separately compensate these individuals. As the savings and loan holding company for Home Federal, the competitive conditions applicable to Home Federal Bancorp will be the same as those confronting Home Federal. See "Business of Home Federal - Competition." 64 BUSINESS OF HOME FEDERAL General Home Federal was founded in 1920 as a building and loan association and reorganized as a federal mutual savings and loan association in 1936. Through the reorganization to mutual holding structure, we are changing our corporate structure by becoming a federally-chartered stock savings bank and also are changing our name to "Home Federal Bank." Our principal business consists of attracting retail deposits from the general public which we invest primarily in loans secured by first mortgages on owner-occupied, one- to four-family residences. We also originate multi-family loans, commercial real estate loans and consumer loans, with an emphasis on home equity loans. We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include savings accounts, money market deposit and term certificate accounts and checking accounts. We solicit deposits in our market areas and, to a lesser extent from other programs nationwide, and we have accepted brokered deposits on a limited basis. Market Areas We intend to continue to operate as an independent community-based financial institution dedicated to serving the needs of customers primarily in Ada, Canyon, Elmore and Gem Counties. Nearly 40% of the state's population lives and works in the four counties served by Home Federal. Ada County has the largest population and includes the City of Boise, the state capitol. Home Federal maintains its largest branch presence in Ada County with seven locations, followed by Canyon County with five offices, including Home Federal's corporate headquarters in Nampa. As of June 30, 2003, we had a 5.5% market share of the FDIC-insured deposits in these two counties, ranking us sixth among all insured depository institutions in these counties. The two remaining branches are located in Elmore and Gem Counties. The local economy is primarily urban with the City of Boise being the most populous of the markets that we serve, followed by Nampa, the state's second largest city. The regional economy is well diversified with government, healthcare, manufacturing, high technology, call centers and construction providing sources of employment. In addition, agriculture and related industries continue to be key components of the economy in southwestern Idaho. Generally, sources of employment are concentrated in Ada and Canyon Counties and include the headquarters of Micron Technology, Albertsons, Washington Group International, J.R. Simplot Company and Boise Corporation. Other major employers include Hewlett-Packard, two regional medical centers and Idaho state government agencies. The City of Boise is also home to Boise State University, the state's largest and fastest growing university. The unemployment rate at October 2003 in the State of Idaho was 4.4%, compared to the U.S. unemployment rate of 5.6%, and the unemployment rates for Ada, Canyon, Elmore and Gem Counties were 4.1%, 5.9%, 5.2% and 5.9%, respectively. The higher unemployment rates in Canyon and Gem Counties generally reflect areas that have a small employment base and experience only modest rates of job growth. Elmore County employment continues to be positively influenced by Mountain Home Air Force Base and the services needed to support it. Lending Activities General. Historically, our principal lending activity has consisted of the origination of loans secured by first mortgages on owner-occupied, one- to four-family residences and loans for the construction of one- to four-family residences. We also originate consumer loans, with an emphasis on home equity lines of credit. In 1997, we hired an experienced commercial loan department manager and began aggressively offering commercial loans and to a lesser extent, multi-family loans, primarily in the Treasure Valley. A substantial portion of our loan portfolio is secured by real estate, either as primary or secondary collateral, located in our primary market area. As of March 31, 2004, the net loan portfolio totaled $384.0 million and represented 77.3% of our total assets. As of March 31, 2004, our total loan portfolio was comprised of: 63.4% single-family home loans, 5.9% home equity 65 loans, 27.3% commercial real estate loans, 1.6% multi-family real estate loans, 0.4% commercial business loans, and 1.1% secured consumer loans and 0.3% unsecured consumer loans. At March 31, 2004, the maximum amount which we could have loaned to any one borrower and the borrower's related entities under applicable regulations was $5.3 million. Our internal policy limits loans to one borrower and the borrower's related entities to the lesser of 80% of the regulatory limit or 1.25% of total loans outstanding, or $5.0 million. At March 31, 2004, we had no loans or group of loans to related borrowers with outstanding balances in excess of this amount. Our largest single borrower relationship was a commercial real estate loan for $4.0 million made to an individual and secured by a franchise hotel property that was made in conjunction with a Small Business Administration lending program. The second largest lending relationship was three commercial real estate loans with an aggregate balance of $3.6 million secured by office/professional space, an office warehouse building and an industrial building. This loan was made to a family trust. The third largest lending relationship was a commercial real estate loan totaling $5.8 million secured by a professional building. This loan was made to a family trust and we have sold $2.8 million of a participation interest to two other financial institutions. The fourth largest lending relationship was a commercial real estate loan for $2.9 million secured by a professional office building and made to a partnership. The fifth largest lending relationship was for $2.7 million and secured by a mobile home dealership and made to a limited liability company. All of these loans, including those made to corporations, have personal guarantees in place as an additional source of repayment. All of the properties securing these loans are in our primary market area. These loans were performing according to their terms at March 31, 2004. 66 Loan Portfolio Analysis. The following table sets forth the composition of Home Federal's loan portfolio by type of loan at the dates indicated.

At September 30, At March 31, -------------------------------------------------- 2004 2003 2002 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ---------- --------- ---------- --------- ---------- --------- (Dollars in Thousands) Real estate: One- to four-family residential (1). $ 241,089 62.21% $ 247,309 65.81% $ 194,088 60.27% Multi-family residential............ 6,315 1.63 7,750 2.06 7,512 2.33 Commercial.......................... 94,519 24.39 79,020 21.02 79,197 24.59 ---------- --------- ---------- --------- ---------- --------- Total real estate................. 341,923 88.23 334,079 88.89 280,797 87.19 Real estate construction: One- to four-family residential..... 4,428 1.14 5,225 1.39 6,505 2.02 Multi-family residential............ -- -- 352 0.09 1,486 0.46 Commercial and land development........................ 11,277 2.91 9,128 2.43 6,579 2.04 ---------- --------- ---------- --------- ---------- --------- Total real estate construction.... 15,705 4.05 14,705 3.91 14,570 4.52 Consumer: Home equity lines of credit.......... 22,929 5.91 20,640 5.49 18,069 5.61 Automobile........................... 3,095 0.80 1,939 0.52 2,297 0.71 Other consumer....................... 2,161 0.56 2,827 0.75 3,666 1.14 ---------- --------- ---------- --------- ---------- --------- Total consumer................... 28,185 7.27 25,406 6.76 24,032 7.46 --------- --------- --------- Commercial business................... 1,734 0.45 1,662 0.44 2,641 0.82 ---------- --------- ---------- --------- ---------- --------- Total loans........................... 387,547 100.00% 375,852 100.00% 322,040 100.00% ========= ========= ========= Less: Net deferred loan origination (fees) costs....................... (1,186) (1,370) (2,358) Allowance for loan losses........... (2,411) (1,853) (1,385) ---------- ---------- ---------- Loans receivable, net................. $ 383,950 $ 372,629 $ 318,297 ========== ========== ==========

At September 30, ------------------------------------------------------------------------ 2001 2000 1999 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ---------- -------- ---------- --------- ---------- -------- (Dollars in Thousands) Real estate: One- to four-family residential (1). $ 173,835 59.35% $ 143,576 58.31% $ 111,980 58.47% Multi-family residential............ 8,700 2.97 5,475 2.22 1,676 0.88 Commercial.......................... 59,752 20.40 44,700 18.15 28,990 15.14 ---------- -------- ---------- --------- ---------- -------- Total real estate................. 242,287 82.72 193,751 78.68 142,646 74.49 Real estate construction: One- to four-family residential..... 13,927 4.75 21,171 8.60 18,170 9.49 Multi-family residential............ 904 0.31 1,857 0.75 -- -- Commercial and land development........................ 10,416 3.56 5,516 2.24 6,610 3.45 ---------- -------- ---------- --------- ---------- -------- Total real estate construction.... 25,247 8.62 28,544 11.59 24,780 12.94 Consumer: Home equity lines of credit.......... 15,250 5.20 15,604 6.34 16,145 8.43 Automobile........................... 2,133 0.73 1,185 0.48 1,285 0.67 Other consumer....................... 4,332 1.48 4,128 1.68 4,798 2.51 ---------- -------- ---------- --------- ---------- -------- Total consumer................... 21,715 7.41 20,917 8.50 22,228 11.61 -------- --------- -------- Commercial business................... 3,662 1.25 3,031 1.23 1,851 0.97 ---------- -------- ---------- --------- ---------- -------- Total loans........................... 292,911 100.00% 246,243 100.00% 191,505 100.00% ========= ========= ========= Less: Net deferred loan origination (fees) costs....................... (2,095) (1,992) (1,757) Allowance for loan losses........... (1,431) (1,129) (620) ---------- ---------- ---------- Loans receivable, net................. $ 289,385 $ 243,122 $ 189,128 ========== ========== ==========

-------- (1) Does not include loans held for sale of $3.2 million, $5.1 million, $12.7 million, $9.4 million, $4.8 million and $2.1 million at March 31, 2004 and September 30, 2003, 2002, 2001, 2000 and 1999, respectively. 67 The following table shows the composition of Home Federal's loan portfolio by fixed and adjustable rate loans at the dates indicated.

At September 30, At March 31, ----------------------------------------------- 2004 2003 2002 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ---------- --------- ---------- --------- ---------- --------- (Dollars in Thousands) FIXED RATE LOANS Real estate: One- to four-family residential .... $ 194,560 50.21% $ 198,882 52.91% $ 133,697 41.52% Multi-family residential ........... 2,144 0.55 2,137 0.57 2,061 0.64 Commercial ......................... 12,947 3.34 8,461 2.25 8,125 2.52 ---------- --------- ---------- --------- ---------- --------- Total ............................ 209,651 54.10 209,480 55.73 143,883 44.68 Real estate construction: One- to four-family residential .... 2,790 0.72 4,909 1.31 2,107 0.66 Multi-family residential ........... -- -- -- -- -- -- Commercial and land development .... 817 0.21 2,478 0.66 359 0.11 ---------- --------- ---------- --------- ---------- --------- Total ........................... 3,607 0.93 7,387 1.97 2,466 0.77 Consumer: Home equity ........................ 3,461 0.89 2,906 0.77 129 0.04 Automobile ......................... 3,095 0.80 1,939 0.52 2,297 0.71 Other consumer ..................... 2,161 0.56 2,827 0.75 3,666 1.14 ---------- --------- ---------- --------- ---------- --------- Total ........................... 8,717 2.25 7,672 2.04 6,092 1.89 Commercial/business .................. 907 0.23 775 0.21 1,420 0.44 ---------- --------- ---------- --------- ---------- --------- Total fixed rate loans ............... 222,882 57.51 225,314 59.95 153,861 47.78 ADJUSTABLE RATE LOANS Real estate: One- to four-family residential .... 46,529 12.01 48,427 12.89 60,391 18.75 Multi-family residential ........... 4,171 1.08 5,613 1.49 5,451 1.69 Commercial ......................... 81,572 21.05 70,559 18.77 71,072 22.07 ---------- --------- ---------- --------- ---------- --------- Total ........................... 132,272 34.14 124,599 33.15 136,914 42.51

At September 30, ------------------------------------------------------------------------ 2001 2000 1999 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ---------- -------- ---------- --------- ---------- -------- (Dollars in Thousands) FIXED RATE LOANS Real estate: One- to four-family residential .... $ 102,463 34.98% $ 78,169 31.74% $ 74,532 38.92% Multi-family residential ........... 2,050 0.70 266 0.11 298 0.16 Commercial ......................... 8,005 2.73 10,199 4.14 7,948 4.15 ---------- --------- ---------- --------- ---------- --------- Total ............................ 112,518 38.41 88,634 35.99 82,778 43.23 Real estate construction: One- to four-family residential .... 2,863 0.98 2,768 1.12 1,633 0.85 Multi-family residential ........... -- -- -- -- -- -- Commercial and land development .... 185 0.06 -- -- 90 0.05 ---------- --------- ---------- --------- ---------- --------- Total ........................... 3,048 1.04 2,768 1.12 1,723 0.90 Consumer: Home equity ........................ 144 0.05 155 0.06 109 0.06 Automobile ......................... 2,133 0.73 1,185 0.48 1,285 0.67 Other consumer ..................... 4,332 1.48 4,128 1.68 4,798 2.50 ---------- --------- ---------- --------- ---------- --------- Total ........................... 6,609 2.26 5,468 2.22 6,192 3.23 Commercial/business .................. 1,362 0.46 1,478 0.60 1,102 0.58 ---------- --------- ---------- --------- ---------- --------- Total fixed rate loans ............... 123,537 42.17 98,348 39.93 91,795 47.94 ADJUSTABLE RATE LOANS Real estate: One- to four-family residential .... 71,372 24.36 65,407 26.56 37,448 19.55 Multi-family residential ........... 6,650 2.27 5,209 2.12 1,378 0.72 Commercial ......................... 51,747 17.67 34,501 14.01 21,042 10.99 ---------- --------- ---------- --------- ---------- --------- Total ........................... 129,769 44.30 105,117 42.69 59,868 31.26

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At September 30, At March 31, ----------------------------------------------- 2004 2003 2002 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ---------- --------- ---------- --------- ---------- --------- (Dollars in Thousands) Real estate construction: One- to four-family residential .... 1,638 0.42 316 0.08 4,398 1.37 Multi-family residential ........... -- -- 352 0.09 1,486 0.46 Commercial and land development .... 10,460 2.70 6,650 1.77 6,220 1.93 ---------- --------- ---------- --------- ---------- --------- Total ............................ 12,098 3.12 7,318 1.94 12,104 3.76 Consumer: Home equity lines .................. 19,468 5.02 17,734 4.72 17,940 5.57 Automobile ......................... -- -- -- -- -- -- Other consumer ..................... -- -- -- -- -- -- ---------- --------- ---------- --------- ---------- --------- Total consumer ................... 19,468 5.02 17,734 4.72 17,940 5.57 Commercial/business .................. 827 0.21 887 0.24 1,221 0.38 ---------- --------- ---------- --------- ---------- --------- Total adjustable rate loans .......... 164,665 42.49 150,538 40.05 168,179 52.22 ---------- --------- ---------- --------- ---------- --------- Total loans .......................... 387,547 100.00% 375,852 100.00% 322,040 100.00% ========= ========= ========= Less: Net deferred loan origination (fees) costs ...................... (1,186) (1,370) (2,358) Allowance for loan losses .......... (2,411) (1,853) (1,385) ---------- ---------- ---------- Loans receivable, net ................ $ 383,950 $ 372,629 $ 318,297 ========== ========== ==========

At September 30, ------------------------------------------------------------------------ 2001 2000 1999 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ---------- -------- ---------- --------- ---------- -------- (Dollars in Thousands) Real estate construction: One- to four-family residential .... 11,064 3.78 18,403 7.47 16,537 8.64 Multi-family residential ........... 904 0.31 1,857 0.76 -- -- Commercial and land development .... 10,231 3.49 5,516 2.24 6,520 3.40 ---------- ---------- ---------- Total ............................ 22,199 7.58 25,776 10.47 23,057 12.04 Consumer: Home equity lines .................. 15,106 5.16 15,449 6.28 16,036 8.37 Automobile ......................... -- -- -- -- -- -- Other consumer ..................... -- -- -- -- -- -- ---------- --------- ---------- --------- ---------- -------- Total consumer ................... 15,106 5.16 15,449 6.28 16,036 8.37 Commercial/business .................. 2,300 0.79 1,553 0.63 749 0.39 ---------- --------- ---------- --------- ---------- -------- Total adjustable rate loans .......... 169,374 57.83 147,895 60.07 99,710 52.06 ---------- --------- ---------- --------- ---------- -------- Total loans .......................... 292,911 100.00% 246,243 100.00% 191,505 100.00% ========= ========= ======== Less: Net deferred loan origination (fees) costs ...................... (2,095) (1,992) (1,757) Allowance for loan losses .......... (1,431) (1,129) (620) ---------- ---------- ---------- Loans receivable, net ................ $ 289,385 $ 243,122 $ 189,128 ========== ========== ==========

69 One- to Four-Family Residential Real Estate Lending. As of March 31, 2004, $241.1 million, or 62.2%, of our total loan portfolio consisted of permanent loans secured by one- to four-family residences. We originate both fixed rate loans and adjustable rate loans in our residential lending program. Generally, 30 year fixed rate loans are originated to meet the requirements for sale in the secondary market to Fannie Mae and Freddie Mac. We do from time to time, however, retain a portion of the fixed rate loans that we originate, particularly loans with maturities of 20 years or less, in our loan portfolio to meet management's asset and liability objectives. At March 31, 2004, $194.6 million, or 80.7%, of our permanent one- to four-family loan portfolio consisted of fixed rate loans. We also offer adjustable rate mortgage loans at rates and terms competitive with market conditions. All of the adjustable rate mortgage loans we originate are retained in the loan portfolio and are not originated for the purpose of selling them in the secondary market, although they do conform to secondary market standards. We offer several adjustable rate mortgage products which adjust annually after an initial period ranging from one to ten years. Contractual annual adjustments are generally limited to increases or decreases of no more than two percent, subject to a maximum increase of no more than six percent from the rate offered at the time of origination. The adjustable rate mortgage loans held in our portfolio do not permit negative amortization of principal and generally carry no prepayment restrictions. Borrower demand for adjustable rate mortgage loans versus fixed rate mortgage loans is a function of the level of interest rates, the expectations of changes in the level of interest rates and the difference between the initial interest rates and fees charged for each type of loan. The relative amount of fixed rate mortgage loans and adjustable rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. At March 31, 2004, we had $46.5 million, or 19.1%, of our permanent one- to four-family mortgage loans in adjustable rate loans. The retention of adjustable rate mortgage loans in our loan portfolio helps us reduce our exposure to changes in interest rates. There are, however, credit risks resulting from the potential of increased interest to be paid by the customer as a result of increases in interest rates. It is possible that, during periods of rising interest rates, the risk of default on adjustable rate mortgage loans may increase as a result of repricing and the increased costs to the borrower. Furthermore, because adjustable rate mortgage loans may be offered at initial rates of interest below the rates that would apply were the adjustment index used for pricing initially, these loans may be subject to increased risks of default or delinquency. This issue is of particular concern in the low interest rate environment we have experienced since 2001. Another consideration is that although adjustable rate mortgage loans allow us to increase the sensitivity of our asset base as a result of changes in the interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limits. Because of these considerations, there is no assurance that yields on adjustable rate mortgage loans will be sufficient to offset increases in our cost of funds, particularly in today's low interest rate environment. We generally underwrite our one- to four-family loans based on the applicant's employment and credit history and the appraised value of the subject property. Presently, we lend up to 80% of the lesser of the appraised value or purchase price for one- to four-family residential loans. In situations where we grant a loan with a loan-to-value ratio in excess of 80%, we require private mortgage insurance in order to reduce our exposure to 80% or less. Properties securing our one- to four-family loans are generally appraised by independent fee appraisers approved by the Board of Directors. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property improvements. Our fixed rate, single family residential mortgage loans are normally originated with 15 to 30 year terms, although these loans typically remain outstanding for substantially shorter periods, particularly in the declining interest rate environment since 2001. In addition, substantially all residential mortgage loans in our loan portfolio contain due-on-sale clauses, which allow us to declare the unpaid amount of the loan due and payable upon the sale of the property securing the loan. Typically, we enforce these due-on-sale clauses to the extent permitted by law and as a standard course of business. The average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. 70 At March 31, 2004, $24.7 million, or 6.4%, of our total loans consisted of loans for non-owner occupied properties. This consisted of $9.2 million of loans on second homes, $14.3 million of loans for investment and $1.2 million of short term construction loans on investment properties. Loans secured by one to two units are generally made with loan to value ratios of up to 90% and loans secured by three units or more are made with loan to value ratios of up to 75%. In an effort to provide financing for moderate income and first-time buyers, we participate in the Idaho Housing and Finance Association's Single Family Mortgage Program. The Idaho Housing and Finance Association is a non-profit organization that provides housing resources to low-to moderate-income families through various below market housing programs. The program is designed to meet the needs of qualified borrowers in the low-to moderate-income brackets. The program has established income limits based on family size and sales price limits for both existing and new construction. We offer residential mortgage loans through this program to qualified individuals and originate the loans using modified underwriting guidelines. All of these loans have private mortgage insurance on the portion of the principal amount that exceeds 80% of the appraised value of the property. We sold loans of $4.3 million and $1.9 million to the Idaho Housing and Finance Association in the year ended September 30, 2003 and six months ended March 31, 2004, respectively. The Idaho Housing and Finance Association also has available a Down Payment and Closing Cost Assistance Program that provides funds to qualified borrowers for the purchase of a home. The maximum grant for households with income of 80% or less of the median county income is $2,000. Households with income greater than 80% but not exceeding 100% of the median county income are eligible for a grant of up to $1,000. Construction and Land Development Loans. We have been an active originator of construction and land development loans in our market area for many years. At March 31, 2004, our construction and land development loans amounted to $15.7 million, or 4.1%, of the total loan portfolio. At March 31, 2004, our construction lending includes loans to individuals for the construction of personal residences, which amounted to approximately $2.0 million, and loans to residential developers, which amounted to approximately $2.4 million. At March 31, 2004, the unadvanced portion of residential construction loans in process amounted to $4.1 million. The following table shows the composition of the construction permanent loans portfolio. At the dates indicated, the composition of our construction loan portfolio was as follows:

At September 30, At March 31, ------------------------ 2004 2003 2002 ------------ --------- --------- (In Thousands) One- to four-family residential: Construction speculative................... $ 2,011 $ 1,185 $ 2,039 Construction permanent..................... 2,008 3,351 2,848 Custom construction........................ 409 689 1,618 Multi-family residential: Construction permanent..................... -- 352 1,486 Commercial real estate: Construction permanent..................... 7,618 7,275 5,842 Land development loans....................... 3,659 1,853 737 --------- --------- --------- Total construction and land development...... $ 15,705 $ 14,705 $ 14,570 ========= ========= =========

Our construction loans to individuals to build their personal residences typically are structured as construction/permanent loans whereby there is one closing for both the construction loan and the permanent 71 financing. During the construction phase, which typically lasts for six months, our staff appraiser or an approved fee inspector makes periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors or borrowers as construction progresses. Typically, disbursements are made in five draws during the construction period. Construction loans require payment of interest only during the construction phase and are structured to be converted to fixed rate permanent loans at the end of the construction phase. Prior to making a commitment to fund a construction loan, we require an appraisal of the property by an independent fee appraiser or our in-house appraiser. Our staff appraiser or an approved fee inspector also reviews and inspects each project prior to every disbursement of funds during the term of the construction loan. Loan proceeds are disbursed based on a percentage of completion. During the year ended September 30, 2003 and six months ended March 31, 2004, we originated $22.5 million and $10.6 million, respectively, of short-term builder construction loans to fund the construction of one- to four-family residential properties. Most loans are written with maturities of one year, have interest rates that are tied to the prime rate plus a margin, and are subject to monthly rate adjustment with the movement of the prime rate. All builder/borrowers are underwritten to the same standards as other commercial loan credits, requiring minimum debt service coverage ratios and established cash reserves to carry projects through construction completion and on to project sale. The maximum loan to value ratio on both pre-sold and speculative projects is 80%. There were no default or foreclosure actions involving builder construction loans during the year ended September 30, 2003 or six months ended March 31, 2004, with all loans performing according to their terms. We plan to expand the residential builder construction lending operation during the year ending September 30, 2004, which may create additional loan portfolio credit risk. We originate construction and site development loans to contractors and developers primarily to finance the construction of single-family homes and subdivisions. Loans to finance the construction of single-family homes and subdivisions are generally offered to experienced builders and developers in our primary market area. Residential subdivision development loans are typically offered with terms of up to 36 months. The maximum loan-to-value limit applicable to these loans is 75% of the appraised prospective discounted value upon completion of the project. Construction loan proceeds are disbursed periodically in increments as construction progresses and as inspection by our approved inspectors warrant. At March 31, 2004, our largest subdivision development loan had an outstanding principal balance of $1.4 million and was secured by a first mortgage lien. This loan was performing according to its original terms at March 31, 2004. At March 31, 2004, we estimate that the average outstanding principal balance of subdivision loans to contractors and developers was approximately $915,000. We also make construction loans for commercial development projects. The projects include multi-family, apartment, retail, office/warehouse and office buildings. These loans generally have an interest-only phase during construction, and generally convert to permanent financing when construction is completed. Disbursement of funds is at our sole discretion and is based on the progress of construction. The maximum loan-to-value limit applicable to these loans is 80% of the appraised post-construction value. We originate land loans to local contractors and developers for the purpose of holding the land for future development. These loans are secured by a first lien on the property, are limited to 65% of the lower of the acquisition price or the appraised value of the land, and generally have a term of up to two years with a floating interest rate based on our internal base rate. Our land loans are generally secured by property in our primary market area. We require title insurance and, if applicable, a hazardous waste survey reporting that the land is free of hazardous or toxic waste. Construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property's value at completion of construction compared to the estimated cost, including interest, of construction and other assumptions. Additionally, if the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value less than the loan amount. We have attempted to minimize these risks by generally concentrating on residential construction loans in our market area to contractors with whom we have established relationships. 72 Multi-Family and Commercial Real Estate Lending. We have originated commercial real estate loans, and to a lesser extent multi-family loans, since 1997 when we hired an experienced commercial lender. Loans are underwritten by designated lending staff or loan committee depending on the size of the loan. As of March 31, 2004, $6.3 million, or 1.6%, and $105.8 million, or 27.3%, of our total loan portfolio was secured by multi-family and commercial real estate property, respectively. We actively pursue multi-family and commercial real estate loans. These loans generally are priced at a higher rate of interest than one- to four-family residential loans. Typically, these loans have higher loan balances, are more difficult to evaluate and monitor, and involve a greater degree of risk than one- to four-family residential loans. Often payments on loans secured by multi-family or commercial properties are dependent on the successful operation and management of the property; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. We generally require and obtain loan guarantees from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, we generally require and obtain personal guarantees from the corporate principals based upon a review of their personal financial statements and individual credit reports. The multi-family and commercial real estate loan portfolio is relatively unseasoned and contains a higher risk of default and loss than the single-family residential loan portfolio. The average size loan in our multi-family and commercial real estate loan portfolio was $526,000 as of March 31, 2004. As of that date, $6.3 million, or 1.6%, of our total loan portfolio was secured by multi-family dwellings located primarily in our market area. We target individual multi-family and commercial real estate loans to small- and mid-size owner occupants and investors between $500,000 and $2.0 million; however, we can by policy originate loans to one borrower up to 80% of our regulatory limit, or 1.25% of our total outstanding loans. As of March 31, 2004, the maximum we could lend to any one borrower based on this limit was $5.0 million. The largest multi-family loan as of March 31, 2004 was a 44-unit residential apartment complex with an outstanding principal balance at March 31, 2004 of $1.8 million located in Canyon County. This loan is performing according to its terms as of March 31, 2004. Multi-family and commercial real estate loans up to $500,000 can be approved by the Vice President and Manager of the Commercial Lending Department, the Chief Lending Officer or the President and Chief Executive Officer. Loans up to $1.5 million can be approved by the combined authority of these three individuals. Our Management Loan Committee, which presently consists of the President and Chief Executive Officer, the Chief Lending Officer, the Residential Lending Operations Manager and the Commercial Loan Department Manager, is authorized to approve loans to one borrower or a group of related borrowers of up to $1.5 million in the aggregate, with no single loan over $1.5 million. Loans over these amounts or outside our general underwriting guidelines must be approved by the Board of Directors. We offer both fixed and adjustable rate loans on multi-family and commercial real estate loans. Loans originated on a fixed rate basis generally are originated at fixed terms up to ten years, with amortization terms up to 25 years. As of March 31, 2004, we had $105.8 million in commercial real estate loans and $6.3 million in multi-family residential loans. Multi-family residential and commercial real estate adjustable rate loans are originated with variable rates that generally adjust after an initial period ranging from five to ten years. Adjustable rate multi-family residential and commercial real estate loans are generally priced utilizing the Five Year U.S. Treasury Constant Maturity Index plus a margin of 2.75% to 3.75%, with principal and interest payments fully amortizing over terms up to 25 years. These loans generally have a prepayment penalty. As of March 31, 2004, we had $4.2 million in adjustable rate multi-family residential loans and $92.0 million in adjustable rate commercial real estate loans. Both adjustable rate mortgages and fixed rate mortgages generally allow provisions for assumption of a loan by another borrower subject to lender approval and a 1% assumption fee. The maximum loan-to-value ratio for multi-family residential loans is generally 80% on purchases and refinances. The maximum loan-to-value ratio for commercial real estate loans is generally 80% for both purchases and refinances. We require appraisals of all properties securing multi-family residential and commercial real estate loans. Appraisals are performed by independent appraisers designated by us 73 or by our staff appraiser. We require our multi-family residential and commercial real estate loan borrowers with outstanding balances in excess of $250,000 to submit annual financial statements and rent rolls on the subject property. We also inspect the subject property at least every three to five years if the loan balance exceeds $500,000. We generally require a minimum pro forma debt coverage ratio of 1.2 times for loans secured by multi-family residential and commercial properties except for a few loans to religious organizations which have a debt coverage ratio of 1.0 times. We originate commercial real estate loans, including hotels, office space, office/warehouse, retail strip centers, mobile home dealership, mini-storage facilities, medical and professional, retail and churches located in our Idaho market area. Commercial real estate loans totaled $105.8 million, or 27.3%, of our total loan portfolio as of March 31, 2004. Consumer Lending. We offer a variety of consumer loans to our customers, including, primarily, home equity loans and lines of credit, savings account loans, automobile loans, recreational vehicle loans and personal unsecured loans. Generally, consumer loans have shorter terms to maturity and higher interest rates than mortgage loans. The maximum term we offer on automobile loans is 72 months and is applicable to new and one year old cars and light trucks. In addition, we offer loan terms of up to 120 months on motor homes, and qualifying travel trailers and boats. All automobile loans are risk priced based on the percentage of cost, or established value, being financed. Consumer loans are made with both fixed and variable interest rates and with varying terms. At March 31, 2004, consumer loans amounted to $28.2 million, or 7.3%, of the total loan portfolio. At March 31, 2004, the largest component of the consumer loan portfolio consisted of real estate secured loans and home equity lines of credit, which totaled $22.9 million, or 5.9%, of the total loan portfolio. Home equity lines of credit are made for, among other purposes, the improvement of residential properties, debt consolidation and education expenses. The majority of these loans are secured by a first or second mortgage on residential property. The maximum loan-to-value ratio is 89.9% or less, when taking into account both the balance of the home equity line of credit and the first mortgage loan. Home equity lines of credit allow for a ten-year draw period, plus an additional ten year repayment period, and the interest rate is tied to the prime rate as published in The Wall Street Journal, and may include a margin. Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles. In these cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans. These risks are not as prevalent with respect to our consumer loan portfolio because a large percentage of the portfolio consists of home equity lines of credit that are underwritten in a manner such that they result in credit risk that is substantially similar to one- to four-family residential mortgage loans. Nevertheless, home equity lines of credit have greater credit risk than one- to four-family residential mortgage loans because they are secured by mortgages subordinated to the existing first mortgage on the property, which we may or may not hold and do not have private mortgage insurance coverage. At March 31, 2004, there were $53,000 of consumer loans delinquent in excess of 90 days or in nonaccrual status. During the six months ended March 31, 2004 and the years ended September 30, 2003 and 2002, we charged off $51,000, $147,000 and $114,000, respectively, in consumer loans. Commercial Business Lending. At March 31, 2004, commercial business loans totaled $1.7 million, or 0.5%, of our loan portfolio. Our commercial business lending policy includes credit file documentation and analysis of the borrower's background, capacity to repay the loan, the adequacy of the borrower's capital and collateral, as well as an evaluation of other conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows is also an important aspect of our credit analysis. We generally obtain personal guarantees on our 74 commercial business loans. Nonetheless, these loans are believed to carry higher credit risk than single family loans. Unlike residential mortgage loans, commercial business loans are typically made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which is often dependent in part upon general economic conditions. Our commercial business loans are usually, but not always, secured by business assets. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Loan Maturity and Repricing. The following table sets forth certain information at March 31, 2004 regarding the dollar amount of loans maturing in Home Federal's portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

After After After 1 Year 3 Years 5 Years Within Through Through Through Beyond 1 Year 3 Years 5 Years 10 Years 10 Years Total ---------- ---------- ---------- ---------- ---------- ---------- (In Thousands) Real estate: One- to four-family residential ...... $ 13,292 $ 15,983 $ 12,896 $ 22,329 $ 176,589 $ 241,089 Multi-family residential ............. 366 1,558 1,772 495 2,124 6,315 Commercial ........................... 8,340 31,485 33,156 19,041 2,497 94,519 ---------- ---------- ---------- ---------- ---------- ---------- Total real estate .................. 21,998 49,026 47,824 41,865 181,210 341,923 Real estate construction: One- to four-family residential ...... 2,255 165 36 174 1,798 4,428 Multi-family residential ............. -- -- -- -- -- -- Commercial and land development ...... 952 3,524 1,424 1,436 3,941 11,277 ---------- ---------- ---------- ---------- ---------- ---------- Total real estate construction ..... 3,207 3,689 1,460 1,610 5,739 15,705 Consumer: Home equity .......................... 19,519 50 38 506 2,816 22,929 Automobile ........................... 40 675 928 1,452 -- 3,095 Other consumer ....................... 830 1,077 138 67 49 2,161 ---------- ---------- ---------- ---------- ---------- ---------- Total consumer ..................... 20,389 1,802 1,104 2,025 2,865 28,185 Commercial business .................... 1,012 205 150 367 -- 1,734 ---------- ---------- ---------- ---------- ---------- ---------- Total .................................. $ 46,606 $ 54,722 $ 50,538 $ 45,867 $ 189,814 $ 387,547 ========== ========== ========== ========== ========== ==========

75 The following table sets forth the dollar amount of all loans due one year or more after March 31, 2004, which have fixed interest rates and have floating or adjustable interest rates.

Floating or Adjustable Fixed Rate Rates Total ------------- ---------- ---------- (In Thousands) Real estate: One- to four-family residential ...... $ 33,237 $ 194,560 $ 227,797 Multi-family residential ............. 3,805 2,144 5,949 Commercial ........................... 73,312 12,867 86,179 ------------- ---------- ---------- Total real estate .................. 110,354 209,571 319,925 Real estate construction: One- to four-family residential ...... 375 1,798 2,173 Multi-family residential ............. -- -- -- Commercial ........................... 10,325 -- 10,325 ------------- ---------- ---------- Total real estate construction ..... 10,700 1,798 12,498 Consumer: Home equity .......................... -- 3,410 3,410 Automobile ........................... -- 3,055 3,055 Other consumer ....................... -- 1,331 1,331 ------------- ---------- ---------- Total consumer ..................... -- 7,796 7,796 Commercial business .................... -- 722 722 ------------- ---------- ---------- Total .................................. $ 121,054 $ 219,887 $ 340,941 ============= ========== ==========

Loan Solicitation and Processing. Loan originations are obtained from a variety of sources, including walk-in customers, loan brokers for primarily multi-family and commercial loans, and referrals from builders and realtors. Residential real estate loans are solicited through media advertising, direct mail to existing customers and by realtor referrals. We are also in the process of developing a program to accept broker-originated one- to four-family loans. Loan originations are further supported by lending services offered through our Internet web site, advertising, cross-selling and through our employees' community service. Upon receipt of a loan application from a prospective borrower, we obtain a credit report and other data to verify specific information relating to the loan applicant's employment, income and credit standing. An appraisal of the real estate offered as collateral generally is undertaken by an appraiser we have retained and who is licensed in the State of Idaho and has been approved by the Board of Directors. Mortgage loan applications are initiated by loan officers and are required to be approved by our underwriting staff that have Board-approved lending authority. Loans that exceed the lending authority must be approved by one or more members of the Management Loan Committee. All loans up to and including $1.5 million may be approved by the Management Loan Committee without Board approval; loans in excess of $1.5 million and up to $4.9 million must be approved by the Board Loan Committee and loans over $4.9 million by the entire Board of Directors. We require title insurance on all real estate loans, fire and casualty insurance on all secured loans and on home equity lines of credit where the property serves as collateral. 76 Loan Originations, Servicing, Purchases and Sales. During the six months ended March 31, 2004 and the year ended September 30, 2003, our total loan originations were $91.0 million and $361.7 million, respectively. One- to four-family home loans are generally originated in accordance with the guidelines established by Freddie Mac and Fannie Mae, with the exception of our special community development loans under the Community Reinvestment Act. We originate residential first mortgages and service them using an in-house mortgage system. We utilize the Freddie Mac Loan Prospector and Fannie Mae Desktop Underwriter automated loan systems to underwrite approximately 95% of our residential first mortgage loans (excluding community development loans). The remaining loans are underwritten by designated real estate loan underwriters internally in accordance with standards as provided by our Board-approved loan policy. We actively sell residential first mortgage loans to the secondary market. Generally, all 30-year fixed rate residential mortgages are sold to the secondary market at the time of origination. Fixed rate residential mortgage loans with terms of 20 years or less and adjustable rate mortgage loans are generally held in our portfolio. During the years ended September 30, 2003, 2002 and 2001 we sold $164 million, $93 million and $70 million to the secondary market representing 56.8%, 57.2% and 61.2% of total one- to four-family residential loans, respectively. Our primary secondary market relationship has been with Freddie Mac and Fannie Mae, and more recently with the Federal Home Loan Bank of Seattle. We generally retain the servicing on the majority of loans sold into the secondary market. Loans are generally sold on a non-recourse basis. As of March 31, 2004, our loan servicing portfolio was $258.3 million. Multi-family and commercial real estate loans are underwritten by designated lending staff or our Management Loan Committee depending on the size of the loan and are serviced by the commercial loan department. 77 The following table shows total loans originated, purchased, sold and repaid during the periods indicated.

Six Months Ended March 31, Year Ended September 30, ------------------------ -------------------------------------- 2004 2003 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- (In Thousands) Loans originated: Real Estate: One- to four-family residential (1) ............ $ 43,389 $ 154,499 $ 289,175 $ 162,092 $ 114,163 Multi-family residential ....................... 51 -- 664 862 4,028 Commercial ..................................... 21,730 9,855 20,539 19,899 17,680 ---------- ---------- ---------- ---------- ---------- Total real estate ............................ 65,170 164,354 310,378 182,853 135,871 Real Estate Construction: One- to four-family residential ................ 10,628 9,177 22,494 21,823 42,132 Multi-family residential ....................... -- 618 900 581 747 Commercial and land development ................ 5,715 3,128 9,471 9,277 13,455 ---------- ---------- ---------- ---------- ---------- Total real estate construction ............... 16,343 12,923 32,865 31,681 56,334 Consumer: Automobile loans ............................... 1,620 562 968 1,260 1,634 Home equity loans .............................. 6,880 5,167 14,903 14,715 7,540 Other consumer ................................. 358 484 1,332 2,009 3,625 ---------- ---------- ---------- ---------- ---------- Total consumer ............................... 8,858 6,213 17,203 17,984 12,799 Commercial business .............................. 669 951 1,220 2,030 2,729 ---------- ---------- ---------- ---------- ---------- Total loans originated ....................... 91,040 184,441 361,666 234,548 207,733 Loans sold: Total whole loans sold ......................... (34,902) (87,404) (164,322) (92,786) (69,872) Participation loans ............................ (2,800) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total loans sold ............................. (37,702) (87,404) (164,322) (92,786) (69,872) Principal repayments ............................. (41,644) (79,025) (143,283) (110,339) (90,706) Loans securitized ................................ -- -- -- -- -- Transfer to real estate owned .................... -- (249) (249) (2,435) (334) Increase (decrease) in other items (net) ......... (375) (60) 521 (77) (557) Loans held for sale .............................. (1,905) (9,240) (7,656) 3,355 4,586 ---------- ---------- ---------- ---------- ---------- Net increase in loans receivable, net ............ $ 9,414 $ 8,463 $ 46,677 $ 32,266 $ 50,850 ========== ========== ========== ========== ==========

---------- (1) Includes loans held for sale of $24.3 million and $75.7 million for the six months ended March 31, 2004 and 2003, respectively, and $141.1 million, $85.0 million and $65.5 million for the years ended September 30, 2003, 2002 and 2001, respectively. Loan Origination and Other Fees. In some instances, we receive loan origination fees on real estate related products. Loan fees generally represent a percentage of the principal amount of the loan that is paid by the borrower. Accounting standards require that certain fees received, net of certain origination costs, be deferred and amortized over the contractual life of the loan. Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income at the time of prepayment. We had $1.2 million of net deferred loan fees and costs as of March 31, 2004. 78 Asset Quality The objective of our loan review process is to determine risk levels and exposure to loss. The depth of review varies by asset types, depending on the nature of those assets. While certain assets may represent a substantial investment and warrant individual reviews, other assets may have less risk because the asset size is small, the risk is spread over a large number of obligors or the obligations are well collateralized and further analysis of individual assets would expand the review process without measurable advantage to risk assessment. Asset types with these characteristics may be reviewed as a total portfolio on the basis of risk indicators such as delinquency (consumer and residential real estate loans) or credit rating. A formal review process is conducted on individual assets that represent greater potential risk. A formal review process is a total re-evaluation of the risks associated with the asset and is documented by completing an asset review report. Certain real estate-related assets must be evaluated in terms of their fair market value or net realizable value in order to determine the likelihood of loss exposure and, consequently, the adequacy of valuation allowances. We define a loan as being impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement. We consider one- to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, do not separately evaluate them for impairment. All other loans are evaluated for impairment on an individual basis. We generally assess late fees or penalty charges on delinquent loans of five percent of the monthly principal and interest amount. Substantially all fixed rate and adjustable rate mortgage loan payments are due on the first day of the month, however, the borrower is given a 15-day grace period to make the loan payment. When a mortgage loan borrower fails to make a required payment when it is due, we institute collection procedures. The first notice is mailed to the borrower on the 16th day requesting payment and assessing a late charge. Attempts to contact the borrower by telephone generally begin upon the 30th day of delinquency. If a satisfactory response is not obtained, continual follow-up contacts are attempted until the loan has been brought current. Before the 90th day of delinquency, attempts to interview the borrower are made to establish the cause of the delinquency, whether the cause is temporary, the attitude of the borrower toward the debt and a mutually satisfactory arrangement for curing the default. When a consumer loan borrower fails to make a required payment on a consumer loan by the payment due date, we institute the same collection procedures as for our mortgage loan borrowers. The Board of Directors is informed monthly as to the status of all mortgage and consumer loans that are delinquent by more than 30 days, and is given information regarding classified assets. If a borrower is chronically delinquent and all reasonable means of obtaining payments have been exercised, we will seek to recover any collateral securing the loan according to the terms of the security instrument and applicable law. In the event of an unsecured loan, we will either seek legal action against the borrower or refer the loan to an outside collection agency. 79 The following table shows our delinquent loans by the type of loan and number of days delinquent as of March 31, 2004:

Loans Delinquent For: ------------------------------------------------- Total 60-89 Days Over 90 Days Delinquent Loans ----------------------- ----------------------- ----------------------- Principal Principal Principal Number Balance Number Balance Number Balance of Loans Loans of Loans Loans of Loans Loans ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Real estate: One- to four-family residential ...... 5 $ 426 4 $ 285 9 $ 711 Multi-family residential ............. -- -- -- -- -- -- Commercial ........................... -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total real estate .................. 5 426 4 285 9 711 Real estate construction: One- to four-family residential ...... -- -- -- -- -- -- Multi-family residential ............. -- -- -- -- -- -- Commercial and land development ........................ -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total real estate construction ..... -- -- -- -- -- -- Consumer: Home equity lines of credit .......... 6 175 -- -- 6 175 Automotive ........................... 1 7 -- -- 1 7 Personal loans ....................... 4 9 4 6 8 15 Other consumer ....................... 6 7 13 13 19 20 ---------- ---------- ---------- ---------- ---------- ---------- Total consumer ..................... 17 198 17 19 34 217 Commercial business .................... -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total .................................. 22 $ 624 21 $ 304 43 $ 928 ========== ========== ========== ========== ========== ==========

When a loan becomes 90 days delinquent, we place the loan on nonaccrual status. As of March 31, 2004, nonaccrual loans and loans 90 days or more past due as a percentage of total loans was 0.15%, and as a percentage of total assets it was 0.11%. Nonperforming assets as a percentage of total assets were 0.11% as of March 31, 2004. 80 Nonperforming Assets. The following table sets forth information with respect to our nonperforming assets and restructured loans within the meaning of Statement of Financial Accounting Standards No. 15 for the periods indicated. During the periods presented, there were no accruing loans which were contractually past due 90 days or more. At March 31, ---------------------- 2004 2003 --------- --------- (Dollars in Thousands) Real estate: One- to four-family residential ................ $ 513 $ 285 Multi-family residential ....................... -- -- Commercial ..................................... -- -- --------- --------- Total real estate ............................ 513 285 Real estate construction: One- to four-family residential ................ -- -- Multi-family residential ....................... -- -- Commercial and land development ................ -- -- --------- --------- Total real estate construction ............... -- -- Consumer: Home equity lines of credit .................... 39 -- Automotive ..................................... -- -- Personal loans ................................. 9 6 Other consumer ................................. 5 13 --------- --------- Total consumer ............................... 53 19 Commercial business .............................. -- -- --------- --------- Total ............................................ $ 566 $ 304 ========= ========= Total of nonaccrual and 90 days past due loans ... 566 304 Repossessed assets ............................... -- -- Real estate owned ................................ -- 239 --------- --------- Total nonperforming assets ................... $ 566 $ 543 ========= ========= Restructured loans ............................... -- -- Allowance for loan loss on nonperforming loans ... 28 15 Classified assets included in nonperforming assets .......................................... 566 534 Allowance for loan losses on classified assets ... 28 15 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable ....... 0.15% 0.09% Nonaccrual and 90 days or more past due loans as a percentage of total assets ........... 0.11% 0.07% Nonperforming assets as a percentage of total assets ................................. 0.11% 0.12% Loans receivable, net ............................ $ 383,950 $ 348,657 Nonaccrued interest (1) .......................... $ 13 $ 8 Total assets ..................................... $ 496,773 $ 447,184

At September 30, ------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- (Dollars in Thousands) Real estate: One- to four-family residential ................ $ 69 $ 70 $ 1,314 $ 733 $ 41 Multi-family residential ....................... -- -- -- -- -- Commercial ..................................... -- -- 39 -- -- --------- --------- --------- --------- --------- Total real estate ............................ 69 70 1,353 733 41 Real estate construction: One- to four-family residential ................ -- 326 2,223 -- -- Multi-family residential ....................... -- -- -- -- -- Commercial and land development ................ -- -- -- -- -- --------- --------- --------- --------- --------- Total real estate construction ............... -- 326 2,223 -- -- Consumer: Home equity lines of credit .................... 41 52 40 136 -- Automotive ..................................... 9 5 5 6 -- Personal loans ................................. 7 13 6 13 7 Other consumer ................................. 7 2 23 -- 4 --------- --------- --------- --------- --------- Total consumer ............................... 64 72 74 155 11 Commercial business .............................. -- -- 8 -- -- --------- --------- --------- --------- --------- Total ............................................ $ 133 $ 468 $ 3,658 $ 888 $ 52 ========= ========= ========= ========= ========= Total of nonaccrual and 90 days past due loans ... $ 133 $ 468 $ 3,658 $ 888 $ 52 Repossessed assets ............................... -- 6 3 11 -- Real estate owned ................................ -- 248 55 -- -- --------- --------- --------- --------- --------- Total nonperforming assets ................... $ 133 $ 722 $ 3,716 $ 899 $ 52 ========= ========= ========= ========= ========= Restructured loans ............................... -- -- -- -- -- Allowance for loan loss on nonperforming loans ... 9 42 353 48 3 Classified assets included in nonperforming assets .......................................... 133 722 3,716 899 52 Allowance for loan losses on classified assets ... 9 42 353 48 3 Nonaccrual and 90 days or more past due loans as a percentage of loans receivable ....... 0.04% 0.14% 1.22% 0.36% 0.03% Nonaccrual and 90 days or more past due loans as a percentage of total assets ........... 0.03% 0.11% 0.96% 0.27% 0.02% Nonperforming assets as a percentage of total assets ................................. 0.03% 0.17% 0.97% 0.28% 0.02% Loans receivable, net ............................ $ 372,629 $ 318,297 $ 289,385 $ 243,122 $ 189,128 Nonaccrued interest (1) .......................... $ 1 $ 3 $ 27 $ 7 $ -- Total assets ..................................... $ 450,196 $ 416,543 $ 382,504 $ 325,922 $ 271,143

---------- (1) If interest on the loans classified as nonaccrual had been accrued, interest income in these amounts would have been recorded on nonaccrual loans. 81 Real Estate Owned and Other Repossessed Assets. Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When the property is acquired, it is recorded at the lower of its cost, which is the unpaid principal balance of the related loan plus foreclosure costs, or the fair market value of the property less selling costs. Other repossessed collateral, including autos, are also recorded at the lower of cost (i.e., the unpaid principal balance plus repossession costs) or fair market value. As of March 31, 2004, we had no residential real estate owned properties or repossessed assets from other secured loans. Restructured Loans. According to generally accepted accounting principles, we are required to account for certain loan modifications or restructuring as a "troubled debt restructuring." In general, the modification or restructuring of a debt is considered a troubled debt restructuring if we, for economic or legal reasons related to a borrower's financial difficulties, grant a concession to the borrower that we would not otherwise consider. We had no restructured loans as of March 31, 2004. Classified Assets. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. When we classify problem assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent and approved by the Classified Asset Committee to address the risk specifically or we may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Office of Thrift Supervision or the FDIC, which can order the establishment of additional loss allowances. In connection with the filing of periodic reports with the Office of Thrift Supervision and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets, as of March 31, 2004, we had classified $2.5 million of our assets as substandard. The total amount classified of $2.5 million represented 5.9% of equity capital and 0.5% of total assets as of March 31, 2004. The aggregate amounts of our classified assets at the dates indicated were as follows: 82

At September 30, At March 31, ------------------------ 2004 2003 2002 ------------ ---------- ---------- (In Thousands) Classified Assets: Loss.................................................. $ -- $ -- $ -- Doubtful.............................................. -- 7 715 Substandard .......................................... 2,487 946 1,031 ------------ ---------- ---------- Total..............................................