Edgar Filing: Home Federal Bancorp, Inc.

q33108_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-52995

HOME FEDERAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	26-0886727
(State or other jurisdiction of incorporation	(I.R.S. Employer
or organization)	I.D. Number)

500 12th Avenue South, Nampa, Idaho	83651
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:	(208) 466-4634

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

Smaller reporting company [ ]

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

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $.01 par value per share, 17,343,229 shares outstanding as of May 2, 2008.

HOME FEDERAL BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

Page

	Consolidated Balance Sheets as of
	March 31, 2008 and September 30, 2007	1
	Consolidated Statements of Income for the Three and Six Months
	ended March 31, 2008 and 2007	2
	Consolidated Statements of Stockholders’ Equity	3
	Consolidated Statements of Cash Flows for the Six Months
	ended March 31, 2008 and 2007	5
	Selected Notes to Unaudited Interim Consolidated Financial Statements	7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3 - Quantitative and Qualitative Disclosures About Market Risk.	25

Item 4 - Controls and Procedures	26

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	26

Item 1A - Risk Factors	26

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3 - Defaults upon Senior Securities	27

Item 4 - Submission of Matters to a Vote of Security Holders	27

Item 5 - Other Information	27

Item 6 - Exhibits	28

SIGNATURES	29

Item 1. Financial Statements

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)	March 31, 2008			September 30, 2007

ASSETS
Cash and amounts due from depository institutions	$	36,353		$	20,588
Mortgage-backed securities available for sale, at fair value		209,239			162,258
Federal Home Loan Bank of Seattle (“FHLB”) stock, at cost		9,591			9,591
Loans receivable, net of allowance for loan losses of $3,307
and $2,988		477,155			480,118
Loans held for sale		2,751			4,904
Accrued interest receivable		2,941			2,804
Property and equipment, net		13,613			12,364
Mortgage servicing rights, net		1,903			2,047
Bank owned life insurance		11,377			11,168
Real estate and property owned		452			549
Deferred income tax asset		-			1,245
Other assets		2,736			2,318
TOTAL ASSETS	$	768,111		$	709,954

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Deposit accounts:
Noninterest-bearing demand deposits	$	37,323		$	38,643
Interest-bearing demand deposits		142,820			127,659
Savings deposits		24,524			23,116
Certificates of deposit		191,439			215,191
Total deposit accounts		396,106			404,609
Advances by borrowers for taxes and insurance		1,429			1,605
Interest payable		619			731
Deferred compensation		4,889			4,515
FHLB advances		155,553			180,730
Deferred income tax liability		377			-
Other liabilities		3,768			5,127
Total liabilities		562,741			597,317

STOCKHOLDERS’ EQUITY
Serial preferred stock, $.01 par value; 10,000,000 authorized,
issued and outstanding, none		--			--
Common stock, $.01 par value; 90,000,000 authorized,
issued and outstanding:		173			152
Mar. 31, 2008 – 17,386,517 issued, 17,343,229 outstanding
Sept. 30, 2007 – 15,278,803 issued, 15,232,243 outstanding
Additional paid-in capital		156,805			59,613
Retained earnings		59,475			58,795
Unearned shares issued to employee stock ownership plan ("ESOP")		(11,634	)		(3,698	)
Accumulated other comprehensive income (loss)		551			(2,225	)
Total stockholders’ equity		205,370			112,637

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	768,111		$	709,954

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) (Unaudited)	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2007			2008			2007

Interest and dividend income:
Loan interest	$	7,770		$	8,470		$	15,846		$	16,997
Investment interest		510			15			774			44
Mortgage-backed security interest		2,148			2,244			4,091			4,550
FHLB dividends		31			9			50			19
Total interest and dividend income		10,459			10,738			20,761			21,610
Interest expense:
Deposits		2,872			3,005			6,086			6,015
FHLB advances		1,810			2,372			3,842			4,735
Total interest expense		4,682			5,377			9,928			10,750
Net interest income		5,777			5,361			10,833			10,860
Provision for loan losses		378			-			665			71
Net interest income after provision for loan losses		5,399			5,361			10,168			10,789
Noninterest income:
Service charges and fees		2,098			2,222			4,309			4,636
Gain on sale of loans		162			379			347			677
Increase in cash surrender value of bank owned life insurance		104			99			208			199
Loan servicing fees		126			142			253			286
Mortgage servicing rights, net		(76	)		(92	)		(144	)		(175	)
Other		64			11			109			21
Total noninterest income		2,478			2,761			5,082			5,644
Noninterest expense:
Compensation and benefits		4,053			3,851			7,752			7,865
Occupancy and equipment		760			727			1,471			1,429
Data processing		531			493			1,053			1,001
Advertising		271			300			571			596
Postage and supplies		171			174			321			320
Professional services		191			215			403			411
Insurance and taxes		140			106			225			209
Other		302			228			485			509
Total noninterest expense		6,419			6,094			12,281			12,340
Income before income taxes		1,458			2,028			2,969			4,093
Income tax expense		513			787			1,077			1,583
NET INCOME	$	945		$	1,241		$	1,892		$	2,510

Earnings per common share:
Basic	$	0.06		$	0.08	(1)	$	0.12	(1)	$	0.15	(1)
Diluted		0.06			0.07	(1)		0.12	(1)		0.15	(1)
Weighted average number of shares outstanding:
Basic		15,962,325			16,576,439	(1)		16,352,427	(1)		16,562,244	(1)
Diluted		15,978,217			16,690,594	(1)		16,374,451	(1)		16,682,322	(1)

Dividends declared per share:	$	0.055		$	0.048	(1)	$	0.103	(1)	$	0.096	(1)

(1) Earnings per share, average common shares outstanding, and dividends per share have been adjusted to reflect the impact of the second-step conversion and reorganization of Home Federal Bancorp, Inc. (“Company”), which occurred on December 19, 2007.

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share data) (Unaudited)

												Unearned
												Shares
												Issued to
												Employee			Accumulated
						Additional						Stock			Other
	Common Stock					Paid-In			Retained			Ownership			Comprehensive
	Shares			Amount		Capital			Earnings			Plan			Loss			Total
Balance at Sept. 30, 2006		15,169,114		$	152	$	57,222		$	54,805		$	(4,134	)	$	(176	)	$	107,869

Restricted stock issued, net of forfeitures		(6,924	)																--
ESOP shares committed to be released							357						436						793
Exercise of stock options		70,053					854												854
Share-based compensation							1,036												1,036
Excess tax benefits from equity compensation plans							144												144
Dividends paid ($0.190 per share) (1) (2)										(1,281	)								(1,281	)

Comprehensive income:
Net income										5,271									5,271
Other comprehensive income:
Change in unrealized holding loss on securities available for sale, net of taxes																(100	)		(100	)
Change in unrealized holding loss resulting from transfer of securities from held to maturity to available for sale, net of taxes																(1,949	)		(1,949	)
Comprehensive income:																			3,222
Balance at Sept. 30, 2007		15,232,243			152		59,613			58,795			(3,698	)		(2,225	)		112,637

Second Step Conversion(3)		2,073,619			21		96,445						(8,160	)					88,306
Dissolution of Mutual Holding Company							50												50
Restricted stock issued, net of forfeitures		8,502																	-
ESOP shares committed to be released							(149	)					224						75
Exercise of stock options		28,865					328												328
Share-based compensation							518												518
Dividends paid ($0.103) per share) (1) (2)										(1,212	)								(1,212	)

Comprehensive income:
Net income										1,892									1,892
Other comprehensive income:
Change in unrealized holding loss on securities available for sale, net of deferred income taxes																2,776			2,776
Comprehensive income:																			4,668
Balance at March. 31, 2008		17,343,229		$	173	$	156,805		$	59,475		$	(11,634	)	$	551		$	205,370

(1) Home Federal MHC waived its receipt of dividends on the 8,979,246 shares that it owned.

(2) Dividends per share have been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on December 19, 2007.

(3) The total effect on equity accounts from the second-step conversion and reorganization has changed from the December 31, 2007 reported numbers due to adjustments such as true-up of total new shares issued in relation to conversion once total affect of fractional shares was known, payment of additional expenses related to conversion in the quarter ended March 31, 2008, etc.

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)	Six Months Ended March 31,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,892		$	2,510
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		796			866
Net accretion of premiums and discounts on investments		(17	)		(33	)
Loss on sale of repossessed assets		95			-
ESOP shares committed to be released		75			416
Equity compensation expense		518			538
Provision for loan losses		665			71
Accrued deferred compensation expense, net		373			367
Net deferred loan fees		6			109
Deferred income tax benefit		(229	)		(220	)
Excess tax benefit from equity compensation plans		-			(44	)
Net gain on sale of loans		(347	)		(677	)
Proceeds from sale of loans held for sale		25,406			44,016
Originations of loans held for sale		(22,944	)		(43,814	)
Net decrease in value of mortgage servicing rights		144			175
Net increase in value of bank owned life insurance		(209	)		(200	)
Change in assets and liabilities:
Interest receivable		(137	)		84
Other assets		(423	)		(580	)
Interest payable		(112	)		(116	)
Other liabilities		(1,359	)		950
Net cash provided by operating activities		4,193			4,418
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of mortgage-backed securities held to maturity		-			11,652
Proceeds from maturity of mortgage-backed securities available for sale		13,919			1,445
Purchase of mortgage-backed securities available for sale		(56,257	)		(2,102	)
Purchases of property and equipment		(2,031	)		(611	)
Net decrease (increase) in loans		1,873			(529	)
Proceeds from sale of repossessed assets		452			-
Net cash (used) provided by investing activities		(42,044	)		9,855

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		(8,503	)		(8,063	)
Net decrease in advances by borrowers for taxes and insurance		(176	)		(361	)
Proceeds from FHLB advances		9,300			137,760
Repayment of FHLB advances		(34,477	)		(149,024	)
Net proceeds from stock issuance and exchange pursuant to second step conversion		88,356			-
Proceeds from exercise of stock options		328			182
Excess tax benefit from equity compensation plans					44
Dividends paid		(1,212	)		(638	)
Net cash provided (used) by financing activities		53,616			(20,100	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		15,765			(5,827	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		20,588			18,385
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	36,353		$	12,558

(continues on next page)

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) (Unaudited)	Six Months Ended March 31,
	2008		2007
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	10,040	$	10,866
Income taxes		1,760		1,925

NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate and other assets in settlement of loans		780		-
Fair value adjustment to securities available for sale, net of taxes		2,776		102

See accompanying notes.

HOME FEDERAL BANCORP, INC. AND SUBSIDIARY

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

The consolidated financial statements presented in this quarterly report include the accounts of Home Federal Bancorp, Inc., a Maryland corporation (the “Company”), and its wholly-owned subsidiary, Home Federal Bank (the “Bank”). The financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and are unaudited. All significant intercompany transactions and balances have been eliminated. In the opinion of the Company’s management, all adjustments consisting of normal recurring accruals necessary for a fair presentation of the financial condition and results of operations for the interim periods included herein have been made.

The Company was formed as the new stock holding company for the Bank in connection with the Bank’s second-step conversion from the mutual holding company structure to the stock holding company structure (“Conversion”), which was completed on December 19, 2007. Prior to the completion of the Conversion, the Bank was the subsidiary of Home Federal Bancorp, Inc., a federally-chartered stock mid-tier holding company (“Mid-Tier”), and the Mid-Tier was a subsidiary of Home Federal MHC, a federally-chartered mutual holding company. The Bank formed the mutual holding company structure in December 2004. As a result of the Conversion, Home Federal MHC and the Mid-Tier ceased to exist and were replaced by the Company as the successor to the Mid-Tier. See Note 3 below for additional information regarding the Conversion.

Certain information and note disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. Therefore, these consolidated financial statements and notes thereto should be read in conjunction with the Mid-Tier’s audited financial statements and notes included in the Annual Report on Form 10-K for the year ended September 30, 2007 (“2007 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on December 14, 2007.

Note 2 - Summary of Significant Accounting Policies

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial statements, and thus actual results could differ from the amounts reported and disclosed herein. The Company considers the allowance for loan losses, mortgage servicing rights, and deferred income taxes to be critical accounting estimates.

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. 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.

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 assumptions. The Company performs a quarterly review of mortgage servicing rights for potential changes in value. This review may include an independent appraisal by an outside party of the fair value of the mortgage servicing rights.

Deferred income taxes are computed using the asset and liability approach as prescribed in Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Under this method, a deferred tax asset or liability is determined based on the currently enacted tax rates applicable to the period in which the differences between the financial statement carrying amounts and tax basis of the existing assets and liabilities are expected to be reported in the Company’s income tax returns.

Note 3 – Second-step Conversion and Reorganization

The Company is a Maryland corporation that was formed as the new stock holding company for Home Federal Bank in connection with the Conversion, which was completed on December 19, 2007.

As part of the Conversion, a total of 9,384,000 new shares of the Company were sold at $10 per share in subscription, community and syndicated community offerings through which the Company received proceeds of approximately $88.4 million, net of offering costs of approximately $5.4 million. The Company contributed $48.3 million or approximately 50% of the net proceeds to the Bank in the form of a capital contribution. The Company loaned $8.2 million to the Bank’s Employee Stock Ownership Plan (the “ESOP”) and the ESOP used those funds to acquire 816,000 shares of the Company’s common stock at $10 per share. As part of the Conversion, shares of outstanding common stock of the Mid-Tier were exchanged for 1.136 shares of the Company’s common stock. No fractional shares were issued. Instead, cash was paid to stockholders at $10 per share for any fractional shares that would otherwise be issued. The exchange resulted in an additional 853,133 outstanding shares of the Company for a total of 17,326,169 outstanding shares as of the closing of the second-step conversion on December 19, 2007.

The Conversion was accounted for as a reorganization in corporate form with no change in the historical basis of the Company’s assets, liabilities and equity. All references to the number of shares outstanding, with the exception of those reported on the Balance Sheet, are restated to give retroactive recognition to the exchange ratio applied in the Conversion.

Note 4 – Income Taxes

At October 1, 2007, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 requires recognition and measurement of uncertain tax positions using a "more-likely-than-not" approach. FIN 48 is effective for fiscal years beginning after December 31, 2006. The Company’s approach to adopting FIN 48 consisted of an examination of its financial statements, its income tax provision, and its federal and state income tax returns. The Company analyzed its tax positions including the permanent and temporary differences as well as the major components of income and expense.

As of October 1, 2007, and March 31, 2008, the Company did not believe that it had any uncertain tax positions that would rise to the level of having a material effect on its financial statements. In addition, the Company had no accrued interest or penalties as of October 1, 2007 or March 31, 2008. It is the Company’s policy to record interest and penalties as a component of income tax expense. The adoption of this accounting standard did not have a material impact on the Company’s financial position or results of operations.

Note 5 - Earnings Per Share

Earnings per share (“EPS”) is computed using the basic and diluted weighted average number of common shares outstanding during the period. Basic EPS is computed by dividing the Company’s net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by diluted weighted average shares outstanding, which include common stock equivalent shares outstanding using the treasury stock method, unless such shares are anti-dilutive. Common stock equivalents arise from assumed conversion of outstanding stock options awarded under the Company’s Stock Option and Incentive Plan (“SOP”) and from assumed vesting of shares awarded but not released under the Company’s Recognition and Retention Plan (“RRP”) plan. ESOP shares are not considered outstanding for earnings per share purposes until they are committed to be released. The decrease in weighted-average common shares outstanding for EPS purposes for the quarter ended March 31, 2008 is primarily attributable to the 816,000 shares that were acquired for the ESOP in connection with the Conversion.

The following table presents the computation of basic and diluted EPS for the periods indicated:

	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
	(in thousands, except share and per share data)
Basic EPS:
Income available to common stockholders	$	945	$	1,241	$	1,892	$	2,510
Weighted-average common shares outstanding		15,962,325		16,576,439		16,352,427		16,562,244
Basic EPS	$	0.06	$	0.08	$	0.12	$	0.15

Diluted EPS:
Income available to common stockholders	$	945	$	1,241	$	1,892	$	2,510
Weighted-average common shares outstanding		15,962,325		16,576,439		16,352,427		16,562,244
Net effect of dilutive SOP awards		-		66,454		-		71,947
Net effect of dilutive RRP awards		15,892		47,701		22,024		48,131
Weighted-average common shares outstanding and common stock equivalents		15,978,217		16,690,594		16,374,451		16,682,322
Diluted EPS	$	0.06	$	0.07	$	0.12	$	0.15

Note 6 - Mortgage-Backed Securities

Mortgage-backed securities available for sale consisted of the following:

	March 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Agency mortgage-backed securities	$	204,888	$	1,626	$	(533	)	$	205,981
Non-agency mortgage-backed securities		3,433		-		(175	)		3,258
Total	$	208,321	$	1,626	$	(708	)	$	209,239

	September 30, 2007
Agency mortgage-backed securities	$	162,503	$	191	$	(3,823	)	$	158,871
Non-agency mortgage-backed securities		3,464		-		(77	)		3,387
Total	$	165,967	$	191	$	(3,900	)	$	162,258

The fair value of temporarily impaired securities, the amount of unrealized losses and the length of time these unrealized losses existed as of March 31, 2008 were as follows:

	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Mortgage-backed
securities, available
for sale	$	61,923	$	(343	)	$	20,164	$	(365	)	$	82,087	$	(708	)

Management has evaluated these securities and has determined that the decline in the value is temporary and not related to the underlying credit quality of the issuers or an industry specific event. The declines in value are on securities that have contractual maturity dates and future principal payments will be sufficient to recover the current amortized cost of the securities. The Company has the ability and intent to hold the securities for a reasonable period of time for a forecasted recovery of the amortized cost.

As of March 31, 2008, the Bank had pledged mortgage-backed securities with an amortized cost of $86.4 million and a fair value of $86.4 million as collateral for FHLB advances. Mortgage-backed securities with an amortized cost of $6.3 million and a fair value of $6.4 million at March 31, 2008, were pledged to the Federal Reserve Bank as collateral for treasury tax and loan funds held by the Bank and for borrowings from the discount window. The Company has also pledged a mortgage-backed security with an amortized cost of $2.1 million and a fair value of $2.1 million as collateral for a $1.5 million revolving line of credit from the Bank. As of March 31, 2008, there was no balance owed on the line of credit.

Note 7 - Loans Receivable

Loans receivable are summarized as follows:

	March 31, 2008					September 30, 2007
	Balance		Percent of Total			Balance		Percent of Total
	(dollars in thousands)
Real Estate:
One- to four-family residential	$	230,016		47.78	%	$	249,545		51.55	%
Multi-family residential		6,770		1.41			6,864		1.42
Commercial		144,149		29.94			133,823		27.64
Total real estate		380,935		79.13			390,232		80.61

Real Estate Construction:
One- to four-family residential		18,745		3.89			20,545		4.24
Multi-family residential		1,768		0.37			1,770		0.36
Commercial		12,981		2.70			13,691		2.83
Acquisition and land development		10,270		2.13			8,208		1.69
Total real estate construction		43,764		9.09			44,214		9.12

Consumer:
Home equity		48,932		10.16			42,990		8.88
Automobile		2,073		0.43			2,173		0.45
Other consumer		1,258		0.26			1,405		0.29
Total consumer		52,263		10.85			46,568		9.62

Commercial business		4,497		0.93			3,122		0.65
		481,459		100.00	%		484,136		100.00	%
Less:
Deferred loan fees		997					1,030
Allowance for loan losses		3,307					2,988
Loans receivable, net	$	477,155				$	480,118

Note 8 – Mortgage Servicing Rights

Mortgage servicing rights represent the fair value of the future loan servicing fees from the right to service loans for others. The unpaid principal balances of loans serviced at March 31, 2008 and September 30, 2007 were $177.0 million and $191.6 million, respectively. Loans serviced for others are not included in the Consolidated Balance Sheets. In general, during periods of falling interest rates, the mortgage loans prepay faster and the value of the mortgage servicing asset declines. Conversely, during periods of rising rates, the value of mortgage servicing rights generally increases as a result of slower rates of prepayments. The Company does not use derivatives to hedge fluctuations in the fair value of the servicing rights.

As of October 1, 2006, the Company adopted SFAS No. 156, Accounting for Servicing of Financial Assets, to measure mortgage servicing rights using the fair value method. As a result, the Company will measure each class of mortgage servicing rights at fair value at each reporting date, and report changes in fair value in earnings in the period in which the change occurs. Prior to the adoption of SFAS No. 156, the Company elected to account for its mortgage servicing rights using the amortization method previously required by SFAS No. 140.

The Company has identified two classes of mortgage servicing assets based upon the nature of the collateral, interest rate mechanism and nature of the loan. The Company uses an independent third party to periodically value the residential mortgage servicing rights using information such as anticipated prepayment speeds, discount rates and servicing fees associated with the type of loans sold.

Upon the change from the amortization method to fair value accounting under SFAS No. 156, the calculation of amortization and the assessment of impairment were discontinued. Those measurements have been replaced by adjustments to fair value that encompass market-driven valuation changes. Under the fair value method, the changes in fair value are reported in “Mortgage servicing rights, net” on the Consolidated Statements of Income.

The following table lists the classes of servicing rights and the activities in the balance of each class for the periods indicated:

	Three Months Ended March 31,						Six Months Ended March 31,
Servicing Right Classes	2008			2007			2008			2007
	(in thousands)
One- to four-family residential loans:
Beginning Balance	$	1,967		$	2,387		$	2,033		$	2,468
Additions for new mortgage servicing rights capitalized		-			-			-			3
Adjustments to fair value		(73	)		(89	)		(139	)		(173	)
Ending Balance	$	1,894		$	2,298		$	1,894		$	2,298

Commercial real estate loans:
Beginning Balance	$	12		$	22		$	14		$	24
Adjustments to fair value		(3	)		(3	)		(5	)		(5	)
Ending Balance	$	9		$	19		$	9		$	19

The amount of contractually specified servicing fees for one- to four-family residential loans for the three and six months ended March 31, 2008 were $126,000 and $253,000, respectively. The servicing fees for one- to four-family residential loans are recorded in “Loan Servicing Fees” on the Consolidated Statements of Income. The amount of contractually specified servicing fees for commercial real estate loans, as well as late fees and other ancillary fees earned for the periods indicated, were immaterial in amount.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “believes,” “intends,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include, but are not limited to:

·	statements of our goals, intentions and expectations;

·	statements regarding our business plan, prospects, growth and operating strategies;

·	statements regarding the quality of our loan and investment portfolios; and

·	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 as a result of, among others, the following factors:

·	general economic conditions, including real estate values, either nationally or in the Company’s market area, that are worse than expected;

·	changes in the interest rate environment that reduce the Company’s interest margins or reduce the fair value of financial instruments;

·	increased competitive pressures among financial services companies;

·	changes in consumer spending, borrowing and savings habits;

·	legislative or regulatory changes that adversely affect the Company’s business;

·	adverse changes in the securities markets; and

·	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.

These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof.

Overview

The Company is the successor to Home Federal MHC and the Mid-Tier in connection with the Conversion, which was completed on December 19, 2007.

On May 11, 2007, the Boards of Directors of the Company, Home Federal MHC and the Bank adopted a Plan of Conversion and Reorganization (the “Plan”) pursuant to which the Bank reorganized from the mutual holding company structure to the stock holding company structure. Pursuant to the terms of the Plan, shares of outstanding common stock of the Mid-Tier were exchanged for 1.136 shares of the Company’s common stock. No fractional shares were issued. The exchange ratio was designed to preserve the aggregate percentage ownership interest of the existing public shareholders of Mid-Tier following the sale of 10,200,000 shares of the Company’s common stock to the Bank’s eligible account holders, to the Bank’s tax-qualified employee benefit plans and to members of the general public. The Conversion was approved by the Bank’s depositors, the Company’s stockholders (including the approval of a majority of the shares held by persons other than Home Federal MHC) and regulatory agencies. The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “HOME” and is included in the America’s Community Bankers NASDAQ Index.

The Bank was founded in 1920 as a building and loan association and reorganized as a federal mutual savings and loan association in 1936. On December 6, 2004, the Bank reorganized into the two-tiered mutual holding company form of organization. In connection with that transaction, the Mid-Tier sold 40.00% of its outstanding shares of common stock (6,083,500 shares) to the public and issued 59.04% of its outstanding shares of common stock (8,979,246 shares) to Home Federal MHC, the mutual holding company parent of the Mid-Tier. In connection with that transaction, the Mid-Tier also established and capitalized the Foundation with a $1.8 million one-time contribution, which consisted of 146,004 shares of its common stock and $365,010 in cash. As part of that transaction the Bank converted from a federally-chartered mutual savings and loan association to a federally-chartered stock savings bank and became the wholly owned subsidiary of the Mid-Tier.

The Bank is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area. The Bank’s primary business is attracting deposits from the general public and using these funds to originate loans. The Bank emphasizes the origination of commercial business loans, commercial real estate loans, construction, residential development, consumer loans, loans secured by first mortgages on owner-occupied, and residential real estate. As a result of a comprehensive and continuing review of its strategic business plan, the Company continues to expand its commercial and small business banking programs, including a variety of loan and deposit products.

The Bank serves the Treasure Valley region of southwestern Idaho, that includes Ada, Canyon, Elmore and Gem counties, through its 16 full-service banking offices and one loan center. Nearly 40% of the state’s population lives and works in the four counties served by Home Federal Bank. Ada County has the largest population and includes the city of Boise, the state capitol. Home Federal Bank maintains its largest branch presence in Ada County with eight locations, followed by Canyon County with five branches, including the Company’s corporate headquarters in Nampa. 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 the Bank serves, followed by Nampa, the state’s second largest city. The area has experienced a slowdown in the residential housing market similar to the Nation as a whole. Housing prices have declined, and single-family housing permits have decreased from prior year levels. The regional economy is well diversified with government, healthcare, manufacturing, service, 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 and J.R. Simplot Company. Other major employers include Hewlett-Packard, Supervalu, 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.

Critical Accounting Policies

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. The Company’s Asset Liability Management Committee assesses the allowance for loan losses on a quarterly basis. The Committee analyzes several different factors including delinquency rates, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties.

The Company believes 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. The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

The Company’s methodology for analyzing the allowance for loan losses consists of specific allocations on significant individual credits and a general allowance amount, including a range of losses. The specific allowance component is determined when management believes that the collectibility of a specific large loan has been impaired and a loss is probable. The general allowance component relates to assets with no well-defined deficiency or weakness and takes into consideration loss that is inherent within the portfolio but has not been realized. The general allowance is determined by applying a historical loss percentage to various types of loans with similar characteristics and classified loans that are not analyzed specifically. Due to the imprecision in calculating inherent and potential losses, a range is added to the general allowance to provide an allowance for loan losses that is adequate to cover losses that may arise as a result of changing economic conditions and other qualitative factors that may alter our historical loss experience.

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.

The Company also estimates a reserve related to unfunded loan commitments. In assessing the adequacy of the reserve, the Company uses a similar approach used in the development of the allowance for loan losses. The reserve for unfunded loan commitments is included in other liabilities on the Consolidated Balance Sheets. The provision for unfunded commitments is charged to noninterest expense.

Mortgage Servicing Rights. Mortgage servicing rights represent the present value of the future loan servicing fees from the right to service loans for others. 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 are the mortgage loan prepayment rate assumptions. The mortgage loan prepayment rate assumptions are 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 Company performs a quarterly review of mortgage servicing rights for potential changes in value. This review may include an independent appraisal by an outside party of the fair value of the mortgage servicing rights.

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 SFAS 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, deferred compensation, mark to market adjustments on our available for sale securities, and dividends received from the Federal Home Loan Bank of Seattle. Deferred income taxes do not include a liability for pre-1988 bad debt deductions allowed to thrift institutions that 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, 2008 and September 30, 2007

General. Total assets increased $58.2 million, or 8.2%, to $768.1 million at March 31, 2008 from $710.0 million at September 30, 2007. The increase in total assets was attributable primarily to $88.4 million in net proceeds raised from the Company’s second-step conversion and stock offering completed on December 19, 2007. Cash and due from other banks increased $15.8 million, or 76.6%, to $36.4 million. Loans receivable, net, decreased $3.0 million, or 0.6%, to $477.2 million. Mortgage-backed securities increased $47.0 million, or 28.9%, to $209.2 million. Total deposits decreased $8.5 million, or 2.1%, to $396.1 million. FHLB advances decreased $25.2 million, or 13.9%, to $155.6 million.

Assets. For the six months ended March 31, 2008, total assets increased $58.2 million. The increases and decreases were primarily concentrated in the following asset categories:

					Increase (decrease)
	Balance at March 31, 2008		Balance at September 30, 2007		Amount			Percent
	(dollars in thousands)
Cash and amounts due from depository institutions	$	36,353	$	20,588	$	15,765			76.6	%
Mortgage-backed securities, available for sale		209,239		162,258		46,981			28.9
Loans receivable, net of allowance for loan losses		477,155		480,118		(2,963	)		(0.6	)

Cash and amounts due from depository institutions increased $15.8 million to $36.4 million at March 31, 2008, from $20.6 million at September 30, 2007. The higher cash balance at March 31, 2008 is due to a portion of the proceeds from the Company’s second-step conversion and stock offering being invested in overnight funds at the end of the most recent quarter.

Mortgage-backed securities increased $47.0 million to $209.2 million at March 31, 2008, from $162.3 million at September 30, 2007. The increase was primarily attributable to mortgage-backed securities purchased with proceeds from the Company’s second-step conversion and stock offering.

Loans receivable, net, decreased $3.0 million to $477.2 million at March 31, 2008, from $480.1 million at September 30, 2007. One- to four-family residential mortgage loans decreased $19.9 million as the Company sold a majority of the one-to four-family loans that were originated. Commercial loans increased $11.6 million to $155.4 million at December 31, 2007 from $143.8 million at September 30, 2007. Construction loans decreased $102,000 to $43.8 million at March 31, 2008 from $43.9 million at September 30, 2007. The Bank has made significant progress in building commercial and small business banking programs, including the addition of an experienced commercial banking team to expand the commercial banking activities, including business banking, cash management and other products associated with a full-service commercial bank.

Deposits. Deposits decreased $8.5 million, or 2.1%, to $396.1 million at March 31, 2008, from $404.6 million at September 30, 2007. The increase in interest-bearing demand deposits was primarily attributed to growth in money market accounts as the Bank continued its emphasis on deposit products associated with a full-service commercial bank. The decrease in certificates of deposit was primarily the result of choosing not to match rates offered by local competitors that in many cases exceeded the Bank’s cost of alternative funding sources. The following table details the changes in deposit accounts:

					Increase (decrease)
	Balance at March 31, 2008		Balance at September 30, 2007		Amount			Percent
	(dollars in thousands)

Noninterest-bearing demand deposits	$	37,323	$	38,643	$	(1,320	)		(3.4	)%
Interest-bearing demand deposits		142,820		127,659		15,161			11.9
Savings deposits		24,524		23,116		1,408			6.1
Certificates of deposit		191,439		215,191		(23,752	)		(11.0	)
Total deposit accounts	$	396,106	$	404,609	$	(8,503	)		(2.10	)%

Borrowings. FHLB advances decreased $25.2 million, or 13.9%, to $155.6 million at March 31, 2008, from $180.7 million at September 30, 2007. The decrease resulted from maturing advances funded from excess liquidity. The Bank uses FHLB advances as an alternative funding source to deposits, manage funding costs, reduce interest rate risk, and to leverage the balance sheet.

Deferred Income Tax Asset/Liability. The Company had a deferred tax asset of $1.2 million at September 30, 2007 versus a deferred tax liability of $377,000 at March 31, 2008. This change primarily resulted from a shift from an unrealized loss on the Company’s mortgage-backed securities’ portfolio as of September 30, 2007 to an unrealized gain as of March 31, 2008.

Equity. Stockholders’ equity increased $92.7 million, or 82.3%, to $205.4 million at March 31, 2008, from $112.6 million at September 30, 2007. The increase was primarily attributable to the $88.4 million in net proceeds received from the second-step conversion and stock offering. The Company sold approximately 9.4 million shares of stock in its subscription, community and syndicated community offerings and issued approximately 7.1 million additional shares of its stock in exchange for the previously outstanding shares of Home Federal Bancorp, Inc., the Bank’s former “mid-tier” holding company. A portion of the offering proceeds were used to make a loan to the Company’s employee stock ownership plan, which purchased 816,000 shares of the Company’s common stock for an aggregate cost of $8.2 million. In addition, other significant activity among equity accounts over the past six months included $1.9 million in net income, the allocation of earned employee stock ownership plan shares, equity compensation and the exercise of stock options totaling $921,000, and a $2.8 million increase in the market value of mortgage-backed securities, offset by $1.2 million in cash dividends paid to stockholders. On March 14, 2008, the Company paid $0.055 per share in cash dividends to stockholders of record as of February 27, 2008.

Comparison of Operating Results for the Three Months ended March 31, 2008 and March 31, 2007

General. Net income for the three months ended March 31, 2008 was $945,000, or $0.06 per diluted share, compared to net income of $1.2 million, or $0.07 per diluted share, for the three months ended March 31, 2007. Earnings per share for the prior period have been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on December 19, 2007.

Net Interest Income. Net interest income increased $416,000, or 7.8%, to $5.8 million for the three months ended March 31, 2008, from $5.4 million for the three months ended March 31, 2007. The increase in net interest income was primarily attributable to a lower balance of FHLB advances. The decrease in FHLB advances resulted from maturing advances funded from excess liquidity.

The Company’s net interest margin increased 15 basis points to 3.15% for the quarter ended March 31, 2008, from 3.00% for the same quarter last year. This increase was primarily attributable to the interest earnings on the proceeds of the second-step conversion and reorganization of the Company. In addition, the deposit mix shift toward lower cost deposits also contributed to the increase.

The following table sets forth the impacts to the Company’s net interest income from changes in balances of interest earning assets and interest bearing liabilities as well as changes in interest rates. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). Changes attributable to both rate and volume, which cannot be segregated, are allocated proportionately to the changes in rate and volume.

	Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
	Increase (Decrease) Due to
	Rate			Volume			Total
	(in thousands)
Interest-earning assets:
Loans receivable, net	$	(142	)	$	(523	)	$	(665	)
Loans held for sale		-			(35	)		(35	)
Investment securities, including interest- bearing deposits in other banks		(7	)		502			495
Mortgage-backed securities		(34	)		(62	)		(96	)
FHLB stock		22			-			22
Total net change in income on interest- earning assets	$	(161	)	$	(118	)	$	(279	)

Interest-bearing liabilities:
Savings deposits	$	20		$	(1	)	$	19
Interest-bearing demand deposits		10			(21	)		(11	)
Money market accounts		(12	)		148			136
Certificates of deposit		52			(329	)		(277	)
Total deposits		70			(203	)		(133	)
FHLB advances		61			(623	)		(562	)
Total net change in expense on interest- bearing liabilities	$	131		$	(826	)	$	(695	)
Total increase in net interest income							$	416

Interest and Dividend Income. Total interest and dividend income for the three months ended March 31, 2008 decreased $279,000, or 2.6%, to $10.5 million, from $10.7 million for the three months ended March 31, 2007. The decrease during the quarter is primarily attributable to a decrease on yields earned on interest earning assets.

The following table compares detailed average earning asset balances, associated yields, and resulting changes in interest and dividend income:

	Three Months Ended March 31,
	2008					2007					Increase/
	Average Balance		Yield			Average Balance		Yield			(Decrease) in Interest and Dividend Income from 2007
	(dollars in thousands)

Loans receivable, net	$	479,822		6.45	%	$	512,191		6.56	%	$	(665	)
Loans held for sale		2,266		6.09			4,504		6.13			(35	)
Investment securities, available for sale, including interest-bearing deposits in other banks		57,900		3.52			1,158		5.18			495
Mortgage-backed securities		182,865		4.70			188,113		4.77			(96	)
FHLB stock		9,591		1.29			9,591		0.38			22
Total interest-earning assets	$	732,444		5.71	%	$	715,557		6.00	%	$	(279	)

Interest Expense. Interest expense decreased $695,000, or 12.9%, to $4.7 million for the three months ended March 31, 2008 from $5.4 million for the three months ended March 31, 2007. The average balance of total interest-bearing liabilities decreased $75.9 million, or 12.8%, to $518.5 million for the three months ended March 31, 2008 from $594.4 million for the three months ended March 31, 2007. The largest single contributing factor to the decrease in interest bearing liabilities was the decrease in average FHLB advances of $54.3 million.

The following table details average balances, cost of funds and the change in interest expense:

	Three Months Ended March 31,
	2008					2007					Increase/
	Average Balance		Cost			Average Balance		Cost			(Decrease) in Interest Expense from 2007
	(dollars in thousands)

Savings deposits	$	22,776		0.70	%	$	23,380		0.36	%	$	19
Interest-bearing demand deposits		78,726		0.62			92,586		0.58			(11	)
Money market deposits		59,902		2.75			38,409		2.87			136
Certificates of deposit		199,652		4.60			228,346		4.51			(277	)
FHLB advances		157,444		4.60			211,721		4.48			(562	)
Total interest-bearing liabilities	$	518,500		3.61	%	$	594,442		3.62	%	$	(695	)

Provision for Loan Losses. A provision for loan losses of $378,000 was established in connection with an analysis of the loan portfolio for the quarter ended March 31, 2008, compared to no provision for loan losses for the same quarter of the prior year. The increase in the provision reflects a potential increased level of risk associated with the Bank’s one to four family residential construction loans given the slowdown in the local residential real estate market, and impairments specifically identified with a purchased portfolio of $26.5 million one-to-four family residential loans secured by property located primarily in the Western United States. While the Bank’s credit quality remains solid, Management continues to keep a watchful eye on the local market closely monitoring and

managing credit quality, specifically acquisition and development and real estate construction loans. The Bank has recognized and identified the risk of acquisition and development lending and has limited its exposure in this area. The Bank does not originate or purchase one- to four-family subprime loans. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provision that may be required will not adversely impact the Company’s financial condition and results of operations. In addition, the determination of the amount of the allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in the establishment of additional reserves based upon their judgment of information available to them at the time of their examination.

Standard provisions for loan losses are established based upon the type of loan and the risk factors associated with that loan type. As the Bank increases its commercial loan portfolio, the Bank anticipates it will increase its allowance for loan losses based upon the higher risk characteristics associated with commercial loans.

The following table details selected activity associated with the allowance for loan losses:

	At or For the Three Months Ended March 31,
	2008			2007
	(dollars in thousands)
Provision for loan losses	$	378		$	-
Net charge-offs		87			4
Allowance for loan losses		3,307			2,849
Allowance for loan losses as a percentage of gross loans receivable at the end of the period		0.69	%		0.56	%
Nonperforming loans	$	1,852		$	273
Allowance for loan losses as a percentage of nonperforming loans at the end of the period		178.56	%		1,043.59	%
Nonaccrual and 90 days or more past due loans as a percentage of loans receivable at the end of the period		0.39			0.05
Loans receivable, net	$	477,155		$	503,688

Noninterest Income. Noninterest income decreased $283,000, or 10.3%, to $2.5 million for the three months ended March 31, 2008 from $2.8 million for the three months ended March 31, 2007. The decrease was primarily attributable to a $217,000 decrease in gain on sale of one-to four-family residential loans in the secondary market. The decrease in the gain on sale of loans is a result of lower volume of sold loans consistent with the slowdown in the local residential real estate market.

The following table provides a detailed analysis of the changes in components of noninterest income:

	Three Months Ended March 31,						Increase (decrease)
	2008			2007			Amount			Percent
	(dollars in thousands)

Service fees and charges	$	2,098		$	2,222		$	(124	)		(5.6	)%
Gain on sale of loans		162			379			(217	)		(57.3	)
Increase in cash surrender value of bank owned life insurance		104			99			5			5.0
Loan servicing fees		126			142			(16	)		(11.3	)
Mortgage servicing rights, net		(75	)		(92	)		17			18.5
Other		63			11			52			472.7
Total noninterest income	$	2,478		$	2,761		$	(283	)		10.3	%

Noninterest Expense. Noninterest expense increased $325,000, or 5.3%, to $6.4 million for the three months ended March 31, 2008 from $6.1 million for the three months ended March 31, 2007.

The following table provides a detailed analysis of the changes in components of noninterest expense:

	Three Months Ended March 31,				Increase (decrease)
	2008		2007		Amount			Percent

	(dollars in thousands)

Compensation and benefits	$	4,053	$	3,851	$	202			5.3	%
Occupancy and equipment		760		727		33			4.5
Data processing		531		493		38			7.7
Advertising		271		300		(29	)		(9.7