General

The Company's results of operations are primarily dependent on the results of the Bank, which became a wholly owned subsidiary upon completion of the second-step conversion and reorganization on December 22, 2010. Prior thereto, the Bank was in the mutual holding company form of organization. The Bank's results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses and loan sale activities. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial conditions and results of operations.

Critical Accounting Policies

Allowance for Loan Losses. The Company has identified the calculation of the allowance for loan losses as a critical accounting policy, due to the higher degree of judgment and complexity than its other significant accounting policies. Provisions for loan losses are based upon management's periodic valuation and assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at a level believed by management to represent all known and inherent losses in the portfolio that are both probable and reasonably estimable. Although management uses the best information available, the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change.

Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. The realization of our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.

Discussion of Financial Condition Changes from June 30, 2011 to September 30, 2011

At September 30, 2011, total assets amounted to $243.8 million compared to $233.3 million at June 30, 2011, an increase of approximately $10.5 million, or 4.5%. This increase was primarily due to an increase in investment securities of $5.6 million, or 6.9%, an increase in loans receivable, net, of $2.7 million, or 2.2%, and an increase in loans held for sale of $2.5 million or 37.8%. The increase in loans held for sale at quarter end reflects an increase in residential mortgage loan originations during the quarter ended September 30, 2011.

The increase in loans was primarily due to the origination of new loans by the mortgage lending department. Construction loans also increased principally as a result of one hotel development on which we are the lead lender and have sold a participation interest. The increase in securities was primarily due to new security acquisitions of $37.3 million, partially offset by normal principal paydowns and sales amounting to $32.3 million and a increase in the fair value of securities of $594,000. In August 2011, after the Federal Open Market Committee announced that it anticipated economic conditions, including low rates of resource utilization and a subdued outlook for inflation over the medium term, are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013, we discontinued our interest rate risk laddering strategy and invested in long-term, higher yielding mortgage backed securities with a structured adjustable rate note.

Discussion of Financial Condition Changes from June 30, 2011 to September 30, 2011 (continued)

At September 30, 2011, the Company had $89,000 of non-performing assets, or 0.04% of total assets at such date, compared to $114,000 or 0.05% of total assets at June 30, 2011. Approximately $75,000 of our non-performing assets at September 30, 2011 consisted of one loan purchased from a mortgage originator from which we historically purchased loans secured by single-family housing primarily located in predominantly rural areas of Texas and to a lesser extent, Tennessee, Arkansas, Alabama, Louisiana and Mississippi. No such mortgage loans have been purchased since fiscal 2009. The loans were generally secured by rural properties and the seller retained servicing rights. Although the loans were originated with fixed-rates, Home Federal Bank receives an adjustable-rate of interest equal to the Federal Housing Finance Board rate, with rate floors and ceilings of approximately 5.0% and 8.0%, respectively. Under the terms of the loan agreements, as currently modified, the seller must repurchase or replace any loan that becomes more than 180 days delinquent. At September 30, 2011, we had approximately $8.6 million of such loans in our portfolio with an average contractual remaining term of approximately 21.1 years.

The Company's total liabilities amounted to $191.5 million at September 30, 2011, an increase of approximately $9.4 million, or 5.2%, compared to total liabilities of $182.1 million at June 30, 2011. The primary reason for the increase in liabilities was due to an increase in deposits of $12.8 million, or 8.3%, partially offset by a $3.9 million, or 14.6%, decrease in advances from the Federal Home Loan Bank and an increase in other liabilities of $576,000.

Stockholders' equity increased $1.1 million, or 2.2%, to $52.3 million at September 30, 2011 compared to $51.2 million at June 30, 2011. This increase was primarily the result of the recognition of net income of $802,000 for the three months ended September 30, 2011, an increase in the Company's accumulated other comprehensive income of $392,000, the distribution of shares associated with the Company's stock award plans of $48,000 and proceeds from the issuance of common stock from the exercise of stock options of $66,000. These increases were partially offset by dividends of $183,000 paid during the three months ended September 30, 2011.

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency ("OCC"). At September 30, 2011, Home Federal Bank's regulatory capital was well in excess of the minimum capital requirements.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2011 and 2010

General

Net income amounted to $802,000 for the three months ended September 30, 2011 compared to net income of $646,000 for the same period in 2010, an increase of $156,000, or 24.1%. The increase was primarily due to a $370,000, or 21.7%, increase in net interest income for the three months ended September 30, 2011 compared to the same period in 2010, a $110,000, or 13.2% increase in non-interest income for the 2011 period compared to the same period in 2010 and a decrease of $53,000, or 16.0% in income tax expense, partially offset by increases of $363,000, or 24.4% in non-interest expense, and $14,000, or 19.4% in the provision for loan losses. The increase in net interest income for the three months ended September 30, 2011 was primarily due to an increase in interest income and fees from higher loan originations as a result of the hiring of additional commercial and residential loan officers since 2010, and a decrease in the Company's cost of funds for the three months ended September 30, 2011, compared to the prior year period. The increase in non-interest expense was primarily due to an increase in compensation and benefits expense of $104,000, or 10.2%, and other expenses associated with the Company's growth, including a $72,000 increase in occupancy and equipment expense in connection with the expansion and improvement of the Company's offices.

Net Interest Income

Net interest income for the three months ended September 30, 2011 was $2.1 million, an increase of $370,000, or 21.7%, in comparison to $1.7 million for the three months ended September 30, 2010. This increase was primarily due to an increase of $337,000 in total interest income and a decrease of $33,000 in the Company's cost of funds. The increase in total interest income was primarily due to an increase in interest income generated from loans of

Comparison of Operating Results for the Three Month Periods Ended September 30, 2011 and 2010 (continued)

$464,000, or 25.8%, and an increase in interest income from investment securities of $52,000, partially offset by decreases in interest income from mortgage-backed securities of $181,000. The cost of funds from and Federal Home Loan Bank borrowings decreased $80,000 during the period while interest paid on deposits increased $47,000 during the same period.

The Company's average interest rate spread was 3.23% for the three months ended September 30, 2011, compared to 3.32% for the three months ended September 30, 2010. The Company's net interest margin was 3.69% for the three months ended September 30, 2011, compared to 3.79% for the three months ended September 30, 2010. The decrease in net interest margin and average interest rate spread for the three month period is attributable primarily to the lower average interest rates on interest earning assets. While the interest rate spread and net interest margin decreased, net interest income increased primarily due to the increase in volume of average interest-earning assets.

Provision for Losses on Loans

Based on an analysis of historical experience, the volume and type of lending conducted by Home Federal, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to Home Federal's market area and other factors related to the collectability of Home Federal's loan portfolio, a provision for loan losses of $86,000 was made during the three months ended September 30, 2011, compared to a $72,000 provision made during the three months ended September 30, 2010. Home Federal's allowance for loan losses was $928,000, or 0.72% of total loans, at September 30, 2011 compared to $842,000, or 0.56%, of total loans at September 30, 2010. At September 30, 2010, Home Federal had two non-performing loans in the amount of $115,000. At September 30, 2011, Home Federal had two non-performing loans in the amount of $89,000 and no other non-performing assets or troubled-debt restructurings. There can be no assurance that the loan loss allowance will be sufficient to cover losses on non-performing assets in the future.

Non-interest Income

Total non-interest income amounted to $944,000 for the three months ended September 30, 2011, an increase of $110,000 compared to $834,000 for the same period in 2010. The increase was primarily due to an increase of $56,000 in bank owned life insurance income, a $42,000 reversal of previously accrued Louisiana bank shares tax expense and an increase of $14,000 in gain on sale of loans, partially offset by a decrease of $26,000 in gain on sale of investments for the same period compared to 2010.

Non-interest Expense

Total non-interest expense increased $363,000, or 24.4%, for the three months ended September 30, 2011 compared to the prior year period. The increase in non-interest expense was primarily due to an increase in compensation and benefits expense of $104,000, or 10.2%, as well as increases of $72,000 in occupancy and equipment expenses, $64,000 in franchise and bank taxes, $40,000 in data processing costs, $41,000 in advertising costs and $45,000 in legal expenses.

The increase in compensation and benefits expense was a result of normal compensation increases including stock options and recognition and retention plan expense and the hiring of additional commercial and residential loan officers. The aggregate compensation expense recognized by the Company for its Stock Option, ESOP and Recognition and Retention Plans amounted to $42,000 and $34,000 for the three months ended September 30, 2011 and 2010, respectively.

The Louisiana bank shares tax is assessed on the Bank's equity and earnings. For the three months ended September 30, 2011 and 2010, the Company recognized franchise and bank shares tax expense of $95,000 and $31,000 respectively.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2011 and 2010 (continued)

Income Taxes

Income taxes amounted to $279,000 and $332,000 for the three months ended September 30, 2011 and 2010, respectively, resulting in effective tax rates of 25.8% and 34.0%, respectively. The reduction in effective income tax rates for the three months ended September 30, 2011, is primarily the result of non-taxable income which had the effect of a 1.8% reduction and the difference in capital gains and losses which had the effect of a 6.4% reduction.

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

                                                    Three months ended September 30,
                                            2011                                         2010
                                                          Average                                     Average
                           Average                         Yield/        Average                       Yield/
                           Balance         Interest         Rate         Balance       Interest         Rate
                                                         (Dollars in thousands)
Interest-earning
assets:
   Investment
securities               $     77,897     $      607           3.12 %   $  59,890     $      725           4.84 %
   Loans
receivable                    134,591          2,262           6.72       105,518          1,798           6.82
Interest-earning
deposits                       12,232              5            .16        14,631             14            .38
     Total
interest-earning
assets                        224,720          2,874           5.12       180,039          2,537           5.64
Non-interest-earning
assets                         13,984                                       8,529
     Total
assets                   $    238,704                                   $ 188,568
Interest-bearing
liabilities:
   Savings
accounts                        7,012              7            .40         5,601              6            .43
   NOW accounts                14,808             31            .84         7,671              6            .31
   Money market
accounts                       34,193             65            .76        24,447             61           1.00
   Certificate
accounts                       88,917            518           2.33        77,245            502           2.60
     Total
deposits                      144,930            621           1.71       114,964            575           2.00
FHLB advances                  24,271            177           2.92        28,661            258           3.60
     Total
interest-bearing
liabilities                   169,201            798           1.89 %     143,625            833           2.32 %
Non-interest-bearing
liabilities:
   Non-interest
bearing demand
accounts                       17,360                                       9,639
   Other
liabilities                     1,702                                       3,824
     Total
liabilities                   188,263                                     157,088
Total Stockholders'
Equity(1)                      50,441                                      31,480

     Total liabilities
and equity               $    238,704                                   $ 188,568

Net interest-earning
assets                   $     55,519                                   $  36,414

Net interest income;
average interest
   rate spread(2)                         $    2,076           3.23 %                 $    1,704           3.32 %

Net interest
margin(3)                                                      3.69 %                                      3.79 %

Average
interest-earning
assets to
  average
interest-bearing
liabilities                                                    1.33 %                                      1.25 %


 __________________

(2) Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.

(3) Net interest margin is net interest income divided by net average interest-earning assets.

Liquidity and Capital Resources

Home Federal Bank maintains levels of liquid assets deemed adequate by management. The Bank adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. Home Federal Bank also adjusts liquidity as appropriate to meet asset and liability management objectives.

Home Federal Bank's primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, loan sales and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, Home Federal Bank invests excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet lending requirements. Home Federal Bank's deposit accounts with the Federal Home Loan Bank of Dallas amounted to $1.1 million at September 30, 2011.

A significant portion of Home Federal Bank's liquidity consists of securities classified as available-for-sale and cash and cash equivalents. Home Federal Bank's primary sources of cash are net income, principal repayments on loans and mortgage-backed securities and increases in deposit accounts. If Home Federal Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds. At September 30, 2011, Home Federal Bank had $23.0 million in advances from the Federal Home Loan Bank of Dallas and had $119.9 million in additional borrowing capacity. Additionally, at September 30, 2011, Home Federal Bank was a party to a Master Purchase Agreement with First National Bankers Bank whereby Home Federal Bank may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $14.3 million. There were no amounts purchased under this agreement as of September 30, 2011.

At September 30, 2011, Home Federal Bank had outstanding loan commitments of $16.3 million to originate loans. At September 30, 2011, certificates of deposit scheduled to mature in less than one year, totaled $41.3 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal, in a rising interest rate environment. Home Federal Bank intends to utilize its high levels of liquidity to fund its lending activities. If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale as needed.

Home Federal Bank is required to maintain regulatory capital sufficient to meet tangible, core and risk-based capital ratios of at least 1.5%, 3.0% and 8.0%, respectively. At September 30, 2011, Home Federal Bank exceeded each of its capital requirements with ratios of 17.26%, 17.26% and 35.11%, respectively.

Off-Balance Sheet Arrangements

At September 30, 2011, the Company did not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission rules.

Impact of Inflation and Changing Prices

The financial statements and related financial data presented herein have been prepared in accordance with instructions to Form 10-Q, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation.

Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than does the effect of inflation.

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document, the words "anticipate," "believe," "estimate," "except," "intend," "should" and similar expressions, or the negative thereof, as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.