HOMF Home Federal Bancorp (MM)

COLUMBUS, Ind., Jan. 24 /PRNewswire-FirstCall/ -- Home Federal Bancorp (the "Company") (NASDAQ:HOMF), the holding company of HomeFederal Bank of Columbus, Indiana (the "Bank"), today announced quarterly earnings of $1,692,000 or $0.43 diluted earnings per common share, for the quarter. This compared to earnings of $1,526,000, or $0.37 diluted earnings per common share, a year earlier. Year-to-date net income was $6,102,000 or $1.53 diluted earnings per common share, compared to $5,163,000, or $1.21 diluted earnings per common share, a year earlier. Sequential quarterly earnings increased 5% for the quarter compared to the prior quarter. The sequential quarterly earnings growth during the year has been driven by improved net interest margin and increased deposit service charges compared to the prior periods. Retail deposits increased $6.0 million during the quarter and $58.1 million year to date representing a 10% increase compared to the 2004 year end balance. Chairman and CEO John Keach, Jr. stated "We are pleased with earnings growth of 18% and earnings per share growth of 26% for the year. I want to say thank you to our tremendous staff for their extraordinary sales and service efforts during 2005 -- we could not have achieved these results without a strong contribution from everyone at HomeFederal." Executive Vice President and CFO Mark Gorski added "Our retail deposit growth of 10% and the return of our credit quality ratios to historical levels were two big keys to our success in 2005." Net Interest Income Net interest income increased $143,000 or 2% to $6,305,000 for the quarter. Year-to-date net interest income increased $1,572,000 or 7% to $25,159,000. Net interest margin improved 16 basis points for the quarter and 22 basis points year to date as yields on interest earning assets have increased 32 basis points for the year while yields on interest bearing liabilities have increased 10 basis points for the year. Retail deposits have increased $58.1 million for the year and these balances have been used to pay down higher priced wholesale funding. The shift in funding sources during the year has aided in slowing the increase in the rate paid on interest bearing liabilities. Asset Quality Provision for loan losses was $219,000 for the three months ended December 31, 2005 as compared to a provision credit of $398,000 for the three months ended December 31, 2004, an increase of $617,000. Year to date provision for loan losses decreased $962,000 to $808,000. The increase in the provision for loan losses in 2004 was related to two large commercial loans that were classified as non-performing during the third quarter of 2004. Non- performing assets to total assets decreased to 0.54% at December 31, 2005 from 1.71% at December 31, 2004. Non-performing loans to total gross loans decreased to 0.70% at December 31, 2005 from 2.01% at December 31, 2004. As discussed in the previous quarterly release, the final disposition of assets related to two large commercial loans which were classified as non-performing in 2004 occurred in the second quarter of 2005. Specific reserves previously established on these loans were adequate to cover the charge offs and there was no significant impact of these loans on the provision for loan losses during 2005. Non-performing assets have decreased $10.2 million to $4.6 million at December 31, 2005 as compared to $14.9 million at December 31, 2004. The ratio of the allowance for loan losses to total loans was 1.09% at December 31, 2005. In addition, the allowance for loan losses to non- performing loans is 156%. The current non-performing asset ratios as of December 31, 2005 are more indicative of the historical quality of the loan portfolio. Other Income Other income increased $405,000 or 17% to $2,723,000 for the quarter. Year to date other income increased $613,000 or 6% to $10,296,000. The increase in other income was due primarily to increases in deposit service fee income and investment brokerage income. Total deposit fee income increased $112,000 or 14% for the quarter and $486,000 or 16% year to date due primarily to the increased number of deposit accounts. Brokerage fee income increased $123,000 or 29% for the quarter and $311,000 or 17% year to date due to increased production in established markets along with brokerage production for a book of business acquired in the Greenwood market during the fourth quarter. In addition, fee income associated with mortgage banking activities has fluctuated significantly as compared to the prior year. Gain on sale of loans decreased $203,000 for the quarter and decreased $1,112,000 year to date. This decrease is primarily due to significantly lower levels of mortgage originations in 2005 compared to 2004. Origination levels in early 2004 were inflated by higher levels of refinance activity. Loan servicing income increased $280,000 for the quarter and $700,000 year to date. The fluctuation in loan servicing income for the periods presented was due primarily to the timing and fluctuation in the impairment charge/recovery. The originated mortgage servicing rights asset is reviewed for impairment each quarter. The impairment charge is the recognition of the change in value of mortgage servicing rights that results from changes in interest rates and loan prepayment speeds. During the quarter, the impairment recovery was $189,000 compared to $15,000 in the prior year for an increase in pre-tax income of $174,000. For the year, the impairment recovery was $549,000 compared to $95,000 in the prior year for an increase in pre-tax income of $454,000. Other Expenses Other expenses decreased $137,000 or 2% to $6,361,000 for the quarter. Year-to-date other expenses increased $1,783,000 or 7% to $25,576,000. Compensation expense increased $107,000 or 3% for the quarter and $1,083,000 or 8% year to date due primarily to personnel cost associated with staffing of new branch office locations on the south side of Indianapolis, increased cost of employee benefits and reductions in expense deferrals related to loan origination activities due to a decrease in residential mortgage volume. Marketing expense increased $17,000 for the quarter and $392,000 year to date due primarily to additional amounts spent to promote new branch offices on the south side of Indianapolis and to promote the totally free checking product. Miscellaneous expenses decreased $427,000 or 27% for the quarter and $298,000 or 6% year to date. Professional fees were incurred during the fourth quarter of 2004 to assist in the implementation, documentation and testing related to compliance with requirements of Sarbanes Oxley legislation. Balance Sheet Total assets were $850.7 million as of December 31, 2005, a decrease of $17.6 million from December 31, 2004. Total loans decreased $20.9 million due to a $29.2 million decrease in commercial and residential mortgage loans partially offset by a $7.5 million increase in home equity loans. Total retail deposits increased $58.1 million or 10% compared to balances at December 31, 2004. The increase in retail deposits is comprised of a $6.1 million increase in non interest bearing checking accounts, a $21.5 million increase in interest bearing transaction accounts and a $30.5 million increase in consumer certificates of deposit. The increase in consumer deposits has been used to pay down higher cost wholesale deposits and Federal Home Loan Bank advances, which have declined $40.5 million and $38.8 million respectively during the year. The shift in interest bearing liabilities is important to the improvement of the net interest margin. As customer preferences for deposits shift back toward interest bearing transaction accounts, the Company will pursue additional retail deposits by continuing to offer promotional rates which are higher than current retail deposit costs, but still below alternative funding sources in an effort to positively impact net interest margin. As of December 31, 2005, shareholders' equity was $73.0 million. The return on average assets for the quarter was 0.80% annualized while the return on average equity was 9.28%. Stock Repurchase Programs In July 2005, the Board of Directors approved the ninth repurchase, from time to time, on the open market of up to 5% of the Company's outstanding shares of common stock, without par value ("Common Stock"), or 193,000 such shares. Such purchases will be made subject to market conditions in open market or block transactions. Management believes that the purchase of these shares has the potential to increase long term shareholder value by positively impacting earnings per share and return on equity. The Company repurchased 61,000 shares under this plan during the fourth quarter of 2005. Home Federal Bancorp is a bank holding company registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve"), which has been authorized by the Federal Reserve to engage in activities permissible for a financial holding company. HomeFederal Bank, its principal subsidiary, is an FDIC insured state chartered commercial bank. HomeFederal Bank was founded in 1908 and offers a wide range of consumer and commercial financial services through 19 branch offices in central and southeastern Indiana. Forward-Looking Statement This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements include expressions such as "expects," "intends," "believes," and "should," which are necessarily statements of belief as to the expected outcomes of future events. Actual results could materially differ from those presented. Home Federal Bancorp undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release. The Company's ability to predict future results involves a number of risks and uncertainties, some of which have been set forth in the Company's most recent annual report on Form 10-K, which disclosures are incorporated by reference herein. HOME FEDERAL BANCORP CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) December 31, December 31, 2005 2004 Assets: Cash $30,642 $24,729 Interest-bearing deposits 23,094 27,591 Total cash and cash equivalents 53,736 52,320 Securities available for sale at fair value (amortized cost $126,146 and $125,086) 123,351 124,790 Securities held to maturity (fair value $1,793 and $1,801) 1,806 1,779 Loans held for sale (fair value $4,859 and $2,653) 4,795 2,617 Loans receivable, net of allowance for loan losses of $6,753 and $7,864 608,556 629,490 Investments in joint ventures 2,486 3,550 Federal Home Loan Bank stock 9,965 9,965 Accrued interest receivable, net 3,942 3,700 Premises and equipment, net 17,781 15,855 Real estate owned 271 2,019 Prepaid expenses and other assets 9,351 8,909 Cash surrender value of life insurance 12,919 11,818 Goodwill 1,695 1,395 TOTAL ASSETS $850,654 $868,207 Liabilities and Shareholders' Equity: Deposits $657,339 $640,181 Advances from Federal Home Loan Bank 86,633 125,446 Senior debt 14,242 14,242 Other borrowings 166 211 Advance payments by borrowers for taxes and insurance 121 48 Accrued expenses and other liabilities 19,115 10,715 Total liabilities 777,616 790,843 Shareholders' equity: No par preferred stock; Authorized: 2,000,000 shares Issued and outstanding: None No par common stock; Authorized: 15,000,000 shares Issued and outstanding: 3,815,657 and 4,027,991 15,152 13,514 Retained earnings, restricted 59,723 64,138 Accumulated other comprehensive income, net of taxes (1,837) (288) Total shareholders' equity 73,038 77,364 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $850,654 $868,207 HOME FEDERAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data) (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 Interest income: Loans receivable $10,212 $9,690 $39,610 $38,372 Securities available for sale and held to maturity 1,182 1,053 4,652 4,109 Other interest income 163 113 714 265 Total interest income 11,557 10,856 44,976 42,746 Interest expense: Deposits 3,838 2,839 13,265 10,832 Advances from Federal Home Loan Bank 1,192 1,683 5,743 7,627 Other borrowings 222 172 809 700 Total interest expense 5,252 4,694 19,817 19,159 Net interest income 6,305 6,162 25,159 23,587 Provision for loan losses 219 (398) 808 1,770 Net interest income after provision for loan losses 6,086 6,560 24,351 21,817 Other income: Gain on sale of loans 391 594 1,539 2,651 Income from joint ventures 88 44 443 172 Insurance, annuity income, other fees 551 428 2,134 1,823 Service fees on deposit accounts 902 790 3,436 2,950 Net gain (loss) on real estate owned and repossessed assets 25 (12) 123 211 Loan servicing income, net of impairments 443 163 1,354 654 Miscellaneous 323 311 1,267 1,222 Total other income 2,723 2,318 10,296 9,683 Other expenses: Compensation and employee benefits 3,700 3,593 14,502 13,419 Occupancy and equipment 963 811 3,679 3,166 Service bureau expense 274 258 1,103 1,008 Federal insurance premium 21 23 88 90 Marketing 234 217 1,110 718 Miscellaneous 1,169 1,596 5,094 5,392 Total other expenses 6,361 6,498 25,576 23,793 Income before income taxes 2,448 2,380 9,071 7,707 Income tax provision 756 854 2,969 2,544 Net Income $1,692 $1,526 $6,102 $5,163 Basic earnings per common share $0.44 $0.38 $1.57 $1.25 Diluted earnings per common share $0.43 $0.37 $1.53 $1.21 Basic weighted average number of shares 3,813,493 4,027,695 3,897,501 4,117,085 Dilutive weighted average number of shares 3,901,628 4,138,062 3,993,055 4,263,123 Dividends per share $0.188 $0.188 $0.750 $0.750 Supplemental Data: Three Months Ended Year to Date (unaudited) December 31, December 31, 2005 2004 2005 2004 Weighted average interest rate earned on total interest- earning assets 6.01% 5.50% 5.76% 5.44% Weighted average cost of total interest-bearing liabilities 2.76% 2.38% 2.57% 2.47% Interest rate spread during period 3.25% 3.12% 3.19% 2.97% Net yield on interest-earning assets (net interest income divided by average interest-earning assets on annualized basis) 3.28% 3.12% 3.22% 3.00% Total interest income divided by average total assets (on annualized basis) 5.47% 4.98% 5.24% 4.94% Total interest expense divided by average total assets (on annualized basis) 2.46% 2.14% 2.31% 2.21% Net interest income divided by average total assets (on annualized basis) 2.98% 2.83% 2.93% 2.72% Return on assets (net income divided by average total assets on annualized basis) 0.80% 0.70% 0.71% 0.60% Return on equity (net income divided by average total equity on annualized basis) 9.28% 7.92% 8.19% 6.50% December 31, 2005 2004 Book value per share outstanding $19.14 $19.21 Nonperforming Assets: Loans: Non-accrual $3,070 $9,535 Past due 90 days or more 456 168 Restructured 809 3,141 Total nonperforming loans 4,335 12,844 Real estate owned, net 266 2,009 Other repossessed assets, net 5 10 Total Nonperforming Assets $4,606 $14,863 Nonperforming assets divided by total assets 0.54% 1.71% Nonperforming loans divided by total loans 0.70% 2.01% Balance in Allowance for Loan Losses $6,753 $7,864 First Call Analyst: FCMN Contact: DATASOURCE: Home Federal Bancorp CONTACT: John K. Keach, Jr., Chairman, Chief Executive Officer, +1-812-373-7816, or Mark T. Gorski, Executive Vice President, Chief Financial Officer, +1-812-373-7379, both of Home Federal Bancorp Web site: http://www.homf.com/

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