HOMF Home Federal Bancorp (MM)

COLUMBUS, Ind., Oct. 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 $341,000 or $0.09 diluted earnings per common share, for its third quarter ended September 30, 2006. Year-to-date net income was $3,405,000 or $0.89 diluted earnings per common share. The Company's net income for the third quarter included a pre-tax loss of $1,956,000 resulting from the sale of approximately $65.5 million of investment securities. Excluding the impact of the loss on sale of investment securities, third quarter earnings would have been $1,670,000 or $0.44 diluted earnings per common share. This compared to earnings of $1,608,000, or $0.41 diluted earnings per common share, a year earlier. Excluding the impact of the loss on sale of investment securities, year-to-date net income would have been $4,734,000 or $1.24 diluted earnings per common share, compared to $4,410,000, or $1.09 diluted earnings per common share, a year earlier. Net income would have increased 3.9% for the third quarter and 7.3% year to date. Diluted earnings per common share would have increased $0.03 per share or 7.3% for the third quarter and $0.15 per share or 13.8% year to date. Earnings growth for the year has been driven primarily by increases in investment advisor fees and deposit fees. Total loans increased $39.9 million for the quarter and $72.6 million year to date. Retail deposits increased $39.6 million for the quarter and $52.6 million for the year. Chairman and CEO John Keach, Jr. stated, "It was an exceptional quarter from a balance sheet perspective. We had anticipated strong growth in commercial loans coming out of the Indianapolis market. However, to match that level of loan growth with similar growth in deposits, where the majority of the deposit growth came from our southeast Indiana community markets, was truly outstanding." Executive Vice President and CFO Mark Gorski added, "Our balance sheet restructuring strategies took a step in the right direction during the quarter with the completion of the investment securities sale and the issuance of junior subordinated debt." Balance Sheet Total assets were $884.3 million as of September 30, 2006, an increase of $33.5 million from December 31, 2005. Total loans increased $39.9 million for the quarter and $72.6 million year to date. Commercial and commercial real estate loans increased $67.0 million for the year. In addition, home equity and second mortgage loan balances have grown $13.2 million year to date. These increases have been slightly offset by decreases in residential mortgage balances, which have decreased $7.8 million year to date. Total investment securities decreased $28.6 million for the quarter and $33.0 million year to date. During the quarter, the Company sold $65.5 million of investment securities. A portion of the proceeds from the sale of investment securities was used to pay off $25 million in Federal Home Loan Bank advances. The remaining proceeds are being held in a money market mutual fund as it is anticipated that these funds will be needed to fund future loan growth and to pay down advances that are scheduled to mature in the fourth quarter. Total retail deposits increased $39.6 million for the quarter and $52.6 million year to date. The increase since December 31, 2005 in retail deposits is comprised of consumer certificates of deposit which increased $28.3 million, interest bearing transaction and money market accounts which increased $17.8 million and non-interest bearing checking accounts which increased $6.5 million. The increase in interest bearing transaction accounts during the third quarter was primarily the result of an increase in public fund checking account balances due to a substantial new relationship. Advances with the Federal Home Loan Bank decreased $22.5 million for the quarter and $12.0 million year to date as a portion of the proceeds from the sale of investment securities was used to pay down advances. As of September 30, 2006, shareholders' equity was $71.2 million. The return on average assets for the current year-to-date period was 0.53% annualized while the return on average equity was 6.34%. Excluding the loss on the sale of investment securities, the return on average assets would have been 0.74% while the return of average equity would have been 8.81%. Net Interest Income Net interest income decreased $38,000 or 0.6% to $6,395,000 for the third quarter while year-to-date net interest income increased $118,000 or 0.6% to $18,972,000. Net interest margin decreased 6 basis points to 3.23% for the quarter, but increased 7 basis points to 3.28% year to date. The Company's net interest margin had increased during the first and second quarters in spite of the rising interest rate environment due primarily to shifting the mix of interest bearing liabilities. However, the continued rising rate environment along with the flat yield curve resulted in a slight decline in the net interest margin during the third quarter. The sale of investment securities during the third quarter is expected to improve the net interest margin as the weighted average rate on the $65.5 million of securities sold was approximately 3.58%. Initially, these funds were used to pay down advances with a rate of approximately 5.50% with the remainder being held in a money market mutual fund. The sale of investment securities is expected to result in improvements to net interest margin in the fourth quarter. Asset Quality Provision for loan losses was $196,000 for the third quarter and $533,000 year to date. Non-performing assets to total assets decreased to 0.47% at September 30, 2006 from 0.54% at December 31, 2005. Non-performing loans to total gross loans decreased to 0.55% at September 30, 2006 from 0.70% at December 31, 2005. As a result of loan growth during the year, the ratio of the allowance for loan losses to total loans decreased to 0.94% at September 30, 2006 compared to 1.09% at December 31, 2005. In addition, the allowance for loan losses to non-performing loans is 171% at September 30, 2006 compared to 156% at December 31, 2005. Other Income Other income excluding the loss on sale of investment securities increased $266,000 or 9.3% to $3,128,000 for the quarter and increased $902,000 or 10.9% year to date. The increase in other income was due primarily to increases in deposit fees and investment advisory fees. Total deposit fees increased $582,000 or 50.7% for the quarter and $1,253,000 or 38.8% year to date due to the implementation of an enhanced overdraft privilege product along with an increased number of deposit accounts. Investment advisory fees increased $26,000 or 8.9% for the quarter and $235,000 or 29.4% year to date due to increased production in established markets along with brokerage production from a book of business acquired in the Greenwood market during the fourth quarter of 2005. The increases listed above were partially offset by a decrease is miscellaneous income. Miscellaneous income decreased $215,000 for the quarter and $604,000 year to date primarily due to decreases in joint venture partnership income. The Company has historically been involved in a limited number of real estate joint venture partnerships and the revenue has decreased as the Company winds down the remaining partnerships. Other Expenses Other expenses increased $347,000 or 5.3% to $6,888,000 for the quarter and increased $734,000 or 3.7% year to date. Compensation and employee benefits expense increased $228,000 or 6.4% for the quarter and $928,000 or 8.6% year to date due primarily to additional salary expense for the new commercial lenders in Indianapolis, additional commission costs associated with increased investment advisory service fees, normal annual salary increases and increased cost of employee benefits, particularly costs associated with the defined benefit pension plan. In addition, compensation and employee benefits expense was reduced in the third quarter of 2006 as a result of a non-recurring adjustment due to a change in the Company's vacation policy resulting in a $260,000 decrease in the vacation accrual. Total other operating expenses excluding compensation and employee benefits expense, have increased $119,000 for the quarter; however these expenses have decreased $194,000 year to date. Recent increases in marketing and occupancy expense to support the Indianapolis market expansion have resulted in increased costs in the most recent quarter; however these increases are more than offset by reduced data processing expenses resulting from renegotiated contracts and decreases in expenses related to other real estate properties owned in the prior year. Stock Repurchase Programs In April 2006, the Board of Directors approved the tenth 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 187,927 such shares. The Company repurchased 25,000 shares during the third quarter. The Company has 25,664 shares still remaining to be repurchased under this plan. In October 2006, the Board of Directors approved the eleventh 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 183,417 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 will help increase long term shareholder value by increasing earnings per share and return on equity. The Company expects to begin buying its shares under this plan during the fourth quarter as they become available and upon completion of the current stock repurchase program. 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 share data) (unaudited) September 30, December 31, 2006 2005 Assets: Cash and due from banks $48,473 $53,736 Securities available for sale at fair value (amortized cost $91,082 and $126,146) 90,373 123,351 Securities held to maturity (fair value $1,712 and $1,793) 1,728 1,806 Loans held for sale (fair value $5,938 and $4,859) 5,822 4,795 Portfolio loans and leases: Commercial loans 145,157 105,357 Commercial mortgage loans 234,319 207,144 Residential mortgage loans 170,918 178,752 Second & Home equity loans 101,053 87,893 Other consumer loans 36,487 36,594 Unearned income 71 (299) Total portfolio loans 688,005 615,441 Allowance for loan and lease losses (6,457) (6,753) Total portfolio loans and leases, net 681,548 608,688 Bank premises and equipment 17,397 17,781 Accrued interest receivable 3,809 3,942 Goodwill 1,695 1,695 Servicing rights 2,552 2,725 Other assets 30,885 32,267 TOTAL ASSETS $884,282 $850,786 Liabilities: Deposits: Demand $70,797 $64,269 Interest checking 102,960 82,991 Savings 43,105 46,014 Money market 163,099 162,350 Certificates 291,145 262,888 Retail deposits 671,106 618,512 Brokered deposits 22,349 22,557 Public fund certificates 9,441 14,245 Wholesale deposits 31,790 36,802 Total deposits 702,896 655,314 FHLB Borrowings 74,667 86,633 Short term borrowings 247 166 Long term debt - 14,242 Junior subordinated debt 15,000 - Accrued taxes, interest and expense 1,972 2,084 Other liabilities 18,342 19,309 Total liabilities 813,124 777,748 Commitments and Contingencies Shareholders' equity: No par preferred stock; Authorized: 2,000,000 shares Issued and outstanding: None No par common stock; Authorized: 15,000,000 shares Issued and outstanding: 3,668,357 and 3,815,657 16,765 15,152 Retained earnings, restricted 54,854 59,723 Accumulated other comprehensive loss, net of taxes (461) (1,837) Total shareholders' equity 71,158 73,038 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $884,282 $850,786 HOME FEDERAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data) (unaudited) Three Months Ended Nine Months Ended September September Interest income: 2006 2005 2006 2005 Short term investments $157 $229 $507 $551 Securities 1,187 1,180 3,528 3,470 Commercial loans 2,765 1,818 6,949 5,134 Commercial mortgage loans 3,660 3,413 10,388 10,079 Residential mortgages 2,765 2,707 8,185 8,080 Second and home equity loans 1,821 1,456 5,114 4,115 Other consumer loans 642 701 1,969 1,990 Total interest income 12,997 11,504 36,640 33,419 Interest expense: Checking and savings accounts 440 135 882 380 Money market accounts 1,400 685 3,528 1,468 Certificates of deposit 2,969 2,103 8,083 5,829 Total interest on retail deposits 4,809 2,923 12,493 7,677 Brokered deposits 281 316 836 1,042 Public funds 115 194 286 708 Total interest on wholesale deposits 396 510 1,122 1,750 Total interest on deposits 5,205 3,433 13,615 9,427 FHLB borrowings 1,147 1,429 3,351 4,551 Other borrowings 2 1 5 1 Long term debt 201 208 650 586 Junior subordinated debt 47 - 47 - Total interest expense 6,602 5,071 17,668 14,565 Net interest income 6,395 6,433 18,972 18,854 Provision for loan losses 196 331 533 589 Net interest income after provision for loan losses 6,199 6,102 18,439 18,265 Other income: Gain on sale of loans 356 459 1,065 1,148 Loss on sale of securities (1,956) - (1,956) - Investment advisory services 317 291 1,033 798 Service fees on deposit accounts 1,729 1,147 4,481 3,228 Loan servicing income, net of impairments 236 260 1,012 911 Miscellaneous 490 705 1,577 2,181 Total other income 1,172 2,862 7,212 8,266 Other expenses: Compensation and employee benefits 3,796 3,568 11,730 10,802 Occupancy and equipment 1,006 956 2,907 2,716 Service bureau expense 384 569 1,131 1,609 Marketing 378 270 1,090 876 Miscellaneous 1,324 1,178 3,784 3,905 Total other expenses 6,888 6,541 20,642 19,908 Income before income taxes 483 2,423 5,009 6,623 Income tax provision 142 815 1,604 2,213 Net Income $341 $1,608 $3,405 $4,410 Basic earnings per common share $0.09 $0.42 $0.91 $1.12 Diluted earnings per common share $0.09 $0.41 $0.89 $1.09 Basic weighted average number of shares 3,679,793 3,841,810 3,729,047 3,925,812 Dilutive weighted average number of shares 3,767,985 3,944,895 3,820,421 4,033,907 Dividends per share $0.200 $0.188 $0.588 $0.563 Supplemental Data: Three Months Ended Year to Date (unaudited) September 30, September 30, 2006 2005 2006 2005 Weighted average interest rate earned on total interest-earning assets 6.56% 5.88% 6.33% 5.68% Weighted average cost of total interest-bearing liabilities 3.34% 2.60% 3.10% 2.51% Interest rate spread during period 3.23% 3.28% 3.23% 3.17% Net interest margin (net interest income divided by average interest-earning assets on annualized basis) 3.23% 3.29% 3.28% 3.21% Total interest income divided by average total assets (on annualized basis) 5.94% 5.36% 5.72% 5.16% Total interest expense divided by average total assets (on annualized basis) 2.99% 2.34% 2.76% 2.26% Net interest income divided by average total assets (on annualized basis) 2.92% 3.00% 2.96% 2.91% Return on assets (net income divided by average total assets on annualized basis) 0.16% 0.75% 0.53% 0.68% Return on equity (net income divided by average total equity on annualized basis) 1.93% 8.76% 6.34% 7.84% September 30, 2006 2005 Book value per share outstanding $19.40 $19.17 Nonperforming Assets: Loans: Non-accrual $2,764 $2,234 Past due 90 days or more 540 359 Restructured 477 816 Total nonperforming loans 3,781 3,409 Real estate owned, net 368 372 Other repossessed assets, net 0 5 Total Nonperforming Assets $4,149 $3,786 Nonperforming assets divided by total assets 0.47% 0.44% Nonperforming loans divided by total loans 0.55% 0.55% Balance in Allowance for Loan Losses $6,457 $6,900 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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