HOMF Home Federal Bancorp (MM)

COLUMBUS, Ind., Jan. 23 /PRNewswire-FirstCall/ -- Home Federal Bancorp (the "Company") (NASDAQ:HOMF), the holding company of HomeFederal Bank of Columbus, Indiana (the "Bank"), today announced 2006 annual earnings of $6,441,000 or $1.70 diluted earnings per common share compared to $6,102,000 or $1.53 diluted earnings per common share a year earlier. Net income for the year increased $339,000 or 5.6% while diluted earnings per share increased $0.17 or 11.1%. For comparative purposes, net income for 2006 includes a pre- tax gain on the sale of the mortgage servicing portfolio of $1,957,000 recorded in the fourth quarter as well as a pre-tax loss on the sale of securities of $1,956,000 recorded in the third quarter. Earnings growth for the year has been driven primarily by fee income growth, particularly increases in deposit fees. Total loans increased $66.8 million for the year while retail deposits increased $84.5 million for the year. The Company had fourth quarter earnings of $3,036,000 or $0.81 diluted earnings per common share. The Company's net income for the fourth quarter included a pre-tax gain of $1,957,000 resulting from the sale of its mortgage servicing portfolio and the related mortgage servicing rights. Excluding the impact of the gain on the sale of the mortgage servicing portfolio, fourth quarter earnings would have been $1,674,000 or $0.45 diluted earnings per common share. This compared to earnings of $1,692,000, or $0.43 diluted earnings per common share, a year earlier. Chairman and CEO John Keach, Jr. stated, "It was an exceptional year from a balance sheet perspective. We made key investments in personnel in the Indianapolis market to position HomeFederal for growth in the future. Our established markets in southeast Indiana really stepped up during the year with excellent deposit growth." Executive Vice President and CFO Mark Gorski added, "We attained internal loan and deposit growth of 11% and 14% respectively during a time when many of our peers were struggling to grow." Balance Sheet Total assets were $904.5 million as of December 31, 2006, an increase of $53.7 million from December 31, 2005. Total loans increased $66.8 million or 11% for the year. Commercial and commercial real estate loans increased $66.2 million or 21% for the year. The growth in commercial and commercial real estate loans was driven by growth from the Indianapolis market -- commercial and commercial real estate loans in Indianapolis increased $77 million during the last eight months of 2006. The growth in the Indianapolis market was driven by hiring two senior commercial lenders in the Indianapolis market in May and one commercial lender during the third quarter. In addition, home equity and second mortgage loan balances grew $14.8 million or 17% during the year. Residential mortgage balances decreased $12.8 million for the year as the Company began selling substantially all mortgage originations beginning in the third quarter. Total investment securities decreased $66.5 million for the year. During the third 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 along with excess cash balances are being held in a money market account with the Federal Home Loan Bank. The total balance in the account was $66.3 million at year-end. It is anticipated that these funds will be needed to fund future loan growth and to pay down higher cost wholesale funding sources as they mature. Total retail deposits increased $84.5 million or 14% for the year. The increase for the year in retail deposits is comprised of interest bearing transaction and money market accounts which increased $45.0 million, consumer certificates of deposit which increased $31.0 million and non-interest bearing checking accounts which increased $8.5 million. The increase in interest bearing transaction accounts during the year 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 $18.0 million for the year and public fund certificates decreased $12.5 million for the year. These wholesale funding sources were replaced by lower cost retail deposits. As of December 31, 2006, shareholders' equity was $71.3 million. The return on average assets for the current year was 0.75% while the return on average equity was 9.00%. Net Interest Income Net interest income increased $434,000 or 6.9% to $6,739,000 for the fourth quarter and increased $552,000 or 2.2% to $25,711,000 for the year. Net interest margin increased 6 basis points to 3.34% for the quarter and increased 7 basis points to 3.29% for the year. 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 inverted yield curve resulted in a slight decline in the net interest margin during the third quarter. The sale of investment securities had a positive impact on net interest margin during the fourth quarter. The net interest margin increased 11 basis points in the fourth quarter as compared to the third quarter of 2006. Asset Quality Provision for loan losses was $317,000 for the fourth quarter and $850,000 for the year. Non-performing assets to total assets decreased to 0.46% at December 31, 2006 from 0.54% at December 31, 2005. Non-performing loans to total gross loans decreased to 0.54% at December 31, 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 0.95% at December 31, 2006 compared to 1.09% at December 31, 2005. In addition, the allowance for loan losses to non-performing loans was 176% at December 31, 2006 compared to 156% at December 31, 2005. Other Income Other income, excluding the gain on sale of the mortgage servicing portfolio in the fourth quarter and the loss on sale of investment securities in the third quarter, increased $177,000 or 6.0% for the quarter and increased $1,079,000 or 9.6% for the year. The increase in other income for the quarter was due primarily to increases in deposit fees partially offset by a decrease in loan servicing income. Total deposit fees increased $508,000 or 44.8% for the quarter due to the implementation of an enhanced overdraft privilege product along with an increased number of deposit accounts. This increase for the quarter was partially offset by a decrease of $222,000 in loan servicing income. During the fourth quarter of 2005, the Company recorded a recovery of $189,000 of an impairment reserve established in prior years. The increase in other income for the year was due to a variety of factors. Total deposit fees increased $1,761,000 or 40.4% for the year due to the enhanced overdraft privilege product. Investment advisory fees increased $238,000 or 21.2% for the year due to increased production in established markets along with brokerage production from a book of business acquired in the Greenwood, Indiana market during the fourth quarter of 2005. The increases listed above were partially offset by a decrease in miscellaneous income. Miscellaneous income decreased $689,000 for the year primarily due to a decrease of $473,000 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. The Company divested of the three remaining real estate joint venture partnerships during the fourth quarter of 2006. Other Expenses Other expenses increased $669,000 or 10.1% for the quarter and increased $1,403,000 or 5.3% for the year. Compensation and employee benefits expense increased $470,000 or 12.7% for the quarter and $1,398,000 or 9.6% for the year due primarily to additional salary and incentive compensation expense for the new commercial lending and commercial credit staff in Indianapolis, additional commission costs associated with increased investment advisory service fees and normal annual salary increases. This increase was partially offset by an adjustment in the third quarter 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 $199,000 for the quarter and $5,000 for the year. The increase for the quarter was a result of approximately $160,000 of expenses associated with the sale of the mortgage servicing portfolio. 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 the remaining 25,664 shares available under this plan during the fourth quarter. 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 repurchased 49,236 shares under this plan during the fourth quarter. The Company had 134,181 shares remaining to be repurchased under this plan at December 31, 2006. 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) December 31, December 31, 2006 2005 Assets: Cash and due from banks $106,063 $53,736 Securities available for sale at fair value (amortized cost $57,421 and $126,146) 56,887 123,351 Securities held to maturity (fair value $1,628 and $1,793) 1,635 1,806 Loans held for sale (fair value $7,055 and $4,859) 6,925 4,795 Portfolio loans and leases: Commercial loans 151,781 105,825 Commercial mortgage loans 227,433 207,144 Residential mortgage loans 166,003 178,752 Second & Home equity loans 102,713 87,893 Other consumer loans 34,483 36,126 Unearned income (153) (299) Total portfolio loans 682,260 615,441 Allowance for loan and lease losses (6,598) (6,753) Total portfolio loans and leases, net 675,662 608,688 Bank premises and equipment 17,232 17,781 Accrued interest receivable 4,679 3,942 Goodwill 1,695 1,695 Servicing rights - 2,725 Other assets 33,689 32,267 TOTAL ASSETS $904,467 $850,786 Liabilities: Deposits: Demand $72,804 $64,269 Interest checking 129,025 82,991 Savings 41,710 46,014 Money market 165,605 162,350 Certificates 293,914 262,888 Retail deposits 703,058 618,512 Brokered deposits 22,357 22,557 Public fund certificates 1,744 14,245 Wholesale deposits 24,101 36,802 Total deposits 727,159 655,314 FHLB Borrowings 68,667 86,633 Short term borrowings - 166 Long term debt - 14,242 Junior subordinated debt 15,464 - Accrued taxes, interest and expense 4,462 2,084 Other liabilities 17,434 19,309 Total liabilities 833,186 777,748 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: 3,610,218 and 3,815,657 17,081 15,152 Retained earnings, restricted 55,137 59,723 Accumulated other comprehensive income/(loss), net of taxes (937) (1,837) Total shareholders' equity 71,281 73,038 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $904,467 $850,786 HOME FEDERAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data) (unaudited) Three Months Ended Year to Date December 31, December 31, Interest income: 2006 2005 2006 2005 Short term investments $656 $163 $1,163 $714 Securities 718 1,182 4,246 4,652 Commercial loans 3,392 1,876 10,341 7,010 Commercial mortgage loans 3,924 3,431 14,312 13,510 Residential mortgages 2,754 2,696 10,939 10,776 Second and home equity loans 1,907 1,541 7,021 5,656 Other consumer loans 690 668 2,659 2,658 Total interest income 14,041 11,557 50,681 44,976 Interest expense: Checking and savings accounts 710 163 1,592 543 Money market accounts 1,454 969 4,982 2,437 Certificates of deposit 3,260 2,252 11,343 8,081 Total interest on retail deposits 5,424 3,384 17,917 11,061 Brokered deposits 282 284 1,118 1,326 Public funds 58 170 344 878 Total interest on wholesale deposits 340 454 1,462 2,204 Total interest on deposits 5,764 3,838 19,379 13,265 FHLB borrowings 933 1,192 4,284 5,743 Other borrowings - - 5 1 Long term debt - 222 650 808 Junior subordinated debt 605 - 652 - Total interest expense 7,302 5,252 24,970 19,817 Net interest income 6,739 6,305 25,711 25,159 Provision for loan losses 317 219 850 808 Net interest income after provision for loan losses 6,422 6,086 24,861 24,351 Other income: Gain on sale of loans 365 392 1,430 1,540 Gain (loss) on sale of securities - - (1,956) - Gain on sale of mortgage servicing 1,957 - 1,957 - Investment advisory services 330 327 1,363 1,125 Service fees on deposit accounts 1,643 1,135 6,124 4,363 Loan servicing income, net of impairments 221 443 1,233 1,354 Miscellaneous 575 660 2,152 2,841 Total other income 5,091 2,957 12,303 11,223 Other expenses: Compensation and employee benefits 4,170 3,700 15,900 14,502 Occupancy and equipment 1,001 963 3,908 3,679 Service bureau expense 375 408 1,506 2,017 Marketing 178 234 1,268 1,110 Miscellaneous 1,540 1,290 5,324 5,195 Total other expenses 7,264 6,595 27,906 26,503 Income before income taxes 4,249 2,448 9,258 9,071 Income tax provision 1,213 756 2,817 2,969 Net Income $3,036 $1,692 $6,441 $6,102 Basic earnings per common share $0.83 $0.44 $1.74 $1.57 Diluted earnings per common share $0.81 $0.43 $1.70 $1.53 Basic weighted average number of shares 3,642,868 3,813,493 3,707,325 3,897,501 Dilutive weighted average number of shares 3,728,933 3,901,628 3,788,556 3,993,055 Dividends per share $0.200 $0.188 $0.788 $0.750 Supplemental Data: Three Months Ended Year to Date (unaudited) December 31, December 31, 2006 2005 2006 2005 Weighted average interest rate earned on total interest-earning assets 6.96% 6.01% 6.49% 5.76% Weighted average cost of total interest-bearing liabilities 3.67% 2.76% 3.25% 2.57% Interest rate spread during period 3.28% 3.25% 3.24% 3.19% Net interest margin (net interest income divided by average interest- earning assets on annualized basis) 3.34% 3.28% 3.29% 3.22% Total interest income divided by average total assets (on annualized basis) 6.34% 5.47% 5.88% 5.24% Total interest expense divided by average total assets (on annualized basis) 3.27% 2.46% 2.90% 2.31% Net interest income divided by average total assets (on annualized basis) 3.04% 2.98% 2.98% 2.93% Return on assets (net income divided by average total assets on annualized basis) 1.37% 0.80% 0.75% 0.71% Return on equity (net income divided by average total equity on annualized basis) 17.03% 9.28% 9.00% 8.19% December 31, 2006 2005 Book value per share outstanding $19.74 $19.14 Nonperforming Assets: Loans: Non-accrual $2,852 $3,070 Past due 90 days or more 459 456 Restructured 440 809 Total nonperforming loans 3,751 4,335 Real estate owned, net 416 266 Other repossessed assets, net 20 5 Total Nonperforming Assets $4,187 $4,606 Nonperforming assets divided by total assets 0.46% 0.54% Nonperforming loans divided by total loans 0.54% 0.70% Balance in Allowance for Loan Losses $6,598 $6,753 DATASOURCE: Home Federal Bancorp CONTACT: John K. Keach, Jr., Chairman, Chief Executive Officer, +1-812-373-7816, or Mark T. Gorski, Executive Vice President and Chief Financial Officer, +1-812-373-7379, both of Home Federal Bancorp Web site: http://www.homf.com/

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