HOMF Home Federal Bancorp (MM)

COLUMBUS, Ind., Jan. 22 /PRNewswire-FirstCall/ -- Home Federal Bancorp (the "Company") (NASDAQ:HOMF), the holding company of HomeFederal Bank of Columbus, Indiana (the "Bank"), today announced 2007 annual earnings of $6,123,000 or $1.72 diluted earnings per common share compared to $6,441,000 or $1.70 diluted earnings per common share a year earlier. Net income for 2007 included a pre-tax charge of $788,000 related to a separation agreement with a former executive vice president of the Bank and the Company, which was recorded in the first quarter. Excluding the impact of the charge related to the separation agreement, net income would have been $6,599,000 or $1.85 diluted earnings per share, representing an increase in net income for the year of $158,000 or 2.5% and an increase in diluted earnings per share of $0.15 or 8.8%. The Company had fourth quarter earnings of $1,642,000 or $0.47 diluted earnings per common share compared to $3,036,000 or $.81 diluted earnings per share a year earlier. The Company's net income for the fourth quarter of 2006 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 for 2006 would have been $1,674,000 or $0.45 diluted earnings per common share. Total loans increased $25.2 million for the quarter and $67.6 million for the year. The growth in the loan portfolio was primarily the result of an increase in commercial and commercial mortgage loans to new and existing customers in our central Indiana markets which increased $31.8 million for the quarter and $97.4 million for the year. Chairman and CEO John Keach, Jr. stated, "We are pleased with the Company-wide sales and service efforts as we continue to add value to new and existing customer relationships throughout our central Indiana markets." Executive Vice President and CFO Mark Gorski added, "Our investments in the commercial lending business and the brokerage business continue to add revenue and franchise value to the Company." Balance Sheet Total assets were $908.8 million as of December 31, 2007, an increase of $4.3 million from December 31, 2006. Total loans increased $25.2 million for the quarter and $67.6 million for the year. The growth in the loan portfolio was primarily the result of an increase in commercial and commercial mortgage loans. Commercial and commercial mortgage loan growth was particularly strong in the fourth quarter with commercial loans increasing $14.3 million for the quarter and commercial mortgage loans increasing $17.5 million for the quarter resulting in total commercial and commercial mortgage loan growth of $31.8 million for the quarter. For 2007, commercial loans increased $55.8 million for the year and commercial mortgage loans increased $41.6 million for the year resulting in total commercial and commercial mortgage loan growth of $97.4 million for the year. The increase in commercial loans has been partially offset by a decrease in residential mortgage loans and other consumer loans. Residential mortgage loans have decreased $23.5 million for the year as substantially all new mortgage loan originations are being sold in the secondary market. Other consumer loans have decreased $7.1 million for the year due primarily to a reduction in indirect automobile loans as the Bank discontinued the origination of indirect automobile loans during 2006. Total premises and equipment decreased $1.6 million during 2007. In September, the Bank sold four retail branch buildings and entered into operating leases with the buyer. The gain on sale of these buildings, which totaled approximately $2.0 million, was deferred and will be amortized over the life of the leases. The proceeds from the sale will be used to fund commercial loan growth. Total retail deposits increased $19.3 million for the quarter and decreased $5.2 million for the year. The increase in deposits during the quarter was due to an increase of $22.4 million in public fund interest checking account balances. Historically, public fund operating account balances have been inflated at year-end when compared to average balances in the same accounts during the year. During 2007, public fund interest checking account balances decreased $25.2 million while all other retail deposit categories in total increased $20.0 million including growth of $7.2 million in certificates of deposit and growth of $20.2 million in money market accounts. Total FHLB borrowings increased $15.7 million for the quarter and $30.7 million for the year. The increase in FHLB borrowings during the quarter was used to fund strong commercial loan growth during the quarter while a portion of the year-to-date increase was used to offset a $13.2 million decrease in brokered deposits. As of December 31, 2007, shareholders' equity was $67.5 million. The decrease in shareholders' equity of $3.8 million for the year was primarily the result of stock repurchases of 309,519 shares for $8.7 million. The return on average assets for the year was 0.70% while the return on average equity for the year was 8.88%. Excluding the impact of the charges associated with the separation agreement, the return on average assets for the year would have been 0.75% while the return on average equity would have been 9.57%. Asset Quality Provision for loan losses increased $255,000 to $572,000 for the fourth quarter and increased $511,000 to $1.4 million for the year. The increase in provision for loan losses was primarily due to increases in commercial loans as well as increases in non-performing loans. Net charge offs were $356,000 for the fourth quarter and $986,000 for the year. The net charge off ratio for 2007 was 0.14% compared to 0.15% for 2006. Non-performing assets to total assets increased to 1.29% at December 31, 2007 from 0.46% at December 31, 2006. Non-performing loans to total gross loans increased to 1.51% at December 31, 2007 from 0.54% at December 31, 2006. The increases in the non- performing loan and non-performing asset ratios during the year were primarily the result of two commercial loan relationships totaling approximately $6.1 million that were placed on non-accrual status during the year along with an increase in consumer loan delinquencies. The ratio of the allowance for loan losses to total loans was 0.93% at December 31, 2007 compared to 0.95% at December 31, 2006. In addition, the allowance for loan losses to non- performing loans was 61% as of December 31, 2007 compared to 176% at December 31, 2006. Net Interest Income Net interest income increased $180,000 or 2.7% to $6.9 million for the fourth quarter while annual net interest income increased $1.8 million or 7.1% to $27.5 million. Net interest margin for the fourth quarter of 2007 was 3.38%, which represented a decrease of 13 basis points compared to the third quarter of 2007. Net interest margin for 2007 was 3.45% compared to 3.29% for 2006 -- a 16 basis point increase. The increase in net interest margin for the year was primarily the result of a shift in composition of the balance sheet. Commercial and commercial real estate loans continue to replace lower yielding residential mortgage loans. Non Interest Income Non interest income decreased $1.7 million for the fourth quarter as during the fourth quarter of 2006, the Company recorded a gain of $1,957,000 related to the sale of mortgage servicing rights. Excluding this gain, non interest income would have increased $253,000 or 8.1% for the fourth quarter. For the year, non interest income increased $551,000 or 4.5%. Investment advisory services increased $161,000 or 48.8% for the fourth quarter and increased $511,000 or 37.5% for the year. During the third quarter, the Company acquired a book of business from an existing broker in the Bank's current Indianapolis market area. Service fees on deposits accounts increased $49,000 or 3.0% for the fourth quarter and increased $450,000 or 7.4% for the year as the Bank implemented an enhanced overdraft privilege product during the second quarter of 2006. These increases were offset by the decrease in loan servicing income, which decreased $76,000 for the fourth quarter and $662,000 for the year. The Bank sold its mortgage servicing portfolio during the fourth quarter of 2006. Non Interest Expenses Non interest expenses increased $52,000 or 0.7% to $7.3 million for the fourth quarter and increased $1.9 million or 6.7% to $29.8 million for the year. Miscellaneous expenses for 2007 include expenses incurred pursuant to the separation agreement and a $200,000 write-down of the Bank's former operations building, which was classified as held for sale. The write-down represented the entire remaining book value of the building. Excluding the impact of the separation agreement and the write-down of the building, non interest expenses increased $880,000 or 3.2% for the year. Compensation and employee benefits expense increased $526,000 or 3.3% for the year due to additional salary and incentive compensation expense for the new commercial lending and commercial credit staff in Indianapolis, additional brokerage commission costs resulting from increased revenue and normal annual salary increases. Miscellaneous expenses, excluding the charges associated with the building write-down and the separation agreement, increased $172,000 compared to 2006. The increase was primarily due to an increase of $143,000 in additional legal and accounting expenses which were incurred to address new proxy disclosure requirements and new accounting pronouncements. Stock Repurchase Programs In April 2007, the Board of Directors approved the twelfth 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 175,628 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 134,181 shares under the eleventh repurchase plan and 175,338 shares under the twelfth repurchase plan for a total of 309,519 shares repurchased year to date. The Company had no shares remaining to be repurchased under this plan at December 31, 2007. In January 2008, the Board of Directors approved the thirteenth 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 168,498 such shares. 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 (unaudited) (in thousands, except share data) December 31, December 31, 2007 2006 Assets: Cash and due from banks $40,552 $106,063 Securities available for sale at fair value (amortized cost $62,551 and $57,421) 62,306 56,887 Securities held to maturity at amortized cost (fair value $1,558 and $1,628) 1,557 1,635 Loans held for sale (fair value $7,250 and $7,055) 7,112 6,925 Portfolio loans: Commercial loans 207,590 151,781 Commercial mortgage loans 269,035 227,433 Residential mortgage loans 142,481 166,003 Second & home equity loans 103,560 102,713 Other consumer loans 27,345 34,483 Unearned income (165) (153) Total portfolio loans 749,846 682,260 Allowance for loan losses (6,972) (6,598) Portfolio loans, net 742,874 675,662 Premises and equipment 15,599 17,232 Accrued interest receivable 4,670 4,679 Goodwill 1,875 1,695 Other assets 32,261 33,689 TOTAL ASSETS $908,806 $904,467 Liabilities: Deposits: Demand $69,728 $72,804 Interest checking 103,624 129,025 Savings 37,513 41,710 Money market 185,803 165,605 Certificates of deposit 301,146 293,914 Retail deposits 697,814 703,058 Brokered deposits 9,174 22,357 Public fund certificates 563 1,744 Wholesale deposits 9,737 24,101 Total deposits 707,551 727,159 FHLB Borrowings 99,349 68,667 Short term borrowings 20 - Junior subordinated debt 15,464 15,464 Accrued taxes, interest and expense 2,981 4,462 Other liabilities 15,987 17,434 Total liabilities 841,352 833,186 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: 3,369,965 and 3,610,218 20,305 17,081 Retained earnings, restricted 48,089 55,137 Accumulated other comprehensive loss, net (940) (937) Total shareholders' equity 67,454 71,281 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $908,806 $904,467 HOME FEDERAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except share data) Three Months Ended Year to Date December 31, December 31, Interest income: 2007 2006 2007 2006 Short term investments $199 $656 $1,116 $1,163 Securities 693 718 2,688 4,246 Commercial loans 3,791 3,066 14,538 10,015 Commercial mortgage loans 4,503 3,924 16,766 14,312 Residential mortgage loans 2,478 2,754 10,471 10,939 Second and home equity loans 1,836 1,907 7,342 7,021 Other consumer loans 544 690 2,280 2,659 Total interest income 14,044 13,715 55,201 50,355 Interest expense: Checking and savings accounts 463 710 1,761 1,592 Money market accounts 1,611 1,454 5,869 4,982 Certificates of deposit 3,592 3,260 14,317 11,343 Total interest on retail deposits 5,666 5,424 21,947 17,917 Brokered deposits 113 282 665 1,118 Public funds 6 58 47 344 Total interest on wholesale deposits 119 340 712 1,462 Total interest on deposits 5,785 5,764 22,659 19,379 FHLB borrowings 1,054 933 3,884 4,284 Other borrowings 0 0 8 5 Long term debt 0 0 0 650 Junior subordinated debt 286 279 1,110 326 Total interest expense 7,125 6,976 27,661 24,644 Net interest income 6,919 6,739 27,540 25,711 Provision for loan losses 572 317 1,361 850 Net interest income after provision for loan losses 6,347 6,422 26,179 24,861 Non interest income: Gain on sale of loans 390 365 1,497 1,430 Gain (loss) on sale of securities 0 0 0 (1,956) Gain on sale of mortgage servicing rights 0 1,957 0 1,957 Investment advisory services 491 330 1,874 1,363 Service fees on deposit accounts 1,692 1,643 6,574 6,124 Loan servicing income, net of impairments 145 221 571 1,233 Miscellaneous 669 575 2,338 2,152 Total non interest income 3,387 5,091 12,854 12,303 Non interest expenses: Compensation and employee benefits 4,129 4,170 16,426 15,900 Occupancy and equipment 1,070 1,001 4,086 3,908 Service bureau expense 414 375 1,637 1,506 Marketing 268 178 1,141 1,268 Miscellaneous 1,435 1,540 6,484 5,324 Total non interest expenses 7,316 7,264 29,774 27,906 Income before income taxes 2,418 4,249 9,259 9,258 Income tax provision 776 1,213 3,136 2,817 Net Income $1,642 $3,036 $6,123 $6,441 Basic earnings per common share $0.48 $0.83 $1.75 $1.74 Diluted earnings per common share $0.47 $0.81 $1.72 $1.70 Basic weighted average number of shares 3,433,670 3,642,868 3,492,615 3,707,325 Dilutive weighted average number of shares 3,473,101 3,728,933 3,560,603 3,788,556 Dividends per share $0.200 $0.200 $0.800 $0.788 Supplemental Data: Three Months Ended Year to Date (unaudited) December 31, December 31, 2007 2006 2007 2006 Weighted average interest rate earned on total interest-earning assets 6.86% 6.80% 6.91% 6.45% Weighted average cost of total interest-bearing liabilities 3.52% 3.51% 3.53% 3.21% Interest rate spread during period 3.34% 3.29% 3.38% 3.24% Net interest margin (net interest income divided by average interest-earning assets on annualized basis) 3.38% 3.34% 3.45% 3.29% Total interest income divided by average total assets (on annualized basis) 6.33% 6.20% 6.31% 5.84% Total interest expense divided by average total assets (on annualized basis) 3.18% 3.13% 3.16% 2.86% Net interest income divided by average total assets (on annualized basis) 3.12% 3.04% 3.15% 2.98% Return on assets (net income divided by average total assets on annualized basis) 0.74% 1.37% 0.70% 0.75% Return on equity (net income divided by average total equity on annualized basis) 9.58% 17.03% 8.88% 9.00% December 31, December 31, 2007 2006 Book value per share outstanding $20.02 $19.74 Nonperforming Assets: Loans: Non-accrual $ 10,516 $2,852 Past due 90 days or more 64 459 Restructured 874 440 Total nonperforming loans 11,454 3,751 Real estate owned, net 286 416 Other repossessed assets, net 25 20 Total Nonperforming Assets $ 11,765 $4,187 Nonperforming assets divided by total assets 1.29% 0.46% Nonperforming loans divided by total loans 1.51% 0.54% Balance in Allowance for Loan Losses $6,972 $6,598 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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