EX-99.1 2 a4681920ex99.txt EXHIBIT 99.1 Exhibit 99.1 Home Federal Bancorp Announces Second Quarter Earnings COLUMBUS, Ind.--(BUSINESS WIRE)--July 16, 2004--Home Federal Bancorp (the "Company") (Nasdaq:HOMF), the holding company of HomeFederal Bank of Columbus, Indiana (the "Bank"), today announced quarterly earnings of $1,914,000 or $0.46 basic and $0.45 diluted earnings per common share, for its second quarter ended June 30, 2004. This compared to earnings of $2,274,000, or $0.53 basic and $0.50 diluted earnings per common share, a year earlier. Year-to-date net income was $3,301,000 or $0.78 basic and $0.75 diluted earnings per common share, compared to $5,228,000, or $1.23 basic and $1.17 diluted earnings per common share, a year earlier. Diluted earnings per common share decreased $0.05 per share or 10.0% for the three-months ended June 30, 2004 compared to the three-months ended June 30, 2003. For the six-month period ended June 30, 2004 diluted earnings per common share decreased $0.41 per share or 35.5% compared to the same period ended June 30, 2003. The decrease in net income for the current quarter was due primarily to a $1,216,000 pre-tax decrease in gain on sale of loans. The decrease in gain on sale of loans was due to reduced loan origination and refinance activity due to the higher mortgage interest rates experienced in the current period compared to a year ago. The decrease in year-to-date net income was also due to the reduction of gain on sale of loans. For the current six-month period compared to the six-month period ended June 30, 2003 gain on sale of loans decreased by $2,677,000 on a pre tax basis, again due to higher mortgage interest rates and reduced loan origination and refinance activity. Net Interest Income Net interest income after provision for loan loss increased by $397,000 to $5,815,000 for the second quarter compared to $5,418,000 for the same period one year ago. Year-to-date net interest income after provision for loan losses increased by $101,000, from $11,250,000 one year ago to $11,351,000 for the six-month period ended June 30, 2004. Net interest margins improved slightly in the current periods compared to the same periods one year ago as yields on interest earning assets have decreased slower than the cost of interest bearing liabilities. The most significant impact on the Company's balance sheet and income statement has come from the reduced loan origination and refinancing activity when compared to the record setting pace of a year ago. Loan refinancing, especially in the residential real estate market, has dropped dramatically compared to the activity a year ago. For the first six-months ended June 30, 2004 the Bank originated $107,500,000 in residential loans in southeast Indiana, compared to $261,300,000 for the first six-months ended June 30, 2003 a year ago, a 58.9% reduction in volume. In the six-month period ended June 30, 2003, $225,400,000 of the $261,300,000 residential loans originated were fixed rate loans, the majority of which were sold to the secondary market. For the first six-months of 2004 the fixed rate loan originations were $76,000,000 out of the total originations of $107,500,000. This 66.3% reduction in fixed rate loan originations accounted for the reduction in loan sales and the corresponding $2,700,000 decrease in gain on sale of loans for the six-month period ended June 30, 2004 compared to the same period ended June 30, 2003. Other Income Other income for the three-months ended June 30, 2004 decreased $956,000 over the three-month period ended June 30, 2003. The decrease was due primarily to gain on sale of loans as a result of the decreased loan activity discussed previously. Other income for the six-month period ended June 30, 2004 decreased $2,701,000 from the same period a year ago. Decreases were due primarily to gain on sale of loans, joint venture income, and miscellaneous income; these decreases were offset in part by increases in insurance and annuity income, and loan servicing income net of impairments. The originated mortgage servicing rights asset is reviewed for impairment each quarter. This asset is created when mortgage loans are sold and the Bank retains the servicing rights. The servicing rights are recognized as income at the time the loan is sold and the servicing asset is also recorded. The asset is then amortized as an expense to mortgage servicing income over the life of the loan. The impairment charge is the recognition of the change in value of mortgage servicing rights that result with changes in interest rates and loan prepayment speeds. Mortgage servicing portfolios typically decline in value as interest rates drop and increase in value as rates rise. The reason for this decline in value is as rates drop, prepayment speeds increase causing the average life of the servicing portfolio to shorten. This reduces the amount of servicing income the Bank receives over time and thus reduces the value of the servicing portfolio. If rates rise the opposite occurs, prepayments slow, the average life of the mortgage servicing portfolio lengthens, increasing the amount of servicing income the Bank receives over time thus increasing the value of the servicing portfolio. In the three-month period ended June 30, 2004 the impairment recovery was $138,000 compared to the same period ending June 30, 2003 where the impairment charge was $309,000 for an increase in pre-tax income of $448,000. For the six-month period ended June 30, 2004 the impairment recovery was $118,000 compared to the same period ended June 30, 2003 where the impairment charge was $500,000 for an increase in pre-tax income of $618,000. The amortization charge in the current three-month period was $385,000 compared to $339,000 for the same period a year ago. For the current six-month period the amortization charge was $777,000 compared to $628,000 for the same six-month period a year ago. Future impairment charges will depend on future interest rate changes, if rates continue to decline there may be additional impairment charges, if they rise, previously recorded impairment charges may be recovered. The combined OMSR amortization costs and OMSR recoveries reduced pre-tax net income $246,000 for the three-month period ended June 30, 2004 versus $648,000 for the three-months ended June 30, 2003. For the six-months ended June 30, 2004 pre-tax net income was reduced $659,000 versus $1,127,000 for the same period ended June 30, 2003 for these two items. Other Expenses Other expenses for the three-month period ended June 30, 2004 increased $144,000 or 2.6% over the three-month period ended June 30, 2003. For the six-month period other expenses increased $659,000 or 6.0%. Compensation expense increased due to salary increases and increased pension costs. A writedown of real estate owned accounted for $110,000 of the $193,000 increase in miscellaneous expenses for the six-month period ended June 30, 2004 compared to the same period ended June 30, 2003. Additional cost increases were related to auditing and accounting services. It is expected that these costs will continue for the remainder of the year as the Company incurs additional costs associated with complying with the Sarbanes-Oxley Act, Section 404, in documenting and testing internal controls. Asset Quality Non-performing assets to total assets increased from 0.78% at June 30, 2003 to 0.82% at June 30, 2004. Non-performing loans to total gross loans increased from 0.74% to 0.94%, respectively, for the same periods. Over this period non-performing residential loans have decreased by $1,200,000, home equity/second mortgages by $325,000 and real estate owned and other repossessed property by $1,000,000. Commercial real estate restructured debt increased by $2,700,000. This increase was due primarily to one commercial real estate loan. A liquidation plan has been executed with the borrower and management expects no additional losses to be incurred related to this credit. In addition to the above, a certain commercial borrower ("the Borrower") filed for Chapter 11 Bankruptcy protection on June 15, 2004. Total loans outstanding with the Borrower at June 30, 2004 were $15,798,000, of which $9,178,000 is sold to other loan participants leaving a net loan balance of $6,620,000 outstanding. These loans are secured by first mortgages on multiple properties located in Indiana, Kentucky and Ohio. Discussions with the Borrower's management and review of the related property appraisals indicate that the loans are well secured. The Borrower has informed the Bank that they are pursuing multiple options for sale or restructuring of their operations; all of which are expected to result in the loans being paid off in full. The loans are further secured by personal guarantees of two of the principals of the Borrower. Management does not anticipate a material loss on this loan relationship; however, temporary interruptions in payments are possible under the bankruptcy protections afforded by the Chapter 11 filing. Clarification of the liquidation method and likely outcome are anticipated prior to the end of the third quarter of this year. At June 30, 2004, the loans' payment statuses were current and therefore still considered "performing" and "accruing". However, the Borrower's July payment is past due. Should the loans' payment status change to delinquent, management will need to evaluate the appropriateness to continue to record interest income. Placing the loans on "non-accruing" status would result in a reduction of interest income of approximately $40,000 per month. Balance Sheet The Company's assets totaled $856,815,000 as of June 30, 2004, an increase of $3,487,000 from December 31, 2003. As of June 30, 2004, shareholders' equity was $75,492,000. Based on the June 30, 2004, book value of $18.86 per common share, Home Federal Bancorp stock was trading at 133% of book value. The stock price at June 30, 2004, was $25.03. The return on average assets for the current year-to-date period was 0.77% annualized, while the return on average equity was 8.09%. Stock Repurchase Programs In April 2004, the Company announced that the Board of Directors had approved the seventh repurchase, from time to time, on the open market, of up to 7% of the Company's outstanding shares of common stock, or 297,000 such shares. Home Federal completed the repurchase of the shares under this plan during the second quarter of 2004. Home Federal Bancorp is a bank holding company registered under the Bank Holding Company Act, 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 and a member of the Federal Reserve System. HomeFederal Bank was founded in 1908 and offers a wide range of consumer and commercial financial services through eighteen branch offices in 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) (unaudited) June 30, December 31, 2004 2003 ------------ ------------ ASSETS: Cash $ 23,870 $ 22,734 Interest-bearing deposits 11,311 11,444 ----------- ----------- Total cash and cash equivalents 35,181 34,178 ----------- ----------- Securities available for sale at fair value (amortized cost $125,108 and $123,243) 123,413 123,638 Securities held to maturity (fair value $1,543 and $1,883) 1,507 1,828 Loans held for sale (fair value $3,877 and $6,357) 3,823 6,272 Loans receivable, net of allowance for loan losses of $7,583 and $7,506 635,536 630,672 Investments in joint ventures 5,370 5,501 Federal Home Loan Bank stock 9,965 9,965 Accrued interest receivable, net 3,719 3,733 Premises and equipment, net 14,454 14,168 Real estate owned 901 1,739 Prepaid expenses and other assets 9,952 8,880 Cash surrender value of life insurance 11,599 11,359 Goodwill 1,395 1,395 ----------- ----------- TOTAL ASSETS $ 856,815 $ 853,328 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits $ 614,292 $ 588,915 Advances from Federal Home Loan Bank 140,151 154,296 Senior debt 14,242 14,242 Other borrowings 1,213 624 Advance payments by borrowers for taxes and insurance 341 76 Accrued expenses and other liabilities 11,084 11,153 ----------- ----------- Total liabilities 781,323 769,306 ----------- ----------- 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: 12,964 12,616 4,002,573 shares at June 30, 2004 4,312,805 shares at December 31, 2003 Retained earnings, restricted 63,785 71,436 Accumulated other comprehensive income, net of taxes (1,257) (30) ----------- ----------- Total shareholders' equity 75,492 84,022 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 856,815 $ 853,328 =========== =========== HOME FEDERAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- Interest income: 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Loans receivable $ 9,553 $ 10,499 $ 19,223 $ 21,323 Securities available for sale and held to maturity 1,026 941 2,024 2,054 Other interest income 55 102 109 223 ---------- ---------- ---------- ---------- Total interest income 10,634 11,542 21,356 23,600 ---------- ---------- ---------- ---------- Interest expense: Deposits 2,608 3,104 5,292 6,501 Advances from Federal Home Loan Bank 2,009 2,360 4,064 4,757 Other borrowings 167 210 368 432 ---------- ---------- ---------- ---------- Total interest expense 4,784 5,674 9,724 11,690 ---------- ---------- ---------- ---------- Net interest income 5,850 5,868 11,632 11,910 Provision for loan losses 35 450 281 660 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 5,815 5,418 11,351 11,250 ---------- ---------- ---------- ---------- Other income: Gain on sale of loans 939 2,155 1,622 4,299 Gain on sale of securities - 4 - 4 Income from joint ventures 54 93 115 574 Insurance, annuity income, other fees 493 403 992 833 Service fees on deposit accounts 731 705 1,387 1,305 Net gain on real estate owned and repossessed assets 63 77 135 88 Loan servicing income, net of impairments 272 (123) 396 (133) Miscellaneous 305 499 602 980 ---------- ---------- ---------- ---------- Total other income 2,857 3,813 5,249 7,950 ---------- ---------- ---------- ---------- Other expenses: Compensation and employee benefits 3,356 3,203 6,480 6,140 Occupancy and equipment 774 748 1,585 1,525 Service bureau expense 258 235 515 475 Federal insurance premium 23 24 45 49 Marketing 192 137 369 339 Miscellaneous 1,180 1,292 2,586 2,393 ---------- ---------- ---------- ---------- Total other expenses 5,783 5,639 11,580 10,921 ---------- ---------- ---------- ---------- Income before income taxes 2,889 3,592 5,020 8,279 Income tax provision 975 1,318 1,719 3,051 ---------- ---------- ---------- ---------- Net Income $ 1,914 $ 2,274 $ 3,301 $ 5,228 ========== ========== ========== ========== Basic earnings per common share $ 0.46 $ 0.53 $ 0.78 $ 1.23 Diluted earnings per common share $ 0.45 $ 0.50 $ 0.75 $ 1.17 Basic weighted average number of shares 4,132,814 4,283,864 4,215,781 4,260,397 Dilutive weighted average number of shares 4,294,852 4,505,471 4,390,948 4,483,411 Dividends per share $ 0.188 $ 0.163 $ 0.375 $ 0.325 Supplemental Data: Three Months Ended Year to Date (unaudited) June 30, June 30 ------------------ ---------------- 2004 2003 2004 2003 ------- ------- ------- ------- Weighted average interest rate earned on total interest-earning assets 5.38% 5.69% 5.40% 5.82% Weighted average cost of total interest-bearing liabilities 2.49% 2.90% 2.54% 2.99% Interest rate spread during period 2.89% 2.80% 2.85% 2.83% Net yield on interest-earning assets (net interest income divided by average interest-earning assets on annualized basis) 2.96% 2.90% 2.94% 2.94% Total interest income divided by average total assets (on annualized basis) 4.93% 5.23% 4.95% 5.34% Total interest expense divided by average total assets (on annualized basis) 2.23% 2.58% 2.27% 2.67% Net interest income divided by average total assets (on annualized basis) 2.71% 2.66% 2.70% 2.70% Return on assets (net income divided by average total assets on annualized basis) 0.89% 1.03% 0.77% 1.18% Return on equity (net income divided by average total equity on annualized basis) 9.63% 11.30% 8.09% 13.14% June 30, ------------------ 2004 2003 -------- -------- Book value per share outstanding $ 18.86 $ 18.92 Nonperforming Assets: Loans: Non-accrual $ 2,409 $ 3,733 Past due 90 days or more 718 907 Restructured 2,976 260 ------- ------- Total nonperforming loans 6,103 4,900 Real estate owned, net 892 1,786 Other repossessed assets, net 9 118 ------- ------- Total Nonperforming Assets $ 7,004 $ 6,804 Nonperforming assets divided by total assets 0.82% 0.78% Nonperforming loans divided by total loans 0.94% 0.74% Balance in Allowance for Loan Losses $ 7,583 $ 7,284 CONTACT: Home Federal Bancorp John K. Keach, Jr., 812-373-7816 Lawrence E. Welker, 812-523-7308