Home Federal Bancorp (Nasdaq: HOMF), the holding company of Indiana Bank and Trust Company of Columbus, Indiana, today announced quarterly earnings of $1,419,000 or $0.42 diluted earnings per common share compared to $1,089,000 or $0.30 diluted earnings per common share a year earlier.
Net income for the prior year included a pre-tax charge of $788,000 related to a previously disclosed employee termination which was recorded in miscellaneous expense.
Excluding the impact of this one-time charge, net income for the prior year would have been $1,565,000 or $0.43 diluted earnings per share. The decrease in net income compared to the prior year was primarily due to a 20 basis point decrease in net interest margin as well as additional expenses associated with the Bank's name change during the first quarter. The Company incurred approximately $100,000 in one time costs associated with the change of the Bank's name to Indiana Bank and Trust Company - primarily office supplies and expensing costs of signage. Total loans increased $2.9 million for the quarter. 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 $14.2 million for the quarter. Chairman and CEO John Keach, Jr. stated, "While market conditions continue to present us with new challenges, we continue to focus on executing our plan to enhance shareholder value." Executive Vice President and CFO Mark Gorski added, "The current interest rate environment is tough on net interest margin, but commercial loan growth continues to be strong."
Balance Sheet
Total assets were $920.1 million as of March 31, 2008, an increase of $11.3 million from December 31, 2007. Total loans increased $2.9 million for the quarter. The growth in the loan portfolio was primarily the result of an increase in commercial and commercial mortgage loans which totaled $14.2 million for the quarter. The increase in commercial loans has been partially offset by a decrease in residential mortgage loans and consumer loans. Residential mortgage loans decreased $5.9 million for the quarter as substantially all new mortgage loan originations are being sold in the secondary market. Consumer loans decreased $5.5 million for the quarter due primarily to a reduction in home equity and second mortgage loans and a continued run off of indirect automobile loans as the Bank discontinued the origination of indirect automobile loans during 2006.
Total retail deposits decreased $2.3 million for the quarter. During the quarter, public fund interest checking account balances decreased $15.0 million while all other retail deposit categories in total increased $12.7 million including growth of $11.4 million in certificates of deposit and growth of $8.7 million in non-interest checking accounts.
Total FHLB borrowings increased $12.4 million for the quarter. The increase in FHLB borrowings during the quarter was done in anticipation of future funding needs within the commercial loan business.
As of March 31, 2008, shareholders' equity was $68.5 million. The return on average assets for the quarter was 0.62% while the return on average equity for the year was 8.33%.
Asset Quality
Provision for loan losses increased $80,000 to $360,000 for the quarter. 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 $289,000 for the first quarter representing an annualized net charge off ratio of 0.15% compared to net charge offs of $175,000 representing an annualized net charge off ratio of 0.10% for the first quarter of 2007. Non- performing assets to total assets increased to 1.38% at March 31, 2008 from 1.29% at December 31, 2007. Non-performing loans to total gross loans increased to 1.61% at March 31, 2008 from 1.51% at December 31, 2007. The ratio of the allowance for loan losses to total loans was 0.93% at March 31, 2008 compared to 0.92% at December 31, 2007.
Net Interest Income
Net interest income increased $87,000 or 1.3% to $6.9 million for the quarter. Net interest margin for the quarter was 3.24%, which represented a decrease of 20 basis points compared to the first quarter of 2007 and a 14 basis point decrease compared to the fourth quarter of 2007. The decrease in net interest margin for the quarter was primarily the result of a significant reduction in interest rates during the first quarter. The decline in interest rates resulted in a reduction of 2.0% in the Bank's prime rate. As the Bank has more interest earning assets tied to indices that reprice immediately than it does interest bearing liabilities, the impact of the sharp reduction in interest rates caused a decrease in net interest margin.
Non Interest Income
Non interest income increased $177,000 or 6.1% for the quarter. Gain on sale of loans increased $93,000 for the quarter and service fees on deposits accounts increased $40,000 or 2.8% for the first quarter. The increase in the gain on sale of loans resulted primarily from increased origination volumes from our Indianapolis market which were sold in the secondary market.
Non Interest Expenses
Non interest expenses decreased $383,000 to $7.4 million for the first quarter. Excluding the one-time employee related expense incurred in the first quarter of 2007, non interest expenses increased $405,000 or 5.8% for the quarter. Compensation and employee benefits expense increased $151,000 or 3.7% for the year due to additional salary and incentive compensation expense for the new commercial lending and commercial credit staff in Indianapolis, an increase in the Company match on the 401(k) and normal annual salary increases. Effective January 1, 2008, the Company increased the maximum 401(k) match to 50% of an employee's 401(k) contribution, up to a maximum contribution of 3.0% of salary. This change is expected to increase expense by approximately $30,000 per quarter compared to the prior year.
In addition, the Company has chosen to freeze its defined benefit pension plan effective April 1, 2008 which is expected to decrease expense by approximately $100,000 in the second quarter of 2008 and approximately $150,000 in the third and fourth quarters of 2008 compared to the expense recorded in the first quarter. Marketing expense increased $149,000 for the quarter compared to the first quarter of 2007 due to the timing of advertising associated with the name change. The Company anticipates total marketing cost for 2008 to approximate the average marketing expense over the previous 2 years.
Stock Repurchase Programs
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, or 168,498 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 11,886 shares under this plan during the first quarter.
Home Federal Bancorp is a bank holding company registered with the Board of Governors of the Federal Reserve System, which has been authorized by the Federal Reserve to engage in activities permissible for a financial holding company. Indiana Bank and Trust Company, its principal subsidiary, is an FDIC insured state chartered commercial bank. Indiana Bank and Trust Company was founded in 1908 and offers a wide range of consumer and commercial financial services through 19 branch offices in central and southeastern Indiana. -- Home Federal Bancorp
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