HMN Financial, Inc. (NASDAQ:HMNF):
First Quarter Highlights
- Net income of $0.7 million, a
decrease of $2.1 million, compared to net income of $2.8 million in
the first quarter of 2012
- Diluted earnings per common share of
$0.06, a decrease of $0.52, compared to diluted earnings per common
share of $0.58 in the first quarter of 2012
- Provision for loan losses of $0, an
increase of $0.1 million, compared to a provision for loan losses
of ($0.1 million) in first quarter of 2012
- Non-performing assets of $38.7
million, down $1.9 million from fourth quarter of 2012
- Total assets decreased $26 million
in first quarter of 2013
EARNINGS
SUMMARY (unaudited)
Three Months Ended
March 31,
(dollars in thousands, except per share amounts)
2013
2012 Net income $ 741
2,804 Net income available to common
stockholders 265 2,343 Diluted earnings per
common share 0.06 0.58 Return on average
assets 0.48 % 1.57 % Return on
average common equity 4.90 % 19.32
% Book value per common share $ 8.07
7.81
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $627
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $0.7 million for the first quarter of
2013, a decrease of $2.1 million compared to net income of $2.8
million for the first quarter of 2012. Net income available to
common shareholders was $0.3 million for the first quarter of 2013,
a decrease of $2.0 million from the net income available to common
shareholders of $2.3 million for the first quarter of 2012. Diluted
earnings per common share for the first quarter of 2013 were $0.06,
a decrease of $0.52 from the diluted earnings per common share of
$0.58 for the first quarter of 2012. The decrease in net income
between the periods was due primarily to a $1.3 million decrease in
net interest income as a result of a decrease in interest earning
assets, a $0.6 million decrease in the gain recognized on the sales
of branch offices, and a $0.2 million decrease in the gains
recognized on loan sales due to a decrease in the sale of
commercial government guaranteed loans.
President’s Statement“We are
pleased to report earnings for the first quarter of 2013 and the
continued reduction in our non-performing assets,” said Home
Federal Savings Bank President and Chief Executive Officer, Bradley
Krehbiel. “We continue to focus our efforts on improving credit
quality and reducing non-performing assets in the most cost
effective manner while at the same time reducing expenses to
reflect the decreased size of our balance sheet. We believe that,
over time, our focus on these areas will be effective in generating
improved financial results.”
First Quarter Results
Net Interest IncomeNet interest
income was $4.9 million for the first quarter of 2013, a decrease
of $1.3 million, or 20.6%, compared to $6.2 million for the first
quarter of 2012. Interest income was $6.3 million for the first
quarter of 2013, a decrease of $2.0 million, or 23.6%, from $8.3
million for the first quarter of 2012. Interest income decreased
between the periods primarily because of a $109 million decrease in
the average interest-earning assets between the periods. Average
interest-earning assets decreased between the periods primarily
because of a decrease in the commercial loan portfolio, which
occurred because of limited loan demand and the Company’s focus on
improving credit quality, reducing loan concentrations, managing
interest rate risk and improving capital ratios. Interest income
also decreased because of lower average yields on loans and
investment securities. The average yield earned on interest-earning
assets was 4.28% for the first quarter of 2013, a decrease of 42
basis points from the 4.70% average yield for the first quarter of
2012.
Interest expense was $1.4 million for the first quarter of 2013,
a decrease of $0.7 million, or 32.5%, compared to $2.1 million for
the first quarter of 2012. Interest expense decreased primarily
because of a $124 million decrease in the average interest-bearing
liabilities between the periods. The decrease in average
interest-bearing liabilities is primarily the result of a decrease
in the outstanding brokered and retail certificates of deposits
between the periods. The decrease in brokered and retail
certificates of deposits between the periods was the result of
using the proceeds from loan principal payments to fund maturing
certificates. Interest expense also decreased because of the lower
average interest rates paid on money market accounts and
certificates of deposits. The decreased rates were the result of
the low interest rate environment that continued to exist during
the first quarter of 2013. The average interest rate paid on
interest-bearing liabilities was 1.02% for the first quarter of
2013, a decrease of 20 basis points from the 1.22% average interest
rate paid in the first quarter of 2012. Net interest margin (net
interest income divided by average interest earning assets) for the
first quarter of 2013 was 3.34%, a decrease of 19 basis points
compared to 3.53% for the first quarter of 2012.
Provision for Loan LossesThe
provision for loan losses was $0 for the first quarter of 2013, an
increase of $0.1 million compared to ($0.1 million) for the first
quarter of 2012. The provision for loan losses remained low in the
first quarter of 2013 primarily because the decrease in the
required reserves for certain risk rated commercial loans was
entirely offset by additional specific reserves on certain
development loans. These additional reserves were the result of a
decrease in the estimated value of the underlying collateral
supporting these loans. Total non-performing assets were $38.7
million at March 31, 2013, a decrease of $1.9 million, or 4.6%,
from $40.6 million at December 31, 2012. Non-performing loans
decreased $1.2 million and foreclosed and repossessed assets
decreased $0.7 million during the first quarter of 2013. The
non-performing loan and foreclosed and repossessed asset activity
for the first quarter of 2013 was as follows:
(Dollars in thousands)
Non-performing
loans Foreclosed and repossessed assets January 1, 2013
$ 29,975 January 1, 2013 $ 10,595 Classified as non-performing 861
Transferred from non-performing loans 0 Charge offs (346 ) Other
payments received (68 ) Principal payments received (1,355 ) Real
estate sold (628 ) Classified as accruing
(373
) Net gain on sale of assets 136 Transferred to real estate owned
0 Write downs
(117
) March 31, 2013 $ 28,762 March 31, 2013 $ 9,918
A reconciliation of the Company’s allowance for loan losses for
the first quarters of 2013 and 2012 is summarized as follows:
(Dollars in
thousands) 2013 2012 Balance at January
1, $ 21,608 $ 23,888 Provision 0 (128 )
Charge offs: Consumer (46 ) (265 ) Commercial business 0 (8 )
Commercial real estate (337 ) (2,630 ) Recoveries 716
567 Balance at March 31, $ 21,941 $ 21,424
General allowance $ 13,614 $ 13,913 Specific
allowance 8,327 7,511 $ 21,941 $
21,424
The following table summarizes the amounts and categories of
non-performing assets in the Bank’s portfolio and loan delinquency
information as of the end of the two most recently completed
quarters.
March 31, December 31, (Dollars
in thousands) 2013
2012 Non-Performing Loans: One-to-four family real estate $ 2,127 $
2,492 Commercial real estate 24,590 25,543 Consumer 334 300
Commercial business 1,711 1,640 Total 28,762 29,975
Foreclosed and Repossessed Assets: One-to-four family real estate
1,114 1,595 Commercial real estate 8,804 9,000 Total non-performing
assets $ 38,680 $ 40,570 Total as a percentage of total assets 6.17
% 6.21 % Total non-performing loans $ 28,762 $ 29,975 Total as a
percentage of total loans receivable, net 6.62 % 6.60 % Allowance
for loan loss to non-performing loans 76.29 % 72.09 %
Delinquency Data: Delinquencies (1) 30+ days $ 3,613 $ 2,739 90+
days (2) 4 7,423 Delinquencies as a percentage of Loan and lease
portfolio (1) 30+ days 0.76 % 0.57 % 90+ days 0.00 % 1.55 %
(1) Excludes non-accrual loans.(2) Loans delinquent for 90 days
and over are generally non-accruing and are included in the
Company’s non-performing asset total unless they are well secured
and in the process of collection.
The following table summarizes the number and types of
commercial real estate loans (the largest category of
non-performing loans) that were non-performing as of the end of the
two most recently completed quarters.
Principal Amount
Principal Amount
(Dollars in thousands)
of Loans at
of Loans at # of March 31, # of December 31,
Property Type
relationships 2013
relationships 2012 Developments/land 10 $ 23,854 9 $
24,339 Shopping centers/retail 1 69 2 386 Restaurants/bar 1 526 1
547 Office buildings 0 0 2 128 Other buildings 1
141 1 143 13
$ 24,590 15 $ 25,543
The following table summarizes the number of lending
relationships and industry of commercial business loans that were
non-performing as of the end of the two most recently completed
quarters.
Principal Amount
Principal Amount
(Dollars in thousands)
of Loans at
of Loans at # of March 31, # of December 31,
Industry Type
relationships 2013
relationships 2012 Construction/development 7 $ 1,007
6 $ 1,074 Retail 2 406 2 239 Restaurant 1 124 1 129 Other 3
174 3 198 13
$ 1,711 12 $ 1,640
Non-Interest Income and
ExpenseNon-interest income was $1.9 million for the first
quarter of 2013, a decrease of $0.8 million, or 30.7%, from $2.7
million for the first quarter of 2012. Gain on sale of branch
office decreased $0.6 million as a gain was realized on the sale of
the Toledo, Iowa branch in the first quarter of 2012. Gain on sales
of loans decreased $0.2 million between the periods due to a $0.3
million decrease in the gains recognized on the sale of commercial
government guaranteed loans between the periods that was partially
offset by a $0.1 million increase in the gains recognized on the
sale of single family loans. The increase in the gains recognized
on single family loans was due to an increase in loan originations
and sales as a result of the low interest rate environment that
continued to exist during the first quarter of 2013. Fees and
service charges decreased $40,000 between the periods primarily
because of a decrease in debit card and overdraft charges. Other
non-interest income decreased $25,000 between the periods primarily
because of a decrease in rental income realized on other real
estate owned. Loan servicing fees increased $16,000 between the
periods because of an increase in the number of single family loans
that are being serviced for others.
Non-interest expense was $6.0 million for the first quarter of
2013, a decrease of $0.2 million, or 3.3%, from $6.2 million for
the first quarter of 2012. Compensation expense decreased $0.2
million primarily because of a decrease in the number of employees
between the periods. Other non-interest expense decreased $57,000
between the periods primarily because of decreased expenses related
to non-performing assets. Deposit insurance expense increased
$48,000 between the periods primarily because of an increase in
FDIC insurance rates between the periods. The gain on real estate
owned decreased $58,000 between the periods because fewer
properties were sold. Occupancy expense decreased $32,000 primarily
because of a decrease in rent and depreciation expense as a result
of having fewer branch facilities.
Income tax expense was $25,000 for the first quarter of 2013, an
increase of $25,000 from the first quarter of 2012 when no income
tax expense was recorded. In the second quarter of 2010, the
Company recorded a deferred tax asset valuation reserve against its
entire deferred tax asset balance and the Company continued to
maintain a valuation reserve against the entire deferred tax asset
balance at March 31, 2013. Since the valuation reserve is
established against the entire deferred tax asset balance, no
regular income tax expense was recorded for the first quarter of
2013. The income tax expense that was recorded in the first quarter
of 2013 relates to alternative minimum tax amounts that are due
since only a portion of the outstanding net operating loss carry
forwards can be used to offset current income under the current
alternative minimum tax rules.
Net Income Available to Common
ShareholdersThe net income available to common shareholders
was $0.3 million for the first quarter of 2013, a decrease of $2.0
million from the $2.3 million income available to common
shareholders in the first quarter of 2012. The net income available
to common shareholders decreased primarily because of the change in
the net income between the periods. The Company has deferred the
last nine quarterly dividend payments, beginning with the February
15, 2011 dividend payment, on its Fixed Rate, Series A, Cumulative
Perpetual Preferred Stock that was originally issued to the United
States Treasury Department as part of the TARP Capital Purchase
Program (the “Preferred Stock”). The deferred dividend payments
have been accrued for payment in the future and are being reported
for the deferral period as a preferred dividend requirement that is
deducted from income for financial statement purposes to arrive at
the net income available to common shareholders.
Under the terms of the certificate of designations for the
Preferred Stock, dividend payments may be deferred, but the
dividend is cumulative and compounds quarterly during the deferral
period. In addition, if the Company fails to pay dividends for six
quarters, whether or not consecutive, the holders of the Preferred
Stock have the right to appoint two representatives to the
Company’s board of directors. On February 8, 2013, the Treasury
sold the Preferred Stock to unaffiliated third party investors in a
private transaction. The Company has been advised that the current
holders of substantially all of the Preferred Stock have entered
into agreements with the Federal Reserve Board pursuant to which
they have each agreed not to take action, influence over the
management or policies of the Company or the Bank, including
exercise of any right to elect any representative to the Company’s
board of directors. Further, while dividends on the Preferred Stock
are in arrears, no dividend may be paid on the common stock of the
Company. Under the terms of the Company’s and Bank’s Supervisory
Agreements with their federal banking regulators, neither the
Company nor the Bank may declare or pay any cash dividends, or
purchase or redeem any capital stock, without prior notice to, and
consent of these regulators.
Return on Assets and EquityReturn
on average assets for the first quarter of 2013 was 0.48%, compared
to 1.57% for the first quarter of 2012. Return on average equity
was 4.90% for the first quarter of 2013, compared to 19.32% for the
first quarter of 2012. Book value per common share at March 31,
2013 was $8.07, compared to $7.81 at March 31, 2012.
General InformationHMN Financial,
Inc. and Home Federal Savings Bank are headquartered in Rochester,
Minnesota. Home Federal Savings Bank operates eight full service
offices in Minnesota located in Albert Lea, Austin, Eagan, La
Crescent, Rochester (2), Spring Valley and Winona; one full service
office in Iowa located in Marshalltown; one loan origination office
in Sartell, Minnesota; and two Private Banking offices in
Rochester, Minnesota.
Safe Harbor StatementThis press
release may contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These
statements are often identified by such forward-looking terminology
as “expect,” “intend,” “look,” “believe,” “anticipate,” “estimate,”
“project,” “seek,” “may,” “will,” “would,” “could,” “should,”
“trend,” “target,” and “goal” or similar statements or variations
of such terms and include, but are not limited to, those relating
to increasing our core deposit relationships, reducing
non-performing assets, reducing expense and generating improved
financial results; the adequacy and amount of available liquidity
and capital resources to the Bank; the Company’s liquidity and
capital requirements; our expectations for core capital and our
strategies and potential strategies for improvement thereof;
changes in the size of the Bank’s loan portfolio; the recovery of
the valuation allowance on deferred tax assets; the amount and mix
of the Bank’s non-performing assets and the appropriateness of the
allowance therefor; future losses on non-performing assets; the
amount of interest-earning assets; the amount and mix of brokered
and other deposits (including the Company’s ability to renew
brokered deposits); the availability of alternate funding sources;
the payment of dividends; the future outlook for the Company; the
amount of deposits that will be withdrawn from checking and money
market accounts and how the withdrawn deposits will be replaced;
the projected changes in net interest income based on rate shocks;
the range that interest rates may fluctuate over the next twelve
months; the net market risk of interest rate shocks; the future
outlook for the issuer trust preferred securities held by the Bank;
and the Bank’s compliance with regulatory standards generally
(including the Bank’s status as “well-capitalized”), and
supervisory agreements, individual minimum capital requirements or
other supervisory directives or requirements to which the Company
or the Bank are or may become expressly subject, specifically, and
possible responses of the OCC and FRB and the Bank and the Company
to any failure to comply with any such regulatory standard,
agreement or requirement. A number of factors could cause actual
results to differ materially from the Company’s assumptions and
expectations. These include but are not limited to the adequacy and
marketability of real estate and other collateral securing loans to
borrowers; federal and state regulation and enforcement, including
restrictions set forth in the supervisory agreements between each
of the Company and Bank and the OCC and FRB; possible legislative
and regulatory changes, including changes in the degree and manner
of regulatory supervision, the ability of the Company and the Bank
to establish and adhere to plans and policies relating to, among
other things, capital, business, non-performing assets, loan
modifications, documentation of loan loss allowance and
concentrations of credit that are satisfactory to the OCC and FRB,
as applicable, in accordance with the terms of the Company and Bank
supervisory agreements and to otherwise manage the operations of
the Company and the Bank to ensure compliance with other
requirements set forth in the supervisory agreements; the ability
of the Company and the Bank to obtain required consents from the
OCC and FRB, as applicable, under the supervisory agreements or
other directives; the ability of the Bank to comply with its
individual minimum capital requirement and other applicable
regulatory capital requirements; enforcement activity of the OCC
and FRB in the event of our non-compliance with any applicable
regulatory standard, agreement or requirement; adverse economic,
business and competitive developments such as shrinking interest
margins, reduced collateral values, deposit outflows, changes in
credit or other risks posed by the Company’s loan and investment
portfolios, changes in costs associated with alternate funding
sources, including changes in collateral advance rates and policies
of the Federal Home Loan Bank, technological, computer-related or
operational difficulties, results of litigation, and reduced demand
for financial services and loan products; changes in accounting
policies and guidelines, or monetary and fiscal policies of the
federal government or tax laws; international economic
developments; the Company’s access to and adverse changes in
securities markets; the market for credit related assets; or other
significant uncertainties. Additional factors that may cause actual
results to differ from the Company’s assumptions and expectations
include those set forth in the Company’s most recent filings on
Forms 10-K and 10-Q with the Securities and Exchange Commission.
All forward-looking statements are qualified by, and should be
considered in conjunction with, such cautionary statements. For
additional discussion of the risks and uncertainties applicable to
the Company, see the “Risk Factors” sections of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2012 and
Part II, Item 1A of its Quarterly Reports on Form 10-Q. We
undertake no duty to update any of the forward-looking statements
after the date of this press release.
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated
Balance Sheets
March 31, December 31,
(Dollars in thousands) 2013 2012
(unaudited)
Assets Cash and cash equivalents $ 72,995 83,660
Securities available for sale: Mortgage-backed and related
securities (amortized cost $8,090 and $9,825) 8,586 10,421 Other
marketable securities (amortized cost $82,773 and $75,759) 82,438
75,470 91,024 85,891 Loans held
for sale 2,210 2,584 Loans receivable, net 434,634 454,045 Accrued
interest receivable 1,971 2,018 Real estate, net 9,918 10,595
Federal Home Loan Bank stock, at cost 4,063 4,063 Mortgage
servicing rights, net 1,783 1,732 Premises and equipment, net 7,019
7,173 Prepaid expenses and other assets 1,469 1,566
Total assets $ 627,086 653,327
Liabilities and Stockholders’ Equity Deposits $ 487,645
514,951 Federal Home Loan Bank advances 70,000 70,000 Accrued
interest payable 173 247 Customer escrows 1,365 830 Accrued
expenses and other liabilities 6,850 6,465 Total
liabilities 566,033 592,493 Commitments and
contingencies Stockholders’ equity: Serial preferred stock ($.01
par value): Authorized 500,000 shares; issued shares 26,000 25,481
25,336 Common stock ($.01 par value): Authorized 11,000,000; issued
shares 9,128,662 91 91 Additional paid-in capital 51,691 51,795
Retained earnings, subject to certain restrictions 47,386 47,004
Accumulated other comprehensive loss, net of tax (195 ) (49 )
Unearned employee stock ownership plan shares (2,949 ) (2,997 )
Treasury stock, at cost 4,722,418 and 4,705,073 shares (60,452 )
(60,346 ) Total stockholders’ equity 61,053 60,834
Total liabilities and stockholders’ equity $ 627,086 653,327
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (unaudited)
Three Months Ended
March 31,
(Dollars in thousands)
2013
2012
Interest income: Loans receivable $ 6,028 7,796
Securities available for sale: Mortgage-backed and related 94 193
Other marketable 139 249 Cash equivalents 33 27 Other 29 10
Total interest income 6,323 8,275
Interest expense: Deposits 557 1,217 Federal Home Loan Bank
advances 835 845 Total interest expense 1,392
2,062 Net interest income 4,931 6,213 Provision for loan
losses 0 (128 ) Net interest income after provision for loan
losses 4,931 6,341 Non-interest income: Fees
and service charges 789 829 Loan servicing fees 248 232 Gain on
sales of loans 678 909 Gain on sale of branch office 0 552 Other
159 184 Total non-interest income 1,874 2,706
Non-interest expense: Compensation and benefits 3,199
3,413 Gain on real estate owned (19 ) (77 ) Occupancy 850 882
Deposit insurance 318 270 Data processing 330 337 Other 1,361
1,418 Total non-interest expense 6,039 6,243
Income before income tax expense 766 2,804 Income tax
expense 25 0 Net income 741 2,804 Preferred stock
dividends and discount (476 ) (461 ) Net income available to common
shareholders $ 265 2,343 Other comprehensive loss,
net of tax: Unrealized holding losses arising during the period $
(146 ) (180 ) Other comprehensive loss, net of tax (146 ) (180 )
Comprehensive income attributable to common shareholders $ 119
2,163 Basic earnings per common share
$
0.07 0.60 Diluted earnings per common share
$
0.06 0.58
HMN FINANCIAL, INC. AND
SUBSIDIARIES
Selected Consolidated Financial
Information
(unaudited)
Three Months Ended
SELECTED FINANCIAL DATA:
March 31,
(Dollars in thousands, except per share
data)
2013
2012
I. OPERATING DATA:
Interest income $ 6,323 8,275 Interest expense 1,392 2,062
Net interest income 4,931 6,213 II. AVERAGE BALANCES: Assets
(1) 624,855 716,807 Loans receivable, net 441,721 546,112
Securities available for sale (1) 90,862 105,257 Interest-earning
assets (1) 598,912 708,275 Interest-bearing liabilities 556,200
680,435 Equity (1) 61,363 58,357 III. PERFORMANCE RATIOS:
(1) Return on average assets (annualized) 0.48 % 1.57 % Interest
rate spread information: Average during period
3.27 3.48 End of period 3.23 3.47 Net interest margin 3.34 3.53
Ratio of operating expense to average
total assets (annualized)
3.92 3.50 Return on average equity (annualized) 4.90 19.32
Efficiency 88.75 70.00
March 31, December 31, March 31, 2013
2012 2012 IV. ASSET QUALITY:
Total non-performing assets $ 38,680 40,570 46,608 Non-performing
assets to total assets 6.17 % 6.21 % 6.60 % Non-performing loans to
total loans receivable, net 6.62 6.60 6.14 Allowance for loan
losses $ 21,941 21,608 21,424 Allowance for loan losses to total
assets 3.50 % 3.31 % 3.03 % Allowance for loan losses to total
loans receivable, net 5.05 4.76 3.98 Allowance for loan losses to
non-performing loans 76.29 72.09 64.90 V. BOOK VALUE PER
COMMON SHARE: Book value per common share $ 8.07
8.02 7.81
Three Months
Three Months
Ended
Year Ended
Ended
Mar 31, 2013
Dec 31, 2012
Mar 31, 2012
VI. CAPITAL RATIOS: Stockholders’ equity to total assets, at end of
period 9.74 % 9.31 % 8.42
%
Average stockholders’ equity to average assets (1) 9.82 8.81 8.14
Ratio of average interest-earning assets to 107.68 105.73 104.09
average interest-bearing liabilities (1) Tier 1 or core capital (2)
10.24 9.68 8.50
Risk-based capital
16.38
15.52 12.55 March 31,
December 31, March 31, 2013 2012
2012 VII. EMPLOYEE DATA: Number of full time
equivalent employees 188 194 197
(1) Average balances were calculated based upon amortized cost
without the market value impact of ASC 320.(2) OCC has established
an individual minimum capital requirement (IMCR) for the Bank. An
IMCR requires a bank to establish and maintain levels of capital
greater than those generally required for a bank to be classified
as “well-capitalized.” Effective December 31, 2011, the Bank
was required to establish, and subsequently maintain, core capital
at least equal to 8.5% of adjusted total assets. The Bank’s core
capital ratio was in excess of this requirement at March 31,
2013.
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