HMN Financial, Inc. (NASDAQ:HMNF):
Three months ended Six
months ended
Net Income
Summary (unaudited)
June 30, June 30, (Dollars in
thousands, except per share amounts)
2013 2012
2013 2012 Net income $ 1,799
395 $ 2,540 3,199
Net income (loss) available to common
stockholders
1,252 (69 ) 1,517 2,274
Diluted earnings (loss) per common share 0.30
(0.02 ) 0.36 0.57 Return on average
assets 1.21 % 0.23 % 0.84
% 0.90 % Return on average equity
11.78 % 2.66 % 8.36 %
10.98 % Book value per common share $
8.09 $ 7.79 $ 8.09 $
7.79
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $561
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $1.8 million for the second quarter of
2013, an improvement of $1.4 million, compared to net income of
$0.4 million for the second quarter of 2012. The net income
available to common shareholders was $1.3 million for the second
quarter of 2013, an improvement of $1.4 million from the net loss
available to common shareholders of $0.1 million for the second
quarter of 2012. Diluted earnings per common share for the second
quarter of 2013 were $0.30, an improvement of $0.32 from the
diluted loss per common share of $0.02 for the second quarter of
2012. The improvement in net income in the second quarter of 2013
was primarily due to a $1.6 million decrease in the provision for
loan losses and a $1.1 million decrease in non-interest expense
between the periods. These positive changes to net income were
partially offset by a $1.3 million decrease in net interest income
due primarily to the decrease in interest earning assets between
the periods.
President’s Statement“We are
pleased to report the continued improvement in our net operating
results and the decrease in our non-performing assets in the second
quarter of 2013,” said Bradley Krehbiel, President and Chief
Executive Officer of HMN. “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.”
Second Quarter ResultsNet Interest
IncomeNet interest income was $4.7 million for the second
quarter of 2013, a decrease of $1.3 million, or 22.7%, compared to
$6.0 million for the second quarter of 2012. Interest income was
$5.8 million for the second quarter of 2013, a decrease of $2.2
million, or 27.2%, from $8.0 million for the same period in 2012.
Interest income decreased between the periods primarily because of
an $82 million decrease in the average interest-earning assets and
also because of a decrease in average yields between the periods.
Average interest-earning assets decreased between the periods
primarily because of a decrease in the commercial loan portfolio,
which occurred primarily because of loan prepayments or
non-renewals as a result of the Company’s focus on improving credit
quality, decreasing loan concentrations, managing net interest
margin and improving capital ratios. The average yield earned on
interest-earning assets was 4.07% for the second quarter of 2013, a
decrease of 83 basis points from the 4.90% average yield for the
second quarter of 2012. The decrease in average yield is due to the
continued low short-term interest rate environment that existed
during the second quarter of 2013. The increase in domestic
long-term mortgage rates during the second quarter of 2013 did not
materially impact the average yield earned on interest-earning
assets during the second quarter of 2013 since most of the mortgage
loans originated by the Bank are sold into the secondary market and
not placed in the loan portfolio.
Interest expense was $1.1 million for the second quarter of
2013, a decrease of $0.8 million, or 41.5%, compared to $1.9
million for the second quarter of 2012. Interest expense decreased
primarily because of the $90 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 borrowings and brokered certificates of
deposits between the periods. The decrease in borrowings and
brokered certificates of deposits between the periods was the
result of using the proceeds from loan principal payments to fund
maturing borrowings and brokered certificates of deposits. Interest
expense also decreased because of the lower 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 second quarter of 2013. The average
interest rate paid on interest-bearing liabilities was 0.85% for
the second quarter of 2013, a decrease of 39 basis points from the
1.24% average interest rate paid in the second quarter of 2012. The
average interest rate paid on interest-bearing liabilities is
anticipated to continue to decrease in the third quarter of 2013 as
a result of paying off all outstanding Federal Home Loan Bank
advances in the second quarter of 2013. Net interest margin (net
interest income divided by average interest earning assets) for the
second quarter of 2013 was 3.28%, a decrease of 44 basis points,
compared to 3.72% for the second quarter of 2012.
Provision for Loan LossesThe
provision for loan losses was ($0.5) million for the second quarter
of 2013, a decrease of $1.6 million, or 147.8%, from $1.1 million
for the second quarter of 2012. The provision for loan losses
decreased in the second quarter of 2013 primarily because there
were fewer decreases in the estimated value of the underlying
collateral supporting commercial real estate loans that required
additional allowances or charge offs in the current period when
compared to the second quarter of 2012. The provision also
decreased because of a decrease in the outstanding loan portfolio
balances, an improvement in the classifications of certain risk
rated loans, and the recoveries received during the quarter on
previously charged off loans. Total non-performing assets were
$35.3 million at June 30, 2013, a decrease of $3.4 million, or
8.8%, from $38.7 million at March 31, 2013. Non-performing loans
decreased $2.9 million and foreclosed and repossessed assets
decreased $0.5 million during the second quarter of 2013. The
non-performing loan and foreclosed and repossessed asset activity
for the second quarter of 2013 was as follows:
(Dollars in thousands)
Non-performing loans Foreclosed and repossessed
assets March 31, 2013 $28,762 March 31, 2013 $9,918
Classified as non-performing 2,619 Transferred from non-performing
loans 236 Charge offs (1,377 ) Other foreclosures/repossessions 687
Principal payments received (3,634 ) Real estate sold (1,651 )
Classified as accruing (293 ) Net gain on sale of assets 566
Transferred to real estate owned (236 ) Write downs (333 ) June 30,
2013 $25,841 June 30, 2013 $9,423
The decrease in non-performing loans during the second quarter
of 2013 relates primarily to principal payments received and charge
offs during the period. Of the $3.6 million in principal payments
received, $1.4 million related to the payoff of non-performing
single family construction loans as a result of the houses being
sold and $1.3 million related to additional principal payments
received from various developers as a result of land or lot sales.
Of the $1.4 million in loans that were charged off, $0.8 million
related to a real estate development loan as a result of a decrease
in the estimated value of the underlying collateral and $0.6
million related to various commercial business loans. These
decreases in non-performing loans were partially offset by loans
that were newly classified as non-performing during the period. Of
the $2.6 million in loans newly classified as non-performing, $1.2
million relates to home equity loans and $0.9 million relates to
single family construction loans.
A reconciliation of the Company’s allowance for loan losses for
the quarters ended June 30, 2013 and 2012 is summarized as
follows:
(Dollars in
thousands) 2013 2012 Balance at March 31, $21,941
$21,424 Provision (520 ) 1,088 Charge offs: One-to-four family (13
) 0 Consumer (55 ) (493 ) Commercial business (556 ) (1,820 )
Commercial real estate (759 ) (1,554 ) Recoveries 321 1,874
Balance at June 30, $20,359 $20,519
Allocated to:
General allowance $12,260 $14,507 Specific allowance 8,099
6,012 $20,359 $20,519
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 three most recently completed
quarters.
June 30,
March 31, December 31, (Dollars in thousands)
2013 2013
2012 Non-Performing Loans: One-to-four family real
estate $ 2,091 $ 2,127 $ 2,492 Commercial real estate 21,533 24,590
25,543 Consumer 1,462 334 300 Commercial business 755 1,711 1,640
Total 25,841 28,762 29,975 Foreclosed and Repossessed
Assets: One-to-four family real estate 707 1,114 1,595 Commercial
real estate 8,716 8,804 9,000 Total non-performing assets $ 35,264
$ 38,680 $ 40,570 Total as a percentage of total assets 6.29 % 6.17
% 6.21 % Total non-performing loans $ 25,841 $ 28,762 $ 29,975
Total as a percentage of total loans receivable, net 6.22 % 6.62 %
6.60 % Allowance for loan loss to non-performing loans 78.79 %
76.29 % 72.09 % Delinquency Data: Delinquencies (1) 30+ days
$ 5,820 $ 3,613 $ 2,739 90+ days (2) 0 4 7,423 Delinquencies as a
percentage of Loan and lease portfolio (1) 30+ days 1.22 % 0.76 %
0.57 % 90+ days 0.00 % 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 increase in delinquent loans in the second quarter of 2013
relates to a multi-family loan for $1.2 million and a $2.0 million
commercial business loan that, because of unanticipated delays in
the loan renewal process, were more than 30 days delinquent at June
30, 2013.
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
three most recently completed quarters.
Principal Principal
Principal Amount of Amount of Amount of (Dollars in thousands)
Loans at Loans at Loans at # of June 30, # of March 31, # of
December 31, Property Type relationships 2013
relationships 2013 relationships 2012
Developments/land 9 $20,956 10 $23,854 9 $24,339 Shopping
centers/retail 1 66 1 69 2 386 Restaurants/bar 1 511 1 526 1 547
Office buildings 0 0 0 0 2 128 Other buildings 0 0 1
141 1 143 11 $21,533 13
$24,590 15 $25,543
The decrease in the non-performing commercial real estate loans
from March 31, 2013 is due primarily to principal payments received
on construction and development loans during the quarter as a
result of various types of real estate sales including building
lots, land and single family houses.
Non-Interest Income and
ExpenseNon-interest income was $2.0 million for the second
quarter of 2013, an increase of $0.2 million, or 10.8%, from $1.8
million for the same period in 2012. Gains on sales of loans
increased $0.1 million between the periods primarily because of an
increase in single family loan originations due to the low interest
rate environment that continued to exist in the second quarter of
2013. Fees and service charges increased $0.1 million primarily
because of an increase in overdraft charges and debit card fees
between the periods.
Non-interest expense was $5.3 million for the second quarter of
2013, a decrease of $1.1 million, or 16.2%, from $6.4 million for
the same period of 2012. The gains on real estate owned increased
$0.5 million primarily because of an increase in the gains
recognized on the properties sold. Compensation expense decreased
$0.2 million primarily because of a decrease in employees between
the periods due to certain branch closures and our continued focus
on reducing expenses. Other non-interest expense decreased $0.2
million primarily because of a decrease in real estate taxes and
other expenses related to other real estate owned. Deposit
insurance costs decreased $0.1 million primarily because of a
decrease in assets between the periods.
Income tax expense was $55,000 for the second quarter of 2013,
an increase of $55,000 from the second 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 June 30, 2013. Since the valuation reserve is
established against the entire deferred tax asset balance, no
regular income tax expense was recorded for the second quarter of
2013. The income tax expense that was recorded in the second
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 (Loss) Available to Common
ShareholdersThe net income available to common shareholders
was $1.3 million for the second quarter of 2013, an improvement of
$1.4 million from the $0.1 net loss available to common
shareholders in the second quarter of 2012. The net income
available to common shareholders increased primarily because of the
change in the net income between the periods. The Company has
deferred the last ten 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 (loss) available to common
shareholders.
Return on Assets and EquityReturn
on average assets for the second quarter of 2013 was 1.21%,
compared to a 0.23% return on average assets for the second quarter
of 2012. Return on average equity was 11.78% for the second quarter
of 2013, compared to 2.66% for the same period in 2012. Book value
per common share at June 30, 2013 was $8.09, compared to $7.79 at
June 30, 2012.
Six Month Period Results
Net IncomeNet income was $2.5
million for the six month period ended June 30, 2013, a decrease of
$0.7 million, or 20.6%, compared to the net income of $3.2 million
for the six month period ended June 30, 2012. The net income
available to common shareholders was $1.5 million for the six month
period ended June 30, 2013, a decrease of $0.8 million, or 33.3%,
compared to the net income available to common shareholders of $2.3
million for the same period of 2012. Diluted earnings per common
share for the six month period ended June 30, 2013 was $0.36, a
decrease of $0.21 per share compared to the diluted earnings per
common share of $0.57 for the same period in 2012. The decrease in
net income for the six month period ended June 30, 2013 was
primarily due to a $2.7 million decrease in net interest income due
primarily to the decrease in interest earning assets between the
periods and a $0.6 million decrease in the gain related to the sale
of the Bank’s Toledo, Iowa branch in the first quarter of 2012.
These changes to net income were partially offset by a $1.5 million
decrease in the provision for loan losses and a $1.2 million
decrease in non-interest expenses.
Net Interest IncomeNet interest
income was $9.6 million for the first six months of 2013, a
decrease of $2.7 million, or 21.7%, from $12.3 million for the same
period in 2012. Interest income was $12.1 million for the six month
period ended June 30, 2013, a decrease of $4.1 million, or 25.4%,
from $16.2 million for the same six month period in 2012. Interest
income decreased between the periods primarily because of a $96
million decrease in the average interest-earning assets and also
because of a decrease in average yields between the periods.
Average interest-earning assets decreased between the periods
primarily because of a decrease in the commercial loan portfolio,
which occurred primarily because of loan prepayments or
non-renewals as a result of the Company’s focus on improving credit
quality, decreasing loan concentrations, managing net interest
margin and improving capital ratios. The average yield earned on
interest-earning assets was 4.18% for the first six months of 2013,
a decrease of 61 basis points from the 4.79% average yield for the
first six months of 2012. The decrease in average yield is due to
the continued low short-term interest rate environment that existed
during the first six months of 2013. The increase in domestic
long-term mortgage rates during the second quarter of 2013 did not
materially impact the average yield earned on interest-earning
assets during the first six months of 2013 since most of the
mortgage loans originated by the Bank are sold into the secondary
market and not placed in the loan portfolio.
Interest expense was $2.5 million for the first six months of
2013, a decrease of $1.5 million, or 36.8%, compared to $4.0
million for the first six months of 2012. Interest expense
decreased primarily because of the $107 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 borrowings and brokered
certificates of deposits and a decrease in other deposits as a
result of the branch sale that occurred in the first quarter of
2012. The decrease in borrowings and brokered certificates of
deposits between the periods was the result of using the proceeds
from loan principal payments to fund maturing borrowings and
brokered certificates of deposits. Interest expense also decreased
because of the lower 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 six months of 2013. The average interest rate paid on
interest-bearing liabilities was 0.93% for the first six months of
2013, a decrease of 30 basis points from the 1.23% average interest
rate paid in the first six months of 2012. The average interest
rate paid on interest-bearing liabilities is anticipated to
continue to decrease in the third quarter of 2013 as a result of
paying off all outstanding Federal Home Loan Bank advances in the
second quarter of 2013. Net interest margin (net interest income
divided by average interest earning assets) for the first six
months of 2013 was 3.31%, a decrease of 31 basis points, compared
to 3.62% for the first six months of 2012.
Provision for Loan LossesThe
provision for loan losses was ($0.5) million for the first six
months of 2013, a decrease of $1.5 million, or 154.2%, from $1.0
million for the same six month period in 2012. The provision for
loan losses decreased in the first six months of 2013 primarily
because there were fewer decreases in the estimated value of the
underlying collateral supporting commercial real estate loans that
required additional allowances or charge offs in the current period
when compared to the first six months of 2012. The provision also
decreased because of a decrease in the outstanding loan portfolio
balances, an improvement in the classifications of certain risk
rated loans, and the recoveries received during the first six
months of 2013 on previously charged off loans. Total
non-performing assets were $35.3 million at June 30, 2013, a
decrease of $5.3 million, or 13.1%, from $40.6 million at December
31, 2012. Non-performing loans decreased $4.1 million and
foreclosed and repossessed assets decreased $1.2 million during the
first six months of 2013. The non-performing loan and foreclosed
and repossessed asset activity for the first six months of 2013 was
as follows:
(Dollars in thousands)
Non-performing
loans Foreclosed and repossessed asset activity
January 1, 2013 $29,975 January 1, 2013 $10,595 Classified
as non-performing 3,480 Transferred from non-performing loans 236
Charge offs (1,723 ) Other foreclosures/repossessions 619 Principal
payments received (4,989 ) Real estate sold (2,279 ) Classified as
accruing (666 ) Net gain on sale of assets 702 Transferred to real
estate owned (236 ) Write downs (450 ) June 30, 2013 $25,841
June 30, 2013 $9,423
The decrease in non-performing loans during the first six months
of 2013 relates primarily to principal payments received and charge
offs during the period. Of the $5.0 million in principal payments
received during the period, $1.7 million related to the payoff of
non-performing single family construction loans as a result of the
houses being sold and $1.6 million related to additional principal
payments received from various developers as a result of land or
lot sales. Of the $1.7 million in loans that were charged off, $0.9
million related to two real estate development loans as a result of
a decrease in the estimated value of the underlying collateral and
$0.6 million related to various commercial business loans. These
decreases in non-performing loans were partially offset by loans
that were newly classified as non-performing during the period. Of
the $3.5 million in loans newly classified as non-performing, $1.2
million relates to home equity loans and $1.1 million relates to
single family construction loans.
A reconciliation of the Company’s allowance for loan losses for
the six month periods ended June 30, 2013 and June 30, 2012 is
summarized as follows:
(Dollars in
thousands) 2013 2012 Balance at January 1, $21,608
$23,888 Provision (520 ) 960 Charge offs: One-to-four family (200 )
0 Consumer (101 ) (757 ) Commercial business (557 ) (1,829 )
Commercial real estate (909 ) (4,184 ) Recoveries 1,038
2,441 Balance at June 30, $20,359 $20,519
Non-Interest Income and
ExpenseNon-interest income was $3.9 million for the first
six months of 2013, a decrease of $0.6 million, or 14.2%, from $4.5
million for the first six months of 2012. Gain on sale of branch
office decreased $0.6 million as a result of the sale of the
Toledo, Iowa branch in the first quarter of 2012. Gains on sales of
loans decreased $0.1 million between the periods primarily because
of a decrease in the sales of commercial government guaranteed
loans during the first six months of 2013 when compared to the same
period in 2012.
Non-interest expense was $11.4 million for the first six months
of 2013, a decrease of $1.2 million, or 9.8%, from $12.6 million
for the same period of 2012. Compensation and benefits decreased
$0.5 million primarily because of a decrease in employees between
the periods due to certain branch closures and our continued focus
on reducing expenses. The gains on real estate owned increased $0.4
million primarily because of an increase in the gains recognized on
the properties sold. Other non-interest expense decreased $0.2
million primarily because of decreased real estate taxes and other
expenses related to other real estate owned. Deposit insurance
costs decreased $0.1 million primarily because of a decrease in
assets between the periods.
Income tax expense was $80,000 for the first six months of 2013,
an increase of $80,000 from the same period 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 June 30, 2013. Since the valuation reserve is
established against the entire deferred tax asset balance, no
regular income tax expense was recorded in the first six months of
2013. The income tax expense that was recorded in the first six
months 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 $1.5 million for the first six months of 2013, a decrease of
$0.8 million from the $2.3 million net income available to common
shareholders in the first six months of 2012. The net income
available to common shareholders decreased primarily because of the
change in the net income between the periods. As discussed
previously in this earnings release, the Company has deferred the
last ten quarterly dividend payments, beginning with the February
15, 2011 dividend payment, on its 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.
Return on Assets and EquityReturn
on average assets for the six month period ended June 30, 2013 was
0.84%, compared to a 0.90% return on average assets for the same
period in 2012. Return on average equity was 8.36% for the six
month period ended June 30, 2013, compared to 10.98% for the same
period in 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 and use of alternate funding
sources, including Federal Home Loan Bank advances; 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, cash inflows and deposit
outflows, changes in credit or other risks posed by the Company’s
loan and investment portfolios, relative costs associated with
alternate funding sources, 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 and the investment expectations of holders of
our capital stock; 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.
(Three pages of selected consolidated financial
information are included with this release.)
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Balance
Sheets
June 30, December 31, (Dollars in thousands)
2013 2012 (unaudited)
Assets Cash and cash
equivalents $ 29,933 83,660 Securities available for sale:
Mortgage-backed and related securities (amortized cost $6,694 and
$9,825) 7,042 10,421 Other marketable securities
(amortized cost $84,811 and $75,759)
83,251 75,470 90,293 85,891
Loans held for sale 3,212 2,584 Loans receivable, net 415,534
454,045 Accrued interest receivable 2,004 2,018 Real estate, net
9,423 10,595 Federal Home Loan Bank stock, at cost 784 4,063
Mortgage servicing rights, net 1,795 1,732 Premises and equipment,
net 6,883 7,173 Prepaid expenses and other assets 1,113
1,566 Total assets $ 560,974 653,327
Liabilities and Stockholders’ Equity Deposits $
491,753 514,951 Federal Home Loan Bank advances 0 70,000 Accrued
interest payable 178 247 Customer escrows 808 830 Accrued expenses
and other liabilities 7,073 6,465 Total liabilities
499,812 592,493 Commitments and contingencies
Stockholders’ equity: Serial preferred stock ($.01 par value):
authorized 500,000 shares; issued shares 26,000 25,629 25,336
Common stock ($.01 par value): authorized 16,000,000; issued shares
9,128,662 91 91 Additional paid-in capital 51,760 51,795 Retained
earnings, subject to certain restrictions 48,822 47,004 Accumulated
other comprehensive loss (1,567 ) (49 ) Unearned employee stock
ownership plan shares (2,900 ) (2,997 ) Treasury stock, at cost
4,735,589 and 4,705,073 shares (60,673 ) (60,346 ) Total
stockholders’ equity 61,162 60,834 Total liabilities
and stockholders’ equity $ 560,974 653,327
HMN FINANCIAL, INC. AND
SUBSIDIARIES
Consolidated Statements of
Comprehensive Income (Loss)
(unaudited)
Three Months Ended
Six Months Ended June 30, June 30, (Dollars in thousands,
except per share data) 2013 2012 2013
2012 Interest income: Loans receivable $ 5,503
7,523 11,531 15,319 Securities available for sale: Mortgage-backed
and related 82 164 176 357 Other marketable 148 192 287 441 Cash
equivalents 35 19 68 46 Other 19 54 48 64
Total interest income 5,787 7,952 12,110
16,227 Interest expense: Deposits 465 1,061
1,022 2,278 Federal Home Loan Bank advances 650 844
1,485 1,689 Total interest expense 1,115 1,905
2,507 3,967 Net interest income 4,672 6,047
9,603 12,260 Provision for loan losses (520 ) 1,088 (520 )
960 Net interest income after provision for loan losses
5,192 4,959 10,123 11,300
Non-interest income: Fees and service charges 883 834 1,672 1,663
Mortgage servicing fees 257 236 505 468 Gain on sales of loans 702
620 1,380 1,529 Gain on sale of branch office 0 0 0 552 Other 145
104 304 288 Total non-interest income
1,987 1,794 3,861 4,500
Non-interest expense: Compensation and benefits 2,980 3,219 6,179
6,632 (Gain) loss on real estate owned (306 ) 174 (325 ) 97
Occupancy 826 839 1,676 1,721 Deposit insurance 190 305 508 575
Data processing 325 336 655 673 Other 1,310 1,485
2,671 2,903 Total non-interest expense 5,325
6,358 11,364 12,601 Income before income tax
expense 1,854 395 2,620 3,199 Income tax expense 55 0
80 0 Net income 1,799 395 2,540 3,199 Preferred stock
dividends and discount (547 ) (464 ) (1,023 ) (925 ) Net income
(loss) available to common shareholders $ 1,252 (69 ) 1,517
2,274 Other comprehensive loss, net of tax $ (1,227 )
(93 ) (1,373 ) (273 )
Comprehensive income (loss) attributable
to common shareholders
$
25 (162 )
144
2,001 Basic earnings (loss) per common share $ 0.32
(0.02 ) 0.38 0.58 Diluted earnings (loss) per
common share $ 0.30 (0.02 ) 0.36 0.57
HMN FINANCIAL, INC. AND
SUBSIDIARIES
Selected Consolidated Financial
Information
(unaudited)
SELECTED FINANCIAL DATA:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in thousands, except per share
data)
2013
2012
2013
2012
I.
OPERATING DATA:
Interest income
$
5,787
7,952 12,110 16,227 Interest expense 1,115 1,905 2,507 3,967 Net
interest income 4,672 6,047 9,603 12,260
II.
AVERAGE BALANCES:
Assets (1) 595,747 684,046 610,220 713,151 Loans receivable, net
412,445 522,015 427,002 534,064 Securities available for sale (1)
93,877 86,651 92,378 95,954 Interest-earning assets (1) 570,914
653,268 584,836 680,772 Interest-bearing liabilities 526,831
617,098 541,435 648,766 Equity (1) 61,273 59,629 61,318 58,608
III.
PERFORMANCE RATIOS: (1)
Return on average assets (annualized) 1.21
%
0.23
% 0.84
%
0.90 % Interest rate spread information: Average during period 3.22
3.65 3.24 3.56 End of period 4.15 3.52 4.15 3.71 Net interest
margin 3.28 3.72 3.31 3.62
Ratio of operating expense to average
total assets (annualized)
3.59 3.74 3.76 3.55 Return on average equity (annualized) 11.78
2.66 8.36 10.98 Efficiency 79.96 81.09 84.40 75.19
June 30,
December 31, June 30, 2013 2012 2012
IV.
ASSET QUALITY:
Total non-performing assets 35,264 40,570 43,823 Non-performing
assets to total assets 6.29 % 6.21 %
6.54
%
Non-performing loans to total loans receivable, net 6.22 % 6.60 %
6.27
%
Allowance for loan losses 20,359 21,608 20,519 Allowance for loan
losses to total assets 3.63 % 3.31 %
3.06
%
Allowance for loan losses to total loans
receivable, net
4.90 4.76 4.14 Allowance for loan losses to non-performing loans
78.79 72.09 66.00
V.
BOOK VALUE PER SHARE:
Book value per share 8.09 8.02 7.79
Six Months Year Ended Six
Months Ended Dec 31, Ended June 30, 2013 2012
June 30, 2012
VI.
CAPITAL RATIOS:
Stockholders’ equity to total assets, at
end of period
10.90
%
9.31
%
8.88
%
Average stockholders’ equity to average
assets (1)
10.05
8.81
8.22
Ratio of average interest-earning assets
to average interest-bearing liabilities (1)
108.02
105.73
104.93 Tier 1 or core capital (2)
11.78
9.68
9.04 Risk-based capital
17.31
15.52
13.73
June 30,
December 31,
June 30,
2013
2012
2012
VII.
EMPLOYEE DATA:
Number of full time equivalent employees
190
194
200
(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 June 30, 2013.
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