Third Quarter Highlights
- Net income of $6.0 million compared to net income of
$0.6 million in third quarter of 2012
- Diluted earnings per share of $1.27 compared to diluted
earnings per share of $0.04 in third quarter of 2012
- Provision for loan losses of ($4.3) million, down $5.9
million from third quarter of 2012
- Net interest income of $5.3 million, down $0.6 million
from third quarter of 2012
- Non-performing assets of $31.3 million, down $4.0
million from second quarter of 2013
Year to Date Highlights
- Net income of $8.6 million compared to net income of
$3.8 million in first nine months of 2012
- Diluted earnings per share of $1.65 compared to diluted
earnings per share of $0.61 in first nine months of
2012
- Provision for loan losses of ($4.9) million, down $7.4
million from first nine months of 2012
- Net interest income of $14.9 million, down $3.2 million
from first nine months of 2012
- Non-performing assets of $31.3 million, down $9.3
million from December 31, 2012
- Total assets decreased $91 million from December 31,
2012
|
Three Months
Ended |
Nine Months
Ended |
Income
Summary (unaudited) |
September
30, |
September
30, |
(Dollars in thousands, except per share
amounts) |
2013 |
2012 |
2013 |
2012 |
Net income |
$ 6,034 |
637 |
$ 8,574 |
3,836 |
Net income available to
common shareholders |
5,511 |
170 |
7,028 |
2,444 |
Diluted earnings per
share |
1.27 |
0.04 |
1.65 |
0.61 |
Return on average
assets |
4.44 |
0.39% |
1.96 |
0.74% |
Return on average
equity |
38.17 |
4.20% |
18.55 |
8.66% |
Book value per common
share |
$ 9.47 |
7.83 |
$ 9.47 |
7.83 |
|
|
|
|
|
HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $563
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $6.0 million for the third quarter of
2013, an improvement of $5.4 million compared to net income of $0.6
million for the third quarter of 2012. Net income available to
common shareholders was $5.5 million for the third quarter of 2013,
an improvement of $5.3 million from the net income available to
common shareholders of $0.2 million for the third quarter of 2012.
Diluted earnings per common share for the third quarter of 2013 was
$1.27, an increase of $1.23 from the diluted earnings per common
share of $0.04 for the third quarter of 2012. The improvement in
net income for the third quarter of 2013 is due to a $5.9 million
decrease in the provision for loan losses between the periods
primarily because of improving values of the underlying collateral
supporting commercial real estate loans and a $0.5 million decrease
in non-interest expense. The decrease in non-interest expense is
primarily due to decreased legal expenses relating to real estate
owned and loan collection efforts and mortgage servicing rights
amortization expense. These improvements to net income were
partially offset by a $0.3 million decrease in non-interest income
due primarily to a decrease in the gain on sales of loans and a
$0.6 million decrease in net interest income due primarily to a
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 third quarter of 2013," said Bradley Krehbiel, President of
HMN. "Our core business remains profitable and we are
encouraged by the declining trend in both our loan loss provision
and other operating expenses. 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."
Third Quarter Results
Net Interest Income
Net interest income was $5.3 million for the third quarter of
2013, a decrease of $0.6 million, or 9.6%, compared to $5.9 million
for the third quarter of 2012. Interest income was $5.7 million for
the third quarter of 2013, a decrease of $1.9 million, or 24.1%,
from $7.6 million for the same period in 2012. Interest income
decreased between the periods primarily because of a $99 million
decrease in the average interest-earning assets and also because of
a decrease in the average yields on 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 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 4.41% for the third quarter of 2013, a
decrease of 48 basis points from the 4.89% average yield for the
third quarter of 2012. The decrease in average yield is due to
the continued low short-term interest rate environment that existed
during the third quarter of 2013. The increase in domestic
long-term mortgage rates that began during the second quarter of
2013 did not materially impact the average yield earned on
interest-earning assets during the third 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 $0.4 million for the third quarter of 2013,
a decrease of $1.3 million, or 75.6%, compared to $1.7 million for
the third quarter of 2012. Interest expense decreased
primarily because of the $108 million decrease in the average
interest-bearing liabilities between the periods, largely as the
result of a decrease in the outstanding borrowings and brokered
certificates of deposit between the periods. The decrease in
borrowings and brokered certificates of deposit between the periods
was the result of using the proceeds from loan principal payments
to fund maturing borrowings and brokered certificates of
deposit. Interest expense also decreased because of the lower
interest rates paid on money market accounts and certificates of
deposit due to the low short-term interest rate environment that
continued to exist during the third quarter of 2013. The average
interest rate paid on interest-bearing liabilities was 0.34% for
the third quarter of 2013, a decrease of 80 basis points from the
1.14% average interest rate paid in the third quarter of
2012.
Provision for Loan Losses
The provision for loan losses was ($4.3) million for the third
quarter of 2013, a decrease of $5.9 million, compared to $1.6
million for the third quarter of 2012. The provision for loan
losses decreased in the third quarter primarily because of
improving values of the underlying collateral supporting commercial
real estate loans in the third quarter of 2013 when compared to the
third quarter of 2012. The provision also decreased because of a
decrease in the outstanding loan portfolio balances, a decrease in
the reserve percentages on certain risk classifications as a result
of an internal analysis of the loan portfolio, 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 $31.3 million at September 30, 2013, a
decrease of $4.0 million, or 11.4%, from $35.3 million at June 30,
2013. Non-performing loans decreased $3.5 million and
foreclosed and repossessed assets decreased $0.5 million during the
third quarter of 2013. The non-performing loan and foreclosed and
repossessed asset activity for the quarter was as follows:
(Dollars in
thousands) |
|
Non-performing
loans |
|
Foreclosed and repossessed
assets |
|
June 30, 2013 |
$ 25,841 |
June 30, 2013 |
$ 9,423 |
Classified as
non-performing |
1,312 |
|
|
Charge offs |
(426) |
Transferred from non-performing loans |
639 |
Principal payments
received |
(2,814) |
Real estate sold |
(1,350) |
Classified as accruing |
(917) |
Net gain on sale of assets |
297 |
Transferred to real estate
owned |
(639) |
Write downs and payments |
(110) |
September 30, 2013 |
$ 22,357 |
September 30, 2013 |
$ 8,899 |
The decrease in non-performing loans during the third quarter of
2013 relates primarily to principal payments received and loans
being classified as accruing during the period. Of the $2.8 million
in principal payments received, $1.2 million related to the payoff
of a non-performing multi family construction loan that was
refinanced with another financial institution and $1.6 million
related to additional principal payments received on various
construction and development loans as a result of various types of
real estate sales including building lots, land, and single family
homes. Of the $0.9 million in loans that were classified as
accruing, $0.7 million related to various commercial real estate
loans and $0.2 million related to a single family loan. These
decreases in non-performing loans were partially offset by loans
that were newly classified as non-performing during the period. Of
the $1.3 million in loans newly classified as non-performing, $1.1
million related to commercial real estate loans, $0.1 million
related to commercial business loans, and $0.1 million related
to consumer loans.
A reconciliation of the Company's allowance for loan losses for
the quarters ended September 30, 2013 and 2012 is summarized as
follows:
|
|
(Dollars in thousands) |
2013 |
2012 |
Balance at June 30, |
$ 20,359 |
$ 20,519 |
Provision |
(4,330) |
1,584 |
Charge offs: |
|
|
One-to-four family |
0 |
0 |
Consumer |
(374) |
(163) |
Commercial business |
(2) |
(168) |
Commercial real
estate |
(50) |
(1,535) |
Recoveries |
902 |
225 |
Balance at September 30, |
$ 16,505 |
$ 20,462 |
|
|
|
General allowance |
$ 9,953 |
$ 15,965 |
Specific allowance |
6,552 |
4,497 |
|
$ 16,505 |
$ 20,462 |
|
The following table summarizes the amounts and categories of
non-performing assets in the Bank's portfolio and loan delinquency
information as of the two most recently completed quarters and
December 31, 2012.
|
|
|
|
|
September 30, |
June 30, |
December 31, |
(Dollars in thousands) |
2013 |
2013 |
2012 |
Non‑Performing Loans: |
|
|
|
One‑to‑four family real
estate |
$ 1,626 |
$ 2,091 |
$ 2,492 |
Commercial real estate |
19,578 |
21,533 |
25,543 |
Consumer |
442 |
1,462 |
300 |
Commercial business |
711 |
755 |
1,640 |
Total |
22,357 |
25,841 |
29,975 |
|
|
|
|
Foreclosed and Repossessed Assets: |
|
|
|
One‑to‑four family real
estate |
1,082 |
707 |
1,595 |
Commercial real estate |
7,817 |
8,716 |
9,000 |
Total non‑performing assets |
$ 31,256 |
$ 35,264 |
$ 40,570 |
Total as a percentage of total assets |
5.56% |
6.29% |
6.21% |
Total non‑performing loans |
$ 22,357 |
$ 25,841 |
$ 29,975 |
Total as a percentage of total loans
receivable, net |
5.68% |
6.22% |
6.60% |
Allowance for loan losses to non-performing
loans |
73.83% |
78.79% |
72.09% |
|
|
|
|
Delinquency Data: |
|
|
|
Delinquencies (1) |
|
|
|
30+ days |
$ 2,516 |
$ 5,820 |
$ 2,739 |
90+ days(2) |
0 |
0 |
7,423 |
Delinquencies as a percentage of Loan and
lease portfolio (1) |
|
|
|
30+ days |
0.53% |
1.22% |
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 following table summarizes the number of lending
relationships and types of commercial real estate loans that were
non-performing as of the end of the two most recently completed
quarters and December 31, 2012.
(Dollars in thousands)
Property Type |
# of
relationships |
Principal Amount of Loans at
September 30, 2013 |
# of
relationships |
Principal Amount of Loans at June 30,
2013 |
# of
relationships |
Principal Amount of Loans at December
31, 2012 |
Developments/land |
8 |
$ 19,413 |
9 |
$ 20,956 |
9 |
$ 24,339 |
Retail |
2 |
165 |
1 |
66 |
2 |
386 |
Restaurants/bar |
0 |
0 |
1 |
511 |
1 |
547 |
Other buildings |
0 |
0 |
0 |
0 |
3 |
271 |
|
10 |
$ 19,578 |
11 |
$ 21,533 |
15 |
$ 25,543 |
The decrease in the non-performing commercial real estate loans
from June 30, 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 Expense
Non-interest income was $1.8 million for the third quarter of
2013, a decrease of $0.3 million, or 13.8%, from $2.1 million for
the same period of 2012. Gain on sales of loans decreased $0.5
million primarily because of a decrease in single family loan
originations due to the higher long-term mortgage interest rate
environment that existed in the third 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. Other non-interest income increased $0.1 million primarily
because of an increase in the sales of uninsured investment
products.
Non-interest expense was $5.3 million for the third quarter of
2013, a decrease of $0.5 million, or 8.7%, from $5.8 million for
the same period of 2012. Other non-interest expenses decreased $0.3
million primarily because of decreased legal expenses relating to
real estate owned and loan collection efforts and mortgage
servicing rights amortization expense. The decrease in mortgage
servicing rights amortization expense is the result of fewer
refinanced mortgage loans in the quarter due to the increase in
long-term mortgage rates that were experienced during the quarter.
Deposit insurance costs decreased $0.2 million primarily because of
a decrease in assets between the periods. The gain on real estate
owned increased $0.1 million primarily because of an increase in
the gains recognized on the properties sold. Occupancy expense
increased $0.1 million as a result of increased repair and
maintenance expenses incurred during the quarter when compared to
the same period in 2012.
Income tax expense was $0.2 million for the third quarter of
2013, an increase of $0.2 million from the third quarter of 2012
when no income tax expense was recorded. The income tax expense
that was recorded in the third 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.
No regular income tax expense was recorded for the third quarter
of 2013 because the Company continued to maintain a valuation
reserve against the entire deferred tax asset balance at September
30, 2013. The Company originally recorded a deferred tax asset
valuation reserve against its entire deferred tax asset balance in
the second quarter of 2010.
Net Income Available to Common Shareholders
Net income available to common shareholders was $5.5 million for
the third quarter of 2013, an increase of $5.3 million from the
$0.2 million net income available to common shareholders in the
third quarter of 2012. The net income available to common
shareholders increased between the periods primarily because of the
increase in net income between the periods. The Company has
deferred the last eleven 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 Preferred
Stock is currently held by unaffiliated third party
investors. 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 while unpaid. 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 net income for
financial statement purposes to arrive at the net income available
to common shareholders. The current stated dividend rate on the
Preferred Stock of 5% per annum will increase to 9% per annum on
February 15, 2014.
Basic earnings per common share was $1.38 and $0.04 for the
third quarter of 2013 and 2012, respectively, and diluted earnings
per common share was $1.27 and $0.04 for the same periods,
respectively. The increased spread between basic and diluted
earnings per common share for the third quarter of 2013 as compared
to the same period of 2012 is primarily due to increased net income
and an increase in the price of our common stock, which resulted in
a larger number of stock options and warrants having a lower
exercise price than the market price of our common stock.
Return on Assets and Equity
Return on average assets (annualized) for the third quarter of
2013 was 4.44%, compared to 0.39% for the third quarter of 2012.
Return on average equity (annualized) was 38.17% for the third
quarter of 2013, compared to 4.20% for the same period of 2012.
Book value per common share at September 30, 2013 was $9.47,
compared to $7.83 at September 30, 2012.
Nine Month Period Results
Net Income
Net income was $8.6 million for the nine-month period ended
September 30, 2013, an increase of $4.8 million, or 123.5%,
compared to the net income of $3.8 million for the nine-month
period ended September 30, 2012. The net income available to common
shareholders was $7.0 million for the nine-month period ended
September 30, 2013, an increase of $4.6 million, or 187.6%,
compared to the net income available to common shareholders of $2.4
million for the same period of 2012. Diluted earnings per common
share for the first nine months of 2013 was $1.65, an increase of
$1.04 per share compared to the diluted earnings per common share
of $0.61 for the same period in 2012. The improvement in net income
for the first nine months of 2013 is due primarily to a $7.4
million decrease in the provision for loan losses between the
periods primarily because of improving values of the underlying
collateral supporting commercial real estate loans and a $1.7
million decrease in non-interest expenses due primarily to an
increase in the gains recognized on the sale of real estate owned
and a decrease in expenses related to other real estate owned.
These improvements to net income were partially offset by a $3.2
million decrease in net interest income due primarily to a decrease
in interest earning assets between the periods, a $0.9 million
decrease in non-interest income due primarily to a decrease in the
gain on sales of loans and a decrease in the gain related to the
sale of the Bank's Toledo, Iowa branch in the first quarter of
2012, and a $0.2 million increase in income tax expense between the
periods.
Net Interest Income
Net interest income was $14.9 million for the first nine months
of 2013, a decrease of $3.3 million, or 17.8%, from $18.2 million
for the same period in 2012. Interest income was $17.8 million for
the nine-month period ended September 30, 2013, a decrease of $6.0
million, or 25.0%, from $23.8 million for the same period in 2012.
Interest income decreased between the periods primarily because of
a $97 million decrease in the average interest-earning assets and
also because of a decrease in the average yields earned on 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 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
4.25% for the first nine months of 2013, a decrease of 57 basis
points from the 4.82% average yield for the same period of 2012.
The decrease in the average yield is due to the continued low
short-term interest rate environment that existed during the first
nine months of 2013. The increase in domestic long-term mortgage
rates that began during the second quarter of 2013 did not
materially impact the average yield earned on interest-earning
assets during the first nine 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 $2.9 million for the nine-month period
ended September 30, 2013, a decrease of $2.7 million, or 48.3%,
from $5.6 million for the same period in 2012. Interest expense
decreased primarily because of a $108 million decrease in the
average interest-bearing liabilities between the periods, largely
due to a decrease in the outstanding borrowings and brokered
certificates of deposit. The decrease in borrowings and brokered
certificates of deposit between the periods was the result of using
the proceeds from loan principal payments to fund maturing
borrowings and brokered certificates of deposit. Interest expense
also decreased because of the lower interest rates paid on money
market accounts and certificates of deposit due to the low
short-term interest rate environment that continued to exist during
the first nine months of 2013. The average interest rate paid on
interest-bearing liabilities was 0.75% for the first nine months of
2013, a decrease of 45 basis points from the 1.20% average interest
rate paid in the first nine months of 2012.
Provision for Loan Losses
The provision for loan losses was ($4.9) million for the first
nine months of 2013, a decrease of $7.4 million, from $2.5 million
for the same nine-month period in 2012. The provision for loan
losses decreased in the first nine months of 2013 primarily because
of improving values of the underlying collateral supporting
commercial real estate loans in the first nine months of 2013 when
compared to the same period of 2012. The provision also decreased
because of a decrease in the outstanding loan portfolio balances, a
decrease in the reserve percentages on certain risk classifications
as a result of an internal analysis of the loan portfolio, an
improvement in the classifications of certain risk rated loans, and
the recoveries received during the first nine months of 2013 on
previously charged off loans. Total non-performing assets were
$31.3 million at September 30, 2013, a decrease of $9.3 million, or
23.0%, from $40.6 million at December 31, 2012. Non-performing
loans decreased $7.6 million and foreclosed and repossessed assets
decreased $1.7 million during the first nine months of 2013. The
non-performing loan and foreclosed and repossessed asset activity
for the first nine months of 2013 was as follows:
(Dollars in thousands) |
|
Non-performing loans |
|
Foreclosed and repossessed
assets |
|
December 31, 2012 |
$ 29,975 |
December 31, 2012 |
$ 10,595 |
|
Classified as non-performing |
4,792 |
Transferred from non-performing loans |
876 |
|
Charge offs |
(2,149) |
Other foreclosures/repossessions |
687 |
|
Principal payments received |
(7,802) |
Real estate sold |
(3,629) |
|
Classified as accruing |
(1,583) |
Net gain on sale of assets |
998 |
|
Transferred to real estate owned |
(876) |
Write downs and payments |
(628) |
|
September 30, 2013 |
$ 22,357 |
September 30, 2013 |
$ 8,899 |
|
|
|
A reconciliation of the Company's allowance for loan losses for
the nine-month periods ended September 30, 2013 and 2012 is
summarized as follows:
|
|
(Dollars in thousands) |
2013 |
2012 |
Balance at January 1, |
$ 21,608 |
$ 23,888 |
Provision |
(4,850) |
2,544 |
Charge offs: |
|
|
One-to-four family |
(200) |
0 |
Consumer |
(475) |
(921) |
Commercial business |
(606) |
(1,997) |
Commercial real
estate |
(911) |
(5,719) |
Total charge offs |
(2,192) |
(8,637) |
Recoveries |
1,939 |
2,667 |
Balance at September 30, |
$ 16,505 |
$ 20,462 |
|
|
Non-Interest Income and Expense
Non-interest income was $5.7 million for the first nine months
of 2013, a decrease of $0.9 million, or 14.1%, from $6.6 million
for the same period in 2012. Gain on sale of branch office was $0
for the first nine months of 2013, compared to the $0.6 million
recorded in the same period of 2012 as a result of the sale of the
Toledo, Iowa branch in the first quarter of 2012. Gain on sales of
loans decreased $0.7 million between the periods primarily because
of a decrease in the sales of commercial government guaranteed
loans during the first nine months of 2013 when compared to the
same period in 2012. These decreases in non-interest income were
partially offset by an increase of $0.1 million in fees and service
charges due to increased overdraft charges, $0.1 million increase
in mortgage servicing income as a result of servicing more loans,
and $0.1 million increase in other income as a result of an
increase in the sales of uninsured investment products.
Non-interest expense was $16.7 million for the first nine months
of 2013, a decrease of $1.7 million, or 9.5%, from $18.4 million
for the same period in 2012. The gain on real estate owned
increased $0.5 million primarily because of an increase in the
gains recognized on the properties sold. Compensation and benefits
expense decreased $0.4 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 $0.5 million because of decreased real estate
taxes and other expenses related to other real estate owned.
Deposit insurance costs decreased $0.2 million primarily because of
a decrease in assets between the periods.
Income tax expense was $0.2 million for the first nine months of
2013, an increase of $0.2 million from the same period of 2012 when
no income tax expense was recorded. The income tax expense that was
recorded in the first nine 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.
No regular income tax expense was recorded for the first nine
months of 2013 because the Company continued to maintain a
valuation reserve against the entire deferred tax asset balance at
September 30, 2013. The Company originally recorded a deferred tax
asset valuation reserve against its entire deferred tax asset
balance in the second quarter of 2010.
Net Income Available to Common Shareholders
The net income available to common shareholders was $7.0 million
for the first nine months of 2013, an increase of $4.6 million from
the $2.4 million net income available to common shareholders in the
same period of 2012. The net income available to common
shareholders increased between the periods primarily because of the
increase in net income between the periods. As discussed previously
in this earnings release, the Company has deferred the last eleven
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 net income for financial
statement purposes to arrive at the net income available to common
shareholders.
Basic earnings per common share was $1.76 and $0.62 for the
first nine months of 2013 and 2012, respectively, and diluted
earnings per common share was $1.65 and $0.61 for the same periods,
respectively. The increased spread between basic and diluted
earnings per common share for the nine months ended September 30,
2013 as compared to the same period of 2012 is primarily due to
increased net income and an increase in the price of our common
stock, which resulted in a larger number of stock options and
warrants having a lower exercise price than the market price of our
common stock.
Return on Assets and Equity
Return on average assets (annualized) for the nine-month period
ended September 30, 2013 was 1.96%, compared to 0.74% for the same
period in 2012. Return on average equity (annualized) was 18.55%
for the nine-month period ended September 30, 2013, compared to
8.66% for the same period in 2012.
General Information
HMN 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 Marshalltown, Iowa; one loan
origination office in Sartell, Minnesota; and two Private Banking
offices in Rochester, Minnesota.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the safe harbor provisions 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. Examples of forward-looking statements include, but are
not limited to, statements 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"), 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. Important factors that could cause our actual
results and financial condition to differ materially from those
indicated in the forward-looking statements 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
FRB and OCC, respectively; 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 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.
All statements in this press release, including forward-looking
statements, speak only as of the date they are made, and 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 |
|
|
September 30, |
December 31, |
(Dollars in thousands) |
2013 |
2012 |
|
(unaudited) |
|
Assets |
|
|
Cash and cash equivalents |
$ 57,652 |
83,660 |
Securities available for sale: |
|
|
Mortgage-backed and
related securities |
|
|
(amortized cost $5,625
and $9,825) |
5,973 |
10,421 |
Other marketable
securities |
|
|
(amortized cost $84,800
and $75,759) |
83,714 |
75,470 |
|
89,687 |
85,891 |
|
|
|
Loans held for sale |
1,180 |
2,584 |
Loans receivable, net |
393,322 |
454,045 |
Accrued interest receivable |
1,817 |
2,018 |
Real estate, net |
8,899 |
10,595 |
Federal Home Loan Bank stock, at cost |
784 |
4,063 |
Mortgage servicing rights, net |
1,769 |
1,732 |
Premises and equipment, net |
6,726 |
7,173 |
Prepaid expenses and other assets |
729 |
1,566 |
Total assets |
$ 562,565 |
653,327 |
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Deposits |
$ 485,921 |
514,951 |
Federal Home Loan Bank advances |
0 |
70,000 |
Accrued interest payable |
127 |
247 |
Customer escrows |
1,328 |
830 |
Accrued expenses and other liabilities |
7,813 |
6,465 |
Total liabilities |
495,189 |
592,493 |
Commitments and contingencies |
|
|
Stockholders' equity: |
|
|
Serial preferred stock:
($.01 par value) |
|
|
authorized 500,000
shares; issued shares 26,000 |
25,778 |
25,336 |
Common stock ($.01 par
value): |
|
|
authorized 16,000,000;
issued shares 9,128,662 |
91 |
91 |
Additional paid-in capital |
51,638 |
51,795 |
Retained earnings, subject to certain
restrictions |
54,488 |
47,004 |
Accumulated other comprehensive loss |
(1,094) |
(49) |
Unearned employee stock ownership plan
shares |
(2,852) |
(2,997) |
Treasury stock, at cost 4,735,589 and
4,705,073 shares |
(60,673) |
(60,346) |
Total stockholders'
equity |
67,376 |
60,834 |
Total liabilities and stockholders'
equity |
$ 562,565 |
653,327 |
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Statements
of Comprehensive Income |
(unaudited) |
|
|
Three Months Ended |
Nine Months Ended |
|
September 30, |
September 30, |
(Dollars in thousands, except per share
data) |
2013 |
2012 |
2013 |
2012 |
Interest income: |
|
|
|
|
Loans receivable |
$ 5,492 |
7,208 |
17,023 |
22,527 |
Securities available for
sale: |
|
|
|
|
Mortgage-backed and
related |
66 |
133 |
242 |
490 |
Other marketable |
156 |
160 |
443 |
601 |
Cash equivalents |
12 |
25 |
80 |
71 |
Other |
3 |
25 |
51 |
89 |
Total interest
income |
5,729 |
7,551 |
17,839 |
23,778 |
|
|
|
|
|
Interest expense: |
|
|
|
|
Deposits |
404 |
804 |
1,426 |
3,082 |
Federal Home Loan Bank
advances |
0 |
855 |
1,485 |
2,544 |
Total interest
expense |
404 |
1,659 |
2,911 |
5,626 |
Net interest
income |
5,325 |
5,892 |
14,928 |
18,152 |
Provision for loan losses |
(4,330) |
1,584 |
(4,850) |
2,544 |
Net interest income after
provision for loan losses |
9,655 |
4,308 |
19,778 |
15,608 |
|
|
|
|
|
Non-interest income: |
|
|
|
|
Fees and service
charges |
929 |
821 |
2,601 |
2,484 |
Mortgage servicing
fees |
267 |
245 |
772 |
713 |
Gain on sales of
loans |
433 |
940 |
1,813 |
2,469 |
Gain on sale of branch
office |
0 |
0 |
0 |
552 |
Other |
194 |
110 |
498 |
398 |
Total non-interest
income |
1,823 |
2,116 |
5,684 |
6,616 |
|
|
|
|
|
Non-interest expense: |
|
|
|
|
Compensation and
benefits |
3,009 |
2,955 |
9,188 |
9,587 |
(Gain) loss on real estate
owned |
(282) |
(172) |
(607) |
(75) |
Occupancy |
867 |
805 |
2,543 |
2,526 |
Deposit insurance |
172 |
353 |
680 |
928 |
Data processing |
313 |
333 |
968 |
1,006 |
Other |
1,207 |
1,513 |
3,878 |
4,416 |
Total non-interest
expense |
5,286 |
5,787 |
16,650 |
18,388 |
Income before income tax
expense |
6,192 |
637 |
8,812 |
3,836 |
Income tax expense |
158 |
0 |
238 |
0 |
Net income |
$ 6,034 |
637 |
8,574 |
3,836 |
Preferred stock dividends and
discount |
(523) |
(467) |
(1,546) |
(1,392) |
Net income for common
shareholders |
5,511 |
170 |
7,028 |
2,444 |
Other comprehensive income (loss), net of
tax |
473 |
(77) |
(1,045) |
(349) |
Comprehensive income attributable to common
shareholders |
5,984 |
93 |
5,983 |
2,095 |
Basic earnings per common share |
$ 1.38 |
0.04 |
1.76 |
0.62 |
Diluted earnings per common share |
$ 1.27 |
0.04 |
1.65 |
0.61 |
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Selected Consolidated
Financial Information |
(unaudited) |
|
|
Three Months Ended |
Nine Months Ended |
SELECTED FINANCIAL DATA: |
September 30, |
September 30, |
(dollars in thousands, except per share
data) |
2013 |
2012 |
2013 |
2012 |
I. OPERATING DATA: |
|
|
|
|
Interest income |
$ 5,729 |
7,551 |
17,839 |
23,778 |
Interest expense |
404 |
1,659 |
2,911 |
5,626 |
Net interest income |
5,325 |
5,892 |
14,928 |
18,152 |
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
Assets (1) |
539,046 |
643,304 |
586,235 |
689,698 |
Loans receivable,
net |
399,591 |
484,403 |
417,765 |
517,389 |
Securities available for sale
(1) |
90,499 |
76,631 |
91,744 |
89,466 |
Interest-earning assets
(1) |
515,153 |
613,955 |
561,353 |
658,337 |
Interest-bearing
liabilities |
468,432 |
576,919 |
516,833 |
624,643 |
Equity (1) |
62,719 |
60,384 |
61,790 |
59,205 |
|
|
|
|
|
III. PERFORMANCE RATIOS: (1) |
|
|
|
|
Return on average assets
(annualized) |
4.44% |
0.39% |
1.96% |
0.74% |
Interest rate spread
information: |
|
|
|
|
Average during
period |
4.07 |
3.75 |
3.50 |
3.62 |
End of period |
3.80 |
3.52 |
3.80 |
3.52 |
Net interest margin |
4.10 |
3.82 |
3.56 |
3.68 |
Ratio of operating expense to
average total assets (annualized) |
3.89 |
3.58 |
3.80 |
3.56 |
Return on average equity
(annualized) |
38.17 |
4.20 |
18.55 |
8.66 |
Efficiency |
73.95 |
72.26 |
80.78 |
74.24 |
|
|
|
|
|
|
September 30, |
December 31, |
September 30, |
|
|
2013 |
2012 |
2012 |
|
IV. ASSET QUALITY: |
|
|
|
|
Total non-performing
assets |
$ 31,256 |
40,570 |
47,199 |
|
Non-performing assets to total
assets |
5.56% |
6.21% |
7.33% |
|
Non-performing loans to total
loans receivable, net |
5.68 |
6.60 |
7.29 |
|
Allowance for loan
losses |
$ 16,505 |
21,608 |
20,462 |
|
Allowance for loan losses to
total assets |
2.93% |
3.31% |
3.18% |
|
Allowance for loan losses to
total loans receivable, net |
4.20 |
4.76 |
4.31 |
|
Allowance for loan losses to
non-performing loans |
73.83 |
72.09 |
59.17 |
|
|
|
|
|
|
V. BOOK VALUE PER COMMON SHARE: |
|
|
|
|
Book value per common
share |
$ 9.47 |
8.02 |
7.83 |
|
|
|
|
|
|
|
Nine Months |
Year |
Nine Months |
|
|
Ended |
Ended |
Ended |
|
|
Sept 30, 2013 |
Dec 31, 2012 |
Sept 30, 2012 |
|
VI. CAPITAL RATIOS: |
|
|
|
|
Stockholders' equity to total
assets, at end of period |
11.98% |
9.31% |
9.30% |
|
Average stockholders' equity to
average assets (1) |
10.54 |
8.81 |
8.58 |
|
Ratio of average
interest-earning assets to average interest-bearing liabilities
(1) |
108.61 |
105.73 |
105.39 |
|
Tier I or core capital (2) |
12.71 |
9.68 |
9.55 |
|
Risk-based capital to risk-weighted
assets |
19.38 |
15.52 |
14.61 |
|
|
|
|
|
|
|
September 30, |
December 31, |
September 30, |
|
|
2013 |
2012 |
2012 |
|
VII. EMPLOYEE DATA: |
|
|
|
|
Number of full time
equivalent employees |
188 |
194 |
196 |
|
|
|
|
|
|
(1) Average balances were
calculated based upon amortized cost without the market value
impact of ASC 320. |
(2) The 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 September
30, 2013. |
CONTACT: Bradley Krehbiel
Chief Executive Officer, President
HMN Financial, Inc. (507) 252-7169
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