Fourth Quarter Highlights
- Net income of $18.1 million compared to net income of
$1.5 million for fourth quarter of 2012
- Diluted earnings per common share of $3.93 compared to
diluted earnings per common share of $0.25 in the fourth quarter of
2012
- Deferred tax valuation reserve eliminated, resulting in
$14.7 million decrease in income tax expense from the fourth
quarter of 2012
- Provision for loan losses of ($3.0 million), down $3.0
million from fourth quarter of 2012
- Net interest income of $4.8 million, down $0.8 million
from fourth quarter of 2012
- Non-performing assets of $24.4 million, down $6.9
million from September 30, 2013
Annual Highlights
- Net income of $26.7 million compared to net income of
$5.3 million for 2012
- Diluted earnings per common share of $5.71 compared to
diluted earnings per common share of $0.86 for 2012
- Deferred tax valuation reserve eliminated, resulting in
$14.5 million decrease in income tax expense from
2012
- Provision for loan losses of ($7.9 million), down $10.4
million from 2012
- Gains on real estate owned of $0.8 million, up $1.0
million from 2012
- Net interest income of $19.7 million, down $4.0 million
from 2012
- Non-performing assets of $24.4 million, down $16.2
million from December 31, 2012
INCOME SUMMARY |
Three Months
Ended |
Year
Ended |
|
December
31, |
December
31, |
(dollars in thousands, except per share
amounts) |
2013 |
2012 |
2013 |
2012 |
Net income |
$18,096 |
1,485 |
$26,670 |
5,321 |
Net income available to common
stockholders |
17,574 |
1,016 |
24,602 |
3,460 |
Diluted earnings per common
share |
3.93 |
0.25 |
5.71 |
0.86 |
Return on average
assets |
12.23% |
0.93% |
4.55% |
0.79% |
Return on average common
equity |
106.72% |
9.77% |
42.22% |
8.94% |
Book value per common
share |
$13.49 |
8.02 |
$13.49 |
8.02 |
HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $649
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $18.1 million for the fourth quarter
of 2013, an improvement of $16.6 million compared to net income of
$1.5 million for the fourth quarter of 2012. Net income
available to common shareholders was $17.6 million for the fourth
quarter of 2013, an improvement of $16.6 million from the net
income available to common shareholders of $1.0 million for the
fourth quarter of 2012. Diluted earnings per common share for
the fourth quarter of 2013 was $3.93, an improvement of $3.68 from
the diluted earnings per common share of $0.25 for the fourth
quarter of 2012. The improvement in net income in the fourth
quarter of 2013 is due primarily to a $14.7 million decrease in
income tax expense as a result of eliminating the valuation reserve
against the Company's deferred tax asset, a $3.0 million decrease
in the provision for loan losses, and a $0.5 million increase on
the gains recognized on the sale of real estate owned. These
improvements to net income were partially offset by a $0.8 million
decrease in net interest income due primarily to a decrease in
interest earning assets between the periods and a $0.8 million
decrease in the gain on sale of loans due to a decrease in mortgage
loan originations and sales. President's
Statement "The elimination of the deferred tax asset valuation
reserve in the fourth quarter is a direct result of our improved
financial results," said Brad Krehbiel, President of HMN. "We are
also encouraged by the results of our ongoing efforts to improve
the credit quality in our commercial loan portfolio as evidenced by
the continued positive trend of declining non-performing assets and
the reduction in the required provision for loan losses. We intend
to continue to focus our efforts on further reducing these
non-performing assets while, at the same time, improving the
financial performance of our core banking operations."
Fourth Quarter Results
Net Interest Income
Net interest income was $4.8 million for the fourth quarter of
2013, a decrease of $0.7 million, or 13.7%, compared to $5.5
million for the fourth quarter of 2012. Interest income was
$5.1 million for the fourth quarter of 2013, a decrease of $1.9
million, or 26.9%, from $7.0 million for the same period in
2012. Interest income decreased between the periods primarily
because of a $44 million decrease in the average interest-earning
assets and also because of a decrease in the average yields between
the periods. Average interest-earning assets decreased between
the periods primarily because of a $61 million decrease in the
commercial loan portfolio, which occurred because loan payoffs
exceeded production primarily as a result of the Company's focus on
improving credit quality, managing net interest margin and
improving capital ratios. The average yield earned on
interest-earning assets was 3.64% for the fourth quarter of 2013, a
decrease of 98 basis points from the 4.62% average yield for the
fourth quarter of 2012. The decrease in the average yield is
due to the continued low interest rate environment that existed
during the fourth quarter of 2013 and also because of the $44
million increase in the average assets that were held in lower
earning cash and investments in the fourth quarter of 2013 when
compared to the same period of 2012.
Interest expense was $0.4 million for the fourth quarter of
2013, a decrease of $1.1 million, or 75.0%, compared to $1.5
million for the fourth quarter of 2012. Interest expense
decreased primarily because of a $60 million decrease in the
average interest-bearing liabilities between the periods. The
decrease in the average interest-bearing liabilities is primarily
the result of a decrease in the average outstanding retail and
brokered certificates of deposits and Federal Home Loan Bank
advances between the periods. The decrease in average balances
of certificates of deposits and advances between the periods was
the result of using the proceeds from loan principal payments to
fund the maturing certificates of deposits and advances. The
$133 million decrease in average balances of certificates of
deposits and advances was partially offset by the $74 million
increase in the average balance of retail and commercial checking
and money market accounts between the periods. Interest
expense also decreased because of the lower interest rates paid on
deposits as a result of the low interest rate environment that
continued to exist during the fourth quarter of 2013. The
average interest rate paid on interest-bearing liabilities was
0.30% for the fourth quarter of 2013, a decrease of 76 basis points
from the 1.06% average interest rate paid in the fourth quarter of
2012. Net interest margin (net interest income divided by
average interest-earning assets) for the fourth quarter of 2013 was
3.37%, a decrease of 26 basis points, compared to 3.63% for the
fourth quarter of 2012.
Provision for Loan Losses
The provision for loan losses was ($3.0 million) for the fourth
quarter of 2013, a decrease of $3.0 million, from $0 for the fourth
quarter of 2012. The provision decreased in the fourth quarter
of 2013 primarily because of improving values of the underlying
collateral supporting commercial real estate loans in the fourth
quarter of 2013 when compared to the fourth quarter of
2012. The provision also decreased because of the $80 million
decrease in the loan portfolio between the periods. Total
non-performing assets were $24.4 million at December 31, 2013, a
decrease of $6.9 million, or 22.0%, from $31.3 million at September
30, 2013. Non-performing loans decreased $4.9 million and
foreclosed and repossessed assets decreased $2.0 million during the
fourth quarter of 2013. The non-performing loan and foreclosed
and repossessed asset activity for the fourth quarter of 2013 was
as follows:
(Dollars in thousands) |
|
|
Non-performing loans |
|
Foreclosed and repossessed
assets |
|
September 30, 2013 |
$22,357 |
September 30, 2013 |
$8,899 |
Classified as non-performing |
1,503 |
Transferred from non-performing loans |
0 |
Charge offs |
(2,854) |
Real estate sold |
(2,198) |
Principal payments received |
(3,240) |
Net gain on sale of assets |
589 |
Classified as accruing |
(270) |
Write downs and payments |
(392) |
Transferred to real estate owned |
0 |
December 31, 2013 |
$6,898 |
December 31, 2013 |
$17,496 |
|
|
|
|
|
|
The decrease in non-performing loans relates primarily to charge
offs and principal payments received on non-performing loans during
the fourth quarter of 2013. Of the $2.9 million in charge
offs, $2.8 million relates to the charge off of previously
established reserves on a single family development loan. Of the
$3.2 million in principal payments received on non-performing loans
in the fourth quarter of 2013, $2.7 million related to payments
received from the proceeds from the sale of the property securing
the non-performing loans and $0.5 million was the result of a loan
being refinanced with another lender.
A reconciliation of the allowance for loan losses for the fourth
quarters of 2013 and 2012 is summarized as follows:
|
|
|
(Dollars in
thousands) |
2013 |
2012 |
Balance at September 30, |
$16,505 |
$20,462 |
Provision |
(3,031) |
0 |
Charge offs: |
|
|
Commercial real estate |
(2,800) |
0 |
Commercial business |
(45) |
(468) |
Consumer |
(9) |
(150) |
One-to-four family |
0 |
(63) |
Recoveries |
781 |
1,827 |
Balance at December 31, |
$11,401 |
$21,608 |
|
|
|
General allowance |
$7,623 |
$16,795 |
Specific allowance |
3,778 |
4,813 |
|
$11,401 |
$21,608 |
|
|
|
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 and December 31, 2012.
|
|
December 31, |
September 30, |
December 31, |
(Dollars in
thousands) |
2013 |
2013 |
2012 |
Non‑Performing Loans: |
|
|
|
One‑to‑four family real
estate |
$1,602 |
$1,626 |
$2,492 |
Commercial real estate |
14,549 |
19,578 |
25,543 |
Consumer |
737 |
442 |
300 |
Commercial business |
608 |
711 |
1,640 |
Total |
17,496 |
22,357 |
29,975 |
|
|
|
|
Foreclosed and Repossessed
Assets: |
|
|
|
One‑to‑four family real
estate |
0 |
1,082 |
1,595 |
Commercial real estate |
6,898 |
7,817 |
9,000 |
Total non‑performing
assets |
$24,394 |
$31,256 |
$40,570 |
Total as a percentage of total
assets |
3.76% |
5.56% |
6.21% |
Total non‑performing loans |
$17,496 |
$22,357 |
$29,975 |
Total as a percentage of total
loans receivable, net |
4.55% |
5.68% |
6.60% |
Allowance for loan losses to
non-performing loans |
65.17% |
73.83% |
72.09% |
|
|
|
|
Delinquency Data: |
|
|
|
Delinquencies (1) |
|
|
|
30+ days |
$6,370 |
$2,516 |
$2,739 |
90+ days (2) |
0 |
0 |
0 |
Delinquencies as a percentage
of loan and lease portfolio (1) |
|
|
|
30+ days |
1.33% |
0.53% |
0.57% |
90+ days |
0.00% |
0.00% |
0.00% |
|
(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 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 December
31, 2013 |
# of relationships |
Principal Amount of Loans at
September 30, 2013 |
# of relationships |
Principal Amount of Loans at December
31, 2012 |
Developments/land |
9 |
$14,549 |
8 |
$19,413 |
9 |
$24,339 |
Retail |
0 |
0 |
2 |
165 |
2 |
386 |
Other buildings |
0 |
0 |
0 |
0 |
4 |
818 |
|
9 |
$14,549 |
10 |
$19,578 |
15 |
$25,543 |
The $5.0 million decrease in the non-performing commercial real
estate loans from September 30, 2013 is due primarily to a $2.8
million charge off on loans secured by a single family development
and additional principal payments received on various other
non-performing commercial real estate loans during the
quarter.
Non-Interest Income and Expense
Non-interest income was $1.6 million for the fourth quarter of
2013, a decrease of $0.8 million, or 31.4%, from $2.4 million for
the same period in 2012. Gain on sales of loans decreased $0.8
million between the periods primarily because of a decrease in
single family loan originations and sales. Fees and service
charges increased $0.1 million primarily because of an increase in
overdraft fees between the periods.
Non-interest expense was $6.0 million for the fourth quarter of
2013, a decrease of $0.3 million, or 4.9%, from $6.3 million for
the same period of 2012. Gains on real estate owned increased
$0.5 million from the fourth quarter of 2012 primarily because
there were more gains realized on the sale of real estate and fewer
write downs in the value of the real estate owned in the fourth
quarter of 2013 when compared to the same period in
2012. Deposit insurance expense decreased $0.1 million because
of a decrease in assets and insurance rates between the periods.
Data processing expense decreased $0.1 million due to a decrease in
hardware and software depreciation expense. Other non-interest
expenses decreased $0.2 million between the periods primarily
because of a decrease in legal and other professional services.
These decreases in noninterest expense were partially offset by a
$0.6 million increase in compensation expense between the periods
primarily because of an increase in employee incentives and pension
benefit costs.
Income tax benefit was $14.6 million in the fourth quarter of
2013, an increase of $14.7 million from $0.1 million in income tax
expense for the same period in 2012. 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 December 31, 2012. Since the
valuation reserve was established against the entire deferred tax
asset balance, no regular income tax expense was recorded for the
fourth quarter of 2012. The income tax expense that was recorded in
the fourth quarter of 2012 relates to alternative minimum tax
amounts that were 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. In the fourth
quarter of 2013, the valuation reserve against the deferred tax
asset was eliminated which resulted in a $14.6 million income tax
benefit.
Net Income Available to Common Shareholders
The net income available to common shareholders was $17.6
million for the fourth quarter of 2013, an improvement of $16.6
million from the $1.0 million net income available to common
shareholders in the fourth quarter of 2012. The net income
available to common shareholders increased primarily because of the
increase in the net income between the periods for the reasons
described above. Beginning with the February 15, 2011 dividend
payment, the Company has deferred the last twelve quarterly
dividend payments on its Fixed Rate, Series A, Cumulative Perpetual
Preferred Stock, which 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.
Return on Assets and Equity
The return on average assets for the fourth quarter of 2013 was
12.23%, compared to a 0.93% return on average assets for the fourth
quarter of 2012. Return on average equity was 106.72% for the
fourth quarter of 2013, compared to a 9.77% return on average
equity for the same period of 2012. Book value per common
share at December 31, 2013 was $13.49, compared to $8.02 at
December 31, 2012.
Annual Results
Net Income
Net income was $26.7 million for 2013, an improvement of $21.4
million, from $5.3 million for 2012. Net income available to
common shareholders was $24.6 million for the year ended December
31, 2013, an improvement of $21.1 million, from net income
available to common shareholders of $3.5 million for
2012. Diluted earnings per common share for the year ended
December 31, 2013 was $5.71, an improvement of $4.85 from $0.86
diluted earnings per common share for the year ended December 31,
2012. The improvement in net income in 2013 is due primarily
to a $14.5 million decrease in income tax expense as a result of
eliminating the valuation reserve against the Company's deferred
tax asset, a $10.4 million decrease in the provision for loan
losses, a $1.0 million increase on the gains recognized on the sale
of real estate owned, and a $0.7 million decrease in other
non-interest expenses primarily related to legal and professional
services. These improvements to net income were partially
offset by a $4.0 million decrease in net interest income due
primarily to a decrease in interest earning assets between the
periods and a $1.5 million decrease in the gain on sale of loans
due to a decrease in mortgage loan originations and
sales. Net Interest Income
Net interest income was $19.7 million for 2013, a decrease of
$4.0 million, or 16.8%, from $23.7 million for 2012. Interest
income was $23.0 million for 2013, a decrease of $7.8 million, or
25.4%, from $30.8 million for 2012. Interest income decreased
between the periods primarily because of an $84 million decrease in
the average interest-earning assets and also because of a decrease
in the average yields between the periods. Average
interest-earning assets decreased between the periods primarily
because of a $69 million decrease in the commercial loan portfolio,
which occurred because loan payoffs exceeded production primarily
as a result of the Company's focus on improving credit quality,
managing net interest margin and improving capital ratios. The
average yield earned on interest-earning assets was 4.09% for the
year ended December 31, 2013, a decrease of 69 basis points from
the 4.78% average yield for 2012. The decrease in the average
yield is due to the continued low interest rate environment that
existed during 2013 and also because of the $15 million increase in
the average assets that were held in lower earning cash and
investments in 2013 when compared to the same period of
2012.
Interest expense was $3.3 million for the year ended December
31, 2013, a decrease of $3.8 million, or 53.9%, from $7.1 million
for 2012. Interest expense decreased primarily because of a
$96 million decrease in the average interest-bearing liabilities
between the periods. The decrease in the average
interest-bearing liabilities is primarily the result of a decrease
in the average outstanding retail and brokered certificates of
deposits and Federal Home Loan Bank advances between the
periods. The decrease in certificates of deposits and advances
between the periods was the result of using the proceeds from loan
principal payments to fund the maturing certificates of deposits
and advances. The $126 million decrease in average balances of
certificates of deposits and advances was partially offset by the
$30 million increase in the average balance of retail and
commercial checking and money market accounts between the
periods. Interest expense also decreased because of the lower
interest rates paid on deposits as a result of the low interest
rate environment that continued to exist during 2013. The
average interest rate paid on interest-bearing liabilities was
0.64% for the year ended December 31, 2013, a decrease of 53 basis
points from the 1.17% average interest rate paid for 2012. Net
interest margin (net interest income divided by average
interest-earning assets) for the year ended December 31, 2013 was
3.51%, a decrease of 16 basis points, compared to 3.67% for
2012.
Provision for Loan Losses
The provision for loan losses was ($7.9 million) for the year
ended December 31, 2013, a decrease of $10.4 million, from $2.5
million for the year ended December 31, 2012. The provision
decreased between the periods primarily because of improving values
of the underlying collateral supporting commercial real estate
loans in 2013 when compared to 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 2013 on previously
charged off loans. Total non-performing assets were $24.4
million at December 31, 2013, a decrease of $16.2 million, or
39.9%, from $40.6 million at December 31, 2012. Non-performing
loans decreased $12.5 million and foreclosed and repossessed assets
decreased $3.7 million during 2013. The non-performing loan
and foreclosed and repossessed asset activity for 2013 was as
follows:
(Dollars in thousands) |
|
Non-performing loans |
|
Foreclosed and repossessed asset
activity |
|
December 31, 2012 |
$29,975 |
December 31, 2012 |
$10,595 |
Classified as non-performing |
6,295 |
Transferred from non-performing loans |
876 |
Charge offs |
(5,002) |
Other foreclosures/repossessions |
687 |
Principal payments received |
(11,043) |
Real estate sold |
(5,827) |
Classified as accruing |
(1,853) |
Net gain on sale of assets |
1,587 |
Transferred to real estate owned |
(876) |
Write downs |
(1,020) |
December 31, 2013 |
$17,496 |
December 31, 2013 |
$6,898 |
|
|
A reconciliation of the allowance for loan losses for 2013 and
2012 is summarized as follows:
|
(in thousands) |
2013 |
2012 |
Balance at January 1, |
$21,608 |
$23,888 |
Provision |
(7,881) |
2,544 |
Charge offs: |
|
|
Commercial |
(651) |
(2,464) |
Commercial real estate |
(3,711) |
(5,719) |
Consumer |
(484) |
(1,071) |
Single family
mortgage |
(200) |
(63) |
Recoveries |
2,720 |
4,493 |
Balance at December 31, |
$11,401 |
$21,608 |
|
|
|
General allowance |
$7,623 |
$16,795 |
Specific allowance |
3,778 |
4,813 |
|
$11,401 |
$21,608 |
|
Non-Interest Income and Expense
Non-interest income was $7.3 million for the year ended December
31, 2013, a decrease of $1.7 million, or 18.7%, from $9.0 million
for the year ended December 31, 2012. Gains on sales of loans
decreased $1.5 million, or 41.2%, between the periods primarily
because of a decrease in single family loan originations and
sales. Gain on sale of branch office was $0 for 2013, compared
to $0.6 million in 2012 as a result of the sale of the Toledo, Iowa
branch in the first quarter of 2012. Fees and service charges
increased $0.2 million primarily because of an increase in
overdraft charges between the periods. Other non-interest
income increased $0.1 million due to an increase in the sale of
non-insured investment products. Mortgage servicing fees
increased $0.1 million as a result of servicing more single family
loans.
Non-interest expense was $22.6 million for the year ended
December 31, 2013, a decrease of $2.1 million, or 8.3%, from $24.7
million for the same period in 2012. Gains on real estate
owned increased $1.0 million between the periods primarily because
there were more gains realized on the sale of real estate and fewer
write downs in the value of the real estate owned in 2013 when
compared to 2012. Deposit insurance expense decreased $0.4
million because of a decrease in assets and insurance rates between
the periods. Data processing expense decreased $0.2 million
due to a decrease in hardware and software depreciation
expense. Other non-interest expenses decreased $0.7 million
between the periods primarily because of a decrease in legal and
other professional services. These decreases in noninterest
expense were partially offset by a $0.2 million increase in
compensation expense between the periods primarily because of an
increase in employee incentives and pension benefit
costs.
Income tax benefit was $14.4 million in 2013, an increase of
$14.5 million from $0.1 million in income tax expense for
2012. 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 December
31, 2012. Since the valuation reserve was established against
the entire deferred tax asset balance, no regular income tax
expense was recorded for 2012. The income tax expense that was
recorded in 2012 relates to alternative minimum tax amounts that
were 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. In the fourth quarter
of 2013, the valuation reserve against the deferred tax asset was
eliminated which resulted in a $14.4 million income tax benefit for
the year ended December 31, 2013.
Net Income Available to Common Shareholders
Net income available to common shareholders was $24.6 million
for the year ended December 31, 2013, an improvement of $21.1
million, from the net income available to common shareholders of
$3.5 million for 2012. Net income available to common
shareholders increased primarily because of the increase in net
income between the periods for the reasons described
above. Beginning with the February 15, 2011 dividend payment,
the Company has deferred the last twelve quarterly dividend
payments, on its Preferred Stock, which was originally issued to
the United States Treasury Department as part of the TARP Capital
Purchase Program. 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.
Return on Assets and Equity
The return on average assets was 4.55% for 2013, compared to a
0.79% return on average assets for 2012. Return on average
common equity was 42.22% for 2013, compared to a 8.94% return on
average common equity for 2012.
Annual Meeting Announcement
HMN announced that its annual meeting will be held at the
Rochester Golf and Country Club, located at 3100 West Country Club
Road, Rochester, Minnesota on Tuesday, April 22, 2014, at 10:00
a.m. local time. The Company's common stockholders at the close of
business on February 26, 2014, the record date, will be entitled to
vote at the annual meeting.
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 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
Office of the Comptroller of the Currency ("the OCC") and the
Federal Reserve Board ("the 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 |
|
|
December 31, |
December 31, |
(Dollars in thousands) |
2013 |
2012 |
|
(unaudited) |
|
Assets |
|
|
Cash and cash equivalents |
$120,686 |
83,660 |
Securities available for sale: |
|
|
Mortgage-backed and related
securities |
|
|
(amortized cost $4,899 and
$9,825) |
5,213 |
10,421 |
Other marketable
securities |
|
|
(amortized cost $103,788 and
$75,759) |
102,743 |
75,470 |
|
107,956 |
85,891 |
|
|
|
Loans held for sale |
1,502 |
2,584 |
Loans receivable, net |
384,615 |
454,045 |
Accrued interest receivable |
1,953 |
2,018 |
Real estate, net |
6,898 |
10,595 |
Federal Home Loan Bank stock, at cost |
784 |
4,063 |
Mortgage servicing rights, net |
1,708 |
1,732 |
Premises and equipment, net |
6,711 |
7,173 |
Prepaid expenses and other assets |
698 |
1,566 |
Deferred tax asset, net |
15,111 |
0 |
Total assets |
$648,622 |
653,327 |
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Deposits |
$553,930 |
514,951 |
Federal Home Loan Bank advances |
0 |
70,000 |
Accrued interest payable |
146 |
247 |
Customer escrows |
614 |
830 |
Accrued expenses and other liabilities |
8,257 |
6,465 |
Total liabilities |
562,947 |
592,493 |
Commitments and contingencies |
|
|
Stockholders' equity: |
|
|
Serial-preferred stock: ($.01
par value) |
|
|
Authorized 500,000 shares;
issued shares 26,000 |
26,000 |
25,336 |
Common stock ($.01 par
value): |
|
|
Authorized 16,000,000; issued
shares 9,128,662 |
91 |
91 |
Additional paid-in capital |
51,175 |
51,795 |
Retained earnings, subject to certain
restrictions |
72,211 |
47,004 |
Accumulated other comprehensive loss |
(674) |
(49) |
Unearned employee stock ownership plan
shares |
(2,804) |
(2,997) |
Treasury stock, at cost 4,704,313 and
4,705,073 shares |
(60,324) |
(60,346) |
Total stockholders' equity |
85,675 |
60,834 |
Total liabilities and stockholders'
equity |
$648,622 |
653,327 |
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Statements
of Comprehensive Income |
|
|
Three Months Ended |
Year Ended |
|
December 31, |
December 31, |
(Dollars in thousands, except per share
data) |
2013 |
2012 |
2013 |
2012 |
|
(unaudited) |
(unaudited) |
(unaudited) |
|
Interest income: |
|
|
|
|
Loans receivable |
$4,864 |
6,730 |
21,887 |
29,257 |
Securities available for
sale: |
|
|
|
|
Mortgage-backed and
related |
58 |
114 |
300 |
604 |
Other marketable |
171 |
136 |
614 |
737 |
Cash equivalents |
49 |
30 |
129 |
101 |
Other |
2 |
28 |
53 |
117 |
Total interest income |
5,144 |
7,038 |
22,983 |
30,816 |
|
|
|
|
|
Interest expense: |
|
|
|
|
Deposits |
378 |
659 |
1,804 |
3,741 |
Federal Home Loan Bank
advances |
0 |
854 |
1,485 |
3,398 |
Total interest expense |
378 |
1,513 |
3,289 |
7,139 |
Net interest income |
4,766 |
5,525 |
19,694 |
23,677 |
Provision for loan losses |
(3,031) |
0 |
(7,881) |
2,544 |
Net interest income after
provision for loan losses |
7,797 |
5,525 |
27,575 |
21,133 |
|
|
|
|
|
Non-interest income: |
|
|
|
|
Fees and service charges |
912 |
841 |
3,513 |
3,325 |
Mortgage servicing fees |
257 |
251 |
1,029 |
964 |
Gain on sales of loans |
289 |
1,105 |
2,102 |
3,574 |
Gain on sale of branch
office |
0 |
0 |
0 |
552 |
Other |
170 |
177 |
668 |
575 |
Total non-interest income |
1,628 |
2,374 |
7,312 |
8,990 |
|
|
|
|
|
Non-interest expense: |
|
|
|
|
Compensation and benefits |
3,492 |
2,865 |
12,680 |
12,452 |
(Gains) losses on real estate
owned |
(223) |
256 |
(830) |
181 |
Occupancy |
795 |
832 |
3,338 |
3,358 |
Deposit insurance |
188 |
327 |
868 |
1,255 |
Data processing |
209 |
326 |
1,177 |
1,332 |
Other |
1,512 |
1,676 |
5,390 |
6,092 |
Total non-interest expense |
5,973 |
6,282 |
22,623 |
24,670 |
Income before income tax
expense |
3,452 |
1,617 |
12,264 |
5,453 |
Income tax (benefit) expense |
(14,644) |
132 |
(14,406) |
132 |
Net income |
18,096 |
1,485 |
26,670 |
5,321 |
Preferred stock dividends and discount |
(522) |
(469) |
(2,068) |
(1,861) |
Net income available to
common shareholders |
$17,574 |
1,016 |
24,602 |
3,460 |
Other comprehensive income (loss), net of
tax |
420 |
(171) |
(625) |
(520) |
Comprehensive income attributable to common
shareholders |
$17,994 |
845 |
23,977 |
2,940 |
Basic earnings per common share |
$4.37 |
0.26 |
6.15 |
0.88 |
Diluted earnings per common share |
$3.93 |
0.25 |
5.71 |
0.86 |
|
|
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Selected Consolidated
Financial Information |
(unaudited) |
|
Three Months Ended |
Year Ended |
SELECTED FINANCIAL DATA: |
December 31, |
December 31, |
(Dollars in thousands, except
per share data) |
2013 |
2012 |
2013 |
2012 |
I. OPERATING DATA: |
|
|
|
|
Interest income |
$5,144 |
7,038 |
22,983 |
30,816 |
Interest expense |
378 |
1,513 |
3,289 |
7,139 |
Net interest income |
4,766 |
5,525 |
19,694 |
23,677 |
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
Assets (1) |
586,875 |
633,800 |
586,396 |
675,648 |
Loans receivable, net |
380,546 |
462,803 |
408,384 |
503,668 |
Mortgage-backed and related
securities (1) |
96,389 |
82,057 |
92,915 |
87,604 |
Interest-earning assets
(1) |
561,391 |
605,766 |
561,363 |
645,122 |
Interest-bearing
liabilities |
507,474 |
567,018 |
514,474 |
610,158 |
Equity (1) |
67,270 |
60,457 |
63,171 |
59,519 |
|
|
|
|
|
III. PERFORMANCE RATIOS: (1) |
|
|
|
|
Return on average assets
(annualized) |
12.23% |
0.93% |
4.55% |
0.79% |
Interest rate spread
information: |
|
|
|
|
Average during
period |
3.34 |
3.56 |
3.45 |
3.61 |
End of
period |
3.16 |
3.49 |
3.16 |
3.49 |
Net interest margin |
3.37 |
3.63 |
3.51 |
3.67 |
Ratio of operating expense to
average total assets (annualized) |
4.04 |
3.94 |
3.86 |
3.65 |
Return on average common equity
(annualized) |
106.72 |
9.77 |
42.22 |
8.94 |
Efficiency |
93.42 |
79.53 |
83.77 |
75.52 |
|
December 31, |
December 31, |
|
|
IV. ASSET QUALITY: |
2013 |
2012 |
|
|
Total non-performing
assets |
$24,394 |
40,570 |
|
|
Non-performing assets to total
assets |
3.76% |
6.21% |
|
|
Non-performing loans to total
loans receivable, net |
4.55% |
6.60% |
|
|
Allowance for loan losses |
$11,401 |
21,608 |
|
|
Allowance for loan losses to
total assets |
1.76% |
3.31% |
|
|
Allowance for loan losses to
total loans receivable, net |
2.96 |
4.76 |
|
|
Allowance for loan losses to
non-performing loans |
65.17 |
72.09 |
|
|
|
|
|
|
|
V. BOOK VALUE PER COMMON SHARE: |
|
|
|
|
Book value per common
share |
$13.49 |
8.02 |
|
|
|
Year Ended |
Year Ended |
|
|
VI. CAPITAL RATIOS: |
Dec 31, 2013 |
Dec 31, 2012 |
|
|
Stockholders' equity to total
assets, at end of period |
13.21% |
9.31% |
|
|
Average stockholders' equity to
average assets (1) |
10.77 |
8.81 |
|
|
Ratio of average
interest-earning assets to average interest-bearing liabilities
(1) |
109.11 |
105.73 |
|
|
Home Federal Savings Bank
regulatory capital ratios: |
|
|
|
|
Tier 1 or core capital(2) |
12.22% |
9.68% |
|
|
Risk-based capital |
20.78% |
15.52% |
|
|
|
December 31, |
December 31, |
|
|
|
2013 |
2012 |
|
|
VII. EMPLOYEE DATA: |
|
|
|
|
Number of full time equivalent
employees |
185 |
194 |
|
|
|
(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
December 31, 2013. |
CONTACT: Bradley Krehbiel
Chief Executive Officer, President
HMN Financial, Inc. (507) 252-7169
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