First Quarter Highlights
- Net income of $0.5 million, a decrease of $1.1 million,
compared to net income of $1.6 million in the first quarter of
2014
- Diluted earnings per common share of $0.08, a decrease
of $0.16, compared to diluted earnings per common share of $0.24 in
the first quarter of 2014
- Provision for loan losses of $0, an increase of $1.6
million compared to the $1.6 million credit provision for loan
losses in first quarter of 2014
- Non-performing assets of $13.0 million, a decrease of
$1.0 million, or 7.6% from $14.0 million at December 31,
2014
- Remaining $10 million of Preferred Stock redeemed on
February 17, 2015
Other
- On April 2, 2015 announced agreement to acquire certain
assets and assume certain liabilities of Kasson State Bank located
in Kasson, Minnesota
INCOME SUMMARY |
Three Months
Ended |
|
March
31, |
(dollars in thousands, except per share
amounts) |
2015 |
2014 |
Net income |
$ 461 |
1,632 |
Net income available to common
stockholders |
353 |
1,100 |
Diluted earnings per common
share |
0.08 |
0.24 |
Return on average
assets |
0.33% |
1.08% |
Return on average common
equity |
2.60% |
7.61% |
Book value per common
share |
$ 14.90 |
13.76 |
HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $565
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $0.5 million for the first quarter of
2015, a decrease of $1.1 million compared to net income of $1.6
million for the first quarter of 2014. Net income available to
common shareholders was $0.4 million for the first quarter of 2015,
a decrease of $0.7 million from the net income available to common
shareholders of $1.1 million for the first quarter of
2014. Diluted earnings per common share for the first quarter
of 2015 was $0.08, a decrease of $0.16 from diluted earnings per
common share of $0.24 for the first quarter of 2014. The
decrease in net income between the periods was due primarily to a
$1.6 million increase in the provision for loan losses because
there were fewer commercial loan payoffs and credit rating upgrades
in the first quarter of 2015 when compared to the first quarter of
2014. Net income also decreased $0.5 million because of a
decrease in net interest income due to a decrease in the average
interest-earning assets between the periods. These reductions
in net income were partially offset by a $0.8 million decrease in
income tax expense between the periods due to the decreased
income.
President's Statement
"We are pleased to report positive net operating results for the
first quarter of 2015," said Home Federal Savings Bank President
and Chief Executive Officer, Bradley Krehbiel. "We are also
encouraged by the continued declining trend in our non-performing
assets. We intend to continue to focus our efforts on further
reducing non-performing assets, while at the same time improving
the Bank's core operating results through asset growth."
First Quarter Results
Net Interest Income
Net interest income was $4.6 million for the first quarter of
2015, a decrease of $0.5 million, or 10.5%, compared to $5.1
million for the first quarter of 2014. Interest income was
$4.9 million for the first quarter of 2015, a decrease of $0.5
million, or 10.0%, from $5.4 million for the first quarter of
2014. Interest income decreased between the periods primarily
because of a decrease in the average yields earned and also because
of a $35 million decrease in the average interest-earning assets
between the periods. The decrease in yields was due primarily
to decreasing rates on the commercial loan portfolio due to the low
interest rate environment that continued to exist in the first
quarter of 2015. Average interest-earning assets decreased
between the periods primarily because of a decrease in the
commercial loan portfolio, which occurred because of the Company's
focus on improving credit quality, reducing loan concentrations,
and managing net interest margin. The average yield earned on
interest-earning assets was 3.67% for the first quarter of 2015, a
decrease of 16 basis points from the 3.83% average yield for the
first quarter of 2014.
Interest expense was $0.3 million for the first quarter of 2015,
the same as for the first quarter of 2014. Interest expense
remained the same despite the $25 million decrease in the average
interest-bearing liabilities between the periods because that
decrease was offset by an increase in interest expense related to
the $10 million holding company note payable that was funded in the
first quarter of 2015 in connection with the redemption of the
remaining outstanding Preferred Stock. The decrease in the
average interest-bearing liabilities is primarily the result of a
decrease in the outstanding brokered and retail certificates of
deposits between the periods. The decrease in certificates of
deposits between the periods was the result of using the proceeds
from loan principal payments to fund maturing
certificates. Interest expense was also affected by the lower
average interest rates paid on money market accounts and
certificates of deposits. The decreased rates were the result
of the low interest rate environment that continued to exist during
the first quarter of 2015. The average interest rate paid on
interest-bearing liabilities was 0.27% for the first quarter of
2015, an increase of 1 basis point from the 0.26% average interest
rate paid in the first quarter of 2014. Net interest margin
(net interest income divided by average interest earning assets)
for the first quarter of 2015 was 3.42%, a decrease of 17 basis
points compared to 3.59% for the first quarter of 2014.
Provision for Loan Losses
The provision for loan losses was $0 for the first quarter of
2015, an increase of $1.6 million compared to the $1.6 million
credit provision for loan losses for the first quarter of
2014. The provision increased in the first quarter of 2015
primarily because there were fewer commercial loan payoffs and
credit rating upgrades in the first quarter of 2015 when compared
to the first quarter of 2014. Total non-performing assets were
$13.0 million at March 31, 2015, a decrease of $1.0 million, or
7.6%, from $14.0 million at December 31, 2014. Non-performing
loans decreased $0.9 million and foreclosed and repossessed assets
decreased $0.1 million during the first quarter of 2015. The
non-performing loan and foreclosed and repossessed asset activity
for the first quarter of 2015 was as follows:
(Dollars in thousands) |
|
Non-performing loans |
|
Foreclosed and repossessed
assets |
|
January 1, 2015 |
$10,920 |
January 1, 2015 |
$ 3,103 |
Classified as non-performing |
648 |
Other payments received on real estate |
(6) |
Charge offs |
(18) |
Real estate sold |
(243) |
Principal payments received |
(1,561) |
Net gain on sale of assets |
112 |
Classified as accruing |
0 |
Write downs |
0 |
March 31, 2015 |
$9,989 |
March 31, 2015 |
$2,966 |
|
|
The decrease in non-performing loans relates primarily to
principal payments received on non-performing loans. Of the $1.6
million in principal payments received, $1.3 million related to
residential construction loans where the construction had been
completed and the borrower paid off the loan from the home sale
proceeds.
A reconciliation of the Company's allowance for loan losses for
the first quarters of 2015 and 2014 is summarized as follows:
|
|
(Dollars in thousands) |
2015 |
2014 |
Balance at January 1, |
$8,332 |
$ 11,401 |
Provision |
0 |
(1,610) |
Charge offs: |
|
|
Consumer |
(18) |
(31) |
Commercial business |
0 |
(1) |
Commercial real estate |
0 |
(935) |
Recoveries |
104 |
266 |
Balance at March 31, |
$8,418 |
$ 9,090 |
|
|
|
General allowance |
$7,489 |
$ 6,618 |
Specific allowance |
929 |
2,472 |
|
$8,418 |
$ 9,090 |
|
The following table summarizes the amounts and categories of
non-performing assets in the Bank's portfolio and loan delinquency
information as of the end of the two most recently completed
quarters.
|
|
March 31, |
December 31, |
(Dollars in thousands) |
2015 |
2014 |
Non‑Performing Loans: |
|
|
One‑to‑four family real estate |
$ 1,658 |
$ 1,564 |
Commercial real estate |
7,692 |
8,750 |
Consumer |
542 |
486 |
Commercial business |
97 |
120 |
Total |
9,989 |
10,920 |
|
|
|
Foreclosed and Repossessed Assets: |
|
|
One-to-four family real estate |
$ 50 |
$ 50 |
Commercial real estate |
2,916 |
3,053 |
Total non‑performing assets |
$ 12,955 |
$ 14,023 |
Total as a percentage of total assets |
2.29% |
2.43% |
Total non‑performing loans |
$ 9,989 |
$ 10,920 |
Total as a percentage of total loans
receivable, net |
2.77% |
2.99% |
Allowance for loan loss to non-performing
loans |
84.28% |
76.30% |
|
|
|
Delinquency Data: |
|
|
Delinquencies (1) |
|
|
30+ days |
$ 2,162 |
$ 1,682 |
90+ days |
0 |
0 |
Delinquencies as a percentage of |
|
|
Loan and lease portfolio (1) |
|
|
30+ days |
0.58% |
0.45% |
90+ days |
0.00% |
0.00% |
|
|
|
(1) Excludes non-accrual loans. |
|
|
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.
(Dollars in thousands) |
|
Principal Amount |
|
Principal Amount |
|
# of |
of Loans at |
# of |
of Loans at |
Property Type |
relationships |
March 31, 2015 |
relationships |
December 31, 2014 |
Developments/land |
3 |
$7,692 |
3 |
$8,750 |
Non-Interest Income and Expense
Non-interest income was $1.6 million for the first quarter of
2015, a decrease of $0.1 million, or 5.45%, from $1.7 million for
the first quarter of 2014. Gain on sales of loans decreased
$61,000 between the periods due to a $223,000 decrease in the sale
of commercial government guaranteed loans that was partially offset
by an increase of $162,000 in the gains recognized on the sale of
single family loans. The increase in the gains recognized on
single family loans was due to an increase in loan sales between
the periods. Fees and service charges decreased $41,000
between the periods primarily because of a decrease in overdraft
fees.
Non-interest expense was $5.4 million for the first quarter of
2015, a decrease of $0.3 million, or 4.63%, from $5.7 million for
the first quarter of 2014. The gain on real estate owned
increased $180,000 between the periods primarily because of
increased real estate sales. Deposit insurance expense decreased
$87,000 between the periods because of a decrease in assets and
insurance rates between the periods. Compensation and benefits
expense decreased $30,000 between the periods primarily because of
a decrease in wages and defined benefit costs as a result of having
fewer employees. Data processing costs decreased $15,000 due to a
decrease in hardware and software depreciation expense between the
periods. These decreases in non-interest expense were
partially offset by a $51,000 increase in other non-interest
expense between the periods primarily because of increased mortgage
servicing rights amortization and advertising expenses.
Income tax expense was $0.3 million for the first quarter of
2015, a decrease of $0.8 million from $1.1 million for the first
quarter of 2014. The decrease in income tax expense between
the periods is primarily related to the decrease in income in the
first quarter of 2015 when compared to the first quarter of
2014.
Net Income Available to Common Shareholders
The net income available to common shareholders was $0.4 million
for the first quarter of 2015, a decrease of $0.7 million from the
$1.1 million income available to common shareholders in the first
quarter of 2014. The net income available to common
shareholders decreased primarily because of the decrease in the net
income between the periods that was partially offset by a reduction
in the dividends paid on the outstanding Fixed Rate Cumulative
Perpetual Preferred Stock, Series A that was originally issued to
the United States Treasury Department as part of the TARP Capital
Purchase Program (the "Preferred Stock"). On February 17, 2015
the Company redeemed the remaining 10,000 shares of its outstanding
Preferred Stock after redeeming 10,000 shares in the second quarter
of 2014 and 6,000 shares in the fourth quarter of 2014. These
redemptions reduced the amount of dividends paid on the Preferred
Stock and increased interest expense in the first quarter of 2015
when compared to the first quarter of 2014 as the redemption was
funded by a $10 million holding company note payable to an
unrelated third party.
Return on Assets and Equity
Return on average assets for the first quarter of 2015 was
0.33%, compared to 1.08% for the first quarter of 2014. Return
on average equity was 2.60% for the first quarter of 2015, compared
to 7.61% for the first quarter of 2014. Book value per common
share at March 31, 2015 was $14.90, compared to $13.76 at March 31,
2014.
General Information
HMN Financial, Inc. and the 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; two loan origination offices located
in Wauwatosa, Wisconsin and 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 and include, but are not limited to, those relating to
increasing our core deposit relationships, improving credit
quality, 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; improvements in loan production; changes in
the size of the Bank's loan portfolio; the amount of the Bank's
non-performing assets and the appropriateness of the allowance
therefor; our ability to complete the acquisition of assets of
Kasson State Bank and integrate its operations; anticipated future
levels of the provision for loan losses; future losses on
non-performing assets; the amount and mix of interest-earning
assets; the amount and mix of deposits; the availability of
alternate funding sources; the payment of dividends by HMN, the
future outlook for the Company; the amount of dividends paid by the
FHLB on its stock; 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; the ability of the Bank to
pay dividends to HMN; the ability of HMN to pay the principal and
interest payments on its third party note payable; the ability to
remain well capitalized under revised capital rules; the expected
impact of new Basel III and the Dodd Frank Act capital standards on
the Bank's and the Company's capital positions; and compliance by
the Company and the Bank with regulatory standards generally
(including the Bank's status as "well-capitalized") and 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
(OCC), Board of Governors of the Federal Reserve System (FRB), the
Bank, and the Company to any failure to comply with any such
regulatory standard, directive 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; possible legislative
and regulatory changes, including additional changes to regulatory
capital rules; the ability of the Bank to comply with other
applicable regulatory capital requirements; enforcement activity of
the OCC and FRB in the event of our non-compliance with any
applicable regulatory standard or requirement; adverse economic,
business and competitive developments such as shrinking interest
margins, reduced collateral values, deposit outflows, changes in
credit or other risks posed by the Company's loan and investment
portfolios, changes in costs associated with alternate funding
sources, including changes in collateral advance rates and policies
of the Federal Home Loan Bank, technological, computer-related or
operational difficulties, results of litigation, and reduced demand
for financial services and loan products; changes in accounting
policies and guidelines, or monetary and fiscal policies of the
federal government or tax laws; international economic
developments; the Company's access to and adverse changes in
securities markets; the market for credit related assets; the
future operating results, financial condition, cash flow
requirements and capital spending priorities of the Company and the
Bank; the availability of internal and, as required, external
sources of funding; acquisition integration costs; 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, 2014 and
Part II, Item 1A of its subsequently filed 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 |
|
|
March 31, |
December 31, |
(Dollars in thousands) |
2015 |
2014 |
|
(unaudited) |
|
Assets |
|
|
Cash and cash equivalents |
$ 22,936 |
46,634 |
Securities available for sale: |
|
|
Mortgage-backed and related
securities |
|
|
(amortized cost $2,348 and $2,755) |
2,471 |
2,909 |
Other marketable securities |
|
|
(amortized cost $151,835 and
$135,772) |
151,674 |
134,925 |
|
154,145 |
137,834 |
|
|
|
Loans held for sale |
2,663 |
2,076 |
Loans receivable, net |
360,370 |
365,113 |
Accrued interest receivable |
1,941 |
1,713 |
Real estate, net |
2,966 |
3,103 |
Federal Home Loan Bank stock, at cost |
691 |
777 |
Mortgage servicing rights, net |
1,448 |
1,507 |
Premises and equipment, net |
6,919 |
6,982 |
Prepaid expenses and other assets |
1,139 |
1,157 |
Deferred tax asset, net |
10,269 |
10,530 |
Total assets |
$ 565,487 |
577,426 |
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Deposits |
$ 483,323 |
496,750 |
Other borrowings |
10,000 |
0 |
Accrued interest payable |
166 |
93 |
Customer escrows |
1,228 |
788 |
Accrued expenses and other liabilities |
3,995 |
3,782 |
Total liabilities |
498,712 |
501,413 |
Commitments and contingencies |
|
|
Stockholders' equity: |
|
|
Serial preferred stock ($.01 par
value): |
|
|
Authorized 500,000 shares; issued shares
0 and 10,000 |
0 |
10,000 |
Common stock ($.01 par value): |
|
|
Authorized 16,000,000; issued shares
9,128,662 |
91 |
91 |
Additional paid-in capital |
50,035 |
50,207 |
Retained earnings, subject to certain
restrictions |
78,041 |
77,805 |
Accumulated other comprehensive loss |
(23) |
(418) |
Unearned employee stock ownership plan
shares |
(2,562) |
(2,610) |
Treasury stock, at cost 4,648,404 and
4,658,323 shares |
(58,807) |
(59,062) |
Total stockholders' equity |
66,775 |
76,013 |
Total liabilities and stockholders'
equity |
$ 565,487 |
577,426 |
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Statements
of Comprehensive Income |
(unaudited) |
|
|
Three Months Ended March
31, |
(Dollars in thousands, except per share
data) |
2015 |
2014 |
Interest income: |
|
|
Loans receivable |
$ 4,354 |
5,070 |
Securities available for sale: |
|
|
Mortgage-backed and related |
28 |
50 |
Other marketable |
486 |
254 |
Cash equivalents |
15 |
52 |
Other |
1 |
1 |
Total interest income |
4,884 |
5,427 |
|
|
|
Interest expense: |
|
|
Deposits |
248 |
334 |
Other borrowings |
78 |
0 |
Total interest expense |
326 |
334 |
Net interest income |
4,558 |
5,093 |
Provision for loan losses |
0 |
(1,610) |
Net interest income after provision for
loan losses |
4,558 |
6,703 |
|
|
|
Non-interest income: |
|
|
Fees and service charges |
782 |
823 |
Mortgage servicing fees |
261 |
261 |
Gain on sales of loans |
285 |
346 |
Other |
268 |
258 |
Total non-interest income |
1,596 |
1,688 |
|
|
|
Non-interest expense: |
|
|
Compensation and benefits |
3,448 |
3,478 |
Loss (gain) on real estate owned |
(112) |
68 |
Occupancy |
879 |
882 |
Deposit insurance |
70 |
157 |
Data processing |
231 |
246 |
Other |
917 |
866 |
Total non-interest expense |
5,433 |
5,697 |
Income before income tax expense |
721 |
2,694 |
Income tax expense |
260 |
1,062 |
Net income |
461 |
1,632 |
Preferred stock dividends |
(108) |
(532) |
Net income available to common
shareholders |
$ 353 |
1,100 |
Other comprehensive income, net of tax |
$ 395 |
181 |
Comprehensive income attributable to common
shareholders |
$ 748 |
1,281 |
Basic earnings per common share |
$ 0.09 |
0.27 |
Diluted earnings per common share |
$ 0.08 |
0.24 |
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Selected Consolidated
Financial Information |
(unaudited) |
SELECTED FINANCIAL DATA: |
Three Months Ended March
31, |
|
(Dollars in thousands, except per share
data) |
2015 |
2014 |
|
|
|
|
|
I. OPERATING DATA: |
|
|
|
Interest income |
$ 4,884 |
5,427 |
|
Interest expense |
326 |
334 |
|
Net interest income |
4,558 |
5,093 |
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
Assets (1) |
570,013 |
611,427 |
|
Loans receivable, net |
361,943 |
377,619 |
|
Mortgage-backed and related securities
(1) |
146,715 |
108,872 |
|
Interest-earning assets (1) |
539,919 |
575,369 |
|
Interest-bearing liabilities |
491,818 |
516,390 |
|
Equity (1) |
71,926 |
86,980 |
|
|
|
|
|
III. PERFORMANCE RATIOS: (1) |
|
|
|
Return on average assets
(annualized) |
0.33% |
1.08% |
|
Interest rate spread information: |
|
|
|
Average during period |
3.40 |
3.56 |
|
End of period |
3.37 |
3.74 |
|
Net interest margin |
3.42 |
3.59 |
|
Ratio of operating expense to average
total assets (annualized) |
3.87 |
3.78 |
|
Return on average equity
(annualized) |
2.60 |
7.61 |
|
Efficiency |
88.29 |
84.01 |
|
|
March 31, |
December 31, |
March 31, |
|
2015 |
2014 |
2014 |
IV. ASSET QUALITY: |
|
|
|
Total non-performing assets |
$ 12,955 |
14,023 |
18,869 |
Non-performing assets to total
assets |
2.29% |
2.43% |
3.04% |
Non-performing loans to total loans
receivable, net |
2.77 |
2.99 |
3.25 |
Allowance for loan losses |
$ 8,418 |
8,332 |
9,090 |
Allowance for loan losses to total
assets |
1.49% |
1.44% |
1.46% |
Allowance for loan losses to total loans
receivable, net |
2.34 |
2.28 |
2.37 |
Allowance for loan losses to
non-performing loans |
84.28 |
76.30 |
73.13 |
|
|
|
|
V. BOOK VALUE PER COMMON SHARE: |
|
|
|
Book value per common share |
$ 14.90 |
14.77 |
13.76 |
|
Three Months |
|
Three Months |
|
Ended |
Year Ended |
Ended |
|
Mar 31, 2015 |
Dec 31, 2014 |
Mar 31, 2014 |
VI. CAPITAL RATIOS: |
|
|
|
Stockholders' equity to total assets, at
end of period |
11.81% |
13.16% |
14.05% |
Average stockholders' equity to average
assets (1) |
12.62 |
13.25 |
14.23 |
Ratio of average interest-earning assets
to average interest-bearing liabilities (1) |
109.78 |
110.72 |
111.42 |
Home Federal Savings Bank regulatory
capital ratios: (2) |
|
|
|
Tier 1 or core capital |
12.52 |
11.76 |
13.08 |
Risk-based capital |
18.10 |
18.47 |
22.04 |
|
March 31, |
December 31, |
March 31, |
|
2015 |
2014 |
2014 |
VII. EMPLOYEE DATA: |
|
|
|
Number of full time equivalent
employees |
180 |
181 |
181 |
|
(1) Average balances were
calculated based upon amortized cost without the market value
impact of ASC 320. |
(2) The March 31, 2015 capital
ratios are calculated under the Basel III capital rules that became
effective on January 1, 2015. Prior period capital ratios were
calculated under the prompt corrective action capital rules that
were in effect for those periods. |
CONTACT: Bradley Krehbiel,
Chief Executive Officer, President
HMN Financial, Inc. (507) 252-7169
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