ROCHESTER, Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
| EARNINGS (LOSS) SUMMARY | Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| (dollars in thousands, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| Net income (loss) | $ | (9,932 | ) | 149 | $ | (28,978 | ) | (10,796 | ) | |||||||||
|
Net loss available to
common stockholders |
(10,381 |
) |
(292 |
) |
(30,762 |
) |
(12,543 |
) |
||||||||||
| Diluted loss per common share | (2.73 | ) | (0.08 | ) | (8.17 | ) | (3.39 | ) | ||||||||||
| Return (loss) on average assets | (4.41 | ) |
% |
0.06 | % | (2.98 | ) |
% |
(1.00 | ) | % | |||||||
| Return (loss) on average common equity | (49.64 | ) |
% |
0.59 | % | (31.73 | ) |
% |
(10.33 | ) | % | |||||||
| Book value per common share | $ | 10.51 | 17.94 | $ | 10.51 | 17.94 | ||||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $881 million holding company for Home Federal Savings Bank (the Bank), today reported a net loss of $9.9 million for the fourth quarter of 2010, a $10.0 million decrease from net income of $0.1 million for the fourth quarter of 2009. Net loss available to common shareholders for the fourth quarter of 2010 was $10.4 million, an increased loss of $10.1 million, from the net loss available to common shareholders of $0.3 million for the fourth quarter of 2009. Diluted loss per common share for the fourth quarter of 2010 was $2.73, an increased loss of $2.65 from the diluted loss per common share of $0.08 for the fourth quarter of 2009. The decrease in income in the fourth quarter of 2010 is due primarily to a $7.1 million increase in the provision for loan losses between the periods. The increased provision is primarily the result of additional reserves established on commercial loans as a result of decreases in the estimated value of the underlying collateral supporting the loans. The net loss was also adversely affected by the $4.4 million impact of establishing an additional deferred tax valuation allowance during the fourth quarter of 2010 due to the tax treatment of the net operating loss incurred during the quarter. Because of the valuation allowance on the deferred tax asset, the Company was not able to record an income tax benefit during the fourth quarter of 2010 related to the pre-tax loss. This is due to the fact that any current income tax benefit that would normally result from a pre-tax loss is offset by additional deferred tax expense due to an increase in the required valuation allowance. Excluding the deferred tax valuation allowance, the adjusted loss was $6.0 million, or ($1.58) per diluted common share, for the fourth quarter of 2010 and the adjusted loss was $14.2 million, or ($3.76) per diluted common share for the year ended December 31, 2010. The following table reconciles our determination of adjusted loss to the net loss available to common shareholders as prepared in accordance with generally accepted accounting principles:
| Three Months Ended | Year Ended | |||||||||||||
| December 31, 2010 | December 31, 2010 | |||||||||||||
| (dollars in thousands, except per share data) | Amount |
Diluted |
Amount |
Diluted |
||||||||||
| Net loss available to common shareholders | $ | (10,381 | ) | (2.73 | ) | $ | (30,762 | ) | (8.17 | ) | ||||
| Deferred tax asset valuation allowance | 4,364 | 1.15 | 16,597 | 4.41 | ||||||||||
| Adjusted loss | $ | (6,017 | ) | (1.58 | ) | $ | (14,165 | ) | (3.76 | ) | ||||
The Company is providing adjusted loss information, in addition to reported results prepared in accordance with generally accepted accounting principles, in order to present financial information without the non-cash impact of the deferred tax asset valuation reserve recognized during the quarter and year ended December 31, 2010 and required based on cumulative losses over the previous three-year period and other factors.
Deferred Tax Asset Valuation Allowance
During
the quarter and year ended December 31, 2010, the Company established
valuation allowances of $4.4 million and $16.6 million, respectively,
against its net deferred tax assets. The Company’s primary deferred tax
assets relate to its allowance for loan losses, interest on non-accruing
loans and net tax operating loss carryforwards. Under generally accepted
accounting principles, a valuation allowance must be recognized if it is
“more likely than not” that such deferred tax assets will not be
realized. In making that determination, management is required to
evaluate both positive and negative evidence including recent historical
financial performance, forecasts of future income, tax planning
strategies and assessments of the current and future economic and
business conditions. The Company performs and updates this evaluation on
a quarterly basis.
In conducting its regular quarterly evaluation, the Company made a determination at December 31, 2010 to continue to record a deferred tax valuation allowance based primarily upon the existence of a three year cumulative loss and continued operating losses in 2010. This three year cumulative loss position is primarily attributable to significant provisions for loan losses incurred during the three years ended December 31, 2010. The creation of the valuation allowance, although it increased tax expense and similarly reduced tangible book value, does not have an effect on the Company’s cash flows, and may be recoverable in subsequent periods if the Company were to realize certain sustained future taxable income. Since the amount of the net deferred tax assets available as regulatory capital is already restricted by regulation, the deferred tax valuation allowance has no effect on the Bank’s regulatory capital.
Deferral of Dividends on Preferred Stock
The
Company notified the U.S. Department of the Treasury (the “Treasury”)
that it is deferring the payment of regular quarterly cash dividends on
its Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “TARP
Preferred Stock”) issued to the Treasury as part of the TARP Capital
Purchase Program. The next quarterly dividend payment on the TARP
Preferred Stock is due on February 15, 2011 in the amount of $325,000.
The Company has determined to defer such payment following discussions
with its primary regulator, the Office of Thrift Supervision (the
“OTS”), in order to preserve cash at the holding company for potential
future needs. Under the Company’s informal agreement with the OTS, the
Company may not declare or pay any cash dividends without the consent of
the OTS, which includes the quarterly dividend payments on the TARP
Preferred Stock. The Company intends to re-evaluate the deferral of
these dividend payments periodically in consultation with the OTS taking
into account the Company’s financial condition, applicable legal
restrictions and other relevant factors.
Under the terms of the TARP Preferred Stock, the Company is required to pay dividends on a quarterly basis at a rate of 5% for the first five years, after which the dividend rate automatically increases to 9%. Dividend payments on the TARP Preferred Stock may be deferred without default, but the dividend is cumulative and, if the Company fails to pay dividends for six quarters, whether or not consecutive, the Treasury will have the right to appoint two representatives to the Company’s board of directors.
President’s Statement
"The operating
results for the fourth quarter of 2010 and the deferral of preferred
dividends reflect the challenging economic environment that continues to
have a negative effect on real estate values, our loan loss provision
and the amount of non-performing assets in our portfolio” said Bradley
Krehbiel, President of HMN. “We will continue to focus our efforts on
reducing non-performing assets, increasing our core deposit
relationships and reducing expenses.”
Annual Meeting
The Company, today
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 26, 2011, at 10:00 a.m. local time.
Fourth Quarter Results
Net Interest Income
Net interest
income was $7.3 million for the fourth quarter of 2010, a decrease of
$0.7 million, or 9.4%, compared to $8.0 million for the fourth quarter
of 2009. Interest income was $10.8 million for the fourth quarter of
2010, a decrease of $2.5 million, or 18.6%, from $13.3 million for the
same period in 2009. Interest income decreased between the periods
primarily because of a $120 million decrease in the average
interest-earning assets and a decrease in the average yields between the
periods. Average interest-earning assets decreased between the periods
primarily because of a decrease in the commercial loan portfolio, which
occurred because of declining loan demand and the Company’s focus on
improving credit quality, managing net interest margin and improving
capital ratios. Interest income also decreased because of a decline in
the average yields earned on loans and investments between the periods.
The decreased average yields are the result of the 400 basis point
decrease in the prime interest rate that occurred in 2008. Decreases in
the prime rate, which is the rate that banks charge their prime business
customers, decreases the rates on adjustable rate consumer and
commercial loans in the portfolio and on new fixed rate loans and
investments. The average yield earned on interest-earning assets was
5.04% for the fourth quarter of 2010, a decrease of 39 basis points from
the 5.43% average yield for the fourth quarter of 2009.
Interest expense was $3.5 million for the fourth quarter of 2010, a decrease of $1.8 million, or 32.6%, compared to $5.3 million for the fourth quarter of 2009. Interest expense decreased primarily because of the lower interest rates paid on money market accounts and certificates of deposit. The decreased rates were the result of the 400 basis point decrease in the federal funds rate that occurred in 2008. Decreases in the federal funds rate, which is the rate that banks charge other banks for short term loans, generally have a lagging effect and decrease the rates banks pay for deposits. The lagging effect of deposit rate changes is primarily due to the Bank’s deposits that are in the form of certificates of deposit, which do not re-price immediately when the federal funds rate changes. Interest expense also decreased because of a $107 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the average outstanding brokered certificates of deposit between the periods due to the lower funding needs caused by the reduction in assets between the periods. The average interest rate paid on interest-bearing liabilities was 1.74% for the fourth quarter of 2010, a decrease of 54 basis points from the 2.28% average rate paid in the fourth quarter of 2009. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2010 was 3.39%, an increase of 11 basis points, compared to 3.28% for the fourth quarter of 2009.
Provision for Loan Losses
The
provision for loan losses was $10.5 million for the fourth quarter of
2010, an increase of $7.1 million, or 206.0%, from $3.4 million for the
fourth quarter of 2009. The provision increased primarily because of the
additional reserves established on commercial real estate loans due to
decreases in the estimated value of the underlying collateral supporting
the loans and an increase in the general reserves required for other
risk rated commercial loans as a result of our quarterly internal loan
portfolio analysis. Total non-performing assets were $84.5 million at
December 31, 2010, an increase of $2.9 million, or 3.5%, from $81.6
million at September 30, 2010. Non-performing loans increased $5.1
million and foreclosed and repossessed assets decreased $2.2 million
during the fourth quarter. The non-performing loan and foreclosed and
repossessed asset activity for the fourth quarter of 2010 was as follows:
|
(Dollars in thousands) |
||||||||
| Non-performing loans | Foreclosed and repossessed assets | |||||||
| September 30, 2010 | $63,006 | September 30, 2010 | $18,573 | |||||
| Classified as non-performing | 16,614 | Transferred from non-performing loans | 217 | |||||
| Charge offs | (1,971 | ) | Other foreclosures/repossessions | 204 | ||||
| Principal payments received | (799 | ) | Real estate sold | (755 | ) | |||
| Classified as accruing | (8,559 | ) | Net gain on sale of assets | 3 | ||||
| Transferred to real estate owned | (217 | ) | Write downs | (1,847 | ) | |||
| December 31, 2010 | $68,074 | December 31, 2010 | $16,395 | |||||
A reconciliation of the allowance for loan losses for the fourth quarters of 2010 and 2009 is summarized as follows:
| (Dollars in thousands) | 2010 | 2009 | ||||
| Balance at September 30, | $33,490 | $27,044 | ||||
| Provision | 10,542 | 3,445 | ||||
| Charge offs: | ||||||
| Commercial real estate | (571 | ) | (2,532 | ) | ||
| Commercial business | (1,203 | ) | (4,069 | ) | ||
| Consumer | (111 | ) | (288 | ) | ||
| One-to-four family | (86 | ) | 0 | |||
| Recoveries | 767 | 211 | ||||
| Balance at December 31, | $42,828 | $23,811 | ||||
| General allowance | $17,794 | $11,759 | ||||
| Specific allowance | 25,034 | 12,052 | ||||
| $42,828 | $23,811 | |||||
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, 2009.
| December 31, | September 30, | December 31, | |||||||||||||
| (Dollars in thousands) | 2010 | 2010 | 2009 | ||||||||||||
| Non-Accruing Loans: | |||||||||||||||
| One-to-four family real estate | $ | 4,844 | $ | 3,222 | $ | 2,132 | |||||||||
| Commercial real estate | 36,737 | 33,715 | 37,122 | ||||||||||||
| Consumer | 224 | 348 | 4,086 | ||||||||||||
| Commercial business | 26,269 | 25,721 | 17,787 | ||||||||||||
| Total | 68,074 | 63,006 | 61,127 | ||||||||||||
| Other assets | 0 | ||||||||||||||
| Foreclosed and Repossessed Assets: | |||||||||||||||
| One-to-four family real estate | 972 | 906 | 1,011 | ||||||||||||
| Consumer | 14 | 14 | 5 | ||||||||||||
| Commercial real estate | 15,409 | 17,653 | 15,246 | ||||||||||||
| Total non-performing assets | $ | 84,469 | $ | 81,579 | $ | 77,389 | |||||||||
| Total as a percentage of total assets | 9.59 | % | 8.99 | % | 7.47 | % | |||||||||
| Total non-performing loans | $ | 68,074 | $ | 63,006 | $ | 61,127 | |||||||||
| Total as a percentage of total loans receivable, net | 10.25 | % | 9.00 | % | 7.65 | % | |||||||||
| Allowance for loan loss to non-performing loans | 62.91 | % | 53.15 | % | 38.95 | % | |||||||||
| Delinquency Data: | |||||||||||||||
| Delinquencies (1) | |||||||||||||||
| 30+ days | $ | 4,021 | $ | 16,416 | $ | 11,140 | |||||||||
| 90+ days | 754 | 0 | 0 | ||||||||||||
| Delinquencies as a percentage of | |||||||||||||||
| loan and lease portfolio (1) | |||||||||||||||
| 30+ days | 0.59 | % | 2.28 | % | 1.37 | % | |||||||||
| 90+ days | 0.11 | % | 0.00 | % | 0.00 | % | |||||||||
(1) Excludes non-accrual loans.
The following table summarizes the number and types of commercial real estate loans (the largest category of non-performing loans) that were non-performing as of the end of the two most recently completed quarters and December 31, 2009.
|
Property Type |
# of |
Principal |
# of |
Principal |
# of |
Principal |
|||||||||
| Residential developments | 9 | $ | 23,661 | 10 | $ | 24,311 | 7 | $ | 12,030 | ||||||
| Single family homes | 3 | 2,673 | 3 | 2,651 | 2 | 3,088 | |||||||||
| Hotels | 0 | 0 | 0 | 0 | 1 | 4,999 | |||||||||
| Alternative fuel plants | 1 | 4,994 | 1 | 4,994 | 2 | 12,834 | |||||||||
| Shopping centers/retail | 3 | 1,099 | 2 | 1,075 | 2 | 1,136 | |||||||||
| Restaurants/bar | 1 | 635 | 2 | 684 | 4 | 2,436 | |||||||||
| Office buildings | 1 | 3,675 | 0 | 0 | 1 | 599 | |||||||||
| 18 | $ | 36,737 | 18 | $ | 33,715 | 19 | $ | 37,122 |
The Company had specific reserves established against the above commercial real estate loans of $13.3 million, $7.9 million and $7.7 million, respectively, at December 31, 2010, September 30, 2010 and December 31, 2009. The following table summarizes the number of lending relationships and industry of commercial business loans that were non-performing for the two most recent quarters and December 31, 2009.
| Principal | Principal | Principal | |||||||||||||||||||
| (Dollars in thousands) | Amount of | Amount of | Amount of | ||||||||||||||||||
| Loans | Loans | Loans | |||||||||||||||||||
| Property Type |
# |
December 31, |
# |
September 30, |
# |
December 31, | |||||||||||||||
|
|
2010 |
|
2010 |
|
2009 | ||||||||||||||||
| Construction/development | 6 | $ | 9,148 | 7 | $ | 7,317 | 5 | $ | 4,094 | ||||||||||||
| Finance | 1 | 248 | 2 | 517 | 2 | 8,764 | |||||||||||||||
| Alternative fuels | 0 | 0 | 0 | 0 | 1 | 756 | |||||||||||||||
| Retail | 1 | 2,504 | 1 | 2,504 | 1 | 32 | |||||||||||||||
| Banking | 2 | 8,223 | 2 | 8,223 | 1 | 3,248 | |||||||||||||||
| Entertainment | 1 | 315 | 1 | 321 | 1 | 893 | |||||||||||||||
| Utilities | 1 | 4,614 | 1 | 4,629 | 0 | 0 | |||||||||||||||
| Residential rental | 0 | 0 | 1 | 350 | 0 | 0 | |||||||||||||||
| Service industry | 0 | 0 | 3 | 12 | 0 | 0 | |||||||||||||||
| Restaurant | 4 | 1,217 | 2 | 1,848 | 0 | 0 | |||||||||||||||
| 16 | $ | 26,269 | 20 | $ | 25,721 | 11 | $ | 17,787 | |||||||||||||
The Company had specific reserves established against the above commercial business loans of $10.7 million, $8.6 million and $3.4 million, respectively, at December 31, 2010, September 30, 2010 and December 31, 2009.
Non-Interest Income and Expense
Non-interest
income was $2.0 million for the fourth quarter of 2010, a decrease of
$0.1 million, from $2.1 million for the fourth quarter of 2009. Fees and
service charges decreased $59,000 between the periods primarily because
of decreased ATM fees as a result of exiting a customer ATM relationship
in the first quarter of 2010. Gain on sales of loans increased $240,000
due primarily to an increase in the volume of single-family mortgage
loans that were sold. Other income decreased $226,000 due to a decrease
in the gains recognized on the sale of assets between the periods and a
decrease in the revenue generated from the sale of uninsured investment
products.
Non-interest expense was $8.2 million for the fourth third quarter of 2010, an increase of $1.6 million, or 24.1%, from $6.6 million for the same period of 2009. Losses on real estate owned increased $1.4 million from the fourth quarter of 2009 primarily because of write downs due to decreases in the fair market values of the assets. Compensation and benefits expense increased $181,000 between the periods primarily because of increased personnel in the commercial loan recovery area. Other non-interest expenses increased $146,000 primarily because of increases in the costs related to other real estate owned. Data processing expense decreased $120,000 from the fourth quarter of 2009 primarily because of a change in the Company’s ATM and debit card vendor during the fourth quarter of 2010. Occupancy expense decreased $52,000 primarily because of a decrease in depreciation expense.
Income tax expense was $482,000 in the fourth quarter of 2010, an increase of $574,000, from a benefit of $92,000 in the fourth quarter of 2009. The Company has recorded a valuation reserve against the entire deferred tax asset balance at December 31, 2010. Since the valuation reserve is established against the entire deferred tax asset balance, the only amount included as income tax expense for the fourth quarter of 2010 relates to the taxes on the change in the fair market value of the available for sale investment portfolio.
Net Loss Available to Common Shareholders
The
net loss available to common shareholders was $10.4 million for the
fourth quarter of 2010, an increased loss of $10.1 million from the $0.3
million net loss available to common shareholders in the fourth quarter
of 2009. The net loss available to common shareholders increased
primarily because of the increase in the net loss incurred between the
periods.
Loss on Assets and Equity
Loss on
average assets for the fourth quarter of 2010 was 4.41%, compared to a
0.06% return for the fourth quarter of 2009. Loss on average equity was
49.64% for the fourth quarter of 2010, compared to a 0.59% return for
the same period of 2009. Book value per common share at December 31,
2010 was $10.51, compared to $17.94 at December 31 2009.
Annual Results
Net Loss
The net loss was $29.0
million for 2010, an increased loss of $18.2 million, from the $10.8
million loss for 2009. The net loss available to common shareholders was
$30.8 million for the year ended December 31, 2010, an increased loss of
$18.3 million, from the net loss available to common shareholders of
$12.5 million for 2009. Diluted loss per common share for the year ended
December 31, 2010 was $8.17, an increased loss of $4.78 from the $3.39
diluted loss per common share for the year ended December 31, 2009.
Net Interest Income
Net interest
income was $31.0 million for 2010, a decrease of $2.9 million, or 8.5%,
from $33.9 million for 2009. Interest income was $48.3 million for 2010,
a decrease of $9.5 million, or 16.4%, from $57.8 million for 2009.
Interest income decreased between the periods primarily because of a $94
million decrease in the average interest-earning assets and a decrease
in the average yields between the periods. Average interest-earning
assets decreased between the periods primarily because of a decrease in
the commercial loan portfolio, which occurred because of declining loan
demand and the Company’s focus on improving credit quality, managing net
interest margin and improving capital ratios. Interest income also
decreased because of a decline in the average yields earned on loans and
investments. The decreased average yields are the result of the 400
basis point decrease in the prime interest rate that occurred in 2008.
Decreases in the prime rate decreased the rates on adjustable rate
consumer and commercial loans in the portfolio and on new fixed rate
loans and investments. The average yield earned on interest-earning
assets was 5.23% for the year ended December 31, 2010, a decrease of 45
basis points from the 5.68% average yield for 2009.
Interest expense was $17.3 million for the year ended December 31, 2010, a decrease of $6.6 million, or 27.7%, from $23.9 million for 2009. Interest expense decreased primarily because of the lower interest rates paid on money market accounts and certificates of deposit. The decreased rates were the result of the 400 basis point decrease in the federal funds rate that occurred in 2008. Decreases in the federal funds rate generally have a lagging effect and decrease the rates banks pay for deposits. The lagging effect of deposit rate changes is primarily due to the Banks’ deposits that are in the form of certificates of deposit, which do not re-price immediately when the federal funds rate changes. Interest expense also decreased because of an $86 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the average outstanding brokered certificates of deposit between the periods. The average interest rate paid on interest-bearing liabilities was 1.98% for the year ended December 31, 2010, a decrease of 51 basis points from the 2.49% average rate paid for the same period of 2009. Net interest margin (net interest income divided by average interest-earning assets) was 3.36% for the year ended December 31, 2010, an increase of 3 basis points, from the 3.33% margin for 2009.
Provision for Loan Losses
The
provision for loan losses was $33.4 million for the year ended December
31, 2010, an increase of $6.7 million, from $26.7 million for the year
ended December 31, 2009. The provision for loan losses remained elevated
in 2010 primarily because of the $25.9 million in additional reserves
established on commercial real estate and commercial business loans
primarily as a result of decreases in the estimated value of the
underlying collateral supporting the loans, $1.6 million in additional
reserves established on a commercial loan due to the borrower filing
bankruptcy and a $4.3 million increase in the reserves required for
other risk rated commercial loans as a result of our loan portfolio
analysis. Total non-performing assets were $84.5 million at December 31,
2010, an increase of $7.1 million from $77.4 million at December 31,
2009. Non-performing loans increased $7.0 million and foreclosed and
repossessed assets increased $0.1 million during 2010. The
non-performing loan and foreclosed and repossessed asset activity for
2010 was as follows:
|
(Dollars in thousands) |
||||||||
| Non-performing loans | Foreclosed and repossessed asset activity | |||||||
| December 31, 2009 | $61,127 | December 31, 2009 | $16,262 | |||||
| Classified as non-performing | 62,009 | Transferred from non-performing loans | 15,126 | |||||
| Charge offs | (15,231 | ) | Other foreclosures/repossessions | 1,158 | ||||
| Principal payments received | (13,733 | ) | Real estate sold | (14,448 | ) | |||
| Classified as accruing | (10,972 | ) | Net gain on sale of assets | 747 | ||||
| Transferred to real estate owned | (15,126 | ) | Write downs | (2,450 | ) | |||
| December 31, 2010 | $68,074 | December 31, 2010 | $16,395 | |||||
A reconciliation of the allowance for loan losses for 2010 and 2009 is summarized as follows:
| (in thousands) | 2010 | 2009 | ||||
| Balance at January 1, | 23,811 | 21,257 | ||||
| Provision | 33,381 | 26,699 | ||||
| Charge offs: | ||||||
| Commercial | (7,006 | ) | (9,421 | ) | ||
| Commercial real estate | (7,094 | ) | (13,548 | ) | ||
| Consumer | (907 | ) | (1,980 | ) | ||
| Single family mortgage | (254 | ) | (82 | ) | ||
| Recoveries | 897 | 886 | ||||
| Balance at December 31, | $42,828 | $23,811 | ||||
| General allowance | $17,794 | $11,759 | ||||
| Specific allowance | 25,034 | 12,052 | ||||
| $42,828 | $23,811 | |||||
Non-Interest Income and Expense
Non-interest
income was $7.3 million for the year ended December 31, 2010, a decrease
of $0.8 million, or 10.0%, from $8.1 million for the year ended December
31, 2009. Fees and service charges decreased $396,000 between the
periods primarily because of decreased overdraft and ATM fees as a
result of exiting a customer ATM relationship in the first quarter of
2010. Gain on sales of loans decreased $286,000 between the periods
primarily because of a decrease in the gains recognized on the sale of
single family mortgage loans caused by a decrease in loan originations
and sales between the periods. Other income decreased $149,000 primarily
as a result of increased losses on asset sales and decreased revenue
from the sale of uninsured investment products. Mortgage servicing fees
increased $25,000 between the periods due to an increase in the
single-family mortgage loans being serviced.
Non-interest expense was $27.6 million for the year ended December 31, 2010, a decrease of $4.1 million, or 13.0%, from $31.7 million for the same period in 2009. Losses on real estate owned decreased $2.7 million between the periods because of the decreases in the losses recognized on real estate sold. Other non-interest expenses decreased $1.3 million due primarily to the $1.2 million impact of the reversal of the accrued interest on a state tax assessment as a result of a favorable Minnesota Supreme Court ruling, a $122,000 decrease in item processing charges as a result of implementing improved clearing procedures and a $114,000 decrease in postage and printing supplies primarily as a result of increasing the number of customers receiving electronic statements. Compensation expense increased $84,000 between the periods primarily because of increased personnel in the commercial loan recovery area. Data processing expense decreased $142,000 between the periods primarily because of a change in the Company’s ATM and debit card vendor during the fourth quarter of 2010.
The effect of income taxes changed $11.9 million between the periods from a benefit of $5.6 million for the year ended December 31, 2009 to an expense of $6.3 million for the year ended December 31, 2010. During 2009, additional income tax expense of $1.0 million was recorded, which was a reduction of the overall tax benefit, as a result of an unfavorable tax court ruling related to the tax treatment of the inter-company dividends paid to the Bank by a former subsidiary in prior tax years. Excluding this adjustment, the effective tax rate would have been 40.3% for the year ended December 31, 2009. During 2010, income taxes were increased $16.6 million as a result of recording a deferred tax asset valuation reserve, which was partially offset by a $1.2 million tax benefit recorded as a result of a favorable Minnesota Supreme Court tax ruling, which reversed the unfavorable tax court ruling from 2009. Excluding these adjustments, the effective tax rate would have been 39.7% for the year ended December 31, 2010.
Net Loss Available to Common Shareholders
The
net loss available to common shareholders was $30.8 million for the year
ended December 31, 2010, an increased loss of $18.2 million, from the
net loss available to common shareholders of $12.5 million for 2009. The
net loss available to common shareholders increased primarily because of
the decrease in net income between the periods.
Loss on Assets and Equity
Loss on
average assets for 2010 was 2.98%, compared to 1.00% for 2009. Loss on
average common equity was 31.73% for 2010, compared to 10.33% for 2009.
General Information
HMN Financial,
Inc. and Home Federal Savings Bank are headquartered in Rochester,
Minnesota. The Bank operates ten full service offices in southern
Minnesota located in Albert Lea, Austin, Eagan, LaCrescent, Rochester,
Spring Valley and Winona and two full service offices in Iowa located in
Marshalltown and Toledo. Home Federal Private Banking operates branches
in Edina and Rochester, Minnesota. Home Federal Savings Bank also
operates a loan origination office in Sartell, Minnesota.
Safe Harbor Statement
This press
release may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements
regarding adequate available liquidity, reducing non-performing assets,
increasing core retail and commercial deposit relationships, reducing
expenses, generating improved financial results, possible recovery of
our deferred tax asset valuation allowance and the payment or deferral
of dividends. These statements are often identified by such
forward-looking terminology as “expect,” “intent,” “look,” “believe,”
“anticipate,” “estimate,” “project,” “seek,” “may,” “will,” “would,”
“could,” “should,” “trend,” “target,” and “goal” or similar statements
or variations of such terms. 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 securing loans to borrowers, possible
legislative and regulatory changes, including changes in the degree and
manner of regulatory supervision, and adverse economic, business and
competitive developments such as shrinking interest margins; reduced
collateral values; deposit outflows; 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, changes in credit or
other risks posed by the Company’s loan and investment portfolios;
technological, computer-related or operational difficulties; adverse
changes in securities markets; results of litigation 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 Form
10-K and Form 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.
(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) | 2010 | 2009 | |||||
| (unaudited) | |||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 20,981 | 16,418 | ||||
| Securities available for sale: | |||||||
| Mortgage-backed and related securities | |||||||
| (amortized cost $32,036 and $51,840) | 33,506 | 53,559 | |||||
| Other marketable securities | |||||||
| (amortized cost $118,631 and $105,723) | 118,058 | 106,043 | |||||
| 151,564 | 159,602 | ||||||
| Loans held for sale | 2,728 | 2,965 | |||||
| Loans receivable, net | 664,241 | 799,256 | |||||
| Accrued interest receivable | 3,311 | 4,024 | |||||
| Real estate, net | 16,382 | 16,257 | |||||
| Federal Home Loan Bank stock, at cost | 6,743 | 7,286 | |||||
| Mortgage servicing rights, net | 1,586 | 1,315 | |||||
| Premises and equipment, net | 9,450 | 10,766 | |||||
| Prepaid expenses and other assets | 3,632 | 6,762 | |||||
| Deferred tax asset, net | 0 | 11,590 | |||||
| Total assets | $ | 880,618 | 1,036,241 | ||||
| Liabilities and Stockholders’ Equity | |||||||
| Deposits | $ | 683,230 | 796,011 | ||||
| Federal Home Loan Bank Advances and Federal Reserve Borrowings | 122,500 | 132,500 | |||||
| Accrued interest payable | 1,092 | 2,108 | |||||
| Customer escrows | 818 | 1,427 | |||||
| Accrued expenses and other liabilities | 3,431 | 4,257 | |||||
| Total liabilities | 811,071 | 936,303 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
| Serial-preferred stock: ($.01 par value) | |||||||
| Authorized 500,000 shares; issued shares 26,000 | 24,264 | 23,785 | |||||
| Common stock ($.01 par value): | |||||||
| Authorized 11,000,000; issued shares 9,128,662 | 91 | 91 | |||||
| Additional paid-in capital | 56,420 | 58,576 | |||||
| Retained earnings, subject to certain restrictions | 55,838 | 86,115 | |||||
| Accumulated other comprehensive income | 541 | 1,230 | |||||
| Unearned employee stock ownership plan shares | (3,384 | ) | (3,577 | ) | |||
| Treasury stock, at cost 4,818,263 and 4,883,378 shares | (64,223 | ) | (66,282 | ) | |||
| Total stockholders’ equity | 69,547 | 99,938 | |||||
| Total liabilities and stockholders’ equity | $ | 880,618 | 1,036,241 | ||||
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
||||||||||||||
| Consolidated Statements of Income | ||||||||||||||
| Three Months Ended |
|
Year Ended |
||||||||||||
| December 31, | December 31, | |||||||||||||
| (Dollars in thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||
| Interest income: | ||||||||||||||
| Loans receivable | $ | 10,005 |
|
12,112 |
44,248 | 51,876 | ||||||||
| Securities available for sale: | ||||||||||||||
| Mortgage-backed and related | 369 | 591 | 1,813 | 2,768 | ||||||||||
| Other marketable | 387 | 564 | 2,023 | 3,039 | ||||||||||
| Cash equivalents | 0 | 0 | 4 | 1 | ||||||||||
| Other | 73 | 37 | 182 | 87 | ||||||||||
| Total interest income | 10,834 | 13,304 | 48,270 | 57,771 | ||||||||||
| Interest expense: | ||||||||||||||
| Deposits | 2,154 | 3,703 | 11,281 | 17,579 | ||||||||||
|
Federal Home Loan Bank advances and
Federal Reserve borrowings |
1,393 | 1,557 | 5,978 | 6,289 | ||||||||||
| Total interest expense | 3,547 | 5,260 | 17,259 | 23,868 | ||||||||||
| Net interest income | 7,287 | 8,044 | 31,011 | 33,903 | ||||||||||
| Provision for loan losses | 10,542 | 3,445 | 33,381 | 26,699 | ||||||||||
| Net interest income (loss) after provision | ||||||||||||||
| for loan losses | (3,255 | ) | 4,599 | (2,370 | ) | 7,204 | ||||||||
| Non-interest income: | ||||||||||||||
| Fees and service charges | 1,007 | 1,066 | 3,741 | 4,137 | ||||||||||
| Mortgage servicing fees | 261 | 272 | 1,067 | 1,042 | ||||||||||
| Securities gains, net | 0 | 0 | 0 | 5 | ||||||||||
| Gain on sales of loans | 655 | 415 | 1,987 | 2,273 | ||||||||||
| Other | 101 | 327 | 476 | 625 | ||||||||||
| Total non-interest income | 2,024 | 2,080 | 7,271 | 8,082 | ||||||||||
| Non-interest expense: | ||||||||||||||
| Compensation and benefits | 3,300 | 3,119 | 13,516 | 13,432 | ||||||||||
| Losses on real estate owned | 1,509 | 61 | 1,165 | 3,873 | ||||||||||
| Occupancy | 961 | 1,013 | 4,082 | 4,084 | ||||||||||
| Deposit insurance | 439 | 445 | 1,933 | 1,973 | ||||||||||
| Data processing | 174 | 294 | 1,040 | 1,182 | ||||||||||
| Other | 1,836 | 1,690 | 5,820 | 7,145 | ||||||||||
| Total non-interest expense | 8,219 | 6,622 | 27,556 | 31,689 | ||||||||||
|
Income (loss) before income tax
expense (benefit) |
(9,450 |
) |
57 |
(22,655 |
) |
(16,403 |
) |
|||||||
| Income tax expense (benefit) | 482 | (92 | ) | 6,323 | (5,607 | ) | ||||||||
| Net income (loss) | (9,932 | ) | 149 | (28,978 | ) | (10,796 | ) | |||||||
| Preferred stock dividends and discount | 449 | 441 | 1,784 | 1,747 | ||||||||||
|
Net loss available to common shareholders |
$ |
(10,381 | ) | (292 | ) | (30,762 | ) | (12,543 | ) | |||||
| Basic loss per common share | $ | (2.73 | ) | (0.08 | ) | (8.17 | ) | (3.39 | ) | |||||
| Diluted loss per common share | $ | (2.73 | ) | (0.08 | ) | (8.17 | ) | (3.39 | ) | |||||
| HMN FINANCIAL, INC. AND SUBSIDIARIES | ||||||||||||
| Selected Consolidated Financial Information | ||||||||||||
| (unaudited) | ||||||||||||
| Three Months Ended | Year Ended | |||||||||||
| SELECTED FINANCIAL DATA: | December 31, | December 31, | ||||||||||
| (Dollars in thousand, except per share data) |
2010 |
2009 |
2010 |
2009 |
||||||||
| I. OPERATING DATA: | ||||||||||||
| Interest income | $ | 10,834 | 13,304 | 48,270 | 57,771 | |||||||
| Interest expense | 3,547 | 5,260 | 17,259 | 23,868 | ||||||||
| Net interest income | 7,287 | 8,044 | 31,011 | 33,903 | ||||||||
| II. AVERAGE BALANCES: | ||||||||||||
| Assets (1) | 893,640 | 1,027,162 | 971,094 | 1,074,233 | ||||||||
| Loans receivable, net | 685,015 | 811,309 | 740,323 | 848,696 | ||||||||
| Mortgage-backed and related securities (1) | 141,812 | 136,118 | 154,691 | 146,484 | ||||||||
| Interest-earning assets (1) | 852,331 | 972,231 | 923,462 | 1,017,838 | ||||||||
| Interest-bearing liabilities | 809,499 | 916,802 | 873,880 | 959,793 | ||||||||
| Equity (1) | 79,368 | 99,761 | 91,315 | 104,489 | ||||||||
| III. PERFORMANCE RATIOS: (1) | ||||||||||||
| Return (loss) on average assets (annualized) | (4.41) | % | 0.06% | (2.98) | % | (1.00) | % | |||||
| Interest rate spread information: | ||||||||||||
| Average during period | 3.30 | 3.15 | 3.25 | 3.19 | ||||||||
| End of period | 3.68 | 3.12 | 3.68 | 3.12 | ||||||||
| Net interest margin | 3.39 | 3.28 | 3.36 | 3.33 | ||||||||
| Ratio of operating expense to average | ||||||||||||
|
total assets (annualized) |
3.65 | 2.56 | 2.84 | 2.95 | ||||||||
| Return (loss) on average common | ||||||||||||
|
equity (annualized) |
(49.64) | 0.59 | (31.73) | (10.33) | ||||||||
| Efficiency | 88.26 | 65.41 | 71.98 | 75.48 | ||||||||
| December 31, | December 31, | |||||||||||
| 2010 | 2009 | |||||||||||
| IV. ASSET QUALITY: | ||||||||||||
| Total non-performing assets | $ | 84,469 | 77,389 | |||||||||
| Non-performing assets to total assets | 9.59 | % | 7.47 | % | ||||||||
| Non-performing loans to total loans | ||||||||||||
| receivable, net | 10.25 | % | 7.65 | % | ||||||||
| Allowance for loan losses | $ | 42,828 | 23,811 | |||||||||
| Allowance for loan losses to total assets | 4.86 | % | 2.30 | % | ||||||||
| Allowance for loan losses to total loans | ||||||||||||
| receivable, net | 6.45 | 2.98 | ||||||||||
| Allowance for loan losses to non-performing loans | 62.91 | 38.95 | ||||||||||
| V. BOOK VALUE PER COMMON SHARE: | ||||||||||||
| Book value per common share | 10.51 | 17.94 | ||||||||||
| Year Ended | Year Ended | |||||||||||
| Dec 31, 2010 |
Dec 31, 2009 |
|||||||||||
| VI. CAPITAL RATIOS : | ||||||||||||
| Stockholders’ equity to total assets, | ||||||||||||
| at end of period | 7.90 | % | 9.64 | % | ||||||||
| Average stockholders’ equity to average assets (1) | 9.40 | 9.73 | ||||||||||
| Ratio of average interest-earning assets to | ||||||||||||
| average interest-bearing liabilities (1) | 105.67 | 106.05 | ||||||||||
| Home Federal Savings Bank | ||||||||||||
| regulatory capital ratios: | ||||||||||||
| Tier 1 or core capital | 7.60 | % | 8.64 | % | ||||||||
| Risk-based capital | 10.97 | % | 12.12 | % | ||||||||
| December 31, | December 31, | |||||||||||
| 2010 | 2009 | |||||||||||
| VII. EMPLOYEE DATA: | ||||||||||||
| Number of full time equivalent employees | 212 | 212 | ||||||||||
(1) Average balances were calculated based upon amortized cost without the market value impact of SFAS 115.