ROCHESTER, Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
| Three months ended | Six months ended | ||||||||||||||||||||
|
Net Income Summary (unaudited) |
June 30, | June 30, | |||||||||||||||||||
| (Dollars in thousands, except per share amounts) | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||
| Net income | $ | 1,799 | 395 | $ | 2,540 | 3,199 | |||||||||||||||
|
Net income (loss) available to common stockholders |
1,252 | (69 | ) | 1,517 | 2,274 | ||||||||||||||||
| Diluted earnings (loss) per common share | 0.30 | (0.02 | ) | 0.36 | 0.57 | ||||||||||||||||
| Return on average assets | 1.21 | % | 0.23 | % | 0.84 | % | 0.90 | % | |||||||||||||
| Return on average equity | 11.78 | % | 2.66 | % | 8.36 | % | 10.98 | % | |||||||||||||
| Book value per common share | $ | 8.09 | $ | 7.79 | $ | 8.09 | $ | 7.79 | |||||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $561 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.8 million for the second quarter of 2013, an improvement of $1.4 million, compared to net income of $0.4 million for the second quarter of 2012. The net income available to common shareholders was $1.3 million for the second quarter of 2013, an improvement of $1.4 million from the net loss available to common shareholders of $0.1 million for the second quarter of 2012. Diluted earnings per common share for the second quarter of 2013 were $0.30, an improvement of $0.32 from the diluted loss per common share of $0.02 for the second quarter of 2012. The improvement in net income in the second quarter of 2013 was primarily due to a $1.6 million decrease in the provision for loan losses and a $1.1 million decrease in non-interest expense between the periods. These positive changes to net income were partially offset by a $1.3 million decrease in net interest income due primarily to the decrease in interest earning assets between the periods.
President’s Statement
“We are pleased
to report the continued improvement in our net operating results and the
decrease in our non-performing assets in the second quarter of 2013,”
said Bradley Krehbiel, President and Chief Executive Officer of HMN. “We
continue to focus our efforts on improving credit quality and reducing
non-performing assets in the most cost effective manner while at the
same time reducing expenses to reflect the decreased size of our balance
sheet. We believe that, over time, our focus on these areas will be
effective in generating improved financial results.”
Second Quarter Results
Net Interest
Income
Net interest income was $4.7 million for the second
quarter of 2013, a decrease of $1.3 million, or 22.7%, compared to $6.0
million for the second quarter of 2012. Interest income was $5.8 million
for the second quarter of 2013, a decrease of $2.2 million, or 27.2%,
from $8.0 million for the same period in 2012. Interest income decreased
between the periods primarily because of an $82 million decrease in the
average interest-earning assets and also because of a decrease in
average yields between the periods. Average interest-earning assets
decreased between the periods primarily because of a decrease in the
commercial loan portfolio, which occurred primarily because of loan
prepayments or non-renewals as a result of the Company’s focus on
improving credit quality, decreasing loan concentrations, managing net
interest margin and improving capital ratios. The average yield earned
on interest-earning assets was 4.07% for the second quarter of 2013, a
decrease of 83 basis points from the 4.90% average yield for the second
quarter of 2012. The decrease in average yield is due to the continued
low short-term interest rate environment that existed during the second
quarter of 2013. The increase in domestic long-term mortgage rates
during the second quarter of 2013 did not materially impact the average
yield earned on interest-earning assets during the second quarter of
2013 since most of the mortgage loans originated by the Bank are sold
into the secondary market and not placed in the loan portfolio.
Interest expense was $1.1 million for the second quarter of 2013, a decrease of $0.8 million, or 41.5%, compared to $1.9 million for the second quarter of 2012. Interest expense decreased primarily because of the $90 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the outstanding borrowings and brokered certificates of deposits between the periods. The decrease in borrowings and brokered certificates of deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered certificates of deposits. Interest expense also decreased because of the lower interest rates paid on money market accounts and certificates of deposits. The decreased rates were the result of the low interest rate environment that continued to exist during the second quarter of 2013. The average interest rate paid on interest-bearing liabilities was 0.85% for the second quarter of 2013, a decrease of 39 basis points from the 1.24% average interest rate paid in the second quarter of 2012. The average interest rate paid on interest-bearing liabilities is anticipated to continue to decrease in the third quarter of 2013 as a result of paying off all outstanding Federal Home Loan Bank advances in the second quarter of 2013. Net interest margin (net interest income divided by average interest earning assets) for the second quarter of 2013 was 3.28%, a decrease of 44 basis points, compared to 3.72% for the second quarter of 2012.
Provision for Loan Losses
The
provision for loan losses was ($0.5) million for the second quarter of
2013, a decrease of $1.6 million, or 147.8%, from $1.1 million for the
second quarter of 2012. The provision for loan losses decreased in the
second quarter of 2013 primarily because there were fewer decreases in
the estimated value of the underlying collateral supporting commercial
real estate loans that required additional allowances or charge offs in
the current period when compared to the second quarter of 2012. The
provision also decreased because of a decrease in the outstanding loan
portfolio balances, an improvement in the classifications of certain
risk rated loans, and the recoveries received during the quarter on
previously charged off loans. Total non-performing assets were $35.3
million at June 30, 2013, a decrease of $3.4 million, or 8.8%, from
$38.7 million at March 31, 2013. Non-performing loans decreased $2.9
million and foreclosed and repossessed assets decreased $0.5 million
during the second quarter of 2013. The non-performing loan and
foreclosed and repossessed asset activity for the second quarter of 2013
was as follows:
|
(Dollars in thousands) |
||||||||||
| Non-performing loans | Foreclosed and repossessed assets | |||||||||
| March 31, 2013 | $28,762 | March 31, 2013 | $9,918 | |||||||
| Classified as non-performing | 2,619 | Transferred from non-performing loans | 236 | |||||||
| Charge offs | (1,377 | ) | Other foreclosures/repossessions | 687 | ||||||
| Principal payments received | (3,634 | ) | Real estate sold | (1,651 | ) | |||||
| Classified as accruing | (293 | ) | Net gain on sale of assets | 566 | ||||||
| Transferred to real estate owned | (236 | ) | Write downs | (333 | ) | |||||
| June 30, 2013 | $25,841 | June 30, 2013 | $9,423 | |||||||
The decrease in non-performing loans during the second quarter of 2013 relates primarily to principal payments received and charge offs during the period. Of the $3.6 million in principal payments received, $1.4 million related to the payoff of non-performing single family construction loans as a result of the houses being sold and $1.3 million related to additional principal payments received from various developers as a result of land or lot sales. Of the $1.4 million in loans that were charged off, $0.8 million related to a real estate development loan as a result of a decrease in the estimated value of the underlying collateral and $0.6 million related to various commercial business loans. These decreases in non-performing loans were partially offset by loans that were newly classified as non-performing during the period. Of the $2.6 million in loans newly classified as non-performing, $1.2 million relates to home equity loans and $0.9 million relates to single family construction loans.
A reconciliation of the Company’s allowance for loan losses for the quarters ended June 30, 2013 and 2012 is summarized as follows:
| (Dollars in thousands) | 2013 | 2012 | ||||
| Balance at March 31, | $21,941 | $21,424 | ||||
| Provision | (520 | ) | 1,088 | |||
| Charge offs: | ||||||
| One-to-four family | (13 | ) | 0 | |||
| Consumer | (55 | ) | (493 | ) | ||
| Commercial business | (556 | ) | (1,820 | ) | ||
| Commercial real estate | (759 | ) | (1,554 | ) | ||
| Recoveries | 321 | 1,874 | ||||
| Balance at June 30, | $20,359 | $20,519 | ||||
|
Allocated to: |
||||||
| General allowance | $12,260 | $14,507 | ||||
| Specific allowance | 8,099 | 6,012 | ||||
| $20,359 | $20,519 | |||||
The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the end of the three most recently completed quarters.
| June 30, | March 31, | December 31, | |||||||||||||
| (Dollars in thousands) | 2013 | 2013 | 2012 | ||||||||||||
| Non-Performing Loans: | |||||||||||||||
| One-to-four family real estate | $ | 2,091 | $ | 2,127 | $ | 2,492 | |||||||||
| Commercial real estate | 21,533 | 24,590 | 25,543 | ||||||||||||
| Consumer | 1,462 | 334 | 300 | ||||||||||||
| Commercial business | 755 | 1,711 | 1,640 | ||||||||||||
| Total | 25,841 | 28,762 | 29,975 | ||||||||||||
| Foreclosed and Repossessed Assets: | |||||||||||||||
| One-to-four family real estate | 707 | 1,114 | 1,595 | ||||||||||||
| Commercial real estate | 8,716 | 8,804 | 9,000 | ||||||||||||
| Total non-performing assets | $ | 35,264 | $ | 38,680 | $ | 40,570 | |||||||||
| Total as a percentage of total assets | 6.29 | % | 6.17 | % | 6.21 | % | |||||||||
| Total non-performing loans | $ | 25,841 | $ | 28,762 | $ | 29,975 | |||||||||
| Total as a percentage of total loans receivable, net | 6.22 | % | 6.62 | % | 6.60 | % | |||||||||
| Allowance for loan loss to non-performing loans | 78.79 | % | 76.29 | % | 72.09 | % | |||||||||
| Delinquency Data: | |||||||||||||||
| Delinquencies (1) | |||||||||||||||
| 30+ days | $ | 5,820 | $ | 3,613 | $ | 2,739 | |||||||||
| 90+ days (2) | 0 | 4 | 7,423 | ||||||||||||
| Delinquencies as a percentage of | |||||||||||||||
| Loan and lease portfolio (1) | |||||||||||||||
| 30+ days | 1.22 | % | 0.76 | % | 0.57 | % | |||||||||
| 90+ days | 0.00 | % | 0.00 | % | 1.55 | % | |||||||||
(1) Excludes non-accrual loans.
(2) Loans
delinquent for 90 days and over are generally non-accruing and are
included in the Company’s non-performing asset total unless they are
well secured and in the process of collection.
The increase in delinquent loans in the second quarter of 2013 relates to a multi-family loan for $1.2 million and a $2.0 million commercial business loan that, because of unanticipated delays in the loan renewal process, were more than 30 days delinquent at June 30, 2013.
The following table summarizes the number and types of commercial real estate loans (the largest category of non-performing loans) that were non-performing as of the end of the three most recently completed quarters.
| Principal | Principal | Principal | ||||||||||
| Amount of | Amount of | Amount of | ||||||||||
| (Dollars in thousands) | Loans at | Loans at | Loans at | |||||||||
| # of | June 30, | # of | March 31, | # of | December 31, | |||||||
| Property Type | relationships | 2013 | relationships | 2013 | relationships | 2012 | ||||||
| Developments/land | 9 | $20,956 | 10 | $23,854 | 9 | $24,339 | ||||||
| Shopping centers/retail | 1 | 66 | 1 | 69 | 2 | 386 | ||||||
| Restaurants/bar | 1 | 511 | 1 | 526 | 1 | 547 | ||||||
| Office buildings | 0 | 0 | 0 | 0 | 2 | 128 | ||||||
| Other buildings | 0 | 0 | 1 | 141 | 1 | 143 | ||||||
| 11 | $21,533 | 13 | $24,590 | 15 | $25,543 | |||||||
The decrease in the non-performing commercial real estate loans from March 31, 2013 is due primarily to principal payments received on construction and development loans during the quarter as a result of various types of real estate sales including building lots, land and single family houses.
Non-Interest Income and Expense
Non-interest
income was $2.0 million for the second quarter of 2013, an increase of
$0.2 million, or 10.8%, from $1.8 million for the same period in 2012.
Gains on sales of loans increased $0.1 million between the periods
primarily because of an increase in single family loan originations due
to the low interest rate environment that continued to exist in the
second quarter of 2013. Fees and service charges increased $0.1 million
primarily because of an increase in overdraft charges and debit card
fees between the periods.
Non-interest expense was $5.3 million for the second quarter of 2013, a decrease of $1.1 million, or 16.2%, from $6.4 million for the same period of 2012. The gains on real estate owned increased $0.5 million primarily because of an increase in the gains recognized on the properties sold. Compensation expense decreased $0.2 million primarily because of a decrease in employees between the periods due to certain branch closures and our continued focus on reducing expenses. Other non-interest expense decreased $0.2 million primarily because of a decrease in real estate taxes and other expenses related to other real estate owned. Deposit insurance costs decreased $0.1 million primarily because of a decrease in assets between the periods.
Income tax expense was $55,000 for the second quarter of 2013, an increase of $55,000 from the second quarter of 2012 when no income tax expense was recorded. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at June 30, 2013. Since the valuation reserve is established against the entire deferred tax asset balance, no regular income tax expense was recorded for the second quarter of 2013. The income tax expense that was recorded in the second quarter of 2013 relates to alternative minimum tax amounts that are due since only a portion of the outstanding net operating loss carry forwards can be used to offset current income under the current alternative minimum tax rules.
Net Income (Loss) Available to Common Shareholders
The
net income available to common shareholders was $1.3 million for the
second quarter of 2013, an improvement of $1.4 million from the $0.1 net
loss available to common shareholders in the second quarter of 2012. The
net income available to common shareholders increased primarily because
of the change in the net income between the periods. The Company has
deferred the last ten quarterly dividend payments, beginning with the
February 15, 2011 dividend payment, on its Fixed Rate, Series A,
Cumulative Perpetual Preferred Stock that was originally issued to the
United States Treasury Department as part of the TARP Capital Purchase
Program (the “Preferred Stock”). The deferred dividend payments have
been accrued for payment in the future and are being reported for the
deferral period as a preferred dividend requirement that is deducted
from income for financial statement purposes to arrive at the net income
(loss) available to common shareholders.
Return on Assets and Equity
Return on
average assets for the second quarter of 2013 was 1.21%, compared to a
0.23% return on average assets for the second quarter of 2012. Return on
average equity was 11.78% for the second quarter of 2013, compared to
2.66% for the same period in 2012. Book value per common share at June
30, 2013 was $8.09, compared to $7.79 at June 30, 2012.
Six Month Period Results
Net Income
Net income was $2.5 million
for the six month period ended June 30, 2013, a decrease of $0.7
million, or 20.6%, compared to the net income of $3.2 million for the
six month period ended June 30, 2012. The net income available to common
shareholders was $1.5 million for the six month period ended June 30,
2013, a decrease of $0.8 million, or 33.3%, compared to the net income
available to common shareholders of $2.3 million for the same period of
2012. Diluted earnings per common share for the six month period ended
June 30, 2013 was $0.36, a decrease of $0.21 per share compared to the
diluted earnings per common share of $0.57 for the same period in 2012.
The decrease in net income for the six month period ended June 30, 2013
was primarily due to a $2.7 million decrease in net interest income due
primarily to the decrease in interest earning assets between the periods
and a $0.6 million decrease in the gain related to the sale of the
Bank’s Toledo, Iowa branch in the first quarter of 2012. These changes
to net income were partially offset by a $1.5 million decrease in the
provision for loan losses and a $1.2 million decrease in non-interest
expenses.
Net Interest Income
Net interest
income was $9.6 million for the first six months of 2013, a decrease of
$2.7 million, or 21.7%, from $12.3 million for the same period in 2012.
Interest income was $12.1 million for the six month period ended June
30, 2013, a decrease of $4.1 million, or 25.4%, from $16.2 million for
the same six month period in 2012. Interest income decreased between the
periods primarily because of a $96 million decrease in the average
interest-earning assets and also because of a decrease in average yields
between the periods. Average interest-earning assets decreased between
the periods primarily because of a decrease in the commercial loan
portfolio, which occurred primarily because of loan prepayments or
non-renewals as a result of the Company’s focus on improving credit
quality, decreasing loan concentrations, managing net interest margin
and improving capital ratios. The average yield earned on
interest-earning assets was 4.18% for the first six months of 2013, a
decrease of 61 basis points from the 4.79% average yield for the first
six months of 2012. The decrease in average yield is due to the
continued low short-term interest rate environment that existed during
the first six months of 2013. The increase in domestic long-term
mortgage rates during the second quarter of 2013 did not materially
impact the average yield earned on interest-earning assets during the
first six months of 2013 since most of the mortgage loans originated by
the Bank are sold into the secondary market and not placed in the loan
portfolio.
Interest expense was $2.5 million for the first six months of 2013, a decrease of $1.5 million, or 36.8%, compared to $4.0 million for the first six months of 2012. Interest expense decreased primarily because of the $107 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the outstanding borrowings and brokered certificates of deposits and a decrease in other deposits as a result of the branch sale that occurred in the first quarter of 2012. The decrease in borrowings and brokered certificates of deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered certificates of deposits. Interest expense also decreased because of the lower interest rates paid on money market accounts and certificates of deposits. The decreased rates were the result of the low interest rate environment that continued to exist during the first six months of 2013. The average interest rate paid on interest-bearing liabilities was 0.93% for the first six months of 2013, a decrease of 30 basis points from the 1.23% average interest rate paid in the first six months of 2012. The average interest rate paid on interest-bearing liabilities is anticipated to continue to decrease in the third quarter of 2013 as a result of paying off all outstanding Federal Home Loan Bank advances in the second quarter of 2013. Net interest margin (net interest income divided by average interest earning assets) for the first six months of 2013 was 3.31%, a decrease of 31 basis points, compared to 3.62% for the first six months of 2012.
Provision for Loan Losses
The
provision for loan losses was ($0.5) million for the first six months of
2013, a decrease of $1.5 million, or 154.2%, from $1.0 million for the
same six month period in 2012. The provision for loan losses decreased
in the first six months of 2013 primarily because there were fewer
decreases in the estimated value of the underlying collateral supporting
commercial real estate loans that required additional allowances or
charge offs in the current period when compared to the first six months
of 2012. The provision also decreased because of a decrease in the
outstanding loan portfolio balances, an improvement in the
classifications of certain risk rated loans, and the recoveries received
during the first six months of 2013 on previously charged off loans.
Total non-performing assets were $35.3 million at June 30, 2013, a
decrease of $5.3 million, or 13.1%, from $40.6 million at December 31,
2012. Non-performing loans decreased $4.1 million and foreclosed and
repossessed assets decreased $1.2 million during the first six months of
2013. The non-performing loan and foreclosed and repossessed asset
activity for the first six months of 2013 was as follows:
|
(Dollars in thousands) |
|||||||||
| Non-performing loans | Foreclosed and repossessed asset activity | ||||||||
| January 1, 2013 | $29,975 | January 1, 2013 | $10,595 | ||||||
| Classified as non-performing | 3,480 | Transferred from non-performing loans | 236 | ||||||
| Charge offs | (1,723 | ) | Other foreclosures/repossessions | 619 | |||||
| Principal payments received | (4,989 | ) | Real estate sold | (2,279 | ) | ||||
| Classified as accruing | (666 | ) | Net gain on sale of assets | 702 | |||||
| Transferred to real estate owned | (236 | ) | Write downs | (450 | ) | ||||
| June 30, 2013 | $25,841 | June 30, 2013 | $9,423 | ||||||
The decrease in non-performing loans during the first six months of 2013 relates primarily to principal payments received and charge offs during the period. Of the $5.0 million in principal payments received during the period, $1.7 million related to the payoff of non-performing single family construction loans as a result of the houses being sold and $1.6 million related to additional principal payments received from various developers as a result of land or lot sales. Of the $1.7 million in loans that were charged off, $0.9 million related to two real estate development loans as a result of a decrease in the estimated value of the underlying collateral and $0.6 million related to various commercial business loans. These decreases in non-performing loans were partially offset by loans that were newly classified as non-performing during the period. Of the $3.5 million in loans newly classified as non-performing, $1.2 million relates to home equity loans and $1.1 million relates to single family construction loans.
A reconciliation of the Company’s allowance for loan losses for the six month periods ended June 30, 2013 and June 30, 2012 is summarized as follows:
| (Dollars in thousands) | 2013 | 2012 | ||||
| Balance at January 1, | $21,608 | $23,888 | ||||
| Provision | (520 | ) | 960 | |||
| Charge offs: | ||||||
| One-to-four family | (200 | ) | 0 | |||
| Consumer | (101 | ) | (757 | ) | ||
| Commercial business | (557 | ) | (1,829 | ) | ||
| Commercial real estate | (909 | ) | (4,184 | ) | ||
| Recoveries | 1,038 | 2,441 | ||||
| Balance at June 30, | $20,359 | $20,519 | ||||
Non-Interest Income and Expense
Non-interest
income was $3.9 million for the first six months of 2013, a decrease of
$0.6 million, or 14.2%, from $4.5 million for the first six months of
2012. Gain on sale of branch office decreased $0.6 million as a result
of the sale of the Toledo, Iowa branch in the first quarter of 2012.
Gains on sales of loans decreased $0.1 million between the periods
primarily because of a decrease in the sales of commercial government
guaranteed loans during the first six months of 2013 when compared to
the same period in 2012.
Non-interest expense was $11.4 million for the first six months of 2013, a decrease of $1.2 million, or 9.8%, from $12.6 million for the same period of 2012. Compensation and benefits decreased $0.5 million primarily because of a decrease in employees between the periods due to certain branch closures and our continued focus on reducing expenses. The gains on real estate owned increased $0.4 million primarily because of an increase in the gains recognized on the properties sold. Other non-interest expense decreased $0.2 million primarily because of decreased real estate taxes and other expenses related to other real estate owned. Deposit insurance costs decreased $0.1 million primarily because of a decrease in assets between the periods.
Income tax expense was $80,000 for the first six months of 2013, an increase of $80,000 from the same period of 2012 when no income tax expense was recorded. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at June 30, 2013. Since the valuation reserve is established against the entire deferred tax asset balance, no regular income tax expense was recorded in the first six months of 2013. The income tax expense that was recorded in the first six months of 2013 relates to alternative minimum tax amounts that are due since only a portion of the outstanding net operating loss carry forwards can be used to offset current income under the current alternative minimum tax rules.
Net Income Available to Common Shareholders
The
net income available to common shareholders was $1.5 million for the
first six months of 2013, a decrease of $0.8 million from the $2.3
million net income available to common shareholders in the first six
months of 2012. The net income available to common shareholders
decreased primarily because of the change in the net income between the
periods. As discussed previously in this earnings release, the Company
has deferred the last ten quarterly dividend payments, beginning with
the February 15, 2011 dividend payment, on its Preferred Stock. The
deferred dividend payments have been accrued for payment in the future
and are being reported for the deferral period as a preferred dividend
requirement that is deducted from income for financial statement
purposes to arrive at the net income available to common shareholders.
Return on Assets and Equity
Return on
average assets for the six month period ended June 30, 2013 was 0.84%,
compared to a 0.90% return on average assets for the same period in
2012. Return on average equity was 8.36% for the six month period ended
June 30, 2013, compared to 10.98% for the same period in 2012.
General 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 Iowa
located in Marshalltown; 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
Private Securities Litigation Reform Act of 1995. These statements are
often identified by such forward-looking terminology as “expect,”
“intend,” “look,” “believe,” “anticipate,” “estimate,” “project,”
“seek,” “may,” “will,” “would,” “could,” “should,” “trend,” “target,”
and “goal” or similar statements or variations of such terms and
include, but are not limited to, those relating to increasing our core
deposit relationships, reducing non-performing assets, reducing expense
and generating improved financial results; the adequacy and amount of
available liquidity and capital resources to the Bank; the Company’s
liquidity and capital requirements; our expectations for core capital
and our strategies and potential strategies for improvement thereof;
changes in the size of the Bank’s loan portfolio; the recovery of the
valuation allowance on deferred tax assets; the amount and mix of the
Bank’s non-performing assets and the appropriateness of the allowance
therefor; future losses on non-performing assets; the amount of
interest-earning assets; the amount and mix of brokered and other
deposits (including the Company’s ability to renew brokered deposits);
the availability and use of alternate funding sources, including Federal
Home Loan Bank advances; the payment of dividends; the future outlook
for the Company; the amount of deposits that will be withdrawn from
checking and money market accounts and how the withdrawn deposits will
be replaced; the projected changes in net interest income based on rate
shocks; the range that interest rates may fluctuate over the next twelve
months; the net market risk of interest rate shocks; the future outlook
for the issuer trust preferred securities held by the Bank; and the
Bank’s compliance with regulatory standards generally (including the
Bank’s status as “well-capitalized”), and supervisory agreements,
individual minimum capital requirements or other supervisory directives
or requirements to which the Company or the Bank are or may become
expressly subject, specifically, and possible responses of the OCC and
FRB and the Bank and the Company to any failure to comply with any such
regulatory standard, agreement or requirement. A number of factors could
cause actual results to differ materially from the Company’s assumptions
and expectations. These include but are not limited to the adequacy and
marketability of real estate and other collateral securing loans to
borrowers; federal and state regulation and enforcement, including
restrictions set forth in the supervisory agreements between each of the
Company and Bank and the OCC and FRB; possible legislative and
regulatory changes, including changes in the degree and manner of
regulatory supervision, the ability of the Company and the Bank to
establish and adhere to plans and policies relating to, among other
things, capital, business, non-performing assets, loan modifications,
documentation of loan loss allowance and concentrations of credit that
are satisfactory to the OCC and FRB, as applicable, in accordance with
the terms of the Company and Bank supervisory agreements and to
otherwise manage the operations of the Company and the Bank to ensure
compliance with other requirements set forth in the supervisory
agreements; the ability of the Company and the Bank to obtain required
consents from the OCC and FRB, as applicable, under the supervisory
agreements or other directives; the ability of the Bank to comply with
its individual minimum capital requirement and other applicable
regulatory capital requirements; enforcement activity of the OCC and FRB
in the event of our non-compliance with any applicable regulatory
standard, agreement or requirement; adverse economic, business and
competitive developments such as shrinking interest margins, reduced
collateral values, cash inflows and deposit outflows, changes in credit
or other risks posed by the Company’s loan and investment portfolios,
relative costs associated with alternate funding sources, technological,
computer-related or operational difficulties, results of litigation, and
reduced demand for financial services and loan products; changes in
accounting policies and guidelines, or monetary and fiscal policies of
the federal government or tax laws; international economic developments;
the Company’s access to and adverse changes in securities markets and
the investment expectations of holders of our capital stock; the market
for credit related assets; or other significant uncertainties.
Additional factors that may cause actual results to differ from the
Company’s assumptions and expectations include those set forth in the
Company’s most recent filings on Forms 10-K and 10-Q with the Securities
and Exchange Commission. All forward-looking statements are qualified
by, and should be considered in conjunction with, such cautionary
statements. For additional discussion of the risks and uncertainties
applicable to the Company, see the “Risk Factors” sections of the
Company’s Annual Report on Form 10-K for the year ended December 31,
2012 and Part II, Item 1A of its Quarterly Reports on Form 10-Q. We
undertake no duty to update any of the forward-looking statements after
the date of this press release.
(Three pages of selected consolidated financial information are included with this release.)
| HMN FINANCIAL, INC. AND SUBSIDIARIES | |||||||
| Consolidated Balance Sheets | |||||||
| June 30, | December 31, | ||||||
| (Dollars in thousands) | 2013 | 2012 | |||||
| (unaudited) | |||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 29,933 | 83,660 | ||||
| Securities available for sale: | |||||||
| Mortgage-backed and related securities | |||||||
| (amortized cost $6,694 and $9,825) | 7,042 | 10,421 | |||||
| Other marketable securities | |||||||
|
(amortized cost $84,811 and $75,759) |
83,251 | 75,470 | |||||
| 90,293 | 85,891 | ||||||
| Loans held for sale | 3,212 | 2,584 | |||||
| Loans receivable, net | 415,534 | 454,045 | |||||
| Accrued interest receivable | 2,004 | 2,018 | |||||
| Real estate, net | 9,423 | 10,595 | |||||
| Federal Home Loan Bank stock, at cost | 784 | 4,063 | |||||
| Mortgage servicing rights, net | 1,795 | 1,732 | |||||
| Premises and equipment, net | 6,883 | 7,173 | |||||
| Prepaid expenses and other assets | 1,113 | 1,566 | |||||
| Total assets | $ | 560,974 | 653,327 | ||||
| Liabilities and Stockholders’ Equity | |||||||
| Deposits | $ | 491,753 | 514,951 | ||||
| Federal Home Loan Bank advances | 0 | 70,000 | |||||
| Accrued interest payable | 178 | 247 | |||||
| Customer escrows | 808 | 830 | |||||
| Accrued expenses and other liabilities | 7,073 | 6,465 | |||||
| Total liabilities | 499,812 | 592,493 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
| Serial preferred stock ($.01 par value): | |||||||
| authorized 500,000 shares; issued shares 26,000 | 25,629 | 25,336 | |||||
| Common stock ($.01 par value): | |||||||
| authorized 16,000,000; issued shares 9,128,662 | 91 | 91 | |||||
| Additional paid-in capital | 51,760 | 51,795 | |||||
| Retained earnings, subject to certain restrictions | 48,822 | 47,004 | |||||
| Accumulated other comprehensive loss | (1,567 | ) | (49 | ) | |||
| Unearned employee stock ownership plan shares | (2,900 | ) | (2,997 | ) | |||
| Treasury stock, at cost 4,735,589 and 4,705,073 shares | (60,673 | ) | (60,346 | ) | |||
| Total stockholders’ equity | 61,162 | 60,834 | |||||
| Total liabilities and stockholders’ equity | $ | 560,974 | 653,327 | ||||
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
|||||||||||||
|
Consolidated Statements of Comprehensive Income (Loss) |
|||||||||||||
|
(unaudited) |
|||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| (Dollars in thousands, except per share data) | 2013 | 2012 | 2013 | 2012 | |||||||||
| Interest income: | |||||||||||||
| Loans receivable | $ | 5,503 | 7,523 | 11,531 | 15,319 | ||||||||
| Securities available for sale: | |||||||||||||
| Mortgage-backed and related | 82 | 164 | 176 | 357 | |||||||||
| Other marketable | 148 | 192 | 287 | 441 | |||||||||
| Cash equivalents | 35 | 19 | 68 | 46 | |||||||||
| Other | 19 | 54 | 48 | 64 | |||||||||
| Total interest income | 5,787 | 7,952 | 12,110 | 16,227 | |||||||||
| Interest expense: | |||||||||||||
| Deposits | 465 | 1,061 | 1,022 | 2,278 | |||||||||
| Federal Home Loan Bank advances | 650 | 844 | 1,485 | 1,689 | |||||||||
| Total interest expense | 1,115 | 1,905 | 2,507 | 3,967 | |||||||||
| Net interest income | 4,672 | 6,047 | 9,603 | 12,260 | |||||||||
| Provision for loan losses | (520 | ) | 1,088 | (520 | ) | 960 | |||||||
| Net interest income after provision for loan losses | 5,192 | 4,959 | 10,123 | 11,300 | |||||||||
| Non-interest income: | |||||||||||||
| Fees and service charges | 883 | 834 | 1,672 | 1,663 | |||||||||
| Mortgage servicing fees | 257 | 236 | 505 | 468 | |||||||||
| Gain on sales of loans | 702 | 620 | 1,380 | 1,529 | |||||||||
| Gain on sale of branch office | 0 | 0 | 0 | 552 | |||||||||
| Other | 145 | 104 | 304 | 288 | |||||||||
| Total non-interest income | 1,987 | 1,794 | 3,861 | 4,500 | |||||||||
| Non-interest expense: | |||||||||||||
| Compensation and benefits | 2,980 | 3,219 | 6,179 | 6,632 | |||||||||
| (Gain) loss on real estate owned | (306 | ) | 174 | (325 | ) | 97 | |||||||
| Occupancy | 826 | 839 | 1,676 | 1,721 | |||||||||
| Deposit insurance | 190 | 305 | 508 | 575 | |||||||||
| Data processing | 325 | 336 | 655 | 673 | |||||||||
| Other | 1,310 | 1,485 | 2,671 | 2,903 | |||||||||
| Total non-interest expense | 5,325 | 6,358 | 11,364 | 12,601 | |||||||||
| Income before income tax expense | 1,854 | 395 | 2,620 | 3,199 | |||||||||
| Income tax expense | 55 | 0 | 80 | 0 | |||||||||
| Net income | 1,799 | 395 | 2,540 | 3,199 | |||||||||
| Preferred stock dividends and discount | (547 | ) | (464 | ) | (1,023 | ) | (925 | ) | |||||
| Net income (loss) available to common shareholders | $ | 1,252 | (69 | ) | 1,517 | 2,274 | |||||||
| Other comprehensive loss, net of tax | $ | (1,227 | ) | (93 | ) | (1,373 | ) | (273 | ) | ||||
|
Comprehensive income (loss) attributable to common shareholders |
$ |
25 | (162 | ) |
144 |
2,001 | |||||||
| Basic earnings (loss) per common share | $ | 0.32 | (0.02 | ) | 0.38 | 0.58 | |||||||
| Diluted earnings (loss) per common share | $ | 0.30 | (0.02 | ) | 0.36 | 0.57 | |||||||
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
||||||||||||||||||||
|
Selected Consolidated Financial Information |
||||||||||||||||||||
|
(unaudited) |
||||||||||||||||||||
|
|
|
|
||||||||||||||||||
|
|
||||||||||||||||||||
|
SELECTED FINANCIAL DATA: |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||
|
(Dollars in thousands, except per share data) |
2013 |
2012 |
2013 |
2012 |
||||||||||||||||
|
I. |
OPERATING DATA: |
|||||||||||||||||||
| Interest income |
$ |
5,787 |
7,952 | 12,110 | 16,227 | |||||||||||||||
| Interest expense | 1,115 | 1,905 | 2,507 | 3,967 | ||||||||||||||||
| Net interest income | 4,672 | 6,047 | 9,603 | 12,260 | ||||||||||||||||
|
II. |
AVERAGE BALANCES: |
|||||||||||||||||||
| Assets (1) | 595,747 | 684,046 | 610,220 | 713,151 | ||||||||||||||||
| Loans receivable, net | 412,445 | 522,015 | 427,002 | 534,064 | ||||||||||||||||
| Securities available for sale (1) | 93,877 | 86,651 | 92,378 | 95,954 | ||||||||||||||||
| Interest-earning assets (1) | 570,914 | 653,268 | 584,836 | 680,772 | ||||||||||||||||
| Interest-bearing liabilities | 526,831 | 617,098 | 541,435 | 648,766 | ||||||||||||||||
| Equity (1) | 61,273 | 59,629 | 61,318 | 58,608 | ||||||||||||||||
|
III. |
PERFORMANCE RATIOS: (1) |
|||||||||||||||||||
| Return on average assets (annualized) | 1.21 |
% |
0.23 |
% | 0.84 |
|
% |
0.90 | % | |||||||||||
| Interest rate spread information: | ||||||||||||||||||||
| Average during period | 3.22 | 3.65 | 3.24 | 3.56 | ||||||||||||||||
| End of period | 4.15 | 3.52 | 4.15 | 3.71 | ||||||||||||||||
| Net interest margin | 3.28 | 3.72 | 3.31 | 3.62 | ||||||||||||||||
|
Ratio of operating expense to average total assets (annualized) |
3.59 | 3.74 | 3.76 | 3.55 | ||||||||||||||||
| Return on average equity (annualized) | 11.78 | 2.66 | 8.36 | 10.98 | ||||||||||||||||
| Efficiency | 79.96 | 81.09 | 84.40 | 75.19 | ||||||||||||||||
| June 30, | December 31, | June 30, | ||||||||||||||||||
| 2013 | 2012 | 2012 | ||||||||||||||||||
|
IV. |
ASSET QUALITY: |
|||||||||||||||||||
| Total non-performing assets | 35,264 | 40,570 | 43,823 | |||||||||||||||||
| Non-performing assets to total assets | 6.29 | % | 6.21 | % |
6.54 |
% |
|
|||||||||||||
| Non-performing loans to total loans receivable, net | 6.22 | % | 6.60 | % |
6.27 |
% |
|
|||||||||||||
| Allowance for loan losses | 20,359 | 21,608 | 20,519 | |||||||||||||||||
| Allowance for loan losses to total assets | 3.63 | % | 3.31 | % |
3.06 |
% |
|
|||||||||||||
|
Allowance for loan losses to total loans receivable, net |
4.90 | 4.76 | 4.14 | |||||||||||||||||
| Allowance for loan losses to non-performing loans | 78.79 | 72.09 | 66.00 | |||||||||||||||||
|
V. |
BOOK VALUE PER SHARE: |
|||||||||||||||||||
| Book value per share | 8.09 | 8.02 | 7.79 | |||||||||||||||||
| Six Months | Year Ended | Six Months | ||||||||||||||||||
| Ended | Dec 31, | Ended | ||||||||||||||||||
| June 30, 2013 | 2012 | June 30, 2012 | ||||||||||||||||||
|
VI. |
CAPITAL RATIOS: |
|||||||||||||||||||
|
Stockholders’ equity to total assets, at end of period |
10.90 |
% |
9.31 |
% |
8.88 |
% |
||||||||||||||
|
Average stockholders’ equity to average assets (1) |
10.05 |
8.81 |
8.22 | |||||||||||||||||
|
Ratio of average interest-earning assets to average interest-bearing liabilities (1) |
108.02 |
105.73 |
104.93 | |||||||||||||||||
| Tier 1 or core capital (2) |
11.78 |
9.68 |
9.04 | |||||||||||||||||
| Risk-based capital |
17.31 |
15.52 |
13.73 | |||||||||||||||||
|
June 30, |
December 31, |
June 30, | ||||||||||||||||||
|
2013 |
2012 |
2012 | ||||||||||||||||||
|
VII. |
EMPLOYEE DATA: |
|||||||||||||||||||
| Number of full time equivalent employees |
190 |
194 |
200 | |||||||||||||||||
| (1) | Average balances were calculated based upon amortized cost without the market value impact of ASC 320. | |||
| (2) | OCC has established an individual minimum capital requirement (IMCR) for the Bank. An IMCR requires a bank to establish and maintain levels of capital greater than those generally required for a bank to be classified as “well-capitalized.” Effective December 31, 2011, the Bank was required to establish, and subsequently maintain, core capital at least equal to 8.5% of adjusted total assets. The Bank’s core capital ratio was in excess of this requirement at June 30, 2013. |
