ROCHESTER, Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
Third Quarter Highlights
- Net loss of $2.1 million compared to net loss of $9.4 million in third quarter of 2010
- Diluted loss per share of $0.65 compared to diluted loss per share of $2.60 in third quarter of 2010
- Provision for loan losses of $4.3 million, down $7.6 million from third quarter of 2010
- Nonperforming assets of $60.0 million, down $5.0 million from second quarter of 2011
- Net interest margin of 3.71%, up 34 basis points from third quarter of 2010
Year to Date Highlights
- Net loss of $3.9 million compared to net loss of $19.0 million in first nine months of 2010
- Diluted loss per share of $1.38 compared to diluted loss per share of $5.43 in first nine months of 2010
- Provision for loan losses of $9.7 million, down $13.2 million from first nine months of 2010
- Nonperforming assets of $60.0 million, down $24.5 million from December 31, 2010
- Net interest margin of 3.60%, up 25 basis points from first nine months of 2010
- Total assets decreased $62 million from December 31, 2010
|
Loss Summary (unaudited) |
Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| (dollars in thousands, except per share amounts) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
| Net loss | $ | (2,055 | ) | (9,367 | ) | $ | (3,929 | ) | (19,046 | ) | ||||||||||
| Net loss available to common shareholders | (2,511 | ) | (9,814 | ) | (5,291 | ) | (20,381 | ) | ||||||||||||
| Diluted loss per share | (0.65 | ) | (2.60 | ) | (1.38 | ) | (5.43 | ) | ||||||||||||
| Loss on average assets | (1.02 | ) | (3.89 | ) | % | (0.62 | ) | (2.55 | ) | % | ||||||||||
| Loss on average equity | (12.10 | ) | (42.01 | ) | % | (7.62 | ) | (26.71 | ) | % | ||||||||||
| Book value per common share | $ | 9.23 | 13.00 | $ | 9.23 | 13.00 | ||||||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $818 million holding company for Home Federal Savings Bank (the Bank), today reported a net loss of $2.1 million for the third quarter of 2011, an improvement of $7.3 million, or 78.1%, compared to a net loss of $9.4 million for the third quarter of 2010. Net loss available to common shareholders was $2.5 million for the third quarter of 2011, an improvement of $7.3 million, or 74.4%, from the net loss available to common shareholders of $9.8 million for the third quarter of 2010. Diluted loss per common share for the third quarter of 2011 was $0.65, a decreased loss of $1.95, or 75.0%, from the diluted loss per common share of $2.60 for the third quarter of 2010. The decreased loss for the third quarter of 2011 is due primarily to a $7.6 million decrease in the provision for loan losses between the periods. The provision for loan losses decreased primarily because fewer loan loss reserves on commercial real estate loans were needed due to the stabilization of values of non-performing real estate in the third quarter of 2011 when compared to the third quarter of 2010. The provision also decreased because of the $117 million decrease in the loan portfolio between the periods.
President’s Statement
"Our core
business remains sound and we are encouraged by the increase in our net
interest margin and the declining trend in both our loan loss provision
and non-performing assets,” said Bradley Krehbiel, President of HMN. “We
will continue to focus our efforts on reducing our non-performing
assets, increasing our core deposit relationships, and reducing expenses
to reflect the decrease in our interest earning assets. We believe that,
over time, our focus on these areas will be effective in generating
improved financial results despite the difficult economic environment
that continues to exist.”
Third Quarter Results
Net Interest Income
Net interest
income was $7.1 million for the third quarter of 2011, a decrease of
$0.7 million, or 8.9%, compared to $7.8 million for the third quarter of
2010. Interest income was $9.6 million for the third quarter of 2011, a
decrease of $2.4 million, or 20.0%, from $12.0 million for the same
period in 2010. Interest income decreased between the periods primarily
because of a $156 million decrease in the average interest-earning
assets and also because of a decrease in the average yields between the
periods. Average interest earning assets decreased between the periods
primarily because of a 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. The average yield earned on interest-earning assets was
5.01% for the third quarter of 2011, a decrease of 18 basis points from
the 5.19% average yield for the third quarter of 2010. The decrease in
yield is the result of the lower interest rate environment that existed
during the third quarter of 2011.
Interest expense was $2.5 million for the third quarter of 2011, a decrease of $1.7 million, or 40.6%, compared to $4.2 million for the third quarter of 2010. Interest expense decreased primarily because of the $133 million decrease in the average interest-bearing liabilities between the periods. The decrease in the average interest-bearing liabilities is primarily the result of a decrease in outstanding borrowings and brokered deposits between the periods. The decrease in borrowings and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered deposits. Interest expense also decreased because of the lower rates paid on retail money market accounts and certificates of deposits. The decreased rates were the result of the lower interest rate environment that existed during the third quarter of 2011. The average interest rate paid on interest-bearing liabilities was 1.36% for the third quarter of 2011, a decrease of 57 basis points from the 1.93% average interest rate paid in the third quarter of 2010. Net interest margin (net interest income divided by average interest earning assets) for the third quarter of 2011 was 3.71%, an increase of 34 basis points, compared to 3.37% for the third quarter of 2010.
Provision for Loan Losses
The
provision for loan losses was $4.3 million for the third quarter of
2011, a decrease of $7.6 million, compared to $11.9 million for the
third quarter of 2010. The provision decreased primarily because fewer
loan loss reserves on commercial real estate loans were needed due to
the stabilization of values of non-performing real estate in the third
quarter of 2011 when compared to the third quarter of 2010. The
provision also decreased because of the $117 million decrease in the
loan portfolio between the periods. Total non-performing assets were
$60.0 million at September 30, 2011, a decrease of $5.0 million, or
7.6%, from $65.0 million at June 30, 2011. Non-performing loans
decreased $4.2 million and foreclosed and repossessed assets decreased
$0.8 million during the third quarter of 2011. The non-performing loan
and foreclosed and repossessed asset activity for the quarter was as
follows:
|
(Dollars in thousands) |
||||||||||||||
| Non-performing loans | Foreclosed and repossessed assets | |||||||||||||
| June 30, 2011 | $ | 43,086 | June 30, 2011 | $ | 21,871 | |||||||||
| Classified as non-performing | 5,039 | Transferred from non-performing loans | 312 | |||||||||||
| Charge offs | (6,436 | ) | Other foreclosures/repossessions | 111 | ||||||||||
| Principal payments received | (2,467 | ) | Real estate sold | (910 | ) | |||||||||
| Classified as accruing | (52 | ) | Net gain on sale of assets | 159 | ||||||||||
| Transferred to real estate owned | (312 | ) | Write downs | (399 | ) | |||||||||
| September 30, 2011 | $ | 38,858 | September 30, 2011 | $ | 21,144 | |||||||||
The decrease in non-performing loans during the quarter relates primarily to loans that were charged off during the period. Of the $6.4 million in charge offs recorded during the third quarter of 2011, $3.8 million related to three residential development loans and $2.2 million related to various commercial business loans. The largest remaining non-performing loan at September 30, 2011 was for $3.8 million and is secured by a residential development located in the Bank’s primary market.
A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2011 and 2010 is summarized as follows:
| (in thousands) | 2011 | 2010 | |||||||||
| Balance at June 30, | $ | 27,764 | $ | 26,027 | |||||||
| Provision | 4,260 | 11,946 | |||||||||
| Charge offs: | |||||||||||
| One-to-four family | (32 | ) | 0 | ||||||||
| Consumer | (143 | ) | (406 | ) | |||||||
| Commercial business | (2,167 | ) | (1,061 | ) | |||||||
| Commercial real estate | (4,094 | ) | (3,045 | ) | |||||||
| Recoveries | 102 | 29 | |||||||||
| Balance at September 30, | $ | 25,690 | $ | 33,490 | |||||||
| General allowance | $ | 15,906 | $ | 16,292 | |||||||
| Specific allowance | 9,784 | 17,198 | |||||||||
| $ | 25,690 | $ | 33,490 | ||||||||
The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the two most recently completed quarters and December 31, 2010.
| September 30, |
June 30, |
December 31, | |||||||||||
| (Dollars in thousands) | 2011 | 2011 | 2010 | ||||||||||
| Non-Accruing Loans: | |||||||||||||
| One-to-four family real estate | $ | 2,930 | $ | 2,039 | $ | 4,844 | |||||||
| Commercial real estate | 24,392 | 25,194 | 36,737 | ||||||||||
| Consumer | 460 | 555 | 224 | ||||||||||
| Commercial business | 11,076 | 15,298 | 26,269 | ||||||||||
| Total | 38,858 | 43,086 | 68,074 | ||||||||||
| Foreclosed and Repossessed Assets: | |||||||||||||
| One-to-four family real estate | 1,003 | 2,468 | 972 | ||||||||||
| Consumer | 0 | 3 | 14 | ||||||||||
| Commercial real estate | 20,141 | 19,400 | 15,409 | ||||||||||
| Total non-performing assets | $ | 60,002 | $ | 64,957 | $ | 84,469 | |||||||
| Total as a percentage of total assets | 7.33 | % | 8.05 | % | 9.59 | % | |||||||
| Total non-performing loans | $ | 38,858 | $ | 43,086 | $ | 68,074 | |||||||
| Total as a percentage of total loans receivable, net | 6.57 | % | 7.16 | % | 10.25 | % | |||||||
| Allowance for loan loss to non-performing loans | 66.11 | % | 64.44 | % | 62.91 | % | |||||||
| Delinquency Data: | |||||||||||||
| Delinquencies (1) | |||||||||||||
| 30+ days | $ | 7,763 | $ | 8,861 | $ | 4,021 | |||||||
| 90+ days | 823 | 0 | 754 | ||||||||||
| Delinquencies as a percentage of | |||||||||||||
| loan and lease portfolio (1) | |||||||||||||
| 30+ days | 1.27 | % | 1.43 | % | 0.59 | % | |||||||
| 90+ days | 0.13 | % | 0.00 | % | 0.11 | % | |||||||
(1) Excludes non-accrual loans.
The Company had specific reserves established against the above non-accruing loans of $7.8 million, $10.2 million and $25.0 million, respectively, at September 30, 2011, June 30, 2011 and December 31, 2010.
The following table summarizes the number of lending relationships and types of commercial real estate loans that were non-performing as of the end of the two most recently completed quarters and December 31, 2010.
| Principal | Principal | Principal | ||||||||||||||||||
| (Dollars in thousands) | Amount of Loan | Amount of Loan | Amount of Loan | |||||||||||||||||
| September 30, | June 30, | December 31, | ||||||||||||||||||
| Property Type | # | 2011 | # | 2011 | # | 2010 | ||||||||||||||
| Developments/land | 8 | $ | 17,059 | 6 | $ | 17,946 | 9 | $ | 23,661 | |||||||||||
| Single family homes | 0 | 0 | 0 | 0 | 3 | 2,673 | ||||||||||||||
| Alternative fuel plants | 1 | 2,266 | 1 | 2,266 | 1 | 4,994 | ||||||||||||||
| Shopping centers/retail | 2 | 1,347 | 3 | 1,378 | 3 | 1,099 | ||||||||||||||
| Restaurants/bar | 1 | 636 | 1 | 654 | 1 | 635 | ||||||||||||||
| Office building | 1 | 2,925 | 1 | 2,950 | 1 | 3,675 | ||||||||||||||
| Other commercial building | 1 | 159 | 0 | 0 | 0 | 0 | ||||||||||||||
| 14 | $ | 24,392 | 12 | $ | 25,194 | 18 | $ | 36,737 | ||||||||||||
The Company had specific reserves established against the above commercial real estate loans of $4.2 million, $5.7 million and $13.3 million, respectively, at September 30, 2011, June 30, 2011 and December 31, 2010.
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, 2010.
| Principal | Principal | Principal Amount | ||||||||||||||||||
| (Dollars in thousands) | Amount of Loan | Amount of Loan | of Loan | |||||||||||||||||
| September 30, | June 30, | December 31, | ||||||||||||||||||
| Industry Type | # | 2011 | # | 2011 | # | 2010 | ||||||||||||||
| Construction/development/land | 3 | $ | 2,678 | 4 | $ | 4,768 | 6 | $ | 9,148 | |||||||||||
| Finance | 1 | 177 | 1 | 181 | 1 | 248 | ||||||||||||||
| Retail | 4 | 1,550 | 4 | 3,061 | 1 | 2,504 | ||||||||||||||
| Banking | 2 | 1,824 | 2 | 1,974 | 2 | 8,223 | ||||||||||||||
| Entertainment | 1 | 235 | 1 | 239 | 1 | 315 | ||||||||||||||
| Utilities | 1 | 4,568 | 1 | 4,583 | 1 | 4,614 | ||||||||||||||
| Restaurant | 0 | 0 | 2 | 492 | 4 | 1,217 | ||||||||||||||
| Transportation | 1 | 44 | 0 | 0 | 0 | 0 | ||||||||||||||
| 13 | $ | 11,076 | 15 | $ | 15,298 | 16 | $ | 26,269 | ||||||||||||
The Company had specific reserves established against the above commercial business loans of $2.8 million, $3.5 million and $10.7 million, respectively, at September 30, 2011, June 30, 2011 and December 31, 2010.
Non-Interest Income and Expense
Non-interest
income was $1.5 million for the third quarter of 2011, a decrease of
$0.4 million, or 19.7%, from $1.9 million for the same period in 2010.
Gains on sales of loans decreased $363,000 between the periods as a
result of a decrease in single family loan originations. Loan servicing
fees decreased $17,000 between the periods primarily because of a
decrease in the number of commercial loans that are being serviced for
others.
Non-interest expense was $6.4 million for the third quarter of 2011, a decrease of $0.6 million, or 8.5%, from $7.0 million for the same period of 2010. Loss on real estate owned decreased $273,000 in the third quarter of 2011 when compared to the same period in 2010. Deposit insurance expense decreased $268,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in brokered deposits between the periods. Occupancy expense decreased $125,000 primarily because of a decrease in depreciation expense. Compensation and benefits expense decreased $80,000 between the periods primarily because of a decrease in the compensation paid as a result of having fewer employees and fewer loan originations in the third quarter of 2011 when compared to the same period in 2010. Other non-interest expenses increased $120,000 primarily because of an increase in the costs related to other real estate owned. Data processing expense increased $34,000 due to increased software maintenance costs.
Income tax expense decreased $97,000 between the periods, from an expense of $97,000 in the third quarter of 2010 to no expense in the third quarter of 2011. 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 September 30, 2011. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the third quarter of 2011.
Net Loss Available to Common Shareholders
The
net loss available to common shareholders was $2.5 million for the third
quarter of 2011, a decreased loss of $7.3 million from the $9.8 million
net loss available to common shareholders in the third quarter of 2010.
The net loss available to common shareholders decreased primarily
because of the change in the net loss between the periods. The Company
deferred the February 15, 2011, May 15, 2011, and August 15, 2011 cash
dividend payments on its Fixed Rate Cumulative Perpetual Preferred
Stock, Series A issued to the United States Treasury Department as part
of the TARP Capital Purchase Program. 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 the net loss for financial statement purposes to arrive at the net
loss available to common shareholders.
Loss on Assets and Equity
Loss on
average assets for the third quarter of 2011 was 1.02%, compared to a
3.89% loss on average assets for the third quarter of 2010. Loss on
average equity was 12.10% for the third quarter of 2011, compared to a
42.01% loss on average equity for the same period of 2010. Book value
per common share at September 30, 2011 was $9.23, compared to $13.00 at
September 30, 2010.
Nine Month Period Results
Net Loss
The net loss was $3.9 million
for the nine-month period ended September 30, 2011, an improvement of
$15.1 million, from the $19.0 million loss for the nine-month period
ended September 30, 2010. The net loss available to common shareholders
was $5.3 million for the nine-month period ended September 30, 2011, an
improvement of $15.1 million, from the net loss available to common
shareholders of $20.4 million for the same period of 2010. Diluted loss
per common share for the nine month period in 2011 was $1.38, an
improvement of $4.05, from the diluted loss per common share of $5.43
for the same period in 2010. The decreased loss for the first nine
months of 2011 is due primarily to a $13.2 million decrease in the
provision for loan losses between the periods and also because of a $5.8
million decrease in the provision for income taxes between the periods
due to a deferred tax asset valuation reserve that was established
during the second quarter of 2010. The provision decreased primarily
because fewer loan loss reserves on commercial real estate loans were
needed due to the stabilization of values of non-performing real estate
in the first nine months of 2011 when compared to the same nine-month
period of 2010. The provision also decreased because of the $117 million
decrease in the loan portfolio between the periods. These decreases in
expense were partially offset by a $2.2 million decrease in net interest
income due primarily to the decrease in interest-earning assets between
the periods and a $1.4 million increase in other expenses and losses
related to other real estate owned.
Net Interest Income
Net interest
income was $21.5 million for the first nine months of 2011, a decrease
of $2.2 million, or 9.3%, from $23.7 million for the same period in
2010. Interest income was $30.3 million for the nine-month period ended
September 30, 2011, a decrease of $7.1 million, or 19.0%, from $37.4
million for the same period in 2010. Interest income decreased between
the periods primarily because of a $149 million decrease in the average
interest-earning assets and also because of a decrease in the average
yields between the periods. Average interest earning assets decreased
between the periods primarily because of a 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. The average yield earned on
interest-earning assets was 5.08% for the nine-month period of 2011, a
decrease of 20 basis points from the 5.28% average yield for the
nine-month period of 2010. The decrease in yield is the result of the
lower interest rate environment that existed during the first nine
months of 2011.
Interest expense was $8.8 million for the nine-month period ended September 30, 2011, a decrease of $4.9 million, or 35.8%, from $13.7 million for the same period in 2010. Interest expense decreased primarily because of a $129 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 deposits between the periods. The average interest rate paid on interest-bearing liabilities was 1.54% for the nine-month period of 2011, a decrease of 51 basis points from the 2.05% average rate paid for the same nine-month period of 2010. Net interest margin (net interest income divided by average interest earning assets) was 3.60% for the nine-month period of 2011, an increase of 25 basis points from the 3.35% margin for the same nine-month period of 2010.
Provision for Loan Losses
The
provision for loan losses was $9.7 million for the first nine months of
2011, a decrease of $13.2 million, from $22.8 million for the same
nine-month period in 2010. The provision decreased primarily because
fewer loan loss reserves on commercial real estate loans were needed due
to the stabilization of values of non-performing real estate in the
first nine months of 2011 when compared to the same nine-month period of
2010. The provision also decreased because of the $117 million decrease
in the loan portfolio between the periods. Total non-performing assets
were $60.0 million at September 30, 2011, a decrease of $24.5 million,
or 29.0%, from $84.5 million at December 31, 2010. Non-performing loans
decreased $29.2 million and foreclosed and repossessed assets increased
$4.7 million during the nine-month period ended September 30, 2011. The
non-performing loan and foreclosed and repossessed asset activity for
the first nine months of 2011 was as follows:
|
(Dollars in thousands) |
||||||||||||
| Non-performing loans | Foreclosed and repossessed asset activity | |||||||||||
| December 31, 2010 | $ | 68,074 | December 31, 2010 | $ | 16,395 | |||||||
| Classified as non-performing | 16,651 | Transferred from non-performing loans | 8,543 | |||||||||
| Charge offs | (27,707 | ) | Other foreclosures/repossessions | 139 | ||||||||
| Principal payments received | (4,613 | ) | Real estate sold | (3,382 | ) | |||||||
| Classified as accruing | (5,004 | ) | Net gain on sale of assets | 153 | ||||||||
| Transferred to real estate owned | (8,543 | ) | Write downs | (704 | ) | |||||||
| September 30, 2011 | $ | 38,858 | September 30, 2011 | $ | 21,144 | |||||||
A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2011 and 2010 is summarized as follows:
| (in thousands) | 2011 | 2010 | |||||||||
| Balance at January 1, | $ | 42,828 | $ | 23,811 | |||||||
| Provision | 9,669 | 22,839 | |||||||||
| Charge offs: | |||||||||||
| One-to-four family | (450 | ) | (168 | ) | |||||||
| Consumer | (230 | ) | (795 | ) | |||||||
| Commercial business | (10,724 | ) | (5,803 | ) | |||||||
| Commercial real estate | (16,303 | ) | (6,524 | ) | |||||||
| Recoveries | 900 | 130 | |||||||||
| Balance at September 30, | $ | 25,690 | $ | 33,490 | |||||||
| General allowance | $ | 15,906 | $ | 16,292 | |||||||
| Specific allowance | 9,784 | 17,198 | |||||||||
| $ | 25,690 | $ | 33,490 | ||||||||
Non-Interest Income and Expense
Non-interest
income was $4.9 million for the first nine months of 2011, a decrease of
$353,000, or 6.7%, from $5.2 million for the same period in 2010. Gains
on sales of loans decreased $348,000 between the periods as a result of
a decrease in single family loan originations. Loan servicing fees
decreased $59,000 between the periods primarily because of a decrease in
the number of commercial loans that are being serviced for others. Other
non-interest income decreased $39,000 due primarily to a decrease in
rental income on other real estate owned due to the sale of some
properties that were being rented. Fees and service charges increased
$93,000 between the periods primarily because of increases in debit card
income and service charges.
Non-interest expense was $20.7 million for the first nine months of 2011, an increase of $1.4 million, or 7.0%, from $19.3 million for the same period in 2010. Other non-interest expense increased $1.4 million, because of increased real estate taxes and legal fees related to other real estate owned. Non-interest expense also increased $645,000 between the periods because of a $301,000 loss recognized on real estate owned in the first nine months of 2011 compared to a $344,000 gain recognized on real estate owned in the first nine months of 2010. Compensation and benefits expense increased $132,000 between the periods primarily because of an increase in health insurance costs between the periods. Deposit insurance expense decreased $493,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in brokered deposits between the periods. Occupancy expense decreased $335,000 primarily because of a decrease in depreciation expense. Data processing expense increased $18,000 due to increased software maintenance costs.
Income tax expense decreased $5.8 million between the periods, from an expense of $5.8 million in the first nine months of 2010 to no expense in the first nine months of 2011. 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 September 30, 2011. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the first nine months of 2011.
Net Loss Available to Common Shareholders
The
net loss available to common shareholders was $5.3 million for the first
nine months of 2011, a decreased loss of $15.1 million from the $20.4
million net loss available to common shareholders in the first nine
months of 2010. The net loss available to common shareholders decreased
primarily because of the change in the net loss between the periods. The
Company deferred the February 15, 2011, May 15, 2011, and August 15,
2011 cash dividend payments on its Fixed Rate Cumulative Perpetual
Preferred Stock, Series A issued to the United States Treasury
Department as part of the TARP Capital Purchase Program. 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 the net loss for financial statement
purposes to arrive at the net loss available to common shareholders.
Loss on Assets and Equity
Loss on
average assets for the nine-month period ended September 30, 2011 was
0.62%, compared to a loss on average assets of 2.55% for the same period
in 2010. Loss on average equity was 7.62% for the nine-month period
ended September 30, 2011, compared to a loss on average equity of 26.71%
for the same period in 2010.
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, La Crescent, 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 reducing non-performing assets, increasing core deposit
relationships, reducing expenses, and generating improved financial
results. 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, federal and state regulation
and enforcement, including restrictions set forth in the supervisory
agreements between each of the Company and Bank and the Office of the
Comptroller of the Currency, possible legislative and regulatory changes
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.
| HMN FINANCIAL, INC. AND SUBSIDIARIES | |||||||||
| Consolidated Balance Sheets | |||||||||
| September 30, | December 31, | ||||||||
| (dollars in thousands) | 2011 | 2010 | |||||||
| (unaudited) | |||||||||
| Assets | |||||||||
| Cash and cash equivalents | $ | 38,311 | 20,981 | ||||||
| Securities available for sale: | |||||||||
| Mortgage-backed and related securities | |||||||||
| (amortized cost $22,426 and $32,036) | 23,681 | 33,506 | |||||||
| Other marketable securities | |||||||||
| (amortized cost $120,616 and $118,631) | 120,452 | 118,058 | |||||||
| 144,133 | 151,564 | ||||||||
| Loans held for sale | 4,031 | 2,728 | |||||||
| Loans receivable, net | 591,265 | 664,241 | |||||||
| Accrued interest receivable | 2,576 | 3,311 | |||||||
| Real estate, net | 21,144 | 16,382 | |||||||
| Federal Home Loan Bank stock, at cost | 4,222 | 6,743 | |||||||
| Mortgage servicing rights, net | 1,447 | 1,586 | |||||||
| Premises and equipment, net | 8,678 | 9,450 | |||||||
| Prepaid expenses and other assets | 2,577 | 3,632 | |||||||
| Deferred tax asset, net | 0 | 0 | |||||||
| Total assets | $ | 818,384 | 880,618 | ||||||
| Liabilities and Stockholders’ Equity | |||||||||
| Deposits | $ | 676,444 | 683,230 | ||||||
| Federal Home Loan Bank advances | 70,000 | 122,500 | |||||||
| Accrued interest payable | 715 | 1,092 | |||||||
| Customer escrows | 1,450 | 818 | |||||||
| Accrued expenses and other liabilities | 4,606 | 3,431 | |||||||
| Total liabilities | 753,215 | 811,071 | |||||||
| Commitments and contingencies | |||||||||
| Stockholders’ equity: | |||||||||
| Serial preferred stock: ($.01 par value) | |||||||||
| authorized 500,000 shares; issued shares 26,000 | 24,648 | 24,264 | |||||||
| Common stock ($.01 par value): | |||||||||
| authorized 11,000,000; issued shares 9,128,662 | 91 | 91 | |||||||
| Additional paid-in capital | 53,535 | 56,420 | |||||||
| Retained earnings, subject to certain restrictions | 50,934 | 55,838 | |||||||
| Accumulated other comprehensive income | 735 | 541 | |||||||
| Unearned employee stock ownership plan shares | (3,239 | ) | (3,384 | ) | |||||
| Treasury stock, at cost 4,740,711 and 4,818,263 shares | (61,535 | ) | (64,223 | ) | |||||
| Total stockholders’ equity | 65,169 | 69,547 | |||||||
| Total liabilities and stockholders’ equity | $ | 818,384 | 880,618 | ||||||
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
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|
Consolidated Statements of Loss |
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|
(unaudited) |
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|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||||
|
(dollars in thousands, except per share data) |
2011 |
2010 |
2011 |
2010 |
||||||||||||||
| Interest income: | ||||||||||||||||||
| Loans receivable | $ | 8,967 |
|
11,023 |
28,171 | 34,243 | ||||||||||||
| Securities available for sale: | ||||||||||||||||||
| Mortgage-backed and related | 259 | 430 | 873 | 1,444 | ||||||||||||||
| Other marketable | 308 | 473 | 1,132 | 1,636 | ||||||||||||||
| Cash equivalents | 4 | 2 | 7 | 4 | ||||||||||||||
| Other | 34 | 35 | 148 | 109 | ||||||||||||||
| Total interest income | 9,572 | 11,963 | 30,331 | 37,436 | ||||||||||||||
| Interest expense: | ||||||||||||||||||
| Deposits | 1,623 | 2,668 | 5,369 | 9,127 | ||||||||||||||
| Federal Home Loan Bank advances | 865 | 1,521 | 3,434 | 4,585 | ||||||||||||||
| Total interest expense | 2,488 | 4,189 | 8,803 | 13,712 | ||||||||||||||
| Net interest income | 7,084 | 7,774 | 21,528 | 23,724 | ||||||||||||||
| Provision for loan losses | 4,260 | 11,946 | 9,669 | 22,839 | ||||||||||||||
| Net interest income (loss) after provision | ||||||||||||||||||
| for loan losses | 2,824 | (4,172 | ) | 11,859 | 885 | |||||||||||||
| Non-interest income: | ||||||||||||||||||
| Fees and service charges | 978 | 972 | 2,827 | 2,734 | ||||||||||||||
| Mortgage servicing fees | 247 | 264 | 747 | 806 | ||||||||||||||
| Gain on sales of loans | 188 | 551 | 984 | 1,332 | ||||||||||||||
| Other | 106 | 105 | 336 | 375 | ||||||||||||||
| Total non-interest income | 1,519 | 1,892 | 4,894 | 5,247 | ||||||||||||||
| Non-interest expense: | ||||||||||||||||||
| Compensation and benefits | 3,276 | 3,356 | 10,348 | 10,216 | ||||||||||||||
| Loss (gain) on real estate owned | 111 | 384 | 301 | (344 | ) | |||||||||||||
| Occupancy | 930 | 1,055 | 2,786 | 3,121 | ||||||||||||||
| Deposit insurance | 190 | 458 | 1,001 | 1,494 | ||||||||||||||
| Data processing | 326 | 292 | 884 | 866 | ||||||||||||||
| Other | 1,565 | 1,445 | 5,362 | 3,984 | ||||||||||||||
| Total non-interest expense | 6,398 | 6,990 | 20,682 | 19,337 | ||||||||||||||
| Loss before income tax expense | (2,055 | ) | (9,270 | ) | (3,929 | ) | (13,205 | ) | ||||||||||
| Income tax expense | 0 | 97 | 0 | 5,841 | ||||||||||||||
| Net loss | $ | (2,055 | ) | (9,367 | ) | (3,929 | ) | (19,046 | ) | |||||||||
| Preferred stock dividends and discount | 456 | 447 | 1,362 | 1,335 | ||||||||||||||
| Net loss available to common shareholders | (2,511 | ) | (9,814 | ) | (5,291 | ) | (20,381 | ) | ||||||||||
| Basic loss per common share | $ | (0.65 | ) | (2.60 | ) | (1.38 | ) | (5.43 | ) | |||||||||
| Diluted loss per common share | $ | (0.65 | ) | (2.60 | ) | (1.38 | ) | (5.43 | ) | |||||||||
| HMN FINANCIAL, INC. AND SUBSIDIARIES | ||||||||||||||||||||||
| Selected Consolidated Financial Information | ||||||||||||||||||||||
|
(unaudited) |
||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| SELECTED FINANCIAL DATA: | September 30, | September 30, | ||||||||||||||||||||
| (dollars in thousands, except per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
| I. OPERATING DATA: | ||||||||||||||||||||||
| Interest income | $ | 9,572 | 11,963 | 30,331 | 37,436 | |||||||||||||||||
| Interest expense | 2,488 | 4,189 | 8,803 | 13,712 | ||||||||||||||||||
| Net interest income | 7,084 | 7,774 | 21,528 | 23,724 | ||||||||||||||||||
| II. AVERAGE BALANCES: | ||||||||||||||||||||||
| Assets (1) | 802,140 | 954,799 | 840,787 | 997,196 | ||||||||||||||||||
| Loans receivable, net | 597,602 | 731,795 | 620,227 | 758,961 | ||||||||||||||||||
| Securities available for sale (1) | 121,286 | 151,537 | 141,500 | 159,031 | ||||||||||||||||||
| Interest-earning assets (1) | 758,610 | 914,717 | 798,912 | 947,554 | ||||||||||||||||||
| Interest-bearing liabilities | 727,413 | 860,451 | 766,759 | 895,697 | ||||||||||||||||||
| Equity (1) | 67,336 | 88,473 | 68,956 | 95,341 | ||||||||||||||||||
| III. PERFORMANCE RATIOS: (1) | ||||||||||||||||||||||
| Return on average assets (annualized) | (1.02 | ) | % | (3.89 | ) | % | (0.62 | ) | % | (2.55 | ) | % | ||||||||||
| Interest rate spread information: | ||||||||||||||||||||||
| Average during period | 3.65 | 3.26 | 3.54 | 3.24 | ||||||||||||||||||
| End of period | 3.77 | 3.48 | 3.77 | 3.48 | ||||||||||||||||||
| Net interest margin | 3.71 | 3.37 | 3.60 | 3.35 | ||||||||||||||||||
| Ratio of operating expense to average | ||||||||||||||||||||||
| total assets (annualized) | 3.16 | 2.90 | 3.29 | 2.59 | ||||||||||||||||||
| Return on average equity (annualized) | (12.10 | ) | (42.01 | ) | (7.62 | ) | (26.71 | ) | ||||||||||||||
| Efficiency | 74.36 | 72.32 | 78.28 | 66.75 | ||||||||||||||||||
| September 30, | December 31, | September 30, | ||||||||||||||||||||
| 2011 | 2010 | 2010 | ||||||||||||||||||||
| IV. ASSET QUALITY: | ||||||||||||||||||||||
| Total non-performing assets | $ | 60,002 | 84,469 | 81,579 | ||||||||||||||||||
| Non-performing assets to total assets | 7.33 | % | 9.59 | % | 8.99 | % | ||||||||||||||||
| Non-performing loans to total loans receivable, net | 6.57 | 10.25 | 9.00 | |||||||||||||||||||
| Allowance for loan losses | $ | 25,690 | 42,828 | 33,490 | ||||||||||||||||||
| Allowance for loan losses to total assets | 3.14 | % | 4.86 | % | 3.69 | % | ||||||||||||||||
| Allowance for loan losses to total loans receivable, net | 4.34 | 6.45 | 4.79 | |||||||||||||||||||
| Allowance for loan losses to non-performing loans | 66.11 | 62.91 | 53.15 | |||||||||||||||||||
| V. BOOK VALUE PER SHARE: | ||||||||||||||||||||||
| Book value per share | $ | 9.23 | 10.51 | 13.00 | ||||||||||||||||||
| Nine Months |
Year |
Nine Months | ||||||||||||||||||||
| Ended | Ended | Ended | ||||||||||||||||||||
| Sept 30, 2011 | Dec 31, 2010 | Sept 30, 2010 | ||||||||||||||||||||
| VI. CAPITAL RATIOS: | ||||||||||||||||||||||
| Stockholders’ equity to total assets, at end of period | 7.96 | % | 7.90 | % | 8.83 | % | ||||||||||||||||
| Average stockholders’ equity to average assets (1) | 8.20 | 9.40 | 9.56 | |||||||||||||||||||
| Ratio of average interest-earning assets to | ||||||||||||||||||||||
| average interest-bearing liabilities (1) | 104.19 | 105.67 | 105.79 | |||||||||||||||||||
| Tier I or core capital | 7.79 | 7.60 | 8.40 | |||||||||||||||||||
| Risk-based capital to risk-weighted assets | 11.62 | 10.97 | 11.84 | |||||||||||||||||||
| September 30, | December 31, | September 30, | ||||||||||||||||||||
| 2011 | 2010 | 2010 | ||||||||||||||||||||
| VII. EMPLOYEE DATA: | ||||||||||||||||||||||
| Number of full time equivalent employees | 206 | 212 | 213 | |||||||||||||||||||
(1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320.