ROCHESTER, Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
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| Three months ended | Six months ended | ||||||||||||||||||||||
| Net Income (Loss) Summary (unaudited) | June 30, | June 30, | |||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
| Net income (loss) | $ | 395 | (2,291 | ) | $ | 3,199 | (1,874 | ) | |||||||||||||||
| Net income (loss) available to common stockholders | (69 | ) | (2,748 | ) | 2,274 | (2,780 | ) | ||||||||||||||||
| Diluted earnings (loss) per common share | (0.02 | ) | (0.72 | ) | 0.57 | (0.73 | ) | ||||||||||||||||
| Return (loss) on average assets | 0.23 | % | (1.08 | ) | % | 0.90 | % | (0.44 | ) | % | |||||||||||||
| Return (loss) on average equity | 2.66 | % | (13.27 | ) | % | 10.98 | % | (5.42 | ) | % | |||||||||||||
| Book value per common share | $ | 7.79 | $ | 9.81 | $ | 7.79 | $ | 9.81 | |||||||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $670 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $0.4 million for the second quarter of 2012, an improvement of $2.7 million, or 117.2%, compared to a net loss of $2.3 million for the second quarter of 2011. The net loss available to common shareholders was $69,000 for the second quarter of 2012, an improvement of $2.7 million, or 97.5%, from the net loss available to common shareholders of $2.8 million for the second quarter of 2011. Diluted loss per common share for the second quarter of 2012 was $0.02, an improvement of $0.70, or 97.2%, from the diluted loss per common share of $0.72 for the second quarter of 2011. The improvement in net income in the second quarter of 2012 was primarily due to a $2.4 million decrease in the provision for loan losses and a $1.1 million decrease in non-interest expenses between the periods. These changes to net income were partially offset by a $1.0 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 net income for the second quarter of 2012 and the continued
reduction in our non-performing assets,” said Bradley Krehbiel,
President of HMN. “We will continue to focus our efforts on increasing
our core deposit relationships while reducing non-performing assets and
expenses. 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 $6.0 million for the second quarter of 2012, a decrease of
$1.0 million, or 13.6%, compared to $7.0 million for the second quarter
of 2011. Interest income was $8.0 million for the second quarter of
2012, a decrease of $2.0 million, or 20.8%, from $10.0 million for the
same period in 2011. Interest income decreased between the periods
primarily because of a $152 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 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 4.90% for the second quarter of 2012, a
decrease of 16 basis points from the 5.06% average yield for the second
quarter of 2011. The decrease in average yield is due to the continued
low interest rate environment that existed during the second quarter of
2012.
Interest expense was $1.9 million for the second quarter of 2012, a decrease of $1.1 million, or 37.5%, compared to $3.0 million for the second quarter of 2011. Interest expense decreased primarily because of the $157 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 and a decrease in other deposits as a result of the Bank’s Toledo, Iowa branch sale that was completed in the first quarter of 2012. 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 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 2012. The average interest rate paid on interest-bearing liabilities was 1.24% for the second quarter of 2012, a decrease of 36 basis points from the 1.60% average interest rate paid in the second quarter of 2011. Net interest margin (net interest income divided by average interest earning assets) for the second quarter of 2012 was 3.72%, an increase of 24 basis points, compared to 3.48% for the second quarter of 2011.
Provision for Loan Losses
The
provision for loan losses was $1.1 million for the second quarter of
2012, a decrease of $2.4 million, or 68.6%, from $3.5 million for the
second quarter of 2011. The provision for loan losses decreased in the
second quarter of 2012 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 2011. The
provision also decreased because of a decrease in the required reserves
for certain risk rated commercial loans as a result of an internal loan
portfolio analysis that was performed between the periods. Total
non-performing assets were $38.1 million at June 30, 2012, a decrease of
$8.5 million, or 18.2%, from $46.6 million at March 31, 2012.
Non-performing loans decreased $7.6 million and foreclosed and
repossessed assets decreased $0.9 million during the second quarter of
2012. The non-performing loan and foreclosed and repossessed asset
activity for the second quarter of 2012 was as follows:
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(Dollars in thousands) |
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| Non-performing loans | Foreclosed and repossessed assets | ||||||||||||
| March 31, 2012 | $ | 33,014 | March 31, 2012 | $ | 13,594 | ||||||||
| Classified as non-performing | 1,767 | Transferred from non-performing loans | 110 | ||||||||||
| Charge offs | (3,949 | ) | Other foreclosures/repossessions | 0 | |||||||||
| Principal payments received | (5,268 | ) | Real estate sold | (725 | ) | ||||||||
| Classified as accruing | (74 | ) | Net gain on sale of assets | 128 | |||||||||
| Transferred to real estate owned | (110 | ) | Write downs | (375 | ) | ||||||||
| June 30, 2012 | $ | 25,380 | June 30, 2012 | $ | 12,732 | ||||||||
The decrease in non-performing loans during the quarter relates primarily to principal payments received and charge offs during the period. Of the $5.3 million in principal payments received during the second quarter of 2012, $2.4 million related to the payoff of a non-performing commercial real estate loan secured by an office building and $1.1 million related to the payoff of a non-performing bank stock loan. The largest remaining non-performing loan at June 30, 2012 was for $2.5 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 June 30, 2012 and 2011 is summarized as follows:
| (Dollars in thousands) | 2012 | 2011 | ||||||||
| Balance at March 31, | $ | 21,424 | $ | 34,953 | ||||||
| Provision | 1,088 | 3,463 | ||||||||
| Charge offs: | ||||||||||
| One-to-four family | 0 | (16 | ) | |||||||
| Consumer | (493 | ) | (34 | ) | ||||||
| Commercial business | (1,820 | ) | (6,249 | ) | ||||||
| Commercial real estate | (1,554 | ) | (4,633 | ) | ||||||
| Recoveries | 1,874 | 280 | ||||||||
| Balance at June 30, | $ | 20,519 | $ | 27,764 | ||||||
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Allocated to: |
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| General reserves | $ | 14,507 | $ | 15,618 | ||||||
| Specific reserves | 6,012 | 12,146 | ||||||||
| $ | 20,519 | $ | 27,764 | |||||||
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) | 2012 | 2012 | 2011 | ||||||||||||
| Non-Performing Loans: | |||||||||||||||
| One-to-four family real estate | $ | 4,409 | $ | 5,240 | $ | 4,435 | |||||||||
| Commercial real estate | 16,611 | 20,498 | 22,658 | ||||||||||||
| Consumer | 367 | 737 | 699 | ||||||||||||
| Commercial business | 3,993 | 6,539 | 6,201 | ||||||||||||
| Total | 25,380 | 33,014 | 33,993 | ||||||||||||
| Foreclosed and Repossessed Assets: | |||||||||||||||
| One-to-four family real estate | 145 | 317 | 352 | ||||||||||||
| Commercial real estate | 12,587 | 13,277 | 16,264 | ||||||||||||
| Total non-performing assets | $ | 38,112 | $ | 46,608 | $ | 50,609 | |||||||||
| Total as a percentage of total assets | 5.69 | % | 6.60 | % | 6.40 | % | |||||||||
| Total non-performing loans | $ | 25,380 | $ | 33,014 | $ | 33,993 | |||||||||
| Total as a percentage of total loans receivable, net | 5.12 | % | 6.14 | % | 6.10 | % | |||||||||
| Allowance for loan loss to non-performing loans | 80.85 | % | 64.90 | % | 70.27 | % | |||||||||
| Delinquency Data: | |||||||||||||||
| Delinquencies (1) | |||||||||||||||
| 30+ days | $ | 6,412 | $ | 4,823 | $ | 3,226 | |||||||||
| 90+ days | 0 | 0 | 0 | ||||||||||||
| Delinquencies as a percentage of | |||||||||||||||
| Loan and lease portfolio (1) | |||||||||||||||
| 30+ days | 1.24 | % | 0.86 | % | 0.54 | % | |||||||||
| 90+ days | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||
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(1) Excludes non-accrual loans. |
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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.
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Principal | Principal | Principal | |||||||||||||||||||
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(Dollars in thousands) |
Amount of | Amount of | Amount of | |||||||||||||||||||
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Loans | Loans | Loans | |||||||||||||||||||
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Property Type |
# |
June 30, |
# |
March 31, |
# |
December 31, | ||||||||||||||||
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2012 |
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2012 |
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2011 | |||||||||||||||||
| Developments/land | 12 | $ | 14,919 | 12 | $ | 15,615 | 10 | $ | 17,465 | |||||||||||||
| Shopping centers/retail | 2 | 406 | 3 | 1,375 | 2 | 1,315 | ||||||||||||||||
| Restaurants/bar | 1 | 581 | 1 | 596 | 1 | 616 | ||||||||||||||||
| Office buildings | 2 | 184 | 1 | 2,325 | 1 | 2,325 | ||||||||||||||||
| Other buildings | 2 | 521 | 2 | 587 | 3 | 937 | ||||||||||||||||
| 19 | $ | 16,611 | 19 | $ | 20,498 | 17 | $ | 22,658 | ||||||||||||||
The decrease in the non-performing commercial real estate loans from March 31, 2012 is due primarily to a $2.4 million payoff of a non-performing commercial real estate loan secured by an office building and the partial charge offs on two residential development loans totaling $0.8 million.
The following table summarizes the number of lending relationships and industry of commercial business loans that were non-performing as of the end of the three most recently completed quarters.
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Principal | Principal | Principal | |||||||||||||||||||
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(Dollars in thousands) |
Amount of | Amount of | Amount of | |||||||||||||||||||
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Loans | Loans | Loans | |||||||||||||||||||
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Industry Type |
# |
June 30, |
# |
March 31, |
# |
December 31, | ||||||||||||||||
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2012 |
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2012 |
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2011 | |||||||||||||||||
| Construction/development/land | 6 | $ | 1,796 | 6 | $ | 1,953 | 6 | $ | 2,061 | |||||||||||||
| Retail | 2 | 202 | 2 | 47 | 1 | 82 | ||||||||||||||||
| Banking | 0 | 0 | 2 | 1,194 | 2 | 1,199 | ||||||||||||||||
| Entertainment | 1 | 20 | 1 | 20 | 1 | 23 | ||||||||||||||||
| Utilities | 2 | 1,394 | 1 | 2,780 | 1 | 2,792 | ||||||||||||||||
| Restaurant | 1 | 498 | 1 | 501 | 0 | 0 | ||||||||||||||||
| Other | 2 | 83 | 1 | 44 | 1 | 44 | ||||||||||||||||
| 14 | $ | 3,993 | 14 | $ | 6,539 | 12 | $ | 6,201 | ||||||||||||||
The decrease in non-performing commercial business loans during the second quarter of 2012 is primarily related to the charge off of $1.6 million on a non-performing commercial business loan in the utilities industry and $1.1 million related to the payoff of a non-performing bank stock loan during the second quarter of 2012.
Non-Interest Income and Expense
Non-interest
income was $1.8 million for the second quarter of 2012, an increase of
$0.2 million, or 12.9%, from $1.6 million for the same period in 2011.
Gains on sales of loans increased $0.3 million between the periods
primarily as a result of increased single family loan originations due
to the low interest rate environment that continued to exist in the
second quarter of 2012. Fees and service charges decreased $91,000
primarily because of a decrease in overdraft charges between the periods.
Non-interest expense was $6.4 million for the second quarter of 2012, a decrease of $1.1 million, or 15.1%, from $7.5 million for the same period of 2011. Other non-interest expense decreased $0.7 million primarily because of decreased real estate taxes and legal fees related to other real estate owned. Compensation and benefits decreased $0.3 million between the periods primarily because of a decrease in employees between the periods. Deposit insurance costs decreased $0.1 million primarily because of a decrease in assets between the periods.
The effect of income taxes changed $76,000 between the periods, from a benefit of $76,000 in the second quarter of 2011 to no expense in the second quarter of 2012. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at June 30, 2012. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the second quarter of 2012. The income tax benefit in the second quarter of 2011 relates to the reversal of the taxes on the change in the fair market value of the available for sale investment portfolio that was recorded in the first quarter of 2011.
Net Loss Available to Common Shareholders
The
net loss available to common shareholders was $69,000 for the second
quarter of 2012, an improvement of $2.6 million from the $2.7 million
net loss available to common shareholders in the second quarter of 2011.
The net loss available to common shareholders decreased primarily
because of the change in the net income (loss) between the periods. The
Company has deferred the last six quarterly dividend payments, beginning
with the February 15, 2011 dividend payment, 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 income for financial
statement purposes to arrive at the net income (loss) available to
common shareholders. Under the terms of the certificate of designations
for the preferred stock, dividend payments may be deferred without
default, but the dividend is cumulative and, since the Company failed to
pay dividends for six quarters, the Treasury has the right to appoint
two representatives to the Company’s board of directors, although the
Treasury has not yet exercised this right. Under the terms of the
Company’s and Bank’s Supervisory Agreements with their federal banking
regulators, neither the Company nor the Bank may declare or pay any cash
dividends, or purchase or redeem any capital stock, without prior notice
to, and consent of these regulators. The Company does not anticipate
requesting consent from the Federal Reserve Board to make any payments
of dividends on, or purchase of, its common or preferred stock in 2012.
Return (Loss) on Assets and Equity
Return
on average assets for the second quarter of 2012 was 0.23%, compared to
a 1.08% loss on average assets for the second quarter of 2011. Return on
average equity was 2.66% for the second quarter of 2012, compared to a
13.27% loss for the same period in 2011. Book value per common share at
June 30, 2012 was $7.79, compared to $9.81 at June 30, 2011.
Six Month Period Results
Net Income (Loss)
Net income was $3.2
million for the six month period ended June 30, 2012, an improvement of
$5.1 million, or 270.7%, compared to the net loss of $1.9 million for
the six month period ended June 30, 2011. The net income available to
common shareholders was $2.3 million for the six month period ended June
30, 2012, an improvement of $5.1 million, or 181.8%, compared to the net
loss available to common shareholders of $2.8 million for the same
period of 2011. Diluted earnings per share for the six month period in
2012 was $0.57, an improvement of $1.30 per share compared to the
diluted loss per share of $0.73 for the same period in 2011. The
improvement in net income for the six month period in 2012 was primarily
due to a $4.4 million decrease in the provision for loan losses, $1.7
million decrease in non-interest expenses, $0.7 million increase in the
gains recognized on the sales of loans, and a $0.6 million gain on sale
of the Bank’s Toledo, Iowa branch. These changes to net income were
partially offset by a $2.1 million decrease in net interest income due
primarily to the decrease in interest earning assets between the periods.
Net Interest Income
Net interest
income was $12.3 million for the first six months of 2012, a decrease of
$2.1 million, or 15.1%, from $14.4 million for the same period in 2011.
Interest income was $16.2 million for the six month period ended June
30, 2012, a decrease of $4.6 million, or 21.8%, from $20.8 million for
the same six month period in 2011. Interest income decreased between the
periods primarily because of a $139 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 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 4.79% for the first six months of 2012, a
decrease of 32 basis points from the 5.11% average yield for the first
six months of 2011. The decrease in average yield is due to the
continued low interest rate environment that existed during the first
six months of 2012. Interest expense was $4.0 million for the first six
months of 2012, a decrease of $2.3 million, or 37.2%, compared to $6.3
million for the first six months of 2011. Interest expense decreased
primarily because of the $138 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 was completed in the first quarter of 2012. 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 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 2012. The average interest rate paid on
interest-bearing liabilities was 1.23% for the first six months of 2012,
a decrease of 39 basis points from the 1.62% average interest rate paid
in the first six months of 2011. Net interest margin (net interest
income divided by average interest earning assets) for the first six
months of 2012 was 3.62%, an increase of 7 basis points, compared to
3.55% for the first six months of 2011.
Provision for Loan Losses
The
provision for loan losses was $1.0 million for the first six months of
2012, a decrease of $4.4 million, or 82.3%, from $5.4 million for the
same six month period in 2011. The provision for loan losses decreased
in the first six months of 2012 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 2011. The provision also decreased because of a decrease in the
required reserves for certain risk rated commercial loans as a result of
an internal loan portfolio analysis that was performed between the
periods. Total non-performing assets were $38.1 million at June 30,
2012, a decrease of $12.5 million, or 24.7%, from $50.6 million at
December 31, 2011. Non-performing loans decreased $8.6 million and
foreclosed and repossessed assets decreased $3.9 million during the
first six months of 2012. The non-performing loan and foreclosed and
repossessed asset activity for the first six months of 2012 was as
follows:
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(Dollars in thousands) |
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| Non-performing loans |
Foreclosed and repossessed asset activity |
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| December 31, 2011 | $ | 33,993 | December 31, 2011 | $ | 16,616 | ||||||||
| Classified as non-performing | 5,646 | Transferred from non-performing loans | 588 | ||||||||||
| Charge offs | (6,852 | ) | Other foreclosures/repossessions | 0 | |||||||||
| Principal payments received | (6,403 | ) | Write downs | (586 | ) | ||||||||
| Classified as accruing | (416 | ) | Real estate sold | (4,234 | ) | ||||||||
| Transferred to real estate owned | (588 | ) | Net gain on sale of assets | 348 | |||||||||
| June 30, 2012 | $ | 25,380 | June 30, 2012 | $ | 12,732 | ||||||||
The decrease in non-performing loans during the first six months of 2012 relates primarily to charge offs and principal payments received during the period. Of the $6.9 million in charge offs during the period, $2.2 million related to a commercial development loan and $1.2 million related to two residential development loans that were charged off as a result of obtaining updated appraisals of the underlying collateral.
A reconciliation of the Company’s allowance for loan losses for the six month periods ended June 30, 2012 and June 30, 2011 is summarized as follows:
| (Dollars in thousands) | 2012 | 2011 | ||||||||
| Balance at January 1, | $ | 23,888 | $ | 42,828 | ||||||
| Provision | 960 | 5,409 | ||||||||
| Charge offs: | ||||||||||
| One-to-four family | 0 | (419 | ) | |||||||
| Consumer | (757 | ) | (86 | ) | ||||||
| Commercial business | (1,829 | ) | (8,557 | ) | ||||||
| Commercial real estate | (4,184 | ) | (12,209 | ) | ||||||
| Recoveries | 2,441 | 798 | ||||||||
| Balance at June 30, | $ | 20,519 | $ | 27,764 | ||||||
Non-Interest Income and Expense
Non-interest
income was $4.5 million for the first six months of 2012, an increase of
$1.1 million, or 33.3%, from $3.4 million for the first six months of
2011. Gains on sales of loans increased $0.7 million between the periods
primarily as a result of increased single family loan originations due
to the low interest rate environment that continued to exist during the
first six months of 2012. Gain on sale of branch office increased $0.6
million as a result of the sale of the Toledo, Iowa branch in the first
quarter of 2012. Fees and service charges decreased $0.2 million
primarily because of a decrease in overdraft charges between the periods.
Non-interest expense was $12.6 million for the first six months of 2012, a decrease of $1.7 million, or 11.8%, from $14.3 million for the same period of 2011. Other non-interest expense decreased $0.9 million because of decreased real estate taxes and legal fees related to other real estate owned. Compensation and benefits decreased $0.4 million primarily because of a decrease in employees between the periods. Deposit insurance costs decreased $0.2 million primarily because of a decrease in assets between the periods. Occupancy expense decreased $0.1 million between the periods primarily because of a decrease in depreciation expense. Loss on real estate owned decreased $0.1 million because of a decrease in the gains recognized on the sale of real estate owned between the periods. Data processing costs increased $0.1 million between the periods primarily because of a one time incentive that was received by the Company in the first quarter of 2011 related to a change in our ATM and debit card vendor.
No income tax expense was recorded in the first six months of 2012 or 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 June 30, 2012. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the first six months of 2012 or 2011.
Net Income (Loss) Available to Common Shareholders
The
net income available to common shareholders was $2.3 million for the
first six months of 2012, an improvement of $5.1 million from the $2.8
million net loss available to common shareholders in the first six
months of 2011. The net income (loss) available to common shareholders
improved primarily because of the change in the net income (loss)
between the periods. The Company has deferred the last six quarterly
dividend payments, beginning with the February 15, 2011 dividend
payment, 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 income for financial statement purposes to arrive at the net income
(loss) available to common shareholders. Under the terms of the
certificate of designations for the preferred stock, dividend payments
may be deferred without default, but the dividend is cumulative and,
since the Company failed to pay dividends for six quarters, the Treasury
has the right to appoint two representatives to the Company’s board of
directors, although the Treasury has not yet exercised this right. Under
the terms of the Company’s and Bank’s Supervisory Agreements with their
federal banking regulators, neither the Company nor the Bank may declare
or pay any cash dividends, or purchase or redeem any capital stock,
without prior notice to, and consent of these regulators. The Company
does not anticipate requesting consent from the Federal Reserve Board to
make any payments of dividends on, or purchase of, its common or
preferred stock in 2012.
Return (Loss) on Assets and Equity
Return
on average assets for the six month period ended June 30, 2012 was
0.90%, compared to a 0.44% loss on average assets for the same period in
2011. Return on average equity was 10.98% for the six month period ended
in 2012, compared to a 5.42% loss for the same period in 2011.
General Information
HMN Financial,
Inc. and Home Federal Savings Bank are headquartered in Rochester,
Minnesota. Home Federal Savings Bank operates nine full service offices
in Minnesota located in Albert Lea, Austin, Eagan, La Crescent,
Rochester (3), 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,”
“intent,” “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 of alternate funding sources; 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; expectations relating to the change in Company and Bank primary
banking regulators from the Office of Thrift Supervision to the Office
of the Comptroller of the Currency (OCC) and Federal Reserve Board
(FRB); 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, deposit outflows, changes in credit or other risks
posed by the Company’s loan and investment portfolios, changes in costs
associated with alternate funding sources, including changes in
collateral advance rates and policies of the Federal Home Loan Bank,
technological, computer-related or operational difficulties, results of
litigation, and reduced demand for financial services and loan products;
changes in accounting policies and guidelines, or monetary and fiscal
policies of the federal government or tax laws; international economic
developments; the Company’s access to and adverse changes in securities
markets; the market for credit related assets; 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 filing on Form 10-K 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, 2011 and Part II, Item 1A of its Quarterly Reports on Forms 10-Q. We
undertake no duty to update any of the forward-looking statements after
the date of this press release.
| HMN FINANCIAL, INC. AND SUBSIDIARIES | |||||||||
| Consolidated Balance Sheets | |||||||||
| June 30, | December 31, | ||||||||
| (Dollars in thousands) | 2012 | 2011 | |||||||
| (unaudited) | |||||||||
| Assets | |||||||||
| Cash and cash equivalents | $ | 65,618 | 67,840 | ||||||
| Securities available for sale: | |||||||||
| Mortgage-backed and related securities | |||||||||
| (amortized cost $14,035 and $19,586) | 14,869 | 20,645 | |||||||
| Other marketable securities | |||||||||
|
(amortized cost $61,699 and $105,700) |
61,420 | 105,469 | |||||||
| 76,289 | 126,114 | ||||||||
| Loans held for sale | 2,601 | 3,709 | |||||||
| Loans receivable, net | 496,178 | 555,908 | |||||||
| Accrued interest receivable | 1,980 | 2,449 | |||||||
| Real estate, net | 12,732 | 16,616 | |||||||
| Federal Home Loan Bank stock, at cost | 4,063 | 4,222 | |||||||
| Mortgage servicing rights, net | 1,533 | 1,485 | |||||||
| Premises and equipment, net | 7,576 | 7,967 | |||||||
| Prepaid expenses and other assets | 1,744 | 2,262 | |||||||
| Assets held for sale | 0 | 1,583 | |||||||
| Deferred tax asset, net | 0 | 0 | |||||||
| Total assets | $ | 670,314 | 790,155 | ||||||
| Liabilities and Stockholders’ Equity | |||||||||
| Deposits | $ | 534,297 | 620,128 | ||||||
| Deposits held for sale | 0 | 36,048 | |||||||
| Federal Home Loan Bank advances | 70,000 | 70,000 | |||||||
| Accrued interest payable | 518 | 780 | |||||||
| Customer escrows | 713 | 933 | |||||||
| Accrued expenses and other liabilities | 5,255 | 5,205 | |||||||
| Total liabilities | 610,783 | 733,094 | |||||||
| Commitments and contingencies | |||||||||
| Stockholders’ equity: | |||||||||
| Serial preferred stock ($.01 par value): | |||||||||
| authorized 500,000 shares; issued shares 26,000 | 25,053 | 24,780 | |||||||
| Common stock ($.01 par value): | |||||||||
| authorized 11,000,000; issued shares 9,128,662 | 91 | 91 | |||||||
| Additional paid-in capital | 52,096 | 53,462 | |||||||
| Retained earnings, subject to certain restrictions | 45,532 | 42,983 | |||||||
| Accumulated other comprehensive income | 199 | 471 | |||||||
| Unearned employee stock ownership plan shares | (3,094 | ) | (3,191 | ) | |||||
| Treasury stock, at cost 4,705,073 and 4,740,711 shares | (60,346 | ) | (61,535 | ) | |||||
| Total stockholders’ equity | 59,531 | 57,061 | |||||||
| Total liabilities and stockholders’ equity | $ | 670,314 | 790,155 | ||||||
| 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) | 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Interest income: | |||||||||||||||||
| Loans receivable | $ | 7,523 | 9,301 | 15,319 | 19,204 | ||||||||||||
| Securities available for sale: | |||||||||||||||||
| Mortgage-backed and related | 164 | 290 | 357 | 614 | |||||||||||||
| Other marketable | 192 | 407 | 441 | 824 | |||||||||||||
| Cash equivalents | 19 | 2 | 46 | 3 | |||||||||||||
| Other | 54 | 45 | 64 | 114 | |||||||||||||
| Total interest income | 7,952 | 10,045 | 16,227 | 20,759 | |||||||||||||
| Interest expense: | |||||||||||||||||
| Deposits | 1,061 | 1,806 | 2,278 | 3,746 | |||||||||||||
| Federal Home Loan Bank advances | 844 | 1,240 | 1,689 | 2,569 | |||||||||||||
| Total interest expense | 1,905 | 3,046 | 3,967 | 6,315 | |||||||||||||
| Net interest income | 6,047 | 6,999 | 12,260 | 14,444 | |||||||||||||
| Provision for loan losses | 1,088 | 3,463 | 960 | 5,409 | |||||||||||||
| Net interest income after provision for loan losses | 4,959 | 3,536 | 11,300 | 9,035 | |||||||||||||
| Non-interest income: | |||||||||||||||||
| Fees and service charges | 834 | 925 | 1,663 | 1,849 | |||||||||||||
| Mortgage servicing fees | 236 | 250 | 468 | 500 | |||||||||||||
| Gain on sales of loans | 620 | 301 | 1,529 | 796 | |||||||||||||
| Gain on sale of branch office | 0 | 0 | 552 | 0 | |||||||||||||
| Other | 104 | 113 | 288 | 230 | |||||||||||||
| Total non-interest income | 1,794 | 1,589 | 4,500 | 3,375 | |||||||||||||
| Non-interest expense: | |||||||||||||||||
| Compensation and benefits | 3,219 | 3,512 | 6,632 | 7,072 | |||||||||||||
| Loss on real estate owned | 174 | 143 | 97 | 190 | |||||||||||||
| Occupancy | 839 | 916 | 1,721 | 1,856 | |||||||||||||
| Deposit insurance | 305 | 407 | 575 | 811 | |||||||||||||
| Data processing | 336 | 305 | 673 | 558 | |||||||||||||
| Other | 1,485 | 2,209 | 2,903 | 3,797 | |||||||||||||
| Total non-interest expense | 6,358 | 7,492 | 12,601 | 14,284 | |||||||||||||
| Income (loss) before income tax benefit | 395 | (2,367 | ) | 3,199 | (1,874 | ) | |||||||||||
| Income tax benefit | 0 | (76 | ) | 0 | 0 | ||||||||||||
| Net income (loss) | 395 | (2,291 | ) | 3,199 | (1,874 | ) | |||||||||||
| Preferred stock dividends and discount | 464 | 457 | 925 | 906 | |||||||||||||
| Net income (loss) available to common shareholders | $ | (69 | ) | (2,748 | ) | 2,274 | (2,780 | ) | |||||||||
| Basic earnings (loss) per common share | $ | (0.02 | ) | (0.72 | ) | 0.58 | (0.73 | ) | |||||||||
| Diluted earnings (loss) per common share | $ | (0.02 | ) | (0.72 | ) | 0.57 | (0.73 | ) | |||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Unrealized holding gains (losses) arising during the period | $ | (93 | ) | 438 | (272 | ) | 324 | ||||||||||
| Other comprehensive income (loss), net of tax | $ | (93 | ) | 438 | (272 | ) | 324 | ||||||||||
| Comprehensive income (loss) attributable to common | |||||||||||||||||
| shareholders | $ | (162 | ) | (2,310 | ) | 2,002 | (2,456 | ) | |||||||||
| HMN FINANCIAL, INC. AND SUBSIDIARIES | |||||||||||||||||
| Selected Consolidated Financial Information | |||||||||||||||||
| (unaudited) | |||||||||||||||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||
|
(Dollars in thousands, except per share data) |
2012 |
2011 |
2012 |
2011 |
|||||||||||||
| I. OPERATING DATA: | |||||||||||||||||
| Interest income | $ | 7,952 | 10,045 | 16,227 | 20,759 | ||||||||||||
| Interest expense | 1,905 | 3,046 | 3,967 | 6,315 | |||||||||||||
| Net interest income | 6,047 | 6,999 | 12,260 | 14,444 | |||||||||||||
| II. AVERAGE BALANCES: | |||||||||||||||||
| Assets (1) | 684,046 | 847,847 | 713,151 | 860,431 | |||||||||||||
| Loans receivable, net | 522,015 | 612,995 | 534,064 | 631,727 | |||||||||||||
| Securities available for sale (1) | 86,651 | 153,600 | 95,954 | 151,774 | |||||||||||||
| Interest-earning assets (1) | 653,268 | 805,678 | 680,772 | 819,397 | |||||||||||||
| Interest-bearing liabilities | 617,098 | 774,159 | 648,766 | 786,758 | |||||||||||||
| Equity (1) | 59,629 | 69,288 | 58,608 | 69,779 | |||||||||||||
| III. PERFORMANCE RATIOS: (1) | |||||||||||||||||
| Return on average assets (annualized) | 0.23 | % | (1.08 | )% | 0.90 | % | (0.44 | )% | |||||||||
| Interest rate spread information: | |||||||||||||||||
| Average during period | 3.65 | 3.42 | 3.56 | 3.49 | |||||||||||||
| End of period | 3.52 | 3.71 | 3.52 | 3.71 | |||||||||||||
| Net interest margin | 3.72 | 3.48 | 3.62 | 3.55 | |||||||||||||
| Ratio of operating expense to average | |||||||||||||||||
| total assets (annualized) | 3.74 | 3.54 | 3.55 | 3.35 | |||||||||||||
| Return on average equity (annualized) | 2.66 | (13.27 | ) | 10.98 | (5.42 | ) | |||||||||||
| Efficiency | 81.09 | 87.25 | 75.19 | 80.17 | |||||||||||||
| June 30, | December 31, |
June 30, |
|||||||||||||||
| 2012 | 2011 | 2011 | |||||||||||||||
| IV. ASSET QUALITY: | |||||||||||||||||
| Total non-performing assets | 38,112 | 50,609 | 64,957 | ||||||||||||||
| Non-performing assets to total assets | 5.69 | % | 6.40 | % | 8.05 | % | |||||||||||
| Non-performing loans to total loans receivable, net | 5.12 | % | 6.10 | % | 7.16 | % | |||||||||||
| Allowance for loan losses | 20,519 | 23,888 | 27,764 | ||||||||||||||
| Allowance for loan losses to total assets | 3.06 | % | 3.02 | % | 3.44 | % | |||||||||||
| Allowance for loan losses to total loans | |||||||||||||||||
| receivable, net | 4.14 | 4.29 | 4.61 | ||||||||||||||
| Allowance for loan losses to non-performing loans | 80.85 | 70.27 | 64.44 | ||||||||||||||
| V. BOOK VALUE PER SHARE: | |||||||||||||||||
| Book value per share | 7.79 | 7.36 | 9.81 | ||||||||||||||
|
Six Months |
Year Ended | Six Months | |||||||||||||||
|
Ended |
Dec 31, |
Ended | |||||||||||||||
|
June 30, 2012 |
2011 | June 30, 2011 | |||||||||||||||
| VI. CAPITAL RATIOS: | |||||||||||||||||
| Stockholders’ equity to total assets, | |||||||||||||||||
| at end of period | 8.88 | % | 7.22 | % | 8.37 | % | |||||||||||
| Average stockholders’ equity to | |||||||||||||||||
| average assets (1) | 8.22 | 8.19 | 8.11 | ||||||||||||||
| Ratio of average interest-earning assets to | |||||||||||||||||
| average interest-bearing liabilities (1) | 104.93 | 104.23 | 104.15 | ||||||||||||||
| Tier 1 or core capital (2) | 9.04 | 7.14 | 8.13 | ||||||||||||||
| Risk-based capital to risk-weighted assets | 13.73 | 10.86 | 11.78 | ||||||||||||||
| June 30, | December 31, | June 30, | |||||||||||||||
| 2012 | 2011 | 2011 | |||||||||||||||
| VII. EMPLOYEE DATA: | |||||||||||||||||
| Number of full time equivalent employees | 200 | 205 | 217 | ||||||||||||||
|
|
|||||||||||||||||
(1) Average balances were calculated based upon amortized cost without
the market value impact of ASC 320.
(2) The 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, 2012.