ROCHESTER, Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
Third Quarter Highlights
- Net income of $0.6 million compared to net loss of $2.1 million in third quarter of 2011
- Diluted earnings per share of $0.04 compared to diluted loss per share of $0.65 in third quarter of 2011
- Provision for loan losses of $1.6 million, down $2.7 million from third quarter of 2011
- Nonperforming assets of $47.2 million, up $3.4 million from second quarter of 2012
- Net interest margin of 3.82%, up 11 basis points from third quarter of 2011
Year to Date Highlights
- Net income of $3.8 million compared to net loss of $3.9 million in first nine months of 2011
- Diluted earnings per share of $0.61 compared to diluted loss per share of $1.38 in first nine months of 2011
- Provision for loan losses of $2.5 million, down $7.2 million from first nine months of 2011
- Nonperforming assets of $47.2 million, down $3.4 million from December 31, 2011
- Net interest margin of 3.68%, up 8 basis points from first nine months of 2011
- Total assets decreased $146 million from December 31, 2011
|
Income (Loss) Summary (unaudited) |
Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| (dollars in thousands, except per share amounts) | 2012 | 2011 | 2012 | 2011 | |||||||||||||||
| Net income (loss) | $ | 637 | (2,055 | ) | $ | 3,836 | (3,929 | ) | |||||||||||
|
Net income (loss) available to common shareholders |
170 |
(2,511 |
) |
2,444 |
(5,291 |
) |
|||||||||||||
| Diluted earnings (loss) per share | 0.04 | (0.65 | ) | 0.61 | (1.38 | ) | |||||||||||||
| Return (loss) on average assets | 0.39 | (1.02 | ) | % | 0.74 | (0.62 | ) | % | |||||||||||
| Return (loss) on average equity | 4.20 | (12.10 | ) | % | 8.66 | (7.62 | ) | % | |||||||||||
| Book value per common share | $ | 7.83 | 9.23 | $ | 7.83 | 9.23 | |||||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $644 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $0.6 million for the third quarter of 2012, an improvement of $2.7 million, or 131.0%, compared to a net loss of $2.1 million for the third quarter of 2011. Net income available to common shareholders was $0.2 million for the third quarter of 2012, an improvement of $2.7 million, or 106.8%, from the net loss available to common shareholders of $2.5 million for the third quarter of 2011. Diluted earnings per common share for the third quarter of 2012 was $0.04, an increase of $0.69, or 106.2%, from the diluted loss per common share of $0.65 for the third quarter of 2011. The improvement in net income for the third quarter of 2012 is due to a $2.7 million decrease in the provision for loan losses between the periods, a $0.6 million increase in noninterest income due primarily to an increase in the gain on sales of loans, and a $0.6 million decrease in noninterest expenses due primarily to the decrease in expenses related to real estate owned. These changes to net income were partially offset by a $1.2 million decrease in net interest income due primarily to a decrease in interest earning assets 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 other operating expenses,” said Bradley Krehbiel, President of HMN.
“The low rate environment for mortgage loans also continues to have a
positive effect on our single family mortgage loan production and the
related gain on sales of loans. We are pleased that the increase in
non-interest income combined with the decrease in non-interest expense
was able to offset the decline in our net interest income during the
quarter as a result of the decline in our earning assets.”
Third Quarter Results
Net Interest Income
Net interest
income was $5.9 million for the third quarter of 2012, a decrease of
$1.2 million, or 16.8%, compared to $7.1 million for the third quarter
of 2011. Interest income was $7.6 million for the third quarter of 2012,
a decrease of $2.0 million, or 21.1%, from $9.6 million for the same
period in 2011. Interest income decreased between the periods primarily
because of a $145 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 low 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 4.89%
for the third quarter of 2012, a decrease of 12 basis points from the
5.01% average yield for the third quarter of 2011. The decrease in the
average yield is due to the continued low interest rate environment that
existed during the third quarter of 2012.
Interest expense was $1.7 million for the third quarter of 2012, a decrease of $0.8 million, or 33.3%, compared to $2.5 million for the third quarter of 2011. Interest expense decreased primarily because of the $150 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 the average outstanding certificates of deposits and brokered 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 certificates of deposits and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing certificates of deposit and brokered 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 third quarter of 2012. The average interest rate paid on interest-bearing liabilities was 1.14% for the third quarter of 2012, a decrease of 22 basis points from the 1.36% average interest rate paid in the third quarter of 2011. Net interest margin (net interest income divided by average interest- earning assets) for the third quarter of 2012 was 3.82%, an increase of 11 basis points, compared to 3.71% for the third quarter of 2011.
Provision for Loan Losses
The
provision for loan losses was $1.6 million for the third quarter of
2012, a decrease of $2.7 million, compared to $4.3 million for the third
quarter of 2011. The provision decreased in the third 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 third quarter of
2012 when compared to the third quarter of 2011. The provision also
decreased because of the $123 million decrease in the loan portfolio
between the periods. Total non-performing assets were $47.2 million at
September 30, 2012, an increase of $3.4 million, or 7.7%, from $43.8
million at June 30, 2012. Non-performing loans increased $3.5 million
and foreclosed and repossessed assets decreased $0.1 million during the
third quarter of 2012. 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, 2012 | $31,091 | June 30, 2012 | $12,732 | |||||||
| Classified as non-performing | 11,155 | |||||||||
| Charge offs | (1,866) | Transferred from non-performing loans | 1,371 | |||||||
| Principal payments received | (3,645) | Real estate sold | (1,644) | |||||||
| Classified as accruing | (782) | Net gain on sale of assets | 172 | |||||||
| Transferred to real estate owned | (1,371) | Write downs | (14) | |||||||
| September 30, 2012 | $34,582 | September 30, 2012 | $12,617 | |||||||
The increase in non-performing loans relates primarily to new loans that were classified as non-performing during the quarter. Of the $11.2 million in loans classified as non-performing in the third quarter of 2012, $9.5 million related to three loans on two residential developments because the cash flows from lot sales were not sufficient to support the required principal payments on the loans. The largest non-performing loan relationship at September 30, 2012 was for $7.3 million and is secured by a residential development located in the Bank’s market area.
A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2012 and 2011 is summarized as follows:
| (Dollars in thousands) | 2012 | 2011 | |||||
| Balance at June 30, | $20,519 | $27,764 | |||||
| Provision | 1,584 | 4,260 | |||||
| Charge offs: | |||||||
| One-to-four family | 0 | (32) | |||||
| Consumer | (163) | (143) | |||||
| Commercial business | (168) | (2,167) | |||||
| Commercial real estate | (1,535) | (4,094) | |||||
| Recoveries | 225 | 102 | |||||
| Balance at September 30, | $20,462 | $25,690 | |||||
| General allowance | $15,965 | $15,906 | |||||
| Specific allowance | 4,497 | 9,784 | |||||
| $20,462 | $25,690 | ||||||
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, 2011.
| September 30, | June 30, | December 31, | |||||||||||||
| (Dollars in thousands) | 2012 | 2012 | 2011 | ||||||||||||
| Non-Performing Loans: | |||||||||||||||
| One-to-four family real estate | $ | 2,992 | $ | 4,409 | $ | 4,435 | |||||||||
| Commercial real estate | 27,707 | 22,322 | 22,658 | ||||||||||||
| Consumer | 317 | 367 | 699 | ||||||||||||
| Commercial business | 3,566 | 3,993 | 6,201 | ||||||||||||
| Total | 34,582 | 31,091 | 33,993 | ||||||||||||
| Foreclosed and Repossessed Assets: | |||||||||||||||
| One-to-four family real estate | 320 | 334 | 352 | ||||||||||||
| Commercial real estate | 12,297 | 12,398 | 16,264 | ||||||||||||
| Total non-performing assets | $ | 47,199 | $ | 43,823 | $ | 50,609 | |||||||||
| Total as a percentage of total assets | 7.33 | % | 6.54 | % | 6.40 | % | |||||||||
| Total non-performing loans | $ | 34,582 | $ | 31,091 | $ | 33,993 | |||||||||
| Total as a percentage of total loans receivable, net | 7.29 | % | 6.27 | % | 6.10 | % | |||||||||
| Allowance for loan losses to non-performing loans | 59.2 | % | 66.0 | % | 70.27 | % | |||||||||
| Delinquency Data: | |||||||||||||||
| Delinquencies (1) | |||||||||||||||
| 30+ days | $ | 5,077 | $ | 6,412 | $ | 3,226 | |||||||||
| 90+ days | 0 | 0 | 0 | ||||||||||||
| Delinquencies as a percentage of | |||||||||||||||
| loan and lease portfolio (1) | |||||||||||||||
| 30+ days | 0.98 | % | 1.24 | % | 0.54 | % | |||||||||
| 90+ days | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||
(1) Excludes non-accrual loans.
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, 2011.
| Principal | Principal | Principal | |||||||||||||||||||||||||
| (Dollars in thousands) | Amount of | Amount of | Amount of | ||||||||||||||||||||||||
| Loans | Loans | Loans | |||||||||||||||||||||||||
|
# |
September 30, |
# |
June 30, |
# |
December 31, | ||||||||||||||||||||||
| Property Type |
|
2012 |
|
2012 |
|
2011 | |||||||||||||||||||||
| Developments/land | 12 | $26,415 | 13 | $20,630 | 10 | $17,465 | |||||||||||||||||||||
| Shopping centers/retail | 2 | 396 | 2 | 406 | 2 | 1,315 | |||||||||||||||||||||
| Restaurants/bar | 1 | 565 | 1 | 581 | 1 | 616 | |||||||||||||||||||||
| Office buildings | 2 | 184 | 2 | 184 | 1 | 2,325 | |||||||||||||||||||||
| Other buildings | 1 | 147 | 2 | 521 | 3 | 937 | |||||||||||||||||||||
| 18 | $27,707 | 20 | $22,322 | 17 | $22,658 | ||||||||||||||||||||||
The increase in the non-performing commercial real estate loans from June 30, 2012 is due primarily to three loans on two residential developments totaling $9.5 million that were classified as non-performing during the third quarter of 2012 because the cash flows from lot sales were not sufficient to support the required principal payments on the loans.
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 two most recently completed quarters and December 31, 2011.
| Principal | Principal | Principal | |||||||||||||||||||||||||
| (Dollars in thousands) | Amount of | Amount of | Amount of | ||||||||||||||||||||||||
| Loans | Loans | Loans | |||||||||||||||||||||||||
|
# |
September 30, |
# |
June 30, |
# |
December 31, | ||||||||||||||||||||||
| Industry Type |
|
2012 |
|
2012 |
|
2011 | |||||||||||||||||||||
| Construction/development/land | 6 | $1,650 | 6 | $1,796 | 6 | $2,061 | |||||||||||||||||||||
| Retail | 2 | 247 | 2 | 202 | 1 | 82 | |||||||||||||||||||||
| Banking | 0 | 0 | 0 | 0 | 2 | 1,199 | |||||||||||||||||||||
| Entertainment | 1 | 16 | 1 | 20 | 1 | 23 | |||||||||||||||||||||
| Utilities | 2 | 1,379 | 2 | 1,394 | 1 | 2,792 | |||||||||||||||||||||
| Restaurant | 1 | 135 | 1 | 498 | 0 | 0 | |||||||||||||||||||||
| Other | 3 | 139 | 2 | 83 | 1 | 44 | |||||||||||||||||||||
| 15 | $3,566 | 14 | $3,993 | 12 | $6,201 | ||||||||||||||||||||||
Non-Interest Income and Expense
Non-interest
income was $2.1 million for the third quarter of 2012, an increase of
$0.6 million, or 39.3%, from $1.5 million for the same period in 2011.
Gains on sales of loans increased $0.8 million primarily because of an
increase in single family loan originations and sales and also because
of an increase in the sale of commercial government guaranteed loans
between the periods. Fees and service charges decreased $0.2 million
primarily because of a decrease in overdraft charges between the periods
which was partly due to the reduction in deposit accounts as a result of
the sale of the Toledo, Iowa branch in the first quarter of 2012.
Non-interest expense was $5.8 million for the third quarter of 2012, a decrease of $0.6 million, or 9.5%, from $6.4 million for the same period of 2011. Compensation and benefits expense decreased $0.3 million between the periods primarily because of a decrease in the compensation paid as a result of having fewer employees. Gain on real estate owned increased $0.3 million between the periods as there were more gains realized on the sale of real estate and there were fewer write downs in the value of the real estate owned in the third quarter of 2012 when compared to the same period in 2011. Occupancy expense decreased $0.1 million primarily because of a decrease in depreciation and other expenses as a result of having fewer branch facilities. Other non-interest expenses decreased $0.1 million primarily because of a decrease in the costs related to other real estate owned. Deposit insurance expense increased $0.2 million primarily because of an increase in the insurance rates between the periods.
No income tax expense was recorded for the third quarter of 2012 or 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, 2012. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the third quarter of 2012 or 2011.
Net Income (Loss) Available to Common Shareholders
Net
income available to common shareholders was $0.2 million for the third
quarter of 2012, an increase of $2.7 million from the $2.5 million net
loss available to common shareholders in the third quarter of 2011. The
net income available to common shareholders increased primarily because
of the change in the net income (loss) between the periods. The Company
has deferred the last seven 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 third quarter of 2012 was 0.39%, compared to a
1.02% loss on average assets for the third quarter of 2011. Return on
average equity was 4.20% for the third quarter of 2012, compared to a
12.10% loss on average equity for the same period of 2011. Book value
per common share at September 30, 2012 was $7.83, compared to $9.23 at
September 30, 2011.
Nine Month Period Results
Net Income (Loss)
Net income was $3.8
million for the nine-month period ended September 30, 2012, an
improvement of $7.7 million, from the $3.9 million net loss for the
nine-month period ended September 30, 2011. Net income available to
common shareholders was $2.4 million for the nine-month period ended
September 30, 2012, an improvement of $7.7 million, from the net loss
available to common shareholders of $5.3 million for the same period of
2011. Diluted earnings per common share for the nine-month period in
2012 was $0.61, an improvement of $1.99, from the diluted loss per
common share of $1.38 for the same period in 2011. The improvement in
net income for the first nine months of 2012 is due to a $7.1 million
decrease in the provision for loan losses between the periods, a $0.6
million gain on sale of the Bank’s Toledo, Iowa branch, a $1.5 million
increase in the gain on sales of loans, and a $2.3 million decrease in
noninterest expenses due primarily to the decrease in expenses related
to real estate owned. These improvements to net income were partially
offset by a $3.4 million decrease in net interest income due primarily
to a decrease in interest earning assets between the periods.
Net Interest Income
Net interest
income was $18.2 million for the first nine months of 2012, a decrease
of $3.3 million, or 15.7%, from $21.5 million for the same period in
2011. Interest income was $23.8 million for the nine-month period ended
September 30, 2012, a decrease of $6.5 million, or 21.6%, from $30.3
million for the same period in 2011. Interest income decreased between
the periods primarily because of a $141 million decrease in the average
interest-earning assets and also because of a decrease in the average
yields earned 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 low 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 4.82% for the nine-month period of 2012, a
decrease of 26 basis points from the 5.08% average yield for the
nine-month period of 2011. The decrease in the average yield is due to
the continued low interest rate environment that existed during the
first nine months of 2012.
Interest expense was $5.6 million for the nine-month period ended September 30, 2012, a decrease of $3.2 million, or 36.1%, from $8.8 million for the same period in 2011. Interest expense decreased primarily because of a $142 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 certificates of deposit and brokered deposits between the periods. The average interest rate paid on interest-bearing liabilities was 1.20% for the nine-month period of 2012, a decrease of 34 basis points from the 1.54% average rate paid for the same nine-month period of 2011. Net interest margin (net interest income divided by average interest earning assets) was 3.68% for the nine-month period of 2012, an increase of 8 basis points from the 3.60% margin for the same nine-month period of 2011.
Provision for Loan Losses
The
provision for loan losses was $2.5 million for the first nine months of
2012, a decrease of $7.2 million, from $9.7 million for the same
nine-month period in 2011. The provision decreased in the first nine
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 same period of 2011. The provision
also decreased because of the $123 million decrease in the loan
portfolio between the periods. Total non-performing assets were $47.2
million at September 30, 2012, a decrease of $3.4 million, or 6.7%, from
$50.6 million at December 31, 2011. Non-performing loans increased $0.6
million and foreclosed and repossessed assets decreased $4.0 million
during the first nine months of 2012. The non-performing loan and
foreclosed and repossessed asset activity for the first nine months of
2012 was as follows:
|
(Dollars in thousands) |
||||||||||||
| Non-performing loans | Foreclosed and repossessed asset activity | |||||||||||
| December 31, 2011 | $33,993 | December 31, 2011 | $16,616 | |||||||||
| Classified as non-performing | 22,514 | |||||||||||
| Charge offs | (8,637) | Transferred from non-performing loans | 1,959 | |||||||||
| Principal payments received | (10,129) | Real estate sold | (5,878) | |||||||||
| Classified as accruing | (1,200) | Net gain on sale of assets | 521 | |||||||||
| Transferred to real estate owned | (1,959) | Write downs | (601) | |||||||||
| September 30, 2012 | $34,582 | September 30, 2012 | $12,617 | |||||||||
A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2012 and 2011 is summarized as follows:
| (in thousands) | 2012 | 2011 | ||||||
| Balance at January 1, | $23,888 | $42,828 | ||||||
| Provision | 2,544 | 9,669 | ||||||
| Charge offs: | ||||||||
| One-to-four family | 0 | (450) | ||||||
| Consumer | (921) | (230) | ||||||
| Commercial business | (1,997) | (10,724) | ||||||
| Commercial real estate | (5,719) | (16,303) | ||||||
| Recoveries | 2,667 | 900 | ||||||
| Balance at September 30, | $20,462 | $25,690 | ||||||
| General allowance | $15,965 | $15,906 | ||||||
| Specific allowance | 4,497 | 9,784 | ||||||
| $20,462 | $25,690 | |||||||
Non-Interest Income and Expense
Non-interest
income was $6.6 million for the first nine months of 2012, an increase
of $1.7 million, or 35.2%, from $4.9 million for the same period in
2011. Gains on sales of loans increased $1.5 million, or 150.9%, between
the periods as a result of an increase in single family loan
originations and sales due to the low interest rate environment that
existed during the first nine 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 $0.3 million primarily because of a decrease in overdraft
charges between the periods. Other non-interest income increased $62,000
due primarily to an increase in the sale of uninsured investment
products and an increase in rental income on other real estate owned.
Mortgage servicing fees decreased $34,000 between the periods primarily
because of a decrease in the number of single family mortgage loans that
are being serviced for others.
Non-interest expense was $18.4 million for the first nine months of 2012, a decrease of $2.3 million, or 11.1%, from $20.7 million for the same period in 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 expense decreased $0.8 million primarily because of a decrease in the compensation paid as a result of having fewer employees. Gain on real estate owned improved $0.4 million between the periods as there were more gains realized on the sale of real estate and there were fewer write downs in the value of the real estate owned in the first nine months of 2012 when compared to the same period of 2011. Occupancy expense decreased $0.3 million primarily because of a decrease in depreciation and other expenses as a result of having fewer branch facilities. Deposit insurance expense decreased $0.1 million primarily because of the decrease in assets between the periods. Data processing costs increased $0.1 million between the periods primarily because of an 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 for the first nine months of 2012 or 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, 2012. 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 2012 or 2011.
Net Income (Loss) Available to Common Shareholders
Net
income available to common shareholders was $2.4 million for the first
nine months of 2012, an increase of $7.7 million from the $5.3 million
net loss available to common shareholders in the same period of 2011.
The net income available to common shareholders increased primarily
because of the change in the net income (loss) between the periods. The
Company has deferred the last seven 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 nine-month period ended September 30, 2012 was
0.74%, compared to a loss on average assets of 0.62% for the same period
in 2011. Return on average equity was 8.66% for the nine-month period
ended September 30, 2012, compared to a loss on average equity of 7.62%
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; 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 | ||||||||||
| September 30, | December 31, | |||||||||
| (dollars in thousands) | 2012 | 2011 | ||||||||
| (unaudited) | ||||||||||
| Assets | ||||||||||
| Cash and cash equivalents | $ | 76,400 | 67,840 | |||||||
| Securities available for sale: | ||||||||||
| Mortgage-backed and related securities | ||||||||||
| (amortized cost $11,629 and $19,586) | 12,437 | 20,645 | ||||||||
| Other marketable securities | ||||||||||
| (amortized cost $46,736 and $105,700) | 46,406 | 105,469 | ||||||||
| 58,843 | 126,114 | |||||||||
| Loans held for sale | 4,654 | 3,709 | ||||||||
| Loans receivable, net | 474,346 | 555,908 | ||||||||
| Accrued interest receivable | 2,135 | 2,449 | ||||||||
| Real estate, net | 12,617 | 16,616 | ||||||||
| Federal Home Loan Bank stock, at cost | 4,063 | 4,222 | ||||||||
| Mortgage servicing rights, net | 1,580 | 1,485 | ||||||||
| Premises and equipment, net | 7,359 | 7,967 | ||||||||
| Prepaid expenses and other assets | 1,726 | 2,262 | ||||||||
| Assets held for sale | 0 | 1,583 | ||||||||
| Deferred tax asset, net | 0 | 0 | ||||||||
| Total assets | $ | 643,723 | 790,155 | |||||||
| Liabilities and Stockholders’ Equity | ||||||||||
| Deposits | $ | 505,541 | 620,128 | |||||||
| Deposits held for sale | 0 | 36,048 | ||||||||
| Federal Home Loan Bank advances | 70,000 | 70,000 | ||||||||
| Accrued interest payable | 237 | 780 | ||||||||
| Customer escrows | 1,422 | 933 | ||||||||
| Accrued expenses and other liabilities | 6,674 | 5,205 | ||||||||
| Total liabilities | 583,874 | 733,094 | ||||||||
| Commitments and contingencies | ||||||||||
| Stockholders’ equity: | ||||||||||
| Serial preferred stock: ($.01 par value) | ||||||||||
| authorized 500,000 shares; issued shares 26,000 | 25,193 | 24,780 | ||||||||
| Common stock ($.01 par value): | ||||||||||
| authorized 11,000,000; issued shares 9,128,662 | 91 | 91 | ||||||||
| Additional paid-in capital | 51,990 | 53,462 | ||||||||
| Retained earnings, subject to certain restrictions | 45,844 | 42,983 | ||||||||
| Accumulated other comprehensive income | 122 | 471 | ||||||||
| Unearned employee stock ownership plan shares | (3,045 | ) | (3,191 | ) | ||||||
| Treasury stock, at cost 4,705,073 and 4,740,711 shares | (60,346 | ) | (61,535 | ) | ||||||
| Total stockholders’ equity | 59,849 | 57,061 | ||||||||
| Total liabilities and stockholders’ equity | $ | 643,723 | 790,155 | |||||||
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
||||||||||||||||||||
| Consolidated Statements of Comprehensive Income (Loss) | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||||||
|
|
September 30, |
September 30, |
||||||||||||||||||
|
(dollars in thousands, except per share data) |
2012 |
2011 |
2012 |
2011 |
||||||||||||||||
| Interest income: | ||||||||||||||||||||
| Loans receivable |
$ |
7,208 |
|
8,967 |
22,527 | 28,171 | ||||||||||||||
| Securities available for sale: | ||||||||||||||||||||
| Mortgage-backed and related | 133 | 259 | 490 | 873 | ||||||||||||||||
| Other marketable | 160 | 308 | 601 | 1,132 | ||||||||||||||||
| Cash equivalents | 25 | 4 | 71 | 7 | ||||||||||||||||
| Other | 25 | 34 | 89 | 148 | ||||||||||||||||
| Total interest income | 7,551 | 9,572 | 23,778 | 30,331 | ||||||||||||||||
| Interest expense: | ||||||||||||||||||||
| Deposits | 804 | 1,623 | 3,082 | 5,369 | ||||||||||||||||
| Federal Home Loan Bank advances | 855 | 865 | 2,544 | 3,434 | ||||||||||||||||
| Total interest expense | 1,659 | 2,488 | 5,626 | 8,803 | ||||||||||||||||
| Net interest income | 5,892 | 7,084 | 18,152 | 21,528 | ||||||||||||||||
| Provision for loan losses | 1,584 | 4,260 | 2,544 | 9,669 | ||||||||||||||||
| Net interest income after provision | ||||||||||||||||||||
| for loan losses | 4,308 | 2,824 | 15,608 | 11,859 | ||||||||||||||||
| Non-interest income: | ||||||||||||||||||||
| Fees and service charges | 821 | 978 | 2,484 | 2,827 | ||||||||||||||||
| Mortgage servicing fees | 245 | 247 | 713 | 747 | ||||||||||||||||
| Gain on sales of loans | 940 | 188 | 2,469 | 984 | ||||||||||||||||
| Gain on sale of branch office | 0 | 0 | 552 | 0 | ||||||||||||||||
| Other | 110 | 106 | 398 | 336 | ||||||||||||||||
| Total non-interest income | 2,116 | 1,519 | 6,616 | 4,894 | ||||||||||||||||
| Non-interest expense: | ||||||||||||||||||||
| Compensation and benefits | 2,955 | 3,276 | 9,587 | 10,348 | ||||||||||||||||
| (Gain) loss on real estate owned | (172 | ) | 111 | (75 | ) | 301 | ||||||||||||||
| Occupancy | 805 | 930 | 2,526 | 2,786 | ||||||||||||||||
| Deposit insurance | 353 | 190 | 928 | 1,001 | ||||||||||||||||
| Data processing | 333 | 326 | 1,006 | 884 | ||||||||||||||||
| Other | 1,513 | 1,565 | 4,416 | 5,362 | ||||||||||||||||
| Total non-interest expense | 5,787 | 6,398 | 18,388 | 20,682 | ||||||||||||||||
| Income (loss) before income tax expense | 637 | (2,055 | ) | 3,836 | (3,929 | ) | ||||||||||||||
| Income tax expense | 0 | 0 | 0 | 0 | ||||||||||||||||
| Net income (loss) |
$ |
637 |
(2,055 | ) | 3,836 | (3,929 | ) | |||||||||||||
| Preferred stock dividends and discount | 467 | 456 | 1,392 | 1,362 | ||||||||||||||||
| Net income (loss) for common shareholders | 170 | (2,511 | ) | 2,444 | (5,291 | ) | ||||||||||||||
| Other comprehensive income (loss), net of tax | (77 | ) | (130 | ) | (349 | ) | 194 | |||||||||||||
|
Comprehensive income (loss) attributable to common
shareholders |
93 |
(2,641 |
) |
2,095 |
(5,097 |
) |
||||||||||||||
| Basic earnings (loss) per common share |
$ |
0.04 |
(0.65 | ) | 0.62 | (1.38 | ) | |||||||||||||
| Diluted earnings (loss) per common share |
$ |
0.04 |
(0.65 | ) | 0.61 | (1.38 | ) | |||||||||||||
| 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) | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||
| I. OPERATING DATA: | |||||||||||||||||||||
| Interest income | $ | 7,551 | 9,572 | 23,778 | 30,331 | ||||||||||||||||
| Interest expense | 1,659 | 2,488 | 5,626 | 8,803 | |||||||||||||||||
| Net interest income | 5,892 | 7,084 | 18,152 | 21,528 | |||||||||||||||||
| II. AVERAGE BALANCES: | |||||||||||||||||||||
| Assets (1) | 643,304 | 802,140 | 689,698 | 840,787 | |||||||||||||||||
| Loans receivable, net | 484,403 | 597,602 | 517,389 | 620,227 | |||||||||||||||||
| Securities available for sale (1) | 76,631 | 121,286 | 89,466 | 141,500 | |||||||||||||||||
| Interest-earning assets (1) | 613,955 | 758,610 | 658,337 | 798,912 | |||||||||||||||||
| Interest-bearing liabilities | 576,919 | 727,413 | 624,643 | 766,759 | |||||||||||||||||
| Equity (1) | 60,384 | 67,336 | 59,205 | 68,956 | |||||||||||||||||
| III. PERFORMANCE RATIOS: (1) | |||||||||||||||||||||
| Return (loss) on average assets (annualized) | 0.39 | % | (1.02) | % | 0.74 | % | (0.62) | % | |||||||||||||
| Interest rate spread information: | |||||||||||||||||||||
| Average during period | 3.75 | 3.65 | 3.62 | 3.54 | |||||||||||||||||
| End of period | 3.52 | 3.77 | 3.52 | 3.77 | |||||||||||||||||
| Net interest margin | 3.82 | 3.71 | 3.68 | 3.60 | |||||||||||||||||
| Ratio of operating expense to average | |||||||||||||||||||||
| total assets (annualized) | 3.58 | 3.16 | 3.56 | 3.29 | |||||||||||||||||
| Return (loss) on average equity (annualized) | 4.20 | (12.10) | 8.66 | (7.62) | |||||||||||||||||
| Efficiency | 72.26 | 74.36 | 74.24 | 78.28 | |||||||||||||||||
| September 30, | December 31, | September 30, | |||||||||||||||||||
| 2012 | 2011 | 2011 | |||||||||||||||||||
| IV. ASSET QUALITY: | |||||||||||||||||||||
| Total non-performing assets | $ | 47,199 | 50,609 | 60,002 | |||||||||||||||||
| Non-performing assets to total assets | 7.33 | % | 6.40 | % | 7.33 | % | |||||||||||||||
| Non-performing loans to total loans receivable, net | 7.29 | 6.10 | 6.57 | ||||||||||||||||||
| Allowance for loan losses | $ | 20,462 | 23,888 | 25,690 | |||||||||||||||||
| Allowance for loan losses to total assets | 3.18 | % | 3.02 | % | 3.14 | % | |||||||||||||||
| Allowance for loan losses to total loans receivable, net | 4.31 | 4.29 | 4.34 | ||||||||||||||||||
| Allowance for loan losses to non-performing loans | 59.17 | 70.27 | 66.11 | ||||||||||||||||||
| V. BOOK VALUE PER SHARE: | |||||||||||||||||||||
| Book value per share | $ | 7.83 | 7.36 | 9.23 | |||||||||||||||||
| Nine | Nine | ||||||||||||||||||||
| Months | Year | Months | |||||||||||||||||||
| Ended | Ended | Ended | |||||||||||||||||||
| Sept 30, | Dec 31, | Sept 30, | |||||||||||||||||||
| 2012 | 2011 | 2011 | |||||||||||||||||||
| VI. CAPITAL RATIOS: | |||||||||||||||||||||
| Stockholders’ equity to total assets, at end of period | 9.30 | % | 7.22 | % | 7.96 | % | |||||||||||||||
| Average stockholders’ equity to average assets (1) | 8.58 | 8.19 | 8.20 | ||||||||||||||||||
| Ratio of average interest-earning assets to | |||||||||||||||||||||
| average interest-bearing liabilities (1) | 105.39 | 104.23 | 104.19 | ||||||||||||||||||
| Tier I or core capital (2) | 9.55 | 7.14 | 7.79 | ||||||||||||||||||
| Risk-based capital to risk-weighted assets | 14.61 | 10.86 | 11.62 | ||||||||||||||||||
| September 30, | December 31, | September 30, | |||||||||||||||||||
| 2012 | 2011 | 2011 | |||||||||||||||||||
| VII. EMPLOYEE DATA: | |||||||||||||||||||||
| Number of full time equivalent employees | 196 | 205 | 206 | ||||||||||||||||||
| (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 September 30, 2012. |