ROCHESTER , Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
Fourth Quarter Highlights
- Net income of $1.5 million compared to net loss of $7.6 million for fourth quarter of 2011
- Diluted earnings per common share of $0.25 compared to diluted loss per common share of $2.08 in the fourth quarter of 2011
- Provision for loan losses of $0, down $7.6 million from fourth quarter of 2011
- Losses on real estate owned of $0.3 million, down $2.1 million from fourth quarter of 2011
- Net interest income of $5.5 million, down $1.4 million from fourth quarter of 2011
- Non-performing assets of $40.6 million, down $6.6 million from third quarter of 2012
Annual Highlights
- Net income of $5.3 million compared to net loss of $11.6 million for 2011
- Diluted earnings per common share of $0.86 compared to diluted loss per common share of $3.47 for 2011
- Provision for loan losses of $2.5 million, down $14.8 million from 2011
- Losses on real estate owned of $0.2 million, down $2.5 million from 2011
- Net interest income of $23.7 million, down $4.7 million from 2011
- Non-performing assets of $40.6 million, down $10.0 million from December 31, 2011
- Total assets decreased $137 million in 2012
|
INCOME (LOSS) SUMMARY |
Three Months Ended | Year Ended | |||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||
| (dollars in thousands, except per share amounts) | 2012 |
|
2011 |
2012 |
|
2011 |
|||||||||||||
| Net income (loss) | $ | 1,485 |
|
(7,626 |
) |
$ | 5,321 |
|
(11,555 |
) |
|||||||||
|
Net income (loss) available to common stockholders |
1,016 |
|
(8,085 |
) |
3,460 |
|
(13,376 |
) |
|||||||||||
| Diluted earnings (loss) per common share | 0.25 |
|
(2.08 |
) |
0.86 |
|
(3.47 |
) |
|||||||||||
| Return (loss) on average assets | 0.93 | % | (3.75 | ) | % | 0.79 | % | (1.39 | ) | % | |||||||||
| Return (loss) on average common equity | 9.77 | % | (45.87 | ) | % | 8.94 | % | (16.94 | ) | % | |||||||||
| Book value per common share | $ | 8.02 |
|
7.36 |
$ | 8.02 |
|
7.36 |
|||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $653 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.5 million for the fourth quarter of 2012, an improvement of $9.1 million compared to a net loss of $7.6 million for the fourth quarter of 2011. Net income available to common shareholders was $1.0 million for the fourth quarter of 2012, an improvement of $9.1 million from the net loss available to common shareholders of $8.1 million for the fourth quarter of 2011. Diluted earnings per common share for the fourth quarter of 2012 was $0.25, an improvement of $2.33 from the diluted loss per common share of $2.08 for the fourth quarter of 2011. The improvement in net income in the fourth quarter of 2012 is due primarily to a $7.6 million decrease in the provision for loan losses, a $0.4 million increase in the gain on sale of loans, and a $2.6 million decrease in noninterest expenses due primarily to the decrease in expenses and losses recognized on real estate owned between the periods. These changes to net income were partially offset by a $1.4 million decrease in net interest income due primarily to a decrease in interest earning assets between the periods.
President’s Statement
“The reported
financial results reflect the increased volume of our mortgage banking
activities and the positive impact that the stabilization of commercial
real estate values has had on our provision for loan losses,” said Brad
Krehbiel, President of HMN. “We are encouraged by the results of our
ongoing efforts to improve credit quality in our commercial loan
portfolio as evidenced by the positive trend of declining non-performing
assets. We intend to continue to focus our efforts on further reducing
these non-performing assets while, at the same time, improving the
financial performance of our core banking operations.”
Fourth Quarter Results
Net Interest Income
Net interest
income was $5.5 million for the fourth quarter of 2012, a decrease of
$1.4 million, or 19.7%, compared to $6.9 million for the fourth quarter
of 2011. Interest income was $7.0 million for the fourth quarter of
2012, a decrease of $2.2 million, or 23.6%, from $9.2 million for the
same period in 2011. Interest income decreased between the periods
primarily because of a $163 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 4.62% for the fourth quarter of 2012, a
decrease of 13 basis points from the 4.75% average yield for the fourth
quarter of 2011. The decrease in the average yield is due to the
continued low interest rate environment that existed during the fourth
quarter of 2012.
Interest expense was $1.5 million for the fourth quarter of 2012, a decrease of $0.8 million, or 35.1%, compared to $2.3 million for the fourth quarter of 2011. Interest expense decreased primarily because of a $170 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 retail 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 retail and brokered certificates of deposits between the periods was the result of using the proceeds from loan principal payments to fund the maturing 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 fourth quarter of 2012. The average interest rate paid on interest-bearing liabilities was 1.06% for the fourth quarter of 2012, a decrease of 20 basis points from the 1.26% average interest rate paid in the fourth quarter of 2011. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2012 was 3.63%, an increase of 8 basis points, compared to 3.55% for the fourth quarter of 2011.
Provision for Loan Losses
The
provision for loan losses was $0 for the fourth quarter of 2012, a
decrease of $7.6 million, or 100.0%, from $7.6 million for the fourth
quarter of 2011. The provision decreased in the fourth 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 fourth quarter of
2012 when compared to the fourth quarter of 2011. The provision also
decreased because of the $106 million decrease in the loan portfolio
between the periods. Total non-performing assets were $40.6 million at
December 31, 2012, a decrease of $6.6 million, or 14.0%, from $47.2
million at September 30, 2012. Non-performing loans decreased $4.6
million and foreclosed and repossessed assets decreased $2.0 million
during the fourth quarter of 2012. The non-performing loan and
foreclosed and repossessed asset activity for the fourth quarter of 2012
was as follows:
|
(Dollars in thousands) |
|||||||||
| Non-performing loans | Foreclosed and repossessed assets | ||||||||
| September 30, 2012 | $34,582 | September 30, 2012 | $12,617 | ||||||
| Classified as non-performing | 1,272 | Transferred from non-performing loans | 283 | ||||||
| Charge offs | (681 | ) | Other foreclosures/repossessions | 117 | |||||
| Principal payments received | (3,694 | ) | Real estate sold | (1,680 | ) | ||||
| Classified as accruing | (1,221 | ) | Net loss on sale of assets | (672 | ) | ||||
| Transferred to real estate owned | (283 | ) | Write downs | (70 | ) | ||||
| December 31, 2012 | $29,975 | December 31, 2012 | $10,595 | ||||||
The decrease in non-performing loans relates primarily to the principal payments received on non-performing loans during the fourth quarter of 2012. Of the $3.7 million in principal payments received on non-performing loans in the fourth quarter of 2012, $1.4 million related to the payoff of two loans in the utility industry and $0.8 million related to the payoff of a loan secured by land.
A reconciliation of the allowance for loan losses for the fourth quarters of 2012 and 2011 is summarized as follows:
| (Dollars in thousands) | 2012 | 2011 | ||||
| Balance at September 30, | $20,462 | $25,690 | ||||
| Provision | 0 | 7,609 | ||||
| Charge offs: | ||||||
| Commercial real estate | 0 | (6,710 | ) | |||
| Commercial business | (468 | ) | (4,787 | ) | ||
| Consumer | (150 | ) | (41 | ) | ||
| One-to-four family | (63 | ) | (58 | ) | ||
| Recoveries | 1,827 | 2,185 | ||||
| Balance at December 31, | 21,608 | $23,888 | ||||
| General allowance | $16,795 | $17,254 | ||||
| Specific allowance | 4,813 | 6,634 | ||||
| $21,608 | $23,888 | |||||
The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the end of the two most recently completed quarters and December 31, 2011.
| December 31, | September 30, | December 31, | |||||||||||||
| (Dollars in thousands) | 2012 | 2012 | 2011 | ||||||||||||
| Non-Performing Loans: | |||||||||||||||
| One-to-four family real estate | $ | 2,492 | $ | 2,992 | $ | 4,435 | |||||||||
| Commercial real estate | 25,543 | 27,707 | 22,658 | ||||||||||||
| Consumer | 300 | 317 | 699 | ||||||||||||
| Commercial business | 1,640 | 3,566 | 6,201 | ||||||||||||
| Total | 29,975 | 34,582 | 33,993 | ||||||||||||
| Foreclosed and Repossessed Assets: | |||||||||||||||
| One-to-four family real estate | 1,595 | 320 | 352 | ||||||||||||
| Commercial real estate | 9,000 | 12,297 | 16,264 | ||||||||||||
| Total non-performing assets | $ | 40,570 | $ | 47,199 | $ | 50,609 | |||||||||
| Total as a percentage of total assets | 6.21 | % | 7.33 | % | 6.40 | % | |||||||||
| Total non-performing loans | $ | 29,975 | $ | 34,582 | $ | 33,993 | |||||||||
| Total as a percentage of total loans receivable, net | 6.60 | % | 7.29 | % | 6.10 | % | |||||||||
| Allowance for loan losses to non-performing loans | 72.09 | % | 59.17 | % | 70.27 | % | |||||||||
| Delinquency Data: | |||||||||||||||
| Delinquencies (1) | |||||||||||||||
| 30+ days | $ | 2,739 | $ | 5,077 | $ | 3,226 | |||||||||
| 90+ days | 0 | 0 | 0 | ||||||||||||
| Delinquencies as a percentage of | |||||||||||||||
| loan and lease portfolio (1) | |||||||||||||||
| 30+ days | 0.57 | % | 0.98 | % | 0.55 | % | |||||||||
| 90+ days | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||
|
(1) Excludes non-accrual loans. |
|||||||||||||||
The following table summarizes the number and types of commercial real estate loans (the largest category of non-performing loans) that were non-performing as of the end of the two most recently completed quarters and December 31, 2011.
| Principal | Principal | Principal | |||||||||||||
| Amount of | Amount of | Amount of | |||||||||||||
| Loans at | Loans at | Loans at | |||||||||||||
| (Dollars in thousands) | # of | December 31, | # of | September 30, | # of | December 31, | |||||||||
|
Property Type |
relationships | 2012 | relationships | 2012 | relationships | 2011 | |||||||||
| Developments/land | 9 | $ | 24,339 | 12 | $ | 26,415 | 10 | $ | 17,465 | ||||||
| Shopping centers/retail | 2 | 386 | 2 | 396 | 2 | 1,315 | |||||||||
| Restaurants/bar | 1 | 547 | 1 | 565 | 1 | 616 | |||||||||
| Office buildings | 2 | 128 | 2 | 184 | 1 | 2,325 | |||||||||
| Other buildings | 1 | 143 | 1 | 147 | 3 | 937 | |||||||||
| 15 | $ | 25,543 | 18 | $ | 27,707 | 17 | $ | 22,658 | |||||||
The decrease in the non-performing commercial real estate loans from September 30, 2012 is due primarily to a $1.1 million development loan that was reclassified as accruing during the fourth quarter of 2012 and because additional principal payments were received on various other non-performing commercial real estate loans during the quarter.
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, 2011.
| (Dollars in thousands) | Principal Amount | Principal Amount | Principal Amount | ||||||||||||||||||
| of Loans | of Loans | of Loans | |||||||||||||||||||
| December 31, | September 30, | December 31, | |||||||||||||||||||
| Industry Type | # | 2012 | # | 2012 | # | 2011 | |||||||||||||||
| Construction/development | 6 | $ | 1,074 | 6 | $ | 1,650 | 6 | $ | 2,061 | ||||||||||||
| Retail | 2 | 239 | 2 | 247 | 1 | 82 | |||||||||||||||
| Banking | 0 | 0 | 0 | 0 | 2 | 1,199 | |||||||||||||||
| Entertainment | 0 | 0 | 1 | 16 | 1 | 23 | |||||||||||||||
| Utilities | 0 | 0 | 2 | 1,379 | 1 | 2,792 | |||||||||||||||
| Restaurant | 1 | 129 | 1 | 135 | 0 | 0 | |||||||||||||||
| Other | 3 | 198 | 3 | 139 | 1 | 44 | |||||||||||||||
| 12 | $ | 1,640 | 15 | $ | 3,566 | 12 | $ | 6,201 | |||||||||||||
Non-Interest Income and Expense
Non-interest
income was $2.4 million for the fourth quarter of 2012, an increase of
$0.4 million, or 20.2%, from $2.0 million for the same period in 2011.
Gain on sales of loans increased $0.4 million between the periods
primarily because of an increase in single family loan originations and
sales. Other income increased $26,000 between the periods primarily due
to an increase in rental income on other real estate. Fees and service
charges decreased $0.1 million primarily because of a decrease in
overdraft fees between the periods.
Non-interest expense was $6.3 million for the fourth quarter of 2012, a decrease of $2.6 million, or 29.2%, from $8.9 million for the same period of 2011. Losses on real estate owned decreased $2.1 million from the fourth quarter of 2011 primarily because there were fewer losses realized on the sale of real estate and there were fewer write downs in the value of the real estate owned in the fourth quarter of 2012 when compared to the same period in 2011. Compensation and benefits expense decreased $0.3 million between the periods primarily as a result of having fewer employees and also because of a decrease in pension benefit costs. Occupancy expense decreased $0.1 million primarily because of a decrease in depreciation and other expenses as a result of having fewer branch facilities. Deposit insurance expense increased $0.1 million because of an increase in the insurance rates between the periods. Other non-interest expenses decreased $0.1 million between the periods primarily because of a decrease in advertising expenses.
Income tax expense was $0.1 million in the fourth quarter of 2012, an increase of $0.1 million from the fourth quarter of 2011 when no income tax expense was recorded. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at December 31, 2012. Since the valuation reserve is established against the entire deferred tax asset balance, no regular income tax expense was recorded for the fourth quarter of 2012. The income tax expense that was recorded in the fourth quarter of 2012 relates to alternative minimum tax amounts that are due since only a portion of the outstanding net operating loss carry forwards can be used to offset current income under the current alternative minimum tax rules.
Net Income (Loss) Available to Common Shareholders
The
net income available to common shareholders was $1.0 million for the
fourth quarter of 2012, an improvement of $9.1 million from the $8.1
million net loss available to common shareholders in the fourth 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 eight 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.
Return (Loss) on Assets and Equity
The
return on average assets for the fourth quarter of 2012 was 0.93%,
compared to a 3.75% loss on average assets for the fourth quarter of
2011. Return on average equity was 9.77% for the fourth quarter of 2012,
compared to a 45.87% loss on average equity for the same period of 2011.
Book value per common share at December 31, 2012 was $8.02, compared to
$7.36 at December 31, 2011.
Annual Results
Net Income (Loss)
Net income was $5.3
million for 2012, an improvement of $16.9 million, from the $11.6
million loss for 2011. Net income available to common shareholders was
$3.5 million for the year ended December 31, 2012, an improvement of
$16.9 million, from the net loss available to common shareholders of
$13.4 million for 2011. Diluted earnings per common share for the year
ended December 31, 2012 was $0.86, an improvement of $4.33 from the
$3.47 diluted loss per common share for the year ended December 31,
2011. The improvement in net income in 2012 is due primarily to a $14.8
million decrease in the provision for loan losses between the periods, a
$1.9 million increase in the gain on sale of loans, and a $4.9 million
decrease in noninterest expenses due primarily to the decrease in
expenses and losses recognized on real estate owned between the periods.
These improvements to net income were partially offset by a $4.7 million
decrease in interest income due primarily to a decrease in interest
earning assets between the periods.
Net Interest Income
Net interest
income was $23.7 million for 2012, a decrease of $4.7 million, or 16.6%,
from $28.4 million for 2011. Interest income was $30.8 million for 2012,
a decrease of $8.7 million, or 22.1%, from $39.5 million for 2011.
Interest income decreased between the periods primarily because of a
$146 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 4.78% for the year
ended December 31, 2012, a decrease of 22 basis points from the 5.00%
average yield for 2011. The decrease in the average yield is due to the
continued low interest rate environment that existed during 2012.
Interest expense was $7.1 million for the year ended December 31, 2012, a decrease of $4.0 million, or 35.9%, from $11.1 million for 2011. Interest expense decreased primarily because of a $149 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 retail 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 retail and brokered certificates of deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing certificates of deposits. Interest expense also decreased because of the lower rates paid on retail money market accounts and certificates of deposit. The decreased rates were the result of the low interest rate environment that continued to exist during 2012. The average interest rate paid on interest-bearing liabilities was 1.17% for the year ended December 31, 2012, a decrease of 30 basis points from the 1.47% average rate paid for the same period of 2011. Net interest margin (net interest income divided by average interest-earning assets) was 3.67% for the year ended December 31, 2012, an increase of 8 basis points, from the 3.59% margin for 2011.
Provision for Loan Losses
The
provision for loan losses was $2.5 million for the year ended December
31, 2012, a decrease of $14.8 million, from $17.3 million for the year
ended December 31, 2011. The provision decreased between the periods
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 2012 when compared to
2011. The provision also decreased because of the $106 million decrease
in the loan portfolio between the periods. Total non-performing assets
were $40.6 million at December 31, 2012, a decrease of $10.0 million, or
19.8%, from $50.6 million at December 31, 2011. Non-performing loans
decreased $4.0 million and foreclosed and repossessed assets decreased
$6.0 million during 2012. The non-performing loan and foreclosed and
repossessed asset activity for 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 | 23,785 | Transferred from non-performing loans | 2,242 | ||||||
| Charge offs | (9,317 | ) | Other foreclosures/repossessions | 117 | |||||
| Principal payments received | (13,823 | ) | Real estate sold | (7,558 | ) | ||||
| Classified as accruing | (2,421 | ) | Net loss on sale of assets | (752 | ) | ||||
| Transferred to real estate owned | (2,242 | ) | Write downs | (70 | ) | ||||
| December 31, 2012 | $29,975 | December 31, 2012 | $10,595 | ||||||
A reconciliation of the allowance for loan losses for 2012 and 2011 is summarized as follows:
| (in thousands) | 2012 | 2011 | ||||
| Balance at January 1, | $23,888 | $42,828 | ||||
| Provision | 2,544 | 17,278 | ||||
| Charge offs: | ||||||
| Commercial | (2,464 | ) | (15,512 | ) | ||
| Commercial real estate | (5,719 | ) | (23,012 | ) | ||
| Consumer | (1,071 | ) | (270 | ) | ||
| Single family mortgage | (63 | ) | (508 | ) | ||
| Recoveries | 4,493 | 3,084 | ||||
| Balance at December 31, | $21,608 | $23,888 | ||||
| General allowance | $16,795 | $17,255 | ||||
| Specific allowance | 4,813 | 6,633 | ||||
| $21,608 | $23,888 | |||||
Non-Interest Income and Expense
Non-interest
income was $9.0 million for the year ended December 31, 2012, an
increase of $2.1 million, or 30.9%, from $6.9 million for the year ended
December 31, 2011. Gains on sales of loans increased $1.9 million, or
115.8%, between the periods primarily because of an increase in single
family loan originations and sales. 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
$0.4 million primarily because of a decrease in overdraft charges
between the periods.
Non-interest expense was $24.7 million for the year ended December 31, 2012, a decrease of $4.9 million, or 16.5%, from $29.6 million for the same period in 2011. Losses on real estate owned decreased $2.5 million between the periods primarily because there were fewer losses realized on the sale of real estate and there were fewer write downs in the value of the real estate owned in 2012 when compared to 2011. Compensation and benefits expense decreased $1.1 million between the periods primarily as a result of having fewer employees and also because of a decrease in pension benefit costs. Other non-interest expenses decreased $1.0 million between the periods primarily because of a decrease in real estate taxes and legal fees related to other real estate owned. Occupancy expense decreased $0.4 million primarily because of a decrease in depreciation and other expenses as a result of having fewer branch facilities.
Income tax expense was $0.1 million in 2012, an increase of $0.1 million from 2011 when no income tax expense was recorded. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at December 31, 2012. Since the valuation reserve is established against the entire deferred tax asset balance, no regular income tax expense was recorded in 2012. The income tax expense that was recorded in 2012 relates to alternative minimum tax amounts that are due since only a portion of the outstanding net operating loss carry forwards can be used to offset current income under the current alternative minimum tax rules.
Net Income (Loss) Available to Common Shareholders
Net
income available to common shareholders was $3.5 million for the year
ended December 31, 2012, an improvement of $16.9 million, from the net
loss available to common shareholders of $13.4 million for 2011. Net
income available to common shareholders increased primarily because of
the change in net income (loss) between the periods. The Company has
deferred the last eight 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.
Return (Loss) on Assets and Equity
The
return on average assets was 0.79% for 2012, compared to a 1.39% loss on
average assets for 2011. Return on average common equity was 8.94% for
2012, compared to a 16.94% loss on average common equity for 2011.
Annual Meeting Announcement
HMN
announced that its annual meeting will be held at the Rochester Golf and
Country Club, located at 3100 West Country Club Road, Rochester,
Minnesota on Tuesday, April 23, 2013, at 10:00 a.m. local time.
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, LaCrescent, 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,”
“intend,” “look,” “believe,” “anticipate,” “estimate,” “project,”
“seek,” “may,” “will,” “would,” “could,” “should,” “trend,” “target,”
and “goal” or similar statements or variations of such terms and
include, but are not limited to, those relating to increasing our core
deposit relationships, reducing non-performing assets, reducing expense
and generating improved financial results; the adequacy and amount of
available liquidity and capital resources to the Bank; the Company’s
liquidity and capital requirements; our expectations for core capital
and our strategies and potential strategies for improvement thereof;
changes in the size of the Bank’s loan portfolio; the recovery of the
valuation allowance on deferred tax assets; the amount and mix of the
Bank’s non-performing assets and the appropriateness of the allowance
therefor; future losses on non-performing assets; the amount of
interest-earning assets; the amount and mix of brokered and other
deposits (including the Company’s ability to renew brokered deposits);
the availability 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 filings on Forms 10-K and 10-Q with
the Securities and Exchange Commission. All forward-looking statements
are qualified by, and should be considered in conjunction with, such
cautionary statements. For additional discussion of the risks and
uncertainties applicable to the Company, see the “Risk Factors” sections
of the Company’s Annual Report on Form 10-K for the year ended December
31, 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 | |||||||
| December 31, | December 31, | ||||||
| (Dollars in thousands) | 2012 | 2011 | |||||
| (unaudited) | |||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 83,660 | 67,840 | ||||
| Securities available for sale: | |||||||
| Mortgage-backed and related securities | |||||||
| (amortized cost $9,825 and $19,586) | 10,421 | 20,645 | |||||
| Other marketable securities | |||||||
| (amortized cost $75,759 and $105,700) | 75,470 | 105,469 | |||||
| 85,891 | 126,114 | ||||||
| Loans held for sale | 2,584 | 3,709 | |||||
| Loans receivable, net | 454,045 | 555,908 | |||||
| Accrued interest receivable | 2,018 | 2,449 | |||||
| Real estate, net | 10,595 | 16,616 | |||||
| Federal Home Loan Bank stock, at cost | 4,063 | 4,222 | |||||
| Mortgage servicing rights, net | 1,732 | 1,485 | |||||
| Premises and equipment, net | 7,173 | 7,967 | |||||
| Prepaid expenses and other assets | 1,566 | 2,262 | |||||
| Assets held for sale | 0 | 1,583 | |||||
| Deferred tax asset, net | 0 | 0 | |||||
| Total assets | $ | 653,327 | 790,155 | ||||
| Liabilities and Stockholders’ Equity | |||||||
| Deposits | $ | 514,951 | 620,128 | ||||
| Deposits held for sale | 0 | 36,048 | |||||
| Federal Home Loan Bank Advances | 70,000 | 70,000 | |||||
| Accrued interest payable | 247 | 780 | |||||
| Customer escrows | 830 | 933 | |||||
| Accrued expenses and other liabilities | 6,465 | 5,205 | |||||
| Total liabilities | 592,493 | 733,094 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
| Serial-preferred stock: ($.01 par value) | |||||||
| Authorized 500,000 shares; issued shares 26,000 | 25,336 | 24,780 | |||||
| Common stock ($.01 par value): | |||||||
| Authorized 11,000,000; issued shares 9,128,662 | 91 | 91 | |||||
| Additional paid-in capital | 51,795 | 53,462 | |||||
| Retained earnings, subject to certain restrictions | 47,004 | 42,983 | |||||
| Accumulated other comprehensive income (loss) | (49 | ) | 471 | ||||
| Unearned employee stock ownership plan shares | (2,997 | ) | (3,191 | ) | |||
| Treasury stock, at cost 4,705,073 and 4,740,711 shares | (60,346 | ) | (61,535 | ) | |||
| Total stockholders’ equity | 60,834 | 57,061 | |||||
| Total liabilities and stockholders’ equity | $ | 653,327 | 790,155 | ||||
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
||||||||||||||||
|
Consolidated Statements of Comprehensive Income (Loss) |
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|
|
|
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|
|
|
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|
Three Months Ended |
Year Ended |
|||||||||||||||
|
December 31, |
December 31, |
|||||||||||||||
|
(Dollars in thousands, except per share data) |
2012 |
2011 |
2012 |
2011 |
||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||
| Interest income: | ||||||||||||||||
| Loans receivable | $ | 6,730 | 8,605 | 29,257 | 36,776 | |||||||||||
| Securities available for sale: | ||||||||||||||||
| Mortgage-backed and related | 114 | 225 | 604 | 1,098 | ||||||||||||
| Other marketable | 136 | 319 | 737 | 1,451 | ||||||||||||
| Cash equivalents | 30 | 29 | 101 | 36 | ||||||||||||
| Other | 28 | 32 | 117 | 180 | ||||||||||||
| Total interest income | 7,038 | 9,210 | 30,816 | 39,541 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 659 | 1,478 | 3,741 | 6,847 | ||||||||||||
| Federal Home Loan Bank advances | 854 | 854 | 3,398 | 4,288 | ||||||||||||
| Total interest expense | 1,513 | 2,332 | 7,139 | 11,135 | ||||||||||||
| Net interest income | 5,525 | 6,878 | 23,677 | 28,406 | ||||||||||||
| Provision for loan losses | 0 | 7,609 | 2,544 | 17,278 | ||||||||||||
|
Net interest income (loss) after provision for loan losses |
5,525 | (731 | ) | 21,133 | 11,128 | |||||||||||
| Non-interest income: | ||||||||||||||||
| Fees and service charges | 841 | 912 | 3,325 | 3,739 | ||||||||||||
| Loan servicing fees | 251 | 240 | 964 | 987 | ||||||||||||
| Gain on sales of loans | 1,105 | 672 | 3,574 | 1,656 | ||||||||||||
| Gain on sale of branch office | 0 | 0 | 552 | 0 | ||||||||||||
| Other | 177 | 151 | 575 | 487 | ||||||||||||
| Total non-interest income | 2,374 | 1,975 | 8,990 | 6,869 | ||||||||||||
| Non-interest expense: | ||||||||||||||||
| Compensation and benefits | 2,865 | 3,205 | 12,452 | 13,553 | ||||||||||||
| Losses on real estate owned | 256 | 2,380 | 181 | 2,681 | ||||||||||||
| Occupancy | 832 | 955 | 3,358 | 3,741 | ||||||||||||
| Deposit insurance | 327 | 254 | 1,255 | 1,255 | ||||||||||||
| Data processing | 326 | 337 | 1,332 | 1,221 | ||||||||||||
| Other | 1,676 | 1,739 | 6,092 | 7,101 | ||||||||||||
| Total non-interest expense | 6,282 | 8,870 | 24,670 | 29,552 | ||||||||||||
| Income (loss) before income tax expense | 1,617 | (7,626 | ) | 5,453 | (11,555 | ) | ||||||||||
| Income tax expense | 132 | 0 | 132 | 0 | ||||||||||||
| Net income (loss) | 1,485 | (7,626 | ) | 5,321 | (11,555 | ) | ||||||||||
| Preferred stock dividends and discount | 469 | 459 | 1,861 | 1,821 | ||||||||||||
|
Net income (loss) available to common shareholders |
$ |
1,016 | (8,085 | ) | 3,460 | (13,376 | ) | |||||||||
| Other comprehensive loss, net of tax | (171 | ) | (264 | ) | (520 | ) | (70 | ) | ||||||||
|
Comprehensive income (loss) attributable to common shareholders |
845 | (8,349 | ) | 2,940 | (13,446 | ) | ||||||||||
| Basic earnings (loss) per common share | $ | 0.26 | (2.08 | ) | 0.88 | (3.47 | ) | |||||||||
| Diluted earnings (loss) per common share | $ | 0.25 | (2.08 | ) | 0.86 | (3.47 | ) | |||||||||
|
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|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
||||||||||||||
|
Selected Consolidated Financial Information |
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|
(unaudited) |
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|
Three Months Ended |
Year Ended |
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|
SELECTED FINANCIAL DATA: |
December 31, |
December 31, |
||||||||||||
|
(Dollars in thousand, except per share data) |
2012 |
2011 |
2012 |
2011 |
||||||||||
| I. OPERATING DATA: | ||||||||||||||
| Interest income | $ | 7,038 | 9,210 | 30,816 | 39,541 | |||||||||
| Interest expense | 1,513 | 2,332 | 7,139 | 11,135 | ||||||||||
| Net interest income | 5,525 | 6,878 | 23,677 | 28,406 | ||||||||||
| II. AVERAGE BALANCES: | ||||||||||||||
| Assets (1) | 633,800 | 807,341 | 675,648 | 832,357 | ||||||||||
| Loans receivable, net | 462,803 | 574,996 | 503,668 | 608,826 | ||||||||||
| Mortgage-backed and related securities (1) | 82,057 | 133,458 | 87,604 | 139,473 | ||||||||||
| Interest-earning assets (1) | 605,766 | 768,747 | 645,122 | 791,309 | ||||||||||
| Interest-bearing liabilities | 567,018 | 736,657 | 610,158 | 759,172 | ||||||||||
| Equity (1) | 60,457 | 65,960 | 59,519 | 68,201 | ||||||||||
| III. PERFORMANCE RATIOS: (1) | ||||||||||||||
| Return (loss) on average assets (annualized) | 0.93 | % | (3.75 | )% | 0.79 | % | (1.39 | ) | % | |||||
| Interest rate spread information: | ||||||||||||||
| Average during period | 3.56 | 3.50 | 3.61 | 3.53 | ||||||||||
| End of period | 3.49 | 3.34 | 3.49 | 3.34 | ||||||||||
| Net interest margin | 3.63 | 3.55 | 3.67 | 3.59 | ||||||||||
| Ratio of operating expense to average | ||||||||||||||
| total assets (annualized) | 3.94 | 4.36 | 3.65 | 3.55 | ||||||||||
|
Earnings (loss) on average common equity
(annualized) |
9.77 |
(45.87 |
) |
8.94 |
(16.94 |
) |
||||||||
| Efficiency | 79.53 | 100.19 | 75.52 | 83.78 | ||||||||||
| December 31, | December 31, | |||||||||||||
| IV. ASSET QUALITY: | 2012 | 2011 | ||||||||||||
| Total non-performing assets | $ | 40,570 | 50,609 | |||||||||||
| Non-performing assets to total assets | 6.21 | % | 6.40 | % | ||||||||||
| Non-performing loans to total loans | ||||||||||||||
| receivable, net | 6.60 | % | 6.10 | % | ||||||||||
| Allowance for loan losses | $ | 21,608 | 23,888 | |||||||||||
| Allowance for loan losses to total assets | 3.31 | % | 3.02 | % | ||||||||||
|
Allowance for loan losses to total loans
receivable, net |
4.76 |
|
4.29 | |||||||||||
| Allowance for loan losses to non-performing loans | 72.09 | 70.27 | ||||||||||||
| V. BOOK VALUE PER COMMON SHARE: | ||||||||||||||
| Book value per common share | 8.02 | 7.36 | ||||||||||||
| Year Ended | Year Ended | |||||||||||||
|
VI. CAPITAL RATIOS: |
Dec 31, 2012 |
Dec 31, 2011 | ||||||||||||
| Stockholders’ equity to total assets, at end of period | 9.31 | % | 7.22 | % | ||||||||||
| Average stockholders’ equity to average assets (1) | 8.81 | 8.19 | ||||||||||||
| Ratio of average interest-earning assets to | ||||||||||||||
| average interest-bearing liabilities (1) | 105.73 | 104.23 | ||||||||||||
|
Home Federal Savings Bank regulatory capital ratios: |
||||||||||||||
| Tier 1 or core capital(2) | 9.68 | % | 7.14 | % | ||||||||||
| Risk-based capital | 15.52 | % | 10.86 | % | ||||||||||
| December 31, | December 31, | |||||||||||||
| 2012 | 2011 | |||||||||||||
| VII. EMPLOYEE DATA: | ||||||||||||||
| Number of full time equivalent employees | 194 | 205 | ||||||||||||
| (1) | Average balances were calculated based upon amortized cost without the market value impact of ASC 320. | |
| (2) | OCC has established an individual minimum capital requirement (IMCR) for the Bank. An IMCR requires a bank to establish and maintain levels of capital greater than those generally required for a bank to be classified as “well-capitalized.” Effective December 31, 2011, the Bank was required to establish, and subsequently maintain, core capital at least equal to 8.5% of adjusted total assets. The Bank’s core capital ratio was in excess of this requirement at December 31, 2012. |