HMN Financial, Inc. (HMN) (NASDAQ:HMNF): Third Quarter Highlights
-- Net interest income up $1.1 million, or 15.1%, over third
quarter of 2004 -- Net interest margin up 32 basis points over
third quarter of 2004 -- Income tax expense up $736,000, or 63.9%,
over third quarter of 2004 -- Net income of $2.3 million, down
$274,000, or 10.7%, from third quarter of 2004 -- Diluted earnings
per share of $0.57, down $0.07, or 10.9%, from third quarter of
2004 Year to Date Highlights -- Net interest income up $4.0
million, or 17.8%, over first nine months of 2004 -- Net interest
margin up 30 basis points over first nine months of 2004 -- Income
tax expense up $1.4 million, or 46.4%, over first nine months of
2004 -- Net income of $7.6 million, up $423,000, or 5.9%, over
first nine months of 2004 -- Diluted earnings per share of $1.89,
up $0.12, or 6.8%, over first nine months of 2004 -0- *T EARNINGS
SUMMARY Three Months Ended Nine Months Ended September 30,
September 30, --------------------- --------------------- 2005 2004
2005 2004 --------------------- --------------------- Net income
$2,276,401 2,550,201 $7,590,918 7,167,821 Diluted earnings per
share 0.57 0.64 1.89 1.77 Return on average assets 0.92 1.09% 1.03
1.06% Return on average equity 10.02 12.02% 11.51 11.44% Book value
per share $19.97 18.66 $19.97 18.66 *T HMN Financial, Inc. (HMN)
(NASDAQ:HMNF), the $982 million holding company for Home Federal
Savings Bank (the Bank), today reported net income of $2.3 million
for the third quarter of 2005, down $274,000, or 10.7%, from net
income of $2.6 million for the third quarter of 2004. Diluted
earnings per common share for the third quarter of 2005 were $0.57,
down $0.07, from $0.64 for the third quarter of 2004. Third Quarter
Results Net Interest Income Net interest income was $8.9 million
for the third quarter of 2005, an increase of $1.1 million, or
15.1%, compared to $7.8 million for the third quarter of 2004.
Interest income was $15.2 million for the third quarter of 2005, an
increase of $2.0 million, or 15.8%, from $13.2 million for the same
period in 2004. Interest income increased because of an increase in
interest rates and an increase in the average outstanding balance
of interest-earning assets. Interest rates increased primarily
because of the 200 basis point increase in the prime interest rate
between the periods. Increases in the prime rate, which is the rate
that banks charge their prime business customers, generally
increase the rates on adjustable rate consumer and commercial loans
in the portfolio and new loans originated. The increase in
interest-earning assets was caused by the $75 million increase in
the average outstanding balance of commercial loans between the
periods. The yield earned on interest-earning assets was 6.45% for
the third quarter of 2005, an increase of 58 basis points from the
5.87% yield for the third quarter of 2004. Interest expense was
$6.3 million for the third quarter of 2005, an increase of
$906,000, or 16.8%, compared to $5.4 million for the third quarter
of 2004. Interest expense increased primarily because of higher
interest rates paid on deposits which were caused by the 200 basis
point increase in the federal funds rate between the periods.
Increases in the federal funds rate, which is the rate that banks
charge other banks for short term loans, generally increase the
rates banks pay for deposits. Interest expense also increased
because of the $38 million increase in the average outstanding
balance of deposits and advances between the periods due to an
increase in transaction accounts and brokered deposits. The average
interest rate paid on interest-bearing liabilities was 2.82% for
the third quarter of 2005, an increase of 29 basis points from the
2.53% paid for the third quarter of 2004. Net interest margin (net
interest income divided by average interest earning assets) for the
third quarter of 2005 was 3.79%, an increase of 32 basis points,
compared to 3.47% for the third quarter of 2004. Provision for Loan
Losses The provision for loan losses was $952,000 for the third
quarter of 2005, an increase of $177,000, or 22.8%, from $775,000
for the third quarter of 2004. The provision for loan losses
increased primarily because commercial loan charge offs during the
quarter exceeded previously reserved amounts. The increase in the
provision related to charge offs was partially offset by a decrease
in commercial loan growth in the third quarter of 2005 when
compared to the same period in 2004. Total non-performing assets
were $4.7 million at September 30, 2005, a decrease of $7.8
million, or 62.7%, from $12.5 million at June 30, 2005.
Non-performing loans decreased $8.3 million, foreclosed and
repossessed assets increased $520,000, and $2.7 million in loans
were charged off during the quarter. The decrease in non-performing
assets relates primarily to $8.0 million in commercial real estate
loans that were classified as non-accruing in the previous quarter
that are no longer classified due to the sale of the properties.
Total non-performing assets decreased $231,000, or 4.7%, from $4.9
million at December 31, 2005. Non-Interest Income and Expense
Non-interest income was $1.7 million for the third quarter of 2005,
an increase of $132,000, or 8.3%, from $1.6 million for the same
period in 2004. Gains on sales of loans increased $275,000 due
primarily to the $232,000 increase in the gain recognized on the
sale of government guaranteed commercial loans in the third quarter
of 2005 when compared to the same period in 2004. Other
non-interest income decreased $119,000 primarily because of
increased losses on the sale of repossessed mobile homes in the
third quarter of 2005. Non-interest expense was $5.5 million for
the third quarter of 2005, an increase of $669,000, or 13.7%, from
$4.9 million for the same period of 2004. Compensation expense
increased $351,000 between the periods because of the increased
number of employees and because of annual payroll cost increases.
Occupancy expense increased $128,000 primarily because of the
additional corporate office space occupied in the first quarter of
2005 and because of increased amortization expense on various
software upgrades that were implemented between the periods. Data
processing costs increased by $46,000 primarily because of
increased activity between the periods and an increase in the fees
and services provided by the third party service center. Other
operating expenses increased $130,000 primarily because of
increased costs on foreclosed commercial properties during the
third quarter of 2005 when compared to the same period in 2004.
Income tax expense was $1.9 million for the third quarter of 2005,
an increase of $736,000, or 63.9%, compared to $1.2 million for the
same period of 2004. Income tax expense increased $374,000 due to
an increase in taxable income and $297,000 due to an increase in
the effective tax rate because of changes in state tax law that
were retroactive to January 1, 2005. Return on Assets and Equity
Return on average assets for the third quarter of 2005 was 0.92%,
compared to 1.09% for the third quarter of 2004. Return on average
equity was 10.02% for the third quarter of 2005, compared to 12.02%
for the same period of 2004. Book value per common share at
September 30, 2005 was $19.97, compared to $18.95 at September 30,
2004. Nine Month Period Results Net Income Net income was $7.6
million for the nine-month period ended September 30, 2005, an
increase of $423,000, or 5.9%, compared to $7.2 million for the
nine-month period ended September 30, 2004. Diluted earnings per
common share for the nine-month period in 2005 were $1.89, up
$0.12, or 6.8%, from $1.77 for the same period in 2004. Net
Interest Income Net interest income was $26.4 million for the first
nine months of 2005, an increase of $4.0 million, or 17.8%, from
$22.4 million for the same period in 2004. Interest income was
$44.2 million for the nine-month period ended September 30, 2005,
an increase of $6.3 million, or 16.5%, from $37.9 million for the
same period in 2004. Interest income increased primarily because of
an increase in average interest-earning assets and because of a
change in the mix of assets between the periods. The increase in
interest-earning assets was caused primarily by the $94 million
increase in the average outstanding balance of commercial loans
between the periods. The yield earned on interest-earning assets
was 6.30% for the first nine months of 2005, an increase of 43
basis points from the 5.87% yield for the same period in 2004.
Interest expense was $17.8 million for the nine-month period ended
September 30, 2005, an increase of $2.3 million, or 14.6%, from the
$15.6 million for the same period in 2004. Interest expense
increased primarily because of higher interest rates paid on
deposits which were caused by the 200 basis point increase in the
federal funds rate between the periods. Increases in the federal
funds rate, which is the rate that banks charge other banks for
short term loans, generally increases the rates banks pay for
deposits. Interest expense also increased because of the $67
million increase in the average outstanding balance of deposits and
advances between the periods due to an increase in transaction
accounts and brokered deposits. The average interest rate paid on
interest-bearing liabilities was 2.69% for the first nine-months of
2005, an increase of 15 basis points from the 2.54% paid for the
same period of 2004. Net interest margin (net interest income
divided by average interest earning assets) for the first nine
months of 2005 was 3.76%, an increase of 30 basis points, compared
to 3.46% for the same period of 2004. Provision for Loan Losses The
provision for loan losses was $2.5 million for the nine-month
period of 2005, an increase of $454,000, or 22.2%, from $2.0
million for the same nine-month period in 2004. The provision for
loan losses increased primarily because of increased commercial
loan charge offs during the period. The increase in the provision
related to loan charge offs was partially offset by a decrease in
commercial loan growth in the first nine months of 2005 when
compared to the same period in 2004. Total non-performing assets
were $4.7 million at September 30, 2005, a decrease of $231,000, or
4.73%, from $4.9 million at December 31, 2004. Non-performing loans
decreased $1.4 million, foreclosed and repossessed assets increased
$1.1 million, and $3.0 million in loans were charged off during the
first nine months of 2005. Loans charged off during the period
included commercial loans of $2.6 million, consumer loans of
$195,000, and mortgage loans of $231,000. Non-Interest Income and
Expense Non-interest income was $4.7 million for the first nine
months of 2005, a decrease of $83,000, or 1.7%, from $4.8 million
for the same period in 2004. Gains on sales of loans decreased
$26,000 primarily due to decreased mortgage loan activity in the
first nine months of 2005 when compared to the same period of 2004.
Other non-interest income decreased $63,000 primarily because of
increased losses on the sale of repossessed mobile homes in 2005.
Non-interest expense was $16.4 million for the first nine months of
2005, an increase of $1.6 million, or 10.5%, from $14.8 million for
the same period in 2004. Compensation expense increased $800,000
because of the increased number of employees and because of annual
payroll cost increases. Occupancy expense increased $409,000
primarily because of the additional corporate office space occupied
in the first quarter of 2005 and because of increased amortization
expense on various software upgrades that were implemented between
the periods. Data processing costs increased by $109,000 primarily
because of increased activity and an increase in fees and services
provided by the third party service center. Other operating
expenses increased $242,000 primarily because of increased costs on
foreclosed and repossessed assets during the first nine months of
2005 when compared to the same period in 2004. Income tax expense
was $4.6 million for the first nine months of 2005, an increase of
$1.4 million, or 46.4%, compared to $3.2 million for the same
period of 2004. Income tax expense increased $962,000 due to an
increase in taxable income and $297,000 due to an increase in the
effective tax rate because of changes in state tax law that were
retroactive to January 1, 2005. Return on Assets and Equity Return
on average assets for the nine-month period ended September 30,
2005 was 1.03%, compared to 1.06% for the same period in 2004.
Return on average equity was 11.51% for the nine-month period ended
September 30, 2005, compared to 11.44% for the same period in 2004.
President's Statement "HMN's core earnings continue to improve,"
said HMN President Michael McNeil. "I am pleased that our growth,
along with the change in the mix of our assets and liabilities, has
allowed us to achieve record nine-month earnings of $7.6 million in
2005 despite the increased provision for income taxes." General
Information HMN Financial, Inc. and Home Federal Savings Bank are
headquartered in Rochester, Minnesota. The Bank operates nine full
service offices in southern Minnesota located in Albert Lea,
Austin, LaCrescent, Rochester, Spring Valley and Winona and two
full service offices in Iowa located in Marshalltown and Toledo.
Home Federal Savings Bank also operates loan origination offices
located in St. Cloud and Rochester, Minnesota. Eagle Crest Capital
Bank, a division of Home Federal Savings Bank, operates branches in
Edina and 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 include, but are not limited to those relating to HMN's
financial expectations for earnings and revenues. A number of
factors could cause actual results to differ materially from HMN's
assumptions and expectations. These factors include possible
legislative changes and adverse economic, business and competitive
developments such as shrinking interest margins; deposit outflows;
reduced demand for financial services and loan products; changes in
accounting policies and guidelines, changes in monetary and fiscal
policies of the federal government or changes in tax laws.
Additional factors that may cause actual results to differ from
HMN's assumptions and expectations include those set forth in HMN's
most recent filings with the Securities and Exchange Commission.
All forward-looking statements are qualified by, and should be
considered in conjunction with, such cautionary statements. -0- *T
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets
----------------------------------------------------------------------
September 30, December 31, 2005 2004 (unaudited)
----------------------------------------------------------------------
Assets Cash and cash equivalents................... $27,462,839
34,298,394 Securities available for sale: Mortgage-backed and
related securities (amortized cost $7,920,015 and
$9,509,377)............................. 7,481,261 9,150,871 Other
marketable securities (amortized cost $92,099,344 and
$95,097,051)....... 91,030,938 94,521,512 -------------
------------ 98,512,199 103,672,383 ------------- ------------
Loans held for sale......................... 4,058,132 2,711,760
Loans receivable, net....................... 815,163,631
783,213,262 Accrued interest receivable................. 4,513,397
3,694,133 Real estate, net............................ 1,229,894
140,608 Federal Home Loan Bank stock, at cost....... 8,809,500
9,292,800 Mortgage servicing rights, net.............. 2,817,520
3,231,242 Premises and equipment, net................. 12,177,193
12,464,265 Investment in limited partnerships.......... 147,548
168,258 Goodwill.................................... 3,800,938
3,800,938 Core deposit intangible..................... 248,224
333,617 Prepaid expenses and other assets........... 1,905,066
2,638,681 Deferred tax asset.......................... 1,458,100
1,012,700 ------------- ------------ Total
assets............................$982,304,181 960,673,041
============= ============ Liabilities and Stockholders' Equity
Deposits....................................$714,711,074
698,902,185 Federal Home Loan Bank advances.............
170,900,000 170,900,000 Accrued interest
payable.................... 2,142,442 1,314,356 Customer
Escrows............................ 993,944 762,737 Accrued
expenses and other liabilities...... 5,538,649 5,022,927
------------- ------------ Total liabilities.......................
894,286,109 876,902,205 ------------- ------------ Commitments and
contingencies Stockholders' equity: Serial preferred stock: ($.01
par value) authorized 500,000 shares; issued and outstanding
none....................... 0 0 Common stock ($.01 par value):
authorized 11,000,000; issued shares
9,128,662.............................. 91,287 91,287 Additional
paid-in capital.................. 57,931,170 57,875,595 Retained
earnings, subject to certain
restrictions............................... 96,393,416 91,408,028
Accumulated other comprehensive loss........ (912,561) (604,446)
Unearned employee stock ownership plan
shares..................................... (4,399,289) (4,544,300)
Unearned compensation restricted stock
awards..................................... (249,341) 0
------------- ------------ Treasury stock, at cost 4,720,168 and
4,708,798 shares........................... (60,836,610)
(60,455,328) ------------- ------------ Total stockholders'
equity.............. 88,018,072 83,770,836 -------------
------------ Total liabilities and stockholders'
equity..$982,304,181 960,673,041 ============= ============ HMN
FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Income
(unaudited)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30,
2005 2004 2005 2004
----------------------------------------------------------------------
Interest income: Loans receivable.....$14,385,320 12,242,408
41,487,679 35,220,089 Securities available for sale:
Mortgage-backed and related..... 78,645 81,341 252,701 292,633
Other marketable. 645,871 730,727 1,941,809 2,180,525 Cash
equivalents..... 114,872 40,410 342,812 106,750
Other................ 13,525 61,196 182,285 139,016 ------------
----------- ----------- ----------- Total interest income..........
15,238,233 13,156,082 44,207,286 37,939,013 ------------
----------- ----------- ----------- Interest expense:
Deposits............. 4,456,305 3,190,799 12,358,727 9,015,152
Federal Home Loan Bank advances....... 1,836,269 2,195,801
5,485,461 6,550,436 ------------ ----------- -----------
----------- Total interest expense.......... 6,292,574 5,386,600
17,844,188 15,565,588 ------------ ----------- -----------
----------- Net interest income........... 8,945,659 7,769,482
26,363,098 22,373,425 Provision for loan losses...............
952,000 775,000 2,495,000 2,041,000 ------------ -----------
----------- ----------- Net interest income after provision for
loan losses...... 7,993,659 6,994,482 23,868,098 20,332,425
------------ ----------- ----------- ----------- Non-interest
income: Fees and service charges............. 706,337 741,704
1,994,291 2,014,905 Mortgage servicing fees................ 305,417
291,709 901,760 869,789 Securities gains, net 0 2,451 0 3,812 Gain
on sales of loans............... 624,947 349,214 1,242,436
1,268,445 Earnings (losses) in limited partnerships (6,500) (6,500)
(20,710) (19,617) Other................ 90,957 210,155 604,711
667,952 ------------ ----------- ----------- ----------- Total
non-interest income........... 1,721,158 1,588,733 4,722,488
4,805,286 ------------ ----------- ----------- -----------
Non-interest expense: Compensation and benefits............
2,781,366 2,430,026 8,340,048 7,540,268 Occupancy............
1,042,417 914,382 3,079,131 2,670,154 Deposit insurance
premiums............ 34,679 23,600 97,204 70,099
Advertising.......... 101,775 116,195 291,448 291,591 Data
processing...... 278,880 233,254 761,719 652,540 Amortization of
mortgage servicing rights, net of valuation adjustments.........
256,763 239,806 766,885 795,439 Other................ 1,053,536
923,135 3,025,033 2,783,471 ------------ ----------- -----------
----------- Total non-interest expense.......... 5,549,416
4,880,398 16,361,468 14,803,562 ------------ -----------
----------- ----------- Income before income tax expense..........
4,165,401 3,702,817 12,229,118 10,334,149 Income tax expense....
1,889,000 1,152,700 4,638,200 3,168,700 ------------ -----------
----------- ----------- Income before minority interest 2,276,401
2,550,117 7,590,918 7,165,449 Minority interest..... 0 (84) 0
(2,372) ------------ ----------- ----------- ----------- Net
income........ $2,276,401 2,550,201 7,590,918 7,167,821
============ =========== =========== =========== Basic earnings per
share................ $0.59 0.66 1.98 1.85 ============ ===========
=========== =========== Diluted earnings per share................
$0.57 0.64 1.89 1.77 ============ =========== ===========
=========== HMN FINANCIAL, INC. AND SUBSIDIARIES Selected
Consolidated Financial Information (unaudited)
----------------------------------------------------------------------
SELECTED FINANCIAL DATA: Three Months Ended Nine Months Ended
(Dollars in thousands, except per September 30, September 30, share
data) 2005 2004 2005 2004
----------------------------------------------------------------------
I. OPERATING DATA: Interest income............... $15,238 13,156
44,207 37,939 Interest expense.............. 6,292 5,387 17,844
15,566 Net interest income........... 8,946 7,769 26,363 22,373 II.
AVERAGE BALANCES: Assets (1).................... 983,244 934,248
981,123 906,937 Loans receivable, net......... 807,046 752,281
804,585 720,835 Mortgage-backed and related securities
(1)............... 8,266 10,287 8,790 11,644 Interest-earning
assets (1)... 937,400 891,608 937,715 863,534 Interest-bearing
liabilities.. 884,155 846,297 885,675 819,168 Equity
(1).................... 90,129 84,391 88,205 83,726 III.
PERFORMANCE RATIOS: (1) Return on average assets
(annualized)................ 0.92% 1.09% 1.03% 1.06% Interest rate
spread information: Average during period..... 3.63 3.34 3.61 3.33
End of period............. 3.51 3.33 3.51 3.33 Net interest
margin.......... 3.79 3.47 3.76 3.46 Ratio of operating expense to
average total assets (annualized)................ 2.24 2.08 2.23
2.18 Return on average equity (annualized)................ 10.02
12.02 11.51 11.44 Efficiency................... 52.03 52.15 52.63
54.47 ---------------------------- Sept 30, Dec 31, Sept 30, 2005
2004 2004 ---------------------------- IV. ASSET QUALITY: Total
non-performing assets.. $4,651 4,882 3,719 Non-performing assets to
total assets................ 0.47% 0.51% 0.39% Non-performing loans
to total loans receivable, net....... 0.37% 0.55% 0.38% Allowance
for loan losses.... $8,633 8,996 8,471 Allowance for loan losses to
total assets................ 0.88% 0.94% 0.89% Allowance for loan
losses to total loans receivable, net 1.06 1.15 1.11 Allowance for
loan losses to non-performing loans........ 289.51 207.30 291.04 V.
BOOK VALUE PER SHARE: Book value per share......... $19.97 18.95
18.66 ---------------------------- Nine Nine Months Year Months
Ended Ended Ended Sept 30, Dec 31, Sept 30, 2005 2004 2004
---------------------------- VI. CAPITAL RATIOS: Stockholders'
equity to total assets, at end of period.... 8.96% 8.72% 8.67%
Average stockholders' equity to average assets (1)....... 8.99 9.17
9.23 Ratio of average interest- earning assets to...........
average interest-bearing liabilities (1)........... 105.88 105.38
105.42 ---------------------------- Sept 30, Dec 31, Sept 30, 2005
2004 2004 ---------------------------- VII. EMPLOYEE DATA: Number
of full time equivalent employees........ 206 208 199
----------------------------------------------------------------------
(1) Average balances were calculated based upon amortized cost
without the market value impact of SFAS 115. *T
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