HMN Financial, Inc. (NASDAQ:HMNF): -0- *T First Quarter Highlights
-- Net income of $2.7 million, down $75,000, or 2.7% from first
quarter of 2005 -- Diluted earnings per share of $0.68, down $0.02,
or 2.9%, from first quarter of 2005 -- Net interest income up
$718,000, or 8.3%, over first quarter of 2005 -- Net interest
margin up 31 basis points over first quarter of 2005 -- Income tax
expense up $324,000, or 23.9%, over first quarter of 2005 EARNINGS
SUMMARY Three Months Ended
---------------------------------------------- March 31, 2006 2005
---------------------- Net income $2,740,406 2,815,064 Diluted
earnings per share 0.68 0.70 Return on average assets 1.14 % 1.18 %
Return on average equity 11.82 % 13.22 % Book value per share
$20.99 19.17 *T HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $990
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $2.7 million for the first quarter of
2006, down $75,000, or 2.7%, from net income of $2.8 million for
the first quarter of 2005. Diluted earnings per common share for
the first quarter of 2006 were $0.68, down $0.02, or 2.9%, from
$0.70 for the first quarter of 2005. The decrease in net income was
due to an increase in HMN's effective tax rate from 32.5% in the
first quarter of 2005 to 38.0% in the first quarter of 2006. The
increase in the effective tax rate was due to changes in state tax
laws that were enacted in the third quarter of 2005. First Quarter
Results Net Interest Income Net interest income was $9.4 million
for the first quarter of 2006, an increase of $718,000, or 8.3%,
compared to $8.7 million for the first quarter of 2005. Interest
income was $16.0 million for the first quarter of 2006, an increase
of $1.8 million, or 12.6%, from $14.2 million for the first quarter
of 2005. Interest income increased because of an increase in the
average interest rate earned on loans and investments. 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 on new loans
originated. The increase in interest income due to increased rates
was partially offset by a $28 million decrease in the average
outstanding single-family mortgage and consumer loan portfolio
balances between the periods. The average yield earned on
interest-earning assets was 6.98% for the first quarter of 2006, an
increase of 77 basis points from the 6.21% average yield for the
first quarter of 2005. Interest expense was $6.6 million for the
first quarter of 2006, an increase of $1.1 million, or 19.3%,
compared to $5.5 million for the first quarter of 2005. Interest
expense increased because of the 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. The average interest rate paid on interest-bearing
liabilities was 3.07% for the first quarter of 2006, an increase of
51 basis points from the 2.56% average interest rate paid in the
first quarter of 2005. Net interest margin (net interest income
divided by average interest earning assets) for the first quarter
of 2006 was 4.10%, an increase of 31 basis points, compared to
3.79% for the first quarter of 2005. Provision for Loan Losses The
provision for loan losses was $515,000 for the first quarter of
2006, a decrease of $121,000, compared to $636,000 for the first
quarter of 2005. The provision for loan losses decreased primarily
because of the $12 million reduction in the commercial loan
portfolio in the first quarter of 2006 compared to the $40 million
in growth that was experienced in the first quarter of 2005. The
reduction in loan growth was the result of management's decision
not to pursue long-term, low fixed-rate commercial loan business in
an environment of rising short-term interest rates. The decrease in
the provision related to the reduced loan growth was partially
offset by an increase in the provision due to increased commercial
loan risk rating downgrades in the first quarter of 2006 when
compared to the same period of 2005. Total non-performing assets
were $3.5 million at March 31, 2006, a decrease of $392,000, from
$3.9 million at December 31, 2005. Non-Interest Income and Expense
Non-interest income was $1.5 million for the first quarter of 2006,
an increase of $60,000, or 4.2%, from $1.4 million for the first
quarter of 2005. Fees and service charges increased $112,000
between the periods primarily because of increased retail deposit
account activity and late fees. Loan servicing fees increased
$11,000 primarily because of an increase in the number of
commercial loans that are being serviced for others. Gain on sale
of loans decreased $47,000 between the periods due to a decrease in
the number of single-family mortgage loans sold and a decrease in
the profit margins realized on the loans that were sold.
Competition in the single-family loan origination market has
increased as the overall market has slowed and profit margins have
been lowered in order to remain competitive and maintain
origination volumes. Other non-interest income decreased $17,000
primarily because of lower revenues from the sale of uninsured
investment products. Non-interest expense was $5.9 million for the
first quarter of 2006, an increase of $649,000, or 12.3%, from $5.3
million for the first quarter of 2005. Compensation expense
increased $485,000 primarily because of annual payroll cost
increases and increased pension costs. Occupancy expense increased
$105,000 due primarily to additional costs associated with new
branch and loan origination offices opened in Rochester in the
first quarter of 2006. Data processing costs increased $51,000 due
to increases in the services provided by the Bank's third party
processor between the periods. Advertising expense increased
$47,000 between the periods primarily because of the costs
associated with promoting the new branch and the introduction of
new checking account offerings in the first quarter of 2006. Income
tax expense increased $324,000 between the periods due to an
increase in taxable income and an effective tax rate that increased
from 32.5% for the first quarter of 2005 to 38.0% for the first
quarter of 2006. The increase in the effective tax rate was
primarily the result of state tax law changes that were enacted in
the third quarter of 2005. Return on Assets and Equity Return on
average assets for the first quarter of 2006 was 1.14%, compared to
1.18% for the first quarter of 2005. Return on average equity was
11.82% for the first quarter of 2006, compared to 13.22% for the
same quarter in 2005. Book value per common share at March 31, 2006
was $20.99, compared to $19.17 at March 31, 2005. President's
Statement "Net interest margin continued to improve during the
first quarter of 2006 despite the challenging interest rate
environment that existed," said HMN President, Michael McNeil. "We
believe that actively managing our net interest margin will
continue to have a positive effect on earnings." General
Information HMN Financial, Inc. and Home Federal Savings Bank are
headquartered in Rochester, Minnesota. The Bank operates ten full
service offices in southern Minnesota located in Albert Lea,
Austin, 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 the
Company's financial expectations for earnings and revenues and the
management of net interest margin. A number of factors could cause
actual results to differ materially from the Company'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 the
Company's assumptions and expectations include those set forth in
the Company'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
----------------------------------------------------------------------
March 31, December 31, 2006 2005
----------------------------------------------------------------------
(unaudited) Assets Cash and cash equivalents.................
$55,132,473 47,268,795 Securities available for sale:
Mortgage-backed and related securities (amortized cost $7,254,122
and $7,428,504).......................... 6,697,944 6,879,756 Other
marketable securities (amortized cost $118,117,448 and
$113,749,841)....................... 117,384,344 112,778,813
------------- ------------- 124,082,288 119,658,569 -------------
------------- Loans held for sale....................... 5,011,272
1,435,141 Loans receivable, net..................... 767,880,982
785,678,461 Accrued interest receivable............... 4,817,953
4,460,014 Real estate, net.......................... 1,174,315
1,214,621 Federal Home Loan Bank stock, at cost..... 8,364,600
8,364,600 Mortgage servicing rights, net............ 2,484,849
2,653,635 Premises and equipment, net............... 12,304,743
11,941,863 Investment in limited partnerships........ 134,548
141,048 Goodwill.................................. 3,800,938
3,800,938 Core deposit intangible................... 191,296
219,760 Prepaid expenses and other assets......... 2,150,332
1,854,948 Deferred tax asset........................ 2,453,100
2,544,400 ------------- ------------- Total
assets.......................... $989,983,689 991,236,793
============= ============= Liabilities and Stockholders' Equity
Deposits.................................. $727,466,404 731,536,560
Federal Home Loan Bank advances........... 160,900,000 160,900,000
Accrued interest payable.................. 1,859,576 2,085,573
Advance payments by borrowers for taxes and
insurance............................ 1,070,637 1,038,575 Accrued
expenses and other liabilities.... 6,040,754 4,947,816
------------- ------------- Total liabilities.....................
897,337,371 900,508,524 ------------- ------------- Commitments and
contingencies Stockholders' equity: Serial preferred stock ($.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................ 57,564,482 58,011,099
Retained earnings, subject to certain
restrictions............................. 100,763,377 98,951,777
Accumulated other comprehensive loss (778,382) (917,577) Unearned
employee stock ownership plan
shares................................... (4,302,642) (4,350,999)
Unearned compensation restricted stock
awards................................... 0 (182,521) Treasury
stock, at cost 4,715,698 and 4,721,402
shares......................... (60,691,804) (60,874,797)
------------- ------------- Total stockholders' equity............
92,646,318 90,728,269 ------------- ------------- Total liabilities
and stockholders' equity $989,983,689 991,236,793 =============
============= HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated
Statements of Income (unaudited)
----------------------------------------------------------------------
Three Months Ended March 31, 2006 2005
----------------------------------------------------------------------
Interest income: Loans receivable........................
$14,702,780 13,333,019 Securities available for sale:
Mortgage-backed and related......... 70,562 89,768 Other
marketable.................... 889,631 641,756 Cash
equivalents........................ 256,426 52,269
Other................................... 62,821 79,528 ------------
----------- Total interest income............... 15,982,220
14,196,340 ------------ ----------- Interest expense:
Deposits................................ 4,867,681 3,702,631
Federal Home Loan Bank advances......... 1,725,856 1,822,691
------------ ----------- Total interest expense...............
6,593,537 5,525,322 ------------ ----------- Net interest
income.................. 9,388,683 8,671,018 Provision for loan
losses.................... 515,000 636,000 ------------ -----------
Net interest income after provision for loan
losses..................... 8,873,683 8,035,018 ------------
----------- Non-interest income: Fees and service
charges................ 714,778 602,597 Mortgage servicing
fees................. 303,675 292,980 Gain on sales of
loans.................. 245,977 293,316 Losses in limited
partnerships.......... (6,500) (7,710)
Other................................... 228,404 245,548
------------ ----------- Total non-interest income............
1,486,334 1,426,731 ------------ ----------- Non-interest expense:
Compensation and benefits............... 3,258,871 2,774,104
Occupancy............................... 1,100,292 995,254 Deposit
insurance premiums.............. 31,197 27,906
Advertising............................. 130,658 83,908 Data
processing......................... 288,715 237,488 Amortization of
mortgage servicing rights, net............................ 216,540
239,033 Other................................... 913,138 932,692
------------ ----------- Total non-interest expense...........
5,939,411 5,290,385 ------------ ----------- Income before income
tax expense..... 4,420,606 4,171,364 Income tax
expense........................... 1,680,200 1,356,300 ------------
----------- Net income........................... $2,740,406
2,815,064 ============ =========== Basic earnings per
share..................... $0.71 0.74 ============ ===========
Diluted earnings per share................... $0.68 0.70
============ =========== HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information (unaudited)
----------------------------------------------------------------------
SELECTED FINANCIAL DATA: Three Months Ended (dollars in thousands,
except March 31, per share data) 2006 2005
----------------------------------------------------------------------
I. OPERATING DATA: Interest income......... $15,982 14,196 Interest
expense........ 6,593 5,525 Net interest income..... 9,389 8,671
II. AVERAGE BALANCES: Assets (1)............. 973,110 968,508 Loans
receivable, net.. 778,271 800,369 Mortgage-backed and related
securities (1) 7,360 9,292 Interest-earning assets
(1)................... 928,945 927,330 Interest-bearing
liabilities........... 871,172 876,576 Equity (1).............
94,054 86,345 III. PERFORMANCE RATIOS: (1) Return on average assets
(annualized)... 1.14 % 1.18 % Interest rate spread information:
Average during period............. 3.91 3.65 End of period.......
3.90 3.53 Net interest margin.... 4.10 3.79 Ratio of non-interest
expense to average total assets (annualized)........ 2.48 2.22
Return on average equity (annualized)... 11.82 13.22
Efficiency............. 54.62 52.44
-------------------------------------- March 31, December 31, March
31, 2006 2005 2005 -------------------------------------- IV. ASSET
QUALITY : Total non-performing assets................ $3,491 3,883
4,934 Non-performing assets to total assets....... 0.35 % 0.39 %
0.50 % Non-performing loans to total loans receivable, net......
0.27 0.30 0.43 Allowance for loan losses................ $9,249
8,778 9,394 Allowance for loan losses to total loans receivable,
net....... 1.20 % 1.11 % 1.16 % Allowance for loan losses to
non-performing loans.. 454.37 376.88 267.99 V. BOOK VALUE PER
SHARE: Book value per share... $20.99 20.59 19.17
-------------------------------------- Three Months Year Ended
Three Months Ended Dec 31, 2005 Ended Mar 31, 2006 Mar 31, 2005
-------------------------------------- VI. CAPITAL RATIOS :
Stockholders' equity to total assets, at end of period...... 9.36 %
9.15 % 8.52 % Average stockholders' equity to average assets
(1).... 9.67 9.05 8.92 Ratio of average interest-earning assets to
average interest-bearing liabilities (1)....... 106.63 105.96
105.79 -------------------------------------- March 31, December
31, March 31, 2006 2005 2005 --------------------------------------
VII. EMPLOYEE DATA: Number of full time equivalent employees.. 213
208 202 (1) Average balances were calculated based upon amortized
cost without the market value impact of SFAS 115. *T
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