HMN Financial, Inc. (NASDAQ:HMNF):
LOSS
SUMMARY
Three Months EndedMarch
31,
(dollars in thousands, except per share amounts)
2010
2009 Net loss $ (1,847)
(2,622) Diluted loss per common share (0.61)
(0.83) Return on average assets (0.73)
% (0.94) % Return on average equity
(7.50) % (9.57) % Book value per
common share $ 17.10 20.64
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $1.0 billion
holding company for Home Federal Savings Bank (the Bank), today
reported a net loss of $1.8 million for the first quarter of 2010,
an improvement of $775,000 compared to a net loss of $2.6 million
for the first quarter of 2009. Net loss available to common
shareholders was $2.3 million for the first quarter of 2010, an
improvement of $764,000, or 25.0%, from the net loss available to
common shareholders of $3.1 million for the first quarter of 2009.
Diluted loss per common share for the first quarter of 2010 was
$0.61, an improvement of $0.22 from diluted loss per common share
of $0.83 for the first quarter of 2009. The decrease in the net
loss between the periods was due primarily to a $1.9 million
improvement in the gains/losses recognized on the sale of real
estate owned which was partially offset by an $821,000 decrease in
net interest income. The decrease in net interest income was
primarily the result of a decrease in interest-earning assets
between the periods.
President’s Statement
“Our financial results in the first quarter reflect the
challenging economic environment that continues to have a negative
effect on real estate values, our loan loss provision, and the
amount of non-performing assets in our portfolio,” said Home
Federal Savings Bank President, Bradley Krehbiel. “We will continue
to focus our efforts on reducing non-performing assets, reducing
industry loan concentrations, increasing our core deposit
relationships and reducing expenses. We believe that, over time,
our focus on these areas will be effective in generating improved
financial results. In the meantime, Home Federal Savings Bank
continues to have adequate available liquidity and its capital
position remains above the levels required for it to be considered
a well capitalized financial institution by regulatory
standards.”
First Quarter Results
Net Interest Income
Net interest income was $8.0 million for the first quarter of
2010, a decrease of $0.8 million, or 9.3%, compared to $8.8 million
for the first quarter of 2009. Interest income was $12.9 million
for the first quarter of 2010, a decrease of $2.5 million, or
16.0%, from $15.4 million for the first quarter of 2009. Interest
income decreased between the periods primarily because of a $104
million decrease in average interest-earning assets between the
periods. Average interest earning assets decreased between the
periods primarily because of a decrease in the commercial loan
portfolio, which occurred because of declining loan demand and the
Company’s focus on improving credit quality, managing interest rate
risk and improving capital ratios. Interest income was also
adversely affected by the increase in non-performing assets between
the periods. The average yield earned on interest-earning assets
was 5.36% for the first quarter of 2010, a decrease of 40 basis
points from the 5.76% average yield for the first quarter of
2009.
Interest expense was $4.9 million for the first quarter of 2010,
a decrease of $1.7 million, or 24.8%, compared to $6.6 million for
the first quarter of 2009. Interest expense decreased primarily
because of the lower interest rates paid on money market accounts
and certificates of deposits. The decreased rates were the result
of the 400 basis point decrease in the federal funds rate that
occurred in 2008. Decreases in the federal funds rate, which is the
rate that banks charge other banks for short term loans, generally
have a lagging effect and decrease the rates banks pay for
deposits. The lagging effect of deposit rate changes is primarily
due to the Bank’s deposits that are in the form of certificates of
deposits, which do not re-price immediately when the federal funds
rate changes. Interest expense also decreased because of an $89
million decrease in the average interest-bearing liabilities
between the periods. The decrease in average interest-bearing
liabilities is primarily the result of a decrease in the
outstanding borrowings and brokered certificates of deposits
between the periods. The decrease in borrowings and brokered
deposits between the periods was the result of using the proceeds
from loan principal payments to fund maturing borrowings and
brokered deposits. The average interest rate paid on
interest-bearing liabilities was 2.17% for the first quarter of
2010, a decrease of 46 basis points from the 2.63% average interest
rate paid in the first quarter of 2009. Net interest margin (net
interest income divided by average interest earning assets) for the
first quarter of 2010 was 3.31%, an increase of 1 basis point,
compared to 3.30% for the first quarter of 2009.
Provision for Loan
Losses
The provision for loan losses was $6.5 million for the first
quarter of 2010, a decrease of $0.1 million, or 0.5%, compared to
$6.6 million for the first quarter of 2009. The provision for loan
losses remained elevated in the first quarter of 2010 primarily
because of $2.5 million in additional reserves established on two
commercial real estate loans as a result of decreases in the
estimated value of the underlying collateral supporting the loans,
$1.4 million in additional reserves established on other loans due
to risk rating downgrades, $1.6 million in additional reserves
established on a commercial loan due to the borrower filing
bankruptcy, and a $1.1 million increase in the reserves required
for other risk rated loans as a result of a loan portfolio
analysis. Total non-performing assets were $90.7 million at March
31, 2010, an increase of $13.3 million, or 17.2%, from $77.4
million at December 31, 2009. Non-performing loans increased $16.9
million and foreclosed and repossessed assets decreased $3.6
million during the first quarter of 2010. The increase in
non-performing loans is primarily due to a $6.4 million office
building loan, a $5.0 million loan to another financial
institution, $1.7 million in loans to a leasing operation, a $1.5
million loan to a real estate developer and a $0.9 million
residential development loan that became non-performing during the
quarter. The non-performing loan and foreclosed and repossessed
asset activity for the first quarter of 2010 was as follows:
(Dollars in thousands)
Non-performing loans
Foreclosed and repossessed assets January 1, 2010 $61,127
January 1, 2010 $16,262 Classified as non-performing 19,907
Transferred from non-performing loans 770 Charge offs (1,079) Other
foreclosures/repossessions 389 Principal payments received (958)
Real estate sold (5,442) Classified as accruing (229) Net gain on
sale of assets 767 Transferred to real estate owned (770) Write
downs (18) March 31, 2010 $77,998 March 31, 2010 $12,728
A rollforward of the Company’s allowance for loan losses for the
quarters ended March 31, 2010 and 2009 is summarized as
follows:
(Dollars in
thousands) 2010 2009 Balance at January 1, $23,811
$21,257 Provision 6,533 6,569 Charge offs: One-to-four family (51)
0 Consumer (306) (694) Commercial business (61) (184) Commercial
real estate (660) (9,461) Recoveries 18 7 Balance at March 31,
$29,284 $17,494 General allowance 12,080 10,002 Specific
allowance 17,204 7,492 $29,284 $17,494
The following table summarizes the amounts and categories of
non-performing assets in the Bank’s portfolio and loan delinquency
information as of March 31, 2010 and December 31, 2009.
March 31, December 31, (Dollars in thousands)
2010 2009 Non-Accruing Loans: One-to-four
family real estate $ 2,194 $ 2,132 Commercial real estate 43,596
37,122 Consumer 3,499 4,086 Commercial business 28,709 17,787 Total
77,998 61,127 Foreclosed and Repossessed Assets: One-to-four
family real estate 1,396 1,011 Consumer 4 5 Commercial real estate
11,328 15,246 Total non-performing assets $ 90,726 $ 77,389 Total
as a percentage of total assets 8.83 % 7.47 % Total non-performing
loans $ 77,998 $ 61,127 Total as a percentage of total loans
receivable, net 10.07 % 7.65 % Allowance for loan loss to
non-performing loans 37.54 % 38.95 % Delinquency
Data: Delinquencies (1) 30+ days $ 7,083 $ 11,140 90+ days 0
Delinquencies as a percentage of Loan and lease portfolio (1) 30+
days 0.90 % 1.37 % 90+ days 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 at March 31, 2010
and December 31, 2009.
Principal Amount Principal Amount
(Dollars in thousands)
of Loans at of Loans at March 31, December 31, Property Type
# of relationships 2010 # of relationships
2009 Residential developments 8 $ 12,914 7 $ 12,030
Single family homes 2 3,088 2 3,088 Hotel 1 4,999 1 4,999
Alternative fuel plants 2 12,889 2 12,834 Shopping centers/retail 2
1,121 2 1,136 Restaurants/bar 3 2,258 4 2,436 Office building 1
6,327 1 599 19 $ 43,596
19 $ 37,122
Non-Interest Income and
Expense
Non-interest income was $1.6 million for the first quarter of
2010, a decrease of $259,000, or 14.1%, from $1.8 million for the
first quarter of 2009. Fees and service charges decreased $185,000
between the periods primarily because of a decrease in late fees
and overdraft charges. Gain on sales of loans decreased $109,000
between the periods due to a decrease in the gains recognized on
the sale of single family loans because of a decrease in loan
originations and sales. Other non-interest income increased $19,000
between the periods primarily because of increased rental income on
other real estate owned. Loan servicing fees increased $16,000
between the periods primarily because of an increase in the number
of single family loans that are being serviced for others.
Non-interest expense was $6.0 million for the first quarter of
2010, a decrease of $2.4 million, or 28.6%, from $8.4 million for
the first quarter of 2009. The gain/loss on real estate owned
increased $1.9 million between the periods due primarily to a $1.0
million gain realized on the sale of an elderly care facility in
the first quarter of 2010. Compensation expense decreased $400,000
primarily because of costs associated with the employment agreement
of a former executive officer that were expensed in the first
quarter of 2009. Occupancy expense decreased $61,000 due primarily
to decreased depreciation expense on furniture and equipment.
Amortization of mortgage servicing rights decreased $46,000 between
the periods as a result of fewer mortgage loan payoffs. Advertising
expense decreased $32,000 between the periods due to a decrease in
printed advertising material and fewer promotional event
sponsorships.
Income tax benefit decreased $592,000 between the periods due to
a decrease in the taxable loss and an effective tax rate that
decreased from 40.2% for the first quarter of 2009 to 38.7% for the
first quarter of 2010. The decrease in the effective tax rate is
primarily due to the impact of tax exempt income.
Return on Assets and
Equity
Return on average assets for the first quarter of 2010 was
(0.73%), compared to (0.94%) for the first quarter of 2009. Return
on average equity was (7.50%) for the first quarter of 2010,
compared to (9.57%) for the first quarter of 2009. Book value per
common share at March 31, 2010 was $17.10, compared to $20.64 at
March 31, 2009.
General Information
HMN Financial, Inc. and Home Federal are headquartered in
Rochester, Minnesota. Home Federal operates ten full service
offices in Minnesota located in Albert Lea, Austin, Eagan,
LaCrescent, Rochester, Spring Valley and Winona, Minnesota and two
full service offices located in Marshalltown and Toledo, Iowa. Home
Federal Private Banking operates branches in Edina and Rochester,
Minnesota. Home Federal also operates loan origination offices in
Sartell 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, including statements regarding reducing non-performing
assets, reducing industry loan concentrations, increasing core
retail and commercial deposit relationships, reducing expenses, and
generating improved financial results. 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. 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 securing loans to borrowers, possible legislative and
regulatory changes and adverse economic, business and competitive
developments such as shrinking interest margins; reduced collateral
values; deposit outflows; 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, changes in credit or other
risks posed by the Company’s loan and investment portfolios;
technological, computer-related or operational difficulties;
adverse changes in securities markets; results of litigation; 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 Form 10-K and Form 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.
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated
Balance Sheets
March 31, December 31, (Dollars in thousands)
2010 2009 (unaudited)
Assets Cash and cash
equivalents $ 34,301 16,418 Securities available for sale:
Mortgage-backed and related securities (amortized cost $46,676 and
$51,840) 48,368 53,559 Other marketable securities (amortized cost
$113,744 and $105,723) 113,714 106,043 162,082 159,602 Loans
held for sale 2,386 2,965 Loans receivable, net 774,336 799,256
Accrued interest receivable 3,786 4,024 Real estate, net 12,725
16,257 Federal Home Loan Bank stock, at cost 7,286 7,286 Mortgage
servicing rights, net 1,356 1,315 Premises and equipment, net
10,403 10,766 Prepaid expenses and other assets 6,284 6,762
Deferred tax asset, net 13,531 11,590 Total assets $ 1,028,476
1,036,241
Liabilities and Stockholders’ Equity
Deposits $ 789,792 796,011 Federal Home Loan Bank advances and
Federal Reserve borrowings 132,500 132,500 Accrued interest payable
1,747 2,108 Customer escrows 2,112 1,427 Accrued expenses and other
liabilities 4,635 4,257 Total liabilities 930,786 936,303
Commitments and contingencies Stockholders’ equity: Serial
preferred stock ($.01 par value): Authorized 500,000 shares; issued
shares 26,000 23,901 23,785 Common stock ($.01 par value):
Authorized 11,000,000; issued shares 9,128,662 91 91 Additional
paid-in capital 56,326 58,576 Retained earnings, subject to certain
restrictions 83,943 86,115 Accumulated other comprehensive income,
net of tax 1,003 1,230 Unearned employee stock ownership plan
shares (3,529) (3,577) Treasury stock, at cost 4,812,303 and
4,965,766 shares (64,045) (66,282) Total stockholders’ equity
97,690 99,938 Total liabilities and stockholders’ equity $
1,028,476 1,036,241
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) (unaudited)
Three Months Ended
March 31,
(Dollars in thousands)
2010
2009
Interest income: Loans receivable $ 11,759 13,628 Securities
available for sale: Mortgage-backed and related 535 802 Other
marketable 572 946 Cash equivalents 1 0 Other 37 (23) Total
interest income 12,904 15,353 Interest expense: Deposits
3,421 4,975 Federal Home Loan Bank advances and Federal Reserve
borrowings 1,522 1,596
Total interest expense
4,943 6,571 Net interest income 7,961 8,782 Provision for loan
losses 6,533 6,569 Net interest income after provision for loan
losses 1,428 2,213 Non-interest income: Fees and service
charges 842 1,027 Loan servicing fees 268 252 Gain on sales of
loans 314 423 Other 150 131 Total non-interest income 1,574 1,833
Non-interest expense: Compensation and benefits 3,449 3,849
(Gain) loss on real estate owned (761) 1,103 Occupancy 1,031 1,092
Advertising 103 135 Data processing 276 279 Amortization of
mortgage servicing rights, net 109 155 Other 1,810 1,815 Total
non-interest expense 6,017 8,428 Loss before income tax benefit
(3,015) (4,382) Income tax benefit (1,168) (1,760)
Net loss
(1,847) (2,622) Preferred stock dividends and discount (440) (429)
Net loss available to common shareholders (2,287) (3,051) Basic
loss per common share $ (0.61) (0.83) Diluted loss per common share
$ (0.61) (0.83)
HMN FINANCIAL, INC. AND SUBSIDIARIES Selected
Consolidated Financial Information
(unaudited)
Three Months Ended
SELECTED FINANCIAL DATA:
March 31,
(Dollars in thousands, except per
share data)
2010
2009
I. OPERATING DATA: Interest income $ 12,904
15,353 Interest expense 4,943 6,571 Net interest income 7,961 8,782
II. AVERAGE BALANCES: Assets (1) 1,029,745 1,133,058 Loans
receivable, net 788,981 894,379 Securities available for sale (1)
159,759 165,387 Interest-earning assets (1) 976,402 1,080,825
Interest-bearing liabilities 923,614 1,012,552 Equity (1) 99,925
111,144 III. PERFORMANCE RATIOS: (1) Return on average
assets (annualized) (0.73) % (0.94) % Interest rate spread
information: Average during period 3.19 3.13 End of period 3.20
3.27 Net interest margin 3.31 3.30
Ratio of operating expense to
average total assets (annualized)
2.37 2.99 Return on average equity (annualized) (7.50) (9.57)
Efficiency 63.11 79.23
March 31, December 31, March 31, 2010 2009
2009 IV. ASSET QUALITY: Total non-performing assets $
90,726 77,389 69,881 Non-performing assets to total assets 8.82 %
7.47 % 6.28 %
Non-performing loans to total
loans receivable, net
10.07 7.65 5.71 Allowance for loan losses $ 29,284 23,811 17,494
Allowance for loan losses to total assets 2.85 % 2.30 % 1.57 %
Allowance for loan losses to total
loans receivable, net
3.78 2.98 1.99
Allowance for loan losses to
non-performing loans
37.54 38.95 34.92 V. BOOK VALUE PER COMMON SHARE: Book value
per common share $ 17.10 17.94 20.64
Three Months Three Months Ended Year Ended Ended Mar 31,
2010 Dec 31, 2009 Mar 31, 2009 VI.
CAPITAL RATIOS:
Stockholders’ equity to total
assets, at end of period
9.50 % 9.64 % 9.82 %
Average stockholders’ equity to
average assets (1)
9.70 9.73 9.81
Ratio of average interest-earning
assets to average interest-bearing liabilities (1)
105.72 106.50 106.74 March 31,
December 31, March 31, 2010 2009
2009 VII. EMPLOYEE DATA: Number of full time equivalent employees
212 212 206
(1) Average balances were
calculated based upon amortized cost without the market value
impact of SFAS 115.
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