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 IncomeNet 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 LossesThe
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
ExpenseNon-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
ShareholdersThe 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
EquityThe 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 IncomeNet 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 LossesThe
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
ExpenseNon-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
ShareholdersNet 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
EquityThe 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 AnnouncementHMN
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 InformationHMN 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 StatementThis 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)
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 )
HMN FINANCIAL, INC. AND
SUBSIDIARIES
Selected Consolidated Financial
Information
(unaudited)
Three Months Ended
Year Ended
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.
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