Second Quarter Summary
- Net income of $2.5 million, an increase of $0.7
million, compared to $1.8 million in second quarter of
2013
- Diluted earnings per common share of $0.44, an increase
of $0.14, compared to $0.30 in second quarter of 2013
- Provision for loan losses down $1.7 million from second
quarter of 2013
- Nonperforming assets of $15.8 million, down $3.1
million, or 16.4%, from March 31, 2014
Year to Date Summary
- Net income of $4.2 million, an increase of $1.7
million, compared to $2.5 million in first six months of
2013
- Diluted earnings per common share of $0.68, an increase
of $0.32, compared to $0.36 in first six months of
2013
- Provision for loan losses down $3.3 million from first
six months of 2013
- Nonperforming assets of $15.8 million, down $8.6
million, or 35.3%, from December 31, 2013
- Total assets decreased $39 million in first six months
of 2014
Net Income Summary
(unaudited) |
Three
months ended June 30, |
Six
months ended June 30, |
(Dollars in thousands, except per share
amounts) |
2014 |
2013 |
2014 |
2013 |
Net
income |
$ 2,530 |
1,799 |
$ 4,162 |
2,540 |
Net income available to
common stockholders |
2,006 |
1,252 |
3,105 |
1,517 |
Diluted earnings per common
share |
0.44 |
0.30 |
0.68 |
0.36 |
Return on average
assets |
1.62 % |
1.21 % |
1.36 % |
0.84 % |
Return on average
equity |
12.32 % |
11.78 % |
9.91 % |
8.36 % |
Book value per common
share |
$ 14.18 |
$ 8.09 |
$ 14.18 |
$ 8.09 |
ROCHESTER, Minn., July 21, 2014 (GLOBE NEWSWIRE) -- HMN
Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $610
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $2.5 million for the second quarter of
2014, an increase of $0.7 million, compared to net income of $1.8
million for the second quarter of 2013. The net income available to
common shareholders was $2.0 million for the second quarter of
2014, an increase of $0.7 million from the net income available to
common shareholders of $1.3 million for the second quarter of 2013.
Diluted earnings per common share for the second quarter of 2014
were $0.44, an increase of $0.14 from the diluted earnings per
common share of $0.30 for the second quarter of 2013. The increase
in net income in the second quarter of 2014 was primarily due to a
$1.7 million decrease in the provision for loan losses due to the
continued improvement in the credit quality of the commercial loan
portfolio. In addition, a $0.8 million increase in the gain on real
estate owned contributed to the increase in net income between the
periods. These increases in net income were partially offset by a
$0.3 million decrease in non-interest income primarily due to a
decrease in the gain on sales of loans. Income tax expense also
increased $1.6 million between the periods due to the increased
income and the recapture of the deferred tax asset valuation
reserve in the fourth quarter of 2013, which resulted in regular
income tax expense being recorded in the second quarter of
2014.
President's Statement
"We are pleased to report positive earnings for the tenth
consecutive quarter, the continued improvement in the credit
quality of our loan portfolio, and a further reduction in our
non-performing assets," said Bradley Krehbiel, President and Chief
Executive Officer of HMN. "We will continue to work on further
improving the credit quality of our loan portfolio while at the
same time focusing on improving the financial performance of our
core banking operations."
Second Quarter Results
Net Interest Income
Net interest income was $4.7 million for the second quarter of
2014, the same as the second quarter of 2013. Interest income was
$5.0 million for the second quarter of 2014, a decrease of $0.8
million, or 13.3%, from $5.8 million for the same period in 2013.
Interest income decreased between the periods primarily because of
the change in the mix of average interest-earning assets held and
also because of a decrease in average yields earned between the
periods. While the average interest-earning assets increased $19.8
million between the periods, the average interest-earning assets
held in lower yielding cash and investments increased $58.8 million
and the amount of average interest-earning assets held in higher
yielding loans decreased $39.0 million between the periods. The
decrease in the average outstanding loans between the periods was
primarily the result of a decrease in the commercial loan
portfolio, which occurred primarily because of loan prepayments or
non-renewals as a result of the Company's focus on improving credit
quality, decreasing loan concentrations, and managing net interest
margin. The average yield earned on interest-earning assets was
3.41% for the second quarter of 2014, a decrease of 66 basis points
from the 4.07% average yield for the second quarter of 2013. The
decrease in average yield is due to the change in the mix of assets
held and the continued low short-term interest rate environment
that existed during the second quarter of 2014.
Interest expense was $0.3 million for the second quarter of
2014, a decrease of $0.8 million, or 72.6%, compared to $1.1
million for the second quarter of 2013. Interest expense decreased
primarily because of the change in the mix of the average
interest-bearing liabilities held between the periods and also
because of a decrease in the average rate. While the average
interest-bearing liabilities increased $8.6 million between the
periods, the average interest-bearing liabilities held in higher
rate borrowings and brokered certificates of deposits decreased
$63.5 million and the amount of interest-bearing liabilities held
in other lower rate deposit accounts increased $72.1 million
between the periods. The decrease in borrowings and brokered
certificates of deposits between the periods was the result of
using the proceeds from loan principal payments to fund maturing
borrowings and brokered 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 paid were the result of the change in the mix of
liabilities held and the low interest rate environment that
continued to exist during the second quarter of 2014. The
average interest rate paid on interest-bearing liabilities was
0.23% for the second quarter of 2014, a decrease of 62 basis points
from the 0.85% average interest rate paid in the second quarter of
2013. Net interest margin (net interest income divided by
average interest earning assets) for the second quarter of 2014 was
3.20%, a decrease of 8 basis points, compared to 3.28% for the
second quarter of 2013.
Provision for Loan Losses
The provision for loan losses was ($2.2) million for the second
quarter of 2014, a decrease of $1.7 million, from ($0.5) million
for the second quarter of 2013. The provision for loan losses
decreased in the second quarter of 2014 primarily because there
were more recoveries received during the quarter on previously
charged off loans when compared to the second quarter of
2013. The provision also decreased because of a decrease in
the outstanding loan portfolio balances, an improvement in the
classifications of certain risk rated loans, and a decrease in
charge offs in the current period when compared to the second
quarter of 2013. Total non-performing assets were $15.8
million at June 30, 2014, a decrease of $3.1 million, or 16.4%,
from $18.9 million at March 31, 2014. Non-performing loans
decreased $0.1 million and foreclosed and repossessed assets
decreased $3.0 million during the second quarter of 2014. The
non-performing loan and foreclosed and repossessed asset activity
for the second quarter of 2014 was as follows:
(Dollars in thousands) |
|
|
|
Non-performing
loans |
|
Foreclosed and
repossessed assets |
|
March 31, 2014 |
$12,430 |
|
March 31, 2014 |
$6,439 |
Classified as non-performing |
2,094 |
|
Other foreclosures/repossessions |
28 |
Charge offs |
(121) |
|
Real estate sold |
(4,187) |
Principal payments received |
(1,238) |
|
Net gain on sale of assets |
1,233 |
Classified as accruing |
(790) |
|
Write downs |
(121) |
Transferred to real estate owned |
(84) |
|
Transferred from non-performing loans |
84 |
June 30, 2014 |
$12,291 |
|
June 30, 2014 |
$3,476 |
|
|
|
|
|
The decrease in non-performing loans relates primarily to
principal payments received on non-performing loans. Of the
$1.2 million in principal payments received, $0.9 million was
related to the payoff of non-performing single family construction
loans as a result of the houses being sold and $0.2 million related
to principal payments received from various developers as a result
of lot sales. The decrease in foreclosed and repossessed
assets in the second quarter of 2014 relates primarily to real
estate sold during the quarter. Of the $4.2 million in real estate
sold during the quarter, $3.8 million related to the sale of one
non-residential commercial property.
A reconciliation of the Company's allowance for loan losses for
the quarters ended June 30, 2014 and 2013 is summarized as
follows:
|
|
|
(Dollars in thousands) |
2014 |
2013 |
Balance at March 31, |
$9,090 |
$21,941 |
Provision |
(2,178) |
(520) |
Charge offs: |
|
|
One-to-four family |
(92) |
(13) |
Consumer |
(30) |
(55) |
Commercial business |
0 |
(556) |
Commercial real estate |
0 |
(759) |
Recoveries |
1,906 |
321 |
Balance at June 30, |
$8,696 |
$20,359 |
|
|
|
Allocated to: |
|
|
General allowance |
$6,342 |
$12,260 |
Specific allowance |
2,354 |
8,099 |
|
$8,696 |
$20,359 |
|
|
|
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 three most recently completed
quarters.
|
|
|
|
(Dollars in thousands) |
June 30, 2014 |
March 31, 2014 |
December 31, 2013 |
Non‑Performing Loans: |
|
|
|
One‑to‑four family real
estate |
$ 2,056 |
$ 2,159 |
$ 1,602 |
Commercial real estate |
8,803 |
9,221 |
14,549 |
Consumer |
707 |
808 |
737 |
Commercial business |
725 |
242 |
608 |
Total |
12,291 |
12,430 |
17,496 |
|
|
|
|
Foreclosed and Repossessed Assets: |
|
|
|
One-to-four family real
estate |
111 |
0 |
0 |
Commercial real estate |
3,365 |
6,439 |
6,898 |
Total non‑performing assets |
$ 15,767 |
$ 18,869 |
$ 24,394 |
Total as a percentage of total assets |
2.59 % |
3.04 % |
3.76 % |
Total non‑performing loans |
$ 12,291 |
$ 12,430 |
$ 17,496 |
Total as a percentage of total loans
receivable, net |
3.34 % |
3.25 % |
4.55 % |
Allowance for loan loss to non-performing
loans |
70.75 % |
73.13 % |
65.17 % |
|
|
|
|
Delinquency Data: |
|
|
|
Delinquencies (1) |
|
|
|
30+ days |
$ 1,635 |
$ 2,060 |
$ 6,370 |
90+ days |
0 |
0 |
0 |
Delinquencies as a percentage of loan
portfolio (1) |
|
|
|
30+ days |
0.43 % |
0.52 % |
1.33 % |
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 that were non-performing as of the end
of the three most recently completed
quarters.
(Dollars in thousands) |
|
|
|
|
|
|
Property Type |
# of
relationships |
Principal Amount of Loans at June 30,
2014 |
# of
relationships |
Principal Amount of Loans at March
31, 2014 |
# of
relationships |
Principal Amount of Loans at
December 31, 2013 |
Developments/land |
3 |
$8,803 |
4 |
$9,221 |
9 |
$14,549 |
The decrease in the non-performing commercial real estate loans
from March 31, 2014 is due primarily to principal payments received
on construction and development loans during the quarter as a
result of various types of real estate sales including building
lots, land and single family houses.
Non-Interest Income and Expense
Non-interest income was $1.7 million for the second quarter of
2014, a decrease of $0.3 million, or 13.3%, from $2.0 million for
the same period in 2013. Gain on sales of loans decreased
$0.4 million between the periods primarily because of a decrease in
single family loan originations due to the decrease in refinance
activity in the second quarter of 2014 when compared to the same
period of 2013. Other non-interest income increased $0.1
million primarily because of an increase in rental income and an
increase in the sale of uninsured investment products between the
periods.
Non-interest expense was $4.5 million for the second quarter of
2014, a decrease of $0.8 million, or 16.2%, from $5.3 million for
the same period of 2013. The gain on real estate owned
increased $0.8 million primarily because of an
increase in the gains recognized on the properties sold. Other
non-interest expense decreased $0.2 million primarily because of a
decrease in legal expenses between the periods. Deposit
insurance costs decreased $0.1 million primarily because of a
decrease in assets and insurance rates between the
periods. Data processing costs decreased $0.1 million due to a
decrease in hardware and software depreciation expense. These
decreases in non-interest expense were partially offset by a $0.3
million increase in compensation expense between the periods due to
an increase in incentive accruals.
Income tax expense was $1.6 million for the second quarter of
2014, an increase of $1.5 million from $0.1 million for the second
quarter of 2013. 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
June 30, 2013. Since the valuation reserve was established
against the entire deferred tax asset balance, no regular income
tax expense was recorded for the second quarter of 2013. The
income tax expense that was recorded in the second quarter of 2013
related to alternative minimum tax amounts that were due since only
a portion of the outstanding net operating loss carry forwards
could be used to offset current income under the alternative
minimum tax rules. In the fourth quarter of 2013, the
valuation reserve against the deferred tax asset was eliminated and
regular income tax expense of $1.6 million was recorded in the
second quarter of 2014.
Net Income Available to Common Shareholders
The net income available to common shareholders was $2.0 million
for the second quarter of 2014, an improvement of $0.7 million from
the $1.3 million net income available to common shareholders in the
second quarter of 2013. The net income available to common
shareholders increased primarily because of the increase in the net
income between the periods.
On May 15, 2014 the Company paid a dividend of $201.71 per share
on the Company's outstanding Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (the Preferred Stock). The amount of
the dividend represented all accrued and unpaid dividends on the
Preferred Stock for all past dividend periods and for the dividend
period ended on May 14, 2014. On May 15, 2014, the Company
also redeemed 10,000 shares of outstanding Preferred Stock on a pro
rata basis at $1,000 per share. Following the redemption,
16,000 shares of Preferred Stock remain outstanding.
Return on Assets and Equity
Return on average assets (annualized) for the second quarter of
2014 was 1.62%, compared to a 1.21% for the second quarter of
2013. Return on average equity (annualized) was 12.32% for the
second quarter of 2014, compared to 11.78% for the same period in
2013. Book value per common share at June 30, 2014 was $14.18,
compared to $8.09 at June 30, 2013.
Six Month Period Results
Net Income
Net income was $4.2 million for the six month period ended June
30, 2014, an increase of $1.7 million, or 63.9%,
compared to the net income of $2.5 million for the six month period
ended June 30, 2013. The net income available to common
shareholders was $3.1 million for the six month period ended June
30, 2014, an increase of $1.6 million, or 104.7%, compared to the
net income available to common shareholders of $1.5 million for the
same period of 2013. Diluted earnings per common share for the
six month period ended June 30, 2014 was $0.68, an increase of
$0.32 per share compared to the diluted earnings per common share
of $0.36 for the same period in 2013. The increase in net
income for the six month period ended June 30, 2014 was primarily
due to a $3.3 million decrease in the provision for loan losses due
to the continued improvement in the credit quality of the
commercial loan portfolio. In addition, a $0.7 million
increase in the gain on real estate owned and a $0.7 million
decrease in other non-interest expenses as a result of a decrease
in legal and other professional fees contributed to the increase in
net income between the periods. These improvements in net
income were partially offset by a $0.5 million decrease in
non-interest income primarily due to a decrease in the gain on
sales of loans between the periods. Income tax expense also
increased $2.6 million between the periods due to the increased
income and the recapture of the deferred tax asset valuation
reserve in the fourth quarter of 2013, which resulted in regular
income tax expense being recorded in 2014.
Net Interest Income
Net interest income was $9.8 million for the first six months of
2014, an increase of $0.2 million, or 2.1%, from $9.6 million for
the same period in 2013. Interest income was $10.4 million for
the six month period ended June 30, 2014, a decrease of $1.7
million, or 13.7%, from $12.1 million for the same six month period
in 2013. Interest income decreased between the periods
primarily because of the change in the mix of average
interest-earning assets held, a decrease in the amount of average
interest-earning assets and also because of a decrease in average
yields earned between the periods. While the average
interest-earning assets only decreased $1.8 million overall between
the periods, the average interest-earning assets held in higher
yielding loans decreased $52.3 million and the amount of
interest-earning assets held in lower yielding cash and investments
increased $50.5 million between the periods. The decrease in
the average outstanding loans between the periods was primarily the
result of a decrease in the commercial loan portfolio, which
occurred primarily because of loan prepayments or non-renewals as a
result of the Company's focus on improving credit quality,
decreasing loan concentrations, and managing net interest
margin. The average yield earned on interest-earning assets
was 3.61% for the first six months of 2014, a decrease of 56 basis
points from the 4.17% average yield for the first six months of
2013. The decrease in average yield is due to the change in
the mix of assets held and the continued low short-term interest
rate environment that existed during the first six months of
2014.
Interest expense was $0.6 million for the first six months of
2014, a decrease of $1.9 million, or 74.5%,
compared to $2.5 million for the first six months of 2013. Interest
expense decreased primarily because of the change in the mix of the
average interest-bearing liabilities held and also because of a
decrease in the average rate paid between the periods. The
average interest-bearing liabilities decreased $15.5 million
overall between the periods, including a decrease of $72.4 million
in the average interest-bearing liabilities held in higher rate
borrowings and brokered certificates of deposits which was
partially offset by an increase in the amount of interest-bearing
liabilities held in other lower rate deposit accounts of $56.9
million between the periods. The decrease in borrowings and
brokered certificates of deposits between the periods was the
result of using the proceeds from loan principal payments to fund
maturing borrowings and brokered 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 change in
the mix of liabilities held and the low interest rate environment
that continued to exist during the first six months of
2014. The average interest rate paid on interest-bearing
liabilities was 0.25% for the first six months of 2014, a decrease
of 69 basis points from the 0.94% average interest rate paid in the
first six months of 2013. Net interest margin (net interest
income divided by average interest earning assets) for the first
six months of 2014 was 3.39%, an increase of 8 basis points,
compared to 3.31% for the first six months of 2013.
Provision for Loan Losses
The provision for loan losses was ($3.8) million for the first
six months of 2014, a decrease of $3.3 million from ($0.5) million
for the same six month period in 2013. The provision for loan
losses decreased in the first six months of 2014 primarily because
there were more recoveries received during the first six months of
2014 on previously charged off loans when compared to the same
period in 2013. The provision also decreased because of a
decrease in the outstanding loan portfolio balances, an improvement
in the classifications of certain risk rated loans, and a decrease
in charge offs in the first six months of 2014 when compared to the
first six months of 2013. Total non-performing assets were
$15.8 million at June 30, 2014, a decrease of $8.6 million, or
35.3%, from $24.4 million at December 31, 2013. Non-performing
loans decreased $5.2 million and foreclosed and repossessed assets
decreased $3.4 million during the first six months of
2014. The non-performing loan and foreclosed and repossessed
asset activity for the first six months of 2014 was as follows:
(Dollars in thousands) |
|
|
|
|
Non-performing loans |
|
|
Foreclosed and repossessed asset
activity |
|
January 1, 2014 |
$17,496 |
|
January 1, 2014 |
$6,898 |
Classified as non-performing |
3,132 |
|
Transferred from non-performing loans |
84 |
Charge offs |
(1,089) |
|
Other foreclosures/repossessions |
28 |
Principal payments received |
(4,764) |
|
Real estate sold |
(4,323) |
Classified as accruing |
(2,400) |
|
Net gain on sale of assets |
1,265 |
Transferred to real estate owned |
(84) |
|
Write downs |
(220) |
|
|
|
Other payments received on real estate |
(256) |
June 30, 2014 |
$12,291 |
|
June 30, 2014 |
$3,476 |
|
|
|
|
|
The decrease in non-performing loans during the first six months
of 2013 relates primarily to principal payments received. Of
the $4.8 million in principal payments received during the period,
$2.5 million was received on a residential development loan as
settlement of the outstanding debt, $0.9 million related to the
payoff of non-performing single family construction loans as a
result of the houses being sold and $0.6 million related to
additional principal payments received from various developers as a
result of land or lot sales. The decrease in foreclosed and
repossessed assets for the first six months of 2014 relates
primarily to real estate sold during the period. Of the $4.3
million in real estate sold during the first six months of 2014,
$3.8 million related to the sale of one non-residential commercial
property.
A reconciliation of the Company's allowance for loan losses for
the six month periods ended June 30, 2014 and June 30, 2013 is
summarized as follows:
|
|
|
(Dollars in thousands) |
2014 |
2013 |
Balance at January 1, |
$11,401 |
$21,608 |
Provision |
(3,788) |
(520) |
Charge offs: |
|
|
One-to-four family |
(92) |
(200) |
Consumer |
(60) |
(101) |
Commercial business |
(1) |
(557) |
Commercial real estate |
(936) |
(909) |
Recoveries |
2,172 |
1,038 |
Balance at June 30, |
$8,696 |
$20,359 |
|
|
|
Non-Interest Income and Expense
Non-interest income was $3.4 million for the first six months of
2014, a decrease of $0.5 million, or 11.7%, from $3.9 million for
the first six months of 2013. Gain on sales of loans
decreased $0.7 million between the periods primarily because of a
decrease in single family loan originations due to the decrease in
refinance activity in the first six months of 2014 when compared to
the same period of 2013. Other non-interest income
increased $0.2 million primarily because of an increase in rental
income and an increase in the sale of uninsured investment products
between the periods.
Non-interest expense was $10.2 million for the first six months
of 2014, a decrease of $1.2 million, or 10.6%, from $11.4 million
for the same period of 2013. The gain on real estate owned
increased $0.7 million primarily because of an increase in the
gains recognized on the properties sold. Other non-interest
expense decreased $0.7 million primarily because of a decrease in
legal and other professional fees between the periods. Deposit
insurance costs decreased $0.3 million primarily because of a
decrease in assets and insurance rates between the
periods. Data processing costs decreased $0.2 million due to a
decrease in hardware and software depreciation expense. These
decreases in non-interest expense were partially offset by a $0.6
million increase in compensation expense between the periods due
primarily to increases in salaries and pension benefit
costs.
Income tax expense was $2.7 million for the first six months of
2014, an increase of $2.6 million from $0.1 million for the first
six months of 2013. 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
June 30, 2013. Since the valuation reserve was established
against the entire deferred tax asset balance, no regular income
tax expense was recorded for the first six months of 2013. The
income tax expense that was recorded in the first six months of
2013 related to alternative minimum tax amounts that were due since
only a portion of the outstanding net operating loss carry forwards
could be used to offset current income under the alternative
minimum tax rules. In the fourth quarter of 2013, the
valuation reserve against the deferred tax asset was eliminated and
regular income tax expense of $2.7 million was recorded in the
first six months of 2014.
Net Income Available to Common Shareholders
The net income available to common shareholders was $3.1 million
for the first six months of 2014, an increase of $1.6 million from
the $1.5 million net income available to common shareholders in the
first six months of 2013. The net income available to common
shareholders increased primarily because of the increase in the net
income between the periods.
On May 15, 2014 the Company paid a dividend of $201.71 per share
on the Company's outstanding Preferred Stock. The amount of
the dividend represented all accrued and unpaid dividends on the
Preferred Stock for all past dividend periods and for the dividend
period ended on May 14, 2014. On May 15, 2014, the Company
also redeemed 10,000 shares of outstanding Preferred Stock on a pro
rata basis at $1,000 per share. Following the redemption,
16,000 shares of Preferred Stock remain outstanding.
Return on Assets and Equity
Return on average assets (annualized) for the six month period
ended June 30, 2014 was 1.36%, compared to a 0.84% for the same
period in 2013. Return on average equity (annualized) was
9.91% for the six month period ended June 30, 2014, compared to
8.36% for the same period in 2013.
General Information
HMN Financial, Inc. and Home Federal Savings Bank are
headquartered in Rochester, Minnesota. Home Federal Savings Bank
operates eight full service offices in Minnesota located in Albert
Lea, Austin, Eagan, La Crescent, Rochester (2), Spring Valley and
Winona; one full service office located in Marshalltown, Iowa; one
loan origination office in Sartell, Minnesota; and two Private
Banking offices in Rochester, Minnesota.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the safe harbor provisions 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, improving credit
quality, 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 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 and mix of interest-earning
assets; the amount and mix of brokered and other deposits; the
availability of alternate funding sources; the payment of dividends
by HMN, including those on Preferred Stock; 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; the ability to request and pay
dividends to HMN and the redemption of any outstanding Preferred
Stock, evaluation of any future redemption of any outstanding
Preferred Stock and the factors upon which such matter is likely to
depend; the ability to remain well capitalized under revised
capital rules; and compliance by the Company and the Bank with
regulatory standards generally (including the Bank's status as
"well-capitalized"), and other supervisory directives or
requirements to which the Company or the Bank are or may become
expressly subject, specifically, and possible responses of the
Office of the Comptroller of the Currency (OCC) and Federal Reserve
Bank (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; possible
legislative and regulatory changes, including changes to regulatory
capital rules, the ability of the Bank to comply with 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; the future operating results, financial condition,
cash flow requirements and capital spending priorities of the
Company and the Bank; the availability of internal and, as
required, external sources of funding; 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, 2013 and
Part II, item 1A of its subsequently filed Quarterly Reports on
Form 10-Q.
All statements in this press release, including forward-looking
statements, speak only as of the date they are made, and we
undertake no duty to update any of the forward-looking statements
after the date of this press release.
(Three pages of selected consolidated financial
information are included with this release.)
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Balance
Sheets |
|
|
|
(Dollars in thousands) |
June 30, 2014 |
December 31, 2013 |
|
(unaudited) |
|
Assets |
|
|
Cash and cash equivalents |
$ 81,202 |
120,686 |
Securities available for sale: |
|
|
Mortgage-backed and related
securities (amortized cost $3,649 and $4,899) |
3,878 |
5,213 |
Other marketable
securities (amortized cost $123,779 and $103,788) |
123,369 |
102,743 |
|
127,247 |
107,956 |
|
|
|
Loans held for sale |
3,861 |
1,502 |
Loans receivable, net |
367,667 |
384,615 |
Accrued interest receivable |
1,742 |
1,953 |
Real estate, net |
3,476 |
6,898 |
Federal Home Loan Bank stock, at
cost |
777 |
784 |
Mortgage servicing rights, net |
1,571 |
1,708 |
Premises and equipment, net |
6,854 |
6,711 |
Prepaid expenses and other assets |
593 |
698 |
Deferred tax asset, net |
14,892 |
15,111 |
Total assets |
$ 609,882 |
648,622 |
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Deposits |
$ 522,853 |
553,930 |
Accrued interest payable |
103 |
146 |
Customer escrows |
879 |
614 |
Accrued expenses and other
liabilities |
6,671 |
8,257 |
Total liabilities |
530,506 |
562,947 |
Commitments and contingencies |
|
|
Stockholders' equity: |
|
|
Serial preferred stock ($.01
par value): authorized 500,000 shares; issued shares
16,000 |
16,000 |
26,000 |
Common stock ($.01 par
value): authorized 16,000,000; issued shares
9,128,662 |
91 |
91 |
Additional paid-in capital |
50,046 |
51,175 |
Retained earnings, subject to certain
restrictions |
75,309 |
72,211 |
Accumulated other comprehensive loss, net of
tax |
(302) |
(674) |
Unearned employee stock ownership plan
shares |
(2,707) |
(2,804) |
Treasury stock, at cost 4,658,323 and
4,704,313 shares |
(59,061) |
(60,324) |
Total stockholders'
equity |
79,376 |
85,675 |
Total liabilities and stockholders'
equity |
$ 609,882 |
648,622 |
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Statements
of Comprehensive Income |
(unaudited) |
|
|
|
|
|
|
Three Months Ended June
30, |
Six Months Ended June 30, |
(Dollars in thousands, except per share
data) |
2014 |
2013 |
2014 |
2013 |
Interest income: |
|
|
|
|
Loans receivable |
$ 4,659 |
5,503 |
9,729 |
11,531 |
Securities available for
sale: |
|
|
|
|
Mortgage-backed and
related |
43 |
82 |
93 |
176 |
Other marketable |
257 |
148 |
511 |
287 |
Cash equivalents |
60 |
35 |
112 |
68 |
Other |
1 |
19 |
2 |
48 |
Total interest
income |
5,020 |
5,787 |
10,447 |
12,110 |
|
|
|
|
|
Interest expense: |
|
|
|
|
Deposits |
306 |
465 |
640 |
1,022 |
Federal Home Loan Bank
advances |
0 |
650 |
0 |
1,485 |
Total interest
expense |
306 |
1,115 |
640 |
2,507 |
Net interest income |
4,714 |
4,672 |
9,807 |
9,603 |
Provision for loan losses |
(2,178) |
(520) |
(3,788) |
(520) |
Net interest income after
provision for loan losses |
6,892 |
5,192 |
13,595 |
10,123 |
|
|
|
|
|
Non-interest income: |
|
|
|
|
Fees and service
charges |
901 |
883 |
1,724 |
1,672 |
Mortgage servicing
fees |
263 |
257 |
524 |
505 |
Gain on sales of
loans |
330 |
702 |
676 |
1,380 |
Other |
228 |
145 |
486 |
304 |
Total non-interest
income |
1,722 |
1,987 |
3,410 |
3,861 |
|
|
|
|
|
Non-interest expense: |
|
|
|
|
Compensation and
benefits |
3,273 |
2,980 |
6,751 |
6,179 |
Gain on real estate
owned |
(1,120) |
(306) |
(1,052) |
(325) |
Occupancy |
876 |
826 |
1,758 |
1,676 |
Deposit insurance |
97 |
190 |
254 |
508 |
Data processing |
249 |
352 |
495 |
707 |
Other |
1,089 |
1,283 |
1,955 |
2,619 |
Total non-interest
expense |
4,464 |
5,325 |
10,161 |
11,364 |
Income before income tax
expense |
4,150 |
1,854 |
6,844 |
2,620 |
Income tax expense |
1,620 |
55 |
2,682 |
80 |
Net income |
2,530 |
1,799 |
4,162 |
2,540 |
Preferred stock dividends and
discount |
(524) |
(547) |
(1,057) |
(1,023) |
Net income available to common
shareholders |
$ 2,006 |
1,252 |
3,105 |
1,517 |
Other comprehensive income (loss), net of
tax |
$ 192 |
(1,373) |
372 |
(1,518) |
Comprehensive income (loss) attributable to
common shareholders |
$ 2,198 |
(121) |
3,477 |
(1) |
Basic earnings per common share |
$ 0.50 |
0.32 |
0.77 |
0.38 |
Diluted earnings per common share |
$ 0.44 |
0.30 |
0.68 |
0.36 |
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Selected Consolidated
Financial Information |
(unaudited) |
|
|
|
Selected Financial Data: |
Three Months Ended June
30, |
Six Months Ended June 30, |
(Dollars in thousands, except per share
data) |
2014 |
2013 |
2014 |
2013 |
I. OPERATING DATA: |
|
|
|
|
Interest income |
$ 5,020 |
5,787 |
10,447 |
12,110 |
Interest expense |
306 |
1,115 |
640 |
2,507 |
Net interest income |
4,714 |
4,672 |
9,807 |
9,603 |
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
Assets (1) |
626,879 |
595,747 |
619,196 |
610,220 |
Loans receivable,
net |
374,185 |
412,445 |
375,892 |
427,002 |
Securities available for sale
(1) |
115,206 |
93,877 |
112,057 |
92,378 |
Interest-earning assets
(1) |
590,683 |
570,914 |
583,068 |
584,836 |
Interest-bearing
liabilities |
535,420 |
526,831 |
525,958 |
541,435 |
Equity (1) |
82,426 |
61,273 |
84,690 |
61,318 |
|
|
|
|
|
III. PERFORMANCE RATIOS: (1) |
|
|
|
|
Return on average assets
(annualized) |
1.62 % |
1.21 % |
1.36 % |
0.84 % |
Interest rate spread
information: |
|
|
|
|
Average during
period |
3.18 |
3.22 |
3.37 |
3.24 |
End of period |
3.39 |
4.12 |
3.39 |
4.12 |
Net interest margin |
3.20 |
3.28 |
3.39 |
3.31 |
Ratio of operating expense to
average total assets (annualized) |
2.86 |
3.59 |
3.31 |
3.76 |
Return on average equity
(annualized) |
12.32 |
11.78 |
9.91 |
8.36 |
Efficiency |
69.35 |
79.96 |
76.87 |
84.4 |
|
June 30, 2014 |
December 31, 2013 |
June 30, 2013 |
|
IV. ASSET QUALITY: |
|
|
|
|
Total non-performing
assets |
15,767 |
24,394 |
35,264 |
|
Non-performing assets to total
assets |
2.59 % |
3.76 % |
6.29 % |
|
Non-performing loans to total
loans receivable, net |
3.34 % |
4.55 % |
6.22 % |
|
Allowance for loan
losses |
8,696 |
11,401 |
20,359 |
|
Allowance for loan losses to
total assets |
1.43 % |
1.76 % |
3.63 % |
|
Allowance for loan losses to total loans
receivable, net |
2.37 |
2.96 |
4.90 |
|
Allowance for loan losses to
non-performing loans |
70.75 |
65.17 |
78.79 |
|
|
|
|
|
|
V. BOOK VALUE PER SHARE: |
|
|
|
|
Book value per share |
14.18 |
13.49 |
8.09 |
|
|
Six Months Ended June 30, 2014 |
Year Ended Dec 31, 2013 |
Six Months Ended June 30,
2013 |
|
VI. CAPITAL RATIOS: |
|
|
|
|
Stockholders' equity to total
assets, at end of period |
13.01 % |
13.21 % |
10.90 % |
|
Average stockholders' equity to
average assets (1) |
13.68 |
10.77 |
10.05 |
|
Ratio of average
interest-earning assets to average interest-bearing
liabilities (1) |
110.86 |
109.11 |
108.02 |
|
Tier 1 or core
capital |
11.10 |
12.22 |
11.78 |
|
Risk-based capital |
19.01 |
20.78 |
17.31 |
|
|
June 30, 2014 |
December 31, 2013 |
June 30, 2013 |
|
VII. EMPLOYEE DATA: |
|
|
|
|
Number of full time
equivalent employees |
179 |
185 |
190 |
|
|
|
|
|
|
(1) Average balances were
calculated based upon amortized cost without the market value
impact of ASC 320. |
|
|
|
|
CONTACT: Bradley Krehbiel
President and Chief Executive Officer
HMN Financial, Inc. (507) 252-7169
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