First Quarter Highlights
* Net loss of $2.6 million, down $4.1 million, or 276.2% compared to earnings of
$1.5 million in the first quarter of 2008
* Diluted loss per common share of $0.83 compared to diluted earnings per common
share of $0.39 in the first quarter of 2008
* Net interest margin up 2 basis points from first quarter of 2008
* Gain on sales of loans up $267,000, or 171.2%, from first quarter of 2008
* Provision for loan losses up $5.0 million, or 321.1%, over first quarter of
2008
ROCHESTER, Minn.--(Business Wire)--
HMN Financial, Inc. (NASDAQ:HMNF):
EARNINGS SUMMARY Three Months Ended
March 31,
(dollars in thousands, except per share amounts) 2009 2008
Net income (loss) $ (2,622 ) 1,488
Diluted earnings (loss) per common share (0.83 ) 0.39
Return on average assets (0.94 ) % 0.54 %
Return on average equity (9.57 ) % 6.06 %
Book value per common share $ 20.64 23.85
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $1.1 billion holding company for
Home Federal Savings Bank (the Bank), today reported a net loss of $2.6 million
for the first quarter of 2009, down $4.1 million, or 276.2%, from net income of
$1.5 million for the first quarter of 2008. Net loss available to common
shareholders was $3.1 million for the first quarter of 2009, down $4.5 million,
or 305.0%, from net income available to common shareholders of $1.5 million for
the first quarter of 2008. Diluted loss per common share for the first quarter
of 2009 was $0.83, down $1.22 from diluted earnings per common share of $0.39
for the first quarter of 2008. The decrease in net income was due primarily to a
$5.0 million increase in the loan loss provision between the periods as a result
of the increased charge offs on non-performing loans.
First Quarter Results
Net Interest Income
Net interest income was $8.8 million for the first quarter of 2009, an increase
of $0.1 million, or 1.1%, compared to $8.7 million for the first quarter of
2008. Interest income was $15.4 million for the first quarter of 2009, a
decrease of $2.4 million, or 13.7%, from $17.8 million for the first quarter of
2008. Interest income decreased primarily because of a decrease in the average
interest rate earned on loans and investments. Interest rates decreased
primarily because of the 200 basis point decrease in the prime interest rate
between the periods. Decreases in the prime rate, which is the rate that banks
charge their prime business customers, generally decrease the rates on
adjustable rate consumer and commercial loans in the portfolio and on new loans
originated. The decrease in interest income due to decreased interest rates was
partially offset by the $16.0 million increase in the average interest earning
assets between the periods. 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 5.76% for the first quarter of 2009, a decrease
of 96 basis points from the 6.72% average yield for the first quarter of 2008.
Interest expense was $6.6 million for the first quarter of 2009, a decrease of
$2.5 million, or 27.8%, compared to $9.1 million for the first quarter of 2008.
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 200 basis point decrease in the federal funds rate that occurred
between the periods and the 200 basis point decrease that occurred in the first
quarter of 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. The average interest rate paid on interest-bearing
liabilities was 2.63% for the first quarter of 2009, a decrease of 107 basis
points from the 3.70% average interest rate paid in the first quarter of 2008.
Net interest margin (net interest income divided by average interest earning
assets) for the first quarter of 2009 was 3.30%, an increase of 2 basis points,
compared to 3.28% for the first quarter of 2008.
Provision for Loan Losses
The provision for loan losses was $6.6 million for the first quarter of 2009, an
increase of $5.0 million, or 321.1%, compared to $1.6 million for the first
quarter of 2008. The provision for loan losses increased primarily because of an
increase in the charge offs of commercial real estate loans in the first quarter
of 2009 when compared to the same period of 2008. The increase was due primarily
to decreases in the estimated value of the real estate supporting classified
commercial real estate loans. Total non-performing assets were $69.9 million at
March 31, 2009, a decrease of $4.9 million, from $74.8 million at December 31,
2008. Non-performing loans decreased $14.1 million and foreclosed and
repossessed assets increased $9.2 million during the first quarter of 2009. The
non-performing loan activity for the quarter included $8.1 million in additional
non-performing loans primarily related to five loans secured by leased equipment
and two secured commercial lines of credit, $10.3 million in loan charge offs,
$562,000 in loans that were reclassified as performing, $10.4 million in loans
that were transferred into real estate owned and $933,000 in principal payments
were received. The foreclosed and repossessed asset activity for the quarter
included $10.4 million in additional foreclosed real estate primarily related to
a residential development and a multi-family housing project, $1.1 million in
additional losses due to a decrease in the estimated value of the underlying
real estate and $132,000 of real estate was sold.
A rollforward of the Company`s allowance for loan losses for the quarters ended
March 31, 2009 and 2008 is summarized as follows:
(Dollars in thousands) 2009 2008
Balance at January 1, $ 21,257 $ 12,438
Provision 6,569 1,560
Charge offs:
One-to-four family 0 (60 )
Consumer (694 ) (22 )
Commercial business (184 ) (24 )
Commercial real estate (9,461 ) 0
Recoveries 7 21
Balance at March 31, $ 17,494 $ 13,913
The following table summarizes the amounts and categories of non-performing
assets in the Bank`s portfolio and loan delinquency information as March 31,
2009 and December 31, 2008.
March 31, December 31,
(Dollars in thousands) 2009 2008
Non-Accruing Loans:
One-to-four family real estate $ 3,812 $ 7,251
Commercial real estate 29,829 46,953
Consumer 5,052 5,298
Commercial business 11,410 4,671
Total 50,103 64,173
Other assets 25 25
Foreclosed and Repossessed Assets:
One-to-four family real estate 344 258
Commercial real estate 19,409 10,300
Total non-performing assets $ 69,881 $ 74,756
Total as a percentage of total assets 6.28 % 6.53 %
Total non-performing loans $ 50,103 $ 64,173
Total as a percentage of total loans receivable, net 5.71 % 7.12 %
Allowance for loan loss to non-performing loans 34.92 % 33.12 %
Delinquency Data:
Delinquencies (1)
30+ days $ 7,893 $ 11,488
90+ days 515 0
Delinquencies as a percentage of
loan and lease portfolio (1)
30+ days 0.89 % 1.26 %
90+ days 0.06 % 0.00 %
(1) Excludes non-accrual loans.
The decrease in the non-performing loans relates primarily to charge offs and
transfers to real estate owned. The following table summarizes the number and
types of commercial real estate loans that were non-performing at March 31, 2009
and December 31, 2008.
Principal Amount Principal Amount
(Dollars in thousands) of Loan at of Loan at
March 31, December 31,
Property Type # of relationships 2009 # of relationships 2008
Residential developments 5 $ 9,180 6 $ 17,680
Single family homes 3 944 4 898
Condominiums 0 0 1 5,440
Hotel 1 4,999 1 4,999
Alternative fuel plants 2 12,528 2 12,493
Shopping centers 2 1,205 2 1,237
Elderly care facilities 1 40 3 4,037
Commercial buildings 1 158 1 169
Restaurant/bar 1 775 0 0
16 $ 29,829 20 $ 46,953
Non-Interest Income and Expense
Non-interest income was $0.6 million for the first quarter of 2009, a decrease
of $0.9 million, or 57.6%, from $1.5 million for the first quarter of 2008.
Other non-interest income decreased $1.3 million primarily because of a $1.1
million increase in the valuation reserves required on other real estate owned
due to decreases in the estimated value of the real estate. Gain on sales of
loans increased $267,000 between the periods due to an increase in the gains
recognized on the sale of single family loans because of increased loan
originations. Fees and service charges increased $148,000 between the periods
primarily because of increased retail deposit account activity and fees. Loan
servicing fees increased $10,000 primarily because of an increase in the number
of commercial loans that are being serviced for others. Non-interest expense was
$7.2 million for the first quarter of 2009, an increase of $1.0 million, or
15.8%, from $6.2 million for the first quarter of 2008. Other non-interest
expense increased $681,000 primarily because of a $366,000 increase in legal and
other fees related to foreclosed assets and an ongoing state tax assessment
challenge and because of a $222,000 increase in FDIC insurance expense.
Compensation expense increased $489,000 primarily because of costs associated
with the employment agreement of a former executive officer. Data processing
costs decreased $149,000 primarily because of reduced fees paid to third party
vendors as a result of the core system conversion that occurred in the fourth
quarter of 2008. Occupancy expense decreased $40,000 due primarily to decreased
depreciation expense on furniture and equipment.
Income tax expense decreased $2.7 million between the periods due to a decrease
in taxable income and an effective tax rate that increased from 37.7% for the
first quarter of 2008 to 40.2% for the first quarter of 2009. The increase in
the effective tax rate was primarily due to the impact of tax exempt income.
Return on Assets and Equity
Return on average assets for the first quarter of 2009 was (0.94%), compared to
0.54% for the first quarter of 2008. Return on average equity was (9.57%) for
the first quarter of 2009, compared to 6.06% for the same quarter in 2008. Book
value per common share at March 31, 2009 was $20.64, compared to $23.85 at March
31, 2008.
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 and
our loan loss provision." said Home Federal Savings Bank President, Brad
Krehbiel. "However, we are encouraged by the decrease in long term mortgage
interest rates, which have increased single family loan originations and the
gains recognized on the sale of loans."
General Information
HMN Financial, Inc. and Home Federal are headquartered in Rochester, Minnesota.
Home Federal operates eleven 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. 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; the Company`s use of the proceeds from the sale
of securities to the U.S. Treasury Department 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 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) 2009 2008
(unaudited)
Assets
Cash and cash equivalents $ 12,541 15,729
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $71,138 and $76,166) 72,702 77,327
Other marketable securities
(amortized cost $85,503 and $95,445) 87,167 97,818
159,869 175,145
Loans held for sale 3,880 2,548
Loans receivable, net 877,309 900,889
Accrued interest receivable 4,758 5,568
Real estate, net 19,753 10,558
Federal Home Loan Bank stock, at cost 7,286 7,286
Mortgage servicing rights, net 765 728
Premises and equipment, net 13,759 13,972
Prepaid expenses and other assets 4,627 4,408
Deferred tax asset, net 8,812 8,649
Total assets $ 1,113,359 1,145,480
Liabilities and Stockholders` Equity
Deposits $ 798,369 880,505
Federal Home Loan Bank advances and Federal Reserve 192,500 142,500
borrowings
Accrued interest payable 4,643 6,307
Customer escrows 1,949 639
Accrued expenses and other liabilities 6,517 3,316
Total liabilities 1,003,978 1,033,267
Commitments and contingencies
Stockholders` equity:
Serial preferred stock ($.01 par value):
Authorized 500,000 shares; issued shares 26,000 23,448 23,384
Common stock ($.01 par value):
Authorized 11,000,000; issued shares 9,128,662 91 91
Additional paid-in capital 60,816 60,687
Retained earnings, subject to certain restrictions 95,264 98,067
Accumulated other comprehensive income, net of tax 1,947 2,091
Unearned employee stock ownership plan shares (3,722 ) (3,771 )
Treasury stock, at cost 4,965,766 and 4,953,045 (68,463 ) (68,336 )
shares
Total stockholders` equity 109,381 112,213
Total liabilities and stockholders` equity $ 1,113,359 1,145,480
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
(unaudited)
Three Months Ended
March 31,
(Dollars in thousands) 2009 2008
Interest income:
Loans receivable $ 13,628 15,520
Securities available for sale:
Mortgage-backed and related 802 224
Other marketable 946 1,910
Cash equivalents 0 57
Other (23 ) 80
Total interest income 15,353 17,791
Interest expense:
Deposits 4,975 7,870
Federal Home Loan Bank advances and Federal Reserve 1,596 1,237
borrowings
Total interest expense 6,571 9,107
Net interest income 8,782 8,684
Provision for loan losses 6,569 1,560
Net interest income after provision for loan losses 2,213 7,124
Non-interest income:
Fees and service charges 941 793
Loan servicing fees 252 242
Gain on sales of loans 423 156
Other (972 ) 327
Total non-interest income 644 1,518
Non-interest expense:
Compensation and benefits 3,849 3,360
Occupancy 1,092 1,132
Advertising 135 124
Data processing 193 342
Amortization of mortgage servicing rights, net 155 160
Other 1,815 1,134
Total non-interest expense 7,239 6,252
Income (loss) before income tax expense (benefit) (4,382 ) 2,390
Income tax expense (benefit) (1,760 ) 902
Net income (loss) (2,622 ) 1,488
Preferred stock dividends and discount (429 ) 0
Net income (loss) available to common shareholders (3,051 ) 1,488
Basic earnings (loss) per common share $ (0.83 ) 0.41
Diluted earnings (loss) per common share $ (0.83 ) 0.39
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
Three Months Ended
March 31,
SELECTED FINANCIAL DATA:
(Dollars in thousands, except per share data) 2009 2008
I. OPERATING DATA:
Interest income $ 15,353 17,791
Interest expense 6,571 9,107
Net interest income 8,782 8,684
II. AVERAGE BALANCES:
Assets (1) 1,133,058 1,106,527
Loans receivable, net 894,379 872,287
Securities available for sale (1) 165,387 169,570
Interest-earning assets (1) 1,080,825 1,064,816
Interest-bearing liabilities 1,012,552 991,251
Equity (1) 111,144 98,816
III. PERFORMANCE RATIOS: (1)
Return on average assets (annualized) (0.94 ) % 0.54 %
Interest rate spread information:
Average during period 3.13 3.02
End of period 3.27 2.99
Net interest margin 3.30 3.28
Ratio of operating expense to average
total assets (annualized) 2.59 2.27
Return on average equity (annualized) (9.57 ) 6.06
Efficiency 76.79 61.28
March 31, December 31, March 31,
2009 2008 2008
IV. ASSET QUALITY:
Total non-performing assets $ 69,881 74,756 28,232
Non-performing assets to total assets 6.28 % 6.53 % 2.56 %
Non-performing loans to total loans
receivable, net 5.71 7.12 2.73
Allowance for loan losses $ 17,494 21,257 13,913
Allowance for loan losses to total assets 1.57 % 1.86 % 1.26 %
Allowance for loan losses to total loans
receivable, net 1.99 2.36 1.59
Allowance for loan losses to
non-performing loans 34.92 33.12 57.98
V. BOOK VALUE PER COMMON SHARE:
Book value per common share $ 20.64 21.31 23.85
Three Months Three Months
Ended Year Ended Ended
Mar 31, 2009 Dec 31, 2008 Mar 31, 2008
VI. CAPITAL RATIOS:
Stockholders` equity to total assets,
at end of period 9.82 % 9.80 % 9.00 %
Average stockholders` equity to
average assets (1) 9.81 8.58 8.93
Ratio of average interest-earning assets to
average interest-bearing liabilities (1) 106.74 106.50 107.42
March 31, December 31, March 31,
2009 2008 2008
VII. EMPLOYEE DATA:
Number of full time equivalent employees 206 204 207
(1) Average balances were calculated based upon amortized cost without the
market value impact of SFAS 115.
HMN Financial, Inc.
Brad Krehbiel, 507-252-7169
Principal Executive Officer
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