EX-99 3 a4559089ex99.txt HMN FINANCIAL, INC. PRESS RELEASE Exhibit 99 HMN Financial, Inc. Announces Fourth Quarter Results ROCHESTER, Minn.--(BUSINESS WIRE)--Jan. 22, 2004--HMN Financial, Inc. (Nasdaq:HMNF): Fourth Quarter Highlights -- Net income of $2.1 million, up $1.0 million over fourth quarter of 2002 -- Diluted earnings per share of $0.53, up $0.25 over the fourth quarter of 2002 -- Commercial and consumer loan portfolios up $43 million in fourth quarter of 2003 -- Net interest margin up 30 basis points from the fourth quarter of 2002 -- Net interest income up $1.4 million, or 25.6%, over the fourth quarter of 2002 Annual Highlights -- Record net income of $8.6 million, up $3.3 million over 2002 -- Diluted earnings per share of $2.16, up $0.84 over 2002 -- Commercial and consumer loan portfolios up $148 million in 2003 -- Net interest margin up 12 basis points over 2002 -- Gain on sales of loans up $2.2 million, or 70.3%, over 2002 -- Net interest income up $3.1 million, or 14.3%, over 2002 EARNINGS SUMMARY Three Months Ended Twelve Months Ended December 31, December 31, 2003 2002 2003 2002 -------------------- -------------------- Net income $2,145,198 1,137,780 $8,605,247 5,265,656 Diluted earnings per share $ 0.53 0.28 $ 2.16 1.32 Return on average assets 1.03 0.62 % 1.10 0.74 % Return on average equity 10.45 5.81 % 10.85 6.94 % Tangible book value per share $ 16.23 15.68 $ 16.23 15.68 HMN Financial, Inc. (HMN) (Nasdaq:HMNF), the $866 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.1 million for the fourth quarter of 2003, up $1.0 million, or 88.5%, from net income of $1.1 million for the fourth quarter of 2002. Diluted earnings per common share for the fourth quarter of 2003 were $0.53, up $0.25, from $0.28 for the fourth quarter of 2002. Fourth Quarter Results Net Interest Income Net interest income increased by $1.4 million, or 25.6%, to $6.8 million from $5.4 million for the fourth quarter of 2002. Interest income was $11.9 million for the fourth quarter of 2003, an increase of $1.3 million, or 12.7%, from $10.6 million for the same period in 2002. Interest income increased primarily due to the increase in interest-earning assets and because of a change in the mix of assets between the periods. The increase in interest-earning assets was caused primarily by the $148 million increase in commercial and consumer loans between the periods. The increase in interest income on commercial and consumer loans was partially offset by lower income in the investment and single-family loan portfolios due to a decrease in the outstanding balances and lower interest rates of these assets between the periods. Interest expense was $5.2 million for the fourth quarter of 2003, a decrease of $37,000, or 0.7%, from $5.2 million for the fourth quarter of 2002. Interest expense declined primarily due to a decrease in the interest rates paid on deposits and Federal Home Loan Bank advances and because of the $56 million increase in the outstanding average balances of checking and money market accounts between the periods, which generally have lower interest rates than other deposit accounts. Provision for Loan Losses The provision for loan losses was $710,000 for the fourth quarter of 2003, an increase of $135,000, or 23.5%, from $575,000 for the fourth quarter of 2002. The provision for loan losses increased primarily due to the $43 million in growth that was experienced in the commercial and consumer loan portfolios during the fourth quarter of 2003. Commercial and consumer loans generally require a larger provision due to the greater inherent credit risk of these loans. Total non-performing assets were $5.0 million at December 31, 2003, an increase of $131,000, or 2.7%, from the $4.9 million in non-performing assets at December 31, 2002. Non-performing loans increased by $1.2 million, non-performing other assets decreased by $656,000, and foreclosed and repossessed assets decreased by $395,000 between the periods. Non-Interest Income and Expense Non-interest income was $1.9 million for the fourth quarter of 2003, an increase of $483,000, or 34.1%, from $1.4 million for the fourth quarter of 2002. Non-interest income increased by $525,000 between the periods due to an increase in earnings from limited partnership investments primarily because HMN's investment in a limited partnership that invested in mortgage servicing rights was dissolved in the second quarter of 2003. Fees and service charges increased by $181,000 between the periods due to an overdraft protection program that was implemented during the second quarter of 2003 and because of increases in the number of deposit accounts and the fees charged. Mortgage servicing fees increased $89,000 between the periods due to the increased size of the servicing portfolio. Other income increased by $102,000 between the periods primarily because of the decreased losses recognized on the sale of foreclosed and repossessed assets and increased sales of uninsured investment products. Gain on sale of loans decreased by $455,000 due to the decreased mortgage loan activity in the fourth quarter of 2003 when compared to the same period in 2002. Non-interest expense was $4.9 million for the fourth quarter of 2003, an increase of $307,000, or 6.6%, from $4.6 million for the fourth quarter of 2002. The increase was primarily due to an increase of $277,000 in compensation and benefit costs due to additional employees and annual payroll cost increases. Occupancy expense increased by $126,000 between the periods primarily because of the increased costs associated with maintaining additional facilities. Data processing expense decreased $46,000 due to the renegotiation of a service contract with a third party provider. Other expenses decreased by $57,000 between the periods primarily due to decreased costs caused by the lower mortgage loan activity. Income tax expense increased by $412,000 between the periods due to increased taxable income. Return on Assets and Equity Return on average assets for the fourth quarter of 2003 was 1.03%, compared to 0.62% for the fourth quarter of 2002. Return on average equity was 10.45% for the fourth quarter of 2003, compared to 5.81% for the same quarter in 2002. Tangible book value per common share at December 31, 2003 was $16.23, compared to $15.68 at December 31, 2002. Annual Results Net Income Net income was $8.6 million for the year ended December 31, 2003, an increase of $3.3 million, or 63.4%, compared to $5.3 million for the year ended December 31, 2002. Diluted earnings per common share for the year ended December 31, 2003 were $2.16, up $0.84, or 63.6%, from $1.32 for the year ended December 31, 2002. Net Interest Income Net interest income increased by $3.1 million, or 14.3%, to $24.6 million from $21.5 million in 2002. Interest income was $44.9 million for the year ended December 31, 2003, an increase of $2.0 million from $42.9 million for the same period in 2002. Interest income increased primarily because of an increase in interest-earning assets and because of a change in the mix of assets between the periods. The increase in interest-earning assets was caused primarily by the $148 million increase in the commercial and consumer loan portfolios between the periods. These portfolios represented 61.3% of HMN's outstanding loans at December 31, 2003. The increase in interest-earning assets completely offset the decrease in the interest rates earned on the assets between the periods. Interest expense was $20.3 million for the year ended December 31, 2003, a decrease of $1.0 million, or 4.7%, from the $21.3 million for the same period in 2002. Interest expense declined primarily because of a decrease in the rates paid on deposits and Federal Home Loan Bank advances and because of a $45 million increase in the outstanding average balances of checking and money market accounts between the periods, which generally have lower interest rates than other deposit accounts. Provision for Loan Losses The provision for loan losses was $2.6 million for the year ended December 31, 2003, an increase of $234,000, or 9.8%, from $2.4 million in 2002. The provision for loan losses increased primarily because of the additional growth experienced in the commercial and consumer loan portfolios during 2003 when compared to 2002. Commercial and consumer loans generally require a larger provision due to the greater inherent credit risk of these loans. Total non-performing assets were $5.0 million at December 31, 2003, an increase of $131,000, or 2.7%, from the $4.9 million in non-performing assets at December 31, 2002. Non-performing loans increased by $1.2 million, non-performing other assets decreased by $656,000, and foreclosed and repossessed assets decreased by $395,000 between the periods. Non-Interest Income and Expense Non-interest income was $10.3 million for the year ended December 31, 2003, an increase of $4.4 million, or 74.6%, from $5.9 million for the same period in 2002. Non-interest income increased by $2.2 million due to increased gains on the sale of single-family loans. Low mortgage rates during 2003 resulted in higher loan originations than in 2002 as consumers took advantage of the low interest rates to purchase a home or refinance their existing home mortgage. The majority of the single-family loans originated in 2003 were sold in the secondary mortgage market. Gains on the sale of securities increased by $852,000 between the periods as investments were sold to fund a portion of the consumer and commercial loan growth that was experienced during 2003. Fee and service charge income increased by $581,000 between the periods due to an increase in the fees charged, the services offered, and the number of deposit accounts maintained. Mortgage servicing fees increased by $283,000 due to the increased size of the servicing portfolio. Losses from limited partnerships decreased by $416,000 between the years primarily because HMN's investment in a limited partnership that invested in mortgage servicing rights was dissolved in the second quarter of 2003. Non-interest expense was $19.7 million for the year ended December 31, 2003, an increase of $1.8 million, or 10.1%, from $17.8 million for the same period in 2002. The increase was primarily the result of an $817,000 increase in the amortization of mortgage servicing rights caused by the large number of loan prepayments in 2003. Compensation and benefits expense increased by $663,000 primarily because of a separation agreement with a former executive officer, additional employees and annual payroll cost increases. Occupancy expense increased by $314,000 due to the increased number of facilities maintained during 2003. Income tax expense was $4.0 million for the year ended December 31, 2003, an increase of $1.9 million, or 92.3%, compared to $2.1 million for the same period in 2002. The increase in income tax expense is primarily due to an increase in taxable income. Return on Assets and Equity Return on average assets for the year ended December 31, 2003 was 1.10%, compared to 0.74% for the same period in 2002. Return on average equity was 10.85% for the year ended December 31, 2003, compared to 6.94% for the same period in 2002. President's Statement "We continue to execute our business plan by changing the mix of our assets and liabilities to improve net interest margin and increase core earnings," said HMN President Michael McNeil. "This strategy along with the growth that we experienced were significant factors in improving net interest income by $3.1 million and earnings by $3.3 million during 2003." General Information HMN Financial, Inc. and Home Federal Savings Bank are headquartered in Rochester, Minnesota. The Bank operates nine full service offices in southern Minnesota located in Albert Lea, Austin, LaCrescent, Rochester, Spring Valley and Winona and two full service offices in Iowa located in Marshalltown and Toledo. Home Federal Savings Bank also operates loan origination offices located in Stewartville, Lake City, Byron and St. Cloud, Minnesota and in Cresco and West Des Moines, Iowa. Eagle Crest Capital Bank, a division of Home Federal Savings Bank, operates branches in Edina and Rochester, Minnesota. Safe Harbor Statement This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to those relating to HMN's financial expectations for earnings and revenues. A number of factors could cause actual results to differ materially from HMN's assumptions and expectations. These factors include possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; reduced demand for financial services and loan products; changes in accounting policies and guidelines. Additional factors that may cause actual results to differ from HMN's assumptions and expectations include those set forth in HMN's most recent filings with the Securities and Exchange Commission. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets (unaudited) ---------------------------------------------------------------------- December 31, December 31, 2003 2002 ---------------------------------------------------------------------- Assets Cash and cash equivalents.................. $ 30,496,823 27,729,007 Securities available for sale: Mortgage-backed and related securities (amortized cost $13,707,005 and $51,677,294)........................... 13,048,718 51,895,832 Other marketable securities (amortized cost $91,035,285 and $67,282,379)..... 91,615,047 69,501,417 ------------ ------------ 104,663,765 121,397,249 ------------ ------------ Loans held for sale........................ 6,542,824 15,126,509 Loans receivable, net...................... 688,951,119 533,905,652 Accrued interest receivable................ 3,462,221 3,050,636 Real estate, net........................... 73,271 426,691 Federal Home Loan Bank stock, at cost...... 10,004,400 11,880,500 Mortgage servicing rights, net............. 3,447,843 2,691,031 Premises and equipment, net................ 12,110,151 12,875,816 Investment in limited partnerships......... 617,042 862,666 Goodwill................................... 3,800,938 3,800,938 Core deposit intangible.................... 447,474 561,331 Prepaid expenses and other assets.......... 1,818,156 3,214,792 ------------ ------------ Total assets........................... $866,436,027 737,522,818 ============ ============ Liabilities and Stockholders' Equity Deposits................................... $551,687,995 432,951,462 Federal Home Loan Bank advances............ 203,900,000 218,300,000 Accrued interest payable................... 766,837 849,427 Customer escrows........................... 22,457,671 707,213 Accrued expenses and other liabilities..... 6,952,600 7,614,406 Deferred tax liabilities................... 26,300 1,456,600 ------------ ------------ Total liabilities...................... 785,791,403 661,879,108 ------------ ------------ Commitments and contingencies Minority interest.......................... (286,433) (420,846) Stockholders' equity: Serial preferred stock: ($.01 par value) Authorized 500,000 shares; issued and outstanding shares none.... 0 0 Common stock ($.01 par value): Authorized 11,000,000; issued shares 9,128,662............................ 91,287 91,287 Additional paid-in capital................. 57,863,726 58,885,279 Retained earnings, subject to certain restrictions.............................. 85,364,657 79,660,481 Accumulated other comprehensive income (loss).................................... (50,725) 1,575,577 Unearned employee stock ownership plan shares.................................... (4,738,084) (4,931,385) Treasury stock, at cost 4,616,010 and 4,722,856 shares.......................... (57,599,804) (59,216,683) ------------ ------------ Total stockholders' equity............. 80,931,057 76,064,556 ------------ ------------ Total liabilities and stockholders' equity. $866,436,027 737,522,818 ============ ============ HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) ---------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31, December 31, 2003 2002 2003 2002 ---------------------------------------------------------------------- Interest income: Loans receivable.. $11,171,735 9,740,701 41,800,039 38,011,750 Securities available for sale: Mortgage-backed and related.... 96,848 206,997 272,253 1,704,248 Other marketable 543,231 467,524 2,386,590 2,420,317 Cash equivalents.. 30,289 84,105 128,948 382,021 Other............. 80,270 83,909 349,150 349,214 ----------- ----------- ----------- ----------- Total interest income......... 11,922,373 10,583,236 44,936,980 42,867,550 ----------- ----------- ----------- ----------- Interest expense: Deposits.......... 2,835,691 2,645,747 10,274,188 10,949,802 Federal Home Loan Bank advances.... 2,329,989 2,557,039 10,014,865 10,345,102 ----------- ----------- ----------- ----------- Total interest expense........ 5,165,680 5,202,786 20,289,053 21,294,904 ----------- ----------- ----------- ----------- Net interest income......... 6,756,693 5,380,450 24,647,927 21,572,646 Provision for loan losses............. 710,000 575,000 2,610,000 2,376,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses.... 6,046,693 4,805,450 22,037,927 19,196,646 ----------- ----------- ----------- ----------- Non-interest income: Fees and service charges.......... 691,495 510,841 2,304,090 1,723,117 Mortgage servicing fees............. 281,697 193,143 998,200 715,074 Securities gains, net.............. 41,308 0 1,274,537 422,346 Gain on sales of loans............ 647,605 1,102,170 5,240,442 3,077,294 Earnings (losses) in limited partnerships..... 69,856 (455,410) (243,305) (659,378) Other............. 166,612 64,598 681,518 596,117 ----------- ----------- ----------- ----------- Total non- interest income 1,898,573 1,415,342 10,255,482 5,874,570 ----------- ----------- ----------- ----------- Non-interest expense: Compensation and benefits......... 2,283,139 2,006,132 8,675,596 8,012,953 Occupancy......... 1,024,538 898,834 3,423,745 3,109,548 Federal deposit insurance premiums......... 17,686 17,828 72,524 74,108 Advertising....... 114,820 103,562 392,833 521,898 Data processing... 237,438 283,168 1,109,098 1,107,248 Amortization of mortgage servicing rights, net of valuation adjustments and servicing costs.. 276,993 281,174 1,982,337 1,165,762 Other............. 974,268 1,031,482 3,997,243 3,857,117 ----------- ----------- ----------- ----------- Total non- interest expense........ 4,928,882 4,622,180 19,653,376 17,848,634 ----------- ----------- ----------- ----------- Income before income tax expense........ 3,016,384 1,598,612 12,640,033 7,222,582 Income tax expense.. 874,200 461,800 4,037,800 2,099,200 ----------- ----------- ----------- ----------- Income before minority interest....... 2,142,184 1,136,812 8,602,233 5,123,382 Minority interest... (3,014) (968) (3,014) (142,274) ----------- ----------- ----------- ----------- Net income...... $ 2,145,198 1,137,780 8,605,247 5,265,656 =========== =========== =========== =========== Basic earnings per share.............. $ 0.55 0.30 2.26 1.40 =========== =========== =========== =========== Diluted earnings per share.............. $ 0.53 0.28 2.16 1.32 =========== =========== =========== =========== HMN FINANCIAL, INC. AND SUBSIDIARIES Selected Consolidated Financial Information (unaudited) ---------------------------------------------------------------------- Three Months Twelve Months SELECTED FINANCIAL DATA: Ended Ended (dollars in thousand, except December 31 December 31, per share data) 2003 2002 2003 2002 ---------------------------------------------------------------------- I. OPERATING DATA: Interest income.........$ 11,923 10,583 44,937 42,868 Interest expense........ 5,166 5,203 20,289 21,295 Net interest income..... 6,757 5,380 24,648 21,573 II. AVERAGE BALANCES: Assets(1).............. 828,995 729,921 781,613 712,066 Loans receivable, net.. 674,561 515,701 615,553 479,157 Mortgage-backed and related securities(1). 15,438 58,930 21,885 63,022 Interest-earning assets(1)............. 791,154 690,947 743,892 675,555 Interest-bearing liabilities........... 744,713 644,678 697,539 628,264 Equity(1).............. 81,412 77,673 79,324 75,880 III. PERFORMANCE RATIOS: (1) Return on average assets (annualized)... 1.03% 0.62% 1.10% 0.74% Interest rate spread information: Average during period............. 3.23 2.88 3.13 2.96 End of period....... 3.19 3.08 3.19 3.08 Net interest margin.... 3.39 3.09 3.31 3.19 Ratio of operating expense to average total assets (annualized).......... 2.36 2.51 2.51 2.51 Return on average equity (annualized)... 10.45 5.81 10.85 6.94 Efficiency............. 56.95 68.02 56.31 65.03 ---------------------- Dec 31, Dec 31, 2003 2002 ----------------------- IV. ASSET QUALITY : Total non-performing assets................$ 5,038 4,907 Non-performing assets to total assets....... 0.58% 0.67% Total non-performing loans................. 4,689 3,507 Non-performing loans to total loans receivable, net....... 0.68% 0.66% Allowance for loan losses................$ 6,940 4,824 Allowance for loan losses to total assets 0.80% 0.65% Allowance for loan losses to total loans receivable, net....... 1.01 0.90 Allowance for loan losses to non- performing loans...... 147.99 137.54 V. BOOK VALUE PER SHARE: Book value per share...$ 17.93 17.28 Tangible book value per share................. 16.23 15.68 ----------------------- Year Ended Year Ended Dec 31, Dec 31, 2003 2002 ----------------------- VI. CAPITAL RATIOS : Stockholders' equity to total assets, at end of period............. 9.34% 10.31% Average stockholders' equity to average assets(1)............. 10.15 10.66 Ratio of average interest-earning assets to average interest-bearing liabilities(1)........ 106.65 107.53 ----------------------- Dec 31, Dec 31, 2003 2002 ----------------------- VII. EMPLOYEE DATA: Number of full time equivalent employees.. 203 195 ---------------------------------------------------------------------- (1) Average balances were calculated based upon amortized cost without the market value impact of SFAS 115. CONTACT: HMN Financial, Inc., Rochester Michael McNeil, 507-535-1202