EX-99 2 a5133867ex99.txt EXHIBIT 99 Exhibit 99 HMN Financial, Inc. Announces First Quarter Results ROCHESTER, Minn.--(BUSINESS WIRE)--April 20, 2006--HMN Financial, Inc. (NASDAQ:HMNF): First Quarter Highlights -- Net income of $2.7 million, down $75,000, or 2.7% from first quarter of 2005 -- Diluted earnings per share of $0.68, down $0.02, or 2.9%, from first quarter of 2005 -- Net interest income up $718,000, or 8.3%, over first quarter of 2005 -- Net interest margin up 31 basis points over first quarter of 2005 -- Income tax expense up $324,000, or 23.9%, over first quarter of 2005 EARNINGS SUMMARY Three Months Ended ---------------------------------------------- March 31, 2006 2005 ---------------------- Net income $2,740,406 2,815,064 Diluted earnings per share 0.68 0.70 Return on average assets 1.14 % 1.18 % Return on average equity 11.82 % 13.22 % Book value per share $20.99 19.17 HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $990 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.7 million for the first quarter of 2006, down $75,000, or 2.7%, from net income of $2.8 million for the first quarter of 2005. Diluted earnings per common share for the first quarter of 2006 were $0.68, down $0.02, or 2.9%, from $0.70 for the first quarter of 2005. The decrease in net income was due to an increase in HMN's effective tax rate from 32.5% in the first quarter of 2005 to 38.0% in the first quarter of 2006. The increase in the effective tax rate was due to changes in state tax laws that were enacted in the third quarter of 2005. First Quarter Results Net Interest Income Net interest income was $9.4 million for the first quarter of 2006, an increase of $718,000, or 8.3%, compared to $8.7 million for the first quarter of 2005. Interest income was $16.0 million for the first quarter of 2006, an increase of $1.8 million, or 12.6%, from $14.2 million for the first quarter of 2005. Interest income increased because of an increase in the average interest rate earned on loans and investments. Interest rates increased primarily because of the 200 basis point increase in the prime interest rate between the periods. Increases in the prime rate, which is the rate that banks charge their prime business customers, generally increase the rates on adjustable rate consumer and commercial loans in the portfolio and on new loans originated. The increase in interest income due to increased rates was partially offset by a $28 million decrease in the average outstanding single-family mortgage and consumer loan portfolio balances between the periods. The average yield earned on interest-earning assets was 6.98% for the first quarter of 2006, an increase of 77 basis points from the 6.21% average yield for the first quarter of 2005. Interest expense was $6.6 million for the first quarter of 2006, an increase of $1.1 million, or 19.3%, compared to $5.5 million for the first quarter of 2005. Interest expense increased because of the higher interest rates paid on deposits which were caused by the 200 basis point increase in the federal funds rate between the periods. Increases in the federal funds rate, which is the rate that banks charge other banks for short term loans, generally increase the rates banks pay for deposits. The average interest rate paid on interest-bearing liabilities was 3.07% for the first quarter of 2006, an increase of 51 basis points from the 2.56% average interest rate paid in the first quarter of 2005. Net interest margin (net interest income divided by average interest earning assets) for the first quarter of 2006 was 4.10%, an increase of 31 basis points, compared to 3.79% for the first quarter of 2005. Provision for Loan Losses The provision for loan losses was $515,000 for the first quarter of 2006, a decrease of $121,000, compared to $636,000 for the first quarter of 2005. The provision for loan losses decreased primarily because of the $12 million reduction in the commercial loan portfolio in the first quarter of 2006 compared to the $40 million in growth that was experienced in the first quarter of 2005. The reduction in loan growth was the result of management's decision not to pursue long-term, low fixed-rate commercial loan business in an environment of rising short-term interest rates. The decrease in the provision related to the reduced loan growth was partially offset by an increase in the provision due to increased commercial loan risk rating downgrades in the first quarter of 2006 when compared to the same period of 2005. Total non-performing assets were $3.5 million at March 31, 2006, a decrease of $392,000, from $3.9 million at December 31, 2005. Non-Interest Income and Expense Non-interest income was $1.5 million for the first quarter of 2006, an increase of $60,000, or 4.2%, from $1.4 million for the first quarter of 2005. Fees and service charges increased $112,000 between the periods primarily because of increased retail deposit account activity and late fees. Loan servicing fees increased $11,000 primarily because of an increase in the number of commercial loans that are being serviced for others. Gain on sale of loans decreased $47,000 between the periods due to a decrease in the number of single-family mortgage loans sold and a decrease in the profit margins realized on the loans that were sold. Competition in the single-family loan origination market has increased as the overall market has slowed and profit margins have been lowered in order to remain competitive and maintain origination volumes. Other non-interest income decreased $17,000 primarily because of lower revenues from the sale of uninsured investment products. Non-interest expense was $5.9 million for the first quarter of 2006, an increase of $649,000, or 12.3%, from $5.3 million for the first quarter of 2005. Compensation expense increased $485,000 primarily because of annual payroll cost increases and increased pension costs. Occupancy expense increased $105,000 due primarily to additional costs associated with new branch and loan origination offices opened in Rochester in the first quarter of 2006. Data processing costs increased $51,000 due to increases in the services provided by the Bank's third party processor between the periods. Advertising expense increased $47,000 between the periods primarily because of the costs associated with promoting the new branch and the introduction of new checking account offerings in the first quarter of 2006. Income tax expense increased $324,000 between the periods due to an increase in taxable income and an effective tax rate that increased from 32.5% for the first quarter of 2005 to 38.0% for the first quarter of 2006. The increase in the effective tax rate was primarily the result of state tax law changes that were enacted in the third quarter of 2005. Return on Assets and Equity Return on average assets for the first quarter of 2006 was 1.14%, compared to 1.18% for the first quarter of 2005. Return on average equity was 11.82% for the first quarter of 2006, compared to 13.22% for the same quarter in 2005. Book value per common share at March 31, 2006 was $20.99, compared to $19.17 at March 31, 2005. President's Statement "Net interest margin continued to improve during the first quarter of 2006 despite the challenging interest rate environment that existed," said HMN President, Michael McNeil. "We believe that actively managing our net interest margin will continue to have a positive effect on earnings." General Information HMN Financial, Inc. and Home Federal Savings Bank are headquartered in Rochester, Minnesota. The Bank operates ten 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 St. Cloud and Rochester, Minnesota. 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 the Company's financial expectations for earnings and revenues and the management of net interest margin. A number of factors could cause actual results to differ materially from the Company'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, changes in monetary and fiscal policies of the federal government or changes in tax laws. 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 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, 2006 2005 ---------------------------------------------------------------------- (unaudited) Assets Cash and cash equivalents................. $55,132,473 47,268,795 Securities available for sale: Mortgage-backed and related securities (amortized cost $7,254,122 and $7,428,504).......................... 6,697,944 6,879,756 Other marketable securities (amortized cost $118,117,448 and $113,749,841)....................... 117,384,344 112,778,813 ------------- ------------- 124,082,288 119,658,569 ------------- ------------- Loans held for sale....................... 5,011,272 1,435,141 Loans receivable, net..................... 767,880,982 785,678,461 Accrued interest receivable............... 4,817,953 4,460,014 Real estate, net.......................... 1,174,315 1,214,621 Federal Home Loan Bank stock, at cost..... 8,364,600 8,364,600 Mortgage servicing rights, net............ 2,484,849 2,653,635 Premises and equipment, net............... 12,304,743 11,941,863 Investment in limited partnerships........ 134,548 141,048 Goodwill.................................. 3,800,938 3,800,938 Core deposit intangible................... 191,296 219,760 Prepaid expenses and other assets......... 2,150,332 1,854,948 Deferred tax asset........................ 2,453,100 2,544,400 ------------- ------------- Total assets.......................... $989,983,689 991,236,793 ============= ============= Liabilities and Stockholders' Equity Deposits.................................. $727,466,404 731,536,560 Federal Home Loan Bank advances........... 160,900,000 160,900,000 Accrued interest payable.................. 1,859,576 2,085,573 Advance payments by borrowers for taxes and insurance............................ 1,070,637 1,038,575 Accrued expenses and other liabilities.... 6,040,754 4,947,816 ------------- ------------- Total liabilities..................... 897,337,371 900,508,524 ------------- ------------- Commitments and contingencies Stockholders' equity: Serial preferred stock ($.01 par value): Authorized 500,000 shares; issued and outstanding 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................ 57,564,482 58,011,099 Retained earnings, subject to certain restrictions............................. 100,763,377 98,951,777 Accumulated other comprehensive loss (778,382) (917,577) Unearned employee stock ownership plan shares................................... (4,302,642) (4,350,999) Unearned compensation restricted stock awards................................... 0 (182,521) Treasury stock, at cost 4,715,698 and 4,721,402 shares......................... (60,691,804) (60,874,797) ------------- ------------- Total stockholders' equity............ 92,646,318 90,728,269 ------------- ------------- Total liabilities and stockholders' equity $989,983,689 991,236,793 ============= ============= HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) ---------------------------------------------------------------------- Three Months Ended March 31, 2006 2005 ---------------------------------------------------------------------- Interest income: Loans receivable........................ $14,702,780 13,333,019 Securities available for sale: Mortgage-backed and related......... 70,562 89,768 Other marketable.................... 889,631 641,756 Cash equivalents........................ 256,426 52,269 Other................................... 62,821 79,528 ------------ ----------- Total interest income............... 15,982,220 14,196,340 ------------ ----------- Interest expense: Deposits................................ 4,867,681 3,702,631 Federal Home Loan Bank advances......... 1,725,856 1,822,691 ------------ ----------- Total interest expense............... 6,593,537 5,525,322 ------------ ----------- Net interest income.................. 9,388,683 8,671,018 Provision for loan losses.................... 515,000 636,000 ------------ ----------- Net interest income after provision for loan losses..................... 8,873,683 8,035,018 ------------ ----------- Non-interest income: Fees and service charges................ 714,778 602,597 Mortgage servicing fees................. 303,675 292,980 Gain on sales of loans.................. 245,977 293,316 Losses in limited partnerships.......... (6,500) (7,710) Other................................... 228,404 245,548 ------------ ----------- Total non-interest income............ 1,486,334 1,426,731 ------------ ----------- Non-interest expense: Compensation and benefits............... 3,258,871 2,774,104 Occupancy............................... 1,100,292 995,254 Deposit insurance premiums.............. 31,197 27,906 Advertising............................. 130,658 83,908 Data processing......................... 288,715 237,488 Amortization of mortgage servicing rights, net............................ 216,540 239,033 Other................................... 913,138 932,692 ------------ ----------- Total non-interest expense........... 5,939,411 5,290,385 ------------ ----------- Income before income tax expense..... 4,420,606 4,171,364 Income tax expense........................... 1,680,200 1,356,300 ------------ ----------- Net income........................... $2,740,406 2,815,064 ============ =========== Basic earnings per share..................... $0.71 0.74 ============ =========== Diluted earnings per share................... $0.68 0.70 ============ =========== HMN FINANCIAL, INC. AND SUBSIDIARIES Selected Consolidated Financial Information (unaudited) ---------------------------------------------------------------------- SELECTED FINANCIAL DATA: Three Months Ended (dollars in thousands, except March 31, per share data) 2006 2005 ---------------------------------------------------------------------- I. OPERATING DATA: Interest income......... $15,982 14,196 Interest expense........ 6,593 5,525 Net interest income..... 9,389 8,671 II. AVERAGE BALANCES: Assets (1)............. 973,110 968,508 Loans receivable, net.. 778,271 800,369 Mortgage-backed and related securities (1) 7,360 9,292 Interest-earning assets (1)................... 928,945 927,330 Interest-bearing liabilities........... 871,172 876,576 Equity (1)............. 94,054 86,345 III. PERFORMANCE RATIOS: (1) Return on average assets (annualized)... 1.14 % 1.18 % Interest rate spread information: Average during period............. 3.91 3.65 End of period....... 3.90 3.53 Net interest margin.... 4.10 3.79 Ratio of non-interest expense to average total assets (annualized)........ 2.48 2.22 Return on average equity (annualized)... 11.82 13.22 Efficiency............. 54.62 52.44 -------------------------------------- March 31, December 31, March 31, 2006 2005 2005 -------------------------------------- IV. ASSET QUALITY : Total non-performing assets................ $3,491 3,883 4,934 Non-performing assets to total assets....... 0.35 % 0.39 % 0.50 % Non-performing loans to total loans receivable, net...... 0.27 0.30 0.43 Allowance for loan losses................ $9,249 8,778 9,394 Allowance for loan losses to total loans receivable, net....... 1.20 % 1.11 % 1.16 % Allowance for loan losses to non-performing loans.. 454.37 376.88 267.99 V. BOOK VALUE PER SHARE: Book value per share... $20.99 20.59 19.17 -------------------------------------- Three Months Year Ended Three Months Ended Dec 31, 2005 Ended Mar 31, 2006 Mar 31, 2005 -------------------------------------- VI. CAPITAL RATIOS : Stockholders' equity to total assets, at end of period...... 9.36 % 9.15 % 8.52 % Average stockholders' equity to average assets (1).... 9.67 9.05 8.92 Ratio of average interest-earning assets to average interest-bearing liabilities (1)....... 106.63 105.96 105.79 -------------------------------------- March 31, December 31, March 31, 2006 2005 2005 -------------------------------------- VII. EMPLOYEE DATA: Number of full time equivalent employees.. 213 208 202 (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