UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): October
20, 2011
HMN Financial, Inc.
(Exact
name of registrant as specified in its charter)
Delaware |
0-24100 |
41-1777397 |
||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1016 Civic Center Drive Northwest PO Box 6057 Rochester, Minnesota |
55903-6057 |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code (507) 535-1200
|
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(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions
⃞
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
⃞
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
⃞
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
⃞
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02. Results of Operation and Financial Condition.
On October 20, 2011, HMN Financial, Inc. (the “Company”) issued a press release that included financial information for its quarter ended September 30, 2011. A copy of the press release is attached as Exhibit 99 to this Form 8-K and incorporated by reference into this Item 2.02. The information included in the press release is to be considered furnished under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit Number |
Description |
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|
99 | Press Release dated October 20, 2011 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HMN Financial, Inc. |
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(Registrant) |
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Date: | October 25, 2011 |
/s/ Jon Eberle |
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Jon Eberle |
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Senior Vice President, |
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Chief Financial Officer and |
Index to Exhibits
Exhibit No. |
Description |
|
Exhibit 99 |
Press Release dated October 20, 2011 |
Exhibit 99
HMN Financial, Inc. Announces Third Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--October 20, 2011--HMN Financial, Inc. (NASDAQ:HMNF):
Third Quarter Highlights
Year to Date Highlights
Loss Summary (unaudited) |
Three Months Ended | Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
(dollars in thousands, except per share amounts) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Net loss | $ | (2,055 | ) | (9,367 | ) | $ | (3,929 | ) | (19,046 | ) | ||||||||||
Net loss available to common shareholders | (2,511 | ) | (9,814 | ) | (5,291 | ) | (20,381 | ) | ||||||||||||
Diluted loss per share | (0.65 | ) | (2.60 | ) | (1.38 | ) | (5.43 | ) | ||||||||||||
Loss on average assets | (1.02 | ) | (3.89 | ) | % | (0.62 | ) | (2.55 | ) | % | ||||||||||
Loss on average equity | (12.10 | ) | (42.01 | ) | % | (7.62 | ) | (26.71 | ) | % | ||||||||||
Book value per common share | $ | 9.23 | 13.00 | $ | 9.23 | 13.00 | ||||||||||||||
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $818 million holding company for Home Federal Savings Bank (the Bank), today reported a net loss of $2.1 million for the third quarter of 2011, an improvement of $7.3 million, or 78.1%, compared to a net loss of $9.4 million for the third quarter of 2010. Net loss available to common shareholders was $2.5 million for the third quarter of 2011, an improvement of $7.3 million, or 74.4%, from the net loss available to common shareholders of $9.8 million for the third quarter of 2010. Diluted loss per common share for the third quarter of 2011 was $0.65, a decreased loss of $1.95, or 75.0%, from the diluted loss per common share of $2.60 for the third quarter of 2010. The decreased loss for the third quarter of 2011 is due primarily to a $7.6 million decrease in the provision for loan losses between the periods. The provision for loan losses decreased primarily because fewer loan loss reserves on commercial real estate loans were needed due to the stabilization of values of non-performing real estate in the third quarter of 2011 when compared to the third quarter of 2010. The provision also decreased because of the $117 million decrease in the loan portfolio between the periods.
President’s Statement
"Our core business remains sound
and we are encouraged by the increase in our net interest margin and the
declining trend in both our loan loss provision and non-performing
assets,” said Bradley Krehbiel, President of HMN. “We will continue to
focus our efforts on reducing our non-performing assets, increasing our
core deposit relationships, and reducing expenses to reflect the
decrease in our interest earning assets. We believe that, over time, our
focus on these areas will be effective in generating improved financial
results despite the difficult economic environment that continues to
exist.”
Third Quarter Results
Net Interest Income
Net interest income was $7.1 million for
the third quarter of 2011, a decrease of $0.7 million, or 8.9%, compared
to $7.8 million for the third quarter of 2010. Interest income was $9.6
million for the third quarter of 2011, a decrease of $2.4 million, or
20.0%, from $12.0 million for the same period in 2010. Interest income
decreased between the periods primarily because of a $156 million
decrease in the average interest-earning assets and also because of a
decrease in the average yields between the periods. Average interest
earning assets decreased between the periods primarily because of a
decrease in the commercial loan portfolio, which occurred because of
declining loan demand and the Company’s focus on improving credit
quality, managing net interest margin and improving capital ratios. The
average yield earned on interest-earning assets was 5.01% for the third
quarter of 2011, a decrease of 18 basis points from the 5.19% average
yield for the third quarter of 2010. The decrease in yield is the result
of the lower interest rate environment that existed during the third
quarter of 2011.
Interest expense was $2.5 million for the third quarter of 2011, a decrease of $1.7 million, or 40.6%, compared to $4.2 million for the third quarter of 2010. Interest expense decreased primarily because of the $133 million decrease in the average interest-bearing liabilities between the periods. The decrease in the average interest-bearing liabilities is primarily the result of a decrease in outstanding borrowings and brokered deposits between the periods. The decrease in borrowings and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered deposits. Interest expense also decreased because of the lower rates paid on retail money market accounts and certificates of deposits. The decreased rates were the result of the lower interest rate environment that existed during the third quarter of 2011. The average interest rate paid on interest-bearing liabilities was 1.36% for the third quarter of 2011, a decrease of 57 basis points from the 1.93% average interest rate paid in the third quarter of 2010. Net interest margin (net interest income divided by average interest earning assets) for the third quarter of 2011 was 3.71%, an increase of 34 basis points, compared to 3.37% for the third quarter of 2010.
Provision for Loan Losses
The provision for loan losses was
$4.3 million for the third quarter of 2011, a decrease of $7.6 million,
compared to $11.9 million for the third quarter of 2010. The provision
decreased primarily because fewer loan loss reserves on commercial real
estate loans were needed due to the stabilization of values of
non-performing real estate in the third quarter of 2011 when compared to
the third quarter of 2010. The provision also decreased because of the
$117 million decrease in the loan portfolio between the periods. Total
non-performing assets were $60.0 million at September 30, 2011, a
decrease of $5.0 million, or 7.6%, from $65.0 million at June 30, 2011.
Non-performing loans decreased $4.2 million and foreclosed and
repossessed assets decreased $0.8 million during the third quarter of
2011. The non-performing loan and foreclosed and repossessed asset
activity for the quarter was as follows:
(Dollars in thousands) |
||||||||||||||
Non-performing loans | Foreclosed and repossessed assets | |||||||||||||
June 30, 2011 | $ | 43,086 | June 30, 2011 | $ | 21,871 | |||||||||
Classified as non-performing | 5,039 | Transferred from non-performing loans | 312 | |||||||||||
Charge offs | (6,436 | ) | Other foreclosures/repossessions | 111 | ||||||||||
Principal payments received | (2,467 | ) | Real estate sold | (910 | ) | |||||||||
Classified as accruing | (52 | ) | Net gain on sale of assets | 159 | ||||||||||
Transferred to real estate owned | (312 | ) | Write downs | (399 | ) | |||||||||
September 30, 2011 | $ | 38,858 | September 30, 2011 | $ | 21,144 | |||||||||
The decrease in non-performing loans during the quarter relates primarily to loans that were charged off during the period. Of the $6.4 million in charge offs recorded during the third quarter of 2011, $3.8 million related to three residential development loans and $2.2 million related to various commercial business loans. The largest remaining non-performing loan at September 30, 2011 was for $3.8 million and is secured by a residential development located in the Bank’s primary market.
A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2011 and 2010 is summarized as follows:
(in thousands) | 2011 | 2010 | |||||||||
Balance at June 30, | $ | 27,764 | $ | 26,027 | |||||||
Provision | 4,260 | 11,946 | |||||||||
Charge offs: | |||||||||||
One-to-four family | (32 | ) | 0 | ||||||||
Consumer | (143 | ) | (406 | ) | |||||||
Commercial business | (2,167 | ) | (1,061 | ) | |||||||
Commercial real estate | (4,094 | ) | (3,045 | ) | |||||||
Recoveries | 102 | 29 | |||||||||
Balance at September 30, | $ | 25,690 | $ | 33,490 | |||||||
General allowance | $ | 15,906 | $ | 16,292 | |||||||
Specific allowance | 9,784 | 17,198 | |||||||||
$ | 25,690 | $ | 33,490 | ||||||||
The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the two most recently completed quarters and December 31, 2010.
September 30, |
June 30, |
December 31, | |||||||||||
(Dollars in thousands) | 2011 | 2011 | 2010 | ||||||||||
Non-Accruing Loans: | |||||||||||||
One-to-four family real estate | $ | 2,930 | $ | 2,039 | $ | 4,844 | |||||||
Commercial real estate | 24,392 | 25,194 | 36,737 | ||||||||||
Consumer | 460 | 555 | 224 | ||||||||||
Commercial business | 11,076 | 15,298 | 26,269 | ||||||||||
Total | 38,858 | 43,086 | 68,074 | ||||||||||
Foreclosed and Repossessed Assets: | |||||||||||||
One-to-four family real estate | 1,003 | 2,468 | 972 | ||||||||||
Consumer | 0 | 3 | 14 | ||||||||||
Commercial real estate | 20,141 | 19,400 | 15,409 | ||||||||||
Total non-performing assets | $ | 60,002 | $ | 64,957 | $ | 84,469 | |||||||
Total as a percentage of total assets | 7.33 | % | 8.05 | % | 9.59 | % | |||||||
Total non-performing loans | $ | 38,858 | $ | 43,086 | $ | 68,074 | |||||||
Total as a percentage of total loans receivable, net | 6.57 | % | 7.16 | % | 10.25 | % | |||||||
Allowance for loan loss to non-performing loans | 66.11 | % | 64.44 | % | 62.91 | % | |||||||
Delinquency Data: | |||||||||||||
Delinquencies (1) | |||||||||||||
30+ days | $ | 7,763 | $ | 8,861 | $ | 4,021 | |||||||
90+ days | 823 | 0 | 754 | ||||||||||
Delinquencies as a percentage of | |||||||||||||
loan and lease portfolio (1) | |||||||||||||
30+ days | 1.27 | % | 1.43 | % | 0.59 | % | |||||||
90+ days | 0.13 | % | 0.00 | % | 0.11 | % | |||||||
(1) Excludes non-accrual loans.
The Company had specific reserves established against the above non-accruing loans of $7.8 million, $10.2 million and $25.0 million, respectively, at September 30, 2011, June 30, 2011 and December 31, 2010.
The following table summarizes the number of lending relationships and types of commercial real estate loans that were non-performing as of the end of the two most recently completed quarters and December 31, 2010.
Principal | Principal | Principal | ||||||||||||||||||
(Dollars in thousands) | Amount of Loan | Amount of Loan | Amount of Loan | |||||||||||||||||
September 30, | June 30, | December 31, | ||||||||||||||||||
Property Type | # | 2011 | # | 2011 | # | 2010 | ||||||||||||||
Developments/land | 8 | $ | 17,059 | 6 | $ | 17,946 | 9 | $ | 23,661 | |||||||||||
Single family homes | 0 | 0 | 0 | 0 | 3 | 2,673 | ||||||||||||||
Alternative fuel plants | 1 | 2,266 | 1 | 2,266 | 1 | 4,994 | ||||||||||||||
Shopping centers/retail | 2 | 1,347 | 3 | 1,378 | 3 | 1,099 | ||||||||||||||
Restaurants/bar | 1 | 636 | 1 | 654 | 1 | 635 | ||||||||||||||
Office building | 1 | 2,925 | 1 | 2,950 | 1 | 3,675 | ||||||||||||||
Other commercial building | 1 | 159 | 0 | 0 | 0 | 0 | ||||||||||||||
14 | $ | 24,392 | 12 | $ | 25,194 | 18 | $ | 36,737 | ||||||||||||
The Company had specific reserves established against the above commercial real estate loans of $4.2 million, $5.7 million and $13.3 million, respectively, at September 30, 2011, June 30, 2011 and December 31, 2010.
The following table summarizes the number of lending relationships and industry of commercial business loans that were non-performing for the two most recent quarters and December 31, 2010.
Principal | Principal | Principal Amount | ||||||||||||||||||
(Dollars in thousands) | Amount of Loan | Amount of Loan | of Loan | |||||||||||||||||
September 30, | June 30, | December 31, | ||||||||||||||||||
Industry Type | # | 2011 | # | 2011 | # | 2010 | ||||||||||||||
Construction/development/land | 3 | $ | 2,678 | 4 | $ | 4,768 | 6 | $ | 9,148 | |||||||||||
Finance | 1 | 177 | 1 | 181 | 1 | 248 | ||||||||||||||
Retail | 4 | 1,550 | 4 | 3,061 | 1 | 2,504 | ||||||||||||||
Banking | 2 | 1,824 | 2 | 1,974 | 2 | 8,223 | ||||||||||||||
Entertainment | 1 | 235 | 1 | 239 | 1 | 315 | ||||||||||||||
Utilities | 1 | 4,568 | 1 | 4,583 | 1 | 4,614 | ||||||||||||||
Restaurant | 0 | 0 | 2 | 492 | 4 | 1,217 | ||||||||||||||
Transportation | 1 | 44 | 0 | 0 | 0 | 0 | ||||||||||||||
13 | $ | 11,076 | 15 | $ | 15,298 | 16 | $ | 26,269 | ||||||||||||
The Company had specific reserves established against the above commercial business loans of $2.8 million, $3.5 million and $10.7 million, respectively, at September 30, 2011, June 30, 2011 and December 31, 2010.
Non-Interest Income and Expense
Non-interest income was $1.5
million for the third quarter of 2011, a decrease of $0.4 million, or
19.7%, from $1.9 million for the same period in 2010. Gains on sales of
loans decreased $363,000 between the periods as a result of a decrease
in single family loan originations. Loan servicing fees decreased
$17,000 between the periods primarily because of a decrease in the
number of commercial loans that are being serviced for others.
Non-interest expense was $6.4 million for the third quarter of 2011, a decrease of $0.6 million, or 8.5%, from $7.0 million for the same period of 2010. Loss on real estate owned decreased $273,000 in the third quarter of 2011 when compared to the same period in 2010. Deposit insurance expense decreased $268,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in brokered deposits between the periods. Occupancy expense decreased $125,000 primarily because of a decrease in depreciation expense. Compensation and benefits expense decreased $80,000 between the periods primarily because of a decrease in the compensation paid as a result of having fewer employees and fewer loan originations in the third quarter of 2011 when compared to the same period in 2010. Other non-interest expenses increased $120,000 primarily because of an increase in the costs related to other real estate owned. Data processing expense increased $34,000 due to increased software maintenance costs.
Income tax expense decreased $97,000 between the periods, from an expense of $97,000 in the third quarter of 2010 to no expense in the third quarter of 2011. 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 September 30, 2011. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the third quarter of 2011.
Net Loss Available to Common Shareholders
The net loss
available to common shareholders was $2.5 million for the third quarter
of 2011, a decreased loss of $7.3 million from the $9.8 million net loss
available to common shareholders in the third quarter of 2010. The net
loss available to common shareholders decreased primarily because of the
change in the net loss between the periods. The Company deferred the
February 15, 2011, May 15, 2011, and August 15, 2011 cash dividend
payments on its Fixed Rate Cumulative Perpetual Preferred Stock, Series
A issued to the United States Treasury Department as part of the TARP
Capital Purchase Program. The deferred dividend payments have been
accrued for payment in the future and are being reported for the
deferral period as a preferred dividend requirement that is deducted
from the net loss for financial statement purposes to arrive at the net
loss available to common shareholders.
Loss on Assets and Equity
Loss on average assets for the third
quarter of 2011 was 1.02%, compared to a 3.89% loss on average assets
for the third quarter of 2010. Loss on average equity was 12.10% for the
third quarter of 2011, compared to a 42.01% loss on average equity for
the same period of 2010. Book value per common share at September 30,
2011 was $9.23, compared to $13.00 at September 30, 2010.
Nine Month Period Results
Net Loss
The net loss was $3.9 million for the nine-month
period ended September 30, 2011, an improvement of $15.1 million, from
the $19.0 million loss for the nine-month period ended September 30,
2010. The net loss available to common shareholders was $5.3 million for
the nine-month period ended September 30, 2011, an improvement of $15.1
million, from the net loss available to common shareholders of $20.4
million for the same period of 2010. Diluted loss per common share for
the nine month period in 2011 was $1.38, an improvement of $4.05, from
the diluted loss per common share of $5.43 for the same period in 2010.
The decreased loss for the first nine months of 2011 is due primarily to
a $13.2 million decrease in the provision for loan losses between the
periods and also because of a $5.8 million decrease in the provision for
income taxes between the periods due to a deferred tax asset valuation
reserve that was established during the second quarter of 2010. The
provision decreased primarily because fewer loan loss reserves on
commercial real estate loans were needed due to the stabilization of
values of non-performing real estate in the first nine months of 2011
when compared to the same nine-month period of 2010. The provision also
decreased because of the $117 million decrease in the loan portfolio
between the periods. These decreases in expense were partially offset by
a $2.2 million decrease in net interest income due primarily to the
decrease in interest-earning assets between the periods and a $1.4
million increase in other expenses and losses related to other real
estate owned.
Net Interest Income
Net interest income was $21.5 million for
the first nine months of 2011, a decrease of $2.2 million, or 9.3%, from
$23.7 million for the same period in 2010. Interest income was $30.3
million for the nine-month period ended September 30, 2011, a decrease
of $7.1 million, or 19.0%, from $37.4 million for the same period in
2010. Interest income decreased between the periods primarily because of
a $149 million decrease in the average interest-earning assets and also
because of a decrease in the average yields between the periods. Average
interest earning assets decreased between the periods primarily because
of a decrease in the commercial loan portfolio, which occurred because
of declining loan demand and the Company’s focus on improving credit
quality, managing net interest margin and improving capital ratios. The
average yield earned on interest-earning assets was 5.08% for the
nine-month period of 2011, a decrease of 20 basis points from the 5.28%
average yield for the nine-month period of 2010. The decrease in yield
is the result of the lower interest rate environment that existed during
the first nine months of 2011.
Interest expense was $8.8 million for the nine-month period ended September 30, 2011, a decrease of $4.9 million, or 35.8%, from $13.7 million for the same period in 2010. Interest expense decreased primarily because of a $129 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the average outstanding brokered deposits between the periods. The average interest rate paid on interest-bearing liabilities was 1.54% for the nine-month period of 2011, a decrease of 51 basis points from the 2.05% average rate paid for the same nine-month period of 2010. Net interest margin (net interest income divided by average interest earning assets) was 3.60% for the nine-month period of 2011, an increase of 25 basis points from the 3.35% margin for the same nine-month period of 2010.
Provision for Loan Losses
The provision for loan losses was
$9.7 million for the first nine months of 2011, a decrease of $13.2
million, from $22.8 million for the same nine-month period in 2010. The
provision decreased primarily because fewer loan loss reserves on
commercial real estate loans were needed due to the stabilization of
values of non-performing real estate in the first nine months of 2011
when compared to the same nine-month period of 2010. The provision also
decreased because of the $117 million decrease in the loan portfolio
between the periods. Total non-performing assets were $60.0 million at
September 30, 2011, a decrease of $24.5 million, or 29.0%, from $84.5
million at December 31, 2010. Non-performing loans decreased $29.2
million and foreclosed and repossessed assets increased $4.7 million
during the nine-month period ended September 30, 2011. The
non-performing loan and foreclosed and repossessed asset activity for
the first nine months of 2011 was as follows:
(Dollars in thousands) |
||||||||||||
Non-performing loans | Foreclosed and repossessed asset activity | |||||||||||
December 31, 2010 | $ | 68,074 | December 31, 2010 | $ | 16,395 | |||||||
Classified as non-performing | 16,651 | Transferred from non-performing loans | 8,543 | |||||||||
Charge offs | (27,707 | ) | Other foreclosures/repossessions | 139 | ||||||||
Principal payments received | (4,613 | ) | Real estate sold | (3,382 | ) | |||||||
Classified as accruing | (5,004 | ) | Net gain on sale of assets | 153 | ||||||||
Transferred to real estate owned | (8,543 | ) | Write downs | (704 | ) | |||||||
September 30, 2011 | $ | 38,858 | September 30, 2011 | $ | 21,144 | |||||||
A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2011 and 2010 is summarized as follows:
(in thousands) | 2011 | 2010 | |||||||||
Balance at January 1, | $ | 42,828 | $ | 23,811 | |||||||
Provision | 9,669 | 22,839 | |||||||||
Charge offs: | |||||||||||
One-to-four family | (450 | ) | (168 | ) | |||||||
Consumer | (230 | ) | (795 | ) | |||||||
Commercial business | (10,724 | ) | (5,803 | ) | |||||||
Commercial real estate | (16,303 | ) | (6,524 | ) | |||||||
Recoveries | 900 | 130 | |||||||||
Balance at September 30, | $ | 25,690 | $ | 33,490 | |||||||
General allowance | $ | 15,906 | $ | 16,292 | |||||||
Specific allowance | 9,784 | 17,198 | |||||||||
$ | 25,690 | $ | 33,490 | ||||||||
Non-Interest Income and Expense
Non-interest income was $4.9
million for the first nine months of 2011, a decrease of $353,000, or
6.7%, from $5.2 million for the same period in 2010. Gains on sales of
loans decreased $348,000 between the periods as a result of a decrease
in single family loan originations. Loan servicing fees decreased
$59,000 between the periods primarily because of a decrease in the
number of commercial loans that are being serviced for others. Other
non-interest income decreased $39,000 due primarily to a decrease in
rental income on other real estate owned due to the sale of some
properties that were being rented. Fees and service charges increased
$93,000 between the periods primarily because of increases in debit card
income and service charges.
Non-interest expense was $20.7 million for the first nine months of 2011, an increase of $1.4 million, or 7.0%, from $19.3 million for the same period in 2010. Other non-interest expense increased $1.4 million, because of increased real estate taxes and legal fees related to other real estate owned. Non-interest expense also increased $645,000 between the periods because of a $301,000 loss recognized on real estate owned in the first nine months of 2011 compared to a $344,000 gain recognized on real estate owned in the first nine months of 2010. Compensation and benefits expense increased $132,000 between the periods primarily because of an increase in health insurance costs between the periods. Deposit insurance expense decreased $493,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in brokered deposits between the periods. Occupancy expense decreased $335,000 primarily because of a decrease in depreciation expense. Data processing expense increased $18,000 due to increased software maintenance costs.
Income tax expense decreased $5.8 million between the periods, from an expense of $5.8 million in the first nine months of 2010 to no expense in the first nine months of 2011. 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 September 30, 2011. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the first nine months of 2011.
Net Loss Available to Common Shareholders
The net loss
available to common shareholders was $5.3 million for the first nine
months of 2011, a decreased loss of $15.1 million from the $20.4 million
net loss available to common shareholders in the first nine months of
2010. The net loss available to common shareholders decreased primarily
because of the change in the net loss between the periods. The Company
deferred the February 15, 2011, May 15, 2011, and August 15, 2011 cash
dividend payments on its Fixed Rate Cumulative Perpetual Preferred
Stock, Series A issued to the United States Treasury Department as part
of the TARP Capital Purchase Program. The deferred dividend payments
have been accrued for payment in the future and are being reported for
the deferral period as a preferred dividend requirement that is deducted
from the net loss for financial statement purposes to arrive at the net
loss available to common shareholders.
Loss on Assets and Equity
Loss on average assets for the
nine-month period ended September 30, 2011 was 0.62%, compared to a loss
on average assets of 2.55% for the same period in 2010. Loss on average
equity was 7.62% for the nine-month period ended September 30, 2011,
compared to a loss on average equity of 26.71% for the same period in
2010.
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, Eagan, La Crescent, Rochester, Spring Valley and
Winona and two full service offices in Iowa located in Marshalltown and
Toledo. Home Federal Private Banking operates branches in Edina and
Rochester, Minnesota. Home Federal Savings Bank also operates a loan
origination office in Sartell, Minnesota.
Safe Harbor Statement
This press release may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding reducing
non-performing assets, increasing core deposit relationships, reducing
expenses, and generating improved financial results. 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, federal and state regulation and enforcement, including
restrictions set forth in the supervisory agreements between each of the
Company and Bank and the Office of the Comptroller of the Currency,
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; 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 and Form 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.
HMN FINANCIAL, INC. AND SUBSIDIARIES | |||||||||
Consolidated Balance Sheets | |||||||||
September 30, | December 31, | ||||||||
(dollars in thousands) | 2011 | 2010 | |||||||
(unaudited) | |||||||||
Assets | |||||||||
Cash and cash equivalents | $ | 38,311 | 20,981 | ||||||
Securities available for sale: | |||||||||
Mortgage-backed and related securities | |||||||||
(amortized cost $22,426 and $32,036) | 23,681 | 33,506 | |||||||
Other marketable securities | |||||||||
(amortized cost $120,616 and $118,631) | 120,452 | 118,058 | |||||||
144,133 | 151,564 | ||||||||
Loans held for sale | 4,031 | 2,728 | |||||||
Loans receivable, net | 591,265 | 664,241 | |||||||
Accrued interest receivable | 2,576 | 3,311 | |||||||
Real estate, net | 21,144 | 16,382 | |||||||
Federal Home Loan Bank stock, at cost | 4,222 | 6,743 | |||||||
Mortgage servicing rights, net | 1,447 | 1,586 | |||||||
Premises and equipment, net | 8,678 | 9,450 | |||||||
Prepaid expenses and other assets | 2,577 | 3,632 | |||||||
Deferred tax asset, net | 0 | 0 | |||||||
Total assets | $ | 818,384 | 880,618 | ||||||
Liabilities and Stockholders’ Equity | |||||||||
Deposits | $ | 676,444 | 683,230 | ||||||
Federal Home Loan Bank advances | 70,000 | 122,500 | |||||||
Accrued interest payable | 715 | 1,092 | |||||||
Customer escrows | 1,450 | 818 | |||||||
Accrued expenses and other liabilities | 4,606 | 3,431 | |||||||
Total liabilities | 753,215 | 811,071 | |||||||
Commitments and contingencies | |||||||||
Stockholders’ equity: | |||||||||
Serial preferred stock: ($.01 par value) | |||||||||
authorized 500,000 shares; issued shares 26,000 | 24,648 | 24,264 | |||||||
Common stock ($.01 par value): | |||||||||
authorized 11,000,000; issued shares 9,128,662 | 91 | 91 | |||||||
Additional paid-in capital | 53,535 | 56,420 | |||||||
Retained earnings, subject to certain restrictions | 50,934 | 55,838 | |||||||
Accumulated other comprehensive income | 735 | 541 | |||||||
Unearned employee stock ownership plan shares | (3,239 | ) | (3,384 | ) | |||||
Treasury stock, at cost 4,740,711 and 4,818,263 shares | (61,535 | ) | (64,223 | ) | |||||
Total stockholders’ equity | 65,169 | 69,547 | |||||||
Total liabilities and stockholders’ equity | $ | 818,384 | 880,618 | ||||||
HMN FINANCIAL, INC. AND SUBSIDIARIES |
||||||||||||||||||
Consolidated Statements of Loss |
||||||||||||||||||
(unaudited) |
||||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||
September 30, |
September 30, |
|||||||||||||||||
(dollars in thousands, except per share data) |
2011 |
2010 |
2011 |
2010 |
||||||||||||||
Interest income: | ||||||||||||||||||
Loans receivable | $ | 8,967 |
|
11,023 |
28,171 | 34,243 | ||||||||||||
Securities available for sale: | ||||||||||||||||||
Mortgage-backed and related | 259 | 430 | 873 | 1,444 | ||||||||||||||
Other marketable | 308 | 473 | 1,132 | 1,636 | ||||||||||||||
Cash equivalents | 4 | 2 | 7 | 4 | ||||||||||||||
Other | 34 | 35 | 148 | 109 | ||||||||||||||
Total interest income | 9,572 | 11,963 | 30,331 | 37,436 | ||||||||||||||
Interest expense: | ||||||||||||||||||
Deposits | 1,623 | 2,668 | 5,369 | 9,127 | ||||||||||||||
Federal Home Loan Bank advances | 865 | 1,521 | 3,434 | 4,585 | ||||||||||||||
Total interest expense | 2,488 | 4,189 | 8,803 | 13,712 | ||||||||||||||
Net interest income | 7,084 | 7,774 | 21,528 | 23,724 | ||||||||||||||
Provision for loan losses | 4,260 | 11,946 | 9,669 | 22,839 | ||||||||||||||
Net interest income (loss) after provision | ||||||||||||||||||
for loan losses | 2,824 | (4,172 | ) | 11,859 | 885 | |||||||||||||
Non-interest income: | ||||||||||||||||||
Fees and service charges | 978 | 972 | 2,827 | 2,734 | ||||||||||||||
Mortgage servicing fees | 247 | 264 | 747 | 806 | ||||||||||||||
Gain on sales of loans | 188 | 551 | 984 | 1,332 | ||||||||||||||
Other | 106 | 105 | 336 | 375 | ||||||||||||||
Total non-interest income | 1,519 | 1,892 | 4,894 | 5,247 | ||||||||||||||
Non-interest expense: | ||||||||||||||||||
Compensation and benefits | 3,276 | 3,356 | 10,348 | 10,216 | ||||||||||||||
Loss (gain) on real estate owned | 111 | 384 | 301 | (344 | ) | |||||||||||||
Occupancy | 930 | 1,055 | 2,786 | 3,121 | ||||||||||||||
Deposit insurance | 190 | 458 | 1,001 | 1,494 | ||||||||||||||
Data processing | 326 | 292 | 884 | 866 | ||||||||||||||
Other | 1,565 | 1,445 | 5,362 | 3,984 | ||||||||||||||
Total non-interest expense | 6,398 | 6,990 | 20,682 | 19,337 | ||||||||||||||
Loss before income tax expense | (2,055 | ) | (9,270 | ) | (3,929 | ) | (13,205 | ) | ||||||||||
Income tax expense | 0 | 97 | 0 | 5,841 | ||||||||||||||
Net loss | $ | (2,055 | ) | (9,367 | ) | (3,929 | ) | (19,046 | ) | |||||||||
Preferred stock dividends and discount | 456 | 447 | 1,362 | 1,335 | ||||||||||||||
Net loss available to common shareholders | (2,511 | ) | (9,814 | ) | (5,291 | ) | (20,381 | ) | ||||||||||
Basic loss per common share | $ | (0.65 | ) | (2.60 | ) | (1.38 | ) | (5.43 | ) | |||||||||
Diluted loss per common share | $ | (0.65 | ) | (2.60 | ) | (1.38 | ) | (5.43 | ) | |||||||||
HMN FINANCIAL, INC. AND SUBSIDIARIES | ||||||||||||||||||||||
Selected Consolidated Financial Information | ||||||||||||||||||||||
(unaudited) |
||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
SELECTED FINANCIAL DATA: | September 30, | September 30, | ||||||||||||||||||||
(dollars in thousands, except per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
I. OPERATING DATA: | ||||||||||||||||||||||
Interest income | $ | 9,572 | 11,963 | 30,331 | 37,436 | |||||||||||||||||
Interest expense | 2,488 | 4,189 | 8,803 | 13,712 | ||||||||||||||||||
Net interest income | 7,084 | 7,774 | 21,528 | 23,724 | ||||||||||||||||||
II. AVERAGE BALANCES: | ||||||||||||||||||||||
Assets (1) | 802,140 | 954,799 | 840,787 | 997,196 | ||||||||||||||||||
Loans receivable, net | 597,602 | 731,795 | 620,227 | 758,961 | ||||||||||||||||||
Securities available for sale (1) | 121,286 | 151,537 | 141,500 | 159,031 | ||||||||||||||||||
Interest-earning assets (1) | 758,610 | 914,717 | 798,912 | 947,554 | ||||||||||||||||||
Interest-bearing liabilities | 727,413 | 860,451 | 766,759 | 895,697 | ||||||||||||||||||
Equity (1) | 67,336 | 88,473 | 68,956 | 95,341 | ||||||||||||||||||
III. PERFORMANCE RATIOS: (1) | ||||||||||||||||||||||
Return on average assets (annualized) | (1.02 | ) | % | (3.89 | ) | % | (0.62 | ) | % | (2.55 | ) | % | ||||||||||
Interest rate spread information: | ||||||||||||||||||||||
Average during period | 3.65 | 3.26 | 3.54 | 3.24 | ||||||||||||||||||
End of period | 3.77 | 3.48 | 3.77 | 3.48 | ||||||||||||||||||
Net interest margin | 3.71 | 3.37 | 3.60 | 3.35 | ||||||||||||||||||
Ratio of operating expense to average | ||||||||||||||||||||||
total assets (annualized) | 3.16 | 2.90 | 3.29 | 2.59 | ||||||||||||||||||
Return on average equity (annualized) | (12.10 | ) | (42.01 | ) | (7.62 | ) | (26.71 | ) | ||||||||||||||
Efficiency | 74.36 | 72.32 | 78.28 | 66.75 | ||||||||||||||||||
September 30, | December 31, | September 30, | ||||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||||
IV. ASSET QUALITY: | ||||||||||||||||||||||
Total non-performing assets | $ | 60,002 | 84,469 | 81,579 | ||||||||||||||||||
Non-performing assets to total assets | 7.33 | % | 9.59 | % | 8.99 | % | ||||||||||||||||
Non-performing loans to total loans receivable, net | 6.57 | 10.25 | 9.00 | |||||||||||||||||||
Allowance for loan losses | $ | 25,690 | 42,828 | 33,490 | ||||||||||||||||||
Allowance for loan losses to total assets | 3.14 | % | 4.86 | % | 3.69 | % | ||||||||||||||||
Allowance for loan losses to total loans receivable, net | 4.34 | 6.45 | 4.79 | |||||||||||||||||||
Allowance for loan losses to non-performing loans | 66.11 | 62.91 | 53.15 | |||||||||||||||||||
V. BOOK VALUE PER SHARE: | ||||||||||||||||||||||
Book value per share | $ | 9.23 | 10.51 | 13.00 | ||||||||||||||||||
Nine Months |
Year |
Nine Months | ||||||||||||||||||||
Ended | Ended | Ended | ||||||||||||||||||||
Sept 30, 2011 | Dec 31, 2010 | Sept 30, 2010 | ||||||||||||||||||||
VI. CAPITAL RATIOS: | ||||||||||||||||||||||
Stockholders’ equity to total assets, at end of period | 7.96 | % | 7.90 | % | 8.83 | % | ||||||||||||||||
Average stockholders’ equity to average assets (1) | 8.20 | 9.40 | 9.56 | |||||||||||||||||||
Ratio of average interest-earning assets to | ||||||||||||||||||||||
average interest-bearing liabilities (1) | 104.19 | 105.67 | 105.79 | |||||||||||||||||||
Tier I or core capital | 7.79 | 7.60 | 8.40 | |||||||||||||||||||
Risk-based capital to risk-weighted assets | 11.62 | 10.97 | 11.84 | |||||||||||||||||||
September 30, | December 31, | September 30, | ||||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||||
VII. EMPLOYEE DATA: | ||||||||||||||||||||||
Number of full time equivalent employees | 206 | 212 | 213 |
(1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320.
CONTACT:
HMN Financial, Inc.
Bradley Krehbiel, 507-252-7169
President