HMNF News HMN Financial, Inc. Announces Third Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--Oct. 20, 2005--HMN Financial, Inc. (HMN) (NASDAQ:HMNF):
Third Quarter Highlights
-- Net interest income up $1.1 million, or 15.1%, over third quarter of 2004
-- Net interest margin up 32 basis points over third quarter of 2004
-- Income tax expense up $736,000, or 63.9%, over third quarter of 2004
-- Net income of $2.3 million, down $274,000, or 10.7%, from third quarter of 2004
-- Diluted earnings per share of $0.57, down $0.07, or 10.9%, from third quarter of 2004
Year to Date Highlights
-- Net interest income up $4.0 million, or 17.8%, over first nine months of 2004
-- Net interest margin up 30 basis points over first nine months of 2004
-- Income tax expense up $1.4 million, or 46.4%, over first nine months of 2004
-- Net income of $7.6 million, up $423,000, or 5.9%, over first nine months of 2004
-- Diluted earnings per share of $1.89, up $0.12, or 6.8%, over first nine months of 2004
EARNINGS SUMMARY Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2005 2004 2005 2004
--------------------- ---------------------
Net income $2,276,401 2,550,201 $7,590,918 7,167,821
Diluted earnings per share 0.57 0.64 1.89 1.77
Return on average assets 0.92 1.09% 1.03 1.06%
Return on average equity 10.02 12.02% 11.51 11.44%
Book value per share $19.97 18.66 $19.97 18.66
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $982 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.3 million for the third quarter of 2005, down $274,000, or 10.7%, from net income of $2.6 million for the third quarter of 2004. Diluted earnings per common share for the third quarter of 2005 were $0.57, down $0.07, from $0.64 for the third quarter of 2004.
Third Quarter Results
Net Interest Income
Net interest income was $8.9 million for the third quarter of 2005, an increase of $1.1 million, or 15.1%, compared to $7.8 million for the third quarter of 2004. Interest income was $15.2 million for the third quarter of 2005, an increase of $2.0 million, or 15.8%, from $13.2 million for the same period in 2004. Interest income increased because of an increase in interest rates and an increase in the average outstanding balance of interest-earning assets. 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 new loans originated. The increase in interest-earning assets was caused by the $75 million increase in the average outstanding balance of commercial loans between the periods. The yield earned on interest-earning assets was 6.45% for the third quarter of 2005, an increase of 58 basis points from the 5.87% yield for the third quarter of 2004.
Interest expense was $6.3 million for the third quarter of 2005, an increase of $906,000, or 16.8%, compared to $5.4 million for the third quarter of 2004. Interest expense increased primarily because of 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. Interest expense also increased because of the $38 million increase in the average outstanding balance of deposits and advances between the periods due to an increase in transaction accounts and brokered deposits. The average interest rate paid on interest-bearing liabilities was 2.82% for the third quarter of 2005, an increase of 29 basis points from the 2.53% paid for the third quarter of 2004. Net interest margin (net interest income divided by average interest earning assets) for the third quarter of 2005 was 3.79%, an increase of 32 basis points, compared to 3.47% for the third quarter of 2004.
Provision for Loan Losses
The provision for loan losses was $952,000 for the third quarter of 2005, an increase of $177,000, or 22.8%, from $775,000 for the third quarter of 2004. The provision for loan losses increased primarily because commercial loan charge offs during the quarter exceeded previously reserved amounts. The increase in the provision related to charge offs was partially offset by a decrease in commercial loan growth in the third quarter of 2005 when compared to the same period in 2004. Total non-performing assets were $4.7 million at September 30, 2005, a decrease of $7.8 million, or 62.7%, from $12.5 million at June 30, 2005. Non-performing loans decreased $8.3 million, foreclosed and repossessed assets increased $520,000, and $2.7 million in loans were charged off during the quarter. The decrease in non-performing assets relates primarily to $8.0 million in commercial real estate loans that were classified as non-accruing in the previous quarter that are no longer classified due to the sale of the properties. Total non-performing assets decreased $231,000, or 4.7%, from $4.9 million at December 31, 2005.
Non-Interest Income and Expense
Non-interest income was $1.7 million for the third quarter of 2005, an increase of $132,000, or 8.3%, from $1.6 million for the same period in 2004. Gains on sales of loans increased $275,000 due primarily to the $232,000 increase in the gain recognized on the sale of government guaranteed commercial loans in the third quarter of 2005 when compared to the same period in 2004. Other non-interest income decreased $119,000 primarily because of increased losses on the sale of repossessed mobile homes in the third quarter of 2005.
Non-interest expense was $5.5 million for the third quarter of 2005, an increase of $669,000, or 13.7%, from $4.9 million for the same period of 2004. Compensation expense increased $351,000 between the periods because of the increased number of employees and because of annual payroll cost increases. Occupancy expense increased $128,000 primarily because of the additional corporate office space occupied in the first quarter of 2005 and because of increased amortization expense on various software upgrades that were implemented between the periods. Data processing costs increased by $46,000 primarily because of increased activity between the periods and an increase in the fees and services provided by the third party service center. Other operating expenses increased $130,000 primarily because of increased costs on foreclosed commercial properties during the third quarter of 2005 when compared to the same period in 2004. Income tax expense was $1.9 million for the third quarter of 2005, an increase of $736,000, or 63.9%, compared to $1.2 million for the same period of 2004. Income tax expense increased $374,000 due to an increase in taxable income and $297,000 due to an increase in the effective tax rate because of changes in state tax law that were retroactive to January 1, 2005.
Return on Assets and Equity
Return on average assets for the third quarter of 2005 was 0.92%, compared to 1.09% for the third quarter of 2004. Return on average equity was 10.02% for the third quarter of 2005, compared to 12.02% for the same period of 2004. Book value per common share at September 30, 2005 was $19.97, compared to $18.95 at September 30, 2004.
Nine Month Period Results
Net Income
Net income was $7.6 million for the nine-month period ended September 30, 2005, an increase of $423,000, or 5.9%, compared to $7.2 million for the nine-month period ended September 30, 2004. Diluted earnings per common share for the nine-month period in 2005 were $1.89, up $0.12, or 6.8%, from $1.77 for the same period in 2004.
Net Interest Income
Net interest income was $26.4 million for the first nine months of 2005, an increase of $4.0 million, or 17.8%, from $22.4 million for the same period in 2004. Interest income was $44.2 million for the nine-month period ended September 30, 2005, an increase of $6.3 million, or 16.5%, from $37.9 million for the same period in 2004. Interest income increased primarily because of an increase in average 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 $94 million increase in the average outstanding balance of commercial loans between the periods. The yield earned on interest-earning assets was 6.30% for the first nine months of 2005, an increase of 43 basis points from the 5.87% yield for the same period in 2004.
Interest expense was $17.8 million for the nine-month period ended September 30, 2005, an increase of $2.3 million, or 14.6%, from the $15.6 million for the same period in 2004. Interest expense increased primarily because of 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 increases the rates banks pay for deposits. Interest expense also increased because of the $67 million increase in the average outstanding balance of deposits and advances between the periods due to an increase in transaction accounts and brokered deposits. The average interest rate paid on interest-bearing liabilities was 2.69% for the first nine-months of 2005, an increase of 15 basis points from the 2.54% paid for the same period of 2004. Net interest margin (net interest income divided by average interest earning assets) for the first nine months of 2005 was 3.76%, an increase of 30 basis points, compared to 3.46% for the same period of 2004.
Provision for Loan Losses
The provision for loan losses was $2.5 million for the nine-month period of 2005, an increase of $454,000, or 22.2%, from $2.0 million for the same nine-month period in 2004. The provision for loan losses increased primarily because of increased commercial loan charge offs during the period. The increase in the provision related to loan charge offs was partially offset by a decrease in commercial loan growth in the first nine months of 2005 when compared to the same period in 2004. Total non-performing assets were $4.7 million at September 30, 2005, a decrease of $231,000, or 4.73%, from $4.9 million at December 31, 2004. Non-performing loans decreased $1.4 million, foreclosed and repossessed assets increased $1.1 million, and $3.0 million in loans were charged off during the first nine months of 2005. Loans charged off during the period included commercial loans of $2.6 million, consumer loans of $195,000, and mortgage loans of $231,000.
Non-Interest Income and Expense
Non-interest income was $4.7 million for the first nine months of 2005, a decrease of $83,000, or 1.7%, from $4.8 million for the same period in 2004. Gains on sales of loans decreased $26,000 primarily due to decreased mortgage loan activity in the first nine months of 2005 when compared to the same period of 2004. Other non-interest income decreased $63,000 primarily because of increased losses on the sale of repossessed mobile homes in 2005.
Non-interest expense was $16.4 million for the first nine months of 2005, an increase of $1.6 million, or 10.5%, from $14.8 million for the same period in 2004. Compensation expense increased $800,000 because of the increased number of employees and because of annual payroll cost increases. Occupancy expense increased $409,000 primarily because of the additional corporate office space occupied in the first quarter of 2005 and because of increased amortization expense on various software upgrades that were implemented between the periods. Data processing costs increased by $109,000 primarily because of increased activity and an increase in fees and services provided by the third party service center. Other operating expenses increased $242,000 primarily because of increased costs on foreclosed and repossessed assets during the first nine months of 2005 when compared to the same period in 2004. Income tax expense was $4.6 million for the first nine months of 2005, an increase of $1.4 million, or 46.4%, compared to $3.2 million for the same period of 2004. Income tax expense increased $962,000 due to an increase in taxable income and $297,000 due to an increase in the effective tax rate because of changes in state tax law that were retroactive to January 1, 2005.
Return on Assets and Equity
Return on average assets for the nine-month period ended September 30, 2005 was 1.03%, compared to 1.06% for the same period in 2004. Return on average equity was 11.51% for the nine-month period ended September 30, 2005, compared to 11.44% for the same period in 2004.
President's Statement
"HMN's core earnings continue to improve," said HMN President Michael McNeil. "I am pleased that our growth, along with the change in the mix of our assets and liabilities, has allowed us to achieve
record nine-month earnings of $7.6 million in 2005 despite the increased provision for income taxes."
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 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 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, 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 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
----------------------------------------------------------------------
September 30, December 31,
2005 2004
(unaudited)
----------------------------------------------------------------------
Assets
Cash and cash equivalents................... $27,462,839 34,298,394
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $7,920,015 and
$9,509,377)............................. 7,481,261 9,150,871
Other marketable securities (amortized
cost $92,099,344 and $95,097,051)....... 91,030,938 94,521,512
------------- ------------
98,512,199 103,672,383
------------- ------------
Loans held for sale......................... 4,058,132 2,711,760
Loans receivable, net....................... 815,163,631 783,213,262
Accrued interest receivable................. 4,513,397 3,694,133
Real estate, net............................ 1,229,894 140,608
Federal Home Loan Bank stock, at cost....... 8,809,500 9,292,800
Mortgage servicing rights, net.............. 2,817,520 3,231,242
Premises and equipment, net................. 12,177,193 12,464,265
Investment in limited partnerships.......... 147,548 168,258
Goodwill.................................... 3,800,938 3,800,938
Core deposit intangible..................... 248,224 333,617
Prepaid expenses and other assets........... 1,905,066 2,638,681
Deferred tax asset.......................... 1,458,100 1,012,700
------------- ------------
Total assets............................$982,304,181 960,673,041
============= ============
Liabilities and Stockholders' Equity
Deposits....................................$714,711,074 698,902,185
Federal Home Loan Bank advances............. 170,900,000 170,900,000
Accrued interest payable.................... 2,142,442 1,314,356
Customer Escrows............................ 993,944 762,737
Accrued expenses and other liabilities...... 5,538,649 5,022,927
------------- ------------
Total liabilities....................... 894,286,109 876,902,205
------------- ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock: ($.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.................. 57,931,170 57,875,595
Retained earnings, subject to certain
restrictions............................... 96,393,416 91,408,028
Accumulated other comprehensive loss........ (912,561) (604,446)
Unearned employee stock ownership plan
shares..................................... (4,399,289) (4,544,300)
Unearned compensation restricted stock
awards..................................... (249,341) 0
------------- ------------
Treasury stock, at cost 4,720,168 and
4,708,798 shares........................... (60,836,610) (60,455,328)
------------- ------------
Total stockholders' equity.............. 88,018,072 83,770,836
------------- ------------
Total liabilities and stockholders' equity..$982,304,181 960,673,041
============= ============
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------------------------------------------------------------------
Interest income:
Loans receivable.....$14,385,320 12,242,408 41,487,679 35,220,089
Securities available
for sale:
Mortgage-backed
and related..... 78,645 81,341 252,701 292,633
Other marketable. 645,871 730,727 1,941,809 2,180,525
Cash equivalents..... 114,872 40,410 342,812 106,750
Other................ 13,525 61,196 182,285 139,016
------------ ----------- ----------- -----------
Total interest
income.......... 15,238,233 13,156,082 44,207,286 37,939,013
------------ ----------- ----------- -----------
Interest expense:
Deposits............. 4,456,305 3,190,799 12,358,727 9,015,152
Federal Home Loan
Bank advances....... 1,836,269 2,195,801 5,485,461 6,550,436
------------ ----------- ----------- -----------
Total interest
expense.......... 6,292,574 5,386,600 17,844,188 15,565,588
------------ ----------- ----------- -----------
Net interest
income........... 8,945,659 7,769,482 26,363,098 22,373,425
Provision for loan
losses............... 952,000 775,000 2,495,000 2,041,000
------------ ----------- ----------- -----------
Net interest
income after
provision for
loan losses...... 7,993,659 6,994,482 23,868,098 20,332,425
------------ ----------- ----------- -----------
Non-interest income:
Fees and service
charges............. 706,337 741,704 1,994,291 2,014,905
Mortgage servicing
fees................ 305,417 291,709 901,760 869,789
Securities gains, net 0 2,451 0 3,812
Gain on sales of
loans............... 624,947 349,214 1,242,436 1,268,445
Earnings (losses) in
limited partnerships (6,500) (6,500) (20,710) (19,617)
Other................ 90,957 210,155 604,711 667,952
------------ ----------- ----------- -----------
Total non-interest
income........... 1,721,158 1,588,733 4,722,488 4,805,286
------------ ----------- ----------- -----------
Non-interest expense:
Compensation and
benefits............ 2,781,366 2,430,026 8,340,048 7,540,268
Occupancy............ 1,042,417 914,382 3,079,131 2,670,154
Deposit insurance
premiums............ 34,679 23,600 97,204 70,099
Advertising.......... 101,775 116,195 291,448 291,591
Data processing...... 278,880 233,254 761,719 652,540
Amortization of
mortgage servicing
rights, net of
valuation
adjustments......... 256,763 239,806 766,885 795,439
Other................ 1,053,536 923,135 3,025,033 2,783,471
------------ ----------- ----------- -----------
Total non-interest
expense.......... 5,549,416 4,880,398 16,361,468 14,803,562
------------ ----------- ----------- -----------
Income before
income tax
expense.......... 4,165,401 3,702,817 12,229,118 10,334,149
Income tax expense.... 1,889,000 1,152,700 4,638,200 3,168,700
------------ ----------- ----------- -----------
Income before
minority interest 2,276,401 2,550,117 7,590,918 7,165,449
Minority interest..... 0 (84) 0 (2,372)
------------ ----------- ----------- -----------
Net income........ $2,276,401 2,550,201 7,590,918 7,167,821
============ =========== =========== ===========
Basic earnings per
share................ $0.59 0.66 1.98 1.85
============ =========== =========== ===========
Diluted earnings per
share................ $0.57 0.64 1.89 1.77
============ =========== =========== ===========
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
----------------------------------------------------------------------
SELECTED FINANCIAL DATA: Three Months Ended Nine Months Ended
(Dollars in thousands, except per September 30, September 30,
share data) 2005 2004 2005 2004
----------------------------------------------------------------------
I. OPERATING DATA:
Interest income............... $15,238 13,156 44,207 37,939
Interest expense.............. 6,292 5,387 17,844 15,566
Net interest income........... 8,946 7,769 26,363 22,373
II. AVERAGE BALANCES:
Assets (1).................... 983,244 934,248 981,123 906,937
Loans receivable, net......... 807,046 752,281 804,585 720,835
Mortgage-backed and related
securities (1)............... 8,266 10,287 8,790 11,644
Interest-earning assets (1)... 937,400 891,608 937,715 863,534
Interest-bearing liabilities.. 884,155 846,297 885,675 819,168
Equity (1).................... 90,129 84,391 88,205 83,726
III. PERFORMANCE RATIOS: (1)
Return on average assets
(annualized)................ 0.92% 1.09% 1.03% 1.06%
Interest rate spread
information:
Average during period..... 3.63 3.34 3.61 3.33
End of period............. 3.51 3.33 3.51 3.33
Net interest margin.......... 3.79 3.47 3.76 3.46
Ratio of operating expense to
average total assets
(annualized)................ 2.24 2.08 2.23 2.18
Return on average equity
(annualized)................ 10.02 12.02 11.51 11.44
Efficiency................... 52.03 52.15 52.63 54.47
----------------------------
Sept 30, Dec 31, Sept 30,
2005 2004 2004
----------------------------
IV. ASSET QUALITY:
Total non-performing assets.. $4,651 4,882 3,719
Non-performing assets to
total assets................ 0.47% 0.51% 0.39%
Non-performing loans to total
loans receivable, net....... 0.37% 0.55% 0.38%
Allowance for loan losses.... $8,633 8,996 8,471
Allowance for loan losses to
total assets................ 0.88% 0.94% 0.89%
Allowance for loan losses to
total loans receivable, net 1.06 1.15 1.11
Allowance for loan losses to
non-performing loans........ 289.51 207.30 291.04
V. BOOK VALUE PER SHARE:
Book value per share......... $19.97 18.95 18.66
----------------------------
Nine Nine
Months Year Months
Ended Ended Ended
Sept 30, Dec 31, Sept 30,
2005 2004 2004
----------------------------
VI. CAPITAL RATIOS:
Stockholders' equity to total
assets, at end of period.... 8.96% 8.72% 8.67%
Average stockholders' equity
to average assets (1)....... 8.99 9.17 9.23
Ratio of average interest-
earning assets to...........
average interest-bearing
liabilities (1)........... 105.88 105.38 105.42
----------------------------
Sept 30, Dec 31, Sept 30,
2005 2004 2004
----------------------------
VII. EMPLOYEE DATA:
Number of full time
equivalent employees........ 206 208 199
----------------------------------------------------------------------
(1) Average balances were calculated based upon amortized cost without
the market value impact of SFAS 115.
