HMNF News HMN Financial, Inc. Announces Fourth Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--HMN Financial, Inc. (NASDAQ:HMNF):
Fourth Quarter Highlights
Net income of $2.7 million, down $807,000, or 23.2%, from fourth
quarter of 2005
Diluted earnings per share of $0.67, down $0.20, from fourth
quarter of 2005
Net interest income up $438,000, or 4.7%, over fourth quarter of
2005
Net interest margin up 34 basis points over fourth quarter of 2005
Provision for loan losses up $1.2 million, or 658.1%, from fourth
quarter of 2005
Annual Highlights
Net income of $8.4 million, down $2.7 million, or 23.9%, from 2005
Diluted earnings per share of $2.10, down $0.67, or 24.2%, from 2005
Net interest income up $2.9 million, or 8.2%, over 2005
Net interest margin up 33 basis points over 2005
Provision for loan losses up $6.2 million, or 232.0%, over 2005
EARNINGS SUMMARY
Three Months Ended
Year Ended
December 31,
December 31,
2006
2005
2006
2005
Net income
$2,670,263
3,476,971
$8,427,551
11,067,889
Diluted earnings per share
$0.67
0.87
$2.10
2.77
Return on average assets
1.11%
1.39
0.86%
1.12
Return on average equity
11.18%
15.03
8.85%
12.42
Book value per share
$21.58
20.59
$21.58
20.59
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $978 million holding
company for Home Federal Savings Bank (the Bank), today reported net
income of $2.7 million for the fourth quarter of 2006, down $807,000, or
23.2%, from net income of $3.5 million for the fourth quarter of 2005.
Diluted earnings per common share for the fourth quarter of 2006 were
$0.67, down $0.20, from $0.87 for the fourth quarter of 2005. The
decrease in net income is due to a $1.2 million increase in the loan
loss provision between the periods primarily as a result of an increase
in the allowance reserve for a home equity loan.
Fourth Quarter Results
Net Interest Income
Net interest income was $9.8 million for the fourth quarter of 2006, an
increase of $438,000, or 4.7%, compared to $9.4 million for the fourth
quarter of 2005. Interest income was $17.4 million for the fourth
quarter of 2006, an increase of $1.3 million, or 8.0%, from $16.1
million for the same period in 2005. Interest income increased because
of an increase in the average interest rates earned on loans and
investments. Interest rates increased primarily because of the 100 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 income due to increased rates was partially
offset by a $47 million decrease in the average outstanding loan
portfolio balance between the periods due to an increase in commercial
and consumer loan prepayments and a decrease in loan originations. The
average yield earned on interest-earning assets was 7.54% for the fourth
quarter of 2006, an increase of 81 basis points from the 6.73% yield for
the fourth quarter of 2005.
Interest expense was $7.5 million for the fourth quarter of 2006, an
increase of $846,000, or 12.7%, from $6.7 million for the fourth quarter
of 2005. Interest expense increased primarily because of higher interest
rates paid on deposits which were caused by the 100 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 3.48% for
the fourth quarter of 2006, an increase of 52 basis points from the
2.96% paid for the fourth quarter of 2005. Net interest margin (net
interest income divided by average interest earning assets) for the
fourth quarter of 2006 was 4.28%, an increase of 34 basis points,
compared to 3.94% for the fourth quarter of 2005.
Provision for Loan Losses
The provision for loan losses was $1.4 million for the fourth quarter of
2006, an increase of $1.2 million, or 658.1%, from $179,000 for the
fourth quarter of 2005. The provision for loan losses increased
primarily because an $825,000 specific loan loss reserve was established
on a home equity loan that was classified as nonperforming in the fourth
quarter of 2006. The reserved amount was based on an updated appraisal
of the value of the property securing the loan and subsequent to year
end the Bank foreclosed on the property. The provision also increased
because of a $33 million increase in outstanding commercial loans during
the fourth quarter of 2006. Total non-performing assets were $10.4
million at December 31, 2006, an increase of $130,000, or 1.3%, from
$10.3 million at September 30, 2006. Non-performing loans decreased
$909,000 and foreclosed and repossessed assets increased $1.0 million
primarily due to an increase in single family home loan foreclosures.
Non-Interest Income and Expense
Non-interest income was $1.5 million for the fourth quarter of 2006, a
decrease of $333,000, or 18.6%, from $1.8 million for the fourth quarter
of 2005. Fees and service charges increased $55,000 between the periods
primarily because of increased retail deposit account activity and fees.
Gain on sales of loans decreased $386,000 between the periods due
primarily to a decrease in the number of single family loans that were
sold. Sold loans decreased because there were fewer single family loans
originated and most of the loans that were originated were placed into
the loan portfolio to replace prepaying loans.
Non-interest expense was $5.5 million for the fourth quarter of 2006, an
increase of $14,000, or 0.26%, from $5.4 million for the fourth quarter
of 2005. Occupancy expense increased $99,000 primarily because of the
additional costs associated with the new branch and loan origination
offices opened in Rochester in the first quarter of 2006. Data
processing costs increased $30,000 primarily because of the increased
internet and other banking services provided by a third party processor
between the periods. Advertising expense increased $36,000 primarily
because of an increase in deposit related promotions in the fourth
quarter of 2006. Mortgage servicing rights amortization decreased
$66,000 between the periods because there are fewer mortgage loans being
serviced. Other operating expenses decreased $62,000 primarily because
of decreased mortgage and commercial loan foreclosure costs in the
fourth quarter of 2006 when compared to the same period in 2005. Income
tax expense decreased $280,000 between the periods primarily because of
a decrease in taxable income.
Return on Assets and Equity
Return on average assets for the fourth quarter of 2006 was 1.11%,
compared to 1.39% for the fourth quarter of 2005. Return on average
equity was 11.18% for the fourth quarter of 2006, compared to 15.03% for
the same period of 2005. Book value per common share at December 31,
2006 was $21.58, compared to $20.59 at December 31, 2005.
Annual Results
Net Income
Net income was $8.4 million for the year ended December 31, 2006, a
decrease of $2.7 million, or 23.9%, compared to $11.1 million for the
year ended December 31, 2005. Diluted earnings per common share for the
year ended December 31, 2006 were $2.10, down $0.67, or 24.2%, from
$2.77 for the year ended December 31, 2005.
Net Interest Income
Net interest income was $38.7 million for the year ended December 31,
2006, an increase of $2.9 million, or 8.2%, from $35.8 million in 2005.
Interest income was $67.5 million for the year ended December 31, 2006,
an increase of $7.2 million, or 12.0%, from $60.3 million for the same
period in 2005. Interest income increased primarily because of an
increase in the average interest rates earned on loans and investments.
Interest rates increased primarily because of the 100 basis point
increase in the prime interest rate between the periods. The increase in
interest income due to increased rates was partially offset by a $42
million decrease in the average outstanding loan portfolio balance
between the periods due to an increase in commercial loan prepayments
and a decrease in loan originations. The yield earned on
interest-earning assets was 7.21% for the year ended December 31, 2006,
an increase of 80 basis points from the 6.41% yield for the same period
of 2005.
Interest expense was $28.8 million for the year ended December 31, 2006,
an increase of $4.3 million, or 17.7%, from the $24.5 million for the
same period in 2005. Interest expense increased primarily because of
higher interest rates paid on deposits which were caused by the 100
basis point increase in the federal funds rate between the periods. The
increase in deposit rates was partially offset by a change in the mix of
funding sources between the periods. The average outstanding balances of
$57 million in brokered deposits and Federal Home Loan Bank advances
were replaced with other less expensive deposits which lowered the Bank’s
overall cost of funds. The average interest rate paid on
interest-bearing liabilities was 3.28% for the year ended December 31,
2006, an increase of 52 basis points from the 2.76% paid for the same
period of 2005. Net interest margin for the year ended December 31, 2006
was 4.13%, an increase of 33 basis points, compared to 3.80% for the
same period of 2005.
Provision for Loan Losses
The provision for loan losses was $8.9 million for the year ended
December 31, 2006, an increase of $6.2 million, or 232.0%, from $2.7
million in 2005. The provision for loan losses increased primarily
because $7.4 million in commercial loans relating to a real estate and
golf course development were charged off during the year. The increase
in the provision related to loan charge offs was partially offset by a
$12 million decrease in outstanding commercial loans between the periods.
Total non-performing assets were $10.4 million at December 31, 2006, an
increase of $6.5 million, or 168.4%, from $3.9 million at December 31,
2005. Non-performing loans increased $6.0 million, foreclosed and
repossessed assets increased $696,000, and non-performing other assets
decreased $134,000 between the periods.
A reconciliation of the Company’s allowance
for loan losses for the years ended December 31, 2006 and 2005 are
summarized as follows:
(in thousands)
2006
2005
Balance at January 1,
$8,778
$8,996
Provision
8,878
2,674
Charge offs:
Commercial loans
(7,430)
(2,615)
Consumer loans
(269)
(228)
Single family mortgage loans
(150)
(234)
Recoveries
66
185
Balance at December 31,
$9,873
$8,778
Non-Interest Income and Expense
Non-interest income was $6.4 million for the year ended December 31,
2006, a decrease of $68,000, or 1.0%, from $6.5 million for the same
period in 2005. Fees and service charges increased $392,000 between the
periods primarily because of increased retail deposit account activity
and fees. Security gains increased $69,000 due to increased security
sales. Gain on sale of loans decreased $598,000 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 remained strong and profit margins
were lowered in order to remain competitive. Other income increased
$109,000 primarily because of a decrease in the losses recognized on
repossessed assets in 2006 when compared to 2005.
Non-interest expense was $22.6 million for the year ended December 31,
2006, an increase of $795,000, or 3.6%, from $21.8 million for the same
period in 2005. Compensation and benefits expense increased $729,000
primarily because of annual pay and pension cost increases. Occupancy
expense increased $355,000 primarily because of additional costs
associated with the new branch and loan origination offices opened in
Rochester in the first quarter of 2006. Data processing costs increased
$151,000 primarily because of increased internet and other banking
services provided by a third party processor between the periods. Other
non-interest expense decreased $331,000 primarily because of a decrease
in mortgage loan expenses and professional fees. Mortgage servicing
rights amortization decreased $171,000 between the periods because there
are fewer mortgage loans being serviced. Income tax expense was $5.2
million in 2006, a decrease of $1.5 million, or 22.4%, compared to $6.7
million for the same period of 2005. Income tax expense decreased
primarily because of a decrease in taxable income.
Return on Assets and Equity
Return on average assets for the year ended December 31, 2006 was 0.86%,
compared to 1.12% for the same period in 2005. Return on average equity
was 8.85% for the year ended December 31, 2006, compared to 12.42% for
the same period in 2005.
President's Statement
“The 2006 financial results were negatively
impacted by an increase in the loan loss provision,”
said HMN President Michael McNeil. “While we
are disappointed in the negative effect that this had on net income, we
are encouraged by the increase in net interest income and the 33 basis
point increase in the net interest margin.”
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 Sartell 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. 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
possible legislative 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; 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
(unaudited)
December 31,
December 31,
2006
2005
Assets
Cash and cash equivalents
$43,775,988
47,268,795
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $6,671,042 and $7,428,504)
6,177,829
6,879,756
Other marketable securities
(amortized cost $119,940,282 and $113,749,841)
119,962,274
112,778,813
126,140,103
119,658,569
Loans held for sale
1,493,011
1,435,141
Loans receivable, net
768,231,579
785,678,461
Accrued interest receivable
5,060,839
4,460,014
Real estate, net
2,072,032
1,214,621
Federal Home Loan Bank stock, at cost
7,956,300
8,364,600
Mortgage servicing rights, net
1,957,699
2,653,635
Premises and equipment, net
11,372,103
11,941,863
Investment in limited partnerships
112,489
141,048
Goodwill
3,800,938
3,800,938
Core deposit intangible, net
105,903
219,760
Prepaid expenses and other assets
2,830,548
1,854,948
Deferred tax asset
2,879,000
2,544,400
Total assets
$977,788,532
991,236,793
Liabilities and Stockholders’ Equity
Deposits
$725,958,830
731,536,560
Federal Home Loan Bank advances
150,900,000
160,900,000
Accrued interest payable
1,176,024
2,085,573
Customer escrows
720,732
1,038,575
Accrued expenses and other liabilities
5,890,605
4,947,816
Total liabilities
884,646,191
900,508,524
Commitments and contingencies
Stockholders’ equity:
Serial preferred stock: ($.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
57,913,743
58,011,099
Retained earnings, subject to certain restrictions
