HMN Financial, Inc. Announces Second Quarter Results.
ROCHESTER, Minn. -- HMN Financial, Inc. (NASDAQ:HMNF):
Second Quarter Highlights
--Diluted earnings per share of $0.62, unchanged from second quarter of 2004
--Net interest income up $1.4 million, or 18.7%, over second quarter of 2004
--Net interest margin
--Provision for loan losses up $460,000, or 102.9%, over second quarter of 2004
Year to Date Highlights
--Diluted earnings per share up $0.20, or 17.7%, over first six months of 2004
--Net interest income up $2.8 million, or 19.3%, over first six months of 2004
--Net interest margin up 29 basis points over first six months of 2004
EARNINGS SUMMARY
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net Income $2,499,453 2,497,160 $5,314,517 4,617,620
Diluted earnings
per share 0.62 0.62 1.33 1.13
Return on average
assets 1.01 % 1.12 % 1.09 % 1.04 %
Return on average
equity 11.41 % 12.06 % 12.29 % 11.14 %
Book value per
share $ 19.64 $ 18.20 $ 19.64 $ 18.20
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $986 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.5 million for the second quarter of 2005 the same net income as the second quarter of 2004. Diluted earnings per common share for the second quarter of 2005 were $0.62, unchanged from $0.62 for the second quarter of 2004.
Second Quarter Results
Net Interest Income
Net interest income was $8.7 million for the second quarter of 2005, an increase of $1.3 million, or 18.7%, compared to $7.4 million for the second quarter of 2004. Interest income was $14.8 million for the second quarter of 2005, an increase of $2.4 million, or 18.9%, from $12.4 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 $108 million increase in the average outstanding balance of commercial loans between the periods. The increase in interest income on commercial loans was partially offset by lower income on the single-family loan and investment portfolios due to a decrease in the average outstanding balances and lower interest rates of these portfolios in the second quarter of 2005 when compared to the same period of 2004. The yield earned on interest-earning assets was 6.25% for the second quarter of 2005, an increase of 43 basis points from the 5.82% yield for the second quarter of 2004.
Interest expense was $6.0 million for the second quarter of 2005, an increase of $966,000, or 19.1%, compared to $5.1 million for the second quarter of 2004. Interest expense increased primarily because of the $84 million increase in the average outstanding balance of deposits and advances between the periods due to an increase in transaction and brokered deposits and because of a 225 basis point increase in the federal funds rate between the periods that resulted in higher interest rates on deposits. 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 rate paid on interest-bearing liabilities was 2.70% for the second quarter of 2005, an increase of 20 basis points from the 2.50% paid for the second quarter of 2004. Net interest margin (net interest income divided by average interest earning assets) for the second quarter of 2005 was 3.70%, an increase of 25 basis points, compared to 3.45% for the second quarter of 2004.
Provision for Loan Losses
The provision for loan losses was $907,000 for the second quarter of 2005, an increase of $460,000, or 102.9%, from $447,000 for the second quarter of 2004. The provision for loan losses increased primarily because of an increase in the allowance on several commercial real estate loans totaling $8.0 million that were determined to be impaired and classified as non-accruing during the quarter. Total non-performing assets were $12.5 million at June 30, 2005, an increase of $7.6 million, or 155.5%, from $4.9 million at December 31, 2004. Non-performing loans increased $7.8 million, foreclosed and repossessed assets decreased $257,000, and $78,000 in loans were charged off during the quarter.
Non-Interest Income and Expense
Non-interest income was $1.6 million for the second quarter of 2005, a decrease of $106,000, or 6.3%, from $1.7 million for the same period in 2004. Gain on sales of mortgage loans originated by the Bank decreased $183,000 because of decreased mortgage loan activity during the second quarter of 2005 when compared to the same quarter in 2004. Other non-interest income increased $85,000 because of increased revenues from the sale of uninsured investment products and increased income relating to the rental of office space at an existing facility.
Non-interest expense was $5.5 million for the second quarter of 2005, an increase of $524,000, or 10.5%, from $5.0 million for the same period of 2004. Compensation expense increased $203,000 because of annual payroll cost increases and because of an increase in the number of employees. Occupancy expense increased $170,000 primarily because of the additional corporate office facilities occupied in the first quarter of 2005 and because of increased amortization expense on various software upgrades that were implemented between the periods. Other non-interest expense increased $141,000 primarily because of a $125,000 charitable contribution expensed during the second quarter of 2005. Income tax expense increased $287,000 between the periods due to increased taxable income primarily related to a limited partnership investment. The effective tax rate also increased because of a decrease in tax exempt income as a percentage of total income.
Return on Assets and Equity
Return on average assets for the second quarter of 2005 was 1.01%, compared to 1.12% for the second quarter of 2004. Return on average equity was 11.41% for the second quarter of 2005, compared to 12.06% for the same quarter in 2004. Book value per common share at June 30, 2005 was $19.64, compared to $18.20 at June 30, 2004.
Six Month Period Results
Net Income
Net income was $5.3 million for the six month period ended June 30, 2005, an increase of $697,000, or 15.1%, compared to $4.6 million for the six month period ended June 30, 2004. Diluted earnings per share for the six month period in 2005 were $1.33, up $0.20, or 17.7%, from $1.13 for the same period in 2004.
Net Interest Income
Net interest income was $17.4 million for the first six months of 2005, an increase of $2.8 million, or 19.3%, from $14.6 million for the same period in 2004. Interest income was $29.0 million for the six month period ended June 30, 2005, an increase of $4.2 million, or 16.9%, from $24.8 million for the same six month 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 $104 million increase in the average outstanding balance of commercial loans between the periods. The increase in interest income on commercial loans was partially offset by lower income on the single-family loan and investment portfolios due to a decrease in the outstanding balances and lower interest rates of these portfolios in the first six months of 2005 when compared to the same period in 2004. The yield earned on interest-earning assets was 6.23% for the first six months of 2005, an increase of 36 basis points from the 5.87% yield for the same period of 2004.
Interest expense was $11.6 million for the six month period ended June 30, 2005, an increase of $1.4 million, or 13.5%, compared to $10.2 million for the same period of 2004. Interest expense increased primarily because of the $81 million increase in the average outstanding balance of deposits and advances between the periods and because of the 225 basis point increase in the federal funds rate between the periods that resulted in higher interest rates on deposits. 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 increased $418,000 due to increased interest rates paid and $954,000 due to the increase in interest-bearing liabilities between the periods. The average interest rate paid on interest-bearing liabilities was 2.63% for the first six months of 2005, an increase of 9 basis points from the 2.54% paid for the first six months of 2004. Net interest margin (net interest income divided by average interest earning assets) for the first six months of 2005 was 3.75%, an increase of 29 basis points, compared to 3.46% for the same period of 2004.
Provision for Loan Losses
The provision for loan losses was $1.5 million for the six month period of 2005, an increase of $277,000, from $1.3 million for the same six month period in 2004. The provision for loan losses increased primarily because of increases in the allowance on several commercial real estate loans totaling $8.0 million that were determined to be impaired and classified as non-accruing during the first six months of 2005. Total non-performing assets were $12.5 million at June 30, 2005, an increase of $7.6 million, or 155.5%, from $4.9 million at December 31, 2004. Non-performing loans increased $7.0 million, foreclosed and repossessed assets increased $630,000, and $352,000 in loans were charged off during the first six months of 2005.
Non-Interest Income and Expense
Non-interest income was $3.0 million for the first six months of 2005, a decrease of $215,000, or 6.7%, from $3.2 million for the same period in 2004. Gain on sales of loans decreased $302,000 due to the decreased mortgage loan activity in the first six months of 2005 when compared to the same period of 2004. Other non-interest income increased $56,000 primarily because of increased income relating to the rental of office space at an existing facility.
Non-interest expense was $10.8 million for the first six months of 2005, an increase of $889,000, or 9.0%, from $9.9 million for the same period in 2004. Compensation expense increased $448,000 primarily because of annual payroll cost increases and because of an increase in the number of employees. Occupancy expense increased $281,000 primarily because of the additional corporate office facilities occupied in the first quarter of 2005 and because of an increase in amortization expense relating to various software upgrades implemented between the periods. Other non-interest expense increased $111,000 primarily because of a $125,000 charitable contribution expensed during the second quarter of 2005. Income tax expense increased $733,000 between the periods due to increased taxable income primarily related to a limited partnership investment. The effective tax rate also increased because of a decrease in tax exempt income as a percentage of total income.
Return on Assets and Equity
Return on average assets for the six month period ended June 30, 2005 was 1.09%, compared to 1.04% for the same period in 2004. Return on average equity was 12.29% for the six-month period ended in 2005, compared to 11.14% for the same period in 2004.
President's Statement
"HMN continues to grow and change the mix of both its assets and liabilities", said HMN President Michael McNeil "These changes have improved the profitability of HMN's core business and resulted in quarterly and six month increases in net interest income over the prior year of $1.4 million and $2.8 million, respectively."
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, and 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.
(Three pages of selected consolidated financial information are included with this release.)
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
----------------------------------------------------------------------
June 30, December 31,
2005 2004
----------------------------------------------------------------------
(unaudited)
Assets
Cash and cash equivalents...................$ 24,516,684 34,298,394
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $8,506,330 and
$9,509,377)............................. 8,219,664 9,150,871
Other marketable securities (amortized
cost $92,072,767 and $95,097,051)...... 91,052,866 94,521,512
------------ ------------
99,272,530 103,672,383
------------ ------------
Loans held for sale......................... 4,289,583 2,711,760
Loans receivable, net....................... 819,939,562 783,213,262
Accrued interest receivable................. 4,129,442 3,694,133
Real estate, net............................ 789,608 140,608
Federal Home Loan Bank stock, at cost....... 9,628,200 9,292,800
Mortgage servicing rights, net.............. 2,962,515 3,231,242
Premises and equipment, net................. 12,326,990 12,464,265
Investment in limited partnerships.......... 154,048 168,258
Goodwill.................................... 3,800,938 3,800,938
Core deposit intangible, net................ 276,689 333,617
Prepaid expenses and other assets........... 2,430,740 2,638,681
Deferred tax asset.......................... 1,144,300 1,012,700
------------ ------------
Total assets............................$985,661,829 960,673,041
============ ============
Liabilities and Stockholders' Equity....
Deposits....................................$720,230,277 698,902,185
Federal Home Loan Bank advances............. 170,900,000 170,900,000
Accrued interest payable.................... 1,904,438 1,314,356
Customer escrows............................ 649,637 762,737
Accrued expenses and other liabilities...... 5,419,330 5,022,927
------------ ------------
Total liabilities....................... 899,103,682 876,902,205
------------ ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock ($.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.................. 57,867,348 57,875,595
Retained earnings, subject to certain
restrictions............................... 95,036,871 91,408,028
Accumulated other comprehensive (loss)...... (845,366) (604,446)
Unearned employee stock ownership plan
shares..................................... (4,447,586) (4,544,300)
Unearned compensation restricted stock
awards..................................... (275,197) 0
Treasury stock, at cost 4,721,168 and
4,708,798 shares........................... (60,869,210) (60,455,328)
------------ ------------
Total stockholders' equity.............. 86,558,147 83,770,836
------------ ------------
Total liabilities and stockholders' equity..$985,661,829 960,673,041
============ ============
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Interest income:
Loans receivable...$13,769,340 11,486,417 27,102,359 22,977,681
Securities
available for
sale:.............
Mortgage-backed
and related.... 84,288 92,428 174,056 211,292
Other marketable 654,182 766,391 1,295,938 1,449,798
Cash equivalents... 175,671 40,042 227,940 66,340
Other.............. 89,232 41,398 168,760 77,820
----------- ----------- ----------- -----------
Total interest
income......... 14,772,713 12,426,676 28,969,053 24,782,931
----------- ----------- ----------- -----------
Interest expense:
Deposits........... 4,199,791 2,894,319 7,902,422 5,824,353
Federal Home Loan
Bank advances..... 1,826,501 2,165,680 3,649,192 4,354,635
----------- ----------- ----------- -----------
Total interest
expense........ 6,026,292 5,059,999 11,551,614 10,178,988
----------- ----------- ----------- -----------
Net interest
income......... 8,746,421 7,366,677 17,417,439 14,603,943
Provision for loan
losses............... 907,000 447,000 1,543,000 1,266,000
----------- ----------- ----------- -----------
Net interest
income after
provision
For loan
losses....... 7,839,421 6,919,677 15,874,439 13,337,943
----------- ----------- ----------- -----------
Non-interest income:
Fees and service
charges........... 685,357 704,651 1,287,954 1,273,201
Mortgage servicing
fees.............. 303,363 290,849 596,343 578,080
Securities gains,
net............... 0 1,361 0 1,361
Gains on sales of
loans............. 324,173 506,862 617,489 919,231
Earnings (losses)
in limited
partnerships...... (6,500) (6,500) (14,210) (13,117)
Other.............. 268,206 183,048 513,754 457,797
----------- ----------- ----------- -----------
Total non-
interest income 1,574,599 1,680,271 3,001,330 3,216,553
----------- ----------- ----------- -----------
Non-interest expense:
Compensation and
benefits.......... 2,784,578 2,581,764 5,558,682 5,110,242
Occupancy.......... 1,041,460 871,170 2,036,714 1,755,772
Deposit insurance
premiums.......... 34,619 27,794 62,525 46,499
Advertising........ 105,765 87,850 189,673 175,396
Data processing.... 245,351 228,721 482,839 419,286
Amortization of
mortgage servicing
rights, net of
valuation
adjustments..... 271,089 302,184 510,122 555,633
Other.............. 1,038,805 897,762 1,971,497 1,860,336
----------- ----------- ----------- -----------
Total non-
interest
expense........ 5,521,667 4,997,245 10,812,052 9,923,164
----------- ----------- ----------- -----------
Income before
income tax
expense........ 3,892,353 3,602,703 8,063,717 6,631,332
Income tax expense.... 1,392,900 1,105,500 2,749,200 2,016,000
----------- ----------- ----------- -----------
Income before
minority
interest....... 2,499,453 2,497,203 5,314,517 4,615,332
Minority interest..... 0 43 0 (2,288)
----------- ----------- ----------- -----------
Net income......$ 2,499,453 2,497,160 5,314,517 4,617,620
=========== =========== =========== ===========
Basic earnings per
share................$ 0.65 0.65 1.39 1.19
=========== =========== =========== ===========
Diluted earnings per
share................$ 0.62 0.62 1.33 1.13
=========== =========== =========== ===========
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
----------------------------------------------------------------------
SELECTED FINANCIAL DATA:
(dollars in thousands, except per
share data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2004 2005
----------------------------------------------------------------------
I. OPERATING DATA:
Interest income...............$ 14,773 12,427 28,969 24,783
Interest expense.............. 6,027 5,060 11,552 10,179
Net interest income........... 8,746 7,367 17,417 14,604
II. AVERAGE BALANCES:
Assets(1)..................... 991,455 899,640 980,045 893,131
Loans receivable, net......... 806,267 706,754 803,334 704,940
Mortgage-backed and related
securities(1)................ 8,823 11,520 9,056 12,330
Interest-earning assets(1).... 948,304 858,116 937,875 849,699
Interest-bearing liabilities.. 896,210 812,544 886,447 805,455
Equity(1)..................... 88,100 83,252 87,227 83,389
III. PERFORMANCE RATIOS:(1)
Return on average assets
(annualized)................. 1.01 % 1.12 % 1.09 % 1.04 %
Interest rate spread
information:
Average during period...... 3.55 3.32 3.60 3.32
End of period.............. 3.65 3.20 3.65 3.20
Net interest margin........... 3.70 3.45 3.75 3.46
Ratio of operating expense to
average total assets
(annualized)................. 2.24 2.23 2.22 2.23
Return on average equity
(annualized)................. 11.41 12.06 12.29 11.14
Efficiency.................... 53.50 55.24 52.95 55.68
---------------------------
June 30, Dec. 31, June 30,
2005 2004 2004
---------------------------
IV. ASSET QUALITY:
Total non-performing assets...$ 12,475 4,882 3,471
Non-performing assets to total
assets....................... 1.27% 0.51% 0.38%
Non-performing loans to total
loans receivable, net........ 1.38% 0.55% 0.40%
Allowance for loan losses.....$ 10,223 8,996 7,793
Allowance for loan losses to
total loans receivable, net.. 1.25% 1.15% 1.08%
Allowance for loan losses to
Non-performing loans......... 90.26 207.30 272.98
V. BOOK VALUE PER SHARE:
Book value per share..........$ 19.64 18.95 18.20
---------------------------
Six Six
Months Year Months
Ended Ended Ended
June 30, Dec 31, June 30,
2005 2004 2004
---------------------------
VI. CAPITAL RATIOS:
Stockholders' equity to total
assets, at end of period..... 8.78% 8.72 % 8.88%
Average stockholders' equity
to average assets (1)........ 8.90 9.17 9.34
Ratio of average interest-
earning assets to average
interest-bearing
liabilities(1)............... 105.80 105.38 105.49
---------------------------
June 30, Dec. 31, June 30,
2005 2004 2004
---------------------------
VII. EMPLOYEE DATA:
Number of full time equivalent
employees.................... 209 208 198
(1) Average balances were calculated based upon amortized cost without the market value impact of SFAS 115
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