HMN Financial (NASDAQ:HMNF)
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HMN Financial, Inc. (NASDAQ:HMNF):
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First Quarter Highlights
-- Net income of $2.7 million, down $75,000, or 2.7% from first
quarter of 2005
-- Diluted earnings per share of $0.68, down $0.02, or 2.9%, from
first quarter of 2005
-- Net interest income up $718,000, or 8.3%, over first quarter
of 2005
-- Net interest margin up 31 basis points over first quarter of
2005
-- Income tax expense up $324,000, or 23.9%, over first quarter
of 2005
EARNINGS SUMMARY Three Months Ended
---------------------------------------------- March 31,
2006 2005
----------------------
Net income $2,740,406 2,815,064
Diluted earnings per share 0.68 0.70
Return on average assets 1.14 % 1.18 %
Return on average equity 11.82 % 13.22 %
Book value per share $20.99 19.17
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HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $990 million holding
company for Home Federal Savings Bank (the Bank), today reported net
income of $2.7 million for the first quarter of 2006, down $75,000, or
2.7%, from net income of $2.8 million for the first quarter of 2005.
Diluted earnings per common share for the first quarter of 2006 were
$0.68, down $0.02, or 2.9%, from $0.70 for the first quarter of 2005.
The decrease in net income was due to an increase in HMN's effective
tax rate from 32.5% in the first quarter of 2005 to 38.0% in the first
quarter of 2006. The increase in the effective tax rate was due to
changes in state tax laws that were enacted in the third quarter of
2005.
First Quarter Results
Net Interest Income
Net interest income was $9.4 million for the first quarter of
2006, an increase of $718,000, or 8.3%, compared to $8.7 million for
the first quarter of 2005. Interest income was $16.0 million for the
first quarter of 2006, an increase of $1.8 million, or 12.6%, from
$14.2 million for the first quarter of 2005. Interest income increased
because of an increase in the average interest rate earned on loans
and investments. Interest rates increased primarily because of the 200
basis point increase in the prime interest rate between the periods.
Increases in the prime rate, which is the rate that banks charge their
prime business customers, generally increase the rates on adjustable
rate consumer and commercial loans in the portfolio and on new loans
originated. The increase in interest income due to increased rates was
partially offset by a $28 million decrease in the average outstanding
single-family mortgage and consumer loan portfolio balances between
the periods. The average yield earned on interest-earning assets was
6.98% for the first quarter of 2006, an increase of 77 basis points
from the 6.21% average yield for the first quarter of 2005.
Interest expense was $6.6 million for the first quarter of 2006,
an increase of $1.1 million, or 19.3%, compared to $5.5 million for
the first quarter of 2005. Interest expense increased because of the
higher interest rates paid on deposits which were caused by the 200
basis point increase in the federal funds rate between the periods.
Increases in the federal funds rate, which is the rate that banks
charge other banks for short term loans, generally increase the rates
banks pay for deposits. The average interest rate paid on
interest-bearing liabilities was 3.07% for the first quarter of 2006,
an increase of 51 basis points from the 2.56% average interest rate
paid in the first quarter of 2005. Net interest margin (net interest
income divided by average interest earning assets) for the first
quarter of 2006 was 4.10%, an increase of 31 basis points, compared to
3.79% for the first quarter of 2005.
Provision for Loan Losses
The provision for loan losses was $515,000 for the first quarter
of 2006, a decrease of $121,000, compared to $636,000 for the first
quarter of 2005. The provision for loan losses decreased primarily
because of the $12 million reduction in the commercial loan portfolio
in the first quarter of 2006 compared to the $40 million in growth
that was experienced in the first quarter of 2005. The reduction in
loan growth was the result of management's decision not to pursue
long-term, low fixed-rate commercial loan business in an environment
of rising short-term interest rates. The decrease in the provision
related to the reduced loan growth was partially offset by an increase
in the provision due to increased commercial loan risk rating
downgrades in the first quarter of 2006 when compared to the same
period of 2005. Total non-performing assets were $3.5 million at March
31, 2006, a decrease of $392,000, from $3.9 million at December 31,
2005.
Non-Interest Income and Expense
Non-interest income was $1.5 million for the first quarter of
2006, an increase of $60,000, or 4.2%, from $1.4 million for the first
quarter of 2005. Fees and service charges increased $112,000 between
the periods primarily because of increased retail deposit account
activity and late fees. Loan servicing fees increased $11,000
primarily because of an increase in the number of commercial loans
that are being serviced for others. Gain on sale of loans decreased
$47,000 between the periods due to a decrease in the number of
single-family mortgage loans sold and a decrease in the profit margins
realized on the loans that were sold. Competition in the single-family
loan origination market has increased as the overall market has slowed
and profit margins have been lowered in order to remain competitive
and maintain origination volumes. Other non-interest income decreased
$17,000 primarily because of lower revenues from the sale of uninsured
investment products.
Non-interest expense was $5.9 million for the first quarter of
2006, an increase of $649,000, or 12.3%, from $5.3 million for the
first quarter of 2005. Compensation expense increased $485,000
primarily because of annual payroll cost increases and increased
pension costs. Occupancy expense increased $105,000 due primarily to
additional costs associated with new branch and loan origination
offices opened in Rochester in the first quarter of 2006. Data
processing costs increased $51,000 due to increases in the services
provided by the Bank's third party processor between the periods.
Advertising expense increased $47,000 between the periods primarily
because of the costs associated with promoting the new branch and the
introduction of new checking account offerings in the first quarter of
2006. Income tax expense increased $324,000 between the periods due to
an increase in taxable income and an effective tax rate that increased
from 32.5% for the first quarter of 2005 to 38.0% for the first
quarter of 2006. The increase in the effective tax rate was primarily
the result of state tax law changes that were enacted in the third
quarter of 2005.
Return on Assets and Equity
Return on average assets for the first quarter of 2006 was 1.14%,
compared to 1.18% for the first quarter of 2005. Return on average
equity was 11.82% for the first quarter of 2006, compared to 13.22%
for the same quarter in 2005. Book value per common share at March 31,
2006 was $20.99, compared to $19.17 at March 31, 2005.
President's Statement
"Net interest margin continued to improve during the first quarter
of 2006 despite the challenging interest rate environment that
existed," said HMN President, Michael McNeil. "We believe that
actively managing our net interest margin will continue to have a
positive effect on earnings."
General Information
HMN Financial, Inc. and Home Federal Savings Bank are
headquartered in Rochester, Minnesota. The Bank operates ten full
service offices in southern Minnesota located in Albert Lea, Austin,
LaCrescent, Rochester, Spring Valley and Winona and two full service
offices in Iowa located in Marshalltown and Toledo. Home Federal
Savings Bank also operates loan origination offices located in St.
Cloud and Rochester, Minnesota. Eagle Crest Capital Bank, a division
of Home Federal Savings Bank, operates branches in Edina and
Rochester, Minnesota.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include, but are not limited to those relating to the
Company's financial expectations for earnings and revenues and the
management of net interest margin. A number of factors could cause
actual results to differ materially from the Company's assumptions and
expectations. These factors include possible legislative changes and
adverse economic, business and competitive developments such as
shrinking interest margins; deposit outflows; reduced demand for
financial services and loan products; changes in accounting policies
and guidelines, changes in monetary and fiscal policies of the federal
government or changes in tax laws. Additional factors that may cause
actual results to differ from the Company's assumptions and
expectations include those set forth in the Company's most recent
filings with the Securities and Exchange Commission. All
forward-looking statements are qualified by, and should be considered
in conjunction with, such cautionary statements.
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HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
----------------------------------------------------------------------
March 31, December 31,
2006 2005
----------------------------------------------------------------------
(unaudited)
Assets
Cash and cash equivalents................. $55,132,473 47,268,795
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $7,254,122 and
$7,428,504).......................... 6,697,944 6,879,756
Other marketable securities
(amortized cost $118,117,448 and
$113,749,841)....................... 117,384,344 112,778,813
------------- -------------
124,082,288 119,658,569
------------- -------------
Loans held for sale....................... 5,011,272 1,435,141
Loans receivable, net..................... 767,880,982 785,678,461
Accrued interest receivable............... 4,817,953 4,460,014
Real estate, net.......................... 1,174,315 1,214,621
Federal Home Loan Bank stock, at cost..... 8,364,600 8,364,600
Mortgage servicing rights, net............ 2,484,849 2,653,635
Premises and equipment, net............... 12,304,743 11,941,863
Investment in limited partnerships........ 134,548 141,048
Goodwill.................................. 3,800,938 3,800,938
Core deposit intangible................... 191,296 219,760
Prepaid expenses and other assets......... 2,150,332 1,854,948
Deferred tax asset........................ 2,453,100 2,544,400
------------- -------------
Total assets.......................... $989,983,689 991,236,793
============= =============
Liabilities and Stockholders' Equity
Deposits.................................. $727,466,404 731,536,560
Federal Home Loan Bank advances........... 160,900,000 160,900,000
Accrued interest payable.................. 1,859,576 2,085,573
Advance payments by borrowers for taxes
and insurance............................ 1,070,637 1,038,575
Accrued expenses and other liabilities.... 6,040,754 4,947,816
------------- -------------
Total liabilities..................... 897,337,371 900,508,524
------------- -------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock ($.01 par
value):
Authorized 500,000 shares; issued
and outstanding none.............. 0 0
Common stock ($.01 par value):
Authorized 11,000,000; issued
shares 9,128,662.................. 91,287 91,287
Additional paid-in capital................ 57,564,482 58,011,099
Retained earnings, subject to certain
restrictions............................. 100,763,377 98,951,777
Accumulated other comprehensive loss (778,382) (917,577)
Unearned employee stock ownership plan
shares................................... (4,302,642) (4,350,999)
Unearned compensation restricted stock
awards................................... 0 (182,521)
Treasury stock, at cost 4,715,698 and
4,721,402 shares......................... (60,691,804) (60,874,797)
------------- -------------
Total stockholders' equity............ 92,646,318 90,728,269
------------- -------------
Total liabilities and stockholders' equity $989,983,689 991,236,793
============= =============
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
----------------------------------------------------------------------
Three Months Ended
March 31,
2006 2005
----------------------------------------------------------------------
Interest income:
Loans receivable........................ $14,702,780 13,333,019
Securities available for sale:
Mortgage-backed and related......... 70,562 89,768
Other marketable.................... 889,631 641,756
Cash equivalents........................ 256,426 52,269
Other................................... 62,821 79,528
------------ -----------
Total interest income............... 15,982,220 14,196,340
------------ -----------
Interest expense:
Deposits................................ 4,867,681 3,702,631
Federal Home Loan Bank advances......... 1,725,856 1,822,691
------------ -----------
Total interest expense............... 6,593,537 5,525,322
------------ -----------
Net interest income.................. 9,388,683 8,671,018
Provision for loan losses.................... 515,000 636,000
------------ -----------
Net interest income after provision
for loan losses..................... 8,873,683 8,035,018
------------ -----------
Non-interest income:
Fees and service charges................ 714,778 602,597
Mortgage servicing fees................. 303,675 292,980
Gain on sales of loans.................. 245,977 293,316
Losses in limited partnerships.......... (6,500) (7,710)
Other................................... 228,404 245,548
------------ -----------
Total non-interest income............ 1,486,334 1,426,731
------------ -----------
Non-interest expense:
Compensation and benefits............... 3,258,871 2,774,104
Occupancy............................... 1,100,292 995,254
Deposit insurance premiums.............. 31,197 27,906
Advertising............................. 130,658 83,908
Data processing......................... 288,715 237,488
Amortization of mortgage servicing
rights, net............................ 216,540 239,033
Other................................... 913,138 932,692
------------ -----------
Total non-interest expense........... 5,939,411 5,290,385
------------ -----------
Income before income tax expense..... 4,420,606 4,171,364
Income tax expense........................... 1,680,200 1,356,300
------------ -----------
Net income........................... $2,740,406 2,815,064
============ ===========
Basic earnings per share..................... $0.71 0.74
============ ===========
Diluted earnings per share................... $0.68 0.70
============ ===========
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
----------------------------------------------------------------------
SELECTED FINANCIAL DATA: Three Months Ended
(dollars in thousands, except March 31,
per share data) 2006 2005
----------------------------------------------------------------------
I. OPERATING DATA:
Interest income......... $15,982 14,196
Interest expense........ 6,593 5,525
Net interest income..... 9,389 8,671
II. AVERAGE BALANCES:
Assets (1)............. 973,110 968,508
Loans receivable, net.. 778,271 800,369
Mortgage-backed and
related securities (1) 7,360 9,292
Interest-earning assets
(1)................... 928,945 927,330
Interest-bearing
liabilities........... 871,172 876,576
Equity (1)............. 94,054 86,345
III. PERFORMANCE RATIOS: (1)
Return on average
assets (annualized)... 1.14 % 1.18 %
Interest rate spread
information:
Average during
period............. 3.91 3.65
End of period....... 3.90 3.53
Net interest margin.... 4.10 3.79
Ratio of non-interest
expense to average
total assets
(annualized)........ 2.48 2.22
Return on average
equity (annualized)... 11.82 13.22
Efficiency............. 54.62 52.44
--------------------------------------
March 31, December 31, March 31,
2006 2005 2005
--------------------------------------
IV. ASSET QUALITY :
Total non-performing
assets................ $3,491 3,883 4,934
Non-performing assets
to total assets....... 0.35 % 0.39 % 0.50 %
Non-performing loans to
total loans
receivable, net...... 0.27 0.30 0.43
Allowance for loan
losses................ $9,249 8,778 9,394
Allowance for loan
losses to total loans
receivable, net....... 1.20 % 1.11 % 1.16 %
Allowance for loan
losses to
non-performing loans.. 454.37 376.88 267.99
V. BOOK VALUE PER SHARE:
Book value per share... $20.99 20.59 19.17
--------------------------------------
Three Months Year Ended Three Months
Ended Dec 31, 2005 Ended
Mar 31, 2006 Mar 31, 2005
--------------------------------------
VI. CAPITAL RATIOS :
Stockholders' equity to
total assets,
at end of period...... 9.36 % 9.15 % 8.52 %
Average stockholders'
equity to
average assets (1).... 9.67 9.05 8.92
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities (1)....... 106.63 105.96 105.79
--------------------------------------
March 31, December 31, March 31,
2006 2005 2005
--------------------------------------
VII. EMPLOYEE DATA:
Number of full time
equivalent employees.. 213 208 202
(1) Average balances were calculated based upon amortized cost without
the market value impact of SFAS 115.
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