HMN Financial (NASDAQ:HMNF)
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HMN Financial, Inc. (NASDAQ:HMNF):
First Quarter Highlights
Net income of $3.3 million, up $528,000, or 19.3% from first
quarter of 2006
Diluted earnings per share of $0.82, up $0.14, or 20.6%, from first
quarter of 2006
Net interest income up $395,000, or 4.2%, over first quarter of 2006
Net interest margin down 9 basis points from first quarter of 2006
Gain on sales of loans up $550,000, or 223.6%, over first quarter
2006
EARNINGS SUMMARY
Three Months Ended
March 31,
2007
2006
Net income
$3,268,000
2,740,000
Diluted earnings per share
0.82
0.68
Return on average assets
1.28%
1.14%
Return on average equity
13.79%
11.82%
Book value per share
$22.01
20.99
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $1.1 billion holding
company for Home Federal Savings Bank (the Bank), today reported net
income of $3.3 million for the first quarter of 2007, up $528,000, or
19.3%, from net income of $2.7 million for the first quarter of 2006.
Diluted earnings per common share for the first quarter of 2007 were
$0.82, up $0.14, or 20.6%, from $0.68 for the first quarter of 2006. The
increase in net income was due primarily to increases in net interest
income and the gains recognized on the sale of commercial loans.
First Quarter Results
Net Interest Income
Net interest income was $9.8 million for the first quarter of 2007, an
increase of $395,000, or 4.2%, compared to $9.4 million for the first
quarter of 2006. Interest income was $18.3 million for the first quarter
of 2007, an increase of $2.3 million, or 14.4%, from $16.0 million for
the first quarter of 2006. Interest income increased primarily because
of an increase in the average interest rate earned on loans and
investments. Interest rates increased primarily because of the 50 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 average yield earned on interest-earning assets was
7.49% for the first quarter of 2007, an increase of 51 basis points from
the 6.98% average yield for the first quarter of 2006. Interest income
also increased because of the $61 million increase in the average
interest earning assets between the periods.
Interest expense was $8.5 million for the first quarter of 2007, an
increase of $1.9 million, or 28.8%, compared to $6.6 million for the
first quarter of 2006. Interest expense increased because of the higher
interest rates paid on deposits which were caused by the 50 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 3.69%
for the first quarter of 2007, an increase of 62 basis points from the
3.07% average interest rate paid in the first quarter of 2006. The
average rate on interest bearing liabilities increased more than the
average yield on interest bearing assets primarily because most of the
deposit growth between the periods was in higher rate money market
accounts while the majority of the asset growth was in lower yielding
investments. Net interest margin (net interest income divided by average
interest earning assets) for the first quarter of 2007 was 4.01%, a
decrease of 9 basis points, compared to 4.10% for the first quarter of
2006.
Provision for Loan Losses
The provision for loan losses was $455,000 for the first quarter of
2007, a decrease of $60,000, compared to $515,000 for the first quarter
of 2006. The provision for loan losses decreased primarily because of a
decrease in the number of commercial loan risk rating downgrades in the
first quarter of 2007 when compared to the same period of 2006. The
decrease in the provision due to fewer loan risk ratings downgrades was
partially offset by the $33 million in loan growth that was experienced
in the first quarter of 2007. Total non-performing assets were $12.7
million at March 31, 2007, an increase of $2.3 million, from $10.4
million at December 31, 2006. Non-performing loans decreased $785,000
and foreclosed and repossessed assets increased $3.1 million during the
period. Of the increase in foreclosed and repossessed assets, $1.8
million was the result of purchasing the first mortgage on a previously
classified non-performing second mortgage loan in order to improve the
Company’s lien position.
A reconciliation of the Company’s allowance
for loan losses for the quarters ended March 31, 2007 and 2006 is
summarized as follows:
(in thousands)
2007
2006
Balance at January 1,
$9,873
$8,778
Provision
455
515
Charge offs:
Commercial loans
(42)
0
Consumer loans
(580)
(91)
Recoveries
50
47
Balance at March 31,
$9,756
$9,249
The increase in consumer loan charge offs is primarily the result of a
home equity loan that was charged off in the first quarter of 2007 for
which a reserve was established in the fourth quarter of 2006.
Non-Interest Income and Expense
Non-interest income was $2.1 million for the first quarter of 2007, an
increase of $582,000, or 39.2%, from $1.5 million for the first quarter
of 2006. Gain on sale of loans increased $550,000 between the periods
due to a $612,000 increase in the gain recognized on the sale of
government guaranteed commercial loans that was partially offset by a
$62,000 decrease in the gain recognized on the sale of single family
loans due to a decrease in the volume and profit margins on the loans
that were sold. Competition in the single-family loan origination market
continues to be very strong and profit margins were lowered in order to
remain competitive and maintain origination volumes. Fees and service
charges decreased $19,000 between the periods primarily because of
decreased late fees. Loan servicing fees decreased $32,000 primarily
because of a decrease in the number of single-family loans that are
being serviced for others. Other non-interest income increased $83,000
primarily because of increased revenues from the sale of uninsured
investment products.
Non-interest expense was $6.0 million for the first quarter of 2007, an
increase of $10,000, or 0.2%, from $5.9 million for the first quarter of
2006. Compensation expense increased $102,000 primarily because of
annual payroll cost increases. Occupancy expense decreased $16,000 due
primarily to a decrease in real estate taxes. Advertising expense
decreased $25,000 between the periods primarily because of a decrease in
the costs associated with promoting the new branch and the introduction
of new checking account offerings that occurred in the first quarter of
2006. Mortgage servicing rights amortization decreased $35,000 between
the periods because there are fewer mortgage loans being serviced.
Income tax expense increased $499,000 between the periods due to an
increase in taxable income and an effective tax rate that increased from
38.0% for the first quarter of 2006 to 40.0% for the first quarter of
2007. The increase in the effective tax rate was the result of changes
in state tax allocations, a decrease in low income tax credits and an
increase in the federal tax rate due to increased income.
Return on Assets and Equity
Return on average assets for the first quarter of 2007 was 1.28%,
compared to 1.14% for the first quarter of 2006. Return on average
equity was 13.79% for the first quarter of 2007, compared to 11.82% for
the same quarter in 2006. Book value per common share at March 31, 2007
was $22.01, compared to $20.99 at March 31, 2006.
President’s
Statement
"Net interest income continued to increase despite the compression in
net interest margin that occurred during the first quarter of 2007,”
said HMN President, Michael McNeil. “We are
also encouraged with the loan and deposit growth that we experienced
during the quarter.”
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
March 31,
December 31,
(dollars in thousands)
2007
2006
(unaudited)
Assets
Cash and cash equivalents
$85,633
43,776
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $11,445 and $6,671)
11,110
6,178
Other marketable securities
(amortized cost $179,694 and $119,940)
179,931
119,962
191,041
126,140
Loans held for sale
1,412
1,493
Loans receivable, net
798,502
768,232
Accrued interest receivable
6,206
5,061
Real estate, net
5,127
2,072
Federal Home Loan Bank stock, at cost
7,511
7,956
Mortgage servicing rights, net
1,780
1,958
Premises and equipment, net
11,121
11,372
Goodwill
3,801
3,801
Core deposit intangible, net
77
106
Prepaid expenses and other assets
1,891
2,943
Deferred tax asset, net
2,941
2,879
Total assets
$1,117,043
977,789
Liabilities and Stockholders’ Equity
Deposits
$871,929
725,959
Federal Home Loan Bank advances
140,900
150,900
Accrued interest payable
2,203
1,176
Customer escrows
1,240
721
Accrued expenses and other liabilities
5,958
5,891
Total liabilities
1,022,230
884,647
Commitments and contingencies
Stockholders’ equity:
Serial preferred stock ($.01 par value):
Authorized 500,000 shares; none issued and outstanding
0
0
Common stock ($.01 par value):
Authorized 11,000,000; issued shares 9,128,662
91
91
Additional paid-in capital
57,537
57,914
Retained earnings, subject to certain restrictions
105,715
103,643
Accumulated other comprehensive loss
(59)
(284)
Unearned employee stock ownership plan shares
(4,110)
(4,158)
Treasury stock, at cost 4,821,493 and 4,813,232 shares
(64,361)
(64,064)
Total stockholders’ equity
94,813
93,142
Total liabilities and stockholders’ equity
$1,117,043
977,789
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended
March 31,
(dollars in thousands)
2007
2006
Interest income:
Loans receivable
$15,745
14,703
Securities available for sale:
Mortgage-backed and related
111
71
Other marketable
1,896
890
Cash equivalents
443
256
Other
84
63
Total interest income
18,279
15,983
Interest expense:
Deposits
6,877
4,868
Federal Home Loan Bank advances
1,618
1,726
Total interest expense
8,495
6,594
Net interest income
9,784
9,389
Provision for loan losses
455
515
Net interest income after provision for loan losses
9,329
8,874
Non-interest income:
Fees and service charges
696
715
Mortgage servicing fees
271
303
Gain on sales of loans
796
246
Other
305
222
Total non-interest income
2,068
1,486
Non-interest expense:
Compensation and benefits
3,361
3,259
Occupancy
1,084
1,100
Advertising
106
131
Data processing
295
289
Amortization of mortgage servicing rights, net
182
217
Other
922
944
Total non-interest expense
5,950
5,940
Income before income tax expense
5,447
4,420
Income tax expense
2,179
1,680
Net income
$3,268
2,740
Basic earnings per share
$0.87
0.71
Diluted earnings per share
$0.82
0.68
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
SELECTED FINANCIAL DATA:
Three Months EndedMarch 31,
(dollars in thousands, except per share data)
2007
2006
I. OPERATING DATA:
Interest income
$18,279
15,983
Interest expense
8,495
6,594
Net interest income
9,784
9,389
II. AVERAGE BALANCES:
Assets (1)
1,037,984
973,110
Loans receivable, net
787,937
778,271
Mortgage-backed and related securities (1)
9,996
7,360
Interest-earning assets (1)
989,701
928,945
Interest-bearing liabilities
933,726
871,172
Equity (1)
96,104
94,054
III. PERFORMANCE RATIOS: (1)
Return on average assets (annualized)
1.28%
1.14%
Interest rate spread information:
Average during period
3.80
3.91
End of period
3.55
3.90
Net interest margin
4.01
4.10
Ratio of operating expense to average total assets (annualized)
2.32
2.48
Return on average equity (annualized)
13.79
11.82
Efficiency
50.20
54.62
March 31,
December 31,
March 31,
2007
2006
2006
IV. ASSET QUALITY :
Total non-performing assets
$12,708
10,424
3,491
Non-performing assets to total assets
1.14%
1.07%
0.35%
Non-performing loans to total loans receivable, net
0.94
1.08
0.27
Allowance for loan losses
$9,756
9,873
9,249
Allowance for loan losses to total loans receivable, net
1.22%
1.29%
1.20%
Allowance for loan losses to non-performing loans
129.68
118.84
454.37
V. BOOK VALUE PER SHARE:
Book value per share
$22.01
21.58
20.99
Three Months Ended
Mar 31, 2007
Year Ended
Dec 31, 2006
Three Months Ended
Mar 31, 2006
VI. CAPITAL RATIOS :
Stockholders’ equity to total assets,
at end of period
8.49%
9.53%
9.36%
Average stockholders’ equity to average
assets (1)
9.26
9.70
9.67
Ratio of average interest-earning assets to average
interest-bearing liabilities (1)
105.99
106.67
106.63
March 31,
December 31,
March 31,
2007
2006
2006
VII. EMPLOYEE DATA:
Number of full time equivalent employees
205
203
213
(1) Average balances were calculated based upon amortized cost without
the market value impact of SFAS 115.