HMN Financial, Inc. (HMN) (NASDAQ:HMNF): Fourth Quarter Highlights
-- Net income of $3.5 million, up $1.4 million, or 63.9%, over
fourth quarter of 2004 -- Diluted earnings per share of $0.87, up
$0.34, over fourth quarter of 2004 -- Net interest income up $1.2
million, or 14.0%, over fourth quarter of 2004 -- Net interest
margin up 32 basis points over fourth quarter of 2004 -- Provision
for loan losses down $535,000, or 74.9%, from fourth quarter of
2004 Annual Highlights -- Record net income of $11.1 million, up
$1.8 million, or 19.1%, over 2004 -- Diluted earnings per share of
$2.77, up $0.46, or 19.9%, over 2004 -- Net interest income up $5.2
million, or 16.8%, over 2004 -- Net interest margin up 30 basis
points over 2004 -- Income tax expense up $2.3 million, or 53.5%,
over 2004 -0- *T EARNINGS SUMMARY Three Months Ended Year Ended
December 31, December 31, 2005 2004 2005 2004 ---------------------
---------------------- Net income $3,476,971 2,121,976 $11,067,889
9,289,797 Diluted earnings per share $0.87 0.53 $2.77 2.31 Return
on average assets 1.39% 0.88 1.12% 1.01 Return on average equity
15.03% 9.85 12.42% 11.03 Book value per share $20.59 18.95 $20.59
18.95 *T HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $991 million
holding company for Home Federal Savings Bank (the Bank), today
reported net income of $3.5 million for the fourth quarter of 2005,
up $1.4 million, or 63.9%, from net income of $2.1 million for the
fourth quarter of 2004. Diluted earnings per common share for the
fourth quarter of 2005 were $0.87, up $0.34, from $0.53 for the
fourth quarter of 2004. Fourth Quarter Results Net Interest Income
Net interest income was $9.4 million for the fourth quarter of
2005, an increase of $1.2 million, or 14.0%, compared to $8.2
million for the fourth quarter of 2004. Interest income was $16.1
million for the fourth quarter of 2005, an increase of $2.4
million, or 17.5%, from $13.7 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 average
interest-earning assets was caused primarily by the $59 million
increase in the average outstanding balance of commercial loans
between the periods. The average yield earned on interest-earning
assets was 6.73% for the fourth quarter of 2005, an increase of 73
basis points from the 6.00% yield for the fourth quarter of 2004.
Interest expense was $6.7 million for the fourth quarter of 2005,
an increase of $1.3 million, or 22.8%, from $5.4 million for the
fourth 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. The average interest
rate paid on interest-bearing liabilities was 2.96% for the fourth
quarter of 2005, an increase of 45 basis points from the 2.51% paid
for the fourth quarter of 2004. Net interest margin (net interest
income divided by average interest earning assets) for the fourth
quarter of 2005 was 3.94%, an increase of 32 basis points, compared
to 3.62% for the fourth quarter of 2004. Provision for Loan Losses
The provision for loan losses was $179,000 for the fourth quarter
of 2005, a decrease of $535,000, or 74.9%, from $714,000 for the
fourth quarter of 2004. The provision for loan losses decreased
primarily because of the $27 million decrease in the loan portfolio
in the fourth quarter of 2005 compared to an $13 million increase
in the portfolio in the fourth quarter of 2004. The decrease in the
loan portfolio in 2005 was primarily the result of several large
commercial loans being paid down or sold during the quarter.
Non-performing assets were $3.9 million at December 31, 2005, a
decrease of $1.0 million, or 20.5%, from the $4.9 million in
non-performing assets at December 31, 2004. Non-performing loans
decreased $2.0 million, non-performing other assets decreased
$23,000, and foreclosed and repossessed assets increased $1.0
million between the periods. Non-Interest Income and Expense
Non-interest income was $1.8 million for the fourth quarter of
2005, an increase of $625,000, or 53.8%, from $1.2 million for the
fourth quarter of 2004. Security losses decreased $518,000 between
the periods primarily due to the write down in the fourth quarter
of 2004 of a Federal Home Loan Mortgage Corporation (FHLMC)
preferred stock investment whose decline in value due to decreased
interest rates was determined to be other than temporary. Gain on
sales of loans increased $176,000 due primarily to the $256,000
increase between the periods in the gain recognized on the sale of
government guaranteed commercial loans due to an increase in the
volume of loans sold. Other non-interest income decreased $42,000
primarily because of increased losses on the sale of repossessed
assets in the fourth quarter of 2005 when compared to the same
period of 2004. Non-interest expense was $5.4 million for the
fourth quarter of 2005, an increase of $81,000, or 1.5%, from $5.3
million for the fourth quarter of 2004. Compensation expense
increased $154,000 between the periods primarily because of annual
payroll cost increases. Occupancy expense increased $42,000
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. Advertising expense decreased $46,000 and other
expenses decreased $55,000 between the periods primarily because of
lower costs related to the internal control evaluation and
reporting requirements of the Sarbanes Oxley legislation. Income
tax expense increased $880,000 between the periods primarily due to
increased taxable income. Return on Assets and Equity Return on
average assets for the fourth quarter of 2005 was 1.39%, compared
to 0.88% for the fourth quarter of 2004. Return on average equity
was 15.03% for the fourth quarter of 2005, compared to 9.85% for
the same quarter in 2004. Book value per common share at December
31, 2005 was $20.59, compared to $18.95 at December 31, 2004.
Annual Results Net Income Net income was $11.1 million for the year
ended December 31, 2005, an increase of $1.8 million, or 19.1%,
compared to $9.3 million for the year ended December 31, 2004.
Diluted earnings per common share for the year ended December 31,
2005 were $2.77, up $0.46, or 19.9%, from $2.31 for the year ended
December 31, 2004. Net Interest Income Net interest income was
$35.8 million for the year ended December 31, 2005, an increase of
$5.2 million, or 16.8%, from $30.6 million in 2004. Interest income
was $60.3 million for the year ended December 31, 2005, an increase
of $8.7 million, or 16.8%, from $51.6 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 of $66 million between the periods.
Interest rates increased primarily because of the 200 basis point
increase in the prime interest rate between the periods. The
increase in interest-earning assets was primarily the result of the
$85 million increase in the average outstanding balance of
commercial loans between the periods. The average yield earned on
interest-earning assets was 6.41% for the year ended December 31,
2005, an increase of 51 basis points from the 5.90% yield for the
same period of 2004. Interest expense was $24.5 million for the
year ended December 31, 2005, an increase of $3.5 million, or
16.8%, from the $21.0 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. Interest expense also
increased because of the $58 million increase in the average
outstanding interest bearing liabilities between the periods. The
average interest rate paid on interest-bearing liabilities was
2.76% for the year ended December 31, 2005, an increase of 23 basis
points from the 2.53% paid for the same period of 2004. Net
interest margin (net interest income divided by average interest
earning assets) for the year ended December 31, 2005 was 3.80%, an
increase of 30 basis points, compared to 3.50% for the same period
of 2004. Provision for Loan Losses The provision for loan losses
was $2.7 million for the year ended December 31, 2005, a decrease
of $81,000, or 2.9%, from $2.8 million in 2004. The provision for
loan losses decreased primarily because the commercial loan
portfolio growth rate decreased from 13.5% in 2004 to 3.4% in 2005.
The decrease in the provision related to reduced loan growth during
the period was partially offset by an increase in the provision
related to loan charge offs which increased from $738,000 in 2004
to $3.1 million in 2005. Loans charged off during 2005 included
commercial loans of $2.6 million, consumer loans of $228,000, and
mortgage loans of $234,000. Non-Interest Income and Expense
Non-interest income was $6.5 million for the year ended December
31, 2005, an increase of $542,000, or 9.1%, from $6.0 million for
the same period in 2004. Security losses decreased $514,000 between
the periods primarily due to the write down in the fourth quarter
of 2004 of a Federal Home Loan Mortgage Corporation (FHLMC)
preferred stock investment whose decline in value due to decreased
interest rates was determined to be other than temporary. Gain on
sales of loans increased $150,000 due primarily to the $488,000
increase in the gain recognized on the sale of government
guaranteed commercial loans in 2005 when compared to the same
period of 2004 due to an increase in the volume of loans sold.
Other non-interest income decreased $105,000 in 2005 primarily
because of increased losses on the sale of repossessed and
foreclosed assets that were partially offset by increased rental
income from leasing space at an existing branch facility to a third
party. Non-interest expense was $21.8 million for the year ended
December 31, 2005, an increase of $1.6 million, or 8.1%, from $20.2
million for the same period in 2004. Compensation and benefits
expense increased $954,000 due primarily to annual payroll cost
increases. Occupancy expense increased $451,000 primarily because
of additional corporate office space occupied in the first quarter
of 2005 and increased amortization expense on various software
upgrades that were implemented between the periods. Other operating
expenses increased $186,000 primarily because of increased costs on
foreclosed and repossessed assets and increased charitable
contributions in 2005 when compared to the same period in 2004.
Income tax expense was $6.7 million for the year ended December 31,
2005, an increase of $2.3 million, or 53.5%, compared to $4.4
million for the same period in 2004. Income tax expense increased
between the periods due to an increase in taxable income and an
increase in the effective tax rate from 32.1% in 2004 to 37.8% in
2005. The increase in the effective tax rate was primarily the
result of changes in state tax laws that occurred in 2005. Return
on Assets and Equity Return on average assets for the year ended
December 31, 2005 was 1.12%, compared to 1.01% for the same period
in 2004. Return on average equity was 12.42% for the year ended
December 31, 2005, compared to 11.03% for the same period in 2004.
President's Statement "I am pleased to report record earnings for
the third consecutive year," said HMN President Michael McNeil.
"Our ability to provide competitive loan and deposit services to
our business customers has allowed us to change the mix of our
assets and liabilities and was a significant factor in obtaining
the record results in 2005." 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 Rochester, St. Cloud,
and Dodge Center, 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 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. -0- *T HMN FINANCIAL, INC. AND
SUBSIDIARIES Consolidated Balance Sheets (unaudited)
----------------------------------------------------------------------
December 31, December 31, 2005 2004
----------------------------------------------------------------------
Assets Cash and cash equivalents................... $47,268,795
34,298,394 Securities available for sale: Mortgage-backed and
related securities (amortized cost $7,428,504 and
$9,509,377)............................. 6,879,756 9,150,871 Other
marketable securities (amortized cost $113,749,841 and
$95,097,051)........................... 112,778,813 94,521,512
------------- ------------ 119,658,569 103,672,383 -------------
------------ Loans held for sale......................... 1,435,141
2,711,760 Loans receivable, net....................... 785,678,461
783,213,262 Accrued interest receivable................. 4,460,014
3,694,133 Real estate, net............................ 1,214,621
140,608 Federal Home Loan Bank stock, at cost....... 8,364,600
9,292,800 Mortgage servicing rights, net.............. 2,653,635
3,231,242 Premises and equipment, net................. 11,941,863
12,464,265 Investment in limited partnerships.......... 141,048
168,258 Goodwill.................................... 3,800,938
3,800,938 Core deposit intangible, net................ 219,760
333,617 Prepaid expenses and other assets........... 1,854,948
2,638,681 Deferred tax asset.......................... 2,544,400
1,012,700 ------------- ------------ Total
assets............................$991,236,793 960,673,041
============= ============ Liabilities and Stockholders' Equity
Deposits....................................$731,536,560
698,902,185 Federal Home Loan Bank advances.............
160,900,000 170,900,000 Accrued interest
payable.................... 2,085,573 1,314,356 Customer
escrows............................ 1,038,575 762,737 Accrued
expenses and other liabilities...... 4,947,816 5,022,927
------------- ------------ Total liabilities.......................
900,508,524 876,902,205 ------------- ------------ Commitments and
contingencies Stockholders' equity: Serial preferred stock: ($.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..................
58,011,099 57,875,595 Retained earnings, subject to certain
restrictions............................... 98,951,777 91,408,028
Accumulated other comprehensive loss........ (917,577) (604,446)
Unearned employee stock ownership plan
shares..................................... (4,350,999) (4,544,300)
Unearned compensation restricted stock
awards..................................... (182,521) 0 Treasury
stock, at cost 4,721,402 and
4,708,798.................................. (60,874,797)
(60,455,328) ------------- ------------ Total stockholders'
equity.............. 90,728,269 83,770,836 -------------
------------ Total liabilities and stockholders'
equity..$991,236,793 960,673,041 ============= ============
----------------------------------------------------------------------
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of
Income (unaudited)
----------------------------------------------------------------------
Three Months Ended Year Ended December 31, December 31, 2005 2004
2005 2004
----------------------------------------------------------------------
Interest income: Loans receivable.....$14,889,241 12,742,396
56,376,920 47,962,485 Securities available for sale:
Mortgage-backed and related..... 73,239 92,434 325,940 385,067
Other marketable. 802,393 717,309 2,744,202 2,897,834 Cash
equivalents..... 237,688 57,311 580,500 164,061
Other................ 71,326 68,224 253,611 207,240 ------------
----------- ----------- ----------- Total interest income..........
16,073,887 13,677,674 60,281,173 51,616,687 ------------
----------- ----------- ----------- Interest expense:
Deposits............. 4,874,673 3,383,353 17,233,400 12,398,505
Federal Home Loan Bank advances....... 1,792,589 2,044,354
7,278,050 8,594,790 ------------ ----------- -----------
----------- Total interest expense.......... 6,667,262 5,427,707
24,511,450 20,993,295 ------------ ----------- -----------
----------- Net interest income........... 9,406,625 8,249,967
35,769,723 30,623,392 Provision for loan losses...............
179,000 714,000 2,674,000 2,755,000 ------------ -----------
----------- ----------- Net interest income after provision for
loan losses.. 9,227,625 7,535,967 33,095,723 27,868,392
------------ ----------- ----------- ----------- Non-interest
income: Fees and service charges............. 724,713 761,648
2,719,004 2,776,553 Mortgage servicing fees................ 308,432
298,971 1,210,192 1,168,760 Securities losses, net.................
(21,000) (539,000) (21,000) (535,188) Gain on sales of
loans............... 610,504 434,534 1,852,940 1,702,979 Losses in
limited partnerships........ (6,500) (6,501) (27,210) (26,118)
Other................ 170,583 212,281 775,294 880,233 ------------
----------- ----------- ----------- Total non-interest
income........... 1,786,732 1,161,933 6,509,220 5,967,219
------------ ----------- ----------- ----------- Non-interest
expense: Compensation and benefits............ 2,800,281 2,646,270
11,140,329 10,186,538 Occupancy............ 1,001,749 959,612
4,080,880 3,629,766 Deposit insurance premiums............ 32,479
25,366 129,683 95,465 Advertising.......... 92,736 138,826 384,184
430,417 Data processing...... 269,911 277,604 1,031,630 930,144
Amortization of mortgage servicing rights, net......... 252,881
265,968 1,019,766 1,061,407 Other................ 989,449 1,044,615
4,014,482 3,828,086 ------------ ----------- -----------
----------- Total non-interest expense.......... 5,439,486
5,358,261 21,800,954 20,161,823 ------------ -----------
----------- ----------- Income before income tax expense..........
5,574,871 3,339,639 17,803,989 13,673,788 Income tax expense....
2,097,900 1,218,400 6,736,100 4,387,100 ------------ -----------
----------- ----------- Income before minority interest 3,476,971
2,121,239 11,067,889 9,286,688 Minority interest..... 0 (737) 0
(3,109) ------------ ----------- ----------- ----------- Net
income........ $3,476,971 2,121,976 11,067,889 9,289,797
============ =========== =========== =========== Basic earnings per
share................ $0.91 0.55 2.89 2.40 ============ ===========
=========== =========== Diluted earnings per share................
$0.87 0.53 2.77 2.31 ============ =========== ===========
===========
----------------------------------------------------------------------
HMN FINANCIAL, INC. AND SUBSIDIARIES Selected Consolidated
Financial Information (unaudited)
----------------------------------------------------------------------
SELECTED FINANCIAL DATA: Three Months Ended Year Ended (dollars in
thousand, except per December 31, December 31, share data) 2005
2004 2005 2004
----------------------------------------------------------------------
I. OPERATING DATA: Interest income................ $16,074 13,678
60,281 51,617 Interest expense............... 6,667 5,428 24,511
20,993 Net interest income............ 9,407 8,250 35,770 30,624
II. AVERAGE BALANCES: Assets (1).................... 992,869
954,343 984,084 918,853 Loans receivable, net......... 796,855
770,747 802,637 736,987 Mortgage-backed and related securities
(1)............... 7,677 9,833 8,509 11,225 Interest-earning assets
(1)... 948,056 907,174 940,321 874,563 Interest-bearing
liabilities.. 892,773 861,977 887,464 829,929
Equity(1)..................... 91,755 85,669 89,100 84,214 III.
PERFORMANCE RATIOS: (1) Return on average assets
(annualized)................. 1.39% 0.88% 1.12% 1.01% Interest rate
spread information: Average during period...... 3.76 3.49 3.65 3.37
End of period.............. 3.50 3.66 3.50 3.66 Net interest
margin........... 3.94 3.62 3.80 3.50 Ratio of operating expense to
average total assets (annualized)................. 2.17 2.23 2.22
2.19 Return on average equity (annualized)................. 15.03
9.85 12.42 11.03 Efficiency.................... 48.60 56.93 51.56
55.10 ------------------- Dec 31, Dec 31, 2005 2004
------------------- IV. ASSET QUALITY: Total non-performing
assets... $3,883 4,882 Non-performing assets to total
assets....................... 0.39% 0.51% Non-performing loans to
total loans receivable, net........ 0.30% 0.55% Allowance for loan
losses..... $8,778 8,996 Allowance for loan losses to total
assets................. 0.89% 0.94% Allowance for loan losses to
total loans receivable, net.. 1.11 1.15 Allowance for loan losses
to non-performing loans......... 376.88 207.30 V. BOOK VALUE PER
SHARE: Book value per share.......... $20.59 18.95
------------------- Year Year Ended Ended Dec 31, Dec 31, 2005 2004
------------------- VI. CAPITAL RATIOS: Stockholders' equity to
total assets, at end of period.... 9.15% 8.72% Average
stockholders' equity to average assets (1)....... 9.05 9.17 Ratio
of average interest- earning assets to average interest-bearing
liabilities (1)......................... 105.96 105.38
------------------- Dec 31, Dec 31, 2005 2004 -------------------
VII. EMPLOYEE DATA: Number of full time equivalent
employees........ 208 208
----------------------------------------------------------------------
(1) Average balances were calculated based upon amortized cost
without the market value impact of SFAS 115. *T
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