Fourth Quarter Highlights
- Net income of $1.7 million compared to net income of
$18.1 million for fourth quarter of 2013
- Diluted earnings per common share of $0.30 compared to
diluted earnings per common share of $3.93 in the fourth quarter of
2013
- Income tax expense increased $15.8 million from fourth
quarter of 2013 due to elimination of deferred tax asset valuation
reserve at December 31, 2013
- Provision for loan losses of ($2.2 million), up $0.8
million from fourth quarter of 2013
Annual Highlights
- Net income of $7.4 million compared to net income of
$26.7 million for 2013
- Diluted earnings per common share of $1.23 compared to
diluted earnings per common share of $5.71 for 2013
- Income tax expense increased $19.3 million from 2013
due to elimination of deferred tax asset valuation reserve at
December 31, 2013
- Provision for loan losses of ($7.0 million), up $0.9
million from 2013
- Non-performing assets of $14.0 million, down $10.4
million from December 31, 2013
Other:
- Remaining $10 million of Preferred Stock to be redeemed
on February 17, 2015
INCOME
SUMMARY |
Three Months
Ended |
Year
Ended |
|
December
31, |
December 31, |
(dollars in thousands, except per share
amounts) |
2014 |
2013 |
2014 |
2013 |
Net
income |
$ 1,678 |
18,096 |
$ 7,379 |
26,670 |
Net income available to
common stockholders |
1,385 |
17,574 |
5,669 |
24,602 |
Diluted earnings per common
share |
0.30 |
3.93 |
1.23 |
5.71 |
Return on average
assets |
1.13% |
12.23% |
1.21% |
4.55% |
Return on average common
equity |
8.74% |
106.72% |
9.12% |
42.22% |
Book value per common
share |
$ 14.77 |
13.49 |
$ 14.77 |
13.49 |
|
|
|
|
|
HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $577
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $1.7 million for the fourth quarter of
2014, a decrease of $16.4 million compared to net income of $18.1
million for the fourth quarter of 2013. Net income available
to common shareholders was $1.4 million for the fourth quarter of
2014, a decrease of $16.2 million from the net income available to
common shareholders of $17.6 million for the fourth quarter of
2013. Diluted earnings per common share for the fourth quarter
of 2014 was $0.30, a decrease of $3.63 from the diluted earnings
per common share of $3.93 for the fourth quarter of 2013. The
decrease in net income in the fourth quarter of 2014 is due
primarily to a $15.8 million increase in income tax expense as a
result of eliminating the valuation reserve against the Company's
deferred tax asset in the fourth quarter of 2013. Net income
also decreased $0.8 million as a result of a decrease in the credit
provision for loan losses between the periods. These decreases
in net income were partially offset by a $0.2 million decrease in
non-interest expenses due primarily to a decrease in legal and
other expenses associated with real estate owned.
President's Statement
"We are pleased to report positive net operating results for the
fourth quarter of 2014," said Brad Krehbiel, President of HMN. "We
are also encouraged by the results of our ongoing efforts to
improve the credit quality in our commercial loan portfolio and to
recover amounts on loans that were previously charged off as
evidenced by the credit loan loss provision. We intend to continue
to focus our efforts on further reducing non-performing assets
while, at the same time, improving the financial performance of our
core banking operations."
Fourth Quarter Results
Net Interest Income
Net interest income was $4.8 million for both the fourth quarter
of 2014 and the fourth quarter of 2013. Interest income was
$5.0 million for the fourth quarter of 2014, a decrease of $0.1
million, or 2.1%, from $5.1 million for the same period in 2013.
Interest income decreased between the periods primarily because of
a change in the mix of average interest-earning assets held and
also because of a decrease in the average yields earned between the
periods. While the average interest-earning assets decreased
$8.4 million between the periods, the average interest-earning
assets held in lower yielding cash and investment increased $7.3
million and the amount of average interest-earning assets held in
higher yielding loans decreased $15.8 million between the
periods. The decrease in the average outstanding loans between
the periods was primarily the result of a decrease in the
commercial loan portfolio, which occurred primarily because of loan
prepayments and non-renewals as a result of the Company's focus on
improving credit quality, decreasing loan concentration, and
managing net interest margin. The average yield earned on
interest-earning assets was 3.61% for the fourth quarter of 2014, a
decrease of 2 basis points from 3.63% for the fourth quarter of
2013. The decrease in average yield is due to the change in
the mix of assets held and the continued low short-term interest
rate environment that existed during the fourth quarter of
2014.
Interest expense was $0.3 million for the fourth quarter of
2014, a decrease of $0.1 million, or 27.5%, compared to $0.4
million for the fourth quarter of 2013. Interest expense
decreased primarily because of the change in the mix of the average
interest-bearing liabilities held between the periods and also
because of a decrease in the average rate. While the average
interest-bearing liabilities decreased $8.3 million between the
periods, the amount held in higher rate certificates of deposit
decreased $30.7 million and the amount of interest-bearing
liabilities held in other lower rate deposit accounts increased
$22.4 million between the periods. The decrease in certificates of
deposit between the periods was the result of using the proceeds
from loan principal payments to fund maturing certificates of
deposit. The decreased average rates paid were the result of
the change in the mix of liabilities held and the low interest rate
environment that continued to exist during the fourth quarter of
2014. The average interest rate paid on interest-bearing
liabilities was 0.22% for the fourth quarter of 2014, a decrease of
8 basis points from the 0.30% average interest rate paid in the
fourth quarter of 2013. Net interest margin (net interest
income divided by average interest-earning assets) for the fourth
quarter of 2014 was 3.42%, an increase of 5 basis points, compared
to 3.37% for the fourth quarter of 2013.
Provision for Loan Losses
The provision for loan losses was ($2.2 million) for the fourth
quarter of 2014, a decrease in the credit provision of $0.8
million, from ($3.0 million) for the fourth quarter of
2013. The credit provision for loan losses decreased primarily
because there were fewer positive changes in the values of the
underlying collateral supporting commercial real estate loans in
the fourth quarter of 2014 when compared to the same period of
2013. The fewer positive changes in collateral values were
partially offset by an increase in the amounts recovered in the
fourth quarter of 2014 on previously charged off loans when
compared to the fourth quarter of 2013. Total non-performing
assets were $14.0 million at December 31, 2014, an increase of $0.2
million, or 1.3%, from $13.8 million at September 30,
2014. Non-performing loans increased $0.5 million and
foreclosed and repossessed assets decreased $0.3 million during the
fourth quarter of 2014. The non-performing loan and foreclosed
and repossessed asset activity for the fourth quarter of 2014 was
as follows:
Dollars in thousands) |
|
Non-performing loans |
|
Foreclosed and repossessed
assets |
|
September 30, 2014 |
$10,394 |
September 30, 2014 |
$3,445 |
Classified as non-performing |
1,159 |
Transferred from non-performing loans |
0 |
Charge offs |
(56) |
Real estate sold |
(434) |
Principal payments received |
(389) |
Net gain on sale of assets |
98 |
Classified as accruing |
(188) |
Write downs and payments |
(6) |
Transferred to real estate owned |
0 |
December 31, 2014 |
$3,103 |
December 31, 2014 |
$10,920 |
|
|
|
|
The increase in non-performing loans relates primarily to the
additional loans being classified as non-performing during the
fourth quarter of 2014. Of the $1.2 million in additional
loans classified as non-performing during the quarter, $0.7 million
related to two single family real estate loans.
A reconciliation of the allowance for loan losses for the fourth
quarters of 2014 and 2013 is summarized as follows:
|
(Dollars in thousands) |
2014 |
2013 |
Balance at September 30, |
$7,923 |
$16,505 |
Provision |
(2,221) |
(3,031) |
Charge offs: |
|
|
Commercial real estate |
0 |
(2,800) |
Commercial business |
0 |
(45) |
Consumer |
(56) |
(9) |
One-to-four family |
0 |
0 |
Recoveries |
2,686 |
781 |
Balance at December 31, |
$8,332 |
$11,401 |
|
|
|
General allowance |
$7,258 |
$7,623 |
Specific allowance |
1,074 |
3,778 |
|
$8,332 |
$11,401 |
|
The following table summarizes the amounts and categories of
non-performing assets in the Bank's portfolio and loan delinquency
information as of the end of the two most recently completed
quarters and December 31, 2013.
|
|
December 31, |
September 30, |
December 31, |
(Dollars in thousands) |
2014 |
2014 |
2013 |
Non‑Performing Loans: |
|
|
|
One‑to‑four family real estate |
$ 1,564 |
$ 984 |
$ 1,602 |
Commercial real estate |
8,750 |
8,730 |
14,549 |
Consumer |
486 |
533 |
737 |
Commercial business |
120 |
147 |
608 |
Total |
10,920 |
10,394 |
17,496 |
|
|
|
|
Foreclosed and Repossessed Assets: |
|
|
|
One‑to‑four family real estate |
50 |
134 |
0 |
Commercial real estate |
3,053 |
3,311 |
6,898 |
Total non‑performing assets |
$ 14,023 |
$ 13,839 |
$ 24,394 |
Total as a percentage of total assets |
2.43% |
2.33% |
3.76% |
Total non‑performing loans |
$ 10,920 |
$ 10,394 |
$ 17,496 |
Total as a percentage of total loans
receivable, net |
2.99% |
2.84% |
4.55% |
Allowance for loan losses to non-performing
loans |
76.30% |
76.23% |
65.17% |
|
|
|
|
Delinquency Data: |
|
|
|
Delinquencies (1) |
|
|
|
30+ days |
$ 1,682 |
$ 2,334 |
$ 6,370 |
90+ days (2) |
0 |
0 |
0 |
Delinquencies as a percentage
of loan and lease portfolio (1) |
|
|
|
30+ days |
0.45% |
0.62% |
1.33% |
90+ days |
0.00% |
0.00% |
0.00% |
|
(1) Excludes non-accrual
loans. |
(2) Loans delinquent for 90 days
and over are generally non-accruing and are included in the
Company's non-performing asset total unless they are well secured
and in the process of collection. |
The following table summarizes the number and types of
commercial real estate loans that were non-performing as of the end
of the two most recently completed quarters and December 31,
2013.
(Dollars in thousands) Property
Type |
# of relationships |
Principal Amount of Loans at December
31, 2014 |
# of relationships |
Principal Amount of Loans at
September 30, 2014 |
# of relationships |
Principal Amount of Loans at December
31, 2013 |
Developments/land |
3 |
$ 8,750 |
3 |
$ 8,730 |
9 |
$ 14,549 |
Non-Interest Income and Expense
Non-interest income was $1.7 million for the fourth quarter of
2014, an increase of $0.1 million, or 3.2%, from $1.6 million for
the same period in 2013. Gain on sales of loans increased
$59,000 between the periods primarily because of an increase in
single family loan originations and sales. Other income
increased $60,000 primarily due to an increase in the sale of
uninsured investment products. Mortgage servicing income
increased $14,000 due to an increase in the number of commercial
loans being serviced. Fees and service charges decreased
$81,000 between the periods primarily because of a decrease in
retail overdraft fees and other charges.
Non-interest expense was $5.8 million for the fourth quarter of
2014, a decrease of $0.2 million, or 2.6%, from $6.0 million for
the same period of 2013. Other non-interest expense decreased
$0.4 million between the periods primarily because of a decrease in
expenses associated with loans and real estate owned due to an
improvement in loan credit quality and a reduction in the amount of
real estate owned. Compensation expense decreased $0.1 million
between the periods primarily because of a decrease in employee
pension benefit costs. Deposit insurance expense decreased
$0.1 million because of a decrease in assets and insurance rates
between the periods. These decreases in non-interest
expense were partially offset by a decrease of $0.2 million in
gains on real estate owned because there were fewer sales of real
estate owned in the fourth quarter of 2014 when compared to the
same period in 2013. Occupancy expense increased $0.2 million
due primarily to an increase in non-capitalized software purchases
between the periods.
Income tax expense was $1.2 million for the fourth quarter of
2014, an increase of $15.8 million from a $14.6 million income tax
benefit for the same period in 2013. In the second quarter of
2010, the Company recorded a deferred tax asset valuation reserve
against its entire deferred tax asset balance and the Company
continued to maintain a valuation reserve against the entire
deferred tax asset balance until the fourth quarter of
2013. In the fourth quarter of 2013, the valuation reserve
against the deferred tax asset was eliminated, which resulted in a
$14.6 million income tax benefit. Regular income tax expense
was recorded in the fourth quarter of 2014.
Net Income Available to Common Shareholders
Net income available to common shareholders was $1.4 million for
the fourth quarter of 2014, a decrease of $16.2 million from the
$17.6 million net income available to common shareholders in the
fourth quarter of 2013. Basic earnings per common share for
the fourth quarter of 2014 was $0.34, a decrease of $4.03 from the
basic earnings per common share of $4.37 for the fourth quarter of
2013. Diluted earnings per common share for the fourth quarter of
2014 was $0.30, a decrease of $3.63 from the diluted earnings per
common share of $3.93 for the fourth quarter of 2013. The net
income available to common shareholders and the basic and diluted
earnings per common share decreased primarily because of the
decrease in net income between the periods as a result of the
elimination of the deferred tax asset valuation reserve in the
fourth quarter of 2013. The difference between basic and
diluted earnings per common share is related primarily to the
dilution effect of the outstanding warrant held by the U.S.
Treasury to purchase 833,333 shares of the Company's common stock
at an exercise price of $4.68.
On November 17, 2014, the Company paid a dividend of $22.50 per
share on the Company's Series A Fixed Rate Perpetual Preferred
Stock ("Preferred Stock"). Also, on November 17, 2014, the
Company redeemed 6,000 shares of the Preferred Stock on a pro rata
basis from holders of record of Preferred Stock on October 7,
2014. Giving effect to the dividend paid on the same date, the
redemption price per share was $1,000. Following the
redemption, 10,000 shares of Preferred Stock remained outstanding.
The Company did not pay any dividends on the Preferred Stock or
redeem any shares of Preferred Stock in the fourth quarter of
2013.
On January 8, 2015, the Company announced that notice had been
given to holders of record of the Company's Preferred Stock of the
redemption of all 10,000 shares of outstanding Preferred Stock. The
effective date of the redemption will be February 17, 2015. After
giving effect to a dividend of $22.50 per share on the Preferred
Stock to be paid on the same date, the redemption price per share
will be $1,000. The record date for the redemption and the dividend
is January 6, 2015. The Preferred Stock was originally issued by
HMN to the U.S. Treasury through the Capital Purchase Program
established under the Troubled Asset Relief Program and is
currently held by unaffiliated third party investors. The
Preferred Stock redemption is being funded through a $10 million
term loan that will be evidenced by a promissory note. The
principal balance of the note will bear interest at a rate of 6.5%
and will be payable in consecutive annual installments of $1
million on each December 15, beginning December 15, 2015, with the
balance due on December 15, 2021. The Preferred Stock dividend is
being funded through internally available funds. HMN has
requested and received all applicable approvals from regulatory
authorities to pay the Preferred Stock dividend and effect the
Preferred Stock redemption.
Return on Assets and Equity
Return on average assets (annualized) for the fourth quarter of
2014 was 1.13%, compared to 12.23% for the fourth quarter of
2013. Return on average equity (annualized) was 8.74% for the
fourth quarter of 2014, compared to 106.72% for the same period of
2013. Book value per common share at December 31, 2014 was
$14.77, compared to $13.49 at December 31, 2013.
Annual Results
Net Income
Net income was $7.4 million for 2014, a decrease of $19.3
million, from $26.7 million for 2013. Net income available to
common shareholders was $5.7 million for the year ended December
31, 2014, a decrease of $18.9 million, from net income available to
common shareholders of $24.6 million for 2013. Diluted
earnings per common share for the year ended December 31, 2014 was
$1.23, a decrease of $4.48 from $5.71 diluted earnings per common
share for the year ended December 31, 2013. The decrease in
net income in 2014 is due primarily to a $19.3 million increase in
income tax expense between the periods as a result of eliminating
the valuation reserve against the Company's deferred tax asset in
the fourth quarter of 2013 and recording regular income tax expense
in 2014.
Net Interest Income
Net interest income was $19.4 million for 2014, a decrease of
$0.3 million, or 1.5%, from $19.7 million for 2013. Interest
income was $20.6 million for 2014, a decrease of $2.4 million, or
10.3%, from $23.0 million for 2013. Interest income decreased
between the periods primarily because of a change in the mix of
average interest-earning assets held and also because of a decrease
in the average yields earned between the periods. While the
average interest-earning assets increased $13.1 million between the
periods, the average interest-earning assets held in lower yielding
cash and investment increased $52.3 million and the amount of
average interest-earning assets held in higher yielding loans
decreased $39.2 million between the periods. The decrease in
the average outstanding loans between the periods was primarily the
result of a decrease in the commercial loan portfolio, which
occurred primarily because of loan prepayments and non-renewals as
a result of the Company's focus on improving credit quality,
decreasing loan concentration, and managing net interest
margin. The average yield earned on interest-earning assets
was 3.59% for the year ended December 31, 2014, a decrease of 50
basis points from 4.09% for the same period of 2013. The
decrease in average yield is due to the change in the mix of assets
held and the continued low short-term interest rate environment
that existed during 2014.
Interest expense was $1.2 million for the year ended December
31, 2014, a decrease of $2.1 million, or 63.2%, from $3.3 million
for 2013. Interest expense decreased primarily because of the
change in the mix of the average interest-bearing liabilities held
between the periods and also because of a decrease in the average
rate. While the average interest-bearing liabilities increased
$4.4 million between the periods, the amount held in higher rate
certificates of deposit and Federal Home Loan Bank Advances
decreased $70.2 million and the amount of interest-bearing
liabilities held in other lower rate deposit accounts increased
$74.6 million between the periods. The decrease in certificates of
deposit between the periods was the result of using the proceeds
from loan principal payments to fund maturing certificates of
deposit. The decreased average rates paid were the result of
the change in the mix of liabilities held and the low interest rate
environment that continued to exist during 2014. The average
interest rate paid on interest-bearing liabilities was 0.23% for
the year ended December 31, 2014, a decrease of 41 basis points
from the 0.64% average interest rate paid in 2013. Net
interest margin (net interest income divided by average interest
earning assets) for the year ended December 31, 2014 was 3.38%, a
decrease of 13 basis points, compared to 3.51% for 2013.
Provision for Loan Losses
The provision for loan losses was ($7.0 million) for the year
ended December 31, 2014, a decrease in the credit provision of $0.9
million, from ($7.9 million) for the year ended December 31,
2013. The decrease in the size of the commercial loan
portfolio, the continued improvement in the credit quality of the
loan portfolio, and the recoveries received on previously charged
off loans in 2014 and 2013 resulted in lower reserves being
required in the allowance for loan losses. The reduction in
the allowance for loan losses was the primary reason for the large
credits in the provision for loan losses for 2014 and
2013. Total non-performing assets were $14.0 million at
December 31, 2014, a decrease of $10.4 million, or 42.5%, from
$24.4 million at December 31, 2013. Non-performing loans
decreased $6.6 million and foreclosed and repossessed assets
decreased $3.8 million during 2014. The non-performing loan
and foreclosed and repossessed asset activity for 2014 was as
follows:
(Dollars in thousands) |
|
Non-performing loans |
|
Foreclosed and repossessed asset
activity |
|
January 1, 2014 |
$17,496 |
January 1, 2014 |
$6,898 |
Classified as non-performing |
5,153 |
Transferred from non-performing loans |
114 |
Charge offs |
(1,215) |
Other foreclosures/repossessions |
28 |
Principal payments received |
(7,211) |
Real estate sold |
(4,891) |
Classified as accruing |
(3,189) |
Net gain on sale of assets |
1,449 |
Transferred to real estate owned |
(114) |
Write downs |
(495) |
December 31, 2014 |
$10,920 |
December 31, 2014 |
$3,103 |
|
|
The decrease in non-performing loans during 2014 relates
primarily to principal payments received. Of the $7.2 million
in principal payments received during the period, $2.5 million was
received on a residential development loan as settlement of the
outstanding debt, $1.7 million related to the payoff of
non-performing single family construction loans as a result of the
houses being sold, $1.2 million related to the payoff of two
non-performing one-to-four family loans that were refinanced with
other financial institutions, $0.6 million related to additional
principal payments received from various developers as a result of
land or lot sales, and $0.7 million related to the payoff of
non-performing commercial and commercial real estate
loans.
A reconciliation of the allowance for loan losses for 2014 and
2013 is summarized as follows:
|
(in thousands) |
2014 |
2013 |
Balance at January 1, |
$11,401 |
$21,608 |
Provision |
(6,998) |
(7,881) |
Charge offs: |
|
|
Commercial |
(56) |
(651) |
Commercial real estate |
(936) |
(3,711) |
Consumer |
(130) |
(484) |
Single family mortgage |
(93) |
(200) |
Recoveries |
5,144 |
2,720 |
Balance at December 31, |
$8,332 |
$11,401 |
|
|
|
General allowance |
$7,258 |
$7,623 |
Specific allowance |
1,074 |
3,778 |
|
$8,332 |
$11,401 |
|
Non-Interest Income and Expense
Non-interest income was $7.3 million for the year ended December
31, 2014, the same as for the year ended December 31,
2013. Gains on sales of loans decreased $0.3 million, or
13.0%, between the periods primarily because of a decrease in
single family loan originations and sales. Fees and service
charges decreased $0.1 million primarily because of a decrease in
retail overdraft fees and other charges between the
periods. Other non-interest income increased $0.3 million due
to increases in the sale of non-insured investment products and
rental income. Mortgage servicing fees increased $29,000 as a
result of servicing more commercial loans.
Non-interest expense was $21.4 million for the year ended
December 31, 2014, a decrease of $1.2 million, or 5.4%, from $22.6
million for the same period in 2013. Other non-interest
expenses decreased $1.2 million between the periods primarily
because of a decrease in legal and other costs associated with
loans and real estate owned. Deposit insurance expense
decreased $0.4 million because of a decrease in assets and
insurance rates between the periods. Gains on real estate
owned increased $0.4 million between the periods primarily because
of the significant gain realized on a commercial real estate
property that was sold in 2014. Data processing expense
decreased $0.3 million due to a decrease in hardware and software
depreciation expense between the periods. These decreases in
non-interest expense were partially offset by a $0.7 million
increase in compensation expense between the periods primarily
because of an increase in salaries and pension benefit
costs. Occupancy expense increased $0.4 million between
the periods due to an increase in the purchase of non-capitalized
items between the periods.
Income tax expense was $4.9 million for the year ended December
31, 2014, an increase of $19.3 million from $14.4 million income
tax benefit for the same period in 2013. In the second quarter
of 2010, the Company recorded a deferred tax asset valuation
reserve against its entire deferred tax asset balance and the
Company continued to maintain a valuation reserve against the
entire deferred tax asset balance until the fourth quarter of
2013. In the fourth quarter of 2013, the valuation reserve
against the deferred tax asset was eliminated which resulted in a
$14.4 million income tax benefit for 2013. Regular income tax
expense was recorded in 2014.
Net Income Available to Common Shareholders
Net income available to common shareholders was $5.7 million for
the year ended December 31, 2014, a decrease of $18.9 million from
the $24.6 million net income available to common shareholders for
the year ended December 31, 2013. Basic earnings per common
share for the year ended December 31, 2014 was $1.40, a decrease of
$4.75 from the basic earnings per common share of $6.15 for the
year ended December 31, 2013. Diluted earnings per common
share for the year ended December 31, 2014 was $1.23, a decrease of
$4.48 from the diluted earnings per common share of $5.71 for the
year ended December 31, 2013. The net income available to
common shareholders and the basic and diluted earnings per common
share decreased primarily because of the decrease in net income
between the periods as a result of the elimination of the deferred
tax asset valuation reserve in the fourth quarter of 2013. The
difference between basic and diluted earnings per common share is
related primarily to the dilution effect of the outstanding warrant
held by the U.S. Treasury to purchase 833,333 shares of the
Company's common stock at an exercise price of $4.68.
The Company paid the following dividends on, and effected the
following redemptions of, its Preferred Stock during 2014:
|
|
|
Date |
Dividend |
Redemption |
May 15, 2014 |
$201.71 per share |
10,000 shares of Preferred Stock on a
pro rata basis at $1,000 per share |
August 15, 2014 |
$22.50 per share |
None |
November 17, 2014 |
$22.50 per share |
6,000 shares of Preferred Stock on a
pro rata basis at $1,000 per share |
Following the redemption on November 17, 2014, 10,000 shares of
Preferred Stock remained outstanding. The Company did not pay any
dividends on the Preferred Stock or redeem any shares of Preferred
Stock in 2013.
On January 8, 2015, the Company announced that notice had been
given to holders of record of the Company's Preferred Stock of the
redemption of all 10,000shares of outstanding Preferred Stock. The
effective date of the redemption will be February 17,
2015. After giving effect to a dividend of $22.50 per share on
the Preferred Stock to be paid on the same date, the redemption
price per share will be $1,000. The record date for the redemption
and the dividend is January 6, 2015. The Preferred Stock was
originally issued by HMN to the U.S. Treasury through the Capital
Purchase Program established under the Troubled Asset Relief
Program and is currently held by unaffiliated third party
investors. The Preferred Stock redemption is being funded
through a $10 million term loan that will be evidenced by a
promissory note. The principal balance of the note will bear
interest at a rate of 6.5% and will be payable in consecutive
annual installments of $1 million on each December 15, beginning
December 15, 2015, with the balance due on December 15, 2021. The
Preferred Stock dividend is being funded through internally
available funds. HMN has requested and received all applicable
approvals from regulatory authorities to pay the Preferred Stock
dividend and effect the Preferred Stock redemption.
Return on Assets and Equity
Return on average assets (annualized) for 2014 was 1.21%,
compared to 4.55% for 2013. Return on average equity
(annualized) was 9.12% for 2014, compared to 42.22% for the same
period of 2013. Book value per common share at December 31,
2014 was $14.77, compared to $13.49 at December 31, 2013.
Annual Meeting Announcement
HMN announced that its annual meeting will be held at the
Rochester Golf and Country Club, located at 3100 West Country Club
Road, Rochester, Minnesota on Tuesday, April 28, 2015, at 10:00
a.m. local time. The Company's common stockholders at the close of
business on March 2, 2015, the record date, will be entitled to
vote at the annual meeting.
General Information
HMN Financial, Inc. and the Bank are headquartered in Rochester,
Minnesota. Home Federal Savings Bank operates eight full service
offices in Minnesota located in Albert Lea, Austin, Eagan, La
Crescent, Rochester (2), Spring Valley and Winona; one full service
office in Marshalltown, Iowa; two loan origination offices located
in Wauwatosa, Wisconsin and in Sartell, Minnesota; and two Private
Banking offices in Rochester, Minnesota.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are often
identified by such forward-looking terminology as "expect,"
"intend," "look," "believe," "anticipate," "estimate," "project,"
"seek," "may," "will," "would," "could," "should," "trend,"
"target," and "goal" or similar statements or variations of such
terms and include, but are not limited to, those relating to
increasing our core deposit relationships, improving credit
quality, reducing non-performing assets, reducing expense and
generating improved financial results; the adequacy and amount of
available liquidity and capital resources to the Bank; the
Company's liquidity and capital requirements; our expectations for
core capital and our strategies and potential strategies for
improvement thereof; changes in the size of the Bank's loan
portfolio; the amount of the Bank's non-performing assets and the
appropriateness of the allowance therefor; future losses on
non-performing assets; the amount and mix of interest-earning
assets; the amount and mix of brokered and other deposits; the
availability of alternate funding sources; the payment of dividends
by HMN, including Preferred Stock dividends; the future outlook for
the Company; the amount of deposits that will be withdrawn from
checking and money market accounts and how the withdrawn deposits
will be replaced; the projected changes in net interest income
based on rate shocks; the range that interest rates may fluctuate
over the next twelve months; the net market risk of interest rate
shocks; the future outlook for the issuer trust preferred
securities held by the Bank; the ability of the Bank to pay
dividends to HMN; redemption of the outstanding Preferred Stock;
the ability of HMN to repay the loan from Project Hawkeye, L.L.C.;
the ability to remain well capitalized under revised capital rules;
the expected impact of new Basel III and the Dodd Frank Act capital
standards on the Bank's and the Company's capital positions; and
compliance by the Company and the Bank with regulatory standards
generally (including the Bank's status as "well-capitalized") and
other supervisory directives or requirements to which the Company
or the Bank are or may become expressly subject, specifically, and
possible responses of the Office of the Comptroller of the Currency
(OCC), Federal Reserve Bank (FRB), the Bank, and the Company to any
failure to comply with any such regulatory standard, directive or
requirement.
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 the adequacy and marketability of
real estate and other collateral securing loans to borrowers;
federal and state regulation and enforcement; possible legislative
and regulatory changes, including changes to regulatory capital
rules; the ability of the Bank to comply with other applicable
regulatory capital requirements; enforcement activity of the OCC
and FRB in the event of our non-compliance with any applicable
regulatory standard or requirement; adverse economic, business and
competitive developments such as shrinking interest margins,
reduced collateral values, deposit outflows, changes in credit or
other risks posed by the Company's loan and investment portfolios,
changes in costs associated with alternate funding sources,
including changes in collateral advance rates and policies of the
Federal Home Loan Bank, technological, computer-related or
operational difficulties, results of litigation, and 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; international economic
developments; the Company's access to and adverse changes in
securities markets; the market for credit related assets; the
future operating results, financial condition, cash flow
requirements and capital spending priorities of the Company and the
Bank; the availability of internal and, as required, external
sources of funding; 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 Forms 10-K and 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. For additional discussion of the risks
and uncertainties applicable to the Company, see the "Risk Factors"
sections of the Company's Annual Report on Form 10-K for the year
ended December 31, 2013 and Part II, Item 1A of its subsequently
filed Quarterly Reports on Form 10-Q.
All statements in this press release, including forward-looking
statements, speak only as of the date they are made, and we
undertake no duty to update any of the forward-looking statements
after the date of this press release.
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Balance
Sheets |
|
|
|
|
|
December 31, |
December 31, |
(Dollars in thousands) |
2014 |
2013 |
|
(unaudited) |
|
Assets |
|
|
Cash and cash equivalents |
$ 46,634 |
120,686 |
Securities available for sale: |
|
|
Mortgage-backed and related securities
(amortized cost $2,755 and $4,899) |
2,909 |
5,213 |
Other marketable
securities (amortized cost $135,772 and $103,788) |
134,925 |
102,743 |
|
137,834 |
107,956 |
|
|
|
Loans held for sale |
2,076 |
1,502 |
Loans receivable, net |
365,113 |
384,615 |
Accrued interest receivable |
1,713 |
1,953 |
Real estate, net |
3,103 |
6,898 |
Federal Home Loan Bank stock, at cost |
777 |
784 |
Mortgage servicing rights, net |
1,507 |
1,708 |
Premises and equipment, net |
6,982 |
6,711 |
Prepaid expenses and other assets |
1,157 |
698 |
Deferred tax asset, net |
10,530 |
15,111 |
Total assets |
$ 577,426 |
648,622 |
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Deposits |
$ 496,750 |
553,930 |
Accrued interest payable |
93 |
146 |
Customer escrows |
788 |
614 |
Accrued expenses and other liabilities |
3,782 |
8,257 |
Total liabilities |
501,413 |
562,947 |
Commitments and contingencies |
|
|
Stockholders' equity: |
|
|
Serial-preferred stock: ($.01 par value)
Authorized 500,000 shares; issued shares 10,000 and 26,000 |
10,000 |
26,000 |
Common stock ($.01 par value):
Authorized 16,000,000; issued shares 9,128,662 |
91 |
91 |
Additional paid-in capital |
50,207 |
51,175 |
Retained earnings, subject to certain
restrictions |
77,805 |
72,211 |
Accumulated other comprehensive loss |
(418) |
(674) |
Unearned employee stock ownership plan
shares |
(2,610) |
(2,804) |
Treasury stock, at cost 4,658,323 and
4,704,313 shares |
(59,062) |
(60,324) |
Total stockholders' equity |
76,013 |
85,675 |
Total liabilities and stockholders'
equity |
$ 577,426 |
648,622 |
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Statements
of Comprehensive Income |
|
|
Three Months Ended |
Year Ended |
|
December 31, |
December 31, |
(Dollars in thousands, except per share
data) |
2014 |
2013 |
2014 |
2013 |
|
(unaudited) |
(unaudited) |
(unaudited) |
|
Interest income: |
|
|
|
|
Loans receivable |
$ 4,589 |
4,864 |
18,987 |
21,887 |
Securities available for sale: |
|
|
|
|
Mortgage-backed and related |
33 |
58 |
164 |
300 |
Other marketable |
380 |
171 |
1,269 |
614 |
Cash equivalents |
32 |
49 |
189 |
129 |
Other |
1 |
2 |
4 |
53 |
Total interest income |
5,035 |
5,144 |
20,613 |
22,983 |
|
|
|
|
|
Interest expense: |
|
|
|
|
Deposits |
274 |
378 |
1,211 |
1,804 |
Federal Home Loan Bank advances |
0 |
0 |
0 |
1,485 |
Total interest expense |
274 |
378 |
1,211 |
3,289 |
Net interest income |
4,761 |
4,766 |
19,402 |
19,694 |
Provision for loan losses |
(2,221) |
(3,031) |
(6,998) |
(7,881) |
Net interest income after provision for
loan losses |
6,982 |
7,797 |
26,400 |
27,575 |
|
|
|
|
|
Non-interest income: |
|
|
|
|
Fees and service charges |
831 |
912 |
3,458 |
3,513 |
Mortgage servicing fees |
271 |
257 |
1,058 |
1,029 |
Gain on sales of loans |
348 |
289 |
1,828 |
2,102 |
Other |
230 |
170 |
940 |
668 |
Total non-interest income |
1,680 |
1,628 |
7,284 |
7,312 |
|
|
|
|
|
Non-interest expense: |
|
|
|
|
Compensation and benefits |
3,388 |
3,492 |
13,332 |
12,680 |
Gains on real estate owned |
(64) |
(223) |
(1,194) |
(830) |
Occupancy |
1,037 |
795 |
3,691 |
3,338 |
Deposit insurance |
107 |
188 |
435 |
868 |
Data processing |
276 |
242 |
1,011 |
1,289 |
Other |
1,073 |
1,479 |
4,128 |
5,278 |
Total non-interest expense |
5,817 |
5,973 |
21,403 |
22,623 |
Income before income tax expense |
2,845 |
3,452 |
12,281 |
12,264 |
Income tax (benefit) expense |
1,167 |
(14,644) |
4,902 |
(14,406) |
Net income |
1,678 |
18,096 |
7,379 |
26,670 |
Preferred stock dividends and discount |
(293) |
(522) |
(1,710) |
(2,068) |
Net income available to
common shareholders |
$ 1,385 |
17,574 |
5,669 |
24,602 |
Other comprehensive income (loss), net of
tax |
(46) |
420 |
256 |
(625) |
Comprehensive income attributable to common
shareholders |
$ 1,339 |
17,994 |
5,925 |
23,977 |
Basic earnings per common share |
$ 0.34 |
4.37 |
1.40 |
6.15 |
Diluted earnings per common share |
$ 0.30 |
3.93 |
1.23 |
5.71 |
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Selected Consolidated
Financial Information |
(unaudited) |
|
Three Months Ended |
Year Ended |
SELECTED FINANCIAL DATA: |
December 31, |
December 31, |
(Dollars in thousands, except per share
data) |
2014 |
2013 |
2014 |
2013 |
I. OPERATING DATA: |
|
|
|
|
Interest income |
$ 5,035 |
5,144 |
20,613 |
22,983 |
Interest expense |
274 |
378 |
1,211 |
3,289 |
Net interest income |
4,761 |
4,766 |
19,402 |
19,694 |
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
Assets (1) |
591,047 |
586,875 |
610,501 |
586,396 |
Loans receivable, net |
364,343 |
380,546 |
369,571 |
408,384 |
Mortgage-backed and related securities
(1) |
130,858 |
96,389 |
123,210 |
92,915 |
Interest-earning assets (1) |
552,982 |
561,391 |
574,489 |
561,363 |
Interest-bearing liabilities |
499,145 |
507,474 |
518,851 |
514,474 |
Equity (1) |
76,186 |
67,270 |
80,904 |
63,171 |
|
|
|
|
|
III. PERFORMANCE RATIOS: (1) |
|
|
|
|
Return on average assets
(annualized) |
1.13% |
12.23% |
1.21% |
4.55% |
Interest rate spread information: |
|
|
|
|
Average during period |
3.39 |
3.34 |
3.36 |
3.45 |
End of period |
3.38 |
3.16 |
3.38 |
3.16 |
Net interest margin |
3.42 |
3.37 |
3.38 |
3.51 |
Ratio of operating expense to average
total assets (annualized) |
3.90 |
4.04 |
3.51 |
3.86 |
Return on average common equity
(annualized) |
8.74 |
106.72 |
9.12 |
42.22 |
Efficiency |
89.47 |
93.42 |
80.00 |
83.77 |
|
December 31, |
December 31, |
|
|
IV. ASSET QUALITY: |
2014 |
2013 |
|
|
Total non-performing assets |
$ 14,023 |
24,394 |
|
|
Non-performing assets to total
assets |
2.43% |
3.76% |
|
|
Non-performing loans to total loans
receivable, net |
2.99% |
4.55% |
|
|
Allowance for loan losses |
$ 8,332 |
11,401 |
|
|
Allowance for loan losses to total
assets |
1.44% |
1.76% |
|
|
Allowance for loan losses to total loans
receivable, net |
2.28 |
2.96 |
|
|
Allowance for loan losses to
non-performing loans |
76.30 |
65.17 |
|
|
|
|
|
|
|
V. BOOK VALUE PER COMMON SHARE: |
|
|
|
|
Book value per common share |
$ 14.77 |
13.49 |
|
|
|
Year Ended |
Year Ended |
|
|
VI. CAPITAL RATIOS: |
Dec 31, 2014 |
Dec 31, 2013 |
|
|
Stockholders' equity to total
assets, at end of period |
13.16% |
13.21% |
|
|
Average stockholders' equity to
average assets (1) |
13.25 |
10.77 |
|
|
Ratio of average interest-earning
assets to average interest-bearing liabilities (1) |
110.72 |
109.11 |
|
|
Home Federal Savings Bank
regulatory capital ratios: |
|
|
|
|
Tier 1 or core capital |
11.76% |
12.22% |
|
|
Risk-based capital |
18.47% |
20.78% |
|
|
|
December 31, |
December 31, |
|
|
|
2014 |
2013 |
|
|
VII. EMPLOYEE DATA: |
|
|
|
|
Number of full time
equivalent employees |
181 |
185 |
|
|
(1) Average balances were
calculated based upon amortized cost without the market value
impact of ASC 320. |
CONTACT: Bradley Krehbiel
Chief Executive Officer, President
HMN Financial, Inc. (507) 252-7169
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