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Form 8-K HMN FINANCIAL INC For: Oct 20

October 21, 2015 10:02 AM EDT

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 20, 2015

 

HMN Financial, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware 

  

0-24100 

  

41-1777397 

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

1016 Civic Center Drive Northwest  

Rochester, Minnesota 

  

55901

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code (507) 535-1200

 

  

  

 
 

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions

 

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
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Item 2.02.        Results of Operation and Financial Condition.

 

On October 20, 2015, HMN Financial, Inc. (the “Company”) issued a press release (the “Press Release”) that included financial information for its quarter ended September 30, 2015. A copy of the Press Release is attached as Exhibit 99 to this Form 8-K and incorporated by reference into this Item 2.02. The information included in the Press Release is to be considered furnished under the Securities Exchange Act of 1934, as amended.

 

Item 9.01.        Financial Statements and Exhibits

 

          (d) Exhibits

 

Exhibit Number

Description

  99 Press Release dated October 20, 2015

 

 
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 SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

                                   
                                   

 

HMN Financial, Inc.

 

 

(Registrant) 

 

 

 

 

 

Date: October 21, 2015

/s/ Jon Eberle

 

     
     
     

 

Jon Eberle

 

 

Senior Vice President,

Chief Financial Officer and

Treasurer

 

 

 
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Index to Exhibits

 

 

Exhibit No.

Description

   
Exhibit 99    Press Release dated October 20, 2015

 

 

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Exhibit 99.1

 

 

NEWS RELEASE

CONTACT:

 

Bradley Krehbiel

      President and Chief Executive Officer
      HMN Financial, Inc. (507) 252-7169
      FOR IMMEDIATE RELEASE

 

 

HMN FINANCIAL, INC. ANNOUNCES THIRD QUARTER RESULTS

 

Third Quarter Summary

 

Net income of $0.8 million compared to net income of $1.5 million in third quarter of 2014

 

Diluted earnings per share of $0.18 compared to diluted earnings per share of $0.25 in
third quarter of 2014

 

Provision for loan losses of ($0.1) million, up $0.9 million from third quarter of 2014

 

Non-performing assets of $11.6 million, down $1.7 million from second quarter of 2015

 

Completed acquisition of certain assets and the assumption of certain liabilities of Kasson State Bank in third quarter of 2015

 

Total assets increased $55 million in the third quarter of 2015

 

Year to Date Summary

 

Net income of $1.9 million compared to net income of $5.7 million in first nine months of
2014

 

Diluted earnings per share of $0.38 compared to diluted earnings per share of $0.93 in first
nine months of 2014

 

Provision for loan losses of ($0.2) million, up $4.6 million from first nine months of 2014

 

Non-performing assets of $11.6 million, down $2.4 million from December 31, 2014

 

Total assets increased $42 million from December 31, 2014

 

   

Three Months Ended

   

Nine Months Ended

 

Net Income Summary

 

September 30,

   

September 30,

 

(Dollars in thousands, except per share amounts)

 

2015

   

2014

   

2015

   

2014

 

Net income

  $ 820       1,538     $ 1,866       5,700  

Net income available to common stockholders

    820       1,178       1,758       4,283  

Diluted earnings per share

    0.18       0.25       0.38       0.93  

Return on average assets

    0.53       1.01

%

    0.43       1.24

%

Return on average equity

    4.77       7.89

%

    3.61       9.24

%

Book value per common share

  $ 15.33       14.45     $ 15.33       14.45  

 

ROCHESTER, MINNESOTA, October 20, 2015 - HMN Financial, Inc. (HMN or the Company) (NASDAQ: HMNF), the $619 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $0.8 million for the third quarter of 2015, a decrease of $0.7 million compared to net income of $1.5 million for the third quarter of 2014. Net income available to common shareholders was $0.8 million for the third quarter of 2015, a decrease of $0.4 million from the net income available to common shareholders of $1.2 million for the third quarter of 2014. Diluted earnings per common share for the third quarter of 2015 was $0.18, a decrease of $0.07 from diluted earnings per common share of $0.25 for the third quarter of 2014. The decrease in net income for the third quarter of 2015 is due primarily to a $0.9 million increase in the provision for loan losses between the periods. The increase in the provision was primarily because there was more commercial loan growth and fewer credit rating upgrades in the third quarter of 2015 when compared to the third quarter of 2014. The loss on sale of real estate owned increased $0.2 million between the periods due to the write down of a commercial property as a result of obtaining an updated appraisal of the property. Gain on sales of loans decreased $0.2 million due to a decrease in the gains recognized on the sale of commercial government guaranteed loans between the periods. These decreases in net income were partially offset by a $0.6 million decrease in income tax expense due to the decreased income between the periods.

 

 
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On August 14, 2015, the Bank completed the acquisition of certain assets and assumption of certain liabilities of Kasson State Bank. The transaction increased the Bank’s total assets $52.8 million including increases in loans and investments of $24.1 million and $17.5 million, respectively. The Bank also assumed liabilities of $52.5 million, including $47.3 million of deposits. A gain on the transaction of $0.3 million was recorded during the quarter and the Bank continues to operate both of the Kasson State Bank locations acquired in the transaction as branches of Home Federal Savings Bank.

 

President’s Statement

“We are encouraged by the improving trends in our net operating results, asset growth, and the decline in our non-performing assets over the past several quarters,” said Bradley Krehbiel, President of HMN. “We continue to see our earnings normalize from the volatility experienced over the past several years and we are diligently working to prudently grow our loan portfolio in order to improve the financial performance of our core banking operations. We were also very excited to complete the Kasson State Bank transaction during the quarter and look forward to serving our new clients in the Kasson and surrounding communities for years to come.”

 

 

Third Quarter Results

 

Net Interest Income

Net interest income was $5.0 million for the third quarter of 2015, an increase of $0.2 million, or 3.3%, compared to $4.8 million for the third quarter of 2014. Interest income was $5.4 million for the third quarter of 2015, an increase of $0.3 million, or 5.0%, from $5.1 million for the same period of 2014. Interest income increased between the periods primarily because of a change in the mix of average interest-earning assets held, which resulted in an increase in the average yields earned between the periods. While the average interest-earning assets decreased $3.8 million between the periods, the average interest-earning assets held in lower yielding cash and investments decreased $38.2 million and the amount of average interest-earning assets held in higher yielding loans increased $34.4 million. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred primarily because of increased commercial loan originations between the periods and also because of the acquisition of loans from Kasson State Bank in the third quarter of 2015. The average yield earned on interest-earning assets was 3.72% for the third quarter of 2015, an increase of 21 basis points from 3.51% for the third quarter of 2014.

 

Interest expense was $0.4 million for the third quarter of 2015, an increase of $0.1 million, or 33.7%, compared to $0.3 million for the third quarter of 2014. Interest expense increased primarily because of the change in the mix of the average interest-bearing liabilities held, which resulted in an increase in the average rate paid between the periods. While the average interest-bearing liabilities increased $8.0 million between the periods, the amount held in higher rate borrowings increased $10.0 million, the average interest-bearing liabilities held in higher rate certificates of deposits decreased $11.1 million, and the amount of interest-bearing liabilities held in other lower rate deposit accounts increased $9.1 million. The increase in the average interest-bearing liabilities as a result of the deposits assumed in the Kasson State Bank transaction was almost entirely offset by decreases in the average deposit balances held between the periods by several large deposit customers due to changes in the cash needs of the customers. The increase in the average rates paid was primarily due to the $10.0 million holding company note payable that was funded in the first quarter of 2015 in connection with the redemption of all of the remaining Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”). Interest expense increases related to borrowing costs were partially offset by the lower interest rates paid on money market accounts and certificates of deposits between the periods. The decreased rates paid on these accounts were the result of the low interest rate environment that continued to exist during the third quarter of 2015. The average interest rate paid on interest-bearing liabilities was 0.30% for the third quarter of 2015, an increase of 7 basis points from the 0.23% average interest rate paid in the third quarter of 2014. Net interest margin (net interest income divided by average interest earning assets) for the third quarter of 2015 was 3.44%, an increase of 13 basis points, compared to 3.31% for the third quarter of 2014.

 

 
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Provision for Loan Losses

The provision for loan losses was ($0.1) million for the third quarter of 2015, an increase in the provision of $0.9 million, compared to ($1.0) million for the third quarter of 2014. The increase in the provision was primarily because there was more commercial loan growth and fewer credit rating upgrades in the third quarter of 2015 when compared to the third quarter of 2014. Total non-performing assets were $11.6 million at September 30, 2015, a decrease of $1.7 million, or 12.8%, from $13.3 million at June 30, 2015. Non-performing loans decreased $1.5 million and foreclosed and repossessed assets decreased $0.2 million during the third quarter of 2015. The non-performing loan and foreclosed and repossessed asset activity for the quarter was as follows:  

                     

(Dollars in thousands)                       

Non-performing loans

         

Foreclosed and repossessed assets

       

June 30, 2015

  $ 10,560    

June 30, 2015

  $ 2,730  

Classified as non-performing

    940    

Other foreclosures/repossessions

    239  

Charge offs

    (51 )  

Real estate sold

    (401 )

Principal payments received

    (2,073 )  

Net gain on sale of assets

    32  

Classified as accruing

    (185 )  

Write downs

    (206 )

Transfer to real estate owned

    (110 )  

Transfer from non-performing loans

    110  

September 30, 2015

  $ 9,081    

September 30, 2015

  $ 2,504  
                     

 

The decrease in non-performing loans during the third quarter of 2015 relates primarily to principal payments received during the period. Of the $2.1 million in principal payments received, $0.6 million related to the payoff of four construction loans as a result of home sales and $1.2 million related to the payments received on a commercial development loan from lot sale proceeds.

 

A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2015 and 2014 is summarized as follows:

 

   

Three months ended September 30,

 

(Dollars in thousands)

 

2015

   

2014

 

Balance at June 30,

  $ 8,402     $ 8,696  

Provision

    (56 )     (989 )

Charge offs:

               

Consumer

    (39 )     (15 )

Commercial business

    (1 )     (55 )

One-to-four family real estate

    (19 )     0  

Recoveries

    499       286  

Balance at September 30,

  $ 8,786     $ 7,923  
                 

Allocated to:

               

General allowance

  $ 7,875     $ 6,651  

Specific allowance

    911       1,272  
    $ 8,786     $ 7,923  
                 

  

 
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The following table summarizes the amounts and categories of non-performing assets (non-accrual loans and foreclosed and repossessed assets) in the Bank’s portfolio and loan delinquency information as of the two most recently completed quarters and December 31, 2014.

 

   

September 30,

   

June 30,

   

December 31,

 

(Dollars in thousands)

 

2015

   

2015

   

2014

 

Non-Performing Loans:

                       

One-to-four family real estate

  $ 1,621     $ 1,807     $ 1,564  

Commercial real estate

    6,617       7,999       8,750  

Consumer

    801       743       486  

Commercial business

    42       11       120  

Total

    9,081       10,560       10,920  
                         

Foreclosed and Repossessed Assets:

                       

One-to-four family real estate

    110       0       50  

Commercial real estate

    2,394       2,730       3,053  

Total non-performing assets

  $ 11,585     $ 13,290     $ 14,023  

Total as a percentage of total assets

    1.87

%

    2.36

%

    2.43

%

Total non-performing loans

  $ 9,081     $ 10,560     $ 10,920  

Total as a percentage of total loans receivable, net

    2.10

%

    2.87

%

    2.99

%

Allowance for loan losses to non-performing loans

    96.75

%

    79.57

%

    76.30

%

                         

Delinquency Data:

                       

Delinquencies (1)

                       

30+ days

  $ 1,778     $ 1,382     $ 1,682  

90+ days

    0       0       0  

Delinquencies as a percentage of loan portfolio (1)

                       

30+ days

    0.40

%

    0.36

%

    0.45

%

90+ days

    0.00

%

    0.00

%

    0.00

%

                         

(1) Excludes non-accrual loans.

 

The following table summarizes the number of lending relationships 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, 2014.     

 

(Dollars in thousands)

 

Property Type

 

# of

relationships

   

Principal

Amount of

Loans at

September 30,

2015

   

# of

relationships

   

Principal

Amount of

Loans at

June 30,

2015

   

# of

relationships

   

Principal

Amount of

Loans at

December 31,

2014

Developments/land

    3     $ 6,617       3     $ 7,999       3     $ 8,750    

 

The decrease in the non-performing commercial real estate loans from June 30, 2015 is due primarily to principal payments received on construction and development loans during the quarter as a result of various building lot sales.

 

Non-Interest Income and Expense

Non-interest income was $2.2 million for the third quarter of 2015, the same as for the third quarter of 2014. The Company recognized a gain of $0.3 million related to the Kasson State Bank acquisition that was completed in the third quarter of 2015. This increase in non-interest income was offset by a $0.2 million decrease in the gain on sales of loans between the periods and a decrease in fees and other income of $0.1 million between the periods. The decrease in the gain on sales of loans was primarily related to a decrease in the gains recognized on the sale of commercial government guaranteed loans between the periods due to a decrease in originations of these types of loans in the third quarter of 2015 when compared to the same period of 2014.

 

 
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Non-interest expense was $6.0 million for the third quarter of 2015, an increase of $0.5 million, or 10.0%, from $5.4 million for the same period of 2014. The loss on sale of real estate owned increased $0.2 million between the periods due to the write down of a commercial property as a result of obtaining an updated appraisal of the property. Compensation and benefits expense increased $0.1 million primarily because of an increase in incentive accruals due to increased commercial loan production. Other non-interest expenses increased $0.1 million between the periods primarily because of an increase in expenses related to the increased loan production and costs associated with a new travel club that was established in the third quarter of 2015. Deposit insurance expense increased $0.1 million between the periods due to the increase in the Bank’s assets between the periods.

 

Income tax expense was $0.5 million for the third quarter of 2015, a decrease of $0.6 million, from $1.1 million for the third quarter of 2014. The decrease in income tax expense between the periods is primarily related to the decrease in income in the third quarter of 2015 when compared to the third quarter of 2014.

 

Net Income Available to Common Shareholders

Net income available to common shareholders was $0.8 million for the third quarter of 2015, a decrease of $0.4 million from the $1.2 million net income available to common shareholders in the third quarter of 2014. The net income available to common shareholders decreased primarily because of the decrease in net income between the periods that was partially offset by a reduction in the dividends required to be paid on the outstanding Preferred Stock. On February 17, 2015 the Company redeemed the final 10,000 shares of its outstanding Preferred Stock and, as a result, no dividends are required to be paid on the Preferred Stock after that date.

 

Return on Assets and Equity

Return on average assets (annualized) for the third quarter of 2015 was 0.53%, compared to 1.01% for the third quarter of 2014. Return on average equity (annualized) was 4.77% for the third quarter of 2015, compared to 7.89% for the same period of 2014. Book value per common share at September 30, 2015 was $15.33, compared to $14.45 at September 30, 2014.

 

 

Nine Month Period Results

 

Net Income

Net income was $1.9 million for the nine-month period ended September 30, 2015, a decrease of $3.8 million, or 67.3%, compared to net income of $5.7 million for the nine-month period ended September 30, 2014. The net income available to common shareholders was $1.8 million for the nine-month period ended September 30, 2015, a decrease of $2.5 million, or 59.0%, compared to the net income available to common shareholders of $4.3 million for the same period of 2014. Diluted earnings per common share for the first nine months of 2015 was $0.38, a decrease of $0.55 per share compared to the diluted earnings per common share of $0.93 for the same period in 2014. The decrease in net income for the first nine months of 2015 as compared to the same period of 2014 is due primarily to a $4.5 million increase in the provision for loan losses. The increase in the provision was primarily because there was more commercial loan growth and fewer credit rating upgrades in the first nine months of 2015 when compared to the first nine months of 2014. The loss on sale of real estate owned increased $1.3 million due primarily to a large gain realized on the sale of a commercial property in the first nine months of 2014. Net interest income decreased $0.4 million between the periods primarily because of a decrease in the average interest earning assets between the periods. Compensation and benefits increased $0.3 million between the periods primarily because of increased expenses related to restricted stock awards. These decreases in net income were partially offset by a $2.6 million decrease in income tax expense due to the decreased income between the periods.

 

 
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Net Interest Income

Net interest income was $14.2 million for the first nine months of 2015, a decrease of $0.4 million, or 2.8%, from $14.6 million for the same period of 2014. Interest income was $15.3 million for the nine-month period ended September 30, 2015, a decrease of $0.2 million, or 1.5%, from $15.5 million for the same period of 2014. Interest income decreased between the periods primarily because of a decrease in the average interest earning assets held between the periods. This decrease was partially offset by an increase in average yields earned as a result of the change in the mix of assets held. While the average interest-earning assets decreased $34.0 million between the periods, the average interest-earning assets held in lower yielding cash and investment decreased $38.6 million and the amount of average interest-earning assets held in higher yielding loans increased $4.6 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in loan originations between the periods. The average yield earned on interest-earning assets was 3.75% for the first nine months of 2015, an increase of 17 basis points from 3.58% for the same period of 2014.

 

Interest expense was $1.1 million for the nine-month period ended September 30, 2015, an increase of $0.2   million, or 18.9%, from $0.9 million for the same period in 2014. Interest expense increased primarily because of the change in the mix of the average interest-bearing liabilities held, which resulted in an increase in the average rate paid between the periods. While the average interest-bearing liabilities decreased $22.5 million between the periods, the amount held in higher rate borrowings increased $8.7 million, the average interest-bearing liabilities held in higher rate certificates of deposits decreased $19.0 million, and the amount of interest-bearing liabilities held in other lower rate deposit accounts decreased $12.2 million between the periods. The increase in the average rates paid was primarily due to the $10.0 million holding company note payable that was funded in the first quarter of 2015 in connection with the final redemption of the outstanding Preferred Stock. Interest expense increases related to borrowing costs were partially offset by the lower interest rates paid on money market accounts and certificates of deposits between the periods. The decreased rates paid on these accounts were the result of the low interest rate environment that continued to exist during the first nine months of 2015. The average interest rate paid on interest-bearing liabilities was 0.30% for the first nine months of 2015, an increase of 6 basis points from the 0.24% average interest rate paid in the first nine months of 2014. Net interest margin (net interest income divided by average interest earning assets) for the first nine months of 2015 was 3.47%, an increase of 11 basis points, compared to 3.36% for the first nine months of 2014.

 

Provision for Loan Losses

The provision for loan losses was ($0.2) million for the first nine months of 2015, an increase of $4.6 million, from ($4.8) million for the same nine-month period of 2014. The increase in the provision for loan losses was primarily because there was more commercial loan growth and fewer credit rating upgrades in the first nine months of 2015 when compared to the same period of 2014. Total non-performing assets were $11.6 million at September 30, 2015, a decrease of $2.4 million, or 17.4%, from $14.0 million at December 31, 2014. Non-performing loans decreased $1.8 million and foreclosed and repossessed assets decreased $0.6 million during the first nine months of 2015. The non-performing loan and foreclosed and repossessed asset activity for the first nine months of 2015 was as follows:

 

  

(Dollars in thousands)                    

Non-performing loans

         

Foreclosed and repossessed asset activity

       

January 1, 2015

  $ 10,920    

January 1, 2015

  $ 3,103  

Classified as non-performing

    3,091    

Other foreclosures/repossessions

    239  

Charge offs

    (83 )  

Real estate sold

    (809 )

Principal payments received

    (4,537 )  

Net gain on sale of assets

    200  

Classified as accruing

    (200 )  

Write downs

    (339 )

Transfer to real estate owned

    (110 )  

Transfer from non-performing loans

    110  

September 30, 2015

  $ 9,081    

September 30, 2015

  $ 2,504  
                     

 

The decrease in non-performing loans during the first nine months of 2014 relates primarily to principal payments received. Of the $4.5 million in principal payments received during the period, $2.5 million related to construction loans to residential builders where the construction had been completed and the borrower paid off the loan from the home sale proceeds and $1.2 million related to the payments received on a commercial development loan from lot sale proceeds.

 

 
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A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2015 and 2014 is summarized as follows:

 

   

Nine months ended September 30,

 

(Dollars in thousands)

 

2015

   

2014

 

Balance at January 1,

  $ 8,332     $ 11,401  

Provision

    (239 )     (4,777 )

Charge offs:

               

One-to-four family

    (19 )     (92 )

Consumer

    (66 )     (75 )

Commercial business

    (7 )     (56 )

Commercial real estate

    0       (936 )

Recoveries

    785       2,458  

Balance at September 30,

  $ 8,786     $ 7,923  
                 

 

Non-Interest Income and Expense

Non-interest income was $5.7 million for the first nine months of 2015, an increase of $0.1 million, or 1.6%, from $5.6 million for the same period in 2014. The Bank recognized a gain of $0.3 million in connection with the acquisition of Kasson State Bank that was completed in the third quarter of 2015. This increase in non-interest income was offset by a $0.1 million decrease on the gain on sales of loans between the periods. The decrease in the gain on sales of loans was primarily related to a decrease in the gains recognized on the sale of commercial government guaranteed loans due to a decrease in originations of these types of loans between the periods.

 

Non-interest expense was $17.2 million for the first nine months of 2015, an increase of $1.6 million, or 10.4%, from $15.6 million for the same period in 2014. The loss on sale of real estate owned increased $1.3 million between the periods primarily because of a $1.0 million gain that was recognized on the sale of single commercial property in the first nine months of 2014. Compensation and benefits increased $0.3 million between the periods primarily because of increased expenses related to restricted stock awards and increased incentive accruals due to increased loan originations.

 

Income tax expense was $1.1 million for the first nine months of 2015, a decrease of $2.6 million, from $3.7 million for the same period in 2014. The decrease in income tax expense between the periods is primarily related to the decrease in income in the first nine months of 2015 when compared to the first nine months of 2014.

 

Net Income Available to Common Shareholders

The net income available to common shareholders was $1.8 million for the first nine months of 2015, a decrease of $2.5 million from the $4.3 million net income available to common shareholders in the same period of 2014. The net income available to common shareholders decreased primarily because of the decrease in net income between the periods that was partially offset by a reduction in the dividends required to be paid on the outstanding Preferred Stock. On February 17, 2015 the Company redeemed the final 10,000 shares of its outstanding Preferred Stock and, as a result, no dividends are required to be paid on the Preferred Stock after that date.

 

Return on Assets and Equity

            Return on average assets (annualized) for the nine-month period ended September 30, 2015 was 0.43%, compared to 1.24% for the same period in 2014. Return on average equity (annualized) was 3.61% for the nine-month period ended September 30, 2015, compared to 9.24% for the same period in 2014.

 

General Information

HMN Financial, Inc. and Home Federal Savings Bank are headquartered in Rochester, Minnesota. Home Federal Savings Bank operates twelve full service offices in Minnesota located in Albert Lea, Austin, Eagan, Kasson (2), La Crescent, Rochester (4), Spring Valley and Winona; one full service office located in Marshalltown, Iowa; three loan origination offices located in Delafield, Wisconsin, Sartell, Minnesota, and Owatonna, Minnesota.

 

 
7

 

  

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, becoming more efficient 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; improvements in loan production; 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; our ability to integrate the Kasson State Bank operations; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and mix of interest-earning assets; the amount and mix of deposits; the availability of alternate funding sources; the payment of dividends by HMN, the future outlook for the Company; the amount of dividends paid by the FHLB on its stock; 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; the ability of HMN to pay the principal and interest payments on its third party note payable; the ability to remain well capitalized under revised capital rules; the impact of Basel III and the Dodd Frank Act capital standards on the Bank’s capital position; and compliance by 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), Board of Governors of the Federal Reserve System (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 additional 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; 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; acquisition integration costs; 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, 2014 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.

(Three pages of selected consolidated financial information are included with this release.)

***END***

 

 
8

 

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

   

September 30,

   

December 31,

 

(Dollars in thousands)

 

2015

   

2014

 
   

(unaudited)

         

Assets

               

Cash and cash equivalents

  $ 10,359       46,634  

Securities available for sale:

               

Mortgage-backed and related securities (amortized cost $6,979 and $2,755)

    7,080       2,909  

Other marketable securities (amortized cost $138,254 and $135,772)

    138,258       134,925  
      145,338       137,834  
                 

Loans held for sale

    5,153       2,076  

Loans receivable, net

    432,174       365,113  

Accrued interest receivable

    2,162       1,713  

Real estate, net

    2,504       3,103  

Federal Home Loan Bank stock, at cost

    691       777  

Mortgage servicing rights, net

    1,446       1,507  

Premises and equipment, net

    7,426       6,982  

Core deposit intangible

    411       0  

Prepaid expenses and other assets

    1,040       1,157  

Deferred tax asset, net

    10,213       10,530  

Total assets

  $ 618,917       577,426  
                 

Liabilities and Stockholders’ Equity

               

Deposits

  $ 531,586       496,750  

Other borrowings

    10,000       0  

Accrued interest payable

    252       93  

Customer escrows

    1,274       788  

Accrued expenses and other liabilities

    7,095       3,782  

Total liabilities

    550,207       501,413  

Commitments and contingencies

               

Stockholders’ equity:

               

Serial preferred stock ($.01 par value): authorized 500,000 shares; issued and outstanding shares 0 and 10,000

    0       10,000  

Common stock ($.01 par value): authorized 16,000,000; issued shares 9,128,662

    91       91  

Additional paid-in capital

    50,314       50,207  

Retained earnings, subject to certain restrictions

    79,446       77,805  

Accumulated other comprehensive income (loss), net of tax

    63       (418 )

Unearned employee stock ownership plan shares

    (2,465 )     (2,610 )

Treasury stock, at cost 4,645,769 and 4,658,323 shares

    (58,739 )     (59,062 )

Total stockholders’ equity

    68,710       76,013  

Total liabilities and stockholders’ equity

  $ 618,917       577,426  

 

 
9

 

  

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited)

 

    Three Months Ended     Nine Months Ended  

 

 

September 30,

   

September 30,

 
(Dollars in thousands, except per share data)     2015       2014       2015       2014  
Interest income:                                

Loans receivable

  $ 4,860       4,669       13,751       14,398  

Securities available for sale:

                               

Mortgage-backed and related

    35       38       87       131  

Other marketable

    468       378       1,455       889  

Cash equivalents

    26       45       48       157  

Other

    1       1       3       3  

Total interest income

    5,390       5,131       15,344       15,578  
                                 

Interest expense:

                               

Deposits

    231       297       705       937  

Federal Home Loan Bank advances

    0       0       1       0  

Other borrowings

    166       0       408       0  

Total interest expense

    397       297       1,114       937  

Net interest income

    4,993       4,834       14,230       14,641  

Provision for loan losses

    (56 )     (989 )     (239 )     (4,777 )

Net interest income after provision for loan losses

    5,049       5,823       14,469       19,418  
                                 

Non-interest income:

                               

Fees and service charges

    863       903       2,489       2,627  

Mortgage servicing fees

    262       263       778       787  

Gain on sales of loans

    613       804       1,428       1,480  

Gain on acquisition

    289       0       289       0  

Other

    204       224       708       710  

Total non-interest income

    2,231       2,194       5,692       5,604  
                                 

Non-interest expense:

                               

Compensation and benefits

    3,299       3,193       10,285       9,944  

Losses (gains) on real estate owned

    168       (78 )     121       (1,130 )

Occupancy

    936       896       2,741       2,654  

Deposit insurance

    125       74       269       328  

Data processing

    254       240       753       735  

Other

    1,187       1,100       3,031       3,055  

Total non-interest expense

    5,969       5,425       17,200       15,586  

Income before income tax expense

    1,311       2,592       2,961       9,436  

Income tax expense

    491       1,054       1,095       3,736  

Net income

  $ 820       1,538       1,866       5,700  

Preferred stock dividends

    0       (360 )     (108 )     (1,417 )

Net income for common shareholders

    820       1,178       1,758       4,283  

Other comprehensive income (loss), net of tax

    275       (70 )     481       302  

Comprehensive income attributable to common shareholders

  1,095       1,108       2,239       4,585  

Basic earnings per common share

  $ 0.20       0.29       0.43       1.06  

Diluted earnings per common share

  $ 0.18       0.25       0.38       0.93  

  

 
10

 

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

Selected Consolidated Financial Information

(unaudited)

 

   

Three Months Ended

 

Nine Months Ended

 

SELECTED FINANCIAL DATA:

 

September 30,

 

September 30,

 

(Dollars in thousands, except per share data)

 

2015

 

2014

 

2015

 

2014

 

I.   OPERATING DATA:

                 

      Interest income

$

5,390

 

5,131

 

15,344

 

15,578

 

      Interest expense

 

397

 

297

 

1,114

 

937

 

      Net interest income

 

4,993

 

4,834

 

14,230

 

14,641

 
                   

II.   AVERAGE BALANCES:

                 

       Assets (1)

 

608,750

 

612,851

 

579,833

 

617,057

 

       Loans receivable, net

 

395,447

 

362,362

 

374,921

 

371,333

 

       Securities available for sale (1)

 

131,232

 

137,503

 

139,851

 

120,632

 

       Interest-earning assets (1)

 

575,361

 

579,119

 

547,690

 

581,737

 

       Interest-bearing liabilities

 

532,554

 

524,573

 

502,944

 

525,491

 

       Equity (1)

 

68,169

 

78,171

 

69,043

 

82,493

 

 

                 

III.  PERFORMANCE RATIOS: (1)

                 

Return on average assets (annualized)

 

0.53

%

1.01

%

0.43

%

1.24

%

Interest rate spread information:

                 

        Average during period

 

3.42

 

3.29

 

3.45

 

3.34

 

        End of period

 

3.91

 

3.34

 

3.91

 

3.34

 

Net interest margin

 

3.44

 

3.31

 

3.47

 

3.36

 

Ratio of operating expense to average total assets (annualized)

 

3.89

 

3.55

 

3.97

 

3.38

 

Return on average equity (annualized)

 

4.77

 

7.89

 

3.61

 

9.24

 

Efficiency

 

82.63

 

77.20

 

86.34

 

76.99

 

 

   

September 30,

   

December 31,

   

September 30,

 
   

2015

   

2014

   

2014

 

IV.   ASSET QUALITY:

                       

Total non-performing assets

  $ 11,585       14,023       13,839  

Non-performing assets to total assets

    1.87

%

    2.43

%

    2.33

%

Non-performing loans to total loans receivable, net

    2.10       2.99       2.84  

Allowance for loan losses

  $ 8,786       8,332       7,923  

Allowance for loan losses to total assets

    1.42

%

    1.44

%

    1.33

%

Allowance for loan losses to total loans receivable, net

    2.03       2.28       2.17  

Allowance for loan losses to non-performing loans

    96.75       76.30       76.23  
                         

V.   BOOK VALUE PER SHARE:

                       

Book value per common share

  $ 15.33       14.77       14.45  

 

   

Nine Months

   

Year

   

Nine Months

 
   

Ended

   

Ended

   

Ended

 
   

Sept 30, 2015

   

Dec 31, 2014

   

Sept 30, 2014

 

VI.  CAPITAL RATIOS:

                       

Stockholders’ equity to total assets, at end of period

    11.10

%

    13.16

%

    13.56

%

Average stockholders’ equity to average assets (1)

    11.91       13.25       13.37  

Ratio of average interest-earning assets to average interest-bearing liabilities (1)

    108.90       110.72       110.70  

Home Federal Savings Bank regulatory capital ratios:

                       

Tier I or core capital

    11.45       11.76       11.65  

Risk-based capital

    15.31       18.47       18.09  

 

   

September 30,

   

December 31,

   

September 30,

 
   

2015

   

2014

   

2014

 

VII.  EMPLOYEE DATA:

                       

Number of full time equivalent employees

    182       181       185  
     
 

(1)

Average balances were calculated based upon amortized cost without the market value impact of ASC 320.

 

 

11

 

 



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