Exhibit 99
HMN Financial, Inc. Announces Fourth Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--Jan. 22, 2004--HMN Financial,
Inc. (Nasdaq:HMNF):
Fourth Quarter Highlights
-- Net income of $2.1 million, up $1.0 million over fourth
quarter of 2002
-- Diluted earnings per share of $0.53, up $0.25 over the fourth
quarter of 2002
-- Commercial and consumer loan portfolios up $43 million in
fourth quarter of 2003
-- Net interest margin up 30 basis points from the fourth quarter
of 2002
-- Net interest income up $1.4 million, or 25.6%, over the fourth
quarter of 2002
Annual Highlights
-- Record net income of $8.6 million, up $3.3 million over 2002
-- Diluted earnings per share of $2.16, up $0.84 over 2002
-- Commercial and consumer loan portfolios up $148 million in
2003
-- Net interest margin up 12 basis points over 2002
-- Gain on sales of loans up $2.2 million, or 70.3%, over 2002
-- Net interest income up $3.1 million, or 14.3%, over 2002
EARNINGS SUMMARY Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
-------------------- --------------------
Net income $2,145,198 1,137,780 $8,605,247 5,265,656
Diluted earnings per
share $ 0.53 0.28 $ 2.16 1.32
Return on average assets 1.03 0.62 % 1.10 0.74 %
Return on average equity 10.45 5.81 % 10.85 6.94 %
Tangible book value per
share $ 16.23 15.68 $ 16.23 15.68
HMN Financial, Inc. (HMN) (Nasdaq:HMNF), the $866 million holding
company for Home Federal Savings Bank (the Bank), today reported net
income of $2.1 million for the fourth quarter of 2003, up $1.0
million, or 88.5%, from net income of $1.1 million for the fourth
quarter of 2002. Diluted earnings per common share for the fourth
quarter of 2003 were $0.53, up $0.25, from $0.28 for the fourth
quarter of 2002.
Fourth Quarter Results
Net Interest Income
Net interest income increased by $1.4 million, or 25.6%, to $6.8
million from $5.4 million for the fourth quarter of 2002. Interest
income was $11.9 million for the fourth quarter of 2003, an increase
of $1.3 million, or 12.7%, from $10.6 million for the same period in
2002. Interest income increased primarily due to the increase in
interest-earning assets and because of a change in the mix of assets
between the periods. The increase in interest-earning assets was
caused primarily by the $148 million increase in commercial and
consumer loans between the periods. The increase in interest income on
commercial and consumer loans was partially offset by lower income in
the investment and single-family loan portfolios due to a decrease in
the outstanding balances and lower interest rates of these assets
between the periods. Interest expense was $5.2 million for the fourth
quarter of 2003, a decrease of $37,000, or 0.7%, from $5.2 million for
the fourth quarter of 2002. Interest expense declined primarily due to
a decrease in the interest rates paid on deposits and Federal Home
Loan Bank advances and because of the $56 million increase in the
outstanding average balances of checking and money market accounts
between the periods, which generally have lower interest rates than
other deposit accounts.
Provision for Loan Losses
The provision for loan losses was $710,000 for the fourth quarter
of 2003, an increase of $135,000, or 23.5%, from $575,000 for the
fourth quarter of 2002. The provision for loan losses increased
primarily due to the $43 million in growth that was experienced in the
commercial and consumer loan portfolios during the fourth quarter of
2003. Commercial and consumer loans generally require a larger
provision due to the greater inherent credit risk of these loans.
Total non-performing assets were $5.0 million at December 31, 2003, an
increase of $131,000, or 2.7%, from the $4.9 million in non-performing
assets at December 31, 2002. Non-performing loans increased by $1.2
million, non-performing other assets decreased by $656,000, and
foreclosed and repossessed assets decreased by $395,000 between the
periods.
Non-Interest Income and Expense
Non-interest income was $1.9 million for the fourth quarter of
2003, an increase of $483,000, or 34.1%, from $1.4 million for the
fourth quarter of 2002. Non-interest income increased by $525,000
between the periods due to an increase in earnings from limited
partnership investments primarily because HMN's investment in a
limited partnership that invested in mortgage servicing rights was
dissolved in the second quarter of 2003. Fees and service charges
increased by $181,000 between the periods due to an overdraft
protection program that was implemented during the second quarter of
2003 and because of increases in the number of deposit accounts and
the fees charged. Mortgage servicing fees increased $89,000 between
the periods due to the increased size of the servicing portfolio.
Other income increased by $102,000 between the periods primarily
because of the decreased losses recognized on the sale of foreclosed
and repossessed assets and increased sales of uninsured investment
products. Gain on sale of loans decreased by $455,000 due to the
decreased mortgage loan activity in the fourth quarter of 2003 when
compared to the same period in 2002.
Non-interest expense was $4.9 million for the fourth quarter of
2003, an increase of $307,000, or 6.6%, from $4.6 million for the
fourth quarter of 2002. The increase was primarily due to an increase
of $277,000 in compensation and benefit costs due to additional
employees and annual payroll cost increases. Occupancy expense
increased by $126,000 between the periods primarily because of the
increased costs associated with maintaining additional facilities.
Data processing expense decreased $46,000 due to the renegotiation of
a service contract with a third party provider. Other expenses
decreased by $57,000 between the periods primarily due to decreased
costs caused by the lower mortgage loan activity. Income tax expense
increased by $412,000 between the periods due to increased taxable
income.
Return on Assets and Equity
Return on average assets for the fourth quarter of 2003 was 1.03%,
compared to 0.62% for the fourth quarter of 2002. Return on average
equity was 10.45% for the fourth quarter of 2003, compared to 5.81%
for the same quarter in 2002. Tangible book value per common share at
December 31, 2003 was $16.23, compared to $15.68 at December 31, 2002.
Annual Results
Net Income
Net income was $8.6 million for the year ended December 31, 2003,
an increase of $3.3 million, or 63.4%, compared to $5.3 million for
the year ended December 31, 2002. Diluted earnings per common share
for the year ended December 31, 2003 were $2.16, up $0.84, or 63.6%,
from $1.32 for the year ended December 31, 2002.
Net Interest Income
Net interest income increased by $3.1 million, or 14.3%, to $24.6
million from $21.5 million in 2002. Interest income was $44.9 million
for the year ended December 31, 2003, an increase of $2.0 million from
$42.9 million for the same period in 2002. Interest income increased
primarily because of an increase in interest-earning assets and
because of a change in the mix of assets between the periods. The
increase in interest-earning assets was caused primarily by the $148
million increase in the commercial and consumer loan portfolios
between the periods. These portfolios represented 61.3% of HMN's
outstanding loans at December 31, 2003. The increase in
interest-earning assets completely offset the decrease in the interest
rates earned on the assets between the periods. Interest expense was
$20.3 million for the year ended December 31, 2003, a decrease of $1.0
million, or 4.7%, from the $21.3 million for the same period in 2002.
Interest expense declined primarily because of a decrease in the rates
paid on deposits and Federal Home Loan Bank advances and because of a
$45 million increase in the outstanding average balances of checking
and money market accounts between the periods, which generally have
lower interest rates than other deposit accounts.
Provision for Loan Losses
The provision for loan losses was $2.6 million for the year ended
December 31, 2003, an increase of $234,000, or 9.8%, from $2.4 million
in 2002. The provision for loan losses increased primarily because of
the additional growth experienced in the commercial and consumer loan
portfolios during 2003 when compared to 2002. Commercial and consumer
loans generally require a larger provision due to the greater inherent
credit risk of these loans. Total non-performing assets were $5.0
million at December 31, 2003, an increase of $131,000, or 2.7%, from
the $4.9 million in non-performing assets at December 31, 2002.
Non-performing loans increased by $1.2 million, non-performing other
assets decreased by $656,000, and foreclosed and repossessed assets
decreased by $395,000 between the periods.
Non-Interest Income and Expense
Non-interest income was $10.3 million for the year ended December
31, 2003, an increase of $4.4 million, or 74.6%, from $5.9 million for
the same period in 2002. Non-interest income increased by $2.2 million
due to increased gains on the sale of single-family loans. Low
mortgage rates during 2003 resulted in higher loan originations than
in 2002 as consumers took advantage of the low interest rates to
purchase a home or refinance their existing home mortgage. The
majority of the single-family loans originated in 2003 were sold in
the secondary mortgage market. Gains on the sale of securities
increased by $852,000 between the periods as investments were sold to
fund a portion of the consumer and commercial loan growth that was
experienced during 2003. Fee and service charge income increased by
$581,000 between the periods due to an increase in the fees charged,
the services offered, and the number of deposit accounts maintained.
Mortgage servicing fees increased by $283,000 due to the increased
size of the servicing portfolio. Losses from limited partnerships
decreased by $416,000 between the years primarily because HMN's
investment in a limited partnership that invested in mortgage
servicing rights was dissolved in the second quarter of 2003.
Non-interest expense was $19.7 million for the year ended December
31, 2003, an increase of $1.8 million, or 10.1%, from $17.8 million
for the same period in 2002. The increase was primarily the result of
an $817,000 increase in the amortization of mortgage servicing rights
caused by the large number of loan prepayments in 2003. Compensation
and benefits expense increased by $663,000 primarily because of a
separation agreement with a former executive officer, additional
employees and annual payroll cost increases. Occupancy expense
increased by $314,000 due to the increased number of facilities
maintained during 2003. Income tax expense was $4.0 million for the
year ended December 31, 2003, an increase of $1.9 million, or 92.3%,
compared to $2.1 million for the same period in 2002. The increase in
income tax expense is primarily due to an increase in taxable income.
Return on Assets and Equity
Return on average assets for the year ended December 31, 2003 was
1.10%, compared to 0.74% for the same period in 2002. Return on
average equity was 10.85% for the year ended December 31, 2003,
compared to 6.94% for the same period in 2002.
President's Statement
"We continue to execute our business plan by changing the mix of
our assets and liabilities to improve net interest margin and increase
core earnings," said HMN President Michael McNeil. "This strategy
along with the growth that we experienced were significant factors in
improving net interest income by $3.1 million and earnings by $3.3
million during 2003."
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
Stewartville, Lake City, Byron and St. Cloud, Minnesota and in Cresco
and West Des Moines, Iowa. 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
HMN's financial expectations for earnings and revenues. A number of
factors could cause actual results to differ materially from HMN'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. Additional factors that may cause
actual results to differ from HMN's assumptions and expectations
include those set forth in HMN'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.
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
- ----------------------------------------------------------------------
December 31, December 31,
2003 2002
- ----------------------------------------------------------------------
Assets
Cash and cash equivalents.................. $ 30,496,823 27,729,007
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $13,707,005 and
$51,677,294)........................... 13,048,718 51,895,832
Other marketable securities (amortized
cost $91,035,285 and $67,282,379)..... 91,615,047 69,501,417
------------ ------------
104,663,765 121,397,249
------------ ------------
Loans held for sale........................ 6,542,824 15,126,509
Loans receivable, net...................... 688,951,119 533,905,652
Accrued interest receivable................ 3,462,221 3,050,636
Real estate, net........................... 73,271 426,691
Federal Home Loan Bank stock, at cost...... 10,004,400 11,880,500
Mortgage servicing rights, net............. 3,447,843 2,691,031
Premises and equipment, net................ 12,110,151 12,875,816
Investment in limited partnerships......... 617,042 862,666
Goodwill................................... 3,800,938 3,800,938
Core deposit intangible.................... 447,474 561,331
Prepaid expenses and other assets.......... 1,818,156 3,214,792
------------ ------------
Total assets........................... $866,436,027 737,522,818
============ ============
Liabilities and Stockholders' Equity
Deposits................................... $551,687,995 432,951,462
Federal Home Loan Bank advances............ 203,900,000 218,300,000
Accrued interest payable................... 766,837 849,427
Customer escrows........................... 22,457,671 707,213
Accrued expenses and other liabilities..... 6,952,600 7,614,406
Deferred tax liabilities................... 26,300 1,456,600
------------ ------------
Total liabilities...................... 785,791,403 661,879,108
------------ ------------
Commitments and contingencies
Minority interest.......................... (286,433) (420,846)
Stockholders' equity:
Serial preferred stock: ($.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................. 57,863,726 58,885,279
Retained earnings, subject to certain
restrictions.............................. 85,364,657 79,660,481
Accumulated other comprehensive income
(loss).................................... (50,725) 1,575,577
Unearned employee stock ownership plan
shares.................................... (4,738,084) (4,931,385)
Treasury stock, at cost 4,616,010 and
4,722,856 shares.......................... (57,599,804) (59,216,683)
------------ ------------
Total stockholders' equity............. 80,931,057 76,064,556
------------ ------------
Total liabilities and stockholders' equity. $866,436,027 737,522,818
============ ============
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
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Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
- ----------------------------------------------------------------------
Interest income:
Loans receivable.. $11,171,735 9,740,701 41,800,039 38,011,750
Securities
available for
sale:
Mortgage-backed
and related.... 96,848 206,997 272,253 1,704,248
Other marketable 543,231 467,524 2,386,590 2,420,317
Cash equivalents.. 30,289 84,105 128,948 382,021
Other............. 80,270 83,909 349,150 349,214
----------- ----------- ----------- -----------
Total interest
income......... 11,922,373 10,583,236 44,936,980 42,867,550
----------- ----------- ----------- -----------
Interest expense:
Deposits.......... 2,835,691 2,645,747 10,274,188 10,949,802
Federal Home Loan
Bank advances.... 2,329,989 2,557,039 10,014,865 10,345,102
----------- ----------- ----------- -----------
Total interest
expense........ 5,165,680 5,202,786 20,289,053 21,294,904
----------- ----------- ----------- -----------
Net interest
income......... 6,756,693 5,380,450 24,647,927 21,572,646
Provision for loan
losses............. 710,000 575,000 2,610,000 2,376,000
----------- ----------- ----------- -----------
Net interest
income after
provision for
loan losses.... 6,046,693 4,805,450 22,037,927 19,196,646
----------- ----------- ----------- -----------
Non-interest income:
Fees and service
charges.......... 691,495 510,841 2,304,090 1,723,117
Mortgage servicing
fees............. 281,697 193,143 998,200 715,074
Securities gains,
net.............. 41,308 0 1,274,537 422,346
Gain on sales of
loans............ 647,605 1,102,170 5,240,442 3,077,294
Earnings (losses)
in limited
partnerships..... 69,856 (455,410) (243,305) (659,378)
Other............. 166,612 64,598 681,518 596,117
----------- ----------- ----------- -----------
Total non-
interest income 1,898,573 1,415,342 10,255,482 5,874,570
----------- ----------- ----------- -----------
Non-interest
expense:
Compensation and
benefits......... 2,283,139 2,006,132 8,675,596 8,012,953
Occupancy......... 1,024,538 898,834 3,423,745 3,109,548
Federal deposit
insurance
premiums......... 17,686 17,828 72,524 74,108
Advertising....... 114,820 103,562 392,833 521,898
Data processing... 237,438 283,168 1,109,098 1,107,248
Amortization of
mortgage
servicing rights,
net of valuation
adjustments and
servicing costs.. 276,993 281,174 1,982,337 1,165,762
Other............. 974,268 1,031,482 3,997,243 3,857,117
----------- ----------- ----------- -----------
Total non-
interest
expense........ 4,928,882 4,622,180 19,653,376 17,848,634
----------- ----------- ----------- -----------
Income before
income tax
expense........ 3,016,384 1,598,612 12,640,033 7,222,582
Income tax expense.. 874,200 461,800 4,037,800 2,099,200
----------- ----------- ----------- -----------
Income before
minority
interest....... 2,142,184 1,136,812 8,602,233 5,123,382
Minority interest... (3,014) (968) (3,014) (142,274)
----------- ----------- ----------- -----------
Net income...... $ 2,145,198 1,137,780 8,605,247 5,265,656
=========== =========== =========== ===========
Basic earnings per
share.............. $ 0.55 0.30 2.26 1.40
=========== =========== =========== ===========
Diluted earnings per
share.............. $ 0.53 0.28 2.16 1.32
=========== =========== =========== ===========
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
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Three Months Twelve Months
SELECTED FINANCIAL DATA: Ended Ended
(dollars in thousand, except December 31 December 31,
per share data) 2003 2002 2003 2002
- ----------------------------------------------------------------------
I. OPERATING DATA:
Interest income.........$ 11,923 10,583 44,937 42,868
Interest expense........ 5,166 5,203 20,289 21,295
Net interest income..... 6,757 5,380 24,648 21,573
II. AVERAGE BALANCES:
Assets(1).............. 828,995 729,921 781,613 712,066
Loans receivable, net.. 674,561 515,701 615,553 479,157
Mortgage-backed and
related securities(1). 15,438 58,930 21,885 63,022
Interest-earning
assets(1)............. 791,154 690,947 743,892 675,555
Interest-bearing
liabilities........... 744,713 644,678 697,539 628,264
Equity(1).............. 81,412 77,673 79,324 75,880
III. PERFORMANCE RATIOS: (1)
Return on average
assets (annualized)... 1.03% 0.62% 1.10% 0.74%
Interest rate spread
information:
Average during
period............. 3.23 2.88 3.13 2.96
End of period....... 3.19 3.08 3.19 3.08
Net interest margin.... 3.39 3.09 3.31 3.19
Ratio of operating
expense to average
total assets
(annualized).......... 2.36 2.51 2.51 2.51
Return on average
equity (annualized)... 10.45 5.81 10.85 6.94
Efficiency............. 56.95 68.02 56.31 65.03
----------------------
Dec 31, Dec 31,
2003 2002
-----------------------
IV. ASSET QUALITY :
Total non-performing
assets................$ 5,038 4,907
Non-performing assets
to total assets....... 0.58% 0.67%
Total non-performing
loans................. 4,689 3,507
Non-performing loans to
total loans
receivable, net....... 0.68% 0.66%
Allowance for loan
losses................$ 6,940 4,824
Allowance for loan
losses to total assets 0.80% 0.65%
Allowance for loan
losses to total loans
receivable, net....... 1.01 0.90
Allowance for loan
losses to non-
performing loans...... 147.99 137.54
V. BOOK VALUE PER SHARE:
Book value per share...$ 17.93 17.28
Tangible book value per
share................. 16.23 15.68
-----------------------
Year Ended Year Ended
Dec 31, Dec 31,
2003 2002
-----------------------
VI. CAPITAL RATIOS :
Stockholders' equity to
total assets, at end
of period............. 9.34% 10.31%
Average stockholders'
equity to average
assets(1)............. 10.15 10.66
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities(1)........ 106.65 107.53
-----------------------
Dec 31, Dec 31,
2003 2002
-----------------------
VII. EMPLOYEE DATA:
Number of full time
equivalent employees.. 203 195
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(1) Average balances were calculated based upon amortized cost
without the market value impact of SFAS 115.
CONTACT: HMN Financial, Inc., Rochester
Michael McNeil, 507-535-1202