Exhibit 99
HMN Financial, Inc. Announces Second Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--July 22, 2004--HMN Financial,
Inc. (HMN) (Nasdaq:HMNF):
Second Quarter Highlights
-- Diluted earnings per share up $0.10, or 19.2%, over second
quarter of 2003
-- Net interest income up $1.4 million, or 24.3%, over second
quarter of 2003
-- Loan sale gains down $1.0 million, or 66.8%, from second
quarter of 2003
-- Amortization of mortgage servicing rights down $806,000, or
72.7%, from second quarter of 2003
Year to Date Highlights
-- Diluted earnings per share up $0.26, or 29.9%, over first six
months of 2003
-- Net interest income up $3.2 million, or 27.6%, over first six
months of 2003
-- Loan sale gains down $2.1 million, or 69.3%, from first six
months of 2003
-- Amortization of mortgage servicing rights down $1.3 million,
or 70.7%, over first six months of 2003
EARNINGS SUMMARY Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
----------- ---------- ----------- ----------
Net Income $2,497,160 2,030,228 $4,617,620 3,419,768
Diluted earnings per
share 0.62 0.52 1.13 0.87
Return on average assets 1.12% 1.06% 1.04% 0.91%
Return on average equity 12.06% 10.45% 11.14% 8.84%
Book value per share $18.20 $17.44 $18.20 $17.44
HMN Financial, Inc. (HMN) (Nasdaq:HMNF), the $914 million holding
company for Home Federal Savings Bank (the Bank), today reported net
income of $2.5 million for the second quarter of 2004, up $467,000, or
23.0%, from net income of $2.0 million for the second quarter of 2003.
Diluted earnings per common share for the second quarter of 2004 were
$0.62, up $0.10, from $0.52 for the second quarter of 2003.
Second Quarter Results
Net Interest Income
Net interest income was $7.3 million for the second quarter of
2004, an increase of $1.4 million, or 24.3%, compared to $5.9 million
for the second quarter of 2003. Interest income was $12.4 million for
the second quarter of 2004, an increase of $1.4 million, or 12.6%,
from $11.0 million for the same period in 2003. 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 $120
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 on the single-family loan portfolio
due to a decrease in the outstanding balance and lower interest rates
of this portfolio in the second quarter of 2004 when compared to the
same period of 2003. Interest expense was $5.1 million for the second
quarter of 2004, a decrease of $48,000, or 0.9%, compared to $5.1
million for the second quarter of 2003. Interest expense on deposits
and Federal Home Loan Bank advances decreased primarily because of a
decrease in the interest rates paid. The decrease in the interest
rates paid is primarily the result of the $84 million in growth that
was experienced in checking and money market accounts, which generally
have lower interest rates than other deposit accounts.
Provision for Loan Losses
The provision for loan losses was $447,000 for the second quarter
of 2004, a decrease of $43,000, or 8.8%, from $490,000 for the second
quarter of 2003. The provision for loan losses decreased primarily
because of the slower loan growth that was experienced in the consumer
and commercial loan portfolios in the second quarter of 2004 when
compared to the second quarter of 2003. Total non-performing assets
were $3.5 million at June 30, 2004, a decrease of $602,000, or 14.8%,
from $4.1 million at March 31, 2004. The decrease in non-performing
assets is primarily related to consumer loans that became accruing
during the quarter.
Non-Interest Income and Expense
Non-interest income was $1.7 million for the second quarter of
2004, a decrease of $1.0 million, or 37.6%, from $2.7 million for the
same period in 2003. Non-interest income decreased by $223,000 because
of the lower gains recognized on the sale of securities during the
second quarter of 2004 when compared to the same quarter in 2003.
Gains on sales of loans decreased by $1.0 million due to the
significant decrease in mortgage loan activity in the second quarter
of 2004 when compared to the same period in 2003. These decreases in
non-interest income were partially offset by an increase of $150,000
in fees and service charges between the periods due to an increase in
the number of deposit accounts and the fees charged. Mortgage
servicing fees increased by $52,000 because of the increased size of
the servicing portfolio and other non-interest income increased by
$68,000 primarily because of increased revenues from the sale of
uninsured investment products.
Non-interest expense was $5.0 million for the second quarter of
2004, a decrease of $184,000, or 3.5%, from $5.2 million for the same
period of 2003. Amortization expense on mortgage servicing rights
decreased by $806,000 between the quarters because of a decrease in
the prepayments on the mortgage loans being serviced. Data processing
costs decreased by $61,000 primarily because of the renegotiation of a
third party service contract in the fourth quarter of 2003.
Compensation expense increased by $554,000 primarily because of an
increase in the number of employees and because of annual increases in
payroll and employee benefit costs. Occupancy expense increased by
$102,000 primarily because of increases in real estate taxes on
existing facilities. Income tax expense increased by $188,000 between
the periods primarily because of increased taxable income.
Return on Assets and Equity
Return on average assets for the second quarter of 2004 was 1.12%,
compared to 1.06% for the second quarter of 2003. Return on average
equity was 12.06% for the second quarter of 2004, compared to 10.45%
for the same quarter in 2003. Book value per common share at June 30,
2004 was $18.20, compared to $17.44 at June 30, 2003.
Six Month Period Results
Net Income
Net income was $4.6 million for the six month period ended June
30, 2004, an increase of $1.2 million, or 35.0%, compared to $3.4
million for the six month period ended June 30, 2003. Diluted earnings
per share for the six month period in 2004 were $1.13, up $0.26, or
29.9%, from $0.87 for the same six month period in 2003.
Net Interest Income
Net interest income was $14.6 million for the first six months of
2004, an increase of $3.2 million, or 27.6%, from $11.4 million for
the same period in 2003. Interest income was $24.8 million for the six
month period ended June 30, 2004, an increase of $3.3 million, or
15.2%, from $21.5 million for the same six month period in 2003.
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 $120 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 on
the single-family loan portfolio in the first six months of 2004 when
compared to the same period in 2003. Interest expense was $10.2
million for the six month period ended June 30, 2004, an increase of
$121,000, or 1.2%, compared to $10.1 million for the same period of
2003. Interest expense on deposits and Federal Home Loan Bank advances
decreased by $2.1 million due to a decline in the interest rates paid
and increased by $2.2 million due to the $137 million increase in the
average outstanding balance of deposits and advances between the
periods.
Provision for Loan Losses
The provision for loan losses was $1.3 million for the six month
period of 2004, a decrease of $89,000, from $1.4 million for the same
six month period in 2003. The provision for loan losses decreased
primarily because of the slower loan growth that was experienced in
the commercial and consumer loan portfolios during the first six
months of 2004 when compared to the same period of 2003. Total
non-performing assets were $3.5 million at June 30, 2004, a decrease
of $1.5 million, or 31.1%, from $5.0 million at December 31, 2003. The
decrease in non-performing assets was primarily due to the payoff of a
commercial real estate loan and a reduction in non-performing consumer
loans during the first six month of 2004.
Non-Interest Income and Expense
Non-interest income was $3.2 million for the first six months of
2004, a decrease of $2.1 million, or 38.9%, from $5.3 million for the
same period in 2003. Non-interest income decreased by $814,000 because
of lower gains on the sales of securities. Gains on sales of loans
decreased by $2.1 million due to the significant decrease in mortgage
loan activity in the first six months of 2004 when compared to the
same period of 2003. These decreases in non-interest income were
partially offset by the $310,000 decrease in limited partnership
losses because HMN's investment in a limited partnership that invested
in mortgage servicing rights was dissolved in the second quarter of
2003. Interest rates on mortgage loans decreased during the first six
months of 2003 which caused the value of HMN's investment in a limited
partnership that owned mortgage loan servicing assets to decrease in
value during the first six months of 2003. The value of servicing
rights generally decreases when mortgage rates decrease because of the
anticipated increase in prepayments expected to be received on the
mortgage servicing assets. Fees and service charges increased by
$286,000 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 by $122,000 due to the increased
size of the servicing portfolio between the periods. Other
non-interest income increased by $122,000 primarily because of
increased revenues from the sale of uninsured investment products.
Non-interest expense was $9.9 million for the first six months of
2004, a decrease of $471,000, or 4.5%, from $10.4 million for the same
period in 2003. Amortization expense on mortgage servicing rights
decreased by $1.3 million because of a decrease in the prepayments on
the mortgage loans being serviced. Data processing costs decreased by
$141,000 primarily because of the renegotiation of a third party
service contract in the fourth quarter of 2003. Compensation expense
increased by $803,000 because of an increase in the number of
employees and because of annual payroll and benefit cost increases.
Occupancy expense increased by $162,000 primarily because of increases
in real estate taxes on existing facilities. Income tax expense
increased by $474,000 between the periods primarily because of
increased taxable income.
Return on Assets and Equity
Return on average assets for the six month period ended June 30,
2004 was 1.04%, compared to 0.91% for the same period in 2003. Return
on average equity was 11.14% for the six-month period ended in 2004,
compared to 8.84% for the same period in 2003.
President's Statement
"I am pleased to report the continued improved financial results
during the first six months of 2004 despite the significant decrease
in the gains recognized on the sales of mortgage loans", said HMN
President Michael McNeil "HMN continues to grow and change the mix of
both its assets and liabilities. These changes have improved the
profitability of HMN's core business which resulted in quarterly and
six month diluted earnings per share increases over the prior year of
$0.10 and $0.26, respectively."
General Information
HMN Financial, Inc. and Home Federal Savings Bank are
headquartered in Rochester, Minnesota. The Bank operates nine full
service offices in southern Minnesota located in Albert Lea, Austin,
LaCrescent, Rochester, Spring Valley and Winona and two full service
offices in Iowa located in Marshalltown and Toledo. Home Federal
Savings Bank also operates loan origination offices located in
Stewartville, Lake City and St. Cloud, Minnesota and West Des Moines,
Iowa. Eagle Crest Capital Bank, a division of Home Federal Savings
Bank, operates branch offices in Edina and Rochester, Minnesota.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include, but are not limited to those relating to
HMN's financial expectations for earnings and revenues. A number of
factors could cause actual results to differ materially from HMN's
assumptions and expectations. These factors include possible
legislative changes and adverse economic, business and competitive
developments such as shrinking interest margins; deposit outflows;
reduced demand for financial services and loan products; changes in
accounting policies and guidelines. Additional factors that may cause
actual results to differ from HMN's assumptions and expectations
include those set forth in HMN's most recent filings with the
Securities and Exchange Commission. All forward-looking statements are
qualified by, and should be considered in conjunction with, such
cautionary statements.
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
- ----------------------------------------------------------------------
June 30, December 31,
2004 2003
- ----------------------------------------------------------------------
Assets
Cash and cash equivalents...................$ 41,638,817 30,496,823
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $10,668,580 and
$13,707,005)............................ 9,882,177 13,048,718
Other marketable securities (amortized
cost $100,739,558 and $91,035,285)..... 99,947,189 91,615,047
------------ ------------
109,829,366 104,663,765
------------ ------------
Loans held for sale......................... 3,766,543 6,542,824
Loans receivable, net....................... 722,800,277 688,951,119
Accrued interest receivable................. 3,530,635 3,462,221
Real estate, net............................ 254,869 73,271
Federal Home Loan Bank stock, at cost....... 9,938,200 10,004,400
Mortgage servicing rights, net.............. 3,335,516 3,447,843
Premises and equipment, net................. 12,454,962 12,110,151
Investment in limited partnerships.......... 181,258 617,042
Goodwill.................................... 3,800,938 3,800,938
Core deposit intangible..................... 390,546 447,474
Prepaid expenses and other assets........... 1,519,082 2,108,575
Deferred tax assets......................... 656,800 0
------------ ------------
Total assets............................$914,097,809 866,726,446
============ ============
Liabilities and Stockholders' Equity
Deposits....................................$627,304,925 551,687,995
Federal Home Loan Bank advances............. 198,900,000 203,900,000
Accrued interest payable.................... 857,492 766,837
Advance payments by borrowers for taxes and
insurance.................................. 878,094 22,457,671
Accrued expenses and other liabilities...... 5,028,548 6,952,600
Deferred tax liabilities.................... 0 26,300
------------ ------------
Total liabilities....................... 832,969,059 785,791,403
------------ ------------
Commitments and contingencies...............
Minority interest........................... 1,698 3,986
Stockholders' equity:
Serial preferred stock ($.01 par value):
Authorized 500,000 shares; issued and
outstanding 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.................. 57,673,514 57,863,726
Retained earnings, subject to certain
restrictions............................... 88,424,074 85,364,657
Accumulated other comprehensive loss........ (1,021,573) (50,725)
Unearned employee stock ownership plan
shares..................................... (4,641,172) (4,738,084)
Treasury stock, at cost 4,671,798 and
4,616,010 shares........................... (59,399,078) (57,599,804)
------------ ------------
Total stockholders' equity.............. 81,127,052 80,931,057
------------ ------------
Total liabilities and stockholders' equity..$914,097,809 866,726,446
============ ============
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HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ------------ ------------
Interest income:
Loans receivable.$11,486,417 10,243,717 22,977,681 19,883,641
Securities
available for
sale:
Mortgage-
backed and
related...... 92,428 (39,454) 211,292 102,759
Other
marketable... 766,391 690,848 1,449,798 1,252,067
Cash equivalents. 40,042 56,980 66,340 85,897
Other............ 41,398 84,033 77,820 182,684
----------- ----------- ------------ ------------
Total interest
income....... 12,426,676 11,036,124 24,782,931 21,507,048
----------- ----------- ------------ ------------
Interest expense:
Deposits......... 2,894,319 2,492,554 5,824,353 4,963,817
Federal Home Loan
Bank advances... 2,165,680 2,615,630 4,354,635 5,094,302
----------- ----------- ------------ ------------
Total interest
expense...... 5,059,999 5,108,184 10,178,988 10,058,119
----------- ----------- ------------ ------------
Net interest
income....... 7,366,677 5,927,940 14,603,943 11,448,929
Provision for loan
losses............. 447,000 490,000 1,266,000 1,355,000
----------- ----------- ------------ ------------
Net interest
income after
provision
For loan
losses..... 6,919,677 5,437,940 13,337,943 10,093,929
----------- ----------- ------------ ------------
Non-interest income:
Fees and service
charges......... 704,651 555,036 1,273,201 987,176
Mortgage
servicing fees.. 290,849 238,729 578,080 455,305
Securities gains,
net............. 1,361 224,751 1,361 815,786
Gains on sales of
loans........... 506,862 1,526,558 919,231 2,991,790
Earnings (losses)
in limited
partnerships.... (6,500) 31,528 (13,117) (323,314)
Other............ 183,048 114,694 457,797 335,794
----------- ----------- ------------ ------------
Total non-
interest
income....... 1,680,271 2,691,296 3,216,553 5,262,537
----------- ----------- ------------ ------------
Non-interest
expense:
Compensation and
benefits........ 2,581,764 2,027,572 5,110,242 4,307,074
Occupancy........ 871,170 769,518 1,755,772 1,593,317
Federal deposit
insurance
premiums........ 27,794 17,855 46,499 36,791
Advertising...... 87,850 100,988 175,396 185,852
Data processing.. 228,721 289,938 419,286 561,046
Amortization of
mortgage
servicing
rights, net of
valuation
adjustments and
servicing costs. 302,184 1,108,101 555,633 1,898,631
Other............ 897,762 867,136 1,860,336 1,811,687
----------- ----------- ------------ ------------
Total non-
interest
expense...... 4,997,245 5,181,108 9,923,164 10,394,398
----------- ----------- ------------ ------------
Income before
income tax
expense...... 3,602,703 2,948,128 6,631,332 4,962,068
Income tax expense.. 1,105,500 917,900 2,016,000 1,542,300
----------- ----------- ------------ ------------
Income before
minority
interest..... 2,497,203 2,030,228 4,615,332 3,419,768
Minority interest... 43 0 (2,288) 0
----------- ----------- ------------ ------------
Net income....$ 2,497,160 2,030,228 4,617,620 3,419,768
=========== =========== ============ ============
Basic earnings per
share..............$ 0.65 0.54 1.19 0.91
=========== =========== ============ ============
Diluted earnings per
share..............$ 0.62 0.52 1.13 0.87
=========== =========== ============ ============
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
- ----------------------------------------------------------------------
SELECTED FINANCIAL DATA: Three Months Six Months
(dollars in thousands, except per Ended June 30, Ended June 30,
share data) 2004 2003 2004 2003
- ----------------------------------------------------------------------
I. OPERATING DATA:
Interest income.............$ 12,427 11,036 24,783 21,507
Interest expense............ 5,060 5,108 10,179 10,058
Net interest income......... 7,367 5,928 14,604 11,449
II. AVERAGE BALANCES:
Assets(1).................. 899,640 771,117 893,131 754,504
Loans receivable, net...... 706,754 587,879 704,940 563,528
Mortgage-backed and related
securities(1)............. 11,520 13,291 12,330 26,521
Interest-earning assets(1). 858,116 734,320 849,699 717,292
Interest-bearing
liabilities............... 812,544 684,973 805,455 668,320
Equity(1).................. 83,252 77,957 83,389 78,040
III. PERFORMANCE RATIOS:(1)
Return on average assets
(annualized) 1.12% 1.06% 1.04% 0.91%
Interest rate spread
information:
Average during period... 3.32 3.04 3.32 3.01
End of period........... 3.20 3.04 3.20 3.04
Net interest margin........ 3.45 3.24 3.46 3.22
Ratio of operating expense
to average total assets
(annualized).............. 2.23 2.69 2.23 2.78
Return on average equity
(annualized).............. 12.06 10.45 11.14 8.84
Efficiency................. 55.24 60.11 55.68 62.20
---------------------------
June 30, Dec. 31, June 30,
2004 2003 2003
---------------------------
IV. ASSET QUALITY:
Total non-performing assets.$ 3,471 5,035 6,968
Non-performing assets to
total assets............... 0.38% 0.58% 0.89%
Non-performing loans to
total loans receivable, net 0.40% 0.68% 0.92%
Allowance for loan losses...$ 7,793 6,940 6,088
Allowance for loan losses to
total assets............... 0.85% 0.80% 0.77%
Allowance for loan losses to
total loans receivable, net 1.08 1.01 1.00
Allowance for loan losses to
non-performing loans....... 272.98 147.99 108.97
V. BOOK VALUE PER SHARE:
Book value per share........$ 18.20 17.93 17.44
---------------------------
Six Six
Months Year Months
Ended Ended Ended
June 30, Dec 31, June 30,
2004 2003 2003
---------------------------
VI. CAPITAL RATIOS:
Stockholders' equity to
total assets, at end of
period..................... 8.88% 9.34 % 9.86%
Average stockholders' equity
to average assets(1)....... 9.34 10.15 10.34
Ratio of average interest-
earning assets to average
interest-bearing
liabilities(1)............. 105.49 106.65 107.33
--------------------------
June 30, Dec. 31, June 30,
2004 2003 2003
---------------------------
VII. EMPLOYEE DATA:
Number of full time
equivalent employees....... 198 203 190
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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