Exhibit 99
HMN Financial, Inc. Announces Fourth Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--Jan. 22, 2007--HMN Financial,
Inc. (NASDAQ:HMNF):
Fourth Quarter Highlights
-- Net income of $2.7 million, down $807,000, or 23.2%, from
fourth quarter of 2005
-- Diluted earnings per share of $0.67, down $0.20, from fourth
quarter of 2005
-- Net interest income up $438,000, or 4.7%, over fourth quarter
of 2005
-- Net interest margin up 34 basis points over fourth quarter of
2005
-- Provision for loan losses up $1.2 million, or 658.1%, from
fourth quarter of 2005
Annual Highlights
-- Net income of $8.4 million, down $2.7 million, or 23.9%, from
2005
-- Diluted earnings per share of $2.10, down $0.67, or 24.2%,
from 2005
-- Net interest income up $2.9 million, or 8.2%, over 2005
-- Net interest margin up 33 basis points over 2005
-- Provision for loan losses up $6.2 million, or 232.0%, over
2005
EARNINGS SUMMARY Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
---------------------- -----------------------
Net income $2,670,263 3,476,971 $8,427,551 11,067,889
Diluted earnings per
share $0.67 0.87 $2.10 2.77
Return on average assets 1.11% 1.39 0.86% 1.12
Return on average equity 11.18% 15.03 8.85% 12.42
Book value per share $21.58 20.59 $21.58 20.59
HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $978 million holding
company for Home Federal Savings Bank (the Bank), today reported net
income of $2.7 million for the fourth quarter of 2006, down $807,000,
or 23.2%, from net income of $3.5 million for the fourth quarter of
2005. Diluted earnings per common share for the fourth quarter of 2006
were $0.67, down $0.20, from $0.87 for the fourth quarter of 2005. The
decrease in net income is due to a $1.2 million increase in the loan
loss provision between the periods primarily as a result of an
increase in the allowance reserve for a home equity loan.
Fourth Quarter Results
Net Interest Income
Net interest income was $9.8 million for the fourth quarter of
2006, an increase of $438,000, or 4.7%, compared to $9.4 million for
the fourth quarter of 2005. Interest income was $17.4 million for the
fourth quarter of 2006, an increase of $1.3 million, or 8.0%, from
$16.1 million for the same period in 2005. Interest income increased
because of an increase in the average interest rates earned on loans
and investments. Interest rates increased primarily because of the 100
basis point increase in the prime interest rate between the periods.
Increases in the prime rate, which is the rate that banks charge their
prime business customers, generally increase the rates on adjustable
rate consumer and commercial loans in the portfolio and new loans
originated. The increase in interest income due to increased rates was
partially offset by a $47 million decrease in the average outstanding
loan portfolio balance between the periods due to an increase in
commercial and consumer loan prepayments and a decrease in loan
originations. The average yield earned on interest-earning assets was
7.54% for the fourth quarter of 2006, an increase of 81 basis points
from the 6.73% yield for the fourth quarter of 2005.
Interest expense was $7.5 million for the fourth quarter of 2006,
an increase of $846,000, or 12.7%, from $6.7 million for the fourth
quarter of 2005. Interest expense increased primarily because of
higher interest rates paid on deposits which were caused by the 100
basis point increase in the federal funds rate between the periods.
Increases in the federal funds rate, which is the rate that banks
charge other banks for short term loans, generally increase the rates
banks pay for deposits. The average interest rate paid on
interest-bearing liabilities was 3.48% for the fourth quarter of 2006,
an increase of 52 basis points from the 2.96% paid for the fourth
quarter of 2005. Net interest margin (net interest income divided by
average interest earning assets) for the fourth quarter of 2006 was
4.28%, an increase of 34 basis points, compared to 3.94% for the
fourth quarter of 2005.
Provision for Loan Losses
The provision for loan losses was $1.4 million for the fourth
quarter of 2006, an increase of $1.2 million, or 658.1%, from $179,000
for the fourth quarter of 2005. The provision for loan losses
increased primarily because an $825,000 specific loan loss reserve was
established on a home equity loan that was classified as nonperforming
in the fourth quarter of 2006. The reserved amount was based on an
updated appraisal of the value of the property securing the loan and
subsequent to year end the Bank foreclosed on the property. The
provision also increased because of a $33 million increase in
outstanding commercial loans during the fourth quarter of 2006. Total
non-performing assets were $10.4 million at December 31, 2006, an
increase of $130,000, or 1.3%, from $10.3 million at September 30,
2006. Non-performing loans decreased $909,000 and foreclosed and
repossessed assets increased $1.0 million primarily due to an increase
in single family home loan foreclosures.
Non-Interest Income and Expense
Non-interest income was $1.5 million for the fourth quarter of
2006, a decrease of $333,000, or 18.6%, from $1.8 million for the
fourth quarter of 2005. Fees and service charges increased $55,000
between the periods primarily because of increased retail deposit
account activity and fees. Gain on sales of loans decreased $386,000
between the periods due primarily to a decrease in the number of
single family loans that were sold. Sold loans decreased because there
were fewer single family loans originated and most of the loans that
were originated were placed into the loan portfolio to replace
prepaying loans.
Non-interest expense was $5.5 million for the fourth quarter of
2006, an increase of $14,000, or 0.26%, from $5.4 million for the
fourth quarter of 2005. Occupancy expense increased $99,000 primarily
because of the additional costs associated with the new branch and
loan origination offices opened in Rochester in the first quarter of
2006. Data processing costs increased $30,000 primarily because of the
increased internet and other banking services provided by a third
party processor between the periods. Advertising expense increased
$36,000 primarily because of an increase in deposit related promotions
in the fourth quarter of 2006. Mortgage servicing rights amortization
decreased $66,000 between the periods because there are fewer mortgage
loans being serviced. Other operating expenses decreased $62,000
primarily because of decreased mortgage and commercial loan
foreclosure costs in the fourth quarter of 2006 when compared to the
same period in 2005. Income tax expense decreased $280,000 between the
periods primarily because of a decrease in taxable income.
Return on Assets and Equity
Return on average assets for the fourth quarter of 2006 was 1.11%,
compared to 1.39% for the fourth quarter of 2005. Return on average
equity was 11.18% for the fourth quarter of 2006, compared to 15.03%
for the same period of 2005. Book value per common share at December
31, 2006 was $21.58, compared to $20.59 at December 31, 2005.
Annual Results
Net Income
Net income was $8.4 million for the year ended December 31, 2006,
a decrease of $2.7 million, or 23.9%, compared to $11.1 million for
the year ended December 31, 2005. Diluted earnings per common share
for the year ended December 31, 2006 were $2.10, down $0.67, or 24.2%,
from $2.77 for the year ended December 31, 2005.
Net Interest Income
Net interest income was $38.7 million for the year ended December
31, 2006, an increase of $2.9 million, or 8.2%, from $35.8 million in
2005. Interest income was $67.5 million for the year ended December
31, 2006, an increase of $7.2 million, or 12.0%, from $60.3 million
for the same period in 2005. Interest income increased primarily
because of an increase in the average interest rates earned on loans
and investments. Interest rates increased primarily because of the 100
basis point increase in the prime interest rate between the periods.
The increase in interest income due to increased rates was partially
offset by a $42 million decrease in the average outstanding loan
portfolio balance between the periods due to an increase in commercial
loan prepayments and a decrease in loan originations. The yield earned
on interest-earning assets was 7.21% for the year ended December 31,
2006, an increase of 80 basis points from the 6.41% yield for the same
period of 2005.
Interest expense was $28.8 million for the year ended December 31,
2006, an increase of $4.3 million, or 17.7%, from the $24.5 million
for the same period in 2005. Interest expense increased primarily
because of higher interest rates paid on deposits which were caused by
the 100 basis point increase in the federal funds rate between the
periods. The increase in deposit rates was partially offset by a
change in the mix of funding sources between the periods. The average
outstanding balances of $57 million in brokered deposits and Federal
Home Loan Bank advances were replaced with other less expensive
deposits which lowered the Bank's overall cost of funds. The average
interest rate paid on interest-bearing liabilities was 3.28% for the
year ended December 31, 2006, an increase of 52 basis points from the
2.76% paid for the same period of 2005. Net interest margin for the
year ended December 31, 2006 was 4.13%, an increase of 33 basis
points, compared to 3.80% for the same period of 2005.
Provision for Loan Losses
The provision for loan losses was $8.9 million for the year ended
December 31, 2006, an increase of $6.2 million, or 232.0%, from $2.7
million in 2005. The provision for loan losses increased primarily
because $7.4 million in commercial loans relating to a real estate and
golf course development were charged off during the year. The increase
in the provision related to loan charge offs was partially offset by a
$12 million decrease in outstanding commercial loans between the
periods.
Total non-performing assets were $10.4 million at December 31,
2006, an increase of $6.5 million, or 168.4%, from $3.9 million at
December 31, 2005. Non-performing loans increased $6.0 million,
foreclosed and repossessed assets increased $696,000, and
non-performing other assets decreased $134,000 between the periods.
A reconciliation of the Company's allowance for loan losses for
the years ended December 31, 2006 and 2005 are summarized as follows:
- ----------------------------------------------------------------------
(in thousands) 2006 2005
----------- -----------
Balance at January 1, $8,778 $8,996
Provision 8,878 2,674
Charge offs:
Commercial loans (7,430) (2,615)
Consumer loans (269) (228)
Single family mortgage loans (150) (234)
Recoveries 66 185
----------- -----------
Balance at December 31, $9,873 $8,778
=========== ===========
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Non-Interest Income and Expense
Non-interest income was $6.4 million for the year ended December
31, 2006, a decrease of $68,000, or 1.0%, from $6.5 million for the
same period in 2005. Fees and service charges increased $392,000
between the periods primarily because of increased retail deposit
account activity and fees. Security gains increased $69,000 due to
increased security sales. Gain on sale of loans decreased $598,000 due
to a decrease in the number of single-family mortgage loans sold and a
decrease in the profit margins realized on the loans that were sold.
Competition in the single-family loan origination market remained
strong and profit margins were lowered in order to remain competitive.
Other income increased $109,000 primarily because of a decrease in the
losses recognized on repossessed assets in 2006 when compared to 2005.
Non-interest expense was $22.6 million for the year ended December
31, 2006, an increase of $795,000, or 3.6%, from $21.8 million for the
same period in 2005. Compensation and benefits expense increased
$729,000 primarily because of annual pay and pension cost increases.
Occupancy expense increased $355,000 primarily because of additional
costs associated with the new branch and loan origination offices
opened in Rochester in the first quarter of 2006. Data processing
costs increased $151,000 primarily because of increased internet and
other banking services provided by a third party processor between the
periods. Other non-interest expense decreased $331,000 primarily
because of a decrease in mortgage loan expenses and professional fees.
Mortgage servicing rights amortization decreased $171,000 between the
periods because there are fewer mortgage loans being serviced. Income
tax expense was $5.2 million in 2006, a decrease of $1.5 million, or
22.4%, compared to $6.7 million for the same period of 2005. Income
tax expense decreased primarily because of a decrease in taxable
income.
Return on Assets and Equity
Return on average assets for the year ended December 31, 2006 was
0.86%, compared to 1.12% for the same period in 2005. Return on
average equity was 8.85% for the year ended December 31, 2006,
compared to 12.42% for the same period in 2005.
President's Statement
"The 2006 financial results were negatively impacted by an
increase in the loan loss provision," said HMN President Michael
McNeil. "While we are disappointed in the negative effect that this
had on net income, we are encouraged by the increase in net interest
income and the 33 basis point increase in the net interest margin."
General Information
HMN Financial, Inc. and Home Federal Savings Bank are
headquartered in Rochester, Minnesota. The Bank operates ten 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 Sartell
and Rochester, Minnesota. Eagle Crest Capital Bank, a division of Home
Federal Savings Bank, operates branches in Edina and Rochester,
Minnesota.
Safe Harbor Statement
This press release may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include, but are not limited to those relating to the
Company's financial expectations for earnings and revenues. A number
of factors could cause actual results to differ materially from the
Company's assumptions and expectations. These include but are not
limited to possible legislative changes and adverse economic, business
and competitive developments such as shrinking interest margins;
reduced collateral values; deposit outflows; 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; changes in credit or other risks posed by the
Company's loan and investment portfolios; technological,
computer-related or operational difficulties; adverse changes in
securities markets; results of litigation 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 form 10-K and Form
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.
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
- ----------------------------------------------------------------------
December 31, December 31,
2006 2005
- ----------------------------------------------------------------------
Assets
Cash and cash equivalents................... $43,775,988 47,268,795
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $6,671,042 and
$7,428,504)............................ 6,177,829 6,879,756
Other marketable securities
(amortized cost $119,940,282 and
$113,749,841)......................... 119,962,274 112,778,813
------------- ------------
126,140,103 119,658,569
------------- ------------
Loans held for sale......................... 1,493,011 1,435,141
Loans receivable, net....................... 768,231,579 785,678,461
Accrued interest receivable................. 5,060,839 4,460,014
Real estate, net............................ 2,072,032 1,214,621
Federal Home Loan Bank stock, at cost....... 7,956,300 8,364,600
Mortgage servicing rights, net.............. 1,957,699 2,653,635
Premises and equipment, net................. 11,372,103 11,941,863
Investment in limited partnerships.......... 112,489 141,048
Goodwill.................................... 3,800,938 3,800,938
Core deposit intangible, net................ 105,903 219,760
Prepaid expenses and other assets........... 2,830,548 1,854,948
Deferred tax asset.......................... 2,879,000 2,544,400
------------- ------------
Total assets............................$977,788,532 991,236,793
============= ============
Liabilities and Stockholders' Equity
Deposits....................................$725,958,830 731,536,560
Federal Home Loan Bank advances............. 150,900,000 160,900,000
Accrued interest payable.................... 1,176,024 2,085,573
Customer escrows............................ 720,732 1,038,575
Accrued expenses and other liabilities...... 5,890,605 4,947,816
------------- ------------
Total liabilities........................ 884,646,191 900,508,524
------------- ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock: ($.01 par value)
Authorized 500,000 shares; issued and
outstanding shares none............... 0 0
Common stock ($.01 par value):
Authorized 11,000,000; issued shares
9,128,662............................. 91,287 91,287
Additional paid-in capital.................. 57,913,743 58,011,099
Retained earnings, subject to certain
restrictions............................... 103,642,975 98,951,777
Accumulated other comprehensive loss........ (284,421) (917,577)
Unearned employee stock ownership plan
shares..................................... (4,157,698) (4,350,999)
Unearned compensation restricted stock
awards..................................... 0 (182,521)
Treasury stock, at cost 4,813,232 and
4,721,402.................................. (64,063,545) (60,874,797)
------------- ------------
Total stockholders' equity............... 93,142,341 90,728,269
------------- ------------
Total liabilities and stockholders' equity..$977,788,532 991,236,793
============= ============
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HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
- ----------------------------------------------------------------------
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
- ----------------------------------------------------------------------
Interest income:
Loans receivable....$15,434,391 14,889,241 60,180,932 56,376,920
Securities available
for sale:
Mortgage-backed
and related.... 65,221 73,239 271,060 325,940
Other marketable 1,471,062 802,393 5,194,856 2,744,202
Cash equivalents.... 300,527 237,688 1,554,937 580,500
Other............... 86,894 71,326 325,036 253,611
------------ ----------- ----------- -----------
Total interest
income......... 17,358,095 16,073,887 67,526,821 60,281,173
------------ ----------- ----------- -----------
Interest expense:
Deposits............ 5,848,333 4,874,673 22,045,858 17,233,400
Federal Home Loan
Bank advances...... 1,664,757 1,792,589 6,794,964 7,278,050
------------ ----------- ----------- -----------
Total interest
expense......... 7,513,090 6,667,262 28,840,822 24,511,450
------------ ----------- ----------- -----------
Net interest
income.......... 9,845,005 9,406,625 38,685,999 35,769,723
Provision for loan
losses............... 1,357,000 179,000 8,878,000 2,674,000
------------ ----------- ----------- -----------
Net interest
income after
provision for
loan losses..... 8,488,005 9,227,625 29,807,999 33,095,723
------------ ----------- ----------- -----------
Non-interest income:
Fees and service
charges............ 780,202 724,713 3,110,863 2,719,004
Mortgage servicing
fees............... 276,075 308,432 1,172,166 1,210,192
Securities gains
(losses), net...... 0 (21,000) 48,122 (21,000)
Gain on sales of
loans.............. 224,913 610,504 1,254,707 1,852,940
Losses in limited
partnerships....... (6,500) (6,500) (28,559) (27,210)
Other............... 179,031 170,583 884,137 775,294
------------ ----------- ----------- -----------
Total non-
interest income. 1,453,721 1,786,732 6,441,436 6,509,220
------------ ----------- ----------- -----------
Non-interest expense:
Compensation and
benefits........... 2,785,875 2,800,281 11,868,879 11,140,329
Occupancy........... 1,101,029 1,001,749 4,435,468 4,080,880
Deposit insurance
premiums........... 22,808 32,479 102,145 129,683
Advertising......... 129,085 92,736 475,257 384,184
Data processing..... 300,238 269,911 1,182,538 1,031,630
Amortization of
mortgage servicing
rights, net........ 187,054 252,881 848,347 1,019,766
Other............... 927,474 989,449 3,683,750 4,014,482
------------ ----------- ----------- -----------
Total non-
interest expense 5,453,563 5,439,486 22,596,384 21,800,954
------------ ----------- ----------- -----------
Income before
income tax
expense......... 4,488,163 5,574,871 13,653,051 17,803,989
Income tax expense.... 1,817,900 2,097,900 5,225,500 6,736,100
------------ ----------- ----------- -----------
Net income....... $2,670,263 3,476,971 8,427,551 11,067,889
============ =========== =========== ===========
Basic earnings per
share................ $0.71 0.91 2.20 2.89
============ =========== =========== ===========
Diluted earnings per
share................ $0.67 0.87 2.10 2.77
============ =========== =========== ===========
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HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
- ----------------------------------------------------------------------
SELECTED FINANCIAL DATA:
(dollars in thousand, except per Three Months Ended Year Ended
share data) December 31, December 31,
2006 2005 2006 2005
- ----------------------------------------------------------------------
I. OPERATING DATA:
Interest income............... $17,358 16,074 67,527 60,281
Interest expense.............. 7,513 6,667 28,841 24,511
Net interest income........... 9,845 9,407 38,686 35,770
II. AVERAGE BALANCES:
Assets (1)................... 957,113 992,869 981,180 984,084
Loans receivable, net........ 751,106 796,855 760,991 802,637
Mortgage-backed and related
securities (1).............. 6,751 7,677 7,045 8,509
Interest-earning assets (1).. 912,927 948,056 937,204 940,321
Interest-bearing liabilities. 855,438 892,773 878,598 887,464
Equity (1)................... 94,758 91,755 95,192 89,100
III. PERFORMANCE RATIOS: (1)
Return on average assets
(annualized)................ 1.11% 1.39% 0.86% 1.12%
Interest rate spread
information:
Average during period..... 4.06 3.76 3.92 3.65
End of period............. 3.71 3.50 3.71 3.50
Net interest margin.......... 4.28 3.94 4.13 3.80
Ratio of operating expense to
average total assets
(annualized)................ 2.26 2.17 2.30 2.22
Return on average equity
(annualized)................ 11.18 15.03 8.85 12.42
Efficiency................... 48.27 48.60 50.07 51.56
------------------
Dec 31, Dec 31,
2006 2005
------------------
IV. ASSET QUALITY :
Total non-performing assets.. $10,424 3,883
Non-performing assets to
total assets................ 1.07% 0.39%
Non-performing loans to total
loans
receivable, net............ 1.08% 0.30%
Allowance for loan losses.... $9,873 8,778
Allowance for loan losses to
total assets................ 1.01% 0.89%
Allowance for loan losses to
total loans receivable, net. 1.29 1.11
Allowance for loan losses to
non-performing loans........ 118.84 376.88
V. BOOK VALUE PER SHARE:
Book value per share......... $21.58 20.59
------------------
Year Year
Ended Ended
Dec 31, Dec 31,
2006 2005
------------------
VI. CAPITAL RATIOS :
Stockholders' equity to total
assets, at end of period.... 9.53% 9.15%
Average stockholders' equity
to average assets (1)....... 9.70 9.05
Ratio of average interest-
earning assets to average
interest-bearing liabilities
(1)......................... 106.67 105.96
------------------
Dec 31, Dec 31,
2006 2005
------------------
VII. EMPLOYEE DATA:
Number of full time
equivalent employees........ 203 208
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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.
Michael McNeil, President, 507-535-1202