Exhibit 99.1
HMN Financial, Inc. Announces Second Quarter Results
ROCHESTER, Minn.--(BUSINESS WIRE)--July 20, 2007--HMN Financial,
Inc. (NASDAQ:HMNF):
Second Quarter Highlights
-- Net income of $2.4 million, down $494,000, or 16.8%, from
second quarter 2006
-- Diluted earnings per share of $0.62, down $0.11, from second
quarter of 2006
-- Average interest earning assets up $94 million over second
quarter of 2006
-- Net interest margin of 3.75%, down 33 basis points from second
quarter of 2006
Year to Date Highlights
-- Net income of $5.7 million, up $34,000, or 0.6%, over first
six months of 2006
-- Diluted earnings per share of $1.45, up $0.04, over first six
months of 2006
-- Average interest earning assets up $78 million over first six
months of 2006
-- Net interest margin of 3.88%, down 21 basis points from first
six months of 2006
-- Gain on sales of loans up $436,000, or 79.4%, over first six
months of 2006
Earnings Summary
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
(in thousands) 2007 2006 2007 2006
-------- ------- -------- -------
Net income $ 2,450 2,944 $ 5,718 5,684
Diluted earnings per share 0.62 0.73 1.45 1.41
Return on average assets 0.89% 1.18% 1.08% 1.16%
Return on average equity 10.09% 12.34% 11.92% 12.08%
Book value per share $ 22.15 $ 21.38 $ 22.15 $ 21.38
HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $1.1
billion holding company for Home Federal Savings Bank (the Bank),
today reported net income of $2.4 million for the second quarter of
2007, down $494,000, or 16.8%, from net income of $2.9 million for the
second quarter of 2006. Diluted earnings per common share for the
second quarter of 2007 were $0.62, down $0.11, or 15.1%, from $0.73
for the second quarter of 2006.
Second Quarter Results
Net Interest Income
Net interest income was $9.9 million for the second quarter of
2007, an increase of $105,000, or 1.1%, compared to $9.8 million for
the second quarter of 2006. Interest income was $19.6 million for the
second quarter of 2007, an increase of $2.6 million, or 15.4%, from
$17.0 million for the same period in 2006. Interest income increased
primarily because average interest earning assets increased $94
million between the periods and because the average yield earned on
loans and investments increased. The increase in average interest
earning assets was the result of a $50 million increase in the average
outstanding loans and $44 million increase in the average outstanding
cash and investments between the periods. The average yield on
investments increased 110 basis points between the periods primarily
because maturing investments were reinvested at higher rates. The
average yield earned on interest-earning assets was 7.47% for the
second quarter of 2007, an increase of 36 basis points from the 7.11%
average yield for the second quarter of 2006.
Interest expense was $9.8 million for the second quarter of 2007,
an increase of $2.5 million, or 34.6%, compared to $7.3 million for
the second quarter of 2006. Interest expense increased primarily
because of the higher interest rates paid on new commercial money
market accounts and retail and brokered certificates of deposits. The
increased rates were the result of the 100 basis point increase in the
federal funds rate that occurred throughout the first six months of
2006 that was not fully reflected in deposit rates until the second
half of 2006. Increases in the federal funds rate, which is the rate
that banks charge other banks for short term loans, generally has a
lagging effect and increases the rates banks pay for deposits. The
average interest rate paid on interest-bearing liabilities was 3.94%
for the second quarter of 2007, an increase of 71 basis points from
the 3.23% average interest rate paid in the second quarter of 2006.
Net interest margin (net interest income divided by average interest
earning assets) for the second quarter of 2007 was 3.75%, a decrease
of 33 basis points, compared to 4.08% for the second quarter of 2006.
Provision for Loan Losses
The provision for loan losses was $1.0 million for the second
quarter of 2007, an increase of $48,000, or 4.9%, from $1.0 million
for the second quarter of 2006. The provision for loan losses
increased primarily because of the $40 million in commercial loan
growth that was experienced in the second quarter of 2007 compared to
the $11 million reduction in the commercial loan portfolio that
occurred in the second quarter of 2006. The increase in the provision
due to loan growth was partially offset by a reduction in the
allowance required for risk rated commercial loans in the second
quarter of 2007 compared to the same period of 2006.
Total non-performing assets were $16.4 million at June 30, 2007,
an increase of $3.7 million, from $12.7 million at March 31, 2007.
Non-performing loans increased $4.1 million and foreclosed and
repossessed assets decreased $428,000 during the period. The
non-performing loan activity for the quarter was as follows:
classified $7.6 million in loans as non-accruing, received $983,000 in
principal payments on non-accruing loans, reclassified $1.5 million as
accruing, transferred $931,000 to real estate owned, and charged off
$97,000. The increase in non-accruing loans relates primarily to $6.5
million in related commercial real estate development loans from
affiliated borrowers that were downgraded during the period. These
loans are for projects within our market area and are secured by land,
developed lots and other assets.
Non-Interest Income and Expense
Non-interest income was $1.3 million for the second quarter of
2007, a decrease of $474,000, or 26.8%, from $1.8 million for the same
period in 2006. Other non-interest income decreased $261,000 because
of increased losses on the sale of repossessed and foreclosed
properties and a decrease in revenues from the sale of uninsured
investment products. Gain on sales of loans decreased $114,000 between
the periods due primarily to a decrease in the number of single-family
mortgage loans sold and a decrease in the profit margins on the loans
that were sold. Competition in the single-family loan origination
market has remained strong as the overall market has slowed and profit
margins have been lowered in order to remain competitive and maintain
origination volumes. Security gains decreased $48,000 due to decreased
security sales. Non-interest expense was $6.1 million for the second
quarter of 2007, an increase of $386,000, or 6.7%, from $5.8 million
for the same period of 2006. Other non-interest expense increased
$158,000 primarily because of increased expenses related to foreclosed
real estate and increased legal fees. Compensation expense increased
$144,000 primarily because of annual payroll cost increases. Data
processing costs increased $34,000 due to increases in the internet
and other banking services provided by the Bank's third party
processor between the periods. Income tax expense decreased $309,000
between the periods due to a decrease in taxable income.
Return on Assets and Equity
Return on average assets for the second quarter of 2007 was 0.89%,
compared to 1.18% for the second quarter of 2006. Return on average
equity was 10.09% for the second quarter of 2007, compared to 12.34%
for the same period in 2006. Book value per common share at June 30,
2007 was $22.15, compared to $21.38 at June 30, 2006.
Six Month Period Results
Net Income
Net income was $5.7 million for the six month period ended June
30, 2007, an increase of $34,000, or 0.6%, from $5.7 million for the
six month period ended June 30, 2006. Diluted earnings per share for
the six month period in 2007 were $1.45, up $0.04, or 2.8%, from $1.41
for the same period in 2006. The increase in diluted earnings per
share was primarily due to a decrease of 85,415 shares in average net
shares outstanding between the periods as a result of the Company's
share repurchase program.
Net Interest Income
Net interest income was $19.6 million for the first six months of
2007, an increase of $500,000, or 2.6%, from $19.1 million for the
same period in 2006. Interest income was $37.9 million for the six
month period ended June 30, 2007, an increase of $4.9 million, or
14.9%, from $33.0 million for the same six month period in 2006.
Interest income increased because of an increase in the average
interest rates earned on loans and investments and also because of the
$78 million increase in the average interest earning assets between
the periods. Interest rates increased primarily because maturing
investments were reinvested at higher rates. Interest on loans
increased because of the 100 basis point increase in the prime
interest rate that occurred during the first six months of 2006.
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 on new loans
originated. The average yield earned on interest-earning assets was
7.48% for the first six months of 2007, an increase of 43 basis points
from the 7.05% average yield for the first six months of 2006.
Interest expense was $18.3 million for the first six months of
2007, an increase of $4.4 million, or 31.9%, compared to $13.9 million
for the first six months of 2006. Interest expense increased because
of the higher interest rates paid on new commercial money market
accounts opened between the periods and the higher rates paid on
retail and brokered certificates of deposits. The increased rates were
the result of the 100 basis point increase in the federal funds rate
during the first six months of 2006 that was not fully reflected in
deposit rates until the second half of 2006. The average interest rate
paid on interest-bearing liabilities was 3.98% for the first six
months of 2007, an increase of 68 basis points from the 3.30% average
interest rate paid in the first six months of 2006. Net interest
margin (net interest income divided by average interest earning
assets) for the first six months of 2007 was 3.88%, a decrease of 21
basis points, compared to 4.09% for the first six months of 2006.
Provision for Loan Losses
The provision for loan losses was $1.5 million for the first six
months of 2007, a decrease of $12,000, or .8%, from the $1.5 million
for the same six month period in 2006. The provision for loan losses
decreased primarily because of the reduced allowance required for risk
rated commercial loans in the first six months of 2007 when compared
to the same six month period of 2006. The reduction in the provision
related to the reduced risk rating downgrades was partially offset by
additions relating to the $73 million increase in the commercial loan
portfolio in the first six months of 2007 compared to the $23 million
reduction in the portfolio that was experienced in the first six
months of 2006. Total non-performing assets were $16.4 million at June
30, 2007, an increase of $6.0 million, from $10.4 million at December
31, 2006. Non-performing loans increased $3.3 million and foreclosed
and repossessed assets increased $2.7 million during the period. The
non-performing loan activity for the period was as follows: classified
$9.2 million in loans as non-accruing, received $1.8 million in
principal payments on non-accruing loans, reclassified $1.7 million as
accruing, transferred $1.7 million to real estate owned, and charged
off $700,000. The increase in non-accruing loans relates primarily to
$6.5 million in related commercial real estate development loans from
affiliated borrowers that were downgraded during the period. These
loans are for projects within our market area and are secured by land,
developed lots and other assets. The increase in foreclosed and
repossessed assets relates primarily to a $2.9 million single-family
home. An agreement has been signed to sell this property and it is
anticipated to be sold in the third quarter.
A reconciliation of the Company's allowance for loan losses for
the six month period ended June 30, 2007 and June 30, 2006 is
summarized as follows:
(in thousands) 2007 2006
------- -------
Balance at January 1, $9,873 $8,778
Provision 1,483 1,495
Charge offs:
Commercial (17) 0
Commercial real estate (70) 0
Consumer loans (632) (109)
Recoveries 88 52
------- -------
Balance at June 30, $10,725 $10,216
======= =======
Non-Interest Income and Expense
Non-interest income was $3.4 million for the first six months of
2007, an increase of $108,000, or 3.3%, from $3.3 million for the same
period in 2006. Gain on sales of loans increased $436,000 between the
periods primarily due to the $597,000 increase in the gain recognized
on the sale of government guaranteed commercial loans that was
partially offset by a $161,000 decrease in the gain recognized on the
sale of single family loans due to a decrease in the number of loans
sold and profit margins realized on the loans that were sold.
Competition in the single-family loan origination market has remained
strong as the overall market has slowed and profit margins were
lowered in order to remain competitive and maintain origination
volumes. Other non-interest income decreased $178,000 primarily
because of increased losses on the sale of repossessed and foreclosed
assets and a decrease in revenues from the sale of uninsured
investment products. Security gains decreased $48,000 due to decreased
security sales. Fees and service charges decreased $33,000 between the
periods primarily because of decreased overdraft fees.
Non-interest expense was $12.1 million for the first six months of
2007, an increase of $396,000, or 3.4%, from $11.7 million for the
same period of 2006. Compensation expense increased $246,000 primarily
because of annual payroll cost increases. Other non-interest expense
increased $136,000 primarily because of increased expenses related to
foreclosed real estate and increased legal fees. Data processing costs
increased $40,000 due to increases in the internet and other banking
services provided by the Bank's third party processor between the
periods. Advertising expense increased $63,000 between the periods due
to increased promotions and checking and consumer loan advertising.
Income tax expense increased $190,000 between the periods due an
increase in taxable income and an effective tax rate that increased
from 38.2% for the first six months of 2006 to 39.3% for the first six
months of 2007. The increase in the effective tax rate was primarily
the result of decreased tax exempt income and changes in state tax
allocations.
Return on Assets and Equity
Return on average assets for the six month period ended June 30,
2007 was 1.08%, compared to 1.16% for the same period in 2006. Return
on average equity was 11.92% for the six month period ended in 2007,
compared to 12.08% for the same period in 2006.
President's Statement
"Net interest income continued to improve despite the net interest
margin compression experienced in the first six months of 2007. The
increase in net interest income was primarily the result of the asset
growth that occurred between the periods," said HMN President, Mike
McNeil. "While loan growth has been strong, our loan portfolio has not
been immune to the nationwide real estate downturn and our
non-performing loans and the costs associated with them have increased
as a result. The current loan loss allowance reflects our assessment
of the potential losses on these loans based on an evaluation of the
available collateral and the borrower's ability to repay the loan."
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 interest income. 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
- ----------------------------------------------------------------------
June 30, December 31,
(dollars in thousands) 2007 2006
- ----------------------------------------------------------------------
(unaudited)
Assets
Cash and cash equivalents................... $ 35,592 43,776
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $15,357 and $6,671)....... 14,417 6,178
Other marketable securities
(amortized cost $189,911 and $119,940)... 189,511 119,962
----------- ------------
203,928 126,140
----------- ------------
Loans held for sale......................... 4,454 1,493
Loans receivable, net....................... 843,221 768,232
Accrued interest receivable................. 7,111 5,061
Real estate, net............................ 4,703 2,072
Federal Home Loan Bank stock, at cost....... 6,412 7,956
Mortgage servicing rights, net.............. 1,597 1,958
Premises and equipment, net................. 10,977 11,372
Goodwill.................................... 3,801 3,801
Core deposit intangible, net................ 49 106
Prepaid expenses and other assets........... 2,148 2,943
Deferred tax asset.......................... 3,433 2,879
----------- ------------
Total assets.............................. $ 1,127,426 977,789
=========== ============
Liabilities and Stockholders' Equity
Deposits.................................... $ 925,511 725,959
Federal Home Loan Bank advances............. 97,500 150,900
Accrued interest payable.................... 4,406 1,176
Customer escrows............................ 814 721
Accrued expenses and other liabilities...... 4,479 5,891
----------- ------------
Total liabilities....................... 1,032,710 884,647
----------- ------------
Commitments and contingencies
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 91
Additional paid-in capital.................. 57,691 57,914
Retained earnings, subject to certain
restrictions............................... 107,225 103,643
Accumulated other comprehensive (loss)...... (809) (284)
Unearned employee stock ownership plan
shares..................................... (4,061) (4,158)
Treasury stock, at cost 4,852,522 and
4,813,232 shares........................... (65,421) (64,064)
----------- ------------
Total stockholders' equity.............. 94,716 93,142
----------- ------------
Total liabilities and stockholders' equity.. $ 1,127,426 977,789
=========== ============
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in thousands) 2007 2006 2007 2006
- ----------------------------------------------------------------------
Interest income:
Loans receivable.............. $ 16,629 15,081 32,374 29,784
Securities available for sale:
Mortgage-backed and related.. 171 69 282 140
Other marketable............. 2,417 1,322 4,313 2,212
Cash equivalents.............. 279 453 722 709
Other......................... 132 85 216 149
--------- -------- -------- -------
Total interest income........ 19,628 17,011 37,907 32,994
--------- -------- -------- -------
Interest expense:
Deposits...................... 8,346 5,516 15,223 10,384
Federal Home Loan Bank
advances..................... 1,427 1,745 3,045 3,471
--------- -------- -------- -------
Total interest expense....... 9,773 7,261 18,268 13,855
--------- -------- -------- -------
Net interest income.......... 9,855 9,750 19,639 19,139
Provision for loan losses........ 1,028 980 1,483 1,495
--------- -------- -------- -------
Net interest income after
provision for loan losses... 8,827 8,770 18,156 17,644
--------- -------- -------- -------
Non-interest income:
Fees and service charges...... 781 795 1,477 1,510
Mortgage servicing fees....... 265 302 536 605
Securities gains, net......... 0 48 0 48
Gains on sales of loans....... 189 303 985 549
Other......................... 57 318 362 540
--------- -------- -------- -------
Total non-interest income.... 1,292 1,766 3,360 3,252
--------- -------- -------- -------
Non-interest expense:
Compensation and benefits..... 3,262 3,118 6,623 6,377
Occupancy..................... 1,112 1,103 2,196 2,203
Advertising................... 195 107 301 238
Data processing............... 321 287 616 576
Amortization of mortgage
servicing rights, net........ 189 236 371 453
Other......................... 1,070 912 1,992 1,856
--------- -------- -------- -------
Total non-interest expense... 6,149 5,763 12,099 11,703
--------- -------- -------- -------
Income before income tax
expense..................... 3,970 4,773 9,417 9,193
Income tax expense............... 1,520 1,829 3,699 3,509
--------- -------- -------- -------
Net income................... $ 2,450 2,944 5,718 5,684
========= ======== ======== =======
Basic earnings per share......... $ 0.65 0.77 1.52 1.48
========= ======== ======== =======
Diluted earnings per share....... $ 0.62 0.73 1.45 1.41
========= ======== ======== =======
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
- ----------------------------------------------------------------------
SELECTED Three Months Ended Six Months Ended
FINANCIAL DATA: June 30, June 30,
(dollars in
thousands,
except per
share data) 2007 2006 2007 2006
- ----------------------------------------------------------------------
I. OPERATING
DATA:
Interest income $ 19,628 17,011 37,907 32,994
Interest
expense....... 9,773 7,261 18,268 13,855
Net interest
income........ 9,855 9,750 19,639 19,139
II. AVERAGE
BALANCES:
Assets (1)..... 1,099,991 1,003,183 1,069,159 988,229
Loans
receivable,
net........... 818,905 767,774 803,506 772,993
Securities
available for
sale (1)...... 202,442 138,823 180,616 126,153
Interest-
earning assets
(1)........... 1,053,637 959,477 1,021,846 944,295
Interest-
bearing
liabilities... 994,906 900,825 964,485 886,081
Equity (1)..... 97,390 95,690 96,751 94,876
III. PERFORMANCE
RATIOS: (1)
Return on
average assets
(annualized).. 0.89% 1.18% 1.08% 1.16%
Interest rate
spread
information:
Average
during
period..... 3.53 3.88 3.66 3.89
End of
period..... 3.45 3.92 3.45 3.92
Net interest
margin........ 3.75 4.08 3.88 4.09
Ratio of
operating
expense to
average total
assets
(annualized).. 2.24 2.30 2.28 2.39
Return on
average equity
(annualized).. 10.09 12.34 11.92 12.08
Efficiency 55.17 50.05 52.61 52.27
--------------------------------------------
June 30, December 31, June 30,
2007 2006 2006
--------------------------------------------
IV. ASSET
QUALITY:
Total non-
performing
assets........ $ 16,365 10,424 13,491
Non-performing
assets to
total assets.. 1.45% 1.07% 1.34%
Non-performing
loans to total
loans
receivable,
net........... 1.38% 1.08% 1.62%
Allowance for
loan losses... $ 10,725 9,873 10,216
Allowance for
loan losses to
total assets.. 0.95% 1.01% 1.01%
Allowance for
loan losses to
total loans
receivable,
net........... 1.27 1.29 1.35
Allowance for
loan losses to
non-performing
loans......... 92.39 118.84 82.93
V. BOOK VALUE
PER SHARE:
Book value per
share......... $ 22.15 21.58 21.38
--------------------------------------------
Six Months Six Months
Ended Year Ended Ended
June 30, 2007 Dec 31, 2006 June 30, 2006
--------------------------------------------
VI. CAPITAL
RATIOS:
Stockholders'
equity to
total assets,
at end of
period........ 8.40% 9.53% 9.27%
Average
stockholders'
equity to
average assets
(1)........... 9.05 9.70 9.60
Ratio of
average
interest-
earning assets
to average
interest-
bearing
liabilities
(1)........... 105.95 106.67 106.57
--------------------------------------------
June 30, December 31, June 30,
2007 2006 2006
--------------------------------------------
VII. EMPLOYEE
DATA:
Number of full
time
equivalent
employees..... 210 203 212
(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