EX-99 2 a5383858ex99.htm EXHIBIT 99 Exhibit 99
Exhibit 99
NEWS RELEASE
CONTACT:
Michael McNeil, President
   
HMN Financial, Inc. (507) 535-1202
   
FOR IMMEDIATE RELEASE
 
HMN FINANCIAL, INC. ANNOUNCES FIRST QUARTER RESULTS

First Quarter Highlights
 
·  
Net income of $3.3 million, up $528,000, or 19.3% from first quarter of 2006
·  
Diluted earnings per share of $0.82, up $0.14, or 20.6%, from first quarter of 2006
·  
Net interest income up $395,000, or 4.2%, over first quarter of 2006
·  
Net interest margin down 9 basis points from first quarter of 2006
·  
Gain on sales of loans up $550,000, or 223.6%, over first quarter 2006

 
 
EARNINGS SUMMARY    
Three Months Ended
March 31, 
  
 
 
2007 
 
 
2006 
  
               
Net income
  
$
3,268,000
    
2,740,000
  
Diluted earnings per share
    
0.82
    
0.68
  
Return on average assets
    
1.28
%
  
1.14
%
Return on average equity
    
13.79
%
  
11.82
%
Book value per share
  
$
22.01
    
20.99
  
               

ROCHESTER, MINNESOTA, April 20, 2007. . . HMN Financial, Inc. (HMN) (NASDAQ:HMNF), the $1.1 billion holding company for Home Federal Savings Bank (the Bank), today reported net income of $3.3 million for the first quarter of 2007, up $528,000, or 19.3%, from net income of $2.7 million for the first quarter of 2006. Diluted earnings per common share for the first quarter of 2007 were $0.82, up $0.14, or 20.6%, from $0.68 for the first quarter of 2006. The increase in net income was due primarily to increases in net interest income and the gains recognized on the sale of commercial loans.

more . . .
First Quarter Results

Net Interest Income
Net interest income was $9.8 million for the first quarter of 2007, an increase of $395,000, or 4.2%, compared to $9.4 million for the first quarter of 2006. Interest income was $18.3 million for the first quarter of 2007, an increase of $2.3 million, or 14.4%, from $16.0 million for the first quarter of 2006. Interest income increased primarily because of an increase in the average interest rate earned on loans and investments. Interest rates increased primarily because of the 50 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 on new loans originated. The average yield earned on interest-earning assets was 7.49% for the first quarter of 2007, an increase of 51 basis points from the 6.98% average yield for the first quarter of 2006. Interest income also increased because of the $61 million increase in the average interest earning assets between the periods.
Interest expense was $8.5 million for the first quarter of 2007, an increase of $1.9 million, or 28.8%, compared to $6.6 million for the first quarter of 2006. Interest expense increased because of the higher interest rates paid on deposits which were caused by the 50 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 3.69% for the first quarter of 2007, an increase of 62 basis points from the 3.07% average interest rate paid in the first quarter of 2006. The average rate on interest bearing liabilities increased more than the average yield on interest bearing assets primarily because most of the deposit growth between the periods was in higher rate money market accounts while the majority of the asset growth was in lower yielding investments. Net interest margin (net interest income divided by average interest earning assets) for the first quarter of 2007 was 4.01%, a decrease of 9 basis points, compared to 4.10% for the first quarter of 2006.

Provision for Loan Losses
The provision for loan losses was $455,000 for the first quarter of 2007, a decrease of $60,000, compared to $515,000 for the first quarter of 2006. The provision for loan losses decreased primarily because of a decrease in the number of commercial loan risk rating downgrades in the first quarter of 2007 when compared to the same period of 2006. The decrease in the provision due to fewer loan risk ratings downgrades was partially offset by the $33 million in loan growth that was experienced in the first quarter of 2007. Total non-performing assets were $12.7 million at March 31, 2007, an increase of $2.3 million, from $10.4 million at December 31, 2006. Non-performing loans decreased $785,000 and foreclosed and repossessed assets increased $3.1 million during the period. Of the increase in foreclosed and repossessed assets, $1.8 million was the result of purchasing the first mortgage on a previously classified non-performing second mortgage loan in order to improve the Company’s lien position.

A reconciliation of the Company’s allowance for loan losses for the quarters ended March 31, 2007 and 2006 is summarized as follows:

           
(in thousands)
 
2007
  
2006
  
Balance at January 1,
  
$
9,873
  
$
8,778
  
Provision
    
455
    
515
  
Charge offs:
              
Commercial loans
    
(42
)
  
0
  
Consumer loans
    
(580
)
  
(91
)
Recoveries
    
50
    
47
  
Balance at March 31,
  
$
9,756
  
$
9,249
  
               


more . . .

The increase in consumer loan charge offs is primarily the result of a home equity loan that was charged off in the first quarter of 2007 for which a reserve was established in the fourth quarter of 2006.
 
Non-Interest Income and Expense
Non-interest income was $2.1 million for the first quarter of 2007, an increase of $582,000, or 39.2%, from $1.5 million for the first quarter of 2006. Gain on sale of loans increased $550,000 between the periods due to a $612,000 increase in the gain recognized on the sale of government guaranteed commercial loans that was partially offset by a $62,000 decrease in the gain recognized on the sale of single family loans due to a decrease in the volume and profit margins on the loans that were sold. Competition in the single-family loan origination market continues to be very strong and profit margins were lowered in order to remain competitive and maintain origination volumes. Fees and service charges decreased $19,000 between the periods primarily because of decreased late fees. Loan servicing fees decreased $32,000 primarily because of a decrease in the number of single-family loans that are being serviced for others. Other non-interest income increased $83,000 primarily because of increased revenues from the sale of uninsured investment products.    
Non-interest expense was $6.0 million for the first quarter of 2007, an increase of $10,000, or 0.2%, from $5.9 million for the first quarter of 2006. Compensation expense increased $102,000 primarily because of annual payroll cost increases. Occupancy expense decreased $16,000 due primarily to a decrease in real estate taxes. Advertising expense decreased $25,000 between the periods primarily because of a decrease in the costs associated with promoting the new branch and the introduction of new checking account offerings that occurred in the first quarter of 2006. Mortgage servicing rights amortization decreased $35,000 between the periods because there are fewer mortgage loans being serviced.
Income tax expense increased $499,000 between the periods due to an increase in taxable income and an effective tax rate that increased from 38.0% for the first quarter of 2006 to 40.0% for the first quarter of 2007. The increase in the effective tax rate was the result of changes in state tax allocations, a decrease in low income tax credits and an increase in the federal tax rate due to increased income.

Return on Assets and Equity
Return on average assets for the first quarter of 2007 was 1.28%, compared to 1.14% for the first quarter of 2006. Return on average equity was 13.79% for the first quarter of 2007, compared to 11.82% for the same quarter in 2006. Book value per common share at March 31, 2007 was $22.01, compared to $20.99 at March 31, 2006.
 
President’s Statement
"Net interest income continued to increase despite the compression in net interest margin that occurred during the first quarter of 2007,” said HMN President, Michael McNeil. “We are also encouraged with the loan and deposit growth that we experienced during the quarter.”

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. 

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

***END***
 

HMN FINANCIAL, INC. AND SUBSIDIARIES
  
Consolidated Balance Sheets
  
   
           
   
March 31,
  
December 31,
 
(dollars in thousands)
  
2007
  
2006
  
   
(unaudited)
      
Assets
          
Cash and cash equivalents
  
$
85,633
    
43,776
  
Securities available for sale:
              
   Mortgage-backed and related securities
              
    (amortized cost $11,445 and $6,671)
    
11,110
    
6,178
  
    Other marketable securities
              
    (amortized cost $179,694 and $119,940)
    
179,931
    
119,962
  
     
191,041
    
126,140
  
               
Loans held for sale
    
1,412
    
1,493
  
Loans receivable, net
    
798,502
    
768,232
  
Accrued interest receivable
    
6,206
    
5,061
  
Real estate, net
    
5,127
    
2,072
  
Federal Home Loan Bank stock, at cost
    
7,511
    
7,956
  
Mortgage servicing rights, net
    
1,780
    
1,958
  
Premises and equipment, net
    
11,121
    
11,372
  
Goodwill
    
3,801
    
3,801
  
Core deposit intangible, net
    
77
    
106
  
Prepaid expenses and other assets
    
1,891
    
2,943
  
Deferred tax asset, net
    
2,941
    
2,879
  
    Total assets
  
$
1,117,043
    
977,789
  
               
               
Liabilities and Stockholders’ Equity
              
Deposits
  
$
871,929
    
725,959
  
Federal Home Loan Bank advances
    
140,900
    
150,900
  
Accrued interest payable
    
2,203
    
1,176
  
Customer escrows
    
1,240
    
721
  
Accrued expenses and other liabilities
    
5,958
    
5,891
  
    Total liabilities
    
1,022,230
    
884,647
  
Commitments and contingencies
              
Stockholders’ equity:
              
     Serial preferred stock ($.01 par value):
              
      Authorized 500,000 shares; none issued and outstanding
   
0
    
0
  
     Common stock ($.01 par value):
             
      Authorized 11,000,000; issued shares 9,128,662
    
91
    
91
  
Additional paid-in capital
    
57,537
    
57,914
  
Retained earnings, subject to certain restrictions
    
105,715
    
103,643
  
Accumulated other comprehensive loss
    
(59
)
  
(284
)
Unearned employee stock ownership plan shares
    
(4,110
)
  
(4,158
)
Treasury stock, at cost 4,821,493 and 4,813,232 shares
    
(64,361
)
  
(64,064
)
    Total stockholders’ equity
    
94,813
    
93,142
  
Total liabilities and stockholders’ equity
  
$
1,117,043
    
977,789
  
               



HMN FINANCIAL, INC. AND SUBSIDIARIES
  
Consolidated Statements of Income
  
(unaudited)
  
   
     
Three Months Ended
March 31, 
  
(dollars in thousands)    
2007 
    
2006 
  
Interest income:              
     Loans receivable
  
$
15,745
    
14,703
  
     Securities available for sale:
              
         Mortgage-backed and related
    
111
    
71
  
         Other marketable
    
1,896
    
890
  
     Cash equivalents
    
443
    
256
  
     Other
    
84
    
63
  
         Total interest income
    
18,279
    
15,983
  
               
Interest expense:
              
     Deposits
    
6,877
    
4,868
  
     Federal Home Loan Bank advances
   
1,618
    
1,726
  
        Total interest expense
    
8,495
    
6,594
  
   Net interest income
    
9,784
    
9,389
  
Provision for loan losses
    
455
    
515
  
        Net interest income after provision for loan losses
    
9,329
    
8,874
  
               
Non-interest income:
              
     Fees and service charges
    
696
    
715
  
     Mortgage servicing fees
    
271
    
303
  
     Gain on sales of loans
    
796
    
246
  
     Other
    
305
    
222
  
        Total non-interest income
    
2,068
    
1,486
  
               
Non-interest expense:
              
     Compensation and benefits 
    
3,361
    
3,259
  
     Occupancy
    
1,084
    
1,100
  
     Advertising
    
106
    
131
  
     Data processing
    
295
    
289
  
     Amortization of mortgage servicing rights, net
    
182
    
217
  
     Other
    
922
    
944
  
        Total non-interest expense
    
5,950
    
5,940
  
        Income before income tax expense
    
5,447
    
4,420
  
Income tax expense
    
2,179
    
1,680
  
        Net income
  
$
3,268
    
2,740
  
Basic earnings per share
  
$
0.87
    
0.71
  
Diluted earnings per share
  
$
0.82
    
0.68
  
               
 
 
HMN FINANCIAL, INC. AND SUBSIDIARIES
  
Selected Consolidated Financial Information
  
(unaudited)
  
               
               
SELECTED FINANCIAL DATA:  
Three Months Ended
March 31, 
    
(dollars in thousands, except per share data)
  
2007
  
2006
      
I.   OPERATING DATA:
              
      Interest income
  
$
18,279
    
15,983
        
      Interest expense
    
8,495
    
6,594
        
      Net interest income
    
9,784
    
9,389
        
                     
II.   AVERAGE BALANCES:
                    
       Assets (1)
    
1,037,984
    
973,110
        
       Loans receivable, net
    
787,937
    
778,271
        
       Mortgage-backed and related securities (1)
    
9,996
    
7,360
        
       Interest-earning assets (1)
    
989,701
    
928,945
        
       Interest-bearing liabilities
    
933,726
    
871,172
        
       Equity (1)
    
96,104
    
94,054
        
 
                    
 III. PERFORMANCE RATIOS: (1)
                    
  Return on average assets (annualized)
    
1.28
%
  
1.14
%
      
       Interest rate spread information:
                    
          Average during period
    
3.80
    
3.91
        
          End of period
    
3.55
    
3.90
        
       Net interest margin
    
4.01
    
4.10
        
       Ratio of operating expense to average
                    
         total assets (annualized)
    
2.32
    
2.48
        
       Return on average equity (annualized)
    
13.79
    
11.82
        
       Efficiency
    
50.20
    
54.62
        
               
   
March 31,
  
December 31,
  
March 31,
  
 
  
2007
  
2006 
  
2006
  
IV.  ASSET QUALITY:                    
       Total non-performing assets
  
$
12,708
    
10,424
    
3,491
  
       Non-performing assets to total assets
    
1.14
%
  
1.07
%
  
0.35
%
       Non-performing loans to total loans
                   
         receivable, net
    
0.94
    
1.08
    
0.27
 
       Allowance for loan losses
  
$
9,756
    
9,873
    
9,249
  
Allowance for loan losses to total loans
                    
receivable, net
    
1.22
%
  
1.29
%
  
1.20
%
       Allowance for loan losses to
                    
         non-performing loans
    
129.68
    
118.84
    
454.37
  
     
                    
V.  BOOK VALUE PER SHARE:
                    
     Book value per share
  
$
22.01
    
21.58
    
20.99
  
               
   
Three Months
  
 
  
Three Months
  
   
Ended
  
Year Ended  
  
Ended
  
 
  
Mar. 31, 2007
  
Dec. 31, 2006 
  
Mar. 31, 2006
  
VI.  CAPITAL RATIOS :
                    
       Stockholders’ equity to total assets,
                    
         at end of period
    
8.49
%
  
9.53
%
  
9.36
%
       Average stockholders’ equity to
                   
         average assets (1) 
    
9.26
    
9.70
    
9.67
  
       Ratio of average interest-earning assets to
                   
         average interest-bearing liabilities (1)
    
105.99
    
106.67
    
106.63
  
               
   
March 31,
  
December 31,
  
March 31,
  
 
  
2007
  
2006 
  
2006
  
VII. EMPLOYEE DATA:
                    
       Number of full time equivalent employees
    
205
    
203
    
213
  
                     
   
(1)  
Average balances were calculated based upon amortized cost without the market value impact of SFAS 115.