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HMN Financial Inc. Reports Operating Results (10-Q)

May 05, 2010 | About:
10qk

10qk

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HMN Financial Inc. (HMNF) filed Quarterly Report for the period ended 2010-03-31.

Hmn Financial Inc. has a market cap of $25.6 million; its shares were traded at around $5.93 with and P/S ratio of 0.4. HMNF is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

The net loss for the first quarter of 2010 was $1.8 million, an improvement of $0.8 million compared to a net loss of $2.6 million for the first quarter of 2009. Net loss available to common shareholders was $2.3 million for the first quarter of 2010, an improvement of $0.8 million, or 25.0%, from the net loss available to common shareholders of $3.1 million for the first quarter of 2009. Diluted loss per common share for the first quarter of 2010 was $0.61, an improvement of $0.22 from diluted loss per common share of $0.83 for the first quarter of 2009. The decrease in the net loss between the periods was due primarily to a $1.9 million improvement in the gains/losses recognized on the sale of real estate owned which was partially offset by an $821,000 decrease in net interest income. The decrease in net interest income was primarily the result of a decrease in interest-earning assets between the periods.

Net interest income was $8.0 million for the first quarter of 2010, a decrease of $0.8 million, or 9.3%, compared to $8.8 million for the first quarter of 2009. Interest income was $12.9 million for the first quarter of 2010, a decrease of $2.5 million, or 16.0%, from $15.4 million for the first quarter of 2009. Interest income decreased between the periods primarily because of a $104 million decrease in average interest-earning assets between the periods. Average interest earning assets decreased between the periods primarily because of a decrease in the commercial loan portfolio, which occurred because of declining loan demand and the Companys focus on improving credit quality, managing interest rate risk and improving capital ratios. Interest income was also adversely affected by the increase in non-performing assets between the periods. The average yield earned on interest-earning assets was 5.36% for the first quarter of 2010, a decrease of 40 basis points from the 5.76% average yield for the first quarter of 2009.

Interest expense was $4.9 million for the first quarter of 2010, a decrease of $1.7 million, or 24.8%, compared to $6.6 million for the first quarter of 2009. Interest expense decreased primarily because of the lower interest rates paid on money market accounts and certificates of deposits. The decreased rates were the result of the 400 basis point decrease in the federal funds rate that occurred in 2008. Decreases in the federal funds rate, which is the rate that banks charge other banks for short term loans, generally have a lagging effect and decrease the rates banks pay for deposits. The lagging effect of deposit rate changes is primarily due to the Banks deposits that are in the form of certificates of deposits, which do not re-price immediately when the federal funds rate changes. Interest expense also decreased because of an $89 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the outstanding borrowings and brokered certificates of deposits between the periods. The decrease in borrowings and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered deposits. The average interest rate paid on interest-bearing liabilities was 2.17% for the first quarter of 2010, a decrease of 46 basis points from the 2.63% average interest rate paid in the first quarter of 2009.

The provision for loan losses was $6.5 million for the first quarter of 2010, a decrease of $0.1 million, or 0.5%, compared to $6.6 million for the first quarter of 2009. The provision for loan losses remained elevated in the first quarter of 2010 primarily because of $2.5 million in additional reserves established on two commercial real estate loans as a result of decreases in the estimated value of the underlying collateral supporting the loans, $1.4 million in additional reserves established on other loans due to risk rating downgrades, $1.6 million in additional reserves established on a commercial loan due to the borrower filing bankruptcy, and a $1.1 million increase in the general reserves required for other performing loans as a result of a loan portfolio analysis.

Non-interest income was $1.6 million for the first quarter of 2010, a decrease of $259,000, or 14.1%, from $1.8 million for the first quarter of 2009. Fees and service charges decreased $185,000 between the periods primarily

Non-interest expense was $6.0 million for the first quarter of 2010, a decrease of $2.4 million, or 28.6%, from $8.4 million for the first quarter of 2009. The gain/loss on real estate owned improved by $1.9 million between the periods due primarily to a $1.0 million gain realized on the sale of an elderly care facility in the first quarter of 2010. Compensation expense decreased $400,000 between the periods primarily because of costs associated with the employment agreement of a former executive officer that were expensed in the first quarter of 2009. Other expenses decreased $270,000 between the periods due primarily to decreases in legal fees and payment processing costs. Occupancy expense decreased $61,000 due primarily to decreased depreciation expense on furniture and equipment. Deposit insurance costs increased $187,000 due to an increase in insurance rates between the periods.

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