SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 4, 1998
HMN FINANCIAL, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 0-24100 41-1777397
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification
incorporation) Number)
101 NORTH BROADWAY, SPRING VALLEY, MINNESOTA 55975
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (507) 346-7345
N/A
_________________________________________________________________
(Former name or former address, if
changed since last report)
<PAGE>
Item 5. Other Events
On February 4, 1998 the Registrant issued the attached press
release announcing its fourth quarter and annual earnings.
Item 7. Financial Statements and Exhibits
(a) Exhibits
99. Press release, dated February 4, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
HMN FINANCIAL, INC.
Date: February 4, 1998 By: /s/ Roger. P. Weise
Roger P. Weise, Chairman
and Chief Executive Officer
<PAGE>
Exhibit 99
NEWS RELEASE CONTACT: James B. Gardner,
Executive Vice President
HMN Financial, Inc. (507) 346-7345
FOR IMMEDIATE RELEASE
HMN FINANCIAL, INC. ANNOUNCES FOURTH QUARTER
- --------------------------------------------
AND ANNUAL RESULTS
- ------------------
<TABLE>
<CAPTION>
EARNINGS SUMMARY Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 1,248,054 1,299,101 $ 5,578,866 4,274,349
Basic earnings per share 0.34 0.32 1.51 0.99
Diluted earnings per share 0.31 0.31 1.41 0.96
Return on average assets
before SAIF assessment 0.98% 1.04%
Return on average assets 0.84% 0.93% 0.98% 0.78%
Return on average equity
before SAIF assessment 6.84% 6.46%
Return on average equity 6.09% 6.06% 6.84% 4.82%
Book value per share $ 20.38 18.52<F1>$ 20.38 18.52<F1>
</TABLE>
[FN]
<FN1> After SAIF assessment
</FN>
SPRING VALLEY, MINNESOTA, February 4, 1998 . . . HMN
Financial, Inc.(HMN) (NASDAQ:HMNF), the $691 million holding company for Home
Federal Savings Bank (the Bank), today reported net income of $1.25 million
for the fourth quarter of 1997, down $51,000, or 3.9% from $1.3 million for
the fourth quarter of 1996. Basic earnings per share was $0.34 for the
fourth quarter of 1997 compared to $0.32 basic earnings per share for the
fourth quarter of 1996. Diluted earnings per share was $0.31 for the
fourth quarter of both 1997 and 1996. Return on average assets for the fourth
quarter of 1997 was 0.84% compared to 0.93% for the fourth quarter of 1996.
Return on average equity for the fourth quarter of 1997 was 6.09% compared to
6.06% for the fourth quarter of 1996. Book value per share was $20.38 at
December 31, 1997, an increase of $1.86, or 10%, from $18.52 at December 31,
1996.
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Net income for the year ended December 31, 1997 was $5.6
million, an increase of $1.3 million, or 31%, from $4.3 million for the year
ended December 31, 1996. Basic earnings per share was $1.51 for the year
ended December 31, 1997, an increase of $0.52 per share, or 53%, from
$0.99 basic earnings per share for December 31, 1996. Diluted earnings per
share was $1.41 for the year ended December 31, 1997, an increase of $0.45
per share, or 47%, from $0.96 basic earnings per share for year ended in 1996.
In September of 1996, Congress enacted the Savings Association
Insurance Fund (SAIF) legislation which assessed a one time charge of $2.35
million to the Bank in order to recapitalize the SAIF. The total SAIF
assessment of $2.35 million was charged directly to earnings and reduced
after tax earnings by $1.46 million. The assessment reduced basic earnings
per share and diluted earnings per share for the year ended 1996 by $0.34 and
$0.33, respectively. Return on average assets for the year ended 1997
was 0.98% compared to 0.78% for the year ended 1996. Return on average
equity for the year ended 1997 was 6.84% compared to 4.82% for the year ended
1996. If the impact of the SAIF assessment is removed from the 1996
calculations return on average assets would have been 1.04% and return
on average equity would have been 6.46%. Book value per share was $20.38 at
December 31, 1997, an increase of $1.86, or 10%, from $18.52 at December 31,
1996.
On December 5, 1997 HMN completed its acquisition of
Marshalltown Financial Corporation (MFC), the thrift holding company for
Marshalltown Savings Bank, FSB (Marshalltown Bank). In connection with the
acquisition, Marshalltown Bank was merged into Home Federal Savings Bank and is
being operated as a branch of the Bank. The aggregate merger consideration was
$24.8 million, consisting of $23.7 million for the 1.35 million outstanding
MFC shares, or $17.51 per MFC share, and $1.1 million for the outstanding MFC
options. HMN owned 60,000 shares of MFC, which were cancelled under the
merger agreement. The purchase method was used to account for the merger.
On December 5, 1997 as a result of the merger, the Bank's securities
portfolio increased by $47.2 million, loans receivable, net increased by
$69.8 million, a core deposit intangible was recognized for $1.57 million,
goodwill was recognized for $4.5 million and deposits increased by $103.1
million. The consolidated statement of income for HMN as of December 31,
1997 includes the operations of the acquired MFC from December 6, 1997
through December 31, 1997.
Net interest income for the fourth quarter of 1997 was $3.85
million, a decrease of $88,000, or 2.2%, compared to $3.94 million for the
fourth quarter of 1996. Interest income for the fourth quarter of 1997
was $10.7 million, an increase of $596,000 from $10.1 million for the same
quarter of 1996. Interest income increased by $739,000 primarily due to an
increase in net loans receivable and was partially offset by a $143,000
decrease of interest income due to a general decline in interest rates during
1997. Interest expense for the fourth quarter of 1997 was $6.9 million,
an increase of $684,000, or 11.1%, compared to $6.2 million for the same
quarter of 1996. Interest expense increased by $650,000 due to an increase in
the deposit base and advances from the Federal Home Loan Bank of Des Moines
(FHLB). Interest expense also increased by $34,000 primarily due to an
increase in
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the interest rates paid on FHLB advances. Net interest income for the year
ended December 31, 1997 was $15.4 million, a decrease of $223,000,
or 1.4%,from $15.7 million for the same year ended in 1996. Interest
income for the year ended December 31, 1997 was $41.1 million, an increase
of $1.2 million, or 3.1%, compared to $39.9 million for the year ended
in 1996. The increased interest income was primarily due to an increase
in net loans receivable. Interest expense for the year ended December 31,
1997 was $25.6 million an increase of $1.4 million, or 6.0% from $24.2
million for the year ended December 31, 1996. The increase in interest income
was totally offset by an increase in interest expense of $223,000, primarily
due to additional borrowing from the FHLB.
Net interest margin for the quarter ended December 31, 1997 was 2.60%, a
decline of 26 basis points from 2.86% for the quarter ended December 31,
1996. Net interest margin for the year ended December 31, 1997 was 2.77%, a
decline of 12 basis points from 2.89% for the year ended December
31, 1996. During 1997 HMN increased its investment in non-interest bearing
assets such as mortgage servicing assets, partnerships which invest in mortgage
servicing assets and partnerships which invest in the common stock of other
financial institutions. HMN is in the process of building a new retail
banking facility in Spring Valley. HMN also repurchased its own common
stock in the open market during 1997. The impact of the above mentioned
investing activities and the purchase of MFC caused net interest earning
assets to decline. The decline in net interest earning assets when coupled
with general fluctuations in interest rates caused HMN's net interest
margin to decline.
Non-interest income for the fourth quarter of 1997 was $740,000, an
increase of $416,000, or 128%, from $324,000 for the same quarter in 1996.
The increase in quarterly income was primarily due to a $310,000 increase in
gains recognized on the sale of securities and a $113,000 increase in gain on
the sale of loans. Interest rates, in general, decreased during the fourth
quarter of 1997, creating a favorable environment for HMN to sell securities
and loans. During 1997, HMN increased its mortgage banking activities and is
selling more loans in the secondary market than it did in 1996.
Non-interest income for the year ended December 31, 1997 was $2.7 million, an
increase of $800,000, or 42%, from $1.9 million for the same year ended in
1996. The increase in non-interest income was primarily due to a $430,000
gain on the sale of loans, a $220,000 increase in gains recognized on the sale
of securities and a $128,000 increase in fee income. The increase in
gain on sale of loans was due to HMN's increased mortgage banking
activities and a general decrease in interest rates which allowed both loans and
securities to be sold at a profit.
Non-interest expense for the fourth quarter of 1997 was $2.6 million, an
increase of $405,000, or 18.9%, from $2.1 million for the same quarter of
1996. Compensation and benefits expense increased by $273,000 due to new
employees added in either mortgage banking activities or by the purchase of
MFC and normal merit and salary increases for existing HMN employees. Non-
interest expense for the year ended December 31, 1997 was $9.0 million, a
decrease of $1.5 million, or 14.1%, from $10.5 million for the year ended in
1996. The majority of the $1.5 million decrease in non-interest expense was
due to the one time SAIF assessment of $2.35 million not repeating itself in
1997. As a result of the SAIF
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assessment the FDIC insurance premium expense decreased by $561,000. The
decrease in non-interest expense was partially offset by a $999,000 increase
in compensation and benefits, an increase in occupancy of $158,000 and an
increase in other expense of $227,000. Compensation and benefits expense
increased as a result of adding new employees in mortgage banking activities,
the purchase of MFC and normal merit and salary increases to existing
employees. Occupancy increased for the year ended December 31, 1997 compared
to 1996 because of the purchase of MFC and the continued remodeling and
updating of offices for new technological advances.
HMN Financial, Inc. and Home Federal Savings Bank are headquartered in
Spring Valley, MN. The Bank operates seven offices in southern Minnesota and
three in Iowa. HMN Mortgage Services, Inc., a subsidiary of HMN Financial,
Inc. operates mortgage banking facilities in Eden Prairie and Brooklyn Park,
MN.
(Three pages of selected consolidated financial information
are included with this release.)
***END***
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 9,364,635 10,583,717
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $135,598,404
and $134,474,167) 135,935,482 133,355,278
Other marketable securities
(amortized cost $68,356,926
and $42,360,499) 69,923,477 42,474,810
------------ ------------
205,858,959 175,830,088
------------ ------------
Securities held to maturity:
Mortgage-backed and related securities
(fair value $0 and $1,904,993) 0 1,805,744
Other marketable securities
(fair value $0 and $1,000,550) 0 999,812
------------ ------------
0 2,805,556
------------ ------------
Loans held for sale 2,287,265 739,316
Loans receivable, net 442,068,600 349,022,236
Federal Home Loan Bank stock, at cost 7,432,200 5,434,000
Real estate, net 133,939 20,610
Premises and equipment, net 5,880,710 3,581,497
Accrued interest receivable 4,038,131 3,415,152
Investment in limited partnerships 5,989,399 2,887,525
Goodwill 4,500,873 0
Core deposit intangible 1,546,273 0
Investment in mortgage servicing rights 781,005 4,681
Prepaid expenses and other assets 1,349,521 407,221
------------ ------------
Total assets $691,231,510 554,731,599
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $467,347,688 362,476,944
Federal Home Loan Bank advances 127,650,021 106,078,589
Accrued interest payable 1,365,064 1,542,773
Advance payments by borrowers for
taxes and insurance 786,619 518,911
Accrued expenses and other liabilities 6,056,356 2,014,938
Due to stockholders of Marshalltown
Financial Corporation 3,555,352 0
------------ ------------
Total liabilities 606,761,100 472,632,155
------------ ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock: authorized
500,000 shares;issued and
outstanding none 0 0
Common stock ($.01 par value):
authorized 7,000,000;issued
shares 6,085,775 60,858 60,858
Additional paid-in capital 59,729,090 59,428,768
Retained earnings, subject to
certain restrictions 60,224,253 54,645,387
Net unrealized gain/(loss) on
securities available for sale 1,129,818 (598,045)
Unearned employee stock ownership
plan shares (4,554,280) (4,938,520)
Unearned compensation restricted
stock awards (600,668) (793,289)
Treasury stock, at cost 1,941,407
and 1,651,615 shares (31,518,661) (25,705,715)
------------ ------------
Total stockholders' equity 84,470,410 82,099,444
------------ ------------
Total liabilities and stockholders'
equity $691,231,510 554,731,599
============ ============
</TABLE>
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Twelve MonthsEnded
December 31, December31,
1997 1996 1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $7,598,770 6,711,707 28,328,864 25,721,042
Securities available for sale:
Mortgage-backed and
related 1,796,406 2,296,748 8,255,402 10,027,438
Other marketable 1,077,616 768,923 3,699,378 2,424,628
Securities held to maturity:
Mortgage-backed and related 0 45,293 33,400 765,120
Other marketable 0 14,345 10,032 104,448
Cash equivalents 117,196 178,506 342,433 494,129
Other 116,563 95,067 420,722 327,520
----------- ----------- ----------- -----------
Total interest income 10,706,551 10,110,589 41,090,231 39,864,325
----------- ----------- ----------- -----------
Interest expense:
Deposits 5,062,832 4,668,781 19,056,164 18,949,937
Federal Home Loan Bank
advances 1,794,303 1,504,838 6,586,855 5,243,853
----------- ----------- ----------- -----------
Total interest expense 6,857,135 6,173,619 25,643,019 24,193,790
----------- ----------- ----------- -----------
Net interest income 3,849,416 3,936,970 15,447,212 15,670,535
Provision for loan losses 75,000 75,000 300,000 300,000
----------- ----------- ----------- -----------
Net interest income
after provision
for loan losses 3,774,416 3,861,970 15,147,212 15,370,535
----------- ----------- ----------- -----------
Non-interest income:
Fees and service charges 168,739 105,061 487,085 359,249
Securities gains, net 377,410 67,840 1,249,569 1,029,638
Gain on sales of loans 135,094 22,326 469,461 39,306
Other 58,458 128,628 516,244 494,507
----------- ---------- ----------- -----------
Total non-interest income 739,701 323,855 2,722,359 1,922,700
----------- ---------- ----------- -----------
Non-interest expense:
Compensation and benefits 1,483,598 1,210,524 5,590,297 4,591,367
Occupancy 264,437 230,393 983,238 825,609
Federal deposit insurance
premiums 63,275 163,214 238,654 799,890
SAIF assessment 0 0 0 2,351,563
Advertising 101,214 78,729 315,771 308,464
Data processing 136,498 120,900 508,930 489,045
Provision for real estate
losses 15,000 2,000 18,000 2,000
Other 488,441 341,238 1,367,815 1,140,948
----------- ---------- ----------- -----------
Total non-interest
expense 2,552,463 2,146,998 9,022,705 10,508,886
----------- ---------- ----------- -----------
Income before income
taxes 1,961,654 2,038,827 8,846,866 6,784,349
Income tax expense 713,600 739,726 3,268,000 2,510,000
----------- ---------- ----------- -----------
Net income $1,248,054 1,299,101 5,578,866 4,274,349
=========== ========== =========== ===========
Basic earnings per share $ 0.34 0.32 1.51 0.99
=========== ========== =========== ===========
Diluted earnings per share $ 0.31 0.31 1.41 0.96
=========== ========== =========== ===========
</TABLE>
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
<TABLE>
<CAPTION>
Selected Financial Data: Three Months Ended Twelve Months Ended
(dollars in thousands, Dec 31, Dec 31, Dec 31, Dec 31,
except per share data) 1997 1996 1997 1996
-------------------- ---------------------
<S> <C> <C> <C> <C>
I. OPERATING DATA:
Interest income $ 10,706 10,111 41,090 39,864
Interest expense 6,857 6,174 25,643 24,194
Net interest income 3,849 3,937 15,447 15,670
II. AVERAGE BALANCES:
Assets <F1> 607,023 557,225 572,103 550,509
Loans receivable, net 388,333 336,349 355,657 324,958
Mortgage-backed and
related securities <F1> 109,702 140,335 121,804 158,561
Interest earnings
assets <F1> 586,836 548,057 556,831 541,638
Interest bearing
liabilities 512,950 465,612 483,130 455,645
Equity <F1><F2> 83,938 85,351 82,144 88,736
III.PERFORMANCE RATIOS: <F1>
Return on average assets
(annualized) 0.84% 0.93% 0.98% 0.78%
Interest rate spread
information:
Average during period 1.93 2.06 2.07 2.05
End of period 1.60 2.17 1.60 2.17
Net interest margin 2.60 2.86 2.77 2.89
Ratio of operating expense
to average total assets
(annualized) 1.63 1.53 1.56 1.91
Return on average equity
(annualized) 6.09 6.06 6.84 4.82
Efficiency 55.62 50.39 49.66 59.73
IV. ASSET QUALITY:
Dec 31, Dec 31,
1997 1996
--------------------
Total non-performing assets $ 807 361
Non-performing assets to
total assets 0.12% 0.07%
Non-performing loans to
total loans receivable, net 0.15 0.10
Allowance for loan losses $2,748 2,341
Allowance for loan losses
to total assets 0.40% 0.42%
Allowance for loan losses to
total loans receivable, net 0.62 0.67
Allowance for loan losses
to non-performing loans 413.17 691.84
V. BOOK VALUE PER SHARE:
Book value per share
excluding net unrealized
loss on securities
available for sale $ 20.11 18.65
Book value per share 20.38 18.52
Tangible book value 18.92 18.52
Year Year
Ended Ended
Dec 31, Dec 31,
1997 1996
---------------------
VI. CAPITAL RATIOS
Stockholders' equity to
total assets, at end
of period 12.22% 14.80%
Average stockholders'
equity to average
assets <F1><F2> 14.36 16.12
Ratio of average interest
-earning assets to
average interest-bearing
liabilities<F1> 115.25 118.87
Dec 31, Dec 31,
V. EMPLOYEE DATA: 1997 1996
----------------------
Number of employees 150 110
</TABLE>
[FN]
<FN1> Average balances were calculated based upon amortized cost
without the market value impact of SFAS 115.
<FN2> Average equity and average equity/average asset ratio
decreasing due in part to a repurchase of 243,088 shares of common stock in the
fourth quarter of 1996 and an additional repurchase of 224,334 shares of common
stock in 1997.
</FN>
<PAGE>
