FIVE-YEAR
CONSOLIDATED FINANCIAL HIGHLIGHTS
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Selected Operations Data:
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Year Ended December 31,
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(Dollars in thousands, except per share data)
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2009
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2008
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2007
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2006
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2005
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Total interest income
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$
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57,771
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66,512
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77,523
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67,527
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60,281
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Total interest expense
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23,868
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32,796
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38,823
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28,841
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24,511
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Net interest income
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33,903
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33,716
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38,700
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38,686
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35,770
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Provision for loan losses
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26,699
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26,696
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3,898
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8,878
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2,674
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Net interest income after provision for loan losses
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7,204
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7,020
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34,802
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29,808
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33,096
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Fees and service charges
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4,137
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4,269
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3,139
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3,111
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2,719
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Loan servicing fees
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1,042
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955
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1,054
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1,172
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1,210
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Securities gains (losses), net
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5
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479
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0
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48
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(21
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Gain on sales of loans
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2,273
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651
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1,514
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1,255
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1,853
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Other non-interest income
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625
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749
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1,205
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856
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748
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Total non-interest income
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8,082
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7,103
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6,912
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6,442
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6,509
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Total non-interest expense
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31,689
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29,234
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23,140
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22,596
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21,801
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Income (loss) before income tax expense (benefit)
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(16,403
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(15,111
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18,574
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13,654
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17,804
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Income tax expense (benefit)
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(5,607
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(4,984
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)
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7,300
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5,226
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6,736
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Net income (loss)
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(10,796
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(10,127
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11,274
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8,428
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11,068
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Preferred stock dividends and discount
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(1,747
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(37
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0
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0
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0
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Net income (loss) available to common shareholders
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$
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(12,543
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(10,164
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11,274
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8,428
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11,068
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Basic earnings (loss) per common share
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$
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(3.39
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(2.78
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3.02
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2.20
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2.89
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Diluted earnings (loss) per common share
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(3.39
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(2.78
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2.89
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2.10
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2.77
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Cash dividends per common share
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0.00
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0.75
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1.00
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0.98
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0.92
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Selected Financial Condition
Data:
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December 31,
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(Dollars in thousands, except per share data)
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2009
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2008
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2007
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2006
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2005
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Total assets
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$
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1,036,241
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1,145,480
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1,117,054
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977,789
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991,237
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Securities available for sale
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159,602
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175,145
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186,188
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126,140
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119,659
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Loans held for sale
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2,965
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2,548
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3,261
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1,493
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1,435
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Loans receivable, net
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799,256
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900,889
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865,088
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768,232
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785,678
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Deposits
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796,011
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880,505
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888,118
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725,959
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731,537
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FHLB advances and Federal Reserve borrowings
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132,500
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142,500
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112,500
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150,900
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160,900
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Stockholders equity
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99,938
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112,213
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98,128
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93,142
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90,728
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Book value per common share
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17.94
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21.31
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23.50
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21.58
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20.59
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Number of full service offices
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14
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16
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15
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14
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13
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Number of loan origination offices
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2
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2
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2
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2
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3
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Key
Ratios(1)
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Stockholders equity to total assets at year end
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9.64
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%
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9.80
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%
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8.78
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%
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9.53
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%
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9.15
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%
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Average stockholders equity to average assets
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9.73
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8.58
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8.89
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9.70
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9.05
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Return (loss) on stockholders equity
(ratio of net income (loss) to average equity)
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(10.33
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(10.61
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11.53
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8.85
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12.42
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Return (loss) on assets
(ratio of net income (loss) to average assets)
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(1.00
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(0.91
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1.03
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0.86
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1.12
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Dividend payout ratio
(ratio of dividends paid to net income (loss))
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NM
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NM
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34.72
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42.61
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38.02
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(1) |
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Average balances were calculated
based upon amortized cost without the market value impact of ASC
320.
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NM Not meaningful
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3
MANAGEMENT
DISCUSSION AND ANALYSIS
This Annual Report, other reports filed by the Company with
the Securities and Exchange Commission, and the Companys
proxy statement may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements are often identified by such
forward-looking terminology as expect,
intent, look, believe,
anticipate, estimate,
project, seek, may,
will, would, could,
should, trend, target, and
goal or similar statements or variations of such
terms and include, but are not limited to those relating to the
adequacy of available liquidity to the Bank, the Companys
liquidity requirements, changes in the size of the Banks
loan portfolio, future losses on non-performing loans, the
future outlook for the Company, and the Companys
compliance with regulatory standards. A number of factors could
cause actual results to differ materially from the
Companys assumptions and expectations. These include but
are not limited to the adequacy and marketability of real estate
securing loans to borrowers, possible legislative and regulatory
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; international economic
developments, changes in credit or other risks posed by the
Companys loan and investment portfolios; technological,
computer-related or operational difficulties; adverse changes in
securities markets; results of litigation; the Companys
use of the proceeds from the sale of securities to the
U.S. Treasury Department or other significant
uncertainties. Additional factors that may cause actual results
to differ from the Companys assumptions and expectations
include those set forth in the Companys most recent
filings on
Form 10-K
with the Securities and Exchange Commission. All forward-looking
statements are qualified by, and should be considered in
conjunction with, such cautionary statements. For additional
discussion of the risks and uncertainties applicable to the
Company, see the Risk Factors section of the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009.
Overview
HMN Financial, Inc. (HMN or the Company) is the stock savings
bank holding company for Home Federal Savings Bank (the Bank),
which operates community retail, private banking and loan
production offices in Minnesota and Iowa. The earnings of the
Company are primarily dependent on the Banks net interest
income, which is the difference between interest earned on loans
and investments, and the interest paid on interest-bearing
liabilities such as deposits and Federal Home Loan Bank (FHLB)
advances. The difference between the average rate of interest
earned on assets and the average rate paid on liabilities is the
interest rate spread. Net interest income is
produced when interest-earning assets equal or exceed
interest-bearing liabilities and there is a positive interest
rate spread. Net interest income and net interest rate spread
are affected by changes in interest rates, the volume and mix of
interest-earning assets and interest-bearing liabilities, and
the level of non-performing assets. The Companys interest
rate spread increased in 2009 primarily because the cost of
interest-bearing deposits decreased more than the yields on
interest-earning assets. The lower interest rates paid on money
market and certificate of deposit accounts in 2009 were the
result of the aggregate 400 basis point decrease in the
federal funds rate that occurred over the course of the year in
2008. Decreases in the federal funds rate generally have a
lagging effect and decrease the rates banks pay for deposits.
The Companys net income (loss) is also affected by the
generation of non-interest income, which consists primarily of
gains or losses from the sale of securities, gains from the sale
of loans, fees for servicing mortgage loans, and the generation
of fees and service charges on deposit accounts. The Bank incurs
expenses in addition to interest expense in the form of salaries
and benefits, occupancy expenses, provisions for loan losses,
deposit insurance and amortization of mortgage servicing assets.
Over the past several years, the Company has increased the
emphasis on commercial and commercial real estate loans, which
has increased the credit risk inherent in the loan portfolio.
While HMN did not originate or hold subprime mortgages in its
loan portfolio, purchase investments backed by subprime
mortgages, or incur any write downs directly related to subprime
mortgages, subprime credit issues indirectly impacted the
Company by making it more difficult for some borrowers with
marginal credit to qualify for a mortgage because most of the
non-traditional mortgage products were eliminated by the banks
and mortgage companies that were previously offering them. This
decrease in available credit reduced the demand for single
family homes as there were less qualified buyers in the
marketplace. The decrease in demand for housing and building
lots affected our level of charge offs and the risk ratings on
many of our residential development loans. Consequently, our
provision for loan losses significantly increased in 2008 and
2009, relative to periods before the current economic slowdown.
The increase in the provision was due to commercial loan charge
offs and risk rating downgrades caused by continued weak demand
for housing and building and general economic weakness in our
markets.
4
The earnings of financial institutions, such as the Bank, are
significantly affected by prevailing economic and competitive
conditions, particularly changes in interest rates, government
monetary and fiscal policies, and regulations of various
regulatory authorities. Lending activities are influenced by the
demand for and supply of business credit, single family and
commercial properties, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and
costs of deposits are influenced by prevailing market rates of
interest on competing investments, account maturities and the
levels of personal income and savings.
Critical
Accounting Estimates
Critical accounting policies are those policies that the
Companys management believes are the most important to
understanding the Companys financial condition and
operating results. These critical accounting policies often
involve estimates and assumptions that could have a material
impact on the Companys financial statements. The Company
has identified the following critical accounting policies that
management believes involve the most difficult, subjective,
and/or
complex judgments that are inherently uncertain. Therefore,
actual financial results could differ significantly depending
upon the estimates, assumptions and other factors used.
Allowance
for Loan Losses and Related Provision
The allowance for loan losses is based on periodic analysis of
the loan portfolio. In this analysis, management considers
factors including, but not limited to, specific occurrences of
loan impairment, changes in the size of the portfolios, national
and regional economic conditions such as unemployment data, loan
portfolio composition, loan delinquencies, local construction
permits, development plans, local economic conditions,
historical experience and observations made by the
Companys ongoing internal audit and regulatory exam
processes. Loans are charged off to the extent they are deemed
to be uncollectible. The Company has established separate
processes to determine the adequacy of the loan loss allowance
for its homogeneous single-family and consumer loan portfolios
and its non-homogeneous loan portfolios. The determination of
the allowance for the non-homogeneous commercial, commercial
real estate and multi-family loan portfolios involves assigning
standardized risk ratings and loss factors that are periodically
reviewed. The loss factors are estimated based on the
Companys own loss experience and are assigned to all loans
without identified credit weaknesses. For each non-performing
loan, the Company also performs an individual analysis of
impairment that is based on the expected cash flows or the value
of the assets collateralizing the loans and establishes any
necessary specific reserves. The determination of the allowance
on the homogeneous single-family and consumer loan portfolios is
calculated on a pooled basis with individual determination of
the allowance for all non-performing loans. The Companys
policies and procedures related to the allowance for loan losses
are consistent with the Interagency Policy Statement on the
Allowance for Loan and Lease Losses that was issued by the
federal financial regulatory agencies in December 2006.
The adequacy of the allowance for loan losses is dependent upon
managements estimates of variables affecting valuation,
appraisals of collateral, evaluations of performance and status,
and the amounts and timing of future cash flows expected to be
received on impaired loans. Such estimates, appraisals,
evaluations and cash flows may be subject to frequent
adjustments due to changing economic prospects of borrowers or
properties. The estimates are reviewed periodically and
adjustments, if any, are recorded in the provision for loan
losses in the periods in which the adjustments become known.
Because of the size of some loans, changes in estimates can have
a significant impact on the loan loss provision. The allowance
is allocated to individual loan categories based upon the
relative risk characteristics of the loan portfolios and the
actual loss experience. The Company increases its allowance for
loan losses by charging the provision for loan losses against
income. The methodology for establishing the allowance for loan
losses takes into consideration probable losses that have been
identified in connection with specific loans as well as losses
in the loan portfolio for which specific reserves are not
required. Although management believes that based on current
conditions the allowance for loan losses is maintained at an
adequate amount to provide for probable loan losses inherent in
the portfolio as of the balance sheet dates, future conditions
may differ substantially from those anticipated in determining
the allowance for loan losses and adjustments may be required in
the future.
Income
Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. These calculations are based on many
5
MANAGEMENT
DISCUSSION AND ANALYSIS
complex factors including estimates of the timing of reversals
of temporary differences, the interpretation of federal and
state income tax laws and a determination of the differences
between the tax and the financial reporting basis of assets and
liabilities. Actual results could differ significantly from the
estimates and interpretations used in determining the current
and deferred income tax liabilities.
The Company maintains significant net deferred tax assets for
deductible temporary differences, the largest of which relates
to the allowance for loan losses. For income tax purposes, only
net charge-offs are deductible, not the provision for loan
losses. Under generally accepted accounting principles, a
valuation allowance is required to be recognized if it is
more likely than not that the deferred tax asset
will not be realized. The determination of the realizability of
the deferred tax assets is highly subjective and dependent upon
managements judgment and evaluation of both positive and
negative evidence, including the forecasts of future income,
applicable tax planning strategies and assessments of the
current and future economic and business conditions. The Company
considers both positive and negative evidence regarding the
ultimate realizabilty of deferred tax assets. Positive evidence
includes the existence of taxes paid in available carry-back
years, the ability to implement tax planning strategies to
accelerate taxable income recognition and the probability that
taxable income will be generated in future periods. Negative
evidence includes the Companys cumulative loss in the
prior three year period and the general business and economic
trends. At December 31, 2009, the Company did not record a
valuation allowance relating to deferred tax assets. This
determination was based largely on the Companys ability to
implement tax planning strategies to accelerate taxable income,
its ability to generate future taxable income and the
utilization of taxes paid in available carry-back years. The
Company believes, based on its internal earnings projections,
that it will generate sufficient future taxable income that will
result in the realization of the Companys deferred tax
assets. This positive evidence was sufficient to overcome the
negative evidence of a cumulative loss in the most recent three
year period that was caused primarily by the significant loan
loss provisions that have been realized in the past two years,
including one specific $12.0 million provision and related
charge-off in 2008 due to apparently fraudulent activities
related to the collateral of one loan, and a $3.8 million
non-cash goodwill impairment charge recorded in 2008. It is
possible that future conditions may differ substantially from
those anticipated in determining the need for a valuation
allowance on deferred tax assets and adjustments may be required
in the future.
The Company adopted Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (ASC 740). ASC 740 requires the use
of estimates and managements best judgment to determine
the amounts and probabilities of all of the possible outcomes
that could be realized upon the ultimate settlement of any tax
position using the facts, circumstances and information
available. The application of ASC 740 requires significant
estimates and judgments in arriving at the amount of tax
benefits to be recognized in the financial statements for a
given tax position. It is possible that the tax benefits
realized upon the ultimate resolution of a tax position may
result in tax benefits that are significantly different from
those estimated.
Results
of Operations
The net loss was $10.8 million for 2009, an increased loss
of $669,000, from the $10.1 million loss for 2008. Due to
preferred stock dividends and discount accretion, there was a
net loss available to common shareholders of $12.5 million
for the year ended December 31, 2009, an increased loss of
$2.3 million from the net loss available to common
shareholders of $10.2 million for 2008. Diluted loss per
common share for the year ended December 31, 2009 was
$3.39, an increased loss of $0.61 from the $2.78 diluted loss
per common share for the year ended December 31, 2008.
Net
Interest Income
Net interest income was $33.9 million for 2009, an increase
of $187,000, or 0.6%, from $33.7 million for 2008. Interest
income was $57.8 million for 2009, a decrease of
$8.7 million, or 13.1%, from $66.5 million for 2008.
Interest income decreased primarily because of a decrease in the
average yields earned on loans and investments. The decreased
average yields were the result of the 400 basis point
decrease in the prime interest rate that occurred during 2008.
Decreases in the prime rate, which is the rate that banks charge
their prime business customers, generally decrease the rates on
adjustable rate consumer and commercial loans in the portfolio
and on new loans originated. Interest income was also adversely
affected by the decrease in the average net loans receivable of
$39.1 million and the increase in the average
non-performing assets between the periods. The decrease in
outstanding loans in 2009 was a result of declining loan demand
and the Companys focus on improving credit quality,
managing interest rate risk and improving capital ratios and it
is anticipated that this trend will continue in 2010. The
average yield earned on interest-earning assets was 5.68% for
2009, a decrease of 55 basis points from the 6.23% average
yield for 2008.
Interest expense was $23.9 million for 2009, a decrease of
$8.9 million, or 27.2%, from $32.8 million for 2008.
Interest expense decreased primarily because of
6
lower interest rates paid on money market and certificates of
deposit accounts. The decreased rates were the result of the
400 basis point decrease in the federal funds rate that
occurred during 2008. Decreases in the federal funds rate
generally have a lagging effect and decrease the rates banks pay
for deposits. Interest expense also decreased because of a
$43.3 million decrease in average interest-bearing
liabilities between the periods. The decrease in average
interest-bearing liabilities is primarily the result of a
decrease in the outstanding brokered certificates of deposits
between the periods. The decrease in brokered deposits in 2009
was the result of using the proceeds from loan principal
payments to fund maturing brokered deposits and it is
anticipated that this trend will continue in 2010. The average
interest rate paid on interest-bearing liabilities was 2.49% for
2009, a decrease of 78 basis points from the 3.27% paid for
2008. Net interest margin (net interest income divided by
average interest earning assets) for 2009 was 3.33%, an increase
of 17 basis points, compared to 3.16% for 2008.
The following table presents the total dollar amount of interest
income from average interest-earning assets and the resultant
yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and
rates. Non-accruing loans have been included in the table as
loans carrying a zero yield.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Outstanding
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Outstanding
|
|
|
Earned/
|
|
|
Yield/
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and related securities
|
|
$
|
63,725
|
|
|
|
2,768
|
|
|
|
4.34
|
%
|
|
$
|
35,494
|
|
|
|
1,615
|
|
|
|
4.55
|
%
|
|
$
|
15,502
|
|
|
|
727
|
|
|
|
4.69
|
%
|
Other marketable securities
|
|
|
82,758
|
|
|
|
3,039
|
|
|
|
3.67
|
|
|
|
119,065
|
|
|
|
5,775
|
|
|
|
4.85
|
|
|
|
177,256
|
|
|
|
9,153
|
|
|
|
5.16
|
|
Loans held for sale
|
|
|
3,161
|
|
|
|
163
|
|
|
|
5.16
|
|
|
|
2,711
|
|
|
|
166
|
|
|
|
6.12
|
|
|
|
2,391
|
|
|
|
148
|
|
|
|
6.19
|
|
Loans receivable,
net(1)(2)
|
|
|
848,696
|
|
|
|
51,713
|
|
|
|
6.09
|
|
|
|
887,836
|
|
|
|
58,505
|
|
|
|
6.59
|
|
|
|
827,597
|
|
|
|
65,967
|
|
|
|
7.97
|
|
FHLB stock
|
|
|
7,286
|
|
|
|
87
|
|
|
|
1.19
|
|
|
|
7,192
|
|
|
|
253
|
|
|
|
3.52
|
|
|
|
6,627
|
|
|
|
341
|
|
|
|
5.15
|
|
Other, including cash equivalents
|
|
|
12,212
|
|
|
|
1
|
|
|
|
0.01
|
|
|
|
16,011
|
|
|
|
198
|
|
|
|
1.24
|
|
|
|
24,820
|
|
|
|
1,187
|
|
|
|
4.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
1,017,838
|
|
|
|
57,771
|
|
|
|
5.68
|
|
|
$
|
1,068,309
|
|
|
|
66,512
|
|
|
|
6.23
|
|
|
$
|
1,054,193
|
|
|
|
77,523
|
|
|
|
7.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
106,360
|
|
|
|
132
|
|
|
|
0.12
|
%
|
|
$
|
126,118
|
|
|
|
1,542
|
|
|
|
1.22
|
%
|
|
$
|
115,572
|
|
|
|
3,495
|
|
|
|
3.02
|
%
|
Passbooks
|
|
|
30,401
|
|
|
|
38
|
|
|
|
0.12
|
|
|
|
40,229
|
|
|
|
412
|
|
|
|
1.02
|
|
|
|
40,401
|
|
|
|
551
|
|
|
|
1.36
|
|
Money market accounts
|
|
|
105,854
|
|
|
|
1,430
|
|
|
|
1.35
|
|
|
|
120,333
|
|
|
|
2,821
|
|
|
|
2.34
|
|
|
|
216,175
|
|
|
|
8,045
|
|
|
|
3.72
|
|
Certificate accounts
|
|
|
257,085
|
|
|
|
7,652
|
|
|
|
2.98
|
|
|
|
247,454
|
|
|
|
9,582
|
|
|
|
3.87
|
|
|
|
236,415
|
|
|
|
10,577
|
|
|
|
4.47
|
|
Brokered deposits
|
|
|
232,829
|
|
|
|
8,327
|
|
|
|
3.58
|
|
|
|
287,771
|
|
|
|
12,799
|
|
|
|
4.45
|
|
|
|
210,164
|
|
|
|
10,734
|
|
|
|
5.11
|
|
FHLB advances and Federal Reserve borrowings
|
|
|
155,681
|
|
|
|
6,289
|
|
|
|
4.04
|
|
|
|
123,938
|
|
|
|
5,639
|
|
|
|
4.55
|
|
|
|
116,721
|
|
|
|
5,420
|
|
|
|
4.64
|
|
Other interest-bearing liabilities
|
|
|
1,219
|
|
|
|
0
|
|
|
|
0.02
|
|
|
|
1,135
|
|
|
|
1
|
|
|
|
0.08
|
|
|
|
939
|
|
|
|
1
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
889,429
|
|
|
|
|
|
|
|
|
|
|
$
|
946,978
|
|
|
|
|
|
|
|
|
|
|
$
|
936,387
|
|
|
|
|
|
|
|
|
|
Noninterest checking
|
|
|
70,364
|
|
|
|
|
|
|
|
|
|
|
|
56,164
|
|
|
|
|
|
|
|
|
|
|
|
55,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities and noninterest bearing
deposits
|
|
$
|
959,793
|
|
|
|
23,868
|
|
|
|
2.49
|
|
|
$
|
1,003,142
|
|
|
|
32,796
|
|
|
|
3.27
|
|
|
$
|
991,389
|
|
|
|
38,823
|
|
|
|
3.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
33,903
|
|
|
|
|
|
|
|
|
|
|
|
33,716
|
|
|
|
|
|
|
|
|
|
|
|
38,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
2.96
|
%
|
|
|
|
|
|
|
|
|
|
|
3.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earning assets
|
|
$
|
58,045
|
|
|
|
|
|
|
|
|
|
|
$
|
65,167
|
|
|
|
|
|
|
|
|
|
|
$
|
62,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.33
|
%
|
|
|
|
|
|
|
|
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
|
|
3.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing
liabilities and noninterest bearing deposits
|
|
|
|
|
|
|
106.05
|
%
|
|
|
|
|
|
|
|
|
|
|
106.50
|
%
|
|
|
|
|
|
|
|
|
|
|
106.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Tax exempt income was not
significant; therefore, the yield was not presented on a tax
equivalent basis for any of the years presented. The tax-exempt
income was $0.7 million for 2009 and $1.0 million for
both 2008 and 2007.
|
(2) |
|
Calculated net of deferred loan
fees, loan discounts, loans in process and loss reserve.
|
7
MANAGEMENT
DISCUSSION AND ANALYSIS
Net interest margin increased to 3.33% in 2009 from 3.16% in
2008 primarily because the cost of interest-bearing liabilities
decreased at a faster rate than the yield on interest-earning
assets due to the lagging effect of deposit price changes in
relation to loan price changes. Net interest margin was also
positively impacted by a change in the deposit mix as a lower
percentage of deposits were in higher priced brokered
certificates of deposits in 2009 when compared to 2008. Brokered
deposits decreased in 2009 as the proceeds from loan payoffs
were used to pay off the outstanding brokered deposits that
matured during the year. Average net earning assets decreased
$7.2 million to $58.0 million in 2009 compared to
$65.2 million for 2008. Net earning assets decreased
primarily because of increases in non-performing assets and loan
charge offs during 2009.
The following table presents the dollar amount of changes in
interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It
quantifies the changes in interest income and interest expense
related to changes in the average outstanding balances (volume)
and those changes caused by fluctuating interest rates. For each
category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied
by old rate) and (ii) changes in rate (i.e., changes in
rate multiplied by old volume).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009 vs. 2008
|
|
|
|
|
|
2008 vs. 2007
|
|
|
|
|
|
|
Increase (Decrease)
|
|
|
Total
|
|
|
Increase (Decrease)
|
|
|
Total
|
|
|
|
Due to
|
|
|
Increase
|
|
|
Due to
|
|
|
Increase
|
|
(Dollars in thousands)
|
|
Volume(1)
|
|
|
Rate(1)
|
|
|
(Decrease)
|
|
|
Volume(1)
|
|
|
Rate(1)
|
|
|
(Decrease)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and related securities
|
|
$
|
1,285
|
|
|
|
(132
|
)
|
|
|
1,153
|
|
|
|
938
|
|
|
|
(50
|
)
|
|
|
888
|
|
Other marketable securities
|
|
|
(1,761
|
)
|
|
|
(975
|
)
|
|
|
(2,736
|
)
|
|
|
(3,005
|
)
|
|
|
(373
|
)
|
|
|
(3,378
|
)
|
Loans held for sale
|
|
|
27
|
|
|
|
(30
|
)
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
(2
|
)
|
|
|
18
|
|
Loans receivable, net
|
|
|
(2,510
|
)
|
|
|
(4,282
|
)
|
|
|
(6,792
|
)
|
|
|
4,600
|
|
|
|
(12,061
|
)
|
|
|
(7,461
|
)
|
Cash equivalents
|
|
|
(47
|
)
|
|
|
(150
|
)
|
|
|
(197
|
)
|
|
|
(421
|
)
|
|
|
(568
|
)
|
|
|
(989
|
)
|
FHLB stock
|
|
|
3
|
|
|
|
(169
|
)
|
|
|
(166
|
)
|
|
|
29
|
|
|
|
(117
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
(3,003
|
)
|
|
|
(5,738
|
)
|
|
|
(8,741
|
)
|
|
|
2,161
|
|
|
|
(13,171
|
)
|
|
|
(11,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
(405
|
)
|
|
|
(1,005
|
)
|
|
|
(1,410
|
)
|
|
|
320
|
|
|
|
(2,272
|
)
|
|
|
(1,952
|
)
|
Passbooks
|
|
|
(101
|
)
|
|
|
(273
|
)
|
|
|
(374
|
)
|
|
|
(2
|
)
|
|
|
(137
|
)
|
|
|
(139
|
)
|
Money market accounts
|
|
|
(422
|
)
|
|
|
(969
|
)
|
|
|
(1,391
|
)
|
|
|
(4,855
|
)
|
|
|
(368
|
)
|
|
|
(5,223
|
)
|
Certificates
|
|
|
373
|
|
|
|
(2,303
|
)
|
|
|
(1,930
|
)
|
|
|
477
|
|
|
|
(1,473
|
)
|
|
|
(996
|
)
|
Brokered deposits
|
|
|
(2,446
|
)
|
|
|
(2,026
|
)
|
|
|
(4,472
|
)
|
|
|
3,585
|
|
|
|
(1,520
|
)
|
|
|
2,065
|
|
FHLB advances and Federal Reserve borrowings
|
|
|
426
|
|
|
|
112
|
|
|
|
538
|
|
|
|
330
|
|
|
|
(111
|
)
|
|
|
219
|
|
Other interest-bearing liabilities
|
|
|
127
|
|
|
|
(16
|
)
|
|
|
111
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(2,448
|
)
|
|
|
(6,480
|
)
|
|
|
(8,928
|
)
|
|
|
(145
|
)
|
|
|
(5,881
|
)
|
|
|
(6,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
(555
|
)
|
|
|
742
|
|
|
|
187
|
|
|
|
2,306
|
|
|
|
(7,290
|
)
|
|
|
4,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of this table, changes
attributable to both rate and volume which cannot be segregated,
have been allocated proportionately to the change due to volume
and the change due to rate.
|
8
The following table sets forth the weighted average yields on
the Companys interest-earning assets, the weighted average
interest rates on interest-bearing liabilities and the interest
rate spread between the weighted average yields and rates as of
the date indicated. Non-accruing loans have been included in the
table as loans carrying a zero yield.
At December 31,
2009
|
|
|
Weighted average yield on:
|
|
|
Securities available for sale:
|
|
|
Mortgage-backed and related securities
|
|
4.26%
|
Other marketable securities
|
|
2.33
|
Loans held for sale
|
|
5.29
|
Loans receivable, net
|
|
5.91
|
Federal Home Loan Bank stock
|
|
2.00
|
Other interest-earnings assets
|
|
0.01
|
Combined weighted average yield on interest-earning assets
|
|
5.33
|
|
|
|
Weighted average rate on:
|
|
|
NOW accounts
|
|
0.08%
|
Passbooks
|
|
0.13
|
Money market accounts
|
|
1.25
|
Certificates
|
|
2.80
|
Federal Home Loan Bank advances
|
|
4.59
|
Combined weighted average rate on interest-bearing liabilities
|
|
2.21
|
Interest rate spread
|
|
3.12
|
Provision
for Loan Losses
The provision for loan losses was $26.7 million for 2009,
the same as for 2008. The provision for loan losses remained
elevated in 2009 primarily because of the high loan loss
allowances recorded for specific commercial real estate loans
due to decreases in the estimated value of the underlying
collateral supporting the loans. The loan loss provision for
2009 includes a $6.9 million increase on two unrelated
commercial loans that were charged off after it was determined
that the collateral supporting the loans was inadequate due to
the apparently fraudulent actions of the respective borrowers.
In addition a $3.0 million provision for loan losses was
established on two alternative fuel plants during 2009 based on
updated appraised values and an additional provision for loan
losses of $2.9 million was recorded on two non-performing
residential development loans. An analysis of the loan portfolio
during the year resulted in a $2.7 million increase in the
loan loss provision for other risk-rated loans. An additional
$1.0 million increase in the loan loss provision related to
two loans to financial institutions was recorded in 2009 due to
the deterioration of their financial condition. The loan loss
provision for 2008 included a $12.0 million provision and
related charge off due to apparently fraudulent activity on a
commercial loan. Total non-performing assets were
$77.4 million at December 31, 2009, an increase of
$2.6 million, or 3.5%, from $74.8 million at
December 31, 2008. Non-performing loans decreased
$3.1 million to $61.1 million and foreclosed and
repossessed assets increased $5.7 million to
$16.3 million. The non-performing loan and foreclosed and
repossessed asset activity for the year was as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
Non-performing loans
|
|
|
|
|
December 31, 2008
|
|
$
|
64,173
|
|
Classified as non-performing
|
|
|
44,632
|
|
Charge offs
|
|
|
(25,031
|
)
|
Principal payments received
|
|
|
(4,322
|
)
|
Classified as accruing
|
|
|
(1,106
|
)
|
Transferred to real estate owned
|
|
|
(17,219
|
)
|
|
|
|
|
|
December 31, 2009
|
|
$
|
61,127
|
|
|
|
|
|
|
Foreclosed and repossessed asset activity
|
|
|
|
|
December 31, 2008
|
|
$
|
10,583
|
|
Transferred from non-performing loans
|
|
|
17,219
|
|
Other foreclosures/repossessions
|
|
|
1,237
|
|
Real estate sold
|
|
|
(9,819
|
)
|
Net gain on sale of assets
|
|
|
1,436
|
|
Write downs
|
|
|
(4,394
|
)
|
|
|
|
|
|
December 31, 2009
|
|
$
|
16,262
|
|
|
|
|
|
|
9
MANAGEMENT
DISCUSSION AND ANALYSIS
A reconciliation of the allowance for loan losses for 2009 and
2008 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Balance at January 1,
|
|
$
|
21,257
|
|
|
|
12,438
|
|
Provision
|
|
|
26,699
|
|
|
|
26,696
|
|
Charge offs:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(9,421
|
)
|
|
|
(13,784
|
)
|
Commercial real estate
|
|
|
(13,548
|
)
|
|
|
(3,454
|
)
|
Consumer
|
|
|
(1,980
|
)
|
|
|
(612
|
)
|
One-to-four family
|
|
|
(82
|
)
|
|
|
(78
|
)
|
Recoveries
|
|
|
887
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
23,812
|
|
|
|
21,257
|
|
|
|
|
|
|
|
|
|
|
Non-Interest
Income
Non-interest income was $8.1 million for 2009, an increase
of $1.0 million, or 13.8%, from $7.1 million for 2008.
The following table presents the components of non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Year Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009/2008
|
|
|
2008/2007
|
|
|
|
|
Fees and service charges
|
|
$
|
4,137
|
|
|
|
4,269
|
|
|
|
3,139
|
|
|
|
(3.1
|
)%
|
|
|
36.0
|
%
|
Loan servicing fees
|
|
|
1,042
|
|
|
|
955
|
|
|
|
1,054
|
|
|
|
9.1
|
|
|
|
(9.4
|
)
|
Securities gains, net
|
|
|
5
|
|
|
|
479
|
|
|
|
0
|
|
|
|
(99.0
|
)
|
|
|
N/A
|
|
Gain on sales of loans
|
|
|
2,273
|
|
|
|
651
|
|
|
|
1,514
|
|
|
|
249.2
|
|
|
|
(57.0
|
)
|
Other non-interest income
|
|
|
625
|
|
|
|
749
|
|
|
|
1,205
|
|
|
|
(16.6
|
)
|
|
|
(37.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
8,082
|
|
|
|
7,103
|
|
|
|
6,912
|
|
|
|
13.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales of loans increased $1.6 million between the
periods because of an increase in the sales of single family
mortgages between the periods due to the low interest rate
environment during 2009. Loan servicing fees increased $87,000
between the periods due to an increase in the single-family
mortgage loans being serviced. Security gains decreased $474,000
because of decreased investment sales. Fees and service charges
decreased $132,000 between the periods primarily because of
decreased retail deposit account overdrafts and fees. Other
non-interest income decreased $124,000 between the periods due
primarily to a decrease in the sales of uninsured investment
products.
Non-Interest
Expense
Non-interest expense was $31.7 million for 2009, an
increase of $2.5 million, or 8.4%, from $29.2 million
for 2008. The following table presents the components of
non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Year Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009/2008
|
|
|
2008/2007
|
|
|
|
|
Compensation and benefits
|
|
$
|
13,432
|
|
|
|
12,464
|
|
|
|
12,491
|
|
|
|
7.8
|
%
|
|
|
(0.2
|
)%
|
Losses (gains) on real estate owned
|
|
|
3,873
|
|
|
|
(187
|
)
|
|
|
(682
|
)
|
|
|
2,171.1
|
|
|
|
72.6
|
|
Occupancy
|
|
|
4,084
|
|
|
|
4,521
|
|
|
|
4,467
|
|
|
|
(9.7
|
)
|
|
|
1.2
|
|
Deposit insurance
|
|
|
1,973
|
|
|
|
678
|
|
|
|
113
|
|
|
|
191.0
|
|
|
|
500.0
|
|
Data processing
|
|
|
1,182
|
|
|
|
1,731
|
|
|
|
1,267
|
|
|
|
(31.7
|
)
|
|
|
36.6
|
|
Goodwill impairment charge
|
|
|
0
|
|
|
|
3,801
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other
|
|
|
7,145
|
|
|
|
6,226
|
|
|
|
5,484
|
|
|
|
14.8
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
31,689
|
|
|
|
29,234
|
|
|
|
23,140
|
|
|
|
8.4
|
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on real estate owned increased $4.1 million between
2008 and 2009 primarily because the losses recognized on three
residential developments, caused by a decrease in their
estimated value, exceeded the gains recognized on the
10
sale of two commercial real estate properties. Deposit insurance
premiums increased $1.3 million due to increased FDIC
insurance premium rates and a special FDIC assessment of
$483,000 that was paid in 2009. Compensation and benefits
expense increased $968,000 between the periods primarily because
of additional staffing in the mortgage, commercial and computer
operations areas and costs associated with the employment
agreement of a former executive officer. Other non-interest
expenses increased $919,000 primarily because of an increase in
the costs related to other real estate owned. These increases
were offset by a $3.8 million decrease in goodwill
impairment charges between the periods. Data processing costs
decreased $549,000 between the periods primarily because of
decreases in third party vendor charges for internet and other
banking services as a result of the system conversion that
occurred in the fourth quarter of 2008. Occupancy expense
decreased $437,000 primarily because of a decrease in
depreciation expense and non-capitalized software and equipment
purchases.
Income
Taxes
The Company considers the calculation of current and deferred
income taxes to be a critical accounting policy that is subject
to significant estimates. Actual results could differ
significantly from the estimates and interpretations used in
determining the current and deferred income tax assets and
liabilities. The income tax benefit was $5.6 million for
the year ended December 31, 2009, an increased benefit of
$623,000, compared to a $5.0 million benefit for the year
ended December 31, 2008. The increased income tax benefit
was due to an increased taxable loss and an effective tax rate
that increased from 33.0% for 2008 to 34.2% for 2009. The
effective tax rate was lower in 2008 primarily due to the
nondeductible goodwill impairment charge that was recorded in
2008.
The Company is headquartered in Minnesota and files a state
income tax return with the Minnesota Department of Revenue
(MDR). In January 2007, the MDR proposed adjustments of
$2.2 million to the Companys Minnesota state tax
liability related to the tax treatment of the inter-company
dividends paid to the Bank by a former subsidiary in 2002, 2003
and 2004. The Company challenged the additional assessment and
the case was heard by the Minnesota tax court, which ruled in
favor of the MDR in the second quarter of 2009. The Company
recorded additional income tax expense of $1.0 million and
interest of $461,000 at that time. The Company appealed the tax
court ruling to the Minnesota Supreme Court. The case was heard
in the fourth quarter of 2009 and a ruling is anticipated in the
second quarter of 2010. The Company has previously reserved for
the entire amount of the proposed adjustment, therefore, a
favorable ruling would result in a reduction in income tax
expense of $1.2 million and a reduction in other expense of
$697,000 for accrued interest.
Net
Loss Available to Common Shareholders
On December 23, 2008, the Company sold preferred stock and
a related warrant to the United States Treasury for
$26.0 million. The preferred shares are entitled to a 5%
annual cumulative dividend for each of the first five years of
the investment, increasing to 9% thereafter, unless HMN redeems
the shares. The cumulative preferred dividends payable is
$325,000 each quarter for the first five years the preferred
shares are outstanding and increase to $585,000 each quarter
after that if the shares are not redeemed. The Company paid all
preferred dividends to the U.S. Treasury that were due in
2008 and 2009. Net income (loss) available to common
stockholders is net income (loss) less the preferred dividends
paid or accrued for the period.
The net loss available to common shareholders was
$12.5 million for the year ended December 31, 2009, an
increased loss of $2.3 million from the net loss available
to common shareholders of $10.2 million for 2008. The net
loss available to common shareholders increased primarily
because of the $1.7 million increase in the preferred stock
dividend and discount accretion costs between the periods. The
increased preferred stock dividend and discount accretion costs
in 2009 are the result of the preferred stock being outstanding
for the entire year compared to only a partial year in 2008.
Comparison
of 2008 With 2007
The net loss was $10.1 million for 2008, a decrease of
$21.4 million compared to net income of $11.3 million
for 2007. Diluted loss per common share for the year ended
December 31, 2008 was $2.78, down $5.67 from the $2.89 of
diluted earnings per common share for the year ended
December 31, 2007. Return on average assets was (0.91)% and
1.03% and return on average equity was (10.61)% and 11.53% for
2008 and 2007, respectively.
In comparing 2008 to 2007, the decrease in net income is due
primarily to a $22.8 million increase in the loan loss
provision between the periods as a result of increased
commercial loan loss reserves and charge offs, including a
$12 million charge off in the third quarter of 2008 because
of the apparently fraudulent activities related to the
collateral of one loan. Results in 2008 were also adversely
affected by a $5.0 million decrease in net interest income
and a $3.8 million non-cash goodwill impairment charge.
Net interest income was $33.7 million for 2008, a decrease
of $5.0 million, or 12.9%, from $38.7 million for
2007. Interest income was $66.5 million for 2008, a
decrease of $11.0 million, or 14.2%, from
$77.5 million
11
MANAGEMENT
DISCUSSION AND ANALYSIS
for 2007. Interest income decreased primarily because of a
decrease in the average yields earned on loans and investments.
The decreased average yields were the result of the
400 basis point decrease in the prime interest rate between
the periods. Interest income was also adversely affected by the
increase in non-performing loans between the periods which
resulted in a $3.6 million reduction in interest income and
reduced the yield on interest earning assets by 33 basis
points in 2008. The decrease in average yields was partially
offset by an increase of $60.2 million in average net loans
receivable between the periods. The average yield earned on
interest-earning assets was 6.23% for 2008, a decrease of
112 basis points from the 7.35% average yield for 2007.
Interest expense was $32.8 million for 2008, a decrease of
$6.0 million, or 15.5%, from $38.8 million for 2007.
Interest expense decreased primarily because of lower interest
rates paid on commercial 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 between the periods. The effect on our deposits of
decreases in the federal funds rate generally lags the effect on
our assets. The lagging effect of deposit rate changes is
primarily due to the Banks deposits that are in the form
of certificates of deposit which do not re-price immediately
when the federal funds rate changes. The decrease in rates due
to changes in the federal funds rate was partially offset by an
increased use of brokered deposits during the period which
typically have higher interest rates than other types of
deposits. The average interest rate paid on interest-bearing
liabilities was 3.27% for 2008, a decrease of 64 basis
points from the 3.91% paid for 2007. Net interest margin (net
interest income divided by average interest earning assets) for
2008 was 3.16%, a decrease of 51 basis points, compared to
3.67% for 2007.
Net interest margin decreased to 3.16% in 2008, from 3.67% in
2007, primarily because the cost of interest-bearing liabilities
decreased at a slower rate than the yield on interest
earning-assets due to the lagging effect of deposit price
changes in relation to loan price changes. Net interest margin
was also negatively impacted by a change in the deposit mix as a
larger percentage of deposits were in higher priced brokered
certificates of deposits in 2008 when compared to 2007. Brokered
deposits increased in 2008 as they were used to replace
scheduled money market withdrawals on escrow deposits received
in 2007. Average net earning assets were $65.2 million in
2008, compared to $62.8 million for 2007. Net earning
assets increased primarily because of an increase in cash from
operations and were reduced by the purchase of premises and
equipment, net disbursements on loans held for sale, repurchase
of HMN common stock, the payment of dividends and the transfer
of loans to real estate. During 2008 and 2007, the Company
purchased premises and equipment of $3.8 million and
$2.6 million, paid $723,000 and $4.9 million,
respectively, to purchase its common stock in the open market
and paid dividends to stockholders of $2.7 million and
$3.8 million, respectively.
The provision for loan losses was $26.7 million for 2008,
an increase of $22.8 million, from $3.9 million for
2007. The provision for loan losses increased $12.0 million
as the result of a commercial loan that was charged off in the
third quarter of 2008 due to the apparently fraudulent
activities related to the underlying collateral on the loan. The
provision for loan losses also increased due to
$44.8 million in commercial loan growth between the
periods, an increase in the specific reserves established on
commercial real estate loans due to decreases in collateral
values and because of risk rating downgrades on various loans in
the portfolio as a result of the current economic environment.
Total non-performing assets were $74.8 million at
December 31, 2008, an increase of $52.9 million, or
240.8%, from $21.9 million at December 31, 2007.
Non-performing loans increased $44.5 million to
$64.2 million and foreclosed and repossessed assets
increased $8.4 million to $10.6 million between the
periods. The increase in non-performing loans was primarily
related to commercial real estate loans.
Non-interest income was $7.1 million for 2008, an increase
of $191,000, or 2.8%, from $6.9 million for 2007. Fees and
service charges increased $1.1 million between the periods
primarily because of increased retail deposit account activity
and fees. Security gains increased $479,000 because of increased
investment sales. Other non-interest income decreased $456,000
between 2008 and 2007 due primarily to a decrease in the sales
of uninsured investment products between the periods. Gain on
sales of loans decreased $863,000 between 2008 and 2007 due
primarily to a decrease in the gains realized on commercial
government guaranteed loans that were sold. Loan servicing fees
decreased $99,000 between the periods due primarily to a
decrease in the single-family mortgage loans being serviced due
to most of the mortgage loans being sold into the secondary
market with the servicing released during 2008.
Non-interest expense for 2008 was $29.2 million, an
increase of $6.1 million, or 26.3%, from $23.1 million
for 2007. A goodwill impairment charge of $3.8 million was
recorded in the second quarter of 2008 as goodwill related to a
prior acquisition was deemed to be impaired and fully written
off due to the trading of the Companys common stock at a
discount to book value. Other non-interest expense increased
$742,000 between the periods primarily because of a litigation
settlement related to a loan participation and increased legal
fees primarily related
12
to an ongoing state tax assessment challenge. Deposit insurance
costs increased $565,000 due to an increase in Federal Deposit
Insurance premium rates. Occupancy expense increased $54,000
primarily because of the additional costs associated with a new
branch that was opened in Eagan in the third quarter of 2007 and
a new branch that was opened in Rochester in the third quarter
of 2008. Data processing costs increased $464,000 primarily
because of increased expenses related to the data processing
system conversion that took place in the fourth quarter of 2008.
Gains on real estate owned decreased $495,000 due to fewer real
estate sales in 2008. Compensation expense decreased $27,000
between the periods as pay increases were offset entirely by
decreases in incentives and pension costs related to the
Companys ESOP plan.
The income tax benefit was $5.0 million for 2008, a change
of $12.3 million, compared to $7.3 million in income
tax expense for 2007. Income taxes decreased between the periods
due to a decrease in taxable income and an effective income tax
rate that decreased from 39.3% for 2007 to 33.0% for 2008. The
difference in the effective rates between the periods is
primarily related to the $3.8 million goodwill impairment
charge recorded during the year as it is not tax deductible and
therefore no tax benefit was recorded.
Financial
Condition
Loans
Receivable, Net
The following table sets forth the information on the
Companys loan portfolio in dollar amounts and percentages
(before deductions for loans in process, deferred fees and
discounts and allowances for losses) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
144,631
|
|
|
|
17.54
|
%
|
|
$
|
161,989
|
|
|
|
17.51
|
%
|
|
$
|
152,974
|
|
|
|
17.33
|
%
|
|
$
|
134,269
|
|
|
|
17.10
|
%
|
|
$
|
127,075
|
|
|
|
15.82
|
%
|
Multi-family
|
|
|
59,266
|
|
|
|
7.18
|
|
|
|
29,292
|
|
|
|
3.17
|
|
|
|
29,073
|
|
|
|
3.29
|
|
|
|
29,863
|
|
|
|
3.80
|
|
|
|
40,753
|
|
|
|
5.07
|
|
Commercial
|
|
|
312,714
|
|
|
|
37.92
|
|
|
|
325,304
|
|
|
|
35.16
|
|
|
|
281,822
|
|
|
|
31.92
|
|
|
|
294,490
|
|
|
|
37.49
|
|
|
|
260,268
|
|
|
|
32.40
|
|
Construction or development
|
|
|
40,412
|
|
|
|
4.90
|
|
|
|
108,283
|
|
|
|
11.70
|
|
|
|
111,034
|
|
|
|
12.58
|
|
|
|
60,178
|
|
|
|
7.66
|
|
|
|
80,342
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
557,023
|
|
|
|
67.54
|
|
|
|
624,868
|
|
|
|
67.54
|
|
|
|
574,903
|
|
|
|
65.12
|
|
|
|
518,800
|
|
|
|
66.05
|
|
|
|
508,438
|
|
|
|
63.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
902
|
|
|
|
0.11
|
|
|
|
1,333
|
|
|
|
0.14
|
|
|
|
1,730
|
|
|
|
0.20
|
|
|
|
3,093
|
|
|
|
0.39
|
|
|
|
5,461
|
|
|
|
0.68
|
|
Home equity line
|
|
|
50,369
|
|
|
|
6.11
|
|
|
|
52,243
|
|
|
|
5.65
|
|
|
|
51,317
|
|
|
|
5.81
|
|
|
|
54,247
|
|
|
|
6.91
|
|
|
|
61,011
|
|
|
|
7.60
|
|
Home equity
|
|
|
21,088
|
|
|
|
2.55
|
|
|
|
22,912
|
|
|
|
2.48
|
|
|
|
20,254
|
|
|
|
2.30
|
|
|
|
21,263
|
|
|
|
2.71
|
|
|
|
19,076
|
|
|
|
2.37
|
|
Mobile home
|
|
|
977
|
|
|
|
0.12
|
|
|
|
1,316
|
|
|
|
0.14
|
|
|
|
1,699
|
|
|
|
0.19
|
|
|
|
2,052
|
|
|
|
0.26
|
|
|
|
2,299
|
|
|
|
0.29
|
|
Land/lot loans
|
|
|
3,190
|
|
|
|
0.39
|
|
|
|
2,969
|
|
|
|
0.32
|
|
|
|
4,151
|
|
|
|
0.47
|
|
|
|
5,501
|
|
|
|
0.70
|
|
|
|
9,487
|
|
|
|
1.18
|
|
Other
|
|
|
5,689
|
|
|
|
0.69
|
|
|
|
5,828
|
|
|
|
0.63
|
|
|
|
5,758
|
|
|
|
0.65
|
|
|
|
3,692
|
|
|
|
0.47
|
|
|
|
3,564
|
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
82,215
|
|
|
|
9.97
|
|
|
|
86,601
|
|
|
|
9.36
|
|
|
|
84,909
|
|
|
|
9.62
|
|
|
|
89,848
|
|
|
|
11.44
|
|
|
|
100,898
|
|
|
|
12.56
|
|
Commercial business loans
|
|
|
185,525
|
|
|
|
22.49
|
|
|
|
213,775
|
|
|
|
23.10
|
|
|
|
222,959
|
|
|
|
25.26
|
|
|
|
176,770
|
|
|
|
22.51
|
|
|
|
193,962
|
|
|
|
24.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other loans
|
|
|
267,740
|
|
|
|
32.46
|
|
|
|
300,376
|
|
|
|
32.46
|
|
|
|
307,868
|
|
|
|
34.88
|
|
|
|
266,618
|
|
|
|
33.95
|
|
|
|
294,860
|
|
|
|
36.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
824,763
|
|
|
|
100.00
|
%
|
|
|
925,244
|
|
|
|
100.00
|
%
|
|
|
882,771
|
|
|
|
100.00
|
%
|
|
|
785,418
|
|
|
|
100.00
|
%
|
|
|
803,298
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in process **
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
3,011
|
|
|
|
|
|
|
|
5,252
|
|
|
|
|
|
|
|
7,008
|
|
|
|
|
|
Unamortized (premiums) discounts
|
|
|
177
|
|
|
|
|
|
|
|
569
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
Net deferred loan fees
|
|
|
1,518
|
|
|
|
|
|
|
|
2,529
|
|
|
|
|
|
|
|
2,245
|
|
|
|
|
|
|
|
2,021
|
|
|
|
|
|
|
|
1,644
|
|
|
|
|
|
Allowance for losses
|
|
|
23,812
|
|
|
|
|
|
|
|
21,257
|
|
|
|
|
|
|
|
12,438
|
|
|
|
|
|
|
|
9,873
|
|
|
|
|
|
|
|
8,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
799,256
|
|
|
|
|
|
|
$
|
900,889
|
|
|
|
|
|
|
$
|
865,088
|
|
|
|
|
|
|
$
|
768,232
|
|
|
|
|
|
|
$
|
785,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
Core systems converted in 2008,
thus loans in process are reflected in loan amounts in table.
|
In 2009, to focus on improving credit quality, managing interest
rate risk and improving capital ratios the Company began to
decrease the outstanding loan balances. For those reasons and as
a result of declining loan demand it is anticipated that the
size of our overall loan portfolio will continue to decline in
2010. HMN does
13
MANAGEMENT
DISCUSSION AND ANALYSIS
not originate or hold subprime mortgages in our loan portfolio
and does not purchase or hold investments backed by subprime
mortgages in our investment portfolio. However, subprime credit
issues continued to indirectly impact the Company in 2009 by
making it more difficult for some borrowers with marginal credit
to qualify for a mortgage, as most non-traditional mortgage
products have been eliminated by the banks and mortgage
companies that were previously offering them. This decrease in
available credit reduced the demand for single family homes as
there were less qualified buyers in the marketplace. The
decrease in demand for housing and building lots affected the
risk ratings on many of our residential development loans. The
economic slowdown spread to other sectors of the economy and is
reflected in the $77.4 million of Company assets that were
classified as non-performing at the end of 2009. We continue to
work with the borrowers in order to resolve the non-performing
status of these loans in the most cost effective manner. While
we believe we have adequately provided for any probable losses
on our loan portfolio, we recognize that it will take time in
the current economic environment for borrowers to convert these
assets into cash and repay their loans due to the limited demand
for the properties.
One-to-four
family real estate loans were $144.6 million at
December 31, 2009, a decrease of $17.4 million,
compared to $162.0 million at December 31, 2008.
Refinance activity increased in 2009 due to the lower mortgage
rates experienced. While loan originations increased in 2009
from the prior year, almost all of the loans originated were
sold into the secondary market and were not placed in the
portfolio in order to manage the Companys interest rate
risk position. The increase in the amount of mortgage loans sold
was the primary reason for the decrease in the
one-to-four
family loan portfolio during 2009.
Multi-family real estate loans were $59.3 million at
December 31, 2009, an increase of $30.0 million,
compared to $29.3 million at December 31, 2008. The
increase in multi-family real estate loans in 2009 is primarily
the result of four large multi-family construction loans where
the project was completed in 2009 and the loan was moved from
construction and development to multi-family real estate.
Commercial real estate loans were $312.7 million at
December 31, 2009, a decrease of $12.6 million,
compared to $325.3 million at December 31, 2008.
Commercial business loans were $185.5 million at
December 31, 2009, a decrease of $28.3 million,
compared to $213.8 million at December 31, 2008.
Decreased commercial loan demand and tighter underwriting and
pricing guidelines resulted in a decrease in net commercial loan
production. Net commercial loan production, which is the
principal amount retained by the Bank after deducting sold loan
participations, was $74.1 million in 2009, compared to
$218.7 million in 2008. Loan participations are sold in
most cases in order to comply with lending limit restrictions
and/or
reduce loan concentrations. The decrease in net production was
the primary reason for the decrease in the combined commercial
business and commercial real estate loan balances in 2009.
Construction or development loans were $40.4 million at
December 31, 2009, a decrease of $67.9 million,
compared to $108.3 million at December 31, 2008. The
decrease is primarily the result of four large multi-family
construction loans totaling $35.0 million where the
projects were completed in 2009 and the loans were moved from
construction or development to multi-family real estate.
Construction or development loans also decreased as a result of
construction loans where the project was completed and the
borrower obtained permanent financing elsewhere. These maturing
construction loans were not replaced with new construction loans
due to a decrease in demand for construction and development
loans in 2009.
Home equity line loans were $50.4 million at
December 31, 2009, compared to $52.2 million at
December 31, 2008. The open-end home equity lines are
written with an adjustable rate and a 10 year draw period
which requires interest only payments followed by a
10 year repayment period which fully amortizes the
outstanding balance. Closed-end home equity loans are written
with fixed or adjustable rates with terms up to 15 years.
Home equity loans were $21.1 million at December 31,
2009, compared to $22.9 million at December 31, 2008.
Allowance
for Loan Losses
The determination of the allowance for loan losses and the
related provision is a critical accounting policy of the Company
that is subject to significant estimates, as previously
discussed. The current level of the allowance for loan losses is
a result of managements assessment of the risks within the
portfolio based on the information obtained through the credit
evaluation process. The Company utilizes a risk-rating system on
non-homogenous commercial real estate and commercial business
loans that includes regular credit reviews to identify and
quantify the risk in the commercial portfolio. Management
conducts quarterly reviews of the entire loan portfolio and
evaluates the need to establish general allowances and specific
reserves on the basis of these reviews.
Management actively monitors asset quality and, when
appropriate, charges off loans against the
14
allowance for loan losses. Although management believes it uses
the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may
be necessary if economic conditions differ substantially from
the economic conditions in the assumptions used to determine the
size of the allowance for loan losses.
The allowance for loan losses was $23.8 million, or 2.89%
of gross loans at December 31, 2009, compared to
$21.3 million, or 2.30% of gross loans at December 31,
2008. The allowance for loan losses and the related ratios
increased primarily because an analysis of the loan portfolio in
2009 resulted in increased reserve percentages on performing
loans due to increases in recent charge off activity. The
allowance for loan losses at December 31, 2009 increased
$2.2 million related to increased general reserve
percentages from the prior year. The following table reflects
the activity in the allowance for loan losses and selected
statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Balance at beginning of year
|
|
$
|
21,257
|
|
|
|
12,438
|
|
|
|
9,873
|
|
|
|
8,778
|
|
|
|
8,996
|
|
Provision for losses
|
|
|
26,699
|
|
|
|
26,696
|
|
|
|
3,898
|
|
|
|
8,878
|
|
|
|
2,674
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
(82
|
)
|
|
|
(78
|
)
|
|
|
(42
|
)
|
|
|
(150
|
)
|
|
|
(234
|
)
|
Consumer
|
|
|
(1,980
|
)
|
|
|
(612
|
)
|
|
|
(840
|
)
|
|
|
(269
|
)
|
|
|
(228
|
)
|
Commercial business
|
|
|
(9,421
|
)
|
|
|
(13,784
|
)
|
|
|
(554
|
)
|
|
|
(188
|
)
|
|
|
(1,356
|
)
|
Commercial real estate
|
|
|
(13,548
|
)
|
|
|
(3,454
|
)
|
|
|
(245
|
)
|
|
|
(7,242
|
)
|
|
|
(1,259
|
)
|
Recoveries
|
|
|
887
|
|
|
|
51
|
|
|
|
348
|
|
|
|
66
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(24,144
|
)
|
|
|
(17,877
|
)
|
|
|
(1,333
|
)
|
|
|
(7,783
|
)
|
|
|
(2,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
23,812
|
|
|
|
21,257
|
|
|
|
12,438
|
|
|
|
9,873
|
|
|
|
8,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year end allowance for loan losses as a percent of year end
gross loan balance
|
|
|
2.89
|
%
|
|
|
2.30
|
%
|
|
|
1.41
|
%
|
|
|
1.26
|
%
|
|
|
1.09
|
%
|
Ratio of net loan charge-offs to average loans outstanding
|
|
|
2.83
|
|
|
|
1.98
|
|
|
|
0.16
|
|
|
|
0.98
|
|
|
|
0.36
|
|
The following table reflects the allocation of the allowance for
loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Allocated
|
|
|
of loans
|
|
|
Allocated
|
|
|
of loans
|
|
|
Allocated
|
|
|
of loans
|
|
|
Allocated
|
|
|
of loans
|
|
|
Allocated
|
|
|
of loans
|
|
|
|
allowance
|
|
|
in each
|
|
|
allowance
|
|
|
in each
|
|
|
allowance
|
|
|
in each
|
|
|
allowance
|
|
|
in each
|
|
|
allowance
|
|
|
in each
|
|
|
|
as a %
|
|
|
category
|
|
|
as a %
|
|
|
category
|
|
|
as a %
|
|
|
category
|
|
|
as a %
|
|
|
category
|
|
|
as a %
|
|
|
category
|
|
|
|
of loan
|
|
|
to total
|
|
|
of loan
|
|
|
to total
|
|
|
of loan
|
|
|
to total
|
|
|
of loan
|
|
|
to total
|
|
|
of loan
|
|
|
to total
|
|
|
|
category
|
|
|
loans
|
|
|
category
|
|
|
loans
|
|
|
category
|
|
|
loans
|
|
|
category
|
|
|
loans
|
|
|
category
|
|
|
loans
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
0.69
|
%
|
|
|
17.54
|
%
|
|
|
1.75
|
%
|
|
|
17.51
|
%
|
|
|
0.27
|
%
|
|
|
17.33
|
%
|
|
|
0.22
|
%
|
|
|
17.10
|
%
|
|
|
0.21
|
%
|
|
|
15.82
|
%
|
Multi-family
|
|
|
1.79
|
|
|
|
7.18
|
|
|
|
0.97
|
|
|
|
3.17
|
|
|
|
1.05
|
|
|
|
3.29
|
|
|
|
1.49
|
|
|
|
3.80
|
|
|
|
1.56
|
|
|
|
5.07
|
|
Commercial real estate
|
|
|
3.83
|
|
|
|
37.92
|
|
|
|
3.45
|
|
|
|
35.16
|
|
|
|
2.10
|
|
|
|
31.92
|
|
|
|
1.67
|
|
|
|
37.49
|
|
|
|
1.32
|
|
|
|
32.40
|
|
Construction or development
|
|
|
3.21
|
|
|
|
4.90
|
|
|
|
1.45
|
|
|
|
11.70
|
|
|
|
1.34
|
|
|
|
12.58
|
|
|
|
1.16
|
|
|
|
7.66
|
|
|
|
1.14
|
|
|
|
10.00
|
|
Consumer loans
|
|
|
1.55
|
|
|
|
9.97
|
|
|
|
1.83
|
|
|
|
9.36
|
|
|
|
1.70
|
|
|
|
9.62
|
|
|
|
1.59
|
|
|
|
11.44
|
|
|
|
0.88
|
|
|
|
12.56
|
|
Commercial business loans
|
|
|
3.88
|
|
|
|
22.49
|
|
|
|
1.75
|
|
|
|
23.10
|
|
|
|
1.28
|
|
|
|
25.26
|
|
|
|
1.18
|
|
|
|
22.51
|
|
|
|
1.36
|
|
|
|
24.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2.89
|
|
|
|
100.00
|
%
|
|
|
2.30
|
|
|
|
100.00
|
%
|
|
|
1.41
|
|
|
|
100.00
|
%
|
|
|
1.26
|
|
|
|
100.00
|
%
|
|
|
1.09
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allocated percentage for commercial real estate,
multi-family, commercial business and construction or
development loans increased in 2009 due to managements
assessment of the risk and assignment of risk ratings of certain
individual loans in these categories. The allocation of the
allowance for loan losses decreased in 2009 for
one-to-four
family loans due primarily to the decreases in the specific
reserves at December 31, 2009 when compared to 2008. The
allocation of the allowance for loan losses decreased in 2009
for consumer loans due to a decrease in the specific reserves
and a decrease in the outstanding balances of loan categories
with higher reserve ratios.
Allowance
for Real Estate Losses
Real estate properties acquired or expected to be acquired
through loan foreclosures are initially recorded at the lower of
the related loan balance, less any specific
15
MANAGEMENT
DISCUSSION AND ANALYSIS
allowance for loss, or fair value less estimated selling costs.
Management periodically performs valuations and an allowance for
losses is established if the carrying value of a property
exceeds its fair value less estimated selling costs. The balance
in the allowance for real estate losses was $4.9 million at
December 31, 2009 and $0 at December 31, 2008.
Non-performing
Assets
Loans are reviewed at least quarterly and any loan whose
collectability is doubtful is placed on non-accrual status.
Loans are placed on non-accrual status when either principal or
interest is 90 days or more past due, unless, in the
judgment of management, the loan is well collateralized and in
the process of collection. Interest accrued and unpaid at the
time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectability of
the loan. Restructured loans include the Banks troubled
debt restructurings that involved forgiving a portion of
interest or principal or making loans at a rate materially less
than the market rate. Foreclosed and repossessed assets include
assets acquired in settlement of loans.
Non-performing assets totaled $77.4 million at
December 31, 2009, an increase of $2.6 million, or
3.5%, from $74.8 million at December 31, 2008.
Non-performing loans decreased $3.1 million to
$61.1 million and foreclosed and repossessed assets
increased $5.7 million to $16.3 million. The following
table sets forth the amounts and categories of non-performing
assets in the Companys portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Non-accruing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
2,132
|
|
|
|
7,251
|
|
|
|
1,196
|
|
|
|
1,364
|
|
|
|
626
|
|
Commercial real estate
|
|
|
37,122
|
|
|
|
46,953
|
|
|
|
15,641
|
|
|
|
5,296
|
|
|
|
948
|
|
Consumer
|
|
|
4,086
|
|
|
|
5,298
|
|
|
|
1,094
|
|
|
|
1,254
|
|
|
|
496
|
|
Commercial business
|
|
|
17,787
|
|
|
|
4,671
|
|
|
|
1,723
|
|
|
|
394
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
61,127
|
|
|
|
64,173
|
|
|
|
19,654
|
|
|
|
8,308
|
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
0
|
|
|
|
25
|
|
|
|
34
|
|
|
|
44
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
1,011
|
|
|
|
258
|
|
|
|
901
|
|
|
|
1,422
|
|
|
|
565
|
|
Commercial real estate
|
|
|
15,246
|
|
|
|
10,300
|
|
|
|
1,313
|
|
|
|
650
|
|
|
|
750
|
|
Consumer
|
|
|
5
|
|
|
|
0
|
|
|
|
33
|
|
|
|
0
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,262
|
|
|
|
10,558
|
|
|
|
2,247
|
|
|
|
2,072
|
|
|
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
77,389
|
|
|
$
|
74,756
|
|
|
$
|
21,935
|
|
|
$
|
10,424
|
|
|
$
|
3,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as a percentage of total assets
|
|
|
7.47
|
%
|
|
|
6.53
|
%
|
|
|
1.96
|
%
|
|
|
1.07
|
%
|
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
61,127
|
|
|
$
|
64,173
|
|
|
$
|
19,654
|
|
|
$
|
8,308
|
|
|
$
|
2,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as a percentage of total loans receivable, net
|
|
|
7.65
|
%
|
|
|
7.12
|
%
|
|
|
2.27
|
%
|
|
|
1.08
|
%
|
|
|
0.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans
|
|
|
38.95
|
%
|
|
|
33.12
|
%
|
|
|
63.28
|
%
|
|
|
118.84
|
%
|
|
|
376.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The following table summarizes the number and property types of
commercial real estate loans (the largest category of
non-performing loans) at December 31, 2009, 2008, and 2007.
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
Principal Amount
|
|
|
|
Principal Amount
|
|
|
|
|
of Loans at
|
|
|
|
of Loans at
|
|
|
|
of Loans at
|
|
|
# of
|
|
December 31,
|
|
# of
|
|
December 31,
|
|
# of
|
|
December 31,
|
Property Type
|
|
relationships
|
|
2009
|
|
relationships
|
|
2008
|
|
relationships
|
|
2007
|
|
|
Residential developments
|
|
|
7
|
|
|
$
|
12,030
|
|
|
|
6
|
|
|
$
|
17,681
|
|
|
|
5
|
|
|
$
|
11,496
|
|
One to-four
family
|
|
|
2
|
|
|
|
3,088
|
|
|
|
4
|
|
|
|
898
|
|
|
|
1
|
|
|
|
300
|
|
Condominiums
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
5,440
|
|
|
|
1
|
|
|
|
2,547
|
|
Hotels
|
|
|
1
|
|
|
|
4,999
|
|
|
|
1
|
|
|
|
4,999
|
|
|
|
0
|
|
|
|
0
|
|
Alternative fuel plants
|
|
|
2
|
|
|
|
12,834
|
|
|
|
2
|
|
|
|
12,492
|
|
|
|
0
|
|
|
|
0
|
|
Shopping centers/retail
|
|
|
2
|
|
|
|
1,136
|
|
|
|
2
|
|
|
|
1,237
|
|
|
|
1
|
|
|
|
963
|
|
Elderly care facilities
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
4,037
|
|
|
|
0
|
|
|
|
0
|
|
Restaurants/bar
|
|
|
4
|
|
|
|
2,436
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Office building
|
|
|
1
|
|
|
|
599
|
|
|
|
1
|
|
|
|
169
|
|
|
|
5
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
$
|
37,122
|
|
|
|
20
|
|
|
$
|
46,953
|
|
|
|
13
|
|
|
$
|
15,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2009, 2008 and 2007, gross interest income which would have
been recorded had the non-accruing loans been current in
accordance with their original terms amounted to
$5.0 million, $5.5 million and $1.8 million,
respectively. The amounts that were included in interest income
on a cash basis for these loans were $0.9 million,
$1.9 million and $1.0 million, respectively.
In addition to the non-performing assets set forth in the table
above of all non-performing assets, as of December 31,
2009, there were two other potential problem loan relationships
and fourteen other loans where the interest rates were modified
in troubled debt restructurings in 2009. Potential problem loans
are loans that are not in
non-performing
status; however, there are circumstances present to create doubt
as to the ability of the borrower to comply with present
repayment terms. The decision of management to include
performing loans in potential problem loans does not necessarily
mean that the Company expects losses to occur but that
management recognized a higher degree of risk associated with
these loans. The level of potential problem loans is another
predominant factor in determining the relative level of the
allowance for loan losses. The two loan relationships that have
been reported as potential problem loans at December 31,
2009 are a $5.0 million loan to a financial institution and
a $1.7 million group of loans in which the personal
guarantors financial condition has deteriorated. The
potential problem loans in 2008 were related to a single family
mortgage and equity loans totaling $2.0 million. The loans
that were modified in 2009 totaled $5.3 million with
$4.3 million related to a commercial real estate loan and
the remaining loans related to single family and consumer loans.
The loans that were modified in 2008 totaled $8.2 million
and related to residential development and builder construction
loans. These loans were not classified as non-performing as it
was anticipated that the borrowers would be able to make all of
the required principal and interest payments under the modified
terms of the loan.
Liquidity
and Capital Resources
The Company manages its liquidity position so that the funding
needs of borrowers and depositors are met timely and in the most
cost effective manner. Asset liquidity is the ability to convert
assets to cash through the maturity or sale of the asset.
Liability liquidity is the ability of the Bank to attract retail
or brokered deposits or to borrow funds from third parties such
as the Federal Home Loan Bank (FHLB) or the Federal Reserve Bank
(FRB).
The primary investing activities are the origination of loans
and the purchase of securities. Principal and interest payments
on loans and securities along with the proceeds from the sale of
loans held for sale are the primary sources of cash for the
Company. Additional cash can be obtained by selling securities
from the available for sale portfolio or by selling loans or
mortgage servicing rights. Unpledged securities could also be
pledged and used as collateral for additional borrowings with
the FHLB or FRB to generate additional cash.
The primary financing activity is the attraction of retail and
brokered deposits. The Bank has the ability to borrow additional
funds from the FHLB or FRB by pledging additional securities or
loans. Refer to Note 11 of the Notes to Consolidated
Financial Statements for more information on additional advances
that could be drawn based upon existing collateral levels with
the FHLB and the FRB. Information on outstanding advance
maturities and related early call features is also included in
Note 11. In 2008, the United States Treasury also invested
$26 million in preferred stock and related warrant of the
Company.
17
MANAGEMENT
DISCUSSION AND ANALYSIS
The Companys most liquid assets are cash and cash
equivalents, which consist of short-term highly liquid
investments with original maturities of less than three months
that are readily convertible to known amounts of cash and
interest-bearing deposits. The level of these assets is
dependent on the operating, financing and investing activities
during any given period.
Cash and cash equivalents at December 31, 2009 were
$16.4 million, an increase of $0.7 million, compared
to $15.7 million at December 31, 2008. Net cash
provided by operating activities during 2009 was
$15.4 million. The Company conducted the following major
investing activities during 2009: principal payments and
maturity proceeds received on securities available for sale and
FHLB stock were $100.6 million, purchases of securities
available for sale and FHLB stock were $88.4 million,
proceeds from sales of securities available for sale were
$2.1 million, proceeds from the sale of premises and other
real estate were $10.7 million, and loans receivable
decreased $56.3 million. The Company spent $558,000 for the
purchase of equipment and updating its premises. Net cash
provided by investing activities during 2009 was
$80.8 million. The Company conducted the following major
financing activities during 2009: received proceeds from
borrowing and advances of $1.1 billion, repaid advances and
borrowings of $1.1 billion and deposits decreased
$85.2 million. Net cash used by financing activities was
$95.5 million.
The Company has certificates of deposit with outstanding
balances of $262.4 million that mature during 2010, of
which $103.5 million were obtained from brokers. Based upon
past experience, management anticipates that the majority of the
deposits will renew for another term. The Company believes that
deposits that do not renew will be replaced with deposits from a
combination of other customers or brokers. FHLB advances,
Federal Reserve borrowings, or the sale of securities could also
be used to replace unanticipated outflows of deposits.
The Company is participating in both parts of the original
Federal Deposit Insurance Corporations (FDICs)
Liquidity Guarantee Program. The first part of the program,
called the Transaction Account Guarantee Program, provides
unlimited FDIC insurance coverage on non-interest bearing
deposit accounts through June 30, 2010. The second part of
the program called the Debt Guarantee Program (DGP) allows the
Company to issue debt securities that are fully guaranteed by
the FDIC. The original DGP expired on October 31, 2009 but
the FDIC will continue to guarantee certain pre-approved debt
issuances through April 30, 2010. The Company had no FDIC
guaranteed debt outstanding at December 31, 2009.
The Company has deposits of $80.4 million in checking and
money market accounts of customers that have relationship
balances greater than $5 million. While these funds may be
withdrawn at any time, management anticipates that the majority
of these deposits will remain on deposit with the Bank over the
next twelve months based on past experience. If these deposits
are withdrawn, it is anticipated that they would be replaced
with FHLB advances, FRB borrowings or deposits from other
customers or brokers.
The Company has, through the Bank, $10 million in FHLB
advances that mature in 2010 and it has $77.5 million of
FHLB advances with maturities beyond 2010 that have call
features that may be exercised by the FHLB during 2010. If the
call features are exercised, the Company, through the Bank, has
the option of requesting any advance otherwise available to it
pursuant to the credit policy of the FHLB.
The credit policy of the FHLB may change such that the current
collateral pledged to secure the advances is no longer
acceptable or the formulas for determining the excess pledged
collateral may change. If this were to happen, the Bank may not
have additional collateral to pledge to secure the existing
advances which could cause the FHLB advances to become a
liquidity problem during 2010.
Under the terms of an informal written agreement that the
Company entered into with the Office of Thrift Supervision (OTS)
effective December 9, 2009, the Company may not incur or
issue any debt without prior notice to, and the consent of, the
OTS. Because FHLB advances are debt of the Bank, they are not
affected by the Companys agreement with the OTS.
The Company anticipates that its liquidity requirements for 2010
will be similar to the liquidity requirements in 2009.
As of December 31, 2009, there were 300,000 shares
authorized for repurchase under the existing stock repurchase
program that was allowed to expire unused on January 26,
2010. No treasury stock purchases are anticipated in 2010 due to
restrictions on stock repurchases by the United States Treasury
in connection with its preferred stock investment in the
Company. In addition, under the terms of the informal written
agreement that the Company entered into with the OTS effective
December 9, 2009, the Company may not repurchase or redeem
any capital stock without prior notice to, and consent of, the
OTS.
The Companys primary source of cash is dividends from the
Bank and the Bank is restricted from paying dividends to the
Company without obtaining prior regulatory approval. At
December 31, 2009, HMN had $2.9 million in cash and
other assets that could readily be
18
turned into cash. The Company believes that its available
liquidity is adequate to provide the cash needed for the payment
of preferred dividends and other expenses in 2010. Failure to
obtain regulatory approval for any future dividends from the
Bank to the Company could cause the Company to require other
sources of liquidity for the payment of preferred dividends,
expenses and other needs beyond 2010.
Contractual
Obligations and Commercial Commitments
The Company has certain obligations and commitments to make
future payments under existing contracts. At December 31,
2009, the aggregate contractual obligations (excluding bank
deposits) and commercial commitments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Less than 1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
132,500
|
|
|
|
10,000
|
|
|
|
52,500
|
|
|
|
70,000
|
|
|
|
0
|
|
Annual rental commitments under non-cancellable operating leases
|
|
|
1,509
|
|
|
|
830
|
|
|
|
590
|
|
|
|
35
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,009
|
|
|
|
10,830
|
|
|
|
53,090
|
|
|
|
70,035
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitments -Expiring by Period
|
|
|
Other Commercial Commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial lines of credit
|
|
$
|
46,995
|
|
|
|
24,821
|
|
|
|
6,818
|
|
|
|
3,356
|
|
|
|
12,000
|
|
Commitments to lend
|
|
|
16,728
|
|
|
|
9,866
|
|
|
|
3,663
|
|
|
|
1,221
|
|
|
|
1,928
|
|
Standby letters of credit
|
|
|
3,823
|
|
|
|
3,575
|
|
|
|
247
|
|
|
|
1
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67,546
|
|
|
|
38,262
|
|
|
|
10,728
|
|
|
|
4,628
|
|
|
|
13,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
Capital Requirements
As a result of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), banking and thrift regulators
are required to take prompt regulatory action against
institutions which are undercapitalized. FDICIA requires banking
and thrift regulators to categorize institutions as well
capitalized, adequately capitalized,
undercapitalized, significantly
undercapitalized, or critically
undercapitalized. A savings institution will be deemed to
be well capitalized if it: (i) has a total risk-based
capital ratio of 10% or greater, (ii) has a Tier 1
(core) risk-based capital ratio of 6% or greater, (iii) has
a leverage ratio of 5% or greater, and (iv) is not subject
to any order or written directive by the Office of Thrift
Supervision (OTS) to meet and maintain a specific capital level
for any capital measure. Management believes that, as of
December 31, 2009, the Bank met all of the capital
requirements to which it was subject and is well capitalized
based on the regulatory definition described above. Refer to
Note 17 of the Notes to Consolidated Financial Statements
for a table which reflects the Banks capital compared to
its capital requirements. Under the terms of the informal
written agreement that the Company entered into with the OTS
effective December 9, 2009, the Company has submitted a
three year capital plan that the OTS may make comments upon, and
require revisions to. The Company must operate within the
parameters of the final capital plan and is required to monitor
and submit periodic reports on its compliance with the plan.
Dividends
The declaration of dividends is subject to, among other things,
the Companys financial condition and results of
operations, the Banks compliance with its regulatory
capital requirements, tax considerations, industry standards,
economic conditions, regulatory restrictions, general business
practices and other factors. No dividends can be issued from the
Bank to the Company without prior regulatory approval. Refer to
Note 16 of the Notes to Consolidated Financial Statements
for information on regulatory limitations on dividends from the
Bank to the Company and additional information on dividends. The
payment of dividends is dependent upon the Company having
adequate cash or other assets that can be converted to cash to
pay dividends to its stockholders. The Company suspended the
dividend payments to common stockholders in the fourth quarter
of 2008 due to the net operating loss experienced and the
challenging economic environment. Under the terms of the
informal written agreement that the Company entered into with
the OTS effective December 9, 2009, the Company may not
declare or pay any cash dividends, or purchase or redeem any
capital stock, without prior notice to, and consent of, the OTS.
The Company does not anticipate requesting consent from the OTS
to make any payments of dividends on, or
19
MANAGEMENT
DISCUSSION AND ANALYSIS
purchase of, its common stock in 2010. The Company anticipates
making quarterly preferred dividend payments of $325,000 on the
preferred stock issued to the Treasury for the first five years
the preferred stock is outstanding and $585,000 each quarter
after that if the shares are not redeemed.
Impact
of Inflation and Changing Prices
The impact of inflation is reflected in the increased cost of
operations. Unlike most industrial companies, nearly all of the
assets and liabilities of the Company are monetary in nature. As
a result, interest rates have a greater impact on the
Companys performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.
New
Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168 (ASC 105),
The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162, The Hierarchy of
Generally Accepted Accounting Principles. This Statement
establishes the Codification as the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under
federal securities laws are also sources of authoritative GAAP
for SEC registrants. All guidance contained in the Codification
carries an equal level of authority. Following this Statement,
the FASB will not issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standard Updates (ASUs) that
will serve only to update the Codification. This Statement is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009 and did not have
any impact on the Companys consolidated financial
statements except for disclosure changes to the authoritative
pronouncement references.
In June 2009, the FASB issued SFAS No. 167 (ASC 810),
Amendments to FASB Interpretation No. 46(R). This
Statement amends FASB 46(R) to require an enterprise to perform
an analysis and ongoing reassessments to determine whether the
enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity and
amends certain guidance for determining whether an entity is a
variable interest entity. It also requires enhanced disclosures
that will provide users of financial statements with more
transparent information about an enterprises involvement
in a variable interest entity. This Statement is effective as of
the beginning of each reporting entitys first annual
reporting period that begins after November 15, 2009 and
for all interim reporting periods after that and is not
anticipated to have any impact on the Companys
consolidated financial statements as the Company has no
interests in any variable interest entities.
In June 2009, the FASB issued SFAS No. 166 (ASC 860),
Accounting for Transfers of Financial Assets an
amendment of FASB Statement No. 140. This Statement
amends SFAS 140 and removes the concept of a qualifying
special-purpose entity from SFAS 140 and eliminates the
exception from applying FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities,
on qualifying special-purpose entities. This Statement also
establishes specific conditions for reporting a transfer of a
portion of a financial asset (including loans) as a sale. This
Statement is effective as of the beginning of each reporting
entitys first annual reporting period that begins after
November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting
periods thereafter and is not anticipated to have a material
impact on the Companys consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165 (ASC 855),
Subsequent Events. The objective of this Statement is to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In particular, this Statement sets forth the period after the
balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. This Statement is effective for financial
statements issued for interim and annual periods ending after
June 15, 2009 and did not have any impact on the
Companys consolidated financial statements. The Company
evaluated subsequent events through the filing date of our
annual 10-K
with the Securities and Exchange Commission on March 4,
2010.
In April 2009, the FASB issued Staff Position
FAS No. 115-2
and
FAS 124-2
(ASC 320), Recognition and Presentation of
Other-Than-Temporary
Impairments (FSP
FAS No. 115-2
and
FAS 124-2).
This FSP amends the
other-than-temporary
impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the
presentation and disclosure of
other-than-temporary
impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and
measurement guidance
20
related to
other-than-temporary
impairments of equity securities. This FSP is effective for
interim and annual reporting periods ending after June 15,
2009. The impact of adopting FSP
FAS No. 115-2
and
FAS 124-2
in the second quarter of 2009 did not have a material impact on
the Companys consolidated financial statements.
Market
Risk
Market risk is the risk of loss from adverse changes in market
prices and rates. The Companys market risk arises
primarily from interest rate risk inherent in its investing,
lending and deposit taking activities. Management actively
monitors and manages its interest rate risk exposure.
The Companys profitability is affected by fluctuations in
interest rates. A sudden and substantial change in interest
rates may adversely impact the Companys earnings to the
extent that the interest rates borne by assets and liabilities
do not change at the same speed, to the same extent, or on the
same basis. The Company monitors the projected changes in net
interest income that occur if interest rates were to suddenly
change up or down. The Rate Shock Table located in the
Asset/Liability Management section of this Managements
Discussion and Analysis discloses the Companys projected
changes in net interest income based upon immediate interest
rate changes called rate shocks.
The Company utilizes a model that uses the discounted cash flows
from its interest-earning assets and its interest-bearing
liabilities to calculate the current market value of those
assets and liabilities. The model also calculates the changes in
market value of the interest-earning assets and interest-bearing
liabilities under different interest rate changes.
The following table discloses the projected changes in market
value to the Companys interest-earning assets and
interest-bearing liabilities based upon incremental
100 basis point changes in interest rates from interest
rates in effect on December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Market Value
|
|
Basis point change in interest rates
|
|
-100
|
|
|
0
|
|
|
+100
|
|
|
+200
|
|
|
|
|
Total
market-risk
sensitive assets
|
|
$
|
1,012,533
|
|
|
|
1,000,314
|
|
|
|
986,386
|
|
|
|
971,013
|
|
Total
market-risk
sensitive liabilities
|
|
|
928,930
|
|
|
|
914,774
|
|
|
|
900,514
|
|
|
|
886,654
|
|
Off-balance-sheet
financial instruments
|
|
|
90
|
|
|
|
0
|
|
|
|
(263)
|
|
|
|
(490)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net market risk
|
|
$
|
83,693
|
|
|
|
85,540
|
|
|
|
85,609
|
|
|
|
83,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change from current market value
|
|
|
(2.16)%
|
|
|
|
0.00%
|
|
|
|
0.08%
|
|
|
|
(1.95)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The preceding table was prepared utilizing the following
assumptions (the Model Assumptions) regarding prepayment and
decay ratios that were determined by management based upon their
review of historical prepayment speeds and future prepayment
projections. Fixed rate loans were assumed to prepay at annual
rates of between 7% and 77%, depending on the note rate and the
period to maturity. Adjustable rate mortgages (ARMs) were
assumed to prepay at annual rates of between 12% and 34%,
depending on the note rate and the period to maturity. Growing
Equity Mortgage (GEM) loans were assumed to prepay at annual
rates of between 7% and 52%, depending on the note rate and the
period to maturity. Mortgage-backed securities and
Collateralized Mortgage Obligations (CMOs) were projected to
have prepayments based upon the underlying collateral securing
the instrument and the related cash flow priority of the CMO
tranche owned. Certificate accounts were assumed not to be
withdrawn until maturity. Passbook and money market accounts
were assumed to decay at annual rates of 23% and 24%,
respectively. Non-interest checking and NOW accounts were
assumed to decay at annual rates of 23% and 20%, respectively.
Commercial NOW and MMDA accounts were assumed to decay at annual
rates of 20% and 24%, respectively. FHLB advances were projected
to be called at the first call date where the projected interest
rate on similar remaining term advances exceeded the interest
rate on the callable advance. Refer to Note 11 of the Notes
to Consolidated Financial Statements for more information on
call provisions of the FHLB advances.
Certain shortcomings are inherent in the method of analysis
presented in the foregoing table. The interest rates on certain
types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other
types of assets and liabilities may lag behind changes in market
interest rates. The model assumes that the difference between
the current interest rate being earned or paid compared to a
treasury instrument or other interest index with a similar term
to maturity (the Interest Spread) will remain constant over the
interest changes disclosed in the table. Changes in Interest
Spread could impact projected market value changes. Certain
assets, such as ARMs, have features that restrict changes in
interest rates on a short-term basis and over the life of the
assets. The market value of the interest-bearing assets that are
approaching their lifetime interest rate caps or floors could be
different from the values calculated in the table. Certain
liabilities, such as certificates of deposit, have fixed rates
that restrict interest rate changes until
21
MANAGEMENT
DISCUSSION AND ANALYSIS
maturity. In the event of a change in interest rates, prepayment
and early withdrawal levels may deviate significantly from those
assumed in calculating the foregoing table. The ability of many
borrowers to service their debt may decrease in the event of a
substantial sustained increase in interest rates.
Asset/Liability
Management
The Companys management reviews the impact that changing
interest rates will have on the net interest income projected
for the twelve months following December 31, 2009 to
determine if its current level of interest rate risk is
acceptable. The following table projects the estimated impact on
net interest income during the 12 month period ending
December 31, 2010 of immediate interest rate changes called
rate shocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Shock Table
|
(Dollars in thousands)
|
|
|
Rate Shock
|
|
Net Interest
|
|
Percent
|
|
|
|
|
in Basis Points
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
+200
|
|
|
|
$2,624
|
|
|
|
8.18
|
%
|
|
|
|
|
|
|
|
+100
|
|
|
|
1,417
|
|
|
|
4.42
|
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
-100
|
|
|
|
(2,142
|
)
|
|
|
(6.67
|
)
|
|
|
|
|
The preceding table was prepared utilizing the Model
Assumptions. Certain shortcomings are inherent in the method of
analysis presented in the foregoing table. In the event of a
change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in
calculating the foregoing table. The ability of many borrowers
to service their debt may decrease in the event of a substantial
increase in interest rates and could impact net interest income.
The increase in interest income in a rising rate environment is
because there are more adjustable rate loans that would reprice
to higher interest rates in the next twelve months than there
are certificates of deposit that would reprice.
In an attempt to manage its exposure to changes in interest
rates, management closely monitors interest rate risk. The
Company has an Asset/Liability Committee that meets frequently
to discuss changes made to the interest rate risk position and
projected profitability. The Committee makes adjustments to the
asset-liability position of the Bank that are reviewed by the
Board of Directors of the Bank. This Committee also reviews the
Banks portfolio, formulates investment strategies and
oversees the timing and implementation of transactions to assure
attainment of the Banks objectives in the most effective
manner. In addition, the Board reviews on a quarterly basis the
Banks asset/liability position, including simulations of
the effect on the Banks capital of various interest rate
scenarios.
In managing its asset/liability mix, the Bank may, at times,
depending on the relationship between long and short-term
interest rates, market conditions and consumer preference, place
more emphasis on managing net interest margin than on better
matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income.
Management believes that the increased net interest income
resulting from a mismatch in the maturity of its asset and
liability portfolios can, in certain situations, provide high
enough returns to justify the increased exposure to sudden and
unexpected changes in interest rates.
To the extent consistent with its interest rate spread
objectives, the Bank attempts to manage its interest rate risk
and has taken a number of steps to restructure its balance sheet
in order to better match the maturities of its assets and
liabilities. In the past, more fixed rate loans were placed into
the single family loan portfolio. In 2009, the Bank has
primarily focused its fixed rate
one-to-four
family residential lending program on loans that are saleable to
third parties and generally placed only those fixed rate loans
that met certain risk characteristics into its loan portfolio.
The Banks commercial loan production continued to be
primarily in adjustable rate loans with minimum interest rate
floors; however, more of these loans were structured to reprice
every one, two, or three years. In addition, the duration of the
Banks brokered certificates of deposits that were issued
in 2009 were lengthened in order to manage the Companys
interest rate risk exposure.
Off-Balance
Sheet Arrangements
The Company has no off-balance sheet arrangements other than
commitments to originate and sell loans in the ordinary course
of business which are more fully discussed in Note 18 of
the Notes to Consolidated Financial Statements.
22
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 31 (Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
16,418
|
|
|
|
15,729
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed and related securities
(amortized cost $51,840 and $76,166)
|
|
|
53,559
|
|
|
|
77,327
|
|
Other marketable securities
(amortized cost $105,723 and $95,445)
|
|
|
106,043
|
|
|
|
97,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,602
|
|
|
|
175,145
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
2,965
|
|
|
|
2,548
|
|
Loans receivable, net
|
|
|
799,256
|
|
|
|
900,889
|
|
Accrued interest receivable
|
|
|
4,024
|
|
|
|
5,568
|
|
Real estate, net
|
|
|
16,257
|
|
|
|
10,558
|
|
Federal Home Loan Bank stock, at cost
|
|
|
7,286
|
|
|
|
7,286
|
|
Mortgage servicing rights, net
|
|
|
1,315
|
|
|
|
728
|
|
Premises and equipment, net
|
|
|
10,766
|
|
|
|
13,972
|
|
Prepaid expenses and other assets
|
|
|
6,762
|
|
|
|
4,408
|
|
Deferred tax assets, net
|
|
|
11,590
|
|
|
|
8,649
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,036,241
|
|
|
|
1,145,480
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Deposits
|
|
$
|
796,011
|
|
|
|
880,505
|
|
Federal Home Loan Bank advances and Federal Reserve borrowings
|
|
|
132,500
|
|
|
|
142,500
|
|
Accrued interest payable
|
|
|
2,108
|
|
|
|
6,307
|
|
Customer escrows
|
|
|
1,427
|
|
|
|
639
|
|
Accrued expenses and other liabilities
|
|
|
4,257
|
|
|
|
3,316
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
936,303
|
|
|
|
1,033,267
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Serial preferred stock: ($.01 par value)
Authorized 500,000 shares; issued shares 26,000
|
|
|
23,785
|
|
|
|
23,384
|
|
Common stock ($.01 par value):
|
|
|
|
|
|
|
|
|
Authorized 11,000,000; issued shares 9,128,662
|
|
|
91
|
|
|
|
91
|
|
Additional paid-in capital
|
|
|
58,576
|
|
|
|
60,687
|
|
Retained earnings, subject to certain restrictions
|
|
|
86,115
|
|
|
|
98,067
|
|
Accumulated other comprehensive income
|
|
|
1,230
|
|
|
|
2,091
|
|
Unearned employee stock ownership plan shares
|
|
|
(3,577
|
)
|
|
|
(3,771
|
)
|
Treasury stock, at cost 4,883,378 and 4,961,032 shares
|
|
|
(66,282
|
)
|
|
|
(68,336
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
99,938
|
|
|
|
112,213
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,036,241
|
|
|
|
1,145,480
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
23
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
51,876
|
|
|
|
58,671
|
|
|
|
66,115
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and related
|
|
|
2,768
|
|
|
|
1,615
|
|
|
|
727
|
|
Other marketable
|
|
|
3,039
|
|
|
|
5,775
|
|
|
|
9,153
|
|
Cash equivalents
|
|
|
1
|
|
|
|
198
|
|
|
|
1,187
|
|
Other
|
|
|
87
|
|
|
|
253
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
57,771
|
|
|
|
66,512
|
|
|
|
77,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
17,579
|
|
|
|
27,157
|
|
|
|
33,403
|
|
Federal Home Loan Bank advances and Federal Reserve borrowings
|
|
|
6,289
|
|
|
|
5,639
|
|
|
|
5,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
23,868
|
|
|
|
32,796
|
|
|
|
38,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
33,903
|
|
|
|
33,716
|
|
|
|
38,700
|
|
Provision for loan losses
|
|
|
26,699
|
|
|
|
26,696
|
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
7,204
|
|
|
|
7,020
|
|
|
|
34,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges
|
|
|
4,137
|
|
|
|
4,269
|
|
|
|
3,139
|
|
Loan servicing fees
|
|
|
1,042
|
|
|
|
955
|
|
|
|
1,054
|
|
Securities gains, net
|
|
|
5
|
|
|
|
479
|
|
|
|
0
|
|
Gain on sales of loans
|
|
|
2,273
|
|
|
|
651
|
|
|
|
1,514
|
|
Other
|
|
|
625
|
|
|
|
749
|
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
8,082
|
|
|
|
7,103
|
|
|
|
6,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
13,432
|
|
|
|
12,464
|
|
|
|
12,491
|
|
Losses (gains) on real estate owned
|
|
|
3,873
|
|
|
|
(187
|
)
|
|
|
(682
|
)
|
Occupancy
|
|
|
4,084
|
|
|
|
4,521
|
|
|
|
4,467
|
|
Deposit insurance
|
|
|
1,973
|
|
|
|
678
|
|
|
|
113
|
|
Data processing
|
|
|
1,182
|
|
|
|
1,731
|
|
|
|
1,267
|
|
Goodwill impairment charge
|
|
|
0
|
|
|
|
3,801
|
|
|
|
0
|
|
Other
|
|
|
7,145
|
|
|
|
6,226
|
|
|
|
5,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
31,689
|
|
|
|
29,234
|
|
|
|
23,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
(16,403
|
)
|
|
|
(15,111
|
)
|
|
|
18,574
|
|
Income tax expense (benefit)
|
|
|
(5,607
|
)
|
|
|
(4,984
|
)
|
|
|
7,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,796
|
)
|
|
|
(10,127
|
)
|
|
|
11,274
|
|
Preferred stock dividends and discount
|
|
|
(1,747
|
)
|
|
|
(37
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(12,543
|
)
|
|
|
(10,164
|
)
|
|
|
11,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
(3.39
|
)
|
|
|
(2.78
|
)
|
|
|
3.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
(3.39
|
)
|
|
|
(2.78
|
)
|
|
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
24
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Stock
|
|
|
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
Ownership
|
|
|
Treasury
|
|
|
Stockholders
|
|
(Dollars in thousands)
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Plan
|
|
|
Stock
|
|
|
Equity
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
0
|
|
|
|
91
|
|
|
|
57,914
|
|
|
|
103,643
|
|
|
|
(284
|
)
|
|
|
(4,158
|
)
|
|
|
(64,064
|
)
|
|
|
93,142
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,274
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,725
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,913
|
)
|
|
|
(4,913
|
)
|
ASC 740 cumulative effect adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250
|
)
|
Employee stock options exercised
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385
|
|
|
|
139
|
|
Tax benefits of exercised stock options
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Unearned compensation restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469
|
|
|
|
0
|
|
Restricted stock awards forfeited
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
0
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Amortization of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
Earned employee stock ownership plan shares
|
|
|
|
|
|
|
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
532
|
|
Common stock dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
0
|
|
|
|
91
|
|
|
|
58,049
|
|
|
|
110,943
|
|
|
|
1,167
|
|
|
|
(3,965
|
)
|
|
|
(68,157
|
)
|
|
|
98,128
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,127
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,203
|
)
|
Preferred stock and warrant issued amortization
|
|
|
23,384
|
|
|
|
|
|
|
|
2,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,000
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(723
|
)
|
|
|
(723
|
)
|
Unearned compensation restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
(550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550
|
|
|
|
0
|
|
Restricted stock awards forfeited
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
0
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Amortization of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415
|
|
Earned employee stock ownership plan shares
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
|
|
|
|
312
|
|
Common stock dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
23,384
|
|
|
|
91
|
|
|
|
60,687
|
|
|
|
98,067
|
|
|
|
2,091
|
|
|
|
(3,771
|
)
|
|
|
(68,336
|
)
|
|
|
112,213
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,796
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(861
|
)
|
|
|
|
|
|
|
|
|
|
|
(861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,657
|
)
|
Preferred stock discount amortization
|
|
|
401
|
|
|
|
|
|
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Unearned compensation restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
(2,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
|
|
0
|
|
Restricted stock awards forfeited
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127
|
)
|
|
|
0
|
|
Restricted stock awards dividend forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Amortization of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
Earned employee stock ownership plan shares
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
|
|
|
|
138
|
|
Preferred stock dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
23,785
|
|
|
|
91
|
|
|
|
58,576
|
|
|
|
86,115
|
|
|
|
1,230
|
|
|
|
(3,577
|
)
|
|
|
(66,282
|
)
|
|
|
99,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
25
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 (Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,796
|
)
|
|
|
(10,127
|
)
|
|
|
11,274
|
|
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
26,699
|
|
|
|
26,696
|
|
|
|
3,898
|
|
Provision for real estate losses
|
|
|
4,877
|
|
|
|
0
|
|
|
|
0
|
|
Depreciation
|
|
|
1,837
|
|
|
|
1,796
|
|
|
|
1,903
|
|
Amortization of premiums (discounts), net
|
|
|
465
|
|
|
|
672
|
|
|
|
(2,558
|
)
|
Amortization of deferred loan fees
|
|
|
(972
|
)
|
|
|
(808
|
)
|
|
|
(1,182
|
)
|
Amortization of core deposit intangible
|
|
|
0
|
|
|
|
0
|
|
|
|
106
|
|
Amortization of mortgage servicing rights
|
|
|
556
|
|
|
|
570
|
|
|
|
706
|
|
Capitalized mortgage servicing rights
|
|
|
(1,143
|
)
|
|
|
(28
|
)
|
|
|
(18
|
)
|
Deferred income tax benefit
|
|
|
(2,516
|
)
|
|
|
(4,568
|
)
|
|
|
(2,622
|
)
|
Securities gains, net
|
|
|
(5
|
)
|
|
|
(479
|
)
|
|
|
0
|
|
Gain on sales of real estate and premises
|
|
|
(1,146
|
)
|
|
|
(187
|
)
|
|
|
(682
|
)
|
Gain on sales of loans
|
|
|
(2,273
|
)
|
|
|
(651
|
)
|
|
|
(1,514
|
)
|
Proceeds from sales of loans held for sale
|
|
|
122,491
|
|
|
|
60,566
|
|
|
|
70,407
|
|
Disbursements on loans held for sale
|
|
|
(119,475
|
)
|
|
|
(56,925
|
)
|
|
|
(56,697
|
)
|
Amortization of restricted stock awards
|
|
|
373
|
|
|
|
415
|
|
|
|
334
|
|
Amortization of unearned ESOP shares
|
|
|
194
|
|
|
|
194
|
|
|
|
193
|
|
Earned ESOP shares priced above (below) original cost
|
|
|
(56
|
)
|
|
|
118
|
|
|
|
339
|
|
Stock option compensation expense
|
|
|
27
|
|
|
|
33
|
|
|
|
44
|
|
Decrease (increase) in accrued interest receivable
|
|
|
1,544
|
|
|
|
1,326
|
|
|
|
(1,832
|
)
|
Increase (decrease) in accrued interest payable
|
|
|
(4,199
|
)
|
|
|
(3,207
|
)
|
|
|
8,339
|
|
Goodwill impairment charge
|
|
|
0
|
|
|
|
3,801
|
|
|
|
0
|
|
Decrease (increase) in other assets
|
|
|
(2,041
|
)
|
|
|
(2,761
|
)
|
|
|
834
|
|
Increase (decrease) in other liabilities
|
|
|
912
|
|
|
|
(4,618
|
)
|
|
|
2,034
|
|
Other, net
|
|
|
95
|
|
|
|
34
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
15,448
|
|
|
|
11,862
|
|
|
|
33,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale
|
|
|
2,141
|
|
|
|
10,442
|
|
|
|
0
|
|
Principal collected on securities available for sale
|
|
|
22,213
|
|
|
|
7,246
|
|
|
|
2,437
|
|
Proceeds collected on maturity of securities available for sale
|
|
|
78,350
|
|
|
|
110,000
|
|
|
|
165,000
|
|
Purchases of securities available for sale
|
|
|
(88,446
|
)
|
|
|
(114,405
|
)
|
|
|
(223,146
|
)
|
Purchase of Federal Home Loan Bank stock
|
|
|
0
|
|
|
|
(7,180
|
)
|
|
|
(2,095
|
)
|
Redemption of Federal Home Loan Bank stock
|
|
|
0
|
|
|
|
6,092
|
|
|
|
3,854
|
|
Proceeds from sales of real estate and premises
|
|
|
10,749
|
|
|
|
6,563
|
|
|
|
7,021
|
|
Net (increase) decrease in loans receivable
|
|
|
56,329
|
|
|
|
(78,654
|
)
|
|
|
(120,063
|
)
|
Purchases of premises and equipment
|
|
|
(558
|
)
|
|
|
(3,772
|
)
|
|
|
(2,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
80,778
|
|
|
|
(63,668
|
)
|
|
|
(169,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in deposits
|
|
|
(85,162
|
)
|
|
|
(8,484
|
)
|
|
|
162,822
|
|
Purchase of treasury stock
|
|
|
0
|
|
|
|
(723
|
)
|
|
|
(4,913
|
)
|
Stock options exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
139
|
|
Excess tax benefit from options exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
99
|
|
Dividends paid to common stockholders
|
|
|
0
|
|
|
|
(2,749
|
)
|
|
|
(3,724
|
)
|
Dividends paid to preferred stockholder
|
|
|
(1,163
|
)
|
|
|
0
|
|
|
|
0
|
|
Preferred stock and warrant issued
|
|
|
0
|
|
|
|
26,000
|
|
|
|
0
|
|
Proceeds from borrowings
|
|
|
1,099,000
|
|
|
|
631,300
|
|
|
|
160,000
|
|
Repayment of borrowings
|
|
|
(1,109,000
|
)
|
|
|
(601,300
|
)
|
|
|
(198,400
|
)
|
Increase (decrease) in customer escrows
|
|
|
788
|
|
|
|
(227
|
)
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities
|
|
|
(95,537
|
)
|
|
|
43,817
|
|
|
|
116,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
689
|
|
|
|
(7,989
|
)
|
|
|
(20,058
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
15,729
|
|
|
|
23,718
|
|
|
|
43,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
16,418
|
|
|
|
15,729
|
|
|
|
23,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
28,067
|
|
|
|
36,003
|
|
|
|
30,484
|
|
Cash paid for income taxes
|
|
|
33
|
|
|
|
5,247
|
|
|
|
8,696
|
|
Supplemental noncash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to loans held for sale
|
|
|
1,234
|
|
|
|
2,238
|
|
|
|
13,991
|
|
Transfer of loans to real estate
|
|
|
18,342
|
|
|
|
14,727
|
|
|
|
6,499
|
|
See accompanying notes to
consolidated financial statements.
26
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2009, 2008 and 2007
NOTE 1 Description
of the Business and Summary of Significant Accounting
Policies
HMN Financial, Inc. (HMN or the
Company) is a stock savings bank holding company that owns
100 percent of Home Federal Savings Bank (the Bank). The
Bank has a community banking philosophy and operates retail
banking and loan production facilities in Minnesota and Iowa.
The Bank has one wholly owned subsidiary, Osterud Insurance
Agency, Inc. (OIA), which offers financial planning products and
services. HMN has another wholly owned subsidiary, Security
Finance Corporation (SFC), which acts as an intermediary for the
Bank in completing certain real estate transactions.
The consolidated financial statements included herein are for
HMN, SFC, the Bank and OIA. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company evaluated subsequent events through the filing date
of our annual
10-K with
the Securities and Exchange Commission on March 4, 2010.
Use of Estimates In preparing the
consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could
differ from those estimates.
An estimate that is particularly susceptible to change relates
to the determination of the allowance for loan losses.
Management believes that the allowance for loan losses is
adequate to cover probable losses inherent in the portfolio at
the date of the balance sheet. While management uses available
information to recognize losses on loans, future additions to
the allowance may be necessary based on changes in economic
conditions and other factors. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies
may require additions to the allowance based on their judgment
about information available to them at the time of their
examination.
Cash and Cash Equivalents The Company
considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
Securities Securities are accounted for
according to their purpose and holding period. The Company
classifies its debt and equity securities in one of three
categories:
Trading Securities Securities held principally
for resale in the near term are classified as trading securities
and are recorded at their fair values. Unrealized gains and
losses on trading securities are included in other income.
Securities Held to Maturity Securities that
the Company has the positive intent and ability to hold to
maturity are reported at cost and adjusted for premiums and
discounts that are recognized in interest income using the
interest method over the period to maturity. Unrealized losses
on securities held to maturity reflecting a decline in value
judged to be other than temporary are charged to income and a
new cost basis is established.
Securities Available for Sale Securities
available for sale consist of securities not classified as
trading securities or as securities held to maturity. They
include securities that management intends to use as part of its
asset/liability strategy or that may be sold in response to
changes in interest rates, changes in prepayment risk, or
similar factors. Unrealized gains and losses, net of income
taxes, are reported as a separate component of
stockholders equity until realized. Gains and losses on
the sale of securities available for sale are determined using
the specific identification method and recognized on the trade
date. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity.
Unrealized losses on securities available for sale reflecting a
decline in value judged to be other than temporary are charged
to income and a new cost basis is established.
Management monitors the investment security portfolio for
impairment on an individual security basis and has a process in
place to identify securities that could potentially have a
credit impairment that is other than temporary. This process
involves analyzing the length of time and extent to which the
fair value has been less than the amortized cost basis, the
market liquidity for the security, the financial condition and
near-term prospects of the issuer, expected cash flows, and the
Companys intent and ability to hold the investment for a
period of time sufficient to recover the temporary loss,
including determining whether it is more-likely-than-not that
the Company will be required to sell the security prior to
recovery. To the extent it is determined that a security is
deemed to be other-than-temporarily impaired, an impairment loss
is recognized.
Loans Held for Sale Mortgage loans
originated or purchased which are intended for sale in the
secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net fees and costs associated
with acquiring or originating loans held for sale are deferred
and included in the basis of the loan in determining the gain or
loss on the sale of the loans. Gains on the sale of loans are
recognized on the settlement date. Net unrealized losses are
27
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
recognized through a valuation allowance by charges to income.
Loans Receivable, net Loans receivable,
net are carried at amortized cost. Loan origination fees
received, net of certain loan origination costs, are deferred as
an adjustment to the carrying value of the related loans, and
are amortized into income using the interest method over the
estimated life of the loans.
Premiums and discounts on purchased loans are amortized into
interest income using the interest method over the period to
contractual maturity, adjusted for estimated prepayments.
The allowance for loan losses is maintained at an amount
considered adequate by management to provide for probable losses
inherent in the loan portfolio as of the balance sheet dates.
The allowance for loan losses is based on a quarterly analysis
of the loan portfolio. In this analysis, management considers
factors including, but not limited to, specific occurrences
which include loan impairment, changes in the size of the
portfolios, general economic conditions, demand for single
family homes, demand for commercial real estate and building
lots, loan portfolio composition and historical experience. In
connection with the determination of the allowance for loan
losses, management obtains independent appraisals for
significant properties or other collateral securing delinquent
loans. The allowance for loan losses is established for known
problem loans, as well as for loans which are not currently
known to require specific allowances. Loans are charged off to
the extent they are deemed to be uncollectible. The adequacy of
the allowance for loan losses is dependent upon
managements estimates of variables affecting valuation,
appraisals of collateral, evaluations of performance and status,
and the amounts and timing of future cash flows expected to be
received on impaired loans. Such estimates, appraisals,
evaluations and cash flows may be subject to frequent
adjustments due to changing economic prospects of borrowers or
properties. The estimates are reviewed periodically and
adjustments, if any, are recorded in the provision for loan
losses in the periods in which the adjustments become known.
Interest income is recognized on an accrual basis except when
collectibility is in doubt. When loans are placed on a
non-accrual basis, generally when the loan is 90 days past
due, previously accrued but unpaid interest is reversed from
income. Interest is subsequently recognized as income to the
extent cash is received when, in managements judgment,
principal is collectible.
All impaired loans are valued at the present value of expected
future cash flows discounted at the loans initial
effective interest rate. The fair value of the collateral of an
impaired collateral-dependent loan or an observable market
price, if one exists, may be used as an alternative to
discounting. If the value of the impaired loan is less than the
recorded investment in the loan, impairment will be recognized
through the allowance for loan losses. A loan is considered
impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement.
Impaired loans include all loans which are on non-accrual,
delinquent as to principal and interest for 90 days or
greater or restructured in a troubled debt restructuring
involving a modification of terms. All non-accruing loans are
reviewed for impairment on an individual basis.
Mortgage Servicing Rights Mortgage
servicing rights are capitalized at fair value and amortized in
proportion to, and over the period of, estimated net servicing
income. The Company evaluates its capitalized mortgage servicing
rights for impairment each quarter. Loan type and note rate are
the predominant risk characteristics of the underlying loans
used to stratify capitalized mortgage servicing rights for
purposes of measuring impairment. Any impairment is recognized
through a valuation allowance.
Real Estate, net Real estate acquired
through loan foreclosure is initially recorded at the lower of
the related loan balance, less any specific allowance for loss,
or fair value less estimated selling costs. Valuations are
reviewed quarterly by management and an allowance for losses is
established if the carrying value of a property exceeds its fair
value less estimated selling costs.
Premises and Equipment Land is carried
at cost. Office buildings, improvements, furniture and equipment
are carried at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over estimated
useful lives of 5 to 40 years for office buildings and
improvements and 3 to 10 years for furniture and equipment.
Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of The Company reviews
long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Investment in Limited Partnerships The
Company has investments in limited partnerships that invested in
low to moderate income housing projects that generated tax
credits for the Company. The Company accounts for the earnings
or losses from the limited partnerships on the equity method.
Intangible Assets Goodwill resulting
from acquisitions is not amortized but is tested for impairment
annually in
28
accordance with the requirements of ASC 350, Goodwill and
Other Intangible Assets. Deposit base intangibles are
amortized on an accelerated basis as the deposits run off. The
Company reviews the recoverability of the carrying value of
these assets annually or whenever an event occurs indicating
that they may be impaired. During 2008, HMNs stock traded
at a substantial discount to book value. Therefore, an analysis
was performed and it was determined that the carrying value of
goodwill was impaired and the entire goodwill amount of
$3.8 million was charged off.
Stock Based Compensation The Company
recognizes the grant-date fair value of stock option awards
issued as compensation expense.
Employee Stock Ownership Plan
(ESOP) The Company has an ESOP that borrowed
funds from the Company and purchased shares of HMN common stock.
The Company makes quarterly principal and interest payments on
the ESOP loan. As the debt is repaid, ESOP shares that were
pledged as collateral for the debt are released from collateral
and allocated to eligible employees based on the proportion of
debt service paid in the year. The Company accounts for its ESOP
in accordance with ASC 718, Employers Accounting for
Employee Stock Ownership Plans. Accordingly, the shares
pledged as collateral are reported as unearned ESOP shares in
stockholders equity. As shares are determined to be
ratably released from collateral, the Company reports
compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings per share
computations.
Income Taxes Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. A valuation allowance is required to be
recognized if it is more likely than not that the
deferred tax asset will not be realized. The determination of
the realizability of the deferred tax asset is subjective and
dependent upon judgment concerning managements evaluation
of both positive and negative evidence regarding the ultimate
realizability of deferred tax assets.
Preferred Stock Dividends and
Discount The proceeds received from the
preferred stock and warrant issued to the U.S. Treasury
were allocated between the preferred stock and the warrant based
on their relative fair values at the time of issuance in
accordance with the requirements of ASC 470, Accounting for
Convertible Debt Issued with Stock Purchase Warrants.
Because of the increasing rate dividend feature of the
preferred shares, the discount on the warrant is amortized using
the constant effective yield method over the five year period
preceding the scheduled rate increase on the preferred stock in
accordance with the requirements of ASC 505.
Earnings (Loss) per Share Basic
earnings (loss) per common share excludes dilution and is
computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per common
share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that shared in the earnings of the
entity. Options and restricted stock awards are excluded from
the earnings (loss) per share calculation when a net loss is
incurred as their inclusion in the calculation would be
anti-dilutive and result in a lower loss per common share.
Comprehensive Income
(Loss) Comprehensive income (loss) is defined
as the change in equity during a period from transactions and
other events from nonowner sources. Comprehensive income (loss)
is the total of net income (loss) and other comprehensive income
(loss), which for the Company is comprised of unrealized gains
and losses on securities available for sale.
Segment Information The amount of each
segment item reported is the measure reported to the chief
operating decision maker for purposes of making decisions about
allocating resources to the segment and assessing its
performance. Adjustments and eliminations made in preparing an
enterprises general-purpose financial statements and
allocations of revenues, expenses and gains or losses are
included in determining reported segment profit or loss if they
are included in the measure of the segments profit or loss
that is used by the chief operating decision maker. Similarly,
only those assets that are included in the measure of the
segments assets that are used by the chief operating
decision maker are reported for that segment.
New Accounting Pronouncements In June
2009, the FASB issued SFAS No. 168 (ASC 105), The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162, The Hierarchy of
Generally Accepted Accounting Principles. This Statement
establishes the Accounting Standards
29
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Codification, or ASC, as the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under
federal securities laws are also sources of authoritative GAAP
for SEC registrants. All guidance contained in the ASC carries
an equal level of authority. Following this Statement, the FASB
will not issue new standards in the form of Statements, FASB
Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standard Updates (ASUs) that
will serve only to update the ASC. This Statement is effective
for financial statements issued for interim and annual periods
ending after September 15, 2009 and did not have any impact
on the Companys consolidated financial statements except
for disclosure changes to the authoritative pronouncement
references.
In June 2009, the FASB issued SFAS No. 167 (ASC 810),
Amendments to FASB Interpretation No. 46(R). This
Statement amends FASB 46(R) to require an enterprise to perform
an analysis and ongoing reassessments to determine whether the
enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity and
amends certain guidance for determining whether an entity is a
variable interest entity. It also requires enhanced disclosures
that will provide users of financial statements with more
transparent information about an enterprises involvement
in a variable interest entity. This Statement is effective as of
the beginning of each reporting entitys first annual
reporting period that begins after November 15, 2009 and
for all interim reporting periods after that and is not
anticipated to have any impact on the Companys
consolidated financial statements as the Company has no
interests in any variable interest entities.
In June 2009, the FASB issued SFAS No. 166 (ASC 860),
Accounting for Transfers of Financial Assets an
amendment of FASB Statement No. 140. This Statement
amends SFAS 140 and removes the concept of a qualifying
special-purpose entity from SFAS 140 and eliminates the
exception from applying FASB Interpretation No. 46 (revised
December 2003) (ASC 810), Consolidation of Variable Interest
Entities, on qualifying special-purpose entities. This
Statement is effective as of the beginning of each reporting
entitys first annual reporting period that begins after
November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting
periods thereafter and is not anticipated to have a material
impact on the Companys consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165 (ASC 855),
Subsequent Events. The objective of this Statement is to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In particular, this Statement sets forth the period after the
balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. This Statement is effective for financial
statements issued for interim and annual periods ending after
June 15, 2009 and did not have any impact on the
Companys consolidated financial statements.
In April 2009, the FASB issued Staff Position
FAS No. 115-2
and
FAS 124-2
(ASC 320), Recognition and Presentation of
Other-Than-Temporary Impairments (FSP
FAS No. 115-2
and
FAS 124-2).
This FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities
in the financial statements. This FSP does not amend existing
recognition and measurement guidance related to
other-than-temporary impairments of equity securities. This FSP
is effective for interim and annual reporting periods ending
after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. The impact of adopting
FSP
FAS No. 115-2
and
FAS 124-2
in the second quarter of 2009 did not have a material impact on
the Companys consolidated financial statements.
Derivative Financial Instruments The
Company uses derivative financial instruments in order to manage
the interest rate risk on residential loans held for sale and
its commitments to extend credit for residential loans. The
Company may also from time to time use interest rate swaps to
manage interest rate risk. Derivative financial instruments
include commitments to extend credit and forward mortgage loan
sales commitments.
Reclassifications Certain amounts in
the consolidated financial statements for prior years have been
reclassified to conform with the current year presentation.
NOTE 2 Other
Comprehensive Income (Loss)
The components of other comprehensive income (loss) and the
related tax effects were as follows:
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
(Dollars in thousands)
|
|
Before
|
|
|
Tax
|
|
|
Net
|
|
|
Before
|
|
|
Tax
|
|
|
Net
|
|
|
Before
|
|
|
Tax
|
|
|
Net
|
|
Securities available for sale:
|
|
Tax
|
|
|
Effect
|
|
|
of Tax
|
|
|
Tax
|
|
|
Effect
|
|
|
of Tax
|
|
|
Tax
|
|
|
Effect
|
|
|
of Tax
|
|
|
|
|
Gross unrealized gains (losses) arising during the period
|
|
$
|
(1,490
|
)
|
|
|
(632
|
)
|
|
|
(858
|
)
|
|
|
2,040
|
|
|
|
806
|
|
|
|
1,234
|
|
|
|
2,443
|
|
|
|
992
|
|
|
|
1,451
|
|
Less reclassification of net gains included in net income (loss)
|
|
|
5
|
|
|
|
2
|
|
|
|
3
|
|
|
|
479
|
|
|
|
169
|
|
|
|
310
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) arising during the period
|
|
|
(1,495
|
)
|
|
|
(634
|
)
|
|
|
(861
|
)
|
|
|
1,561
|
|
|
|
637
|
|
|
|
924
|
|
|
|
2,443
|
|
|
|
992
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
(1,495
|
)
|
|
|
(634
|
)
|
|
|
(861
|
)
|
|
|
1,561
|
|
|
|
637
|
|
|
|
924
|
|
|
|
2,443
|
|
|
|
992
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 Securities
Available for Sale
A summary of securities available for sale at December 31,
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
$
|
26,209
|
|
|
|
933
|
|
|
|
0
|
|
|
|
27,142
|
|
|
|
|
|
FNMA
|
|
|
19,399
|
|
|
|
796
|
|
|
|
0
|
|
|
|
20,195
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
5,846
|
|
|
|
137
|
|
|
|
(159
|
)
|
|
|
5,824
|
|
|
|
|
|
FNMA
|
|
|
386
|
|
|
|
12
|
|
|
|
0
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,840
|
|
|
|
1,878
|
|
|
|
(159
|
)
|
|
|
53,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
105,023
|
|
|
|
881
|
|
|
|
(36
|
)
|
|
|
105,868
|
|
|
|
|
|
Corporate preferred stock
|
|
|
700
|
|
|
|
0
|
|
|
|
(525
|
)
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,723
|
|
|
|
881
|
|
|
|
(561
|
)
|
|
|
106,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157,563
|
|
|
|
2,759
|
|
|
|
(720
|
)
|
|
|
159,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
$
|
36,144
|
|
|
|
694
|
|
|
|
(21
|
)
|
|
|
36,817
|
|
|
|
|
|
FNMA
|
|
|
27,225
|
|
|
|
695
|
|
|
|
0
|
|
|
|
27,920
|
|
|
|
|
|
GNMA
|
|
|
5
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
10,149
|
|
|
|
181
|
|
|
|
(319
|
)
|
|
|
10,011
|
|
|
|
|
|
FNMA
|
|
|
2,643
|
|
|
|
6
|
|
|
|
(75
|
)
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,166
|
|
|
|
1,576
|
|
|
|
(415
|
)
|
|
|
77,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
94,745
|
|
|
|
2,723
|
|
|
|
0
|
|
|
|
97,468
|
|
|
|
|
|
Corporate preferred stock
|
|
|
700
|
|
|
|
0
|
|
|
|
(350
|
)
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,445
|
|
|
|
2,723
|
|
|
|
(350
|
)
|
|
|
97,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
171,611
|
|
|
|
4,299
|
|
|
|
(765
|
)
|
|
|
175,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from securities available for sale which were sold in
2009 were $2.1 million resulting in gross gains of $5,000.
Proceeds from securities available for sale which were sold
during 2008 were $10.4 million resulting in gross gains of
$479,000. The Company did not sell any available for sale
securities during 2007 and did not recognize any gains or losses
on investments.
The following table presents amortized cost and estimated fair
value of securities available for sale at December 31, 2009
based upon contractual maturity adjusted for scheduled
repayments of principal and projected prepayments of principal
based upon current economic conditions and interest rates.
Actual maturities may differ from the maturities in the
following table because obligors may have the right to call or
prepay obligations with or without call or prepayment penalties:
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Fair
|
(Dollars in thousands)
|
|
cost
|
|
value
|
|
|
Due less than one year
|
|
$
|
117,427
|
|
|
|
118,508
|
|
Due after one year through five years
|
|
|
35,077
|
|
|
|
36,394
|
|
Due after five years through ten years
|
|
|
4,359
|
|
|
|
4,525
|
|
Due after ten years
|
|
|
700
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
157,563
|
|
|
|
159,602
|
|
|
|
|
|
|
|
|
|
|
|
|
The allocation of mortgage-backed securities and collateralized
mortgage obligations in the table above is based upon the
anticipated future cash flow of the securities using estimated
mortgage prepayment speeds.
31
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the gross unrealized losses and fair
values for the securities available for sale portfolio
aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss
position at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than twelve months
|
|
|
Twelve months or more
|
|
|
Total
|
|
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Investments
|
|
|
Value
|
|
|
Losses
|
|
|
Investments
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
1
|
|
|
$
|
1,248
|
|
|
|
(159
|
)
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
1,248
|
|
|
|
(159
|
)
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
6
|
|
|
|
30,000
|
|
|
|
(36
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30,000
|
|
|
|
(36
|
)
|
Corporate preferred stock
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
175
|
|
|
|
(525
|
)
|
|
|
175
|
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
7
|
|
|
$
|
31,248
|
|
|
|
(195
|
)
|
|
|
1
|
|
|
$
|
175
|
|
|
|
(525
|
)
|
|
$
|
31,423
|
|
|
|
(720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than twelve months
|
|
|
Twelve months or more
|
|
|
Total
|
|
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Investments
|
|
|
Value
|
|
|
Losses
|
|
|
Investments
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
2
|
|
|
$
|
9,115
|
|
|
|
(21
|
)
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
9,115
|
|
|
|
(21
|
)
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
2,530
|
|
|
|
(319
|
)
|
|
|
2,530
|
|
|
|
(319
|
)
|
FNMA
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2
|
|
|
|
2,175
|
|
|
|
(75
|
)
|
|
|
2,175
|
|
|
|
(75
|
)
|
Corporate preferred stock
|
|
|
1
|
|
|
|
350
|
|
|
|
(350
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
350
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
3
|
|
|
$
|
9,465
|
|
|
|
(371
|
)
|
|
|
3
|
|
|
$
|
4,705
|
|
|
|
(394
|
)
|
|
$
|
14,170
|
|
|
|
(765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We review our investment portfolio on a quarterly basis for
indications of impairment. This review includes analyzing the
length of time and the extent to which the fair value has been
lower than the cost, the market liquidity for the investment,
the financial condition and near-term prospects of the issuer,
including any specific events which may influence the operations
of the issuer, and our intent and ability to hold the investment
for a period of time sufficient to recover the temporary loss.
The unrealized losses on collateralized mortgage and agency
obligations are primarily due to changes in interest rates and
were not determined to be other-than-temporary. Mortgage backed
securities in the table above had an average life of less than
three years and the other marketable securities had an average
life of less than one year at December 31, 2009.
The unrealized losses reported for corporate preferred stock at
December 31, 2009 relates to a single trust preferred
security that was issued by the holding company of a small
community bank. Typical of most trust preferred issuances, the
issuer has the ability to defer interest payments for up to five
years with interest payable on the deferred balance. In October
2009, the issuer elected to defer its scheduled interest
payments as allowed by the terms of the security agreement. The
issuers subsidiary bank has incurred operating losses due
to increased provisions for loan losses but still meets the
regulatory requirements to be considered well
capitalized based on its most recent regulatory filing. In
addition, the owners of the issuing bank appear to have the
ability to make additional capital contributions, if needed, to
enhance the banks capital position. Based on a review of
the issuer, it was determined that the trust preferred security
was not other-than-temporarily impaired at December 31,
2009. The Company does not intend to sell the preferred stock
and has the intent and ability to hold it for a period of time
sufficient to recover the temporary loss. Management believes
that the Company will receive all principal and interest
payments contractually due on the security and that the decrease
in the market value is primarily due to a lack of liquidity in
the market for trust preferred securities and the deferral of
interest by the issuer. Management will continue to monitor the
credit risk of the issuer and may be required to recognize
other-than-temporary impairment charges on this security in
future periods.
32
NOTE 4
Loans Receivable, Net
A summary of loans receivable at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family conventional
|
|
$
|
144,368
|
|
|
|
161,695
|
|
|
|
|
|
1-4 family conventional construction
|
|
|
14,562
|
|
|
|
29,998
|
|
|
|
|
|
1-4 family FHA
|
|
|
212
|
|
|
|
80
|
|
|
|
|
|
1-4 family VA
|
|
|
51
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,193
|
|
|
|
191,987
|
|
|
|
|
|
Multi family
|
|
|
59,266
|
|
|
|
29,292
|
|
|
|
|
|
Multi family construction
|
|
|
9,678
|
|
|
|
35,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,137
|
|
|
|
256,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lodging
|
|
|
37,732
|
|
|
|
45,264
|
|
|
|
|
|
Retail/office
|
|
|
70,741
|
|
|
|
70,158
|
|
|
|
|
|
Nursing home/health care
|
|
|
5,841
|
|
|
|
10,184
|
|
|
|
|
|
Land developments
|
|
|
91,020
|
|
|
|
105,281
|
|
|
|
|
|
Golf courses
|
|
|
10,477
|
|
|
|
15,914
|
|
|
|
|
|
Restaurant/bar/café
|
|
|
5,001
|
|
|
|
6,140
|
|
|
|
|
|
Alternative fuel plants
|
|
|
42,053
|
|
|
|
41,271
|
|
|
|
|
|
Warehouse
|
|
|
29,733
|
|
|
|
26,679
|
|
|
|
|
|
Manufacturing
|
|
|
10,315
|
|
|
|
7,146
|
|
|
|
|
|
Churches/community service
|
|
|
4,369
|
|
|
|
9,130
|
|
|
|
|
|
Other
|
|
|
21,604
|
|
|
|
30,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,886
|
|
|
|
367,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Autos
|
|
|
902
|
|
|
|
1,333
|
|
|
|
|
|
Home equity line
|
|
|
50,369
|
|
|
|
52,243
|
|
|
|
|
|
Home equity
|
|
|
21,088
|
|
|
|
22,912
|
|
|
|
|
|
Consumer secured
|
|
|
1,083
|
|
|
|
320
|
|
|
|
|
|
Commercial business
|
|
|
185,525
|
|
|
|
213,775
|
|
|
|
|
|
Land/lot loans
|
|
|
3,190
|
|
|
|
2,969
|
|
|
|
|
|
Savings
|
|
|
324
|
|
|
|
277
|
|
|
|
|
|
Mobile home
|
|
|
977
|
|
|
|
1,316
|
|
|
|
|
|
Consumer unsecured
|
|
|
4,282
|
|
|
|
5,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,740
|
|
|
|
300,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
824,763
|
|
|
|
925,244
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premiums
|
|
|
177
|
|
|
|
569
|
|
|
|
|
|
Net deferred loan fees
|
|
|
1,518
|
|
|
|
2,529
|
|
|
|
|
|
Allowance for loan losses
|
|
|
23,812
|
|
|
|
21,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
799,256
|
|
|
|
900,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate or purchase loans
|
|
$
|
7,330
|
|
|
|
10,107
|
|
|
|
|
|
Commitments to deliver loans to secondary market
|
|
$
|
6,278
|
|
|
|
6,737
|
|
|
|
|
|
Weighted average contractual rate of loans in portfolio
|
|
|
5.78
|
%
|
|
|
5.93
|
%
|
|
|
|
|
Included in total commitments to originate or purchase loans are
fixed rate loans aggregating $3.3 million and
$4.2 million as of December 31, 2009 and 2008,
respectively. The interest rates on these loan commitments
ranged from 4.00% to 5.25% at December 31, 2009 and from
4.50% to 6.875% at December 31, 2008.
At December 31, 2009, 2008 and 2007, impaired loans totaled
$61.1 million, $64.2 million and $19.6 million,
respectively, for which the related allowance for loan losses
was $12.1 million, $10.2 million and
$3.4 million, respectively. Impaired loans for which no
specific allowance has been recorded because management
determined that the value of the collateral was sufficient to
repay the loan totaled $17.0 million, $16.2 million
and $509,000, respectively. Had the loans performed in
accordance with their original terms, the Company would have
recorded gross interest income on the loans of
$5.0 million, $5.5 million and $1.8 million in
2009, 2008 and 2007, respectively. For the years ended
December 31, 2009, 2008 and 2007, the Company recognized
interest income on these loans of $0.9 million,
$1.9 million and $1.0 million, respectively. All of
the interest income that was recognized for impaired loans was
recognized using the cash basis method of income recognition.
At December 31, 2009, there were loans included in loans
receivable, net, with terms that had been modified in a troubled
debt restructuring totaling $5.3 million. Had the loans
performed in accordance with their original terms throughout
2009, the Company would have recorded gross interest income of
$408,000. During 2009, the Company recorded gross interest
income of $362,000 on the loans. At December 31, 2008 and
2007, there were loans of $8.2 million and $172,000,
respectively, included in loans receivable, net, with terms that
had been modified in a troubled debt restructuring.
The following table summarizes accruing troubled debt
restructurings for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
Commercial real estate
|
|
$
|
4,315
|
|
|
|
8,156
|
|
1-4 family
|
|
|
608
|
|
|
|
0
|
|
Home equity
|
|
|
131
|
|
|
|
0
|
|
Land/lot
|
|
|
251
|
|
|
|
0
|
|
Other consumer
|
|
|
19
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,324
|
|
|
|
8,156
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no material commitments to lend additional funds to
customers whose loans were restructured or classified as
nonaccrual at December 31, 2009 or December 31, 2008.
The aggregate amounts of loans to executive officers and
directors of the Company was $4.1 million at each of
December 31, 2009, 2008 and 2007. During 2009, repayments
on loans to executive officers and directors were $3,000, new
loans to executive officers and directors totaled $573,000,
sales of executive officer and director loans were $473,000 and
net loans removed from the executive officer listing due to
change in status of the officer or loan were $75,000. During
2008, repayments on loans to executive officers and directors
were $100,000, new loans to executive officers and directors
totaled $508,000 and sales of executive officer and director
loans were $383,000. All loans were made in the ordinary course
of business on normal credit terms,
33
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated parties.
At December 31, 2009, 2008 and 2007, the Company was
servicing real estate loans for others with aggregate unpaid
principal balances of approximately $566.0 million,
$557.7 million and $516.1 million, respectively.
The Company originates residential, commercial real estate and
other loans primarily in Minnesota and Iowa. At
December 31, 2009 and 2008, the Company had in its
portfolio single-family and multi-family residential loans
located in the following states:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
of Total
|
|
Amount
|
|
of Total
|
|
|
|
|
Arizona
|
|
$
|
959
|
|
|
|
0.4
|
%
|
|
$
|
1,802
|
|
|
|
0.7
|
%
|
|
|
|
|
Georgia
|
|
|
698
|
|
|
|
0.3
|
|
|
|
1,006
|
|
|
|
0.4
|
|
|
|
|
|
Iowa
|
|
|
6,701
|
|
|
|
2.9
|
|
|
|
9,240
|
|
|
|
3.6
|
|
|
|
|
|
Minnesota
|
|
|
214,484
|
|
|
|
94.0
|
|
|
|
238,675
|
|
|
|
92.9
|
|
|
|
|
|
Wisconsin
|
|
|
2,241
|
|
|
|
1.0
|
|
|
|
2,653
|
|
|
|
1.0
|
|
|
|
|
|
Other states
|
|
|
3,054
|
|
|
|
1.4
|
|
|
|
3,543
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
228,137
|
|
|
|
100.0
|
%
|
|
$
|
256,919
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts under one million dollars in both years are included
in Other states.
At December 31, 2009 and 2008, the Company had in its
portfolio commercial real estate loans located in the following
states:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
of Total
|
|
Amount
|
|
of Total
|
|
|
|
|
Arizona
|
|
$
|
6,691
|
|
|
|
2.0
|
%
|
|
$
|
10,463
|
|
|
|
2.8
|
%
|
|
|
|
|
California
|
|
|
4,662
|
|
|
|
1.4
|
|
|
|
6,593
|
|
|
|
1.8
|
|
|
|
|
|
Florida
|
|
|
2,908
|
|
|
|
0.9
|
|
|
|
2,966
|
|
|
|
0.8
|
|
|
|
|
|
Idaho
|
|
|
5,040
|
|
|
|
1.5
|
|
|
|
5,084
|
|
|
|
1.4
|
|
|
|
|
|
Indiana
|
|
|
11,692
|
|
|
|
3.6
|
|
|
|
11,778
|
|
|
|
3.2
|
|
|
|
|
|
Iowa
|
|
|
14,992
|
|
|
|
4.6
|
|
|
|
17,829
|
|
|
|
4.9
|
|
|
|
|
|
Kansas
|
|
|
1,855
|
|
|
|
0.6
|
|
|
|
2,002
|
|
|
|
0.5
|
|
|
|
|
|
Minnesota
|
|
|
261,226
|
|
|
|
79.4
|
|
|
|
290,659
|
|
|
|
79.0
|
|
|
|
|
|
Nebraska
|
|
|
4,992
|
|
|
|
1.5
|
|
|
|
4,992
|
|
|
|
1.4
|
|
|
|
|
|
North Carolina
|
|
|
7,512
|
|
|
|
2.3
|
|
|
|
7,707
|
|
|
|
2.1
|
|
|
|
|
|
Utah
|
|
|
1,727
|
|
|
|
0.5
|
|
|
|
1,823
|
|
|
|
0.5
|
|
|
|
|
|
Wisconsin
|
|
|
5,589
|
|
|
|
1.7
|
|
|
|
5,971
|
|
|
|
1.6
|
|
|
|
|
|
Other states
|
|
|
0
|
|
|
|
0.0
|
|
|
|
82
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
328,886
|
|
|
|
100.0
|
%
|
|
$
|
367,949
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts under one million dollars in both years are included
in Other states.
NOTE 5 Allowance
for Loan Losses
The allowance for loan losses is summarized as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
9,873
|
|
Provision for losses
|
|
|
3,898
|
|
Charge-offs
|
|
|
(1,681
|
)
|
Recoveries
|
|
|
348
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
12,438
|
|
Provision for losses
|
|
|
26,696
|
|
Charge-offs
|
|
|
(17,928
|
)
|
Recoveries
|
|
|
51
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
21,257
|
|
Provision for losses
|
|
|
26,699
|
|
Charge-offs
|
|
|
(25,031
|
)
|
Recoveries
|
|
|
887
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
23,812
|
|
|
|
|
|
|
|
|
NOTE 6 Accrued
Interest Receivable
Accrued interest receivable at December 31 is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Securities available for sale
|
|
$
|
916
|
|
|
|
1,340
|
|
|
|
|
|
Loans receivable
|
|
|
3,108
|
|
|
|
4,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,024
|
|
|
|
5,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7
|
Mortgage
Servicing Rights, Net
|
A summary of mortgage servicing activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Mortgage servicing rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
728
|
|
|
$
|
1,270
|
|
|
|
|
|
Originations
|
|
|
1,143
|
|
|
|
28
|
|
|
|
|
|
Amortization
|
|
|
(556
|
)
|
|
|
(570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
1,315
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation reserve
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights, net
|
|
$
|
1,315
|
|
|
$
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of mortgage servicing rights
|
|
$
|
2,138
|
|
|
$
|
2,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
All of the single family loans sold where the Company continues
to service the loans are serviced for FNMA under the
mortgage-backed security program or the individual loan sale
program. The following is a summary of the risk characteristics
of the loans being serviced at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
Loan
|
|
Average
|
|
Remaining
|
|
|
|
|
Principal
|
|
Interest
|
|
Term
|
|
Number
|
(Dollars in thousands)
|
|
Balance
|
|
Rate
|
|
(months)
|
|
of Loans
|
|
|
Original term 30 year fixed rate
|
|
$
|
219,958
|
|
|
|
5.49
|
%
|
|
|
299
|
|
|
|
1,929
|
|
Original term 15 year fixed rate
|
|
|
99,748
|
|
|
|
4.97
|
|
|
|
115
|
|
|
|
1,580
|
|
Adjustable rate
|
|
|
1,266
|
|
|
|
4.23
|
|
|
|
306
|
|
|
|
11
|
|
|
|
The gross carrying amount of mortgage servicing rights and the
associated accumulated amortization at December 31, 2009
and 2008 are presented in the following table. Amortization
expense for mortgage servicing rights was $556,000 and $570,000
for the years ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Unamortized
|
|
|
Carrying
|
|
Accumulated
|
|
Intangible
|
(Dollars in thousands)
|
|
Amount
|
|
Amortization
|
|
Assets
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
4,172
|
|
|
|
(2,857
|
)
|
|
|
1,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,172
|
|
|
|
(2,857
|
)
|
|
|
1,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
3,850
|
|
|
|
(3,122
|
)
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,850
|
|
|
|
(3,122
|
)
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table indicates the estimated future amortization
expense for amortized intangible assets:
|
|
|
|
|
|
|
|
Mortgage
|
(Dollars in thousands)
|
|
Servicing
|
Year Ended December 31,
|
|
Rights
|
|
|
2010
|
|
$
|
341
|
|
2011
|
|
|
249
|
|
2012
|
|
|
208
|
|
2013
|
|
|
185
|
|
2014
|
|
|
153
|
|
Thereafter
|
|
|
279
|
|
|
|
|
|
|
|
|
$
|
1,315
|
|
|
|
|
|
|
|
|
Projections of amortization are based on asset balances and the
interest rate environment that existed at December 31,
2009. The Companys actual experience may be significantly
different depending upon changes in mortgage interest rates and
other market conditions.
NOTE 8
Real Estate
A summary of real estate at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Real estate in judgment subject to redemption
|
|
$
|
1,637
|
|
|
|
3,198
|
|
|
|
|
|
Real estate acquired through foreclosure
|
|
|
12,666
|
|
|
|
2,254
|
|
|
|
|
|
Real estate acquired through deed in lieu of foreclosure
|
|
|
6,725
|
|
|
|
5,000
|
|
|
|
|
|
Real estate acquired in satisfaction of debt
|
|
|
106
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,134
|
|
|
|
10,558
|
|
|
|
|
|
Allowance for losses
|
|
|
(4,877
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,257
|
|
|
|
10,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9
Premises and Equipment
A summary of premises and equipment at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Land
|
|
$
|
2,070
|
|
|
|
2,364
|
|
|
|
|
|
Office buildings and improvements
|
|
|
9,148
|
|
|
|
11,294
|
|
|
|
|
|
Furniture and equipment
|
|
|
12,796
|
|
|
|
12,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,014
|
|
|
|
26,272
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(13,248
|
)
|
|
|
(12,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,766
|
|
|
|
13,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 Deposits
Deposits and their weighted average interest rates at December
31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
average rate
|
|
|
Amount
|
|
|
of total
|
|
|
average rate
|
|
|
Amount
|
|
|
of total
|
|
|
|
|
|
|
|
Noninterest checking
|
|
|
0.00
|
%
|
|
$
|
80,330
|
|
|
|
10.1
|
%
|
|
|
0.00
|
%
|
|
$
|
66,905
|
|
|
|
7.6
|
%
|
|
|
|
|
NOW accounts
|
|
|
0.08
|
|
|
|
103,998
|
|
|
|
13.0
|
|
|
|
0.19
|
|
|
|
126,547
|
|
|
|
14.4
|
|
|
|
|
|
Savings accounts
|
|
|
0.13
|
|
|
|
31,068
|
|
|
|
3.9
|
|
|
|
0.11
|
|
|
|
28,023
|
|
|
|
3.2
|
|
|
|
|
|
Money market accounts
|
|
|
1.25
|
|
|
|
125,008
|
|
|
|
15.7
|
|
|
|
1.59
|
|
|
|
97,416
|
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340,404
|
|
|
|
42.7
|
|
|
|
|
|
|
|
318,891
|
|
|
|
36.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-0.99%
|
|
|
|
|
|
|
16,615
|
|
|
|
2.1
|
|
|
|
|
|
|
|
1,068
|
|
|
|
0.1
|
|
|
|
|
|
1-1.99%
|
|
|
|
|
|
|
113,916
|
|
|
|
14.3
|
|
|
|
|
|
|
|
8,193
|
|
|
|
1.0
|
|
|
|
|
|
2-2.99%
|
|
|
|
|
|
|
135,311
|
|
|
|
17.0
|
|
|
|
|
|
|
|
81,483
|
|
|
|
9.3
|
|
|
|
|
|
3-3.99%
|
|
|
|
|
|
|
138,152
|
|
|
|
17.4
|
|
|
|
|
|
|
|
344,735
|
|
|
|
39.0
|
|
|
|
|
|
4-4.99%
|
|
|
|
|
|
|
47,692
|
|
|
|
6.0
|
|
|
|
|
|
|
|
114,155
|
|
|
|
13.0
|
|
|
|
|
|
5-5.99%
|
|
|
|
|
|
|
3,921
|
|
|
|
0.5
|
|
|
|
|
|
|
|
11,980
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificates
|
|
|
2.81
|
|
|
|
455,607
|
|
|
|
57.3
|
|
|
|
3.70
|
|
|
|
561,614
|
|
|
|
63.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1.82
|
|
|
$
|
796,011
|
|
|
|
100.0
|
%
|
|
|
2.63
|
|
|
$
|
880,505
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the Company had
$254.2 million and $255.4 million, respectively, of
deposit accounts with balances of $100,000 or more. At
December 31, 2009 and 2008, the Company had
$211.0 million and $302.8 million of certificate
accounts, respectively, that had been acquired through a broker.
Certificates had the following maturities at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
Remaining term to maturity
|
|
Amount
|
|
|
rate
|
|
|
Amount
|
|
|
rate
|
|
|
|
|
|
|
|
1-6 months
|
|
$
|
124,050
|
|
|
|
3.07
|
%
|
|
$
|
198,511
|
|
|
|
3.57
|
%
|
|
|
|
|
7-12 months
|
|
|
138,389
|
|
|
|
2.77
|
|
|
|
188,735
|
|
|
|
3.62
|
|
|
|
|
|
13-36 months
|
|
|
186,929
|
|
|
|
2.66
|
|
|
|
168,912
|
|
|
|
3.94
|
|
|
|
|
|
Over 36 months
|
|
|
6,239
|
|
|
|
2.96
|
|
|
|
5,456
|
|
|
|
3.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
455,607
|
|
|
|
2.81
|
|
|
$
|
561,614
|
|
|
|
3.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, mortgage loans and mortgage-backed
and related securities with an amortized cost of approximately
$65.4 million were pledged as collateral for certain
deposits. An additional $900,000 of letters of credit from the
Federal Home Loan Bank (FHLB) were pledged as collateral on Bank
deposits.
Interest expense on deposits is summarized as follows for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
NOW accounts
|
|
$
|
132
|
|
|
|
1,543
|
|
|
|
3,509
|
|
|
|
|
|
Savings accounts
|
|
|
38
|
|
|
|
412
|
|
|
|
551
|
|
|
|
|
|
Money market accounts
|
|
|
1,430
|
|
|
|
2,821
|
|
|
|
8,031
|
|
|
|
|
|
Certificates
|
|
|
15,979
|
|
|
|
22,381
|
|
|
|
21,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,579
|
|
|
|
27,157
|
|
|
|
33,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
NOTE 11 Federal
Home Loan Bank Advances and Federal Reserve Borrowings
Fixed and variable rate Federal Home Loan Bank advances and
Federal Reserve borrowings consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Year of Maturity
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
|
|
|
|
2010
|
|
$
|
10,000
|
|
|
|
6.48
|
%
|
|
$
|
10,000
|
|
|
|
6.48
|
%
|
|
|
|
|
2011
|
|
|
52,500
|
|
|
|
4.00
|
|
|
|
52,500
|
|
|
|
4.00
|
|
|
|
|
|
2013
|
|
|
70,000
|
|
|
|
4.77
|
|
|
|
70,000
|
|
|
|
4.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,500
|
|
|
|
4.59
|
|
|
|
132,500
|
|
|
|
4.59
|
|
|
|
|
|
Lines of Credit Federal Reserve
|
|
|
0
|
|
|
|
0.00
|
|
|
|
10,000
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132,500
|
|
|
|
4.59
|
|
|
$
|
142,500
|
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the advances listed above have call provisions which
allow the FHLB to request that the advance be paid back or
refinanced at the rates then being offered by the FHLB. As of
December 31, 2009, the Company had advances from the FHLB
with the following call features:
|
|
|
|
|
|
(Dollars in thousands)
|
|
Callable Quarterly
|
Year of Maturity
|
|
in 2010
|
|
|
2010
|
|
$
|
10,000
|
|
2011
|
|
|
7,500
|
|
2013
|
|
|
70,000
|
|
|
|
|
|
|
|
|
$
|
87,500
|
|
|
|
|
|
|
|
|
At December 31, 2009, the advances from the FHLB were
collateralized by the Banks FHLB stock and mortgage loans.
The Bank has the ability to draw additional borrowings of
$27.7 million from the FHLB, based upon the mortgage loans
and securities that are currently pledged, subject to approval
from the FHLB and a requirement to purchase additional FHLB
stock. The Bank also has the ability to draw additional
borrowings of $98.6 million from the Federal Reserve Bank,
based upon the loans that are currently pledged with them.
NOTE 12 Other
Borrowed Money
The Company had a $5.0 million revolving line of credit
available at December 31, 2007 that was not drawn upon and
expired on October 24, 2008. No revolving lines of credit
were available or outstanding at December 31, 2009.
NOTE 13 Income
Taxes
Income tax expense (benefit) for the years ended December 31 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4,551
|
)
|
|
|
(415
|
)
|
|
|
7,702
|
|
|
|
|
|
State
|
|
|
1,460
|
|
|
|
(1
|
)
|
|
|
2,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(3,091
|
)
|
|
|
(416
|
)
|
|
|
9,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,213
|
)
|
|
|
(3,575
|
)
|
|
|
(2,044
|
)
|
|
|
|
|
State
|
|
|
(1,303
|
)
|
|
|
(993
|
)
|
|
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(2,516
|
)
|
|
|
(4,568
|
)
|
|
|
(2,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,607
|
)
|
|
|
(4,984
|
)
|
|
|
7,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reasons for the difference between expected
income tax expense (benefit) utilizing the federal corporate tax
rate of 35% for 2009 and 2007, 34% for 2008 and the actual
income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
Expected federal income tax expense (benefit)
|
|
$
|
(5,741
|
)
|
|
|
(5,138
|
)
|
|
|
6,501
|
|
|
|
|
|
Items affecting federal income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax expense (benefit)
|
|
|
170
|
|
|
|
(642
|
)
|
|
|
1,094
|
|
|
|
|
|
Tax exempt interest
|
|
|
(235
|
)
|
|
|
(490
|
)
|
|
|
(276
|
)
|
|
|
|
|
Goodwill impairment charge
|
|
|
0
|
|
|
|
1,293
|
|
|
|
0
|
|
|
|
|
|
Other, net
|
|
|
199
|
|
|
|
(7
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,607
|
)
|
|
|
(4,984
|
)
|
|
|
7,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the change in the gross amount, before
related tax effects, of unrecognized tax benefits for 2009 and
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Balance at January 1
|
|
$
|
600
|
|
|
|
600
|
|
|
|
|
|
Increases for tax positions related to prior years
|
|
|
1,610
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
2,210
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the $2.2 million of unrecognized tax benefits at
December 31, 2009, $1.4 million would, if recognized,
37
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
affect the effective tax rate. The remaining $0.8 million
of unrecognized tax benefits relates to the federal tax impact
of the unrecognized state tax benefit.
The Company recognizes both interest and penalties, if any,
related to unrecognized tax benefits as a component of other
operating expense in the Consolidated Financial Statements. The
gross amount of accrued interest on unrecognized tax benefits
was $697,000 at December 31, 2009. The Company recorded an
increase in the accrued interest of $541,000 and $48,000 in 2009
and 2008, respectively.
It is reasonably possible that the total unrecognized tax
benefit could be reduced to zero with the next 12 month
period. It is also reasonably possible that any benefit may be
substantially offset by new matters arising during the same
period. The Company files consolidated federal and state income
tax returns and is not subject to federal income tax
examinations for taxable years prior to 2005, or state
examinations prior to 2002.
The tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities are as follows
at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for loan and real estate losses
|
|
$
|
9,724
|
|
|
|
8,756
|
|
|
|
|
|
Deferred compensation costs
|
|
|
337
|
|
|
|
331
|
|
|
|
|
|
Deferred ESOP loan asset
|
|
|
657
|
|
|
|
629
|
|
|
|
|
|
Restricted stock expense
|
|
|
139
|
|
|
|
160
|
|
|
|
|
|
ASC 740
|
|
|
0
|
|
|
|
210
|
|
|
|
|
|
Nonaccruing loan interest
|
|
|
2,620
|
|
|
|
1,555
|
|
|
|
|
|
State net operating loss carry forward
|
|
|
891
|
|
|
|
0
|
|
|
|
|
|
Other
|
|
|
49
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
14,417
|
|
|
|
11,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available for sale
|
|
|
809
|
|
|
|
1,443
|
|
|
|
|
|
Deferred loan fees and costs
|
|
|
258
|
|
|
|
246
|
|
|
|
|
|
Premises and equipment basis difference
|
|
|
950
|
|
|
|
987
|
|
|
|
|
|
Originated mortgage servicing rights
|
|
|
537
|
|
|
|
297
|
|
|
|
|
|
Other
|
|
|
273
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
2,827
|
|
|
|
3,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
11,590
|
|
|
|
8,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at December 31, 2009 included
approximately $8.8 million for which no provision for
income taxes was made. This amount represents allocations of
income to bad debt deductions for tax purposes. Reduction of
amounts so allocated for purposes other than absorbing losses
will create income for tax purposes, which will be subject to
the then-current corporate income tax rate.
The Company considers the determination of the deferred tax
asset amount and the need for any valuation reserve to be a
critical accounting policy that requires significant judgment.
The Company has, in its judgment, made reasonable assumptions
and considered both positive and negative evidence relating to
the ultimate realization of deferred tax assets. Positive
evidence includes the existence of taxes paid in available
carry-back years, the ability to implement tax planning
strategies to accelerate taxable income recognition and the
probability that taxable income will be generated in future
periods. Negative evidence includes the Companys
cumulative loss in the prior three year period and the general
business and economic trends. The cumulative loss was impacted
by the charge off of one $12.0 million loan in 2008 due to
the apparently fraudulent activities of the borrower and a
$3.8 million goodwill impairment charge recorded in 2008.
Based upon this evaluation, the Company has determined that no
valuation allowance is required with respect to the deferred tax
assets at December 31, 2009.
The Company is headquartered in Minnesota and files a state
income tax return with the Minnesota Department of Revenue
(MDR). In January 2007, the MDR proposed adjustments of
$2.2 million to the Companys state tax liability
related to the tax treatment of the inter-company dividends paid
to the Bank by a former subsidiary in 2002, 2003 and 2004. The
case was heard by the Minnesota tax court in 2009 and it ruled
in favor of the MDR and the Company recorded additional income
tax expense of $1.0 million, net of the federal benefit, in
the second quarter of 2009. The Company appealed the tax court
ruling to the Minnesota Supreme Court. The case was heard in the
fourth quarter of 2009 and a ruling is anticipated in the second
quarter of 2010. The Company has previously reserved for the
entire amount of the proposed adjustment, therefore, a favorable
ruling would result in a reduction in income tax expense of
$1.2 million and a reduction in other expense of $697,000
for accrued interest.
NOTE 14 Employee
Benefits
All eligible full-time employees of the Bank that were hired
prior to 2002 were included in a noncontributory multi-employer
retirement plan sponsored by the Financial Institutions
Retirement Fund (FIRF). Effective September 1, 2002, the
accrual of benefits for existing participants was frozen and no
new enrollments were permitted into the plan. The actuarial
present value of accumulated plan benefits and net assets
available for benefits relating to the Banks employees was
not available at December 31, 2009 because such information
is not accumulated for each participating institution. As of
June 30, 2009, the FIRF valuation
38
report reflected that the Bank was obligated to make a
contribution totaling $167,000 which was paid in the fourth
quarter of 2009. The required contribution was $55,000 and
$159,000 in 2008 and 2007, respectively.
The Company has a qualified, tax-exempt savings plan with a
deferred feature qualifying under Section 401(k) of the
Internal Revenue Code (the 401(k) Plan). All employees who have
attained 18 years of age are eligible to participate in the
Plan. Participants are permitted to make contributions to the
401(k) Plan equal to the lesser of 50% of the participants
annual salary or the maximum allowed by law, which was $16,500
for 2009. The Company matches 25% of each participants
contributions up to a maximum of 8% of the participants
annual salary. Participant contributions and earnings are fully
and immediately vested. The Companys contributions are
vested on a three year cliff basis, are expensed over the
vesting period, and were $177,000, $166,000 and $164,000, in
2009, 2008 and 2007, respectively.
The Company has adopted an Employee Stock Ownership Plan (the
ESOP) that meets the requirements of Section 4975(e)(7) of
the Internal Revenue Code and Section 407(d)(6) of the
Employee Retirement Income Security Act of 1974, as amended
(ERISA) and, as such the ESOP is empowered to borrow in order to
finance purchases of the common stock of HMN. The ESOP borrowed
$6.1 million from the Company to purchase
912,866 shares of common stock in the initial public
offering of HMN. As a result of a merger with Marshalltown
Financial Corporation (MFC), the ESOP borrowed $1.5 million
to purchase an additional 76,933 shares of HMN common stock
to account for the additional employees and avoid dilution of
the benefit provided by the plan. The ESOP debt requires
quarterly payments of principal plus interest at 7.52%. The
Company has committed to make quarterly contributions to the
ESOP necessary to repay the loans including interest. The
Company contributed $525,000, $527,000 and $525,000 in 2009,
2008 and 2007, respectively.
As the debt is repaid, ESOP shares that were pledged as
collateral for the debt are released from collateral and
allocated to eligible employees based on the proportion of debt
service paid in the year. The Company accounts for its ESOP in
accordance with Statement of Position
93-6,
Employers Accounting for Employee Stock Ownership Plans
(ASU 718). Accordingly, the shares pledged as collateral are
reported as unearned ESOP shares in stockholders equity.
As shares are determined to be ratably released from collateral,
the Company reports compensation expense equal to the current
market price of the shares, and the shares become outstanding
for earnings per share computations. ESOP compensation expense
was $100,000, $380,000 and $765,000, respectively, for 2009,
2008 and 2007.
All employees of the Bank are eligible to participate in the
ESOP after they attain age 18 and complete one year of
service during which they worked at least 1,000 hours. A
summary of the ESOP share allocation is as follows for the years
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Shares allocated to participants beginning of the year
|
|
|
320,937
|
|
|
|
296,086
|
|
|
|
294,631
|
|
Shares allocated to participants
|
|
|
24,317
|
|
|
|
24,379
|
|
|
|
24,317
|
|
Shares purchased with dividends from allocated shares
|
|
|
0
|
|
|
|
12,078
|
|
|
|
8,843
|
|
Shares distributed to participants
|
|
|
(11,576
|
)
|
|
|
(11,606
|
)
|
|
|
(31,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares allocated to participants end of year
|
|
|
333,678
|
|
|
|
320,937
|
|
|
|
296,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unreleased shares beginning of the year
|
|
|
474,403
|
|
|
|
498,782
|
|
|
|
523,099
|
|
Shares released during year
|
|
|
(24,317
|
)
|
|
|
(24,379
|
)
|
|
|
(24,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unreleased shares end of year
|
|
|
450,086
|
|
|
|
474,403
|
|
|
|
498,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares end of year
|
|
|
783,764
|
|
|
|
795,340
|
|
|
|
794,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares at December 31
|
|
$
|
1,890,361
|
|
|
|
1,983,005
|
|
|
|
12,245,098
|
|
|
|
In June 1995, the Company adopted the 1995 Stock Option and
Incentive Plan (1995 Plan). The provisions of the 1995 Plan
expired on April 25, 2005 and options may no longer be
granted from the 1995 Plan. At December 31, 2009, there
were 40,500 vested options under the 1995 Plan that remained
unexercised. These options expire 10 years from the date of
grant and have an average exercise price of $13.10.
In March 2001, the Company adopted the HMN Financial, Inc. 2001
Omnibus Stock Plan (2001 Plan). On April 28, 2009, this
plan was superseded by the HMN Financial, Inc. 2009 Equity and
Incentive Plan (2009 Plan) and options or restricted shares may
no longer be awarded from the 2001 Plan. As of December 31,
2009, there were 42,540 vested and 102,831 unvested options
under the 2001 Plan that remain unexercised. These options
expire 10 years from the date of grant and have an average
exercise price of $19.91. There are also 14,515 shares of
restricted stock previously granted to current employees that as
of December 31, 2009 remain unvested.
In April 2009, the Company adopted the 2009 Plan. The purpose of
the 2009 Plan is to provide key personnel and advisors with an
opportunity to acquire a proprietary interest in the Company.
The opportunity to acquire a proprietary interest in the Company
will aid in attracting, motivating and retaining key personnel
and advisors, including non-employee directors, and will align
their interest with those of our stockholders.
350,000 shares of HMN common stock were initially
39
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
available for distribution under the 2009 Plan in either
restricted stock or stock options, subject to adjustment for
future stock splits, stock dividends and similar changes to the
capitalization of the Company. Additionally, shares of
restricted stock that are awarded are counted as 1.2 shares
for purposes of determining the total shares available for issue
under the 2009 Plan.
A summary of activities under all plans for the past three years
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Options
|
|
|
|
|
|
|
Shares
|
|
Restricted
|
|
|
|
Award value/
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Available
|
|
Shares
|
|
Options
|
|
Weighted Average
|
|
|
|
Grant Date
|
|
Vesting
|
|
|
|
|
for Grant
|
|
Outstanding
|
|
Outstanding
|
|
Exercise Price
|
|
Number
|
|
Fair Value
|
|
Period
|
|
|
|
|
1995 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
0
|
|
|
|
0
|
|
|
|
116,774
|
|
|
$
|
12.13
|
|
|
|
3,000
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
(11,274
|
)
|
|
|
12.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,000
|
)
|
|
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
0
|
|
|
|
0
|
|
|
|
105,500
|
|
|
|
12.12
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
0
|
|
|
|
0
|
|
|
|
105,500
|
|
|
|
12.12
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
(65,000
|
)
|
|
|
11.50
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
0
|
|
|
|
0
|
|
|
|
40,500
|
|
|
|
13.10
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
154,127
|
|
|
|
16,206
|
|
|
|
220,300
|
|
|
$
|
18.89
|
|
|
|
198,442
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
Granted January 25, 2007
|
|
|
(13,967
|
)
|
|
|
13,967
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
3 years
|
|
|
|
Forfeited
|
|
|
31,459
|
|
|
|
(1,054
|
)
|
|
|
(30,405
|
)
|
|
|
16.13
|
|
|
|
(30,405
|
)
|
|
|
1.43
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
(6,348
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,432
|
)
|
|
|
2.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
171,619
|
|
|
|
22,771
|
|
|
|
189,895
|
|
|
|
19.33
|
|
|
|
155,605
|
|
|
|
1.61
|
|
|
|
|
|
|
|
Granted January 25, 2008
|
|
|
(22,182
|
)
|
|
|
22,182
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
3 years
|
|
|
|
Forfeited
|
|
|
5,916
|
|
|
|
(169
|
)
|
|
|
(5,747
|
)
|
|
|
16.13
|
|
|
|
(5,747
|
)
|
|
|
1.43
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
(10,491
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,770
|
)
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
155,353
|
|
|
|
34,293
|
|
|
|
184,148
|
|
|
|
19.43
|
|
|
|
141,088
|
|
|
|
1.55
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
|
|
|
(4,734
|
)
|
|
|
(33,777
|
)
|
|
|
16.13
|
|
|
|
(32,257
|
)
|
|
|
1.43
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
27.64
|
|
|
|
|
|
|
|
2.10
|
|
|
|
|
|
|
|
Termination of new awards under plan
|
|
|
(155,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
(15,044
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
0
|
|
|
|
14,515
|
|
|
|
145,371
|
|
|
|
19.91
|
|
|
|
102,831
|
|
|
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2009
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted May 6, 2009
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
15,000
|
|
|
$
|
4.77
|
|
|
|
15,000
|
|
|
$
|
4.41
|
|
|
|
5 years
|
|
|
|
Granted May 6, 2009
|
|
|
(98,866
|
)
|
|
|
82,388
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
236,134
|
|
|
|
82,388
|
|
|
|
15,000
|
|
|
|
4.77
|
|
|
|
15,000
|
|
|
|
4.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total all plans
|
|
|
236,134
|
|
|
|
96,903
|
|
|
|
200,871
|
|
|
$
|
17.41
|
|
|
|
117,831
|
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
The following table summarizes information about stock options
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
years over which
|
|
|
|
|
|
|
|
|
remaining
|
|
|
|
|
|
Unrecognized
|
|
unrecognized
|
|
|
|
|
|
|
Number
|
|
contractual life
|
|
Number
|
|
Number
|
|
compensation
|
|
compensation will
|
|
|
|
|
Exercise price
|
|
outstanding
|
|
in years
|
|
exercisable
|
|
unexercisable
|
|
expense
|
|
be recognized
|
|
|
|
|
|
$
|
11.25
|
|
|
|
25,500
|
|
|
|
0.4
|
|
|
|
25,500
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
16.13
|
|
|
|
99,831
|
|
|
|
2.4
|
|
|
|
0
|
|
|
|
99,831
|
|
|
|
37,115
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
16.25
|
|
|
|
15,000
|
|
|
|
2.4
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
27.66
|
|
|
|
15,540
|
|
|
|
4.2
|
|
|
|
15,540
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
26.98
|
|
|
|
15,000
|
|
|
|
4.6
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
30.00
|
|
|
|
15,000
|
|
|
|
5.4
|
|
|
|
12,000
|
|
|
|
3,000
|
|
|
|
850
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
4.77
|
|
|
|
15,000
|
|
|
|
9.4
|
|
|
|
0
|
|
|
|
15,000
|
|
|
|
66,150
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,871
|
|
|
|
|
|
|
|
83,040
|
|
|
|
117,831
|
|
|
$
|
104,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company will issue shares from treasury upon the exercise of
outstanding options.
Prior to January 1, 2006, the Company used the intrinsic
value method as described in APB Opinion No. 25 and related
interpretations to account for its stock incentive plans.
Accordingly, there were no charges or credits to expense with
respect to the granting or exercise of options since the options
were issued at fair value on the respective grant dates. On
January 1, 2006, the Company adopted
FAS No. 123(R) (ASC 718), which replaced
FAS No. 123 and supersedes APB Opinion No. 25. In
accordance with this standard, the Company recognized
compensation expense in 2009, 2008 and 2007 relating to stock
options over the vesting period. The amount of the expense was
determined under the fair value method.
The fair value for each option grant is estimated on the date of
the grant using a Black Scholes option valuation model. There
were no options granted in 2008 or 2007. The following table
shows the assumptions that were used in determining the fair
value of options granted during 2009:
|
|
|
|
|
|
|
|
2009
|
|
Risk-free interest rate
|
|
|
3.15%
|
|
Expected life
|
|
|
9 years
|
|
Expected volatility
|
|
|
114.0%
|
|
Expected dividends
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
NOTE 15 Earnings
(Loss) per Common Share
The following table reconciles the weighted average shares
outstanding and net income (loss) for basic and diluted earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands, except per share data)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Weighted average number of common shares outstanding used in
basic earnings per common share calculation
|
|
|
3,695,827
|
|
|
|
3,655,078
|
|
|
|
3,738,457
|
|
Net dilutive effect of :
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
0
|
|
|
|
0
|
|
|
|
145,503
|
|
Restricted stock awards
|
|
|
0
|
|
|
|
0
|
|
|
|
17,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding adjusted
for effect of dilutive securities
|
|
|
3,695,827
|
|
|
|
3,655,078
|
|
|
|
3,901,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
(12,543
|
)
|
|
|
(10,164
|
)
|
|
|
11,274
|
|
Basic earnings (loss) per common share
|
|
$
|
(3.39
|
)
|
|
|
(2.78
|
)
|
|
|
3.02
|
|
Diluted earnings (loss) per common share
|
|
$
|
(3.39
|
)
|
|
|
(2.78
|
)
|
|
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted stock awards are excluded from the
earnings (loss) per share calculation when a net loss is
incurred as their inclusion in the calculation would be
anti-dilutive and result in a lower loss per common share.
Therefore, options and restricted stock awards are zero in the
2009 and 2008 earnings (loss) per common share calculations.
41
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 Stockholders
Equity
The Company did not repurchase any shares of its common stock in
the open market during 2009, but did repurchase
30,000 shares during 2008, and 164,000 shares in 2007,
for $723,500 and $4.9 million, respectively. The
repurchased shares were placed in treasury stock.
HMN declared and paid common stock dividends as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
|
Dividend
|
|
Dividend
|
Record date
|
|
Payable date
|
|
per share
|
|
Payout Ratio
|
|
February 16, 2007
|
|
March 7, 2007
|
|
|
$0.25
|
|
|
|
37.31%
|
|
May 18, 2007
|
|
June 7, 2007
|
|
|
$0.25
|
|
|
|
30.49%
|
|
August 24, 2007
|
|
September 7, 2007
|
|
|
$0.25
|
|
|
|
36.76%
|
|
November 23, 2007
|
|
December 12, 2007
|
|
|
$0.25
|
|
|
|
35.21%
|
|
February 15, 2008
|
|
March 7, 2008
|
|
|
$0.25
|
|
|
|
34.25%
|
|
May 16, 2008
|
|
June 6, 2008
|
|
|
$0.25
|
|
|
|
64.10%
|
|
August 25, 2008
|
|
September 8, 2008
|
|
|
$0.25
|
|
|
|
NM
|
|
NM not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company suspended dividend payments on common stock in the
fourth quarter of 2008 due to the net operating loss experienced
and the challenging economic environment. Because of the unknown
duration of the economic slow down and the continued losses
experienced in 2009, it is not known when any future dividends
may be paid by the Company. The annualized dividend payout ratio
for 2007 on common stock was 34.72%.
The Companys certificate of incorporation authorizes the
issuance of up to 500,000 shares of preferred stock, and on
December 23, 2008, the Company completed the sale of
26,000 shares of cumulative perpetual preferred stock to
the United States Treasury. The preferred stock has a
liquidation value of $1,000 per share and a related warrant was
also issued to purchase 833,333 shares of HMN common stock
at an exercise price of $4.68 per share. The transaction was
part of the United States Treasurys capital purchase
program under the Emergency Economic Stabilization Act of 2008.
Under the terms of the sale, the preferred shares are entitled
to a 5% annual cumulative dividend for each of the first five
years of the investment, increasing to 9% thereafter, unless HMN
redeems the shares. The Company made all required dividend
payments to the Treasury on the outstanding preferred stock in
2009. The preferred stock cannot be redeemed for a period of
three years from the date of the Treasury investment, except
with the proceeds of certain qualifying offerings of Tier 1
capital. After three years, the preferred stock may be redeemed
in whole or in part, at par plus accrued and unpaid dividends.
The preferred stock is non-voting, other than certain class
voting rights. The warrant may be exercised at any time over its
ten-year term. The discount on the common stock warrant is being
amortized over five years and Treasury has agreed not to vote
any shares of common stock acquired upon exercise of the
warrant. Without the consent of Treasury, for three years
following issuance of the preferred stock, HMN cannot
(i) increase the rate at which it pays dividends on its
common stock in excess of the rate at which it last declared a
quarterly common stock dividend, or $0.25 per share, or
(ii) subject to certain exceptions, repurchase any shares
of HMN common stock outstanding. Both the preferred securities
and the warrant qualifies as Tier 1 capital.
Under the terms of the informal written agreement that the
Company entered into with the Office of Thrift Supervision (OTS)
effective December 9, 2009 as described in Note 17,
the Company may not declare or pay any cash dividends, or
repurchase or redeem any capital stock, without prior notice to,
and consent of, the OTS.
The Bank may not declare or pay a cash dividend to the Company
without filing a capital distribution application with the OTS
if the total amount of the dividends for the year exceeds the
Banks net income for the year plus the Banks
retained net income for the preceding two years. Additional
limitations on dividends declared or paid on, or repurchases of,
the Banks capital stock are tied to the Banks level
of compliance with its regulatory capital requirements.
In order to grant a priority to eligible accountholders in the
event of future liquidation, the Bank, at the time of conversion
to a stock savings bank, established a liquidation account equal
to its regulatory capital as of September 30, 1993. In the
event of future liquidation of the Bank, an eligible
accountholder who continues to maintain their deposit account
shall be entitled to receive a distribution from the liquidation
account. The total amount of the liquidation account will
decrease as the balance of eligible accountholders are reduced
subsequent to the conversion, based on an annual determination
of such balance.
NOTE 17 Federal
Home Loan Bank Investment and Regulatory Capital
Requirements
The Bank, as a member of the Federal Home Loan Bank System, is
required to hold a specified number of shares of capital stock,
which are carried at cost, in the Federal Home Loan Bank of Des
Moines. The Bank met this requirement at December 31, 2009.
The capital stock investment in the Federal Home Loan Bank of
Des Moines was reviewed for any other than temporary impairment
as of December 31, 2009 and it was determined that it was
not impaired.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional
42
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Companys financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures
of the Banks assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices.
The Banks capital amounts and classification are also
subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Effective December 9, 2009, the Bank entered into an
informal written agreement with its primary regulator, the OTS
that primarily relates to the Banks financial performance
and credit quality issues. In accordance with the agreement, the
Bank has submitted a three year business and capital plan that
the OTS may make comments upon, and require revisions to. The
Bank must operate within the parameters of the final business
and capital plan and is required to monitor and submit periodic
reports on its compliance with the plan. The agreement also
requires the Bank to develop plans and take action to address
non-performing assets and watch-list credits.
The Company also has entered into an informal written agreement
with the OTS. In accordance with the agreement, the Company has
submitted a three year capital plan that the OTS may make
comments upon, and require revisions to. The Company must
operate within the parameters of the final capital plan and is
required to monitor and submit periodic reports on its
compliance with the plan. In addition, without the consent of
the OTS, the Company may not incur or issue any debt, guarantee
the debt of any entity, declare or pay any cash dividends or
repurchase any of the Companys capital stock.
Quantitative measures established by regulations to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the following table) of Tier I
(Core) capital, and Risk-based capital (as defined in the
regulations) to total assets (as defined). Management believes,
as of December 31, 2009 and 2008, that the Bank met all
capital adequacy requirements to which it was subject.
Management believes that based upon the Banks capital
calculations at December 31, 2009 and 2008 and other
conditions consistent with the Prompt Corrective Actions
provisions of the OTS regulations, the Bank would be categorized
as well capitalized.
At December 31, 2009 and 2008, the Banks capital
amounts and ratios are presented for actual capital, required
capital and excess capital including amounts and ratios in order
to qualify as being well capitalized under the Prompt Corrective
Actions regulations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized
|
|
|
|
|
Required to be
|
|
|
|
Under Prompt
|
|
|
|
|
Adequately
|
|
|
|
Corrective Action
|
|
|
Actual
|
|
Capitalized
|
|
Excess Capital
|
|
Provisions
|
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
|
|
Percent of
|
(Dollars in thousands)
|
|
Amount
|
|
Assets(1)
|
|
Amount
|
|
Assets(1)
|
|
Amount
|
|
Assets(1)
|
|
Amount
|
|
Assets(1)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I or core capital
|
|
$
|
88,723
|
|
|
|
8.64
|
%
|
|
$
|
41,054
|
|
|
|
4.00
|
%
|
|
$
|
47,669
|
|
|
|
4.64
|
%
|
|
$
|
51,317
|
|
|
|
5.00
|
%
|
Tier I risk-based capital
|
|
|
88,723
|
|
|
|
10.87
|
|
|
|
32,648
|
|
|
|
4.00
|
|
|
|
56,075
|
|
|
|
6.87
|
|
|
|
48,972
|
|
|
|
6.00
|
|
Risk-based capital to risk-weighted assets
|
|
|
98,925
|
|
|
|
12.12
|
|
|
|
65,296
|
|
|
|
8.00
|
|
|
|
33,629
|
|
|
|
4.12
|
|
|
|
81,620
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I or core capital
|
|
$
|
105,274
|
|
|
|
9.23
|
%
|
|
$
|
45,643
|
|
|
|
4.00
|
%
|
|
$
|
59,631
|
|
|
|
5.23
|
%
|
|
$
|
57,054
|
|
|
|
5.00
|
%
|
Tier I risk-based capital
|
|
|
105,274
|
|
|
|
11.63
|
|
|
|
36,220
|
|
|
|
4.00
|
|
|
|
69,054
|
|
|
|
7.63
|
|
|
|
54,331
|
|
|
|
6.00
|
|
Risk-based capital to risk-weighted assets
|
|
|
114,765
|
|
|
|
12.67
|
|
|
|
72,441
|
|
|
|
8.00
|
|
|
|
42,324
|
|
|
|
4.67
|
|
|
|
90,551
|
|
|
|
10.00
|
|
|
|
|
(1) |
|
Based upon the Banks adjusted
total assets for the purpose of the Tier I or core capital
ratios and risk-weighted assets for the purpose of the
risk-based capital ratio.
|
NOTE 18 Financial
Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit. These instruments involve,
to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the balance sheet. The
contract amounts of these instruments reflect the extent of
involvement by the Company.
The Companys exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit is represented by the contract
amount of these commitments. The Company uses the same credit
policies in making commitments as it does for on-balance sheet
instruments.
43
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Contract amount
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
Financial instruments whose contract amount represents credit
risk:
|
|
|
|
|
|
|
|
|
Commitments to originate, fund or purchase loans:
|
|
|
|
|
|
|
|
|
1-4 family mortgages
|
|
$
|
3,263
|
|
|
|
4,472
|
|
Commercial real estate mortgages
|
|
|
4,067
|
|
|
|
0
|
|
Non-mortgage loans
|
|
|
0
|
|
|
|
5,635
|
|
Undisbursed balance of loans closed
|
|
|
20,179
|
|
|
|
68,334
|
|
Unused lines of credit
|
|
|
102,011
|
|
|
|
95,549
|
|
Letters of credit
|
|
|
3,823
|
|
|
|
5,933
|
|
|
|
|
|
|
|
|
|
|
Total commitments to extend credit
|
|
$
|
133,343
|
|
|
|
179,923
|
|
|
|
|
|
|
|
|
|
|
Forward commitments
|
|
$
|
6,278
|
|
|
|
6,737
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since a portion of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customers
creditworthiness on a
case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on the loan type and
on managements credit evaluation of the borrower.
Collateral consists primarily of residential and commercial real
estate and personal property.
Forward commitments represent commitments to sell loans to a
third party and are entered into in the normal course of
business by the Bank.
The Bank issued standby letters of credit which guarantee the
performance of customers to third parties. The standby letters
of credit outstanding expire over the next 48 months and
totaled $3.8 million at December 31, 2009 and
$5.9 million at December 31, 2008. The letters of
credit are collateralized primarily with commercial real estate
mortgages. Since the conditions under which the Bank is required
to fund the standby letters of credit may not materialize, the
cash requirements are expected to be less than the total
outstanding commitments.
NOTE 19 Derivative
Instruments and Hedging Activities
The Company originates and purchases single-family residential
loans for sale into the secondary market and enters into
commitments to sell or securitize those loans in order to
mitigate the interest rate risk associated with holding the
loans until they are sold. The Company accounts for its
commitments in accordance with ASC 815, Accounting for
Derivative Instruments and Hedging Activities.
The Company had commitments outstanding to extend credit to
future borrowers that had not closed prior to the end of the
year, which is referred to as its mortgage pipeline. As
commitments to originate loans enter the mortgage pipeline, the
Company generally enters into commitments to sell the loans into
the secondary market. The commitments to originate and sell
loans are derivatives that are recorded at market value. As a
result of marking these derivatives to market for the period
ended December 31, 2009, the Company recorded an increase
in other liabilities of $39,000, an increase in other assets of
$53,000 and a net gain on the sales of loans of $14,000.
As of December 31, 2009, the current commitments to sell
loans held for sale are derivatives that do not qualify for
hedge accounting. As a result, these derivatives are marked to
market. The loans held for sale that are not hedged are recorded
at the lower of cost or market. As a result of marking these
loans, the Company recorded a decrease in loans held for sale of
$50,000, an increase in other assets of $50,000, a decrease in
other liabilities of $10,000 and a net gain on the sale of loans
of $10,000.
NOTE 20 Fair
Value Measurement
On January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements (ASC
820), which establishes a framework for measuring the fair value
of assets and liabilities using a hierarchy system consisting of
three levels, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions
used to determine fair value. These levels are:
Level 1 Valuation is based upon quoted
prices for identical instruments traded in active markets that
the Company has the ability to access.
Level 2 Valuation is based upon quoted
prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which
significant assumptions are observable in the market.
Level 3 Valuation is generated from
model-based techniques that use significant assumptions not
observable in the market and are used only to the extent that
observable inputs are not available. These unobservable
assumptions reflect our own estimates of assumptions that market
participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models,
discounted cash flow models and similar techniques.
The following table summarizes the assets of the Company for
which fair values are determined on a recurring basis as of
December 31, 2009.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2009
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
Securities available for sale
|
|
$
|
159,602
|
|
|
|
6,222
|
|
|
|
153,380
|
|
|
|
0
|
|
Mortgage loan commitments
|
|
|
(53
|
)
|
|
|
0
|
|
|
|
(53
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
159,549
|
|
|
|
6,222
|
|
|
|
153,327
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company may also be required, from time to time, to measure
certain other financial assets at fair value on a nonrecurring
basis in accordance with generally accepted accounting
principles. These adjustments to fair value usually result from
the application of the
lower-of-cost-or
market accounting or write-downs of individual assets. For
assets measured at fair value on a nonrecurring basis in 2009
that were still held at December 31, 2009, the following
table provides the level of valuation assumptions used to
determine each adjustment and the carrying value of the related
individual assets or portfolios at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Carrying value at December 31, 2009
|
|
|
December 31, 2009
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total gains (losses)
|
|
|
|
Loans held for sale
|
|
$
|
2,965
|
|
|
|
0
|
|
|
|
2,965
|
|
|
|
0
|
|
|
|
(50
|
)
|
Mortgage servicing rights
|
|
|
1,315
|
|
|
|
0
|
|
|
|
1,315
|
|
|
|
0
|
|
|
|
0
|
|
Loans(1)
|
|
|
61,127
|
|
|
|
0
|
|
|
|
61,127
|
|
|
|
0
|
|
|
|
(6,493
|
)
|
Real estate,
net(2)
|
|
|
16,257
|
|
|
|
0
|
|
|
|
16,257
|
|
|
|
0
|
|
|
|
(3,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,664
|
|
|
|
0
|
|
|
|
81,664
|
|
|
|
0
|
|
|
|
(10,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents carrying value and
related specific reserves on loans for which adjustments are
based on the appraised value of the collateral. The carrying
value of loans fully charged-off is zero.
|
|
(2) |
|
Represents the fair value and
related losses of foreclosed real estate and other collateral
owned that were measured at fair value subsequent to their
initial classification as foreclosed assets.
|
NOTE 21 Fair
Value of Financial Instruments
SFAS No. 107,
Disclosures about Fair Values of Financial Instruments
(ASC 825), requires disclosure of estimated fair values of
the Companys financial instruments, including assets,
liabilities and off-balance sheet items for which it is
practicable to estimate fair value. The fair value estimates are
made as of December 31, 2009 and 2008 based upon relevant
market information, if available, and upon the characteristics
of the financial instruments themselves. Because no market
exists for a significant portion of the Companys financial
instruments, fair value estimates are based upon judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. The estimates are subjective in
nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based only on existing financial
instruments without attempting to estimate the value of
anticipated future business or the value of assets and
liabilities that are not considered financial instruments. In
addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on
the fair value estimates and have not been considered in any of
the estimates.
The estimated fair value of the Companys financial
instruments are shown below. Following the table, there is an
explanation of the methods and assumptions used to estimate the
fair value of each class of financial instruments.
45
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Contract
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Contract
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,418
|
|
|
|
16,418
|
|
|
|
|
|
|
|
15,729
|
|
|
|
15,729
|
|
|
|
|
|
Securities available for sale
|
|
|
159,602
|
|
|
|
159,602
|
|
|
|
|
|
|
|
175,145
|
|
|
|
175,145
|
|
|
|
|
|
Loans held for sale
|
|
|
2,965
|
|
|
|
2,965
|
|
|
|
|
|
|
|
2,548
|
|
|
|
2,548
|
|
|
|
|
|
Loans receivable, net
|
|
|
799,256
|
|
|
|
799,849
|
|
|
|
|
|
|
|
900,889
|
|
|
|
923,034
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
7,286
|
|
|
|
7,286
|
|
|
|
|
|
|
|
7,286
|
|
|
|
7,286
|
|
|
|
|
|
Accrued interest receivable
|
|
|
4,024
|
|
|
|
4,024
|
|
|
|
|
|
|
|
5,568
|
|
|
|
5,568
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
796,011
|
|
|
|
796,011
|
|
|
|
|
|
|
|
880,505
|
|
|
|
880,505
|
|
|
|
|
|
Federal Home Loan Bank advances
|
|
|
132,500
|
|
|
|
141,791
|
|
|
|
|
|
|
|
132,500
|
|
|
|
141,812
|
|
|
|
|
|
Federal Reserve line of credit
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
10,000
|
|
|
|
9,999
|
|
|
|
|
|
Accrued interest payable
|
|
|
2,108
|
|
|
|
2,108
|
|
|
|
|
|
|
|
6,307
|
|
|
|
6,307
|
|
|
|
|
|
Off-balance sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
103
|
|
|
|
103
|
|
|
|
133,343
|
|
|
|
0
|
|
|
|
0
|
|
|
|
179,923
|
|
Commitments to sell loans
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
6,278
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
|
|
6,737
|
|
|
|
Cash and Cash Equivalents The carrying
amount of cash and cash equivalents approximates their fair
value.
Securities Available for Sale The fair
values of securities were based upon quoted market prices.
Loans Held for Sale The fair values of
loans held for sale were based upon quoted market prices for
loans with similar interest rates and terms to maturity.
Loans Receivable The fair values of
loans receivable were estimated for groups of loans with similar
characteristics. The fair value of the loan portfolio, with the
exception of the adjustable rate portfolio, was calculated by
discounting the scheduled cash flows through the estimated
maturity using anticipated prepayment speeds and using discount
rates that reflect the credit and interest rate risk inherent in
each loan portfolio. The fair value of the adjustable loan
portfolio was estimated by grouping the loans with similar
characteristics and comparing the characteristics of each group
to the prices quoted for similar types of loans in the secondary
market. This method of estimating fair value does not
incorporate the exit-price concept of fair value prescribed by
ASC 820, Fair Value Measurements and Disclosures.
Federal Home Loan Bank Stock The
carrying amount of FHLB stock approximates its fair value.
Accrued Interest Receivable The
carrying amount of accrued interest receivable approximates its
fair value since it is short-term in nature and does not present
unanticipated credit concerns.
Deposits The fair value of demand
deposits, savings accounts and certain money market account
deposits is the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposit is
estimated using the rates currently offered for deposits of
similar remaining maturities. If the fair value of the fixed
maturity certificates of deposits is calculated at less than the
carrying amount, the carrying value of these deposits is
reported as the fair value.
The fair value estimate for deposits does not include the
benefit that results from the low cost funding provided by the
Companys existing deposits and long-term customer
relationships compared to the cost of obtaining different
sources of funding. This benefit is commonly referred to as the
core deposit intangible.
Federal Home Loan Bank Advances The
fair values of advances with fixed maturities are estimated
based on discounted cash flow analysis using as discount rates
the interest rates charged by the FHLB for borrowings of similar
remaining maturities.
Accrued Interest Payable The carrying
amount of accrued interest payable approximates its fair value
since it is short-term in nature.
Commitments to Extend Credit The fair
values of commitments to extend credit are estimated using the
fees normally charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
present creditworthiness of the counter parties.
Commitments to Sell Loans The fair
values of commitments to sell loans are estimated using the
quoted market prices for loans with similar interest rates and
terms to maturity.
46
NOTE 22 HMN
Financial, Inc. Financial Information (Parent Company
Only)
The following are the condensed financial statements for the
parent company only as of December 31, 2009 and 2008 and
for the years ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
199
|
|
|
|
638
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
96,575
|
|
|
|
107,604
|
|
|
|
|
|
Loans receivable, net
|
|
|
2,700
|
|
|
|
4,400
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
839
|
|
|
|
10
|
|
|
|
|
|
Deferred tax asset
|
|
|
172
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
100,485
|
|
|
|
113,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
547
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
547
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serial preferred stock
|
|
|
23,785
|
|
|
|
23,384
|
|
|
|
|
|
Common stock
|
|
|
91
|
|
|
|
91
|
|
|
|
|
|
Additional paid-in capital
|
|
|
58,576
|
|
|
|
60,687
|
|
|
|
|
|
Retained earnings
|
|
|
86,115
|
|
|
|
98,067
|
|
|
|
|
|
Net unrealized gain on securities available for sale
|
|
|
1,230
|
|
|
|
2,091
|
|
|
|
|
|
Unearned employee stock ownership plan shares
|
|
|
(3,577
|
)
|
|
|
(3,771
|
)
|
|
|
|
|
Treasury stock, at cost, 4,883,378 and 4,961,032 shares
|
|
|
(66,282
|
)
|
|
|
(68,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
99,938
|
|
|
|
112,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
100,485
|
|
|
|
113,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
15
|
|
|
|
98
|
|
|
|
171
|
|
Equity earnings (losses) of subsidiaries
|
|
|
(10,168
|
)
|
|
|
(9,693
|
)
|
|
|
11,151
|
|
Other income
|
|
|
2
|
|
|
|
2
|
|
|
|
739
|
|
Compensation and benefits
|
|
|
(236
|
)
|
|
|
(243
|
)
|
|
|
(233
|
)
|
Occupancy
|
|
|
(24
|
)
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Data processing
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Other
|
|
|
(470
|
)
|
|
|
(466
|
)
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
(10,887
|
)
|
|
|
(10,332
|
)
|
|
|
11,339
|
|
Income tax expense (benefit)
|
|
|
(91
|
)
|
|
|
(205
|
)
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,796
|
)
|
|
|
(10,127
|
)
|
|
|
11,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,796
|
)
|
|
|
(10,127
|
)
|
|
|
11,274
|
|
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (earnings) losses of subsidiaries
|
|
|
10,168
|
|
|
|
9,693
|
|
|
|
(11,151
|
)
|
Deferred income tax expense (benefit)
|
|
|
220
|
|
|
|
16
|
|
|
|
(25
|
)
|
Gain on sales of real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
(639
|
)
|
Proceeds from sales of real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
1,389
|
|
Earned employee stock ownership shares priced above (below)
original cost
|
|
|
(56
|
)
|
|
|
118
|
|
|
|
339
|
|
Stock option compensation
|
|
|
27
|
|
|
|
33
|
|
|
|
44
|
|
47
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amortization of restricted stock awards
|
|
|
373
|
|
|
|
415
|
|
|
|
334
|
|
Decrease in unearned ESOP shares
|
|
|
194
|
|
|
|
194
|
|
|
|
193
|
|
Decrease (increase) in accrued interest receivable
|
|
|
0
|
|
|
|
20
|
|
|
|
(20
|
)
|
Increase (decrease) in accrued expenses and other liabilities
|
|
|
(284
|
)
|
|
|
134
|
|
|
|
53
|
|
Decrease in other assets
|
|
|
(829
|
)
|
|
|
(7
|
)
|
|
|
(13
|
)
|
Other, net
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
(976
|
)
|
|
|
488
|
|
|
|
1,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
0
|
|
|
|
(25,000
|
)
|
|
|
0
|
|
Decrease (increase) in loans receivable, net
|
|
|
1,700
|
|
|
|
(400
|
)
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
1,700
|
|
|
|
(25,400
|
)
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
0
|
|
|
|
(723
|
)
|
|
|
(4,913
|
)
|
Stock options exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
139
|
|
Excess tax benefit from options exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
99
|
|
Dividends paid to common stockholders
|
|
|
0
|
|
|
|
(2,749
|
)
|
|
|
(3,724
|
)
|
Dividends paid to preferred stockholder
|
|
|
(1,163
|
)
|
|
|
0
|
|
|
|
0
|
|
Proceeds from preferred stock and warrant issued
|
|
|
0
|
|
|
|
26,000
|
|
|
|
0
|
|
Proceeds from dividends on Bank stock
|
|
|
0
|
|
|
|
2,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities
|
|
|
(1,163
|
)
|
|
|
24,528
|
|
|
|
(2,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(439
|
)
|
|
|
(384
|
)
|
|
|
(4,720
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
638
|
|
|
|
1,022
|
|
|
|
5,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
199
|
|
|
|
638
|
|
|
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 23 Business
Segments
The Bank has been identified as a reportable operating segment
in accordance with the provisions of ASC 280. SFC and HMN, the
holding company, did not meet the quantitative thresholds for a
reportable segment and therefore are included in the
Other category.
The Company evaluates performance and allocates resources based
on the segments net income, return on average assets and
return on average equity. Each corporation is managed separately
with its own officers and board of directors.
The following table sets forth certain information about the
reconciliations of reported net income (loss) and assets for
each of the Companys reportable segments.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Federal
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
(Dollars in thousands)
|
|
Savings Bank
|
|
|
Other
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
At or for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income external customers
|
|
$
|
57,770
|
|
|
|
1
|
|
|
|
0
|
|
|
|
57,771
|
|
|
|
Non-interest income external customers
|
|
|
8,134
|
|
|
|
2
|
|
|
|
0
|
|
|
|
8,136
|
|
|
|
Loss on limited partnerships
|
|
|
(54
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(54
|
)
|
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
0
|
|
|
|
Intersegment non-interest income
|
|
|
174
|
|
|
|
(10,168
|
)
|
|
|
9,994
|
|
|
|
0
|
|
|
|
Interest expense
|
|
|
23,883
|
|
|
|
0
|
|
|
|
(15
|
)
|
|
|
23,868
|
|
|
|
Amortization of mortgage servicing rights, net
|
|
|
556
|
|
|
|
0
|
|
|
|
0
|
|
|
|
556
|
|
|
|
Other non-interest expense
|
|
|
30,563
|
|
|
|
744
|
|
|
|
(174
|
)
|
|
|
31,133
|
|
|
|
Income tax benefit
|
|
|
(5,513
|
)
|
|
|
(94
|
)
|
|
|
0
|
|
|
|
(5,607
|
)
|
|
|
Net loss
|
|
|
(10,163
|
)
|
|
|
(10,801
|
)
|
|
|
10,168
|
|
|
|
(10,796
|
)
|
|
|
Total assets
|
|
|
1,035,152
|
|
|
|
100,515
|
|
|
|
(99,426
|
)
|
|
|
1,036,241
|
|
|
|
At or for the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income external customers
|
|
$
|
66,496
|
|
|
|
16
|
|
|
|
0
|
|
|
|
66,512
|
|
|
|
Non-interest income external customers
|
|
|
7,108
|
|
|
|
3
|
|
|
|
0
|
|
|
|
7,111
|
|
|
|
Loss on limited partnerships
|
|
|
(8
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(8
|
)
|
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
81
|
|
|
|
(81
|
)
|
|
|
0
|
|
|
|
Intersegment non-interest income
|
|
|
174
|
|
|
|
(9,693
|
)
|
|
|
9,519
|
|
|
|
0
|
|
|
|
Interest expense
|
|
|
32,877
|
|
|
|
0
|
|
|
|
(81
|
)
|
|
|
32,796
|
|
|
|
Amortization of mortgage servicing rights, net
|
|
|
570
|
|
|
|
0
|
|
|
|
0
|
|
|
|
570
|
|
|
|
Other non-interest expense
|
|
|
28,091
|
|
|
|
747
|
|
|
|
(174
|
)
|
|
|
28,664
|
|
|
|
Income tax benefit
|
|
|
(4,776
|
)
|
|
|
(208
|
)
|
|
|
0
|
|
|
|
(4,984
|
)
|
|
|
Net loss
|
|
|
(9,688
|
)
|
|
|
(10,132
|
)
|
|
|
9,693
|
|
|
|
(10,127
|
)
|
|
|
Total assets
|
|
|
1,144,738
|
|
|
|
113,078
|
|
|
|
(112,336
|
)
|
|
|
1,145,480
|
|
|
|
At or for the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income external customers
|
|
$
|
77,457
|
|
|
|
66
|
|
|
|
0
|
|
|
|
77,523
|
|
|
|
Non-interest income external customers
|
|
|
6,173
|
|
|
|
739
|
|
|
|
0
|
|
|
|
6,912
|
|
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
105
|
|
|
|
(105
|
)
|
|
|
0
|
|
|
|
Intersegment non-interest income
|
|
|
174
|
|
|
|
11,151
|
|
|
|
(11,325
|
)
|
|
|
0
|
|
|
|
Interest expense
|
|
|
38,928
|
|
|
|
0
|
|
|
|
(105
|
)
|
|
|
38,823
|
|
|
|
Amortization of mortgage servicing rights, net
|
|
|
706
|
|
|
|
0
|
|
|
|
0
|
|
|
|
706
|
|
|
|
Other non-interest expense
|
|
|
21,878
|
|
|
|
730
|
|
|
|
(174
|
)
|
|
|
22,434
|
|
|
|
Income tax expense
|
|
|
7,238
|
|
|
|
62
|
|
|
|
0
|
|
|
|
7,300
|
|
|
|
Net income
|
|
|
11,156
|
|
|
|
11,269
|
|
|
|
(11,151
|
)
|
|
|
11,274
|
|
|
|
Goodwill
|
|
|
3,801
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,801
|
|
|
|
Total assets
|
|
|
1,115,857
|
|
|
|
98,865
|
|
|
|
(97,668
|
)
|
|
|
1,117,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Report
of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders
HMN Financial, Inc.:
We have audited the accompanying consolidated balance sheets of
HMN Financial, Inc. (the Company) as of December 31, 2009
and 2008, and the related consolidated statements of income,
stockholders equity and comprehensive income, and cash
flows for each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of HMN Financial, Inc. as of December 31, 2009 and
2008, and the results of their operations and their cash flows
for each of the years in the three-year period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), HMN
Financial, Inc.s internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 4, 2010
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
KPMG LLP
Minneapolis, Minnesota
March 4, 2010
50
OTHER
FINANCIAL DATA
The following tables set forth certain information as to the
Banks Federal Home Loan Bank (FHLB) advances and Federal
Reserve Bank (FRB) borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Maximum Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB and FRB advances and borrowings
|
|
$
|
210,500
|
|
|
|
165,000
|
|
|
|
168,200
|
|
FHLB and FRB short-term borrowings
|
|
|
78,000
|
|
|
|
43,000
|
|
|
|
57,300
|
|
Average Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB and FRB advances and borrowings
|
|
|
155,574
|
|
|
|
122,338
|
|
|
|
116,406
|
|
FHLB and FRB short-term borrowings
|
|
|
26,288
|
|
|
|
11,249
|
|
|
|
18,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
|
FHLB and FRB short-term borrowings
|
|
$
|
10,000
|
|
|
|
6.48
|
%
|
|
$
|
10,000
|
|
|
|
0.50
|
%
|
|
$
|
25,000
|
|
|
|
3.49
|
%
|
FHLB long-term advances
|
|
|
122,500
|
|
|
|
4.44
|
|
|
|
132,500
|
|
|
|
4.59
|
|
|
|
87,500
|
|
|
|
4.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,500
|
|
|
|
4.59
|
|
|
$
|
142,500
|
|
|
|
4.31
|
|
|
$
|
112,500
|
|
|
|
4.64
|
|
|
|
Refer to Note 11 of the Notes to Consolidated Financial
Statements for more information on the Banks FHLB advances
and FRB borrowings.
51
SELECTED
QUARTERLY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
(Dollars in thousands, except per share data)
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Selected Operations Data (3 months ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
13,304
|
|
|
|
14,325
|
|
|
|
14,789
|
|
|
|
Interest expense
|
|
|
5,260
|
|
|
|
5,735
|
|
|
|
6,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
8,044
|
|
|
|
8,590
|
|
|
|
8,487
|
|
|
|
Provision for loan losses
|
|
|
3,445
|
|
|
|
3,381
|
|
|
|
13,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
4,599
|
|
|
|
5,209
|
|
|
|
(4,817
|
)
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges
|
|
|
1,066
|
|
|
|
1,034
|
|
|
|
1,010
|
|
|
|
Loan servicing fees
|
|
|
272
|
|
|
|
262
|
|
|
|
256
|
|
|
|
Securities gains, net
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
Gain on sales of loans
|
|
|
415
|
|
|
|
493
|
|
|
|
942
|
|
|
|
Other noninterest income
|
|
|
327
|
|
|
|
94
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
2,080
|
|
|
|
1,883
|
|
|
|
2,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
3,119
|
|
|
|
3,180
|
|
|
|
3,284
|
|
|
|
Losses (gains) on real estate owned
|
|
|
61
|
|
|
|
(357
|
)
|
|
|
3,066
|
|
|
|
Occupancy
|
|
|
1,013
|
|
|
|
970
|
|
|
|
1,009
|
|
|
|
Deposit insurance
|
|
|
445
|
|
|
|
371
|
|
|
|
826
|
|
|
|
Data processing
|
|
|
294
|
|
|
|
298
|
|
|
|
311
|
|
|
|
Goodwill impairment charge
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
Other noninterest expense
|
|
|
1,690
|
|
|
|
1,574
|
|
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
6,622
|
|
|
|
6,036
|
|
|
|
10,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
57
|
|
|
|
1,056
|
|
|
|
(13,134
|
)
|
|
|
Income tax expense (benefit)
|
|
|
(92
|
)
|
|
|
175
|
|
|
|
(3,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
149
|
|
|
|
881
|
|
|
|
(9,204
|
)
|
|
|
Preferred stock dividends and discount
|
|
|
(441
|
)
|
|
|
(438
|
)
|
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(292
|
)
|
|
|
443
|
|
|
|
(9,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.08
|
)
|
|
|
0.12
|
|
|
|
(2.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.08
|
)
|
|
|
0.12
|
|
|
|
(2.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return (loss) on average
assets(1)
|
|
|
0.06
|
%
|
|
|
0.34
|
%
|
|
|
(3.37
|
)%
|
|
|
Return (loss) on average common
equity(1)
|
|
|
0.59
|
|
|
|
3.52
|
|
|
|
(34.23
|
)
|
|
|
Average equity to average assets
|
|
|
9.73
|
|
|
|
9.73
|
|
|
|
9.83
|
|
|
|
Dividend payout ratio
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
Net interest
margin(1)(2)
|
|
|
3.28
|
|
|
|
3.46
|
|
|
|
3.29
|
|
|
|
|
(Dollars in thousands)
|
|
Selected Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,036,241
|
|
|
|
1,032,717
|
|
|
|
1,053,618
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and related securities
|
|
|
53,559
|
|
|
|
58,737
|
|
|
|
64,144
|
|
|
|
Other marketable securities
|
|
|
106,043
|
|
|
|
76,847
|
|
|
|
71,722
|
|
|
|
Loans held for sale
|
|
|
2,965
|
|
|
|
3,279
|
|
|
|
5,029
|
|
|
|
Loans receivable, net
|
|
|
799,256
|
|
|
|
818,897
|
|
|
|
836,493
|
|
|
|
Deposits
|
|
|
796,011
|
|
|
|
781,574
|
|
|
|
809,965
|
|
|
|
Federal Home Loan Bank advances and Federal Reserve borrowing
|
|
|
132,500
|
|
|
|
142,500
|
|
|
|
132,500
|
|
|
|
Stockholders equity
|
|
|
99,938
|
|
|
|
100,446
|
|
|
|
99,716
|
|
|
|
|
|
|
(1) |
|
Annualized
|
|
(2) |
|
Net interest income divided by
average interest-earning assets.
|
NM Not meaningful
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
15,353
|
|
|
|
16,094
|
|
|
|
16,374
|
|
|
|
16,253
|
|
|
|
17,791
|
|
|
|
|
|
|
6,571
|
|
|
|
7,805
|
|
|
|
7,806
|
|
|
|
8,078
|
|
|
|
9,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,782
|
|
|
|
8,289
|
|
|
|
8,568
|
|
|
|
8,175
|
|
|
|
8,684
|
|
|
|
|
|
|
6,569
|
|
|
|
8,216
|
|
|
|
15,790
|
|
|
|
1,130
|
|
|
|
1,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,213
|
|
|
|
73
|
|
|
|
(7,222
|
)
|
|
|
7,045
|
|
|
|
7,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,027
|
|
|
|
1,155
|
|
|
|
1,163
|
|
|
|
1,082
|
|
|
|
869
|
|
|
|
|
|
|
252
|
|
|
|
233
|
|
|
|
240
|
|
|
|
240
|
|
|
|
242
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
479
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
423
|
|
|
|
208
|
|
|
|
59
|
|
|
|
228
|
|
|
|
156
|
|
|
|
|
|
|
131
|
|
|
|
193
|
|
|
|
163
|
|
|
|
223
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,833
|
|
|
|
1,789
|
|
|
|
2,104
|
|
|
|
1,773
|
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,849
|
|
|
|
3,057
|
|
|
|
3,010
|
|
|
|
3,036
|
|
|
|
3,361
|
|
|
|
|
|
|
1,103
|
|
|
|
(27
|
)
|
|
|
65
|
|
|
|
(68
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
1,092
|
|
|
|
1,097
|
|
|
|
1,131
|
|
|
|
1,161
|
|
|
|
1,132
|
|
|
|
|
|
|
331
|
|
|
|
174
|
|
|
|
203
|
|
|
|
193
|
|
|
|
108
|
|
|
|
|
|
|
279
|
|
|
|
408
|
|
|
|
485
|
|
|
|
421
|
|
|
|
417
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,801
|
|
|
|
0
|
|
|
|
|
|
|
1,774
|
|
|
|
1,825
|
|
|
|
1,818
|
|
|
|
1,273
|
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,428
|
|
|
|
6,534
|
|
|
|
6,712
|
|
|
|
9,817
|
|
|
|
6,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,382
|
)
|
|
|
(4,672
|
)
|
|
|
(11,830
|
)
|
|
|
(999
|
)
|
|
|
2,390
|
|
|
|
|
|
|
(1,760
|
)
|
|
|
(2,134
|
)
|
|
|
(4,779
|
)
|
|
|
1,026
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,622
|
)
|
|
|
(2,538
|
)
|
|
|
(7,051
|
)
|
|
|
(2,025
|
)
|
|
|
1,487
|
|
|
|
|
|
|
(429
|
)
|
|
|
(37
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,051
|
)
|
|
|
(2,575
|
)
|
|
|
(7,051
|
)
|
|
|
(2,025
|
)
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.83
|
)
|
|
|
(0.70
|
)
|
|
|
(1.93
|
)
|
|
|
(0.56
|
)
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.83
|
)
|
|
|
(0.70
|
)
|
|
|
(1.93
|
)
|
|
|
(0.56
|
)
|
|
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.94
|
)%
|
|
|
(0.88
|
)%
|
|
|
(2.54
|
)%
|
|
|
(0.75
|
)%
|
|
|
0.54
|
%
|
|
|
|
|
|
(9.57
|
)
|
|
|
(11.43
|
)
|
|
|
(29.14
|
)
|
|
|
(8.27
|
)
|
|
|
6.06
|
|
|
|
|
|
|
9.81
|
|
|
|
8.58
|
|
|
|
8.90
|
|
|
|
8.99
|
|
|
|
8.93
|
|
|
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
64.10
|
|
|
|
34.25
|
|
|
|
|
|
|
3.30
|
|
|
|
2.99
|
|
|
|
3.21
|
|
|
|
3.15
|
|
|
|
3.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,113,359
|
|
|
|
1,145,480
|
|
|
|
1,128,900
|
|
|
|
1,076,163
|
|
|
|
1,104,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,702
|
|
|
|
77,327
|
|
|
|
74,595
|
|
|
|
16,659
|
|
|
|
17,716
|
|
|
|
|
|
|
87,167
|
|
|
|
97,818
|
|
|
|
111,463
|
|
|
|
107,167
|
|
|
|
139,679
|
|
|
|
|
|
|
3,880
|
|
|
|
2,548
|
|
|
|
4,222
|
|
|
|
3,699
|
|
|
|
3,090
|
|
|
|
|
|
|
877,309
|
|
|
|
900,889
|
|
|
|
873,156
|
|
|
|
895,713
|
|
|
|
877,756
|
|
|
|
|
|
|
798,369
|
|
|
|
880,505
|
|
|
|
888,848
|
|
|
|
832,316
|
|
|
|
892,977
|
|
|
|
|
|
|
192,500
|
|
|
|
142,500
|
|
|
|
141,500
|
|
|
|
137,900
|
|
|
|
97,500
|
|
|
|
|
|
|
109,381
|
|
|
|
112,213
|
|
|
|
86,576
|
|
|
|
95,052
|
|
|
|
99,388
|
|
|
|
53
COMMON
STOCK INFORMATION
The common stock of HMN Financial, Inc. is listed on the Nasdaq
Stock Market under the symbol HMNF. As of December 31,
2009, the Company had 9,128,662 shares of common stock
issued and 4,883,378 shares in treasury stock. As of
December 31, 2009 there were 635 stockholders of record and
1,021 estimated beneficial stockholders. The following table
represents the stock price information for HMN Financial, Inc.
as furnished by Nasdaq for each quarter starting with the
quarter ended December 31, 2009 and regressing back to
March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
HIGH
|
|
$
|
6.85
|
|
|
|
5.79
|
|
|
|
6.00
|
|
|
|
4.76
|
|
|
|
12.93
|
|
|
|
17.52
|
|
|
|
23.99
|
|
|
|
25.49
|
|
LOW
|
|
|
3.20
|
|
|
|
3.35
|
|
|
|
3.05
|
|
|
|
1.52
|
|
|
|
3.00
|
|
|
|
11.01
|
|
|
|
15.28
|
|
|
|
21.18
|
|
CLOSE
|
|
|
4.20
|
|
|
|
3.75
|
|
|
|
3.51
|
|
|
|
3.10
|
|
|
|
4.18
|
|
|
|
12.38
|
|
|
|
15.50
|
|
|
|
23.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
|
|
|
Index
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
|
|
12/31/09
|
|
|
|
HMN Financial, Inc
|
|
|
100.00
|
|
|
|
92.09
|
|
|
|
110.91
|
|
|
|
81.55
|
|
|
|
14.46
|
|
|
|
14.53
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
101.37
|
|
|
|
111.03
|
|
|
|
121.92
|
|
|
|
72.49
|
|
|
|
104.31
|
|
SNL Bank NASDAQ Index
|
|
|
100.00
|
|
|
|
96.95
|
|
|
|
108.85
|
|
|
|
85.45
|
|
|
|
62.06
|
|
|
|
50.34
|
|
54