HMN Financial, Inc. (NASDAQ:HMNF):

Second Quarter Summary

• Net loss of $2.3 million, an improvement of $5.5 million, compared to net loss of $7.8 million in second quarter of 2010

• Diluted loss per common share of $0.72 compared to diluted loss per common share of $2.20 in second quarter of 2010

• Provision for loan losses down $0.9 million from second quarter of 2010

• Net interest margin of 3.48%, up 11 basis points from second quarter of 2010

• Nonperforming assets of $65.0 million, down $5.6 million, or 7.9%, from March 31, 2011

• Income tax expense down $7.0 million from second quarter of 2010 due to full valuation allowance on deferred tax assets established in second quarter of 2010

Year to Date Summary

• Net loss of $1.9 million, an improvement of $7.8 million, compared to net loss of $9.7 million in first six months of 2010

• Diluted loss per common share of $0.73 compared to diluted loss per common share of $2.82 in first six months of 2010

• Provision for loan losses down $5.5 million from first six months of 2010

• Net interest margin of 3.55%, up 21 basis points from first six months of 2010

• Nonperforming assets of $65.0 million, down $19.5 million, or 23.1%, from December 31, 2010

• Income tax expense down $5.7 million from first six months of 2010 due to full valuation allowance on deferred tax assets established in second quarter of 2010
 
Three months ended     Six months ended

Loss Summary (unaudited)
June 30, June 30,
(Dollars in thousands, except per share amounts) 2011   2010 2011   2010
Net loss $ (2,291) (7,832) $ (1,874) (9,679)
Net loss available to common stockholders (2,748) (8,280) (2,780) (10,567)
Diluted loss per common share (0.72) (2.20) (0.73) (2.82)
Loss on average assets (1.08) % (3.12) % (0.44) % (1.92) %
Loss on average equity (13.27) % (32.14) % (5.42) % (19.75) %
Book value per common share $ 9.81 $ 15.27 $ 9.81 $ 15.27

HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $807 million holding company for Home Federal Savings Bank (the Bank), today reported a net loss of $2.3 million for the second quarter of 2011, an improvement of $5.5 million, or 70.7%, compared to a net loss of $7.8 million for the second quarter of 2010. Net loss available to common shareholders was $2.7 million for the second quarter of 2011, an improvement of $5.6 million, or 66.8%, from the net loss available to common shareholders of $8.3 million for the second quarter of 2010. Diluted loss per common share for the second quarter of 2011 was $0.72, a decreased loss of $1.48, or 67.3%, from the diluted loss per common share of $2.20 for the second quarter of 2010. The decrease in the net loss for the quarter was primarily due to a $7.0 million decrease in the provision for income taxes between the periods due primarily to a deferred tax asset valuation reserve that was established during the second quarter of 2010. The decrease in the net loss was also due to a $0.9 million decrease in the loan loss provision between the periods. These decreases in expense were partially offset by a $1.0 million decrease in net interest income due primarily to the decrease in interest earning assets between the periods and a $1.2 million increase in expenses related to other real estate owned.

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