Rochester-based Home Federal Savings has first profitable year since 2007

Rochester-based Home Federal Savings Bank in 2012 had its most profitable year since 2007, and that has sent the stock price for holding company HMN Financial up sharply.

HMN Financial stock, which is traded on NASDAQ, closed at $3.40 a week ago today, but it gained more than $2 in the two days after its fourth-quarter and annual results were announced. This morning, the stock was trading at $5.75.

The company recorded net income of $5.3 million in 2012, compared with a loss of $11.5 million in 2011, according to the annual report. Net income available to common shareholders was $3.5 million, an improvement of $16.9 million from the net loss available to shareholders of $13.4 million in 2011.

The company reported earnings of 86 cents per share last year, compared with a loss of $3.47 per share in 2011.

HMN President Brad Krehbiel said the company benefited from an increase in mortgage banking and stabilized commercial real estate values.


The last time Home Federal ended a year with positive earnings was in 2007. After that year, the bank struggled in the aftermath of the collapse of the U.S. housing market, and it was also hit by losses related to the multimillion-dollar Petters fraud case.

Home Federal made great strides last year in recovering from problematic commercial loans, the report indicates. Its provision for loan losses dropped to $2.5 million from $17.3 million in 2011, largely because there were fewer decreases in the value of properties supporting the loans requiring charge-offs.

"Non-performing assets," or properties that are not showing any financial return for the bank, were $40.6 million, down $10 million from the previous year.

The bank received $3.7 million in principal payments on non-performing loans in the fourth quarter, including $1.4 million to pay off two utility industry loans and $800,000 to pay off a loan secured by land.

Also boosting the bank's position was the sale of its Toledo, Iowa, branch in the first quarter.

"We are encouraged by the results of our ongoing efforts to improve credit quality in our commercial loan portfolio as evidenced by the positive trend of declining non-performing assets," Krehbiel said in the annual report. "We intend to continue to focus our efforts on further reducing these non-performing assets while, at the same time, improving the financial performance of our core banking operations."

The company had an average asset balance on Dec. 31 of $675 million, compared with $832 million at year-end 2011.

HMN Financial and Home Federal Savings Bank are headquartered in Rochester. Home Federal has 10 full-service banks in Minnesota and Iowa, a loan origination office in Sartell, Minn., and two private banking offices in Rochester. The company's annual meeting will be at the Rochester Golf and Country Club on April 23.

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