Kiger's Notebook

Home Federal Bank 3Q 2009 earnings - back in the black

Back in black.

That's the song Home Federal Bank is singing this morning. It released its third quarter earnings report last night and the numbers were on the positive side of the ledger for the first time since 2007.

The big number that jumps out is the net income of $881,000. In the third quarter of 2008, the bank holding company posted $7.1 million loss.

Here are a few other highlights. I should have more soon on this

• Diluted earnings per share of $0.12 compared to diluted loss per share of $1.93 in third quarter of 2008
• Provision for loan losses down $12.4 million from third quarter of 2008
• Net interest margin of 3.46%, up 25 basis points from third quarter of 2008
• Nonperforming assets of $77.2 million, down $2.3 million from second quarter of 2009

Year to Date Highlights

• Net loss of $10.9 million compared to net loss of $7.6 million in the first nine months of 2008
• Diluted loss per share of $3.32 compared to diluted loss per share of $2.08 in the first nine months of 2008
• Provision for loan losses up $4.8 million over first nine months of 2008
• Net interest margin of 3.35%, up 14 basis points from first nine months of 2008
• Nonperforming assets of $77.2 million, up $2.4 million in the first nine months of 2009

President’s Statement

"We are pleased to report positive earnings for the third quarter of 2009” said Bradley Krehbiel, Principal Executive Officer of HMN. “While the economic environment for commercial real estate continues to be challenging, we are encouraged by some recent sales and renewed interest in some of our non-performing real estate. We continue to focus our efforts on reducing non-performing assets, reducing industry loan concentrations, increasing our core retail and commercial deposit relationships and reducing expenses. We believe that, over time, our focus on these areas will be effective in generating improved financial results. In the meantime, Home Federal Savings Bank continues to have adequate available liquidity and its capital position remains above the levels required for it to be considered a well capitalized financial institution by regulatory standards.”

FDIC tweaks Security State Bank

In what has become a dreaded Friday tradition, the FDIC issued is list of banks that it has sent letters asking for improvement (or more serious things).

 On this Friday's list was Security State Bank of Lewiston, which has branches in Spring Valley, Lewiston, Hokah, Wykoff and Ostander.

I chatted with Bank President Mike Bue, who is well-known in Rochester for leading many banks gpoing back to the Marquette Bank days. He explained that the core of the issue a number of loans from outside of this area that the bank bought as an investment.

In the current market, those loans have become problematic and the FDIC is demanding that the bank take care of that. A plan has been put in place and approved by FDIC.

Security State, which has assets totaling $74 million, remains open and active. Bue says none of the loan problems are local. The bank is still well capitalized, is still opening accounts and is still issuing loans.

I'll have more in print very (very) soon.

Home Federal Bank closing Roch. airport branch

After five years in business, Home Federal Savings Bank is closing the doors of its branch near Rochester International Airport.

In a letter to customers, the bank stated that the addition of other branches and improved efficiency reduced the traffic to the branch at 7389 Airport View Drive S.W. to the point that it was no longer cost-effective to continue operations.

While the activity in the airport area is growing with additional development, Home Federal is seeing its customers who live south of Rochester stopping at other branches rather than doing business as they come into or leave the city, says Al Mannino, vice president of corporate affairs.

The branch, which employed two full-time and two part-time staffers, is slated to close in 90 days, on Aug. 14. The bank will absorb the employees into its five other Rochester branches and others in the region.

Customers who have accounts with the branch do not need to do anything in connection to the change, Maninno said. Those accounts will remain within the Home Federal system.

Rochester developer Andy Chafoulias created the airport business park that houses the branch, and Chafoulias owns the bank branch building.

About 235 people work for the bank, which operates 11 full service offices in southern Minnesota and two in Iowa and loan origination offices in Rochester and Sartell, Minn. Home Federal Private Banking operates branches in Edina and Rochester.

Home Fed Bank posts loss for 1Q

While its daily operations are showing signs of strengthening, Home Federal Savings Bank’s first quarter earnings report today was overshadowed by a 276 percent drop in net income.

The Rochester bank reported a loss of $2.6 million for the first three months of 2009 compared to net income of $1.5 million for this period in 2008.

Home Federal President Brad Krehbiel explains that loss as primarily due to the bank increasing by $5 million its provision to cover loan loses to $6.6 million, up from $1.6 million in 2008. That was needed, he said, because of a drop in the estimated value of collateral covering loans.

“We needed to take these steps. We are very transparent about what we are doing,” he said.

Krehbiel, who took over as president at the end of January, pointed out positive signs also in the report.

“People need to look at us as a going concern. We are seeing an income gain on sales of mortgage loans as well as a modest increase of our net increase margin.,” he says. “Our basic business model is continuing to work.”

Gain on sales of loans increased $267,000. Fees and service charges increased $148,000 because of increased retail deposit account activity and fees

Net interest income was $8.8 million for the first quarter of 2009, an increase of $0.1 million, or 1.1 percent, compared to $8.7 million for the first quarter of 2008.

Diluted loss per common share for the first quarter of 2009 was $0.83, down $1.22 from diluted earnings per common share of $0.39 for the first quarter of 2008.

What does Kreihbiel tell customers  about this earnings report?

“We have a higher liquidity ratio as well as higher capital levels than we’ve had in recent history,” he said. “Can we survive a loss in the first quarter? The answer is yes.”

Mayo Clinic debt downgraded

In the Sunday Wall Street Journal, an article broke down how the recession is hurting the health care industry.

Toward the end of the article, the story's focus shifted the economic pain that Mayo Clinic is now feeling. Here's some of what was included:

As manufacturing employment has declined, many cities have come to see health care as the employer of last resort. Rochester, Minn., home to the Mayo Clinic, is one illustration of the industry's power to turn around regional fortunes and revitalize downtowns. Forty years ago, Mayo employed 4,000 workers; today, the international destination for top-tier health care employs some 35,000, more than a third of the city's total work force.

But Mayo, like the rest of the industry, is now struggling to meet it its capital and payroll obligations. Last month, the ratings agency Standard & Poor's downgraded Mayo's debt, citing the hospital system's large unfunded pension liability and break-even operating margins.

Mayo is freezing salaries for doctors and senior administrators, reducing travel and overtime expenses, and cutting capital spending this year by $150 million, says Chief Financial Officer Jeff Bolton. There have been no layoffs, though temporary staff are being pared back and only essential positions are being filled. Mayo is delaying occupying one floor of a new outpatient exam building on the Rochester campus, since finishing the interior of each floor costs $12 million.

Changes @ Think Bank

Think Bank has some changes coming in May.

Rochester's newest bank is closing its Chicago-area and Kansas City branches as part of a long-term strategy.

The bank is coming off a great year, say bank leaders. These closures are part of a strategic plan that has been in place for a number of years.

Estimated customers served by:

• Chicago branch - 8,700 households

• Kansas City branch - 3,400 households

I'll have more details on this adjustment by Think in print and online Thursday.

Eastwood Bank to re-build U.S. 14 branch

It has been a while since the big bank building boom in Rochester with only Home Federal and Think building branches in 2008.

Eastwood Bank is the first bank to pull out its hammers this year with an almost complete re-build planned for its U.S. 14 East branch by Big Lots.

Here's some detail from a release from Julianne Cords of Eastwood:

Eastwood Bank Plans Major Reconstruction for Its Rochester Hwy 14 Office
A major reconstruction for Eastwood Bank’s Highway 14 E office in Rochester will begin this spring. Most of the current office building will be demolished and then rebuilt with a new design. The office will remain open throughout the reconstruction with anticipated completion in October, 2009. 

This bank office location started as a mobile drive up facility in 1979. In 1984, a $500,000 addition more than tripled the size of the building, making it a full-service bank office.

The twist on this is that they intend to stay open during the construction, which should last about four months.

I'll more detail in print soon.

Follow-up to real estate /banking news tease

Sorry. I got caught up with interviews and running around Rochester. Forgot to follow-up that tease about real estate and banking news.

Here's some from a story Heather Carlson filed this morning from a Sen. Amy Klobuchar press conference:

Rochester and southeastern Minnesota will receive $1 million in affordable housing grants aimed at helping people buy and repair foreclosed homes.

In total, Minnesota communities will receive more than $6 million in housing grants through the Federal Home Loan Bank of Des Moines.

The risk for crime goes up and home values go down as the number of foreclosed homes increases, U.S. Sen. Amy Klobuchar said when she announced the grants today in Rochester.

“Pretty soon the home values in the neighborhood go down, and that doesn’t just hurt the people that were foreclosed upon, that hurts the entire neighborhood,” Klobuchar said.

In this region, First Homes, a Rochester-based public-private collaborative group that assists with housing, will receive a $500,000 grant, which will be administered by Home Federal Savings Bank in Rochester. Three Rivers Community Action will also receive $500,000 to help address foreclosures in southeastern Minnesota. The Bank of Zumbrota will oversee that money.

The money will go toward purchasing, building or rehabilitating rental and single-family housing with an emphasis on foreclosure properties. It’s projected that the money will lead to 464 affordable housing units being created or rehabilitated and an economic impact of $60 million in Minnesota. 

Interesting real estate and banking news this a.m.

Keep an eye out this morning for some interesting real estate news mixed with a little local banking info.

This program could have an impact for many local people.

Olmsted Nat. Bank chief to retire

Something is happening at Olmsted National Bank that has never occurred in the 12 years since it opened.

Bank President Lyman Grieve has announced he will retire. Grieve, who has more than 41 years experience, has been president since the Rochester bank was formed. He’ll continue in the job until October.

“I have been thinking about retiring for about a year and a half,” he said.

Why now? Did the turbulent economic times effect the timing?

“No, there’s a point when you want to do a few other things. I don’t want to wait too long,” Grieve said.

And his anniversary of working in the industry is at the start of October with his birthday soon after, so he thought Oct. 1 was a good time wrap things up.

Since the founding of the bank with no assets, one branch and five employees, it has grown to $60 million in assets with two branches — the main one built in 2005 — and 20 employees.

“Building a bank from scratch is certainly challenging,” he said.

While he is considering new challenges, the bank’s board is starting a search for who will fill Grieve’s chair after October.