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.”

Roch. UBS office is now Stifel Nicolaus

I spotted this one last week. Daryl Schultz and his financial services staff in the downtown Rochester skyway have a new company name on their paychecks and over the front door.

This was not unexpected. Stifel and UBS cut a deal for 55 branchges back in march or so. It just did not name which branches would be part of the deal. Now we know.

This office has had a few names in recent years - Piper Jaffrey, US Bank/Piper Jaffrey, UBS. However, the staff working with clients has stayed pretty much the same. So it has not been as much change as it appears from looking at the bills with local sign companies.

Here's what I had in today's column about this:

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A new sign went up in the Doubletree Hotel skyway in downtown Rochester last week.

The name of Stifel, Nicolaus & Co. went up over the door of the former UBS Financial Services office as part of a national deal in which Stifel acquired 55 UBS offices.

While the name out front is new, the same staff is in place to offer financial management services. Daryl Schultz remains the branch manager.

Stifel, Nicolaus also has an office at 305 Alliance Place, just north of 37th Street Northeast and East River Road.

IBM's 2009 3Q earnings = Thurs.

Not sure if anything specific to Rochester will come out in this report, but Big Blue will release its Third Quarter earnings Thursday after the markets close.

We'll see if IBM can keep increasing earnings, despite flat or slumping sales.

Here's some tidbits from AP's preview of what is expected in this report:

• OVERVIEW: Armonk, N.Y.-based IBM has managed to keep boosting profits despite the recession and slumping sales, a fact that speaks to the company's reliance on technology services and software. Those are two things many companies are still willing to pay for, because they help save money by offloading or automating information-technology chores. IBM's numbers are in some ways a gauge of the health of corporate spending on technology, but only in very specific areas, like outsourcing and tech services and software that will help those companies save money over the long term.

• BY THE NUMBERS: Analysts expect IBM to earn $2.38 per share on $23.38 billion in sales. In the same quarter last year, IBM earned $2.04 per share on $25.3 billion in sales.

• ANALYST TAKE: Keith Bachman, an analyst with BMO Capital Markets, wrote in a note to clients Monday that he believes IBM's stock has underperformed recently because of investor fears about the company's ability to boost revenue.

However, with an improving economic climate, "IBM should be able to show some amount of revenue upside compared with Street estimates in the next two quarters (more likely the December quarter)," Bachman wrote.

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.

More on Hormel's earnings

Here's what I whipped together on Hormel this a.m. (after writing my column. You'd think I'd be better at deadlines after 17 or years in this business). One tidbit I found interesting is that Hormel ended its joint venture deal selling Carapelli Olive Oil. Not sure when that happened or why. 

The things you learn during the course of a day. Anyway, here's the print piece:

Despite difficult terrain and low sales numbers, Hormel Foods Corp. is staying on pace to deliver on its forecast of better-than-expected 2009 earnings.

The Austin-based Fortune 500 food giant’s third quarter earnings report this morning backed up its announcement last week that 2009 is going to exceed its earlier expectations.

Earnings for the quarter were up by 50 percent, to 57 cents a share from 38 cents share in the same quarter in 2008. The net earnings for the quarter is $77 million, a big jump from last year’s $51.9 million.

Analysts polled by Thomson Reuters had predicted 52 cents per share in profit.

Revenue fell 6 percent to $1.57 billion from $1.68 billion. Analysts had expected $1.7 billion.

Much of the gains came from positive results from two segments — refrigerated foods and Jennie-O Store — that previously have taken big hits in the rough economy.

“Our refrigerated foods segment rebounded to post higher earnings on an enhanced sales mix and lower costs, despite weak cutout margins during much of the quarter.

Our Jennie-O Turkey Store segment also showed continued improvement in the quarter,” wrote CEO and President Jeffrey M. Ettinger in today’s announcement.

Refrigerated foods’ operating profit climbed by 60 percent compared to 2008, while profit from Jennie-O’s birds soared 97 percent.

Counterbalancing those big numbers is the sobering fact that Jennie-O’s profit was down 61 percent in 2008’s third quarter because of a whopping $53 million increase in feed costs; refrigerated foods was down by 1 percent.

Despite the better profit numbers for this quarter, sales for the company overall were down by 6 percent, to $1.6 billion.

A major factor for this, Hormel officials say, is subtraction of sales of Carapelli olive oil following the end of that joint venture as well as reductions of turkey production for international sales.

A continuing trend of people eating more at home benefited the grocery products segment yet again, despite “soft sales” of its previously strong Home Compleats microwave meals products.

The segment reported an increase in operating profit by 11 percent, much of that built on strong sales of Spam, Hormel chili and Herdez food products.

Ettinger characterized all of this as meaning Hormel is on track to hit its recently increased annual 2009 earnings forecast to the range of $2.36 to $2.42 per share.

“Although we are faced with challenges including the weak economy, a continued excess supply of commodity turkey meat, and difficult export markets, our balanced business model, continued strength in our core franchise products … should allow us to deliver an excellent year,” he said.

RAC, Gruve and EchoMetrics - Oh My!

What do you get when you add up RAC, Gruve and EchoMetrics, beside a string of odd sounds?

The answer? Possibly a healthier life in addition to a more vital business with healthier employees.

A meeting, hosted by the Rochester Athletic Club Tuesday at 7 p.m., will focus on health from a personal perspective as well as how it impacts a business.

Two Rochester-developed companies — Muve and EchoMetrics — will be profiled along with their services provided through the RAC.

Muve is the company founded by Mayo Clinic’s Dr. James Levine that he won the Minnesota Cup start-up company award with a few years ago. Now, the Twin Cities firm has its super pedometer-like widget — the Gruve — on the market to track how many calories the wearer is burning with every moment.

And then there’s EchoMetrics, a Rochester company founded by Dr. James Steward, which opened its downtown office only a few months ago. It focuses on interpreting echocardiograms or heart scans.

Expect RAC General Manager Greg Lappin to speak about surviving and thriving in difficult times. Andy Wood, the former director of corporate wellness for General Mills and now an executive at Muve, will chat about how a small company can improve employees’ health with little financial investment.

The event is free and open to the public, but you need to register to attend. For more information or to register, e-mail or call Mike Kelsey at mkelsey@rochesterathleticclub.com or call 287-9326.

U.S. Bank sues parent of Shoppes on Maine developer

OK, it looks like U.S. Bank has filed suit against Opus Corp. of Minnetonka, Minn. "to recover from Opus and related entities $78.8 million plus interest and fees that it says it is owed," according to the always astute Sam Black @ the Minneapolis- St. Paul Business Journal.

This is the latest is kind of a run of not-so-great news for Opus. 

"Three of its five independent operating companies filed for bankruptcy this year; Opus South based in Atlanta and Opus West based in Phoenix filed for Chapter 11 and Opus East based in Rockville, Md. filed for Chapter 7 bankruptcy," according to Black's article.

How does this relate to Rochester?

Opus Northwest, an Opus offshoot, is one of the main developers, along with Rochester-based Hexum Cos., of the Shoppes on Maine massive shopping complex in south Rochester.

However, the elder Opus has said that it doesn't "expect" Opus Northwest or Opus North to file for bankruptcy.

Add it all up and there might be not impact to Shoppes on Maine or Rochester. Or there could.

The way things play out these days, it seems impossible to guess.

Biotech using Mayo Clinic peptides + $3.4M funding

Mayo Clinic recently (with in the last couple years) licensed two peptides – CD-NP and CU-NP - to a San Francisco-based biotech called Nile Therapeutics. Nile is working on "the development of novel therapeutics for heart failure patients."

Being successful would mean tapping into a market where $3 billion is estimated to be spent annually on heart failure drugs in the U.S. alone.

The pedtides are based on the work of Dr. John Burnett, a Mayo Clinic cardiologist. He works with peptides in the heart and combines them with ones from the green mamba snake.

Last year studies looked positive and now a transfusion of funding - $3.4 million - is pumping through the company.

That cash rolled in Thursday.  "… We believe (the money) will provide us with sufficient capital to complete our Phase 2 clinical study of CD-NP in acute heart failure patients with mild to moderate renal insufficiency," said CEO Joshua Kazam in written statement.

Last year Nile launched the clinical study. It said then that the hope was to get CD-NP before the FDA in 2009. Mayo Clinic dosed the first patient with CD-NP in August of 2008.

In March of 2009, the FDA requested additional data from the recently completed Phase IIa clinical trial and modifications to CD-NP investigator brochure.

In June 2008, Nile also signed a deal for Mayo Clinic's CU-NP.

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.

More on Mayo's money

Here's some from one of the Mayo Clinic financials stories I have in today's daily miracle.

This is based on the limited figures released to employees Tuesday. Mayo declined to answer questions or provide more detail Tuesday. The full boat of financials is slated roll out Friday.

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Mayo Clinic fell $133 million short of its revenue goals in 2008, although it broke even, Mayo employees were told in a memo from top clinic officials Tuesday.

The value of Mayo’s investment portfolio also fell by $745 million last year, leaving the clinic’s pension fund underfunded by $1.2 billion at year’s end.

The clinic released the discouraging financial numbers in a memo written by President and CEO Dr. Denis Cortese and Chief Administrative Officer Shirley Weis reported that Mayo broke even for 2008, but only because of a $39 million sale of St. Luke’s Hospital in Florida.

Without that sale, the $7 billion nonprofit medical center would have posted a loss for the year.

Cortese and Weis issued the memo in advance to release the full annual report Friday. Mayo representatives declined to comment on the letter Tuesday, saying a statement would be made Friday.

While breaking even is not impressive compared to Mayo’s $117 million gain in 2006, it compares favorably to the 2008 numbers of its peers.

“Of the approximately 2,000 health systems, I’d estimate Mayo would be in the top 25 percent in revenue,” Jeff C. Bauer of ACS Healthcare Solutions said in reaction to the memo Tuesday. “Breaking even is sort of the top of heap right now.”

Bauer has a doctorate in economics and serves as ACS’s Chicago-based partner in charge of forecasting.

“I’ve heard far worse stories from national and international health systems that would be seen as Mayo’s competitors,” he pointed out.

However, the preliminary Mayo report is still “… nothing to write home about,” Bauer said.

While certainly opposite of what one would want, “The fact of expenses rising faster than revenue is pretty much the norm of the industry,” Bauer said.