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HMN Financial, Inc. Announces Fourth Quarter Results

Fourth Quarter Highlights

  • Net income of $2.4 million, up $2.0 million from $0.4 million for fourth quarter of 2017
  • Diluted earnings per share of $0.51, up $0.43 from $0.08 for fourth quarter of 2017
  • Income tax expense of $0.6 million, down $1.0 million from $1.6 million for fourth quarter of 2017
  • Net interest income of $7.1 million, up $0.8 million, from fourth quarter of 2017
  • Non-performing assets of $3.1 million, down $2.8 million from September 30, 2018

Annual Highlights

  • Net income of $8.2 million, up $3.8 million, or 87.0%, from $4.4 million for 2017
  • Diluted earnings per share of $1.72, up $0.82 from $0.90 for 2017
  • Income tax expense of $2.9 million, down $1.5 million from $4.4 million for 2017
  • Net interest income of $28.1 million, up $2.2 million from $25.9 million for 2017
  • Non-performing assets of $3.1 million, down $0.7 million from December 31, 2017
Net Income Summary   Three Months Ended     Year Ended  
    December 31,     December 31,  
(Dollars in thousands, except per share amounts)   2018 2017     2018 2017  
Net income $ 2,352 387   $ 8,236 4,404  
Diluted earnings per share   0.51 0.08     1.72 0.90  
Return on average assets (annualized)   1.29 % 0.21 %   1.14 % 0.63 %
Return on average equity (annualized)   11.24 % 1.88 %   9.88 % 5.52 %
Book value per share $ 17.19 17.97   $ 17.19 17.97  
                 

ROCHESTER, Minn., Jan. 28, 2019 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (HMNF), the $712 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.4 million for the fourth quarter of 2018, an increase of $2.0 million compared to net income of $0.4 million for the fourth quarter of 2017. Diluted earnings per share for the fourth quarter of 2018 was $0.51, an increase of $0.43 from the diluted earnings per share of $0.08 for the fourth quarter of 2017. The increase in net income for the fourth quarter of 2018 is due primarily to a $1.0 million decrease in income tax expense, a $0.8 million increase in net interest income, and a $0.3 million decrease in the provision for loan losses between the periods. The decrease in income tax expense is primarily because of the enactment of the Tax Cuts and Jobs Act on December 22, 2017 which required the Company to record $1.1 million in additional income tax expense in the fourth quarter of 2017 and reduced the Company’s federal income tax rate in 2018. Net interest income increased primarily because of the higher interest amounts earned on loans and cash balances as a result of the 100 basis point increase in the federal funds rate between the periods. The provision for loan losses decreased primarily because of the improved credit quality of the loan portfolio and the payoff of certain non-performing commercial loans which resulted in a decrease in the loan loss reserves required between the periods.

President’s Statement
“We are pleased to report the improved financial results for both the fourth quarter and the year and the continued improvement in the credit quality of our loan portfolio,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “While the lower federal tax rate had a positive impact on our earnings, we continue to focus our efforts on increasing net interest income through the origination of appropriately underwritten loans that are funded with core deposits. We believe that our continued focus on these areas along with the prudent management of non-interest expenses will result in improved financial results over the long term.” 

Fourth Quarter Results

Net Interest Income
Net interest income was $7.1 million for the fourth quarter of 2018, an increase of $0.8 million from the fourth quarter of 2017. Interest income was $7.8 million for the fourth quarter of 2018, an increase of $1.0 million, or 15.2%, from $6.8 million for the same period in 2017. Interest income increased primarily because of higher interest amounts earned on loans and cash balances as a result of the 100 basis point increase in the federal funds rate between the periods and an $8.4 million increase in the average interest-earning assets held between the periods. Interest income also increased $0.5 million because of a change in the amount of yield enhancements recognized on non-accruing loans between the periods. The average yield earned on interest-earning assets was 4.43% for the fourth quarter of 2018, an increase of 54 basis points from 3.89% for the fourth quarter of 2017. The average yield earned on the average interest-earning assets increased 29 basis points as a result of the change in yield adjustments recognized between the periods.

Interest expense was $0.7 million for the fourth quarter of 2018, an increase of $0.3 million, or 49.4%, from $0.4 million for the fourth quarter of 2017. The average interest rate paid on non-interest and interest-bearing liabilities was 0.41% for the fourth quarter of 2018, an increase of 14 basis points from the fourth quarter of 2017. The increase in the interest paid on non-interest and interest-bearing liabilities was primarily because of the 100 basis point increase in the federal funds rate between the periods which increased the cost of deposits and an $8.0 million increase in the average non-interest and interest-bearing liabilities held between the periods. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2018 was 4.06%, an increase of 42 basis points, compared to 3.64% for the fourth quarter of 2017. The increase in the net interest margin is primarily related to the increase in interest income as a result of the change in yield enhancements recognized between the periods.

A summary of the Company’s net interest margin for the three month periods ended December 31, 2018 and 2017 is as follows:

    For the three-month period ended  
    December 31, 2018     December 31, 2017  
(Dollars in thousands)   Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/
Rate
    Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/
Rate
 
Interest-earning assets:                            
Securities available for sale $ 79,204   345   1.72 % $ 76,154   310   1.62 %
Loans held for sale   1,840   27   5.70     2,030   25   4.89  
Mortgage loans, net   116,341   1,212   4.13     114,808   1,182   4.08  
Commercial loans, net   397,617   5,130   5.12     393,823   4,257   4.29  
Consumer loans, net   73,665   941   5.07     73,964   913   4.90  
Other   29,393   142   1.92     28,863   80   1.10  
Total interest-earning assets $ 698,060   7,797   4.43   $ 689,642   6,767   3.89  
                             
Interest-bearing liabilities:                            
NOW accounts $ 84,620   21   0.10   $ 86,327   11   0.05  
Savings accounts   76,309   15   0.08     75,335   15   0.08  
Money market accounts   202,325   255   0.50     192,399   171   0.35  
Certificates   113,740   359   1.25     110,884   238   0.85  
Total interest-bearing liabilities $ 476,994           $ 464,945          
Non-interest checking   157,838             162,275          
Other non-interest bearing deposits   1,435             1,037          
Total interest-bearing liabilities and non-interest bearing deposits $ 636,267   650   0.41   $ 628,257   435   0.27  
Net interest income       7,147             6,332      
Net interest rate spread           4.02 %           3.62 %
Net interest margin           4.06 %           3.64 %
                             

Provision for Loan Losses
The provision for loan losses was ($0.2) million for the fourth quarter of 2018, a decrease of $0.3 million compared to $0.1 million for the fourth quarter of 2017. The provision for loan losses decreased between the periods primarily because of the improved credit quality of the loan portfolio and the payoff of certain non-performing commercial loans which resulted in a decrease in the reserves required between the periods. Total non-performing assets were $3.1 million at December 31, 2018, a decrease of $2.8 million from September 30, 2018. Non-performing loans decreased $2.8 million and foreclosed and repossessed assets did not change during the fourth quarter of 2018. The decrease in non-performing loans is primarily because a $2.2 million non-performing commercial real estate loan was paid off during the fourth quarter of 2018. 

A reconciliation of the allowance for loan losses for the fourth quarters of 2018 and 2017 is summarized as follows:

         
(Dollars in thousands)    2018     2017  
Balance at September 30, $ 8,832   $ 9,277  
Provision   (167 )   59  
Charge offs:        
Commercial   0     (10 )
Commercial real estate   0     (50 )
Consumer   (85 )   (25 )
Recoveries   106     60  
Balance at December 31, $ 8,686   $ 9,311  
         
Allocated to:        
General allowance $ 7,892   $ 8,238  
Specific allowance   794     1,073  
  $ 8,686   $ 9,311  
         

The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the end of the two most recently completed quarters and December 31, 2017.

    December 31,     September 30,     December 31,  
(Dollars in thousands)    2018     2018     2017  
Non‑Performing Loans:                  
Single family $ 730   $ 1,073   $ 949  
Commercial real estate   1,311     3,689     1,364  
Consumer   489     526     553  
Commercial   148     197     278  
Total   2,678     5,485     3,144  
                   
Foreclosed and Repossessed Assets:                  
Commercial real estate   414     414     627  
Total non‑performing assets $ 3,092   $ 5,899   $ 3,771  
Total as a percentage of total assets   0.43 %   0.80 %   0.52 %
Total non‑performing loans $ 2,678   $ 5,485   $ 3,144  
Total as a percentage of total loans receivable, net   0.46 %   0.94 %   0.54 %
Allowance for loan losses to non-performing loans   324.27 %   161.02 %   296.11 %
                   
Delinquency Data:                  
Delinquencies (1)                  
30+ days $ 1,453   $ 1,298   $ 1,789  
90+ days   0     0     0  
Delinquencies as a percentage of                  
loan portfolio (1)                  
30+ days   0.24 %   0.22 %   0.30 %
90+ days   0.00 %   0.00 %   0.00 %
                   

(1) Excludes non-accrual loans.

Non-Interest Income and Expense

Non-interest income was $1.9 million for the fourth quarter of 2018, a decrease of $0.1 million, or 0.6%, from $2.0 million for the same period of 2017. The decrease in non-interest income is primarily related to the $0.1 million decrease in the gain on sales of loans due to a decrease in single family loan sales between the periods. Fees and service charges increased $0.1 million between the periods due primarily to an increase in late payment fees on commercial loans. Other non-interest income increased slightly because of an increase in the sales of uninsured investment products between the periods. Loan servicing fees increased slightly between the periods due to an increase in the single family loans being serviced.

Non-interest expense was $6.3 million for the fourth quarter of 2018, an increase of $0.1 million, or 1.56%, from $6.2 million for the fourth quarter of 2017. Occupancy and equipment expense increased $0.1 million because of an increase in the purchases of non-capitalized software between the periods. Data processing costs increased slightly because of an increase in the mobile and on-line banking costs between the periods. Compensation expense increased slightly between the periods due primarily to an increase in incentives earned. These increases in non-interest expense were partially offset by slight decrease in professional services expense between the periods primarily because of a decrease in legal expenses. Other non-interest expense decreased slightly primarily because of a decrease in deposit insurance expense as a result of a reduction in the rate charged between the periods.

Income tax expense was $0.6 million for the fourth quarter of 2018, a decrease of $1.0 million from $1.6 million for the fourth quarter of 2017. The decrease in income tax expense is primarily because of the enactment of the Tax Cuts and Jobs Act on December 22, 2017 which required the Company to record $1.1 million in additional income tax expense in the fourth quarter of 2017 and reduced the Company’s federal income tax rate in 2018.

Return on Assets and Equity
Return on average assets (annualized) for the fourth quarter of 2018 was 1.29%, compared to 0.21% for the fourth quarter of 2017. Return on average equity (annualized) was 11.24% for the fourth quarter of 2018, compared to 1.88% for the same period of 2017. Book value per share at December 31, 2018 was $17.19, compared to $17.97 at December 31, 2017.

Annual Results

Net Income
Net income was $8.2 million for 2018, an increase of $3.8 million, or 87.0%, compared to net income of $4.4 million for 2017. Diluted earnings per share for the year ended December 31, 2018 was $1.72, an increase of $0.82 per share compared to diluted earnings per share of $0.90 for the year ended December 31, 2017. The increase in net income for 2018 is due primarily to a $2.2 million increase in net interest income and a $1.5 million decrease in income tax expense between the periods. Net interest income increased primarily because of the higher interest amounts earned on loans and cash balances as a result of the 100 basis point increase in the federal funds rate between the periods. The decrease in income tax expense is primarily because of the enactment of the Tax Cuts and Jobs Act on December 22, 2017 which required the Company to record $1.1 million in additional income tax expense in the fourth quarter of 2017 and reduced the Company’s federal income tax rate in 2018. 

Net Interest Income
Net interest income was $28.1 million for 2018, an increase of $2.2 million, or 8.8%, from $25.9 million for the same period of 2017. Interest income was $30.4 million for 2018, an increase of $2.7 million, or 9.8%, from $27.7 million for the same period of 2017. Interest income increased primarily because of the higher interest amounts earned on loans and cash balances as a result of the 100 basis point increase in the federal funds rate between the periods and a $27.9 million increase in the average interest-earning assets held between the periods. Interest income also increased $0.5 million because of a change in the amount of yield enhancements recognized on non-accruing loans between the periods. The average yield earned on interest-earning assets was 4.35% for 2018, an increase of 22 basis points from 4.13% for 2017. The average yield earned on interest-earning assets increased 8 basis points as a result of the change in yield adjustments recognized between the periods.

Interest expense was $2.2 million for 2018, an increase of $0.4 million, or 24.3%, from $1.8 million for 2017. The average interest rate paid on non-interest and interest-bearing liabilities was 0.35% for 2018, an increase of 6 basis points from 0.29% paid in 2017. The increase in the interest paid on non-interest and interest-bearing liabilities was primarily because of the 100 basis point increase in the federal funds rate which increased the cost of deposits between the periods and a $22.5 million increase in the average non-interest and interest-bearing liabilities held between the periods. Net interest margin (net interest income divided by average interest-earning assets) for 2018 was 4.03%, an increase of 17 basis points, compared to 3.86% for 2017. The increase in the net interest margin is primarily related to the increase in interest income which is primarily related to the increase in the average yields earned on the average interest-earning assets held between the periods. 

A summary of the Company’s net interest margin for 2018 and 2017 is as follows:

    For the twelve-month period ended  
    December 31, 2018     December 31, 2017  
(Dollars in thousands)   Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/
Rate
    Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/
Rate
 
Interest-earning assets:                            
Securities available for sale $ 79,377   1,335   1.68 % $ 76,559   1,160   1.52 %
Loans held for sale   1,765   89   5.04     1,905   94   4.93  
Mortgage loans, net   113,283   4,624   4.08     113,733   4,592   4.04  
Commercial loans, net   400,783   20,206   5.04     386,716   18,142   4.69  
Consumer loans, net   72,598   3,616   4.98     73,445   3,540   4.82  
Other   30,567   511   1.67     18,088   152   0.84  
Total interest-earning assets $ 698,373   30,381   4.35   $ 670,446   27,680   4.13  
                             
Interest-bearing liabilities:                            
NOW accounts $ 86,750   62   0.07   $ 87,416   77   0.09  
Savings accounts   77,630   61   0.08     76,592   63   0.08  
Money market accounts   199,202   865   0.43     179,675   560   0.31  
Certificates   114,243   1,243   1.09     106,006   770   0.73  
Advances and other borrowings   140   2   1.71     6,335   327   5.16  
Total interest-bearing liabilities $ 477,965           $ 456,024          
Non-interest checking   156,482             156,149          
Other non-interest bearing deposits   1,534             1,279          
Total interest-bearing liabilities and non-interest bearing deposits. $ 635,981   2,233   0.35   $ 613,452   1,797   0.29  
Net interest income       28,148             25,883      
Net interest rate spread           4.00 %           3.84 %
Net interest margin           4.03 %           3.86 %
                             

Provision for Loan Losses
The provision for loan losses was ($0.6) million for the year ended December 31, 2018, a decrease of $0.1 million, from ($0.5) million for the year ended December 31, 2017. The provision for loan losses decreased between the periods primarily because of the improved credit quality of the loan portfolio and the payoff of certain non-performing commercial loans which resulted in a decrease in the reserves required between the periods. Total non-performing assets were $3.1 million at December 31, 2018, a decrease of $0.7 million, or 18.0%, from $3.8 million at December 31, 2017. Non-performing loans decreased $0.5 million and foreclosed and repossessed assets decreased $0.2 million between the periods.

A reconciliation of the allowance for loan losses for 2018 and 2017 is summarized as follows:

         
(in thousands)    2018   2017
Balance beginning of period $ 9,311   $ 9,903  
Provision   (649 )   (523 )
Charge offs:        
Commercial   (270 )   (311 )
Commercial real estate   0     (50 )
Consumer   (226 )   (288 )
Single family mortgage   (24 )   (6 )
Recoveries   544     586  
Balance at December 31, $ 8,686   $ 9,311  
         

Non-Interest Income and Expense
Non-interest income was $7.7 million for the year ended December 31, 2018, the same as for the year ended December 31, 2017. Other non-interest income increased $0.1 million primarily because of an increase in the revenue earned on the sale of uninsured investment products between the periods. Loan servicing fees increased $0.1 million between the periods due to an increase in the single family loans being serviced. These increases in non-interest income were entirely offset by a decrease in the gain on sales of loans due to a decrease in single family loan originations and sales between the periods. Fees and service charges decreased slightly between the periods primarily because of a decrease in overdraft fees.

Non-interest expense was $25.4 million for the year ended December 31, 2018, an increase of $0.1 million, or 0.5%, from $25.3 million for the year ended December 31, 2017. Occupancy and equipment expense increased $0.2 million because of increases in depreciation and real estate tax expenses. Data processing costs increased $0.2 million primarily because of an increase in mobile and on-line banking costs between the periods. Other non-interest expense increased $0.2 million between the periods due to an increase in the fraud losses incurred on deposit accounts and an increase in deposit insurance costs due to an increase in insurance rates. These increases in non-interest expense were partially offset by a $0.3 million decrease in compensation and benefits expense primarily because of a decrease in employees between the periods. Professional services expense decreased $0.2 million between the periods primarily because of a decrease in legal expenses.

Income tax expense was $2.9 million for the year ended December 31, 2018, a decrease of $1.5 million, from $4.4 million for the year ended December 31, 2017. The decrease in income tax expense is due primarily to the enactment of the Tax Cuts and Jobs Act on December 22, 2017 which required the Company to record $1.1 million in additional income tax expense in the fourth quarter of 2017 and reduced the Company’s federal income tax rate in 2018. 

Return on Assets and Equity
Return on average assets (annualized) for 2018 was 1.14%, compared to 0.63% for 2017. Return on average equity (annualized) was 9.88% for 2018, compared to 5.52% for 2017. Book value per share at December 31, 2018 was $17.19, compared to $17.97 at December 31, 2017.

General Information
HMN Financial, Inc. and the Bank are headquartered in Rochester, Minnesota. Home Federal Savings Bank operates thirteen full service offices in Minnesota located in Albert Lea, Austin, Eagan, Kasson (2), La Crescent, Owatonna, Rochester (4), Spring Valley and Winona and one full service office in Marshalltown, Iowa. The Bank also operates two loan origination offices located in Sartell, Minnesota and Delafield, Wisconsin.

Safe Harbor Statement
This press release may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as “expect,” “intend,” “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 growing our core deposit relationships and loan balances, enhancing the financial performance of our core banking operations, maintaining credit quality, reducing non-performing assets, and generating improved financial results (including profitability); the adequacy and amount of available liquidity and capital resources to the Bank; the Company’s liquidity and capital requirements; our expectations for core capital and our strategies and potential strategies for maintenance thereof; improvements in loan production; changes in the size of the Bank’s loan portfolio; the amount of the Bank’s non-performing assets and the appropriateness of the allowance therefor; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and composition of interest-earning assets; the amount of yield enhancements relating to non-accruing and purchased loans; the amount and composition of non-interest and interest-bearing liabilities; the availability of alternate funding sources; the payment of dividends by HMN; the future outlook for the Company; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer of the trust preferred securities held by the Bank; the ability of the Bank to pay dividends to HMN; the ability to remain well capitalized; the impact of new accounting pronouncements; and compliance by the Bank with regulatory standards generally (including the Bank’s status as “well-capitalized”) and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject, specifically, and possible responses of the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), the Bank, and the Company to any failure to comply with any such regulatory standard, directive or requirement.

A number of factors could cause actual results to differ materially from the Company’s assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the OCC and FRB in the event of our non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company’s loan and investment portfolios; changes in costs associated with traditional and alternate funding sources, including changes in collateral advance rates and policies of the Federal Home Loan Bank (FHLB); technological, computer-related or operational difficulties; results of litigation; 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; the Company’s access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; our ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company’s assumptions and expectations include those set forth in the Company’s most recent filing on Forms 10-K and 10-Q 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” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q.

All statements in this press release, including forward-looking statements, speak only as of the date they are made, and we undertake no duty to update any of the forward-looking statements after the date of this press release.

 (Three pages of selected consolidated financial information are included with this release.)

 
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
           
    December 31,   December 31,  
(Dollars in thousands)   2018     2017  
    (unaudited)      
Assets          
Cash and cash equivalents $ 20,709     37,564    
Securities available for sale:          
Mortgage-backed and related securities          
(amortized cost $8,159 and $5,148)   8,023     5,068    
Other marketable securities          
(amortized cost $73,343 and $73,653)   71,957     72,404    
    79,980     77,472    
           
Loans held for sale   3,444     1,837    
Loans receivable, net   586,688     585,931    
Accrued interest receivable   2,356     2,344    
Real estate, net   414     627    
Federal Home Loan Bank stock, at cost   867     817    
Mortgage servicing rights, net   1,855     1,724    
Premises and equipment, net   9,635     8,226    
Goodwill   802     802    
Core deposit intangible   255     355    
Prepaid expenses and other assets   2,668     1,314    
Deferred tax asset, net   2,642     3,672    
Total assets $ 712,315     722,685    
           
           
Liabilities and Stockholders’ Equity          
Deposits $ 623,352     635,601    
Accrued interest payable   346     146    
Customer escrows   1,448     1,147    
Accrued expenses and other liabilities   4,022     4,973    
Total liabilities   629,168     641,867    
Commitments and contingencies          
Stockholders’ equity:          
Serial-preferred stock: ($.01 par value)          
authorized 500,000 shares; issued shares   0     0    
Common stock ($.01 par value):          
authorized 16,000,000; issued shares 9,128,662   91     91    
Additional paid-in capital   40,090     50,623    
Retained earnings, subject to certain restrictions   99,754     91,448    
Accumulated other comprehensive loss   (1,096 )   (957 )  
Unearned employee stock ownership plan shares   (1,836 )   (2,030 )  
Treasury stock, at cost 4,292,838 and 4,631,124 shares   (53,856 )   (58,357 )  
Total stockholders’ equity   83,147     80,818    
Total liabilities and stockholders’ equity $ 712,315     722,685    
           


 

HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
 
    Three Months Ended
December 31,
Year Ended
December 31,
   
 (Dollars in thousands, except per share data)   2018   2017   2018   2017 
    (unaudited)   (unaudited)   (unaudited)    
Interest income:                
Loans receivable $ 7,310     6,377     28,535     26,368  
Securities available for sale:                
Mortgage-backed and related   49     28     197     57  
Other marketable   296     282     1,138     1,103  
Other   142     80     511     152  
Total interest income   7,797     6,767     30,381     27,680  
                 
Interest expense:                
Deposits   650     435     2,231     1,470  
Advances and other borrowings   0     0     2     327  
Total interest expense   650     435     2,233     1,797  
Net interest income   7,147     6,332     28,148     25,883  
Provision for loan losses   (167 )   59     (649 )   (523 )
Net interest income after provision for loan losses   7,314     6,273     28,797     26,406  
                 
Non-interest income:                
Fees and service charges   909     837     3,330     3,354  
Loan servicing fees   314     296     1,255     1,202  
Gain on sales of loans   483     610     2,095     2,138  
Other   242     216     1,034     960  
Total non-interest income   1,948     1,959     7,714     7,654  
                 
Non-interest expense:                
Compensation and benefits   3,652     3,641     14,728     15,007  
Occupancy and equipment   1,062     953     4,304     4,068  
Data processing   331     311     1,270     1,106  
Professional services   264     302     1,137     1,285  
Other   997     1,002     3,948     3,788  
Total non-interest expense   6,306     6,209     25,387     25,254  
Income before income tax expense   2,956     2,023     11,124     8,806  
Income tax expense   604     1,636     2,888     4,402  
Net income   2,352     387     8,236     4,404  
Other comprehensive income (loss), net of tax   601     (494 )   (69 )   (137 )
Comprehensive income (loss) available to common shareholders $ 2,953     (107 )   8,167     4,267  
Basic earnings per share $ 0.52     0.09     1.89     1.04  
Diluted earnings per share $ 0.51     0.08     1.72     0.90  
                 


   
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
SELECTED FINANCIAL DATA:   Three Months Ended
December 31,
  Year Ended
December 31,
(Dollars in thousands, except per share data)   2018 2017   2018 2017
I. OPERATING DATA:                  
Interest income $ 7,797   6,767     30,381   27,680  
Interest expense   650   435     2,233   1,797  
Net interest income   7,147   6,332     28,148   25,883  
                     
II. AVERAGE BALANCES:                    
Assets (1)   723,988   716,465     723,514   697,589  
Loans receivable, net   587,623   582,595     586,664   573,894  
Mortgage-backed and related securities (1)   79,204   76,154     79,377   76,559  
Interest-earning assets (1)   698,060   689,642     698,373   670,446  
Interest-bearing liabilities   636,267   628,257     635,981   613,452  
Equity (1)   83,005   81,936     83,331   79,767  
                     
III.  PERFORMANCE RATIOS: (1)                    
Return on average assets (annualized)   1.29 % 0.21 %   1.14 % 0.63 %
Interest rate spread information:                    
Average during period   4.02   3.62     4.00   3.84  
End of period   4.02   3.97     4.02   3.97  
Net interest margin   4.06   3.64     4.03   3.86  
Ratio of operating expense to average                    
total assets (annualized)   3.46   3.44     3.51   3.62  
Return on average common equity (annualized)   11.24   1.88     9.88   5.52  
Efficiency   69.34   74.88     70.79   75.30  
  December 31, December 31,                        
  2018 2017                        
IV. EMPLOYEE DATA:                                  
Number of full time equivalent employees   182   187                          
                                   
V. ASSET QUALITY:                                  
Total non-performing assets $ 3,092   3,771                          
Non-performing assets to total assets   0.43 % 0.52 %                        
Non-performing loans to total loans                                  
receivable, net   0.46 % 0.54 %                        
Allowance for loan losses $ 8,686   9,311                          
Allowance for loan losses to total assets   1.22 % 1.29 %                        
Allowance for loan losses to total loans receivable, net   1.48 % 1.59 %                        
Allowance for loan losses to non-performing loans   324.27   296.11                          
                                   
VI. BOOK VALUE PER COMMON SHARE:                                  
Book value per common share $ 17.19   17.97                          
    Year Ended  Year Ended                        
    Dec 31, 2018  Dec 31, 2017                        
VII.  CAPITAL RATIOS:                                  
Stockholders’ equity to total assets, at end of period   11.67 % 11.18 %                        
Average stockholders’ equity to average assets (1)   11.52   11.43                          
Ratio of average interest-earning assets to                                  
average interest-bearing liabilities (1)   109.81   109.29                          
Home Federal Savings Bank regulatory capital ratios:                                  
Common equity tier 1 capital ratio   13.26   12.45                          
Tier 1 capital leverage ratio   11.00   10.68                          
Tier 1 capital ratio   13.26   12.45                          
Risk-based capital   14.52   13.71                          
                                   
                                   

(1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320.

CONTACT:
Bradley Krehbiel

Chief Executive Officer, President
HMN Financial, Inc. (507) 252-7169