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HMN Financial, Inc. Announces Fourth Quarter Results

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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