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HMN Financial, Inc. Announces Third Quarter Results

/EIN News/ -- Third Quarter Summary

  • Net income of $1.8 million, up $0.4 million, compared to net income of $1.4 million in third quarter of 2016 
  • Diluted earnings per share of $0.37, up $0.07, compared to $0.30 in third quarter of 2016
  • Net interest income of $6.8 million, up $0.2 million from third quarter of 2016
  • Interest income yield enhancements decreased $0.3 million in third quarter of 2017 compared to third quarter of 2016
  • Provision for loan losses of ($0.6) million, down $0.7 million from $0.1 million in third quarter of 2016

Year to Date Summary

  • Net income of $4.0 million, down $0.7 million, compared to net income of $4.7 million in first nine months of 2016
  • Diluted earnings per share of $0.83, down $0.16, compared to diluted earnings per share of $0.99 in first nine months of 2016
  • Net interest income of $19.6 million, up $0.1 million from first nine months of 2016
  • Interest income yield enhancements decreased $1.5 million in first nine months of 2017 compared to the first nine months of 2016
  • Provision for loan losses of ($0.6) million, down $0.3 million from ($0.3) million in first nine months of 2016

Net Income Summary

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands, except per share amounts)   2017 2016     2017 2016  
Net income $ 1,780 1,414   $ 4,017 4,666  
Diluted earnings per share   0.37 0.30     0.83 0.99  
Return on average assets   0.99 0.84 %   0.78 0.95 %
Return on average equity   8.78 7.55 %   6.79 8.60 %
Book value per common share $ 17.93 16.67   $ 17.93 16.67  
                 

ROCHESTER, Minn., Oct. 19, 2017 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $717 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.8 million for the third quarter of 2017, an increase of $0.4 million, compared to net income of $1.4 million for the third quarter of 2016.  Diluted earnings per share for the third quarter of 2017 was $0.37, an increase of $0.07, compared to diluted earnings per share of $0.30 for the third quarter of 2016. The increase in net income for the third quarter of 2017 is due primarily to a $0.7 million decrease in the provision for loan losses as a result of the continued improvement in the credit quality of the loan portfolio and a $0.2 million increase in net interest income because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods.   These improvements in net income were partially offset by an increase in income tax expense of $0.2 million as a result of the increase in pre-tax income, a decrease of $0.1 million on the gain on sales of loans as a result of fewer commercial guaranteed loan sales between the periods, and an increase in other non-interest expenses of $0.1 million related primarily to an increase in legal fees between the periods.

President’s Statement

“We are pleased to report the improvement in net income and credit quality in the third quarter of 2017 when compared to the same period of 2016,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “The increase in net income between the periods is the result of a decreased need for loan loss reserves due to improved credit quality and an increase in our net interest income due to loan growth and changes in the composition of our interest earning assets between the periods.  We will continue to focus our efforts on prudently growing our core deposit and loan balances in order to further enhance the financial performance of our core banking operations.”  

Third Quarter Results

Net Interest Income

Net interest income was $6.8 million for the third quarter of 2017, an increase of $0.2 million, or 3.1%, from $6.6 million for the third quarter of 2016.  Interest income was $7.3 million for the third quarter of 2017, an increase of $0.3 million, or 4.3%, from $7.0 million for the same period in 2016.  Interest income increased $0.6 million because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an 8 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $48.1 million between the periods, the average interest-earning assets held in higher yielding loans increased $52.2 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $4.1 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods.  The increase in interest income as a result of these items was partially offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods.  Interest income decreased $0.3 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans which resulted in a 22 basis point decrease in the average yield between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline.   The average yield earned on interest-earning assets was 4.21% for the third quarter of 2017, a decrease of 14 basis points from 4.35% for the third quarter of 2016.  The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield enhancements recognized between the periods.      

Interest expense was $0.5 million for the third quarter of 2017, an increase of $0.1 million, or 22.0%, from $0.4 million for the third quarter of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.31% for the third quarter of 2017, an increase of 4 basis points from 0.27% for the third quarter of 2016.  The average rate paid increased between the periods due to an increase in the rates paid on certain money market and certificate of deposit accounts that was partially offset by a decrease in the interest paid on other borrowings due to a decrease in the average borrowings outstanding between the periods.  While the average non-interest and interest-bearing liabilities increased $40.0 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $1.8 million, the average amount held in higher rate premium money market and certificate of deposit accounts increased $42.5 million, and the average amount held in higher rate borrowings decreased $4.3 million between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2017 was 3.92%, a decrease of 18 basis points, compared to 4.10% for the third quarter of 2016.  The decrease in the net interest margin is primarily related to the decrease in yield enhancements recognized between the periods.

A summary of the Company’s net interest margin for the three month periods ended September 30, 2017 and 2016 is as follows:

    For the three-month period ended  
    September 30, 2017     September 30, 2016  
(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 $ 77,360   287   1.47 % $ 79,176   307   1.54 %
  Loans held for sale   1,916   25   5.18     4,214   47   4.44  
  Single family loans, net   114,826   1,164   4.02     107,053   1,147   4.26  
  Commercial loans, net   398,097   4,838   4.82     351,004   4,520   5.12  
  Consumer loans, net   74,164   903   4.83     74,544   913   4.87  
  Cash equivalents   16,917   36   0.84     19,267   18   0.37  
  Federal Home Loan Bank stock   848   2   0.94     770   2   1.03  
Total interest-earning assets $ 684,128   7,255   4.21   $ 636,028   6,954   4.35  
                             
Interest-bearing liabilities and non-interest bearing deposits:                            
  NOW accounts   84,154   24   0.11     83,562   10   0.05  
  Savings accounts   77,073   16   0.08     73,293   16   0.09  
  Money market accounts   194,660   159   0.32     168,870   92   0.22  
  Certificates   108,227   214   0.78     101,401   137   0.54  
  Advances and other borrowings   5,394   80   5.88     9,000   149   6.59  
Total interest-bearing liabilities $ 469,508           $ 436,126          
  Non-interest checking   155,674             148,788          
  Other non-interest bearing deposits   1,542             1,846          
Total interest-bearing liabilities and non-interest
  bearing deposits
$ 626,724   493   0.31   $ 586,760   404   0.27  
Net interest income       6,762             6,550      
Net interest rate spread           3.90 %           4.08 %
Net interest margin           3.92 %           4.10 %
                             

Provision for Loan Losses

The provision for loan losses was ($0.6) million for the third quarter of 2017, a decrease of $0.7 million from the $0.1 million provision for loan losses for the third quarter of 2016.  The provision for loan losses decreased primarily because of a decrease in the reserve percentages applied to certain risk rated loan categories as a result of the regular periodic internal analysis of the loan portfolio.  Total non-performing assets were $3.7 million at September 30, 2017, a decrease of $0.3 million, or 7.4%, from $4.0 million at June 30, 2017.  Non-performing loans decreased $0.1 million and foreclosed and repossessed assets decreased $0.2 million during the third quarter of 2017. 

A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2017 and 2016 is summarized as follows:

     
(Dollars in thousands)    2017     2016  
Balance at June 30, $ 10,045   $   10,325  
Provision   (581 )   80  
Charge offs:        
  Single family   (6 )   (66 )
  Commercial real estate   0     (67 )
  Consumer   (45 )   (14 )
  Commercial business   (300 )   (56 )
Recoveries   164     104  
Balance at September 30, $ 9,277   $   10,306  
         
Allocated to:        
  General allowance $ 8,139   $   9,050  
  Specific allowance   1,138     1,256  
  $ 9,277   $   10,306  
         

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, 2016. 

      September 30,     June 30,     December 31,  
(Dollars in thousands)    2017     2017     2016  
Non‑Performing Loans:                  
  Single family $ 800   $ 1,070   $ 916  
  Commercial real estate   1,666     1,672     1,384  
  Consumer   545     465     630  
  Commercial business   297     182     343  
  Total   3,308     3,389     3,273  
                   
Foreclosed and Repossessed Assets:                  
  Single family   0     14     0  
  Commercial real estate   414     602     611  
  Consumer.   1     18     16  
Total non‑performing assets $ 3,723   $ 4,023   $ 3,900  
Total as a percentage of total assets   0.52 %   0.55 %   0.57 %
Total non‑performing loans $ 3,308   $ 3,389   $ 3,273  
Total as a percentage of total loans receivable, net   0.57 %   0.57 %   0.59 %
Allowance for loan losses to non-performing loans   280.45 %   296.45 %   302.56 %
                   
Delinquency Data:                  
Delinquencies (1)                  
  30+ days $ 2,070   $ 2,512   $ 917  
  90+ days   0     0     0  
Delinquencies as a percentage of loan portfolio (1)                  
  30+ days   0.35 %   0.42 %   0.16 %
  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 third quarter of 2017, a decrease of $0.2 million, or 11.1%, from $2.1 million for the same period of 2016.  The decrease in non-interest income is primarily related to the $0.1 million decrease in the gain on sales of loans between the periods due to a decrease in commercial government guaranteed loan sales.  Other non-interest income decreased $0.1 million due to a decrease in the income recognized on the sale of uninsured investment products between the periods.  Fees and service charges decreased $0.1 million between the periods primarily because of a decrease in overdraft fees.  These decreases in non-interest income were partially offset by a slight increase in loan servicing fees earned between the periods.     

Non-interest expense was $6.3 million for the third quarter of 2017, an increase of $0.1 million, or 0.9%, from $6.2 million for the same period of 2016. Other non-interest expense increased $0.1 million due primarily to an increase in advertising expenses between the periods as a result of a deposit promotion that was implemented during the third quarter of 2017.  Professional services expense increased $0.1 million due to an increase in legal expenses between the periods.  Occupancy and equipment expense increased $0.1 million because of increased software and equipment expenses.  These increases in non-interest expenses were partially offset by a $0.1 million decrease in compensation expense related to decreased incentives between the periods.  Data processing expense decreased $0.1 million between the periods due to a decrease in on-line banking costs. Gains on real estate owned increased $0.1 million due to increased sales compared to the prior period.  

Income tax expense was $1.2 million for the third quarter of 2017, an increase of $0.2 million from $1.0 million for the third quarter of 2016.  The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the third quarter of 2017 when compared to the third quarter of 2016.

Return on Assets and Equity
Return on average assets (annualized) for the third quarter of 2017 was 0.99%, compared to 0.84% for the third quarter of 2016.  Return on average equity (annualized) was 8.78% for the third quarter of 2017, compared to 7.55% for the same period of 2016.  Book value per common share at September 30, 2017 was $17.93, compared to $16.67 at September 30, 2016.

Nine Month Period Results 

Net Income

Net income was $4.0 million for the nine month period ended September 30, 2017, a decrease of $0.7   million, or 13.9%, compared to net income of $4.7 million for the nine month period ended September 30, 2016.  Diluted earnings per share for the nine month period ended September 30, 2017 was $0.83, a decrease of $0.16 per share compared to diluted earnings per share of $0.99 for the same period of 2016.  The decrease in net income for the nine month period ended September 30, 2017 was due primarily to a $0.3 million decrease in the gain on sales of loans due to the reduced sales of commercial government guaranteed loans between the periods.  Non-interest expenses also increased $1.1 million between the periods primarily because of a decrease in the gains on real estate sales due to fewer real estate sales and an increase in compensation expense due primarily to annual salary increases.  These decreases to net income were partially offset by a $0.3 million decrease in the provision for loan losses as a result of the continued improvement in the credit quality of the loan portfolio and a $0.1 million increase in net interest income because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods.  Income tax expense also decreased $0.4 million because of the decrease in pre-tax income between the periods.  

Net Interest Income

Net interest income was $19.6 million for the first nine months of 2017, an increase of $0.1 million, or 0.4%, from $19.5 million for the same period of 2016.  Interest income was $20.9 million for the nine month period ended September 30, 2017, an increase of $0.3 million, or 1.3%, from $20.6 million for the same nine month period of 2016.  Interest income increased $1.8 million because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an 11 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $42.3 million between the periods, the average interest-earning assets held in higher yielding loans increased $65.3 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $23.0 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods.  The increase in interest income as a result of these items was partially offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods.  Interest income decreased $1.5 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans which resulted in a 33 basis point decrease in the average yield between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline.   The average yield earned on interest-earning assets was 4.21% for the first nine months of 2017, a decrease of 22 basis points from 4.43% for the first nine months of 2016.  The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield enhancements recognized between the periods.

Interest expense was $1.4 million for the first nine months of 2017, an increase of $0.2 million, or 16.1%, compared to $1.2 million for the first nine months of 2016.  The average interest rate paid on non-interest and interest-bearing liabilities was 0.30% for the first nine months of 2017, an increase of 3 basis points from 0.27% for the first nine months of 2016.  The average rate paid increased between the periods due to an increase in the rates paid on certain money market and certificate of deposit accounts that was partially offset by a decrease in the interest paid on other borrowings due to a decrease in the average borrowings outstanding between the periods.  While the average non-interest and interest-bearing liabilities increased $33.5 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $2.7 million, the average amount held in higher rate premium money market and certificate of deposit accounts increased $33.6 million, and the average amount held in higher rate borrowings decreased $2.8 million between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for the first nine months of 2017 was 3.94%, a decrease of 24 basis points, compared to 4.18% for the first nine months of 2016.  The decrease in the net interest margin is primarily related to the decrease in yield enhancements recognized between the periods. 

A summary of the Company’s net interest margin for the nine month periods ended September 30, 2017 and 2016 is as follows:

    For the nine-month period ended  
    September 30, 2017     September 30, 2016  
(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 $ 76,695   850   1.48 % $ 89,264   1,066   1.60 %
  Loans held for sale   1,863   69   4.95     3,134   99   4.22  
  Single family loans, net   113,372   3,411   4.02     101,330   3,200   4.22  
  Commercial loans, net   384,321   13,885   4.83     332,526   13,630   5.48  
  Consumer loans, net   73,270   2,626   4.79     70,554   2,566   4.86  
  Cash equivalents   13,564   64   0.63     24,153   73   0.40  
  Federal Home Loan Bank stock   892   8   1.20     758   4   0.70  
Total interest-earning assets $ 663,977   20,913   4.21   $ 621,719   20,638   4.43  
                             
Interest-bearing liabilities and non-interest bearing deposits:                            
  NOW accounts   87,783   66   0.10     83,955   36   0.06  
  Savings accounts   77,015   47   0.08     71,336   46   0.09  
  Money market accounts   175,388   390   0.30     162,523   268   0.22  
  Certificates   104,362   532   0.68     100,623   377   0.50  
  Advances and other borrowings   8,469   327   5.16     9,328   446   6.39  
Total interest-bearing liabilities $ 453,017             427,765          
  Non-interest checking   154,085             145,727          
  Other non-interest bearing deposits   1,361             1,510          
Total interest-bearing liabilities and non-interest
  bearing deposits
 

$
608,463   1,362   0.30    

$
575,002   1,173   0.27  
Net interest income       19,551             19,465      
Net interest rate spread           3.91 %           4.16 %
Net interest margin           3.94 %           4.18 %
                             

Provision for Loan Losses

The provision for loan losses was ($0.6) million for the first nine months of 2017, a decrease of $0.3 million from the ($0.3) million provision for loan losses for the same nine month period of 2016. The provision for loan losses decreased primarily because of a decrease in the reserve percentages applied to certain risk rated loan categories as a result of the regular periodic internal analysis of the loan portfolio.  Total non-performing assets were $3.7 million at September 30, 2017, a decrease of $0.2 million, or 4.5%, from $3.9 million at December 31, 2016.  Non-performing loans remained the same and foreclosed and repossessed assets decreased $0.2 million during the first nine months of 2017.  

A reconciliation of the Company’s allowance for loan losses for the nine month periods ended September 30, 2017 and 2016 is summarized as follows:

     
(Dollars in thousands)    2017     2016  
Balance at January 1, $ 9,903   $   9,709  
Provision   (582 )   (271 )
Charge offs:        
  Single family   (6 )   (66 )
  Commercial real estate   0     (67 )
  Consumer   (263 )   (29 )
  Commercial business   (300 )   (100 )
Recoveries   525     1,130  
Balance at September 30, $ 9,277   $   10,306  
         

Non-Interest Income and Expense

Non-interest income was $5.7 million for the first nine months of 2017, a decrease of $0.3 million, or 5.1%, from $6.0 million for the same period of 2016.  The decrease in non-interest income is related to the $0.3 million decrease in the gain on sales of loans between the periods due to a decrease in commercial government guaranteed loan sales.  Fees and service charges decreased slightly between the periods primarily because of a decrease in overdraft fees.  Other non-interest income decreased slightly due to a decrease in the income recognized on the sale of uninsured investment products between the periods.  These decreases in non-interest income were partially offset by a $0.1 million increase in loan servicing fees earned between the periods.     

Non-interest expense was $19.0 million for the first nine months of 2017, an increase of $1.1 million, or 6.2%, from $17.9 million for the same period of 2016.  Gains on real estate owned decreased $0.4 million due primarily to a large gain that was realized on a single property that was sold in the first nine month period of 2016.  Compensation expense increased $0.3 million due primarily to annual salary increases.  Other non-interest expense increased $0.2 million due primarily to an increase in advertising related expenses between the periods.  Other professional expenses increased $0.1 million primarily due to increased legal fees.  Occupancy and equipment expense increased $0.1 million because of increased software and equipment expenses. These increases in non-interest expenses were partially offset by a $0.1 million decrease in data processing expenses between the periods related to on-line banking costs. 

Income tax expense was $2.8 million for the first nine months of 2017, a decrease of $0.3 million, from $3.1 million for the same period in 2016. The decrease in income tax expense between the periods is primarily related to the decrease in pre-tax income in the first nine months of 2017 when compared to the first nine months of 2016.

Return on Assets and Equity

Return on average assets (annualized) for the nine month period ended September 30, 2017 was 0.78%, compared to 0.95% for the same period in 2016.  Return on average equity (annualized) was 6.79% for the nine-month period ended September 30, 2017, compared to 8.60% for the same period in 2016.

General Information
HMN Financial, Inc. and Home Federal Savings Bank are headquartered in Rochester, Minnesota. The Bank operates twelve full service offices in Minnesota located in Albert Lea, Austin, Eagan, Kasson (2), LaCrescent, Rochester (4), Spring Valley and Winona and one full service office in Marshalltown, Iowa.  The Bank also operates three loan origination offices in Minnesota located in Sartell, Owatonna, and Mankato and one loan origination office in 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; 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 additional 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 alternate funding sources, including changes in collateral advance rates and policies of the 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; acquisition integration costs; 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, 2016 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
           
    September 30,   December 31,  
(Dollars in thousands)   2017   2016  
    (unaudited)      
Assets          
Cash and cash equivalents $ 30,600     27,561    
Securities available for sale:          
 Mortgage-backed and related securities (amortized cost $5,465 and $993)    5,450     1,005    
 Other marketable securities (amortized cost $73,655 and $78,846)     72,901     77,472    
    78,351     78,477    
           
Loans held for sale   2,594     2,009    
Loans receivable, net   583,057     551,171    
Accrued interest receivable   2,580     2,626    
Real estate, net   414     611    
Federal Home Loan Bank stock, at cost   817     770    
Mortgage servicing rights, net   1,654     1,604    
Premises and equipment, net   8,247     8,223    
Goodwill   802     802    
Core deposit intangible   379     454    
Prepaid expenses and other assets   1,404     1,768    
Deferred tax asset, net   5,711     5,947    
 Total assets $ 716,610     682,023    
           
Liabilities and Stockholders’ Equity          
Deposits $ 628,971     592,811    
Other borrowings   0     7,000    
Accrued interest payable   112     236    
Customer escrows   1,798     1,011    
Accrued expenses and other liabilities   5,097     5,046    
 Total liabilities   635,978     606,104    
Commitments and contingencies          
Stockholders’ equity:          
 Serial preferred stock ($.01 par value):          
 authorized 500,000 shares; issued and outstanding shares 0   0     0    
 Common stock ($.01 par value):          
 authorized 16,000,000; issued shares 9,128,662   91     91    
Additional paid-in capital   50,536     50,566    
Retained earnings, subject to certain restrictions   90,903     86,886    
Accumulated other comprehensive loss   (463 )   (820 )  
Unearned employee stock ownership plan shares   (2,078 )   (2,223 )  
Treasury stock, at cost 4,631,124 and 4,639,739 shares   (58,357 )   (58,581 )  
 Total stockholders’ equity   80,632     75,919    
Total liabilities and stockholders’ equity. $ 716,610     682,023    
           



HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
(Dollars in thousands, except per share data)   2017   2016   2017     2016  
Interest income:                
Loans receivable $ 6,930     6,627     19,991     19,495  
Securities available for sale:                
Mortgage-backed and related   17     12     29     48  
Other marketable   270     295     821     1,018  
Cash equivalents   36     18     64     73  
Other   2     2     8     4  
Total interest income   7,255     6,954     20,913     20,638  
                 
Interest expense:                
Deposits   413     255     1,035     727  
Advances and other borrowings   80     149     327     446  
Total interest expense   493     404     1,362     1,173  
Net interest income   6,762     6,550     19,551     19,465  
Provision for loan losses   (581 )   80     (582 )   (271 )
Net interest income after provision for loan losses   7,343     6,470     20,133     19,736  
                 
Non-interest income:                
Fees and service charges   848     901     2,517     2,553  
Loan servicing fees   299     280     906     812  
Gain on sales of loans   521     656     1,528     1,848  
Other   241     310     744     791  
Total non-interest income   1,909     2,147     5,695     6,004  
                 
Non-interest expense:                
Compensation and benefits   3,642     3,723     11,366     11,016  
Gains on real estate owned   (65 )   (11 )   (72 )   (435 )
Occupancy and equipment   1,050     998     3,115     2,994  
Data processing   243     299     795     853  
Professional services   307     252     983     871  
Other   1,082     940     2,858     2,626  
Total non-interest expense   6,259     6,201     19,045     17,925  
Income before income tax expense   2,993     2,416     6,783     7,815  
Income tax expense   1,213     1,002     2,766     3,149  
Net income   1,780     1,414     4,017     4,666  
Other comprehensive income (loss), net of tax   (4 )   (51 )   357     131  
Comprehensive income available to common shareholders $ 1,776     1,363     4,374     4,797  
Basic earnings per share $ 0.42     0.34     0.95     1.12  
Diluted earnings per share $ 0.37     0.30     0.83     0.99  
                 


 
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
 
      Three Months Ended     Nine Months Ended  
SELECTED FINANCIAL DATA:   September 30,     September 30,  
(Dollars in thousands, except per share data)   2017     2016     2017     2016  
I.  OPERATING DATA:                        
   Interest income $ 7,255     6,954     20,913     20,638  
   Interest expense   493     404     1,362     1,173  
   Net interest income   6,762     6,550     19,551     19,465  
                           
II.  AVERAGE BALANCES:                        
   Assets (1)   711,585     669,114     691,228     652,906  
   Loans receivable, net   587,087     532,601     570,962     504,410  
   Securities available for sale (1)   77,360     79,176     76,695     89,264  
   Interest-earning assets (1)   684,128     636,029     663,977     621,719  
   Interest-bearing liabilities   626,724     586,760     608,463     575,002  
   Equity (1)   80,333     74,509     79,036     72,440  
                           
III.  PERFORMANCE RATIOS: (1)                        
   Return on average assets (annualized)   0.99 %   0.84 %   0.78 %   0.95 %
   Interest rate spread information:                        
     Average during period   3.90     4.08     3.91     4.16  
     End of period   3.88     4.09     3.88     4.09  
   Net interest margin   3.92     4.10     3.94     4.18  
   Ratio of operating expense to average                        
     total assets (annualized)   3.49     3.69     3.68     3.67  
   Return on average equity (annualized)   8.78     7.55     6.79     8.60  
   Efficiency   72.20     71.30     75.44     70.38  
                           
      September 30,   December 31,   September 30,      
      2017   2016   2016      
IV.  ASSET QUALITY:                        
   Total non-performing assets $ 3,723     3,900     5,812        
   Non-performing assets to total assets   0.52 %   0.57 %   0.85 %      
   Non-performing loans to total loans receivable, net   0.57     0.59     0.92        
   Allowance for loan losses $ 9,277     9,903     10,306        
   Allowance for loan losses to total assets   1.29 %   1.45 %   1.50 %      
   Allowance for loan losses to total loans receivable, net   1.59     1.80     1.91        
   Allowance for loan losses to non-performing loans   280.45     302.56     206.24        
                           
V.  BOOK VALUE PER SHARE:                        
   Book value per common share $ 17.93     16.91     16.67        
                           
VI.  EMPLOYEE DATA:                        
   Number of full time equivalent employees   194     200     199        
                           
      Nine
Months
     

Year
    Nine
Months
       
      Ended     Ended     Ended        
      Sept 30,
2017
    Dec 31,
2016
    Sept 30,
2016
       
VII.  CAPITAL RATIOS:                        
   Stockholders’ equity to total assets, at end of period   11.25 %   11.13 %   10.91 %      
   Average stockholders’ equity to average assets (1)   11.43     11.07     11.10        
   Ratio of average interest-earning assets to                        
     average interest-bearing liabilities (1)   109.12     108.36     108.12        
   Home Federal Savings Bank regulatory capital ratios:                        
     Common equity tier 1 capital ratio   12.62     13.42     12.59        
     Tier 1 capital leverage ratio   10.76     11.55     11.00        
     Tier 1 capital ratio   12.62     13.42     12.59        
     Risk-based capital   13.87     14.68     13.85        
                           
                           
                           

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


CONTACT: 

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

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