Fourth Quarter Highlights
HMN Financial, Inc. (HMN or the Company) (NASDAQ: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 IncomeNet 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) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/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 LossesThe 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 EquityReturn 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 IncomeNet 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 IncomeNet 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) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/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 LossesThe 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 ExpenseNon-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 EquityReturn 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 InformationHMN 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
EndedDecember 31, |
Year EndedDecember 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 EndedDecember 31, |
|
Year EndedDecember 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 |
|
|
|
|
|
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(1) Average balances were calculated based upon amortized cost
without the market value impact of ASC 320.
CONTACT:Bradley KrehbielChief Executive
Officer, PresidentHMN Financial, Inc. (507)
252-7169
HMN Financial (NASDAQ:HMNF)
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