HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $723
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $2.9 million for the second quarter of
2019, an increase of $1.2 million, compared to net income of $1.7
million for the second quarter of 2018. Diluted earnings per
share for the second quarter of 2019 was $0.62, an increase of
$0.26 from the diluted earnings per share of $0.36 for the second
quarter of 2018. The increase in net income between the
periods was primarily because of the $1.4 million decrease in the
provision for loan losses and a $0.5 million increase in net
interest income. These increases were partially offset by an
increase in other non-interest expenses of $0.3 million and a $0.5
million increase in income tax expense as a result of the increased
pre-tax income between the periods.
President’s Statement“We are pleased with our
improving net interest margin and the related increase in net
interest income,” said Bradley Krehbiel, President and Chief
Executive Officer of HMN. “The increases in our net interest
income combined with the net recoveries received on previously
charged off loans had a positive impact on our net income for the
quarter. We will continue to focus our efforts on improving
the Bank’s core operating results by managing our net interest
margin while prudently growing the asset size of the
Bank.”
Second Quarter Results
Net Interest IncomeNet interest income was $7.5
million for the second quarter of 2019, an increase of $0.6
million, or 7.8%, from $6.9 million for the second quarter of
2018. Interest income increased primarily because of the
higher interest amounts earned on interest-earning assets as a
result of the increase in the federal funds rate between the
periods. Interest income also increased $0.4 million between
the periods because of an increase in the amount of yield
enhancements recognized on non-accruing loans that were paid
off. The average yield earned on interest-earning assets was
4.83% for the second quarter of 2019, an increase of 56 basis
points from 4.27% for the second quarter of 2018. The average
yield earned on average interest-earning assets increased 30 basis
points as a result of the change in yield enhancements recognized
between the periods.
Interest expense was $0.8 million for the second
quarter of 2019, an increase of $0.3 million, or 57.4%, from $0.5
million for the second quarter of 2018. The average interest
rate paid on non-interest and interest-bearing liabilities was
0.53% for the second quarter of 2019, an increase of 20 basis
points from 0.33% for the second quarter of 2018. The
increase in the interest paid on non-interest and interest-bearing
liabilities was primarily because of the increase in the federal
funds rate between the periods which increased the cost of
deposits. Net interest margin (net interest income divided by
average interest-earning assets) for the second quarter of 2019 was
4.35%, an increase of 38 basis points, compared to 3.97% for the
second quarter of 2018. The increase in the net interest
margin is primarily related to the increase in interest income
between the periods as a result of the change in the yield
enhancements recognized and an increase in the federal funds
rate.
A summary of the Company’s net interest margin
for the three and six month periods ended June 30, 2019 and 2018 is
as follows:
|
|
For the three month period ended |
|
|
|
June 30, 2019 |
|
|
June 30, 2018 |
|
(Dollars in
thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
78,393 |
|
347 |
|
1.78 |
% |
$ |
80,263 |
|
339 |
|
1.69 |
% |
Loans held for sale |
|
2,482 |
|
27 |
|
4.36 |
|
|
2,389 |
|
27 |
|
4.51 |
|
Mortgage loans, net |
|
113,786 |
|
1,248 |
|
4.40 |
|
|
110,939 |
|
1,137 |
|
4.11 |
|
Commercial loans, net |
|
407,854 |
|
5,678 |
|
5.58 |
|
|
405,553 |
|
4,957 |
|
4.90 |
|
Consumer loans, net |
|
73,777 |
|
950 |
|
5.16 |
|
|
72,070 |
|
885 |
|
4.92 |
|
Other |
|
12,161 |
|
49 |
|
1.62 |
|
|
29,353 |
|
111 |
|
1.52 |
|
Total interest-earning assets |
|
688,453 |
|
8,299 |
|
4.83 |
|
|
700,567 |
|
7,456 |
|
4.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities and non-interest bearing
deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
96,579 |
|
25 |
|
0.10 |
|
|
88,327 |
|
11 |
|
0.05 |
|
Savings accounts |
|
80,013 |
|
16 |
|
0.08 |
|
|
78,850 |
|
16 |
|
0.08 |
|
Money market accounts |
|
168,605 |
|
306 |
|
0.73 |
|
|
199,279 |
|
203 |
|
0.41 |
|
Certificates |
|
118,893 |
|
475 |
|
1.60 |
|
|
115,871 |
|
296 |
|
1.02 |
|
Advances and other borrowings |
|
1,152 |
|
7 |
|
2.54 |
|
|
0 |
|
0 |
|
0.00 |
|
Total interest-bearing liabilities |
|
465,242 |
|
|
|
|
|
|
482,327 |
|
|
|
|
|
Non-interest checking |
|
155,921 |
|
|
|
|
|
|
154,323 |
|
|
|
|
|
Other non-interest bearing deposits |
|
1,610 |
|
|
|
|
|
|
1,448 |
|
|
|
|
|
Total interest-bearing liabilities and non-interest
bearing deposits |
$ |
622,773 |
|
829 |
|
0.53 |
|
$ |
638,098 |
|
526 |
|
0.33 |
|
Net interest income |
|
|
$ |
7,470 |
|
|
|
|
|
$ |
6,930 |
|
|
|
Net interest rate spread |
|
|
|
|
|
4.30 |
% |
|
|
|
|
|
3.94 |
% |
Net interest margin |
|
|
|
|
|
4.35 |
% |
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six month period ended |
|
|
|
June 30, 2019 |
|
|
June 30, 2018 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
78,592 |
|
686 |
|
1.76 |
% |
$ |
79,274 |
|
653 |
|
1.66 |
% |
Loans held for sale |
|
1,838 |
|
39 |
|
4.30 |
|
|
1,730 |
|
38 |
|
4.47 |
|
Mortgage loans, net |
|
114,814 |
|
2,508 |
|
4.41 |
|
|
112,268 |
|
2,259 |
|
4.06 |
|
Commercial loans, net |
|
404,399 |
|
10,737 |
|
5.35 |
|
|
403,035 |
|
9,726 |
|
4.87 |
|
Consumer loans, net |
|
73,178 |
|
1,885 |
|
5.19 |
|
|
72,229 |
|
1,761 |
|
4.92 |
|
Other |
|
18,549 |
|
176 |
|
1.91 |
|
|
25,179 |
|
177 |
|
1.42 |
|
Total interest-earning assets |
|
691,370 |
|
16,031 |
|
4.68 |
|
|
693,715 |
|
14,614 |
|
4.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities and non-interest bearing
deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
97,132 |
|
49 |
|
0.10 |
|
|
88,982 |
|
21 |
|
0.05 |
|
Savings accounts |
|
79,259 |
|
31 |
|
0.08 |
|
|
78,017 |
|
31 |
|
0.08 |
|
Money market accounts |
|
175,052 |
|
576 |
|
0.66 |
|
|
194,871 |
|
388 |
|
0.40 |
|
Certificates |
|
116,558 |
|
856 |
|
1.48 |
|
|
113,798 |
|
554 |
|
0.98 |
|
Advances and other borrowings |
|
579 |
|
7 |
|
2.54 |
|
|
283 |
|
2 |
|
1.71 |
|
Total interest-bearing liabilities |
|
468,580 |
|
|
|
|
|
|
475,951 |
|
|
|
|
|
Non-interest checking |
|
156,185 |
|
|
|
|
|
|
153,796 |
|
|
|
|
|
Other non-interest bearing deposits |
|
1,835 |
|
|
|
|
|
|
1,494 |
|
|
|
|
|
Total interest-bearing liabilities and non-interest
bearing deposits |
$ |
626,600 |
|
1,519 |
|
0.49 |
|
$ |
631,241 |
|
996 |
|
0.32 |
|
Net interest income |
|
|
$ |
14,512 |
|
|
|
|
|
$ |
13,618 |
|
|
|
Net interest rate spread |
|
|
|
|
|
4.19 |
% |
|
|
|
|
|
3.93 |
% |
Net interest margin |
|
|
|
|
|
4.23 |
% |
|
|
|
|
|
3.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan LossesThe provision for loan
losses was ($1.1 million) for the second quarter of 2019, a
decrease of $1.4 million compared to $0.3 million for the second
quarter of 2018. The credit provision amount for the period
was primarily the result of the increase in the net recoveries
received on previously charged off commercial loans during the
second quarter of 2019 compared to the same period of 2018.
The net recoveries combined with the continued improvement in the
credit quality of the loan portfolio resulted in a reduction of the
overall allowance for loan losses required between the
periods. Total non-performing assets were $3.1 million at
June 30, 2019, an increase of $0.1 million, or 5.3%, from $3.0
million at March 31, 2019. Non-performing loans increased
$0.1 million and foreclosed and repossessed assets remained the
same during the second quarter of 2019.
A reconciliation of the Company’s allowance for
loan losses for the quarters ended June 30, 2019 and 2018 is
summarized as follows:
|
|
|
|
|
(Dollars in
thousands) |
|
2019 |
|
|
2018 |
|
Balance at March 31 |
$ |
8,673 |
|
|
9,129 |
|
Provision |
|
(1,059 |
) |
|
295 |
|
Charge offs: |
|
|
|
|
Consumer |
|
(7 |
) |
|
(56 |
) |
Commercial business |
|
(826 |
) |
|
(255 |
) |
Recoveries |
|
1,843 |
|
|
215 |
|
Balance at June 30 |
$ |
8,624 |
|
|
9,328 |
|
Allocated to: |
|
|
|
|
General allowance |
$ |
7,856 |
|
|
8,534 |
|
Specific allowance |
|
768 |
|
|
794 |
|
|
$ |
8,624 |
|
|
9,328 |
|
|
|
|
|
|
The decrease in the allowance for loan losses reflects the
improvement in the credit quality of the loan portfolio between the
periods. The $0.8 million of commercial business loan charge
offs relates primarily to two commercial business loans that were
charged off due to the bankruptcy filing of the borrowers.
The $1.8 million in recoveries relates primarily to the repayment
of a commercial real estate loan of which $1.7 million had
previously been charged off.
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 three most
recently completed quarters.
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
(Dollars in
thousands) |
|
2019 |
|
|
2019 |
|
|
2018 |
|
Non‑Performing Loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
854 |
|
$ |
751 |
|
$ |
730 |
|
Commercial real estate |
|
1,212 |
|
|
1,275 |
|
|
1,311 |
|
Consumer |
|
458 |
|
|
283 |
|
|
489 |
|
Commercial business |
|
144 |
|
|
212 |
|
|
148 |
|
Total |
|
2,668 |
|
|
2,521 |
|
|
2,678 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and Repossessed Assets: |
|
|
|
|
|
|
|
|
|
Single family |
|
30 |
|
|
30 |
|
|
0 |
|
Commercial real estate |
|
414 |
|
|
414 |
|
|
414 |
|
Consumer |
|
12 |
|
|
0 |
|
|
0 |
|
Total non‑performing assets |
$ |
3,124 |
|
$ |
2,965 |
|
$ |
3,092 |
|
Total as a percentage of total assets |
|
0.43 |
% |
|
0.41 |
% |
|
0.43 |
% |
Total non‑performing loans |
$ |
2,668 |
|
$ |
2,521 |
|
$ |
2,678 |
|
Total as a percentage of total loans receivable, net |
|
0.45 |
% |
|
0.42 |
% |
|
0.46 |
% |
Allowance for loan loss to non-performing loans |
|
323.18 |
% |
|
343.90 |
% |
|
324.27 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency Data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
1,991 |
|
$ |
1,554 |
|
$ |
1,453 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage of |
|
|
|
|
|
|
|
|
|
loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.33 |
% |
|
0.25 |
% |
|
0.24 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
(1) Excludes non-accrual loans.
Non-Interest Income and ExpenseNon-interest
income was $2.0 million for the second quarter of 2019, a decrease
of $0.1 million, or 1.6%, from $2.1 million for the same period of
2018. Gain on sales of loans decreased $0.1 million between
the periods primarily because of a decrease in commercial
government guaranteed loan sales. Loan servicing income
increased slightly due to an increase in the single family loan
servicing fees earned. Other non-interest income increased
slightly due to an increase in the fees earned on the sales of
uninsured investment products between the periods.
Non-interest expense was $6.6 million for the
second quarter of 2019, an increase of $0.3 million, or 4.0%, from
$6.3 million for the second quarter of 2018. Other
non-interest expense increased $0.1 million due primarily to an
increase in loan related expenses. Professional services
expense increased $0.1 million due primarily to an increase in
legal expenses between the periods. Compensation and benefits
expense increased $0.1 million primarily because of an increase in
pension costs between the periods. Occupancy and equipment
costs increased slightly between the periods due to an increase in
depreciation and maintenance costs. These increases in
non-interest expense were partially offset by a slight decrease in
data processing expense primarily because of a decrease in phone
and internet costs between the periods due to a change in
vendors.
Income tax expense was $1.1 million for the
second quarter of 2019, an increase of $0.5 million from $0.6
million for the second quarter of 2018. The increase in
income tax expense between the periods is primarily the result of
an increase in pre-tax income.
Return on Assets and EquityReturn on average
assets (annualized) for the second quarter of 2019 was 1.60%,
compared to 0.95% for the second quarter of 2018. Return on
average equity (annualized) was 13.10% for the second quarter of
2019, compared to 8.25% for the same period in 2018. Book
value per common share at June 30, 2019 was $18.33, compared to
$17.75 at June 30, 2018.
Six Month Period Results
Net
Income
Net income was $4.5 million for the six month period ended June 30,
2019, an increase of $1.3 million, or 41.3%, compared to net income
of $3.2 million for the six month period ended June 30, 2018.
Diluted earnings per share for the six month period ended June 30,
2019 was $0.97, an increase of $0.31 per share compared to diluted
earnings per share of $0.66 for the same period in 2018. The
increase in net income between the periods was primarily because of
the $1.2 million decrease in the provision for loan losses and a
$0.9 million increase in net interest income. These increases
were partially offset by a $0.5 million increase in income tax
expense as a result of the increased pre-tax income between the
periods.
Net Interest IncomeNet interest income was $14.5
million for the first six months of 2019, an increase of $0.9
million, or 6.6%, from $13.6 million for the same period in
2018. Interest income increased primarily because of the
higher interest amounts earned on interest-earning assets as a
result of the increase in the federal funds rate between the
periods. Interest income also increased $0.5 million because
of an increase in the amount of yield enhancements recognized
between the periods on non-accruing loans that were paid off.
The average yield earned on interest-earning assets was 4.68% for
the six month period ended June 30, 2019, an increase of 43 basis
points from 4.25% for the same six month period in 2018. The
average yield earned on the average interest-earning assets
increased 19 basis points as a result of the change in yield
enhancements recognized between the
periods.
Interest expense was $1.5 million for the first
six months of 2019, an increase of $0.5 million, or 52.5%, compared
to $1.0 million for the first six months of 2018. The average
interest rate paid on non-interest and interest-bearing liabilities
was 0.49% for the first six months of 2019, an increase of 17 basis
points from 0.32% for the first six months of 2018. The increase in
the interest paid on non-interest and interest-bearing liabilities
was primarily because of the increase in the federal funds rate
between the periods which increased the cost of deposits. Net
interest margin (net interest income divided by average
interest-earning assets) for the first six months of 2019 was
4.23%, an increase of 27 basis points, compared to 3.96% for the
first six months of 2018. The increase in the net interest
margin is primarily related to the increase in interest income
between the periods as a result of the increase in the federal
funds rate and the change in the yield enhancements
recognized.
Provision for Loan LossesThe provision for loan
losses was ($1.0 million) for the first six months of 2019, a
decrease of $1.2 million compared to $0.2 million the first six
months of 2018. The credit provision amount for the period was
primarily the result of the increase in net recoveries received
during the six month period ended June 30, 2019 when compared to
the same period of 2018. The net recoveries combined with the
continued improvement in the credit quality of the loan portfolio
resulted in a reduction of the overall allowance for loan losses
required between the periods. Total non-performing assets
were $3.1 million at June 30, 2019, the same as they were at
December 31, 2018.
A reconciliation of the Company’s allowance for
loan losses for the six month periods ended June 30, 2019 and June
30, 2018 is summarized as follows:
|
|
|
|
|
(Dollars in
thousands) |
|
2019 |
|
|
2018 |
|
Balance at January 1 |
$ |
8,686 |
|
|
9,311 |
|
Provision |
|
(1,032 |
) |
|
170 |
|
Charge offs: |
|
|
|
|
Consumer |
|
(46 |
) |
|
(125 |
) |
Commercial business |
|
(869 |
) |
|
(255 |
) |
Single family |
|
0 |
|
|
(23 |
) |
Recoveries |
|
1,885 |
|
|
250 |
|
Balance at June 30 |
$ |
8,624 |
|
|
9,328 |
|
|
|
|
|
|
The decrease in the allowance for loan losses reflects the
improvement in the credit quality of the loan portfolio between the
periods. The $0.9 million of commercial business loan charge
offs relates primarily to two commercial business loans that were
charged off due to the bankruptcy filing of the borrowers.
The $1.9 million in recoveries relates primarily to the repayment
of a commercial real estate loan of which $1.7 million had
previously been charged off.
Non-Interest Income and ExpenseNon-interest
income was $3.7 million for the first six months of 2019, a
decrease of $0.1 million, or 3.1%, from $3.8 million for the same
six month period of 2018. Gain on sales of loans decreased
$0.1 million between the periods primarily because of a decrease in
commercial government guaranteed loan sales. Fees and service
charges decreased $0.1 million between the periods due primarily to
a decrease in overdraft fees. These decreases in non-interest
income were partially offset by a slight increase in other
non-interest income due to an increase in the sale of uninsured
investment products and a slight increase in loan servicing income
earned on single family loans between the periods.
Non-interest expense was $13.0 million for the
first six months of 2019, an increase of $0.1 million, or 1.1%,
from $12.9 million for the same six month period of 2018.
Compensation and benefits expense increased $0.1 million primarily
because of an increase in pension costs between the periods.
Professional services expense increased $0.1 million due
primarily to an increase in legal expenses between the periods.
These increases in non-interest expense were partially offset by a
$0.1 million decrease in other non-interest expense between the
periods due primarily to decreases in the losses incurred on
deposit accounts. Occupancy and equipment costs
decreased slightly between the periods due to a decrease in
non-capitalized equipment and software costs. Data processing costs
decreased slightly because of a decrease in phone and internet
costs between the periods due to a change in vendors.
Income tax expense was $1.8 million for the
first six months of 2019, an increase of $0.6 million from $1.2
million for the first six months of 2018. The increase in
income tax expense between the periods is primarily the result of
an increase in pre-tax income.
Return on Assets and EquityReturn on average
assets (annualized) for the six month period ended June 30, 2019
was 1.25%, compared to 0.89% for the same six month period in
2018. Return on average equity (annualized) was 10.43% for
the six month period ended June 30, 2019, compared to 7.66% for the
same six month period in 2018.
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
Pewaukee, 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 anticipated results of litigation and our
assessment of the impact on our financial statements; 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, 2018 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 |
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
(Dollars in
thousands) |
|
2019 |
|
|
2018 |
|
|
|
|
(unaudited) |
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
16,357 |
|
|
20,709 |
|
|
Securities available for sale: |
|
|
|
|
|
Mortgage-backed and related securities (amortized
cost $7,351 and $8,159) |
|
7,435 |
|
|
8,023 |
|
|
Other marketable securities (amortized cost $72,935 and
$73,343) |
|
72,614 |
|
|
71,957 |
|
|
|
|
80,049 |
|
|
79,980 |
|
|
|
|
|
|
|
|
Loans held for sale |
|
5,912 |
|
|
3,444 |
|
|
Loans receivable, net |
|
595,757 |
|
|
586,688 |
|
|
Accrued interest receivable |
|
2,522 |
|
|
2,356 |
|
|
Real estate, net |
|
444 |
|
|
414 |
|
|
Federal Home Loan Bank stock, at cost |
|
853 |
|
|
867 |
|
|
Mortgage servicing rights, net |
|
1,870 |
|
|
1,855 |
|
|
Premises and equipment, net |
|
9,623 |
|
|
9,635 |
|
|
Goodwill |
|
802 |
|
|
802 |
|
|
Core deposit intangible |
|
206 |
|
|
255 |
|
|
Prepaid expenses and other assets |
|
6,090 |
|
|
2,668 |
|
|
Deferred tax asset, net |
|
2,282 |
|
|
2,642 |
|
|
Total assets |
$ |
722,767 |
|
|
712,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Deposits |
$ |
623,510 |
|
|
623,352 |
|
|
Accrued interest payable |
|
305 |
|
|
346 |
|
|
Customer escrows |
|
1,487 |
|
|
1,448 |
|
|
Accrued expenses and other liabilities |
|
8,654 |
|
|
4,022 |
|
|
Total liabilities |
|
633,956 |
|
|
629,168 |
|
|
Commitments and contingencies |
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
Serial-preferred stock: ($.01 par value) |
|
|
|
|
|
authorized 500,000 shares; issued 0 |
|
0 |
|
|
0 |
|
|
Common stock ($.01 par value): |
|
|
|
|
|
Authorized 16,000,000 shares; issued 9,128,662 |
|
91 |
|
|
91 |
|
|
Additional paid-in capital |
|
40,153 |
|
|
40,090 |
|
|
Retained earnings, subject to certain restrictions |
|
104,235 |
|
|
99,754 |
|
|
Accumulated other comprehensive loss |
|
(170 |
) |
|
(1,096 |
) |
|
Unearned employee stock ownership plan shares |
|
(1,740 |
) |
|
(1,836 |
) |
|
Treasury stock, at cost 4,284,840 and 4,292,838 shares |
|
(53,758 |
) |
|
(53,856 |
) |
|
Total stockholders’ equity |
|
88,811 |
|
|
83,147 |
|
|
Total liabilities and stockholders’ equity |
$ |
722,767 |
|
|
712,315 |
|
|
|
|
|
|
|
|
HMN
FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated
Statements of Comprehensive Income |
(unaudited) |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
(Dollars in thousands, except per share data) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
7,901 |
|
|
7,006 |
|
|
15,169 |
|
|
13,784 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
44 |
|
|
54 |
|
|
90 |
|
|
96 |
|
Other marketable |
|
304 |
|
|
285 |
|
|
596 |
|
|
557 |
|
Other |
|
50 |
|
|
111 |
|
|
176 |
|
|
177 |
|
Total interest income |
|
8,299 |
|
|
7,456 |
|
|
16,031 |
|
|
14,614 |
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
822 |
|
|
526 |
|
|
1,512 |
|
|
994 |
|
Federal Home Loan Bank advances and other
borrowings |
|
7 |
|
|
0 |
|
|
7 |
|
|
2 |
|
Total interest expense |
|
829 |
|
|
526 |
|
|
1,519 |
|
|
996 |
|
Net interest income |
|
7,470 |
|
|
6,930 |
|
|
14,512 |
|
|
13,618 |
|
Provision for loan losses |
|
(1,059 |
) |
|
295 |
|
|
(1,032 |
) |
|
170 |
|
Net interest income after provision for loan losses |
|
8,529 |
|
|
6,635 |
|
|
15,544 |
|
|
13,448 |
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
785 |
|
|
785 |
|
|
1,485 |
|
|
1,551 |
|
Loan servicing fees |
|
318 |
|
|
297 |
|
|
633 |
|
|
598 |
|
Gain on sales of loans |
|
611 |
|
|
679 |
|
|
990 |
|
|
1,123 |
|
Other |
|
307 |
|
|
293 |
|
|
604 |
|
|
558 |
|
Total non-interest income |
|
2,021 |
|
|
2,054 |
|
|
3,712 |
|
|
3,830 |
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
3,737 |
|
|
3,678 |
|
|
7,647 |
|
|
7,502 |
|
Occupancy and equipment |
|
1,081 |
|
|
1,072 |
|
|
2,142 |
|
|
2,169 |
|
Data processing |
|
305 |
|
|
334 |
|
|
606 |
|
|
629 |
|
Professional services |
|
381 |
|
|
298 |
|
|
653 |
|
|
547 |
|
Other |
|
1,063 |
|
|
931 |
|
|
1,966 |
|
|
2,020 |
|
Total non-interest expense |
|
6,567 |
|
|
6,313 |
|
|
13,014 |
|
|
12,867 |
|
Income before income tax expense |
|
3,983 |
|
|
2,376 |
|
|
6,242 |
|
|
4,411 |
|
Income tax expense |
|
1,121 |
|
|
649 |
|
|
1,761 |
|
|
1,239 |
|
Net income |
|
2,862 |
|
|
1,727 |
|
|
4,481 |
|
|
3,172 |
|
Other comprehensive income (loss), net of tax |
|
442 |
|
|
(105 |
) |
|
926 |
|
|
(452 |
) |
Comprehensive income available to common
shareholders |
$ |
3,304 |
|
|
1,622 |
|
|
5,407 |
|
|
2,720 |
|
Basic earnings per share |
$ |
0.62 |
|
|
0.40 |
|
|
0.97 |
|
|
0.74 |
|
Diluted earnings per share |
$ |
0.62 |
|
|
0.36 |
|
|
0.97 |
|
|
0.66 |
|
|
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Selected Consolidated Financial Information |
(unaudited) |
|
SELECTED FINANCIAL
DATA: |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
(Dollars in thousands, except per share data) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
I. OPERATING DATA: |
|
|
|
|
|
|
|
|
|
Interest income |
$ |
8,299 |
|
7,456 |
|
16,031 |
|
14,614 |
|
Interest expense |
|
829 |
|
526 |
|
1,519 |
|
996 |
|
Net interest income |
|
7,470 |
|
6,930 |
|
14,512 |
|
13,618 |
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
|
Assets (1) |
|
717,942 |
|
725,471 |
|
721,118 |
|
718,662 |
|
Loans receivable, net |
|
595,417 |
|
588,563 |
|
592,391 |
|
587,532 |
|
Securities available for sale (1) |
|
78,393 |
|
80,263 |
|
78,592 |
|
79,274 |
|
Interest-earning assets (1) |
|
688,453 |
|
700,567 |
|
691,370 |
|
693,715 |
|
Interest-bearing and non-interest bearing deposits
and borrowings |
|
622,773 |
|
638,098 |
|
626,600 |
|
631,241 |
|
Equity (1) |
|
87,628 |
|
83,964 |
|
86,631 |
|
83,463 |
|
|
|
|
|
|
|
|
|
|
|
III. PERFORMANCE RATIOS: (1) |
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
1.60 |
% |
0.95 |
% |
1.25 |
% |
0.89 |
% |
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
Average during period |
|
4.30 |
|
3.94 |
|
4.19 |
|
3.93 |
|
End of period |
|
4.01 |
|
4.02 |
|
4.01 |
|
4.02 |
|
Net interest margin |
|
4.35 |
|
3.97 |
|
4.23 |
|
3.96 |
|
Ratio of operating expense to average |
|
|
|
|
|
|
|
|
|
total assets (annualized) |
|
3.67 |
|
3.49 |
|
3.64 |
|
3.61 |
|
Return on average equity (annualized) |
|
13.10 |
|
8.25 |
|
10.43 |
|
7.66 |
|
Efficiency |
|
69.19 |
|
70.27 |
|
71.41 |
|
73.75 |
|
|
|
June
30, |
|
December
31, |
|
June 30, |
|
|
|
|
|
2019 |
|
2018 |
|
2018 |
|
|
|
IV. EMPLOYEE DATA: |
|
|
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
178 |
|
182 |
|
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
3,124 |
|
3,092 |
|
3,732 |
|
|
|
Non-performing assets to total assets |
|
0.43 |
% |
0.43 |
% |
0.51 |
% |
|
|
Non-performing loans to total loans receivable, net |
|
0.45 |
% |
0.46 |
% |
0.51 |
% |
|
|
Allowance for loan losses |
$ |
8,624 |
|
8,686 |
|
9,328 |
|
|
|
Allowance for loan losses to total assets |
|
1.19 |
% |
1.22 |
% |
1.28 |
% |
|
|
Allowance for loan losses to total loans
receivable, net |
|
1.45 |
|
1.48 |
|
1.58 |
|
|
|
Allowance for loan losses to non-performing loans |
|
323.18 |
|
324.27 |
|
309.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK VALUE PER SHARE: |
|
|
|
|
|
|
|
|
|
Book value per share common share |
$ |
18.33 |
|
17.19 |
|
17.75 |
|
|
|
|
|
Six MonthsEndedJune 30, 2019 |
|
Year EndedDecember 31,2018 |
|
Six MonthsEndedJune 30, 2018 |
|
|
|
VII. CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of
period |
|
12.29 |
% |
11.67 |
% |
11.27 |
% |
|
|
Average stockholders’ equity to average assets (1) |
|
12.01 |
|
11.52 |
|
11.61 |
|
|
|
Ratio of average interest-earning assets to |
|
|
|
|
|
|
|
|
|
average interest-bearing liabilities (1) |
|
110.34 |
|
109.81 |
|
109.90 |
|
|
|
Home Federal Savings Bank regulatory capital
ratios: |
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
13.56 |
|
13.26 |
|
12.86 |
|
|
|
Tier 1 capital leverage ratio |
|
11.79 |
|
11.00 |
|
11.02 |
|
|
|
Tier 1 capital ratio |
|
13.56 |
|
13.26 |
|
12.86 |
|
|
|
Risk-based capital |
|
14.81 |
|
14.52 |
|
14.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- 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
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