HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $778
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $1.2 million for the fourth quarter of
2019, a decrease of $1.2 million compared to net income of $2.4
million for the fourth quarter of 2018. Diluted earnings per
share for the fourth quarter of 2019 was $0.27, a decrease of $0.24
from the diluted earnings per share of $0.51 for the fourth quarter
of 2018. The decrease in net income between the periods was
because of a $1.0 million increase in non-interest expenses
primarily related to increased compensation and professional
services costs, a $0.2 million decrease in net interest income due
to an increase in the average rates paid on deposits, and a $0.4
million increase in the loan loss provision. These decreases
in net income were partially offset by a $0.6 million increase in
the gain on sales of loans between the periods.
President’s Statement“Maintaining net interest
margin in the current rate environment continues to be a challenge
for not only our bank but the financial industry as a whole,” said
Bradley Krehbiel, President and Chief Executive Officer of HMN.
“Despite the margin challenges, we are pleased to report the
increase in our mortgage loan origination activity and the related
gain on sale of loans that we experienced during the fourth quarter
of 2019. We continue to focus our efforts on improving the
financial performance of our core banking operations while
maintaining the credit quality of our loan portfolio.”
Fourth Quarter ResultsNet
Interest IncomeNet interest income was $6.9 million for the fourth
quarter of 2019, a decrease of $0.2 million, or 2.8%, from $7.1
million for the fourth quarter of 2018. Interest income was
$7.9 million for the fourth quarter of 2019, an increase of $0.1
million, or 0.82%, from $7.8 million for the fourth quarter of
2018. Interest income increased primarily because of the
$35.4 million increase in the average interest-earning assets
between the periods. The average yield earned on
interest-earning assets was 4.25% for the fourth quarter of 2019, a
decrease of 18 basis points from 4.43% for the fourth quarter of
2018. The decrease in the average yield is primarily related
to the decrease in the average prime rate between the periods.
Interest expense was $0.9 million for the fourth
quarter of 2019, an increase of $0.2 million, or 40.6%, from $0.7
million for the fourth quarter of 2018. The average interest
rate paid on interest-bearing liabilities and non-interest-bearing
deposits was 0.54% for the fourth quarter of 2019, an increase of
13 basis points from 0.41% for the fourth quarter of 2018. The
increase in the interest paid on interest-bearing liabilities was
primarily because of the lag in the market’s response in lowering
deposit pricing when the federal funds rate decreased in the second
half of 2019. Net interest margin (net interest income
divided by average interest-earning assets) for the fourth quarter
of 2019 was 3.76%, a decrease of 30 basis points, compared to 4.06%
for the fourth quarter of 2018. The decrease in the net
interest margin is primarily related to the increase in interest
expense as a result of the lag in the markets response in lowering
deposit pricing when the federal funds rate decreased in the second
half of 2019 coupled with a decrease in the average yield earned on
interest-earning assets between the periods.
A summary of the Company’s net interest margin
for the three month periods ended December 31, 2019 and 2018 is as
follows:
|
|
|
|
|
|
For the three month period ended |
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available
for sale |
$ |
91,940 |
|
449 |
|
1.94 |
% |
$ |
79,204 |
|
345 |
|
1.72 |
% |
Loans held for
sale |
|
4,567 |
|
43 |
|
3.76 |
|
|
1,840 |
|
27 |
|
5.70 |
|
Mortgage loans,
net |
|
120,117 |
|
1,248 |
|
4.12 |
|
|
116,341 |
|
1,212 |
|
4.13 |
|
Commercial loans,
net |
|
394,667 |
|
5,003 |
|
5.03 |
|
|
397,617 |
|
5,130 |
|
5.12 |
|
Consumer loans,
net |
|
70,302 |
|
896 |
|
5.06 |
|
|
73,665 |
|
941 |
|
5.07 |
|
Other |
|
51,838 |
|
222 |
|
1.70 |
|
|
29,393 |
|
142 |
|
1.92 |
|
Total interest-earning
assets |
$ |
733,431 |
|
7,861 |
|
4.25 |
|
$ |
698,060 |
|
7,797 |
|
4.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
$ |
98,280 |
|
30 |
|
0.12 |
|
$ |
84,620 |
|
21 |
|
0.10 |
|
Savings accounts |
|
79,550 |
|
15 |
|
0.07 |
|
|
76,309 |
|
15 |
|
0.08 |
|
Money market
accounts |
|
186,557 |
|
294 |
|
0.63 |
|
|
202,325 |
|
255 |
|
0.50 |
|
Certificates |
|
126,479 |
|
575 |
|
1.80 |
|
|
113,740 |
|
359 |
|
1.25 |
|
Total interest-bearing
liabilities |
$ |
490,866 |
|
|
|
|
|
$ |
476,994 |
|
|
|
|
|
Non-interest
checking |
|
174,100 |
|
|
|
|
|
|
157,838 |
|
|
|
|
|
Other non-interest
bearing deposits |
|
2,137 |
|
|
|
|
|
|
1,435 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest bearing deposits |
$ |
667,103 |
|
914 |
|
0.54 |
|
$ |
636,267 |
|
650 |
|
0.41 |
|
Net interest income |
|
|
|
6,947 |
|
|
|
|
|
|
7,147 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.71 |
% |
|
|
|
|
|
4.02 |
% |
Net interest margin |
|
|
|
|
|
3.76 |
% |
|
|
|
|
|
4.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan LossesThe provision for loan
losses was $0.2 million for the fourth quarter of 2019, an increase
of $0.4 million from the ($0.2) million provision for loan losses
for the fourth quarter of 2018. The provision for loan losses
increased between the periods primarily because of an increase in
the risk rating downgrades on certain commercial real estate loans
between the periods. Total non-performing assets were $2.7
million at December 31, 2019, an increase of $0.6 million, or
29.3%, from $2.1 million at September 30, 2019. Non-performing
loans increased $0.6 million and foreclosed and repossessed assets
did not change during the fourth quarter of 2019. The increase in
non-performing loans was primarily related to a single commercial
loan in the trucking industry that was classified as a non-accrual
loan during the fourth quarter of 2019.
A reconciliation of the allowance for loan
losses for the fourth quarters of 2019 and 2018 is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2019 |
|
|
2018 |
|
Balance at September 30, |
$ |
8,195 |
|
$ |
8,832 |
|
Provision |
|
236 |
|
|
(167 |
) |
Charge offs: |
|
|
|
|
Consumer |
|
(14 |
) |
|
(85 |
) |
Commercial
business |
|
(10 |
) |
|
0 |
|
Recoveries |
|
157 |
|
|
106 |
|
Balance at December 31, |
$ |
8,564 |
|
$ |
8,686 |
|
|
|
|
|
|
Allocated to: |
|
|
|
|
General allowance |
$ |
7,839 |
|
$ |
7,892 |
|
Specific allowance |
|
725 |
|
|
794 |
|
|
$ |
8,564 |
|
$ |
8,686 |
|
|
|
|
|
|
|
|
|
|
|
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, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2019 |
|
|
2019 |
|
|
2018 |
|
Non‑Performing Loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
617 |
|
$ |
574 |
|
$ |
730 |
|
Commercial real
estate |
|
184 |
|
|
293 |
|
|
1,311 |
|
Consumer |
|
659 |
|
|
513 |
|
|
489 |
|
Commercial |
|
621 |
|
|
99 |
|
|
148 |
|
Total |
|
2,081 |
|
|
1,479 |
|
|
2,678 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and Repossessed
Assets: |
|
|
|
|
|
|
|
|
|
Single family |
|
166 |
|
|
166 |
|
|
0 |
|
Commercial real
estate |
|
414 |
|
|
414 |
|
|
414 |
|
Total non‑performing
assets |
$ |
2,661 |
|
$ |
2,059 |
|
$ |
3,092 |
|
Total as a percentage of total
assets |
|
0.34 |
% |
|
0.27 |
% |
|
0.43 |
% |
Total non‑performing
loans |
$ |
2,081 |
|
$ |
1,479 |
|
$ |
2,678 |
|
Total as a percentage of total
loans receivable, net |
|
0.35 |
% |
|
0.25 |
% |
|
0.46 |
% |
Allowance for loan losses to
non-performing loans |
|
411.45 |
% |
|
554.16 |
% |
|
324.27 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency Data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
1,167 |
|
$ |
2,541 |
|
$ |
1,453 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage
of |
|
|
|
|
|
|
|
|
|
loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.34 |
% |
|
0.42 |
% |
|
0.24 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
(1) Excludes non-accrual loans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income and ExpenseNon-interest
income was $2.5 million for the fourth quarter of 2019, an increase
of $0.6 million, or 29.1%, from $1.9 million for the fourth quarter
of 2018. Gain on sales of loans increased $0.6 million
between the periods primarily because of an increase in single
family loan originations and sales. Other non-interest income
increased $0.1 million due to an increase in the gains realized on
equity investments between the periods. Loan servicing fees
increased slightly between the periods due to an increase in the
single family loans being serviced. These increases were
partially offset by a $0.1 million decrease in fees and service
charges due primarily to a decrease in late charges and overdraft
fees.
Non-interest expense was $7.3 million for the
fourth quarter of 2019, an increase of $1.0 million, or 16.4%, from
$6.3 million for the fourth quarter of 2018. Compensation and
benefits expense increased $0.5 million primarily because of annual
salary increases, the opening of a new branch location, and an
increase in the compensation and incentives paid as a result of the
increased mortgage loan production between the periods.
Professional services expense increased $0.2 million between the
periods primarily because of an increase in legal expenses relating
to a bankruptcy litigation claim. Other non-interest expense
increased $0.2 million due primarily to an increase in mortgage
loan servicing expenses because of an increase in serviced loans
that were refinanced between the periods and an increase in
advertising expenses. Occupancy and equipment costs increased
$0.1 million between the periods due to an increase in depreciation
and non-capitalized repair and maintenance costs.
Income tax expense was $0.6 million for the
fourth quarter of 2019, the same as for the fourth quarter of
2018. Income tax expense remained the same despite the
decrease in pre-tax income between the periods because of an
increase in the effective tax rate. The effective tax rate
increased primarily because of a change in the tax deductibility of
certain expenses between the periods.
Return on Assets and EquityReturn on average assets (annualized)
for the fourth quarter of 2019 was 0.64%, compared to 1.29% for the
fourth quarter of 2018. Return on average equity (annualized)
was 5.29% for the fourth quarter of 2019, compared to 11.24% for
the same period of 2018. Book value per share at December 31,
2019 was $19.13, compared to $17.19 at December 31, 2018.
Annual ResultsNet IncomeNet
income was $7.8 million for 2019, a decrease of $0.4 million, or
5.4%, compared to net income of $8.2 million for 2018.
Diluted earnings per share for the year ended December 31, 2019 was
$1.68, a decrease of $0.03 per share compared to diluted earnings
per share of $1.71 for the year ended December 31, 2018. The
decrease in net income between the periods was because of a $1.7
million increase in non-interest expenses primarily related to
increased compensation and professional services costs and a $0.4
million increase in income tax expense. These decreases in
net income were partially offset by $0.8 million increase in the
gain on sales of loans, a $0.6 million decrease in the loan loss
provision, and a $0.4 million increase in net interest income due
to an increase in the average interest earning assets between the
periods.
Net Interest IncomeNet interest income was $28.6
million for 2019, an increase of $0.5 million, or 1.4%, from $28.1
million for the same period of 2018. Interest income was
$31.9 million for 2019, an increase of $1.5 million, or 5.0%, from
$30.4 million for the same period of 2018. Interest income
increased primarily because of the increase in the average yield
earned on interest-earning assets between the periods. The
average yield earned on interest-earning assets was 4.51% for 2019,
an increase of 16 basis points from 4.35% for 2018. The increase in
the average yield is primarily related to the increase in the
average prime rate between the periods.
Interest expense was $3.3 million for 2019, an
increase of $1.1 million, or 49.5%, compared to $2.2 million in
2018. The average interest rate paid on interest-bearing
liabilities and non-interest-bearing deposits was 0.52% for 2019,
an increase of 17 basis points from 0.35% for 2018. The increase in
the interest paid on interest-bearing liabilities was primarily
because of the lag in the timing of the market’s response in
lowering deposit pricing when the federal funds rate decreased in
the second half of 2019 and an increase in the average federal
funds rate between the periods. Net interest margin (net
interest income divided by average interest-earning assets) for
2019 was 4.04%, an increase of 1 basis point compared to 4.03% for
2018. The increase in the net interest margin is primarily
related to the increase in interest income as a result of the
increase in the average yield earned on the interest-earning assets
between the periods.
A summary of the Company’s net interest margin
for 2019 and 2018 is as follows:
|
|
|
|
|
|
For the twelve month period ended |
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for
sale |
$ |
82,383 |
|
1,500 |
|
1.82 |
% |
$ |
79,377 |
|
1,335 |
|
1.68 |
% |
Loans held for
sale |
|
2,959 |
|
125 |
|
4.22 |
|
|
1,765 |
|
89 |
|
5.04 |
|
Mortgage loans,
net |
|
116,411 |
|
4,992 |
|
4.29 |
|
|
113,283 |
|
4,624 |
|
4.08 |
|
Commercial loans,
net |
|
400,503 |
|
20,969 |
|
5.24 |
|
|
400,783 |
|
20,206 |
|
5.04 |
|
Consumer loans,
net |
|
72,607 |
|
3,701 |
|
5.10 |
|
|
72,598 |
|
3,616 |
|
4.98 |
|
Other |
|
31,679 |
|
603 |
|
1.90 |
|
|
30,567 |
|
511 |
|
1.67 |
|
Total interest-earning
assets |
$ |
706,542 |
|
31,890 |
|
4.51 |
|
$ |
698,373 |
|
30,381 |
|
4.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
$ |
96,387 |
|
103 |
|
0.11 |
|
$ |
86,750 |
|
62 |
|
0.07 |
|
Savings accounts |
|
79,587 |
|
63 |
|
0.08 |
|
|
77,630 |
|
61 |
|
0.08 |
|
Money market
accounts |
|
177,587 |
|
1,171 |
|
0.66 |
|
|
199,202 |
|
865 |
|
0.43 |
|
Certificates |
|
121,914 |
|
1,995 |
|
1.64 |
|
|
114,243 |
|
1,243 |
|
1.09 |
|
Advances and other
borrowings |
|
287 |
|
7 |
|
2.54 |
|
|
140 |
|
2 |
|
1.71 |
|
Total interest-bearing
liabilities |
$ |
475,762 |
|
|
|
|
|
$ |
477,965 |
|
|
|
|
|
Non-interest
checking |
|
163,420 |
|
|
|
|
|
|
156,482 |
|
|
|
|
|
Other
non-interest bearing deposits |
|
2,057 |
|
|
|
|
|
|
1,534 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest bearing deposits |
$ |
641,239 |
|
3,339 |
|
0.52 |
|
$ |
635,981 |
|
2,233 |
|
0.35 |
|
Net interest income |
|
|
|
28,551 |
|
|
|
|
|
|
28,148 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.99 |
% |
|
|
|
|
|
4.00 |
% |
Net interest margin |
|
|
|
|
|
4.04 |
% |
|
|
|
|
|
4.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan LossesThe provision for loan
losses was ($1.2) million for 2019, a decrease of $0.6 million
compared to the ($0.6) million provision for loan losses for 2018.
The credit provision amount for the period was primarily the result
of the increase in net recoveries received during 2019 when
compared to the same period of 2018. The net recoveries,
combined with the changes in the credit reserve amounts required on
the existing portfolio, resulted in a reduction of the overall
provision for loan losses between the periods. Total
non-performing assets were $2.7 million at December 31, 2019, a
decrease of $0.4 million, or 13.9%, from $3.1 million at December
31, 2018. Non-performing loans decreased $0.6 million and
foreclosed and repossessed assets increased $0.2 million during
2019. The decrease in the non-performing loans was primarily
related to a $1.3 million non-performing loan relationship in the
manufacturing industry that was reclassified as an accruing loan
and a $0.6 million loan in the trucking industry that was
reclassified as non-accruing during the year.
A reconciliation of the allowance for loan
losses for 2019 and 2018 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2019 |
|
|
2018 |
|
Balance beginning of
period |
$ |
8,686 |
|
$ |
9,311 |
|
Provision |
|
(1,216 |
) |
|
(649 |
) |
Charge offs: |
|
|
|
|
Commercial |
|
(880 |
) |
|
(270 |
) |
Consumer |
|
(107 |
) |
|
(226 |
) |
Single family |
|
(1 |
) |
|
(24 |
) |
Recoveries |
|
2,082 |
|
|
544 |
|
Balance at December 31, |
$ |
8,564 |
|
$ |
8,686 |
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income and Expense
Non-interest income was $8.5 million for the
year ended December 31, 2019, an increase of $0.8 million, or 9.6%,
from $7.7 million for the year ended December 31, 2018. Gain
on sales of loans increased $0.8 million between the periods
primarily because of an increase in single family loan sales.
Other non-interest income increased $0.1 million due primarily to
an increase in the gains recognized on equity securities between
the periods. Loan servicing fees increased slightly due to an
increase in single family loan servicing fees earned between the
periods. These increases were partially offset by a decrease
of $0.2 million in fees and service charges due to a decrease in
commitment fees and late charges earned on loans between the
periods.
Non-interest expense was $27.1 million for the
year ended December 31, 2019, an increase of $1.7 million, or 6.8%,
from $25.4 million for the year ended December 31,
2018. Compensation and benefits expense increased $0.9
million primarily because of annual salary increases, the opening
of a new branch location, and an increase in the compensation paid
as a result of the increased mortgage loan production between the
periods. Professional services expense increased $0.4 million
between the periods due primarily to an increase in legal expenses
relating to a bankruptcy litigation claim. Other non-interest
expense increased $0.2 million due to an increase in mortgage loan
servicing expenses because of the increase in serviced loans that
were refinanced between the periods. Occupancy and equipment
costs increased $0.1 million between the periods due to an increase
in depreciation and maintenance costs.
Income tax expense was $3.3 million for the year
ended December 31, 2019, an increase of $0.4 million from $2.9
million for the year ended December 31, 2018. Income tax
expense increased between the periods because of an increase in the
effective tax rate. The effective tax rate increased
primarily because of a change in the tax deductibility of certain
expenses between the periods.
Return on Assets and EquityReturn on average assets (annualized)
for 2019 was 1.05%, compared to 1.14% for 2018. Return on
average equity (annualized) was 8.74% for 2019, compared to 9.88%
for 2018. Book value per share at December 31, 2019 was
$19.13, compared to $17.19 at December 31, 2018.
Annual MeetingHMN announced that its 2020 annual
meeting of shareholders will be held at the Rochester Golf and
Country Club in Rochester, Minnesota on Tuesday, April 28, 2020 at
10:00 a.m. CDT.
General InformationHMN Financial, Inc. and the
Bank are headquartered in Rochester, Minnesota. Home Federal
Savings Bank operates twelve full service offices in Minnesota
located in Albert Lea, Austin, Eagan, Kasson, La Crescent,
Owatonna, Rochester (4), Spring Valley and Winona, one full service
office in Marshalltown, Iowa, and one full service office in
Pewaukee, Wisconsin. The Bank also operates a loan origination
office located in Sartell, Minnesota.
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, maintaining net interest margins, 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 continued 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;
domestic and 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 filings 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 |
|
|
|
|
|
|
|
December 31, |
|
December 31, |
(Dollars in thousands) |
|
2019 |
|
|
2018 |
|
|
|
(unaudited) |
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
$ |
44,399 |
|
|
20,709 |
|
Securities available for
sale: |
|
|
|
|
Mortgage-backed and
related securities |
|
|
|
|
(amortized cost $54,777
and $8,159) |
|
54,851 |
|
|
8,023 |
|
Other marketable
securities |
|
|
|
|
(amortized cost $52,751
and $73,222) |
|
52,741 |
|
|
71,836 |
|
|
|
107,592 |
|
|
79,859 |
|
|
|
|
|
|
Equity securities |
|
167 |
|
|
121 |
|
Loans held for sale |
|
3,606 |
|
|
3,444 |
|
Loans receivable, net |
|
596,392 |
|
|
586,688 |
|
Accrued interest
receivable |
|
2,251 |
|
|
2,356 |
|
Real estate, net |
|
580 |
|
|
414 |
|
Federal Home Loan Bank stock,
at cost |
|
854 |
|
|
867 |
|
Mortgage servicing rights,
net |
|
2,172 |
|
|
1,855 |
|
Premises and equipment,
net |
|
10,515 |
|
|
9,635 |
|
Goodwill |
|
802 |
|
|
802 |
|
Core deposit intangible |
|
156 |
|
|
255 |
|
Prepaid expenses and other
assets |
|
6,451 |
|
|
2,668 |
|
Deferred tax asset, net |
|
1,702 |
|
|
2,642 |
|
Total assets |
$ |
777,639 |
|
|
712,315 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Deposits |
$ |
673,870 |
|
|
623,352 |
|
Accrued interest payable |
|
420 |
|
|
346 |
|
Customer escrows |
|
2,413 |
|
|
1,448 |
|
Accrued expenses and other
liabilities |
|
8,288 |
|
|
4,022 |
|
Total liabilities |
|
684,991 |
|
|
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 |
|
40,365 |
|
|
40,090 |
|
Retained earnings, subject to
certain restrictions |
|
107,547 |
|
|
99,754 |
|
Accumulated other
comprehensive loss |
|
46 |
|
|
(1,096 |
) |
Unearned employee stock
ownership plan shares |
|
(1,643 |
) |
|
(1,836 |
) |
Treasury stock, at cost
4,284,840 and 4,292,838 shares |
|
(53,758 |
) |
|
(53,856 |
) |
Total stockholders’
equity |
|
92,648 |
|
|
83,147 |
|
Total liabilities and
stockholders’ equity |
$ |
777,639 |
|
|
712,315 |
|
|
|
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated Statements of Comprehensive
Income |
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
(Dollars in thousands, except per share data) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
7,190 |
|
7,310 |
|
|
29,787 |
|
|
28,535 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
197 |
|
49 |
|
|
343 |
|
|
197 |
|
Other marketable |
|
252 |
|
296 |
|
|
1,157 |
|
|
1,138 |
|
Other |
|
222 |
|
142 |
|
|
603 |
|
|
511 |
|
Total interest income |
|
7,861 |
|
7,797 |
|
|
31,890 |
|
|
30,381 |
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
914 |
|
650 |
|
|
3,332 |
|
|
2,231 |
|
Advances and other borrowings |
|
0 |
|
0 |
|
|
7 |
|
|
2 |
|
Total interest expense |
|
914 |
|
650 |
|
|
3,339 |
|
|
2,233 |
|
Net interest income |
|
6,947 |
|
7,147 |
|
|
28,551 |
|
|
28,148 |
|
Provision for loan losses |
|
236 |
|
(167 |
) |
|
(1,216 |
) |
|
(649 |
) |
Net interest income after provision for loan losses |
|
6,711 |
|
7,314 |
|
|
29,767 |
|
|
28,797 |
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
795 |
|
909 |
|
|
3,100 |
|
|
3,330 |
|
Loan servicing fees |
|
321 |
|
314 |
|
|
1,278 |
|
|
1,255 |
|
Gain on sales of loans |
|
1,106 |
|
483 |
|
|
2,941 |
|
|
2,095 |
|
Other |
|
294 |
|
242 |
|
|
1,136 |
|
|
1,034 |
|
Total non-interest income |
|
2,516 |
|
1,948 |
|
|
8,455 |
|
|
7,714 |
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
4,163 |
|
3,652 |
|
|
15,659 |
|
|
14,728 |
|
Occupancy and equipment |
|
1,158 |
|
1,062 |
|
|
4,442 |
|
|
4,304 |
|
Data processing |
|
338 |
|
331 |
|
|
1,263 |
|
|
1,270 |
|
Professional services |
|
492 |
|
264 |
|
|
1,573 |
|
|
1,137 |
|
Other |
|
1,193 |
|
997 |
|
|
4,168 |
|
|
3,948 |
|
Total non-interest expense |
|
7,344 |
|
6,306 |
|
|
27,105 |
|
|
25,387 |
|
Income before income tax expense |
|
1,883 |
|
2,956 |
|
|
11,117 |
|
|
11,124 |
|
Income tax expense |
|
647 |
|
604 |
|
|
3,324 |
|
|
2,888 |
|
Net income |
|
1,236 |
|
2,352 |
|
|
7,793 |
|
|
8,236 |
|
Other comprehensive income
(loss), net of tax |
|
67 |
|
601 |
|
|
1,142 |
|
|
(69 |
) |
Comprehensive income available
to common shareholders |
$ |
1,303 |
|
2,953 |
|
|
8,935 |
|
|
8,167 |
|
Basic earnings per share |
$ |
0.27 |
|
0.51 |
|
|
1.69 |
|
|
1.89 |
|
Diluted earnings per
share |
$ |
0.27 |
|
0.51 |
|
|
1.68 |
|
|
1.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
|
Selected Consolidated Financial Information |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Year Ended |
SELECTED FINANCIAL
DATA: |
December 31, |
December 31, |
(Dollars in thousands, except per share data) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
I. OPERATING DATA: |
|
|
|
|
|
|
|
|
|
Interest income |
$ |
7,861 |
|
7,797 |
|
31,890 |
|
30,381 |
|
Interest expense |
|
914 |
|
650 |
|
3,339 |
|
2,233 |
|
Net interest income |
|
6,947 |
|
7,147 |
|
28,551 |
|
28,148 |
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE
BALANCES: |
|
|
|
|
|
|
|
|
|
Assets (1) |
|
768,860 |
|
723,988 |
|
738,908 |
|
723,514 |
|
Loans receivable, net |
|
585,086 |
|
587,623 |
|
589,520 |
|
586,664 |
|
Mortgage-backed and related securities (1) |
|
91,940 |
|
79,204 |
|
82,383 |
|
79,377 |
|
Interest-earning assets (1) |
|
733,431 |
|
698,060 |
|
706,542 |
|
698,373 |
|
Interest-bearing liabilities |
|
667,103 |
|
636,267 |
|
641,239 |
|
635,981 |
|
Equity (1) |
|
92,631 |
|
83,005 |
|
89,122 |
|
83,331 |
|
|
|
|
|
|
|
|
|
|
|
III. PERFORMANCE RATIOS:
(1) |
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
0.64 |
% |
1.29 |
% |
1.05 |
% |
1.14 |
% |
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
Average during period |
|
3.71 |
|
4.02 |
|
3.99 |
|
4.00 |
|
End of period |
|
3.66 |
|
4.02 |
|
3.66 |
|
4.02 |
|
Net interest margin |
|
3.76 |
|
4.06 |
|
4.04 |
|
4.03 |
|
Ratio of operating expense to average |
|
|
|
|
|
|
|
|
|
total assets (annualized) |
|
3.79 |
|
3.46 |
|
3.67 |
|
3.51 |
|
Return on average common equity (annualized) |
|
5.29 |
|
11.24 |
|
8.74 |
|
9.88 |
|
Efficiency |
|
77.61 |
|
69.34 |
|
73.25 |
|
70.79 |
|
|
December 31, |
December 31, |
|
|
|
|
|
2019 |
2018 |
|
|
|
|
IV. EMPLOYEE DATA: |
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
181 |
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
2,661 |
|
3,092 |
|
|
|
|
|
Non-performing assets to total assets |
|
0.34 |
% |
0.43 |
% |
|
|
|
|
Non-performing loans to total loans |
|
|
|
|
|
|
|
|
receivable, net |
|
0.35 |
% |
0.46 |
% |
|
|
|
|
Allowance for loan losses |
$ |
8,564 |
|
8,686 |
|
|
|
|
|
Allowance for loan losses to total assets |
|
1.10 |
% |
1.22 |
% |
|
|
|
|
Allowance for loan losses to total loans receivable,
net |
|
1.44 |
% |
1.48 |
% |
|
|
|
|
Allowance for loan losses to non-performing loans |
|
411.45 |
% |
324.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK VALUE PER COMMON
SHARE: |
|
|
|
|
|
|
|
|
Book value per common share |
$ |
19.13 |
|
17.19 |
|
|
|
|
|
|
Year Ended |
Year Ended |
|
|
|
|
|
Dec 31, 2019 |
Dec 31, 2018 |
|
|
|
|
VII. CAPITAL
RATIOS: |
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of period |
|
11.91 |
% |
11.67 |
% |
|
|
|
|
Average stockholders’ equity to average assets (1) |
|
12.06 |
|
11.52 |
|
|
|
|
|
Ratio of average interest-earning assets to |
|
|
|
|
|
|
|
|
average interest-bearing liabilities (1) |
|
110.18 |
|
109.81 |
|
|
|
|
|
Home Federal Savings Bank regulatory capital ratios: |
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
13.21 |
|
13.26 |
|
|
|
|
|
Tier 1 capital leverage ratio |
|
10.89 |
|
11.00 |
|
|
|
|
|
Tier 1 capital ratio |
|
13.21 |
|
13.26 |
|
|
|
|
|
Risk-based capital |
|
14.46 |
|
14.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
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