HMNF HMN Financial Inc

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