Second Quarter Summary
- Net income of $1.5 million, up $0.9 million, compared to $0.6 million in second quarter of 2015
- Diluted earnings per common share of $0.31, up $0.18, compared to $0.13 in second quarter of 2015
- Net interest income of $6.8 million, up $2.1 million from second quarter of 2015
- Provision for loan losses of $0.4 million, up $0.6 million from second quarter of 2015
- Nonperforming assets of $4.9 million, down $0.7 million, or 12.6%, from March 31, 2016
- Completed branch acquisition in Albert Lea, Minnesota in second quarter of 2016
Year to Date Summary
- Net income of $3.3 million, up $2.3 million, compared to $1.0 million in first six months of 2015
- Diluted earnings per common share of $0.69, up $0.49, compared to $0.20 in first six months of 2015
- Net interest income of $12.9 million, up $3.7 million from first six months of 2015
- Provision for loan losses of ($0.4 million), down $0.2 million from first six months of 2015
- Nonperforming assets of $4.9 million, down $1.3 million, or 21.8%, from December 31, 2015
| Three months ended | Six months ended | |||||||||||
| Net Income Summary | June 30, | June 30, | ||||||||||
| (Dollars in thousands, except per share amounts) | 2016 | 2015 | 2016 | 2015 | ||||||||
| Net income | $ | 1,478 | 585 | $ | 3,252 | 1,046 | ||||||
| Net income available to common stockholders | 1,478 | 585 | 3,252 | 938 | ||||||||
| Diluted earnings per common share | 0.31 | 0.13 | 0.69 | 0.20 | ||||||||
| Return on average assets | 0.91 | % | 0.42 | % | 1.01 | % | 0.37 | % | ||||
| Return on average equity | 8.23 | % | 3.50 | % | 9.16 | % | 3.04 | % | ||||
| Book value per common share | $ | 16.34 | $ | 15.06 | $ | 16.34 | $ | 15.06 | ||||
ROCHESTER, Minn., July 22, 2016 (GLOBE NEWSWIRE) — HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $653 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.5 million for the second quarter of 2016, an increase of $0.9 million, compared to net income of $0.6 million for the second quarter of 2015. Diluted earnings per common share for the second quarter of 2016 was $0.31, an increase of $0.18 from the diluted earnings per common share of $0.13 for the second quarter of 2015. The increase in net income in the second quarter of 2016 was due primarily to a $2.1 million increase in interest income as a result of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods. The increase in interest income was partially offset by a $0.6 million increase in the provision for loan losses because more loan loss reserves were established due to the loan growth experienced during the second quarter of 2016. Income tax expense increased $0.6 million because of the increase in pre-tax income in the second quarter of 2016 when compared to the second quarter of 2015.
On April 8, 2016, the Bank completed the acquisition of loans and assumption of liabilities of the Deerwood Bank branch in Albert Lea, Minnesota. The transaction increased the Bank’s assets by $19.0 million, including increases in loans, cash, goodwill, and core deposit intangible of $11.9 million, $6.1 million, $0.8 million, and $0.2 million, respectively. The Bank also assumed deposit liabilities of $19.0 million. The acquired loans and deposits are being serviced from Home Federal’s existing branch location at 143 West Clark Street, Albert Lea, Minnesota.
President’s Statement
“We are pleased to report the improvement in earnings in the second quarter of 2016 when compared to the same period of 2015,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “Our strategy to prudently grow our loan portfolios, combined with loan growth from our recent acquisitions, has resulted in an increase in our outstanding loan portfolios and has had a positive impact on the financial performance of our core banking operations.”
Second Quarter Results
Net Interest Income
Net interest income was $6.8 million for the second quarter of 2016, an increase of $2.1 million, or 44.6%, from $4.7 million for the second quarter of 2015. Interest income was $7.2 million for the second quarter of 2016, an increase of $2.1 million, or 41.2%, from $5.1 million for the same period in 2015. Interest income increased between the periods primarily because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an increase in the average yields earned between the periods. While the average interest-earning assets increased $96.9 million between the periods, the average interest-earning assets held in higher yielding loans increased $144.4 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $47.5 million between the periods. The yield on average interest-earning assets was also enhanced $0.7 million due to loan prepayment penalties and the interest payments received on non-accruing and previously charged off commercial real estate loans that were paid off in the second quarter of 2016. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods. The Company also acquired $36.0 million of loans through acquisitions that occurred between the periods. The average yield earned on interest-earning assets was 4.61% for the second quarter of 2016, an increase of 75 basis points from 3.86% for the second quarter of 2015.
Interest expense was $0.4 million for the second quarter of 2016, the same as the second quarter of 2015. Interest expense remained the same and the average rate paid on interest-bearing liabilities decreased 5 basis points between the periods primarily because of the change in the composition of the average interest-bearing liabilities. While the average interest-bearing liabilities increased $93.0 million between the periods, the average amount held in lower rate checking and money market accounts increased $84.6 million and the average amount held in higher rate certificates of deposits and other borrowings increased $8.4 million between the periods. The increase in the average outstanding deposits between the periods was primarily the result of the $66.3 million in deposits obtained through acquisitions between the periods. The average interest rate paid on interest-bearing liabilities was 0.27% for the second quarter of 2016 compared to 0.32% for the second quarter of 2015. Net interest margin (net interest income divided by average interest-earning assets) for the second quarter of 2016 was 4.36%, an increase of 80 basis points, compared to 3.56% for the second quarter of 2015.
A summary of the Company’s net interest margin for the three and six month periods ended June 30, 2016 and 2015 is as follows:
| For the three month period ended | ||||||||||||||
| June 30, 2016 | June 30, 2015 | |||||||||||||
| (Dollars in thousands) | Average Outstanding Balance |
Interest Earned/ Paid |
Yield/ Rate |
Average Outstanding Balance |
Interest Earned/ Paid |
Yield/ Rate) |
||||||||
| Interest-earning assets: | ||||||||||||||
| Securities available for sale | $ | 91,364 | 367 | 1.62 | % | $ | 141,777 | 525 | 1.48 | % | ||||
| Loans held for sale | 3,073 | 29 | 3.80 | 2,310 | 16 | 2.74 | ||||||||
| Mortgage loans, net | 100,349 | 1,042 | 4.18 | 70,721 | 739 | 4.19 | ||||||||
| Commercial loans, net | 338,717 | 4,861 | 5.77 | 244,011 | 3,125 | 5.14 | ||||||||
| Consumer loans, net | 71,590 | 842 | 4.73 | 52,273 | 657 | 5.04 | ||||||||
| Cash equivalents | 18,354 | 17 | 0.37 | 15,574 | 7 | 0.19 | ||||||||
| Federal Home Loan Bank stock | 810 | 1 | 0.50 | 736 | 1 | 0.69 | ||||||||
| Total interest-earning assets | 624,257 | 7,159 | 4.61 | 527,402 | 5,070 | 3.86 | ||||||||
| Interest-bearing liabilities and non-interest bearing deposits: |
||||||||||||||
| NOW accounts | 85,085 | 14 | 0.06 | 75,469 | 4 | 0.02 | ||||||||
| Savings accounts | 73,029 | 16 | 0.09 | 49,398 | 8 | 0.06 | ||||||||
| Money market accounts | 159,708 | 89 | 0.22 | 146,834 | 81 | 0.22 | ||||||||
| Certificates | 102,031 | 127 | 0.50 | 93,211 | 133 | 0.57 | ||||||||
| Advances and other borrowings | 9,989 | 149 | 6.00 | 11,125 | 165 | 5.95 | ||||||||
| Total interest-bearing liabilities | 429,842 | 376,037 | ||||||||||||
| Non-interest checking | 145,599 | 107,077 | ||||||||||||
| Other non-interest bearing deposits | 1,543 | 898 | ||||||||||||
| Total interest-bearing liabilities and non-interest bearing deposits |
$ |
576,984 | 395 | 0.27 |
$ |
484,012 | 391 | 0.32 | ||||||
| Net interest income | $ | 6,764 | $ | 4,679 | ||||||||||
| Net interest rate spread | 4.34 | % | 3.53 | % | ||||||||||
| Net interest margin | 4.36 | % | 3.56 | % | ||||||||||
| For the six month period ended | ||||||||||||||
| June 30, 2016 | June 30, 2015 | |||||||||||||
| (Dollars in thousands) | Average Outstanding Balance |
Interest Earned/ Paid |
Yield/ Rate |
Average Outstanding Balance |
Interest Earned/ Paid |
Yield/ Rate |
||||||||
| Interest-earning assets: | ||||||||||||||
| Securities available for sale | $ | 94,363 | 759 | 1.62 | % | $ | 144,233 | 1,039 | 1.45 | % | ||||
| Loans held for sale | 2,588 | 52 | 4.04 | 1,902 | 23 | 2.49 | ||||||||
| Mortgage loans, net | 98,438 | 2,053 | 4.19 | 70,136 | 1,476 | 4.24 | ||||||||
| Commercial loans, net | 323,185 | 9,110 | 5.67 | 241,486 | 6,074 | 5.07 | ||||||||
| Consumer loans, net | 68,538 | 1,653 | 4.85 | 52,866 | 1,318 | 5.03 | ||||||||
| Cash equivalents | 26,622 | 55 | 0.42 | 22,249 | 22 | 0.20 | ||||||||
| Federal Home Loan Bank stock | 752 | 2 | 0.53 | 755 | 2 | 0.59 | ||||||||
| Total interest-earning assets | 614,486 | 13,684 | 4.48 | 533,627 | 9,954 | 3.76 | ||||||||
| Interest-bearing liabilities and non-interest bearing deposits: |
||||||||||||||
| NOW accounts | 84,153 | 25 | 0.06 | 76,229 | 7 | 0.02 | ||||||||
| Savings accounts | 70,347 | 31 | 0.09 | 48,503 | 15 | 0.06 | ||||||||
| Money market accounts | 159,314 | 176 | 0.22 | 148,386 | 178 | 0.24 | ||||||||
| Certificates | 100,230 | 240 | 0.48 | 94,467 | 274 | 0.58 | ||||||||
| Advances and other borrowings | 9,495 | 297 | 6.29 | 7,986 | 243 | 6.14 | ||||||||
| Total interest-bearing liabilities | 423,539 | 375,571 | ||||||||||||
| Non-interest checking | 144,180 | 111,354 | ||||||||||||
| Other non-interest bearing deposits | 1,340 | 970 | ||||||||||||
| Total interest-bearing liabilities and non-interest bearing deposits |
$ |
569,059 | 769 | 0.27 |
$ |
487,895 | 717 | 0.30 | ||||||
| Net interest income | $ | 12,915 | $ | 9,237 | ||||||||||
| Net interest rate spread | 4.21 | % | 3.47 | % | ||||||||||
| Net interest margin | 4.23 | % | 3.49 | % | ||||||||||
Provision for Loan Losses
The provision for loan losses was $0.4 million for the second quarter of 2016, an increase of $0.6 million from the ($0.2) million provision for loan losses for the second quarter of 2015. The provision increased primarily because of the increased loan growth that was experienced in the second quarter of 2016 when compared to the second quarter of 2015. The increase in the provision related to increased loan growth was partially offset by an increase in recoveries received on previously charged off loans in the second quarter of 2016 when compared to the same period of 2015. Total non-performing assets were $4.9 million at June 30, 2016, a decrease of $0.7 million, or 12.6%, from $5.6 million at March 31, 2016. Non-performing loans decreased $0.5 million and foreclosed and repossessed assets decreased $0.2 million during the second quarter of 2016.
A reconciliation of the Company’s allowance for loan losses for the quarters ended June 30, 2016 and 2015 is summarized as follows:
| (Dollars in thousands) | 2016 | 2015 | |||||
| Balance at March 31, | $ | 9,363 | $ | 8,418 | |||
| Provision | 381 | (183 | ) | ||||
| Charge offs: | |||||||
| Consumer | (8 | ) | (9 | ) | |||
| Commercial business | (44 | ) | (5 | ) | |||
| Recoveries | 633 | 181 | |||||
| Balance at June 30, | $ | 10,325 | $ | 8,402 | |||
| Allocated to: | |||||||
| General allowance | $ | 9,375 | $ | 7,327 | |||
| Specific allowance | 950 | 1,075 | |||||
| $ | 10,325 | $ | 8,402 | ||||
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) | 2016 | 2016 | 2015 | ||||||
| Non‑Performing Loans: | |||||||||
| One‑to‑four family real estate | $ | 1,173 | $ | 1,229 | $ | 1,655 | |||
| Commercial real estate | 1,310 | 1,822 | 1,694 | ||||||
| Consumer | 967 | 809 | 786 | ||||||
| Commercial business | 0 | 45 | 46 | ||||||
| Total | 3,450 | 3,905 | 4,181 | ||||||
| Foreclosed and Repossessed Assets: | |||||||||
| One-to-four family real estate | 591 | 591 | 48 | ||||||
| Commercial real estate | 830 | 1,077 | 1,997 | ||||||
| Total non‑performing assets | $ | 4,871 | $ | 5,573 | $ | 6,226 | |||
| Total as a percentage of total assets | 0.75 | % | 0.87 | % | 0.97 | % | |||
| Total non‑performing loans | $ | 3,450 | $ | 3,905 | $ | 4,181 | |||
| Total as a percentage of total loans receivable, net | 0.65 | % | 0.80 | % | 0.90 | % | |||
| Allowance for loan loss to non-performing loans | 299.29 | % | 239.77 | % | 232.22 | % | |||
| Delinquency Data: | |||||||||
| Delinquencies (1) | |||||||||
| 30+ days | $ | 1,289 | $ | 1,005 | $ | 993 | |||
| 90+ days | 0 | 0 | 0 | ||||||
| Delinquencies as a percentage of | |||||||||
| loan portfolio (1) | |||||||||
| 30+ days | 0.24 | % | 0.20 | % | 0.21 | % | |||
| 90+ days | 0.00 | % | 0.00 | % | 0.00 | % | |||
(1) Excludes non-accrual loans.
Non-Interest Income and Expense
Non-interest income was $2.1 million for the second quarter of 2016, an increase of $0.2 million, or 12.6%, from $1.9 million for the same period of 2015. Gain on sales of loans increased $0.2 million between the periods primarily because of an increase in single family loan sales in the second quarter of 2016 when compared to the same period of 2015. Other non-interest income increased slightly between the periods primarily because of an increase in the fees earned on the sale of uninsured investment products. Fees and service charges increased slightly between the periods due to an increase in debit card income.
Non-interest expense was $6.0 million for the second quarter of 2016, an increase of $0.2 million, or 4.0%, from $5.8 million for the same period of 2015. Other non-interest expense increased $0.1 million due to an increase in the amortization costs related to the core deposit intangibles and an increase in annual report costs between the periods. Occupancy and equipment expense increased $0.1 million between the periods because of increased non-capitalized software and equipment expenses. Professional services expense increased $0.1 million due to increased costs related to the branch acquisition that was completed during the second quarter of 2016. Compensation expense increased slightly between the periods as annual increases in compensation were partially offset by a decrease in restricted stock award expenses. These increases in non-interest expenses were partially offset by a $0.1 million increase in the gains on real estate owned because of an increase in the number of properties sold between the periods.
Income tax expense was $1.0 million for the second quarter of 2016, an increase of $0.7 million from $0.3 million for the second quarter of 2015. The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the second quarter of 2016 when compared to the second quarter of 2015.
Return on Assets and Equity
Return on average assets (annualized) for the second quarter of 2016 was 0.91%, compared to 0.42% for the second quarter of 2015. Return on average equity (annualized) was 8.23% for the second quarter of 2016, compared to 3.50% for the same period in 2015. Book value per common share at June 30, 2016 was $16.34, compared to $15.06 at June 30, 2015.
Six Month Period Results
Net Income
Net income was $3.3 million for the six month period ended June 30, 2016, an increase of $2.3 million, or 210.9%, compared to net income of $1.0 million for the six month period ended June 30, 2015. The net income available to common shareholders was $3.3 million for the six month period ended June 30, 2016, an increase of $2.4 million, or 246.7%, compared to net income available to common shareholders of $0.9 million for the same period of 2015. Diluted earnings per common share for the six month period ended June 30, 2016 was $0.69, an increase of $0.49 per share compared to diluted earnings per common share of $0.20 for the same period in 2015. The increase in net income for the six month period ended June 30, 2016 was due primarily to a $3.7 million increase in interest income as a result of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods. The provision for loan losses decreased $0.2 million between the periods primarily because there were more recoveries received on previously charged off loans in the first six months of 2016 when compared to the same period of 2015. These increases in income were partially offset by a $1.5 million increase in income tax expense related to the increased pre-tax income between the periods.
Net Interest Income
Net interest income was $12.9 million for the first six months of 2016, an increase of $3.7 million, or 39.8%, from $9.2 million for the same period in 2015. Interest income was $13.7 million for the six month period ended June 30, 2016, an increase of $3.7 million, or 37.5%, from $10.0 million for the same six month period in 2015. Interest income increased between the periods primarily because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an increase in the average yields earned between the periods. While the average interest-earning assets increased $80.9 million between the periods, the average interest-earning assets held in higher yielding loans increased $126.4 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $45.5 million between the periods. The yield on average interest-earning assets was also enhanced $1.2 million due to loan prepayment penalties and the interest payments received on non-accruing and previously charged off commercial real estate loans that were paid off during the first six months of 2016. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods. The Company also acquired $36.0 million of loans through acquisitions that occurred between the periods. The average yield earned on interest-earning assets was 4.48% for the first six months of 2016, an increase of 72 basis points from 3.76% for the same period of 2015.
Interest expense was $0.8 million for the first six months of 2016, an increase of $0.1 million, or 7.3%, compared to $0.7 million for the first six months of 2015. Interest expense increased because of an increase in the average outstanding interest-bearing liabilities. The average rate paid on interest-bearing liabilities decreased 3 basis points between the periods primarily because of the change in the composition of the average interest-bearing liabilities. While the average interest-bearing liabilities increased $81.2 million between the periods, the average amount held in lower rate checking and money market accounts increased $73.5 million and the average amount held in higher rate certificates of deposits and other borrowings increased $7.7 million between the periods. The increase in the average outstanding deposits between the periods was primarily the result of the $66.3 million of deposits acquired through acquisitions between the periods. The average interest rate paid on interest-bearing liabilities was 0.27% for the first six months of 2016 compared to 0.30% for the first six months of 2015. Net interest margin (net interest income divided by average interest-earning assets) for the first six months of 2016 was 4.23%, an increase of 74 basis points, compared to 3.49% for the first six months of 2015.
Provision for Loan Losses
The provision for loan losses was ($0.4) million for the first six months of 2016, a decrease of $0.2 million from the ($0.2) million provision for loan losses for the same six month period in 2015. The provision for loan losses decreased between the periods primarily because there were more recoveries received on previously charged off loans in the first six months of 2016 when compared to the same period of 2015. Total non-performing assets were $4.9 million at June 30, 2016, a decrease of $1.3 million, or 21.7%, from $6.2 million at December 31, 2015. Non-performing loans decreased $0.7 million and foreclosed and repossessed assets decreased $0.6 million during the first six months of 2016.
A reconciliation of the Company’s allowance for loan losses for the six month periods ended June 30, 2016 and June 30, 2015 is summarized as follows:
| (Dollars in thousands) | 2016 | 2015 | |||||
| Balance at January 1, | $ | 9,709 | $ | 8,332 | |||
| Provision | (351 | ) | (183 | ) | |||
| Charge offs: | |||||||
| Consumer | (15 | ) | (27 | ) | |||
| Commercial business | (44 | ) | (5 | ) | |||
| Recoveries | 1,026 | 285 | |||||
| Balance at June 30, | $ | 10,325 | $ | 8,402 | |||
Non-Interest Income and Expense
Non-interest income was $3.9 million for the first six months of 2016, an increase of $0.4 million, or 11.4%, from $3.5 million for the first six months of 2015. Gain on sales of loans increased $0.4 million between the periods primarily because of an increase in single family loan sales in the first six months of 2016 when compared to the same period of 2015.
Non-interest expense was $11.7 million for the first six months of 2016, an increase of $0.5 million, or 4.4%, from $11.2 million for the same period of 2015. Compensation expense increased $0.3 million between the periods due primarily to an increase in wages and incentives related to increased loan production. Other non-interest expense increased $0.2 million due to increased charitable contributions and annual report costs between the periods. Occupancy and equipment expense increased $0.2 million between the periods because of increased non-capitalized software and equipment expenses. Professional services expense increased $0.1 million due to increased costs related to the branch acquisition that was completed during the second quarter of 2016. Data processing costs increased $0.1 million because of increased mobile and on-line banking expenses because of increased customer activity between the periods. These increases in non-interest expenses were partially offset by a $0.4 million increase in the gains on real estate owned because of an increase in the number of properties sold between the periods.
Income tax expense was $2.1 million for the first six months of 2016, an increase of $1.5 million from $0.6 million for the first six months of 2015. The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the first six months of 2016 when compared to the first six months of 2015.
Net Income Available to Common Shareholders
The net income available to common shareholders was $3.3 million for the first six months of 2016, an increase of $2.4 million from the $0.9 million net income available to common shareholders in the first six months of 2015. The net income available to common shareholders increased primarily because of the increase in the net income between the periods and a reduction in the dividends paid on the outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”). On February 17, 2015 the Company redeemed the final 10,000 shares of its outstanding Preferred Stock and, as a result, no dividends are required to be paid on the Preferred Stock after that date.
Return on Assets and Equity
Return on average assets (annualized) for the six month period ended June 30, 2016 was 1.01%, compared to 0.37% for the same period in 2015. Return on average equity (annualized) was 9.16% for the six month period ended June 30, 2016, compared to 3.04% for the same period in 2015.
General Information
HMN 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 (2), La Crescent, Rochester (4), Spring Valley and Winona; one full service office in Marshalltown, Iowa; and three loan origination offices located in Delafield, Wisconsin, Sartell, Minnesota, and Owatonna, 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 increasing our core deposit relationships, improving 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; our ability to integrate the Deerwood Bank branch and other acquired operations; 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 and composition of interest bearing liabilities; the availability of alternate funding sources; the payment of dividends by HMN; the future outlook for the Company; the amount of dividends paid by the Federal Home Loan Bank (FHLB) on its stock; 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 trust preferred securities held by the Bank; the ability of the Bank to pay dividends to HMN; the ability of HMN to pay the principal and interest payments on its third party note payable; the ability to remain well capitalized; and compliance by the Bank with regulatory standards generally (including the Bank’s status as “well-capitalized”) and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject, specifically, and possible responses of the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), the Bank, and the Company to any failure to comply with any such regulatory standard, directive or requirement.
A number of factors could cause actual results to differ materially from the Company’s assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including additional changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the OCC and FRB in the event of our non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company’s loan and investment portfolios; changes in costs associated with alternate funding sources, including changes in collateral advance rates and policies of the FHLB; technological, computer-related or operational difficulties; results of litigation; reduced demand for financial services and loan products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; international economic developments; the Company’s access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; acquisition integration costs; our ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company’s assumptions and expectations include those set forth in the Company’s most recent filing on Forms 10-K and 10-Q with the Securities and Exchange Commission. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. For additional discussion of the risks and uncertainties applicable to the Company, see the “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 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) | 2016 | 2015 | |||||||
| (unaudited) | |||||||||
| Assets | |||||||||
| Cash and cash equivalents | $ | 18,880 | 39,782 | ||||||
| Securities available for sale: | |||||||||
| Mortgage-backed and related securities | |||||||||
| (amortized cost $1,606 and $2,237) | 1,641 | 2,283 | |||||||
| Other marketable securities | |||||||||
| (amortized cost $74,011 and $110,092) | 73,924 | 109,691 | |||||||
| 75,565 | 111,974 | ||||||||
| Loans held for sale | 3,159 | 3,779 | |||||||
| Loans receivable, net | 530,425 | 463,185 | |||||||
| Accrued interest receivable | 2,411 | 2,254 | |||||||
| Real estate, net | 1,421 | 2,045 | |||||||
| Federal Home Loan Bank stock, at cost | 770 | 691 | |||||||
| Mortgage servicing rights, net | 1,479 | 1,499 | |||||||
| Premises and equipment, net | 8,079 | 7,469 | |||||||
| Goodwill | 802 | 0 | |||||||
| Core deposit intangible | 503 | 393 | |||||||
| Prepaid expenses and other assets | 1,338 | 1,417 | |||||||
| Deferred tax asset, net | 8,553 | 8,673 | |||||||
| Total assets | $ | 653,385 | 643,161 | ||||||
| Liabilities and Stockholders’ Equity | |||||||||
| Deposits | $ | 563,060 | 559,387 | ||||||
| Other borrowings | 9,000 | 9,000 | |||||||
| Accrued interest payable | 233 | 242 | |||||||
| Customer escrows | 1,976 | 830 | |||||||
| Accrued expenses and other liabilities | 5,779 | 4,057 | |||||||
| Total liabilities | 580,048 | 573,516 | |||||||
| Commitments and contingencies | |||||||||
| Stockholders’ equity: | |||||||||
| Serial preferred stock ($.01 par value): | |||||||||
| authorized 500,000 shares; issued shares 0 | 0 | 0 | |||||||
| Common stock ($.01 par value): | |||||||||
| authorized 16,000,000; issued shares 9,128,662 | 91 | 91 | |||||||
| Additional paid-in capital | 50,391 | 50,388 | |||||||
| Retained earnings, subject to certain restrictions | 83,788 | 80,536 | |||||||
| Accumulated other comprehensive loss | (32 | ) | (214 | ) | |||||
| Unearned employee stock ownership plan shares | (2,320 | ) | (2,417 | ) | |||||
| Treasury stock, at cost 4,639,739 and 4,645,769 shares | (58,581 | ) | (58,739 | ) | |||||
| Total stockholders’ equity | 73,337 | 69,645 | |||||||
| Total liabilities and stockholders’ equity | $ | 653,385 | 643,161 | ||||||
| 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) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Interest income: | ||||||||||||||||
| Loans receivable | $ | 6,774 | 4,537 | 12,868 | 8,891 | |||||||||||
| Securities available for sale: | ||||||||||||||||
| Mortgage-backed and related | 16 | 24 | 36 | 52 | ||||||||||||
| Other marketable | 351 | 501 | 723 | 987 | ||||||||||||
| Cash equivalents | 17 | 7 | 55 | 22 | ||||||||||||
| Other | 1 | 1 | 2 | 2 | ||||||||||||
| Total interest income | 7,159 | 5,070 | 13,684 | 9,954 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 246 | 226 | 472 | 474 | ||||||||||||
| Advances and other borrowings | 149 | 165 | 297 | 243 | ||||||||||||
| Total interest expense | 395 | 391 | 769 | 717 | ||||||||||||
| Net interest income | 6,764 | 4,679 | 12,915 | 9,237 | ||||||||||||
| Provision for loan losses | 381 | (183 | ) | (351 | ) | (183 | ) | |||||||||
| Net interest income after provision for loan losses | 6,383 | 4,862 | 13,266 | 9,420 | ||||||||||||
| Non-interest income: | ||||||||||||||||
| Fees and service charges | 873 | 844 | 1,652 | 1,626 | ||||||||||||
| Loan servicing fees | 271 | 257 | 532 | 516 | ||||||||||||
| Losses on investments | (9 | ) | 0 | (9 | ) | 0 | ||||||||||
| Gain on sales of loans | 705 | 530 | 1,192 | 815 | ||||||||||||
| Other | 262 | 236 | 490 | 504 | ||||||||||||
| Total non-interest income | 2,102 | 1,867 | 3,857 | 3,461 | ||||||||||||
| Non-interest expense: | ||||||||||||||||
| Compensation and benefits | 3,598 | 3,540 | 7,293 | 6,986 | ||||||||||||
| (Gains) losses on real estate owned | (75 | ) | 65 | (424 | ) | (47 | ) | |||||||||
| Occupancy and equipment | 1,006 | 926 | 1,996 | 1,805 | ||||||||||||
| Data processing | 281 | 268 | 554 | 499 | ||||||||||||
| Professional services | 368 | 293 | 619 | 509 | ||||||||||||
| Other | 855 | 708 | 1,686 | 1,479 | ||||||||||||
| Total non-interest expense | 6,033 | 5,800 | 11,724 | 11,231 | ||||||||||||
| Income before income tax expense | 2,452 | 929 | 5,399 | 1,650 | ||||||||||||
| Income tax expense | 974 | 344 | 2,147 | 604 | ||||||||||||
| Net income | 1,478 | 585 | 3,252 | 1,046 | ||||||||||||
| Preferred stock dividends | 0 | 0 | 0 | (108 | ) | |||||||||||
| Net income available to common shareholders | 1,478 | 585 | 3,252 | 938 | ||||||||||||
| Other comprehensive income (loss), net of tax | 44 | (189 | ) | 182 | 206 | |||||||||||
| Comprehensive income available to common shareholders | $ | 1,522 | 396 | 3,434 | 1,144 | |||||||||||
| Basic earnings per common share | $ | 0.35 | 0.14 | 0.78 | 0.23 | |||||||||||
| Diluted earnings per common share | $ | 0.31 | 0.13 | 0.69 | 0.20 | |||||||||||
| 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) | 2016 | 2015 | 2016 | 2015 | ||||||
| I. OPERATING DATA: | ||||||||||
| Interest income | $ | 7,159 | 5,070 | 13,684 | 9,954 | |||||
| Interest expense | 395 | 391 | 769 | 717 | ||||||
| Net interest income | 6,764 | 4,679 | 12,915 | 9,237 | ||||||
| II. AVERAGE BALANCES: | ||||||||||
| Assets (1) | 654,336 | 560,311 | 644,712 | 565,135 | ||||||
| Loans receivable, net | 510,656 | 367,005 | 490,160 | 364,488 | ||||||
| Securities available for sale (1) | 91,364 | 141,777 | 94,363 | 144,233 | ||||||
| Interest-earning assets (1) | 624,257 | 527,402 | 614,486 | 533,626 | ||||||
| Interest-bearing liabilities | 576,984 | 484,011 | 569,059 | 487,893 | ||||||
| Equity (1) | 72,263 | 67,075 | 71,395 | 69,487 | ||||||
| III. PERFORMANCE RATIOS: (1) | ||||||||||
| Return on average assets (annualized) | 0.91 | % | 0.42 | % | 1.01 | % | 0.37 | % | ||
| Interest rate spread information: | ||||||||||
| Average during period | 4.34 | 3.53 | 4.21 | 3.47 | ||||||
| End of period | 4.00 | 3.47 | 4.00 | 3.47 | ||||||
| Net interest margin | 4.36 | 3.56 | 4.23 | 3.49 | ||||||
| Ratio of operating expense to average | ||||||||||
| total assets (annualized) | 3.71 | 4.15 | 3.66 | 4.01 | ||||||
| Return on average equity (annualized) | 8.23 | 3.50 | 9.16 | 3.04 | ||||||
| Efficiency | 68.05 | 88.60 | 69.90 | 88.45 | ||||||
| June 30, | December 31, | June 30, | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| IV. ASSET QUALITY: | ||||||||||
| Total non-performing assets | $ | 4,871 | 6,226 | 13,290 | ||||||
| Non-performing assets to total assets | 0.75 | % | 0.97 | % | 2.36 | % | ||||
| Non-performing loans to total loans receivable, net | 0.65 | % | 0.90 | % | 2.87 | % | ||||
| Allowance for loan losses | $ | 10,325 | 9,709 | 8,402 | ||||||
| Allowance for loan losses to total assets | 1.58 | % | 1.51 | % | 1.49 | % | ||||
| Allowance for loan losses to total loans | ||||||||||
| receivable, net | 1.95 | 2.10 | 2.28 | |||||||
| Allowance for loan losses to non-performing loans | 299.29 | 232.22 | 79.57 | |||||||
| V. BOOK VALUE PER SHARE: | ||||||||||
| Book value per share common share | $ | 16.34 | 15.54 | 15.06 | ||||||
| Six Months | Year Ended | Six Months | ||||||||
| Ended | December 31, | Ended | ||||||||
| June 30, 2016 | 2015 | June 30, 2015 | ||||||||
| VI. CAPITAL RATIOS: | ||||||||||
| Stockholders’ equity to total assets, at end of period | 11.22 | % | 10.83 | % | 11.97 | % | ||||
| Average stockholders’ equity to average assets (1) | 11.07 | 11.70 | 12.30 | |||||||
| Ratio of average interest-earning assets to | ||||||||||
| average interest-bearing liabilities (1) | 107.98 | 108.52 | 109.37 | |||||||
| Home Federal Savings Bank regulatory capital ratios: | ||||||||||
| Common equity tier 1 capital ratio | 13.04 | 14.08 | 16.84 | |||||||
| Tier 1 or core capital | 11.44 | 11.46 | 12.88 | |||||||
| Tier 1 capital to risk weighted assets | 13.04 | 14.08 | 16.84 | |||||||
| Risk-based capital | 14.30 | 15.35 | 18.11 | |||||||
| June 30, | December 31, | June 30, | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| VII. EMPLOYEE DATA: | ||||||||||
| Number of full time equivalent employees | 199 | 185 | 180 | |||||||
| (1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320. | ||||||||||
CONTACT: CONTACT: Bradley Krehbiel President and Chief Executive Officer HMN Financial, Inc. (507) 252-7169