HMN Financial, Inc. Announces Third Quarter Results

Third Quarter Summary

  • Net income of $1.4 million, up $0.6 million, compared to net income of $0.8 million in third quarter of 2015  
  • Diluted earnings per share of $0.30, up $0.12, compared to $0.18 in third quarter of 2015
  • Net interest income of $6.6 million, up $1.6 million from third quarter of 2015 
  • Total assets increased $32 million, or 4.9%, in the third quarter of 2016

Year to Date Summary

  • Net income of $4.7 million, up $2.8 million, compared to net income of $1.9 million in first nine months of 2015
  • Diluted earnings per share of $0.99, up $0.61, compared to diluted earnings per share of $0.38 in first nine months of 2015
  • Net interest income of $19.5 million, up $5.2 million from first nine months of 2015 
  • Total assets increased $43 million, or 6.6%, in first nine months of 2016 
             
    Three Months Ended     Nine Months Ended  
 Net Income Summary   September 30,     September 30,  
(Dollars in thousands, except per share amounts)   2016 2015     2016 2015  
Net income $ 1,414 820   $ 4,666 1,866  
Net income available to common stockholders   1,414 820     4,666 1,758  
Diluted earnings per share   0.30 0.18     0.99 0.38  
Return on average assets   0.84 0.53 %   0.95 0.43 %
Return on average equity   7.55 4.77 %   8.60 3.61 %
Book value per common share $ 16.67 15.33   $ 16.67 15.33  

ROCHESTER, Minn., Oct. 20, 2016 (GLOBE NEWSWIRE) — HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $686 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.4 million for the third quarter of 2016, an increase of $0.6 million compared to net income of $0.8 million for the third quarter of 2015.  Diluted earnings per share for the third quarter of 2016 was $0.30, an increase of $0.12 from diluted earnings per share of $0.18 for the third quarter of 2015.  The increase in net income for the third quarter of 2016 is due primarily to a $1.6 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 $0.4 million increase in compensation expense as a result of annual increases in compensation and an increase in employees between the periods related to increased loan production.  Income tax expense increased $0.5 million because of the increase in pre-tax income in the third quarter of 2016 when compared to the third quarter of 2015.

President’s Statement
“We are pleased to report the improvement in net income in the third quarter of 2016 when compared to the same period of 2015,” said Bradley Krehbiel, President and Chief Executive Officer of HMN.  “The increase in net income between the periods is the result of increasing interest income and managing expenses in order to improve our financial results.  We will continue to focus our efforts on prudently growing our core deposit and loan balances in order to further enhance the financial performance of our core banking operations.”
                                                                                                                       
Third Quarter Results

Net Interest Income
Net interest income was $6.6 million for the third quarter of 2016, an increase of $1.6 million, or 31.2%, from $5.0 million for the third quarter of 2015.  Interest income was $7.0 million for the third quarter of 2016, an increase of $1.6 million, or 29.0%, from $5.4 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 $60.7 million between the periods, the average interest-earning assets held in higher yielding loans increased $137.7 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $77.0 million between the periods.  The yield on average interest-earning assets was also enhanced $0.5 million, or 21 basis points, due to loan prepayment penalties, yield adjustments recognized on purchased loans, and interest payments received on non-accruing and previously charged off real estate loans in the third 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.  Average outstanding loans also increased $24.1 million between the periods as a result of acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016.  The average yield earned on interest-earning assets was 4.35% for the third quarter of 2016, an increase of 63 basis points from 3.72% for the third quarter of 2015.    

Interest expense was $0.4 million for the third quarter of 2016, the same as the third quarter of 2015.  Interest expense remained the same and 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 $54.2 million between the periods, the average amount held in lower rate checking and money market accounts increased $50.0 million and the average amount held in higher rate certificates of deposits and other borrowings increased $4.2 million between the periods. The increase in the average outstanding deposits between the periods was primarily the result of the $42.6 million increase in average deposits as a result of acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016.  The average interest rate paid on interest-bearing liabilities was 0.27% for the third quarter of 2016, compared to 0.30% for the third quarter of 2015.  Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2016 was 4.10%, an increase of 66 basis points, compared to 3.44% for the third quarter of 2015.             

A summary of the Company’s net interest margin for the three month periods ended September 30, 2016 and 2015 is as follows:

    For the three-month period ended  
    September 30, 2016     September 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 $ 79,176   307   1.54 % $ 131,232   503   1.52 %
Loans held for sale   4,214   47   4.44     3,633   36   3.93  
Mortgage loans, net   107,053   1,147   4.26     78,820   817   4.11  
Commercial loans, net   351,004   4,520   5.12     259,587   3,273   5.00  
Consumer loans, net   74,544   913   4.87     57,040   734   5.11  
Cash equivalents   19,267   18   0.37     44,358   26   0.23  
Federal Home Loan Bank stock   770   2   1.03     691   1   0.57  
Total interest-earning assets $ 636,028   6,954   4.35   $ 575,361   5,390   3.72  
                             
Interest-bearing liabilities:                            
NOW accounts   83,562   10   0.05     72,995   4   0.02  
Savings accounts   73,293   16   0.09     58,008   12   0.08  
Money market accounts   168,870   92   0.22     154,904   84   0.22  
Certificates   101,401   137   0.54     96,886   131   0.54  
Advances and other borrowings   9,000   149   6.59     10,000   166   6.59  
Total interest-bearing liabilities $ 436,136           $ 392,793          
Non-interest checking   148,788             138,571          
Other non-interest bearing deposits   1,846             1,190          
Total interest-bearing liabilities and non-interest bearing deposits $ 586,760   404   0.27   $ 532,554   397   0.30  
Net interest income       6,550             4,993      
Net interest rate spread           4.08 %           3.42 %
Net interest margin           4.10 %           3.44 %
                             

Provision for Loan Losses
The provision for loan losses was $0.1 million for the third quarter of 2016, an increase of $0.2 million from the ($0.1) million provision for loan losses for the third quarter of 2015.  The provision for loan losses increased primarily because of the increased loan growth that was experienced in the third quarter of 2016 when compared to the third quarter of 2015.  The increase in the provision related to increased loan growth was partially offset by a decrease in the reserve percentages applied to certain risk rated loan categories as a result of an internal analysis that was performed during the quarter.  Total non-performing assets were $5.8 million at September 30, 2016, an increase of $0.9 million, or 19.3%, from $4.9 million at June 30, 2016.  Non-performing loans increased $1.5 million and foreclosed and repossessed assets decreased $0.6 million during the third quarter of 2016. 

A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2016 and 2015 is summarized as follows:

     
(Dollars in thousands)      2016       2015  
Balance at June 30, $   10,325   $   8,402  
Provision     80       (56 )
Charge offs:        
One-to-four family real estate     (66 )     (19 )
Commercial real estate     (67 )     0  
Consumer     (14 )     (39 )
Commercial business     (56 )     (1 )
Recoveries     104       499  
Balance at September 30, $   10,306   $   8,786  
         
Allocated to:        
General allowance $   9,050   $   7,875  
Specific allowance     1,256       911  
  $   10,306   $   8,786  
         

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, 2015.

    September 30,     June 30,     December 31,  
(Dollars in thousands)    2016     2016     2015  
Non‑Performing Loans:                  
One‑to‑four family real estate $ 923   $ 1,173   $ 1,655  
Commercial real estate   2,847     1,310     1,694  
Consumer   815     967     786  
Commercial business   412     0     46  
Total   4,997     3,450     4,181  
                   
Foreclosed and Repossessed Assets:                  
One‑to‑four family real estate   0     591     48  
Commercial real estate   815     830     1,997  
Total non‑performing assets $ 5,812   $ 4,871   $ 6,226  
Total as a percentage of total assets   0.85 %   0.75 %   0.97 %
Total non‑performing loans $ 4,997   $ 3,450   $ 4,181  
Total as a percentage of total loans receivable, net   0.92 %   0.65 %   0.90 %
Allowance for loan losses to non-performing loans   206.24 %   299.29 %   232.22 %
                   
Delinquency Data:                  
Delinquencies (1)                  
30+ days $ 1,506   $ 1,289   $ 993  
90+ days   0     0     0  
Delinquencies as a percentage of loan portfolio (1)                  
30+ days   0.27 %   0.24 %   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 third quarter of 2016, a decrease of $0.1 million, or 3.8%, from $2.2 million for the same period of 2015.  The decrease in non-interest income is primarily related to the $0.2 million decrease in other non-interest income due to a decrease in the gains recognized on acquisitions between the periods.  This decrease was partially offset by an increase in gain on sales of loans between the periods because of an increase in single family loan sales.  Fees and service charges also increased slightly between the periods due to an increase in debit card income.  

Non-interest expense was $6.2 million for the third quarter of 2016, an increase of $0.2 million, or 3.9%, from $6.0 million for the same period of 2015.  Compensation expense increased $0.4 million between the periods due to annual increases in compensation and an increase in employees between the periods related to increased loan production.  Occupancy and equipment expense increased $0.1 million because of increased software and equipment expenses.  Data processing expense increased slightly between the periods due to increased mobile and on-line banking costs.  These increases in non-interest expenses were partially offset by a $0.2 million increase in the gains on real estate owned because there were fewer valuation write downs in the current period when compared to the same period in 2015.  Other non-interest expense decreased $0.1 million due primarily to a decrease in advertising expenses between the periods.        

Income tax expense was $1.0 million for the third quarter of 2016, an increase of $0.5 million from $0.5 million for the third quarter of 2015. The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the third quarter of 2016 when compared to the third quarter of 2015.

Return on Assets and Equity
Return on average assets (annualized) for the third quarter of 2016 was 0.84%, compared to 0.53% for the third quarter of 2015.  Return on average equity (annualized) was 7.55% for the third quarter of 2016, compared to 4.77% for the same period of 2015.  Book value per common share at September 30, 2016 was $16.67, compared to $15.33 at September 30, 2015.

Nine Month Period Results

Net Income
Net income was $4.7 million for the nine month period ended September 30, 2016, an increase of $2.8   million, or 150.1%, compared to net income of $1.9 million for the nine month period ended September 30, 2015.  The net income available to common shareholders was $4.7 million for the nine month period ended September 30, 2016, an increase of $2.9 million, or 165.4%, compared to net income available to common shareholders of $1.8 million for the same period of 2015.  Diluted earnings per share for the nine month period ended September 30, 2016 was $0.99, an increase of $0.61 per share compared to diluted earnings per share of $0.38 for the same period of 2015. The increase in net income for the nine month period ended September 30, 2016 was due primarily to a $5.3 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 $0.7 million increase in compensation expense due primarily to annual increases in compensation and an increase in employees related to the increased loan production.  Income tax expense increased $2.1 million because of the increase in pre-tax income between the periods. 

Net Interest Income
Net interest income was $19.5 million for the first nine months of 2016, an increase of $5.3 million, or 36.8%, from $14.2 million for the same period of 2015.  Interest income was $20.6 million for the nine month period ended September 30, 2016, an increase of $5.3 million, or 34.5%, from $15.3 million for the same nine month period of 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 $74.0 million between the periods, the average interest-earning assets held in higher yielding loans increased $130.1 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $56.1 million between the periods.  The yield on average interest-earning assets was also enhanced $2.0 million, or 38 basis points, due to loan prepayment penalties, yield adjustments recognized on purchased loans, and interest payments received on non-accruing and previously charged off real estate loans   during the first nine 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.  Average outstanding loans also increased $28.1 million between the periods as a result of the acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016.  The average yield earned on interest-earning assets was 4.43% for the first nine months of 2016, an increase of 68 basis points from 3.75% for the same period of 2015.   

Interest expense was $1.2 million for the first nine months of 2016, an increase of $0.1 million, or 5.3%, compared to $1.1 million for the first nine 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 $72.1 million between the periods, the average amount held in lower rate checking and money market accounts increased $65.6 million and the average amount held in higher rate certificates of deposits and other borrowings increased $6.5 million between the periods. The increase in the average outstanding deposits between the periods was primarily the result of the $52.0 million increase in average deposits as a result of acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016.  The average interest rate paid on interest-bearing liabilities was 0.27% for the first nine months of 2016 compared to 0.30% for the first nine months of 2015.   Net interest margin (net interest income divided by average interest-earning assets) for the first nine months of 2016 was 4.18%, an increase of 71 basis points, compared to 3.47% for the first nine months of 2015. 

A summary of the Company’s net interest margin for the nine month periods ended September 30, 2016 and 2015 is as follows:

    For the nine-month period ended  
    September 30, 2016     September 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 $ 89,264   1,066   1.60 % $ 139,851   1,542   1.47 %
Loans held for sale   3,134   99   4.22     2,485   60   3.23  
Mortgage loans, net   101,330   3,200   4.22     73,063   2,292   4.19  
Commercial loans, net   332,526   13,630   5.48     247,586   9,346   5.05  
Consumer loans, net   70,554   2,566   4.86     54,273   2,053   5.06  
Cash equivalents   24,153   73   0.40     29,699   48   0.22  
Federal Home Loan Bank stock   758   4   0.70     733   3   0.55  
Total interest-earning assets $ 621,719   20,638   4.43   $ 547,690   15,344   3.75  
                             
Interest-bearing liabilities:                            
NOW accounts   83,955   36   0.06     75,139   12   0.02  
Savings accounts   71,336   46   0.09     51,706   27   0.07  
Money market accounts   162,523   268   0.22     150,582   261   0.23  
Certificates   100,623   377   0.50     95,282   405   0.57  
Advances and other borrowings   9,328   446   6.39     8,665   409   6.31  
Total interest-bearing liabilities $ 427,765             381,374          
Non-interest checking   145,727             120,526          
Other non-interest bearing deposits   1,510             1,044          
Total interest-bearing liabilities and non-interest bearing deposits $ 575,002   1,173   0.27   $ 502,944   1,114   0.30  
Net interest income       19,465             14,230      
Net interest rate spread           4.16 %           3.45 %
Net interest margin           4.18 %           3.47 %
                             

Provision for Loan Losses
The provision for loan losses was ($0.3) million for the first nine months of 2016, a decrease of $0.1 million from the ($0.2) million provision for loan losses for the same nine month period of 2015.  The provision decreased between the periods primarily because of the decrease in the reserve percentages applied to certain risk rated loan categories as a result of an internal analysis performed and also because of an increase in recoveries received on previously charged off loans.  Total non-performing assets were $5.8 million at September 30, 2016, a decrease of $0.4 million, or 6.7%, from $6.2 million at December 31, 2015.  Non-performing loans increased $0.8 million and foreclosed and repossessed assets decreased $1.2 million during the first nine months of 2016. 

A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2016 and 2015 is summarized as follows:

     
(Dollars in thousands)      2016       2015  
Balance at January 1, $   9,709   $   8,332  
Provision     (271 )     (239 )
Charge offs:        
One-to-four family     (66 )     (19 )
Commercial real estate     (67 )     0  
Consumer     (29 )     (66 )
Commercial business     (100 )     (7 )
Recoveries     1,130       785  
Balance at September 30, $   10,306   $   8,786  
         

Non-Interest Income and Expense
Non-interest income was $6.0 million for the first nine months of 2016, an increase of $0.3 million, or 5.5%, from $5.7 million for the same period of 2015.  The increase in non-interest income is primarily related to the $0.4 million increase in the gain on sales of loans between the periods because of an increase in single family loan sales.  Fees and service charges increased $0.1 million between the periods due primarily to an increase in debit card income.  These increases were partially offset by a $0.2 million decrease in other income primarily because of a decrease in the gains realized on acquisitions between the periods. 

Non-interest expense was $17.9 million for the first nine months of 2016, an increase of $0.7 million, or 4.2%, from $17.2 million for the same period of 2015.  Compensation expense increased $0.7 million between the periods due to annual increases in compensation and an increase in employees between the periods related to the increased loan production.  Occupancy and equipment expense increased $0.3 million because of increased software and equipment expenses. Other non-interest expense increased $0.1 million due primarily to an increase in loan related expenses as a result of the increase in loans originated between the periods.  Data processing expense increased $0.1 million between the periods due to increased mobile and on-line banking costs.  Other professional expenses increased $0.1 million primarily due to expenses related to the acquisition that occurred in the second quarter of 2016. These increases in non-interest expenses were partially offset by a $0.6 million increase in the gains on real estate owned between the periods primarily because of the gain that was recognized on the sale of a single commercial property in the first nine months of 2016. 

Income tax expense was $3.1 million for the first nine months of 2016, an increase of $2.0 million, from $1.1 million for the same period in 2015.  The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the first nine months of 2016 when compared to the first nine months of 2015.

Net Income Available to Common Shareholders
Net income available to common shareholders was $4.7 million for the first nine months of 2016, an increase of $2.9 million from the $1.8 million net income available to common shareholders in the same period of 2015.  Net income available to common shareholders increased primarily because of the increase in net income and a reduction in the dividends required to be paid on the outstanding Fixed Rate Cumulative Perpetual Preferred Stock Series A (the “Preferred Stock”) between the periods.  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 nine-month period ended September 30, 2016 was 0.95%, compared to 0.43% for the same period in 2015.  Return on average equity (annualized) was 8.60% for the nine-month period ended September 30, 2016, compared to 3.61% 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), LaCrescent, Rochester (4), Spring Valley and Winona and one full service office in Marshalltown, Iowa.  The Bank also operates two loan origination offices in Minnesota located in Sartell and Owatonna and one loan origination office in Delafield, Wisconsin.   

Safe Harbor Statement
This press release may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as “expect,” “intend,” “look,” “believe,” “anticipate,” “estimate,” “project,” “seek,” “may,” “will,” “would,” “could,” “should,” “trend,” “target,” and “goal” or similar statements or variations of such terms and include, but are not limited to, those relating to increasing our core deposit relationships and loan balances, enhancing the financial performance of our core banking operations, 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 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 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  
             
    September 30,   December 31,    
(Dollars in thousands)     2016       2015      
    (unaudited)        
Assets            
Cash and cash equivalents $   34,594       39,782      
Securities available for sale:            
Mortgage-backed and related securities            
(amortized cost $1,274 and $2,237)     1,306       2,283      
Other marketable securities            
(amortized cost $78,979 and $110,092)     78,810       109,691      
      80,116       111,974      
             
Loans held for sale     5,879       3,779      
Loans receivable, net     540,583       463,185      
Accrued interest receivable     2,235       2,254      
Real estate, net     815       2,045      
Federal Home Loan Bank stock, at cost     770       691      
Mortgage servicing rights, net     1,537       1,499      
Premises and equipment, net     8,119       7,469      
Goodwill     802       0      
Core deposit intangible     478       393      
Prepaid expenses and other assets     1,153       1,417      
Deferred tax asset, net     8,586       8,673      
Total assets $   685,667       643,161      
             
Liabilities and Stockholders’ Equity            
Deposits $   592,243       559,387      
Other borrowings     9,000       9,000      
Accrued interest payable     238       242      
Customer escrows     1,878       830      
Accrued expenses and other liabilities     7,474       4,057      
Total liabilities     610,833       573,516      
Commitments and contingencies            
Stockholders’ equity:            
Serial preferred stock ($.01 par value):            
authorized 500,000 shares; issued and outstanding shares 0     0       0      
Common stock ($.01 par value):            
authorized 16,000,000; issued shares 9,128,662     91       91      
Additional paid-in capital     50,476       50,388      
Retained earnings, subject to certain restrictions     85,202       80,536      
Accumulated other comprehensive loss     (83 )     (214 )    
Unearned employee stock ownership plan shares     (2,271 )     (2,417 )    
Treasury stock, at cost 4,639,739 and 4,645,769 shares     (58,581 )     (58,739 )    
Total stockholders’ equity     74,834       69,645      
Total liabilities and stockholders’ equity $   685,667       643,161      
             
             
   
HMN FINANCIAL, INC. AND SUBSIDIARIES  
Consolidated Statements of Comprehensive Income  
(unaudited)  
         
    Three Months Ended
September 30,
      Nine Months Ended
September 30,
 
(Dollars in thousands, except per share data)     2016       2015       2016       2015    
Interest income:                              
Loans receivable $   6,627       4,860         19,495       13,751    
Securities available for sale:                  
Mortgage-backed and related     12       35       48       87    
Other marketable     295       468       1,018       1,455    
Cash equivalents     18       26       73       48    
Other     2       1       4       3    
Total interest income     6,954       5,390       20,638       15,344    
                   
Interest expense:                  
Deposits     255       231       727       705    
Advances and other borrowings     149       166       446       409    
Total interest expense     404       397       1,173       1,114    
Net interest income     6,550       4,993       19,465       14,230    
Provision for loan losses     80       (56 )     (271 )     (239 )  
Net interest income after provision for loan losses     6,470       5,049       19,736       14,469    
                   
Non-interest income:                  
Fees and service charges     901       863       2,553       2,489    
Loan servicing fees     280       262       812       778    
Gain on sales of loans     656       613       1,848       1,428    
Other     310       493       791       997    
Total non-interest income     2,147       2,231       6,004       5,692    
                   
Non-interest expense:                  
Compensation and benefits     3,723       3,299       11,016       10,285    
(Gains) losses on real estate owned     (11 )     168       (435 )     121    
Occupancy and equipment     998       936       2,994       2,741    
Data processing     299       254       853       753    
Professional services     252       273       871       782    
Other     940       1,039       2,626       2,518    
Total non-interest expense     6,201       5,969       17,925       17,200    
Income before income tax expense     2,416       1,311       7,815       2,961    
Income tax expense     1,002       491       3,149       1,095    
Net income     1,414       820       4,666       1,866    
Preferred stock dividends     0       0       0       (108 )  
Net income available to common shareholders     1,414       820       4,666       1,758    
Other comprehensive income (loss), net of tax     (51 )     275       131       481    
Comprehensive income available to common shareholders $   1,363       1,095       4,797       2,239    
Basic earnings per share $   0.34       0.20       1.12       0.43    
Diluted earnings per share $   0.30       0.18       0.99       0.38    
                   

HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
 
    Three Months Ended     Nine Months Ended  
SELECTED FINANCIAL DATA:   September 30,     September 30,  
(Dollars in thousands, except per share data)   2016     2015     2016     2015  
I. OPERATING DATA:                        
Interest income $ 6,954     5,390     20,638     15,344  
Interest expense   404     397     1,173     1,114  
Net interest income   6,550     4,993     19,465     14,230  
                         
II. AVERAGE BALANCES:                        
Assets (1)   669,114     608,750     652,906     579,833  
Loans receivable, net   532,601     395,447     504,410     374,921  
Securities available for sale (1)   79,176     131,232     89,264     139,851  
Interest-earning assets (1)   636,029     575,361     621,719     547,690  
Interest-bearing liabilities   586,760     532,554     575,002     502,944  
Equity (1)   74,509     68,169     72,440     69,043  
                         
III. PERFORMANCE RATIOS: (1)                        
Return on average assets (annualized)   0.84 %   0.53 %   0.95 %   0.43 %
Interest rate spread information:                        
Average during period   4.08     3.42     4.16     3.45  
End of period   4.09     3.91     4.09     3.91  
Net interest margin   4.10     3.44     4.18     3.47  
Ratio of operating expense to average                        
total assets (annualized)   3.69     3.89     3.67     3.97  
Return on average equity (annualized)   7.55     4.77     8.60     3.61  
Efficiency   71.30     82.63     70.38     86.34  
    September 30,    December 31,   September 30,      
    2016    2015   2015      
IV. ASSET QUALITY:                        
Total non-performing assets $ 5,812     6,226     11,585        
Non-performing assets to total assets   0.85 %   0.97 %   1.87 %      
Non-performing loans to total loans receivable, net   0.92     0.90     2.10        
Allowance for loan losses $ 10,306     9,709     8,786        
Allowance for loan losses to total assets   1.50 %   1.51 %   1.42 %      
Allowance for loan losses to total loans receivable, net   1.91     2.10     2.03        
Allowance for loan losses to non-performing loans   206.24     232.22     96.75        
                         
V. BOOK VALUE PER SHARE:                        
Book value per common share $ 16.67     15.54     15.33        
                           
    Nine
Months
      Year     Nine
Months
       
    Ended       Ended     Ended        
    Sept 30,
2016
      Dec 31,
2015
    Sept 30,
2015
       
VI.  CAPITAL RATIOS:                        
Stockholders’ equity to total assets, at end of period   10.91 %   10.83 %   11.10 %      
Average stockholders’ equity to average assets (1)    11.10     11.70     11.91        
Ratio of average interest-earning assets to                        
average interest-bearing liabilities (1)   108.12     108.52     108.90        
Home Federal Savings Bank regulatory capital ratios:                        
Common equity tier 1   12.59     14.08     14.05        
Tier 1 leverage   11.00     11.46     11.45        
Tier 1 risk-based   12.59     14.08     14.05        
Total risk-based   13.85     15.35     15.31        
    September 30,   December 31,   September 30,      
    2016   2015   2015      
VII. EMPLOYEE DATA:                        
Number of full time equivalent employees   199     185     182        
                         

(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

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