Market Overview

HMN Financial, Inc. Announces Second Quarter Results

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Second Quarter Summary

  • Net income of $1.0 million, down $0.5 million, compared to $1.5 million in second quarter of 2016
  • Diluted earnings per common share of $0.21, down $0.10, compared to $0.31 in second quarter of 2016
  • Interest income yield enhancements decreased $0.7 million in second quarter of 2017 compared to second quarter of 2016
  • Total assets increased $44 million in second quarter of 2017

Year to Date Summary

  • Net income of $2.2 million, down $1.1 million, compared to $3.3 million in first six months of 2016
  • Diluted earnings per common share of $0.46, down $0.23, compared to $0.69 in first six months of 2016
  • Interest income yield enhancements decreased $1.2 million in the first six months of 2017 compared to the first six months of 2016
  • Total assets increased $43 million in first six months of 2017

Net Income Summary

    Three months ended     Six months ended  
    June 30,     June 30,  
(Dollars in thousands, except per share amounts)   2017     2016     2017     2016  
Net income $ 1,024     1,478   $ 2,237     3,252  
Diluted earnings per common share   0.21     0.31     0.46     0.69  
Return on average assets    0.60 %   0.91 %   0.66 %   1.01 %
Return on average equity   5.19 %   8.23 %   5.76 %   9.16 %
Book value per common share $ 17.50   $ 16.34   $ 17.50   $ 16.34  

ROCHESTER, Minn., July 20, 2017 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $725 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.0 million for the second quarter of 2017, a decrease of $0.5 million, compared to net income of $1.5 million for the second quarter of 2016.  Diluted earnings per common share for the second quarter of 2017 was $0.21, a decrease of $0.10 from the diluted earnings per common share of $0.31 for the second quarter of 2016. The decrease in net income in the second quarter of 2017 was primarily due to a $0.7 million decrease in the interest income yield enhancements recognized on loan prepayment penalties, yield adjustments on purchased loans, and interest payments received on non-accruing and previously charged off loans.  Gain on sales of loans decreased $0.2 million between the periods due to a decrease in commercial government guaranteed loan sales. Gains on real estate sales decreased $0.1 million due to fewer real estate sales in the second quarter of 2017 when compared to the same period of 2016. Compensation expense increased $0.2 million between the periods due to normal annual salary increases. Other non-interest expense increased $0.1 million due primarily to an increase in commercial loan expenses. These decreases in net income were partially offset by a $0.5 million increase in interest income because 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, a $0.3 million decrease in income tax expense as a result of the decrease in pre-tax income, and a $0.1 million decrease in the loan loss provision between the periods. 

President's Statement
"We are pleased to report the increase in our assets in the second quarter of 2017 and the positive impact that our loan growth has had on our interest income," said Bradley Krehbiel, President and Chief Executive Officer of HMN.  "Our strategy to prudently grow our loan portfolios has resulted in an increase in our outstanding loan portfolios and continues to have a positive impact on the financial performance of our core banking operations."

Second Quarter Results
Net Interest Income
Net interest income was $6.5 million for the second quarter of 2017, a decrease of $0.3 million, or 3.3%, from $6.8 million for the second quarter of 2016. Interest income was $7.0 million for the second quarter of 2017, a decrease of $0.2 million, or 2.23%, from $7.2 million for the second quarter of 2016. Interest income decreased $0.7 million, or 41 basis points, due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent years as the pool of non-accruing and purchased loans continues to decline.   The decrease in interest income as a result of the lower yield enhancements recognized was partially offset by an increase in other interest income between the periods. Interest income increased $0.5 million 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 a 6 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $34.0 million between the periods, the average interest-earning assets held in higher yielding loans increased $60.2 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $26.2 million between the periods. 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 average yield earned on interest-earning assets was 4.26% for the second quarter of 2017, a decrease of 35 basis points from 4.61% for the second quarter of 2016.  The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield enhancements recognized between the periods.

Interest expense was $0.5 million for the second quarter of 2017, an increase of $0.1 million, or 16.7%, from $0.4 million for the second quarter of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.31% for the second quarter of 2017, an increase of 4 basis points from 0.27% for the second quarter of 2016. The average rate paid increased between the periods due to an increase in the rates paid on certain money market and certificate of deposit accounts that was partially offset by a change in the composition of the average non-interest and interest-bearing liabilities held between the periods.  While the average non-interest and interest-bearing liabilities increased $26.4 million between the periods, the average amount held in lower rate checking and money market accounts increased $23.2 million and the average amount held in higher rate certificates of deposits and other borrowings increased $3.2 million.  Net interest margin (net interest income divided by average interest-earning assets) for the second quarter of 2017 was 3.98%, a decrease of 38 basis points, compared to 4.36% for the second quarter of 2016.  The decrease in the net interest margin is primarily related to the decrease in yield enhancements recognized between the periods.

A summary of the Company's net interest margin for the three and six month periods ended June 30, 2017 and 2016 is as follows:

    For the three month period ended  
    June 30, 2017     June 30, 2016  
(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 $ 76,515   288   1.51 % $ 91,364   367   1.62 %
Loans held for sale   2,014   25   5.01     3,073   29   3.80  
Mortgage loans, net   115,173   1,136   3.96     100,349   1,042   4.18  
Commercial loans, net   383,417   4,662   4.88     338,717   4,861   5.77  
Consumer loans, net   73,369   878   4.80     71,590   842   4.73  
Cash equivalents   6,740   5   0.28     18,354   17   0.37  
Federal Home Loan Bank stock   1,043   5   1.75     810   1   0.50  
Total interest-earning assets   658,271   6,999   4.26     624,257   7,159   4.61  
                             
Interest-bearing liabilities and non-interest bearing deposits:                            
NOW accounts   87,219   22   0.10     85,085   14   0.06  
Savings accounts   78,679   16   0.08     73,029   16   0.09  
Money market accounts   168,610   125   0.30     159,708   89   0.22  
Certificates   102,841   166   0.65     102,031   127   0.50  
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