Market Overview

HMN Financial, Inc. Announces Third Quarter Results

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Third Quarter Summary

  • Net income of $1.8 million, up $0.4 million, compared to net income of $1.4 million in third quarter of 2016 
  • Diluted earnings per share of $0.37, up $0.07, compared to $0.30 in third quarter of 2016
  • Net interest income of $6.8 million, up $0.2 million from third quarter of 2016
  • Interest income yield enhancements decreased $0.3 million in third quarter of 2017 compared to third quarter of 2016
  • Provision for loan losses of ($0.6) million, down $0.7 million from $0.1 million in third quarter of 2016

Year to Date Summary

  • Net income of $4.0 million, down $0.7 million, compared to net income of $4.7 million in first nine months of 2016
  • Diluted earnings per share of $0.83, down $0.16, compared to diluted earnings per share of $0.99 in first nine months of 2016
  • Net interest income of $19.6 million, up $0.1 million from first nine months of 2016
  • Interest income yield enhancements decreased $1.5 million in first nine months of 2017 compared to the first nine months of 2016
  • Provision for loan losses of ($0.6) million, down $0.3 million from ($0.3) million in first nine months of 2016

Net Income Summary

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands, except per share amounts)   2017 2016     2017 2016  
Net income $ 1,780 1,414   $ 4,017 4,666  
Diluted earnings per share   0.37 0.30     0.83 0.99  
Return on average assets   0.99 0.84 %   0.78 0.95 %
Return on average equity   8.78 7.55 %   6.79 8.60 %
Book value per common share $ 17.93 16.67   $ 17.93 16.67  
                 

ROCHESTER, Minn., Oct. 19, 2017 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $717 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.8 million for the third quarter of 2017, an increase of $0.4 million, compared to net income of $1.4 million for the third quarter of 2016.  Diluted earnings per share for the third quarter of 2017 was $0.37, an increase of $0.07, compared to diluted earnings per share of $0.30 for the third quarter of 2016. The increase in net income for the third quarter of 2017 is due primarily to a $0.7 million decrease in the provision for loan losses as a result of the continued improvement in the credit quality of the loan portfolio and a $0.2 million increase in net 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.   These improvements in net income were partially offset by an increase in income tax expense of $0.2 million as a result of the increase in pre-tax income, a decrease of $0.1 million on the gain on sales of loans as a result of fewer commercial guaranteed loan sales between the periods, and an increase in other non-interest expenses of $0.1 million related primarily to an increase in legal fees between the periods.

President's Statement

"We are pleased to report the improvement in net income and credit quality in the third quarter of 2017 when compared to the same period of 2016," said Bradley Krehbiel, President and Chief Executive Officer of HMN. "The increase in net income between the periods is the result of a decreased need for loan loss reserves due to improved credit quality and an increase in our net interest income due to loan growth and changes in the composition of our interest earning assets between the periods.  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 $6.8 million for the third quarter of 2017, an increase of $0.2 million, or 3.1%, from $6.6 million for the third quarter of 2016.  Interest income was $7.3 million for the third quarter of 2017, an increase of $0.3 million, or 4.3%, from $7.0 million for the same period in 2016.  Interest income increased $0.6 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 an 8 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $48.1 million between the periods, the average interest-earning assets held in higher yielding loans increased $52.2 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $4.1 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 increase in interest income as a result of these items was partially offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods.  Interest income decreased $0.3 million 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 which resulted in a 22 basis point decrease in the average yield between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline.   The average yield earned on interest-earning assets was 4.21% for the third quarter of 2017, a decrease of 14 basis points from 4.35% for the third 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 third quarter of 2017, an increase of $0.1 million, or 22.0%, from $0.4 million for the third quarter of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.31% for the third quarter of 2017, an increase of 4 basis points from 0.27% for the third 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 decrease in the interest paid on other borrowings due to a decrease in the average borrowings outstanding between the periods.  While the average non-interest and interest-bearing liabilities increased $40.0 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $1.8 million, the average amount held in higher rate premium money market and certificate of deposit accounts increased $42.5 million, and the average amount held in higher rate borrowings decreased $4.3 million between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2017 was 3.92%, a decrease of 18 basis points, compared to 4.10% for the third 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 month periods ended September 30, 2017 and 2016 is as follows:

    For the three-month period ended  
    September 30, 2017     September 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 $ 77,360   287   1.47 % $ 79,176   307   1.54 %
  Loans held for sale   1,916   25   5.18     4,214   47   4.44  
  Single family loans, net   114,826   1,164   4.02     107,053   1,147   4.26  
  Commercial loans, net   398,097   4,838   4.82     351,004   4,520   5.12  
  Consumer loans, net   74,164   903   4.83     74,544   913   4.87  
  Cash equivalents   16,917   36   0.84     19,267   18   0.37  
  Federal Home Loan Bank stock   848   2   0.94     770   2   1.03  
Total interest-earning assets $ 684,128   7,255   4.21   $ 636,028   6,954   4.35  
                             
Interest-bearing liabilities and non-interest bearing deposits:                            
  NOW accounts   84,154   24   0.11     83,562   10   0.05  
  Savings accounts   77,073   16   0.08     73,293   16   0.09  
  Money market accounts   194,660   159   0.32     168,870   92   0.22  
  Certificates   108,227   214   0.78     101,401   137   0.54  
  Advances and other borrowings   5,394  
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