Market Overview

HMN Financial, Inc. Announces Fourth Quarter Results

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Fourth Quarter Highlights

  • Net income of $2.4 million, up $2.0 million from $0.4 million for fourth quarter of 2017
  • Diluted earnings per share of $0.51, up $0.43 from $0.08 for fourth quarter of 2017
  • Income tax expense of $0.6 million, down $1.0 million from $1.6 million for fourth quarter of 2017
  • Net interest income of $7.1 million, up $0.8 million, from fourth quarter of 2017
  • Non-performing assets of $3.1 million, down $2.8 million from September 30, 2018

Annual Highlights

  • Net income of $8.2 million, up $3.8 million, or 87.0%, from $4.4 million for 2017
  • Diluted earnings per share of $1.72, up $0.82 from $0.90 for 2017
  • Income tax expense of $2.9 million, down $1.5 million from $4.4 million for 2017
  • Net interest income of $28.1 million, up $2.2 million from $25.9 million for 2017
  • Non-performing assets of $3.1 million, down $0.7 million from December 31, 2017
Net Income Summary   Three Months Ended     Year Ended  
    December 31,     December 31,  
(Dollars in thousands, except per share amounts)   2018 2017     2018 2017  
Net income $ 2,352 387   $ 8,236 4,404  
Diluted earnings per share   0.51 0.08     1.72 0.90  
Return on average assets (annualized)   1.29 % 0.21 %   1.14 % 0.63 %
Return on average equity (annualized)   11.24 % 1.88 %   9.88 % 5.52 %
Book value per share $ 17.19 17.97   $ 17.19 17.97  
                 

ROCHESTER, Minn., Jan. 28, 2019 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $712 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.4 million for the fourth quarter of 2018, an increase of $2.0 million compared to net income of $0.4 million for the fourth quarter of 2017. Diluted earnings per share for the fourth quarter of 2018 was $0.51, an increase of $0.43 from the diluted earnings per share of $0.08 for the fourth quarter of 2017. The increase in net income for the fourth quarter of 2018 is due primarily to a $1.0 million decrease in income tax expense, a $0.8 million increase in net interest income, and a $0.3 million decrease in the provision for loan losses between the periods. The decrease in income tax expense is primarily because of the enactment of the Tax Cuts and Jobs Act on December 22, 2017 which required the Company to record $1.1 million in additional income tax expense in the fourth quarter of 2017 and reduced the Company's federal income tax rate in 2018. Net interest income increased primarily because of the higher interest amounts earned on loans and cash balances as a result of the 100 basis point increase in the federal funds rate between the periods. The provision for loan losses decreased primarily because of the improved credit quality of the loan portfolio and the payoff of certain non-performing commercial loans which resulted in a decrease in the loan loss reserves required between the periods.

President's Statement
"We are pleased to report the improved financial results for both the fourth quarter and the year and the continued improvement in the credit quality of our loan portfolio," said Bradley Krehbiel, President and Chief Executive Officer of HMN. "While the lower federal tax rate had a positive impact on our earnings, we continue to focus our efforts on increasing net interest income through the origination of appropriately underwritten loans that are funded with core deposits. We believe that our continued focus on these areas along with the prudent management of non-interest expenses will result in improved financial results over the long term." 

Fourth Quarter Results

Net Interest Income
Net interest income was $7.1 million for the fourth quarter of 2018, an increase of $0.8 million from the fourth quarter of 2017. Interest income was $7.8 million for the fourth quarter of 2018, an increase of $1.0 million, or 15.2%, from $6.8 million for the same period in 2017. Interest income increased primarily because of higher interest amounts earned on loans and cash balances as a result of the 100 basis point increase in the federal funds rate between the periods and an $8.4 million increase in the average interest-earning assets held between the periods. Interest income also increased $0.5 million because of a change in the amount of yield enhancements recognized on non-accruing loans between the periods. The average yield earned on interest-earning assets was 4.43% for the fourth quarter of 2018, an increase of 54 basis points from 3.89% for the fourth quarter of 2017. The average yield earned on the average interest-earning assets increased 29 basis points as a result of the change in yield adjustments recognized between the periods.

Interest expense was $0.7 million for the fourth quarter of 2018, an increase of $0.3 million, or 49.4%, from $0.4 million for the fourth quarter of 2017. The average interest rate paid on non-interest and interest-bearing liabilities was 0.41% for the fourth quarter of 2018, an increase of 14 basis points from the fourth quarter of 2017. The increase in the interest paid on non-interest and interest-bearing liabilities was primarily because of the 100 basis point increase in the federal funds rate between the periods which increased the cost of deposits and an $8.0 million increase in the average non-interest and interest-bearing liabilities held between the periods. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2018 was 4.06%, an increase of 42 basis points, compared to 3.64% for the fourth quarter of 2017. The increase in the net interest margin is primarily related to the increase in interest income as a result of the change in yield enhancements recognized between the periods.

A summary of the Company's net interest margin for the three month periods ended December 31, 2018 and 2017 is as follows:

    For the three-month period ended  
    December 31, 2018     December 31, 2017  
(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 $ 79,204   345   1.72 % $ 76,154   310   1.62 %
Loans held for sale   1,840   27   5.70     2,030   25   4.89  
Mortgage loans, net   116,341   1,212   4.13     114,808   1,182   4.08  
Commercial loans, net   397,617   5,130   5.12     393,823   4,257   4.29  
Consumer loans, net   73,665   941   5.07     73,964   913   4.90  
Other   29,393   142   1.92     28,863   80   1.10  
Total interest-earning assets $ 698,060   7,797   4.43   $ 689,642   6,767   3.89  
                             
Interest-bearing liabilities:                            
NOW accounts $ 84,620   21   0.10   $ 86,327   11   0.05  
Savings accounts   76,309   15   0.08     75,335   15   0.08  
Money market accounts   202,325   255
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