Market Overview

HMN Financial, Inc. Announces First Quarter Results

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First Quarter Highlights

  • Net income of $1.6 million, up $0.2 million, compared to net income of $1.4 million for first quarter of 2018
  • Diluted earnings per share of $0.35, up $0.06, from $0.29 for first quarter of 2018
  • Net interest income of $7.0 million, up $0.3 million, from $6.7 million for first quarter of 2018
  • Non-performing assets of $3.0 million, or 0.41% of total assets
Net Income Summary   Three Months Ended
 
    March 31,  
(Dollars in thousands, except per share amounts)   2019   2018  
Net income $ 1,620   1,445  
Diluted earnings per share   0.35   0.29  
Return on average assets (annualized)   0.91 % 0.82 %
Return on average equity (annualized)   7.67 % 7.07 %
Book value per share $ 17.63   18.22  
           

ROCHESTER, Minn., April 18, 2019 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $723 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.6 million for the first quarter of 2019, an increase of $0.2 million compared to net income of $1.4 million for the first quarter of 2018.  Diluted earnings per share for the first quarter of 2019 was $0.35, an increase of $0.06 from diluted earnings per share of $0.29 for the first quarter of 2018. The increase in net income between the periods was due primarily to the $0.3 million increase in net interest income that was partially offset by a $0.1 million increase in the provision for loan losses.  Net interest income increased primarily because of the higher interest amounts earned on loans and cash balances as a result of the increase in the federal funds rate between the periods.  The provision for loan losses increased between the periods primarily because of an increase in loan growth that was partially offset by the overall improved credit quality of the loan portfolio.

President's Statement
"We continue to be encouraged by the growth of our loan portfolio and the related increase in net interest income," said Home Federal Savings Bank President and Chief Executive Officer, Bradley Krehbiel. "We intend to continue to focus our efforts on improving the Bank's core operating results by prudently growing the asset size of the Bank while maintaining the credit quality of our loan portfolio." 


First Quarter Results

Net Interest Income
Net interest income was $7.0 million for the first quarter of 2019, an increase of $0.3 million, or 5.3%, compared to $6.7 million for the first quarter of 2018.  Interest income was $7.7 million for the first quarter of 2019, an increase of $0.5 million, or 8.0%, from $7.2 million for the first quarter of 2018.  Interest income increased primarily because of the higher interest amounts earned on loans and cash balances as a result of the increase in the federal funds rate between the periods and a $7.5 million increase in the average interest-earning assets held between the periods.  The average yield earned on interest-earning assets was 4.52% for the first quarter of 2019, an increase of 29 basis points from 4.23% for the first quarter of 2018. 

Interest expense was $0.7 million for the first quarter of 2019, an increase of $0.2 million, or 46.8%, compared to $0.5 million for the first quarter of 2018.  The average interest rate paid on non-interest and interest-bearing liabilities was 0.45% for the first quarter of 2019, an increase of 14 basis points from 0.31% for the first quarter of 2018.  The increase in the interest paid on non-interest and interest-bearing liabilities was primarily because of the increase in the federal funds rate between the periods which increased the cost of deposits and a $6.2 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 first quarter of 2019 was 4.11%, an increase of 16 basis points, compared to 3.95% for the first quarter of 2018.  The increase in the net interest margin is primarily related to the increase in interest income as a result of the increase in the federal funds rate between the periods.  

A summary of the Company's net interest margin for the three-month periods ended March 31, 2019 and 2018 is as follows:

    For the three-month period ended  
    March 31, 2019     March 31, 2018  
(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 $ 78,794   338   1.74 % $ 78,274   314   1.63 %
Loans held for sale   1,187   12   4.17     1,063   11   4.38  
Mortgage loans, net   115,854   1,261   4.41     113,612   1,122   4.00  
Commercial loans, net   400,905   5,060   5.12     400,488   4,768   4.83  
Consumer loans, net   72,572   935   5.22     72,390   877   4.91  
Other   25,008   126   2.04     20,958   66   1.28  
Total interest-earning assets   694,320   7,732   4.52     686,785   7,158   4.23  
                             
Interest-bearing liabilities:                            
Checking   97,692   24   0.10     94,472   10   0.04  
Savings   78,496   15   0.08     77,174   15   0.08  
Money market   181,570   270   0.60     185,585   186   0.41  
Certificates   114,196   381   1.35     111,702   257   0.93  
Advances and other borrowings   0   0   0.00     569   2   1.71  
Total interest-bearing liabilities   471,954             469,502          
Non-interest checking   156,454             153,266          
Other non-interest bearing liabilities   2,062             1,541          
Total interest-bearing liabilities and non-interest bearing deposits  $ 630,470   690   0.45   $ 624,309   470   0.31  
Net interest income     $ 7,042           $ 6,688      
Net interest rate spread           4.07 %           3.92 %
Net interest margin           4.11 %           3.95 %
                             


Provision for Loan Losses
The provision for loan losses was $27,000 for the first quarter of 2019, an increase of $0.1 million compared to ($0.1) million for the first quarter of 2018.  The provision for loan losses increased between the periods primarily because of the increased loan growth that was experienced in the first quarter of 2019 when compared to the first quarter of 2018.  The increase in the provision related to loan growth in the first quarter of 2019 was partially offset by a reduction in the required reserves due to the improved credit quality of the loan portfolio.  Total non-performing assets were $3.0 million at March 31, 2019, a decrease of $0.1 million, or 4.1%, from $3.1 million at December 31, 2018.  Non-performing loans decreased $157,000 and foreclosed and repossessed assets increased $30,000 during the first quarter of 2019.   

A reconciliation of the Company's allowance for loan losses for the first quarters of 2019 and 2018 is as follows:

         
(Dollars in thousands)    2019     2018  
Balance at January 1 $ 8,686     9,311  
Provision   27     (125 )
Charge offs:        
Consumer   (39 )   (68 )
Single family   0     (24 )
Commercial business   (43 )   0  
Recoveries  
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