Market Overview

HMN Financial, Inc. Announces Second Quarter Results

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Second Quarter Summary
• Net income of $2.9 million, up $1.2 million, compared to $1.7 million in second quarter of 2018
• Diluted earnings per share of $0.62, up $0.26, compared to $0.36 in second quarter of 2018
• Net interest income of $7.5 million, up $0.6 million, compared to $6.9 million in second quarter of 2018
• Non-performing assets of $3.1 million, or 0.43% of total assets

Year to Date Summary
• Net income of $4.5 million, up $1.3 million, compared to $3.2 million in first six months of 2018
• Diluted earnings per share of $0.97, up $0.31, compared to $0.66 in first six months of 2018
• Net interest income of $14.5 million, up $0.9 million, compared to $13.6 million in first six months of 2018

Net Income Summary

    Three months ended     Six months ended  
    June 30,     June 30,  
(Dollars in thousands, except per share amounts)   2019     2018     2019     2018  
Net income $ 2,862   $ 1,727   $ 4,481   $ 3,172  
Diluted earnings per share   0.62     0.36     0.97     0.66  
Return on average assets (annualized)   1.60 %   0.95 %   1.25 %   0.89 %
Return on average equity (annualized)   13.10 %   8.25 %   10.43 %   7.66 %
Book value per share $ 18.33   $ 17.75   $ 18.33   $ 17.75  

ROCHESTER, Minn., July 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 $2.9 million for the second quarter of 2019, an increase of $1.2 million, compared to net income of $1.7 million for the second quarter of 2018.  Diluted earnings per share for the second quarter of 2019 was $0.62, an increase of $0.26 from the diluted earnings per share of $0.36 for the second quarter of 2018.  The increase in net income between the periods was primarily because of the $1.4 million decrease in the provision for loan losses and a $0.5 million increase in net interest income.  These increases were partially offset by an increase in other non-interest expenses of $0.3 million and a $0.5 million increase in income tax expense as a result of the increased pre-tax income between the periods.   

President's Statement
"We are pleased with our improving net interest margin and the related increase in net interest income," said Bradley Krehbiel, President and Chief Executive Officer of HMN.  "The increases in our net interest income combined with the net recoveries received on previously charged off loans had a positive impact on our net income for the quarter.  We will continue to focus our efforts on improving the Bank's core operating results by managing our net interest margin while prudently growing the asset size of the Bank." 

Second Quarter Results

Net Interest Income
Net interest income was $7.5 million for the second quarter of 2019, an increase of $0.6 million, or 7.8%, from $6.9 million for the second quarter of 2018.  Interest income increased primarily because of the higher interest amounts earned on interest-earning assets as a result of the increase in the federal funds rate between the periods.  Interest income also increased $0.4 million between the periods because of an increase in the amount of yield enhancements recognized on non-accruing loans that were paid off.  The average yield earned on interest-earning assets was 4.83% for the second quarter of 2019, an increase of 56 basis points from 4.27% for the second quarter of 2018.  The average yield earned on average interest-earning assets increased 30 basis points as a result of the change in yield enhancements recognized between the periods.   

Interest expense was $0.8 million for the second quarter of 2019, an increase of $0.3 million, or 57.4%, from $0.5 million for the second quarter of 2018.  The average interest rate paid on non-interest and interest-bearing liabilities was 0.53% for the second quarter of 2019, an increase of 20 basis points from 0.33% for the second 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.  Net interest margin (net interest income divided by average interest-earning assets) for the second quarter of 2019 was 4.35%, an increase of 38 basis points, compared to 3.97% for the second quarter of 2018.  The increase in the net interest margin is primarily related to the increase in interest income between the periods as a result of the change in the yield enhancements recognized and an increase in the federal funds rate.  

A summary of the Company's net interest margin for the three and six month periods ended June 30, 2019 and 2018 is as follows:

    For the three month period ended  
    June 30, 2019     June 30, 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 $ 78,393   347   1.78 % $ 80,263   339   1.69 %
  Loans held for sale   2,482   27   4.36     2,389   27   4.51  
  Mortgage loans, net   113,786   1,248   4.40     110,939   1,137   4.11  
  Commercial loans, net   407,854   5,678   5.58     405,553   4,957   4.90  
  Consumer loans, net   73,777   950   5.16     72,070   885   4.92  
  Other   12,161   49   1.62     29,353   111   1.52  
Total interest-earning assets   688,453   8,299   4.83     700,567   7,456   4.27  
                             
Interest-bearing liabilities and
  non-interest bearing deposits:
                           
  NOW accounts   96,579   25   0.10     88,327   11   0.05  
  Savings accounts   80,013   16   0.08     78,850   16   0.08  
  Money market accounts   168,605   306   0.73     199,279   203   0.41  
  Certificates   118,893   475   1.60     115,871   296   1.02  
  Advances and other borrowings   1,152   7   2.54     0   0   0.00  
  Total interest-bearing liabilities   465,242             482,327          
  Non-interest checking   155,921             154,323          
  Other non-interest bearing deposits   1,610             1,448          
Total interest-bearing liabilities and non-interest
  bearing deposits
 
$
622,773   829   0.53    
$
638,098   526   0.33  
Net interest income     $ 7,470           $ 6,930      
Net interest rate spread           4.30 %           3.94 %
Net interest margin           4.35 %           3.97 %
                             


    For the six month period ended  
    June 30, 2019     June 30, 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 $ 78,592   686   1.76 % $ 79,274   653   1.66 %
  Loans held for sale   1,838   39   4.30     1,730   38   4.47  
  Mortgage loans, net   114,814   2,508   4.41     112,268   2,259   4.06  
  Commercial loans, net   404,399   10,737   5.35  
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