Market Overview

HMN Financial, Inc. Announces Third Quarter Results

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Third Quarter Summary

  • Net income of $2.1 million, down $0.6 million, compared to $2.7 million in third quarter of 2018 
  • Diluted earnings per share of $0.45, down $0.14, compared to $0.59 in third quarter of 2018
  • Net interest income of $7.1 million, down $0.3 million, compared to $7.4 million in third quarter of 2018
  • Net interest margin of 3.97%, down 0.17%, compared to 4.14% in third quarter of 2018
  • Non-performing assets of $2.1 million, or 0.27% of total assets.

Year to Date Summary

  • Net income of $6.6 million, up $0.7 million, compared to $5.9 million in first nine months of 2018
  • Diluted earnings per share of $1.41, up $0.17, compared to $1.24 in first nine months of 2018
  • Net interest income of $21.6 million, up $0.6 million, compared to $21.0 million in first nine months of 2018
  • Net interest margin of 4.14%, up 0.12%, compared to 4.02% in first nine months of 2018

Net Income Summary

      Three Months Ended       Nine Months Ended  
      September 30,       September 30,  
(Dollars in thousands, except per share amounts)     2019 2018       2019 2018  
Net income   $ 2,076 2,712     $ 6,557 5,884  
Diluted earnings per share     0.45 0.59       1.41 1.24  
Return on average assets     1.11 1.47 %     1.20 1.09 %
Return on average equity     9.10 12.90 %     9.97 9.43 %
Book value per common share   $ 18.83 17.35     $ 18.83 17.35  

ROCHESTER, Minn., Oct. 17, 2019 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $763 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $2.1 million for the third quarter of 2019, a decrease of $0.6 million, compared to net income of $2.7 million for the third quarter of 2018.  Diluted earnings per share for the third quarter of 2019 was $0.45, a decrease of $0.14 per share, compared to diluted earnings per share of $0.59 for the third quarter of 2018. The decrease in net income between the periods was primarily because of a $0.5 million increase in non-interest expenses primarily related to increased compensation and professional services costs, a $0.3 million decrease in net interest income due to an increase in the average rates paid on deposits, and a $0.3 million increase in the loan loss provision.  These decreases in net income were partially offset by a $0.4 million increase in the gain on sales of loans between the periods.  Income tax expense also decreased $0.1 million as a result of the decreased pre-tax income between the periods.

President's Statement
"Maintaining net interest margin in the current declining rate environment is becoming a challenge for not only our bank but the financial industry as a whole," said Bradley Krehbiel, President and Chief Executive Officer of HMN. "Despite the margin challenges, we are pleased to report the increase in our mortgage loan activity and the related gain on sale of loans that we experienced during the third quarter of 2019.  We continue to focus our efforts on improving the financial performance of our core banking operations while maintaining the credit quality of our loan portfolio."

Third Quarter Results
Net Interest Income
Net interest income was $7.1 million for the third quarter of 2019, a decrease of $0.3 million, or 3.9%, from $7.4 million for the third quarter of 2018.  Interest income was $8.0 million for the third quarter of 2019, the same as for the third quarter of 2018.  Interest income remained flat despite the increase in the average federal funds rate between the periods as competitive pricing in our markets did not allow for increased loan rates when the federal funds rate increased in the fourth quarter of 2018.  The average yield earned on interest-earning assets was 4.47% for the third quarter of 2019, the same as for the third quarter of 2018.

Interest expense was $0.9 million for the third quarter of 2019, an increase of $0.3 million, or 54.3%, from $0.6 million for the third quarter of 2018.  The average interest rate paid on interest-bearing liabilities and non-interest-bearing deposits was 0.56% for the third quarter of 2019, an increase of 20 basis points from 0.36% for the third quarter of 2018. The increase in the interest paid on interest-bearing liabilities was primarily because of the increase in the average federal funds rate between the periods which increased the cost of deposits between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2019 was 3.97%, a decrease of 17 basis points, compared to 4.14% for the third quarter of 2018.  The decrease in the net interest margin is primarily related to the increase in interest expense as a result of an increase in the average federal funds rate between the periods while rates on interest earning assets remained flat.

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

      For the three-month period ended  
      September 30, 2019       September 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   $ 80,286   365   1.80 %   $ 79,755   337   1.68 %
Loans held for sale     3,557   43   4.72       1,757   24   5.45  
Single family loans, net     115,844   1,236   4.23       112,221   1,154   4.08  
Commercial loans, net     398,674   5,229   5.20       399,517   5,349   5.31  
Consumer loans, net     73,788   920   4.95       72,257   914   5.02  
Other     37,355   205   2.18       42,344   192   1.80  
Total interest-earning assets   $ 709,504   7,998   4.47     $ 707,851   7,970   4.47  
                                 
Interest-bearing liabilities and non-interest-bearing deposits:                                
Checking accounts     93,024   23   0.10       84,491   19   0.09  
Savings accounts     80,269   16   0.08       78,191   16   0.08  
Money market accounts
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