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HMN Financial, Inc. Announces Second Quarter Results

Second Quarter Summary

  • Net income of $0.6 million, a decrease of $1.9 million, compared to $2.5 million in second quarter of 2014
  • Diluted earnings per common share of $0.13, a decrease of $0.31, compared to $0.44 in second quarter of 2014
  • Provision for loan losses up $2.0 million from second quarter of 2014
  • Gains on real estate owned down $1.2 million from second quarter of 2014
  • Nonperforming assets of $13.3 million, up $0.3 million, or 2.6%, from March 31, 2015

Year to Date Summary

  • Net income of $1.0 million, a decrease of $3.2 million, compared to $4.2 million in first six months of 2014
  • Diluted earnings per common share of $0.20, a decrease of $0.48, compared to $0.68 in first six months of 2014
  • Provision for loan losses up $3.6 million from first six months of 2014
  • Gains on real estate owned down $1.0 million from first six months of 2014
  • Nonperforming assets of $13.3 million, down $0.7 million, or 5.2%, from December 31, 2014

Three months ended Six months ended
Net Income Summary June 30, June 30,
(Dollars in thousands, except per share amounts) 2015 2014 2015 2014
Net income $ 585 2,530 $ 1,046 4,162
Net income available to common stockholders 585 2,006 938 3,105
Diluted earnings per common share 0.13 0.44 0.20 0.68
Return on average assets 0.42% 1.62% 0.37% 1.36%
Return on average equity 3.50% 12.32% 3.04% 9.91%
Book value per common share $ 15.06 $ 14.18 $ 15.06 $ 14.18

ROCHESTER, Minn., July 20, 2015 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $564 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $0.6 million for the second quarter of 2015, a decrease of $1.9 million, compared to net income of $2.5 million for the second quarter of 2014. The net income available to common shareholders was $0.6 million for the second quarter of 2015, a decrease of $1.4 million from the net income available to common shareholders of $2.0 million for the second quarter of 2014. Diluted earnings per common share for the second quarter of 2015 was $0.13, a decrease of $0.31 from the diluted earnings per common share of $0.44 for the second quarter of 2014. The decrease in net income in the second quarter of 2015 was due primarily to a $2.0 million increase in the provision for loan losses because there were fewer recoveries on previously charged off loans and fewer credit rating upgrades in the second quarter of 2015 compared to the same period in 2014. A decrease of $1.2 million in the gains on real estate owned also contributed to the decrease in net income between the periods. These decreases in net income were partially offset by a $1.3 million decrease in income tax expense between the periods due to the decreased income in the second quarter of 2015 compared to the second quarter of 2014.

President's Statement

"We are pleased to report positive earnings for the quarter and the decrease in our non-performing assets during the first six months of 2015" said Bradley Krehbiel, President and Chief Executive Officer of HMN. "We continue to see our earnings normalize from the volatility experienced over the past several years and we are diligently working to prudently grow our loan portfolio and become more efficient in order to improve the financial performance of our core banking operations."

Second Quarter Results

Net Interest Income

Net interest income was $4.7 million for the second quarter of 2015, the same as the second quarter of 2014. Interest income was $5.1 million for the second quarter of 2015, an increase of $0.1 million, or 1.0%, from $5.0 million for the same period in 2014. Interest income increased between the periods primarily because of the change in the mix of average interest-earning assets held, which increased the average yields earned between the periods. While the average interest-earning assets decreased $63.3 million between the periods, the average interest-earning assets held in lower yielding cash decreased $83.4 million, the average interest-earning assets held in higher yielding investments increased $26.5 million, and the amount of average interest-earning assets held in higher yielding loans decreased $6.4 million between the periods. The decrease in the average cash balances was the result of funding anticipated deposit withdrawals. The increase in the average investment balance was the result of investing excess cash balances based on projected liquidity needs. The decrease in the average outstanding loans between the periods was primarily the result of a decrease in the average commercial loan portfolio, which occurred primarily because of loan prepayments or non-renewals as a result of the Company's focus on improving credit quality and managing net interest margin. The average yield earned on interest-earning assets was 3.86% for the second quarter of 2015, an increase of 45 basis points from the 3.41% average yield for the second quarter of 2014. The increase in average yield is due primarily to the change in the mix of assets held between the periods and an increase in investment yields earned.

Interest expense was $0.4 million for the second quarter of 2015, an increase of $0.1 million, or 27.8%, compared to $0.3 million for the second quarter of 2014. Interest expense increased because of the change in the mix of the average interest-bearing liabilities held, which resulted in an increase in the average rate paid between the periods. While the average interest-bearing liabilities decreased $51.4 million between the periods, the average interest-bearing liabilities held in higher rate borrowings increased $11.2 million, the average interest-bearing liabilities held in higher rate certificates of deposits decreased $20.0 million, and the amount of interest-bearing liabilities held in other lower rate deposit accounts decreased $42.6 million between the periods. The decrease in the average outstanding interest-bearing liabilities between the periods was the result of using existing cash balances to fund maturing certificates of deposits and other deposit withdrawals. The increase in the average rate paid was primarily due to the $10.0 million holding company note payable that was funded in the first quarter of 2015 in connection with the final redemption of the outstanding Preferred Stock. Interest expense increases related to borrowing costs were partially offset by the lower interest rates paid on money market accounts and certificates of deposits between the periods. The decreased rates paid on these accounts were the result of the low interest rate environment that continued to exist during the second quarter of 2015. The average interest rate paid on interest-bearing liabilities was 0.32% for the second quarter of 2015, an increase of 9 basis points from the 0.23% average interest rate paid in the second quarter of 2014. Net interest margin (net interest income divided by average interest earning assets) for the second quarter of 2015 was 3.56%, an increase of 36 basis points, compared to 3.20% for the second quarter of 2014.

Provision for Loan Losses

The provision for loan losses was ($0.2) million for the second quarter of 2015, an increase of $2.0 million from the $2.2 million credit provision for loan losses for the second quarter of 2014. The provision increased in the second quarter of 2015 primarily because there were fewer recoveries on previously charged off loans and fewer credit rating upgrades in the second quarter of 2015 when compared to the second quarter of 2014. Total non-performing assets were $13.3 million at June 30, 2015, an increase of $0.3 million, or 2.6%, from $13.0 million at March 31, 2015. Non-performing loans increased $0.5 million and foreclosed and repossessed assets decreased $0.2 million during the second quarter of 2015. The non-performing loan and foreclosed and repossessed asset activity for the second quarter of 2015 was as follows:

(Dollars in thousands)
Non-performing loans Foreclosed and repossessed assets
March 31, 2015 $9,989 March 31, 2015 $2,966
Classified as non-performing 1,503 Other foreclosures/repossessions 0
Charge offs (14) Real estate sold (165)
Principal payments received (903) Net gain on sale of assets 56
Classified as accruing (15) Write downs (127)
Transferred to real estate owned 0 Transferred from non-performing loans 0
June 30, 2015 $10,560 June 30, 2015 $2,730

The increase in non-performing loans relates primarily to new loans classified as being non-performing exceeding the principal payments received on non-performing loans. Of the $1.5 million in loans newly classified as non-performing during the quarter, $0.3 million related to a single family loan, $0.3 million related to consumer home equity loans, and $0.9 million related to loans to a residential builder for the construction of residential properties where the construction had not been completed.

A reconciliation of the Company's allowance for loan losses for the quarters ended June 30, 2015 and 2014 is summarized as follows:

(Dollars in thousands) 2015 2014
Balance at March 31, $ 8,418 $ 9,090
Provision (183) (2,178)
Charge offs:
One-to-four family 0 (92)
Consumer (9) (30)
Commercial business (5) 0
Recoveries 181 1,906
Balance at June 30, $8,402 $8,696

Allocated to:
General allowance $7,327 $6,342
Specific allowance 1,075 2,354
$8,402 $8,696

The following table summarizes the amounts and categories of non-performing assets in the Bank's portfolio and loan delinquency information as of the end of the three most recently completed quarters.

June 30, March 31, December 31,
(Dollars in thousands) 2015 2015 2014
Non‑Performing Loans:
One‑to‑four family real estate $ 1,807 $ 1,658 $ 1,564
Commercial real estate 7,999 7,692 8,750
Consumer 743 542 486
Commercial business 11 97 120
Total 10,560 9,989 10,920
Foreclosed and Repossessed Assets:
One-to-four family real estate 0 50 50
Commercial real estate 2,730 2,916 3,053
Total non‑performing assets $ 13,290 $ 12,955 $ 14,023
Total as a percentage of total assets 2.36% 2.29% 2.43%
Total non‑performing loans $ 10,560 $ 9,989 $ 10,920
Total as a percentage of total loans receivable, net 2.87% 2.77% 2.99%
Allowance for loan loss to non-performing loans 79.57% 84.28% 76.30%
Delinquency Data:
Delinquencies (1)
30+ days $ 1,382 $ 1,462 $ 1,682
90+ days 0 0 0
Delinquencies as a percentage of
loan portfolio (1)
30+ days 0.36% 0.39% 0.45%
90+ days 0.00% 0.00% 0.00%
(1) Excludes non-accrual loans.

The following table summarizes the number and types of commercial real estate loans that were non-performing as of the end of the three most recently completed quarters.


(Dollars in thousands)

Property Type



# of
relationships
Principal Amount
of Loans at
June 30,
2015



# of relationships
Principal
Amount of Loans
at
March 31,
2015



# of
relationships
Principal
Amount of Loans
at
December 31,
2014
Developments/land 3 $7,999 3 $7,692 3 $8,750

Non-Interest Income and Expense

Non-interest income was $1.9 million for the second quarter of 2015, an increase of $0.2 million, or 8.4%, from $1.7 million for the same period of 2014. Gain on sales of loans increased $0.2 million between the periods primarily because of an increase in single family loan sales in the second quarter of 2015 when compared to the same period of 2014.

Non-interest expense was $5.8 million for the second quarter of 2015, an increase of $1.3 million, or 29.9%, from $4.5 million for the same period of 2014. The gains on real estate owned decreased $1.2 million primarily because of a decrease in the number of properties sold between the periods. Compensation expense increased $0.3 million between the periods due to an increase in wages and restricted stock award expenses. These increases in non-interest expense were partially offset by a $0.2 million decrease in other non-interest expense primarily because of a decrease in legal and other collection and printing expenses between the periods.

Income tax expense was $0.3 million for the second quarter of 2015, a decrease of $1.3 million from $1.6 million for the second quarter of 2014. The decrease in income tax expense between the periods is primarily related to the decrease in income in the second quarter of 2015 when compared to the second quarter of 2014.

Net Income Available to Common Shareholders

The net income available to common shareholders was $0.6 million for the second quarter of 2015, a decrease of $1.4 million from the $2.0 million income available to common shareholders in the second quarter of 2014. The net income available to common shareholders decreased primarily because of the decrease in the net income between the periods that was partially offset by a reduction in the dividends required to be paid on the outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Preferred Stock"). On February 17, 2015 the Company redeemed the final 10,000 shares of its outstanding Preferred Stock which eliminated the dividends required to be paid on the Preferred Stock in the second quarter of 2015 and increased interest expense between the periods as the redemption was funded by a $10.0 million holding company note payable to an unrelated third party.

Return on Assets and Equity

Return on average assets (annualized) for the second quarter of 2015 was 0.42%, compared to 1.62% for the second quarter of 2014. Return on average equity (annualized) was 3.50% for the second quarter of 2015, compared to 12.32% for the same period in 2014. Book value per common share at June 30, 2015 was $15.06, compared to $14.18 at June 30, 2014.

Six Month Period Results

Net Income

Net income was $1.0 million for the six month period ended June 30, 2015, a decrease of $3.2 million, or 74.9%, compared to net income of $4.2 million for the six month period ended June 30, 2014. The net income available to common shareholders was $0.9 million for the six month period ended June 30, 2015, a decrease of $2.2 million, or 69.8%, compared to net income available to common shareholders of $3.1 million for the same period of 2014. Diluted earnings per common share for the six month period ended June 30, 2015 was $0.20, a decrease of $0.48 per share compared to diluted earnings per common share of $0.68 for the same period in 2014. The decrease in net income for the six month period ended June 30, 2015 was primarily due to a $3.6 million increase in the provision for loan losses because there were fewer recoveries on previously charged off loans and fewer credit rating upgrades in the first six months of 2015 when compared to the same period in 2014. Gains on sales of real estate owned decreased $1.0 million between the periods due to fewer sales. Net interest income decreased $0.6 million between the periods. These decreases in net income were partially offset by a $2.1 million decrease in income tax expense between the periods due to the decreased income between the periods.

Net Interest Income

Net interest income was $9.2 million for the first six months of 2015, a decrease of $0.6 million, or 5.8%, from $9.8 million for the same period in 2014. Interest income was $9.9 million for the six month period ended June 30, 2015, a decrease of $0.5 million, or 4.7%, from $10.4 million for the same six month period in 2014. Interest income decreased between the periods primarily because of a decrease in the average interest earning assets held between the periods that was partially offset by an increase in average yields earned as a result of the change in the mix of assets held. While the average interest-earning assets decreased $49.4 million between the periods, the average interest-earning assets held in lower yielding cash decreased $70.9 million, the average interest-earning assets held in higher yielding investments increased $32.2 million, and the amount of average interest-earning assets held in higher yielding loans decreased $10.6 million between the periods. The decrease in the average cash balances was the result of funding anticipated deposit withdrawals. The increase in the average investment balance was the result of investing excess cash balances based on projected liquidity needs. The decrease in the average outstanding loans between the periods was primarily the result of a decrease in the average commercial loan portfolio, which occurred primarily because of loan prepayments or non-renewals as a result of the Company's focus on improving credit quality and managing net interest margin. The average yield earned on interest-earning assets was 3.76% for the first six months of 2015, an increase of 15 basis points from the 3.61% average yield for the first six months of 2014.

Interest expense was $0.7 million for the first six months of 2015, an increase of $0.1 million, or 12.0%, compared to $0.6 million for the first six months of 2014. Interest expense increased because of the change in the mix of the average interest-bearing liabilities held between the periods which resulted in an increase in the average rate paid. While the average interest-bearing liabilities decreased $38.1 million between the periods, the average interest-bearing liabilities held in higher rate borrowings increased $8.0 million, the average interest-bearing liabilities held in higher rate certificates of deposits decreased $23.0 million and the amount of interest-bearing liabilities held in other lower rate deposit accounts decreased $23.1 million between the periods. The decrease in the average outstanding interest bearing liabilities between the periods was the result of using existing cash to fund maturing certificates of deposits and other deposit withdrawals. The increase in the average rate paid was primarily due to the $10 million holding company note payable that was funded in the first quarter of 2015 in connection with the final redemption of the outstanding Preferred Stock. Interest expense increases related to borrowing costs were partially offset by the lower interest rates paid on money market accounts and certificates of deposits between the periods. The decreased rates paid on these accounts were the result of the low interest rate environment that continued to exist during the first six months of 2015. The average interest rate paid on interest-bearing liabilities was 0.30% for the first six months of 2015, an increase of 5 basis points from the 0.25% average interest rate paid in the first six months of 2014. Net interest margin (net interest income divided by average interest earning assets) for the first six months of 2015 was 3.49%, an increase of 10 basis points, compared to 3.39% for the first six months of 2014.

Provision for Loan Losses

The provision for loan losses was ($0.2) million for the first six months of 2015, an increase of $3.6 million from the $3.8 million credit provision for loan losses for the same six month period in 2014. The provision increased in the first six months of 2015 primarily because there were fewer recoveries on previously charged off loans and fewer credit rating upgrades in the first six months of 2015 when compared to the first six months of 2014. Total non-performing assets were $13.3 million at June 30, 2015, a decrease of $0.7 million, or 5.2%, from $14.0 million at December 31, 2014. Non-performing loans decreased $0.3 million and foreclosed and repossessed assets decreased $0.4 million during the first six months of 2015. The non-performing loan and foreclosed and repossessed asset activity for the first six months of 2015 was as follows:

(Dollars in thousands)
Non-performing loans Foreclosed and repossessed asset activity
January 1, 2015 $10,920 January 1, 2015 $3,103
Classified as non-performing 2,151 Transferred from non-performing loans 0
Charge offs (32) Other foreclosures/repossessions 0
Principal payments received (2,464) Real estate sold (408)
Classified as accruing (15) Net gain on sale of assets 168
Transferred to real estate owned 0 Write downs (133)
June 30, 2015 $10,560 June 30, 2015 $2,730

The decrease in non-performing loans during the first six months of 2015 relates primarily to principal payments received. Of the $2.5 million in principal payments received during the period, $1.9 million related to construction loans to residential builders where the construction had been completed and the borrower paid off the loan from the home sale proceeds.

A reconciliation of the Company's allowance for loan losses for the six month periods ended June 30, 2015 and June 30, 2014 is summarized as follows:

(Dollars in thousands) 2015 2014
Balance at January 1, $8,332 $11,401
Provision (183) (3,788)
Charge offs:
One-to-four family 0 (92)
Consumer (27) (60)
Commercial business (5) (1)
Commercial real estate 0 (936)
Recoveries 285 2,172
Balance at June 30, $8,402 $8,696

Non-Interest Income and Expense

Non-interest income was $3.5 million for the first six months of 2015, an increase of $0.1 million, or 1.5%, from $3.4 million for the first six months of 2014. Gain on sales of loans and other non-interest income increased $0.2 million between the periods primarily because of an increase in single family loan sales in the first six months of 2015 when compared to the same period of 2014. Fees and service charges decreased $0.1 million between the periods primarily because of a decrease in overdraft charges on deposit accounts.

Non-interest expense was $11.2 million for the first six months of 2015, an increase of $1.0 million, or 10.5%, from $10.2 million for the same period of 2014. The gain on real estate owned decreased $1.0 million primarily because of a decrease in the number of properties sold in the first six months of 2015 compared to the same period of 2014. Compensation expense increased $0.2 million between the periods due to an increase in wages and restricted stock award expenses. These increases in non-interest expense were partially offset by a $0.1 million decrease in other non-interest expense primarily because of a decrease in legal and other collection expenses between the periods. Deposit insurance costs decreased $0.1 million primarily because of a decrease in assets and insurance rates between the periods.

Income tax expense was $0.6 million for the first six months of 2015, a decrease of $2.1 million from $2.7 million for the first six months of 2014. The decrease in income tax expense between the periods is primarily related to the decrease in income in the first six months of 2015 when compared to the first six months of 2014.

Net Income Available to Common Shareholders

The net income available to common shareholders was $0.9 million for the first six months of 2015, a decrease of $2.2 million from the $3.1 million net income available to common shareholders in the first six months of 2014. The net income available to common shareholders decreased primarily because of the decrease in the net income between the periods that was partially offset by a reduction in the dividends paid on the outstanding Preferred Stock. On February 17, 2015 the Company redeemed the final 10,000 shares of its outstanding Preferred Stock, which eliminated the dividends required to be paid on the Preferred Stock and increased interest expense between the periods as the redemption was funded by a $10 million holding company note payable to an unrelated third party.

Return on Assets and Equity

Return on average assets (annualized) for the six month period ended June 30, 2015 was 0.37%, compared to 1.36% for the same period in 2014. Return on average equity (annualized) was 3.04% for the six month period ended June 30, 2015, compared to 9.91% for the same period in 2014.

General Information

HMN Financial, Inc. and Home Federal Savings Bank are headquartered in Rochester, Minnesota. Home Federal Savings Bank operates ten full service offices in Minnesota located in Albert Lea, Austin, Eagan, La Crescent, Rochester (4), Spring Valley and Winona; one full service office located in Marshalltown, Iowa; two loan origination offices located in Delafield, Wisconsin and Sartell, Minnesota.

Safe Harbor Statement

This press release may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as "expect," "intend," "look," "believe," "anticipate," "estimate," "project," "seek," "may," "will," "would," "could," "should," "trend," "target," and "goal" or similar statements or variations of such terms and include, but are not limited to, those relating to increasing our core deposit relationships, improving credit quality, reducing non-performing assets, becoming more efficient and generating improved financial results; the adequacy and amount of available liquidity and capital resources to the Bank; the Company's liquidity and capital requirements; our expectations for core capital and our strategies and potential strategies for improvement thereof; improvements in loan production; changes in the size of the Bank's loan portfolio; the amount of the Bank's non-performing assets and the appropriateness of the allowance therefor; our ability to complete the acquisition of assets of Kasson State Bank and integrate its operations; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and mix of interest-earning assets; the amount and mix of deposits; the availability of alternate funding sources; the payment of dividends by HMN, the future outlook for the Company; the amount of dividends paid by the FHLB on its stock; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer trust preferred securities held by the Bank; the ability of the Bank to pay dividends to HMN; the ability of HMN to pay the principal and interest payments on its third party note payable; the ability to remain well capitalized under revised capital rules; the impact of Basel III and the Dodd Frank Act capital standards on the Bank's capital position; and compliance by the Bank with regulatory standards generally (including the Bank's status as "well-capitalized") and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject, specifically, and possible responses of the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), the Bank, and the Company to any failure to comply with any such regulatory standard, directive or requirement.

A number of factors could cause actual results to differ materially from the Company's assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including additional changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the OCC and FRB in the event of our non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company's loan and investment portfolios; changes in costs associated with alternate funding sources, including changes in collateral advance rates and policies of the Federal Home Loan Bank; technological, computer-related or operational difficulties; results of litigation; reduced demand for financial services and loan products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; international economic developments; the Company's access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; acquisition integration costs; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company's assumptions and expectations include those set forth in the Company's most recent filings on Forms 10-K and 10-Q with the Securities and Exchange Commission. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. For additional discussion of the risks and uncertainties applicable to the Company, see the "Risk Factors" sections of the Company's Annual Report on Form 10-K for the year ended December 31, 2014 and Part II, Item 1A of its subsequently filed Quarterly Reports on Form 10-Q.

All statements in this press release, including forward-looking statements, speak only as of the date they are made, and we undertake no duty to update any of the forward-looking statements after the date of this press release.

(Three pages of selected consolidated financial information are included with this release.)

HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
(Dollars in thousands) 2015 2014
(unaudited)
Assets
Cash and cash equivalents $ 39,557 46,634
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $2,021 and $2,755) 2,115 2,909
Other marketable securities
(amortized cost $123,773 and $135,772) 123,326 134,925
125,441 137,834
Loans held for sale 5,968 2,076
Loans receivable, net 368,110 365,113
Accrued interest receivable 1,779 1,713
Real estate, net 2,730 3,103
Federal Home Loan Bank stock, at cost 691 777
Mortgage servicing rights, net 1,451 1,507
Premises and equipment, net 7,007 6,982
Prepaid expenses and other assets 872 1,157
Deferred tax asset, net 10,395 10,530
Total assets $ 564,001 577,426
Liabilities and Stockholders' Equity
Deposits $ 481,476 496,750
Other borrowings 10,000 0
Accrued interest payable 243 93
Customer escrows 771 788
Accrued expenses and other liabilities 4,017 3,782
Total liabilities 496,507 501,413
Commitments and contingencies
Stockholders' equity:
Serial preferred stock ($.01 par value):
authorized 500,000 shares; issued shares 0 and 10,000 0 10,000
Common stock ($.01 par value):
authorized 16,000,000; issued shares 9,128,662 91 91
Additional paid-in capital 50,242 50,207
Retained earnings, subject to certain restrictions 78,626 77,805
Accumulated other comprehensive loss, net of tax (212) (418)
Unearned employee stock ownership plan shares (2,514) (2,610)
Treasury stock, at cost 4,645,769 and 4,658,323 shares (58,739) (59,062)
Total stockholders' equity 67,494 76,013
Total liabilities and stockholders' equity 564,001 577,426
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share data) 2015 2014 2015 2014
Interest income:
Loans receivable $ 4,537 4,659 8,891 9,729
Securities available for sale:
Mortgage-backed and related 24 43 52 93
Other marketable 501 257 987 511
Cash equivalents 7 60 22 112
Other 1 1 2 2
Total interest income 5,070 5,020 9,954 10,447
Interest expense:
Deposits 226 306 474 640
Federal Home Loan Bank advances 1 0 1 0
Other borrowings 164 0 242 0
Total interest expense 391 306 717 640
Net interest income 4,679 4,714 9,237 9,807
Provision for loan losses (183) (2,178) (183) (3,788)
Net interest income after provision for loan losses 4,862 6,892 9,420 13,595
Non-interest income:
Fees and service charges 844 901 1,626 1,724
Mortgage servicing fees 257 263 516 524
Gain on sales of loans 530 330 815 676
Other 236 228 504 486
Total non-interest income 1,867 1,722 3,461 3,410
Non-interest expense:
Compensation and benefits 3,540 3,273 6,986 6,751
Losses (gains) on real estate owned 65 (1,120) (47) (1,052)
Occupancy 926 876 1,805 1,758
Deposit insurance 74 97 144 254
Data processing 268 249 499 495
Other 927 1,089 1,844 1,955
Total non-interest expense 5,800 4,464 11,231 10,161
Income before income tax expense 929 4,150 1,650 6,844
Income tax expense 344 1,620 604 2,682
Net income 585 2,530 1,046 4,162
Preferred stock dividends 0 (524) (108) (1,057)
Net income available to common shareholders 585 2,006 938 3,105
Other comprehensive income (loss), net of tax (189) 192 206 372
Comprehensive income attributable to common shareholders $ 396 2,198 1,144 3,477
Basic earnings per common share $ 0.14 0.50 0.23 0.77
Diluted earnings per common share $ 0.13 0.44 0.20 0.68
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
Selected Financial Data: Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands, except per share data) 2015 2014 2015 2014
I. OPERATING DATA:
Interest income $ 5,070 5,020 9,954 10,447
Interest expense 391 306 717 640
Net interest income 4,679 4,714 9,237 9,807
II. AVERAGE BALANCES:
Assets (1) 560,311 626,879 565,135 619,196
Loans receivable, net 367,005 374,185 364,488 375,892
Securities available for sale (1) 141,777 115,206 144,233 112,057
Interest-earning assets (1) 527,402 590,683 533,626 583,068
Interest-bearing liabilities 484,011 535,420 487,893 525,958
Equity (1) 67,075 82,426 69,487 84,690
III. PERFORMANCE RATIOS: (1)
Return on average assets (annualized) 0.42% 1.62% 0.37% 1.36%
Interest rate spread information:
Average during period 3.53 3.18 3.47 3.37
End of period 3.61 3.39 3.61 3.39
Net interest margin 3.56 3.20 3.49 3.39
Ratio of operating expense to average
total assets (annualized) 4.15 2.86 4.01 3.31
Return on average equity (annualized) 3.50 12.32 3.04 9.91
Efficiency 88.60 69.35 88.45 76.87
June 30, December 31, June 30,
2015 2014 2014
IV. ASSET QUALITY:
Total non-performing assets 13,290 14,023 15,767
Non-performing assets to total assets 2.36% 2.43% 2.59%
Non-performing loans to total loans receivable, net 2.87% 2.99% 3.34%
Allowance for loan losses 8,402 8,332 8,696
Allowance for loan losses to total assets 1.49% 1.44% 1.43%
Allowance for loan losses to total loans
receivable, net 2.28 2.28 2.37
Allowance for loan losses to non-performing loans 79.57 76.30 70.75
V. BOOK VALUE PER SHARE:
Book value per share common share 15.06 14.77 14.18
Six Months
Ended
June 30, 2015
Year Ended
December 31,
2014
Six Months
Ended
June 30, 2014
VI. CAPITAL RATIOS:
Stockholders' equity to total assets, at end of period 11.97% 13.16% 13.01%
Average stockholders' equity to average assets (1) 12.30 13.25 13.68
Ratio of average interest-earning assets to
average interest-bearing liabilities (1) 109.37 110.72 110.86
Tier 1 or core capital 12.88 11.76 11.10
Risk-based capital 18.11 18.47 19.01
June 30, December 31, June 30,
2015 2014 2014
VII. EMPLOYEE DATA:
Number of full time equivalent employees 180 181 179
(1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320.

CONTACT: Bradley Krehbiel President and Chief Executive Officer HMN Financial, Inc. (507) 252-7169

Source:HMN Financial, Inc.