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HMN Financial, Inc. Announces Third Quarter Results

Third Quarter Summary

  • Net income of $1.4 million, up $0.6 million, compared to net income of $0.8 million in third quarter of 2015
  • Diluted earnings per share of $0.30, up $0.12, compared to $0.18 in third quarter of 2015
  • Net interest income of $6.6 million, up $1.6 million from third quarter of 2015
  • Total assets increased $32 million, or 4.9%, in the third quarter of 2016

Year to Date Summary

  • Net income of $4.7 million, up $2.8 million, compared to net income of $1.9 million in first nine months of 2015
  • Diluted earnings per share of $0.99, up $0.61, compared to diluted earnings per share of $0.38 in first nine months of 2015
  • Net interest income of $19.5 million, up $5.2 million from first nine months of 2015
  • Total assets increased $43 million, or 6.6%, in first nine months of 2016

Three Months Ended Nine Months Ended
Net Income Summary September 30, September 30,
(Dollars in thousands, except per share amounts) 20162015 20162015
Net income$1,414820 $4,6661,866
Net income available to common stockholders 1,414820 4,6661,758
Diluted earnings per share 0.300.18 0.990.38
Return on average assets 0.840.53% 0.950.43%
Return on average equity 7.554.77% 8.603.61%
Book value per common share$16.6715.33 $16.6715.33

ROCHESTER, Minn., Oct. 20, 2016 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $686 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.4 million for the third quarter of 2016, an increase of $0.6 million compared to net income of $0.8 million for the third quarter of 2015. Diluted earnings per share for the third quarter of 2016 was $0.30, an increase of $0.12 from diluted earnings per share of $0.18 for the third quarter of 2015. The increase in net income for the third quarter of 2016 is due primarily to a $1.6 million increase in interest income as a result of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods. The increase in interest income was partially offset by a $0.4 million increase in compensation expense as a result of annual increases in compensation and an increase in employees between the periods related to increased loan production. Income tax expense increased $0.5 million because of the increase in pre-tax income in the third quarter of 2016 when compared to the third quarter of 2015.

President’s Statement
“We are pleased to report the improvement in net income in the third quarter of 2016 when compared to the same period of 2015,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “The increase in net income between the periods is the result of increasing interest income and managing expenses in order to improve our financial results. We will continue to focus our efforts on prudently growing our core deposit and loan balances in order to further enhance the financial performance of our core banking operations.”

Third Quarter Results

Net Interest Income
Net interest income was $6.6 million for the third quarter of 2016, an increase of $1.6 million, or 31.2%, from $5.0 million for the third quarter of 2015. Interest income was $7.0 million for the third quarter of 2016, an increase of $1.6 million, or 29.0%, from $5.4 million for the same period in 2015. Interest income increased between the periods primarily because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an increase in the average yields earned between the periods. While the average interest-earning assets increased $60.7 million between the periods, the average interest-earning assets held in higher yielding loans increased $137.7 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $77.0 million between the periods. The yield on average interest-earning assets was also enhanced $0.5 million, or 21 basis points, due to loan prepayment penalties, yield adjustments recognized on purchased loans, and interest payments received on non-accruing and previously charged off real estate loans in the third quarter of 2016. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods. Average outstanding loans also increased $24.1 million between the periods as a result of acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016. The average yield earned on interest-earning assets was 4.35% for the third quarter of 2016, an increase of 63 basis points from 3.72% for the third quarter of 2015.

Interest expense was $0.4 million for the third quarter of 2016, the same as the third quarter of 2015. Interest expense remained the same and the average rate paid on interest-bearing liabilities decreased 3 basis points between the periods primarily because of the change in the composition of the average interest-bearing liabilities. While the average interest-bearing liabilities increased $54.2 million between the periods, the average amount held in lower rate checking and money market accounts increased $50.0 million and the average amount held in higher rate certificates of deposits and other borrowings increased $4.2 million between the periods. The increase in the average outstanding deposits between the periods was primarily the result of the $42.6 million increase in average deposits as a result of acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016. The average interest rate paid on interest-bearing liabilities was 0.27% for the third quarter of 2016, compared to 0.30% for the third quarter of 2015. Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2016 was 4.10%, an increase of 66 basis points, compared to 3.44% for the third quarter of 2015.

A summary of the Company’s net interest margin for the three month periods ended September 30, 2016 and 2015 is as follows:

For the three-month period ended
September 30, 2016 September 30, 2015
(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$79,176 307 1.54%$131,232 503 1.52%
Loans held for sale 4,214 47 4.44 3,633 36 3.93
Mortgage loans, net 107,053 1,147 4.26 78,820 817 4.11
Commercial loans, net 351,004 4,520 5.12 259,587 3,273 5.00
Consumer loans, net 74,544 913 4.87 57,040 734 5.11
Cash equivalents 19,267 18 0.37 44,358 26 0.23
Federal Home Loan Bank stock 770 2 1.03 691 1 0.57
Total interest-earning assets$636,028 6,954 4.35 $575,361 5,390 3.72
Interest-bearing liabilities:
NOW accounts 83,562 10 0.05 72,995 4 0.02
Savings accounts 73,293 16 0.09 58,008 12 0.08
Money market accounts 168,870 92 0.22 154,904 84 0.22
Certificates 101,401 137 0.54 96,886 131 0.54
Advances and other borrowings 9,000 149 6.59 10,000 166 6.59
Total interest-bearing liabilities$436,136 $392,793
Non-interest checking 148,788 138,571
Other non-interest bearing deposits 1,846 1,190
Total interest-bearing liabilities and non-interest bearing deposits$586,760 404 0.27 $532,554 397 0.30
Net interest income 6,550 4,993
Net interest rate spread 4.08% 3.42%
Net interest margin 4.10% 3.44%

Provision for Loan Losses
The provision for loan losses was $0.1 million for the third quarter of 2016, an increase of $0.2 million from the ($0.1) million provision for loan losses for the third quarter of 2015. The provision for loan losses increased primarily because of the increased loan growth that was experienced in the third quarter of 2016 when compared to the third quarter of 2015. The increase in the provision related to increased loan growth was partially offset by a decrease in the reserve percentages applied to certain risk rated loan categories as a result of an internal analysis that was performed during the quarter. Total non-performing assets were $5.8 million at September 30, 2016, an increase of $0.9 million, or 19.3%, from $4.9 million at June 30, 2016. Non-performing loans increased $1.5 million and foreclosed and repossessed assets decreased $0.6 million during the third quarter of 2016.

A reconciliation of the Company’s allowance for loan losses for the quarters ended September 30, 2016 and 2015 is summarized as follows:

(Dollars in thousands) 2016 2015
Balance at June 30,$ 10,325 $ 8,402
Provision 80 (56)
Charge offs:
One-to-four family real estate (66) (19)
Commercial real estate (67) 0
Consumer (14) (39)
Commercial business (56) (1)
Recoveries 104 499
Balance at September 30,$ 10,306 $ 8,786
Allocated to:
General allowance$ 9,050 $ 7,875
Specific allowance 1,256 911
$ 10,306 $ 8,786

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 two most recently completed quarters and December 31, 2015.

September 30, June 30, December 31,
(Dollars in thousands) 2016 2016 2015
Non‑Performing Loans:
One‑to‑four family real estate$923 $1,173 $1,655
Commercial real estate 2,847 1,310 1,694
Consumer 815 967 786
Commercial business 412 0 46
Total 4,997 3,450 4,181
Foreclosed and Repossessed Assets:
One‑to‑four family real estate 0 591 48
Commercial real estate 815 830 1,997
Total non‑performing assets$5,812 $4,871 $6,226
Total as a percentage of total assets 0.85% 0.75% 0.97%
Total non‑performing loans$4,997 $3,450 $4,181
Total as a percentage of total loans receivable, net 0.92% 0.65% 0.90%
Allowance for loan losses to non-performing loans 206.24% 299.29% 232.22%
Delinquency Data:
Delinquencies (1)
30+ days$1,506 $1,289 $993
90+ days 0 0 0
Delinquencies as a percentage of loan portfolio (1)
30+ days 0.27% 0.24% 0.21%
90+ days 0.00% 0.00% 0.00%

(1) Excludes non-accrual loans.

Non-Interest Income and Expense
Non-interest income was $2.1 million for the third quarter of 2016, a decrease of $0.1 million, or 3.8%, from $2.2 million for the same period of 2015. The decrease in non-interest income is primarily related to the $0.2 million decrease in other non-interest income due to a decrease in the gains recognized on acquisitions between the periods. This decrease was partially offset by an increase in gain on sales of loans between the periods because of an increase in single family loan sales. Fees and service charges also increased slightly between the periods due to an increase in debit card income.

Non-interest expense was $6.2 million for the third quarter of 2016, an increase of $0.2 million, or 3.9%, from $6.0 million for the same period of 2015. Compensation expense increased $0.4 million between the periods due to annual increases in compensation and an increase in employees between the periods related to increased loan production. Occupancy and equipment expense increased $0.1 million because of increased software and equipment expenses. Data processing expense increased slightly between the periods due to increased mobile and on-line banking costs. These increases in non-interest expenses were partially offset by a $0.2 million increase in the gains on real estate owned because there were fewer valuation write downs in the current period when compared to the same period in 2015. Other non-interest expense decreased $0.1 million due primarily to a decrease in advertising expenses between the periods.

Income tax expense was $1.0 million for the third quarter of 2016, an increase of $0.5 million from $0.5 million for the third quarter of 2015. The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the third quarter of 2016 when compared to the third quarter of 2015.

Return on Assets and Equity
Return on average assets (annualized) for the third quarter of 2016 was 0.84%, compared to 0.53% for the third quarter of 2015. Return on average equity (annualized) was 7.55% for the third quarter of 2016, compared to 4.77% for the same period of 2015. Book value per common share at September 30, 2016 was $16.67, compared to $15.33 at September 30, 2015.

Nine Month Period Results

Net Income
Net income was $4.7 million for the nine month period ended September 30, 2016, an increase of $2.8 million, or 150.1%, compared to net income of $1.9 million for the nine month period ended September 30, 2015. The net income available to common shareholders was $4.7 million for the nine month period ended September 30, 2016, an increase of $2.9 million, or 165.4%, compared to net income available to common shareholders of $1.8 million for the same period of 2015. Diluted earnings per share for the nine month period ended September 30, 2016 was $0.99, an increase of $0.61 per share compared to diluted earnings per share of $0.38 for the same period of 2015. The increase in net income for the nine month period ended September 30, 2016 was due primarily to a $5.3 million increase in interest income as a result of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods. The increase in interest income was partially offset by a $0.7 million increase in compensation expense due primarily to annual increases in compensation and an increase in employees related to the increased loan production. Income tax expense increased $2.1 million because of the increase in pre-tax income between the periods.

Net Interest Income
Net interest income was $19.5 million for the first nine months of 2016, an increase of $5.3 million, or 36.8%, from $14.2 million for the same period of 2015. Interest income was $20.6 million for the nine month period ended September 30, 2016, an increase of $5.3 million, or 34.5%, from $15.3 million for the same nine month period of 2015. Interest income increased between the periods primarily because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an increase in the average yields earned between the periods. While the average interest-earning assets increased $74.0 million between the periods, the average interest-earning assets held in higher yielding loans increased $130.1 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $56.1 million between the periods. The yield on average interest-earning assets was also enhanced $2.0 million, or 38 basis points, due to loan prepayment penalties, yield adjustments recognized on purchased loans, and interest payments received on non-accruing and previously charged off real estate loans during the first nine months of 2016. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods. Average outstanding loans also increased $28.1 million between the periods as a result of the acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016. The average yield earned on interest-earning assets was 4.43% for the first nine months of 2016, an increase of 68 basis points from 3.75% for the same period of 2015.

Interest expense was $1.2 million for the first nine months of 2016, an increase of $0.1 million, or 5.3%, compared to $1.1 million for the first nine months of 2015. Interest expense increased because of an increase in the average outstanding interest-bearing liabilities. The average rate paid on interest-bearing liabilities decreased 3 basis points between the periods primarily because of the change in the composition of the average interest-bearing liabilities. While the average interest-bearing liabilities increased $72.1 million between the periods, the average amount held in lower rate checking and money market accounts increased $65.6 million and the average amount held in higher rate certificates of deposits and other borrowings increased $6.5 million between the periods. The increase in the average outstanding deposits between the periods was primarily the result of the $52.0 million increase in average deposits as a result of acquisitions that occurred in the third quarter of 2015 and the second quarter of 2016. The average interest rate paid on interest-bearing liabilities was 0.27% for the first nine months of 2016 compared to 0.30% for the first nine months of 2015. Net interest margin (net interest income divided by average interest-earning assets) for the first nine months of 2016 was 4.18%, an increase of 71 basis points, compared to 3.47% for the first nine months of 2015.

A summary of the Company’s net interest margin for the nine month periods ended September 30, 2016 and 2015 is as follows:

For the nine-month period ended
September 30, 2016 September 30, 2015
(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$89,264 1,066 1.60%$139,851 1,542 1.47%
Loans held for sale 3,134 99 4.22 2,485 60 3.23
Mortgage loans, net 101,330 3,200 4.22 73,063 2,292 4.19
Commercial loans, net 332,526 13,630 5.48 247,586 9,346 5.05
Consumer loans, net 70,554 2,566 4.86 54,273 2,053 5.06
Cash equivalents 24,153 73 0.40 29,699 48 0.22
Federal Home Loan Bank stock 758 4 0.70 733 3 0.55
Total interest-earning assets$621,719 20,638 4.43 $547,690 15,344 3.75
Interest-bearing liabilities:
NOW accounts 83,955 36 0.06 75,139 12 0.02
Savings accounts 71,336 46 0.09 51,706 27 0.07
Money market accounts 162,523 268 0.22 150,582 261 0.23
Certificates 100,623 377 0.50 95,282 405 0.57
Advances and other borrowings 9,328 446 6.39 8,665 409 6.31
Total interest-bearing liabilities$427,765 381,374
Non-interest checking 145,727 120,526
Other non-interest bearing deposits 1,510 1,044
Total interest-bearing liabilities and non-interest bearing deposits$575,002 1,173 0.27 $502,944 1,114 0.30
Net interest income 19,465 14,230
Net interest rate spread 4.16% 3.45%
Net interest margin 4.18% 3.47%

Provision for Loan Losses
The provision for loan losses was ($0.3) million for the first nine months of 2016, a decrease of $0.1 million from the ($0.2) million provision for loan losses for the same nine month period of 2015. The provision decreased between the periods primarily because of the decrease in the reserve percentages applied to certain risk rated loan categories as a result of an internal analysis performed and also because of an increase in recoveries received on previously charged off loans. Total non-performing assets were $5.8 million at September 30, 2016, a decrease of $0.4 million, or 6.7%, from $6.2 million at December 31, 2015. Non-performing loans increased $0.8 million and foreclosed and repossessed assets decreased $1.2 million during the first nine months of 2016.

A reconciliation of the Company’s allowance for loan losses for the nine-month periods ended September 30, 2016 and 2015 is summarized as follows:

(Dollars in thousands) 2016 2015
Balance at January 1,$ 9,709 $ 8,332
Provision (271) (239)
Charge offs:
One-to-four family (66) (19)
Commercial real estate (67) 0
Consumer (29) (66)
Commercial business (100) (7)
Recoveries 1,130 785
Balance at September 30,$ 10,306 $ 8,786

Non-Interest Income and Expense
Non-interest income was $6.0 million for the first nine months of 2016, an increase of $0.3 million, or 5.5%, from $5.7 million for the same period of 2015. The increase in non-interest income is primarily related to the $0.4 million increase in the gain on sales of loans between the periods because of an increase in single family loan sales. Fees and service charges increased $0.1 million between the periods due primarily to an increase in debit card income. These increases were partially offset by a $0.2 million decrease in other income primarily because of a decrease in the gains realized on acquisitions between the periods.

Non-interest expense was $17.9 million for the first nine months of 2016, an increase of $0.7 million, or 4.2%, from $17.2 million for the same period of 2015. Compensation expense increased $0.7 million between the periods due to annual increases in compensation and an increase in employees between the periods related to the increased loan production. Occupancy and equipment expense increased $0.3 million because of increased software and equipment expenses. Other non-interest expense increased $0.1 million due primarily to an increase in loan related expenses as a result of the increase in loans originated between the periods. Data processing expense increased $0.1 million between the periods due to increased mobile and on-line banking costs. Other professional expenses increased $0.1 million primarily due to expenses related to the acquisition that occurred in the second quarter of 2016. These increases in non-interest expenses were partially offset by a $0.6 million increase in the gains on real estate owned between the periods primarily because of the gain that was recognized on the sale of a single commercial property in the first nine months of 2016.

Income tax expense was $3.1 million for the first nine months of 2016, an increase of $2.0 million, from $1.1 million for the same period in 2015. The increase in income tax expense between the periods is primarily related to the increase in pre-tax income in the first nine months of 2016 when compared to the first nine months of 2015.

Net Income Available to Common Shareholders
Net income available to common shareholders was $4.7 million for the first nine months of 2016, an increase of $2.9 million from the $1.8 million net income available to common shareholders in the same period of 2015. Net income available to common shareholders increased primarily because of the increase in net income and a reduction in the dividends required to be paid on the outstanding Fixed Rate Cumulative Perpetual Preferred Stock Series A (the “Preferred Stock”) between the periods. On February 17, 2015 the Company redeemed the final 10,000 shares of its outstanding Preferred Stock and, as a result, no dividends are required to be paid on the Preferred Stock after that date.

Return on Assets and Equity
Return on average assets (annualized) for the nine-month period ended September 30, 2016 was 0.95%, compared to 0.43% for the same period in 2015. Return on average equity (annualized) was 8.60% for the nine-month period ended September 30, 2016, compared to 3.61% for the same period in 2015.

General Information
HMN Financial, Inc. and the Bank are headquartered in Rochester, Minnesota. Home Federal Savings Bank operates twelve full service offices in Minnesota located in Albert Lea, Austin, Eagan, Kasson (2), LaCrescent, Rochester (4), Spring Valley and Winona and one full service office in Marshalltown, Iowa. The Bank also operates two loan origination offices in Minnesota located in Sartell and Owatonna and one loan origination office in Delafield, Wisconsin.

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 and loan balances, enhancing the financial performance of our core banking operations, improving credit quality, reducing non-performing assets, and generating improved financial results (including profitability); 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 maintenance 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 integrate acquired operations; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and composition of interest-earning assets; the amount and composition of interest bearing liabilities; the availability of alternate funding sources; the payment of dividends by HMN; the future outlook for the Company; 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; 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 FHLB; 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; our ability to attract and retain employees; 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 filing 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, 2015 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
September 30, December 31,
(Dollars in thousands) 2016 2015
(unaudited)
Assets
Cash and cash equivalents$ 34,594 39,782
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $1,274 and $2,237) 1,306 2,283
Other marketable securities
(amortized cost $78,979 and $110,092) 78,810 109,691
80,116 111,974
Loans held for sale 5,879 3,779
Loans receivable, net 540,583 463,185
Accrued interest receivable 2,235 2,254
Real estate, net 815 2,045
Federal Home Loan Bank stock, at cost 770 691
Mortgage servicing rights, net 1,537 1,499
Premises and equipment, net 8,119 7,469
Goodwill 802 0
Core deposit intangible 478 393
Prepaid expenses and other assets 1,153 1,417
Deferred tax asset, net 8,586 8,673
Total assets$ 685,667 643,161
Liabilities and Stockholders’ Equity
Deposits$ 592,243 559,387
Other borrowings 9,000 9,000
Accrued interest payable 238 242
Customer escrows 1,878 830
Accrued expenses and other liabilities 7,474 4,057
Total liabilities 610,833 573,516
Commitments and contingencies
Stockholders’ equity:
Serial preferred stock ($.01 par value):
authorized 500,000 shares; issued and outstanding shares 0 0 0
Common stock ($.01 par value):
authorized 16,000,000; issued shares 9,128,662 91 91
Additional paid-in capital 50,476 50,388
Retained earnings, subject to certain restrictions 85,202 80,536
Accumulated other comprehensive loss (83) (214)
Unearned employee stock ownership plan shares (2,271) (2,417)
Treasury stock, at cost 4,639,739 and 4,645,769 shares (58,581) (58,739)
Total stockholders’ equity 74,834 69,645
Total liabilities and stockholders’ equity$ 685,667 643,161
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in thousands, except per share data) 2016 2015 2016 2015
Interest income:
Loans receivable$ 6,627 4,860 19,495 13,751
Securities available for sale:
Mortgage-backed and related 12 35 48 87
Other marketable 295 468 1,018 1,455
Cash equivalents 18 26 73 48
Other 2 1 4 3
Total interest income 6,954 5,390 20,638 15,344
Interest expense:
Deposits 255 231 727 705
Advances and other borrowings 149 166 446 409
Total interest expense 404 397 1,173 1,114
Net interest income 6,550 4,993 19,465 14,230
Provision for loan losses 80 (56) (271) (239)
Net interest income after provision for loan losses 6,470 5,049 19,736 14,469
Non-interest income:
Fees and service charges 901 863 2,553 2,489
Loan servicing fees 280 262 812 778
Gain on sales of loans 656 613 1,848 1,428
Other 310 493 791 997
Total non-interest income 2,147 2,231 6,004 5,692
Non-interest expense:
Compensation and benefits 3,723 3,299 11,016 10,285
(Gains) losses on real estate owned (11) 168 (435) 121
Occupancy and equipment 998 936 2,994 2,741
Data processing 299 254 853 753
Professional services 252 273 871 782
Other 940 1,039 2,626 2,518
Total non-interest expense 6,201 5,969 17,925 17,200
Income before income tax expense 2,416 1,311 7,815 2,961
Income tax expense 1,002 491 3,149 1,095
Net income 1,414 820 4,666 1,866
Preferred stock dividends 0 0 0 (108)
Net income available to common shareholders 1,414 820 4,666 1,758
Other comprehensive income (loss), net of tax (51) 275 131 481
Comprehensive income available to common shareholders$ 1,363 1,095 4,797 2,239
Basic earnings per share$ 0.34 0.20 1.12 0.43
Diluted earnings per share$ 0.30 0.18 0.99 0.38


HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
Three Months Ended Nine Months Ended
SELECTED FINANCIAL DATA: September 30, September 30,
(Dollars in thousands, except per share data) 2016 2015 2016 2015
I. OPERATING DATA:
Interest income$6,954 5,390 20,638 15,344
Interest expense 404 397 1,173 1,114
Net interest income 6,550 4,993 19,465 14,230
II. AVERAGE BALANCES:
Assets (1) 669,114 608,750 652,906 579,833
Loans receivable, net 532,601 395,447 504,410 374,921
Securities available for sale (1) 79,176 131,232 89,264 139,851
Interest-earning assets (1) 636,029 575,361 621,719 547,690
Interest-bearing liabilities 586,760 532,554 575,002 502,944
Equity (1) 74,509 68,169 72,440 69,043
III. PERFORMANCE RATIOS: (1)
Return on average assets (annualized) 0.84% 0.53% 0.95% 0.43%
Interest rate spread information:
Average during period 4.08 3.42 4.16 3.45
End of period 4.09 3.91 4.09 3.91
Net interest margin 4.10 3.44 4.18 3.47
Ratio of operating expense to average
total assets (annualized) 3.69 3.89 3.67 3.97
Return on average equity (annualized) 7.55 4.77 8.60 3.61
Efficiency 71.30 82.63 70.38 86.34
September 30, December 31, September 30,
2016 2015 2015
IV. ASSET QUALITY:
Total non-performing assets$5,812 6,226 11,585
Non-performing assets to total assets 0.85% 0.97% 1.87%
Non-performing loans to total loans receivable, net 0.92 0.90 2.10
Allowance for loan losses$10,306 9,709 8,786
Allowance for loan losses to total assets 1.50% 1.51% 1.42%
Allowance for loan losses to total loans receivable, net 1.91 2.10 2.03
Allowance for loan losses to non-performing loans 206.24 232.22 96.75
V. BOOK VALUE PER SHARE:
Book value per common share$16.67 15.54 15.33
Nine
Months
Year Nine
Months
Ended Ended Ended
Sept 30,
2016
Dec 31,
2015
Sept 30,
2015
VI. CAPITAL RATIOS:
Stockholders’ equity to total assets, at end of period 10.91% 10.83% 11.10%
Average stockholders’ equity to average assets (1) 11.10 11.70 11.91
Ratio of average interest-earning assets to
average interest-bearing liabilities (1) 108.12 108.52 108.90
Home Federal Savings Bank regulatory capital ratios:
Common equity tier 1 12.59 14.08 14.05
Tier 1 leverage 11.00 11.46 11.45
Tier 1 risk-based 12.59 14.08 14.05
Total risk-based 13.85 15.35 15.31
September 30, December 31, September 30,
2016 2015 2015
VII. EMPLOYEE DATA:
Number of full time equivalent employees 199 185 182

(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.