HMN FINANCIAL, INC. 1016 Civic Center Drive NW Rochester, MN 55901 Phone (507) 535-1200 Fax (507) 535-1301
Fourth Quarter Highlights
- Net income of $1.1 million compared to net income of $1.7 million for fourth quarter of 2014
- Diluted earnings per common share of $0.23 compared to diluted earnings per common share of $0.30 in the fourth quarter of 2014
- Provision for loan losses of $0.1 million, up $2.3 million from fourth quarter of 2014
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Non-performing assets of $6.2 million, down $5.4 million from September 30, 2015
Annual Highlights
- Net income of $3.0 million compared to net income of $7.4 million for 2014
- Diluted earnings per common share of $0.61 compared to diluted earnings per common share of $1.23 for 2014
- Provision for loan losses of ($0.2 million), up $6.8 million from 2014
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Non-performing assets of $6.2 million, down $7.8 million from December 31, 2014
Other
- On November 19, 2015, announced agreement to acquire certain assets and assume certain liabilities of Deerwood Bank's Albert Lea, Minnesota branch
INCOME SUMMARY Three Months Ended Year Ended
December 31, December 31, (dollars in thousands, except per share amounts) 2015 2014 2015 2014 Net income $ 1,090 1,678 $ 2,956 7,379 Net income available to
common stockholders 1,090 1,385 2,848 5,669
Diluted earnings per common share 0.23 0.30 0.61 1.23
Return on average assets 0.69 % 1.13 % 0.50 % 1.21 %
Return on average common equity 6.19 % 8.74 % 4.27 % 9.12 %
Book value per common share $ 15.54 14.77 $ 15.54 14.77
ROCHESTER, MINNESOTA, January 27, 2016. . . HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $643 million holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.1 million for the fourth quarter of 2015, a decrease of $0.6 million compared to net income of $1.7 million for the fourth quarter of 2014. Net income available to common shareholders was $1.1 million for the fourth quarter of 2015, a decrease of $0.3 million from the net income available to common shareholders of $1.4 million for the fourth quarter of 2014. Diluted earnings percommon share for the fourth quarter of 2015 was $0.23, a decrease of $0.07 from the diluted earnings per common share of $0.30 for the fourth quarter of 2014. The decrease in net income in the fourth quarter of 2015 is due primarily to a $2.3 million increase in the provision for loan losses between the periods. The provision for loan losses increased primarily because there was more commercial loan growth and fewer recoveries of previously charged off loans in the fourth quarter of 2015 when compared to the same period of 2014. This decrease in net income was partially offset by a $0.9 million increase in net interest income due to an increase in the outstanding loan balances and a $0.7 million decrease in income tax expense as a result of the decreased income between the periods.
President's Statement
"We are pleased to report the positive loan growth and the continued improvement in our net interest income in the fourth quarter of 2015," said Brad Krehbiel, President of HMN. "We are also encouraged by the results of our ongoing efforts to improve the credit quality in our commercial loan portfolio, which resulted in our non-performing assets declining to less than 1% of total assets during the fourth quarter of 2015. We intend to continue to focus our efforts on loan growth and further improving the credit quality of our existing loan portfolio, which should continue to improve the financial performance of our core banking operations."
Net Interest Income
Net interest income was $5.7 million for the fourth quarter of 2015, an increase of $0.9 million, or 20.1%, compared to $4.8 million for the fourth quarter of 2014. Interest income was $6.1 million for the fourth quarter of 2015, an increase of $1.1 million, or 21.3%, from $5.0 million for the same period in 2014. Interest income increased between the periods primarily because of an increase in the outstanding average interest-earning assets and a change in the mix of 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 $43.4 million between the periods, the average interest-earning assets held in higher yielding loans increased $87.5 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $44.1 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred primarily because of an increase in loan originations and a reduction in loan payoffs between the periods. The Company also acquired $24.1 million of loans through an acquisition that occurred in the third quarter of 2015. The average yield earned on interest-earning assets was 4.06% for the fourth quarter of 2015, an increase of 45 basis points from 3.61% for the fourth quarter of 2014.
Interest expense was $0.4 million for the fourth quarter of 2015, an increase of $0.1 million, or 43.4%, compared to $0.3 million for the fourth quarter of 2014. Interest expense increased primarily 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 increased $55.6 million between the periods, the amount held in lower rate deposits increased $44.7 million and the amount held in higher rate advances and other borrowings increased $10.9 million between the periods. The increase in average outstanding deposits between the periods was primarily the result of the $47.3 million in deposits acquired through an acquisition that occurred in the third quarter of 2015. 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 redemption of all of the remaining Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Preferred Stock"). Interest expense increases related to borrowing costs were partially offset by the lower interest rates paid on deposit accounts between the periods as a result of the low interest rate environment that continued to exist during the fourth quarter of 2015. The average interest rate paid on interest-bearing liabilities was 0.28% for the fourth quarter of 2015, an increase of 6 basis points from the 0.22% average interest rate paid in the fourth quarter of 2014. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2015 was 3.80%, an increase of 38 basis points, compared to 3.42% for the fourth quarter of 2014.
Provision for Loan Losses
The provision for loan losses was $0.1 million for the fourth quarter of 2015, an increase of $2.3 million, compared to ($2.2 million) for the fourth quarter of 2014. The provision for loan losses increased primarily because there was more commercial loan growth and fewer recoveries of previously charged off loans in the fourth quarter of 2015 when compared to the same period of 2014. Total non-performing assets were $6.2 million at December 31, 2015, a decrease of $5.4 million, or 46.3%, from $11.6 million at September 30, 2015. Non-performing loans decreased $4.9 million and foreclosed and repossessed assets decreased $0.5 million during the fourth quarter of 2015. The non-performing loan and foreclosed and repossessed asset activity for the fourth quarter of 2015 was as follows:
(Dollars in thousands)
Non-performing loans September 30, 2015 | $9,081 | Foreclosed and repossessed assets September 30, 2015 | $2,504 |
Classified as non-performing | 1,331 | Other foreclosures/repossessions | 0 |
Charge offs | (36) | Real estate sold | (356) |
Principal payments received | (474) | Net loss on sale of assets | (35) |
Classified as performing | (5,721) | Write downs and payments | (68) |
December 31, 2015 | $4,181 | December 31, 2015 | $2,045 |
The decrease in non-performing loans relates primarily to a commercial real estate development relationship that was upgraded to performing status during the quarter due to the improved financial performance of the project as a result of increased lot sales.
A reconciliation of the allowance for loan losses for the fourth quarters of 2015 and 2014 is summarized as follows:
(Dollars in thousands) 2015 2014 Balance at September 30, $8,786 $7,923
Provision 75 (2,221)
Charge offs:
Commercial business (62) 0
Consumer (40) (56)
Recoveries | 950 | 2,686 |
Balance at December 31, | $9,709 | $8,332 |
General allowance | $8,700 | $7,258 |
Specific allowance | 1,009 | 1,074 |
$9,709 | $8,332 |
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, 2014.
(Dollars in thousands) | December 31, 2015 | September 30, 2015 | December 31, 2014 | |||
Non-Performing Loans: | ||||||
One-to-four family real estate | $ 1,655 | $ 1,621 | $ 1,564 | |||
Commercial real estate | 1,694 | 6,617 | 8,750 | |||
Consumer | 786 | 801 | 486 | |||
Commercial business | 46 | 42 | 120 | |||
Total | 4,181 | 9,081 | 10,920 | |||
Foreclosed and Repossessed Assets: | ||||||
One-to-four family real estate | 48 | 110 | 50 | |||
Commercial real estate | 1,997 | 2,394 | 3,053 | |||
Total non-performing assets | $ 6,226 | $ 11,585 | $ 14,023 | |||
Total as a percentage of total assets | 0.97 | % | 1.87 | % | 2.43 | % |
Total non-performing loans | $ 4,181 | $ 9,081 | $ 10,920 | |||
Total as a percentage of total loans receivable, net | 0.90 | % | 2.10 | % | 2.99 | % |
Allowance for loan losses to non-performing loans | 232.22 | % | 96.75 | % | 76.30 | % |
Delinquency Data: | ||||||
Delinquencies (1) | ||||||
30+ days | $ 993 | $ 1,778 | $ 1,682 | |||
90+ days (2) | 0 | 0 | 0 | |||
Delinquencies as a percentage of loan and lease portfolio (1) | ||||||
30+ days | 0.21 | % | 0.40 | % | 0.45 | % |
90+ days | 0.00 | % | 0.00 | % | 0.00 | % |
(1) Excludes non-accrual loans.
(2) Loans delinquent for 90 days and over are generally non-accruing and are included in the Company's non-performing asset total unless they are well secured and in the process of collection.
The following table summarizes the number and types of commercial real estate loans that were non-performing as of the end of the two most recently completed quarters and December 31, 2014.
Principal Amount of Loans at | Principal Amount of Loans at | Principal Amount of Loans at | ||||
(Dollars in thousands) | # of | December 31, | # of | September 30, | # of | December 31, |
Property Type | relationships | 2015 | relationships | 2015 | relationships | 2014 |
Developments/land | 3 | $ 1,694 | 3 | $ 6,617 | 3 | $ 8,750 |
Non-Interest Income and Expense
Non-interest income was $2.0 million for the fourth quarter of 2015, an increase of $0.3 million, or 16.7%, from $1.7 million for the same period in 2014. Gain on sales of loans increased $0.2 million between the periods primarily because of an increase in single family loan originations and sales. Other income increased $0.1 million primarily due to an increase in the sale of uninsured investment products.
Non-interest expense was $6.0 million for the fourth quarter of 2015, an increase of $0.2 million, or 3.1%, from $5.8 million for the same period of 2014. Losses on real estate owned increased $0.2 million as a result of an increase in the losses realized on the sale of real estate owned between the periods. Compensation expense increased $0.1 million between the periods primarily because of an increase in employee pension benefit costs. These increases in non-interest expense were partially offset by a decrease of $0.1 in occupancy expense due primarily to a decrease in building and non-capitalized software costs between the periods.
Income tax expense was $0.5 million for the fourth quarter of 2015, a decrease of $0.7 million, compared to $1.2 million for the same period in 2014. The decrease in income tax expense between the periods is primarily related to the decrease in pre-tax net income in the fourth quarter of 2015 when
HMN Financial Inc. issued this content on 27 January 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 28 January 2016 18:57:24 UTC
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