Exhibit 99

1016 Civic Center Drive NW   •   Rochester, MN 55901   •   Phone (507) 535-1200   •   Fax (507) 535-1301

HMN Financial, Inc. Announces Fourth Quarter Results

Fourth Quarter Highlights

Annual Highlights

ROCHESTER, Minn., Jan. 29, 2018 (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 $0.4 million for the fourth quarter of 2017, a decrease of $1.3 million compared to net income of $1.7 million for the fourth quarter of 2016.  Diluted earnings per share for the fourth quarter of 2017 was $0.08, a decrease of $0.27 from the diluted earnings per share of $0.35 for the fourth quarter of 2016. The decrease in net income for the fourth quarter of 2017 is due primarily to a $0.6 million increase in income tax expense.  The increase is due primarily to the $1.1 million decrease in the Company’s net deferred tax asset as result of the reduction in the corporate federal tax rate in connection with the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  Net income also decreased because of a $0.2 million decrease in the gain on sales of loans due to a decrease in mortgage loan activity.  The loan loss provision also increased $0.5 million due to increased reserves established on certain commercial loans between the periods.

President’s Statement            

“The decrease in the corporate federal tax rate had a negative effect on net income in the fourth quarter of 2017 due to the write down of our deferred tax asset,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “Even though the corporate income tax rate change negatively impacted the fourth quarter results, we look forward to the positive impact of the lower federal tax rate on our earnings in future periods.” 

Fourth Quarter Results

Net Interest Income

Net interest income was $6.3 million for the fourth quarter of 2017, the same as for the fourth quarter of 2016.  Interest income was $6.8 million for the fourth quarter of 2017, an increase of $0.1 million, or 0.8%, from $6.7 million for the same period in 2016.  Interest income increased $0.6 million 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 a 9 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $45.8 million between the periods, the average interest-earning assets held in higher yielding loans increased $39.4 million and the amount of average interest-earning assets held in lower yielding cash and investments increased $6.4 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 because of an increase in loan originations and a reduction in loan payoffs between the periods.  The increase in interest income as a result of these items was entirely offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods.  Interest income decreased $0.6 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans.  This resulted in a 35 basis point decrease in the average yield between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline.  The average yield earned on interest-earning assets was 3.89% for the fourth quarter of 2017, a decrease of 26 basis points from 4.15% for the fourth quarter of 2016.  The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield adjustments recognized between the periods on previously charged off commercial real estate loans.

Interest expense was $0.4 million for the fourth quarter of 2017, the same as for the fourth quarter of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.27% for the fourth quarter of 2017, a decrease of 1 basis point from the fourth quarter of 2016.  The average non-interest and interest-bearing liabilities increased $37.8 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $17.3 million, the average amount held in higher rate premium money market accounts increased $21.4 million, and the average amount held in higher rate borrowings and certificates of deposit decreased $0.5 million between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2017 was 3.64%, a decrease of 25 basis points, compared to 3.89% for the fourth quarter of 2016.  The decrease in the net interest margin is primarily related to the decrease in yield adjustments recognized between the periods on previously charged off commercial real estate loans.

A summary of the Company’s net interest margin for the three month periods ended December 31, 2017 and 2016 is as follows:

Provision for Loan Losses

The provision for loan losses was $0.1 million for the fourth quarter of 2017, an increase of $0.5 million compared to ($0.4) million for the fourth quarter of 2016. The provision for loan losses increased between the periods primarily because of the increase in the reserves required on certain commercial loans due to deterioration of their credit quality in the fourth quarter of 2017.  Total non-performing assets were $3.8 million at December 31, 2017, an increase of $0.1 million from September 30, 2017. Non-performing loans decreased $0.1 million and foreclosed and repossessed assets increased $0.2 million during the fourth quarter of 2017. 

A reconciliation of the allowance for loan losses for the fourth quarters of 2017 and 2016 is summarized as follows:

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, 2017.

⁽¹⁾ Excludes non-accrual loans.

Non-Interest Income and Expense

Non-interest income was $2.0 million for the fourth quarter of 2017, a decrease of $0.2 million, or 10.8%, from $2.2 million for the same period of 2016. The decrease in non-interest income is primarily related to the $0.2 million decrease in the gain on sales of loans due to a decrease in single family loan originations and sales between the periods. Fees and service charges decreased slightly between the periods due to a decrease in overdraft fees.  Other non-interest income decreased slightly because of a decrease in the sales of uninsured investment products between the periods.      

Non-interest expense was $6.2 million for the fourth quarter of 2017, the same as the fourth quarter of 2016. Compensation expense decreased $0.1 million between the periods due primarily to a decrease in incentives earned because of the decrease in loan volume and a decrease in the number of employees between the periods.  Occupancy and equipment expense decreased $0.1 million because of decrease in the non-capitalized software purchased between the periods.  Professional services expense decreased $0.1 million between the periods primarily because of a decrease in legal expenses.  These decreases in non-interest expenses were entirely offset by other increases in non-interest expense including a $0.2 million decrease in the gains on real estate owned because there were fewer sales in the fourth quarter of 2017 when compared to the same period of 2016.  Other non-interest expense increased $0.1 due primarily to an increase in advertising expenses between the periods.  

Income tax expense was $1.6 million for the fourth quarter of 2017, an increase of $0.6 million from $1.0 million for the fourth quarter of 2016. The increase in income tax expense between the periods is due primarily to the $1.1 million decrease in the Company’s net deferred tax asset as result of the reduction in the corporate federal tax rate in connection with the enactment of the Tax Cuts and Jobs Act on December 22, 2017. 

Return on Assets and Equity

Return on average assets (annualized) for the fourth quarter of 2017 was 0.21%, compared to 0.99% for the fourth quarter of 2016.  Return on average equity (annualized) was 1.88% for the fourth quarter of 2017, compared to 8.93% for the same period of 2016.  Book value per share at December 31, 2017 was $17.97, compared to $16.91 at December 31, 2016.

Annual Results

Net Income

Net income was $4.4 million for 2017, a decrease of $2.0 million, or 30.6%, compared to net income of $6.4 million for 2016.  Diluted earnings per share for the year ended December 31, 2017 was $0.90, a decrease of $0.44 per share compared to diluted earnings per share of $1.34 for the year ended December 31, 2016.  The decrease in net income for 2017 is due primarily to a $0.3 million increase in income tax expense.  The increase in income tax expense is due primarily to the $1.1 million decrease in the Company’s net deferred tax asset as result of the reduction in the corporate federal tax rate in connection with the enactment of the Tax Cuts and Jobs Act on December 22, 2017.   Net income also decreased $0.5 million due to a decrease in the gain on sales of loans because of a decrease in mortgage loans activity, $0.5 million due to a decrease in the gains on real estate owned because of fewer sales, $0.4 million due to an increase in other non-interest expenses primarily related to advertising expenses, $0.2 million because of an increase in compensation and benefits, and $0.1 million due to an increase in the loan loss provision between the periods.  These decreases in net income were partially offset by an increase in net interest income of $0.1 million between the periods 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.

Net Interest Income

Net interest income was $25.9 million for 2017, an increase of $0.1 million, or 0.5%, from $25.8 million for the same period of 2016.  Interest income was $27.7 million for 2017, an increase of $0.4 million, or 1.2%, from $27.3 million for the same period of 2016.  Interest income increased $2.4 million 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 a 6 basis point increase in the average yields earned between the periods.  While the average interest-earning assets increased $43.2 million between the periods, the average interest-earning assets held in higher yielding loans increased $58.8 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $15.6 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 because of an increase in loan originations and a reduction in loan payoffs between the periods.  The increase in interest income as a result of these items was partially offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods.  Interest income decreased $2.1 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans.  This resulted in a 29 basis point decrease in the average yield between the periods.  It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline.  The average yield earned on interest-earning assets was 4.13% for 2017, a decrease of 23 basis points from 4.36% for 2016.  The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield enhancements recognized between the periods.      

Interest expense was $1.8 million for 2017, an increase of $0.2 million, or 12.8%, compared to $1.6 million for 2016.  The average interest rate paid on non-interest and interest-bearing liabilities was 0.29% for 2017, an increase of 1 basis point from 0.28% for 2016.  The average rate paid increased between the periods due to an increase in the rates paid on certain money market and certificate of deposit accounts that was partially offset by a decrease in the interest paid on other borrowings due to a decrease in the average borrowings outstanding between the periods.  The average non-interest and interest-bearing liabilities increased $34.6 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $10.4 million, the average amount held in higher rate premium money market accounts increased $22.5 million, and the average amount held in higher rate borrowings and certificates of deposit increased $1.7 million between the periods.  Net interest margin (net interest income divided by average interest-earning assets) for 2017 was 3.86%, a decrease of 25 basis points, compared to 4.11% for 2016.  The decrease in the net interest margin is primarily related to the decrease in yield enhancements recognized between the periods.

A summary of the Company’s net interest margin for 2017 and 2016 is as follows:

Provision for Loan Losses

The provision for loan losses was ($0.5) million for the year ended December 31, 2017, an increase of $0.1 million, from ($0.6) million for the year ended December 31, 2016.  The provision for loan losses increased between the periods primarily because of the increase in the reserves required on certain commercial loans due to a deterioration of their credit quality between the periods.  Total non-performing assets were $3.8 million at December 31, 2017, a decrease of $0.1 million, or 3.3%, from $3.9 million at December 31, 2016.  Non-performing loans decreased $0.1 million and foreclosed and repossessed assets were the same between the periods. 

A reconciliation of the allowance for loan losses for 2017 and 2016 is summarized as follows:

Non-Interest Income and Expense

Non-interest income was $7.7 million for the year ended December 31, 2017, a decrease of $0.5 million, or 6.7%, from $8.2 million for the year ended December 31, 2016.  The decrease in non-interest income is primarily related to the $0.5 million decrease in the gain on sales of loans due to a decrease in single family loan originations and sales between the periods.  Fees and service charges decreased $0.1 million between the periods due primarily to a decrease in overdraft fees. Other non-interest income decreased $0.1 million primarily because of a decrease in the revenue earned on the sale of uninsured investment products between the periods.  These decreases in non-interest income were partially offset by a $0.1 million increase in loan servicing fees earned between the periods.  

Non-interest expense was $25.3 million for the year ended December 31, 2017, an increase of $1.2 million, or 4.7%, from $24.1 million for the year ended December 31, 2016. Gains on real estate owned decreased $0.5 million between the periods due to fewer sales in 2017 when compared to 2016.  Other non-interest expense increased $0.4 million primarily due to an increase in advertising expense between the periods.  Compensation expense increased $0.2 million between the periods due to normal annual salary increases between the periods. Occupancy and equipment expense increased slightly because of increased software and equipment expenses. Professional services expense increased slightly primarily due to an increase in legal expenses between the periods. These increases in non-interest expense were partially offset by a $0.1 million decrease in data processing expense due to a decrease in debit card costs between the periods. 

Income tax expense was $4.4 million for the year ended December 31, 2017, an increase of $0.3 million, from $4.1 million for the year ended December 31, 2016. The increase in income tax expense is due primarily to the $1.1 million decrease in the Company’s net deferred tax asset as result of the reduction in the corporate federal tax rate in connection with the enactment of the Tax Cuts and Jobs Act on December 22, 2017.  

Return on Assets and Equity

Return on average assets (annualized) for 2017 was 0.63%, compared to 0.96% for 2016.  Return on average equity (annualized) was 5.52% for 2017, compared to 8.71% for 2016.  Book value per share at December 31, 2017 was $17.97, compared to $16.91 at December 31, 2016.

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 growing our core deposit relationships and loan balances, enhancing the financial performance of our core banking operations, maintaining credit quality, reducing non-performing assets, and generating improved financial results (including profitability); the extent of the positive impact of the lower federal tax rates on future earnings; 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; 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 of yield enhancements relating to non-accruing and purchased loans; the amount and composition of non-interest and 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 of the trust preferred securities held by the Bank; the ability of the Bank to pay dividends to HMN; 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; 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, 2016 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.)

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