HMN Financial, Inc. Announces Third Quarter Results

Rhea-AI Summary

HMN Financial reports decrease in net income and diluted earnings per share for Q3 2023

Positive

• Net income for the third quarter of 2023 was $1.5 million, a decrease of $0.3 million compared to the same period in 2022
• Diluted earnings per share for the third quarter of 2023 were $0.34, a decrease of $0.08 from the same period in 2022
• Net interest income for the third quarter of 2023 was $7.8 million, a decrease of $0.5 million compared to the same period in 2022
• Net interest margin for the third quarter of 2023 was 2.81%, a decrease of 32 basis points from the same period in 2022
• Net loans receivable increased by $24 million in the third quarter of 2023 compared to June 30, 2023

Negative

• Net income and diluted earnings per share were negatively impacted by a decrease in net interest income and an increase in income tax expense
• The decrease in net interest income was primarily due to a decrease in the net interest margin as a result of increased funding costs
• The increase in income tax expense was due to a valuation reserve that was established on the deferred tax asset
• The provision for loan losses decreased by $0.3 million in the third quarter of 2023 compared to the same period in 2022
• Total non-performing assets decreased by $0.7 million compared to June 30, 2023

Third Quarter Summary

• Net income of $1.5 million, down $0.3 million, from $1.8 million for third quarter of 2022
• Diluted earnings per share of $0.34, down $0.08, from $0.42 for third quarter of 2022
• Net interest income of $7.8 million, down $0.5 million, from $8.3 million for third quarter of 2022
• Net interest margin of 2.81%, down 32 basis points, from 3.13% for third quarter of 2022
• Net loans receivable of $851 million, up $24 million, from $827 million at June 30, 2023
  

Year to Date Summary

• Net income of $4.6 million, down $1.0 million, from $5.6 million for first nine months of 2022
• Diluted earnings per share of $1.04, down $0.23, from $1.27 for first nine months of 2022
• Net interest income of $23.6 million, up $0.3 million, from $23.3 million for first nine months of 2022
• Gain on sales of loans of $1.1 million, down $1.0 million, from $2.1 million for first nine months of 2022
• Net interest margin of 2.93%, down 13 basis points, from 3.06% for first nine months of 2022
• Net loans receivable of $851 million, up $74 million, from $777 million at December 31, 2022

Net Income Summary		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(Dollars in thousands, except per share amounts)		2023			2022			2023			2022
Net income	$	1,498			1,831		$	4,553			5,607
Diluted earnings per share		0.34			0.42			1.04			1.27
Return on average assets (annualized)		0.52	%		0.67	%		0.55	%		0.71	%
Return on average equity (annualized)		4.95	%		6.30	%		5.13	%		6.59	%

ROCHESTER, Minn., Oct. 19, 2023 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $1.2 billion holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.5 million for the third quarter of 2023, a decrease of $0.3 million, compared to $1.8 million for the third quarter of 2022.   Diluted earnings per share for the third quarter of 2023 were $0.34, a decrease of $0.08 from diluted earnings per share of $0.42 for the third quarter of 2022. Net income for the quarter was negatively impacted by a $0.5 million decrease in net interest income between the periods primarily because of a decrease in the net interest margin as a result of increased funding costs. Net income was also negatively impacted by $0.1 million increase in income tax expense because of a valuation reserve that was established on the deferred tax asset as a result of Wisconsin state tax law changes that were enacted during the quarter. These decreases in net income were partially offset by a $0.3 million decrease in the provision for loan losses between the periods.

President’s Statement
“Maintaining our net interest margin is a challenge in the current rate environment,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “The migration of deposits from lower cost transaction accounts to higher rate certificates of deposit accounts combined with the increased use of wholesale funding during the quarter increased our costs of funds. We will continue to focus our efforts on growing our core deposit relationships in order to reduce the impact of these changes on our overall deposit costs in the future.”   

Third Quarter Results
Net Interest Income
Net interest income was $7.8 million for the third quarter of 2023, a decrease of $0.5 million, or 5.9%, compared to $8.3 million for the third quarter of 2022. Interest income was $11.5 million for the third quarter of 2023, an increase of $2.9 million, or 33.6%, from $8.6 million for the third quarter of 2022. Interest income increased because of the $51.4 million increase in the average interest-earning assets between the periods and also because of the increase in the average yield earned on interest-earning assets between the periods. The average yield earned on interest-earning assets was 4.15% for the third quarter of 2023, an increase of 89 basis points from 3.26% for the third quarter of 2022. The increase in the average yield is primarily related to the increase in market interest rates as a result of the 2.25% increase in the prime interest rate between the periods.

Interest expense was $3.7 million for the third quarter of 2023, an increase of $3.4 million, or 995.3%, compared to $0.3 million for the third quarter of 2022. Interest expense increased primarily because of the increase in the average interest rate paid on interest-bearing liabilities between the periods. Interest expense also increased because of the $45.3 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was 1.46% for the third quarter of 2023, an increase of 132 basis points from 0.14% for the third quarter of 2022. The increase in the average rate paid is primarily related to the change in the types of funding sources as more brokered deposits, certificates of deposit, and Federal Home Loan Bank (FHLB) advances were used in the third quarter of 2023 than in the third quarter of 2022. These funding sources generally have higher interest rates than traditional checking and money market accounts. The increase in market interest rates as a result of the 2.25% increase in the federal funds rate between the periods also contributed to higher funding costs in the third quarter of 2023 when compared to the same period in 2022. Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2023 was 2.81%, a decrease of 32 basis points, compared to 3.13% for the third quarter of 2022.   The decrease in the net interest margin is primarily because the increase in the average rate paid on interest-bearing liabilities and non-interest bearing deposits exceeded the increase in the average yield earned on interest-earning assets between the periods.

        A summary of the Company’s net interest margin for the three and nine-month periods ended September 30, 2023 and 2022 is as follows:

		For the Three-Month Period Ended
		September 30, 2023							September 30, 2022
(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	$	249,489		835		1.33	%	$	288,747		811		1.11	%
Loans held for sale		3,409		56		6.57			1,806		26		5.72
Single family loans, net		254,391		2,637		4.11			187,340		1,646		3.49
Commercial loans, net		537,587		7,099		5.24			465,192		5,270		4.49
Consumer loans, net		45,929		757		6.54			43,403		531		4.86
Other		11,114		143		5.10			64,022		347		2.15
Total interest-earning assets		1,101,919		11,527		4.15			1,050,510		8,631		3.26
Interest-bearing liabilities:
Checking accounts		164,191		280		0.68			159,854		46		0.11
Savings accounts		111,623		27		0.10			126,427		19		0.06
Money market accounts		277,255		1,383		1.98			294,763		207		0.28
Retail certificate accounts		102,894		745		2.87			68,217		64		0.37
Wholesale certificate accounts		95,031		1,179		4.92			5,138		4		0.30
Customer escrows		656		4		2.00			0		0		0.00
Advances and other borrowings		7,804		106		5.40			0		0		0.00
Total interest-bearing liabilities		759,454							654,399
Non-interest checking		248,076							309,616
Other non-interest bearing liabilities		4,364							2,548
Total interest-bearing liabilities and non-interest bearing deposits	$	1,011,894		3,724		1.46		$	966,563		340		0.14
Net interest income			$	7,803						$	8,291
Net interest rate spread						2.69	%						3.12	%
Net interest margin						2.81	%						3.13	%

		For the Nine-Month Period Ended
		September 30, 2023							September 30, 2022
(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	$	259,050		2,430		1.25	%	$	294,394		2,415		1.10	%
Loans held for sale		2,173		103		6.38			2,820		91		4.32
Single family loans, net		229,364		6,782		3.95			177,842		4,593		3.45
Commercial loans, net		529,523		20,136		5.08			458,017		15,229		4.45
Consumer loans, net		46,411		2,150		6.19			42,010		1,476		4.70
Other		9,531		336		4.71			44,950		449		1.34
Total interest-earning assets		1,076,052		31,937		3.97			1,020,033		24,253		3.18
Interest-bearing liabilities:
Checking accounts		165,265		721		0.58			158,665		126		0.11
Savings accounts		115,974		82		0.09			123,896		54		0.06
Money market accounts		267,767		3,087		1.54			271,005		497		0.25
Retail certificate accounts		89,521		1,441		2.15			73,581		222		0.40
Wholesale certificate accounts		73,144		2,635		4.82			5,264		11		0.28
Customer escrows		3,908		59		2.00			0		0		0.00
Advances and other borrowings		7,838		318		5.42			656		5		1.04
Total interest-bearing liabilities		723,417							633,067
Non-interest checking		260,615							303,365
Other non-interest bearing liabilities		3,284							2,511
Total interest-bearing liabilities and non-interest bearing deposits	$	987,316		8,343		1.13		$	938,943		915		0.13
Net interest income			$	23,594						$	23,338
Net interest rate spread						2.84	%						3.05	%
Net interest margin						2.93	%						3.06	%

Provision for Credit Losses
The provision for credit losses was $0.3 million for the third quarter of 2023, a decrease of $0.3 million compared to $0.6 million for the third quarter of 2022. The provision for credit losses decreased primarily because of the decrease in loan growth that was experienced in the third quarter of 2023 when compared to the same period in 2022.   The provision for credit losses also includes an amount for unfunded commitments that decreased $0.1 million during the third quarter of 2023.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluations. The collective reserve amount is assessed based on size and risk characteristics of the various portfolio segments, past loss history and other adjustments determined to have a potential impact on future credit losses. The collective reserve amount increased from June 30, 2023 primarily because of the loan growth that was experienced during the quarter. The Company’s qualitative reserve amount also increased during the quarter as a result of the loan growth that was experienced and because of management’s perception that forecasted economic conditions had slightly deteriorated during the quarter. Total non-performing assets were $ 1.1 million at September 30, 2023, a decrease of $0.7 million compared to $1.8 million at June 30, 2023. The decrease is related to a commercial business loan that was reclassified to performing and a previously foreclosed single family property that was sold during the quarter.

A reconciliation of the Company’s allowance for credit losses for the third quarters of 2023 and 2022 is summarized as follows:

(Dollars in thousands)		2023		2022(1)
Balance at June 30,	$	11,517		9,644
Provision		444		579
Charge offs:
Commercial real estate		0		(90	)
Consumer		0		(8	)
Recoveries		6		16
Balance at September 30,	$	11,967		10,141
Allocated to:
Collective allowance	$	11,803		9,993
Individual allowance		164		148
	$	11,967		10,141

⁽¹⁾   The 2022 amounts presented are calculated under prior accounting standard.

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.        

		September 30,			June 30,
(Dollars in thousands)		2023			2023
Non-performing loans:
Single family	$	638		$	653
Consumer		408			407
Commercial business		35			471
Foreclosed and repossessed assets:
Single family		0			220
Total non-performing assets	$	1,081		$	1,751
Total as a percentage of total assets		0.09	%		0.16	%
Total as a percentage of total loans receivable		0.13	%		0.18	%
Allowance for credit losses to non-performing loans		1,106.53	%		752.44	%
Delinquency data:
Delinquencies (1)
30+ days	$	3,088		$	1,480
90+ days		0			0
Delinquencies as a percentage of loan portfolio (1)
30+ days		0.36	%		0.18	%
90+ days		0.00	%		0.00	%
(1) Excludes non-accrual loans.

The increase in delinquencies during the period is primarily related to a $1.3 million loan relationship in the agricultural industry.

Non-Interest Income and Expense
Non-interest income was $2.2 million for the third quarter of 2023, an increase of $0.1 million, or 6.3%, from $2.1 million for the third quarter of 2022. Other non-interest income increased $0.1 million due primarily to an increase in the income earned on the sales of uninsured investment products between the periods. Gain on sales of loans increased slightly primarily because of an increase in the single family loans that were sold between the periods. Fees and service charges increased slightly between the periods due primarily to an increase in the commitment fees earned on unused commercial lines of credit. Loan servicing fees decreased slightly due to a decrease in the aggregate balances of single family loans that were being serviced for others as more serviced loans were paid off than were added to the servicing portfolio between the periods.

Non-interest expense was $7.3 million for the third quarter of 2023, an increase of $0.1 million, or 1.5%, from $7.2 million for the third quarter of 2022. Compensation and benefits expense increased $0.1 million primarily because of annual salary increases and also because of a decrease in the direct loan origination compensation costs that were deferred as a result of the reduced commercial loan production between the periods. Data processing expense increased $0.1 million due to an increase in system processing charges between the periods. Other non-interest expense increased slightly between the periods primarily because of an increase in FDIC insurance expense due to an increase in assessment rates. These increases in non-interest expenses were partially offset by a $0.1 million decrease in professional services between the periods primarily because of a decrease in legal expenses. Occupancy and equipment expense decreased slightly due primarily to a decrease in non-capitalized equipment costs between the periods.

Income tax expense was $0.9 million for the third quarter of 2023, an increase of $0.1 million from $0.8 million for the third quarter of 2022. The increase in income tax expense between the periods is primarily because of a valuation allowance that was established on our deferred tax asset as a result of Wisconsin state tax law changes that were enacted during the period. This increase in income tax expense was partially offset by a decrease in pre-tax income between the periods.   

Return on Assets and Equity
Return on average assets (annualized) for the third quarter of 2023 was 0.52%, compared to 0.67% for the same period of 2022.   Return on average equity (annualized) was 4.95% for the third quarter of 2023, compared to 6.30% for the same period in 2022.   Book value per common share at September 30, 2023 was $22.68, compared to $20.02 at September 30, 2022.

Nine-Month Period Results

Net Income

Net income was $4.6 million for the nine-month period ended September 30, 2023, a decrease of $1.0 million, or 18.8%, compared to net income of $5.6 million for the nine-month period ended September 30, 2022. Diluted earnings per share for the nine-month period ended September 30, 2023 was $1.04, a decrease of $0.23 per share compared to diluted earnings per share of $1.27 for the same period in 2022. The decrease in net income between the periods was due primarily to a $1.0 million decrease in the gain on sales of loans because of a decrease in mortgage loan sales, a $0.9 million increase in compensation expense due primarily to annual salary increases, a $0.4 million increase in other expenses primarily because of an increase in FDIC insurance expense, and a $0.2 million increase in income tax expense primarily because of a valuation reserve that was established on the deferred tax asset as a result of Wisconsin state tax law changes that were enacted during the period. These decreases in net income were partially offset by a $0.3 million increase in net interest income due to an increase in interest rates and the amount of average interest earning assets outstanding, a $0.3 million decrease in the provision for credit losses, and a $0.3 million decrease in professional expenses due to a decrease in legal fees.

Net Interest Income
Net interest income was $23.6 million for the first nine months of 2023, an increase of $0.3 million, or 1.10%, compared to $23.3 million for the same period of 2022. Interest income was $31.9 million for the first nine months of 2023, an increase of $7.6 million, or 31.7%, from $24.3 million for the first nine months of 2022. Interest income increased because of the $56.0 million increase in the average interest-earning assets between the periods and also because of the increase in the average yield earned on interest-earning assets between the periods. The average yield earned on interest-earning assets was 3.97% for the first nine months of 2023, an increase of 79 basis points from 3.18% for the first nine months of 2022. The increase in the average yield is primarily related to the increase in market interest rates as a result of the 2.25% increase in the prime interest rate between the periods.

Interest expense was $8.3 million for the first nine months of 2023, an increase of $7.4 million, or 811.8%, compared to $0.9 million for the same period of 2022. Interest expense increased primarily because of the increase in the average interest rate paid on interest-bearing liabilities between the periods. Interest expense also increased because of the $48.4 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was 1.13% for the first nine months of 2023, an increase of 100 basis points from 0.13% for the first nine months of 2022. The increase in the average rate paid is primarily related to the change in the types of funding sources used between the periods as more brokered deposits, certificates of deposits, and FHLB advances were used in the first nine months of 2023 than in the first nine months of 2022. These funding sources generally have interest rates that are higher than traditional checking and money market accounts. The increase in market interest rates as a result of the 2.25% increase in the federal funds rate between the periods also contributed to the higher funding costs in the first nine months of 2023 when compared to the same period in 2022. Net interest margin (net interest income divided by average interest-earning assets) for the first nine months of 2023 was 2.93%, a decrease of 13 basis points, compared to 3.06% for the first nine months of 2022. The decrease in the net interest margin is primarily because the increase in the average rate paid on interest-bearing liabilities and non-interest bearing deposits exceeded the increase in the average yield earned on interest-earning assets as a result of the increase in the prime rate between the periods.

Provision for Credit Losses
The provision for credit losses was $0.6 million in the first nine months of 2023, a decrease of $0.3 million compared to $0.9 million for the first nine months of 2022. The provision for credit losses decreased between the periods primarily because the impact on the provision of the additional loan growth that was experienced in the first nine months of 2023 was less than it was for the same period in 2022 under the prior accounting standard.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluations. The collective reserve amount is assessed based on size and risk characteristics of the various portfolio segments, past loss history and other adjustments determined to have a potential impact on future credit losses. The collective reserve amount increased from December 31, 2022 primarily because of the adoption of Accounting Standard Update (ASU) 2016-13 on January 1, 2023 and also because of the loan growth that was experienced during the first nine months of 2023. The Company’s qualitative reserve amount also increased during the first nine months of 2023 as a result of the loan growth that was experienced and because of management’s perception that forecasted economic conditions had slightly deteriorated during the first nine months of 2023. Total non-performing assets were $1.1 million at September 30, 2023, a decrease of $0.8 million compared to $1.9 million at December 31, 2022. The decrease is related to a commercial business loan that was reclassified to performing and a previously classified non-performing single family property that was foreclosed and sold during the first nine months of 2023.

A reconciliation of the Company’s allowance for credit losses for the nine-month periods ending September 30, 2023 and 2022 is summarized as follows:

(Dollars in thousands)		2023			2022
Balance at January 1,	$	10,277			9,279
Adoption of Accounting Standard Update (ASU) 2016-13		1,070			0
Provision		612			941
Charge offs:
Consumer		(27	)		(24	)
Commercial real estate		0			(90	)
Recoveries		35			35
Balance at September 30,	$	11,967			10,141

On January 1, 2023, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The transition to this ASU resulted in a cumulative-effect adjustment to the allowance for credit losses of $1.1 million, an increase in deferred tax assets of $0.3 million, and a decrease to retained earnings of $0.8 million as of the adoption date. In addition, a liability of $0.1 million was established for projected future losses on unfunded commitments on outstanding lines of credit upon adoption. The projected liability for unfunded commitments decreased $0.1 million during the first nine months of 2023 and the provision for credit losses was decreased to reflect the change.

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 most recently completed quarter and December 31, 2022.

		September 30,			December 31,
(Dollars in thousands)		2023			2022
Non-performing loans:
Single family	$	638		$	908
Consumer		408			441
Commercial business		35			529
Total non-performing assets	$	1,081		$	1,878
Total as a percentage of total assets		0.09	%		0.17	%
Total as a percentage of total loans receivable		0.13	%		0.24	%
Allowance for credit losses to non-performing loans		1,106.53	%		547.24	%
Delinquency data:
Delinquencies(1)
30+ days	$	3,088		$	1,405
90+ days		0			0
Delinquencies as a percentage of loan portfolio(1)
30+ days		0.36	%		0.18	%
90+ days		0.00	%		0.00	%
(1)Excludes non-accrual loans.

The increase in delinquencies during the period is primarily related to a $1.3 million loan relationship in the agricultural industry.

Non-Interest Income and Expense
Non-interest income was $6.1 million for the first nine months of 2023, a decrease of $0.8 million, or 12.4%, from $6.9 million for the first nine months of 2022. Gain on sales of loans decreased $1.0 million between the periods because of a decrease in single family loan sales due primarily to an increase in the amount of originated mortgage loans that were placed into the loan portfolio. The increase in mortgage loans that were placed into the portfolio was the result of a targeted effort to originate loans to our executive banking clients. Loan servicing fees decreased slightly between the periods due to a decrease in the aggregate balances of single family loans that were being serviced for others. These decreases were partially offset by a $ 0.1 million increase in fees and service charges between the periods due primarily to an increase in the commitment fees earned on unused commercial lines of credit. Other non-interest income increased $0.1 million due primarily to an increase in the gains realized on equity securities between the periods.

Non-interest expense was $22.4 million for the first nine months of 2023, an increase of $1.0 million, or 4.8%, from $21.4 million for the first nine months of 2022. Compensation and benefits expense increased $0.9 million primarily because of annual salary increases and also because of a decrease in the direct loan origination compensation costs that were deferred as a result of the reduced commercial loan production between the periods. Other non-interest expense increased $0.4 million primarily because of an increase in FDIC insurance expense due to an increase in assessment rates between the periods.   Data processing expenses increased $0.2 million between the periods primarily because of the change to an outsourced data processing relationship at the end of the first quarter of 2022. These increases in non-interest expense were partially offset by a $0.3 million decrease in professional services expense between the periods primarily because of a decrease in legal expenses relating to a bankruptcy litigation claim that was settled in the first quarter of 2022. Occupancy and equipment expense decreased $0.1 million due primarily to a decrease in noncapitalized software costs between the periods.

Income tax expense was $2.1 million for the first nine months of 2023, a decrease of $0.2 million from $2.3 million for the first nine months of 2022. The decrease in income tax expense is the result of a decrease in pre-tax income between the periods. This decrease was partially offset by an increase in income tax expense because of a valuation allowance that was established on the deferred tax asset as a result of Wisconsin state tax law changes that were enacted during the period.

Return on Assets and Equity
Return on average assets (annualized) for the first nine months of 2023 was 0.55%, compared to 0.71% for the same period of 2022. Return on average equity (annualized) was 5.13% for the first nine months of 2023, compared to 6.59% for the same period in 2022. Book value per common share at September 30, 2023 was $22.68, compared to $20.02 at September 30, 2022.

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, La Crescent, Owatonna, Rochester (4), Spring Valley and Winona, one full service office in Marshalltown, Iowa, and one full service office in Pewaukee, Wisconsin. The Bank also operates two loan origination offices located in Sartell, Minnesota and La Crosse, 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 “anticipate,” “continue,” “could,” “expect,” “future,” “may,” “project” and “will,” or similar statements or variations of such terms and include, but are not limited to, those relating to: enacted and expected changes to the federal funds rate and the resulting impacts on consumer deposits, loan originations, and related aspects of the Bank’s business; the anticipated impacts of inflation and rising interest rates on the general economy, the Bank’s clients, and the allowance for credit losses; anticipated future levels of the provision for credit losses; anticipated level of future asset growth; anticipated ability to maintain and grow core deposit relationships; anticipated impact of tax law changes on future taxable state income; anticipated level of future core deposit growth; and the payment of dividends by HMN.

A number of factors, many of which may be amplified by deterioration in economic conditions, 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 changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the Office of the Comptroller of the Currency and the Federal Reserve Bank of Minneapolis in the event of 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 traditional and alternate funding sources, including changes in collateral advance rates and policies of the Federal Home Loan Bank and the Federal Reserve Bank; technological, computer-related or operational difficulties including those from any third party cyberattack; reduced demand for financial services and loan products; adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; domestic and 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; the Company’s 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 “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. All statements in this press release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes 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.)

***END***

HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
		September 30,			December 31,
(Dollars in thousands)		2023			2022
		(unaudited)
Assets
Cash and cash equivalents	$	46,676			36,259
Securities available for sale:
Mortgage-backed and related securities (amortized cost $188,199 and $216,621)		163,849			192,688
Other marketable securities (amortized cost $55,632 and $55,698)		54,318			53,331
Total securities available for sale		218,167			246,019
Loans held for sale		1,898			1,314
Loans receivable, net		850,760			777,078
Accrued interest receivable		3,868			3,003
Mortgage servicing rights, net		2,780			2,986
Premises and equipment, net		16,128			16,492
Goodwill		802			802
Prepaid expenses and other assets		4,067			3,902
Deferred tax asset, net		9,025			8,347
Total assets	$	1,154,171			1,096,202
Liabilities and Stockholders’ Equity
Deposits	$	1,043,588			981,926
Accrued interest payable		2,377			298
Customer escrows		4,649			10,122
Accrued expenses and other liabilities		1,787			6,520
Total liabilities		1,052,401			998,866
Commitments and contingencies
Stockholders’ equity:
Serial-preferred stock ($.01 par value):
authorized 500,000 shares; issued 0		0			0
Common stock ($.01 par value): authorized 16,000,000 shares; issued 9,128,662
outstanding 4,487,362 and 4,480,976		91			91
Additional paid-in capital		41,127			41,013
Retained earnings, subject to certain restrictions		141,175			138,409
Accumulated other comprehensive loss		(18,498	)		(19,761	)
Unearned employee stock ownership plan shares		(918	)		(1,063	)
Treasury stock, at cost 4,641,300 and 4,647,686 shares		(61,207	)		(61,353	)
Total stockholders’ equity		101,770			97,336
Total liabilities and stockholders’ equity	$	1,154,171			1,096,202

HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (unaudited)
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(Dollars in thousands, except per share data)		2023			2022			2023		2022
Interest income:
Loans receivable	$	10,549			7,473			29,171		21,389
Securities available for sale:
Mortgage-backed and related		566			691			1,818		2,126
Other marketable		269			120			612		289
Other		143			347			336		449
Total interest income		11,527			8,631			31,937		24,253
Interest expense:
Deposits		3,614			340			7,966		910
Customer escrows		4			0			59		0
Advances and other borrowings		106			0			318		5
Total interest expense		3,724			340			8,343		915
Net interest income		7,803			8,291			23,594		23,338
Provision for credit losses(1)		318			579			566		941
Net interest income after provision for credit losses		7,485			7,712			23,028		22,397
Non-interest income:
Fees and service charges		857			821			2,495		2,397
Loan servicing fees		390			406			1,181		1,188
Gain on sales of loans		463			414			1,092		2,096
Other		474			413			1,318		1,264
Total non-interest income		2,184			2,054			6,086		6,945
Non-interest expense:
Compensation and benefits		4,455			4,355			13,719		12,805
Occupancy and equipment		893			918			2,757		2,865
Data processing		566			513			1,616		1,443
Professional services		245			306			774		1,095
Other		1,122			1,082			3,565		3,201
Total non-interest expense		7,281			7,174			22,431		21,409
Income before income tax expense		2,388			2,592			6,683		7,933
Income tax expense		890			761			2,130		2,326
Net income		1,498			1,831			4,553		5,607
Other comprehensive income (loss), net of tax		(1,688	)		(7,189	)		1,263		(23,458	)
Comprehensive income (loss) available to common stockholders	$	(190	)		(5,358	)		5,816		(17,851	)
Basic earnings per share	$	0.34			0.42			1.05		1.28
Diluted earnings per share	$	0.34			0.42			1.04		1.27

⁽¹⁾ The Company adopted ASU 2016-13 as of January 1, 2023. The 2022 amounts presented are calculated under the prior accounting standard.

HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
SELECTED FINANCIAL DATA:		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share data)		2023		2022		2023		2022
I. OPERATING DATA:
Interest income	$	11,527		8,631		31,937		24,253
Interest expense		3,724		340		8,343		915
Net interest income		7,803		8,291		23,594		23,338
II. AVERAGE BALANCES:
Assets(1)		1,139,750		1,088,301		1,113,180		1,058,020
Loans receivable, net		837,907		695,935		805,298		677,869
Securities available for sale(1)		249,489		288,747		259,050		294,394
Interest-earning assets(1)		1,101,919		1,050,510		1,076,052		1,020,033
Interest-bearing liabilities and non-interest bearing deposits		1,011,894		966,563		987,316		938,943
Equity(1)		120,006		115,183		118,690		113,783
III. PERFORMANCE RATIOS:(1)
Return on average assets (annualized)		0.52	%	0.67	%	0.55	%	0.71	%
Interest rate spread information:
Average during period		2.69		3.12		2.84		3.05
End of period		2.75		3.27		2.75		3.27
Net interest margin		2.81		3.13		2.93		3.06
Ratio of operating expense to average total assets (annualized)		2.53		2.62		2.69		2.71
Return on average common equity (annualized)		4.95		6.30		5.13		6.59
Efficiency		72.90		69.35		75.58		70.70
		September 30,		December 31,		September 30,
		2023		2022		2022
IV. EMPLOYEE DATA:
Number of full time equivalent employees		159		165		168
V. ASSET QUALITY:
Total non-performing assets	$	1,081		1,878		1,811
Non-performing assets to total assets		0.09	%	0.17	%	0.17	%
Non-performing loans to total loans receivable		0.13		0.24		0.24
Allowance for credit losses(2)	$	11,967		10,277		10,141
Allowance for credit losses to total assets(2)		1.04	%	0.94	%	0.97	%
Allowance for credit losses to total loans receivable(2)		1.39		1.30		1.35
Allowance for credit losses to non-performing loans(2)		1,106.53		547.24		559.85
VI. BOOK VALUE PER COMMON SHARE:
Book value per common share	$	22.68		21.72		20.02
	Nine Months Ended September 30, 2023		Year Ended December 31, 2022		Nine Months Ended September 30, 2022
VII. CAPITAL RATIOS:
Stockholders’ equity to total assets, at end of period		8.82	%	8.88	%	8.56	%
Average stockholders’ equity to average assets(1)		10.66		10.73		10.75
Ratio of average interest-earning assets to average interest- bearing liabilities and non-interest bearing deposits(1)		108.99		108.65		108.64
Home Federal Savings Bank regulatory capital ratios:
Common equity tier 1 capital ratio		11.11		11.48		11.47
Tier 1 capital leverage ratio		8.93		9.14		8.95
Tier 1 capital ratio		11.11		11.48		11.47
Risk-based capital		12.37		12.65		12.66

⁽¹⁾   Average balances were calculated based upon amortized cost without the market value impact of ASC 320.
⁽²⁾   The Company adopted ASU 2016-13 as of January 1, 2023. The 2022 amounts presented are calculated under the prior accounting standard.

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

 

FAQ

What was the net income for the third quarter of 2023?

The net income for the third quarter of 2023 was $1.5 million.

How did diluted earnings per share change in the third quarter of 2023 compared to the same period in 2022?

Diluted earnings per share decreased by $0.08 in the third quarter of 2023 compared to the same period in 2022.

What was the net interest income for the third quarter of 2023?

The net interest income for the third quarter of 2023 was $7.8 million.

What was the net interest margin for the third quarter of 2023?

The net interest margin for the third quarter of 2023 was 2.81%.

How did net loans receivable change in the third quarter of 2023 compared to June 30, 2023?

Net loans receivable increased by $24 million in the third quarter of 2023 compared to June 30, 2023.