HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $1.1
billion holding company for Home Federal Savings Bank (the Bank),
today reported net income of $2.3 million for the second quarter of
2022, a decrease of $2.2 million, compared to net income of $4.5
million for the second quarter of 2021. Diluted earnings per share
for the second quarter of 2022 was $0.52, a decrease of $0.48, from
the diluted earnings per share of $1.00 for the second quarter of
2021. The decrease in net income between the periods was primarily
because of a $1.4 million decrease in other non-interest income due
to a decrease in the gains realized on the sale of real estate
owned. Other items impacting net income were a $1.0 million
increase in the provision for loan losses primarily because of the
increase in qualitative reserves and a $0.9 million decrease in the
gain on sales of loans due to a decrease in mortgage loan
originations and sales. These decreases in net income were
partially offset by a $0.9 million decrease in income tax expense
as a result of the decrease in pre-tax income between the periods.
President’s Statement “We are pleased to report
the asset growth that we have experienced and the positive impact
that it has had on our net interest income,” said Bradley Krehbiel,
President and Chief Executive Officer of HMN. “The increases in the
Prime interest rate during the first six months of 2022 also had a
positive impact on our net interest income. The combined impact of
these items helped offset the reduction in interest income as a
result of recording fewer yield enhancements related to the
Paycheck Protection Program (PPP) between the periods.”
Second Quarter Results
Net Interest Income Net interest income was $7.8
million for the second quarter of 2022, an increase of $0.1
million, or 1.1%, compared to $7.7 million for the second quarter
of 2021. Interest income was $8.1 million for the second quarter of
2022, the same as the second quarter of 2021. Interest income
remained the same, despite the $62.5 million increase in the
average interest-earning assets between the periods, primarily
because of a decrease in the average yield earned on
interest-earning assets between the periods. The average yield
earned on interest-earning assets was 3.22% for the second quarter
of 2022, a decrease of 22 basis points from 3.44% for the second
quarter of 2021. The decrease in the average yield is primarily
related to the $0.6 million decrease in the yield enhancements
recognized on PPP loans that were repaid between the periods.
Interest expense was $0.3 million for the second
quarter of 2022, a decrease of $0.1 million, or 28.8%, compared to
$0.4 million for the second quarter of 2021. Interest expense
decreased, despite the $62.2 million increase in the average
interest-bearing liabilities and non-interest bearing deposits
between the periods, primarily because of the decrease in the
average interest rate paid on deposits. The average interest rate
paid on interest-bearing liabilities and non-interest bearing
deposits was 0.13% for the second quarter of 2022, a decrease of 6
basis points from 0.19% for the second quarter of 2021. The
decrease in the interest paid on interest-bearing liabilities was
primarily because of the repricing of maturing certificates of
deposit in the continued low interest rate environment. Net
interest margin (net interest income divided by average
interest-earning assets) for the second quarter of 2022 was 3.10%,
a decrease of 17 basis points, compared to 3.27% for the second
quarter of 2021. The decrease in the net interest margin is
primarily related to the decrease in the average yield earned on
interest-earning assets. The decrease in the average yield is
primarily related to the $0.6 million decrease in the yield
enhancements recognized on PPP loans that were repaid between the
periods.
A summary of the Company’s net interest margin
for the three and six month periods ended June 30, 2022 and 2021 is
as follows:
|
|
For the three month period ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
(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 |
$ |
299,138 |
|
816 |
|
1.09 |
% |
$ |
197,739 |
|
502 |
|
1.02 |
% |
Loans held for sale |
|
2,710 |
|
30 |
|
4.53 |
|
|
4,821 |
|
38 |
|
3.14 |
|
Single family loans, net |
|
175,948 |
|
1,511 |
|
3.44 |
|
|
155,205 |
|
1,418 |
|
3.66 |
|
Commercial loans, net |
|
459,406 |
|
5,151 |
|
4.50 |
|
|
442,794 |
|
5,571 |
|
5.05 |
|
Consumer loans, net |
|
41,869 |
|
473 |
|
4.53 |
|
|
47,235 |
|
530 |
|
4.50 |
|
Other |
|
27,012 |
|
76 |
|
1.13 |
|
|
95,750 |
|
35 |
|
0.15 |
|
Total
interest-earning assets |
|
1,006,083 |
|
8,057 |
|
3.22 |
|
|
943,544 |
|
8,094 |
|
3.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
155,832 |
|
38 |
|
0.10 |
|
|
161,288 |
|
48 |
|
0.12 |
|
Savings accounts |
|
124,170 |
|
18 |
|
0.06 |
|
|
113,717 |
|
18 |
|
0.06 |
|
Money market accounts |
|
267,024 |
|
158 |
|
0.24 |
|
|
240,852 |
|
141 |
|
0.24 |
|
Certificate accounts |
|
78,956 |
|
73 |
|
0.37 |
|
|
95,306 |
|
203 |
|
0.86 |
|
Advances and other borrowings |
|
1,968 |
|
5 |
|
1.04 |
|
|
0 |
|
0 |
|
0.00 |
|
Total interest-bearing liabilities |
|
627,950 |
|
|
|
|
|
|
611,163 |
|
|
|
|
|
Non-interest checking |
|
296,715 |
|
|
|
|
|
|
251,196 |
|
|
|
|
|
Other non-interest bearing deposits |
|
2,350 |
|
|
|
|
|
|
2,425 |
|
|
|
|
|
Total
interest-bearing liabilities and non-interest bearing deposits |
$ |
927,015 |
|
292 |
|
0.13 |
|
$ |
864,784 |
|
410 |
|
0.19 |
|
Net interest
income |
|
|
$ |
7,765 |
|
|
|
|
|
$ |
7,684 |
|
|
|
Net interest
rate spread |
|
|
|
|
|
3.09 |
% |
|
|
|
|
|
3.25 |
% |
Net interest
margin |
|
|
|
|
|
3.10 |
% |
|
|
|
|
|
3.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six month period ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
(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 |
$ |
297,264 |
|
1,604 |
|
1.09 |
% |
$ |
181,220 |
|
1,000 |
|
1.11 |
% |
Loans held for sale |
|
3,335 |
|
65 |
|
3.93 |
|
|
4,953 |
|
75 |
|
3.04 |
|
Single family loans, net |
|
173,014 |
|
2,947 |
|
3.43 |
|
|
150,114 |
|
2,747 |
|
3.69 |
|
Commercial loans, net |
|
454,371 |
|
9,959 |
|
4.42 |
|
|
440,351 |
|
10,943 |
|
5.01 |
|
Consumer loans, net |
|
41,301 |
|
945 |
|
4.61 |
|
|
49,722 |
|
1,152 |
|
4.67 |
|
Other |
|
35,256 |
|
102 |
|
0.58 |
|
|
94,495 |
|
66 |
|
0.14 |
|
Total
interest-earning assets |
|
1,004,541 |
|
15,622 |
|
3.14 |
|
|
920,855 |
|
15,983 |
|
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
158,061 |
|
79 |
|
0.10 |
|
|
157,802 |
|
92 |
|
0.12 |
|
Savings accounts |
|
122,610 |
|
36 |
|
0.06 |
|
|
109,778 |
|
34 |
|
0.06 |
|
Money market accounts |
|
258,929 |
|
290 |
|
0.23 |
|
|
232,255 |
|
270 |
|
0.23 |
|
Certificate accounts |
|
81,635 |
|
165 |
|
0.41 |
|
|
97,541 |
|
467 |
|
0.97 |
|
Advances and other borrowings |
|
990 |
|
5 |
|
1.04 |
|
|
0 |
|
0 |
|
0.00 |
|
Total interest-bearing liabilities |
|
622,225 |
|
|
|
|
|
|
597,376 |
|
|
|
|
|
Non-interest checking |
|
300,187 |
|
|
|
|
|
|
243,874 |
|
|
|
|
|
Other non-interest bearing deposits |
|
2,492 |
|
|
|
|
|
|
2,485 |
|
|
|
|
|
Total
interest-bearing liabilities and non-interest bearing deposits |
$ |
924,904 |
|
575 |
|
0.13 |
|
$ |
843,735 |
|
863 |
|
0.21 |
|
Net interest
income |
|
|
$ |
15,047 |
|
|
|
|
|
$ |
15,120 |
|
|
|
Net interest
rate spread |
|
|
|
|
|
3.01 |
% |
|
|
|
|
|
3.29 |
% |
Net interest
margin |
|
|
|
|
|
3.02 |
% |
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses The provision for loan
losses was $0.1 million for the second quarter of 2022, an increase
of $1.0 million compared to ($0.9) million for the second quarter
of 2021. The provision for loan losses increased between the
periods primarily because of an increase in the qualitative
reserves due to the perceived negative impact on borrowers from
rising inflation and interest rates. The credit provision recorded
in 2021 was primarily the result of improvements in the underlying
operations supporting many of the loans that were initially
negatively impacted by the COVID-19 pandemic in 2020.
The allowance for loan losses is made up of
general reserves on the entire loan portfolio and specific reserves
on impaired loans. The general reserve amount includes quantitative
reserves based on the size and risk characteristics of the
portfolio and past loan loss history and qualitative reserves for
other items determined to have a potential impact on future loan
losses. The general reserves increased during the quarter as a
result of an increase in the required qualitative reserves. The
qualitative reserves for loan losses related to the disruption in
business activity as a result of the COVID-19 pandemic was reduced
during the quarter because of a perceived reduction in this risk
due to improving conditions. The reduction in pandemic related
qualitative reserves was entirely offset by an increase in the
qualitative reserves for other economic factors. The other
qualitative reserves were increased due to a perceived
deterioration of economic conditions during the quarter, including
an increase in the rate of inflation, and enacted and expected
increases in the federal funds rate. Total non-performing assets
were $4.3 million at June 30, 2022, a decrease of $0.5 million, or
11.0%, from $4.8 million at March 31, 2022. Non-performing loans
decreased $0.2 million and foreclosed and repossessed assets
decreased $0.3 million during the second quarter of 2022.
A reconciliation of the Company’s allowance for
loan losses for the quarters ended June 30, 2022 and 2021 is
summarized as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2022 |
|
2021 |
Balance at March 31, |
$ |
9,584 |
|
|
10,132 |
|
Provision |
|
66 |
|
|
(891 |
) |
Charge
offs: |
|
|
|
|
Consumer |
|
(15 |
) |
|
(11 |
) |
Recoveries |
|
9 |
|
|
685 |
|
Balance at
June 30, |
$ |
9,644 |
|
|
9,915 |
|
Allocated
to: |
|
|
|
|
General allowance |
$ |
9,240 |
|
|
9,652 |
|
Specific allowance |
|
404 |
|
|
263 |
|
|
$ |
9,644 |
|
|
9,915 |
|
|
|
|
|
|
The $0.7 million of recoveries in the second quarter of 2021
relates primarily to a commercial loan in the transportation
industry.
The following table summarizes the amounts and
categories of non-performing assets in the Bank’s portfolio and
loan delinquency information as of the end of the three most
recently completed quarters.
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2022 |
|
|
2022 |
|
|
2021 |
|
Non‑performing loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
565 |
|
$ |
478 |
|
$ |
340 |
|
Commercial real estate |
|
3,286 |
|
|
3,551 |
|
|
3,757 |
|
Consumer |
|
436 |
|
|
500 |
|
|
517 |
|
Commercial |
|
7 |
|
|
7 |
|
|
7 |
|
Total |
|
4,294 |
|
|
4,536 |
|
|
4,621 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
and repossessed assets: |
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
0 |
|
|
290 |
|
|
290 |
|
Total
non‑performing assets |
$ |
4,294 |
|
$ |
4,826 |
|
$ |
4,911 |
|
Total as a
percentage of total assets |
|
0.40 |
% |
|
0.47 |
% |
|
0.46 |
% |
Total as a
percentage of total loans receivable |
|
0.62 |
% |
|
0.66 |
% |
|
0.70 |
% |
Allowance
for loan loss to non-performing loans |
|
224.61 |
% |
|
211.31 |
% |
|
200.81 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency
data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
2,504 |
|
$ |
913 |
|
$ |
1,418 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage of loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.36 |
% |
|
0.13 |
% |
|
0.21 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
(1) Excludes non-accrual loans. |
|
|
|
|
|
|
|
|
|
Non-Interest Income and Expense Non-interest
income was $2.5 million for the second quarter of 2022, a decrease
of $2.2 million, or 46.9%, from $4.7 million for the second quarter
of 2021. Other non-interest income decreased $1.4 million due
primarily to a decrease in the gains that were realized on the sale
of real estate owned between the periods. Gain on sales of loans
decreased $0.9 million due primarily to a decrease in mortgage loan
originations and sales between the periods. These decreases in
non-interest income were partially offset by a slight increase in
fees and service charges due primarily to an increase in overdraft
fees between the periods. Loan servicing fees increased slightly
between the periods due to an increase in the aggregate balances of
single family mortgage loans that were being serviced for
others.
Non-interest expense was $7.0 million for the
second quarter of 2022, the same as for the second quarter of 2021.
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. Compensation
and benefits expense increased $0.1 million primarily because of a
decrease in the direct loan origination compensation costs that
were deferred as a result of the decreased mortgage loan production
between the periods. These increases in non-interest expense were
partially offset by a $0.2 million decrease in occupancy and
equipment expense due primarily to a decrease in rent expense
between the periods as a result of purchasing the combined
corporate and branch location in Rochester, Minnesota in the fourth
quarter of 2021. Other non-interest expense decreased slightly
between the periods primarily because of a decrease in mortgage
servicing expenses as a result of having less loans in the
servicing portfolio being prepaid. Professional services expense
decreased slightly between the periods primarily because of a
decrease in employee recruiting fees paid.
Income tax expense was $0.9 million for the
second quarter of 2022, a decrease of $0.9 million from $1.8
million for the second quarter of 2021. The decrease in income tax
expense between the periods is primarily the result of a decrease
in pre-tax income.
Return on Assets and Equity Return on average
assets (annualized) for the second quarter of 2022 was 0.88%,
compared to 1.86% for the second quarter of 2021. Return on average
equity (annualized) was 8.09% for the second quarter of 2022,
compared to 17.18% for the second quarter of 2021. Book value per
common share at June 30, 2022 was $21.25, compared to $23.24 at
June 30, 2021. The reduction in the book value per common share
between the periods is primarily related to the increase in the
unrealized losses on the available for sale securities portfolio
that were recorded in equity as other comprehensive losses.
Six Month Period Results
Net
Income Net income
was $3.8 million for the six month period ended June 30, 2022, a
decrease of $4.1 million, or 52.5%, compared to net income of $7.9
million for the six month period ended June 30, 2021. Diluted
earnings per share for the six month period ended June 30, 2022 was
$0.86, a decrease of $0.88 per share compared to diluted earnings
per share of $1.74 for the same period in 2021. The decrease in net
income between the periods was primarily because of a $1.9 million
increase in the provision for loan losses due to an increase in
qualitative reserves, a $1.7 million decrease in the gain on sales
of loans due to a decrease in mortgage loan originations and sales,
a $1.4 million decrease in other non-interest income primarily
because of a decrease in the gains that were realized on the sale
of real estate owned, and a $0.5 million increase in compensation
and benefits expense primarily because of a decrease in the direct
loan origination compensation costs that were deferred as a result
of the decreased mortgage loan production. These decreases in net
income were partially offset by a $1.6 million decrease in income
tax expense as a result of the decrease in pre-tax income between
the periods.
Net Interest Income Net interest income was
$15.0 million for the first six months of 2022, a decrease of $0.1
million, or 0.5%, compared to $15.1 million for the same period of
2021. Interest income was $15.6 million for the first six months of
2022, a decrease of $0.4 million, or 2.3%, from $16.0 million for
the first six months of 2021. Interest income decreased, despite
the $83.7 million increase in the average interest-earning assets
between the periods, primarily because of a decrease in the average
yield earned on interest-earning assets between the periods. The
average yield earned on interest-earning assets was 3.14% for the
first six months of 2022, a decrease of 36 basis points from 3.50%
for the first six months of 2021. The decrease in the average yield
is primarily related to the $1.2 million decrease in the yield
enhancements recognized on PPP loans that were repaid between the
periods.
Interest expense was $0.6 million for the first
six months of 2022, a decrease of $0.3 million, or 33.4%, compared
to $0.9 million for the same period of 2021. Interest expense
decreased, despite the $81.2 million increase in the average
interest-bearing liabilities and non-interest bearing deposits
between the periods, primarily because of the decrease in the
average interest rate paid on deposits. The average interest rate
paid on interest-bearing liabilities and non-interest bearing
deposits was 0.13% for the first six months of 2022, a decrease of
8 basis points from 0.21% for the first six months of 2021. The
decrease in the interest paid on interest-bearing liabilities was
primarily because of the repricing of maturing certificates of
deposit in the continued low interest rate environment. Net
interest margin (net interest income divided by average
interest-earning assets) for the first six months of 2022 was
3.02%, a decrease of 29 basis points, compared to 3.31% for the
first six months of 2021. The decrease in the net interest margin
is primarily related to the decrease in the average yield earned on
interest-earning assets. The decrease in the average yield is
primarily related to the $1.2 million decrease in the yield
enhancements recognized on PPP loans that were repaid between the
periods.
Provision for Loan Losses The provision for loan
losses was $0.4 million for the first six months of 2022, an
increase of $1.9 million compared to ($1.5) million for the first
six months of 2021. The provision for loan losses increased between
the periods primarily because of an increase in the qualitative
reserves due to the perceived negative impact on borrowers of
rising inflation and interest rates. The credit provision recorded
in 2021 was primarily the result of improvements in the underlying
operations supporting many of the loans that were initially
negatively impacted by the COVID-19 pandemic in 2020.
The allowance for loan losses is made up of
general reserves on the entire loan portfolio and specific reserves
on impaired loans. The general reserve amount includes quantitative
reserves based on the size and risk characteristics of the
portfolio and past loan loss history and qualitative reserves for
other items determined to have a potential impact on future loan
losses. The general reserves increased during the period as a
result of an increase in the required quantitative reserves due to
an increase in the loan portfolio and changes in the risk
characteristics of certain loans. The qualitative allowance for
loan losses related to the disruption in business activity as a
result of the COVID-19 pandemic was reduced during the period
because of a perceived reduction in this risk due to improving
conditions. The reduction in pandemic related qualitative reserves
was entirely offset by an increase in the qualitative reserves for
other economic factors. The other qualitative reserves were
increased due to a perceived deterioration of economic condition
during the first six months of 2022, including an increase in the
rate of inflation, and enacted and expected increases in the
federal funds rate. Total non-performing assets were $4.3 million
at June 30, 2022, a decrease of $0.6 million, or 12.6%, from $4.9
million at December 31, 2021. Non-performing loans decreased $0.3
million and foreclosed and repossessed assets decreased $0.3
million during the first six months of 2022.
A reconciliation of the Company’s allowance for
loan losses for the six month periods ended June 30, 2022 and 2021
is summarized as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2022 |
|
2021 |
Balance at January 1, |
$ |
9,279 |
|
|
10,699 |
|
Provision |
|
362 |
|
|
(1,467 |
) |
Charge
offs: |
|
|
|
|
Consumer |
|
(16 |
) |
|
(42 |
) |
Recoveries |
|
19 |
|
|
725 |
|
Balance at
June 30, |
$ |
9,644 |
|
|
9,915 |
|
|
|
|
|
|
The $0.7 million of recoveries in the first six months of 2021
relates primarily to a commercial loan in the transportation
industry
Non-Interest Income and Expense Non-interest
income was $4.9 million for the first six months of 2022, a
decrease of $3.1 million, or 38.8%, from $8.0 million for the first
six months of 2021. Gain on sales of loans decreased $1.7 million
due primarily to a decrease in mortgage loan originations and sales
between the periods. Other non-interest income decreased $1.4
million due primarily because of a decrease in the gains that were
realized on the sale of real estate owned between the periods.
These decreases in non-interest income were partially offset by a
$0.1 million increase in fees and service charges due primarily to
an increase in overdraft fees between the periods. Loan servicing
fees increased slightly between the periods due to an increase in
the aggregate balances of single family mortgage loans that were
being serviced for others.
Non-interest expense was $14.2 million for the
first six months of 2022, an increase of $0.7 million, or 5.8%,
from $13.5 million for the first six months of 2021. Compensation
and benefits expense increased $0.5 million primarily because of a
decrease in the direct loan origination compensation costs that
were deferred as a result of the decreased mortgage loan production
between the periods. Professional services expense increased $0.3
million between the periods primarily because of an increase in
legal expenses relating to a bankruptcy litigation claim that was
settled during the first quarter of 2022. 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 occupancy and
equipment expense due primarily to a decrease in rent expense
between the periods as a result of purchasing the combined
corporate and branch location in Rochester, Minnesota in the fourth
quarter of 2021. Other non-interest expense decreased slightly
between the periods primarily because of a decrease in mortgage
servicing expenses as a result of having less loans in the
servicing portfolio being prepaid.
Income tax expense was $1.6 million for the
first six months of 2022, a decrease of $1.6 million from $3.2
million for the first six months of 2021. The decrease in income
tax expense between the periods is primarily the result of a
decrease in pre-tax income.
Return on Assets and Equity Return on average
assets (annualized) for the six month period ended June 30, 2022
was 0.73%, compared to 1.68% for the same six month period in 2021.
Return on average equity (annualized) was 6.73% for the six month
period ended June 30, 2022, compared to 15.31% for the same six
month period in 2021. Book value per common share at June 30, 2022
was $21.25, compared to $23.24 at June 30, 2021. The reduction in
the book value per common share between the periods is primarily
related to the increase in the unrealized losses on the available
for sale securities portfolio that were recorded in equity as other
comprehensive losses.
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 “expect,” “estimate,” “intend,”
“look,” “believe,” “anticipate,” “project,” “continue,” “may,”
“will,” “would,” “could,” “target,” “goal,” “should,” and “trend,”
or similar statements or variations of such terms and include, but
are not limited to, those relating to: maintaining credit quality;
maintaining net interest margins; the adequacy and amount of
available liquidity and capital resources to Home Federal Savings
Bank (the Bank); the Company’s liquidity and capital requirements;
enacted and expected changes to the federal funds rate; the
anticipated impacts of the COVID-19 pandemic and efforts to
mitigate the same on the general economy, the Bank’s clients, and
the allowance for loan losses; the amount of the Bank’s
non-performing assets in future periods and the appropriateness of
the allowances 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 and
compositions of non-interest and interest-bearing liabilities; the
availability of alternate funding sources; the payment of dividends
or repurchases of stock by HMN; 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; the impact of new accounting pronouncements; 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.
A number of factors, many of which may be
amplified by the COVID-19 pandemic and efforts to mitigate the
same, 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; 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; 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, 2021and 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 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.)
HMN
FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated
Balance Sheets |
|
|
|
|
|
|
|
June 30, |
|
December 31, |
(Dollars in thousands) |
|
2022 |
|
2021 |
|
|
(unaudited) |
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
$ |
94,954 |
|
|
94,143 |
|
Securities
available for sale: |
|
|
|
|
Mortgage-backed and related securities |
|
|
|
|
|
|
(amortized cost $237,544 and $247,275) |
|
215,504 |
|
|
245,397 |
|
Other marketable securities |
|
|
|
|
|
|
(amortized cost $55,696 and $40,691) |
|
53,852 |
|
|
40,368 |
|
|
|
269,356 |
|
|
285,765 |
|
|
|
|
|
|
Loans held
for sale |
|
2,709 |
|
|
5,575 |
|
Loans
receivable, net |
|
678,512 |
|
|
652,502 |
|
Accrued
interest receivable |
|
2,396 |
|
|
2,132 |
|
Mortgage
servicing rights, net |
|
3,234 |
|
|
3,280 |
|
Premises and
equipment, net |
|
16,950 |
|
|
17,373 |
|
Goodwill |
|
802 |
|
|
802 |
|
Core deposit
intangible |
|
0 |
|
|
10 |
|
Prepaid
expenses and other assets |
|
5,704 |
|
|
5,427 |
|
Deferred tax
asset, net |
|
7,392 |
|
|
2,529 |
|
Total assets |
$ |
1,082,009 |
|
|
1,069,538 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Deposits |
$ |
978,863 |
|
|
950,666 |
|
Accrued
interest payable |
|
53 |
|
|
63 |
|
Customer
escrows |
|
2,133 |
|
|
2,143 |
|
Accrued
expenses and other liabilities |
|
5,112 |
|
|
6,635 |
|
Total liabilities |
|
986,161 |
|
|
959,507 |
|
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 |
|
91 |
|
|
91 |
|
Additional
paid-in capital |
|
40,775 |
|
|
40,740 |
|
Retained
earnings, subject to certain restrictions |
|
134,661 |
|
|
131,413 |
|
Accumulated
other comprehensive loss |
|
(17,852 |
) |
|
(1,583 |
) |
Unearned
employee stock ownership plan shares |
|
(1,159 |
) |
|
(1,256 |
) |
Treasury
stock, at cost 4,617,686 and 4,564,087 shares |
|
(60,668 |
) |
|
(59,374 |
) |
Total stockholders’ equity |
|
95,848 |
|
|
110,031 |
|
Total
liabilities and stockholders’ equity |
$ |
1,082,009 |
|
|
1,069,538 |
|
|
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES Consolidated Statements of
Comprehensive Income (unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
(Dollars in thousands, except per share data) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
7,165 |
|
|
7,557 |
|
|
13,916 |
|
|
14,917 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
708 |
|
|
440 |
|
|
1,435 |
|
|
831 |
|
Other marketable |
|
108 |
|
|
62 |
|
|
169 |
|
|
169 |
|
Other |
|
76 |
|
|
35 |
|
|
102 |
|
|
66 |
|
Total interest income |
|
8,057 |
|
|
8,094 |
|
|
15,622 |
|
|
15,983 |
|
|
|
|
|
|
|
|
|
|
Interest
expense: |
|
|
|
|
|
|
|
|
Deposits |
|
287 |
|
|
410 |
|
|
570 |
|
|
863 |
|
Advances and other borrowings |
|
5 |
|
|
0 |
|
|
5 |
|
|
0 |
|
Total interest expense |
|
292 |
|
|
410 |
|
|
575 |
|
|
863 |
|
Net interest income |
|
7,765 |
|
|
7,684 |
|
|
15,047 |
|
|
15,120 |
|
Provision
for loan losses |
|
66 |
|
|
(891 |
) |
|
362 |
|
|
(1,467 |
) |
Net interest income after provision for loan losses |
|
7,699 |
|
|
8,575 |
|
|
14,685 |
|
|
16,587 |
|
|
|
|
|
|
|
|
|
|
Non-interest
income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
810 |
|
|
783 |
|
|
1,576 |
|
|
1,522 |
|
Loan servicing fees |
|
396 |
|
|
384 |
|
|
782 |
|
|
779 |
|
Gain on sales of loans |
|
814 |
|
|
1,665 |
|
|
1,682 |
|
|
3,438 |
|
Other |
|
496 |
|
|
1,910 |
|
|
851 |
|
|
2,258 |
|
Total non-interest income |
|
2,516 |
|
|
4,742 |
|
|
4,891 |
|
|
7,997 |
|
|
|
|
|
|
|
|
|
|
Non-interest
expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
4,162 |
|
|
4,096 |
|
|
8,450 |
|
|
7,917 |
|
Occupancy and equipment |
|
897 |
|
|
1,104 |
|
|
1,947 |
|
|
2,211 |
|
Data processing |
|
576 |
|
|
368 |
|
|
930 |
|
|
715 |
|
Professional services |
|
260 |
|
|
283 |
|
|
789 |
|
|
486 |
|
Other |
|
1,088 |
|
|
1,129 |
|
|
2,119 |
|
|
2,130 |
|
Total non-interest expense |
|
6,983 |
|
|
6,980 |
|
|
14,235 |
|
|
13,459 |
|
Income before income tax expense |
|
3,232 |
|
|
6,337 |
|
|
5,341 |
|
|
11,125 |
|
Income tax
expense |
|
943 |
|
|
1,809 |
|
|
1,565 |
|
|
3,179 |
|
Net income |
|
2,289 |
|
|
4,528 |
|
|
3,776 |
|
|
7,946 |
|
Other
comprehensive (loss) income, net of tax |
|
(6,251 |
) |
|
421 |
|
|
(16,269 |
) |
|
(820 |
) |
Comprehensive (loss) income available to common stockholders |
$ |
(3,962 |
) |
|
4,949 |
|
|
(12,493 |
) |
|
7,126 |
|
Basic
earnings per share |
$ |
0.52 |
|
|
1.01 |
|
|
0.86 |
|
|
1.76 |
|
Diluted
earnings per share |
$ |
0.52 |
|
|
1.00 |
|
|
0.86 |
|
|
1.74 |
|
|
|
|
|
|
|
|
|
|
HMN
FINANCIAL, INC. AND SUBSIDIARIES |
Selected
Consolidated Financial Information |
(unaudited) |
|
Selected Financial Data: |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
(Dollars in thousands, except per share data) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
I. OPERATING DATA: |
|
|
|
|
|
|
|
|
|
Interest income |
$ |
8,057 |
|
8,094 |
|
15,622 |
|
15,983 |
|
Interest expense |
|
292 |
|
410 |
|
575 |
|
863 |
|
Net interest income |
|
7,765 |
|
7,684 |
|
15,047 |
|
15,120 |
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
|
Assets (1) |
|
1,044,524 |
|
977,622 |
|
1,042,629 |
|
955,320 |
|
Loans receivable, net |
|
677,223 |
|
645,234 |
|
668,686 |
|
640,187 |
|
Securities available for sale (1) |
|
299,138 |
|
197,739 |
|
297,264 |
|
181,220 |
|
Interest-earning assets (1) |
|
1,006,083 |
|
943,544 |
|
1,004,541 |
|
920,855 |
|
Interest-bearing liabilities and non-interest bearing deposits |
|
927,015 |
|
864,784 |
|
924,904 |
|
843,735 |
|
Equity (1) |
|
113,541 |
|
105,693 |
|
113,072 |
|
104,661 |
|
|
|
|
|
|
|
|
|
|
|
III.
PERFORMANCE RATIOS: (1) |
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
0.88 |
% |
1.86 |
% |
0.73 |
% |
1.68 |
% |
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
Average during period |
|
3.09 |
|
3.25 |
|
3.01 |
|
3.29 |
|
End of period |
|
2.98 |
|
3.56 |
|
2.98 |
|
3.56 |
|
Net interest margin |
|
3.10 |
|
3.27 |
|
3.02 |
|
3.31 |
|
Ratio of operating expense to average |
|
|
|
|
|
|
|
|
|
total assets (annualized) |
|
2.68 |
|
2.86 |
|
2.75 |
|
2.84 |
|
Return on average equity (annualized) |
|
8.09 |
|
17.18 |
|
6.73 |
|
15.31 |
|
Efficiency |
|
67.92 |
|
56.17 |
|
71.39 |
|
58.22 |
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|
|
|
|
2022 |
|
2021 |
|
2021 |
|
|
|
IV. EMPLOYEE
DATA: |
|
|
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
169 |
|
164 |
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
4,294 |
|
4,911 |
|
1,753 |
|
|
|
Non-performing assets to total assets |
|
0.40 |
% |
0.46 |
% |
0.18 |
% |
|
|
Non-performing loans to total loans receivable |
|
0.62 |
% |
0.70 |
% |
0.27 |
% |
|
|
Allowance for loan losses |
$ |
9,644 |
|
9,279 |
|
9,915 |
|
|
|
Allowance for loan losses to total assets |
|
0.89 |
% |
0.87 |
% |
1.01 |
% |
|
|
Allowance for loan losses to total loans receivable |
|
1.40 |
|
1.40 |
|
1.53 |
|
|
|
Allowance for loan losses to non-performing loans |
|
224.61 |
|
200.81 |
|
565.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK VALUE PER SHARE: |
|
|
|
|
|
|
|
|
|
Book value per share common share |
$ |
21.25 |
|
24.11 |
|
23.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six MonthsEndedJune 30, 2022 |
|
Year EndedDecember 31,2021 |
|
Six MonthsEndedJune 30, 2021 |
|
|
|
VII. CAPITAL
RATIOS: |
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of period |
|
8.86 |
% |
10.29 |
% |
11.00 |
% |
|
|
Average stockholders’ equity to average assets (1) |
|
10.84 |
|
10.92 |
|
10.96 |
|
|
|
Ratio of average interest-earning assets to average |
|
|
|
|
|
|
|
|
|
interest-bearing liabilities and non-interest bearing
deposits(1) |
|
108.61 |
|
109.17 |
|
109.14 |
|
|
|
Home Federal Savings Bank regulatory capital ratios: |
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
12.85 |
|
13.18 |
|
14.28 |
|
|
|
Tier 1 capital leverage ratio |
|
9.71 |
|
9.47 |
|
10.01 |
|
|
|
Tier 1 capital ratio |
|
12.85 |
|
13.18 |
|
14.28 |
|
|
|
Risk-based capital |
|
14.06 |
|
14.43 |
|
15.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1) Average balances were calculated
based upon amortized cost without the market value impact of ASC
320.
CONTACT: |
Bradley Krehbiel |
|
Chief Executive Officer, President |
|
HMN Financial, Inc. (507) 252-7169 |
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