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 $1.5 million for the fourth quarter of
2023, a decrease of $0.9 million compared to net income of $2.4
million for the fourth quarter of 2022. Diluted earnings per share
for the fourth quarter of 2023 was $0.33, a decrease of $0.23 from
the diluted earnings per share of $0.56 for the fourth quarter of
2022. Net income for the quarter was negatively impacted by a $1.7
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. This decrease in net income was
partially offset by a $0.1 million increase in the gain on sales of
loans due to an increase in mortgage loan originations and sales
between the periods. Other non-interest income increased $0.1
million primarily because of an increase in the commissions earned
on the sale of uninsured investment products between the
periods.President’s Statement“Maintaining our net interest income
continued to be a challenge in the fourth quarter as the rates paid
on our deposits and other funding sources increased more quickly
than the rates on our interest earning assets,” said Bradley
Krehbiel, President and Chief Executive Officer of HMN. “We are,
however, encouraged by the stabilization in our deposit balances
and interest rates that we began to observe in the fourth quarter.
We are optimistic that net interest margin compression will slow in
the coming quarters as our deposit costs stabilize and our earning
assets reprice to current market rates. We will continue to focus
our efforts on profitably growing the Company and improving our net
interest income as we move into the new year.”
Fourth Quarter ResultsNet
Interest IncomeNet interest income was $7.2 million for the fourth
quarter of 2023, a decrease of $1.7 million, or 19.7%, from $8.9
million for the fourth quarter of 2022. Interest income was $11.5
million for the fourth quarter of 2023, an increase of $1.5
million, or 15.4%, from $10.0 million for the fourth quarter of
2022. Interest income increased primarily because of the $48.3
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 fourth
quarter of 2023, an increase of 39 basis points from 3.76% for the
fourth quarter of 2022. The increase in the average yield is
primarily related to the increase in market interest rates as a
result of the 5.25% increase in the prime interest rate over the
past two years.
Interest expense was $4.4 million for the fourth
quarter of 2023, an increase of $3.3 million, or 303.8%, from $1.1
million for the fourth 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 $41.1 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
1.72% for the fourth quarter of 2023, an increase of 128 basis
points from 0.44% for the fourth 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 and certificates
of deposit were used in the fourth quarter of 2023 than were used
in the fourth 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
5.25% increase in the federal funds rate over the past two years
also contributed to higher funding costs in the fourth 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 fourth quarter of 2023 was 2.58%, a decrease of 77 basis
points, compared to 3.35% for the fourth 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-month periods ended December 31, 2023 and 2022 is as
follows:
|
|
For the three-month period ended |
|
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for
sale |
$ |
239,609 |
|
898 |
|
1.49 |
% |
$ |
278,108 |
|
814 |
|
1.16 |
% |
Loans held for
sale |
|
2,175 |
|
36 |
|
6.56 |
|
|
1,225 |
|
24 |
|
7.67 |
|
Single family
loans, net |
|
265,539 |
|
2,875 |
|
4.30 |
|
|
201,808 |
|
1,838 |
|
3.61 |
|
Commercial loans,
net |
|
540,097 |
|
6,848 |
|
5.03 |
|
|
517,186 |
|
6,601 |
|
5.06 |
|
Consumer loans,
net |
|
42,741 |
|
716 |
|
6.64 |
|
|
44,161 |
|
596 |
|
5.35 |
|
Other |
|
12,786 |
|
167 |
|
5.19 |
|
|
12,185 |
|
129 |
|
4.20 |
|
Total interest-earning
assets |
$ |
1,102,947 |
|
11,540 |
|
4.15 |
|
$ |
1,054,673 |
|
10,002 |
|
3.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
accounts |
$ |
155,029 |
|
316 |
|
0.81 |
|
$ |
162,013 |
|
94 |
|
0.23 |
|
Savings
accounts |
|
108,436 |
|
29 |
|
0.10 |
|
|
123,460 |
|
21 |
|
0.07 |
|
Money market
accounts |
|
268,451 |
|
1,490 |
|
2.20 |
|
|
273,959 |
|
385 |
|
0.56 |
|
Retail certificate
accounts |
|
117,498 |
|
1,062 |
|
3.58 |
|
|
69,894 |
|
95 |
|
0.54 |
|
Wholesale
certificate
accounts |
|
112,141 |
|
1,427 |
|
5.05 |
|
|
19,598 |
|
227 |
|
4.60 |
|
Customer
escrows |
|
0 |
|
0 |
|
0.00 |
|
|
3,185 |
|
16 |
|
2.00 |
|
Advances and other
borrowings |
|
3,748 |
|
53 |
|
5.60 |
|
|
24,497 |
|
246 |
|
3.98 |
|
Total interest-bearing
liabilities |
$ |
765,303 |
|
|
|
|
|
$ |
676,606 |
|
|
|
|
|
Non-interest
checking |
|
243,469 |
|
|
|
|
|
|
291,579 |
|
|
|
|
|
Other non-interest bearing
deposits |
|
2,833 |
|
|
|
|
|
|
2,286 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest bearing
deposits |
$ |
1,011,605 |
|
4,377 |
|
1.72 |
|
$ |
970,471 |
|
1,084 |
|
0.44 |
|
Net interest
income |
|
|
$ |
7,163 |
|
|
|
|
|
$ |
8,918 |
|
|
|
Net interest rate
spread |
|
|
|
|
|
2.43 |
% |
|
|
|
|
|
3.32 |
% |
Net interest
margin |
|
|
|
|
|
2.58 |
% |
|
|
|
|
|
3.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit LossesThe provision for
credit losses was $0.1 million for the fourth quarter of 2023, the
same as for the fourth quarter of 2022. The provision for credit
losses for the quarter was due to the increases in the individual
loan loss reserves and increased charge-offs during the quarter.
These increases were partially offset by decreases in the provision
because of a decrease in outstanding loan balances, as well as a
decrease due to management’s assessment that there was a slight
improvement in qualitative factors related to overall economic
conditions. The provision for credit losses also includes an amount
for unfunded commitments that decreased slightly during the fourth
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 decreased during the quarter primarily
because of management’s perception that forecasted economic
conditions had slightly improved during the quarter. The collective
reserve amount also decreased because of a decrease in the
outstanding loan balances during the quarter. Total non-performing
assets were $3.8 million at December 31, 2023, an increase of $2.7
million compared to $1.1 million at September 30, 2023. The
increase is primarily related to a $2.2 million commercial business
loan relationship in the agriculture industry that was classified
as non-performing during the quarter.
A reconciliation of the Company’s allowance for
credit losses for the quarters ended December 31, 2023 and 2022 is
summarized as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2023 |
|
|
2022 (1) |
Balance at September
30, |
$ |
11,967 |
|
|
10,141 |
|
Provision |
|
183 |
|
|
130 |
|
Charge offs: |
|
|
|
|
Commercial
business |
|
(334 |
) |
|
0 |
|
Consumer |
|
(23 |
) |
|
(1 |
) |
Recoveries |
|
31 |
|
|
7 |
|
Balance at December
31, |
$ |
11,824 |
|
|
10,277 |
|
|
|
|
|
|
Allocated to: |
|
|
|
|
Collective
allowance |
$ |
11,396 |
|
|
10,115 |
|
Individual
allowance |
|
428 |
|
|
162 |
|
|
$ |
11,824 |
|
|
10,277 |
|
|
|
|
|
|
(1)
The 2022 amounts presented are calculated under prior accounting
standard.
The provision amount included in the table
amount excludes a $36,000 recapture of credit losses related to
unfunded commitments that was recorded during the period.
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, 2022.
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2023 |
|
|
2023 |
|
|
2022 |
|
Non-performing Loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
762 |
|
$ |
638 |
|
$ |
908 |
|
Commercial real
estate |
|
493 |
|
|
0 |
|
|
0 |
|
Consumer |
|
376 |
|
|
408 |
|
|
441 |
|
Commercial
business |
|
2,187 |
|
|
35 |
|
|
529 |
|
Total non-performing
assets |
$ |
3,818 |
|
$ |
1,081 |
|
$ |
1,878 |
|
Total as a percentage of total
assets |
|
0.34 |
% |
|
0.09 |
% |
|
0.17 |
% |
Total as a percentage of total
loans
receivable |
|
0.44 |
% |
|
0.13 |
% |
|
0.24 |
% |
Allowance for credit losses to
non-performing
loans |
|
309.69 |
% |
|
1,106.53 |
% |
|
547.24 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency Data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
715 |
|
$ |
3,088 |
|
$ |
1,405 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage
of |
|
|
|
|
|
|
|
|
|
loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.08 |
% |
|
0.36 |
% |
|
0.18 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
(1) Excludes
non-accrual loans.
Non-Interest Income and Expense
Non-interest income was $2.2 million for the
fourth quarter of 2023, an increase of $0.3 million, or 13.0%, from
$1.9 million for the fourth 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 $0.1 million
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 fourth quarter of 2023, a decrease
of $0.1 million, or 0.7%, from $7.4 million for the fourth quarter
of 2022. Occupancy and equipment expense decreased $0.1 million due
primarily to a decrease in building maintenance expenses between
the periods. Compensation and benefits expense decreased slightly
primarily because of a decrease in performance incentives earned
between the periods. Other non-interest expense decreased slightly
between the periods primarily because of a decrease in the deposit
losses that were incurred. Professional services expense decreased
slightly primarily because of a decrease in technology consulting
costs between the periods. These decreases in non-interest expenses
were partially offset by a $0.1 million increase in data processing
expenses due to an increase in system processing and mobile banking
charges between the periods.
Income tax expense was $0.4 million for the
fourth quarter of 2023, a decrease of $0.5 million from $0.9
million for the fourth quarter of 2022. The decrease in income tax
expense is primarily the result of a decrease in pre-tax income
between the periods.
Return on Assets and EquityReturn on average
assets (annualized) for the fourth quarter of 2023 was 0.51%,
compared to 0.89% for the same period of 2022. Return on average
equity (annualized) was 4.76% for the fourth quarter of 2023,
compared to 8.32% for the same period in 2022. Book value per
common share at December 31, 2023 was $24.16, compared to $21.72 at
December 31, 2022.
Annual ResultsNet IncomeNet
income was $6.0 million for 2023, a decrease of $2.0 million, or
25.4%, compared to net income of $8.0 million for 2022. Diluted
earnings per share for the year ended December 31, 2023 was $1.37,
a decrease of $0.46 per share, compared to diluted earnings per
share of $1.83 for the year ended December 31, 2022. The decrease
in net income between the periods was due primarily to a $1.5
million decrease in net interest income primarily because of a
decrease in the net interest margin as a result of increased
funding costs. Gain on sales of loans decreased $0.9 million
between the periods because of a decrease in mortgage loan sales.
Compensation expense increased $0.9 million due primarily to annual
salary increases between the periods. These decreases in net income
were partially offset by a $0.4 decrease in the provision for
credit losses between the period. Other non-interest income
increased $0.2 million primarily because of an increase in the
commissions earned on the sale of uninsured investment products
between the periods.
Net Interest IncomeNet interest income was $30.8
million for 2023, a decrease of $1.5 million, or 4.6%, from $32.3
million for 2022. Interest income was $43.5 million for 2023, an
increase of $9.2 million, or 26.9%, from $34.3 million for 2022.
Interest income increased because of the $54.1 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 4.02% for 2023, an increase
of 69 basis points from 3.33% for 2022. The increase in the average
yield is primarily related to the increase in market interest rates
as a result of the 5.25% increase in the prime interest rate over
the past two years.
Interest expense was $12.7 million for 2023, an
increase of $10.7 million, or 536.3%, compared to $2.0 million for
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
$46.5 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 1.28% for 2023, an increase of 107 basis
points from 0.21% for 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 Federal Home Loan Bank (FHLB) advances were used in
2023 than in 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
5.25% increase in the federal funds rate over the past two years
also contributed to the higher funding costs in 2023 when compared
to 2022. Net interest margin (net interest income divided by
average interest-earning assets) for 2023 was 2.84%, a decrease of
30 basis points, compared to 3.14% for 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 2023 and 2022 is as follows:
|
|
For the year ended |
|
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for
sale |
$ |
254,150 |
|
3,328 |
|
1.31 |
% |
$ |
290,289 |
|
3,229 |
|
1.11 |
% |
Loans held for sale |
|
2,174 |
|
140 |
|
6.42 |
|
|
2,418 |
|
115 |
|
4.75 |
|
Single family loans, net |
|
238,482 |
|
9,657 |
|
4.05 |
|
|
183,882 |
|
6,431 |
|
3.50 |
|
Commercial loans, net |
|
532,188 |
|
26,984 |
|
5.07 |
|
|
472,931 |
|
21,830 |
|
4.62 |
|
Consumer loans, net |
|
45,486 |
|
2,865 |
|
6.30 |
|
|
42,552 |
|
2,072 |
|
4.87 |
|
Other |
|
10,351 |
|
503 |
|
4.86 |
|
|
36,692 |
|
578 |
|
1.58 |
|
Total interest-earning
assets |
$ |
1,082,831 |
|
43,477 |
|
4.02 |
|
$ |
1,028,764 |
|
34,255 |
|
3.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
$ |
162,685 |
|
1,037 |
|
0.64 |
|
$ |
159,509 |
|
220 |
|
0.14 |
|
Savings accounts |
|
114,074 |
|
110 |
|
0.10 |
|
|
123,786 |
|
75 |
|
0.06 |
|
Money market accounts |
|
267,939 |
|
4,577 |
|
1.71 |
|
|
271,750 |
|
882 |
|
0.32 |
|
Retail certificate accounts |
|
96,573 |
|
2,503 |
|
2.59 |
|
|
75,575 |
|
322 |
|
0.43 |
|
Wholesale certificate accounts |
|
82,973 |
|
4,063 |
|
4.90 |
|
|
5,953 |
|
233 |
|
3.91 |
|
Customer
escrows |
|
2,923 |
|
59 |
|
2.00 |
|
|
803 |
|
16 |
|
2.00 |
|
Advances and other
borrowings |
|
6,807 |
|
371 |
|
5.45 |
|
|
6,665 |
|
251 |
|
3.77 |
|
Total interest-bearing
liabilities |
$ |
733,974 |
|
|
|
|
|
$ |
644,041 |
|
|
|
|
|
Non-interest
checking |
|
256,294 |
|
|
|
|
|
|
300,394 |
|
|
|
|
|
Other non-interest bearing
deposits |
|
3,170 |
|
|
|
|
|
|
2,455 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest bearing
deposits |
$ |
993,438 |
|
12,720 |
|
1.28 |
|
$ |
946,890 |
|
1,999 |
|
0.21 |
|
Net interest
income |
|
|
$ |
30,757 |
|
|
|
|
|
$ |
32,256 |
|
|
|
Net interest rate
spread |
|
|
|
|
|
2.74 |
% |
|
|
|
|
|
3.12 |
% |
Net interest
margin |
|
|
|
|
|
2.84 |
% |
|
|
|
|
|
3.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit LossesThe provision for
credit losses was $0.7 million for 2023, a decrease of $0.4 million
from the $1.1 million provision for loan losses for 2022. The
provision for credit losses decreased between the periods primarily
because the increase in the provision due to loan growth was less
in 2023 than for 2022. The decrease in the provision because of
loan growth was partially offset by an increase in the provision
due to increased charge-offs and specific reserves in 2023. The
provision for credit losses also includes an amount for unfunded
commitments that decreased $0.1 million during 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 in 2023 primarily because of
the loan growth that was experienced. The Company’s qualitative
reserve amount decreased during the year because of management’s
perception that forecasted economic conditions had slightly
improved. Total non-performing assets were $3.8 million at December
31, 2023, an increase of $1.9 million, or 103.3.%, from $1.9
million at December 31, 2022. The increase is primarily related to
a $2.6 million commercial loan relationship in the agriculture
industry that was classified as non-performing during 2023.
A reconciliation of the allowance for credit
losses for 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 |
|
795 |
|
|
1,071 |
|
Charge offs: |
|
|
|
|
Commercial real
estate |
|
0 |
|
|
(91 |
) |
Consumer |
|
(50 |
) |
|
(24 |
) |
Commercial
business |
|
(334 |
) |
|
0 |
|
Recoveries |
|
66 |
|
|
42 |
|
Balance at December
31, |
$ |
11,824 |
|
|
10,277 |
|
|
|
|
|
|
The provision amount included in the table
excludes an $82,000 recapture of credit losses related to unfunded
commitments that was recorded during the period.
Non-Interest Income and Expense
Non-interest income was $8.3 million for 2023, a
decrease of $0.6 million, or 6.8%, from $8.9 million for the 2022.
Gain on sales of loans decreased $0.9 million between the periods
because of a decrease in single family loan originations and sales
due primarily to an increase in mortgage interest rates between the
periods. Loan servicing fees decreased slightly between the periods
due to a decrease in the aggregate balances of single family
mortgage 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 $0.2 million due primarily to
an increase in the gains realized on equity securities between the
periods.
Non-interest expense was $29.8 million for 2023,
an increase of $1.0 million, or 3.4%, from $28.8 million for 2022.
Compensation and benefits expense increased $0.9 million primarily
because of annual salary increases. Other non-interest expense
increased $0.4 million between the periods primarily because of an
increase in FDIC insurance expense due to an increase in assessment
rates. Data processing expenses increased $0.2 million due to an
increase in system processing and mobile banking charges between
the periods. These increases in non-interest expense were partially
offset by a $0.3 million decrease in professional services because
of a decrease in legal expenses between the periods. Occupancy and
equipment expense decreased $0.2 million between the periods due to
a decrease in building maintenance expenses.
Income tax expense was $2.5 million for 2023, a
decrease of $0.7 million from $3.2 million for 2022. The decrease
in income tax expense is primarily the result of a decrease in
pre-tax income between the periods.
Return on Assets and EquityReturn on average
assets (annualized) for 2023 was 0.54%, compared to 0.75% for the
same period in 2022. Return on average equity (annualized) was
5.03% for 2023, compared to 7.03% for the same period in 2022. Book
value per common share at December 31, 2023 was $24.16, compared to
$21.72 at December 31, 2022.
Dividend AnnouncementHMN Financial, Inc. today
announced that its Board of Directors has declared a quarterly
dividend of 8 cents per share of common stock payable on March 6,
2024 to stockholders of record at the close of business on February
13, 2024. The declaration and amount of any future cash dividends
remain subject to the sole discretion of the Board of Directors and
will depend upon many factors, including the Company’s results of
operations, financial condition, capital requirements, regulatory
and contractual restrictions, business strategy and other factors
deemed relevant by the Board of Directors.
General InformationHMN 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, net interest margin, net interest income 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.)
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
(Dollars in thousands) |
|
2023 |
|
2022 |
|
|
|
(unaudited) |
|
|
|
Assets |
|
|
|
|
|
Cash and cash
equivalents |
$ |
11,151 |
|
|
36,259 |
|
|
Securities available for
sale: |
|
|
|
|
|
Mortgage-backed and related securities (amortized cost
$179,366 and $216,621) |
|
161,414 |
|
|
192,688 |
|
|
Other marketable securities (amortized cost $54,112 and
$55,698) |
|
53,680 |
|
|
53,331 |
|
|
Total securities available for sale |
|
215,094 |
|
|
246,019 |
|
|
|
|
|
|
|
|
Loans held for
sale |
|
1,006 |
|
|
1,314 |
|
|
Loans receivable,
net |
|
845,692 |
|
|
777,078 |
|
|
Accrued interest
receivable |
|
3,553 |
|
|
3,003 |
|
|
Mortgage servicing rights,
net |
|
2,709 |
|
|
2,986 |
|
|
Premises and equipment, net
|
|
15,995 |
|
|
16,492 |
|
|
Goodwill
|
|
802 |
|
|
802 |
|
|
Prepaid expenses and other
assets |
|
3,962 |
|
|
3,902 |
|
|
Deferred tax asset,
net |
|
7,171 |
|
|
8,347 |
|
|
Total assets |
$ |
1,107,135 |
|
|
1,096,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Deposits |
$ |
976,793 |
|
|
981,926 |
|
|
Federal Home Loan Bank
advances and other
borrowings |
|
13,200 |
|
|
0 |
|
|
Accrued interest
payable |
|
2,399 |
|
|
298 |
|
|
Customer
escrows |
|
2,246 |
|
|
10,122 |
|
|
Accrued expenses and other
liabilities |
|
4,790 |
|
|
6,520 |
|
|
Total liabilities |
|
999,428 |
|
|
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 4,457,905 and 4,480,976 |
|
91 |
|
|
91 |
|
|
Additional paid-in
capital |
|
41,235 |
|
|
41,013 |
|
|
Retained earnings, subject to
certain
restrictions |
|
142,278 |
|
|
138,409 |
|
|
Accumulated other
comprehensive
loss |
|
(13,191 |
) |
|
(19,761 |
) |
|
Unearned employee stock
ownership plan
shares |
|
(870 |
) |
|
(1,063 |
) |
|
Treasury stock, at cost
4,670,757 and 4,647,686
shares |
|
(61,836 |
) |
|
(61,353 |
) |
|
Total stockholders’ equity |
|
107,707 |
|
|
97,336 |
|
|
Total liabilities and
stockholders’
equity |
$ |
1,107,135 |
|
|
1,096,202 |
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated Statements of Comprehensive Income
(Loss) |
|
|
|
Three Months EndedDecember 31, |
|
Year EndedDecember 31, |
|
(Dollars in thousands, except per share data) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
10,475 |
|
9,059 |
|
39,646 |
|
30,448 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
544 |
|
675 |
|
2,362 |
|
2,801 |
|
Other marketable |
|
354 |
|
139 |
|
966 |
|
428 |
|
Other |
|
167 |
|
129 |
|
503 |
|
578 |
|
Total interest income |
|
11,540 |
|
10,002 |
|
43,477 |
|
34,255 |
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
4,324 |
|
822 |
|
12,290 |
|
1,732 |
|
Customer
escrows |
|
0 |
|
16 |
|
59 |
|
16 |
|
Advances and other
borrowings |
|
53 |
|
246 |
|
371 |
|
251 |
|
Total interest expense |
|
4,377 |
|
1,084 |
|
12,720 |
|
1,999 |
|
Net interest income |
|
7,163 |
|
8,918 |
|
30,757 |
|
32,256 |
|
Provision for credit losses
(1) |
|
147 |
|
130 |
|
713 |
|
1,071 |
|
Net interest income after provision for credit losses |
|
7,016 |
|
8,788 |
|
30,044 |
|
31,185 |
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Fees and service
charges |
|
857 |
|
825 |
|
3,352 |
|
3,222 |
|
Loan servicing
fees |
|
394 |
|
402 |
|
1,575 |
|
1,590 |
|
Gain on sales of
loans |
|
402 |
|
297 |
|
1,494 |
|
2,393 |
|
Other |
|
542 |
|
418 |
|
1,860 |
|
1,682 |
|
Total non-interest
income |
|
2,195 |
|
1,942 |
|
8,281 |
|
8,887 |
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
4,394 |
|
4,406 |
|
18,113 |
|
17,211 |
|
Occupancy and equipment |
|
869 |
|
947 |
|
3,626 |
|
3,812 |
|
Data processing |
|
571 |
|
505 |
|
2,187 |
|
1,948 |
|
Professional services |
|
277 |
|
291 |
|
1,051 |
|
1,386 |
|
Other |
|
1,230 |
|
1,243 |
|
4,795 |
|
4,444 |
|
Total non-interest expense |
|
7,341 |
|
7,392 |
|
29,772 |
|
28,801 |
|
Income before income tax expense |
|
1,870 |
|
3,338 |
|
8,553 |
|
11,271 |
|
Income tax expense
|
|
418 |
|
900 |
|
2,548 |
|
3,226 |
|
Net income |
|
1,452 |
|
2,438 |
|
6,005 |
|
8,045 |
|
Other comprehensive income
(loss), net of
tax |
|
5,307 |
|
5,280 |
|
6,570 |
|
(18,178 |
) |
Comprehensive income (loss)
available to common
stockholders |
$ |
6,759 |
|
7,718 |
|
12,575 |
|
(10,133 |
) |
Basic earnings per
share |
$ |
0.33 |
|
0.56 |
|
1.38 |
|
1.85 |
|
Diluted earnings per
share |
$ |
0.33 |
|
0.56 |
|
1.37 |
|
1.83 |
|
|
|
|
|
|
|
|
|
|
(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 EndedDecember 31, |
|
Year EndedDecember 31, |
|
|
(Dollars in thousands, except per share data) |
|
2023 |
2022 |
|
2023 |
|
2022 |
|
|
I. OPERATING
DATA: |
|
|
|
|
|
|
|
|
|
Interest income |
$ |
11,540 |
|
10,002 |
|
43,477 |
|
34,255 |
|
|
Interest expense |
|
4,377 |
|
1,084 |
|
12,720 |
|
1,999 |
|
|
Net interest income |
|
7,163 |
|
8,918 |
|
30,757 |
|
32,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE
BALANCES: |
|
|
|
|
|
|
|
|
|
|
Assets (1) |
|
1,139,523 |
|
1,091,300 |
|
1,119,520 |
|
1,066,408 |
|
|
Loans receivable, net |
|
848,377 |
|
763,155 |
|
816,156 |
|
699,365 |
|
|
Securities available for sale (1) |
|
239,609 |
|
278,108 |
|
254,150 |
|
290,289 |
|
|
Interest-earning assets (1) |
|
1,102,947 |
|
1,054,673 |
|
1,082,831 |
|
1,028,764 |
|
|
Interest-bearing liabilities and non-interest bearing deposits |
|
1,011,605 |
|
970,471 |
|
993,438 |
|
946,890 |
|
|
Equity (1) |
|
121,019 |
|
116,282 |
|
119,277 |
|
114,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
III. PERFORMANCE RATIOS:
(1) |
|
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
0.51 |
% |
0.89 |
% |
0.54 |
% |
0.75 |
% |
|
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
|
Average during period |
|
2.43 |
|
3.32 |
|
2.74 |
|
3.12 |
|
|
End of period |
|
2.49 |
|
3.56 |
|
2.49 |
|
3.56 |
|
|
Net interest margin |
|
2.58 |
|
3.35 |
|
2.84 |
|
3.14 |
|
|
Ratio of operating expense to average total assets
(annualized) |
|
2.56 |
|
2.69 |
|
2.66 |
|
2.70 |
|
|
Return on average common equity (annualized) |
|
4.76 |
|
8.32 |
|
5.03 |
|
7.03 |
|
|
Efficiency |
|
78.45 |
|
68.07 |
|
76.26 |
|
70.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
IV. EMPLOYEE DATA: |
|
|
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
162 |
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET
QUALITY: |
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
3,818 |
|
1,878 |
|
|
|
|
|
|
Non-performing assets to total assets |
|
0.34 |
% |
0.17 |
% |
|
|
|
|
|
Non-performing loans to total loans receivable |
|
0.44 |
% |
0.24 |
% |
|
|
|
|
|
Allowance for credit losses (2) |
$ |
11,824 |
|
10,277 |
|
|
|
|
|
|
Allowance for credit losses to total assets (2) |
|
1.07 |
% |
0.94 |
% |
|
|
|
|
|
Allowance for credit losses to total loans receivable (2) |
|
1.38 |
% |
1.30 |
% |
|
|
|
|
|
Allowance for credit losses to non-performing loans (2) |
|
309.69 |
% |
547.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK
VALUE PER COMMON SHARE: |
|
|
|
|
|
|
|
|
|
|
Book value per common share |
$ |
24.16 |
|
21.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
Year Ended |
|
|
|
|
|
|
|
December 31, 2023 |
December 31, 2022 |
|
|
|
|
|
|
VII. CAPITAL
RATIOS: |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of period |
|
9.73 |
% |
8.88 |
% |
|
|
|
|
|
Average stockholders’ equity to average assets (1) |
|
10.65 |
|
10.73 |
|
|
|
|
|
|
Ratio of average interest-earning assets to average interest- |
|
|
|
|
|
|
|
|
|
|
bearing liabilities and non-interest bearing deposits (1) |
|
109.00 |
|
108.65 |
|
|
|
|
|
|
Home Federal Savings Bank regulatory capital ratios: |
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
11.54 |
|
11.49 |
|
|
|
|
|
|
Tier 1 capital leverage ratio |
|
9.08 |
|
9.14 |
|
|
|
|
|
|
Tier 1 capital ratio |
|
11.54 |
|
11.48 |
|
|
|
|
|
|
Risk-based capital |
|
12.80 |
|
12.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 are calculated under the prior accounting
standard.
CONTACT: |
Bradley KrehbielChief Executive Officer,
PresidentHMN Financial, Inc. (507) 252-7169 |
HMN Financial (NASDAQ:HMNF)
Historical Stock Chart
From Apr 2024 to May 2024
HMN Financial (NASDAQ:HMNF)
Historical Stock Chart
From May 2023 to May 2024