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HMN Financial, Inc. Announces Second Quarter Results

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HMN Financial, Inc.
HMN Financial, Inc.

Second Quarter Summary

  • Net income of $2.3 million, down $2.2 million, from $4.5 million for second quarter of 2021

  • Diluted earnings per share of $0.52, down $0.48, from $1.00 for second quarter of 2021

  • Gain on sale of real estate owned of $0.1 million, down $1.4 million, from $1.5 million for second quarter of 2021

  • Provision for loan losses of $0.1 million, up $1.0 million, from ($0.9) million for second quarter of 2021

  • Gain on sales of loans of $0.8 million, down $0.9 million, from $1.7 million for second quarter of 2021

  • Net interest margin of 3.10%, down 17 basis points, from 3.27% for second quarter of 2021

Year to Date Summary

  • Net income of $3.8 million, down $4.1 million, from $7.9 million for first six months of 2021

  • Diluted earnings per share of $0.86, down $0.88, from $1.74 for first six months of 2021

  • Gain on sale of real estate owned of $0.1 million, down $1.4 million, from $1.5 million for first six months of 2021

  • Provision for loan losses of $0.4 million, up $1.9 million, from ($1.5) million for first six months of 2021

  • Gain on sales of loans of $1.7 million, down $1.7 million, from $3.4 million for first six months of 2021

  • Net interest margin of 3.02%, down 29 basis points, from 3.31% for first six months of 2021

Net Income Summary

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

(Dollars in thousands, except per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

$

2,289

 

 

4,528

 

$

3,776

 

 

7,946

 

Diluted earnings per share                        

 

0.52

 

 

1.00

 

 

0.86

 

 

1.74

 

Return on average assets (annualized)                

 

0.88

%

 

1.86

%

 

0.73

%

 

1.68

%

Return on average equity (annualized)

 

8.09

%

 

17.18

%

 

6.73

%

 

15.31

%

Book value per share

$

21.25

 

 

23.24

 

$

21.25

 

 

23.24

 

ROCHESTER, Minn., July 21, 2022 (GLOBE NEWSWIRE) -- 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 Months
Ended
June 30, 2022

 

Year Ended
December 31,
2021

 

Six Months
Ended
June 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