HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $1.2
billion holding company for Home Federal Savings Bank (the Bank),
today reported net income of $1.5 million for the third quarter of
2023, a decrease of $0.3 million, compared to $1.8 million for the
third quarter of 2022. Diluted earnings per share for
the third quarter of 2023 were $0.34, a decrease of $0.08 from
diluted earnings per share of $0.42 for the third quarter of 2022.
Net income for the quarter was negatively impacted by a $0.5
million decrease in net interest income between the periods
primarily because of a decrease in the net interest margin as a
result of increased funding costs. Net income was also negatively
impacted by $0.1 million increase in income tax expense because of
a valuation reserve that was established on the deferred tax asset
as a result of Wisconsin state tax law changes that were enacted
during the quarter. These decreases in net income were partially
offset by a $0.3 million decrease in the provision for loan losses
between the periods.
President’s Statement“Maintaining our net
interest margin is a challenge in the current rate environment,”
said Bradley Krehbiel, President and Chief Executive Officer of
HMN. “The migration of deposits from lower cost transaction
accounts to higher rate certificates of deposit accounts combined
with the increased use of wholesale funding during the quarter
increased our costs of funds. We will continue to focus our efforts
on growing our core deposit relationships in order to reduce the
impact of these changes on our overall deposit costs in the
future.”
Third Quarter ResultsNet
Interest IncomeNet interest income was $7.8 million for the third
quarter of 2023, a decrease of $0.5 million, or 5.9%, compared to
$8.3 million for the third quarter of 2022. Interest income was
$11.5 million for the third quarter of 2023, an increase of $2.9
million, or 33.6%, from $8.6 million for the third quarter of 2022.
Interest income increased because of the $51.4 million increase in
the average interest-earning assets between the periods and also
because of the increase in the average yield earned on
interest-earning assets between the periods. The average yield
earned on interest-earning assets was 4.15% for the third quarter
of 2023, an increase of 89 basis points from 3.26% for the third
quarter of 2022. The increase in the average yield is primarily
related to the increase in market interest rates as a result of the
2.25% increase in the prime interest rate between the periods.
Interest expense was $3.7 million for the third
quarter of 2023, an increase of $3.4 million, or 995.3%, compared
to $0.3 million for the third quarter of 2022. Interest expense
increased primarily because of the increase in the average interest
rate paid on interest-bearing liabilities between the periods.
Interest expense also increased because of the $45.3 million
increase in the average interest-bearing liabilities and
non-interest bearing deposits between the periods. The average
interest rate paid on interest-bearing liabilities and non-interest
bearing deposits was 1.46% for the third quarter of 2023, an
increase of 132 basis points from 0.14% for the third quarter of
2022. The increase in the average rate paid is primarily related to
the change in the types of funding sources as more brokered
deposits, certificates of deposit, and Federal Home Loan Bank
(FHLB) advances were used in the third quarter of 2023 than in the
third quarter of 2022. These funding sources generally have higher
interest rates than traditional checking and money market accounts.
The increase in market interest rates as a result of the 2.25%
increase in the federal funds rate between the periods also
contributed to higher funding costs in the third quarter of 2023
when compared to the same period in 2022. Net interest margin (net
interest income divided by average interest-earning assets) for the
third quarter of 2023 was 2.81%, a decrease of 32 basis points,
compared to 3.13% for the third quarter of 2022. The
decrease in the net interest margin is primarily because the
increase in the average rate paid on interest-bearing liabilities
and non-interest bearing deposits exceeded the increase in the
average yield earned on interest-earning assets between the
periods.
A summary of the
Company’s net interest margin for the three and nine-month periods
ended September 30, 2023 and 2022 is as follows:
|
|
For the Three-Month Period Ended |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
249,489 |
|
835 |
|
1.33 |
% |
$ |
288,747 |
|
811 |
|
1.11 |
% |
Loans held for sale |
|
3,409 |
|
56 |
|
6.57 |
|
|
1,806 |
|
26 |
|
5.72 |
|
Single family loans, net |
|
254,391 |
|
2,637 |
|
4.11 |
|
|
187,340 |
|
1,646 |
|
3.49 |
|
Commercial loans, net |
|
537,587 |
|
7,099 |
|
5.24 |
|
|
465,192 |
|
5,270 |
|
4.49 |
|
Consumer loans, net |
|
45,929 |
|
757 |
|
6.54 |
|
|
43,403 |
|
531 |
|
4.86 |
|
Other |
|
11,114 |
|
143 |
|
5.10 |
|
|
64,022 |
|
347 |
|
2.15 |
|
Total interest-earning assets |
|
1,101,919 |
|
11,527 |
|
4.15 |
|
|
1,050,510 |
|
8,631 |
|
3.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
164,191 |
|
280 |
|
0.68 |
|
|
159,854 |
|
46 |
|
0.11 |
|
Savings accounts |
|
111,623 |
|
27 |
|
0.10 |
|
|
126,427 |
|
19 |
|
0.06 |
|
Money market accounts |
|
277,255 |
|
1,383 |
|
1.98 |
|
|
294,763 |
|
207 |
|
0.28 |
|
Retail certificate accounts |
|
102,894 |
|
745 |
|
2.87 |
|
|
68,217 |
|
64 |
|
0.37 |
|
Wholesale certificate accounts |
|
95,031 |
|
1,179 |
|
4.92 |
|
|
5,138 |
|
4 |
|
0.30 |
|
Customer escrows |
|
656 |
|
4 |
|
2.00 |
|
|
0 |
|
0 |
|
0.00 |
|
Advances and other borrowings |
|
7,804 |
|
106 |
|
5.40 |
|
|
0 |
|
0 |
|
0.00 |
|
Total interest-bearing liabilities |
|
759,454 |
|
|
|
|
|
|
654,399 |
|
|
|
|
|
Non-interest checking |
|
248,076 |
|
|
|
|
|
|
309,616 |
|
|
|
|
|
Other non-interest bearing liabilities |
|
4,364 |
|
|
|
|
|
|
2,548 |
|
|
|
|
|
Total interest-bearing liabilities and non-interest bearing
deposits |
$ |
1,011,894 |
|
3,724 |
|
1.46 |
|
$ |
966,563 |
|
340 |
|
0.14 |
|
Net interest income |
|
|
$ |
7,803 |
|
|
|
|
|
$ |
8,291 |
|
|
|
Net interest rate spread |
|
|
|
|
|
2.69 |
% |
|
|
|
|
|
3.12 |
% |
Net interest margin |
|
|
|
|
|
2.81 |
% |
|
|
|
|
|
3.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine-Month Period Ended |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
259,050 |
|
2,430 |
|
1.25 |
% |
$ |
294,394 |
|
2,415 |
|
1.10 |
% |
Loans held for sale |
|
2,173 |
|
103 |
|
6.38 |
|
|
2,820 |
|
91 |
|
4.32 |
|
Single family loans, net |
|
229,364 |
|
6,782 |
|
3.95 |
|
|
177,842 |
|
4,593 |
|
3.45 |
|
Commercial loans, net |
|
529,523 |
|
20,136 |
|
5.08 |
|
|
458,017 |
|
15,229 |
|
4.45 |
|
Consumer loans, net |
|
46,411 |
|
2,150 |
|
6.19 |
|
|
42,010 |
|
1,476 |
|
4.70 |
|
Other |
|
9,531 |
|
336 |
|
4.71 |
|
|
44,950 |
|
449 |
|
1.34 |
|
Total interest-earning assets |
|
1,076,052 |
|
31,937 |
|
3.97 |
|
|
1,020,033 |
|
24,253 |
|
3.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
165,265 |
|
721 |
|
0.58 |
|
|
158,665 |
|
126 |
|
0.11 |
|
Savings accounts |
|
115,974 |
|
82 |
|
0.09 |
|
|
123,896 |
|
54 |
|
0.06 |
|
Money market accounts |
|
267,767 |
|
3,087 |
|
1.54 |
|
|
271,005 |
|
497 |
|
0.25 |
|
Retail certificate accounts |
|
89,521 |
|
1,441 |
|
2.15 |
|
|
73,581 |
|
222 |
|
0.40 |
|
Wholesale certificate accounts |
|
73,144 |
|
2,635 |
|
4.82 |
|
|
5,264 |
|
11 |
|
0.28 |
|
Customer escrows |
|
3,908 |
|
59 |
|
2.00 |
|
|
0 |
|
0 |
|
0.00 |
|
Advances and other borrowings |
|
7,838 |
|
318 |
|
5.42 |
|
|
656 |
|
5 |
|
1.04 |
|
Total interest-bearing liabilities |
|
723,417 |
|
|
|
|
|
|
633,067 |
|
|
|
|
|
Non-interest checking |
|
260,615 |
|
|
|
|
|
|
303,365 |
|
|
|
|
|
Other non-interest bearing liabilities |
|
3,284 |
|
|
|
|
|
|
2,511 |
|
|
|
|
|
Total interest-bearing liabilities and non-interest bearing
deposits |
$ |
987,316 |
|
8,343 |
|
1.13 |
|
$ |
938,943 |
|
915 |
|
0.13 |
|
Net interest income |
|
|
$ |
23,594 |
|
|
|
|
|
$ |
23,338 |
|
|
|
Net interest rate spread |
|
|
|
|
|
2.84 |
% |
|
|
|
|
|
3.05 |
% |
Net interest margin |
|
|
|
|
|
2.93 |
% |
|
|
|
|
|
3.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit LossesThe provision for
credit losses was $0.3 million for the third quarter of 2023, a
decrease of $0.3 million compared to $0.6 million for the third
quarter of 2022. The provision for credit losses decreased
primarily because of the decrease in loan growth that was
experienced in the third quarter of 2023 when compared to the same
period in 2022. The provision for credit losses also
includes an amount for unfunded commitments that decreased $0.1
million during the third quarter of 2023.
The allowance for credit losses is measured on a
collective (pool) basis when similar risk characteristics exist.
Loans that do not share risk characteristics are evaluated on an
individual basis. Loans evaluated individually are not included in
the collective evaluations. The collective reserve amount is
assessed based on size and risk characteristics of the various
portfolio segments, past loss history and other adjustments
determined to have a potential impact on future credit losses. The
collective reserve amount increased from June 30, 2023 primarily
because of the loan growth that was experienced during the quarter.
The Company’s qualitative reserve amount also increased during the
quarter as a result of the loan growth that was experienced and
because of management’s perception that forecasted economic
conditions had slightly deteriorated during the quarter. Total
non-performing assets were $ 1.1 million at September 30, 2023, a
decrease of $0.7 million compared to $1.8 million at June 30, 2023.
The decrease is related to a commercial business loan that was
reclassified to performing and a previously foreclosed single
family property that was sold during the quarter.
A reconciliation of the Company’s allowance for
credit losses for the third quarters of 2023 and 2022 is summarized
as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2023 |
|
2022(1) |
Balance at June 30, |
$ |
11,517 |
|
9,644 |
|
Provision |
|
444 |
|
579 |
|
Charge offs: |
|
|
|
|
|
Commercial real estate |
|
0 |
|
(90 |
) |
Consumer |
|
0 |
|
(8 |
) |
Recoveries |
|
6 |
|
16 |
|
Balance at September 30, |
$ |
11,967 |
|
10,141 |
|
Allocated to: |
|
|
|
|
Collective allowance |
$ |
11,803 |
|
9,993 |
|
Individual allowance |
|
164 |
|
148 |
|
|
$ |
11,967 |
|
10,141 |
|
|
|
|
|
|
(1) The 2022 amounts presented are calculated
under prior accounting standard.
The following table summarizes the amounts and categories of
non-performing assets in the Bank’s portfolio and loan delinquency
information as of the end of the two most recently completed
quarters.
|
|
September 30, |
|
|
June 30, |
|
(Dollars in thousands) |
|
2023 |
|
|
2023 |
|
Non-performing loans: |
|
|
|
|
|
|
Single family |
$ |
638 |
|
$ |
653 |
|
Consumer |
|
408 |
|
|
407 |
|
Commercial
business |
|
35 |
|
|
471 |
|
Foreclosed and repossessed
assets: |
|
|
|
|
|
|
Single
family |
|
0 |
|
|
220 |
|
Total non-performing
assets |
$ |
1,081 |
|
$ |
1,751 |
|
Total as a percentage of total
assets |
|
0.09 |
% |
|
0.16 |
% |
Total as a percentage of total
loans
receivable |
|
0.13 |
% |
|
0.18 |
% |
Allowance for credit losses to
non-performing
loans |
|
1,106.53 |
% |
|
752.44 |
% |
|
|
|
|
|
|
|
Delinquency data: |
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
30+ days |
$ |
3,088 |
|
$ |
1,480 |
|
90+ days |
|
0 |
|
|
0 |
|
Delinquencies as a percentage
of loan portfolio (1) |
|
|
|
|
|
|
30+ days |
|
0.36 |
% |
|
0.18 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
(1) Excludes non-accrual
loans. |
|
|
|
|
|
|
The increase in delinquencies during the period
is primarily related to a $1.3 million loan relationship in the
agricultural industry.
Non-Interest Income and ExpenseNon-interest
income was $2.2 million for the third quarter of 2023, an increase
of $0.1 million, or 6.3%, from $2.1 million for the third quarter
of 2022. Other non-interest income increased $0.1 million due
primarily to an increase in the income earned on the sales of
uninsured investment products between the periods. Gain on sales of
loans increased slightly primarily because of an increase in the
single family loans that were sold between the periods. Fees and
service charges increased slightly between the periods due
primarily to an increase in the commitment fees earned on unused
commercial lines of credit. Loan servicing fees decreased slightly
due to a decrease in the aggregate balances of single family loans
that were being serviced for others as more serviced loans were
paid off than were added to the servicing portfolio between the
periods.
Non-interest expense was $7.3 million for the
third quarter of 2023, an increase of $0.1 million, or 1.5%, from
$7.2 million for the third quarter of 2022. Compensation and
benefits expense increased $0.1 million primarily because of annual
salary increases and also because of a decrease in the direct loan
origination compensation costs that were deferred as a result of
the reduced commercial loan production between the periods. Data
processing expense increased $0.1 million due to an increase in
system processing charges between the periods. Other non-interest
expense increased slightly between the periods primarily because of
an increase in FDIC insurance expense due to an increase in
assessment rates. These increases in non-interest expenses were
partially offset by a $0.1 million decrease in professional
services between the periods primarily because of a decrease in
legal expenses. Occupancy and equipment expense decreased slightly
due primarily to a decrease in non-capitalized equipment costs
between the periods.
Income tax expense was $0.9 million for the
third quarter of 2023, an increase of $0.1 million from $0.8
million for the third quarter of 2022. The increase in income tax
expense between the periods is primarily because of a valuation
allowance that was established on our deferred tax asset as a
result of Wisconsin state tax law changes that were enacted during
the period. This increase in income tax expense was partially
offset by a decrease in pre-tax income between the periods.
Return on Assets and EquityReturn on average
assets (annualized) for the third quarter of 2023 was 0.52%,
compared to 0.67% for the same period of 2022. Return
on average equity (annualized) was 4.95% for the third quarter of
2023, compared to 6.30% for the same period in 2022.
Book value per common share at September 30, 2023 was $22.68,
compared to $20.02 at September 30, 2022.
Nine-Month Period Results
Net Income
Net income was $4.6 million for the nine-month
period ended September 30, 2023, a decrease of $1.0 million, or
18.8%, compared to net income of $5.6 million for the nine-month
period ended September 30, 2022. Diluted earnings per share for the
nine-month period ended September 30, 2023 was $1.04, a decrease of
$0.23 per share compared to diluted earnings per share of $1.27 for
the same period in 2022. The decrease in net income between the
periods was due primarily to a $1.0 million decrease in the gain on
sales of loans because of a decrease in mortgage loan sales, a $0.9
million increase in compensation expense due primarily to annual
salary increases, a $0.4 million increase in other expenses
primarily because of an increase in FDIC insurance expense, and a
$0.2 million increase in income tax expense primarily because of a
valuation reserve that was established on the deferred tax asset as
a result of Wisconsin state tax law changes that were enacted
during the period. These decreases in net income were partially
offset by a $0.3 million increase in net interest income due to an
increase in interest rates and the amount of average interest
earning assets outstanding, a $0.3 million decrease in the
provision for credit losses, and a $0.3 million decrease in
professional expenses due to a decrease in legal fees.
Net Interest IncomeNet interest income was $23.6
million for the first nine months of 2023, an increase of $0.3
million, or 1.10%, compared to $23.3 million for the same period of
2022. Interest income was $31.9 million for the first nine months
of 2023, an increase of $7.6 million, or 31.7%, from $24.3 million
for the first nine months of 2022. Interest income increased
because of the $56.0 million increase in the average
interest-earning assets between the periods and also because of the
increase in the average yield earned on interest-earning assets
between the periods. The average yield earned on interest-earning
assets was 3.97% for the first nine months of 2023, an increase of
79 basis points from 3.18% for the first nine months of 2022. The
increase in the average yield is primarily related to the increase
in market interest rates as a result of the 2.25% increase in the
prime interest rate between the periods.
Interest expense was $8.3 million for the first
nine months of 2023, an increase of $7.4 million, or 811.8%,
compared to $0.9 million for the same period of 2022. Interest
expense increased primarily because of the increase in the average
interest rate paid on interest-bearing liabilities between the
periods. Interest expense also increased because of the $48.4
million increase in the average interest-bearing liabilities and
non-interest bearing deposits between the periods. The average
interest rate paid on interest-bearing liabilities and non-interest
bearing deposits was 1.13% for the first nine months of 2023, an
increase of 100 basis points from 0.13% for the first nine months
of 2022. The increase in the average rate paid is primarily related
to the change in the types of funding sources used between the
periods as more brokered deposits, certificates of deposits, and
FHLB advances were used in the first nine months of 2023 than in
the first nine months of 2022. These funding sources generally have
interest rates that are higher than traditional checking and money
market accounts. The increase in market interest rates as a result
of the 2.25% increase in the federal funds rate between the periods
also contributed to the higher funding costs in the first nine
months of 2023 when compared to the same period in 2022. Net
interest margin (net interest income divided by average
interest-earning assets) for the first nine months of 2023 was
2.93%, a decrease of 13 basis points, compared to 3.06% for the
first nine months of 2022. The decrease in the net interest margin
is primarily because the increase in the average rate paid on
interest-bearing liabilities and non-interest bearing deposits
exceeded the increase in the average yield earned on
interest-earning assets as a result of the increase in the prime
rate between the periods.
Provision for Credit LossesThe provision for
credit losses was $0.6 million in the first nine months of 2023, a
decrease of $0.3 million compared to $0.9 million for the first
nine months of 2022. The provision for credit losses decreased
between the periods primarily because the impact on the provision
of the additional loan growth that was experienced in the first
nine months of 2023 was less than it was for the same period in
2022 under the prior accounting standard.
The allowance for credit losses is measured on a
collective (pool) basis when similar risk characteristics exist.
Loans that do not share risk characteristics are evaluated on an
individual basis. Loans evaluated individually are not included in
the collective evaluations. The collective reserve amount is
assessed based on size and risk characteristics of the various
portfolio segments, past loss history and other adjustments
determined to have a potential impact on future credit losses. The
collective reserve amount increased from December 31, 2022
primarily because of the adoption of Accounting Standard Update
(ASU) 2016-13 on January 1, 2023 and also because of the loan
growth that was experienced during the first nine months of 2023.
The Company’s qualitative reserve amount also increased during the
first nine months of 2023 as a result of the loan growth that was
experienced and because of management’s perception that forecasted
economic conditions had slightly deteriorated during the first nine
months of 2023. Total non-performing assets were $1.1 million at
September 30, 2023, a decrease of $0.8 million compared to $1.9
million at December 31, 2022. The decrease is related to a
commercial business loan that was reclassified to performing and a
previously classified non-performing single family property that
was foreclosed and sold during the first nine months of 2023.
A reconciliation of the Company’s allowance for
credit losses for the nine-month periods ending September 30, 2023
and 2022 is summarized as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2023 |
|
|
2022 |
|
Balance at January 1, |
$ |
10,277 |
|
|
9,279 |
|
Adoption of Accounting
Standard Update (ASU) 2016-13 |
|
1,070 |
|
|
0 |
|
Provision |
|
612 |
|
|
941 |
|
Charge offs: |
|
|
|
|
|
|
Consumer |
|
(27 |
) |
|
(24 |
) |
Commercial real estate |
|
0 |
|
|
(90 |
) |
Recoveries |
|
35 |
|
|
35 |
|
Balance at September 30, |
$ |
11,967 |
|
|
10,141 |
|
|
|
|
|
|
On January 1, 2023, the Company adopted Accounting Standards
Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments. The
transition to this ASU resulted in a cumulative-effect adjustment
to the allowance for credit losses of $1.1 million, an increase in
deferred tax assets of $0.3 million, and a decrease to retained
earnings of $0.8 million as of the adoption date. In addition, a
liability of $0.1 million was established for projected future
losses on unfunded commitments on outstanding lines of credit upon
adoption. The projected liability for unfunded commitments
decreased $0.1 million during the first nine months of 2023 and the
provision for credit losses was decreased to reflect the
change.
The following table summarizes the amounts and
categories of non-performing assets in the Bank’s portfolio and
loan delinquency information as of the end of the most recently
completed quarter and December 31, 2022.
|
|
September 30, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2023 |
|
|
2022 |
|
Non-performing loans: |
|
|
|
|
|
|
Single family |
$ |
638 |
|
$ |
908 |
|
Consumer |
|
408 |
|
|
441 |
|
Commercial business |
|
35 |
|
|
529 |
|
Total non-performing
assets |
$ |
1,081 |
|
$ |
1,878 |
|
Total as a percentage of total
assets |
|
0.09 |
% |
|
0.17 |
% |
Total as a percentage of total
loans receivable |
|
0.13 |
% |
|
0.24 |
% |
Allowance for credit losses to
non-performing loans |
|
1,106.53 |
% |
|
547.24 |
% |
|
|
|
|
|
|
|
Delinquency data: |
|
|
|
|
|
|
Delinquencies(1) |
|
|
|
|
|
|
30+ days |
$ |
3,088 |
|
$ |
1,405 |
|
90+ days |
|
0 |
|
|
0 |
|
Delinquencies as a percentage
of loan portfolio(1) |
|
|
|
|
|
|
30+ days |
|
0.36 |
% |
|
0.18 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
(1)Excludes non-accrual loans. |
|
|
|
|
|
|
The increase in delinquencies during the period
is primarily related to a $1.3 million loan relationship in the
agricultural industry.
Non-Interest Income and ExpenseNon-interest
income was $6.1 million for the first nine months of 2023, a
decrease of $0.8 million, or 12.4%, from $6.9 million for the first
nine months of 2022. Gain on sales of loans decreased $1.0 million
between the periods because of a decrease in single family loan
sales due primarily to an increase in the amount of originated
mortgage loans that were placed into the loan portfolio. The
increase in mortgage loans that were placed into the portfolio was
the result of a targeted effort to originate loans to our executive
banking clients. Loan servicing fees decreased slightly between the
periods due to a decrease in the aggregate balances of single
family loans that were being serviced for others. These decreases
were partially offset by a $ 0.1 million increase in fees and
service charges between the periods due primarily to an increase in
the commitment fees earned on unused commercial lines of credit.
Other non-interest income increased $0.1 million due primarily to
an increase in the gains realized on equity securities between the
periods.
Non-interest expense was $22.4 million for the
first nine months of 2023, an increase of $1.0 million, or 4.8%,
from $21.4 million for the first nine months of 2022. Compensation
and benefits expense increased $0.9 million primarily because of
annual salary increases and also because of a decrease in the
direct loan origination compensation costs that were deferred as a
result of the reduced commercial loan production between the
periods. Other non-interest expense increased $0.4 million
primarily because of an increase in FDIC insurance expense due to
an increase in assessment rates between the periods.
Data processing expenses increased $0.2 million between the periods
primarily because of the change to an outsourced data processing
relationship at the end of the first quarter of 2022. These
increases in non-interest expense were partially offset by a $0.3
million decrease in professional services expense between the
periods primarily because of a decrease in legal expenses relating
to a bankruptcy litigation claim that was settled in the first
quarter of 2022. Occupancy and equipment expense decreased $0.1
million due primarily to a decrease in noncapitalized software
costs between the periods.
Income tax expense was $2.1 million for the
first nine months of 2023, a decrease of $0.2 million from $2.3
million for the first nine months of 2022. The decrease in income
tax expense is the result of a decrease in pre-tax income between
the periods. This decrease was partially offset by an increase in
income tax expense because of a valuation allowance that was
established on the deferred tax asset as a result of Wisconsin
state tax law changes that were enacted during the period.
Return on Assets and EquityReturn on average
assets (annualized) for the first nine months of 2023 was 0.55%,
compared to 0.71% for the same period of 2022. Return on average
equity (annualized) was 5.13% for the first nine months of 2023,
compared to 6.59% for the same period in 2022. Book value per
common share at September 30, 2023 was $22.68, compared to $20.02
at September 30, 2022.
General 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, and related aspects of the Bank’s business; the
anticipated impacts of inflation and rising interest rates on the
general economy, the Bank’s clients, and the allowance for credit
losses; anticipated future levels of the provision for credit
losses; anticipated level of future asset growth; anticipated
ability to maintain and grow core deposit relationships;
anticipated impact of tax law changes on future taxable state
income; anticipated level of future core deposit growth; and the
payment of dividends by HMN.
A number of factors, many of which may be
amplified by deterioration in economic conditions, could cause
actual results to differ materially from the Company’s assumptions
and expectations. These include but are not limited to the adequacy
and marketability of real estate and other collateral securing
loans to borrowers; federal and state regulation and enforcement;
possible legislative and regulatory changes, including changes to
regulatory capital rules; the ability of the Bank to comply with
other applicable regulatory capital requirements; enforcement
activity of the Office of the Comptroller of the Currency and the
Federal Reserve Bank of Minneapolis in the event of non-compliance
with any applicable regulatory standard or requirement; adverse
economic, business and competitive developments such as shrinking
interest margins, reduced collateral values, deposit outflows,
changes in credit or other risks posed by the Company’s loan and
investment portfolios; changes in costs associated with traditional
and alternate funding sources, including changes in collateral
advance rates and policies of the Federal Home Loan Bank and the
Federal Reserve Bank; technological, computer-related or
operational difficulties including those from any third party
cyberattack; reduced demand for financial services and loan
products; adverse developments affecting the financial services
industry, such as recent bank failures or concerns involving
liquidity; changes in accounting policies and guidelines, or
monetary and fiscal policies of the federal government or tax laws;
domestic and international economic developments; the Company’s
access to and adverse changes in securities markets; the market for
credit related assets; the future operating results, financial
condition, cash flow requirements and capital spending priorities
of the Company and the Bank; the availability of internal and, as
required, external sources of funding; the Company’s ability to
attract and retain employees; or other significant uncertainties.
Additional factors that may cause actual results to differ from the
Company’s assumptions and expectations include those set forth in
the “Risk Factors” section of the Company’s Annual Report on Form
10-K for the year ended December 31, 2022 and Part II, Item 1A of
its subsequently filed quarterly reports on Form 10-Q. All
forward-looking statements are qualified by, and should be
considered in conjunction with, such cautionary statements. All
statements in this press release, including forward-looking
statements, speak only as of the date they are made, and the
Company undertakes no duty to update any of the forward-looking
statements after the date of this press release.
(Three pages of selected consolidated financial
information are included with this release.)
***END***
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated Balance Sheets |
|
|
|
|
|
|
|
September 30, |
|
December 31, |
(Dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
|
(unaudited) |
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
$ |
46,676 |
|
|
36,259 |
|
Securities available for
sale: |
|
|
|
|
Mortgage-backed and related securities (amortized cost $188,199 and
$216,621) |
|
163,849 |
|
|
192,688 |
|
Other marketable securities (amortized cost $55,632 and
$55,698) |
|
54,318 |
|
|
53,331 |
|
Total securities available for sale |
|
218,167 |
|
|
246,019 |
|
|
|
|
|
|
Loans held for sale |
|
1,898 |
|
|
1,314 |
|
Loans receivable, net |
|
850,760 |
|
|
777,078 |
|
Accrued interest
receivable |
|
3,868 |
|
|
3,003 |
|
Mortgage servicing rights,
net |
|
2,780 |
|
|
2,986 |
|
Premises and equipment,
net |
|
16,128 |
|
|
16,492 |
|
Goodwill |
|
802 |
|
|
802 |
|
Prepaid expenses and other
assets |
|
4,067 |
|
|
3,902 |
|
Deferred tax asset, net |
|
9,025 |
|
|
8,347 |
|
Total assets |
$ |
1,154,171 |
|
|
1,096,202 |
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Deposits |
$ |
1,043,588 |
|
|
981,926 |
|
Accrued interest payable |
|
2,377 |
|
|
298 |
|
Customer escrows |
|
4,649 |
|
|
10,122 |
|
Accrued expenses and other
liabilities |
|
1,787 |
|
|
6,520 |
|
Total liabilities |
|
1,052,401 |
|
|
998,866 |
|
Commitments and
contingencies |
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Serial-preferred stock ($.01 par value): |
|
|
|
|
authorized 500,000 shares; issued 0 |
|
0 |
|
|
0 |
|
Common stock ($.01 par value): authorized 16,000,000 shares; issued
9,128,662 |
|
|
|
|
outstanding 4,487,362 and 4,480,976 |
|
91 |
|
|
91 |
|
Additional paid-in
capital |
|
41,127 |
|
|
41,013 |
|
Retained earnings, subject to
certain restrictions |
|
141,175 |
|
|
138,409 |
|
Accumulated other
comprehensive loss |
|
(18,498 |
) |
|
(19,761 |
) |
Unearned employee stock
ownership plan shares |
|
(918 |
) |
|
(1,063 |
) |
Treasury stock, at cost
4,641,300 and 4,647,686 shares |
|
(61,207 |
) |
|
(61,353 |
) |
Total stockholders’ equity |
|
101,770 |
|
|
97,336 |
|
Total liabilities and
stockholders’ equity |
$ |
1,154,171 |
|
|
1,096,202 |
|
|
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIESConsolidated Statements of
Comprehensive Income (Loss)(unaudited) |
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
(Dollars in thousands, except per share data) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
2022 |
|
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
10,549 |
|
|
7,473 |
|
|
29,171 |
|
21,389 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
566 |
|
|
691 |
|
|
1,818 |
|
2,126 |
|
Other marketable |
|
269 |
|
|
120 |
|
|
612 |
|
289 |
|
Other |
|
143 |
|
|
347 |
|
|
336 |
|
449 |
|
Total interest income |
|
11,527 |
|
|
8,631 |
|
|
31,937 |
|
24,253 |
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
3,614 |
|
|
340 |
|
|
7,966 |
|
910 |
|
Customer escrows |
|
4 |
|
|
0 |
|
|
59 |
|
0 |
|
Advances and other borrowings |
|
106 |
|
|
0 |
|
|
318 |
|
5 |
|
Total interest expense |
|
3,724 |
|
|
340 |
|
|
8,343 |
|
915 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
7,803 |
|
|
8,291 |
|
|
23,594 |
|
23,338 |
|
|
|
|
|
|
|
|
|
|
Provision for credit
losses(1) |
|
318 |
|
|
579 |
|
|
566 |
|
941 |
|
Net interest income after provision for credit losses |
|
7,485 |
|
|
7,712 |
|
|
23,028 |
|
22,397 |
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
857 |
|
|
821 |
|
|
2,495 |
|
2,397 |
|
Loan servicing fees |
|
390 |
|
|
406 |
|
|
1,181 |
|
1,188 |
|
Gain on sales of loans |
|
463 |
|
|
414 |
|
|
1,092 |
|
2,096 |
|
Other |
|
474 |
|
|
413 |
|
|
1,318 |
|
1,264 |
|
Total non-interest income |
|
2,184 |
|
|
2,054 |
|
|
6,086 |
|
6,945 |
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
4,455 |
|
|
4,355 |
|
|
13,719 |
|
12,805 |
|
Occupancy and equipment |
|
893 |
|
|
918 |
|
|
2,757 |
|
2,865 |
|
Data processing |
|
566 |
|
|
513 |
|
|
1,616 |
|
1,443 |
|
Professional services |
|
245 |
|
|
306 |
|
|
774 |
|
1,095 |
|
Other |
|
1,122 |
|
|
1,082 |
|
|
3,565 |
|
3,201 |
|
Total non-interest expense |
|
7,281 |
|
|
7,174 |
|
|
22,431 |
|
21,409 |
|
Income before income tax expense |
|
2,388 |
|
|
2,592 |
|
|
6,683 |
|
7,933 |
|
Income tax expense |
|
890 |
|
|
761 |
|
|
2,130 |
|
2,326 |
|
Net income |
|
1,498 |
|
|
1,831 |
|
|
4,553 |
|
5,607 |
|
Other comprehensive income
(loss), net of tax |
|
(1,688 |
) |
|
(7,189 |
) |
|
1,263 |
|
(23,458 |
) |
Comprehensive income (loss)
available to common stockholders |
$ |
(190 |
) |
|
(5,358 |
) |
|
5,816 |
|
(17,851 |
) |
Basic earnings per share |
$ |
0.34 |
|
|
0.42 |
|
|
1.05 |
|
1.28 |
|
Diluted earnings per
share |
$ |
0.34 |
|
|
0.42 |
|
|
1.04 |
|
1.27 |
|
|
|
|
|
|
|
|
|
|
(1) The Company adopted ASU 2016-13 as of January 1, 2023. The
2022 amounts presented are calculated under the prior accounting
standard.
HMN FINANCIAL, INC. AND SUBSIDIARIES |
|
Selected Consolidated Financial Information |
|
(unaudited) |
|
SELECTED FINANCIAL DATA: |
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
|
(Dollars in thousands, except per share data) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
I. OPERATING DATA: |
|
|
|
|
|
|
|
|
|
Interest income |
$ |
11,527 |
|
8,631 |
|
31,937 |
|
24,253 |
|
Interest expense |
|
3,724 |
|
340 |
|
8,343 |
|
915 |
|
Net interest income |
|
7,803 |
|
8,291 |
|
23,594 |
|
23,338 |
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
|
Assets(1) |
|
1,139,750 |
|
1,088,301 |
|
1,113,180 |
|
1,058,020 |
|
Loans receivable, net |
|
837,907 |
|
695,935 |
|
805,298 |
|
677,869 |
|
Securities available for sale(1) |
|
249,489 |
|
288,747 |
|
259,050 |
|
294,394 |
|
Interest-earning assets(1) |
|
1,101,919 |
|
1,050,510 |
|
1,076,052 |
|
1,020,033 |
|
Interest-bearing liabilities and non-interest bearing deposits |
|
1,011,894 |
|
966,563 |
|
987,316 |
|
938,943 |
|
Equity(1) |
|
120,006 |
|
115,183 |
|
118,690 |
|
113,783 |
|
|
|
|
|
|
|
|
|
|
|
III. PERFORMANCE
RATIOS:(1) |
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
0.52 |
% |
0.67 |
% |
0.55 |
% |
0.71 |
% |
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
Average during period |
|
2.69 |
|
3.12 |
|
2.84 |
|
3.05 |
|
End of period |
|
2.75 |
|
3.27 |
|
2.75 |
|
3.27 |
|
Net interest margin |
|
2.81 |
|
3.13 |
|
2.93 |
|
3.06 |
|
Ratio of operating expense to average total assets
(annualized) |
|
2.53 |
|
2.62 |
|
2.69 |
|
2.71 |
|
Return on average common equity (annualized) |
|
4.95 |
|
6.30 |
|
5.13 |
|
6.59 |
|
Efficiency |
|
72.90 |
|
69.35 |
|
75.58 |
|
70.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
|
|
|
|
|
2023 |
|
2022 |
|
2022 |
|
|
|
IV. EMPLOYEE DATA: |
|
|
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
159 |
|
165 |
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
1,081 |
|
1,878 |
|
1,811 |
|
|
|
Non-performing assets to total assets |
|
0.09 |
% |
0.17 |
% |
0.17 |
% |
|
|
Non-performing loans to total loans receivable |
|
0.13 |
|
0.24 |
|
0.24 |
|
|
|
Allowance for credit losses(2) |
$ |
11,967 |
|
10,277 |
|
10,141 |
|
|
|
Allowance for credit losses to total assets(2) |
|
1.04 |
% |
0.94 |
% |
0.97 |
% |
|
|
Allowance for credit losses to total loans receivable(2) |
|
1.39 |
|
1.30 |
|
1.35 |
|
|
|
Allowance for credit losses to non-performing loans(2) |
|
1,106.53 |
|
547.24 |
|
559.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK VALUE PER COMMON
SHARE: |
|
|
|
|
|
|
|
|
|
Book value per common share |
$ |
22.68 |
|
21.72 |
|
20.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months EndedSeptember 30,2023 |
Year EndedDecember 31,2022 |
Nine Months EndedSeptember 30,2022 |
|
|
|
VII. CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of period |
|
8.82 |
% |
8.88 |
% |
8.56 |
% |
|
|
Average stockholders’ equity to average assets(1) |
|
10.66 |
|
10.73 |
|
10.75 |
|
|
|
Ratio of average interest-earning assets to average interest-
bearing liabilities and non-interest bearing deposits(1) |
|
108.99 |
|
108.65 |
|
108.64 |
|
|
|
Home Federal Savings Bank regulatory capital ratios: |
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
11.11 |
|
11.48 |
|
11.47 |
|
|
|
Tier 1 capital leverage ratio |
|
8.93 |
|
9.14 |
|
8.95 |
|
|
|
Tier 1 capital ratio |
|
11.11 |
|
11.48 |
|
11.47 |
|
|
|
Risk-based capital |
|
12.37 |
|
12.65 |
|
12.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average balances were calculated based upon
amortized cost without the market value impact of ASC
320.(2) The Company adopted ASU 2016-13 as of
January 1, 2023. The 2022 amounts presented are calculated under
the prior accounting standard.
CONTACT: Bradley Krehbiel,
Chief Executive Officer,
President HMN Financial, Inc. (507)
252-7169
Grafico Azioni HMN Financial (NASDAQ:HMNF)
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