HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $1.0
billion holding company for Home Federal Savings Bank (the Bank),
today reported net income of $1.8 million for the third quarter of
2022, a decrease of $1.8 million, compared to net income of $3.6
million for the third quarter of 2021. Diluted earnings per share
for the third quarter of 2022 was $0.42, a decrease of $0.39,
compared to diluted earnings per share of $0.81 for the third
quarter of 2021. The decrease in net income between the periods was
primarily because of a $1.5 million increase in the provision for
loan losses. The provision for loan losses increased between the
periods primarily because of the loan portfolio growth and also
because of an increase in qualitative reserves due to the perceived
negative impact on borrower finances from rising inflation and
interest rates. Net income was also negatively impacted by a $1.1
million decrease in the gain on sales of loans due to a decrease in
mortgage loan originations and sales. Income tax expense decreased
$0.7 million as a result of the decreased pre-tax income between
the periods.
President’s Statement “We are pleased to report
the loan growth that was experienced and the positive impact it 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 nine 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.”
Third Quarter Results
Net Interest Income Net interest income was $8.3
million for the third quarter of 2022, an increase of $0.3 million,
or 3.1%, from $8.0 million for the third quarter of 2021. Interest
income was $8.6 million for the third quarter of 2022, an increase
of $0.2 million, or 2.7%, from $8.4 million for the third quarter
of 2021. Interest income increased primarily because of the $89.9
million increase in the average interest-earning assets between the
periods, which was partially offset by a decrease in the average
yield earned on interest-earning assets between the periods. The
average yield earned on interest-earning assets was 3.26% for the
third quarter of 2022, a decrease of 21 basis points from 3.47% for
the third quarter of 2021. The decrease in the average yield is
primarily related to the $0.8 million decrease between the periods
in the yield enhancements recognized on PPP loans.
Interest expense was $0.3 million for the third
quarter of 2022, a decrease of $0.1 million, or 5.6%, from $0.4
million for the third quarter of 2021. Interest expense decreased,
despite the $92.1 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 0.14% for the
third quarter of 2022, a decrease of 2 basis points from 0.16% for
the third 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 third quarter of 2022
was 3.13%, a decrease of 19 basis points, compared to 3.32% for the
third 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 $0.8 million decrease between the periods
in the yield enhancements recognized on PPP loans.
A summary of the Company’s net interest margin
for the three and nine month periods ended September 30, 2022 and
2021 is as follows:
|
|
For the three month period ended |
|
|
September 30, 2022 |
|
September 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 |
$ |
288,747 |
|
811 |
|
1.11 |
% |
$ |
215,811 |
|
514 |
|
0.94 |
% |
Loans held for
sale |
|
1,806 |
|
26 |
|
5.72 |
|
|
5,991 |
|
40 |
|
2.63 |
|
Single family
loans, net |
|
187,340 |
|
1,646 |
|
3.49 |
|
|
164,591 |
|
1,442 |
|
3.48 |
|
Commercial loans,
net |
|
465,192 |
|
5,270 |
|
4.49 |
|
|
420,062 |
|
5,840 |
|
5.52 |
|
Consumer loans,
net |
|
43,403 |
|
531 |
|
4.86 |
|
|
43,955 |
|
515 |
|
4.65 |
|
Other |
|
64,022 |
|
347 |
|
2.15 |
|
|
110,173 |
|
50 |
|
0.18 |
|
Total
interest-earning
assets |
|
1,050,510 |
|
8,631 |
|
3.26 |
|
|
960,583 |
|
8,401 |
|
3.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
accounts |
|
159,854 |
|
46 |
|
0.11 |
|
|
155,373 |
|
45 |
|
0.11 |
|
Savings
accounts |
|
126,427 |
|
19 |
|
0.06 |
|
|
115,526 |
|
18 |
|
0.06 |
|
Money market
accounts |
|
294,763 |
|
207 |
|
0.28 |
|
|
249,335 |
|
138 |
|
0.22 |
|
Certificate
accounts |
|
73,355 |
|
68 |
|
0.37 |
|
|
91,595 |
|
159 |
|
0.69 |
|
Total
interest-bearing
liabilities |
|
654,399 |
|
|
|
|
|
|
611,829 |
|
|
|
|
|
Non-interest
checking |
|
309,616 |
|
|
|
|
|
|
259,721 |
|
|
|
|
|
Other
non-interest bearing
deposits |
|
2,548 |
|
|
|
|
|
|
2,923 |
|
|
|
|
|
Total
interest-bearing liabilities and non-interest bearing deposits |
$ |
966,563 |
|
340 |
|
0.14 |
|
$ |
874,473 |
|
360 |
|
0.16 |
|
Net interest
income |
|
|
$ |
8,291 |
|
|
|
|
|
$ |
8,041 |
|
|
|
Net interest
rate spread |
|
|
|
|
|
3.12 |
% |
|
|
|
|
|
3.31 |
% |
Net interest
margin |
|
|
|
|
|
3.13 |
% |
|
|
|
|
|
3.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine month period ended |
|
|
September 30, 2022 |
|
September 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 |
$ |
294,394 |
|
2,415 |
|
1.10 |
% |
$ |
192,877 |
|
1,514 |
|
1.05 |
% |
Loans held for
sale |
|
2,820 |
|
91 |
|
4.32 |
|
|
5,303 |
|
114 |
|
2.88 |
|
Single family
loans,
net |
|
177,842 |
|
4,593 |
|
3.45 |
|
|
154,992 |
|
4,189 |
|
3.61 |
|
Commercial loans,
net |
|
458,017 |
|
15,229 |
|
4.45 |
|
|
433,514 |
|
16,783 |
|
5.18 |
|
Consumer loans,
net |
|
42,010 |
|
1,476 |
|
4.70 |
|
|
47,779 |
|
1,668 |
|
4.67 |
|
Other |
|
44,950 |
|
449 |
|
1.34 |
|
|
99,778 |
|
116 |
|
0.16 |
|
Total
interest-earning
assets |
|
1,020,033 |
|
24,253 |
|
3.18 |
|
|
934,243 |
|
24,384 |
|
3.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
accounts |
|
158,665 |
|
126 |
|
0.11 |
|
|
156,983 |
|
137 |
|
0.12 |
|
Savings
accounts |
|
123,896 |
|
54 |
|
0.06 |
|
|
111,715 |
|
52 |
|
0.06 |
|
Money market
accounts |
|
271,005 |
|
497 |
|
0.25 |
|
|
238,011 |
|
408 |
|
0.23 |
|
Certificate
accounts |
|
78,845 |
|
233 |
|
0.39 |
|
|
95,537 |
|
626 |
|
0.88 |
|
Advances and
other
borrowings |
|
656 |
|
5 |
|
1.04 |
|
|
0 |
|
0 |
|
0.00 |
|
Total
interest-bearing
liabilities |
|
633,067 |
|
|
|
|
|
|
602,246 |
|
|
|
|
|
Non-interest
checking |
|
303,365 |
|
|
|
|
|
|
249,215 |
|
|
|
|
|
Other
non-interest bearing
deposits |
|
2,511 |
|
|
|
|
|
|
2,632 |
|
|
|
|
|
Total
interest-bearing liabilities and non-interest bearing deposits |
$ |
938,943 |
|
915 |
|
0.13 |
|
$ |
854,093 |
|
1,223 |
|
0.19 |
|
Net interest
income |
|
|
$ |
23,338 |
|
|
|
|
|
$ |
23,161 |
|
|
|
Net interest
rate
spread |
|
|
|
|
|
3.05 |
% |
|
|
|
|
|
3.30 |
% |
Net interest
margin |
|
|
|
|
|
3.06 |
% |
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses The provision for loan
losses was $0.6 million for the third quarter of 2022, an increase
of $1.5 million compared to ($0.9) million for the third quarter of
2021. The provision for loan losses increased between the periods
primarily because of the loan portfolio growth and also because of
an increase in the qualitative reserves due to the perceived
negative impact on borrowers from inflation and rising 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 primarily
because of the loan portfolio growth and because 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 the elevated inflation rate, and
enacted and expected increases in the federal funds rate. Total
non-performing assets were $1.8 million at September 30, 2022, a
decrease of $2.5 million, or 57.8%, from $4.3 million at June 30,
2022. Non-performing loans decreased $2.5 million and foreclosed
and repossessed assets did not change during the third quarter of
2022. The decrease in nonperforming loans is primarily related to a
$3.3 million decrease in nonperforming commercial real estate
loans, primarily because of a $3.1 million loan in the hospitality
industry that was reclassified as performing during the quarter.
This decrease in non-performing loans was partially offset by
increases of $0.2 million and $0.6 million in nonperforming
mortgage and commercial loans, respectively.
A reconciliation of the Company’s allowance for
loan losses for the quarters ended September 30, 2022 and 2021 is
summarized as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2022 |
|
2021 |
Balance at June 30 |
$ |
9,644 |
|
|
9,915 |
|
Provision |
|
579 |
|
|
(886 |
) |
Charge
offs: |
|
|
|
|
Commercial
real estate |
|
(90 |
) |
|
0 |
|
Consumer |
|
(8 |
) |
|
0 |
|
Recoveries |
|
16 |
|
|
41 |
|
Balance at
September 30 |
$ |
10,141 |
|
|
9,070 |
|
Allocated
to: |
|
|
|
|
General
allowance |
$ |
9,993 |
|
|
8,784 |
|
Specific
allowance |
|
148 |
|
|
286 |
|
|
$ |
10,141 |
|
|
9,070 |
|
|
|
|
|
|
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, 2021.
|
|
September 30, |
|
|
June 30, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2022 |
|
|
2022 |
|
|
2021 |
|
Non‑performing loans: |
|
|
|
|
|
|
|
|
|
Single
family |
$ |
732 |
|
$ |
565 |
|
$ |
340 |
|
Commercial
real estate |
|
0 |
|
|
3,286 |
|
|
3,757 |
|
Consumer |
|
440 |
|
|
436 |
|
|
517 |
|
Commercial |
|
639 |
|
|
7 |
|
|
7 |
|
Total |
|
1,811 |
|
|
4,294 |
|
|
4,621 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
and repossessed assets: |
|
|
|
|
|
|
|
|
|
Commercial
real estate |
|
0 |
|
|
0 |
|
|
290 |
|
Total
non‑performing assets |
$ |
1,811 |
|
$ |
4,294 |
|
$ |
4,911 |
|
Total as a
percentage of total assets |
|
0.17 |
% |
|
0.40 |
% |
|
0.46 |
% |
Total as a
percentage of total loans receivable |
|
0.24 |
% |
|
0.62 |
% |
|
0.70 |
% |
Allowance
for loan loss to non-performing loans |
|
559.85 |
% |
|
224.61 |
% |
|
200.81 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency
data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+
days |
$ |
1,660 |
|
$ |
2,504 |
|
$ |
1,418 |
|
90+
days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage of loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+
days |
|
0.22 |
% |
|
0.36 |
% |
|
0.21 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
(1) Excludes non-accrual loans. |
|
|
|
|
|
|
|
|
|
Non-Interest Income and Expense Non-interest
income was $2.1 million for the third quarter of 2022, a decrease
of $1.0 million, or 32.7%, from $3.1 million for the third quarter
of 2021. Gain on sales of loans decreased $1.1 million between the
periods primarily because of a decrease in single family loan
originations and sales. Other non-interest income increased
slightly due primarily to an increase in the fees earned on the
sale of uninsured investment products. 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. Fees and service charges increased slightly
between the periods due primarily to an increase in overdraft
fees.
Non-interest expense was $7.2 million for the
third quarter of 2022, an increase of $0.3 million, or 3.9%, from
$6.9 million for the third quarter of 2021. Compensation and
benefits expense increased $0.4 million primarily because of a
decrease in the direct loan origination compensation costs that
were deferred as a result of the reduced mortgage loan production
between the periods. Data processing expenses increased $0.1
million between the periods primarily because of the change to an
outsourced data processing relationship at the end of the first
quarter of 2022. Other non-interest expense increased slightly
between the periods primarily because of an increase in marketing
expenses. 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.
Professional services expense decreased $0.1 million between the
periods primarily because of a decrease in legal expenses relating
to a bankruptcy litigation claim that was settled during the first
quarter of 2022.
Income tax expense was $0.8 million for the
third quarter of 2022, a decrease of $0.7 million from $1.5 million
for the third 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 third quarter of 2022 was 0.67%,
compared to 1.45% for the third quarter of 2021. Return on average
equity (annualized) was 6.30% for the third quarter of 2022,
compared to 13.18% for the same period in 2021. Book value per
common share at September 30, 2022 was $20.02, compared to $23.93
at September 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.
Nine Month Period Results Net
Income Net income was $5.6 million for the nine month period ended
September 30, 2022, a decrease of $6.0 million, or 51.5%, compared
to net income of $11.6 million for the nine month period ended
September 30, 2021. Diluted earnings per share for the nine month
period ended September 30, 2022 was $1.27, a decrease of $1.28 per
share, compared to diluted earnings per share of $2.55 for the same
period in 2021. The decrease in net income between the periods was
primarily because of a $3.3 million increase in the provision for
loan losses. The provision for loan losses increased between the
periods primarily because of the loan portfolio growth and also
because of an increase in qualitative reserves due to the perceived
negative impact on borrower finances from inflation and rising
interest rates. Net income was also negatively impacted by a $2.8
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 between
the periods, and a $0.9 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 originations. These decreases in net
income were partially offset by a $2.3 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
$23.3 million for the first nine months of 2022, an increase of
$0.1 million, or 0.8%, from $23.2 million for the same period in
2021. Interest income was $24.3 million for the nine month period
ended September 30, 2022, a decrease of $0.1 million, or 0.5%, from
$24.4 million for the same nine month period in 2021. Interest
income decreased, despite the $85.8 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 3.18% for the first nine months of 2022, a decrease of
31 basis points from 3.49% for the first nine months of 2021. The
decrease in the average yield is primarily related to the $2.0
million decrease between the periods in the yield enhancements
recognized on PPP loans.
Interest expense was $0.9 million for the first
nine months of 2022, a decrease of $0.3 million, or 25.2%, compared
to $1.2 million for the same period of 2021. Interest expense
decreased, despite the $84.8 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 nine months of 2022, a decrease of
6 basis points from 0.19% for the first nine 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 nine months of 2022 was
3.06%, a decrease of 25 basis points, compared to 3.31% for the
first nine 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 $2.0 million decrease between the periods
in the yield enhancements recognized on PPP loans.
Provision for Loan Losses The provision for loan
losses was $0.9 million for the first nine months of 2022, an
increase of $3.3 million compared to ($2.4) million for the first
nine months of 2021. The provision for loan losses increased
between the periods primarily because of the loan portfolio growth
and also because of an increase in qualitative reserves due to the
perceived negative impact on borrowers from inflation and rising
interest rates. The credit provision recorded in the first nine
months of 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 primarily
because of the loan portfolio growth and because 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 first nine
months of 2022 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 first nine months of 2022, including the
elevated inflation rate, and enacted and expected increases in the
federal funds rate. Total non-performing assets were $1.8 million
at September 30, 2022, a decrease of $3.1 million, or 63.1%, from
$4.9 million at December 31, 2021. Non-performing loans decreased
$2.8 million and foreclosed and repossessed assets decreased $0.3
million during the first nine months of 2022. The decrease in
nonperforming loans is related to a $3.7 million decrease in
non-performing commercial real estate loans, primarily because of a
$3.1 million loan in the hospitality industry that was reclassified
as performing during the first nine months of 2022. Non-performing
consumer loans also decreased $0.1 million during the period. These
decreases in non-performing loans were partially offset by
increases of $0.4 million and $0.6 million in nonperforming
mortgage and commercial loans, respectively.
A reconciliation of the allowance for loan
losses for the nine month periods ended September 30, 2022 and 2021
is summarized as follows:
|
|
|
(Dollars in thousands) |
|
2022 |
|
2021 |
Balance at January 1, |
$ |
9,279 |
|
|
10,699 |
|
Provision |
|
941 |
|
|
(2,353 |
) |
Charge
offs: |
|
|
|
|
Consumer |
|
(24 |
) |
|
(42 |
) |
Commercial
real estate |
|
(90 |
) |
|
0 |
|
Recoveries |
|
35 |
|
|
766 |
|
Balance at
September 30, |
$ |
10,141 |
|
|
9,070 |
|
|
|
|
|
|
Non-Interest Income and Expense Non-interest
income was $6.9 million for the first nine months of 2022, a
decrease of $4.1 million, or 37.1%, from $11.0 million for the same
period of 2021. Gain on sales of loans decreased $2.8 million
between the periods primarily because of a decrease in single
family loan originations and sales. 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. Fees and service charges increased $0.1 million
between the periods due primarily to an increase in overdraft fees.
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 $21.4 million for the
first nine months of 2022, an increase of $1.0 million, or 5.1%,
from $20.4 million for the same period of 2021. Compensation and
benefits expense increased $0.9 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. Data processing expenses increased $0.3
million between the periods primarily because of the change to an
outsourced data processing relationship at the end of the first
quarter of 2022.
Professional services expense increased $0.2
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. These increases in
non-interest expense were partially offset by a $0.4 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 expense due to the reduction in
prepayments on mortgage loan being serviced for others.
Income tax expense was $2.3 million for the
first nine months of 2022, a decrease of $2.3 million from $4.6
million for the same period 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 nine month period ended September 30,
2022 was 0.71%, compared to 1.60% for the same period in 2021.
Return on average equity (annualized) was 6.59% for the nine month
period ended September 30, 2022, compared to 14.57% for the same
period in 2021. Book value per common share at September 30, 2022
was $20.02, compared to $23.93 at September 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 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 deterioration in economic conditions and 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, 2021 and 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 |
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(Dollars in thousands) |
|
2022 |
|
2021 |
|
|
|
(unaudited) |
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
18,645 |
|
|
94,143 |
|
|
Securities
available for sale: |
|
|
|
|
|
Mortgage-backed and related securities (amortized cost
$226,499 and $247,275) |
|
195,952 |
|
|
245,397 |
|
|
Other marketable securities (amortized cost $55,697 and
$40,691) |
|
53,260 |
|
|
40,368 |
|
|
|
|
249,212 |
|
|
285,765 |
|
|
|
|
|
|
|
|
Loans held
for sale |
|
1,934 |
|
|
5,575 |
|
|
Loans
receivable, net |
|
740,280 |
|
|
652,502 |
|
|
Accrued
interest receivable |
|
2,662 |
|
|
2,132 |
|
|
Mortgage
servicing rights, net |
|
3,117 |
|
|
3,280 |
|
|
Premises and
equipment, net |
|
16,751 |
|
|
17,373 |
|
|
Goodwill |
|
802 |
|
|
802 |
|
|
Core deposit
intangible |
|
0 |
|
|
10 |
|
|
Prepaid
expenses and other assets |
|
5,087 |
|
|
5,427 |
|
|
Deferred tax
asset, net |
|
9,303 |
|
|
2,529 |
|
|
Total assets |
$ |
1,047,793 |
|
|
1,069,538 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Deposits |
$ |
947,557 |
|
|
950,666 |
|
|
Accrued
interest payable |
|
53 |
|
|
63 |
|
|
Customer
escrows |
|
3,332 |
|
|
2,143 |
|
|
Accrued
expenses and other liabilities |
|
7,141 |
|
|
6,635 |
|
|
Total liabilities |
|
958,083 |
|
|
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 |
|
40,894 |
|
|
40,740 |
|
|
Retained
earnings, subject to certain restrictions |
|
136,230 |
|
|
131,413 |
|
|
Accumulated
other comprehensive loss |
|
(25,041 |
) |
|
(1,583 |
) |
|
Unearned
employee stock ownership plan shares |
|
(1,111 |
) |
|
(1,256 |
) |
|
Treasury
stock, at cost 4,647,686 and 4,564,087 shares |
|
(61,353 |
) |
|
(59,374 |
) |
|
Total stockholders’ equity |
|
89,710 |
|
|
110,031 |
|
|
Total
liabilities and stockholders’ equity |
$ |
1,047,793 |
|
|
1,069,538 |
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIES Consolidated Statements of
Comprehensive (Loss) Income (unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
(Dollars in thousands, except per share data) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Interest income: |
|
|
|
|
|
|
|
|
Loans
receivable |
$ |
7,473 |
|
|
7,837 |
|
|
21,389 |
|
|
22,754 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and
related |
|
691 |
|
|
457 |
|
|
2,126 |
|
|
1,288 |
|
Other
marketable |
|
120 |
|
|
57 |
|
|
289 |
|
|
226 |
|
Other |
|
347 |
|
|
50 |
|
|
449 |
|
|
116 |
|
Total interest
income |
|
8,631 |
|
|
8,401 |
|
|
24,253 |
|
|
24,384 |
|
|
|
|
|
|
|
|
|
|
Interest
expense: |
|
|
|
|
|
|
|
|
Deposits |
|
340 |
|
|
360 |
|
|
910 |
|
|
1,223 |
|
Advances and other
borrowings |
|
0 |
|
|
0 |
|
|
5 |
|
|
0 |
|
Total interest
expense |
|
340 |
|
|
360 |
|
|
915 |
|
|
1,223 |
|
Net interest
income |
|
8,291 |
|
|
8,041 |
|
|
23,338 |
|
|
23,161 |
|
Provision for loan
losses |
|
579 |
|
|
(886 |
) |
|
941 |
|
|
(2,353 |
) |
Net interest income after provision for loan
losses |
|
7,712 |
|
|
8,927 |
|
|
22,397 |
|
|
25,514 |
|
|
|
|
|
|
|
|
|
|
Non-interest
income: |
|
|
|
|
|
|
|
|
Fees and service
charges |
|
821 |
|
|
810 |
|
|
2,397 |
|
|
2,332 |
|
Loan servicing
fees |
|
406 |
|
|
389 |
|
|
1,188 |
|
|
1,168 |
|
Gain on sales of
loans |
|
414 |
|
|
1,471 |
|
|
2,096 |
|
|
4,909 |
|
Other |
|
413 |
|
|
381 |
|
|
1,264 |
|
|
2,639 |
|
Total non-interest
income |
|
2,054 |
|
|
3,051 |
|
|
6,945 |
|
|
11,048 |
|
|
|
|
|
|
|
|
|
|
Non-interest
expense: |
|
|
|
|
|
|
|
|
Compensation and
benefits |
|
4,355 |
|
|
3,948 |
|
|
12,805 |
|
|
11,865 |
|
Occupancy and
equipment |
|
918 |
|
|
1,090 |
|
|
2,865 |
|
|
3,301 |
|
Data
processing |
|
513 |
|
|
384 |
|
|
1,443 |
|
|
1,099 |
|
Professional
services |
|
306 |
|
|
409 |
|
|
1,095 |
|
|
895 |
|
Other |
|
1,082 |
|
|
1,075 |
|
|
3,201 |
|
|
3,205 |
|
Total non-interest
expense |
|
7,174 |
|
|
6,906 |
|
|
21,409 |
|
|
20,365 |
|
Income before income tax
expense |
|
2,592 |
|
|
5,072 |
|
|
7,933 |
|
|
16,197 |
|
Income tax
expense |
|
761 |
|
|
1,453 |
|
|
2,326 |
|
|
4,632 |
|
Net income |
|
1,831 |
|
|
3,619 |
|
|
5,607 |
|
|
11,565 |
|
Other
comprehensive loss, net of
tax |
|
(7,189 |
) |
|
(688 |
) |
|
(23,458 |
) |
|
(1,508 |
) |
Comprehensive (loss) income available to common
stockholders |
$ |
(5,358 |
) |
|
2,931 |
|
|
(17,851 |
) |
|
10,057 |
|
Basic
earnings per
share |
$ |
0.42 |
|
|
0.82 |
|
|
1.28 |
|
|
2.57 |
|
Diluted
earnings per
share |
$ |
0.42 |
|
|
0.81 |
|
|
1.27 |
|
|
2.55 |
|
|
|
|
|
|
|
|
|
|
HMN
FINANCIAL, INC. AND SUBSIDIARIES |
Selected
Consolidated Financial Information |
(unaudited) |
|
Selected Financial Data: |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(Dollars in thousands, except per share data) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
I. OPERATING DATA: |
|
|
|
|
|
|
|
|
|
Interest income |
$ |
8,631 |
|
8,401 |
|
24,253 |
|
24,384 |
|
Interest expense |
|
340 |
|
360 |
|
915 |
|
1,223 |
|
Net interest income |
|
8,291 |
|
8,041 |
|
23,338 |
|
23,161 |
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
|
Assets (1) |
|
1,088,301 |
|
992,620 |
|
1,058,020 |
|
967,890 |
|
Loans receivable, net |
|
695,935 |
|
628,608 |
|
677,869 |
|
636,285 |
|
Securities available for sale (1) |
|
288,747 |
|
215,811 |
|
294,394 |
|
192,877 |
|
Interest-earning assets (1) |
|
1,050,510 |
|
960,583 |
|
1,020,033 |
|
934,243 |
|
Interest-bearing liabilities and non-interest bearing deposits |
|
966,563 |
|
874,473 |
|
938,943 |
|
854,093 |
|
Equity (1) |
|
115,183 |
|
108,955 |
|
113,783 |
|
106,108 |
|
|
|
|
|
|
|
|
|
|
|
III.
PERFORMANCE RATIOS: (1) |
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
0.67 |
% |
1.45 |
% |
0.71 |
% |
1.60 |
% |
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
Average during period |
|
3.12 |
|
3.31 |
|
3.05 |
|
3.30 |
|
End of period |
|
3.27 |
|
3.12 |
|
3.27 |
|
3.12 |
|
Net interest margin |
|
3.13 |
|
3.32 |
|
3.06 |
|
3.31 |
|
Ratio of operating expense to average |
|
|
|
|
|
|
|
|
|
total assets (annualized) |
|
2.62 |
|
2.76 |
|
2.71 |
|
2.81 |
|
Return on average equity (annualized) |
|
6.30 |
|
13.18 |
|
6.59 |
|
14.57 |
|
Efficiency |
|
69.35 |
|
62.26 |
|
70.70 |
|
59.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 30, 2022 |
|
Dec 31, 2021 |
|
Sep 30, 2021 |
|
|
|
IV. EMPLOYEE
DATA: |
|
|
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
168 |
|
164 |
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
1,811 |
|
4,911 |
|
1,788 |
|
|
|
Non-performing assets to total assets |
|
0.17 |
% |
0.46 |
% |
0.17 |
% |
|
|
Non-performing loans to total loans receivable |
|
0.24 |
|
0.70 |
|
0.28 |
|
|
|
Allowance for loan losses |
$ |
10,141 |
|
9,279 |
|
9,070 |
|
|
|
Allowance for loan losses to total assets |
|
0.97 |
% |
0.87 |
% |
0.87 |
% |
|
|
Allowance for loan losses to total loans receivable |
|
1.35 |
|
1.40 |
|
1.44 |
|
|
|
Allowance for loan losses to non-performing loans |
|
559.85 |
|
200.81 |
|
507.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK VALUE PER SHARE: |
|
|
|
|
|
|
|
|
|
Book value per share common share |
$ |
20.02 |
|
24.11 |
|
23.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended Sep 30, 2022 |
|
Year Ended Dec 31, 2021 |
|
Nine Months Ended Sep 30, 2021 |
|
|
|
VII. CAPITAL
RATIOS: |
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of period |
|
8.56 |
% |
10.29 |
% |
10.61 |
% |
|
|
Average stockholders’ equity to average assets (1) |
|
10.75 |
|
10.92 |
|
10.96 |
|
|
|
Ratio of average interest-earning assets to average
interest-bearing liabilities and non-interest bearing
deposits(1) |
|
108.64 |
|
109.17 |
|
109.38 |
|
|
|
Home Federal Savings Bank regulatory capital ratios: |
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
11.47 |
|
13.18 |
|
13.85 |
|
|
|
Tier 1 capital leverage ratio |
|
8.95 |
|
9.47 |
|
9.64 |
|
|
|
Tier 1 capital ratio |
|
11.47 |
|
13.18 |
|
13.85 |
|
|
|
Risk-based capital |
|
12.66 |
|
14.43 |
|
15.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1) Average balances were calculated based
upon amortized cost without the market value impact of ASC 320.
CONTACT: Bradley Krehbiel
Chief Executive Officer, President HMN
Financial, Inc. (507) 252-7169
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