HMN Financial, Inc. Announces Fourth Quarter Results, Declares Dividend and Announces Annual Meeting
January 26, 2023 at 07:01 pm
Share
Fourth Quarter Summary
Net income of $2.4 million, up $0.4 million from $2.0 million for fourth quarter of 2021
Diluted earnings per share of $0.56, up $0.11 from $0.45 for fourth quarter of 2021
Net interest income of $8.9 million, up $1.9 million from $7.0 million for fourth quarter of 2021
Net interest margin of 3.35%, up 55 basis points from 2.80% for fourth quarter of 2021
Gain on sales of loans of $0.3 million, down $1.4 million from $1.7 million for fourth quarter of 2021
Provision for loan losses of $0.1 million, down $0.1 million from $0.2 million for fourth quarter of 2021
Annual Summary
Net income of $8.0 million, down $5.6 million from $13.6 million for 2021
Diluted earnings per share of $1.83, down $1.18 from $3.01 for 2021
Net interest income of $32.3 million, up $2.1 million from $30.2 million for 2021
Net interest margin of 3.14%, down 4 basis points from 3.18% for 2021
Gain on sales of loans of $2.4 million, down $4.2 million from $6.6 million for 2021
Provision for loan losses of $1.1 million, up $3.2 million from ($2.1) million for 2021
Net Income Summary
Three Months Ended
Year Ended
December 31,
December 31,
(Dollars in thousands, except per share amounts)
2022
2021
2022
2021
Net income
$
2,438
1,999
$
8,045
13,564
Diluted earnings per share
0.56
0.45
1.83
3.01
Return on average assets (annualized)
0.89
%
0.77
%
0.75
%
1.38
%
Return on average equity (annualized)
8.32
%
7.11
%
7.03
%
12.62
%
Book value per share
$
21.72
24.11
$
21.72
24.11
ROCHESTER, Minn., Jan. 26, 2023 (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 $2.4 million for the fourth quarter of 2022, an increase of $0.4 million compared to net income of $2.0 million for the fourth quarter of 2021. Diluted earnings per share for the fourth quarter of 2022 was $0.56, an increase of $0.11 from the diluted earnings per share of $0.45 for the fourth quarter of 2021. The increase in net income between the periods was primarily because of a $1.9 million increase in net interest income due to an increase in interest earning assets and higher yields earned on those assets. This increase in net income was partially offset by a $1.4 million decrease in the gain on sales of loans due to the decrease in mortgage loan originations and sales due primarily to an increase in mortgage interest rates between the periods.
President’s Statement
“We are pleased to report the continued growth in our loan portfolio during the fourth quarter of 2022 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 quarter resulted in the yields on our interest-earning assets to increase at a faster rate than the rates paid on our deposits and other funding sources, which had a positive impact on our net interest income and earnings. We will continue to focus our efforts on profitably growing the Company and improving our net interest income as we move into the new year.”
Fourth Quarter Results
Net Interest Income
Net interest income was $8.9 million for the fourth quarter of 2022, an increase of $1.9 million, or 26.6%, from $7.0 million for the fourth quarter of 2021. Interest income was $10.0 million for the fourth quarter of 2022, an increase of $2.6 million, or 35.6%, from $7.4 million for the fourth quarter of 2021. Interest income increased primarily because of the $57.6 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 3.76% for the fourth quarter of 2022, an increase of 83 basis points from 2.93% for the fourth quarter of 2021. The increase in the average yield is primarily related to the increase in market interest rates as a result of the 4.25% increase in the prime interest rate between the periods.
Interest expense was $1.1 million for the fourth quarter of 2022, an increase of $0.8 million, or 228.5%, from $0.3 million for the fourth quarter of 2021. 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 $52.2 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 0.44% for the fourth quarter of 2022, an increase of 30 basis points from 0.14% for the fourth quarter of 2021.
The increase in the average rate paid is primarily related to the increase in market interest rates as a result of the 4.25% increase in the federal funds rate between the periods. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2022 was 3.35%, an increase of 55 basis points, compared to 2.80% for the fourth quarter of 2021. The increase in the net interest margin is primarily because the increase in the average yield earned on interest-earning assets as a result of the increase in the prime rate was higher than the increase in the average rate paid on interest-bearing liabilities and non-interest bearing deposits between the periods.
A summary of the Company’s net interest margin for the three month periods ended December 31, 2022 and 2021 is as follows:
For the three month period ended
December 31, 2022
December 31, 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
$
278,108
814
1.16
%
$
263,336
632
0.95
%
Loans held for sale
1,225
24
7.67
5,430
44
3.23
Single family loans, net
201,808
1,838
3.61
166,633
1,443
3.44
Commercial loans, net
517,186
6,601
5.06
410,568
4,711
4.55
Consumer loans, net
44,161
596
5.35
41,963
497
4.70
Other
12,185
129
4.20
109,172
50
0.18
Total interest-earning assets
$
1,054,673
10,002
3.76
$
997,102
7,377
2.93
Interest-bearing liabilities:
Checking accounts
$
162,013
94
0.23
$
160,450
45
0.11
Savings accounts
123,460
21
0.07
118,059
18
0.06
Money market accounts
273,959
385
0.56
267,363
148
0.22
Certificate accounts
89,492
322
1.43
88,048
119
0.54
Customer escrows
3,185
16
2.00
0
0
0.00
Advances and other borrowings
24,497
246
3.98
0
0
0.00
Total interest-bearing liabilities
$
676,606
$
633,920
Non-interest checking
291,579
282,280
Other non-interest bearing deposits
2,286
2,066
Total interest-bearing liabilities and non-interest bearing deposits
$
970,471
1,084
0.44
$
918,266
330
0.14
Net interest income
8,918
7,047
Net interest rate spread
3.32
%
2.79
%
Net interest margin
3.35
%
2.80
%
Provision for Loan Losses
The provision for loan losses was $0.1 million for the fourth quarter of 2022, a decrease of $0.1 million from the $0.2 million for the fourth quarter of 2021. The provision for loan losses decreased between the periods primarily because the loan portfolio growth was less in the current quarter when compared to the fourth quarter of 2021.
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. Qualitative reserves were not changed during the quarter due to management’s perception that economic conditions had not materially changed during the quarter, including those related to the elevated inflation rate, and enacted and expected increases in the federal funds rate. Total non-performing assets were $1.9 million at December 31, 2022, an increase of $0.1 million, or 3.6%, from $1.8 million at September 30, 2022. Non-performing loans increased $0.1 million and foreclosed and repossessed assets did not change during the fourth quarter of 2022. The increase in nonperforming loans is primarily related to a $0.2 million increase in nonperforming mortgage loans related to a single family home loan that was classified as non-accruing during the quarter. This increase in non-performing loans was partially offset by a decrease of $0.1 million in non-performing commercial business loans.
A reconciliation of the Company’s allowance for loan losses for the quarters ended December 31, 2022 and 2021 is summarized as follows:
(Dollars in thousands)
2022
2021
Balance at September 30,
$
10,141
9,070
Provision
130
234
Charge offs:
Commercial real estate
0
(36
)
Consumer
(1
)
0
Recoveries
7
11
Balance at December 31,
$
10,277
9,279
Allocated to:
General allowance
$
10,115
8,873
Specific allowance
162
406
$
10,277
9,279
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.
December 31,
September 30,
December 31,
(Dollars in thousands)
2022
2022
2021
Non-performing Loans:
Single family
$
908
$
732
$
340
Commercial real estate
0
0
3,757
Consumer
441
440
517
Commercial business
529
639
7
Total
1,878
1,811
4,621
Foreclosed and repossessed assets:
Commercial real estate
0
0
290
Total non-performing assets
$
1,878
$
1,811
$
4,911
Total as a percentage of total assets
0.17
%
0.17
%
0.46
%
Total as a percentage of total loans receivable
0.24
%
0.24
%
0.71
%
Allowance for loan losses to non-performing loans
547.24
%
559.85
%
200.81
%
Delinquency data:
Delinquencies (1)
30+ days
$
1,405
$
1,660
$
1,418
90+ days
0
0
0
Delinquencies as a percentage of
loan portfolio (1)
30+ days
0.18
%
0.22
%
0.21
%
90+ days
0.00
%
0.00
%
0.00
%
(1) Excludes non-accrual loans.
Non-Interest Income and Expense
Non-interest income was $1.9 million for the fourth quarter of 2022, a decrease of $1.3 million, or 39.6%, from $3.2 million for the fourth quarter of 2021. Gain on sales of loans decreased $1.4 million between the periods primarily because of a decrease in single family loan originations and sales due primarily to an increase in mortgage interest rates between the periods. Other non-interest income increased slightly due primarily to an increase in the fees earned on the sale of uninsured investment products. Fees and service charges increased slightly 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 commercial loans that were being serviced for others.
Non-interest expense was $7.4 million for the fourth quarter of 2022, an increase of $0.1 million, or 1.3%, from $7.3 million for the fourth 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 $0.2 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. Other non-interest expense increased $0.1 million between the periods primarily because of an increase in fraud losses on deposit accounts. 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 during the first quarter of 2022. Occupancy and equipment expense decreased $0.1 million due to a decrease in expenses between the periods as a result of purchasing the combined corporate and branch location in Rochester, Minnesota in the fourth quarter of 2021.
Income tax expense was $0.9 million for the fourth quarter of 2022, an increase of $0.2 million from $0.7 million for the fourth quarter of 2021. The increase in income tax expense between the periods is primarily the result of an increase in pre-tax income.
Return on Assets and Equity
Return on average assets (annualized) for the fourth quarter of 2022 was 0.89%, compared to 0.77% for the fourth quarter of 2021. Return on average equity (annualized) was 8.32% for the fourth quarter of 2022, compared to 7.11% for the same period in 2021. Book value per common share at December 31, 2022 was $21.72, compared to $24.11 at December 31, 2021. The reduction in the book value per common share between the periods is primarily related to the $18.2 million increase in the unrealized losses on the available for sale securities portfolio that were recorded in equity as other comprehensive losses.
Annual Results
Net Income
Net income was $8.0 million for 2022, a decrease of $5.6 million, or 40.7%, compared to net income of $13.6 million for 2021. Diluted earnings per share for the year ended December 31, 2022 was $1.83, a decrease of $1.18 per share, compared to diluted earnings per share of $3.01 for the year ended December 31, 2021. The decrease in net income between the periods was primarily because of a $4.2 million decrease in the gain on sales of loans due to a decrease in mortgage loan originations and sales due primarily to an increase in mortgage interest rates between the periods. The provision for loan losses increased $3.2 million between the periods primarily because of the growth experienced in the loan portfolio 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 $1.3 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. Compensation and benefits expense increased $1.1 million primarily because of a decrease in the direct loan origination compensation costs that were deferred as a result of the decreased mortgage loan originations. These decreases in net income were partially offset by a $2.1 million decrease in income tax expense as a result of the decrease in pre-tax income between the periods. Net interest income increased $2.0 million primarily due to an increase in interest earning assets and the yields earned on those assets as a result of the increase in the prime interest rate between the periods.
Net Interest Income
Net interest income was $32.3 million for 2022, an increase of $2.1 million, or 6.8%, from $30.2 million for 2021. Interest income was $34.3 million for 2022, an increase of $2.5 million, or 7.9%, from $31.8 million for 2021. Interest income increased primarily because of the $78.7 million increase in the average interest-earning assets between the periods. The average yield earned on interest-earning assets was 3.33% for 2022, a decrease of 1 basis point from 3.34% for 2021. The decrease in the average yield is primarily related to the $2.2 million decrease in the yield enhancements recognized on loans made under the Paycheck Protection Program (“PPP”) between the periods that was not entirely offset by the higher rates earned on interest-earning assets as a result of the prime rate increases that occurred during 2022.
Interest expense was $2.0 million for 2022, an increase of $0.4 million, or 28.7%, from $1.6 million for 2021. 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 $76.6 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 0.21% for 2022, an increase of 3 basis points from 0.18% for 2021. The increase in the average rate paid is primarily related to the increase in market interest rates as a result of the 4.25% increase in the federal funds rate between the periods. Net interest margin (net interest income divided by average interest-earning assets) for 2022 was 3.14%, a decrease of 4 basis points, compared to 3.18% for 2021. The decrease in the net interest margin is primarily because of the decrease in the average yield related to the $2.2 million decrease in the yield enhancements recognized on PPP loans between the periods that was not entirely offset by the higher rates earned on interest-earning assets as a result of the prime rate increases that occurred during 2022.
A summary of the Company’s net interest margin for 2022 and 2021 is as follows:
For the twelve month period ended
December 31, 2022
December 31, 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
$
290,289
3,229
1.11
%
$
210,637
2,146
1.02
%
Loans held for sale
2,418
115
4.75
5,335
159
2.97
Single family loans, net
183,882
6,431
3.50
157,926
5,631
3.57
Commercial loans, net
472,931
21,830
4.62
427,730
21,494
5.03
Consumer loans, net
42,552
2,072
4.87
46,313
2,165
4.67
Other
36,692
578
1.58
102,146
166
0.16
Total interest-earning assets
$
1,028,764
34,255
3.33
$
950,087
31,761
3.34
Interest-bearing liabilities:
Checking accounts
$
159,509
220
0.14
$
157,857
182
0.12
Savings accounts
123,786
75
0.06
113,314
69
0.06
Money market accounts
271,750
882
0.32
245,409
557
0.23
Certificate accounts
81,528
555
0.68
93,650
745
0.80
Customer escrows
803
16
2.00
0
0
0.00
Advances and other borrowings
6,665
251
3.77
0
0
0.00
Total interest-bearing liabilities
$
644,041
$
610,230
Non-interest checking
300,394
257,549
Other non-interest bearing deposits
2,455
2,490
Total interest-bearing liabilities and non-interest bearing deposits
$
946,890
1,999
0.21
$
870,269
1,553
0.18
Net interest income
32,256
30,208
Net interest rate spread
3.12
%
3.16
%
Net interest margin
3.14
%
3.18
%
Provision for Loan Losses
The provision for loan losses was $1.1 million for 2022, an increase of $3.2 million from the ($2.1) million provision for loan losses for 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, during the first three quarters of 2022, 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 year 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 in 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 2022, including the elevated inflation rate, and enacted and expected increases in the federal funds rate. Total non-performing assets were $1.9 million at December 31, 2022, a decrease of $3.0 million, or 61.8%, from $4.9 million at December 31, 2021. Non-performing loans decreased $2.7 million and foreclosed and repossessed assets decreased $0.3 million during 2022. The decrease in nonperforming loans is related to a $3.8 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 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 $0.6 million and $0.5 million in nonperforming mortgage and commercial business loans, respectively.
A reconciliation of the allowance for loan losses for 2022 and 2021 is summarized as follows:
(Dollars in thousands)
2022
2021
Balance beginning of period
$
9,279
10,699
Provision
1,071
(2,119
)
Charge offs:
Commercial real estate
(91
)
(36
)
Consumer
(24
)
(42
)
Recoveries
42
777
Balance at December 31,
$
10,277
9,279
Non-Interest Income and Expense
Non-interest income was $8.9 million for 2022, a decrease of $5.4 million, or 37.7%, from $14.3 million for the same period of 2021. Gain on sales of loans decreased $4.2 million between the periods primarily because of a decrease in single family loan originations and sales due primarily to an increase in mortgage interest rates between the periods. Other non-interest income decreased $1.3 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 were partially offset by a $0.1 million increase in fees and service charges 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 $28.8 million for 2022, an increase of $1.1 million, or 4.1%, from $27.7 million for the same period of 2021. Compensation and benefits expense increased $1.1 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. Data processing expenses increased $0.5 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 $0.2 million between the periods primarily because of an increase in fraud losses on deposit accounts and increases in marketing expenses. These increases in non-interest expense were partially offset by a $0.6 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 $3.2 million for 2022, a decrease of $2.2 million from $5.4 million for 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 2022 was 0.75%, compared to 1.38% for the same period in 2021. Return on average equity (annualized) was 7.03% for 2022, compared to 12.62% for the same period in 2021. Book value per common share at December 31, 2022 was $21.72, compared to $24.11 at December 31, 2021. The reduction in the book value per common share between the periods is primarily related to the $18.2 million increase in the unrealized losses on the available for sale securities portfolio that were recorded in equity as other comprehensive losses.
Dividend and Annual Meeting Announcement
HMN Financial, Inc. today announced that its Board of Directors has declared a quarterly dividend of 6 cents per share of common stock payable on March 8, 2023 to stockholders of record at the close of business on February 15, 2023. The declaration and amount of any future cash dividends remain subject to the sole discretion of the Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, regulatory and contractual restrictions, business strategy and other factors deemed relevant by the Board of Directors.
The Company also announced that its 2023 annual meeting of stockholders is expected to be held virtually on Tuesday, April 25, 2023 at 10:00 a.m. CDT.
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 “anticipate,” “continue,” “could,” “expect,” “future,” 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; the anticipated impacts of inflation and rising interest rates on the general economy, the Bank’s clients, and the allowance for loan losses; anticipated future levels of the provision for loan losses; and the payment of dividends by HMN.
A number of factors, many of which may be amplified by the 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; 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.
CONTACT: Bradley Krehbiel Chief Executive Officer, President HMN Financial, Inc. (507) 252-7169
(Three pages of selected consolidated financial information are included with this release.)
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
December 31,
(Dollars in thousands)
2022
2021
(unaudited)
Assets
Cash and cash equivalents
$
36,259
94,143
Securities available for sale:
Mortgage-backed and related securities (amortized cost $216,621 and $247,275)
192,688
245,397
Other marketable securities (amortized cost $55,698 and $40,691)
53,331
40,368
Total securities available for sale
246,019
285,765
Loans held for sale
1,314
5,575
Loans receivable, net
777,078
652,502
Accrued interest receivable
3,003
2,132
Mortgage servicing rights, net
2,986
3,280
Premises and equipment, net
16,492
17,373
Goodwill
802
802
Core deposit intangible
0
10
Prepaid expenses and other assets
3,902
5,427
Deferred tax asset, net
8,347
2,529
Total assets
$
1,096,202
1,069,538
Liabilities and Stockholders’ Equity
Deposits
$
981,926
950,666
Accrued interest payable
298
63
Customer escrows
10,122
2,143
Accrued expenses and other liabilities
6,520
6,635
Total liabilities
998,866
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
41,013
40,740
Retained earnings, subject to certain restrictions
138,409
131,413
Accumulated other comprehensive loss
(19,761
)
(1,583
)
Unearned employee stock ownership plan shares
(1,063
)
(1,256
)
Treasury stock, at cost 4,647,686 and 4,564,087 shares
(61,353
)
(59,374
)
Total stockholders’ equity
97,336
110,031
Total liabilities and stockholders’ equity
$
1,096,202
1,069,538
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended December 31,
Year Ended December 31,
(Dollars in thousands, except per share data)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
Interest income:
Loans receivable
$
9,059
6,695
30,448
29,449
Securities available for sale:
Mortgage-backed and related
675
576
2,801
1,864
Other marketable
139
56
428
282
Other
129
50
578
166
Total interest income
10,002
7,377
34,255
31,761
Interest expense:
Deposits
822
330
1,732
1,553
Customer escrows
16
0
16
0
Advances and other borrowings
246
0
251
0
Total interest expense
1,084
330
1,999
1,553
Net interest income
8,918
7,047
32,256
30,208
Provision for loan losses
130
234
1,071
(2,119
)
Net interest income after provision for loan losses
8,788
6,813
31,185
32,327
Non-interest income:
Fees and service charges
825
793
3,222
3,125
Loan servicing fees
402
387
1,590
1,555
Gain on sales of loans
297
1,657
2,393
6,566
Other
418
378
1,682
3,017
Total non-interest income
1,942
3,215
8,887
14,263
Non-interest expense:
Compensation and benefits
4,406
4,249
17,211
16,114
Occupancy and equipment
947
1,071
3,812
4,372
Data processing
505
346
1,948
1,445
Professional services
291
543
1,386
1,438
Other
1,243
1,087
4,444
4,292
Total non-interest expense
7,392
7,296
28,801
27,661
Income before income tax expense
3,338
2,732
11,271
18,929
Income tax expense
900
733
3,226
5,365
Net income
2,438
1,999
8,045
13,564
Other comprehensive income (loss), net of tax
5,280
(1,357
)
(18,178
)
(2,865
)
Comprehensive income (loss) available to common stockholders
$
7,718
642
(10,133
)
10,699
Basic earnings per share
$
0.56
0.45
1.85
3.03
Diluted earnings per share
$
0.56
0.45
1.83
3.01
HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)
SELECTED FINANCIAL DATA:
Three Months Ended December 31,
Year Ended December 31,
(Dollars in thousands, except per share data)
2022
2021
2022
2021
I.
OPERATING DATA:
Interest income
$
10,002
7,377
34,255
31,761
Interest expense
1,084
330
1,999
1,553
Net interest income
8,918
7,047
32,256
30,208
II.
AVERAGE BALANCES:
Assets(1)
1,091,300
1,033,072
1,066,408
984,319
Loans receivable, net
763,155
619,164
699,365
631,969
Securities available for sale(1)
278,108
263,336
290,289
210,637
Interest-earning assets(1)
1,054,673
997,102
1,028,764
950,087
Interest-bearing liabilities and non-interest bearing deposits
970,471
918,266
946,890
870,269
Equity(1)
116,282
111,557
114,413
107,481
III.
PERFORMANCE RATIOS:(1)
Return on average assets (annualized)
0.89
%
0.77
%
0.75
%
1.38
%
Interest rate spread information:
Average during period
3.32
2.79
3.12
3.16
End of period
3.56
2.80
3.56
2.80
Net interest margin
3.35
2.80
3.14
3.18
Ratio of operating expense to average total assets (annualized)
2.69
2.80
2.70
2.81
Return on average common equity (annualized)
8.32
7.11
7.03
12.62
Efficiency
68.07
71.10
70.00
62.20
December 31,
December 31,
2022
2021
IV.
EMPLOYEE DATA:
Number of full time equivalent employees
165
164
V.
ASSET QUALITY:
Total non-performing assets
$
1,878
4,911
Non-performing assets to total assets
0.17
%
0.46
%
Non-performing loans to total loans receivable
0.24
%
0.70
%
Allowance for loan losses
$
10,277
9,279
Allowance for loan losses to total assets
0.94
%
0.87
%
Allowance for loan losses to total loans receivable
1.30
%
1.40
%
Allowance for loan losses to non-performing loans
547.24
%
200.81
%
VI.
BOOK VALUE PER COMMON SHARE:
Book value per common share
$
21.72
24.11
Year Ended
Year Ended
December 31, 2022
December 31, 2021
VII.
CAPITAL RATIOS:
Stockholders’ equity to total assets, at end of period
8.88
%
10.29
%
Average stockholders’ equity to average assets(1)
10.73
10.92
Ratio of average interest-earning assets to average interest-bearing liabilities and non-interest bearing deposits(1)
108.65
109.17
Home Federal Savings Bank regulatory capital ratios:
Common equity tier 1 capital ratio
11.49
13.18
Tier 1 capital leverage ratio
9.14
9.47
Tier 1 capital ratio
11.48
13.18
Risk-based capital
12.65
14.43
(1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320.
HMN Financial, Inc. is a stock savings bank holding company. The Company is a holding company for Home Federal Savings Bank (the Bank). The Bank operates community banking and loan production offices in Minnesota, Iowa and Wisconsin. The Bank has two wholly owned subsidiaries, Osterud Insurance Agency, Inc. (OIA), which does business as Home Federal Investment Services and offers financial planning products and services, and HFSB Property Holdings, LLC (HPH) which is inactive. Its lending activities include general, single family residential real estate lending, commercial real estate and multi-family lending, construction lending, consumer lending and commercial business lending. It originates 15- and 30-year fixed rate mortgage loans secured by single family residences and sells the majority of these loans into the secondary market. It makes construction loans to individuals for the construction of their residences and to builders for the construction of single family residences.