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) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
|
AverageOutstandingBalance |
|
InterestEarned/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) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/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
KrehbielChief Executive Officer,
PresidentHMN 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 EndedDecember 31, |
|
Year EndedDecember 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 EndedDecember 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.
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