On July 23, 2024, HMN Financial Inc (HMNF, Financial) released its 8-K filing for the second quarter of 2024. HMN Financial Inc is a stock savings bank holding company of Home Federal Savings Bank, which operates in Minnesota, Iowa, and Wisconsin, providing a range of banking services including residential and commercial loans, consumer loans, and various deposit products.
Second Quarter Financial Performance
HMN Financial Inc reported a net income of $1.0 million for Q2 2024, a decrease from $1.4 million in Q2 2023. Diluted earnings per share fell to $0.22 from $0.32 in the same period last year. The decline in net income was primarily due to a $0.8 million increase in other expenses, including a goodwill impairment, and a $0.5 million rise in professional services expenses related to merger activities. Additionally, net interest income decreased by $0.2 million due to rising funding costs outpacing the yields on interest-earning assets.
Net Interest Income and Margin
Net interest income for Q2 2024 was $7.5 million, down from $7.7 million in Q2 2023. Interest income increased by $2.1 million to $12.6 million, driven by higher yields on interest-earning assets and a $47.3 million increase in average interest-earning assets. However, interest expense surged by $2.3 million to $5.1 million due to higher average interest rates on liabilities and increased use of higher-cost funding sources like brokered deposits and certificates of deposits. Consequently, the net interest margin narrowed to 2.70% from 2.90% in the previous year.
| Metric | Q2 2024 | Q2 2023 |
|---|---|---|
| Net Income | $1.0 million | $1.4 million |
| Diluted EPS | $0.22 | $0.32 |
| Net Interest Income | $7.5 million | $7.7 million |
| Net Interest Margin | 2.70% | 2.90% |
Provision for Credit Losses
The provision for credit losses was a negative $0.3 million in Q2 2024, indicating a reduction in reserves due to perceived improvements in economic conditions. This was a significant decrease from the $0.3 million provision in Q2 2023.
Non-Interest Income and Expense
Non-interest income rose by $0.2 million to $2.2 million, primarily due to a $0.3 million increase in gains from loan sales. Non-interest expenses increased by $1.2 million to $8.7 million, driven by the aforementioned goodwill impairment and higher professional services costs related to merger activities.
Six-Month Performance
For the first six months of 2024, HMN Financial Inc reported a net income of $2.3 million, down from $3.1 million in the same period of 2023. Diluted earnings per share decreased to $0.52 from $0.70. The decline was attributed to increased expenses and a $1.1 million drop in net interest income. However, these were partially offset by a $0.7 million reduction in the provision for credit losses and a $0.3 million increase in gains from loan sales.
President's Commentary
“Maintaining our net interest margin continues to be a challenge in the current interest rate environment as our funding costs continue to increase at a faster rate than the yields earned on our earning assets,” said Bradley Krehbiel, President and Chief Executive Officer of HMN. “We are, however, encouraged by the increase in our net interest margin from the prior quarter and will continue to focus our effort on increasing our net interest margin further by expanding our core customer deposit relationships.”
Conclusion
HMN Financial Inc's Q2 2024 performance reflects the challenges posed by rising expenses and narrowing interest margins. While the company has managed to increase its interest income, the rapid rise in funding costs has compressed its net interest margin. The ongoing merger activities and associated costs have also impacted the financial results. Investors will be keen to see how the company navigates these challenges in the coming quarters.
Explore the complete 8-K earnings release (here) from HMN Financial Inc for further details.
