HMN FINANCIAL INC (HMNF)·Q1 2024 Earnings Summary

Executive Summary

• Q1 2024 diluted EPS was $0.30 and net income was $1.318M, down year over year on margin compression as funding costs rose faster than asset yields .
• Net interest margin was 2.63% (vs 3.09% in Q1 2023 and 2.58% in Q4 2023), with net interest income at $7.256M; non-interest income was stable at $1.907M .
• Credit quality improved: non-performing assets fell to $2.8M from $3.8M at year-end; provision for credit losses was a $(0.209)M recapture driven by updated vintage loss analysis and better qualitative factors .
• The Board increased the quarterly dividend from $0.08 (paid Mar 6) to $0.10 (declared Apr 24), signaling confidence in capital and liquidity .
• Potential stock reaction catalysts: visible deposit growth ($54.1M QoQ), dividend increase, and management’s expectation for gradual NIM improvement as deposit rate pressures ease and earning assets reprice higher .

What Went Well and What Went Wrong

• What Went Well

  • Core deposits grew and total deposits increased $54.1M QoQ; management highlighted optimism for gradual NIM improvement as asset yields reprice higher over time .
  • Credit quality improved: non-performing assets declined to $2.8M with ACL/NPL coverage at 413.78%, aided by principal payments on an agriculture relationship; provision was a $(0.209)M recapture .
  • Operating discipline: non-interest expense fell slightly YoY to $7.551M; compensation and occupancy expenses declined, offsetting higher professional services and data processing costs .

• What Went Wrong

  • Margin compression persisted: NIM fell to 2.63% (down 46 bps YoY) as brokered and CD mix raised funding costs faster than asset yields; net interest income declined $0.807M YoY .
  • Fee headwinds: fees and service charges slipped $0.075M YoY due to overdraft policy changes, partially offset by higher income from sales of uninsured investment products .
  • Efficiency ratio worsened to 82.41 (vs 77.00 in Q1 2023), reflecting lower NII and only modest OpEx relief .

Financial Results

Segment/Portfolio Breakdown (Loans)

Key Performance Indicators

Guidance Changes

Earnings Call Themes & Trends

Note: No Q1 2024 earnings call transcript found in filings; press releases and 10-Q inform themes [ListDocuments returned none].

Management Commentary

• “Maintaining our net interest income was a challenge in the first quarter due to the rates paid on deposits and other funding sources increasing more quickly than the yields earned on our interest earning assets. We are, however, encouraged by the growth in core deposit balances during the quarter and optimistic that net interest margin will slowly improve over time…” — Bradley Krehbiel, President & CEO .
• “Stabilization in our deposit balances and interest rates… We are optimistic that net interest margin compression will slow in the coming quarters…” — Bradley Krehbiel on Q4 2023 .
• “The migration of deposits… to higher rate certificates… increased our costs of funds. We will continue to focus… on growing core deposit relationships…” — Bradley Krehbiel on Q3 2023 .

Q&A Highlights

• No public Q1 2024 earnings call transcript was filed; no Q&A session content available in company documents [ListDocuments returned none for earnings-call-transcript].

Estimates Context

• We attempted to retrieve S&P Global consensus EPS and revenue for Q1 2024; S&P Global mapping for HMNF was unavailable, so consensus data could not be fetched (tool error indicates missing CIQ mapping for HMNF). As a result, Wall Street consensus comparisons are not available for this quarter [SpgiEstimatesError from GetEstimates].

Where estimates may need to adjust: Given margin stabilization, deposit growth, and lower NPA, sell-side models (when available) should reassess funding cost trajectories and the pace of asset repricing reflected in NIM assumptions .

Key Takeaways for Investors

• Deposit growth and dividend increase signal stable funding and capital confidence; this supports medium-term NIM normalization as asset yields catch up to deposit pricing .
• Margin pressure remains the core earnings swing factor; watch mix shifts toward lower-cost deposits and timing of loan repricing relative to CD renewals .
• Credit quality improved meaningfully with NPA down to 0.24% of assets and strong ACL/NPL coverage, reducing tail risk from the agri exposure noted in late 2023 .
• Operating discipline helped offset revenue pressure: modest OpEx reductions amid elevated data processing and professional services suggest continued cost control .
• Fee income faces a structural headwind from overdraft policy changes; investors should anchor non-interest income outlook on investment product sales and loan servicing trends .
• Near-term trading: dividend step-up and improving credit metrics are supportive; lack of consensus estimates may reduce event-driven volatility. Monitor next-quarter NIM print for evidence of inflection .
• Medium-term thesis: community bank with solid capital ratios and improving asset quality; trajectory hinges on managing funding costs and sustaining core deposit growth while repricing assets .

Appendix: Additional Data Points

• Deposits at Mar 31, 2024: $1,030,918K; Loans receivable, net: $856,560K .
• Non-performing assets to total loans: 0.32%; ACL to total loans: 1.33% .
• Capital ratios (Bank): CET1 11.63%; Tier 1 leverage 9.18%; Total risk-based capital 12.89% .