Executive Summary

Q2 2024 EPS was $0.22, down from $0.32 in Q2 2023, driven by a $0.8M goodwill impairment and $0.5M merger-related expenses; adjusted EPS excluding merger expenses was $0.30 (non-GAAP) .
Net interest margin improved sequentially to 2.70% from 2.63% in Q1 2024, though it remains below 2.90% in Q2 2023; management is focused on expanding core deposit relationships to further support NIM .
Credit costs were a tailwind: provision for credit losses was a $0.306M recapture vs. a $0.256M expense in Q2 2023, reflecting perceived improvements in forecasted economic conditions .
Board raised the quarterly dividend to $0.10 (from $0.08 in January), payable Sept 9, 2024; pending all-stock merger with Alerus expected to close in Q4 2024, subject to approvals, both serving as potential stock catalysts .

What Went Well and What Went Wrong

What Went Well
- Sequential NIM expansion to 2.70% from 2.63% in Q1, with management “encouraged by the increase in our net interest margin from the prior quarter” and intent to grow core customer deposit relationships .
- Gain on sales of loans rose to $0.633M vs. $0.334M in Q2 2023, reflecting higher single-family originations sold into the secondary market .
- Provision recapture of $0.306M vs. a $0.256M expense a year ago, driven by reduced qualitative reserves amid a better macro forecast, offset in part by loan growth .
What Went Wrong
- GAAP EPS fell to $0.22 from $0.32 YoY, with a $0.8M goodwill impairment and $0.5M merger-related professional fees elevating operating costs; efficiency ratio rose to 89.31% from 76.86% YoY .
- Funding costs remained elevated as mix shifted to higher-cost wholesale and retail CDs, lifting the average rate paid to 2.01% from 1.13% YoY and compressing YoY NIM (2.70% vs. 2.90%) .
- Non-performing assets increased sequentially to $3.19M (0.29% of assets) from $2.80M (0.24%) at March 31; 30+ day delinquencies also increased to $3.20M from $1.63M .

Financial Results

Quarterly P&L snapshot

Metric	Q4 2023	Q1 2024	Q2 2024
Net Interest Income ($M)	7.163	7.256	7.492
Non-Interest Income ($M)	2.195	1.907	2.210
Provision for Credit Losses ($M)	0.147	(0.209)	(0.306)
Net Income ($M)	1.452	1.318	0.970
Diluted EPS ($)	0.33	0.30	0.22
Net Interest Margin (%)	2.58	2.63	2.70
Gain on Sales of Loans ($M)	0.402	0.294	0.633

Year-over-Year comparison (Q2 2024 vs. Q2 2023)

Metric	Q2 2023	Q2 2024
Net Interest Income ($M)	7.728 (implied $7.7 in narrative)	7.492
Non-Interest Income ($M)	1.974	2.210
Provision for Credit Losses ($M)	0.256	(0.306)
Net Income ($M)	1.421	0.970
Diluted EPS ($)	0.32	0.22
Net Interest Margin (%)	2.90	2.70
Gain on Sales of Loans ($M)	0.334	0.633

Profitability and returns

Metric	Q4 2023	Q1 2024	Q2 2024
ROA (annualized, %)	0.51	0.46	0.34
ROE (annualized, %)	4.76	4.36	3.18
Efficiency Ratio (%)	78.45	82.41	89.31

KPIs: Asset quality and capital

KPI	Q1 2024	Q2 2024
Non-Performing Assets ($M)	2.800	3.190
NPA / Total Assets (%)	0.24	0.29
30+ Day Delinquencies ($M)	1.632	3.198
ACL ($M)	11.586	11.292
ACL / NPL (%)	413.78	353.92
CET1 Ratio (Bank) (%)	11.63	11.94
Tier 1 Leverage Ratio (Bank) (%)	9.18	9.28

Non-GAAP note: Adjusted Q2 2024 diluted EPS was $0.30 (adds back $0.5M merger expenses less $0.136M tax), and adjusted total noninterest expense was $8.165M; reconciliations are provided by the company .

Segment breakdown: Not applicable; the company reports as a single banking segment .

Guidance Changes

Metric	Period	Previous Guidance/Action	Current Guidance/Action	Change
Dividend per Share	Quarterly	$0.08 declared Jan 25, 2024, payable Mar 6, 2024	$0.10 declared Jul 24, 2024, payable Sep 9, 2024	Raised
Merger Timeline	2024	Agreement announced May 14, 2024	Expected close in Q4 2024, subject to approvals	Maintained timeline

No revenue, margin, OpEx, OI&E, or tax-rate guidance was provided in Q2 materials .

Earnings Call Themes & Trends

Note: A Q2 2024 earnings call transcript was not found in our source; themes below reflect published management commentary across recent quarters .

Topic	Previous Mentions (Q-2: Q4 2023; Q-1: Q1 2024)	Current Period (Q2 2024)	Trend
Net Interest Margin & Funding Costs	“Rates paid on deposits increasing more quickly than asset yields”; deposit and rate stabilization beginning	NIM rose to 2.70% from 2.63% sequentially; management “encouraged” and focused on core deposits	Improving sequentially, still below YoY
Deposits/Mix	Encouraged by stabilization of deposit balances	Focus on expanding core customer deposit relationships to support NIM	Strategic focus continues
Credit Quality	NPA increased in late 2023 due to an ag-related relationship; qualitative factors slightly improved	Provision recapture on improved forecasts; NPA up sequentially to 0.29% of assets	Mixed: reserve release, but NPAs up
Strategic/M&A	N/A	Alerus all-stock merger announced May 14; expected close Q4 2024	Active M&A execution
Capital/Dividends	Quarterly dividend continued	Dividend raised to $0.10 per share	Positive capital return signal

Management Commentary

“Maintaining our net interest margin continues to be a challenge in the current interest rate environment... 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.” — Bradley Krehbiel, President & CEO .
Q1 context: “Encouraged by the growth in core deposit balances during the quarter and optimistic that net interest margin will slowly improve over time as increases in deposit costs slow and our earning assets reprice to higher current market rates.” .
Q4 context: “Encouraged by the stabilization in our deposit balances and interest rates... optimistic that net interest margin compression will slow in the coming quarters.” .

Q&A Highlights

No Q2 2024 earnings call transcript was available in our document set; we found no public Q&A to summarize [ListDocuments returned 0 earnings-call-transcript for the period].

Estimates Context

S&P Global/Capital IQ consensus (EPS and revenue) for Q2 2024 was unavailable due to missing CIQ mapping for HMNF; therefore, we cannot provide a quantitative comparison versus estimates at this time [SpgiEstimatesError in tool].

Key Takeaways for Investors

Sequential NIM improvement (2.70% vs. 2.63% in Q1) is a constructive signal that deposit cost pressures may be easing; management is explicitly targeting core deposit growth to sustain further NIM gains .
GAAP earnings were weighed by non-recurring items (goodwill impairment of $0.8M; merger expenses of $0.5M), with adjusted EPS at $0.30, narrowing the YoY decline and better reflecting core performance (non-GAAP) .
Credit cost tailwinds emerged (provision recapture of $0.306M), but sequential increases in NPAs and delinquencies warrant monitoring into 2H24 .
Raised dividend to $0.10 per share underscores confidence in capital position; capital ratios (CET1 11.94%, leverage 9.28%) remain solid .
Pending Alerus merger (expected Q4 2024 close) is the dominant catalyst; approvals, integration planning, and any updated terms could drive near-term sentiment .
Fee income lever is working: gain on sale rose to $0.633M vs. $0.334M YoY as secondary market activity improved, providing a partial offset to NIM compression .
Cost discipline remains an execution focus; excluding merger costs, adjusted noninterest expense was $8.165M; further efficiency improvement would support earnings durability if NIM stabilizes .

Sources: HMN Financial Q2 2024 earnings 8-K press release (Jul 22–23, 2024) , Q1 2024 8-K press release (Apr 18–19, 2024) , Q4 2023 8-K press release (Jan 25–26, 2024) , and Q2 2024 dividend 8-K press release (Jul 24, 2024) .

HMN FINANCIAL INC (HMNF)·Q2 2024 Earnings Summary