Executive Summary

Q3 2023 diluted EPS was $0.34, down $0.08 year over year; net income was $1,498K versus $1,831K in Q3 2022, driven by net interest margin compression and higher funding costs .
Net interest margin fell to 2.81% (−32 bps YoY) as the average rate paid on liabilities rose faster than asset yields; interest expense jumped to $3,724K from $340K (+995%) YoY due to deposit mix shift and greater use of wholesale/brokered funding and FHLB advances .
Net loans receivable rose to $850,760K at quarter-end (up $23.8M vs Q2), while non‑performing assets declined to $1,081K (0.09% of assets), indicating stable credit quality despite higher 30+ day delinquencies tied to an agricultural relationship .
Tax expense increased by ~$0.1M QoQ due to a valuation allowance on deferred tax assets following Wisconsin state tax law changes; management emphasized a focus on growing core deposit relationships to mitigate elevated cost of funds .

What Went Well and What Went Wrong

What Went Well

Loan growth and credit quality: Net loans receivable increased QoQ to $850,760K and non‑performing assets fell to $1,081K (0.09% of assets), with allowance coverage rising to 1,106.53% of NPLs .
Provision for credit losses decreased QoQ to $318K (from $579K YoY), reflecting slower loan growth versus Q3 2022 and lower unfunded commitments provisioning .
Management focus on deposits: “Maintaining our net interest margin is a challenge… [we] will continue to focus our efforts on growing our core deposit relationships” — Bradley Krehbiel, CEO .

What Went Wrong

Margin compression: Net interest margin declined to 2.81% (3.13% YoY), as average liability rates rose 132 bps YoY, outpacing the 89 bps increase in asset yields .
Funding costs surged: Interest expense rose to $3,724K from $340K (+995% YoY) due to deposit migration to higher‑rate CDs, brokered deposits, and FHLB advances .
Operating efficiency remained elevated: Efficiency ratio was 72.90% in Q3 vs 69.35% in Q3 2022; FDIC insurance expense and data processing added cost pressure .

Financial Results

Quarterly income, EPS, NIM and noninterest trend

Metric	Q1 2023	Q2 2023	Q3 2023
Net Income ($USD Thousands)	1,634	1,421	1,498
Diluted EPS ($USD)	0.37	0.32	0.34
Net Interest Income ($USD Thousands)	8,063	7,728	7,803
Non‑Interest Income ($USD Thousands)	1,928	1,974	2,184
Net Interest Margin %	3.09%	2.90%	2.81%

Q3 year-over-year comparison

Metric	Q3 2022	Q3 2023
Net Income ($USD Thousands)	1,831	1,498
Diluted EPS ($USD)	0.42	0.34
Net Interest Income ($USD Thousands)	8,291	7,803
Interest Expense ($USD Thousands)	340	3,724
Non‑Interest Expense ($USD Thousands)	7,174	7,281
Net Interest Margin %	3.13%	2.81%

Loan and asset KPIs

KPI	Q1 2023	Q2 2023	Q3 2023
Loans Receivable, Net ($USD Thousands)	785,982	826,932	850,760
Total Assets ($USD Thousands)	1,071,582	1,109,367	1,154,171
Non‑Performing Assets ($USD Thousands)	1,858	1,751	1,081
NPA / Total Assets (%)	0.17%	0.16%	0.09%
Allowance / NPL Coverage (%)	610.45%	752.44%	1,106.53%
30+ Day Delinquencies ($USD Thousands)	271	1,480	3,088
ROA (annualized) (%)	0.61%	0.52%	0.52%
ROE (annualized) (%)	5.64%	4.81%	4.95%
Efficiency Ratio (%)	77.00%	76.86%	72.90%
Book Value per Share ($USD)	22.35	22.76	22.68

Segment/Category yields (asset and deposit pricing)

Category Yield/Rate (%)	Q1 2023	Q2 2023	Q3 2023
Single Family Loans (net)	3.80%	3.91%	4.11%
Commercial Loans (net)	4.94%	5.06%	5.24%
Consumer Loans (net)	5.85%	6.18%	6.54%
Checking Accounts (rate)	0.47%	0.60%	0.68%
Savings Accounts (rate)	0.09%	0.10%	0.10%
Money Market Accounts (rate)	1.03%	1.58%	1.98%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
None disclosed	Q3 2023	—	—	—

Note: The Q3 2023 8‑K press release furnished results and qualitative commentary and did not provide formal numerical guidance ranges; no separate Q3 press releases or 8‑K announcements with guidance were found in the repository .

Earnings Call Themes & Trends

No earnings call transcript was available in the repository for Q3 2023. Themes below are derived from press releases.

Topic	Previous Mentions (Q1 & Q2 2023)	Current Period (Q3 2023)	Trend
Deposit mix and funding costs	Management noted deposit outflows and increased use of higher‑rate wholesale sources; rising CD usage elevated cost of funds	Explicitly highlighted migration to higher‑rate CDs and wholesale funding increasing cost of funds; focus on growing core deposits	Deteriorating cost of funds; strategic focus on core deposits
Margin dynamics (NIM)	NIM 3.09% (Q1) and 2.90% (Q2); liability rates rising faster than asset yields	NIM 2.81%; liability rates +132 bps YoY vs asset yields +89 bps YoY	Continued compression
Mortgage banking	Lower gain on loan sales due to fewer secondary market sales; more mortgages placed into portfolio targeted to executive banking clients	Slight increase in gain on sales QoQ, still subdued YoY	Stabilizing at lower level
Credit quality	NPA stable at 0.16% of assets (Q2); allowance coverage improved QoQ	NPA down to 0.09%; coverage ratio >1,100%; 30+ day delinquencies increased due to agricultural relationship	Mixed: stronger NPA/coverage, higher early delinquencies
Operating costs	Higher FDIC insurance and data processing (outsourcing) elevated OpEx	FDIC insurance and data processing remain headwinds; efficiency modestly improved QoQ	Slight improvement in efficiency amid cost pressure
Tax	No special items noted (Q1/Q2)	DTA valuation allowance due to Wisconsin law changes increased tax expense	Incremental headwind

Management Commentary

“Maintaining our net interest margin is a challenge in the current rate environment… [deposit] migration… to higher rate certificates of deposit… and increased use of wholesale funding… increased our costs of funds. We will continue to focus… on growing our core deposit relationships” — Bradley Krehbiel, President & CEO .
Margin drivers: NIM decline primarily because the increase in average rates paid on liabilities exceeded the increase in average asset yields amid Fed funds/prime rate increases .
Credit provisioning: Provision decreased QoQ vs Q3 2022 due to slower loan growth and reduced unfunded commitments; allowance coverage strengthened .
Tax item: Valuation allowance on deferred tax assets established due to Wisconsin state tax law changes, increasing tax expense .

Q&A Highlights

No Q3 2023 earnings call transcript was available in the repository; therefore, no Q&A highlights or guidance clarifications could be extracted.

Estimates Context

Wall Street consensus from S&P Global: Unavailable for HMNF this quarter due to missing Capital IQ mapping for the ticker, so EPS and revenue comparisons to consensus cannot be provided at this time.

Key Takeaways for Investors

NIM compression remains the central earnings headwind as deposit mix shifts to CDs and wholesale funding; monitoring deposit growth initiatives and pricing discipline is critical .
Despite margin pressure, credit quality improved with lower NPAs and materially higher allowance coverage; watch early‑stage delinquencies, particularly in agricultural exposures .
Mortgage banking contribution is subdued versus 2022; strategy to retain mortgages in portfolio for targeted clients supports asset yields but reduces gain‑on‑sale revenue .
Operating cost pressures from FDIC insurance and data processing persist; incremental efficiency gains in Q3 warrant monitoring for sustainability .
The DTA valuation allowance due to state tax changes is a non‑recurring item impacting tax expense; absent further changes, run‑rate tax may normalize .
Near‑term trading: Stocks of small banks often react to funding cost narratives; any sign of stabilizing deposit outflows or reduced wholesale dependence could be a positive catalyst .
Medium‑term: Execution on core deposit growth and maintaining credit discipline through a higher‑rate environment should drive recovery in NIM and earnings power as asset yields reprice .

HMN FINANCIAL INC (HMNF)·Q3 2023 Earnings Summary