First Quarter Summary Net income of $1.3 million, down $0.3 million, from $1.6 million for first quarter of 2023 Diluted earnings per share of $0.30, down $0.07, from $0.37 for first quarter of 2023 Net interest income of $7.3 million, down $0.8 million, from $8.1 million for first quarter of 2023 Net interest margin of 2.63%, down 46 basis points, from 3.09% for first quarter of 2023 Provision for credit losses of ($0.2) million, down $0.2 million, from first quarter of 2023 Net Income Summary   Three Months Ended March 31,         (Dollars in thousands, except per share amounts)   2024   2023   Net income $ 1,318   1,634   Diluted earnings per share   0.30   0.37   Return on average assets (annualized)   0.46 % 0.61 % Return on average equity (annualized)   4.36 % 5.64 % Book value per share $ 24.39   22.35               ROCHESTER, Minn., April 18, 2024 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $1.2 billion holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.3 million for the first quarter of 2024, a decrease of $0.3 million compared to net income of $1.6 million for the first quarter of 2023. Diluted earnings per share for the first quarter of 2024 was $0.30, a decrease of $0.07 from diluted earnings per share of $0.37 for the first quarter of 2023. The decrease in net income between the periods was due primarily to a $0.8 million decrease in net interest income because of a decline in the net interest margin as a result of funding costs increasing faster than the yields on interest earning assets. This decrease in net income was partially offset by a $0.2 million decrease in the provision for credit losses due primarily to a decrease in the general reserves as a result of updating the annual historical vintage loan loss analysis during the quarter. Other non-interest expenses decreased $0.1 million primarily because of a decrease in compensation and benefits expense due to a reduction in incentive accruals. Income tax expense also decreased $0.2 million primarily because of the decrease in pre-tax income. President's Statement"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," said Bradley Krehbiel, President and Chief Executive Officer of HMN. "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 as increases in deposit costs slow and our earning assets reprice to higher current market rates. We will continue to focus our efforts on profitably growing the Company and expanding our core customer deposit relationships." First Quarter ResultsNet Interest IncomeNet interest income was $7.3 million for the first quarter of 2024, a decrease of $0.8 million, or 10.0%, compared to $8.1 million for the first quarter of 2023. Interest income was $12.0 million for the first quarter of 2024, an increase of $2.1 million, or 21.0%, from $9.9 million for the first quarter of 2023. Interest income increased primarily because of the increase in the average yield earned on interest-earning assets between the periods and also because of the $50.3 million increase in the average interest-earning assets. The average yield earned on interest-earning assets was 4.36% for the first quarter of 2024, an increase of 56 basis points from 3.80% for the first quarter of 2023. The increase in the average yield is primarily related to the increase in market interest rates as a result of the 5.00% increase in the prime interest rate over the past two years. Interest expense was $4.7 million for the first quarter of 2024, an increase of $2.8 million, or 156.4%, compared to $1.9 million for the first quarter of 2023. 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 $44.9 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 1.88% for the first quarter of 2024, an increase of 111 basis points from 0.77% for the first quarter of 2023. The increase in the average rate paid is primarily related to the change in the types of funding sources as more brokered deposits and certificates of deposits were used as funding sources in the first quarter of 2024 than were used in the first quarter of 2023. These funding sources generally have higher interest rates than traditional checking and money market accounts. The increase in market interest rates as a result of the 5.00% increase in the federal funds rate over the past two years also contributed to the higher funding costs in the first quarter of 2024 when compared to the same period in 2023. Net interest margin (net interest income divided by average interest-earning assets) for the first quarter of 2024 was 2.63%, a decrease of 46 basis points, compared to 3.09% for the first quarter of 2023. The decrease in the net interest margin is primarily because the increase in the average rate paid on interest-bearing liabilities and non-interest bearing deposits exceeded the increase in the average yield earned on interest-earning assets between the periods. A summary of the Company's net interest margin for the three-month periods ended March 31, 2024 and 2023 is as follows:     For the three-month period ended March 31,       2024       2023   (Dollars in thousands)   AverageOutstandingBalance       InterestEarned/Paid     Yield/Rate       AverageOutstandingBalance       InterestEarned/Paid     Yield/Rate   Interest-earning assets:                                           Securities available for sale $ 229,901       923     1.61 %   $ 268,684       795     1.20 % Loans held for sale   1,853       29     6.21       1,216       18     6.04   Single family loans, net   264,791       2,877     4.37       208,127       1,951     3.80   Commercial loans, net   541,148       7,071     5.25       522,921       6,373     4.94   Consumer loans, net   41,502       709     6.87       45,784       661     5.85   Other   28,677       390     5.46       10,814       115     4.31   Total interest-earning assets   1,107,872       11,999     4.36       1,057,546       9,913     3.80                                               Interest-bearing liabilities:                                           Checking accounts   144,848       306     0.85       161,708       188     0.47   Savings accounts   106,312       28     0.11       120,741       26     0.09   Money market accounts   272,014       1,580     2.34       258,768       655     1.03   Retail certificate accounts   134,195       1,349     4.03       75,938       223     1.19   Wholesale certificate accounts   116,422       1,477     5.09       61,048       711     4.72   Customer escrows   0       0     0.00       6,393       32     2.00   Advances and other borrowings   231       3     5.71       1,219       15     4.86   Total interest-bearing liabilities   774,022                     685,815                 Non-interest checking   238,329                     282,136                 Other non-interest bearing liabilities   2,898                     2,423                 Total interest-bearing liabilities and                                           non-interest bearing deposits $ 1,015,249       4,743     1.88     $ 970,374       1,850     0.77   Net interest income       $   7,256                 $   8,063         Net interest rate spread                 2.48 %                   3.03 % Net interest margin                 2.63 %                   3.09 %                                             Provision for Credit LossesThe provision for credit losses was ($0.2) million for the first quarter of 2024, a decrease of $0.2 million compared to the provision for credit losses in the first quarter of 2023. The provision for credit losses decreased in the first quarter of 2024 primarily because of a decrease in the general reserve percentages used to calculate the allowance for credit losses as a result of updating the annual historical vintage loan loss analysis during the quarter. The provision for credit losses was also reduced as a result of the reduction in the required qualitative reserves due to perceived improvements in the forecasted economic conditions. These reductions were partially offset by an increase in the provision as a result of an increase in the allowance for credit losses attributable to loan growth. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluations. The collective reserve amount is assessed based on the size and risk characteristics of the various portfolio segments, past loss history, and other adjustments determined to have a potential impact on future credit losses. A reconciliation of the Company's allowance for credit losses on loans for the first quarters of 2024 and 2023 is summarized as follows:           (Dollars in thousands)   2024       2023   Balance at January 1, $ 11,824       10,277   Adoption of Accounting Standard Update (ASU) 2016-13   0       1,070   Provision   (208 )     (32 ) Charge offs:         Single family   (30 )     0