Second Quarter Summary Net income of $1.0 million, down $0.4 million, from $1.4 million for second quarter of 2023 Diluted earnings per share of $0.22, down $0.10, from $0.32 for second quarter of 2023 Net interest income of $7.5 million, down $0.2 million, from $7.7 million for second quarter of 2023 Gain on sales of loans of $0.6 million, up $0.3 million, from $0.3 million for second quarter of 2023 Net interest margin of 2.70%, down 20 basis points, from 2.90% for second quarter of 2023 Goodwill impairment of $0.8 million was recorded in the second quarter of 2024 As previously announced, on May 14, 2024, we entered into a definitive Agreement and Plan of Merger to which Alerus Financial Corporation (NASDAQ:ALRS) will acquire HMN Financial, Inc. in an all-stock merger. The transaction is expected to close in the fourth quarter of 2024, subject to customary closing conditions, including receipt of required regulatory and stockholder approvals. Merger related expenses of $0.5 million were recorded in the second quarter of 2024 Year to Date Summary Net income of $2.3 million, down $0.8 million, from $3.1 million for first six months of 2023 Diluted earnings per share of $0.52, down $0.18, from $0.70 for first six months of 2023 Net interest income of $14.7 million, down $1.1 million from $15.8 million for first six months of 2023 Gain on sales of loans of $0.9 million, up $0.3 million, from $0.6 million for first six months of 2023 Net interest margin of 2.67%, down 33 basis points, from 3.00% for first six months of 2023 Net Income Summary   Three months ended     Six months ended       June 30,     June 30,   (Dollars in thousands, except per share amounts)   2024     2023     2024     2023   Net income $ 970     1,421   $ 2,288     3,055   Diluted earnings per share   0.22     0.32     0.52     0.70   Return on average assets (annualized)   0.34 %   0.52 %   0.40 %   0.56 % Return on average equity (annualized)   3.18 %   4.81 %   3.77 %   5.22 % Book value per share $ 24.71     22.76   $ 24.71     22.76   Amounts Excluding Merger Related Expenses (1)             Three months ended     Six months ended       June 30,     June 30,   (Dollars in thousands, except per share amounts)   2024     2024   Adjusted net income $ 1,334   $ 2,652   Adjusted diluted earnings per share   0.30     0.61   Adjusted return on average assets (annualized)   0.47 %   0.46 % Adjusted return on average equity (annualized)   4.37 %   4.37 % Adjusted book value per share $ 24.79   $ 24.79   (1) Amounts excluding merger related expenses for net income, diluted earnings per share, return on average assets, return on average equity, and book value per share are non-GAAP financial measures. Please see Item VIII. in the Selected Consolidated Information for disclosure and reconciliation of non-GAAP financial measures. ROCHESTER, Minn., July 22, 2024 (GLOBE NEWSWIRE) -- HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $1.1 billion holding company for Home Federal Savings Bank (the Bank), today reported net income of $1.0 million for the second quarter of 2024, a decrease of $0.4 million compared to net income of $1.4 million for the second quarter of 2023. Diluted earnings per share for the second quarter of 2024 was $0.22, a decrease of $0.10 from diluted earnings per share of $0.32 for the second quarter of 2023. The decrease in net income between the periods was primarily because of a $0.8 million increase in other expenses due to a goodwill impairment that was recorded, a $0.5 million increase in professionals services due to merger related expenses, and a $0.2 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. These decreases in net income were partially offset by a $0.6 million decrease in the provision for credit losses due primarily to perceived improvements in the forecasted economic environment, a $0.3 million increase in the gain on sales of loans due to an increase in the amount of originated loans that were sold, and a $0.2 million reduction in income tax expense between the periods as a result of the reduced pretax income. President's Statement"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." Second Quarter ResultsNet Interest IncomeNet interest income was $7.5 million for the second quarter of 2024, a decrease of $0.2 million, or 3.1%, compared to $7.7 million for the second quarter of 2023. Interest income was $12.6 million for the second quarter of 2024, an increase of $2.1 million, or 19.8%, from $10.5 million for the second 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 $47.3 million increase in the average interest-earning assets. The average yield earned on interest-earning assets was 4.54% for the second quarter of 2024, an increase of 60 basis points from 3.94% for the second quarter of 2023. The increase in the average yield is primarily related to the increase in market interest rates as a result of the 3.75% increase in the prime interest rate over the past two years. Interest expense was $5.1 million for the second quarter of 2024, an increase of $2.3 million, or 83.7%, compared to $2.8 million for the second 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 $40.8 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 2.01% for the second quarter of 2024, an increase of 88 basis points from 1.13% for the second 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 second quarter of 2024 than were used in the second 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 3.75% increase in the federal funds rate over the past two years also contributed to the higher funding costs in the second 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 second quarter of 2024 was 2.70%, a decrease of 20 basis points, compared to 2.90% for the second 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- and six-month periods ended June 30, 2024 and 2023 is as follows:     For the three-month period ended       June 30, 2024     June 30, 2023   (Dollars in thousands)   AverageOutstandingBalance   InterestEarned/Paid   Yield/Rate     AverageOutstandingBalance   InterestEarned/Paid   Yield/Rate   Interest-earning assets:                             Securities available for sale $ 221,664   1,031   1.87 % $ 259,187   800   1.24 % Loans held for sale   2,944   50   6.87     1,872   29   6.24   Single family loans, net   265,291   2,958   4.48     225,065   2,195   3.91   Commercial loans, net   551,691   7,379   5.38     527,900   6,663   5.06   Consumer loans, net   41,246   717   6.99     47,518   732   6.18   Other   32,668   445   5.47     6,661   78   4.70   Total interest-earning assets   1,115,504   12,580   4.54     1,068,203   10,497   3.94                                 Interest-bearing liabilities:                             Checking accounts   143,572   300   0.84     169,870   253   0.60   Savings accounts   104,100   28   0.11     115,658   28   0.10   Money market accounts   279,382   1,707   2.46     267,075   1,049   1.58   Retail certificate accounts   153,871   1,626   4.25     89,436   474   2.13   Wholesale certificate accounts   111,061   1,409   5.10     62,978   745   4.74   Customer escrows   0   0   0.00     4,737   23   2.00   Advances and other borrowings   1,266   18   5.63     14,419   197   5.48   Total interest-bearing liabilities   793,252             724,173           Non-interest checking   224,385             252,008           Other non-interest bearing liabilities   2,397             3,043           Total interest-bearing liabilities and non-interest bearing deposits $ 1,020,034   5,088   2.01   $ 979,224   2,769   1.13   Net interest income     $ 7,492           $ 7,728       Net interest rate spread           2.53 %           2.81 % Net interest margin           2.70 %           2.90 %                                   For the six-month period ended       June 30, 2024     June 30, 2023   (Dollars in thousands)   AverageOutstandingBalance   InterestEarned/Paid   Yield/Rate     AverageOutstandingBalance   InterestEarned/Paid   Yield/Rate   Interest-earning assets:                             Securities available for sale $ 225,783   1,954   1.74 % $ 263,909   1,595   1.22 % Loans held for sale   2,398   79   6.62     1,546   47   6.16   Single family loans, net   265,041   5,835   4.43     216,643   4,146   3.86   Commercial loans, net   546,419   14,450   5.32     525,425   13,036   5.00   Consumer loans, net   41,374   1,426   6.93     46,655   1,393   6.02   Other   30,673   835   5.47     8,726   193   4.46   Total interest-earning assets   1,111,688   24,579   4.45     1,062,904   20,410   3.87                                 Interest-bearing liabilities:                             Checking accounts   144,210   606   0.84     165,811   441   0.54   Savings accounts   105,206   56   0.11     118,185   54   0.09   Money market accounts   275,698   3,288   2.40     262,944   1,704   1.31   Retail certificate accounts   144,032   2,975   4.15     82,725   697   1.70   Wholesale certificate accounts   113,742   2,885   5.10     62,018   1,456   4.73   Customer escrows   0   0   0.00     5,560   55   2.00   Advances and other borrowings   748   21   5.64     7,856   212   5.44   Total interest-bearing liabilities   783,636             705,099           Non-interest checking   231,357             266,989           Other non-interest bearing liabilities   2,648             2,735           Total interest-bearing liabilities and non-interest bearing deposits $ 1,017,641   9,831   1.94   $ 974,823   4,619   0.96   Net interest income     $ 14,748           $ 15,791       Net interest rate spread           2.51 %           2.91 % Net interest margin