Second Quarter Summary

Net income of $2.3 million, down $2.2 million, from $4.5 million for second quarter of 2021
Diluted earnings per share of $0.52, down $0.48, from $1.00 for second quarter of 2021
Gain on sale of real estate owned of $0.1 million, down $1.4 million, from $1.5 million for second quarter of 2021
Provision for loan losses of $0.1 million, up $1.0 million, from ($0.9) million for second quarter of 2021
Gain on sales of loans of $0.8 million, down $0.9 million, from $1.7 million for second quarter of 2021
Net interest margin of 3.10%, down 17 basis points, from 3.27% for second quarter of 2021

Year to Date Summary

Net income of $3.8 million, down $4.1 million, from $7.9 million for first six months of 2021
Diluted earnings per share of $0.86, down $0.88, from $1.74 for first six months of 2021
Gain on sale of real estate owned of $0.1 million, down $1.4 million, from $1.5 million for first six months of 2021
Provision for loan losses of $0.4 million, up $1.9 million, from ($1.5) million for first six months of 2021
Gain on sales of loans of $1.7 million, down $1.7 million, from $3.4 million for first six months of 2021
Net interest margin of 3.02%, down 29 basis points, from 3.31% for first six months of 2021

Net Income Summary

Three months ended

Six months ended

June 30,

(Dollars in thousands, except per share amounts)

2022

2021

2022

2021

Net income

2,289

4,528

3,776

7,946

Diluted earnings per share

0.52

1.00

0.86

1.74

Return on average assets (annualized)

0.88

1.86

0.73

1.68

Return on average equity (annualized)

8.09

17.18

6.73

15.31

Book value per share

21.25

23.24

21.25

23.24

ROCHESTER, Minn., July 21, 2022 (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 $2.3 million for the second quarter of 2022, a decrease of $2.2 million, compared to net income of $4.5 million for the second quarter of 2021. Diluted earnings per share for the second quarter of 2022 was $0.52, a decrease of $0.48, from the diluted earnings per share of $1.00 for the second quarter of 2021. The decrease in net income between the periods was primarily because of a $1.4 million decrease in other non-interest income due to a decrease in the gains realized on the sale of real estate owned. Other items impacting net income were a $1.0 million increase in the provision for loan losses primarily because of the increase in qualitative reserves and a $0.9 million decrease in the gain on sales of loans due to a decrease in mortgage loan originations and sales. These decreases in net income were partially offset by a $0.9 million decrease in income tax expense as a result of the decrease in pre-tax income between the periods.

President's Statement

"We are pleased to report the asset growth that we have experienced and the positive impact that it has had on our net interest income," said Bradley Krehbiel, President and Chief Executive Officer of HMN. "The increases in the Prime interest rate during the first six months of 2022 also had a positive impact on our net interest income. The combined impact of these items helped offset the reduction in interest income as a result of recording fewer yield enhancements related to the Paycheck Protection Program (PPP) between the periods."

Second Quarter Results

Net Interest Income

Net interest income was $7.8 million for the second quarter of 2022, an increase of $0.1 million, or 1.1%, compared to $7.7 million for the second quarter of 2021. Interest income was $8.1 million for the second quarter of 2022, the same as the second quarter of 2021. Interest income remained the same, despite the $62.5 million increase in the average interest-earning assets between the periods, primarily because of a decrease in the average yield earned on interest-earning assets between the periods. The average yield earned on interest-earning assets was 3.22% for the second quarter of 2022, a decrease of 22 basis points from 3.44% for the second quarter of 2021. The decrease in the average yield is primarily related to the $0.6 million decrease in the yield enhancements recognized on PPP loans that were repaid between the periods.

Interest expense was $0.3 million for the second quarter of 2022, a decrease of $0.1 million, or 28.8%, compared to $0.4 million for the second quarter of 2021. Interest expense decreased, despite the $62.2 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods, primarily because of the decrease in the average interest rate paid on deposits. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was 0.13% for the second quarter of 2022, a decrease of 6 basis points from 0.19% for the second quarter of 2021. The decrease in the interest paid on interest-bearing liabilities was primarily because of the repricing of maturing certificates of deposit in the continued low interest rate environment. Net interest margin (net interest income divided by average interest-earning assets) for the second quarter of 2022 was 3.10%, a decrease of 17 basis points, compared to 3.27% for the second quarter of 2021. The decrease in the net interest margin is primarily related to the decrease in the average yield earned on interest-earning assets. The decrease in the average yield is primarily related to the $0.6 million decrease in the yield enhancements recognized on PPP loans that were repaid between the periods.

A summary of the Company's net interest margin for the three and six month periods ended June 30, 2022 and 2021 is as follows:

		For the three month period ended
		June 30, 2022						June 30, 2021
(Dollars in thousands)		Average Outstanding Balance		Interest Earned/ Paid	Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid	Yield/ Rate
Interest-earning assets:
Securities available for sale	$	299,138		816	1.09	%	$	197,739		502	1.02	%
Loans held for sale		2,710		30	4.53			4,821		38	3.14
Single family loans, net		175,948		1,511	3.44			155,205		1,418	3.66
Commercial loans, net		459,406		5,151	4.50			442,794		5,571	5.05
Consumer loans, net		41,869		473	4.53			47,235		530	4.50
Other		27,012		76	1.13			95,750		35	0.15
Total interest-earning assets		1,006,083		8,057	3.22			943,544		8,094	3.44

Interest-bearing liabilities:
Checking accounts		155,832		38	0.10			161,288		48	0.12
Savings accounts		124,170		18	0.06			113,717		18	0.06
Money market accounts		267,024		158	0.24			240,852		141	0.24
Certificate accounts		78,956		73	0.37			95,306		203	0.86
Advances and other borrowings		1,968		5	1.04			0		0	0.00
Total interest-bearing liabilities		627,950						611,163
Non-interest checking		296,715						251,196
Other non-interest bearing deposits		2,350						2,425
Total interest-bearing liabilities and non-interest bearing deposits	$	927,015		292	0.13		$	864,784		410	0.19
Net interest income			$	7,765					$	7,684
Net interest rate spread					3.09	%					3.25	%
Net interest margin					3.10	%					3.27	%

		For the six month period ended
		June 30, 2022						June 30, 2021
(Dollars in thousands)		Average Outstanding Balance		Interest Earned/ Paid	Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid	Yield/ Rate
Interest-earning assets:
Securities available for sale	$	297,264		1,604	1.09	%	$	181,220		1,000	1.11	%
Loans held for sale		3,335		65	3.93			4,953		75	3.04
Single family loans, net		173,014		2,947	3.43			150,114		2,747	3.69
Commercial loans, net		454,371		9,959	4.42			440,351		10,943	5.01
Consumer loans, net		41,301		945	4.61			49,722		1,152	4.67
Other		35,256		102	0.58			94,495		66	0.14
Total interest-earning assets		1,004,541		15,622	3.14			920,855		15,983	3.50

Interest-bearing liabilities:
Checking accounts		158,061		79	0.10			157,802		92	0.12
Savings accounts		122,610		36	0.06			109,778		34	0.06
Money market accounts		258,929		290	0.23			232,255		270	0.23
Certificate accounts		81,635		165	0.41			97,541		467	0.97
Advances and other borrowings		990		5	1.04			0		0	0.00
Total interest-bearing liabilities		622,225						597,376
Non-interest checking		300,187						243,874
Other non-interest bearing deposits		2,492						2,485
Total interest-bearing liabilities and non-interest bearing deposits	$	924,904		575	0.13		$	843,735		863	0.21
Net interest income			$	15,047					$	15,120
Net interest rate spread					3.01	%					3.29	%
Net interest margin					3.02	%					3.31	%

Provision for Loan Losses

The provision for loan losses was $0.1 million for the second quarter of 2022, an increase of $1.0 million compared to ($0.9) million for the second quarter of 2021. The provision for loan losses increased between the periods primarily because of an increase in the qualitative reserves due to the perceived negative impact on borrowers from rising inflation and interest rates. The credit provision recorded in 2021 was primarily the result of improvements in the underlying operations supporting many of the loans that were initially negatively impacted by the COVID-19 pandemic in 2020.

The allowance for loan losses is made up of general reserves on the entire loan portfolio and specific reserves on impaired loans. The general reserve amount includes quantitative reserves based on the size and risk characteristics of the portfolio and past loan loss history and qualitative reserves for other items determined to have a potential impact on future loan losses. The general reserves increased during the quarter as a result of an increase in the required qualitative reserves. The qualitative reserves for loan losses related to the disruption in business activity as a result of the COVID-19 pandemic was reduced during the quarter because of a perceived reduction in this risk due to improving conditions. The reduction in pandemic related qualitative reserves was entirely offset by an increase in the qualitative reserves for other economic factors. The other qualitative reserves were increased due to a perceived deterioration of economic conditions during the quarter, including an increase in the rate of inflation, and enacted and expected increases in the federal funds rate. Total non-performing assets were $4.3 million at June 30, 2022, a decrease of $0.5 million, or 11.0%, from $4.8 million at March 31, 2022. Non-performing loans decreased $0.2 million and foreclosed and repossessed assets decreased $0.3 million during the second quarter of 2022.

A reconciliation of the Company's allowance for loan losses for the quarters ended June 30, 2022 and 2021 is summarized as follows:


(Dollars in thousands)		2022		2021
Balance at March 31,	$	9,584		10,132
Provision		66		(891	)
Charge offs:
Consumer		(15	)	(11	)
Recoveries		9		685
Balance at June 30,	$	9,644		9,915
Allocated to:
General allowance	$	9,240		9,652
Specific allowance		404		263
	$	9,644		9,915

The $0.7 million of recoveries in the second quarter of 2021 relates primarily to a commercial loan in the transportation industry.

The following table summarizes the amounts and categories of non-performing assets in the Bank's portfolio and loan delinquency information as of the end of the three most recently completed quarters.

		June 30,			March 31,			December 31,
(Dollars in thousands)		2022			2022			2021
Non‑performing loans:
Single family	$	565		$	478		$	340
Commercial real estate		3,286			3,551			3,757
Consumer		436			500			517
Commercial		7			7			7
Total		4,294			4,536			4,621

Foreclosed and repossessed assets:
Commercial real estate		0			290			290
Total non‑performing assets	$	4,294		$	4,826		$	4,911
Total as a percentage of total assets		0.40	%		0.47	%		0.46	%
Total as a percentage of total loans receivable		0.62	%		0.66	%		0.70	%
Allowance for loan loss to non-performing loans		224.61	%		211.31	%		200.81	%

Delinquency data:
Delinquencies ⁽¹⁾
30+ days	$	2,504		$	913		$	1,418
90+ days		0			0			0
Delinquencies as a percentage of loan portfolio ⁽¹⁾
30+ days		0.36	%		0.13	%		0.21	%
90+ days		0.00	%		0.00	%		0.00	%
⁽¹⁾ Excludes non-accrual loans.

Non-Interest Income and Expense

Non-interest income was $2.5 million for the second quarter of 2022, a decrease of $2.2 million, or 46.9%, from $4.7 million for the second quarter of 2021. Other non-interest income decreased $1.4 million due primarily to a decrease in the gains that were realized on the sale of real estate owned between the periods. Gain on sales of loans decreased $0.9 million due primarily to a decrease in mortgage loan originations and sales between the periods. These decreases in non-interest income were partially offset by a slight increase in fees and service charges due primarily to an increase in overdraft fees between the periods. Loan servicing fees increased slightly between the periods due to an increase in the aggregate balances of single family mortgage loans that were being serviced for others.

Non-interest expense was $7.0 million for the second quarter of 2022, the same as for the second quarter of 2021. Data processing expenses increased $0.2 million between the periods primarily because of the change to an outsourced data processing relationship at the end of the first quarter of 2022. Compensation and benefits expense increased $0.1 million primarily because of a decrease in the direct loan origination compensation costs that were deferred as a result of the decreased mortgage loan production between the periods. These increases in non-interest expense were partially offset by a $0.2 million decrease in occupancy and equipment expense due primarily to a decrease in rent expense between the periods as a result of purchasing the combined corporate and branch location in Rochester, Minnesota in the fourth quarter of 2021. Other non-interest expense decreased slightly between the periods primarily because of a decrease in mortgage servicing expenses as a result of having less loans in the servicing portfolio being prepaid. Professional services expense decreased slightly between the periods primarily because of a decrease in employee recruiting fees paid.

Income tax expense was $0.9 million for the second quarter of 2022, a decrease of $0.9 million from $1.8 million for the second quarter of 2021. The decrease in income tax expense between the periods is primarily the result of a decrease in pre-tax income.

Return on Assets and Equity

Return on average assets (annualized) for the second quarter of 2022 was 0.88%, compared to 1.86% for the second quarter of 2021. Return on average equity (annualized) was 8.09% for the second quarter of 2022, compared to 17.18% for the second quarter of 2021. Book value per common share at June 30, 2022 was $21.25, compared to $23.24 at June 30, 2021. The reduction in the book value per common share between the periods is primarily related to the increase in the unrealized losses on the available for sale securities portfolio that were recorded in equity as other comprehensive losses.

Six Month Period Results

Net Income

Net income was $3.8 million for the six month period ended June 30, 2022, a decrease of $4.1 million, or 52.5%, compared to net income of $7.9 million for the six month period ended June 30, 2021. Diluted earnings per share for the six month period ended June 30, 2022 was $0.86, a decrease of $0.88 per share compared to diluted earnings per share of $1.74 for the same period in 2021. The decrease in net income between the periods was primarily because of a $1.9 million increase in the provision for loan losses due to an increase in qualitative reserves, a $1.7 million decrease in the gain on sales of loans due to a decrease in mortgage loan originations and sales, a $1.4 million decrease in other non-interest income primarily because of a decrease in the gains that were realized on the sale of real estate owned, and a $0.5 million increase in compensation and benefits expense primarily because of a decrease in the direct loan origination compensation costs that were deferred as a result of the decreased mortgage loan production. These decreases in net income were partially offset by a $1.6 million decrease in income tax expense as a result of the decrease in pre-tax income between the periods.

Net Interest Income

Net interest income was $15.0 million for the first six months of 2022, a decrease of $0.1 million, or 0.5%, compared to $15.1 million for the same period of 2021. Interest income was $15.6 million for the first six months of 2022, a decrease of $0.4 million, or 2.3%, from $16.0 million for the first six months of 2021. Interest income decreased, despite the $83.7 million increase in the average interest-earning assets between the periods, primarily because of a decrease in the average yield earned on interest-earning assets between the periods. The average yield earned on interest-earning assets was 3.14% for the first six months of 2022, a decrease of 36 basis points from 3.50% for the first six months of 2021. The decrease in the average yield is primarily related to the $1.2 million decrease in the yield enhancements recognized on PPP loans that were repaid between the periods.

Interest expense was $0.6 million for the first six months of 2022, a decrease of $0.3 million, or 33.4%, compared to $0.9 million for the same period of 2021. Interest expense decreased, despite the $81.2 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods, primarily because of the decrease in the average interest rate paid on deposits. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was 0.13% for the first six months of 2022, a decrease of 8 basis points from 0.21% for the first six months of 2021. The decrease in the interest paid on interest-bearing liabilities was primarily because of the repricing of maturing certificates of deposit in the continued low interest rate environment. Net interest margin (net interest income divided by average interest-earning assets) for the first six months of 2022 was 3.02%, a decrease of 29 basis points, compared to 3.31% for the first six months of 2021. The decrease in the net interest margin is primarily related to the decrease in the average yield earned on interest-earning assets. The decrease in the average yield is primarily related to the $1.2 million decrease in the yield enhancements recognized on PPP loans that were repaid between the periods.

Provision for Loan Losses

The provision for loan losses was $0.4 million for the first six months of 2022, an increase of $1.9 million compared to ($1.5) million for the first six months of 2021. The provision for loan losses increased between the periods primarily because of an increase in the qualitative reserves due to the perceived negative impact on borrowers of rising inflation and interest rates. The credit provision recorded in 2021 was primarily the result of improvements in the underlying operations supporting many of the loans that were initially negatively impacted by the COVID-19 pandemic in 2020.

The allowance for loan losses is made up of general reserves on the entire loan portfolio and specific reserves on impaired loans. The general reserve amount includes quantitative reserves based on the size and risk characteristics of the portfolio and past loan loss history and qualitative reserves for other items determined to have a potential impact on future loan losses. The general reserves increased during the period as a result of an increase in the required quantitative reserves due to an increase in the loan portfolio and changes in the risk characteristics of certain loans. The qualitative allowance for loan losses related to the disruption in business activity as a result of the COVID-19 pandemic was reduced during the period because of a perceived reduction in this risk due to improving conditions. The reduction in pandemic related qualitative reserves was entirely offset by an increase in the qualitative reserves for other economic factors. The other qualitative reserves were increased due to a perceived deterioration of economic condition during the first six months of 2022, including an increase in the rate of inflation, and enacted and expected increases in the federal funds rate. Total non-performing assets were $4.3 million at June 30, 2022, a decrease of $0.6 million, or 12.6%, from $4.9 million at December 31, 2021. Non-performing loans decreased $0.3 million and foreclosed and repossessed assets decreased $0.3 million during the first six months of 2022.

A reconciliation of the Company's allowance for loan losses for the six month periods ended June 30, 2022 and 2021 is summarized as follows:


(Dollars in thousands)		2022		2021
Balance at January 1,	$	9,279		10,699
Provision		362		(1,467	)
Charge offs:
Consumer		(16	)	(42	)
Recoveries		19		725
Balance at June 30,	$	9,644		9,915

The $0.7 million of recoveries in the first six months of 2021 relates primarily to a commercial loan in the transportation industry

Non-Interest Income and Expense

Non-interest income was $4.9 million for the first six months of 2022, a decrease of $3.1 million, or 38.8%, from $8.0 million for the first six months of 2021. Gain on sales of loans decreased $1.7 million due primarily to a decrease in mortgage loan originations and sales between the periods. Other non-interest income decreased $1.4 million due primarily because of a decrease in the gains that were realized on the sale of real estate owned between the periods. These decreases in non-interest income were partially offset by a $0.1 million increase in fees and service charges due primarily to an increase in overdraft fees between the periods. Loan servicing fees increased slightly between the periods due to an increase in the aggregate balances of single family mortgage loans that were being serviced for others.

Non-interest expense was $14.2 million for the first six months of 2022, an increase of $0.7 million, or 5.8%, from $13.5 million for the first six months of 2021. Compensation and benefits expense increased $0.5 million primarily because of a decrease in the direct loan origination compensation costs that were deferred as a result of the decreased mortgage loan production between the periods. Professional services expense increased $0.3 million between the periods primarily because of an increase in legal expenses relating to a bankruptcy litigation claim that was settled during the first quarter of 2022. Data processing expenses increased $0.2 million between the periods primarily because of the change to an outsourced data processing relationship at the end of the first quarter of 2022. These increases in non-interest expense were partially offset by a $0.3 million decrease in occupancy and equipment expense due primarily to a decrease in rent expense between the periods as a result of purchasing the combined corporate and branch location in Rochester, Minnesota in the fourth quarter of 2021. Other non-interest expense decreased slightly between the periods primarily because of a decrease in mortgage servicing expenses as a result of having less loans in the servicing portfolio being prepaid.

Income tax expense was $1.6 million for the first six months of 2022, a decrease of $1.6 million from $3.2 million for the first six months of 2021. The decrease in income tax expense between the periods is primarily the result of a decrease in pre-tax income.

Return on Assets and Equity

Return on average assets (annualized) for the six month period ended June 30, 2022 was 0.73%, compared to 1.68% for the same six month period in 2021. Return on average equity (annualized) was 6.73% for the six month period ended June 30, 2022, compared to 15.31% for the same six month period in 2021. Book value per common share at June 30, 2022 was $21.25, compared to $23.24 at June 30, 2021. The reduction in the book value per common share between the periods is primarily related to the increase in the unrealized losses on the available for sale securities portfolio that were recorded in equity as other comprehensive losses.

General Information

HMN Financial, Inc. and the Bank are headquartered in Rochester, Minnesota. Home Federal Savings Bank operates twelve full service offices in Minnesota located in Albert Lea, Austin, Eagan, Kasson, La Crescent, Owatonna, Rochester (4), Spring Valley and Winona, one full service office in Marshalltown, Iowa, and one full service office in Pewaukee, Wisconsin. The Bank also operates two loan origination offices located in Sartell, Minnesota and La Crosse, Wisconsin.

Safe Harbor Statement

This press release may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as "expect," "estimate," "intend," "look," "believe," "anticipate," "project," "continue," "may," "will," "would," "could," "target," "goal," "should," and "trend," or similar statements or variations of such terms and include, but are not limited to, those relating to: maintaining credit quality; maintaining net interest margins; the adequacy and amount of available liquidity and capital resources to Home Federal Savings Bank (the Bank); the Company's liquidity and capital requirements; enacted and expected changes to the federal funds rate; the anticipated impacts of the COVID-19 pandemic and efforts to mitigate the same on the general economy, the Bank's clients, and the allowance for loan losses; the amount of the Bank's non-performing assets in future periods and the appropriateness of the allowances therefor; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and composition of interest earning assets; the amount and compositions of non-interest and interest-bearing liabilities; the availability of alternate funding sources; the payment of dividends or repurchases of stock by HMN; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer of the trust preferred securities held by the Bank; the ability of the Bank to pay dividends to HMN; the ability to remain well capitalized; the impact of new accounting pronouncements; and compliance by the Bank with regulatory standards generally (including the Bank's status as "well-capitalized") and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject.

A number of factors, many of which may be amplified by the COVID-19 pandemic and efforts to mitigate the same, could cause actual results to differ materially from the Company's assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the Office of the Comptroller of the Currency and the Federal Reserve Bank of Minneapolis in the event of non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company's loan and investment portfolios; changes in costs associated with traditional and alternate funding sources, including changes in collateral advance rates and policies of the Federal Home Loan Bank and the Federal Reserve Bank; technological, computer-related or operational difficulties including those from any third party cyberattack; results of litigation; reduced demand for financial services and loan products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; domestic and international economic developments; the Company's access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; the Company's ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company's assumptions and expectations include those set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2021and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q. All statements in this press release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no duty to update any of the forward-looking statements after the date of this press release.

(Three pages of selected consolidated financial information are included with this release.)

HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

		June 30,		December 31,
(Dollars in thousands)		2022		2021
		(unaudited)
Assets
Cash and cash equivalents	$	94,954		94,143
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $237,544 and $247,275)		215,504		245,397
Other marketable securities
(amortized cost $55,696 and $40,691)		53,852		40,368
		269,356		285,765

Loans held for sale		2,709		5,575
Loans receivable, net		678,512		652,502
Accrued interest receivable		2,396		2,132
Mortgage servicing rights, net		3,234		3,280
Premises and equipment, net		16,950		17,373
Goodwill		802		802
Core deposit intangible		0		10
Prepaid expenses and other assets		5,704		5,427
Deferred tax asset, net		7,392		2,529
Total assets	$	1,082,009		1,069,538


Liabilities and Stockholders' Equity
Deposits	$	978,863		950,666
Accrued interest payable		53		63
Customer escrows		2,133		2,143
Accrued expenses and other liabilities		5,112		6,635
Total liabilities		986,161		959,507
Commitments and contingencies
Stockholders' equity:
Serial-preferred stock: ($.01 par value)
authorized 500,000 shares; issued 0		0		0
Common stock ($.01 par value):
authorized 16,000,000 shares; issued 9,128,662		91		91
Additional paid-in capital		40,775		40,740
Retained earnings, subject to certain restrictions		134,661		131,413
Accumulated other comprehensive loss		(17,852	)	(1,583	)
Unearned employee stock ownership plan shares		(1,159	)	(1,256	)
Treasury stock, at cost 4,617,686 and 4,564,087 shares		(60,668	)	(59,374	)
Total stockholders' equity		95,848		110,031
Total liabilities and stockholders' equity	$	1,082,009		1,069,538

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands, except per share data)		2022		2021		2022		2021
Interest income:
Loans receivable	$	7,165		7,557		13,916		14,917
Securities available for sale:
Mortgage-backed and related		708		440		1,435		831
Other marketable		108		62		169		169
Other		76		35		102		66
Total interest income		8,057		8,094		15,622		15,983

Interest expense:
Deposits		287		410		570		863
Advances and other borrowings		5		0		5		0
Total interest expense		292		410		575		863
Net interest income		7,765		7,684		15,047		15,120
Provision for loan losses		66		(891	)	362		(1,467	)
Net interest income after provision for loan losses		7,699		8,575		14,685		16,587

Non-interest income:
Fees and service charges		810		783		1,576		1,522
Loan servicing fees		396		384		782		779
Gain on sales of loans		814		1,665		1,682		3,438
Other		496		1,910		851		2,258
Total non-interest income		2,516		4,742		4,891		7,997

Non-interest expense:
Compensation and benefits		4,162		4,096		8,450		7,917
Occupancy and equipment		897		1,104		1,947		2,211
Data processing		576		368		930		715
Professional services		260		283		789		486
Other		1,088		1,129		2,119		2,130
Total non-interest expense		6,983		6,980		14,235		13,459
Income before income tax expense		3,232		6,337		5,341		11,125
Income tax expense		943		1,809		1,565		3,179
Net income		2,289		4,528		3,776		7,946
Other comprehensive (loss) income, net of tax		(6,251	)	421		(16,269	)	(820	)
Comprehensive (loss) income available to common stockholders	$	(3,962	)	4,949		(12,493	)	7,126
Basic earnings per share	$	0.52		1.01		0.86		1.76
Diluted earnings per share	$	0.52		1.00		0.86		1.74

HMN FINANCIAL, INC. AND SUBSIDIARIES
Selected Consolidated Financial Information
(unaudited)

Selected Financial Data:		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except per share data)		2022		2021		2022		2021
I. OPERATING DATA:
Interest income	$	8,057		8,094		15,622		15,983
Interest expense		292		410		575		863
Net interest income		7,765		7,684		15,047		15,120

II. AVERAGE BALANCES:
Assets ⁽¹⁾		1,044,524		977,622		1,042,629		955,320
Loans receivable, net		677,223		645,234		668,686		640,187
Securities available for sale ⁽¹⁾		299,138		197,739		297,264		181,220
Interest-earning assets ⁽¹⁾		1,006,083		943,544		1,004,541		920,855
Interest-bearing liabilities and non-interest bearing deposits		927,015		864,784		924,904		843,735
Equity ⁽¹⁾		113,541		105,693		113,072		104,661

III. PERFORMANCE RATIOS: ⁽¹⁾
Return on average assets (annualized)		0.88	%	1.86	%	0.73	%	1.68	%
Interest rate spread information:
Average during period		3.09		3.25		3.01		3.29
End of period		2.98		3.56		2.98		3.56
Net interest margin		3.10		3.27		3.02		3.31
Ratio of operating expense to average
total assets (annualized)		2.68		2.86		2.75		2.84
Return on average equity (annualized)		8.09		17.18		6.73		15.31
Efficiency		67.92		56.17		71.39		58.22
		June 30,		December 31,		June 30,
		2022		2021		2021
IV. EMPLOYEE DATA:
Number of full time equivalent employees		169		164		171

V. ASSET QUALITY:
Total non-performing assets	$	4,294		4,911		1,753
Non-performing assets to total assets		0.40	%	0.46	%	0.18	%
Non-performing loans to total loans receivable		0.62	%	0.70	%	0.27	%
Allowance for loan losses	$	9,644		9,279		9,915
Allowance for loan losses to total assets		0.89	%	0.87	%	1.01	%
Allowance for loan losses to total loans receivable		1.40		1.40		1.53
Allowance for loan losses to non-performing loans		224.61		200.81		565.75

VI. BOOK VALUE PER SHARE:
Book value per share common share	$	21.25		24.11		23.24

		Six Months Ended June 30, 2022		Year Ended December 31, 2021		Six Months Ended June 30, 2021
VII. CAPITAL RATIOS:
Stockholders' equity to total assets, at end of period		8.86	%	10.29	%	11.00	%
Average stockholders' equity to average assets ⁽¹⁾		10.84		10.92		10.96
Ratio of average interest-earning assets to average
interest-bearing liabilities and non-interest bearing deposits⁽¹⁾		108.61		109.17		109.14
Home Federal Savings Bank regulatory capital ratios:
Common equity tier 1 capital ratio		12.85		13.18		14.28
Tier 1 capital leverage ratio		9.71		9.47		10.01
Tier 1 capital ratio		12.85		13.18		14.28
Risk-based capital		14.06		14.43		15.53

1) Average balances were calculated based upon amortized cost without the market value impact of ASC 320.

CONTACT:	Bradley Krehbiel
	Chief Executive Officer, President
	HMN Financial, Inc. (507) 252-7169

HMN Financial, Inc. Announces Second Quarter Results