HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $1.0
billion holding company for Home Federal Savings Bank (the Bank),
today reported net income of $3.6 million for the third quarter of
2021, an increase of $0.5 million, compared to net income of $3.1
million for the third quarter of 2020. Diluted earnings per
share for the third quarter of 2021 was $0.81, an increase of $0.14
per share, compared to diluted earnings per share of $0.67 for the
third quarter of 2020. The increase in net income between the
periods was primarily because of a $1.7 million decrease in the
provision for loan losses. The provision for loan losses decreased
primarily because of a reduction in certain loan loss reserve
percentages as a result of an internal analysis of the loan
portfolio and economic improvements related to the COVID-19
pandemic. Net interest income also increased $0.7 million primarily
because of an increase in the yield enhancements realized on
Paycheck Protection Program (PPP) loans that were repaid during the
period. These increases in net income between the periods were
partially offset by a $1.5 million decrease in the gain on sales of
loans due to a decrease in mortgage loan activity. Income tax
expense also increased $0.3 million as a result of the increased
pre-tax income between the periods.
President’s Statement“We are pleased to report
the positive quarterly financial results that include increased net
interest income which reflects our active participation in the PPP
and a credit loan loss provision which reflects the improving
credit quality of our loan portfolio,” said Bradley Krehbiel,
President and Chief Executive Officer of HMN. “We are also pleased
with the asset growth that we continue to experience and the
positive impact it had on our net interest income.”
Third Quarter ResultsNet
Interest IncomeNet interest income was $8.0 million for the third
quarter of 2021, an increase of $0.7 million, or 10.3%, from $7.3
million for the third quarter of 2020. Interest income was
$8.4 million for the third quarter of 2021, an increase of $0.5
million, or 5.7%, from $7.9 million for the third quarter of 2020.
Interest income increased primarily because of the $0.8 million in
yield enhancements recognized on PPP loans that were repaid during
the period. Interest income also increased because of the $107.7
million increase in the average interest-earning assets between the
periods. These increases in interest income were partially offset
by a decrease in the average yield earned on interest-earning
assets which was 3.47% for the third quarter of 2021, a decrease of
24 basis points from 3.71% for the third quarter of 2020. The
decrease in the average yield is primarily related to the decrease
in the prime rate that occurred in the first quarter of 2020, which
lowered the rate on adjustable rate loans in the portfolio as well
as any new or renewing fixed rate loans that were originated since
that time.
Interest expense was $0.4 million for the third
quarter of 2021, a decrease of $0.3 million, or 45.1%, from $0.7
million for the third quarter of 2020. Interest expense decreased
despite the $96.6 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 0.16% for the
third quarter of 2021, a decrease of 18 basis points from 0.34% for
the third quarter of 2020. The decrease in the interest paid on
interest-bearing liabilities was primarily because of the decrease
in deposit rates as a result of the decrease in the federal funds
rate in the first quarter of 2020. Net interest margin (net
interest income divided by average interest-earning assets) for the
third quarter of 2021 was 3.32%, a decrease of 8 basis points,
compared to 3.40% for the third quarter of 2020. The decrease in
the net interest margin is primarily related to the decrease in the
average yield earned on interest-earning assets as a result of the
decrease in the prime rate that occurred in the first quarter of
2020.
A summary of the Company’s net interest margin
for the three and nine month periods ended September 30, 2021 and
2020 is as follows:
|
|
For the Three Month Period Ended |
|
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
215,811 |
|
514 |
|
0.94 |
% |
$ |
103,132 |
|
434 |
|
1.67 |
% |
Loans held for sale |
|
5,991 |
|
40 |
|
2.63 |
|
|
9,309 |
|
65 |
|
2.76 |
|
Single family loans, net |
|
164,591 |
|
1,442 |
|
3.48 |
|
|
134,460 |
|
1,325 |
|
3.92 |
|
Commercial loans, net |
|
420,062 |
|
5,840 |
|
5.52 |
|
|
474,325 |
|
5,390 |
|
4.52 |
|
Consumer loans, net |
|
43,955 |
|
515 |
|
4.65 |
|
|
60,473 |
|
709 |
|
4.66 |
|
Other |
|
110,173 |
|
50 |
|
0.18 |
|
|
71,180 |
|
26 |
|
0.15 |
|
Total interest-earning
assets |
|
960,583 |
|
8,401 |
|
3.47 |
|
|
852,879 |
|
7,949 |
|
3.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities and
non-interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
155,373 |
|
45 |
|
0.11 |
|
|
129,276 |
|
41 |
|
0.13 |
|
Savings accounts |
|
115,526 |
|
18 |
|
0.06 |
|
|
93,022 |
|
17 |
|
0.07 |
|
Money market accounts |
|
249,335 |
|
138 |
|
0.22 |
|
|
221,991 |
|
190 |
|
0.34 |
|
Certificate accounts |
|
91,595 |
|
159 |
|
0.69 |
|
|
111,847 |
|
408 |
|
1.45 |
|
Total interest-bearing
liabilities |
|
611,829 |
|
|
|
|
|
|
556,136 |
|
|
|
|
|
Non-interest checking |
|
259,721 |
|
|
|
|
|
|
219,512 |
|
|
|
|
|
Other non-interest bearing deposits |
|
2,923 |
|
|
|
|
|
|
2,218 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest-bearing deposits |
$ |
874,473 |
|
360 |
|
0.16 |
|
$ |
777,866 |
|
656 |
|
0.34 |
|
Net interest income |
|
|
$ |
8,041 |
|
|
|
|
|
$ |
7,293 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
3.37 |
% |
Net interest margin |
|
|
|
|
|
3.32 |
% |
|
|
|
|
|
3.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Month Period Ended |
|
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
192,877 |
|
1,514 |
|
1.05 |
% |
$ |
100,889 |
|
1,371 |
|
1.81 |
% |
Loans held for sale |
|
5,303 |
|
114 |
|
2.88 |
|
|
6,942 |
|
156 |
|
2.99 |
|
Single family loans, net |
|
154,992 |
|
4,189 |
|
3.61 |
|
|
130,441 |
|
3,907 |
|
4.00 |
|
Commercial loans, net |
|
433,514 |
|
16,783 |
|
5.18 |
|
|
446,580 |
|
15,781 |
|
4.72 |
|
Consumer loans, net |
|
47,779 |
|
1,668 |
|
4.67 |
|
|
64,570 |
|
2,312 |
|
4.78 |
|
Other |
|
99,778 |
|
116 |
|
0.16 |
|
|
51,030 |
|
149 |
|
0.39 |
|
Total interest-earning
assets |
|
934,243 |
|
24,384 |
|
3.49 |
|
|
800,452 |
|
23,676 |
|
3.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities and
non-interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
156,983 |
|
137 |
|
0.12 |
|
|
115,110 |
|
102 |
|
0.12 |
|
Savings accounts |
|
111,715 |
|
52 |
|
0.06 |
|
|
87,587 |
|
48 |
|
0.07 |
|
Money market accounts |
|
238,011 |
|
408 |
|
0.23 |
|
|
205,868 |
|
684 |
|
0.44 |
|
Certificate accounts |
|
95,537 |
|
626 |
|
0.88 |
|
|
118,422 |
|
1,459 |
|
1.65 |
|
Total interest-bearing
liabilities |
|
602,246 |
|
|
|
|
|
|
526,987 |
|
|
|
|
|
Non-interest checking |
|
249,215 |
|
|
|
|
|
|
200,965 |
|
|
|
|
|
Other non-interest bearing deposits |
|
2,632 |
|
|
|
|
|
|
2,384 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest-bearing deposits |
$ |
854,093 |
|
1,223 |
|
0.19 |
|
$ |
730,336 |
|
2,293 |
|
0.42 |
|
Net interest income |
|
|
$ |
23,161 |
|
|
|
|
|
$ |
21,383 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.30 |
% |
|
|
|
|
|
3.53 |
% |
Net interest margin |
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
The provision for loan losses was ($0.9) million
for the third quarter of 2021, a decrease of $1.7 million compared
to $0.8 million for the third quarter of 2020. The provision for
loan losses decreased between the periods primarily because of a
reduction in certain loan loss reserve percentages as a result of
an internal analysis of the loan portfolio and economic
improvements related to the COVID-19 pandemic. During 2020, the
Company increased its allowance for loan losses due to the changes
in the economic environment related to the disruption in business
activity as a result of the COVID-19 pandemic. The amount of the
increase in the allowance for loan losses related to the economic
environment was based, in part, on the amount of loans to borrowers
in the hospitality, restaurant and entertainment industries that
were negatively impacted by the COVID-19 pandemic. The underlying
operations supporting many of the loans that were initially
negatively impacted by the pandemic have improved and the amount of
loans requiring accommodations decreased in 2021. At September 30,
2021, the Company had six loans in the hospitality industry
totaling $25.5 million that had been granted loan accommodations in
accordance with Section 4013 of the Coronavirus Aid, Relief, and
Economic Security (CARES) Act. The accommodations granted allow the
borrowers to make interest only payments for periods up to December
31, 2021. Of these loans, $5.7 million were classified but still
accruing at September 30, 2021 and all of these loans were current
with their agreed upon payments. The commercial credit department
continues to communicate regularly with the borrowers that have
been granted loan accommodations and monitors their activity
closely. It is anticipated that most of the remaining borrowers
that have been granted accommodations will be in a position to
resume making their regular loan payments at the end of the initial
accommodation period. However, some of the borrowers may need
additional accommodations when their initial accommodation period
ends as their operations may need more time to recover from the
impact of the pandemic.
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 our past loan loss history and qualitative
reserves for other items determined to have a potential impact on
future loan losses. The reserves decreased during the quarter
primarily as a result of an internal analysis of the loan
portfolio. Total non-performing assets were $1.8 million at
September 30, 2021, which is unchanged from June 30, 2021.
A reconciliation of the Company’s allowance for
loan losses for the quarters ended September 30, 2021 and 2020 is
summarized as follows:
|
|
|
(Dollars in thousands) |
|
2021 |
|
2020 |
Balance at June 30, |
$ |
9,915 |
|
|
8,649 |
|
Provision |
|
(886 |
) |
|
770 |
|
Charge offs: |
|
|
|
|
Consumer |
|
0 |
|
|
(29 |
) |
Commercial business |
|
0 |
|
|
(8 |
) |
Recoveries |
|
41 |
|
|
150 |
|
Balance at September 30, |
$ |
9,070 |
|
|
9,532 |
|
|
|
|
|
|
Allocated to: |
|
|
|
|
General allowance |
$ |
8,784 |
|
|
9,416 |
|
Specific allowance |
|
286 |
|
|
116 |
|
|
$ |
9,070 |
|
|
9,532 |
|
|
|
|
|
|
The following table summarizes the amounts and
categories of non-performing assets in the Company’s portfolio and
loan delinquency information as of the end of the two most recently
completed quarters and December 31, 2020.
|
|
September 30, |
|
|
June 30, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2021 |
|
|
2021 |
|
|
2020 |
|
Non-performing loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
423 |
|
$ |
557 |
|
$ |
502 |
|
Commercial real estate |
|
685 |
|
|
519 |
|
|
1,484 |
|
Consumer |
|
673 |
|
|
669 |
|
|
689 |
|
Commercial |
|
7 |
|
|
8 |
|
|
9 |
|
Total |
|
1,788 |
|
|
1,753 |
|
|
2,684 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed
assets: |
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
0 |
|
|
0 |
|
|
636 |
|
Total non-performing assets |
$ |
1,788 |
|
$ |
1,753 |
|
$ |
3,320 |
|
Total as a percentage of total
assets |
|
0.17 |
% |
|
0.18 |
% |
|
0.37 |
% |
Total as a percentage of total
loans receivable, net |
|
0.29 |
% |
|
0.28 |
% |
|
0.42 |
% |
Allowance for loan losses to
non-performing loans |
|
507.15 |
% |
|
565.75 |
% |
|
398.72 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
1,113 |
|
$ |
1,255 |
|
$ |
995 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage of
loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.17 |
% |
|
0.19 |
% |
|
0.15 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
(1) Excludes non-accrual loans.
Non-Interest Income and ExpenseNon-interest
income was $3.1 million for the third quarter of 2021, a decrease
of $1.4 million, or 32.6%, from $4.5 million for the third quarter
of 2020. Gain on sales of loans decreased $1.5 million between the
periods primarily because of a decrease in single family loan
originations and sales. Other non-interest income decreased
slightly due primarily to a decrease in the gains recognized on the
sale of other real estate owned between the periods. Fees and
service charges increased $0.1 million between the periods due
primarily to an increase in debit card income. 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 $6.9 million for the
third quarter of 2021, an increase of $0.2 million, or 2.7%, from
$6.7 million for the third quarter of 2020.
Professional services expense increased $0.2 million between the
periods primarily because of an increase in legal expenses relating
to an ongoing bankruptcy litigation claim. Data processing costs
increased $0.1 million between the periods due to an increase in
debit card processing expenses. Compensation and benefits expense
increased slightly between the periods 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 $0.1 million decrease in other non-interest
expense due primarily to a decrease in mortgage servicing expense
between the periods. Occupancy and equipment expense decreased
slightly between the periods due to a decrease in building related
expenses.
Income tax expense was $1.5 million for the
third quarter of 2021, an increase of $0.3 million from $1.2
million for the third quarter of 2020. The increase in income tax
expense between the periods is primarily the result of an increase
in pre-tax income.
Paycheck Protection Program The Bank actively
participated in helping businesses that were negatively impacted by
COVID-19 that applied for forgivable loans under the PPP as part of
the CARES Act. The CARES Act, which was signed into law on March
27, 2020, allocated $349 billion in funding to help small
businesses that were negatively impacted by the COVID-19 pandemic.
The Bank had the following activity related to the first round of
the PPP during 2020 and through September 30, 2021:
(Dollars in thousands) |
|
Number of Loans |
|
Amount |
|
NetDeferredFees |
Originated |
|
413 |
$ |
53,153 |
|
|
1,837 |
|
Repaid |
|
(130) |
|
(19,484 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(1,097 |
) |
Balance, December 31, 2020 |
|
283 |
|
33,669 |
|
|
740 |
|
Repaid |
|
(243) |
|
(21,419 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(597 |
) |
Balance, March 31, 2021 |
|
40 |
|
12,250 |
|
|
143 |
|
Repaid |
|
(35) |
|
(11,334 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(126 |
) |
Balance, June 30, 2021 |
|
5 |
|
916 |
|
|
17 |
|
Repaid |
|
(5) |
|
(916 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(17 |
) |
Balance, September 30, 2021 |
|
0 |
$ |
0 |
|
|
0 |
|
|
|
|
|
|
|
|
The Consolidated Appropriations Act of 2021,
which was signed into law on December 27, 2020, allocated $284
billion to the Small Business Administration (SBA) to fund a second
round of the PPP. The Bank actively participated in the second
round of the PPP and had the following activity through September
30, 2021:
(Dollars in thousands) |
|
Number of Loans |
|
Amount |
|
NetDeferredFees |
Originated |
|
416 |
$ |
26,798 |
|
|
1,476 |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(29 |
) |
Balance, March 31, 2021 |
|
416 |
|
26,798 |
|
|
1,447 |
|
Originated |
|
50 |
|
2,167 |
|
|
149 |
|
Repaid |
|
(182) |
|
(6,539 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(522 |
) |
Balance, June 30, 2021 |
|
284 |
|
22,426 |
|
|
1,074 |
|
Repaid |
|
(232) |
|
(15,371 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
- |
|
|
(805 |
) |
Balance, September 30, 2021 |
|
52 |
$ |
7,055 |
|
|
269 |
|
|
|
|
|
|
|
|
It is anticipated that the majority of the
outstanding loans at September 30, 2021 will be forgiven by the SBA
and the remaining net deferred fees will be recognized into income
when the loan is repaid.
Return on Assets and EquityReturn on average
assets (annualized) for the third quarter of 2021 was 1.45%,
compared to 1.39% for the third quarter of 2020. Return on
average equity (annualized) was 13.18% for the third quarter of
2021, compared to 12.50% for the same period in 2020. Book
value per common share at September 30, 2021 was $23.93, compared
to $20.91 at September 30, 2020.
Nine Month Period Results
Net IncomeNet income was $11.6 million for the
nine month period ended September 30, 2021, an increase of $4.4
million, or 61.1%, compared to net income of $7.2 million for the
nine month period ended September 30, 2020. Diluted earnings per
share for the nine month period ended September 30, 2021 was $2.55,
an increase of $1.01 per share, compared to diluted earnings per
share of $1.54 for the same period in 2020. The increase in net
income between the periods was primarily because of a $3.9 million
decrease in the provision for loan losses. The provision for loan
losses decreased primarily because of the reduction in the required
reserves due to improvements in the economic environment related to
the COVID-19 pandemic and the results of an internal analysis of
the loan portfolio. Other non-interest income increased $1.8
million due primarily to an increase in the gains that were
realized on the sale of real estate owned. Net interest income
increased $1.8 million primarily due to an increase in the yield
enhancements that were realized on PPP loans that were repaid
during the period. These increases in net income were partially
offset by a $1.6 million decrease in the gain on sales of mortgage
loans due to a decrease in mortgage loan activity between the
periods. Income tax expense also increased $1.7 million as a result
of the increased pre-tax income between the periods.
Net Interest IncomeNet interest income was $23.2
million for the first nine months of 2021, an increase of $1.8
million, or 8.3%, from $21.4 million for the same period in
2020. Interest income was $24.4 million for the nine month
period ended September 30, 2021, an increase of $0.7 million, or
3.0%, from $23.7 million for the same nine month period in 2020.
Interest income increased primarily because of the $2.1 million in
yield enhancements recognized on PPP loans that were repaid during
the period. Interest income also increased because of the $133.8
million increase in the average interest-earning assets between the
periods. These increases in interest income were partially offset
by a decrease in the average yield earned on interest-earning
assets which was 3.49% for the first nine months of 2021, a
decrease of 46 basis points from 3.95% for the first nine months of
2020. The decrease in the average yield is primarily related to the
decrease in the prime rate that occurred in the first quarter of
2020, which lowered the rate on adjustable rate loans in the
portfolio as well as any new or renewing fixed rate loans that were
originated since that time.
Interest expense was $1.2 million for the first
nine months of 2021, a decrease of $1.1 million, or 46.7%, compared
to $2.3 million in the first nine months of 2020. Interest expense
decreased despite the $123.8 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 0.19% for the first nine months of 2021, a decrease of
23 basis points from 0.42% for the first nine months of 2020. The
decrease in the interest paid on interest-bearing liabilities was
primarily because of the decrease in deposit rates as a result of
the decrease in the federal funds rate in the first quarter of
2020. Net interest margin (net interest income divided by average
interest-earning assets) for the first nine months of 2021 was
3.31%, a decrease of 26 basis points, compared to 3.57% for the
first nine months of 2020. The decrease in the net interest margin
is primarily related to the decrease in the average yield earned on
interest-earning assets as a result of the decrease in the prime
rate that occurred in the first quarter of 2020.
Provision for Loan LossesThe provision for loan
losses was ($2.4) million for the first nine months of 2021, a
decrease of $3.9 million compared to $1.5 million for the first
nine months of 2020. The provision for loan losses decreased
primarily because of the reduction in the required reserves due to
improvements in the economic environment related to the COVID-19
pandemic and the results of an internal analysis of the loan
portfolio. During 2020, the Company increased its allowance for
loan losses due to the changes in the economic environment related
to the disruption in business activity as a result of the COVID-19
pandemic. In 2021, significant progress was made in the
vaccination of the general public and many of the pandemic-focused
restrictions have been reduced or eliminated. The amount of the
allowance for loan losses established in 2020 related to the
economic environment was based, in part, on the amount of loans to
borrowers in the hospitality, restaurant and entertainment
industries that were negatively impacted by the COVID-19 pandemic.
The underlying operations supporting many of the loans that were
initially negatively impacted by the pandemic have improved and the
amount of loans granted accommodations has decreased in 2021. At
September 30, 2021, the Bank had $25.5 million of loans in the
hospitality industry that had been granted loan accommodations in
accordance with Section 4013 of the CARES Act. The accommodations
granted allow borrowers to make interest only payments for periods
up to December 31, 2021. Of these loans, $5.7 million were
classified but still accruing at September 30, 2021 and all of
these loans were current with their agreed upon payments. The
commercial credit department continues to communicate regularly
with the borrowers that have been granted loan accommodations and
monitors their activity closely. It is anticipated that most of the
remaining borrowers that have been granted accommodations will be
in a position to resume making their regular loan payments at the
end of the initial accommodation period. However, some of the
borrowers may need additional accommodations when their initial
accommodation period ends as their operations may need more time to
recover from the impact of the pandemic.
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 our past loan loss history and qualitative
reserves for other items determined to have a potential impact on
future loan losses. The reserves decreased during the first nine
months of 2021 due to an improvement in business activity because
of the lessened impact of the COVID-19 pandemic. General reserves
also decreased because of a decrease in the required reserves as a
result of an internal analysis of the loan portfolio. Total
non-performing assets were $1.8 million at September 30, 2021, a
decrease of $1.5 million, or 46.1%, from $3.3 million at December
31, 2020. Non-performing loans decreased $0.9 million and
foreclosed and repossessed assets decreased $0.6 million during the
first nine months of 2021.
A reconciliation of the allowance for loan losses for the nine
month periods ended September 30, 2021 and 2020 is summarized as
follows:
|
|
|
(Dollars in thousands) |
|
2021 |
|
2020 |
Balance at January 1, |
$ |
10,699 |
|
|
8,564 |
|
Provision |
|
(2,353 |
) |
|
1,548 |
|
Charge offs: |
|
|
|
|
Consumer |
|
(42 |
) |
|
(74 |
) |
Commercial real estate |
|
0 |
|
|
(730 |
) |
Commercial business |
|
0 |
|
|
(8 |
) |
Recoveries |
|
766 |
|
|
232 |
|
Balance at September 30, |
$ |
9,070 |
|
|
9,532 |
|
|
|
|
|
|
Non-Interest Income and ExpenseNon-interest
income was $11.0 million for the first nine months of 2021, an
increase of $0.4 million, or 4.3%, from $10.6 million for the same
period of 2020. Other non-interest income increased $1.7 million
due primarily to a $1.4 million increase in the gains realized on
the sale of commercial real estate owned between the periods and
also because of an increase in the fees earned on the sale of
uninsured investment products. Fees and service charges increased
$0.2 million between the periods due primarily to an increase in
debit card income. Loan servicing fees increased $0.2 million
between the periods due to an increase in the aggregate balances of
single family mortgage loans that were being serviced for others.
These increases in non-interest income were partially offset by a
$1.6 million decrease in the gain on sales of loans due to a
decrease in single family loan originations and sales between the
periods.
Non-interest expense was $20.4 million for the
first nine months of 2021, which is unchanged from the same period
of 2020. Data processing costs increased $0.1 million between the
periods due to an increase in debit card processing expenses.
Compensation and benefits expense increased $0.1 million between
the periods 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. Other
non-interest expense increased $0.1 million due primarily to an
increase in FDIC insurance costs. These increases in non-interest
expense were partially offset by a $0.3 million decrease in
professional service expense between the periods primarily because
of a decrease in legal expenses relating to an ongoing bankruptcy
litigation claim. Occupancy and equipment costs decreased slightly
between the periods due to a decrease in depreciation and
non-capitalized equipment costs.
Income tax expense was $4.6 million for the
first nine months of 2021, an increase of $1.7 million from $2.9
million for the first nine months of 2020. The increase in income
tax expense between the periods is primarily the result of an
increase in pre-tax income.
Return on Assets and EquityReturn on average
assets (annualized) for the nine month period ended September 30,
2021 was 1.60%, compared to 1.15% for the same period in
2020. Return on average equity (annualized) was 14.57%
for the nine month period ended September 30, 2021, compared to
9.98% for the same period in 2020.
General InformationHMN 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 a loan origination
office located in Sartell, Minnesota.
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 “anticipate,” “believe,” “continue,”
“could,” “may,” “project,” “will,” and “would,” or similar
statements or variations of such terms and include, but are not
limited to, those relating to maintaining credit quality and net
interest margins; the adequacy and amount of available liquidity
and capital resources to the Bank; the Company’s liquidity and
capital requirements; anticipated impacts of the COVID-19 pandemic
and efforts to mitigate the same on the general economy, our
clients, deposit balances, and the allowance for loan losses;
anticipated benefits that will be realized by our clients from
government assistance programs related to the COVID-19 pandemic,
including the forgiveness of PPP loans; the amount of the Bank’s
non-performing assets in future periods and the appropriateness of
the allowances therefor; the payment of dividends or repurchases of
stock by HMN; 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 anticipated results of litigation and our assessment of the
impact on our financial statements; the ability of the Bank to pay
dividends to HMN; 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 (FRB) in the event of
our non-compliance with any applicable regulatory standard or
requirement; adverse economic, business and competitive
developments such as continued 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 FRB; 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; our 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 Company’s most recent
filings on Form 10-K and 10-Q with the Securities and Exchange
Commission. All forward-looking statements are qualified by, and
should be considered in conjunction with, such cautionary
statements. For additional discussion of the risks and
uncertainties applicable to the Company, see the “Risk Factors”
section of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2020 and 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 we undertake 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 |
|
|
|
|
|
|
|
September 30, |
|
December 31, |
(Dollars in thousands) |
|
2021 |
|
2020 |
|
|
(unaudited) |
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
$ |
149,436 |
|
|
86,269 |
|
Securities available for
sale: |
|
|
|
|
Mortgage-backed and related securities (amortized cost
$194,562 and $99,821) |
|
194,307 |
|
|
101,464 |
|
Other marketable securities (amortized cost $40,690 and
$46,491) |
|
40,632 |
|
|
46,626 |
|
|
|
234,939 |
|
|
148,090 |
|
|
|
|
|
|
Loans held for sale |
|
5,754 |
|
|
6,186 |
|
Loans receivable, net |
|
622,264 |
|
|
642,630 |
|
Accrued interest
receivable |
|
2,062 |
|
|
3,102 |
|
Mortgage servicing rights,
net |
|
3,232 |
|
|
3,043 |
|
Premises and equipment,
net |
|
9,815 |
|
|
10,133 |
|
Goodwill |
|
802 |
|
|
802 |
|
Core deposit intangible |
|
17 |
|
|
57 |
|
Prepaid expenses and other
assets |
|
5,683 |
|
|
7,241 |
|
Deferred tax asset, net |
|
2,611 |
|
|
2,027 |
|
Total assets |
$ |
1,036,615 |
|
|
909,580 |
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Deposits |
$ |
915,302 |
|
|
795,204 |
|
Accrued interest payable |
|
76 |
|
|
140 |
|
Customer escrows |
|
3,212 |
|
|
1,998 |
|
Accrued expenses and other
liabilities |
|
8,091 |
|
|
8,986 |
|
Total liabilities |
|
926,681 |
|
|
806,328 |
|
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 |
|
40,610 |
|
|
40,480 |
|
Retained earnings, subject to
certain restrictions |
|
129,414 |
|
|
117,849 |
|
Accumulated other
comprehensive (loss) income |
|
(226 |
) |
|
1,282 |
|
Unearned employee stock
ownership plan shares |
|
(1,304 |
) |
|
(1,450 |
) |
Treasury stock, at cost
4,534,087 and 4,359,552 shares |
|
(58,651 |
) |
|
(55,000 |
) |
Total stockholders’ equity |
|
109,934 |
|
|
103,252 |
|
Total liabilities and
stockholders’ equity |
$ |
1,036,615 |
|
|
909,580 |
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
|
Consolidated Statements of Comprehensive
Income |
|
(unaudited) |
|
|
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
(Dollars
in thousands, except per share data) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
7,837 |
|
|
7,489 |
|
|
22,754 |
|
|
22,156 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
457 |
|
|
271 |
|
|
1,288 |
|
|
825 |
|
Other marketable |
|
57 |
|
|
163 |
|
|
226 |
|
|
546 |
|
Other |
|
50 |
|
|
26 |
|
|
116 |
|
|
149 |
|
Total interest income |
|
8,401 |
|
|
7,949 |
|
|
24,384 |
|
|
23,676 |
|
|
|
|
|
|
|
|
|
|
|
Interest
expense: |
|
|
|
|
|
|
|
|
|
Deposits |
|
360 |
|
|
656 |
|
|
1,223 |
|
|
2,293 |
|
Total interest expense |
|
360 |
|
|
656 |
|
|
1,223 |
|
|
2,293 |
|
Net interest income |
|
8,041 |
|
|
7,293 |
|
|
23,161 |
|
|
21,383 |
|
Provision for loan losses |
|
(886 |
) |
|
770 |
|
|
(2,353 |
) |
|
1,548 |
|
Net interest income after provision for loan losses |
|
8,927 |
|
|
6,523 |
|
|
25,514 |
|
|
19,835 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income: |
|
|
|
|
|
|
|
|
|
Fees and service charges |
|
810 |
|
|
753 |
|
|
2,332 |
|
|
2,136 |
|
Loan servicing fees |
|
389 |
|
|
347 |
|
|
1,168 |
|
|
976 |
|
Gain on sales of loans |
|
1,471 |
|
|
3,005 |
|
|
4,909 |
|
|
6,503 |
|
Other |
|
381 |
|
|
422 |
|
|
2,639 |
|
|
975 |
|
Total non-interest income |
|
3,051 |
|
|
4,527 |
|
|
11,048 |
|
|
10,590 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense: |
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
3,948 |
|
|
3,916 |
|
|
11,865 |
|
|
11,762 |
|
Occupancy and equipment |
|
1,090 |
|
|
1,101 |
|
|
3,301 |
|
|
3,335 |
|
Data processing |
|
384 |
|
|
334 |
|
|
1,099 |
|
|
963 |
|
Professional services |
|
409 |
|
|
241 |
|
|
895 |
|
|
1,175 |
|
Other |
|
1,075 |
|
|
1,135 |
|
|
3,205 |
|
|
3,144 |
|
Total non-interest expense |
|
6,906 |
|
|
6,727 |
|
|
20,365 |
|
|
20,379 |
|
Income before income tax expense |
|
5,072 |
|
|
4,323 |
|
|
16,197 |
|
|
10,046 |
|
Income tax
expense |
|
1,453 |
|
|
1,222 |
|
|
4,632 |
|
|
2,869 |
|
Net income |
|
3,619 |
|
|
3,101 |
|
|
11,565 |
|
|
7,177 |
|
Other comprehensive
(loss) income, net of tax |
|
(688 |
) |
|
(202 |
) |
|
(1,508 |
) |
|
1,297 |
|
Comprehensive income
available to common stockholders |
$ |
2,931 |
|
|
2,899 |
|
|
10,057 |
|
|
8,474 |
|
Basic earnings per
share |
$ |
0.82 |
|
|
0.67 |
|
|
2.57 |
|
|
1.55 |
|
Diluted earnings per
share |
$ |
0.81 |
|
|
0.67 |
|
|
2.55 |
|
|
1.54 |
|
|
|
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Selected Consolidated Financial Information |
(unaudited) |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
SELECTED FINANCIAL DATA: |
|
September 30, |
|
|
September 30, |
|
(Dollars in thousands, except per share data) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
I. OPERATING DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
$ |
8,401 |
|
|
7,949 |
|
|
24,384 |
|
|
23,676 |
|
Interest expense |
|
360 |
|
|
656 |
|
|
1,223 |
|
|
2,293 |
|
Net interest income |
|
8,041 |
|
|
7,293 |
|
|
23,161 |
|
|
21,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets(1) |
|
992,620 |
|
|
888,000 |
|
|
967,890 |
|
|
835,389 |
|
Loans receivable, net |
|
628,608 |
|
|
669,258 |
|
|
636,285 |
|
|
641,591 |
|
Securities available for sale(1) |
|
215,811 |
|
|
103,132 |
|
|
192,877 |
|
|
100,889 |
|
Interest-earning assets(1) |
|
960,583 |
|
|
852,879 |
|
|
934,243 |
|
|
800,452 |
|
Interest-bearing liabilities and
non-interest-bearing deposits |
|
874,473 |
|
|
777,866 |
|
|
854,093 |
|
|
730,336 |
|
Equity(1) |
|
108,955 |
|
|
98,663 |
|
|
106,108 |
|
|
96,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
III. PERFORMANCE RATIOS:
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
1.45 |
% |
|
1.39 |
% |
|
1.60 |
% |
|
1.15 |
% |
Interest rate spread information: |
|
|
|
|
|
|
|
|
|
|
|
|
Average during period |
|
3.31 |
|
|
3.37 |
|
|
3.30 |
|
|
3.53 |
|
End of period |
|
3.12 |
|
|
3.35 |
|
|
3.12 |
|
|
3.35 |
|
Net interest margin |
|
3.32 |
|
|
3.40 |
|
|
3.31 |
|
|
3.57 |
|
Ratio of operating expense to average |
|
|
|
|
|
|
|
|
|
|
|
|
total assets (annualized) |
|
2.76 |
|
|
2.95 |
|
|
2.81 |
|
|
3.24 |
|
Return on average equity (annualized) |
|
13.18 |
|
|
12.50 |
|
|
14.57 |
|
|
9.98 |
|
Efficiency |
|
62.26 |
|
|
56.91 |
|
|
59.53 |
|
|
63.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
|
|
|
|
|
2021 |
|
2020 |
|
2020 |
|
|
|
IV. EMPLOYEE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
Number of full time equivalent employees |
|
168 |
|
|
172 |
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
$ |
1,788 |
|
|
3,320 |
|
|
2,955 |
|
|
|
|
Non-performing assets to total assets |
|
0.17 |
% |
|
0.37 |
% |
|
0.33 |
% |
|
|
|
Non-performing loans to total loans receivable, net |
|
0.29 |
|
|
0.42 |
|
|
0.38 |
|
|
|
|
Allowance for loan losses |
$ |
9,070 |
|
|
10,699 |
|
|
9,532 |
|
|
|
|
Allowance for loan losses to total assets |
|
0.87 |
% |
|
1.18 |
% |
|
1.06 |
% |
|
|
|
Allowance for loan losses to total loans receivable, net(2) |
|
1.46 |
|
|
1.66 |
|
|
1.42 |
|
|
|
|
Allowance for loan losses to non-performing loans |
|
507.15 |
|
|
398.72 |
|
|
375.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. BOOK VALUE PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share |
$ |
23.93 |
|
|
21.65 |
|
|
20.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine MonthsEndedSeptember 30, 2021 |
|
Year Ended December 31, 2020 |
|
Nine MonthsEndedSeptember 30, 2020 |
|
|
|
VII. CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total assets, at end of period |
|
10.61 |
% |
|
11.35 |
% |
|
11.26 |
% |
|
|
|
Average stockholders’ equity to average assets(1) |
|
10.96 |
|
|
11.43 |
|
|
11.50 |
|
|
|
|
Ratio of average interest-earning assets to |
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing liabilities(1) |
|
109.38 |
|
|
109.66 |
|
|
109.60 |
|
|
|
|
Home Federal Savings Bank regulatory capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
|
13.85 |
|
|
13.62 |
|
|
13.16 |
|
|
|
|
Tier 1 capital leverage ratio |
|
9.64 |
|
|
9.85 |
|
|
9.73 |
|
|
|
|
Tier 1 capital ratio |
|
13.85 |
|
|
13.62 |
|
|
13.16 |
|
|
|
|
Risk-based capital |
|
15.10 |
|
|
14.87 |
|
|
14.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average balances were calculated based upon
amortized cost without the market value impact of ASC
320.(2) Allowance for loan losses to total loans
receivable, net without the $7.1 million of outstanding PPP loans
would be 1.47% as of September 30, 2021.
CONTACT: |
|
Bradley Krehbiel |
|
|
Chief Executive Officer, President |
|
|
HMN Financial, Inc. (507) 252-7169 |
HMN Financial (NASDAQ:HMNF)
Historical Stock Chart
From Jun 2024 to Jul 2024
HMN Financial (NASDAQ:HMNF)
Historical Stock Chart
From Jul 2023 to Jul 2024