HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $898
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $3.1 million for the third quarter of
2020, an increase of $1.0 million, compared to net income of $2.1
million for the third quarter of 2019. Diluted earnings per
share for the third quarter of 2020 was $0.67, an increase of $0.22
per share, compared to diluted earnings per share of $0.45 for the
third quarter of 2019. The increase in net income was
primarily because of a $2.2 million increase in the gain on sales
of mortgage loans between the periods. The increase in the
gain on sales of mortgage loans was due primarily to the increase
in mortgage loan refinance activity in the current period as a
result of the lower interest rate environment between the
periods. Net interest income increased $0.2 million primarily
because of a decrease in interest expense between the
periods. These increases in net income were partially offset
by a $1.2 million increase in the provision for loan losses between
the periods. The provision for loan losses increased
primarily because of the changes in the economic environment
related to the disruption in business activity as a result of the
COVID-19 pandemic. Income tax expense also increased $0.3
million as a result of the increased pre-tax income between the
periods.
President’s Statement
“The COVID-19 pandemic and the related social
distancing mandates continued to have a significant impact on the
Company in the third quarter of 2020,” said Bradley Krehbiel,
President and Chief Executive Officer of HMN. “The economic
effects of the pandemic resulted in the recording of additional
provisions for loan losses in the third quarter as we continue to
analyze the impact of the pandemic on our borrowers. The
increased provision for loan losses combined with the net interest
margin compression we are experiencing, as a result of the historic
low interest rate environment, continue to have a negative impact
on the Company’s earnings. Despite these challenges, we are
pleased to report the increases in net income for both the quarter
and the first nine months of 2020, due in large part to the
increased mortgage loan origination activity and the related gain
on sales of loans.”
Third Quarter Results
Net Interest Income
Net interest income was $7.3 million for the
third quarter of 2020, an increase of $0.2 million, or 2.8%, from
$7.1 million for the third quarter of 2019. Interest income
was $7.9 million for the third quarter of 2020, a decrease of $0.1
million, or 0.6%, from $8.0 million for the third quarter of 2019.
Interest income decreased despite the $143.4 million increase in
the average interest-earning assets between the periods primarily
because of the decrease in the average yield earned on
interest-earning assets. The average yield earned on
interest-earning assets was 3.71% for the third quarter of 2020, a
decrease of 76 basis points from 4.47% for the third quarter of
2019. The decrease in the average yield is primarily related
to the decrease in the average prime rate between the periods.
Interest expense was $0.7 million for the third
quarter of 2020, a decrease of $0.2 million, or 27.6%, from $0.9
million for the third quarter of 2019. Interest expense
decreased despite the $133.7 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 0.34% for the third quarter of 2020, a decrease of 22
basis points from 0.56% for the third quarter of 2019. The decrease
in the interest paid on interest-bearing liabilities was primarily
because of the decrease in the average federal funds rate between
the periods. Net interest margin (net interest income divided
by average interest-earning assets) for the third quarter of 2020
was 3.40%, a decrease of 57 basis points, compared to 3.97% for the
third quarter of 2019. 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 prime rate
decreases that occurred between the periods.
A summary of the Company’s net interest margin
for the three and nine month periods ended September 30, 2020 and
2019 is as follows:
|
|
For the three month period ended |
|
|
|
September 30, 2020 |
|
|
September 30, 2019 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
103,132 |
|
434 |
|
1.67 |
% |
$ |
80,286 |
|
365 |
|
1.80 |
% |
Loans held for sale |
|
9,309 |
|
65 |
|
2.76 |
|
|
3,557 |
|
43 |
|
4.72 |
|
Single family loans, net |
|
134,460 |
|
1,325 |
|
3.92 |
|
|
115,844 |
|
1,236 |
|
4.23 |
|
Commercial loans, net |
|
474,325 |
|
5,390 |
|
4.52 |
|
|
398,674 |
|
5,229 |
|
5.20 |
|
Consumer loans, net |
|
60,473 |
|
709 |
|
4.66 |
|
|
73,788 |
|
920 |
|
4.95 |
|
Other |
|
71,180 |
|
26 |
|
0.15 |
|
|
37,355 |
|
205 |
|
2.18 |
|
Total interest-earning
assets |
|
852,879 |
|
7,949 |
|
3.71 |
|
|
709,504 |
|
7,998 |
|
4.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities and
non-interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
129,276 |
|
41 |
|
0.13 |
|
|
93,024 |
|
23 |
|
0.10 |
|
Savings accounts |
|
93,022 |
|
17 |
|
0.07 |
|
|
80,269 |
|
16 |
|
0.08 |
|
Money market accounts |
|
221,991 |
|
190 |
|
0.34 |
|
|
173,606 |
|
303 |
|
0.69 |
|
Certificates |
|
111,847 |
|
408 |
|
1.45 |
|
|
127,888 |
|
564 |
|
1.75 |
|
Total interest-bearing
liabilities |
|
556,136 |
|
|
|
|
|
|
474,787 |
|
|
|
|
|
Non-interest checking |
|
219,512 |
|
|
|
|
|
|
166,972 |
|
|
|
|
|
Other non-interest bearing deposits |
|
2,218 |
|
|
|
|
|
|
2,415 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest- bearing deposits |
$ |
777,866 |
|
656 |
|
0.34 |
|
$ |
644,174 |
|
906 |
|
0.56 |
|
Net interest income |
|
|
$ |
7,293 |
|
|
|
|
|
$ |
7,092 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.37 |
% |
|
|
|
|
|
3.91 |
% |
Net interest margin |
|
|
|
|
|
3.40 |
% |
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine month period ended |
|
|
|
September 30, 2020 |
|
|
September 30, 2019 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
$ |
100,889 |
|
1,371 |
|
1.81 |
% |
$ |
79,163 |
|
1,051 |
|
1.77 |
% |
Loans held for sale |
|
6,942 |
|
156 |
|
2.99 |
|
|
2,417 |
|
82 |
|
4.51 |
|
Mortgage loans, net |
|
130,441 |
|
3,907 |
|
4.00 |
|
|
115,162 |
|
3,744 |
|
4.35 |
|
Commercial loans, net |
|
446,580 |
|
15,781 |
|
4.72 |
|
|
402,469 |
|
15,966 |
|
5.30 |
|
Consumer loans, net |
|
64,570 |
|
2,312 |
|
4.78 |
|
|
73,384 |
|
2,805 |
|
5.11 |
|
Other |
|
51,030 |
|
149 |
|
0.39 |
|
|
24,886 |
|
381 |
|
2.05 |
|
Total interest-earning
assets |
|
800,452 |
|
23,676 |
|
3.95 |
|
|
697,481 |
|
24,029 |
|
4.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities and
non-interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
115,110 |
|
102 |
|
0.12 |
|
|
95,748 |
|
73 |
|
0.10 |
|
Savings accounts |
|
87,587 |
|
48 |
|
0.07 |
|
|
79,599 |
|
47 |
|
0.08 |
|
Money market accounts |
|
205,868 |
|
684 |
|
0.44 |
|
|
174,565 |
|
878 |
|
0.67 |
|
Certificates |
|
118,422 |
|
1,459 |
|
1.65 |
|
|
120,376 |
|
1,420 |
|
1.58 |
|
Advances and other borrowings |
|
0 |
|
0 |
|
0.00 |
|
|
384 |
|
7 |
|
2.54 |
|
Total interest-bearing
liabilities |
|
526,987 |
|
|
|
|
|
|
470,672 |
|
|
|
|
|
Non-interest checking |
|
200,965 |
|
|
|
|
|
|
159,820 |
|
|
|
|
|
Other non-interest bearing deposits |
|
2,384 |
|
|
|
|
|
|
2,030 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest- bearing deposits |
$ |
730,336 |
|
2,293 |
|
0.42 |
|
$ |
632,522 |
|
2,425 |
|
0.51 |
|
Net interest income |
|
|
$ |
21,383 |
|
|
|
|
|
$ |
21,604 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.53 |
% |
|
|
|
|
|
4.09 |
% |
Net interest margin |
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
4.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
The provision for loan losses was $0.8 million
for the third quarter of 2020, an increase of $1.2 million from the
($0.4) million provision for loan losses for the third quarter of
2019. The provision for loan losses increased between the
periods primarily because of 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 is
based, in part, on the amount of loans to borrowers that continued
to have their loan payments deferred because of the impact of the
pandemic. At September 30, 2020 the Bank had $82.0 million of
loans to borrowers who had their loan payments deferred for up to
six months compared to $119.1 million of loans to borrowers who had
their payments deferred at June 30, 2020.
A summary of deferred loans at September 30,
2020 and June 30, 2020 by industry or collateral type is as
follows:
(Dollars in thousands) |
|
Balance September 30, 2020 |
|
Balance June 30, 2020 |
Commercial real estate loans by industry: |
|
|
|
|
Hotels (1) |
$ |
54,660 |
|
54,660 |
Retail/Office |
|
7,127 |
|
20,322 |
Theaters |
|
11,269 |
|
11,269 |
Multi-family |
|
0 |
|
11,195 |
Single family |
|
0 |
|
4,675 |
Restaurant/Bar |
|
2,876 |
|
4,477 |
Other |
|
5,747 |
|
9,449 |
Total commercial loans |
|
81,679 |
|
116,047 |
|
|
|
|
|
Consumer loans by collateral type: |
|
|
|
|
Single family |
|
366 |
|
2,955 |
Other |
|
0 |
|
77 |
Total consumer loans |
|
366 |
|
3,032 |
Total deferred loans |
$ |
82,045 |
|
119,079 |
|
|
|
|
|
(1) Approximately $38.5 million of the hotel
properties are located in Minnesota with approximately $21.3
million located in Rochester, Minnesota, $13.8 million in the
Minneapolis/St. Paul, Minnesota metro area, and $3.4 million in St.
Cloud, Minnesota.
All of the borrowers whose loan deferral period
ended during the third quarter of 2020 had resumed making their
normal payments and none of the loans removed from the deferral
list were classified as non-performing as of September 30,
2020. The initial deferral period for all remaining deferred
loans at September 30, 2020 is scheduled to end in the fourth
quarter of 2020. The commercial credit area continues to
communicate regularly with the borrowers that have had their loan
payments deferred and monitors their activity closely. This
information is used to analyze the performance of these credits and
to help anticipate any potential issues that these credits may have
when their initial deferral period ends. It is anticipated
that some of the remaining borrowers with deferred loan payments
will be in a position to resume making their regular loan payments,
while other borrowers, particularly in the hospitality and
restaurant industries, may need to have their loan terms modified
for a period of time until their operations recover more fully from
the impacts 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 general reserves increased during
the quarter as a result of an increase in the qualitative allowance
for loan losses because of the current economic environment related
to the disruption in business activity as a result of the COVID-19
pandemic and an increase in the reserves related to an analysis of
the Bank’s charged off loan history. Total non-performing
assets were $3.0 million at September 30, 2020, a decrease of $0.2
million, or 6.3%, from $3.2 million at June 30, 2020.
Non-performing loans increased $0.1 million and foreclosed and
repossessed assets decreased $0.3 million during the third quarter
of 2020.
A reconciliation of the Company’s allowance for
loan losses for the quarters ended September 30, 2020 and 2019 is
summarized as follows:
|
|
|
(Dollars in
thousands) |
|
2020 |
|
2019 |
Balance at June 30, |
$ |
8,649 |
|
|
8,624 |
|
Provision |
|
770 |
|
|
(420 |
) |
Charge offs: |
|
|
|
|
Single family |
|
0 |
|
|
(2 |
) |
Consumer |
|
(29 |
) |
|
(46 |
) |
Commercial business |
|
(8 |
) |
|
0 |
|
Recoveries |
|
150 |
|
|
39 |
|
Balance at September 30, |
$ |
9,532 |
|
|
8,195 |
|
|
|
|
|
|
Allocated to: |
|
|
|
|
General allowance |
$ |
9,416 |
|
|
7,528 |
|
Specific allowance |
|
116 |
|
|
667 |
|
|
$ |
9,532 |
|
|
8,195 |
|
|
|
|
|
|
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 two most recently
completed quarters and December 31, 2019.
|
|
September 30, |
|
|
June 30, |
|
|
December 31, |
|
(Dollars in
thousands) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
Non‑Performing Loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
352 |
|
$ |
390 |
|
$ |
617 |
|
Commercial real estate |
|
1,537 |
|
|
1,579 |
|
|
184 |
|
Consumer |
|
641 |
|
|
475 |
|
|
659 |
|
Commercial business |
|
11 |
|
|
27 |
|
|
621 |
|
Total |
|
2,541 |
|
|
2,471 |
|
|
2,081 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and Repossessed
Assets: |
|
|
|
|
|
|
|
|
|
Single family |
|
0 |
|
|
269 |
|
|
166 |
|
Commercial real estate |
|
414 |
|
|
414 |
|
|
414 |
|
Total non‑performing assets |
$ |
2,955 |
|
$ |
3,154 |
|
$ |
2,661 |
|
Total as a percentage of total
assets |
|
0.33 |
% |
|
0.37 |
% |
|
0.34 |
% |
Total non‑performing loans |
$ |
2,541 |
|
$ |
2,471 |
|
$ |
2,081 |
|
Total as a percentage of total
loans receivable, net |
|
0.38 |
% |
|
0.37 |
% |
|
0.35 |
% |
Allowance for loan losses to
non-performing loans |
|
375.19 |
% |
|
349.92 |
% |
|
411.45 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency Data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
995 |
|
$ |
775 |
|
$ |
1,167 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage of
loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.14 |
% |
|
0.11 |
% |
|
0.19 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
(1) Excludes non-accrual loans.
Non-Interest Income and Expense
Non-interest income was $4.4 million for the
third quarter of 2020, an increase of $2.2 million, or 97.4%, from
$2.2 million for the third quarter of 2019. Gain on sales of
loans increased $2.2 million between the periods primarily because
of an increase in single family loan originations and sales.
Other non-interest income increased $0.1 million due primarily to
an increase in the fees earned on the sale of uninsured investment
products 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. These increases in the non-interest income were
partially offset by a decrease of $0.1 million in fees and service
charges earned between the periods due primarily to a decrease in
the overdraft fees
collected.
Non-interest expense was $6.6 million for the
third quarter of 2020, a decrease of $0.1 million, or 2.2%, from
$6.7 million for the third quarter of 2019. Professional
services expense decreased $0.2 million between the periods
primarily because of a decrease in legal expenses relating to an
ongoing bankruptcy litigation claim. Occupancy and equipment
expense decreased slightly between the periods due to a decrease in
depreciation and non-capitalized equipment costs. Other
non-interest expense decreased slightly due primarily to an
increase in the gains recognized on the sale of other real estate
owned between the periods. These decreases in non-interest
expense were partially offset by a $0.1 million increase in
compensation and benefits expense related to the increased mortgage
loan production between the periods. Data processing costs
increased slightly between the periods due to an increase in
internet and mobile banking expenses.
Income tax expense was $1.2 million for the
third quarter of 2020, an increase of $0.3 million from $0.9
million for the third quarter of 2019. The increase in income
tax expense between the periods is primarily the result of an
increase in pre-tax income.
Return on Assets and Equity
Return on average assets (annualized) for the
third quarter of 2020 was 1.39%, compared to 1.11% for the third
quarter of 2019. Return on average equity (annualized) was
12.50% for the third quarter of 2020, compared to 9.10% for the
same period in 2019. Book value per common share at September
30, 2020 was $20.91, compared to $18.83 at September 30, 2019.
Nine Month Period Results
Net Income
Net income was $7.2 million for the nine month
period ended September 30, 2020, an increase of $0.6 million, or
9.5%, compared to net income of $6.6 million for the nine month
period ended September 30, 2019. Diluted earnings per share
for the nine month period ended September 30, 2020 was $1.54, an
increase of $0.13 per share, compared to diluted earnings per share
of $1.41 for the same period in 2019. The increase in net
income was primarily because of a $4.7 million increase in the gain
on sales of mortgage loans between the periods. The increase
in the gain on sales of mortgage loans was due primarily to the
increase in mortgage loan refinance activity in the current period
as a result of the lower interest rate environment between the
periods. This increase in net income was partially offset by a $3.0
million increase in the provision for loan losses between the
periods. The provision for loan losses increased primarily
because of the changes in the economic environment related to the
disruption in business activity as a result of the COVID-19
pandemic and also because of the decrease in the net recoveries
received in the current period when compared to the same period of
2019. Non-interest expenses increased $0.5 million due
primarily to an increase in compensation expense between the
periods. Net interest income decreased $0.2 million primarily
because of a decrease in the yield earned on interest earning
assets due to the decrease in the average prime rate between the
periods. Income tax expense also increased $0.2 million as a
result of the increased pre-tax income between the periods.
Net Interest Income
Net interest income was $21.4 million for the
first nine months of 2020, a decrease of $0.2 million, or 1.0%,
from $21.6 million for the same period in 2019. Interest
income was $23.7 million for the nine month period ended September
30, 2020, a decrease of $0.3 million, or 1.5%, from $24.0 million
for the same nine month period in 2019. Interest income
decreased despite the $103.0 million increase in the average
interest-earning assets between the periods primarily because of
the decrease in the average yield earned on interest-earning
assets. The average yield earned on interest-earning assets
was 3.95% for the first nine months of 2020, a decrease of 65 basis
points from 4.60% for the first nine months of 2019. The
decrease in the average yield is primarily related to the decrease
in the average prime rate between the periods.
Interest expense was $2.3 million for the first
nine months of 2020, a decrease of $0.1 million, or 5.4%, compared
to $2.4 million in the first nine months of 2019. Interest expense
decreased despite the $97.8 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 0.42% for the first nine months of 2020, a decrease of
9 basis points from 0.51% for the first nine months of 2019. The
decrease in the interest paid on interest-bearing liabilities was
primarily because of the decrease in the average federal funds rate
between the periods. Net interest margin (net interest income
divided by average interest-earning assets) for the first nine
months of 2020 was 3.57%, a decrease of 57 basis points, compared
to 4.14% for the first nine months of 2019. 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
prime rate decreases that occurred between the periods.
Provision for Loan Losses
The provision for loan losses was $1.5 million
for the first nine months of 2020, an increase of $3.0 million
compared to the ($1.5) million provision for loan losses for the
first nine months of 2019. The provision for loan losses
increased between the periods primarily because of the changes in
the economic environment related to the disruption in business
activity as a result of the COVID-19 pandemic and also because of
the decrease in the net recoveries received in the current period
when compared to the same period of 2019. 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
that continued to have their loan payments deferred because of the
impact of the pandemic. At September 30, 2020 the Bank had
$82.0 million of loans to borrowers who had their loan payments
deferred for up to six months compared to $119.1 million at June
30, 2020.
All of the borrowers whose loan deferral period
ended during the third quarter of 2020 had resumed making their
normal payments and none of the loans removed from the deferral
list were classified as non-performing as of September 30,
2020. The initial deferral period for all remaining deferred
loans at September 30, 2020 is scheduled to end in the fourth
quarter of 2020. The commercial credit area continues to
communicate regularly with the borrowers that have had their loan
payments deferred and monitors their activity closely. This
information is used to analyze the performance of these credits and
to help anticipate any potential issues that these credits may have
when their initial deferral period ends. It is anticipated
that some of the remaining borrowers with deferred loan payments
will be in a position to resume making their regular loan payments,
while other borrowers, particularly in the hospitality and
restaurant industries, may need to have their loan terms modified
for a period of time until their operations recover more fully from
the impacts 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 general reserves increased
during the period as a result of an increase in our qualitative
allowance for loan losses because of the current economic
environment related to the disruption in business activity as a
result of the Covid-19 pandemic and an increase in our reserves
related to an analysis of the Bank’s charged off loan
history. Total non-performing assets were $3.0 million at
September 30, 2020, an increase of $0.3 million, or 11.0%, from
$2.7 million at December 31, 2019. Non-performing loans
increased $0.5 million and foreclosed and repossessed assets
decreased $0.2 million during the first nine months of 2020.
A reconciliation of the allowance for loan
losses for the nine month periods ended September 30, 2020 and 2019
is summarized as follows:
|
|
|
(Dollars in
thousands) |
|
2020 |
|
2019 |
Balance at January 1, |
$ |
8,564 |
|
|
8,686 |
|
Provision |
|
1,548 |
|
|
(1,452 |
) |
Charge offs: |
|
|
|
|
Single family |
|
0 |
|
|
(2 |
) |
Consumer |
|
(74 |
) |
|
(92 |
) |
Commercial real estate |
|
(730 |
) |
|
0 |
|
Commercial business |
|
(8 |
) |
|
(869 |
) |
Recoveries |
|
232 |
|
|
1,924 |
|
Balance at September 30, |
$ |
9,532 |
|
|
8,195 |
|
|
|
|
|
|
Non-Interest Income and Expense
Non-interest income was $10.5 million for the
first nine months of 2020, an increase of $4.6 million, or 76.1%,
from $5.9 million for the same period of 2019. Gain on sales
of loans increased $4.7 million between the periods primarily
because of an increase in single family loan originations and
sales. 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.
Other non-interest income increased slightly due primarily to an
increase in the fees earned on the sale of uninsured investment
products between the periods. These increases in the non-interest
income were partially offset by a decrease of $0.2 million in the
fees and services charges earned between the periods due primarily
to a decrease in the overdraft fees collected.
Non-interest expense was $20.3 million for the
first nine months of 2020, an increase of $0.5 million, or 2.5%,
from $19.8 million for the same period of 2019. Compensation
and benefits expense increased $0.3 million primarily related to
the increased mortgage loan production between the periods.
Professional services expense increased $0.1 million between the
periods primarily because of an increase in legal expenses relating
to an ongoing bankruptcy litigation claim. Occupancy
and equipment costs increased $0.1 million between the periods due
to an increase in depreciation and non-capitalized equipment costs.
Data processing costs increased slightly between the periods due to
an increase in internet and mobile banking expenses. Other
non-interest expense increased slightly due to an increase in
mortgage loan servicing expenses caused by the increase in serviced
loans that were refinanced between the periods.
Income tax expense was $2.9 million for the
first nine months of 2020, an increase of $0.2 million from $2.7
million for the first nine months of 2019. The increase in
income tax expense between the periods is primarily the result of
an increase in pre-tax income.
Return on Assets and Equity
Return on average assets (annualized) for the
nine month period ended September 30, 2020 was 1.15%, compared to
1.20% for the same period in 2019. Return on average equity
(annualized) was 9.98% for the nine month period ended September
30, 2020, compared to 9.97% for the same period in 2019.
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 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
“expect,” “intend,” “look,” “believe,” “anticipate,” “project,”
“continue,” “may,” “will,” “would,” “could,” “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 the Bank;
the Company’s liquidity and capital requirements; the
anticipated impacts of the COVID-19 pandemic and efforts to
mitigate the same on the general economy, our clients, and the
allowance for loan losses; the anticipated benefits that will be
realized by our clients from government assistance programs related
to the COVID-19 pandemic; 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 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 anticipated results of litigation and our
assessment of the impact on our financial statements; 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 OCC and 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 (FHLB) 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; 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 filing 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, 2019 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.)
CONTACT: Bradley
KrehbielChief Executive Officer,
PresidentHMN Financial, Inc. (507)
252-7169
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(Dollars in thousands) |
|
2020 |
|
2019 |
|
|
|
(unaudited) |
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
76,027 |
|
|
44,399 |
|
|
Securities available for
sale: |
|
|
|
|
|
Mortgage-backed and related securities (amortized cost $69,826
and $54,777) |
|
71,458 |
|
|
54,851 |
|
|
Other marketable securities (amortized cost $46,874 and
$52,751) |
|
47,106 |
|
|
52,741 |
|
|
|
|
118,564 |
|
|
107,592 |
|
|
|
|
|
|
|
|
Loans held for sale. |
|
7,225 |
|
|
3,606 |
|
|
Loans receivable, net |
|
670,297 |
|
|
596,392 |
|
|
Accrued interest
receivable |
|
4,236 |
|
|
2,251 |
|
|
Mortgage servicing rights,
net |
|
2,880 |
|
|
2,172 |
|
|
Premises and equipment,
net |
|
10,342 |
|
|
10,515 |
|
|
Goodwill |
|
802 |
|
|
802 |
|
|
Core deposit intangible |
|
82 |
|
|
156 |
|
|
Prepaid expenses and other
assets |
|
6,798 |
|
|
8,052 |
|
|
Deferred tax asset, net |
|
1,199 |
|
|
1,702 |
|
|
Total assets. |
$ |
898,452 |
|
|
777,639 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Deposits |
$ |
787,023 |
|
|
673,870 |
|
|
Accrued interest payable |
|
225 |
|
|
420 |
|
|
Customer escrows |
|
1,857 |
|
|
2,413 |
|
|
Accrued expenses and other
liabilities |
|
8,204 |
|
|
8,288 |
|
|
Total liabilities |
|
797,309 |
|
|
684,991 |
|
|
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 |
|
40,393 |
|
|
40,365 |
|
|
Retained earnings, subject to
certain restrictions |
|
114,724 |
|
|
107,547 |
|
|
Accumulated other
comprehensive income |
|
1,343 |
|
|
46 |
|
|
Unearned employee stock
ownership plan shares |
|
(1,498 |
) |
|
(1,643 |
) |
|
Treasury stock, at cost
4,292,303 and 4,284,840 shares |
|
(53,910 |
) |
|
(53,758 |
) |
|
Total stockholders’ equity |
|
101,143 |
|
|
92,648 |
|
|
Total liabilities and
stockholders’ equity |
$ |
898,452 |
|
|
777,639 |
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated Statements of Comprehensive
Income |
(unaudited) |
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(Dollars in thousands, except per share data) |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
2019 |
|
Interest
income: |
|
|
|
|
|
|
|
|
|
|
Loans receivable |
$ |
7,489 |
|
|
7,428 |
|
|
22,156 |
|
22,597 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed and related |
|
271 |
|
|
56 |
|
|
825 |
|
146 |
|
Other marketable |
|
163 |
|
|
309 |
|
|
546 |
|
905 |
|
Other |
|
26 |
|
|
205 |
|
|
149 |
|
381 |
|
Total interest income |
|
7,949 |
|
|
7,998 |
|
|
23,676 |
|
24,029 |
|
|
|
|
|
|
|
|
|
|
Interest
expense: |
|
|
|
|
|
|
|
|
Deposits |
|
656 |
|
|
906 |
|
|
2,293 |
|
2,418 |
|
Federal Home Loan Bank advances and other borrowings |
|
0 |
|
|
0 |
|
|
0 |
|
7 |
|
Total interest expense |
|
656 |
|
|
906 |
|
|
2,293 |
|
2,425 |
|
Net interest income |
|
7,293 |
|
|
7,092 |
|
|
21,383 |
|
21,604 |
|
Provision for loan
losses |
|
770 |
|
|
(420 |
) |
|
1,548 |
|
(1,452 |
) |
Net interest income after provision for loan losses |
|
6,523 |
|
|
7,512 |
|
|
19,835 |
|
23,056 |
|
|
|
|
|
|
|
|
|
|
Non-interest
income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
753 |
|
|
820 |
|
|
2,136 |
|
2,305 |
|
Loan servicing fees |
|
347 |
|
|
324 |
|
|
976 |
|
957 |
|
Gain on sales of loans |
|
3,005 |
|
|
845 |
|
|
6,503 |
|
1,835 |
|
Other |
|
291 |
|
|
238 |
|
|
846 |
|
842 |
|
Total non-interest income |
|
4,396 |
|
|
2,227 |
|
|
10,461 |
|
5,939 |
|
|
|
|
|
|
|
|
|
|
Non-interest
expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
3,916 |
|
|
3,849 |
|
|
11,762 |
|
11,496 |
|
Occupancy and equipment |
|
1,101 |
|
|
1,142 |
|
|
3,335 |
|
3,284 |
|
Data processing |
|
334 |
|
|
319 |
|
|
963 |
|
925 |
|
Professional services |
|
241 |
|
|
428 |
|
|
1,175 |
|
1,081 |
|
Other |
|
1,004 |
|
|
1,009 |
|
|
3,015 |
|
2,975 |
|
Total non-interest expense |
|
6,596 |
|
|
6,747 |
|
|
20,250 |
|
19,761 |
|
Income before income tax expense |
|
4,323 |
|
|
2,992 |
|
|
10,046 |
|
9,234 |
|
Income tax
expense |
|
1,222 |
|
|
916 |
|
|
2,869 |
|
2,677 |
|
Net income |
|
3,101 |
|
|
2,076 |
|
|
7,177 |
|
6,557 |
|
Other comprehensive
income (loss), net of tax |
|
(202 |
) |
|
149 |
|
|
1,297 |
|
1,075 |
|
Comprehensive income
available to common shareholders |
$ |
2,899 |
|
|
2,225 |
|
|
8,474 |
|
7,632 |
|
Basic earnings per
share |
$ |
0.67 |
|
|
0.45 |
|
|
1.55 |
|
1.42 |
|
Diluted earnings per
share |
$ |
0.67 |
|
|
0.45 |
|
|
1.54 |
|
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND
SUBSIDIARIESSelected Consolidated Financial
Information(unaudited)
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
SELECTED FINANCIAL
DATA: |
|
September 30, |
|
|
September 30, |
|
(Dollars in thousands, except per share data) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
I. |
OPERATING DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
$ |
7,949 |
|
|
7,998 |
|
|
23,676 |
|
|
24,029 |
|
|
Interest expense |
|
656 |
|
|
906 |
|
|
2,293 |
|
|
2,425 |
|
|
Net interest income |
|
7,293 |
|
|
7,092 |
|
|
21,383 |
|
|
21,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II. |
AVERAGE BALANCES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (1) |
|
888,000 |
|
|
743,954 |
|
|
835,389 |
|
|
728,814 |
|
|
Loans receivable, net |
|
669,258 |
|
|
588,306 |
|
|
641,591 |
|
|
591,015 |
|
|
Securities available for sale
(1) |
|
103,132 |
|
|
80,286 |
|
|
100,889 |
|
|
79,163 |
|
|
Interest-earning assets
(1) |
|
852,879 |
|
|
709,504 |
|
|
800,452 |
|
|
697,481 |
|
|
Interest-bearing liabilities
and non-interest-bearing deposits |
|
777,866 |
|
|
644,174 |
|
|
730,336 |
|
|
632,522 |
|
|
Equity (1) |
|
98,663 |
|
|
90,512 |
|
|
96,100 |
|
|
87,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
III. |
PERFORMANCE RATIOS: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
(annualized) |
|
1.39 |
% |
|
1.11 |
% |
|
1.15 |
% |
|
1.20 |
% |
|
Interest rate spread
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average during period |
|
3.37 |
|
|
3.91 |
|
|
3.53 |
|
|
4.09 |
|
|
End of period |
|
3.35 |
|
|
3.88 |
|
|
3.35 |
|
|
3.88 |
|
|
Net interest margin |
|
3.40 |
|
|
3.97 |
|
|
3.57 |
|
|
4.14 |
|
|
Ratio of operating expense to
average |
|
|
|
|
|
|
|
|
|
|
|
|
|
total assets (annualized) |
|
2.95 |
|
|
3.60 |
|
|
3.24 |
|
|
3.63 |
|
|
Return on average equity
(annualized) |
|
12.50 |
|
|
9.10 |
|
|
9.98 |
|
|
9.97 |
|
|
Efficiency |
|
56.43 |
|
|
72.41 |
|
|
63.59 |
|
|
71.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
|
|
|
|
|
|
2020 |
|
2019 |
|
2019 |
|
|
|
IV. |
EMPLOYEE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of full time equivalent
employees |
|
171 |
|
|
181 |
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. |
ASSET QUALITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing
assets |
$ |
2,955 |
|
|
2,661 |
|
|
2,059 |
|
|
|
|
|
Non-performing assets to total
assets |
|
0.33 |
% |
|
0.34 |
% |
|
0.27 |
% |
|
|
|
|
Non-performing loans to total
loans receivable, net |
|
0.38 |
|
|
0.35 |
|
|
0.25 |
|
|
|
|
|
Allowance for loan losses |
$ |
9,532 |
|
|
8,564 |
|
|
8,195 |
|
|
|
|
|
Allowance for loan losses to
total assets |
|
1.06 |
% |
|
1.10 |
% |
|
1.07 |
% |
|
|
|
|
Allowance for loan losses to
total loans receivable, net (2) |
|
1.42 |
|
|
1.44 |
|
|
1.41 |
|
|
|
|
|
Allowance for loan losses to
non-performing loans |
|
375.19 |
|
|
411.45 |
|
|
554.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VI. |
BOOK VALUE PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common
share |
$ |
20.91 |
|
|
19.13 |
|
|
18.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months EndedSeptember 30, 2020 |
|
Year Ended December 31,2019 |
|
Nine MonthsEndedSeptember 30,2019 |
|
|
|
VII. |
CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity to total
assets, at end of period. |
|
11.26 |
% |
|
11.91 |
% |
|
11.95 |
% |
|
|
|
|
Average stockholders’ equity
to average assets (1) |
|
11.50 |
|
|
12.06 |
|
|
12.07 |
|
|
|
|
|
Ratio of average
interest-earning assets to |
|
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing
liabilities (1) |
|
109.60 |
|
|
110.18 |
|
|
110.27 |
|
|
|
|
|
Home Federal Savings Bank
regulatory capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
ratio |
|
13.16 |
|
|
13.21 |
|
|
13.31 |
|
|
|
|
|
Tier 1 capital leverage
ratio |
|
9.73 |
|
|
10.89 |
|
|
11.00 |
|
|
|
|
|
Tier 1 capital ratio |
|
13.16 |
|
|
13.21 |
|
|
13.31 |
|
|
|
|
|
Risk-based capital |
|
14.41 |
|
|
14.46 |
|
|
14.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $53.1 million of outstanding PPP loans would be 1.54%
as of September 30, 2020. |
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