HMN Financial, Inc. (HMN or the Company) (Nasdaq:HMNF), the $910
million holding company for Home Federal Savings Bank (the Bank),
today reported net income of $3.1 million for the fourth quarter of
2020, an increase of $1.9 million compared to net income of $1.2
million for the fourth quarter of 2019. Diluted earnings per
share for the fourth quarter of 2020 was $0.67, an increase of
$0.40 from the diluted earnings per share of $0.27 for the fourth
quarter of 2019. The increase in net income between the
periods was primarily because of a $1.9 million increase in the
gain on sales of loans due to the increase in mortgage loan
originations and sales between the periods, a $0.8 million increase
in net interest income due primarily to an increase in the earning
assets between the periods, and a $0.6 million decrease in
non-interest expenses primarily related to decreases in
compensation and legal expenses. These increases in net
income were partially offset by a $1.0 million increase in the
provision for loan losses due primarily to the increase in the
qualitative reserves that were established as a result of the
stressed economic environment caused by the COVID-19
pandemic. Income tax expense increased $0.6 million as a
result of the increase in 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 fourth 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 fourth
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 year, due
in large part to the increased mortgage loan origination activity
and the related gain on sales of loans.”
Fourth Quarter ResultsNet
Interest IncomeNet interest income was $7.7 million for the fourth
quarter of 2020, an increase of $0.8 million, or 11.2%, from $6.9
million for the fourth quarter of 2019. Interest income was
$8.3 million for the fourth quarter of 2020, an increase of $0.4
million, or 5.4%, from $7.9 million for the fourth quarter of
2019. Interest income increased primarily because of the
$142.0 million increase in the average interest-earning assets
between the periods. However, the majority of that increase
was offset by a decrease in the average yield earned on interest-
earning assets between the periods. The average yield earned
on interest-earning assets was 3.76% for the fourth quarter of
2020, a decrease of 49 basis points from 4.25% for the fourth
quarter of 2019. The decrease in the average yield is
primarily related to the decrease in loan yields as a result of the
decrease in the average prime rate between the periods.Interest
expense was $0.6 million for the fourth quarter of 2020, a decrease
of $0.3 million, or 38.9%, from $0.9 million for the fourth quarter
of 2019. Interest expense decreased despite the $130.1
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 0.28% for the fourth quarter of
2020, a decrease of 26 basis points from 0.54% for the fourth
quarter of 2019. 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 average federal
funds rate between the periods. Net interest margin (net
interest income divided by average interest-earning assets) for the
fourth quarter of 2020 was 3.51%, a decrease of 25 basis points,
compared to 3.76% for the fourth 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 month periods ended December 31, 2020 and 2019 is as
follows:
|
|
For the three month period ended |
|
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for
sale |
$ |
128,269 |
|
486 |
|
1.51 |
% |
$ |
91,940 |
|
449 |
|
1.94 |
% |
Loans held for sale |
|
8,334 |
|
59 |
|
2.84 |
|
|
4,567 |
|
43 |
|
3.76 |
|
Single family loans,
net |
|
139,836 |
|
1,350 |
|
3.84 |
|
|
120,117 |
|
1,248 |
|
4.12 |
|
Commercial loans,
net |
|
457,654 |
|
5,676 |
|
4.93 |
|
|
394,667 |
|
5,003 |
|
5.03 |
|
Consumer loans, net |
|
57,311 |
|
683 |
|
4.74 |
|
|
70,302 |
|
896 |
|
5.06 |
|
Other |
|
84,014 |
|
29 |
|
0.14 |
|
|
51,838 |
|
222 |
|
1.70 |
|
Total interest-earning
assets |
$ |
875,418 |
|
8,283 |
|
3.76 |
|
$ |
733,431 |
|
7,861 |
|
4.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
$ |
145,626 |
|
49 |
|
0.13 |
|
$ |
98,280 |
|
30 |
|
0.12 |
|
Savings accounts |
|
97,444 |
|
17 |
|
0.07 |
|
|
79,550 |
|
15 |
|
0.07 |
|
Money market
accounts |
|
220,404 |
|
156 |
|
0.28 |
|
|
186,557 |
|
294 |
|
0.63 |
|
Certificates |
|
105,121 |
|
336 |
|
1.27 |
|
|
126,479 |
|
575 |
|
1.80 |
|
Total interest-bearing
liabilities |
$ |
568,595 |
|
|
|
|
|
$ |
490,866 |
|
|
|
|
|
Non-interest
checking |
|
226,786 |
|
|
|
|
|
|
174,100 |
|
|
|
|
|
Other non-interest
bearing deposits |
|
1,856 |
|
|
|
|
|
|
2,137 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest bearing deposits |
$ |
797,237 |
|
558 |
|
0.28 |
|
$ |
667,103 |
|
914 |
|
0.54 |
|
Net interest income |
|
|
|
7,725 |
|
|
|
|
|
|
6,947 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.48 |
% |
|
|
|
|
|
3.71 |
% |
Net interest margin |
|
|
|
|
|
3.51 |
% |
|
|
|
|
|
3.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan LossesThe provision for loan
losses was $1.2 million for the fourth quarter of 2020, an increase
of $1.0 million from the $0.2 million provision for loan losses for
the fourth 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 in the
hospitality, restaurant and entertainment industries that continue
to be negatively impacted by the COVID-19 pandemic. The Bank
had no loans to borrowers who had their loan payments deferred at
December 31, 2020, compared to $82.0 million at September 30, 2020,
and $119.1 million of loans to borrowers who had their payments
deferred at June 30, 2020.
All of the borrowers whose loan deferral period
ended during the fourth quarter of 2020 have resumed making their
normal payments except for the $34.6 million of loans that were
granted loan accommodations in accordance with Section 4013 of the
Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The accommodations granted included $29.2 million of loans that are
required to make interest only payments for up to one year and $5.4
million of loans that had their loan amortization period
increased. Of the loans removed from the deferred list during
the period, $8.1 million were downgraded, of which $2.3 million
were classified but still accruing at December 31, 2020. The
commercial credit area continues to communicate regularly with the
borrowers that have been granted loan accommodations and monitors
their activity closely. This information is used to analyze
the performance of these loans and to anticipate any potential
issues that these loans may develop so that risk ratings may be
appropriately adjusted in a timely manner. It is anticipated
that some 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.
Other borrowers, particularly in the hospitality and restaurant
industries, may need additional accommodations when their initial
accommodation period ends as their operations may need more time to
recover 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. It also increased due
to an increase in the risk rating downgrades on certain commercial
real estate loans between the periods. Total non-performing
assets were $3.3 million at December 31, 2020, an increase of $0.3
million, or 12.4%, from $3.0 million at September 30, 2020.
Non-performing loans increased $0.1 million and foreclosed and
repossessed assets increased $0.2 million during the fourth quarter
of 2020. A reconciliation of the Company’s allowance
for loan losses for the quarters ended December 31, 2020 and 2019
is summarized as follows:
|
|
|
|
|
(Dollars in
thousands) |
|
2020 |
|
|
2019 |
|
Balance at September 30, |
$ |
9,532 |
|
$ |
8,195 |
|
Provision |
|
1,151 |
|
|
236 |
|
Charge offs: |
|
|
|
|
Consumer |
|
(10 |
) |
|
(14 |
) |
Commercial business |
|
0 |
|
|
(10 |
) |
Recoveries |
|
26 |
|
|
157 |
|
Balance at December 31, |
$ |
10,699 |
|
$ |
8,564 |
|
|
|
|
|
|
Allocated to: |
|
|
|
|
General allowance |
$ |
10,461 |
|
$ |
7,839 |
|
Specific allowance |
|
238 |
|
|
725 |
|
|
$ |
10,699 |
|
$ |
8,564 |
|
|
|
|
|
|
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.
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(Dollars in
thousands) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
Non‑Performing Loans: |
|
|
|
|
|
|
|
|
|
Single family |
$ |
502 |
|
$ |
352 |
|
$ |
617 |
|
Commercial real
estate |
|
1,484 |
|
|
1,537 |
|
|
184 |
|
Consumer |
|
689 |
|
|
641 |
|
|
659 |
|
Commercial business |
|
9 |
|
|
11 |
|
|
621 |
|
Total |
|
2,684 |
|
|
2,541 |
|
|
2,081 |
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and Repossessed
Assets: |
|
|
|
|
|
|
|
|
|
Single family |
|
0 |
|
|
0 |
|
|
166 |
|
Commercial real
estate |
|
636 |
|
|
414 |
|
|
414 |
|
Total non‑performing assets |
$ |
3,320 |
|
$ |
2,955 |
|
$ |
2,661 |
|
Total as a percentage of total
assets |
|
0.37 |
% |
|
0.33 |
% |
|
0.34 |
% |
Total non‑performing loans |
$ |
2,684 |
|
$ |
2,541 |
|
$ |
2,081 |
|
Total as a percentage of total
loans receivable, net |
|
0.42 |
% |
|
0.38 |
% |
|
0.35 |
% |
Allowance for loan losses to
non-performing loans |
|
398.72 |
% |
|
375.19 |
% |
|
411.45 |
% |
|
|
|
|
|
|
|
|
|
|
Delinquency Data: |
|
|
|
|
|
|
|
|
|
Delinquencies (1) |
|
|
|
|
|
|
|
|
|
30+ days |
$ |
995 |
|
$ |
995 |
|
$ |
1,167 |
|
90+ days |
|
0 |
|
|
0 |
|
|
0 |
|
Delinquencies as a percentage
of |
|
|
|
|
|
|
|
|
|
loan portfolio (1) |
|
|
|
|
|
|
|
|
|
30+ days |
|
0.15 |
% |
|
0.14 |
% |
|
0.19 |
% |
90+ days |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
(1) Excludes non-accrual
loans. |
|
|
|
|
|
|
|
|
|
Non-Interest Income and ExpenseNon-interest
income was $4.5 million for the fourth quarter of 2020, an increase
of $2.0 million, or 78.6%, from $2.5 million for the fourth quarter
of 2019. Gain on sales of loans increased $1.9 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 $0.1 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 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 $6.7 million for the
fourth quarter of 2020, a decrease of $0.6 million, or 8.2%, from
$7.3 million for the fourth quarter of 2019. Professional
services expense decreased $0.3 million between the periods
primarily because of a decrease in legal expenses relating to an
ongoing bankruptcy litigation claim. Compensation and
benefits expense decreased $0.3 million because of an increase in
the direct loan origination compensation costs that were deferred
as a result of the increased mortgage loan production between the
periods. Occupancy and equipment expense decreased $0.1
million between the periods due to a decrease in building expenses
as a result of having more staff working remotely in the fourth
quarter of 2020. Other non-interest expense decreased
slightly due primarily to a decrease in advertising expense between
the periods. These decreases in non-interest expense were
partially offset by a slight increase in data processing expenses
between the periods due to an increase in internet and mobile
banking costs. Income tax expense was $1.2 million for
the fourth quarter of 2020, an increase of $0.6 million from $0.6
million for the fourth 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 EquityReturn on average
assets (annualized) for the fourth quarter of 2020 was 1.37%,
compared to 0.64% for the fourth quarter of 2019. Return on
average equity (annualized) was 12.18% for the fourth quarter of
2020, compared to 5.29% for the same period of 2019. Book
value per share at December 31, 2020 was $21.65, compared to $19.13
at December 31, 2019.
Annual ResultsNet IncomeNet
income was $10.3 million for 2020, an increase of $2.5 million, or
32.2%, compared to net income of $7.8 million for 2019.
Diluted earnings per share for the year ended December 31, 2020 was
$2.22, an increase of $0.54 per share compared to diluted earnings
per share of $1.68 for the year ended December 31, 2019. The
increase in net income between the periods was primarily because of
a $6.6 million increase in the gain on sales of loans due to the
increase in mortgage loan originations and sales between the
periods, a $0.5 million increase in net interest income due
primarily to an increase in the earning assets between the periods,
and a $0.1 million decrease in non-interest expenses primarily
related to decreases in legal expenses. These increases in
net income were partially offset by a $3.9 million increase in the
provision for loan losses due primarily to the increase in
qualitative reserves that were established as a result of the
stressed economic environment caused by the COVID-19
pandemic. Income tax expense increased $0.7 million as a
result of the increase in pre-tax income between the periods
Net Interest IncomeNet interest income was $29.1
million for 2020, an increase of $0.5 million, or 2.0%, from $28.6
million for 2019. Interest income was $32.0 million for 2020,
an increase of $0.1 million, or 0.2%, from $31.9 million for
2019. Interest income increased primarily because of the
$112.8 million increase in the average interest-earning assets
between the periods. However, the majority of that increase
was offset by a decrease in the average yield earned on interest
earning assets. The average yield earned on interest-earning
assets was 3.90% for 2020, a decrease of 61 basis points from 4.51%
for 2019. The decrease in the average yield is primarily
related to the decrease in loan yields as a result of the decrease
in the average prime rate between the periods.Interest expense was
$2.9 million for 2020, a decrease of $0.4 million, or 14.6%, from
$3.3 million for 2019. Interest expense decreased despite the
$105.9 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 0.38% for 2020, a
decrease of 14 basis points from 0.52% for 2019. 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 average federal funds rate between the
periods. Net interest margin (net interest income divided by
average interest-earning assets) for 2020 was 3.55%, a decrease of
49 basis points, compared to 4.04% for 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 2020 and 2019 is as
follows:
|
|
For the twelve month period ended |
|
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
(Dollars in thousands) |
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
|
AverageOutstandingBalance |
|
InterestEarned/Paid |
|
Yield/Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale |
$ |
107,771 |
|
1,857 |
|
1.72 |
% |
$ |
82,383 |
|
1,500 |
|
1.82 |
% |
Loans held for sale |
|
7,292 |
|
215 |
|
2.95 |
|
|
2,959 |
|
125 |
|
4.22 |
|
Single family loans,
net |
|
132,803 |
|
5,257 |
|
3.96 |
|
|
116,411 |
|
4,992 |
|
4.29 |
|
Commercial loans,
net |
|
449,364 |
|
21,457 |
|
4.77 |
|
|
400,503 |
|
20,969 |
|
5.24 |
|
Consumer loans, net |
|
62,745 |
|
2,995 |
|
4.77 |
|
|
72,607 |
|
3,701 |
|
5.10 |
|
Other |
|
59,321 |
|
178 |
|
0.30 |
|
|
31,679 |
|
603 |
|
1.90 |
|
Total interest-earning
assets |
$ |
819,296 |
|
31,959 |
|
3.90 |
|
$ |
706,542 |
|
31,890 |
|
4.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
$ |
122,781 |
|
151 |
|
0.12 |
|
$ |
96,387 |
|
103 |
|
0.11 |
|
Savings accounts |
|
90,064 |
|
65 |
|
0.07 |
|
|
79,587 |
|
63 |
|
0.08 |
|
Money market
accounts |
|
209,522 |
|
840 |
|
0.40 |
|
|
177,587 |
|
1,171 |
|
0.66 |
|
Certificates |
|
115,079 |
|
1,795 |
|
1.56 |
|
|
121,914 |
|
1,995 |
|
1.64 |
|
Advances and other
borrowings |
|
0 |
|
0 |
|
0.00 |
|
|
287 |
|
7 |
|
2.54 |
|
Total interest-bearing
liabilities |
$ |
537,446 |
|
|
|
|
|
$ |
475,762 |
|
|
|
|
|
Non-interest
checking |
|
207,456 |
|
|
|
|
|
|
163,420 |
|
|
|
|
|
Other non-interest
bearing deposits |
|
2,251 |
|
|
|
|
|
|
2,057 |
|
|
|
|
|
Total interest-bearing
liabilities and non-interest bearing deposits |
$ |
747,153 |
|
2,851 |
|
0.38 |
|
$ |
641,239 |
|
3,339 |
|
0.52 |
|
Net interest income |
|
|
|
29,108 |
|
|
|
|
|
|
28,551 |
|
|
|
Net interest rate spread |
|
|
|
|
|
3.52 |
% |
|
|
|
|
|
3.99 |
% |
Net interest margin |
|
|
|
|
|
3.55 |
% |
|
|
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan LossesThe provision for loan
losses was $2.7 million for 2020, an increase of $3.9 million from
the ($1.2) million provision for loan losses for 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 a reduction in the recoveries received
on previously charged off loans. 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
in the hospitality, restaurant and entertainment industries that
continue to be negatively impacted by the COVID-19 pandemic.
The Bank had no loans to borrowers who had their loan payments
deferred at December 31, 2020, compared to $82.0 million at
September 30, 2020, and $119.1 million of loans to borrowers who
had their payments deferred at June 30, 2020. All of
the borrowers whose loan deferral period ended during 2020 have
resumed making their normal payments except for the $34.6 million
of loans that were granted loan accommodations in accordance with
Section 4013 of the CARES Act. The accommodations granted included
$29.2 million of loans that are required to make interest only
payments for periods up to one year and $5.4 million of loans that
had their loan amortization period increased. Of the loans
removed from the deferred list during the period, $8.1 million were
downgraded, of which $2.3 million were classified but still
accruing at December 31, 2020. The commercial credit area
continues to communicate regularly with the borrowers that have
been granted loan accommodations and monitors their activity
closely. This information is used to analyze the performance
of these loans and to anticipate any potential issues that these
loans may develop so that risk ratings may be appropriately
adjusted in a timely manner. It is anticipated that some 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. Other borrowers,
particularly in the hospitality and restaurant industries, may need
additional accommodations when their initial accommodation period
ends as their operations may need more time to recover 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 2020 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. It also increased due to an increase in the risk
rating downgrades on certain commercial real estate loans between
the periods. Total non-performing assets were $3.3 million at
December 31, 2020, an increase of $0.6 million, or 24.7%, from $2.7
million at December 31, 2019. Non-performing loans increased
$0.6 million and foreclosed and repossessed assets remained the
same during 2020.
A reconciliation of the allowance for loan
losses for 2020 and 2019 is summarized as follows:
|
|
|
|
|
(Dollars in
thousands) |
|
2020 |
|
|
2019 |
|
Balance beginning of period |
$ |
8,564 |
|
$ |
8,686 |
|
Provision |
|
2,699 |
|
|
(1,216 |
) |
Charge offs: |
|
|
|
|
Single family
|
|
0 |
|
|
(1 |
) |
Commercial real
estate |
|
(730 |
) |
|
0 |
|
Consumer |
|
(84 |
) |
|
(107 |
) |
Commercial business |
|
(8 |
) |
|
(880 |
) |
Recoveries |
|
258 |
|
|
2,082 |
|
Balance at December 31, |
$ |
10,699 |
|
$ |
8,564 |
|
|
|
|
|
|
Non-Interest Income and ExpenseNon-interest
income was $15.0 million for 2020, an increase of $6.5 million, or
76.9%, from $8.5 million for 2019. Gain on sales of loans
increased $6.6 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 $0.1
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 the non-interest income were
partially offset by a decrease of $0.2 million in fees and service
charges earned between the periods due primarily to a decrease in
the overdraft fees collected.
Non-interest expense was $27.0 million for 2020,
a decrease of $0.1 million, or 0.4%, from $27.1 million for
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.
Compensation and benefits expense decreased slightly because of an
increase in the direct loan origination compensation costs that
were deferred as a result of the increased mortgage loan production
between the periods. Occupancy and equipment expense
decreased slightly between the periods due to a decrease in
building expenses as a result of having more staff working remotely
in 2020. These decreases in non-interest expense were
partially offset by a $0.1 million increase in data processing
expenses between the periods due to an increase in internet and
mobile banking costs. Other non-interest expense
increased slightly due primarily to an increase in mortgage
servicing expenses between the periods. Income tax expense
was $4.1 million for 2020, an increase of $0.8 million from $3.3
million for 2019. The increase in income tax expense between
the periods is primarily the result of an increase in pre-tax
income.
Paycheck Protection ProgramThe Bank actively
participated in helping businesses that were negatively impacted by
COVID-19 that applied for forgivable loans under the Paycheck
Protection Program (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
PPP loan activity during 2020:
Dollars in thousands |
|
Number of Loans |
|
Amount |
|
Net Deferred Fees |
Originated |
|
413 |
|
$ |
53,153 |
|
$ |
1,837 |
|
Forgiven |
|
(130 |
) |
|
(19,167 |
) |
|
- |
|
Non-forgiven portion repaid |
|
- |
|
|
(317 |
) |
|
- |
|
Net deferred fees recognized |
|
- |
|
|
- |
|
|
(1,097 |
) |
Balance, December 31, 2020 |
|
283 |
|
$ |
33,669 |
|
$ |
740 |
|
|
|
|
|
|
|
|
The Bank continues to submit applications for
forgiveness on the PPP loans that were still outstanding at
December 31, 2020 and it is anticipated that the majority of these
loans will be forgiven by the Small Business Administration
(SBA). The remaining net deferred fees will be recognized
into income over the remaining lives of the loans.
The Emergency Coronavirus Relief Act of 2020,
which was signed into law on December 27, 2020, allocated $284
billion to the SBA to fund a second round of the PPP and extended
the application period for the program to March 31, 2021. The Bank
is actively participating in the second round of the program and
began submitting applications for borrowers on January 15, 2021
when the application window officially opened for financial
institutions with under $1 billion in assets. The program was
adjusted for the second round to allow applications from both first
time borrowers and those that obtained loans during the first round
of the program. The revised program, among other things,
requires that borrowers demonstrate or certify that they
experienced a 25% or greater reduction in gross receipts from a
quarter in 2020 compared to the same quarter in 2019 and certify
that current economic uncertainty makes the loan request necessary
to support their ongoing operations. For various reasons,
including the increased requirements to qualify for a second loan,
it is anticipated that the Bank will originate fewer loans in the
second round of the program.
Return on Assets and EquityReturn on average assets (annualized)
for 2020 was 1.21%, compared to 1.05% for 2019. Return on
average equity (annualized) was 10.56% for 2020, compared to 8.74%
for 2019. Book value per share at December 31, 2020 was
$21.65, compared to $19.13 at December 31, 2019.
Annual MeetingHMN announced that its 2021 annual
meeting of shareholders will be held virtually on Tuesday, April
27, 2021 at 10:00 a.m. CDT.
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 “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 anticipated loans to be originated under
the second round of the PPP, 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.)
HMN FINANCIAL, INC. AND
SUBSIDIARIES |
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
(Dollars in thousands) |
|
2020 |
|
2019 |
|
|
|
(unaudited) |
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
86,269 |
|
|
44,399 |
|
|
Securities available for
sale: |
|
|
|
|
|
Mortgage-backed
and related securities |
|
|
|
|
|
(amortized cost $99,821 and $54,777) |
|
101,464 |
|
|
54,851 |
|
|
Other
marketable securities |
|
|
|
|
|
(amortized cost $46,491 and
$52,751) |
|
46,626 |
|
|
52,741 |
|
|
|
|
148,090 |
|
|
107,592 |
|
|
|
|
|
|
|
|
Loans held for sale |
|
6,186 |
|
|
3,606 |
|
|
Loans receivable, net |
|
642,630 |
|
|
596,392 |
|
|
Accrued interest receivable |
|
3,102 |
|
|
2,251 |
|
|
Mortgage servicing rights,
net |
|
3,043 |
|
|
2,172 |
|
|
Premises and equipment, net |
|
10,133 |
|
|
10,515 |
|
|
Goodwill |
|
802 |
|
|
802 |
|
|
Core deposit intangible |
|
57 |
|
|
156 |
|
|
Prepaid expenses and other
assets |
|
7,241 |
|
|
8,052 |
|
|
Deferred tax asset, net |
|
2,027 |
|
|
1,702 |
|
|
Total
assets |
$ |
909,580 |
|
|
777,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Deposits |
$ |
795,204 |
|
|
673,870 |
|
|
Accrued interest payable |
|
140 |
|
|
420 |
|
|
Customer escrows |
|
1,998 |
|
|
2,413 |
|
|
Accrued expenses and other
liabilities |
|
8,986 |
|
|
8,288 |
|
|
Total
liabilities |
|
806,328 |
|
|
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 |
|
40,480 |
|
|
40,365 |
|
|
Retained earnings, subject to
certain restrictions |
|
117,849 |
|
|
107,547 |
|
|
Accumulated other comprehensive
income |
|
1,282 |
|
|
46 |
|
|
Unearned employee stock ownership
plan shares |
|
(1,450 |
) |
|
(1,643 |
) |
|
Treasury stock, at cost 4,359,552
and 4,284,840 shares |
|
(55,000 |
) |
|
(53,758 |
) |
|
Total
stockholders’ equity |
|
103,252 |
|
|
92,648 |
|
|
Total liabilities and
stockholders’ equity |
$ |
909,580 |
|
|
777,639 |
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Consolidated Statements of Comprehensive
Income |
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
(Dollars in thousands, except per share data) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
Interest income: |
|
|
|
|
|
|
|
|
Loans receivable |
$ |
7,768 |
|
7,190 |
|
29,924 |
|
29,787 |
Securities available for sale: |
|
|
|
|
|
|
|
|
Mortgage-backed
and related |
|
330 |
|
197 |
|
1,155 |
|
343 |
Other
marketable |
|
156 |
|
252 |
|
702 |
|
1,157 |
Other |
|
29 |
|
222 |
|
178 |
|
603 |
Total
interest income |
|
8,283 |
|
7,861 |
|
31,959 |
|
31,890 |
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
558 |
|
914 |
|
2,851 |
|
3,332 |
Advances and other borrowings |
|
0 |
|
0 |
|
0 |
|
7 |
Total interest
expense |
|
558 |
|
914 |
|
2,851 |
|
3,339 |
Net interest income |
|
7,725 |
|
6,947 |
|
29,108 |
|
28,551 |
Provision for loan losses |
|
1,151 |
|
236 |
|
2,699 |
|
(1,216) |
Net interest income
after provision for loan losses |
|
6,574 |
|
6,711 |
|
26,409 |
|
29,767 |
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Fees and service charges |
|
741 |
|
795 |
|
2,877 |
|
3,100 |
Loan servicing fees |
|
380 |
|
321 |
|
1,356 |
|
1,278 |
Gain on sales of loans |
|
3,028 |
|
1,106 |
|
9,531 |
|
2,941 |
Other |
|
344 |
|
294 |
|
1,190 |
|
1,136 |
Total non-interest
income |
|
4,493 |
|
2,516 |
|
14,954 |
|
8,455 |
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
3,884 |
|
4,163 |
|
15,646 |
|
15,659 |
Occupancy and equipment |
|
1,094 |
|
1,158 |
|
4,429 |
|
4,442 |
Data
processing |
|
351 |
|
338 |
|
1,314 |
|
1,263 |
Professional services |
|
230 |
|
492 |
|
1,405 |
|
1,573 |
Other |
|
1,184 |
|
1,193 |
|
4,199 |
|
4,168 |
Total non-interest
expense |
|
6,743 |
|
7,344 |
|
26,993 |
|
27,105 |
Income before
income tax expense |
|
4,324 |
|
1,883 |
|
14,370 |
|
11,117 |
Income tax expense |
|
1,199 |
|
647 |
|
4,068 |
|
3,324 |
Net
income |
|
3,125 |
|
1,236 |
|
10,302 |
|
7,793 |
Other comprehensive income
(loss), net of tax |
|
(61) |
|
67 |
|
1,236 |
|
1,142 |
Comprehensive income available to
common
shareholders |
$ |
3,064 |
|
1,303 |
|
11,538 |
|
8,935 |
Basic earnings per share |
$ |
0.68 |
|
0.27 |
|
2.23 |
|
1.69 |
Diluted earnings per share |
$ |
0.67 |
|
0.27 |
|
2.22 |
|
1.68 |
|
|
|
|
|
|
|
|
|
HMN FINANCIAL, INC. AND SUBSIDIARIES |
Selected Consolidated Financial Information |
(unaudited) |
|
|
|
Three Months Ended |
|
Year Ended |
|
SELECTED FINANCIAL DATA: |
|
December 31, |
|
December 31, |
(Dollars in thousands, except per share data) |
|
2020 |
2019 |
2020 |
2019 |
I. OPERATING
DATA: |
|
|
|
|
|
|
|
|
Interest income |
$ |
8,283 |
|
7,861 |
|
31,959 |
|
31,890 |
|
Interest expense |
|
558 |
|
914 |
|
2,851 |
|
3,339 |
|
Net interest income |
|
7,725 |
|
6,947 |
|
29,108 |
|
28,551 |
|
|
|
|
|
|
|
|
|
|
|
II. AVERAGE
BALANCES: |
|
|
|
|
|
|
|
|
|
Assets (1) |
|
910,086 |
|
768,860 |
|
854,166 |
|
738,908 |
|
Loans receivable,
net |
|
654,801 |
|
585,086 |
|
644,912 |
|
589,520 |
|
Mortgage-backed and
related securities (1) |
|
128,269 |
|
91,940 |
|
107,771 |
|
82,383 |
|
Interest-earning assets
(1) |
|
875,418 |
|
733,431 |
|
819,296 |
|
706,542 |
|
Interest-bearing
liabilities and non-interest bearing |
|
|
|
|
|
|
|
|
|
deposits |
797,237 |
|
667,103 |
|
747,153 |
|
641,239 |
Equity (1) |
|
102,064 |
|
92,631 |
|
97,599 |
|
89,122 |
|
|
|
|
|
|
|
|
|
|
|
III. PERFORMANCE RATIOS:
(1) |
|
|
|
|
|
|
|
|
|
Return on average assets (annualized) |
|
1.37 |
% |
0.64 |
% |
1.21 |
% |
1.05 |
% |
Interest rate spread
information: |
|
|
|
|
|
|
|
|
|
Average
during period |
|
3.48 |
|
3.71 |
|
3.52 |
|
3.99 |
|
End of
period |
|
3.48 |
|
3.66 |
|
3.48 |
|
3.66 |
|
Net interest
margin |
|
3.51 |
|
3.76 |
|
3.55 |
|
4.04 |
|
Ratio of operating
expense to average |
|
|
|
|
|
|
|
|
|
total assets
(annualized) |
|
2.95 |
|
3.79 |
|
3.16 |
|
3.67 |
|
Return on average common
equity (annualized) |
|
12.18 |
|
5.29 |
|
10.56 |
|
8.74 |
|
Efficiency |
|
55.20 |
|
77.61 |
|
61.26 |
|
73.25 |
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2020 |
|
2019 |
|
|
IV. EMPLOYEE DATA: |
|
|
|
Number of full time
equivalent employees |
|
172 |
|
181 |
|
|
|
|
|
|
|
|
V. ASSET QUALITY: |
|
|
|
|
|
Total non-performing
assets |
$ |
3,320 |
|
2,661 |
|
|
Non-performing assets to
total assets |
|
0.37 |
% |
0.34 |
% |
|
Non-performing loans to
total loans |
|
|
|
|
|
|
receivable, net |
|
0.42 |
% |
0.35 |
% |
|
Allowance for loan
losses |
$ |
10,699 |
|
8,564 |
|
|
Allowance for loan losses
to total assets |
|
1.18 |
% |
1.10 |
% |
|
Allowance for loan losses to
total loans
receivable, net |
|
1.66 |
% |
1.44 |
% |
|
Allowance for loan losses
to non-performing loans |
|
398.72 |
% |
411.45 |
% |
|
|
|
|
|
|
|
|
VI. BOOK VALUE
PER COMMON SHARE: |
|
|
|
|
|
|
Book value per common
share |
$ |
21.65 |
|
19.13 |
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
|
|
Dec 31, 2020 |
|
Dec 31, 2019 |
|
|
VII. CAPITAL RATIOS: |
|
|
|
|
|
|
Stockholders’ equity to
total assets, at end of period |
|
11.35 |
% |
11.91 |
% |
|
Average stockholders’
equity to average assets (1) |
|
11.43 |
|
12.06 |
|
|
Ratio of average
interest-earning assets to |
|
|
|
|
|
|
average
interest-bearing liabilities and non-interest
bearing deposits
(1) |
|
109.66 |
|
110.18 |
|
|
Home Federal Savings Bank
regulatory capital ratios: |
|
|
|
|
|
|
Common equity tier
1 capital ratio |
|
13.62 |
|
13.21 |
|
|
Tier 1 capital
leverage ratio |
|
9.85 |
|
10.89 |
|
|
Tier 1 capital
ratio |
|
13.62 |
|
13.21 |
|
|
Risk-based
capital |
|
14.87 |
|
14.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average balances were calculated based upon
amortized cost without the market value impact of ASC 320. |
CONTACT: Bradley
KrehbielChief Executive Officer,
PresidentHMN Financial, Inc. (507)
252-7169
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