HMN Financial : Announces Third Quarter Results, October 21, 2021
HMNF
1016 Civic Center Drive NW Rochester, MN 55901 Phone (507) 535-1200 Fax (507) 535-1301
NEWS RELEASE
CONTACT: Bradley Krehbiel
Chief Executive Officer, President
HMN Financial, Inc. (507) 252-7169
FOR IMMEDIATE RELEASE
HMN FINANCIAL, INC. ANNOUNCES THIRD QUARTER RESULTS
Third Quarter Summary
Year to Date Summary
Net Income Summary
Three Months Ended
Nine Months Ended
(Dollars in thousands, except per share amounts)
September 30,
September 30,
$
2021
2020
$
2021
2020
Net income ..................................................................
3,619
3,101
11,565
7,177
Diluted earnings per share ........................................
0.81
0.67
2.55
1.54
Return on average assets (annualized) .....................
1.45
%
1.39
%
1.60
%
1.15
%
Return on average equity (annualized) ....................
13.18
%
12.50
%
14.57
%
9.98
%
Book value per share..................................................
$
23.93
20.91
$
23.93
20.91
ROCHESTER, MINNESOTA, October 21, 2021 - 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
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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 Results
Net Interest Income
Net 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.
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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
Average
Interest
Average
Interest
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
(Dollars in thousands)
Balance
Paid
Rate
Balance
Paid
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
Average
Interest
Average
Interest
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
(Dollars in thousands)
Balance
Paid
Rate
Balance
Paid
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
%
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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:
0
(29)
Consumer ............................................
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
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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 Expense
Non-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:
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Disclaimer
HMN Financial Inc. published this content on 21 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 October 2021 15:33:10 UTC.