HMN Financial Inc. tightens Home Federal's loan procedures - KTTC Rochester, Austin, Mason City News, Weather and Sports

HMN Financial Inc. tightens Home Federal's loan procedures


ROCHESTER (KTTC) -- Rochester-based Home Federal Bank is pledging to remain "well-capitalized" with full services for its business and personal customers, even as it tightens some of its policies and procedures in analyzing future loan applications.

Home Federal is smarting over the situation in which it now finds itself, in the spotlight over some $29-million worth of losses from foreclosed properties and "bad loans" piling up from the recession of 2009 and a sluggish business recovery since then.

Back in November, parent company HMN Financial Inc. opted to set aside $33-million to cover its bad assets, and after dialogue with federal regulators, it decided in late January to forego making an interest payment to the U.S. Treasury that was due on February 13th as part of the government's Troubled Asset Relief Program.  The choice to withhold the $325,000 payment last week was made simply to conserve cash.

Even though this was planned some time ago, investors have continued to react to these developments in recent days.  On Wednesday, HMNF stock closed at $2.099 per share, down another 12.91 percent from the previous close.  Last April, it was $6.78 per share.

Company executives have been cautious about making public statements after recent news reports.  However, in a written news release late Wednesday about the new supervisory agreements made with the Office of Thrift Supervision, HMN President Bradley Krehbiel set out to describe the company's current situation.

"The current recession has severely impacted banks across the United States, and Home Federal is not immune," said Krehbiel. "Our top priorities are the sound and ethical operation of Home Federal and providing excellent customer service in the communities that we serve. Home Federal has maintained capital levels above what is required to be ‘well-capitalized', as defined by our regulators. We are FDIC-insured and have offered banking services to our customers for more than 75 years."

Krehbiel confirmed that HMN Financial intends to submit a new capital plan to federal regulators by May 31st, and says Home Federal's services will not be impacted by the recent developments.

But the executive also revealed that some changes have been made to bank operations.  The most significant change appears to be new policies and procedures over new loan requests; Krehbiel says the new ways of operating will strengthen how bank officials analyze future loans.

As far as reflecting on what has already happened to the Home Federal loan portfolio, Krehbiel blames the drop in real estate values and single-family home sales for a ripple effect on the business of its commercial customers.  He says the bank added staff to keep closer track of commercial borrowers and work with them to "identify problems early on -- before they might become major losses for our borrowers and our Bank."

Powered by Frankly