HMN Financial Inc. of Rochester, Minn., lost $7.1 million, or $1.93 a share, in the third quarter after writing off a large commercial loan and setting aside $3.4 million for two nonperforming construction loans.
The $1.1 billion-asset company earned $2.8 million, or 78 cents a share, in the third quarter of last year.
HMN said late Monday that its loan-loss provision grew 17-fold from a year earlier, to $15.8 million. The sharp increase was driven by a $12 million writeoff of a commercial loan to a borrower that lent money to a businessman who has been accused of fraud and whose company is in bankruptcy.
"The financial capability of the borrower to repay the loan is uncertain due to the pervasive impact that the apparent fraud has had on the borrower's financial position," HMN said.
The company also said it took a provision for two residential development loans following recent property appraisals.
Nonperforming assets surged 122% from a year earlier but fell 6.7% from the second quarter, to $45.2 million.
Despite the loss, HMN said it remains above the threshold to be considered well capitalized. However, it said Tuesday that it planned to suspend its dividend payouts until further notice.
HMN's shares closed at $9.11 Tuesday, down 17.2%.
