Average interest-earning assets for the second quarter of 2011 decreased to $459.7 million, down $78.5 million from the second quarter of 2010. The decrease in average interest-earning assets resulted in a $1.0 million reduction in interest income. Additionally, the annualized yield on our average interest-earning assets decreased 11 basis points to 5.64% for the second quarter of 2011, compared to the annualized yield of 5.75% for the same period a year ago. The 11 basis point decline in the annualized yield on our average interest-earning assets resulted in a decrease of $244 thousand in interest income.
Average interest-bearing liabilities for the second quarter of 2011 decreased to $429.3 million, down $75.7 million from the second quarter of 2010. The decrease in average interest-bearing liabilities resulted in a $353 thousand reduction in interest expense. The annualized cost of our average interest-bearing liabilities decreased 1 basis point to 1.91% for the second quarter of 2011 from the annualized cost of 1.92% for the same period a year ago, and resulted in a decrease of $18 thousand in interest expense.
The provision for loan losses for the second quarter of 2011 totaled $3.4 million compared to $309 thousand for the same period a year ago. The $3.1 million increase in the provision for loan losses from the second quarter of 2010 to the second quarter of 2011 primarily reflected a $3.0 million specific loss allocation on a commercial real estate loan. We decided to book a specific loss allocation for the entire amount of the loan due to the combination of insufficient cash flow from the property to service the debt, a decline in real estate values that reduced the collateral value to an amount that was substantially less than the loan balance, and a deterioration of the borrower’s financial capacity to repay the loan from personal reserves. An increase in the specific valuation allowance on other impaired loans was substantially offset by the decrease in the general valuation allowance, which reflected the $59.4 million reduction in our gross loan portfolio since June 30, 2010.
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