President’s Statement"Our core business remains sound and we are encouraged by the increase in our net interest margin and the declining trend in both our loan loss provision and non-performing assets,” said Bradley Krehbiel, President of HMN. “We will continue to focus our efforts on reducing our non-performing assets, increasing our core deposit relationships, and reducing expenses to reflect the decrease in our interest earning assets. We believe that, over time, our focus on these areas will be effective in generating improved financial results despite the difficult economic environment that continues to exist.”
Third Quarter Results
Net Interest IncomeNet interest income was $7.1 million for the third quarter of 2011, a decrease of $0.7 million, or 8.9%, compared to $7.8 million for the third quarter of 2010. Interest income was $9.6 million for the third quarter of 2011, a decrease of $2.4 million, or 20.0%, from $12.0 million for the same period in 2010. Interest income decreased between the periods primarily because of a $156 million decrease in the average interest-earning assets and also because of a decrease in the average yields between the periods. Average interest earning assets decreased between the periods primarily because of a decrease in the commercial loan portfolio, which occurred because of declining loan demand and the Company’s focus on improving credit quality, managing net interest margin and improving capital ratios. The average yield earned on interest-earning assets was 5.01% for the third quarter of 2011, a decrease of 18 basis points from the 5.19% average yield for the third quarter of 2010. The decrease in yield is the result of the lower interest rate environment that existed during the third quarter of 2011.
Interest expense was $2.5 million for the third quarter of 2011, a decrease of $1.7 million, or 40.6%, compared to $4.2 million for the third quarter of 2010. Interest expense decreased primarily because of the $133 million decrease in the average interest-bearing liabilities between the periods. The decrease in the average interest-bearing liabilities is primarily the result of a decrease in outstanding borrowings and brokered deposits between the periods. The decrease in borrowings and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered deposits. Interest expense also decreased because of the lower rates paid on retail money market accounts and certificates of deposits. The decreased rates were the result of the lower interest rate environment that existed during the third quarter of 2011. The average interest rate paid on interest-bearing liabilities was 1.36% for the third quarter of 2011, a decrease of 57 basis points from the 1.93% average interest rate paid in the third quarter of 2010. Net interest margin (net interest income divided by average interest earning assets) for the third quarter of 2011 was 3.71%, an increase of 34 basis points, compared to 3.37% for the third quarter of 2010.
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