President’s Statement“The operating results for the fourth quarter of 2011 reflect the challenging economic environment that continues to have a negative impact on commercial real estate values and our provision for loan losses,” said Brad Krehbiel, President of HMN. “We are encouraged by the results of our ongoing efforts to improve credit quality in our commercial loan portfolio as evidenced by the positive trend of declining non-performing assets. We will continue to focus our efforts on further reducing these non-performing assets while, at the same time, increasing our core deposit relationships, and reducing expenses.”
Fourth Quarter Results
Net Interest IncomeNet interest income was $6.9 million for the fourth quarter of 2011, a decrease of $0.4 million, or 5.6%, compared to $7.3 million for the fourth quarter of 2010. Interest income was $9.2 million for the fourth quarter of 2011, a decrease of $1.6 million, or 15.0%, from $10.8 million for the same period in 2010. Interest income decreased between the periods primarily because of an $84 million decrease in the average interest-earning assets and 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 4.75% for the fourth quarter of 2011, a decrease of 29 basis points from the 5.04% average yield for the fourth quarter of 2010. The decrease in yield is the result of the lower interest rate environment that existed during the fourth quarter of 2011 when compared to the fourth quarter of 2010.
Interest expense was $2.3 million for the fourth quarter of 2011, a decrease of $1.2 million, or 34.3%, compared to $3.5 million for the fourth quarter of 2010. Interest expense decreased primarily because of a $73 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 fourth quarter of 2011 when compared to the fourth quarter of 2010. The average interest rate paid on interest-bearing liabilities was 1.26% for the fourth quarter of 2011, a decrease of 48 basis points from the 1.74% average rate paid in the fourth quarter of 2010. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2011 was 3.55%, an increase of 16 basis points, compared to 3.39% for the fourth quarter of 2010.
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