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HMN Financial, Inc. Announces Fourth Quarter Results

Provision for Loan LossesThe provision for loan losses was $7.6 million for the fourth quarter of 2011, a decrease of $2.9 million, or 27.8%, from $10.5 million for the fourth quarter of 2010. The provision decreased primarily because of fewer write downs on commercial real estate loans between the periods. These decreases in the provision were partially offset by an increase in the general reserves required for other risk rated commercial loans as a result of our quarterly internal loan portfolio analysis. Total non-performing assets were $50.6 million at December 31, 2011, a decrease of $9.4 million, or 15.6%, from $60.0 million at September 30, 2011. Non-performing loans decreased $4.9 million and foreclosed and repossessed assets decreased $4.5 million during the fourth quarter of 2011. The non-performing loan and foreclosed and repossessed asset activity for the fourth quarter of 2011 was as follows:


(Dollars in thousands)
Non-performing loans Foreclosed and repossessed assets
September 30, 2011 $ 38,858 September 30, 2011 $ 21,144
Classified as non-performing 11,964 Transferred from non-performing loans 49
Charge offs (11,596 ) Other foreclosures/repossessions 0
Principal payments received (4,939 ) Real estate sold (2,062 )
Classified as accruing (245 ) Net gain on sale of assets 254
Transferred to real estate owned   (49 ) Write downs   (2,769 )
December 31, 2011 $ 33,993   December 31, 2011 $ 16,616  

A reconciliation of the allowance for loan losses for the fourth quarters of 2011 and 2010 is summarized as follows:
(Dollars in thousands)     2011       2010
Balance at September 30, $ 25,690 $ 33,490
Provision 7,609 10,542
Charge offs:
Commercial real estate (6,710 ) (571 )
Commercial business (4,787 ) (1,203 )
Consumer (41 ) (111 )
One-to-four family (58 ) (86 )
Recoveries   2,185     767  
Balance at December 31, $ 23,888   $ 42,828  
Unallocated allowance $ 18,104 $ 17,794
Allocated allowance   5,784     25,034  
$ 23,888   $ 42,828  

Charge offs increased and the allocated allowance decreased in the fourth quarter of 2011 when compared to the same period in 2010 due primarily to the modification of our charge off policy on non-performing loans secured by real estate in the fourth quarter of 2011, which required the charge off of previously established specific valuation allowances (SVAs).

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