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HMN Financial, Inc. Announces Fourth Quarter Results

Provision for Loan LossesThe provision for loan losses was $17.3 million for the year ended December 31, 2011, a decrease of $16.1 million, from $33.4 million for the year ended December 31, 2010. The provision decreased between the periods primarily because fewer loan losses were recognized due to fewer write downs on non-performing real estate loans in 2011 when compared to 2010. The provision also decreased because of the $132 million decrease in the loan portfolio between the periods. Total non-performing assets were $50.6 million at December 31, 2011, a decrease of $33.9 million, or 40.0%, from $84.5 million at December 31, 2010. Non-performing loans decreased $34.1 million and foreclosed and repossessed assets increased $0.2 million during 2011. The non-performing loan and foreclosed and repossessed asset activity for 2011 was as follows:


(Dollars in thousands)
Non-performing loans Foreclosed and repossessed asset activity
December 31, 2010 $ 68,074 December 31, 2010 $ 16,395
Classified as non-performing 28,615 Transferred from non-performing loans 8,593
Charge offs (39,303 ) Other foreclosures/repossessions 138
Principal payments received (9,552 ) Real estate sold (5,444 )
Classified as accruing (5,248 ) Net gain on sale of assets 407
Transferred to real estate owned   (8,593 ) Write downs   (3,473 )
December 31, 2011 $ 33,993   December 31, 2011 $ 16,616  

A reconciliation of the allowance for loan losses for 2011 and 2010 is summarized as follows:
(in thousands) 2011 2010
Balance at January 1, $ 42,828 $ 23,811
Provision 17,278 33,381
Charge offs:
Commercial (15,512 ) (7,006 )
Commercial real estate (23,012 ) (7,094 )
Consumer (270 ) (907 )
Single family mortgage (508 ) (254 )
Recoveries   3,084     897  
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 2011 when compared to 2010 due primarily to two factors. The first factor was the modification of our charge off policy in the fourth quarter of 2011 relating to non-performing loans secured by real estate, as described above, which required the charge off of previously established specific valuation allowances (SVAs) and the second factor was that in certain instances the borrower’s financial condition had deteriorated to the point that a charge off of the loan balance was warranted.

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