President’s Statement“The reported financial results reflect the increased volume of our mortgage banking activities and the positive impact that the stabilization of commercial real estate values has had on 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 intend to continue to focus our efforts on further reducing these non-performing assets while, at the same time, improving the financial performance of our core banking operations.”
Fourth Quarter Results
Net Interest IncomeNet interest income was $5.5 million for the fourth quarter of 2012, a decrease of $1.4 million, or 19.7%, compared to $6.9 million for the fourth quarter of 2011. Interest income was $7.0 million for the fourth quarter of 2012, a decrease of $2.2 million, or 23.6%, from $9.2 million for the same period in 2011. Interest income decreased between the periods primarily because of a $163 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 low 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 4.62% for the fourth quarter of 2012, a decrease of 13 basis points from the 4.75% average yield for the fourth quarter of 2011. The decrease in the average yield is due to the continued low interest rate environment that existed during the fourth quarter of 2012.
Interest expense was $1.5 million for the fourth quarter of 2012, a decrease of $0.8 million, or 35.1%, compared to $2.3 million for the fourth quarter of 2011. Interest expense decreased primarily because of a $170 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 the average outstanding retail and brokered certificates of deposits between the periods and a decrease in other deposits as a result of the Bank’s Toledo, Iowa branch sale that was completed in the first quarter of 2012. The decrease in retail and brokered certificates of deposits between the periods was the result of using the proceeds from loan principal payments to fund the maturing certificates of deposits. Interest expense also decreased because of the lower interest rates paid on money market accounts and certificates of deposits. The decreased rates were the result of the low interest rate environment that continued to exist during the fourth quarter of 2012. The average interest rate paid on interest-bearing liabilities was 1.06% for the fourth quarter of 2012, a decrease of 20 basis points from the 1.26% average interest rate paid in the fourth quarter of 2011. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2012 was 3.63%, an increase of 8 basis points, compared to 3.55% for the fourth quarter of 2011.
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