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HMN Financial, Inc. Announces Second Quarter Results

Provision for Loan LossesThe provision for loan losses was ($0.5) million for the first six months of 2013, a decrease of $1.5 million, or 154.2%, from $1.0 million for the same six month period in 2012. The provision for loan losses decreased in the first six months of 2013 primarily because there were fewer decreases in the estimated value of the underlying collateral supporting commercial real estate loans that required additional allowances or charge offs in the current period when compared to the first six months of 2012. The provision also decreased because of a decrease in the outstanding loan portfolio balances, an improvement in the classifications of certain risk rated loans, and the recoveries received during the first six months of 2013 on previously charged off loans. Total non-performing assets were $35.3 million at June 30, 2013, a decrease of $5.3 million, or 13.1%, from $40.6 million at December 31, 2012. Non-performing loans decreased $4.1 million and foreclosed and repossessed assets decreased $1.2 million during the first six months of 2013. The non-performing loan and foreclosed and repossessed asset activity for the first six months of 2013 was as follows:

(Dollars in thousands)

             
Non-performing loans   Foreclosed and repossessed asset activity  
January 1, 2013 $29,975 January 1, 2013 $10,595
Classified as non-performing 3,480 Transferred from non-performing loans 236
Charge offs (1,723 ) Other foreclosures/repossessions 619
Principal payments received (4,989 ) Real estate sold (2,279 )
Classified as accruing (666 ) Net gain on sale of assets 702
Transferred to real estate owned (236 ) Write downs (450 )
June 30, 2013 $25,841   June 30, 2013 $9,423  
               
 

The decrease in non-performing loans during the first six months of 2013 relates primarily to principal payments received and charge offs during the period. Of the $5.0 million in principal payments received during the period, $1.7 million related to the payoff of non-performing single family construction loans as a result of the houses being sold and $1.6 million related to additional principal payments received from various developers as a result of land or lot sales. Of the $1.7 million in loans that were charged off, $0.9 million related to two real estate development loans as a result of a decrease in the estimated value of the underlying collateral and $0.6 million related to various commercial business loans. These decreases in non-performing loans were partially offset by loans that were newly classified as non-performing during the period. Of the $3.5 million in loans newly classified as non-performing, $1.2 million relates to home equity loans and $1.1 million relates to single family construction loans.

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