SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ____________
Commission file number 0-24100
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
HMN FINANCIAL, INC.
101 NORTH BROADWAY
SPRING VALLEY, MN 55975-0231
<PAGE>
REQUIRED INFORMATION
The financial statements filed as a part of the annual report of the plan
include:
1. Audited statements of net assets available for benefits as filed
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
2. Audited statements of changes in net assets available for benefits as
filed under ERISA.
-2-
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Financial Statements
December 31, 1997, 1996, and 1995
<PAGE>
[logo]
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Plan Administrator
Home Federal Savings Bank
Employees' Savings & Profit Sharing Plan:
We have audited the accompanying statements of net assets available for
benefits of the Home Federal Savings Bank Employees' Savings & Profit
Sharing Plan (the Plan) as of December 31, 1997 and 1996, and the related
statements of changes in net assets available for benefits for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for
benefits for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes and reportable transactions are presented for
the purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The fund information in
the statements of net assets available for benefits and the statements of
changes in net assets available for benefits of each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 19, 1998
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Net Assets Available for Benefits
December 31, 1997
<TABLE>
<CAPTION>
Participant Directed Funds
- -----------------------------------------------------------------------------
S&P MidCap S&P 500 HMN
Stock Stock Stable Money Bond Financial,
Index Index Value Market Market Inc.
Fund Fund Fund Fund Fund Stock
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,075,385) $ 287,831 335,885 76,535 25,954 41,998 827,112
Contributions
receivable:
Employer 0 0 0 0 0 0
Employee 0 0 0 0 0 0
- -----------------------------------------------------------------------------
Net assets
available for
benefits $ 287,831 335,885 76,535 25,954 41,998 827,112
- -----------------------------------------------------------------------------
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------
International Growth &
Stock Income Growth
Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,090,269) 20,762 2,572 2,577
Contributions
receivable:
Employer 0 0 0
Employee 0 0 0
- -----------------------------------------------------------------------------
Net assets
available for
benefits 20,762 2,572 2,577
- -----------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------
Participant
Loans Unallocated Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,090,269) 11,689 0 1,632,915
Contributions
receivable:
Employer 0 4,416 4,416
Employee 0 18,931 18,931
- -----------------------------------------------------------------------------
Net assets
available for
benefits 11,689 23,347 1,656,262
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Net Assets Available for Benefits
December 31, 1996
<TABLE>
<CAPTION>
Participant Directed Funds
- ----------------------------------------------------------------------------
S&P MidCap S&P 500
Stock Stock Stable Money
Index Index Value Market
Fund Fund Fund Fund
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$810,844) $156,747 214,731 77,542 27,069
Contributions receivable:
Employer 0 0 0 0
Employee 0 0 0 0
- ----------------------------------------------------------------------------
Net assets
available for
benefits $156,747 214,731 77,542 27,069
- ----------------------------------------------------------------------------
<CAPTION>
Participant Directed Funds
- ------------------------------------------------------------------------------
HMN
Bond Financial,
Market Inc. Participant
Fund Stock Loans Unallocated Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$810,844) $ 45,003 371,719 4,931 0 897,742
Contributions receivable:
Employer 0 0 0 35,288 35,288
Employee 0 0 0 13,062 13,062
- -------------------------------------------------------------------------------
Net assets
available for
benefits $ 45,003 371,719 4,931 48,350 946,092
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1997
<TABLE>
<CAPTION>
Participant Directed Funds
-----------------------------------------------------------------
HMN
S&P MidCap S&P 500 Stable Money Bond Financial
Stock Index Stock Index Value Market Market Inc.
Fund Fund Fund Fund Fund Stock
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 12,392 12,903 2,825 4,945 1,762 8,101
Employee 53,036 54,201 11,354 18,973 7,191 37,531
Rollover 2,081 2,081 283 362 63 1,137
- -----------------------------------------------------------------------------
Total
contributions 67,509 69,185 14,462 24,280 9,016 46,769
- -----------------------------------------------------------------------------
Withdrawals (12,973) (6,531) (21) (13) (88) (2,431)
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair
market value of
investments 50,208 64,883 18,653 10,611 10,904 316,272
Interest 0 0 0 1,595 1,848 1,696
Dividends 5,097 3,098 0 0 0 0
Realized gains
(losses) 8,050 13,982 (13,127) (10,602) (6,383) 4,514
Less asset
management
fees (1,097) (1,507) (425) (95) (275) (1,157)
- -----------------------------------------------------------------------------
Net investment
income 62,258 80,456 5,101 1,509 6,094 321,325
- -----------------------------------------------------------------------------
Transfers
among funds 14,290 (21,956) (20,549) (26,891) (18,027) 89,730
- -----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits 131,084 121,154 (1,007) (1,115) (3,005) 455,393
Beginning
of year 156,747 214,731 77,542 27,069 45,003 371,719
- -----------------------------------------------------------------------------
End of year $ 287,831 335,885 76,535 25,954 41,998 827,112
- -----------------------------------------------------------------------------
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------
International Growth &
Stock Income Growth
Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer 292 39 41
Employee 1,189 157 164
Rollover 0 0 0
- -----------------------------------------------------------------------------
Total
contributions 1,481 196 205
- -----------------------------------------------------------------------------
Withdrawals 0 0 0
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair
market value of
investments (1,058) 81 78
Interest 0 0 0
Dividends 0 0 0
Realized gains
(losses) 0 0 0
Less asset
management fees (46) (10) (11)
- -----------------------------------------------------------------------------
Net investment
income (1,104) 71 67
- -----------------------------------------------------------------------------
Transfers
among funds 20,385 2,305 2,305
- -----------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 20,762 2,572 2,577
Beginning of year 0 0 0
- -----------------------------------------------------------------------------
End of year 20,762 2,572 2,577
- -----------------------------------------------------------------------------
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------
Participant
Loans Unallocated Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer 0 4,416 47,716
Employee 0 18,931 202,727
Rollover 0 0 6,007
- -----------------------------------------------------------------------------
Total
contributions 0 23,347 256,450
- -----------------------------------------------------------------------------
Withdrawals 0 0 (22,057)
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair
market value of
investments 0 0 470,632
Interest 0 0 5,139
Dividends 0 0 8,195
Realized gains
(losses) 0 0 (3,566)
Less asset
management fees 0 0 (4,623)
- -----------------------------------------------------------------------------
Net investment
income 0 0 475,777
- -----------------------------------------------------------------------------
Transfers among funds 6,758 (48,350) 0
- -----------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 6,758 (25,003) 710,170
Beginning of year 4,931 48,350 946,092
- -----------------------------------------------------------------------------
End of year 11,689 23,347 1,656,262
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1996
<TABLE>
<CAPTION>
Participant Directed Funds
------------------------------------------------------------
Nationwide Federated Fidelity Fidelity S&P MidCap
Pooled Fidelity Capital Equity Retirement Stock
GIC Asset Preservation Income II Growth Index
Fund Manager Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 0 0 0 0 0 0
Employee 0 13,547 5,862 16,362 11,353 16,535
Rollover 0 0 0 0 0 2,412
- -----------------------------------------------------------------------------
Total
contributions 0 13,547 5,862 16,362 11,353 18,947
- -----------------------------------------------------------------------------
Withdrawals (105) (19,237) (294) (3,470) (4,143) (2,474)
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
on fair market value
of investments 0 0 0 0 0 14,264
Interest 0 19 16 14 14 49
Dividends 0 1,782 702 1,308 0 0
Realized gains
(losses) (829) 2,020 930 6,396 416 368
Less asset
management fees 0 0 0 0 0 (181)
- -----------------------------------------------------------------------------
Net investment
income (829) 3,821 1,648 7,718 430 14,500
- -----------------------------------------------------------------------------
Transfers among
funds (111,661) (120,364) (29,735) (127,087) (60,738) 125,774
- -----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits (112,595) (122,233) (22,519) (106,477) (53,098) 156,747
Beginning of
year 112,595 122,233 22,519 106,477 53,098 0
- -----------------------------------------------------------------------------
End of year $ 0 0 0 0 0 156,747
- -----------------------------------------------------------------------------
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------
S&P 500
Stock Stable Money Bond
Index Value Market Market
Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contributions:
Employer 0 0 0 0
Employee 19,214 5,366 7,051 4,300
Rollover 3,673 0 0 308
- -----------------------------------------------------------------------------
Total
contributions 22,887 5,366 7,051 4,608
- -----------------------------------------------------------------------------
Withdrawals (1,078) (1,146) 0 0
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
on fair market value
of investments 17,899 1,840 0 759
Interest 1,136 75 494 662
Dividends 2,147 0 0 436
Realized gains
(losses) 202 18 57 (154)
Less asset
management fees (314) (198) (25) (60)
- -----------------------------------------------------------------------------
Net investment
income 21,070 1,735 526 1,643
- -----------------------------------------------------------------------------
Transfers among
funds 171,852 71,587 19,492 24,583
- -----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits 214,731 77,542 27,069 30,834
Beginning of year 0 0 0 14,169
- -----------------------------------------------------------------------------
End of year 214,731 77,542 27,069 45,003
- -----------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------
HMN
Financial,
Inc. Participant
Stock Loans Unallocated Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contributions:
Employer 0 0 35,288 35,288
Employee 15,477 0 34,190 149,257
Rollover 2,124 0 0 8,517
- -----------------------------------------------------------------------------
Total
contributions 17,601 0 69,478 193,062
- -----------------------------------------------------------------------------
Withdrawals (4,091) 0 (30) (36,068)
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
on fair market value
of investments 48,503 0 0 83,265
Interest 7 0 0 2,486
Dividends 0 0 26 6,401
Realized gains
(losses) (6,219) 0 11 3,216
Less asset
management fees 0 0 0 (778)
- -----------------------------------------------------------------------------
Net investment
income 42,291 0 37 94,590
- -----------------------------------------------------------------------------
Transfers among
funds 92,653 3,412 (59,768) 0
- -----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits 148,454 3,412 9,717 251,584
Beginning of year 223,265 1,519 38,633 694,508
- -----------------------------------------------------------------------------
End of year 371,719 4,931 48,350 946,092
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1995
<TABLE>
<CAPTION>
Participant Directed Funds
---------------------------------------------------------------
20th
Nationwide 20th Nation- Century Federated
Pooled Century Fidelity wide Growth Capital
GIC U.S. Gov't. Asset Stock Stock Preservation
Fund Bond Fund Manager Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 0 0 0 0 0 0
Employee 0 0 17,769 0 0 17,997
- ----------------------------------------------------------------------------
Total
contributions 0 0 17,769 0 0 17,997
- ----------------------------------------------------------------------------
Withdrawals (12,526) 0 (5,321) 0 0 (2,155)
- ----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
on fair market value
of investments 0 0 13,818 0 0 1
Interest 6,626 0 0 0 0 301
Dividends 0 0 3,399 0 0 512
Realized gains 0 216 428 1,056 246 0
Less asset
management fees (187) (354) (4,112) (2,725) (983) (106)
- ----------------------------------------------------------------------------
Net investment
income 6,439 (138) 13,533 (1,669) (737) 708
- ----------------------------------------------------------------------------
Transfers among
funds (10,389) (20,135) (63,131)(79,418) (22,760) 5,969
- ----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits (16,476) (20,273) (37,150)(81,087) (23,497) 22,519
Beginning of
year 129,071 20,273 159,383 81,087 23,497 0
- ----------------------------------------------------------------------------
End of year $ 112,595 0 122,233 0 0 22,519
- ----------------------------------------------------------------------------
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------
Federated Fidelity Fidelity HMN
Short Term Equity Retirement Financial,
Income Income II Growth Inc.
Fund Fund Fund Stock
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contributions:
Employer 0 0 0 0
Employee 2,115 24,149 13,946 0
- ----------------------------------------------------------------------------
Total
contributions 2,115 24,149 13,946 0
- ----------------------------------------------------------------------------
Withdrawals (60) (627) (1,271) (77)
- ----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
on fair market value
of investments 413 13,127 3,195 46,040
Interest 0 0 0 0
Dividends 600 4,146 4,565 0
Realized gains 19 747 473 243
Less asset
management fees (80) (532) (258) 0
- ----------------------------------------------------------------------------
Net investment
income 952 17,488 7,975 46,283
- ----------------------------------------------------------------------------
Transfers among
funds 11,162 65,467 32,448 177,059
- ----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits 14,169 106,477 53,098 223,265
Beginning of year 0 0 0 0
- ----------------------------------------------------------------------------
End of year 14,169 106,477 53,098 223,265
- ----------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------
Participant
Loans Unallocated Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer 0 40,453 40,453
Employee 0 48,287 124,263
- ----------------------------------------------------------------------------
Total
contributions 0 88,740 164,716
- ----------------------------------------------------------------------------
Withdrawal 0 (1) (22,038)
- ----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
on fair market value
of investments 0 0 76,594
Interest 0 502 7,429
Dividends 0 0 13,222
Realized gains 0 3,428
Less asset
management fees 0 (3,600) (12,937)
- ----------------------------------------------------------------------------
Net investment
income 0 (3,098) 87,736
- ----------------------------------------------------------------------------
Transfers among
funds 1,519 (97,791) 0
- ----------------------------------------------------------------------------
Increase (decrease)
in net assets
available for
plan benefits 1,519 (12,150) 230,414
Beginning of year 0 50,783 464,094
- ----------------------------------------------------------------------------
End of year 1,519 38,633 694,508
- ----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 1997, 1996, and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting.
CUSTODIAN OF INVESTMENTS
Bank of New York is the trustee and custodian of all Plan assets.
PLAN ADMINISTRATION
Home Federal Savings Bank (the Company) is the administrator of the Plan
and Pentegra Services, Inc. performs the participant accounting.
VALUATION OF INVESTMENTS
Investments are stated at their fair market value.
Investments in mutual funds or commingled trusts are valued using daily
net asset value calculations performed by the funds and published by the
National Association of Securities Dealers. Investments in common stock
are valued at the quoted market price. Participant notes are valued at
cost which approximates fair value.
Purchases and sales of securities are recorded on a trade date basis. Net
realized gains or losses are recognized by the Plan upon the sale of its
investments or portions thereof on the basis of a first-in, first-out flow
assumption.
COSTS AND EXPENSES
Asset management fees ranging between 38 and 85 basis points are assessed
annually on average Net Asset Values and are deducted from the individual
funds. Administrative expenses totaling $5,100 and $7,511 were paid by the
Company in 1997 and 1996 respectively.
(2) DESCRIPTION OF THE PLAN
The following description of the Plan provides only general information.
Participants should refer to the Summary Plan Description for more
complete information.
GENERAL
The Plan is a defined contribution plan, qualified under section 401(a) of
the Internal Revenue Code. The Plan includes 401(k) provisions which
allow participants to direct the Company to contribute a portion of their
compensation to the Plan on a pretax basis through payroll deductions.
The Plan is subject to the Employee Retirement Income Security Act of 1974
(ERISA).
Company employees who have attained the age of 21 are eligible to
participate in the Plan if during the one month period following the date
of employment (or any anniversary thereof) the employee completes 83 1/3
or more hours of service.
FUNDING POLICY
Since August 1, 1996, participants have had the ability to contribute up
to 12% of their monthly compensation on a pretax basis to the Plan. The
maximum monthly contribution prior to this date was 8% of their
compensation. Participant contributions are subject to the Internal
Revenue Service maximum annual limits of
<PAGE>
$9,500 during 1997 and 1996, and $9,240 during 1995. The Company matches
25% of each participant's contribution not in excess of 8% of the
participant's salary.
The Company may, in its sole discretion, contribute to the Plan an amount
to be determined from year to year (the Non-Elective Contribution). Such
contributions would be allocated to the accounts of participants in the
ratio that each participant's compensation for the plan year bears to the
total compensation of all participants for the plan year. There were no
such contributions during 1997, 1996, or 1995.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution
and allocations of the Company's contribution and Plan earnings.
Allocations are based on participant contributions or account balances, as
defined.
VESTING
Participants are immediately vested in their contributions and the actual
earnings thereon. Participants must be employed on December 31 of the plan
year to be entitled to the Company's match for the year. Employees hired
prior to January 1, 1997 are immediately vested in the employer
contributions at December 31 of the plan year. Employees hired January 1,
1997 and thereafter are subject to 5 year cliff vesting for the employer
matching contribution. Forfeited amounts for 1997 totaled $593. Employer
match amounts not vested at December 31, 1997 totaled $3,111.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to
a maximum equal to the lesser of $50,000 or 50 percent of their vested
account balance. Loan terms range from 1-5 years, except loans used to
purchase a primary residence may have a term up to 15 years. All loans
are secured by the balance in the participant's account and bear interest
at a rate commensurate with local prevailing rates as determined by the
Plan administrator. Principal and interest payments must be made monthly.
DISTRIBUTIONS
Upon termination of employment for any reason the participant's account
balance becomes fully payable.
PARTICIPATING EMPLOYERS
The Company is a member of a controlled group of corporations as defined
in Section 414(b) of the Internal Revenue Code. No members of the group
other than the Company participated in the Plan prior to 1996. The
contributions to the Plan for each employer participating in the Plan
during 1997 were as follows:
Employer Employee Rollover
-------- -------- --------
Home Federal Savings Bank $ 45,772 194,954 6,007
Osterud Insurance Agency, Inc. 1,944 7,773 0
------ ------- -----
47,716 202,727 6,007
====== ======= =====
(3) PLAN TERMINATION
The Company, by action of its board of directors, may terminate the Plan.
All participants at the time of such termination shall be 100% vested in
their accounts and shall be entitled to a benefit equal to the value of
their accounts as determined as of the valuation date following
termination.
(4) DESCRIPTION OF INVESTMENT OPTIONS
Participant contributions are invested by the Plan Trustee in accordance
with participant elections, in one or more of the investment options the
Plan offers in increments of 1%.
<PAGE>
S&P MIDCAP STOCK INDEX FUND - The fund invests in the stocks that make up
the Standard & Poor's MidCap 400 Index. The fund is designed to
approximate the total return of the S&P MidCap 400 Index, including
reinvestment of dividends. This fund was available in 1997 and 1996
S&P 500 STOCK INDEX FUND - The fund invests in the stocks that make up the
Standard & Poor's 500 Index. The fund is designed to approximate the
total return of the S&P 500 Index, including reinvestment of dividends.
This fund was available in 1997 and 1996.
STABLE VALUE FUND - The fund invests in a diversified portfolio of fixed
income securities with high quality ratings by major rating services such
as Moody's Investors Service and Standard & Poor's. This fund was
available in 1997 and 1996.
MONEY MARKET FUND - The fund invests primarily in AAA short-term
securities issued by corporations. The average range of weighted
portfolio maturities varies from one to ninety days with most securities
held to maturity. This fund was available in 1997 and 1996.
BOND MARKET FUND - The fund invests in a portfolio of high quality bonds
including U.S. Treasury, agency, corporate, mortgage and asset backed
securities. This fund was available in 1997 and 1996.
HMN FINANCIAL, INC. STOCK - The fund invests in the common stock of HMN
Financial, Inc., the Holding Company of Home Federal Savings Bank. Three
to six percent of the fund is maintained in a Short Term Investment Fund
for liquidity purposes. This fund was available in 1997, 1996, and 1995.
INTERNATIONAL STOCK FUND - The fund invests in foreign stocks in
countries based in Europe, Australia and the Far East. The fund is
designed to approximate the performance of the Morgan Stanley Capital
International (MSCI) EAFE (Europe, Australia, Far East) Index. This
fund became available in June 1997.
ASSET ALLOCATION FUNDS -
Income Plus Fund - The fund invests in a broad range of stable value
securities to reduce short term risk, and in a broad range of large U.S.
and international companies to capture growth potential. This fund became
available in June 1997.
Growth & Income Fund - The fund invests in U.S. and international
stock, U.S. bonds, and stable value investments to pursue long term
appreciation and short term stability. This fund became available in
June 1997.
Growth Fund - The fund invests in a broad range of domestic and
international stock. This fund became available in June 1997.
NATIONWIDE POOLED GIC FUND - The fund invests in a guaranteed investment
contract with an insurance company. This investment option was
available in 1996 and 1995.
FEDERATED CAPITAL PRESERVATION FUND - The fund invests in guaranteed
investment contracts and other stable value products to preserve principal
while earning a competitive rate-of-return. This investment option was
available in 1996 and 1995.
FEDERATED SHORT TERM INCOME FUND - The fund invests in a blend of
mortgage-backed securities, treasuries, and agency securities to provide
income. The activity in this fund has been aggregated with the Bond
Market Fund in the Statement of Changes in Net Assets Available for
Benefits. This investment option was available in 1996 and 1995.
<PAGE>
FIDELITY ASSET MANAGER - The fund invests in stocks, bonds, and short
term instruments to achieve maximum total return. This investment option
was available in 1996 and 1995.
FIDELITY EQUITY INCOME II FUND - The fund invests primarily in equity
security with above-average yields to provide current income. This
investment option was available in 1996 and 1995.
FIDELITY RETIREMENT GROWTH - The fund invests primarily in equity
securities of companies with earnings that are expected to grow at an
above-average rate. This investment option was available in 1996 and
1995.
20TH CENTURY U.S. GOVERNMENT BOND FUND - The fund invests primarily in
securities of the U.S. Government and it's agencies with a weighted
maturity of four years or less. This invesment option was available
in 1995.
NATIONWIDE STOCK FUND - The fund invests primarily in the common stock of
larger companies to achieve capital growth. This investment option was
available in 1995.
20TH CENTURY GROWTH STOCK FUND - The fund invests primarily in common
stocks to achieve capital growth. This investment option was available
in 1995.
(5) NUMBER OF PARTICIPANTS
The number of participants in each investment option as of December 31,
1997 and 1996 were as follows:
1997 1996
----- -----
HMN Financial, Inc. Stock 78 55
Participant Loans 7 3
S&P MidCap Stock Index Fund 92 70
S&P 500 Stock Index Fund 95 74
Stable Value Fund 33 27
Money Market Fund 17 10
Bond Market Fund 35 29
International Stock Fund 11 0
Growth & Income 1 0
Growth 2 0
The total number of participants in the Plan were 111 and 88 at December
31, 1997 and 1996 respectively.
(6) INVESTMENTS
The following investments equal or exceed 5% of net assets available for
plan benefits at December 31, 1997 or 1996:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------- ---------------------------
Fair Fair
market Unrealized market Unrealized
Description Cost value appreciation Cost value appreciation
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S&P MidCap Stock
Index Fund 223,471 287,831 64,360 142,595 156,747 14,152
S&P 500 Stock
Index Fund 250,167 335,885 85,718 193,896 214,731 20,835
Stable Value Fund ** 75,898 77,542 1,644
HMN Financial,
Inc. Stock 462,319 827,112 364,793 323,198 371,719 48,521
</TABLE>
** Not applicable in 1997. Fund is less than 5% of net assets.
<PAGE>
(7) INCOME TAX STATUS
The Internal Revenue Service determined and informed the Company by a letter
dated May 11, 1994, that the Plan and related trust, as then designed, were
in compliance with the provisions of 401(a) of the Internal Revenue Code
(IRC) and were thereby exempt from federal income taxes under Section 501(a)
of the code. The Plan has been amended in its entirety since receiving the
determination letter. However, the Plan administrator and the third party
administrator believe that the Plan is designed and is being operated in
compliance with the applicable requirements of the IRC. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
An employee's pretax contributions under the Plan will reduce the
participant's taxable income for federal and state income tax purposes.
Each participant's portion of earnings from investments made with
contributions under the Plan, generally, are not taxable until distributed
or withdrawn.
(8) PARTY-IN-INTEREST TRANSACTIONS
The Plan engages in investment transactions involving the acquisition or
disposition of HMN Financial, Inc. common stock. HMN Financial, Inc. is the
holding company of Home Federal Savings Bank and is a party-in-interest.
These transactions are covered by an exemption from the "prohibited
transactions" provisions of ERISA and the IRC.
(9) SUBSEQUENT EVENTS
In December, 1997, the Bank purchased Marshalltown Savings Bank (MSB) of
Marshalltown, Iowa. MSB maintained two branches in Marshalltown and one
branch in Toledo, Iowa. Thirty-three full time employees at the three
branches became eligible to participate in the Plan on February 1, 1998.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
Net
Asset Fair
Value market
Description Units Per Unit Cost value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P MidCap Stock Index Fund 13,758 20.9217 223,471 287,831
S&P 500 Stock Index Fund 11,990 28.0148 250,167 335,885
Stable Value Fund 9,874 7.7513 56,237 76,535
Money Market Fund 4,469 5.8075 14,896 25,954
Bond Market Fund 5,938 7.0726 29,796 41,998
International Stock Fund 2,253 9.2146 21,820 20,762
Growth & Income Fund 248 10.3729 2,491 2,572
Growth Fund 248 10.3771 2,499 2,577
*HMN Financial, Inc. Common Stock 41,307 20.0233 462,319 827,112
Participant Loans (9.25% to 10.5%) --- --- 11,689 11,689
- -----------------------------------------------------------------------------
Total investments 1,075,385 1,632,915
- -----------------------------------------------------------------------------
</TABLE>
*Party-in-interest
See accompanying independent auditors' report.
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Item 27-d - Schedule of Reportable 5% Transactions
Series of Transactions (Involving One Security)
Which Exceed 5% of Net Assets Available for Benefits
Year ended December 31, 1997
<TABLE>
<CAPTION>
Total Total
Number dollar Number dollar Total
of value of of value cost of Net
Description of asset purchases purchases sales of sales sales gain
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S&P MidCap
Stock Index Fund 23 131,874 34 59,048 50,998 8,050
S&P 500
Stock Index Fund 25 140,287 33 97,998 84,016 13,982
*HMN Financial, Inc.
Common Stock 29 154,449 23 19,842 15,328 4,514
</TABLE>
*Party-in-interest
There were no individual transactions for the year ended December 31, 1997 that
exceeded 5% of net assets available for benefits.
See accompanying independent auditors' report.
<PAGE>
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
HOME FEDERAL SAVINGS BANK EMPLOYEES'
SAVINGS AND PROFIT SHARING PLAN
Date: June 29, 1998 By: /s/ Roger P. Weise
--------------------
Roger P. Weise
Title: Chief Executive Officer,
Home Federal Savings Bank
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
23 Consent of KPMG Peat Marwick LLP,
certified public accountants
<PAGE>
[logo]
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
HMN Financial, Inc.
We consent to incorporation by reference in the registration
statement (No. 33-88228) on Form S-8 of HMN Financial, Inc. of
our report dated June 19, 1998 and the use of such report in the
annual report on Form 11-K of HMN Financial, Inc. Such report
relates to the statements of net assets available for benefits of
the Home Federal Savings Bank Employees' Savings and Profit
Sharing Plan as of December 31, 1997 and 1996, the related
statements of changes in net assets available for benefits for
each of the years in the three-year period ended December 31,
1997 and the related schedules as of and for the year ended
December 31, 1997.
KPMG Peat Marwick LLP
June 24, 1998
