SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by a registrant / /
Filed by a party other than the registrant /x/
Check the appropriate box:
/ / Preliminary proxy statement. / / Confidential, for use of the
Commission only (as permitted
By Rule 14a-6(e)(2)).
/ / Definitive proxy statement.
/ / Definitive additional materials.
/x/ Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
HMN FINANCIAL, INC.
(Name of Registrant as Specified in Its Charter)
LASALLE FINANCIAL PARTNERS, L.P.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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applies:
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computed pursuant to Exchange Act 0-11.
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/ / Check box if any part of the fee as provided by Exchange Act Rule 0-
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<PAGE>
The filing of the attached material should in no way be deemed
as an admission by LaSalle Financial Partners that such material
constitutes solicitation material pursuant to Section 14 of the Securities
Exchange Act of 1934.
From City Business, February 27, 1998:
Proxy Fight on Main Street
For six decades, HMN Financial, Inc. led a quiet existence.
Although the savings and loan holding company's stock trades on the
NASDAQ, HMN remained out of sight and out of mind, tucked away in the tiny
southeastern Minnesota burg of Spring Valley.
Now the quiet has been shattered and the very existence of HMN
is in question. HMN is the holding company for Minnesota's largest
thrift, $542.3 million-asset Home Federal Savings Bank.
A Kalamazoo, Mich.-based group of investors-La Salle Financial
Partners-is preparing for a proxy fight to get two handpicked candidates
elected to HMN Financial's board of directors. If La Salle, which holds
approximately 9.2 percent of HMN, gets its candidates elected, the
partnership plans to push for radical changes in the company's financial
results, partner Rick Nelson said.
"It'd be very difficult," he said. "I think the only way would
be with a whole new philosophy, new business plan and maybe new
management."
HMN has been interviewing potential presidents, according to a
Twin Cities banking source.
But if HMN's performance fails to improve quickly, then La
Salle wants HMN merged with a stronger institution.
HMN Financial prefers independence, and chairman, president and
CEO Roger Weise has no plans to make the changes demanded by La Salle.
Weise also has little to say about La Salle, other than to characterize
the company as more interested in getting involved than most investors.
"You'd consider them active," Weise said, "as opposed to
passive."
La Salle makes no bones about its aggressive investment style.
"Our investments we make with the idea that either the companies
will improve and improve their performance, thereby improving their share
price or, the alternative, probably merge," said Nelson, who, together
with his wife Florence and Michigan based partner Peter Kross, has
invested $8.5 million in HMN over the past year. "We try to take large
positions in a small amount of companies and try to talk with and work
with management."
That approach hasn't worked with HMN Financial.
La Salle met with the thrift's management this past fall and
told Weise and his colleagues that they wanted a more diverse board of
directors and suggested that the company add Nelson to the group. "We
feel that the makeup of their board and the size of their board is a
little bit unusual."
HMN has a six-member board that includes two active insiders
Weise and executive vice president and chief financial officer James
Gardner and one retired insider. Board member Irma Rathbun served as a
vice president of Home Federal until her retirement in 1988.
"It's not a very diversified, independent board," Nelson said.
HMN balked at the idea of putting Nelson, who said he has served
as a director of three thrifts and spent 20 years in the business himself,
on its board.
"Their response was that they changed their bylaws to require
board members to live in a county in which they have an office," Nelson
said.
Rather than challenge that change Nelson said La Salle had a
strong legal case the partners found two prospective board members who
fit HMN's new requirements. On January 30, La Salle notified HMN that it
planned to nominate two board candidates.
"We've done that type of thing in the past." Nelson said.
HMN has, however, tried to change the makeup of the board.
In early 1997, HMN added Duane Benson, a former state senator
and executive director of the Minnesota Business Partnership.
"I think that their board maybe had a little bit different
flavor in the past." Benson said. That, however, has changed. "It's more
outreach, more variety, more different backgrounds than they historically
have had."
La Salle's candidates are Thomas Burton, president of Rochester-
based Management Services Co., and Howard Stewart, president of Rochester
Technical Services Inc. Both men served as directors of Rochester Savings
and Loan and its successor Reliance Savings and Loan, as well as that
thrift's successor, United Savings and Loan.
Stewart also serves on the board of Rochester-based Kahler Hotel
Corp. and spent eight years as an Olmstead County commissioner.
Burton has served as president, CEO and a director of Waters
Instruments Inc. of Rochester, and has served two terms on the Minnesota
Public Utilities Commission.
Given the reluctance of HMN's leadership to accept La Salle's
proposals, Nelson expects a proxy fight.
"That's our last alternative, our last choice," he said. "We're
probably not going to have any choice."
Approximately 900 shareholders hold stakes in HMN. The biggest
single piece 15.7 percent is owned by an HMN employee stock ownership
plan, but unlike many micro cap thrifts, HMN's stock is not concentrated
with a handful of local owners. Milwaukee-based Heartland Advisors Inc.
also holds a big stake of almost 7 percent.
Though Nelson said La Salle is willing to work with HMN, the
partners have plenty of experience working with reluctant organizations as
well.
"We've invested in companies that have felt the same way," he
said. "Our response is, "Well, we believe your shareholders have a right
to elect whomever they feel should be on the board."
The notice of a proxy fight or any other unpleasant aspect of
being a publicly traded company is new to HMN.
Founded in 1934 as Home Federal Savings Bank, the company spent
the next 60 years as mutual savings bank. In other words, the depositors
owned the company. In February 1994, Home Federal converted from a mutual
company to a stock company. A little over four months later, HMN
Financial went public on June 29, 1994.
Though Weise said HMN wanted to raise capital for expansion,
many small savings and loans have gone public over the years, including
six in Minnesota, for a far different reason; liquidity for the
principals. HMN is by far the largest of the group. The other Wells-
based Wells Financial Corp., Redwood Falls-based Redwood Financial Inc.,
Little Falls based Mississippi View Holding Co., Benidji-based First
Federal Bancorp., and Hutchinson-based FSF Financial Corp. each have
less than $200 million in assets.
Because mutual organizations have no stock, the principals of
such organizations don't build their net worth in the way their colleagues
at stock companies do, said Ben Crabtree, a banking analyst with
Minneapolis-based Dain Rauscher Inc. "Now all of a sudden, you have
options."
But publicly traded financial institutions also have
responsibilities to their shareholders. That's the source of friction
between HMN and La Salle.
As a mutual savings bank, Home Federal's primary responsibility
was to the communities it served. As a public company, Nelson said, it
also has a responsibility to provide a good return to its shareholders.
"The shareholders own the company now . . . when they converted
to a public company, they really sold the company at that time," he said.
"They tend to try to run the company in the same way they did as a
mutual."
In a word, that style is conservative.
HMN offers deposits, certificates of deposits, individual
retirement accounts and retail loans, but it concentrates on the
traditional savings and loan strength: mortgage lending. As a September
30, residential real estate loans accounted for $331.8 million of Home
Federal's $354 million loan portfolio, according to the FDIC.
That is a low-margin business, but unlike many savings and
loans, whey have expanded into commercial lending and related lines of
business banking, HMN is happy to stand by tradition.
"We think we've still stayed conservative to a certain extent,"
Weise said. "We're a pretty traditional thrift right now."
In some respects, the company is far behind most modern
financial institutions. It doesn't have automatic teller machines (ATMs)
at all of its branches, although Weise said the company is adding the
devices to its whole system as a convenience to customers, not as a source
of fee revenue.
That traditional approach irks La Salle Financial Partners.
"They seem to be very typical in their lines of business,"
Nelson said. "They do a lot of mortgage lending. The margins are very
thin."
Though Nelson wants to see HMN, like many other thrifts, attempt
to look and act more like a bank, he admits that the competition is tough
and the prospects of success slim.
"It is very difficult to turn around a thrift." Nelson said.
"For one thing, it depends on your competition."
For another, turning a thrift into a successful commercial bank,
or at least a thrift that operates like one, can lead to problems. "They
start stretching to get into lines of business that they're not good at."
Nelson said. "That happened to many of the thrifts 10 years ago."
Though HMN didn't follow suit, it lacks experience in commercial
lending and the like.
La Salle discovered HMN while scouring the stock markets for
undervalued financial companies. HMN fit the bill.
"It was below typical market values," Nelson said, "mainly
because its performance was also below."
Home Federal's return on equity, which is considered an
important measure of success for banks and thrifts, was 7.67 percent
through the middle of the bank's fiscal year, September 30, according to
information filed with the Federal Deposit Insurance Corp. Though that
figure has improved from 4.87 percent through September 30, 1996
Nelson would prefer an ROE in the 15 percent range.
Through September 30, 1997, all banks and thrifts in Minnesota
had an average ROE of 15.95 percent. By comparison, all Minnesota thrifts
had an average ROE of 8.98 percent.
Home Federal is, however, profitable. The company had earnings
through September 30 of $3.4 million.
Home Federal also fares poorly when compared on the basis of
return on average assets, another key performance measure for financial
institutions. Through September 30, 1997, Home Federal had an ROA of 0.86
percent. Though about average for Minnesota thrifts 0.89 percent that
ROA is low compared to all Minnesota institutions, which had an ROA of
1.38 percent.
Compared to financial institutions with more than $500 million
in assets Home Federal is one of just a handful with at least a half
billion in assets Home Federal is one of just a handful with at least a
half billion in assets Home Federal comes up short as well. The rest of
Minnesota's biggest banks and thrifts had an average ROA of 1.43 percent
and an average ROE of 18.6 percent.
HMN, Nelson said, has no plan that offers the chance for greater
success.
"In fact, the HMN CEO told me the other day that they aren't
going to be able to achieve anywhere near that 15 percent return on
equity" any time soon. Nelson said "There's no plan to do anything
different."
If HMN can't improve or won't try to improve La Salle's
position is that the company owes it to shareholders to consider another
alternative: selling or merging with a more profitable company.
That, Nelson said, has fall on deaf ears.
"So far, all we get is, "We're going to stay independent and we
don't care."
Weise, in stark contrast to Nelson, is satisfied with HMN's
performance.
"I think we've been doing OK," he said. "I don't know that
anybody ever reaches a point where they don't strive to do better."
HMN has taken steps toward improvement. In December, the
company acquired an Iowa-based thrift holding company, Marshalltown
Financial Corp., for $25.9 million in cash, which added two branches to
the seven it operates in six southeastern Minnesota communities.
HMN also has added a mortgage origination office in Eden Prairie
that, given its short operating history, has performed well, Weise said.
HMN also is growing, Benson noted.
It's growing in the old ways that it used to and it's also
growing in new ways with the Marshalltown facilities," he said. The
company also is adding the services and products, such as securities,
found in almost any other bank, although it is taking a slower approach.
"Everybody is looking more and more like each other anymore,"
Benson said. "Our market is still the Albert Leas and Winonas and Spring
Valleys of the world.
"It doesn't mean that we're static on that market, but that our
base is good customer service in those types of communities."
Despite the recent ruckus raised by La Salle Financial, Benson
said HMN is not changing in response to shareholder discontent. "I don't
think that those decisions are being driven by some outside source," he
said.
Nelson, however, has not been impressed, particularly by what he
called the "ill-advised" Marshalltown acquisition. That two-branch thrift
had lower earnings than even HMN, he said.
"Some shareholders bailed out at that time," he said. "Now
you're putting two poor-performing companies together."
Nelson would prefer to unite the under-achieving HMN with a good
performer.
Weise, however, considers Marshalltown a good fit for HMN,
Marshalltown serves central Iowa communities with stable economies,
growing industry and increasing employment opportunities, all of which HMN
looks for in the geographic area served by acquisition targets.
"Marshalltown is a community similar to some we are already in
Minnesota," he said. "I think there's a lot of potential down in
Marshalltown for us."
<PAGE>
Press release dated March 3, 1998:
La Salle Financial Partners Announces Intention to Solicit
Shareholder Votes to Elect One Candidate to the
HMN Financial Board of Directors
La Salle Financial Partners, Limited Partnership, owner of
403,600 shares, or 9.8% of the outstanding shares of HMN Financial, Inc.
(Nasdaq: HMNF), announced today that the Partnership will file proxy
materials with the Securities and Exchange Commission concerning the HMN
Financial annual meeting scheduled for April 28, 1998. La Salle Financial
Partners (together with Richard J. Nelson and Peter T. Kross, presidents
of the general partners of La Salle Financial Partners), as well as Thomas
A. Burton, intends to use those materials to solicit proxies to elect
Thomas A. Burton as a director of HMN Financial.
Thomas A. Burton is President of Management Services Company of
Rochester, Minnesota, and has served as a director of Rochester Savings
and Loan, its successor, Reliance Savings and Loan, and its successor
United Savings and Loan. Mr. Burton also has served as president, chief
executive officer, and a director of Waters Instruments, Inc. of
Rochester, Minnesota, and was appointed by the Governor of the State of
Minnesota to serve two terms as a Public Utilities Commissioner.
Source: La Salle Financial Partners, Limited
Contact: Richard J. Nelson of La Salle Financial Partners, 616-
344-4993
<PAGE>
From The American Banker, March 6, 1998:
SALE-HUNGRY INVESTOR SEEKS SEAT
ON MINNESOTA THRIFT'S BOARD
By Alan Kline
A restless institutional investor is angling for more control of HMN
Financial Inc., a $542 million-asset thrift company in Spring Valley,
Minn.
Frustrated by HMN's lackluster returns, LaSalle Financial Partners, a
Kalamazoo, Michigan, investment firm, has nominated a candidate to the
company's board of directors.
A voice on the board, said LaSalle partner Richard Nelson, would assure
the firm of a say in HMN's future, which may include sale to a competitor.
"Based on what we see, we think the earnings picture is not good for the
company," said Mr. Nelson, whose firm bought a 10% stake in HMN last
April. "And our experience tells us that in most cases merging with a
more profitable company is the best way" to improve earnings.
But Roger Weise, president and chief executive of HMN, said the company is
committed to remaining independent. Management is not supporting
LaSalle's nominee, Thomas A. Burton, a former Minnesota public utilities
commissioner.
The annual meeting is scheduled for next month.
HMN is the parent company of 64-year-old Home Federal Savings Bank.
Given LaSalle's history, Mr. Weise said, he is not surprised that it would
try to gain board representation. "When they buy into a bank, they try to
influence the board," he said.
LaSalle has acquired significant stakes in several banks, and forced their
sale. It was the largest shareholder of Chicago's Standard Financial
Inc., which was sold to Minneapolis-based TCF Financial Corp. last year
for $424 million in cash.
HMN's sluggish financial performance can be traced to overcapitalization,
said Steven L. Covington, vice president of financial institutions
research at Stiefel Nicolaus & Co. in St. Louis.
The company's capital-to-asset ratio is 12.2%, way above the 9% average at
the 29 midwestern thrifts tracked by the company. As a result, HMN's
return on equity for the quarter ended December 31 was 6.09%, just over
half the 11.5% average; and its return on assets was 0.84%, well below the
1.4% average.
Still, Mr. Covington is optimistic that HMN will recover. Though Stiefel
Nicolaus has downgraded its recommendation to "hold," Mr. Covington said
HMN has "outstanding asset quality" and was able to deploy some excess
capital with its recent $26 million acquisition of Iowa's Marshalltown
Financial Corp.
"I think they are moving in the right direction," Mr. Covington said.
"LaSalle is just getting impatient."
But Mr. Nelson questioned the wisdom of acquiring Marshalltown, which
itself had been struggling. "We don't believe that two unprofitable
companies put together make a better company," he said.
LaSalle's nomination of Mr. Burton, announced this week, was not its first
bid for an HMN directorship. Last fall Mr. Nelson asked the six-member
board to add him as a seventh; it refused, and in addition amended the
bylaws to exclude non-Minnesotans.
Asked if he could co-exist with a LaSalle representative on the HMN board,
Mr. Weise said, "Based on their past history, it would not seem possible."
