UNITED STATES
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, 1998.
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-
[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 and Profit Sharing
Plan (the Plan) as of December 31, 1998 and 1997, and the related statements of
changes in net assets available for benefits for the years then ended. 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, 1998 and 1997, and the changes in net assets available for
benefits for the years then ended, 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. These supplemental
schedules are the responsibility of the Plan's management. The fund information
in the statements of net asset available for benefits and the statements of
changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets available for
benefits and 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.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 15, 1999
[logo] Member Firm of KPMG International
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Financial Statements and Supplemental Schedules
December 31, 1998 and 1997
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Net Assets Available for Benefits
December 31, 1998
<TABLE>
<CAPTION>
Participant Directed Funds
-----------------------------------------------------------
PSI PSI
S&P MidCap S&P 500 PSI
Stock Stock Stable
Index Index Value
Fund Fund Fund
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,366,421) $ 320,473 444,589 86,449
Contributions receivable:
Employer 0 0 0
Employee 0 0 0
- ----------------------------------------------------------------------------
Net assets
available for
benefits $ 320,473 444,589 86,449
- ----------------------------------------------------------------------------
<CAPTION>
Participant Directed Funds
------------------------------------------------------------
PSI PSI HMN
Money Bond Financial,
Market Market Inc.
Fund Fund Stock
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,366,421) $ 38,771 51,420 563,711
Contributions receivable:
Employer 0 0 0
Employee 0 0 0
- ---------------------------------------------------------------------------
Net assets
available for
benefits $ 38,771 51,420 563,711
- ---------------------------------------------------------------------------
See accompanying notes to financial statements.
1
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------
PSI PSI PSI
International Income Growth &
Stock Plus Income
Fund Fund Fund
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,336,421) 20,076 17,409 42,016
Contributions receivable:
Employer 0 0 0
Employee 0 0 0
- ---------------------------------------------------------------------------
Net assets
available
for benefits 20,076 17,409 42,016
- ---------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------
PSI
Growth Participant
Fund Loans Unallocated Total
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Total investments at
Fair market value
(Total cost of
$1,366,421) 10,922 13,125 0 1,608,961
Contributions receivable:
Employer 0 0 2,771 2,771
Employee 0 0 11,837 11,837
- ------------------------------------------------------------------------
Net assets
available for
benefits 10,922 13,125 14,608 1,623,569
- ------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<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
----------------------------------------------------
PSI PSI
S&P MidCap S&P 500 PSI
Stock Stock Stable
Index Index Value
Fund Fund Fund
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of
$1,051,547) $ 287,831 335,885 76,535
Contributions receivable:
Employer 0 0 0
Employee 0 0 0
- ------------------------------------------------------------------------
Net assets
available for
benefits $ 287,831 335,885 76,535
- ------------------------------------------------------------------------
See accompanying notes to financial statements.
<CAPTION>
Participant Directed Funds
--------------------------------------------------------
PSI PSI HMN
Money Bond Financial,
Market Market Inc.
Fund Fund Stock
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Investments:
Total investments at
fair market value
(total cost of $1,051,547) $ 25,954 41,998 827,112
Contributions receivable:
Employer 0 0 0
Employee 0 0 0
- --------------------------------------------------------------------------
Net assets
available for
benefits $ 25,954 41,998 827,112
- --------------------------------------------------------------------------
See accompanying notes to financial statements.
3
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------
PSI PSI
International Growth & PSI
Stock Income Growth
Fund Fund Fund
------------------------------------------------------------------------
<S> <C> <C> <C>
Investments
Total investments at
fair market value
(total cost of $1,051,547) 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
- ----------------------------------------------------------------------
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------
Participant
Loans Unallocated Total
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Investments
Total investments at
fair market value
(total cost of $1,051,547) 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>
4
<PAGE>
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1998
<TABLE>
<CAPTION>
Participant Directed Funds
-------------------------------------------------
PSI PSI PSI
S&P MidCap S&P 500 Stable
Stock Index Stock Index Value
Fund Fund Fund
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer $ 14,071 17,579 3,033
Employee 61,330 76,259 12,432
Rollover 284 488 11,412
- -------------------------------------------------------------------------
Total contributions 75,685 94,326 26,877
- -------------------------------------------------------------------------
Withdrawals (45,702) (43,624) (1,184)
- -------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair market
value of investments 27,687 60,342 2,881
Interest 432 324 53
Dividends 0 0 0
Realized gains (losses) 22,834 38,971 1,594
Less asset management fees (1,640) (1,970) (405)
- -------------------------------------------------------------------------
Net investment
income (loss) 49,313 97,667 4,123
- -------------------------------------------------------------------------
Transfers among funds (46,654) (39,665) (19,902)
- -------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 32,642 108,704 9,914
Beginning of year 287,831 335,885 76,535
- -------------------------------------------------------------------------
End of year $ 320,473 444,589 86,449
- -------------------------------------------------------------------------
<PAGE>
<CAPTION>
Participant Directed Funds
---------------------------------------------
PSI PSI
Money Bond HMN
Market Market Financial, Inc.
Fund Fund Stock
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer $ 6,819 2,739 16,159
Employee 24,514 11,526 71,280
Rollover 0 0 15,652
- -------------------------------------------------------------------------
Total contributions 31,333 14,265 103,091
- -------------------------------------------------------------------------
Withdrawals (1,666) (981) (78,215)
- -------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair market
value of investments (813) 4,483 (443,451)
Interest 9 9 1,745
Dividends 1,797 0 8,034
Realized gains (losses) 952 1,582 11,876
Less asset management fees (94) (262) (3,300)
- -------------------------------------------------------------------------
Net investment
income (loss) 1,851 5,812 (425,096)
- -------------------------------------------------------------------------
Transfers among funds (46,654) (9,674) 136,819
- -------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 12,817 9,422 (263,401)
Beginning of year 25,954 41,998 827,112
- -------------------------------------------------------------------------
End of year $ 38,771 51,420 563,711
- -------------------------------------------------------------------------
See accompanying notes to financial statements.
5
<PAGE>
<PAGE>
<CAPTION>
---------------------------------------------------
PSI PSI PSI
International Income Growth &
Stock Plus Income
Fund Fund Fund
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer 948 140 544
Employee 4,041 560 2,316
Rollover 193 13,028 9,789
- -------------------------------------------------------------------------
Total contributions 5,182 13,728 12,649
- -------------------------------------------------------------------------
Withdrawals (174) 0 (2,103)
- -------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair market
value of investments 3,517 1,083 3,816
Interest 0 0 0
Dividends 0 0 0
Realized gains (losses) 13 0 155
Less asset management fees (117) (65) (203)
- ------------------------------------------------------------------------
Net investment
income (loss) 3,413 1,018 3,768
- ------------------------------------------------------------------------
Transfers among funds (9,107) 2,663 25,130
- ------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits (686) 17,409 39,444
Beginning of year 20,762 0 2,572
- ------------------------------------------------------------------------
End of year 20,076 17,409 42,016
- ------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------
PSI
Growth Participant
Fund Loans Unallocated Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contributions:
Employer 904 0 2,771 65,707
Employee 4,790 0 11,837 280,885
Rollover 1,646 0 0 52,492
- ---------------------------------------------------------------------------
Total contributions 7,340 0 14,608 399,084
- ---------------------------------------------------------------------------
Withdrawals (2,178) 0 0 (175,827)
- ---------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair
market value of
investments 1,626 0 0 (338,829)
Interest 0 0 0 2,572
Dividends 0 0 0 9,831
Realized gains (losses) 626 0 0 78,603
Less asset management fees (71) 0 0 (8,127)
- ---------------------------------------------------------------------------
Net investment
income (loss) 2,181 0 0 (255,950)
- ---------------------------------------------------------------------------
Transfers among funds 1,002 1,436 (23,347) 0
- ---------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 8,345 1,436 (8,739) (32,693)
Beginning of year 2,577 11,689 23,347 1,656,262
- ---------------------------------------------------------------------------
End of year 10,922 13,125 14,608 1,623,569
- ---------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<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
------------------------------------------------------------
PSI PSI PSI
S&P MidCap S&P 500 Stable
Stock Index Stock Index Value
Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer $ 12,392 12,903 2,825
Employee 53,036 54,201 11,354
Rollover 2,081 2,081 283
- -----------------------------------------------------------------------------
Total contributions 67,509 69,185 14,462
- -----------------------------------------------------------------------------
Withdrawals (12,973) (6,531) (21)
- -----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair market
value of investments 50,208 64,883 18,653
Interest 0 0 0
Dividends 5,097 3,098 0
Realized gains (losses) 8,050 13,982 (13,127)
Less asset management fees (1,097) (1,507) (425)
- -----------------------------------------------------------------------------
Net investment
income 62,258 80,456 5,101
- -----------------------------------------------------------------------------
Transfers among funds 14,290 (21,956) (20,549)
- -----------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 131,084 121,154 (1,007)
Beginning of year 156,747 214,731 77,542
- -----------------------------------------------------------------------------
End of year $ 287,831 335,885 76,535
- -----------------------------------------------------------------------------
See accompanying notes to financial statements.
<CAPTION>
Participant Directed Funds
--------------------------------------------------------
PSI PSI
Money Bond HMN
Market Market Financial, Inc.
Fund Fund Stock
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions:
Employer $ 4,945 1,762 8,101
Employee 18,973 7,191 37,531
Rollover 362 63 1,137
- ----------------------------------------------------------------------------
Total contributions 24,280 9,016 46,769
- ----------------------------------------------------------------------------
Withdrawals (13) (88) (2,431)
- ----------------------------------------------------------------------------
Investment income:
Unrealized appreciation
(depreciation) on fair market
value of investments 10,611 10,904 316,272
Interest 1,595 1,848 1,696
Dividends 0 0 0
Realized gains (losses) (10,602) (6,383) 4,514
Less asset management fees (95) (275) (1,157)
- ----------------------------------------------------------------------------
Net investment
income 1,509 6,094 321,325
- ----------------------------------------------------------------------------
Transfers among funds (26,891) (18,027) 89,730
- ----------------------------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits (1,115) (3,005) 455,393
Beginning of year 27,069 45,003 371,719
- ----------------------------------------------------------------------------
End of year $ 25,954 41,998 827,112
- ----------------------------------------------------------------------------
See accompanying notes to financial statements.
7
<PAGE>
<CAPTION>
--------------------------------------------------
PSI PSI
International Growth & PSI
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.
8
<PAGE>
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(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 based on average cost.
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. In addition, the Company paid participant accounting
fees totaling $5,427 and $5,100 in 1998 and 1997, 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.
10
<PAGE>
FUNDING POLICY
Participants have had the ability to contribute up to 12% of their
monthly compensation on a pretax basis to the Plan. Participant
contributions are subject to the Internal Revenue Service maximum annual
limits of $10,000 and $9,500 during 1998 and 1997, respectively. The
Company matches 25% of each participant's contribution not in excess of
8% of the participant's annual 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 1998 or 1997.
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 1998 totaled
$8,882, and are used to reduce future employer match obligations.
Employer match amounts not vested at December 31, 1998 totaled $17,010.
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 equal to the prime rate plus 1%. 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. Employees
of HMN Mortgage Services, Inc. began participating in 1998. The
contributions to the Plan for each employer participating in the Plan
during 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ -----------------------------
Employer Employee Rollover Employer Employee Rollover
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Home Federal
Savings Bank $53,496 217,246 47,220 45,772 194,954 6,007
HMN Mortgage
Services, Inc. 10,062 54,254 4,704
Osterud Insurance
Agency, Inc. 2,149 9,385 0 1,944 7,773 0
------ ------- ------ ------ ------- ------
$65,707 280,885 51,924 47,716 202,727 6,007
======== ======== ====== ====== ======= ======
</TABLE>
10
<PAGE>
(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%.
Pentegra Services Inc. (PSI) 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 1998 and 1997.
PSI 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 1998 and 1997.
PSI 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 1998
and 1997.
PSI 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 1998 and 1997.
PSI 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 1998 and 1997.
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 1998 and 1997.
PSI 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 has been available since
June 1997.
PSI Asset Allocation Funds -
--------------------------
PSI 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 has been available since June 1997.
PSI 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
has been available since June 1997.
11
<PAGE>
PSI Growth Fund - The fund invests in a broad range of domestic and
international stock. This fund has beeen available since June 1997.
(5) NUMBER OF PARTICIPANTS
The number of participants in each investment option as of December 31,
1998 and 1997 were as follows:
1998 1997
------ -------
HMN Financial, Inc. Stock 87 78
Participant Loans 6 7
PSI S&P MidCap Stock Index Fund 93 92
PSI S&P 500 Stock Index Fund 103 95
PSI Stable Value Fund 32 33
PSI Money Market Fund 17 17
PSI Bond Market Fund 27 35
PSI International Stock Fund 18 11
PSI Income Plus Fund 2 0
PSI Growth & Income Fund 12 1
PSI Growth Fund 11 2
The total number of participants in the Plan were 144 and 111 at
December 31, 1998 and 1997, respectively. 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.
Full time employees at the three branches became eligible to participate
in the Plan on February 1, 1998.
(6) INVESTMENTS
The following investments equal or exceed 5% of net assets available for
plan benefits at December 31, 1998 or 1997:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
--------------------------
Fair Fair
market market
Description value value
------------------------------------------------------------------
<S> <C> <C>
PSI S&P MidCap Stock Index Fund 320,473 287,831
PSI S&P 500 Stock Index Fund 444,589 335,885
PSI Stable Value Fund 86,449 **
HMN Financial, Inc. Stock 563,711 827,112
</TABLE>
** Not applicable in 1997. Fund is less than 5% of net assets.
(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.
12
<PAGE>
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.
13
<PAGE>
<PAGE>
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
Net
Asset Fair
Value market
Description Units Per Unit Cost value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P MidCap Stock Index Fund 12,915.18 24.8137 214,050 320,473
S&P 500 Stock Index Fund 12,404.15 35.8420 256,651 444,589
Stable Value Fund 10,530.54 8.2093 78,341 86,449
Money Market Fund 6,328.88 6.1261 38,453 38,771
Bond Market Fund 6,389.19 8.0480 41,041 51,420
International Stock Fund 1,826.79 10.9895 17,663 20,076
Income Plus Fund 1,536.71 11.3288 16,326 17,409
Growth & Income Fund 3,507.80 11.9778 38,129 42,016
Growth Fund 846.64 12.8999 9,229 10,922
*HMN Financial, Inc. Stock 50,655.67 11.1283 643,413 563,711
Participant Loans
(9.25% to 9.50%) 13,125.05 1.0000 13,125 13,125
- ------------------------------------------------------------------------
Total investments 1,366,421 1,608,961
- ------------------------------------------------------------------------
</TABLE>
*Party-in-interest
See accompanying independent auditors' report.
14
<PAGE>
<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, 1998
<TABLE>
<CAPTION>
Total Total dollar Total Total Total
Description Number of value of Number of dollar value cost of Net
of asset purchases purchases sales of sales sales gain
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S&P MidCap
Stock Index
Fund 25 87,080 38 104,959 82,125 22,834
S&P 500 Stock
Index Fund 26 104,301 36 94,910 55,939 38,971
*HMN Financial,
Inc. Stock 36 255,281 30 87,106 75,230 11,876
</TABLE>
*Party-in-interest
There were no individual transactions for the year ended December 31, 1998
that exceeded 5% of net assets available for benefits.
See accompanying independent auditors' report.
15
<PAGE>
<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 28, 1999 By: /s/ Michael McNeil
--------------------------
Michael McNeil
Title: President,
Home Federal Savings Bank
EXHIBIT INDEX
Exhibit
Number
- -------
23 Consent of KPMG Peat Marwick LLP,
certified public accountants
<PAGE>
Exhibit 23
Consent of KPMG Peat Marwick LLP
[logo]
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
CONSENT OF INDEPENDENT ACCOUNTANTS
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 15, 1999 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, 1998 and 1997, the related
statements of changes in net assets available for benefits for
the years then ended and the related scheduled as of and for the
year ended December 31, 1998.
/s/ KPMG Peat Marwick LLP
June 28, 1999
[logo] Member Firm of KPMG International
