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, 1999.
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
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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.
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KPMG
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, 1999 and 1998, 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, 1999 and 1998, 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 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements, but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ KPMG LLP
Minneapolis, Minnesota
May 26, 2000
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HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Financial Statements and Supplemental Schedules
December 31, 1999 and 1998
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HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Net Assets Available for Benefits
December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
--------------------------- ------------------------------
<S> <C> <C>
Investments:
Total investments at
fair market value $1,871,517 1,608,961
Contributions receivable:
Employer 0 2,771
Employee 0 11,837
--------------------------- ------------------------------
Net assets
available for
benefits $1,871,517 1,623,569
--------------------------- ------------------------------
</TABLE>
See accompanying notes to financial statements.
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HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------
<S> <C> <C>
Contributions
Employer $ 63,355 65,707
Employee 276,702 280,885
Rollover 45,690 52,492
----------------------------------------------------------
Total contributions 385,747 399,084
----------------------------------------------------------
Withdrawals (290,166) (175,827)
----------------------------------------------------------
Investment income:
Net appreciation
(depreciation) on fair market
value of investments 140,883 (260,226)
Interest 1,751 2,572
Dividends 18,621 9,831
Less asset management fees (8,888) (8,127)
----------------------------------------------------------
Net investment
income (loss) 152,367 (255,950)
----------------------------------------------------------
Increase (decrease) in net
assets available for
plan benefits 247,948 (32,693)
Beginning of year 1,623,569 1,656,262
----------------------------------------------------------
End of year $ 1,871,517 1,623,569
----------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(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 accounting fees totaling $5,700 and
$5,427 in 1999 and 1998, respectively.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
(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).
During 1998, Company employees who had attained the age of 21 were eligible
to participate in the Plan if during the one month period following the date
of employment (or any anniversary thereof) the employee completed 83 1/3 or
more hours of service. During 1999, eligibility requirements were changed to
eliminate the
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hours of service requirement and allow part-time employees to participate in
the Plan. As such, all Company employees who had attained the age of 21 were
eligible to participate in the Plan in 1999.
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 limit of
$10,000 during 1999 and 1998. 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 1999 or 1998.
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 1999 totaled $7,905, and are
used to reduce future employer match obligations. Employer match amounts not
vested at December 31, 1999 totaled $36,755.
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 vested portion of 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 1999 and 1998
were as follows:
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<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Employer Employee Rollover Employer Employee Rollover
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Home Federal
Savings Bank $ 49,312 210,266 45,690 53,496 217,246 47,788
HMN Mortgage
Services, Inc. 10,777 51,935 0 10,062 54,254 4,704
Osterud Insurance
Agency, Inc. 3,266 14,501 0 2,149 9,385 0
------- ------- ------- ------- -------- ------
$ 63,355 276,702 45,690 65,707 280,885 52,492
======= ======= ======= ======= ======== ======
</TABLE>
(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 account balances 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 1999 and
1998.
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 1999 and 1998.
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
1999 and 1998.
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 1999 and 1998.
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 1999 and 1998.
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 1999 and 1998.
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 was available in
1999 and 1998.
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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 was available
in 1999 and 1998.
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 was available in 1999 and 1998.
PSI Growth Fund - The fund invests in a broad range of domestic and
international stock. This fund was available in 1999 and 1998.
(5) NUMBER OF PARTICIPANTS
The number of participants in each investment option as of December 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
HMN Financial, Inc. Stock 85 87
Participant Loans 5 6
PSI S&P MidCap Stock Index Fund 89 93
PSI S&P 500 Stock Index Fund 103 103
PSI Stable Value Fund 26 32
PSI Money Market Fund 15 17
PSI Bond Market Fund 26 27
PSI International Stock Fund 22 18
PSI Income Plus Fund 3 2
PSI Growth & Income Fund 17 12
PSI Growth Fund 16 11
</TABLE>
The total number of participants in the Plan were 169 and 144 at December
31, 1999 and 1998, respectively.
(6) INVESTMENTS
The following investments equal or exceed 5% of net assets available for
plan benefits at December 31, 1999 or 1998:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------
Fair Fair
market market
Description value value
-------------------------------------------------------------
<S> <C> <C>
PSI S&P MidCap Stock Index Fund 379,043 320,473
PSI S&P 500 Stock Index Fund 581,528 444,589
PSI Stable Value Fund ** 86,449
HMN Financial, Inc. Stock 600,112 563,711
</TABLE>
** Not applicable in 1999. Fund is less than 5% of net assets.
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(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 this determination letter. During 1999 the Plan, as
amended, was again submitted to the IRS for determination of its tax
exempt status. A favorable determination was received on March 15, 2000,
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. Also, certain Plan investments are shares of mutual
funds managed by Pentegra Services, Inc. Pentegra is the third party
administrator of the Plan as defined by the Basic Plan Document and is a
party in interest. These transactions are covered by an exemption from the
"prohibited transactions" provisions of ERISA and the IRC.
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HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1999
<TABLE>
<CAPTION>
Fair
market
Description Cost value
-------------------------------------------------------------------
<S> <C> <C>
*PSI S&P MidCap Stock Index Fund $ 247,669 $ 379,043
*PSI S&P 500 Stock Index Fund 337,613 581,528
*PSI Stable Value Fund 52,759 60,326
*PSI Money Market Fund 65,120 65,048
*PSI Bond Market Fund 43,442 46,943
*PSI International Stock Fund 21,932 30,123
*PSI Income Plus Fund 19,323 21,987
*PSI Growth & Income Fund 32,074 38,841
*PSI Growth Fund 24,351 30,258
*HMN Financial, Inc. Stock 702,709 600,112
Participant Loans (8.75% to 9.50%) 17,308 17,308
------------------------------------------------------------------
Total investments $1,564,300 $1,871,517
------------------------------------------------------------------
</TABLE>
*Party-in-interest
See accompanying independent auditors' report.
8
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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: By: /s/ Michael McNeil
--------------------------
Michael McNeil
Title: President
Home Federal Savings Bank
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EXHIBIT INDEX
Exhibit
Number
23 Consent of KPMG LLP,
certified public accountants
