UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) FOR THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-24100
HMN FINANCIAL, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 41-1777397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 North Broadway, Spring Valley, Minnesota 55975-0231
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (507) 346-1100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's common stock
as of the latest practicable date.
Class Outstanding at August 4, 2000
Common stock, $0.01 par value 4,515,760
<PAGE>
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HMN FINANCIAL, INC.
CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1: Financial Statements (unaudited)
Consolidated Balance Sheets at
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
Three Months Ended and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended and Six Months Ended
June 30, 2000 and 1999 5
Consolidated Statement of Stockholders' Equity
for the Six Month Period Ended June 30, 2000 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-14
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-24
Item 3: Quantitative and Qualitative Disclosures about
Market Risk Discussion included in Item 2
under Market Risk 20
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 25
Item 2: Changes in Securities 25
Item 3: Defaults Upon Senior Securities 25
Item 4: Submission of Matters to a Vote of
Security Holders 25
Item 5: Other Information 25
Item 6: Exhibits and Reports on Form 8-K 25
Signatures 26
2
<PAGE>
<PAGE>
PART I - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 11,439,158 9,051,380
Securities available for sale:
Mortgage-backed and related
securities (amortized cost
$90,687,981 and $101,906,303) 89,487,557 100,777,266
Other marketable securities
(amortized cost $72,457,584
and $76,863,919) 67,290,113 72,699,513
----------- -----------
156,777,670 173,476,779
----------- -----------
Loans held for sale 6,065,593 4,083,061
Loans receivable, net 505,280,365 477,895,602
Accrued interest receivable 4,124,036 3,860,454
Federal Home Loan Bank stock, at cost 12,245,000 11,470,000
Mortgage servicing rights, net 1,159,319 1,123,674
Premises and equipment, net 9,086,483 8,530,434
Investment in limited partnerships 3,082,733 2,975,138
Goodwill 4,070,986 4,160,998
Core deposit intangible 910,583 1,026,803
Prepaid expenses and other assets 659,983 639,619
Deferred tax assets 1,307,300 892,500
----------- -----------
Total assets $ 716,209,209 699,186,442
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 401,630,386 400,382,118
Federal Home Loan Bank advances 244,900,000 229,400,000
Accrued interest payable 1,578,650 1,433,111
Advance payments by borrowers for
taxes and insurance 898,607 814,092
Accrued expenses and other liabilities 2,989,970 2,596,253
----------- -----------
Total liabilities 651,997,613 634,625,574
----------- -----------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock:
authorized 500,000 shares;
issued and outstanding none 0 0
Common stock ($.01 par value):
authorized 11,000,000 shares;
issued 9,128,662 shares 91,287 91,287
Additional paid-in capital 59,697,100 59,674,715
Retained earnings, subject
to certain restrictions 71,046,382 68,423,008
Accumulated other comprehensive loss (3,847,395) (3,187,743)
Unearned employee stock
ownership plan shares (5,414,939) (5,511,851)
Unearned compensation restricted
stock awards (13,475) (96,508)
Treasury stock, at cost 4,594,602
and 4,370,285 shares (57,347,364) (54,832,040)
----------- -----------
Total stockholders' equity 64,211,596 64,560,868
----------- -----------
Total liabilities and
stockholders' equity $716,209,209 699,186,442
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------- -----------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 9,953,689 8,763,487 19,396,314 17,407,061
Securities available
for sale:
Mortgage-backed
and related 1,652,504 1,674,934 3,458,176 3,624,430
Other marketable 1,163,766 1,033,641 2,346,282 1,795,779
Cash equivalents 65,786 34,679 103,241 131,231
Other 203,173 153,296 395,935 304,907
---------- ---------- ---------- ----------
Total interest income 13,038,918 11,660,037 25,699,948 23,263,408
---------- ---------- ---------- ----------
Interest expense:
Deposits 4,521,544 4,521,261 8,858,165 9,143,280
Federal Home Loan Bank
advances 3,473,362 2,597,437 6,842,022 5,138,758
Other borrowed money 0 0 0 7,207
---------- ---------- ---------- ----------
Total interest expense 7,994,906 7,118,698 15,700,187 14,289,245
---------- ---------- ---------- ----------
Net interest income 5,044,012 4,541,339 9,999,761 8,974,163
Provision for loan losses 45,000 75,000 90,000 150,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses 4,999,012 4,466,339 9,909,761 8,824,163
---------- ---------- ---------- ----------
Non-interest income:
Fees and service charges 348,071 192,203 604,943 318,997
Mortgage servicing fees 76,664 88,075 155,907 176,708
Securities gains (losses),
net 34,960 23,332 (33,801) 162,770
Gain on sales of loans 293,848 584,682 476,577 1,279,674
Earnings in limited
partnerships 81,858 345,527 118,847 362,594
Other 181,254 98,782 301,872 218,324
---------- ---------- ---------- ----------
Total non-interest
income 1,016,655 1,332,601 1,624,345 2,519,067
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and benefits 1,488,218 1,535,318 3,184,318 2,963,816
Occupancy 464,721 395,968 890,317 816,067
Federal deposit insurance
premiums 20,783 72,608 42,234 145,216
Advertising 88,677 84,045 132,385 153,841
Data processing 191,208 176,836 376,629 361,548
Amortization of mortgage
servicing rights, net of
valuation adjustments and
servicing costs 76,263 151,381 145,280 316,979
Other 618,658 575,437 1,203,290 1,168,016
---------- ---------- ---------- ----------
Total non-interest
expense 2,948,528 2,991,593 5,974,453 5,925,483
---------- ---------- ---------- ----------
Income before income
tax expense 3,067,139 2,807,347 5,559,653 5,417,747
Income tax expense 1,187,000 1,091,000 2,149,800 2,099,400
---------- ---------- ---------- ----------
Net income $ 1,880,139 1,716,347 3,409,853 3,318,347
========== ========== ========== ==========
Basic earnings per share $ 0.48 0.39 0.87 0.74
========== ========== ========== ==========
Diluted earnings per share$ 0.47 0.37 0.84 0.71
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended June 30,
2000 1999
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net income $ 1,880,139 1,716,347
Other comprehensive
income (losses),
net of tax:
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
period 50,682 (1,254,430)
Less: reclassification
adjustment for gains (losses)
included in net income 21,061 18,021
------- ---------
Other comprehensive income (loss) 29,621 (1,272,451)
--------- ----------
Comprehensive income $ 1,909,760 443,896
========= ==========
Six Months Ended June 30,
2000 1999
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net income $ 3,409,853 3,318,347
Other comprehensive
income (losses),
net of tax:
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
period (680,053) (1,149,648)
Less: reclassification
adjustment for gains (losses)
included in net income (20,401) 99,908
------- ---------
Other comprehensive income (loss) (659,652) (1,249,556)
--------- ----------
Comprehensive income $ 2,750,201 2,068,791
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Month Period Ended June 30, 2000
(unaudited)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1999 $ 91,287 59,674,715 68,423,008 (3,187,743)
Net income 3,409,853
Other comprehensive
loss (659,652)
Treasury stock
purchases
Employee stock
options exercised (39,758)
Tax benefits of
exercised stock
options 3,732
Tax benefits of
restricted stock
awards 35,200
Amortization of
restricted stock
awards
Dividends paid (786,479)
Earned employee
stock ownership
plan shares 23,211
----------- ------------- --------------- ---------------
Balance,
June 30, 2000 $ 91,287 59,697,100 71,046,382 (3,847,395)
=========== ============= =============== ===============
<CAPTION>
Unearned
Employee
Stock Unearned
Ownership Compensation Total
Plan Restricted Treasury Stockholders'
Shares Stock Awards Stock Equity
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1999 $ (5,511,851) (96,508) (54,832,040) 64,560,868
Net income 3,409,853
Other
comprehensive loss (659,652)
Treasury stock
purchases (2,705,970) (2,705,970)
Employee stock
options exercised 190,646 150,888
Tax benefits of
exercised stock
options 3,732
Tax benefits of
restricted stock
awards 35,200
Amortization of
restricted
stock awards 83,033 83,033
Dividends paid (786,479)
Earned employee
stock ownership
plan shares 96,912 120,123
-------------- ----------- ------------ ------------
Balance,
June 30, 2000 $ (5,414,939) (13,475) (57,347,364) 64,211,596
============== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,409,853 3,318,347
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 90,000 150,000
Depreciation 436,284 342,174
Amortization of (discounts) premiums, net 1,686 56,106
Amortization of deferred loan fees (101,535) (425,539)
Amortization of goodwill 90,012 90,018
Amortization of core deposit intangible 116,220 116,222
Amortization of other purchase accounting
adjustments (45,989) 50,342
Amortization of mortgage servicing rights
and net valuation adjustments 128,301 316,979
Capitalized mortgage servicing rights (163,946) (327,631)
Increase (decrease) in deferred income taxes 125,500 (145,499)
Securities (gains) losses, net 33,801 (162,770)
Gain on sales of loans (476,577) (1,279,674)
Proceeds from sale of loans held for sale 50,899,525 111,643,954
Disbursements on loans held for sale (51,498,211)(102,349,861)
Principal collected on loans held for sale 10,759 1,099
Amortization of restricted stock awards 83,033 87,523
Amortization of unearned ESOP shares 96,912 96,653
Earned employee stock ownership shares
priced above original cost 23,211 31,226
Decrease (increase) in accrued
interest receivable (263,582) 132,801
Increase in accrued interest payable 145,539 201,946
Equity earnings of limited partnerships (118,847) (362,594)
Increase in other assets (145,864) (618,504)
Increase in other liabilities 432,649 219,668
Other, net 3,503 4,260
----------- -----------
Net cash provided by operating activities 3,312,237 11,187,246
----------- -----------
Cash flows from investing activities:
Proceeds from sales of securities available
for sale 21,512,948 10,943,970
Principal collected on securities available
for sale 4,024,688 33,335,121
Proceeds collected on maturity of securities
available for sale 2,500,000 18,331,000
Purchases of securities available for sale (4,442,111) (57,031,349)
Purchase of mortgage servicing rights 0 (22,443)
Proceeds from sales of loans receivable 196,851 216,156
Purchase of Federal Home Loan Bank stock (775,000) 0
Net increase in loans receivable (36,496,177) (10,126,029)
Purchases of premises and equipment (992,333) (562,201)
------------ ----------
Net cash used by investing activities (14,471,134) (4,915,775)
------------ ----------
Cash flows from financing activities:
Increase (decrease) in deposits 1,303,721 (17,649,118)
Purchase of treasury stock (2,705,970) (2,953,437)
Stock options exercised 150,888 105,915
Dividends to stockholders (786,479) (717,361)
Proceeds from Federal Home Loan
Bank advances 118,000,000 33,100,000
Repayment of Federal Home Loan Bank advances(102,500,000) (26,100,000)
Decrease in other borrowed money 0 (2,500,000)
Increase in advance payments by borrowers
for taxes and insurance 84,515 24,914
----------- -----------
Net cash provided (used) by financing
activities 13,546,675 (16,689,087)
----------- -----------
Increase (decrease)
in cash and cash equivalents 2,387,778 (10,417,616)
Cash and cash equivalents, beginning of period 9,051,380 20,960,957
----------- -----------
Cash and cash equivalents, end of period $ 11,439,158 10,543,341
=========== ===========
Supplemental cash flow disclosures:
Cash paid for interest $ 15,554,648 14,087,299
Cash paid for income taxes 1,313,800 2,554,000
Supplemental noncash flow disclosures:
SBA certificates transferred from
loans to securities available for sale $ 0 2,528,442
Loans securitized and transferred to
securities available for sale 8,106,230 6,913,219
Loans transferred to loans held for sale 912,171 1,670,074
Transfer of loans to real estate 49,653 0
Transfer of real estate to loans 50,140 0
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
(1) HMN FINANCIAL, INC.
HMN Financial, Inc.(HMN) is a stock savings bank holding company which owns 100
percent of Home Federal Savings Bank (the Bank or Home Federal). Home Federal
has a community banking philosophy and operates retail banking facilities in
Minnesota and Iowa. The Bank has two wholly owned subsidiaries, Osterud
Insurance Agency, Inc. (OAI) and MSL Financial Corporation (MSL), which offer
financial planning products and services. As of April 30, 1999 MSL was
dissolved and its assets were transferred to the Bank in exchange for the stock
of MSL. HMN has two other wholly owned subsidiaries, Security Finance
Corporation (SFC) and HMN Mortgage Services, Inc. (MSI). SFC invests in
commercial loans and commercial real-estate loans located throughout the United
States which were originated by third parties. MSI operates a mortgage banking
and mortgage brokerage facility located in Brooklyn Park, Minnesota.
The consolidated financial statements included herein are for HMN, SFC, MSI,
the Bank and the Bank's wholly owned subsidiaries, OAI and MSL. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(2) BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
comprehensive income, consolidated statements of stockholders' equity and
consolidated statements of cash flows in conformity with generally accepted
accounting principles. However, all adjustments consisting of only normal
recurring adjustments which are, in the opinion of management, necessary for
the fair presentation of the interim financial statements have been included.
The statement of income for the three month and six month periods ended June
30, 2000 are not necessarily indicative of the results which may be expected
for the entire year.
Certain amounts in the consolidated financial statements for prior periods have
been reclassified to conform with the current period presentation.
(3) NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.
The accounting for changes in the fair value of a derivative (that is, gains
and losses) depends on the intended use of the derivative and the resulting
designation.
7
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<PAGE>
-For a derivative designated as hedging the exposure to changes in the
fair value of a recognized asset or liability or a firm commitment
(referred to as a fair value hedge), the gain or loss is recognized in
earnings in the period of change together with the offsetting loss or gain
on the hedged item attributable to the risk being hedged. The effect of
that accounting is to reflect in earnings the extent to which the hedge is
not effective in achieving offsetting changes in fair value.
-For a derivative designated as hedging the exposure to variable cash
flows of a forecasted transaction (referred to as a cash flow hedge), the
effective portion of the derivative's gain or loss is initially reported
as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction
affects earnings. The ineffective portion of the gain or loss is reported
in earnings immediately.
-For a derivative designated as hedging the foreign currency exposure of a
net investment in a foreign operation, the gain or loss is reported in
other comprehensive income (outside earnings) as part of the cumulative
translation adjustment. The accounting for a fair value hedge described
above applies to a derivative designated or an available-for-sale
security. Similarly, the accounting for a cash flow hedge described above
applies to a derivative designated as a hedge of the foreign currency
exposure of a foreign-currency-denominated forecasted transaction.
-For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
SFAS No. 133 precludes designating a nonderivative financial instrument as a
hedge of an asset, liability, unrecognized firm commitment, or forecasted
transaction except that a nonderivative instrument denominated in a foreign
currency may be designated as a hedge of the foreign currency exposure of an
unrecognized firm commitment denominated in a foreign currency or a net
investment in a foreign operation.
Originally SFAS No. 133 was effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of SFAS No.
133. In June of 1999 the FASB issued SFAS No. 137 which deferred the required
adoption of SFAS No. 133 to fiscal years starting after June 15, 2000. In June
of 2000 the FASB issued SFAS No. 138 which addresses a limited number of issues
causing implementation difficulties for numerous entities that must apply
Statement No. 133 to their financial statements. SFAS No. 138 also amends
Statement No. 133 for decisions made by the FASB relating to the Derivatives
Implementation Group process. HMN is anticipating that it will adopt SFAS No.
133 in the first quarter of 2001. HMN is currently researching the impact on
its financial condition and results of operations of adopting SFAS No. 133 as
amended by SFAS No. 138.
(4) COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a period from
transactions and other events from nonowner sources. Comprehensive income is
the total of net income and other comprehensive income, which for HMN is
comprised entirely of unrealized gains and losses on securities available for
sale.
The gross unrealized holding gains for the second quarter of 2000 were $76,000,
the income tax expense would have been $25,000 and therefore, the net gain was
$51,000. The gross reclassification adjustment for the second quarter of 2000
was $35,000, the income tax expense would have been $14,000 and therefore, the
8
<PAGE>
<PAGE>
net reclassification adjustment was a gain of $21,000. The gross unrealized
holding losses for the second quarter of 1999 were $2,040,000, the income tax
benefit would have been $786,000 and therefore, the net loss was $1,254,000.
The gross reclassification adjustment for the second quarter of 1999 was
$29,000, the income tax expense would have been $11,000 and therefore, the net
reclassification adjustment was $18,000.
The gross unrealized holding losses for the first six months of 2000 were
$1,108,000, the income tax benefit would have been $428,000 and therefore, the
net loss was $680,000. The gross reclassification adjustment for the first six
months of 2000 was $34,000, the income tax benefit would have been $13,000 and
therefore, the net reclassification adjustment was $21,000. The gross
unrealized holding losses for the six month period ended June 30, 1999 were
$1,880,000, the income tax benefit would have been $730,000 and therefore, the
net loss was $1,150,000. The gross reclassification adjustment for the first
six months of 1999 was $163,000, the income tax expense would have been $63,000
and therefore, the net gain was $100,000.
(5) CASH DIVIDEND
On July 25, 2000 HMN's Board of Directors announced a cash dividend of $0.12
per share, payable on September 11, 2000 to stockholders of record on August
28, 2000.
(6) INVESTMENT IN MORTGAGE SERVICING RIGHTS
A summary of mortgage servicing activity is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Six Months Twelve Months Six Months
ended ended ended
June 30, 2000 Dec 31, 1999 June 30,1999
------------- ------------- ------------
<S> <C> <C> <C>
Mortgage servicing rights
Balance, beginning
of period $ 1,148,774 1,117,193 1,117,193
Originations 163,946 549,639 327,631
Purchases 0 0 22,443
Amortization (149,201) (518,058) (347,558)
---------- ---------- ----------
Balance, end of period 1,163,519 1,148,774 1,119,709
---------- ---------- ----------
Valuation reserve
Balance, beginning of period (25,100) (111,500) (111,500)
Additions 0 0 0
Reductions 20,900 86,400 48,300
---------- ---------- ----------
Balance, end of period (4,200) (25,100) (63,200)
---------- ---------- ----------
Mortgage servicing
rights, net $ 1,159,319 1,123,674 1,056,509
========== ========== ==========
Fair value of mortgage
servicing rights $ 1,418,000 1,329,000 1,192,509
========== ========== ==========
----------------------------------------------------------------------------
</TABLE>
Mortgage servicing costs, which include professional services for valuing
mortgage servicing rights, were $16,980 at June 30, 2000, and $17,720 and
$39,450 for the six and twelve months ended in June and December 1999,
respectively.
9
<PAGE>
<PAGE>
All of the loans being serviced were single family loans serviced for FNMA
under the mortgage-backed security program or the individual loan sale program.
The following is a summary of the risk characteristics of the loans being
serviced at June 30, 2000.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Weighted Weighted
Average Average
Loan Principal Interest Remaining Number
Balance Rate Term of Loans
-------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Original term 30 year
fixed rate $ 63,187,000 7.60% 332 869
Original term 15 year
fixed rate 64,954,000 6.80% 158 1,175
Seven year balloon 691,000 7.00% 336 7
Adjustable rate 6,163,000 7.90% 327 50
--------------------------------------------------------------------------
</TABLE>
(7) INVESTMENT IN LIMITED PARTNERSHIPS
Investments in limited partnerships were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
June 30, December 31,
Primary partnership activity 2000 1999
----------------------------- -------------- ---------------
<S> <C> <C>
Mortgage servicing rights $ 2,393,902 2,222,094
Common stock of financial
institutions 376,332 415,576
Low to moderate income housing 312,499 337,468
-------------- ----------------
$ 3,082,733 2,975,138
============== ================
</TABLE>
-----------------------------------------------------------------------
During the second quarter of 2000 HMN's proportionate revenue from a mortgage
servicing partnership (which included the reduction of previously established
impairment reserves of $108,400) was $123,500, its proportionate share of
losses from common stock investments in financial institutions was $35,100 and
it recognized $6,500 of losses on low income housing partnerships. During 2000
HMN anticipates receiving low income housing credits totaling $80,000, of which
$20,000 were credited to current income tax benefits in the second quarter.
During the second quarter of 1999 HMN's proportionate revenue from a mortgage
servicing partnership (which included the reduction of previously established
impairment reserves of $381,700) was $323,200, its proportionate share of gains
from the common stock investments in financial institutions was $28,800 and it
recognized $6,500 of losses on the low income housing partnerships. During 1999
HMN received low income housing credits totaling $80,000, of which $20,000 were
credited to current income tax benefits in the second quarter of 1999.
During the six month period ended June 30, 2000 HMN's proportionate revenue
from a mortgage servicing partnership (which included the reduction of
previously established impairment reserves of $118,000) was $171,800, its
proportionate share of losses from the common stock investments in financial
institutions was $39,200 and it recognized $13,800 of losses on the low income
housing partnerships. During 2000 HMN anticipates receiving low income housing
credits totaling $80,000, of which $40,000 were credited to current income tax
benefits in the six month period ended June 30, 2000. During the six month
period ended June 30, 1999 HMN's proportionate revenue from a mortgage
servicing partnership (which included the reduction of previously established
impairment reserves of $497,000) was $384,400, its proportionate share of gains
from the common stock investments in financial institutions was $15,100 and it
recognized $36,900 of losses on the low income housing partnerships. During
1999 HMN received low income housing credits totaling $80,000, of which $40,000
were credited to current income tax benefits in the six month period ended June
30, 1999.
10
<PAGE>
<PAGE>
(8) EARNINGS PER SHARE
The following table reconciles the weighted average shares outstanding and the
income available to common shareholders used for basic and diluted EPS:
<TABLE>
<CAPTION>
Three months Six Months
ended June 30, ended June 30,
----------------------- ---------------------
2000 1999 2000 1999
----------------------- ---------------------
<S> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding used in
basic earnings per
common share
calculation 3,881,190 4,422,471 3,939,614 4,465,679
Net dilutive effect of:
Options 114,259 167,858 114,612 177,041
Restricted stock awards 1,881 20,019 2,584 23,267
--------- --------- --------- ---------
Weighted average number
of shares outstanding
adjusted for effect of
dilutive securities 3,997,330 4,610,348 4,056,810 4,665,987
========= ========= ========= =========
Income available to
common shareholders $ 1,880,139 1,716,347 3,409,853 3,318,347
Basic earnings per
common share $ 0.48 0.39 0.87 0.74
Diluted earnings
per common share $ 0.47 0.37 0.84 0.71
</TABLE>
(9) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on HMN's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of Tier I or Core capital and Risk-based capital (as defined
in the regulations) to total assets (as defined). Management believes, as of
June 30, 2000, that the Bank meets all capital adequacy requirements to which
it is subject.
Management believes that based upon the Bank's capital calculations at June 30,
2000 and other conditions consistent with the Prompt Corrective Actions
Provisions of the OTS regulations, the Bank would be categorized as well
capitalized.
11
<PAGE>
<PAGE>
On June 30, 2000 the Bank's tangible assets and adjusted total assets were
$699.4 million and its risk-weighted assets were $421.1 million. The following
table presents the Bank's capital amounts and ratios at June 30, 2000 for
actual capital, required capital and excess capital including ratios in order
to qualify as being well capitalized under the Prompt Corrective Actions
regulations.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Required to be
Adequately
Actual Capitalized
---------------------- ----------------------
Percent of Percent of
(in thousands) Amount Assets(1) Amount Assets (1)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Bank stockholder's equity $49,779
Plus:
Net unrealized loss on
certain securities
available for sale 2,436
Less:
Goodwill and
other intangibles 4,981
Excess mortgage
servicing rights 239
-------
Tier I or core capital 46,995
-------
Tier I capital to adjusted
total assets 6.72% 27,975 4.00%
Tier I capital to risk-
weighted assets 11.16% $ 16,843 4.00%
Less:
Equity investments & other
assets required to be
deducted 11
Plus:
Allowable allowance for
loan losses 3,330
-------
Risk-based capital $50,314 $ 33,687
=======
Risk-based capital to risk-
weighted assets 11.95% 8.00%
<CAPTION>
To Be Well Capitalized
Under Prompt
Corrective Actions
Excess CapitalProvisions
---------------------- ----------------------
Percent of Percent of
(in thousands) Amount Assets (1) Amount Assets (1)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Bank stockholder's equity
Plus:
Net unrealized loss on
certain securities
available for sale
Less:
Goodwill and other
intangibles
Excess mortgage
servicing rights
Tier I or core capital
Tier I capital to
adjusted total assets $ 19,020 2.72% $ 34,969 5.00%
Tier I capital to risk-
weighted assets $ 30,152 7.16% $ 25,265 6.00%
Less:
Equity investments &
other assets required
to be deducted
Plus:
Allowable allowance for
loan losses
Risk-based capital $ 16,627 $ 42,109
Risk-based capital to risk-
weighted assets 3.95% 10.00%
(1) Based upon the Bank's adjusted total assets for the purpose of the tangible
and core capital ratios and risk-weighted assets for the purpose of the risk-
based capital ratio.
</TABLE>
The tangible capital of the Bank was in excess of the minimum 2% required at
June 30, 2000 but is not reflected in the table above.
(10) BUSINESS SEGMENTS
HMN's wholly owned subsidiaries, Home Federal Savings Bank, and Mortgage
Services, Inc. have been identified as reportable operating segments in
accordance with the provisions of SFAS 131. MSI was deemed to be a segment
because it is a separate corporation which operates independently from the Bank
and it is not regulated by the Office of Thrift Supervision. MSI has been
segmented further into Mortgage Servicing Rights and Mortgage Banking
activities. The mortgage servicing segment owns servicing rights on loans
which have either been sold to FNMA or securitized into mortgage backed
instruments which were issued by FNMA. MSI receives a servicing fee which is
based upon the outstanding balance of the loan being serviced and pays a
subservicer a monthly fee to service the loan. MSI's mortgage banking activity
includes an origination function and it also purchases loans from other loan
originators. All loans acquired either by origination or by purchase are
intended to be resold in the secondary loan market.
Security Finance Corporation and HMN, the holding company, did not meet the
quantitative thresholds for determining reportable segments and therefore are
included in the "Other" category.
12
<PAGE>
<PAGE>
HMN evaluates performance and allocates resources based on the segment's net
income or loss, return on average assets and return on average equity. Each
corporation is managed separately with its own president, who reports directly
to HMN's chief operating decision maker, and board of directors.
The following table sets forth certain information about the reconciliations of
reported profit or loss and assets for each of HMN's reportable segments.
<TABLE>
<CAPTION>
HMN Mortgage Services, Inc.
---------------------------------
Total
Home Federal Mortgage Servicing Mortgage Reportable
(Dollars in thousands) Savings Bank Rights Banking Segments
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At or for the three
months ended
June 30, 2000:
Interest income -
external customers $ 12,817 0 68 12,885
Non-interest income -
external customers 762 7 163 932
Earnings (loss) on
limited partnerships 117 0 0 117
Intersegment interest income 0 0 0 0
Intersegment non-interest
income 100 0 0 100
Interest expense 7,995 0 52 8,047
Amortization of mortgage
servicing rights and net
valuation adjustments 61 6 0 67
Other non-interest
expense 2,593 9 236 2,838
Income tax expense
(benefit) 1,217 (3) (23) 1,191
Net income (loss) 1,885 (5) (34) 1,846
Total assets 702,155 210 6,229 708,594
Net interest margin 2.88% NM NM NM
Return on average assets 1.09% (9.59)% (3.81)% NM
Return on average
realized common equity 14.38% (30.17)% (11.61)% NM
At or for the three months ended
June 30, 1999:
Interest income -
external customers $ 11,363 0 95 11,458
Non-interest income -
external customers 645 23 317 985
Earnings (loss) on limited
partnerships 317 0 0 317
Intersegment interest income 18 0 0 18
Intersegment non-interest
income 85 0 0 85
Interest expense 7,118 0 84 7,202
Amortization of mortgage
servicing rights and net
valuation adjustments 61 72 0 133
Other non-interest
expense 2,483 15 300 2,798
Income tax expense
(benefit) 1,057 (25) 11 1,043
Net income (loss) 1,633 (39) 17 1,611
Total assets 661,008 231 6,938 668,177
Net interest margin 2.67% NM NM NM
Return on average assets 0.99% (57.97)% 1.15% NM
Return on average realized
common equity 13.03% (268.16)% 5.32% NM
NM - Not meaningful
(Dollars in thousands)
Other Eliminations Consolidated Total
At or for the three
months ended
June 30, 2000:
Interest income -
external customers $ 154 0 13,039
Non-interest income -
external customers 2 0 934
Earnings (loss) on
limited partnerships (35) 0 82
Intersegment interest
income 64 (64) 0
Intersegment non-
interest income 1,854 (1,954) 0
Interest expense 12 (64) 7,995
Amortization of
mortgage servicing
rights and net
valuation adjustments 0 0 67
Other non-interest expense 143 (100) 2,881
Income tax expense (benefit) (4) 0 1,187
Net income (loss) 1,888 (1,854) 1,880
Total assets 65,903 (58,288) 716,209
Net interest margin NM NM 2.95 %
Return on average assets NM NM 1.06 %
Return on average realized
common equity NM NM 11.07 %
At or for the three
months ended
June 30, 1999:
Interest income -
external customers $ 202 0 11,660
Non-interest income -
external customers 1 0 986
Earnings (loss) on
limited partnerships 29 0 346
Intersegment interest
income 115 (133) 0
Intersegment non-
interest income 1,629 (1,714) 0
Interest expense 49 (133) 7,118
Amortization of mortgage
servicing rights and net
valuation adjustments 0 0 133
Other non-interest expense 145 (85) 2,858
Income tax expense (benefit) 48 0 1,091
Net income (loss) 1,734 (1,629) 1,716
Total assets 69,999 (58,202) 679,974
Net interest margin NM NM 2.76%
Return on average assets NM NM 1.01%
Return on average realized
common equity NM NM 9.83%
NM - Not meaningful
</TABLE>
13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
HMN Mortgage Services, Inc.
---------------------------------
Total
Home Federal Mortgage Servicing Mortgage Reportable
(Dollars in thousands) Savings Bank Rights Banking Segments
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At or for the six months
ended June 30, 2000:
Interest income -
external customers $ 25,238 0 116 25,354
Non-interest income -
external customers 1,209 29 263 1,501
Earnings (loss) on
limited partnerships 158 0 0 158
Intersegment interest
income 0 0 0 0
Intersegment non-interest
income 191 0 0 191
Interest expense 15,700 0 85 15,785
Amortization of mortgage
servicing rights and net
valuation adjustments 116 12 0 128
Other non-interest
expense 5,284 17 483 5,784
Income tax expense (benefit)2,198 0 (76) 2,122
Net income (loss) 3,408 0 (113) 3,295
Total assets 702,155 210 6,229 708,594
Net interest margin 2.86% NM NM NM
Return on average assets 0.99% (0.04)% (10.28)% NM
Return on average realized
common equity 13.10% (1.20)% (26.02)% NM
At or for the six months
ended June 30, 1999:
Interest income -
external customers $ 22,689 0 172 22,861
Non-interest income -
external customers 1,461 55 595 2,111
Earnings (loss) on limited
partnerships 348 0 0 348
Intersegment interest
income 20 0 0 20
Intersegment non-
interest income 165 0 0 165
Interest expense 14,282 0 162 14,444
Amortization of mortgage
servicing rights and net
valuation adjustments 118 181 0 299
Other non-interest
expense 4,917 18 582 5,517
Income tax expense
(benefit) 2,044 (56) 8 1,996
Net income (loss) 3,172 (88) 15 3,099
Total assets 661,008 231 6,938 668,177
Net interest margin 2.65% NM NM NM
Return on average assets 0.96% (57.88)% 0.51% NM
Return on average
realized common equity 12.91% (160.37)% 1.47% NM
NM - Not meaningful
(Dollars in thousands)
Other Eliminations Consolidated Total
At or for the six months
ended June 30, 2000:
Interest income -
external customers $ 346 0 25,700
Non-interest income -
external customers 4 0 1,505
Earnings (loss) on
limited partnerships (39) 0 119
Intersegment interest
income 127 (127) 0
Intersegment non-
interest income 3,315 (3,506) 0
Interest expense 42 (127) 15,700
Amortization of mortgage
servicing rights and net
valuation adjustments 0 0 128
Other non-interest
expense 253 (191) 5,846
Income tax expense
(benefit) 28 0 2,150
Net income (loss) 3,430 (3,315) 3,410
Total assets 65,903 (58,288) 716,209
Net interest margin NM NM 2.94 %
Return on average assets NM NM 0.97 %
Return on average
realized common equity NM NM 10.04 %
At or for the six months ended
June 30, 1999:
Interest income -
external customers $ 402 0 23,263
Non-interest income -
external customers 44 0 2,155
Earnings (loss) on
limited partnerships 15 0 363
Intersegment interest
income 223 (243) 0
Intersegment non-
interest income 3,135 (3,300) 0
Interest expense 88 (243) 14,289
Amortization of mortgage
servicing rights and net
valuation adjustments 0 0 299
Other non-interest
expense 274 (165) 5,626
Income tax expense
(benefit) 103 0 2,099
Net income (loss) 3,354 (3,135) 3,318
Total assets 69,999 (58,202) 679,974
Net interest margin NM NM 2.74%
Return on average assets NM NM 0.98%
Return on average
realized common equity NM NM 9.57%
NM - Not meaningful
</TABLE>
14
<PAGE>
<PAGE>
HMN FINANCIAL, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
HMN's net income is dependent primarily on its net interest income, which is
the difference between interest earned on its loans and investments and the
interest paid on interest-bearing liabilities. Net interest income is
determined by (i) the difference between the yield earned on interest-earning
assets and rates paid on interest-bearing liabilities (interest rate spread)
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. HMN's interest rate spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and deposit
flows. Net interest margin is calculated by dividing net interest income by
the average interest-earning assets and is normally expressed as a percentage.
Net interest income and net interest margin are affected by changes in interest
rates, the volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. HMN's net income is also
affected by the generation of non-interest income, which primarily consists of
gains from the sale of securities, gains from sale of loans, service charges,
fees and other income. In addition, net income is affected by the level of
operating expenses, provisions made for loan losses and impairment reserve
adjustments required on mortgage servicing assets.
The operations of financial institutions, including the Bank, are significantly
affected by prevailing economic conditions, competition and the monetary and
fiscal policies of governmental agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of funds
are influenced by prevailing market rates of interest primarily on competing
investments, account maturities and the levels of personal income and savings
in the market area of the Bank.
NET INCOME
HMN's net income for the second quarter of 2000 was $1.9 million, an increase
of $164,000 or 9.5%, compared to net income of $1.7 million for the second
quarter of 1999. Basic earnings per share were $0.48 for the quarter ended
June 30, 2000, an increase of $0.09 per share or 23.1%, from $0.39 basic
earnings per share for the same quarter of 1999. Diluted earnings per share
were $0.47 for the second quarter of 2000, an increase of $0.10 or 27.0%, from
$0.37 diluted earnings per share for the second quarter of 1999. Basic and
diluted earnings per share increased from the second quarter of 1999 to the
second quarter of 2000 by 23.1% and 27.0%, respectively, while net income
increased 9.5% due primarily to HMN's treasury stock purchase program. The
average number of outstanding shares for the basic earnings per share
calculation declined by 541,281 shares from 4,422,471 at June 30, 1999 to
3,881,190 at June 30, 2000. The average number of outstanding shares for the
diluted earnings per share calculation declined by 613,018 shares from
4,610,348 at June 30, 1999, to 3,997,330 at June 30, 2000.
HMN's net income for the six months ended June 30, 2000 was $3.4 million, an
increase of $92,000 or 2.8%, compared to net income of $3.3 million for the
same six month period of 1999. Basic earnings per share were $0.87 for the six
months ended June 30, 2000, an increase of $0.13 per share or 17.6%, from $0.74
basic earnings per share for the same six month period of 1999. Diluted
earnings per share were $0.84 for the six months ended June 30, 2000, an
increase of $0.13 or 18.3%, from $0.71 diluted earnings per share for the same
six month period of 1999. Basic and diluted earnings per share increased by
17.6% and 18.3%, respectively from the six month period ended June 30, 1999 to
the same period of 2000, while net income increased 2.8% due primarily to HMN's
treasury stock purchase program. The average number of outstanding shares for
the basic earnings per share calculation declined by 526,065 shares from
4,465,679 at June 30, 1999 to 3,939,614 at June 30, 2000. The average number of
outstanding shares for the diluted earnings per share calculation declined by
609,177 shares from 4,665,987 at June 30, 1999, to 4,056,810 at June 30, 2000.
15
<PAGE>
<PAGE>
NET INTEREST INCOME
Net interest income for the second quarter of 2000 was $5.0 million, an
increase of $502,000, or 11.1%, compared to $4.5 million for the second quarter
of 1999. Interest income for the second quarter of 2000 was $13.0 million, an
increase of $1.4 million, or 11.8%, compared to $11.7 million for the second
quarter of 1999. Interest income increased by $489,000 due to a $27.6 million
net increase in average interest-earning assets from the second quarter of 1999
to the second quarter of 2000. The increase in average interest-earning assets
is the result of HMN's emphasis on originating and/or purchasing commercial
real estate loans, commercial business loans and consumer loans which generally
have higher interest rates and shorter terms to maturity than single family
fixed-rate residential loans. Interest income increased by $890,000 due to
higher interest rates being earned on the types of loans being added to the
portfolio and also due to a general increase in interest rates from the second
quarter of 1999 to the second quarter of 2000. The yield earned on
interest-earning assets increased from 7.09% at June 30, 1999, to 7.63% at June
30, 2000.
Interest expense was $8.0 million for the second quarter of 2000, an increase
of $876,000, or 12.3%, compared to $7.1 million for the same quarter of 1999.
Interest expense on Federal Home Loan Bank (FHLB) advances was $3.5 million for
the second quarter of 2000, an increase of $876,000, or 33.7%, from $2.6
million for the second quarter of 1999. Interest expense increased by $689,000
due to a $48.0 million increase in the average outstanding advances from the
FHLB. The advances were used to fund the growth in loans and replace funds
lost to deposit outflows. Interest expense increased by $187,000 due to an
increase in the cost of borrowing from the FHLB due to rising interest rates
between the two periods. The average interest rate paid on the average
interest-bearing liabilities was 5.06% during the second quarter of 2000,
compared to 4.72% for the second quarter of 1999.
Net interest margin (net interest income divided by average interest earning
assets) for the second quarter of 2000 was 2.95%, an increase of 19 basis
points, compared to 2.76% for the second quarter of 1999.
Net interest income for the six month period ended June 30, 2000 was $10.0
million, an increase of $1.0 million, or 11.4%, compared to $9.0 million for
the same period of 1999. Interest income for the six month period of 2000 was
$25.7 million, an increase of $2.4 million, or 10.5%, compared to $23.3 million
for the same period of 1999. Interest income increased by $918,000 due to a
$24.7 million net increase in average interest-earning assets from the six
month period of 1999 to the same period of 2000. The increase in average
interest-earning assets is the result of HMN's emphasis on originating and/or
purchasing commercial real estate loans, commercial business loans and consumer
loans which generally have higher interest rates and shorter terms to maturity
than single family fixed-rate residential loans. Interest income increased by
$1.5 million due to higher interest rates being earned on the types of loans
being added to the portfolio and also due to a general increase in interest
rates from the six month period ended June 30, 1999 to the same period of 2000.
The yield earned on interest-earning assets increased from 7.11% at June 30,
1999, to 7.55% at June 30, 2000.
Interest expense was $15.7 million for the six months ended June 30, 2000, an
increase of $1.4 million, or 9.9%, compared to $14.3 million for the same six
month period of 1999. Interest expense on FHLB advances was $6.8 million for
the six month period of 2000, an increase of $1.7 million, or 33.1%, from $5.1
million for the same period of 1999. Interest expense increased by $1.4
million due to a $47.6 million increase in the average outstanding advances
from the FHLB. The advances were used to fund the growth in loans and replace
funds lost to deposit outflows. Interest expense increased by $319,000 due to
an increase in the cost of borrowing from the FHLB due to rising interest rates
between the two periods. The increase in interest expense due to the FHLB
advances was partially offset by a $282,000 decrease in interest paid on
deposits. The average interest rate paid on the average interest-bearing
liabilities was 4.99% during the six months ended June 30, 2000, compared to
4.76% for the same period of 1999.
Net interest margin (net interest income divided by average interest earning
assets) for the six months ended June 30, 2000, was 2.94%, an increase of 20
basis points, compared to 2.74% for the same period of 1999.
16
<PAGE>
<PAGE>
PROVISION FOR LOAN LOSSES
*The provision for loan losses for the second quarter ended June 30, 2000 was
$45,000, a decrease of $30,000, or 40.0%, compared to $75,000 for the second
quarter of 1999. The provision for loan losses for the six months ended June
30, 2000 was $90,000, a decrease of $60,000, or 40.0% compared to $150,000 for
the same six month period ended in 1999. The provision is the result of
management's evaluation of the loan portfolio, a historically low level of
non-performing loans, minimal loan charge-off experience, and its assessment of
the general economic conditions in the geographic area where properties
securing the loan portfolio are located such as national and regional
unemployment data, single family loan delinquencies as reported separately by
the Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC), local single family construction permits and
local economic growth rates. Management's evaluation of probable losses
inherent in the loan portfolio revealed conditions that resulted in decreasing
the 2000 loan loss provision compared to the provision for 1999. HMN will
continue to monitor its allowance for losses as these conditions dictate.
Future economic conditions and other unknown factors will impact the need for
future provisions for loan losses. As a result, no assurances can be given
that increases in the allowance for loan losses will not be required during
future periods.
A reconciliation of HMN's allowance for loan losses is summarized as follows:
2000 1999
---------- ----------
Balance at January 1, $ 3,273,311 $ 3,041,485
Provision 90,000 150,000
Charge-offs (2,993) (4,675)
Recoveries 425 840
---------- ----------
Balance at June 30, $ 3,360,743 $ 3,187,650
========== ==========
NON-INTEREST INCOME
Non-interest income was $1.0 million for the second quarter of 2000, a decrease
of $316,000, or 23.7%, from $1.3 million for the second quarter of 1999. The
decrease in non-interest income was primarily due to a $291,000 decline in
gains recognized on the sale of loans and a $264,000 decline in earnings from
limited partnerships. Due to a general increase in interest rates which
started in 1999 and carried over into the second quarter 2000, single family
conforming loan production declined from the second quarter of 1999, compared
to the second quarter of 2000. The lower conforming loan production equated to
a lower gain on the sale of loans being recorded between the two quarters. The
earnings from limited partnerships declined because the market value of the
mortgage servicing asset portfolio is nearing the top of its potential value as
the result of rising interest rates. The earnings from limited partnerships
was also impacted by the depressed market value assigned to the stock of
financial institutions. The decrease in non-interest income was partially
offset by an increase of $156,000 in fees and service charges on deposit
related accounts and loans and an $82,000 increase in other income primarily
due to commissions earned from the sale of personal financial planning products
and services.
Non-interest income was $1.6 million for the six months ended June 30, 2000, a
decrease of $895,000, or 35.5%, from $2.5 million for the same six month period
of 1999. The decrease in non-interest income was primarily due to a $803,000
decline in gains recognized on the sale of loans, a $197,000 decline in gain
recognized from the sale of securities and a $244,000 decline in earnings from
limited partnerships. Due to a general increase in interest rates which
started in 1999 and carried over into the second quarter 2000, single family
conforming loan production declined from 1999, compared to 2000. The lower
conforming loan production equated to a lower gain on the sale of loans being
recorded between the two six month periods. The increase in interest rates has
also affected the ability of HMN to sell securities from its available for sale
portfolio at a gain. The earnings from limited partnerships declined because
the market value of the mortgage servicing asset portfolio is nearing the top
of its potential value as the result of rising interest rates. The earnings
from limited partnerships was also impacted by the depressed market value
* This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 20 of this discussion.
17
<PAGE>
<PAGE>
assigned to the stock of financial institutions. The decrease in non-interest
income was partially offset by an increase of $286,000 in fees and service
charges on deposit related accounts and loans and an $84,000 increase in other
income primarily due to commissions earned from the sale of personal financial
planning products and services.
NON-INTEREST EXPENSE
Non-interest expense was $2.95 million for the second quarter of 2000, a
decrease of $43,000, or 1.4%, from $3.0 million for the second quarter of 1999.
Compensation and benefits expense decreased by $47,000, or 3.1%, due primarily
to less commissions paid on lower loan production and reduced claims experience
for the self funded health benefit plan which were partially offset by annual
pay increases and increases in the number of employees in the work force.
Occupancy costs increased by $69,000 primarily due to additional depreciation
and other costs related to equipment. Amortization of mortgage servicing
rights, net of valuation adjustments and servicing costs decreased by $75,000
due to a change in the estimated time over which the servicing fees will be
collected. FDIC premiums and advertising expenses decreased a total of $47,000
between the two quarters.
Non-interest expense was $5.97 million for the six months ended June 30, 2000,
an increase of $49,000, or 1.0%, from $5.93 million for the same six month
period of 1999. Compensation and benefits expense increased by $221,000, or
7.4%, due primarily to annual pay increases, increases in the number of
employees in the work force and an increase in claims on the self funded health
benefit plan during the first quarter of 2000. The overall increase in
compensation expense was reduced because less commissions were paid due to
lower loan production occurring during the six months ended June 30, 2000
compared to the same period of 1999. Occupancy costs increased by $74,000
primarily due to additional depreciation and other costs related to equipment.
Amortization of mortgage servicing rights, net of valuation adjustments and
servicing costs decreased by $172,000 due to a change in the estimated time
over which the servicing fees will be collected. FDIC premiums and advertising
expenses decreased a total of $124,000 between the two six month periods.
INCOME TAX EXPENSE
Income tax expense was $1.19 million for the second quarter of 2000, an
increase of $96,000 compared to $1.09 million for the second quarter of 1999.
Income tax expense was $2.15 million for the six months ended June 30, 2000, an
increase of $50,000 compared to $2.10 million for the same six month period of
1999. The increases in income taxes are primarily due to increases in taxable
income.
18
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<PAGE>
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of non-performing
assets in the Bank's portfolio at June 30, 2000 and December 31, 1999.
June 30, December 31,
(Dollars in Thousands) 2000 1999
----------- ------------
Non-Accruing Loans
One-to-four family real estate $ 534 164
Nonresidential real estate 0 0
Consumer 151 178
--- ---
Total 685 342
--- ---
Accruing loans delinquent 90
days or more 5 476
--- ---
Foreclosed Assets
Real estate:
One-to-four family 0 0
--- ---
Total non-performing assets $ 690 $ 818
=== ===
Total as a percentage of total assets 0.10% 0.12%
==== ====
Total non-performing loans $ 690 $ 818
==== ====
Total as a percentage of total
loans receivable, net 0.14% 0.17%
==== ====
Total non-performing assets at June 30, 2000 were $690,000, a decrease of
$128,000, from $818,000 at December 31, 1999. The net decrease of $128,000 was
the result of a $343,000 increase in non-accruing loans which were offset by a
$471,000 decrease in accruing loans delinquent 90 days or more.
DIVIDENDS
On July 25, 2000 HMN declared a cash dividend of $.12 per share, payable on
September 11, 2000 to shareholders of record on August 28, 2000.
During 2000, HMN has declared and paid dividends as follows:
Record date Payable date Dividend per share Dividend Payout Ratio
------------------------------------------------------------------------------
February 24, 2000 March 10, 2000 $0.10 27.8%
April 25, 2000 June 12, 2000 $0.10 25.5 %
The annualized dividend payout ratio for the past four quarters, ending with
the September 11, 2000 payment will be 25.97%.
The declaration of dividends are subject to, among other things, HMN's
financial condition and results of operations, the Bank's compliance with its
regulatory capital requirements, including the fully phased-in capital
requirements, tax considerations, industry standards, economic conditions,
regulatory restrictions, general business practices and other factors.
LIQUIDITY
For the six months ended June 30, 2000, the net cash provided by operating
activities was $3.3 million. HMN collected $21.5 million from the sale of
securities, and $6.5 million in principal repayments or on the maturity of
securities during the quarter. HMN also collected $197,000 on the sale of
loans receivable during the quarter. It
19
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<PAGE>
purchased $4.4 million of securities, FHLB stock of $775,000, premises and
equipment of $992,000 and it funded a net increase in loans receivable of $36.5
million. HMN received $1.3 million due to a net increase in deposit balances
during the six month period. It received net proceeds of $15.5 million from net
additional advances from the FHLB and $85,000 from increased advance payments
from borrowers for taxes and insurance. HMN purchased $2.7 million of HMN
treasury stock under its current stock repurchase programand it paid $786,000
in dividends to its shareholders. It received $151,000 from the exercise of
stock options by current or recently retired employees.
*HMN has certificates of deposits with outstanding balances of $192.2 million
that come due over the next 12 months. Based upon past experience management
anticipates that the majority of the deposits will renew for another term. HMN
believes that deposits which do not renew will be replaced with deposits from
other customers, or funded with advances from the FHLB, or will be funded
through the sale of securities. Management does not anticipate that it will
have a liquidity problem due to maturing deposits.
*HMN has $10.0 million of FHLB advances which mature in 2001 but have call
features which can be exercised by the FHLB on a semiannual basis during 2000.
If the call features are exercised HMN has the option of requesting any
advance otherwise available to it pursuant to the Credit Policy of the FHLB.
Since HMN has the ability to request another advance to replace the advance
that is being called, management does not anticipate that it will have a
liquidity problem due to advances being called by the FHLB during 2000.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. HMN's market risk arises primarily from interest rate risk inherent in
its investing, lending and deposit taking activities. Management actively
monitors and manages its interest rate risk exposure.
HMN's profitability is affected by fluctuations in interest rates. A sudden
and substantial increase in interest rates may adversely impact HMN's earnings
to the extent that the interest rates borne by assets and liabilities do not
change at the same speed, to the same extent, or on the same basis. HMN
monitors the projected changes in net interest income that occur if interest
rates were to suddenly change up or down. The Rate Shock Table located below
in the Asset/Liability Management section of this report discloses HMN's
projected changes in net interest income based upon immediate interest rate
changes called rate shocks.
*HMN utilizes a model which uses the discounted cash flows from its
interest-earning assets and its interest-bearing liabilities to calculate the
current market value of those assets and liabilities. The model also
calculates the changes in market value of the interest-earning assets and
interest-bearing liabilities due to different interest rate changes. HMN
believes that over the next twelve months interest rates could conceivably
fluctuate in a range of 200 basis points up or down from where the rates were
at June 30, 2000. HMN does not have a trading portfolio. The following table
discloses the projected changes in market value to HMN's interest-earning
assets and interest-bearing liabilities based upon incremental 100 basis point
changes in interest rates from interest rates in effect on June 30, 2000.
* This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 26 of this discussion.
20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Other than trading portfolio Market Value
-------------------------------------------------
(Dollars in thousands)
Basis point change in
interest rates -200 -100 0 +100 +200
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash equivalents $ 11,447 11,438 11,429 11,419 11,410
Securities available
for sale:
Fixed-rate CMOs 27,513 27,394 26,666 25,521 24,377
Variable-rate CMOs 56,665 57,553 56,436 54,471 51,984
Fixed-rate available
for sale mortgage-backed
and related securities 4,710 4,596 4,448 4,288 4,127
Variable-rate available
for sale mortgage-
backed and related
securities 1,934 1,924 1,915 1,906 1,895
Fixed-rate available
for sale other
marketable securities 71,050 69,669 66,545 63,931 61,573
Variable-rate available
for sale other
marketable securities 1,293 1,292 1,290 1,289 1,275
Federal Home Loan
Bank stock 12,251 12,241 12,231 12,221 12,211
Fixed-rate loans held
for sale 6,079 6,074 6,069 6,064 6,059
Loans receivable, net:
Fixed-rate real
estate loans 274,707 268,637 260,752 252,366 244,130
Variable-rate real
estate loans 148,904 146,325 143,597 140,802 137,807
Fixed-rate other loans 58,283 57,503 56,465 55,142 54,021
Variable-rate other
loans 39,242 39,178 39,107 38,973 38,867
Mortgage servicing
rights, net 712 1,015 1,159 1,204 1,227
Investment in limited
partnerships 1,886 2,765 3,083 3,199 3,261
-------- ------- -------- -------- --------
Total market risk
sensitive assets 716,676 707,604 691,192 672,796 654,224
-------- ------- -------- -------- --------
NOW deposits 38,850 37,792 37,276 36,829 36,416
Passbook deposits 34,474 33,535 32,840 32,206 31,611
Money market deposits 29,627 28,845 28,262 27,730 27,230
Certificate deposits 299,048 299,980 299,004 297,800 296,517
Fixed-rate Federal
Home Loan Bank
advances 188,875 182,061 180,616 177,343 174,154
Variable-rate Federal
Home Loan Bank advances 59,618 59,569 59,519 59,470 59,421
-------- ------- -------- -------- --------
Total market risk
sensitive liabilities 650,492 641,782 637,517 631,378 625,349
-------- ------- -------- -------- --------
Off-balance sheet
financial instruments:
Commitments to
extend credit 77 75 73 71 68
-------- ------- -------- -------- --------
Net market risk $ 66,107 65,747 53,602 41,347 28,807
======== ======= ======== ======== ========
Percentage change
from current
market value 23.33% 22.66% 0.00% (22.86)% (46.26)%
======== ======= ======== ======== ========
</TABLE>
The preceding table was prepared utilizing the following assumptions (the
"Model Assumptions") regarding prepayment and decay ratios which were
determined by management based upon their review of historical prepayment
speeds and future prepayment projections. Fixed rate loans were assumed to
prepay at annual rates of between 7% to 44%, depending on the note rate and the
period to maturity. Adjustable rate mortgages ("ARMs") were assumed to prepay
at annual rates of between 10% and 31%, depending on the note rate and the
period to maturity. Growing Equity Mortgage (GEM) loans were assumed to prepay
at annual rates of between 18% and 54% depending on the note rate and the
period to maturity. Mortgage-backed securities and Collateralized Mortgage
* This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 20 of this discussion.
21
<PAGE>
<PAGE>
Obligations (CMOs) were projected to have prepayments based upon the underlying
collateral securing the instrument and the related cash flow priority of the
CMO tranche owned. Certificate accounts were assumed not to be withdrawn until
maturity. Passbook and money market accounts were assumed to decay at an
annual rate of 20%. FHLB advances were projected to be called at the first
call date where the projected interest rate on similar remaining term advances
exceeded the interest rate on HMN's callable advance.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. The interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other types of assets and liabilities may lag behind changes in market
interest rates. The model assumes that the difference between the current
interest rate being earned or paid compared to a treasury instrument or other
interest index with a similar term to maturity (the "Interest Spread") will
remain constant over the interest changes disclosed in the table. Changes in
Interest Spread could impact projected market value changes. Certain assets,
such as ARMs, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. The market value of the
interest-bearing assets which are approaching their lifetime interest rate caps
could be different from the values disclosed in the table. In the event of a
change in interest rates, prepayment and early withdrawal levels may deviate
significantly from those assumed in calculating the foregoing table. The
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase.
ASSET/LIABILITY MANAGEMENT
*HMN's management reviews the impact that changing interest rates will have on
its net interest income projected for the twelve months following June 30, 2000
to determine if its current level of interest rate risk is acceptable. The
following table projects the estimated annual impact on net interest income of
immediate interest rate changes called rate shocks.
Rate Shock Net Interest Percentage
in Basis Points Income Change
----------------------------------------
+200 20,550,000 1.69 %
+100 20,606,000 1.96 %
0 20,209,000 0.00 %
-100 20,024,000 -0.92 %
-200 19,597,000 -3.03 %
The preceding table was prepared utilizing the Model Assumptions regarding
prepayment and decay ratios which were determined by management based upon
their review of historical prepayment speeds and future prepayment projections.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. In the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those assumed
in calculating the foregoing table. The ability of many borrowers to service
their debt may decrease in the event of a substantial increase in interest
rates and could impact net interest income.
In an attempt to manage its exposure to changes in interest rates, management
closely monitors interest rate risk. The Bank has an Asset/Liability Committee
consisting of executive officers which meets at least quarterly to review the
interest rate risk position and projected profitability. The committee makes
recommendations for adjustments to the asset/liability position of the Bank to
the Board of Directors of the Bank. This committee also reviews the Bank's
portfolio, formulates investment strategies and oversees the timing and
implementation of transactions to assure attainment of the Board's objectives
in the most effective manner. In addition, the Board reviews on a quarterly
basis the Bank's asset/liability position, including simulations of the effect
on the Bank's capital of various interest rate scenarios.
*This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 20 of this discussion.
22
<PAGE>
<PAGE>
In managing its asset/liability mix, the Bank, at times, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, may place more emphasis on managing net interest margin
than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates.
To the extent consistent with its interest rate spread objectives, the Bank
attempts to reduce its interest rate risk and has taken a number of steps to
restructure its assets and liabilities. The Bank has primarily focused its
fixed rate one-to-four family residential lending program on loans with
contractual terms of 20 years or less. The Bank generally follows the practice
of selling all of its fixed rate single family loans which conform to the
secondary market guidelines. HMN has focused its portfolio lending during 1999
and throughout 2000 on the origination of commercial loan products and consumer
loans which generally have shorter weighted average terms to maturity and/or
interest rates which adjust at least every three years. At times, depending on
its interest rate sensitivity, the Bank may sell fixed rate single family loans
with shorter contractual maturities than thirty years in order to reduce
interest rate risk and record a gain on the sale of loans.
FORWARD-LOOKING INFORMATION
The following paragraphs within Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
statements and actual results may differ materially from the expectations
disclosed within this Discussion and Analysis. These forward-looking
statements are subject to risks and uncertainties, including those discussed
below. HMN assumes no obligations to publicly release results of any revision
or updates to these forward-looking statements to reflect future events or
unanticipated occurrences.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter ended June 30, 2000
was $45,000, a decrease of $30,000, or 40.0%, compared to $75,000 for the
second quarter of 1999. The provision for loan losses for the six months
ended June 30, 2000 was $90,000, a decrease of $60,000, or 40.0% compared
to $150,000 for the same six month period ended in 1999. The provision is
the result of management's evaluation of the loan portfolio, a
historically low level of non-performing loans, minimal loan charge-off
experience, and its assessment of the general economic conditions in the
geographic area where properties securing the loan portfolio are located
such as national and regional unemployment data, single family loan
delinquencies as reported separately by the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC),
local single family construction permits and local economic growth rates.
Management's evaluation of probable losses inherent in the loan portfolio
revealed conditions that resulted in decreasing the 2000 loan loss
provision compared to the provision for 1999. HMN will continue to monitor
its allowance for losses as these conditions dictate. Future economic
conditions and other unknown factors will impact the need for future
provisions for loan losses. As a result, no assurances can be given that
increases in the allowance for loan losses will not be required during
future periods.
LIQUIDITY
HMN has certificates of deposits with outstanding balances of $192.2
million that come due over the next 12 months. Based upon past experience
management anticipates that the majority of the deposits will renew for
another term. HMN believes that deposits which do not renew will be
replaced with deposits from other customers, or funded with advances from
the FHLB, or will be funded through the sale of securities. Management
does not anticipate that it will have a liquidity problem due to maturing
deposits.
HMN has $10.0 million of FHLB advances which mature in 2001 but have call
features which can be exercised by the FHLB on a semiannual basis during
2000. If the call features are exercised HMN has the option of requesting
any advance otherwise available to it pursuant to the Credit Policy of the
FHLB. Since HMN has the ability to request another advance to replace the
advance that is being called, management does
23
<PAGE>
<PAGE>
not anticipate that it will have a liquidity problem due to advances being
called by the FHLB during 2000.
Competitive pricing by other institutions, the desire of a competitor to
pay interest rates on deposits that are above the current rates paid by
HMN, or the desire by customers to put more of their funds into
nontraditional bank products such as stocks and bonds could be
circumstances that would cause the maturing certificates to become a
liquidity problem
MARKET RISK
HMN utilizes a model which uses the discounted cash flows from its
interest-earning assets and its interest-bearing liabilities to calculate
the current market value of those assets and liabilities. The model also
calculates the changes in market value of the interest-earning assets and
interest-bearing liabilities due to different interest rate changes. HMN
believes that over the next twelve months interest rates could conceivably
fluctuate in a range of 200 basis points up or down from where the rates
were at June 30, 2000. HMN does not have a trading portfolio. The table
in the Market Risk section discloses the projected changes in market value
to HMN's interest-earning assets and interest-bearing liabilities based
upon incremental 100 basis point changes in interest rates from interest
rates in effect on June 30, 2000.
Certain shortcomings are inherent in the method of analysis in the table
presented in the Market Risk section. The interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets and
liabilities may lag behind changes in market interest rates. The model
assumes that the difference between the current interest rate being earned
or paid compared to a treasury instrument or other interest rate index
with a similar term to maturity (the Interest Spread) will remain constant
over the interest changes disclosed in the table. Changes in Interest
Spread could impact projected market value changes. Certain assets, such
as ARMs, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. The market value of the
interest-bearing assets which are approaching their lifetime interest rate
caps could be different from the values disclosed in the table. In the
event of a change in interest rates, prepayment and early withdrawal
levels may deviate significantly from those assumed in calculating the
foregoing table. The ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.
ASSET/LIABILITY MANAGEMENT
HMN's management reviews the impact that changing interest rates will have
on its net interest income projected for the twelve months following June
30, 2000 to determine if its current level of interest rate risk is
acceptable. HMN's actual net interest income caused by interest rate
changes may differ from the amounts reflected in the table in the
Asset/Liability section which projects the estimated impact on net
interest income of immediate interest rate changes called rate shocks.
Certain shortcomings are inherent in the method of analysis presented in
each of the tables. In the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the foregoing table. The ability of
many borrowers to service their debt may decrease in the event of a
substantial increase in interest rates and could impact net interest
income.
24
<PAGE>
<PAGE>
HMN FINANCIAL, INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
Not applicable.
ITEM 3. Defaults Upon Senior Securities.
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Company was held on April 25,
2000 at 10:00 a.m.
The following is a record of the votes cast in the election of directors
of the Company:
For Withhold
Term expiring in 2003:
Michael McNeil 3,911,430 159,808
Duane D. Benson 4,041,117 30,121
Mahlon Schneider 4,033,466 37,773
Accordingly the individuals named above were declared to be duly elected
directors of the Company for terms to expire as stated above.
The following is a record of the votes cast in respect of the proposal to
ratify the appointment of KPMG LLP as the Company's auditors for the
fiscal year ending December 31, 2000.
NUMBER PERCENTAGE OF
OF VOTES VOTES ACTUALLY CAST
FOR 4,058,786 99.69%
AGAINST 7 0.00%
ABSTAIN 12,444 .31%
BROKER NON-VOTE 0 0.00%
Accordingly, the proposal described above was declared to be duly adopted
by the stockholders of the Company.
ITEM 5. Other Information.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Index to Exhibits on page 27 of this report.
(b) Reports on Form 8-K - None.
25
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMN FINANCIAL, INC.
Registrant
Date: August 11, 2000 /s/ Roger P. Weise
Roger P. Weise,
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 /s/ James B. Gardner
James B. Gardner,
Executive Vice President
(Principal Financial Officer)
26
<PAGE>
<PAGE>
HMN FINANCIAL, INC.
INDEX TO EXHIBITS
FOR FORM 10-Q
Reference Sequential
to Prior Page Numbering
Filing or Where Attached
Exhibit Exhibits Are
Regulation S-K Number Located in This
Exhibit Number Document Attached Hereto Form 10-Q Report
3.1 Amended and Restated
Articles of Incorporation *1 N/A
3.2 Amended and Restated By-laws *2 N/A
4 Form of Common Stock *3 N/A
Including indentures
10.1 Extension of Employment Agreement
for Roger P. Weise
dated May 23, 2000 10.1 Filed electronically
10.2 Extension of Employment Agreement
for James B. Gardner
dated May 23, 2000 10.2 Filed electronically
11 Computation of Earnings
Per Common Share 11 Filed electronically
27 Financial Data Schedule 27 Filed electronically
*1 Incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1998 (File No. 0-24100).
*2 Incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997 (File 0-24100).
*3 Incorporated by reference to the same numbered exhibit to the
Company's Registration Statement on Form S-1 dated April 1, 1994
(File No. 33-77212).
27
