-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTnhmIyHjtiP0H0PgcrbdYfbdYm7pWycUx+CLWnRBT8iHsnJtqtDciltaAN8tu73 kMa00+HP0Zahk0H5bxSu0A== /in/edgar/work/20000814/0000921183-00-000012/0000921183-00-000012.txt : 20000921 0000921183-00-000012.hdr.sgml : 20000921 ACCESSION NUMBER: 0000921183-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMN FINANCIAL INC CENTRAL INDEX KEY: 0000921183 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 411777397 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24100 FILM NUMBER: 696315 BUSINESS ADDRESS: STREET 1: 101 N BROADWAY CITY: SPRING VALLEY STATE: MN ZIP: 55975-1223 BUSINESS PHONE: 5073461100 10-Q 1 0001.txt FORM 10-Q 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 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 PART I - FINANCIAL STATEMENTS
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets (unaudited) June 30, December 31, ASSETS 2000 1999 ----------- ----------- 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 =========== ===========
See accompanying notes to consolidated financial statements. 3 HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------------------------- ----------------------- 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 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 4
HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended June 30, 2000 1999 ---------------------- --------------------- 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 ---------------------- --------------------- 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 ========= ==========
See accompanying notes to consolidated financial statements.
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) ---------------------------------------------------------- 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) =========== ============= =============== =============== Unearned Employee Stock Unearned Ownership Compensation Total Plan Restricted Treasury Stockholders' Shares Stock Awards Stock Equity ----------------------------------------------------------- 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 ============== =========== ============ ============
See accompanying notes to consolidated financial statements. 5 HMN FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 2000 1999 -------------------------- 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
See accompanying notes to consolidated financial statements. 6 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 -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 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:
- -------------------------------------------------------------------------- Six Months Twelve Months Six Months ended ended ended June 30, 2000 Dec 31, 1999 June 30,1999 ------------- ------------- ------------ 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 ========== ========== ========== - ----------------------------------------------------------------------------
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 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.
- -------------------------------------------------------------------------- Weighted Weighted Average Average Loan Principal Interest Remaining Number Balance Rate Term of Loans -------------- ---------- ----------- -------- 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 - --------------------------------------------------------------------------
(7) INVESTMENT IN LIMITED PARTNERSHIPS Investments in limited partnerships were as follows:
- ---------------------------------------------------------------------- June 30, December 31, Primary partnership activity 2000 1999 - ----------------------------- -------------- --------------- 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 ============== ================
- ----------------------------------------------------------------------- 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 (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:
Three months Six Months ended June 30, ended June 30, ----------------------- --------------------- 2000 1999 2000 1999 ----------------------- --------------------- 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
(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 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.
- -------------------------------------------------------------------------- Required to be Adequately Actual Capitalized ---------------------- ---------------------- Percent of Percent of (in thousands) Amount Assets(1) Amount Assets (1) ---------- ----------- ---------- ----------- 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% To Be Well Capitalized Under Prompt Corrective Actions Excess CapitalProvisions ---------------------- ---------------------- Percent of Percent of (in thousands) Amount Assets (1) Amount Assets (1) ---------- ----------- ---------- ----------- 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.
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 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.
HMN Mortgage Services, Inc. --------------------------------- Total Home Federal Mortgage Servicing Mortgage Reportable (Dollars in thousands) Savings Bank Rights Banking Segments - ------------------------------------------------------------------------------- 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
13
HMN Mortgage Services, Inc. --------------------------------- Total Home Federal Mortgage Servicing Mortgage Reportable (Dollars in thousands) Savings Bank Rights Banking Segments - ------------------------------------------------------------------------------- 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
14 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 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 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 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 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 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
- ----------------------------------------------------------------------------- Other than trading portfolio Market Value ------------------------------------------------- (Dollars in thousands) Basis point change in interest rates -200 -100 0 +100 +200 - ----------------------------------------------------------------------------- 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)% ======== ======= ======== ======== ========
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 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 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 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 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 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 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 EX-10 2 0002.txt The Board of Directors (the Board) of Home Federal Savings Bank has reviewed your performance evaluation performed by selected members of the Board. In connection therewith and pursuant to Section 1 of your contract on May 23, 2000, the Board determined to extend your employment contract until the May Board meeting, 2003. Home Federal Savings Bank By: /s/ M.F. Schumann -------------------------------- M.F. Schumann Director EMPLOYEE ACKNOWLEDGEMENT I hereby acknowledge receipt of this notice of extension of the above- referenced contract and accept the extension of the term of such contract. EMPLOYEE Dated: 5/23/00 By: /s/ Roger P. Weise ----------- ------------------------ Roger P. Weise EX-10 3 0003.txt The Board of Directors (the Board) of Home Federal Savings Bank has reviewed your performance evaluation performed by selected members of the Board. In connection therewith and pursuant to Section 1 of your contract on May 23, 2000, the Board determined to extend your employment contract until the May Board meeting, 2003. Home Federal Savings Bank By: /s/ M.F. Schumann -------------------------------- M.F. Schumann Director EMPLOYEE ACKNOWLEDGEMENT I hereby acknowledge receipt of this notice of extension of the above- referenced contract and accept the extension of the term of such contract. EMPLOYEE Dated: 5/23/00 By: /s/ James B. Gardner --------- -------------------------- James B. Gardner EX-11 4 0004.txt Exhibit 11 HMN Financial, Inc. Computation of Earnings Per Common Share
Three months Six Months ended June 30, ended June 30, 2000 1999 2000 1999 ------------------------ ------------------------- 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
EX-27 5 0005.txt
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2000 AND DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999. 1000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 3,039 8,400 0 0 156,778 0 0 508,641 3,361 716,209 401,630 56,000 5,468 188,900 0 0 91 64,120 716,209 19,396 5,804 500 25,700 8,858 15,700 10,000 90 9,910 5,974 5,560 3,410 0 0 3,410 .87 .84 2.94 685 5 0 0 3,273 (2) 0 3,361 2,182 0 1,179
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