-----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, Dc0yehnLh0jenOYzBHhJQZqtYXzYKU4374Y0pDAvk2req4jsESuIWhg5BbADn0Gz pcIxGjyztti1cnggDjJuCQ== 0000921183-99-000007.txt : 19990629 0000921183-99-000007.hdr.sgml : 19990629 ACCESSION NUMBER: 0000921183-99-000007 CONFORMED SUBMISSION TYPE: 11-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMN FINANCIAL INC CENTRAL INDEX KEY: 0000921183 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 411777397 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 11-K SEC ACT: SEC FILE NUMBER: 000-24100 FILM NUMBER: 99653995 BUSINESS ADDRESS: STREET 1: 101 N BROADWAY CITY: SPRING VALLEY STATE: MN ZIP: 55975-1223 BUSINESS PHONE: 5073461100 11-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________________________ to _____________________________ Commission file number 0-24100 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: HMN FINANCIAL, INC. 101 NORTH BROADWAY SPRING VALLEY, MN 55975-0231 REQUIRED INFORMATION The financial statements filed as a part of the annual report of the plan include: 1. Audited statements of net assets available for benefits as filed under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); 2. Audited statements of changes in net assets available for benefits as filed under ERISA. -2- [logo] KPMG Peat Marwick LLP 4200 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 INDEPENDENT AUDITORS' REPORT The Plan Administrator Home Federal Savings Bank Employees' Savings & Profit Sharing Plan: We have audited the accompanying statements of net assets available for benefits of the Home Federal Savings Bank Employees' Savings and Profit Sharing Plan (the Plan) as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1998 and 1997, and the changes in net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The fund information in the statements of net asset available for benefits and the statements of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota June 15, 1999 [logo] Member Firm of KPMG International HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Financial Statements and Supplemental Schedules December 31, 1998 and 1997 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Statement of Net Assets Available for Benefits December 31, 1998
Participant Directed Funds ----------------------------------------------------------- PSI PSI S&P MidCap S&P 500 PSI Stock Stock Stable Index Index Value Fund Fund Fund - ---------------------------------------------------------------------------- Investments: Total investments at fair market value (total cost of $1,366,421) $ 320,473 444,589 86,449 Contributions receivable: Employer 0 0 0 Employee 0 0 0 - ---------------------------------------------------------------------------- Net assets available for benefits $ 320,473 444,589 86,449 - ---------------------------------------------------------------------------- Participant Directed Funds ------------------------------------------------------------ PSI PSI HMN Money Bond Financial, Market Market Inc. Fund Fund Stock - ---------------------------------------------------------------------------- Investments: Total investments at fair market value (total cost of $1,366,421) $ 38,771 51,420 563,711 Contributions receivable: Employer 0 0 0 Employee 0 0 0 - --------------------------------------------------------------------------- Net assets available for benefits $ 38,771 51,420 563,711 - --------------------------------------------------------------------------- See accompanying notes to financial statements. 1 - ---------------------------------------------------------------------------- PSI PSI PSI International Income Growth & Stock Plus Income Fund Fund Fund - ---------------------------------------------------------------------------- Investments: Total investments at fair market value (total cost of $1,336,421) 20,076 17,409 42,016 Contributions receivable: Employer 0 0 0 Employee 0 0 0 - --------------------------------------------------------------------------- Net assets available for benefits 20,076 17,409 42,016 - --------------------------------------------------------------------------- - ------------------------------------------------------------------------ PSI Growth Participant Fund Loans Unallocated Total - ------------------------------------------------------------------------ Investments: Total investments at Fair market value (Total cost of $1,366,421) 10,922 13,125 0 1,608,961 Contributions receivable: Employer 0 0 2,771 2,771 Employee 0 0 11,837 11,837 - ------------------------------------------------------------------------ Net assets available for benefits 10,922 13,125 14,608 1,623,569 - ------------------------------------------------------------------------
2 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Statement of Net Assets Available for Benefits December 31, 1997
Participant Directed Funds ---------------------------------------------------- PSI PSI S&P MidCap S&P 500 PSI Stock Stock Stable Index Index Value Fund Fund Fund - ------------------------------------------------------------------------- Investments: Total investments at fair market value (total cost of $1,051,547) $ 287,831 335,885 76,535 Contributions receivable: Employer 0 0 0 Employee 0 0 0 - ------------------------------------------------------------------------ Net assets available for benefits $ 287,831 335,885 76,535 - ------------------------------------------------------------------------ See accompanying notes to financial statements. Participant Directed Funds -------------------------------------------------------- PSI PSI HMN Money Bond Financial, Market Market Inc. Fund Fund Stock - --------------------------------------------------------------------------- Investments: Total investments at fair market value (total cost of $1,051,547) $ 25,954 41,998 827,112 Contributions receivable: Employer 0 0 0 Employee 0 0 0 - -------------------------------------------------------------------------- Net assets available for benefits $ 25,954 41,998 827,112 - -------------------------------------------------------------------------- See accompanying notes to financial statements. 3 - ------------------------------------------------------------------------- PSI PSI International Growth & PSI Stock Income Growth Fund Fund Fund ------------------------------------------------------------------------ Investments Total investments at fair market value (total cost of $1,051,547) 20,762 2,572 2,577 Contributions receivable: Employer 0 0 0 Employee 0 0 0 - ---------------------------------------------------------------------- Net assets available for benefits 20,762 2,572 2,577 - ---------------------------------------------------------------------- - ------------------------------------------------------------------------ Participant Loans Unallocated Total - ------------------------------------------------------------------------ Investments Total investments at fair market value (total cost of $1,051,547) 11,689 0 1,632,915 Contributions receivable: Employer 0 4,416 4,416 Employee 0 18,931 18,931 - ------------------------------------------------------------------------ Net assets available for benefits 11,689 23,347 1,656,262 - ------------------------------------------------------------------------
4 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Statement of Changes in Net Assets Available for Benefits Year ended December 31, 1998
Participant Directed Funds ------------------------------------------------- PSI PSI PSI S&P MidCap S&P 500 Stable Stock Index Stock Index Value Fund Fund Fund - ------------------------------------------------------------------------- Contributions: Employer $ 14,071 17,579 3,033 Employee 61,330 76,259 12,432 Rollover 284 488 11,412 - ------------------------------------------------------------------------- Total contributions 75,685 94,326 26,877 - ------------------------------------------------------------------------- Withdrawals (45,702) (43,624) (1,184) - ------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments 27,687 60,342 2,881 Interest 432 324 53 Dividends 0 0 0 Realized gains (losses) 22,834 38,971 1,594 Less asset management fees (1,640) (1,970) (405) - ------------------------------------------------------------------------- Net investment income (loss) 49,313 97,667 4,123 - ------------------------------------------------------------------------- Transfers among funds (46,654) (39,665) (19,902) - ------------------------------------------------------------------------- Increase (decrease) in net assets available for plan benefits 32,642 108,704 9,914 Beginning of year 287,831 335,885 76,535 - ------------------------------------------------------------------------- End of year $ 320,473 444,589 86,449 - ------------------------------------------------------------------------- Participant Directed Funds --------------------------------------------- PSI PSI Money Bond HMN Market Market Financial, Inc. Fund Fund Stock - ------------------------------------------------------------------------- Contributions: Employer $ 6,819 2,739 16,159 Employee 24,514 11,526 71,280 Rollover 0 0 15,652 - ------------------------------------------------------------------------- Total contributions 31,333 14,265 103,091 - ------------------------------------------------------------------------- Withdrawals (1,666) (981) (78,215) - ------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments (813) 4,483 (443,451) Interest 9 9 1,745 Dividends 1,797 0 8,034 Realized gains (losses) 952 1,582 11,876 Less asset management fees (94) (262) (3,300) - ------------------------------------------------------------------------- Net investment income (loss) 1,851 5,812 (425,096) - ------------------------------------------------------------------------- Transfers among funds (46,654) (9,674) 136,819 - ------------------------------------------------------------------------- Increase (decrease) in net assets available for plan benefits 12,817 9,422 (263,401) Beginning of year 25,954 41,998 827,112 - ------------------------------------------------------------------------- End of year $ 38,771 51,420 563,711 - ------------------------------------------------------------------------- See accompanying notes to financial statements. 5 --------------------------------------------------- PSI PSI PSI International Income Growth & Stock Plus Income Fund Fund Fund - ------------------------------------------------------------------------- Contributions: Employer 948 140 544 Employee 4,041 560 2,316 Rollover 193 13,028 9,789 - ------------------------------------------------------------------------- Total contributions 5,182 13,728 12,649 - ------------------------------------------------------------------------- Withdrawals (174) 0 (2,103) - ------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments 3,517 1,083 3,816 Interest 0 0 0 Dividends 0 0 0 Realized gains (losses) 13 0 155 Less asset management fees (117) (65) (203) - ------------------------------------------------------------------------ Net investment income (loss) 3,413 1,018 3,768 - ------------------------------------------------------------------------ Transfers among funds (9,107) 2,663 25,130 - ------------------------------------------------------------------------ Increase (decrease) in net assets available for plan benefits (686) 17,409 39,444 Beginning of year 20,762 0 2,572 - ------------------------------------------------------------------------ End of year 20,076 17,409 42,016 - ------------------------------------------------------------------------ ---------------------------------------------------- PSI Growth Participant Fund Loans Unallocated Total - --------------------------------------------------------------------------- Contributions: Employer 904 0 2,771 65,707 Employee 4,790 0 11,837 280,885 Rollover 1,646 0 0 52,492 - --------------------------------------------------------------------------- Total contributions 7,340 0 14,608 399,084 - --------------------------------------------------------------------------- Withdrawals (2,178) 0 0 (175,827) - --------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments 1,626 0 0 (338,829) Interest 0 0 0 2,572 Dividends 0 0 0 9,831 Realized gains (losses) 626 0 0 78,603 Less asset management fees (71) 0 0 (8,127) - --------------------------------------------------------------------------- Net investment income (loss) 2,181 0 0 (255,950) - --------------------------------------------------------------------------- Transfers among funds 1,002 1,436 (23,347) 0 - --------------------------------------------------------------------------- Increase (decrease) in net assets available for plan benefits 8,345 1,436 (8,739) (32,693) Beginning of year 2,577 11,689 23,347 1,656,262 - --------------------------------------------------------------------------- End of year 10,922 13,125 14,608 1,623,569 - ---------------------------------------------------------------------------
6 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Statement of Changes in Net Assets Available for Benefits Year ended December 31, 1997
Participant Directed Funds ------------------------------------------------------------ PSI PSI PSI S&P MidCap S&P 500 Stable Stock Index Stock Index Value Fund Fund Fund - ----------------------------------------------------------------------------- Contributions: Employer $ 12,392 12,903 2,825 Employee 53,036 54,201 11,354 Rollover 2,081 2,081 283 - ----------------------------------------------------------------------------- Total contributions 67,509 69,185 14,462 - ----------------------------------------------------------------------------- Withdrawals (12,973) (6,531) (21) - ----------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments 50,208 64,883 18,653 Interest 0 0 0 Dividends 5,097 3,098 0 Realized gains (losses) 8,050 13,982 (13,127) Less asset management fees (1,097) (1,507) (425) - ----------------------------------------------------------------------------- Net investment income 62,258 80,456 5,101 - ----------------------------------------------------------------------------- Transfers among funds 14,290 (21,956) (20,549) - ----------------------------------------------------------------------------- Increase (decrease) in net assets available for plan benefits 131,084 121,154 (1,007) Beginning of year 156,747 214,731 77,542 - ----------------------------------------------------------------------------- End of year $ 287,831 335,885 76,535 - ----------------------------------------------------------------------------- See accompanying notes to financial statements. Participant Directed Funds -------------------------------------------------------- PSI PSI Money Bond HMN Market Market Financial, Inc. Fund Fund Stock - ---------------------------------------------------------------------------- Contributions: Employer $ 4,945 1,762 8,101 Employee 18,973 7,191 37,531 Rollover 362 63 1,137 - ---------------------------------------------------------------------------- Total contributions 24,280 9,016 46,769 - ---------------------------------------------------------------------------- Withdrawals (13) (88) (2,431) - ---------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments 10,611 10,904 316,272 Interest 1,595 1,848 1,696 Dividends 0 0 0 Realized gains (losses) (10,602) (6,383) 4,514 Less asset management fees (95) (275) (1,157) - ---------------------------------------------------------------------------- Net investment income 1,509 6,094 321,325 - ---------------------------------------------------------------------------- Transfers among funds (26,891) (18,027) 89,730 - ---------------------------------------------------------------------------- Increase (decrease) in net assets available for plan benefits (1,115) (3,005) 455,393 Beginning of year 27,069 45,003 371,719 - ---------------------------------------------------------------------------- End of year $ 25,954 41,998 827,112 - ---------------------------------------------------------------------------- See accompanying notes to financial statements. 7 -------------------------------------------------- PSI PSI International Growth & PSI Stock Income Growth Fund Fund Fund - ------------------------------------------------------------------------- Contributions: Employer 292 39 41 Employee 1,189 157 164 Rollover 0 0 0 - ------------------------------------------------------------------------- Total contributions 1,481 196 205 - ------------------------------------------------------------------------- Withdrawals 0 0 0 - ------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments (1,058) 81 78 Interest 0 0 0 Dividends 0 0 0 Realized gains (losses) 0 0 0 Less asset management fees (46) (10) (11) - ------------------------------------------------------------------------ Net investment income (1,104) 71 67 - ------------------------------------------------------------------------ Transfers among funds 20,385 2,305 2,305 - ------------------------------------------------------------------------ Increase (decrease) in net assets available for plan benefits 20,762 2,572 2,577 Beginning of year 0 0 0 - ------------------------------------------------------------------------ End of year $ 20,762 2,572 2,577 - ------------------------------------------------------------------------ --------------------------------------------------- Participant Loans Unallocated Total - ---------------------------------------------------------------------------- Contributions: Employer 0 4,416 47,716 Employee 0 18,931 202,727 Rollover 0 0 6,007 - --------------------------------------------------------------------------- Total contributions 0 23,347 256,450 - --------------------------------------------------------------------------- Withdrawals 0 0 (22,057) - --------------------------------------------------------------------------- Investment income: Unrealized appreciation (depreciation) on fair market value of investments 0 0 470,632 Interest 0 0 5,139 Dividends 0 0 8,195 Realized gains (losses) 0 0 (3,566) Less asset management fees 0 0 (4,623) - --------------------------------------------------------------------------- Net investment income 0 0 475,777 - --------------------------------------------------------------------------- Transfers among funds 6,758 (48,350) 0 - --------------------------------------------------------------------------- Increase (decrease) in net assets available for plan benefits 6,758 (25,003) 710,170 Beginning of year 4,931 48,350 946,092 - --------------------------------------------------------------------------- End of year 11,689 23,347 1,656,262 - ---------------------------------------------------------------------------
See accompanying notes to financial statements. 8 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Notes to Financial Statements December 31, 1998 and 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements have been prepared on the accrual basis of accounting. CUSTODIAN OF INVESTMENTS Bank of New York is the trustee and custodian of all Plan assets. PLAN ADMINISTRATION Home Federal Savings Bank (the Company) is the administrator of the Plan and Pentegra Services, Inc. performs the participant accounting. VALUATION OF INVESTMENTS Investments are stated at their fair market value. Investments in mutual funds or commingled trusts are valued using daily net asset value calculations performed by the funds and published by the National Association of Securities Dealers. Investments in common stock are valued at the quoted market price. Participant notes are valued at cost which approximates fair value. Purchases and sales of securities are recorded on a trade date basis. Net realized gains or losses are recognized by the Plan upon the sale of its investments or portions thereof based on average cost. COSTS AND EXPENSES Asset management fees ranging between 38 and 85 basis points are assessed annually on average net asset values and are deducted from the individual funds. In addition, the Company paid participant accounting fees totaling $5,427 and $5,100 in 1998 and 1997, respectively. (2) DESCRIPTION OF THE PLAN The following description of the Plan provides only general information. Participants should refer to the Summary Plan Description for more complete information. GENERAL The Plan is a defined contribution plan, qualified under section 401(a) of the Internal Revenue Code. The Plan includes 401(k) provisions which allow participants to direct the Company to contribute a portion of their compensation to the Plan on a pretax basis through payroll deductions. The Plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA). Company employees who have attained the age of 21 are eligible to participate in the Plan if during the one month period following the date of employment (or any anniversary thereof) the employee completes 83 1/3 or more hours of service. 10 FUNDING POLICY Participants have had the ability to contribute up to 12% of their monthly compensation on a pretax basis to the Plan. Participant contributions are subject to the Internal Revenue Service maximum annual limits of $10,000 and $9,500 during 1998 and 1997, respectively. The Company matches 25% of each participant's contribution not in excess of 8% of the participant's annual salary. The Company may, in its sole discretion, contribute to the Plan an amount to be determined from year to year (the Non-Elective Contribution). Such contributions would be allocated to the accounts of participants in the ratio that each participant's compensation for the plan year bears to the total compensation of all participants for the plan year. There were no such contributions during 1998 or 1997. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contribution and allocations of the Company's contribution and Plan earnings. Allocations are based on participant contributions or account balances, as defined. VESTING Participants are immediately vested in their contributions and the actual earnings thereon. Participants must be employed on December 31 of the plan year to be entitled to the Company's match for the year. Employees hired prior to January 1, 1997 are immediately vested in the employer contributions at December 31 of the plan year. Employees hired January 1, 1997 and thereafter are subject to 5 year cliff vesting for the employer matching contribution. Forfeited amounts for 1998 totaled $8,882, and are used to reduce future employer match obligations. Employer match amounts not vested at December 31, 1998 totaled $17,010. PARTICIPANT LOANS Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance. Loan terms range from 1-5 years, except loans used to purchase a primary residence may have a term up to 15 years. All loans are secured by the balance in the participant's account and bear interest at a rate equal to the prime rate plus 1%. Principal and interest payments must be made monthly. DISTRIBUTIONS Upon termination of employment for any reason the participant's account balance becomes fully payable. PARTICIPATING EMPLOYERS The Company is a member of a controlled group of corporations as defined in Section 414(b) of the Internal Revenue Code. No members of the group other than the Company participated in the Plan prior to 1996. Employees of HMN Mortgage Services, Inc. began participating in 1998. The contributions to the Plan for each employer participating in the Plan during 1998 and 1997 were as follows:
1998 1997 ------------------------------ ----------------------------- Employer Employee Rollover Employer Employee Rollover -------- -------- -------- -------- -------- -------- Home Federal Savings Bank $53,496 217,246 47,220 45,772 194,954 6,007 HMN Mortgage Services, Inc. 10,062 54,254 4,704 Osterud Insurance Agency, Inc. 2,149 9,385 0 1,944 7,773 0 ------ ------- ------ ------ ------- ------ $65,707 280,885 51,924 47,716 202,727 6,007 ======== ======== ====== ====== ======= ======
10 (3) PLAN TERMINATION The Company, by action of its board of directors, may terminate the Plan. All participants at the time of such termination shall be 100% vested in their accounts and shall be entitled to a benefit equal to the value of their accounts as determined as of the valuation date following termination. (4) DESCRIPTION OF INVESTMENT OPTIONS Participant contributions are invested by the Plan Trustee in accordance with participant elections, in one or more of the investment options the Plan offers in increments of 1%. Pentegra Services Inc. (PSI) S&P MidCap Stock Index Fund - --------------------------------------------------------- The fund invests in the stocks that make up the Standard & Poor's MidCap 400 Index. The fund is designed to approximate the total return of the S&P MidCap 400 Index, including reinvestment of dividends. This fund was available in 1998 and 1997. PSI S&P 500 Stock Index Fund - ---------------------------- The fund invests in the stocks that make up the Standard & Poor's 500 Index. The fund is designed to approximate the total return of the S&P 500 Index, including reinvestment of dividends. This fund was available in 1998 and 1997. PSI Stable Value Fund - --------------------- The fund invests in a diversified portfolio of fixed income securities with high quality ratings by major rating services such as Moody's Investors Service and Standard & Poor's. This fund was available in 1998 and 1997. PSI Money Market Fund - --------------------- The fund invests primarily in AAA short-term securities issued by corporations. The average range of weighted portfolio maturities varies from one to ninety days with most securities held to maturity. This fund was available in 1998 and 1997. PSI Bond Market Fund - -------------------- The fund invests in a portfolio of high quality bonds including U.S. Treasury, agency, corporate, mortgage and asset backed securities. This fund was available in 1998 and 1997. HMN Financial, Inc. Stock - The fund invests in the common stock of HMN ------------------------- Financial, Inc., the Holding Company of Home Federal Savings Bank. Three to six percent of the fund is maintained in a Short Term Investment Fund for liquidity purposes. This fund was available in 1998 and 1997. PSI International Stock Fund - ----------------------------- The fund invests in foreign stocks in countries based in Europe, Australia and the Far East. The fund is designed to approximate the performance of the Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia, Far East) Index. This fund has been available since June 1997. PSI Asset Allocation Funds - -------------------------- PSI Income Plus Fund - The fund invests in a broad range of stable value securities to reduce short term risk, and in a broad range of large U.S. and international companies to capture growth potential. This fund has been available since June 1997. PSI Growth & Income Fund - The fund invests in U.S. and international stock, U.S. bonds, and stable value investments to pursue long term appreciation and short term stability. This fund has been available since June 1997. 11 PSI Growth Fund - The fund invests in a broad range of domestic and international stock. This fund has beeen available since June 1997. (5) NUMBER OF PARTICIPANTS The number of participants in each investment option as of December 31, 1998 and 1997 were as follows: 1998 1997 ------ ------- HMN Financial, Inc. Stock 87 78 Participant Loans 6 7 PSI S&P MidCap Stock Index Fund 93 92 PSI S&P 500 Stock Index Fund 103 95 PSI Stable Value Fund 32 33 PSI Money Market Fund 17 17 PSI Bond Market Fund 27 35 PSI International Stock Fund 18 11 PSI Income Plus Fund 2 0 PSI Growth & Income Fund 12 1 PSI Growth Fund 11 2 The total number of participants in the Plan were 144 and 111 at December 31, 1998 and 1997, respectively. In December 1997, the Bank purchased Marshalltown Savings Bank (MSB) of Marshalltown, Iowa. MSB maintained two branches in Marshalltown and one branch in Toledo, Iowa. Full time employees at the three branches became eligible to participate in the Plan on February 1, 1998. (6) INVESTMENTS The following investments equal or exceed 5% of net assets available for plan benefits at December 31, 1998 or 1997:
December 31, -------------------------- 1998 1997 -------------------------- Fair Fair market market Description value value ------------------------------------------------------------------ PSI S&P MidCap Stock Index Fund 320,473 287,831 PSI S&P 500 Stock Index Fund 444,589 335,885 PSI Stable Value Fund 86,449 ** HMN Financial, Inc. Stock 563,711 827,112
** Not applicable in 1997. Fund is less than 5% of net assets. (7) INCOME TAX STATUS The Internal Revenue Service determined and informed the Company by a letter dated May 11, 1994, that the Plan and related trust, as then designed, were in compliance with the provisions of 401(a) of the Internal Revenue Code (IRC) and were thereby exempt from federal income taxes under Section 501(a) of the code. The Plan has been amended in its entirety since receiving the determination letter. However, the Plan administrator and the third party administrator believe that the Plan is designed and is being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan's financial statements. 12 An employee's pretax contributions under the Plan will reduce the participant's taxable income for federal and state income tax purposes. Each participant's portion of earnings from investments made with contributions under the Plan, generally, are not taxable until distributed or withdrawn. (8) PARTY-IN-INTEREST TRANSACTIONS The Plan engages in investment transactions involving the acquisition or disposition of HMN Financial, Inc. common stock. HMN Financial, Inc. is the holding company of Home Federal Savings Bank and is a party-in- interest. These transactions are covered by an exemption from the "prohibited transactions" provisions of ERISA and the IRC. 13 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Item 27a - Schedule of Assets Held for Investment Purposes December 31, 1998
Net Asset Fair Value market Description Units Per Unit Cost value - ------------------------------------------------------------------------ S&P MidCap Stock Index Fund 12,915.18 24.8137 214,050 320,473 S&P 500 Stock Index Fund 12,404.15 35.8420 256,651 444,589 Stable Value Fund 10,530.54 8.2093 78,341 86,449 Money Market Fund 6,328.88 6.1261 38,453 38,771 Bond Market Fund 6,389.19 8.0480 41,041 51,420 International Stock Fund 1,826.79 10.9895 17,663 20,076 Income Plus Fund 1,536.71 11.3288 16,326 17,409 Growth & Income Fund 3,507.80 11.9778 38,129 42,016 Growth Fund 846.64 12.8999 9,229 10,922 *HMN Financial, Inc. Stock 50,655.67 11.1283 643,413 563,711 Participant Loans (9.25% to 9.50%) 13,125.05 1.0000 13,125 13,125 - ------------------------------------------------------------------------ Total investments 1,366,421 1,608,961 - ------------------------------------------------------------------------
*Party-in-interest See accompanying independent auditors' report. 14 HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN Item 27-d - Schedule of Reportable 5% Transactions Series of Transactions (Involving One Security) Which Exceed 5% of Net Assets Available for Benefits Year ended December 31, 1998
Total Total dollar Total Total Total Description Number of value of Number of dollar value cost of Net of asset purchases purchases sales of sales sales gain - ----------------------------------------------------------------------------- S&P MidCap Stock Index Fund 25 87,080 38 104,959 82,125 22,834 S&P 500 Stock Index Fund 26 104,301 36 94,910 55,939 38,971 *HMN Financial, Inc. Stock 36 255,281 30 87,106 75,230 11,876
*Party-in-interest There were no individual transactions for the year ended December 31, 1998 that exceeded 5% of net assets available for benefits. See accompanying independent auditors' report. 15 SIGNATURES THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. HOME FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN Date: June 28, 1999 By: /s/ Michael McNeil -------------------------- Michael McNeil Title: President, Home Federal Savings Bank EXHIBIT INDEX Exhibit Number - ------- 23 Consent of KPMG Peat Marwick LLP, certified public accountants Exhibit 23 Consent of KPMG Peat Marwick LLP EX-23 2 [logo] KPMG Peat Marwick LLP 4200 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors HMN Financial, Inc.: We consent to incorporation by reference in the registration statement (No. 33-88228) on Form S-8 of HMN Financial, Inc. of our report dated June 15, 1999 and the use of such report in the annual report on Form 11-K of HMN Financial, Inc. Such report relates to the statements of net assets available for benefits of the Home Federal Savings Bank Employees' Savings and Profit Sharing Plan as of December 31, 1998 and 1997, the related statements of changes in net assets available for benefits for the years then ended and the related scheduled as of and for the year ended December 31, 1998. /s/ KPMG Peat Marwick LLP June 28, 1999 [logo] Member Firm of KPMG International -----END PRIVACY-ENHANCED MESSAGE-----