UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    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.
  Delaware
    
    41-1777397(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)1016 Civic Center Drive N.W., Rochester, MN
    
    55901(Address of principal executive offices)
    
    (ZIP Code)
 (507) 535-1200
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o(Do not check if a smaller reporting
company)
    
    Smaller reporting company o
  o þ
  Class
    
    Outstanding at October 19, 2009Common stock, $0.01 par value
    
    4,245,284




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##### 



HMN FINANCIAL, INC.
 CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1: Financial Statements (unaudited)Consolidated Balance Sheets at September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Income (Loss) for the Three Months Ended and
Nine Months Ended September 30, 2009 and 2008
    
    
    4Consolidated Statement of Stockholders Equity and Comprehensive
Loss for the Nine Month Period Ended September 30, 2009
    
    
    5Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2009 and 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3: Quantitative and Qualitative Disclosures about Market Risk
(Included in Item 2 under Market Risk)
    
    
    26Item 4: Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1: Legal Proceedings
    
    
    29Item 1A: Risk Factors
    
    
    29Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3: Defaults Upon Senior Securities
    
    
    30Item 4: Submission of Matters to a Vote of Security Holders
    
    
    30Item 5: Other Information
    
    
    30Item 6: Exhibits
    
    
    30Signatures
    
    
    31
  2




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##### 



PART I  FINANCIAL STATEMENTS
 
  HMN FINANCIAL, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,(Dollars in thousands)
    
    2009
    
    
    2008(unaudited)AssetsCash and cash equivalents
    
    $
    20,469
    
    
    
    15,729Securities available for sale:Mortgage-backed and related securities
(amortized cost $56,776 and $76,166)
    
    
    58,737
    
    
    
    77,327Other marketable securities
(amortized cost $75,976 and $95,445)
    
    
    76,847
    
    
    
    97,818135,584
    
    
    
    175,145Loans held for sale
    
    
    3,279
    
    
    
    2,548Loans receivable, net
    
    
    818,897
    
    
    
    900,889Accrued interest receivable
    
    
    3,952
    
    
    
    5,568Real estate, net
    
    
    15,494
    
    
    
    10,558Federal Home Loan Bank stock, at cost
    
    
    7,286
    
    
    
    7,286Mortgage servicing rights, net
    
    
    1,266
    
    
    
    728Premises and equipment, net
    
    
    13,097
    
    
    
    13,972Prepaid expenses and other assets
    
    
    4,634
    
    
    
    4,408Deferred tax asset, net
    
    
    8,759
    
    
    
    8,649Total assets
    
    $
    1,032,717
    
    
    
    1,145,480Liabilities and Stockholders EquityDeposits
    
    $
    781,574
    
    
    
    880,505Federal Home Loan Bank advances and Federal Reserve borrowings
    
    
    142,500
    
    
    
    142,500Accrued interest payable
    
    
    1,700
    
    
    
    6,307Customer escrows
    
    
    1,605
    
    
    
    639Accrued expenses and other liabilities
    
    
    4,892
    
    
    
    3,316Total liabilities
    
    
    932,271
    
    
    
    1,033,267Commitments and contingenciesStockholders equity:Serial preferred stock: ($.01 par value)
authorized 500,000 shares; issued shares 26,000
    
    
    23,670
    
    
    
    23,384Common stock ($.01 par value):
authorized
11,000,000; issued shares 9,128,662
    
    
    91
    
    
    
    91Additional paid-in capital
    
    
    58,593
    
    
    
    60,687Retained earnings, subject to certain restrictions
    
    
    86,291
    
    
    
    98,067Accumulated other comprehensive income
    
    
    1,709
    
    
    
    2,091Unearned employee stock ownership plan shares
    
    
    (3,626
    )
    
    
    (3,771
    )Treasury stock, at cost 4,883,378 and 4,961,032 shares
    
    
    (66,282
    )
    
    
    (68,336
    )Total stockholders equity
    
    
    100,446
    
    
    
    112,213Total liabilities and stockholders equity
    
    $
    1,032,717
    
    
    
    1,145,480
  3




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##### 



HMN FINANCIAL, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(Dollars in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loans receivable
    
    $
    12,928
    
    
    
    14,634
    
    
    
    39,764
    
    
    
    44,573Securities available for sale:Mortgage-backed and related
    
    
    649
    
    
    
    360
    
    
    
    2,177
    
    
    
    797Other marketable
    
    
    693
    
    
    
    1,224
    
    
    
    2,475
    
    
    
    4,641Cash equivalents
    
    
    0
    
    
    
    78
    
    
    
    1
    
    
    
    196Other
    
    
    55
    
    
    
    78
    
    
    
    50
    
    
    
    211Total interest income
    
    
    14,325
    
    
    
    16,374
    
    
    
    44,467
    
    
    
    50,418Interest expense:Deposits
    
    
    4,172
    
    
    
    6,235
    
    
    
    13,876
    
    
    
    20,944Federal Home Loan Bank advances and
Federal Reserve borrowings
    
    
    1,563
    
    
    
    1,571
    
    
    
    4,732
    
    
    
    4,047Total interest expense
    
    
    5,735
    
    
    
    7,806
    
    
    
    18,608
    
    
    
    24,991Net interest income
    
    
    8,590
    
    
    
    8,568
    
    
    
    25,859
    
    
    
    25,427Provision for loan losses
    
    
    3,381
    
    
    
    15,790
    
    
    
    23,254
    
    
    
    18,480Net interest income (loss) after provision
for loan losses
    
    
    5,209
    
    
    
    (7,222
    )
    
    
    2,605
    
    
    
    6,947Non-interest income:Fees and service charges
    
    
    1,034
    
    
    
    1,163
    
    
    
    3,071
    
    
    
    3,114Mortgage servicing fees
    
    
    262
    
    
    
    240
    
    
    
    770
    
    
    
    722Securities gains, net
    
    
    0
    
    
    
    479
    
    
    
    5
    
    
    
    479Gain on sales of loans
    
    
    493
    
    
    
    58
    
    
    
    1,858
    
    
    
    442Other
    
    
    94
    
    
    
    99
    
    
    
    298
    
    
    
    716Total non-interest income
    
    
    1,883
    
    
    
    2,039
    
    
    
    6,002
    
    
    
    5,473Non-interest expense:Compensation and benefits
    
    
    3,180
    
    
    
    3,010
    
    
    
    10,313
    
    
    
    9,406Occupancy
    
    
    970
    
    
    
    1,131
    
    
    
    3,071
    
    
    
    3,424Advertising
    
    
    101
    
    
    
    95
    
    
    
    311
    
    
    
    311Data processing
    
    
    298
    
    
    
    485
    
    
    
    888
    
    
    
    1,323Amortization of mortgage servicing rights, net
    
    
    121
    
    
    
    142
    
    
    
    431
    
    
    
    456Goodwill impairment charge
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    3,801Loss (gain) on real estate owned
    
    
    (357
    )
    
    
    0
    
    
    
    3,812
    
    
    
    0Other
    
    
    1,723
    
    
    
    1,784
    
    
    
    6,241
    
    
    
    4,139Total non-interest expense
    
    
    6,036
    
    
    
    6,647
    
    
    
    25,067
    
    
    
    22,860Income (loss) before income tax expense
(benefit)
    
    
    1,056
    
    
    
    (11,830
    )
    
    
    (16,460
    )
    
    
    (10,440
    )Income tax expense (benefit)
    
    
    175
    
    
    
    (4,779
    )
    
    
    (5,515
    )
    
    
    (2,851
    )Net income (loss)
    
    $
    881
    
    
    
    (7,051
    )
    
    
    (10,945
    )
    
    
    (7,589
    )Preferred stock dividends and discount
    
    
    438
    
    
    
    0
    
    
    
    1,306
    
    
    
    0Net income (loss) available to common
shareholders
    
    
    443
    
    
    
    (7,051
    )
    
    
    (12,251
    )
    
    
    (7,589
    )Basic earnings (loss) per common share
    
    $
    0.12
    
    
    
    (1.93
    )
    
    
    (3.32
    )
    
    
    (2.08
    )Diluted earnings (loss) per common share
    
    $
    0.12
    
    
    
    (1.93
    )
    
    
    (3.32
    )
    
    
    (2.08
    )
  4




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##### 



HMN FINANCIAL, INC. AND SUBSIDIARIES
 
 Consolidated Statement of Stockholders Equity and Comprehensive Loss
 For the Nine-Month Period Ended September 30, 2009
 UnearnedEmployeeAccumulated
    
    Stock
    
    
    
    
    
    TotalAdditional
    
    
    
    
    
    Other
    
    Ownership
    
    
    
    
    
    Stock-Preferred
    
    Common
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Plan
    
    Treasury
    
    Holders(Dollars in thousands)
    
    Stock
    
    Stock
    
    Capital
    
    Earnings
    
    Income
    
    Shares
    
    Stock
    
    EquityBalance, December 31, 2008
    
    $
    23,384
    
    
    
    91
    
    
    
    60,687
    
    
    
    98,067
    
    
    
    2,091
    
    
    
    (3,771
    )
    
    
    (68,336
    )
    
    
    112,213Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,945
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,945
    )Other comprehensive loss, net of tax:Net unrealized losses on securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (382
    )
    
    
    
    
    
    
    
    
    
    
    (382
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,327
    )Preferred stock discount amortization
    
    
    286
    
    
    
    
    
    
    
    (286
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Restricted stock awards forfeited
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127
    )
    
    
    0Restricted stock awards dividend forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Stock compensation tax benefits
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Unearned compensation restricted stock awards
    
    
    
    
    
    
    
    
    
    
    (2,181
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,181
    
    
    
    0Amortization of restricted stock awards
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )Earned employee stock ownership plan shares
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    102Balance, September 30, 2009
    
    $
    23,670
    
    
    
    91
    
    
    
    58,593
    
    
    
    86,291
    
    
    
    1,709
    
    
    
    (3,626
    )
    
    
    (66,282
    )
    
    
    100,446
  5




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##### 



HMN FINANCIAL, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
  Nine Months EndedSeptember 30,(Dollars in thousands)
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (10,945
    )
    
    
    (7,589
    )Adjustments to reconcile net loss to cash provided by operating activities:Provision for loan losses
    
    
    23,254
    
    
    
    18,480Provision for real estate losses
    
    
    5,216
    
    
    
    0Depreciation
    
    
    1,404
    
    
    
    1,288Amortization of premiums, net
    
    
    320
    
    
    
    101Amortization of deferred loan fees
    
    
    (878
    )
    
    
    (616
    )Amortization of mortgage servicing rights and servicing costs
    
    
    431
    
    
    
    456Capitalized mortgage servicing rights
    
    
    (969
    )
    
    
    (9
    )Securities gains, net
    
    
    (5
    )
    
    
    (479
    )Gain on sales of real estate
    
    
    (1,404
    )
    
    
    (160
    )Gain on sales of loans
    
    
    (1,858
    )
    
    
    (442
    )Proceeds from sales of loans held for sale
    
    
    103,293
    
    
    
    47,640Disbursements on loans held for sale
    
    
    (100,904
    )
    
    
    (45,914
    )Amortization of restricted stock awards
    
    
    269
    
    
    
    310Amortization of unearned ESOP shares
    
    
    145
    
    
    
    146Earned employee stock ownership shares priced above original cost
    
    
    (43
    )
    
    
    122Stock option compensation
    
    
    20
    
    
    
    25Decrease in accrued interest receivable
    
    
    1,616
    
    
    
    1,682Decrease in accrued interest payable
    
    
    (4,607
    )
    
    
    (3,531
    )Goodwill impairment charge
    
    
    0
    
    
    
    3,801Decrease (increase) in other assets
    
    
    63
    
    
    
    (5,371
    )Increase (decrease) in other liabilities
    
    
    1,469
    
    
    
    (3,091
    )Other, net
    
    
    96
    
    
    
    26Net cash provided by operating activities
    
    
    15,983
    
    
    
    6,875Cash flows from investing activities:Proceeds from sales of securities available for sale
    
    
    2,141
    
    
    
    10,442Principal collected on securities available for sale
    
    
    17,272
    
    
    
    2,872Proceeds collected on maturities of securities available for sale
    
    
    60,000
    
    
    
    85,000Purchases of securities available for sale
    
    
    (40,352
    )
    
    
    (99,442
    )Purchase of Federal Home Loan Bank stock
    
    
    0
    
    
    
    (5,959
    )Redemption of Federal Home Loan Bank stock
    
    
    0
    
    
    
    4,696Proceeds from sales of real estate
    
    
    7,281
    
    
    
    6,046Net decrease (increase) in loans receivable
    
    
    42,316
    
    
    
    (40,579
    )Purchases of premises and equipment
    
    
    (582
    )
    
    
    (2,725
    )Net cash provided (used) by investing activities
    
    
    88,076
    
    
    
    (39,649
    )Cash flows from financing activities:Increase (decrease) in deposits
    
    
    (99,447
    )
    
    
    518Purchase of treasury stock
    
    
    0
    
    
    
    (723
    )Dividends to stockholders
    
    
    (838
    )
    
    
    (2,750
    )Proceeds from borrowings
    
    
    1,094,000
    
    
    
    347,700Repayment of borrowings
    
    
    (1,094,000
    )
    
    
    (318,700
    )Increase in customer escrows
    
    
    966
    
    
    
    233Net cash provided (used) by financing activities
    
    
    (99,319
    )
    
    
    26,278Increase (decrease) in cash and cash equivalents
    
    
    4,740
    
    
    
    (6,496
    )Cash and cash equivalents, beginning of period
    
    
    15,729
    
    
    
    23,718Cash and cash equivalents, end of period
    
    $
    20,469
    
    
    
    17,222Supplemental cash flow disclosures:Cash paid for interest
    
    $
    23,215
    
    
    
    28,522Cash paid for income taxes
    
    
    33
    
    
    
    5,247Supplemental noncash flow disclosures:Transfer of loans to real estate
    
    
    16,066
    
    
    
    12,476Loans transferred to loans held for sale
    
    
    1,234
    
    
    
    2,170
  6




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##### 



HMN FINANCIAL, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
  September 30, 2009 and 2008
 (1) HMN Financial, Inc.
   (2) Basis of Preparation
    (3) New Accounting Standards
 The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No.
162, The Hierarchy of Generally Accepted Accounting Principles
 Amendments to FASB Interpretation No.
46(R).
 7




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##### 



Accounting for Transfers of Financial
Assets  an amendment of FASB Statement No. 140. Consolidation of Variable Interest
Entities,
 (4) Derivative Instruments and Hedging Activities
   (5) Fair Value Measurements
  Level 1
 Level 2
 Level 3
 8




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##### 



Carrying value at September 30, 2009(Dollars in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Securities available for sale
    
    $
    135,584
    
    
    
    7,260
    
    
    
    128,324
    
    
    
    0Mortgage loan commitments
    
    
    79
    
    
    
    0
    
    
    
    79
    
    
    
    0Total
    
    $
    135,663
    
    
    
    7,260
    
    
    
    128,403
    
    
    
    0
  Nine months endedCarrying value at September 30, 2009
    
    
    September 30, 2009(Dollars in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total gains (losses)Loans held for sale
    
    $
    3,279
    
    
    
    0
    
    
    
    3,279
    
    
    
    0
    
    
    
    50Mortgage servicing rights
    
    
    1,266
    
    
    
    0
    
    
    
    1,266
    
    
    
    0
    
    
    
    0Loans (1)
    
    
    64,161
    
    
    
    0
    
    
    
    64,161
    
    
    
    0
    
    
    
    (9,014
    )Real estate, net(2)
    
    
    15,494
    
    
    
    0
    
    
    
    15,494
    
    
    
    0
    
    
    
    (5,216
    )Total
    
    $
    84,200
    
    
    
    0
    
    
    
    84,200
    
    
    
    0
    
    
    
    (14,180
    )
 
 (1)
    
    Losses represent specific reserves on loans for which adjustments are based on the
appraised value of the collateral. The carrying value of loans fully charged-off is zero.(2)
    
    Represents the fair value and related losses of foreclosed real estate and other collateral
owned that were measured at fair value subsequent to their initial classification as
foreclosed assets. (6) Fair Value of Financial Instruments
  9




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##### 



September 30,2009
    
    2008Carrying
    
    Estimated
    
    Contract
    
    Carrying
    
    Estimated
    
    Contract(Dollars in thousands)
    
    amount
    
    fair value
    
    amount
    
    amount
    
    fair value
    
    amountFinancial assets:Cash and cash equivalents
    
    $
    20,469
    
    
    
    20,469
    
    
    
    
    
    
    
    17,220
    
    
    
    17,220Securities available for sale
    
    
    135,584
    
    
    
    135,584
    
    
    
    
    
    
    
    186,058
    
    
    
    186,058Loans held for sale
    
    
    3,279
    
    
    
    3,328
    
    
    
    
    
    
    
    4,222
    
    
    
    4,222Loans receivable, net
    
    
    818,897
    
    
    
    818,358
    
    
    
    
    
    
    
    873,156
    
    
    
    873,447Federal Home Loan Bank stock
    
    
    7,286
    
    
    
    7,286
    
    
    
    
    
    
    
    7,461
    
    
    
    7,461Accrued interest receivable
    
    
    3,952
    
    
    
    3,952
    
    
    
    
    
    
    
    5,211
    
    
    
    5,211Financial liabilities:Deposits
    
    
    781,574
    
    
    
    765,646
    
    
    
    
    
    
    
    888,848
    
    
    
    877,888Federal Home Loan Bank advances
    
    
    132,500
    
    
    
    141,560
    
    
    
    
    
    
    
    132,500
    
    
    
    138,091Federal Reserve line of credit
    
    
    10,000
    
    
    
    9,999
    
    
    
    
    
    
    
    9,000
    
    
    
    8,999Accrued interest payable
    
    
    1,700
    
    
    
    1,700
    
    
    
    
    
    
    
    5,984
    
    
    
    5,984Off-balance sheet financial instruments:Commitments to extend credit
    
    
    79
    
    
    
    79
    
    
    
    135,120
    
    
    
    0
    
    
    
    0
    
    
    
    250,674Commitments to sell loans
    
    
    (131
    )
    
    
    (131
    )
    
    
    7,718
    
    
    
    (59
    )
    
    
    (59
    )
    
    
    8,675
 (7) Comprehensive Income (Loss)
  For the three months ended September 30,2009
    
    2008(Dollars in thousands)
    
    Before tax
    
    Tax effect
    
    Net of tax
    
    Before tax
    
    Tax effect
    
    Net of taxSecurities available for sale:Net unrealized gains (losses)
arising during the
period
    
    $
    50
    
    
    
    20
    
    
    
    30
    
    
    
    (694
    )
    
    
    (310
    )
    
    
    (384
    )Less reclassification of net
gains
included in net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    479
    
    
    
    169
    
    
    
    310Other comprehensive income
(loss)
    
    $
    50
    
    
    
    20
    
    
    
    30
    
    
    
    (1,173
    )
    
    
    (479
    )
    
    
    (694
    )
 For the nine months ended September 30,2009
    
    2008Before tax
    
    Tax effect
    
    Net of tax
    
    Before tax
    
    Tax effect
    
    Net of taxSecurities available for sale:Net unrealized losses arising
during the period
    
    $
    (697
    )
    
    
    (318
    )
    
    
    (379
    )
    
    
    (1,370
    )
    
    
    (586
    )
    
    
    (784
    )Less reclassification of net
gains included in
net income
    
    
    5
    
    
    
    2
    
    
    
    3
    
    
    
    479
    
    
    
    169
    
    
    
    310Other comprehensive loss
    
    $
    (702
    )
    
    
    (320
    )
    
    
    (382
    )
    
    
    (1,849
    )
    
    
    (755
    )
    
    
    (1,094
    )
 10




---



##### 



(8) Securities Available For Sale
  Gross unrealized
    
    
    Gross unrealized(Dollars in thousands)
    
    Amortized cost
    
    
    gains
    
    
    losses
    
    
    Fair valueSeptember 30, 2009:Mortgage-backed securities:FHLMC
    
    $
    28,402
    
    
    
    1,006
    
    
    
    0
    
    
    
    29,408FNMA
    
    
    21,184
    
    
    
    884
    
    
    
    0
    
    
    
    22,068Collateralized mortgage obligations:FHLMC
    
    
    6,802
    
    
    
    147
    
    
    
    (86
    )
    
    
    6,863FNMA
    
    
    388
    
    
    
    10
    
    
    
    0
    
    
    
    39856,776
    
    
    
    2,047
    
    
    
    (86
    )
    
    
    58,737Other marketable securities:U.S. Government agency obligations
    
    
    75,276
    
    
    
    1,260
    
    
    
    (4
    )
    
    
    76,532Corporate preferred stock
    
    
    700
    
    
    
    0
    
    
    
    (385
    )
    
    
    31575,976
    
    
    
    1,260
    
    
    
    (389
    )
    
    
    76,847$
    132,752
    
    
    
    3,307
    
    
    
    (475
    )
    
    
    135,584
  Amortized
    
    
    Fair(Dollars in thousands)
    
    cost
    
    
    valueDue less than one year
    
    $
    88,463
    
    
    
    89,968Due after one year through five years
    
    
    38,083
    
    
    
    39,583Due after five years through ten years
    
    
    5,506
    
    
    
    5,718No stated maturity
    
    
    700
    
    
    
    315Total
    
    $
    132,752
    
    
    
    135,584
  Less than twelve months
    
    
    Twelve months or more
    
    
    Total# of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(Dollars in thousands)
    
    Investments
    
    
    Value
    
    
    Losses
    
    
    Investments
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesCollateralized mortgage
obligations:FHLMC
    
    
    1
    
    
    $
    1,519
    
    
    
    (86
    )
    
    
    0
    
    
    $
    0
    
    
    
    0
    
    
    
    1,519
    
    
    
    (86
    )Other marketable securities:FHLB notes
    
    
    1
    
    
    
    5,022
    
    
    
    (4
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    5,022
    
    
    
    (4
    )Corporate preferred stock
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    315
    
    
    
    (385
    )
    
    
    315
    
    
    
    (385
    )Total temporarily impaired
Securities
    
    
    2
    
    
    $
    6,541
    
    
    
    (90
    )
    
    
    1
    
    
    $
    315
    
    
    
    (385
    )
    
    $
    6,856
    
    
    
    (475
    )
  11




---



##### 



(9) Investment in Mortgage Servicing Rights
  Nine months ended
    
    
    Year ended
    
    
    Nine months ended(Dollars in thousands)
    
    Sept. 30, 2009
    
    
    Dec. 31, 2008
    
    
    Sept. 30, 2008Mortgage servicing rights:Balance, beginning of period
    
    $
    728
    
    
    
    1,270
    
    
    
    1,270Originations
    
    
    969
    
    
    
    28
    
    
    
    10Amortization
    
    
    (431
    )
    
    
    (570
    )
    
    
    (456
    )Balance, end of period
    
    
    1,266
    
    
    
    728
    
    
    
    824Fair value of mortgage servicing rights
    
    $
    2,413
    
    
    
    2,339
    
    
    
    3,099
  Weighted
    
    WeightedLoan
    
    Average
    
    AveragePrincipal
    
    Interest
    
    Remaining
    
    Number(Dollars in thousands)
    
    Balance
    
    Rate
    
    Term (months)
    
    of LoansOriginal term 30 year fixed rate
    
    $
    217,976
    
    
    
    5.54
    %
    
    
    299
    
    
    
    1,915Original term 15 year fixed rate
    
    
    101,351
    
    
    
    5.01
    %
    
    
    115
    
    
    
    1,608Adjustable rate
    
    
    1,062
    
    
    
    4.15
    %
    
    
    284
    
    
    
    12
  Gross
    
    
    
    
    
    
    UnamortizedCarrying
    
    
    Accumulated
    
    
    Intangible(Dollars in thousands)
    
    Amount
    
    
    Amortization
    
    
    AssetsAmortized intangible assets:Mortgage servicing rights
    
    $
    4,145
    
    
    
    (2,879
    )
    
    
    1,266Total
    
    $
    4,145
    
    
    
    (2,879
    )
    
    
    1,266
  MortgageServicingRightsYear ending December 31,2009
    
    $
    108,1492010
    
    
    315,5832011
    
    
    225,9522012
    
    
    183,2302013
    
    
    159,146
  12




---



##### 



(10) Earnings (Loss) per Share
  Three months ended September 30,
    
    
    Nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Weighted average number of common shares outstanding
used in basic earnings per common share calculation
    
    
    3,702
    
    
    
    3,657
    
    
    
    3,688
    
    
    
    3,651Net dilutive effect of:Restricted stock awards
    
    
    83
    
    
    
    0
    
    
    
    0
    
    
    
    0Weighted average number of shares outstanding
adjusted for effect of dilutive securities
    
    
    3,785
    
    
    
    3,657
    
    
    
    3,688
    
    
    
    3,651Income (loss) available to common shareholders
    
    $
    443
    
    
    
    (7,051
    )
    
    
    (12,251
    )
    
    
    (7,589
    )Basic earnings (loss) per common share
    
    $
    0.12
    
    
    
    (1.93
    )
    
    
    (3.32
    )
    
    
    (2.08
    )Diluted earnings (loss) per common share
    
    $
    0.12
    
    
    
    (1.93
    )
    
    
    (3.32
    )
    
    
    (2.08
    )
 (11) Regulatory Capital
    13




---



##### 



To Be Well CapitalizedRequired to be
    
    
    
    
    
    
    
    
    
    
    Under PromptAdequately
    
    
    
    
    
    
    
    
    
    
    Corrective ActionsActual
    
    
    Capitalized
    
    
    Excess Capital
    
    
    ProvisionsPercent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of(Dollars in thousands)
    
    Amount
    
    
    Assets(1)
    
    
    Amount
    
    
    Assets (1)
    
    
    Amount
    
    
    Assets(1)
    
    
    Amount
    
    
    Assets(1)Bank stockholders equity
    
    $
    96,722Less:Net unrealized gains on certain securities
available for sale and cash flow hedges
    
    
    (1,938
    )Disallowed servicing and tax assets
    
    
    (6,108
    )Tier I or core capital
    
    
    88,676Tier I capital to adjusted total assets
    
    
    
    
    
    
    8.67
    %
    
    $
    40,894
    
    
    
    4.00
    %
    
    $
    47,782
    
    
    
    4.67
    %
    
    $
    51,118
    
    
    
    5.00
    %Tier I capital to risk-weighted assets
    
    
    
    
    
    
    10.71
    %
    
    $
    33,124
    
    
    
    4.00
    %
    
    $
    55,552
    
    
    
    6.71
    %
    
    $
    49,686
    
    
    
    6.00
    %Plus:Allowable allowance for loan losses
    
    
    10,351Risk-based capital
    
    $
    99,027
    
    
    
    
    
    
    $
    66,248
    
    
    
    
    
    
    $
    32,779
    
    
    
    
    
    
    $
    82,810Risk-based capital to risk- weighted assets
    
    
    
    
    
    
    11.96
    %
    
    
    
    
    
    
    8.00
    %
    
    
    
    
    
    
    3.96
    %
    
    
    
    
    
    
    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. (12) Commitments and Contingencies
   (13) Business Segments
   14




---



##### 



Home Federal
    
    
    
    
    
    
    
    
    
    Consolidated(Dollars in thousands)
    
    Savings Bank
    
    Other
    
    Eliminations
    
    TotalAt or for the quarter ended September 30, 2009:Interest income  external customers
    
    $
    14,325
    
    
    
    0
    
    
    
    0
    
    
    
    14,325Non-interest income  external customers
    
    
    1,891
    
    
    
    0
    
    
    
    0
    
    
    
    1,891Loss on limited partnerships
    
    
    (8
    )
    
    
    0
    
    
    
    0
    
    
    
    (8
    )Intersegment interest income
    
    
    0
    
    
    
    4
    
    
    
    (4
    )
    
    
    0Intersegment non-interest income
    
    
    43
    
    
    
    1,033
    
    
    
    (1,076
    )
    
    
    0Interest expense
    
    
    5,739
    
    
    
    0
    
    
    
    (4
    )
    
    
    5,735Amortization of mortgage servicing rights, net
    
    
    121
    
    
    
    0
    
    
    
    0
    
    
    
    121Other non-interest expense
    
    
    5,785
    
    
    
    174
    
    
    
    (44
    )
    
    
    5,915Income tax expense (benefit)
    
    
    194
    
    
    
    (19
    )
    
    
    0
    
    
    
    175Net income
    
    
    1,031
    
    
    
    882
    
    
    
    (1,032
    )
    
    
    881Total assets
    
    
    1,031,646
    
    
    
    101,072
    
    
    
    (100,001
    )
    
    
    1,032,717At or for the quarter ended September 30, 2008:Interest income  external customers
    
    $
    16,372
    
    
    
    2
    
    
    
    0
    
    
    
    16,374Non-interest income  external customers
    
    
    2,044
    
    
    
    0
    
    
    
    0
    
    
    
    2,044Loss on limited partnerships
    
    
    (5
    )
    
    
    0
    
    
    
    0
    
    
    
    (5
    )Intersegment interest income
    
    
    0
    
    
    
    18
    
    
    
    (18
    )
    
    
    0Intersegment non-interest income
    
    
    44
    
    
    
    (6,952
    )
    
    
    6,908
    
    
    
    0Interest expense
    
    
    7,824
    
    
    
    0
    
    
    
    (18
    )
    
    
    7,806Amortization of mortgage servicing rights, net
    
    
    142
    
    
    
    0
    
    
    
    0
    
    
    
    142Other non-interest expense
    
    
    6,362
    
    
    
    187
    
    
    
    (44
    )
    
    
    6,505Income tax benefit
    
    
    (4,713
    )
    
    
    (66
    )
    
    
    0
    
    
    
    (4,779
    )Net loss
    
    
    (6,951
    )
    
    
    (7,052
    )
    
    
    6,952
    
    
    
    (7,051
    )Total assets
    
    
    1,128,029
    
    
    
    87,461
    
    
    
    (86,590
    )
    
    
    1,128,900At or for the nine months ended September 30, 2009:Interest income  external customers
    
    $
    44,467
    
    
    
    0
    
    
    
    0
    
    
    
    44,467Non-interest income  external customers
    
    
    6,047
    
    
    
    1
    
    
    
    0
    
    
    
    6,048Loss on limited partnerships
    
    
    (46
    )
    
    
    0
    
    
    
    0
    
    
    
    (46
    )Intersegment interest income
    
    
    0
    
    
    
    12
    
    
    
    (12
    )
    
    
    0Intersegment non-interest income
    
    
    130
    
    
    
    (10,469
    )
    
    
    10,339
    
    
    
    0Interest expense
    
    
    18,620
    
    
    
    0
    
    
    
    (12
    )
    
    
    18,608Amortization of mortgage servicing rights, net
    
    
    431
    
    
    
    0
    
    
    
    0
    
    
    
    431Other non-interest expense
    
    
    24,204
    
    
    
    563
    
    
    
    (131
    )
    
    
    24,636Income tax benefit
    
    
    (5,444
    )
    
    
    (71
    )
    
    
    0
    
    
    
    (5,515
    )Net loss
    
    
    (10,467
    )
    
    
    (10,948
    )
    
    
    10,470
    
    
    
    (10,945
    )Total assets
    
    
    1,031,646
    
    
    
    101,072
    
    
    
    (100,001
    )
    
    
    1,032,717At or for the nine months ended September 30, 2008:Interest income  external customers
    
    $
    50,402
    
    
    
    16
    
    
    
    0
    
    
    
    50,418Non-interest income  external customers
    
    
    5,477
    
    
    
    0
    
    
    
    0
    
    
    
    5,477Loss on limited partnerships
    
    
    (4
    )
    
    
    0
    
    
    
    0
    
    
    
    (4
    )Intersegment interest income
    
    
    0
    
    
    
    69
    
    
    
    (69
    )
    
    
    0Intersegment non-interest income
    
    
    131
    
    
    
    (7,319
    )
    
    
    7,188
    
    
    
    0Interest expense
    
    
    25,060
    
    
    
    0
    
    
    
    (69
    )
    
    
    24,991Amortization of mortgage servicing rights, net
    
    
    456
    
    
    
    0
    
    
    
    0
    
    
    
    456Other non-interest expense
    
    
    21,991
    
    
    
    544
    
    
    
    (131
    )
    
    
    22,404Income tax benefit
    
    
    (2,666
    )
    
    
    (185
    )
    
    
    0
    
    
    
    (2,851
    )Net loss
    
    
    (7,315
    )
    
    
    (7,593
    )
    
    
    7,319
    
    
    
    (7,589
    )Total assets
    
    
    1,128,029
    
    
    
    87,461
    
    
    
    (86,590
    )
    
    
    1,128,900
 15




---



##### 



HMN FINANCIAL, INC.
 
 Item 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-looking Information
  General
  16




---



##### 



Critical Accounting Policies
  Allowance for Loan Losses and Related Provision
   17




---



##### 



Income Taxes
    18




---



##### 



Net Income (Loss)
   Net Interest Income
    19




---



##### 



For the nine month period endedSeptember 30, 2009
    
    
    September 30, 2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    RateInterest-earning assets:Securities available for sale
    
    $
    149,977
    
    
    
    4,650
    
    
    
    4.15
    %
    
    $
    145,713
    
    
    
    5,438
    
    
    
    4.99
    %Loans held for sale
    
    
    3,484
    
    
    
    134
    
    
    
    5.14
    
    
    
    2,600
    
    
    
    117
    
    
    
    6.01Mortgage loans, net
    
    
    151,620
    
    
    
    6,651
    
    
    
    5.86
    
    
    
    164,661
    
    
    
    7,703
    
    
    
    6.25Commercial loans, net
    
    
    626,249
    
    
    
    29,261
    
    
    
    6.25
    
    
    
    635,397
    
    
    
    32,325
    
    
    
    6.80Consumer loans, net
    
    
    83,425
    
    
    
    3,720
    
    
    
    5.96
    
    
    
    84,181
    
    
    
    4,428
    
    
    
    7.03Cash equivalents
    
    
    11,295
    
    
    
    1
    
    
    
    0.01
    
    
    
    17,645
    
    
    
    196
    
    
    
    1.48Federal Home Loan Bank stock
    
    
    7,286
    
    
    
    50
    
    
    
    0.91
    
    
    
    6,927
    
    
    
    211
    
    
    
    4.07Total interest-earning assets
    
    
    1,033,336
    
    
    
    44,467
    
    
    
    5.75
    
    
    
    1,057,124
    
    
    
    50,418
    
    
    
    6.37Interest-bearing liabilities:NOW accounts
    
    
    109,750
    
    
    
    110
    
    
    
    0.13
    
    
    
    124,869
    
    
    
    1,367
    
    
    
    1.46Savings accounts
    
    
    30,190
    
    
    
    28
    
    
    
    0.12
    
    
    
    41,642
    
    
    
    345
    
    
    
    1.11Money market accounts
    
    
    101,428
    
    
    
    1,059
    
    
    
    1.40
    
    
    
    127,299
    
    
    
    2,323
    
    
    
    2.44Certificates
    
    
    259,562
    
    
    
    6,022
    
    
    
    3.10
    
    
    
    244,313
    
    
    
    7,373
    
    
    
    4.03Brokered deposits
    
    
    240,430
    
    
    
    6,657
    
    
    
    3.70
    
    
    
    277,288
    
    
    
    9,536
    
    
    
    4.59Advances and borrowings
    
    
    163,357
    
    
    
    4,732
    
    
    
    3.87
    
    
    
    116,209
    
    
    
    4,047
    
    
    
    4.65Total interest-bearing liabilities
    
    
    904,717
    
    
    
    
    
    
    
    
    
    
    
    931,620Noninterest checking
    
    
    68,369
    
    
    
    
    
    
    
    
    
    
    
    54,731Other noninterest bearing escrow deposits
    
    
    1,324
    
    
    
    
    
    
    
    
    
    
    
    1,107Total interest-bearing liabilities and
noninterest bearing deposits
    
    $
    974,410
    
    
    
    18,608
    
    
    
    2.55
    
    
    $
    987,458
    
    
    
    24,991
    
    
    
    3.38Net interest income
    
    
    
    
    
    $
    25,859
    
    
    
    
    
    
    
    
    
    
    $
    25,427Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.20
    %
    
    
    
    
    
    
    
    
    
    
    2.99
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.35
    %
    
    
    
    
    
    
    
    
    
    
    3.21
    %
 20




---



##### 



Provision for Loan Losses
    (in thousands)
    
    2009
    
    
    2008Balance at June 30,
    
    $
    25,403
    
    
    $
    14,924Provision
    
    
    3,381
    
    
    
    15,790Charge offs:Commercial loans
    
    
    0
    
    
    
    (12,009
    )Commercial real estate loans
    
    
    (1,236
    )
    
    
    (2,652
    )Consumer loans
    
    
    (586
    )
    
    
    (486
    )Single family mortgage loans
    
    
    (17
    )
    
    
    (18
    )Recoveries
    
    
    99
    
    
    
    22Balance at September 30,
    
    $
    27,044
    
    
    $
    15,571
 (in thousands)
    
    2009
    
    
    2008Balance at January 1,
    
    $
    21,257
    
    
    $
    12,438Provision
    
    
    23,254
    
    
    
    18,480Charge offs:Commercial loans
    
    
    (5,352
    )
    
    
    (12,034
    )Commercial real estate loans
    
    
    (11,017
    )
    
    
    (2,727
    )Consumer loans
    
    
    (1,692
    )
    
    
    (555
    )Single family mortgage loans
    
    
    (82
    )
    
    
    (78
    )Recoveries
    
    
    676
    
    
    
    47Balance at September 30,
    
    $
    27,044
    
    
    $
    15,571
 21




---



##### 



Non-Interest Income
   Non-Interest Expense
   22




---



##### 



Income Tax Expense (Benefit)
    Non-Performing Assets
  September 30,
    
    
    June 30,
    
    
    December 31,(Dollars in thousands)
    
    2009
    
    
    2009
    
    
    2008Non-Accruing Loans:One-to-four family real estate
    
    $
    1,857
    
    
    $
    700
    
    
    $
    7,251Commercial real estate
    
    
    38,731
    
    
    
    42,393
    
    
    
    46,953Consumer
    
    
    4,302
    
    
    
    5,942
    
    
    
    5,298Commercial business
    
    
    16,821
    
    
    
    13,632
    
    
    
    4,671Total
    
    
    61,711
    
    
    
    62,667
    
    
    
    64,173Other assets
    
    
    0
    
    
    
    25
    
    
    
    25Foreclosed and Repossessed Assets:One-to-four family real estate
    
    
    793
    
    
    
    536
    
    
    
    258Commercial real estate
    
    
    14,701
    
    
    
    16,235
    
    
    
    10,300Total non-performing assets
    
    $
    77,205
    
    
    $
    79,463
    
    
    $
    74,756Total as a percentage of total assets
    
    
    7.48
    %
    
    
    7.54
    %
    
    
    6.53
    %Total non-performing loans
    
    $
    61,711
    
    
    $
    62,667
    
    
    $
    64,173Total as a percentage of total loans receivable, net
    
    
    7.54
    %
    
    
    7.49
    %
    
    
    7.12
    %Allowance for loan loss to non-performing loans
    
    
    43.82
    %
    
    
    40.54
    %
    
    
    33.12
    %Delinquency Data:Delinquencies (1)30+ days
    
    $
    3,769
    
    
    $
    10,080
    
    
    $
    11,48890+ days
    
    
    0
    
    
    
    0
    
    
    
    0Delinquencies as a percentage of
loan and lease portfolio (1)30+ days
    
    
    0.45
    %
    
    
    1.18
    %
    
    
    1.26
    %90+ days
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
 
 (1)
    
    Excludes non-accrual loans. 23




---



##### 



(Dollars in thousands)Non-performing loansJune 30, 2009
    
    $
    62,667Classified as non-performing
    
    
    7,273Charge offs
    
    
    (1,839
    )Principal payments received
    
    
    (1,762
    )Classified as accruing
    
    
    (116
    )Transferred to real estate owned
    
    
    (4,512
    )September 30, 2009
    
    $
    61,711Foreclosed and repossessed assetsJune 30, 2009
    
    $
    16,796Transferred from non-performing loans
    
    
    4,512Other foreclosures/repossessions
    
    
    987Real estate sold
    
    
    (7,048
    )Net gain on sale of assets
    
    
    1,406Write downs
    
    
    (1,159
    )September 30, 2009
    
    $
    15,494
  (Dollars in thousands)Non-performing loansDecember 31, 2008
    
    $
    64,173Classified as non-performing
    
    
    35,557Charge offs
    
    
    (18,144
    )Principal payments received
    
    
    (3,939
    )Classified as accruing
    
    
    (833
    )Transferred to real estate owned
    
    
    (15,103
    )September 30, 2009
    
    $
    61,711Foreclosed and repossessed asset activityDecember 31, 2008
    
    $
    10,583Transferred from non-performing loans
    
    
    15,103Other foreclosures/repossessions
    
    
    1,073Real estate sold
    
    
    (8,368
    )Net gain on sale of assets
    
    
    1,379Write downs
    
    
    (4,276
    )September 30, 2009
    
    $
    15,494
  Principal
    
    
    
    
    
    Principal
    
    
    
    
    
    Principal(Dollars in thousands)
    
    Amount of Loan
    
    
    
    
    
    Amount of Loan
    
    
    
    
    
    Amount of Loanat September 30,
    
    
    
    
    
    at June 30,
    
    
    
    
    
    at December 31,Property Type
    
    #
    
    2009
    
    #
    
    2009
    
    #
    
    2008Residential developments
    
    
    7
    
    
    $
    13,995
    
    
    
    8
    
    
    $
    18,891
    
    
    
    6
    
    
    $
    17,680Single family homes
    
    
    3
    
    
    
    1,615
    
    
    
    3
    
    
    
    1,674
    
    
    
    4
    
    
    
    898Condominiums
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    5,440Hotels
    
    
    1
    
    
    
    4,999
    
    
    
    1
    
    
    
    4,999
    
    
    
    1
    
    
    
    4,999Alternative fuel plants
    
    
    2
    
    
    
    12,789
    
    
    
    2
    
    
    
    12,676
    
    
    
    2
    
    
    
    12,493Shopping center/retail
    
    
    3
    
    
    
    2,349
    
    
    
    2
    
    
    
    1,182
    
    
    
    2
    
    
    
    1,237Elderly care facilities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    3
    
    
    
    4,037Restaurant/bars
    
    
    4
    
    
    
    2,984
    
    
    
    3
    
    
    
    2,971
    
    
    
    1
    
    
    
    16920
    
    
    $
    38,731
    
    
    
    19
    
    
    $
    42,393
    
    
    
    20
    
    
    $
    46,953
  24




---



##### 



Dividends
  Liquidity and Capital Resources
    25




---



##### 



Market Risk
  Rate Shock Table
  Other than trading portfolio(Dollars in thousands)
    
    Market ValueBasis point change in interest rates
    
    -100
    
    
    0
    
    
    +100
    
    
    +200Total market risk sensitive assets
    
    $
    1,012,811
    
    
    
    999,654
    
    
    
    985,393
    
    
    
    970,319Total market risk sensitive liabilities
    
    
    931,665
    
    
    
    916,363
    
    
    
    901,849
    
    
    
    887,865Off-balance sheet financial instruments
    
    
    (3
    )
    
    
    0
    
    
    
    1
    
    
    
    2Net market risk
    
    $
    81,149
    
    
    
    83,291
    
    
    
    83,543
    
    
    
    82,452Percentage change from current market value
    
    
    (2.57
    )%
    
    
    0.00
    %
    
    
    0.30
    %
    
    
    (1.01
    )%
  26




---



##### 



Asset/Liability Management
  Projected Change in NetRate Shock
    
    Interest
    
    Percentage(Dollars in thousands)
    
    in Basis Points
    
    Income
    
    Change+200
    
    
    $
    3,374
    
    
    
    10.30
    %+100
    
    
    
    1,714
    
    
    
    5.230
    
    
    
    0
    
    
    
    0.00-100
    
    
    
    (2,374
    )
    
    
    (7.24
    )
   27




---



##### 



Off-Balance Sheet Arrangements
  
 Item 4: Controls and Procedures
 Evaluation of disclosure controls and procedures.
 Changes in internal controls.
 28




---



##### 



HMN FINANCIAL, INC.
 
 PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings.
   
 ITEM 1A. Risk Factors.
    
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
   (a) Total
    
    
    
    
    
    
    (c) Total Number of
    
    
    (d) Maximum NumberNumber of
    
    
    
    
    
    
    Shares Purchased as Part
    
    
    of Shares that May YetShares
    
    
    (b) Average Price
    
    
    of Publicly Announced
    
    
    Be Purchased Under the PlansPeriod
    
    Purchased
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    or Programs (1)July 1 through July 31, 2009
    
    
    0
    
    
    $
    N/A
    
    
    
    0
    
    
    
    300,000August 1 through August 31, 2009
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    300,000September 1 through September
30, 2009
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    300,000Total
    
    
    0
    
    
    $
    N/A
    
    
    
    0
 
 (1)
    
    On July 22, 2008 the Board of Directors authorized the repurchase of up to 300,000 shares of
the Companys common stock. This program expires on January 26, 2010. 29




---



##### 



ITEM 3. Defaults Upon Senior Securities.
  
 ITEM 4. Submission of Matters to a Vote of Security Holders.
  
 ITEM 5. Other Information.
  
 ITEM 6. Exhibits.
  30




---



##### 



SIGNATURES
  HMN FINANCIAL, INC.
RegistrantDate: November 3, 2009
    /s/ Bradley KrehbielBradley Krehbiel,Principal Executive Officer
(Duly Authorized Representative)Date: November 3, 2009
    /s/ Jon EberleJon Eberle,Chief Financial Officer
(Principal Financial Officer) 31




---



##### 



HMN FINANCIAL, INC.
 
 INDEX TO EXHIBITS
 FOR FORM 10-Q
 SequentialReference
    
    Page NumberingRegulation
    
    
    
    to Prior
    
    Where AttachedS-K
    
    
    
    Filing or
    
    Exhibits AreExhibit
    
    
    
    Exhibit
    
    Located in ThisNumber
    
    Document Attached Hereto
    
    Number
    
    Form 10-Q Report3.1
    
    Amended and Restated Certificate of Incorporation
    
    
    *1
    
    
    N/A3.2
    
    Amended and Restated By-laws
    
    
    *2
    
    
    N/A4
    
    Form of Common Stock
    
    
    *3
    
    
    N/A31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of CEO
    
    
    31.1
    
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of CFO
    
    
    31.2
    
    
    Filed Electronically32
    
    Section 1350 Certification of CEO and CFO
    
    
    32
    
    
    Filed Electronically
 
 *1
    
    Incorporated by reference to Exhibit 3(a) 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 Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q, as amended
for the period ended September 30, 2008 (File No. 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). 32