FIVE-YEAR
    CONSOLIDATED FINANCIAL HIGHLIGHTS
   Selected Operations Data:

Year Ended December 31,(Dollars in thousands, except per share data)

2010


2009


2008


2007


2006Total interest income

$
48,270



57,771



66,512



77,523



67,527Total interest expense


17,259



23,868



32,796



38,823



28,841Net interest income


31,011



33,903



33,716



38,700



38,686Provision for loan losses


33,381



26,699



26,696



3,898



8,878Net interest income (loss) after provision for loan losses


(2,370
)


7,204



7,020



34,802



29,808Fees and service charges


3,741



4,137



4,269



3,139



3,111Loan servicing fees


1,067



1,042



955



1,054



1,172Securities gains, net


0



5



479



0



48Gain on sales of loans


1,987



2,273



651



1,514



1,255Other non-interest income


476



625



749



1,205



856Total non-interest income


7,271



8,082



7,103



6,912



6,442Total non-interest expense


27,556



31,689



29,234



23,140



22,596Income (loss) before income tax expense (benefit)


(22,655
)


(16,403
)


(15,111
)


18,574



13,654Income tax expense (benefit)


6,323



(5,607
)


(4,984
)


7,300



5,226Net income (loss)


(28,978
)


(10,796
)


(10,127
)


11,274



8,428Preferred stock dividends and discount


(1,784
)


(1,747
)


(37
)


0



0Net income (loss) available to common shareholders

$
(30,762
)


(12,543
)


(10,164
)


11,274



8,428Basic earnings (loss) per common share

$
(8.17
)


(3.39
)


(2.78
)


3.02



2.20Diluted earnings (loss) per common share


(8.17
)


(3.39
)


(2.78
)


2.89



2.10Cash dividends per common share


0.00



0.00



0.75



1.00



0.98   Selected Financial Condition
    Data:

December 31,(Dollars in thousands, except per share data)

2010


2009


2008


2007


2006Total assets

$
880,618



1,036,241



1,145,480



1,117,054



977,789Securities available for sale


151,564



159,602



175,145



186,188



126,140Loans held for sale


2,728



2,965



2,548



3,261



1,493Loans receivable, net


664,241



799,256



900,889



865,088



768,232Deposits


683,230



796,011



880,505



888,118



725,959FHLB advances and Federal Reserve borrowings


122,500



132,500



142,500



112,500



150,900Stockholders equity


69,547



99,938



112,213



98,128



93,142Book value per common share


10.51



17.94



21.31



23.50



21.58Number of full service offices


14



14



16



15



14Number of loan origination offices


1



2



2



2



2Key
    Ratios(1)Stockholders equity to total assets at year end


7.90
%


9.64
%


9.80
%


8.78
%


9.53
%Average stockholders equity to average assets


9.40



9.73



8.58



8.89



9.70Return (loss) on stockholders equity(ratio of net income (loss) to average equity)


(31.73
)


(10.33
)


(10.61
)


11.53



8.85Return (loss) on assets
      (ratio of net income (loss) to average assets)


(2.98
)


(1.00
)


(0.91
)


1.03



0.86Dividend payout ratio
      (ratio of dividends paid to net income (loss))


NM



NM



NM



34.72



42.61   (1)
    
    Average balances were calculated
    based upon amortized cost without the market value impact of
    ASC 320.NM  Not meaningful   4




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
  This Annual Report, other reports filed by the Company with
    the Securities and Exchange Commission, and the Companys
    proxy statement may contain forward-looking statements within
    the meaning of the Private Securities Litigation Reform Act of
    1995. These statements are often identified by such
    forward-looking terminology as expect,
    intent, look, believe,
    anticipate, estimate,
    project, seek, may,
    will, would, could,
    should, trend, target, and
    goal or similar statements or variations of such
    terms and include, but are not limited to those relating to the
    adequacy and amount of available liquidity and capital resources
    to the Bank, the Companys liquidity and capital
    requirements, changes in the size of the Banks loan
    portfolio, the recovery of the valuation allowance on deferred
    tax assets, the amount and mix of the Banks non-performing
    assets and the adequacy of the allowance therefor, future losses
    on non-performing assets, the amount of interest-earning assets,
    the amount and mix of brokered and other deposits (including the
    Companys ability to renew brokered deposits), the
    availability of alternate funding sources, the payment of
    dividends, the future outlook for the Company, and the
    Companys and the Banks compliance with regulatory
    standards generally (including the Banks status as
    well-capitalized), and supervisory agreements,
    individual capital requirements or other supervisory directives
    or requirements to which the Company or the Bank are expressly
    subject, specifically. A number of factors could cause actual
    results to differ materially from the Companys assumptions
    and expectations. These include but are not limited to the
    adequacy and marketability of real estate securing loans to
    borrowers, possible legislative and regulatory changes,
    including changes in the degree and manner of regulatory
    supervision, the ability of the Company and the Bank to
    establish and adhere to plans and policies relating to, among
    other things, capital, business, non-performing assets, loan
    modifications, documentation of loan loss allowance and
    concentrations of credit that are satisfactory to the OTS in
    accordance with the terms of the Company and Bank supervisory
    agreements and to otherwise manage the operations of the Company
    and the Bank to ensure compliance with other requirements set
    forth in the supervisory agreements; the ability of the Company
    and the Bank to obtain required consents from the OTS under the
    supervisory agreements or other directives; adverse economic,
    business and competitive developments such as shrinking interest
    margins; reduced collateral values; deposit outflows; reduced
    demand for financial services and loan products; changes in
    accounting policies and guidelines, or monetary and fiscal
    policies of the federal government or tax laws; international
    economic developments, changes in credit or other risks posed by
    the Companys loan and investment portfolios;
    technological, computer-related or operational difficulties;
    adverse changes in securities markets; results of litigation;
    collateral advance rates and policies of the FHLB; costs
    associated with alternate funding sources; or other significant
    uncertainties. Additional factors that may cause actual results
    to differ from the Companys assumptions and expectations
    include those set forth in the Companys most recent
    filings on
    Form 10-K
    with the Securities and Exchange Commission. All forward-looking
    statements are qualified by, and should be considered in
    conjunction with, such cautionary statements. For additional
    discussion of the risks and uncertainties applicable to the
    Company, see the Risk Factors sections of the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2010.
  Overview
  5




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
      6




---



##### 



Item 1  Business  Regulation
    and Supervision  Supervisory Agreements Form 10-K
  Critical
    Accounting Estimates
 and/or
  Allowance
    for Loan Losses and Related Provision
   7




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
    Income
    Taxes
     Results
    of Operations
   Net
    Interest Income
  8




---



##### 



Year Ended December 31,2010


2009


2008Average


Interest


Average


Average


Interest


Average


Average


Interest


AverageOutstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/(Dollars in thousands)

Balance


Paid


Rate


Balance


Paid


Rate


Balance


Paid


RateInterest-earning assets:Securities available for sale:Mortgage-backed and related securities

$
42,117



1,813



4.30
%

$
63,725



2,768



4.34
%

$
35,494



1,615



4.55
%Other marketable securities


112,573



2,023



1.80



82,758



3,039



3.67



119,065



5,775



4.85Loans held for sale


2,561



117



4.57



3,161



163



5.16



2,711



166



6.12Loans receivable,
    net(1)(2)


740,324



44,131



5.96



848,696



51,713



6.09



887,836



58,505



6.59FHLB stock


7,262



182



2.51



7,286



87



1.19



7,192



253



3.52Other, including cash equivalents


18,626



4



0.02



12,212



1



0.01



16,011



198



1.24Total interest-earning assets

$
923,463



48,270



5.23


$
1,017,838



57,771



5.68


$
1,068,309



66,512



6.23Interest-bearing liabilities:NOW accounts

$
96,248



110



0.11
%

$
106,360



132



0.12
%

$
126,118



1,542



1.22
%Passbooks


32,929



45



0.14



30,401



38



0.12



40,229



412



1.02Money market accounts


133,113



1,341



1.01



105,854



1,430



1.35



120,333



2,821



2.34Certificate accounts


240,590



5,415



2.25



257,085



7,652



2.98



247,454



9,582



3.87Brokered deposits


152,584



4,370



2.86



232,829



8,327



3.58



287,771



12,799



4.45FHLB advances and Federal Reserve borrowings


131,480



5,978



4.55



155,681



6,289



4.04



123,938



5,639



4.55Other interest-bearing liabilities


1,351



0



0.00



1,219



0



0.02



1,135



1



0.08Total interest-bearing liabilities

$
788,295










$
889,429










$
946,978Noninterest checking


85,585











70,364











56,164Total interest-bearing liabilities and noninterest bearing
    deposits

$
873,880



17,259



1.98


$
959,793



23,868



2.49


$
1,003,142



32,796



3.27Net interest income






31,011











33,903











33,716Net interest rate spread










3.26
%










3.19
%










2.96
%Net earning assets

$
49,583










$
58,045










$
65,167Net interest margin










3.36
%










3.33
%










3.16
%Average interest-earning assets to average interest-bearing
    liabilities and noninterest bearing deposits






105.67
%










106.05
%










106.50
%   (1)
    
    Tax exempt income was not
    significant; therefore, the yield was not presented on a tax
    equivalent basis for any of the years presented. The tax-exempt
    income was $0.4 million for 2010, $0.7 million for
    2009 and $1.0 million for 2008.(2)
    
    Calculated net of deferred loan
    fees, loan discounts, loans in process and loss reserve.   9




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
    Year Ended December 31,2010 vs. 2009





2009 vs. 2008Increase (Decrease)


Total


Increase (Decrease)


TotalDue to


Increase


Due to


Increase(Dollars in thousands)

Volume(1)


Rate(1)


(Decrease)


Volume(1)


Rate(1)


(Decrease)Interest-earning assets:Securities available for sale:Mortgage-backed and related securities

$
(939
)


(16
)


(955
)


1,285



(132
)


1,153Other marketable securities


1,095



(2,111
)


(1,016
)


(1,761
)


(975
)


(2,736
)Loans held for sale


(31
)


(15
)


(46
)


27



(30
)


(3
)Loans receivable, net


(6,391
)


(1,192
)


(7,583
)


(2,510
)


(4,282
)


(6,792
)Cash equivalents


1



3



4



(47
)


(150
)


(197
)FHLB stock


0



95



95



3



(169
)


(166
)Total interest-earning assets

$
(6,265
)


(3,236
)


(9,501
)


(3,003
)


(5,738
)


(8,741
)Interest-bearing liabilities:NOW accounts

$
(19
)


(3
)


(22
)


(405
)


(1,005
)


(1,410
)Passbooks


3



4



7



(101
)


(273
)


(374
)Money market accounts


367



(456
)


(89
)


(422
)


(969
)


(1,391
)Certificates


(651
)


(1,587
)


(2,238
)


373



(2,303
)


(1,930
)Brokered deposits


(2,869
)


(1,087
)


(3,956
)


(2,446
)


(2,026
)


(4,472
)FHLB advances and Federal Reserve borrowings


(166
)


(145
)


(311
)


426



112



538Other interest-bearing liabilities


0



0



0



127



(16
)


111Total interest-bearing liabilities


(3,335
)


(3,274
)


(6,609
)


(2,448
)


(6,480
)


(8,928
)Increase (decrease) in net interest income

$
(2,930
)


38



(2,892
)


(555
)


742



187   (1)
    
    For purposes of this table, changes
    attributable to both rate and volume which cannot be segregated,
    have been allocated proportionately to the change due to volume
    and the change due to rate. 10




---



##### 



At December 31,
    2010
   Weighted average yield on:Securities available for sale:Mortgage-backed and related securities

4.14%Other marketable securities

1.27Loans held for sale

4.27Loans receivable, net

6.33Federal Home Loan Bank stock

4.00Other interest-earnings assets

0.02Combined weighted average yield on interest-earning assets

5.38Weighted average rate on:NOW accounts

0.11%Passbooks

0.15Money market accounts

0.75Certificates

2.08Federal Home Loan Bank advances

4.44Combined weighted average rate on interest-bearing liabilities

1.69Interest rate spread

3.69   Provision
    for Loan Losses
   December 31,(Dollars in thousands)

2010


2009Non-performing loans:Balance at beginning of year

$
61,127



64,173Classified as non-performing


62,009



44,632Charge offs


(15,231
)


(25,031
)Principal payments received


(13,733
)


(4,322
)Classified as accruing


(10,972
)


(1,106
)Transferred to real estate owned


(15,126
)


(17,219
)Balance at end of year

$
68,074



61,127   December 31,(Dollars in thousands)

2010


2009Foreclosed and repossessed asset activity:Balance at beginning of year

$
16,262



10,583Transferred from non-performing loans


15,126



17,219Other foreclosures/repossessions


1,158



1,237Real estate sold


(14,448
)


(9,819
)Net gain on sale of assets


747



1,436Write downs


(2,450
)


(4,394
)Balance at end of year

$
16,395



16,262   11




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
    (Dollars in thousands)

2010


2009Balance at January 1,

$
23,812



21,257Provision


33,381



26,699Charge offs:Commercial


(7,006
)


(9,421
)Commercial real estate


(7,095
)


(13,548
)Consumer


(907
)


(1,980
)Single family mortgage


(254
)


(82
)Recoveries


897



887Balance at December 31,

$
42,828


$
23,812General allowance

$
17,794


$
11,760Specific allowance


25,034



12,052$
42,828


$
23,812      Non-Interest
    Income
  PercentageYear Ended December 31,


Increase (Decrease)(Dollars in thousands)

2010


2009


2008


2010/2009


2009/2008Fees and service charges

$
3,741



4,137



4,269



(9.6
)%


(3.1
)%Loan servicing fees


1,067



1,042



955



2.4



9.1Securities gains, net


0



5



479



(100.0
)


(99.0
)Gain on sales of loans


1,987



2,273



651



(12.6
)


249.2Other non-interest income


476



625



749



(23.8
)


(16.6
)Total non-interest income

$
7,271



8,082



7,103



(10.0
)


13.8     12




---



##### 



Non-Interest
    Expense
  PercentageYear Ended December 31,


Increase (Decrease)(Dollars in thousands)

2010


2009


2008


2010/2009


2009/2008Compensation and benefits

$
13,516



13,432



12,464



0.6
%


7.8
%Losses (gains) on real estate owned


1,165



3,873



(187
)


(69.9
)


2,171.1Occupancy


4,082



4,084



4,521



(0.0
)


(9.7
)Deposit insurance


1,933



1,973



678



(2.0
)


191.0Data processing


1,040



1,182



1,731



(12.0
)


(31.7
)Goodwill impairment charge


0



0



3,801



N/A



N/AOther


5,820



7,145



6,226



(18.5
)


14.8Total non-interest expense

$
27,556



31,689



29,234



(13.0
)


8.4      Income
    Taxes
   Net
    Loss Available to Common Shareholders
   13




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
   Comparison
    of 2009 with 2008
      14




---



##### 



15




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
   Financial
    Condition
 Loans
    Receivable, Net
    December 31,2010


2009


2008


2007


2006(Dollars in thousands)

Amount


Percent


Amount


Percent


Amount


Percent


Amount


Percent


Amount


PercentReal Estate Loans:One-to-four
    family

$
128,535



18.14
%

$
144,631



17.54
%

$
161,989



17.51
%

$
152,974



17.33
%

$
134,269



17.10
%Multi-family


48,266



6.81



59,266



7.18



29,292



3.17



29,073



3.29



29,863



3.80Commercial


292,874



41.34



312,714



37.92



325,304



35.16



281,822



31.92



294,490



37.49Construction or development


15,251



2.15



40,412



4.90



108,283



11.70



111,034



12.58



60,178



7.66Total real estate loans


484,926



68.44



557,023



67.54



624,868



67.54



574,903



65.12



518,800



66.05Other Loans:Consumer Loans:Automobile


604



0.08



902



0.11



1,333



0.14



1,730



0.20



3,093



0.39Home equity line


44,933



6.34



50,369



6.11



52,243



5.65



51,317



5.81



54,247



6.91Home equity


17,840



2.52



21,088



2.55



22,912



2.48



20,254



2.30



21,263



2.71Mobile home


764



0.11



977



0.12



1,316



0.14



1,699



0.19



2,052



0.26Land/lot loans


2,510



0.35



3,190



0.39



2,969



0.32



4,151



0.47



5,501



0.70Other


3,952



0.56



5,689



0.69



5,828



0.63



5,758



0.65



3,692



0.47Total consumer loans


70,603



9.96



82,215



9.97



86,601



9.36



84,909



9.62



89,848



11.44Commercial business loans


153,039



21.60



185,525



22.49



213,775



23.10



222,959



25.26



176,770



22.51Total other loans


223,642



31.56



267,740



32.46



300,376



32.46



307,868



34.88



266,618



33.95Total loans


708,568



100.00
%


824,763



100.00
%


925,244



100.00
%


882,771



100.00
%


785,418



100.00
%Less:Loans in process **


0







0







0







3,011







5,252Unamortized (premiums)discounts


413







177







569







(11
)






40Net deferred loan fees


1,086







1,518







2,529







2,245







2,021Allowance for losses


42,828







23,812







21,257







12,438







9,873Total loans receivable, net

$
664,241






$
799,256






$
900,889






$
865,088






$
768,232   **
    
    Core systems converted in 2008,
    loans in process after this date are reflected in loan amounts
    in table.     One-to-four
 16




---



##### 



one-to-four
  and/or
    Allowance
    for Loan Losses
    17




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
    December 31,(Dollars in thousands)

2010


2009


2008


2007


2006Balance at beginning of year

$
23,812



21,257



12,438



9,873



8,778Provision for losses


33,381



26,699



26,696



3,898



8,878Charge-offs:One-to-four
    family


(254
)


(82
)


(78
)


(42
)


(150
)Consumer


(907
)


(1,980
)


(612
)


(840
)


(269
)Commercial business


(7,006
)


(9,421
)


(13,784
)


(554
)


(188
)Commercial real estate


(7,095
)


(13,548
)


(3,454
)


(245
)


(7,242
)Recoveries


897



887



51



348



66Net charge-offs


(14,365
)


(24,144
)


(17,877
)


(1,333
)


(7,783
)Balance at end of year

$
42,828



23,812



21,257



12,438



9,873Year end allowance for loan losses as a percent of year end
    gross loan balance


6.04
%


2.89
%


2.30
%


1.41
%


1.26
%Ratio of net loan charge-offs to average loans outstanding


1.87



2.76



1.98



0.16



0.98       December 31,2010


2009


2008


2007


2006Percent





Percent





Percent





Percent





PercentAllocated


of Loans


Allocated


of Loans


Allocated


of Loans


Allocated


of Loans


Allocated


of LoansAllowance


in Each


Allowance


in Each


Allowance


in Each


Allowance


in Each


Allowance


in Eachas a %


Category


as a %


Category


as a %


Category


as a %


Category


as a %


Categoryof Loan


to Total


of Loan


to Total


of Loan


to Total


of Loan


to Total


of Loan


to TotalCategory


Loans


Category


Loans


Category


Loans


Category


Loans


Category


LoansOne-to-four
    family


1.67
%


18.14
%


0.69
%


17.54
%


1.75
%


17.51
%


0.27
%


17.33
%


0.22
%


17.10
%Commercial real estate


6.90



50.30



3.47



50.00



2.83



50.03



1.83



47.79



1.58



48.95Consumer loans


1.31



9.96



1.55



9.97



1.83



9.36



1.70



9.62



1.59



11.44Commercial business loans


9.91



21.60



3.88



22.49



1.75



23.10



1.28



25.26



1.18



22.51Total


6.04



100.00
%


2.89



100.00
%


2.30



100.00
%


1.41



100.00
%


1.26



100.00
%    one-to-four
  Allowance
    for Real Estate Losses
   Non-performing
    Assets
  18




---



##### 



December 31,(Dollars in thousands)

2010


2009


2008


2007


2006Non-accruing loans:One-to-four
    family

$
4,844



2,132



7,251



1,196



1,364Commercial real estate


36,737



37,122



46,953



15,641



5,296Consumer


224



4,086



5,298



1,094



1,254Commercial business


26,269



17,787



4,671



1,723



394Total


68,074



61,127



64,173



19,654



8,308Other assets


0



0



25



34



44Foreclosed and repossessed assets:One-to-four
    family


972



1,011



258



901



1,422Commercial real estate


15,409



15,246



10,300



1,313



650Consumer


14



5



0



33



0Total


16,395



16,262



10,558



2,247



2,072Total non-performing assets

$
84,469


$
77,389


$
74,756


$
21,935


$
10,424Total as a percentage of total assets


9.59
%


7.47
%


6.53
%


1.96
%


1.07
%Total non-performing loans

$
68,074


$
61,127


$
64,173


$
19,654


$
8,308Total as a percentage of total loans receivable, net


10.25
%


7.65
%


7.12
%


2.27
%


1.08
%Allowance for loan losses to non-performing loans


62.91
%


38.95
%


33.12
%


63.28
%


118.84
%       (Dollars in thousands)
  Principal Amount



Principal Amount



Principal Amountof Loans at



of Loans at



of Loans at# of

December 31,

# of

December 31,

# of

December 31,Property Type

Relationships

2010

Relationships

2009

Relationships

2008Residential developments


9


$
23,661



7


$
12,030



6


$
17,681One-to-four
    family


3



2,673



2



3,088



4



898Condominiums


0



0



0



0



1



5,440Hotels


0



0



1



4,999



1



4,999Alternative fuel plants


1



4,994



2



12,834



2



12,492Shopping centers/retail


3



1,099



2



1,136



2



1,237Elderly care facilities


0



0



0



0



3



4,037Restaurants/bar


1



635



4



2,436



0



0Office building


1



3,675



1



599



1



16918


$
36,737



19


$
37,122



20


$
46,953      19




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
   (Dollars in thousands)
 Principal Amount





Principal Amountof Loans





of Loans# of


December 31,


# of


December 31,Property Type

Relationships


2010


Relationships


2009Construction/development


6


$
9,148



5


$
4,094Finance


1



248



2



8,764Alternative fuels


0



0



1



756Retail


1



2,504



1



32Banking


2



8,223



1



3,248Entertainment


1



315



1



893Utilities


1



4,614



0



0Residential rental


0



0



0



0Service industry


0



0



0



0Restaurant


4



1,217



0



016


$
26,269



11


$
17,787         Liquidity
    and Capital Resources
    20




---



##### 



21




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
     Contractual
    Obligations and Commercial Commitments
   Payments Due by Period(Dollars in thousands)

Total


Less than 1 Year


1-3 Years


4-5 Years


After 5 YearsContractual Obligations:Total borrowings

$
122,500



52,500



70,000



0



0Annual rental commitments under non-cancellable operating leases


722



546



119



34



23$
123,222



53,046



70,119



34



23   Amount of Commitments -Expiring by PeriodOther Commercial Commitments:Commercial lines of credit

$
22,714



15,394



4,268



2,152



900Commitments to lend


11,761



4,187



1,807



281



5,486Standby letters of credit


2,355



2,354



1



0



0$
36,830



21,935



6,076



2,433



6,386    Regulatory
    Capital Requirements
   22




---



##### 



Dividends
   Impact
    of Inflation and Changing Prices
   New
    Accounting Pronouncements
 Amendments to FASB Interpretation No. 46(R).
 Accounting for Transfers of Financial Assets
     an amendment of FASB Statement No. 140. Consolidation
    of Variable Interest Entities,
 2010-06, Fair Value Measurements and Disclosures Improving Disclosures about Fair Value Measurements.
 2010-20, Disclosures about the Credit Quality of Financing Receivables
    and the Allowance for Credit Losses
 23




---



##### 



MANAGEMENT
    DISCUSSION AND ANALYSIS
   2011-01, Deferral of the Effective Date of Disclosures about Troubled
    Debt Restructurings in Update
    No. 2010-20. No. 2010-20, Disclosures about the Credit Quality of Financing Receivables
    and the Allowance for Credit Losses
  Market
    Risk
  Rate Shock Table
      (Dollars in thousands)

Market ValueBasis point change in interest rates

-100


0


+100


+200Total market-risk sensitive assets

$
874,747



861,314



847,276



830,561Total market-risk sensitive liabilities


812,838



803,127



790,643



776,801Off-balance sheet financial instruments


(117)



0



252



480Net market risk

$
62,026



58,187



56,381



53,280Percentage change from current market value


6.60
%


0.00
%


(3.10)
%


(8.43)
%      24




---



##### 



Asset/Liability
    Management
    Rate Shock Table(Dollars in thousands)Rate Shock

Net Interest

Percentin Basis Points

Change

Change+200



$160



0.53+100



328



1.090



0



0.00-100



(694
)


(2.31
)      one-to-four
  Off-Balance
    Sheet Arrangements
  25




---



##### 



CONSOLIDATED
    BALANCE SHEETS
   December 31 (Dollars in thousands)

2010


2009ASSETSCash and cash equivalents

$
20,981



16,418Securities available for sale:Mortgage-backed and related securities(amortized cost $32,036 and $51,840)


33,506



53,559Other marketable securities(amortized cost $118,631 and $105,723)


118,058



106,043151,564



159,602Loans held for sale


2,728



2,965Loans receivable, net


664,241



799,256Accrued interest receivable


3,311



4,024Real estate, net


16,382



16,257Federal Home Loan Bank stock, at cost


6,743



7,286Mortgage servicing rights, net


1,586



1,315Premises and equipment, net


9,450



10,766Prepaid expenses and other assets


3,632



6,762Deferred tax assets, net


0



11,590Total assets

$
880,618



1,036,241LIABILITIES AND
    STOCKHOLDERS EQUITYDeposits

$
683,230



796,011Federal Home Loan Bank advances and Federal Reserve borrowings


122,500



132,500Accrued interest payable


1,092



2,108Customer escrows


818



1,427Accrued expenses and other liabilities


3,431



4,257Total liabilities


811,071



936,303Commitments and contingenciesStockholders equity:Serial preferred stock: ($.01 par value)Authorized 500,000 shares; issued shares 26,000


24,264



23,785Common stock ($.01 par value):Authorized 11,000,000; issued shares 9,128,662


91



91Additional paid-in capital


56,420



58,576Retained earnings, subject to certain restrictions


55,838



86,115Accumulated other comprehensive income


541



1,230Unearned employee stock ownership plan shares


(3,384
)


(3,577
)Treasury stock, at cost 4,818,263 and 4,883,378 shares


(64,223
)


(66,282
)Total stockholders equity


69,547



99,938Total liabilities and stockholders equity

$
880,618



1,036,241   See accompanying notes to
    consolidated financial statements.
 26




---



##### 



CONSOLIDATED
    STATEMENTS OF LOSS
   Years ended December 31 (Dollars in thousands)

2010


2009


2008Interest income:Loans receivable

$
44,248



51,876



58,671Securities available for sale:Mortgage-backed and related


1,813



2,768



1,615Other marketable


2,023



3,039



5,775Cash equivalents


4



1



198Other


182



87



253Total interest income


48,270



57,771



66,512Interest expense:Deposits


11,281



17,579



27,157Federal Home Loan Bank advances and Federal Reserve borrowings


5,978



6,289



5,639Total interest expense


17,259



23,868



32,796Net interest income


31,011



33,903



33,716Provision for loan losses


33,381



26,699



26,696Net interest income (loss) after provision for loan losses


(2,370
)


7,204



7,020Non-interest income:Fees and service charges


3,741



4,137



4,269Loan servicing fees


1,067



1,042



955Securities gains, net


0



5



479Gain on sales of loans


1,987



2,273



651Other


476



625



749Total non-interest income


7,271



8,082



7,103Non-interest expense:Compensation and benefits


13,516



13,432



12,464Losses (gains) on real estate owned


1,165



3,873



(187
)Occupancy


4,082



4,084



4,521Deposit insurance


1,933



1,973



678Data processing


1,040



1,182



1,731Goodwill impairment charge


0



0



3,801Other


5,820



7,145



6,226Total noninterest expense


27,556



31,689



29,234Loss before income tax expense (benefit)


(22,655
)


(16,403
)


(15,111
)Income tax expense (benefit)


6,323



(5,607
)


(4,984
)Net loss

$
(28,978
)


(10,796
)


(10,127
)Preferred stock dividends and discount


(1,784
)


(1,747
)


(37
)Net loss available to common stockholders

$
(30,762
)


(12,543
)


(10,164
)Basic loss per common share

$
(8.17
)


(3.39
)


(2.78
)Diluted loss per common share

$
(8.17
)


(3.39
)


(2.78
)   See accompanying notes to
    consolidated financial statements.
 27




---



##### 



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY 
    AND COMPREHENSIVE LOSS
   Accumulated


UnearnedOther


Employee





TotalAdditional





Comprehensive


Stock





Stock-Preferred


Common


Paid-in


Retained


Income


Ownership


Treasury


holders(Dollars in thousands)

Stock


Stock


Capital


Earnings


(Loss)


Plan


Stock


EquityBalance, December 31, 2007

$
0



91



58,049



110,943



1,167



(3,965
)


(68,157
)


98,128Net loss














(10,127
)














(10,127
)Other comprehensive loss, net of tax:Net unrealized gains on securities available for sale


















924











924Total comprehensive loss






























(9,203
)Preferred stock and warrant issued


23,384







2,616



















26,000Treasury stock purchases


























(723
)


(723
)Unearned compensation restricted stock awards










(550
)














550



0Restricted stock awards forfeited










6















(6
)


0Stock compensation expense










33



















33Amortization of restricted stock awards










415



















415Earned employee stock ownership plan shares










118











194







312Common stock dividends paid














(2,749
)














(2,749
)Balance, December 31, 2008

$
23,384



91



60,687



98,067



2,091



(3,771
)


(68,336
)


112,213Net loss














(10,796
)














(10,796
)Other comprehensive loss, net of tax:Net unrealized losses on securities available for sale


















(861
)










(861
)Total comprehensive loss






























(11,657
)Preferred stock discount amortization


401







(401
)


















0Unearned compensation restricted stock awards










(2,181
)














2,181



0Restricted stock awards forfeited










127















(127
)


0Restricted stock awards dividend forfeited














7















7Stock compensation expense










27



















27Amortization of restricted stock awards










373



















373Earned employee stock ownership plan shares










(56
)










194







138Preferred stock dividends paid














(1,163
)














(1,163
)Balance, December 31, 2009

$
23,785



91



58,576



86,115



1,230



(3,577
)


(66,282
)


99,938Net loss














(28,978
)














(28,978
)Other comprehensive loss, net of tax:Net unrealized losses on securities available for sale


















(689
)










(689
)Total comprehensive loss






























(29,667
)Preferred stock discount amortization


479







(479
)


















0Stock compensation expense










63



















63Unearned compensation restricted stock awards










(2,237
)














2,237



0Restricted stock awards forfeited










178















(178
)


0Restricted stock awards dividend forfeited














1















1Amortization of restricted stock awards










370



















370Earned employee stock ownership plan shares










(51
)










193







142Preferred stock dividends paid














(1,300
)














(1,300
)Balance, December 31, 2010

$
24,264



91



56,420



55,838



541



(3,384
)


(64,223
)


69,547   See accompanying notes to
    consolidated financial statements.
 28




---



##### 



CONSOLIDATED
    STATEMENTS OF CASH FLOWS
   Years Ended December 31 (Dollars in thousands)

2010


2009


2008Cash flows from operating activities:Net loss

$
(28,978
)


(10,796
)


(10,127
)Adjustments to reconcile net loss to cash provided by operating
    activities:Provision for loan losses


33,381



26,699



26,696Provision for real estate losses


1,873



4,877



0Depreciation


1,593



1,837



1,796Amortization of premiums, net


571



465



672Amortization of deferred loan fees


(319
)


(972
)


(808
)Amortization of mortgage servicing rights


482



556



570Capitalized mortgage servicing rights


(753
)


(1,143
)


(28
)Deferred income tax expense (benefit)


12,043



(2,516
)


(4,568
)Securities gains, net


0



(5
)


(479
)Gain on sales of real estate and premises


(708
)


(1,146
)


(187
)Gain on sales of loans


(1,987
)


(2,273
)


(651
)Proceeds from sales of loans held for sale


90,797



122,491



60,566Disbursements on loans held for sale


(85,384
)


(119,475
)


(56,925
)Amortization of restricted stock awards


370



373



415Amortization of unearned ESOP shares


193



194



194Earned ESOP shares priced above (below) original cost


(51
)


(56
)


118Stock option compensation expense


63



27



33Decrease in accrued interest receivable


713



1,544



1,326Decrease in accrued interest payable


(1,016
)


(4,199
)


(3,207
)Goodwill impairment charge


0



0



3,801Decrease (increase) in other assets


3,084



(2,041
)


(2,761
)Increase (decrease) in other liabilities


(774
)


912



(4,618
)Other, net


362



95



34Net cash provided by operating activities


25,555



15,448



11,862Cash flows from investing activities:Proceeds from sales of securities available for sale


0



2,141



10,442Principal collected on securities available for sale


19,820



22,213



7,246Proceeds collected on maturity of securities available for sale


115,000



78,350



110,000Purchases of securities available for sale


(128,059
)


(88,446
)


(114,405
)Purchase of Federal Home Loan Bank stock


(2,420
)


0



(7,180
)Redemption of Federal Home Loan Bank stock


2,963



0



6,092Proceeds from sales of real estate and premises


14,532



10,749



6,563Net (increase) decrease in loans receivable


82,591



56,329



(78,654
)Purchases of premises and equipment


(292
)


(558
)


(3,772
)Net cash provided (used) by investing activities


104,135



80,778



(63,668
)Cash flows from financing activities:Decrease in deposits


(113,218
)


(85,162
)


(8,484
)Purchase of treasury stock


0



0



(723
)Dividends paid to common stockholders


0



0



(2,749
)Dividends paid to preferred stockholders


(1,300
)


(1,163
)


0Preferred stock and warrant issued


0



0



26,000Proceeds from borrowings


87,000



1,099,000



631,300Repayment of borrowings


(97,000
)


(1,109,000
)


(601,300
)Increase (decrease) in customer escrows


(609
)


788



(227
)Net cash (used) provided by financing activities


(125,127
)


(95,537
)


43,817Increase (decrease) in cash and cash equivalents


4,563



689



(7,989
)Cash and cash equivalents, beginning of year


16,418



15,729



23,718Cash and cash equivalents, end of year

$
20,981



16,418



15,729Supplemental cash flow disclosures:Cash paid for interest

$
18,275



28,067



36,003Cash paid for income taxes


39



33



5,247Supplemental noncash flow disclosures:Loans transferred to loans held for sale


3,195



1,234



2,238Transfer of loans to real estate


16,167



18,342



14,727   See accompanying notes to
    consolidated financial statements.
 29




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
     December 31,
    2010, 2009 and 2008
  NOTE 1 Description
    of the Business and Summary of Significant Accounting
    Policies
   10-K
  Use of Estimates
   Cash and Cash Equivalents
  Securities
  Trading Securities
  Securities Held to Maturity
  Securities Available for Sale
 other-than-temporarily
  Loans Held for Sale
 30




---



##### 



Loans Receivable, net
      Mortgage Servicing Rights
  Real Estate, net
  Premises and Equipment
   Impairment of Long-Lived Assets and for Long-Lived Assets
    to Be Disposed Of
  Investment in Limited Partnerships
  Intangible Assets Goodwill and Other Intangible Assets.
 31




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
     Stock Based Compensation
  Employee Stock Ownership Plan
    (ESOP) Employers Accounting
    for Employee Stock Ownership Plans
  Income Taxes
  Preferred Stock Dividends and
    Discount Accounting
    for Convertible Debt Issued with Stock Purchase Warrants.
  Loss per Share
  Comprehensive Income
    (Loss)
  Segment Information
  New Accounting Pronouncements Amendments to FASB Interpretation No. 46(R).
 32




---



##### 



Accounting for Transfers of Financial Assets  an
    amendment of FASB Statement No. 140. Consolidation of Variable Interest
    Entities,
 2010-06, Fair Value Measurements and Disclosures Improving Disclosures about Fair Value Measurements.
 2010-20, Disclosures about the Credit Quality of Financing Receivables
    and the Allowance for Credit Losses
 2011-01, Deferral of the Effective Date of Disclosures about Troubled
    Debt Restructurings in Update
    No. 2010-20. No. 2010-20, Disclosures about the Credit Quality of Financing Receivables
    and the Allowance for Credit Losses
  Derivative Financial Instruments
  Reclassifications
  NOTE 2 Other
    Comprehensive Income (Loss)
  For the Years Ended December 31,2010


2009


2008(Dollars in thousands)

Before


Tax


Net


Before


Tax


Net


Before


Tax


NetSecurities available for sale:

Tax


Effect


of Tax


Tax


Effect


of Tax


Tax


Effect


of TaxGross unrealized gains (losses) arising during the period

$
(1,142
)


(453
)


(689
)


(1,490
)


(632
)


(858
)


2,040



806



1,234Less reclassification of net gains included in net gain (loss)


0



0



0



5



2



3



479



169



310Net unrealized gains (losses) arising during the period


(1,142
)


(453
)


(689
)


(1,495
)


(634
)


(861
)


1,561



637



924Other comprehensive income (loss)

$
(1,142
)


(453
)


(689
)


(1,495
)


(634
)


(861
)


1,561



637



924  33




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 3 Securities
    Available for Sale
   Gross


GrossAmortized


Unrealized


Unrealized


Fair(Dollars in thousands)

Cost


Gains


Losses


ValueDecember 31, 2010:Mortgage-backed securities:FHLMC

$
17,555



719



0



18,274FNMA


12,800



692



0



13,492Collateralized mortgage obligations:FHLMC


1,299



44



0



1,343FNMA


382



15



0



39732,036



1,470



0



33,506Other marketable securities:U.S. Government agency obligations


117,931



218



(266
)


117,883Corporate preferred stock


700



0



(525
)


175118,631



218



(791
)


118,058$
150,667



1,688



(791
)


151,564December 31, 2009:Mortgage-backed securities:FHLMC

$
26,209



933



0



27,142FNMA


19,399



796



0



20,195Collateralized mortgage obligations:FHLMC


5,846



137



(159
)


5,824FNMA


386



12



0



39851,840



1,878



(159
)


53,559Other marketable securities:U.S. Government agency obligations


105,023



881



(36
)


105,868Corporate preferred stock


700



0



(525
)


175105,723



881



(561
)


106,043$
157,563



2,759



(720
)


159,602     Amortized

Fair(Dollars in thousands)

Cost

ValueDue less than one year

$
131,431



131,995Due after one year through five years


17,176



17,970Due after five years through ten years


1,360



1,424Due after ten years


700



175Total

$
150,667



151,564   34




---



##### 



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


LossesDecember 31, 2010Other marketable securities:U.S. Government agency obligations


10


$
47,610



(266
)


0


$
0



0


$
47,610



(266
)Corporate preferred stock


0



0



0



1



175



(525
)


175



(525
)Total temporarily impaired securities


10


$
47,610



(266
)


1


$
175



(525
)

$
47,785



(791
)   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


LossesDecember 31, 2009Collateralized mortgage obligations:FHLMC


1


$
1,248



(159
)


0


$
0



0


$
1,248



(159
)Other marketable securities:U.S. Government agency obligations


6



30,000



(36
)


0



0



0



30,000



(36
)Corporate preferred stock


0



0



0



1



175



(525
)


175



(525
)Total temporarily impaired securities


7


$
31,248



(195
)


1


$
175



(525
)

$
31,423



(720
)  other-than-temporary.
 other-than-temporarily other-than-temporary
  35




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 4 Loans
    Receivable, Net
   (Dollars in thousands)

2010

2009Residential real estate loans:1-4 family conventional

$
128,087



144,3681-4 family FHA


399



2121-4 family VA


49



51128,535



144,631Commercial real estate:Lodging


34,447



37,732Retail/office


86,768



65,209Nursing home/health care


5,512



5,841Land developments


72,810



84,594Golf courses


8,161



10,477Restaurant/bar/café


2,684



4,501Alternative fuel plants


31,123



42,053Warehouse


17,197



29,733Construction:1-4 family builder


10,684



14,562Multi family


3,874



9,678Commercial real estate


693



16,172Manufacturing


8,538



10,315Churches/community service


6,132



4,369Multi family


48,266



59,266Other


19,502



17,890356,391



412,392Consumer:Autos


604



902Home equity line


44,933



50,369Home equity


17,840



21,088Consumer  secured


1,304



1,083Land/lot loans


2,510



3,190Savings


534



324Mobile home


764



977Consumer  unsecured


2,114



4,28270,603



82,215Commercial business


153,039



185,525Total loans


708,568



824,763Less:Unamortized premiums


413



177Net deferred loan fees


1,086



1,518Allowance for loan losses


42,828



23,812Total loans receivable, net

$
664,241



799,256Commitments to originate or purchase loans

$
629



7,330Commitments to deliver loans to secondary market

$
3,413



6,278Weighted average contractual rate of loans in portfolio


5.52
%


5.78
%        2010



2009Percent



Percent(Dollars in thousands)

Amount

of Total

Amount

of TotalIowa

$
4,684



3.6
%

$
5,840



4.0
%Minnesota


118,305



92.0



132,775



91.9Wisconsin


1,879



1.5



2,241



1.5Other states


3,667



2.9



3,775



2.6Total

$
128,535



100.0
%

$
144,631



100.0
%  Amounts under one million dollars in both years are included
    in Other states.
    2010

2009Percent



Percent(Dollars in thousands)

Amount

of Total

Amount

of TotalArizona

$
0



0.0
%

$
6,691



1.6
%California


4,916



1.4



4,662



1.1Florida


2,855



0.8



2,908



0.7Idaho


4,483



1.3



5,040



1.2Indiana


7,694



2.2



11,692



2.8Iowa


11,160



3.1



15,853



3.9Kansas


1,064



0.3



1,855



0.5Minnesota


303,101



85.0



342,935



83.2Nebraska


4,994



1.4



4,992



1.2North Carolina


7,303



2.0



7,512



1.8Tennessee


1,700



0.5



0



0.0Utah


1,414



0.4



1,727



0.4Wisconsin


5,087



1.4



5,589



1.4Other states


620



0.2



936



0.2Total

$
356,391



100.0
%

$
412,392



100.0
%  Amounts under one million dollars in both years are included
    in Other states.
   36




---



##### 



NOTE 5
    Allowance
    for Loan Losses and Credit Quality Information   CommercialReal





Commercial(Dollars in thousands)

1-4 Family


Estate


Consumer


Business


TotalBalance, December 31, 2007

$
417



7,724



1,441



2,856



12,438Provision for losses


2,491



8,811



719



14,675



26,696Charge-offs


(78
)


(3,454
)


(612
)


(13,784
)


(17,928
)Recoveries


0



14



37



0



51Balance, December 31, 2008


2,830



13,095



1,585



3,747



21,257Provision for losses


(1,753
)


14,217



1,451



12,784



26,699Charge-offs


(82
)


(13,548
)


(1,980
)


(9,421
)


(25,031
)Recoveries


5



565



222



95



887Balance, December 31, 2009


1,000



14,329



1,278



7,205



23,812Provision for losses


1,399



16,692



481



14,809



33,381Charge-offs


(254
)


(7,095
)


(907
)


(7,006
)


(15,262
)Recoveries


0



664



72



161



897Balance, December 31, 2010

$
2,145



24,590



924



15,169



42,828Allocated to:Specific reserves

$
993



13,263



76



10,702



25,034General reserves


1,152



11,327



848



4,467



17,794Balance, December 31, 2010

$
2,145



24,590



924



15,169



42,828Loans receivable at December 31, 2009:Individually reviewed for impairment

$
2,740



41,438



4,412



17,787



66,377Collectively reviewed for impairment


141,891



370,954



77,803



167,738



758,386Ending balance

$
144,631



412,392



82,215



185,525



824,763Loans receivable at December 31, 2010:Individually reviewed for impairment

$
6,729



45,077



299



26,855



78,960Collectively reviewed for impairment


121,806



311,314



70,304



126,184



629,608Ending balance

$
128,535



356,391



70,603



153,039



708,568     2010


2009(Dollars in thousands)

Classified


Unclassified


Total


Classified


Unclassified


Total1-4 family

$
15,623



112,912



128,535



6,117



138,514



144,631Commercial real estate:Residential developments


42,888



44,218



87,106



34,735



66,678



101,413Alternative fuels


11,069



20,054



31,123



19,473



22,580



42,053Other


12,882



225,280



238,162



20,308



248,618



268,926Consumer


306



70,297



70,603



4,413



77,802



82,215Commercial business:Construction/development


6,683



5,117



11,800



6,656



8,348



15,004Banking


8,223



5,830



14,053



8,233



5,958



14,191Other


20,468



106,718



127,186



30,850



125,480



156,330$
118,142



590,426



708,568



130,785



693,978



824,763    37




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
     Loans 90Days orMore Past30-59


60-89


90 Days











Due andDays


Days


or More


Total


Current


Total


Still(Dollars in thousands)

Past Due


Past Due


Past Due


Past Due


Loans


Loans


Accruing20101-4 family

$
2,313



695



3,500



6,508



122,027



128,535



178Commercial real estate:Residential developments


444



3,899



15,523



19,866



67,240



87,106



0Alternative fuels


0



0



4,994



4,994



26,129



31,123



0Other


75



264



3,914



4,253



233,909



238,162



0Consumer


446



163



207



816



69,787



70,603



0Commercial business:Construction/development


0



0



4,809



4,809



6,991



11,800



0Banking


0



0



8,223



8,223



5,830



14,053



0Other


311



45



7,876



8,232



118,954



127,186



576$
3,589



5,066



49,046



57,701



650,867



708,568



75420091-4 family

$
1,705



736



1,720



4,161



140,470



144,631



0Commercial real estate:Residential developments


5,161



1,109



13,425



19,695



81,718



101,413



886Alternative fuels


0



0



12,492



12,492



29,561



42,053



0Other


465



674



6,734



7,873



261,053



268,926



0Consumer


414



500



3,853



4,767



77,448



82,215



0Commercial business:Construction/development


0



1,802



773



2,575



12,429



15,004



0Banking


0



0



0



0



14,191



14,191



0Other


50



0



8,960



9,010



147,320



156,330



100$
7,795



4,821



47,957



60,573



764,190



824,763



986   38




---



##### 



December 31, 2010Unpaid





Average


InterestRecorded


Principal


Related


Recorded


Income(Dollars in thousands)

Investment


Balance


Allowance


Investment


RecognizedLoans with no related allowance recorded:1-4 family

$
932



932



0



721



28Commercial real estate:Residential developments


6,486



6,486



0



8,674



220Alternative fuels


0



0



0



148



0Other


119



119



0



3,356



4Consumer


104



104



0



1,354



7Commercial business:Construction/development


99



99



0



793



5Banking


0



0



0



0



0Other


397



397



0



1,293



5Loans with an allowance recorded:1-4 family


5,797



5,797



994



3,207



272Commercial real estate:Residential developments


27,147



27,147



9,673



16,720



557Alternative fuels


4,994



4,994



2,441



7,993



0Other


6,331



7,287



1,148



5,812



156Consumer


195



195



76



571



13Commercial business:Construction/development


4,809



4,809



2,668



3,937



0Banking


8,223



8,223



4,985



7,232



0Other


13,327



13,878



3,049



12,154



478Total:1-4 family


6,729



6,729



994



3,928



300Commercial real estate:Residential developments


33,633



33,633



9,673



25,394



777Alternative fuels


4,994



4,994



2,441



8,141



0Other


6,450



7,406



1,148



9,168



160Consumer


299



299



76



1,925



20Commercial business:Construction/development


4,908



4,908



2,668



4,730



5Banking


8,223



8,223



4,985



7,232



0Other


13,724



14,275



3,049



13,447



483$
78,960



80,467



25,034



73,965



1,745    39




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   December 31, 2009Loans with no related allowance recorded:1-4 family

$
237



237



0



672



9Commercial real estate:Residential developments


7,953



7,953



0



3,209



333Alternative fuels


342



342



0



2,169



0Other


5,778



5,778



0



5,537



51Consumer


3,252



3,252



0



2,733



7Commercial business:Construction/development


984



984



0



204



0Banking


0



0



0



0



0Other


1,078



1,078



0



4,008



121Loans with an allowance recorded:1-4 family


2,503



2,503



487



2,941



118Commercial real estate:Residential developments


11,407



11,407



4,414



13,616



159Alternative fuels


12,492



12,492



2,635



10,495



0Other


3,466



4,421



625



4,842



68Consumer


1,160



1,160



517



2,356



53Commercial business:Construction/development


2,597



2,597



375



1,163



139Banking


3,248



3,248



1,000



650



212Other


9,880



9,880



2,005



6,839



30Total1-4 family


2,740



2,740



487



3,613



127Commercial real estate:Residential developments


19,360



19,360



4,414



16,825



492Alternative fuels


12,834



12,834



2,635



12,664



0Other


9,244



10,199



625



10,379



119Consumer


4,412



4,412



517



5,089



60Commercial business:Construction/development


3,581



3,581



375



1,367



139Banking


3,248



3,248



1,000



650



212Other


10,958



10,958



2,005



10,847



151$
66,377



67,332



12,058



61,434



1,300      (Dollars in thousands)

2010


20091-4 family

$
4,844


$
2,132Commercial real estate:Residential developments


25,980



15,105Alternative fuels


4,994



12,835Other


5,763



9,182Consumer


224



4,086Commercial business:Construction/development


4,907



3,581Banking


8,223



3,248Other


13,139



10,958$
68,074


$
61,127    40




---



##### 



(Dollars in thousands)

2010


2009Commercial real estate

$
14,871



4,315Commercial business


1,756



01-4 family


2,589



610Home equity


75



132Land/lot


0



251Other consumer


0



19$
19,291



5,327     NOTE 6
    Accrued
    Interest Receivable   (Dollars in thousands)

2010


2009Securities available for sale

$
626



916Loans receivable


2,685



3,108$
3,311



4,024    NOTE 7
    Mortgage
    Servicing Rights, Net   (Dollars in thousands)

2010


2009Mortgage servicing rights:Balance, beginning of year

$
1,315


$
728Originations


753



1,143Amortization


(482
)


(556
)Balance, end of year


1,586



1,315Valuation reserve


0



0Mortgage servicing rights, net

$
1,586


$
1,315Fair value of mortgage servicing rights

$
2,263


$
2,138     WeightedAverageLoan


Weighted


RemainingPrincipal


Average


Term


Number(Dollars in thousands)

Balance


Interest Rate


(months)


of LoansOriginal term 30 year fixed rate

$
222,725



5.25
%


301



1,919Original term 15 year fixed rate


102,799



4.69



124



1,523Adjustable rate


654



3.11



266



8     Gross





UnamortizedCarrying


Accumulated


Intangible(Dollars in thousands)

Amount


Amortization


AssetsDecember 31, 2010Mortgage servicing rights

$
4,172



(2,586
)


1,586Total

$
4,172



(2,586
)


1,586December 31, 2009Mortgage servicing rights

$
4,172



(2,857
)


1,315Total

$
4,172



(2,857
)


1,315     Mortgage(Dollars in thousands)

ServicingYear Ended December 31,

Rights2011

$
3492012


3132013


2942014


2632015


216Thereafter


151$
1,586    41




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 8
    Real
    Estate   (Dollars in thousands)

2010


2009Real estate in judgment subject to redemption

$
333



1,637Real estate acquired through foreclosure


14,718



12,666Real estate acquired through deed in lieu of foreclosure


5,682



6,725Real estate acquired in satisfaction of debt


106



10620,839



21,134Allowance for losses


(4,457
)


(4,877
)$
16,382



16,257    NOTE 9
    Premises
    and Equipment   (Dollars in thousands)

2010


2009Land

$
2,070



2,070Office buildings and improvements


9,199



9,148Furniture and equipment


12,985



12,79624,254



24,014Accumulated depreciation


(14,804
)


(13,248
)$
9,450



10,766    NOTE 10 Deposits
   2010


2009Weighted





Percent


Weighted





Percent(Dollars in thousands)

Average Rate


Amount


of Total


Average Rate


Amount


of TotalNoninterest checking


0.00
%

$
96,581



14.1
%


0.00
%

$
80,330



10.1
%NOW accounts


0.11



94,205



13.8



0.08



103,998



13.0Savings accounts


0.15



33,973



5.0



0.13



31,068



3.9Money market accounts


0.75



114,357



16.7



1.25



125,008



15.7339,116



49.6







340,404



42.7Certificates:0-0.99%






41,311



6.1







16,615



2.11-1.99%






142,742



20.9







113,916



14.32-2.99%






105,126



15.4







135,311



17.03-3.99%






50,529



7.4







138,152



17.44-4.99%






4,113



0.6







47,692



6.05-5.99%






293



0.0







3,921



0.5Total certificates


2.07



344,114



50.4



2.81



455,607



57.3Total deposits


1.20


$
683,230



100.0
%


1.82


$
796,011



100.0
%    2010


2009Weighted





Weighted(Dollars in thousands)




Average





AverageRemaining term to maturity

Amount


Rate


Amount


Rate1-6 months

$
103,567



2.10
%

$
124,050



3.07
%7-12 months


73,470



1.77



138,389



2.7713-36 months


159,896



2.18



186,929



2.66Over 36 months


7,181



2.44



6,239



2.96$
344,114



2.07


$
455,607



2.81   42




---



##### 



(Dollars in thousands)

2010


2009


2008NOW accounts

$
110



132



1,543Savings accounts


45



38



412Money market accounts


1,341



1,430



2,821Certificates


9,785



15,979



22,381$
11,281



17,579



27,157   NOTE 11 Federal
    Home Loan Bank Advances and Federal Reserve Borrowings
   (Dollars in thousands)

2010


2009Year of Maturity

Amount


Rate


Amount


Rate2010









$
10,000



6.48
%2011

$
52,500



4.00
%


52,500



4.002013


70,000



4.77



70,000



4.77122,500



4.44



132,500



4.59Lines of Credit  Federal Reserve


0



0.00



0



0.00$
122,500



4.44


$
132,500



4.59     NOTE 12 Income
    Taxes
   (Dollars in thousands)

2010

2009

2008Current:Federal

$
(3,956
)


(4,551
)


(415
)State


(1,764
)


1,460



(1
)Total current


(5,720
)


(3,091
)


(416
)Deferred:Federal


(2,773
)


(1,213
)


(3,575
)State


(1,781
)


(1,303
)


(993
)Total deferred


(4,554
)


(2,516
)


(4,568
)Change in valuation allowance


16,597



0



0$
6,323



(5,607
)


(4,984
)    (Dollars in thousands)

2010

2009

2008Expected federal income tax benefit

$
(7,703
)


(5,741
)


(5,138
)Items affecting federal income tax:State income taxes, net of federal income tax expense (benefit)


(2,474
)


170



(642
)Tax exempt interest


(133
)


(235
)


(490
)Goodwill impairment charge


0



0



1,293Increase in valuation allowance


16,597



0



0Other, net


36



199



(7
)$
6,323



(5,607
)


(4,984
)  43




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
     (Dollars in thousands)

2010

2009Balance at January 1

$
2,210



600Settlement of tax position


(2,210
)


0Increases for tax positions related to prior years


0



1,610Balance at December 31

$
0



2,210     (Dollars in thousands)

2010

2009Deferred tax assets:Allowances for loan and real estate losses

$
9,088



9,724Deferred compensation costs


314



337Deferred ESOP loan asset


682



657Restricted stock expense


164



139Nonaccruing loan interest


84



2,620Federal net operating loss carry forward


5,043



0State net operating loss carry forward


3,295



891Other


88



49Total gross deferred tax assets


18,758



14,417Valuation allowance


(16,597
)


0Deferred tax assets, net of valuation allowance


2,161



14,417Deferred tax liabilities:Net unrealized gain on securities available for sale


356



809Deferred loan fees and costs


263



258Premises and equipment basis difference


636



950Originated mortgage servicing rights


648



537Other


258



273Total gross deferred tax liabilities


2,161



2,827Net deferred tax assets

$
0



11,590      NOTE 13 Employee
    Benefits
   44




---



##### 



Employers Accounting for
    Employee Stock Ownership Plans
   2010

2009

2008Shares allocated to participants beginning of the year


333,678



320,937



296,086Shares allocated to participants


24,317



24,317



24,379Shares purchased with dividends from allocated shares


38



0



12,078Shares distributed to participants


(22,580
)


(11,576
)


(11,606
)Shares allocated to participants end of year


335,453



333,678



320,937Unreleased shares beginning of the year


450,086



474,403



498,782Shares released during year


(24,317
)


(24,317
)


(24,379
)Unreleased shares end of year


425,769



450,086



474,403Total ESOP shares end of year


761,222



783,764



795,340Fair value of unreleased shares at December 31

$
1,196,411



1,890,361



1,983,005     45




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
     Unvested OptionsShares

Restricted



Award Value/



Weighted AverageAvailable

Shares

Options

Weighted Average



Grant Date

Vestingfor Grant

Outstanding

Outstanding

Exercise Price

Number

Fair Value

Period1995 PlanDecember 31, 2007


0



0



105,500


$
12.12



0


$
0December 31, 2008


0



0



105,500



12.12



0



0Forfeited/expired


0



0



(65,000
)


11.50



0



0December 31, 2009


0



0



40,500



13.10



0



0Forfeited/expired


0



0



(25,500
)


11.25



0



0December 31, 2010


0



0



15,000



16.25



0



02001 PlanDecember 31, 2007


171,619



22,771



189,895



19.33



155,605


$
1.61Granted January 25, 2008


(22,182
)


22,182



0



N/A











3 yearsForfeited


5,916



(169
)


(5,747
)


16.13



(5,747
)


1.43Vested






(10,491
)










(8,770
)


2.67December 31, 2008


155,353



34,293



184,148



19.43



141,088



1.55Forfeited/expired






(4,734
)


(33,777
)


16.13



(32,257
)


1.43Forfeited/expired










(5,000
)


27.64







2.10Termination of new awards under plan


(155,353
)Vested






(15,044
)










(6,000
)


3.11December 31, 2009


0



14,515



145,371



19.91



102,831



1.49Forfeited/expired


0



0



(5,921
)


16.13



(5,921
)


1.43Forfeited/expired


0



(170
)


0Vested






(8,904
)










(3,102
)


3.52December 31, 2010


0



5,441



139,450



20.07



93,808



1.432009 PlanApril 28, 2009


350,000Granted May 6, 2009


(15,000
)






15,000


$
4.77



15,000


$
4.41



5 yearsGranted May 6, 2009


(98,866
)


82,388







N/A











3 yearsDecember 31, 2009


236,134



82,388



15,000



4.77



15,000



4.41Granted January 26, 2010


(85,290
)


71,075



0



N/A











3 yearsForfeited/expired


7,118



(5,790
)


0Forfeited/expired


5,921



0



0Vested


0



(13,630
)


0







(3,000
)


4.41December 31, 2010


163,883



134,043



15,000


$
4.77



12,000



4.41Total all plans


163,883



139,484



169,450


$
18.38



105,808


$
1.77    WeightedWeighted







AverageAverage







Years Over WhichRemaining





Unrecognized

UnrecognizedNumber

Contractual Life

Number

Number

Compensation

Compensation WillExercise Price

Outstanding

In Years

Exercisable

Unexercisable

Expense

Be Recognized$
16.13



93,910



1.4



102



93,808


$
16,313



1.016.25



15,000



1.4



15,000



0



0



N/A27.66



15,540



3.2



15,540



0



0



N/A26.98



15,000



3.6



15,000



0



0



N/A30.00



15,000



4.4



15,000



0



0



N/A4.77



15,000



8.4



3,000



12,000



24,817



3.4169,450







63,642



105,808


$
41,130  46




---



##### 



2009Risk-free interest rate


3.15%Expected life


9 yearsExpected volatility


114.0%Expected dividends


0.0%   NOTE 14 Loss
    per Common Share
   Year Ended December 31,(Dollars in thousands, except per share data)

2010


2009


2008Weighted average number of common shares outstanding used in
    basic earnings per common share calculation


3,766,756



3,695,827



3,655,078Net dilutive effect of :Options


0



0



0Restricted stock awards


0



0



0Weighted average number of common shares outstanding adjusted
    for effect of dilutive securities


3,766,756



3,695,827



3,655,078Net loss available to common shareholders

$
(30,762
)


(12,543
)


(10,164
)Basic loss per common share

$
(8.17
)


(3.39
)


(2.78
)Diluted loss per common share

$
(8.17
)


(3.39
)


(2.78
)    NOTE 15 Stockholders
    Equity
    QuarterlyDividend

DividendRecord Date

Payable Date

Per Share

Payout RatioFebruary 15, 2008

March 7, 2008


$0.25



34.25%May 16, 2008

June 6, 2008


$0.25



64.10%August 25, 2008

September 8, 2008


$0.25



NMNM  not meaningful    47




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
       NOTE 16 Regulatory
    Matters/Supervisory Agreements and Federal Home Loan Bank
    Investment
    48




---



##### 



To Be WellCapitalizedRequired to be





Under PromptAdequately





Corrective ActionActual


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)December 31, 2010Tier I or core capital

$
66,824



7.60
%

$
35,181



4.00
%

$
31,643



3.60
%

$
43,977



5.00
%Tier I risk-based capital


66,824



9.72



27,507



4.00



39,317



5.72



41,261



6.00Risk-based capital to risk-weighted assets


75,420



10.97



55,014



8.00



20,406



2.97



68,768



10.00December 31, 2009Tier I or core capital

$
88,723



8.64
%

$
41,054



4.00
%

$
47,669



4.64
%

$
51,317



5.00
%Tier I risk-based capital


88,723



10.87



32,648



4.00



56,075



6.87



48,972



6.00Risk-based capital to risk-weighted assets


98,925



12.12



65,296



8.00



33,629



4.12



81,620



10.00   (1)
    
    Based upon the Banks adjusted
    total assets for the purpose of the Tier I or core capital
    ratios and risk-weighted assets for the purpose of the
    risk-based capital ratio.      NOTE 17 Financial
    Instruments with Off-Balance Sheet Risk
    49




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   December 31,Contract Amount(Dollars in thousands)

2010


2009Financial instruments whose contract amount represents credit
    risk:Commitments to originate, fund or purchase loans:1-4 family mortgages

$
629



3,263Commercial real estate mortgages


0



4,067Undisbursed balance of loans closed


12,659



20,179Unused lines of credit


76,670



102,011Letters of credit


2,355



3,823Total commitments to extend credit

$
92,313



133,343Forward commitments

$
3,413



6,278    case-by-case
    NOTE 18 Derivative
    Instruments and Hedging Activities
 Accounting for
    Derivative Instruments and Hedging Activities
    NOTE 19 Fair
    Value Measurement
 Fair Value
    Measurements
 Level 1
 Level 2
 Level 3
  50




---



##### 



Carrying Value at December 31, 2010(Dollars in thousands)

Total


Level 1


Level 2


Level 3Securities available for sale

$
151,564



1,740



149,824



0Mortgage loan commitments


(1
)


0



(1
)


0Total

$
151,563



1,740



149,823



0    Carrying Value at December 31, 2009Total


Level 1


Level 2


Level 3Securities available for sale

$
159,602



6,222



153,380



0Mortgage loan commitments


(53
)


0



(53
)


0Total

$
159,549



6,222



153,327



0    lower-of-cost-or-market
 Year EndedCarrying Value at December 31, 2010


December 31, 2010(Dollars in thousands)

Total


Level 1

Level 2


Level 3


Total LossesLoans held for sale

$
2,728


0


2,728



0



(6
)Mortgage servicing rights


1,586


0


1,586



0



0Loans(1)


43,039


0


43,039



0



(18,855
)Real estate,
    net(2)


16,382


0


16,382



0



(1,782
)Total

$
63,735


0


63,735



0



(20,643
)     Year EndedCarrying Value at December 31, 2009


December 31, 2009Total


Level 1


Level 2


Level 3


Total LossesLoans held for sale

$
2,965



0



2,965



0



(50
)Mortgage servicing rights


1,315



0



1,315



0



0Loans(1)


49,074



0



49,074



0



(6,493
)Real estate,
    net(2)


16,257



0



16,257



0



(3,873
)Total

$
69,611



0



69,611



0



(10,416
)   (1)
    
    Represents carrying value and
    related 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.    NOTE 20
    Fair
    Value of Financial Instruments Disclosures about Fair Values of Financial
    Instruments
 51




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
     December 31,2010


2009Carrying


Estimated


Contract


Carrying


Estimated


Contract(Dollars in thousands)

Amount


Fair Value


Amount


Amount


Fair Value


AmountFinancial assets:Cash and cash equivalents

$
20,981



20,981







16,418



16,418Securities available for sale


151,564



151,564







159,602



159,602Loans held for sale


2,728



2,728







2,965



2,965Loans receivable, net


664,241



655,508







799,256



799,849Federal Home Loan Bank stock


6,743



6,743







7,286



7,286Accrued interest receivable


3,311



3,311







4,024



4,024Financial liabilities:Deposits


683,230



683,230







796,011



796,011Federal Home Loan Bank advances


122,500



129,893







132,500



141,791Accrued interest payable


1,092



1,092







2,108



2,108Off-balance sheet financial instruments:Commitments to extend credit


56



56



92,313



103



103



133,343Commitments to sell loans


(1
)


(1
)


3,413



(53
)


(53
)


6,278    Cash and Cash Equivalents
 Securities Available for Sale
 Loans Held for Sale
 Loans Receivable
 Federal Home Loan Bank Stock
 Accrued Interest Receivable
 Deposits
  Federal Home Loan Bank Advances
 Accrued Interest Payable
 Commitments to Extend Credit
 52




---



##### 



Commitments to Sell Loans
  NOTE 21 HMN
    Financial, Inc. Financial Information (Parent Company
    Only)
   (Dollars in thousands)

2010


2009


2008Condensed Balance SheetsAssets:Cash and cash equivalents

$
478



199Investment in subsidiaries


68,053



96,575Loans receivable, net


1,500



2,700Prepaid expenses and other assets


49



839Deferred tax asset, net


0



172Total assets

$
70,080



100,485Liabilities and Stockholders Equity:Accrued expenses and other liabilities

$
533



547Total liabilities


533



547Serial preferred stock


24,264



23,785Common stock


91



91Additional paid-in capital


56,420



58,576Retained earnings


55,838



86,115Net unrealized gain on securities available for sale


541



1,230Unearned employee stock ownership plan shares


(3,384
)


(3,577
)Treasury stock, at cost, 4,818,263 and 4,883,378 shares


(64,223
)


(66,282
)Total stockholders equity


69,547



99,938Total liabilities and stockholders equity

$
70,080



100,485Condensed Statements of LossInterest income

$
4



15



98Equity losses of subsidiaries


(27,833
)


(10,168
)


(9,693
)Other income


0



2



2Compensation and benefits


(236
)


(236
)


(243
)Occupancy


(24
)


(24
)


(24
)Data processing


(6
)


(6
)


(6
)Other


(551
)


(470
)


(466
)Loss before income tax expense (benefit)


(28,646
)


(10,887
)


(10,332
)Income tax expense (benefit)


332



(91
)


(205
)Net loss

$
(28,978
)


(10,796
)


(10,127
)Condensed Statements of Cash FlowsCash flows from operating activities:Net loss

$
(28,978
)


(10,796
)


(10,127
)Adjustments to reconcile net loss to cash provided by operating
    activities:Equity losses of subsidiaries


27,833



10,168



9,693Deferred income tax expense


172



220



16Earned employee stock ownership shares priced above (below)
    original cost


(51
)


(56
)


118Stock option compensation


63



27



33Amortization of restricted stock awards


370



373



415Decrease in unearned ESOP shares


193



194



194Decrease in accrued interest receivable


0



0



20Increase (decrease) in accrued expenses and other liabilities


(15
)


(284
)


134Increase (decrease) in other assets


791



(829
)


(7
)Other, net


1



7



(1
)Net cash provided (used) by operating activities


379



(976
)


488 53




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   (Dollars in thousands)

2010


2009


2008Cash flows from investing activities:Investment in subsidiary


0



0



(25,000
)Decrease (increase) in loans receivable, net


1,200



1,700



(400
)Net cash provided (used) by investing activities


1,200



1,700



(25,400
)Cash flows from financing activities:Purchase of treasury stock


0



0



(723
)Dividends paid to common stockholders


0



0



(2,749
)Dividends paid to preferred stockholders


(1,300
)


(1,163
)


0Proceeds from preferred stock and warrant issued


0



0



26,000Proceeds from dividends on Bank stock


0



0



2,000Net cash (used) provided by financing activities


(1,300
)


(1,163
)


24,528Increase (decrease) in cash and cash equivalents


279



(439
)


(384
)Cash and cash equivalents, beginning of year


199



638



1,022Cash and cash equivalents, end of year

$
478



199



638   NOTE 22
    Business
    Segments   54




---



##### 



Home Federal








Consolidated(Dollars in thousands)

Savings Bank


Other


Eliminations


TotalAt or for the year ended December 31, 2010:Interest income   external customers

$
48,270



0



0



48,270Non-interest income   external customers


7,302



0



0



7,302Loss on limited partnerships


(31
)


0



0



(31
)Intersegment interest income


0



4



(4
)


0Intersegment non-interest income


174



(27,833
)


27,659



0Interest expense


17,263



0



(4
)


17,259Amortization of mortgage servicing rights, net


482



0



0



482Other non-interest expense


26,423



825



(174
)


27,074Income tax expense


5,991



332



0



6,323Net loss


(27,825
)


(28,986
)


27,833



(28,978
)Total assets


880,570



70,100



(70,052
)


880,618At or for the year ended December 31, 2009:Interest income   external customers

$
57,770



1



0



57,771Non-interest income   external customers


8,134



2



0



8,136Loss on limited partnerships


(54
)


0



0



(54
)Intersegment interest income


0



15



(15
)


0Intersegment non-interest income


174



(10,168
)


9,994



0Interest expense


23,883



0



(15
)


23,868Amortization of mortgage servicing rights, net


556



0



0



556Other non-interest expense


30,563



744



(174
)


31,133Income tax benefit


(5,513
)


(94
)


0



(5,607
)Net loss


(10,163
)


(10,801
)


10,168



(10,796
)Total assets


1,035,152



100,515



(99,426
)


1,036,241At or for the year ended December 31, 2008:Interest income   external customers

$
66,496



16



0



66,512Non-interest income   external customers


7,108



3



0



7,111Loss on limited partnerships


(8
)


0



0



(8
)Intersegment interest income


0



81



(81
)


0Intersegment non-interest income


174



(9,693
)


9,519



0Interest expense


32,877



0



(81
)


32,796Amortization of mortgage servicing rights, net


570



0



0



570Other non-interest expense


28,091



747



(174
)


28,664Income tax benefit


(4,776
)


(208
)


0



(4,984
)Net loss


(9,688
)


(10,132
)


9,693



(10,127
)Total assets


1,144,738



113,078



(112,336
)


1,145,480  55




---



##### 



Report
    of Independent Registered Public Accounting Firm  
  The Board of Directors and
    Stockholders
 HMN Financial, Inc.:
        Internal Control  Integrated Framework
    
     56




---



##### 



OTHER
    FINANCIAL DATA   Year Ended December 31,(Dollars in thousands)

2010


2009


2008Maximum Balance:FHLB and FRB advances and borrowings

$
137,500



210,500



165,000FHLB and FRB short-term borrowings


62,500



78,000



43,000Average Balance:FHLB and FRB advances and borrowings


129,408



155,574



122,338FHLB and FRB short-term borrowings


37,023



26,288



11,249   December 31,2010


2009


2008Weighted





Weighted





WeightedAverage





Average





Average(Dollars in thousands)

Amount


Rate


Amount


Rate


Amount


RateFHLB and FRB short-term borrowings

$
52,500



4.00
%

$
10,000



6.48
%

$
10,000



0.50
%FHLB long-term advances


70,000



4.77



122,500



4.44



132,500



4.59Total

$
122,500



4.44


$
132,500



4.59


$
142,500



4.31   57




---



##### 



SELECTED
    QUARTERLY FINANCIAL DATA
  December 31,


September 30,


June 30,(Dollars in thousands, except per share data)

2010


2010


2010Selected Operations Data (3 months ended):Interest income

$
10,834



11,963



12,569Interest expense


3,547



4,189



4,580Net interest income


7,287



7,774



7,989Provision for loan losses


10,542



11,946



4,360Net interest income (loss) after provision for loan losses


(3,255
)


(4,172
)


3,629Noninterest income:Fees and service charges


1,007



972



920Loan servicing fees


261



264



274Securities gains, net


0



0



0Gain on sales of loans


655



551



467Other noninterest income


101



105



120Total noninterest income


2,024



1,892



1,781Noninterest expense:Compensation and benefits


3,300



3,356



3,411Losses (gains) on real estate owned


1,509



384



33Occupancy


961



1,055



1,035Deposit insurance


439



458



519Data processing


174



292



298Other noninterest expense


1,836



1,445



1,034Total noninterest expense


8,219



6,990



6,330Income (loss) before income tax expense (benefit)


(9,450
)


(9,270
)


(920
)Income tax expense (benefit)


482



97



6,912Net income (loss)


(9,932
)


(9,367
)


(7,832
)Preferred stock dividends and discount


(449
)


(447
)


(448
)Net income (loss) available to common stockholders

$
(10,381
)


(9,814
)


(8,280
)Basic earnings (loss) per common share

$
(2.73
)


(2.60
)


(2.20
)Diluted earnings (loss) per common share

$
(2.73
)


(2.60
)


(2.20
)Financial Ratios:Return (loss) on average
    assets(1)


(4.41
)%


(3.89
)%


(3.12
)%Return (loss) on average common
    equity(1)


(49.64
)


(42.01
)


(32.14
)Average equity to average assets


9.40



9.56



9.70Net interest
    margin(1)(2)


3.39



3.37



3.37(Dollars in thousands)Selected Financial Condition Data:Total assets

$
880,618



907,401



975,243Securities available for sale:Mortgage-backed and related securities


33,506



39,152



43,867Other marketable securities


118,058



108,676



112,925Loans held for sale


2,728



3,405



2,940Loans receivable, net


664,241



699,877



744,629Deposits


683,230



686,012



746,448Federal Home Loan Bank advances and Federal Reserve borrowing


122,500



134,000



132,500Stockholders equity


69,547



80,156



89,854   (1)
    
    Annualized(2)
    
    Net interest income divided by
    average interest-earning assets. 58




---



##### 



March 31,


December 31,


September 30,


June 30,


March 31,2010


2009


2009


2009


200912,904



13,304



14,325



14,789



15,3534,943



5,260



5,735



6,302



6,5717,961



8,044



8,590



8,487



8,7826,533



3,445



3,381



13,304



6,5691,428



4,599



5,209



(4,817
)


2,213842



1,066



1,034



1,010



1,027268



272



262



256



2520



0



0



5



0314



415



493



942



423150



327



94



73



1311,574



2,080



1,883



2,286



1,8333,449



3,119



3,180



3,284



3,849(761
)


61



(357
)


3,066



1,1031,031



1,013



970



1,009



1,092517



445



371



826



331276



294



298



311



2791,505



1,690



1,574



2,107



1,7746,017



6,622



6,036



10,603



8,428(3,015
)


57



1,056



(13,134
)


(4,382
)(1,168
)


(92
)


175



(3,930
)


(1,760
)(1,847
)


149



881



(9,204
)


(2,622
)(440
)


(441
)


(438
)


(439
)


(429
)(2,287
)


(292
)


443



(9,643
)


(3,051
)(0.61
)


(0.08
)


0.12



(2.62
)


(0.83
)(0.61
)


(0.08
)


0.12



(2.62
)


(0.83
)(0.73
)%


0.06
%


0.34
%


(3.37
)%


(0.94
)%(7.50
)


0.59



3.52



(34.23
)


(9.57
)9.70



9.73



9.73



9.83



9.813.31



3.28



3.46



3.29



3.301,028,476



1,036,241



1,032,717



1,053,618



1,113,35948,368



53,559



58,737



64,144



72,702113,714



106,043



76,847



71,722



87,1672,386



2,965



3,279



5,029



3,880774,336



799,256



818,897



836,493



877,309789,792



796,011



781,574



809,965



798,369132,500



132,500



142,500



132,500



192,50097,690



99,938



100,446



99,716



109,381  59




---



##### 



COMMON
    STOCK INFORMATION   December 31,


September 30,


June 30,


March 31,


December 31,


September 30,


June 30,


March 31,2010


2010


2010


2010


2009


2009


2009


2009HIGH

$
3.80



5.00



6.78



5.99



6.85



5.79



6.00



4.76LOW


2.47



3.06



4.28



4.02



3.20



3.35



3.05



1.52CLOSE


2.81



3.16



4.58



5.50



4.20



3.75



3.51



3.10   
  Period EndingIndex

12/31/05


12/31/06


12/31/07


12/31/08


12/31/09


12/31/10HMN Financial, Inc.


100.00



120.44



88.55



15.70



15.78



10.55NASDAQ Composite


100.00



110.39



122.15



73.32



106.57



125.91SNL Bank NASDAQ Index


100.00



112.27



88.14



64.01



51.93



61.27  60