UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) FOR THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-24100
HMN FINANCIAL, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 41-1777397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 North Broadway, Spring Valley, Minnesota 55975-0231
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (507) 346-1100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's common stock
as of the latest practicable date.
Class Outstanding at November 3, 2000
Common stock, $0.01 par value 4,389,066
HMN FINANCIAL, INC.
CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1: Financial Statements (unaudited)
Consolidated Balance Sheets at
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
Three Months Ended and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income for the
Three Months Ended and Nine Months Ended
September 30, 2000 and 1999 5
Consolidated Statement of Stockholders' Equity
for the Nine Month Period Ended September 30, 2000 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-15
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-25
Item 3: Quantitative and Qualitative Disclosures about
Market Risk Discussion included in Item 2 under
Market Risk 21
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 26
Item 2: Changes in Securities 26
Item 3: Defaults Upon Senior Securities 26
Item 4: Submission of Matters to a Vote of Security Holders 26
Item 5: Other Information 26
Item 6: Exhibits and Reports on Form 8-K 26
Signatures 27
2
PART I - FINANCIAL STATEMENTS
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
ASSETS 2000 1999
------------- ------------
Cash and cash equivalents $ 13,959,437 9,051,380
Securities available for sale:
Mortgage-backed and related
securities (amortized cost
$89,298,896 and $101,906,303) 87,541,755 100,777,266
Other marketable securities
(amortized cost $74,597,345
and $76,863,919) 70,664,434 72,699,513
------------- ------------
158,206,189 173,476,779
------------- ------------
Loans held for sale 6,385,517 4,083,061
Loans receivable, net 506,830,687 477,895,602
Accrued interest receivable 4,044,122 3,860,454
Federal Home Loan Bank stock, at cost 12,245,000 11,470,000
Mortgage servicing rights, net 1,185,077 1,123,674
Premises and equipment, net 9,196,748 8,530,434
Investment in limited partnerships 3,038,541 2,975,138
Goodwill 4,025,980 4,160,998
Core deposit intangible 852,473 1,026,803
Prepaid expenses and other assets 1,134,833 639,619
Deferred tax assets 1,052,700 892,500
------------ ------------
Total assets $ 722,157,304 699,186,442
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 423,717,339 400,382,118
Federal Home Loan Bank advances 227,900,000 229,400,000
Accrued interest payable 2,004,025 1,433,111
Advance payments by borrowers for
taxes and insurance 987,053 814,092
Accrued expenses and other liabilities 3,439,930 2,596,253
------------ ------------
Total liabilities 658,048,347 634,625,574
------------ ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock ($.01 par
value): authorized 500,000
shares; issued and outstanding none 0 0
Common stock ($.01 par value):
authorized 11,000,000 shares;
issued 9,128,662 shares 91,287 91,287
Additional paid-in capital 59,592,162 59,674,715
Retained earnings, subject to
certain restrictions 72,318,340 68,423,008
Accumulated other comprehensive
income (loss) (3,424,152) (3,187,743)
Unearned employee stock ownership
plan shares (5,366,483) (5,511,851)
Unearned compensation restricted
stock awards (11,637) (96,508)
Treasury stock, at cost 4,739,596
and 4,370,285 shares (59,090,560) (54,832,040)
------------ -----------
Total stockholders' equity 64,108,957 64,560,868
------------ -----------
Total liabilities and
stockholders' equity $ 722,157,304 699,186,442
============ ===========
See accompanying notes to consolidated financial statements.
3
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------- ------------------------
Interest Income:
Loans receivable $ 10,384,591 8,763,166 29,780,905 26,170,227
Securities available
for sale:
Mortgage-backed and
related 1,680,791 1,629,729 5,138,967 5,254,159
Other marketable 1,186,633 1,243,901 3,532,915 3,039,680
Cash equivalents 54,957 34,826 158,198 166,057
Other 218,536 163,131 614,471 468,038
----------- ----------- ---------- ----------
Total interest
income 13,525,508 11,834,753 39,225,456 35,098,161
----------- ----------- ---------- ----------
Interest expense:
Deposits 4,999,104 4,423,942 13,857,269 13,567,222
Federal Home Loan
Bank advances 3,564,404 2,811,197 10,406,426 7,949,955
Other borrowed money 4,615 0 4,615 7,207
----------- ----------- ---------- ----------
Total interest
expense 8,568,123 7,235,139 24,268,310 21,524,384
----------- ----------- ---------- ----------
Net interest income4,957,385 4,599,614 14,957,146 13,573,777
Provision for loan
losses 45,000 45,000 135,000 195,000
---------- ----------- ---------- ----------
Net interest income
after provision for
loan losses 4,912,385 4,554,614 14,822,146 13,378,777
---------- ----------- ---------- ----------
Non-interest income:
Fees and service
charges 356,045 246,200 960,988 565,197
Mortgage servicing fees 95,570 94,180 251,477 270,888
Securities gains (loss),
net (5,305) (14,685) (39,106) 148,085
Gain on sales of loans 337,921 358,073 814,498 1,637,747
Earnings (loss) in
limited partnerships (40,974) (29,297) 77,873 333,297
Other 120,829 166,592 422,701 384,916
--------- --------- --------- ---------
Total non-interest
income 864,086 821,063 2,488,431 3,340,130
--------- --------- --------- ---------
Non-interest expense:
Compensation and
benefits 1,482,346 1,539,214 4,666,664 4,503,030
Occupancy 490,653 423,182 1,380,970 1,239,249
Federal deposit
insurance premiums 20,784 72,608 63,018 217,824
Advertising 92,944 73,386 225,329 227,227
Data processing 202,655 173,344 579,284 534,892
Amortization of mortgage
servicing rights and
net valuation
adjustments 84,246 92,254 229,526 409,233
Other 622,901 596,829 1,826,191 1,764,845
--------- --------- ---------- ----------
Total non-interest
expense 2,996,529 2,970,817 8,970,982 8,896,300
--------- --------- ---------- ----------
Income before income
tax expense 2,779,942 2,404,860 8,339,595 7,822,607
Income tax expense 1,076,500 909,900 3,226,300 3,009,300
---------- --------- ---------- ----------
Net income $ 1,703,442 1,494,960 5,113,295 4,813,307
========== ========= ========== ==========
Basic earnings per
share $ 0.45 0.35 1.32 1.09
========== ========= ========== ==========
Diluted earnings per
share $0.44 0.33 1.28 1.05
========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
4
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended September 30,
2000 1999
----------- ----------- ----------- -----------
Net income $ 1,703,442 1,494,960
Other comprehensive income
(losses),
net of tax:
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
period 419,982 (790,608)
Less: reclassification
adjustment for gains
(losses) included in
net income (3,261) (9,027)
-------- --------
Other comprehensive
income (loss) 423,243 (781,581)
--------- ---------
Comprehensive income $ 2,126,685 713,379
========== =========
Nine Months Ended September 30,
2000 1999
----------- ----------- ----------- -----------
Net income $ 5,113,295 4,813,307
Other comprehensive income
(losses),
net of tax:
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
period (260,448) (1,940,105)
Less: reclassification
adjustment for gains
(losses) included in
net income (24,039) 91,031
-------- --------
Other comprehensive
income (loss) (236,409) (2,031,136)
--------- ---------
Comprehensive income $ 4,876,886 2,782,171
========== =========
See accompanying notes to consolidated financial statements.
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine Month Period Ended September 30, 2000
(unaudited)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss)
-------- --------- ------------ --------------
Balance,
December 31, 1999 $ 91,287 59,674,715 68,423,008 (3,187,743)
Net income 5,113,295
Other comprehensive loss (236,409)
Treasury stock purchases
Employee stock options
exercised (232,062)
Tax benefits of exercised
stock options 76,165
Tax benefits of restricted
stock awards 35,200
Amortization of restricted
stock awards
Dividends paid (1,217,963)
Earned employee stock
ownership plan shares 38,144
--------- ------------ ----------- ------------
Balance,
September 30, 2000 $ 91,287 59,592,162 72,318,340 (3,424,152)
========== ============ =========== ===========
Unearned
Employee
Stock Unearned
Ownership Compensation Total
Plan Restricted Treasury Stockholders'
Shares Stock Awards Stock Equity
----------- ------------- ----------- ------------
Balance,
December 31, 1999 $(5,511,851) (96,508) (54,832,040) 64,560,868
Net income 5,113,295
Other comprehensive loss (236,049)
Treasury stock purchases (5,091,726) (5,091,726)
Employee stock options
exercised 833,206 601,144
Tax benefits of exercised
stock options 76,165
Tax benefits of restricted
stock awards 35,200
Amortization of restricted
stock awards 84,871 84,871
Dividends paid (1,217,963)
Earned employee stock
ownership plan shares 145,368 183,512
----------- ---------- ------------- ------------
Balance,
September 30, 2000 $(5,366,483) (11,637) (59,090,560) 64,108,957
=========== ========== ============= ============
See accompanying notes to consolidated financial statements.
5
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
2000 1999
--------------------
Cash flows from operating activities:
Net income $ 5,113,295 4,813,307
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 135,000 195,000
Depreciation 671,768 573,285
Amortization of (discounts) premiums, net (47,077) 28,484
Amortization of deferred loan fees (146,612) (523,090)
Amortization of goodwill 135,018 135,027
Amortization of core deposit intangible 174,330 174,332
Amortization of other purchase accounting
adjustments (43,833) 30,433
Amortization of mortgage servicing rights and
net valuation adjustments 205,301 377,514
Capitalized mortgage servicing rights (266,704) (461,919)
Increase (decrease) in deferred income taxes 80,500 (228,099)
Securities (gains) losses, net 39,106 (148,085)
Gain on sales of loans (814,498) (1,637,747)
Proceeds from sale of loans held for sale 80,680,103 150,721,591
Disbursements on loans held for sale (81,166,406)(138,985,731)
Principal collected on loans held for sale 23,797 1,099
Amortization of restricted stock awards 84,871 130,108
Amortization of unearned ESOP shares 145,368 144,971
Earned employee stock ownership shares priced
above original cost 38,144 48,732
Decrease (increase) in accrued interest
receivable (183,668) 82,514
Increase in accrued interest payable 570,914 449,204
Equity earnings of limited partnerships (77,873) (333,297)
Increase in other assets (381,108) (534,516)
Increase in other liabilities 955,042 945,642
Other, net 16,593 23,209
----------- ------------
Net cash provided by operating activities 5,941,371 16,021,968
----------- ------------
Cash flows from investing activities:
Proceeds from sales of securities available
for sale 28,005,499 14,744,724
Principal collected on securities available
for sale 6,220,154 40,060,482
Proceeds collected on maturity of securities
available for sale 7,500,000 21,331,000
Purchases of securities available for sale (15,855,692) (72,580,007)
Proceeds from sales of loans receivable 204,264 220,605
Purchase of Federal Home Loan Bank stock (775,000) (782,100)
Net increase in loans receivable (41,350,562) (21,840,511)
Proceeds from sale of real estate 0 16,625
Purchases of premises and equipment (1,338,082) (749,181)
------------ ------------
Net cash used by investing activities (17,389,419) (19,578,363)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in deposits 23,391,689 (29,230,696)
Purchase of treasury stock (5,091,726) (5,037,630)
Stock options exercised 601,144 248,443
Dividends to stockholders (1,217,963) (1,053,832)
Proceeds from Federal Home Loan Bank advances 162,800,000 81,800,000
Repayment of Federal Home Loan Bank advances (164,300,000) (55,300,000)
Decrease in other borrowed money 0 (2,500,000)
Increase in advance payments by borrowers
for taxes and insurance 172,961 199,243
------------ ------------
Net cash provided (used) by financing
activities 16,356,105 (10,874,472)
------------ ------------
Increase (decrease) in cash and cash
equivalents 4,908,057 (14,430,867)
Cash and cash equivalents, beginning of period 9,051,380 20,960,957
------------ ------------
Cash and cash equivalents, end of period $ 13,959,437 6,530,090
============ ============
Supplemental cash flow disclosures:
Cash paid for interest $ 23,697,396 21,075,180
Cash paid for income taxes 1,720,800 2,704,000
Supplemental noncash flow disclosures:
SBA certificates transferred from loans
to securities available for sale $ 0 2,528,442
Loans securitized and transferred to
securities available for sale 11,129,146 6,913,219
Loans transferred to loans held for sale 1,029,517 2,028,211
Transfer of loans to real estate 244,258 0
Transfer of real estate to loans 50,140 0
See accompanying notes to consolidated financial statements.
6
HMN FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2000 and 1999
(1) HMN FINANCIAL, INC.
HMN Financial, Inc.(HMN) is a stock savings bank holding company which owns 100
percent of Home Federal Savings Bank (the Bank or Home Federal). Home Federal
has a community banking philosophy and operates retail banking facilities in
Minnesota and Iowa. The Bank has two wholly owned subsidiaries, Osterud
Insurance Agency, Inc. (OAI) and MSL Financial Corporation (MSL), which offer
financial planning products and services. As of April 30, 1999 MSL was
dissolved and its assets were transferred to the Bank in exchange for the stock
of MSL. HMN has two other wholly owned subsidiaries, Security Finance
Corporation (SFC) and HMN Mortgage Services, Inc. (MSI). SFC invests in
commercial loans and commercial real-estate loans located throughout the United
States which were originated by third parties. The Bank and MSI operate a
mortgage banking and mortgage brokerage facility located in Brooklyn Park,
Minnesota.
The consolidated financial statements included herein are for HMN, SFC, MSI,
the Bank and the Bank's wholly owned subsidiaries, OAI and MSL. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(2) BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
comprehensive income, consolidated statements of stockholders' equity and
consolidated statements of cash flows in conformity with generally accepted
accounting principles. However, all adjustments consisting of only normal
recurring adjustments which are, in the opinion of management, necessary for
the fair presentation of the interim financial statements have been included.
The statement of income for the three month and nine month periods ended
September 30, 2000 are not necessarily indicative of the results which may be
expected for the entire year.
Certain amounts in the consolidated financial statements for prior periods have
been reclassified to conform with the current period presentation.
(3) NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.
The accounting for changes in the fair value of a derivative (that is, gains
and losses) depends on the intended use of the derivative and the resulting
designation.
7
-For a derivative designated as hedging the exposure to changes in the
fair value of a recognized asset or liability or a firm commitment
(referred to as a fair value hedge), the gain or loss is recognized in
earnings in the period of change together with the offsetting loss or gain
on the hedged item attributable to the risk being hedged. The effect of
that accounting is to reflect in earnings the extent to which the hedge is
not effective in achieving offsetting changes in fair value.
-For a derivative designated as hedging the exposure to variable cash
flows of a forecasted transaction (referred to as a cash flow hedge), the
effective portion of the derivative's gain or loss is initially reported
as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction
affects earnings. The ineffective portion of the gain or loss is reported
in earnings immediately.
-For a derivative designated as hedging the foreign currency exposure of a
net investment in a foreign operation, the gain or loss is reported in
other comprehensive income (outside earnings) as part of the cumulative
translation adjustment. The accounting for a fair value hedge described
above applies to a derivative designated or an available-for-sale
security. Similarly, the accounting for a cash flow hedge described above
applies to a derivative designated as a hedge of the foreign currency
exposure of a foreign-currency-denominated forecasted transaction.
-For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
SFAS No. 133 precludes designating a nonderivative financial instrument as a
hedge of an asset, liability, unrecognized firm commitment, or forecasted
transaction except that a nonderivative instrument denominated in a foreign
currency may be designated as a hedge of the foreign currency exposure of an
unrecognized firm commitment denominated in a foreign currency or a net
investment in a foreign operation.
Originally SFAS No. 133 was effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of SFAS No.
133. In June of 1999 the FASB issued SFAS No. 137 which deferred the required
adoption of SFAS No. 133 to fiscal years starting after June 15, 2000. In June
of 2000 the FASB issued SFAS No. 138 which addresses a limited number of issues
causing implementation difficulties for numerous entities that must apply
Statement No. 133 to their financial statements. SFAS No. 138 also amends
Statement No. 133 for decisions made by the FASB relating to the Derivatives
Implementation Group process. HMN will adopt SFAS No. 133 in the first
quarter of 2001. HMN is currently researching the impact on its financial
condition and results of operations of adopting SFAS No. 133 as amended by SFAS
No. 138.
In September 2000, the FASB issued SFAS No. 140, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. It revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it
carries over most of Statement 125's provisions without reconsideration. The
standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes liabilities when
extinguished. SFAS No. 140 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings.
8
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after March 31, 2001. The Statement is
effective for recognition and reclassification of collateral and for
disclosures related to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The Statement is to be applied
prospectively with certain exceptions. HMN will adopt SFAS No. 140 for
recognitions and reclassification of collateral and for disclosures related to
securitization transactions and collateral on December 31, 2000. HMN will
adopt SFAS No. 140 for transfers and servicing of financial assets and
extinguishment of liabilities occurring after March 31, 2001. HMN is
currently researching the impact on its financial condition and results of
operations of adopting SFAS No. 140.
(4) COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a period from
transactions and other events from nonowner sources. Comprehensive income is
the total of net income and other comprehensive income, which for HMN is
comprised entirely of unrealized gains and losses on securities available for
sale.
The gross unrealized holding gains for the third quarter of 2000 were $673,000,
the income tax expense would have been $253,000 and therefore, the net gain was
$420,000. The gross reclassification adjustment for the third quarter of 2000
was $5,000, the income tax benefit would have been $2,000 and therefore, the
net reclassification adjustment was a gain of $3,000. The gross unrealized
holding losses for the third quarter of 1999 were $1,286,000, the income tax
benefit would have been $495,000 and therefore, the net loss was $791,000. The
gross reclassification adjustment for the third quarter of 1999 was $15,000,
the income tax benefit would have been $6,000 and therefore, the net
reclassification adjustment was $9,000.
The gross unrealized holding losses for the first nine months of 2000 were
$435,000, the income tax benefit would have been $175,000 and therefore, the
net loss was $260,000. The gross reclassification adjustment for the first nine
months of 2000 was $39,000, the income tax benefit would have been $15,000 and
therefore, the net reclassification adjustment was $24,000. The gross
unrealized holding losses for the nine month period ended September 30, 1999
were $3,166,000, the income tax benefit would have been $1,226,000 and
therefore, the net loss was $1,940,000. The gross reclassification adjustment
for the first nine months of 1999 was $148,000, the income tax expense would
have been $57,000 and therefore, the net gain was $91,000.
(5) CASH DIVIDEND
On October 24, 2000 HMN's Board of Directors announced a cash dividend of $0.12
per share, payable on December 11, 2000 to stockholders of record on November
22, 2000.
9
(6) INVESTMENT IN MORTGAGE SERVICING RIGHTS
A summary of mortgage servicing activity is as follows:
- -------------------------------------------------------------------------------
Nine Months Twelve Months Nine Months
ended ended ended
Sept. 30, 2000 Dec. 31, 1999 Sept. 30,1999
------------- -------------- --------------
Mortgage servicing rights
Balance, beginning of period $ 1,148,774 1,117,193 1,117,193
Originations 266,704 549,639 461,919
Purchases 0 0 0
Amortization (230,401) (518,058) (438,969)
---------- ----------- -----------
Balance, end of period 1,185,077 1,148,774 1,140,143
---------- ----------- -----------
Valuation reserve
Balance, beginning of period (25,100) (111,500) (111,500)
Additions 0 0 0
Reductions 25,100 86,400 61,454
---------- ----------- -----------
Balance, end of period 0 (25,100) (50,046)
---------- ----------- -----------
Mortgage servicing rights, net $ 1,185,077 1,123,674 1,090,097
========== =========== ===========
Fair value of mortgage
servicing rights $ 1,497,000 1,329,000 1,250,000
========== =========== ===========
- -------------------------------------------------------------------------------
Mortgage servicing costs, which include professional services for valuing
mortgage servicing rights, were $24,230 at September 30, 2000, and $31,420 and
$39,450 for the nine and twelve months ended in September and December 1999,
respectively.
All of the loans being serviced were single family loans serviced for FNMA
under the mortgage-backed security program or the individual loan sale program.
The following is a summary of the risk characteristics of the loans being
serviced at September 30, 2000.
- -----------------------------------------------------------------------------
Weighted Weighted
Average Average
Loan Principal Interest Remaining Number
Balance Rate Term of Loans
---------------- ---------- ----------- ---------
Original term 30 year
fixed rate $ 68,052,000 7.67% 332 911
Original term 15 year
fixed rate 65,604,000 6.85% 156 1,190
Seven year balloon 689,000 7.00% 333 7
Adjustable rate 6,103,000 8.08% 325 49
- -----------------------------------------------------------------------------
10
(7) INVESTMENT IN LIMITED PARTNERSHIPS
Investments in limited partnerships were as follows:
- --------------------------------------------------------------------------
September 30, December 31,
Primary partnership activity 2000 1999
- ------------------------------------- ----------------- ---------------
Mortgage servicing rights $ 2,396,810 2,222,094
Common stock of financial institutions 338,951 415,576
Low to moderate income housing 302,780 337,468
----------- -----------
$ 3,038,541 2,975,138
=========== ===========
- -------------------------------------------------------------------------
During the third quarter of 2000 HMN's proportionate revenue from a mortgage
servicing partnership (which included the reduction of previously established
impairment reserves of $146,500) was zero, its proportionate share of losses
from common stock investments in financial institutions was $37,400 and it
recognized $6,500 of losses on low income housing partnerships. During 2000
HMN anticipates receiving low income housing credits totaling $84,000, of which
$21,000 were credited to current income tax benefits in the third quarter.
During the third quarter of 1999 HMN's proportionate revenue from a mortgage
servicing partnership (which included the reduction of previously established
impairment reserves of $135,000) was $40,000, its proportionate share of losses
from the common stock investments in financial institutions was $62,000 and it
recognized $7,000 of losses on the low income housing partnerships. During 1999
HMN received low income housing credits totaling $80,000, of which $20,000 were
credited to current income tax benefits in the third quarter of 1999.
During the nine month period ended September 30, 2000, HMN's proportionate
revenue from a mortgage servicing partnership (which included the reduction of
previously established impairment reserves of $264,500) was $174,700, its
proportionate share of losses from the common stock investments in financial
institutions was $76,600 and it recognized $19,500 of losses on the low income
housing partnerships. During 2000 HMN anticipates receiving low income housing
credits totaling $84,000, of which $63,000 were credited to current income tax
benefits in the nine month period ended September 30, 2000. During the nine
month period ended September 30, 1999 HMN's proportionate revenue from a
mortgage servicing partnership (which included the reduction of previously
established impairment reserves of $632,000) was $424,000, its proportionate
share of losses from the common stock investments in financial institutions was
$48,000 and it recognized $43,000 of losses on the low income housing
partnerships. During 1999 HMN received low income housing credits totaling
$80,000, of which $60,000 were credited to current income tax benefits in the
nine month period ended September 30, 1999.
(8) EARNINGS PER SHARE
The following table reconciles the weighted average shares outstanding and the
income available to common shareholders used for basic and diluted EPS:
Three months ended Nine months ended
Sept. 30, Sept. 30,
2000 1999 2000 1999
------------------- --------------------
Weighted average number of
common shares outstanding
used in basic earnings
per common share calculation 3,747,683 4,269,133 3,875,107 4,399,444
Net dilutive effect of:
Options 153,543 201,673 127,589 185,251
Restricted stock awards 1,035 13,630 2,064 20,019
--------- --------- --------- ---------
Weighted average number of
shares outstanding
adjusted for effect of
dilutive securities 3,902,261 4,484,436 4,004,760 4,604,714
========= ========= ========= =========
Income available to common
shareholders $ 1,703,442 1,414,960 5,113,295 4,813,307
Basic earnings per common share $0.45 0.35 1.32 1.09
Diluted earnings per common share $0.44 0.33 1.28 1.05
11
(9) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on HMN's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of Tier I or Core capital and Risk-based capital (as defined
in the regulations) to total assets (as defined). Management believes, as of
September 30, 2000, that the Bank meets all capital adequacy requirements to
which it is subject.
Management believes that based upon the Bank's capital calculations at
September 30, 2000 and other conditions consistent with the Prompt Corrective
Actions Provisions of the OTS regulations, the Bank would be categorized as
well capitalized.
On September 30, 2000 the Bank's tangible assets and adjusted total assets were
$706.6 million and its risk-weighted assets were $434.7 million. The following
table presents the Bank's capital amounts and ratios at September 30, 2000 for
actual capital, required capital and excess capital including ratios in order
to qualify as being well capitalized under the Prompt Corrective Actions
regulations.
- -------------------------------------------------------------------------------
Required to be
Adequately
Actual Capitalized
------------------------ -------------------------
Percent of <1> Percent of <1>
(in thousands) Amount Assets Amount Assets
--------- ------------- ---------- ------------
Bank stockholder's equity $ 50,817
Plus:
Net unrealized loss on
certain securities
available for sale 2,488
Less:
Goodwill and other
intangibles 4,878
Excess mortgage
servicing rights 240
-------
Tier I or core capital 48,187
-------
Tier I capital to
adjusted total assets 6.82% $ 28,265 4.00%
Tier I capital to risk-
weighted assets 11.09% $ 17,388 4.00%
Less:
Equity investments & other
assets required to be
deducted 11
Plus:
Allowable allowance for
loan losses 3,326
-------
Risk-based capital $ 51,502 $ 34,776
=======
Risk-based capital to risk-
weighted assets 11.85% 8.00%
To Be Well Capitalized
Under Prompt
Corrective Actions
Excess Provisions
------------------------ -------------------------
Percent of <1> Percent of <1>
(in thousands) Amount Assets Amount Assets
--------- ------------- ---------- ------------
Bank stockholder's equity
Plus:
Net unrealized loss on
certain securities
available for sale
Less:
Goodwill and other
intangibles
Excess mortgage servicing
rights
Tier I or core capital
Tier I capital to adjusted
total assets $ 19,922 2.82% $ 35,332 5.00%
Tier I capital to risk-
weighted assets $ 30,799 7.09% $ 26,082 6.00%
Less:
Equity investments &
other assets required
to be deducted
Plus:
Allowable allowance for
loan losses
Risk-based capital $ 16,726 3.85% $ 43,470 10.00%
Risk-based capital to risk-
weighted assets
<FN>
<F1>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.
</FN>
- ------------------------------------------------------------------------------
12
The tangible capital of the Bank was in excess of the minimum 2% required at
September 30, 2000 but is not reflected in the table above.
(10) BUSINESS SEGMENTS
HMN's wholly owned subsidiaries, Home Federal Savings Bank, and Mortgage
Services, Inc. have been identified as reportable operating segments in
accordance with the provisions of SFAS 131. MSI was deemed to be a segment
because it is a separate corporation which operates independently from the Bank
and it is not regulated by the Office of Thrift Supervision. MSI has been
segmented further into Mortgage Servicing Rights and Mortgage Banking
activities. The mortgage servicing segment owns servicing rights on loans
which have either been sold to FNMA or securitized into mortgage backed
instruments which were issued by FNMA. MSI receives a servicing fee which is
based upon the outstanding balance of the loan being serviced and pays a
subservicer a monthly fee to service the loan. MSI's mortgage banking activity
includes an origination function and it also purchases loans from other loan
originators. All loans acquired either by origination or by purchase are
intended to be resold in the secondary loan market.
Security Finance Corporation and HMN, the holding company, did not meet the
quantitative thresholds for determining reportable segments and therefore are
included in the "Other" category.
HMN evaluates performance and allocates resources based on the segment's net
income or loss, return on average assets and return on average equity. Each
corporation is managed separately with its own president, who reports directly
to HMN's chief operating decision maker, and board of directors.
13
The following table sets forth certain information about the reconciliations of
reported profit or loss and assets for each of HMN's reportable segments.
HMN Mortgage Services, Inc.
---------------------------
Mortgage Total
Home Federal Servicing Mortgage Reportable
(Dollars in thousands) Savings Bank Rights Banking Segments
- ------------------------------------------------------------------------------
At or for the three months
ended September 30, 2000:
Interest income -
external customers $13,282 0 106 13,388
Non-interest income -
external customers 720 16 159 895
Earnings (loss) on limited
partnerships (4) 0 0 (4)
Intersegment interest income 21 0 0 21
Intersegment non-interest income 101 0 0 101
Interest expense 8,564 0 84 8,648
Amortization of mortgage
servicing rights and net
valuation adjustments 68 10 0 78
Other non-interest expense 2,672 7 216 2,895
Income tax expense (benefit) 1,087 0 (14) 1,073
Net income (loss) 1,684 (1) (21) 1,662
Total assets 709,260 200 5,647 715,107
Net interest margin 2.76% NM NM NM
Return on average assets 0.95% (1.38)% (1.62)% NM
Return on average realized
common equity 12.40% (6.94)% (6.74)% NM
At or for the three months ended
September 30, 1999:
Interest income -
external customers $11,571 0 84 11,655
Non-interest income -
external customers 566 24 251 841
Earnings (loss) on
limited partnerships 33 0 0 33
Intersegment interest income 9 0 0 9
Intersegment non-interest income 86 0 0 86
Interest expense 7,235 0 85 7,320
Amortization of mortgage
servicing rights and net
valuation adjustments 56 54 0 110
Other non-interest expense 2,585 (18) 273 2,840
Income tax expense (benefit) 925 (5) (10) 910
Net income (loss) 1,419 (8) (13) 1,398
Total assets 669,719 217 4,942 674,878
Net interest margin 2.66% NM NM NM
Return on average assets 0.84% (13.61)% (0.92)% NM
Return on average realized
common equity 11.42% (61.89)% (4.17)% NM
NM - Not meaningful
(Dollars in thousands) Other Eliminations Consolidated Total
- -------------------------------------------------------------------------------
At or for the three months
ended September 30, 2000:
Interest income -
external customers $ 137 0 13,525
Non-interest income -
external customers 11 0 906
Earnings (loss) on limited
partnerships (38) 0 (42)
Intersegment interest income 81 (102) 0
Intersegment non-
interest income 1,671 (1,772) 0
Interest expense 22 (102) 8,568
Amortization of mortgage
servicing rights and net
valuation adjustments 0 0 78
Other non-interest expense 125 (101) 2,919
Income tax expense (benefit) 3 0 1,076
Net income (loss) 1,712 (1,671) 1,703
Total assets 65,526 (58,476) 722,157
Net interest margin NM NM 2.83 %
Return on average assets NM NM 0.94 %
Return on average realized
common equity NM NM 9.91 %
At or for the three months ended
September 30, 1999:
Interest income -
external customers $ 180 0 11,835
Non-interest income -
external customers 11 0 852
Earnings (loss) on limited
partnerships (63) 0 (30)
Intersegment interest income 115 (126) 0
Intersegment non-
interest income 1,412 (1,498) 0
Interest expense 41 (126) 7,235
Amortization of mortgage
servicing rights and net
valuation adjustments 0 0 110
Other non-interest expense 107 (86) 2,861
Income tax expense (benefit) 0 0 910
Net income (loss) 1,509 (1,412) 1,495
Total assets 68,508 (55,858) 687,528
Net interest margin NM NM 2.75%
Return on average assets NM NM 0.86%
Return on average realized
common equity NM NM 8.55%
NM - Not meaningful
14
HMN Mortgage Services, Inc.
---------------------------
Mortgage Total
Home Federal Servicing Mortgage Reportable
(Dollars in thousands) Savings Bank Rights Banking Segments
- ------------------------------------------------------------------------------
At or for the nine months ended
September 30, 2000:
Interest income -
external customers $38,520 0 222 38,742
Non-interest income -
external customers 1,929 45 422 2,396
Earnings (loss) on limited
partnerships 154 0 0 154
Intersegment interest income 21 0 0 21
Intersegment non-interest income 292 0 0 292
Interest expense 24,264 0 169 24,433
Amortization of mortgage
servicing rights and net
valuation adjustments 184 22 0 206
Other non-interest expense 7,956 24 699 8,679
Income tax expense (benefit) 3,285 0 (90) 3,195
Net income (loss) 5,092 (1) (134) 4,957
Total assets 709,260 200 5,647 715,107
Net interest margin 2.83% NM NM NM
Return on average assets 0.95% (0.60)% (4.58)% NM
Return on average realized
common equity 12.40% (1.93)% (14.73)% NM
At or for the nine months ended
September 30, 1999:
Interest income -
external customers $ 34,260 0 256 34,516
Non-interest income -
external customers 2,027 79 846 2,952
Earnings (loss) on limited
partnerships 381 0 0 381
Intersegment interest income 29 0 0 29
Intersegment non-interest income 251 0 0 251
Interest expense 21,517 0 247 21,764
Amortization of mortgage
servicing rights and net
valuation adjustments 174 235 0 409
Other non-interest expense 7,502 0 855 8,357
Income tax expense (benefit) 2,969 (60) (2) 2,907
Net income (loss) 4,591 (96) 2 4,497
Total assets 669,719 217 4,942 674,878
Net interest margin 2.66% NM NM NM
Return on average assets 0.92% (46.02)% 0.03% NM
Return on average realized
common equity 12.41% (142.35)% 0.11% NM
NM - Not meaningful
(Dollars in thousands) Other Eliminations Consolidated Total
- -------------------------------------------------------------------------------
At or for the nine months
ended September 30, 2000:
Interest income -
external customers $ 483 0 39,225
Non-interest income -
external customers 15 0 2,411
Earnings (loss) on limited
partnerships (77) 0 77
Intersegment interest income 208 (229) 0
Intersegment non-
interest income 4,986 (5,278) 0
Interest expense 64 (229) 24,268
Amortization of mortgage
servicing rights and net
valuation adjustments 0 0 206
Other non-interest expense 378 (292) 8,765
Income tax expense (benefit) 31 0 3,226
Net income (loss) 5,142 (4,986) 5,113
Total assets 65,526 (58,476) 722,157
Net interest margin NM NM 2.90%
Return on average assets NM NM 0.96%
Return on average realized
common equity NM NM 9.99%
At or for the nine months
ended September 30, 1999:
Interest income -
external customers $ 582 0 35,098
Non-interest income -
external customers 55 0 3,007
Earnings (loss) on limited
partnerships (48) 0 333
Intersegment interest income 340 (369) 0
Intersegment non-
interest income 4,547 (4,798) 0
Interest expense 129 (369) 21,524
Amortization of mortgage
servicing rights and net
Valuation adjustments 0 0 409
Other non-interest expense 381 (251) 8,487
Income tax expense (benefit) 103 0 3,010
Net income (loss) 4,863 (4,547) 4,813
Total assets 68,508 (55,858) 687,528
Net interest margin NM NM 2.75%
Return on average assets NM NM 0.94%
Return on average realized
common equity NM NM 9.23%
NM - Not meaningful
15
HMN FINANCIAL, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
HMN's net income is dependent primarily on its net interest income, which is
the difference between interest earned on its loans and investments and the
interest paid on interest-bearing liabilities. Net interest income is
determined by (i) the difference between the yield earned on interest-earning
assets and rates paid on interest-bearing liabilities (interest rate spread)
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. HMN's interest rate spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and deposit
flows. Net interest margin is calculated by dividing net interest income by
the average interest-earning assets and is normally expressed as a percentage.
Net interest income and net interest margin are affected by changes in interest
rates, the volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. HMN's net income is also
affected by the generation of non-interest income, which primarily consists of
gains from the sale of securities, gains from sale of loans, service charges,
fees and other income. In addition, net income is affected by the level of
operating expenses, provisions made for loan losses and impairment reserve
adjustments required on mortgage servicing assets.
The operations of financial institutions, including the Bank, are significantly
affected by prevailing economic conditions, competition and the monetary and
fiscal policies of governmental agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of funds
are influenced by prevailing market rates of interest primarily on competing
investments, account maturities and the levels of personal income and savings
in the market area of the Bank.
NET INCOME
HMN's net income for the third quarter of 2000 was $1.7 million, an increase of
$208,000 or 13.9%, compared to net income of $1.5 million for the third quarter
of 1999. Basic earnings per share were $0.45 for the quarter ended September
30, 2000, an increase of $0.10 per share or 28.6%, from $0.35 basic earnings
per share for the same quarter of 1999. Diluted earnings per share were $0.44
for the third quarter of 2000, an increase of $0.11 or 33.3%, from $0.33
diluted earnings per share for the third quarter of 1999. Basic and diluted
earnings per share increased from the third quarter of 1999 to the third
quarter of 2000 by 28.6% and 33.3%, respectively, while net income increased
13.9% due primarily to HMN's treasury stock purchase program. The average
number of outstanding shares for the basic earnings per share calculation
declined by 521,450 shares from 4,269,133 at September 30, 1999 to 3,747,683 at
September 30, 2000. The average number of outstanding shares for the diluted
earnings per share calculation declined by 582,175 shares from 4,484,436 at
September 30, 1999, to 3,902,261 at September 30, 2000.
HMN's net income for the nine months ended September 30, 2000 was $5.1 million,
an increase of $300,000 or 6.2%, compared to net income of $4.8 million for the
same nine month period of 1999. Basic earnings per share were $1.32 for the
nine months ended September 30, 2000, an increase of $0.23 per share or 21.1%,
from $1.09 basic earnings per share for the same nine month period of 1999.
Diluted earnings per share were $1.28 for the nine months ended September 30,
2000, an increase of $0.23 or 21.9%, from $1.05 diluted earnings per share for
the same nine month period of 1999. Basic and diluted earnings per share
increased by 21.1% and 21.9%, respectively from the nine month period ended
September 30, 1999 to the same period of 2000, while net income increased 6.2%
due primarily to HMN's treasury stock purchase program. The average number of
outstanding shares for the basic earnings per share calculation declined by
524,337 shares
16
from 4,399,444 at September 30, 1999 to 3,875,107 at September 30, 2000. The
average number of outstanding shares for the diluted earnings per share
calculation declined by 599,954 shares from 4,604,714 at September 30, 1999, to
4,004,760 at September 30, 2000.
NET INTEREST INCOME
Net interest income for the third quarter of 2000 was $5.0 million, an increase
of $358,000, or 7.8%, compared to $4.6 million for the third quarter of 1999.
Interest income for the third quarter of 2000 was $13.5 million, an increase of
$1.7 million, or 14.3%, compared to $11.8 million for the third quarter of
1999. Interest income increased by $591,000 due to a $32.8 million net
increase in average interest-earning assets from the third quarter of 1999 to
the third quarter of 2000. The increase in average interest-earning assets is
the result of HMN's emphasis on originating and/or purchasing commercial real
estate loans, commercial business loans and consumer loans which generally have
higher interest rates and shorter terms to maturity than single family
fixed-rate residential loans. Interest income increased by $1.1 million due to
higher interest rates being earned on the types of loans being added to the
portfolio and also due to a general increase in interest rates from the third
quarter of 1999 through the second quarter of 2000. The yield earned on
interest-earning assets increased from 7.07% at September 30, 1999, to 7.72% at
September 30, 2000.
Interest expense was $8.6 million for the third quarter of 2000, an increase of
$1.3 million, or 18.4%, compared to $7.2 million for the same quarter of 1999.
Interest expense on deposits was $5.0 million for the third quarter of 2000, an
increase of $575,000, or 13.0%, from $4.4 million for the third quarter of
1999. Interest expense on deposits increased primarily due to an increase in
the average interest rates that were paid on deposits. Interest expense on
Federal Home Loan Bank (FHLB) advances was $3.6 million for the third quarter
of 2000, an increase of $753,000, or 26.8%, from $2.8 million for the third
quarter of 1999. Interest expense increased by $479,000 due to a $32.8 million
increase in the average outstanding advances from the FHLB. The advances were
used to fund the growth in loans and replace funds lost to deposit outflows.
Interest expense increased by $274,000 due to an increase in the cost of
borrowing from the FHLB due to rising interest rates between the two periods.
The average interest rate paid on the average interest-bearing liabilities was
5.28% during the third quarter of 2000, compared to 4.69% for the third quarter
of 1999.
Net interest margin (net interest income divided by average interest earning
assets) for the third quarter of 2000 was 2.83%, an increase of 8 basis points,
compared to 2.75% for the third quarter of 1999.
Net interest income for the nine month period ended September 30, 2000 was
$15.0 million, an increase of $1.4 million, or 10.2%, compared to $13.6 million
for the same period of 1999. Interest income for the nine month period of 2000
was $39.2 million, an increase of $4.1 million, or 11.8%, compared to $35.1
million for the same period of 1999. Interest income increased by $1.5 million
due to a $27.4 million net increase in average interest-earning assets from the
nine month period of 1999 to the same period of 2000. The increase in average
interest-earning assets is the result of HMN's emphasis on originating and/or
purchasing commercial real estate loans, commercial business loans and consumer
loans which generally have higher interest rates and shorter terms to maturity
than single family fixed-rate residential loans. Interest income increased by
$2.6 million due to higher interest rates being earned on the types of loans
being added to the portfolio and also due to a general increase in interest
rates from the nine month period ended September 30, 1999 to the same period of
2000. The yield earned on interest-earning assets increased from 7.10% at
September 30, 1999, to 7.61% at September 30, 2000.
Interest expense was $24.3 million for the nine months ended September 30,
2000, an increase of $2.7 million, or 12.7%, compared to $21.5 million for the
same nine month period of 1999. Interest expense on deposits was $13.9 million
for the nine months ended September 30, 2000, an increase of $290,000, or 2.1%,
from $13.6 million for the same nine month period in 1999. Interest expense on
deposits decreased by $483,000 due to a decline in the average balance of
outstanding deposits from the nine month period ended in September of 1999 to
the same nine month period in 2000. The decrease in interest expense due to
deposit
17
outflow was entirely offset by a $773,000 increase in interest expense on
deposits related to higher rates being paid on deposits. Interest expense on
FHLB advances was $10.4 million for the nine month period of 2000, an increase
of $2.5 million, or 30.9%, from $7.9 million for the same period of 1999.
Interest expense increased by $1.9 million due to a $42.6 million increase in
the average outstanding advances from the FHLB. The advances were used to fund
the growth in loans and replace funds lost to deposit outflows. Interest
expense increased by $591,000 due to an increase in the cost of borrowing from
the FHLB due to rising interest rates between the two periods. The average
interest rate paid on the average interest-bearing liabilities was 5.09% during
the nine months ended September 30, 2000, compared to 4.74% for the same period
of 1999.
Net interest margin (net interest income divided by average interest earning
assets) for the nine months ended September 30, 2000, was 2.90%, an increase of
15 basis points, compared to 2.75% for the same period of 1999.
PROVISION FOR LOAN LOSSES
*The provision for loan losses for the third quarter ended September 30, 2000
was $45,000, the same amount as the third quarter of 1999. The provision for
loan losses for the nine months ended September 30, 2000 was $135,000, a
decrease of $60,000, or 30.8% compared to $195,000 for the same nine month
period ended in 1999. The provision is the result of management's evaluation
of the loan portfolio, a historically low level of non-performing loans,
minimal loan charge-off experience, and its assessment of the general economic
conditions in the geographic area where properties securing the loan portfolio
are located such as national and regional unemployment data, single family loan
delinquencies as reported separately by the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC),
local single family construction permits and local economic growth rates.
Management's evaluation of probable losses inherent in the loan portfolio
revealed conditions that resulted in decreasing the 2000 loan loss provision
year to date compared to the provision for 1999. HMN will continue to monitor
its allowance for losses as these conditions dictate. Future economic
conditions and other unknown factors will impact the need for future provisions
for loan losses. As a result, no assurances can be given that increases in the
allowance for loan losses will not be required during future periods.
A reconciliation of HMN's allowance for loan losses is summarized as follows:
2000 1999
---------- -----------
Balance at January 1, $ 3,273,311 $ 3,041,486
Provision 135,000 195,000
Charge-offs (22,017) (4,676)
Recoveries 2,890 840
----------- -----------
Balance at September 30, $ 3,389,184 $ 3,232,650
=========== ===========
NON-INTEREST INCOME
Non-interest income was $864,000 for the third quarter of 2000, an increase of
$43,000, or 5.2%, from $821,000 for the third quarter of 1999. The increase in
non-interest income was primarily due to a $110,000 increase in fees and
service charges on deposit related accounts and loans which was partially
offset by a $20,000 decrease in gains recognized on the sale of loans, a
$12,000 decrease in earnings from limited partnerships and a $46,000 decrease
in other non-interest income. Due to a general increase in interest rates
which started in 1999 and continued through the second quarter 2000, single
family conforming loan production declined from the third quarter of 1999,
compared to the third quarter of 2000. The lower conforming loan production
equated to a lower gain on the sale of loans being recorded between the two
* This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 24 of this discussion.
18
quarters. The earnings from limited partnerships declined because the market
value of the mortgage servicing asset portfolio is nearing the top of its
potential market value as the result of rising interest rates. The earnings
from limited partnerships was also impacted by the depressed market value
assigned to the stock of financial institutions. Other income declined partly
due to a decline in commissions earned from the sale of personal financial
planning products and services.
Non-interest income was $2.49 million for the nine months ended September 30,
2000, a decrease of $852,000, or 25.5%, from $3.3 million for the same nine
month period of 1999. The decrease in non-interest income was primarily due to
an $823,000 decline in gains recognized on the sale of loans, a $187,000
decline in gain recognized from the sale of securities and a $255,000 decline
in earnings from limited partnerships. Due to a general increase in interest
rates which started in 1999 and continued through the second quarter 2000,
single family conforming loan production declined from 1999, compared to 2000.
The lower conforming loan production equated to a lower gain on the sale of
loans being recorded between the two nine month periods. The increase in
interest rates has also affected the ability of HMN to sell securities from its
available for sale portfolio at a gain. The earnings from limited
partnerships declined because the market value of the mortgage servicing asset
portfolio is nearing the top of its potential market value as the result of
rising interest rates. The earnings from limited partnerships was also
impacted by the depressed market value assigned to the stock of financial
institutions. The decrease in non-interest income was partially offset by an
increase of $396,000 in fees and service charges on deposit related accounts
and loans and a $38,000 increase in other income primarily due to commissions
earned from the sale of personal financial planning products and services.
NON-INTEREST EXPENSE
Non-interest expense was $3.0 million for both the third quarter of 2000 and
the third quarter of 1999. Compensation and benefits expense decreased by
$57,000, or 3.7%, due primarily to less commissions paid on lower loan
production and reduced claims experience on the self funded health benefit plan
which were partially offset by annual pay increases and the number of employees
in the work force. Occupancy costs increased by $67,000 primarily due to
additional depreciation and other costs related to equipment. FDIC premiums
and advertising expenses decreased a total of $32,000 between the two quarters.
Non-interest expense was $9.0 million for both the nine months ended September
30, 2000 and September 30, 1999. Compensation and benefits expense increased
by $164,000, or 3.6%, due primarily to annual pay increases, changes in the
work force and an increase in claims on the self-funded health benefit plan
during the first quarter of 2000. The overall increase in compensation expense
was reduced because less commissions were paid due to lower loan production
occurring during the nine months ended September 30, 2000 compared to the same
period of 1999. Occupancy costs increased by $142,000 primarily due to
additional depreciation and other costs related to equipment. Amortization of
mortgage servicing rights, net of valuation adjustments and servicing costs
decreased by $180,000 due to a change in the estimated time over which the
servicing fees will be collected. FDIC premiums and advertising expenses
decreased a total of $155,000 between the two nine month periods. Data
processing expense increased partly due to the increased costs of adding more
commercial loan and tranaction based accounts to HMN's product offerings.
INCOME TAX EXPENSE
Income tax expense was $1.1 million for the third quarter of 2000, an increase
of $167,000 compared to $910,000 for the third quarter of 1999. Income tax
expense was $3.2 million for the nine months ended September 30, 2000, an
increase of $217,000 compared to $3.0 million for the same nine month period of
1999. The increases in income taxes are primarily due to increases in taxable
income.
19
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of non-performing
assets in the Bank's portfolio at
September 30, 2000 and December 31, 1999.
September 30, December 31,
(Dollars in Thousands) 2000 1999
------------ -----------
Non-Accruing Loans
One-to-four family real estate $ 332 164
Nonresidential real estate 0 0
Consumer 229 178
----- -----
Total 561 342
----- -----
Accruing loans delinquent 90
days or more 124 476
----- -----
Foreclosed Assets
Real estate:
One-to-four family 195 0
----- -----
Total non-performing assets $ 880 $ 818
===== =====
Total as a percentage of total assets 0.12% 0.12%
===== =====
Total non-performing loans $ 685 $ 818
===== =====
Total as a percentage of total
loans receivable, net 0.14% 0.17%
===== =====
Total non-performing assets at September 30, 2000 were $685,000, a decrease of
$133,000, from $818,000 at December 31, 1999. The net decrease of $133,000 was
the result of a $219,000 increase in non-accruing loans, a $351,000 decrease in
accruing loans delinquent 90 days or more and the addition of one $195,000
foreclosed single family dwelling.
DIVIDENDS
On October 24, 2000 HMN declared a cash dividend of $.12 per share, payable on
December 11, 2000 to shareholders of record on November 22, 2000.
During 2000, HMN has declared and paid dividends as follows:
Record Payable Dividend Dividend
date date per share Payout Ratio
- ------------------ ------------------ ---------- ------------
February 24, 2000 March 10, 2000 $0.10 27.8%
May 25, 2000 June 12, 2000 $0.10 27.0%
August 28, 2000 September 11, 2000 $0.12 25.5%
The annualized dividend payout ratio for the past four quarters, ending with
the December 11, 2000 payment will be 26.8%.
The declaration of dividends are subject to, among other things, HMN's
financial condition and results of operations, the Bank's compliance with its
regulatory capital requirements, including the fully phased-in capital
requirements, tax considerations, industry standards, economic conditions,
regulatory restrictions, general business practices and other factors.
20
LIQUIDITY
For the nine months ended September 30, 2000, the net cash provided by
operating activities was $5.9 million. HMN collected $28.0 million from the
sale of securities, and $13.7 million in principal repayments or on the
maturity of securities during the quarter. HMN also collected $204,000 on the
sale of loans receivable during the quarter. It purchased $15.9 million of
securities, FHLB stock of $775,000, premises and equipment of $1.3 million and
it funded a net increase in loans receivable of $41.4 million. HMN received
$23.4 million due to a net increase in deposit balances during the nine month
period. It paid back $1.5 million net of new advances to the FHLB. HMN
received $173,000 from increased advance payments from borrowers for taxes and
insurance. HMN purchased $5.1 million of HMN treasury stock under its current
stock repurchase program and it paid $1.2 million in dividends to its
shareholders. It received $601,000 from the exercise of stock options by
current or recently retired employees.
*HMN has certificates of deposits with outstanding balances of $186.1 million
that come due over the next 12 months. Based upon past experience management
anticipates that the majority of the deposits will renew for another term. HMN
believes that deposits which do not renew will be replaced with deposits from
other customers, or funded with advances from the FHLB, or will be funded
through the sale of securities. Management does not anticipate that it will
have a liquidity problem due to maturing deposits.
*HMN has $10.0 million of FHLB advances which mature in 2001 but have call
features which can be exercised by the FHLB on a semiannual basis during 2000.
If the call features are exercised, HMN has the option of requesting any
advance otherwise available to it pursuant to the Credit Policy of the FHLB.
Since HMN has the ability to request another advance to replace the advance
that is being called, management does not anticipate that it will have a
liquidity problem due to advances being called by the FHLB during the remainder
of 2000.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. HMN's market risk arises primarily from interest rate risk inherent in
its investing, lending and deposit taking activities. Management actively
monitors and manages its interest rate risk exposure.
HMN's profitability is affected by fluctuations in interest rates. A sudden
and substantial increase in interest rates may adversely impact HMN's earnings
to the extent that the interest rates borne by assets and liabilities do not
change at the same speed, to the same extent, or on the same basis. HMN
monitors the projected changes in net interest income that occur if interest
rates were to suddenly change up or down. The Rate Shock Table located below
in the Asset/Liability Management section of this report discloses HMN's
projected changes in net interest income based upon immediate interest rate
changes called rate shocks.
*HMN utilizes a model which uses the discounted cash flows from its
interest-earning assets and its interest-bearing liabilities to calculate the
current market value of those assets and liabilities. The model also
calculates the changes in market value of the interest-earning assets and
interest-bearing liabilities due to different interest rate changes. HMN
believes that over the next twelve months interest rates could conceivably
fluctuate in a range of 200 basis points up or down from where the rates were
at September 30, 2000. HMN does not have a trading portfolio. The following
table discloses the projected changes in market value to HMN's interest-earning
assets and interest-bearing liabilities based upon incremental 100 basis point
changes in interest rates from interest rates in effect on September 30, 2000.
* This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 24 of this discussion.
21
- ----------------------------------------------------------------------------
Other than trading portfolio Market Value
----------------------------------------------
(DOLLARS IN THOUSANDS)
Basis point change in
interest rates -200 -100 0 +100 +200
- -----------------------------------------------------------------------------
Cash equivalents $ 13,981 13,969 13,958 13,946 13,935
Securities available for sale:
Fixed-rate CMOs 26,170 26,213 25,687 25,338 23,712
Variable-rate CMOs 56,406 56,318 55,605 55,643 51,479
Fixed-rate available
for sale mortgage-backed
and related securities 4,622 4,529 4,391 4,238 4,081
Variable-rate available
for sale mortgage-
backed and related
securities 1,910 1,905 1,900 1,896 1,884
Fixed-rate available
for sale other
marketable securities 73,833 72,613 69,702 67,300 65,009
Variable-rate available
for sale other
marketable securities 1,292 1,290 1,288 1,286 1,274
Federal Home Loan Bank stock 12,258 12,248 12,237 12,227 12,217
Fixed-rate loans held for sale 6,399 6,394 6,388 6,383 6,378
Loans receivable, net:
Fixed-rate real estate loans 257,698 252,803 245,808 237,985 230,190
Variable-rate
real estate loans 155,862 153,362 150,715 147,981 145,074
Fixed-rate other loans 68,287 67,472 66,361 64,736 63,428
Variable-rate other loans 44,365 44,286 44,204 44,048 43,919
Mortgage servicing rights, net 601 979 1,185 1,263 1,291
Investment in limited
partnerships 2,602 2,899 3,039 3,104 3,153
------- -------- -------- --------- --------
Total market risk
sensitive assets 726,286 717,280 702,468 687,374 667,024
------- -------- -------- --------- --------
NOW deposits 41,660 41,660 41,660 41,660 41,660
Passbook deposits 33,221 33,221 33,221 33,221 33,221
Money market deposits 35,163 35,163 35,163 35,163 35,163
Certificate deposits 317,077 314,332 311,635 308,982 306,375
Fixed-rate Federal
Home Loan Bank
advances 178,672 170,899 168,219 165,018 161,763
Variable-rate Federal
Home Loan Bank
advances 55,574 55,527 55,480 55,434 55,387
------- -------- -------- --------- --------
Total market risk
sensitive liabilities 661,367 650,802 645,378 639,478 633,569
------- -------- -------- --------- --------
Off-balance sheet
financial instruments:
Commitments to extend credit 65 64 62 60 58
------- -------- -------- --------- --------
Net market risk $ 64,854 66,414 57,028 47,836 33,397
======= ======== ======== ========= ========
Percentage change from
current market value 13.72% 16.46% 0.00% (16.12)% (41.44)%
======= ======== ======== ========= ========
- -----------------------------------------------------------------------------
The preceding table was prepared utilizing the following assumptions (the
"Model Assumptions") regarding prepayment and decay ratios which were
determined by management based upon their review of historical prepayment
speeds and future prepayment projections. Fixed rate loans were assumed to
prepay at annual rates of between 7% to 44%, depending on the note rate and the
period to maturity. Adjustable rate mortgages ("ARMs") were assumed to prepay
at annual rates of between 11% and 31%, depending on the note rate and the
period to maturity. Growing Equity Mortgage (GEM) loans were assumed to prepay
at annual rates of between 18% and 54% depending on the note rate and the
period to maturity. Mortgage-backed securities and Collateralized Mortgage
Obligations (CMOs) were projected to have
22
prepayments based upon the underlying collateral securing the instrument and
the related cash flow priority of the CMO tranche owned. Certificate accounts
were assumed not to be withdrawn until maturity. Passbook and money market
accounts were assumed to decay at an annual rate of 20%. FHLB advances were
projected to be called at the first call date where the projected interest rate
on similar remaining term advances exceeded the interest rate on HMN's callable
advance.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. The interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other types of assets and liabilities may lag behind changes in market
interest rates. The model assumes that the difference between the current
interest rate being earned or paid compared to a treasury instrument or other
interest index with a similar term to maturity (the "Interest Spread") will
remain constant over the interest changes disclosed in the table. Changes in
Interest Spread could impact projected market value changes. Certain assets,
such as ARMs, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. The market value of the
interest-bearing assets which are approaching their lifetime interest rate caps
could be different from the values disclosed in the table. In the event of a
change in interest rates, prepayment and early withdrawal levels may deviate
significantly from those assumed in calculating the foregoing table. The
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase.
ASSET/LIABILITY MANAGEMENT
*HMN's management reviews the impact that changing interest rates will have on
its net interest income projected for the twelve months following September 30,
2000 to determine if its current level of interest rate risk is acceptable.
The following table projects the estimated annual impact on net interest income
of immediate interest rate changes called rate shocks.
Rate Shock Net Interest Percentage
in Basis Points Income Change
--------------- ------------ ----------
+200 21,283,000 3.90 %
+100 21,132,000 3.16 %
0 20,485,000 0.00 %
-100 19,878,000 -2.96 %
-200 18,779,000 -8.33 %
The preceding table was prepared utilizing the Model Assumptions regarding
prepayment and decay ratios which were determined by management based upon
their review of historical prepayment speeds and future prepayment projections.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. In the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those assumed
in calculating the foregoing table. The ability of many borrowers to service
their debt may decrease in the event of a substantial increase in interest
rates and could impact net interest income.
In an attempt to manage its exposure to changes in interest rates, management
closely monitors interest rate risk. The Bank has an Asset/Liability Committee
consisting of executive officers which meets at least quarterly to review the
interest rate risk position and projected profitability. The committee makes
recommendations for adjustments to the asset/liability position of the Bank to
the Board of Directors of the Bank. This committee also reviews the Bank's
portfolio, formulates investment strategies and oversees the timing and
implementation of transactions to assure attainment of the Board's objectives
in the most effective manner. In addition, the Board reviews on a quarterly
basis the Bank's asset/liability position, including simulations of the effect
on the Bank's capital of various interest rate scenarios.
*This paragraph contains a forward-looking statement(s). Refer to information
regarding Forward-looking Information on page 24 of this discussion.
23
In managing its asset/liability mix, the Bank, at times, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, may place more emphasis on managing net interest margin
than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates.
To the extent consistent with its interest rate spread objectives, the Bank
attempts to reduce its interest rate risk and has taken a number of steps to
restructure its assets and liabilities. The Bank has primarily focused its
fixed rate one-to-four family residential lending program on loans with
contractual terms of 20 years or less. The Bank generally follows the practice
of selling all of its fixed rate single family loans which conform to the
secondary market guidelines. HMN has focused its portfolio lending during 1999
and throughout 2000 on the origination of commercial loan products and consumer
loans which generally have shorter weighted average terms to maturity and/or
interest rates which adjust at least every three years. At times, depending on
its interest rate sensitivity, the Bank may sell fixed rate single family loans
with shorter contractual maturities than thirty years in order to reduce
interest rate risk and record a gain on the sale of loans.
FORWARD-LOOKING INFORMATION
The following paragraphs within Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
statements and actual results may differ materially from the expectations
disclosed within this Discussion and Analysis. These forward-looking
statements are subject to risks and uncertainties, including those discussed
below. HMN assumes no obligations to publicly release results of any revision
or updates to these forward-looking statements to reflect future events or
unanticipated occurrences.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the third quarter ended September 30,
2000 was $45,000, the same amount as the third quarter of 1999. The
provision for loan losses for the nine months ended September 30, 2000 was
$135,000, a decrease of $60,000, or 30.8% compared to $195,000 for the
same nine month period ended in 1999. The provision is the result of
management's evaluation of the loan portfolio, a historically low level of
non-performing loans, minimal loan charge-off experience, and its
assessment of the general economic conditions in the geographic area where
properties securing the loan portfolio are located such as national and
regional unemployment data, single family loan delinquencies as reported
separately by the Federal National Mortgage Association (FNMA) and the
Federal Home Loan Mortgage Corporation (FHLMC), local single family
construction permits and local economic growth rates. Management's
evaluation of probable losses inherent in the loan portfolio revealed
conditions that resulted in decreasing the 2000 loan loss provision year
to date compared to the provision for 1999. HMN will continue to monitor
its allowance for losses as these conditions dictate. Future economic
conditions and other unknown factors will impact the need for future
provisions for loan losses. As a result, no assurances can be given that
increases in the allowance for loan losses will not be required during
future periods.
LIQUIDITY
HMN has certificates of deposits with outstanding balances of $186.1
million that come due over the next 12 months. Based upon past experience
management anticipates that the majority of the deposits will renew for
another term. HMN believes that deposits which do not renew will be
replaced with deposits from other customers, or funded with advances from
the FHLB, or will be funded through the sale of securities. Management
does not anticipate that it will have a liquidity problem due to maturing
deposits.
24
HMN has $10.0 million of FHLB advances which mature in 2001 but have call
features which can be exercised by the FHLB on a semiannual basis during
2000. If the call features are exercised HMN has the option of requesting
any advance otherwise available to it pursuant to the Credit Policy of the
FHLB. Since HMN has the ability to request another advance to replace the
advance that is being called, management does not anticipate that it will
have a liquidity problem due to advances being called by the FHLB during
2000.
Competitive pricing by other institutions, the desire of a competitor to
pay interest rates on deposits that are above the current rates paid by
HMN, or the desire by customers to put more of their funds into
nontraditional bank products such as stocks and bonds could be
circumstances that would cause the maturing certificates to become a
liquidity problem
MARKET RISK
HMN utilizes a model which uses the discounted cash flows from its
interest-earning assets and its interest-bearing liabilities to calculate
the current market value of those assets and liabilities. The model also
calculates the changes in market value of the interest-earning assets and
interest-bearing liabilities due to different interest rate changes. HMN
believes that over the next twelve months interest rates could conceivably
fluctuate in a range of 200 basis points up or down from where the rates
were at September 30, 2000. HMN does not have a trading portfolio. The
table in the Market Risk section discloses the projected changes in market
value to HMN's interest-earning assets and interest-bearing liabilities
based upon incremental 100 basis point changes in interest rates from
interest rates in effect on September 30, 2000.
Certain shortcomings are inherent in the method of analysis in the table
presented in the Market Risk section. The interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets and
liabilities may lag behind changes in market interest rates. The model
assumes that the difference between the current interest rate being earned
or paid compared to a treasury instrument or other interest rate index
with a similar term to maturity (the Interest Spread) will remain constant
over the interest changes disclosed in the table. Changes in Interest
Spread could impact projected market value changes. Certain assets, such
as ARMs, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. The market value of the
interest-bearing assets which are approaching their lifetime interest rate
caps could be different from the values disclosed in the table. In the
event of a change in interest rates, prepayment and early withdrawal
levels may deviate significantly from those assumed in calculating the
foregoing table. The ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.
ASSET/LIABILITY MANAGEMENT
HMN's management reviews the impact that changing interest rates will have
on its net interest income projected for the twelve months following
September 30, 2000 to determine if its current level of interest rate risk
is acceptable. HMN's actual net interest income caused by interest rate
changes may differ from the amounts reflected in the table in the
Asset/Liability section which projects the estimated impact on net
interest income of immediate interest rate changes called rate shocks.
Certain shortcomings are inherent in the method of analysis presented in
each of the tables. In the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the foregoing table. The ability of
many borrowers to service their debt may decrease in the event of a
substantial increase in interest rates and could impact net interest
income.
25
HMN FINANCIAL, INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
Not applicable.
ITEM 3. Defaults Upon Senior Securities.
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Index to Exhibits on page 28 of this report.
(b) Reports on Form 8-K. On August 31, 2000, the Company filed a
current report on Form 8-K announcing the retirement of
Roger P. Weise, Chairman of the Board, President and Chief
Executive Officer.
26
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMN FINANCIAL, INC.
Registrant
Date: November 13, 2000 /s/ Michael McNeil
--------------------------
Michael McNeil,
President
(Principal Executive Officer)
Date: November 13, 2000 /s/ Timothy P. Johnson
--------------------------
Timothy P. Johnson,
Chief Financial Officer
(Principal Financial Officer)
27
HMN FINANCIAL, INC.
INDEX TO EXHIBITS
FOR FORM 10-Q
Reference Sequential
to Prior Page Numbering
Filing or Where Attached
Exhibit Exhibits Are
Regulation S-K Number Located in This
Exhibit Number Document Attached Hereto Form 10-Q Report
3.1 Amended and Restated Articles
of Incorporation *1 N/A
3.2 Amended and Restated By-laws *2 N/A
4 Form of Common Stock *3 N/A
Including indentures
10.1 Extension of Employment Agreement for *4 N/A
Roger P. Weise dated May 23, 2000
10.2 Extension of Employment Agreement for *4 N/A
James B. Gardner dated May 23, 2000
11 Computation of Earnings Per
Common Share 11 Filed electronically
27 Financial Data Schedule 27 Filed electronically
*1 Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1998 (File No.
0-24100).
*2 Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1997 (File
0-24100).
*3 Incorporated by reference to the same numbered exhibit to the Company's
Registration Statement on Form S-1 dated April 1, 1994 (File No. 33-77212).
*4 Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File 0-
24100).
28