Non Performing Assets

1
(No Transcript)
2
Presenters

• Michael McNeil
• President and Chief Executive Officer
• Jon Eberle
• Sr. Vice President/Chief Financial Officer/
• Treasurer

3
Safe Harbor Statement

• This presentation may contain certain
  forward-looking statements within the meaning of
  the Private Securities Reform Act of 1995.
  Forward-looking statements include expressions
  such as expects, intends, believes and
  should which are necessarily statements of
  belief as to expected outcomes of future events.
  Actual results could materially differ from those
  contained in, or implied by such statements. HMN
  Financial, Inc. undertakes no obligation to
  release revisions to these forward-looking
  statements or reflect events or circumstances
  after the date of this presentation.

4
Background

• 1934 - Home Federal established in Spring Valley,
  Minnesota
• 1994 - Initial public offering of HMN stock
  (ticker HMNF)
• 1997 - Acquired Marshalltown Financial
  Corporation
• 1998 - Current CEO joined Company and focus
  shifted to commercial
• 2001 - Corporate office moved to Rochester,
  Minnesota
• 2002 - First private banking location opened in
  Edina, Minnesota
• 2004 - Loan production office opened in St.
  Cloud, Minnesota
• 2004 - Private banking location opened in
  Rochester, Minnesota
• 2007 - Full service commercial branch opened
  in Eagan, Minnesota
• 2008 - Rochester branch opened August 1, 2008
  (insurance alliance)

5
Locations
Eagan
6
Financial Highlights

• 2007
• Record earnings of 11.3 million
• EPS of 2.89, up 38 over 2006
• ROA 1.03 and ROE 11.53
• Net interest margin of 3.67, down 46 basis
  points from 2006
• Efficiency ratio of 48.75 for 2007
• Total assets 1.1 billion at December 31, 2007

7
Financial Highlights

• First six months of 2008
• Net loss of 537,000
• Diluted loss per share of (0.15)
• Goodwill impairment charge of 3.8 million (1.02
  per diluted share)
• Net interest margin of 3.21, down 67 basis
  points from first six months of 2007
• Provision for loan losses of 2.7 million, up
  1.2 million
• Tier I core capital 8.52, Tier I risk-based
  capital 10.76, risk-based capital 11.56

8
HMN Stock Information

• Ticker - HMNF (NASDAQ)
• 300,000 shares approved for repurchase, but
  no shares purchased in 2nd quarter of 2008
• Stock price of 15.11 at August 13, 2008
  represents a 11.48 multiple of TTM earnings and
  66 of book value
• Quarterly dividend of 0.25 per share, dividend
  yield of 6.60
• 4.4 million shares outstanding
• Book value per share of 22.81

9
Summary Performance
Net Interest Margin
Net Income (in millions)
Total Assets (in millions)
11.3
11.1
1,117
9.3
4.13
8.4
1,076
3.80
3.67
3.50
3.21
991
978
3.3
961
(0.5)
2004
2006
2004
2004
2006
2006
6/30/08
6/30/08
6/30/08
2005
2005
2007
2007
2005
2007
Without goodwill impairment
10
Provision for Loan Losses
11
Profitability Analysis
Without goodwill impairment
12
Asset Mix
2003
2007
6-30-08
Single Family Commercial RE Commercial
Business Consumer Cash Investments
13
Commercial Real EstateLoan Composition
2006
2007
Lodging Ethanol plants
Retail/Office Warehouse Nursing
home Manufacturing Land developments Churc
hes/community service Golf courses Other
Restaurant/bar/cafe
14
Liability Mix(in millions)
15
Performance MeasurementsInterest Rate Margin
16
Cost of Funds
17
Non-Performing Assets(as a percent of total
assets)
18
Non-Performing Assets
19
Delinquency Data
20
Return on Equity
Without goodwill impairment
21
(No Transcript)
22
Areas of Focus

• Non-Performing Loans
• In-house Data Processing
• Deposits
• Use of Technology
• Remote Deposit
• Online Banking
• Commercial Cash Management Products
• In-house data processing
• Private Banking
• Industry Niches

23
Areas of Focus

• Loans
• Commercial Lending
• Residential Mortgage/Home Equity
• Private Banking

24
Opportunities
25
Rochester, MN
26
What makes Rochester unique?

• Home of the Mayo Clinic
• Averages 1.5 million visitors a year, largely for
  patient care at Mayo Clinic
• Bio-technology and medical genomics research
  partnership between Mayo Clinic and University of
  Minnesota
• Newest campus of University of Minnesota system
  established in Rochester in 2006

27
Mayo Complex Rochester Downtown
Staff physicians and scientists
2,000 Residents, fellows and temporary
professionals 2,000 Allied health staff (clinic
and hospital) 24,000 Total
Staff 28,000
28
Largest Employers in the Rochester Area (2007)

• Mayo Clinic 33,430 Medical/Hospital
• IBM 4,400 Electronics/Compute
  r
• Rochester Public Schools 2,285
  Education Services
• Olmsted County 1,205
  Government
• HyVee (north, south, Barlow) 860
  Grocery-Retail
• Olmsted Medical Center 1,019
  Medical/Hospital Services
• Wal-Mart Sams Club 962 Retail
• City of Rochester 847 Local
  Government
• Crenlo 725 Fabricated Metal
• Sunstone Hotel Properties 650
  Hotel/Restaurant Services
• Seneca Food 690 (240 regular) (450
  seasonal) Food Processing
• Rochester Community Tech College 550 Post
  Secondary Education
• Federal Medical Center 445
  Corrections/Medical
• Target 500 Retail
• Charter 635 Cable TV, high speed internet

29
Rochester Metropolitan Statistical Area

• 2006 Population - 180,280
• 2007 Median age - 36.19
• 2007 Total Employment - 109,085
• 2007 Unemployment Rate - 3.9
• 2007 Per Capita Income - 38,973
• 2007 Mean HH Income - 93,045
• 2007 Total Commercial Residential Permits -
  10,559

30
Rochester MSA Demographic AnalysisAll Current
Dollars ()
31
(No Transcript)