HMN Financial, Inc. Announces Second Quarter Results

  
    
  
  
    
      HMN Financial, Inc. (NASDAQ:HMNF):
    
    
      
        
          Earnings (Loss) Summary
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
          Three months ended
        
        
        
        
        
        
        
        
          Six months ended
        
        
        
      
      
        
        
        
        
        
        
        
          June 30,
        
        
        
        
        
        
        
        
          June 30,
        
        
        
      
      
        
          (in thousands)
        
        
        
        
        
        
          2008
        
        
        
        
        
        
        
        
          
             2007 
          
        
        
        
        
        
        
        
        
          2008
        
        
        
        
        
        
        
        
          
             2007 
          
        
        
        
      
      
        
          Net income (loss)
        
        
        
        
          $
        
        
          (2,025
        
        
          )
        
        
        
        
        
        
        
        
          2,450
        
        
        
        
        
        
          $
        
        
          (537
        
        
          )
        
        
        
        
        
        
        
        
          5,718
        
        
        
      
      
        
          Diluted earnings (loss) per share
        
        
        
        
        
        
          
            (0.56
          
        
        
          
            )
          
        
        
        
        
        
        
        
        
          
            0.62
          
        
        
        
        
        
        
        
        
          
            (0.15
          
        
        
          
            )
          
        
        
        
        
        
        
        
        
          
            1.45
          
        
        
        
      
      
        
          Return on average assets
        
        
        
        
        
        
          (0.75
        
        
          )
        
        
          %
        
        
        
        
        
        
          0.89
        
        
          %
        
        
        
        
        
        
          (0.10
        
        
          )
        
        
          %
        
        
        
        
        
        
          1.08
        
        
          %
        
      
      
        
          Return on average equity
        
        
        
        
        
        
          (8.27
        
        
          )
        
        
          %
        
        
        
        
        
        
          10.09
        
        
          %
        
        
        
        
        
        
          (1.10
        
        
          )
        
        
          %
        
        
        
        
        
        
          11.92
        
        
          %
        
      
      
        
          Book value per share
        
        
        
        
          $
        
        
          22.81
        
        
        
        
        
        
        
        
          $
        
        
          22.15
        
        
        
        
        
        
          $
        
        
          22.81
        
        
        
        
        
        
        
        
          $
        
        
          22.15
        
        
        
      
    
    
      HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $1.1 billion 
      holding company for Home Federal Savings Bank (the Bank), today reported 
      a net loss of $2.0 million for the second quarter of 2008, down $4.5 
      million, or 182.7%, from net income of $2.5 million for the second 
      quarter of 2007. Diluted loss per common share for the second quarter of 
      2008 was ($0.56), down $1.18, or 190.3%, from diluted earnings per share 
      of $0.62 for the second quarter of 2007. The decrease for the quarter is 
      primarily the result of a $3.8 million non-cash goodwill impairment 
      charge that was recorded during the quarter. Net income was also 
      adversely affected by a $1.7 million decrease in net interest income in 
      the second quarter of 2008 when compared to the same period of 2007.
    
    
      The goodwill impairment charge, which was required by generally accepted 
      accounting principles as a result of HMN’s 
      stock trading at a discount to book value, has no impact on the Company’s 
      liquidity, cash flows or regulatory capital. Excluding the one time 
      charge for the impairment of goodwill, net operating earnings were $1.8 
      million, or $0.47 per diluted share for the second quarter of 2008 and 
      $3.3 million, or $0.87 per diluted share for the first six months of 
      2008. The following table reconciles our determination of operating 
      earnings to our net loss as prepared in accordance with generally 
      accepted accounting principles:
    
    
      
        
        
        
           
        
        
        
        
          Three Months Ended
        
        
           
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
        
        
          June 30, 2008
        
        
        
        
        
        
          June 30, 2008
        
      
      
        
          (dollars in thousands, except per share data)
        
        
        
        
        
        
          Amount
        
        
           
        
        
          
            Diluted pershare
          
        
        
        
        
        
        
          Amount
        
        
           
        
        
          
            Diluted pershare
          
        
      
      
        
          Reported loss
        
        
        
        
          $
        
        
          (2,025
        
        
          )
        
        
        
        
          (0.56
        
        
          )
        
        
        
        
          $
        
        
          (537
        
        
          )
        
        
        
        
          (0.15
        
        
          )
        
      
      
        
          Goodwill impairment
        
        
        
        
        
        
          3,801
        
        
           
        
        
        
        
          1.03
        
        
           
        
        
        
        
        
        
          3,801
        
        
           
        
        
        
        
          1.02
        
        
           
        
      
      
        
          Operating earnings
        
        
        
        
          $
        
        
          1,776
        
        
           
        
        
        
        
          0.47
        
        
           
        
        
        
        
          $
        
        
          3,264
        
        
           
        
        
        
        
          0.87
        
        
           
        
      
    
    
      The Company is providing operating earnings in addition to reported 
      results prepared in accordance with generally accepted accounting 
      principles in order to provide users of the financial information a 
      clearer indication of the results of the Company’s 
      core business.
    
    
      Second Quarter Results
    
    
      Net Interest Income
    
    
      Net interest income was $8.2 million for the second quarter of 2008, a 
      decrease of $1.7 million, or 17.0%, compared to $9.9 million for the 
      second quarter of 2007. Interest income was $16.3 million for the second 
      quarter of 2008, a decrease of $3.3 million, or 17.2%, from $19.6 
      million for the same period in 2007. Interest income decreased primarily 
      because of a decrease in the average yields earned on loans and 
      investments. Interest yields decreased primarily because of the 325 
      basis point decrease in the prime interest rate between the periods. 
      Decreases in the prime rate, which is the rate that banks charge their 
      prime business customers, generally decrease the rates on adjustable 
      rate consumer and commercial loans in the portfolio and on new loans 
      originated. The average yield earned on interest-earning assets was 
      6.26% for the second quarter of 2008, a decrease of 121 basis points 
      from the 7.47% average yield for the second quarter of 2007.
    
    
      Interest expense was $8.1 million for the second quarter of 2008, a 
      decrease of $1.7 million, or 17.3%, compared to $9.8 million for the 
      second quarter of 2007. Interest expense decreased primarily because of 
      the lower interest rates paid on money market accounts and certificates 
      of deposits. The decreased rates were the result of the 325 basis point 
      decrease in the federal funds rate that occurred between the periods. 
      Decreases in the federal funds rate, which is the rate that banks charge 
      other banks for short term loans, generally have a lagging effect and 
      decrease the rates banks pay for deposits. The lagging effect of deposit 
      rate changes is because many of the Bank’s 
      deposits are in the form of certificates of deposit which do not 
      re-price immediately when the federal funds rate changes. The average 
      interest rate paid on interest-bearing liabilities was 3.33% for the 
      second quarter of 2008, a decrease of 61 basis points from the 3.94% 
      average interest rate paid in the second quarter of 2007. Net interest 
      margin (net interest income divided by average interest earning assets) 
      for the second quarter of 2008 was 3.15%, a decrease of 60 basis points, 
      compared to 3.75% for the second quarter of 2007.
    
    
      Provision for Loan Losses
    
    
      The provision for loan losses was $1.1 million for the second quarter of 
      2008, an increase of $102,000, or 9.9%, from $1.0 million for the second 
      quarter of 2007. The provision for loan losses increased primarily 
      because of an increase in the allowance required for risk rated 
      commercial real estate loans in the second quarter of 2008 when compared 
      to the same period of 2007. The increase was due primarily to decreases 
      in the estimated value of the real estate collateral supporting the 
      $24.8 million in residential development loans classified as 
      non-performing at June 30, 2008. Total non-performing assets were $48.5 
      million at June 30, 2008, an increase of $20.3 million, from $28.2 
      million at March 31, 2008.
    
    
      Non-performing loans increased $20.2 million and foreclosed and 
      repossessed assets increased $88,000 during the period. The 
      non-performing loan activity for the quarter was as follows: classified 
      $23.4 million in loans as non-accruing, received $273,000 in principal 
      payments on non-accruing loans, reclassified $2.3 million in loans as 
      accruing, transferred $409,000 to real estate owned, and charged off 
      $219,000. The increase in non-performing loans during the quarter 
      relates primarily to three residential development loans totaling $13.7 
      million and one loan secured by a hotel property for $5.0 million that 
      were classified due to lack of performance. The largest of these loans 
      was for $9.1 million and is secured by a residential development located 
      in the Minneapolis/St. Paul metro market. The estimated values of the 
      underlying collateral supporting the residential development loans were 
      determined based on third party appraisals and specific reserves have 
      been established, where required.
    
    
      The following table summarizes the amounts and categories of 
      non-performing assets in the Bank’s portfolio 
      and loan delinquency information as of the end of the three most 
      recently completed quarters.
    
    
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
           
        
        
        
        
          June 30,
        
        
        
        
           
        
        
        
        
          March 31,
        
        
        
        
           
        
        
        
        
          December 31,
        
        
        
      
      
        
          (Dollars in thousands)
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
           
        
        
          2007
        
        
        
      
      
        
          Non-Accruing Loans:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          One-to-four family real estate
        
        
        
        
          $
        
        
          1,046
        
        
        
        
        
        
          $
        
        
          802
        
        
        
        
        
        
          $
        
        
          1,196
        
        
        
      
      
        
          Commercial real estate
        
        
        
        
        
        
          39,221
        
        
        
        
        
        
        
        
          17,983
        
        
        
        
        
        
        
        
          15,641
        
        
        
      
      
        
          Consumer
        
        
        
        
        
        
          1,439
        
        
        
        
        
        
        
        
          1,380
        
        
        
        
        
        
        
        
          1,094
        
        
        
      
      
        
          Commercial business
        
        
        
        
        
        
          2,500
        
        
        
        
        
        
        
        
          3,830
        
        
        
        
        
        
        
        
          1,723
        
        
        
      
      
        
          Total
        
        
        
        
        
        
          44,206
        
        
        
        
        
        
        
        
          23,995
        
        
        
        
        
        
        
        
          19,654
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other assets
        
        
        
        
        
        
          25
        
        
        
        
        
        
        
        
          34
        
        
        
        
        
        
        
        
          34
        
        
        
      
      
        
          Foreclosed and Repossessed Assets:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          One-to-four family real estate
        
        
        
        
        
        
          2,731
        
        
        
        
        
        
        
        
          2,852
        
        
        
        
        
        
        
        
          901
        
        
        
      
      
        
          Consumer
        
        
        
        
        
        
          19
        
        
        
        
        
        
        
        
          19
        
        
        
        
        
        
        
        
          33
        
        
        
      
      
        
          Commercial real estate
        
        
        
        
        
        
          1,541
        
        
        
        
        
        
        
        
          1,332
        
        
        
        
        
        
        
        
          1,313
        
        
        
      
      
        
          Total non-performing assets
        
        
        
        
          $
        
        
          48,522
        
        
        
        
        
        
          $
        
        
          28,232
        
        
        
        
        
        
          $
        
        
          21,935
        
        
        
      
      
        
          Total as a percentage of total assets
        
        
        
        
        
        
          4.49
        
        
          %
        
        
        
        
        
        
          2.56
        
        
          %
        
        
        
        
        
        
          1.96
        
        
          %
        
      
      
        
          Total non-performing loans
        
        
        
        
          $
        
        
          44,206
        
        
        
        
        
        
          $
        
        
          23,995
        
        
        
        
        
        
          $
        
        
          19,654
        
        
        
      
      
        
          Total as a percentage of total loans receivable, net
        
        
        
        
        
        
          4.94
        
        
          %
        
        
        
        
        
        
          2.73
        
        
          %
        
        
        
        
        
        
          2.27
        
        
          %
        
      
      
        
          Allowance for loan loss to non-performing loans
        
        
        
        
        
        
          33.76
        
        
          %
        
        
        
        
        
        
          57.98
        
        
          %
        
        
        
        
        
        
          63.28
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Delinquency Data:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Delinquencies (1)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          30+ days
        
        
        
        
          $
        
        
          2,491
        
        
        
        
        
        
          $
        
        
          8,203
        
        
        
        
        
        
          $
        
        
          6,416
        
        
        
      
      
        
          90+ days
        
        
        
        
        
        
          0
        
        
        
        
        
        
        
        
          55
        
        
        
        
        
        
        
        
          0
        
        
        
      
      
        
          
            Delinquencies as a percentage of loan and lease portfolio (1)
          
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          30+ days
        
        
        
        
        
        
          0.27
        
        
          %
        
        
        
        
        
        
          0.92
        
        
          %
        
        
        
        
        
        
          0.73
        
        
          %
        
      
      
        
          90+ days
        
        
        
        
        
        
          0.00
        
        
          %
        
        
        
        
        
        
          0.01
        
        
          %
        
        
        
        
        
        
          0.00
        
        
          %
        
      
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
    
    
      (1) Excludes non-accrual loans.
    
    
      Non-Interest Income and Expense
    
    
      Non-interest income was $1.8 million for the second quarter of 2008, an 
      increase of $464,000, or 35.9%, from $1.3 million for the same period in 
      2007. Other non-interest income increased $233,000 primarily because of 
      increased gains recognized on the sale of repossessed and foreclosed 
      assets. Fees and services charges increased $217,000 between the periods 
      primarily because of increased overdraft and debit card fees. Gain on 
      sales of loans increased $39,000 between the periods due primarily to a 
      $31,000 increase in the gains recognized on the sale of government 
      guaranteed commercial loans between the periods. Loan servicing fees 
      decreased $25,000 between the periods because there were fewer mortgage 
      loans being serviced.
    
    
      Non-interest expense was $9.8 million for the second quarter of 2008, an 
      increase of $3.7 million, or 59.4%, from $6.1 million for the same 
      period of 2007. A goodwill impairment charge of $3.8 million was 
      recorded in the second quarter of 2008 as goodwill related to a 1997 
      acquisition was deemed to be impaired and fully written off due to the 
      trading of the Company’s common stock at a 
      discount to book value. Other non-interest expense increased $150,000 
      primarily because of increased Federal Deposit Insurance Corporation 
      (FDIC) insurance costs and legal fees primarily related to an ongoing 
      state tax assessment challenge. Data processing costs increased $15,000 
      due to increases in the internet and other banking services provided by 
      the Bank’s third party processor between the 
      periods. Compensation expense decreased $226,000 between the periods 
      primarily because of decreased employee incentive accruals and pension 
      costs. Advertising expense decreased $103,000 between the periods 
      primarily due to a decrease in event sponsorships and less general 
      advertising. Mortgage servicing rights amortization decreased $35,000 
      between the periods because there were fewer mortgage loans being 
      serviced.
    
    
      Income tax expense decreased $494,000 between the periods due to a 
      decrease in taxable income and an effective tax rate that decreased from 
      38.3% for the second quarter of 2007 to 36.6% for the second quarter of 
      2008 excluding the goodwill impairment charge. The goodwill impairment 
      charge recorded in the second quarter of 2008 is not tax deductible and 
      therefore no tax benefit was realized related to the impairment charge. 
      The decrease in the effective tax rate was primarily the result of 
      decreased pre-tax income and a higher percentage of tax exempt income.
    
    
      Return on Assets and Equity
    
    
      Return on average assets for the second quarter of 2008 was (0.75%), 
      compared to 0.89% for the second quarter of 2007. Return on average 
      equity was (8.27%) for the second quarter of 2008, compared to 10.09% 
      for the same period in 2007. Book value per common share at June 30, 
      2008 was $22.81, compared to $22.15 at June 30, 2007.
    
    
      Six Month Period Results
    
    
      Net Income (Loss)
    
    
      The net loss was $537,000 for the six month period ended June 30, 2008, 
      a decrease of $6.3 million, or 109.4 %, from $5.7 million in net income 
      for the six month period ended June 30, 2007. Diluted loss per share for 
      the six month period in 2008 was ($0.15), down $1.60, or 110.3%, from 
      $1.45 of diluted earnings per share for the same period in 2007. The 
      decrease in net income for the six month period is primarily the result 
      of a $3.8 million non-cash goodwill impairment charge that was recorded 
      in the second quarter of 2008. Net income was also adversely affected by 
      a $2.8 million decrease in net interest income in the first six months 
      of 2008 when compared to the same period of 2007.
    
    
      Net Interest Income
    
    
      Net interest income was $16.9 million for the first six months of 2008, 
      a decrease of $2.7 million, or 14.2 %, from $19.6 million for the same 
      period in 2007. Interest income was $34.0 million for the six month 
      period ended June 30, 2008, a decrease of $3.9 million, or 10.2%, from 
      $37.9 million for the same six month period in 2007. Interest income 
      decreased primarily because of the 325 basis point decrease in the prime 
      interest rate between the periods. Decreases in the prime rate generally 
      decrease the rates on adjustable rate consumer and commercial loans in 
      the portfolio and on new loans originated. The average yield earned on 
      interest-earning assets was 6.49% for the first six months of 2008, a 
      decrease of 99 basis points from the 7.48% average yield for the first 
      six months of 2007.
    
    
      Interest expense was $17.2 million for the first six months of 2008, a 
      decrease of $1.1 million, or 5.9%, compared to $18.3 million for the 
      first six months of 2007. Interest expense decreased primarily because 
      of the lower interest rates paid on money market accounts and 
      certificates of deposits. The decreased rates were the result of the 325 
      basis point decrease in the federal funds rate that occurred between the 
      periods. Decreases in the federal funds rate generally have a lagging 
      effect and decrease the rates banks pay for deposits. The lagging effect 
      of deposit rate changes is because many of the Bank’s 
      deposits are in the form of certificates of deposit which do not 
      re-price immediately when the federal funds rate changes. The average 
      interest rate paid on interest-bearing liabilities was 3.52 % for the 
      first six months of 2008, a decrease of 30 basis points from the 3.82% 
      average interest rate paid in the first six months of 2007. Net interest 
      margin (net interest income divided by average interest earning assets) 
      for the first six months of 2008 was 3.21%, a decrease of 67 basis 
      points, compared to 3.88% for the first six months of 2007.
    
    
      Provision for Loan Losses
    
    
      The provision for loan losses was $2.7 million for the first six months 
      of 2008, an increase of $1.2 million, or 81.4%, from the $1.5 million 
      for the same six month period in 2007. The provision for loan losses 
      increased primarily because of an increase in the allowance required for 
      risk rated commercial real estate loans in the first six months of 2008 
      when compared to the same period of 2007. The increase was due primarily 
      to decreases in the estimated value of the real estate collateral 
      supporting the $24.8 million in residential development loans classified 
      as non-performing at June 30, 2008. Total non-performing assets were 
      $48.5 million at June 30, 2008, an increase of $26.6 million, from $21.9 
      million at December 31, 2007. Non-performing loans increased $24.6 
      million and foreclosed and repossessed assets increased $2.0 million 
      during the period. The non-performing loan activity for the first six 
      months of 2008 was as follows: classified $30.4 million in loans as 
      non-accruing, received $1.5 million in principal payments on 
      non-accruing loans, reclassified $2.7 million in loans as accruing, 
      transferred $1.3 million to real estate owned, and charged off $325,000. 
      The increase in non-performing loans was primarily related to three 
      residential development loans totaling $13.7 million, a loan on a 
      commercial manufacturing facility for $5.0 million, and a loan on a 
      hotel property for $5.0 million that were classified during the first 
      six months of 2008 due to lack of performance. The estimated values of 
      the underlying collateral supporting the residential development loans 
      were determined based on third party appraisals and specific reserves 
      have been established, where required.
    
    
      A reconciliation of the Company’s allowance 
      for loan losses for the six month periods ended June 30, 2008 and June 
      30, 2007 is summarized as follows:
    
    
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
           
        
        
        
        
           
        
        
        
      
      
        
          (in thousands)
        
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
          Balance at January 1,
        
        
        
        
          $
        
        
          12,438
        
        
        
        
        
        
          $
        
        
          9,873
        
        
        
      
      
        
          Provision
        
        
        
        
        
        
          2,690
        
        
        
        
        
        
        
        
          1,483
        
        
        
      
      
        
          Charge offs:
        
        
        
        
        
        
        
        
        
      
      
        
          Commercial
        
        
        
        
        
        
          (24
        
        
          )
        
        
        
        
        
        
          (17
        
        
          )
        
      
      
        
          Commercial real estate
        
        
        
        
        
        
          (75
        
        
          )
        
        
        
        
        
        
          (70
        
        
          )
        
      
      
        
          Mortgage loans
        
        
        
        
        
        
          (60
        
        
          )
        
        
        
        
        
        
          0
        
        
        
      
      
        
          Consumer loans
        
        
        
        
        
        
          (69
        
        
          )
        
        
        
        
        
        
          (632
        
        
          )
        
      
      
        
          Recoveries
        
        
        
        
           
        
        
          24
        
        
           
        
        
        
        
           
        
        
          88
        
        
           
        
      
      
        
          Balance at June 30,
        
        
        
        
          $
        
        
          14,924
        
        
           
        
        
        
        
          $
        
        
          10,725
        
        
           
        
      
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
    
    
      Non-Interest Income and Expense
    
    
      Non-interest income was $3.3 million for the first six months of 2008, a 
      decrease of $86,000, or 2.6%, from $3.4 million for the same period in 
      2007. Gain on sales of loans decreased $601,000 between the periods 
      primarily because of the $706,000 decrease in the gain recognized on the 
      sale of government guaranteed commercial loans between the periods that 
      was partially offset by an $105,000 increase in the gain recognized on 
      the sale of single family loans. Mortgage servicing fees decreased 
      $54,000 because fewer loans were being serviced. Fees and service 
      charges increased $314,000 between the periods primarily because of 
      increased overdraft and debit card fees. Other non-interest income 
      increased $255,000 primarily because of increased gains recognized on 
      the sale of repossessed and foreclosed assets.
    
    
      Non-interest expense was $16.1 million for the first six months of 2008, 
      an increase of $4.0 million, or 32.7%, from $12.1 million for the same 
      period of 2007. A goodwill impairment charge of $3.8 million was 
      recorded in the second quarter of 2008 as goodwill related to a 1997 
      acquisition was deemed to be impaired and fully written off due to the 
      trading of the Company’s common stock at a 
      discount to book value. Other non-interest expense increased $362,000 
      primarily because of increased FDIC insurance costs and legal fees 
      primarily related to an ongoing state tax assessment challenge. 
      Occupancy expense increased $97,000 due primarily to increased real 
      estate taxes and costs associated with the Eagan branch that was opened 
      in the third quarter of 2007. Data processing costs increased $62,000 
      due to increases in the internet and other banking services provided by 
      the Bank’s third party processor between the 
      periods. Compensation expense decreased $227,000 between the periods 
      primarily because of decreased employee incentive accruals and pension 
      costs. Advertising expense decreased $85,000 between the periods 
      primarily due to a decrease in event sponsorships and less general 
      advertising. Mortgage servicing rights amortization decreased $57,000 
      between the periods because there were fewer mortgage loans being 
      serviced.
    
    
      Income tax expense decreased $1.8 million between the periods due to a 
      decrease in taxable income and an effective tax rate that decreased from 
      39.3% for the first six months of 2007 to 37.1% for the first six months 
      of 2008 excluding the goodwill impairment charge. The goodwill 
      impairment charge recorded in the second quarter of 2008 is not tax 
      deductible and therefore no tax benefit was realized related to the 
      impairment charge. The decrease in the effective tax rate was primarily 
      the result of decreased pre-tax income and a higher percentage of tax 
      exempt income.
    
    
      Return on Assets and Equity
    
    
      Return on average assets for the six month period ended June 30, 2008 
      was (0.10%), compared to 1.08% for the same period in 2007. Return on 
      average equity was (1.10%) for the six month period ended in 2008, 
      compared to 11.92% for the same period in 2007.
    
    
      President’s 
      Statement
    
    
      “The Company was operationally profitable for 
      the first six months of 2008 without the goodwill impairment charge 
      related to a 1997 acquisition,” said HMN 
      President, Mike McNeil. “While we are 
      disappointed in the second quarter results and the level of 
      nonperforming assets, our capital position remains strong and we look 
      forward to improved results.”
    
    
      General Information
    
    
      HMN Financial, Inc. and Home Federal Savings Bank are headquartered in 
      Rochester, Minnesota. The Bank operates ten full service offices in 
      southern Minnesota located in Albert Lea, Austin, Eagan, LaCrescent, 
      Rochester, Spring Valley and Winona, and two full service offices in 
      Iowa located in Marshalltown and Toledo. Home Federal Savings Bank also 
      operates a loan origination office in Sartell, Minnesota. Home Federal 
      Private Banking operates branches in Edina and Rochester, Minnesota.
    
    
      Safe Harbor Statement
    
    
      This press release may contain forward-looking statements within the 
      meaning of the Private Securities Litigation Reform Act of 1995. These 
      statements include, but are not limited to those relating to economic 
      and business trends, loan loss reserves and the Company’s 
      financial expectations for earnings and interest income. 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 
      possible legislative changes and 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; 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 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 and Form 10-Q with the Securities and 
      Exchange Commission. All forward-looking statements are qualified by, 
      and should be considered in conjunction with, such cautionary statements.
    
    
      
        
          HMN FINANCIAL, INC. AND SUBSIDIARIES
        
      
      
        
          Consolidated Balance Sheets
        
      
      
        
           
        
      
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
           
        
        
        
        
          June 30,
        
        
           
        
        
          December 31,
        
      
      
        
          (dollars in thousands)
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
        
        
        
        
        
        
          (unaudited)
        
        
        
        
        
      
      
        
          Assets
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $
        
        
          14,475
        
        
        
        
        
        
          23,718
        
        
        
      
      
        
          Securities available for sale:
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          
            Mortgage-backed and related securities(amortized cost 
            $17,063 and $18,786)
          
        
        
        
        
        
        
          16,659
        
        
        
        
        
        
          18,468
        
        
        
      
      
        
          
            Other marketable securities(amortized cost $105,468 and 
            $165,430)
          
        
        
        
        
        
        
          107,167
        
        
           
        
        
        
        
          167,720
        
        
           
        
      
      
        
        
        
        
        
        
        
          123,826
        
        
           
        
        
        
        
          186,188
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loans held for sale
        
        
        
        
        
        
          3,699
        
        
        
        
        
        
          3,261
        
        
        
      
      
        
          Loans receivable, net
        
        
        
        
        
        
          895,713
        
        
        
        
        
        
          865,088
        
        
        
      
      
        
          Accrued interest receivable
        
        
        
        
        
        
          6,199
        
        
        
        
        
        
          6,893
        
        
        
      
      
        
          Real estate, net
        
        
        
        
        
        
          4,272
        
        
        
        
        
        
          2,214
        
        
        
      
      
        
          Federal Home Loan Bank stock, at cost
        
        
        
        
        
        
          7,460
        
        
        
        
        
        
          6,198
        
        
        
      
      
        
          Mortgage servicing rights, net
        
        
        
        
        
        
          957
        
        
        
        
        
        
          1,270
        
        
        
      
      
        
          Premises and equipment, net
        
        
        
        
        
        
          12,585
        
        
        
        
        
        
          12,024
        
        
        
      
      
        
          Goodwill
        
        
        
        
        
        
          0
        
        
        
        
        
        
          3,801
        
        
        
      
      
        
          Prepaid expenses and other assets
        
        
        
        
        
        
          1,981
        
        
        
        
        
        
          1,680
        
        
        
      
      
        
          Deferred tax asset
        
        
        
        
        
        
          4,996
        
        
           
        
        
        
        
          4,719
        
        
           
        
      
      
        
          Total assets
        
        
        
        
          $
        
        
          1,076,163
        
        
           
        
        
        
        
          1,117,054
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Liabilities and Stockholders’ Equity
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Deposits
        
        
        
        
          $
        
        
          832,316
        
        
        
        
        
        
          888,118
        
        
        
      
      
        
          Federal Home Loan Bank advances
        
        
        
        
        
        
          137,900
        
        
        
        
        
        
          112,500
        
        
        
      
      
        
          Accrued interest payable
        
        
        
        
        
        
          6,607
        
        
        
        
        
        
          9,515
        
        
        
      
      
        
          Customer escrows
        
        
        
        
        
        
          965
        
        
        
        
        
        
          866
        
        
        
      
      
        
          Accrued expenses and other liabilities
        
        
        
        
        
        
          3,323
        
        
           
        
        
        
        
          7,927
        
        
           
        
      
      
        
          Total liabilities
        
        
        
        
        
        
          981,111
        
        
           
        
        
        
        
          1,018,926
        
        
           
        
      
      
        
          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; issued shares 9,128,662
        
        
        
        
        
        
          91
        
        
        
        
        
        
          91
        
        
        
      
      
        
          Additional paid-in capital
        
        
        
        
        
        
          57,820
        
        
        
        
        
        
          58,049
        
        
        
      
      
        
          Retained earnings, subject to certain restrictions
        
        
        
        
        
        
          108,572
        
        
        
        
        
        
          110,943
        
        
        
      
      
        
          Accumulated other comprehensive income
        
        
        
        
        
        
          766
        
        
        
        
        
        
          1,167
        
        
        
      
      
        
          Unearned employee stock ownership plan shares
        
        
        
        
        
        
          (3,867
        
        
          )
        
        
        
        
          (3,965
        
        
          )
        
      
      
        
          Treasury stock, at cost 4,960,863 and 4,953,045 shares
        
        
        
        
        
        
          (68,330
        
        
          )
        
        
        
        
          (68,157
        
        
          )
        
      
      
        
          Total stockholders’ equity
        
        
        
        
        
        
          95,052
        
        
           
        
        
        
        
          98,128
        
        
           
        
      
      
        
          Total liabilities and stockholders’ equity
        
        
        
        
          $
        
        
          1,076,163
        
        
           
        
        
        
        
          1,117,054
        
        
           
        
      
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
    
    
      
        
          HMN FINANCIAL, INC. AND SUBSIDIARIES
        
      
      
        
          Consolidated Statements of Income (Loss)
        
      
      
        
          (unaudited)
        
      
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
           
        
        
        
        
          Three Months Ended
        
        
           
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
        
        
          June 30,
        
        
        
        
          June 30,
        
      
      
        
          (dollars in thousands, except per share data)
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
          Interest income:
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
      
      
        
          Loans receivable
        
        
        
        
          $
        
        
          14,419
        
        
        
        
        
        
          16,629
        
        
        
        
          29,939
        
        
        
        
        
        
          32,374
        
      
      
        
          Securities available for sale:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Mortgage-backed and related
        
        
        
        
        
        
          213
        
        
        
        
        
        
          171
        
        
        
        
          437
        
        
        
        
        
        
          282
        
      
      
        
          Other marketable
        
        
        
        
        
        
          1,507
        
        
        
        
        
        
          2,417
        
        
        
        
          3,417
        
        
        
        
        
        
          4,313
        
      
      
        
          Cash equivalents
        
        
        
        
        
        
          61
        
        
        
        
        
        
          279
        
        
        
        
          118
        
        
        
        
        
        
          722
        
      
      
        
          Other
        
        
        
        
        
        
          53
        
        
           
        
        
        
        
          132
        
        
        
        
          133
        
        
           
        
        
        
        
          216
        
      
      
        
          Total interest income
        
        
        
        
        
        
          16,253
        
        
           
        
        
        
        
          19,628
        
        
        
        
          34,044
        
        
           
        
        
        
        
          37,907
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest expense:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Deposits
        
        
        
        
        
        
          6,839
        
        
        
        
        
        
          8,346
        
        
        
        
          14,709
        
        
        
        
        
        
          15,223
        
      
      
        
          Federal Home Loan Bank advances
        
        
        
        
        
        
          1,239
        
        
           
        
        
        
        
          1,427
        
        
        
        
          2,476
        
        
           
        
        
        
        
          3,045
        
      
      
        
          Total interest expense
        
        
        
        
        
        
          8,078
        
        
           
        
        
        
        
          9,773
        
        
        
        
          17,185
        
        
           
        
        
        
        
          18,268
        
      
      
        
          Net interest income
        
        
        
        
        
        
          8,175
        
        
        
        
        
        
          9,855
        
        
        
        
          16,859
        
        
        
        
        
        
          19,639
        
      
      
        
          Provision for loan losses
        
        
        
        
        
        
          1,130
        
        
           
        
        
        
        
          1,028
        
        
        
        
          2,690
        
        
           
        
        
        
        
          1,483
        
      
      
        
          
            Net interest income after provision for loan losses
          
        
        
        
        
        
        
          7,045
        
        
           
        
        
        
        
          8,827
        
        
        
        
          14,169
        
        
           
        
        
        
        
          18,156
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Non-interest income:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Fees and service charges
        
        
        
        
        
        
          998
        
        
        
        
        
        
          781
        
        
        
        
          1,791
        
        
        
        
        
        
          1,477
        
      
      
        
          Loan servicing fees
        
        
        
        
        
        
          240
        
        
        
        
        
        
          265
        
        
        
        
          482
        
        
        
        
        
        
          536
        
      
      
        
          Gains on sales of loans
        
        
        
        
        
        
          228
        
        
        
        
        
        
          189
        
        
        
        
          384
        
        
        
        
        
        
          985
        
      
      
        
          Other
        
        
        
        
        
        
          290
        
        
           
        
        
        
        
          57
        
        
        
        
          617
        
        
           
        
        
        
        
          362
        
      
      
        
          Total non-interest income
        
        
        
        
        
        
          1,756
        
        
           
        
        
        
        
          1,292
        
        
        
        
          3,274
        
        
           
        
        
        
        
          3,360
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Non-interest expense:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Compensation and benefits
        
        
        
        
        
        
          3,036
        
        
        
        
        
        
          3,262
        
        
        
        
          6,396
        
        
        
        
        
        
          6,623
        
      
      
        
          Occupancy
        
        
        
        
        
        
          1,161
        
        
        
        
        
        
          1,112
        
        
        
        
          2,293
        
        
        
        
        
        
          2,196
        
      
      
        
          Advertising
        
        
        
        
        
        
          92
        
        
        
        
        
        
          195
        
        
        
        
          216
        
        
        
        
        
        
          301
        
      
      
        
          Data processing
        
        
        
        
        
        
          336
        
        
        
        
        
        
          321
        
        
        
        
          678
        
        
        
        
        
        
          616
        
      
      
        
          Amortization of mortgage servicing rights, net
        
        
        
        
        
        
          154
        
        
        
        
        
        
          189
        
        
        
        
          314
        
        
        
        
        
        
          371
        
      
      
        
          Goodwill impairment charge
        
        
        
        
        
        
          3,801
        
        
        
        
        
        
          0
        
        
        
        
          3,801
        
        
        
        
        
        
          0
        
      
      
        
          Other
        
        
        
        
        
        
          1,220
        
        
           
        
        
        
        
          1,070
        
        
        
        
          2,354
        
        
           
        
        
        
        
          1,992
        
      
      
        
          Total non-interest expense
        
        
        
        
        
        
          9,800
        
        
           
        
        
        
        
          6,149
        
        
        
        
          16,052
        
        
           
        
        
        
        
          12,099
        
      
      
        
          Income (loss) before income tax expense
        
        
        
        
        
        
          (999
        
        
          )
        
        
        
        
          3,970
        
        
        
        
          1,391
        
        
        
        
        
        
          9,417
        
      
      
        
          Income tax expense
        
        
        
        
        
        
          1,026
        
        
           
        
        
        
        
          1,520
        
        
        
        
          1,928
        
        
           
        
        
        
        
          3,699
        
      
      
        
          Net income (loss)
        
        
        
        
          $
        
        
          (2,025
        
        
          )
        
        
        
        
          2,450
        
        
        
        
          (537
        
        
          )
        
        
        
        
          5,718
        
      
      
        
          Basic earnings (loss) per share
        
        
        
        
          $
        
        
          (0.56
        
        
          )
        
        
        
        
          0.65
        
        
        
        
          (0.15
        
        
          )
        
        
        
        
          1.52
        
      
      
        
          Diluted earnings (loss) per share
        
        
        
        
          $
        
        
          (0.56
        
        
          )
        
        
        
        
          0.62
        
        
        
        
          (0.15
        
        
          )
        
        
        
        
          1.45
        
      
    
    
      
        
          HMN FINANCIAL, INC. AND SUBSIDIARIES
        
      
      
        
          Selected Consolidated Financial Information
        
      
      
        
          (unaudited)
        
      
      
        
          
             
          
        
        
           
        
        
        
        
          
             
          
        
        
        
        
        
        
           
        
        
        
        
        
        
           
        
        
          
             
          
        
        
        
        
        
        
        
        
        
      
      
        
          
             
          
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
          
             
          
        
        
        
        
        
        
          Three Months Ended
        
        
        
        
        
        
          Six Months Ended
        
      
      
        
          
            SELECTED FINANCIAL DATA:
          
        
        
        
        
        
        
          June 30,
        
        
        
        
        
        
          June, 30
        
      
      
        
          
            (dollars in thousands, except per share data)
          
        
        
           
        
        
           
        
        
          
            2008
          
        
        
           
        
        
           
        
        
          
            2007
          
        
        
           
        
        
           
        
        
          
            2008
          
        
        
           
        
        
          
            2007
          
        
      
      
        
          I. OPERATING DATA:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Interest income
        
        
        
        
          $
        
        
          16,253
        
        
        
        
        
        
        
        
          19,628
        
        
        
        
        
        
          34,044
        
        
        
        
        
        
          37,907
        
        
        
      
      
        
          Interest expense
        
        
        
        
        
        
          8,078
        
        
        
        
        
        
        
        
          9,773
        
        
        
        
        
        
          17,185
        
        
        
        
        
        
          18,268
        
        
        
      
      
        
          Net interest income
        
        
        
        
        
        
          8,175
        
        
        
        
        
        
        
        
          9,855
        
        
        
        
        
        
          16,859
        
        
        
        
        
        
          19,639
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          II. AVERAGE BALANCES:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Assets (1)
        
        
        
        
        
        
          1,087,859
        
        
        
        
        
        
        
        
          1,099,991
        
        
        
        
        
        
          1,097,193
        
        
        
        
        
        
          1,069,159
        
        
        
      
      
        
          Loans receivable, net
        
        
        
        
        
        
          882,977
        
        
        
        
        
        
        
        
          818,905
        
        
        
        
        
        
          877,632
        
        
        
        
        
        
          803,506
        
        
        
      
      
        
          Securities available for sale (1)
        
        
        
        
        
        
          136,676
        
        
        
        
        
        
        
        
          202,442
        
        
        
        
        
        
          153,123
        
        
        
        
        
        
          180,616
        
        
        
      
      
        
          Interest-earning assets (1)
        
        
        
        
        
        
          1,044,930
        
        
        
        
        
        
        
        
          1,053,637
        
        
        
        
        
        
          1,054,873
        
        
        
        
        
        
          1,021,846
        
        
        
      
      
        
          Interest-bearing liabilities
        
        
        
        
        
        
          975,017
        
        
        
        
        
        
        
        
          994,906
        
        
        
        
        
        
          983,134
        
        
        
        
        
        
          964,485
        
        
        
      
      
        
          Equity (1)
        
        
        
        
        
        
          98,499
        
        
        
        
        
        
        
        
          97,390
        
        
        
        
        
        
          98,658
        
        
        
        
        
        
          96,751
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          III. PERFORMANCE RATIOS: (1)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Return on average assets (annualized)
        
        
        
        
        
        
          (0.75
        
        
          )
        
        
          %
        
        
        
        
          0.89
        
        
          %
        
        
        
        
          (0.10
        
        
          )
        
        
          %
        
        
          1.08
        
        
          %
        
      
      
        
          Interest rate spread information:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Average during period
        
        
        
        
        
        
          2.92
        
        
        
        
        
        
        
        
          3.53
        
        
        
        
        
        
          2.98
        
        
        
        
        
        
          3.66
        
        
        
      
      
        
          End of period
        
        
        
        
        
        
          3.32
        
        
        
        
        
        
        
        
          3.45
        
        
        
        
        
        
          3.32
        
        
        
        
        
        
          3.45
        
        
        
      
      
        
          Net interest margin
        
        
        
        
        
        
          3.15
        
        
        
        
        
        
        
        
          3.75
        
        
        
        
        
        
          3.21
        
        
        
        
        
        
          3.88
        
        
        
      
      
        
          
            Ratio of operating expense to average total assets (annualized)
          
        
        
        
        
        
        
          3.62
        
        
        
        
        
        
        
        
          2.24
        
        
        
        
        
        
          2.94
        
        
        
        
        
        
          2.28
        
        
        
      
      
        
          Return on average equity (annualized)
        
        
        
        
        
        
          (8.27
        
        
          )
        
        
        
        
        
        
          10.09
        
        
        
        
        
        
          (1.10
        
        
          )
        
        
        
        
          11.92
        
        
        
      
      
        
          Efficiency
        
        
        
        
        
        
          98.69
        
        
        
        
        
        
        
        
          55.17
        
        
        
        
        
        
          79.73
        
        
        
        
        
        
          52.61
        
        
        
      
      
        
        
        
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
          June 30,
        
        
        
        
        
        
          December 31,
        
        
        
        
        
        
          June 30,
        
        
        
        
        
        
        
      
      
        
        
        
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
        
           
        
        
           
        
        
          2007
        
        
        
        
        
        
        
      
      
        
          IV. ASSET QUALITY:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Total non-performing assets
        
        
        
        
          $
        
        
          48,522
        
        
        
        
        
        
        
        
          21,935
        
        
        
        
        
        
          16,365
        
        
        
        
        
        
        
        
        
      
      
        
          Non-performing assets to total assets
        
        
        
        
        
        
          4.51
        
        
        
        
          %
        
        
        
        
          1.96
        
        
          %
        
        
        
        
          1.45
        
        
        
        
          %
        
        
        
        
        
      
      
        
          
            Non-performing loans to total loans receivable, net
          
        
        
        
        
        
        
          4.94
        
        
        
        
          %
        
        
        
        
          2.27
        
        
          %
        
        
        
        
          1.38
        
        
        
        
          %
        
        
        
        
        
      
      
        
          Allowance for loan losses
        
        
        
        
          $
        
        
          14,924
        
        
        
        
        
        
        
        
          12,438
        
        
        
        
        
        
          10,725
        
        
        
        
        
        
        
        
        
      
      
        
          Allowance for loan losses to total assets
        
        
        
        
        
        
          1.39
        
        
        
        
          %
        
        
        
        
          1.11
        
        
          %
        
        
        
        
          0.95
        
        
        
        
          %
        
        
        
        
        
      
      
        
          
            Allowance for loan losses to total loans receivable, net
          
        
        
        
        
        
        
          1.67
        
        
        
        
        
        
        
        
          1.44
        
        
        
        
        
        
          1.27
        
        
        
        
        
        
        
        
        
      
      
        
          
            Allowance for loan losses to non-performing loans
          
        
        
        
        
        
        
          33.76
        
        
        
        
        
        
        
        
          63.28
        
        
        
        
        
        
          92.39
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          V. BOOK VALUE PER SHARE:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Book value per share
        
        
        
        
          $
        
        
          22.81
        
        
        
        
        
        
        
        
          23.50
        
        
        
        
        
        
          22.15
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
           
        
        
          
            Six MonthsEndedJune 30,2008
          
        
        
           
        
        
           
        
        
          
            Year EndedDec 31,2007
          
        
        
           
        
        
           
        
        
          
            Six MonthsEndedJune 30,2007
          
        
        
        
        
        
        
        
      
      
        
          VI. CAPITAL RATIOS:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          
            Stockholders’ equity to total assets, 
            at end of period
          
        
        
        
        
        
        
          8.83
        
        
        
        
          %
        
        
        
        
          8.78
        
        
          %
        
        
        
        
          8.40
        
        
        
        
          %
        
        
        
        
        
      
      
        
          
            Average stockholders’ equity to average 
            assets (1)
          
        
        
        
        
        
        
          8.99
        
        
        
        
        
        
        
        
          8.89
        
        
        
        
        
        
          9.05
        
        
        
        
        
        
        
        
        
      
      
        
          
            Ratio of average interest-earning assets to average 
            interest-bearing liabilities (1)
          
        
        
        
        
        
        
          107.30
        
        
        
        
        
        
        
        
          106.33
        
        
        
        
        
        
          105.95
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
          June 30,
        
        
        
        
        
        
          December 31,
        
        
        
        
        
        
          June 30,
        
        
        
        
        
        
        
      
      
        
        
        
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
        
           
        
        
           
        
        
          2007
        
        
        
        
        
        
        
      
      
        
          VII. EMPLOYEE DATA:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Number of full time equivalent employees
        
        
        
        
        
        
          204
        
        
        
        
        
        
        
        
          203
        
        
        
        
        
        
          210
        
        
        
        
        
        
        
        
        
      
      
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
      
    
    
      (1) Average balances were calculated based upon amortized cost without 
      the market value impact of SFAS 115