HMN Financial Participates in U.S. Treasury’s Capital Purchase Program

  
    
  
  
    
      HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the holding 
      company for Home Federal Savings Bank (the Bank), announced today it has 
      successfully completed the sale of $26.0 million in preferred stock and 
      related warrant to the United States Treasury Department. This 
      transaction is part of Treasury’s capital purchase program under the 
      Emergency Economic Stabilization Act of 2008. Under the terms of the 
      transaction, the Company issued 26,000 shares of cumulative perpetual 
      preferred stock and a warrant to purchase 833,333 shares of HMN common 
      stock at an exercise price of $4.68 per share.
    
    
      The preferred shares are entitled to a 5% annual cumulative dividend for 
      each of the first five years of the investment, increasing to 9% 
      thereafter, unless HMN redeems the shares. The preferred stock can’t be 
      redeemed for a period of three years from the date of the Treasury 
      investment, except with the proceeds of certain qualifying offerings of 
      Tier 1 capital. After three years, the preferred stock may be redeemed 
      in whole or in part, at par plus accrued and unpaid dividends. The 
      preferred stock is non-voting, other than certain class voting rights. 
      The warrant may be exercised at any time over its ten-year term. 
      Treasury has agreed not to vote any shares of common stock acquired upon 
      exercise of the warrant. Without the consent of Treasury, for three 
      years following issuance of the preferred stock, HMN cannot (i) increase 
      the rate at which it pays dividends on its common stock in excess of the 
      rate at which it last declared a quarterly common stock dividend, or 
      $0.25 per share, or (ii) subject to certain exceptions, repurchase any 
      shares of HMN common stock outstanding.
    
    
      Both the preferred securities and the warrant will be accounted for as 
      Tier 1 capital. The Bank’s risk-based capital ratio (the ratio of 
      risk-based capital to risk-weighted assets) was 10.54% at September 30, 
      2008, which is above the regulatory capital requirements of 10.0% for a 
      “well capitalized” bank. If this additional capital had been included in 
      the Bank’s capital calculation at September 30, 2008, the Bank’s risk 
      based capital ratio would have increased to 13.5% as risk-based capital 
      would have increased by $26.0 million from $91.5 million to $117.5 
      million and risk-weighted assets would have remained at $867.8 million.
    
    
      “This investment will further enhance our already well-capitalized 
      position,” said Michael McNeil, President and CEO. “Our ability to meet 
      the needs of our customers and the communities we serve will be further 
      strengthened by these funds. Additional capital should also benefit 
      shareholders by providing funding that should enable us to expand our 
      market share and build shareholder value.”
    
    
      General Information
    
    
      HMN Financial, Inc. and Home Federal Savings Bank are headquartered in 
      Rochester, Minnesota. The Bank operates eleven 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 loan origination offices in Rochester and 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. 
      Forward-looking statements deal with matters that do not relate strictly 
      to historical facts. Words such as “anticipate”, “believe”, “expect”, 
      “intend”, “would”, “could”, “should”, “estimate”, “project” and similar 
      expressions, as they relate to the Company, are intended to identify 
      such forward-looking statements. These statements include, but are not 
      limited to those relating to the continuation of the Bank’s 
      well-capitalized position, the Company’s ability to serve the needs of 
      its customers, expand its market share and build shareholder value with 
      the proceeds of the preferred stock investment by the United States 
      Treasury, the adequacy of available liquidity to the Bank, the future 
      outlook for the Company, the result of actions being taken by national 
      and world leaders stabilizing the global economy and assuring consumer 
      and business access to credit, any future dividends, 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 the adequacy and marketability of real estate securing loans 
      to borrowers, possible legislative and regulatory 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; international economic developments, changes in 
      credit or other risks posed by the Company’s loan and investment 
      portfolios; technological, computer-related or operational difficulties; 
      adverse changes in securities markets; results of litigation 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.