hmnf20140620_11k.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 11-K

 

 (Mark One)

 

[X]     ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2013.

 

OR

 

[ ]     TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________________ to _______________________

 

Commission file number 0-24100

 

A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

 

Home Federal Savings Bank Employees' Savings and Profit Sharing Plan

 

B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 

HMN Financial, Inc.
1016 Civic Center Drive
Rochester, MN 55901

 

 

 
 
 

 

REQUIRED INFORMATION

 

The financial statements filed as a part of the annual report of the plan include:

 

             1.     Audited statements of net assets available for benefits as filed under the Employee Retirement Income Security Act of 1974, as amended ("ERISA");

 

            2.      Audited statements of changes in net assets available for benefits as filed under ERISA.

 

 

 
 
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’
SAVINGS AND PROFIT SHARING PLAN

 

Financial Statements

 

December 31, 2013 and 2012

 

(With Report of Independent Registered Public Accounting Firm Thereon)

 

 

 
 
 

  

HOME FEDERAL SAVINGS BANK EMPLOYEES’
SAVINGS AND PROFIT SHARING PLAN

 

Table of Contents

 

 

  Page
   

Report of Independent Registered Public Accounting Firm

1

   
Statements of Net Assets Available for Benefits 2
   
Statements of Changes in Net Assets Available for Benefits 3
   
Notes to Financial Statements 4
   
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of December 31, 2013 15

 

 

 
 
 

 

KPMG LLP
4200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402

 

 

 

Report of Independent Registered Public Accounting Firm

 

The Plan Administrator
Home Federal Savings Bank Employees’
     Savings and Profit Sharing Plan:

 

We have audited the accompanying statements of net assets available for benefits of the Home Federal Savings Bank Employees’ Savings and Profit Sharing Plan (the Plan) as of December 31, 2013 and 2012, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2013 and 2012, and the changes in net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of December 31, 2013 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

/s/ KPMG LLP

 

Minneapolis, Minnesota
June 20, 2014

 

 

 
 
 

 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Statements of Net Assets Available for Benefits

 

December 31, 2013 and 2012

 

 

 

  

2013

    

2012

  
Assets            

Investments, at fair value:

                

Cash and cash equivalents

   $ 43,912       34,414  

Collective trust fund

     956,909       1,091,967  

HMN Financial, Inc. common stock

     995,366       347,180  

Mutual funds

     11,887,239       9,075,333  

Total investments, at fair value

     13,883,426       10,548,894  

Receivables:

                

Employer contributions

     1,895       1,860  

Employee contributions

     9,097       8,774  

Total receivables

     10,992       10,634  

Notes receivable from participants

     161,046       107,063  

Total assets

     14,055,464       10,666,591  

Liabilities

                

Accrued expenses

     8,524       3,537  

Accounts payable

     74       432  

Total liabilities

     8,598       3,969  

Net assets available for benefits, before adjustment

     14,046,866       10,662,622  

Adjustment from fair value to contract value for fully benefit-responsive investment contracts

     (7,595 )     (30,775 )

Net assets available for benefits

   $ 14,039,271       10,631,847  

 

 

See accompanying notes to financial statements.

 

 

 
2
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Statements of Changes in Net Assets Available for Benefits

 

Years ended December 31, 2013 and 2012

 

 

 

  

2013

    

2012

  
Additions            

Additions to net assets attributed to:

                

Contributions:

                

Employer

   $ 159,580       160,267  

Employee

     887,581       877,384  

Rollover

     104,552       32,018  

Total contributions

     1,151,713       1,069,669  

Investment income:

                

Net appreciation in fair value of investments:

                

Mutual funds

     1,956,345       886,604  

Common stock

     668,334       142,991  

Net appreciation in contract value of collective trust fund

     35,937       9,831  

Total net appreciation

     2,660,616       1,039,426  

Interest

     4,927       2,718  

Dividends

     434,276       260,568  

Less: Asset management fees

     (18,888 )     (20,160 )

Net investment income

     3,080,931       1,282,552  

Total additions

     4,232,644       2,352,221  

Deductions

                

Deductions to net assets attributed to:

                

Distributions

     806,224       613,606  

Administrative expenses

     18,996       18,482  

Total deductions

     825,220       632,088  

Net increase in net assets available for benefits

     3,407,424       1,720,133  

Net assets available for benefits:

                

Beginning of year

     10,631,847       8,911,714  

End of year

   $ 14,039,271       10,631,847  

 

 

See accompanying notes to financial statements.

 

 

 
3
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’
SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

(1)

Summary of Significant Accounting Policies

 

 

(a)

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles.

 

 

(b)

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported changes in net assets available for benefits during the reporting period. Actual results could differ from those estimates.

 

 

(c)

Custodian of Investments

 

TD Ameritrade Trust Corporation is the trustee and custodian of all Plan assets.

 

 

(d)

Plan Administration

 

Home Federal Savings Bank (the Company) is the administrator of the Plan. Alliance Benefit Group (ABG) performs the participant accounting.

 

 

(e)

Valuation of Investments and Notes Receivable from Participants

 

Investments are stated at fair value (see note 6). The Plan holds investments in guaranteed investment contracts (GICs) as part of the collective trust fund. The estimated fair value of a GIC is net asset value exclusive of the adjustment to contract value. As required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946-210-45, the statements of net assets available for benefits present the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The statements of changes in net assets available for benefits are presented on a contract-value basis. Investments in mutual funds are valued using daily net asset value calculations performed by the funds and published on national exchanges. Investments in common stock are valued at the unadjusted quoted market price at the close of the trading day. Dividends are recorded on the ex-dividend date and are reinvested in the respective funds. Interest income is recorded on the accrual basis. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

 

Purchases and sales of securities are recorded on a trade-date basis. Net realized gains or losses are recognized by the Plan upon the sale of its investments or portions thereof based on average cost.

 

Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2013 or 2012. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded.

 

 

(Continued)

 

 

 
4
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

 

(f)

Benefits

 

Benefits are recorded when paid.

 

 

(g)

Subsequent Events

 

There were no subsequent events requiring adjustment to the financial statements or disclosure through June 20, 2014, the date that the Plan’s financial statements were issued.

 

 

(h)

New Accounting Pronouncements

 

In October 2012, the FASB issued technical corrections and improvements to amend multiple Topics within the Codification. The most significant of these amendments is a change to the definition of fair value applicable to employee benefit plans and defined contribution plans. Previously, the definition of fair value applied to those plans was inconsistent with the definition of fair value in the Codification. The technical corrections and improvements conform the definition, while retaining the exception for health and welfare benefit plans and defined contribution plans to reduce the measurement by the costs to sell, if those costs are significant. This guidance is effective for fiscal years beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Plan’s financial statements.

 

(2)

Description of the Plan

 

The following description of the Plan provides only general information. Participants should refer to the Summary Plan Description for more complete information.

 

 

(a)

General

 

The Plan is a defined contribution plan, qualified under Section 401(a) of the Internal Revenue Code (IRC). The Plan includes 401(k) provisions, which allow participants to direct the Company to contribute a portion of their compensation to the Plan on a pretax and Roth basis through payroll deductions. The Plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA).

 

All Company employees who have attained the age of 18 are eligible to participate in the Plan, subject to entry dates.

 

 

(b)

Funding Policy

 

Participants have the ability to contribute up to 50% of their monthly compensation on a pretax and Roth basis to the Plan. Participant contributions are subject to the Internal Revenue Service (IRS) maximum annual limits of $17,500 and $17,000 during 2013 and 2012, respectively. The Company matches 25% of each participant’s contribution not in excess of 8% of the participant’s annual salary. Participants over the age of 50 were allowed to contribute an additional $5,500 as a “catch-up” contribution during 2013 and 2012 as allowed by current tax law.

 

(Continued)

 

 

 
5
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

The Company may, in its sole discretion, contribute to the Plan an amount to be determined from year to year (the Non-Elective Contribution). Such contributions would be allocated to the accounts of participants in the ratio that each participant’s compensation for the plan year bears to the total compensation of all participants for the plan year. There were no such contributions during 2013 or 2012.

 

New employees are automatically enrolled in the Plan on the first of the month following 30 days of employment unless the employee elects not to participate (Automatic Enrollment Provision). Automatic contributions for these new employees are initially deducted at a rate of 4% of the employee’s compensation and are increased in 1% increments on January 1 of each year up to a maximum total contribution of 12%. The Company matches 25% of these automatic contributions not in excess of 8% of the participant’s annual salary. The employee has the right at any time to decline participation in the Plan or change the amount of the automatic contribution up to the maximum allowed 50% of their monthly compensation.

 

The Plan allows for rollover contributions to be made to the Plan by eligible participants. These rollover contributions are eligible distributions from other tax-qualified plans or individual retirement accounts or annuities that participants elect to have invested in the Plan either by a direct rollover to the Plan or by a distribution followed by a contribution within sixty days of receipt.

 

 

(c)

Participant Accounts

 

Each participant’s account is credited with the participant’s contribution and allocations of the Company’s contribution and Plan earnings. Allocations are based on participant contributions or account balances, as defined. Participants may elect to have their contributions invested in the funds listed in the Plan’s provisions as they choose and may generally also transfer their balances daily among these funds.

 

 

(d)

Vesting

 

Participants are immediately vested in their contributions and the actual earnings thereon.

 

Employer matching contributions are subject to a three-year cliff vesting.

 

Forfeited amounts totaled $17,268 and $7,730 for 2013 and 2012, respectively, and are used to reduce future employer match obligations or plan fees. Forfeitures of $4,816 and $4,201 for 2013 and 2012, respectively, were used to reduce current year employer contributions.

 

 

(e)

Voting Rights

 

Each participant is entitled to exercise voting rights attributable to the shares allocated to his or her account and is notified by the trustee prior to the time that such rights are to be exercised. The trustee is not permitted to vote any allocated share for which instructions have not been given by a participant. The trustee is required, however, to vote any unallocated shares on behalf of the collective best interest of plan participants and beneficiaries.

 

(Continued)

 

 

 
6
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

 

(f)

Notes Receivable from Participants

 

Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan terms range from 1 to 5 years, except loans used to purchase a primary residence, which may have a term up to 15 years. All loans are secured by the balance in the participant’s account and bear interest at a rate equal to the prime rate or prime rate plus 1%. Principal and interest payments must be made monthly.

 

 

(g)

Risks and Uncertainties

 

The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, changes in the values of investment securities will occur in the near term that could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.

 

At December 31, 2013 and 2012, approximately 7% and 3% of the Plan’s net assets were invested in the common stock of HMN Financial, Inc, respectively. The underlying value of the HMN Financial, Inc. common stock is entirely dependent upon the performance of HMN Financial, Inc. and the market’s evaluation of such performance. It is at least reasonably possible that changes in the fair value of HMN Financial, Inc. common stock in the near term could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits and the statements of changes in net assets available for benefits.

 

 

(h)

Distributions

 

Upon termination of employment for any reason, the vested portion of the participant’s account balance becomes fully payable. Distributions are paid in cash in either one lump sum or under installments.

 

 

(i)

Participating Employers

 

The Company is a member of a controlled group of corporations as defined in Section 414(b) of the IRC. All members of the controlled group participated in the Plan.

 

 

(j)

Costs and Expenses

 

Asset management fees ranging between 38 and 85 basis points are assessed annually on average net asset values and are deducted from the individual funds. In addition, accounting and administrative fees totaling $18,996 and $18,482 were paid in 2013 and 2012, respectively.

 

(3)

Plan Termination

 

The Company, by action of its board of directors, may terminate the Plan. All participants at the time of such termination shall be 100% vested in their account balances and shall be entitled to a benefit equal to the value of their accounts as determined as of the valuation date following termination.

 

 

(Continued)

 

 

 
7
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

(4)

Description of Investment Options

 

Participant contributions are invested by the Plan Trustee in accordance with participant elections, in one or more of the investment options the Plan offers in increments of 1%.

 

 

(a)

American Funds AMCAP Fund A

 

This fund seeks to provide long-term growth of capital. It invests in established growth companies of any size with records of steady, above-average earnings and a growth rate faster than that of the general market. The fund primarily invests in U.S. common stocks, as well as convertible preferred stocks and cash and equivalents.

 

 

(b)

American Funds Europacific Fund A

 

This fund invests in growing companies based chiefly in Europe and the Pacific Basin, ranging from small firms to large corporations. It invests primarily in common and preferred stocks, convertibles, American Depositary Receipts, European Depositary Receipts, bonds, and cash. Normally, at least 80% of assets must be invested in securities of issuers domiciled in Europe or the Pacific Basin.

 

 

(c)

American Funds Growth Fund A

 

This fund seeks to provide long-term growth of capital through a diversified portfolio of common stocks. The fund may invest in cyclical companies, turnarounds, and value situations. It invests primarily in common stocks, convertibles, preferred stocks, U.S. government securities, bonds, and cash.

 

 

(d)

DFA Emerging Markets Value Fund

 

This fund seeks long-term capital appreciation. The fund invests substantially all assets in its corresponding Master Fund, the Dimensional Emerging Markets Value Fund (the Emerging Markets Value Fund). The master fund invests normally at least 80% of net assets in emerging markets investments that are defined as Approved Markets securities and may purchase emerging market equity securities across all market capitalizations. The master fund can lend its portfolio securities to generate additional income.

 

 

(e)

Dodge & Cox Stock Fund

 

The objective of this fund is long-term growth of principal and income. The fund invests primarily in a diversified portfolio of common stocks.

 

 

(f)

Galliard/Wells Fargo Stable Value Fund M

 

This fund invests in investment instruments issued by highly rated financial institutions. These instruments include GICs, bank investment contracts and security-backed contracts. Safety of principal, consistency of returns with minimal volatility and liquidity for participant-initiated withdrawals are key objectives of the fund.

 

 

(Continued)

 

 

 
8
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

 

(g)

JP Morgan Mid Cap Value Institutional Fund

 

This fund seeks growth from capital appreciation. The fund normally invests at least 80% of assets in equity securities of mid cap companies. Mid cap companies are companies with market capitalizations between $1 billion and $20 billion at the time of purchase. In implementing its main strategies, the fund’s investments are primarily in common stock and real estate investment trusts (REITs).

 

 

(h)

JP Morgan Smart Retirement Funds 2020 – 2050 Select Funds

 

This suite of investments seeks total return with a shift to current income and some capital appreciation. Each fund in the suite is a “fund of funds” that invests assets in a combination of equity, fixed-income and short-term mutual funds in the same group of investment companies. The advisor uses a different asset allocation strategy depending on the specific target retirement date of each individual offering within the suite. Generally, the adviser changes each fund’s asset allocation on at least an annual basis with the asset allocation becoming more conservative (i.e., more emphasis on fixed income funds and less on U.S. equity and other funds) as the fund nears the target retirement date.

 

 

(i)

PIMCO Total Return Fund

 

This fund seeks maximum total return. The fund normally invests at least 65% of assets in a diversified portfolio of Fixed-Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment-grade debt securities, but may invest up to 10% of total assets in high-yield securities (junk bonds). The fund may invest all assets in derivative instruments, such as options, futures contracts, or swap agreements, or in mortgage – or asset-backed securities.

 

 

(j)

Royce Premier Fund

 

This fund seeks capital appreciation by investing primarily in stocks of small companies, as determined by either market capitalization or assets.

 

 

(k)

T. Rowe Price Mid Cap Growth Advisors Fund

 

This fund seeks capital appreciation by investing primarily in equity securities of companies with earnings that are expected to grow at an above-average rate. Current income, if considered at all, is a secondary objective.

 

 

(l)

Vanguard 500 Index Fund Signal Shares

 

This fund seeks to provide investment results that correspond to the total return performance of common stocks of companies publicly traded in the United States. The fund attempts to duplicate the composition and total return of the S&P 500 Index while keeping transaction costs low.

 

 

(Continued)

 

 

 
9
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

 

(m)

Vanguard Mid Cap Index Fund Signal Shares

 

This fund seeks to provide investment results that correspond to the total return performance of common stocks of companies publicly traded in the United States. The fund attempts to duplicate that composition and total return of the S&P 400 Mid Cap Index while keeping transaction costs low.

 

 

(n)

Vanguard Small Cap Index Fund Signal Shares

 

This investment seeks to track the performance of a benchmark index that measures the investment return of small capitalization stocks. The fund employs a passive management investment approach designed to track the performance of the MSCI U.S. Small Cap 1750 index, a broadly diversified index of the stocks of smaller U.S. companies. It attempts to replicate the target index by investing all, or substantially all, of assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

 

 

(o)

Vanguard Wellesley Fund

 

This fund seeks total return by investing in a relatively fixed combination of both stocks and bonds. In general, these funds will hold a minimum of 25% in stocks and 25% in bonds at any time.

 

 

(p)

Wells Fargo Government Securities Fund

 

This fund invests primarily in high-quality bonds issued by the U.S. government or its agencies. The fund seeks total return by investing for a high level of current income with a moderate degree of share-price fluctuation.

 

 

(q)

HMN Financial, Inc. Common Stock

 

The fund invests in the common stock of HMN Financial, Inc., the holding company of Home Federal Savings Bank.

 

 

(Continued)

 

 

 
10
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

(5)

Investments

 

The following investments equal or exceed 5% of net assets available for plan benefits at December 31, 2013 and/or 2012:

 

   

Fair value

  
   

2013

    

2012

  

American Funds Europacific Fund A

   $ 1,282,870       1,032,437  

American Funds Growth Fund A

     887,693       660,007  

Dodge & Cox Stock Fund

     1,519,018       1,124,524  

Galliard/Wells Fargo Stable Value Fund M

     956,909       1,091,967  

Royce Premier Fund

     1,362,091       1,087,130  

T. Rowe Price Mid Cap Growth Advisors Fund

     799,842       550,875  

Vanguard 500 Index Fund Signal Shares

     1,263,716       964,164  

Vanguard Mid Cap Index Fund Signal Shares

     1,294,072       990,799  

Vanguard Wellesley Fund

     727,063       692,128  

Wells Fargo Government Securities Fund

     753,996       712,141  

HMN Financial, Inc. Common Stock

     995,366       *  

 

*Investment did not equal or exceed 5% of net assets available for benefits at December 31, 2012.

 

 

(6)

Fair Value Measurements

 

ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), governs the application of U.S. generally accepted accounting principles that require fair value measurements of the Plan’s assets and liabilities and disclosures about those measurements. Fair value is an estimate of the price the Plan would receive upon selling a security in an orderly transaction between market participants in the principal or most advantageous market of the security. ASC 820 establishes a three-tiered hierarchy, which prioritizes and ranks the level of market price observability used in measuring investments at fair value. The level in the fair value hierarchy within which the fair value measurement of the asset in its entirety is classified is based on the lowest level input that is significant to the fair value measurement. These inputs are summarized in the three broad levels listed below:

 

 

Level 1

Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 are money market funds, publicly traded equity securities, and mutual funds. The quoted prices for these investments are not adjusted because of the size of the position relative to trading volume (blockage factor).

 

 

Level 2

Pricing inputs are other than quoted prices in active markets for identical or similar instruments. Investments that may be included in this category are publicly traded equity securities with restrictions (e.g., lock-up agreements) or equity or debt securities of private companies provided the transaction is both recent and between willing parties for the same securities and therefore could be used as an estimate of the theoretical exit price.

 

 

(Continued)

 

 

 
11
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

 

Level 3

Pricing inputs are unobservable that are significant to the fair value measurement and include situations where there is little, if any, market activity for the investment. Fair value for these investments is estimated using valuation methodologies that consider a range of factors in estimating the exit price from the perspective of market participants, as discussed in note 1(e). Investments that are included in this category generally are privately held debt and equity securities.

 

Valuation levels are not necessarily an indication of the risk associated with investing in those securities.

 

The following is a description of the valuation methodologies used for assets held and carried at fair value:

 

 

●

Cash equivalents – Valued at stated value, which approximates fair value.

 

 

●

Collective trust fund – The estimated fair value of the collective trust fund is net asset value, exclusive of the adjustment to contract value, based on the fair value of securities underlying the fund. The use of net asset value as fair value is deemed appropriate as the collective trust fund does not have finite lives, unfunded commitments relating to these types of investments, or significant restrictions on redemptions.

 

 

●

Common stock – Valued daily based on unadjusted quoted prices from national exchanges.

 

 

●

Mutual funds – Valued daily based on unadjusted quoted prices from national exchanges and commonly used third-party services.

 

The following tables present the level within the fair value hierarchy at which the investments are measured on a recurring basis as of December 31, 2013 and 2012:

 

   

December 31, 2013

  
   

Level 1

    

Level 2

    

Level 3

    

Total

  

Cash equivalents

   $ 43,912       —       —       43,912  

Collective trust fund

     —       956,909       —       956,909  

HMN Financial, Inc. common stock

     995,366       —       —       995,366  

Mutual funds:

                                

Domestic equity

     8,264,408       —       —       8,264,408  

International equity

     1,374,959       —       —       1,374,959  

Balanced

     727,063       —       —       727,063  

Fixed income or bond

     1,001,935       —       —       1,001,935  

Target date

     518,874       —       —       518,874  
    $ 12,926,517       956,909       —       13,883,426  

 

 

(Continued)

 

 

 
12
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

   

December 31, 2012

  
   

Level 1

    

Level 2

    

Level 3

    

Total

  

Cash equivalents

   $ 34,414       —       —       34,414  

Collective trust fund

     —       1,091,967       —       1,091,967  

HMN Financial, Inc. common stock

     347,180       —       —       347,180  

Mutual funds:

                                

Domestic equity

     6,054,395       —       —       6,054,395  

International equity

     1,097,093       —       —       1,097,093  

Balanced

     692,128       —       —       692,128  

Fixed income or bond

     892,268       —       —       892,268  

Target date

     339,449       —       —       339,449  
    $ 9,456,927       1,091,967       —       10,548,894  

 

 

For the years ended December 31, 2013 and 2012, the Plan held no assets in which significant unobservable inputs (Level 3) were used in determining fair value. The Plan did not have any transfers between Levels 1 and 2 during the periods.

 

(7)

Income Tax Status

 

The IRS determined and informed the Company by a letter dated May 11, 1994 that the Plan and related trust, as then designed, were in compliance with the provisions of 401(a) of the IRC and were thereby exempt from federal income taxes under Section 501(a) of the IRC. The Plan has been amended in its entirety since receiving this determination letter. During 2009, the Plan, as amended, was again submitted to the IRS for determination of its tax-exempt status. A favorable determination was received on September 09, 2010; therefore, no provision for income taxes has been included in the Plan’s financial statements. Although the Plan was subsequently amended in December 2010, the Plan administrator and the Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.

 

U.S. generally accepted accounting principles require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2013, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2010.

 

(Continued)

 

 

 
13
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Notes to Financial Statements

 

December 31, 2013 and 2012

 

 

(8)

Party-in-Interest Transactions

 

The Plan engages in investment transactions involving the acquisition or disposition of HMN Financial, Inc. common stock. HMN Financial, Inc. is the holding company of Home Federal Savings Bank and is a party in interest. Also, certain Plan investments are shares of mutual funds managed by ABG. ABG is appointed as the third-party administrator of the Plan as defined by the Summary Plan Document and is a party in interest. These transactions are covered by an exemption from the “prohibited transactions” provisions of ERISA and the IRC.

 

(9)

Reconciliation of Financial Statements to Form 5500

 

The following is a reconciliation of net assets available for benefits per the financial statements as of December 31, 2013 to Form 5500:

 

Net assets available for benefits per the financial statements

   $ 14,039,271  

Add: Accrued expenses

     8,524  

Less: Contributions receivable

     (10,992 )

  Stock transaction in process

     (433 )

Adjustment from contract value to fair value for fully benefit-responsive investment contracts

     7,595  

Net assets available for benefits per Form 5500

   $ 14,043,965  

 

 

The following is a reconciliation of changes in net assets available for benefits per the financial statements for the year ended December 31, 2013 to Form 5500:

 

Change in net assets available for benefits per the financial statements

   $ 3,407,424  

Less: Stock transaction in process

     (433 )

Adjustment to administrative expenses

     4,987  

Adjustment to contributions

     (358 )

Adjustment from contract value to fair value for fully benefit-responsive investment contracts

     (23,180 )

Change in net assets available for benefits per Form 5500

   $ 3,388,440  

 

 

 
14
 

 

HOME FEDERAL SAVINGS BANK EMPLOYEES’

SAVINGS AND PROFIT SHARING PLAN

 

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)

 

December 31, 2013

  

 

Description

  

Number of

units

    

Current

value **

  

American Funds AMCAP Fund A

     23,845.496     $ 651,697  

American Funds Europacific Fund A

     26,143.671       1,282,870  

American Funds Growth Fund A

     20,644.018       887,693  

DFA Emerging Markets Value Fund

     3,335.354       92,089  

Dodge & Cox Stock Fund

     8,995.189       1,519,018  

Galliard/Wells Fargo Stable Value Fund M

     20,052.585       956,909  

JP Morgan Mid Cap Value Institutional Fund

     6,976.482       245,014  

JP Morgan Smart Retirement 2020 Select Fund

     577.793       10,342  

JP Morgan Smart Retirement 2025 Select Fund

     4,286.534       73,943  

JP Morgan Smart Retirement 2030 Select Fund

     8,495.898       157,514  

JP Morgan Smart Retirement 2035 Select Fund

     4,529.900       80,406  

JP Morgan Smart Retirement 2040 Select Fund

     7,272.949       138,186  

JP Morgan Smart Retirement 2045 Select Fund

     2,735.588       49,159  

JP Morgan Smart Retirement 2050 Select Fund

     519.750       9,324  

PIMCO Total Return Fund

     23,193.575       247,939  

Royce Premier Fund

     61,605.217       1,362,091  

T. Rowe Price Mid Cap Growth Advisors Fund

     11,240.044       799,842  

Vanguard 500 Index Fund Signal Shares

     8,980.357       1,263,716  

Vanguard Mid Cap Index Fund Signal Shares

     30,108.707       1,294,072  

Vanguard Small Cap Index Fund Signal Shares

     5,080.328       241,265  

Vanguard Wellesley Fund

     29,258.085       727,063  

Wells Fargo Government Securities Fund

     69,943.998       753,996  

Fidelity Advisor Daily Prime Money Market Account

     26,539.390       26,540  

TD Bank USA Institutional Money Market

     0.050       —  

TD Bank USA Money Market Account

     17,372.358       17,372  

*HMN Financial, Inc. Common Stock

     94,169       995,366  

Total investments

             13,883,426  

Notes receivable from participants (3.25% to 4.25%) (maturing 2014 through 2023)

     18       161,046  

Total assets

           $ 14,044,472  

 

*Party in interest.

 

**Investments are participant directed and as such cost information is not required.

 

 

See accompanying report of independent registered public accounting firm.

 

 

 
15
 

 

 

SIGNATURES

 

The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN

 

 

 

 

 

 

 

 

Date: June 20, 2014 

By: 

/s/ Jon Eberle

 

 

 

Jon Eberle

 

 

 

Title: Principal Financial Officer,  

    Home Federal Savings Bank

 

  

 
 

 

EXHIBIT INDEX

 

  

Exhibit
Number

 

23                                 Consent of Independent Registered Public Accounting Firm