Exhibit 99.1

HMN Financial, Inc. Announces Fourth Quarter Results

ROCHESTER, Minn.--(BUSINESS WIRE)--January 23, 2012--HMN Financial, Inc. (NASDAQ:HMNF):

Fourth Quarter Highlights

• Net loss of $7.6 million compared to net loss of $9.9 million for fourth quarter of 2010
• Diluted loss per common share of $2.08 compared to diluted loss per common share of $2.73 in the fourth quarter of 2010
• Provision for loan losses of $7.6 million, down $2.9 million from fourth quarter of 2010
• Non-performing assets of $50.6 million, down $9.4 million from third quarter of 2011
• Total assets decreased $28.2 million in fourth quarter of 2011

Annual Highlights

• Net loss of $11.6 million compared to net loss of $29.0 million for 2010
• Diluted loss per common share of $3.47 compared to diluted loss per common share of $8.17 for 2010
• Provision for loan losses of $17.3 million for 2011, down $16.1 million from 2010
• Non-performing assets of $50.6 million, down $33.9 million from December 31, 2010
• Total assets decreased $90.5 million in 2011

HMN Financial, Inc. (HMN or the Company) (NASDAQ:HMNF), the $790 million holding company for Home Federal Savings Bank (the Bank), today reported a net loss of $7.6 million for the fourth quarter of 2011, a $2.3 million improvement from the net loss of $9.9 million for the fourth quarter of 2010. Net loss available to common shareholders for the fourth quarter of 2011 was $8.1 million, an improvement of $2.3 million, from the net loss available to common shareholders of $10.4 million for the fourth quarter of 2010. Diluted loss per common share for the fourth quarter of 2011 was $2.08, an improvement of $0.65 from the diluted loss per common share of $2.73 for the fourth quarter of 2010. The decrease in the net loss in the fourth quarter of 2011 is due primarily to a $2.9 million decrease in the provision for loan losses between the periods. The provision for loan losses decreased primarily because fewer write downs on commercial real estate loans were recorded in the fourth quarter of 2011 when compared to the fourth quarter of 2010. The provision also decreased because of the $127 million decrease in the loan portfolio between the periods.

President’s Statement
“The operating results for the fourth quarter of 2011 reflect the challenging economic environment that continues to have a negative impact on commercial real estate values and our provision for loan losses,” said Brad Krehbiel, President of HMN. “We are encouraged by the results of our ongoing efforts to improve credit quality in our commercial loan portfolio as evidenced by the positive trend of declining non-performing assets. We will continue to focus our efforts on further reducing these non-performing assets while, at the same time, increasing our core deposit relationships, and reducing expenses.”

Fourth Quarter Results

Net Interest Income
Net interest income was $6.9 million for the fourth quarter of 2011, a decrease of $0.4 million, or 5.6%, compared to $7.3 million for the fourth quarter of 2010. Interest income was $9.2 million for the fourth quarter of 2011, a decrease of $1.6 million, or 15.0%, from $10.8 million for the same period in 2010. Interest income decreased between the periods primarily because of an $84 million decrease in the average interest-earning assets and a decrease in the average yields between the periods. Average interest-earning assets decreased between the periods primarily because of a decrease in the commercial loan portfolio, which occurred because of declining loan demand and the Company’s focus on improving credit quality, managing net interest margin and improving capital ratios. The average yield earned on interest-earning assets was 4.75% for the fourth quarter of 2011, a decrease of 29 basis points from the 5.04% average yield for the fourth quarter of 2010. The decrease in yield is the result of the lower interest rate environment that existed during the fourth quarter of 2011 when compared to the fourth quarter of 2010.

Interest expense was $2.3 million for the fourth quarter of 2011, a decrease of $1.2 million, or 34.3%, compared to $3.5 million for the fourth quarter of 2010. Interest expense decreased primarily because of a $73 million decrease in the average interest-bearing liabilities between the periods. The decrease in the average interest-bearing liabilities is primarily the result of a decrease in outstanding borrowings and brokered deposits between the periods. The decrease in borrowings and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered deposits. Interest expense also decreased because of the lower rates paid on retail money market accounts and certificates of deposits. The decreased rates were the result of the lower interest rate environment that existed during the fourth quarter of 2011 when compared to the fourth quarter of 2010. The average interest rate paid on interest-bearing liabilities was 1.26% for the fourth quarter of 2011, a decrease of 48 basis points from the 1.74% average rate paid in the fourth quarter of 2010. Net interest margin (net interest income divided by average interest-earning assets) for the fourth quarter of 2011 was 3.55%, an increase of 16 basis points, compared to 3.39% for the fourth quarter of 2010.

Provision for Loan Losses
The provision for loan losses was $7.6 million for the fourth quarter of 2011, a decrease of $2.9 million, or 27.8%, from $10.5 million for the fourth quarter of 2010. The provision decreased primarily because of fewer write downs on commercial real estate loans between the periods. These decreases in the provision were partially offset by an increase in the general reserves required for other risk rated commercial loans as a result of our quarterly internal loan portfolio analysis. Total non-performing assets were $50.6 million at December 31, 2011, a decrease of $9.4 million, or 15.6%, from $60.0 million at September 30, 2011. Non-performing loans decreased $4.9 million and foreclosed and repossessed assets decreased $4.5 million during the fourth quarter of 2011. The non-performing loan and foreclosed and repossessed asset activity for the fourth quarter of 2011 was as follows:

A reconciliation of the allowance for loan losses for the fourth quarters of 2011 and 2010 is summarized as follows:

Charge offs increased and the allocated allowance decreased in the fourth quarter of 2011 when compared to the same period in 2010 due primarily to the modification of our charge off policy on non-performing loans secured by real estate in the fourth quarter of 2011, which required the charge off of previously established specific valuation allowances (SVAs).

Previously, when a collateral-dependent loan was characterized as a loss, the Company typically established an SVA based on the estimated fair value of the underlying collateral, less any related selling costs and the actual charge off of the loan was not recorded until the foreclosure process was complete. The gross loan balance for these non-performing loans was reported as an outstanding loan with any associated SVAs included in the financial statements as part of the allowance for loan losses. Under the modified policy, which is also acceptable under Generally Accepted Accounting Principles, SVAs are no longer recognized and any losses on loans secured by real estate are charged off in the period the loans, or portion thereof, are deemed uncollectible. The change in policy resulted in additional charge offs in the fourth quarter of 2011 of $9.6 million. All of these charge offs were previously included in the Company’s loss history as part of the evaluation of the allowance for loan losses. Therefore, the additional charge offs did not affect the Company’s provision for loan losses or net income for the period.

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 two most recently completed quarters and December 31, 2010.

(1) Excludes non-accrual loans.

The following table summarizes the number and types of commercial real estate loans (the largest category of non-performing loans) that were non-performing as of the end of the two most recently completed quarters and December 31, 2010.

The Company had allocated reserves established against the above commercial real estate loans of $2.9 million, $4.2 million, and $13.3 million, respectively, at December 31, 2011, September 30, 2011 and December 31, 2010.

The following table summarizes the number of lending relationships and industry of commercial business loans that were non-performing for the two most recent quarters and December 31, 2010.

The Company had allocated reserves established against the above commercial business loans of $0.6 million, $2.8 million and $10.7 million, respectively, at December 31, 2011, September 30, 2011 and December 31, 2010.

Non-Interest Income and Expense
Non-interest income was $2.0 million for the fourth quarter of 2011, the same as the fourth quarter of 2010. Fees and service charges decreased $95,000 between the periods primarily because of decreased overdraft fees and debit card income between the periods. Loan servicing fees decreased $21,000 between the periods primarily because of a decrease in the number of commercial loans that are being serviced for others. Other income increased $50,000 between the periods due to an increase in the income recognized on the sale of uninsured investment products and increased earnings from limited partnership investments. Gain on sales of loans increased $17,000 due primarily to an increase in the gain recognized on the sale of government guaranteed commercial loans between the periods.

Non-interest expense was $8.9 million for the fourth quarter of 2011, an increase of $0.7 million, or 7.9%, from $8.2 million for the same period of 2010. Losses on real estate owned increased $0.9 million from the fourth quarter of 2010 primarily because of decreases in the fair market values of the assets required that they be written down. Data processing expense increased $163,000 from the fourth quarter of 2010 primarily because of a one time incentive that was received by the Company in the fourth quarter of 2010 when it changed its ATM and debit card vendor. Deposit insurance expense decreased $185,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in the asset size of the Bank between the periods. Other non-interest expenses decreased $97,000 between the periods primarily because of decreased costs related to other real estate owned. Compensation and benefits expense decreased $95,000 between the periods primarily because of a decrease in the compensation paid as a result of having fewer employees and also because there were fewer loan originations in the fourth quarter of 2011 when compared to the same period in 2010.

Income tax expense decreased $482,000 between the periods, from an expense of $482,000 in the fourth quarter of 2010 to no expense in the fourth quarter of 2011. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at December 31, 2011. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for the fourth quarter of 2011.

Net Loss Available to Common Shareholders
The net loss available to common shareholders was $8.1 million for the fourth quarter of 2011, a decreased loss of $2.3 million from the $10.4 million net loss available to common shareholders in the fourth quarter of 2010. The net loss available to common shareholders decreased primarily because of the change in the net loss between the periods. The Company deferred the February 15, 2011, May 15, 2011, August 15, 2011, and November 15, 2011 cash dividend payments on its Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued to the United States Treasury Department as part of the TARP Capital Purchase Program. The deferred dividend payments have been accrued for payment in the future and are being reported for the deferral period as a preferred dividend requirement that is deducted from the net loss for financial statement purposes to arrive at the net loss available to common shareholders.

Loss on Assets and Equity
The loss on average assets for the fourth quarter of 2011 was 3.75%, compared to a 4.41% loss on average assets for the fourth quarter of 2010. Loss on average equity was 45.87% for the fourth quarter of 2011, compared to a 49.64% loss for the same period of 2010. Book value per common share at December 31, 2011 was $7.36, compared to $10.51 at December 31 2010.

Annual Results

Net Loss
The net loss was $11.6 million for 2011, an improvement of $17.4 million, from the $29.0 million loss for 2010. The net loss available to common shareholders was $13.4 million for the year ended December 31, 2011, an improvement of $17.4 million, from the net loss available to common shareholders of $30.8 million for 2010. Diluted loss per common share for the year ended December 31, 2011 was $3.47, an improvement of $4.70 from the $8.17 diluted loss per common share for the year ended December 31, 2010.

Net Interest Income
Net interest income was $28.4 million for 2011, a decrease of $2.6 million, or 8.4%, from $31.0 million for 2010. Interest income was $39.5 million for 2011, a decrease of $8.8 million, or 18.1%, from $48.3 million for 2010. Interest income decreased between the periods primarily because of a $132 million decrease in the average interest-earning assets and a decrease in the average yields between the periods. Average interest-earning assets decreased between the periods primarily because of a decrease in the commercial loan portfolio, which occurred because of declining loan demand and the Company’s focus on improving credit quality, managing net interest margin and improving capital ratios. The average yield earned on interest-earning assets was 5.00% for the year ended December 31, 2011, a decrease of 23 basis points from the 5.23% average yield for 2010.

Interest expense was $11.1 million for the year ended December 31, 2011, a decrease of $6.2 million, or 35.5%, from $17.3 million for 2010. Interest expense decreased primarily because of a $115 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the average outstanding borrowings and brokered deposits between the periods. The decrease in borrowings and brokered deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered deposits. Interest expense also decreased because of the lower rates paid on retail money market accounts and certificates of deposits. The decreased rates were the result of the lower interest rate environment that existed during 2011. The average interest rate paid on interest-bearing liabilities was 1.47% for the year ended December 31, 2011, a decrease of 51 basis points from the 1.98% average rate paid for the same period of 2010. Net interest margin (net interest income divided by average interest-earning assets) was 3.59% for the year ended December 31, 2011, an increase of 23 basis points, from the 3.36% margin for 2010.

Provision for Loan Losses
The provision for loan losses was $17.3 million for the year ended December 31, 2011, a decrease of $16.1 million, from $33.4 million for the year ended December 31, 2010. The provision decreased between the periods primarily because fewer loan losses were recognized due to fewer write downs on non-performing real estate loans in 2011 when compared to 2010. The provision also decreased because of the $132 million decrease in the loan portfolio between the periods. Total non-performing assets were $50.6 million at December 31, 2011, a decrease of $33.9 million, or 40.0%, from $84.5 million at December 31, 2010. Non-performing loans decreased $34.1 million and foreclosed and repossessed assets increased $0.2 million during 2011. The non-performing loan and foreclosed and repossessed asset activity for 2011 was as follows:

A reconciliation of the allowance for loan losses for 2011 and 2010 is summarized as follows:

Charge offs increased and the allocated allowance decreased in 2011 when compared to 2010 due primarily to two factors. The first factor was the modification of our charge off policy in the fourth quarter of 2011 relating to non-performing loans secured by real estate, as described above, which required the charge off of previously established specific valuation allowances (SVAs) and the second factor was that in certain instances the borrower’s financial condition had deteriorated to the point that a charge off of the loan balance was warranted.

Non-Interest Income and Expense
Non-interest income was $6.9 million for the year ended December 31, 2011, a decrease of $0.4 million, or 5.5%, from $7.3 million for the year ended December 31, 2010. Gain on sales of loans decreased $331,000 between the periods primarily because of a decrease in the gains recognized on the sale of single family mortgage loans caused by a decrease in loan originations between the periods. Loan servicing fees decreased $80,000 between the periods due primarily to a decrease in the number of commercial loans that are being serviced for others.

Non-interest expense was $29.6 million for the year ended December 31, 2011, an increase of $2.0 million, or 7.2%, from $27.6 million for the same period in 2010. Losses on real estate owned increased $1.5 million between the periods primarily because of an increase in the losses recognized because of declines in the fair market value of other real estate. Other non-interest expenses increased $1.3 million primarily because of increased real estate taxes and legal fees related to other real estate owned. Data processing expense increased $181,000 primarily because of a one time incentive that was received by the Company in the fourth quarter of 2010 when it changed its ATM and debit card vendor. Deposit insurance expense decreased $678,000 between the periods primarily because of a change in the FDIC’s insurance cost structure and also because of a decrease in assets between the periods. Occupancy expense decreased $341,000 primarily because of a decrease in depreciation expense.

Income tax expense decreased $6.3 million between the periods, from an expense of $6.3 million in 2010 to no expense in 2011. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at December 31, 2011. Since the valuation reserve is established against the entire deferred tax asset balance, no income tax expense was recorded for 2011.

Net Loss Available to Common Shareholders
The net loss available to common shareholders was $13.4 million for the year ended December 31, 2011, an improvement of $17.4 million, from the net loss available to common shareholders of $30.8 million for 2010. The net loss available to common shareholders decreased primarily because of the decrease in the net loss between the periods. The Company deferred the February 15, 2011, May 15, 2011, August 15, 2011, and November 15, 2011 cash dividend payments on its Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued to the United States Treasury Department as part of the TARP Capital Purchase Program. The deferred dividend payments have been accrued for payment in the future and are being reported for the deferral period as a preferred dividend requirement that is deducted from the net loss for financial statement purposes to arrive at the net loss available to common shareholders.

Loss on Assets and Equity
Loss on average assets was 1.39% for 2011, compared to a 2.98% loss for 2010. Loss on average common equity was 16.94% for 2011, compared to a 31.73% loss for 2010.

General Information
HMN Financial, Inc. and Home Federal Savings Bank are headquartered in Rochester, Minnesota. The Bank operates nine full service offices in Minnesota located in Albert Lea, Austin, Eagan, LaCrescent, Rochester (3), Spring Valley and Winona; two full service offices in Iowa located in Marshalltown and Toledo; one loan origination office in Sartell, Minnesota; and two Private Banking offices in Rochester, Minnesota. The Bank has entered into a definitive purchase and assumption agreement with Pinnacle Bank of Marshalltown, Iowa (“Pinnacle”) to sell substantially all of the assets associated with the Toledo, Iowa branch of the Bank (the “Toledo Branch”) and the assumption by Pinnacle of all deposit liabilities of the Toledo Branch. The transaction is subject to regulatory approval and scheduling of the required Toledo Branch data processing conversion. Subject to the foregoing and other customary terms and conditions, the transaction is anticipated to be consummated in the first quarter of 2012.

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 are often identified by such forward-looking terminology as “expect,” “intent,” “look,” “believe,” “anticipate,” “estimate,” “project,” “seek,” “may,” “will,” “would,” “could,” “should,” “trend,” “target,” and “goal” or similar statements or variations of such terms and include, but are not limited to, those relating to the adequacy and amount of available liquidity and capital resources to the Bank; the Company’s liquidity and capital requirements, our expectations for core capital and our strategies and potential strategies for improvement thereof; changes in the size of the Bank’s loan portfolio; the recovery of the valuation allowance on deferred tax assets; the amount and mix of the Bank’s non-performing assets and the appropriateness of the allowance therefor; future losses on non-performing assets; the amount of interest-earning assets; the amount and mix of brokered and other deposits (including the Company’s ability to renew brokered deposits); the availability of alternate funding sources; the payment of dividends; the future outlook for the Company; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer trust preferred securities held by the Bank; expectations relating to the change in Company and Bank primary banking regulators from the Office of Thrift Supervision to the Office of the Comptroller of the Currency (OCC) and Federal Reserve Board (FRB); the Bank’s compliance with regulatory standards generally (including the Bank’s status as “well-capitalized”), and supervisory agreements, individual minimum capital requirements or other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject, specifically, and possible responses of the OCC and the Bank and the Company to any failure to comply with any such regulatory standard, agreement or requirement; the anticipated timing of consummation of the Toledo Branch transaction and the anticipated gain on sale and decrease in assets therefrom. 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 and other collateral securing loans to borrowers, possible legislative and regulatory changes, including changes in the degree and manner of regulatory supervision, the ability of the Company and the Bank to establish and adhere to plans and policies relating to, among other things, capital, business, non-performing assets, loan modifications, documentation of loan loss allowance and concentrations of credit that are satisfactory to the OCC and FRB, as applicable, in accordance with the terms of the Company and Bank supervisory agreements and to otherwise manage the operations of the Company and the Bank to ensure compliance with other requirements set forth in the supervisory agreements; the ability of the Company and the Bank to obtain required consents from the OCC and FRB, as applicable, under the supervisory agreements or other directives; the ability of the Bank to comply with its individual minimum capital requirement and other applicable regulatory capital requirements; enforcement activity of the OCC and FRB in the event of our non-compliance with any applicable regulatory standard, agreement or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company’s loan and investment portfolios, changes in costs associated with alternate funding sources, including changes in collateral advance rates and policies of the Federal Home Loan Bank, technological, computer-related or operational difficulties, results of litigation, and 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; the Company’s access to and adverse changes in securities markets; the market for credit related assets; satisfactory completion of the approval process to be undertaken by Pinnacle in connection with the Toledo Branch sale with the Iowa Division of Banking and the Federal Deposit Insurance Corporation, the timing of Branch data conversion by a third party provider, the failure of either the Bank or Pinnacle to fulfill the terms and conditions of the Toledo Branch sale agreement required to be satisfied prior to closing and changes in assets and liabilities at the Toledo Branch prior to closing; 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. For additional discussion of the risks and uncertainties applicable to the Company, see the “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and Part II, Item
1A of its Quarterly Reports on Forms 10-Q. We undertake no duty to update any of the forward-looking statements after the date of this press release.

CONTACT:
HMN Financial, Inc.
Bradley Krehbiel, 507-252-7169
President