A restless institutional investor is angling for more control of HMN Financial Inc., a $542 million-asset thrift company in Spring Valley, Minn.

Frustrated by HMN's lackluster returns, LaSalle Financial Partners, a Kalamazoo, Mich., investment firm, has nominated a candidate to the company's board of directors.

A voice on the board, said LaSalle partner Richard Nelson, would assure the firm of a say in HMN's future, which may include sale to a competitor.

"Based on what we see, we think the earnings picture is not good for the company," said Mr. Nelson, whose firm bought a 10% stake in HMN last April. "And our experience tells us that in most cases merging with a more profitable company is the best way" to improve earnings.

But Roger Weise, president and chief executive officer of HMN, said the company is committed to remaining independent. Management is not supporting LaSalle's nominee, Thomas A. Burton, a former Minnesota public utilities commissioner.

The annual meeting is scheduled for next month.

HMN is the parent company of 64-year-old Home Federal Savings Bank.

Given LaSalle's history, Mr. Weise said, he is not surprised that it would try to gain board representation. "When they buy into a bank, they try to influence the board," he said.

LaSalle has acquired significant stakes in several banks, and forced their sale. It was the largest shareholder of Chicago's Standard Financial Inc., which was sold to Minneapolis-based TCF Financial Corp. last year for $424 million in cash.

HMN's sluggish financial performance can be traced to overcapitalization, said Steven L. Covington, vice president of financial institutions research at Stiefel Nicolaus & Co. in St. Louis.

The company's capital-to-asset ratio is 12.2%, way above the 9% average at the 29 midwestern thrifts tracked by the company. As a result, HMN's return on equity for the quarter ended Dec. 31 was 6.09%, just over half the 11.5% average; and its return on assets was 0.84%, well below the 1.4% average.

Still, Mr. Covington is optimistic that HMN will recover. Though Stiefel Nicolaus has downgraded its recommendation to "hold," Mr. Covington said HMN has "outstanding asset quality" and was able to deploy some excess capital with its recent $26 million acquisition of Iowa's Marshalltown Financial Corp.

"I think they are moving in the right direction," Mr. Covington said. "LaSalle is just getting impatient."

But Mr. Nelson questioned the wisdom of acquiring Marshalltown, which itself had been struggling. "We don't believe that two unprofitable companies put together make a better company," he said.

LaSalle's nomination of Mr. Burton, announced this week, was not its first bid for an HMN directorship. Last fall Mr. Nelson asked the six- member board to add him as a seventh; it refused, and in addition amended the bylaws to exclude non-Minnesotans.

Asked if he could co-exist with a LaSalle representative on the HMN board, Mr. Weise said, "Based on their past history, it would not seem possible."

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