Exhibit 10.1

CHANGE-IN-CONTROL AGREEMENT

          AGREEMENT entered into as of March 1, 2004 by and between Home Federal
Savings Bank, a federally chartered savings bank (the “Bank”) and a wholly owned
subsidiary of HMN Financial, Inc., a Delaware corporation (the “Company”), and
Michael McNeil (the “Executive”).

WITNESSETH:

          WHEREAS, the Executive is a key member of the management of the
Company and the Bank and has heretofore devoted substantial skill and effort to
the affairs of the Company and the Bank; and

          WHEREAS, it is desirable and in the best interests of the Bank and the
Company and its shareholders to continue to obtain the benefits of the
Executive’s services and attention to the affairs of the Company and the Bank;
and

          WHEREAS, it is desirable and in the best interests of the Bank and the
Company and its shareholders to provide inducement for the Executive (A) to
remain in the service of the Company and the Bank in the event of any proposed
or anticipated change in control of the Company and (B) to remain in the service
of the Company and the Bank in order to facilitate an orderly transition in the
event of a change in control of the Company; and

          WHEREAS, it is desirable and in the best interests of the Bank and the
Company and its shareholders that the Executive be in a position to make
judgments and advise the Company with respect to proposed changes in control of
the Company or the Bank; and

          WHEREAS, the Executive desires to be protected in the event of certain
changes in control of the Company or the Bank; and

          WHEREAS, Executive and the Bank are currently party to a
Change-in-Control Agreement dated November 1, 2000 (the “Prior Agreement”); and

          WHEREAS, Executive and the Bank desire to terminate the Prior
Agreement and to enter into this Agreement to conform the renewal period of this
Agreement with that of the Executive’s Employment Agreement with the Company;
and

          WHEREAS, for the reasons set forth above, the Bank and the Executive
desire to enter into this Agreement.

          NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the Bank and the Executive agree as
follows:

 

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     1. Employment. The Executive has previously executed an Employment
Agreement (the “Employment Agreement”) which governs the terms of the
Executive’s employment, unless an Event shall be deemed to have occurred as
contemplated by Section 2.

     2. Events. No amounts or benefits shall be payable or provided for pursuant
to this Agreement unless an Event shall occur during the Term of this Agreement.

     (a) For purposes of this Agreement, an “Event” shall be deemed to have
occurred if any of the following occur:

     (i) Any “person” (as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, or any successor statute thereto (the
“Exchange Act”)) acquires or becomes a “beneficial owner” (as defined in
Rule 13d-3 or any successor rule under the Exchange Act), directly or
indirectly, of securities of the Company or the Bank representing 35% or more of
the combined voting power of the then outstanding securities entitled to vote
generally in the election of directors (“Voting Securities”), provided, however,
that the following shall not constitute an Event pursuant to this
Section 2(a)(i):

     (A) any acquisition of beneficial ownership by the Company, the Bank or a
subsidiary of the Company or the Bank;

     (B) any acquisition or beneficial ownership by any employee benefit plan
(or related trust) sponsored or maintained by the Company, the Bank or one or
more of their subsidiaries;

     (C) any acquisition or beneficial ownership by any corporation (including
without limitation an acquisition in a transaction of the nature described in
Section 2(a)(iii)) with respect to which, immediately following such
acquisition, more than 65%, respectively, of (x) the combined voting power of
the Company’s or the Bank’s then outstanding Voting Securities and (y) the
Company’s or the Bank’s then outstanding common stock (the “Common Stock”) is
then beneficially owned, directly or indirectly, by all or substantially all of
the persons who beneficially owned Voting Securities and Common Stock,
respectively, of the Company or the Bank immediately prior to such acquisition
in substantially the same proportions as their ownership of such Voting
Securities and Common Stock, as the case may be, immediately prior to such
acquisition;

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     (D) any acquisition of Voting Securities or Common Stock directly from the
Company or the Bank;

     (ii) Continuing Directors shall not constitute a majority of the members of
the Board of Directors of the Company. For purposes of this Section 2(a)(ii),
“Continuing Directors” shall mean: (A) individuals who, on the date hereof, are
directors of the Company, (B) individuals elected as directors of the Company
subsequent to the date hereof for whose election proxies shall have been
solicited by the Board of Directors of the Company or (C) any individual elected
or appointed by the Board of Directors of the Company to fill vacancies on the
Board of Directors of the Company caused by death or resignation (but not by
removal) or to fill newly-created directorships, provided that a “Continuing
Director” shall not include an individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the threatened election or removal of directors (or other actual or threatened
solicitation of proxies or consents) by or on behalf of any person other than
the Board of Directors of the Company;

     (iii) Consummation of a reorganization, merger or consolidation of the
Company or the Bank or a statutory exchange of outstanding Voting Securities of
the Company or the Bank, unless immediately following such reorganization,
merger, consolidation or exchange, all or substantially all of the persons who
were the beneficial owners, respectively, of Voting Securities and Common Stock
immediately prior to such reorganization, merger, consolidation or exchange
beneficially own, directly or indirectly, more than 65% of, respectively,
(x) the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors and (y) the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger, consolidation or exchange in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger, consolidation or
exchange, of the Voting Securities and Common Stock, as the case may be;

     (iv) (x) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company or the Bank or (y) approval by the
shareholders of the Company of the sale or other disposition of all or
substantially all of the assets of the Company or the Bank (in one or a series
of transactions), other than to a corporation with respect to which, immediately
following such sale or other disposition, more than 65% of, respectively,
(1) the combined voting power of the then outstanding voting securities of such

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corporation entitled to vote generally in the election of directors and (2) the
then outstanding shares of common stock of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the persons who
were the beneficial owners, respectively, of the Voting Securities and Common
Stock immediately prior to such sale or other disposition in substantially the
same proportions as their ownership, immediately prior to such sale or other
disposition, of the Voting Securities and Common Stock, as the case may be;

     (v) The Company or the Bank enters into a letter of intent, an agreement in
principle or a definitive agreement relating to an Event described in Section
2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof that ultimately results in such
an Event, or a tender or exchange offer or proxy contest is commenced which
ultimately results in an Event described in Section 2(a)(i) or 2(a)(ii) hereof;
or

     (vi) There shall be an involuntary termination or Constructive Involuntary
Termination of employment of the Executive, and the Executive reasonably
demonstrates that such event (x) was requested by a party other than the Board
of Directors of the Company or the Bank that had previously taken other steps
reasonably calculated to result in an Event described in Section 2(a)(i),
2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof and which ultimately results in an Event
described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof, or
(y) otherwise arose in connection with or in anticipation of an Event described
in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof that ultimately
occurs.

Notwithstanding anything stated in this Section 2(a), an Event shall not be
deemed to occur with respect to the Executive if (x) the acquisition or
beneficial ownership of the 35% or greater interest referred to in
Section 2(a)(i) is by the Executive or by a group, acting in concert, that
includes the Executive or (y) a majority of the then combined voting power of
the then outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring all or
substantially all of the assets of the Company or the Bank shall, immediately
after a reorganization, merger, consolidation, exchange or disposition of assets
referred to in Section 2(a)(iii) or 2(a)(iv), be beneficially owned, directly or
indirectly, by the Executive or by a group, acting in concert, that includes the
Executive.

     (b) For purposes of this Agreement, a “subsidiary” of the Company or the
Bank shall mean any entity of which securities or other ownership interests
having general voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Company or the Bank.

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     3. Payments and Benefits. If any Event shall occur during the Term of this
Agreement, then the Executive shall be entitled to receive from the Company, the
Bank or either of their successors (which term as used herein shall include any
person acquiring all or substantially all of the assets of the Company or the
Bank) a cash payment and other benefits on the following basis (unless the
Executive’s employment by the Company is terminated voluntarily or involuntarily
prior to the occurrence of the earliest Event to occur (the “First Event”), in
which case the Executive shall be entitled to no payment or benefits under this
Section 3):

     (a) If at the time of, or at any time after, the occurrence of the First
Event and prior to the end of the Transition Period (as defined in
Section 4(d)), the employment of the Executive with the Company or the Bank is
voluntarily or involuntarily terminated for any reason (unless such termination
is a voluntary termination by the Executive other than a Constructive
Involuntary Termination or is on account of the death or Disability of the
Executive or is a termination by the Company or the Bank for Cause), the
Executive (or the Executive’s legal representative, as the case may be),

     (i) shall be entitled to receive from the Company, the Bank or either of
their successors, upon such termination of employment with the Company, the Bank
or either of their successors, a cash payment in an amount equal to 2.99 times
the average annual base salary payable by the Bank and included in the gross
income for Federal Income Tax purposes of the Executive during the shorter of
the period consisting of the five most recently completed taxable years of the
Executive ending before the First Event (other than an Event described in
Section 2(a)(v) or 2(a)(vi) unless the Executive is terminated prior to the
occurrence of an Event described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or
2(a)(iv)) or that portion of such period during which the Executive was employed
by the Company or the Bank (for which purpose compensation for a partial year
shall be annualized, in accordance with temporary or final regulations
promulgated under Section 280G(d) of the Internal Revenue Code of 1986, as
amended (the “Code”), or any successor provision thereto, before determining
average annual compensation for the period, such average annual compensation to
be determined in accordance with temporary or final regulations promulgated
under Section 280G(d) of the Code or any successor provision thereto and such
payment to be made to the Executive by the Company, the Bank or either of their
successors in a lump sum at the time of such termination of employment; and

     (ii) shall be entitled for two years after the termination of the
Executive’s employment with the Company or the Bank to participate in any
health, disability and life insurance plan or program in which the Executive was
entitled to participate immediately prior to the First Event as if he were an

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employee of the Company or the Bank during such two-year period (except, with
respect to health insurance coverage, for those portions remaining during such
two-year period that duplicate health insurance coverage that is in place for
the Executive under any other policy provided at the expense of another
employer); provided however, that in the event that the Executive’s
participation in any such health, disability or life insurance plan or program
of the Company or the Bank is barred, the Company or the Bank, at its sole cost
and expense, shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would be entitled to receive under such
plan or program if he were not barred from participation.

     (b) The payments provided for in this Section 3 shall be in addition to any
salary or other remuneration otherwise payable to the Executive on account of
employment by the Company, the Bank or one or more of either of their
subsidiaries or successors (including any amounts received prior to such
termination of employment for personal services rendered after the occurrence of
the First Event) but shall be reduced by any severance pay which the Executive
receives from the Bank, its subsidiaries or its successor under any other policy
or agreement of the Bank or its subsidiaries in the event of involuntary
termination of Executive’s employment.

     (c) In the event that at any time from the date of the First Event until
the end of the Transition Period,

     (i) the Executive shall not be given substantially equivalent or greater
title, duties, responsibilities and authority, in each case as compared with the
Executive’s status immediately prior to the First Event, other than for Cause or
on account of Disability;

     (ii) the Executive’s annual base salary shall be reduced from the
Executive’s annual base salary in effect immediately prior to the First Event;

     (iii) the Company or the Bank shall fail to provide the Executive with
benefits under either of their pension, profit sharing, retirement, life
insurance, medical, health and accident, disability, bonus and incentive plans
and other employee benefit plans and arrangements that in the aggregate for all
such plans and arrangements are at least as favorable to the Executive as those
benefits covering the Executive immediately prior to the First Event or shall
fail to provide the Executive with at least the number of paid vacation days to
which the Executive was entitled immediately prior to the First Event;

     (iv) the Bank shall have failed to obtain assumption of this Agreement by
any successor as contemplated by Section 5(b) hereof;

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     (v) the Company or the Bank shall require the Executive to relocate to any
place other than a location within thirty-five miles of the location at which
the Executive performed his primary duties immediately prior to the First Event
or, if the Executive performed such duties at the Company’s principal executive
offices, the Company shall relocate its principal executive offices to any
location other than a location within thirty-five miles of the location of the
principal executive offices immediately prior to the First Event; or

a termination of employment with the Company or the Bank by the Executive
thereafter shall constitute a Constructive Involuntary Termination.

     (d) Notwithstanding any provision to the contrary contained herein except
the last sentence of this Section 3(d), if the lump sum cash payment due and the
other benefits to which the Executive shall become entitled under Section 3(a)
hereof, either alone or together with other payments in the nature of
compensation to the Executive which are contingent on a change in the ownership
or effective control of the Company or the Bank or in the ownership of a
substantial portion of the assets of the Company or the Bank or otherwise, would
constitute a “parachute payment” as defined in Section 280G of the Code or any
successor provision thereto, such lump sum payment and/or such other benefits
and payments shall be reduced (but not below zero) to the largest aggregate
amount as will result in no portion thereof being subject to the excise tax
imposed under Section 4999 of the Code (or any successor provision thereto) or
being non-deductible to the Company or the Bank for federal income tax purposes
pursuant to Section 280G of the Code (or any successor provision thereto). The
Company or the Bank in good faith shall determine the amount of any reduction to
be made pursuant to this Section 3(d) and shall select from among the foregoing
benefits and payments those which shall be reduced. No modification of, or
successor provision to, Section 280G or Section 4999 subsequent to the date of
this Agreement shall, however, reduce the benefits to which the Executive would
be entitled under this Agreement in the absence of this Section 3(d) to a
greater extent than they would have been reduced if Section 280G and
Section 4999 had not been modified or superseded subsequent to the date of this
Agreement, notwithstanding anything to the contrary provided in the first
sentence of this Section 3(d).

     (e) The Executive shall not be required to mitigate the amount of any
payment or other benefit provided for in Section 3 by seeking other employment
or otherwise, nor (except as specifically provided in Section 3(a)(ii) or 3(b))
shall the amount of any payment or other benefit provided for in Section 3 be
reduced by any compensation earned by the Executive as the result of employment
by another employer after termination, or otherwise.

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     (f) The obligations of the Company and the Bank under this Section 3 shall
survive the termination of this Agreement.

     4. Definition of Certain Additional Terms.

     (a) As used herein, other than in Section 2(a) hereof, the term “person”
shall mean an individual, partnership, corporation, estate, trust or other
entity.

     (b) As used herein, the term “Cause” shall mean, and be limited to:

  (i)   an act or acts of dishonesty undertaken by Executive and intended to
result in substantial gain or personal enrichment of Executive at the expense of
the Company or the Bank;     (ii)   unlawful conduct or gross misconduct that is
willful and deliberate on Executive’s part and that, in either event, is
injurious to the Company or the Bank; or     (iii)   the conviction of Executive
of a felony.     (iv)   failure of Executive to perform his duties and
responsibilities under the Employment Agreement or to satisfy his obligations as
an officer or employee of the Company or the Bank, which failure has not been
cured by Executive within 30 days after written notice thereof to Executive from
the Company or the Bank, as applicable; or     (v)   material breach of any
terms and conditions of the Employment Agreement by Executive not caused by the
Company or the Bank, which breach has not been cured by Executive within ten
days after written notice thereof to Executive from the Company or the Bank.

     (c) As used herein, the term “Disability” shall mean the inability of
Executive to perform on a full-time basis the duties and responsibilities of his
employment with the Company or the Bank by reason of his illness or other
physical or mental impairment or condition, if such inability continues for an
uninterrupted period of 180 days or more during any 360-day period. A period of
inability shall be “uninterrupted” unless and until Executive returns to
full-time work for a continuous period of at least 30 days.

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     (d) As used herein, the term “Transition Period” shall mean the one year
period commencing on the date of the earliest to occur of an Event described in
Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof (the “Commencement
Date”) and ending one year after the Commencement Date.

     5. Successors and Assigns.

     (a) This Agreement shall be binding upon and inure to the benefit of the
successors, legal representatives and assigns of the parties hereto; provided,
however, that the Executive shall not have any right to assign, pledge or
otherwise dispose of or transfer any interest in this Agreement or any payments
hereunder, whether directly or indirectly or in whole or in part, without the
written consent of the Company or the Bank or either of their successors.

     (b) The Company and the Bank will require any successor (whether direct or
indirect, by purchase of a majority of the outstanding voting stock of the
Company or the Bank or all or substantially all of the assets of the Company or
the Bank, or by merger, consolidation or otherwise), by agreement in form and
substance satisfactory to the Executive, to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company and the Bank would be required to perform it if no such succession had
taken place. Failure of the Company or the Bank, as applicable, to obtain such
agreement prior to the effectiveness of any such succession (other than in the
case of a merger or consolidation) shall be a breach of this Agreement and shall
entitle the Executive to compensation from the Bank in the same amount and on
the same terms as the Executive would be entitled hereunder if the Executive
terminated his employment on account of a Constructive Involuntary Termination,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of termination. As
used in this Agreement, “Company” shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which is required
to execute and deliver the agreement provided for in this Section 5(b) or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law and “Bank” shall mean the Bank as hereinbefore defined and any
successor to its business and/or assets as aforesaid which is required to
execute and deliver the agreement provided for in this Section 5(b) or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.

     6. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Minnesota.

     7. Notices. All notices, requests and demands given to or made pursuant
hereto shall be in writing and shall be delivered or mailed to any such party at
its address which:

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  (a)   In the case of the Company or the Bank shall be:         HMN Financial,
Inc.
Attention: Chairman of the Board
1016 Civic Center Drive NW
Rochester, Minnesota 55901     (b)   In the case of the Executive shall be:    
    Michael McNeil
1951 Waterford Place Southwest
Rochester, MN 55902

Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.

     8. Severability; Severance. In the event that any portion of this Agreement
is held to be invalid or unenforceable for any reason, it is hereby agreed that
such invalidity or unenforceability shall not affect the other portions of this
Agreement and that the remaining covenants, terms and conditions or portions
hereof shall remain in full force and effect, and any court of competent
jurisdiction may so modify the objectionable provision as to make it valid,
reasonable and enforceable. In the event that any benefits to the Executive
provided in this Agreement are held to be unavailable to the Executive as a
matter of law, the Executive shall be entitled to severance benefits from the
Bank, in the event of an involuntary termination or Constructive Involuntary
Termination of employment of the Executive (other than a termination on account
of the death or Disability of the Executive or a termination for Cause) during
the term of this Agreement occurring at the time of or following the occurrence
of an Event, at least as favorable to the Executive (when taken together with
the benefits under this Agreement that are actually received by the Executive)
as the most advantageous benefits made available by the Employer to employees of
comparable position and seniority to the Executive during the five-year period
prior to the First Event.

     9. Term. This Agreement shall commence on the date of this Agreement and
shall terminate, and the Term of this Agreement shall end, on the later of
(A) March 31, 2005, provided that such period shall be extended automatically
for one year and from year to year thereafter until notice of termination is
given by the Company or the Executive to the other party hereto at least 30 days
prior to March 31, 2005 or the expiration of the one-year extension period then
in effect, as the case may be, or (B) if the Commencement Date occurs on or
prior to March 31, 2005 (or prior to the end of the extension year then in
effect as provided for in clause (A) hereof), one year after the Commencement
Date.

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     10. Termination of Prior Agreement. This Agreement supercedes the Prior
Agreement which is hereby terminated and neither party shall have any rights or
obligations pursuant to the terms of the Prior Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

     

  HOME FEDERAL SAVINGS BANK
 
   

  By /s/ Timothy R. Geisler

            Its Chairman
 
   

  Executive
 
   

  /s/ Michael McNeil

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