HMN FINANCIAL, INC.
                            1995 RECOGNITION AND RETENTION PLAN
                                 AS AMENDED JULY 29, 1998


     1. PLAN PURPOSE. The purpose of the Plan is to promote the long-term 
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the 
Corporation and its Affiliates.

     2. DEFINITIONS. The following definitions are applicable to the Plan:

     "Award" - means the grant of Restricted Stock pursuant to the terms of 
Section 13 of the Plan or by the Committee, as provided in the Plan.

     "Affiliate" - means any "parent corporation" or "subsidiary corporation" of
the Corporation, as such terms are defined in Section 424(e) and (f), 
respectively, of the Code.

     "Bank" - means Home Federal Savings Bank, a savings institution and its
successors.

     "Beneficiary"- means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by 
similar written notice to the Committee. In the absence of a written 
designation, the Beneficiary shall be the Participant's surviving spouse,
if any, or if none, his estate.

   "Code" - means the Internal Revenue Code of 1986, as amended.

   "Committee" - means the committee of the Board of Directors of the 
Corporation referred to in Section 7 hereof.

     "Continuous Service" - means the absence of any interruption or termination
of service as a director, director emeritus, advisory director, executive 
officer or employee of the Corporation or any Affiliate. Service shall not be 
considered interrupted in the case of sick leave, military leave or any other 
leave of absence approved by the Corporation or any Affiliate or in the case of
transfers between payroll locations of the Corporation or between the 
Corporation, its subsidiaries or its successor. With respect to any director 
emeritus or advisory director, continuous service shall mean availability to 
perform such functions as may be required of such individuals.

     "Conversion" - means the conversion of the Bank from the mutual to the 
stock form of organization.

     "Corporation" - means HMN Financial, Inc., a Delaware corporation.

     "Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability 
benefits under any applicable long-term disability plan maintained by the 
Bank or an Affiliate, or, if no such plan applies, which would render such 
employee or director, in the judgment of the Committee, unable to perform his 
customary duties and responsibilities.

     "Disinterested Person" - means any member of the Board of Directors of the
Corporation who is not being and within the prior year has not been granted any
awards related to the shares under this Plan or any other plan of the 
Corporation or any of its Affiliates except for awards which (i) are calculated
in accordance with a formula as contemplated in paragraph (c)(2)(ii) of Rule 
16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended; (ii)
result from participation in an ongoing securities acquisition plan meeting the 
conditions of paragraph (d)(2) of Rule 16b-3; or (iii) arise from an election 
by a director to receive all or part of his board fees in securities. No 
Participant of an Award granted pursuant to Section 13 shall fail to meet the 
definition of Disinterested Person solely by reason of such Award.

   "ERISA" - means the Employee Retirement Income Security Act of 1974, as 
amended.

   "Participant" - means any director, director emeritus or advisory director 
who is granted an award pursuant to Section 13 or a director, executive officer,
employee of the Corporation or any Affiliate who is selected by the Committee to
receive an Award.

     "Plan" - means the 1995 Recognition and Retention Plan of the Corporation.

     "Restricted Period" - means the period of time selected by the Committee in
accordance with applicable Office of Thrift Supervision Regulations for the 
purpose of determining when restrictions are in effect under Section 3 hereof 
with respect to Restricted Stock awarded under the Plan.

     "Restricted Stock" - means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in Section
3 hereof, so long as such restrictions are in effect.

     "Shares" - means the common stock, par value $0.01 per share, of the
Corporation.

     3. TERMS AND CONDITIONS OF RESTRICTED STOCK. The Committee shall have full
and complete authority, subject to the limitations of the Plan and applicable
Office of Thrift Supervision Regulations, to grant Awards and, in addition to
the terms and conditions contained in paragraphs (a) through (f) of this 
Section 3, to provide such other terms and conditions (which need not be 
identical among Participants) in respect of such Awards, and the vesting 
thereof, as the Committee shall determine.

      (a) At the time of an Award, the Committee shall establish for each
      Participant a Restricted Period which shall not be less than 12 months,
      during which or at the expiration of which, as the Committee shall 
      determine and provide in the agreement referred to in paragraph (d) of 
      this Section 3, the Shares awarded as Restricted Stock shall vest, and 
      subject to any such other terms and conditions as the Committee shall 
      provide, Shares of Restricted Stock may not be sold, assigned, 
      transferred, pledged, voted or otherwise encumbered by the Participant, 
      except as hereinafter provided, during the Restricted Period. Except for 
      such restrictions, and subject to paragraphs (c) and (e) of this Section 3
      and Section 4 hereof, the Participant as owner of such shares shall have 
      all the rights of a stockholder. Subject to compliance with applicable 
      Office of Thrift Supervision Regulations, the Committee shall have the 
      authority, in its discretion, to accelerate the time at which any or all
      of the restrictions shall lapse with respect thereto, or to remove any or 
      all of such restrictions, whenever it may determine that such action is 
      appropriate by reason of changes in applicable tax or other laws or other 
      changes in circumstances occurring after the commencement of such 
      Restricted Period.

      (b) Except as provided in Section 5, hereof, if a Participant ceases to
      maintain Continuous Service for any reason (other than death or 
      disability), unless the Committee shall otherwise determine, all Shares of
      Restricted Stock theretofore awarded to such Participant and which at the
      time of such termination of Continuous Service are subject to the 
      restrictions imposed by paragraph (a) of this Section 3 shall upon such
      termination of Continuous Service be forfeited and returned to the 
      Corporation. If a Participant ceases to maintain Continuous 
      Service by reason of death or disability, Restricted Stock then still 
      subject to restrictions imposed by paragraph (a) of this
      Section 3 will be free of those restrictions.

      (c) Each certificate in respect of Shares of Restricted Stock awarded 
      under the Plan shall be registered in the name of the Participant and 
      deposited by the Participant, together with a stock power endorsed in 
      blank, with the Corporation and shall bear the following (or a similar) 
      legend:

           The transferability of this certificate and the shares of stock
           represented hereby are subject to the terms and conditions
           (including forfeiture) contained in the 1995 Recognition and
           Retention Plan of HMN Financial, Inc. Copies of such Plan are on
           file in the offices of the Secretary of HMN Financial, Inc., 101
           North Broadway, Spring Valley, MN 55975.

      (d) At the time of any Award, the Participant shall enter into an 
      Agreement with the Corporation in a form specified by the Committee, 
      agreeing to the terms and conditions of the Award and such other matters
      as the Committee, in its sole discretion, shall determine (the "Restricted
      Stock Agreement").

      (e) The payment to the Participant of any dividends declared or paid by 
      the Corporation on any Restricted Stock shall be deferred and held by the
      Corporation for the account of the Participant until the earlier to occur 
      of (i) the lapsing of the restrictions imposed under paragraph (a) of this
      Section 3 or (ii) the forfeiture of such shares under paragraph (b) of 
      this Section 3. There shall be credited at the end of each year (or 
      portion thereof) interest on the amount of the Participant's account at 
      the beginning of the year at a rate per annum as the Committee, in its 
      discretion, may determine. Payment of deferred dividends, together with 
      interest accrued thereon, shall be made upon the earlier to occur of the 
      events specified in (i) and (ii) of the immediately preceding sentence.

      (f) At the expiration of the restrictions imposed by paragraph (a) of this
      Section 3, the Corporation shall redeliver to the Participant (or where 
      the relevant provision of paragraph (b) of this Section 3 applies in the 
      case of a deceased Participant, to his legal representative, beneficiary
      or heir) the certificate(s) and stock power deposited with it pursuant to
      paragraph (c) of this Section 3 and the Shares represented by such 
      certificate(s) shall be free of the restrictions referred to in paragraph 
      (a) of this Section 3.

    4. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change in
the outstanding Shares subsequent to the effective date of the Plan by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
or exchange of shares, merger, consolidation or any change in the corporate 
structure or Shares of the Corporation, the maximum aggregate number and class 
of shares as to which Awards may be granted under the Plan and the number and 
class of shares with respect to which Awards theretofore have been granted under
the Plan shall be appropriately adjusted by the Committee, whose determination
shall be conclusive. Any shares of stock or other securities received, as a 
result of any of the foregoing, by a Participant with respect to Restricted 
Stock shall be subject to the same restrictions and the certificate(s) or 
other instruments representing or evidencing such shares or securities shall be
legended and deposited with the Corporation in the manner provided in Section 3
hereof.

    5. EFFECT OF CHANGE IN CONTROl. Each of the events specified in the 
following clauses (i) through (iii) of this Section 5 shall be deemed a "change
of control":
(i) any third person, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, shall become the beneficial owner of shares of
the Corporation with respect to which 25% or more of the total number of votes 
may be cast for the election of the Board of Directors of the Corporation, (ii)
as a result of, or in connection with, any cash tender offer, exchange offer, 
merger or other business combination, sale of assets or contested election, or 
combination of the foregoing, the persons who were directors of the Corporation
shall cease to constitute a majority of the Board of Directors of the 
Corporation, or (iii) the shareholders of the Corporation shall approve an 
agreement providing either for a transaction in which the Corporation will 
cease to be an independent publicly owned entity or for a sale or other 
disposition of all or substantially all the assets of the Corporation. If the 
Continuous Service of any Participant of the Corporation is involuntarily 
terminated for whatever reason, at any time within 18 months after a change in 
control, unless the Committee shall have otherwise provided, any Restricted 
Period with respect to Restricted Stock theretofore awarded to such 
Participant shall lapse upon such termination and all Shares awarded as 
Restricted Stock shall become fully vested in the Participant to whom
such Shares were awarded.

     6. ASSIGNMENTS AND TRANSFERS. During the Restricted Period, no Award nor 
any right or interest of a Participant under the Plan in any instrument 
evidencing any Award under the Plan may be assigned, encumbered or 
transferred except (i) in the event of the death of a Participant, by will or 
the laws of descent and distribution, or (ii) pursuant to a qualified domestic 
relations order as defined in the Code or Title I of ERISA or the rules 
thereunder.

    7. ADMINISTRATION. The Plan shall be administered by a Committee consisting
of three or more members, each of whom shall be a Disinterested Person; 
provided, however, that with respect to Awards granted to or held by any 
director of the corporation who is not a full-time employee of the corporation,
the Plan shall be administered by the Board of Directors of the corporation. 
The members of the Committee shall be appointed by the Board of Directors of the
corporation. The Committee or the Board of Directors, as the case may be, 
shall have sole and complete authority and discretion to (i) select Participants
and grant Awards;
(ii) determine the number of Shares to be subject to types of Awards generally
as well as to individual Awards granted under the Plan; (iii) determine the 
terms and conditions upon which Awards shall be granted under the Plan; (iv) 
describe the form and terms of instruments evidencing such grants; and (v) 
establish from time to time regulations for the administration of the Plan, 
interpret the Plan and make all determinations deemed necessary or advisable for
the administration of the Plan. A majority of the Committee or the Board of 
Directors, as the case may be, shall constitute a quorum, and the acts of a 
majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee or the Board of 
Directors, as the case may be, without a meeting shall be acts of the 
Committee or Board of Directors.

     8. SHARES SUBJECT TO PLAN. Subject to adjustment by the operation of 
Section 4 hereof, the maximum number of Shares with respect to which Awards 
may be made under the Plan is 2% of the total Shares issued in the Bank's 
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or 
hereafter reacquired and held as treasury Shares. An Award shall not be 
considered to have been made under the Plan with respect to Restricted Stock 
which is forfeited and new Awards may be granted under the Plan with respect to 
the number of Shares as to which such forfeiture has occurred. Any Award made
pursuant to this Plan, which Award is subject to the requirements of Office of 
Thrift Supervision Regulations, shall vest in five equal annual installments 
with the first installment vesting on the one-year anniversary of the date of 
grant, except in the event of death, disability or a change in control as 
defined in Section 5 of this Plan.

     In the event Office of Thrift Supervision Regulations are amended (the
"Amended Regulations") to permit shorter vesting periods, any Award made 
pursuant to this Plan, which Award is subject to the requirements of such 
Amended Regulations, may vest, at the sole discretion of the Committee, in 
accordance with such Amended Regulations.

     The Corporation's obligation to deliver Shares with respect to an Award 
shall, if the Committee so requests, be conditioned upon the receipt of a 
representation as to the investment intention of the Participant to whom such 
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of 
1933 or any other Federal, state or local securities legislation or regulation. 
It may be provided that any representation requirement shall become inoperative 
upon a registration of the Shares or other action eliminating the necessity of 
such representation under such Securities Act or other securities 
legislation. The Corporation shall not be required to deliver any Shares under 
the Plan prior to (i) the admission of such shares to listing on any stock 
exchange on which Shares may then be listed, and (ii) the completion of such 
registration or other qualification of such Shares under any state or Federal 
law, rule or regulation, as the Committee shall determine to be necessary 
or advisable.

     9. EMPLOYEE RIGHTS UNDER THE PLAN. No director, director emeritus, advisory
director, officer or employee shall have a right to be selected as a Participant
nor, having been so selected, to be selected again as a Participant and no
director, officer, employee or other person shall have any claim or right to be
granted an Award under the Plan or under any other incentive or similar plan of
the Corporation or any Affiliate. Neither the Plan nor any action taken 
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.

     10. WITHHOLDING TAX. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Corporation shall have the right to require the Participant or 
other person receiving such shares to pay the Corporation the amount of any 
taxes which the Corporation is required to withhold with respect to such 
shares; or, in lieu thereof, to retain or sell without notice, a sufficient 
number of shares held by it to cover the amount required to be withheld. The 
Corporation shall have the right to deduct from all dividends paid with respect 
to shares of Restricted Stock the amount of any taxes which the Corporation is 
required to withhold with respect to such dividend payments. No discretion or 
choice shall be conferred upon any Participant with respect to the form, 
timing or method of any such tax withholding.

     11. AMENDMENT OR TERMINATION. The Board of Directors of the Corporation may
amend, suspend or terminate the Plan or any portion thereof at any time; 
provided, however, that no such amendment shall be made without approval of the 
stockholders of the Corporation which shall (i) materially increase the 
aggregate number of Shares with respect to which Awards may be made under the 
Plan (except pursuant to Section 4), (ii) materially increase the benefits 
accruing to Participants or (iii) materially change the requirements as to 
eligibility for participation in the Plan, provided, however, that no such 
amendment, suspension or termination shall impair the rights of any Participant,
without his consent, in any Award theretofore made pursuant to the Plan.

     Notwithstanding anything in this Plan to the contrary, to the extent that 
the Plan provides for formula awards, as defined in Rule 16b-3(c)(2)(ii) 
under the Securities Exchange Act of 1934, as amended, such provisions may not
be amended more than once every six months, other than to comport with 
changes in the Code, ERISA or the rules thereunder.

     12. TERM OF PLAN. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of 
ten years unless sooner terminated under Section 11 hereof.