<PAGE>

                                                                   EXHIBIT 10.2b

                         EARLY RETIREMENT AGREEMENT
                         --------------------------

     This Early Retirement Agreement (this "Agreement") is made and entered
into effective as of October 24, 2000 by and between James B. Gardner
("Gardner"), a Minnesota resident, and Home Federal Savings Bank, a federally
chartered savings bank (the "Bank").

                                 BACKGROUND
                                 ----------

     A.  Gardner has been employed by the Bank for more than 19 years.
Currently, Gardner is Executive Vice President and Chief Financial Officer of
the Bank and of HMN Financial, Inc. (the "Holding Company").  Gardner also is a
director of the Bank and of the Holding Company.  In addition, Gardner is an
officer and a director of HMN Mortgage Services, Inc. ("Mortgage") and Security
Finance Corporation ("Finance"), both wholly-owned subsidiaries of the Holding
Company and affiliates of the Bank, and of Osterud Insurance Agency, Inc.
("Insurance"), a wholly-owned subsidiary of the Bank.

     B.  Gardner and the Bank are parties to an Employment Agreement dated June
6, 1995 (the "Employment Agreement").  During his employment with the Bank,
Gardner has been eligible to participate in certain employee benefit plans and
programs sponsored by the Bank, including without limitation, the Bank's
medical plan and group term life insurance program and the HMN Financial, Inc.
Employee Stock Ownership Plan (the "ESOP"), the Home Federal Savings Bank
Employees' Savings & Profit Sharing Plan and Trust (the "401(k) Plan"), and the
Home Federal Savings Bank Financial Institutions Retirement Fund (the "FIRF").

     C.  Gardner and the Holding Company are parties to a Non-Qualified Stock
Option Agreement dated June 21, 1995 granting Gardner an option to purchase
26,174 shares of

                                      1

<PAGE>

Common Stock of the Holding Company (39,261 shares as a result of the Holding
Company's three-for-two stock split) and an Incentive Stock Option Agreement
dated June 21, 1995 ("ISO Agreement") granting Gardner an option to purchase
36,205 shares of Common Stock of the Holding Company (54,307 shares as a
result of the Holding Company's three-for-two stock split) (collectively, the
"Option Agreements").  All of the shares underlying the Option Agreements are
fully vested and currently exercisable, except that as a result of the
partial exercise by Gardner of his option to purchase shares underlying the
ISO Agreement, 39,307 shares of common stock are currently exercisable
pursuant to the terms of the ISO Agreement.

     D.  The parties have mutually agreed that it is in their interests that
Gardner resign as an officer and director of the Bank, the Holding Company,
Mortgage, Finance, and Insurance effective as of the date of this Agreement.

     E.  The parties have mutually agreed that Gardner will continue to be an
employee of the Bank until June 30, 2001 (the "Retirement Date"), at which time
he will retire from his employment with the Bank.

     F.  The parties are concluding their employment relationship amicably, but
mutually recognize that the end of any employment relationship may give rise to
potential claims or liabilities.

     G.  The parties have mutually agreed to a full settlement of all issues
potentially in dispute between them.

     H.  The parties intend that this Agreement will provide for the exchange
of consideration between the parties and will consolidate within one document
the parties' obligations to each other.


                                       2

<PAGE>

     NOW THEREFORE, in consideration of the mutual promises and provisions
contained in this Agreement and the Release referred to below, the parties
agree as follows:

                                 AGREEMENTS
                                 ----------

     1. RELEASE OF CLAIMS BY GARDNER.  At the same time Gardner executes this
Agreement, he also will execute a Release, in the form attached to this
Agreement as Exhibit A (the "Gardner Release"), in favor of the Bank and the
Holding Company and their affiliates, divisions, joint venture partners,
stockholders, directors, committees, officers, employees, agents, predecessors,
successors, and assigns.  Gardner will re-execute the Gardner Release as of
the Retirement Date.  This Agreement will not be interpreted or construed to
limit the Gardner Release in any manner.  The existence of any dispute
respecting the interpretation of this Agreement or the alleged breach of this
Agreement will not nullify or otherwise affect the validity or enforceability
of the Gardner Release.

     2. RESIGNATIONS.  By executing this Agreement, Gardner confirms his
resignation as an officer and a director of the Bank, the Holding Company,
Mortgage, Finance, and Insurance as of the effective date of this Agreement.


     3. CONTINUING SERVICES TO THE BANK.  Gardner will continue to provide
services to the Bank as set forth in this paragraph 3.

        a. WORK PERIOD.  Between the effective date of this Agreement and the
Retirement Date, Gardner will be available to provide services to the Bank on
a full-time basis during regular business hours and, in that capacity, will
complete special projects that are assigned to him from time to time by the
Chief Financial Officer of the Bank and will consult with the  Bank at the
request of the Chief Financial Officer of the Bank regarding general business
matters. During this time period, Gardner will maintain an office at his

                                      3

<PAGE>

residence at no expense to the Bank and will take the remainder of his
accrued and unused vacation time.

        b. POST-RETIREMENT ACTIVITIES.  Nothing in this Agreement is intended
to prevent Gardner after the Retirement Date from engaging in any business
enterprise, accepting employment with another employer, or becoming an
independent contractor or consultant, so long as Gardner does not disclose any
of the Bank's or the Holding Company's confidential information as specified in
subparagraph 11.a. below and does not breach his other obligations to the Bank
or the Holding Company as specified in paragraph 11 below.

     4. PAYMENTS.  The Bank will make the payments set forth in subparagraphs
4.a. through 4.e. below to Gardner or for his benefit, and will provide to
Gardner the benefits due under the employee benefit plans described in
paragraphs 6 through 8 below, in lieu of any further payments that he would
be entitled to receive under the Employment Agreement or otherwise as an
employee of the Bank.  The Bank will make the payments set forth in
subparagraphs 4.c. through 4.e. below only if:  (i) Gardner has not rescinded
this Agreement or the Gardner Release within the applicable recission period;
(ii) the Bank has received written confirmation from Gardner, in the form
attached to this Agreement as Exhibit B, dated not earlier than the day after
the expiration of the applicable rescission period, that Gardner has not
rescinded and will not rescind this Agreement or the Gardner Release; and
(iii) Gardner has not breached his obligations pursuant to this Agreement or
the Gardner Release.  Payment of any amounts set forth below will not modify
or terminate the parties' obligations to each other as established by this
Agreement.  If Gardner dies before he receives all of the base salary and
severance pay that he would otherwise be entitled to

                                      4

<PAGE>

receive under subparagraphs 4.a and 4.c. below, the remaining severance pay
installments will be paid to his wife, or if she is no longer living, to his
estate.  No amounts received by Gardner as compensation from another employer
or as retirement benefits will reduce the amount of severance payments that
the Bank is obligated to make to Gardner under subparagraph 4.c. below.  The
payments set forth in subparagraphs 4.a. and 4.c. below will be transferred
electronically to a bank account designated by him in writing, unless he
advises the Bank in writing that he wants the payments sent to him personally.

        a. BASE SALARY.  The Bank will continue to pay Gardner his current base
salary of $11,250.00 per month, less all legally required withholding, through
the Retirement Date on the Bank's regular payroll dates.

        b. EMPLOYEE BENEFITS.  The Bank will continue to provide Gardner with
all employee benefits made available to its other senior executives under the
Bank's employee benefits plans and programs and will continue to pay the
employer portion of the costs incurred to continue Gardner's medical plan and
group term life insurance coverages through the Retirement Date.

        c. SEVERANCE PAY.  Between July 1, 2001 and May 23, 2003, the Bank will
pay Gardner severance pay in the amount of $11,250.00 per month, less all
legally required withholding, on the Bank's regular payroll dates.

        d. MEDICAL PLAN PAYMENTS.  If Gardner elects to continue his medical
plan coverage under the terms of subparagraph 6.a. below, the Bank will pay a
portion of the costs of such coverage as specified in subparagraph 6.b. below
until the later of the date on which Gardner ceases to be eligible for
continuation coverage under the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended

                                      5

<PAGE>

("COBRA"), or the last day of the period of Extended Medical Care Coverage
(as defined in subparagraph 6.a. below); provided, however, that the Bank's
obligation to pay a portion of such costs will cease upon the failure of
Gardner to pay the corresponding portion of such costs allocable to him.

        e. LIFE INSURANCE PAYMENTS.  If Gardner elects to continue his group
term life insurance coverage under the terms of subparagraph 7.a. below, the
Bank will pay a portion of the costs of such coverage as specified in
subparagraph 7.b. below until the later of the date on which Gardner ceases to
be eligible for continuation coverage under the applicable provisions of
Minnesota law or May 23, 2003; provided, however, that the Bank's obligation to
pay a portion of such costs will cease upon the failure of Gardner to pay the
corresponding portion of such costs allocable to him.

     5. EXPENSE REIMBURSEMENTS.  The Bank will reimburse Gardner for his
regular and necessary  business expenses incurred by him on behalf of the
Bank through November 3, 2000 according to the Bank's regular policies and
practices.  Gardner will submit his requests for reimbursement supported by
appropriate documentation to the Bank on or before November 24, 2000, and the
Bank will make reimbursement payments to Gardner within 30 days after receipt
of each such request for reimbursement. Thereafter until the Retirement Date,
Gardner shall be reimbursed for all expenses according to the Bank's regular
policies and practices.

     6. MEDICAL PLAN COVERAGE CONTINUATION.

        a. CONTINUED/EXTENDED COVERAGE.  Gardner will have the right to
continue his medical plan coverage after the Retirement Date under COBRA under
such terms as are made available to similarly-situated former employees of the
Bank until he

                                      6

<PAGE>

ceases to be eligible for COBRA continuation coverage. Thereafter, the Bank
will provide Gardner with individual medical coverage under the Bank's
then-existing medical plan; provided, however, that if the Bank determines in
its discretion that such coverage can no longer be provided to him under its
medical plan, the Bank will provide or make available medical care coverage
substantially equivalent to the Bank's then-existing medical plan (at the
option of the Bank on either a group or individual basis through either an
insurance or similar program or on a self-insured basis).  Such coverage will
continue until the earlier of (i) the date on which Gardner reaches the age
at which he becomes eligible for Medicare benefits under then-applicable law,
or (ii) the date of Gardner's death ("Extended Medical Care Coverage").

        b. ALLOCATION OF COSTS.  During the period of COBRA continuation
coverage, Gardner will pay an amount each month that is equal to the portion
of the cost to provide medical plan coverage to an employee and his or her
spouse under the Bank's then-existing medical plan that is allocated by the
Bank to the employee (currently $100.00 per month) to the Bank.  After the
period of COBRA continuation coverage and during the period of Extended
Medical Care Coverage, Gardner will pay an amount each month that is equal to
the portion of the cost to provide individual medical plan coverage to an
employee under the Bank's then-existing medical plan that is allocated by the
Bank to the employee either to the Bank or to any health insurance company or
other third-party provider designated by the Bank.  The Bank will pay the
balance of the costs or premiums necessary to provide Gardner with continuing
medical coverage during both the COBRA continuation period and the Extended
Medical Care Coverage period.

     7. LIFE INSURANCE COVERAGE CONTINUATION.



                                      7

<PAGE>

        a. CONTINUATION/EXTENDED COVERAGE.  Gardner will have the right to
continue his group term life insurance coverage after the Retirement Date
under Minnesota law under such terms as are made available to
similarly-situated employees of the Bank until he ceases to be eligible for
group term life insurance continuation coverage.  Thereafter until May 23,
2003, the Bank will provide Gardner with life insurance coverage under the
Bank's then-existing group term life insurance program; provided, however,
that if the  Bank determines in its discretion that such coverage can no
longer be provided under its group term life insurance program, the Bank will
provide or make available life insurance coverage substantially equivalent to
the Bank's then-existing group term life insurance program (at the option of
the Bank on either a group or an individual basis through an insurance
program).  Notwithstanding the preceding sentence, if such life insurance
coverage must be provided on an individual basis and not a group basis
because of underwriting or other reasons, the amount of such life insurance
coverage may be reduced at the discretion of the Bank to the amount that can
be provided through a premium expenditure that is equivalent to the premium
costs that would otherwise be payable by the Bank under the Bank's
then-existing group term life insurance program to provide such coverage.

        b. ALLOCATION OF COSTS.  During both the period of life insurance
continuation coverage and thereafter until May 23, 2003, Gardner will pay an
amount each month that is equal to the portion of the cost to provide group
term life insurance coverage to an employee under the Bank's then-existing
group term life insurance program that is allocated by the Bank to the employee
(currently $15.30 per month) either to the Bank or to any insurance company
designated by the Bank.  The Bank will pay the balance of the costs

                                      8

<PAGE>

or premiums necessary to provide Gardner with continuing life insurance
coverage during both the life insurance continuation period and thereafter
until May 23, 2003.

     8. RETIREMENT PLANS.  Gardner is a participant in the ESOP, the 401(k)
Plan, and the FIRF (collectively, the "Retirement Plans") and will continue to
be a participant in the Retirement Plans until the Retirement Date.  Because
Gardner will not be employed by the Bank on December 31, 2001, no employer
matching contribution will be made to the 401(k) Plan on Gardner's behalf by
the Bank for 2001.  Gardner will be entitled to begin drawing his retirement
benefits at the times and under the terms and conditions set forth in the
Retirement Plans.

     9. DIRECTOR EMERITUS.  If Gardner does not rescind this Agreement and
the Gardner Release as provided in paragraph 16 below, the Board of Directors
of the Holding Company (the "Board") will take action to appoint Gardner as a
Director Emeritus of the Holding Company at the next regularly scheduled
meeting of the Board following the expiration of the applicable rescission
period for a term that will continue until the Annual Meeting of the Holding
Company's stockholders in 2001.  Thereafter for four years the Board of
Directors of the Holding Company will appoint Gardner as a Director Emeritus
of the Holding Company and the Bank for four successive one year terms each
expiring on the date of the Company's next annual meeting of stockholders
such that Gardner shall be in continuous service as a Director Emeritus until
the Holding Company's 2005 Annual Meeting of Stockholders.

     10. THE BANK'S COOPERATION.  The Bank will ensure that all proper steps
are followed to comply with Gardner's written instructions with respect to his
retirement benefits and his medical and life insurance benefits, and will
provide him with the information that he

                                      9

<PAGE>

reasonably requires in accordance with the applicable employee benefit plans
and programs sponsored by the Bank in which he is a participant.

11. CONFIDENTIAL INFORMATION; LOYALTY

        a. During the term of Gardner's continuing employment under this
Agreement and thereafter, he will not, except as may be required to perform his
duties as an employee of the Bank or as required by law, disclose to others or
use, whether directly or indirectly, any Confidential Information.  As used in
this Agreement, "Confidential Information" means information about the Bank or
the Holding Company and the Bank's clients and customers that is not available
to the general public and was or will be learned by Gardner in the course of
his employment by the Bank, including without limitation, any data, formulae,
information, proprietary knowledge, trade secrets, credit reports, and analyses
owned, developed, and used in the course of the business of the Bank or the
Holding Company, including client and customer lists and information related
thereto; and all papers, records, and other documents (and all copies thereof)
containing such Confidential Information.  Gardner acknowledges that such
Confidential Information is specialized, unique in nature, and of great value
to the Bank and the Holding Company.  Gardner agrees that on or before November
30, 2000, he will deliver to the Bank and the Holding Company all documents
(and all copies thereof) containing any Confidential Information.
Notwithstanding the preceding sentence or the provisions of paragraph 14, after
such date Gardner may retain such property of the Bank as may reasonably be
necessary for the purpose of providing continuing services to the Bank under
subparagraph 3.a. above, so long as all such Bank property is returned to the
Bank on or before the Retirement Date


                                     10

<PAGE>


        b. Gardner will not, for a period of one year after the Retirement
Date, for himself, or as the agent of, on behalf of, or in conjunction with,
any person or entity, solicit or attempt to solicit, whether directly or
indirectly: (i) any employee of the Bank or the Holding Company to terminate
such employee's employment relationship with the Bank or the Holding Company;
or (ii) any savings and loan, banking, or similar business from any person or
entity that is or was a client, employee, or customer of the Bank or the
Holding Company and had dealt with Gardner or any other employee of the Bank
under his supervision.

        c. During the term of Gardner's continuing employment under this
Agreement, he may serve as a director of charitable, community, or industry
organizations and as a director of any business corporation to the extent
such directorships do not inhibit the performance of his duties under this
Agreement or conflict with the business of the Bank or the Holding Company.
During the term of Gardner's continuing employment under this Agreement, he
will not engage in any business or activity contrary to the business affairs
or interests of the Bank or the Holding Company.

        d. The provisions of this paragraph 11 will not prevent Gardner from
purchasing, solely for investment, not more than five percent of any financial
institution's stock or other securities that are traded on any national
securities exchange.

        e. The provisions of this paragraph 11 will survive the termination of
Gardner's employment under this Agreement for any reason.

    12. NON-DISPARAGEMENT.  Gardner will not disparage, defame, or besmirch the
reputation, character, image, products, or services of the Bank or the Holding
Company, or the reputation or character of the directors, officers, employees,
or agents of the Bank or the

                                     11

<PAGE>

Holding Company.  The Bank will not disparage, defame, or besmirch the
reputation, character, or image of Gardner.

    13. CLAIMS INVOLVING THE BANK.  Gardner will not recommend or suggest to
any potential claimants or plaintiffs or their attorneys or agents that they
initiate claims or lawsuits against the Bank, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents,
nor will Gardner voluntarily aid, assist, or cooperate with any claimants or
plaintiffs or their attorneys or agents in any claims or lawsuits now pending
or commenced in the future against the Bank, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents;
provided, however, that this paragraph 13 will not be interpreted or
construed to prevent Gardner from giving testimony in response to questions
asked pursuant to a legally enforceable subpoena, deposition notice, or other
legal process, during any legal proceedings involving the Bank, any of its
affiliates or divisions, or any of its or their directors, officers,
employees, or agents.

    14. RECORDS, DOCUMENTS, AND PROPERTY.  Gardner will return to the Bank all
records, correspondence, documents, lists, reports, financial data, plans,
computer disks, computer tapes, source codes, passwords, and other tangible
property in his possession belonging to the Bank on or before October 31, 2000.
Notwithstanding the preceding sentence or the provisions of subparagraph 11.a
above, after such date Gardner may retain such property of the Bank as may
reasonably be necessary for the purpose of providing continuing services to the
Bank under subparagraph 3.a. above, so long as all such Bank property is
returned to the Bank on or before the Retirement Date.

    15. TIME TO CONSIDER AGREEMENT.  Gardner understands that he may take at
least 21 calendar days to decide whether to sign this Agreement and the
Gardner Release, which

                                     12

<PAGE>

21-day period will commence on the date on which Gardner first
receives copies of this Agreement and the Gardner Release for review.  Gardner
acknowledges that any changes made to this Agreement or the Gardner Release
before he signs them, whether material or immaterial, will not restart the
running of the 21-day period.  Gardner represents that if he signs this
Agreement and the Gardner Release before the expiration of the 21-day period,
it is because he has decided that he does not need any additional time to
decide whether to sign this Agreement and the Gardner Release.

    16. RIGHT TO RESCIND OR REVOKE.  Gardner understands that he has the
right to rescind or revoke this Agreement and the Gardner Release for any
reason within 15 calendar days after he signs them (which 15-day period
expressly includes any other shorter time periods provided by law).  Gardner
understands that this Agreement and the Gardner Release will not become
effective or enforceable unless and until he has not rescinded this Agreement
and the Gardner Release and any applicable rescission period has expired.
Gardner understands that if he wishes to rescind, the rescission must be in
writing and hand-delivered or mailed to the Bank.  If hand-delivered, the
rescission must be: (a) addressed to Mr. M. F. Schumann, Chairman, HMN
Financial, Inc., 101 North Broadway, P. O. Box 231, Spring Valley, MN  55975;
and (b) delivered to Mr. Schumann within the 15-day period.  If mailed, the
rescission must be:  (a) postmarked within the 15-day period; (b) addressed
to Mr. M. F. Schumann, Chairman, HMN Financial, Inc., 101 North Broadway, P.
O. Box 231, Spring Valley, MN  55975; and (c) sent by certified mail, return
receipt requested, first-class postage prepaid.

    17. FULL COMPENSATION.  Gardner and his attorney understand that the
payments made and other consideration provided by the Bank under this Agreement
will fully

                                     13

<PAGE>

compensate Gardner for and extinguish any and all of the claims Gardner is
releasing in the Gardner Release, including without limitation, his claims
for attorneys' fees and costs and any and all claims for any type of legal or
equitable relief.

    18. NO ADMISSION OF WRONGDOING. Gardner understands that this Agreement
does not constitute an admission that the Bank has violated any local
ordinance, state or federal statute, or principle of common law, or that the
Bank has engaged in any unlawful or improper conduct toward Gardner or has
treated him unfairly.  Gardner will not characterize this Agreement or the
payment of any money or other consideration in accordance with this Agreement
as an admission that the Bank has engaged in any unlawful or improper conduct
toward him or has treated him unfairly.

    19. AUTHORITY. Gardner represents and warrants that he has the authority to
enter into this Agreement and the Gardner Release, and that no causes of
action, claims, or demands released pursuant to this Agreement and the Gardner
Release have been assigned to any person or entity not a party to this
Agreement and the Gardner Release.

    20. REPRESENTATION.  Gardner acknowledges that he has been represented by
his own attorney in this matter, that he has had a full opportunity to consider
this Agreement and the Gardner Release, that he has had a full opportunity to
ask any questions that he may have concerning this Agreement, the Gardner
Release, or the settlement of his potential claims against the Bank, and that
he has not relied upon any statements or representations made by the Bank or
its attorneys, written or oral, other than the statements and representations
that are explicitly set forth in this Agreement, the Retirement Plans, the
Option Agreements, and any other employee benefit plans or programs sponsored
by the Bank in which Gardner is a participant.


                                     14

<PAGE>


    21. SUCCESSORS AND ASSIGNS.  This Agreement will be binding upon and inure
to the benefit of the parties and their respective heirs, representatives,
successors, and assigns, including without limitation, a successor to the
business of the Bank by means of purchase, merger, consolidation, or otherwise,
but will not be assignable by either party without the prior written consent of
the other party.

    22. INVALIDITY.  In the event that any provision of this Agreement or the
Gardner Release is determined by a court of competent jurisdiction or
arbitrator to be invalid, illegal, or unenforceable in any respect, such a
determination will not affect the validity, legality, or enforceability of
the remaining provisions of this Agreement or the Gardner Release and the
remaining provisions of this Agreement and the Gardner Release will continue
to be valid and enforceable, and any court of competent jurisdiction or
arbitrator may modify the objectionable provision so as to make it valid and
enforceable.

    23. ENTIRE AGREEMENT. Before signing this Agreement and the Gardner
Release, the parties engaged in discussions and negotiations and generated
certain documents, in which the parties considered the matters that are the
subject of this Agreement and the Gardner Release.  In such discussions,
negotiations, and documents, the parties may have expressed their judgements
and beliefs concerning the intentions, capabilities, and practices of the
parties, and may have forecast future events.  The parties recognize,
however, that all business transactions, including the transactions upon
which the parties' judgments, beliefs, and forecasts are based, contain an
element of risk, and that it is normal business practice to limit the legal
obligations of contracting parties only to those promises and representations
that are essential to the transaction so as to provide certainty as to their
respective future rights and remedies.  Accordingly, this Agreement, the
Gardner Release, the Retirement

                                     15

<PAGE>

Plans, the Option Agreements, and any other employee benefit plans or
programs sponsored by the Bank in which Gardner is a participant are intended
to define the full extent of the legally enforceable undertakings of the
parties, and no promises or representations, written or oral, that are not
set forth explicitly in this Agreement, the Gardner Release, the Retirement
Plans, the Option Agreements, or any other employee benefit plans or programs
sponsored by the Bank in which Gardner is a participant are intended by
either party to be legally binding, and all other agreements and
understandings between the parties, including the Employment Agreement, are
hereby superseded.

    24. REMEDIES.

        a. INJUNCTIVE RELIEF.  Gardner acknowledges that it would be difficult
to fully compensate the Bank for damages resulting from any breach by him of
the provisions of paragraph 11 of this Agreement.  Accordingly, in the event of
any actual or threatened breach of such provisions, the Bank will (in addition
to any other remedies it may have) be entitled to temporary and/or permanent
injunctive and other equitable relief to enforce such provisions, and such
relief may be granted without the necessity of proving actual damages.

        b. ARBITRATION.  Except for disputes arising under paragraph 11 of this
Agreement, all disputes arising under this Agreement will be submitted to final
and binding arbitration in Rochester, Minnesota.  The arbitrator will be
selected and the arbitration will be conducted pursuant to the then most recent
Employment Dispute Resolution Rules of the American Arbitration Association.
The decision of the arbitrator will be final and binding, and any court of
competent jurisdiction may enter judgment upon the award.  The arbitrator will
have jurisdiction an authority to interpret and apply the provisions of this
Agreement and

                                     16

<PAGE>

relevant federal, state, and local laws insofar as necessary to
the determination of the dispute and to remedy any breaches of the Agreement.

        25. HEADINGS.  The descriptive headings of the paragraphs and
subparagraphs of this Agreement are inserted for convenience only, and do not
constitute a part of this Agreement.

        26. COUNTERPARTS.  This Agreement may be executed simultaneously in two
or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.

        27. GOVERNING LAW.  This Agreement and the Gardner Release will be
interpreted and construed in accordance with, and any dispute or controversy
arising from any breach or asserted breach of this Agreement or the Gardner
Release will be governed by, the laws of Minnesota.

        IN WITNESS WHEREOF, the parties have executed this Agreement on the
date stated above.

                                     /s/ James B. Gardner
                                     ________________________________________
                                     JAMES B. GARDNER


                                     HOME FEDERAL SAVINGS BANK


                                     By  /s/ M. F. Schumann
                                     ________________________________________
                                     M. F. SCHUMANN
                                     Chairman

                                     17