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                                                                   EXHIBIT 10.4b

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of
November 1, 2000 by and among HMN Financial, Inc., a Delaware corporation (the
"Company"), Home Federal Savings Bank, a federally chartered savings bank (the
"Bank") and a wholly owned subsidiary of the Company and Timothy P. Johnson, a
resident of Stewartville, Minnesota ("Executive").

          A.   Executive currently holds the positions of Chief Financial
Officer of the Bank and Chief Financial Officer of the Company;

          B.   Executive will continue to serve as the Chief Financial Officer
of the Bank and Chief Financial Officer of the Company, all subject to the terms
and conditions set forth in this Agreement.

         NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements of the Bank, the Company and Executive set forth below,
the Bank, the Company and Executive, intending to be legally bound, agree as
follows:

          1.   EMPLOYMENT. Effective as of November 1, 2000 Executive shall
perform services for the Company and the Bank, upon the terms and conditions set
forth in this Agreement.

          2.   TERM OF EMPLOYMENT. Unless terminated at an earlier date in
accordance with Section 7 hereof, the term of Executive's employment with the
Company and the Bank under this Agreement shall be for a period of two years
commencing on November 1, 2000 and ending on October 31, 2002, or any one-year
extension hereof (such two year term, the "Employment Period"). Commencing on
the first anniversary of the execution of this Agreement and on each anniversary
thereafter, this Agreement shall be extended for a period of twelve (12) months
in addition to the then-remaining term of employment under this Agreement,
unless any of the Company, the Bank or the Executive gives contrary written
notice to the others not less than 90 days in advance of the date on which the
term of employment under this Agreement would otherwise be extended, and
PROVIDED THAT no extension shall occur unless prior to each anniversary of the
effective date, each of the Company Board and the Bank Board has reviewed a
formal evaluation of Executive's performance during the year preceding such
anniversary prepared by the Compensation Committee of the Company Board and
explicitly approved such extension of the term of this Agreement.

          3.   POSITION AND DUTIES.

          (a)  EMPLOYMENT WITH THE COMPANY. During the term of Executive's
employment with the Company and the Bank, Executive shall perform such duties
and responsibilities as the Board of Directors of the Company (the "Company
Board") or the Board of Directors of the Bank (the "Bank Board") shall assign to
him from time to time consistent with his position. Executive shall be an
executive officer of the Company and the


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Bank and Executive's title shall be "Chief Financial Officer" of the Company
and "Chief Financial Officer" of the Bank.

          (b)  PERFORMANCE OF DUTIES AND RESPONSIBILITIES. Executive shall serve
the Company and the Bank faithfully and to the best of his ability and shall
devote his full working time, attention and efforts to the business of the
Company and the Bank during his employment with the Company and the Bank.
Executive hereby represents and confirms that he is under no contractual or
legal commitments that would prevent him from fulfilling his duties and
responsibilities as set forth in this Agreement. During his employment with the
Company and the Bank, Executive may participate in charitable, foster care and
personal investment activities to a reasonable extent, and he may serve as a
director of business organizations in which he has personally invested, so long
as such activities and directorships do not interfere with the performance of
his duties and responsibilities hereunder.

          4.   COMPENSATION.

          (a)  SALARY. During the Employment Period, the Bank shall pay to
Executive an annual base salary of $125,000.00, less deductions and
withholdings, which base salary shall be paid in accordance with the Bank's
normal payroll policies and procedures. During each year after the first year of
Executive's employment hereunder, the Compensation Committee of the Company
Board shall conduct an annual performance review of Executive and thereafter
establish Executive's base salary in an amount not less than the base salary in
effect for the prior year and the amount, if any, of the bonus that will be
payable to Executive.

          (b)  EMPLOYEE BENEFITS. During the Employment Period, Executive shall
be entitled to participate in all employee benefit plans and programs of the
Bank to the extent that Executive meets the eligibility requirements for each
individual plan or program. The Bank provides no assurance as to the adoption or
continuance of any particular employee benefit plan or program, and Executive's
participation in any such plan or program shall be subject to the provisions,
rules and regulations applicable thereto. In addition, Executive shall be
eligible for stock awards and stock options of the Company as authorized from
time to time by the Company Board.

          (c)  EXPENSES. During the Employment Period, the Bank shall reimburse
Executive for all reasonable and necessary out-of-pocket business, travel and
entertainment expenses incurred by him in the performance of his duties and
responsibilities hereunder and in connection with any Continuing Professional
Education courses, subject to the Bank's normal policies and procedures for
expense verification and documentation.

          5.   CONFIDENTIAL INFORMATION. Except as permitted by the Company
Board or the Bank Board, during the Employment Period and at all times
thereafter, Executive shall not divulge, furnish or make accessible to anyone or
use in any way other than in the ordinary course of the business of the Company
or the Bank, any confidential, proprietary or secret knowledge or information of
the Company or the Bank that Executive has acquired or shall acquire during the
term of his work for the Company or the Bank as an employee,


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whether developed by himself or by others, concerning any business
strategies, marketing plans or customer lists of the Company or the Bank or
any other confidential or proprietary information or secret aspects of the
business of the Company or the Bank. Executive acknowledges that the
above-described knowledge and information constitutes a unique and valuable
asset of the Company and the Bank and represents a substantial investment of
time and expense by the Company and the Bank, and that any disclosure or
other use of such knowledge or information other than for the sole benefit of
the Company or the Bank would be wrongful and would cause irreparable harm to
the Company and the Bank. During the Employment Period, Executive shall
refrain from any acts or omissions that would reduce the value of such
knowledge or information to the Company or the Bank. The foregoing
obligations of confidentiality shall not apply to any knowledge or
information that (i) is now or subsequently becomes generally publicly known
in the form in which it was obtained from the Company or the Bank, (ii) is
independently made available to Executive in good faith by a third party who
has not violated a confidential relationship with the Company or the Bank, or
(iii) is required to be disclosed by legal process, other than as a direct or
indirect result of the breach of this Agreement by Executive.

          6.   VENTURES. If, during the Employment Period, Executive is engaged
in or associated with the planning or implementing of any project, program or
venture involving the Company or the Bank and a third party or parties, all
rights in such project, program or venture shall belong to the Company or the
Bank, as applicable. Except as approved in writing by the Company Board or the
Bank Board, Executive shall not be entitled to any interest in any such project,
program or venture or to any commission, finder's fee or other compensation in
connection therewith, other than the compensation to be paid to Executive by the
Bank as provided herein. Executive shall have no interest, direct or indirect,
in any customer or supplier that conducts business with the Company or the Bank,
unless such interest has been disclosed in writing to and approved by the
Company Board or the Bank Board, as applicable, before such customer or supplier
seeks to do business with the Company or the Bank. Ownership by Executive, as a
passive investment, of less than 2.5% of the outstanding shares of capital stock
of any corporation listed on a national securities exchange or publicly traded
in the over-the-counter market shall not constitute a breach of this Section 6.

          7.   TERMINATION OF EMPLOYMENT.

          (a)  The Executive's employment with the Company and the Bank shall
terminate immediately upon:

               (i)  Executive's receipt of written notice from the Company or
                    the Bank of the termination of his employment;

               (ii) Receipt by the Company or the Bank of Executive's written
                    resignation from the Company or the Bank;

               (iii) Executive's Disability (as defined below);


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               (iv) Executive's death; or

               (v)  the expiration of the Employment Period.

          (b)  The date upon which Executive's termination of employment with
the Company and the Bank occurs shall be the "Termination Date."

          (c)  In the event of Executive's termination of employment for any of
the foregoing reasons, Executive shall immediately resign as a director and/or
officer of the Company and the Bank and any of their subsidiaries.

          8.   PAYMENTS UPON TERMINATION OF EMPLOYMENT.

          (a)  If prior to a Change in Control (as defined in the separate
Change-in-Control Agreement attached hereto (the "Change-in-Control Agreement"))
or after the Transition Period as defined in the Change-in-Control Agreement,
Executive's employment with the Company and the Bank is terminated:

               (i)  by the Company or Bank for any reason other than (A) for
                    Cause (as defined below), or (B) the delivery of a written
                    notice to Executive that the Bank elects not to extend the
                    term of this Agreement, or

               (ii) by Executive as a result of his resignation for Good Reason
                    (as defined below), or

               (iii) by reason of Executive's Disability (as defined below),

the Bank shall:

               (i)  pay to Executive as severance pay an amount equal to his
                    current base salary during the remaining period of the
                    Employment Period; and

               (ii) if Executive elects to continue his group health insurance
                    coverage with the Bank following the termination of his
                    employment with the Company and the Bank, reimburse him for
                    the full cost of the premiums he is required to pay to
                    maintain such coverage at the same level of coverage that
                    was in effect as of the Termination Date for the remaining
                    term of the Employment Period.

Any amount payable to Executive as severance pay or reimbursement for the cost
of the continuation of his group health insurance coverage hereunder shall be
subject to deductions and withholdings and shall be paid to Executive by the
Bank in approximately equal monthly installments during the remaining term of
this Agreement commencing on the first


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normal payroll date of the Bank following the expiration of all applicable
rescission periods provided by law and continuing monthly thereafter.

The Bank shall be entitled to deduct from any severance pay otherwise payable to
Executive hereunder: (i) any amount earned as income by Executive after the
Termination Date as a result of self-employment or employment with any other
employer, other than income resulting from Executive's foster care duties, and
(ii) any amount received by Executive after the Termination Date under any
short-term or long-term disability insurance plan or program provided to him by
the Bank. In addition, the Bank shall be entitled to cease making reimbursement
payments to Executive for the cost of the continuation of his group health
insurance coverage with the Bank after the Termination Date if Executive becomes
eligible for comparable group health insurance coverage from any other employer.
For purposes of mitigation and reduction of the Bank's financial obligations to
Executive under this Section 8(a), Executive shall promptly and fully disclose
to the Bank in writing: (i) the nature and amount of any such earned income from
self-employment or employment with any other employer, (ii) the amount of any
such disability insurance payments, or (iii) the fact that he has become
eligible for comparable group health insurance coverage from any other employer,
and Executive shall be liable to repay any amounts to the Bank that should have
been so mitigated or reduced but for Executive's failure or unwillingness to
make such disclosures.

          (b)  If after a Change in Control and during the Transition Period,
Executive's employment terminates, Executive's rights to payments and benefits
shall be governed by the Change-in-Control Agreement.

          (c)  If Executive's employment with the Company or the Bank is
terminated by reason of:

               (i)  Executive's abandonment of his employment or Executive's
                    resignation for any reason other than Good Reason (as
                    defined below),

               (ii) termination of Executive's employment by the Company or the
                    Bank for Cause (as defined below),

               (iii) Executive's death, or

               (iv) the expiration of the Employment Period,

the Bank shall pay to Executive or his beneficiary or his estate, as the case
may be, his base salary through the Termination Date.

          (d)  "Cause" hereunder shall mean:


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               (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;

               (iii) the conviction of Executive of a felony;

               (iv) failure of Executive to perform his duties and
                    responsibilities hereunder 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; or

               (v)  material breach of any terms and conditions of this
                    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.

          (e)  "Good Reason" hereunder shall mean:

               (i)  material breach of any terms and conditions of this
                    Agreement by the Company or the Bank not caused by
                    Executive, which breach has not been cured by the Company or
                    the Bank within ten days after written notice thereof to the
                    Company or the Bank from Executive;

               (ii) the Company or the Bank shall require 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 requirement by
                    the Company or the Bank to relocate or, if the Executive
                    performed such duties at the Company's principal
                    executive offices, the Company or the Bank shall relocate
                    its principal executive offices to any location other
                    than a location within thirty-five miles from the
                    location of the principal executive offices; or

               (iii) a material reduction of Executive's base salary,
                    perquisites or benefits unless such reduction is part of a
                    general reduction in the base salaries, perquisites and/or
                    benefits for all executive officers of the Company of the
                    Bank.


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          (f)  "Disability" hereunder shall mean the inability of Executive to
perform on a full-time basis the duties and responsibilities of his employment
with the Company and 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.

          (g)  In the event of termination of Executive's employment, the sole
obligation of the Company and the Bank shall be its obligation to make the
payments called for by Sections 8(a) or 8(c) hereof, as the case may be, and the
Company and the Bank shall have no other obligation to Executive or to his
beneficiary or his estate, except as otherwise provided by law, under the terms
of any other applicable agreement between Executive and the Company or the Bank
or under the terms of any employee benefit plans or programs then maintained by
the Bank in which Executive participates.

          (h)  Notwithstanding the foregoing provisions of this Section 8, the
Bank shall not be obligated to make any payments to Executive under Section 8(a)
hereof unless Executive shall have signed a release of claims in favor of the
Bank and the Company in a form to be prescribed by the Company Board or the Bank
Board, all applicable consideration periods and rescission periods provided by
law shall have expired and Executive is in strict compliance with the terms of
Section 5 hereof as of the dates of the payments.

          9.   RETURN OF RECORDS AND PROPERTY. Upon termination of his
employment with the Company and the Bank, Executive shall promptly deliver to
the Bank any and all Company or Bank records and any and all Company or Bank
property in his possession or under his control, including without limitation
any manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, printouts, computer disks, computer tapes, source codes,
data, tables or calculations and all copies thereof, documents that in whole or
in part contain any trade secrets or confidential, proprietary or other secret
information of the Company or the Bank and all copies thereof, and keys, access
cards, access codes,  passwords, credit cards, personal computers, telephones
and other electronic equipment belonging to the Company or the Bank.

          10.  REMEDIES.

          (a)  EQUITABLE. Executive acknowledges that it would be difficult to
fully compensate the Company or the Bank for monetary damages resulting from any
breach by him of the provisions of Section 5 hereof. Accordingly, in the event
of any actual or threatened breach of any such provisions, the Company and the
Bank shall, in addition to any other remedies they may have, be entitled to
injunctive and other equitable relief to enforce such provisions, and such
relief may be granted without the necessity of proving actual monetary damages.

          (b)  ARBITRATION. Except for disputes arising under Section 5 hereof,
all disputes involving the interpretation, construction, application or alleged
breach of this Agreement and all disputes relating to the termination of
Executive's employment with the


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Company or the Bank shall be submitted to final and binding arbitration in
Minneapolis, Minnesota. The arbitrator shall be selected and the arbitration
shall be conducted pursuant to the then most recent Employment Dispute
Resolution Rules of the American Arbitration Association. The decision of the
arbitrator shall be final and binding, and any court of competent
jurisdiction may enter judgment upon the award. All fees and expenses of the
arbitrator shall be shared equally by Executive and the Company or the Bank.
The arbitrator shall have jurisdiction and authority to interpret and apply
the provisions of this Agreement and relevant federal, state and local laws,
rules and regulations insofar as necessary to the determination of the
dispute and to remedy any breaches of the Agreement and/or violations of
applicable laws, but shall not have jurisdiction or authority to award
punitive damages or alter in any way the provisions of this Agreement. The
arbitrator shall have the authority to award attorneys' fees and costs to the
prevailing party. The parties hereby agree that this arbitration provision
shall be in lieu of any requirement that either party exhaust such party's
administrative remedies under federal, state or local law.

          11.  MISCELLANEOUS.

          (a)  GOVERNING LAW. All matters relating to the interpretation,
construction, application, validity and enforcement of this Agreement shall be
governed by the laws of the State of Minnesota without giving effect to any
choice or conflict of law provision or rule, whether of the State of Minnesota
or any other jurisdiction, that would cause the application of laws of any
jurisdiction other than the State of Minnesota.

          (b)  ENTIRE AGREEMENT. Except for a Change in Control Agreement
between Executive and the Bank dated the date hereof, this Agreement contains
the entire agreement of the parties relating to the subject matter of this
Agreement and supersedes all prior agreements and understandings with respect to
such subject matter, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
that are not set forth herein.

          (c)  AMENDMENTS. No amendment or modification of this Agreement shall
be deemed effective unless made in writing and signed by the parties hereto.

          (d)  NO WAIVER. No term or condition of this Agreement shall be deemed
to have been waived, except by a statement in writing signed by the party
against whom enforcement of the waiver is sought. Any written waiver shall not
be deemed a continuing waiver unless specifically stated, shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.

          (e)  ASSIGNMENT. This Agreement shall not be assignable, in whole or
in party, by either party without the written consent of the other party.

          (f)  COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and such counterparts executed and delivered, each as an original,
shall constitute but one and the same instrument.


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          (g)  SEVERABILITY. To the extent that any portion of any provision of
this Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect.

          (h)  CAPTIONS AND HEADINGS. The captions and paragraph headings used
in this Agreement are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.

          IN WITNESS WHEREOF, Executive, the Company and the Bank have executed
this Agreement as of the date set forth in the first paragraph.

                                        HMN FINANCIAL, INC.

                                        By /s/ M. F. Schumann
                                           ------------------------------

                                           Its Chairman
                                               --------------------------



                                        HOME FEDERAL SAVINGS BANK

                                        By /s/ M. F. Schumann
                                           ------------------------------
                                           Its Chairman
                                               --------------------------


                                        TIMOTHY P. JOHNSON

                                        /s/ Timothy P. Johnson
                                        ---------------------------------


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