Executives and board members at a bank with branches around the region cannot have pay raises or bonuses until a federal supervisory agency says so.

An agreement between the holding company for Home Federal Savings Bank and the federal Office of Thrift Supervision was modified last week. The agreement, a memorandum of understanding between HMN Financial and OTS, has been in place for nearly two years. It is to stay in place until OTS ends it.

The Rochester-based bank has branches in Albert Lea and Austin, among other places.

The bank in December reported possessing assets of $881 million, but also it reported 2010 losses of $29 million. It had $10.9 million in losses in 2009.

Home Federal President Brad Krehbiel, on Wednesday, said the recession has hit banks across the country.

He said the decline in real estate values and home sales has caused problems with some commercial loans.

“Our top priorities are the sound and ethical operation of Home Federal and providing excellent customer service in the communities that we serve,” he said. “Home Federal has maintained capital levels above what is required to be ‘well-capitalized,’ as defined by our regulators. We are FDIC-insured and have offered banking services to our customers for more than 75 years.”

The Star Tribune of Minneapolis, citing information in a lawsuit, reported earlier this month that the bank was hit hard in the Tom Petters’ Ponzi scheme and that the slow down in the ethanol market has hurt, too, because the bank approved loans for new plants.

Krehbiel said Home Federal is working to identify problems with loans early on.

Also, he said, “We implemented policies and procedures to strengthen how we analyze new loan requests.”

He said the bank intends to file a capital plan to the Office of Thrift Supervision by its required date of May 31. The plan is called the Individual Minimum Capital Requirement.

“Additionally, the bank will continue to serve its consumer and business customer base with the financial products and services they need, and our service will not be impacted in any way.”

HMN Financial is a publicly traded company. Its stock is listed on NADAQ as HMNF.

It was the recipient of a $26 million federal loan from the Troubled Asset Relief Program in 2008. The bank this month deferred a payment for $325,000 scheduled for Feb. 15.

About  Home Federal
HMN Financial Inc. and Home Federal Savings Bank are headquartered in Rochester. The Bank operates 10 full-service offices in southern Minnesota located in Albert Lea, Austin, Eagan, LaCrescent, Rochester, Spring Valley and Winona and two full-service offices in Iowa in Marshalltown and Toledo. Home Federal operates private branches in Edina and Rochester. Home Federal Savings Bank also operates a loan-origination office in Sartell.