Home Federal faces tough questions

By Jeff Kiger

Post-Bulletin, Rochester MN

For 21 years, Pat Swenson answered questions from Home Federal Bank customers.

On Tuesday at the Rochester bank’s annual shareholders meeting, she was the one asking questions about resignations, lost millions and executive pay.

As the retired Swenson spoke, the bank president and the board of directors listened closely.


"I’d like to know more about (former bank president Mike) McNeil’s leaving? When McNeil came we (the bank) totally changed… before then Home Federal was more about hometown banking," she asked.

After a tough 2008, in which the bank was hurt by the national economic downturn and a $12 million loss related to the alleged Tom Petters fraud case, McNeil abruptly resigned in January. Brad Krehbiel took over as president.

Board Chairman Tim Geisler explained that Home Federal became publicly owned in 1994.

"We had to change to be competitive. Mike was brought in to do that," he said.

That meant moving the bank into commercial lending, which took Home Federal to its best year ever in 2007. And then it plummeted to a major loss in 2008.

"McNeil thought the organization needed different leadership skills, so he stepped down," said Geisler. "Now we will change some things to get back to our core."

Swenson also wanted to know about McNeil continuing to receive his $338,000 salary though the end of 2010.

"Personally, I don’t believe we should reward bad behavior," she told the board.


Geisler said that the board had crafted a compensation plan designed to attract and retain talent.

"We did have an employment agreement with Mike McNeil. We did honor the contract, but we did not reward bad behavior," he told Swenson.

Swenson was not convinced on the final point.

"From my perspective, it still looks like rewarding bad behavior," she said.

She also asked if Home Federal was involved in "creative financing" or sub-prime loans.

"We recognized early on that it was a piece of business we didn’t want to be involved in. We are very clean there," answered Krehbiel.

However, "where we made a mistake was on the commercial side. We didn’t realize how reliant customers were on subprime loans," he said.

Swenson asked if the bank grew too fast and took on loans that were too large.


"We are going to curb the growth and focus more on Main Street," said Krehbiel.

After the meeting, Swenson said she was satisfied with how her questions were answered and she remains loyal to Home Federal.

The bank’s future, as she sees it, depends on keeping growth under control and steady.

"You don’t have to climb a mountain in one day," she said.

Another shareholder questioned Home Federal’s loss of $12 million in connection to Petters fraud case.

The loan was given to a customer of the bank and that customer loaned the money to Petters. Petters defrauded the bank’s customer and then it turned out that the customer’s collateral was fraudulent.

"We made a mistake," said Krehbiel.

While "vigorously" working on recovering the money, the bank is adjusting its loan methods.


That means staying closer to home, making smaller loans and "digging deeper" into loan applications, Krehbiel said.

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