10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2017

OR

[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _________ to _________

Commision File Number 0-24100

HMN FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	41-1777397
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1016 Civic Center Drive N.W., Rochester, MN	55901
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code:	(507) 535-1200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒                 No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒                 No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☒
		(Do not check if a smaller reporting company)
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐                 No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Class	Outstanding at October 26, 2017
Common stock, $0.01 par value	4,497,538

1

HMN FINANCIAL, INC.

CONTENTS

PART I - FINANCIAL INFORMATION
			Page
	Item 1:	Financial Statements
		Consolidated Balance Sheets at September 30, 2017 and December 31, 2016	3
		Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2017 and 2016	4
		Consolidated Statement of Stockholders' Equity for the Nine-Month Period Ended September 30, 2017	5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	6
		Notes to Consolidated Financial Statements	7
	Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3:	Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4:	Controls and Procedures	37
PART II - OTHER INFORMATION
	Item 1:	Legal Proceedings	38
	Item 1A:	Risk Factors	38
	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 3:	Defaults Upon Senior Securities	38
	Item 4:	Mine Safety Disclosures	38
	Item 5:	Other Information	38
	Item 6:	Exhibits	38
	Signatures		39

2

Part I – FINANCIAL INFORMATION

Item 1: Financial Statements

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30,			December 31,
(Dollars in thousands)	2017			2016
	(unaudited)
Assets
Cash and cash equivalents	$	30,600			27,561
Securities available for sale:
Mortgage-backed and related securities (amortized cost $5,465 and $993)		5,450			1,005
Other marketable securities (amortized cost $73,655 and $78,846)		72,901			77,472
		78,351			78,477
Loans held for sale		2,594			2,009
Loans receivable, net		583,057			551,171
Accrued interest receivable		2,580			2,626
Real estate, net		414			611
Federal Home Loan Bank stock, at cost		817			770
Mortgage servicing rights, net		1,654			1,604
Premises and equipment, net		8,247			8,223
Goodwill		802			802
Core deposit intangible		379			454
Prepaid expenses and other assets		1,404			1,768
Deferred tax asset, net		5,711			5,947
Total assets	$	716,610			682,023
Liabilities and Stockholders’ Equity
Deposits	$	628,971			592,811
Other borrowings		0			7,000
Accrued interest payable		112			236
Customer escrows		1,798			1,011
Accrued expenses and other liabilities		5,097			5,046
Total liabilities		635,978			606,104
Commitments and contingencies
Stockholders’ equity:
Serial preferred stock ($.01 par value): authorized 500,000 shares; issued and outstanding shares 0		0			0
Common stock ($.01 par value): authorized 16,000,000; issued shares 9,128,662		91			91
Additional paid-in capital		50,536			50,566
Retained earnings, subject to certain restrictions		90,903			86,886
Accumulated other comprehensive loss		(463	)		(820	)
Unearned employee stock ownership plan shares		(2,078	)		(2,223	)
Treasury stock, at cost 4,631,124 and 4,639,739 shares		(58,357	)		(58,581	)
Total stockholders’ equity		80,632			75,919
Total liabilities and stockholders’ equity	$	716,610			682,023

See accompanying notes to consolidated financial statements.

3

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2017			2016			2017			2016
Interest income:
Loans receivable	$	6,930			6,627			19,991			19,495
Securities available for sale:
Mortgage-backed and related		17			12			29			48
Other marketable		270			295			821			1,018
Cash equivalents		36			18			64			73
Other		2			2			8			4
Total interest income		7,255			6,954			20,913			20,638
Interest expense:
Deposits		413			255			1,035			727
Advances and other borrowings		80			149			327			446
Total interest expense		493			404			1,362			1,173
Net interest income		6,762			6,550			19,551			19,465
Provision for loan losses		(581	)		80			(582	)		(271	)
Net interest income after provision for loan losses		7,343			6,470			20,133			19,736
Non-interest income:
Fees and service charges		848			901			2,517			2,553
Loan servicing fees		299			280			906			812
Gain on sales of loans		521			656			1,528			1,848
Other		241			310			744			791
Total non-interest income		1,909			2,147			5,695			6,004
Non-interest expense:
Compensation and benefits		3,642			3,723			11,366			11,016
Gains on real estate		(65	)		(11	)		(72	)		(435	)
Occupancy and equipment		1,050			998			3,115			2,994
Data processing		243			299			795			853
Professional services		307			252			983			871
Other		1,082			940			2,858			2,626
Total non-interest expense		6,259			6,201			19,045			17,925
Income before income tax expense		2,993			2,416			6,783			7,815
Income tax expense		1,213			1,002			2,766			3,149
Net income		1,780			1,414			4,017			4,666
Other comprehensive income (loss), net of tax		(4	)		(51	)		357			131
Comprehensive income available to common shareholders	$	1,776			1,363			4,374			4,797
Basic earnings per share	$	0.42			0.34			0.95			1.12
Diluted earnings per share	$	0.37			0.30			0.83			0.99

See accompanying notes to consolidated financial statements.

4

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

For the Nine-Month Period Ended September 30, 2017

(unaudited)

											Unearned
											Employee
								Accumulated			Stock						Total
			Additional					Other			Ownership						Stock-
	Common		Paid-in			Retained		Comprehensive			Plan			Treasury			Holders’
(Dollars in thousands)	Stock		Capital			Earnings		Income (Loss)			Shares			Stock			Equity
Balance, December 31, 2016	$	91		50,566			86,886		(820	)		(2,223	)		(58,581	)		75,919
Net income							4,017											4,017
Other comprehensive income									357									357
Stock compensation expense				31														31
Restricted stock awards				(278	)										278			0
Stock awards withhold for tax withholding															(54	)		(54	)
Amortization of restricted stock awards				109														109
Earned employee stock ownership plan shares				108								145						253
Balance, September 30, 2017	$	91		50,536			90,903		(463	)		(2,078	)		(58,357	)		80,632

See accompanying notes to consolidated financial statements.

5

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended September 30,
(Dollars in thousands)	2017			2016
Cash flows from operating activities:
Net income	$	4,017			4,666
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		(582	)		(271	)
Depreciation		704			619
Amortization of discounts, net		(1	)		(9	)
Amortization of deferred loan fees		(192	)		(906	)
Amortization of core deposit intangible		75			68
Amortization of other purchased fair value adjustments		(74	)		(430	)
Amortization of mortgage servicing rights		411			437
Capitalized mortgage servicing rights		(461	)		(475	)
Losses on sales of investments		0			9
Gain on sale of premises and equipment		(8	)		0
Gain on sales of real estate		(72	)		(435	)
Gain on sales of loans		(1,528	)		(1,848	)
Proceeds from sales of loans held for sale		63,449			68,442
Disbursements on loans held for sale		(54,551	)		(56,644	)
Amortization of restricted stock awards		109			134
Amortization of unearned Employee Stock Ownership Plan shares		145			146
Earned Employee Stock Ownership Plan shares priced above original cost		108			53
Stock option compensation expense		31			59
Decrease in accrued interest receivable		46			127
Decrease in accrued interest payable		(124	)		(7	)
Decrease in other assets		376			395
Increase in other liabilities		57			3,312
Other, net		51			15
Net cash provided by operating activities		11,986			17,457
Cash flows from investing activities:
Principal collected on securities available for sale		636			986
Proceeds collected on maturities of securities available for sale		20,100			136,020
Purchases of securities available for sale		(20,035	)		(104,968	)
Purchase of Federal Home Loan Bank Stock		(3,999	)		(1,079	)
Redemption of Federal Home Loan Bank Stock		3,952			1,000
Proceeds from sales of real estate		309			2,250
Net increase in loans receivable		(39,044	)		(76,593	)
Acquisition payment, net of cash acquired		0			6,080
Proceeds from sale of premises and equipment		8			0
Purchases of premises and equipment		(772	)		(1,269	)
Net cash used by investing activities		(38,845	)		(37,573	)
Cash flows from financing activities:
Increase in deposits		36,165			13,898
Stock awards withheld for tax withholding		(54	)		0
Proceeds from borrowings		99,200			25,000
Repayment of borrowings		(106,200	)		(25,000	)
Increase in customer escrows		787			1,030
Net cash provided by financing activities		29,898			14,928
Increase (decrease) in cash and cash equivalents		3,039			(5,188	)
Cash and cash equivalents, beginning of period		27,561			39,782
Cash and cash equivalents, end of period	$	30,600			34,594
Supplemental cash flow disclosures:
Cash paid for interest	$	1,485			1,176
Cash paid for income taxes		1,817			436
Supplemental noncash flow disclosures:
Loans transferred to loans held for sale		8,144			12,085
Loans held for sale transferred to loans		164			0
Transfer of loans to real estate		40			591

See accompanying notes to consolidated financial statements.

6

HMN FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

September 30, 2017 and 2016

(1) HMN Financial, Inc.

HMN Financial, Inc. (HMN or the Company) is a stock savings bank holding company that owns 100 percent of Home Federal Savings Bank (the Bank). The Bank has a community banking philosophy and operates retail banking and loan production facilities in Minnesota, Iowa, and Wisconsin. The Bank has two wholly owned subsidiaries, Osterud Insurance Agency, Inc. (OIA), which does business as Home Federal Investment Services and offers financial planning products and services, and HFSB Property Holdings, LLC (HPH), which is currently inactive but has acted in the past as an intermediary for the Bank in holding and operating certain foreclosed properties.

The consolidated financial statements included herein are for HMN, the Bank, OIA and HPH. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation.

(2) Basis of Preparation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statement of stockholders' equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (GAAP). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the nine month period ended September 30, 2017 are not necessarily indicative of the results which may be expected for the entire year.

(3) New Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), with an original effective date for annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to annual and interim reporting periods in fiscal years beginning after December 15, 2017. This ASU is a converged standard between the FASB and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU is revenue recognition that represents the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In March, April, May and December of 2016 and February and September of 2017, the FASB also issued ASU 2016-08, 2016-10, 2016-12, 2016-20, 2017-05, and 2017-13, respectively, related to Topic 606. The amendments in these subsequently issued ASUs do not change the core principles of the previously issued guidance, but instead provide more clarity and implementation guidance for certain aspects of the original ASU. The Company has completed its initial assessment of which revenue sources are within the scope of this ASU and is currently evaluating contracts to assess and quantify accounting methodology changes resulting from the adoption of the standard. The adoption of this ASU, and the related amendments, in the first quarter of 2018 is not anticipated to have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require, among other things, equity investments to be measured at fair value with changes in fair value recognized in net income and that public business entities use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments also eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The ASU is intended to reduce diversity in practice and is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of this ASU in the first quarter of 2018 is not anticipated to have a material impact on the Company’s consolidated financial statements.

7

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in the ASU create Topic 842, Leases, and supersede the lease requirements in Topic 840, Leases. The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The main difference between previous GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The amendment requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing its right to use the underlying asset for the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply that will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified. The amendments in the ASU, for public business entities, are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU in the first quarter of 2019 is not anticipated to have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this ASU affect all entities that issue share-based payment awards to their employees. The amendments are intended to simplify the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU, for public business entities, are effective for fiscal years beginning after December 15, 2016, including interim periods within those annual periods. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The adoption of this ASU in the first quarter of 2017 did not have any impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial asset that has a contractual right to receive cash that is not specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. The amendments in this ASU, for public business entities that are U. S. Securities and Exchange Commission (SEC) filers, are effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. All entities may adopt the amendments in the ASU early as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Management is still in the process of evaluating the impact that the adoption of this ASU in the first quarter of 2020 will have on the Company’s consolidated financial statements.

8

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU affect all entities that are required to present a statement of cash flows under Topic 230 and address the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This ASU is intended to reduce diversity in practice and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted. Upon adoption, the amendments should be applied using a retrospective transition method to each period presented. The adoption of this ASU in the first quarter of 2018 is not anticipated to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323). The amendments in the ASU add and amend SEC paragraphs pursuant to the SEC staff announcement at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force (EITF) meetings. The September announcement is about the disclosure of the impact that recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. The announcement applies to ASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2016-02, Leases (Topic 842); and ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and to any subsequent amendments to these ASUs that are issued prior to their adoption. The November announcement made amendments to conform the SEC Observer comment on accounting for tax benefits resulting from investments in qualified affordable housing projects to the guidance issued in Accounting Standards Update No. 2014-01, Investments-Equity Method and Joint Ventures (Topic 323); Accounting for Investments in Qualified Affordable Housing Projects. This ASU is intended to improve transparency and is effective for public business entities upon issuance. The adoption of this ASU is not anticipated to have a material impact on the Company’s consolidated financial statements other than to enhance the disclosures on the effects of new accounting pronouncements as they move closer to adoption in future periods.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduce the cost and complexity of the two-step goodwill impairment test and is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted for testing performed after January 1, 2017. Upon adoption, the amendments should be applied on a prospective basis and the entity is required to disclose the nature of and reason for the change in accounting principle upon transition. The adoption of this ASU in the fourth quarter of 2020 when the annual assessment is completed is not anticipated to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount as discounts continue to be amortized to maturity. This ASU is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates and prices securities to maturity when the coupon is below market rates. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is intended to reduce diversity in practice and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted. Upon adoption, the amendments should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principles. The adoption of this ASU in the first quarter of 2019 is not anticipated to have a material impact on the Company’s consolidated financial statements.

9

In May 2017, the FASB issued ASU 2017-09, Compensation- Stock Compensation (Topic 718). The amendments in this ASU provide clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU is effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with early adoption permitted. The Company is in the process of evaluating the impact of this ASU but, when adopted in the first quarter of 2018, it is not anticipated to have a material impact on the Company’ consolidated financial statements.

(4) Fair Value Measurements

ASC 820, Fair Value Measurements, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system consisting of three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following table summarizes the assets and liabilities of the Company for which fair values are determined on a recurring basis as of September 30, 2017 and December 31, 2016.

	Carrying value at September 30, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	78,351		0		78,351		0
Mortgage loan commitments		78		0		78		0
Total	$	78,429		0		78,429		0

	Carrying value at December 31, 2016
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	78,477		0		78,477		0
Mortgage loan commitments		66		0		66		0
Total	$	78,543		0		78,543		0

There were no transfers between Levels 1, 2, or 3 during the three or nine month periods ended September 30, 2017.

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of the lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis in the third quarter of 2017 that were still held at September 30, 2017, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at September 30, 2017 and December 31, 2016.

10

	Carrying value at September 30, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Three months ended September 30, 2017 total gains (losses)			Nine months ended September 30, 2017 total gains (losses)
Loans held for sale	$	2,594		0		2,594		0		24			16
Mortgage servicing rights		1,654		0		1,654		0		0			0
Loans (1)		3,527		0		3,527		0		(510	)		(445	)
Real estate, net (2)		414		0		414		0		0			0
Total	$	8,189		0		8,189		0		(486	)		(429	)

	Carrying value at December 31, 2016
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Year ended December 31, 2016 total gains (losses)
Loans held for sale	$	2,009		0		2,009		0		14
Mortgage servicing rights		1,604		0		1,604		0		0
Loans (1)		3,582		0		3,582		0		(380	)
Real estate, net (2)		611		0		611		0		(197	)
Total	$	7,806		0		7,806		0		(563	)

⁽¹⁾ Represents the carrying value and related specific reserves on loans for which adjustments are based on the appraised value of the collateral. The carrying value of loans fully charged-off is zero.

⁽²⁾ Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

(5) Fair Value of Financial Instruments

GAAP requires interim reporting period disclosure about the fair value of financial instruments, including assets, liabilities and off-balance sheet items for which it is practicable to estimate fair value. The fair value hierarchy level for each asset and liability, as defined in note 4, have been included in the following table for September 30, 2017 and December 31, 2016. The fair value estimates are made based upon relevant market information, if available, and upon the characteristics of the financial instruments themselves. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimated fair value of the Company’s financial instruments as of September 30, 2017 and December 31, 2016 are shown in the following table.

	September 30,  2017													December 31, 2016
							Fair value hierarchy													Fair value hierarchy
(Dollars in thousands)	Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount		Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount
Financial assets:
Cash and cash equivalents	$	30,600			30,600			30,600							27,561			27,561			27,561
Securities available for sale		78,351			78,351					78,351					78,477			78,477					78,477
Loans held for sale		2,594			2,594					2,594					2,009			2,009					2,009
Loans receivable, net		583,057			581,475					581,475					551,171			552,395					552,395
Federal Home Loan Bank stock		817			817					817					770			770					770
Accrued interest receivable		2,580			2,580					2,580					2,626			2,626					2,626
Financial liabilities:
Deposits		628,971			629,288					629,288					592,811			593,297					593,297
Other borrowings		0			0					0					7,000			7,018					7,018
Accrued interest payable		112			112					112					236			236					236
Off-balance sheet financial instruments:
Commitments to extend credit		78			78								200,693		66			66								184,596
Commitments to sell loans		(16	)		(16	)							12,566		(22	)		(22	)							9,595

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates their fair value.

Securities Available for Sale

The fair values of securities were based upon quoted market prices for identical or similar instruments in active markets.

Loans Held for Sale

The fair values of loans held for sale were based upon quoted market prices for loans with similar interest rates and terms to maturity.

11

Loans Receivable, net

The fair value of the loan portfolio, with the exception of the adjustable rate portfolio, was calculated by discounting the scheduled cash flows through the estimated maturity using anticipated prepayment speeds and using discount rates that reflect the credit and interest rate risk inherent in each loan portfolio. The fair value of the adjustable loan portfolio was estimated by grouping the loans with similar characteristics and comparing the characteristics of each group to the prices quoted for similar types of loans in the secondary market.

Federal Home Loan Bank stock

The carrying amount of Federal Home Loan Bank (FHLB) stock approximates its fair value.

Accrued Interest Receivable

The carrying amount of accrued interest receivable approximates its fair value since it is short-term in nature and does not present unanticipated credit concerns.

Deposits

The fair value of demand deposits, savings accounts and certain money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

The fair value estimate for deposits does not include the benefit that results from the low cost funding provided by the Company's existing deposits and long-term customer relationships compared to the cost of obtaining different sources of funding. This benefit is commonly referred to as the core deposit intangible.

Other Borrowings

The fair values of other borrowings with fixed maturities are estimated based on discounted cash flow analysis using as discount rates the interest rates charged by the FHLB for borrowings of similar remaining maturities.

Accrued Interest Payable

The carrying amount of accrued interest payable approximates its fair value since it is short-term in nature.

Commitments to Extend Credit

The fair values of commitments to extend credit are estimated using the fees normally charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.

Commitments to Sell Loans

The fair values of commitments to sell loans are estimated using the quoted market prices for loans with similar interest rates and terms to maturity.

(6) Other Comprehensive Income (Loss)

Other comprehensive income is defined as the change in equity during a period from transactions and other events from nonowner sources. Comprehensive income is the total of net income and other comprehensive income, which for the Company is comprised of unrealized gains and losses on securities available for sale. The components of other comprehensive income and the related tax effects were as follows:

	For the three months ended September 30,
(Dollars in thousands)	2017									2016
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Net unrealized losses arising during the period	$	(7	)		(3	)		(4	)		(85	)		(34	)		(51	)
Other comprehensive loss	$	(7	)		(3	)		(4	)		(85	)		(34	)		(51	)
	For the nine months ended September 30,
(Dollars in thousands)	2017									2016
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Gross unrealized gains arising during the period	$	593			236			357			209			84			125
Less reclassification of net losses included in net income		0			0			0			(9	)		(3	)		(6	)
Net unrealized gains arising during the period	$	593			236			357			218			87			131
Other comprehensive income	$	593			236			357			218			87			131

12

(7) Securities Available For Sale

The following table shows the gross unrealized losses and fair value for the securities available for sale portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2017 and December 31, 2016.

	Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2017
Collateralized mortgage obligations:
Federal National Mortgage Association (FNMA)		2	$	4,968		(22	)		0	$	0		0		$	4,968		(22	)
Other marketable securities:
U.S. Government agency obligations		6		29,815		(145	)		8		39,464		(536	)		69,279		(681	)
Municipal obligations		6		925		(2	)		0		0		0			925		(2	)
Corporate preferred stock		0		0		0			1		525		(175	)		525		(175	)
Total temporarily impaired securities		14	$	35,708		(169	)		9	$	39,989		(711	)	$	75,697		(880	)

	Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2016
Collateralized mortgage obligations:
FNMA		1	$	262		(3	)		1	$	104		(2	)	$	366		(5	)
Other marketable securities:
U.S. Government agency obligations		13		63,896		(1,079	)		0		0		0			63,896		(1,079	)
Municipal obligations		14		2,327		(19	)		2		214		(1	)		2,541		(20	)
Corporate preferred stock		0		0		0			1		350		(350	)		350		(350	)
Total temporarily impaired securities		28	$	66,485		(1,101	)		4	$	668		(353	)	$	67,153		(1,454	)

We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and our intent and ability to hold the investment for a period of time sufficient to recover the temporary loss.

The unrealized losses reported for corporate preferred stock over twelve months at September 30, 2017 relates to a single trust preferred security that was issued by the holding company of a small community bank. As of September 30, 2017 interest payments were current on the trust preferred security and the issuer’s subsidiary bank was considered to be “well capitalized” based on its most recent regulatory filing. Based on a review of the issuer, it was determined that the trust preferred security was not other-than-temporarily impaired at September 30, 2017. The Company does not intend to sell the trust preferred security and has the ability to hold it for a period of time sufficient to recover the temporary loss. Management believes that the Company will receive all principal and interest payments contractually due on the securities and that the decrease in the market value is primarily due to a lack of liquidity in the market for trust preferred securities. Management will continue to monitor the credit risk of the issuer and may be required to recognize other-than-temporary impairment charges on this security in future periods.

13

A summary of securities available for sale at September 30, 2017 and December 31, 2016 is as follows:

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
September 30, 2017:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation (FHLMC)	$	141		4		0			145
FNMA		5,086		2		(22	)		5,066
Collateralized mortgage obligations:
FNMA		238		1		0			239
		5,465		7		(22	)		5,450
Other marketable securities:
U.S. Government agency obligations		69,960		0		(681	)		69,279
Municipal obligations		2,703		14		(2	)		2,715
Corporate debt		234		2		0			236
Corporate preferred stock		700		0		(175	)		525
Corporate equity		58		88		0			146
		73,655		104		(858	)		72,901
	$	79,120		111		(880	)		78,351

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2016
Mortgage-backed securities:
FHLMC	$	327		10		0			337
FNMA		295		7		0			302
Collateralized mortgage obligations:
FNMA		371		0		(5	)		366
		993		17		(5	)		1,005
Other marketable securities:
U.S. Government agency obligations		74,979		16		(1,079	)		73,916
Municipal obligations		2,819		0		(20	)		2,799
Corporate debt		290		2		0			292
Corporate preferred stock		700		0		(350	)		350
Corporate equity		58		57		0			115
		78,846		75		(1,449	)		77,472
	$	79,839		92		(1,454	)		78,477

The following table indicates amortized cost and estimated fair value of securities available for sale at September 30, 2017 based upon contractual maturity adjusted for scheduled repayments of principal and projected prepayments of principal based upon current economic conditions and interest rates.

(Dollars in thousands)	Amortized Cost		Fair Value
Due less than one year	$	1,308		1,307
Due after one year through five years		74,872		74,195
Due after five years through ten years		2,005		2,001
Due after ten years		877		702
No stated maturity		58		146
Total	$	79,120		78,351

The allocation of mortgage-backed securities in the table above is based upon the anticipated future cash flow of the securities using estimated mortgage prepayment speeds. The allocation of other marketable securities that have call features is based on the anticipated cash flows to the call date if it is anticipated that the security will be called, or to the maturity date if it is not anticipated to be called.

14

(8) Loans Receivable, Net

A summary of loans receivable at September 30, 2017 and December 31, 2016 is as follows:

(Dollars in thousands)	September 30, 2017			December 31, 2016
Single family	$	107,312			103,255
Commercial real estate:
Real estate rental and leasing		175,785			153,343
Other		153,466			145,737
		329,251			299,080
Consumer		74,984			73,283
Commercial business:
Transportation industry		9,418			10,509
Other		70,890			74,667
		80,308			85,176
Total loans		591,855			560,794
Less:
Unamortized discounts		21			20
Net deferred loan costs		(500	)		(300	)
Allowance for loan losses		9,277			9,903
Total loans receivable, net	$	583,057			551,171

(9) Allowance for Loan Losses and Credit Quality Information

The allowance for loan losses is summarized as follows:

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 2017:
Balance, June 30, 2017	$	1,004			5,490			1,544			2,007			10,045
Provision for losses		(63	)		(509	)		141			(150	)		(581	)
Charge-offs		(6	)		0			(45	)		(300	)		(351	)
Recoveries		0			32			6			126			164
Balance, September 30, 2017	$	935			5,013			1,646			1,683			9,277
For the nine months ended September 30, 2017:
Balance, December 31, 2016	$	1,186			4,953			1,613			2,151			9,903
Provision for losses		(245	)		(147	)		257			(447	)		(582	)
Charge-offs		(6	)		0			(263	)		(300	)		(569	)
Recoveries		0			207			39			279			525
Balance, September 30, 2017	$	935			5,013			1,646			1,683			9,277
Allocated to:
Specific reserves	$	235			248			434			71			988
General reserves		951			4,705			1,179			2,080			8,915
Balance, December 31, 2016	$	1,186			4,953			1,613			2,151			9,903
Allocated to:
Specific reserves	$	130			544			266			198			1,138
General reserves		805			4,469			1,380			1,485			8,139
Balance, September 30, 2017	$	935			5,013			1,646			1,683			9,277
Loans receivable at December 31, 2016:
Individually reviewed for impairment	$	1,107			1,880			940			643			4,570
Collectively reviewed for impairment		102,148			297,200			72,343			84,533			556,224
Ending balance	$	103,255			299,080			73,283			85,176			560,794
Loans receivable at September 30, 2017:
Individually reviewed for impairment	$	1,041			2,155			925			544			4,665
Collectively reviewed for impairment		106,271			327,096			74,059			79,764			587,190
Ending balance	$	107,312			329,251			74,984			80,308			591,855

15

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 2016:
Balance, June 30, 2016	$	1,270			5,827			1,531			1,697			10,325
Provision for losses		31			(288	)		116			221			80
Charge-offs		(66	)		(67	)		(14	)		(56	)		(203	)
Recoveries		0			48			4			52			104
Balance, September 30, 2016	$	1,235			5,520			1,637			1,914			10,306
For the nine months ended September 30, 2016:
Balance, December 31, 2015	$	990			6,078			1,200			1,441			9,709
Provision for losses		311			(1,148	)		432			134			(271	)
Charge-offs		(66	)		(67	)		(29	)		(100	)		(262	)
Recoveries		0			657			34			439			1,130
Balance, September 30, 2016	$	1,235			5,520			1,637			1,914			10,306

The following table summarizes the amount of classified and unclassified loans at September 30, 2017 and December 31, 2016:

	September 30, 2017
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	277		2,023		45		0		2,345		104,967		107,312
Commercial real estate:
Real estate rental and leasing		1,735		2,653		0		0		4,388		171,397		175,785
Other		9,897		7,410		0		0		17,307		136,159		153,466
Consumer		0		661		120		144		925		74,059		74,984
Commercial business:
Transportation industry		0		1,128		0		0		1,128		8,290		9,418
Other		5,547		3,013		0		0		8,560		62,330		70,890
	$	17,456		16,888		165		144		34,653		557,202		591,855

	December 31, 2016
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	457		2,130		74		0		2,661		100,594		103,255
Commercial real estate:
Real estate rental and leasing		1,577		3,156		0		0		4,733		148,610		153,343
Other		1,702		7,187		0		0		8,889		136,848		145,737
Consumer		0		531		110		299		940		72,343		73,283
Commercial business:
Transportation industry		0		4,065		0		0		4,065		6,444		10,509
Other		3,973		2,916		0		0		6,889		67,778		74,667
	$	7,709		19,985		184		299		28,177		532,617		560,794

Classified loans represent special mention, substandard (performing and non-performing), and non-performing loans categorized as doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet may not be warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.

16

The aging of past due loans at September 30, 2017 and December 31, 2016 is summarized as follows:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
September 30, 2017
Single family	$	833		457		108		1,398		105,914		107,312		0
Commercial real estate:
Real estate rental and leasing		212		0		259		471		175,314		175,785		0
Other		0		0		0		0		153,466		153,466		0
Consumer		318		424		126		868		74,116		74,984		0
Commercial business:
Transportation industry		0		0		0		0		9,418		9,418		0
Other		112		0		116		228		70,662		70,890		0
	$	1,475		881		609		2,965		588,890		591,855		0
December 31, 2016
Single family	$	342		158		179		679		102,576		103,255		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		153,343		153,343		0
Other		0		0		0		0		145,737		145,737		0
Consumer		412		117		140		669		72,614		73,283		0
Commercial business:
Transportation industry		0		0		0		0		10,509		10,509		0
Other		85		0		274		359		74,308		74,667		0
	$	839		275		593		1,707		559,087		560,794		0

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring (TDR). The following table summarizes impaired loans and related allowances as of September 30, 2017 and December 31, 2016:

	September 30, 2017						December 31, 2016
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance recorded:
Single family	$	381		381		0		217		217		0
Commercial real estate:
Real estate rental and leasing		37		69		0		40		122		0
Other		25		1,681		0		26		1,771		0
Consumer		508		508		0		312		312		0
Commercial business:
Other		0		0		0		274		356		0
Loans with an allowance recorded:
Single family		660		660		130		890		890		235
Commercial real estate:
Real estate rental and leasing		258		258		50		0		0		0
Other		1,835		1,835		494		1,814		1,814		248
Consumer		417		434		266		628		644		434
Commercial business:
Other		544		1,396		198		369		921		71
Total:
Single family		1,041		1,041		130		1,107		1,107		235
Commercial real estate:
Real estate rental and leasing		295		327		50		40		122		0
Other		1,860		3,516		494		1,840		3,585		248
Consumer		925		942		266		940		956		434
Commercial business:
Other		544		1,396		198		643		1,277		71
	$	4,665		7,222		1,138		4,570		7,047		988

17

The following tables summarize average recorded investment and interest income recognized on impaired loans during the three and nine months ended September 30, 2017 and 2016.

	For the three months ended September 30, 2017				For the nine months ended September 30, 2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	453		1		414		3
Commercial real estate:
Real estate rental and leasing		38		0		39		0
Other		26		24		26		72
Consumer		500		5		404		9
Commercial business:
Other		0		0		125		0
Loans with an allowance recorded:
Single family		765		8		821		11
Commercial real estate:
Real estate rental and leasing		258		0		194		0
Other		1,838		16		1,818		23
Consumer		375		4		455		8
Commercial business:
Other		496		6		428		19
Total:
Single family		1,218		9		1,235		14
Commercial real estate:
Real estate rental and leasing		296		0		233		0
Other		1,864		40		1,844		95
Consumer		875		9		859		17
Commercial business:
Other		496		6		553		19
	$	4,749		64		4,724		145

	For the three months ended September 30, 2016				For the nine months ended September 30, 2016
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	336		5		654		12
Commercial real estate:
Real estate rental and leasing		46		1		45		4
Other		26		24		26		73
Consumer		478		1		483		3
Commercial business:
Other		66		0		33		0
Loans with an allowance recorded:
Single family		1,094		5		1,055		14
Commercial real estate:
Other		2,511		54		2,354		183
Consumer		547		2		534		8
Commercial business:
Other		467		16		437		62
Total:
Single family		1,430		10		1,709		26
Commercial real estate:
Real estate rental and leasing		46		1		45		4
Other		2,537		78		2,380		256
Consumer		1,025		3		1,017		11
Commercial business:
Other		533		16		470		62
	$	5,571		108		5,621		359

18

At September 30, 2017 and December 31, 2016, non-accruing loans totaled $3.3 million for which the related allowance for loan losses was $0.9 million and $0.8 million, respectively. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which no specific allowance has been recorded, because management determined that the value of the collateral was sufficient to repay the loan, totaled $0.7 million at both September 30, 2017 and December 31, 2016. Non-accrual loans also include certain loans that have had terms modified in a TDR.

The non-accrual loans at September 30, 2017 and December 31, 2016 are summarized as follows:

(Dollars in thousands)	September 30, 2017		December 31, 2016
Single family	$	800		916
Commercial real estate:
Real estate rental and leasing		295		41
Other		1,371		1,343
Consumer		545		630
Commercial business:
Other		297		343
	$	3,308		3,273

At September 30, 2017 and December 31, 2016 there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling $3.6 million and $3.3 million, respectively. For the loans that were restructured in the third quarter of 2017, $34,000 were classified but performing, and $0.2 million were non-performing at September 30, 2017. For the loans that were restructured in the third quarter of 2016, $0.2 million were classified but performing, and $1.5 million were non-performing at September 30, 2016.

The following table summarizes TDRs at September 30, 2017 and December 31, 2016:

	September 30, 2017						December 31, 2016
(Dollars in thousands)	Accrual		Non-Accrual		Total		Accrual		Non-Accrual		Total
Single family	$	241		455		696		191		257		448
Commercial real estate		489		1,227		1,716		497		1,277		1,774
Consumer		380		418		798		309		400		709
Commercial business		247		181		428		300		69		369
	$	1,357		2,281		3,638		1,297		2,003		3,300

As of September 30, 2017, the Bank had commitments to lend an additional $0.2 million to a borrower who has TDR and non-accrual loans. These additional funds are for the construction of single family homes with a maximum loan-to-value ratio of 75%. These loans are secured by the home under construction. At December 31, 2016, there were commitments to lend additional funds of $0.4 million to this same borrower.

TDR concessions can include a reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are not reported as TDRs after 12 months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for the entire 12 month period. All loans classified as TDRs are considered to be impaired.

When a loan is modified as a TDR, there may be a direct, material impact on the loans within the balance sheet, as principal balances may be partially forgiven. The financial effects of TDRs are presented in the following tables and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the three month and nine month periods ended September 30, 2017 and 2016.

19

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		3	$	282		514
Commercial real estate:
Other		0		0		0		0		0		0
Consumer		6		104		105		13		462		465
Commercial business:
Other		1		416		116		1		416		116
Total		7	$	520		221		17	$	1,160		1,095

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		1	$	126		139		2	$	191		203
Commercial real estate:
Other		1		1,274		1,274		1		1,274		1,274
Consumer		3		73		73		14		215		216
Commercial business:
Other		2		257		201		2		257		201
Total		7	$	1,730		1,687		19	$	1,937		1,894

The following table summarizes the loans that were restructured in the 12 months preceding September 30, 2017 and subsequently defaulted during the nine months ended September 30, 2017. There were no restructured loans that defaulted in the three months ended September 30, 2017.

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Single Family		2	$	60
Total		2	$	60

	Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Commercial real estate:
Other		0	$	0		1	$	183
Consumer		3		6		3		6
Commercial business:
Other		0		0		1		44
Total		3	$	6		5	$	233

20

The Company considers a loan to have defaulted when it becomes 90 or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement. Loans that were non-accrual prior to modification remain on non-accrual status for at least six months following modification. Non-accrual TDR loans that have performed according to the modified terms for six months may be returned to accrual status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.

TDRs are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral-dependent, the value of the collateral is reviewed and additional reserves may be added to general reserves as needed. Loans that are not collateral-dependent may have additional reserves established if deemed necessary. The reserves for TDRs were $1.0 million, or 10.6%, of the total $9.3 million in loan loss reserves at September 30, 2017 and $0.6 million, or 6.2%, of the total $9.9 million in loan loss reserves at December 31, 2016.

The following is additional information with respect to loans acquired through acquisitions:

(Dollars in thousands)	Contractual Principal Receivable			Accretable Difference			Carrying Amount
Purchased performing loans:
Balance at June 30, 2017	$	13,267			(275	)		12,992
Change due to payments/refinances		(1,421	)		14			(1,407	)
Balance at September 30, 2017	$	11,846			(261	)		11,585

(Dollars in thousands)	Contractual Principal Receivable			Non-Accretable Difference			Carrying Amount
Purchased credit impaired loans:
Balance at June 30, 2017	$	386			(45	)		341
Change due to payments/refinances		(23	)		3			(20	)
Balance at September 30, 2017	$	363			(42	)		321

As a result of acquisitions, the Company has loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition that all contractually required payments would not be collected. The carrying amount of those loans as of September 30, 2017 was $0.3 million.

No provision for loan losses was recognized during the period ended September 30, 2017 related to acquired loans, as there was no significant change to the credit quality of those loans.

(10) Intangible Assets

The Company’s intangible assets consist of mortgage servicing rights, core deposit intangibles, and goodwill. A summary of mortgage servicing activity is as follows:

(Dollars in thousands)	Nine Months ended September 30, 2017			Twelve Months ended December 31, 2016			Nine Months ended September 30, 2016
Balance, beginning of period	$	1,604			1,499			1,499
Originations		461			706			475
Amortization		(411	)		(601	)		(437	)
Balance, end of period	$	1,654			1,604			1,537
Fair value of mortgage servicing rights	$	3,003			2,952			2,426

21

All of the loans being serviced were single family loans serviced for FNMA under the individual loan sale program. The following is a summary of the risk characteristics of the loans being serviced at September 30, 2017.

			Weighted			Weighted
	Loan		Average			Average
	Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans
Original term 30 year fixed rate	$	256,068		4.08	%		305		2,062
Original term 15 year fixed rate		103,089		3.10			136		1,111
Adjustable rate		56		3.25			284		2

The gross carrying amount of intangible assets and the associated accumulated amortization at September 30, 2017 is presented in the following table. No amortization expense relating to goodwill is recorded as generally accepted accounting principles do not allow goodwill to be amortized, but require that it be tested for impairment at least annually, or sooner if there are indications that impairment may exist. Amortization expense for amortizing intangible assets was $0.5 million for both nine month periods ended September 30, 2017 and 2016.

	September 30, 2017
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,141		(2,487	)		1,654
Core deposit intangible		574		(195	)		379
Goodwill		802		0			802
Total	$	5,517		(2,682	)		2,835

	September 30, 2016
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	3,851		(2,314	)		1,537
Core deposit intangible		574		(96	)		478
Goodwill		802		0			802
Total	$	5,227		(2,410	)		2,817

The following table indicates the estimated future amortization expense for amortizing intangible assets:

(Dollars in thousands)	Mortgage Servicing Rights		Core Deposit Intangible		Total Amortizing Intangible Assets
Year ended December 31,
2017	$	118		25		143
2018		406		99		505
2019		353		99		452
2020		277		99		376
2021		227		47		274
Thereafter		273		10		283
Total	$	1,654		379		2,033

Projections of amortization are based on existing asset balances and the existing interest rate environment as of September 30, 2017. The Company's actual experience may be significantly different depending upon changes in mortgage interest rates and other market conditions.

22

(11) Earnings per Common Share

The following table reconciles the weighted average shares outstanding and the earnings available to common shareholders used for basic and diluted earnings per share:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2017		2016		2017		2016
Weighted average number of common shares outstanding used in basic earnings per share calculation		4,220		4,186		4,212		4,176
Net dilutive effect of:
Restricted stock awards, options, and warrants		650		586		651		552
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,870		4,772		4,863		4,728
Income available to common shareholders	$	1,780		1,414		4,017		4,666
Basic earnings per common share	$	0.42		0.34		0.95		1.12
Diluted earnings per common share	$	0.37		0.30		0.83		0.99

(12) Regulatory Capital and Oversight

Effective January 1, 2015 the capital requirements of the Bank were changed to implement the regulatory requirements of the Basel III capital reforms. The Basel III requirements, among other things, (i) apply a strengthened set of capital requirements to the Bank (the Company is exempt, pursuant to the Small Bank Holding Company Policy Statement (Policy Statement) described below), including requirements relating to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and a higher minimum tier 1 capital requirement, and (iii) revise the rules for calculating risk-weighted assets for purposes of such requirements. The rules made corresponding revisions to the prompt corrective action framework and include new capital ratios and buffer requirements which will be phased in incrementally, with full implementation scheduled for January 1, 2019. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Federal Reserve amended its Policy Statement, to exempt small bank holding companies from the above capital requirements, by raising the asset size threshold for determining applicability from $500 million to $1 billion. The Policy Statement was also expanded to include savings and loan holding companies that meet the Policy Statement’s qualitative requirements for exemption. The Company met the qualitative exemption requirements, and therefore, is exempt from the above capital requirements.

Quantitative measures established by regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table and defined in the regulation) of Common Equity Tier 1 capital to risk weighted assets, Tier 1 capital to adjusted total assets, Tier 1 capital to risk weighted assets, and total capital to risk weighted assets.

The Bank’s average total assets for the quarter ending September 30, 2017 were $710.3 million, its adjusted total assets were $709.1 million, and its risk-weighted assets were $604.9 million. The following table presents the Bank’s capital amounts and ratios at September 30, 2017 for actual capital, required capital, and excess capital, including ratios in order to qualify as being well capitalized under the Prompt Corrective Actions regulations.

	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
September 30, 2017
Common equity tier 1 capital	$	76,306		12.62	%	$	27,219		4.50	%	$	49,086		8.12	%	$	39,317		6.50	%
Tier 1 capital leverage		76,306		10.76			28,365		4.00			47,941		6.76			35,456		5.00
Tier 1 risk-based capital		76,306		12.62			36,293		6.00			40,014		6.62			48,390		8.00
Total risk-based capital		83,889		13.87			48,390		8.00			35,499		5.87			60,488		10.00

23

Beginning in 2016, the Bank must maintain a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. For 2017, the capital conservation buffer is 1.25%. The buffer amount will increase incrementally each year until 2019 when the entire 2.50% capital conservation buffer will be fully phased in.

Management believes that, as of September 30, 2017, the Bank’s capital ratios were in excess of those quantitative capital ratio standards set forth under the current prompt corrective action regulations, including the capital conservation buffer described above. However, there can be no assurance that the Bank will continue to maintain such status in the future. The Office of the Comptroller of the Currency has extensive discretion in its supervisory and enforcement activities, and can adjust the requirement to be “well-capitalized” in the future.

(13) Stockholders’ Equity

The Company's certificate of incorporation authorizes the issuance of up to 500,000 shares of preferred stock, and on December 23, 2008, the Company completed the sale of 26,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the Preferred Stock) to the U.S. Department of the Treasury (Treasury). The Preferred Stock had a liquidation value of $1,000 per share and a related warrant was also issued to purchase 833,333 shares of HMN common stock at an exercise price of $4.68 per share (the Warrant). The transaction was part of the Treasury’s Capital Purchase Program under the Emergency Economic Stabilization Act of 2008.

On February 17, 2015, the Company redeemed the final 10,000 shares of outstanding Preferred Stock. On May 21, 2015, the Treasury sold the Warrant at an exercise price of $4.68 to three unaffiliated third party investors for an aggregate purchase price of $5.7 million. Two of the investors received a warrant to purchase 277,777.67 shares and one investor received a warrant to purchase 277,777.66 shares. All of the warrants were still outstanding as of September 30, 2017 and may be exercised at any time prior to their expiration date of December 23, 2018. The Company received no proceeds from this transaction and it had no effect on the Company’s capital, financial condition or results of operations.

(14) Other Borrowings

On December 15, 2014, the Company entered into a Loan Agreement with an unrelated third party, providing for a term loan of up to $10.0 million that was evidenced by a promissory note (the Note) with an interest rate of 6.50% per annum. The principal balance of the loan was payable in consecutive equal annual installments of $1.0 million on each anniversary of the date of the Loan Agreement, commencing on December 15, 2015, with the balance due on December 15, 2021. The Company had the option to voluntarily prepay the Note in whole or in part without penalty. The Company made the scheduled $1.0 million principal payment on December 15, 2015, a $2.0 million payment on December 15, 2016, and on August 31, 2017 paid off the remaining principal balance of $7.0 million. There was no outstanding loan balance at September 30, 2017 and the loan balance was $7.0 million at December 31, 2016.

(15) Commitments and Contingencies

The Bank issues standby letters of credit which guarantee the performance of customers to third parties. The standby letters of credit issued and available at September 30, 2017 were approximately $2.5 million, expire over the next 36 months, and are collateralized primarily with commercial real estate mortgages. Since the conditions under which the Bank is required to fund the standby letters of credit may not materialize, the cash requirements are expected to be less than the total outstanding commitments.

(16) Business Segments

The Bank has been identified as a reportable operating segment in accordance with the provisions of ASC 280. HMN did not meet the quantitative thresholds for determining reportable segments and, therefore, is included in the “Other” category.

The Company evaluates performance and allocates resources based on the segment’s net income, return on average assets and equity. Each corporation is managed separately with its own officers and board of directors, some of whom may overlap between the corporations.

24

The following table sets forth certain information about the reconciliation of reported profit and assets for each of the Company’s reportable segments.

(Dollars in thousands)	Home Federal Savings Bank		Other			Eliminations			Consolidated Total
At or for the nine months ended September 30, 2017:
Interest income - external customers	$	20,913		0			0			20,913
Non-interest income - external customers		5,695		0			0			5,695
Intersegment non-interest income		158		4,596			(4,754	)		0
Interest expense		1,056		306			0			1,362
Other non-interest expense		18,653		550			(158	)		19,045
Income tax expense		3,043		(277	)		0			2,766
Net income		4,596		4,017			(4,596	)		4,017
Total assets		715,827		79,516			(78,733	)		716,610
At or for the nine months ended September 30, 2016:
Interest income - external customers	$	20,638		0			0			20,638
Non-interest income - external customers		6,004		0			0			6,004
Intersegment non-interest income		158		5,362			(5,520	)		0
Interest expense		728		445			0			1,173
Other non-interest expense		17,510		573			(158	)		17,925
Income tax expense		3,471		(322	)		0			3,149
Net income		5,362		4,666			(5,362	)		4,666
Total assets		684,635		83,570			(82,538	)		685,667
At or for the quarter ended September 30, 2017:
Interest income - external customers	$	7,255		0			0			7,255
Non-interest income - external customers		1,909		0			0			1,909
Intersegment non-interest income		53		1,960			(2,013	)		0
Interest expense		416		77			0			493
Other non-interest expense		6,124		188			(53	)		6,259
Income tax expense		1,298		(85	)		0			1,213
Net income		1,960		1,780			(1,960	)		1,780
Total assets		715,827		79,516			(78,733	)		716,610
At or for the quarter ended September 30, 2016:
Interest income - external customers	$	6,954		0			0			6,954
Non-interest income - external customers		2,147		0			0			2,147
Intersegment non-interest income		53		1,718			(1,771	)		0
Interest expense		255		149			0			404
Other non-interest expense		6,049		205			(53	)		6,201
Income tax expense		1,052		(50	)		0			1,002
Net income		1,718		1,414			(1,718	)		1,414
Total assets		684,635		83,570			(82,538	)		685,667

25

Item 2:

HMN FINANCIAL, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS)

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Information

Safe Harbor Statement

This quarterly report may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as “expect,” “intend,” “look,” “believe,” “anticipate,” “estimate,” “project,” “seek,” “may,” “will,” “would,” “could,” “should,” “trend,” “target,” and “goal” or similar statements or variations of such terms and include, but are not limited to, those relating to growing our core deposit relationships and loan balances, enhancing the financial performance of our core banking operations, maintaining credit quality, reducing non-performing assets, and generating improved financial results (including profitability); the adequacy and amount of available liquidity and capital resources to the Bank; the Company’s liquidity and capital requirements; our expectations for core capital and our strategies and potential strategies for maintenance thereof; improvements in loan production; changes in the size of the Bank’s loan portfolio; the amount of the Bank’s non-performing assets and the appropriateness of the allowance therefor; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and composition of interest-earning assets; the amount of yield enhancements relating to non-accruing and purchased loans; the amount and composition of non-interest and interest-bearing liabilities; the availability of alternate funding sources; the payment of dividends by HMN; the future outlook for the Company; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer of the trust preferred securities held by the Bank; the ability of the Bank to pay dividends to HMN; the ability to remain well capitalized; and compliance by the Bank with regulatory standards generally (including the Bank’s status as “well-capitalized”) and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject, specifically, and possible responses of the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), the Bank, and the Company to any failure to comply with any such regulatory standard, directive or requirement.

A number of factors could cause actual results to differ materially from the Company’s assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including additional changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the OCC and FRB in the event of our non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company’s loan and investment portfolios; changes in costs associated with alternate funding sources, including changes in collateral advance rates and policies of the FHLB; technological, computer-related or operational difficulties; results of litigation; reduced demand for financial services and loan products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; international economic developments; the Company’s access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; acquisition integration costs; our ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company’s assumptions and expectations include those set forth in the Company’s most recent filing on Forms 10-K and 10-Q with the Securities and Exchange Commission. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. For additional discussion of the risks and uncertainties applicable to the Company, see the “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q.

All statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and we undertake no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q.

26

General

The earnings of the Company are primarily dependent on the Bank's net interest income, which is the difference between interest earned on loans and investments, and the interest paid on interest-bearing liabilities such as deposits and other borrowings. The difference between the average rate of interest earned on assets and the average rate paid on liabilities is the "interest rate spread". Net interest income is produced when interest-earning assets equal or exceed interest-bearing liabilities and there is a positive interest rate spread. Net interest income and net interest rate spread are affected by changes in interest rates, the volume and composition of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. The Company's net earnings are also affected by the generation of non-interest income, which consists primarily of gains from the sale of loans and real estate owned, fees for servicing loans, commissions on the sale of uninsured investment products, and service charges on deposit accounts. The Bank incurs expenses in addition to interest expense in the form of salaries and benefits, occupancy and equipment expenses, provisions for loan losses, deposit insurance, amortization expense on intangible assets, data processing costs, fees for professional services, and income taxes. The earnings of financial institutions, such as the Bank, are also significantly affected by prevailing economic and competitive conditions, particularly changes in interest rates, government monetary and fiscal policies, and regulations of various regulatory authorities. Lending activities are influenced by the demand for and supply of business credit, single-family and commercial properties, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of deposits are influenced by prevailing market rates of interest on competing investments, account maturities and the levels of personal income and savings.

Critical Accounting Estimates

Critical accounting policies are those policies that the Company's management believes are the most important to understanding the Company’s financial condition and operating results. These critical accounting policies often involve estimates and assumptions that could have a material impact on the Company’s consolidated financial statements. The Company has identified the following critical accounting policies that management believes involve the most difficult, subjective, and/or complex judgments that are inherently uncertain. Therefore, actual financial results could differ significantly depending upon the estimates, assumptions and other factors used.

Allowance for Loan Losses and Related Provision

The allowance for loan losses is based on periodic analysis of the loan portfolio and is maintained at an amount considered to be appropriate by management to provide for probable losses inherent in the loan portfolio as of the balance sheet dates. In this analysis, management considers factors including, but not limited to, specific occurrences of loan impairment, actual and anticipated changes in the size of the portfolios, national and regional economic conditions such as unemployment data, loan delinquencies, local economic conditions, demand for single-family homes, demand for commercial real estate and building lots, loan portfolio composition and historical loss experience and observations made by the Company's ongoing internal audit and regulatory exam processes. Loans are charged off to the extent they are deemed to be uncollectible. The Company has established separate processes to determine the appropriateness of the loan loss allowance for its homogeneous single-family and consumer loan portfolios and its non-homogeneous loan portfolios. The determination of the allowance on the homogeneous single-family and consumer loan portfolios is calculated on a pooled basis with individual determination of the allowance for all non-performing loans. The determination of the allowance for the non-homogeneous commercial, commercial real estate and multi-family loan portfolios involves assigning standardized risk ratings and loss factors that are periodically reviewed. The loss factors are estimated based on the Company's own loss experience and are assigned to all loans without identified credit weaknesses. For each non-performing loan, the Company also performs an individual analysis of impairment that is based on the expected cash flows or the value of the assets collateralizing the loans and establishes any necessary reserves or charges off all loans, or portions thereof, that are deemed uncollectable.

27

The appropriateness of the allowance for loan losses is dependent upon management’s estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to adjustments due to changing economic prospects of borrowers or properties. The fair market value of collateral dependent loans are typically based on the appraised value of the property less estimated selling costs. The estimates are reviewed periodically and adjustments, if any, are recorded in the provision for loan losses in the periods in which the adjustments become known. Because of the size of some loans, changes in estimates can have a significant impact on the loan loss provision. The allowance is allocated to individual loan categories based upon the relative risk characteristics of the loan portfolios and the actual loss experience. The Company increases its allowance for loan losses by charging the provision for loan losses against income and decreases its allowance by crediting the provision for loan losses. The allowance is also credited for recoveries received on previously charged off loans. The activity in the allowance in the first nine months of 2017 resulted in a credit to the loan loss provision. The methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses in the loan portfolio that have not been specifically identified. Although management believes that based on current conditions the allowance for loan losses is maintained at an appropriate amount to provide for probable loan losses inherent in the portfolio as of the balance sheet dates, future conditions may differ substantially from those anticipated in determining the allowance for loan losses and adjustments may be required in the future.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

The Company maintains significant net deferred tax assets for deductible temporary differences, the largest of which relates to the allowance for loan losses and net operating loss carryforwards. For income tax purposes, only net charge-offs are deductible, not the entire provision for loan losses. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon management’s judgment and evaluation of both positive and negative evidence, including the forecasts of future income, tax planning strategies, and assessments of the current and future economic and business conditions. The Company considers both positive and negative evidence regarding the ultimate realizability of deferred tax assets. Positive evidence includes the Company’s cumulative net income in the prior three year period, the ability to implement tax planning strategies to accelerate taxable income recognition, and the probability that taxable income will be generated in future periods. It is possible that future conditions may differ substantially from those anticipated in determining that no valuation allowance was required on deferred tax assets and adjustments may be required in the future.

Determining the ultimate settlement of any tax position requires significant estimates and judgments in arriving at the amount of tax benefits to be recognized in the financial statements. It is possible that the tax benefits realized upon the ultimate resolution of a tax position may result in tax benefits that are significantly different from those estimated.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2017 COMPARED TO THE SAME PERIODS ENDED SEPTEMBER 30, 2016

Net Income

Net income was $1.8 million for the third quarter of 2017, an increase of $0.4 million compared to net income of $1.4 million for the third quarter of 2016. Diluted earnings per share for the third quarter of 2017 was $0.37, an increase of $0.07, compared to diluted earnings per share of $0.30 for the third quarter of 2016. The increase in net income for the third quarter of 2017 is due primarily to a $0.7 million decrease in the provision for loan losses as a result of the continued improvement in the credit quality of the loan portfolio and a $0.2 million increase in net interest income because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods. These improvements in net income were partially offset by an increase in income tax expense of $0.2 million as a result of the increase in pre-tax income, a decrease of $0.1 million on the gain on sales of loans as a result of fewer commercial guaranteed loan sales between the periods, and an increase in other non-interest expenses of $0.1 million related primarily to an increase in legal fees between the periods.

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Net income was $4.0 million for the nine month period ended September 30, 2017, a decrease of $0.7 million, or 13.9%, compared to net income of $4.7 million for the nine month period ended September 30, 2016. Diluted earnings per share for the nine month period ended September 30, 2017 was $0.83, a decrease of $0.16 per share, compared to diluted earnings per share of $0.99 for the same period of 2016. The decrease in net income for the nine month period ended September 30, 2017 was due primarily to a $0.3 million decrease in the gain on sales of loans due to the reduced sales of commercial government guaranteed loans between the periods. Non-interest expenses also increased $1.1 million between the periods primarily because of a decrease in the gains on real estate sales due to fewer real estate sales and an increase in compensation expense due primarily to annual salary increases. These decreases in net income were partially offset by a $0.3 million decrease in the provision for loan losses as a result of the continued improvement in the credit quality of the loan portfolio and a $0.1 million increase in net interest income because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held between the periods. Income tax expense also decreased $0.4 million because of the decrease in pre-tax income between the periods.

Net Interest Income

Net interest income was $6.8 million for the third quarter of 2017, an increase of $0.2 million, or 3.1%, from $6.6 million for the third quarter of 2016. Interest income was $7.3 million for the third quarter of 2017, an increase of $0.3 million, or 4.3%, from $7.0 million for the same period in 2016. Interest income increased $0.6 million because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an 8 basis point increase in the average yields earned between the periods. While the average interest-earning assets increased $48.1 million between the periods, the average interest-earning assets held in higher yielding loans increased $52.2 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $4.1 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods. The increase in interest income as a result of these items was partially offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods. Interest income decreased $0.3 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans which resulted in a 22 basis point decrease in the average yield between the periods. It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline. The average yield earned on interest-earning assets was 4.21% for the third quarter of 2017, a decrease of 14 basis points from 4.35% for the third quarter of 2016. The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield enhancements recognized between the periods.

Interest expense was $0.5 million for the third quarter of 2017, an increase of $0.1 million, or 22.0%, from $0.4 million for the third quarter of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.31% for the third quarter of 2017, an increase of 4 basis points from 0.27% for the third quarter of 2016. The average rate paid increased between the periods due to an increase in the rates paid on certain money market and certificate of deposit accounts that was partially offset by a decrease in the interest paid on other borrowings due to a decrease in the average borrowings outstanding between the periods. While the average non-interest and interest-bearing liabilities increased $40.0 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $1.8 million, the average amount held in higher rate premium money market and certificate of deposit accounts increased $42.5 million, and the average amount held in higher rate borrowings decreased $4.3 million between the periods.

Net interest margin (net interest income divided by average interest-earning assets) for the third quarter of 2017 was 3.92%, a decrease of 18 basis points, compared to 4.10% for the third quarter of 2016. The decrease in the net interest margin is primarily related to the decrease in yield enhancements recognized between the periods.

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Net interest income was $19.6 million for the first nine months of 2017, an increase of $0.1 million, or 0.4%, from $19.5 million for the same period of 2016. Interest income was $20.9 million for the nine month period ended September 30, 2017, an increase of $0.3 million, or 1.3%, from $20.6 million for the same nine month period of 2016. Interest income increased $1.8 million because of an increase in the average interest-earning assets and a change in the composition of the average interest-earning assets held, which resulted in an 11 basis point increase in the average yields earned between the periods. While the average interest-earning assets increased $42.3 million between the periods, the average interest-earning assets held in higher yielding loans increased $65.3 million and the amount of average interest-earning assets held in lower yielding cash and investments decreased $23.0 million between the periods. The increase in the average outstanding loans between the periods was primarily the result of an increase in the commercial loan portfolio, which occurred because of an increase in loan originations and a reduction in loan payoffs between the periods. The increase in interest income as a result of these items was partially offset by a decrease in interest income as a result of recognizing a lower amount of yield enhancements between the periods. Interest income decreased $1.5 million due to a decrease in the amount of yield enhancements recognized from loan prepayment penalties, yield adjustments on purchased loans, and the interest payments received on non-accruing and previously charged off commercial real estate loans, which resulted in a 33 basis point decrease in the average yield between the periods. It is anticipated that the yield enhancements relating to these items will be lower in subsequent periods as the pool of non-accruing and purchased loans continues to decline. The average yield earned on interest-earning assets was 4.21% for the first nine months of 2017, a decrease of 22 basis points from 4.43% for the first nine months of 2016. The decrease in the average yield earned on interest-earning assets is primarily related to the decrease in yield enhancements recognized between the periods.

Interest expense was $1.4 million for the first nine months of 2017, an increase of $0.2 million, or 16.1%, compared to $1.2 million for the first nine months of 2016. The average interest rate paid on non-interest and interest-bearing liabilities was 0.30% for the first nine months of 2017, an increase of 3 basis points from 0.27% for the first nine months of 2016. The average rate paid increased between the periods due to an increase in the rates paid on certain money market and certificate of deposit accounts that was partially offset by a decrease in the interest paid on other borrowings due to a decrease in the average borrowings outstanding between the periods. While the average non-interest and interest-bearing liabilities increased $33.5 million between the periods, the average amount held in lower rate checking, savings, and money market accounts increased $2.7 million, the average amount held in higher rate premium money market and certificate of deposit accounts increased $33.6 million, and the average amount held in higher rate borrowings decreased $2.8 million between the periods.

Net interest margin (net interest income divided by average interest-earning assets) for the first nine months of 2017 was 3.94%, a decrease of 24 basis points, compared to 4.18% for the first nine months of 2016. The decrease in the net interest margin is primarily related to the decrease in yield enhancements recognized between the periods.

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A summary of the Company’s net interest margin for the three and nine month periods ended September 30, 2017 and September 30, 2016 is as follows:

	For the three-month period ended
	September 30, 2017							September 30, 2016
(Dollars in thousands)	Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
Interest-earning assets:
Securities available for sale	$	77,360		287		1.47	%	$	79,176		307		1.54	%
Loans held for sale		1,916		25		5.18			4,214		47		4.44
Single family loans, net		114,826		1,164		4.02			107,053		1,147		4.26
Commercial loans, net		398,097		4,838		4.82			351,004		4,520		5.12
Consumer loans, net		74,164		903		4.83			74,544		913		4.87
Cash equivalents		16,917		36		0.84			19,267		18		0.37
Federal Home Loan Bank stock		848		2		0.94			770		2		1.03
Total interest-earning assets	$	684,128		7,255		4.21		$	636,028		6,954		4.35
Interest-bearing liabilities and non-interest bearing deposits:
NOW accounts		84,154		24		0.11			83,562		10		0.05
Savings accounts		77,073		16		0.08			73,293		16		0.09
Money market accounts		194,660		159		0.32			168,870		92		0.22
Certificates		108,227		214		0.78			101,401		137		0.54
Advances and other borrowings		5,394		80		5.88			9,000		149		6.59
Total interest-bearing liabilities	$	469,508						$	436,126
Non-interest checking		155,674							148,788
Other non-interest bearing deposits		1,542							1,846
Total interest-bearing liabilities and non-interest bearing deposits	$	626,724		493		0.31		$	586,760		404		0.27
Net interest income				6,762							6,550
Net interest rate spread						3.90	%						4.08	%
Net interest margin						3.92	%						4.10	%

	For the nine-month period ended
	September 30, 2017							September 30, 2016
(Dollars in thousands)	Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
Interest-earning assets:
Securities available for sale	$	76,695		850		1.48	%	$	89,264		1,066		1.60	%
Loans held for sale		1,863		69		4.95			3,134		99		4.22
Single family loans, net		113,372		3,411		4.02			101,330		3,200		4.22
Commercial loans, net		384,321		13,885		4.83			332,526		13,630		5.48
Consumer loans, net		73,270		2,626		4.79			70,554		2,566		4.86
Cash equivalents		13,564		64		0.63			24,153		73		0.40
Federal Home Loan Bank stock		892		8		1.20			758		4		0.70
Total interest-earning assets	$	663,977		20,913		4.21		$	621,719		20,638		4.43
Interest-bearing liabilities and non-interest bearing deposits:
NOW accounts		87,783		66		0.10			83,955		36		0.06
Savings accounts		77,015		47		0.08			71,336		46		0.09
Money market accounts		175,388		390		0.30			162,523		268		0.22
Certificates		104,362		532		0.68			100,623		377		0.50
Advances and other borrowings		8,469		327		5.16			9,328		446		6.39
Total interest-bearing liabilities	$	453,017						$	427,765
Non-interest checking		154,085							145,727
Other non-interest bearing deposits		1,361							1,510
Total interest-bearing liabilities and non-interest bearing deposits	$	608,463		1,362		0.30		$	575,002		1,173		0.27
Net interest income				19,551							19,465
Net interest rate spread						3.91	%						4.16	%
Net interest margin						3.94	%						4.18	%

Provision for Loan Losses

The provision for loan losses was ($0.6) million for the third quarter of 2017, a decrease of $0.7 million from the $0.1 million provision for loan losses for the third quarter of 2016. The provision for loan losses was ($0.6) million for the first nine months of 2017, a decrease of $0.3 million from the ($0.3) million provision for loan losses for the same nine month period of 2016. The provision for loan losses decreased between the periods primarily because of a decrease in the reserve percentages applied to certain risk rated loan categories as a result of the regular periodic internal analysis of the loan portfolio.

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A reconciliation of the Company’s allowance for loan losses for the three and nine month periods ended September 30, 2017 and September 30, 2016 is summarized as follows:

	Three months ended September 30,
(Dollars in thousands)	2017			2016
Balance at June 30,	$	10,045		$	10,325
Provision		(581	)		80
Charge offs:
Single family		(6	)		(66	)
Commercial real estate		0			(67	)
Consumer		(45	)		(14	)
Commercial business		(300	)		(56	)
Recoveries		164			104
Balance at September 30,	$	9,277		$	10,306
Allocated to:
General allowance	$	8,139		$	9,050
Specific allowance		1,138			1,256
	$	9,277		$	10,306

	Nine months ended September 30,
(Dollars in thousands)	2017			2016
Balance at January 1,	$	9,903		$	9,709
Provision		(582	)		(271	)
Charge offs:
Single family		(6	)		(66	)
Commercial real estate		0			(67	)
Consumer		(263	)		(29	)
Commercial business		(300	)		(100	)
Recoveries		525			1,130
Balance at September 30,	$	9,277		$	10,306

Non-Interest Income

Non-interest income was $1.9 million for the third quarter of 2017, a decrease of $0.2 million, or 11.1%, from $2.1 million for the same period of 2016. The decrease in non-interest income is primarily related to the $0.1 million decrease in the gain on sales of loans between the periods due to a decrease in commercial government guaranteed loan sales. Other non-interest income decreased $0.1 million due to a decrease in the income recognized on the sale of uninsured investment products between the periods. Fees and service charges decreased $0.1 million between the periods primarily because of a decrease in overdraft fees. These decreases in non-interest income were partially offset by a slight increase in loan servicing fees earned between the periods.

Non-interest income was $5.7 million for the first nine months of 2017, a decrease of $0.3 million, or 5.1%, from $6.0 million for the same period of 2016. The decrease in non-interest income is related to the $0.3 million decrease in the gain on sales of loans between the periods due to a decrease in commercial government guaranteed loan sales. Fees and service charges decreased slightly between the periods primarily because of a decrease in overdraft fees. Other non-interest income decreased slightly due to a decrease in the income recognized on the sale of uninsured investment products between the periods. These decreases in non-interest income were partially offset by a $0.1 million increase in loan servicing fees earned between the periods.

Non-Interest Expense

Non-interest expense was $6.3 million for the third quarter of 2017, an increase of $0.1 million, or 0.9%, from $6.2 million for the same period of 2016. Other non-interest expense increased $0.1 million due primarily to an increase in advertising expenses between the periods as a result of a deposit promotion that was implemented during the third quarter of 2017. Professional services expense increased $0.1 million due to an increase in legal expenses between the periods. Occupancy and equipment expense increased $0.1 million because of increased software and equipment expenses. These increases in non-interest expenses were partially offset by a $0.1 million decrease in compensation expense related to decreased incentives between the periods. Data processing expense decreased $0.1 million between the periods due to a decrease in on-line banking costs. Gains on real estate owned increased $0.1 million due to increased sales compared to the prior period.

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Non-interest expense was $19.0 million for the first nine months of 2017, an increase of $1.1 million, or 6.2%, from $17.9 million for the same period of 2016. Gains on real estate owned decreased $0.4 million due primarily to a large gain that was realized on a single property that was sold in the first nine month period of 2016. Compensation expense increased $0.3 million due primarily to annual salary increases. Other non-interest expense increased $0.2 million due primarily to an increase in advertising related expenses between the periods. Other professional expenses increased $0.1 million primarily due to increased legal fees. Occupancy and equipment expense increased $0.1 million because of increased software and equipment expenses. These increases in non-interest expenses were partially offset by a $0.1 million decrease in data processing expenses between the periods related to on-line banking costs.

Income Taxes

Income tax expense was $1.2 million for the third quarter of 2017, an increase of $0.2 million from $1.0 million for the third quarter of 2016. Income tax expense was $2.8 million for the first nine months of 2017, a decrease of $0.3 million, from $3.1 million for the same period in 2016. The change in income tax expense between the periods is primarily related to the change in pre-tax income between the periods.

FINANCIAL CONDITION

Non-Performing Assets

The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the end of the two most recently completed quarters and December 31, 2016.

	September 30,			June 30,			December 31,
(Dollars in thousands)	2017			2017			2016
Non-Performing Loans:
Single family	$	800		$	1,070		$	916
Commercial real estate		1,666			1,672			1,384
Consumer		545			465			630
Commercial business		297			182			343
Total		3,308			3,389			3,273
Foreclosed and Repossessed Assets:
Single family		0			14			0
Commercial real estate		414			602			611
Consumer		1			18			16
Total non-performing assets	$	3,723		$	4,023		$	3,900
Total as a percentage of total assets		0.52	%		0.55	%		0.57	%
Total non-performing loans	$	3,308		$	3,389		$	3,273
Total as a percentage of total loans receivable, net		0.57	%		0.57	%		0.59	%
Allowance for loan losses to non-performing loans		280.45	%		296.45	%		302.56	%
Delinquency Data:
Delinquencies (1)
30+ days	$	2,070		$	2,512		$	917
90+ days		0			0			0
Delinquencies as a percentage of loan portfolio (1)
30+ days		0.35	%		0.42	%		0.16	%
90+ days		0.00	%		0.00	%		0.00	%

⁽¹⁾Excludes non-accrual loans.

Total non-performing assets were $3.7 million at September 30, 2017, a decrease of $0.3 million, or 7.4%, from $4.0 million at June 30, 2017. Non-performing loans decreased $0.1 million and foreclosed and repossessed assets decreased $0.2 million during the third quarter of 2017.

Total non-performing assets were $3.7 million at September 30, 2017, a decrease of $0.2 million, or 4.5%, from $3.9 million at December 31, 2016. Non-performing loans remained the same and foreclosed and repossessed assets decreased $0.2 million during the first nine months of 2017.

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Dividends

The declaration of dividends is subject to, among other things, the Company's financial condition and results of operations, the Bank's compliance with regulatory capital requirements and other regulatory restrictions, tax considerations, industry standards, economic conditions, anticipated growth, general business practices and other factors. The Company has not made any dividend payments to common stockholders during the three year period ending September 30, 2017.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2017, the net cash provided by operating activities was $12.0 million. The Company collected $20.1 million from the maturities of securities, $0.6 million from principal repayments on securities, $4.0 million from the redemption of FHLB stock, and $0.3 million in proceeds from the sale of real estate. The Company purchased securities of $20.0 million, FHLB stock of $4.0 million, and premises and equipment of $0.8 million. Net loans receivable also increased $39.0 million. The Company had a net increase in deposit balances of $36.2 million and customer escrows increased $0.8 million. The Company also received $99.2 million in proceeds from borrowings and repaid borrowings of $106.2 million.

The Company has certificates of deposits with outstanding balances of $60.2 million that mature over the next 12 months. Based upon past experience, management anticipates that the majority of the deposits will renew for another term. The Company believes that cash outflow from certificates that do not renew will be replaced with other deposits or FHLB advances. Federal Reserve Bank borrowings or proceeds from the sale of securities could also be used to fund unanticipated outflows of certificates of deposits.

The Company had four deposit customers that individually had aggregate deposits greater than $5.0 million as of September 30, 2017. The $68.1 million in funds held by these customers may be withdrawn at any time, but management believes that the majority of these deposits will not be withdrawn from the Bank over the next twelve months. If these deposits are withdrawn, it is anticipated that they would be replaced with deposits from other customers or FHLB advances. Federal Reserve Bank borrowings or proceeds from the sale of securities could also be used to replace unanticipated outflows of large checking and money market deposits.

The Company has the ability to borrow $110.3 million from the FHLB at September 30, 2017, based on the collateral value of the loans pledged. The credit policy of the FHLB relating to the collateral value of the loans collateralizing the available line of credit with the FHLB may change such that the current collateral pledged to secure future advances is no longer acceptable or the formulas for determining the excess pledged collateral may change. The FHLB could also reduce the amount of funds it will lend to the Bank. It is not anticipated that the Bank will need to find alternative funding sources in the next twelve months to replace the available borrowings from the FHLB. However, if needed, excess collateral currently pledged to the FHLB could be pledged to the Federal Reserve Bank and the Bank could borrow additional funds from the Federal Reserve Bank based on the increased collateral levels or obtain additional deposits.

The Company’s primary source of cash is dividends from the Bank. At September 30, 2017, the Company had $1.6 million in cash and other assets that could readily be turned into cash. The primary use of cash by the Company is the payment of operating expenses.

The Company also serves as a source of capital, liquidity, and financial support to the Bank. Depending upon the operating performance of the Bank and the Company’s other liquidity and capital needs, including Company level expenses, the Company may find it prudent, subject to prevailing capital market conditions and other factors, to raise additional capital through issuance of its common stock or other equity securities. Additional capital would also potentially permit the Company to implement a strategy of growing Bank assets. Depending on the circumstances, if it were to raise capital, the Company may deploy it to the Bank for general banking purposes, or may retain some or all of it for use by the Company.

If the Company were to raise capital through the issuance of additional shares of common stock or other equity securities, it would dilute the ownership interests of existing stockholders, and, if issued at a price less than the Company’s book value, would dilute the per share book value of the Company’s common stock, and could result in a change in control of the Company and the Bank. New investors may also have rights, preferences and privileges senior to the Company’s current stockholders, which may adversely impact the Company’s current stockholders. The Company’s ability to raise additional capital through the issuance of equity securities, if deemed prudent, will depend on, among other factors, conditions in the capital markets at that time, which are outside of its control, and on the Company’s financial performance and plans.

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Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its investing, lending and deposit taking activities. Management actively monitors and manages its interest rate risk exposure.

The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company’s earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the projected changes in net interest income that occur if interest rates were to suddenly change up or down. The Rate Shock Table located in the following Asset/Liability Management section of this report discloses the Company’s projected changes in net interest income based upon immediate interest rate changes called rate shocks. The Company utilizes a model that uses the discounted cash flows from its interest-earning assets and its interest-bearing liabilities to calculate the current market value of those assets and liabilities. The model also calculates the changes in market value of the interest-earning assets and interest-bearing liabilities under different interest rate changes.

The following table discloses the projected changes in market value to the Company’s interest-earning assets and interest-bearing liabilities based upon incremental 100 basis point changes in interest rates from interest rates in effect on September 30, 2017.

	Market Value
(Dollars in thousands) Basis point change in interest rates		-100		0		+100			+200
Total market risk sensitive assets	$	717,928		704,692			691,158			676,918
Total market risk sensitive liabilities		621,355		577,911			540,247			507,233
Off-balance sheet financial instruments		(352	)	0			(95	)		(133	)
Net market risk	$	96,925		126,781			151,006			169,818
Percentage change from current market value		(23.55	%)	0.00	%		19.11	%		33.95	%

The preceding table was prepared utilizing a model using the following assumptions (the Model Assumptions) regarding prepayment and decay ratios that were determined by management based upon their review of historical prepayment speeds and future prepayment projections. Fixed rate loans were assumed to prepay at annual rates of between 2% to 42%, depending on the note rate and the period to maturity. Adjustable rate mortgages (ARMs) were assumed to prepay at annual rates of between 5% and 48%, depending on the note rate and the period to maturity. Mortgage-backed securities were projected to have prepayments based upon the underlying collateral securing the instrument. Certificate accounts were assumed not to be withdrawn until maturity. Passbook accounts and retail money market accounts were assumed to decay at an annual rate of 18% and 2%, respectively. Retail checking accounts were assumed to decay at an annual rate of 14%. Commercial checking and money market accounts were assumed to decay at annual rates of 30% and 29%, respectively. Callable investments were projected to be called at the first call date where the projected interest rate on similar remaining term instruments is less than the interest rate on the callable advance or investment.   

Certain shortcomings are inherent in the method of analysis presented in the above table. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. The model assumes that the difference between the current interest rate being earned or paid compared to a treasury instrument or other interest index with a similar term to maturity (the Interest Spread) will remain constant over the interest changes disclosed in the table. Changes in Interest Spread could impact projected market value changes. Certain assets, such as ARMs, have features which restrict changes in interest rates on a short-term basis and over the life of the assets. The market value of the interest-bearing assets that are approaching their lifetime interest rate caps could be different from the values disclosed in the table. Certain liabilities, such as certificates of deposit, have fixed rates that restrict interest rate changes until maturity. In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the foregoing table. The ability of many borrowers to service their debt may also decrease in the event of a substantial sustained increase in interest rates.

35

Asset/Liability Management

The Company’s management reviews the impact that changing interest rates will have on its net interest income projected for the next twelve months to determine if its current level of interest rate risk is acceptable. The following table projects the estimated annual impact on net interest income during the 12 month period ending September 30, 2017 of immediate interest rate changes called rate shocks.

(Dollars in thousands)
Rate Shock in Basis Points	Projected Change in Net Interest Income			Percentage Change
+200		2,739			10.21	%
+100		1,354			5.05
0		0			0.00
-100		(1,600	)		(5.96	)

The preceding table was prepared utilizing the Model Assumptions. Certain shortcomings are inherent in the method of analysis presented in the foregoing table. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the foregoing table. The ability of many borrowers to service their debt may decrease in the event of a substantial increase in interest rates and could impact net interest income. The increase in interest income in a rising rate environment is primarily because there are more adjustable rate loans that would re-price to higher interest rates than there are deposits that would re-price in the next twelve months.

In an attempt to manage its exposure to changes in interest rates, management closely monitors interest rate risk. The Bank has an Asset/Liability Committee that meets frequently to discuss changes in the interest rate risk position and projected profitability. The Committee makes adjustments to the asset/liability position of the Bank that are reviewed by the Board of Directors of the Bank. This Committee also reviews the Bank's portfolio, formulates investment strategies and oversees the timing and implementation of transactions as intended to assure attainment of the Bank's objectives in an effective manner. In addition, each quarter the Board reviews the Bank's asset/liability position, including simulations of the effect on the Bank's capital of various interest rate scenarios.

In managing its asset/liability composition, the Bank may, at times, depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, place more emphasis on managing net interest margin than on better matching the interest rate sensitivity of its assets and liabilities in an effort to enhance net interest income. Management believes that the increased net interest income resulting from a mismatch in the maturity of its asset and liability portfolios can, in certain situations, provide high enough returns to justify the increased exposure to sudden and unexpected changes in interest rates.

To the extent consistent with its interest rate spread objectives, the Bank attempts to manage its interest rate risk and has taken a number of steps to position its balance sheet in order to better match the maturities of its assets and liabilities. In the past, more long-term fixed rate loans were placed into the single family loan portfolio. In recent years, the Bank has continued to focus its 30 year fixed rate single family residential lending program on loans that are saleable to third parties and generally places only adjustable rate or shorter-term fixed rate loans that meet certain risk characteristics into its loan portfolio. A significant portion of the Bank’s commercial loan production continues to be in adjustable rate loans that reprice every one, two, or three years.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements other than commitments to originate, fund, and sell loans in the ordinary course of business.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

36

Item 4: Controls and Procedures

Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in internal controls. There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

37

HMN FINANCIAL, INC.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

From time to time, the Company is party to legal proceedings arising out of its lending and deposit operations. The Company is, and expects to become, engaged in a number of foreclosure proceedings and other collection actions as part of its collection activities. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements, if any and if determined adversely to the Company, arising from pending legal matters individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of the Company. Litigation is often unpredictable and the actual results of litigation cannot be determined with any certainty.

ITEM 1A. Risk Factors.

There have been no material changes to the Company’s risk factors contained in its Annual Report on Form 10-K for the year ended December 31, 2016. For a further discussion of our Risk Factors, see Part I, Item 1.A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Not applicable.
(b) Not applicable.
(c) Not applicable.

ITEM 3. Defaults Upon Senior Securities.

None.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information.

None.

ITEM 6. Exhibits.

Incorporated by reference to the index to exhibits included with this report immediately following the signature page.

38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HMN FINANCIAL, INC. Registrant
Date: November 3, 2017	By:	/s/ Bradley Krehbiel
		Bradley Krehbiel, President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 3, 2017	By:	/s/ Jon Eberle
		Jon Eberle,
		Senior Vice President, Chief Financial Officer, and Treasurer
		(Principal Financial Officer)

39

HMN FINANCIAL, INC.

INDEX TO EXHIBITS

FOR FORM 10-Q

		Sequential
		Page Numbering
Regulation		Where Attached
S-K		Exhibits Are
Exhibit		Located in This
Number	Document Attached Hereto	Form 10-Q Report
31.1	Rule 13a-14(a)/15d-14(a) Certification of CEO	Filed Electronically
31.2	Rule 13a-14(a)/15d-14(a) Certification of CFO	Filed Electronically
32	Section 1350 Certifications of CEO and CFO	Filed Electronically
101	Financial statements from the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2017, filed with the SEC on November 3, 2017, formatted in Extensible Business Reporting Language (XBRL); (i) the Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) the Consolidated Statements of Comprehensive Income for the Three Month and Nine Month Periods Ended September 30, 2017 and 2016, (iii) the Consolidated Statement of Stockholders’ Equity for the Nine Month Period Ended September 30, 2017, (iv) the Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016, and (v) Notes to Consolidated Financial Statements.	Filed Electronically

40

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Bradley Krehbiel, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of HMN Financial, Inc.;

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2017	By:	/s/ Bradley Krehbiel
		Bradley Krehbiel President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Jon J. Eberle, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of HMN Financial, Inc.;

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2017	By:	/s/ Jon J. Eberle
		Jon J. Eberle Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

EX-32

Exhibit 32

HMN FINANCIAL, INC.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of HMN Financial, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Bradley Krehbiel, President and Chief Executive Officer of Company (Principal Executive Officer of the Company), and Jon Eberle, Senior Vice President, Chief Financial Officer and Treasurer of the Company (Principal Financial Officer of the Company), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 3, 2017	/s/ Bradley Krehbiel
	Bradley Krehbiel President and Chief Executive Officer (Principal Executive Officer)
	/s/ Jon Eberle
	Jon Eberle Senior Vice President/Chief Financial Officer and Treasurer (Principal Financial Officer)

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 26, 2017
Document Information [Line Items]
Entity Registrant Name	HMN FINANCIAL INC
Entity Central Index Key	0000921183
Trading Symbol	hmnf
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		4,497,538
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Assets
Cash and cash equivalents	$ 30,600	$ 27,561
Mortgage-backed and related securities (amortized cost $5,465 and $993)	5,450	1,005
Other marketable securities (amortized cost $73,655 and $78,846)	72,901	77,472
Total, fair value	78,351	78,477
Loans held for sale	2,594	2,009
Loans receivable, net	583,057	551,171
Accrued interest receivable	2,580	2,626
Real estate, net	414	611
Federal Home Loan Bank stock, at cost	817	770
Mortgage servicing rights, net	1,654	1,604
Premises and equipment, net	8,247	8,223
Goodwill	802	802
Core deposit intangible	379	454
Prepaid expenses and other assets	1,404	1,768
Deferred tax asset, net	5,711	5,947
Total assets	716,610	682,023
Liabilities and Stockholders’ Equity
Deposits	628,971	592,811
Other Borrowings	0	7,000
Accrued interest payable	112	236
Customer escrows	1,798	1,011
Accrued expenses and other liabilities	5,097	5,046
Total liabilities	635,978	606,104
Commitments and contingencies
Stockholders’ equity:
Serial preferred stock ($.01 par value): authorized 500,000 shares; issued and outstanding shares 0	0	0
Common stock ($.01 par value): authorized 16,000,000; issued shares 9,128,662	91	91
Additional paid-in capital	50,536	50,566
Retained earnings, subject to certain restrictions	90,903	86,886
Accumulated other comprehensive loss	(463)	(820)
Unearned employee stock ownership plan shares	(2,078)	(2,223)
Treasury stock, at cost 4,631,124 and 4,639,739 shares	(58,357)	(58,581)
Total stockholders’ equity	80,632	75,919
Total liabilities and stockholders’ equity	$ 716,610	$ 682,023

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Mortgage-backed and related securities amortized cost	$ 5,465	$ 993
Other marketable securities, amortized cost	$ 73,655	$ 78,846
Serial preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Serial preferred stock, authorized (in shares)	500,000	500,000
Serial preferred stock, issued (in shares)	0	0
Serial preferred stock, outstanding (in shares)	0	0
Common stock, authorized (in shares)	16,000,000	16,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, issued shares (in shares)	9,128,662	9,128,662
Treasury stock, shares (in shares)	4,631,124	4,639,739

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Interest income:
Loans receivable	$ 6,930	$ 6,627	$ 19,991	$ 19,495
Securities available for sale:
Mortgage-backed and related	17	12	29	48
Other marketable	270	295	821	1,018
Cash equivalents	36	18	64	73
Other	2	2	8	4
Total interest income	7,255	6,954	20,913	20,638
Interest expense:
Deposits	413	255	1,035	727
Advances and other borrowings	80	149	327	446
Total interest expense	493	404	1,362	1,173
Net interest income	6,762	6,550	19,551	19,465
Provision for loan losses	(581)	80	(582)	(271)
Net interest income after provision for loan losses	7,343	6,470	20,133	19,736
Non-interest income:
Fees and service charges	848	901	2,517	2,553
Loan servicing fees	299	280	906	812
Gain on sales of loans	521	656	1,528	1,848
Other	241	310	744	791
Total non-interest income	1,909	2,147	5,695	6,004
Non-interest expense:
Compensation and benefits	3,642	3,723	11,366	11,016
Gains on real estate	(65)	(11)	(72)	(435)
Occupancy and equipment	1,050	998	3,115	2,994
Data processing	243	299	795	853
Professional services	307	252	983	871
Other	1,082	940	2,858	2,626
Total non-interest expense	6,259	6,201	19,045	17,925
Income before income tax expense	2,993	2,416	6,783	7,815
Income tax expense	1,213	1,002	2,766	3,149
Net income	1,780	1,414	4,017	4,666
Other comprehensive income (loss), net of tax	(4)	(51)	357	131
Comprehensive income available to common shareholders	$ 1,776	$ 1,363	$ 4,374	$ 4,797
Basic earnings per common share (in dollars per share)	$ 0.42	$ 0.34	$ 0.95	$ 1.12
Diluted earnings per common share (in dollars per share)	$ 0.37	$ 0.30	$ 0.83	$ 0.99

XML

Consolidated Statement of Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2017 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Unearned Employee Stock Ownership Plan Shares [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2016	$ 91	$ 50,566	$ 86,886	$ (820)	$ (2,223)	$ (58,581)	$ 75,919
Net income			4,017				4,017
Other comprehensive income (loss), net of tax				357			357
Stock compensation expense		31					31
Restricted stock awards		(278)				278	0
Stock awards withhold for tax withholding						(54)	(54)
Amortization of restricted stock awards		109					109
Earned employee stock ownership plan shares		108			145		253
Balance at Sep. 30, 2017	$ 91	$ 50,536	$ 90,903	$ (463)	$ (2,078)	$ (58,357)	$ 80,632

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net income	$ 4,017	$ 4,666
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses	(582)	(271)
Depreciation	704	619
Amortization of discounts, net	(1)	(9)
Amortization of deferred loan fees	(192)	(906)
Amortization of core deposit intangible	500
Amortization of other purchased fair value adjustments	(74)	(430)
Amortization of mortgage servicing rights	411	437
Capitalized mortgage servicing rights	(461)	(475)
Losses on sales of investments	0	9
Gain on sale of premises and equipment	(8)	0
Gain on sales of real estate	(72)	(435)
Gain on sales of loans	(1,528)	(1,848)
Proceeds from sales of loans held for sale	63,449	68,442
Disbursements on loans held for sale	(54,551)	(56,644)
Amortization of restricted stock awards	109	134
Amortization of unearned Employee Stock Ownership Plan shares	145	146
Earned Employee Stock Ownership Plan shares priced above original cost	108	53
Stock option compensation expense	31	59
Decrease in accrued interest receivable	46	127
Decrease in accrued interest payable	(124)	(7)
Decrease in other assets	376	395
Increase in other liabilities	57	3,312
Other, net	51	15
Net cash provided by operating activities	11,986	17,457
Cash flows from investing activities:
Principal collected on securities available for sale	636	986
Proceeds collected on maturities of securities available for sale	20,100	136,020
Purchases of securities available for sale	(20,035)	(104,968)
Purchase of Federal Home Loan Bank Stock	(3,999)	(1,079)
Redemption of Federal Home Loan Bank Stock	3,952	1,000
Proceeds from sales of real estate	309	2,250
Net increase in loans receivable	(39,044)	(76,593)
Acquisition payment, net of cash acquired	0	6,080
Proceeds from sale of premises and equipment	8	0
Purchases of premises and equipment	(772)	(1,269)
Net cash used by investing activities	(38,845)	(37,573)
Cash flows from financing activities:
Increase in deposits	36,165	13,898
Stock awards withheld for tax withholding	(54)	0
Proceeds from borrowings	99,200	25,000
Repayment of borrowings	(106,200)	(25,000)
Increase in customer escrows	787	1,030
Net cash provided by financing activities	29,898	14,928
Increase (decrease) in cash and cash equivalents	3,039	(5,188)
Cash and cash equivalents, beginning of period	27,561	39,782
Cash and cash equivalents, end of period	30,600	34,594
Supplemental cash flow disclosures:
Cash paid for interest	1,485	1,176
Cash paid for income taxes	1,817	436
Supplemental noncash flow disclosures:
Loans transferred to loans held for sale	8,144	12,085
Loans held for sale transferred to loans	164	0
Transfer of loans to real estate	40	591
Core Deposits [Member]
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of core deposit intangible	$ 75	$ 68

XML

Note 1 - HMN Financial, Inc.

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

(

1

)

HMN Financial, Inc.

HMN Financial, Inc. (HMN or the Company) is a stock savings bank holding company that owns

100

percent of Home Federal Savings Bank (the Bank). The Bank has a community banking philosophy and operates retail banking and loan production facilities in Minnesota, Iowa, and Wisconsin. The Bank has

two

wholly owned subsidiaries, Osterud Insurance Agency, Inc. (OIA), which does business as Home Federal Investment Services and offers financial planning products and services, and HFSB Property Holdings, LLC (HPH), which is currently inactive but has acted

in the past as an intermediary for the Bank in holding and operating certain foreclosed properties.

The consolidated financial statements included herein are for HMN, the Bank, OIA and HPH. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation.

XML

Note 2 - Basis of Preparation

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Basis of Accounting [Text Block]

(

2

)

Basis of Preparation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form

10

-Q and, therefore, do

not

include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statement of stockholders' equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (GAAP). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the

nine

month period ended

September 30, 2017

are

not

necessarily indicative of the results which

may

be expected for the entire year.

XML

Note 3 - New Accounting Standards

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

(

3

)

New Accounting Standards

In

May 2014,

the FASB issued ASU

2014

-

09,

R

evenue from Contracts with Customers (Topic

606

),

with an original effective date for annual reporting periods beginning after

December 15, 2016.

In

August 2015,

the FASB issued ASU

2015

-

14,

which deferred the effective date of ASU

2014

-

09

to annual and interim reporting periods in fiscal years beginning after

December 15, 2017.

This ASU is a converged standard between the FASB and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU is revenue recognition that represents the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In

March,

April,

May

and

December

of

2016

and

February

and

September

of

2017,

the FASB also issued ASU

2016

-

08,

2016

-

10,

2016

-

12,

2016

-

20,

2017

-

05,

and

2017

-

13,

respectively, related to Topic

606.

The amendments in these subsequently issued ASUs do

not

change the core principles of the previously issued guidance, but instead provide more clarity and implementation guidance for certain aspects of the original ASU. The Company has completed its initial assessment of which revenue sources are within the scope of this ASU and is currently evaluating contracts to assess and quantify accounting methodology changes resulting from the adoption of the standard.

The adoption of this ASU, and the related amendments, in the

first

quarter of

2018

is

not

anticipated to have a material impact on the Company’s consolidated financial statements.

In

January 2016,

the FASB issued ASU

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

) Recognition and Measurement of Financial Assets and Financial Liabilities.

The amendments in this ASU require, among other things, equity investments to be measured at fair value with changes in fair value recognized in net income and that public business entities use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments also eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The ASU is intended to reduce diversity in practice and is effective for public business entities for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of this ASU in the

first

quarter of

2018

is

not

anticipated to have a material impact on the Company’s consolidated financial statements.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

).

The amendments in the ASU create

Topic

842,

Leases

, and supersede the lease requirements in

Topic

840,

Leases

. The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The main difference between previous GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The amendment requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing its right to use the underlying asset for the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities

may

elect to apply that will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified. The amendments in the ASU, for public business entities, are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The adoption of this ASU in the

first

quarter of

2019

is

not

anticipated to have a material impact on the Company’s consolidated financial statements.

In

March 2016,

the FASB issued ASU

2016

-

09,

Compensation – Stock Compensation (Topic

718

).

The amendments in this ASU affect all entities that issue share-based payment awards to their employees. The amendments are intended to simplify the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU, for public business entities, are effective for fiscal years beginning after

December 15, 2016,

including interim periods within those annual periods. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The adoption of this ASU in the

first

quarter of

2017

did

not

have any impact on the Company’s consolidated financial statements.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments.

The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial asset that has a contractual right to receive cash that is

not

specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. The amendments in this ASU, for public business entities that are U. S. Securities and Exchange Commission (SEC) filers, are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those annual periods. All entities

may

adopt the amendments in the ASU early as of the fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Management is still in the process of evaluating the impact that the adoption of this ASU in the

first

quarter of

2020

will have on the Company’s consolidated financial statements.

In

August 2016,

the FASB issued ASU

2016

-

15,

Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments.

The amendments in this ASU affect all entities that are required to present a statement of cash flows under Topic

230

and address the following

eight

specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of

zero

-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This ASU is intended to reduce diversity in practice and is effective for public business entities for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years with early adoption permitted. Upon adoption, the amendments should be applied using a retrospective transition method to each period presented. The adoption of this ASU in the

first

quarter of

2018

is

not

anticipated to have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued ASU

2017

-

03,

Accounting Changes and Error Corrections (Topic

250

) and Investments – Equity Method and Joint Ventures (Topic

323

).

The amendments in the ASU add and amend SEC paragraphs pursuant to the SEC staff announcement at the

September 22, 2016

and

November 17, 2016

Emerging Issues Task Force (EITF) meetings. The

September

announcement is about the disclosure of the impact that recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. The announcement applies to ASU

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

; ASU

2016

-

02,

Leases (Topic

842

)

; and ASU

2016

-

13,

Financial Instruments – Credit Losses (Topic

326

):

Measurement of Credit Losses on Financial Instruments

and to any subsequent amendments to these ASUs that are issued prior to their adoption. The

November

announcement made amendments to conform the SEC Observer comment on accounting for tax benefits resulting from investments in qualified affordable housing projects to the guidance issued in Accounting Standards Update

No.

2014

-

01,

Investments-Equity Method and Joint Ventures (Topic

323

);

Accounting for Investments in Qualified Affordable Housing Projects.

This ASU is intended to improve transparency and is effective for public business entities upon issuance. The adoption of this ASU is

not

anticipated to have a material impact on the Company’s consolidated financial statements other than to enhance the disclosures on the effects of new accounting pronouncements as they move closer to adoption in future periods.

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment.

The amendments in this ASU were issued to address concerns over the cost and complexity of the

two

-step goodwill impairment test and resulted in the removal of the

second

step of the test. The amendments require an entity to apply a

one

-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value,

not

to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does

not

amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduce the cost and complexity of the

two

-step goodwill impairment test and is effective for public business entities for fiscal years beginning after

December 15, 2019,

and interim periods within those fiscal years with early adoption permitted for testing performed after

January 1, 2017.

Upon adoption, the amendments should be applied on a prospective basis and the entity is required to disclose the nature of and reason for the change in accounting principle upon transition. The adoption of this ASU in the

fourth

quarter of

2020

when the annual assessment is completed is

not

anticipated to have a material impact on the Company’s consolidated financial statements.

In

March 2017,

the FASB issued ASU

2017

-

08,

Receivables – Nonrefundable Fees and Other Costs (Subtopic

310

-

20

): Premium Amortization on Purchased Callable Debt Securities.

The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do

not

require an accounting change for securities held at a discount as discounts continue to be amortized to maturity. This ASU is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates and prices securities to maturity when the coupon is below market rates. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is intended to reduce diversity in practice and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018

with early adoption permitted. Upon adoption, the amendments should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principles. The adoption of this ASU in the

first

quarter of

2019

is

not

anticipated to have a material impact on the Company’s consolidated financial statements.

In

May 2017,

the FASB issued ASU

2017

-

09,

C

ompensation- Stock Compensation (Topic

718

).

The amendments in this ASU provide clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU is effective for all entities for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years with early adoption permitted. The Company is in the process of evaluating the impact of this ASU but, when adopted in the

first

quarter of

2018,

it is

not

anticipated to have a material impact on the Company’ consolidated financial statements.

XML

Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

(

4

)

Fair Value Measurements

ASC

820,

Fair Value Measurements,

establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system consisting of

three

levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level

1

- Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access.

Level

2

- Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active, and model-based valuation techniques for which significant assumptions are observable in the market.

Level

3

– Valuation is generated from model-based techniques that use significant assumptions

not

observable in the market and are used only to the extent that observable inputs are

not

available. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following table summarizes the assets

and liabilities of the Company for which fair values are determined on a recurring basis as of

September 30, 2017

and

December 31, 2016.

	Carrying value at September 30, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	78,351		0		78,351		0
Mortgage loan commitments		78		0		78		0
Total	$	78,429		0		78,429		0

	Carrying value at December 31, 2016
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	78,477		0		78,477		0
Mortgage loan commitments		66		0		66		0
Total	$	78,543		0		78,543		0

There were

no

transfers between Levels

1,

2,

or

3

during the

three

or

nine

month periods ended

September 30, 2017.

The Company

may

also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with

GAAP. These adjustments to fair value usually result from the application of the lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis in the

third

quarter of

2017

that were still held at

September 30, 2017,

the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at

September 30, 2017

and

December 31, 2016.

	Carrying value at September 30, 201 7
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Three months ended September 30, 201 7 t otal gains (losses)			Nine months ended September 30, 201 7 t otal gains (losses)
Loans held for sale	$	2,594		0		2,594		0		24			16
Mortgage servicing rights		1,654		0		1,654		0		0			0
Loans (1)		3,527		0		3,527		0		(510	)		(445	)
Real estate, net (2)		414		0		414		0		0			0
Total	$	8,189		0		8,189		0		(486	)		(429	)

	Carrying value at December 31, 201 6
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Year ended December 31, 2016 total gains (losses)
Loans held for sale	$	2,009		0		2,009		0		14
Mortgage servicing rights		1,604		0		1,604		0		0
Loans (1)		3,582		0		3,582		0		(380	)
Real estate, net (2)		611		0		611		0		(197	)
Total	$	7,806		0		7,806		0		(563	)

( 1 ) Represents the carrying value and related specific reserves on loans for which adjustments are based on the appraised value of the collateral. The carrying value of loans fully charged-off is zero .

( 2 ) Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

XML

Note 5 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

(

5

)

Fair Value of Financial Instruments

GAAP requires interim reporting period disclosure about the fair value of financial instruments, including assets, liabilities and off-balance sheet items for which it is practicable to estimate fair value. The fair value hierarchy level for each asset and liability, as defined in note

4,

have been included in the following table for

September 30,

201

7

and

December 31, 2016.

The fair value estimates are made based upon relevant market information, if available, and upon the characteristics of the financial instruments themselves. Because

no

market exists for a significant portion of the Company’s financial instruments, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimated fair value of the Company’s financial instruments as of

September 30, 2017

and

December 31, 2016

are shown in the following table.

	September 30,   2017													December 31, 201 6
							Fair value hierarchy													Fair value hierarchy
(Dollars in thousands)	Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount		Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount
Financial assets:
Cash and cash equivalents	$	30,600			30,600			30,600							27,561			27,561			27,561
Securities available for sale		78,351			78,351					78,351					78,477			78,477					78,477
Loans held for sale		2,594			2,594					2,594					2,009			2,009					2,009
Loans receivable, net		583,057			581,475					581,475					551,171			552,395					552,395
Federal Home Loan Bank stock		817			817					817					770			770					770
Accrued interest receivable		2,580			2,580					2,580					2,626			2,626					2,626
Financial liabilities:
Deposits		628,971			629,288					629,288					592,811			593,297					593,297
Other borrowings		0			0					0					7,000			7,018					7,018
Accrued interest payable		112			112					112					236			236					236
Off-balance sheet financial instruments:
Commitments to extend credit		78			78								200,693		66			66								184,596
Commitments to sell loans		(16	)		(16	)							12,566		(22	)		(22	)							9,595

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates their fair value.

Securities Available for

Sale

The fair values of securities were based upon quoted market prices for identical or similar instruments in active markets.

Loans Held for

Sale

The fair values of loans held for sale were based upon quoted market prices for loans with similar interest rates and terms to maturity.

Loans Receivable, net

The fair value of the loan portfolio, with the exception of the adjustable rate portfolio, was calculated by discounting the scheduled cash flows through the estimated maturity using anticipated prepayment speeds and using discount rates that reflect the credit and interest rate risk inherent in each loan portfolio. The fair value of the adjustable loan portfolio was estimated by grouping the loans with similar characteristics and comparing the characteristics of each group to the prices quoted for similar types of loans in the secondary market.

Federal Home Loan Bank stock

The carrying amount of Federal Home Loan Bank (FHLB) stock approximates its fair value.

Accrued Interest Receivable

The carrying amount of accrued interest receivable approximates its fair value since it is short-term in nature and does

not

present unanticipated credit concerns.

Deposits

The fair value of demand deposits, savings accounts and certain money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

The fair value estimate for deposits does

not

include the benefit that results from the low cost funding provided by the Company's existing deposits and long-term customer relationships compared to the cost of obtaining different sources of funding. This benefit is commonly referred to as the core deposit intangible.

Other Borrowings

The fair values of other borrowings with fixed maturities are estimated based on discounted cash flow analysis using as discount rates the interest rates charged by the FHLB for borrowings of similar remaining maturities.

Accrued Interest Payable

The carrying amount of accrued interest payable approximates its fair value since it is short-term in nature.

Commitments to Extend Credit

The fair values of commitments to extend credit are estimated using the fees normally charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.

Commitments to Sell Loans

The fair values of commitments to sell loans are estimated using the quoted market prices for loans with similar interest rates and terms to maturity.

XML

Note 6 - Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

(

6

)

Other

Comprehensive

Income

(Loss)

Other c

omprehensive income is defined as the change in equity during a period from transactions and other events from nonowner sources. Comprehensive income is the total of net income and other comprehensive income, which for the Company is comprised of unrealized gains and losses on securities available for sale. The components of other comprehensive income and the related tax effects were as follows:

	For the three months ended September 30,
(Dollars in thousands)	20 17									20 16
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Net unrealized losses arising during the period	$	(7	)		(3	)		(4	)		(85	)		(34	)		(51	)
Other comprehensive loss	$	(7	)		(3	)		(4	)		(85	)		(34	)		(51	)
	For the nine months ended September 30,
(Dollars in thousands)	201 7									201 6
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Gross unrealized gains arising during the period	$	593			236			357			209			84			125
Less reclassification of net losses included in net income		0			0			0			(9	)		(3	)		(6	)
Net unrealized gains arising during the period	$	593			236			357			218			87			131
Other comprehensive income	$	593			236			357			218			87			131

XML

Note 7 - Securities Available for Sale

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

(

7

)

Securities Available For Sale

The following table shows the gross unrealized losses and fair value for the securities available for sale portfolio, aggregated by investment category and length of time that individual securities have been in a continuous

unrealized loss position at

September 30, 2017

and

December 31, 2016.

	Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 201 7
Collateralized mortgage obligations:
Federal National Mortgage Association (FNMA)		2	$	4,968		(22	)		0	$	0		0		$	4,968		(22	)
Other marketable securities:
U.S. Government agency obligations		6		29,815		(145	)		8		39,464		(536	)		69,279		(681	)
Municipal obligations		6		925		(2	)		0		0		0			925		(2	)
Corporate preferred stock		0		0		0			1		525		(175	)		525		(175	)
Total temporarily impaired securities		14	$	35,708		(169	)		9	$	39,989		(711	)	$	75,697		(880	)

	Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2016
Collateralized mortgage obligations:
FNMA		1	$	262		(3	)		1	$	104		(2	)	$	366		(5	)
Other marketable securities:
U.S. Government agency obligations		13		63,896		(1,079	)		0		0		0			63,896		(1,079	)
Municipal obligations		14		2,327		(19	)		2		214		(1	)		2,541		(20	)
Corporate preferred stock		0		0		0			1		350		(350	)		350		(350	)
Total temporarily impaired securities		28	$	66,485		(1,101	)		4	$	668		(353	)	$	67,153		(1,454	)

We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which

may

influence the operations of the issuer, and our intent and ability to hold the investment for a period of time sufficient to recover the temporary loss.

The unrealized losses reported for corporate preferred stock

over

twelve

months at

September 30, 2017

relates to a single trust preferred security that was issued by the holding company of a small community bank. As of

September 30, 2017

interest payments were current on the trust preferred security and the issuer’s subsidiary bank was considered to be “well capitalized” based on its most recent regulatory filing. Based on a review of the issuer, it was determined that the trust preferred security was

not

other-than-temporarily impaired at

September 30, 2017.

The Company does

not

intend to sell the trust preferred security and has the ability to hold it for a period of time sufficient to recover the temporary loss. Management believes that the Company will receive all principal and interest payments contractually due on the securities and that the decrease in the market value is primarily due to a lack of liquidity in the market for trust preferred securities. Management will continue to monitor the credit risk of the issuer and

may

be required to recognize other-than-temporary impairment charges on this security in future periods.

A summary of securities available for sal

e at

September 30, 2017

and

December 31, 2016

is as follows:

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
September 30, 2017:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation (FHLMC)	$	141		4		0			145
FNMA		5,086		2		(22	)		5,066
Collateralized mortgage obligations:
FNMA		238		1		0			239
		5,465		7		(22	)		5,450
Other marketable securities:
U.S. Government agency obligations		69,960		0		(681	)		69,279
Municipal obligations		2,703		14		(2	)		2,715
Corporate debt		234		2		0			236
Corporate preferred stock		700		0		(175	)		525
Corporate equity		58		88		0			146
		73,655		104		(858	)		72,901
	$	79,120		111		(880	)		78,351

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2016
Mortgage-backed securities:
FHLMC	$	327		10		0			337
FNMA		295		7		0			302
Collateralized mortgage obligations:
FNMA		371		0		(5	)		366
		993		17		(5	)		1,005
Other marketable securities:
U.S. Government agency obligations		74,979		16		(1,079	)		73,916
Municipal obligations		2,819		0		(20	)		2,799
Corporate debt		290		2		0			292
Corporate preferred stock		700		0		(350	)		350
Corporate equity		58		57		0			115
		78,846		75		(1,449	)		77,472
	$	79,839		92		(1,454	)		78,477

The following table

indicates amortized cost and estimated fair value of securities available for sale at

September 30, 2017

based upon contractual maturity adjusted for scheduled repayments of principal and projected prepayments of principal based upon current economic conditions and interest rates.

(Dollars in thousands)	Amortized C ost		Fair V alue
Due less than one year	$	1,308		1,307
Due after one year through five years		74,872		74,195
Due after five years through ten years		2,005		2,001
Due after ten years		877		702
No stated maturity		58		146
Total	$	79,120		78,351

The allocation of mortgage-backed securities in the table above is based upon the anticipated future cash flow of the securities using estimated mortgage prepayment speeds. The allocation of other marketable securities that have call features is based on the anticipated cash flows to the call date

if it is anticipated that the security will be called, or to the maturity date if it is

not

anticipated to be called.

XML

Note 8 - Loans Receivable, Net

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

(

8

)

Loans Receivable, Net

A summary of loans receivable at

September 30,

201

7

and

December 31, 2016

is as follows:

(Dollars in thousands)	September 30, 201 7			December 31, 201 6
Single family	$	107,312			103,255
Commercial real estate:
R eal estate rental and leasing		175,785			153,343
Other		153,466			145,737
		329,251			299,080
Consumer		74,984			73,283
Commercial business:
Transportation industry		9,418			10,509
Other		70,890			74,667
		80,308			85,176
Total loans		591,855			560,794
Less:
Unamortized discounts		21			20
Net deferred loan costs		(500	)		(300	)
Allowance for loan losses		9,277			9,903
Total loans receivable, net	$	583,057			551,171

XML

Note 9 - Allowance for Loan Losses and Credit Quality Information

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Allowance For Loan Losses And Credit Quality Information [Text Block]

(

9

)

Allowance for Loan Losses and Credit Quality Information

The allowance for loan losses

is summarized as follows:

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 201 7:
Balance, June 30, 201 7	$	1,004			5,490			1,544			2,007			10,045
Provision for losses		(63	)		(509	)		141			(150	)		(581	)
Charge-offs		(6	)		0			(45	)		(300	)		(351	)
Recoveries		0			32			6			126			164
Balance, September 30, 201 7	$	935			5,013			1,646			1,683			9,277
For the nine months ended September 30, 201 7 :
Balance, December 31, 201 6	$	1,186			4,953			1,613			2,151			9,903
Provision for losses		(245	)		(147	)		257			(447	)		(582	)
Charge-offs		(6	)		0			(263	)		(300	)		(569	)
Recoveries		0			207			39			279			525
Balance, September 30, 201 7	$	935			5,013			1,646			1,683			9,277
Allocated to:
Specific reserves	$	235			248			434			71			988
General reserves		951			4,705			1,179			2,080			8,915
Balance, December 31, 201 6	$	1,186			4,953			1,613			2,151			9,903
Allocated to:
Specific reserves	$	130			544			266			198			1,138
General reserves		805			4,469			1,380			1,485			8,139
Balance, September 30, 201 7	$	935			5,013			1,646			1,683			9,277
Loans receivable at December 31, 201 6 :
Individually reviewed for impairment	$	1,107			1,880			940			643			4,570
Collectively reviewed for impairment		102,148			297,200			72,343			84,533			556,224
Ending balance	$	103,255			299,080			73,283			85,176			560,794
Loans receivable at September 30, 201 7 :
Individually reviewed for impairment	$	1,041			2,155			925			544			4,665
Collectively reviewed for impairment		106,271			327,096			74,059			79,764			587,190
Ending balance	$	107,312			329,251			74,984			80,308			591,855

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 201 6:
Balance, June 30, 201 6	$	1,270			5,827			1,531			1,697			10,325
Provision for losses		31			(288	)		116			221			80
Charge-offs		(66	)		(67	)		(14	)		(56	)		(203	)
Recoveries		0			48			4			52			104
Balance, September 30, 201 6	$	1,235			5,520			1,637			1,914			10,306
For the nine months ended September 30, 201 6 :
Balance, December 31, 201 5	$	990			6,078			1,200			1,441			9,709
Provision for losses		311			(1,148	)		432			134			(271	)
Charge-offs		(66	)		(67	)		(29	)		(100	)		(262	)
Recoveries		0			657			34			439			1,130
Balance, September 30, 201 6	$	1,235			5,520			1,637			1,914			10,306

The following table summarizes the amount of classifie

d and unclassified loans at

September 30, 2017

and

December 31, 2016:

	September 30, 201 7
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	277		2,023		45		0		2,345		104,967		107,312
Commercial real estate:
Real estate rental and leasing		1,735		2,653		0		0		4,388		171,397		175,785
Other		9,897		7,410		0		0		17,307		136,159		153,466
Consumer		0		661		120		144		925		74,059		74,984
Commercial business:
Transportation industry		0		1,128		0		0		1,128		8,290		9,418
Other		5,547		3,013		0		0		8,560		62,330		70,890
	$	17,456		16,888		165		144		34,653		557,202		591,855

	December 31, 201 6
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	457		2,130		74		0		2,661		100,594		103,255
Commercial real estate:
Real estate rental and leasing		1,577		3,156		0		0		4,733		148,610		153,343
Other		1,702		7,187		0		0		8,889		136,848		145,737
Consumer		0		531		110		299		940		72,343		73,283
Commercial business:
Transportation industry		0		4,065		0		0		4,065		6,444		10,509
Other		3,973		2,916		0		0		6,889		67,778		74,667
	$	7,709		19,985		184		299		28,177		532,617		560,794

Classified loans represent special mention, substandard (performing and non-performing), and non-performing loans categorized as doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected,

may

result in deterioration of the repayment prospects for the asset or in the Bank

’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are

not

corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet

may

not

be warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.

The aging of past due loans at

September 30,

201

7

and

December 31, 2016

is summarized as follows:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
Se ptember 30, 2017
Single family	$	833		457		108		1,398		105,914		107,312		0
Commercial real estate:
Real estate rental and leasing		212		0		259		471		175,314		175,785		0
Other		0		0		0		0		153,466		153,466		0
Consumer		318		424		126		868		74,116		74,984		0
Commercial business:
Transportation industry		0		0		0		0		9,418		9,418		0
Other		112		0		116		228		70,662		70,890		0
	$	1,475		881		609		2,965		588,890		591,855		0
December 31, 201 6
Single family	$	342		158		179		679		102,576		103,255		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		153,343		153,343		0
Other		0		0		0		0		145,737		145,737		0
Consumer		412		117		140		669		72,614		73,283		0
Commercial business:
Transportation industry		0		0		0		0		10,509		10,509		0
Other		85		0		274		359		74,308		74,667		0
	$	839		275		593		1,707		559,087		560,794		0

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring

(TDR). The following table summarizes impaired loans and related allowances as of

September 30, 2017

and

December 31, 2016:

	September 30, 201 7						December 31, 201 6
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance recorded:
Single family	$	381		381		0		217		217		0
Commercial real estate:
Real estate rental and leasing		37		69		0		40		122		0
Other		25		1,681		0		26		1,771		0
Consumer		508		508		0		312		312		0
Commercial business:
Other		0		0		0		274		356		0
Loans with an allowance recorded:
Single family		660		660		130		890		890		235
Commercial real estate:
Real estate rental and leasing		258		258		50		0		0		0
Other		1,835		1,835		494		1,814		1,814		248
Consumer		417		434		266		628		644		434
Commercial business:
Other		544		1,396		198		369		921		71
Total:
Single family		1,041		1,041		130		1,107		1,107		235
Commercial real estate:
Real estate rental and leasing		295		327		50		40		122		0
Other		1,860		3,516		494		1,840		3,585		248
Consumer		925		942		266		940		956		434
Commercial business:
Other		544		1,396		198		643		1,277		71
	$	4,665		7,222		1,138		4,570		7,047		988

The following table

s summarize average recorded investment and interest income recognized on impaired loans during the

three

and

nine

months ended

September 30, 2017

and

2016.

	For the three months ended September 30, 201 7				For the nine months ended September 30, 201 7
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	453		1		414		3
Commercial real estate:
Real estate rental and leasing		38		0		39		0
Other		26		24		26		72
Consumer		500		5		404		9
Commercial business:
Other		0		0		125		0
Loans with an allowance recorded:
Single family		765		8		821		11
Commercial real estate:
Real estate rental and leasing		258		0		194		0
Other		1,838		16		1,818		23
Consumer		375		4		455		8
Commercial business:
Other		496		6		428		19
Total:
Single family		1,218		9		1,235		14
Commercial real estate:
Real estate rental and leasing		296		0		233		0
Other		1,864		40		1,844		95
Consumer		875		9		859		17
Commercial business:
Other		496		6		553		19
	$	4,749		64		4,724		145

	For the three months ended September 30, 201 6				For the nine months ended September 30, 201 6
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	336		5		654		12
Commercial real estate:
Real estate rental and leasing		46		1		45		4
Other		26		24		26		73
Consumer		478		1		483		3
Commercial business:
Other		66		0		33		0
Loans with an allowance recorded:
Single family		1,094		5		1,055		14
Commercial real estate:
Other		2,511		54		2,354		183
Consumer		547		2		534		8
Commercial business:
Other		467		16		437		62
Total:
S ingle family		1,430		10		1,709		26
Commercial real estate:
Real estate rental and leasing		46		1		45		4
Other		2,537		78		2,380		256
Consumer		1,025		3		1,017		11
Commercial business:
Other		533		16		470		62
	$	5,571		108		5,621		359

At

September 30, 2017

and

December 31, 2016,

non-accruing loans totaled

$3.3

million for which the related allowance for loan losses was

$0.9

million and

$0.8

million, respectively. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which

no

specific allowance has been recorded, because management determined that the value of the collateral was sufficient to repay the loan, totaled

$0.7

million at both

September 30, 2017

and

December 31, 2016.

Non-accrual loans also include certain loans that have had terms modified in a TDR.

The non-accrual loans at

September 30,

201

7

and

December 31, 2016

are summarized as follows:

(Dollars in thousands)	September 30, 201 7		December 31, 201 6
Single family	$	800		916
Commercial real estate:
Real estate rental and l easing		295		41
Other		1,371		1,343
Consumer		545		630
Commercial business:
Other		297		343
	$	3,308		3,273

At

September 30,

201

7

and

December 31, 2016

there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling

$3.6

million and

$3.3

million, respectively. For the loans that were restructured in the

third

quarter of

2017,

$34,000

were classified but performing, and

$0.2

million were non-performing at

September 30, 2017.

For the loans that were restructured in the

third

quarter of

2016,

$0.2

million were classified but performing, and

$1.5

million were non-performing at

September 30, 2016.

The following table summarizes

TDRs at

September 30, 2017

and

December 31, 2016:

	September 30, 201 7						December 31, 201 6
(Dollars in thousands)	Accrual		Non-Accrual		Total		Accrual		Non-Accrual		Total
Single family	$	241		455		696		191		257		448
Commercial real estate		489		1,227		1,716		497		1,277		1,774
Consumer		380		418		798		309		400		709
Commercial business		247		181		428		300		69		369
	$	1,357		2,281		3,638		1,297		2,003		3,300

As of

September 30,

201

7,

the Bank had commitments to lend an additional

$0.2

million to a borrower who has TDR and non-accrual loans. These additional funds are for the construction of single family homes with a maximum loan-to-value ratio of

75%.

These loans are secured by the home under construction. At

December 31, 2016,

there were commitments to lend additional funds of

$0.4

million to this same borrower.

TDR concessions can include

a reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are

not

reported as TDRs after

12

months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for the entire

12

month period. All loans classified as TDRs are considered to be impaired.

When a loan is modified as a TDR, there

may

be a direct, material impact on the loans within the balance sheet, as principal balances

may

be partially forgiven. Th

e financial effects of TDRs are presented in the following tables and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the

three

month and

nine

month periods ended

September 30, 2017

and

2016.

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		3	$	282		514
Commercial real estate:
Other		0		0		0		0		0		0
Consumer		6		104		105		13		462		465
Commercial business:
Other		1		416		116		1		416		116
Total		7	$	520		221		17	$	1,160		1,095

	Three Months Ended September 30, 201 6						Nine Months Ended September 30, 201 6
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		1	$	126		139		2	$	191		203
Commercial real estate:
Other		1		1,274		1,274		1		1,274		1,274
Consumer		3		73		73		14		215		216
Commercial business:
Other		2		257		201		2		257		201
Total		7	$	1,730		1,687		19	$	1,937		1,894

The following table summarizes the loans that were restructured in the

12

months preceding

September 30,

201

7

and subsequently defaulted during the

nine

months ended

September 30, 2017.

There were

no

restructured loans that defaulted in the

three

months ended

September 30, 2017.

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Single Family		2	$	60
Total		2	$	60

	Three Months Ended September 30, 201 6				Nine Months Ended September 30, 201 6
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Commercial real estate:
Other		0	$	0		1	$	183
Consumer		3		6		3		6
Commercial business:
Other		0		0		1		44
Total		3	$	6		5	$	233

The Company considers a loan to have defaulted when it becomes

90

or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement. Loans that were non-accrual prior to modification remain on non-accrual status for at least

six

months following modification. Non-accrual TDR loans that have performed according to the modified terms for

six

months

may

be returned to accrual status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.

TDR

s are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral-dependent, the value of the collateral is reviewed and additional reserves

may

be added to general reserves as needed. Loans that are

not

collateral-dependent

may

have additional reserves established if deemed necessary. The reserves for TDRs were

$1.0

million, or

10.6%,

of the total

$9.3

million in loan loss reserves at

September 30, 2017

and

$0.6

million, or

6.2%,

of the total

$9.9

million in loan loss reserves at

December 31, 2016.

The following is additional information with respect to loans acquired through acquisition

s:

(Dollars in thousands)	Contractual Principal Receivable			Accretable Difference			Carrying Amount
Purchased performing l oans:
Balance at June 30, 2017	$	13,267			(275	)		12,992
Change due to payments/refinances		(1,421	)		14			(1,407	)
Balance at September 30, 201 7	$	11,846			(261	)		11,585

(Dollars in thousands)	Contractual Principal Receivable			Non-Accretable Difference			Carrying Amount
Purchased credit impaired loans:
Balance at June 30, 2017	$	386			(45	)		341
Change due to payments/refinances		(23	)		3			(20	)
Balance at September 30, 201 7	$	363			(42	)		321

As a result of acquisition

s, the Company has loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition that all contractually required payments would

not

be collected. The carrying amount of those loans as of

September 30, 2017

was

$0.3

million.

No

provision for loan losses was recognized during the period ended

September 30,

201

7

related to acquired loans, as there was

no

significant change to the credit quality of those loans.

XML

Note 10 - Intangible Assets

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

(

1

0

)

Intangible Assets

The Company

’s intangible assets consist of mortgage servicing rights, core deposit intangibles, and goodwill. A summary of mortgage servicing activity is as follows:

(Dollars in thousands)	Nine Months ended September 30, 2017			Twelve Months ended December 31, 201 6			Nine Months ended September 30, 201 6
Balance, beginning of period	$	1,604			1,499			1,499
Originations		461			706			475
Amortization		(411	)		(601	)		(437	)
Balance, end of period	$	1,654			1,604			1,537
Fair value of mortgage servicing rights	$	3,003			2,952			2,426

All of the loans being serviced were single family loans serviced for FNMA under the individual loan sale program. The following is a summary of the risk characteristics of the loans being serviced at

September 30,

201

7.

			Weighted			Weighted
	Loan		Average			Average
	Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans
Original term 30 year fixed rate	$	256,068		4.08	%		305		2,062
Original term 15 year fixed rate		103,089		3.10			136		1,111
Adjustable rate		56		3.25			284		2

The gross carrying amount of intangible assets and the associated accumulated amortization at

September 30,

201

7

is presented in the following table.

No

amortization expense relating to goodwill is recorded as generally accepted accounting principles do

not

allow goodwill to be amortized, but require that it be tested for impairment at least annually, or sooner if there are indications that impairment

may

exist. Amortization expense for amortizing intangible assets was

$0.5

million for both

nine

month periods ended

September 30, 2017

and

2016.

	September 30, 201 7
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,141		(2,487	)		1,654
Core deposit intangible		574		(195	)		379
Goodwill		802		0			802
Total	$	5,517		(2,682	)		2,835

	September 30, 201 6
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	3,851		(2,314	)		1,537
Core deposit intangible		574		(96	)		478
Goodwill		802		0			802
Total	$	5,227		(2,410	)		2,817

The following table indicates the estimated future amortization expense

for amortizing intangible assets:

(Dollars in thousands)	Mortgage Servicing Rights		Core Deposit Intangible		Total Amortizing Intangible Assets
Year ended December 31,
201 7	$	118		25		143
2018		406		99		505
2019		353		99		452
2020		277		99		376
2021		227		47		274
Thereafter		273		10		283
Total	$	1,654		379		2,033

Projections of amortization are based on existing asset balances and the existing interest rat

e environment as of

September 30, 2017.

The Company's actual experience

may

be significantly different depending upon changes in mortgage interest rates and other market conditions.

XML

Note 11 - Earnings Per Common Share

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

(

1

1

)

Earnings

per

Common

S

hare

The following table reconciles the weighted average shares outstanding and the

earnings available to common shareholders used for basic and diluted earnings per share:

	Three Months Ended September 30,				Nine Months Ended September 30,
(I n thousands, except per share data)	20 17		20 16		20 17		20 16
Weighted average number of common shares outstanding used in basic earnings per share calculation		4,220		4,186		4,212		4,176
Net dilutive effect of:
Restricted stock awards , options, and warrants		650		586		651		552
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,870		4,772		4,863		4,728
Income available to common shareholders	$	1,780		1,414		4,017		4,666
Basic earnings per common share	$	0.42		0.34		0.95		1.12
Diluted earnings per common share	$	0.37		0.30		0.83		0.99

XML

Note 12 - Regulatory Capital and Oversight

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

(

1

2

)

Regulatory Capital

and

Oversight

Effective

January 1, 2015

t

he capital requirements of the Bank were changed to implement the regulatory requirements of the Basel III capital reforms. The Basel III requirements, among other things, (i) apply a strengthened set of capital requirements to the Bank (the Company is exempt, pursuant to the Small Bank Holding Company Policy Statement (Policy Statement) described below), including requirements relating to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and a higher minimum tier

1

capital requirement, and (iii) revise the rules for calculating risk-weighted assets for purposes of such requirements. The rules made corresponding revisions to the prompt corrective action framework and include new capital ratios and buffer requirements which will be phased in incrementally, with full implementation scheduled for

January 1, 2019.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

T

he Federal Reserve amended its Policy Statement, to exempt small bank holding companies from the above capital requirements, by raising the asset size threshold for determining applicability from

$500

million to

$1

billion. The Policy Statement was also expanded to include savings and loan holding companies that meet the Policy Statement’s 

qualitative requirements for exemption. The Company met the qualitative exemption requirements, and therefore, is exempt from the above capital requirements.

Quantitative measures established by regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table

and defined in the regulation) of Common Equity Tier

1

capital to risk weighted assets, Tier

1

capital to adjusted total assets, Tier

1

capital to risk weighted assets, and total capital to risk weighted assets.

T

he Bank’s average total assets for the quarter ending

September 30, 2017

were

$710.3

million, its adjusted total assets were

$709.1

million, and its risk-weighted assets were

$604.9

million. The following table presents the Bank’s capital amounts and ratios at

September 30, 2017

for actual capital, required capital, and excess capital, including ratios in order to qualify as being well capitalized under the Prompt Corrective Actions regulations.

	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Asset s			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
September 30, 2017
Common equity tier 1 capital	$	76,306		12.62	%	$	27,219		4.50	%	$	49,086		8.12	%	$	39,317		6.50	%
Tier 1 capital leverage		76,306		10.76			28,365		4.00			47,941		6.76			35,456		5.00
Tier 1 risk-based capital		76,306		12.62			36,293		6.00			40,014		6.62			48,390		8.00
Total risk-based capital		83,889		13.87			48,390		8.00			35,499		5.87			60,488		10.00

Beginning in

2016,

the Bank must maintain a capital conservation buffer composed of common equity tier

1

capital above its minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus

payments to executive officers. For

2017,

the capital conservation buffer is

1.25%.

The buffer amount will increase incrementally each year until

2019

when the entire

2.50%

capital conservation buffer will be fully phased in.

Management believes that, as of

September 30, 2017,

the Bank’s capital ratios were in excess of those quantitative capital ratio standards set forth under the current prompt corrective action regulations, including the capital conservation buffer described above. However, there can be

no

assurance that the Bank will continue to maintain such status in the future. The Office of the Comptroller of the Currency has extensive discretion in its supervisory and enforcement activities, and can adjust the requirement to be “well-capitalized” in the future.

XML

Note 13 - Stockholders' Equity

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

(

1

3

)

Stockholders’ Equity

The Company's certificate of incorporation authorizes the issuance of up to

500,000

shares of preferred stock, and on

December 23, 2008,

the Company completed the sale of

26,000

shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the Preferred Stock) to the U.S. Department of the Treasury (Treasury). The Preferred Stock had a liquidation value of

$1,000

per share and a related

warrant was also issued to purchase

833,333

shares of HMN common stock at an exercise price of

$4.68

per share (the Warrant). The transaction was part of the Treasury’s Capital Purchase Program under the Emergency Economic Stabilization Act of

2008.

On

February 17, 2015,

the Company redeemed the final

10,000

shares of outstanding Preferred Stock. On

May 21, 2015,

the Treasury sold the Warrant at an exercise price of

$4.68

to

three

unaffiliated

third

party investors for an aggregate purchase price of

$5.7

million. Two of the investors received a warrant to purchase

277,777.67

shares and

one

investor received a warrant to purchase

277,777.66

shares. All of the warrants were still outstanding as of

September 30, 2017

and

may

be exercised at any time prior to their expiration date of

December 23, 2018.

The Company received

no

proceeds from this transaction and it had

no

effect on the Company’s capital, financial condition or results of operations.

XML

Note 14 - Other Borrowings

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

(

14

)

Other Borrowings

On

December 15, 2014,

the Company entered into a Loan Agreement with an unrelated

third

party, providing for a term loan of up to

$10.0

million that was evidenced by a promissory note (the Note) with an interest rate of

6.5

0%

per annum. The principal balance of the loan was payable in consecutive equal annual installments of

$1.0

million on each anniversary of the date of the Loan Agreement, commencing on

December 15, 2015,

with the balance due on

December 15, 2021.

The Company had the option to voluntarily prepay the Note in whole or in part without penalty. The Company made the scheduled

$1.0

million principal payment on

December 15, 2015,

a

$2.0

million payment on

December 15, 2016,

and on

August 31, 2017

paid off the remaining principal balance of

$7.0

million. There was

no

outstanding loan balance at

September 30, 2017

and the loan balance was

$7.0

million at

December 31, 2016.

XML

Note 15 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(

1

5

)

Commitments and Contingencies

The Bank issues standby letters of credit which guarantee the performance of customers to

third

parties. The standby letters of credit issued and available at

September 30, 2017

were approximately

$2.5

million, expire over the next

36

months, and are collateralized primarily with commercial real estate mortgages. Since the conditions under which the Bank is required to fund the standby letters of credit

may

not

materialize, the cash requirements are expected to be less than the total outstanding commitments

.

XML

Note 16 - Business Segments

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

(

16

)

Business Segments

The Bank has been identified as a reportable operating segment in accordance with the provisions of ASC

280.

HMN did

not

meet the quantitative thresholds for determining reportable segments and, therefore, is included in the “Other” category.

The Company evaluates performance and allocates resources based on the segment

’s net income, return on average assets and equity. Each corporation is managed separately with its own officers and board of directors, some of whom

may

overlap between the corporations.

The following table sets forth certain information about the reconciliation of reported profit and assets for each of the Company

’s reportable segments.

(Dollars in thousands)	Home Federal Savings Bank		Other			Eliminations			Consolidated Total
At or for the nine months ended September 30, 201 7:
Interest income - external customers	$	20,913		0			0			20,913
Non-interest income - external customers		5,695		0			0			5,695
Intersegment non-interest income		158		4,596			(4,754	)		0
Interest expense		1,056		306			0			1,362
Other non-interest expense		18,653		550			(158	)		19,045
Income tax expense		3,043		(277	)		0			2,766
Net income		4,596		4,017			(4,596	)		4,017
Total assets		715,827		79,516			(78,733	)		716,610
At or for the nine months ended September 30, 2016:
Interest income - external customers	$	20,638		0			0			20,638
Non-interest income - external customers		6,004		0			0			6,004
Intersegment non-interest income		158		5,362			(5,520	)		0
Interest expense		728		445			0			1,173
Other non-interest expense		17,510		573			(158	)		17,925
Income tax expense		3,471		(322	)		0			3,149
Net income		5,362		4,666			(5,362	)		4,666
Total assets		684,635		83,570			(82,538	)		685,667
At or for the quarter ended September 30, 2017:
Interest income - external customers	$	7,255		0			0			7,255
Non-interest income - external customers		1,909		0			0			1,909
Intersegment non-interest income		53		1,960			(2,013	)		0
Interest expense		416		77			0			493
Other non-interest expense		6,124		188			(53	)		6,259
Income tax expense		1,298		(85	)		0			1,213
Net income		1,960		1,780			(1,960	)		1,780
Total assets		715,827		79,516			(78,733	)		716,610
At or for the quarter ended September 30, 2016:
Interest income - external customers	$	6,954		0			0			6,954
Non-interest income - external customers		2,147		0			0			2,147
Intersegment non-interest income		53		1,718			(1,771	)		0
Interest expense		255		149			0			404
Other non-interest expense		6,049		205			(53	)		6,201
Income tax expense		1,052		(50	)		0			1,002
Net income		1,718		1,414			(1,718	)		1,414
Total assets		684,635		83,570			(82,538	)		685,667

XML

Note 4 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Carrying value at September 30, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	78,351		0		78,351		0
Mortgage loan commitments		78		0		78		0
Total	$	78,429		0		78,429		0

	Carrying value at December 31, 2016
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	78,477		0		78,477		0
Mortgage loan commitments		66		0		66		0
Total	$	78,543		0		78,543		0

Fair Value Measurements, Nonrecurring [Table Text Block]

	Carrying value at September 30, 201 7
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Three months ended September 30, 201 7 t otal gains (losses)			Nine months ended September 30, 201 7 t otal gains (losses)
Loans held for sale	$	2,594		0		2,594		0		24			16
Mortgage servicing rights		1,654		0		1,654		0		0			0
Loans (1)		3,527		0		3,527		0		(510	)		(445	)
Real estate, net (2)		414		0		414		0		0			0
Total	$	8,189		0		8,189		0		(486	)		(429	)

	Carrying value at December 31, 201 6
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Year ended December 31, 2016 total gains (losses)
Loans held for sale	$	2,009		0		2,009		0		14
Mortgage servicing rights		1,604		0		1,604		0		0
Loans (1)		3,582		0		3,582		0		(380	)
Real estate, net (2)		611		0		611		0		(197	)
Total	$	7,806		0		7,806		0		(563	)

XML

Note 5 - Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	September 30,   2017													December 31, 201 6
							Fair value hierarchy													Fair value hierarchy
(Dollars in thousands)	Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount		Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount
Financial assets:
Cash and cash equivalents	$	30,600			30,600			30,600							27,561			27,561			27,561
Securities available for sale		78,351			78,351					78,351					78,477			78,477					78,477
Loans held for sale		2,594			2,594					2,594					2,009			2,009					2,009
Loans receivable, net		583,057			581,475					581,475					551,171			552,395					552,395
Federal Home Loan Bank stock		817			817					817					770			770					770
Accrued interest receivable		2,580			2,580					2,580					2,626			2,626					2,626
Financial liabilities:
Deposits		628,971			629,288					629,288					592,811			593,297					593,297
Other borrowings		0			0					0					7,000			7,018					7,018
Accrued interest payable		112			112					112					236			236					236
Off-balance sheet financial instruments:
Commitments to extend credit		78			78								200,693		66			66								184,596
Commitments to sell loans		(16	)		(16	)							12,566		(22	)		(22	)							9,595

XML

Note 6 - Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Comprehensive Income (Loss) [Table Text Block]

	For the three months ended September 30,
(Dollars in thousands)	20 17									20 16
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Net unrealized losses arising during the period	$	(7	)		(3	)		(4	)		(85	)		(34	)		(51	)
Other comprehensive loss	$	(7	)		(3	)		(4	)		(85	)		(34	)		(51	)
	For the nine months ended September 30,
(Dollars in thousands)	201 7									201 6
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Gross unrealized gains arising during the period	$	593			236			357			209			84			125
Less reclassification of net losses included in net income		0			0			0			(9	)		(3	)		(6	)
Net unrealized gains arising during the period	$	593			236			357			218			87			131
Other comprehensive income	$	593			236			357			218			87			131

XML

Note 7 - Securities Available for Sale (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Unrealized Loss on Investments [Table Text Block]

	Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 201 7
Collateralized mortgage obligations:
Federal National Mortgage Association (FNMA)		2	$	4,968		(22	)		0	$	0		0		$	4,968		(22	)
Other marketable securities:
U.S. Government agency obligations		6		29,815		(145	)		8		39,464		(536	)		69,279		(681	)
Municipal obligations		6		925		(2	)		0		0		0			925		(2	)
Corporate preferred stock		0		0		0			1		525		(175	)		525		(175	)
Total temporarily impaired securities		14	$	35,708		(169	)		9	$	39,989		(711	)	$	75,697		(880	)

	Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2016
Collateralized mortgage obligations:
FNMA		1	$	262		(3	)		1	$	104		(2	)	$	366		(5	)
Other marketable securities:
U.S. Government agency obligations		13		63,896		(1,079	)		0		0		0			63,896		(1,079	)
Municipal obligations		14		2,327		(19	)		2		214		(1	)		2,541		(20	)
Corporate preferred stock		0		0		0			1		350		(350	)		350		(350	)
Total temporarily impaired securities		28	$	66,485		(1,101	)		4	$	668		(353	)	$	67,153		(1,454	)

Available-for-sale Securities [Table Text Block]

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
September 30, 2017:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation (FHLMC)	$	141		4		0			145
FNMA		5,086		2		(22	)		5,066
Collateralized mortgage obligations:
FNMA		238		1		0			239
		5,465		7		(22	)		5,450
Other marketable securities:
U.S. Government agency obligations		69,960		0		(681	)		69,279
Municipal obligations		2,703		14		(2	)		2,715
Corporate debt		234		2		0			236
Corporate preferred stock		700		0		(175	)		525
Corporate equity		58		88		0			146
		73,655		104		(858	)		72,901
	$	79,120		111		(880	)		78,351

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2016
Mortgage-backed securities:
FHLMC	$	327		10		0			337
FNMA		295		7		0			302
Collateralized mortgage obligations:
FNMA		371		0		(5	)		366
		993		17		(5	)		1,005
Other marketable securities:
U.S. Government agency obligations		74,979		16		(1,079	)		73,916
Municipal obligations		2,819		0		(20	)		2,799
Corporate debt		290		2		0			292
Corporate preferred stock		700		0		(350	)		350
Corporate equity		58		57		0			115
		78,846		75		(1,449	)		77,472
	$	79,839		92		(1,454	)		78,477

Contractual Obligation, Fiscal Year Maturity Schedule [Table Text Block]

(Dollars in thousands)	Amortized C ost		Fair V alue
Due less than one year	$	1,308		1,307
Due after one year through five years		74,872		74,195
Due after five years through ten years		2,005		2,001
Due after ten years		877		702
No stated maturity		58		146
Total	$	79,120		78,351

XML

Note 8 - Loans Receivable, Net (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Summary of Loans Receivable [Table Text Block]

(Dollars in thousands)	September 30, 201 7			December 31, 201 6
Single family	$	107,312			103,255
Commercial real estate:
R eal estate rental and leasing		175,785			153,343
Other		153,466			145,737
		329,251			299,080
Consumer		74,984			73,283
Commercial business:
Transportation industry		9,418			10,509
Other		70,890			74,667
		80,308			85,176
Total loans		591,855			560,794
Less:
Unamortized discounts		21			20
Net deferred loan costs		(500	)		(300	)
Allowance for loan losses		9,277			9,903
Total loans receivable, net	$	583,057			551,171

XML

Note 9 - Allowance for Loan Losses and Credit Quality Information (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 201 7:
Balance, June 30, 201 7	$	1,004			5,490			1,544			2,007			10,045
Provision for losses		(63	)		(509	)		141			(150	)		(581	)
Charge-offs		(6	)		0			(45	)		(300	)		(351	)
Recoveries		0			32			6			126			164
Balance, September 30, 201 7	$	935			5,013			1,646			1,683			9,277
For the nine months ended September 30, 201 7 :
Balance, December 31, 201 6	$	1,186			4,953			1,613			2,151			9,903
Provision for losses		(245	)		(147	)		257			(447	)		(582	)
Charge-offs		(6	)		0			(263	)		(300	)		(569	)
Recoveries		0			207			39			279			525
Balance, September 30, 201 7	$	935			5,013			1,646			1,683			9,277
Allocated to:
Specific reserves	$	235			248			434			71			988
General reserves		951			4,705			1,179			2,080			8,915
Balance, December 31, 201 6	$	1,186			4,953			1,613			2,151			9,903
Allocated to:
Specific reserves	$	130			544			266			198			1,138
General reserves		805			4,469			1,380			1,485			8,139
Balance, September 30, 201 7	$	935			5,013			1,646			1,683			9,277
Loans receivable at December 31, 201 6 :
Individually reviewed for impairment	$	1,107			1,880			940			643			4,570
Collectively reviewed for impairment		102,148			297,200			72,343			84,533			556,224
Ending balance	$	103,255			299,080			73,283			85,176			560,794
Loans receivable at September 30, 201 7 :
Individually reviewed for impairment	$	1,041			2,155			925			544			4,665
Collectively reviewed for impairment		106,271			327,096			74,059			79,764			587,190
Ending balance	$	107,312			329,251			74,984			80,308			591,855

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 201 6:
Balance, June 30, 201 6	$	1,270			5,827			1,531			1,697			10,325
Provision for losses		31			(288	)		116			221			80
Charge-offs		(66	)		(67	)		(14	)		(56	)		(203	)
Recoveries		0			48			4			52			104
Balance, September 30, 201 6	$	1,235			5,520			1,637			1,914			10,306
For the nine months ended September 30, 201 6 :
Balance, December 31, 201 5	$	990			6,078			1,200			1,441			9,709
Provision for losses		311			(1,148	)		432			134			(271	)
Charge-offs		(66	)		(67	)		(29	)		(100	)		(262	)
Recoveries		0			657			34			439			1,130
Balance, September 30, 201 6	$	1,235			5,520			1,637			1,914			10,306

Financing Receivable Credit Quality Indicators [Table Text Block]

	September 30, 201 7
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	277		2,023		45		0		2,345		104,967		107,312
Commercial real estate:
Real estate rental and leasing		1,735		2,653		0		0		4,388		171,397		175,785
Other		9,897		7,410		0		0		17,307		136,159		153,466
Consumer		0		661		120		144		925		74,059		74,984
Commercial business:
Transportation industry		0		1,128		0		0		1,128		8,290		9,418
Other		5,547		3,013		0		0		8,560		62,330		70,890
	$	17,456		16,888		165		144		34,653		557,202		591,855

	December 31, 201 6
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	457		2,130		74		0		2,661		100,594		103,255
Commercial real estate:
Real estate rental and leasing		1,577		3,156		0		0		4,733		148,610		153,343
Other		1,702		7,187		0		0		8,889		136,848		145,737
Consumer		0		531		110		299		940		72,343		73,283
Commercial business:
Transportation industry		0		4,065		0		0		4,065		6,444		10,509
Other		3,973		2,916		0		0		6,889		67,778		74,667
	$	7,709		19,985		184		299		28,177		532,617		560,794

Past Due Financing Receivables [Table Text Block]

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
Se ptember 30, 2017
Single family	$	833		457		108		1,398		105,914		107,312		0
Commercial real estate:
Real estate rental and leasing		212		0		259		471		175,314		175,785		0
Other		0		0		0		0		153,466		153,466		0
Consumer		318		424		126		868		74,116		74,984		0
Commercial business:
Transportation industry		0		0		0		0		9,418		9,418		0
Other		112		0		116		228		70,662		70,890		0
	$	1,475		881		609		2,965		588,890		591,855		0
December 31, 201 6
Single family	$	342		158		179		679		102,576		103,255		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		153,343		153,343		0
Other		0		0		0		0		145,737		145,737		0
Consumer		412		117		140		669		72,614		73,283		0
Commercial business:
Transportation industry		0		0		0		0		10,509		10,509		0
Other		85		0		274		359		74,308		74,667		0
	$	839		275		593		1,707		559,087		560,794		0

Impaired Financing Receivables [Table Text Block]

	September 30, 201 7						December 31, 201 6
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance recorded:
Single family	$	381		381		0		217		217		0
Commercial real estate:
Real estate rental and leasing		37		69		0		40		122		0
Other		25		1,681		0		26		1,771		0
Consumer		508		508		0		312		312		0
Commercial business:
Other		0		0		0		274		356		0
Loans with an allowance recorded:
Single family		660		660		130		890		890		235
Commercial real estate:
Real estate rental and leasing		258		258		50		0		0		0
Other		1,835		1,835		494		1,814		1,814		248
Consumer		417		434		266		628		644		434
Commercial business:
Other		544		1,396		198		369		921		71
Total:
Single family		1,041		1,041		130		1,107		1,107		235
Commercial real estate:
Real estate rental and leasing		295		327		50		40		122		0
Other		1,860		3,516		494		1,840		3,585		248
Consumer		925		942		266		940		956		434
Commercial business:
Other		544		1,396		198		643		1,277		71
	$	4,665		7,222		1,138		4,570		7,047		988

	For the three months ended September 30, 201 7				For the nine months ended September 30, 201 7
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	453		1		414		3
Commercial real estate:
Real estate rental and leasing		38		0		39		0
Other		26		24		26		72
Consumer		500		5		404		9
Commercial business:
Other		0		0		125		0
Loans with an allowance recorded:
Single family		765		8		821		11
Commercial real estate:
Real estate rental and leasing		258		0		194		0
Other		1,838		16		1,818		23
Consumer		375		4		455		8
Commercial business:
Other		496		6		428		19
Total:
Single family		1,218		9		1,235		14
Commercial real estate:
Real estate rental and leasing		296		0		233		0
Other		1,864		40		1,844		95
Consumer		875		9		859		17
Commercial business:
Other		496		6		553		19
	$	4,749		64		4,724		145

	For the three months ended September 30, 201 6				For the nine months ended September 30, 201 6
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	336		5		654		12
Commercial real estate:
Real estate rental and leasing		46		1		45		4
Other		26		24		26		73
Consumer		478		1		483		3
Commercial business:
Other		66		0		33		0
Loans with an allowance recorded:
Single family		1,094		5		1,055		14
Commercial real estate:
Other		2,511		54		2,354		183
Consumer		547		2		534		8
Commercial business:
Other		467		16		437		62
Total:
S ingle family		1,430		10		1,709		26
Commercial real estate:
Real estate rental and leasing		46		1		45		4
Other		2,537		78		2,380		256
Consumer		1,025		3		1,017		11
Commercial business:
Other		533		16		470		62
	$	5,571		108		5,621		359

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

(Dollars in thousands)	September 30, 201 7		December 31, 201 6
Single family	$	800		916
Commercial real estate:
Real estate rental and l easing		295		41
Other		1,371		1,343
Consumer		545		630
Commercial business:
Other		297		343
	$	3,308		3,273

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	September 30, 201 7						December 31, 201 6
(Dollars in thousands)	Accrual		Non-Accrual		Total		Accrual		Non-Accrual		Total
Single family	$	241		455		696		191		257		448
Commercial real estate		489		1,227		1,716		497		1,277		1,774
Consumer		380		418		798		309		400		709
Commercial business		247		181		428		300		69		369
	$	1,357		2,281		3,638		1,297		2,003		3,300

Financial Effects of Troubled Debt Restructurings and Difference Between Outstanding Recorded Balance Pre Modification and Post Modification [Table Text Block]

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		3	$	282		514
Commercial real estate:
Other		0		0		0		0		0		0
Consumer		6		104		105		13		462		465
Commercial business:
Other		1		416		116		1		416		116
Total		7	$	520		221		17	$	1,160		1,095

	Three Months Ended September 30, 201 6						Nine Months Ended September 30, 201 6
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		1	$	126		139		2	$	191		203
Commercial real estate:
Other		1		1,274		1,274		1		1,274		1,274
Consumer		3		73		73		14		215		216
Commercial business:
Other		2		257		201		2		257		201
Total		7	$	1,730		1,687		19	$	1,937		1,894

Troubled Debt Restructurings Subsequent Default [Table Text Block]

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Single Family		2	$	60
Total		2	$	60

	Three Months Ended September 30, 201 6				Nine Months Ended September 30, 201 6
(Dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Commercial real estate:
Other		0	$	0		1	$	183
Consumer		3		6		3		6
Commercial business:
Other		0		0		1		44
Total		3	$	6		5	$	233

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Table Text Block]

(Dollars in thousands)	Contractual Principal Receivable			Accretable Difference			Carrying Amount
Purchased performing l oans:
Balance at June 30, 2017	$	13,267			(275	)		12,992
Change due to payments/refinances		(1,421	)		14			(1,407	)
Balance at September 30, 201 7	$	11,846			(261	)		11,585

(Dollars in thousands)	Contractual Principal Receivable			Non-Accretable Difference			Carrying Amount
Purchased credit impaired loans:
Balance at June 30, 2017	$	386			(45	)		341
Change due to payments/refinances		(23	)		3			(20	)
Balance at September 30, 201 7	$	363			(42	)		321

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Note 10 - Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Servicing Liability at Amortized Cost [Table Text Block]

(Dollars in thousands)	Nine Months ended September 30, 2017			Twelve Months ended December 31, 201 6			Nine Months ended September 30, 201 6
Balance, beginning of period	$	1,604			1,499			1,499
Originations		461			706			475
Amortization		(411	)		(601	)		(437	)
Balance, end of period	$	1,654			1,604			1,537
Fair value of mortgage servicing rights	$	3,003			2,952			2,426

Summary of Risk Characteristics of Loans Being Serviced [Table Text Block]

			Weighted			Weighted
	Loan		Average			Average
	Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans
Original term 30 year fixed rate	$	256,068		4.08	%		305		2,062
Original term 15 year fixed rate		103,089		3.10			136		1,111
Adjustable rate		56		3.25			284		2

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	September 30, 201 7
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,141		(2,487	)		1,654
Core deposit intangible		574		(195	)		379
Goodwill		802		0			802
Total	$	5,517		(2,682	)		2,835

	September 30, 201 6
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	3,851		(2,314	)		1,537
Core deposit intangible		574		(96	)		478
Goodwill		802		0			802
Total	$	5,227		(2,410	)		2,817

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

(Dollars in thousands)	Mortgage Servicing Rights		Core Deposit Intangible		Total Amortizing Intangible Assets
Year ended December 31,
201 7	$	118		25		143
2018		406		99		505
2019		353		99		452
2020		277		99		376
2021		227		47		274
Thereafter		273		10		283
Total	$	1,654		379		2,033

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Note 11 - Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
(I n thousands, except per share data)	20 17		20 16		20 17		20 16
Weighted average number of common shares outstanding used in basic earnings per share calculation		4,220		4,186		4,212		4,176
Net dilutive effect of:
Restricted stock awards , options, and warrants		650		586		651		552
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,870		4,772		4,863		4,728
Income available to common shareholders	$	1,780		1,414		4,017		4,666
Basic earnings per common share	$	0.42		0.34		0.95		1.12
Diluted earnings per common share	$	0.37		0.30		0.83		0.99

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Note 12 - Regulatory Capital and Oversight (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Asset s			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
September 30, 2017
Common equity tier 1 capital	$	76,306		12.62	%	$	27,219		4.50	%	$	49,086		8.12	%	$	39,317		6.50	%
Tier 1 capital leverage		76,306		10.76			28,365		4.00			47,941		6.76			35,456		5.00
Tier 1 risk-based capital		76,306		12.62			36,293		6.00			40,014		6.62			48,390		8.00
Total risk-based capital		83,889		13.87			48,390		8.00			35,499		5.87			60,488		10.00

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Note 16 - Business Segments (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

(Dollars in thousands)	Home Federal Savings Bank		Other			Eliminations			Consolidated Total
At or for the nine months ended September 30, 201 7:
Interest income - external customers	$	20,913		0			0			20,913
Non-interest income - external customers		5,695		0			0			5,695
Intersegment non-interest income		158		4,596			(4,754	)		0
Interest expense		1,056		306			0			1,362
Other non-interest expense		18,653		550			(158	)		19,045
Income tax expense		3,043		(277	)		0			2,766
Net income		4,596		4,017			(4,596	)		4,017
Total assets		715,827		79,516			(78,733	)		716,610
At or for the nine months ended September 30, 2016:
Interest income - external customers	$	20,638		0			0			20,638
Non-interest income - external customers		6,004		0			0			6,004
Intersegment non-interest income		158		5,362			(5,520	)		0
Interest expense		728		445			0			1,173
Other non-interest expense		17,510		573			(158	)		17,925
Income tax expense		3,471		(322	)		0			3,149
Net income		5,362		4,666			(5,362	)		4,666
Total assets		684,635		83,570			(82,538	)		685,667
At or for the quarter ended September 30, 2017:
Interest income - external customers	$	7,255		0			0			7,255
Non-interest income - external customers		1,909		0			0			1,909
Intersegment non-interest income		53		1,960			(2,013	)		0
Interest expense		416		77			0			493
Other non-interest expense		6,124		188			(53	)		6,259
Income tax expense		1,298		(85	)		0			1,213
Net income		1,960		1,780			(1,960	)		1,780
Total assets		715,827		79,516			(78,733	)		716,610
At or for the quarter ended September 30, 2016:
Interest income - external customers	$	6,954		0			0			6,954
Non-interest income - external customers		2,147		0			0			2,147
Intersegment non-interest income		53		1,718			(1,771	)		0
Interest expense		255		149			0			404
Other non-interest expense		6,049		205			(53	)		6,201
Income tax expense		1,052		(50	)		0			1,002
Net income		1,718		1,414			(1,718	)		1,414
Total assets		684,635		83,570			(82,538	)		685,667

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Note 1 - HMN Financial, Inc. (Details Textual)	9 Months Ended
	Sep. 30, 2017
Percentage Of Ownership In Subsidiaries	100.00%
Number of Wholly Owned Subsidiaries	2

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Note 4 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans and Leases Receivable, Net Amount	$ 583,057	$ 551,171
Fully Charged Off [Member]
Loans and Leases Receivable, Net Amount	$ 0

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Note 4 - Fair Value Measurements - Assets and Liabilities Measured on Recurring basis (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Securities available for sale	$ 78,351	$ 78,477
Fair Value, Measurements, Recurring [Member]
Securities available for sale	78,351	78,477
Mortgage loan commitments	78	66
Total	78,429	78,543
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Mortgage loan commitments	0	0
Total	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	78,351	78,477
Mortgage loan commitments	78	66
Total	78,429	78,543
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Mortgage loan commitments	0	0
Total	$ 0	$ 0

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Note 4 - Fair Value Measurements - Assets Measured at Fair Value on Nonrecurring Basis (Details) - USD ($) $ in Thousands		3 Months Ended	9 Months Ended	12 Months Ended
		Sep. 30, 2017	Sep. 30, 2017	Dec. 31, 2016
Asset fair value		$ 8,189	$ 8,189	$ 7,806
Fair value gain (loss)		(486)	(429)	(563)
Fair Value, Inputs, Level 1 [Member]
Asset fair value		0	0	0
Fair Value, Inputs, Level 2 [Member]
Asset fair value		8,189	8,189	7,806
Fair Value, Inputs, Level 3 [Member]
Asset fair value		0	0	0
Loans Held for Sale [Member]
Asset fair value		2,594	2,594	2,009
Fair value gain (loss)		24	16	14
Loans Held for Sale [Member] | Fair Value, Inputs, Level 1 [Member]
Asset fair value		0	0	0
Loans Held for Sale [Member] | Fair Value, Inputs, Level 2 [Member]
Asset fair value		2,594	2,594	2,009
Loans Held for Sale [Member] | Fair Value, Inputs, Level 3 [Member]
Asset fair value		0	0	0
Mortgage Servicing Rights [Member]
Asset fair value		1,654	1,654	1,604
Fair value gain (loss)		0	0	0
Mortgage Servicing Rights [Member] | Fair Value, Inputs, Level 1 [Member]
Asset fair value		0	0	0
Mortgage Servicing Rights [Member] | Fair Value, Inputs, Level 2 [Member]
Asset fair value		1,654	1,654	1,604
Mortgage Servicing Rights [Member] | Fair Value, Inputs, Level 3 [Member]
Asset fair value		0	0	0
Loans Receivable [Member]
Asset fair value	[1]	3,527	3,527	3,582
Fair value gain (loss)	[1]	(510)	(445)	(380)
Loans Receivable [Member] | Fair Value, Inputs, Level 1 [Member]
Asset fair value	[1]	0	0	0
Loans Receivable [Member] | Fair Value, Inputs, Level 2 [Member]
Asset fair value	[1]	3,527	3,527	3,582
Loans Receivable [Member] | Fair Value, Inputs, Level 3 [Member]
Asset fair value	[1]	0	0	0
Real Estate Net [Member]
Asset fair value	[2]	414	414	611
Fair value gain (loss)	[2]	0	0	(197)
Real Estate Net [Member] | Fair Value, Inputs, Level 1 [Member]
Asset fair value	[2]	0	0	0
Real Estate Net [Member] | Fair Value, Inputs, Level 2 [Member]
Asset fair value	[2]	414	414	611
Real Estate Net [Member] | Fair Value, Inputs, Level 3 [Member]
Asset fair value	[2]	$ 0	$ 0	$ 0

[1] Represents the carrying value and related specific reserves on loans for which adjustments are based on the appraised value of the collateral. The carrying value of loans fully charged-off is zero.

[2] Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

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Note 5 - Fair Value of Financial Instruments - Estimated Fair Value of Company's Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015	Dec. 15, 2014
Financial assets:
Cash and cash equivalents	$ 30,600	$ 27,561	$ 34,594	$ 39,782
Securities available for sale	78,351	78,477
Loans receivable, net	583,057	551,171
Federal Home Loan Bank stock	817	770
Financial liabilities:
Deposits	628,971	592,811
Other Borrowings	0	7,000			$ 10,000
Reported Value Measurement [Member]
Financial assets:
Cash and cash equivalents	30,600	27,561
Securities available for sale	78,351	78,477
Loans held for sale	2,594	2,009
Loans receivable, net	583,057	551,171
Federal Home Loan Bank stock	817	770
Accrued interest receivable	2,580	2,626
Financial liabilities:
Deposits	628,971	592,811
Other Borrowings	0	7,000
Accrued interest payable	112	236
Off-balance sheet financial instruments:
Commitments to extend credit	78	66
Commitments to sell loans	(16)	(22)
Estimate of Fair Value Measurement [Member]
Financial assets:
Cash and cash equivalents	30,600	27,561
Securities available for sale	78,351	78,477
Loans held for sale	2,594	2,009
Loans receivable, net	581,475	552,395
Federal Home Loan Bank stock	817	770
Accrued interest receivable	2,580	2,626
Financial liabilities:
Deposits	629,288	593,297
Other Borrowings	0	7,018
Accrued interest payable	112	236
Off-balance sheet financial instruments:
Commitments to extend credit	78	66
Commitments to sell loans	(16)	(22)
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	30,600	27,561
Securities available for sale
Loans held for sale
Loans receivable, net
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Deposits
Other Borrowings
Accrued interest payable
Off-balance sheet financial instruments:
Commitments to extend credit
Commitments to sell loans
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale	78,351	78,477
Loans held for sale	2,594	2,009
Loans receivable, net	581,475	552,395
Federal Home Loan Bank stock	817	770
Accrued interest receivable	2,580	2,626
Financial liabilities:
Deposits	629,288	593,297
Other Borrowings	0	7,018
Accrued interest payable	112	236
Off-balance sheet financial instruments:
Commitments to extend credit
Commitments to sell loans
Portion at Other than Fair Value Measurement [Member]
Financial assets:
Cash and cash equivalents
Securities available for sale
Loans held for sale
Loans receivable, net
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Deposits
Other Borrowings
Accrued interest payable
Off-balance sheet financial instruments:
Commitments to extend credit	200,693	184,596
Commitments to sell loans	$ 12,566	$ 9,595

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Note 6 - Other Comprehensive Income (Loss) - Components of Other Comprehensive (Loss) Income and Related Tax Effects (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net unrealized gains (losses) arising during the period, before tax	$ (7)	$ (85)	$ 593	$ 218
Net unrealized gains (losses) arising during the period, tax effect	(3)	(34)	236	87
Net unrealized gains (losses) arising during the period, net of tax	(4)	(51)	357	131
Other comprehensive income (loss), before tax	(7)	(85)	593	218
Other comprehensive income (loss), tax effect	(3)	(34)	236	87
Other comprehensive income (loss), net of tax	(4)	(51)	357	131
Gross unrealized gains arising during the period, before tax			593	209
Gross unrealized gains arising during the period, tax effect			236	84
Gross unrealized gains arising during the period, net of tax			357	125
Less reclassification of net losses included in net income, before tax			0	(9)
Less reclassification of net losses included in net income, tax effect			0	(3)
Less reclassification of net losses included in net income, net of tax			0	(6)
Net unrealized gains (losses) arising during the period, before tax	(7)	(85)	593	218
Net unrealized gains (losses) arising during the period, tax effect	(3)	(34)	236	87
Net unrealized gains (losses) arising during the period, net of tax	$ (4)	$ (51)	$ 357	$ 131

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Note 7 - Securities Available for Sale - Securities in a Continuous Unrealized Loss Position (Details) $ in Thousands	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Less Than Twelve Months # of Investments	14	28
Less Than Twelve Months Fair Value	$ 35,708	$ 66,485
Less Than Twelve Months Unrealized Losses	$ (169)	$ (1,101)
Twelve Months or More # of Investments	9	4
Twelve Months or More Fair Value	$ 39,989	$ 668
Twelve Months or More Unrealized Losses	(711)	(353)
Total Fair Value	75,697	67,153
Total Unrealized Losses	$ (880)	$ (1,454)
Federal National Mortgage Association Certificates and Obligations (FNMA) [Member] | Collateralized Debt Obligations [Member]
Less Than Twelve Months # of Investments	2	1
Less Than Twelve Months Fair Value	$ 4,968	$ 262
Less Than Twelve Months Unrealized Losses	$ (22)	$ (3)
Twelve Months or More # of Investments	0	1
Twelve Months or More Fair Value	$ 0	$ 104
Twelve Months or More Unrealized Losses	0	(2)
Total Fair Value	4,968	366
Total Unrealized Losses	$ (22)	$ (5)
US Government Agencies Debt Securities [Member] | Other Marketable Securities [Member]
Less Than Twelve Months # of Investments	6	13
Less Than Twelve Months Fair Value	$ 29,815	$ 63,896
Less Than Twelve Months Unrealized Losses	$ (145)	$ (1,079)
Twelve Months or More # of Investments	8	0
Twelve Months or More Fair Value	$ 39,464	$ 0
Twelve Months or More Unrealized Losses	(536)	0
Total Fair Value	69,279	63,896
Total Unrealized Losses	$ (681)	$ (1,079)
US States and Political Subdivisions Debt Securities [Member] | Other Marketable Securities [Member]
Less Than Twelve Months # of Investments	6	14
Less Than Twelve Months Fair Value	$ 925	$ 2,327
Less Than Twelve Months Unrealized Losses	$ (2)	$ (19)
Twelve Months or More # of Investments	0	2
Twelve Months or More Fair Value	$ 0	$ 214
Twelve Months or More Unrealized Losses	0	(1)
Total Fair Value	925	2,541
Total Unrealized Losses	$ (2)	$ (20)
Preferred Stock [Member] | Other Marketable Securities [Member]
Less Than Twelve Months # of Investments	0	0
Less Than Twelve Months Fair Value	$ 0	$ 0
Less Than Twelve Months Unrealized Losses	$ 0	$ 0
Twelve Months or More # of Investments	1	1
Twelve Months or More Fair Value	$ 525	$ 350
Twelve Months or More Unrealized Losses	(175)	(350)
Total Fair Value	525	350
Total Unrealized Losses	$ (175)	$ (350)

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Note 7 - Securities Available for Sale - Summary of Securities Available for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Amortized cost	$ 79,120	$ 79,839
Gross unrealized gains	111	92
Gross unrealized losses	(880)	(1,454)
Fair value	78,351	78,477
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Federal Home Loan Mortgage Corporation Certificates and Obligations (FHLMC) [Member]
Amortized cost	141	327
Gross unrealized gains	4	10
Gross unrealized losses	0	0
Fair value	145	337
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Amortized cost	5,086	295
Gross unrealized gains	2	7
Gross unrealized losses	(22)	0
Fair value	5,066	302
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Amortized cost	238	371
Gross unrealized gains	1	0
Gross unrealized losses	0	(5)
Fair value	239	366
Collateralized Mortgage Backed Securities [Member]
Amortized cost	5,465	993
Gross unrealized gains	7	17
Gross unrealized losses	(22)	(5)
Fair value	5,450	1,005
Other Marketable Securities [Member]
Amortized cost	73,655	78,846
Gross unrealized gains	104	75
Gross unrealized losses	(858)	(1,449)
Fair value	72,901	77,472
Other Marketable Securities [Member] | US Government Agencies Debt Securities [Member]
Amortized cost	69,960	74,979
Gross unrealized gains	0	16
Gross unrealized losses	(681)	(1,079)
Fair value	69,279	73,916
Other Marketable Securities [Member] | US States and Political Subdivisions Debt Securities [Member]
Amortized cost	2,703	2,819
Gross unrealized gains	14	0
Gross unrealized losses	(2)	(20)
Fair value	2,715	2,799
Other Marketable Securities [Member] | Corporate Debt Securities [Member]
Amortized cost	234	290
Gross unrealized gains	2	2
Gross unrealized losses	0	0
Fair value	236	292
Other Marketable Securities [Member] | Preferred Stock [Member]
Amortized cost	700	700
Gross unrealized gains	0	0
Gross unrealized losses	(175)	(350)
Fair value	525	350
Other Marketable Securities [Member] | Equity Securities [Member]
Amortized cost	58	58
Gross unrealized gains	88	57
Gross unrealized losses	0	0
Fair value	$ 146	$ 115

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Note 7 - Securities Available for Sale - Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Due less than one year, amortized cost	$ 1,308
Due less than one year, fair value	1,307
Due after one year through five years, amortized cost	74,872
Due after one year through five years, fair value	74,195
Due after five years through ten years, amortized cost	2,005
Due after five years through ten years, fair value	2,001
Due after ten years, amortized cost	877
Due after ten years, fair value	702
No stated maturity, amortized cost	58
No stated maturity, fair value	146
Total, amortized cost	79,120	$ 79,839
Total, fair value	$ 78,351	$ 78,477

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Note 8 - Loans Receivable, Net - Loans Receivable (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Jun. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Loans receivable	$ 591,855		$ 560,794
Unamortized discounts	21		20
Net deferred loan costs	(500)		(300)
Allowance for loan losses	9,277	$ 10,045	9,903	$ 10,306	$ 10,325	$ 9,709
Total loans receivable, net	583,057		551,171
Residential Portfolio Segment [Member]
Loans receivable	107,312		103,255
Allowance for loan losses	935	1,004	1,186	1,235	1,270	990
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	329,251		299,080
Allowance for loan losses	5,013	5,490	4,953	5,520	5,827	6,078
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	175,785		153,343
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans receivable	153,466		145,737
Consumer Portfolio Segment [Member]
Loans receivable	74,984		73,283
Allowance for loan losses	1,646	1,544	1,613	1,637	1,531	1,200
Commercial Portfolio Segment [Member]
Loans receivable	80,308		85,176
Allowance for loan losses	1,683	$ 2,007	2,151	$ 1,914	$ 1,697	$ 1,441
Commercial Portfolio Segment [Member] | Transportation Industry Loans [Member]
Loans receivable	9,418		10,509
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Loans receivable	$ 70,890		$ 74,667

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Note 9 - Allowance for Loan Losses and Credit Quality Information (Details Textual)	3 Months Ended		9 Months Ended			12 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	$ 3,308,000		$ 3,308,000	$ 3,308,000		$ 3,273,000
Impaired Financing Receivable, Related Allowance	1,138,000		1,138,000	1,138,000		988,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Provision for Loan Losses			0			0
Loan Receivable for Which Value of Collateral Sufficient to Repay	700,000		700,000	700,000		700,000
Financing Receivable, Modifications, Recorded Investment	3,638,000		3,638,000	3,638,000		3,300,000
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 200,000		$ 200,000	$ 200,000		400,000
Loan to Value Ration	75.00%		75.00%	75.00%
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	3		2	5
Allowance for Credit Losses, Change in Method of Calculating Impairment	$ 1,000,000		$ 1,000,000	$ 1,000,000		$ 600,000
Percentage Reserves For Loan Losses On Troubled Debt Restructurings	10.60%		10.60%	10.60%		6.20%
Loans and Leases Receivable, Allowance	$ 9,277,000	$ 10,306,000	$ 9,277,000	$ 9,277,000	$ 10,306,000	$ 9,903,000	$ 10,045,000	$ 10,325,000	$ 9,709,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Carrying Amount, Net	300,000		300,000	300,000
Provision for Loan and Lease Losses			(582,000)		(271,000)
Acquired Loans [Member]
Provision for Loan and Lease Losses			0
Nonperforming Financial Instruments [Member]
Impaired Financing Receivable, Related Allowance	900,000		900,000	900,000		800,000
Financing Receivable, Modifications, Recorded Investment	2,281,000		2,281,000	2,281,000		2,003,000
Nonperforming Financial Instruments [Member] | Classified [Member]
Financing Receivable, Modifications, Recorded Investment	200,000	1,500,000	200,000	200,000	1,500,000
Performing Financial Instruments [Member]
Financing Receivable, Modifications, Recorded Investment	1,357,000		1,357,000	1,357,000		$ 1,297,000
Performing Financial Instruments [Member] | Classified [Member]
Financing Receivable, Modifications, Recorded Investment	$ 34,000	$ 200,000	$ 34,000	$ 34,000	$ 200,000

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Dec. 31, 2016
Balance	$ 10,045	$ 10,325	$ 9,903	$ 9,709
Provision for loan losses	(581)	80	(582)	(271)
Charge-offs	(351)	(203)	(569)	(262)
Recoveries	164	104	525	1,130
Balance	9,277	10,306	9,277	10,306
Specific reserves					$ 1,138	$ 988
General reserves					8,139	8,915
Balance	9,277	10,325	9,277	10,306	9,277	9,903
Individually reviewed for impairment					4,665	4,570
Collectively reviewed for impairment					587,190	556,224
Ending balance					591,855	560,794
Residential Portfolio Segment [Member]
Balance	1,004	1,270	1,186	990
Provision for loan losses	(63)	31	(245)	311
Charge-offs	(6)	(66)	(6)	(66)
Recoveries	0	0	0	0
Balance	935	1,235	935	1,235
Specific reserves					130	235
General reserves					805	951
Balance	1,004	1,270	935	1,235	935	1,186
Individually reviewed for impairment					1,041	1,107
Collectively reviewed for impairment					106,271	102,148
Ending balance					107,312	103,255
Commercial Real Estate Portfolio Segment [Member]
Balance	5,490	5,827	4,953	6,078
Provision for loan losses	(509)	(288)	(147)	(1,148)
Charge-offs	0	(67)	0	(67)
Recoveries	32	48	207	657
Balance	5,013	5,520	5,013	5,520
Specific reserves					544	248
General reserves					4,469	4,705
Balance	5,490	5,827	5,013	5,520	5,013	4,953
Individually reviewed for impairment					2,155	1,880
Collectively reviewed for impairment					327,096	297,200
Ending balance					329,251	299,080
Consumer Portfolio Segment [Member]
Balance	1,544	1,531	1,613	1,200
Provision for loan losses	141	116	257	432
Charge-offs	(45)	(14)	(263)	(29)
Recoveries	6	4	39	34
Balance	1,646	1,637	1,646	1,637
Specific reserves					266	434
General reserves					1,380	1,179
Balance	1,544	1,531	1,646	1,637	1,646	1,613
Individually reviewed for impairment					925	940
Collectively reviewed for impairment					74,059	72,343
Ending balance					74,984	73,283
Commercial Portfolio Segment [Member]
Balance	2,007	1,697	2,151	1,441
Provision for loan losses	(150)	221	(447)	134
Charge-offs	(300)	(56)	(300)	(100)
Recoveries	126	52	279	439
Balance	1,683	1,914	1,683	1,914
Specific reserves					198	71
General reserves					1,485	2,080
Balance	$ 2,007	$ 1,697	$ 1,683	$ 1,914	1,683	2,151
Individually reviewed for impairment					544	643
Collectively reviewed for impairment					79,764	84,533
Ending balance					$ 80,308	$ 85,176

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Classified and Unclassified Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans receivable	$ 591,855	$ 560,794
Classified [Member]
Loans receivable	34,653	28,177
Classified [Member] | Special Mention [Member]
Loans receivable	17,456	7,709
Classified [Member] | Substandard [Member]
Loans receivable	16,888	19,985
Classified [Member] | Doubtful [Member]
Loans receivable	165	184
Classified [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans receivable	144	299
Unclassified [Member]
Loans receivable	557,202	532,617
Residential Portfolio Segment [Member]
Loans receivable	107,312	103,255
Residential Portfolio Segment [Member] | Classified [Member]
Loans receivable	2,345	2,661
Residential Portfolio Segment [Member] | Classified [Member] | Special Mention [Member]
Loans receivable	277	457
Residential Portfolio Segment [Member] | Classified [Member] | Substandard [Member]
Loans receivable	2,023	2,130
Residential Portfolio Segment [Member] | Classified [Member] | Doubtful [Member]
Loans receivable	45	74
Residential Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans receivable	0	0
Residential Portfolio Segment [Member] | Unclassified [Member]
Loans receivable	104,967	100,594
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	329,251	299,080
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	175,785	153,343
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans receivable	153,466	145,737
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Real Estate Loan [Member]
Loans receivable	4,388	4,733
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Commercial Real Estate Other [Member]
Loans receivable	17,307	8,889
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Special Mention [Member] | Real Estate Loan [Member]
Loans receivable	1,735	1,577
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Special Mention [Member] | Commercial Real Estate Other [Member]
Loans receivable	9,897	1,702
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Substandard [Member] | Real Estate Loan [Member]
Loans receivable	2,653	3,156
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Substandard [Member] | Commercial Real Estate Other [Member]
Loans receivable	7,410	7,187
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Doubtful [Member] | Real Estate Loan [Member]
Loans receivable	0	0
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Doubtful [Member] | Commercial Real Estate Other [Member]
Loans receivable	0	0
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member] | Real Estate Loan [Member]
Loans receivable	0	0
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Real Estate Other [Member]
Loans receivable	0	0
Commercial Real Estate Portfolio Segment [Member] | Unclassified [Member] | Real Estate Loan [Member]
Loans receivable	171,397	148,610
Commercial Real Estate Portfolio Segment [Member] | Unclassified [Member] | Commercial Real Estate Other [Member]
Loans receivable	136,159	136,848
Consumer Portfolio Segment [Member]
Loans receivable	74,984	73,283
Consumer Portfolio Segment [Member] | Classified [Member]
Loans receivable	925	940
Consumer Portfolio Segment [Member] | Classified [Member] | Special Mention [Member]
Loans receivable	0	0
Consumer Portfolio Segment [Member] | Classified [Member] | Substandard [Member]
Loans receivable	661	531
Consumer Portfolio Segment [Member] | Classified [Member] | Doubtful [Member]
Loans receivable	120	110
Consumer Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans receivable	144	299
Consumer Portfolio Segment [Member] | Unclassified [Member]
Loans receivable	74,059	72,343
Commercial Portfolio Segment [Member]
Loans receivable	80,308	85,176
Commercial Portfolio Segment [Member] | Transportation Industry Loans [Member]
Loans receivable	9,418	10,509
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Loans receivable	70,890	74,667
Commercial Portfolio Segment [Member] | Classified [Member] | Transportation Industry Loans [Member]
Loans receivable	1,128	4,065
Commercial Portfolio Segment [Member] | Classified [Member] | Commercial Business Other [Member]
Loans receivable	8,560	6,889
Commercial Portfolio Segment [Member] | Classified [Member] | Special Mention [Member] | Transportation Industry Loans [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Classified [Member] | Special Mention [Member] | Commercial Business Other [Member]
Loans receivable	5,547	3,973
Commercial Portfolio Segment [Member] | Classified [Member] | Substandard [Member] | Transportation Industry Loans [Member]
Loans receivable	1,128	4,065
Commercial Portfolio Segment [Member] | Classified [Member] | Substandard [Member] | Commercial Business Other [Member]
Loans receivable	3,013	2,916
Commercial Portfolio Segment [Member] | Classified [Member] | Doubtful [Member] | Transportation Industry Loans [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Classified [Member] | Doubtful [Member] | Commercial Business Other [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member] | Transportation Industry Loans [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Business Other [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Unclassified [Member] | Transportation Industry Loans [Member]
Loans receivable	8,290	6,444
Commercial Portfolio Segment [Member] | Unclassified [Member] | Commercial Business Other [Member]
Loans receivable	$ 62,330	$ 67,778

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Aging of Past Due Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Loans past due	$ 2,965	$ 1,707
Current loans	588,890	559,087
Loans receivable	591,855	560,794
Loans 90 days or more past due and still accruing	0	0
Residential Portfolio Segment [Member]
Loans past due	1,398	679
Current loans	105,914	102,576
Loans receivable	107,312	103,255
Loans 90 days or more past due and still accruing	0	0
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	329,251	299,080
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	471	0
Current loans	175,314	153,343
Loans receivable	175,785	153,343
Loans 90 days or more past due and still accruing	0	0
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans past due	0	0
Current loans	153,466	145,737
Loans receivable	153,466	145,737
Loans 90 days or more past due and still accruing	0	0
Consumer Portfolio Segment [Member]
Loans past due	868	669
Current loans	74,116	72,614
Loans receivable	74,984	73,283
Loans 90 days or more past due and still accruing	0	0
Commercial Portfolio Segment [Member]
Loans receivable	80,308	85,176
Commercial Portfolio Segment [Member] | Transportation Industry Loans [Member]
Loans past due	0	0
Current loans	9,418	10,509
Loans receivable	9,418	10,509
Loans 90 days or more past due and still accruing	0	0
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Loans past due	228	359
Current loans	70,662	74,308
Loans receivable	70,890	74,667
Loans 90 days or more past due and still accruing	0	0
Financing Receivables, 30 to 59 Days Past Due [Member]
Loans past due	1,475	839
Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member]
Loans past due	833	342
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	212	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans past due	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans past due	318	412
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Transportation Industry Loans [Member]
Loans past due	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Loans past due	112	85
Financing Receivables, 60 to 89 Days Past Due [Member]
Loans past due	881	275
Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member]
Loans past due	457	158
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans past due	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans past due	424	117
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Transportation Industry Loans [Member]
Loans past due	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Loans past due	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	609	593
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Portfolio Segment [Member]
Loans past due	108	179
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	259	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans past due	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans past due	126	140
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Transportation Industry Loans [Member]
Loans past due	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Loans past due	$ 116	$ 274

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Impaired Loans and Related Allowances (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Related allowance	$ 1,138		$ 1,138		$ 988
Recorded investment	4,665		4,665		4,570
Unpaid principal balance	7,222		7,222		7,047
Average recorded investment, with related allowance	496		428
Interest income recognized, with related allowance	6		19
Average recorded investment	4,749	$ 5,571	4,724	$ 5,621
Interest income recognized	64	108	145	359
Residential Portfolio Segment [Member]
Recorded investment, with no related allowance	381		381		217
Unpaid principal balance, with no related allowance	381		381		217
Recorded investment, with related allowance	660		660		890
Unpaid principal balance, with related allowance	660		660		890
Related allowance	130		130		235
Recorded investment	1,041		1,041		1,107
Unpaid principal balance	1,041		1,041		1,107
Average recorded investment, with no related allowance	453	336	414	654
Interest income recognized, with no related allowance	1	5	3	12
Average recorded investment, with related allowance	765	1,094	821	1,055
Interest income recognized, with related allowance	8	5	11	14
Average recorded investment	1,218	1,430	1,235	1,709
Interest income recognized	9	10	14	26
Commercial Real Estate Portfolio Segment [Member]
Related allowance	544		544		248
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Recorded investment, with no related allowance	37		37		40
Unpaid principal balance, with no related allowance	69		69		122
Recorded investment, with related allowance	258		258		0
Unpaid principal balance, with related allowance	258		258		0
Related allowance	50		50		0
Recorded investment	295		295		40
Unpaid principal balance	327		327		122
Average recorded investment, with no related allowance	38	46	39	45
Interest income recognized, with no related allowance	0	1	0	4
Average recorded investment, with related allowance	258		194
Interest income recognized, with related allowance	0		0
Average recorded investment	296	46	233	45
Interest income recognized	0	1	0	4
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Recorded investment, with no related allowance	25		25		26
Unpaid principal balance, with no related allowance	1,681		1,681		1,771
Recorded investment, with related allowance	1,835		1,835		1,814
Unpaid principal balance, with related allowance	1,835		1,835		1,814
Related allowance	494		494		248
Recorded investment	1,860		1,860		1,840
Unpaid principal balance	3,516		3,516		3,585
Average recorded investment, with no related allowance	26	26	26	26
Interest income recognized, with no related allowance	24	24	72	73
Average recorded investment, with related allowance	1,838		1,818
Interest income recognized, with related allowance	16		23
Average recorded investment	1,864		1,844
Interest income recognized	40		95
Commercial Real Estate Portfolio Segment [Member] | Commercial Business Other [Member]
Average recorded investment, with no related allowance		66		33
Interest income recognized, with no related allowance		0		0
Average recorded investment, with related allowance		467		437
Interest income recognized, with related allowance		16		62
Consumer Portfolio Segment [Member]
Recorded investment, with no related allowance	508		508		312
Unpaid principal balance, with no related allowance	508		508		312
Recorded investment, with related allowance	417		417		628
Unpaid principal balance, with related allowance	434		434		644
Related allowance	266		266		434
Recorded investment	925		925		940
Unpaid principal balance	942		942		956
Average recorded investment, with no related allowance	500	478	404	483
Interest income recognized, with no related allowance	5	1	9	3
Average recorded investment, with related allowance	375	547	455	534
Interest income recognized, with related allowance	4	2	8	8
Average recorded investment	875	1,025	859	1,017
Interest income recognized	9	3	17	11
Commercial Portfolio Segment [Member]
Related allowance	198		198		71
Commercial Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Average recorded investment, with related allowance		2,511		2,354
Interest income recognized, with related allowance		54		183
Average recorded investment		2,537		2,380
Interest income recognized		78		256
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Recorded investment, with no related allowance	0		0		274
Unpaid principal balance, with no related allowance	0		0		356
Recorded investment, with related allowance	544		544		369
Unpaid principal balance, with related allowance	1,396		1,396		921
Related allowance	198		198		71
Recorded investment	544		544		643
Unpaid principal balance	1,396		1,396		$ 1,277
Average recorded investment, with no related allowance	0		125
Interest income recognized, with no related allowance	0		0
Average recorded investment	496	533	553	470
Interest income recognized	$ 6	$ 16	$ 19	$ 62

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Non-accrual Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Non-accrual loans	$ 3,308	$ 3,273
Residential Portfolio Segment [Member]
Non-accrual loans	800	916
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Non-accrual loans	295	41
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Non-accrual loans	1,371	1,343
Consumer Portfolio Segment [Member]
Non-accrual loans	545	630
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Non-accrual loans	$ 297	$ 343

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Trouble Debt Restructuring (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Troubled debt restructurings	$ 3,638,000	$ 3,300,000
Performing Financial Instruments [Member]
Troubled debt restructurings	1,357,000	1,297,000
Nonperforming Financial Instruments [Member]
Troubled debt restructurings	2,281,000	2,003,000
Residential Portfolio Segment [Member]
Troubled debt restructurings	696,000	448,000
Residential Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	241,000	191,000
Residential Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	455,000	257,000
Commercial Real Estate Portfolio Segment [Member]
Troubled debt restructurings	1,716,000	1,774,000
Commercial Real Estate Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	489,000	497,000
Commercial Real Estate Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	1,227,000	1,277,000
Consumer Portfolio Segment [Member]
Troubled debt restructurings	798,000	709,000
Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	380,000	309,000
Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	418,000	400,000
Commercial Portfolio Segment [Member]
Troubled debt restructurings	428,000	369,000
Commercial Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	247,000	300,000
Commercial Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	$ 181,000	$ 69,000

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Financial Effects of Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)
Number of Contracts	7	7	17	19
Pre- modification Outstanding Recorded Investment	$ 520	$ 1,730	$ 1,160	$ 1,937
Post- modification Outstanding Recorded Investment	$ 221	$ 1,687	$ 1,095	$ 1,894
Residential Portfolio Segment [Member]
Number of Contracts	0	1	3	2
Pre- modification Outstanding Recorded Investment	$ 0	$ 126	$ 282	$ 191
Post- modification Outstanding Recorded Investment	$ 0	$ 139	$ 514	$ 203
Commercial Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Number of Contracts	0	1	0	1
Pre- modification Outstanding Recorded Investment	$ 0	$ 1,274	$ 0	$ 1,274
Post- modification Outstanding Recorded Investment	$ 0	$ 1,274	$ 0	$ 1,274
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Number of Contracts	1	2	1	2
Pre- modification Outstanding Recorded Investment	$ 416	$ 257	$ 416	$ 257
Post- modification Outstanding Recorded Investment	$ 116	$ 201	$ 116	$ 201
Consumer Portfolio Segment [Member]
Number of Contracts	6	3	13	14
Pre- modification Outstanding Recorded Investment	$ 104	$ 73	$ 462	$ 215
Post- modification Outstanding Recorded Investment	$ 105	$ 73	$ 465	$ 216

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Troubled Debt Restructurings Subsequently Defaulted (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)
Number of Contracts that subsequently defaulted	0	3	2	5
Outstanding Recorded Investment		$ 6	$ 60	$ 233
Residential Portfolio Segment [Member]
Number of Contracts that subsequently defaulted			2
Outstanding Recorded Investment			$ 60
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Number of Contracts that subsequently defaulted		0		1
Outstanding Recorded Investment		$ 0		$ 183
Consumer Portfolio Segment [Member]
Number of Contracts that subsequently defaulted		3		3
Outstanding Recorded Investment		$ 6		$ 6
Commercial Portfolio Segment [Member] | Commercial Business Other [Member]
Number of Contracts that subsequently defaulted		0		1
Outstanding Recorded Investment		$ 0		$ 44

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Loans Acquired Through Acquisitions (Details)	3 Months Ended
	Sep. 30, 2017 USD ($)
Carrying amount	$ 300,000
Purchased Performing Loans [Member]
Contractual principle receivable	13,267,000
Contractual principle receivable, change due to payments/refinances	(1,421,000)
Contractual principle receivable	11,846,000
Accretable difference	(275,000)
Accretable difference, change due to payments/refinances	14,000
Accretable difference	(261,000)
Carrying amount	12,992,000
Carrying amount, change due to payments/refinances	(1,407,000)
Carrying amount	11,585,000
Purchased Credit Impaired Loans [Member]
Contractual principle receivable	386,000
Contractual principle receivable, change due to payments/refinances	(23,000)
Contractual principle receivable	363,000
Non-accretable difference	(45,000)
Non-accretable difference, change due to payments/refinances	3,000
Non-accretable difference	(42,000)
Carrying amount	341,000
Carrying amount, change due to payments/refinances	(20,000)
Carrying amount	$ 321,000

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Note 10 - Intangible Assets (Details Textual) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Amortization of Intangible Assets	$ 0.5	$ 0.5

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Note 10 - Intangible Assets - Mortgage Servicing Activity (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Balance, beginning of period	$ 1,604	$ 1,499	$ 1,499
Originations	461	475	706
Amortization	(411)	(437)	(601)
Balance, end of period	1,654	1,537	1,604
Fair value of mortgage servicing rights	$ 3,003	$ 2,426	$ 2,952

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Note 10 - Intangible Assets - Risk Characteristics of Loans Being Serviced (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Original Term Thirty Year Fixed Rate [Member]
Loan principal balance	$ 256,068
Weighted average interest rate	4.08%
Weighted average remaining term (Month)	25 years 150 days
Number of loans	2,062
Original Term Fifteen Year Fixed Rate [Member]
Loan principal balance	$ 103,089
Weighted average interest rate	3.10%
Weighted average remaining term (Month)	11 years 120 days
Number of loans	1,111
Adjustable Rate [Member]
Loan principal balance	$ 56
Weighted average interest rate	3.25%
Weighted average remaining term (Month)	23 years 240 days
Number of loans	2

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Note 10 - Intangible Assets - Gross Carrying Amount and Accumulated Amortization (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Finite-lived intangible assets, gross carrying amount			$ 5,227
Finite-lived intangible assets, accumulated amortization	$ (2,682)		(2,410)
Finite-lived intangible assets, unamortized intangible assets	2,033		2,817
Goodwill	802		802
Goodwill	0		0
Goodwill	802	$ 802	802
Intangible assets (including goodwill), gross carrying amount	5,517
Intangible assets, unamortized intangible assets	2,835
Goodwill	0		0
Mortgage Servicing Rights [Member]
Finite-lived intangible assets, gross carrying amount	4,141		3,851
Finite-lived intangible assets, accumulated amortization	(2,487)		(2,314)
Finite-lived intangible assets, unamortized intangible assets	1,654		1,537
Core Deposits [Member]
Finite-lived intangible assets, gross carrying amount	574		574
Finite-lived intangible assets, accumulated amortization	(195)		(96)
Finite-lived intangible assets, unamortized intangible assets	$ 379		$ 478

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Note 10 - Intangible Assets - Estimated Future Amortization Expense (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Sep. 30, 2016
2017	$ 143
2018	505
2019	452
2020	376
2021	274
Thereafter	283
Total	2,033	$ 2,817
Mortgage Servicing Rights [Member]
2017	118
2018	406
2019	353
2020	277
2021	227
Thereafter	273
Total	1,654	1,537
Core Deposits [Member]
2017	25
2018	99
2019	99
2020	99
2021	47
Thereafter	10
Total	$ 379	$ 478

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Note 11 - Earnings Per Common Share - Basic and Diluted Earnings (Loss) Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Weighted average number of common shares outstanding used in basic earnings per share calculation (in shares)	4,220	4,186	4,212	4,176
Restricted stock awards, options, and warrants (in shares)	650	586	651	552
Weighted average number of shares outstanding adjusted for effect of dilutive securities (in shares)	4,870	4,772	4,863	4,728
Income available to common shareholders	$ 1,780	$ 1,414	$ 4,017	$ 4,666
Basic earnings per common share (in dollars per share)	$ 0.42	$ 0.34	$ 0.95	$ 1.12
Diluted earnings per common share (in dollars per share)	$ 0.37	$ 0.30	$ 0.83	$ 0.99

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Note 12 - Regulatory Capital and Oversight (Details Textual) - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2019
Banks Tangible Assets	$ 710.3
Adjusted Assets	709.1
Risk Weighted Assets	$ 604.9
Capital Conservation Buffer	1.25%
Scenario, Forecast [Member]
Capital Conservation Buffer		2.50%

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Note 12 - Regulatory Capital and Oversight - Capital Amounts and Ratios (Details) $ in Thousands	Sep. 30, 2017 USD ($)
Common equity tier 1 capital, actual amount	$ 76,306
Common equity tier 1 capital, actual percent of asset	12.62%
Common equity tier 1 capital, amount required to be adequately capitalized	$ 27,219
Common equity tier 1 capital, percent of assets required to be adequately capitalized	4.50%
Common equity tier 1 capital, excess capital amount	$ 49,086
Common equity tier 1 capital, excess capital percent of assets	8.12%
Common equity tier 1 capital, amount to be well capitalized under prompt corrective action provisions	$ 39,317
Common equity tier 1 capital, percent of assets to be well capitalized under prompt corrective action provisions	6.50%
Tier 1 capital leverage, actual amount	$ 76,306
Tier 1 capital leverage, actual percent of asset	10.76%
Tier 1 capital leverage, amount required to be adequately capitalized	$ 28,365
Tier 1 capital leverage, percent of assets required to be adequately capitalized	4.00%
Tier 1 capital leverage, excess capital amount	$ 47,941
Tier 1 capital leverage, excess capital percent of assets	6.76%
Tier 1 capital leverage, amount to be well capitalized under prompt corrective action provisions	$ 35,456
Tier 1 capital leverage, percent of assets to be well capitalized under prompt corrective action provisions	5.00%
Tier 1 risk-based capital, actual amount	$ 76,306
Tier 1 risk-based capital, actual percent of asset	12.62%
Tier 1 risk-based capital, amount required to be adequately capitalized	$ 36,293
Tier 1 risk-based capital, percent of assets required to be adequately capitalized	6.00%
Tier 1 risk-based capital, excess capital amount	$ 40,014
Tier 1 risk-based capital, excess capital percent of assets	6.62%
Tier 1 risk-based capital, amount to be well capitalized under prompt corrective action provisions	$ 48,390
Tier 1 risk-based capital, percent of assets to be well capitalized under prompt corrective action provisions	8.00%
Total risk-based capital, actual amount	$ 83,889
Total risk-based capital, actual percent of asset	13.87%
Total risk-based capital, amount required to be adequately capitalized	$ 48,390
Total risk-based capital, percent of assets required to be adequately capitalized	8.00%
Total risk-based capital, excess capital amount	$ 35,499
Total risk-based capital, excess capital percent of assets	5.87%
Total risk-based capital, amount to be well capitalized under prompt corrective action provisions	$ 60,488
Total risk-based capital, percent of assets to be well capitalized under prompt corrective action provisions	10.00%

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Note 13 - Stockholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Millions	May 21, 2015	Feb. 17, 2015	Dec. 23, 2008	Sep. 30, 2017	Dec. 31, 2016
Preferred Stock, Shares Authorized				500,000	500,000
Preferred Stock, Shares Issued			26,000	0	0
Preferred Stock, Dividend Rate, Per-Dollar-Amount			$ 1,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			833,333
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 4.68		$ 4.68
Proceeds from Issuance of Warrants	$ 5.7
Two Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	277,777.67
One Investor [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	277,777.66
Preferred Stock [Member]
Stock Redeemed or Called During Period, Shares		10,000

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Note 14 - Other Borrowings (Details Textual) - USD ($) $ in Thousands	Aug. 21, 2017	Sep. 30, 2017	Dec. 31, 2016	Dec. 15, 2016	Dec. 15, 2015	Dec. 15, 2014
Other Borrowings		$ 0	$ 7,000			$ 10,000
Other Borrowings [Member]
Debt Instrument, Interest Rate, Stated Percentage						6.50%
Debt Instrument, Annual Principal Payment				$ 2,000	$ 1,000	$ 1,000
Repayments of Long-term Debt	$ 7,000

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Note 15 - Commitments and Contingencies (Details Textual) $ in Millions	9 Months Ended
	Sep. 30, 2017 USD ($)
Letters of Credit Issued and Available Amount	$ 2.5
Standby Letters of Credit [Member]
Line of Credit Facility, Expiration Period	3 years

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Note 16 - Business Segments - Profit and Assets for the Reportable Segments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Interest income - external customers	$ 7,255	$ 6,954	$ 20,913	$ 20,638
Non-interest income - external customers	1,909	2,147	5,695	6,004
Intersegment non-interest income	0	0	0	0
Interest expense	493	404	1,362	1,173
Other non-interest expense	6,259	6,201	19,045	17,925
Income tax expense	1,213	1,002	2,766	3,149
Net income	1,780	1,414	4,017	4,666
Total assets	716,610	685,667	716,610	685,667	$ 682,023
Consolidation, Eliminations [Member]
Interest income - external customers	0	0	0	0
Non-interest income - external customers	0	0	0	0
Intersegment non-interest income	(2,013)	(1,771)	(4,754)	(5,520)
Interest expense	0	0	0	0
Other non-interest expense	(53)	(53)	(158)	(158)
Income tax expense	0	0	0	0
Net income	(1,960)	(1,718)	(4,596)	(5,362)
Total assets	(78,733)	(82,538)	(78,733)	(82,538)
Home Federal Savings Bank [Member] | Operating Segments [Member]
Interest income - external customers	7,255	6,954	20,913	20,638
Non-interest income - external customers	1,909	2,147	5,695	6,004
Intersegment non-interest income	53	53	158	158
Interest expense	416	255	1,056	728
Other non-interest expense	6,124	6,049	18,653	17,510
Income tax expense	1,298	1,052	3,043	3,471
Net income	1,960	1,718	4,596	5,362
Total assets	715,827	684,635	715,827	684,635
Other Segments [Member] | Operating Segments [Member]
Interest income - external customers	0	0	0	0
Non-interest income - external customers	0	0	0	0
Intersegment non-interest income	1,960	1,718	4,596	5,362
Interest expense	77	149	306	445
Other non-interest expense	188	205	550	573
Income tax expense	(85)	(50)	(277)	(322)
Net income	1,780	1,414	4,017	4,666
Total assets	$ 79,516	$ 83,570	$ 79,516	$ 83,570