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 June 30, 2018

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission 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 NW, 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 checkmark 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 July 27, 2018
Common stock, $0.01 par value	4,609,440

1

HMN FINANCIAL, INC.

CONTENTS

PART I – FINANCIAL INFORMATION
		Page
Item 1:	Financial Statements	3
	Consolidated Balance Sheets at June 30, 2018 and December 31, 2017	3
	Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2018 and 2017	4
	Consolidated Statement of Stockholders' Equity for the Six-Month Period Ended June 30, 2018	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	6
	Notes to Consolidated Financial Statements	7
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4:	Controls and Procedures	35
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	36
Item 1A:	Risk Factors	36
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3:	Defaults Upon Senior Securities	36
Item 4:	Mine Safety Disclosures	36
Item 5:	Other Information	36
Item 6:	Exhibits	37
Signatures		38

2

Part I – FINANCIAL INFORMATION

Item 1: Financial Statements

 HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	June 30,			December 31,
(Dollars in thousands)	2018			2017
	(unaudited)
Assets
Cash and cash equivalents	$	31,710			37,564
Securities available for sale:
Mortgage-backed and related securities (amortized cost $9,145 and $5,148)		8,895			5,068
Other marketable securities (amortized cost $73,433 and $73,653)		71,630			72,404
		80,525			77,472
Loans held for sale		3,624			1,837
Loans receivable, net		589,855			585,931
Accrued interest receivable		2,330			2,344
Real estate, net		701			627
Federal Home Loan Bank stock, at cost		867			817
Mortgage servicing rights, net		1,813			1,724
Premises and equipment, net		8,446			8,226
Goodwill		802			802
Core deposit intangible		305			355
Prepaid expenses and other assets		1,432			1,314
Deferred tax asset, net		3,875			3,672
Total assets	$	726,285			722,685
Liabilities and Stockholders’ Equity
Deposits	$	639,535			635,601
Accrued interest payable		264			146
Customer escrows		1,268			1,147
Accrued expenses and other liabilities		3,393			4,973
Total liabilities		644,460			641,867
Commitments and contingencies
Stockholders’ equity:
Serial-preferred stock: ($.01 par value) authorized shares 500,000; issued shares 0		0			0
Common stock ($.01 par value): authorized shares 16,000,000; issued shares 9,128,662		91			91
Additional paid-in capital		46,950			50,623
Retained earnings, subject to certain restrictions		94,690			91,448
Accumulated other comprehensive loss		(1,479	)		(957	)
Unearned employee stock ownership plan shares		(1,933	)		(2,030	)
Treasury stock, at cost 4,519,222 and 4,631,124 shares		(56,494	)		(58,357	)
Total stockholders’ equity		81,825			80,818
Total liabilities and stockholders’ equity	$	726,285			722,685

See accompanying notes to consolidated financial statements.

3

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Dollars in thousands, except per share data)	2018			2017		2018			2017
Interest income:
Loans receivable	$	7,006			6,701		13,784			13,061
Securities available for sale:
Mortgage-backed and related		54			5		96			12
Other marketable		285			283		557			551
Other		111			10		177			34
Total interest income		7,456			6,999		14,614			13,658
Interest expense:
Deposits		526			329		994			622
Federal Home Loan Bank advances and other borrowings		0			132		2			247
Total interest expense		526			461		996			869
Net interest income		6,930			6,538		13,618			12,789
Provision for loan losses		295			269		170			(1	)
Net interest income after provision for loan losses		6,635			6,269		13,448			12,790
Non-interest income:
Fees and service charges		785			845		1,551			1,669
Loan servicing fees		297			306		598			607
Gain on sales of loans		679			488		1,123			1,007
Other		293			267		558			503
Total non-interest income		2,054			1,906		3,830			3,786
Non-interest expense:
Compensation and benefits		3,678			3,780		7,502			7,724
Occupancy and equipment		1,072			1,026		2,169			2,065
Data processing		334			260		629			552
Professional services		298			417		547			676
Other		931			956		2,020			1,769
Total non-interest expense		6,313			6,439		12,867			12,786
Income before income tax expense		2,376			1,736		4,411			3,790
Income tax expense		649			712		1,239			1,553
Net income		1,727			1,024		3,172			2,237
Other comprehensive (loss) income, net of tax		(105	)		173		(452	)		361
Comprehensive income available to common shareholders	$	1,622			1,197		2,720			2,598
Basic earnings per share	$	0.40			0.24		0.74			0.53
Diluted earnings per share	$	0.36			0.21		0.66			0.46

See accompanying notes to consolidated financial statements.

4

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

For the Six-Month Period Ended June 30, 2018

(unaudited)

											Unearned
											Employee
								Accumulated			Stock
			Additional					Other			Ownership						Total
	Common		Paid-In			Retained		Comprehensive			Plan			Treasury			Stockholders’
(Dollars in thousands)	Stock		Capital			Earnings		(Loss)			Shares			Stock			Equity
Balance, December 31, 2017	$	91		50,623			91,448		(957	)		(2,030	)		(58,357	)		80,818
Net income							3,172											3,172
Accounts reclassified from accumulated other comprehensive loss							70		(70	)								0
Other comprehensive loss									(452	)								(452	)
Stock warrants purchased				(1,989	)													(1,989	)
Stock warrants exercised				(1,674	)										1,674			0
Stock compensation expense				8														8
Restricted stock awards				(189	)										189			0
Amortization of restricted stock awards				73														73
Earned employee stock ownership plan shares				98								97						195
Balance, June 30, 2018	$	91		46,950			94,690		(1,479	)		(1,933	)		(56,494	)		81,825

See accompanying notes to consolidated financial statements.

5

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended June 30,
(Dollars in thousands)	2018			2017
Cash flows from operating activities:
Net income	$	3,172			2,237
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		170			(1	)
Depreciation		528			464
Amortization of premiums, net		24			0
Amortization of deferred loan costs (fees)		15			(125	)
Amortization of core deposit intangible		50			50
Amortization of other purchased fair value adjustments		(23	)		(55	)
Amortization of mortgage servicing rights		268			269
Capitalized mortgage servicing rights		(357	)		(320	)
Securities gains, net		(22	)		0
Gain on sale of premises and equipment		0			(8	)
Gain on sales of real estate		0			(7	)
Gain on sales of loans		(1,123	)		(1,007	)
Proceeds from sale of loans held for sale		46,097			43,490
Disbursements on loans held for sale		(39,120	)		(36,046	)
Amortization of restricted stock awards		73			71
Amortization of unearned Employee Stock Ownership Plan shares		97			96
Earned Employee Stock Ownership Plan shares priced above original cost		98			72
Stock option compensation expense		8			21
Decrease in accrued interest receivable		14			18
Increase (decrease) in accrued interest payable		118			(23	)
(Increase) decrease in other assets		(73	)		233
Decrease in other liabilities		(1,625	)		(1,103	)
Other, net		(3	)		46
Net cash provided by operating activities		8,386			8,372
Cash flows from investing activities:
Principal collected on securities available for sale		893			416
Proceeds collected on maturities of securities available for sale		310			5,000
Purchases of securities available for sale		(4,888	)		(4,999	)
Purchase of Federal Home Loan Bank Stock		(322	)		(3,255	)
Redemption of Federal Home Loan Bank Stock		272			3,208
Proceeds from sales of real estate		0			42
Net increase in loans receivable		(11,825	)		(45,415	)
Proceeds from sale of premises and equipment		0			8
Purchases of premises and equipment		(746	)		(498	)
Net cash used by investing activities		(16,306	)		(45,493	)
Cash flows from financing activities:
Increase in deposits		3,934			41,294
Warrants purchased		(1,989	)		0
Stock awards withheld for tax withholding		0			(54	)
Proceeds from borrowings		6,800			80,600
Repayment of borrowings		(6,800	)		(80,600	)
Increase in customer escrows		121			212
Net cash provided by financing activities		2,066			41,452
(Decrease) increase in cash and cash equivalents		(5,854	)		4,331
Cash and cash equivalents, beginning of period		37,564			27,561
Cash and cash equivalents, end of period	$	31,710			31,892
Supplemental cash flow disclosures:
Cash paid for interest	$	878			892
Cash paid for income taxes		2,852			1,766
Supplemental noncash flow disclosures:
Loans transferred to loans held for sale		7,670			6,641
Loans held for sale transferred to loans		0			164
Transfer of loans to real estate		74			40

See accompanying notes to consolidated financial statements.

6

HMN FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

(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 six-month period ended June 30, 2018 are not necessarily indicative of the results which may be expected for the entire year.

(3)  New Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 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 filers with the Securities and Exchange Commission, 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 has accumulated the charge off information necessary to calculate the appropriate life of loan loss percentages for the various loan categories, has identified several key metrics to help identify and project anticipated changes in the credit quality of our loan portfolio upon enactment, and is 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.

7

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 price 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.

(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 June 30, 2018 and December 31, 2017.

	Carrying value at June 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	80,525		0		80,525		0
Mortgage loan commitments		74		0		74		0
Total	$	80,599		0		80,599		0

8

	Carrying value at December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	77,472		0		77,472		0
Mortgage loan commitments		28		0		28		0
Total	$	77,500		0		77,500		0

There were no transfers between Levels 1, 2, or 3 during the three or six month periods ended June 30, 2018.

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 that were held at December 31, 2017 and at June 30, 2018, 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 June 30, 2018 and December 31, 2017.

	Carrying value at June 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Three months ended June 30, 2018 total gains (losses)			Six months ended June 30, 2018 total gains (losses)
Loans held for sale	$	3,624		0		3,624		0		16			17
Mortgage servicing rights		1,813		0		1,813		0		0			0
Loans (1)		3,181		0		3,181		0		(29	)		(80	)
Real estate, net (2)		701		0		701		0		0			0
Total	$	9,319		0		9,319		0		(13	)		(63	)

	Carrying value at December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Year ended December 31, 2017 total gains (losses)
Loans held for sale	$	1,837		0		1,837		0		1
Mortgage servicing rights, net		1,724		0		1,724		0		0
Loans(1)		3,201		0		3,201		0		(413	)
Real estate, net(2)		627		0		627		0		0
Total	$	7,389		0		7,389		0		(412	)

⁽¹⁾     Represents carrying value and related write-downs of 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.

9

(5)  Fair Value of Financial Instruments

Generally accepted accounting principles require 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 June 30, 2018 and December 31, 2017. 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 June 30, 2018 and December 31, 2017 are shown in the following table.

	June 30, 2018													December 31, 2017
							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	$	31,710			31,710			31,710							37,564			37,564			37,564
Securities available for sale		80,525			80,525					80,525					77,472			77,472					77,472
Loans held for sale		3,624			3,624					3,624					1,837			1,837					1,837
Loans receivable, net		589,855			588,794					588,794					585,931			585,494					585,494
Federal Home Loan Bank stock		867			867					867					817			817					817
Accrued interest receivable		2,330			2,330					2,330					2,344			2,344					2,344
Financial liabilities:
Deposits		639,535			633,844					633,844					635,601			635,905					635,905
Accrued interest payable		264			264					264					146			146					146
Off-balance sheet financial instruments:
Commitments to extend credit		74			74								242,267		28			28								173,645
Commitments to sell loans		(28	)		(28	)							11,321		(11	)		(11	)							5,629

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. The fair value disclosures for both the fixed and adjustable rate portfolios were adjusted to reflect the exit price amount anticipated to be received from the sale of the portfolio in an open market transaction as required upon adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities beginning in the first quarter of 2018.

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 disclosures for all of the deposits were adjusted to reflect the exit price amount anticipated to be received from the sale of the deposits in an open market transaction as required upon adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities beginning in the first quarter of 2018.

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.

10

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 counter parties.

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 (loss) 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 (loss), which for the Company is comprised of unrealized gains and losses on securities available for sale. The components of other comprehensive income (loss) and the related tax effects were as follows:

	For the three months ended June 30,
(Dollars in thousands)	2018									2017
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax
Net unrealized (losses) gains arising during the period	$	(146	)		(41	)		(105	)		286		113		173
Other comprehensive income (loss)	$	(146	)		(41	)		(105	)		286		113		173

	For the six months ended June 30,
(Dollars in thousands)	2018									2017
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax
Net unrealized (losses) gains arising during the period	$	(625	)		(175	)		(452	)		599		238		361
Other comprehensive income (loss)	$	(625	)		(175	)		(452	)		599		238		361

(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 June 30, 2018 and December 31, 2017.

	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
June 30, 2018
Mortgage-backed securities:
Federal National Mortgage Association (FNMA)		2	$	4,201		(168	)		0	$	0		0		$	4,201		(168	)
Federal Home Loan Mortgage Corporation (FHLMC)		1		4,468		(72	)		0		0		0			4,468		(72	)
Collateralized mortgage obligations:
FNMA		1		202		(10	)		0		0		0			202		(10	)
Other marketable securities:
U.S. Government agency obligations		2		9,678		(306	)		12		58,606		(1,377	)		68,284		(1,683	)
Municipal obligations		13		2,272		(11	)		0		0		0			2,272		(11	)
Corporate obligations		1		200		(4	)		0		0		0			200		(4	)
Corporate preferred stock		0		0		0			1		595		(105	)		595		(105	)
Total temporarily impaired securities		20	$	21,021		(571	)		13	$	59,201		(1,482	)	$	80,222		(2,053	)

11

	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, 2017
Mortgage-backed securities:
FNMA		2	$	4,703		(78	)		0	$	0		0		$	4,703		(78	)
Collateralized mortgage obligations:
FNMA		1		218		(5	)		0		0		0			218		(5	)
Other marketable securities:
U.S. Government agency obligations		2		9,819		(163	)		12		58,942		(1,038	)		68,761		(1,201	)
Municipal obligations		14		2,268		(8	)		0		0		0			2,268		(8	)
Corporate obligations		1		233		(1	)		0		0		0			233		(1	)
Corporate preferred stock		0		0		0			1		560		(140	)		560		(140	)
Total temporarily impaired securities		20	$	17,241		(255	)		13	$	59,502		(1,178	)	$	76,743		(1,433	)

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 on U.S. Government agency obligations are the result of changes in interest rates. The unrealized losses reported for the corporate preferred stock at June 30, 2018 relates to a single trust preferred security that was issued by the holding company of a small community bank. As of June 30, 2018 all 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 June 30, 2018. The Company does not intend to sell the preferred stock and has the intent and 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 security 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 sale at June 30, 2018 and December 31, 2017 is as follows:

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
June 30, 2018
Mortgage-backed securities:
FHLMC	$	4,564		0		(72	)		4,492
FNMA		4,369		0		(168	)		4,201
Collateralized mortgage obligations:
FNMA		212		0		(10	)		202
		9,145		0		(250	)		8,895
Other marketable securities:
U.S. Government agency obligations		69,967		0		(1,683	)		68,284
Municipal obligations		2,383		0		(11	)		2,372
Corporate obligations		204		0		(4	)		200
Corporate preferred stock		700		0		(105	)		595
Corporate equity		179		0		0			179
		73,433		0		(1,803	)		71,630
	$	82,578		0		(2,053	)		80,525

12

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2017
Mortgage-backed securities:
FHLMC	$	91		2		0			93
FNMA		4,834		1		(78	)		4,757
Collateralized mortgage obligations:
FNMA		223		0		(5	)		218
		5,148		3		(83	)		5,068
Other marketable securities:
U.S. Government agency obligations		69,962		0		(1,201	)		68,761
Municipal obligations		2,699		2		(8	)		2,693
Corporate obligations		234		0		(1	)		233
Corporate preferred stock		700		0		(140	)		560
Corporate equity		58		99		0			157
		73,653		101		(1,350	)		72,404
	$	78,801		104		(1,433	)		77,472

The following table indicates amortized cost and estimated fair value of securities available for sale at June 30, 2018 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	$	1,921		1,878
Due after one year through five years		76,660		74,842
Due after five years through ten years		3,036		2,953
Due after ten years		782		673
No stated maturity		179		179
Total	$	82,578		80,525

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 that it is anticipated that the security will be called, or to the maturity date if it is not anticipated to be called.

(8)  Loans Receivable, Net

A summary of loans receivable at June 30, 2018 and December 31, 2017 is as follows:

(Dollars in thousands)	June 30, 2018			December 31, 2017
Single family	$	107,203			107,005
Commercial real estate:
Real estate rental and leasing		188,751			175,177
Other		149,409			158,940
		338,160			334,117
Consumer		72,290			73,767
Commercial business		81,130			79,909
Total loans		598,783			594,798
Less:
Unamortized discounts		20			19
Net deferred loan costs		(420	)		(463	)
Allowance for loan losses		9,328			9,311
Total loans receivable, net	$	589,855			585,931

13

(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 June 30, 2018:
Balance, March 31, 2018	$	809			5,198			1,423			1,699			9,129
Provision for losses		72			(147	)		254			116			295
Charge-offs		0			0			(56	)		(255	)		(311	)
Recoveries		0			191			2			22			215
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
For the six months ended June 30, 2018:
Balance, December 31, 2017	$	900			5,073			1,630			1,708			9,311
Provision for losses		4			(29	)		109			86			170
Charge-offs		(23	)		0			(125	)		(255	)		(403	)
Recoveries		0			198			9			43			250
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
Allocated to:
Specific allowance	$	192			441			263			177			1,073
General allowance		708			4,632			1,367			1,531			8,238
Balance, December 31, 2017	$	900			5,073			1,630			1,708			9,311
Allocated to:
Specific allowance	$	110			437			173			74			794
General allowance		771			4,805			1,450			1,508			8,534
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
Loans receivable at December 31, 2017:
Individually reviewed for impairment	$	1,523			1,364			880			507			4,274
Collectively reviewed for impairment		105,482			332,753			72,887			79,402			590,524
Ending balance	$	107,005			334,117			73,767			79,909			594,798
Loans receivable at June 30, 2018:
Individually reviewed for impairment	$	1,294			1,432			984			265			3,975
Collectively reviewed for impairment		105,909			336,728			71,306			80,865			594,808
Ending balance	$	107,203			338,160			72,290			81,130			598,783

(Dollars in thousands)	Single Family			Commercial Real Estate		Consumer			Commercial Business			Total
For the three months ended June 30, 2017:
Balance, March 31, 2017	$	1,110			4,958		1,332			2,190			9,590
Provision for losses		(106	)		452		224			(301	)		269
Charge-offs		0			0		(17	)		0			(17	)
Recoveries		0			80		5			118			203
Balance, June 30, 2017	$	1,004			5,490		1,544			2,007			10,045
For the six months ended June 30, 2017:
Balance, December 31, 2016	$	1,186			4,953		1,613			2,151			9,903
Provision for losses		(182	)		363		116			(298	)		(1	)
Charge-offs		0			0		(218	)		0			(218	)
Recoveries		0			174		33			154			361
Balance, June 30, 2017	$	1,004			5,490		1,544			2,007			10,045

14

The following table summarizes the amount of classified and unclassified loans at June 30, 2018 and December 31, 2017:

	June 30, 2018
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	108		2,061		43		0		2,212		104,991		107,203
Commercial real estate:
Real estate rental and leasing		7,031		5,095		0		0		12,126		176,625		188,751
Other		1,768		8,751		0		0		10,519		138,890		149,409
Consumer		0		828		51		105		984		71,306		72,290
Commercial business		8,350		4,364		0		0		12,714		68,416		81,130
	$	17,257		21,099		94		105		38,555		560,228		598,783

	December 31, 2017
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	77		2,154		44		0		2,275		104,730		107,005
Commercial real estate:
Real estate rental and leasing		5,022		3,813		0		0		8,835		166,342		175,177
Other		9,135		4,257		0		0		13,392		145,548		158,940
Consumer		0		631		119		130		880		72,887		73,767
Commercial business		5,781		5,506		0		0		11,287		68,622		79,909
	$	20,015		16,361		163		130		36,669		558,129		594,798

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.

15

The aging of past due loans at June 30, 2018 and December 31, 2017 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
June 30, 2018
Single family	$	380		455		82		917		106,286		107,203		0
Commercial real estate:
Real estate rental and leasing		459		0		0		459		188,292		188,751		0
Other		0		0		22		22		149,387		149,409		0
Consumer		245		136		278		659		71,631		72,290		0
Commercial business		25		0		0		25		81,105		81,130
	$	1,109		591		382		2,082		596,701		598,783		0
December 31, 2017
Single family	$	727		294		669		1,690		105,315		107,005		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		175,177		175,177		0
Other		0		0		0		0		158,940		158,940		0
Consumer		734		117		235		1,086		72,681		73,767		0
Commercial business		34		0		180		214		79,695		79,909		0
	$	1,495		411		1,084		2,990		591,808		594,798		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 June 30, 2018 and December 31, 2017:

	June 30, 2018						December 31, 2017
(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	$	416		416		0		415		415		0
Commercial real estate:
Real estate rental and leasing		34		34		0		35		51		0
Other		165		1,821		0		25		1,682		0
Consumer		607		607		0		414		414		0
Loans with an allowance recorded:
Single family		878		878		110		1,108		1,108		192
Commercial real estate:
Other		1,233		1,233		437		1,304		1,304		441
Consumer		377		393		173		466		483		263
Commercial business		265		817		74		507		1,358		177
Total:
Single family		1,294		1,294		110		1,523		1,523		192
Commercial real estate:
Real estate rental and leasing		34		34		0		35		51		0
Other		1,398		3,054		437		1,329		2,986		441
Consumer		984		1,000		173		880		897		263
Commercial business		265		817		74		507		1,358		177
	$	3,975		6,199		794		4,274		6,815		1,073

16

The following table summarizes the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2018 and 2017:

	For the three months ended June 30, 2018				For the six months ended June 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	425		4		421		10
Commercial real estate:
Real estate rental and leasing		35		15		35		15
Other		165		24		118		48
Consumer		506		4		475		9
Loans with an allowance recorded:
Single family		809		0		908		0
Commercial real estate:
Other		1,279		0		1,287		0
Consumer		416		2		433		5
Commercial business		373		2		417		4
Total:
Single family		1,234		4		1,329		10
Commercial real estate:
Real estate rental and leasing		35		15		35		15
Other		1,444		24		1,405		48
Consumer		922		6		908		14
Commercial business		373		2		417		4
	$	4,008		51		4,094		91

	For the three months ended June 30, 2017				For the six months ended June 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	$	529		3		425		6
Commercial real estate:
Real estate rental and leasing		39		0		39		0
Other		26		24		26		48
Consumer		398		3		369		7
Commercial business		113		0		167		0
Loans with an allowance recorded:
Single family		867		4		874		6
Commercial real estate:
Real estate rental and leasing		259		0		172		0
Other		1,812		7		1,812		15
Consumer		388		2		468		3
Commercial business		399		3		389		8
Total:
Single family		1,396		7		1,299		12
Commercial real estate:
Real estate rental and leasing		298		0		211		0
Other		1,838		31		1,838		63
Consumer		786		5		837		10
Commercial business		512		3		556		8
	$	4,830		46		4,741		93

At June 30, 2018 and December 31, 2017, non-accruing loans totaled $3.0 million and $3.1 million, respectively, for which the related allowance for loan losses was $0.7 million and $0.9 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 $0.6 million and $0.4 million at June 30, 2018 and December 31, 2017, respectively. Non-accrual loans also include certain loans that have had terms modified in a TDR.

17

The non-accrual loans at June 30, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	June 30, 2018		December 31, 2017
Single family	$	960		949
Commercial real estate:
Real estate rental and leasing		34		35
Other		1,398		1,329
Consumer		551		553
Commercial business		73		278
	$	3,016		3,144

At June 30, 2018 and December 31, 2017 there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling $2.6 million and $3.0 million, respectively. For the loans that were restructured in the second quarter of 2018, $0.2 million were classified but performing and $26,000 were non-performing at June 30, 2018. For the loans that were restructured in the second quarter of 2017, $0.1 million were classified but performing and $0.2 million were non-performing at June 30, 2017.

The following table summarizes TDRs at June 30, 2018 and December 31, 2017:

	June 30, 2018						December 31, 2017
(Dollars in thousands)	Accruing		Non- Accrual		Total		Accruing		Non- Accrual		Total
Single family	$	334		149		483		573		112		685
Commercial real estate		0		1,177		1,177		0		1,210		1,210
Consumer		433		209		642		327		431		758
Commercial business		192		61		253		229		162		391
	$	959		1,596		2,555		1,129		1,915		3,044

As of June 30, 2018, the Bank had commitments to lend an additional $1.2 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, 2017, there were commitments to lend additional funds of $0.8 million to this same borrower.

TDR concessions can include 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.

18

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 table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the three month and six month periods ending June 30, 2018 and June 30, 2017.

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
(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		1	$	55		58
Commercial real estate:
Real estate rental and leasing		0		0		0		1		54		54
Other		1		244		244		2		1,518		1,518
Consumer		4		216		216		8		334		334
Commercial business		0		0		0		1		70		70
Total		5	$	460		460		13	$	2,031		2,034

	Three Months Ended June 30, 2017						Six Months Ended June 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
Consumer		5		314		315		7		358		360
Total		5	$	314		315		10	$	640		874

The following tables summarize the loans that were restructured in the 12 months preceding June 30, 2018 and June 30, 2017 and subsequently defaulted during the three and six months ended June 30, 2018 and June 30, 2017.

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Commercial business		1	$	116		1	$	116
Total		1	$	116		1	$	116

	Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Single family		2	$	60		2	$	60
Total		2	$	60		2	$	60

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.

19

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 specific reserves as needed. Loans that are not collateral-dependent may have additional reserves established if deemed necessary. The reserves for TDRs were $0.6 million, or 6.8%, of the total $9.3 million in loan loss reserves at June 30, 2018 and $0.9 million, or 9.8%, of the total $9.3 million in loan loss reserves at December 31, 2017.

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

(Dollars in thousands)	Contractual Principal Receivable			Accretable Difference			Net Carrying Amount
Purchased performing loans:
Balance at March 31, 2018	$	9,447			(218	)		9,229
Change due to payments/refinances		(891	)		12			(879	)
Balance at June 30, 2018	$	8,556			(206	)		8,350

(Dollars in thousands)	Contractual Principal Receivable			Non- Accretable Difference			Net Carrying Amount
Purchased credit impaired loans:
Balance at March 31, 2018	$	400			(37	)		363
Change due to payments/refinances		(4	)		1			(3	)
Balance at June 30, 2018	$	396			(36	)		360

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 June 30, 2018 was $0.4 million.

No material provision for loan losses was recognized during the three and six month periods ended June 30, 2018 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)	Six Months ended June 30, 2018			Twelve Months ended December 31, 2017			Six Months ended June 30, 2017
Balance, beginning of period	$	1,724			1,604			1,604
Originations		357			675			320
Amortization		(268	)		(555	)		(269	)
Balance, end of period	$	1,813			1,724			1,655
Fair value of mortgage servicing rights	$	3,620			3,196			3,027

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 for FNMA at June 30, 2018.

			Weighted			Weighted
	Loan		Average			Average
	Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans
Original term 30 year fixed rate	$	284,802		4.10	%		307		2,213
Original term 15 year fixed rate		100,131		3.14			133		1,026
Adjustable rate		54		4.38			275		2

20

The gross carrying amount of intangible assets and the associated accumulated amortization at June 30, 2018 and 2017 is presented in the following tables. No amortization expense relating to goodwill is recorded as generally accepted accounting principles do not allow goodwill to be amortized but require that it is tested for impairment at least annually, or sooner, if there are indications that impairment may exist. Amortization expense for amortizing intangible assets was $0.3 million for both the six months ended June 30, 2018 and 2017.

	June 30, 2018
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,394		(2,581	)		1,813
Core deposit intangible		574		(269	)		305
Goodwill		802		0			802
Total	$	5,770		(2,850	)		2,920

	June 30, 2017
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,106		(2,451	)		1,655
Core deposit intangible		574		(170	)		404
Goodwill		802		0			802
Total	$	5,482		(2,621	)		2,861

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 ending December 31,
2018	$	239		50		289
2019		421		99		520
2020		350		99		449
2021		304		47		351
2022		242		10		252
Thereafter		257		0		257
Total	$	1,813		305		2,118

Projections of amortization are based on existing asset balances and the existing interest rate environment as of June 30, 2018. The Company's actual experiences may be significantly different depending upon changes in mortgage interest rates and other market conditions.

(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 June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2018		2017		2018		2017
Weighted average number of common shares outstanding used in basic earnings per common share calculation		4,291		4,211		4,264		4,208
Net dilutive effect of:
Restricted stock awards, options, and warrants		457		648		561		651
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,748		4,859		4,825		4,859
Income available to common shareholders	$	1,727		1,024		3,172		2,237
Basic earnings per common share	$	0.40		0.24		0.74		0.53
Diluted earnings per common share	$	0.36		0.21		0.66		0.46

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(12)  Regulatory Capital and Oversight

The Company and the Bank are subject to 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 capital ratios and buffer requirements which are being 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 their 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 Board of Governors of the Federal Reserve System (FRB) 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 ended June 30, 2018 were $725.9 million, its adjusted total assets were $724.2 million, and its risk-weighted assets were $620.0 million. The following table presents the Bank’s capital amounts and ratios at June 30, 2018 for actual capital, required capital, and excess capital, including ratios in order to qualify as being well capitalized under the prompt corrective action 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			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
June 30, 2018
Common equity tier 1 capital	$	79,826		12.88	%	$	27,900		4.50	%	$	51,926		8.38	%	$	40,300		6.50	%
Tier 1 capital leverage		79,826		11.02			28,968		4.00			50,858		7.02			36,210		5.00
Tier 1 risk-based capital		79,826		12.88			37,200		6.00			42,626		6.88			49,600		8.00
Total risk-based capital		87,595		14.13			49,600		8.00			37,995		6.13			62,000		10.00

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 2018, the capital conservation buffer is 1.875% and in 2019 the buffer amount will increase to 2.50% and be fully phased in. Management believes that, as of June 30, 2018, 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.

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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 per share 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.  

On May 21, 2018, the Company entered into a Warrant Repurchase Agreement (Repurchase Agreement) with one of the warrant holders. Pursuant to the terms of the Repurchase Agreement, the Company agreed to repurchase from the warrant holder, at a purchase price of $14.32 per warrant, 138,888.66 warrants to purchase common stock of the Company, resulting in an aggregate purchase price of $1,988,886. The warrant repurchase price reflects the difference between the exercise price of the warrants and the closing market price of the Company’s common stock on the date the Repurchase Agreement was executed. The warrant repurchase was completed on May 22, 2018 and the 138,888.66 warrants purchased by the Company were cancelled.

Simultaneously with the execution of the Repurchase Agreement, the warrant holder exercised its right to exercise, on a cashless basis, the remaining 138,889 warrants at an exercise price of $4.68 per share. After taking into account the shares withheld to satisfy the cashless exercise option, the Company issued 104,678 shares of common stock to the warrant holder out of treasury stock.

The warrants held by the remaining two investors to purchase a total of 555,555.34 shares of the Company’s common stock at an exercise price of $4.68 were still outstanding as of June 30, 2018 and may be exercised at any time prior to their expiration date of December 23, 2018.

(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 June 30, 2018 and the loan balance was $7.0 million at June 30, 2017.

(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 June 30, 2018 were approximately $4.7 million, expire over the next 50 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.

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The following table sets forth certain information about the reconciliation of reported profit or loss 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 six months ended June 30, 2018:
Interest income - external customers	$	14,614		0			0			14,614
Non-interest income - external customers		3,830		0			0			3,830
Intersegment non-interest income		105		3,464			(3,569	)		0
Interest expense		996		0			0			996
Other non-interest expense		12,616		356			(105	)		12,867
Income tax expense		1,303		(64	)		0			1,239
Net income		3,464		3,172			(3,464	)		3,172
Total assets		726,121		81,590			(81,426	)		726,285
At or for the six months ended June 30, 2017:
Interest income - external customers	$	13,658		0			0			13,658
Non-interest income - external customers		3,786		0			0			3,786
Intersegment non-interest income		105		2,636			(2,741	)		0
Interest expense		640		229			0			869
Other non-interest expense		12,529		362			(105	)		12,786
Income tax expense		1,745		(192	)		0			1,553
Net income		2,636		2,237			(2,636	)		2,237
Total assets		724,407		84,826			(84,050	)		725,183
At or for the quarter ended June 30, 2018:
Interest income - external customers	$	7,456		0			0			7,456
Non-interest income - external customers		2,054		0			0			2,054
Intersegment non-interest income		52		1,870			(1,922	)		0
Interest expense		526		0			0			526
Other non-interest expense		6,191		174			(52	)		6,313
Income tax expense		680		(31	)		0			649
Net income		1,870		1,727			(1,870	)		1,727
Total assets		726,121		81,590			(81,426	)		726,285
At or for the quarter ended June 30, 2017:
Interest income - external customers	$	6,999		0			0			6,999
Non-interest income - external customers		1,906		0			0			1,906
Intersegment non-interest income		52		1,221			(1,273	)		0
Interest expense		345		116			0			461
Other non-interest expense		6,316		175			(52	)		6,439
Income tax expense		806		(94	)		0			712
Net income		1,221		1,024			(1,221	)		1,024
Total assets		724,407		84,826			(84,050	)		725,183

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Item 2:

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Information

Safe Harbor Statement 

This quarterly report and other reports filed by the Company with the Securities and Exchange Commission 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 or improving 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; the impact of new accounting pronouncements; 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 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; 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 filings on Form 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, 2017 and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q.

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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.

General

HMN Financial, Inc. (HMN or the Company) is the stock savings bank holding company for Home Federal Savings Bank (the Bank), which operates community banking and loan production offices in Minnesota, Iowa and Wisconsin. 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 fees earned on deposit accounts. The Bank incurs expenses in addition to interest expense in the form of compensation and benefits, occupancy and equipment expenses, provisions for loan losses, professional services, deposit insurance, amortization expense on mortgage servicing assets, data processing costs 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 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, 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 uncollectible.

26

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 is 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 by receiving recoveries of previously charged off loans. The Company decreases its allowance by crediting the provision for loan losses. 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 and real estate losses. For tax purposes only the net charge-offs are deductible while the entire provision for loan losses is used to determine book income. A deferred tax asset is created because of the timing difference of when the expense is recognized for book and tax purposes. 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. The Company could not currently identify any negative evidence. 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 SIX MONTH PERIODS ENDED JUNE 30, 2018 COMPARED TO THE SAME PERIODS ENDED JUNE 30, 2017

Net Income

Net income for the second quarter of 2018 was $1.7 million, an increase of $0.7 million, compared to net income of $1.0 million for the second quarter of 2017. Diluted earnings per share for the second quarter of 2018 was $0.36, an increase of $0.15 from the diluted earnings per share of $0.21 for the second quarter of 2017. The increase in net income between the periods was primarily because of the $0.4 million increase in net interest income, a $0.2 million increase in the gain on sales of loans between the periods due primarily to an increase in single family loan sales, and a $0.1 million decrease in income tax expense as a result of the reduced federal corporate income tax rate for 2018.

27

Net income was $3.2 million for the six month period ended June 30, 2018, an increase of $1.0 million, or 41.8%, compared to net income of $2.2 million for the six month period ended June 30, 2017. Diluted earnings per share for the six month period ended June 30, 2018 was $0.66, an increase of $0.20 per share compared to diluted earnings per share of $0.46 for the same period in 2017. The increase in net income between the periods was primarily because of the $0.8 million increase in net interest income, a $0.3 million decrease in income tax expense as a result of the reduced federal corporate income tax rate for 2018, and a $0.1 million increase in the gain on sales of loans between the periods due primarily to an increase in single family loan sales. These increases in net income were partially offset by a $0.2 million increase in the provision for loan losses between the periods due primarily to an increase in the amount reserved on certain consumer loan categories and changes in the classification of certain commercial loans.

Net Interest Income

Net interest income was $6.9 million for the second quarter of 2018, an increase of $0.4 million, or 6.0%, from $6.5 million for the second quarter of 2017. Interest income was $7.5 million for the second quarter of 2018, an increase of $0.5 million, or 6.53%, from $7.0 million for the second quarter of 2017. Interest income increased between the periods primarily because of an increase in the average interest-earning assets, a change in the composition of the average interest-earning assets, and an increase in the federal funds rate between the periods which resulted in higher earnings on cash and investment balances. While the average interest-earning assets increased $42.3 million between the periods, the average interest-earning assets held in higher yielding loans increased $17.0 million and the amount of average interest-earning assets held in lower yielding cash and investments increased $25.3 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 a reduction in loan payoffs between the periods. The average yield earned on interest-earning assets was 4.27% for the second quarter of 2018, an increase of 1 basis point from 4.26% for the second quarter of 2017.

Interest expense was $0.5 million for the second quarter of 2018, the same as the second quarter of 2017. The average interest rate paid on non-interest and interest-bearing liabilities was 0.33% for the second quarter of 2018, an increase of 2 basis points from 0.31% for the second quarter of 2017. The average interest rate paid increased between the periods due to an increase in the rates paid on certain money market accounts and certificates of deposit that was partially offset by a change in the composition of the average non-interest and interest-bearing liabilities held between the periods. While the average non-interest and interest-bearing liabilities increased $34.8 million between the periods, the average amount held in higher rate premium money market accounts increased $20.3 million, the average amount held in lower rate checking, savings, and money market accounts increased $13.9 million, and the average amount held in higher rate borrowings and certificates of deposit increased $0.6 million between the periods.

Net interest margin (net interest income divided by average interest-earning assets) for the second quarter of 2018 was 3.97%, a decrease of 1 basis point, compared to 3.98% for the second quarter of 2017.    

Net interest income was $13.6 million for the first six months of 2018, an increase of $0.8 million, or 6.5%, from $12.8 million for the same period in 2017. Interest income was $14.6 million for the six month period ended June 30, 2018, an increase of $0.9 million, or 7.0%, from $13.7 million for the same six month period in 2017. Interest income increased between the periods primarily because of an increase in the average interest-earning assets, a change in the composition of the average interest-earning assets, and an increase in the federal funds rate between the periods which resulted in higher earnings on cash and investment balances. While the average interest-earning assets increased $40.0 million between the periods, the average interest-earning assets held in higher yielding loans increased $24.7 million and the amount of average interest-earning assets held in lower yielding cash and investments increased $15.3 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 a reduction in loan payoffs between the periods. The average yield earned on interest-earning assets was 4.25% for the first six months of 2018, an increase of 4 basis points from 4.21% for the first six months of 2017.

28

Interest expense was $1.0 million for the first six months of 2018, an increase of $0.1 million, or 14.6%, compared to $0.9 million in the first six months of 2017. The average interest rate paid on non-interest and interest-bearing liabilities was 0.32% for the first six months of 2018, an increase of 3 basis points from 0.29% for the first six months of 2017. The average interest rate paid increased between the periods due to an increase in the rates paid on certain money market accounts and certificates of deposit that was partially offset by a change in the composition of the average non-interest and interest-bearing liabilities held between the periods. While the average non-interest and interest-bearing liabilities increased $32.1 million between the periods, the average amount held in higher rate premium money market accounts increased $20.5 million, the average amount held in lower rate checking, savings, and money market accounts increased $9.7 million, and the average amount held in higher rate borrowings and certificates of deposit increased $1.9 million between the periods.

Net interest margin (net interest income divided by average interest-earning assets) for the first six months of 2018 was 3.96%, an increase of 2 basis points, compared to 3.94% for the first six months of 2017.    

A summary of the Company’s net interest margin for the three and six month periods ended June 30, 2018 and 2017 is as follows:

	For the three month period ended
	June 30, 2018							June 30, 2017
(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	$	80,263		339		1.69	%	$	76,515		288		1.51	%
Loans held for sale		2,389		27		4.51			2,014		25		5.01
Mortgage loans, net		110,939		1,137		4.11			115,173		1,136		3.96
Commercial loans, net		405,553		4,957		4.90			383,417		4,662		4.88
Consumer loans, net		72,070		885		4.92			73,369		878		4.80
Cash equivalents		28,486		106		1.49			6,740		5		0.28
Federal Home Loan Bank stock		867		5		2.47			1,043		5		1.75
Total interest-earning assets		700,567		7,456		4.27			658,271		6,999		4.26
Interest-bearing liabilities and non-interest bearing deposits:
NOW accounts		88,327		11		0.05			87,219		22		0.10
Savings accounts		78,850		16		0.08			78,679		16		0.08
Money market accounts		199,279		203		0.41			168,610		125		0.30
Certificates		115,871		296		1.02			102,841		166		0.65
Advances and other borrowings		0		0		0.00			12,637		132		4.19
Total interest-bearing liabilities		482,327							449,986
Non-interest checking		154,323							152,159
Other non-interest bearing deposits		1,448							1,199
Total interest-bearing liabilities and non-interest bearing deposits	$	638,098		526		0.33		$	603,344		461		0.31
Net interest income			$	6,930						$	6,538
Net interest rate spread						3.94	%						3.95	%
Net interest margin						3.97	%						3.98	%

29

	For the six month period ended
	June 30, 2018							June 30, 2017
(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	$	79,274		653		1.66	%	$	76,357		563		1.49	%
Loans held for sale		1,730		38		4.47			1,836		43		4.76
Mortgage loans, net		112,268		2,259		4.06			112,632		2,247		4.02
Commercial loans, net		403,035		9,726		4.87			377,319		9,047		4.84
Consumer loans, net		72,229		1,761		4.92			72,816		1,724		4.77
Cash equivalents		24,324		167		1.39			11,859		28		0.47
Federal Home Loan Bank stock		855		10		2.53			915		6		1.34
Total interest-earning assets		693,715		14,614		4.25			653,734		13,658		4.21
Interest-bearing liabilities and non-interest bearing deposits:
NOW accounts		88,982		21		0.05			89,627		42		0.09
Savings accounts		78,017		31		0.08			76,986		31		0.08
Money market accounts		194,871		388		0.40			165,592		231		0.28
Certificates		113,798		554		0.98			102,398		318		0.63
Advances and other borrowings		283		2		1.71			10,033		247		4.96
Total interest-bearing liabilities		475,951							444,636
Non-interest checking		153,796							153,277
Other non-interest bearing deposits		1,494							1,268
Total interest-bearing liabilities and non-interest bearing deposits	$	631,241		996		0.32		$	599,181		869		0.29
Net interest income			$	13,618						$	12,789
Net interest rate spread						3.93	%						3.92	%
Net interest margin						3.96	%						3.94	%

Provision for Loan Losses

The provision for loan losses was $0.3 million for the second quarter of 2018, the same as the second quarter of 2017. The provision for loan losses was $0.2 million for the first six months of 2018, an increase of $0.2 million compared to the first six months of 2017. The provision amounts for the periods were primarily the result of an increase in the amount reserved on certain consumer loan categories and changes in the classification of certain commercial loans.

A reconciliation of the Company’s allowance for loan losses for the three and six month periods ended June 30, 2018 and 2017 is summarized as follows:

	Three Months Ended June 30,
(Dollars in thousands)	2018			2017
Balance at March 31,	$	9,129			9,590
Provision		295			269
Charge offs:
Consumer		(56	)		(17	)
Commercial business		(255	)		0
Recoveries		215			203
Balance at June 30,	$	9,328			10,045
Allocated to:
Specific allowance	$	794			741
General allowance		8,534			9,304
	$	9,328			10,045

	Six Months Ended June 30,
(Dollars in thousands)	2018			2017
Balance at January 1,	$	9,311			9,903
Provision		170			(1	)
Charge offs:
Consumer		(125	)		(218	)
Commercial business		(255	)		0
Single Family		(23	)		0
Recoveries		250			361
Balance at June 30,	$	9,328			10,045

30

Non-Interest Income

Non-interest income was $2.1 million for the second quarter of 2018, an increase of $0.2 million, or 7.8%, from $1.9 million for the same period of 2017. Gain on sales of loans increased $0.2 million between the periods primarily because of an increase in single family loan sales. Other non-interest income increased slightly due to an increase in the sale of uninsured investment products between the periods. These increases in non-interest income were partially offset by a $0.1 million decrease in fees and service charges earned between the periods due primarily to a decrease in overdraft fees. Loan servicing income decreased slightly between the periods because of a decrease in commercial loan servicing fees.

Non-interest income was $3.8 million for the first six months of 2018, the same as in the first six months of 2017. Gain on sales of loans increased $0.1 million between the periods primarily because of an increase in single family loan sales. Other non-interest income increased $0.1 million due to an increase in the sale of uninsured investment products between the periods. These increases in non-interest income were partially offset by a $0.1 million decrease in fees and service charges earned between the periods due primarily to a decrease in overdraft fees. Loan servicing income decreased slightly between the periods primarily because of a decrease in commercial loan servicing fees.

Non-Interest Expense

Non-interest expense was $6.3 million for the second quarter of 2018, a decrease of $0.1 million, or 2.0%, from $6.4 million for the second quarter of 2017. Professional services expense decreased $0.1 million due primarily to a decrease in legal expenses between the periods. Compensation and benefits expense decreased $0.1 million primarily because of a decrease in employees between the periods. Other non-interest expense decreased slightly due to a decrease in the losses incurred on deposit accounts between the periods. These decreases in non-interest expense were partially offset by a $0.1 million increase in data processing expense primarily related to an increase in mobile banking and on-line banking costs between the periods. Occupancy and equipment costs increased slightly between the periods due to an increase in depreciation and maintenance costs.

Non-interest expense was $12.9 million for the first six months of 2018, an increase of $0.1 million, or 0.6%, from $12.8 million for the same period of 2017. Other non-interest expense increased $0.3 million due primarily to increases in deposit insurance costs and the losses incurred on deposit accounts between the periods. Occupancy and equipment costs increased $0.1 million between the periods due to an increase in depreciation and maintenance costs. Data processing expense increased $0.1 million primarily related to an increase in mobile and on-line banking costs between the periods. These increases in non-interest expense were partially offset by a $0.2 million decrease in compensation and benefits expense primarily because of a decrease in employees between the periods and a $0.1 million decrease in professional services expense due primarily to a decrease in legal expenses between the periods.

Income Taxes

Income tax expense was $0.6 million for the second quarter of 2018, a decrease of $0.1 million from $0.7 million for the second quarter of 2017. Income tax expense was $1.2 million for the first six months of 2018, a decrease of $0.4 million from $1.6 million for the first six months of 2017. The decrease in income tax expense between the periods is primarily the result of a decrease in the federal corporate income tax rate due to the tax law changes that were enacted in the fourth quarter of 2017.

31

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 three most recently completed quarters.

	June 30,			March 31,			December 31,
(Dollars in thousands)	2018			2018			2017
Non-Performing Loans:
Single family	$	960		$	839		$	949
Commercial real estate		1,432			1,524			1,364
Consumer		551			632			553
Commercial business		73			269			278
Total		3,016			3,264			3,144
Foreclosed and Repossessed Assets:
Single family		74			74			0
Commercial real estate		627			627			627
Consumer		15			0			0
Total non-performing assets	$	3,732		$	3,965		$	3,771
Total as a percentage of total assets		0.51	%		0.55	%		0.52	%
Total non-performing loans	$	3,016		$	3,264		$	3,144
Total as a percentage of total loans receivable, net		0.51	%		0.55	%		0.54	%
Allowance for loan loss to non-performing loans		309.31	%		279.69	%		296.11	%
Delinquency Data:
Delinquencies (1)
30+ days	$	1,585		$	1,280		$	1,789
90+ days		0			0			0
Delinquencies as a percentage of loan portfolio (1)
30+ days		0.26	%		0.21	%		0.30	%
90+ days		0.00	%		0.00	%		0.00	%

⁽¹⁾ Excludes non-accrual loans.

Total non-performing assets were $3.7 million at June 30, 2018, a decrease of $0.3 million, or 5.9%, from $4.0 million at March 31, 2018. Non-performing loans decreased $0.3 million and foreclosed and repossessed assets remained the same during the second quarter of 2018.

Total non-performing assets were $3.7 million at June 30, 2018, a decrease of $0.1 million, or 1.1%, from $3.8 million at December 31, 2017. Non-performing loans decreased $0.2 million and foreclosed and repossessed assets increased $0.1 million during the first six months of 2018.

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, projected asset growth, industry standards, economic conditions, general business practices and other factors. The Company has not made any dividend payments to common stockholders during the three year period ended June 30, 2018.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 2018, the net cash provided by operating activities was $8.4 million. The Company collected $0.3 million from maturing securities, $0.9 million from principal repayments on securities, and $0.3 million from the redemption of FHLB stock. The Company purchased securities of $4.9 million, purchased $0.3 million in FHLB stock, and paid out $0.7 million for premises and equipment. Net loans receivable increased $11.8 million. The Company had a net increase in deposit balances of $3.9 million and customer escrows increased $0.1 million. The Company also received and repaid $6.8 million in borrowings and paid $2.0 million to repurchase outstanding warrants.

The Company has certificates of deposits with outstanding balances of $74.6 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.

32

The Company had five deposit customers that individually had aggregate deposits greater than $5.0 million as of June 30, 2018. The $64.9 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 had the ability to borrow $168.6 million from the FHLB at June 30, 2018, 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 June 30, 2018, the Company had $1.4 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.

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.

33

The following table discloses the projected changes in the 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 June 30, 2018.

	Market Value
(Dollars in thousands)
Basis point change in interest rates	-100			0			+100			+200
Total market risk sensitive assets	$	727,120			716,289			702,920			690,096
Total market risk sensitive liabilities		611,933			572,165			538,371			508,664
Off-balance sheet financial instruments		(245	)		0			4			44
Net market risk	$	115,432			144,124			164,545			181,388
Percentage change from current market value		(19.91	)%		0.00	%		14.17	%		25.86	%

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 1% to 37%, 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 47%, 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 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 33% and 1% to 31%, 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.

Asset/Liability Management

The Company’s management reviews the impact that changing interest rates will have on the Company’s 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 impact on net interest income during the twelve month period ending June 30, 2019 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	$	3,178			11.22	%
+100		1,591			5.62
0		0			0.00
-100		(1,770	)		(6.25	)

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.

34

In an attempt to manage the Company’s 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. This 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 restructure 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 and sell loans in the ordinary course of business.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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.

35

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 its 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, 2017. For a further discussion of our Risk Factors, see Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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.

36

ITEM 6. Exhibits.

INDEX TO EXHIBITS

Exhibit		Filing Status
Number	Exhibit
10.1	Warrant Repurchase Agreement by and between the Company and EJF Financial Services Fund, L.P., dated May 21, 2018	Incorporated by Reference (1)
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 June 30, 2018, filed with the Securities and Exchange Commission on August 3, 2018, formatted in Extensible Business Reporting Language (XBRL); (i) the Consolidated Balance Sheets at June 30, 2018 and December 31, 2017, (ii) the Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2018 and 2017, (iii) the Consolidated Statement of Stockholders’ Equity for the Six-Month Period Ended June 30, 2018, (iv) the Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017, and (v) Notes to Consolidated Financial Statements.	Filed Electronically

⁽¹⁾ Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 21, 2018, filed on May 22, 2018 (File No. 000-24100).

37

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:	August 3, 2018	/s/ Bradley Krehbiel
		Bradley Krehbiel, President and Chief Executive Officer
		(Principal Executive Officer)
Date:	August 3, 2018	/s/ Jon Eberle
		Jon Eberle, Senior Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

38
     

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: August 3, 2018	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: August 3, 2018	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 ended June 30, 2018 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:  August 3, 2018	/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	6 Months Ended
	Jun. 30, 2018	Jul. 27, 2018
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)		4,609,440
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Assets
Cash and cash equivalents	$ 31,710	$ 37,564
Securities available for sale	80,525	77,472
Loans held for sale	3,624	1,837
Loans receivable, net	589,855	585,931
Accrued interest receivable	2,330	2,344
Real estate, net	701	627
Federal Home Loan Bank stock, at cost	867	817
Mortgage servicing rights, net	1,813	1,724
Premises and equipment, net	8,446	8,226
Goodwill	802	802
Core deposit intangible	305	355
Prepaid expenses and other assets	1,432	1,314
Deferred tax asset, net	3,875	3,672
Total assets	726,285	722,685
Liabilities and Stockholders’ Equity
Deposits	639,535	635,601
Accrued interest payable	264	146
Customer escrows	1,268	1,147
Accrued expenses and other liabilities	3,393	4,973
Total liabilities	644,460	641,867
Commitments and contingencies
Stockholders’ equity:
Serial-preferred stock ($.01 par value): authorized 500,000 shares; issued shares 0	0	0
Common stock ($.01 par value): authorized shares 16,000,000; issued shares 9,128,662	91	91
Additional paid-in capital	46,950	50,623
Retained earnings, subject to certain restrictions	94,690	91,448
Accumulated other comprehensive loss	(1,479)	(957)
Unearned employee stock ownership plan shares	(1,933)	(2,030)
Treasury stock, at cost 4,519,222 and 4,631,124 shares	(56,494)	(58,357)
Total stockholders’ equity	81,825	80,818
Total liabilities and stockholders’ equity	726,285	722,685
Collateralized Mortgage Backed Securities [Member]
Assets
Securities available for sale	8,895	5,068
Other Debt Obligations [Member]
Assets
Securities available for sale	$ 71,630	$ 72,404

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Securities available for sale, amortized cost	$ 82,578	$ 78,801
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
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	16,000,000	16,000,000
Common stock, issued shares (in shares)	9,128,662	9,128,662
Treasury stock, shares (in shares)	4,519,222	4,631,124
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, amortized cost	$ 9,145	$ 5,148
Other Debt Obligations [Member]
Securities available for sale, amortized cost	$ 73,433	$ 73,653

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest income:
Loans receivable	$ 7,006	$ 6,701	$ 13,784	$ 13,061
Securities available for sale:
Mortgage-backed and related	54	5	96	12
Other marketable	285	283	557	551
Other	111	10	177	34
Total interest income	7,456	6,999	14,614	13,658
Interest expense:
Deposits	526	329	994	622
Federal Home Loan Bank advances and other borrowings	0	132	2	247
Total interest expense	526	461	996	869
Net interest income	6,930	6,538	13,618	12,789
Provision for losses	295	269	170	(1)
Net interest income after provision for loan losses	6,635	6,269	13,448	12,790
Non-interest income:
Gain on sales of loans	679	488	1,123	1,007
Other	293	267	558	503
Non-interest income - external customers	2,054	1,906	3,830	3,786
Non-interest expense:
Compensation and benefits	3,678	3,780	7,502	7,724
Occupancy and equipment	1,072	1,026	2,169	2,065
Data processing	334	260	629	552
Professional services	298	417	547	676
Other	931	956	2,020	1,769
Total non-interest expense	6,313	6,439	12,867	12,786
Income before income tax expense	2,376	1,736	4,411	3,790
Income tax expense	649	712	1,239	1,553
Net income	1,727	1,024	3,172	2,237
Other comprehensive (loss) income, net of tax	(105)	173	(452)	361
Comprehensive income available to common shareholders	$ 1,622	$ 1,197	$ 2,720	$ 2,598
Basic earnings per common share (in dollars per share)	$ 0.40	$ 0.24	$ 0.74	$ 0.53
Diluted earnings per common share (in dollars per share)	$ 0.36	$ 0.21	$ 0.66	$ 0.46
Financial Service [Member]
Non-interest income:
Revenue from Contract with Customer	$ 785	$ 845	$ 1,551	$ 1,669
Bank Servicing [Member]
Non-interest income:
Revenue from Contract with Customer	$ 297	$ 306	$ 598	$ 607

XML

Consolidated Statement of Stockholders' Equity (Unaudited) - 6 months ended Jun. 30, 2018 - 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, 2017	$ 91	$ 50,623	$ 91,448	$ (957)	$ (2,030)	$ (58,357)	$ 80,818
Net income			3,172				3,172
Accounts reclassified from accumulated other comprehensive loss			70	(70)			0
Other comprehensive loss				(452)			(452)
Stock warrants purchased		(1,989)					(1,989)
Stock warrants exercised		(1,674)				1,674	0
Stock compensation expense		8					8
Restricted stock awards		(189)				189	0
Amortization of restricted stock awards		73					73
Earned employee stock ownership plan shares		98			97		195
Balance at Jun. 30, 2018	$ 91	$ 46,950	$ 94,690	$ (1,479)	$ (1,933)	$ (56,494)	$ 81,825

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 3,172,000	$ 2,237,000
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses	170,000	(1,000)
Depreciation	528,000	464,000
Amortization of premiums, net	24,000	0
Amortization of deferred loan costs (fees)	15,000	(125,000)
Amortization of core deposit intangible	300,000	300,000
Amortization of other purchased fair value adjustments	(23,000)	(55,000)
Amortization of mortgage servicing rights	268,000	269,000
Capitalized mortgage servicing rights	(357,000)	(320,000)
Securities gains, net	(22,000)	0
Gain on sale of premises and equipment	0	(8,000)
Gain on sales of real estate	0	(7,000)
Gain on sales of loans	(1,123,000)	(1,007,000)
Proceeds from sale of loans held for sale	46,097,000	43,490,000
Disbursements on loans held for sale	(39,120,000)	(36,046,000)
Amortization of restricted stock awards	73,000	71,000
Amortization of unearned Employee Stock Ownership Plan shares	97,000	96,000
Earned Employee Stock Ownership Plan shares priced above original cost	98,000	72,000
Stock option compensation expense	8,000	21,000
Decrease in accrued interest receivable	14,000	18,000
Increase (decrease) in accrued interest payable	118,000	(23,000)
(Increase) decrease in other assets	(73,000)	233,000
Decrease in other liabilities	(1,625,000)	(1,103,000)
Other, net	(3,000)	46,000
Net cash provided by operating activities	8,386,000	8,372,000
Cash flows from investing activities:
Principal collected on securities available for sale	893,000	416,000
Proceeds collected on maturities of securities available for sale	310,000	5,000,000
Purchases of securities available for sale	(4,888,000)	(4,999,000)
Purchase of Federal Home Loan Bank Stock	(322,000)	(3,255,000)
Redemption of Federal Home Loan Bank Stock	272,000	3,208,000
Proceeds from sales of real estate	0	42,000
Net increase in loans receivable	(11,825,000)	(45,415,000)
Proceeds from sale of premises and equipment	0	8,000
Purchases of premises and equipment	(746,000)	(498,000)
Net cash used by investing activities	(16,306,000)	(45,493,000)
Cash flows from financing activities:
Increase in deposits	3,934,000	41,294,000
Warrants purchased	(1,989,000)	0
Stock awards withheld for tax withholding	0	(54,000)
Proceeds from borrowings	6,800,000	80,600,000
Repayment of borrowings	(6,800,000)	(80,600,000)
Increase in customer escrows	121,000	212,000
Net cash provided by financing activities	2,066,000	41,452,000
(Decrease) increase in cash and cash equivalents	(5,854,000)	4,331,000
Cash and cash equivalents, beginning of period	37,564,000	27,561,000
Cash and cash equivalents, end of period	31,710,000	31,892,000
Supplemental cash flow disclosures:
Cash paid for interest	878,000	892,000
Cash paid for income taxes	2,852,000	1,766,000
Supplemental noncash flow disclosures:
Loans transferred to loans held for sale	7,670,000	6,641,000
Loans held for sale transferred to loans	0	164,000
Transfer of loans to real estate	74,000	40,000
Core Deposits [Member]
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of core deposit intangible	$ 50,000	$ 50,000

XML

Note 1 - HMN Financial, Inc.

6 Months Ended

Jun. 30, 2018

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

6 Months Ended

Jun. 30, 2018

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

six

-month period ended

June 30, 2018

are

not

necessarily indicative of the results which

may

be expected for the entire year.

XML

Note 3 - New Accounting Standards

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

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

(

3

) 

New Accounting Standards

In

February 2016,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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

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 filers with the Securities and Exchange Commission, 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 has accumulated the charge off information necessary to calculate the appropriate life of loan loss percentages for the various loan categories, has identified several key metrics to help identify and project anticipated changes in the credit quality of our loan portfolio upon enactment, and is 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

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 price 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.

XML

Note 4 - Fair Value Measurements

6 Months Ended

Jun. 30, 2018

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

June 30, 2018

and

December 31, 2017.

	Carrying value at June 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	80,525		0		80,525		0
Mortgage loan commitments		74		0		74		0
Total	$	80,599		0		80,599		0

	Carrying value at December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	77,472		0		77,472		0
Mortgage loan commitments		28		0		28		0
Total	$	77,500		0		77,500		0

There were

no

transfers between Levels

1,

2,

or

3

during the

three

or

six

month periods ended

June 30, 2018.

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 that were held at

December 31, 2017

and at

June 30, 2018,

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

June 30, 2018

and

December 31, 2017.

	Carrying value at June 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Three months ended June 30, 2018 total gains (losses)			Six months ended June 30, 2018 total gains (losses)
Loans held for sale	$	3,624		0		3,624		0		16			17
Mortgage servicing rights		1,813		0		1,813		0		0			0
Loans (1)		3,181		0		3,181		0		(29	)		(80	)
Real estate, net (2)		701		0		701		0		0			0
Total	$	9,319		0		9,319		0		(13	)		(63	)

	Carrying value at December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Year ended December 31, 2017 total gains (losses)
Loans held for sale	$	1,837		0		1,837		0		1
Mortgage servicing rights, net		1,724		0		1,724		0		0
Loans (1)		3,201		0		3,201		0		(413	)
Real estate, net (2)		627		0		627		0		0
Total	$	7,389		0		7,389		0		(412	)

(

1

)

     Represents carrying value and related write-downs of 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

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

(

5

) 

Fair Value of Financial Instruments

Generally accepted accounting principles require 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

June 30, 2018

and

December 31, 2017.

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

June 30, 2018

and

December 31, 2017

are shown in the following table.

	June 30, 2018													December 31, 2017
							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	$	31,710			31,710			31,710							37,564			37,564			37,564
Securities available for sale		80,525			80,525					80,525					77,472			77,472					77,472
Loans held for sale		3,624			3,624					3,624					1,837			1,837					1,837
Loans receivable, net		589,855			588,794					588,794					585,931			585,494					585,494
Federal Home Loan Bank stock		867			867					867					817			817					817
Accrued interest receivable		2,330			2,330					2,330					2,344			2,344					2,344
Financial liabilities:
Deposits		639,535			633,844					633,844					635,601			635,905					635,905
Accrued interest payable		264			264					264					146			146					146
Off-balance sheet financial instruments:
Commitments to extend credit		74			74								242,267		28			28								173,645
Commitments to sell loans		(28	)		(28	)							11,321		(11	)		(11	)							5,629

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. The fair value disclosures for both the fixed and adjustable rate portfolios were adjusted to reflect the exit price amount anticipated to be received from the sale of the portfolio in an open market transaction as required upon adoption of ASU

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

) Recognition and Measurement of Financial Assets and Financial Liabilities

beginning in the

first

quarter of

2018.

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 disclosures for all of the deposits were adjusted to reflect the exit price amount anticipated to be received from the sale of the deposits in an open market transaction as required upon adoption of ASU

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

) Recognition and Measurement of Financial Assets and Financial Liabilities

beginning in the

first

quarter of

2018.

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.

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 counter parties.

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)

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

(

6

)

Other

Comprehensive

Income

(Loss)

Other comprehensive income (loss) 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 (loss), which for the Company is comprised of unrealized gains and losses on securities available for sale. The components of other comprehensive income (loss) and the related tax effects were as follows:

	For the three months ended June 30,
(Dollars in thousands)	2018									2017
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax
Net unrealized (losses) gains arising during the period	$	(146	)		(41	)		(105	)		286		113		173
Other comprehensive income (loss)	$	(146	)		(41	)		(105	)		286		113		173

	For the six months ended June 30,
(Dollars in thousands)	2018									2017
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax
Net unrealized (losses) gains arising during the period	$	(625	)		(175	)		(452	)		599		238		361
Other comprehensive income (loss)	$	(625	)		(175	)		(452	)		599		238		361

XML

Note 7 - Securities Available for Sale

6 Months Ended

Jun. 30, 2018

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

June 30, 2018

and

December 31, 2017.

	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
June 30, 2018
Mortgage-backed securities:
Federal National Mortgage Association (FNMA)		2	$	4,201		(168	)		0	$	0		0		$	4,201		(168	)
Federal Home Loan Mortgage Corporation (FHLMC)		1		4,468		(72	)		0		0		0			4,468		(72	)
Collateralized mortgage obligations:
FNMA		1		202		(10	)		0		0		0			202		(10	)
Other marketable securities:
U.S. Government agency obligations		2		9,678		(306	)		12		58,606		(1,377	)		68,284		(1,683	)
Municipal obligations		13		2,272		(11	)		0		0		0			2,272		(11	)
Corporate obligations		1		200		(4	)		0		0		0			200		(4	)
Corporate preferred stock		0		0		0			1		595		(105	)		595		(105	)
Total temporarily impaired securities		20	$	21,021		(571	)		13	$	59,201		(1,482	)	$	80,222		(2,053	)

	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, 2017
Mortgage-backed securities:
FNMA		2	$	4,703		(78	)		0	$	0		0		$	4,703		(78	)
Collateralized mortgage obligations:
FNMA		1		218		(5	)		0		0		0			218		(5	)
Other marketable securities:
U.S. Government agency obligations		2		9,819		(163	)		12		58,942		(1,038	)		68,761		(1,201	)
Municipal obligations		14		2,268		(8	)		0		0		0			2,268		(8	)
Corporate obligations		1		233		(1	)		0		0		0			233		(1	)
Corporate preferred stock		0		0		0			1		560		(140	)		560		(140	)
Total temporarily impaired securities		20	$	17,241		(255	)		13	$	59,502		(1,178	)	$	76,743		(1,433	)

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 on U.S. Government agency obligations are the result of changes in interest rates. The unrealized losses reported for the corporate preferred stock at

June 30, 2018

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

June 30, 2018

all 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

June 30, 2018.

The Company does

not

intend to sell the preferred stock and has the intent and 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 security 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 sale at

June 30, 2018

and

December 31, 2017

is as follows:

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
June 30, 2018
Mortgage-backed securities:
FHLMC	$	4,564		0		(72	)		4,492
FNMA		4,369		0		(168	)		4,201
Collateralized mortgage obligations:
FNMA		212		0		(10	)		202
		9,145		0		(250	)		8,895
Other marketable securities:
U.S. Government agency obligations		69,967		0		(1,683	)		68,284
Municipal obligations		2,383		0		(11	)		2,372
Corporate obligations		204		0		(4	)		200
Corporate preferred stock		700		0		(105	)		595
Corporate equity		179		0		0			179
		73,433		0		(1,803	)		71,630
	$	82,578		0		(2,053	)		80,525

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2017
Mortgage-backed securities:
FHLMC	$	91		2		0			93
FNMA		4,834		1		(78	)		4,757
Collateralized mortgage obligations:
FNMA		223		0		(5	)		218
		5,148		3		(83	)		5,068
Other marketable securities:
U.S. Government agency obligations		69,962		0		(1,201	)		68,761
Municipal obligations		2,699		2		(8	)		2,693
Corporate obligations		234		0		(1	)		233
Corporate preferred stock		700		0		(140	)		560
Corporate equity		58		99		0			157
		73,653		101		(1,350	)		72,404
	$	78,801		104		(1,433	)		77,472

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

June 30, 2018

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	$	1,921		1,878
Due after one year through five years		76,660		74,842
Due after five years through ten years		3,036		2,953
Due after ten years		782		673
No stated maturity		179		179
Total	$	82,578		80,525

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 that 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

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

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

(

8

) 

Loans Receivable, Net

A summary of loans receivable at

June 30, 2018

and

December 31, 2017

is as follows:

(Dollars in thousands)	June 30, 2018			December 31, 2017
Single family	$	107,203			107,005
Commercial real estate:
Real estate rental and leasing		188,751			175,177
Other		149,409			158,940
		338,160			334,117
Consumer		72,290			73,767
Commercial business		81,130			79,909
Total loans		598,783			594,798
Less:
Unamortized discounts		20			19
Net deferred loan costs		(420	)		(463	)
Allowance for loan losses		9,328			9,311
Total loans receivable, net	$	589,855			585,931

XML

Note 9 - Allowance for Loan Losses and Credit Quality Information

6 Months Ended

Jun. 30, 2018

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 June 30, 2018:
Balance, March 31, 2018	$	809			5,198			1,423			1,699			9,129
Provision for losses		72			(147	)		254			116			295
Charge-offs		0			0			(56	)		(255	)		(311	)
Recoveries		0			191			2			22			215
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
For the six months ended June 30, 2018:
Balance, December 31, 2017	$	900			5,073			1,630			1,708			9,311
Provision for losses		4			(29	)		109			86			170
Charge-offs		(23	)		0			(125	)		(255	)		(403	)
Recoveries		0			198			9			43			250
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
Allocated to:
Specific allowance	$	192			441			263			177			1,073
General allowance		708			4,632			1,367			1,531			8,238
Balance, December 31, 2017	$	900			5,073			1,630			1,708			9,311
Allocated to:
Specific allowance	$	110			437			173			74			794
General allowance		771			4,805			1,450			1,508			8,534
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
Loans receivable at December 31, 2017:
Individually reviewed for impairment	$	1,523			1,364			880			507			4,274
Collectively reviewed for impairment		105,482			332,753			72,887			79,402			590,524
Ending balance	$	107,005			334,117			73,767			79,909			594,798
Loans receivable at June 30, 2018:
Individually reviewed for impairment	$	1,294			1,432			984			265			3,975
Collectively reviewed for impairment		105,909			336,728			71,306			80,865			594,808
Ending balance	$	107,203			338,160			72,290			81,130			598,783

(Dollars in thousands)	Single Family			Commercial Real Estate		Consumer			Commercial Business			Total
For the three months ended June 30, 2017:
Balance, March 31, 2017	$	1,110			4,958		1,332			2,190			9,590
Provision for losses		(106	)		452		224			(301	)		269
Charge-offs		0			0		(17	)		0			(17	)
Recoveries		0			80		5			118			203
Balance, June 30, 2017	$	1,004			5,490		1,544			2,007			10,045
For the six months ended June 30, 2017:
Balance, December 31, 2016	$	1,186			4,953		1,613			2,151			9,903
Provision for losses		(182	)		363		116			(298	)		(1	)
Charge-offs		0			0		(218	)		0			(218	)
Recoveries		0			174		33			154			361
Balance, June 30, 2017	$	1,004			5,490		1,544			2,007			10,045

The following table summarizes the amount of classified and unclassified loans at

June 30, 2018

and

December 31, 2017:

	June 30, 2018
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	108		2,061		43		0		2,212		104,991		107,203
Commercial real estate:
Real estate rental and leasing		7,031		5,095		0		0		12,126		176,625		188,751
Other		1,768		8,751		0		0		10,519		138,890		149,409
Consumer		0		828		51		105		984		71,306		72,290
Commercial business		8,350		4,364		0		0		12,714		68,416		81,130
	$	17,257		21,099		94		105		38,555		560,228		598,783

	December 31, 2017
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	77		2,154		44		0		2,275		104,730		107,005
Commercial real estate:
Real estate rental and leasing		5,022		3,813		0		0		8,835		166,342		175,177
Other		9,135		4,257		0		0		13,392		145,548		158,940
Consumer		0		631		119		130		880		72,887		73,767
Commercial business		5,781		5,506		0		0		11,287		68,622		79,909
	$	20,015		16,361		163		130		36,669		558,129		594,798

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

June 30, 2018

and

December 31, 2017

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
J une 30, 201 8
Single family	$	380		455		82		917		106,286		107,203		0
Commercial real estate:
Real estate rental and leasing		459		0		0		459		188,292		188,751		0
Other		0		0		22		22		149,387		149,409		0
Consumer		245		136		278		659		71,631		72,290		0
Commercial business		25		0		0		25		81,105		81,130
	$	1,109		591		382		2,082		596,701		598,783		0
December 31, 201 7
Single family	$	727		294		669		1,690		105,315		107,005		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		175,177		175,177		0
Other		0		0		0		0		158,940		158,940		0
Consumer		734		117		235		1,086		72,681		73,767		0
Commercial business		34		0		180		214		79,695		79,909		0
	$	1,495		411		1,084		2,990		591,808		594,798		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

June 30, 2018

and

December 31, 2017:

	June 30, 2018						December 31, 2017
(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	$	416		416		0		415		415		0
Commercial real estate:
Real estate rental and leasing		34		34		0		35		51		0
Other		165		1,821		0		25		1,682		0
Consumer		607		607		0		414		414		0
Loans with an allowance recorded:
Single family		878		878		110		1,108		1,108		192
Commercial real estate:
Other		1,233		1,233		437		1,304		1,304		441
Consumer		377		393		173		466		483		263
Commercial business		265		817		74		507		1,358		177
Total:
Single family		1,294		1,294		110		1,523		1,523		192
Commercial real estate:
Real estate rental and leasing		34		34		0		35		51		0
Other		1,398		3,054		437		1,329		2,986		441
Consumer		984		1,000		173		880		897		263
Commercial business		265		817		74		507		1,358		177
	$	3,975		6,199		794		4,274		6,815		1,073

The following table summarizes the average recorded investment and interest income recognized on impaired loans for the

three

and

six

months ended

June 30, 2018

and

2017:

	For the three months ended June 30, 2018				For the six months ended June 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	425		4		421		10
Commercial real estate:
Real estate rental and leasing		35		15		35		15
Other		165		24		118		48
Consumer		506		4		475		9
Loans with an allowance recorded:
Single family		809		0		908		0
Commercial real estate:
Other		1,279		0		1,287		0
Consumer		416		2		433		5
Commercial business		373		2		417		4
Total:
Single family		1,234		4		1,329		10
Commercial real estate:
Real estate rental and leasing		35		15		35		15
Other		1,444		24		1,405		48
Consumer		922		6		908		14
Commercial business		373		2		417		4
	$	4,008		51		4,094		91

	For the three months ended June 30, 2017				For the six months ended June 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	$	529		3		425		6
Commercial real estate:
Real estate rental and leasing		39		0		39		0
Other		26		24		26		48
Consumer		398		3		369		7
Commercial business		113		0		167		0
Loans with an allowance recorded:
Single family		867		4		874		6
Commercial real estate:
Real estate rental and leasing		259		0		172		0
Other		1,812		7		1,812		15
Consumer		388		2		468		3
Commercial business		399		3		389		8
Total:
Single family		1,396		7		1,299		12
Commercial real estate:
Real estate rental and leasing		298		0		211		0
Other		1,838		31		1,838		63
Consumer		786		5		837		10
Commercial business		512		3		556		8
	$	4,830		46		4,741		93

At

June 30, 2018

and

December 31, 2017,

non-accruing loans totaled

$3.0

million and

$3.1

million, respectively, for which the related allowance for loan losses was

$0.7

million and

$0.9

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

$0.6

million and

$0.4

million at

June 30, 2018

and

December 31, 2017,

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

The non-accrual loans at

June 30, 2018

and

December 31, 2017

are summarized as follows:

(Dollars in thousands)	June 30, 2018		December 31, 2017
Single family	$	960		949
Commercial real estate:
Real estate rental and leasing		34		35
Other		1,398		1,329
Consumer		551		553
Commercial business		73		278
	$	3,016		3,144

At

June 30, 2018

and

December 31, 2017

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

$2.6

million and

$3.0

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

second

quarter of

2018,

$0.2

million were classified but performing and

$26,000

were non-performing at

June 30, 2018.

For the loans that were restructured in the

second

quarter of

2017,

$0.1

million were classified but performing and

$0.2

million were non-performing at

June 30, 2017.

The following table summarizes TDRs at

June 30, 2018

and

December 31, 2017:

	June 30, 2018						December 31, 2017
(Dollars in thousands)	Accruing		Non- Accrual		Total		Accruing		Non- Accrual		Total
Single family	$	334		149		483		573		112		685
Commercial real estate		0		1,177		1,177		0		1,210		1,210
Consumer		433		209		642		327		431		758
Commercial business		192		61		253		229		162		391
	$	959		1,596		2,555		1,129		1,915		3,044

As of

June 30, 2018,

the Bank had commitments to lend an additional

$1.2

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, 2017,

there were commitments to lend additional funds of

$0.8

million to this same borrower.

TDR concessions can include 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 table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the

three

month and

six

month periods ending

June 30, 2018

and

June 30, 2017.

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
(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		1	$	55		58
Commercial real estate:
Real estate rental and leasing		0		0		0		1		54		54
Other		1		244		244		2		1,518		1,518
Consumer		4		216		216		8		334		334
Commercial business		0		0		0		1		70		70
Total		5	$	460		460		13	$	2,031		2,034

	Three Months Ended June 30, 2017						Six Months Ended June 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
Consumer		5		314		315		7		358		360
Total		5	$	314		315		10	$	640		874

The following tables summarize the loans that were restructured in the

12

months preceding

June 30, 2018

and

June 30, 2017

and subsequently defaulted during the

three

and

six

months ended

June 30, 2018

and

June 30, 2017.

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Commercial business		1	$	116		1	$	116
Total		1	$	116		1	$	116

	Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Single family		2	$	60		2	$	60
Total		2	$	60		2	$	60

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 specific reserves as needed. Loans that are

not

collateral-dependent

may

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

$0.6

million, or

6.8%,

of the total

$9.3

million in loan loss reserves at

June 30, 2018

and

$0.9

million, or

9.8%,

of the total

$9.3

million in loan loss reserves at

December 31, 2017.

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

(Dollars in thousands)	Contractual Principal Receivable			Accretable Difference			Net Carrying Amount
Purchased performing loans:
Balance at March 31, 2018	$	9,447			(218	)		9,229
Change due to payments/refinances		(891	)		12			(879	)
Balance at June 30, 2018	$	8,556			(206	)		8,350

(Dollars in thousands)	Contractual Principal Receivable			Non- Accretable Difference			Net Carrying Amount
Purchased credit impaired loans:
Balance at March 31, 2018	$	400			(37	)		363
Change due to payments/refinances		(4	)		1			(3	)
Balance at June 30, 2018	$	396			(36	)		360

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

June 30, 2018

was

$0.4

million.

No

material provision for loan losses was recognized during the

three

and

six

month periods ended

June 30, 2018

related to acquired loans as there was

no

significant change to the credit quality of those loans.

XML

Note 10 - Intangible Assets

6 Months Ended

Jun. 30, 2018

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)	Six Months ended June 30, 2018			Twelve Months ended December 31, 2017			Six Months ended June 30, 2017
Balance, beginning of period	$	1,724			1,604			1,604
Originations		357			675			320
Amortization		(268	)		(555	)		(269	)
Balance, end of period	$	1,813			1,724			1,655
Fair value of mortgage servicing rights	$	3,620			3,196			3,027

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 for FNMA at

June 30, 2018.

			Weighted			Weighted
	Loan		Average			Average
	Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans
Original term 30 year fixed rate	$	284,802		4.10	%		307		2,213
Original term 15 year fixed rate		100,131		3.14			133		1,026
Adjustable rate		54		4.38			275		2

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

June 30, 2018

and

2017

is presented in the following tables.

No

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

not

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

may

exist. Amortization expense for amortizing intangible assets was

$0.3

million for both the

six

months ended

June 30, 2018

and

2017.

	June 30, 2018
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,394		(2,581	)		1,813
Core deposit intangible		574		(269	)		305
Goodwill		802		0			802
Total	$	5,770		(2,850	)		2,920

	June 30, 2017
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,106		(2,451	)		1,655
Core deposit intangible		574		(170	)		404
Goodwill		802		0			802
Total	$	5,482		(2,621	)		2,861

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 ending December 31,
2018	$	239		50		289
2019		421		99		520
2020		350		99		449
2021		304		47		351
2022		242		10		252
Thereafter		257		0		257
Total	$	1,813		305		2,118

Projections of amortization are based on existing asset balances and the existing interest rate environment as of

June 30, 2018.

The Company's actual experiences

may

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

XML

Note 11 - Earnings Per Common Share

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

(

1

1

)

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 June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2018		2017		2018		2017
Weighted average number of common shares outstanding used in basic earnings per common share calculation		4,291		4,211		4,264		4,208
Net dilutive effect of:
Restricted stock awards, options, and warrants		457		648		561		651
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,748		4,859		4,825		4,859
Income available to common shareholders	$	1,727		1,024		3,172		2,237
Basic earnings per common share	$	0.40		0.24		0.74		0.53
Diluted earnings per common share	$	0.36		0.21		0.66		0.46

XML

Note 12 - Regulatory Capital and Oversight

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

(

1

2

)

Regulatory Capital

and Oversight

The Company and the Bank are subject to 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 capital ratios and buffer requirements which are being 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 their 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 Board of Governors of the Federal Reserve System (FRB) 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 ended

June 30, 2018

were

$725.9

million, its adjusted total assets were

$724.2

million, and its risk-weighted assets were

$620.0

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

June 30, 2018

for actual capital, required capital, and excess capital, including ratios in order to qualify as being well capitalized under the prompt corrective action 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			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
June 30, 2018
Common equity tier 1 capital	$	79,826		12.88	%	$	27,900		4.50	%	$	51,926		8.38	%	$	40,300		6.50	%
Tier 1 capital leverage		79,826		11.02			28,968		4.00			50,858		7.02			36,210		5.00
Tier 1 risk-based capital		79,826		12.88			37,200		6.00			42,626		6.88			49,600		8.00
Total risk-based capital		87,595		14.13			49,600		8.00			37,995		6.13			62,000		10.00

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

2018,

the capital conservation buffer is

1.875%

and in

2019

the buffer amount will increase to

2.50%

and be fully phased in. Management believes that, as of

June 30, 2018,

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

6 Months Ended

Jun. 30, 2018

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

per share 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.  

On

May 21, 2018,

the Company entered into a Warrant Repurchase Agreement (Repurchase Agreement) with

one

of the warrant holders. Pursuant to the terms of the Repurchase Agreement, the Company agreed to repurchase from the warrant holder, at a purchase price of

$14.32

per warrant,

138,888.66

warrants to purchase common stock of the Company, resulting in an aggregate purchase price of

$1,988,886.

The warrant repurchase price reflects the difference between the exercise price of the warrants and the closing market price of the Company’s common stock on the date the Repurchase Agreement was executed. The warrant repurchase was completed on

May 22, 2018

and the

138,888.66

warrants purchased by the Company were cancelled.

Simultaneously with the execution of the Repurchase Agreement, the warrant holder exercised its right to exercise, on a cashless basis, the remaining

138,889

warrants at an exercise price of

$4.68

per share. After taking into account the shares withheld to satisfy the cashless exercise option, the Company issued

104,678

shares of common stock to the warrant holder out of treasury stock.

The warrants held by the remaining

two

investors to purchase a total of

555,555.34

shares of the Company’s common stock at an exercise price of

$4.68

were still outstanding as of

June 30, 2018

and

may

be exercised at any time prior to their expiration date of

December 23, 2018.

XML

Note 14 - Other Borrowings

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

(

1

4

) 

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

June 30, 2018

and the loan balance was

$7.0

million at

June 30, 2017.

XML

Note 15 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

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

June 30, 2018

were approximately

$4.7

million, expire over the next

50

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

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

(

1

6

)

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 or loss 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 six months ended June 30, 201 8 :
Interest income - external customers	$	14,614		0			0			14,614
Non-interest income - external customers		3,830		0			0			3,830
Intersegment non-interest income		105		3,464			(3,569	)		0
Interest expense		996		0			0			996
Other non-interest expense		12,616		356			(105	)		12,867
Income tax expense		1,303		(64	)		0			1,239
Net income		3,464		3,172			(3,464	)		3,172
Total assets		726,121		81,590			(81,426	)		726,285
At or for the six months ended June 30, 201 7 :
Interest income - external customers	$	13,658		0			0			13,658
Non-interest income - external customers		3,786		0			0			3,786
Intersegment non-interest income		105		2,636			(2,741	)		0
Interest expense		640		229			0			869
Other non-interest expense		12,529		362			(105	)		12,786
Income tax expense		1,745		(192	)		0			1,553
Net income		2,636		2,237			(2,636	)		2,237
Total assets		724,407		84,826			(84,050	)		725,183
At or for the quarter ended June 30, 201 8 :
Interest income - external customers	$	7,456		0			0			7,456
Non-interest income - external customers		2,054		0			0			2,054
Intersegment non-interest income		52		1,870			(1,922	)		0
Interest expense		526		0			0			526
Other non-interest expense		6,191		174			(52	)		6,313
Income tax expense		680		(31	)		0			649
Net income		1,870		1,727			(1,870	)		1,727
Total assets		726,121		81,590			(81,426	)		726,285
At or for the quarter ended June 30, 201 7 :
Interest income - external customers	$	6,999		0			0			6,999
Non-interest income - external customers		1,906		0			0			1,906
Intersegment non-interest income		52		1,221			(1,273	)		0
Interest expense		345		116			0			461
Other non-interest expense		6,316		175			(52	)		6,439
Income tax expense		806		(94	)		0			712
Net income		1,221		1,024			(1,221	)		1,024
Total assets		724,407		84,826			(84,050	)		725,183

XML

Note 4 - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Carrying value at June 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	80,525		0		80,525		0
Mortgage loan commitments		74		0		74		0
Total	$	80,599		0		80,599		0

	Carrying value at December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	77,472		0		77,472		0
Mortgage loan commitments		28		0		28		0
Total	$	77,500		0		77,500		0

Fair Value Measurements, Nonrecurring [Table Text Block]

	Carrying value at June 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Three months ended June 30, 2018 total gains (losses)			Six months ended June 30, 2018 total gains (losses)
Loans held for sale	$	3,624		0		3,624		0		16			17
Mortgage servicing rights		1,813		0		1,813		0		0			0
Loans (1)		3,181		0		3,181		0		(29	)		(80	)
Real estate, net (2)		701		0		701		0		0			0
Total	$	9,319		0		9,319		0		(13	)		(63	)

	Carrying value at December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Year ended December 31, 2017 total gains (losses)
Loans held for sale	$	1,837		0		1,837		0		1
Mortgage servicing rights, net		1,724		0		1,724		0		0
Loans (1)		3,201		0		3,201		0		(413	)
Real estate, net (2)		627		0		627		0		0
Total	$	7,389		0		7,389		0		(412	)

XML

Note 5 - Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	June 30, 2018													December 31, 2017
							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	$	31,710			31,710			31,710							37,564			37,564			37,564
Securities available for sale		80,525			80,525					80,525					77,472			77,472					77,472
Loans held for sale		3,624			3,624					3,624					1,837			1,837					1,837
Loans receivable, net		589,855			588,794					588,794					585,931			585,494					585,494
Federal Home Loan Bank stock		867			867					867					817			817					817
Accrued interest receivable		2,330			2,330					2,330					2,344			2,344					2,344
Financial liabilities:
Deposits		639,535			633,844					633,844					635,601			635,905					635,905
Accrued interest payable		264			264					264					146			146					146
Off-balance sheet financial instruments:
Commitments to extend credit		74			74								242,267		28			28								173,645
Commitments to sell loans		(28	)		(28	)							11,321		(11	)		(11	)							5,629

XML

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

6 Months Ended

Jun. 30, 2018

Notes Tables

Comprehensive Income (Loss) [Table Text Block]

	For the three months ended June 30,
(Dollars in thousands)	2018									2017
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax
Net unrealized (losses) gains arising during the period	$	(146	)		(41	)		(105	)		286		113		173
Other comprehensive income (loss)	$	(146	)		(41	)		(105	)		286		113		173

	For the six months ended June 30,
(Dollars in thousands)	2018									2017
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax
Net unrealized (losses) gains arising during the period	$	(625	)		(175	)		(452	)		599		238		361
Other comprehensive income (loss)	$	(625	)		(175	)		(452	)		599		238		361

XML

Note 7 - Securities Available for Sale (Tables)

6 Months Ended

Jun. 30, 2018

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
June 30, 2018
Mortgage-backed securities:
Federal National Mortgage Association (FNMA)		2	$	4,201		(168	)		0	$	0		0		$	4,201		(168	)
Federal Home Loan Mortgage Corporation (FHLMC)		1		4,468		(72	)		0		0		0			4,468		(72	)
Collateralized mortgage obligations:
FNMA		1		202		(10	)		0		0		0			202		(10	)
Other marketable securities:
U.S. Government agency obligations		2		9,678		(306	)		12		58,606		(1,377	)		68,284		(1,683	)
Municipal obligations		13		2,272		(11	)		0		0		0			2,272		(11	)
Corporate obligations		1		200		(4	)		0		0		0			200		(4	)
Corporate preferred stock		0		0		0			1		595		(105	)		595		(105	)
Total temporarily impaired securities		20	$	21,021		(571	)		13	$	59,201		(1,482	)	$	80,222		(2,053	)

	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, 2017
Mortgage-backed securities:
FNMA		2	$	4,703		(78	)		0	$	0		0		$	4,703		(78	)
Collateralized mortgage obligations:
FNMA		1		218		(5	)		0		0		0			218		(5	)
Other marketable securities:
U.S. Government agency obligations		2		9,819		(163	)		12		58,942		(1,038	)		68,761		(1,201	)
Municipal obligations		14		2,268		(8	)		0		0		0			2,268		(8	)
Corporate obligations		1		233		(1	)		0		0		0			233		(1	)
Corporate preferred stock		0		0		0			1		560		(140	)		560		(140	)
Total temporarily impaired securities		20	$	17,241		(255	)		13	$	59,502		(1,178	)	$	76,743		(1,433	)

Available-for-sale Securities [Table Text Block]

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
June 30, 2018
Mortgage-backed securities:
FHLMC	$	4,564		0		(72	)		4,492
FNMA		4,369		0		(168	)		4,201
Collateralized mortgage obligations:
FNMA		212		0		(10	)		202
		9,145		0		(250	)		8,895
Other marketable securities:
U.S. Government agency obligations		69,967		0		(1,683	)		68,284
Municipal obligations		2,383		0		(11	)		2,372
Corporate obligations		204		0		(4	)		200
Corporate preferred stock		700		0		(105	)		595
Corporate equity		179		0		0			179
		73,433		0		(1,803	)		71,630
	$	82,578		0		(2,053	)		80,525

(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2017
Mortgage-backed securities:
FHLMC	$	91		2		0			93
FNMA		4,834		1		(78	)		4,757
Collateralized mortgage obligations:
FNMA		223		0		(5	)		218
		5,148		3		(83	)		5,068
Other marketable securities:
U.S. Government agency obligations		69,962		0		(1,201	)		68,761
Municipal obligations		2,699		2		(8	)		2,693
Corporate obligations		234		0		(1	)		233
Corporate preferred stock		700		0		(140	)		560
Corporate equity		58		99		0			157
		73,653		101		(1,350	)		72,404
	$	78,801		104		(1,433	)		77,472

Available-for-sale Securities [Member]

Notes Tables

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

(Dollars in thousands)	Amortized Cost		Fair Value
Due less than one year	$	1,921		1,878
Due after one year through five years		76,660		74,842
Due after five years through ten years		3,036		2,953
Due after ten years		782		673
No stated maturity		179		179
Total	$	82,578		80,525

XML

Note 8 - Loans Receivable, Net (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Summary of Loans Receivable [Table Text Block]

(Dollars in thousands)	June 30, 2018			December 31, 2017
Single family	$	107,203			107,005
Commercial real estate:
Real estate rental and leasing		188,751			175,177
Other		149,409			158,940
		338,160			334,117
Consumer		72,290			73,767
Commercial business		81,130			79,909
Total loans		598,783			594,798
Less:
Unamortized discounts		20			19
Net deferred loan costs		(420	)		(463	)
Allowance for loan losses		9,328			9,311
Total loans receivable, net	$	589,855			585,931

XML

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

6 Months Ended

Jun. 30, 2018

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 June 30, 2018:
Balance, March 31, 2018	$	809			5,198			1,423			1,699			9,129
Provision for losses		72			(147	)		254			116			295
Charge-offs		0			0			(56	)		(255	)		(311	)
Recoveries		0			191			2			22			215
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
For the six months ended June 30, 2018:
Balance, December 31, 2017	$	900			5,073			1,630			1,708			9,311
Provision for losses		4			(29	)		109			86			170
Charge-offs		(23	)		0			(125	)		(255	)		(403	)
Recoveries		0			198			9			43			250
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
Allocated to:
Specific allowance	$	192			441			263			177			1,073
General allowance		708			4,632			1,367			1,531			8,238
Balance, December 31, 2017	$	900			5,073			1,630			1,708			9,311
Allocated to:
Specific allowance	$	110			437			173			74			794
General allowance		771			4,805			1,450			1,508			8,534
Balance, June 30, 2018	$	881			5,242			1,623			1,582			9,328
Loans receivable at December 31, 2017:
Individually reviewed for impairment	$	1,523			1,364			880			507			4,274
Collectively reviewed for impairment		105,482			332,753			72,887			79,402			590,524
Ending balance	$	107,005			334,117			73,767			79,909			594,798
Loans receivable at June 30, 2018:
Individually reviewed for impairment	$	1,294			1,432			984			265			3,975
Collectively reviewed for impairment		105,909			336,728			71,306			80,865			594,808
Ending balance	$	107,203			338,160			72,290			81,130			598,783

(Dollars in thousands)	Single Family			Commercial Real Estate		Consumer			Commercial Business			Total
For the three months ended June 30, 2017:
Balance, March 31, 2017	$	1,110			4,958		1,332			2,190			9,590
Provision for losses		(106	)		452		224			(301	)		269
Charge-offs		0			0		(17	)		0			(17	)
Recoveries		0			80		5			118			203
Balance, June 30, 2017	$	1,004			5,490		1,544			2,007			10,045
For the six months ended June 30, 2017:
Balance, December 31, 2016	$	1,186			4,953		1,613			2,151			9,903
Provision for losses		(182	)		363		116			(298	)		(1	)
Charge-offs		0			0		(218	)		0			(218	)
Recoveries		0			174		33			154			361
Balance, June 30, 2017	$	1,004			5,490		1,544			2,007			10,045

Financing Receivable Credit Quality Indicators [Table Text Block]

	June 30, 2018
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	108		2,061		43		0		2,212		104,991		107,203
Commercial real estate:
Real estate rental and leasing		7,031		5,095		0		0		12,126		176,625		188,751
Other		1,768		8,751		0		0		10,519		138,890		149,409
Consumer		0		828		51		105		984		71,306		72,290
Commercial business		8,350		4,364		0		0		12,714		68,416		81,130
	$	17,257		21,099		94		105		38,555		560,228		598,783

	December 31, 2017
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	77		2,154		44		0		2,275		104,730		107,005
Commercial real estate:
Real estate rental and leasing		5,022		3,813		0		0		8,835		166,342		175,177
Other		9,135		4,257		0		0		13,392		145,548		158,940
Consumer		0		631		119		130		880		72,887		73,767
Commercial business		5,781		5,506		0		0		11,287		68,622		79,909
	$	20,015		16,361		163		130		36,669		558,129		594,798

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
J une 30, 201 8
Single family	$	380		455		82		917		106,286		107,203		0
Commercial real estate:
Real estate rental and leasing		459		0		0		459		188,292		188,751		0
Other		0		0		22		22		149,387		149,409		0
Consumer		245		136		278		659		71,631		72,290		0
Commercial business		25		0		0		25		81,105		81,130
	$	1,109		591		382		2,082		596,701		598,783		0
December 31, 201 7
Single family	$	727		294		669		1,690		105,315		107,005		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		175,177		175,177		0
Other		0		0		0		0		158,940		158,940		0
Consumer		734		117		235		1,086		72,681		73,767		0
Commercial business		34		0		180		214		79,695		79,909		0
	$	1,495		411		1,084		2,990		591,808		594,798		0

Impaired Financing Receivables [Table Text Block]

	June 30, 2018						December 31, 2017
(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	$	416		416		0		415		415		0
Commercial real estate:
Real estate rental and leasing		34		34		0		35		51		0
Other		165		1,821		0		25		1,682		0
Consumer		607		607		0		414		414		0
Loans with an allowance recorded:
Single family		878		878		110		1,108		1,108		192
Commercial real estate:
Other		1,233		1,233		437		1,304		1,304		441
Consumer		377		393		173		466		483		263
Commercial business		265		817		74		507		1,358		177
Total:
Single family		1,294		1,294		110		1,523		1,523		192
Commercial real estate:
Real estate rental and leasing		34		34		0		35		51		0
Other		1,398		3,054		437		1,329		2,986		441
Consumer		984		1,000		173		880		897		263
Commercial business		265		817		74		507		1,358		177
	$	3,975		6,199		794		4,274		6,815		1,073

	For the three months ended June 30, 2018				For the six months ended June 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	425		4		421		10
Commercial real estate:
Real estate rental and leasing		35		15		35		15
Other		165		24		118		48
Consumer		506		4		475		9
Loans with an allowance recorded:
Single family		809		0		908		0
Commercial real estate:
Other		1,279		0		1,287		0
Consumer		416		2		433		5
Commercial business		373		2		417		4
Total:
Single family		1,234		4		1,329		10
Commercial real estate:
Real estate rental and leasing		35		15		35		15
Other		1,444		24		1,405		48
Consumer		922		6		908		14
Commercial business		373		2		417		4
	$	4,008		51		4,094		91

	For the three months ended June 30, 2017				For the six months ended June 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	$	529		3		425		6
Commercial real estate:
Real estate rental and leasing		39		0		39		0
Other		26		24		26		48
Consumer		398		3		369		7
Commercial business		113		0		167		0
Loans with an allowance recorded:
Single family		867		4		874		6
Commercial real estate:
Real estate rental and leasing		259		0		172		0
Other		1,812		7		1,812		15
Consumer		388		2		468		3
Commercial business		399		3		389		8
Total:
Single family		1,396		7		1,299		12
Commercial real estate:
Real estate rental and leasing		298		0		211		0
Other		1,838		31		1,838		63
Consumer		786		5		837		10
Commercial business		512		3		556		8
	$	4,830		46		4,741		93

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

(Dollars in thousands)	June 30, 2018		December 31, 2017
Single family	$	960		949
Commercial real estate:
Real estate rental and leasing		34		35
Other		1,398		1,329
Consumer		551		553
Commercial business		73		278
	$	3,016		3,144

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	June 30, 2018						December 31, 2017
(Dollars in thousands)	Accruing		Non- Accrual		Total		Accruing		Non- Accrual		Total
Single family	$	334		149		483		573		112		685
Commercial real estate		0		1,177		1,177		0		1,210		1,210
Consumer		433		209		642		327		431		758
Commercial business		192		61		253		229		162		391
	$	959		1,596		2,555		1,129		1,915		3,044

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

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
(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		1	$	55		58
Commercial real estate:
Real estate rental and leasing		0		0		0		1		54		54
Other		1		244		244		2		1,518		1,518
Consumer		4		216		216		8		334		334
Commercial business		0		0		0		1		70		70
Total		5	$	460		460		13	$	2,031		2,034

	Three Months Ended June 30, 2017						Six Months Ended June 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
Consumer		5		314		315		7		358		360
Total		5	$	314		315		10	$	640		874

Troubled Debt Restructurings Subsequent Default [Table Text Block]

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Commercial business		1	$	116		1	$	116
Total		1	$	116		1	$	116

	Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Single family		2	$	60		2	$	60
Total		2	$	60		2	$	60

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			Net Carrying Amount
Purchased performing loans:
Balance at March 31, 2018	$	9,447			(218	)		9,229
Change due to payments/refinances		(891	)		12			(879	)
Balance at June 30, 2018	$	8,556			(206	)		8,350

(Dollars in thousands)	Contractual Principal Receivable			Non- Accretable Difference			Net Carrying Amount
Purchased credit impaired loans:
Balance at March 31, 2018	$	400			(37	)		363
Change due to payments/refinances		(4	)		1			(3	)
Balance at June 30, 2018	$	396			(36	)		360

XML

Note 10 - Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Servicing Liability at Amortized Cost [Table Text Block]

(Dollars in thousands)	Six Months ended June 30, 2018			Twelve Months ended December 31, 2017			Six Months ended June 30, 2017
Balance, beginning of period	$	1,724			1,604			1,604
Originations		357			675			320
Amortization		(268	)		(555	)		(269	)
Balance, end of period	$	1,813			1,724			1,655
Fair value of mortgage servicing rights	$	3,620			3,196			3,027

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	$	284,802		4.10	%		307		2,213
Original term 15 year fixed rate		100,131		3.14			133		1,026
Adjustable rate		54		4.38			275		2

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

	June 30, 2018
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,394		(2,581	)		1,813
Core deposit intangible		574		(269	)		305
Goodwill		802		0			802
Total	$	5,770		(2,850	)		2,920

	June 30, 2017
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	4,106		(2,451	)		1,655
Core deposit intangible		574		(170	)		404
Goodwill		802		0			802
Total	$	5,482		(2,621	)		2,861

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 ending December 31,
2018	$	239		50		289
2019		421		99		520
2020		350		99		449
2021		304		47		351
2022		242		10		252
Thereafter		257		0		257
Total	$	1,813		305		2,118

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Note 11 - Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2018		2017		2018		2017
Weighted average number of common shares outstanding used in basic earnings per common share calculation		4,291		4,211		4,264		4,208
Net dilutive effect of:
Restricted stock awards, options, and warrants		457		648		561		651
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,748		4,859		4,825		4,859
Income available to common shareholders	$	1,727		1,024		3,172		2,237
Basic earnings per common share	$	0.40		0.24		0.74		0.53
Diluted earnings per common share	$	0.36		0.21		0.66		0.46

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Note 12 - Regulatory Capital and Oversight (Tables)

6 Months Ended

Jun. 30, 2018

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			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
June 30, 2018
Common equity tier 1 capital	$	79,826		12.88	%	$	27,900		4.50	%	$	51,926		8.38	%	$	40,300		6.50	%
Tier 1 capital leverage		79,826		11.02			28,968		4.00			50,858		7.02			36,210		5.00
Tier 1 risk-based capital		79,826		12.88			37,200		6.00			42,626		6.88			49,600		8.00
Total risk-based capital		87,595		14.13			49,600		8.00			37,995		6.13			62,000		10.00

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Note 16 - Business Segments (Tables)

6 Months Ended

Jun. 30, 2018

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 six months ended June 30, 201 8 :
Interest income - external customers	$	14,614		0			0			14,614
Non-interest income - external customers		3,830		0			0			3,830
Intersegment non-interest income		105		3,464			(3,569	)		0
Interest expense		996		0			0			996
Other non-interest expense		12,616		356			(105	)		12,867
Income tax expense		1,303		(64	)		0			1,239
Net income		3,464		3,172			(3,464	)		3,172
Total assets		726,121		81,590			(81,426	)		726,285
At or for the six months ended June 30, 201 7 :
Interest income - external customers	$	13,658		0			0			13,658
Non-interest income - external customers		3,786		0			0			3,786
Intersegment non-interest income		105		2,636			(2,741	)		0
Interest expense		640		229			0			869
Other non-interest expense		12,529		362			(105	)		12,786
Income tax expense		1,745		(192	)		0			1,553
Net income		2,636		2,237			(2,636	)		2,237
Total assets		724,407		84,826			(84,050	)		725,183
At or for the quarter ended June 30, 201 8 :
Interest income - external customers	$	7,456		0			0			7,456
Non-interest income - external customers		2,054		0			0			2,054
Intersegment non-interest income		52		1,870			(1,922	)		0
Interest expense		526		0			0			526
Other non-interest expense		6,191		174			(52	)		6,313
Income tax expense		680		(31	)		0			649
Net income		1,870		1,727			(1,870	)		1,727
Total assets		726,121		81,590			(81,426	)		726,285
At or for the quarter ended June 30, 201 7 :
Interest income - external customers	$	6,999		0			0			6,999
Non-interest income - external customers		1,906		0			0			1,906
Intersegment non-interest income		52		1,221			(1,273	)		0
Interest expense		345		116			0			461
Other non-interest expense		6,316		175			(52	)		6,439
Income tax expense		806		(94	)		0			712
Net income		1,221		1,024			(1,221	)		1,024
Total assets		724,407		84,826			(84,050	)		725,183

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Note 1 - HMN Financial, Inc. (Details Textual)	6 Months Ended
	Jun. 30, 2018
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	Jun. 30, 2018	Dec. 31, 2017
Loans and Leases Receivable, Net Amount, Total	$ 589,855	$ 585,931
Fully Charged Off [Member]
Loans and Leases Receivable, Net Amount, Total	$ 0

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Note 4 - Fair Value Measurements - Assets and Liabilities Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Securities available for sale	$ 80,525	$ 77,472
Fair Value, Measurements, Recurring [Member]
Securities available for sale	80,525	77,472
Mortgage loan commitments	74	28
Total	80,599	77,500
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	80,525	77,472
Mortgage loan commitments	74	28
Total	80,599	77,500
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	6 Months Ended	12 Months Ended
		Jun. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Loans held for sale, Total gains (losses)		$ 16	$ 17	$ 1
Mortgage servicing rights, net, Total gains (losses)		0	0	0
Loans, Total gains (losses)	[1]	(29)	(80)	(413)
Real estate, net, Total gains (losses)	[2]	0	0	0
Total, Total gains (losses)		(13)	(63)	(412)
Fair Value, Measurements, Nonrecurring [Member]
Loans held for sale		3,624	3,624	1,837
Mortgage servicing rights		1,813	1,813	1,724
Loans	[1]	3,181	3,181	3,201
Real estate, net	[2]	701	701	627
Total		9,319	9,319	7,389
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Loans held for sale		0	0	0
Mortgage servicing rights		0	0	0
Loans	[1]	0	0	0
Real estate, net	[2]	0	0	0
Total		0	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Loans held for sale		3,624	3,624	1,837
Mortgage servicing rights		1,813	1,813	1,724
Loans	[1]	3,181	3,181	3,201
Real estate, net	[2]	701	701	627
Total		9,319	9,319	7,389
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Loans held for sale		0	0	0
Mortgage servicing rights		0	0	0
Loans	[1]	0	0	0
Real estate, net	[2]	0	0	0
Total		$ 0	$ 0	$ 0

[1] Represents carrying value and related write-downs of 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	Jun. 30, 2018	Dec. 31, 2017
Financial assets:
Securities available for sale	$ 80,525	$ 77,472
Loans receivable, net	589,855	585,931
Reported Value Measurement [Member]
Financial assets:
Cash and cash equivalents	31,710	37,564
Securities available for sale	80,525	77,472
Loans held for sale	3,624	1,837
Loans receivable, net	589,855	585,931
Federal Home Loan Bank stock	867	817
Accrued interest receivable	2,330	2,344
Financial liabilities:
Deposits	639,535	635,601
Accrued interest payable	264	146
Off-balance sheet financial instruments:
Commitments to extend credit	74	28
Commitments to sell loans	(28)	(11)
Estimate of Fair Value Measurement [Member]
Financial assets:
Cash and cash equivalents	31,710	37,564
Securities available for sale	80,525	77,472
Loans held for sale	3,624	1,837
Loans receivable, net	588,794	585,494
Federal Home Loan Bank stock	867	817
Accrued interest receivable	2,330	2,344
Financial liabilities:
Deposits	633,844	635,905
Accrued interest payable	264	146
Off-balance sheet financial instruments:
Commitments to extend credit	74	28
Commitments to sell loans	(28)	(11)
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	31,710	37,564
Securities available for sale
Loans held for sale
Loans receivable, net
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Deposits
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	80,525	77,472
Loans held for sale	3,624	1,837
Loans receivable, net	588,794	585,494
Federal Home Loan Bank stock	867	817
Accrued interest receivable	2,330	2,344
Financial liabilities:
Deposits	633,844	635,905
Accrued interest payable	264	146
Off-balance sheet financial instruments:
Commitments to extend credit
Commitments to sell loans
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [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
Accrued interest payable
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
Accrued interest payable
Off-balance sheet financial instruments:
Commitments to extend credit	242,267	173,645
Commitments to sell loans	$ 11,321	$ 5,629

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Note 6 - Other Comprehensive Income (Loss) - Components of Other Comprehensive Income (Loss) and Related Tax Effects (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net unrealized gains (losses) arising during the period, before tax	$ (146)	$ 286	$ (625)	$ 599
Net unrealized gains (losses) arising during the period, tax effect	(41)	113	(175)	238
Net unrealized gains (losses) arising during the period, net of tax	(105)	173	(452)	361
Other comprehensive income (loss), before tax	(146)	286	(625)	599
Other comprehensive income (loss), tax effect	(41)	113	(175)	238
Other comprehensive income (loss), net of tax	$ (105)	$ 173	$ (452)	$ 361

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Note 7 - Securities Available for Sale - Securities in a Continuous Unrealized Loss Position (Details) $ in Thousands	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Less Than Twelve Months # of Investments	20	20
Less Than Twelve Months Fair Value	$ 21,021	$ 17,241
Less Than Twelve Months Unrealized Losses	$ (571)	$ (255)
Twelve Months or More # of Investments	13	13
Twelve Months or More Fair Value	$ 59,201	$ 59,502
Twelve Months or More Unrealized Losses	(1,482)	(1,178)
Total Fair Value	80,222	76,743
Total Unrealized Losses	$ (2,053)	$ (1,433)
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Less Than Twelve Months # of Investments	2
Less Than Twelve Months Fair Value	$ 4,201
Less Than Twelve Months Unrealized Losses	$ (168)
Twelve Months or More # of Investments	0
Twelve Months or More Fair Value	$ 0
Twelve Months or More Unrealized Losses	0
Total Fair Value	4,201
Total Unrealized Losses	$ (168)
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation Certificates and Obligations (FHLMC) [Member]
Less Than Twelve Months # of Investments	1
Less Than Twelve Months Fair Value	$ 4,468
Less Than Twelve Months Unrealized Losses	$ (72)
Twelve Months or More # of Investments	0
Twelve Months or More Fair Value	$ 0
Twelve Months or More Unrealized Losses	0
Total Fair Value	4,468
Total Unrealized Losses	$ (72)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Less Than Twelve Months # of Investments	1	2
Less Than Twelve Months Fair Value	$ 202	$ 4,703
Less Than Twelve Months Unrealized Losses	$ (10)	$ (78)
Twelve Months or More # of Investments	0	0
Twelve Months or More Fair Value	$ 0	$ 0
Twelve Months or More Unrealized Losses	0	0
Total Fair Value	202	4,703
Total Unrealized Losses	$ (10)	$ (78)
Collateralized Debt Obligations [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Less Than Twelve Months # of Investments		1
Less Than Twelve Months Fair Value		$ 218
Less Than Twelve Months Unrealized Losses		$ (5)
Twelve Months or More # of Investments		0
Twelve Months or More Fair Value		$ 0
Twelve Months or More Unrealized Losses		0
Total Fair Value		218
Total Unrealized Losses		$ (5)
Other Marketable Securities [Member] | US Government Agencies Debt Securities [Member]
Less Than Twelve Months # of Investments	2	2
Less Than Twelve Months Fair Value	$ 9,678	$ 9,819
Less Than Twelve Months Unrealized Losses	$ (306)	$ (163)
Twelve Months or More # of Investments	12	12
Twelve Months or More Fair Value	$ 58,606	$ 58,942
Twelve Months or More Unrealized Losses	(1,377)	(1,038)
Total Fair Value	68,284	68,761
Total Unrealized Losses	$ (1,683)	$ (1,201)
Other Marketable Securities [Member] | US States and Political Subdivisions Debt Securities [Member]
Less Than Twelve Months # of Investments	13	14
Less Than Twelve Months Fair Value	$ 2,272	$ 2,268
Less Than Twelve Months Unrealized Losses	$ (11)	$ (8)
Twelve Months or More # of Investments	0	0
Twelve Months or More Fair Value	$ 0	$ 0
Twelve Months or More Unrealized Losses	0	0
Total Fair Value	2,272	2,268
Total Unrealized Losses	$ (11)	$ (8)
Other Marketable Securities [Member] | Corporate Debt Securities [Member]
Less Than Twelve Months # of Investments	1	1
Less Than Twelve Months Fair Value	$ 200	$ 233
Less Than Twelve Months Unrealized Losses	$ (4)	$ (1)
Twelve Months or More # of Investments	0	0
Twelve Months or More Fair Value	$ 0	$ 0
Twelve Months or More Unrealized Losses	0	0
Total Fair Value	200	233
Total Unrealized Losses	$ (4)	$ (1)
Other Marketable Securities [Member] | Preferred Stock [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	$ 595	$ 560
Twelve Months or More Unrealized Losses	(105)	(140)
Total Fair Value	595	560
Total Unrealized Losses	$ (105)	$ (140)

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Note 7 - Securities Available for Sale - Summary of Securities Available for Sale (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Securities available for sale, amortized cost	$ 82,578	$ 78,801
Investment securities available for sale, gross unrealized gains	0	104
Investment securities available for sale, gross unrealized losses	(2,053)	(1,433)
Securities available for sale	80,525	77,472
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Federal Home Loan Mortgage Corporation Certificates and Obligations (FHLMC) [Member]
Securities available for sale, amortized cost	4,564	91
Investment securities available for sale, gross unrealized gains	0	2
Investment securities available for sale, gross unrealized losses	(72)	0
Securities available for sale	4,492	93
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Securities available for sale, amortized cost	212	223
Investment securities available for sale, gross unrealized gains	0	0
Investment securities available for sale, gross unrealized losses	(10)	(5)
Securities available for sale	202	218
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Securities available for sale, amortized cost	4,369	4,834
Investment securities available for sale, gross unrealized gains	0	1
Investment securities available for sale, gross unrealized losses	(168)	(78)
Securities available for sale	4,201	4,757
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, amortized cost	9,145	5,148
Investment securities available for sale, gross unrealized gains	0	3
Investment securities available for sale, gross unrealized losses	(250)	(83)
Securities available for sale	8,895	5,068
Other Marketable Securities [Member]
Securities available for sale, amortized cost	73,433	73,653
Investment securities available for sale, gross unrealized gains	0	101
Investment securities available for sale, gross unrealized losses	(1,803)	(1,350)
Securities available for sale	71,630	72,404
Other Marketable Securities [Member] | US Government Agencies Debt Securities [Member]
Securities available for sale, amortized cost	69,967	69,962
Investment securities available for sale, gross unrealized gains	0	0
Investment securities available for sale, gross unrealized losses	(1,683)	(1,201)
Securities available for sale	68,284	68,761
Other Marketable Securities [Member] | US States and Political Subdivisions Debt Securities [Member]
Securities available for sale, amortized cost	2,383	2,699
Investment securities available for sale, gross unrealized gains	0	2
Investment securities available for sale, gross unrealized losses	(11)	(8)
Securities available for sale	2,372	2,693
Other Marketable Securities [Member] | Corporate Debt Securities [Member]
Securities available for sale, amortized cost	204	234
Investment securities available for sale, gross unrealized gains	0	0
Investment securities available for sale, gross unrealized losses	(4)	(1)
Securities available for sale	200	233
Other Marketable Securities [Member] | Preferred Stock [Member]
Securities available for sale, amortized cost	700	700
Investment securities available for sale, gross unrealized gains	0	0
Investment securities available for sale, gross unrealized losses	(105)	(140)
Securities available for sale	595	560
Other Marketable Securities [Member] | Equity Securities [Member]
Securities available for sale, amortized cost	179	58
Investment securities available for sale, gross unrealized gains	0	99
Investment securities available for sale, gross unrealized losses	0	0
Securities available for sale	$ 179	$ 157

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Note 7 - Securities Available for Sale - Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Due less than one year, amortized cost	$ 1,921
Due less than one year, fair value	1,878
Due after one year through five years, amortized cost	76,660
Due after one year through five years, fair value	74,842
Due after five years through ten years, amortized cost	3,036
Due after five years through ten years, fair value	2,953
Due after ten years, amortized cost	782
Due after ten years, fair value	673
No stated maturity, amortized cost	179
No stated maturity, fair value	179
Total, amortized cost	82,578	$ 78,801
Total, fair value	$ 80,525	$ 77,472

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Note 8 - Loans Receivable, Net - Loans Receivable (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016
Loans receivable	$ 598,783		$ 594,798
Unamortized discounts	20		19
Net deferred loan costs	(420)		(463)
Allowance for loan losses	9,328	$ 9,129	9,311	$ 10,045	$ 9,590	$ 9,903
Total loans receivable, net	589,855		585,931
Residential Portfolio Segment [Member]
Loans receivable	107,203		107,005
Allowance for loan losses	881	809	900	1,004	1,110	1,186
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	338,160		334,117
Allowance for loan losses	5,242	5,198	5,073	5,490	4,958	4,953
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	188,751		175,177
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans receivable	149,409		158,940
Consumer Portfolio Segment [Member]
Loans receivable	72,290		73,767
Allowance for loan losses	1,623	1,423	1,630	1,544	1,332	1,613
Commercial Portfolio Segment [Member]
Loans receivable	81,130		79,909
Allowance for loan losses	$ 1,582	$ 1,699	$ 1,708	$ 2,007	$ 2,190	$ 2,151

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Note 9 - Allowance for Loan Losses and Credit Quality Information (Details Textual) - USD ($)	3 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2016
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	$ 3,016,000	$ 3,016,000		$ 3,144,000
Impaired Financing Receivable, Related Allowance	794,000	794,000		1,073,000
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	600,000	600,000		400,000
Financing Receivable, Modifications, Recorded Investment	2,555,000	2,555,000		3,044,000
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 1,200,000	$ 1,200,000		800,000
Loan to Value Ratio	75.00%	75.00%
Allowance for Credit Losses, Change in Method of Calculating Impairment	$ 600,000	$ 600,000		$ 900,000
Percentage Reserves For Loan Losses On Troubled Debt Restructurings	6.80%	6.80%		9.80%
Loans and Leases Receivable, Allowance, Ending Balance	$ 9,328,000	$ 9,328,000	$ 10,045,000	$ 9,311,000	$ 9,129,000	$ 9,590,000	$ 9,903,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Carrying Amount, Net	400,000	400,000
Provision for Loan and Lease Losses, Total		170,000	(1,000)
Acquired Loans [Member]
Provision for Loan and Lease Losses, Total	0	0
Nonperforming Financial Instruments [Member]
Impaired Financing Receivable, Related Allowance	700,000	700,000		900,000
Financing Receivable, Modifications, Recorded Investment	1,596,000	1,596,000		1,915,000
Nonperforming Financial Instruments [Member] | Classified [Member]
Financing Receivable, Modifications, Recorded Investment	26,000	26,000	200,000
Performing Financial Instruments [Member]
Financing Receivable, Modifications, Recorded Investment	959,000	959,000		$ 1,129,000
Performing Financial Instruments [Member] | Classified [Member]
Financing Receivable, Modifications, Recorded Investment	$ 200,000	$ 200,000	$ 100,000

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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		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Dec. 31, 2017
Balance	$ 9,129	$ 9,590	$ 9,311	$ 9,903
Provision for losses	295	269	170	(1)
Charge-offs	(311)	(17)	(403)	(218)
Recoveries	215	203	250	361
Balance	9,328	10,045	9,328	10,045
Specific allowance					$ 794	$ 1,073
General allowance					8,534	8,238
Balance	9,328	9,590	9,328	10,045	9,328	9,311
Individually reviewed for impairment					3,975	4,274
Collectively reviewed for impairment					594,808	590,524
Ending balance					598,783	594,798
Residential Portfolio Segment [Member]
Balance	809	1,110	900	1,186
Provision for losses	72	(106)	4	(182)
Charge-offs	0	0	(23)	0
Recoveries	0	0	0	0
Balance	881	1,004	881	1,004
Specific allowance					110	192
General allowance					771	708
Balance	809	1,110	881	1,004	881	900
Individually reviewed for impairment					1,294	1,523
Collectively reviewed for impairment					105,909	105,482
Ending balance					107,203	107,005
Commercial Real Estate Portfolio Segment [Member]
Balance	5,198	4,958	5,073	4,953
Provision for losses	(147)	452	(29)	363
Charge-offs	0	0	0	0
Recoveries	191	80	198	174
Balance	5,242	5,490	5,242	5,490
Specific allowance					437	441
General allowance					4,805	4,632
Balance	5,198	4,958	5,242	5,490	5,242	5,073
Individually reviewed for impairment					1,432	1,364
Collectively reviewed for impairment					336,728	332,753
Ending balance					338,160	334,117
Consumer Portfolio Segment [Member]
Balance	1,423	1,332	1,630	1,613
Provision for losses	254	224	109	116
Charge-offs	(56)	(17)	(125)	(218)
Recoveries	2	5	9	33
Balance	1,623	1,544	1,623	1,544
Specific allowance					173	263
General allowance					1,450	1,367
Balance	1,423	1,332	1,623	1,544	1,623	1,630
Individually reviewed for impairment					984	880
Collectively reviewed for impairment					71,306	72,887
Ending balance					72,290	73,767
Commercial Portfolio Segment [Member]
Balance	1,699	2,190	1,708	2,151
Provision for losses	116	(301)	86	(298)
Charge-offs	(255)	0	(255)	0
Recoveries	22	118	43	154
Balance	1,582	2,007	1,582	2,007
Specific allowance					74	177
General allowance					1,508	1,531
Balance	$ 1,699	$ 2,190	$ 1,582	$ 2,007	1,582	1,708
Individually reviewed for impairment					265	507
Collectively reviewed for impairment					80,865	79,402
Ending balance					$ 81,130	$ 79,909

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Classified and Unclassified Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Loans receivable	$ 598,783	$ 594,798
Classified [Member]
Loans receivable	38,555	36,669
Classified [Member] | Special Mention [Member]
Loans receivable	17,257	20,015
Classified [Member] | Substandard [Member]
Loans receivable	21,099	16,361
Classified [Member] | Doubtful [Member]
Loans receivable	94	163
Classified [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans receivable	105	130
Unclassified [Member]
Loans receivable	560,228	558,129
Residential Portfolio Segment [Member]
Loans receivable	107,203	107,005
Residential Portfolio Segment [Member] | Classified [Member]
Loans receivable	2,212	2,275
Residential Portfolio Segment [Member] | Classified [Member] | Special Mention [Member]
Loans receivable	108	77
Residential Portfolio Segment [Member] | Classified [Member] | Substandard [Member]
Loans receivable	2,061	2,154
Residential Portfolio Segment [Member] | Classified [Member] | Doubtful [Member]
Loans receivable	43	44
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	104,991	104,730
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	338,160	334,117
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	188,751	175,177
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Loans receivable	149,409	158,940
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Real Estate Loan [Member]
Loans receivable	12,126	8,835
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Commercial Real Estate Other [Member]
Loans receivable	10,519	13,392
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Special Mention [Member] | Real Estate Loan [Member]
Loans receivable	7,031	5,022
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Special Mention [Member] | Commercial Real Estate Other [Member]
Loans receivable	1,768	9,135
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Substandard [Member] | Real Estate Loan [Member]
Loans receivable	5,095	3,813
Commercial Real Estate Portfolio Segment [Member] | Classified [Member] | Substandard [Member] | Commercial Real Estate Other [Member]
Loans receivable	8,751	4,257
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	176,625	166,342
Commercial Real Estate Portfolio Segment [Member] | Unclassified [Member] | Commercial Real Estate Other [Member]
Loans receivable	138,890	145,548
Consumer Portfolio Segment [Member]
Loans receivable	72,290	73,767
Consumer Portfolio Segment [Member] | Classified [Member]
Loans receivable	984	880
Consumer Portfolio Segment [Member] | Classified [Member] | Special Mention [Member]
Loans receivable	0	0
Consumer Portfolio Segment [Member] | Classified [Member] | Substandard [Member]
Loans receivable	828	631
Consumer Portfolio Segment [Member] | Classified [Member] | Doubtful [Member]
Loans receivable	51	119
Consumer Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans receivable	105	130
Consumer Portfolio Segment [Member] | Unclassified [Member]
Loans receivable	71,306	72,887
Commercial Portfolio Segment [Member]
Loans receivable	81,130	79,909
Commercial Portfolio Segment [Member] | Classified [Member]
Loans receivable	12,714	11,287
Commercial Portfolio Segment [Member] | Classified [Member] | Special Mention [Member]
Loans receivable	8,350	5,781
Commercial Portfolio Segment [Member] | Classified [Member] | Substandard [Member]
Loans receivable	4,364	5,506
Commercial Portfolio Segment [Member] | Classified [Member] | Doubtful [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Classified [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans receivable	0	0
Commercial Portfolio Segment [Member] | Unclassified [Member]
Loans receivable	$ 68,416	$ 68,622

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Aging of Past Due Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Loans past due	$ 2,082	$ 2,990
Current loans	596,701	591,808
Loans receivable	598,783	594,798
Loans 90 days or more past due and still accruing	0	0
Residential Portfolio Segment [Member]
Loans past due	917	1,690
Current loans	106,286	105,315
Loans receivable	107,203	107,005
Loans 90 days or more past due and still accruing	0	0
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	338,160	334,117
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	459	0
Current loans	188,292	175,177
Loans receivable	188,751	175,177
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	22	0
Current loans	149,387	158,940
Loans receivable	149,409	158,940
Loans 90 days or more past due and still accruing	0	0
Consumer Portfolio Segment [Member]
Loans past due	659	1,086
Current loans	71,631	72,681
Loans receivable	72,290	73,767
Loans 90 days or more past due and still accruing	0	0
Commercial Portfolio Segment [Member]
Loans past due	25	214
Current loans	81,105	79,695
Loans receivable	81,130	79,909
Loans 90 days or more past due and still accruing		0
Financing Receivables, 30 to 59 Days Past Due [Member]
Loans past due	1,109	1,495
Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member]
Loans past due	380	727
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	459	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	245	734
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Loans past due	25	34
Financing Receivables, 60 to 89 Days Past Due [Member]
Loans past due	591	411
Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member]
Loans past due	455	294
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	136	117
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Loans past due	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	382	1,084
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Portfolio Segment [Member]
Loans past due	82	669
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due	0	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	22	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Loans past due	278	235
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Loans past due	$ 0	$ 180

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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		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Related allowance	$ 794		$ 794		$ 1,073
Recorded investment	3,975		3,975		4,274
Unpaid principal balance	6,199		6,199		6,815
Average recorded investment	4,008	$ 4,830	4,094	$ 4,741
Interest income recognized	51	46	91	93
Residential Portfolio Segment [Member]
Recorded investment, with no related allowance	416		416		415
Unpaid principal balance, with no related allowance	416		416		415
Recorded investment, with related allowance	878		878		1,108
Unpaid principal balance, with related allowance	878		878		1,108
Related allowance	110		110		192
Recorded investment	1,294		1,294		1,523
Unpaid principal balance	1,294		1,294		1,523
Average recorded investment, with no related allowance	425	529	421	425
Interest income recognized, with no related allowance	4	3	10	6
Average recorded investment, with related allowance	809	867	908	874
Interest income recognized, with related allowance	0	4	0	6
Average recorded investment	1,234	1,396	1,329	1,299
Interest income recognized	4	7	10	12
Commercial Real Estate Portfolio Segment [Member]
Related allowance	437		437		441
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Recorded investment, with no related allowance	34		34		35
Unpaid principal balance, with no related allowance	34		34		51
Related allowance	0		0		0
Recorded investment	34		34		35
Unpaid principal balance	34		34		51
Average recorded investment, with no related allowance	35	39	35	39
Interest income recognized, with no related allowance	15	0	15	0
Average recorded investment, with related allowance		259		172
Interest income recognized, with related allowance		0		0
Average recorded investment	35	298	35	211
Interest income recognized	15	0	15	0
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Recorded investment, with no related allowance	165		165		25
Unpaid principal balance, with no related allowance	1,821		1,821		1,682
Recorded investment, with related allowance	1,233		1,233		1,304
Unpaid principal balance, with related allowance	1,233		1,233		1,304
Related allowance	437		437		441
Recorded investment	1,398		1,398		1,329
Unpaid principal balance	3,054		3,054		2,986
Average recorded investment, with no related allowance	165	26	118	26
Interest income recognized, with no related allowance	24	24	48	48
Average recorded investment, with related allowance	1,279	1,812	1,287	1,812
Interest income recognized, with related allowance	0	7	0	15
Average recorded investment	1,444	1,838	1,405	1,838
Interest income recognized	24	31	48	63
Consumer Portfolio Segment [Member]
Recorded investment, with no related allowance	607		607		414
Unpaid principal balance, with no related allowance	607		607		414
Recorded investment, with related allowance	377		377		466
Unpaid principal balance, with related allowance	393		393		483
Related allowance	173		173		263
Recorded investment	984		984		880
Unpaid principal balance	1,000		1,000		897
Average recorded investment, with no related allowance	506	398	475	369
Interest income recognized, with no related allowance	4	3	9	7
Average recorded investment, with related allowance	416	388	433	468
Interest income recognized, with related allowance	2	2	5	3
Average recorded investment	922	786	908	837
Interest income recognized	6	5	14	10
Commercial Portfolio Segment [Member]
Recorded investment, with related allowance	265		265		507
Unpaid principal balance, with related allowance	817		817		1,358
Related allowance	74		74		177
Recorded investment	265		265		507
Unpaid principal balance	817		817		$ 1,358
Average recorded investment, with no related allowance		113		167
Interest income recognized, with no related allowance		0		0
Average recorded investment, with related allowance	373	399	417	389
Interest income recognized, with related allowance	2	3	4	8
Average recorded investment	373	512	417	556
Interest income recognized	$ 2	$ 3	$ 4	$ 8

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Non-accrual Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Non-accrual loans	$ 3,016	$ 3,144
Residential Portfolio Segment [Member]
Non-accrual loans	960	949
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Non-accrual loans	34	35
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Non-accrual loans	1,398	1,329
Consumer Portfolio Segment [Member]
Non-accrual loans	551	553
Commercial Portfolio Segment [Member]
Non-accrual loans	$ 73	$ 278

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Trouble Debt Restructuring (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Troubled debt restructurings	$ 2,555	$ 3,044
Performing Financial Instruments [Member]
Troubled debt restructurings	959	1,129
Nonperforming Financial Instruments [Member]
Troubled debt restructurings	1,596	1,915
Residential Portfolio Segment [Member]
Troubled debt restructurings	483	685
Residential Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	334	573
Residential Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	149	112
Commercial Real Estate Portfolio Segment [Member]
Troubled debt restructurings	1,177	1,210
Commercial Real Estate Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	0	0
Commercial Real Estate Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	1,177	1,210
Consumer Portfolio Segment [Member]
Troubled debt restructurings	642	758
Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	433	327
Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	209	431
Commercial Portfolio Segment [Member]
Troubled debt restructurings	253	391
Commercial Portfolio Segment [Member] | Performing Financial Instruments [Member]
Troubled debt restructurings	192	229
Commercial Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructurings	$ 61	$ 162

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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		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)
Number of Contracts	5	5	13	10
Pre- modification Outstanding Recorded Investment	$ 460	$ 314	$ 2,031	$ 640
Post- modification Outstanding Recorded Investment	$ 460	$ 315	$ 2,034	$ 874
Residential Portfolio Segment [Member]
Number of Contracts	0	0	1	3
Pre- modification Outstanding Recorded Investment	$ 0	$ 0	$ 55	$ 282
Post- modification Outstanding Recorded Investment	$ 0	$ 0	$ 58	$ 514
Consumer Portfolio Segment [Member]
Number of Contracts	4	5	8	7
Pre- modification Outstanding Recorded Investment	$ 216	$ 314	$ 334	$ 358
Post- modification Outstanding Recorded Investment	$ 216	$ 315	$ 334	$ 360
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Number of Contracts	0		1
Pre- modification Outstanding Recorded Investment	$ 0		$ 54
Post- modification Outstanding Recorded Investment	$ 0		$ 54
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate Other [Member]
Number of Contracts	1		2
Pre- modification Outstanding Recorded Investment	$ 244		$ 1,518
Post- modification Outstanding Recorded Investment	$ 244		$ 1,518
Commercial Portfolio Segment [Member]
Number of Contracts	0		1
Pre- modification Outstanding Recorded Investment	$ 0		$ 70
Post- modification Outstanding Recorded Investment	$ 0		$ 70

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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		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)
Number of Contracts that subsequently defaulted	1	2	1	2
Outstanding Recorded Investment	$ 116	$ 60	$ 116	$ 60
Commercial Portfolio Segment [Member]
Number of Contracts that subsequently defaulted	1		1
Outstanding Recorded Investment	$ 116		$ 116
Residential Portfolio Segment [Member]
Number of Contracts that subsequently defaulted		2		2
Outstanding Recorded Investment		$ 60		$ 60

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Note 9 - Allowance for Loan Losses and Credit Quality Information - Purchased Loans Acquired Through Acquisition (Details)	3 Months Ended
	Jun. 30, 2018 USD ($)
Purchased performing loans:
Carrying Amount	$ 400,000
Purchased Performing Loans [Member]
Purchased performing loans:
Contractual Principle Receivable	9,447,000
Contractual Principle Receivable, change due to payments/refinances	(891,000)
Contractual Principle Receivable	8,556,000
Accretable Difference	(218,000)
Accretable Difference, change due to payments/refinances	12,000
Accretable Difference	(206,000)
Carrying Amount	9,229,000
Carrying Amount, change due to payments/refinances	(879,000)
Carrying Amount	8,350,000
Purchased Credit Impaired Loans [Member]
Purchased performing loans:
Contractual Principle Receivable	400,000
Contractual Principle Receivable, change due to payments/refinances	(4,000)
Contractual Principle Receivable	396,000
Non-accretable difference	(37,000)
Non-accretable difference, change due to payments/refinances	1,000
Non-accretable difference	(36,000)
Carrying Amount	363,000
Carrying Amount, change due to payments/refinances	(3,000)
Carrying Amount	$ 360,000

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Note 10 - Intangible Assets (Details Textual) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Amortization of Intangible Assets, Total	$ 0.3	$ 0.3

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Note 10 - Intangible Assets - Mortgage Servicing Activity (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Balance, beginning of period	$ 1,724	$ 1,604	$ 1,604
Originations	357	320	675
Amortization	(268)	(269)	(555)
Balance, end of period	1,813	1,655	1,724
Fair value of mortgage servicing rights	$ 3,620	$ 3,027	$ 3,196

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Note 10 - Intangible Assets - Risk Characteristics of Loans Being Serviced (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Original Term Thirty Year Fixed Rate [Member]
Loan Principal Balance	$ 284,802
Weighted Average Interest Rate	4.10%
Weighted Average Remaining Term (Month)	25 years 210 days
Number of Loans	2,213
Original Term Fifteen Year Fixed Rate [Member]
Loan Principal Balance	$ 100,131
Weighted Average Interest Rate	3.14%
Weighted Average Remaining Term (Month)	11 years 30 days
Number of Loans	1,026
Adjustable Rate [Member]
Loan Principal Balance	$ 54
Weighted Average Interest Rate	4.38%
Weighted Average Remaining Term (Month)	22 years 330 days
Number of Loans	2

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Note 10 - Intangible Assets - Gross Carrying Amount and Accumulated Amortization of Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Goodwill, gross carrying amount	$ 802		$ 802
Intangible assets (including goodwill), gross carrying amount	5,770		5,482
Finite-lived intangible assets, accumulated amortization	(2,850)		(2,621)
Goodwill, accumulated impairment	0		0
Finite-lived intangible assets, unamortized intangible assets	2,118
Goodwill	802	$ 802	802
Intangible assets, unamortized intangible assets	2,920		2,861
Mortgage Servicing Rights [Member]
Finite-lived intangible assets, gross carrying amount	4,394		4,106
Finite-lived intangible assets, accumulated amortization	(2,581)		(2,451)
Finite-lived intangible assets, unamortized intangible assets	1,813		1,655
Core Deposits [Member]
Finite-lived intangible assets, gross carrying amount	574		574
Finite-lived intangible assets, accumulated amortization	(269)		(170)
Finite-lived intangible assets, unamortized intangible assets	$ 305		$ 404

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Note 10 - Intangible Assets - Estimated Future Amortization Expense (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jun. 30, 2017
2018	$ 289
2019	520
2020	449
2021	351
2022	252
Thereafter	257
Total	2,118
Mortgage Servicing Rights [Member]
2018	239
2019	421
2020	350
2021	304
2022	242
Thereafter	257
Total	1,813	$ 1,655
Core Deposits [Member]
2018	50
2019	99
2020	99
2021	47
2022	10
Thereafter	0
Total	$ 305	$ 404

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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		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Weighted average number of common shares outstanding used in basic earnings per common share calculation (in shares)	4,291	4,211	4,264	4,208
Restricted stock awards, options, and warrants (in shares)	457	648	561	651
Weighted average number of shares outstanding adjusted for effect of dilutive securities (in shares)	4,748	4,859	4,825	4,859
Income available to common shareholders	$ 1,727	$ 1,024	$ 3,172	$ 2,237
Basic earnings per common share (in dollars per share)	$ 0.40	$ 0.24	$ 0.74	$ 0.53
Diluted earnings per common share (in dollars per share)	$ 0.36	$ 0.21	$ 0.66	$ 0.46

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Note 12 - Regulatory Capital and Oversight (Details Textual) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2019
Banks Tangible Assets	$ 725.9
Adjusted Assets	724.2
Risk Weighted Assets	$ 620.0
Capital Conservation Buffer	1.875%
Scenario, Forecast [Member]
Capital Conservation Buffer		2.50%

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Note 12 - Regulatory Capital - Capital Amounts and Ratios (Details) $ in Thousands	Jun. 30, 2018 USD ($)
Common equity tier 1 capital, actual amount	$ 79,826
Common equity tier 1 capital, actual percent of asset	12.88%
Common equity tier 1 capital, amount required to be adequately capitalized	$ 27,900
Common equity tier 1 capital, percent of assets required to be adequately capitalized	4.50%
Common equity tier 1 capital, excess capital amount	$ 51,926
Common equity tier 1 capital, excess capital percent of assets	8.38%
Common equity tier 1 capital, amount to be well capitalized under prompt corrective action provisions	$ 40,300
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	$ 79,826
Tier 1 capital leverage, actual percent of asset	11.02%
Tier 1 capital leverage, amount required to be adequately capitalized	$ 28,968
Tier 1 capital leverage, percent of assets required to be adequately capitalized	4.00%
Tier 1 capital leverage, excess capital amount	$ 50,858
Tier 1 capital leverage, excess capital percent of assets	7.02%
Tier 1 capital leverage, amount to be well capitalized under prompt corrective action provisions	$ 36,210
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	$ 79,826
Tier 1 risk-based capital, actual percent of asset	12.88%
Tier 1 risk-based capital, amount required to be adequately capitalized	$ 37,200
Tier 1 risk-based capital, percent of assets required to be adequately capitalized	6.00%
Tier 1 risk-based capital, excess capital amount	$ 42,626
Tier 1 risk-based capital, excess capital percent of assets	6.88%
Tier 1 risk-based capital, amount to be well capitalized under prompt corrective action provisions	$ 49,600
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	$ 87,595
Total risk-based capital, actual percent of asset	14.13%
Total risk-based capital, amount required to be adequately capitalized	$ 49,600
Total risk-based capital, percent of assets required to be adequately capitalized	8.00%
Total risk-based capital, excess capital amount	$ 37,995
Total risk-based capital, excess capital percent of assets	6.13%
Total risk-based capital, amount to be well capitalized under prompt corrective action provisions	$ 62,000
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 ($)						6 Months Ended
	May 22, 2018	May 21, 2018	May 21, 2015	Feb. 17, 2015	Dec. 23, 2008	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Preferred Stock, Shares Authorized						500,000		500,000
Preferred Stock, Shares Issued, Total					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		$ 4.68	$ 4.68
Proceeds from Issuance of Warrants			$ 5,700,000
Class of Warrant or Right, Purchase Price of Warrants or Rights		$ 14.32
Class of Warrant or Right, Warrants Repurchased		138,888.66
Payments for Repurchase of Warrants		$ 1,988,886				$ 1,989,000	$ 0
Class of Warrant or Right, Cancelled in Period	138,888.66
Class of Warrant or Right, Number of Warrants Exercised	138,889
Stock Issued During Period, Shares, Treasury Stock Reissued	104,678
Investor 1 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			277,777.67
Investor 3 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			277,777.66
Two Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights						555,555.34
Investor 2 [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. 31, 2017	Jun. 30, 2018	Jun. 30, 2017	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, Total	$ 7,000

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Note 15 - Commitments and Contingencies (Details Textual) $ in Millions	6 Months Ended
	Jun. 30, 2018 USD ($)
Letters of Credit Issued and Available Amount	$ 4.7
Line of Credit Facility, Expiration Period	4 years 60 days

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Note 16 - Business Segments - Profit and Assets for the Reportable Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Interest income - external customers	$ 7,456	$ 6,999	$ 14,614	$ 13,658
Non-interest income - external customers	2,054	1,906	3,830	3,786
Intersegment non-interest income	0	0	0	0
Interest expense	526	461	996	869
Other non-interest expense	6,313	6,439	12,867	12,786
Income tax expense	649	712	1,239	1,553
Net income	1,727	1,024	3,172	2,237
Total assets	726,285	725,183	726,285	725,183	$ 722,685
Intersegment non-interest income	0	0	0	0
Consolidation, Eliminations [Member]
Interest income - external customers	0	0	0	0
Non-interest income - external customers	0	0	0	0
Intersegment non-interest income	(1,922)	(1,273)	(3,569)	(2,741)
Interest expense	0	0	0	0
Other non-interest expense	(52)	(52)	(105)	(105)
Income tax expense	0	0	0	0
Net income	(1,870)	(1,221)	(3,464)	(2,636)
Total assets	(81,426)	(84,050)	(81,426)	(84,050)
Intersegment non-interest income	(1,922)	(1,273)	(3,569)	(2,741)
Home Federal Savings Bank [Member] | Operating Segments [Member]
Interest income - external customers	7,456	6,999	14,614	13,658
Non-interest income - external customers	2,054	1,906	3,830	3,786
Intersegment non-interest income	52	52	105	105
Interest expense	526	345	996	640
Other non-interest expense	6,191	6,316	12,616	12,529
Income tax expense	680	806	1,303	1,745
Net income	1,870	1,221	3,464	2,636
Total assets	726,121	724,407	726,121	724,407
Intersegment non-interest income	52	52	105	105
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	1,870	1,221	3,464	2,636
Interest expense	0	116	0	229
Other non-interest expense	174	175	356	362
Income tax expense	(31)	(94)	(64)	(192)
Net income	1,727	1,024	3,172	2,237
Total assets	81,590	84,826	81,590	84,826
Intersegment non-interest income	$ 1,870	$ 1,221	$ 3,464	$ 2,636