Note 3 - New Accounting Standards

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Accounting Standards Update and Change in Accounting Principle [Text Block]

(

3

)

New Accounting Standards

In

June 2016,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 (SEC), were originally effective for fiscal years beginning after

December 15, 2019,

including interim periods within those annual periods. On

November 26, 2019,

the FASB issued ASU

2019

-

11,

Codification Improvements to Topic

326,

Financial Instruments – Credit Losses

which delayed the implementation date of ASU

2016

-

13

for SEC smaller reporting companies, such as HMN, from the

first

quarter of

2020

to the

first

quarter of

2023.

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. The Company has

not

early adopted this ASU. 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 the Bank's loan portfolio upon enactment, and is in the process of evaluating the determination of potential qualitative reserve amounts and the impact that the adoption of this ASU will have on the Company's consolidated financial statements when it is adopted in the

first

quarter of

2023.

On

February 6, 2020,

the FASB issued ASU

2020

-

02,

Financial Instruments-Credit Losses (Topic

326

) and Leases (Topic

842

)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

119

and Update to SEC Section on Effective Date Related to Accounting Standards Update

No.

2016

-

02,

Leases (Topic

842

).

The amendments in this ASU related to

Leases (Topic

842

)

did

not

have any impact on the Company. The amendments in this ASU related to Topic

326

adds additional guidance related to the SEC's expectations for the documentation of the measurement, review process, and the systematic methodology used by entities to determine the current credit losses under FASB ASC Topic

326.

Management is currently in the process of reviewing how the Company's credit loss calculation and review processes will be impacted by the additional guidance of this ASU when ASC Topic

326

is adopted in the

first

quarter of

2023.