Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation –

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).

Discontinued Operations, Policy [Policy Text Block]

Discontinued Operations –

As discussed in The consolidated financial statements, Note

– Discontinued Operations, current and prior periods presented in the consolidated statements of comprehensive income as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of discontinued operations for comparative purposes. The consolidated balance sheets and related note disclosures for prior periods also reflect the reclassification of certain assets and liabilities to discontinued operations.

Consolidation, Policy [Policy Text Block]

Basis of Consolidation

– The consolidated financial statements include the accounts of Bancorp

and the Bank. All significant intercompany accounts and transactions have been eliminated.

Emerging Growth Company, Policy [Policy Text Block]

Emerging Growth Company Status

- Bancorp

was an emerging growth company under the JOBS Act and lost its status as an emerging growth company at the end of

2019.

Bancorp

elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies. We remain a smaller reporting company, which still permits us to provide streamlined financial statement and other disclosures, and exempts us from external attestation of our internal controls.

Reclassification, Policy [Policy Text Block]

Reclassifications

– Certain reclassifications have been made to prior period’s financial information to conform to the current period presentation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates –

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are

not

limited to, allowance for loan losses, useful lives used in depreciation and amortization, deferred income taxes and related valuation allowance and core deposit intangibles.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

- Subsequent events have been evaluated through the date the consolidated financial statements were issued.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents –

Cash and cash equivalents include cash, due from banks, and federal funds sold. Generally, the Company considers all highly-liquid instruments with original maturities of

three

months or less to be cash equivalents. In monitoring credit risk associated with deposits in other banks, the Bank periodically evaluates the stability of the correspondent financial institutions.

Marketable Securities, Policy [Policy Text Block]

Available for Sale Securities –

The Company reviews its financial position, liquidity, and future plans in evaluating the criteria for classifying securities. Available-for-sale securities consist of bonds, notes, debentures, mortgage-backed securities, municipal obligations and certain equity securities

not

classified as trading securities or as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in a separate component of stockholders’ equity. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Declines in the fair value of individual available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. Premiums and discounts are recognized in interest income using the interest method over the expected life of the security.

Financing Receivable, Held-for-sale [Policy Text Block]

Loans Held for Sale

– Loans held for sale includes

one

- to

four

-family residential real estate loans, and periodically, a portion of Small Business Administration (“SBA”) or United States Department of Agriculture (USDA) loans the Bank intends to sell. They are carried at fair value. Gains and losses on the sale of mortgage loans are recognized upon sale and are determined by the difference between the sales proceeds and carrying value of the loans. As discussed in The consolidated financial statements, Note

– Discontinued Operations, the Company discontinued originating mortgage loans held for sale in its name in

June 2019.

Net unrealized losses, if any, are recorded as a valuation allowance and charged to operations. The

December 31, 2019

and

2018

loans held for sale portfolio totaled

and

$26.9

million, respectively, all of which were

one

- to

four

-family residential real estate loans.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments -

In connection with its mortgage banking operation, the Company had the following derivative financial instruments which were carried at fair value and included in Prepaid and other assets or Other liabilities in the Consolidated Balance Sheets with fair value changes recorded in Gain on sale of loans in the Consolidated Statement of Comprehensive Income:

●

Interest Rate Lock Commitments

– The Company entered into Interest Rate Lock Commitments (“IRLCs”) to set mortgage loan interest rates with its mortgage loan customers prior to funding.

●

Forward Commitments

– The Company entered into forward commitments as part of its strategy to manage its exposure to changes in interest rates related to its interest rate lock commitments provided to customers to fund mortgages and on mortgage loans held for sale. These forward commitments were

not

designated as hedges for accounting purposes under GAAP.

As discussed in The consolidated financial statements, Note

– Discontinued Operations, the Company discontinued issuing mortgage interest rate lock commitments (IRLCs) in its name in

May 2019.

Fair values of IRLCs at

December 31, 2019

and

2018

were

and

$381,000,

respectively, and fair value losses of forward commitments were

and

$154,000

December 31, 2019

and

2018,

respectively.

Financing Receivable [Policy Text Block]

Loans Held for Investment, Net

– Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific allowances and net of any deferred fees or costs. Loans are considered past due or delinquent based on the contractual terms in the loan agreement and how recently repayments have been received. Interest income is recognized based upon principal amounts outstanding. The accrual of interest is discontinued at the time the loan is

days past due or when, in the opinion of management, there is doubt about the ability of the borrower to pay interest or principal, unless the credit is well secured and in process of collection. Interest previously accrued but uncollected on such loans is reversed and charged against current income. Subsequent interest collected on such loans is credited to loan principal if, in the opinion of management, collectability of principal is doubtful; otherwise, the interest collected is recognized as income and resumption of interest accruals

may

occur. Loans are charged-off as uncollectible when, in the opinion of management, collectability of principal is improbable. Personal loans are typically charged off when

later than

180

days past due.

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio; credit concentrations; trends in historical loss experience; and specific impaired loans and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan portfolio and the related allowance

may

change materially in the near-term. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Management’s periodic evaluation of the adequacy of the allowance is based on the current level of net loan losses, known and inherent risks in the portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Property, Plant and Equipment, Policy [Policy Text Block]

Premises and Equipment

– Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the assets which range from

three

seven

years for equipment and

fifteen

forty

years for leasehold improvements and buildings. Maintenance and repairs that do

not

extend the useful lives of premises and equipment are charged to expense as incurred.

Investment, Policy [Policy Text Block]

Stock in Financial Institutions -

The Bank has investments in other financial institutions including the Federal Home Loan Bank (FHLB) and other correspondent banks. The Bank is a member of FHLB system. Members are required to own stock in the FHLB. The level of stock ownership is based on the level of borrowing and other factors, and member banks

may

invest in additional amounts at times. Financial institution stock is carried at cost, is classified as a restricted security and is periodically evaluated for impairment based on ultimate recovery. Cash and stock dividends are recorded in Other income in the Consolidated Statement of Comprehensive Income.

Transfers and Servicing of Financial Assets, Policy [Policy Text Block]

Transfers of Financial Assets

– Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and the Company does

not

maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank Life Insurance, Policy [Policy Text Block]

Bank Owned Life Insurance (BOLI) –

The Bank holds BOLI representing life insurance on the lives of certain executives of the Bank purchased in order to help offset the costs of the Bank’s benefit expenses. BOLI is carried on our consolidated balance sheets at the net cash surrender value of the policies and increases in the net cash surrender value are recorded in noninterest income in the consolidated statements of comprehensive income (loss) as bank owned life insurance income.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Core deposit intangible (CDI) –

Core deposit intangible represents a premium paid to acquire core deposits representing the net present value of core deposits acquired over their book value on the acquisition date. The core deposit intangible is amortized using the double declining balance method over the

-year estimated useful lives of the core deposits. Core deposit intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying value of the assets

may

be larger than the value of the future undiscounted cash flows.

Real Estate, Policy [Policy Text Block]

Other Real Estate (ORE)

– ORE consists of properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. These properties are carried at fair value based on appraisal value less estimated sales costs. Loan losses arising from the acquisition of such properties are charged against the allowance for loan losses; any subsequent valuation adjustments are charged to expense, and the basis of the properties is reduced accordingly. These properties are

not

held for the production of income and, therefore, are

not

depreciated. Significant improvements expected to increase the resale value are capitalized and added to the value of the property.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements –

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A

three

-level fair value hierarchy prioritizes the inputs used to measure fair value:

●	Level 1 – Quoted prices in active markets for identical assets or liabilities; includes certain U.S. Treasury and other U.S. Government agency debt that is highly-liquid and is actively traded in over-the-counter markets.

●

Level

– Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are

not

active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●

Level

– Unobservable inputs that are supported by little or

market activity and that are significant to the fair value of the assets or liabilities. Level

assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Escrow Accounts Policy [Policy Text Block]

Escrow Accounts

– Funds collected from loan customers for insurance, real estate taxes and other purposes are maintained in escrow accounts and carried as a liability in the Consolidated Balance Sheets. These funds are periodically remitted to the appropriate entities to satisfy those claims.

Off-Balance-Sheet Credit Exposure, Policy [Policy Text Block]

Financial Instruments with Off-Balance-Sheet Risk –

In the ordinary course of business, the Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received. The credit risk associated with these instruments is evaluated using the same methodology as for loans held for investment.

Advertising Cost [Policy Text Block]

Advertising Cost

– The Bank conducts direct and non-direct response advertising and purchases prospective customer lists from various sources. These costs are expensed as incurred. Advertising costs from continuing operations for the years ended

December 31, 2019

and

2018

were

$260,000

and

$171,000,

respectively.

Employee Stock Ownership Plan (ESOP), Policy [Policy Text Block]

Employee Stock Ownership Plan (ESOP) –

The Bank sponsors an internally leveraged ESOP. The cost of shares issued to the ESOP but

not

yet released is shown as unearned employee stock ownership plan (ESOP) shares, an element of stockholders’ equity in our consolidated balance sheets. As shares are committed to be released, compensation expense is recorded equal to the market price of the shares, and the shares become outstanding for purposes of earnings per share calculations. To the extent that the fair value of ESOP shares committed differs from the cost of such shares, the difference is charged or credited to additional paid-in capital in stockholders’ equity.

Cash dividends on unallocated ESOP shares

may

be used to make payments on the ESOP loan and

may

be allocated to participant accounts in proportion to their account balances. Cash dividends paid on allocated shares are recorded as a reduction of retained earnings and, at the direction of the employer

may

be: a) credited directly to participant accounts in proportion to their account balances, or b) distributed directly to participants (outside the plan) in proportion to their account balances, or c) used to make payments on the ESOP loan requiring the release of shares with at least a similar fair market value be allocated to participant accounts. In addition, participants have the right to receive an immediate distribution of their vested cash dividends paid on shares of common stock credited to their accounts.

Share-based Payment Arrangement [Policy Text Block]

Other Stock-Based Compensation

– The Company has stock-based compensation plans which provide for the award of various benefits to Directors and employees, including restricted stock and options to purchase stock. Each restricted stock award is separated into vesting tranches and compensation expense is recognized based on the fair value at the date of grant for each tranche on a straight-line basis over the vesting period reduced for estimated forfeitures. Cash dividends on unvested restricted shares are charged to compensation expense. The fair value of stock option awards granted is estimated using the Black-Scholes-Merton option pricing model using inputs including the option exercise price and risk free rate of return, and assumptions for expected dividend yield, expected stock price volatility and the expected life of the awards. The closing market price of the Company’s stock on the date of grant is the exercise price for the stock options and the estimated fair value of the restricted stock awards. Expense is recognized over the required service period, defined as the vesting period. For awards with graded vesting, expense is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize expense net of actual forfeitures.

Income Tax, Policy [Policy Text Block]

Income Taxes

– Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision. The Company has

uncertain tax provisions.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income (Loss)

– Comprehensive income (loss) consists of net income (loss) and net unrealized gains and losses on securities available-for-sale, net of taxes when applicable.

Earnings Per Share, Policy [Policy Text Block]

Earnings per Common Share

- Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Maryland corporate law does

not

provide for treasury shares; therefore, shares repurchased are removed from issued and outstanding immediately and would

not

be considered outstanding. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options. Earnings per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements. The Company has restricted stock awards that participate in dividends (“participating securities”), and is required to apply the

two

-class method to compute earnings per share. The

two

-class method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.

Business Combinations Policy [Policy Text Block]

Business Combinations –

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC

805,

“Business Combinations” (“ASC

805”

). The Company recognizes the full estimated fair value of the assets received and liabilities assumed, immediately expenses transaction costs and accounts for restructuring plans separately from the business combination. There is

recognition of the acquired allowance for loan losses on our consolidated balance sheet as credit related factors are incorporated directly into the estimated fair value of the loans recorded at the effective date of the business combination. The excess of the cost of the merger over the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill. Alternatively, a bargain purchase gain is recorded equal to the amount by which the estimated fair value of assets received exceeds the estimated fair value of liabilities assumed and consideration paid. Results of operations of the acquired business are included in our statement of comprehensive income (loss) from the effective date of the business combination.

New Accounting Pronouncements, Policy [Policy Text Block]

Summary of Recent Accounting Pronouncements

Revenue Recognition

- In

May 2014,

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

2014

09,

Revenue from Contracts with Customers (Topic

606

)

. ASU

2014

requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU replaced the most existing revenue recognition guidance in GAAP when it became effective. ASU

2014

would have been initially effective for the Company's reporting period beginning

January 1, 2018.

However, in

August 2015,

the FASB issued ASU

2015

14,

Revenue from Contracts with Customers - Deferral of the Effective Date

, which deferred the effective date by

one

year. For financial reporting purposes, the standard allows for either a full retrospective or modified retrospective adoption. The FASB has also issued additional updates to provide further clarification to specific implementation issues associated with ASU

2014

09.

These updates include ASU

2016

08,

Principal versus Agent Considerations

, ASU

2016

10,

Identifying Performance Obligations and Licensing

, ASU

2016

12,

Narrow-Scope Improvements and Practical Expedients

, and ASU

2016

20,

Technical Corrections and Improvements to Topic

606

. We adopted the standard on

January 1, 2019,

using the modified retrospective method, which resulted in

cumulative effect and

other adjustment or significant impact to the timing of revenue recognition.

Under Topic

606,

we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy the performance obligations. Our primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are

not

within the scope of Topic

606.

We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into categories beyond what is presented in the Consolidated Statements of Comprehensive Income was

not

necessary. For revenue sources that are within the scope of Topic

606,

we fully satisfy our performance obligations and recognize revenue in the period it is earned as services are rendered. Transaction prices are typically fixed, charged on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic

606

that significantly affects the determination of the amount and timing of revenue from contracts with our customers.

All of our revenue from contracts with customers in the scope of Accounting Standards Codification (ASC)

606

is recognized in Non-Interest Income. Sources of revenue from contracts with customers that are in the scope of ASC

606

include the following:

• Service Charges on Deposit accounts - We earn monthly account fees and transaction-based fees from our customers for services rendered on deposit accounts. Fees charged to deposit accounts on a monthly basis are recognized as the performance obligation is satisfied at the end of the service period.

• Transaction-based fees - We earn fees based on specific services provided to our customer. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.

• ATM and Point of Sale fees – We earn fees when debit cards we issued are used in transactions through card processing networks. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ account. The fees are recognized monthly.

Leases –

February 2016,

the FASB issued ASU

2016

“Leases (Topic

842

).”

This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard is effective for fiscal years and interim periods within those fiscal years beginning after

December 15, 2018

for public companies, but the Company will have until the

first

quarter of

2020

to adopt due to its emerging growth company status. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. We have performed an analysis of our existing leases and expect to recognize a new right-of-use asset and related lease liability between

$1.3

million and

$1.4

million upon implementation of this ASU, effective

January 1, 2020.

Credit Losses -

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 update replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to create credit loss estimates. The new guidance is effective for public companies that are U.S. Securities and Exchange Commission filers for fiscal years beginning after

December 15, 2019

including interim periods within those fiscal years. For all other public companies, the amendments are effective for fiscal years beginning after

December 15, 2020,

including interim periods within those fiscal years. For all other companies, including emerging growth companies, the amendments were to be effective for fiscal years beginning after

December 15, 2020,

and interim periods within fiscal years beginning after

December 15, 2021.

October 16, 2019,

FASB announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies, as defined in Securities and Exchange Commission regulations, such as the Company, to adopt effective for the

first

fiscal year beginning after

December 15, 2022.

The guidance is required to be applied by the modified retrospective approach. Early adoption is permitted as of the fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

Premium on Callable Debt -

March 2017,

the FASB issued ASU

No.

2017

08,

“Receivables–Nonrefundable Fees and Other Costs (Subtopic

310

)”

to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Currently, entities generally amortize the premium as a yield adjustment over the contractual life of the security. The guidance does

not

change the accounting for callable debt securities held at a discount. For public business entities, the guidance is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted, including in an interim period. The adoption of ASU

2017

January 2019

did

not

have a significant impact on our consolidated financial statements.

Reporting Tax Effects of Tax Cuts and Jobs Act -

February 2018,

the FASB issued ASU

No.

2018

02,

“Income Statement-Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”

that helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the

2017

Tax Cuts and Jobs Act. The ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The ASU requires financial statement preparers to disclose a description of the accounting policy for releasing income tax effects from AOCI, whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, and information about the other income tax effects that are reclassified. The amendments are effective for all organizations for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We adopted ASU

2018

effective

December 2018

and reclassified the stranded tax effects from AOCI to retained earnings. Adoption did

not

have a significant impact on our consolidated financial statements.