Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Consolidation, Policy [Policy Text Block]

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Ottawa Bancorp, Inc. (the Company) and its wholly owned subsidiary Ottawa Savings Bank (the Bank). All significant intercompany transactions and balances are eliminated in consolidation.

Reclassification, Policy [Policy Text Block]

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation with

impact on previously reported net income or stockholders’ equity.

Use of Estimates, Policy [Policy Text Block]

Use of estimates

In preparing the consolidated financial statements, management is required 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. Material estimates that are particularly susceptible to significant change relate to the fair value of securities available for sale, the determination of the allowance for loan losses, valuation of deferred income taxes, and the fair value measurement for the assets and liabilities.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of credit risk

Most of the Bank’s business activity is with customers within the Ottawa, Marseilles, and Morris areas. The Bank does

not

have any significant concentrations to any

one

industry or customer.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash

and cash

equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks and interest bearing deposits, including cash items in process of clearing. Cash flows from loans, deposits, time deposits and federal funds sold or purchased are treated as net increases or decreases in the statement of cash flows.

The Company maintains its cash in bank deposit accounts which, at times,

may

exceed federally insured limits. The Company has

not

experienced any losses in such accounts. The Company believes it is

not

exposed to any significant credit risk on cash and cash equivalents.

Deposit Contracts, Policy [Policy Text Block]

Time deposits

Time deposits held at other financial institutions are carried at cost and include any time deposits with an original maturity of greater than

three

months. Time deposits held at other financial institutions with an original maturity of less than

three

months were

$1,483,500

as of

December 31, 2019

and are included in cash and cash equivalents. The Company has

not

experienced any losses in such accounts. The Company believes it is

not

exposed to any significant credit risk on time deposits.

Marketable Securities, Policy [Policy Text Block]

Investment securities

Debt securities classified as available for sale are those debt securities that the Company intends to hold for an indefinite period of time, but

not

necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. The difference between the fair value and amortized cost, adjusted for amortization of premium and accretion of discounts, computed by the interest method over their contractual maturity, results in an unrealized gain or loss. Unrealized gains or losses are reported as accumulated other comprehensive income (loss), net of the related deferred tax effect and are included as a component of stockholders' equity. Gains or losses from the sale of securities are determined using the specific identification method and are included in earnings. Declines in the fair value of available for sale securities below their amortized cost basis that are deemed to be other than temporary are reflected in earnings as realized losses. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (

) the length of time and the extent to which the fair value has been less than cost, (

) the financial condition and near-term prospects of the issuer, and (

) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In addition, management monitors market trends and current events in order to identify trends and circumstances that might impact the carrying value of securities.

To determine if an “other-than-temporary” impairment (OTTI) exists on an investment security, the Company

first

determines if (a) it intends to sell the security or (b) it is more likely than

not

that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Company will recognize an “other-than-temporary” impairment in earnings equal to the difference between the security’s fair value and its adjusted cost basis. If neither of the conditions is met, the Company determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the portion of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The portion of total impairment related to all other factors is included in other comprehensive income (loss).

Investment, Policy [Policy Text Block]

Non-marketable equity securities

Nonmarketable equity securities, consisting primarily of the Bank’s investment in the Federal Home Loan Bank of Chicago stock, is carried at cost within other assets and periodically evaluated for impairment.

Financing Receivable [Policy Text Block]

Loans

The Bank primarily lends to small and mid-sized businesses, non-residential real estate customers and consumers providing mortgage, commercial and consumer loans. A substantial portion of the loan portfolio is represented by mortgage loans throughout Ottawa, Marseilles and Morris, Illinois and the surrounding areas. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

It is the Bank’s policy to review each prospective credit in order to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Bank seeks recovery in compliance with state lending laws, the Bank’s lending standards, and credit monitoring and remediation procedures.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the contractual life of the loan using the interest method.

The following portfolio segments and classes of loan receivables have been identified by the Company:

	•	Commercial
	•	Non-residential real estate
	•	One-to- four family residential
	•	Multi-family residential
	•	Consumer direct
	•	Purchased auto

Generally, for all classes of loans receivable, loans are considered past due when contractual payments are delinquent for

days or greater. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.

For all classes of loans receivable, loans are placed on nonaccrual status when the loan has become over

days past due (unless the loan is well secured and in the process of collection).

When a loan is placed on nonaccrual status, income recognition is ceased. Previously recorded but uncollected amounts of interest on nonaccrual loans are reversed at the time the loan is placed on nonaccrual status. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Should full collection of principal be expected, cash collected on nonaccrual loans can be recognized as interest income.

For all classes of loans receivable, nonaccrual loans

may

be restored to accrual status provided the following criteria are met:

•

The loan is current, and all principal and interest amounts contractually due have been made,

•

All principal and interest amounts contractually due, including past due payments, are reasonably assured of repayment within a reasonable period, and

•

There is a period of minimum repayment performance, as follows, by the borrower in accordance with contractual terms:

•

Six months of repayment performance for contractual monthly payments, or

•

One year of repayment performance for contractual quarterly or semi-annual payments.

Troubled debt restructuring exists when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower and the Company) to the borrower that it would

not

otherwise consider. The Company is attempting to maximize its recovery of the balances of the loans through these various concessionary restructurings.

The following criteria, related to granting a concession, together or separately, create a troubled debt restructuring:

•

A modification of terms of a debt such as

one

or a combination of:

•

The reduction of the stated interest rate to a rate lower than the current market rate for new debt with similar risk.

•

The extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk.

•

The reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

•

The reduction of accrued interest.

•

A transfer from the borrower to the Company of receivables from

third

parties, real estate, other assets, or an equity position in the borrower to fully or partially satisfy a loan.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for loan losses

For all portfolio segments, the allowance for loan losses is an amount necessary to absorb known and inherent losses that are both probable and reasonably estimable and is established through a provision for loan losses charged to earnings. Loan losses, for all portfolio segments, are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

For all portfolio segments, the allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and

may

require the Company to make additions to the allowance based upon their judgment about information available to them at the time of their examinations.

The general component consists of quantitative and qualitative factors and covers non-impaired loans. The quantitative factors are based on historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company using the most recent

twelve

quarters with heavier weighting given to the most recent quarters.

Actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment. These qualitative factors include consideration of the following:

	●	Levels of and trends in delinquencies and impaired loans
	●	Levels of and trends in charge-offs and recoveries
	●	Trends in volume and terms of loans
	●	Effects of any changes in risk selection and underwriting standards
	●	Other changes in lending policies, procedures and practices
	●	Experience, ability and depth of lending management and other relevant staff
	●	National and local economic trends and conditions
	●	Industry conditions
	●	Effects of changes in credit concentrations

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and non-residential loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

A discussion of the risk characteristics and the allowance for estimated losses on loans, by each portfolio segment, follows:

For commercial loans, the Company focuses on small and mid-sized businesses that have annual revenues below

$5,000,000

with primary operations as producing wholesalers, manufacturers, building contractors, business services companies, agricultural companies and retailers. The Company provides a wide range of commercial loans, including lines of credit for working capital and operational purposes, and term loans for the acquisition of facilities, equipment and other purposes. The Company also originates commercial loans through Bankers Health Group (BHG). BHG specializes in loans to healthcare professionals of all specialties throughout the United States. The loans for BHG are primarily comprised of working capital and equipment loans. We underwrite these loans based on our criteria and service the loans in-house. Approval is generally based on the following factors:

	•	Ability and stability of current management of the borrower;
	•	Stable earnings with positive financial trends;
	•	Sufficient cash flow to support debt repayment;
	•	Earnings projections based on reasonable assumptions;
	•	Financial strength of the industry and business; and
	•	Value and marketability of collateral.

Collateral for commercial loans generally includes accounts receivable, inventory, and equipment. The lending policy specifies approved collateral types and corresponding maximum advance percentages. The value of collateral pledged on loans must exceed the loan amount by a margin sufficient to absorb potential erosion of its value in the event of foreclosure and cover the loan amount plus costs incurred to convert it to cash. The lending policy specifies maximum term limits for commercial loans. For term loans, the maximum term is

years. Generally, term loans range from

years. For lines of credit, the maximum term is

365

days. In addition, the Company often takes personal guarantees as support for repayment. Loans

may

be made on an unsecured basis if warranted by the overall financial condition of the borrower.

Non-residential real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those standards and processes specific to real estate loans. Collateral for non-residential real estate loans generally includes the underlying real estate and improvements and

may

include additional assets of the borrower. The lending policy specifies maximum loan-to-value limits based on the category of non-residential real estate (non-residential real estate loans on improved property, raw land, land development, and commercial construction). These limits are the same limits established by regulatory authorities. The lending policy also includes guidelines for real estate appraisals, including minimum appraisal standards based on certain transactions. In addition, the Company often takes personal guarantees as support for repayment.

Some of the non-residential loans that the Company originates finance the construction of residential dwellings and land development. For land development, the loans generally can be made with a maximum loan to value ratio of

70%

and a maximum term up to

years. Additionally, the Company will underwrite commercial construction loans for commercial development projects including condominiums, apartment buildings, single-family subdivisions, single-family speculation loans, as well as owner-occupied properties used for business. These loans provide for payment of interest only during the construction phase and

may,

in the case of an apartment or commercial building, convert to a permanent loan upon completion. In the case of a single-family subdivision or construction or builder loan, as individual lots are sold, the principal balance is reduced by a minimum of

80%

of the net lot sales price. In the case of a commercial construction loan, the construction period

may

be from

nine

months to

two

years. Loans are generally made to a maximum of

80%

of the appraised value as determined by an appraisal of the property made by an independent state certified general real estate appraiser. Periodic inspections are required of the property during the term of the construction loan for both residential and commercial construction loans.

For commercial and non-residential real estate loans, the allowance for loan losses consists of specific and general components. For loans that are considered impaired as defined above, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The Company hires an independent firm to perform a loan review every

months to validate the risk ratings on selected commercial and non-residential loans. Additionally, the reviews include an analysis of debt service requirements, covenant compliance, if applicable, and collateral adequacy. They also perform a documentation review on selected loans to determine if the credit is properly documented and closed in accordance with approval authorities and conditions.

Generally, the Company’s

one

-to-

four

family real estate loans conform to the underwriting standards of Freddie Mac and Fannie Mae which would allow the Company the ability to sell the loans in the secondary market. The Company structures most loans that will

not

conform to those underwriting requirements as adjustable rate mortgages that adjust in one,

three

five

-year increments and retains those in its portfolio. The board approved lending policy establishes minimum appraisal and credit underwriting guidelines, The Company also participates with the USDA Rural Development Company to offer loans to qualifying borrowers. USDA guaranteed loans are granted up to

100%

of the appraised value and the USDA guarantees up to

90%

of the loan. These loans typically require

down payment, but are subject to maximum income limitations.

The Company also originates loans for multi-family dwellings. These loans follow board and regulatory approved underwriting guidelines similar to commercial loans, in addition to those standards and processes specific to real estate loans. Collateral for multi-family real estate loans generally includes the underlying real estate and improvements and

may

include additional assets of the borrower. The board approved lending policy specifies maximum loan-to-value limits based on the type of property. The lending policy also includes guidelines for real estate appraisals, including minimum appraisal standards based on certain transactions. The policy also specifies minimum ongoing credit administration procedures including the collection of financial statements, tax returns and rent rolls when applicable. Additionally, the Company will take personal guarantees and cross collateralize other assets of the guarantors as support for repayment.

The Company provides many types of installment and other consumer loans including motor vehicle, home improvement, share loans, personal unsecured loans, home equity, and small personal credit lines. The lending policy addresses specific credit guidelines by consumer loan type. Unsecured loans generally have a maximum borrowing limit of

$25,000

and a maximum term of

four

years.

The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loans. Although the applicant’s credit-worthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.

The Company purchases auto loans from regulated financial institutions. These types of loans are primarily low balance individual auto loans. The Company reviews the loans at least

three

days prior to the purchase. Any specific loan can be refused within

thirty

days of the sale of any given loan pool.

For residential real estate loans, multi-family, consumer direct loans (e.g. installment, in-house auto, other consumer loans, etc.) and purchased auto loans, the allowance for estimated losses on loans consists of a specific and general component. The specific component is evaluated for only loans that are classified as impaired, which is based on current information and events if it is probable that the Company will be unable to collect the scheduled payments according to the terms of the agreement. Impairment on these is measured on a case-by-case basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For large groups of smaller balance homogenous loans that are under

days past due, they are collectively evaluated for impairment. To determine the general component, the Company applies quantitative factors based on historical charge-off experience in total for each segment. Additionally, the historical loss factors are adjusted based on qualitative factors determined by the Company which impact each segment.

Residential real estate loans, multi-family real estate loans, consumer direct loans and purchased auto loans are

not

risk ranked individually. These loans are only classified when the borrower is

days or more past due or if the borrower has another loan with the Company that is over

days past due and dependent upon the same collateral. Under such circumstances, all of the loans connected with the collateral are classified as substandard and these loans are evaluated for impairment.

Troubled debt restructurings are considered impaired loans and are subject to the same allowance methodology as described above for impaired loans by portfolio segment.

Finance Loans and Leases Receivable Acquired [Policy Text Block]

Loans Acquired in a Transfe

The loans acquired in the Twin Oaks merger were recorded at fair value as of the acquisition date and

separate valuation allowance was established. Management engaged the services of an independent valuation specialist to determine the fair values based on expected cash flows discounted at appropriate rates.

FASB ASC Topic

310

30,

Loans and Debt Securities Acquired with Deteriorated Credit Quality,

applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. If both conditions exist, the Company determines whether to account for each loan individually or whether such loans will be assembled into pools based on common risk characteristics such as credit score, loan type, and origination date. Based on this evaluation, the Company determined that the loans acquired from the Twin Oaks merger subject to ASC Topic

310

would be accounted for individually.

The Company considered expected prepayments and estimated the total expected cash flows, which included undiscounted expected principal and interest. The excess of that amount over the fair value of the loan is referred to as accretable yield. Accretable yield is recognized as interest income on a constant yield basis over the expected life of the loan. The excess of the contractual cash flows over expected cash flows is referred to as non-accretable difference and is

not

accreted into income. Over the life of the loan, the Company continues to estimate expected cash flows. Subsequent decreases in expected cash flows are recognized as impairments in the current period through the allowance for loan losses. Subsequent increases in cash flows to be collected are

first

used to reverse any existing valuation allowance and any remaining increases are recognized prospectively through an adjustment of the loan’s yield over its remaining life.

FASB ASC Topic

310

20,

Nonrefundable Fees and Other Costs,

was applied to loans

not

considered to have deteriorated credit quality at acquisition. Under ASC Topic

310

20,

the difference between the loan’s principal balance at the time of purchase and the fair value is recognized as an adjustment of yield over the life of the loan.

Mortgage Banking Activity [Policy Text Block]

Mortgage Partnership Finance Program

2018,

the Company began participating in the Mortgage Partnership Finance (“MPF”) Program of the Federal Home Loan Bank of Chicago (“FHLBC”). The program is intended to provide member institutions with an alternative to holding fixed-rate mortgage in their loan portfolios or selling in the secondary market. The Company participates in the MPF Program by either originating individual loans on a “flow” basis as an agent for the FHLBC pursuant to the “MPF Original Program” and the “MPF

125

Program” or by selling, as a principal, closed loans owned by the Company to the FHLBC pursuant to

one

of the FHLBC’s closed loan programs. Under the MPF Program, credit risk is shared by the Company and the FHLBC by structuring the loss exposure in several layers, with the Company being liable for losses after application of an initial layer of losses (after any private mortgage insurance) is absorbed by the FHLBC, subject to an agreed-upon maximum amount of such secondary credit enhancement which is intended to be in an amount equivalent to a “AA” credit risk by a rating agency. The Company

may

also be liable for certain

first

layer losses after a specified period of time. The Company received credit enhancement fees from the FHLBC for providing this credit enhancement and continuing to manage the credit risk of the MPF Program loans. The Company does

not

retain the servicing rights of these loans.

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

Servicing

Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Capitalized servicing rights are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. The Company’s servicing of assets is recorded in other assets.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If the Company later determines that all or a portion of the impairment

longer exists for a particular tranche, a reduction of the allowance

may

be recorded as an increase to income.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee 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 surrendered. 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.

Real Estate, Policy [Policy Text Block]

Foreclosed real estate

Real estate properties acquired through, or in lieu of, loan foreclosures are initially recorded at fair value less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

The Company had

foreclosed residential real estate property as of

December 31, 2019

and

2018.

There were

two

residential real estate loan in the process of foreclosure as of

December 31, 2019,

totaling

$607,268

and

one

residential real estate loan in the process of foreclosure as of

December 31, 2018,

totaling

$276,815.

Income Tax, Policy [Policy Text Block]

Income taxes

Deferred income tax assets and liabilities are computed quarterly for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than

not

realizable. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than

not,

based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than

not

means a likelihood of more than

percent; the terms examined and upon examination also include resolution of the related appeals or litigation process, if any. A tax position that meets the more likely than

not

recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than

percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or

not

a tax position has met the more likely than

not

recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than

not

that some portion or all of a deferred tax asset will

not

be realized. The Company has

uncertain tax positions for which a liability has been recorded. The Company is

longer subject to examination by federal or state taxing authorities for the tax year

2016

and the years prior.

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

Premises and equipment

Land is carried at cost. Premises and equipment are carried at cost, less accumulated depreciation. Premises and equipment are depreciated using the straight-line and accelerated depreciation methods over the estimated useful lives of the assets:

	Years
Buildings	5	-	50
Furniture and equipment	3	-	39

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

Employee stock ownership plan

The Bank has an employee stock ownership plan (ESOP) covering substantially all employees. The cost of shares issued to the ESOP but

not

yet allocated to participants is presented in the consolidated balance sheets as a reduction of stockholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts.

Share-based Payment Arrangement [Policy Text Block]

Stock-based compensation

The Company recognizes compensation cost for all stock-based awards based on the estimated grant date fair value. The fair value of stock options is estimated using a Black-Scholes option pricing model and amortized to expense over the option’s vesting periods, as more fully disclosed in Note

11.

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

Off-balance-sheet financial instruments

Financial instruments include off-balance-sheet credit instruments, such as commitments to originate loans, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive income (loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale net of the related tax effect.

Commitments and Contingencies, Policy [Policy Text Block]

Loss contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. In the normal course of business, management will reach settlements over legal issues which are recorded in the period received. Management does

not

believe there are any such matters that will have a material effect on the consolidated financial statements.

Fair Value Measurement, Policy [Policy Text Block]

Fair value measurement

In accordance with the provisions of FASB ASC

820,

Fair Value Measurements

and Disclosures

fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is

not

adjusted for transaction costs. This guidance also establishes a framework for measuring fair value and disclosure of fair value measurements. See Note

for additional information.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair value of financial instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note

16.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Present Value of Future Insurance Profits, Policy [Policy Text Block]

Cash surrender

value of

life insurance

The Company has purchased bank-owned life insurance on certain directors and officers. Bank-owned life insurance is recorded at its cash surrender value. Changes in the cash surrender values are included in other income.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. On

December 31, 2014,

the Company completed a merger, which resulted in the recognition of goodwill of approximately

$650,000.

Goodwill acquired in a purchase business combination is

not

amortized, but tested for impairment at least annually or more frequently if events or circumstances exist that indicate that a goodwill test should be performed. The Company has selected

December 31

as the date to perform the annual impairment test. At

December 31, 2019,

the Company’s evaluation of goodwill indicated that goodwill was

not

impaired.

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

Core deposit intangible

The core deposit intangible represents the value of acquired customer relationships resulting from the Company’s

December 31, 2014

merger with Twin Oaks. The core deposit intangible will be amortized using the double declining balance method over an estimated useful life of

9.8

years. The Company will periodically review the status of the core deposit intangible for any events or circumstances which

may

change the recoverability of the underlying basis.

Estimated future amortization expense on core deposit intangible is shown in the table below:

Year Ending December 31,	Amount
2020		38,000
2021		38,000
2022		38,000
2023		38,000
Thereafter		17,999
	$	169,999

Earnings Per Share, Policy [Policy Text Block]

Earnings

per share

Basic earnings per share is based on net income divided by the weighted average number of shares outstanding during the period, including allocated and committed-to-be-released Employee Stock Ownership Plan (“ESOP”) shares and vested Management Recognition Plan (“MRP”) shares. Diluted earnings per share show the dilutive effect, if any, of additional common shares issuable under stock options and awards. See Note

for additional information on the MRP and Recognition and Retention Plan (“RRP”) plans.

	Years ended December 31,
	201 9			201 8
Net income available to common stockholders	$	1,937,347		$	1,994,306
Basic potential common shares:
Weighted average shares outstanding		3,253,484			3,401,565
Weighted average unvested MRP shares		(2,624	)		-
Weighted average unallocated ESOP shares		(150,283	)		(168,768	)
Basic weighted average shares outstanding		3,100,577			3,232,797

Dilutive potential common shares:
Weighted average unrecognized compensation on MRP shares		47			12
Weighted average RRP options outstanding		5,488			8,313
Dilutive weighted average shares outstanding		3,106,112			3,241,121
Basic earnings per share	$	0.62		$	0.62
Diluted earnings per share	$	0.62		$	0.62

Segment Reporting, Policy [Policy Text Block]

Segment reporting

The Company views the Bank as

one

operating segment, therefore, separate reporting of financial segment information is

not

considered necessary. The Company approaches the Bank as

one

business enterprise which operates in a single economic environment since the products and services, types of customers and regulatory environment all have similar characteristics.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent accounting pronouncements

May 2014,

the FASB issued ASU

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

)

. ASU

2014

outlines a single model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU

2014

will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract and will also require additional disclosures. The new authoritative guidance was originally effective for reporting periods after

December 15, 2016.

August 2015,

ASU

2015

14,

Revenue from Contracts with Customers (Topic

606

)

was issued to delay the effective date of ASU

2014

one

year. The FASB issued

four

subsequent ASUs in

2016

which are intended to improve and clarify the implementation guidance related to ASU

2014

09.

The Company’s revenue is comprised of net interest income, which is explicitly excluded from the scope of ASU

2014

09,

and non-interest income. The Company has completed its overall assessment of non-interest income and review of related contracts potentially affected by the guidance. The Company adopted the guidance on

January 1, 2018

and a cumulative effect adjustment to retained earnings was

not

necessary.

The standard allowed the use of either the full retrospective or modified retrospective transition method. We elected to apply the modified retrospective transition method to incomplete contracts as of the initial date of application on

January 1, 2018.

The adoption of the new standards did

not

have a material impact on our financial condition or results of operations as the revenue recognition patterns under the new standards did

not

change significantly from our current practice of recognizing the in-scope non-interest income. In addition, we did

not

retroactively revise prior period amounts or record a cumulative adjustment to retained earnings upon adoption. We considered the nature, amount, timing, and uncertainty of revenue from contracts with customers and determined that significant revenue streams are sufficiently disaggregated in the consolidated statements of income.

Descriptions of our significant revenue-generating transactions that are within the scope of the new revenue recognition standards, which are presented in the consolidated statements of income as components of non-interest income, are as follows:

●

Service charges on deposit accounts.

The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Similarly, overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with the Company's performance obligation. Service charges on deposit accounts are withdrawn from the customer's account balance.

●

Gains/losses on sale of foreclosed real estate and repossessed assets.

The Company records a gain or loss from the sale of foreclosed real estate and repossessed assets when control of the property transfers to the buyer, which generally occurs at the time of the executed deed. When the Company finances the sale of foreclosed real estate and repossessed assets to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed real estate and repossessed asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant component is present.

●

Other.

Other noninterest income consists of other recurring revenue streams such as transaction fees, safe deposit rental income, and insurance commissions. Transaction fees primarily include check printing sales commissions, collection fees, and wire transfer fees which arise from in-branch transactions. Insurance commissions are agent commissions earned by the Company and earned upon the effective date of the bound coverage. Merchant referral income is associated with a program whereby the Company receives a share of processing revenue that is generated from clients that were referred by the Company to the service provider. Revenue is recognized at the point in time when the transaction occurs.

January 2016,

the FASB issued ASU

2016

01,

Financial Instruments—Overall (Subtopic

825

): Recognition and Measurement of Financial Assets and Financial Liabilities

, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU

2016

was effective for the Company on

January 1, 2018.

The adoption of the new financial instruments standard did

not

have a material impact on the consolidated financial statements. There was

cumulative effect adjustment recorded with the adoption of this guidance.

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

)

. Under the new guidance in this ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (

) a lease liability, which is a lessee`s obligation to make lease payments arising from a lease, measured on a discounted basis; and (

) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic

606,

Revenue from Contracts with Customers. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will

longer be provided with a source of off-balance sheet financing. ASU

2016

is effective for public business entities for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company adopted the guidance on

January 1, 2019

and the standard did

not

have a material impact on its consolidated financial statements.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

. ASU

2016

requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU

2016

amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU

2016

is effective for public business entities for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after

December 31, 2018,

including interim periods within those fiscal years. On

October 16, 2019,

the FASB unanimously approved to delay the required implementation date for this guidance until fiscal years beginning after

December 12, 2022

for certain entities. The delay would apply to small reporting companies (as defined by the SEC), such as the Company, non-SEC public companies and private companies. The Company is currently evaluating the provisions of ASU

2016

13,

to determine the potential impact of the new accounting guidance on its consolidated financial statements.

January 2017,

the FASB issued ASU

No.

2017

04,

Intangibles – Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment.

This ASU simplifies measurement of goodwill and eliminates Step

from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. The Company does

not

believe the adoption of this standard will have a material impact on its consolidated financial statements.

March 2017,

the FASB issued ASU

2017

08,

Receivables – Nonrefundable Fees and Other Costs (Subtopic

310

)

, Premium Amortization on Purchased Callable Debt Securities, which shortens the period of amortization of the premium on certain callable debt securities to the earliest call date. Currently, generally accepted accounting principles (“GAAP”) excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. ASU

2017

requires that premiums on certain callable debt securities be amortized to the shortest call date. Securities within the scope of this ASU are those that have explicit, noncontingent call features that are callable at fixed prices and on preset dates. This ASU was effective for annual periods beginning after

December 15, 2018,

including interim periods within those annual periods. The impact of adopting this ASU did

not

have an effect as our current bond accounting is consistent with the requirements of this guidance.

Subsequent Events, Policy [Policy Text Block]

Subsequent event

December 2019,

a novel strain of coronavirus was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” The COVID-

outbreak is disrupting supply chains and affecting production and sales across a range of industries. The extent of the impact of COVID-

on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-

may

impact our financial condition or results of operations is uncertain. The economic uncertainties that have arisen will likely have a negative impact on net interest income. Other financial impacts could occur though such potential impact is unknown at this time.