UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2019

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

[ ] 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 0-23325

Guaranty Federal Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Delaware	43-1792717
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2144 E Republic Rd, Suite F200
Springfield, Missouri	65804
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number: 1-833-875-2492

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.10 per share	GFED	NASDAQ Global Market

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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] 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 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 [X] Non-accelerated filer [ ] Smaller reporting company [X] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period of 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 [X]

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

Class	Outstanding as of ~~July~~October 31, 2019
Common Stock, Par Value $0.10 per share	~~4,440,351~~4,381,312 Shares

GUARANTY FEDERAL BANCSHARES, INC.

TABLE OF CONTENTS

~~GUARANTY FEDERAL BANCSHARES, INC.~~

			Page
~~TABLE OF CONTENTS~~
			~~Page~~
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income			4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows		8
	Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3534

Item 3. Quantitative and Qualitative Disclosures about Market Risk		4342

Item 4. Controls and Procedures			4443

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			4544

Item 1A. Risk factors			4544

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4544

Item 3. Defaults Upon Senior Securities			4544

Item 4. Mine Safety Disclosures		4544

Item 5. Other Information			4544

Item 6. Exhibits			4544

Signatures			45

	6/30/2019			12/31/2018			9/30/2019			12/31/2018
ASSETS
Cash and due from banks	$	4,169,211		$	5,818,955		$	3,974,694		$	5,818,955
Interest-bearing deposits in other financial institutions		48,856,560			28,302,687			82,446,686			28,302,687
Cash and cash equivalents		53,025,771			34,121,642			86,421,380			34,121,642
Interest-bearing time deposits at other financial institutions		250,000			250,000			250,000			250,000
Available-for-sale securities		95,031,221			86,266,197			106,353,702			86,266,197
Stock in Federal Home Loan Bank, at cost		3,157,500			5,387,200			3,157,500			5,387,200
Mortgage loans held for sale		1,914,419			1,516,849			944,969			1,516,849
Loans receivable, net of allowance for loan losses of June 30, 2019 - $7,670,666 - December 31, 2018 - $7,995,569		751,190,822			778,298,606
Loans receivable, net of allowance for loan losses of September 30, 2019 - $7,557,311 - December 31, 2018 - $7,995,569								744,022,856			778,298,606
Accrued interest receivable		3,528,976			3,390,944			3,475,749			3,390,944
Prepaid expenses and other assets		10,749,882			6,261,159			9,054,815			6,261,159
Goodwill		1,434,982			1,434,982			1,434,982			1,434,982
Core deposit intangible		2,742,410			2,980,910			2,623,160			2,980,910
Foreclosed assets held for sale		1,399,221			1,126,963			1,490,960			1,126,963
Premises and equipment, net		19,735,644			20,095,161			19,560,814			20,095,161
Operating lease right-of-use asset		9,334,911			-			9,194,850			-
Bank owned life insurance		20,422,623			20,198,074			24,543,725			20,198,074
Deferred and income taxes receivable		3,525,426			3,809,183
Income taxes receivable								-			158,631
Deferred income taxes								3,800,037			3,650,552
							$	1,016,329,499		$	965,137,870
	$	977,443,808		$	965,137,870
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits	$	802,477,539		$	749,618,822		$	839,988,502		$	749,618,822
Federal Home Loan Bank advances		50,000,000			105,300,000			50,000,000			105,300,000
Subordinated debentures		21,716,897			21,760,829			15,465,000			21,760,829
Note payable to bank		5,000,000			5,000,000			11,200,000			5,000,000
Advances from borrowers for taxes and insurance		525,667			289,808			698,438			289,808
Accrued expenses and other liabilities		3,652,629			1,868,008			4,834,402			1,868,008
Operating lease liability		9,364,989			-			9,236,695			-
Income taxes payable								348,818			-
Accrued interest payable		967,815			821,811			832,494			821,811
		893,705,536			884,659,278			932,604,349			884,659,278

COMMITMENTS AND CONTINGENCIES		-			-			-			-

STOCKHOLDERS' EQUITY
Capital Stock:
Common stock, $0.10 par value; authorized 10,000,000 shares; issued June 30, 2019 and December 31, 2018 - 6,912,003 and 6,902,003 shares; respectively		691,200			690,200
Common stock, $0.10 par value; authorized 10,000,000 shares; issued September 30, 2019 and December 31, 2018 - 6,916,003 and 6,902,003 shares; respectively								691,600			690,200
Additional paid-in capital		51,575,395			51,382,585			51,782,472			51,382,585
Retained earnings, substantially restricted		69,214,712			65,829,687			71,195,470			65,829,687
Accumulated other comprehensive loss		(676,225	)		(452,756	)		(700,936	)		(452,756	)
		120,805,082			117,449,716			122,968,606			117,449,716
Treasury stock, at cost; June 30, 2019 and December 31, 2018 - 2,442,774 and 2,443,522 shares, respectively		(37,066,810	)		(36,971,124	)
Treasury stock, at cost; September 30, 2019 and December 31, 2018 - 2,534,691 and 2,443,522 shares, respectively								(39,243,456	)		(36,971,124	)
		83,738,272			80,478,592			83,725,150			80,478,592
	$	977,443,808		$	965,137,870		$	1,016,329,499		$	965,137,870

Three months ended

Six months ended

6/30/2019
6/30/2018 6/30/2019 6/30/2018
Interest Income

Loans
$ 10,394,929 $ 9,818,707 $ 20,698,114 $ 17,197,282
Investment securities
680,970 492,931 1,278,504 942,300
Other
223,608 67,487 419,325 195,859
11,299,507 10,379,125 22,395,943 18,335,441
Interest Expense

Deposits
2,799,220 1,719,614 5,405,440 3,142,184
FHLB advances
288,710 405,817 645,286 739,344
Subordinated debentures
296,771 277,594 588,123 446,561
Other
64,451 3,833 132,021 3,833
3,449,152 2,406,858 6,770,870 4,331,922
Net Interest Income
7,850,355 7,972,267 15,625,073 14,003,519
Provision for Loan Losses
100,000 500,000 100,000
Net Interest Income After Provision for Loan Losses
7,750,355 7,472,267 15,525,073 13,278,519
Noninterest Income

Service charges
418,938 552,011 820,770 869,177
Net gain (loss) on sale of investment securities
78,911 (10,388 ) 48,263 (7,205 )
Gain on sale of mortgage loans held for sale
561,932 616,928 987,930 996,485
Gain on sale of Small Business Administration loans
247,457 225,379 497,576 396,241
Net gain on foreclosed assets
39,923 76,481 20,866 120,812
Other income
586,177 493,401 1,122,268 897,341
1,933,338 1,953,812 3,497,673 3,272,851
Noninterest Expense

Salaries and employee benefits
3,952,870 4,101,741 7,912,190 7,275,165
Occupancy
1,106,812 1,037,665 2,240,175 1,808,072
FDIC deposit insurance premiums
118,093 116,837 217,628 195,135
Data processing
420,197 464,360 809,141 766,892
Advertising
150,000 134,650 300,000 265,900
Merger costs
22,055 3,192,050 38,651 3,420,050
Amortization of core deposit intangible
119,250 220,000 238,500 220,000
Other expense
937,206 955,334 1,913,757 1,747,278
6,826,483 10,222,637 13,670,042 15,698,492
Income (Loss) Before Income Taxes
2,857,210 (796,558 ) 5,352,704 852,878
Provision (Credit) for Income Taxes
428,711 (453,574 ) 803,841 (159,883 )
Net Income (Loss) Available to Common Shareholders
$ 2,428,499 $ (342,984 ) $ 4,548,863 $ 1,012,761

Basic Income (Loss) Per Common Share
$ 0.55 $ (0.08 ) $ 1.02 $ 0.23
Diluted Income (Loss) Per Common Share
$ 0.54 $ (0.08 ) $ 1.01 $ 0.23

Common
Stock

Additional Paid-
In Capital

Treasury
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total

Balance, January 1, 2019
$ 690,200 $ 51,382,585 $ (36,971,124 ) $ 65,829,687 $ (452,756 ) $ 80,478,592
Net income
- - - 2,120,364 - 2,120,364
Other comprehensive income
- - - - 380,791 380,791
Dividends on common stock ($0.13 per share)
- - - (582,817 ) - (582,817 )
Stock award plans
- (53,689 ) 222,789 - - 169,100
Stock options exercised
1,000 50,900 - - - 51,900
Balance, March 31, 2019
691,200 51,379,796 (36,748,335 ) 67,367,234 (71,965 ) 82,617,930
Net income
- - - 2,428,499 - 2,428,499
Other comprehensive loss
- - - - (604,260 ) (604,260 )
Dividends on common stock ($0.13 per share)
- - - (581,021 ) - (581,021 )
Treasury stock purchased
- - (312,892 ) - - (312,892 )
Stock award plans
- 195,599 (5,583 ) - - 190,016
Balance, June 30, 2019
$ 691,200 $ 51,575,395 $ (37,066,810 ) $ 69,214,712 $ (676,225 ) $ 83,738,272

	Three months ended						Nine months ended
	9/30/2019			9/30/2018			9/30/2019			9/30/2018
Interest Income
Loans	$	10,429,973		$	12,773,881		$	31,128,087		$	29,971,163
Investment securities		735,044			523,736			2,013,548			1,466,036
Other		416,604			80,258			835,929			276,117
		11,581,621			13,377,875			33,977,564			31,713,316
Interest Expense
Deposits		2,880,067			1,825,559			8,285,507			4,967,743
FHLB advances		282,845			481,968			928,131			1,221,312
Subordinated debentures		185,202			282,393			773,325			728,954
Other		111,364			58,949			243,385			62,782
		3,459,478			2,648,869			10,230,348			6,980,791
Net Interest Income		8,122,143			10,729,006			23,747,216			24,732,525
Provision for Loan Losses		100,000			200,000			200,000			925,000
Net Interest Income After Provision for Loan Losses		8,022,143			10,529,006			23,547,216			23,807,525
Noninterest Income
Service charges		442,051			475,484			1,262,821			1,344,661
Net gain (loss) on sale of investment securities		31,493			(885	)		79,756			(8,090	)
Gain on sale of mortgage loans held for sale		722,909			595,384			1,710,839			1,591,869
Gain on sale of Small Business Administration loans		301,187			263,755			798,763			659,996
Net loss on foreclosed assets		(134,145	)		(459,308	)		(113,279	)		(338,496	)
Other income		573,635			587,328			1,695,903			1,484,669
		1,937,130			1,461,758			5,434,803			4,734,609
Noninterest Expense
Salaries and employee benefits		4,144,402			3,887,582			12,056,592			11,162,747
Occupancy		1,149,242			1,112,702			3,389,417			2,920,774
FDIC deposit insurance premiums		40,000			101,762			257,628			296,897
Data processing		368,374			328,692			1,177,515			1,095,584
Advertising		102,500			131,250			402,500			397,150
Merger costs		-			150,877			34,011			3,570,927
Amortization of core deposit intangible		119,250			94,286			357,750			314,286
Other expense		1,029,688			858,698			2,948,085			2,605,976
		6,953,456			6,665,849			20,623,498			22,364,341
Income Before Income Taxes		3,005,817			5,324,915			8,358,521			6,177,793
Provision for Income Taxes		455,275			1,390,673			1,259,116			1,230,790
Net Income Available to Common Shareholders	$	2,550,542		$	3,934,242		$	7,099,405		$	4,947,003

Basic Income Per Common Share	$	0.58		$	0.89		$	1.60		$	1.12
Diluted Income Per Common Share	$	0.57		$	0.88		$	1.58		$	1.10

Common
Stock

Additional Paid-
In Capital

Treasury
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total

Balance, January 1, 2018
$ 687,850 $ 50,856,069 $ (37,125,541 ) $ 60,679,308 $ (206,193 ) $ 74,891,493
Net income
- - - 1,355,745 - 1,355,745
Other comprehensive loss
- - - - (26,942 ) (26,942 )
Dividends on common stock ($0.12 per share)
- - - (532,771 ) - (532,771 )
Stock award plans
- (35,357 ) 158,592 - - 123,235
Stock options exercised
450 23,330 - - - 23,780
Balance, March 31, 2018
688,300 50,844,042 (36,966,949 ) 61,502,282 (233,135 ) 75,834,540
Net income
- - - (342,984 ) - (342,984 )
Other comprehensive income
- - - - 91,016 91,016
Dividends on common stock ($0.12 per share)
- - - (534,272 ) - (534,272 )
Stock award plans
- 161,235 - - - 161,235
Stock options exercised
750 37,900 - - - 38,650
Balance, June 30, 2018
689,050 51,043,177 (36,966,949 ) 60,625,026 (142,119 ) 75,248,185
Net income
- - - 3,934,242 - 3,934,242
Other comprehensive loss
- - - - (249,491 ) (249,491 )
Dividends on common stock ($0.12 per share)
- - - (534,207 ) - (534,207 )
Stock award plans
- 154,137 (8,079 ) - - 146,058
Stock options exercised
500 69,400 - - - 69,900
Balance, September 30, 2018
689,550 51,266,714 (36,975,028 ) 64,025,061 (391,610 ) 78,614,687
Net income
- - - 2,384,876 - 2,384,876
Other comprehensive loss
- - - - (61,146 ) (61,146 )
Dividends on common stock ($0.13 per share)
- - - (580,250 ) - (580,250 )
Stock award plans
- 82,621 3,904 - - 86,525
Stock options exercised
650 33,250 - - - 33,900
Balance, December 31, 2018
$ 690,200 $ 51,382,585 $ (36,971,124 ) $ 65,829,687 $ (452,756 ) $ 80,478,592

~~See Notes to Condensed Consolidated Financial Statements~~GUARANTY FEDERAL BANCSHARES, INC.

6/30/2019

6/30/2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net income
$ 4,548,863 $ 1,012,761
Items not requiring (providing) cash:

Deferred income taxes
135,813 (145,762 )
Depreciation
949,754 660,972
Lease amortization
30,078 -
Provision for loan losses
100,000 725,000
Gain on sale of Small Business Administration loans
(497,576 ) (396,241 )
Gain on sale of mortgage loans held for sale and investment securities
(1,036,193 ) (989,280 )
Gain on sale of foreclosed assets
(58,696 ) (141,477 )
Gain on sale of premises and equipment
(6,069 ) -
Amortization of deferred income, premiums and discounts
165,996 337,877
Stock award plan expense
359,116 284,470
Accretion of purchase accounting adjustments
(661,564 ) (234,792 )
Origination of loans held for sale
(36,450,979 ) (34,084,892 )
Proceeds from sale of loans held for sale
37,041,339 35,155,111
Increase in cash surrender value of bank owned life insurance
(224,549 ) (226,011 )
Changes in:

Accrued interest receivable
(138,032 ) (546,328 )
Prepaid expenses and other assets
(3,175,861 ) 5,300,310
Accounts payable and accrued expenses
942,608 (1,530,909 )
Income taxes receivable/payable
95,484 (323,051 )
Net cash provided by operating activities
2,119,532 4,857,758
CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of loans
5,187,953 5,273,649
Net change in loans
22,453,757 (4,240,878 )
Principal payments on available-for-sale securities
2,893,736 1,139,659
Principal payments on held-to-maturity securities
11,661 2,347
Purchase of premises and equipment
(584,168 ) (2,294,704 )
Net cash received for acquisition
- 2,455,964
Purchase of available-for-sale securities
(38,383,889 ) (9,788,468 )
Proceeds from sale of available-for-sale securities
29,255,408 6,497,699
Redemption (purchase) of FHLB stock
2,229,700 (193,700 )
Purchase of tax credit investments
(3,168,435 ) (452,171 )
Proceeds from sale of foreclosed assets held for sale
487,244 142,193
Net cash provided by (used in) investing activities
20,382,967 (1,458,410 )
CASH FLOWS FROM FINANCING ACTIVITIES

Cash dividends paid
(1,163,091 ) (1,063,744 )
Net increase in demand deposits, NOW accounts and savings accounts
52,638,121 1,507,491
Net increase (decrease) in certificates of deposit
251,733 (5,276,741 )
Net decrease of securities sold under agreements to repurchase
- (2,159,000 )
Proceeds from FHLB advances
74,565,000 336,550,000
Repayments of FHLB advances
(129,865,000 ) (342,450,000 )
Proceeds from issuance of notes payable
- 5,000,000
Repayments of notes payable
- (3,000,000 )
Advances from borrowers for taxes and insurance
235,859 380,533
Stock options exercised
51,900 62,430
Treasury stock purchased
(312,892 ) -
Net cash used in financing activities
(3,598,370 ) (10,449,031 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
18,904,129 (7,049,683 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
34,121,642 37,406,930
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 53,025,771 $ 30,357,247

	Three months ended						Nine months ended
	9/30/2019			9/30/2018			9/30/2019			9/30/2018
NET INCOME	$	2,550,542		$	3,934,242		$	7,099,405		$	4,947,003
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain (loss) on investment securities available-for-sale, before income taxes		721,464			(766,021	)		3,441,561			(2,455,951	)
Change in unrealized gain (loss) on interest rate swaps, before income taxes		(852,090	)		430,248			(3,694,933	)		2,198,977
Less: Reclassification adjustment for realized (gains) losses on investment securities included in net income, before income taxes		(31,493	)		885			(79,756	)		8,090
Total other items of comprehensive loss		(162,119	)		(334,888	)		(333,128	)		(248,884	)
Income tax (benefit) related to other items of comprehensive income		(137,408	)		(85,397	)		(84,948	)		(63,467	)
Other comprehensive (loss)		(24,711	)		(249,491	)		(248,180	)		(185,417	)
TOTAL COMPREHENSIVE INCOME	$	2,525,831		$	3,684,751		$	6,851,225		$	4,761,586

	Common Stock		Additional Paid- In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance, January 1, 2019	$	690,200	$	51,382,585		$	(36,971,124	)	$	65,829,687		$	(452,756	)	$	80,478,592
Net income		-		-			-			2,120,364			-			2,120,364
Other comprehensive income		-		-			-			-			380,791			380,791
Dividends on common stock ($0.13 per share)		-		-			-			(582,817	)		-			(582,817	)
Stock award plans		-		(53,689	)		222,789			-			-			169,100
Stock options exercised		1,000		50,900			-			-			-			51,900
Balance, March 31, 2019		691,200		51,379,796			(36,748,335	)		67,367,234			(71,965	)		82,617,930
Net income		-		-			-			2,428,499			-			2,428,499
Other comprehensive loss		-		-			-			-			(604,260	)		(604,260	)
Dividends on common stock ($0.13 per share)		-		-			-			(581,021	)		-			(581,021	)
Treasury stock purchased		-		-			(312,892	)		-			-			(312,892	)
Stock award plans		-		195,599			(5,583	)		-			-			190,016
Balance, June 30, 2019		691,200		51,575,395			(37,066,810	)		69,214,712			(676,225	)		83,738,272
Net income		-		-			-			2,550,542			-			2,550,542
Other comprehensive loss		-		-			-			-			(24,711	)		(24,711	)
Dividends on common stock ($0.13 per share)		-		-			-			(569,784	)		-			(569,784	)
Treasury stock purchased		-		-			(2,151,696	)		-			-			(2,151,696	)
Stock award plans		-		187,157			(24,950	)		-			-			162,207
Stock options exercised		400		19,920			-			-			-			20,320
Balance, September 30, 2019	$	691,600	$	51,782,472		$	(39,243,456	)	$	71,195,470		$	(700,936	)	$	83,725,150

	Common Stock		Additional Paid- In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance, January 1, 2018	$	687,850	$	50,856,069		$	(37,125,541	)	$	60,679,308		$	(206,193	)	$	74,891,493
Net income		-		-			-			1,355,745			-			1,355,745
Other comprehensive loss		-		-			-			-			(26,942	)		(26,942	)
Dividends on common stock ($0.12 per share)		-		-			-			(532,771	)		-			(532,771	)
Stock award plans		-		(35,357	)		158,592			-			-			123,235
Stock options exercised		450		23,330			-			-			-			23,780
Balance, March 31, 2018		688,300		50,844,042			(36,966,949	)		61,502,282			(233,135	)		75,834,540
Net income		-		-			-			(342,984	)		-			(342,984	)
Other comprehensive income		-		-			-			-			91,016			91,016
Dividends on common stock ($0.12 per share)		-		-			-			(534,272	)		-			(534,272	)
Stock award plans		-		161,235			-			-			-			161,235
Stock options exercised		750		37,900			-			-			-			38,650
Balance, June 30, 2018		689,050		51,043,177			(36,966,949	)		60,625,026			(142,119	)		75,248,185
Net income		-		-			-			3,934,242			-			3,934,242
Other comprehensive loss		-		-			-			-			(249,491	)		(249,491	)
Dividends on common stock ($0.12 per share)		-		-			-			(534,207	)		-			(534,207	)
Stock award plans		-		154,137			(8,079	)		-			-			146,058
Stock options exercised		500		69,400			-			-			-			69,900
Balance, September 30, 2018		689,550		51,266,714			(36,975,028	)		64,025,061			(391,610	)		78,614,687
Net income		-		-			-			2,384,876			-			2,384,876
Other comprehensive loss		-		-			-			-			(61,146	)		(61,146	)
Dividends on common stock ($0.13 per share)		-		-			-			(580,250	)		-			(580,250	)
Stock award plans		-		82,621			3,904			-			-			86,525
Stock options exercised		650		33,250			-			-			-			33,900
Balance, December 31, 2018	$	690,200	$	51,382,585		$	(36,971,124	)	$	65,829,687		$	(452,756	)	$	80,478,592

	9/30/2019			9/30/2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,099,405		$	4,947,003
Items not requiring (providing) cash:
Deferred income taxes		(64,536	)		706,286
Depreciation		1,427,906			1,096,490
Lease amortization		41,845			-
Provision for loan losses		200,000			925,000
Gain on sale of Small Business Administration loans		(798,763	)		(659,996	)
Gain on sale of mortgage loans held for sale and investment securities		(1,790,595	)		(1,583,779	)
Loss on sale of foreclosed assets		44,159			308,811
Gain on sale of premises and equipment		(6,069	)		-
Amortization of deferred income, premiums and discounts		313,686			453,575
Amortization of intangible assets		357,750			314,286
Stock award plan expense		521,323			276,391
Accretion of purchase accounting adjustments		(1,281,313	)		(3,282,074	)
Origination of loans held for sale		(24,039,578	)		(52,789,116	)
Proceeds from sale of loans held for sale		26,322,296			55,341,150
Increase in cash surrender value of bank owned life insurance		(345,651	)		(342,416	)
Changes in:
Accrued interest receivable		(84,805	)		(953,963	)
Prepaid expenses and other assets		(2,183,001	)		6,203,190
Accounts payable and accrued expenses		1,850,394			(1,441,136	)
Income taxes receivable/payable		507,448			(8,972	)
Net cash provided by operating activities		8,091,901			9,510,730
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of loans		6,445,267			9,489,176
Net change in loans		28,608,984			(13,591,488	)
Principal payments on available-for-sale securities		4,947,415			12,202,207
Principal payments on held-to-maturity securities		11,728			3,735
Purchase of premises and equipment		(887,490	)		(2,581,491	)
Net cash received for acquisition		-			2,455,964
Purchase of available-for-sale securities		(56,910,103	)		(25,151,079	)
Proceeds from sale of available-for-sale securities		35,035,814			13,602,508
Purchase of bank owned life insurance		(4,000,000	)		-
Redemption (purchase) of FHLB stock		2,229,700			(445,700	)
Purchase of tax credit investments		(3,168,435	)		(3,617,366	)
Proceeds from sale of foreclosed assets held for sale		507,969			187,468
Net cash provided by (used in) investing activities		12,820,849			(7,446,066	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid		(1,744,091	)		(1,598,016	)
Net increase in demand deposits, NOW accounts and savings accounts		104,780,937			69,132,414
Net decrease in certificates of deposit		(14,380,120	)		(76,871,838	)
Net decrease of securities sold under agreements to repurchase		-			(2,159,000	)
Proceeds from FHLB advances		93,965,000			470,835,000
Repayments of FHLB advances		(149,265,000	)		(470,435,000	)
Proceeds from issuance of notes payable		7,200,000			5,000,000
Repayments of notes payable		(1,000,000	)		(3,000,000	)
Repayment of Hometown Bancshares subordinated debentures		(6,186,000	)		-
Advances from borrowers for taxes and insurance		408,630			550,169
Stock options exercised		72,220			286,467
Treasury stock purchased		(2,464,588	)		-
Net cash provided by (used in) financing activities		31,386,988			(8,259,804	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		52,299,738			(6,195,140	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		34,121,642			37,406,930
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	86,421,380		$	31,211,790

Note 3: Acquisition

On April 2, 2018, the Company completed the acquisition of Carthage, Missouri-based Hometown Bancshares, Inc. (“Hometown”), including its wholly owned bank subsidiary, Hometown Bank, National Association. Under the terms of the Agreement and Plan of Merger, each share of Hometown common stock was exchanged for $20.00 in cash and the transaction was valued at approximately $4.6 million. Hometown’s subsidiary bank, Hometown Bank, National Association, was merged into Guaranty Bank on June 8, 2018.

Including the effects of the acquisition method accounting adjustments, the Company acquired approximately ~~$178.8~~$180.0 million in assets, including approximately $143.9 million in loans (inclusive of loan discounts) and approximately $161.2 million in deposits. Goodwill of $1.4 million was recorded as a result of the transaction. The merger strengthened the Company’s position in Southwest Missouri and the Company believes it will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, of the assets acquired and liabilities assumed in the Hometown transaction, as of acquisition date, is as follows:

~~Guaranty Federal Bancshares, Inc.~~
~~Net Assets Acquired from Hometown~~
~~April 2, 2018~~
~~(In~~ Guaranty Federal Bancshares, Inc. Net Assets Acquired from Hometown April 2, 2018 (In Thousands)

	Acquired from			Fair Value			Fair
	Hometown			Adjustments			Value
Assets Acquired
Cash and Due From Banks	$	7,083		$	-		$	7,083
Investment Securities		7,521			-			7,521
Loans		150,390			(6,471	)		143,919
Allowance for Loan Losses		(2,348	)		2,348			-
Net Loans		148,042			(4,123	)		143,919

Fixed Assets		9,268			798			10,066
Foreclosed Assets held for sale		1,647			(400	)		1,247
Core Deposit Intangible		-			3,520			3,520
Other Assets		4,146			2,463			6,609

Total Assets Acquired	$	177,707		$	2,258		$	179,965

Liabilities Assumed
Deposits		161,001			247			161,248
Federal Home Loan Bank advances		2,000			-			2,000
Securities Sold Under Agreements to Repurchase		2,159			-			2,159
Other borrowings		3,000			-			3,000
Subordinated debentures		6,186			176			6,362
Other Liabilities		2,003			-			2,003
Total Liabilities Assumed		176,349		$	423			176,772

Stockholders' Equity
Common Stock		231			(231	)		-
Capital Surplus		18,936			(18,936	)		-
Retained Earnings		(17,587	)		17,587			-
Accumulated Other Comprehensive Loss		(222	)		222			-
Treasury Stock		-			-			-
Total Stockholders' Equity Assumed		1,358		$	(1,358	)		-

Total Liabilities and Stockholders' Equity Assumed	$	177,707		$	(935	)	$	176,772

Net Assets Acquired							$	3,193
Purchase Price								4,628
Goodwill							$	1,435

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the acquisitions above. The purchase price allocation and certain fair value measurements have been finalized.

Cash and due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices if material. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.

Loans acquired – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

Fixed assets – Fixed assets were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired.

Foreclosed assets held for sale – These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal.

Core deposit intangible – This intangible asset represents the value of the relationships that Hometown had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits.

Other assets – The fair value adjustment results from recording additional deferred tax assets related to the transaction. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference when material.

Federal Home Loan Bank advances and Other borrowings – The fair value of Federal Home Loan Bank advances and other borrowings are estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Securities sold under agreement to repurchase – The carrying amount of securities sold under agreement to repurchase is a reasonable estimate of fair value based on the short-term nature of these liabilities.

Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Other liabilities – The carrying amount of these other liabilities was deemed to be reasonable estimate of fair value.

Note 4: Securities

The amortized cost and approximate fair values of securities classified as available-for-sale were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of June 30, 2019
As of September 30, 2019
Debt Securities:
U. S. government agencies										$	1,499,752	$	-	$	(9,071	)	$	1,490,681
Municipals	$	27,758,660	$	369,243	$	(15,228	)	$	28,112,675		30,172,564		805,092		(22,646	)		30,955,010
Corporates		10,049,914		55,339		(20,013	)		10,085,240		13,487,865		164,686		(13,115	)		13,639,436
Mortgage-backed securities - private label											10,963,720		9,367		(184	)		10,972,903
Government sponsored mortgage-backed securities and SBA loan pools		56,387,276		645,769		(199,739	)		56,833,306		48,704,459		734,188		(142,975	)		49,295,672
	$	94,195,850	$	1,070,351	$	(234,980	)	$	95,031,221	$	104,828,360	$	1,713,333		(187,991	)		106,353,702

Maturities of available-for-sale debt securities as of ~~June~~September 30, 2019:

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to ~~$6,292,193~~$5,572,723 and $24,943,176 as of ~~June~~September 30, 2019 and December 31, 2018, respectively. The approximate fair value of pledged securities amounted to ~~$6,371,216~~$5,673,630 and $24,374,187 as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

Realized gains and losses are recorded as net securities gains. Gains and losses on sales of securities are determined on the specific identification method. Gross gains of ~~$172,327~~$214,125 and ~~$3,183~~$26,061 and gross losses of ~~$124,064~~$134,369 and ~~$10,388~~$34,151 for the ~~six~~nine months ended ~~June~~September 30, 2019 and ~~June~~September 30, 2018, respectively, were realized from the sale of available-for-sale securities. The tax effect of these net gains and losses was ~~$10,135~~$16,749 and ($~~1,837)~~2,063) for the ~~six~~nine months ended ~~June~~September 30, 2019 and ~~June~~September 30, 2018, respectively.

The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary. Certain investment securities are valued at less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market ~~rates, or declines in stock prices of equity securities.~~rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. It is management’s intent to hold the debt securities to maturity or until recovery of the unrealized loss. Should the impairment of any of these debt securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified, to the extent the loss is related to credit issues, and to other comprehensive income to the extent the decline on debt securities is related to other factors and the Company does not intend to sell the security prior to recovery of the unrealized loss.

Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at ~~June~~September 30, 2019 and December 31, 2018, was ~~$25,714,110~~$20,627,201 and $70,434,596, respectively, which is approximately ~~27%~~19% and 82% of the Company’s investment portfolio.

The following table shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~June~~September 30, 2019 and December 31, 2018.

Classes of loans by aging at ~~June~~September 30, 2019 and December 31, 2018 were as follows:

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of ~~June~~September 30, 2019 and December 31, 2018:

June 30, 2019

Construction

Commercial
Real Estate

One to four
family

Multi-family

Commercial

Consumer
and Other

Unallocated

Total

(In Thousands)

Allowance for loan losses:
Ending balance: individually evaluated for impairment
$ 551 $ 173 $ 167 $ - $ 345 $ 29 $ - $ 1,265
Ending balance: collectively evaluated for impairment
$ 1,618 $ 2,015 $ 781 $ 673 $ 891 $ 365 $ 60 $ 6,403
Ending balance: loans acquired with deteriorated credit quality
$ - $ - $ - $ - $ - $ 3 $ - $ 3
Loans:

Ending balance: individually evaluated for impairment
$ 3,921 $ 1,272 $ 2,215 $ 5,930 $ 892 $ 224 $ - $ 14,454
Ending balance: collectively evaluated for impairment
$ 96,441 $ 296,388 $ 122,627 $ 82,526 $ 112,899 $ 31,056 $ - $ 741,937
Ending balance: loans acquired with deteriorated credit quality
$ - $ 2,713 $ - $ - $ 196 $ 150 $ - $ 3,059

September 30, 2019	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	554	$	24	$	202	$	-	$	214	$	20	$	-	$	1,014
Ending balance: collectively evaluated for impairment	$	1,398	$	2,285	$	789	$	723	$	846	$	402	$	97	$	6,540
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	3	$	-	$	3
Loans:
Ending balance: individually evaluated for impairment	$	3,816	$	412	$	2,166	$	5,930	$	599	$	185	$	-	$	13,108
Ending balance: collectively evaluated for impairment	$	84,359	$	305,188	$	119,524	$	87,699	$	108,072	$	31,247	$	-	$	736,089
Ending balance: loans acquired with deteriorated credit quality	$	-	$	2,671	$	-	$	-	$	67	$	290	$	-	$	3,028

As of December 31, 2018

Construction

Commercial
Real Estate

One to four
family

Multi-family

Commercial

Consumer
and Other

Unallocated

Total

(In Thousands)

Allowance for loan losses:
Ending balance: individually evaluated for impairment
$ 552 $ 106 $ 573 $ - $ 363 $ 18 $ - $ 1,612
Ending balance: collectively evaluated for impairment
$ 1,754 $ 1,987 $ 724 $ 641 $ 797 $ 355 $ 126 $ 6,384
Ending balance: loans acquired with deteriorated credit quality
$ - $ - $ - $ - $ - $ - $ - $ -
Loans:

Ending balance: individually evaluated for impairment
$ 4,088 $ 1,588 $ 4,520 $ 5,952 $ 1,062 $ 169 $ - $ 17,379
Ending balance: collectively evaluated for impairment
$ 84,507 $ 317,488 $ 128,258 $ 84,663 $ 118,459 $ 32,968 $ - $ 766,343
Ending balance: loans acquired with deteriorated credit quality
$ - $ 2,782 $ - $ - $ 216 $ 175 $ - $ 3,173

December 31, 2018	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	552	$	106	$	573	$	-	$	363	$	18	$	-	$	1,612
Ending balance: collectively evaluated for impairment	$	1,754	$	1,987	$	724	$	641	$	797	$	355	$	126	$	6,384
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans:
Ending balance: individually evaluated for impairment	$	4,088	$	1,588	$	4,520	$	5,952	$	1,062	$	169	$	-	$	17,379
Ending balance: collectively evaluated for impairment	$	84,507	$	317,488	$	128,258	$	84,663	$	118,459	$	32,968	$	-	$	766,343
Ending balance: loans acquired with deteriorated credit quality	$	-	$	2,782	$	-	$	-	$	216	$	175	$	-	$	3,173

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses 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.

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.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers ~~nonclassified~~non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Bank’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

Included in the Company’s loan portfolio are certain loans acquired in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans were written down at acquisition to an amount estimated to be collectible. As a result, certain ratios regarding the Company’s loan portfolio and credit quality cannot be used to compare the Company to peer companies or to compare the Company’s current credit quality to prior periods. The ratios particularly affected by accounting under ASC 310-30 include the allowance for loan losses as a percentage of loans, nonaccrual loans, and performing assets, and nonaccrual loans and nonperforming loans as a percentage of total loans.

A loan is considered impaired when, based on current information and events, it is probable that the Bank 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 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.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

The following table summarizes the recorded investment in impaired loans at ~~June~~September 30, 2019 and December 31, 2018:

The following table summarizes average impaired loans and related interest recognized on impaired loans for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:

At ~~June~~September 30, 2019, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (“TDR”). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Bank include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction on the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

The following table presents the carrying balance of TDRs as of ~~June~~September 30, 2019 and December 31, 2018:

The Bank has allocated ~~$949,930~~$939,647 and $901,086 of specific reserves to customers whose loan terms have been modified in TDR as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ending ~~June~~September 30, 2019 and 2018. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:

Pass: This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention: This rating represents loans that are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard: This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Doubtful: This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Real estate-Residential 1-4 family: The residential 1-4 family real estate loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Real estate-Construction: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

The following tables provide information about the credit quality of the loan portfolio using the Bank’s internal rating system as of ~~June~~September 30, 2019 and December 31, 2018:

The above amounts include purchased credit impaired loans. At ~~June~~September 30, 2019, purchased credit impaired loans comprised of ~~$3.1~~$3.0 million were rated “Substandard”.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Note 6: Accounting for Certain Loans Acquired

The Company acquired loans during the quarter ended June 30, 2018. At acquisition, certain acquired loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The carrying amount of purchased credit impaired loans are included in the balance sheet amounts of loans receivable at ~~June~~September 30, 2019 and December 31, 2018. The amount of these loans is shown below:

June 30,

December 31,

2019

2018

(In Thousands)

(In Thousands)

Real estate - commercial
$ 3,216 $ 3,358
Commercial loans
267 296
Consumer and other loans
305 329
Outstanding balance
$ 3,788 $ 3,983
Carrying amount, net of fair value adjustment of $729 at June 30, 2019 and $810 at December 31, 2018
$ 3,059 $ 3,173

	September 30,		December 31,
	2019		2018
	(In Thousands)		(In Thousands)
Real estate - commercial	$	3,165	$	3,358
Commercial loans		253		296
Consumer and other loans		290		329
Outstanding balance	$	3,708	$	3,983
Carrying amount, net of fair value adjustment of $680 at September 30, 2019 and $810 at December 31, 2018	$	3,028	$	3,173

Changes in the carrying amount of the accretable yield for all purchased credit impaired loans were as follows for the three months and ~~six~~nine months ended ~~June~~September 30, 2019:

	Six months ended			Three months ended			Three months ended			Nine months ended
	June 30,			June 30,			September 30,			September 30,
	2019			2019			2019			2019
	(In Thousands)			(In Thousands)			(In Thousands)			(In Thousands)
Balance at beginning of period	$	265		$	230		$	183		$	265
Additions		-			-			-			-
Accretion		(82	)		(47	)		(48	)		(130	)
Reclassification from nonaccretable difference		-			-			-			-
Disposals		-			-			-			-
Balance at end of period	$	183		$	183		$	135		$	135

During the three months ended ~~June~~September 30, 2019, the Company did not increase or reverse the allowance for loan losses related to these purchased credit impaired loans.

Note 7: Goodwill and Other Intangible Assets

The Company recorded $1.4 million of goodwill as a result of its 2018 Hometown acquisition and the goodwill is not deductible for tax purposes. Goodwill impairment was neither indicated nor recorded during the three and nine months ended ~~June~~September 30, 2019.

Goodwill is tested annually, or more often if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. ~~Goodwill totaled $1.4 million at June 30, 2019.~~

Core deposit premiums are amortized over a seven year period and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiums of $3.5 million were recorded during the second quarter of 2018 as part of the Hometown acquisition. As of ~~June~~September 30, 2019, ~~$2.7~~$2.6 million of core deposit intangible amounts are still to be amortized.

The Company’s goodwill and other intangibles (carrying basis and accumulated amortization) at ~~June~~September 30, 2019 and December 31, 2018 were as follows:

June 30,

December 31,

2019

2018

(in Thousands)

(in Thousands)

Goodwill
$ 1,435 $ 1,435
Core deposit intangible

Gross carrying amount
3,520 3,520
Accumulated amortization
(778 ) (539 )
Core deposit intangible, net
2,742 2,981
Remaining balance
$ 4,177 $ 4,416

	September 30,			December 31,
	2019			2018
	(in Thousands)			(in Thousands)
Goodwill	$	1,435		$	1,435
Core deposit intangible
Gross carrying amount		3,520			3,520
Accumulated amortization		(897	)		(539	)
Core deposit intangible, net		2,623			2,981
Remaining balance	$	4,058		$	4,416

The Company’s estimated remaining amortization expense on intangibles as of ~~June~~September 30, 2019 is as follows:

Amortization Expense

(in Thousands)

Remainder of: 2019
$ 238
   2020
477
   2021
477
   2022
477
   2023
477
   Therafter
596
Total
$ 2,742

	Amortization Expense
	(in Thousands)

Remainder of:	2019	$	119
	2020		477
	2021		477
	2022		477
	2023		477
	Therafter		596
	Total	$	2,623

Note 8: Leases

As discussed in Note 11, on January 1, 2019, the Company adopted ASU 2016-02, “Leases”. The Company recorded initial balances during the quarter ending March 31, 2019 for operating Right of Use (“ROU”) assets of $9,473,587 and corresponding operating ROU liabilities of $9,490,385. Additionally, the Company recorded initial balances for financing ROU assets and liabilities of $453,485. As of ~~June~~September 30, 2019, operating lease liability balances are ~~$9,364,989~~$9,236,695 and financing lease liability amounts are ~~$426,272.~~$399,046. We maintain operating leases on land and buildings for certain branch facilities and our headquarters. Financing leases are primarily for equipment used at banking facilities. Most leases include options to renew, with renewal terms extending between one to twenty years. The exercise of renewal options is based on judgement of management as to whether or not the renewal option is reasonably certain to be exercised. Factors in determining whether or not the renewal option is reasonably certain to be exercised include, but are not limited to, the value of the leasehold improvements, the value of the renewal rate compared to market rates and the presence of factors that would cause significant economic penalty to the Company if the option is not exercised.

Expenses for finance leases are included in other interest expense and occupancy expense line items, whereas, operating leases are expensed entirely in the occupancy expense line item. Leases with a term of less than twelve months are not recorded on the balance sheet and are expensed on a straight-line basis over the lease term. Discount rates used for the purpose of valuing the leases were based on rates available to the Company on fixed rate borrowings for similar lease terms.

The components of lease expense and their impact on the statement of income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 are as follows:

Six months ended

Three months ended

June 30,

June 30,

June 30,

June 30,

2019

2018

2019

2018

(In Thousands)

(In Thousands)

Finance lease cost:

Amortization of right-of-use assets
$ 54,858 $ - $ 27,213 $ -
Interest on lease liabilities
3,872 - 2,152 -
Operating lease cost
540,082 397,100 270,040 212,390
Sublease income
(22,600 ) - (12,300 ) -

Total lease costs
$ 576,212 $ 397,100 $ 287,105 $ 212,390

~~Additional lease information:~~
~~Operating cash flows from financing leases~~	$	-
~~Operating cash flows from operating leases~~		~~30,078~~
~~Financing cash flows from financing leases~~		-
~~Weighted-average remaining lease term - financing leases (in years)~~		~~3.9~~
~~Weighted-average remaining lease term - operating leases (in years)~~		~~15.5~~
~~Weighted-average discount rate - financing leases~~		~~2.05~~	%
~~Weighted-average discount rate - operating leases~~		~~5.50~~	%

	Nine months ended						Three months ended
	September 30,			September 30,			September 30,			September 30,
	2019			2018			2019			2018
	(In Thousands)						(In Thousands)
Finance lease cost:
Amortization of right-of-use assets	$	82,084		$	-		$	27,226		$	-
Interest on lease liabilities		6,010			-			2,138			-
Operating lease cost		810,124			674,137			270,042			277,037
Sublease income		(32,900	)		-			(10,300	)		-

Total lease costs	$	865,318		$	674,137		$	289,106		$	277,037

Additional lease information:
Operating cash flows from financing leases				$	-
Operating cash flows from operating leases					41,845
Financing cash flows from financing leases					-
Weighted-average remaining lease term - financing leases (in years)					3.7
Weighted-average remaining lease term - operating leases (in years)					15.4
Weighted-average discount rate - financing leases					2.05	%
Weighted-average discount rate - operating leases					5.50	%

The following table sets forth, as of ~~June~~September 30, 2019, the future minimum lease cash payments and a reconciliation of the undiscounted cash flows to the lease liability:

Financing

Operating

Total

(In Thousands)

Remainder of: 2019
$ 59 $ 526 $ 585
2020
117 862 979
2021
118 838 956
2022
112 827 939
2023
38 834 872
Thereafter
- 9,923 9,923
Total undiscounted future minimum lease cash payments
$ 444 $ 13,810 $ 14,254
Present value discount
(18 ) (4,445 ) (4,463 )
Lease liability
$ 426 $ 9,365 $ 9,791

		Financing			Operating			Total
					(In Thousands)
Remainder of:	2019	$	30		$	263		$	293
	2020		117			862			979
	2021		118			838			956
	2022		112			827			939
	2023		38			834			872
	Thereafter		-			9,923			9,923
Total undiscounted future minimum lease cash payments		$	415		$	13,547		$	13,962
	Present value discount		(16	)		(4,310	)		(4,326	)
	Lease liability	$	399		$	9,237		$	9,636

Future minimum lease cash payments under non-cancelable operating leases as of December 31, 2018, prior to adoption of ASU 2016-02, were as follows:

	December 31, 2018
	(In Thousands)
2019	$	1,032
2020		993
2021		964
2022		962
2023		956
Thereafter		3,573
	$	8,480

Note 9: Benefit Plans

The Company has stock-based employee compensation plans, which are described in the Company’s 2018 Annual Report. The following tables below summarize transactions under the Company’s equity plans for the ~~six~~nine months ended ~~June~~September 30, 2019:

Stock Options	Number of shares								Number of shares
	Incentive Stock Option			Non- Incentive Stock Option			Weighted Average Exercise Price		Incentive Stock Option			Non- Incentive Stock Option			Weighted Average Exercise Price

Balance outstanding as of January 1, 2019		12,500			5,000		$	5.14		12,500			5,000		$	5.14
Granted		-			-			-		-			-			-
Exercised		(7,500	)		(2,500	)		5.19		(9,000	)		(5,000	)		5.16
Forfeited		-			-			-		-			-			-
Balance outstanding as of June 30, 2019		5,000			2,500		$	5.08
Options exercisable as of June 30, 2019		5,000			2,500		$	5.08
Balance outstanding as of September 30, 2019										3,500			-		$	5.08
Options exercisable as of September 30, 2019										3,500			-		$	5.08

The total intrinsic value of stock options exercised for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$168,225~~$243,769 and $267,366, respectively. The total intrinsic value of outstanding stock options (including exercisable) was ~~$136,275~~$67,270 and ~~$462,900~~$452,100 at ~~June~~September 30, 2019 and 2018, respectively.

In March 2019, the Company granted 5,502 shares of restricted stock to directors pursuant to the 2015 Equity Plan that have a cliff vesting at the end of one year and thus, expensed over that same period. These shares had a grant date market price of $23.85 per share. The total amount of expense for restricted stock grants to directors (including all grants in previous years) during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$63,039~~$97,241 and ~~$69,652,~~$103,926, respectively.

For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the Company granted 9,932 and 6,986 shares, respectively, of restricted stock to officers that have a cliff vesting at the end of three years. The expense is being recognized over the applicable vesting period. The total amount of expense for restricted stock grants to officers (including all grants in previous years) during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$105,255~~$151,437 and ~~$95,475,~~$135,810, respectively.

On March 29, 2017, the Company granted restricted stock units representing 55,823 hypothetical shares of common stock to officers. There are three possible levels of incentive awards: threshold (25%); target (50%); and maximum (100%). The restricted stock units vest based on two financial performance factors over the period from March 29, 2017 to December 31, 2019 (the “Performance Period”). The two performance measurements of the Company (and the weight given to each measurement) applicable to each award level are as follows: (i) Total Assets (50%) and (ii) Return on Average Assets (50%). In determining compensation expense, the fair value of the restricted stock unit awards was determined based on the closing price of the Company’s common stock on the date of grant, which was $20.48 per share. The expense is being recognized over the applicable vesting period. Due to the fact that the measurements cannot be determined at the time of the grant, the Company currently estimates that the most likely outcome is the achievement between the target and maximum levels. If during the Performance Period, additional information becomes available to lead the Company to believe a different level will be achieved for the Performance Period, the Company will reassess the number of units that will vest for the grant and adjust its compensation expense accordingly on a prospective basis. The total amount of expense for restricted stock units during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$215,764~~$290,568 and ~~$169,008,~~$253,513, respectively.

Total stock-based compensation expense recognized for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$384,058~~$535,731 and ~~$334,135,~~$493,249, respectively. As of ~~June~~September 30, 2019, there was ~~$606,248~~$407,314 of unrecognized compensation expense related to non-vested restricted stock awards, which will be recognized over the remaining vesting period.

Note 10: Income Per Common Share

	For three months ended June 30, 2019						For six months ended June 30, 2019						For three months ended September 30, 2019						For nine months ended September 30, 2019
	Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share		Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share		Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share		Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share
Basic Income Per Common Share	$	2,428,499		4,452,798	$	0.55	$	4,548,863		4,445,750	$	1.02	$	2,550,542		4,396,241	$	0.58	$	7,099,405		4,429,066	$	1.60
Effect of Dilutive Securities				51,166						55,631						58,091						56,532
Diluted Income Per Common Share	$	2,428,499		4,503,964	$	0.54	$	4,548,863		4,501,381	$	1.01	$	2,550,542		4,454,332	$	0.57	$	7,099,405		4,485,598	$	1.58

Note 11: New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 iswas effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. FASB has issued updated guidance in ASU 2018-11, “Leases (Topic 842) Targeted Improvements” and ASU 2019-01 “Leases (Topic 842) Codification Improvements” which provides additional transition options including allowing entities to not apply the lease standard to the comparative periods presented in their financial statements in the year of adoption. ASC Topic 842 provided a package of practical expedients in applying the lease standard to be chosen at the date of adoption. The Company chose to elect the package of practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We have also chosen not to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We will account for lease and non-lease components separately because such amounts are readily determinable under lease contracts. Additionally, we have chosen to elect the use of hindsight, when applicable, in determining the lease term, in assessing the likelihood that a lessee purchase option will be exercised; and in assessing the impairment of ROU assets. The Company determined that it has both operating and finance leases under Topic 842. For operating and finance leases, lease liabilities are initially measured at commencement date based on the present value of lease payments not yet paid, discounted using the discount rate for the lease at the lease commencement date over the lease term. For operating and finance leases, ROU assets are measured at the commencement date as the amount of initial liability, adjusted for lease payments made to the lessor at or before commencement date, minus incentives; and for any initial direct costs incurred by the lessee. Based on the transition method that the Company has chosen to follow, the initial application date of the standard for all existing leases was January 1, 2019. The lease term used for the initial operating ROU asset and lease liability includes the initial lease term in addition to any renewal options the Company thinks it is reasonably certain to exercise. ASC Topic 842 requires that the implicit rate within the lease agreement be used if available. If not available, the Company should use its incremental borrowing rate in effect at the time of lease commencement date. For operating leases with a term of less than 60 months, the Company utilized a 5-year LIBOR rate of approximately 3%. For operating leases with a term of greater than 60 months, the Company utilized a method of analogizing a current variable rate product to a fixed rate product based on LIBOR curve which results in a discount rate of approximately 6%. The discount rate used for finance leases is 2.05% which is the rate specified in the lease agreements at the present value rate. During the first quarter of 2019, the implementation of this standard resulted in the recording of $10.1 million of ROU assets and lease liabilities on the Company’s balance sheet with no significant impact to the income statement as a result of this standard. Additionally, the Company did not have a cumulative-effect adjustment to the opening balance of retained earnings. See Note 8 of the Condensed Consolidated Financial Statements for additional information and balances as of ~~June~~September 30, 2019.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Improvement updates to the proposed standard have been issued in November 2018 (Update 2018-19), April 2019 (Update 2019-04) and May 2019 (Update 2019-05) that provided additional guidance on this Topic. ~~Among other things,~~During the third quarter of 2019, the implementation for this standard was delayed for institutions deemed as “smaller reporting companies” based on criteria that measured the size of public float and revenue tests until 2023. Implementation for those exceeding the revenue and public float thresholds will still be required to adopt this standard for filings occurring after December 15, 2019. Currently, the amendments in this ASU require 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. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC filers, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with later effective dates for non-SEC registrant public companies and other organizations. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company ~~has~~ formed a committee ~~that is assessing~~in 2018 to assess our data, ~~and evaluating~~evaluate the ~~timing and~~ impacts of adopting ASU ~~2016-13. The Company selected~~2016-13 and to select a third-party vendor ~~in 2018 that is assisting~~to assist in generating loan level cash flows and disclosures. Work by the committee will continue despite the delayed implementation to monitor the status of this standard and to refine assumptions and systems to properly integrate requirements once the standard applies to our Company. The financial impact of adopting this standard is still being evaluated.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed 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; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company ~~is evaluating~~continues to evaluate the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This 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) are recorded. This standard is 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. The Company elected to early adopt ASU 2018-02 and, as a result, reclassified $31,818 from accumulated other comprehensive income to retained earnings as of December 31, 2017. The reclassification impacted the Consolidated Balance Sheet and the Consolidated Statement of Stockholder’s Equity as of and for the year ended December 31, 2017.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation process for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures require by the ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant observable inputs used to develop Level 3 measurements. The prospective method of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Company. Early adoption is permitted. The Company ~~is currently evaluating~~continues to evaluate the impact of the new standard on our consolidated financial statements, but at this time do not believe the standard will have a significant impact on the financial statements.

Note 12: Derivative Financial Instruments

The Company records all derivative financial instruments at fair value in the financial statements. Derivatives are used as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.

When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge documentation that designates the derivative as 1) a hedge of fair value of a recognized asset or liability (fair value hedge) or 2) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item, and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective.

In June 2017, the Company entered into a forward start interest rate swap agreement totaling $50 million notional amount to hedge against interest rate risk on FHLB advances. The swap rate paid is 2.12% and is hedged against three-month floating LIBOR with a termination date of February 2025. As a cash flow hedge, the portion of the change in the fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. At ~~June~~September 30, 2019, the Company reported a ~~$752,679~~$1,255,540 unrealized loss, net of a ~~$257,629~~$429,749 tax effect, in other comprehensive income related to this cash flow hedge.

In March 2019, the Company entered into ~~a forward start~~an interest rate swap agreement totaling $10.3 million notional amount to hedge against interest rate risk on variable rate subordinated debentures. The swap rate paid is 4.09% and is hedged against three-month floating LIBOR plus 145 basis points with a termination date of February 2026. As a cash flow hedge, the portion of the change in the fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. At ~~June~~September 30, 2019, the Company reported a ~~$417,943~~$549,889 unrealized loss, net of a ~~$143,054~~$188,217 tax effect, in other comprehensive income related to this cash flow hedge.

The Company documents, both at inception and periodically over the life of the hedges, its analysis of actual and expected hedge effectiveness.

As of ~~June~~September 30, 2019, based on current fair values, the Company pledged cash collateral of ~~$1.6~~$2.5 million to its counterparty for the swaps. As of December 31, 2018, based on current fair values, the counterparty had pledged cash collateral of $1.5 million to the Company.

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments on the consolidated balance sheets at ~~June~~September 30, 2019 and December 31, 2018:

				June 30, 2019				December 31, 2018							September 30, 2019				December 31, 2018

				Fair Value				Fair Value							Fair Value				Fair Value
	Balance Sheet	Notional		Derivative		Derivative		Derivative		Derivative		Balance Sheet	Notional		Derivative		Derivative		Derivative		Derivative
Derivatives designated as hedging instruments:	Classification	Amount		Assets		Liablities		Assets		Liablities
Derivatives designated as												Classification	Amount		Assets		Liablities		Assets		Liablities
hedging instruments:

Interest rate swap - FHLB Advances	Other liabilites	$	50,000,000	$	-	$	1,010,308	$	1,271,538	$	-	Other liabilites	$	50,000,000	$	-	$	1,685,289	$	1,271,538	$	-
Interest rate swap - Subordinated Debentures	Other liabilites	$	10,310,000	$	-	$	560,997	$	-	$	-	Other liabilites	$	10,310,000	$	-	$	738,106	$	-	$	-

The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:

Note 13: Disclosures about Fair Value of Assets and Liabilities

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: Observable inputs other than Level 1 prices, 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 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale securities: Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one or a combination of observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. government agencies, municipal securities and government sponsored mortgage-backed securities. The Company has no Level 3 securities.

Derivative financial instruments (Cash flow hedge): The Company’s open derivative positions are interest rate swap agreements. Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets.

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements ~~fall~~are classified at ~~June~~September 30, 2019 and December 31, 2018 (dollar amounts in thousands):

6/30/2019
9/30/2019
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Debt securities:
Government agencies									$	-	$	1,491	$	-	$	1,491
Municipals	$	-	$	28,113	$	-	$	28,113		-		30,955		-		30,955
Corporates		-		10,085		-		10,085		-		13,639		-		13,639
Mortgage-backed securities - private label										-		10,973		-		10,973
Government sponsored mortgage-backed securities and SBA loan pools		-		56,833		-		56,833		-		49,296		-		49,296
Available-for-sale securities	$	-	$	95,031	$	-	$	95,031	$	-	$	106,354	$	-	$	106,354

Financial liabilities:

Interest rate swaps	$	-	$	1,571	$	-	$	1,571	$	-	$	2,423	$	-	$	2,423

The following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy.

Foreclosed Assets Held for ~~Sale~~:Sale: Fair value is estimated using recent appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for selling costs and discounts based on management’s assessment of the condition and marketability of the collateral. Foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Impaired loans (Collateral Dependent): Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements ~~fall~~are classified at ~~June~~September 30, 2019 and December 31, 2018 (dollar amounts in thousands):

There were no transfers between valuation levels for any asset during the three months ended ~~June~~September 30, 2019 or 2018. If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when the assets are valued.

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurement (dollar amounts in thousands):

The following tables present estimated fair values of the Company’s financial instruments at ~~June~~September 30, 2019 and December 31, 2018.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The primary function of the Company is to monitor and oversee its investment in the Bank. The Company engages in few other activities, and the Company has no significant assets other than its investment in the Bank. As a result, the results of operations of the Company are derived primarily from operations of the Bank. The Bank’s results of operations are primarily dependent on net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank’s income is also affected by the level of its noninterest expenses, such as employee salaries and benefits, occupancy expenses and other expenses. The following discussion reviews material changes in the Company’s financial condition as of ~~June~~September 30, 2019, and the results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

The discussion set forth below, as well as other portions of this Form 10-Q, may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and management’s perception thereof as of the date of this Form 10-Q. When used in this Form 10-Q, words such as “anticipates,” “estimates,” “believes,” “expects,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. Actual results of the Company’s operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking services; changes in portfolio composition; changes in management strategy; increased competition from both bank and non-bank companies; changes in the general level of interest rates; changes in general or local economic conditions; changes in federal or state regulations and legislation governing the operations of the Company or the Bank; and other factors set forth in reports and other documents filed by the Company with the SEC from time to time, including the risk factors described under Item 1A. of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

On August 7, 2019, the Company redeemed $6,186,000 aggregate principal amount of Floating Rate Junior Subordinated Debentures (the "Debentures") originally issued by Hometown Bancshares Capital Trust I in 2002. These Debentures were assumed by the Company in connection with the 2018 acquisition of Hometown (See Note 3: "Acquisition" for additional information). The redemption price was 100% of the principal amount of the Debentures, plus accrued and unpaid interest. Proceeds from a note payable with another financial institution were utilized to redeem these Debentures. The Company received all necessary regulatory approvals for the redemption of the Debentures. See Note 14: "Subsequent Event" for additional information on the redemption.

The Company’s total assets increased ~~$12,305,938 (1%~~$51,191,629 (5%) from $965,137,870 as of December 31, 2018, to ~~$977,443,808~~$1,016,329,499 as of ~~June~~September 30, 2019.

Available-for-sale securities increased ~~$8,765,024 (10%~~$20,087,505 (23%) from $86,266,197 as of December 31, 2018, to ~~$95,031,221~~$106,353,702 as of ~~June~~September 30, 2019. The Company had purchases of ~~$38,383,889~~$56,910,103 and an increase in unrealized gains of ~~$2,671,778~~$3,361,805 offset by sales and principal payments of ~~$32,149,144~~$39,983,229 when compared to December 31, 2018.

Net loans receivable decreased by ~~$27,107,784 (3%~~$34,275,750 (4%) from $778,298,606 as of December 31, 2018 to ~~$751,190,822~~$744,022,856 as of ~~June~~September 30,2019. Year-to-date, ~~construction~~multi-family loans increased ~~$11,807,630 (13%), permanent multi-family loans decreased $2,092,594 (2%), consumer and other loans decreased $1,661,342 (5%~~$3,080,524 (3%), commercial loans decreased ~~$5,382,342 (5%~~$10,631,071 (9%), one-to-four family mortgage loans decreased ~~$7,568,338 (6%~~$10,720,679 (8%) and commercial real estate loans decreased ~~$22,547,861 (7%~~$14,650,370 (5%). Overall, loan balances have decreased due to larger than anticipated loan pay-downs and payoffs. The Company continues to focus its lending efforts in the commercial, owner occupied real estate and small business lending categories, however, during the quarter loan principal paydowns and significant unexpected payoffs outpaced loan originations.

Allowance for loan losses decreased ~~$324,903 (4%~~$438,258 (5%) from $7,995,569 as of December 31, 2018 to ~~$7,670,666~~$7,557,311 as of ~~June~~September 30, 2019. In addition to the provision for loan losses of ~~$100,000~~$200,000 recorded by the Company for the ~~six~~nine months ended ~~June~~September 30, 2019, charge-offs of specific loans (classified as nonperforming at December 31, 2018) exceeded loan recoveries by ~~$424,903.~~$639,486. The allowance for loan losses, as a percentage of gross loans outstanding (excluding mortgage loans held for sale), as of ~~June~~September 30, 2019 and December 31, 2018 was ~~1.01%~~1.00% and 1.02%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of ~~June~~September 30, 2019 and December 31, 2018 was ~~69.3%~~67.1% and 61.1%, respectively. Management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan losses in the Bank’s existing loan portfolio.

In accordance with GAAP for acquisition accounting, the loans acquired through the Hometown acquisition were recorded at fair value; therefore, there was no allowance associated with these loans. Management continues to evaluate the allowance needed on the acquired loans factoring in the net remaining discount of ~~$1.6~~approximately $1.3 million at ~~June~~September 30, 2019.

Prepaid expenses and other assets increased ~~$4,488,723 (72%~~$2,793,656 (45%) from $6,261,159 as of December 31, 2018 to ~~$10,749,882~~$9,054,815 as of ~~June~~September 30, 2019. This increase is primarily due toan increase of $2,350,906 in partnership interests purchased by the Company ~~purchasing an additional interest in a partnership~~ for the purpose of gaining low income housing tax ~~credits for $3,168,435 and the net impact of cash collateral held by our swap counterparty increasing by $1,278,462 due to fluctuations in interest rates.~~credits.

Operating lease right-of-use assets ~~increased $9,334,911 (100%),~~(ROU) of $9,194,850 were recorded during ~~the first half of~~ 2019 compared to ~~none~~no amounts recorded as of December 31, 2018. These amounts were recognized due to the Company’s implementation of new lease accounting standards for operating leases further described in Note 8 and Note 11 of the Condensed Consolidated Financial Statements. The recorded assets and liabilities will be amortized over the life of the lease term.

Bank-owned life insurance (BOLI) increased $4,345,651 (22%) from $20,198,074 as of December 31, 2018 to $24,543,725 as of September 30, 2019 primarily due to $4,000,000 in new or additional policies purchased on certain key members of management during the third quarter of 2019.

Deposits increased ~~$52,858,717 (7%~~$90,369,680 (12%) from $749,618,822 as of December 31, 2018, to ~~$802,477,539~~$839,988,502 as of ~~June~~September 30, 2019. For the ~~six~~nine months ended ~~June~~September 30, 2019, checking and savings accounts increased by ~~$52,638,121 and~~$104,780,937 offset by reductions in certificates of deposit ~~increased by $251,733.~~amounts of $14,380,120. The increase in checking and savings accounts was due to the Bank’s continued focus to increase core transaction deposits, including retail, commercial and public funds. See also the discussion under Item 3 - “Quantitative and Qualitative Disclosure about Market Risk – Asset/Liability Management.”

Federal Home Loan Bank advances decreased $55,300,000 (53%) from $105,300,000 as of December 31, 2018 to $50,000,000 as of ~~June~~September 30, 2019 due to principal reductions from excess funds generated from ~~the~~core deposit growth noted above.

Subordinated debenture balances decreased $6,295,829 (29%) from $21,760,829 as of December 31, 2018 to $15,465,000 as of September 30, 2019 due to redemption of the Hometown Bancshares Capital Trust I debentures during the third quarter of 2019. These debentures became obligations of the Company pursuant to its acquisition of Hometown Bancshares, Inc in 2018. Funds utilized to redeem the debentures were obtained from increasing a note payable with another financial institution by $6,200,000 (124%) from $5,000,000 at December 31, 2018 to $11,200,000 as of September 30, 2019.

Accrued expenses and other liabilities increased $2,966,394 (159%) from $1,868,008 as of December 31, 2018 to $4,834,402 as of September 30, 2019. The majority of this amount is due to mark-to-market adjustments on interest rate swaps, net of tax, reversing gains during the year by $2,752,725 as interest rates have fallen during the majority of 2019 running counter to our hedged position.

Stockholders’ equity (including net unrealized gains and losses on available-for-sale securities and interest rate swaps) increased ~~$3,259,680~~$3,246,558 from $80,478,592 as of December 31, 2018, to ~~$83,738,272~~$83,725,150 as of ~~June~~September 30, 2019. The Company’s net income during this period exceeded dividends paid or declared by ~~$3,385,025.~~$5,355,315. Starting in the second quarter of 2019, the Company began repurchasing shares of its common stock under an existing repurchase plan. During the third quarter ~~13,608~~of 2019, the Company repurchased 90,268 shares of ~~the Company’s~~ common stock ~~was repurchased~~ at an average price of ~~$22.99 under an existing repurchase plan. These are the first repurchases made by the Company since November 2016.~~$23.85. Additional information on the ~~repurchase plan~~repurchases during the third quarter can be found below in Part II, Item 2. For the entirity of 2019, the Company has repurchased 103,876 shares of common stock at an average price of $23.73. On a per common share basis, stockholders’ equity increased from $18.18 as of December 31, 2018 to ~~$18.85~~$19.22 as of ~~June~~September 30, 2019.

The Company’s profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Non-interest income, non-interest expense, and income taxes also impact net income.

The following table sets forth certain information relating to the Company’s average consolidated statements of financial condition and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields. All dollar amounts are in thousands.

Results of Operations - Comparison of Three and ~~Six~~Nine Month Periods Ended ~~June~~September 30, 2019 and 2018

Net income ~~(loss)~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$2,428,499~~$2,550,542 and ~~$4,548,863,~~$7,099,405, respectively, compared to ~~($342,984)~~$3,934,242 and ~~$1,012,761~~$4,947,003 for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, which represents ~~an increase~~a decrease in earnings of ~~$2,771,483 (808%) and $3,536,102 (349%~~$1,383,700 (35%) for the three month period and ~~six~~an increase of $2,152,402 (44%) for the nine month ~~periods,~~period, respectively. ~~Generally,~~Third quarter comparisons should note that one-time loan accretion income of $2,651,000 due to acquired loans unexpectedly paying off in 2018 was not present in 2019 third quarter income. For year-to-date comparisons, earnings ~~were~~have been positively impacted by higher interest earning balances and the absence of one-time merger costs incurred in 2018 due to the Hometown acquisition.

Net interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 decreased ~~$121,912 (2%~~$2,606,863 (24%) and ~~increased $1,621,554 (12%~~$985,309 (4%), respectively, when compared to the same periods in 2018. For the three and ~~six~~nine month periods ended ~~June~~September 30, 2019, the average balance of net interest earning assets increased by approximately ~~$8,442,000~~$13,686,000 and ~~$11,429,000,~~$13,905,000, respectively, more than the average balance of interest-bearing liabilities increased during the same periods in 2018. For the three and ~~six~~nine month periods ended ~~June~~September 30, 2019, the net interest margin decreased ~~five~~131 basis points to ~~3.49%~~3.46% and ~~increased seven~~decreased 34 basis points to ~~3.50%~~3.48%, respectively, when compared to the same periods in 2018.

Total interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 ~~increased $920,382 (9%~~decreased $1,796,254 (13%) and ~~$4,060,502 (22%~~increased $2,264,248 (7%), respectively, when compared to the same periods in 2018. For the three and ~~six~~nine month periods ended ~~June~~September 30, 2019 compared to the same periods in 2018, the average yield on interest earning assets ~~increased 42~~decreased 101 basis points to ~~5.03%~~4.93% and increased 52nine basis points to ~~5.01%, while~~4.99%. The decrease compared to the ~~average balance~~prior year quarter is primarily due to $2,651,000 in loan accretion being recognized on loans acquired from Hometown in 2018 compared to $315,000 in the same period of 2019. Average balances of interest earning assets ~~decreased~~increased approximately ~~$663,000~~$38,799,000 for the ~~three month~~three-month period and ~~increased~~ approximately ~~$77,216,000~~$46,833,000 for the ~~six month~~nine-month period, respectively. The increase in ~~the year-to-date amounts~~each period is primarily due to ~~loan~~cash and investment balances ~~gained from the Hometown acquisition~~being funded by increased core deposit base growth and higher yields in each asset class compared to the same periods in 2018. For the three-month periods, the yield on loans ~~increased 49~~decreased 98 basis points to ~~5.43% and $452,000 in~~5.45% mostly due to the absence of the beforementioned loan accretion ~~was recognized on loans acquired from Hometown compared to $361,000~~income in ~~the same quarter of~~2019 versus 2018.

Total interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2019 increased ~~$1,042,294 (43%~~$810,609 (31%) and ~~$2,438,948 (56%~~$3,249,557 (47%), respectively, when compared to the three and ~~six~~nine months ended ~~June~~September 30, 2018. For the three and ~~six months period~~nine month periods ended ~~June~~September 30, 2019 compared to the same periods in 2018, the average cost of interest bearing liabilities increased 5536 basis points to ~~1.79%~~1.72% and increased 5350 basis points to ~~1.76%~~1.75%, while the average balance of interest bearing liabilities ~~decreased~~increased approximately ~~$9,105,000~~$25,113,000 for the three month period and ~~increased~~ approximately ~~$65,787,000~~$32,928,000 for the ~~six~~nine month period. The ~~annual increase is~~increases are primarily due to the ~~liabilities acquired from Hometown~~planned growth in core deposits and higher offering rates on nearly all deposit products ~~due to significant competitive pressures.~~as many institutions in our market areas are facing liquidity challenges which has significantly increased competition for deposits. Partially offsetting the increases noted above is reduced interest expense on FHLB borrowings ~~from~~due to a reduction in balances incarried throughout 2019. The Company intends to continue to utilize a cost-effective mix of retail and commercial deposits along with non-core, wholesale funding.

Provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the Company to provide for potential loan losses in the existing loan portfolio. When making its assessment, the Company considers prior loss experience, volume and type of lending, local banking trends and impaired and past due loans in the Company’s loan portfolio. In addition, the Company considers general economic conditions and other factors related to collectability of the Company’s loan portfolio.

Based on its internal analysis and methodology, management recorded a provision for loan loss expense of $100,000 for ~~both~~ the ~~three~~three-month period and ~~six months~~$200,000 for the nine-month period ended ~~June~~September 30, 2019, respectively, compared to ~~$500,000~~$200,000 and ~~$725,000~~$925,000 for the same periods in 2018. ~~The need to record a provision for the quarter was primarily due to the charge-off of one relationship consisting of several rental properties and increased reserves on a few problem credits.~~ The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions. Management may need to increase the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the Bank’s loan portfolio increases or other circumstances warrant.

In accordance with GAAP for acquisition accounting, the loans acquired through the acquisition of Hometown were recorded at fair value; therefore, there was no allowance associated with Hometown’s loans at acquisition. Management continues to evaluate the allowance needed on the acquired Hometown loans factoring in the net remaining discount of ~~$1.6~~$1.3 million at ~~June~~September 30, 2019.

Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions.

Non-interest income ~~decreased $20,474 (1%~~increased $475,372 (33%) and ~~increased $224,822 (7%~~$700,194 (15%) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 when compared to the ~~three and six months~~same time periods ended ~~June~~September 30, 2018. For the periods, the Company increased income recognized from the sale of mortgage loans of $127,525 (21%) and $118,970 (7%), increased income from sales of Small Business Administration (“SBA”) loans of ~~$22,078 (10%~~$37,432 (14%) and ~~$101,335 (26%~~$138,767 (21%), ~~debit card and interchange related income increased by $108,172 (43%~~reduced losses on the sale of foreclosed assets of $325,163 (71%) and ~~$198,571 (43%~~$225,217 (67%) ~~and~~, realized gains on the sale of investment securities increased by ~~$89,299 (860%~~$32,378 (3,659%) and ~~$55,468 (770%~~87,846 (1,086%) and debit card and interchange related income increased by $5,424 (2%) and $175,102 (22%) when compared to the same three and ~~six~~nine month periods in 2018. Offsetting the increases, were ~~reduced gains on the sale of foreclosed assets of $36,558 (48%) and $99,946 (83%), reduced income recognized from the sale of mortgage loans of $54,996 (9%) and $8,555 (1%) and~~ decreased service charge revenue of ~~$133,073 (24%~~$33,433 (7%) and ~~$48,407~~$81,840 (6%), respectively, when compared to the same three and ~~six~~nine month periods in 2018.

Non-interest expenses ~~decreased $3,396,154 (33%~~increased $287,607 (4%) and ~~$2,028,450 (13%~~decreased $1,740,843 (8%) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 when compared to the same periods in 2018. One-time merger costs of ~~$3,192,050~~$150,877 and ~~$3,420,050~~$3,570,927 were incurred during the three and ~~six~~nine months ended ~~June~~September 30, 2018, which is the primary reason for the increased expenses for the periods in 2018. Additionally, many of the year-to-date comparisons noted below show significant variances due to the merger occurring on April 2, 2018. Thus, 2019 has ~~six~~nine months of recurring expenses whereas 2018 only has ~~three~~six months of such expenses. Significant categories of non-interest expense are as follows:

Salaries and employee benefits ~~decreased $148,871 (4%~~increased $256,820 (7%) and ~~increased $637,025 (9%~~$893,845 (8%) when compared to the same three and ~~six~~nine month periods in ~~2018. The three-month decrease~~2018, which is primarily due to ~~staffing efficiencies gained from~~a greater number of personnel following the Hometown acquisition coupled with ~~unfilled positions from the retirements of a few employees. The six-month increase is due~~increased staffing to ~~the merger timing in which only three-months expense would be included in the 2018 year-to date figures.~~fill open positions.

Occupancy expenses increased ~~$69,147 (7%~~$36,540 (3%) and ~~$432,103 (24%~~$468,643 (16%), respectively, when compared to the prior year periods. This is primarily due to the expenses related to additional leasehold improvement expenses and facility upgrades incurred after the Hometown acquisition.

~~Core deposit intangible amortization decreased $100,750 (46%~~Professional fees increased $102,502 (59%) and ~~increased $18,500 (8%~~$236,769 (49%)~~, respectively, for~~ when compared to the same three and ~~six months ended June 30, 2019 compared~~nine month periods in 2018 primarily in connection with additional services provided due the redemption of a trust preferred issuance, new financial reporting standard implementation and increased attestation work due to ~~2018. These amounts are related~~the Company recently exceeding thresholds to ~~purchase accounting adjustments made~~qualify as ~~a part of~~an “accelerated filer” with the ~~Hometown acquisition.~~U.S. Securities and Exchange Commission.

The provision for income taxes ~~increased~~decreased by ~~$882,285 (195%~~$935,398 (67%) and ~~$963,724 (603%~~increased $28,326 (2%) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 when compared to the same periods of 2018. The ~~increase~~decrease in the provision for income taxes for the quarter is primarily due to the increased income in the prior year quarter due to loan accretion income causing an increase in taxable income.

The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Bank’s existing loan portfolio. When making such evaluation, management considers such factors as the repayment status of its loans, the estimated net realizable value of the underlying collateral, borrowers’ intent (to the extent known by the Bank) and ability to repay the loan, local economic conditions and the Bank’s historical loss ratios. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of ~~June~~September 30, 2019 and December 31, 2018 was ~~69.3%~~67.1% and 61.1%, respectively. Total loans classified as substandard, doubtful or loss as of ~~June~~September 30, 2019, were ~~$22,202,000~~$20,090,000 or ~~2.27%~~1.98% of total assets as compared to $24,714,000 or 2.56% of total assets at December 31, 2018. Management considered nonperforming and total classified loans in evaluating the adequacy of the Bank’s allowance for loan losses.

The ratio of nonperforming assets to total assets is another useful tool in evaluating exposure to credit risk. Nonperforming assets of the Bank are comprised of nonperforming loans (including troubled debt restructurings) and assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. All dollar amounts are in thousands.

Liquidity refers to the ability to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available for customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. The Company’s primary sources of liquidity include cash and cash equivalents, customer deposits and FHLB borrowings. The Company also has established secured borrowing lines available from the Federal Reserve Bank which is considered a secondary source of funds.

The Company’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three months or less. The levels of such assets are dependent on the Bank’s operating, financing, and investment activities at any given time. The Company’s cash and cash equivalents totaled ~~$53,025,771~~$86,421,380 as of ~~June~~September 30, 2019 and $34,121,642 as of December 31, 2018, representing an increase of ~~$18,904,129.~~$52,299,738. The variations in levels of cash and cash equivalents are influenced by many factors but primarily loan originations and payments and deposit fluctuations.

In July 2013, the Federal Reserve issued a final rule that revised its risk-based and leverage capital requirements for banking organizations to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act (“Basel III Rule”). The Basel III Rule implemented a revised definition of regulatory capital, a new common equity tier 1 (“CET1”) minimum capital requirement, and a higher minimum tier1 capital requirement. The final rules also made changes to the prompt corrective action framework for depository institutions by incorporating the new minimum capital ratios into the framework, introducing the CET1 capital measure, and aligning the definition of tangible equity for purposes of the critically undercapitalized prompt corrective action category with the definition of tier 1 capital. Under the Basel III Rule, the following three components comprise a banking organization’s “regulatory capital”: (i) “CET1 capital,” which is predominantly comprised of retained earnings and common stock instruments that meet certain criteria and related surplus (net of any treasury stock), AOCI (for organizations that do not make opt-out elections), and CET1 minority interest, which are subject to certain restrictions; (ii) “Additional Tier 1 Capital,” which consists of non-cumulative perpetual preferred stock and similar instruments meeting specified eligibility criteria and related surplus, Tier 1 minority interests not included in CET1 capital, and “TARP” preferred stock and other instruments issued under the Emergency Economic Stabilization Act of 2008; and (iii) “Tier 2 Capital,” which includes instruments such as subordinated debt that has a minimum original maturity of at least five years and is subordinated to the claims of depositors and general creditors, total capital minority interest not included in Tier 1 capital and limited amounts of a banking organization’s allowance for loan and lease losses (ALLL), less applicable regulatory adjustments and deductions.

As of January 1, 2019, the Basel III Rule is fully phased-in and requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation); (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer effectively resulting in a minimum total capital ratio of 10.5% upon full implementation); and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

Beginning January 1, 2016, the capital conservation buffer requirement was phased in at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The Bank is classified as “well capitalized” under current regulatory guidelines. As of ~~June~~September 30, 2019, the Bank’s common equity Tier 1 ratio was ~~11.66%~~12.09%, the Bank’s Tier 1 leverage ratio was ~~10.57%~~10.16%, its Tier 1 risk-based capital ratio was ~~11.66%~~12.09% and the Bank’s total risk-based capital ratio was ~~12.54%~~12.99% - all exceeding the minimums of 7.0%, 6.0%, 8.5% and 10.5%, respectively, as of ~~June~~September 30, 2019.

On ~~July 9,~~October 29, 2019, federal banking regulators issued a final ruling that simplifies the capital requirements for community banks which greatly reduces the regulatory burden on financial institutions with less than ~~$250~~$10 billion in total consolidated assets, leverage ratios greater than nine percent and limited ~~foreign exposure.~~off-balance sheet trading assets, liabilities and other off-balance sheet exposures. The combined agencies of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC) and the Comptroller of the Currency, approved ~~these standards~~the community bank leverage framework (CBLR) to simplify and clarify a number of complex aspects of current regulatory capital rules. Specifically, the capital treatment of mortgage servicing assets, certain tax deferred assets, investments in the capital instruments of unconsolidated financial institutions and minority interest. Additionally, this would allow bank holding companies to redeem common stock without prior approval unless otherwise required. The capital rule provisions ~~are effective April 1, 2020 whereas~~may be adopted by institutions meeting the ~~pre-approval requirements for~~framework criteria during the ~~redemption~~first quarter of ~~common stock will be effective October 1, 2019.~~2020.

The goal of the Bank’s asset/liability policy is to manage interest rate risk so as to maximize net interest income over time in changing interest rate environments. Management monitors the Bank’s net interest spreads (the difference between yields received on assets and paid on liabilities) and, although constrained by market conditions, economic conditions, and prudent underwriting standards, the Bank offers deposit rates and loan rates designed to maximize net interest income. Management also attempts to fund the Bank’s assets with liabilities of a comparable duration to minimize the impact of changing interest rates on the Bank’s net interest income. Since the relative spread between financial assets and liabilities is constantly changing, the Bank’s current net interest income may not be an indication of future net interest income.

As a part of its asset and liability management strategy and throughout the past several years, the Bank has continued to emphasize the origination of short-term commercial real estate, commercial business and consumer loans, while originating fixed-rate, one- to four-family residential loans primarily for immediate resale in the secondary market.

The Bank constantly monitors its deposits in an effort to decrease their interest rate sensitivity. Rates of interest paid on deposits at the Bank are priced competitively in order to meet the Bank’s asset/liability management objectives and spread requirements. The Bank believes, based on historical experience, that a substantial portion of such accounts represents non-interest rate sensitive core deposits.

The following table sets forth as of ~~June~~September 30, 2019 management’s estimates of the projected changes in net portfolio value (“NPV”) in the event of 100 and 200 basis point (“BP”) instantaneous and permanent increases and decreases in market interest rates. Dollar amounts are expressed in thousands.

Computations of prospective effects of hypothetical interest rate changes are based on an internally generated model using actual maturity and repricing schedules for the Bank’s loans and deposits, and are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit run-offs, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates. For further discussion of the Company’s market risk, see the Interest Rate Sensitivity Analysis section of Quantitative and Qualitative Disclosures About Market Risk included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Management cannot predict future interest rates or their effect on the Bank’s NPV in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have an initial fixed rate period typically from one to five years, and over the remaining life of the asset changes in the interest rate are restricted. In addition, the proportion of adjustable-rate loans in the Bank’s portfolio could decrease in future periods due to refinancing activity if market interest rates remain steady in the future. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in the table. Finally, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.

The Bank’s Board of Directors (the “Board”) is responsible for reviewing the Bank’s asset and liability management policies. The Board meets quarterly to review interest rate risk and trends, as well as liquidity and capital ratios and requirements. The Bank’s management is responsible for administering the policies and determinations of the Board with respect to the Bank’s asset and liability goals and strategies.

(a) The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required ~~disclosure.~~disclosures.

During the quarter ended ~~June~~September 30, 2019, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2019.

(b) There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~June~~September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company has a repurchase plan which was announced on August 20, 2007. This plan authorizes the purchase by the Company of up to 350,000 shares of the Company’s common stock. There is no expiration date for this plan. There are no other repurchase plans in effect at this time. The Company repurchased ~~13,608~~90,268 shares at an average price of ~~$22.99~~$23.85 during the quarter ended ~~June~~September 30, 2019. As of ~~June~~September 30, 2019, the repurchase plan has ~~138,940~~48,672 shares remaining.

*Pursuant to Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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.

	Three months ended						Six months ended
	6/30/2019			6/30/2018			6/30/2019			6/30/2018
NET INCOME (LOSS)	$	2,428,499		$	(342,984	)	$	4,548,863		$	1,012,761
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain (loss) on investment securities available-for-sale, before income taxes		1,147,130			(391,138	)		2,720,097			(1,689,930	)
Change in unrealized gain (loss) on interest rate swaps, before income taxes		(1,750,356	)		502,917			(2,842,843	)		1,768,729
Less: Reclassification adjustment for realized (gains) losses on investment securities included in net income, before income taxes		(78,911	)		10,388			(48,263	)		7,205
Total other items of comprehensive income		(682,137	)		122,167			(171,009	)		86,004
Income tax expense (benefit) related to other items of comprehensive income		(77,877	)		31,151			52,460			21,930
Other comprehensive income (loss)		(604,260	)		91,016			(223,469	)		64,074
TOTAL COMPREHENSIVE INCOME (LOSS)	$	1,824,239		$	(251,968	)	$	4,325,394		$	1,076,835

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2018
Debt Securities:
Municipals	$	34,470,648	$	10,581	$	(710,709	)	$	33,770,520
Corporates		3,000,000		18,927		-			3,018,927
Government sponsored mortgage-backed securities and SBA loan pools		50,632,011		81,999		(1,237,260	)		49,476,750
	$	88,102,659	$	111,507	$	(1,947,969	)	$	86,266,197

	Amortized Cost		Approximate Fair Value		Amortized Cost		Approximate Fair Value
1-5 years	$	386,166	$	391,213	$	386,057	$	391,105
6-10 years		12,502,835		12,566,922		15,321,979		15,495,164
After 10 years		24,919,573		25,239,780		29,452,145		30,198,857
Mortgage-backed securities - private label not due on a single maturity date						10,963,720		10,972,903
Government sponsored mortgage-backed securities and SBA loan pools not due on a single maturity date		56,387,276		56,833,306		48,704,459		49,295,673
	$	94,195,850	$	95,031,221	$	104,828,360	$	106,353,702

	June 30, 2019
As of September 30, 2019
	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U. S. government agencies																$	1,490,680	$	(9,071	)	$	-	$	-		$	1,490,680	$	(9,071	)
Municipals	$	1,673,061	$	(5,476	)	$	2,797,536	$	(9,752	)	$	4,470,597	$	(15,228	)		1,124,104		(22,646	)		-		-			1,124,104		(22,646	)
Corporates		3,543,333		(20,013	)		-		-			3,543,333		(20,013	)		2,540,521		(13,115	)		-		-			2,540,521		(13,115	)
Mortgage-backed securities - private label																	2,063,242		(184	)		-		-			2,063,242		(184	)
Government sponsored mortgage-backed securities and SBA loan pools		6,494,083		(36,791	)		11,206,097		(162,948	)		17,700,180		(199,739	)		8,979,065		(46,080	)		4,429,589		(96,895	)		13,408,654		(142,975	)
	$	11,710,477	$	(62,280	)	$	14,003,633	$	(172,700	)	$	25,714,110	$	(234,980	)	$	16,197,612	$	(91,096	)	$	4,429,589	$	(96,895	)	$	20,627,201	$	(187,991	)

	December 31, 2018
As of December 31, 2018
	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Municipals	$	6,324,750	$	(67,774	)	$	23,223,221	$	(642,935	)	$	29,547,971	$	(710,709	)	$	6,324,750	$	(67,774	)	$	23,223,221	$	(642,935	)	$	29,547,971	$	(710,709	)
Government sponsored mortgage-backed securities and SBA loan pools		7,127,597		(112,282	)		33,759,028		(1,124,978	)		40,886,625		(1,237,260	)		7,127,597		(112,282	)		33,759,028		(1,124,978	)		40,886,625		(1,237,260	)
	$	13,452,347	$	(180,056	)	$	56,982,249	$	(1,767,913	)	$	70,434,596	$	(1,947,969	)	$	13,452,347	$	(180,056	)	$	56,982,249	$	(1,767,913	)	$	70,434,596	$	(1,947,969	)

~~GUARANTY FEDERAL BANCSHARES, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~
~~THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)~~

~~GUARANTY FEDERAL BANCSHARES, INC.~~
~~CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY~~
~~THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2019 (UNAUDITED)~~

~~GUARANTY FEDERAL BANCSHARES, INC.~~
~~CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY~~
~~QUARTERLY AND TWELVE MONTHS ENDED DECEMBER 31, 2018~~

~~GUARANTY FEDERAL BANCSHARES, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)~~

	6/30/2019			6/30/2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,548,863		$	1,012,761
Items not requiring (providing) cash:
Deferred income taxes		135,813			(145,762	)
Depreciation		949,754			660,972
Lease amortization		30,078			-
Provision for loan losses		100,000			725,000
Gain on sale of Small Business Administration loans		(497,576	)		(396,241	)
Gain on sale of mortgage loans held for sale and investment securities		(1,036,193	)		(989,280	)
Gain on sale of foreclosed assets		(58,696	)		(141,477	)
Gain on sale of premises and equipment		(6,069	)		-
Amortization of deferred income, premiums and discounts		165,996			337,877
Stock award plan expense		359,116			284,470
Accretion of purchase accounting adjustments		(661,564	)		(234,792	)
Origination of loans held for sale		(36,450,979	)		(34,084,892	)
Proceeds from sale of loans held for sale		37,041,339			35,155,111
Increase in cash surrender value of bank owned life insurance		(224,549	)		(226,011	)
Changes in:
Accrued interest receivable		(138,032	)		(546,328	)
Prepaid expenses and other assets		(3,175,861	)		5,300,310
Accounts payable and accrued expenses		942,608			(1,530,909	)
Income taxes receivable/payable		95,484			(323,051	)
Net cash provided by operating activities		2,119,532			4,857,758
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of loans		5,187,953			5,273,649
Net change in loans		22,453,757			(4,240,878	)
Principal payments on available-for-sale securities		2,893,736			1,139,659
Principal payments on held-to-maturity securities		11,661			2,347
Purchase of premises and equipment		(584,168	)		(2,294,704	)
Net cash received for acquisition		-			2,455,964
Purchase of available-for-sale securities		(38,383,889	)		(9,788,468	)
Proceeds from sale of available-for-sale securities		29,255,408			6,497,699
Redemption (purchase) of FHLB stock		2,229,700			(193,700	)
Purchase of tax credit investments		(3,168,435	)		(452,171	)
Proceeds from sale of foreclosed assets held for sale		487,244			142,193
Net cash provided by (used in) investing activities		20,382,967			(1,458,410	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid		(1,163,091	)		(1,063,744	)
Net increase in demand deposits, NOW accounts and savings accounts		52,638,121			1,507,491
Net increase (decrease) in certificates of deposit		251,733			(5,276,741	)
Net decrease of securities sold under agreements to repurchase		-			(2,159,000	)
Proceeds from FHLB advances		74,565,000			336,550,000
Repayments of FHLB advances		(129,865,000	)		(342,450,000	)
Proceeds from issuance of notes payable		-			5,000,000
Repayments of notes payable		-			(3,000,000	)
Advances from borrowers for taxes and insurance		235,859			380,533
Stock options exercised		51,900			62,430
Treasury stock purchased		(312,892	)		-
Net cash used in financing activities		(3,598,370	)		(10,449,031	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		18,904,129			(7,049,683	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		34,121,642			37,406,930
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	53,025,771		$	30,357,247

As of June 30, 2019
As of September 30, 2019
		30-59 Days Past Due		60-89 Days Past Due		90 Days and more Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing			30-59 Days Past Due		60-89 Days Past Due		90 Days and more Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
		(In Thousands)															(In Thousands)
Real estate - residential mortgage:	Real estate - residential mortgage:															Real estate - residential mortgage:
One to four family units		$	1,451	$	164	$	163	$	1,778	$	123,064	$	124,842	$	-		$	290	$	246	$	157	$	693	$	120,997	$	121,690	$	-
Multi-family			5,930		-		-		5,930		82,526		88,456		-			5,930		-		-		5,930		87,699		93,629		-
Real estate - construction			4,008		640		-		4,648		95,714		100,362		-			581		-		-		581		87,594		88,175		-
Real estate - commercial			1,231		304		547		2,082		298,291		300,373		-			853		-		-		853		307,418		308,271		-
Commercial loans			682		205		-		887		113,100		113,987		-			186		5		-		191		108,547		108,738		-
Consumer and other loans			13		106		50		169		31,261		31,430		-			-		18		-		18		31,704		31,722		-
Total		$	13,315	$	1,419	$	760	$	15,494	$	743,956	$	759,450	$	-		$	7,840	$	269	$	157	$	8,266	$	743,959	$	752,225	$	-

Three months ended June 30, 2019	Construction		Commercial Real Estate		One to four family			Multi-family			Commercial			Consumer and Other			Unallocated			Total
Three months ended September 30, 2019																							Construction			Commercial Real Estate			One to four family		Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)																						(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	1,936	$	2,137	$	1,386		$	694		$	974		$	368		$	352		$	7,847		$	2,169		$	2,188		$	948	$	673	$	1,236		$	397		$	60	$	7,671
Provision charged to expense		212		31		(168	)		(21	)		262			76			(292	)	$	100			(245	)		242			42		50		(125	)		99			37	$	100
Losses charged off		-		-		(271	)		-			(41	)		(61	)		-		$	(373	)		-			(122	)		-		-		(106	)		(85	)		-	$	(313	)
Recoveries		21		20		1			-			41			14			-		$	97			28			1			1		-		55			14			-	$	99
Balance, end of period	$	2,169	$	2,188	$	948		$	673		$	1,236		$	397		$	60		$	7,671		$	1,952		$	2,309		$	991	$	723	$	1,060		$	425		$	97	$	7,557

Six months ended June 30, 2019	Construction			Commercial Real Estate		One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
Nine months ended September 30, 2019																							Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)																						(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	2,306		$	2,093	$	1,297		$	641	$	1,160		$	373		$	126		$	7,996		$	2,306		$	2,093		$	1,297		$	641	$	1,160		$	373		$	126		$	7,996
Provision charged to expense		(278	)		75		(81	)		32		301			117			(66	)	$	100			(523	)		317			(41	)		82		175			219			(29	)	$	200
Losses charged off		-			-		(271	)		-		(275	)		(115	)		-		$	(661	)		-			(122	)		(271	)		-		(381	)		(199	)		-		$	(973	)
Recoveries		141			20		3			-		50			22			-		$	236			169			21			6			-		106			32			-		$	334
Balance, end of period	$	2,169		$	2,188	$	948		$	673	$	1,236		$	397		$	60		$	7,671		$	1,952		$	2,309		$	991		$	723	$	1,060		$	425		$	97		$	7,557

Three months ended June 30, 2018	Construction		Commercial Real Estate			One to four family		Multi-family		Commercial		Consumer and Other			Unallocated			Total
Three months ended September 30, 2018																					Construction			Commercial Real Estate		One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)																				(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	2,223	$	1,876		$	1,113	$	487	$	958	$	291		$	155		$	7,103		$	2,484		$	1,787	$	1,237		$	553	$	1,085		$	367		$	60	$	7,573
Provision charged to expense		248		(90	)		123		66		122		126			(95	)	$	500			(219	)		158		96			97		(44	)		65			47	$	200
Losses charged off		-		-			-		-		-		(59	)		-		$	(59	)		-			-		(3	)		-		(14	)		(74	)		-	$	(91	)
Recoveries		13		1			1		-		5		9			-		$	29			36			-		1			-		4			9			-	$	50
Balance, end of period	$	2,484	$	1,787		$	1,237	$	553	$	1,085	$	367		$	60		$	7,573		$	2,301		$	1,945	$	1,331		$	650	$	1,031		$	367		$	107	$	7,732

Six months ended June 30, 2018	Construction		Commercial Real Estate			One to four family		Multi-family		Commercial			Consumer and Other			Unallocated			Total
Nine months ended September 30, 2018																						Construction			Commercial Real Estate		One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)																					(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	2,244	$	1,789		$	946	$	464	$	1,031		$	454		$	179		$	7,107		$	2,244		$	1,789	$	946		$	464	$	1,031		$	454		$	179		$	7,107
Provision charged to expense		208		(3	)		290		89		142			118			(119	)	$	725			(13	)		155		386			186		98			185			(72	)	$	925
Losses charged off		-		-			-		-		(96	)		(226	)		-		$	(322	)		-			-		(3	)		-		(110	)		(301	)		-		$	(414	)
Recoveries		32		1			1		-		8			21			-		$	63			70			1		2			-		12			29			-		$	114
Balance, end of period	$	2,484	$	1,787		$	1,237	$	553	$	1,085		$	367		$	60		$	7,573		$	2,301		$	1,945	$	1,331		$	650	$	1,031		$	367		$	107		$	7,732

		For the Six Months Ended				For the Six Months Ended				For the Nine Months Ended				For the Nine Months Ended
		June 30, 2019				June 30, 2018				September 30, 2019				September 30, 2018
		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
		(In Thousands)								(In Thousands)
Loans without a specific valuation allowance	Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units		$	1,111	$	1	$	1,961	$	-	$	1,046	$	1	$	1,649	$	-
Multi-family			5,934		-		509		-		5,933		-		1,006		25
Real estate - construction			-		-		2,287		-		-		-		1,525		-
Real estate - commercial			3,440		4		2,326		46		3,353		4		2,383		46
Commercial loans			223		-		916		-		161		-		658		-
Consumer and other loans			229		-		9		-		268		-		37		-
Loans with a specific valuation allowance	Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units		$	2,352	$	-	$	2,353	$	-	$	1,970	$	-	$	2,671	$	-
Multi-family			-		-		-		-		-		-		666		-
Real estate - construction			3,876		-		2,055		-		3,866		-		2,774		-
Real estate - commercial			717		-		27		-		657		-		81		-
Commercial loans			659		-		403		-		702		-		457		-
Consumer and other loans			106		-		132		-		119		-		116		-
Total
Real estate - residential mortgage:
One to four family units		$	3,463	$	1	$	4,314	$	-	$	3,016	$	1	$	4,320	$	-
Multi-family			5,934		-		509		-		5,933		-		1,672		25
Real estate - construction			3,876		-		4,342		-		3,866		-		4,299		-
Real estate - commercial			4,157		4		2,353		46		4,010		4		2,464		46
Commercial loans			882		-		1,319		-		863		-		1,115		-
Consumer and other loans			335		-		141		-		387		-		153		-
Total		$	18,647	$	5	$	12,978	$	46	$	18,075	$	5	$	14,023	$	71

Amortization Expense
(in Thousands)
Remainder of: 2019	$	238
2020		477
2021		477
2022		477
2023		477
Therafter		596
Total	$	2,742

Restricted Stock	Number of Shares			Weighted Average Grant- Date Fair Value		Number of Shares			Weighted Average Grant- Date Fair Value

Balance of shares non-vested as of January 1, 2019		32,349		$	18.93		32,349		$	18.93
Granted		15,434			23.85		15,434			23.85
Vested		(20,771	)		17.67		(20,771	)		17.67
Forfeited		-			-		(1,649	)		22.27
Balance of shares non-vested as of June 30, 2019		27,012		$	22.71
Balance of shares non-vested as of September 30, 2019							25,363		$	22.74

Performance Stock Units	Performance Stock Units		Weighted Average Grant-Date Fair Value

Balance of shares non-vested as of January 1, 2019		47,322	$	20.48
Granted		-		-
Vested		-		-
Forfeited		-		-
Balance of shares non-vested as of June 30, 2019		47,322	$	20.48

	For three months ended June 30, 2018								For six months ended June 30, 2018						For three months ended September 30, 2018						For nine months ended September 30, 2018
	Income Available to Common Shareholders			Average Common Shares Outstanding		Per Common Share			Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share		Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share		Income Available to Common Shareholders		Average Common Shares Outstanding		Per Common Share
Basic Income Per Common Share	$	(342,984	)		4,404,029	$	(0.08	)	$	1,012,761		4,397,907	$	0.23	$	3,934,242		4,418,196	$	0.89	$	4,947,003		4,406,830	$	1.12
Effect of Dilutive Securities					N/A							71,513						72,389						72,058
Diluted Income Per Common Share	$	(342,984	)		4,404,029	$	(0.08	)	$	1,012,761		4,469,420	$	0.23	$	3,934,242		4,490,585	$	0.88	$	4,947,003		4,478,888	$	1.10

Impaired loans:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
June 30, 2019	$	-	$	-	$	15,654	$	15,654
September 30, 2019									$	-	$	-	$	1,005	$	1,005

December 31, 2018	$	-	$	-	$	10,428	$	10,428	$	-	$	-	$	10,428	$	10,428

Foreclosed assets held for sale:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
June 30, 2019	$	-	$	-	$	-	$	-
September 30, 2019									$	-	$	-	$	72	$	72

December 31, 2018	$	-	$	-	$	909	$	909	$	-	$	-	$	909	$	909

	Fair Value June 30, 2019		Valuation Technique	Unobservable Input	Range (Weighted Average)				Fair Value September 30, 2019		Valuation Technique	Unobservable Input	Range (Weighted Average)

Impaired loans (collateral dependent)	$	15,654	Market Comparable	Discount to reflect realizable value	0%	-	91%	(5%)	$	1,005	Market Comparable	Discount to reflect realizable value	0%	-	59%	(23%)

Foreclosed assets held for sale	$	-	Market Comparable	Discount to reflect realizable value		N/A			$	72	Market Comparable	Discount to reflect realizable value	58%	-	66%	(62%)

	December 31, 2018
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	34,121,642	$	34,121,642		1
Interest-bearing time deposits at other financial institutions		250,000		250,116		2
Federal Home Loan Bank stock		5,387,200		5,387,200		2
Mortgage loans held for sale		1,516,849		1,516,849		2
Loans, net		778,298,606		783,910,789		3
Interest receivable		3,390,944		3,390,944		2

Financial liabilities:
Deposits		749,618,822		747,903,071		2
Federal Home Loan Bank advances		105,300,000		105,325,386		2
Subordinated debentures		21,760,829		21,760,829		3
Note payable to Bank		5,000,000		5,000,000		3
Interest payable		821,811		821,811		2

Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-		-
Unused lines of credit		-		-		-

		Three months ended 6/30/2019								Three months ended 6/30/2018								Three months ended 9/30/2019								Three months ended 9/30/2018
		Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost
ASSETS
Interest-earning:
Loans		$	768,176	$	10,395			5.43	%	$	797,034	$	9,819			4.94	%	$	759,961	$	10,430			5.45	%	$	787,638	$	12,774			6.43	%
Investment securities			96,422		681			2.83	%		88,755		493			2.23	%		100,142		735			2.91	%		87,182		524			2.38	%
Other assets			37,253		224			2.41	%		16,725		67			1.61	%		71,773		417			2.31	%		18,257		80			1.74	%
Total interest-earning			901,851		11,300			5.03	%		902,514		10,379			4.61	%		931,876		11,582			4.93	%		893,077		13,378			5.94	%
Noninterest-earning			68,080								64,965								69,711								59,509
																		$	1,001,587							$	952,586
		$	969,931							$	967,479
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing:
Savings accounts		$	40,598		32			0.32	%	$	43,012		26			0.24	%	$	40,310		30			0.30	%	$	42,412		29			0.27	%
Transaction accounts			417,536		1,551			1.49	%		425,153		1,126			1.06	%		451,237		1,624			1.43	%		405,230		1,175			1.15	%
Certificates of deposit			234,515		1,216			2.08	%		211,246		568			1.08	%		227,996		1,226			2.13	%		208,534		622			1.18	%
FHLB advances			51,677		289			2.24	%		77,991		406			2.09	%		50,225		283			2.24	%		88,750		482			2.15	%
Other borrowed funds			5,000		64			5.13	%		1,109		4			0.00	%		9,089		111			4.85	%		5,000		59			4.68	%
Subordinated debentures			21,731		297			5.48	%		21,651		277			5.13	%		17,979		185			4.08	%		21,797		282			5.13	%
Total interest-bearing			771,057		3,449			1.79	%		780,162		2,407			1.24	%		796,836		3,459			1.72	%		771,723		2,649			1.36	%
Noninterest-bearing			115,033								94,344								121,039								103,817
Total liabilities			886,090								874,506								917,875								875,540
Stockholders’ equity			83,841								92,973								83,712								77,046
		$	969,931							$	967,479							$	1,001,587							$	952,586
Net earning balance		$	130,794							$	122,352							$	135,040							$	121,354
Earning yield less costing rate								3.24	%							3.38	%							3.21	%							4.58	%
Net interest income, and net yield spread on interest earning assets				$	7,851			3.49	%			$	7,972			3.54	%			$	8,123			3.46	%			$	10,729			4.77	%
Ratio of interest-earning assets to interest-bearing liabilities					117	%							116	%							117	%							116	%

	Six months ended 6/30/2019								Six months ended 6/30/2018
	Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost
ASSETS
Interest-earning:
Loans	$	774,227	$	20,698			5.39	%	$	719,690	$	17,197			4.82	%
Investment securities		93,259		1,279			2.77	%		84,577		943			2.25	%
Other assets		34,098		419			2.48	%		20,101		196			1.97	%
Total interest-earning		901,584		22,396			5.01	%		824,368		18,336			4.49	%
Noninterest-earning		63,477								51,384
	$	965,061							$	875,752
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing:
Savings accounts	$	40,250		62			0.31	%	$	37,166		47			0.26	%
Transaction accounts		414,440		3,027			1.47	%		397,144		2,056			1.04	%
Certificates of deposit		236,868		2,317			1.97	%		183,385		1,039			1.14	%
FHLB advances		55,917		645			2.33	%		71,622		739			2.08	%
Other borrowed funds		5,000		132			5.32	%		555		4			0.00	%
Subordinated debentures		21,742		588			5.45	%		18,558		447			4.86	%
Total interest-bearing		774,217		6,771			1.76	%		708,430		4,332			1.23	%
Noninterest-bearing		107,839								82,908
Total liabilities		882,056								791,338
Stockholders’ equity		83,005								84,414
	$	965,061							$	875,752
Net earning balance	$	127,367							$	115,938
Earning yield less costing rate							3.25	%							3.25	%
Net interest income, and net yield spread on interest earning assets			$	15,625			3.50	%			$	14,004			3.43	%
Ratio of interest-earning assets to interest-bearing liabilities				116	%							116	%

	Nine months ended 9/30/2019								Nine months ended 9/30/2018
	Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost
ASSETS
Interest-earning:
Loans	$	769,420	$	31,128			5.41	%	$	759,354	$	29,971			5.28	%
Investment securities		95,578		2,014			2.82	%		86,457		1,466			2.27	%
Other assets		47,004		836			2.38	%		19,358		276			1.91	%
Total interest-earning		912,002		33,978			4.99	%		865,169		31,713			4.90	%
Noninterest-earning		65,362								58,903
	$	977,364							$	924,072

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing:
Savings accounts	$	40,270		92			0.31	%	$	40,325		76			0.25	%
Transaction accounts		426,841		4,651			1.46	%		407,895		3,231			1.06	%
Certificates of deposit		233,878		3,543			2.03	%		198,879		1,661			1.12	%
FHLB advances		53,998		928			2.30	%		77,436		1,221			2.11	%
Other borrowed funds		6,378		243			5.09	%		3,671		63			2.29	%
Subordinated debentures		20,474		773			5.05	%		20,705		729			4.71	%
Total interest-bearing		781,839		10,230			1.75	%		748,911		6,981			1.25	%
Noninterest-bearing		112,282								97,388
Total liabilities		894,121								846,299
Stockholders’ equity		83,243								77,773
	$	977,364							$	924,072
Net earning balance	$	130,163							$	116,258
Earning yield less costing rate							3.24	%							3.65	%
Net interest income, and net yield spread on interest earning assets			$	23,748			3.48	%			$	24,732			3.82	%
Ratio of interest-earning assets to interest-bearing liabilities				117	%							116	%

	6/30/2019			12/31/2018			12/31/2017			9/30/2019			12/31/2018			12/31/2017
Nonperforming loans	$	11,076		$	13,082		$	9,961		$	9,780		$	13,082		$	9,961
Real estate acquired in settlement of loans		1,399			1,127			283			1,491			1,127			283
Total nonperforming assets	$	12,475		$	14,209		$	10,244		$	11,271		$	14,209		$	10,244

Total nonperforming assets as a percentage of total assets		1.28	%		1.47	%		1.29	%		1.11	%		1.47	%		1.29	%
Allowance for loan losses	$	7,671		$	7,996		$	7,107		$	7,557		$	7,996		$	7,107
Allowance for loan losses as a percentage of gross loans		1.01	%		1.02	%		1.12	%		1.00	%		1.02	%		1.12	%

BP Change	Estimated Net Portfolio Value								NPV as % of PV of Assets						Assets		Estimated Net Portfolio Value								NPV as % of PV of Assets
in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change					$ Amount		$ Change			% Change			NPV Ratio			Change
+200	$	120,880	$	17,302			17	%		12.73	%		2.01	%		949,726	$	124,970	$	20,573			20	%		12.60	%		2.24	%
+100		113,914		10,336			10	%		11.88	%		1.16	%		958,880		116,499		12,102			12	%		11.65	%		1.28	%
NC		103,578		-			0	%		10.72	%		0.00	%		966,283		104,397		-			0	%		10.36	%		0.00	%
-100		86,968		(16,610	)		-16	%		8.95	%		-1.77	%		971,679		85,041		(19,356	)		-19	%		8.41	%		-1.96	%
-200		73,168		(30,410	)		-29	%		7.50	%		-3.22	%		975,339		79,597		(24,800	)		-24	%		7.85	%		-2.51	%

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		(d) Maximum Numbe of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2019 - April 30, 2019		-		-		-		-
May 1, 2019 - May 31, 2019		-		-		-		-
June 1, 2019 - June 30, 2019		13,608		22.99		13,608		138,940

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 - July 31, 2019		28,878		23.62		28,878		110,062
August 1, 2019 - August 31, 2019		36,733		23.82		36,733		73,329
September 1, 2019 - September 30, 2019		24,657		24.12		24,657		48,672

Guaranty Federal Bancshares, Inc.



Signature and Title	Date

/s/ Shaun A. Burke	~~August~~ November98, 2019
Shaun A. Burke
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)



/s/ Carter M. Peters	~~August~~November 98, 2019
Carter M. Peters
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)