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~~

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~March 301, 201920

~~[ ] 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) OFTHE 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 if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

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~~April 30 31, 201920
Common Stock, Par Value $0.10 per share		~~4,440,351~~4,364,895 Shares

							March 31,			December 31,
	6/30/2019			12/31/2018			2020			2019
ASSETS
Cash and due from banks	$	4,169,211		$	5,818,955		$	6,117,380		$	5,114,067
Interest-bearing deposits in other financial institutions		48,856,560			28,302,687
Interest-bearing demand deposits in other financial institutions								78,226,550			87,557,842
Cash and cash equivalents		53,025,771			34,121,642			84,343,930			92,671,909
Interest-bearing time deposits at other financial institutions		250,000			250,000			3,534,996			250,000
Available-for-sale securities		95,031,221			86,266,197			140,009,454			118,245,314
Stock in Federal Home Loan Bank, at cost		3,157,500			5,387,200			3,212,100			3,757,500
Mortgage loans held for sale		1,914,419			1,516,849			1,980,896			2,786,564
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 March 31, 2020 - $8,049,264 and December 31, 2019 - $7,607,587, respectively								721,062,691			720,732,402
Accrued interest receivable		3,528,976			3,390,944			3,533,856			3,511,875
Prepaid expenses and other assets		10,749,882			6,261,159			8,665,137			8,862,954
Goodwill		1,434,982			1,434,982			1,434,982			1,434,982
Core deposit intangible		2,742,410			2,980,910			2,384,660			2,503,910
Foreclosed assets held for sale		1,399,221			1,126,963			869,120			991,885
Premises and equipment, net		19,735,644			20,095,161			18,798,539			19,164,496
Operating lease right-of-use asset		9,334,911			-			8,909,359			9,052,941
Bank owned life insurance		20,422,623			20,198,074			24,849,192			24,698,438
Deferred and income taxes receivable		3,525,426			3,809,183
Deferred and receivable income taxes								4,043,186			3,359,455
	$	977,443,808		$	965,137,870		$	1,027,632,098		$	1,012,024,625
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	802,477,539		$	749,618,822		$	849,535,941		$	821,406,532
Federal Home Loan Bank advances		50,000,000			105,300,000			50,000,000			65,000,000
Subordinated debentures		21,716,897			21,760,829			15,465,000			15,465,000
Note payable to bank		5,000,000			5,000,000			11,200,000			11,200,000
Advances from borrowers for taxes and insurance		525,667			289,808			397,406			268,200
Accrued expenses and other liabilities		3,652,629			1,868,008			7,499,612			4,153,762
Operating lease liability		9,364,989			-
Operating lease liabilities								8,971,587			9,105,503
Accrued interest payable		967,815			821,811			799,338			793,746
		893,705,536			884,659,278			943,868,884			927,392,743

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 March 31, 2020 and December 31, 2019 - 6,919,503 shares								691,950			691,950
Additional paid-in capital		51,575,395			51,382,585			51,272,429			51,908,867
Retained earnings, substantially restricted		69,214,712			65,829,687			74,310,860			72,860,750
Accumulated other comprehensive loss		(676,225	)		(452,756	)		(2,416,894	)		(431,035	)
		120,805,082			117,449,716			123,858,345			125,030,532
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; March 31, 2020 and December 31, 2019 - 2,554,608 and 2,582,041 shares, respectively								(40,095,131	)		(40,398,650	)
		83,738,272			80,478,592			83,763,214			84,631,882
	$	977,443,808		$	965,137,870		$	1,027,632,098		$	1,012,024,625

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

	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance, January 1, 2020	$	691,950	$	51,908,867		$	(40,398,650	)	$	72,860,750		$	(431,035	)	$	84,631,882
Net income		-		-			-			2,104,845			-			2,104,845
Other comprehensive loss		-		-			-			-			(1,985,859	)		(1,985,859	)
Dividends on common stock ($0.15 per share)		-		-			-			(654,735	)		-			(654,735	)
Treasury stock purchased		-		-			(390,268	)		-			-			(390,268	)
Stock award plans		-		(636,438	)		693,787			-			-			57,349
Balance, March 31, 2020	$	691,950	$	51,272,429		$	(40,095,131	)	$	74,310,860		$	(2,416,894	)	$	83,763,214

	6/30/2019			6/30/2018			3/31/2020			3/31/2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,548,863		$	1,012,761		$	2,104,845		$	2,120,364
Items not requiring (providing) cash:
Deferred income taxes		135,813			(145,762	)		(122,539	)		116,506
Depreciation		949,754			660,972
Lease amortization		30,078			-
Depreciation and amortization								507,396			493,238
Provision for loan losses		100,000			725,000			500,000			-
Gain on sale of Small Business Administration loans		(497,576	)		(396,241	)		-			(250,119	)
Gain on sale of mortgage loans held for sale and investment securities		(1,036,193	)		(989,280	)		(571,310	)		(395,350	)
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
Loss (gain) on sale of foreclosed assets								84,106			(6,043	)
Gain on sale of premises, equipment and other assets								-			(6,069	)
Amortization of deferred income, premiums and discounts, net								213,234			63,406
Amortization of intangible assets								119,250			119,250
Stock award plan expense		359,116			284,470			57,349			169,100
Accretion of purchase accounting adjustments		(661,564	)		(234,792	)		(209,557	)		(426,142	)
Origination of loans held for sale		(36,450,979	)		(34,084,892	)		(18,621,836	)		(15,877,396	)
Proceeds from sale of loans held for sale		37,041,339			35,155,111			19,970,915			14,972,988
Increase in cash surrender value of bank owned life insurance		(224,549	)		(226,011	)		(150,754	)		(111,186	)
Changes in:
Accrued interest receivable		(138,032	)		(546,328	)		(21,981	)		(382,266	)
Prepaid expenses and other assets		(3,175,861	)		5,300,310			166,840			(1,262,913	)
Accounts payable and accrued expenses		942,608			(1,530,909	)		(454,273	)		(113,096	)
Income taxes receivable/payable		95,484			(323,051	)		295,870			(79,260	)
Net cash provided by operating activities		2,119,532			4,857,758
Net cash provided by (used in) operating activities								3,867,555			(854,988	)
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	)		(857,319	)		18,198,692
Principal payments on available-for-sale securities		2,893,736			1,139,659			4,050,674			1,433,177
Principal payments on held-to-maturity securities		11,661			2,347			22			736
Proceeds from maturities of available-for-sale securities								1,450,000			-
Purchase of premises and equipment		(584,168	)		(2,294,704	)		(131,773	)		(153,664	)
Net cash received for acquisition		-			2,455,964
Purchase of available-for-sale securities		(38,383,889	)		(9,788,468	)		(35,896,426	)		(17,536,729	)
Proceeds from sale of available-for-sale securities		29,255,408			6,497,699			6,263,367			5,057,584
Redemption (purchase) of FHLB stock		2,229,700			(193,700	)
Redemption of FHLB stock								545,400			2,145,700
Purchase of tax credit investments		(3,168,435	)		(452,171	)		-			(3,168,435	)
Proceeds from sale of foreclosed assets held for sale		487,244			142,193			162,793			158,230
Net cash provided by (used in) investing activities		20,382,967			(1,458,410	)		(24,413,262	)		6,135,291
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			38,327,551			48,453,425
Net increase (decrease) in certificates of deposit		251,733			(5,276,741	)		(10,198,142	)		8,790,226
Net decrease of securities sold under agreements to repurchase		-			(2,159,000	)
Proceeds from FHLB advances		74,565,000			336,550,000			10,000,000			35,045,000
Repayments of FHLB advances		(129,865,000	)		(342,450,000	)		(25,000,000	)		(88,245,000	)
Proceeds from issuance of notes payable		-			5,000,000			1,000,000			-
Repayments of notes payable		-			(3,000,000	)		(1,000,000	)		-
Advances from borrowers for taxes and insurance		235,859			380,533			129,206			132,018
Stock options exercised		51,900			62,430			-			51,900	��
Cash dividends paid								(650,619	)		(580,253	)
Treasury stock purchased		(312,892	)		-			(390,268	)		-
Net cash used in financing activities		(3,598,370	)		(10,449,031	)
Net cash provided by financing activities								12,217,728			3,647,316
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		18,904,129			(7,049,683	)		(8,327,979	)		8,927,619
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		34,121,642			37,406,930			92,671,909			34,121,642
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	53,025,771		$	30,357,247		$	84,343,930		$	43,049,261

Note 3:

~~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 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~~transaction 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 willis 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 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.

F~~ederal~~ H~~ome~~ L~~oan~~ B~~ank~~~~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.~~

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to ~~$6,292,193~~$5,366,199 and ~~$24,943,176~~$5,261,664 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The approximate fair value of pledged securities amounted to ~~$6,371,216~~$5,533,377 and ~~$24,374,187~~$5,358,929 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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~~$58,587 and ~~$3,183~~$7,382 and gross losses of ~~$124,064~~$30,688 and ~~$10,388 for the six months ended June 30,~~$38,030 as of March 31, 2020 and March 31, 2019, ~~and June 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~~$5,859 and ($~~1,837) for the six months ended June 30,~~7,662) as of March 31, 2020 and March 31, 2019, ~~and June 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. 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 other 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 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, was ~~$25,714,110~~$30,047,406 and ~~$70,434,596,~~$42,570,363, respectively, which is approximately ~~27%~~21% and ~~82%~~36% 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 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Classes of loans by aging at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended
June 30, 2018

Construction

Commercial
Real Estate

One to four
family

Multi-family

Commercial

Consumer
and Other

Unallocated

Total

(In Thousands)

Allowance for loan losses:
Balance, beginning of period
$ 2,223 $ 1,876 $ 1,113 $ 487 $ 958 $ 291 $ 155 $ 7,103
Provision charged to expense
248 (90 ) 123 66 122 126 (95 ) $ 500
Losses charged off
- - - - - (59 ) - $ (59 )
Recoveries
13 1 1 - 5 9 - $ 29
Balance, end of period
$ 2,484 $ 1,787 $ 1,237 $ 553 $ 1,085 $ 367 $ 60 $ 7,573

Six months ended
June 30, 2018

Construction

Commercial
Real Estate

One to four
family

Multi-family

Commercial

Consumer
and Other

Unallocated

Total

(In Thousands)

Allowance for loan losses:
Balance, beginning of period
$ 2,244 $ 1,789 $ 946 $ 464 $ 1,031 $ 454 $ 179 $ 7,107
Provision charged to expense 208 (3 ) 290 89 142 118 (119 ) $ 725
Losses charged off
- - - - (96 ) (226 ) - $ (322 )
Recoveries
32 1 1 - 8 21 - $ 63
Balance, end of period
$ 2,484 $ 1,787 $ 1,237 $ 553 $ 1,085 $ 367 $ 60 $ 7,573

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

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:
March 31, 2020																	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
Ending balance: individually evaluated for impairment	$	551	$	173	$	167	$	-	$	345	$	29	$	-	$	1,265	$	596	$	32	$	184	$	-	$	311	$	25	$	-	$	1,148
Ending balance: collectively evaluated for impairment	$	1,618	$	2,015	$	781	$	673	$	891	$	365	$	60	$	6,403	$	1,033	$	2,545	$	970	$	755	$	1,035	$	424	$	136	$	6,898
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	3	$	-	$	3	$	-	$	-	$	-	$	-	$	3	$	-	$	-	$	3
Loans:
Ending balance: individually evaluated for impairment	$	3,921	$	1,272	$	2,215	$	5,930	$	892	$	224	$	-	$	14,454	$	4,424	$	807	$	2,137	$	-	$	943	$	303	$	-	$	8,614
Ending balance: collectively evaluated for impairment	$	96,441	$	296,388	$	122,627	$	82,526	$	112,899	$	31,056	$	-	$	741,937	$	68,690	$	297,255	$	122,251	$	82,549	$	117,060	$	30,558	$	-	$	718,363
Ending balance: loans acquired with deteriorated credit quality	$	-	$	2,713	$	-	$	-	$	196	$	150	$	-	$	3,059	$	-	$	2,643	$	-	$	-	$	178	$	-	$	-	$	2,821

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 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 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

The following table summarizes average impaired loans and related interest recognized on impaired loans for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

At ~~June 30, 2019,~~March 31, 2020, 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 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

The Bank has allocated ~~$949,930~~$1,019,222 and ~~$901,086~~$927,216 of specific reserves to customers whose loan terms have been modified in TDR as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ending ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. 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-Multi-Family: Loans secured by multi-family residential real estate generally involve a greater degree of credit risk that one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Banks’s market areas.

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 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

The above amounts include purchased credit impaired loans. At ~~June 30, 2019,~~March 31, 2020, purchased credit impaired loans comprised of ~~$3.1~~$2.8 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.

Commercial Loan Referral Income: In certain circumstances, the Company enters into variable-rate loan agreements (Assumable Rate Conversion “ARC” Master Servicing Agreements) with commercial loan customers, and the customer simultaneously enters into an interest swap agreement directly with a third-party (the “counterparty”). This allows the loan customer to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. The Company is required to enter into a transaction agreement as part of each loan. The agreement results in the assumption of credit and market risk equivalent by the Bank. The agreement states that in an event of default by the loan customer, the Bank must pay a termination amount to the extent it is positive. The termination value is defined by the Master Agreement, which is in essence the fair value of the derivative on the event date. The counterparty pays a fee to the Company for brokering the transaction and for servicing the loan/swap agreement between the customer and the counterparty. Fee income related to these agreements was $555,490 and $0 for the three months ended March 31, 2020 and 2019, respectively.

Note 6: Accounting for Certain Loans Acquired

~~The Company~~As part of the Hometown acquisition in 2018, certain loans were acquired ~~loans during the quarter ended June 30, 2018. At acquisition, certain acquired loans~~that 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 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. 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

	March 31,		December 31,
	2020		2019
	(In Thousands)		(In Thousands)
Real estate - commercial	$	3,018	$	3,069
Commercial loans		232		242
Consumer and other loans		-		-
Outstanding balance	$	3,250	$	3,311
Carrying amount, net of fair value adjustment of $429 at March 31, 2020 and $476 at December 31, 2019	$	2,821	$	2,835

Changes in the carrying amount of the accretable yield for all purchased credit impaired loans were as follows for the three months ~~and six months~~ ended ~~June 30, 2019:~~March 31, 2020:

	Six months ended			Three months ended
	June 30,			June 30,			Three months ended			Three months ended
	2019			2019			March 31, 2020			March 31, 2019
	(In Thousands)			(In Thousands)			(In Thousands)			(In Thousands)
Balance at beginning of period	$	265		$	230		$	(69	)	$	265
Additions		-			-			-			-
Accretion		(82	)		(47	)		(49	)		(35	)
Reclassification from nonaccretable difference		-			-			2			-
Disposals		-			-			-			-
Balance at end of period	$	183		$	183		$	(116	)	$	230

During the three months ended ~~June 30, 2019,~~March 31, 2020, the Company ~~did not increase or reverse~~increased the allowance for loan losses related to these purchased credit impaired ~~loans.~~loans by $2,718.

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 months ended June 30, 2019.~~

acquisition. 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.~~impairment was neither indicated nor recorded during the three months ended March 31, 2020. Goodwill amounts are not deductible for tax purposes.

Also as part of the Hometown acquisition, core deposit premiums of $3.5 million were recorded. 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 30, 2019, $2.7 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 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 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

	March 31,			December 31,
	2020			2019
	(in Thousands)			(in Thousands)
Goodwill	$	1,435		$	1,435
Core deposit intangible
Gross carrying amount		3,520			3,520
Accumulated amortization		(1,135	)		(1,016	)
Core deposit intangible, net		2,385			2,504
Remaining balance	$	3,820		$	3,939

The Company’s estimated remaining amortization expense on intangibles as of ~~June 30, 2019~~March 31, 2020 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:	2020	$	358
	2021		477
	2022		477
	2023		477
	2024		477
	Therafter		119
	Total	$	2,385

Note 8: Leases

~~As discussed in Note 11, on January 1,~~During the first quarter of 2019, the Company adopted ASU 2016-02, “Leases”. ~~The Company recorded initial balances during the quarter ending~~As of March 31, ~~2019 for~~2020, the Company had recorded operating Right of Use (“ROU”) assets of ~~$9,473,587~~$8,909,359 and corresponding operating ROU liabilities of ~~$9,490,385.~~$8,971,587. At December 31, 2019, operating ROU assets were $9,052,941 with corresponding liabilities of $9,105,503. Additionally, as of March 31, 2020, the Company ~~recorded initial balances for~~had financing ROU assets and liabilities of ~~$453,485. As~~$407,603 compared to balances of ~~June 30, 2019, operating lease liability balances are $9,364,989 and financing lease liability amounts are $426,272.~~$438,580 as of December 31, 2019. 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~~ months ended ~~June 30,~~March 31, 2020 and 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

	Three months ended
	March 31,			March 31,
	2020			2019
	(In Thousands)
Finance lease cost:
Amortization of right-of-use assets	$	30,977		$	27,645
Interest on lease liabilities		2,096			1,720
Operating lease cost		272,335			270,042
Sublease income		(12,300	)		(10,300	)

Total lease costs	$	293,108		$	289,107

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~~3.3
Weighted-average remaining lease term - operating leases (in years)		~~15.5~~14.9
Weighted-average discount rate - financing leases		~~2.05~~1.96	%
Weighted-average discount rate - operating leases		~~5.50~~5.62	%

The following table sets forth, as of ~~June 30, 2019,~~March 31, 2020, 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:	2020	$	99		$	783		$	882
	2021		132			1,020			1,152
	2022		127			1,011			1,138
	2023		53			1,002			1,055
	2024		10			856			866
	Thereafter		-			8,979			8,979
Total undiscounted future minimum lease cash payments		$	421		$	13,651		$	14,072
	Present value discount		(13	)		(4,679	)		(4,692	)
	Lease liability	$	408		$	8,972		$	9,380

~~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~~2019 Annual Report. The following tables below summarize transactions under the Company’s equity plans for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:

Stock Options

Number of shares

Incentive
Stock
Option

Non-
Incentive
Stock
Option

Weighted
Average
Exercise
Price

Balance outstanding as of January 1, 2019
12,500 5,000 $ 5.14
Granted
- - -
Exercised
(7,500 ) (2,500 ) 5.19
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

Stock Options

All remaining stock options from prior year issuances were exercised in 2019 leaving no amounts outstanding as of March 31, 2020. The total intrinsic value of stock options exercised for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 was $0 and ~~2018 was~~ $168,225, ~~and $267,366,~~ respectively. The total intrinsic value of outstanding stock options (including exercisable) was ~~$136,275~~$0 and ~~$462,900~~$130,200 at ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

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
Balance of shares non-vested as of January 1, 2020							24,378		$	22.75
Granted		15,434			23.85		14,366			23.50
Vested		(20,771	)		17.67		(10,964	)		22.23
Forfeited		-			-		-			-
Balance of shares non-vested as of June 30, 2019		27,012		$	22.71
Balance of shares non-vested as of March 31, 2020							27,780		$	23.34

In ~~March 2019,~~February 2020, the Company granted ~~5,502~~5,579 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~~$23.50 per share. The total amount of expense for restricted stock grants to directors (including all ~~grants in~~ previous ~~years)~~years grants) during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 was $36,869 and ~~2018 was $63,039 and $69,652,~~$28,857, respectively.

For the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company granted ~~9,932~~8,787 and ~~6,986~~9,933 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)~~years grants) during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 was $47,471 and ~~2018 was $105,255 and $95,475,~~$49,023, respectively.

On March ~~29, 2017,~~19, 2020, the Company granted restricted stock units representing ~~55,823~~43,700 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~~19, 2020 to December 31, ~~2019~~2022 (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~~Earnings Per Share (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~~$15.62 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~~three months ended ~~June 30,~~March 31, 2020 and 2019 was $0 and ~~2018 was $215,764 and $169,008,~~$107,882, respectively.

Total stock-based compensation expense recognized for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 was $84,340 and ~~2018 was $384,058 and $334,135,~~$185,762, respectively. As of ~~June 30, 2019,~~March 31, 2020, there was ~~$606,248~~$813,658 of unrecognized compensation expense related to ~~non-vested~~nonvested 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

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
Effect of Dilutive Securities
51,166 55,631
Diluted Income Per Common Share
$ 2,428,499 4,503,964 $ 0.54 $ 4,548,863 4,501,381 $ 1.01

	For three months ended March 31, 2020
	Income Available to Common Stockholders		Weighted Average Common Shares Outstanding		Per Common Share
Basic Income per Common Share	$	2,104,845		4,309,441	$	0.49
Effect of Dilutive Securities				26,861
Diluted Income per Common Share	$	2,104,845		4,336,302	$	0.49

For three months ended June 30, 2018

For six months ended June 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

Basic Income Per Common Share
$ (342,984 ) 4,404,029 $ (0.08 ) $ 1,012,761 4,397,907 $ 0.23
Effect of Dilutive Securities
N/A 71,513
Diluted Income Per Common Share
$ (342,984 ) 4,404,029 $ (0.08 ) $ 1,012,761 4,469,420 $ 0.23

	For three months ended March 31, 2019
	Income Available to Common Stockholders		Weighted Average Common Shares Outstanding		Per Common Share
Basic Income per Common Share	$	2,120,364		4,438,625	$	0.48
Effect of Dilutive Securities				60,337
Diluted Income per Common Share	$	2,120,364		4,498,962	$	0.47

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 is 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 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~~Codification Improvements to ~~the proposed standard~~Topic 326, Financial Instruments – Credit Losses, have been ~~issued~~released in November 2018 ~~(Update 2018-19)~~(2018-19), ~~April~~November 2019 ~~(Update 2019-04)~~(2019-10 and ~~May 2019 (Update 2019-05)~~2019-11) and a January 2020 Update (2020-02) that provided additional guidance on this Topic. Among other things, 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 meeting certain criteria, 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~~2019. For SEC filers that meet the criteria of a smaller reporting company (including this Company) and for non-SEC registrant public companies and other ~~organizations.~~organizations, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018.~~2019. The Company has formed a committee that is assessing our data and evaluating the ~~timing and impacts~~impact of adopting ASU 2016-13. The Company has also selected a third-party vendor ~~in 2018 that is assisting~~to assist in generating loan level cash flows and disclosures. ~~The~~Based on the results from larger SEC filers and preliminary internal calculations there is likely a significant financial impact of adopting this standard. Estimated amounts and decisions pertaining to implementation of this standard ~~is still being evaluated.~~will be evaluated over the next several quarters.

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~~quantitative assessment for a reporting unit to determine if the ~~quantitative~~qualitative 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~~This standard has been delayed and is now effective 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 the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.2022.

In ~~February 2018,~~August 2017, the FASB issued ASU ~~2018-02, Income Statement-Reporting Comprehensive Income~~2017-12, Derivatives and Hedging (Topic ~~220)~~815): ~~Reclassification~~Targeted improvements to accounting for hedging activities. Additional guidance on this Topic was released in October 2018 (ASU 2018-16), November 2019 (2019-10) and January 2020 (2020-01). The purpose of ~~Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU provides~~this updated guidance is to better align financial ~~statement preparers~~reporting for hedging activities with ~~an option to reclassify stranded tax effects within AOCI to retained earnings~~the economic objectives of those activities. The amendments 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)~~this update are ~~recorded. This standard is~~ effective ~~for all organizations~~ for fiscal years beginning after December 15, 2018, ~~and~~with early adoption, including adoption in an interim ~~periods within those fiscal years. Early adoption is~~period, permitted. ~~Organizations should apply~~The standard requires the ~~proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect~~modified retrospective transition approach as of the ~~change in~~date of adoption. Implementation of this standard did not have a material impact on 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.Company’s consolidated financial statements.

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~~adopted this standard during the ~~impact~~first quarter of ~~the new standard on our consolidated financial statements, but at this time do not believe the standard will have a~~2020 with no 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 30, 2019,~~March 31, 2020, the Company reported a ~~$752,679~~$2,950,329 unrealized loss, net of a ~~$257,629~~$1,009,844 tax effect, in other comprehensive income related to this cash flow hedge.

In March 2019, the Company entered into a forward start 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 30, 2019,~~March 31, 2020, the Company reported a ~~$417,943~~$946,742 unrealized loss, net of a ~~$143,054~~$324,052 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 30, 2019,~~March 31, 2020, based on current fair values, the Company pledged cash collateral of ~~$1.6~~$5.0 million to its counterparty for the swaps. As of December 31, ~~2018,~~2019, based on then current fair values, the ~~counterparty~~Company had pledged cash collateral of ~~$1.5~~$1.9 million to the ~~Company.~~counterparty.

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments on the consolidated balance sheets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

June 30, 2019

December 31, 2018

Fair Value

Fair Value

Balance Sheet

Notional

Derivative

Derivative

Derivative

Derivative

Derivatives designated as hedging instruments:
Classification

Amount

Assets

Liablities

Assets

Liablities

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

Derivatives designated as hedging instruments:
								March 31, 2020
Forward Start	Termination	Derivative	Notional		Rate		Rate	Balance Sheet	Estimated Fair Value at:
Inception Date	Date	Type	Amount		Paid		Hedged	Classfication	March 31, 2020			December 31, 2019

2/28/2018	2/28/2025	Interest rate swap - FHLB Advances	$	50,000,000	2.12	%	3 month LIBOR Floating	Other liabilites	$	(3,960,173	)	$	(1,067,935	)

5/23/2019	2/23/2026	Interest rate swap - Subordinated Debentures	$	10,310,000	4.09	%	3 month LIBOR Floating +145 bps	Other liabilites	$	(1,270,794	)	$	(560,388	)

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

		Six Months Ended						Three Months Ended
	Income Statement	June, 30						June, 30
Derivatives designated as hedging instruments:	Classification	2019			2018			2019			2018
Derivative														Income Statement	Three months ended March 31,
Type														Classfication	2020	2019

Interest rate swap - FHLB Advances	Interest Expense	$	(129,093	)	$	(7,838	)	$	(59,205	)	$	(1,990	)	Interest expense	$39,841	$(69,888)

Interest rate swap - Subordinated Debentures	Interest Expense	$	1,301		$	-		$	1,301		$	-		Interest expense	$21,441	-

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 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollar amounts in thousands):

6/30/2019
March 31, 2020
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									$	-	$	2,515	$	-	$	2,515
Municipals	$	-	$	28,113	$	-	$	28,113		-		45,048		-		45,048
Corporates		-		10,085		-		10,085		-		21,541		-		21,541
Government sponsored mortgage-backed securities and SBA loan pools		-		56,833		-		56,833
Mortgage-backed securities - private label										-		13,561		-		13,561
Government sponsored asset-backed securities and SBA loan pools										-		57,344		-		57,344
Available-for-sale securities	$	-	$	95,031	$	-	$	95,031	$	-	$	140,009	$	-	$	140,009

Financial liabilities:

Interest rate swaps	$	-	$	1,571	$	-	$	1,571	$	-	$	5,231	$	-	$	5,231

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: 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 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollar amounts in thousands):

There were no transfers between valuation levels for any asset during the three months ended June 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 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Note 14: ~~Subsequent Event~~Recent Events

The ~~Company fully redeemed $6.186 million aggregate principal~~COVID-19 pandemic is creating disruptions to the overall economy and to the lives of Hometown Bancshares Capital Trust Floating Rate Junior Subordinated Debentures (the “Debentures”) on August 7, 2019 (the “Redemption Date”). These Debentures were originally issued in 2002 by Hometown Bancshares, Inc. (“Hometown”)individuals throughout our local communities. Governments, businesses, and ~~were assumed by~~ the ~~Company in~~public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its ~~acquisition~~effects, including quarantines, travel bans, shelter-in-place orders, closures of ~~Hometown. The redemption price was 100%~~businesses and schools, government stimulus programs, and legislation designed to deliver monetary aid and other relief to many segments of the ~~principal amount~~economy. While the scope, duration, and impacts of COVID-19 are continuing to evolve and are not fully known, the pandemic and related efforts to contain it have disrupted economic activities, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period a sustained economic downturn or recession may result causing many of the ~~Debentures, plus accrued~~risk factors identified in our Form 10-K to be exacerbated and ~~unpaid interest. In conjunction with the redemption, the Company increased an existing note payable with another financial institution from $5.0 million~~such effects could have a material adverse impact on us in a number of ways related to ~~$11.2 million with the proceeds primarily being used to redeem the Debentures. The new note will mature on June 30, 2024 and carried a variable~~credit, collateral, customer demand, funding, operations, interest rate ~~tied to one-month LIBOR plus 2.50%. Additionally, an operating line~~risk, human capital and self-insurance, as described in more detail below and in Part II of ~~credit has been established with the same financial institution to be used for general corporate purposes of up to $3.0 million. There are no amounts borrowed against~~ this ~~line as of August 9, 2019. The line of credit has a variable interest rate tied to one-month LIBOR plus 2.50% and matures on June 28, 2021.~~filing.

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 30, 2019,~~March 31, 2020, and the results of operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

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~~following factors or combination of factors, ~~including, but~~among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the real estate values and the local economies in which the Company conducts operations; effects of the coronavirus pandemic (COVID-19) on our Company, the communities where we have our branches, the state of Missouri and the United States, related to the economy and overall financial stability; insufficient provisions for loan losses could reduce earnings for several periods until acceptable levels are reached; new accounting standards for calculating loan loss reserves may have a material adverse impact on our financial condition; merger or acquisition activity may not ~~limited to: changes in demand for banking services;~~produce anticipated results; changes in portfolio composition; a decrease in cash flows from our investment portfolio may adversely affect our liquidity; changes in management strategy; increased competition from both bank and non-bank ~~companies;~~companies, the impact of recent and potential future changes in the ~~general level~~laws, rules, regulations, interpretations and policies relating to financial institutions, accounting, insurance, tax, monetary and fiscal matters and their application by our regulators; the effects of, and changes in, trade, monetary and fiscal policies and laws, changes in interest rates including negative interest rates; changes in ~~general or local economic conditions;~~LIBOR including the impact of the possible elimination of LIBOR and resultant transition to a new benchmark; the timely development of and acceptance of new products and services of the company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; asset quality deterioration; environmental liability associated with real estate collateral; technological changes ~~in federal or state regulations~~ and ~~legislation governing~~cybersecurity risks; employee retention; the ~~operations~~success of the Company orat managing the ~~Bank;~~risks resulting from these factors; 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 this Quarterly Report on Form 10-Q and Item 1A. of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

~~On August 7, 2019,~~The Company cautions that the listed factors are not exclusive. The Company ~~redeemed $6,186,000 aggregate principal~~does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Impacts from the COVID-19 pandemic have caused abrupt and drastic changes in many aspects of everyday life greatly influencing how we operate both personally and professionally. Our initial thoughts are with the safety and well-being of our staff, those in our communities and the many persons who continue to work I jobs considered essential despite challenging times in nearly every industry we interact with. As we adapt to operating in this “new normal” we continue to focus on serving our customers, employees and increasing our stockholder value while operating in a socially distant environment. The goal to best serve our communities has not changed, but the manner in which we achieve this has. Summaries of some of the areas in which we have seen the greatest change while continuing to be a valued business partner to those we serve are below:

Associates: Despite commercial banking being an essential service, approximately 40% of our workforce is working remotely. Limiting staff in our facilities when possible to assist in flattening the infection curve is our contribution to many of our communities ordered to shelter-at-home. For individual employees who have had their health or wellness impacted by the virus or need assistance due to high-risk family members in their household, our Human Resources staff has made available resources during this time to assist them.

Customer Service: Staffing has been increased to handle higher volumes of inquiries. Inquires related to stimulus deposits, loan modifications and accessing government loan programs have been top-of-mind of many customers, greatly increasing the workload of nearly each department within the Bank. Also, resources to educate and inform our customer base of potential scams and how to protect their finances during this time have been developed and distributed via our website and social media channels.

Technology: Our online banking platform and seven video banking machines have seen increased usage during this time. Investments to build out these resources have proven to be worthwhile not only as our industry was trending towards this before the COVID-19 pandemic, but now as customers are able to access financial information at any time while complying with mandates to limit social interactions. This has allowed us to serve our customer base in a nearly seamless manner.

Financial Impacts to the Bank: Unemployment and business closings have already occurred and will likely continue to rise in our markets as the impacts of an economic shutdown are expected to continue for the foreseeable future. We expect to continue to offer relief in the form of loan payment deferrals and loan modifications even as a gradual lifting of sheltering orders hopefully allows for a slow return to normal. The ramifications of this for the Bank will likely be increases in provisions for loan losses, increases in realized losses on loans and decreased fee income due to lower loan originations and deposit activity. Market interest rates have declined significantly and these reductions, especially if prolonged, could adversely affect our net interest income, net interest margin and earnings.

Paycheck Protection Program (PPP) Activity: The Federal government has approved various stimulus packages to assist small businesses, individuals, health care entities and certain governmental entities over the past weeks. Availability and coverage of these programs continues to evolve as the breadth of the economic impact from COVID-19 unfolds. One of the most notable programs is the Coronavirus Aid, Relief and Economic Security (CARES) Act which made available relief to small businesses through Small Business Administration (SBA) PPP loans that, based on certain qualifications, could provide funds to qualified borrowers for payroll, rent and utilities and all or a portion of such loans will be forgiven if use of funds criteria are met. An initial amount of ~~Floating Rate Junior Subordinated Debentures (the "Debentures") originally issued~~$349 billion of PPP funds was authorized in late March 2020 and was fully exhausted within two weeks of start-up. An additional $310 billion of PPP funds was authorized in late April 2020 with those funds to be exhausted by ~~Hometown Bancshares Capital Trust I~~Mid-May. As of April 30, 2020 Guaranty Bank has approved and funded over 500 PPP loans for a total of approximately $51 million, impacting over 8,000 jobs in ~~2002.~~the communities we serve.

Loan Modifications: As previously mentioned, increased loan payment deferrals and other loan modifications have adversely impacted and we expect that they will continue to adversely impact the performance of our loan portfolio. Based on recent guidance by federal banking regulators, the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB), short-term loan modifications made in response to COVID-19 to borrowers with a current payment status are not considered troubled debt restructurings (TDRs) for reporting purposes. As of April 30, 2020, we have modified 227 loans for $188.4 million. Additional details are noted in the following table.

Market Volatility Risk – As noted herein, the COVID-19 pandemic has led to disruption and volatility in the global capital markets. These ~~Debentures were assumed~~conditions may require us to recognize an elevated level of other than temporary impairments on investment securities in our portfolio as issues of these securities are negatively impacted by the ~~Company~~economic slowdown. Declines in ~~connection with~~fair value of investment securities in our portfolio could also reduce the ~~2018 acquisition~~unrealized

gains reported as part 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.our consolidated comprehensive income.

The Company’s total assets increased ~~$12,305,938 (1%~~$15,607,473 (2%) from ~~$965,137,870~~$1,012,024,625 as of December 31, ~~2018,~~2019, to ~~$977,443,808~~$1,027,632,098 as of ~~June 30, 2019.~~March 31, 2020.

Available-for-sale securities increased ~~$8,765,024 (10%~~$21,764,140 (18%) from ~~$86,266,197~~$118,245,314 as of December 31, ~~2018,~~2019, to ~~$95,031,221~~$140,009,454 as of ~~June 30, 2019.~~March 31, 2020. The Company had purchases of ~~$38,383,889~~$35,896,426 and an increase in unrealized gains of ~~$2,671,778~~$989,655 offset by sales, calls, maturities and principal payments of ~~$32,149,144 when compared to December 31, 2018.~~$11,764,041 during the quarter.

Net loans receivable ~~decreased~~increased by ~~$27,107,784 (3%~~$330,289 (less than 1%) from ~~$778,298,606~~$720,732,402 as of December 31, ~~2018~~2019 to ~~$751,190,822~~$721,062,691 as of ~~June 30, 2019. Year-to-date,~~March 31, 2020. For the quarter, one-to-four family mortgage loans increased $5,563,818 (5%), commercial loans increased $4,133,715 (4%), construction loans ~~increased $11,807,630 (13%~~decreased $4,194,302 (5%), and permanent multi-family loans decreased ~~$2,092,594 (2%), consumer and other loans decreased $1,661,342 (5%), commercial loans decreased $5,382,342 (5%), one-to-four family mortgage loans decreased $7,568,338~~$4,899,441 (6%~~) and commercial real estate loans decreased $22,547,861 (7%~~). 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.~~categories.

Allowance for loan losses ~~decreased $324,903 (4%~~increased $441,677 (6%) from ~~$7,995,569~~$7,607,587 as of December 31, ~~2018~~2019 to ~~$7,670,666~~$8,049,264 as of ~~June 30, 2019. In addition to the provision~~March 31, 2020. Provisions for loan losses of ~~$100,000~~$500,000 were recorded by the Company for the ~~six months~~quarter ended ~~June 30, 2019, charge-offs of specific loans (classified as nonperforming at December~~March 31, ~~2018) exceeded~~2020. This expense reflects an increased provision resulting from stress on our loan ~~recoveries by $424,903.~~portfolio from the increase in unemployment and economic effects attributable to the COVID-19 pandemic. The allowance for loan losses, as a percentage of gross loans outstanding (excluding mortgage loans held for sale), as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was ~~1.01%~~1.10% and ~~1.02%~~1.04%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was ~~69.3%~~72.2% and ~~61.1%~~76.1%, 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.~~portfolio even after taking the expected loan defaults attributable to COVID-19 into account.

In accordance with ~~GAAP~~generally accepted accounting principles (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 million~~$750,000 at ~~June 30, 2019.~~March 31, 2020.

~~Prepaid expenses and other assets~~Deposits increased ~~$4,488,723 (72%~~$28,129,409 (3%) from ~~$6,261,159~~$821,406,532 as of December 31, ~~2018~~2019, to ~~$10,749,882~~$849,535,941 as of June 30, 2019. This increase is primarily due to 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.

~~Operating lease right-of-use assets increased $9,334,911 (100%), during the first half of 2019 compared to none recorded as of December~~March 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.

~~Deposits increased $52,858,717 (7%) from $749,618,822 as of December 31, 2018, to $802,477,539 as of June 30, 2019.~~2020. For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, checking and savings accounts increased by ~~$52,638,121~~$38,327,551 and certificates of deposit ~~increased~~decreased by ~~$251,733.~~$10,198,142. 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%~~$15,000,000 (23%) from ~~$105,300,000~~$65,000,000 as of December 31, ~~2018~~2019 to $50,000,000 as of ~~June 30, 2019~~March 31, 2020 due to principal reductions from excess funds generated from the deposit growth noted above.

Accrued expenses and other liabilities increased $3,345,850 (81%) to $7,499,612 from $4,153,762 during the quarter. The majority of this amount is due to mark-to-market adjustments on interest rate swaps, net of tax, which increased unrealized losses during the quarter by $3,602,643 as interest rates continued to decline, 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~~decreased $868,668 (1%) from ~~$80,478,592~~$84,631,882 as of December 31, ~~2018,~~2019, to ~~$83,738,272~~$83,763,214 as of ~~June 30, 2019.~~March 31, 2020. The Company’s net income during this period exceeded dividends paid or declared by ~~$3,385,025. During~~$1,450,110, however, stock repurchase and award activity decreased equity balances by $332,919 and the ~~quarter, 13,608 shares~~equity portion of the Company’s ~~common stock was repurchased at~~unrealized losses on available-for-sale securities and effects of interest rate swaps decreased equity balances by an average price of $22.99 under an existing repurchase plan. These are the first repurchases made by the Company since November 2016. Additional information on the repurchase plan can be found below in Part II, Item 2.additional $1,985,859. On a per common share basis, ~~stockholders’ equity increased from $18.18~~tangible book value decreased to $18.43 at March 31, 2020 as compared to $18.71 as of December 31, ~~2018 to $18.85 as of June 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.

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 %

Results of Operations - Comparison of ~~Three and Six Month~~Three-Month Periods Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~

Net income ~~(loss)~~ for the ~~three~~three-months ended March 31, 2020 and ~~six months ended June 30,~~ 2019 was ~~$2,428,499~~$2,104,845 and ~~$4,548,863, respectively, compared to ($342,984) and $1,012,761 for the three and six months ended June 30, 2018,~~$2,120,364, respectively, which represents ~~an increase~~a decrease in earnings of ~~$2,771,483 (808%~~$15,519 (1%) and $3,536,102 (349%) for the three and six month periods, respectively. Generally, earnings were 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 months ended June 30, 2019 decreased $121,912 (2%) and increased $1,621,554 (12%), respectively, when compared to the same periods in 2018. For the three and six month periods ended June 30, 2019, the average balance of net interest earning assets increased by approximately $8,442,000 and $11,429,000, respectively, more than the average balance of interest-bearing liabilities increased during the same periods in 2018. For the three and six month periods ended June 30, 2019, the net interest margin decreased five basis points to 3.49% and increased seven basis points to 3.50%, respectively, when compared to the same periods in 2018..

Total interest income for the three-months ended March 31, 2020 decreased $297,579 (3%) as compared to the three ~~and six~~ months ended ~~June 30, 2019 increased $920,382 (9%) and $4,060,502 (22%), respectively, when~~March 31, 2019. For the three-month period ended March 31, 2020 compared to the same ~~periods~~period in ~~2018. For the three and six month periods ended June 30,~~ 2019, ~~compared to the same periods in 2018,~~ the average yield on interest earning assets ~~increased 42~~decreased 46 basis points to ~~5.03% and increased 52 basis points to 5.01%~~4.54%, while the average balance of interest earning assets ~~decreased approximately $663,000 for the three month period and~~ increased approximately ~~$77,216,000 for the six month period, respectively.~~$55,226,000. The ~~increase~~decline in ~~the year-to-date amounts~~average yield is primarily due to ~~loan~~declining interest rates and the asset mix of having greater percentages of cash and investment ~~balances gained from the Hometown acquisition and higher yields in each asset class~~holdings rather than loans when compared to ~~the same periods in 2018. For the three-month periods, the~~prior periods. The average balance of loans decreased $46,173,000 compared to March 30, 2019. The yield on loans ~~increased 49~~decreased 12 basis points to ~~5.43%~~5.24% and ~~$452,000~~$210,000 in loan accretion was recognized on loans acquired from Hometown compared to ~~$361,000~~$373,000 in the same quarter of ~~2018.~~2019.

Total interest expense for the ~~three and six months~~three-months ended ~~June 30, 2019 increased $1,042,294 (43%~~March 31, 2020 decreased $235,193 (7%) ~~and $2,438,948 (56%), respectively,~~ when compared to the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. For the ~~three and six months~~three-month period ended ~~June 30, 2019 compared to the same periods in 2018,~~March 31, 2020, the average cost of interest bearing liabilities ~~increased 55~~decreased 23 basis points to ~~1.79%~~1.51%, and ~~increased 53 basis points to 1.76%, while~~ the average balance of interest bearing liabilities ~~decreased approximately $9,105,000 for the three month period and~~ increased approximately ~~$65,787,000 for~~$44,466,000 when compared to the ~~six month period.~~same period in 2019. The ~~annual increase~~decline in average cost is primarily due to successful initiatives to increase lower-cost core deposits over the liabilities acquired from Hometown and higher offering rates on all deposit products due to significant competitive pressures. Partially offsetting the increases noted above, is reduced interest expense on FHLB borrowings from a reduction in balances in 2019.past year. 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.~~portfolio, including the effect on the ability of some borrowers to repay their loans in accordance with their terms or at all due to the impact of COVID-19.

Based on its internal analysis and methodology, management recorded a provision for loan ~~loss expense~~losses of ~~$100,000~~$500,000 for ~~both~~ the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020, compared to ~~$500,000 and $725,000~~no provision for the same ~~periods~~period in ~~2018.~~2019. The ~~need~~decision to ~~record a~~fund the provision for the quarter was ~~primarily~~based on expected stresses that will likely occur in the loan portfolio due to the ~~charge-off~~COVID-19 pandemic. Overall economic conditions impacting both individuals and businesses have already led to loan payment deferrals and modifications of ~~one relationship consisting of several rental properties and increased reserves on a few problem credits.~~loan agreements. 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 million at June 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%) and~~ increased ~~$224,822 (7%~~$534,797 (34%) for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 when compared to the three ~~and six~~ months ended ~~June 30, 2018. For~~March 31, 2019. This was primarily due to income of $555,490 (100%) recognized from fees generated from a new commercial loan swap product that debuted during the ~~periods, the Company~~quarter, increased income from sales of Small Business Administration (“SBA”) loans of $22,078 (10%) and $101,335 (26%), debit card and interchange related income increased by $108,172 (43%) and $198,571 (43%) and realized gains on the sale of investment securities increased by $89,299 (860%) and $55,468 (770%) compared to the same three and six 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%~~$117,413 (28%) and ~~$8,555 (1%~~an increase in realized gains from the sale of investment securities of $59,000 (190%). Offsetting these items was a decrease of income from the sale of SBA loans of $250,119 (100%) ~~and decreased service charge revenue~~due to none of ~~$133,073 (24%) and $48,407 (6%), respectively, when compared to~~these loans being sold during the ~~same three and six month periods in 2018.~~quarter.

~~Non-interest~~Noninterest expenses decreased ~~$3,396,154 (33%~~$44,930 (1%) during the quarter. Salaries and ~~$2,028,450 (13%~~employee benefit expenses decreased $9,706 (less than 1%) ~~for the three and six months ended June 30, 2019 when~~while occupancy expenses increased $17,726 (2%) compared to the same ~~periods~~quarter in ~~2018. One-time merger costs~~2019, respectively. Due to full staffing at nearly each facility and no changes in the number of ~~$3,192,050 and $3,420,050~~locations over the past year, no significant fluctuations were ~~incurred~~experienced in these categories. Additional items impacting noninterest expense during the three and six months ended June 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 months of recurring expenses whereas 2018 only has three months of such expenses. Significant categories of non-interest expense are as follows:quarter included:

Salaries and employee benefits decreased $148,871 (4%) and increased $637,025 (9%) when compared to the same three and six month periods in 2018. The three-month decrease is due to staffing efficiencies gained from the acquisition coupled with unfilled positions from the retirements of a few employees. The six-month increase is due to the merger timing in which only three-months expense would be included in the 2018 year-to date figures.

Occupancy expenses increased $69,147 (7%) and $432,103 (24%), 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%) and increased $18,500 (8%), respectively, for the three and six months ended June 30, 2019 compared to 2018. These amounts are related to purchase accounting adjustments made as a part of the Hometown acquisition.

●

Data processing expenses increased $208,670 (54%) for the quarter due when compared to the prior year due to 2020 having a full quarter of expenses related to upgrades made to our core processing system in last half of 2019.

●

A $99,535 (100%) reduction in FDIC assessment premiums was experienced due to previously awarded credits offsetting current fees.

●

Loan expenses decreased $70,200 (51%) due to lower loan origination activity.

●

Postage expenses were lower by $25,656 (46%) due to efficiencies gained from the upgrading of core processing systems and increased electronic delivery of items.

●

Decreased professional service expenses of $29,363 (15%) were experienced because initial expenses related to new SEC accelerated filer thresholds and expenses related to the implementation of new accounting standards that occurred in the first quarter of 2019 were not present during the comparable 2020 quarter.

The provision for income taxes increased by ~~$882,285 (195%) and $963,724 (603%~~$32,860 (9%) for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 when compared to the ~~same periods of 2018.~~three months ended March 31, 2019. The increase in the provision for income taxes for the quarter is primarily due to ~~increased taxable income.~~reduced tax credits to offset actual tax expense.

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 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was ~~69.3%~~72.2% and ~~61.1%~~76.1%, respectively. Total loans classified as substandard, doubtful or loss as of ~~June 30, 2019,~~March 31, 2020, were ~~$22,202,000~~$21,897,000 or ~~2.27%~~2.13% of total assets as compared to ~~$24,714,000~~$18,553,000 or ~~2.56%~~1.83% of total assets at December 31, ~~2018.~~2019. 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~~$84,343,930 as of ~~June 30, 2019~~March 31, 2020 and ~~$34,121,642~~$92,671,909 as of December 31, ~~2018,~~2019, representing ~~an increase~~a decrease of ~~$18,904,129.~~$8,327,979. 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~~A final rule issued on September 17, 2019 by federal banking regulators provides a simpler method of measuring adequate capital ratios for community banking organizations. The community bank leverage ratio (CBLR) framework is an optional framework that ~~revised its~~is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The framework provides a simple measure of capital adequacy for qualifying community banking organizations, consistent with section 201 of the Economic Growth, Regulatory Relief and Consumer Protection Act. Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9 percent are considered to have satisfied the risk-based and leverage capital requirements ~~for banking organizations to align them with~~in the ~~Basel III regulatory~~generally applicable capital ~~framework and meet certain~~rule. These institutions also must have met well-capitalized ratio 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 section 38 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%~~Federal Deposit Insurance Act. The final rule went into effect on January 1, ~~2019. The~~2020. During the first quarter of 2020, the CARES Act introduced interim CBLR provisions that allow for extended periods for institutions that fall below the 9 percent threshold to gradually increase their ratio from minimums of 8.0 percent in 2020, 8.5 percent in 2021 and 9.0 percent in 2022.

Nonetheless, federal banking guidelines provide that financial institutions experiencing significant growth could be expected to maintain 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~~levels above the minimum ~~but below~~requirements without significant reliance on intangible assets. Additionally, higher capital levels could be required under certain circumstances, such as situations involving interest rate risk, risk from concentrations of credit, or nontraditional activities. Accordingly, the ~~conservation buffer will face constraints on dividends, equity repurchases,~~Company and ~~compensation based on~~ the ~~amount of~~Bank could be required to maintain higher capital levels in the ~~shortfall.~~future even if we otherwise fully comply with the CBLR rule.

The Bank ~~is classified as “well capitalized” under current regulatory guidelines.~~has opted in to the new CBLR framework during the first quarter of 2020. As of ~~June 30, 2019,~~March 31, 2020, the Bank’s ~~common equity Tier 1 ratio~~CBLR was ~~11.66%,~~10.27% which exceeded the ~~Bank’s Tier 1 leverage ratio was 10.57%, its Tier 1 risk-based capital ratio was 11.66% and the Bank’s total risk-based capital ratio was 12.54% - all exceeding the minimums~~minimum of ~~7.0%, 6.0%, 8.5% and 10.5%, respectively, as of June 30, 2019.~~9.00%.

On July 9, 2019, federal banking regulators issued a final ruling that reduces the regulatory burden on financial institutions with less than $250 billion in total consolidated assets and limited foreign exposure. The combined agencies of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC) and the Comptroller of the Currency, approved these standards 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 the pre-approval requirements for the redemption of common stock will be effective October 1, 2019.

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 30, 2019~~March 31, 2020 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.~~2019.

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.

During the quarter ended ~~June 30, 2019,~~March 31, 2020, 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 30, 2019.~~March 31, 2020.

(b) There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The disclosures below supplement the risk factors previously disclosed under Item 1A. of the Company’s 2019 Annual Report on Form 10-K.

In the quarter ended March 31, 2020, our financial results were adversely impacted by the COVID-19 pandemic, primarily due to our recording of a provision for loan losses of $500,000 based on expected stresses that will occur in the loan portfolio due to the pandemic and, to a lesser extent, by loan payment deferrals and loan modifications. Our future business and financial results could also be adversely impacted by COVID-19. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic is creating disruptions to the overall economy and to the lives of individuals throughout our local communities. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, government stimulus programs, and legislation designed to deliver monetary aid and other relief to many segments of the economy. While the scope, duration, and impacts of COVID-19 are continuing to evolve and are not fully known, the pandemic and related efforts to contain it have disrupted economic activities, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period a sustained economic downturn or recession may result causing many of the risk factors identified in our Form 10-K to be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, human capital and self-insurance, as described in more detail below.

Credit Risk - Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor disruptions, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan and mortgage payments. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and other services, and the financial condition and credit risk of our customers. Further, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure, in the event of delinquencies. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like this, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the COVID-19 pandemic, we are participating in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers to which we would have otherwise extended credit.

Strategic Risk- Our results may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may negatively impact our funding costs, reduced demand for our financial products due to economic conditions and the various responses of governmental, non-governmental and regulatory authorities. In recent weeks, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. In our two major market areas of Springfield and Joplin, Missouri, local governments have acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating of loans and lower usage of ATMs and debit cards.

Operational Risk- Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these remote work measures also introduces additional operational risk, including increased cybersecurity risk. These cybersecurity risks include increased phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including appraisers of the real property collateral securing our loans, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the COVID-19 pandemic, many of these entities may limit the availability and access of their services. For example, loan originations could be delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

Interest Rate Risk - Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate by 150 basis points to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on overall markets. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition. Because there have been no comparable recent global pandemics that resulted in similar global impacts, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ abilities to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

~~The~~During the quarter ended March 31, 2020, the Company ~~has~~concluded a repurchase plan which was announced on August 20, 2007. This plan ~~authorizes~~authorized the purchase by the Company of up to 350,000 shares of the Company’s common stock. ~~There is no expiration date~~A new repurchase plan of the Company’s stock was approved on February 28, 2020. This 2020 plan allows for ~~this plan.~~the purchase of up to 250,000 shares of the Company’s outstanding common stock and expires December 31, 2022. There are no other repurchase plans in effect at this time. ~~The~~During the quarter ended March 31, 2020, the Company repurchased ~~13,608~~16,716 shares at an average price of ~~$22.99 during the quarter ended June 30, 2019.~~$23.35. As of ~~June 30, 2019,~~March 31, 2020, the ability to repurchase up to 235,591 shares under the 2020 repurchase plan ~~has 138,940 shares remaining.~~remains.

*~~Pursuant to Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed~~ Management contract or ~~part of a registration statement~~compensatory plan 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.arrangement

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.

			Page
PART I. FINANCIAL INFORMATION

		Item 1. Financial Statements
~~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		87
	Notes to Condensed Consolidated Financial Statements	98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3528

Item 3. Quantitative and Qualitative Disclosures about Market Risk		4335

Item 4. Controls and Procedures			4436

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			4537

Item 1A. Risk factors			4537

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4539

Item 3. Defaults Upon Senior Securities			4539

Item 4. Mine Safety Disclosures		4539

Item 5. Other Information			4539

Item 6. Exhibits			4540

Signatures

	Three months ended					Six months ended
	6/30/2019		6/30/2018			6/30/2019		6/30/2018			3/31/2020			3/31/2019
Interest Income
Loans	$	10,394,929	$	9,818,707		$	20,698,114	$	17,197,282		$	9,553,381		$	10,303,185
Investment securities		680,970		492,931			1,278,504		942,300			884,428			597,534
Other		223,608		67,487			419,325		195,859			361,048			195,717
		11,299,507		10,379,125			22,395,943		18,335,441			10,798,857			11,096,436
Interest Expense
Deposits		2,799,220		1,719,614			5,405,440		3,142,184			2,494,302			2,606,220
FHLB advances		288,710		405,817			645,286		739,344			273,596			356,576
Subordinated debentures		296,771		277,594			588,123		446,561			195,772			291,352
Other		64,451		3,833			132,021		3,833			122,855			67,570
		3,449,152		2,406,858			6,770,870		4,331,922			3,086,525			3,321,718
Net Interest Income		7,850,355		7,972,267			15,625,073		14,003,519			7,712,332			7,774,718
Provision for Loan Losses		100,000		500,000			100,000					500,000			-
Net Interest Income After Provision for Loan Losses		7,750,355		7,472,267			15,525,073		13,278,519			7,212,332			7,774,718
Noninterest Income
Service charges		418,938		552,011			820,770		869,177			409,204			401,832
Net gain (loss) on sale of investment securities		78,911		(10,388	)		48,263		(7,205	)
Gain (loss) on sale of investment securities												27,899			(30,648	)
Gain on sale of mortgage loans held for sale		561,932		616,928			987,930		996,485			543,411			425,998
Gain on sale of Small Business Administration loans		247,457		225,379			497,576		396,241			-			250,119
Net gain on foreclosed assets		39,923		76,481			20,866		120,812
Commercial loan referral income												555,490			-
Net loss on foreclosed assets												(6,926	)		(19,057	)
Other income		586,177		493,401			1,122,268		897,341			570,054			536,091
		1,933,338		1,953,812			3,497,673		3,272,851			2,099,132			1,564,335
Noninterest Expense
Salaries and employee benefits		3,952,870		4,101,741			7,912,190		7,275,165			3,949,614			3,959,320
Occupancy		1,106,812		1,037,665			2,240,175		1,808,072			1,151,089			1,133,363
FDIC deposit insurance premiums		118,093		116,837			217,628		195,135			-			99,535
Data processing		420,197		464,360			809,141		766,892			597,614			388,944
Advertising		150,000		134,650			300,000		265,900			122,250			150,000
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			119,250			119,250
Other expense		937,206		955,334			1,913,757		1,747,278			858,812			993,147
		6,826,483		10,222,637			13,670,042		15,698,492			6,798,629			6,843,559
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
Income Before Income Taxes												2,512,835			2,495,494
Provision for Income Taxes												407,990			375,130
Net Income Available to Common Shareholders											$	2,104,845		$	2,120,364

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
Basic Income Per Common Share											$	0.49		$	0.48
Diluted Income Per Common Share											$	0.49		$	0.47

	Three months ended						Six months ended						3/31/2020			3/31/2019
	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
NET INCOME													$	2,104,845		$	2,120,364
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
Change in unrealized gain on investment securities available-for-sale, before income taxes														1,017,554			1,572,967
Change in unrealized loss on interest rate swaps, before income taxes														(3,602,643	)		(1,092,487	)
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			(27,899	)		30,648
Total other items of comprehensive income		(682,137	)		122,167			(171,009	)		86,004			(2,612,988	)		511,128
Income tax expense (benefit) related to other items of comprehensive income		(77,877	)		31,151			52,460			21,930			(627,129	)		130,337
Other comprehensive income (loss)		(604,260	)		91,016			(223,469	)		64,074			(1,985,859	)		380,791
TOTAL COMPREHENSIVE INCOME (LOSS)	$	1,824,239		$	(251,968	)	$	4,325,394		$	1,076,835
TOTAL COMPREHENSIVE INCOME													$	118,986		$	2,501,155

	Common Stock		Additional Paid- In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total			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
Balance, January 1, 2019																		$	690,200	$	51,382,585		$	(36,971,124	)	$	65,829,687		$	(452,756	)	$	80,478,592
Net income		-		-			-			(342,984	)		-			(342,984	)		-		-			-			2,120,364			-			2,120,364
Other comprehensive income		-		-			-			-			91,016			91,016			-		-			-			-			380,791			380,791
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	)		-		-			-			(582,817	)		-			(582,817	)
Stock award plans		-		82,621			3,904			-			-			86,525			-		(53,689	)		222,789			-			-			169,100
Stock options exercised		650		33,250			-			-			-			33,900			1,000		50,900			-			-			-			51,900
Balance, December 31, 2018	$	690,200	$	51,382,585		$	(36,971,124	)	$	65,829,687		$	(452,756	)	$	80,478,592
Balance, March 31, 2019																		$	691,200	$	51,379,796		$	(36,748,335	)	$	67,367,234		$	(71,965	)	$	82,617,930

	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 March 31, 2020
Debt Securities:
U. S. government agencies										$	2,499,762	$	15,578	$	-		$	2,515,340
Municipals	$	27,758,660	$	369,243	$	(15,228	)	$	28,112,675		43,680,501		1,528,568		(161,032	)		45,048,037
Corporates		10,049,914		55,339		(20,013	)		10,085,240		21,655,250		255,018		(369,281	)		21,540,987
Government sponsored mortgage-backed securities and SBA loan pools		56,387,276		645,769		(199,739	)		56,833,306
Mortgage-backed securities - private label											14,239,775		1,638		(680,781	)		13,560,632
Government sponsored asset-backed securities and SBA loan pools											55,850,994		1,631,109		(137,645	)		57,344,458
	$	94,195,850	$	1,070,351	$	(234,980	)	$	95,031,221	$	137,926,282	$	3,431,911	$	(1,348,739	)	$	140,009,454


	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

	June 30, 2019
As of March 31, 2020
	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	$	1,673,061	$	(5,476	)	$	2,797,536	$	(9,752	)	$	4,470,597	$	(15,228	)	$	4,865,016	$	(161,032	)	$	-	$	-	$	4,865,016	$	(161,032	)
Corporates		3,543,333		(20,013	)		-		-			3,543,333		(20,013	)		6,697,422		(369,281	)		-		-		6,697,422		(369,281	)
Government sponsored mortgage-backed securities and SBA loan pools		6,494,083		(36,791	)		11,206,097		(162,948	)		17,700,180		(199,739	)
Mortgage-backed securities - private label																	12,527,985		(680,781	)		-		-		12,527,985		(680,781	)
Government sponsored asset-backed securities and SBA loan pools																	5,956,983		(137,645	)		-		-		5,956,983		(137,645	)
	$	11,710,477	$	(62,280	)	$	14,003,633	$	(172,700	)	$	25,714,110	$	(234,980	)	$	30,047,406	$	(1,348,739	)	$	-	$	-	$	30,047,406	$	(1,348,739	)

	December 31, 2018
As of December 31, 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																$	2,487,795	$	(11,962	)	$	-	$	-		$	2,487,795	$	(11,962	)
Municipals	$	6,324,750	$	(67,774	)	$	23,223,221	$	(642,935	)	$	29,547,971	$	(710,709	)		7,083,208		(125,693	)		-		-			7,083,208		(125,693	)
Corporates																	2,452,005		(14,945	)		-		-			2,452,005		(14,945	)
Mortgage-backed securities - private label																	9,416,669		(29,392	)		-		-			9,416,669		(29,392	)
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	)		18,112,148		(125,906	)		3,018,538		(67,548	)		21,130,686		(193,454	)
	$	13,452,347	$	(180,056	)	$	56,982,249	$	(1,767,913	)	$	70,434,596	$	(1,947,969	)	$	39,551,825	$	(307,898	)	$	3,018,538	$	(67,548	)	$	42,570,363	$	(375,446	)

As of June 30, 2019
As of March 31, 2020
		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:
One to four family units		$	1,451	$	164	$	163	$	1,778	$	123,064	$	124,842	$	-	$	837	$	-	$	660	$	1,497	$	122,891	$	124,388	$	-
Multi-family			5,930		-		-		5,930		82,526		88,456		-		-		-		-		-		82,549		82,549		-
Real estate - construction			4,008		640		-		4,648		95,714		100,362		-		1,825		-		-		1,825		71,289		73,114		-
Real estate - commercial			1,231		304		547		2,082		298,291		300,373		-		1,549		244		359		2,152		298,553		300,705		-
Commercial loans			682		205		-		887		113,100		113,987		-		31		173		214		418		117,763		118,181		-
Consumer and other loans			13		106		50		169		31,261		31,430		-		31		-		216		247		30,614		30,861		-
Total		$	13,315	$	1,419	$	760	$	15,494	$	743,956	$	759,450	$	-	$	4,273	$	417	$	1,449	$	6,139	$	723,659	$	729,798	$	-

As of December 31, 2018
As of December 31, 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:
One to four family units		$	177	$	329	$	2,164	$	2,670	$	129,741	$	132,411	$	-	$	83	$	437	$	125	$	645	$	118,179	$	118,824	$	-
Multi-family			5,952		-		-		5,952		84,596		90,548		-		-		-		-		-		87,448		87,448		-
Real estate - construction			-		-		-		-		88,554		88,554		-		338		-		-		338		76,971		77,309		-
Real estate - commercial			1,000		81		-		1,081		321,840		322,921		-		-		-		43		43		300,576		300,619		-
Commercial loans			228		433		71		732		118,638		119,370		-		134		105		17		256		113,792		114,048		-
Consumer and other loans			107		12		-		119		32,972		33,091		-		48		26		-		74		30,592		30,666		-
Total		$	7,464	$	855	$	2,235	$	10,554	$	776,341	$	786,895	$	-	$	603	$	568	$	185	$	1,356	$	727,558	$	728,914	$	-

Three months ended June 30, 2019	Construction		Commercial Real Estate		One to four family			Multi-family			Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Three months ended March 31, 2020																							Construction			Commercial Real Estate		One to four family		Multi-family		Commercial			Consumer and Other			Unallocated			Total
Allowance for loan losses:																							(In Thousands)
Balance, beginning of period	$	1,936	$	2,137	$	1,386		$	694		$	974		$	368		$	352		$	7,847		$	1,749		$	2,267	$	1,001	$	746	$	1,129		$	443		$	273		$	7,608
Provision charged to expense		212		31		(168	)		(21	)		262			76			(292	)	$	100			(120	)		304		152		9		237			55			(137	)	$	500
Losses charged off		-		-		(271	)		-			(41	)		(61	)		-		$	(373	)		-			-		-		-		(32	)		(62	)		-		$	(94	)
Recoveries		21		20		1			-			41			14			-		$	97			-			6		1		-		15			13			-		$	35
Balance, end of period	$	2,169	$	2,188	$	948		$	673		$	1,236		$	397		$	60		$	7,671		$	1,629		$	2,577	$	1,154	$	755	$	1,349		$	449		$	136		$	8,049

Six months ended June 30, 2019	Construction			Commercial Real Estate		One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Three months ended March 31, 2019																							Construction			Commercial Real Estate		One to four family		Multi-family		Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:																							(In Thousands)
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			(490	)		43		85		53		39			44			226	$	-
Losses charged off		-			-		(271	)		-		(275	)		(115	)		-		$	(661	)		-			-		-		-		(234	)		(54	)		-	$	(288	)
Recoveries		141			20		3			-		50			22			-		$	236			120			1		4		-		9			5			-	$	139
Balance, end of period	$	2,169		$	2,188	$	948		$	673	$	1,236		$	397		$	60		$	7,671		$	1,936		$	2,137	$	1,386	$	694	$	974		$	368		$	352	$	7,847

Three months ended June 30, 2018	Construction		Commercial Real Estate			One to four family		Multi-family		Commercial		Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	2,223	$	1,876		$	1,113	$	487	$	958	$	291		$	155		$	7,103
Provision charged to expense		248		(90	)		123		66		122		126			(95	)	$	500
Losses charged off		-		-			-		-		-		(59	)		-		$	(59	)
Recoveries		13		1			1		-		5		9			-		$	29
Balance, end of period	$	2,484	$	1,787		$	1,237	$	553	$	1,085	$	367		$	60		$	7,573

Six months ended June 30, 2018	Construction		Commercial Real Estate			One to four family		Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of period	$	2,244	$	1,789		$	946	$	464	$	1,031		$	454		$	179		$	7,107
Provision charged to expense		208		(3	)		290		89		142			118			(119	)	$	725
Losses charged off		-		-			-		-		(96	)		(226	)		-		$	(322	)
Recoveries		32		1			1		-		8			21			-		$	63
Balance, end of period	$	2,484	$	1,787		$	1,237	$	553	$	1,085		$	367		$	60		$	7,573

		For the Six Months Ended				For the Six Months Ended				For the Three Months Ended				For the Three Months Ended
		June 30, 2019				June 30, 2018				March 31, 2020				March 31, 2019
		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	$	-	$	1,091	$	-	$	1,079	$	1
Multi-family			5,934		-		509		-		-		-		5,938		-
Real estate - construction			-		-		2,287		-		-		-		-		-
Real estate - commercial			3,440		4		2,326		46		2,765		-		3,472		4
Commercial loans			223		-		916		-		19		-		232		-
Consumer and other loans			229		-		9		-		99		2		216		-
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	$	-	$	1,173	$	-	$	3,011	$	-
Multi-family			-		-		-		-		-		-		-		-
Real estate - construction			3,876		-		2,055		-		3,939		-		3,805		-
Real estate - commercial			717		-		27		-		281		-		726		-
Commercial loans			659		-		403		-		904		-		667		-
Consumer and other loans			106		-		132		-		169		-		120		-
Total
Real estate - residential mortgage:
One to four family units		$	3,463	$	1	$	4,314	$	-	$	2,264	$	-	$	4,090	$	1
Multi-family			5,934		-		509		-		-		-		5,938		-
Real estate - construction			3,876		-		4,342		-		3,939		-		3,805		-
Real estate - commercial			4,157		4		2,353		46		3,046		-		4,198		4
Commercial loans			882		-		1,319		-		923		-		899		-
Consumer and other loans			335		-		141		-		268		2		336		-
Total		$	18,647	$	5	$	12,978	$	46	$	10,440	$	2	$	19,266	$	5

GUARANTY FEDERAL BANCSHARES, INC.


TABLE OF CONTENTS

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

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

Balance outstanding as of January 1, 2019		12,500			5,000		$	5.14
Granted		-			-			-
Exercised		(7,500	)		(2,500	)		5.19
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

Performance Stock Units	Performance Stock Units		Weighted Average Grant-Date Fair Value
Restricted 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
Balance of shares non-vested as of January 1, 2020						-	$	-
Granted		-		-		43,700		15.62
Vested		-		-		-		-
Forfeited		-		-		-		-
Balance of shares non-vested as of June 30, 2019		47,322	$	20.48
Balance of shares non-vested as of March 31, 2020						43,700	$	15.62

	For three months ended June 30, 2019						For six months ended June 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
Basic Income Per Common Share	$	2,428,499		4,452,798	$	0.55	$	4,548,863		4,445,750	$	1.02
Effect of Dilutive Securities				51,166						55,631
Diluted Income Per Common Share	$	2,428,499		4,503,964	$	0.54	$	4,548,863		4,501,381	$	1.01

	For three months ended June 30, 2018								For six months ended June 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
Basic Income Per Common Share	$	(342,984	)		4,404,029	$	(0.08	)	$	1,012,761		4,397,907	$	0.23
Effect of Dilutive Securities					N/A							71,513
Diluted Income Per Common Share	$	(342,984	)		4,404,029	$	(0.08	)	$	1,012,761		4,469,420	$	0.23

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

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

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

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

	Fair Value June 30, 2019		Valuation Technique	Unobservable Input	Range (Weighted Average)				Fair Value March 31, 2020		Valuation Technique	Unobservable Input	Range (Weighted Average)

Impaired loans (collateral dependent)	$	15,654	Market Comparable	Discount to reflect realizable value	0%	-	91%	(5%)	$	2,401	Market Comparable	Discount to reflect realizable value	0%	-	100%	(15%)

Foreclosed assets held for sale	$	-	Market Comparable	Discount to reflect realizable value		N/A			$	150	Market Comparable	Discount to reflect realizable value	35%	-	35%	(35%)

	June 30, 2019						March 31, 2020
	Carrying Amount		Fair Value		Hierarchy Level		Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	53,025,771	$	53,025,771		1	$	84,343,930	$	84,343,930	1
Interest-bearing time deposits at other financial institutions		250,000		250,215		2		3,534,996		3,535,959	2
Federal Home Loan Bank stock		3,157,500		3,157,500		2		3,212,100		3,212,100	2
Mortgage loans held for sale		1,914,419		1,914,419		2		1,980,896		1,980,896	2
Loans, net		751,190,822		763,285,223		3		721,062,691		722,567,482	3
Interest receivable		3,528,976		3,528,976		2		3,533,856		3,533,856	2

Financial liabilities:
Deposits		802,477,539		802,574,177		2		849,535,941		851,761,814	2
Federal Home Loan Bank advances		50,000,000		50,009,611		2		50,000,000		49,958,347	2
Subordinated debentures		21,716,897		21,716,897		3		15,465,000		15,465,000	3
Note payable to Bank		5,000,000		5,000,000		3
Note payable to bank								11,200,000		11,200,000	3
Interest payable		967,815		967,815		2		799,338		799,338	2

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

Collateral Type	# Loans Modified	$ of Loans Modified		Interest Only 3 Months or Less		Interest Only 4-6 Months		Full Payment Deferral 3 Months		Full Payment Deferral 3 Months + Interest Only 3 Months		Full Payment Deferral 4-6 Months		Other
Hotel/Motel	25	$	49,653,201	$	-	$	843,262	$	26,053,514	$	22,144,206	$	612,220	$	-
Multifamily	23		23,199,874		3,013,500		654,387		2,684,713		-		16,847,274		-
Theatre	6		19,901,432		-		-		-		19,901,432		-		-
1-4 Family Investment	63		19,082,918		768,486		8,580,431		6,296,429		3,156,914		-		280,659
Retail (C&I & RE)	21		18,918,204		110,497		18,183,950		-		623,757		-		-
Office	10		15,581,154		1,869,960		2,694,266		429,008		10,587,921		-		-
Warehouse	9		10,211,140		-		8,750,457		-		1,460,683		-		-
Automotive/Transportation	17		9,686,218		-		2,559,438		6,839,540		287,241		-		-
Restaurant	15		5,749,749		-		3,733,156		247,720		1,768,873		-		-
Stock	1		4,742,000		-		-		-		4,742,000		-		-
Land & Land Development	6		2,460,186		-		648,430		-		1,811,756		-		-
Religious Organizations	3		2,180,584		144,956		1,880,000		-				-		155,627
Other	28		7,022,148		1,169,037		2,730,986		1,147,648		1,290,470		-		684,006
Total	227	$	188,388,809	$	7,076,436	$	51,258,763	$	43,698,572	$	67,775,252	$	17,459,494	$	1,120,293

		Three months ended 6/30/2019								Three months ended 6/30/2018									Three months ended 3/31/2020								Three months ended 3/31/2019
		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	%		$	733,591	$	9,553			5.24	%	$	779,764	$	10,303			5.36	%
Investment securities			96,422		681			2.83	%		88,755		493			2.23	%			125,851		885			2.83	%		90,061		598			2.69	%
Other assets			37,253		224			2.41	%		16,725		67			1.61	%			96,515		361			1.50	%		30,906		196			2.57	%
Total interest-earning			901,851		11,300			5.03	%		902,514		10,379			4.61	%			955,957		10,799			4.54	%		900,731		11,097			5.00	%
Noninterest-earning			68,080								64,965									71,533								59,405
		$	969,931							$	967,479								$	1,027,490							$	960,136

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY																	LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing:
Savings accounts		$	40,598		32			0.32	%	$	43,012		26			0.24	%		$	39,704		26			0.26	%	$	39,897	$	30			0.30	%
Transaction accounts			417,536		1,551			1.49	%		425,153		1,126			1.06	%			503,138		1,378			1.10	%		410,061		1,475			1.46	%
Certificates of deposit			234,515		1,216			2.08	%		211,246		568			1.08	%			199,349		1,090			2.20	%		239,248		1,101			1.87	%
FHLB advances			51,677		289			2.24	%		77,991		406			2.09	%			51,482		274			2.14	%		60,204		357			2.40	%
Subordinated debentures																				15,465		196			5.10	%		21,753		291			5.43	%
Other borrowed funds			5,000		64			5.13	%		1,109		4			0.00	%			11,491		123			4.31	%		5,000		68			5.52	%
Subordinated debentures			21,731		297			5.48	%		21,651		277			5.13	%
Total interest-bearing			771,057		3,449			1.79	%		780,162		2,407			1.24	%			820,629		3,087			1.51	%		776,163		3,322			1.74	%
Noninterest-bearing			115,033								94,344									120,825								101,813
Total liabilities			886,090								874,506									941,454								877,976
Stockholders’ equity			83,841								92,973									86,036								82,160
		$	969,931							$	967,479								$	1,027,490							$	960,136
Net earning balance		$	130,794							$	122,352								$	135,328							$	124,568
Earning yield less costing rate								3.24	%							3.38	%								3.03	%							3.26	%
Net interest income, and net yield spread on interest earning assets				$	7,851			3.49	%			$	7,972			3.54	%				$	7,712			3.24	%			$	7,775			3.50	%
Ratio of interest-earning assets to interest-bearing liabilities					117	%							116	%								116	%							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	%

	6/30/2019			12/31/2018			12/31/2017			3/31/2020			12/31/2019			12/31/2018
Nonperforming loans	$	11,076		$	13,082		$	9,961		$	11,143		$	10,003		$	13,082
Real estate acquired in settlement of loans		1,399			1,127			283			869			992			1,127
Total nonperforming assets	$	12,475		$	14,209		$	10,244		$	12,012		$	10,995		$	14,209

Total nonperforming assets as a percentage of total assets		1.28	%		1.47	%		1.29	%		1.17	%		1.09	%		1.47	%
Allowance for loan losses	$	7,671		$	7,996		$	7,107		$	8,049		$	7,608		$	7,996
Allowance for loan losses as a percentage of gross loans		1.01	%		1.02	%		1.12	%		1.10	%		1.04	%		1.02	%

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	$	103,237	$	23,506			30	%		10.37	%		2.51	%
+100		113,914		10,336			10	%		11.88	%		1.16	%		958,880		93,292		13,561			17	%		9.28	%		1.41	%
NC		103,578		-			0	%		10.72	%		0.00	%		966,283		79,731		-			0	%		7.87	%		0.00	%
-100		86,968		(16,610	)		-16	%		8.95	%		-1.77	%		971,679		76,870		(2,861	)		-4	%		7.53	%		-0.34	%
-200		73,168		(30,410	)		-29	%		7.50	%		-3.22	%		975,339		89,838		10,107			13	%		8.75	%		0.89	%

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
January 1, 2020 - January 31, 2020	-	-	-	2,307
February 1, 2020 - February 29, 2020	2,307	24.06	2,307	-
March 1, 2020 - March 31, 2020	14,409	23.23	14,409	235,591

Signature and Title	Date

/s/ Shaun A. Burke	~~August~~May 98, 201209
Shaun A. Burke
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)



/s/ Carter M. Peters	~~August~~May 98, 201920
Carter M. Peters
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)