Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 3 1 , 20 1 9

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

For the transition period from _______ to _______

Commission file number 0-23325

Guaranty Federal Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Delaware	43-1792717
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
2144 E Republic Rd, Suite F200
Springfield, Missouri	6580 4
(Address of principal executive offices)	(Zip Code)

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

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]

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 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 April 30 , 20 1 9
Common Stock, Par Value $0.10 per share	4,483,206 Shares

GUARANTY FEDERAL BANCSHARES, INC.

TABLE OF CONTENTS

		Page
PART I. F INANCIAL I NFORMATION

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3. Quantitative and Qualitative Disclosures about Market Risk		35

Item 4. Controls and Procedures		35

PART II. O THER I NFORMATION

Item 1. Legal Proceedings		36

Item 1A. Risk factors		36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36

Item 3. Defaults Upon Senior Securities		36

Item 4. Mine Safety Disclosures		36

Item 5. Other Information		36

Item 6. Exhibits		36

Signatures		37

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018

	3/31/19			12/31/18
ASSETS
Cash and due from banks	$	4,540,953		$	5,818,955
Interest-bearing deposits in other financial institutions		38,508,308			28,302,687
Cash and cash equivalents		43,049,261			34,121,642
Interest-bearing time deposits at other financial institutions		250,000			250,000
Available-for-sale securities		98,793,658			86,266,197
Stock in Federal Home Loan Bank, at cost		3,241,500			5,387,200
Mortgage loans held for sale		2,847,255			1,516,849
Loans receivable, net of allowance for loan losses of March 31, 2019 - $7,846,622 - December 31, 2018 - $7,995,569		760,545,644			778,298,606
Accrued interest receivable		3,773,210			3,390,944
Prepaid expenses and other assets		10,289,237			6,261,159
Goodwill		1,434,982			1,434,982
Core deposit intangible		2,861,660			2,980,910
Foreclosed assets held for sale		1,179,536			1,126,963
Premises and equipment, net		19,778,454			20,095,161
Operating lease right-of-use asset		9,473,587			-
Bank owned life insurance		20,309,260			20,198,074
Deferred and income taxes receivable		3,641,600			3,809,183
	$	981,468,844		$	965,137,870
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	806,831,336		$	749,618,822
Federal Home Loan Bank advances		52,100,000			105,300,000
Subordinated debentures		21,738,863			21,760,829
Note payable to bank		5,000,000			5,000,000
Advances from borrowers for taxes and insurance		421,826			289,808
Accrued expenses and other liabilities		2,318,551			1,868,008
Operating lease liability		9,490,385			-
Accrued interest payable		949,953			821,811
		898,850,914			884,659,278
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' EQUITY
Capital Stock:
Common stock, $0.10 par value; authorized 10,000,000 shares; issued March 31, 2019 and December 31, 2018 - 6,912,003 and 6,902,003 shares; respectively		691,200			690,200
Additional paid-in capital		51,379,796			51,382,585
Retained earnings, substantially restricted		67,367,234			65,829,687
Accumulated other comprehensive loss		(71,965	)		(452,756	)
		119,366,265			117,449,716
Treasury stock, at cost; March 31, 2019 and December 31, 2018 - 2,428,797 and 2,443,522 shares, respectively		(36,748,335	)		(36,971,124	)
		82,617,930			80,478,592
	$	981,468,844		$	965,137,870

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED)

	3/31/2019			3/31/2018
Interest Income
Loans	$	10,303,185		$	7,378,575
Investment securities		597,534			449,369
Other		195,717			128,372
		11,096,436			7,956,316
Interest Expense
Deposits		2,606,220			1,422,570
FHLB advances		356,576			333,527
Subordinated debentures		291,352			168,967
Other		67,570			-
		3,321,718			1,925,064
Net Interest Income		7,774,718			6,031,252
Provision for Loan Losses		-			225,000
Net Interest Income After Provision for Loan Losses		7,774,718			5,806,252
Noninterest Income
Service charges		401,832			317,166
Gain (loss) on sale of investment securities		(30,648	)		3,183
Gain on sale of mortgage loans held for sale		425,998			379,557
Gain on sale of Small Business Administration loans		250,119			170,862
Net gain (loss) on foreclosed assets		(19,057	)		44,331
Other income		536,091			403,940
		1,564,335			1,319,039
Noninterest Expense
Salaries and employee benefits		3,959,320			3,173,424
Occupancy		1,133,363			770,407
FDIC deposit insurance premiums		99,535			78,298
Data processing		388,944			302,532
Advertising		150,000			131,250
Merger costs		16,596			228,000
Amortization of core deposit intangible		119,250			-
Other expense		976,551			791,944
		6,843,559			5,475,855
Income Before Income Taxes		2,495,494			1,649,436
Provision for Income Taxes		375,130			293,691
Net Income Available to Common Shareholders	$	2,120,364		$	1,355,745

Basic Income Per Common Share	$	0.48		$	0.31
Diluted Income Per Common Share	$	0.47		$	0.30

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED)

	3/31/2019			3/31/2018
NET INCOME	$	2,120,364		$	1,355,745
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain (loss) on investment securities available-for-sale, before income taxes		1,572,967			(1,298,792	)
Change in unrealized gain (loss) on interest rate swaps, before income taxes		(1,092,487	)		1,265,812
Less: Reclassification adjustment for realized (gains) losses on investment securities included in net income, before income taxes		30,648			(3,183	)
Total other items of comprehensive income		511,128			(36,163	)
Income tax expense (benefit) related to other items of comprehensive income		130,337			(9,221	)
Other comprehensive income (loss)		380,791			(26,942	)
TOTAL COMPREHENSIVE INCOME	$	2,501,155		$	1,328,803

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

TWELVE MONTHS ENDED DECEMBER 31, 2018

	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 income (loss)		-		-			-			-			(26,942	)		(26,942	)
Dividends on common stock ($0.12 per share)		-		-			-			(532,771	)		-			(532,771	)
Stock award plans		-		(35,357	)		158,592			-			-			123,235
Stock options exercised		450		23,330			-			-			-			23,780
Balance, March 31, 2018		688,300		50,844,042			(36,966,949	)		61,502,282			(233,135	)		75,834,540
Net income		-		-			-			(342,984	)		-			(342,984	)
Other comprehensive income (loss)		-		-			-			-			91,016			91,016
Dividends on common stock ($0.12 per share)		-		-			-			(534,272	)		-			(534,272	)
Stock award plans		-		161,235			-			-			-			161,235
Stock options exercised		750		37,900			-			-			-			38,650
Balance, June 30, 2018		689,050		51,043,177			(36,966,949	)		60,625,026			(142,119	)		75,248,185
Net income		-		-			-			3,934,242			-			3,934,242
Other comprehensive income (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 income (loss)		-		-			-			-			(61,146	)		(61,146	)
Dividends on common stock ($0.13 per share)		-		-			-			(580,250	)		-			(580,250	)
Stock award plans		-		82,621			3,904			-			-			86,525
Stock options exercised		650		33,250			-			-			-			33,900
Balance, December 31, 2018	$	690,200	$	51,382,585		$	(36,971,124	)	$	65,829,687		$	(452,756	)	$	80,478,592

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

THREE MONTHS ENDED MARCH 31, 2019 (UNAUDITED)

	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

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED)

	3/31/2019			3/31/2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,120,364		$	1,355,745
Items not requiring (providing) cash:
Deferred income taxes		116,506			(26,484	)
Depreciation		476,440			331,330
Lease amortization		16,798			-
Provision for loan losses		-			225,000
Gain on sale of Small Business Administration loans		(250,119	)		(170,862	)
Gain on sale of mortgage loans held for sale and investment securities		(395,350	)		(382,740	)
Gain on sale of foreclosed assets		(6,043	)		(54,910	)
Gain on sale of premises and equipment		(6,069	)		-
Amortization of deferred income, premiums and discounts		63,406			113,284
Stock award plan expense		169,100			123,235
Accretion of purchase accounting adjustments		(306,892	)		-
Origination of loans held for sale		(15,877,396	)		(13,144,364	)
Proceeds from sale of loans held for sale		14,972,988			14,664,665
Increase in cash surrender value of bank owned life insurance		(111,186	)		(112,015	)
Changes in:
Accrued interest receivable		(382,266	)		(76,120	)
Prepaid expenses and other assets		(1,262,913	)		36,306
Accounts payable and accrued expenses		(113,096	)		(414,507	)
Income taxes receivable/payable		(79,260	)		141,574
Net cash provided by (used in) operating activities		(854,988	)		2,609,137
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		18,198,692			(8,457,089	)
Principal payments on available-for-sale securities		1,433,177			1,360,549
Principal payments on held-to-maturity securities		736			1,360
Purchase of premises and equipment		(153,664	)		(1,672,352	)
Purchase of available-for-sale securities		(17,536,729	)		(3,777,647	)
Proceeds from sale of available-for-sale securities		5,057,584			565,935
Redemption of FHLB stock		2,145,700			413,900
Purchase of tax credit investments		(3,168,435	)		-
Proceeds from sale of foreclosed assets held for sale		158,230			54,910
Net cash provided by (used in) investing activities		6,135,291			(11,510,434	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid		(580,253	)		(530,973	)
Net increase in demand deposits, NOW accounts and savings accounts		48,453,425			19,272,583
Net increase in certificates of deposit		8,790,226			6,361,616
Proceeds from FHLB advances		35,045,000			166,250,000
Repayments of FHLB advances		(88,245,000	)		(179,950,000	)
Advances from borrowers for taxes and insurance		132,018			101,228
Stock options exercised		51,900			23,780
Net cash provided by financing activities		3,647,316			11,528,234
INCREASE IN CASH AND CASH EQUIVALENTS		8,927,619			2,626,937
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		34,121,642			37,406,930
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	43,049,261		$	40,033,867

See Notes to Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Guaranty Federal Bancshares, Inc.’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”). The results of operations for the periods are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet of the Company as of December 31, 2018, has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted.

Note 2: Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Guaranty Bank (the “Bank”). All significant intercompany transactions and balances have been eliminated in consolidation.

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 and the Company believes it will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

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

Guaranty Federal Bancshares, Inc.

Net Assets Acquired from Hometown

April 2, 2018

(In 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.

Note 4: Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of March 31, 2019
Debt Securities:
Municipals	$	32,455,849	$	258,959	$	(135,409	)	$	32,579,399
Corporates		6,060,195		13,206		(37,024	)		6,036,377
Government sponsored mortgage-backed securities and SBA loan pools		60,510,461		279,759		(612,338	)		60,177,882
	$	99,026,505	$	551,924	$	(784,771	)	$	98,793,658

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

Maturities of available-for-sale debt securities as of March 31, 2019:

	Amortized Cost		Approximate Fair Value
1-5 years	$	663,395	$	672,379
6-10 years		14,507,941		14,477,818
After 10 years		23,344,708		23,465,579
Government sponsored mortgage-backed securities and SBA loan pools not due on a single maturity date		60,510,461		60,177,882
	$	99,026,505	$	98,793,658

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $23,927,743 and $24,943,176 as of March 31, 2019 and December 31, 2018, respectively. The approximate fair value of pledged securities amounted to $23,863,938 and $24,374,187 as of March 31, 2019 and December 31, 2018, respectively.

Realized gains and losses are recorded as net securities gains. Gains and losses on sales of securities are determined on the specific identification method. Gross gains of $7,382 and $3,183 and gross losses of $38,030 and $0 as of March 31, 2019 and March 31, 2018, respectively, were realized from the sale of available-for-sale securities. The tax effect of these net gains and losses was ($7,662) and $700 as of March 31, 2019 and March 31, 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 March 31, 2019 and December 31, 2018, was $53,767,360 and $70,434,596, respectively, which is approximately 54% and 82% of the Company’s investment portfolio.

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

	March 31, 2019
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Municipals	$	-	$	-		$	13,015,347	$	(135,409	)	$	13,015,347	$	(135,409	)
Corporates		4,023,171		(37,024	)		-		-			4,023,171		(37,024	)
Government sponsored mortgage-backed securities and SBA loan pools		4,290,134		(24,978	)		32,438,708		(587,360	)		36,728,842		(612,338	)
	$	8,313,305	$	(62,002	)	$	45,454,055	$	(722,769	)	$	53,767,360	$	(784,771	)

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

Municipals	$	6,324,750	$	(67,774	)	$	23,223,221	$	(642,935	)	$	29,547,971	$	(710,709	)
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	)
	$	13,452,347	$	(180,056	)	$	56,982,249	$	(1,767,913	)	$	70,434,596	$	(1,947,969	)

Note 5: Loans and Allowance for Loan Losses

Categories of loans at March 31, 2019 and December 31, 2018 include:

	March 31,			December 31,
	2019			2018
Real estate - residential mortgage:
One to four family units	$	127,332,191		$	132,410,810
Multi-family		92,045,496			90,548,265
Real estate - construction		89,605,230			88,553,995
Real estate - commercial		310,375,931			322,921,323
Commercial loans		118,295,271			119,369,484
Consumer and other loans		31,311,534			33,091,017
Total loans		768,965,653			786,894,894
Less:
Allowance for loan losses		(7,846,622	)		(7,995,569	)
Deferred loan fees/costs, net		(573,387	)		(600,719	)
Net loans	$	760,545,644		$	778,298,606

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

As of March 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
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	82	$	27	$	1,993	$	2,102	$	125,230	$	127,332	$	-
Multi-family		5,930		-		-		5,930		86,116		92,046		-
Real estate - construction		89		70		-		159		89,446		89,605		-
Real estate - commercial		852		419		547		1,818		308,558		310,376		-
Commercial loans		898		1		-		899		117,396		118,295		-
Consumer and other loans		47		71		-		118		31,194		31,312		-
Total	$	7,898	$	588	$	2,540	$	11,026	$	757,940	$	768,966	$	-

As of December 31, 2018
	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)
Real estate - residential mortgage:
One to four family units	$	177	$	329	$	2,164	$	2,670	$	129,741	$	132,411	$	-
Multi-family		5,952		-		-		5,952		84,596		90,548		-
Real estate - construction		-		-		-		-		88,554		88,554		-
Real estate - commercial		1,000		81		-		1,081		321,840		322,921		-
Commercial loans		228		433		71		732		118,638		119,370		-
Consumer and other loans		107		12		-		119		32,972		33,091		-
Total	$	7,464	$	855	$	2,235	$	10,554	$	776,341	$	786,895	$	-

Nonaccruing loans are summarized as follows:

	March 31,		December 31,
	2019		2018
Real estate - residential mortgage:
One to four family units	$	6,597,376	$	4,136,342
Multi-family		-		-
Real estate - construction		2,381,737		4,088,409
Real estate - commercial		2,559,091		3,592,476
Commercial loans		585,823		1,262,910
Consumer and other loans		216,549		1,542
Total	$	12,340,576	$	13,081,679

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

March 31, 2019	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	$	2,306		$	2,093	$	1,297	$	641	$	1,160		$	373		$	126	$	7,996
Provision charged to expense		(490	)		43		85		53		39			44			226	$	-
Losses charged off		-			-		-		-		(234	)		(54	)		-	$	(288	)
Recoveries		120			1		4		-		9			5			-	$	139
Balance, end of period	$	1,936		$	2,137	$	1,386	$	694	$	974		$	368		$	352	$	7,847

March 31, 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		(40	)		87		167		23		20			(8	)		(24	)	$	225
Losses charged off		-			-		-		-		(96	)		(168	)		-		$	(264	)
Recoveries		19			-		-		-		3			13			-		$	35
Balance, end of period	$	2,223		$	1,876	$	1,113	$	487	$	958		$	291		$	155		$	7,103

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

March 31, 2019	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	552	$	107	$	630	$	-	$	180	$	14	$	-	$	1,483
Ending balance: collectively evaluated for impairment	$	1,384	$	2,030	$	756	$	694	$	794	$	354	$	352	$	6,364
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans:
Ending balance: individually evaluated for impairment	$	4,005	$	1,271	$	4,121	$	5,930	$	529	$	143	$	-	$	15,999
Ending balance: collectively evaluated for impairment	$	85,600	$	309,105	$	123,211	$	86,116	$	117,766	$	31,169	$	-	$	752,967
Ending balance: loans acquired with deteriorated credit quality	$	-	$	2,735	$	-	$	-	$	201	$	162	$	-	$	3,098

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

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 March 31, 2019 and December 31, 2018:

	March 31, 2019						December 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,382	$	1,382	$	-	$	2	$	2	$	-
Multi-family		5,930		5,930		-		5,952		5,952		-
Real estate - construction		-		-		-		-		-		-
Real estate - commercial		3,297		3,297		-		3,138		3,138		-
Commercial loans		216		216		-		216		216		-
Consumer and other loans		212		212		-		225		225		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	2,740	$	2,740	$	630	$	4,518	$	4,518	$	573
Multi-family		-		-		-		-		-		-
Real estate - construction		4,004		5,237		552		4,088		5,321		552
Real estate - commercial		708		708		107		1,232		1,317		106
Commercial loans		515		515		180		1,062		1,062		363
Consumer and other loans		93		93		15		119		119		18
Total
Real estate - residential mortgage:
One to four family units	$	4,122	$	4,122	$	630	$	4,520	$	4,520	$	573
Multi-family		5,930		5,930		-		5,952		5,952		-
Real estate - construction		4,004		5,237		552		4,088		5,321		552
Real estate - commercial		4,005		4,005		107		4,370		4,455		106
Commercial loans		731		731		180		1,278		1,278		363
Consumer and other loans		305		305		15		344		344		18
Total	$	19,097	$	20,330	$	1,484	$	20,552	$	21,870	$	1,612

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

	For the Three Months Ended				For the Three Months Ended
	March 31, 2019				March 31, 2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,079	$	1	$	2,688	$	-
Multi-family		5,938		-		765		5
Real estate - construction		-		-		2,775		-
Real estate - commercial		3,472		4		161		-
Commercial loans		232		-		349		-
Consumer and other loans		216		-		2		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	3,011	$	-	$	1,607	$	-
Multi-family		-		-		-		-
Real estate - construction		3,805		-		1,612		-
Real estate - commercial		726		-		-		-
Commercial loans		667		-		323		-
Consumer and other loans		120		-		181		-
Total
Real estate - residential mortgage:
One to four family units	$	4,090	$	1	$	4,295	$	-
Multi-family		5,938		-		765		5
Real estate - construction		3,805		-		4,387		-
Real estate - commercial		4,198		4		161		-
Commercial loans		899		-		672		-
Consumer and other loans		336		-		183		-
Total	$	19,266	$	5	$	10,463	$	5

At March 31, 2019, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (“TDR”). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

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

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

The following table presents the carrying balance of TDRs as of March 31, 2019 and December 31, 2018:

	March 31, 2019		December 31, 2018
Real estate - residential mortgage:
One to four family units	$	1,195,262	$	1,208,596
Multi-family		-		-
Real estate - construction		4,004,409		4,088,409
Real estate - commercial		5,458,192		5,508,444
Commercial loans		472,627		504,481
Consumer and other loans		-		-
Total	$	11,130,490	$	11,309,930

The Bank has allocated $888,761 and $901,086 of specific reserves to customers whose loan terms have been modified in TDR as of March 31, 2019 and December 31, 2018, respectively.

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ending March 31, 2019 and 2018. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

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

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

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

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

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

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

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

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

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

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

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

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

March 31, 2019	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	85,512	$	297,890	$	122,150	$	86,116	$	112,875	$	30,149	$	734,692
Special Mention		-		5,405		363		-		3,889		798		10,455
Substandard		4,093		7,081		4,819		5,930		1,531		365		23,819
Doubtful		-		-		-		-		-		-		-
Total	$	89,605	$	310,376	$	127,332	$	92,046	$	118,295	$	31,312	$	768,966

December 31, 2018	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	84,375	$	310,486	$	126,586	$	84,596	$	114,525	$	32,686	$	753,254
Special Mention		-		5,524		372		-		3,031		-		8,927
Substandard		4,179		6,911		5,453		5,952		1,814		405		24,714
Doubtful		-		-		-		-		-		-		-
Total	$	88,554	$	322,921	$	132,411	$	90,548	$	119,370	$	33,091	$	786,895

The above amounts include purchased credit impaired loans. At March 31, 2019, purchased credit impaired loans comprised of $3.1 million were rated “Substandard”.

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

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

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

Note 6: Accounting for Certain Loans Acquired

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

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

The carrying amount of purchased credit impaired loans are included in the balance sheet amounts of loans receivable at March 31, 2019. The amount of these loans is shown below:

	March 31,		December 31,
	2019		2018
	(In Thousands)		(In Thousands)
Real estate - commercial	$	3,278	$	3,358
Commercial loans		277		296
Consumer and other loans		318		329
Outstanding balance	$	3,873	$	3,983
Carrying amount, net of fair value adjustment of $775 at March 31, 2019 and $810 at December 31, 2018	$	3,098	$	3,173

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

	Three months ended
	March 31,
	2019
	(In Thousands)
Balance at beginning of period	$	265
Additions		-
Accretion		(35	)
Reclassification from nonaccretable difference		-
Disposals		-
Balance at end of period	$	230

During the three months ended March 31, 2019, the Company did not increase or reverse the allowance for loan losses related to these purchased credit impaired loans.

Note 7: Goodwill and Other Intangible Assets

The Company recorded $1.4 million of goodwill as a result of its 2018 Hometown acquisition and the goodwill is not deductible for tax purposes. Goodwill impairment was neither indicated nor recorded during the three months ended March 31, 2019.

Goodwill is tested annually, or more often if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill totaled $1.4 million at March 31, 2019.

Core deposit premiums are amortized over a seven year period and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiums of $3.5 million were recorded during the second quarter of 2018 as part of the Hometown acquisition.

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

	March 31,			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		(658	)		(539	)
Core deposit intangible, net		2,862			2,981
Remaining balance	$	4,297		$	4,416

The Company’s estimated remaining amortization expense on intangibles as of March 31, 2019 is as follows:

		Amortization Expense
		(in Thousands)

Remainder of:	2019	$	358
	2020		477
	2021		477
	2022		477
	2023		477
	Therafter		596
	Total	$	2,862

Note 8: Leases

As discussed in Note 11, on January 1, 2019, the Company adopted ASU 2016-02, “Leases”. As of March 31, 2019, the Company had recorded operating Right of Use (“ROU”) assets of $9,473,587 and corresponding operating ROU liabilities of $9,490,385. Additionally, as of March 31, 2019, the Company had financing ROU assets and liabilities of $453,485. 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 months ended March 31, 2019 and 2018 are as follows:

	March 31,			March 31,
	2019			2018
	(In Thousands)			(In Thousands)
Finance lease cost:
Amortization of right-of-use assets	$	27,645		$	-
Interest on lease liabilities		1,720			-
Operating lease cost		181,718			184,710
Sublease income		(10,300	)		-

Total lease costs	$	200,783		$	184,710

Additional lease information:
Operating cash flows from financing leases	$	-
Operating cash flows from operating leases		16,798
Financing cash flows from financing leases		-
Weighted-average remaining lease term - financing leases (in years)		4.1
Weighted-average remaining lease term - operating leases (in years)		15.7
Weighted-average discount rate - financing leases		2.05	%
Weighted-average discount rate - operating leases		5.50	%

The following table sets forth, as of March 31, 2019, the future minimum lease cash payments and a reconciliation of the undiscounted cash flows to the lease liability:

		Financing			Operating			Total
					(In Thousands)
Remainder of:	2019	$	88		$	787		$	875
	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	$	473		$	14,071		$	14,544
	Present value discount		(20	)		(4,581	)		(4,601	)
	Lease liability	$	453		$	9,490		$	9,943

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

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

Note 9: Benefit Plans

The Company has stock-based employee compensation plans, which are described in the Company’s 2018 Annual Report.

The following tables below summarize transactions under the Company’s equity plans for the three months ended March 31, 2019:

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 March 31, 2019		5,000			2,500		$	5.08
Options exercisable as of March 31, 2019		5,000			2,500		$	5.08

The total intrinsic value of stock options exercised for the three months ended March 31, 2019 and 2018 was $168,225 and $79,130, respectively. The total intrinsic value of outstanding stock options (including exercisable) was $130,200 and $625,260 at March 31, 2019 and 2018, respectively.

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

Balance of shares non-vested as of January 1, 2019		32,349		$	18.93
Granted		15,434			23.85
Vested		(18,966	)		17.49
Forfeited		-			-
Balance of shares non-vested as of March 31, 2019		28,817		$	22.52

In March 2019, the Company granted 5,502 shares of restricted stock to directors pursuant to the 2015 Equity Plan that have a cliff vesting at the end of one year and thus, expensed over that same period. These shares had a grant date market price of $23.85 per share. The total amount of expense for restricted stock grants to directors (including all previous years grants) during the three months ended March 31, 2019 and 2018 was $28,857 and $34,649, respectively.

For the three months ended March 31, 2019 and 2018, the Company granted 9,933 and 6,986 shares, respectively, of restricted stock to officers that have a cliff vesting at the end of three years. The expense is being recognized over the applicable vesting period. The total amount of expense for restricted stock grants to officers (including all previous years grants) during the three months ended March 31, 2019 and 2018 was $49,023 and $53,748, respectively.

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

Balance of shares non-vested as of January 1, 2019		47,322	$	20.48
Granted		-		-
Vested		-		-
Forfeited		-		-
Balance of shares non-vested as of March 31, 2019		47,322	$	20.48

On March 29, 2017, the Company granted restricted stock units representing 55,823 hypothetical shares of common stock to officers. There are three possible levels of incentive awards: threshold (25%); target (50%); and maximum (100%). The restricted stock units vest based on two financial performance factors over the period from March 29, 2017 to December 31, 2019 (the “Performance Period”). The two performance measurements of the Company (and the weight given to each measurement) applicable to each award level are as follows: (i) Total Assets (50%) and (ii) Return on Average Assets (50%). In determining compensation expense, the fair value of the restricted stock unit awards was determined based on the closing price of the Company’s common stock on the date of grant, which was $20.48 per share. The expense is being recognized over the applicable vesting period. Due to the fact that the measurements cannot be determined at the time of the grant, the Company currently estimates that the most likely outcome is the achievement between the target and maximum levels. If during the Performance Period, additional information becomes available to lead the Company to believe a different level will be achieved for the Performance Period, the Company will reassess the number of units that will vest for the grant and adjust its compensation expense accordingly on a prospective basis. The total amount of expense for restricted stock units during the three months ended March 31, 2019 and 2018 was $107,882 and $84,504, respectively.

Total stock-based compensation expense recognized for the three months ended March 31, 2019 and 2018 was $185,762 and $172,901, respectively. As of March 31, 2019, there was $799,001 of unrecognized compensation expense related to nonvested restricted stock awards, which will be recognized over the remaining vesting period.

Note 10: Income Per Common Share

	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

	For three months ended March 31, 2018
	Income Available to Common Stockholders		Weighted Average Common Shares Outstanding		Per Common Share
Basic Income per Common Share	$	1,355,745		4,391,717	$	0.31
Effect of Dilutive Securities				75,069
Diluted Income per Common Share	$	1,355,745		4,466,786	$	0.30

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 is January 1, 2019. The lease term used for the initial operating ROU asset and lease liability will include the initial lease term in addition to one 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 March 31, 2019.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In November 2018, Update 2018-19 Codification Improvements to Topic 326, Financial Instruments – Credit Losses, was released 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, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with later effective dates for non-SEC registrant public companies and other organizations. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has formed a committee that is assessing our data and evaluating the impact of adopting ASU 2016-13. The Company has also selected a third party vendor to assist in generating loan level cash flows and disclosures. The financial impact of adopting this standard is still being evaluated.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the 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 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.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to accounting for hedging activities. In October 2018, ASU 2018-16, provided additional guidance on this Topic. The purpose of this updated guidance is to better align financial reporting for hedging activities with the economic objectives of those activities. The amendments in this update are effective for fiscal years beginning after December 15, 2018. The Company adopted, ASU 2018-16 for the period ending March 31, 2019. The standard requires the modified retrospective transition approach as of the date of adoption. Implementation of this standard did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) are recorded. This standard is effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company elected to early adopt ASU 2018-02 and, as a result, reclassified $31,818 from accumulated other comprehensive income to retained earnings as of December 31, 2017. The reclassification impacted the Consolidated Balance Sheet and the Consolidated Statement of Stockholder’s Equity as of and for the year ended December 31, 2017.

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

Note 12: Derivative Financial Instruments

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

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

In June 2017, the Company entered into a forward start interest rate swap agreement totaling $50 million notional amount to hedge against interest rate risk on FHLB advances. The swap rate paid is 2.12% and is hedged against three-month floating LIBOR with a termination date of February 2025. As a cash flow hedge, the portion of the change in the fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. At March 31, 2019, the Company reported a $309,013 unrealized gain, net of a $105,770 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 that has an inception date of May 2019. 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 March 31, 2019, the Company reported a $175,620 unrealized loss, net of a $60,112 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 March 31, 2019, based on current fair values, the Company pledged cash collateral of $80,000 to its counterparty for the swaps. As of December 31, 2018, based on current fair values, the counterparty had pledged cash collateral of $1.5 million to the Company.

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

				March 31, 2019				December 31, 2018
				Fair Value				Fair Value
	Balance Sheet	Notional		Derivative		Derivative		Derivative		Derivative
Derivatives designated as hedging instruments:	Classifcation	Amount		Assets		Liablities		Assets		Liablities

Interest rate swap - FHLB Advances	Other assets	$	50,000,000	$	414,783	$	-	$	1,271,538	$	-
Interest rate swap - Debentures	Other liabilites	$	10,310,000	$	-	$	235,732	$	-	$	-

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

		Three Months Ended
	Income Statement	March, 31
Derivatives designated as hedging instruments:	Classifcation	2019			2018

Interest rate swap - FHLB Advances	Interest Expense	$	(69,888	)	$	(47,978	)
Interest rate swap - Debentures	Interest Expense	$	-		$	-

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 March 31, 2019 and December 31, 2018 (dollar amounts in thousands):

3/31/2019
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Debt securities:
Municipals	$	-	$	32,580	$	-	$	32,580
Corporates		-		6,036		-		6,036
Government sponsored mortgage-backed securities and SBA loan pools		-		60,178		-		60,178
Available-for-sale securities	$	-	$	98,794	$	-	$	98,794

Interest Rate Swaps	$	-	$	179	$	-	$	179

12/31/2018
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Debt securities:
Municipals	$	-	$	33,770	$	-	$	33,770
Corporates		-		3,019		-		3,019
Government sponsored mortgage-backed securities and SBA loan pools		-		49,477		-		49,477
Available-for-sale securities	$	-	$	86,266	$	-	$	86,266

Interest Rate Swaps	$	-	$	1,272	$	-	$	1,272

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 March 31, 2019 and December 31, 2018 (dollar amounts in thousands):

Impaired loans:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
March 31, 2019	$	-	$	-	$	16,762	$	16,762

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

Foreclosed assets held for sale:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
March 31, 2019	$	-	$	-	$	-	$	-

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

There were no transfers between valuation levels for any asset during the three months ended March 31, 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):

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

Impaired loans (collateral dependent)	$	16,762	Market Comparable	Discount to reflect realizable value	0%	-	52%	(3%)

Foreclosed assets held for sale	$	-	Market Comparable	Discount to reflect realizable value		N/A

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

	March 31, 2019
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	43,049,261	$	43,049,261	1
Federal Home Loan Bank stock		3,241,500		3,241,500	2
Mortgage loans held for sale		2,847,255		2,847,255	2
Loans, net		760,545,644		762,879,550	3
Interest receivable		3,773,210		3,773,210	2
Financial liabilities:
Deposits		806,831,336		805,854,110	2
Federal Home Loan Bank advances		52,100,000		52,122,885	2
Subordinated debentures		21,738,863		21,738,863	3
Note payable to Bank		5,000,000		5,000,000	3
Interest payable		949,953		949,953	2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-	-
Unused lines of credit		-		-	-

	December 31, 2018
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	34,121,642	$	34,121,642	1
Held-to-maturity securities		11,794		11,850	2
Federal Home Loan Bank stock		5,387,200		5,387,200	2
Mortgage loans held for sale		1,516,849		1,516,849	2
Loans, net		778,298,606		783,910,789	3
Interest receivable		3,390,944		3,390,944	2
Financial liabilities:
Deposits		749,618,822		747,903,071	2
Federal Home Loan Bank advances		105,300,000		105,325,386	2
Subordinated debentures		21,760,829		21,760,829	3
Note payable to Bank		5,000,000		5,000,000	3
Interest payable		821,811		821,811	2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-	-
Unused lines of credit		-		-	-

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

General

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 March 31, 2019, and the results of operations for the three months ended March 31, 2019 and 2018.

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

Financial Condition

The Company’s total assets increased $16,330,974 (2%) from $965,137,870 as of December 31, 2018, to $981,468,844 as of March 31, 2019.

Available-for-sale securities increased $12,527,461 (15%) from $86,266,197 as of December 31, 2018, to $98,793,658 as of March 31, 2019. The Company had purchases of $17,536,729 and a decrease in unrealized losses of $1,603,615 offset by sales and principal payments of $6,490,761 when compared to December 31, 2018.

Net loans receivable decreased by $17,752,962 (2%) from $778,298,606 as of December 31, 2018 to $760,545,644 as of March 31, 2019. For the quarter, permanent multi-family loans increased $1,497,231 (2%), construction loans increased $1,051,235 (1%), commercial loans decreased $1,074,213 (1%), commercial real estate loans decreased $12,545,392 (4%), one-to-four family mortgage loans decreased $5,078,619 (4%) and consumer and other loans decreased $1,779,483 (5%). The Company continues to focus its lending efforts in the commercial, owner occupied real estate and small business lending categories, however, during the quarter unexpected loan payoffs outpaced loan originations.

Allowance for loan losses decreased $148,947 (2%) from $7,995,569 as of December 31, 2018 to $7,846,622 as of March 31, 2019. No additions to the provision for loan losses were recorded by the Company for the quarter ended March 31, 2019, charge-offs of specific loans (classified as nonperforming at December 31, 2018) exceeded loan recoveries by $148,947. The allowance for loan losses, as a percentage of gross loans outstanding (excluding mortgage loans held for sale), as of March 31, 2019 and December 31, 2018 was 1.02% and 1.02%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of March 31, 2019 and December 31, 2018 was 63.6% and 61.1%, respectively. Management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan losses in the Bank’s existing loan portfolio.

In accordance with 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 need on the acquired loans factoring in the net remaining discount of $2.1 million at March 31, 2019.

Prepaid expenses and other assets increased $4,028,078 (64%) from $6,261,159 as of December 31, 2018 to $9,835,752 as of March 31, 2019. This increase is primarily due the Company purchasing an interest in a partnership for the purpose of gaining low income housing tax credits for $3,168,435 and financing leases of $453,485 added due to new accounting standard implementation.

Right-of-use asset and liabilities increased $9,473,587 (100%) and $9,490,385 (100%), respectively, during the first quarter of 2019 compared to none recorded as of December 31, 2018. These amounts were recognized due to the Company’s implementation of new lease accounting standards for operating leases further described in Note 8 and Note 11 of the Condensed Consolidated Financial Statements. The recorded assets and liabilities will be amortized over the life of the lease term.

Deposits increased $57,212,514 (8%) from $749,618,822 as of December 31, 2018, to $806,831,336 as of March 31, 2019. For the three months ended March 31, 2019, checking and savings accounts increased by $48,453,425 and certificates of deposit increased by $8,790,226. 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 $53,200,000 (51%) from $105,300,000 as of December 31, 2018 to $52,100,000 as of March 31, 2019 due to principal reductions from excess funds generated from the deposit growth noted above.

Stockholders’ equity (including net unrealized gains and losses on available-for-sale securities and interest rate swaps) increased $2,139,338 (3%) from $80,478,592 as of December 31, 2018, to $82,617,930 as of March 31, 2019. The Company’s net income during this period exceeded dividends paid or declared by $1,537,547. On a per common share basis, stockholders’ equity increased from $18.18 as of December 31, 2018 to $18.55 as of March 31, 2019.

Average Balances, Interest and Average Yields

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.

	Three months ended 3/31/2019								Three months ended 3/31/2018
	Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost
ASSETS
Interest-earning:
Loans	$	779,764	$	10,303			5.36	%	$	642,346	$	7,378			4.66	%
Investment securities		90,061		598			2.69	%		80,400		495			2.50	%
Other assets		30,906		196			2.57	%		23,478		83			1.43	%
Total interest-earning		900,731		11,097			5.00	%		746,224		7,956			4.32	%
Noninterest-earning		59,405								37,801
	$	960,136							$	784,025
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing:
Savings accounts	$	39,897		30			0.30	%	$	31,320		21			0.27	%
Transaction accounts		410,061		1,475			1.46	%		369,135		930			1.02	%
Certificates of deposit		239,248		1,101			1.87	%		155,525		472			1.23	%
FHLB advances		60,204		357			2.40	%		65,252		333			2.07	%
Subordinated debentures		21,753		291			5.43	%		15,465		169			4.43	%
Other borrowed funds		5,000		68			5.52	%		-		-			-
Total interest-bearing		776,163		3,322			1.74	%		636,697		1,925			1.23	%
Noninterest-bearing		101,813								71,472
Total liabilities		877,976								708,169
Stockholders’ equity		82,160								75,856
	$	960,136							$	784,025
Net earning balance	$	124,568							$	109,527
Earning yield less costing rate							3.26	%							3.10	%
Net interest income, and net yield spread on interest earning assets			$	7,775			3.50	%			$	6,031			3.28	%
Ratio of interest-earning assets to interest-bearing liabilities				116	%							117	%

Results of Operations - Comparison of Three Month Periods Ended March 31, 2019 and 2018

Net income for the three months ended March 31, 2019 and 2018 was $2,120,364 and $1,355,745, respectively, which represents an increase in earnings of $764,619 (56%).

Interest Income

Total interest income for the three months ended March 31, 2019 increased $3,140,120 (39%) as compared to the three months ended March 31, 2018. For the three month period ended March 31, 2019 compared to the same period in 2018, the average yield on interest earning assets increased 68 basis points to 5.00%, while the average balance of interest earning assets increased approximately $154,507,000. The increase is primarily due to higher loan balances as a result of the Hometown acquisition and higher loan yields compared to the same quarter in 2018. The average balance of loans increased $137,418,000 compared to March 30, 2018. The yield on loans increased 70 basis points to 5.36% and $373,000 in loan accretion was recognized on loans acquired from Hometown compared to none in the same quarter of 2018.

Interest Expense

Total interest expense for the three months ended March 31, 2019 increased $1,396,654 (73%) when compared to the three months ended March 31, 2018. For the three month period ended March 31, 2019, the average cost of interest bearing liabilities increased 51 basis points to 1.74%, and the average balance of interest bearing liabilities increased approximately $139,466,000 when compared to the same period in 2018. The increases are primarily due to the liabilities acquired from Hometown and higher offering rates on all deposit products due to significant competitive pressures. The Company will continue to utilize a cost-effective mix of retail and commercial deposits along with non-core, wholesale funding.

Net Interest Income

Net interest income for the three months ended March 31, 2019 increased $1,743,466 (29%) when compared to the same period in 2018. The average balance of interest earning assets increased by approximately $15,041,000 more than the average balance of interest-bearing liabilities increased when comparing the three month period ended March 31, 2019 to the same period in 2018 primarily due to the Hometown acquisition. For the three month period ended March 31, 2019, the net interest margin increased 22 basis points to 3.50% when compared to the same period in 2018.

Provision for Loan Losses

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

Based on its internal analysis and methodology, management did not record a provision for loan losses for the three months ended March 31, 2019, compared to $225,000 for the same period in 2018. The decision to not fund the provision for the quarter was primarily due to the decline in overall loan balances and a slight reduction in the number of problem credits. The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions. Management may need to increase the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the Bank’s loan portfolio increases or other circumstances warrant.

In accordance with GAAP for acquisition accounting, the loans acquired through the acquisition of Hometown were recorded at fair value; therefore, there was no allowance associated with Hometown’s loans at acquisition. Management continues to evaluate the allowance needed on the acquired Hometown loans factoring in the net remaining discount of $2.1 million at March 31, 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 -I nterest Income

Non-interest income increased $245,296 (19%) for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018. This was primarily due to the Company’s increased income from sales of Small Business Administration (“SBA”) loans and increased service charges on deposit accounts and debit card interchange income. For the first quarter of 2019, gains on sales of SBA loans increased $79,257, service charges on deposit accounts increased $84,666 and debit card interchange income increased $90,400. These increases are all primarily due to the Hometown acquisition.

Non -I nterest Expense

Non-interest expenses increased $1,367,704 (25%) for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018. Generally, the Company’s expansion efforts have resulted in an increase in both compensation and occupancy expense.

Salaries and employee benefits increased $785,896 for the quarter. The increase is primarily attributable to the addition of Hometown employees and continued expansion in the Joplin, Missouri market. Additional staffing in areas such as operations and information technology to support expansion efforts also contributed to the increase.

Occupancy expenses and data processing increased $362,956 and $86,412, respectively, for the quarter primarily due to the expenses related to additional Hometown facilities, equipment and increased transactions.

Core deposit intangible amortization increase for the quarter was $119,250 (100%) when compared to March 31, 2018. These amounts are due to the Hometown acquisition and are further discussed in Note 7 to the Condensed Consolidated Financial Statements.

Merger expenses related to the Hometown acquisition for the quarter decreased $211,404 (93%) when compared to the same quarter in 2018.

Other expense increased $184,607 when compared to the same quarter in 2018 primarily due to an increase of $80,000 for professional fees due to the Company now being considered an accelerated filer pursuant to rules adopted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and additional work performed on implementation of new accounting standards. Moderate increases in marketing, postage and loan expenses were due to the Hometown acquisition.

Provision for Income Taxes

The provision for income taxes increased by $81,439 (28%) for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018. The increase in the provision for income taxes for the quarter is primarily due to increased taxable income.

Nonperforming Assets

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 March 31, 2019 and December 31, 2018 was 63.6% and 61.1%, respectively. Total loans classified as substandard, doubtful or loss as of March 31, 2019, were $23,819,000 or 2.43% of total assets as compared to $24,714,000 or 2.56% of total assets at December 31, 2018. Management considered nonperforming and total classified loans in evaluating the adequacy of the Bank’s allowance for loan losses.

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

	3/31/2019			12/31/2018			12/31/2017
Nonperforming loans	$	12,341		$	13,082		$	9,961
Real estate acquired in settlement of loans		1,179			1,127			283
Total nonperforming assets	$	13,520		$	14,209		$	10,244

Total nonperforming assets as a percentage of total assets		1.38	%		1.47	%		1.29	%
Allowance for loan losses	$	7,847		$	7,996		$	7,107
Allowance for loan losses as a percentage of gross loans		1.02	%		1.02	%		1.12	%

Liquidity and Capital Resources

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 $43,049,261 as of March 31, 2019 and $34,121,642 as of December 31, 2018, representing an increase of $8,927,619. The variations in levels of cash and cash equivalents are influenced by many factors but primarily loan originations and payments and deposit fluctuations.

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

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

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

The Bank is classified as “well capitalized” under current regulatory guidelines. As of March 31, 2019, the Bank’s common equity Tier 1 ratio was 11.55%, the Bank’s Tier 1 leverage ratio was 11.55%, its Tier 1 risk-based capital ratio was 10.50% and the Bank’s total risk-based capital ratio was 12.45% - all exceeding the minimums of 7.0%, 6.0%, 8.5% and 10.5%, respectively, as of March 31, 2019. A proposed Community Bank Leverage ratio (“CBLR”) rule issued on February 8, 2019 by federal banking regulators may change how the Bank is classified. At this point, it is unclear whether federal banking regulators will issue a final rule and, even if they do, the final rule may not provide relief from federal banking capital requirements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management

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.

Interest Rate Sensitivity Analysis

The following table sets forth as of March 31, 2019 management’s estimates of the projected changes in net portfolio value (“NPV”) in the event of 100 and 200 basis point (“BP”) instantaneous and permanent increases and decreases in market interest rates. Dollar amounts are expressed in thousands.

BP Change	Estimated Net Portfolio Value								NPV as % of PV of Assets						Assets
in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+200	$	135,828	$	14,733			12	%		14.15	%		1.76	%		959,793
+100		130,014		8,919			7	%		13.41	%		1.02	%		969,204
NC		121,095		-			0	%		12.39	%		0.00	%		976,981
-100		106,367		(14,728	)		-12	%		10.82	%		-1.57	%		982,753
-200		87,754		(33,341	)		-28	%		8.89	%		-3.50	%		986,711

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

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

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

Item 4. Controls and Procedures

(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 March 31, 2019, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2019.

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

PART II

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

The Company has a repurchase plan which was announced on August 20, 2007. This plan authorizes the purchase by the Company of up to 350,000 shares of the Company’s common stock. There is no expiration date for this plan. There are no other repurchase plans in effect at this time. The Company had no repurchase activity of the Company’s common stock during the quarter ended March 31, 2019.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None

Item 6.

Exhibits

10.1

Written Description of 2019 Executive Incentive Compensation Annual Plans- Chief Executive , Chief Financial , Chief Operating and Chief Credit Officers* (1)

	11.	Statement re: computation of per share earnings (set forth in “Note 10: Income Per Common Share” of the Notes to Condensed Consolidated Financial Statement (unaudited))
	31(i).1	Certification of the Principal Executive Officer pursuant to Rule 13a -14(a) of the Exchange Act
	31(i).2	Certification of the Principal Financial Officer pursuant to Rule 13a - 14(a) of the Exchange Act
	32	Officer certifications pursuant to 18 U.S.C. Section 1350
	101	The following materials from Guaranty Federal Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Income (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) Condensed Consolidated Statement of Stockholders’ Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) related notes.*

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

________________________________________________________

(1)

Filed as Exhibits 10.1 through 10.4 to the Current Report on Form 8-K filed by the Registrant on March 20, 2019 and incorporated herein by reference.

SIGNATURES

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.

Guaranty Federal Bancshares, Inc.

Signature and Title	Date

/s/ Shaun A. Burke	May 9 , 20 1 9
Shaun A. Burke President and Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)


/s/ Carter Peters	May 9 , 20 1 9
Carter Peters Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)