Edgar Filing: GUARANTY FEDERAL BANCSHARES INC

gfed20160331_10q.htm

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 31, 2016

[ ] 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

(Exact name of registrant as specified in its charter)

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

1341 West Battlefield
Springfield, Missouri	65807
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (417) 520-4333

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]

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

Class	Outstanding as of May 1, 2016
Common Stock, Par Value $0.10 per share	4,432,220 Shares

GUARANTY FEDERAL BANCSHARES, INC.

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Income		4
	Condensed Consolidated Statements of Comprehensive Income		5
	Condensed Consolidated Statements of Stockholders’ Equity		6
	Condensed Consolidated Statements of Cash Flows		7
	Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27

Item 3. Quantitative and Qualitative Disclosures about Market Risk			32

Item 4. Controls and Procedures			33

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		34

Item 1A. Risk factors		34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34

Item 3. Defaults Upon Senior Securities		34

Item 4. Mine Safety Disclosures		34

Item 5. Other Information		34

Item 6. Exhibits		34

Signatures		35

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015

	3/31/16			12/31/15
ASSETS
Cash and due from banks	$	8,405,508		$	3,561,272
Interest-bearing deposits in other financial institutions		9,216,363			15,213,147
Cash and cash equivalents		17,621,871			18,774,419
Available-for-sale securities		103,724,659			97,292,487
Held-to-maturity securities		38,781			43,099
Stock in Federal Home Loan Bank, at cost		2,867,000			2,837,500
Mortgage loans held for sale		1,517,016			1,902,933
Loans receivable, net of allowance for loan losses of March 31, 2016 - $6,185,231 - December 31, 2015 - $5,811,940		490,064,640			491,001,907
Accrued interest receivable:
Loans		1,357,526			1,515,818
Investments and interest-bearing deposits		412,401			470,874
Prepaid expenses and other assets		3,540,286			3,525,032
Foreclosed assets held for sale		2,351,021			2,391,727
Premises and equipment, net		10,520,477			10,540,428
Bank owned life insurance		18,902,969			18,779,915
Deferred and receivable income taxes		3,154,013			3,758,933
	$	656,072,660		$	652,835,072
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits	$	519,063,768		$	517,385,695
Federal Home Loan Bank advances		52,100,000			52,100,000
Subordinated debentures		15,465,000			15,465,000
Advances from borrowers for taxes and insurance		244,960			190,853
Accrued expenses and other liabilities		990,212			1,074,957
Accrued interest payable		190,573			196,102
		588,054,513			586,412,607

COMMITMENTS AND CONTINGENCIES		-			-

STOCKHOLDERS' EQUITY
Capital Stock:
Common stock, $0.10 par value; authorized 10,000,000 shares; issued March 31, 2016 and December 31, 2015 - 6,874,003 and 6,859,003 shares, respectively		687,400			685,900
Additional paid-in capital		50,243,104			50,441,464
Retained earnings, substantially restricted		54,180,138			53,258,126
Accumulated other comprehensive income (loss)
Unrealized loss on available-for-sale securities, net of income taxes		(174,993	)		(683,956	)
		104,935,649			103,701,534
Treasury stock, at cost; March 31, 2016 and December 31, 2015 - 2,442,533 and 2,466,462 shares, respectively		(36,917,502	)		(37,279,069	)
		68,018,147			66,422,465
	$	656,072,660		$	652,835,072

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

	3/31/2016			3/31/2015

Interest Income
Loans	$	5,701,892		$	5,904,566
Investment securities		457,851			353,050
Other		45,302			30,021
		6,205,045			6,287,637
Interest Expense
Deposits		584,817			594,929
FHLB and Federal Reserve advances		301,164			298,806
Subordinated debentures		139,430			132,861
Other		-			65,094
		1,025,411			1,091,690
Net Interest Income		5,179,634			5,195,947
Provision for Loan Losses		375,000			150,000
Net Interest Income After
Provision for Loan Losses		4,804,634			5,045,947
Noninterest Income
Service charges		265,969			281,359
Gain on sale of investment securities		51,030			6,797
Gain on sale of loans		419,426			328,113
Net loss on foreclosed assets		(10,708	)		(11,099	)
Other income		383,105			345,586
		1,108,822			950,756
Noninterest Expense
Salaries and employee benefits		2,550,932			2,453,092
Occupancy		444,701			473,227
FDIC deposit insurance premiums		116,850			106,760
Data processing		215,130			192,481
Advertising		131,250			131,250
Other expense		650,613			721,912
		4,109,476			4,078,722
Income Before Income Taxes		1,803,980			1,917,981
Provision for Income Taxes		527,375			588,437
Net Income Available to Common Shareholders	$	1,276,605		$	1,329,544

Basic Income Per Common Share	$	0.29		$	0.31
Diluted Income Per Common Share	$	0.29		$	0.30

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

	3/31/2016			3/31/2015
NET INCOME	$	1,276,605		$	1,329,544
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain on investment securities available-for-sale, before income taxes		858,906			787,310
Less: Reclassification adjustment for realized gains on investment securities included in net income, before income taxes		(51,030	)		(6,797	)
Total other items of comprehensive income		807,876			780,513
Income tax expense related to other items of comprehensive income		298,913			288,790
Other comprehensive income		508,963			491,723
TOTAL COMPREHENSIVE INCOME	$	1,785,568		$	1,821,267

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

THREE MONTHS ENDED MARCH 31, 2016 (UNAUDITED)

	Common Stock		Additional Paid- In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2016	$	685,900	$	50,441,464		$	(37,279,069	)	$	53,258,126		$	(683,956	)	$	66,422,465
Net income		-		-			-			1,276,605			-			1,276,605
Change in unrealized gain on available-for-sale securities, net of income taxes		-		-			-			-			508,963			508,963
Dividends on common stock ($0.08 per share)		-		-			-			(354,593	)		-			(354,593	)
Stock award plans		-		(274,710	)		361,567			-			-			86,857
Stock options exercised		1,500		76,350			-			-			-			77,850
Balance, March 31, 2016	$	687,400	$	50,243,104		$	(36,917,502	)	$	54,180,138		$	(174,993	)	$	68,018,147

See Notes to Condensed Consolidated Financial Statements

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

	3/31/2016			3/31/2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,276,605		$	1,329,544
Items not requiring (providing) cash:
Deferred income taxes		(98,991	)		(76,071	)
Depreciation		204,063			218,488
Provision for loan losses		375,000			150,000
Gain on loans and investment securities		(470,456	)		(385,863	)
Amortization of deferred income, premiums and discounts		36,188			192,568
Stock award plan expense		86,857			151,218
Origination of loans held for sale		(13,234,230	)		(13,122,754	)
Proceeds from sale of loans held for sale		13,970,021			13,298,746
Increase in cash surrender value of bank owned life insurance		(123,054	)		(90,436	)
Changes in:
Accrued interest receivable		216,765			201,224
Prepaid expenses and other assets		(15,254	)		143,463
Accounts payable and accrued expenses		(93,464	)		6,141
Income taxes receivable		404,998			(2,927	)
Net cash provided by operating activities		2,535,048			2,013,341
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		707,296			(8,317,272	)
Principal payments on available-for-sale securities		1,615,252			2,318,059
Principal payments on held-to-maturity securities		4,318			4,470
Proceeds from maturities of available-for-sale securities		535,000			-
Purchase of premises and equipment		(184,112	)		(284,325	)
Purchase of available-for-sale securities		(38,349,852	)		(12,283,794	)
Proceeds from sale of available-for-sale securities		30,514,669			9,797,762
Redemption (purchase) of FHLB stock		(29,500	)		309,400
Proceeds from sale of foreclosed assets held for sale		40,706			5,131
Net cash used in investing activities		(5,146,223	)		(8,450,569	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid		(351,403	)		(216,533	)
Net increase in demand deposits, NOW accounts and savings accounts		3,456,203			43,344,354
Net increase (decrease) in certificates of deposit		(1,778,130	)		2,658,777
Repayments of FHLB and Federal Reserve advances		-			(8,000,000	)
Advances from borrowers for taxes and insurance		54,107			102,323
Stock options exercised		77,850			111,304
Net cash provided by financing activities		1,458,627			38,000,225
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,152,548	)		31,562,997
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		18,774,419			12,493,890
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	17,621,871		$	44,056,887

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 generally accepted accounting principles 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, 2015 (“2015 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, 2015, 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 generally accepted accounting principles 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: 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, 2016
Equity Securities	$	102,212	$	715	$	(16,693	)	$	86,234
Debt Securities:
Municipals		37,664,629		483,622		(148,304	)		37,999,947
Corporates		3,975,245		-		(408,265	)		3,566,980
Government sponsored mortgage-backed securities and SBA loan pools		62,260,340		164,558		(353,400	)		62,071,498
	$	104,002,426	$	648,895	$	(926,662	)	$	103,724,659

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2015
Equity Securities	$	102,212	$	10,081	$	(12,776	)	$	99,517
Debt Securities:
U. S. government agencies		8,533,885		-		(137,101	)		8,396,784
Municipals		31,132,635		302,335		(85,808	)		31,349,162
Corporates		3,965,719		-		(152,019	)		3,813,700
Government sponsored mortgage-backed securities and SBA loan pools		54,643,681		13,764		(1,024,121	)		53,633,324
	$	98,378,132	$	326,180	$	(1,411,825	)	$	97,292,487

Maturities of available-for-sale debt securities as of March 31, 2016:

	Amortized Cost		Approximate Fair Value
1-5 years		1,299,512		1,309,178
6-10 years		9,178,455		9,285,889
After 10 years		31,161,907		30,971,860
Government sponsored mortgage-backed securities and SBA loan pools not due on a single maturity date		62,260,340		62,071,498
	$	103,900,214	$	103,638,425

The amortized cost and approximate fair values of securities classified as held to maturity are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Approximate Fair Value
As of March 31, 2016
Debt Securities:
Government sponsored mortgage-backed securities	$	38,781	$	772	$	-	$	39,553

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Approximate Fair Value
As of December 31, 2015
Debt Securities:
Government sponsored mortgage-backed securities	$	43,099	$	836	$	-	$	43,935

Maturities of held-to-maturity securities as of March 31, 2016:

Amortized

Cost

Approximate

Fair Value

Government sponsored mortgage-backed securities not due on a single maturity date

38,781

39,553

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $74,737,176 and $52,554,932 as of March 31, 2016 and December 31, 2015, respectively. The approximate fair value of pledged securities amounted to $74,973,659 and $52,095,842 as of March 31, 2016 and December 31, 2015, respectively.

Realized gains and losses are recorded as net securities gains. Gains on sales of securities are determined on the specific identification method. Gross gains of $51,030 and $6,797 as of March 31, 2016 and March 31, 2015, respectively, were realized from the sale of available-for-sale securities. The tax effect of these net gains was $18,881 and $2,515 as of March 31, 2016 and March 31, 2015, 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, 2016 and December 31, 2015, was $61,272,304 and $68,123,480, respectively, which is approximately 59% and 70% of the Company’s investment portfolio. These declines primarily resulted from changes in market interest rates and failure of certain investments to meet projected earnings targets.

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, 2016 and December 31, 2015.

	March 31, 2016

	Less than 12 Months					12 Months or More					Total

Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Equity Securities	$	-	$	-		$	31,234	$	(16,693	)	$	31,234	$	(16,693	)
Municipals		10,001,797		(103,629	)		2,060,307		(44,675	)		12,062,104		(148,304	)
Corporates		1,599,480		(159,529	)		1,967,500		(248,736	)		3,566,980		(408,265	)
Government sponsored mortgage-backed securities and SBA loan pools		28,090,865		(134,453	)		17,521,121		(218,947	)		45,611,986		(353,400	)
	$	39,692,142	$	(397,611	)	$	21,580,162	$	(529,051	)	$	61,272,304	$	(926,662	)

	December 31, 2015

	Less than 12 Months					12 Months or More					Total

Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Equity Securities	$	-	$	-		$	35,151	$	(12,776	)	$	35,151	$	(12,776	)
U. S. government agencies		6,399,920		(83,965	)		1,996,864		(53,136	)		8,396,784		(137,101	)
Municipals		6,167,019		(70,266	)		715,410		(15,542	)		6,882,429		(85,808	)
Corporates		1,675,500		(79,708	)		2,138,200		(72,311	)		3,813,700		(152,019	)
Government sponsored mortgage-backed securities and SBA loan pools		33,072,102		(493,865	)		15,923,314		(530,256	)		48,995,416		(1,024,121	)
	$	47,314,541	$	(727,804	)	$	20,808,939	$	(684,021	)	$	68,123,480	$	(1,411,825	)

Note 4: Loans and Allowance for Loan Losses

Categories of loans at March 31, 2016 and December 31, 2015 include:

	March 31, 2016			December 31, 2015
Real estate - residential mortgage:
One to four family units	$	98,851,219		$	98,257,417
Multi-family		37,448,634			41,603,670
Real estate - construction		52,132,057			45,462,895
Real estate - commercial		203,407,488			208,824,573
Commercial loans		82,730,366			81,006,897
Consumer and other loans		21,938,117			21,991,881
Total loans		496,507,881			497,147,333
Less:
Allowance for loan losses		(6,185,231	)		(5,811,940	)
Deferred loan fees/costs, net		(258,010	)		(333,486	)
Net loans	$	490,064,640		$	491,001,907

Classes of loans by aging at March 31, 2016 and December 31, 2015 were as follows:

As of March 31, 2016
	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	$	549	$	97	$	95	$	741	$	98,110	$	98,851	$	-
Multi-family		-		-		-		-		37,449		37,449		-
Real estate - construction		-		-		-		-		52,132		52,132		-
Real estate - commercial		5,688		-		1,020		6,708		196,700		203,408		-
Commercial loans		104		6		1,239		1,349		81,381		82,730		-
Consumer and other loans		2		20		46		68		21,870		21,938		-
Total	$	6,343	$	123	$	2,400	$	8,866	$	487,642	$	496,508	$	-

As of December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	-	$	168	$	105	$	273	$	97,984	$	98,257	$	-
Multi-family		-		-		-		-		41,604		41,604		-
Real estate - construction		-		-		-		-		45,463		45,463		-
Real estate - commercial		-		-		1,079		1,079		207,745		208,824		-
Commercial loans		88		-		1,239		1,327		79,680		81,007		-
Consumer and other loans		2		8		-		10		21,982		21,992		-
Total	$	90	$	176	$	2,423	$	2,689	$	494,458	$	497,147	$	-

Nonaccruing loans are summarized as follows:

	March 31, 2016		December 31, 2015
Real estate - residential mortgage:
One to four family units	$	2,327,991	$	2,272,535
Multi-family		-		-
Real estate - construction		8,071,840		8,079,807
Real estate - commercial		1,181,609		1,240,909
Commercial loans		1,872,808		2,149,333
Consumer and other loans		59,380		12,891
Total	$	13,513,628	$	13,755,475

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three months ended March 31, 2016 and 2015:

March 31, 2016	Construction		Commercial Real Estate			One to four family			Multi-family			Commercial		Consumer and Other			Unallocated			Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of period	$	1,246	$	1,526		$	821		$	177		$	1,382	$	223		$	437		$	5,812
Provision charged to expense		621		(46	)		(3	)		(18	)		121		64			(364	)	$	375
Losses charged off		-		-			-			-			-		(29	)		-		$	(29	)
Recoveries		1		6			8			-			-		12			-		$	27
Balance, end of period	$	1,868	$	1,486		$	826		$	159		$	1,503	$	270		$	73		$	6,185

March 31, 2015	Construction		Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of period	$	1,330	$	1,992		$	900		$	127	$	1,954		$	185		$	101	$	6,589
Provision charged to expense		24		(6	)		(24	)		6		(151	)		35			266	$	150
Losses charged off		-		-			-			-		-			(18	)		-	$	(18	)
Recoveries		7		-			8			-		1			19			-	$	35
Balance, end of period	$	1,361	$	1,986		$	884		$	133	$	1,804		$	221		$	367	$	6,756

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2016 and December 31, 2015:

March 31, 2016	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
Allowance for loan losses:	(In Thousands)
Ending balance: individually evaluated for impairment	$	540	$	-	$	19	$	-	$	463	$	14	$	-	$	1,036
Ending balance: collectively evaluated for impairment	$	1,328	$	1,486	$	807	$	159	$	1,040	$	256	$	73	$	5,149
Loans:
Ending balance: individually evaluated for impairment	$	8,072	$	1,182	$	2,328	$	-	$	1,873	$	167	$	-	$	13,622
Ending balance: collectively evaluated for impairment	$	44,060	$	202,226	$	96,523	$	37,449	$	80,857	$	21,771	$	-	$	482,886

December 31, 2015	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
Allowance for loan losses:	(In Thousands)
Ending balance: individually evaluated for impairment	$	540	$	-	$	-	$	-	$	312	$	13	$	-	$	865
Ending balance: collectively evaluated for impairment	$	706	$	1,526	$	821	$	177	$	1,070	$	210	$	437	$	4,947
Loans:
Ending balance: individually evaluated for impairment	$	8,080	$	1,241	$	2,272	$	-	$	2,149	$	988	$	-	$	14,730
Ending balance: collectively evaluated for impairment	$	37,383	$	207,583	$	95,985	$	41,604	$	78,858	$	21,004	$	-	$	482,417

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.

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, 2016 and December 31, 2015:

	March 31, 2016						December 31, 2015
	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	$	2,231	$	2,231	$	-	$	2,272	$	2,272	$	-
Multi-family		-		-		-		-		-		-
Real estate - construction		5,722		5,722		-		5,730		5,730		-
Real estate - commercial		1,182		1,182		-		1,241		1,241		-
Commercial loans		1,000		1,000		-		1,538		1,538		-
Consumer and other loans		59		59		-		904		904		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	97	$	97	$	19	$	-	$	-	$	-
Multi-family		-		-		-		-		-		-
Real estate - construction		2,350		4,838		540		2,350		4,838		540
Real estate - commercial		-		-		-		-		-		-
Commercial loans		873		1,176		463		611		914		312
Consumer and other loans		108		108		14		84		84		13
Total
Real estate - residential mortgage:
One to four family units	$	2,328	$	2,328	$	19	$	2,272	$	2,272	$	-
Multi-family		-		-		-		-		-		-
Real estate - construction		8,072		10,560		540		8,080		10,568		540
Real estate - commercial		1,182		1,182		-		1,241		1,241		-
Commercial loans		1,873		2,176		463		2,149		2,452		312
Consumer and other loans		167		167		14		988		988		13
Total	$	13,622	$	16,413	$	1,036	$	14,730	$	17,521	$	865

The following table summarizes average impaired loans and related interest recognized on impaired loans for the three months ended March 31, 2016 and 2015:

	For the Three Months Ended				For the Three Months Ended
	March 31, 2016				March 31, 2015
	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	$	2,240	$	-	$	709	$	-
Multi-family		-		-		-		-
Real estate - construction		5,725		-		74		-
Real estate - commercial		1,201		-		-		-
Commercial loans		1,352		-		336		-
Consumer and other loans		28		-		489		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	32	$	-	$	550	$	-
Multi-family		-		-		-		-
Real estate - construction		2,350		-		2,750		-
Real estate - commercial		-		-		-		-
Commercial loans		699		-		623		-
Consumer and other loans		83		-		-		-
Total
Real estate - residential mortgage:
One to four family units	$	2,272	$	-	$	1,259	$	-
Multi-family		-		-		-		-
Real estate - construction		8,075		-		2,824		-
Real estate - commercial		1,201		-		-		-
Commercial loans		2,051		-		959		-
Consumer and other loans		111		-		489		-
Total	$	13,710	$	-	$	5,531	$	-

At March 31, 2016, 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, 2016 and December 31, 2015:

	March 31, 2016		December 31, 2015
Real estate - residential mortgage:
One to four family units	$	1,522,938	$	1,556,964
Multi-family		-		-
Real estate - construction		8,071,840		8,079,807
Real estate - commercial		161,491		161,491
Commercial loans		1,427,270		1,442,476
Consumer and other loans		-		-
Total	$	11,183,539	$	11,240,738

The bank did not have any new TDRs for the three months ending March 31, 2016. The Bank has allocated $789,535 and $841,284 of specific reserves to customers whose loan terms have been modified in TDR as of March 31, 2016 and December 31, 2015, 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, 2016 and 2015. 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, 2016 and December 31, 2015:

March 31, 2016	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	44,060	$	189,347	$	92,170	$	37,449	$	74,610	$	21,651	$	459,287
Special Mention		-		7,566		3,061		-		2,117		-		12,744
Substandard		8,072		6,495		3,620		-		5,400		287		23,874
Doubtful		-		-		-		-		603		-		603
Total	$	52,132	$	203,408	$	98,851	$	37,449	$	82,730	$	21,938	$	496,508

December 31, 2015	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	37,383	$	198,230	$	91,267	$	41,604	$	73,407	$	21,775	$	463,666
Special Mention		-		3,657		3,319		-		2,267		-		9,243
Substandard		8,080		6,937		3,671		-		4,730		217		23,635
Doubtful		-		-		-		-		603		-		603
Total	$	45,463	$	208,824	$	98,257	$	41,604	$	81,007	$	21,992	$	497,147

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 5: Benefit Plans

The Company has stock-based employee compensation plans, which are described in the Company’s 2015 Annual Report.

The following tables below summarize transactions under the Company’s equity plans for the three months ended March 31, 2016:

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

Balance outstanding as of January 1, 2016		91,500			57,500		$	19.58
Granted		-			-			-
Exercised		(10,000	)		(5,000	)		5.19
Forfeited		(5,000	)		-			28.34
Balance outstanding as of March 31, 2016		76,500			52,500		$	20.92
Options exercisable as of March 31, 2016		76,500			52,500		$	20.92

The total intrinsic value of stock options exercised for the three months ended March 31, 2016 and 2015 was $153,353 and $201,406, respectively. The total intrinsic value of outstanding stock options (including exercisable) was $401,385 and $655,060 at March 31, 2016 and 2015, respectively. The total fair value of share awards vested was $0 and $136,394 during the three months ended March 31, 2016 and 2015, respectively.

Restricted Stock

	Number of Shares			Weighted Average Grant- Date Fair Value

Balance of shares non-vested as of January 1, 2016		43,477		$	12.75
Granted		23,929			15.00
Vested		(1,454	)		15.00
Forfeited		-			-
Balance of shares non-vested as of March 31, 2016		65,952		$	13.52

In February 2016, the Company granted 9,336 shares of restricted stock to directors pursuant to the 2015 Equity Plan of which 1,167 were immediately vested (and expensed in full) and 8,167 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 $15.00 per share. The total amount expensed for the quarter was $30,691. In February 2015, the Company granted restricted stock to directors pursuant to the 2010 Equity Plan that was fully vested and thus, expensed in full on the date of the grants. The amount expensed was $122,476 which represents 8,281 shares of common stock at a market price of $14.79 at the date of grant in 2015.

For the three months ended March 31, 2016 and 2015, the Company granted 14,593 and 17,704 shares 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, 2016 and 2015 was $56,166 and $42,439, respectively.

Total stock-based compensation expense recognized for the three months ended March 31, 2016 and 2015 was $86,857 and $164,915, respectively. As of March 31, 2016, there was $582,717 of unrecognized compensation expense related to nonvested restricted stock awards, which will be recognized over the remaining vesting period.

Note 6: Income Per Common Share

	For three months ended March 31, 2016
	Income Available to Common Stockholders		Average Common Shares Outstanding		Per Common Share
Basic Income per Common Share	$	1,276,605		4,360,244	$	0.29
Effect of Dilutive Securities				50,035
Diluted Income per Common Share	$	1,276,605		4,410,279	$	0.29

	For three months ended March 31, 2015
	Income Available to Common Stockholders		Average Common Shares Outstanding		Per Common Share
Basic Income per Common Share	$	1,329,544		4,315,229	$	0.31
Effect of Dilutive Securities				58,772
Diluted Income per Common Share	$	1,329,544		4,374,001	$	0.30

Stock options to purchase 83,500 and 108,500 shares of common stock were outstanding during the three months ended March 31, 2016 and 2015, respectively, but were not included in the computation of diluted income per common share because their exercise price was greater than the average market price of the common shares.

Note 7: New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers (“ASU 2014-09”). The scope of the guidance applies to revenue arising from contracts with customers, except for the following: lease contracts, insurance contracts, contractual rights and obligations within the scope of other guidance and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The core principal of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration that the entity receives or expects to receive. ASU 2014-09 is not expected to significantly impact the timing or approach to revenue recognition for financial institutions. Initially, the amendments were effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, in July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year making the amendments effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. The Company does not expect the adoption of ASU 2014-09 to have a material impact on its financial position, results of operation or cash flows.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required under GAAP. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for the public business entities with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. The update was effective for the Company beginning January 1, 2016, and did not have a material impact on the Company’s financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 simplifies the impairment assessment of equity investments, clarifies reporting disclosure requirements for financial instruments measured at amortized cost, and requires the exit price notion be disclosed when measuring fair value of financial instruments. ASU 2016-01 details the required separate presentation in other comprehensive income for the change in fair value of a liability related to change in instrument specific credit risk and details the required separate presentation of financial assets and liabilities by measurement category, and clarifies the need for a valuation allowance on deferred tax assets related to available-for-sale securities. ASU 2016-01 is effective for annual and interim reporting periods beginning after December 15, 2017. Adoption of ASU 2016-01 is not expected to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be 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. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The purpose of the update was to simplify the accounting for share-based payment transactions, including the income tax consequences of such transactions. Under the provisions of the update the income tax consequences of excess tax benefits and deficiencies should be recognized in income tax expense in the reporting period in which the awards vest. Currently, excess tax benefits or deficiencies impact stockholder’s equity directly to the extent there is a cumulative excess tax benefit. In the event that a tax deficiency has occurred during the reporting period and a cumulative excess tax benefit does not exist, the tax deficiency is recognized in income tax expense under current GAAP. The update also provides that entities may continue to estimate forfeitures in accounting for stock based compensation or recognize them as they occur. The provisions of this update become effective for interim and annual periods beginning after December 15, 2016. The update requires a modified retrospective transition under which a cumulative effect to equity will be recognized in the period of adoption. Management does not expect the requirements of this update to have a material impact on the Company’s financial position, results of operations or cash flows.

Note 8: 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.

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, 2016 and December 31, 2015 (dollar amounts in thousands):

3/31/2016
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Equity securities	$	86	$	-	$	-	$	86
Debt securities:
Municipals		-		38,000		-		38,000
Corporates		-		3,567		-		3,567
Government sponsored mortgage-backed securities and SBA loan pools		-		62,072		-		62,072
Available-for-sale securities	$	86	$	103,639	$	-	$	103,725

12/31/2015
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Equity securities	$	99	$	-	$	-	$	99
Debt securities:
U.S. government agencies		-		8,397		-		8,397
Municipals		-		31,349		-		31,349
Corporates		-		3,814		-		3,814
Government sponsored mortgage-backed securities and SBA loan pools		-		53,633		-		53,633
Available-for-sale securities	$	99	$	97,193	$	-	$	97,292

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. 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, 2016 and December 31, 2015 (dollar amounts in thousands):

Impaired loans:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
March 31, 2016	$	-	$	-	$	12,540	$	12,540

December 31, 2015	$	-	$	-	$	12,923	$	12,923

Foreclosed assets held for sale:

Level 1 inputs

Level 2 inputs

Level 3 inputs

Total fair value

March 31, 2016

December 31, 2015

There were no transfers between valuation levels for any asset during the three months ended March 31, 2016 or 2015. 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, 2016		Valuation Techniques	Unobservable Input	Range (Weighted Average)

Impaired loans (collateral dependent)	$	4,554	Market Comparable	Discount to reflect realizable value	0%	-	38%	(6%)

Impaired loans	$	7,986	Discounted cash flow	Discount rate	0%	-	41%	(3%)

Foreclosed assets held for sale	$	-	Market Comparable	Discount to reflect realizable value		0%

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.

Cash and cash equivalents, interest-bearing deposits and Federal Home Loan Bank stock

The carrying amounts reported in the condensed consolidated balance sheets approximate those assets' fair value.

Held-to-maturity securities

Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank advances

The fair value of advances is estimated by using rates on debt with similar terms and remaining maturities.

Subordinated debentures

For these variable rate instruments, the carrying amount is a reasonable estimate of fair value. There is currently a limited market for similar debt instruments and the Company has the option to call the subordinated debentures at an amount close to its par value.

Interest payable

The carrying amount approximates fair value.

Commitments to originate loans, letters of credit and lines of credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

The following tables present estimated fair values of the Company’s financial instruments at March 31, 2016 and December 31, 2015.

	March 31, 2016
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	17,621,871	$	17,621,871		1
Held-to-maturity securities		38,781		39,553		2
Federal Home Loan Bank stock		2,867,000		2,867,000		2
Mortgage loans held for sale		1,517,016		1,517,016		2
Loans, net		490,064,640		490,230,468		3
Interest receivable		1,769,927		1,769,927		2
Financial liabilities:
Deposits		519,063,768		506,125,859		2
Federal Home Loan Bank advances		52,100,000		53,440,089		2
Subordinated debentures		15,465,000		15,465,000		3
Interest payable		190,573		190,573		2
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-		-
Unused lines of credit		-		-		-

	December 31, 2015
	Carrying Amount		Fair Value		Hierarchy Level
Financial assets:
Cash and cash equivalents	$	18,774,419	$	18,774,419		1
Held-to-maturity securities		43,099		43,935		2
Federal Home Loan Bank stock		2,837,500		2,837,500		2
Mortgage loans held for sale		1,902,933		1,902,933		2
Loans, net		491,001,907		495,207,798		3
Interest receivable		1,986,692		1,986,692		2
Financial liabilities:
Deposits		517,385,695		511,225,380		2
Federal Home Loan Bank advances		52,100,000		53,227,960		2
Subordinated debentures		15,465,000		15,465,000		3
Interest payable		196,102		196,102		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, 2016, and the results of operations for the three months ended March 31, 2016 and 2015.

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, 2015.

Financial Condition

The Company’s total assets increased $3,237,588 (less than 1%) from $652,835,072 as of December 31, 2015, to $656,072,660 as of March 31, 2016.

Available-for-sale securities increased $6,432,172 (7%) from $97,292,487 as of December 31, 2015, to $103,724,659 as of March 31, 2016. The Company had purchases of $38,349,852 offset by sales, maturities and principal payments received of $32,664,921. The bank had unrealized losses of $277,767 at March 31, 2016 which was an improvement from unrealized losses of $1,085,644 at December 31, 2015.

Net loans receivable decreased by $937,267 (less than 1%) from $491,001,907 as of December 31, 2015 to $490,064,640 as of March 31, 2016. During the quarter, construction loans increased $6,669,162 (15%). This was primarily due to one large credit. Permanent multi-family loans decreased $4,155,036 (10%) and commercial real estate loans decreased $5,417,084 (3%) due to various expected payoffs and principal reductions. Also, commercial loans increased $1,723,469 (2%). Loans secured by owner occupied one-to-four unit residential real estate increased $593,800 (less than 1%) and installment loans decreased $53,765 (less than 1%). The Company continues to focus its lending efforts in the commercial and owner occupied real estate loan categories.

Allowance for loan losses increased $373,291 (6%) from $5,811,940 as of December 31, 2015 to $6,185,231 as of March 31, 2016. In addition to the provision for loan loss of $375,000 recorded by the Company for the quarter ended March 31, 2016, charge-offs of specific loans (classified as nonperforming at December 31, 2015) exceeded loan recoveries by $1,709. The increase in the allowance is primarily due to the increased reserves on a few specific problem credits. The allowance for loan losses, as a percentage of gross loans outstanding (excluding mortgage loans held for sale), as of March 31, 2016 and December 31, 2015 was 1.25% and 1.17%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of March 31, 2016 and December 31, 2015 was 45.8% and 42.3%, 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.

Deposits increased $1,678,073 (less than 1%) from $517,385,695 as of December 31, 2015, to $519,063,768 as of March 31, 2016. For the three months ended March 31, 2016, checking and savings accounts increased by $3,456,203 and certificates of deposit decreased by $1,778,130. The increase in checking and savings accounts was due to the Bank’s continued efforts to increase core transaction deposits, including retail, commercial and public funds which has allowed the Bank to reduce higher priced certificates of deposit. See also the discussion under Item 3-“Quantitative and Qualitative Disclosure about Market Risk – Asset/Liability Management.”

Stockholders’ equity (including unrealized gain on available-for-sale securities, net of tax) increased $1,595,682 from $66,422,465 as of December 31, 2015, to $68,018,147 as of March 31, 2016. The Company’s net income during this period exceeded dividends paid or declared by $1,276,605. The equity portion of the Company’s unrealized losses on available-for-sale securities improved by $508,963 during the quarter. On a per common share basis, stockholders’ equity increased from $15.27 as of December 31, 2015 to $15.58 as of March 31, 2016.

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 3/31/2016								Three months ended 3/31/2015
	Average Balance		Interest			Yield / Cost			Average Balance		Interest			Yield / Cost
ASSETS
Interest-earning:
Loans	$	497,471	$	5,702			4.61	%	$	500,463	$	5,905			4.79	%
Investment securities		98,092		458			1.88	%		87,021		353			1.65	%
Other assets		24,821		45			0.73	%		26,200		30			0.46	%
Total interest-earning		620,384		6,205			4.02	%		613,684		6,288			4.16	%
Noninterest-earning		39,896								37,175
	$	660,280							$	650,859

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing:
Savings accounts	$	26,390		13			0.20	%	$	24,188		12			0.20	%
Transaction accounts		328,745		320			0.39	%		318,965		319			0.41	%
Certificates of deposit		112,709		252			0.90	%		120,527		264			0.89	%
FHLB advances		57,102		301			2.12	%		57,234		299			2.12	%
Securities sold under agreements to repurchase		-		-			0.00	%		10,000		65			2.64	%
Subordinated debentures		15,465		139			3.61	%		15,465		133			3.49	%
Total interest-bearing		540,411		1,025			0.76	%		546,379		1,092			0.81	%
Noninterest-bearing		51,874								41,455
Total liabilities		592,285								587,834
Stockholders’ equity		67,995								63,025
	$	660,280							$	650,859
Net earning balance	$	79,973							$	67,305
Earning yield less costing rate							3.26	%							3.34	%
Net interest income, and net yield spread on interest earning assets			$	5,180			3.36	%			$	5,196			3.43	%
Ratio of interest-earning assets to interest-bearing liabilities				115	%							112	%

Results of Operations - Comparison of Three Month Periods Ended March 31, 2016 and 2015

Net income for the three months ended March 31, 2016 and 2015 was $1,276,605 and $1,329,544, respectively, which represents a decrease in earnings of $52,939 (4%).

Interest Income

Total interest income for the three months ended March 31, 2016 decreased $82,592 (1%) as compared to the three months ended March 31, 2015. For the three month period ended March 31, 2016 compared to the same period in 2015, the average yield on interest earning assets decreased 14 basis points to 4.02%, while the average balance of interest earning assets increased approximately $6,700,000. While loan origination activity has been steady, unanticipated payoffs and a highly competitive pricing environment have created challenges to expand loan balances, interest income and loan yield. Additionally, during the last few quarters, a significant portion of the Company’s net investable cash balances have been placed in lower yielding investment securities. Also, negatively impacting interest income and loan yield compared to the prior year quarter was the increase in nonaccrual loans that began at the end of the third quarter of 2015.

Interest Expense

Total interest expense for the three months ended March 31, 2016 decreased $66,279 (6%) when compared to the three months ended March 31, 2015. For the three month period ended March 31, 2016, the average cost of interest bearing liabilities decreased 5 basis points to 0.76%, and the average balance of interest bearing liabilities decreased approximately $5,968,000 when compared to the same period in 2015. The expansion of lower-cost, core deposit relationships and reductions in wholesale funding continue to improve the Company’s overall cost of funding. At quarter-end, total transaction and savings deposit balances increased $3.5 million over year-end 2015. Also improving cost of funds over the prior year was the prepayment of the Company’s $10 million repurchase agreement during the second quarter of 2015.

Net Interest Income

Net interest income for the three months ended March 31, 2016 decreased $16,313 (less than 1%) when compared to the same period in 2015. The average balance of interest earning assets increased by approximately $12,668,000 more than the average balance of interest bearing liabilities increased when comparing the three month period ended March 31, 2016 to the same period in 2015. For the three month period ended March 31, 2016, the net interest margin decreased 7 basis points to 3.36% when compared to the same period in 2015.

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 recorded a provision for loan losses of $375,000 for the three months ended March 31, 2016, compared to $150,000 for the same period in 2015.

The Company’s increase in the provision for the quarter was primarily due to the increased reserves on a few specific 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.

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.

Noninterest Income

Noninterest income increased $158,066 (17%) for the three months ended March 31, 2016 when compared to the three months ended March 31, 2015.

The increase is due to several factors. First, the Company’s mortgage division experienced another strong quarter resulting in an increase of approximately $22,000 in gains on sales of fixed-rate mortgage loans for the period compared to the same quarter in 2015. Second, the Company’s recent expansion of Small Business Administration (“SBA”) lending has allowed it to recognize income from sales of the guaranteed portion of certain loans. Income of approximately $70,000 was recognized from sales of SBA loans during the quarter compared to no income during the same quarter in 2015. Finally, in order to take advantage of market movements and further restructure its portfolio, the Company increased its gains on sales of investment securities by $44,000 for the period compared to the same quarter in 2015.

Noninterest Expense

Noninterest expenses increased $30,754 (less than 1%) for the three months ended March 31, 2016 when compared to the three months ended March 31, 2015. This was primarily due to a few factors.

Salaries and employee benefits increased $97,840 (4%) for the three months ended March 31, 2016 when compared to the three months ended March 31, 2015. This was primarily due to the addition of several key officers during 2015 in the areas of information technology, marketing, commercial and retail production in order to position itself for future growth. Offsetting the increases in personnel expense were reductions in other expenses, primarily a decline of $91,860 (75%) in director’s restricted stock expense. The restricted stock granted to directors in 2016 has a cliff vesting at the end of one year, and thus, expensed over the one year time frame. In 2015, the director’s restricted stock grants were fully vested and thus, expensed in full on the date of the grants.

Provision for Income Taxes

The provision for income taxes decreased by $61,062 (10%) for the three months ended March 31, 2016 when compared to the three months ended March 31, 2015. The decrease in the provision for income taxes for the quarter is a direct result of the Company’s decrease in 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. Due to the decrease in nonperforming loans, the allowance for loan losses, as a percentage of nonperforming loans outstanding, as of March 31, 2016 and December 31, 2015 was 45.8% and 42.3%, respectively. Total loans classified as substandard, doubtful or loss as of March 31, 2016, were $24,476,595 or 3.73% of total assets as compared to $24,237,463 or 3.71% of total assets at December 31, 2015. 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.

	3/31/2016			12/31/2015			12/31/2014
Nonperforming loans	$	13,774		$	13,755		$	5,291
Real estate acquired in settlement of loans		2,351			2,392			3,165
Total nonperforming assets	$	16,125		$	16,147		$	8,456

Total nonperforming assets as a percentage of total assets		2.46	%		2.47	%		1.35	%
Allowance for loan losses	$	6,185		$	5,812		$	6,589
Allowance for loan losses as a percentage of gross loans		1.25	%		1.17	%		1.33	%

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 Federal Home Loan Bank of Des Moines borrowings. The Company also has established 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 $17,621,871 as of March 31, 2016 and $18,774,419 as of December 31, 2015, representing a decrease of $1,152,548. The variations in levels of cash and cash equivalents are influenced by many factors but primarily loan originations and payments, deposit flows and anticipated future deposit flows, which are subject to, and influenced by, many factors

In July 2013, the Board of Governors of the Federal Reserve Board and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for the Company and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively resulting in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures. We expect that the capital ratios for the Company and the Bank under Basel III will continue to exceed the well capitalized minimum capital requirements, when fully phased in.

The Bank’s capital ratios are above the levels required to be considered a well-capitalized financial institution. As of March 31, 2016, the Bank’s common equity Tier 1 ratio was 13.56%, the Bank’s Tier 1 leverage ratio was 12.17%, its Tier 1 risk-based capital ratio was 13.56% and the Bank’s total risk-based capital ratio was 14.61% - all exceeding the minimums of 6.5%, 5.0%, 8.0% and 10.0%, respectively, as well as exceeding the minimums plus the first 0.625% of capital conservation buffer required as of March 31, 2016.

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, 2016 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
in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
+200	$	81,176	$	(807	)		-1	%		12.77	%		0.32	%
+100		81,134		(849	)		-1	%		12.56	%		0.11	%
NC		81,983		-			0	%		12.45	%		0.00	%
-100		75,064		(6,919	)		-8	%		11.27	%		-1.18	%
-200		80,799		(1,184	)		-1	%		11.97	%		-0.47	%

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 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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 Securities Exchange Act of 1934 (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, 2016, 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, 2016.

(b) There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2016 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, 2016.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

	11.	Statement re: computation of per share earnings (set forth in “Note 6: 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, 2016 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.

________________________________________________________

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 11, 2016
Shaun A. Burke
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)



/s/ Carter Peters	May 11, 2016
Carter Peters
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)