10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2020

OR

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _______________ to ______________________

Commission File No. 001-37912

Bancorp 34, Inc.

(Exact name of registrant as specified in its charter)

Maryland	74-2819148
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
500 East 10th Street, Suite 100, Alamogordo, New Mexico	88310
(Address of Principal Executive Offices)	(Zip Code)

(575) 437-9334

(Registrant’s telephone number)

                                           N/A                                            

(Former name or former address, if changed since last report)

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 $0.01 per share	BCTF	The NASDAQ Stock Market, LLC

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 requirements for the past 90 days.

YES ☒  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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒   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 the 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	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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 ☒

Shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding as of July 27, 2020 were 3,199,913.

Bancorp 34, Inc.
FORM 10-Q

Index 

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2020 and 2019 (unaudited)	3
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months ended June 30, 2020 and 2019 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36
Part II. Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		38

Item 1. Financial Statements

BANCORP 34, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED

	June 30, 2020			December 31, 2019
ASSETS
Cash and due from banks	$	6,810,445		$	4,496,465
Interest-bearing deposits with banks		10,635,000			24,990,000
Total cash and cash equivalents		17,445,445			29,486,465
Available-for-sale securities, at fair value		63,568,281			44,517,178
Loans held for investment		351,347,449			294,660,719
Allowance for loan losses		(3,975,620	)		(2,921,931	)
Loans held for investment, net		347,371,829			291,738,788
Premises and equipment, net		8,555,144			8,990,955
Operating lease right-of-use assets		1,227,981			-
Stock in financial institutions, restricted, at cost		4,052,961			4,016,761
Accrued interest receivable		1,723,368			961,105
Deferred income tax asset, net		1,725,312			1,907,876
Bank owned life insurance		10,980,816			10,850,085
Core deposit intangible, net		115,328			133,052
Prepaid and other assets		1,249,765			1,137,090
TOTAL ASSETS	$	458,016,230		$	393,739,355
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand deposits	$	71,746,775		$	56,401,370
Savings and NOW deposits		181,434,344			166,107,428
Time deposits		77,753,625			81,387,861
Total deposits		330,934,744			303,896,659
Federal Home Loan Bank advances		75,000,000			40,000,000
Escrows		258,140			254,593
Operating lease liabilities		1,325,960			-
Accrued interest and other liabilities		4,680,197			4,271,437
Accrued interest and other liabilities - discontinued operations		169,380			233,427
Total liabilities		412,368,421			348,656,116
Commitments and contingencies (note 5)		-			-
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding		-			-
Common stock, $0.01 par value, 100,000,000 authorized, 3,199,913 and 3,208,618 issued and outstanding.		31,999			32,086
Additional paid-in capital		23,215,821			23,168,176
Retained earnings		23,620,996			23,157,134
Accumulated other comprehensive income		330,803			307,255
Unearned employee stock ownership plan (ESOP) shares		(1,551,810	)		(1,581,412	)
Total stockholders’ equity		45,647,809			45,083,239
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	458,016,230		$	393,739,355

The accompanying notes are an integral part of these consolidated financial statements.  

2

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) – UNAUDITED

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Interest income
Interest and fees on loans	$	4,466,516		$	4,414,091		$	9,087,742		$	8,567,298
Interest on securities		356,845			230,266			644,072			454,073
Interest on other interest-earning assets		17,956			128,265			91,395			250,254
Total interest income		4,841,317			4,772,622			9,823,209			9,271,625
Interest expense
Interest on deposits		851,395			912,081			1,836,964			1,773,350
Interest on borrowings		212,374			265,698			402,589			543,863
Total interest expense		1,063,769			1,177,779			2,239,553			2,317,213
Net interest income		3,777,548			3,594,843			7,583,656			6,954,412
Provision for loan losses		577,000			85,000			1,049,000			172,500
Net interest income after provision for loan losses		3,200,548			3,509,843			6,534,656			6,781,912
Noninterest income
Gain on sale of loans		2,641			31,390			2,641			58,297
Gain on sale of securities		10,157			-			10,157			-
Service charges and fees		73,687			114,068			195,404			209,267
Bank owned life insurance		90,550			92,709			181,362			183,971
Loss on disposal of fixed assets		(205,663	)		-			(205,663	)		-
Other		19,398			9,835			66,765			20,991
Total noninterest income (loss)		(9,230	)		248,002			250,666			472,526
Noninterest expense
Salaries and benefits		1,300,507			1,644,543			3,060,057			3,232,069
Occupancy		351,003			349,276			719,710			700,692
Data processing fees		518,628			507,933			980,455			992,659
FDIC and other insurance expense		44,408			60,460			96,336			146,063
Professional fees		141,917			227,331			433,354			409,490
Advertising		43,063			38,141			103,725			104,198
Other		179,607			269,152			380,621			502,640
Total noninterest expense		2,579,133			3,096,836			5,774,258			6,087,811
Income from continuing operations before provision for income taxes		612,185			661,009			1,011,064			1,166,627
Provision for income taxes		110,049			148,277			230,871			266,752
Net income from continuing operations		502,136			512,732			780,193			899,875
Discontinued operations
Loss from discontinued operations		-			(1,132,237	)		-			(1,590,638	)
Benefit for income taxes		-			(279,727	)		-			(392,193	)
Net loss from discontinued operations		-			(852,510	)		-			(1,198,445	)
NET INCOME (LOSS)		502,136			(339,778	)		780,193			(298,570	)
Other comprehensive income (loss)
Unrealized gain on available-for-sale securities		473,260			634,099			1,572,665			988,018
Tax effect of unrealized gain on available-for-sale securities		(120,444	)		(161,378	)		(400,243	)		(251,450	)
Unrealized gain on available-for-sale securities, net of tax		352,816			472,721			1,172,422			736,568
Unrecognized defined benefit ("DB") plan prior service cost		(1,542,112	)		-			(1,542,112	)		-
Tax effect of unrecognized DB plan prior service cost		393,237			-			393,237			-
Unrecognized DB plan prior service cost, net of tax		(1,148,875	)		-			(1,148,875	)		-
Other comprehensive income (loss), net of tax		(796,059	)		472,721			23,547			736,568
COMPREHENSIVE (LOSS) INCOME	$	(293,923	)	$	132,943		$	1,952,615		$	437,998
Earnings per common share - Basic
Earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Earnings per common share - Basic	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)
Earnings per common share - Diluted
Earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Earnings per common share - Diluted	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)

The accompanying notes are an integral part of these consolidated financial statements.

3

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED

													Accumulated
													Other
							Additional						Comprehensive			Unearned			Total
	Common			Common			Paid-In			Retained			Income			ESOP			Stockholders'
	Shares			Stock			Capital			Earnings			(Loss)			Shares			Equity
BALANCE, DECEMBER 31, 2018		3,374,565		$	33,746		$	25,500,873		$	22,928,777		$	(396,148	)	$	(1,644,514	)	$	46,422,734
Net income		-			-			-			41,208			-			-			41,208
Unrealized loss on available-for-sale securities, net		-			-			-			-			263,847			-			263,847
Amortization of equity awards		-			-			85,680			-			-			18,059			103,739
Share repurchase		(18,410	)		(185	)		(277,486	)		-			-			-			(277,671	)
BALANCE MARCH 31, 2019		3,356,155		$	33,561		$	25,309,067		$	22,969,985		$	(132,301	)	$	(1,626,455	)	$	46,553,857
Net loss		-			-			-			(339,778	)		-			-			(339,778	)
Unrealized gain on available-for-sale securities, net		-			-			-			-			472,721			-			472,721
Stock option exercise		7,260			73			69,985			-			-			-			70,058
Restricted stock forfeitures		(1,200	)		(12	)		12			-			-			-			-
Amortization of equity awards		-			-			78,374			-			-			15,015			93,389
Share repurchase		(22,985	)		(230	)		(358,170	)		-			-			-			(358,400	)
Dividends paid - $0.05 per share		-			-			-			(165,559	)		-			-			(165,559	)
BALANCE JUNE 30, 2019		3,339,230		$	33,392		$	25,099,268		$	22,464,648		$	340,420		$	(1,611,440	)	$	46,326,288
BALANCE, DECEMBER 31, 2019		3,208,618		$	32,086		$	23,168,176		$	23,157,134		$	307,255		$	(1,581,412	)	$	45,083,239
Net income		-		$	-		$	-		$	278,057		$	-		$	-		$	278,057
Unrealized gain on available-for-sale securities, net		-			-			-			-			819,607			-			819,607
Amortization of equity awards		-			-			81,620			-			-			14,801			96,421
Dividends paid - $0.05 per share		-			-			-			(158,433	)		-			-			(158,433	)
BALANCE MARCH 31, 2020		3,208,618		$	32,086		$	23,249,796		$	23,276,758		$	1,126,862		$	(1,566,611	)	$	46,118,891
Net income		-		$	-		$	-		$	502,136		$	-		$	-		$	502,136
Other comprehensive income (loss)		-			-			-			-			(796,059	)		-			(796,059	)
Restricted stock awards		2,000			20			(20	)		-			-			-			-
Amortization of equity awards		-			-			76,559			-			-			14,801			91,360
Share repurchase		(10,705	)		(108	)		(110,513	)		-			-			-			(110,621	)
Dividends paid - $0.05 per share		-			-			-			(157,898	)		-			-			(157,898	)
BALANCE JUNE 30, 2020		3,199,913		$	31,998		$	23,215,822		$	23,620,996		$	330,803		$	(1,551,810	)	$	45,647,809

The accompanying notes are an integral part of these consolidated financial statements.

4

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities
Net income (loss)	$	780,193		$	(298,570	)
Less: Net loss from discontinued operations		-			(1,198,445	)
Net income from continuing operations		780,193			899,875
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		274,386			323,710
Stock dividends on financial institution stock		(36,200	)		(54,800	)
Amortization of premiums and discounts on securities, net		168,951			51,133
Amortization of equity awards		187,781			197,128
Amortization of core deposit intangible		17,724			20,430
Gain on sale of loans		(2,641	)		(58,297	)
Proceeds from sale of loans		168,555			993,026
Gain on sale of securities		(10,157	)		-
Provision for loan losses		1,049,000			172,500
Fixed asset impairment		205,663
Net appreciation on bank-owned life insurance		(130,731	)		(137,965	)
Deferred income tax expense		(182,343	)		(128,832	)
Changes in operating assets and liabilities:
Accrued interest receivable		(762,263	)		(136,820	)
Prepaid and other assets		(1,296,884	)		102,459
Accrued interest and other liabilities		506,739			328,628
Net cash from operating activities - continuing operations		937,773			2,572,175
Net cash from operating activities - discontinued operations		(64,047	)		22,705,420
Net cash from operating activities		873726			25,277,595
Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities		3,564,344			2,874,659
Proceeds from sales of available for sale securities		1,854,871			-
Purchases of available-for-sale securities		(23,056,448	)		(3,179,247	)
Net change in loans held for investment		(56,847,955	)		(7,885,418	)
Purchases of premises and equipment		(44,238	)		(2,905	)
Net cash from investing activities		(74,529,426	)		(8,192,911	)
Cash flows from financing activities
Net change in deposits		27,038,085			14,172,166
Net change in escrows		3,548			(90,744	)
Proceeds from Federal Home Loan Bank advances		76,000,000			30,000,000
Repayments of Federal Home Loan Bank advances		(41,000,000	)		(47,000,000	)
Exercise of stock options		-			70,058
Common stock repurchases		(110,621	)		(636,071	)
Dividends paid		(316,331	)		(165,559	)
Net cash from financing activities		61,614,681			(3,650,150	)
Net change in cash and cash equivalents		(12,041,020	)		13,434,534
Cash and cash equivalents, beginning of period		29,486,465			11,774,457
Cash and cash equivalents, end of period	$	17,445,445		$	25,208,991
Supplemental disclosures:
Interest on deposits and advances paid	$	2,334,568		$	2,272,650
Income taxes paid	$	56,000		$	21,000
Loans transferred to loans held for sale	$	-		$	934,729
Operating lease right-of-use assets recorded on ASU 2016-20 adoption	$	1,138,139		$	-
Operating lease liabilities recorded on ASU 2016-20 adoption	$	1,138,139		$	-

 The accompanying notes are an integral part of these consolidated financial statements.   

5

BANCORP 34, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Bancorp 34, Inc. (“Bancorp 34” or the “Company”) is a Maryland corporation and savings and loan holding company which owns 100% of the common stock of Bank 34 (the “Bank”).

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Alamogordo and Las Cruces, New Mexico, and Scottsdale and Peoria, Arizona.

In May 2019, Bank 34 took steps to exit the Bank's operations with respect to originating residential mortgage loans for sale into the secondary market ("Mortgage Banking"). The Mortgage Banking operations that were disposed of, and that represent a strategic shift that will have a major effect on operations and financial results, are accounted for as discontinued operations. Additional information on discontinued operations can be found in Note 2 – Discontinued Operations.

The primary deposit products are demand deposits, time deposits, NOW, savings and money market accounts. The primary lending products are real estate mortgage loans and commercial loans. The Bank is subject to competition from other financial institutions and regulated and non-regulated financial services providers, regulation by certain federal agencies and undergoes periodic examinations by regulatory authorities.

Rising and falling interest rate environments can have various impacts on the Bank’s net interest income, depending on the interest rate gap that the Bank maintains. The Bank’s net interest income is also affected by prepayments of loans and early withdrawals of deposits.

Basis of Presentation – The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition, cash flows and results of operations at the dates and for the periods presented. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations for the full fiscal year or for any other period. This information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Discontinued Operations – As discussed in Note 2 - Discontinued Operations, current and prior periods presented in the consolidated statements of comprehensive income as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of discontinued operations for comparative purposes. The consolidated balance sheets and related note disclosures for prior periods also reflect the reclassification of certain assets and liabilities to discontinued operations.

Basis of Consolidation – The consolidated financial statements include the accounts of Bancorp 34 and the Bank. All significant intercompany accounts and transactions have been eliminated.

Reclassifications – Certain reclassifications have been made to prior period’s financial information to conform to the current period presentation.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

6

Significant estimates include, but are not limited to, allowance for loan losses, other-than-temporary impairment of securities, useful lives used in depreciation and amortization, deferred income taxes, valuation of other real estate and core deposit intangibles.

Summary of Recent Accounting Pronouncements:

Prior to 2020, Bancorp 34 was an emerging growth company under the JOBS Act and elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that have complied with such new or revised accounting standards. The Company lost its status as an emerging growth company at the end of 2019.

Leases – In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard was effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018 for public companies, but the Company had until the first quarter of 2020 to adopt due to its emerging growth company status. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. We adopted the standard effective January 1, 2020 on a prospective basis and elected to apply several allowable practical expedients, including carryover of historical lease determinations, classification conclusions and direct cost balances.  Adoption of the standard resulted in balance sheet recognition of approximately $1.3 million in operating lease right-of-use assets and $1.4 million operating lease liabilities as of January 1, 2020. These amounts represent the present value of remaining minimum lease payments, discounted using the Company’s incremental borrowing rate at the date of adoption.  There was no material impact on the timing of expense or income recognition in the consolidated statements of income.  Prior periods were not restated.  Further information regarding the Company’s leasing activities are included in Note 5 – Financial Instruments with Off-Balance-Sheet Credit Risk.

Credit Losses - In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this update replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to create credit loss estimates. The new guidance is effective for public companies that are U.S. Securities and Exchange Commission filers for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. For all other public companies, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other companies, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. On October 16, 2019, FASB announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies, as defined in Securities and Exchange Commission Regulations, such as the Company, to adopt effective for the first fiscal year beginning after December 15, 2022. The guidance is required to be applied by the modified retrospective approach. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

Compensation, Retirement Benefits - In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement benefits (Topic 715-20). This ASU amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for post-retirement health care benefits. This ASU is effective for fiscal years ending after December 15, 2020 and was applied on a retrospective basis.  The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 2 – DISCONTINUED OPERATIONS

On May 9, 2019, the Company entered into a purchase and assumption agreement to transfer its mortgage banking operations to another financial institution. Under the agreement, the other financial institution would offer employment to a majority of the Company’s mortgage operations employees. Assuming a majority of key employees at those locations agreed to transfer, the other financial institution would assume certain leases and fixed assets at those locations. Subsequent to that transaction, a majority of the mortgage operation employees made arrangements to transfer to different financial institutions, which similarly agreed to assume certain leases and fixed assets at those respective locations. Some sales and assumption agreements with these different financial institutions were consummated in the second quarter of 2019 and the remainder were consummated in the second half of 2019. All related transactions were completed by December 31, 2019. The Company does not have continuing involvement with the mortgage banking operations. The Company discontinued issuing mortgage interest rate lock commitments (IRLC's) in its name in May 2019 and originating mortgage loans held for sale in its name in June 2019.

Income and expense related to mortgage banking operations are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations.

Liabilities for costs associated with discontinued operations were recognized and measured initially at their fair values during the quarter ended June 30, 2019. Those costs include, but are not limited to, involuntary employee termination benefits, cost to terminate contracts, and other associated costs. The liability itself consists of future cash flows expected to be incurred in the exit and disposal activity, which are discounted at a credit-adjusted risk-free interest rate.

7

 The following table summarizes the one-time charge on net loss on disposal of discontinued operations:

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Severance benefits	$	147,948	$	147,948
Leases, software & other contractual obligations		360,613		360,613
Fixed asset losses		30,423		30,423
Other costs		212,998		212,998
Net Loss on Disposal	$	751,982	$	751,982

The following table presents results of discontinued operations for the three and six months ended June 30, 2020, and 2019:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020		2019
Net interest income	$	-	$	85,484		$	-	$	170,782
Gain on sale of loans		-		2,095,986			-		4,813,660
Other		-		190			-		190
Total noninterest income		-		2,096,176			-		4,813,850
Salaries and benefits		-		1,919,033			-		4,480,025
Occupancy		-		84,314			-		232,360
Data processing fees		-		282,503			-		584,369
Professional fees		-		51,993			-		107,972
Advertising		-		70,469			-		118,801
Net loss on disposal		-		751,982			-		751,982
Other		-		153,603			-		299,761
Total noninterest expense		-		3,313,897			-		6,575,270
Loss from discontinued operations		-		(1,132,237	)		-		(1,590,638	)
Benefit for income taxes		-		(279,727	)		-		(392,193	)
Net loss from discontinued operations	$	-	$	(852,510	)	$	-	$	(1,198,445	)

Net interest income from discontinued operations includes interest income on mortgage loans held for sale less interest expense allocated to mortgage banking operations equal to the average mortgage loans held for sale times the average rate on FHLB short-term borrowings.

Material assets and liabilities of mortgage banking operations are classified as Discontinued Operations in the consolidated balance sheets as of June 30, 2020, and prior year balances have been adjusted to conform with the current period presentation.

The following table summarizes the major categories of assets and liabilities related to discontinued operations in the consolidated balance sheets as of:

	June 30, 2020			December 31, 2019
Accrued interest and other liabilities - discontinued operations		169,380			233,427
Total liabilities	$	169,380		$	233,427
Net (liabilities) assets	$	(169,380	)	$	(233,427	)

8

NOTE 3 – AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities have been classified in the consolidated balance sheets according to management’s intent at June 30, 2020 and December 31, 2019. The amortized cost of such securities and their approximate fair values were as follows:

	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
June 30, 2020
Available-for-sale securities
Mortgage-backed securities	$	30,847,669	$	1,042,749	$	(1,391	)	$	31,889,027
U.S. Government agencies		919,509		6,596		(1,819	)		924,286
Municipal obligations		29,816,091		938,877		-			30,754,968
Total	$	61,583,269	$	1,988,222	$	(3,210	)	$	63,568,281
December 31, 2019
Available-for-sale securities
Mortgage-backed securities	$	30,722,958	$	415,564	$	(119,774	)	$	31,018,748
U.S. Government agencies		1,102,532		1,739		(24,824	)		1,079,447
Municipal obligations		12,279,341		254,521		(114,879	)		12,418,983
Total	$	44,104,831	$	671,824	$	(259,477	)	$	44,517,178

Gross proceeds from the sale of available-for-sale securities and resulting gains and losses were as follows:

	Six Months Ended June 30,
	2020			2019
Proceeds from sale	$	1,854,871		$	-
Sales gains	$	15,013		$	-
Sales losses	$	(4,856	)	$	-

Amortized cost and fair value of securities by contractual maturity as of June 30, 2020 and December 31, 2019 are shown below. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the actual contractual maturities of underlying collateral. Expected maturities may differ from contractual maturities because borrowers may call or prepay obligations.

The scheduled maturities of available-for-sale securities at June 30, 2020 and December 31, 2019 were as follows:

	June 30, 2020				December 31, 2019
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	11,294,706	$	11,341,059	$	-	$	-
Due after one to five years		27,764,508		28,807,095		27,151,751		27,510,536
Due after five to ten years		17,420,852		18,162,759		14,048,273		14,163,270
Due after ten years		5,103,203		5,257,368		2,904,807		2,843,372
Totals	$	61,583,269	$	63,568,281	$	44,104,831	$	44,517,178

At June 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

At June 30, 2020 and December 31, 2019, mortgage-backed securities included collateralized mortgage obligations of $12.3 million and $13.4 million, respectively, which are backed by single-family mortgage loans. The Company does not hold any securities backed by commercial real estate loans.

9

Gross Unrealized Losses and Fair Value – The following tables show the gross unrealized losses and fair values of securities by length of time that individual securities in each category have been in a continuous loss position.

	June 30, 2020
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	639,465	$	(1,391	)	$	-	$	-		$	639,465	$	(1,391	)
U.S. Government agencies		-		-			715,953		(1,819	)		715,953		(1,819	)
Total temporarily impaired securities	$	639,465	$	(1,391	)	$	715,953	$	(1,819	)	$	1,355,418	$	(3,210	)

	December 31, 2019
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	10,201,840	$	(64,195	)	$	6,459,069	$	(55,579	)	$	16,660,909	$	(119,774	)
U.S. Government agencies		-		-			843,719		(24,824	)		843,719		(24,824	)
Municipal obligations		4,676,851		(114,879	)		-		-			4,676,851		(114,879	)
Total temporarily impaired securities	$	14,878,691	$	(179,074	)	$	7,302,788	$	(80,403	)	$	22,181,479	$	(259,477	)

At June 30, 2020 and December 31, 2019, all of the government agencies and mortgage-backed securities held by the Company were issued by U.S. Government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2020.

Loans and securities with a carrying value of approximately $153.7 million at June 30, 2020 were pledged to secure Federal Home Loan Bank (“FHLB”) advances. In addition, at June 30, 2020, securities with a carrying value of $3.5 million were pledged to secure public deposits and securities with a carrying value of $14.7 million were pledged to the FRB for potential overnight discount window borrowings.

10

NOTE 4 – LOANS HELD FOR INVESTMENT, NET

The components of loans held for investment, net in the consolidated balance sheets were as follows:

	June 30, 2020						December 31, 2019
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	257,876,733			73.1	%	$	242,682,721			82.1	%
One- to four-family residential real estate		24,354,087			6.9			28,849,640			9.8
Commercial and industrial		66,761,757			18.9			20,075,236			6.8
Consumer and other		3,726,966			1.1			3,860,991			1.3
Total gross loans		352,719,543			100.0	%		295,468,588			100.0	%
Unamortized loan fees, net of costs		(1,372,094	)					(807,869	)
Loans held for investment		351,347,449						294,660,719
Allowance for loan losses		(3,975,620	)					(2,921,931	)
Loans held for investment, net	$	347,371,829					$	291,738,788

At June 30, 2020 and December 31, 2019, loans held for investment includes commercial construction loans of $23.5 million and $16.1 million and Paycheck Protection Program ("PPP") loans of $36.1 million and -0-, respectively. 

Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans as of June 30, 2020 and December 31, 2019:

	As of June 30, 2020
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		3,371,097		250,674		307,805		46,044		3,975,620
Total	$	3,371,097	$	250,674	$	307,805	$	46,044	$	3,975,620
Gross loans
Ending balance: individually evaluated for impairment	$	2,578,003	$	823,445	$	-	$	-	$	3,401,448
Ending balance: collectively evaluated for impairment		255,298,730		23,530,642		66,761,757		3,726,966		349,318,095
Total	$	257,876,733	$	24,354,087	$	66,761,757	$	3,726,966	$	352,719,543

11

	As of December 31, 2019
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		2,588,714		187,345		115,502		30,370		2,921,931
Total	$	2,588,714	$	187,345	$	115,502	$	30,370	$	2,921,931
Gross loans
Ending balance: individually evaluated for impairment	$	2,718,731	$	786,557	$	-	$	-	$	3,505,288
Ending balance: collectively evaluated for impairment		239,963,990		28,063,083		20,075,236		3,860,991		291,963,300
Total	$	242,682,721	$	28,849,640	$	20,075,236	$	3,860,991	$	295,468,588

The COVID-19 pandemic has, and is expected to going forward, materially affect our determination of an adequate allowance for loan losses ("ALLL").  In addition to its normal ALLL provision determined based upon loan growth and other risk factor changes, the Company increased its allowance for loan losses an additional $900,000, or 31% compared to the December 31, 2019 ALLL balance for uncertainties related to COVID-19 pandemic and the recession.  The Company plans to continue to closely monitor the effects of the pandemic on the ability of its borrowers to repay their debt going forward.  It is possible larger increases in the allowance for loan losses will be necessary in the future due to the COVID-19 pandemic and recession, or the after-effects of it. 

The following tables summarize activities for the allowance for loan losses for the six months ended June 30, 2020 and 2019:

	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Balance December 31, 2019	$	2,588,714	$	187,345	$	115,502	$	30,370	$	2,921,931
Provision for loan losses		267,392		49,372		147,981		7,255		472,000
Charge-offs		-		-		-		-		-
Recoveries		-		2,930		-		-		2,930
Net (charge-offs) recoveries		-		2,930		-		-		2,930
Balance March 31, 2020	$	2,856,106	$	239,647	$	263,483	$	37,625	$	3,396,861
Provision for loan losses		514,991		9,268		44,322		8,419		577,000
Change-offs		-		-		-		-		-
Recoveries		-		1,759		-		-		1,759
Net (charge-offs) recoveries		-		1,759		-		-		1,759
Balance June 30, 2020	$	3,371,097	$	250,674	$	307,805	$	46,044	$	3,975,620

	Commercial Real Estate		One- to Four-Family Residential Real Estate			Commercial and Industrial		Consumer and Other			Total
Balance December 31, 2018	$	2,130,124	$	359,705		$	377,180	$	34,082		$	2,901,091
Provision for loan losses		211,173		(130,880	)		9,738		(2,531	)		87,500
Charge-offs		-		(8,686	)		-		-			(8,686	)
Recoveries		-		-			1,507		-			1,507
Net (charge-offs) recoveries		-		(8,686	)		1,507		-			(7,179	)
Balance March 31, 2019	$	2,341,297	$	220,139		$	388,425	$	31,551		$	2,981,412
Provision for loan losses		85,605		(2,388	)		9,914		(8,131	)		85,000
Change-offs		-		-			-		-			-
Recoveries		-		1,879			-		-			1,879
Net (charge-offs) recoveries		-		1,879			-		-			1,879
Balance June 30, 2019	$	2,426,902	$	219,630		$	398,339	$	23,420		$	3,068,291

12

Nonperforming Assets – The following tables present an aging analysis of the recorded investment of past due loans as of June 30, 2020 and December 31, 2019. Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. Per Company policy, loans past due 90 days or more no longer accrue interest.

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
June 30, 2020
Commercial real estate	$	-	$	-	$	-	$	-	$	257,876,733	$	257,876,733
One- to four-family residential real estate		-		395,110		290,018		685,128		23,668,959		24,354,087
Commercial and industrial		-		-		-		-		66,761,757		66,761,757
Consumer and other		-		-		-		-		3,726,966		3,726,966
Totals	$	-	$	395,110	$	290,018	$	685,128	$	352,034,415	$	352,719,543

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2019
Commercial real estate	$	-	$	-	$	2,718,731	$	2,718,731	$	239,963,990	$	242,682,721
One- to four-family residential real estate		758,197		36,520		638,623		1,433,340		27,416,300	$	28,849,640
Commercial and industrial		-		-		-		-		20,075,236	$	20,075,236
Consumer and other		-		-		-		-		3,860,991	$	3,860,991
Totals	$	758,197	$	36,520	$	3,357,354	$	4,152,071	$	291,316,517	$	295,468,588

13

The following table sets forth nonaccrual loans and other real estate at June 30, 2020 and December 31, 2019:

	June 30,			December 31,
	2020			2019
Nonaccrual loans
Commercial real estate	$	2,578,003		$	2,718,731
One- to four-family residential real estate		754,037			786,557
Commercial and industrial		-			-
Consumer and other		-			-
Total nonaccrual loans		3,332,040			3,505,288
Other real estate (ORE)		-			-
Total nonperforming assets	$	3,332,040		$	3,505,288
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.19	%
Nonperforming assets to total assets		0.73	%		0.89	%

Nonaccrual loan balances guaranteed by the SBA are $2.3 million, or 69%, and $2.3 million, or 66%, of the nonaccrual loan balances at June 30, 2020 and December 31, 2019, respectively.

Credit Quality Indicators – The following tables represent the credit exposure by internally assigned grades at June 30, 2020 and December 31, 2019. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

	As of June 30, 2020
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	253,050,106	$	22,606,006	$	66,528,216	$	3,726,966	$	345,911,294
Special mention		459,260		288,279		-		-		747,539
Substandard		4,367,367		1,459,802		233,541		-		6,060,710
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	257,876,733	$	24,354,087	$	66,761,757	$	3,726,966	$	352,719,543

14

	As of December 31, 2019
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	237,546,684	$	26,969,204	$	19,774,797	$	3,860,991	$	288,151,676
Special mention		508,201		375,054		-		-		883,255
Substandard		4,627,836		1,505,382		300,439		-		6,433,657
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	242,682,721	$	28,849,640	$	20,075,236	$	3,860,991	$	295,468,588

 The Bank’s internally assigned grades are as follows:

Pass – Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard – Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful – All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

15

Impaired Loans – The following tables include the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

	As of June 30, 2020
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,578,003	$	2,578,003	$	-	$	2,620,918
One- to four-family residential real estate		823,445		823,445		-		829,053
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,401,448	$	3,401,448	$	-	$	3,449,971
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,578,003	$	2,578,003	$	-	$	2,620,918
One- to four-family residential real estate		823,445		823,445		-		829,053
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,401,448	$	3,401,448	$	-	$	3,449,971

	As of December 31, 2019
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,718,731	$	2,718,731	$	-	$	2,738,545
One- to four-family residential real estate		786,557		786,557		-		791,476
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,505,288	$	3,505,288	$	-	$	3,530,021
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,718,731	$	2,718,731	$	-	$	2,738,545
One- to four-family residential real estate		786,557		786,557		-		791,476
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,505,288	$	3,505,288	$	-	$	3,530,021

16

During each of the six months ended June 30, 2020 and 2019, no interest income was recognized on nonaccrual loans.

Certain loans within the Company’s loan portfolio are guaranteed by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were no commitments from the VA to take title to properties collateralizing Company loans at June 30, 2020 and December 31, 2019.

Troubled Debt Restructurings – Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that they would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.

In the normal course of business, the Company may modify a loan for a credit worthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower’s decline in performance, and projections intended to assess repayment ability going forward.

There was one troubled debt restructuring with a current payment status and principal balance of $69,000 and $71,000, as of June 30, 2020 and December 31, 2019, respectively.

NOTE 5 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK

In the normal course of business, the Bank has outstanding commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for instruments that are included in the consolidated balance sheets.

Financial instruments whose contract amounts represent off-balance-sheet credit risk are as follows as of June 30, 2020 and December 31, 2019:

	June 30,		December 31,
	2020		2019
Commitments to extend credit	$	29,719,611	$	25,739,246
Unused lines of credit		22,426,577		17,765,580
Totals	$	52,146,188	$	43,504,826

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies by and may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

The Company enters into leases in the normal course of business primarily for branch facilities or loan production offices.  The leases have remaining terms ranging from one to three years, some of which include renewal options to extend the lease and options to terminate the lease.   In addition, the Company has entered into subleases for space in certain vacated mortgage loan production offices, the terms of which range from one to two years.  The Company’s leases and subleases do not include residual value guarantees or covenants.  The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option.  The Company has elected not to recognize leases with original least terms of 12 months or less (short-term leases) on the balance sheet.  Leases are recognized as operating or financing leases at the lease commencement date.  Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term.  Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities are recognized at lease commencement date based upon the estimated present value of lease payments over the lease term.  The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known. The discount rates used to calculate the present value of lease liabilities were based upon the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the later of the date we adopted the new lease accounting standard or lease commencement date.  At June 30, 2020 the balance sheet included $1.2 million operating lease right-of-use assets and $1.3 million operating lease liabilities.  

The following table shows the future minimum lease payments, weighted average remaining lease terms and weighted average discount rates under operating lease arrangements as of June 30, 2020.  

	June 30, 2020
Year	Operating Leases
2020	$	302,869
2021		576,841
2022		444,986
2023		30,558
Total minimum lease payments		1,355,254
Amounts representing interest (present value discount)		(29,294	)
Operating lease liabilities (present value of minimum lease payments)	$	1,325,960
Weighted average remaining term (in years)		2.3
Weighted average discount rate		1.92	%

17

NOTE 6 – DEFINED BENEFIT PLAN

Defined benefit pension plan expense for the three and six months ended June 30, 2020 was $83,000 and $142,000, and for the three and six months ended June 30, 2019 was $20,000 and $41,000, respectively.

Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”, EIN 13-5645888 and Plan No. 333)

Through March 31, 2020, the Company was a participant in the Pentegra DB Plan, a multiple employer defined benefit pension plan.   On June 1, 2006, the Company froze the benefits available under the Pentegra DB Plan. The Company’s cash contributions to the Pentegra DB Plan were $225,000 and -0- during the year ended December 31, 2019 and six months ended June 30, 2020, respectively, all of which represented less than 5% of total plan contributions. As of July 1, 2019 (the most recent valuation report available), the unfunded pension liability was approximately $572,000 (87% funded).

Bank 34 Employees DB Retirement Plan

Effective April 1, 2020, the Company withdrew from the Pentegra DB Plan and established the Bank 34 Employee Defined Benefit Retirement Plan (“Bank DB Plan”).  On June 2, 2020, all assets and liabilities were transferred from the Pentegra DB Plan to the newly established Bank DB Plan. 

The Bank DB Plan is a funded noncontributory defined benefit pension plan covering 50 current and former employees. Similar to its predecessor, benefits available under the Bank DB Plan are frozen. The plan provides defined benefits based on years of service and final average salary. The Company uses December 31 as the measurement date for this plan.  The initial plan year will be April 1, 2020 through December 31, 2020.

The fair value of plan assets and projected benefit obligation on the April 1, 2020 Bank DB Plan adoption date were $2,392,111 and $3,951,473, respectively, and a $1,387,186 contribution was made to the Bank DB Plan in May 2020.

Accumulated other comprehensive income on our balance sheet included $1,559,362 and $1,542,112 prior service cost at April 1, 2020 and June 30, 2020, respectively.

Weighted-average assumptions used to determine pension benefit obligations at year-end include a 3.50% discount rate and a 0% rate of compensation increase.  The weighted average assumptions used to determine net periodic pension cost include 3.50% discount rate, 3.50% expected return on plan assets and a 0% rate of compensation increase.

The Bank DB Plan was first funded in the second quarter of 2020 and the overall investment strategy and target investment allocations have yet to be determined.  The 3.50% weighted average expected long term rate of return is estimated based on current trends in similar plan assets as well as projected future rates of returns on similar assets. The plan does not have prohibited investments. 

From initial funding in the second quarter of 2020 through June 30, 2020, all assets of the Bank DB Plan have been invested in the MassMutual Premier U.S. Gov’t Money Market Fund (“Fund”).  The fair value of the Bank 34 DB Plan investment in the Fund at June 30, 2020 was $3,744,342, as determined by quoted market prices (Level 1).   

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NOTE 7 – REGULATORY MATTERS

Bank 34 is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital and Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets. Management believes, as of June 30, 2020 and December 31, 2019, the Bank meets all capital adequacy requirements to which it is subject.

Banks are also subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval.

As of June 30, 2020, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank has to maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events that management believes have changed the Bank’s prompt corrective action category.

The Bank’s actual and required capital amounts and ratios are as follows:

											To be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2020:
Total Capital (to Risk-Weighted Assets)	$	45,040		12.57	%	$	28,658		>8.00	%	$	35,823		>10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	41,024		11.45	%	$	21,494		>6.00	%	$	28,659		>8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	41,024		11.45	%	$	16,120		>4.50	%	$	23,285		>6.50	%
Tier I Capital (to Average Assets)	$	41,024		9.30	%	$	17,646		>4.00	%	$	22,058		>5.00	%
As of December 31, 2019:
Total Capital (to Risk-Weighted Assets)	$	42,944		14.59	%	$	23,554		>8.00	%	$	29,443		>10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	39,982		13.58	%	$	17,666		>6.00	%	$	23,554		>8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	39,982		13.58	%	$	13,249		>4.50	%	$	19,138		>6.50	%
Tier I Capital (to Average Assets)	$	39,982		10.30	%	$	15,529		>4.00	%	$	19,411		>5.00	%

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NOTE 8 – STOCK-BASED COMPENSATION

The Company has fully vested and unvested stock options and unvested restricted stock awards outstanding under the 2017 Equity Incentive Plan.

A summary of stock option activity during the six months ended June 30, 2020 is presented below:

	For the Six Months Ended June 30, 2020
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Shares			Exercise Price		Term (years)		Value
Outstanding, December 31, 2019		146,300		$	14.92		5.0	$	53,166
Granted		5,000			11.93
Exercised		-
Forfeited or expired		(1,150	)		14.90
Outstanding, June 30, 2020		150,150		$	14.81		4.9	$	-
Exercisable, June 30, 2020		57,160		$	14.92		4.5	$	-

A summary of restricted stock activity during the six months ended June 30, 2020 is presented below:

		For the Six Months Ended June 30, 2020
				Weighted		Average
				Average		Remaining
				Grant Date		Contractual
	Shares			Price		Term (years)
Outstanding, December 31, 2019		40,044		$	14.89		2.6
Granted		2,000			11.93
Vested		(85	)		15.48
Outstanding, June 30, 2020		41,959		$	14.76		2.1

Compensation and benefits included $153,000 and $147,000 of stock-based expense for the six months ended June 30, 2020 and 2019, respectively. Restricted stock award dividends included in stock-based expense were $4,000 and $2,000 for the six months ended June 30, 2020 and 2019, respectively. 

As of June 30, 2020, there was $749,000 of total unrecognized stock-based expense including $263,000 related to unvested stock options and $486,000 from restricted stock awards granted under the 2017 Equity Incentive Plan that is expected to be recognized ratably over the next 2.4 years.

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NOTE 9 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table presents information about assets and liabilities measured at fair value on a recurring and non-recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair values as of June 30, 2020 and December 31, 2019.

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value
June 30, 2020:
Recurring basis
Mortgage-backed securities	$	-	$	31,889,027	$	-	$	31,889,027
U.S. Government agencies		-		924,286		-		924,286
Municipal obligations		-		30,754,968		-		30,754,968
Nonrecurring basis
Impaired loans		-		-		3,401,448		3,401,448
Totals	$	-	$	63,568,281	$	3,401,448	$	66,969,729
December 31, 2019:
Recurring basis
Mortgage-backed securities	$	-	$	31,018,748	$	-	$	31,018,748
U.S. Government agencies		-		1,079,447		-		1,079,447
Municipal obligations		-		12,418,983		-		12,418,983
Nonrecurring basis
Impaired loans		-		-		3,505,288		3,505,288
Totals	$	-	$	44,517,178	$	3,505,288	$	48,022,466

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Bank does not know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

There were no transfers between levels of the fair value hierarchy during the three or six months ended June 30, 2020 or 2019. 

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The following methods and assumptions were used to estimate the fair value of the classes of financial instruments shown:

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 highly-liquid government bonds, mortgage products and exchange-traded equities. 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. Level 2 securities include certain collateralized mortgage and debt obligations and certain municipal securities. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities.

Loans Held for Investment, Net – Loans held for investment are generally not recorded at fair value on a recurring basis. Periodically, the Bank records nonrecurring adjustments to the carrying value of these loans based on fair value measurements for loans subject to impairment. The fair value of impaired loans is typically determined using a combination of observable inputs, such as interest rates, contract terms, appraisals of collateral supporting the loan and recent comparable sales of similar properties, and unobservable inputs such as creditworthiness, disposition costs and underlying cash flows associated with the loan. Since the estimates of fair value utilized for loans also involve unobservable inputs, valuations of impaired loans have been classified as Level 3.

The following table presents the significant unobservable inputs used in the fair value measurements for Level 3 financial assets measured on a non-recurring basis:

	Fair Value		Valuation Methodologies	Valuation Model	Unobservable Input Valuation
At June 30, 2020
Impaired loans
Commercial real estate	$	2,578,003	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
One- to four-family residential real estate		823,445	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
Total Impaired Loans	$	3,401,448
At December 31, 2019
Impaired loans
Commercial real estate	$	2,718,731	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
One- to four-family residential real estate		786,557	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
Total Impaired Loans	$	3,505,288

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The following table presents estimated fair values of the Company’s financial instruments at June 30, 2020 and December 31, 2019.

					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
At June 30, 2020:
Financial assets:
Cash and due from banks	$	6,810	$	6,810	$	6,810	$	-	$	-
Interest-bearing deposits with banks		10,635		10,635		10,635		-		-
Available-for-sale securities		63,568		63,568		-		63,568		-
Loans held for investment, net		347,372		346,498		-		-		346,498
Stock in financial institutions		4,053		4,053		-		4,053		-
Financial liabilities:
Demand deposits, savings and NOW deposits		253,181		252,132		252,132		-		-
Time deposits		77,754		78,368		-		78,368		-
Federal Home Loan Bank advances		75,000		75,187		-		75,187		-
At December 31, 2019
Financial assets:
Cash and due from banks	$	4,496	$	4,496	$	4,496	$	-	$	-
Interest-bearing deposits with banks		24,990		24,990		24,990		-		-
Available-for-sale securities		44,517		44,517		-		44,517		-
Loans held for investment, net		291,739		292,246		-		-		292,246
Stock in financial institutions		4,017		4,017		-		4,017		-
Financial liabilities:
Demand deposits, savings and NOW deposits		222,509		214,611		214,611		-		-
Time deposits		81,388		81,638		-		81,638		-
Federal Home Loan Bank advances		40,000		40,075		-		40,075		-

NOTE 10 – EARNINGS PER SHARE

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The earnings per share computations follow:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Basic:
Net income from continuing operations	$	502,136		$	512,732		$	780,193		$	899,875
Net loss from discontinued operations		-			(852,510	)		-			(1,198,445	)
Less: Earnings allocated to participating securities		(6,657	)		5,212			(10,298	)		4,768
Net income allocated to common shareholders	$	495,479		$	(334,566	)	$	769,895		$	(293,802	)
Weighted-average common shares outstanding including participating securities		3,203,399			3,355,929			3,206,009			3,358,183
Less: Average participating securities		(40,292	)		(48,864	)		(40,153	)		(49,331	)
Less: Average unallocated ESOP Shares		(164,096	)		(170,316	)		(164,096	)		(170,316	)
Average shares		2,999,011			3,136,749			3,001,760			3,138,536
Basic earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Basic loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Basic earnings per common share	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)
Diluted:
Net income allocated to common shareholders	$	495,479		$	(334,566	)	$	769,895		$	(293,802	)
Weighted-average common shares outstanding for basic earnings per common share		2,999,011			3,136,749			3,001,760			3,138,536
Add: Dilutive effects of assumed exercises of stock options		-			4,747			241			3,399
Weighted average shares and dilutive potential common shares		2,999,011			3,141,496			3,002,002			3,141,935
Diluted earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Diluted loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Diluted earnings per common share	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)

(1) Our participating securities are restricted stock awards which participate in common stock dividends.

Stock options for 150,150 and 145,150 shares were not considered in computing diluted earnings per common share for the three and six months ended June 30, 2020, respectively.

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

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section as of and for the three and six months ended June 30, 2020 and 2019, has been derived from the consolidated financial statements that appear elsewhere in this report. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “tend,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions. Because of these and other uncertainties, Bancorp 34’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. You should not place undue reliance on any forward-looking statements, which speak only as of the dates on which they were made. Bancorp 34 is not undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Bancorp 34 qualifies all of its forward-looking statements by these cautionary statements.

Further, given the ongoing and dynamic nature of the COVID-19 outbreak, it is difficult to predict the full impact on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened or remain open.  As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, including those in our Arizona markets, which have been particularly negatively affected by COVID-19, the Company could be subject to any of the following risks which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations:

● demand for products and services may decline, making it difficult to grow assets and income;

● if the economy is unable to substantially reopen or remain open, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

● collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

● the allowance for loan losses may have to be increased if borrowers experience financial difficulties, which will adversely affect our net income;

● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments;

● as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on assets may decline to a greater extent than the decline in the cost of interest-bearing liabilities, reducing net interest margin and spread, and reducing net income;

● a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of, or full suspension of, quarterly cash dividends;

● cyber security risks are increased as the result of an increase in the number of employees working remotely; and

● FDIC premiums may increase if the agency experiences additional resolution costs.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, the evaluation of other-than-temporary impairment of securities, the valuation of and our ability to realize deferred tax assets and the measurement of fair values of financial instruments.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb probable credit losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the losses for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

We have established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for loan losses. The allowance for loan losses is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on our evaluation of the probable losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date. Our evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, our knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance. Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters.

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The allowance for loan losses consists primarily of specific allocations and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral, including adjustments for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting and payment history. We also analyze delinquency trends, general economic conditions, trends in historical loss experience and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allowance. The principal assumption used in calculating the allowance for loan losses is the estimate of loss for each risk rating. Actual loan losses may be significantly more than the allowance we have established, which could have a material negative effect on our financial results.

Other-Than-Temporary Impairment. Securities are evaluated on at least a quarterly basis, to determine whether a decline in their value is other-than-temporary. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether or not we intend to sell or expect that it is more likely than not that we will be required to sell the investment security prior to an anticipated recovery in fair value. Once a decline in value for a debt security is determined to be other than temporary, the other-than-temporary impairment is separated in (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in operations. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive loss.

Valuation of Deferred Tax Assets. In evaluating our ability to realize deferred tax assets, management considers all positive and negative information, including our past operating results and our forecast of future taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation of feasible and prudent tax planning strategies, if any. These assumptions require us to make judgments about our future taxable income that are consistent with the plans and estimates we use to manage our business. Any change in estimated future taxable income or effective tax rates may result in changes to the carrying balance of our net deferred tax assets which would result in an income tax benefit or expense in the same period.

Fair Value Measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  A three-level of fair value hierarchy prioritizes the inputs used to measure fair value:

● Level 1 – Quoted prices in active markets for identical assets or liabilities; includes certain U.S. Treasury and other U.S. Government agency debt that is highly liquid and actively traded in over-the-counter markets.

● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, 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.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 

24

 Average Balance Sheets

The following tables set forth average balances, average yields and costs, and certain other information for the periods indicated. Tax-equivalent yield adjustments have not been made for tax-exempt securities, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income. 

	Three Months Ended June 30,
	2020								2019
	Average								Average
	Outstanding					Yield/			Outstanding					Yield/
	Balance			Interest		Rate (1)			Balance			Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans - continuing operations	$	342,522		$	4,467		5.25	%	$	295,516		$	4,414		5.99	%
Securities		60,010			357		2.39	%		34,502			230		2.67	%
Other interest earning assets		13,804			18		0.52	%		20,930			128		2.45	%
Total interest-earning assets - continuing operations		416,336			4,841		4.68	%		350,948			4,772		5.45	%
Loans held for sale - discontinued operations		-			-		-			17,302			190		4.40	%
Total interest-earning assets		416,336			4,841		4.68	%		368,250			4,962		5.40	%
Noninterest-earning assets		25,938								22,992
Total assets	$	442,274							$	391,242
Interest-bearing liabilities:
Checking, money market and savings accounts	$	177,390		$	450		1.02	%	$	148,638		$	509		1.37	%
Certificates of deposit		77,062			402		2.09	%		78,721			403		2.05	%
Total deposits		254,452			852		1.35	%		227,359			912		1.61	%
Advances from FHLB of Dallas - continuing operations		61,868			212		1.38	%		60,967			266		1.75	%
Total interest-bearing liabilities - continuing operations		316,320			1,064		1.35	%		288,326			1,178		1.64	%
Advances from FHLB of Dallas - discontinued operations		-			-		-			-			104		-
Total interest-bearing liabilities		316,320			1,064		1.35	%		288,326			1,282		1.78	%
Non-interest bearing deposits		73,105								51,390
Non-interest bearing liabilities		7,024								4,165
Total liabilities		396,449								343,881
Stockholders' equity		45,825								47,361
Total liabilities and stockholders' equity	$	442,274							$	391,242
Net interest income - continuing operations				$	3,777							$	3,594
Net interest rate spread - continuing operations (2)							3.33	%							3.82	%
Net interest margin - continuing operations (4)							3.65	%							4.11	%
Net interest income				$	3,777							$	3,680
Net interest rate spread (2)							3.33	%							3.62	%
Net interest-earning assets (3)	$	100,016							$	79,924
Net interest margin (4)							3.65	%							4.01	%
Average interest-earning assets to average interest-bearing liabilities		131.62	%							127.72	%

(1)	Yield/Rate for the three-month periods have been annualized.
(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)	Net interest margin represents net interest income as a percentage of average total interest-earning assets.

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	Six Months Ended June 30,
	2020								2019
	Average								Average
	Outstanding					Yield/			Outstanding					Yield/
	Balance			Interest		Rate (1)			Balance			Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans - continuing operations	$	323,049		$	9,088		5.66	%	$	292,466		$	8,567		5.91	%
Securities		52,581			644		2.46	%		33,961			454		2.70	%
Other interest earning assets		15,933			91		1.15	%		20,233			250		2.49	%
Total interest-earning assets - continuing operations		391,563			9,823		5.05	%		346,660			9,271		5.39	%
Loans held for sale - discontinued operations		-			-		-			16,191			369		4.60	%
Total interest-earning assets		391,563			9,823		5.05	%		362,851			9,640		5.36	%
Noninterest-earning assets		25,164								23,303
Total assets	$	416,727							$	386,154
Interest-bearing liabilities:
Checking, money market and savings accounts	$	175,454		$	1,009		1.16	%	$	146,991		$	976		1.34	%
Certificates of deposit		79,407			828		2.10	%		79,387			797		2.02	%
Total deposits		254,861			1,837		1.45	%		226,378			1,773		1.58	%
Advances from FHLB of Dallas - continuing operations		47,418			403		1.71	%		60,630			544		1.81	%
Total interest-bearing liabilities - continuing operations		302,279			2,240		1.49	%		287,008			2,317		1.63	%
Advances from FHLB of Dallas - discontinued operations		-			-		-			-			198		-
Total interest-bearing liabilities		302,279			2,240		1.49	%		287,008			2,515		1.77	%
Non-interest bearing deposits		62,695								47,810
Non-interest bearing liabilities		5,937								4,164
Total liabilities		370,911								338,982
Stockholders' equity		45,816								47,172
Total liabilities and stockholders' equity	$	416,727							$	386,154
Net interest income - continuing operations				$	7,584							$	6,954
Net interest rate spread - continuing operations (2)							3.56	%							3.77	%
Net interest margin - continuing operations (4)							3.90	%							4.05	%
Net interest income				$	7,584							$	7,125
Net interest rate spread (2)							3.56	%							3.59	%
Net interest-earning assets (3)	$	89,284							$	75,843
Net interest margin (4)							3.90	%							3.96	%
Average interest-earning assets to average interest-bearing liabilities		129.54	%							126.43	%

(1)	Yield/Rate for the six-month periods have been annualized.
(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)	Net interest margin represents net interest income as a percentage of average total interest-earning assets.

Comparison of Financial Condition at June 30, 2020 and December 31, 2019

Cash and cash equivalents were $17.4 million at June 30, 2020 and $29.5 million at December 31, 2019. Daily cash and cash equivalent balances generally vary primarily due to the timing of commercial loan fundings and payoffs and changes in deposit and FHLB advance balances. Cash and cash equivalents were above normal target levels at December 31, 2019 due to a large increase in loan payoffs in December 2019 and $10.0 million held for an early 2020 FHLB advance maturity.

Available-for-sale securities increased $19.1 million, or 42.8%, during the six months ended June 30, 2020 to $63.6 million. We sold five securities for proceeds of $1.9 million and purchased $23.1 million in the six months ended June 30, 2020.  Purchases included one $10.0 million security with an attractive yield available as some national, leveraged funds were forced to liquidate their holdings.

Loans held for investment increased $56.6 million, or 19.2%, to $351.3 million at June 30, 2020 from $294.7 million at December 31, 2019, including $36.1 million in Paycheck Protection Program ("PPP") loans and $20.5 million from organic growth. In the six months ended June 30, 2020, commercial real estate loans increased $15.2 million, or 6.3% to $257.9 million and represented 73.1% of the gross loan portfolio at June 30, 2020, compared to 82.1% at December 31, 2019. Commercial and industrial loans increased $46.7 million, or 232.6%, from $20.1 million at December 31, 2019 to $66.8 million at June 30, 2020, including $36.1 million in new PPP loans originated beginning in April 2020.  

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Total deposits increased $27.0 million, or 8.9%, to $330.9 million at June 30, 2020 from $303.9 million at December 31, 2019. The increase included a $15.3 million, or 27.2%, increase in non-interest bearing demand deposits and a $15.3 million, or 9.2%, increase in savings and NOW deposits, partially offset by a $3.6 million, or 4.5%, decrease in time deposits. We believe a majority of the increase in non-interest bearing demand deposits was due to PPP loan proceeds being left on deposit at the Bank. 

Federal Home Loan Bank advances increased $35.0 million, or 87.5%, to $75.0 million at June 30, 2020 compared to $40.0 million at December 31, 2019. The additional advances were primarily used to fund PPP loans, other portfolio loans and available-for-sale security growth. We generally utilize short-term borrowings to fund short-term needs and long-term borrowings and some short-term borrowings to fund net growth in loans held for investment or available-for-sale securities.

Accrued interest and other liabilities increased $409,000, or 9.6%, to $4.7 million at June 30, 2020 compared to $4.3 million at December 31, 2019.

Total stockholders’ equity increased $565,000 to $45.6 million at June 30, 2020 from $45.1 million at December 31, 2019. The largest changes in stockholders’ equity for the six months ended June 30, 2020 were increases of $1.2 million in the fair value of available-for-sale securities net of tax and $464,000 in retained earnings, and a $1.1 million decrease for previously unrecognized defined benefit plan prior service cost.  The change in retained earnings included a $780,000 increase from net income and a decrease of $316,000 for dividends.  Equity award amortization for non-cash benefits included as expense in our income statements increased equity $188,000 and share repurchases reduced equity $111,000.

Comparison of Operating Results for the Three Months Ended June 30, 2020 and 2019

General. We had net income from continuing operations of $502,000 for the three months ended June 30, 2020, which was $11,000, or 2.1%, less than net income from continuing operations of $513,000 for the three months ended June 30, 2019. The decrease was primarily caused by $550,000 in additional COVID-19-related ALLL provisions and a $257,0000, or 103.7%, decrease in noninterest income, including a $206,000 fixed asset impairment, partially offset by a $518,000, or 16.7%, decrease in noninterest expense and a $183,000, or 5.1%, increase in net interest income.

We had no net loss from discontinued operations, as discussed in Note 2 – Discontinued Operations, for the quarter ended June 30, 2020 compared to a net loss from discontinued operations of $853,000 for the three months ended June 30, 2019 including a $752,000 net loss on disposal of discontinued operations. The decrease was due to the mortgage banking business exit in June 2019.

Interest Income. Interest income from continuing operations increased $69,000, or 1.4%, and was $4.8 million for the three months ended June 30, 2020. The increase was due to a $65.4 million, or 18.6%, increase in average interest-earning assets from continuing operations partially offset by a 77 basis point decrease in average yields. The average balance of loans, our highest yielding asset, increased $47.0 million, or 15.9%, but decreased to 82.3% of average interest-earning assets from 84.2% of average interest-earning assets. PPP loans, mostly originated in the early part of the second quarter of 2020, represented $28.7 million, or 43.9%, of the $65.4 million increase in average loan balances and contributed to the decrease in yields since the interest rate on them is 1.00% and their yield with deferred origination fee income and cost averaged 1.96%, well below traditional loan yields.   

The decrease in yield on average interest earning assets included a 74 basis point decrease in the yield on loans and a 28 basis point decrease in securities yield caused by rapid declines in market interest rates and the introduction of low yielding PPP loans as noted above.  Interest income on loans increased $57,000, or 1.3%, due to a $47.0 million, or 15.9%, increase in average loan balances due to PPP loans and organic growth and a 74 basis point decrease in yield discussed above. Interest income on securities increased $127,000, or 55.2%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to a $25.5 million, or 73.9%, increase in average securities balances partially offset by a 28 basis point decrease in yield from the lower interest rate environment.

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Interest Expense.  Interest expense from continuing operations decreased $115,000, or 9.8%, to $1.1 million for the three months ended June 30, 2020 from $1.2 million for the three months ended June 30, 2019. The decrease was the result of a decrease of $61,000, or 6.7%, in interest expense on deposits and a decrease of $54,000, or 20.3%, in interest expense on borrowings.  Both decreases were the result of repricing and new fund balances at much lower rates than in 2019 or earlier periods due to rapid market rate decreases which accelerated in March 2020. 

Interest paid on checking, money market and savings accounts decreased $59,000, or 11.6%, to $450,000 for the three months ended June 30, 2020 from $509,000 for the three months ended June 30, 2019. The average rate we paid on such deposit accounts decreased 35 basis points to 1.02% for the three months ended June 30, 2020 from 1.37% for the three months ended June 30, 2019. The average balance increased $28.8 million, or 19.3%, to $177.4 million for the three months ended June 30, 2020 from $148.6 million for the three months ended June  30, 2019.  Interest expense on certificates of deposit decreased $2,000 due to an average balance decrease of $1.7 million partially offset by a four basis point increase in average rates paid.

The average rates we pay on deposits is considerably higher in our Arizona market.

Interest expense on borrowings – continuing operations decreased $54,000, or 20.3%, from the quarter ended June 30, 2019 to the quarter ended June 30, 2020 due to a 37 basis point, or 21.2% decrease in average rate paid partially offset by a $901,000, or 1.5% increase in average balance.

Net Interest Income. Net interest income from continuing operations increased $189,000, or 5.3%, and was $3.8 million for the three months ended June 30, 2020 compared to $3.6 million for the three months ended June 30, 2019, due to a $65.4 million, or 18.6% increase in average interest earning assets partially offset by a 49 basis point, or 12.7% decrease in net interest rate spread to 3.33% for the three months ended June 30, 2020 from 3.82% for the three months ended June 30, 2019. Average interest earning assets yield for continuing operations decreased 72 basis points, or 13.3%, compared to a 29 basis point decrease in average interest bearing liability rates. Continuing operations average net interest-earning assets represented 131.62% of average interest bearing liabilities for the three months ended June 30, 2020, compared to 127.72% for the three months ended June 30, 2019 due to PPP loans originated early in the quarter and organic loan growth and PPP loan proceeds retained by clients in non-interest bearing demand deposit accounts.

We had no net interest income from discontinued operations for the three months ended June 30, 2020 compared to $86,000 for the three months ended June 301, 2019 due to the mortgage banking business exit in June 2019. Average mortgage loans held for sale was $0 for the three months ended June 30, 2020 compared to $17.3 million for the three months ended June 30, 2019.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. If the allowance for loan losses is larger than necessary, we post a negative provision as a benefit to earnings. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews.

See “Asset Quality - Allowance for Loan Losses” for additional information.

After an evaluation of these factors, we recorded provisions for loan losses of $577,000 and $85,000 for the three months ended June 30, 2020 and 2019, respectively. In the three months ended June 30, 2020, the allowance for loan losses increased $579,000, reflecting $577,000 in provisions and $2,000 in net recoveries.  The provision for the three months ended June 30, 2020 included $550,000 for probable losses from the effects of COVID-19 and the recession and $27,000 for non-PPP loan growth in the quarter.  The $550,000 COVID-19 provision in the second quarter of 2020 was in addition to the $350,000 provision increase in the first quarter of 2020.  The total $900,000 allowance for loan loss provisions taken in the first six months of 2020 for COVID-19 and the recession represent 30.8% of the December 31, 2019 allowance for loan losses. The Company will continue to closely monitor the effects of the pandemic and recession on the ability of its borrowers to repay their debt going forward.

To the best of our knowledge, at June 30, 2020 we have recorded all loan losses that are both probable and reasonable to estimate.  However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about the recoverability of our loan balances based upon information available to it at the time of its examination.

28

Noninterest Income. Noninterest income from continuing operations decreased $257,000, or 103.7%, to a net loss of $9,000 for the three months ended June 30, 2020 compared to income of $248,000 for the three months ended June 30, 2019 due primarily to a $206,000 loss on disposal of fixed assets in the three months ended June 30, 2020 and a $29,000 decrease in SBA and USDA sales gains. 

Due to the mortgage banking business exit in June 2019, there was no noninterest income from discontinued operations, represented by loan sales gains, for the three months ended June 30, 2020 compared to $2.1 million for the three months ended June 30, 2019. We sold $70.4 million of mortgage loans during the three months ended June 30, 2019 and realized sales gains equal to 4.2% of loans sold.

Noninterest Expense. Noninterest expense from continuing operations decreased $518,000, or 16.7%, to $2.6 million for the three months ended June 30, 2020 from $3.1 million for the three months ended June 30, 2019. Average assets from continuing operations for the quarter ended June 30, 2020 were $51.0 million, or 13.0%, larger than for the quarter ended June 30, 2019. The primary reasons for the decrease included a $344,000, or 20.9% decrease in salaries and benefits, an $85,000, or 37.6% decrease in professional fees and a $90,000, or 33.3%, decrease in other noninterest expense. The reduced salaries and benefits was primarily due to expenses related to PPP loan originations being deferred and amortized over the 24 month contractual PPP loan terms on a level yield basis.  The reduction in professional fees included decreases in legal and other professional fee expense.  The reduction in other noninterest expense was primarily due to decreased travel and entertainment expense due to Company-imposed travel restrictions due to the COVID-19 pandemic.  

Provision for Income Tax. Provision for income tax expense from continuing operations was $110,000 for the three months ended June 30, 2020, representing an effective tax rate of 18.0% on pre-tax income from continuing operations. There are numerous differences between pre-tax income and actual taxable income that have an effect on the effective income tax rate for any given period. We recognized an income tax expense from continuing operations of $148,000 for the three months ended June 30, 2019 representing 22.4% of the $661,000 income from continuing operations before income taxes.

There was no benefit or expense for income taxes from discontinued operations for the three months ended June 30, 2020. We recognized a benefit for income taxes from discontinued operations of $280,000 for the three months ended June 30, 2019 representing 24.7% of the $1.1 million loss before benefit for income taxes.

Comparison of Operating Results for the Six Months Ended June 30, 2020 and 2019

General. We had net income from continuing operations of $780,000 for the six months ended June 30, 2020, which was $120,000, or 13.3%, less than net income from continuing operations of $900,000 for the six months ended June 30, 2019. The decrease was primarily caused by an $877,000 increase in the provision for loan losses and a $222,000, or 47.0%, decrease in noninterest income, partially offset by a $314,000, or 5.2%, decrease in noninterest expense.

We had no net loss from discontinued operations, as discussed in Note 2 – Discontinued Operations, for the six months ended June 30, 2020 compared to a net loss from discontinued operations of $1.2 million for the six months ended June 30, 2019 including a $752,000 net loss on disposal of discontinued operations. We ceased mortgage banking operations in June 2019.

Interest Income. Interest income from continuing operations increased $552,000, or 5.9%, to $9.8 million for the six months ended June 30, 2020 from $9.3 million for the six months ended June 30, 2019. The increase was due to a $44.9 million, or 13.0%, increase in average interest-earning assets from continuing operations partially offset by a 34 basis point decrease in average yields. The average balance of loans, our highest yielding asset, increased $30.6 million, or 10.5%, but decreased to 82.5% of average interest-earning assets from 84.4% of average interest-earning assets. The decrease in yield on average interest earning assets was primarily due to a 25 basis point decrease in the yield on loans and a 23 basis point decrease in yields on securities. Interest income on loans increased $527,000, or 6.2%, due to a $30.6 million, or 10.5%, increase in average loan balances due to the addition of PPP loans and organic growth partially offset by a 25 basis point decrease in yield as discussed above. Interest income on securities increased $190,000, or 41.9%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to an $18.6 million, or 54.8%, increase in average securities balances partially offset by a 23 basis point decrease in yield from the lower interest rate environment.

29

Interest Expense.  Interest expense from continuing operations decreased $78,000, or 3.4%, to $2.2 million for the six months ended June 30, 2020 from $2.3 million for the six months ended June 30, 2019. The decrease was the result of a decrease of $141,000, or 26.0%, in interest expense on borrowings, partially offset by an increase of $64,000, or 3.6%, in interest expense on deposits.

Interest paid on checking, money market and savings accounts increased $33,000, or 3.4%, to $1.0 million for the six months ended June 30, 2020 from $976,000 for the six months ended June 30, 2019. The average rate we paid on such deposit accounts decreased 18 basis points to 1.16% for the six months ended June 30, 2020 from 1.34% for the six months ended June 30, 2019. The average balance increased $28.5 million, or 19.4%, to $175.5 million for the six months ended June 30, 2020 from 147.0 million for the six months ended June  30, 2019.

Interest on certificates of deposit increased $31,000, or 3.9%, to $828,000 for the six months ended June 30, 2020 from $797,000 for the six months ended June 30, 2019. The average rate paid on certificates of deposit increased eight basis points to 2.10% for the six months ended June 30, 2020 compared to 2.02% for the six months ended June 30, 2019 due to increases in market interest rates in the early part of 2020. 

The average rates we pay on deposits is considerably higher in our Arizona market.

The average balance of borrowings – continuing operations decreased $13.2 million, or 21.8%, from the six months ended June 30, 2019 to the six months ended June 30, 2020 and the average rate paid decreased 10 basis points to 1.71% for the six months ended June 30, 2020 from 1.81% for the six months ended June 30, 2019.

Net Interest Income. Net interest income from continuing operations increased $635,000, or 9.1%, and was $7.6 million for the six months ended June 30, 2020 compared to $7.0 million for the six months ended June 30, 2019, due to a $44.9 million, or 13.0%, increase in average interest earning assets and a 21 basis point decrease in net interest rate spread to 3.56% for the six months ended June 30, 2020 from 3.77% for the six months ended June 30, 2019. Average interest earning assets yield for continuing operations decreased 34 basis points compared to a 28 basis point decrease in average interest bearing liability rates. Continuing operations average net interest-earning assets represented 129.54% of average interest bearing liabilities for the six months ended June 30, 2020, compared to 126.43% for the six months ended June 30, 2019 due to organic and PPP loan growth.

We had no net interest income from discontinued operations for the six months ended June 30, 2020 compared to $171,000 for the six months ended June 301, 2019 due to the mortgage banking business exit in June 2019. Average mortgage loans held for sale was $0 for the six months ended June 30, 2020 compared to $16.2 million for the six months ended June 30, 2019.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. If the allowance for loan losses is larger than necessary, we post a negative provision as a benefit to earnings. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews.

See “Asset Quality - Allowance for Loan Losses” for additional information.

After an evaluation of these factors, we recorded provisions for loan losses of $1.0 million and $173,000 for the six months ended June 30, 2020 and 2019, respectively. In the six months ended June 30, 2020, the allowance for loan losses increased $1.1 million, reflecting $1.0 million in provisions and $4,000 in net recoveries.  The larger provision for the six months ended June 30, 2020 was primarily due to probable losses from the effects of COVID-19 and the $20.6 million loan growth excluding PPP loans.  Based upon the uncertainties related to COVID-19, the Company increased its June 30, 2020 allowance for loan losses $900,000, or 30.8% compared to the December 31, 2019 ALLL balance, and plans to continue to closely monitor the effects of the pandemic on the ability of its borrowers to repay their debt going forward.   

To the best of our knowledge, at June 30, 2020 we have recorded all loan losses that are both probable and reasonable to estimate.  However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about the recoverability of our loan balances based upon information available to it at the time of its examination.

30

Noninterest Income. Noninterest income from continuing operations decreased $222,000, or 47.0%, to $251,000 for the six months ended June 30, 2020 from $473,000 for the six months ended June 30, 2019 due primarily to a $206,000 loss on disposal of fixed assets in the six months ended June 30, 2020.  There was a $3,000 gain on sale of SBA and USDA loans from continuing operations for the six months ended June 30, 2020 compared to $58,000 for the six months ended June 30, 2019. We had one SBA loan sale and $3,000 sale gain recognized directly into income in the six months ended June 30, 2020.

Due to the mortgage banking business exit in June 2019, there was no noninterest income from discontinued operations, represented by loan sales gains, for the six months ended June 30, 2020 compared to $4.8 million for the six months ended June 30, 2019. We sold $143.7 million of mortgage loans during the six months ended June 30, 2019 and realized sales gains equal to 4.2% of loans sold.

Noninterest Expense. Noninterest expense from continuing operations decreased $314,000, or 5.2%, to $5.8 million for the six months ended June 30, 2020 from $6.1 million for the six months ended June 30, 2019. Average assets from continuing operations for the six months ended June 30, 2020 were 7.9% larger than for the six months ended June 30, 2019. The decrease in noninterest expense was primarily related to lower salaries and benefits, professional fees and travel and entertainment.  The reduced salaries and benefits was primarily due to expenses related to PPP loan originations being deferred and amortized over the 24 month contractual PPP loan terms on a level yield basis. The reduction in professional fees included decreases in legal and other professional fee expense.  The reduction in other noninterest expense was primarily due to decreased travel and entertainment expense due to Company-imposed travel restrictions due to the COVID-19 pandemic.   

Provision for Income Tax. Provision for income tax expense from continuing operations was $231,000 for the six months ended June 30, 2020, representing an effective tax rate of 22.8% on pre-tax income from continuing operations. There are numerous differences between pre-tax income and actual taxable income that have an effect on the effective income tax rate for any given period. Provision for income tax expense from continuing operations was $267,000 for the six months ended June 30, 2019 representing 22.97% of the $1.2 million income from continuing operations before income taxes.

There was no benefit or expense for income taxes from discontinued operations for the six months ended June 30, 2020. We recognized a benefit for income taxes from discontinued operations of $392,000 for the six months ended June 30, 2019 representing 24.7% of the $1.6 million loss before benefit for income taxes.

Asset Quality

We review loans on a regular basis, and place loans on nonaccrual status when either principal or interest is 90 days or more past due, or earlier if we do not expect to receive full payment of interest or principal. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance before the loan is eligible to return to accrual status.

Non-Performing Loans and Non-Performing Assets The following table sets forth information regarding our nonperforming assets.

	June 30,			December 31,
	2020			2019
	(Dollars in thousands)
Nonaccrual loans
Real estate loans:
One- to four-family residential real estate	$	754		$	787
Commercial real estate ("CRE")		2,578			2,719
Commercial and industrial loans		-			-
Consumer and other loans		-			-
Total nonaccrual loans		3,332			3,506
Accruing loans past due 90 days or more		-			-
Total nonaccrual loans and accruing loans past due 90 days or more		3,332			3,506
Other real estate		-			-
Total nonperforming assets	$	3,332		$	3,506
Ratios:
Nonperforming loans to gross loans held for investment		0.94	%		1.19	%
Excluding PPP loans		1.05	%		1.19	%
Nonperforming assets to total assets		0.73	%		0.89	%
Excluding PPP loans		0.79	%		0.89	%
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.19	%
Excluding PPP loans		1.05	%		1.19	%

31

Nonaccrual loan balances guaranteed by the SBA were $2.3 million, or 69.0%, and $2.3 million, or 66.0%, of the nonaccrual loan balances at June 30, 2020 and December 31, 2019, respectively.

Due to the decrease in nonaccrual loans, the nonperforming asset ratios decreased from December 31, 2019 to June 30, 2020.

Interest income that would have been recorded for the six months ended June 30, 2020, had nonaccruing loans been current according to their original terms amounted to $103,000. We recognized no interest income on nonaccrual loans and $2,000 related to troubled debt restructurings for the six months ended June 30, 2020.

As of June 30, 2020 and December 31, 2019 we had $69,000 and $71,000 in current troubled debt restructurings, respectively.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Management’s periodic evaluation of the adequacy of the allowance is based on the current level of net loan losses, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

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The following table sets forth activity in our allowance for loan losses for the periods indicated.

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(Dollars in thousands)
Balance at beginning of period	$	3,397		$	2,981		$	2,922		$	2,901
Provision for loan losses		577			85			1,049			172
Charge-offs:
One- to four-family residential real estate loans		-			-			-			(9	)
Commercial real estate loans		-			-			-			-
Commercial and industrial loans		-			-			-			-
Consumer and other loans		-			-			-			-
Total charge-offs		-			-			-			(9	)
Recoveries:
One- to four-family residential real estate loans		2			2			5			2
Commercial real estate loans		-			-			-			-
Commercial and industrial loans		-			-			-			2
Consumer and other loans		-			-			-			-
Total recoveries		2			2			5			4
Net (charge-offs) recoveries		2			2			5			(5	)
Balance at end of period	$	3,976		$	3,068		$	3,976		$	3,068
Allowance for loan losses to nonperforming loans		119.33	%		85.45	%		119.33	%		85.45	%
Allowance for loan losses to total loans		1.13	%		1.05	%		1.13	%		1.05	%
Excluding PPP		1.26	%		1.05	%		1.26	%		1.05	%
Allowance for loan losses to total loans less acquired loans		1.13	%		1.05	%		1.13	%		1.05	%
Excluding PPP		1.26	%		1.05	%		1.26	%		1.05	%
Net (charge-offs) recoveries to average loans outstanding during the period		0.00	%		0.00	%		0.01	%		0.00	%
Excluding PPP		0.00	%		0.00	%		0.01	%		0.00	%

The ratio of our allowance for loan losses to nonperforming loans increased due to a 29.6% increase in the allowance for loan losses primarily due to COVID-19 additions and a 7.2% decrease in nonperforming loans. The allowance for loan losses to total loans ratios increased because the allowance for loan losses increased 29.6% and total gross loans increased 19.7%.  In  addition, the allowance for loan losses ratios are decreased due to the $36.1 million of PPP loans in the June 30, 2020 loan balances, for which we have not provided for loan losses.

See “Additional COVID-19 Information” at the end of this "Management's Discussion and Analysis . . . " for information regarding Paycheck Protection Loans, loan modifications and SBA 7(a) loan payments.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, FHLB borrowings, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities.

We believe that we have enough sources of liquidity to satisfy our short-term liquidity needs as of June 30, 2020.

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Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2020, cash and cash equivalents totaled $17.4 million. Available-for-sale securities, which provide additional sources of liquidity, totaled $63.6 million at June 30, 2020. In addition, at June 30, 2020, we had $75.0 million of advances outstanding from the Federal Home Loan Bank of Dallas and the ability to borrow an additional $76.9 million from the FHLB, and $9.8 million and $6.0 million through Fed Funds facilities from other correspondent banks.  In April 2020 we were approved to borrow from the Federal Reserve Bank ("FRB") through their discount window for up to $14.3 million and from their Paycheck Protection Program Liquidity Facility ("PPPLF") for up to 100% of our $36.1 million principal balance of PPP loans at 25 basis points.  Through June 30, 2020, we have not utilized either of the FRB programs.   

At June 30, 2020, we had $29.7 million in loan commitments outstanding. In addition, we had $22.4 million in unused lines of credit. Time deposits due within one year of June 30, 2020 totaled $60.8 million, or 18.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2021. We believe, however, based on past experience that a significant portion of our time deposits will remain with us, either as time deposits or as other deposit products. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We have no material commitments or demands that are likely to affect our liquidity other than set forth above. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we would access our borrowing capacity with the Federal Home Loan Bank of Dallas or the other financial institutions, or increase our deposits by offering higher interest rates.

Our primary investing activities are the origination of loans and the purchase of securities. During the six months ended June 30, 2020, we originated $97.4 million of loans held for investment, including $36.1 million in PPP loans, and zero mortgage loans held for sale, compared to $44.6 million of loans held for investment and $19.8 million of mortgage loans held for sale during the six months ended June 30, 2019. In the six months ended June 30, 2020 and 2019 we purchased $23.1 million and $3.2 million in securities, respectively. We have not purchased any whole loans in the past two years.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced net increases of $27.0 million and $14.2 million in total deposits for the six months ended June 30, 2020 and 2019, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits so that we are competitive in our market area. Deposit growth in 2020 included PPP loan proceeds not withdrawn from the Bank through June 30, 2020.   

We had $75.0 million in Federal Home Loan Bank advances at June 30, 2020, compared to $40.0 million at December 31, 2019. The $35.0 million in additional borrowings was primarily used to fund PPP loans.

Bancorp 34, Inc. is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to stockholders, to repurchase its common stock, and for other corporate purposes. Bancorp 34, Inc.’s primary source of liquidity is dividend payments it may receive from the Bank. At June 30, 2020, Bancorp 34, Inc. (on an unconsolidated basis) had liquid assets of $1.4 million. In each of the quarters from June 2019 through June 30, 2020, the Company paid quarterly cash dividends of $0.05 per share to shareholders. Dividends paid in the six months ended June 30, 2020 totaled $316,000.  Cash used to repurchase shares in the six months ended June 30, 2020 totaled $111,000.  

The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2020 and December 31, 2019, Bank 34 exceeded all regulatory capital requirements. Bank 34 is considered “well-capitalized” under regulatory guidelines.

Additional COVID-19 Information

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home.  This has resulted in an unprecedented slow-down in economic activity, a steep, rapid increase in unemployment, and stock markets have declined in value.  Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).  The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.  In addition, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.  We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners from a safety perspective.

The following describes some of our responses to COVID-19, and other effects of the pandemic on our business. 

Paycheck Protection Program.  The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”).  As a qualified SBA lender, we were automatically authorized to originate PPP loans and chose to participate.

Through June 30, 2020, Bank 34 funded 277 PPP loans with total principal balances of $36.1 million.  Bank 34 has limited PPP loans to 135% of Tier 1 Capital plus allowance for loan loss, or approximately $45.0 million using June 30, 2020 data.

Paycheck Protection Program Liquidity Facility.  The CARES Act also allocated a limited amount of funds to the FRB with a broad mandate to provide liquidity to eligible businesses, states or municipalities in light of COVID-19. On April 9, 2020, the U.S. Department of the Treasury announced several new or expanded lending programs to provide relief for businesses and governments. One of these programs was the PPPLF.  Under the PPPLF, all depository institutions that originate PPP loans are eligible to borrow on a non-recourse basis from their regional Federal Reserve Bank using SBA PPP loans as collateral. The principal amount of loans will be equal to the PPP loans pledged as collateral. There are no fees associated with these loans and the interest rate will be 35 basis points.  The maturity date of PPPLF loans will be the same as the maturity date of the PPP loans pledged as collateral. The PPPLF loan maturity date will be accelerated if the underlying PPP loan goes into default and the lender sells the PPP loan to the SBA under the SBA guarantee. The PPPLF loan maturity date also will be accelerated for any loan forgiveness reimbursement received by the lender from the SBA.

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In April 2020, Bank 34 received approval to borrow from the FRB under the PPPLF program to assist in funding PPP loans, and the FRB Discount Window for short-term borrowing needs.  The FRB Discount Window lends funds to eligible institutions for short-term needs.  Through June 30, 2020, Bank 34 had not utilized either FRB program for funding.     

Loan Modifications/Troubled Debt Restructurings.  Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Bank 34 has made that election.  Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered TDRs.

Prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.

Bank 34 handles loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan.  At June 30, 2020 portfolio loans included 63 modified loans with principal balances totaling $59.2 million representing 18.7% of total non-PPP loan balances.  Payment deferral terms vary, but generally include three or six month deferrals of total payments or continuing interest-only payments over those periods.  A majority of deferrals are for three-month payment deferrals of principal and interest, with payments after deferral increased to collect amounts deferred.  Deferral periods began in April and May for most of of these loans.  It is too early to determine if these modified loans will perform in accordance with their modified terms when they go back into regular monthly payment status.

The following tables give further information regarding loan payment deferrals granted as of June 30, 2020.

Commercial Payment Deferrals by Industry as of June 30, 2020
	Loan Balance		% of Industry Total		Average Balance
		(Dollars in thousands)
CRE - Multifamily	$	13,171		23%	$	2,195
Hotel - Owner Managed		11,926		53%		1,491
CRE - Retail		10,524		70%		1,169
CRE - Other		6,485		50%		649
CRE - Retail Strip Center		6,311		33%		1,262
CRE - National Credit Tenant		3,645		35%		3,645
CRE - Office		2,854		14%		951
CRE - Mobile Home Park		796		3%		398
CRE - Industrial		691		8%		345
Commercial and Industrial		432		2%		108
One-to-Four Family Investment		53		0%		53
Total Deferrals	$	56,888

The above includes 51 loans representing 34 relationships and 20% of our commercial portfolio.

Commercial Payment Deferrals by Deferral Type as of June 30, 2020
	Loan Balance		% of Total
		(dollars in thousands)
Interest Only	$	18,951		33%
Three Month Principal and Interest		24,405		43%
Six Month Principal and Interest		13,532		24%
Total Deferrals	$	56,888

Residential Mortgage Deferrals as of June 30, 2020
	Dollars		% of Portfolio		Average Balance
		(Dollars in thousands)
12 Loans	$	2,334		9%	$	195

SBA 7(a) Loan Payments.  As part of the CARES Act, the SBA agreed to make six months of loan payments on new SBA loans originated between March 27, 2020 and September 27, 2020 and existing current SBA loans beginning with payments due on or after March 27, 2020.  Bank 34 had $7.5 million in SBA loans at June 30, 2020 which qualify and are receiving payments from the SBA under that program.     

Allowance for Loan Losses.  The Company maintains the allowance for loan losses at a level adequate to absorb all estimated inherent losses in the loan and lease portfolio. The COVID-19 pandemic has materially affected our determination of an adequate allowance for loan losses and may continue to going forward.  Based upon the uncertainties related to COVID-19, the Company increased the allowance for loan losses by $900,000, or 30.8% of the pre-COVID-19 December 31, 2019 ALLL balance, and plans to continue to closely monitor the effects of the pandemic on the ability of its borrowers to repay their debt going forward.  It is possible larger increases in the allowance for loan losses will be necessary in the future due to the COVID-19 pandemic or its after-effects. 

Liquidity and Capital Resources Effects.  It is possible significant deposit withdrawals, reductions in interest and principal payments on loans, tightening of the capital markets, or other COVID-19 pandemic-related activities will have a negative effect on the liquidity and capital resources of the Company in the future. The ability to pay dividends or conduct stock repurchases is limited under applicable banking regulations and regulatory policies, due to losses for the period, expected losses for future periods and/or the inability to upstream funds from a financial institution to its holding company as a result of lower income or regulatory capital levels. The Company may consider, or be required to, suspend stock repurchase activities, or may suspend, or reduce the level of quarterly dividends.

35

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Co-President and Co-Chief Executive Officers and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of June 30, 2020. Based on that evaluation, the Company’s management, including the Co-President and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2020, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

36

Part II – Other Information

Item 1. Legal Proceedings 

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

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

(a)	Not applicable.
(b)	Not applicable.
(c)	On May 24, 2019, the Company adopted a second repurchase program under which it was authorized to repurchase up to 167,747 shares of its common stock, or approximately 5.0% of the Company’s outstanding shares. In May 2020 the Company completed its acquisition of the authorized shares under that program.

The Company’s repurchases of common stock for the three months ended June 30, 2020 were as follows:

			Total Number of	Maximum Number
	Total		Shares Purchased as	of Shares that May
	Number of	Average Price	Part of Publicly	Be Purchased Yet
	Shares	Paid	Announced Plans or	Under the Plans
Period	Purchased	per Share	Programs	or Programs
April 1, 2020 through April 30, 2020	---	---	---	10,705
May 1, 2020 through May 31, 2020	10,705	$10.28	10,705	0
June 1, 2020 through June 30, 2020	---	---	---	0
	10,705		10,705

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1	Articles of Incorporation of Bancorp 34, Inc. (1)
3.2	Bylaws of Bancorp 34, Inc. (1)
31.1	Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial statements from the Bancorp 34, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
(1)	Incorporated by reference to the Registration Statement on Form S-1 of Bancorp 34, Inc. (File No. 333-21182), originally filed with the Securities and Exchange Commission on September 3, 2016.

37

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.

	BANCORP 34, INC.
Date:     July 27, 2020	/s/ Jill Gutierrez
	Jill Gutierrez
	Co-President and Co-Chief Executive Officer
Date:     July 27, 2020	/s/ Jan R. Thiry
	Jan R. Thiry
	Executive Vice President and Chief Financial Officer

38

EX-31.1

Exhibit 31.1

Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jill Gutierrez, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Bancorp 34, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within the entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 27, 2020	/s/ Jill Gutierrez
		Jill Gutierrez
		Co-President and Co-Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James T. Crotty, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Bancorp 34, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within the entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 27, 2020	/s/ James T. Crotty
		James T. Crotty
		Co-President and Co-Chief Executive Officer

EX-31.3

Exhibit 31.3

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jan R. Thiry, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Bancorp 34, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within the entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 27, 2020	/s/ Jan R. Thiry
		Jan R. Thiry
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Co-Chief Executive Officers and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Jill Gutierrez, Co-President and Co-Chief Executive Officer of Bancorp 34, Inc. (the “Company”), James T. Crotty, Co-President and Co-Chief Executive Officer of the Company, and Jan R. Thiry, Executive Vice President and Chief Financial Officer of the Company, each certify in his or her capacity as an officer of the Company that they have reviewed the quarterly report on Form 10-Q for the quarter ended June 30, 2020 (the “Report”) and that to the best of their knowledge:

1. the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	July 27, 2020	/s/ Jill Gutierrez
		Jill Gutierrez
		Co-President and Co-Chief Executive Officer
Date:	July 27, 2020	/s/ James T. Crotty
		James T. Crotty
		Co-President and Co-Chief Executive Officer
Date:	July 27, 2020	/s/ Jan R. Thiry
		Jan R. Thiry
		Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Jul. 27, 2020
Document Information [Line Items]
Entity Registrant Name	Bancorp 34, Inc.
Entity Central Index Key	0001668340
Trading Symbol	bctf
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		3,199,913
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock, par value $0.01 per share

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
ASSETS
Cash and due from banks	$ 6,810,445	$ 4,496,465
Interest-bearing deposits with banks	10,635,000	24,990,000
Total cash and cash equivalents	17,445,445	29,486,465
Available-for-sale securities, at fair value	63,568,281	44,517,178
Loans held for investment	351,347,449	294,660,719
Allowance for loan losses	(3,975,620)	(2,921,931)
Loans held for investment, net	347,371,829	291,738,788
Premises and equipment, net	8,555,144	8,990,955
Operating lease right-of-use assets	1,227,981
Stock in financial institutions, restricted, at cost	4,052,961	4,016,761
Accrued interest receivable	1,723,368	961,105
Deferred income tax asset, net	1,725,312	1,907,876
Bank owned life insurance	10,980,816	10,850,085
Core deposit intangible, net	115,328	133,052
Prepaid and other assets	1,249,765	1,137,090
TOTAL ASSETS	458,016,230	393,739,355
Liabilities
Demand deposits	71,746,775	56,401,370
Savings and NOW deposits	181,434,344	166,107,428
Time deposits	77,753,625	81,387,861
Total deposits	330,934,744	303,896,659
Federal Home Loan Bank advances	75,000,000	40,000,000
Escrows	258,140	254,593
Operating lease liabilities	1,325,960
Accrued interest and other liabilities	4,680,197	4,271,437
Accrued interest and other liabilities - discontinued operations	169,380	233,427
Total liabilities	412,368,421	348,656,116
Commitments and contingencies (note 5)
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding
Common stock, $0.01 par value, 100,000,000 authorized, 3,199,913 and 3,208,618 issued and outstanding.	31,999	32,086
Additional paid-in capital	23,215,821	23,168,176
Retained earnings	23,620,996	23,157,134
Accumulated other comprehensive income	330,803	307,255
Unearned employee stock ownership plan (ESOP) shares	(1,551,810)	(1,581,412)
Total stockholders’ equity	45,647,809	45,083,239
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 458,016,230	$ 393,739,355

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	50,000,000	50,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	3,199,913	3,208,618
Common stock, shares outstanding (in shares)	3,199,913	3,208,618

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Interest income
Interest and fees on loans	$ 4,466,516	$ 4,414,091	$ 9,087,742	$ 8,567,298
Interest on securities	356,845	230,266	644,072	454,073
Interest on other interest-earning assets	17,956	128,265	91,395	250,254
Total interest income	4,841,317	4,772,622	9,823,209	9,271,625
Interest expense
Interest on deposits	851,395	912,081	1,836,964	1,773,350
Interest on borrowings	212,374	265,698	402,589	543,863
Total interest expense	1,063,769	1,177,779	2,239,553	2,317,213
Net interest income	3,777,548	3,594,843	7,583,656	6,954,412
Provision for loan losses	577,000	85,000	1,049,000	172,500
Net interest income after provision for loan losses	3,200,548	3,509,843	6,534,656	6,781,912
Noninterest income
Gain on sale of loans	2,641	31,390	2,641	58,297
Gain on sale of securities	10,157		10,157
Service charges and fees	73,687	114,068	195,404	209,267
Bank owned life insurance	90,550	92,709	181,362	183,971
Loss on disposal of fixed assets	(205,663)		(205,663)
Other	19,398	9,835	66,765	20,991
Total noninterest income (loss)	(9,230)	248,002	250,666	472,526
Noninterest expense
Salaries and benefits	1,300,507	1,644,543	3,060,057	3,232,069
Occupancy	351,003	349,276	719,710	700,692
Data processing fees	518,628	507,933	980,455	992,659
FDIC and other insurance expense	44,408	60,460	96,336	146,063
Professional fees	141,917	227,331	433,354	409,490
Advertising	43,063	38,141	103,725	104,198
Other	179,607	269,152	380,621	502,640
Total noninterest expense	2,579,133	3,096,836	5,774,258	6,087,811
Income from continuing operations before provision for income taxes	612,185	661,009	1,011,064	1,166,627
Provision for income taxes	110,049	148,277	230,871	266,752
Net income from continuing operations	502,136	512,732	780,193	899,875
Discontinued operations
Loss from discontinued operations		(1,132,237)		(1,590,638)
Benefit for income taxes		(279,727)		(392,193)
Net loss from discontinued operations		(852,510)		(1,198,445)
NET INCOME (LOSS)	502,136	(339,778)	780,193	(298,570)
Other comprehensive income (loss)
Unrealized gain on available-for-sale securities	473,260	634,099	1,572,665	988,018
Tax effect of unrealized gain on available-for-sale securities	(120,444)	(161,378)	(400,243)	(251,450)
Unrealized gain on available-for-sale securities, net of tax	352,816	472,721	1,172,422	736,568
Unrecognized defined benefit ("DB") plan prior service cost	(1,542,112)		(1,542,112)
Tax effect of unrecognized DB plan prior service cost	393,237		393,237
Unrecognized DB plan prior service cost, net of tax	(1,148,875)		(1,148,875)
Other comprehensive income (loss), net of tax	(796,059)	472,721	23,547	736,568
COMPREHENSIVE (LOSS) INCOME	$ (293,923)	$ 132,943	$ 1,952,615	$ 437,998
Earnings per common share - Basic
Earnings per common share - continuing operations (in dollars per share)	$ 0.17	$ 0.16	$ 0.26	$ 0.29
Loss per common share - discontinued operations (in dollars per share)		(0.27)		(0.38)
Earnings per common share - Basic (in dollars per share)	0.17	(0.11)	0.26	(0.09)
Earnings per common share - Diluted
Earnings per common share - continuing operations (in dollars per share)	0.17	0.16	0.26	0.29
Loss per common share - discontinued operations (in dollars per share)		(0.27)		(0.38)
Earnings per common share - Diluted (in dollars per share)	$ 0.17	$ (0.11)	$ 0.26	$ (0.09)

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Unearned ESOP Shares [Member]	Total
Balance (in shares) at Dec. 31, 2018	3,374,565
Balance at Dec. 31, 2018	$ 33,746	$ 25,500,873	$ 22,928,777	$ (396,148)	$ (1,644,514)	$ 46,422,734
Net income (loss)			41,208			41,208
Unrealized gain (loss) on available-for-sale securities, net				263,847		263,847
Amortization of equity awards		85,680			18,059	103,739
Share repurchase (in shares)	(18,410)
Share repurchase	$ (185)	(277,486)				(277,671)
Net income (loss)			41,208			41,208
Balance (in shares) at Mar. 31, 2019	3,356,155
Balance at Mar. 31, 2019	$ 33,561	25,309,067	22,969,985	(132,301)	(1,626,455)	46,553,857
Balance (in shares) at Dec. 31, 2018	3,374,565
Balance at Dec. 31, 2018	$ 33,746	25,500,873	22,928,777	(396,148)	(1,644,514)	46,422,734
Net income (loss)						(298,570)
Unrealized gain (loss) on available-for-sale securities, net						736,568
Net income (loss)						(298,570)
Other comprehensive income (loss)						736,568
Balance (in shares) at Jun. 30, 2019	3,339,230
Balance at Jun. 30, 2019	$ 33,392	25,099,268	22,464,648	340,420	(1,611,440)	46,326,288
Balance (in shares) at Mar. 31, 2019	3,356,155
Balance at Mar. 31, 2019	$ 33,561	25,309,067	22,969,985	(132,301)	(1,626,455)	46,553,857
Net income (loss)			(339,778)			(339,778)
Unrealized gain (loss) on available-for-sale securities, net				472,721		472,721
Amortization of equity awards		78,374			15,015	93,389
Share repurchase (in shares)	(22,985)
Share repurchase	$ (230)	(358,170)				(358,400)
Net income (loss)			(339,778)			(339,778)
Stock option exercise (in shares)	7,260
Stock option exercise	$ 73	69,985				70,058
Restricted stock forfeitures (in shares)	(1,200)
Restricted stock forfeitures	$ (12)	12
Dividends paid			(165,559)			(165,559)
Other comprehensive income (loss)						472,721
Balance (in shares) at Jun. 30, 2019	3,339,230
Balance at Jun. 30, 2019	$ 33,392	25,099,268	22,464,648	340,420	(1,611,440)	46,326,288
Balance (in shares) at Dec. 31, 2019	3,208,618
Balance at Dec. 31, 2019	$ 32,086	23,168,176	23,157,134	307,255	(1,581,412)	45,083,239
Net income (loss)			278,057			278,057
Unrealized gain (loss) on available-for-sale securities, net				819,607		819,607
Amortization of equity awards		81,620			14,801	96,421
Net income (loss)			278,057			278,057
Dividends paid			(158,433)			(158,433)
Balance (in shares) at Mar. 31, 2020	3,208,618
Balance at Mar. 31, 2020	$ 32,086	23,249,796	23,276,758	1,126,862	(1,566,611)	46,118,891
Balance (in shares) at Dec. 31, 2019	3,208,618
Balance at Dec. 31, 2019	$ 32,086	23,168,176	23,157,134	307,255	(1,581,412)	45,083,239
Net income (loss)						780,193
Unrealized gain (loss) on available-for-sale securities, net						1,172,422
Net income (loss)						$ 780,193
Stock option exercise (in shares)
Other comprehensive income (loss)						$ 23,547
Balance (in shares) at Jun. 30, 2020	3,199,913
Balance at Jun. 30, 2020	$ 31,998	23,215,822	23,620,996	330,803	(1,551,810)	45,647,809
Balance (in shares) at Mar. 31, 2020	3,208,618
Balance at Mar. 31, 2020	$ 32,086	23,249,796	23,276,758	1,126,862	(1,566,611)	46,118,891
Net income (loss)			502,136			502,136
Unrealized gain (loss) on available-for-sale securities, net						352,816
Amortization of equity awards		76,559			14,801	91,360
Share repurchase (in shares)	(10,705)
Share repurchase	$ (108)	(110,513)				(110,621)
Net income (loss)			502,136			502,136
Dividends paid			(157,898)			(157,898)
Other comprehensive income (loss)				(796,059)		(796,059)
Restricted stock awards (in shares)	2,000
Restricted stock awards	$ 20	(20)
Balance (in shares) at Jun. 30, 2020	3,199,913
Balance at Jun. 30, 2020	$ 31,998	$ 23,215,822	$ 23,620,996	$ 330,803	$ (1,551,810)	$ 45,647,809

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019
Dividends paid, per share (in dollars per share)	$ 0.05	$ 0.05	$ 0.05

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities
Net income (loss)	$ 780,193	$ (298,570)
Less: Net loss from discontinued operations		(1,198,445)
Net income from continuing operations	780,193	899,875
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	274,386	323,710
Stock dividends on financial institution stock	(36,200)	(54,800)
Amortization of premiums and discounts on securities, net	168,951	51,133
Amortization of equity awards	187,781	197,128
Amortization of core deposit intangible	17,724	20,430
Gain on sale of loans	(2,641)	(58,297)
Proceeds from sale of loans	168,555	993,026
Gain on sale of securities	(10,157)
Provision for loan losses	1,049,000	172,500
Fixed asset impairment	205,663
Net appreciation on bank-owned life insurance	(130,731)	(137,965)
Deferred income tax expense	(182,343)	(128,832)
Changes in operating assets and liabilities:
Accrued interest receivable	(762,263)	(136,820)
Prepaid and other assets	(1,296,884)	102,459
Accrued interest and other liabilities	506,739	328,628
Net cash from operating activities - continuing operations	937,773	2,572,175
Net cash from operating activities - discontinued operations	(64,047)	22,705,420
Net cash from operating activities	873,726	25,277,595
Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities	3,564,344	2,874,659
Proceeds from sales of available for sale securities	1,854,871
Purchases of available-for-sale securities	(23,056,448)	(3,179,247)
Net change in loans held for investment	(56,847,955)	(7,885,418)
Purchases of premises and equipment	(44,238)	(2,905)
Net cash from investing activities	(74,529,426)	(8,192,911)
Cash flows from financing activities
Net change in deposits	27,038,085	14,172,166
Net change in escrows	3,548	(90,744)
Proceeds from Federal Home Loan Bank advances	76,000,000	30,000,000
Repayments of Federal Home Loan Bank advances	(41,000,000)	(47,000,000)
Exercise of stock options		70,058
Common stock repurchases	(110,621)	(636,071)
Dividends paid	(316,331)	(165,559)
Net cash from financing activities	61,614,681	(3,650,150)
Net change in cash and cash equivalents	(12,041,020)	13,434,534
Cash and cash equivalents, beginning of period	29,486,465	11,774,457
Cash and cash equivalents, end of period	17,445,445	25,208,991
Supplemental disclosures:
Interest on deposits and advances paid	2,334,568	2,272,650
Income taxes paid	56,000	21,000
Loans transferred to loans held for sale		934,729
Operating lease right-of-use assets recorded on ASU 2016-20 adoption	1,138,139
Operating lease liabilities recorded on ASU 2016-20 adoption	$ 1,138,139

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Note 1 - Nature of Operations and Summary of Significant Accounting and Reporting Policies

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

NOTE

1

– NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Bancorp

34,

Inc. (“Bancorp

34”

or the “Company”) is a Maryland corporation and savings and loan holding company which owns

100%

of the common stock of Bank

34

(the “Bank”).

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Alamogordo and Las Cruces, New Mexico, and Scottsdale and Peoria, Arizona.

In

May 2019,

Bank

34

took steps to exit the Bank's operations with respect to originating residential mortgage loans for sale into the secondary market ("Mortgage Banking"). The Mortgage Banking operations that were disposed of, and that represent a strategic shift that will have a major effect on operations and financial results, are accounted for as discontinued operations. Additional information on discontinued operations can be found in Note

2

– Discontinued Operations.

The primary deposit products are demand deposits, time deposits, NOW, savings and money market accounts. The primary lending products are real estate mortgage loans and commercial loans. The Bank is subject to competition from other financial institutions and regulated and non-regulated financial services providers, regulation by certain federal agencies and undergoes periodic examinations by regulatory authorities.

Rising and falling interest rate environments can have various impacts on the Bank's net interest income, depending on the interest rate gap that the Bank maintains. The Bank's net interest income is also affected by prepayments of loans and early withdrawals of deposits.

Basis of Presentation –

The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition, cash flows and results of operations at the dates and for the periods presented. The results of operations for the

three

and

six

months ended

June 30, 2020

are

not

necessarily indicative of the results of operations for the full fiscal year or for any other period. This information should be read in conjunction with the Company's Annual Report on Form

10

-K for the year ended

December 31, 2019.

Discontinued Operations –

As discussed in Note

2

- Discontinued Operations, current and prior periods presented in the consolidated statements of comprehensive income as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of discontinued operations for comparative purposes. The consolidated balance sheets and related note disclosures for prior periods also reflect the reclassification of certain assets and liabilities to discontinued operations.

Basis of Consolidation

– The consolidated financial statements include the accounts of Bancorp

34

and the Bank. All significant intercompany accounts and transactions have been eliminated.

Reclassifications

– Certain reclassifications have been made to prior period's financial information to conform to the current period presentation.

Use of Estimates –

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are

not

limited to, allowance for loan losses, other-than-temporary impairment of securities, useful lives used in depreciation and amortization, deferred income taxes, valuation of other real estate and core deposit intangibles.

Summary of Recent Accounting Pronouncements

:

Prior to

2020,

Bancorp

34

was an emerging growth company under the JOBS Act and elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies. Accordingly, our financial statements

may

not

be comparable to the financial statements of public companies that have complied with such new or revised accounting standards. The Company lost its status as an emerging growth company at the end of

2019.

Leases –

In

February 2016,

the FASB issued ASU 

2016

-

02

“Leases (Topic

842

).”

This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard was effective for fiscal years and interim periods within those fiscal years beginning after

December 15, 2018

for public companies, but the Company had until the

first

quarter of

2020

to adopt due to its emerging growth company status. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. We adopted the standard effective

January 1, 2020

on a prospective basis and elected to apply several allowable practical expedients, including carryover of historical lease determinations, classification conclusions and direct cost balances.  Adoption of the standard resulted in balance sheet recognition of approximately

$1.3

 million in operating lease right-of-use assets and

$1.4

million operating lease liabilities as of

January 1, 2020.

These amounts represent the present value of remaining minimum lease payments, discounted using the Company's incremental borrowing rate at the date of adoption.  There was

no

material impact on the timing of expense or income recognition in the consolidated statements of income.  Prior periods were

not

restated.  Further information regarding the Company's leasing activities are included in Note

5

– Financial Instruments with Off-Balance-Sheet Credit Risk.

Credit Losses -

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments.”

The amendments in this update replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to create credit loss estimates. The new guidance is effective for public companies that are U.S. Securities and Exchange Commission filers for fiscal years beginning after

December 15, 2019

including interim periods within those fiscal years. For all other public companies, the amendments are effective for fiscal years beginning after

December 15, 2020,

including interim periods within those fiscal years. For all other companies, including emerging growth companies, the amendments are effective for fiscal years beginning after

December 15, 2020,

and interim periods within fiscal years beginning after

December 15, 2021.

On

October 16, 2019,

FASB announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies, as defined in Securities and Exchange Commission Regulations, such as the Company, to adopt effective for the

first

fiscal year beginning after

December 15, 2022.

The guidance is required to be applied by the modified retrospective approach. Early adoption is permitted as of the fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

Compensation, Retirement Benefits

- In

August 2018,

the FASB issued 

ASU

 

2018

-

14

, 

Compensation - Retirement benefits (Topic 

715

-

20

)

. This ASU amends ASC

715

 to add, remove and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a

one

-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for post-retirement health care benefits. This ASU is effective for fiscal years ending after

December 15, 2020

and was applied on a retrospective basis.  The adoption of this ASU did

not

have a material impact on the Company's financial position, results of operations or cash flows.

XML

Note 2 - Discontinued Operations

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

NOTE

2

– DISCONTINUED OPERATIONS

On

May 9, 2019,

the Company entered into a purchase and assumption agreement to transfer its mortgage banking operations to another financial institution. Under the agreement, the other financial institution would offer employment to a majority of the Company's mortgage operations employees. Assuming a majority of key employees at those locations agreed to transfer, the other financial institution would assume certain leases and fixed assets at those locations. Subsequent to that transaction, a majority of the mortgage operation employees made arrangements to transfer to different financial institutions, which similarly agreed to assume certain leases and fixed assets at those respective locations. Some sales and assumption agreements with these different financial institutions were consummated in the

second

quarter of

2019

and the remainder were consummated in the

second

half of

2019.

All related transactions were completed by

December 31, 2019.

The Company does

not

have continuing involvement with the mortgage banking operations. The Company discontinued issuing mortgage interest rate lock commitments (IRLC's) in its name in

May 2019

and originating mortgage loans held for sale in its name in

June 2019.

Income and expense related to mortgage banking operations are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations.

Liabilities for costs associated with discontinued operations were recognized and measured initially at their fair values during the quarter ended

June 30, 2019.

Those costs include, but are

not

limited to, involuntary employee termination benefits, cost to terminate contracts, and other associated costs. The liability itself consists of future cash flows expected to be incurred in the exit and disposal activity, which are discounted at a credit-adjusted risk-free interest rate.

 The following table summarizes the

one

-time charge on net loss on disposal of discontinued operations:

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Severance benefits	$	147,948	$	147,948
Leases, software & other contractual obligations		360,613		360,613
Fixed asset losses		30,423		30,423
Other costs		212,998		212,998
Net Loss on Disposal	$	751,982	$	751,982

The following table presents results of discontinued operations for the

three

 and

six

months ended

June 30, 2020,

and

2019:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020		2019
Net interest income	$	-	$	85,484		$	-	$	170,782
Gain on sale of loans		-		2,095,986			-		4,813,660
Other		-		190			-		190
Total noninterest income		-		2,096,176			-		4,813,850
Salaries and benefits		-		1,919,033			-		4,480,025
Occupancy		-		84,314			-		232,360
Data processing fees		-		282,503			-		584,369
Professional fees		-		51,993			-		107,972
Advertising		-		70,469			-		118,801
Net loss on disposal		-		751,982			-		751,982
Other		-		153,603			-		299,761
Total noninterest expense		-		3,313,897			-		6,575,270
Loss from discontinued operations		-		(1,132,237	)		-		(1,590,638	)
Benefit for income taxes		-		(279,727	)		-		(392,193	)
Net loss from discontinued operations	$	-	$	(852,510	)	$	-	$	(1,198,445	)

Net interest income from discontinued operations includes interest income on mortgage loans held for sale less interest expense allocated to mortgage banking operations equal to the average mortgage loans held for sale times the average rate on FHLB short-term borrowings.

Material assets and liabilities of mortgage banking operations are classified as Discontinued Operations in the consolidated balance sheets as of

June 30, 2020,

and prior year balances have been adjusted to conform with the current period presentation.

The following table summarizes the major categories of assets and liabilities related to discontinued operations in the consolidated balance sheets as of:

	June 30, 2020			December 31, 2019
Accrued interest and other liabilities - discontinued operations		169,380			233,427
Total liabilities	$	169,380		$	233,427
Net (liabilities) assets	$	(169,380	)	$	(233,427	)

XML

Note 3 - Available-for-sale Securities

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE

3

– AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities have been classified in the consolidated balance sheets according to management's intent at

June 30, 2020

and

December 31, 2019.

The amortized cost of such securities and their approximate fair values were as follows:

	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
June 30, 2020
Available-for-sale securities
Mortgage-backed securities	$	30,847,669	$	1,042,749	$	(1,391	)	$	31,889,027
U.S. Government agencies		919,509		6,596		(1,819	)		924,286
Municipal obligations		29,816,091		938,877		-			30,754,968
Total	$	61,583,269	$	1,988,222	$	(3,210	)	$	63,568,281
December 31, 2019
Available-for-sale securities
Mortgage-backed securities	$	30,722,958	$	415,564	$	(119,774	)	$	31,018,748
U.S. Government agencies		1,102,532		1,739		(24,824	)		1,079,447
Municipal obligations		12,279,341		254,521		(114,879	)		12,418,983
Total	$	44,104,831	$	671,824	$	(259,477	)	$	44,517,178

Gross proceeds from the sale of available-for-sale securities and resulting gains and losses were as follows:

	Six Months Ended June 30,
	2020			2019
Proceeds from sale	$	1,854,871		$	-
Sales gains	$	15,013		$	-
Sales losses	$	(4,856	)	$	-

Amortized cost and fair value of securities by contractual maturity as of

June 30, 2020

and

December 31, 2019

are shown below. For purposes of the maturity table, mortgage-backed securities, which are

not

due at a single maturity date, have been allocated over maturity groupings based on the actual contractual maturities of underlying collateral. Expected maturities

may

differ from contractual maturities because borrowers

may

call or prepay obligations.

The scheduled maturities of available-for-sale securities at

June 30, 2020

and

December 31, 2019

were as follows:

	June 30, 2020				December 31, 2019
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	11,294,706	$	11,341,059	$	-	$	-
Due after one to five years		27,764,508		28,807,095		27,151,751		27,510,536
Due after five to ten years		17,420,852		18,162,759		14,048,273		14,163,270
Due after ten years		5,103,203		5,257,368		2,904,807		2,843,372
Totals	$	61,583,269	$	63,568,281	$	44,104,831	$	44,517,178

At

June 30, 

2020

and

December 31, 2019,

there were

no

holdings of securities of any

one

issuer, other than the U.S. Government and its agencies, in an amount greater than

10%

of stockholders' equity.

At

June 30, 2020

and

December 31, 2019,

mortgage-backed securities included collateralized mortgage obligations of

$12.3

 million and

$13.4

million, respectively, which are backed by single-family mortgage loans. The Company does

not

hold any securities backed by commercial real estate loans.

Gross Unrealized Losses and Fair Value

– The following tables show the gross unrealized losses and fair values of securities by length of time that individual securities in each category have been in a continuous loss position.

	June 30, 2020
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	639,465	$	(1,391	)	$	-	$	-		$	639,465	$	(1,391	)
U.S. Government agencies		-		-			715,953		(1,819	)		715,953		(1,819	)
Total temporarily impaired securities	$	639,465	$	(1,391	)	$	715,953	$	(1,819	)	$	1,355,418	$	(3,210	)

	December 31, 2019
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	10,201,840	$	(64,195	)	$	6,459,069	$	(55,579	)	$	16,660,909	$	(119,774	)
U.S. Government agencies		-		-			843,719		(24,824	)		843,719		(24,824	)
Municipal obligations		4,676,851		(114,879	)		-		-			4,676,851		(114,879	)
Total temporarily impaired securities	$	14,878,691	$	(179,074	)	$	7,302,788	$	(80,403	)	$	22,181,479	$	(259,477	)

At

June 30, 2020

and

December 31, 2019,

all of the government agencies and mortgage-backed securities held by the Company were issued by U.S. Government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and

not

credit quality, and because the Company does

not

have the intent to sell these securities and it is likely that it will

not

be required to sell the securities before their anticipated recovery, the Company does

not

consider these securities to be other-than-temporarily impaired at

June 30, 2020.

Loans and securities with a carrying value of approximately

$153.7

 million at

June 30, 2020

were pledged to secure Federal Home Loan Bank (“FHLB”) advances. In addition, at

June 30, 2020,

securities with a carrying value of

$3.5

 million were pledged to secure public deposits and securities with a carrying value of

$14.7

million were pledged to the FRB for potential overnight discount window borrowings.

XML

Note 4 - Loans Held for Investment, Net

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE

4

– LOANS HELD FOR INVESTMENT, NET

The components of loans held for investment, net in the consolidated balance sheets were as follows:

	June 30, 2020						December 31, 2019
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	257,876,733			73.1	%	$	242,682,721			82.1	%
One- to four-family residential real estate		24,354,087			6.9			28,849,640			9.8
Commercial and industrial		66,761,757			18.9			20,075,236			6.8
Consumer and other		3,726,966			1.1			3,860,991			1.3
Total gross loans		352,719,543			100.0	%		295,468,588			100.0	%
Unamortized loan fees, net of costs		(1,372,094	)					(807,869	)
Loans held for investment		351,347,449						294,660,719
Allowance for loan losses		(3,975,620	)					(2,921,931	)
Loans held for investment, net	$	347,371,829					$	291,738,788

At

June 30, 2020

and

December 31, 2019,

loans held for investment includes commercial construction loans of

$23.5

 million and

$16.1

million and Paycheck Protection Program ("PPP") loans of

$36.1

million and -

0

-, respectively. 

Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans as of

June 30, 2020

and

December 31, 2019:

	As of June 30, 2020
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		3,371,097		250,674		307,805		46,044		3,975,620
Total	$	3,371,097	$	250,674	$	307,805	$	46,044	$	3,975,620
Gross loans
Ending balance: individually evaluated for impairment	$	2,578,003	$	823,445	$	-	$	-	$	3,401,448
Ending balance: collectively evaluated for impairment		255,298,730		23,530,642		66,761,757		3,726,966		349,318,095
Total	$	257,876,733	$	24,354,087	$	66,761,757	$	3,726,966	$	352,719,543

	As of December 31, 2019
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		2,588,714		187,345		115,502		30,370		2,921,931
Total	$	2,588,714	$	187,345	$	115,502	$	30,370	$	2,921,931
Gross loans
Ending balance: individually evaluated for impairment	$	2,718,731	$	786,557	$	-	$	-	$	3,505,288
Ending balance: collectively evaluated for impairment		239,963,990		28,063,083		20,075,236		3,860,991		291,963,300
Total	$	242,682,721	$	28,849,640	$	20,075,236	$	3,860,991	$	295,468,588

The COVID-

19

pandemic has, and is expected to going forward, materially affect our determination of an adequate allowance for loan losses ("ALLL").  In addition to its normal ALLL provision determined based upon loan growth and other risk factor changes, the Company increased its allowance for loan losses an additional

$900,000,

or

31%

compared to the

December 31, 2019

ALLL balance for uncertainties related to COVID-

19

pandemic and the recession.  The Company plans to continue to closely monitor the effects of the pandemic on the ability of its borrowers to repay their debt going forward.  It is possible larger increases in the allowance for loan losses will be necessary in the future due to the COVID-

19

pandemic and recession, or the after-effects of it. 

The following tables summarize activities for the allowance for loan losses for the

six

 months ended

June 30, 2020

and

2019:

	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Balance December 31, 2019	$	2,588,714	$	187,345	$	115,502	$	30,370	$	2,921,931
Provision for loan losses		267,392		49,372		147,981		7,255		472,000
Charge-offs		-		-		-		-		-
Recoveries		-		2,930		-		-		2,930
Net (charge-offs) recoveries		-		2,930		-		-		2,930
Balance March 31, 2020	$	2,856,106	$	239,647	$	263,483	$	37,625	$	3,396,861
Provision for loan losses		514,991		9,268		44,322		8,419		577,000
Change-offs		-		-		-		-		-
Recoveries		-		1,759		-		-		1,759
Net (charge-offs) recoveries		-		1,759		-		-		1,759
Balance June 30, 2020	$	3,371,097	$	250,674	$	307,805	$	46,044	$	3,975,620

	Commercial Real Estate		One- to Four-Family Residential Real Estate			Commercial and Industrial		Consumer and Other			Total
Balance December 31, 2018	$	2,130,124	$	359,705		$	377,180	$	34,082		$	2,901,091
Provision for loan losses		211,173		(130,880	)		9,738		(2,531	)		87,500
Charge-offs		-		(8,686	)		-		-			(8,686	)
Recoveries		-		-			1,507		-			1,507
Net (charge-offs) recoveries		-		(8,686	)		1,507		-			(7,179	)
Balance March 31, 2019	$	2,341,297	$	220,139		$	388,425	$	31,551		$	2,981,412
Provision for loan losses		85,605		(2,388	)		9,914		(8,131	)		85,000
Change-offs		-		-			-		-			-
Recoveries		-		1,879			-		-			1,879
Net (charge-offs) recoveries		-		1,879			-		-			1,879
Balance June 30, 2019	$	2,426,902	$	219,630		$	398,339	$	23,420		$	3,068,291

Nonperforming Assets –

The following tables present an aging analysis of the recorded investment of past due loans as of

June 30, 2020

and

December 31, 2019.

Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. Per Company policy, loans past due

90

days or more

no

longer accrue interest.

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
June 30, 2020
Commercial real estate	$	-	$	-	$	-	$	-	$	257,876,733	$	257,876,733
One- to four-family residential real estate		-		395,110		290,018		685,128		23,668,959		24,354,087
Commercial and industrial		-		-		-		-		66,761,757		66,761,757
Consumer and other		-		-		-		-		3,726,966		3,726,966
Totals	$	-	$	395,110	$	290,018	$	685,128	$	352,034,415	$	352,719,543

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2019
Commercial real estate	$	-	$	-	$	2,718,731	$	2,718,731	$	239,963,990	$	242,682,721
One- to four-family residential real estate		758,197		36,520		638,623		1,433,340		27,416,300	$	28,849,640
Commercial and industrial		-		-		-		-		20,075,236	$	20,075,236
Consumer and other		-		-		-		-		3,860,991	$	3,860,991
Totals	$	758,197	$	36,520	$	3,357,354	$	4,152,071	$	291,316,517	$	295,468,588

The following table sets forth nonaccrual loans and other real estate at

June 30, 2020

and

December 31, 2019:

	June 30,			December 31,
	2020			2019
Nonaccrual loans
Commercial real estate	$	2,578,003		$	2,718,731
One- to four-family residential real estate		754,037			786,557
Commercial and industrial		-			-
Consumer and other		-			-
Total nonaccrual loans		3,332,040			3,505,288
Other real estate (ORE)		-			-
Total nonperforming assets	$	3,332,040		$	3,505,288
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.19	%
Nonperforming assets to total assets		0.73	%		0.89	%

Nonaccrual loan balances guaranteed by the SBA are

$2.3

million, or

69%,

and

$2.3

million, or

66%,

of the nonaccrual loan balances at

June 30, 2020

and

December 31, 2019,

respectively.

Credit Quality Indicators –

The following tables represent the credit exposure by internally assigned grades at

June 30, 

2020

and

December 31, 2019.

This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank's internal credit risk grading system is based on management's experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which

may

affect the risk characteristics of the respective loan.

	As of June 30, 2020
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	253,050,106	$	22,606,006	$	66,528,216	$	3,726,966	$	345,911,294
Special mention		459,260		288,279		-		-		747,539
Substandard		4,367,367		1,459,802		233,541		-		6,060,710
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	257,876,733	$	24,354,087	$	66,761,757	$	3,726,966	$	352,719,543

	As of December 31, 2019
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	237,546,684	$	26,969,204	$	19,774,797	$	3,860,991	$	288,151,676
Special mention		508,201		375,054		-		-		883,255
Substandard		4,627,836		1,505,382		300,439		-		6,433,657
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	242,682,721	$	28,849,640	$	20,075,236	$	3,860,991	$	295,468,588

 The Bank's internally assigned grades are as follows:

Pass

– Strong credit with

no

existing or known potential weaknesses deserving of management's close attention.

Special Mention

– Potential weaknesses that deserve management's close attention. Borrower and guarantor's capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard

– Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful

– All the weakness inherent in

one

classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss

– Considered uncollectible or

no

longer a bankable asset. This classification does

not

mean that the asset has absolutely

no

recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is

not

practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery

may

be collected in the future.

Impaired Loans –

The following tables include the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

	As of June 30, 2020
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,578,003	$	2,578,003	$	-	$	2,620,918
One- to four-family residential real estate		823,445		823,445		-		829,053
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,401,448	$	3,401,448	$	-	$	3,449,971
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,578,003	$	2,578,003	$	-	$	2,620,918
One- to four-family residential real estate		823,445		823,445		-		829,053
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,401,448	$	3,401,448	$	-	$	3,449,971

	As of December 31, 2019
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,718,731	$	2,718,731	$	-	$	2,738,545
One- to four-family residential real estate		786,557		786,557		-		791,476
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,505,288	$	3,505,288	$	-	$	3,530,021
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,718,731	$	2,718,731	$	-	$	2,738,545
One- to four-family residential real estate		786,557		786,557		-		791,476
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,505,288	$	3,505,288	$	-	$	3,530,021

During each of the

six

 months ended

June 30, 2020

and

2019,

no

 interest income was recognized on nonaccrual loans.

Certain loans within the Company's loan portfolio are guaranteed by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were

no

commitments from the VA to take title to properties collateralizing Company loans at

June 30, 2020

and

December 31, 2019.

Troubled Debt Restructurings

– Restructured loans are considered “troubled debt restructurings” if due to the borrower's financial difficulties, the Bank has granted a concession that they would

not

otherwise consider. This

may

include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show

no

less than

six

months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.

In the normal course of business, the Company

may

modify a loan for a credit worthy borrower where the modified loan is

not

considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower's decline in performance, and projections intended to assess repayment ability going forward.

There was

one

troubled debt restructuring with a current payment status and principal balance of

$69,000

 and

$71,000,

as of

June 30, 2020

and

December 31, 2019,

respectively.

XML

Note 5 - Financial Instruments With Off-balance-sheet Credit Risk

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

NOTE

5

– FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK

In the normal course of business, the Bank has outstanding commitments to extend credit and standby letters of credit, which are

not

included in the accompanying consolidated financial statements. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for instruments that are included in the consolidated balance sheets.

Financial instruments whose contract amounts represent off-balance-sheet credit risk are as follows as of

June 30, 2020

and

December 31, 2019:

	June 30,		December 31,
	2020		2019
Commitments to extend credit	$	29,719,611	$	25,739,246
Unused lines of credit		22,426,577		17,765,580
Totals	$	52,146,188	$	43,504,826

Commitments to extend credit are agreements to lend to a customer as long as there is

no

violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies by and

may

include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

The Company enters into leases in the normal course of business primarily for branch facilities or loan production offices.  The leases have remaining terms ranging from

one

 to

three

years, some of which include renewal options to extend the lease and options to terminate the lease.   In addition, the Company has entered into subleases for space in certain vacated mortgage loan production offices, the terms of which range from

one

to

two

years.  The Company's leases and subleases do

not

include residual value guarantees or covenants.  The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option.  The Company has elected

not

to recognize leases with original least terms of

12

months or less (short-term leases) on the balance sheet.  Leases are recognized as operating or financing leases at the lease commencement date.  Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term.  Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities are recognized at lease commencement date based upon the estimated present value of lease payments over the lease term.  The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is

not

known. The discount rates used to calculate the present value of lease liabilities were based upon the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the later of the date we adopted the new lease accounting standard or lease commencement date.  At

June 30, 2020

the balance sheet included

$1.2

 million operating lease right-of-use assets and

$1.3

 million operating lease liabilities.  

The following table shows the future minimum lease payments, weighted average remaining lease terms and weighted average discount rates under operating lease arrangements as of

June 30, 2020.  

	June 30, 2020
Year	Operating Leases
2020	$	302,869
2021		576,841
2022		444,986
2023		30,558
Total minimum lease payments		1,355,254
Amounts representing interest (present value discount)		(29,294	)
Operating lease liabilities (present value of minimum lease payments)	$	1,325,960
Weighted average remaining term (in years)		2.3
Weighted average discount rate		1.92	%

XML

Note 6 - Defined Benefit Plan

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Defined Benefit Plan [Text Block]

NOTE

6

– DEFINED BENEFIT PLAN

Defined benefit pension plan expense for the

three

and

six

months ended

June 30, 2020

was

$83,000

and

$142,000,

and for the

three

and

six

months ended

June 30, 2019

was

$20,000

and

$41,000,

respectively.

Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”, EIN

13

-

5645888

and Plan

No.

333

)

Through

March 31, 2020,

the Company was a participant in the Pentegra DB Plan, a multiple employer defined benefit pension plan.   On

June 1, 2006,

the Company froze the benefits available under the Pentegra DB Plan. The Company's cash contributions to the Pentegra DB Plan were

$225,000

and -

0

- during the year ended

December 31, 2019

and

six

months ended

June 30, 2020,

respectively, all of which represented less than

5%

of total plan contributions. As of

July 1, 2019 (

the most recent valuation report available), the unfunded pension liability was approximately

$572,000

(

87%

funded).

Bank

34

Employees DB Retirement Plan

Effective

April 1, 2020,

the Company withdrew from the Pentegra DB Plan and established the Bank

34

Employee Defined Benefit Retirement Plan (“Bank DB Plan”).  On

June 2, 2020,

all assets and liabilities were transferred from the Pentegra DB Plan to the newly established Bank DB Plan. 

The Bank DB Plan is a funded noncontributory defined benefit pension plan covering

50

current and former employees. Similar to its predecessor, benefits available under the Bank DB Plan are frozen. The plan provides defined benefits based on years of service and final average salary. The Company uses

December 31

as the measurement date for this plan.  The initial plan year will be

April 1, 2020

through

December 31, 2020.

The fair value of plan assets and projected benefit obligation on the

April 1, 2020

Bank DB Plan adoption date were

$2,392,111

and

$3,951,473,

respectively, and a

$1,387,186

contribution was made to the Bank DB Plan in

May 2020.

Accumulated other comprehensive income on our balance sheet included

$1,559,362

and

$1,542,112

prior service cost at

April 1, 2020

and

June 30, 2020,

respectively.

Weighted-average assumptions used to determine pension benefit obligations at year-end include a

3.50%

discount rate and a

0%

rate of compensation increase.  The weighted average assumptions used to determine net periodic pension cost include

3.50%

discount rate,

3.50%

expected return on plan assets and a

0%

rate of compensation increase.

The Bank DB Plan was

first

funded in the

second

quarter of

2020

and the overall investment strategy and target investment allocations have yet to be determined.  The

3.50%

weighted average expected long term rate of return is estimated based on current trends in similar plan assets as well as projected future rates of returns on similar assets. The plan does

not

have prohibited investments. 

From initial funding in the

second

quarter of

2020

through

June 30, 2020,

all assets of the Bank DB Plan have been invested in the MassMutual Premier U.S. Gov't Money Market Fund (“Fund”).  The fair value of the Bank

34

DB Plan investment in the Fund at

June 30, 2020

was

$3,744,342,

as determined by quoted market prices (Level

1

).   

XML

Note 7 - Regulatory Matters

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE

7

 – REGULATORY MATTERS

Bank

34

is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital and Tier

1

capital to risk-weighted assets, and Tier

1

capital to adjusted total assets. Management believes, as of

June 30, 2020

and

December 31, 2019,

the Bank meets all capital adequacy requirements to which it is subject.

Banks are also subject to certain restrictions on the amount of dividends that they

may

declare without prior regulatory approval.

As of

June 30, 2020,

the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank has to maintain minimum total risk-based, Tier

1

risk-based, common equity Tier

1

risk-based, and Tier

1

leverage ratios as disclosed in the table below. There are

no

conditions or events that management believes have changed the Bank's prompt corrective action category.

The Bank's actual and required capital amounts and ratios are as follows:

											To be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2020:
Total Capital (to Risk-Weighted Assets)	$	45,040		12.57	%	$	28,658		> 8.00	%	$	35,823		> 10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	41,024		11.45	%	$	21,494		> 6.00	%	$	28,659		> 8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	41,024		11.45	%	$	16,120		> 4.50	%	$	23,285		> 6.50	%
Tier I Capital (to Average Assets)	$	41,024		9.30	%	$	17,646		> 4.00	%	$	22,058		> 5.00	%
As of December 31, 2019:
Total Capital (to Risk-Weighted Assets)	$	42,944		14.59	%	$	23,554		> 8.00	%	$	29,443		> 10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	39,982		13.58	%	$	17,666		> 6.00	%	$	23,554		> 8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	39,982		13.58	%	$	13,249		> 4.50	%	$	19,138		> 6.50	%
Tier I Capital (to Average Assets)	$	39,982		10.30	%	$	15,529		> 4.00	%	$	19,411		> 5.00	%

XML

Note 8 - Stock-based Compensation

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

NOTE

8

 – STOCK-BASED COMPENSATION

The Company has fully vested and unvested stock options and unvested restricted stock awards outstanding under the

2017

Equity Incentive Plan.

A summary of stock option activity during the

six

months ended

June 30, 2020

is presented below:

	For the Six Months Ended June 30, 2020
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Shares			Exercise Price		Term (years)		Value
Outstanding, December 31, 2019		146,300		$	14.92		5.0	$	53,166
Granted		5,000			11.93
Exercised		-
Forfeited or expired		(1,150	)		14.90
Outstanding, June 30, 2020		150,150		$	14.81		4.9	$	-
Exercisable, June 30, 2020		57,160		$	14.92		4.5	$	-

A summary of restricted stock activity during the

six

 months ended

June 30, 2020

is presented below:

		For the Six Months Ended June 30, 2020
				Weighted		Average
				Average		Remaining
				Grant Date		Contractual
	Shares			Price		Term (years)
Outstanding, December 31, 2019		40,044		$	14.89		2.6
Granted		2,000			11.93
Vested		(85	)		15.48
Outstanding, June 30, 2020		41,959		$	14.76		2.1

Compensation and benefits included

$153,000

and

$147,000

of stock-based expense for the

six

 months ended

June 30, 2020

and

2019,

respectively. Restricted stock award dividends included in stock-based expense were

$4,000

and

$2,000

 for the

six

 months ended

June 

30,

2020

and

2019,

respectively. 

As of

June 30, 2020,

there was

$749,000

 of total unrecognized stock-based expense including

$263,000

related to unvested stock options and

$486,000

from restricted stock awards granted under the

2017

Equity Incentive Plan that is expected to be recognized ratably over the next

2.4

 years.

XML

Note 9 - Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

9

 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table presents information about assets and liabilities measured at fair value on a recurring and non-recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair values as of

June 30, 2020

and

December 31, 2019.

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value
June 30, 2020:
Recurring basis
Mortgage-backed securities	$	-	$	31,889,027	$	-	$	31,889,027
U.S. Government agencies		-		924,286		-		924,286
Municipal obligations		-		30,754,968		-		30,754,968
Nonrecurring basis
Impaired loans		-		-		3,401,448		3,401,448
Totals	$	-	$	63,568,281	$	3,401,448	$	66,969,729
December 31, 2019:
Recurring basis
Mortgage-backed securities	$	-	$	31,018,748	$	-	$	31,018,748
U.S. Government agencies		-		1,079,447		-		1,079,447
Municipal obligations		-		12,418,983		-		12,418,983
Nonrecurring basis
Impaired loans		-		-		3,505,288		3,505,288
Totals	$	-	$	44,517,178	$	3,505,288	$	48,022,466

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because

no

market exists for certain of these financial instruments and because management does

not

intend to sell these financial instruments, the Bank does

not

know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

There were

no

transfers between levels of the fair value hierarchy during the

three

or

six

months ended

June 30, 2020

or

2019.

 

The following methods and assumptions were used to estimate the fair value of the classes of financial instruments shown:

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 highly-liquid government bonds, mortgage products and exchange-traded equities. 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. Level

2

securities include certain collateralized mortgage and debt obligations and certain municipal securities. In certain cases, where Level

1

or Level

2

inputs are

not

available, securities are classified within Level

3

of the hierarchy and include certain residual municipal securities and other less liquid securities.

Loans Held for Investment, Net –

Loans held for investment are generally

not

recorded at fair value on a recurring basis. Periodically, the Bank records nonrecurring adjustments to the carrying value of these loans based on fair value measurements for loans subject to impairment. The fair value of impaired loans is typically determined using a combination of observable inputs, such as interest rates, contract terms, appraisals of collateral supporting the loan and recent comparable sales of similar properties, and unobservable inputs such as creditworthiness, disposition costs and underlying cash flows associated with the loan. Since the estimates of fair value utilized for loans also involve unobservable inputs, valuations of impaired loans have been classified as Level

3.

The following table presents the significant unobservable inputs used in the fair value measurements for Level

3

financial assets measured on a non-recurring basis:

	Fair Value		Valuation Methodologies	Valuation Model	Unobservable Input Valuation
At June 30, 2020
Impaired loans
Commercial real estate	$	2,578,003	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
One- to four-family residential real estate		823,445	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
Total Impaired Loans	$	3,401,448
At December 31, 2019
Impaired loans
Commercial real estate	$	2,718,731	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
One- to four-family residential real estate		786,557	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
Total Impaired Loans	$	3,505,288

The following table presents estimated fair values of the Company's financial instruments at

June 30, 2020

and

December 31, 2019.

					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
At June 30, 2020:
Financial assets:
Cash and due from banks	$	6,810	$	6,810	$	6,810	$	-	$	-
Interest-bearing deposits with banks		10,635		10,635		10,635		-		-
Available-for-sale securities		63,568		63,568		-		63,568		-
Loans held for investment, net		347,372		346,498		-		-		346,498
Stock in financial institutions		4,053		4,053		-		4,053		-
Financial liabilities:
Demand deposits, savings and NOW deposits		253,181		252,132		252,132		-		-
Time deposits		77,754		78,368		-		78,368		-
Federal Home Loan Bank advances		75,000		75,187		-		75,187		-
At December 31, 2019
Financial assets:
Cash and due from banks	$	4,496	$	4,496	$	4,496	$	-	$	-
Interest-bearing deposits with banks		24,990		24,990		24,990		-		-
Available-for-sale securities		44,517		44,517		-		44,517		-
Loans held for investment, net		291,739		292,246		-		-		292,246
Stock in financial institutions		4,017		4,017		-		4,017		-
Financial liabilities:
Demand deposits, savings and NOW deposits		222,509		214,611		214,611		-		-
Time deposits		81,388		81,638		-		81,638		-
Federal Home Loan Bank advances		40,000		40,075		-		40,075		-

XML

Note 10 - Earnings Per Share

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

10

 – EARNINGS PER SHARE

The

two

-class method is used in the calculation of basic and diluted earnings per share. Under the

two

-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The earnings per share computations follow:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Basic:
Net income from continuing operations	$	502,136		$	512,732		$	780,193		$	899,875
Net loss from discontinued operations		-			(852,510	)		-			(1,198,445	)
Less: Earnings allocated to participating securities		(6,657	)		5,212			(10,298	)		4,768
Net income allocated to common shareholders	$	495,479		$	(334,566	)	$	769,895		$	(293,802	)
Weighted-average common shares outstanding including participating securities		3,203,399			3,355,929			3,206,009			3,358,183
Less: Average participating securities		(40,292	)		(48,864	)		(40,153	)		(49,331	)
Less: Average unallocated ESOP Shares		(164,096	)		(170,316	)		(164,096	)		(170,316	)
Average shares		2,999,011			3,136,749			3,001,760			3,138,536
Basic earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Basic loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Basic earnings per common share	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)
Diluted:
Net income allocated to common shareholders	$	495,479		$	(334,566	)	$	769,895		$	(293,802	)
Weighted-average common shares outstanding for basic earnings per common share		2,999,011			3,136,749			3,001,760			3,138,536
Add: Dilutive effects of assumed exercises of stock options		-			4,747			241			3,399
Weighted average shares and dilutive potential common shares		2,999,011			3,141,496			3,002,002			3,141,935
Diluted earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Diluted loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Diluted earnings per common share	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)

(

1

) Our participating securities are restricted stock awards which participate in common stock dividends.

Stock options for

150,150

 and

145,150

 shares were

not

considered in computing diluted earnings per common share for the

three

and

six

months ended

June 30, 2020,

respectively.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation –

The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition, cash flows and results of operations at the dates and for the periods presented. The results of operations for the

three

and

six

months ended

June 30, 2020

are

not

necessarily indicative of the results of operations for the full fiscal year or for any other period. This information should be read in conjunction with the Company's Annual Report on Form

10

-K for the year ended

December 31, 2019.

Discontinued Operations, Policy [Policy Text Block]

Discontinued Operations –

As discussed in Note

2

- Discontinued Operations, current and prior periods presented in the consolidated statements of comprehensive income as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of discontinued operations for comparative purposes. The consolidated balance sheets and related note disclosures for prior periods also reflect the reclassification of certain assets and liabilities to discontinued operations.

Consolidation, Policy [Policy Text Block]

Basis of Consolidation

– The consolidated financial statements include the accounts of Bancorp

34

and the Bank. All significant intercompany accounts and transactions have been eliminated.

Reclassification, Comparability Adjustment [Policy Text Block]

Reclassifications

– Certain reclassifications have been made to prior period's financial information to conform to the current period presentation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates –

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are

not

limited to, allowance for loan losses, other-than-temporary impairment of securities, useful lives used in depreciation and amortization, deferred income taxes, valuation of other real estate and core deposit intangibles.

New Accounting Pronouncements, Policy [Policy Text Block]

Summary of Recent Accounting Pronouncements

:

Prior to

2020,

Bancorp

34

was an emerging growth company under the JOBS Act and elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies. Accordingly, our financial statements

may

not

be comparable to the financial statements of public companies that have complied with such new or revised accounting standards. The Company lost its status as an emerging growth company at the end of

2019.

Leases –

In

February 2016,

the FASB issued ASU 

2016

-

02

“Leases (Topic

842

).”

This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard was effective for fiscal years and interim periods within those fiscal years beginning after

December 15, 2018

for public companies, but the Company had until the

first

quarter of

2020

to adopt due to its emerging growth company status. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. We adopted the standard effective

January 1, 2020

on a prospective basis and elected to apply several allowable practical expedients, including carryover of historical lease determinations, classification conclusions and direct cost balances.  Adoption of the standard resulted in balance sheet recognition of approximately

$1.3

 million in operating lease right-of-use assets and

$1.4

million operating lease liabilities as of

January 1, 2020.

These amounts represent the present value of remaining minimum lease payments, discounted using the Company's incremental borrowing rate at the date of adoption.  There was

no

material impact on the timing of expense or income recognition in the consolidated statements of income.  Prior periods were

not

restated.  Further information regarding the Company's leasing activities are included in Note

5

– Financial Instruments with Off-Balance-Sheet Credit Risk.

Credit Losses -

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments.”

The amendments in this update replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to create credit loss estimates. The new guidance is effective for public companies that are U.S. Securities and Exchange Commission filers for fiscal years beginning after

December 15, 2019

including interim periods within those fiscal years. For all other public companies, the amendments are effective for fiscal years beginning after

December 15, 2020,

including interim periods within those fiscal years. For all other companies, including emerging growth companies, the amendments are effective for fiscal years beginning after

December 15, 2020,

and interim periods within fiscal years beginning after

December 15, 2021.

On

October 16, 2019,

FASB announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies, as defined in Securities and Exchange Commission Regulations, such as the Company, to adopt effective for the

first

fiscal year beginning after

December 15, 2022.

The guidance is required to be applied by the modified retrospective approach. Early adoption is permitted as of the fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

Compensation, Retirement Benefits

- In

August 2018,

the FASB issued 

ASU

 

2018

-

14

, 

Compensation - Retirement benefits (Topic 

715

-

20

)

. This ASU amends ASC

715

 to add, remove and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a

one

-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for post-retirement health care benefits. This ASU is effective for fiscal years ending after

December 15, 2020

and was applied on a retrospective basis.  The adoption of this ASU did

not

have a material impact on the Company's financial position, results of operations or cash flows.

XML

Note 2 - Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Disposal Groups, Including Discontinued Operations, Calculation of Net Loss [Table Text Block]

	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Severance benefits	$	147,948	$	147,948
Leases, software & other contractual obligations		360,613		360,613
Fixed asset losses		30,423		30,423
Other costs		212,998		212,998
Net Loss on Disposal	$	751,982	$	751,982

Disposal Groups, Including Discontinued Operations, Income Statement Information [Table Text Block]

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020		2019
Net interest income	$	-	$	85,484		$	-	$	170,782
Gain on sale of loans		-		2,095,986			-		4,813,660
Other		-		190			-		190
Total noninterest income		-		2,096,176			-		4,813,850
Salaries and benefits		-		1,919,033			-		4,480,025
Occupancy		-		84,314			-		232,360
Data processing fees		-		282,503			-		584,369
Professional fees		-		51,993			-		107,972
Advertising		-		70,469			-		118,801
Net loss on disposal		-		751,982			-		751,982
Other		-		153,603			-		299,761
Total noninterest expense		-		3,313,897			-		6,575,270
Loss from discontinued operations		-		(1,132,237	)		-		(1,590,638	)
Benefit for income taxes		-		(279,727	)		-		(392,193	)
Net loss from discontinued operations	$	-	$	(852,510	)	$	-	$	(1,198,445	)

Disposal Groups, Including Discontinued Operations, Balance Sheet Information [Table Text Block]

	June 30, 2020			December 31, 2019
Accrued interest and other liabilities - discontinued operations		169,380			233,427
Total liabilities	$	169,380		$	233,427
Net (liabilities) assets	$	(169,380	)	$	(233,427	)

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Note 3 - Available-for-sale Securities (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
June 30, 2020
Available-for-sale securities
Mortgage-backed securities	$	30,847,669	$	1,042,749	$	(1,391	)	$	31,889,027
U.S. Government agencies		919,509		6,596		(1,819	)		924,286
Municipal obligations		29,816,091		938,877		-			30,754,968
Total	$	61,583,269	$	1,988,222	$	(3,210	)	$	63,568,281
December 31, 2019
Available-for-sale securities
Mortgage-backed securities	$	30,722,958	$	415,564	$	(119,774	)	$	31,018,748
U.S. Government agencies		1,102,532		1,739		(24,824	)		1,079,447
Municipal obligations		12,279,341		254,521		(114,879	)		12,418,983
Total	$	44,104,831	$	671,824	$	(259,477	)	$	44,517,178

Schedule of Realized Gain (Loss) [Table Text Block]

	Six Months Ended June 30,
	2020			2019
Proceeds from sale	$	1,854,871		$	-
Sales gains	$	15,013		$	-
Sales losses	$	(4,856	)	$	-

Available-for-sale Securities Debt Maturities [Table Text Block]

	June 30, 2020				December 31, 2019
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	11,294,706	$	11,341,059	$	-	$	-
Due after one to five years		27,764,508		28,807,095		27,151,751		27,510,536
Due after five to ten years		17,420,852		18,162,759		14,048,273		14,163,270
Due after ten years		5,103,203		5,257,368		2,904,807		2,843,372
Totals	$	61,583,269	$	63,568,281	$	44,104,831	$	44,517,178

Debt Securities, Available-for-sale, Unrealized Loss Position, Fair Value [Table Text Block]

	June 30, 2020
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	639,465	$	(1,391	)	$	-	$	-		$	639,465	$	(1,391	)
U.S. Government agencies		-		-			715,953		(1,819	)		715,953		(1,819	)
Total temporarily impaired securities	$	639,465	$	(1,391	)	$	715,953	$	(1,819	)	$	1,355,418	$	(3,210	)

	December 31, 2019
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	10,201,840	$	(64,195	)	$	6,459,069	$	(55,579	)	$	16,660,909	$	(119,774	)
U.S. Government agencies		-		-			843,719		(24,824	)		843,719		(24,824	)
Municipal obligations		4,676,851		(114,879	)		-		-			4,676,851		(114,879	)
Total temporarily impaired securities	$	14,878,691	$	(179,074	)	$	7,302,788	$	(80,403	)	$	22,181,479	$	(259,477	)

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Note 4 - Loans Held for Investment, Net (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Loans Held for Investment, Net [Table Text Block]

	June 30, 2020						December 31, 2019
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	257,876,733			73.1	%	$	242,682,721			82.1	%
One- to four-family residential real estate		24,354,087			6.9			28,849,640			9.8
Commercial and industrial		66,761,757			18.9			20,075,236			6.8
Consumer and other		3,726,966			1.1			3,860,991			1.3
Total gross loans		352,719,543			100.0	%		295,468,588			100.0	%
Unamortized loan fees, net of costs		(1,372,094	)					(807,869	)
Loans held for investment		351,347,449						294,660,719
Allowance for loan losses		(3,975,620	)					(2,921,931	)
Loans held for investment, net	$	347,371,829					$	291,738,788

Financing Receivable, Allowance for Credit Loss [Table Text Block]

	As of June 30, 2020
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		3,371,097		250,674		307,805		46,044		3,975,620
Total	$	3,371,097	$	250,674	$	307,805	$	46,044	$	3,975,620
Gross loans
Ending balance: individually evaluated for impairment	$	2,578,003	$	823,445	$	-	$	-	$	3,401,448
Ending balance: collectively evaluated for impairment		255,298,730		23,530,642		66,761,757		3,726,966		349,318,095
Total	$	257,876,733	$	24,354,087	$	66,761,757	$	3,726,966	$	352,719,543

	As of December 31, 2019
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		2,588,714		187,345		115,502		30,370		2,921,931
Total	$	2,588,714	$	187,345	$	115,502	$	30,370	$	2,921,931
Gross loans
Ending balance: individually evaluated for impairment	$	2,718,731	$	786,557	$	-	$	-	$	3,505,288
Ending balance: collectively evaluated for impairment		239,963,990		28,063,083		20,075,236		3,860,991		291,963,300
Total	$	242,682,721	$	28,849,640	$	20,075,236	$	3,860,991	$	295,468,588

	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Balance December 31, 2019	$	2,588,714	$	187,345	$	115,502	$	30,370	$	2,921,931
Provision for loan losses		267,392		49,372		147,981		7,255		472,000
Charge-offs		-		-		-		-		-
Recoveries		-		2,930		-		-		2,930
Net (charge-offs) recoveries		-		2,930		-		-		2,930
Balance March 31, 2020	$	2,856,106	$	239,647	$	263,483	$	37,625	$	3,396,861
Provision for loan losses		514,991		9,268		44,322		8,419		577,000
Change-offs		-		-		-		-		-
Recoveries		-		1,759		-		-		1,759
Net (charge-offs) recoveries		-		1,759		-		-		1,759
Balance June 30, 2020	$	3,371,097	$	250,674	$	307,805	$	46,044	$	3,975,620

	Commercial Real Estate		One- to Four-Family Residential Real Estate			Commercial and Industrial		Consumer and Other			Total
Balance December 31, 2018	$	2,130,124	$	359,705		$	377,180	$	34,082		$	2,901,091
Provision for loan losses		211,173		(130,880	)		9,738		(2,531	)		87,500
Charge-offs		-		(8,686	)		-		-			(8,686	)
Recoveries		-		-			1,507		-			1,507
Net (charge-offs) recoveries		-		(8,686	)		1,507		-			(7,179	)
Balance March 31, 2019	$	2,341,297	$	220,139		$	388,425	$	31,551		$	2,981,412
Provision for loan losses		85,605		(2,388	)		9,914		(8,131	)		85,000
Change-offs		-		-			-		-			-
Recoveries		-		1,879			-		-			1,879
Net (charge-offs) recoveries		-		1,879			-		-			1,879
Balance June 30, 2019	$	2,426,902	$	219,630		$	398,339	$	23,420		$	3,068,291

Financing Receivable, Past Due [Table Text Block]

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
June 30, 2020
Commercial real estate	$	-	$	-	$	-	$	-	$	257,876,733	$	257,876,733
One- to four-family residential real estate		-		395,110		290,018		685,128		23,668,959		24,354,087
Commercial and industrial		-		-		-		-		66,761,757		66,761,757
Consumer and other		-		-		-		-		3,726,966		3,726,966
Totals	$	-	$	395,110	$	290,018	$	685,128	$	352,034,415	$	352,719,543

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2019
Commercial real estate	$	-	$	-	$	2,718,731	$	2,718,731	$	239,963,990	$	242,682,721
One- to four-family residential real estate		758,197		36,520		638,623		1,433,340		27,416,300	$	28,849,640
Commercial and industrial		-		-		-		-		20,075,236	$	20,075,236
Consumer and other		-		-		-		-		3,860,991	$	3,860,991
Totals	$	758,197	$	36,520	$	3,357,354	$	4,152,071	$	291,316,517	$	295,468,588

Financing Receivable, Nonaccrual [Table Text Block]

	June 30,			December 31,
	2020			2019
Nonaccrual loans
Commercial real estate	$	2,578,003		$	2,718,731
One- to four-family residential real estate		754,037			786,557
Commercial and industrial		-			-
Consumer and other		-			-
Total nonaccrual loans		3,332,040			3,505,288
Other real estate (ORE)		-			-
Total nonperforming assets	$	3,332,040		$	3,505,288
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.19	%
Nonperforming assets to total assets		0.73	%		0.89	%

Financing Receivable Credit Quality Indicators [Table Text Block]

	As of June 30, 2020
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	253,050,106	$	22,606,006	$	66,528,216	$	3,726,966	$	345,911,294
Special mention		459,260		288,279		-		-		747,539
Substandard		4,367,367		1,459,802		233,541		-		6,060,710
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	257,876,733	$	24,354,087	$	66,761,757	$	3,726,966	$	352,719,543

	As of December 31, 2019
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	237,546,684	$	26,969,204	$	19,774,797	$	3,860,991	$	288,151,676
Special mention		508,201		375,054		-		-		883,255
Substandard		4,627,836		1,505,382		300,439		-		6,433,657
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	242,682,721	$	28,849,640	$	20,075,236	$	3,860,991	$	295,468,588

Impaired Financing Receivables [Table Text Block]

	As of June 30, 2020
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,578,003	$	2,578,003	$	-	$	2,620,918
One- to four-family residential real estate		823,445		823,445		-		829,053
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,401,448	$	3,401,448	$	-	$	3,449,971
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,578,003	$	2,578,003	$	-	$	2,620,918
One- to four-family residential real estate		823,445		823,445		-		829,053
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,401,448	$	3,401,448	$	-	$	3,449,971

	As of December 31, 2019
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,718,731	$	2,718,731	$	-	$	2,738,545
One- to four-family residential real estate		786,557		786,557		-		791,476
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,505,288	$	3,505,288	$	-	$	3,530,021
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,718,731	$	2,718,731	$	-	$	2,738,545
One- to four-family residential real estate		786,557		786,557		-		791,476
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,505,288	$	3,505,288	$	-	$	3,530,021

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Note 5 - Financial Instruments With Off-balance-sheet Credit Risk (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

	June 30,		December 31,
	2020		2019
Commitments to extend credit	$	29,719,611	$	25,739,246
Unused lines of credit		22,426,577		17,765,580
Totals	$	52,146,188	$	43,504,826

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

	June 30, 2020
Year	Operating Leases
2020	$	302,869
2021		576,841
2022		444,986
2023		30,558
Total minimum lease payments		1,355,254
Amounts representing interest (present value discount)		(29,294	)
Operating lease liabilities (present value of minimum lease payments)	$	1,325,960
Weighted average remaining term (in years)		2.3
Weighted average discount rate		1.92	%

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Note 7 - Regulatory Matters (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

											To be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2020:
Total Capital (to Risk-Weighted Assets)	$	45,040		12.57	%	$	28,658		> 8.00	%	$	35,823		> 10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	41,024		11.45	%	$	21,494		> 6.00	%	$	28,659		> 8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	41,024		11.45	%	$	16,120		> 4.50	%	$	23,285		> 6.50	%
Tier I Capital (to Average Assets)	$	41,024		9.30	%	$	17,646		> 4.00	%	$	22,058		> 5.00	%
As of December 31, 2019:
Total Capital (to Risk-Weighted Assets)	$	42,944		14.59	%	$	23,554		> 8.00	%	$	29,443		> 10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	39,982		13.58	%	$	17,666		> 6.00	%	$	23,554		> 8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	39,982		13.58	%	$	13,249		> 4.50	%	$	19,138		> 6.50	%
Tier I Capital (to Average Assets)	$	39,982		10.30	%	$	15,529		> 4.00	%	$	19,411		> 5.00	%

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Note 8 - Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	For the Six Months Ended June 30, 2020
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Shares			Exercise Price		Term (years)		Value
Outstanding, December 31, 2019		146,300		$	14.92		5.0	$	53,166
Granted		5,000			11.93
Exercised		-
Forfeited or expired		(1,150	)		14.90
Outstanding, June 30, 2020		150,150		$	14.81		4.9	$	-
Exercisable, June 30, 2020		57,160		$	14.92		4.5	$	-

Share-based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity [Table Text Block]

		For the Six Months Ended June 30, 2020
				Weighted		Average
				Average		Remaining
				Grant Date		Contractual
	Shares			Price		Term (years)
Outstanding, December 31, 2019		40,044		$	14.89		2.6
Granted		2,000			11.93
Vested		(85	)		15.48
Outstanding, June 30, 2020		41,959		$	14.76		2.1

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Note 9 - Fair Values of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value
June 30, 2020:
Recurring basis
Mortgage-backed securities	$	-	$	31,889,027	$	-	$	31,889,027
U.S. Government agencies		-		924,286		-		924,286
Municipal obligations		-		30,754,968		-		30,754,968
Nonrecurring basis
Impaired loans		-		-		3,401,448		3,401,448
Totals	$	-	$	63,568,281	$	3,401,448	$	66,969,729
December 31, 2019:
Recurring basis
Mortgage-backed securities	$	-	$	31,018,748	$	-	$	31,018,748
U.S. Government agencies		-		1,079,447		-		1,079,447
Municipal obligations		-		12,418,983		-		12,418,983
Nonrecurring basis
Impaired loans		-		-		3,505,288		3,505,288
Totals	$	-	$	44,517,178	$	3,505,288	$	48,022,466

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

	Fair Value		Valuation Methodologies	Valuation Model	Unobservable Input Valuation
At June 30, 2020
Impaired loans
Commercial real estate	$	2,578,003	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
One- to four-family residential real estate		823,445	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
Total Impaired Loans	$	3,401,448
At December 31, 2019
Impaired loans
Commercial real estate	$	2,718,731	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
One- to four-family residential real estate		786,557	Appraisal	Appraisal discount and estimated selling costs	17	-	18%
Total Impaired Loans	$	3,505,288

Fair Value, by Balance Sheet Grouping [Table Text Block]

					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
At June 30, 2020:
Financial assets:
Cash and due from banks	$	6,810	$	6,810	$	6,810	$	-	$	-
Interest-bearing deposits with banks		10,635		10,635		10,635		-		-
Available-for-sale securities		63,568		63,568		-		63,568		-
Loans held for investment, net		347,372		346,498		-		-		346,498
Stock in financial institutions		4,053		4,053		-		4,053		-
Financial liabilities:
Demand deposits, savings and NOW deposits		253,181		252,132		252,132		-		-
Time deposits		77,754		78,368		-		78,368		-
Federal Home Loan Bank advances		75,000		75,187		-		75,187		-
At December 31, 2019
Financial assets:
Cash and due from banks	$	4,496	$	4,496	$	4,496	$	-	$	-
Interest-bearing deposits with banks		24,990		24,990		24,990		-		-
Available-for-sale securities		44,517		44,517		-		44,517		-
Loans held for investment, net		291,739		292,246		-		-		292,246
Stock in financial institutions		4,017		4,017		-		4,017		-
Financial liabilities:
Demand deposits, savings and NOW deposits		222,509		214,611		214,611		-		-
Time deposits		81,388		81,638		-		81,638		-
Federal Home Loan Bank advances		40,000		40,075		-		40,075		-

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Note 10 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Basic:
Net income from continuing operations	$	502,136		$	512,732		$	780,193		$	899,875
Net loss from discontinued operations		-			(852,510	)		-			(1,198,445	)
Less: Earnings allocated to participating securities		(6,657	)		5,212			(10,298	)		4,768
Net income allocated to common shareholders	$	495,479		$	(334,566	)	$	769,895		$	(293,802	)
Weighted-average common shares outstanding including participating securities		3,203,399			3,355,929			3,206,009			3,358,183
Less: Average participating securities		(40,292	)		(48,864	)		(40,153	)		(49,331	)
Less: Average unallocated ESOP Shares		(164,096	)		(170,316	)		(164,096	)		(170,316	)
Average shares		2,999,011			3,136,749			3,001,760			3,138,536
Basic earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Basic loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Basic earnings per common share	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)
Diluted:
Net income allocated to common shareholders	$	495,479		$	(334,566	)	$	769,895		$	(293,802	)
Weighted-average common shares outstanding for basic earnings per common share		2,999,011			3,136,749			3,001,760			3,138,536
Add: Dilutive effects of assumed exercises of stock options		-			4,747			241			3,399
Weighted average shares and dilutive potential common shares		2,999,011			3,141,496			3,002,002			3,141,935
Diluted earnings per common share - continuing operations	$	0.17		$	0.16		$	0.26		$	0.29
Diluted loss per common share - discontinued operations		-			(0.27	)		-			(0.38	)
Diluted earnings per common share	$	0.17		$	(0.11	)	$	0.26		$	(0.09	)

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Note 1 - Nature of Operations and Summary of Significant Accounting and Reporting Policies (Details Textual) - USD ($)	Jun. 30, 2020	Jan. 01, 2020	Dec. 31, 2019
Operating Lease, Right-of-Use Asset	$ 1,227,981
Operating Lease, Liability, Total	$ 1,325,960
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 1,300,000
Operating Lease, Liability, Total		$ 1,400,000

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Note 2 - Discontinued Operations - Calculation of Net Loss (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Fixed asset losses	$ 205,663		$ 205,663
Discontinued Operations [Member]
Severance benefits	147,948	147,948
Leases, software & other contractual obligations	360,613	360,613
Fixed asset losses	30,423	30,423
Other costs	212,998	212,998
Net Loss on Disposal	$ 751,982	$ 751,982

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Note 2 - Discontinued Operations - Results of Discontinued Operations (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Gain on sale of loans	$ 2,641	$ 31,390	$ 2,641	$ 58,297
Other	19,398	9,835	66,765	20,991
Total noninterest income	(9,230)	248,002	250,666	472,526
Salaries and benefits	1,300,507	1,644,543	3,060,057	3,232,069
Occupancy	351,003	349,276	719,710	700,692
Data processing fees	518,628	507,933	980,455	992,659
Professional fees	141,917	227,331	433,354	409,490
Advertising	43,063	38,141	103,725	104,198
Other	179,607	269,152	380,621	502,640
Total noninterest expense	2,579,133	3,096,836	5,774,258	6,087,811
Loss from discontinued operations		(1,132,237)		(1,590,638)
Benefit for income taxes		(279,727)		(392,193)
Less: Net loss from discontinued operations		(852,510)		(1,198,445)
Discontinued Operations [Member]
Net interest income		85,484		170,782
Gain on sale of loans		2,095,986		4,813,660
Other		190		190
Total noninterest income		2,096,176		4,813,850
Salaries and benefits		1,919,033		4,480,025
Occupancy		84,314		232,360
Data processing fees		282,503		584,369
Professional fees		51,993		107,972
Advertising		70,469		118,801
Net loss on disposal		751,982		751,982
Other		153,603		299,761
Total noninterest expense		3,313,897		6,575,270
Loss from discontinued operations		(1,132,237)		(1,590,638)
Benefit for income taxes		(279,727)		(392,193)
Less: Net loss from discontinued operations		$ (852,510)		$ (1,198,445)

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Note 2 - Discontinued Operations - Major Categories of Assets and Liabilities Classified as Held for Sale Related to Discontinued Operations (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Accrued interest and other liabilities - discontinued operations	$ 169,380	$ 233,427
Total liabilities	169,380	233,427
Net (liabilities) assets	$ (169,380)	$ (233,427)

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Note 3 - Available-for-sale Securities (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Available-for-sale Securities, Greater than 10% of Stockholders' Equity	$ 0	$ 0
Debt Securities, Available-for-sale, Total	63,568,281	44,517,178
Available-for-sale Securities, Total	63,568,281	44,517,178
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	0
Loans and Securities Pledged to Secure FHLB Advances	153,700,000
Loans and Securities Pledged to Secure Public Deposits	3,500,000
Loans and Securities Pledged to FRB, Potential Overnight Discount Window Borrowings	14,700,000
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Total	12,300,000	13,400,000
Commercial Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Total	$ 0
Available-for-sale Securities, Total		$ 0

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Note 3 - Available-for-sale Securities - Carrying Amount of Securities and Fair Value (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Totals	$ 61,583,269	$ 44,104,831
Available-for-sale securities, gross unrealized gains	1,988,222	671,824
Available-for-sale securities, gross unrealized losses	(3,210)	(259,477)
Available-for-sale securities, fair value	63,568,281	44,517,178
Asset-backed Securities [Member]
Totals	30,847,669	30,722,958
Available-for-sale securities, gross unrealized gains	1,042,749	415,564
Available-for-sale securities, gross unrealized losses	(1,391)	(119,774)
Available-for-sale securities, fair value	31,889,027	31,018,748
US Government Agencies Debt Securities [Member]
Totals	919,509	1,102,532
Available-for-sale securities, gross unrealized gains	6,596	1,739
Available-for-sale securities, gross unrealized losses	(1,819)	(24,824)
Available-for-sale securities, fair value	924,286	1,079,447
US States and Political Subdivisions Debt Securities [Member]
Totals	29,816,091	12,279,341
Available-for-sale securities, gross unrealized gains	938,877	254,521
Available-for-sale securities, gross unrealized losses		(114,879)
Available-for-sale securities, fair value	$ 30,754,968	$ 12,418,983

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Note 3 - Available-for-sale Securities - Gross Proceeds from sale of Available-for-sale Securities (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Proceeds from sales of available for sale securities	$ 1,854,871
Sales gains	15,013
Sales losses	$ (4,856)

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Note 3 - Available-for-sale Securities - Scheduled Maturities (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Due in one year or less, amortized cost	$ 11,294,706
Due in one year or less, fair value	11,341,059
Due after one to five years, amortized cost	27,764,508	27,151,751
Due after one to five years, fair value	28,807,095	27,510,536
Due after five to ten years, amortized cost	17,420,852	14,048,273
Due after five to ten years, fair value	18,162,759	14,163,270
Due after ten years, amortized cost	5,103,203	2,904,807
Due after ten years, fair value	5,257,368	2,843,372
Totals	61,583,269	44,104,831
Total, fair value	$ 63,568,281	$ 44,517,178

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Note 3 - Available-for-sale Securities - Securities in a Continuous Loss Position (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Available-for-sale securities, less than 12 months, fair value	$ 639,465	$ 14,878,691
Available-for-sale securities, less than 12 months, gross unrealized losses	(1,391)	(179,074)
Available-for-sale securities, 12 months or more, fair value	715,953	7,302,788
Available-for-sale securities, 12 months or more, gross unrealized losses	(1,819)	(80,403)
Available-for-sale securities, fair value	1,355,418	22,181,479
Available-for-sale securities, gross unrealized losses	(3,210)	(259,477)
Asset-backed Securities [Member]
Available-for-sale securities, less than 12 months, fair value	639,465	10,201,840
Available-for-sale securities, less than 12 months, gross unrealized losses	(1,391)	(64,195)
Available-for-sale securities, 12 months or more, fair value		6,459,069
Available-for-sale securities, 12 months or more, gross unrealized losses		(55,579)
Available-for-sale securities, fair value	639,465	16,660,909
Available-for-sale securities, gross unrealized losses	(1,391)	(119,774)
US Government Agencies Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value
Available-for-sale securities, less than 12 months, gross unrealized losses
Available-for-sale securities, 12 months or more, fair value	715,953	843,719
Available-for-sale securities, 12 months or more, gross unrealized losses	(1,819)	(24,824)
Available-for-sale securities, fair value	715,953	843,719
Available-for-sale securities, gross unrealized losses	$ (1,819)	(24,824)
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value		4,676,851
Available-for-sale securities, less than 12 months, gross unrealized losses		(114,879)
Available-for-sale securities, 12 months or more, fair value
Available-for-sale securities, 12 months or more, gross unrealized losses
Available-for-sale securities, fair value		4,676,851
Available-for-sale securities, gross unrealized losses		$ (114,879)

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Note 4 - Loans Held for Investment, Net (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Financing Receivable, Nonaccrual	$ 3,332,040		$ 3,505,288
Impaired Financing Receivable, Interest Income, Nonaccrual	0	$ 0
Financing Receivable, Troubled Debt Restructuring	69,000		71,000
Small Business Administration [Member]
Financing Receivable, Nonaccrual	$ 2,300,000		$ 2,300,000
Nonaccrual Loan Secure Percentage	69.00%		66.00%
COVID19 [Member]
Allowance for Loan and Lease Losses, Period Increase (Decrease), Total	$ 900,000
Allowance for Loan and Lease Losses, Period Increase, Percentage	31.00%
Paycheck Protection Program [Member]
Financing Receivable, before Allowance for Credit Loss, Total	$ 36,100,000		$ 0
Veterans Administration Loan [Member]
Number of Receivable Commitments Outstanding	0		0
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Nonaccrual	$ 2,578,003		$ 2,718,731
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Financing Receivable, before Allowance for Credit Loss, Total		$ 23,500,000	$ 16,100,000

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Note 4 - Loans Held for Investment, Net - Components of Loans Held for Investment, Net (Details) - USD ($)	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Total	$ 352,719,543		$ 295,468,588
Percentage of gross loans	100.00%		100.00%
Unamortized loan fees, net of costs	$ (1,372,094)		$ (807,869)
Loans held for investment	351,347,449		294,660,719
Allowance for loan losses	(3,975,620)	$ (3,396,861)	(2,921,931)	$ (3,068,291)	$ (2,981,412)	$ (2,901,091)
Loans held for investment, net	347,371,829		291,738,788
Commercial Real Estate Portfolio Segment [Member]
Total	$ 257,876,733		$ 242,682,721
Percentage of gross loans	73.10%		82.10%
Allowance for loan losses	$ (3,371,097)	(2,856,106)	$ (2,588,714)	(2,426,902)	(2,341,297)	(2,130,124)
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Total	$ 24,354,087		$ 28,849,640
Percentage of gross loans	6.90%		9.80%
Allowance for loan losses	$ (250,674)	(239,647)	$ (187,345)	(219,630)	(220,139)	(359,705)
Commercial and Industrial Portfolio Segment [Member]
Total	$ 66,761,757		$ 20,075,236
Percentage of gross loans	18.90%		6.80%
Allowance for loan losses	$ (307,805)	(263,483)	$ (115,502)	(398,339)	(388,425)	(377,180)
Consumer and Other Portfolio Segment [Member]
Total	$ 3,726,966		$ 3,860,991
Percentage of gross loans	1.10%		1.30%
Allowance for loan losses	$ (46,044)	$ (37,625)	$ (30,370)	$ (23,420)	$ (31,551)	$ (34,082)

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Note 4 - Loans Held for Investment, Net - Allowance for Loan Losses and Recorded Investment in Loans (Details) - USD ($)	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Dec. 31, 2019
Ending balance: individually evaluated for impairment								$ 3,505,288
Ending balance: collectively evaluated for impairment, allowance for loan losses							3,975,620	2,921,931
Total, allowance for loan losses	$ 3,396,861	$ 3,396,861	$ 3,068,291	$ 2,981,412	$ 2,921,931	$ 3,068,291	3,975,620	2,921,931
Ending balance: individually evaluated for impairment, allowance for loan losses							3,401,448	0
Ending balance: collectively evaluated for impairment							349,318,095	291,963,300
Total							352,719,543	295,468,588
Balance	3,396,861	2,921,931	2,981,412	2,901,091	2,921,931	2,901,091
Provision for loan losses	577,000	472,000	85,000	87,500	1,049,000	172,500
Charge-offs				(8,686)
Recoveries	1,759	2,930	1,879	1,507
Net (charge-offs) recoveries	1,759	2,930	1,879	(7,179)
Change-offs				8,686
Net (charge-offs) recoveries	1,759	2,930	1,879	(7,179)
Balance	3,975,620	3,396,861	3,068,291	2,981,412	3,975,620	3,068,291
Balance June 30, 2019	3,396,861	3,396,861	3,068,291	2,981,412	2,921,931	3,068,291	3,975,620	2,921,931
Commercial Real Estate Portfolio Segment [Member]
Ending balance: individually evaluated for impairment								2,718,731
Ending balance: collectively evaluated for impairment, allowance for loan losses							3,371,097	2,588,714
Total, allowance for loan losses	2,856,106	2,856,106	2,426,902	2,341,297	2,588,714	2,426,902	3,371,097	2,588,714
Ending balance: individually evaluated for impairment, allowance for loan losses							2,578,003	0
Ending balance: collectively evaluated for impairment							255,298,730	239,963,990
Total							257,876,733	242,682,721
Balance	2,856,106	2,588,714	2,341,297	2,130,124	2,588,714	2,130,124
Provision for loan losses	514,991	267,392	85,605	211,173
Charge-offs
Recoveries
Net (charge-offs) recoveries
Change-offs
Net (charge-offs) recoveries
Balance	3,371,097	2,856,106	2,426,902	2,341,297	3,371,097	2,426,902
Balance June 30, 2019	2,856,106	2,856,106	2,426,902	2,341,297	2,588,714	2,426,902	3,371,097	2,588,714
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Ending balance: individually evaluated for impairment								786,557
Ending balance: collectively evaluated for impairment, allowance for loan losses							250,674	187,345
Total, allowance for loan losses	239,647	239,647	219,630	220,139	187,345	219,630	250,674	187,345
Ending balance: individually evaluated for impairment, allowance for loan losses							823,445	0
Ending balance: collectively evaluated for impairment							23,530,642	28,063,083
Total							24,354,087	28,849,640
Balance	239,647	187,345	220,139	359,705	187,345	359,705
Provision for loan losses	9,268	49,372	(2,388)	(130,880)
Charge-offs				(8,686)
Recoveries	1,759	2,930	1,879
Net (charge-offs) recoveries	1,759	2,930	1,879	(8,686)
Change-offs				8,686
Net (charge-offs) recoveries	1,759	2,930	1,879	(8,686)
Balance	250,674	239,647	219,630	220,139	250,674	219,630
Balance June 30, 2019	239,647	239,647	219,630	220,139	187,345	219,630	250,674	187,345
Commercial and Industrial Portfolio Segment [Member]
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment, allowance for loan losses							307,805	115,502
Total, allowance for loan losses	263,483	263,483	398,339	388,425	115,502	398,339	307,805	115,502
Ending balance: individually evaluated for impairment, allowance for loan losses							0	0
Ending balance: collectively evaluated for impairment							66,761,757	20,075,236
Total							66,761,757	20,075,236
Balance	263,483	115,502	388,425	377,180	115,502	377,180
Provision for loan losses	44,322	147,981	9,914	9,738
Charge-offs
Recoveries				1,507
Net (charge-offs) recoveries				1,507
Change-offs
Net (charge-offs) recoveries				1,507
Balance	307,805	263,483	398,339	388,425	307,805	398,339
Balance June 30, 2019	263,483	263,483	398,339	388,425	115,502	398,339	307,805	115,502
Consumer and Other Portfolio Segment [Member]
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment, allowance for loan losses							46,044	30,370
Total, allowance for loan losses	37,625	37,625	23,420	31,551	30,370	23,420	46,044	30,370
Ending balance: individually evaluated for impairment, allowance for loan losses							0	0
Ending balance: collectively evaluated for impairment							3,726,966	3,860,991
Total							3,726,966	3,860,991
Balance	37,625	30,370	31,551	34,082	30,370	34,082
Provision for loan losses	8,419	7,255	(8,131)	(2,531)
Charge-offs
Recoveries
Net (charge-offs) recoveries
Change-offs
Net (charge-offs) recoveries
Balance	46,044	37,625	23,420	31,551	46,044	23,420
Balance June 30, 2019	$ 37,625	$ 37,625	$ 23,420	$ 31,551	$ 30,370	$ 23,420	$ 46,044	$ 30,370

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Note 4 - Loans Held for Investment, Net - Nonperforming Receivables Past Due (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Past due loans	$ 685,128	$ 4,152,071
Current loans	352,034,415	291,316,517
Total	352,719,543	295,468,588
Financial Asset, 30 to 59 Days Past Due [Member]
Past due loans		758,197
Financial Asset, 60 to 89 Days Past Due [Member]
Past due loans	395,110	36,520
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due loans	290,018	3,357,354
Commercial Real Estate Portfolio Segment [Member]
Past due loans		2,718,731
Current loans	257,876,733	239,963,990
Total	257,876,733	242,682,721
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due loans
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due loans
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due loans		2,718,731
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Past due loans	685,128	1,433,340
Current loans	23,668,959	27,416,300
Total	24,354,087	28,849,640
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due loans		758,197
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due loans	395,110	36,520
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due loans	290,018	638,623
Commercial and Industrial Portfolio Segment [Member]
Past due loans
Current loans	66,761,757	20,075,236
Total	66,761,757	20,075,236
Commercial and Industrial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due loans	0	0
Commercial and Industrial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due loans	0	0
Commercial and Industrial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due loans
Consumer and Other Portfolio Segment [Member]
Past due loans	0	0
Current loans	3,726,966	3,860,991
Total	3,726,966	3,860,991
Consumer and Other Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due loans	0	0
Consumer and Other Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due loans	0	0
Consumer and Other Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due loans	$ 0	$ 0

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Note 4 - Loans Held for Investment, Net - Nonaccrual Loans (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Total nonaccrual loans	$ 3,332,040	$ 3,505,288
Other real estate (ORE)	0	0
Total nonperforming assets	$ 3,332,040	$ 3,505,288
Nonperforming assets to gross loans held for investment and ORE	0.94%	1.19%
Nonperforming assets to total assets	0.73%	0.89%
Commercial Real Estate Portfolio Segment [Member]
Total nonaccrual loans	$ 2,578,003	$ 2,718,731
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Total nonaccrual loans	754,037	786,557
Commercial and Industrial Portfolio Segment [Member]
Total nonaccrual loans
Consumer and Other Portfolio Segment [Member]
Total nonaccrual loans	$ 0	$ 0

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Note 4 - Loans Held for Investment, Net - Credit Quality Indicators (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Total	$ 352,719,543	$ 295,468,588
Pass [Member]
Total	345,911,294	288,151,676
Special Mention [Member]
Total	747,539	883,255
Substandard [Member]
Total	6,060,710	6,433,657
Doubtful [Member]
Total
Loss [Member]
Total	0	0
Commercial Real Estate Portfolio Segment [Member]
Total	257,876,733	242,682,721
Commercial Real Estate Portfolio Segment [Member] | Pass [Member]
Total	253,050,106	237,546,684
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member]
Total	459,260	508,201
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member]
Total	4,367,367	4,627,836
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member]
Total
Commercial Real Estate Portfolio Segment [Member] | Loss [Member]
Total	0	0
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Total	24,354,087	28,849,640
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Pass [Member]
Total	22,606,006	26,969,204
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Special Mention [Member]
Total	288,279	375,054
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Substandard [Member]
Total	1,459,802	1,505,382
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Doubtful [Member]
Total	0	0
One-to-four Family Residential Real Estate Portfolio Segment [Member] | Loss [Member]
Total	0	0
Commercial and Industrial Portfolio Segment [Member]
Total	66,761,757	20,075,236
Commercial and Industrial Portfolio Segment [Member] | Pass [Member]
Total	66,528,216	19,774,797
Commercial and Industrial Portfolio Segment [Member] | Special Mention [Member]
Total
Commercial and Industrial Portfolio Segment [Member] | Substandard [Member]
Total	233,541	300,439
Commercial and Industrial Portfolio Segment [Member] | Doubtful [Member]
Total	0	0
Commercial and Industrial Portfolio Segment [Member] | Loss [Member]
Total	0	0
Consumer and Other Portfolio Segment [Member]
Total	3,726,966	3,860,991
Consumer and Other Portfolio Segment [Member] | Pass [Member]
Total	3,726,966	3,860,991
Consumer and Other Portfolio Segment [Member] | Special Mention [Member]
Total		0
Consumer and Other Portfolio Segment [Member] | Substandard [Member]
Total
Consumer and Other Portfolio Segment [Member] | Doubtful [Member]
Total	0	0
Consumer and Other Portfolio Segment [Member] | Loss [Member]
Total	$ 0	$ 0

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Note 4 - Loans Held for Investment, Net - Impaired Loans (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Impaired loans, with no related allowance recorded, recorded investment	$ 3,401,448	$ 3,505,288
Impaired loans, with no related allowance recorded, principal net of charge-offs,	3,401,448	3,505,288
Impaired loans, with no related allowance recorded, average recorded investment	3,449,971	3,530,021
Impaired loans, with related allowance recorded, recorded investment	0
Impaired loans, with an allowance recorded, principal net of charge-offs	0
Impaired loans, related allowance	0
Impaired loans, with an allowance recorded, average recorded investment	0
Impaired loans, fair value disclosure	3,401,448	3,505,288
Impaired loans, principal net of charge-offs	3,401,448	3,505,288
Impaired loans, average recorded investment	3,449,971	3,530,021
Impaired loans, fair value disclosure	3,401,448	3,505,288
Commercial Real Estate Portfolio Segment [Member]
Impaired loans, with no related allowance recorded, recorded investment	2,578,003	2,718,731
Impaired loans, with no related allowance recorded, principal net of charge-offs,	2,578,003	2,718,731
Impaired loans, with no related allowance recorded, average recorded investment	2,620,918	2,738,545
Impaired loans, related allowance	0
Impaired loans, fair value disclosure	2,578,003	2,718,731
Impaired loans, principal net of charge-offs	2,578,003	2,718,731
Impaired loans, average recorded investment	2,620,918	2,738,545
Impaired loans, fair value disclosure	2,578,003	2,718,731
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Impaired loans, with no related allowance recorded, recorded investment	823,445	786,557
Impaired loans, with no related allowance recorded, principal net of charge-offs,	823,445	786,557
Impaired loans, with no related allowance recorded, average recorded investment	829,053	791,476
Impaired loans, related allowance	0
Impaired loans, fair value disclosure	823,445	786,557
Impaired loans, principal net of charge-offs	823,445	786,557
Impaired loans, average recorded investment	829,053	791,476
Impaired loans, fair value disclosure	823,445	786,557
Commercial and Industrial Portfolio Segment [Member]
Impaired loans, with no related allowance recorded, recorded investment
Impaired loans, with no related allowance recorded, principal net of charge-offs,
Impaired loans, with no related allowance recorded, average recorded investment
Impaired loans, related allowance
Impaired loans, fair value disclosure
Impaired loans, principal net of charge-offs
Impaired loans, average recorded investment
Impaired loans, fair value disclosure
Consumer and Other Portfolio Segment [Member]
Impaired loans, with no related allowance recorded, recorded investment
Impaired loans, with no related allowance recorded, principal net of charge-offs,
Impaired loans, with no related allowance recorded, average recorded investment
Impaired loans, related allowance
Impaired loans, fair value disclosure
Impaired loans, principal net of charge-offs
Impaired loans, average recorded investment
Impaired loans, fair value disclosure

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Note 5 - Financial Instruments With Off-balance-sheet Credit Risk (Details Textual) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Operating Lease, Right-of-Use Asset	$ 1,227,981
Operating Lease, Liability, Total	$ 1,325,960
Minimum [Member] | Branch Facilities or Loan Production Offices Leases [Member]
Operating Lease, Weighted Average Remaining Lease Term (Year)	1 year
Minimum [Member] | Subleases for Space in Certain Vacated Mortgage Loan Production Office [Member]
Lessee, Operating Lease, Term of Contract (Year)	1 year
Maximum [Member] | Branch Facilities or Loan Production Offices Leases [Member]
Operating Lease, Weighted Average Remaining Lease Term (Year)	3 years
Maximum [Member] | Subleases for Space in Certain Vacated Mortgage Loan Production Office [Member]
Lessee, Operating Lease, Term of Contract (Year)	2 years

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Note 5 - Financial Instruments With Off-balance-sheet Credit Risk - Contract Amounts (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Financial instruments with off-balance-sheet risk	$ 52,146,188	$ 43,504,826
Commitments to Extend Credit [Member]
Financial instruments with off-balance-sheet risk	29,719,611	25,739,246
Unused lines of Credit [Member]
Financial instruments with off-balance-sheet risk	$ 22,426,577	$ 17,765,580

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Note 5 - Financial Instruments With Off-balance-sheet Credit Risk - Operating Leases (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
2020	$ 302,869
2021	576,841
2022	444,986
2023	30,558
Total minimum lease payments	1,355,254
Amounts representing interest (present value discount)	(29,294)
Operating lease liabilities	$ 1,325,960
Weighted average remaining term (in years) (Year)	2 years 109 days
Weighted average discount rate	1.92%

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Note 6 - Defined Benefit Plan (Details Textual)	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	May 31, 2020 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Apr. 01, 2020 USD ($)	Jul. 01, 2019 USD ($)
Pension Plan [Member] | Pentegra Defined Benefit Plan [Member]
Pension Cost (Reversal of Cost)		$ 83,000	$ 20,000	$ 142,000	$ 41,000
Multiplayer Plan, Contributions by Employer				$ 0		$ 225,000
Multiemployer Plan, Contributions by Employer, Percentage						5.00%
Multiemployer Plan, Unfunded Pension Liability								$ 572,000
Multiemployer Plan, Funded Percentage								87.00%
Postemployment Retirement Benefits [Member] | Bank DB Plan [Member]
Defined Benefit Plan, Number of Current and Former Employees		50		50
Defined Benefit Plan, Plan Assets, Amount, Ending Balance		$ 3,744,342		$ 3,744,342			$ 2,392,111
Defined Benefit Plan, Benefit Obligation, Ending Balance							3,951,473
Defined Benefit Plan, Plan Assets, Contributions by Employer	$ 1,387,186
Defined Benefit Plan, Accumulated Other Comprehensive (Income) Loss, Prior Service Cost (Credit), before Tax		$ 1,542,112		$ 1,542,112			$ 1,559,362
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate		3.50%		3.50%
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Rate of Compensation Increase		0.00%		0.00%
Defined Benefit Plan, Assumptions Used Calculating Net Periodic Benefit Cost, Discount Rate		3.50%
Defined Benefit Plan, Assumptions Used Calculating Net Periodic Benefit Cost, Expected Long-term Rate of Return on Plan Assets		3.50%
Defined Benefit Plan, Assumptions Used Calculating Net Periodic Benefit Cost, Rate of Compensation Increase		0.00%

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Note 7 - Regulatory Matters - Actual and Required Capital (Details) $ in Thousands	Jun. 30, 2020 USD ($) Rate	Dec. 31, 2019 USD ($) Rate
Total Capital (to Risk-Weighted Assets), Actual Amount	$ 45,040	$ 42,944
Total Capital (to Risk-Weighted Assets), Actual Ratio	0.1257	0.1459
Total Capital (to Risk-Weighted Assets), for Capital Adequacy Purposes, Actual Amount	$ 28,658	$ 23,554
Total Capital (to Risk-Weighted Assets), for Capital Adequacy Purposes, Actual Ratio	0.08
Total Capital (to Risk-Weighted Assets), to be Well Capitalized, Actual Amount	$ 35,823	$ 29,443
Total Capital (to Risk-Weighted Assets), to be Well Capitalized, Actual Ratio	0.1	0.1
Tier I Capital (to Risk-Weighted Assets), Actual Amount	$ 41,024	$ 39,982
Tier I Capital (to Risk-Weighted Assets), Actual Ratio	0.1145	0.1358
Tier I Capital (to Risk-Weighted Assets), for Capital Adequacy Purposes, Actual Amount	$ 21,494	$ 17,666
Tier I Capital (to Risk-Weighted Assets), for Capital Adequacy Purposes, Actual Ratio	0.06
Tier I Capital (to Risk-Weighted Assets), to be Well Capitalized, Actual Amount	$ 28,659	$ 23,554
Tier I Capital (to Risk-Weighted Assets), to be Well Capitalized, Actual Ratio	0.08	0.08
Common Equity Tier 1 Capital (to Risk-Weighted Assets), Actual Amount	$ 41,024	$ 39,982
Common Equity Tier 1 Capital (to Risk-Weighted Assets), Actual Ratio	0.1145	0.1358
Common Equity Tier 1 Capital (to Risk-Weighted Assets), for Capital Adequacy Purposes, Actual Amount	$ 16,120	$ 13,249
Common Equity Tier 1 Capital (to Risk-Weighted Assets), for Capital Adequacy Purposes, Actual Ratio (Rate) | Rate	4.50%
Common Equity Tier 1 Capital (to Risk-Weighted Assets), to be Well Capitalized, Actual Amount	$ 23,285	$ 19,138
Common Equity Tier 1 Capital (to Risk-Weighted Assets), to be Well Capitalized, Actual Ratio (Rate) | Rate	6.50%	6.50%
Tier I Capital (to Average Assets), Actual Amount	$ 41,024	$ 39,982
Tier I Capital (to Average Assets), Actual Ratio	0.093	0.103
Tier I Capital (to Average Assets), for Capital Adequacy Purposes, Actual Amount	$ 17,646	$ 15,529
Tier I Capital (to Average Assets), for Capital Adequacy Purposes, Actual Ratio	0.04
Tier I Capital (to Average Assets), to be Well Capitalized, Actual Amount	$ 22,058	$ 19,411
Tier I Capital (to Average Assets), to be Well Capitalized, Actual Ratio	0.05	0.05

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Note 8 - Stock-based Compensation (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Incentive Plan [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 749,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	2 years 146 days
Share-based Payment Arrangement, Option [Member]
Share-based Payment Arrangement, Expense	$ 153,000	$ 147,000
Share-based Payment Arrangement, Option [Member] | Incentive Plan [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	263,000
Restricted Stock [Member]
Share-based Payment Arrangement, Expense	4,000	$ 2,000
Restricted Stock [Member] | Incentive Plan [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 486,000

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Note 8 - Stock-based Compensation - Stock Option Activities (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Outstanding (in shares)	146,300
Outstanding, weighted average exercise price (in dollars per share)	$ 14.92
Outstanding, average remaining contractual term (Year)	4 years 328 days	5 years
Outstanding, aggregate intrinsic value		$ 53,166
Granted (in shares)	5,000
Granted, weighted average exercise price (in dollars per share)	$ 11.93
Exercised (in shares)
Exercised, weighted average exercise price (in dollars per share)
Forfeited or expired (in shares)	(1,150)
Forfeited or expired, weighted average exercise price (in dollars per share)	$ 14.90
Outstanding (in shares)	150,150	146,300
Outstanding, weighted average exercise price (in dollars per share)	$ 14.81	$ 14.92
Exercisable (in shares)	57,160
Exercisable, weighted average exercise price (in dollars per share)	$ 14.92
Exercisable, average remaining contractual term (Year)	4 years 182 days
Exercisable, aggregate intrinsic value

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Note 8 - Stock-based Compensation - Restricted Stock Activity (Details) - Restricted Stock [Member] - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Outstanding, share (in shares)	40,044
Outstanding, Weighted average grant date (in dollars per share)	$ 14.76	$ 14.89
Outstanding, Average remaining contractual (Year)	2 years 36 days	2 years 219 days
Granted, share (in shares)	2,000
Granted, Weighted average grant date (in dollars per share)	$ 11.93
Vested, share (in shares)	(85)
Vested, Weighted average grant date (in dollars per share)	$ 15.48
Outstanding, share (in shares)	41,959	40,044

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Note 9 - Fair Values of Financial Instruments - Assets at Fair Value (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Total, fair value	$ 63,568,281	$ 44,517,178
Assets, fair value disclosure	66,969,729	48,022,466
Fair Value, Inputs, Level 1 [Member]
Assets, fair value disclosure	0	0
Fair Value, Inputs, Level 2 [Member]
Assets, fair value disclosure	63,568,281	44,517,178
Fair Value, Inputs, Level 3 [Member]
Assets, fair value disclosure	3,401,448	3,505,288
Fair Value, Nonrecurring [Member]
Impaired loans, fair value disclosure	3,401,448	3,505,288
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Impaired loans, fair value disclosure	0	0
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Impaired loans, fair value disclosure	0	0
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Impaired loans, fair value disclosure	3,401,448	3,505,288
Asset-backed Securities [Member]
Total, fair value	31,889,027	31,018,748
Asset-backed Securities [Member] | Fair Value, Recurring [Member]
Total, fair value	31,889,027	31,018,748
Asset-backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total, fair value	0	0
Asset-backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total, fair value	31,889,027	31,018,748
Asset-backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total, fair value	0	0
US Government Agencies Debt Securities [Member]
Total, fair value	924,286	1,079,447
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member]
Total, fair value	924,286	1,079,447
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total, fair value	0	0
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total, fair value	924,286	1,079,447
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total, fair value	0	0
US States and Political Subdivisions Debt Securities [Member]
Total, fair value	30,754,968	12,418,983
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member]
Total, fair value	30,754,968	12,418,983
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total, fair value	0	0
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total, fair value	30,754,968	12,418,983
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total, fair value	$ 0	$ 0

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Note 9 - Fair Values of Financial Instruments - Significant Unobservable Inputs (Details)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Impaired loans, fair value disclosure	$ 3,401,448	$ 3,505,288
Impaired loans, fair value disclosure	3,401,448	3,505,288
Commercial Real Estate Portfolio Segment [Member]
Impaired loans, fair value disclosure	2,578,003	2,718,731
Impaired loans, fair value disclosure	2,578,003	2,718,731
One-to-four Family Residential Real Estate Portfolio Segment [Member]
Impaired loans, fair value disclosure	823,445	786,557
Impaired loans, fair value disclosure	823,445	786,557
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Impaired loans, fair value disclosure	3,401,448	3,505,288
Impaired loans, fair value disclosure	3,401,448	3,505,288
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Valuation, Market Approach [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired loans, fair value disclosure	2,578,003	2,718,731
Impaired loans, fair value disclosure	$ 2,578,003	$ 2,718,731
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Valuation, Market Approach [Member] | Commercial Real Estate Portfolio Segment [Member] | Minimum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, Unobservable input valuation	0.17	0.17
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Valuation, Market Approach [Member] | Commercial Real Estate Portfolio Segment [Member] | Maximum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, Unobservable input valuation	0.18	0.18
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Valuation, Market Approach [Member] | One-to-four Family Residential Real Estate Portfolio Segment [Member]
Impaired loans, fair value disclosure	$ 823,445	$ 786,557
Impaired loans, fair value disclosure	$ 823,445	$ 786,557
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Valuation, Market Approach [Member] | One-to-four Family Residential Real Estate Portfolio Segment [Member] | Minimum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, Unobservable input valuation	0.17	0.17
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Valuation, Market Approach [Member] | One-to-four Family Residential Real Estate Portfolio Segment [Member] | Maximum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, Unobservable input valuation	0.18	0.18

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Note 9 - Fair Values of Financial Instruments - Fair Value by Balance Sheet Grouping (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Available-for-sale securities	$ 63,568,281	$ 44,517,178
Reported Value Measurement [Member]
Cash and due from banks	6,810,000	4,496,000
Interest-bearing deposits with banks	10,635,000	24,990,000
Available-for-sale securities	63,568,000	44,517,000
Loans held for investment, net	347,372,000	291,739,000
Stock in financial institutions	4,053,000	4,017,000
Demand deposits, savings and NOW deposits	253,181,000	222,509,000
Time deposits	77,754,000	81,388,000
Federal Home Loan Bank advances	75,000,000	40,000,000
Estimate of Fair Value Measurement [Member]
Cash and due from banks	6,810,000	4,496,000
Interest-bearing deposits with banks	10,635,000	24,990,000
Available-for-sale securities	63,568,000	44,517,000
Loans held for investment, net	346,498,000	292,246,000
Stock in financial institutions	4,053,000	4,017,000
Demand deposits, savings and NOW deposits	252,132,000	214,611,000
Time deposits	78,368,000	81,638,000
Federal Home Loan Bank advances	75,187,000	40,075,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and due from banks	6,810,000	4,496,000
Interest-bearing deposits with banks	10,635,000	24,990,000
Available-for-sale securities	0	0
Loans held for investment, net	0	0
Stock in financial institutions	0	0
Demand deposits, savings and NOW deposits	252,132,000	214,611,000
Time deposits	0	0
Federal Home Loan Bank advances	0	0
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and due from banks	0	0
Interest-bearing deposits with banks	0	0
Available-for-sale securities	63,568,000	44,517,000
Loans held for investment, net	0	0
Stock in financial institutions	4,053,000	4,017,000
Demand deposits, savings and NOW deposits	0	0
Time deposits	78,368,000	81,638,000
Federal Home Loan Bank advances	75,187,000	40,075,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and due from banks	0	0
Interest-bearing deposits with banks	0	0
Available-for-sale securities	0	0
Loans held for investment, net	346,498,000	292,246,000
Stock in financial institutions	0	0
Demand deposits, savings and NOW deposits	0	0
Time deposits	0	0
Federal Home Loan Bank advances	$ 0	$ 0

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Note 10 - Earnings Per Share (Details Textual) - shares	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	150,150	145,150

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Note 10 - Earnings Per Share - Calculation of Diluted Weighted-average Shares Outstanding (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Net income from continuing operations	$ 502,136	$ 512,732	$ 780,193	$ 899,875
Net loss from discontinued operations		(852,510)		(1,198,445)
Less: Earnings (loss) allocated to participating securities	(6,657)	5,212	(10,298)	4,768
Net income allocated to common shareholders	$ 495,479	$ (334,566)	$ 769,895	$ (293,802)
Weighted-average common shares outstanding including participating securities (in shares)	3,203,399	3,355,929	3,206,009	3,358,183
Less: Average participating securities (in shares)	(40,292)	(48,864)	(40,153)	(49,331)
Less: Average unallocated ESOP Shares (in shares)	(164,096)	(170,316)	(164,096)	(170,316)
Average shares (in shares)	2,999,011	3,136,749	3,001,760	3,138,536
Earnings per common share - continuing operations (in dollars per share)	$ 0.17	$ 0.16	$ 0.26	$ 0.29
Loss per common share - discontinued operations (in dollars per share)		(0.27)		(0.38)
Earnings per common share - Basic (in dollars per share)	$ 0.17	$ (0.11)	$ 0.26	$ (0.09)
Net income allocated to common shareholders	$ 495,479	$ (334,566)	$ 769,895	$ (293,802)
Add: Dilutive effects of assumed exercises of stock options (in shares)		4,747	241	3,399
Weighted average shares and dilutive potential common shares (in shares)	2,999,011	3,141,496	3,002,002	3,141,935
Diluted earnings per common share - continuing operations (in dollars per share)	$ 0.17	$ 0.16	$ 0.26	$ 0.29
Diluted loss per common share - discontinued operations (in dollars per share)		(0.27)		(0.38)
Earnings per common share - Diluted (in dollars per share)	$ 0.17	$ (0.11)	$ 0.26	$ (0.09)