0001667944-18-000021.txt : 20180815 0001667944-18-000021.hdr.sgml : 20180815 20180814175700 ACCESSION NUMBER: 0001667944-18-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 72 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180815 DATE AS OF CHANGE: 20180814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WCF Bancorp, Inc. CENTRAL INDEX KEY: 0001667944 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 000000000 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37832 FILM NUMBER: 181019185 BUSINESS ADDRESS: STREET 1: 401 FAIR MEADOW DRIVE CITY: WEBSTER CITY STATE: IA ZIP: 50595 BUSINESS PHONE: (515) 832-3071 MAIL ADDRESS: STREET 1: 401 FAIR MEADOW DRIVE CITY: WEBSTER CITY STATE: IA ZIP: 50595 10-Q 1 a2018wcfbancorpincq210-q.htm 10-Q Document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018

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. 001-37382

WCF Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Iowa
 
81-2510023
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
401 Fair Meadow Drive,
Webster City, Iowa
 
50595
(Address of Principal Executive Offices)
 
(Zip Code)
(515) 832-3071
(Registrant’s telephone number)

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

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 [ X ]     NO [ ]
    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [ X ]     NO [ ]

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

Large accelerated filer
[ ]
 
Accelerated filer
[ ]
Non-accelerated filer
[ ]
 
(Do not check if smaller reporting company)
 
 
 
 
Smaller reporting company
[X]
 
 
 
Emerging growth company
[X]

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 [X]

As of August 14, 2018, the Registrant had 2,561,542 shares of its common stock, par value $0.01 per share, issued and outstanding.



WCF Bancorp, Inc.
Form 10-Q

Index

 
 
 
 
Page
Part I - Financial Information
 
 
 
 
 
Item 1
 
Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017
 
 
 
 
 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
Item 3
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
 
 
Item 4
 
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
Item 1
 
Legal Proceedings
 
 
 
 
 
 
Item 1A
 
Risk Factors
 
 
 
 
 
 
Item 2
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
Item 3
 
Defaults upon Senior Securities
 
 
 
 
 
 
Item 4
 
Mine Safety Disclosures
 
 
 
 
 
 
Item 5
 
Other Information
 
 
 
 
 
 
Item 6
 
Exhibits
 
 
 
 
 
 
 
 
Signature Page
 



Part I – Financial Information

Item 1    Financial Statements

WCF Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2018 (unaudited) and December 31, 2017
Assets
June 30, 2018
 
December 31, 2017
Cash and due from banks
$
2,538,248

 
$
3,310,400

Federal funds sold
914,000

 
2,672,000

   Cash and cash equivalents
3,452,248

 
5,982,400

Time deposits in other financial institutions
3,316,282

 
4,545,878

Securities available-for-sale, at fair value
44,141,527

 
43,129,481

Loans receivable
65,588,876

 
68,949,715

Allowance for loan losses
(531,346
)
 
(538,319
)
   Loans receivable, net
65,057,530

 
68,411,396

Federal Home Loan Bank (FHLB) stock, at cost
710,000

 
703,400

Bankers' Bank stock, at cost
147,500

 
147,500

Office property and equipment, net
3,712,729

 
3,791,429

Deferred taxes on income
808,523

 
631,080

Income taxes receivable
1,596

 
40,320

Accrued interest receivable
418,494

 
439,855

Goodwill
55,148

 
55,148

Bank-owned life insurance
3,185,043

 
3,138,112

Prepaid expenses and other assets
1,007,156

 
1,205,146

Total assets
$
126,013,776

 
$
132,221,145

Liabilities and Stockholders' Equity
 
 
 
Deposits
$
82,184,677

 
$
87,740,194

FHLB advances
14,000,000

 
14,000,000

Advance payments by borrowers for taxes and insurance
559,789

 
527,774

Accrued interest payable
29,436

 
13,983

Accrued expenses and other liabilities
1,431,190

 
1,509,680

Total liabilities
98,205,092

 
103,791,631

Commitments and contingencies (Note 8)


 


Stockholders' equity:
 
 
 
Common stock, $0.01 par value. Authorized 30,000,000 shares; 2,561,542 issued and outstanding at June 30, 2018 and December 31, 2017
25,615

 
25,615

Additional paid-in capital
14,215,017

 
14,215,017

Retained earnings, substantially restricted
15,873,134

 
15,758,825

Accumulated other comprehensive loss
(1,072,890
)
 
(310,367
)
Unearned ESOP Shares
(1,232,192
)
 
(1,259,576
)
Total stockholders' equity
27,808,684

 
28,429,514

Total liabilities and stockholders' equity
$
126,013,776

 
$
132,221,145

 
 
 
 

See notes to consolidated financial statements.

1


WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
Loans receivable
$
742,852

 
$
725,320

 
$
1,482,516

 
$
1,448,145

Investment securities - taxable
219,221

 
153,198

 
379,950

 
305,449

Investment securities - tax exempt
55,338

 
70,839

 
118,131

 
143,345

Other interest earning assets
37,194

 
22,263

 
71,236

 
41,828

Total interest income
1,054,605

 
971,620

 
2,051,832

 
1,938,767

Interest expense:
 
 
 
 

 

Deposits
163,936

 
148,731

 
328,317

 
298,104

FHLB advances
78,285

 
15,248

 
155,710

 
30,098

Total interest expense
242,221

 
163,979

 
484,027

 
328,202

Net interest income
812,384

 
807,641

 
1,567,805

 
1,610,565

Provision for losses on loans
19,500

 
18,000

 
39,000

 
36,000

Net interest income after provision for losses on loans
792,884

 
789,641

 
1,528,805

 
1,574,565

Noninterest income:
 
 
 
 

 

Fees and service charges
113,260

 
117,703

 
209,392

 
216,769

Loss on sale of securities available-for-sale, net

 

 
(14,465
)
 

Increase in cash value - bank-owned life insurance
23,622

 
25,531

 
46,931

 
67,086

Gain on sale of land

 

 
435,818

 

Other (loss) income
(4,884
)
 
19,119

 
(14,807
)
 
36,819

Total noninterest income
131,998

 
162,353

 
662,870

 
320,674

Noninterest expense:
 
 
 
 

 

Compensation, payroll taxes, and employee benefits
387,506

 
391,128

 
756,408

 
759,930

Advertising
17,335

 
25,587

 
35,111

 
44,334

Office property and equipment
101,703

 
107,596

 
209,607

 
231,403

Federal insurance premiums
8,506

 
8,966

 
16,617

 
16,915

Data processing services
117,670

 
118,130

 
240,997

 
226,134

Charitable contributions
450

 
5,600

 
3,086

 
6,505

Other real estate expenses, net
7,117

 
4,477

 
12,040

 
6,691

Dues and subscriptions
9,002

 
7,868

 
19,798

 
16,394

Accounting, regulatory and professional fees
159,106

 
192,986

 
298,243

 
335,929

Debit card expenses
1,500

 
2,210

 
2,623

 
4,407

Other expenses
101,534

 
90,838

 
193,165

 
182,594

Total noninterest expense
911,429

 
955,386

 
1,787,695

 
1,831,236

Earnings before taxes on income
13,453

 
(3,392
)
 
403,980

 
64,003

Tax expense (benefit)
(13,003
)
 
(31,921
)
 
92,999

 
(42,400
)
Net income
$
26,456

 
$
28,529

 
$
310,981

 
$
106,403

Basic earnings per common share
$
0.01

 
$
0.01

 
$
0.13

 
$
0.04

Diluted earnings per common share
$
0.01

 
$
0.01

 
$
0.13

 
$
0.04



See notes to consolidated financial statements.

2



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018

2017
 
2018
 
2017
Net income
$
26,456

 
$
28,529

 
$
310,981

 
$
106,403

 
 
 
 
 

 

Other comprehensive (loss) income

 

 

 

Net change in unrealized gains or losses on securities
(161,403
)
 
436,172

 
(895,741
)
 
460,169

Reclassification adjustment for net loss realized in net income

 

 
(14,465
)
 

Income tax (expense) benefit
10,150

 
(159,688
)
 
191,353

 
(169,431
)
Other comprehensive (loss) income
(151,253
)
 
276,484

 
(718,853
)
 
290,738

Comprehensive (loss) income
$
(124,797
)
 
$
305,013

 
$
(407,872
)
 
$
397,141



See notes to consolidated financial statements.

3



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)


 
Common stock
 
Additional paid-in capital
 
Retained earnings
 
Unearned ESOP shares
 
Accumulated other comprehensive income (loss)
 
Total
Balance at December 31, 2016
$
25,615

 
$
14,201,795

 
$
16,354,380

 
$
(1,314,344
)
 
$
(420,466
)
 
$
28,846,980

Net income

 

 
106,403

 

 

 
106,403

Other comprehensive income

 

 

 

 
290,738

 
290,738

Release of ESOP Shares

 

 

 
27,384

 

 
27,384

Dividends paid on common stock,
 
 
 
 
 
 
 
 
 
 
 
$0.05 per common share

 

 
(239,724
)
 

 

 
(239,724
)
Balance at June 30, 2017
$
25,615

 
$
14,201,795

 
$
16,221,059

 
$
(1,286,960
)
 
$
(129,728
)
 
$
29,031,781

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
25,615

 
$
14,215,017

 
$
15,758,825

 
$
(1,259,576
)
 
$
(310,367
)
 
$
28,429,514

Net income

 

 
310,981

 

 

 
310,981

Other comprehensive loss

 

 

 

 
(718,853
)
 
(718,853
)
Reclass of stranded tax effects of rate change




43,670




(43,670
)


Release of ESOP Shares

 

 

 
27,384

 

 
27,384

Dividends paid on common stock,
 
 
 
 
 
 
 
 
 
 
 
$0.05 per common share

 

 
(240,342
)
 

 

 
(240,342
)
Balance at June 30, 2018
$
25,615

 
$
14,215,017

 
$
15,873,134

 
$
(1,232,192
)
 
$
(1,072,890
)
 
$
27,808,684

 
 
 
 
 
 
 
 
 
 
 
 

See notes to the consolidated financial statements.

4



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
310,981

 
$
106,403

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
292,104

 
417,789

Provision for losses on loans
39,000

 
36,000

ESOP expenses
27,384

 
27,384

Deferred taxes on income
13,911

 
(49,632
)
Loss on sales of securities
14,465

 

Gain on sales of one-to-four family residential loans

 
(6,169
)
Proceeds from sales of one-to-four family residential loans

 
271,296

Originations of one-to-four family residential loans

 
(265,127
)
Loss (Gain) on sale of other real estate owned
30,947

 
(7,995
)
Increase in cash value of bank-owned life insurance
(46,931
)
 
(67,086
)
Change in:
 
 
 
Accrued interest receivable
21,361

 
31,542

Prepaid expenses and other assets
269,200

 
(112,290
)
Advance payments by borrowers for taxes and insurance
32,015

 
60,007

Accrued interest payable
15,453

 
9,665

Accrued expenses and other liabilities
(78,393
)
 
(92,506
)
Income tax receivable
38,724

 
10,600

Net cash provided by operating activities
980,221

 
369,881

Cash flows from investing activities:
 
 
 
Proceeds from maturity of time deposits in other financial institutions
3,683,595

 
2,948,595

Purchase of time deposits in other financial institutions
(2,454,000
)
 
(2,948,000
)
Proceeds from calls and maturities of investment securities available-for-sale
3,059,116

 
3,646,681

Proceeds from sale of investment securities available-for-sale
2,121,241

 

Purchase of investment securities available-for-sale
(7,352,182
)
 
(2,127,370
)
Net change in loans receivable
3,212,591

 
(1,143,855
)
Net change in FHLB stock
(6,600
)
 
(8,600
)
Purchase of office property and equipment
21,725

 
(2,849
)
Net cash provided by investing activities
2,285,486

 
364,602

Cash flows from financing activities:
 
 
 
Net change in deposits
(5,555,517
)
 
379,724

Dividends paid
(240,342
)
 
(239,724
)
Net cash (used in) provided by financing activities
(5,795,859
)
 
140,000

Net (decrease) increase in cash and cash equivalents
(2,530,152
)
 
874,483

Cash and cash equivalents at beginning of year
5,982,400

 
3,022,578

Cash and cash equivalents at end of quarter
$
3,452,248

 
$
3,897,061

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
312,864

 
$
318,537

Noncash investing activities:
 
 
 
Transfers to other real estate owned from loans
$
135,542

 
$
39,357

Transfers to finance the sale of other real estate owned
33,267

 
67,095


See notes to consolidated financial statements.

5



WCF Bancorp, Inc. and Subsidiaries
Form 10-Q


Notes to Consolidated Financial Statements (unaudited)

(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements of WCF Bancorp, Inc. (the Company), and its wholly owned subsidiary WCF Financial Bank (the Bank), and Webster City Federal Service Corp., have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with Securities and Exchange Commission (SEC) rules and regulations. Accordingly, the statements do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto that were included in the Company’s annual report for the year ended December 31, 2017. The consolidated balance sheet of the Company as of December 31, 2017 has been derived from the audited consolidated balance sheet of the Company as of that date. All significant intercompany transactions are eliminated in consolidation. In the opinion of the Company’s management, all adjustments necessary (i) for a fair presentation of the financial statements for the interim periods included herein and (ii) to make such financial statements not misleading have been made and are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded 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 for the period. Actual results could differ from the estimates. For further information with respect to significant accounting policies followed by the Company in preparation of the financial statements, refer to the Company’s annual report for the year ended December 31, 2017.
As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of June 30, 2018, the Company does not believe there is a significant difference in the comparability of the financial statements as a result of this extended transition period, however, the Company's assessment of its revenue recognition policies under FASB topic 606 is not yet complete (see "Current Accounting Developments").

The Bank is a federally chartered stock savings bank and a member of the Federal Home Loan Bank (FHLB) system. The Bank maintains insurance on deposits accounts with the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC).
Organization and Business
WCF Bancorp, Inc. (the Company) is an Iowa-chartered corporation organized in 2016 to be the successor to Webster City Federal Bancorp, a federal corporation (Old Bancorp) upon completion of the second-step conversion of WCF Financial, M.H.C. from the mutual holding company to the stock holding company form of organization. WCF Financial, M.H.C. (the MHC) was the former mutual holding company for Old Bancorp prior to the completion of the second-step conversion. In conjunction with the second-step conversion, each of the MHC and Old Bancorp ceased to exist. The second-step conversion was completed on July 16, 2016 at which time the Company sold 2,139,231 shares of its

6



common stock (including 171,138 shares purchased by the Bank's employee stock ownership plan, or ESOP) at $8.00 per share for gross proceeds of approximately $17.1 million. Expenses related to the stock offering totaled $1.7 million and were netted against proceeds. As a part of the second-step conversion, each of the outstanding shares of common stock of Old Bancorp held by persons other than the MHC were converted into 0.8115 shares of Company common stock with cash paid in lieu of fractional shares. As a result, a total of 2,561,542 shares were issues in the second-step conversion. As a result of the second-step conversion, all share and per share information has subsequently been revised to reflect the 0.8115 exchange ratio unless otherwise noted.
The Company's principal business is the ownership and operation of the Bank. The Bank is a community bank and its deposits are insured by the FDIC. The primary business of the Bank is accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in real estate loans secured by one-to-four family residences. To a lesser extent, we also originate consumer loans and non owner-occupied one-to-four family residential real estate loans. On a limited basis we have also originated commercial real estate loans, but have deemphasized the origination, and intend to continue to deemphasize the origination, of this type of lending. We also invest in investment securities. Our primary lending area is broader than our primary deposit market area and includes north central and northeastern Iowa. Our revenues are derived principally from interest on loans and securities, and from loan origination and servicing fees. Our primary sources of funds are deposits, principal and interest payments on loans and securities and advances from the FHLB. As a federal savings bank, WCF Financial Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the OCC). As a savings and loan holding company, the Company is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve Board).
The primary business of WCF Financial Service Corp (the Service Corp) was the sale of credit life and disability insurance products that were previously disallowed by savings and loan regulations. Currently the Service Corp is inactive.
Investment Securities
Investment securities are classified based on the Company’s intended holding period. Securities that may be sold prior to maturity to meet liquidity needs, to respond to market changes, or to adjust the Company’s asset-liability position are classified as available-for-sale. Currently, all securities are classified as available-for-sale.
Securities available-for-sale are carried at fair value, with the aggregate unrealized gains or losses, net of the effect of taxes on income, reported as accumulated other comprehensive income or loss. Other-than-temporary impairment is recorded in net income. The Company’s net income reflects the full impairment (that is, the difference between the security’s amortized cost basis and fair value), if any, on debt securities that the Company intends to sell, or would more likely than not be required to sell, before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell, and believes that it will not more likely than not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in net income, while the rest of the fair value loss is recognized in other comprehensive income. The credit loss component recognized in net income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using the Company’s cash flow projections using its base assumptions.
A decline in the fair value of any available-for-sale security below cost and that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount by fair value for the credit portion of the loss. The impairment is charged to net income and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability to hold and lack of intent to sell the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the

7



severity and duration of the impairment, changes in value subsequent to year-end, and the general market conditions.
Net realized gains or losses are shown in the consolidated statements of income in the noninterest income line using the specific identification method. There were no net realized gains or losses for the three months ended June 30, 2018 and 2017, respectively, and $14,465 of net realized losses and $0 for the six months ended June 30, 2018 and 2017, respectively.
Loans Receivable, Net
Loans receivable are stated at the amount of unpaid principal, reduced by the allowance for loan losses, deferred loan fees and discounts on loans purchased. Loans receivable are charged against the allowance when management believes collectability of principal is unlikely.
Interest on loans receivable is accrued and credited to operations based primarily on the principal amount outstanding. Certain loan balances include unearned discounts, which are recorded as income over the term of the loan.
Accrued interest receivable on loans receivable that become more than 90 days in arrears is charged to an allowance that is established by a charge to interest income. Interest income is subsequently recognized only to the extent cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is reasonably assured, in which case the loan is returned to accrual status.
Under the Company’s credit policies, commercial loans are considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate except, where more practical, at the observable market price of the loan or the fair value of the collateral, if the loan is collateral dependent.
Allowance for Loan Losses
The allowance for loan losses is based on management’s periodic evaluation of the loan portfolio and reflects an amount that, in management’s opinion, is appropriate to absorb probable losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, value of underlying collateral, and management’s estimate of probable credit losses.
Taxes on Income
Deferred income taxes are provided under the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties on unrecognized tax benefits are classified as other noninterest expense.



8



Regulatory Environment
The Company is subject to regulations of certain state and federal agencies, including periodic examinations by the Federal Reserve Board. The Bank is also subject to regulation and examination by the OCC and is subject to minimum regulatory capital requirements. At June 30, 2018 and December 31, 2017, capital levels exceeded minimum capital requirements (see note 6).
Investment in Affiliate
The Company records its investment in an affiliate, New Castle Players, LLC, in which it has a 27.17% interest using the equity method of accounting. The affiliate holds an investment in a local hotel in Webster City, Iowa. The Company records the value of its investment at year-end based on the affiliate’s most current available financial statements. The investment in affiliate is analyzed annually. If impairment is determined to be other-than-temporary, the carrying amount is written down to fair value. The investment is included as a component of prepaid expenses and other assets on the consolidated balance sheets, while the equity income earned is included as a component of other noninterest income on the consolidated statements of income. Summary unaudited financial information of the affiliate as of and for the six months ended June 30, 2018 and 2017 is presented below.
 
Six Months Ended
June 30,
 
2018
 
2017
Current assets
$
149,804


$
143,100

Long-term assets
1,618,452


1,713,871

Current liabilities
108,406


77,280

Total equity
1,659,851


1,779,691

Total revenue
474,932


414,080

Net Income
79,127


60,751

Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for the three and six months ended June 30, 2018 and June 30, 2017 is presented below.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
26,456

 
$
28,529

 
$
310,981

 
$
106,403

 
 
 
 
 

 

Weighted average common shares outstanding and diluted common shares outstanding
2,410,295

 
2,404,096

 
2,410,295

 
2,404,096

 
 
 
 
 

 

Basic earnings per common share
$
0.01

 
$
0.01

 
$
0.13

 
$
0.04

Diluted earnings per common share
$
0.01

 
$
0.01

 
$
0.13

 
$
0.04

 
 
 
 
 
 
 
 
Unearned ESOP shares are not considered outstanding and are therefore not taken into account when computing earnings per share. Unearned ESOP shares are presented as a reduction to stockholders’ equity and represent shares to be allocated to ESOP participants in future periods for services provided to the Company. ESOP shares that have been committed to be released are considered outstanding and included for the purposes of computing basic and diluted earnings per share. 

9



Employee Stock Ownership Plan
The Company established the ESOP on July 13, 2016 in connection with its common stock offering. In conjunction with the second-step conversion, the ESOP purchased 171,138 shares at $8.00 per share. To fund the purchase, the ESOP borrowed $1.4 million from the Company at a variable rate equal to the lowest Prime Rate published in The Wall Street Journal, to be repaid on a prorated basis in 25 substantially equal annual installments. The collateral for the loan is the common stock of the Company purchased by the ESOP.

The shares of stock purchased by the ESOP are held in a suspense account until they are released for allocation among participants. The shares will be released annually from the suspense account and the released shares will be allocated to the participants on the basis of each participant’s compensation for the year of allocation. As shares are released from collateral, the Company recognizes compensation expense equal to the average market price of the shares during the period and the shares will be outstanding for earnings-per-share purposes. The shares not released are reported as unearned ESOP shares in the stockholders’ equity section on the consolidated balance sheets. At June 30, 2018 there were 27,384 allocated shares and 143,756 unallocated shares.   The fair value of unallocated ESOP shares at June 30, 2018 was approximately $1,232,000.

Subsequent Events
On July 25, 2018, the board of directors declared a $0.05 per share cash dividend payable on August 28, 2018 to shareholders of record as of August 13, 2018.

Current Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. This update will be effective for interim and annual periods beginning after December 15, 2018. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects or recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update includes requiring changes in fair value of equity securities with readily determinable fair value to be recognized in net income and clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with entities other deferred tax assets. This update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This is in contrast to existing guidance whereby credit losses generally are not recognized until they are incurred. This update will be effective for fiscal years beginning after

10



December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. The amendment in this update allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the December 22, 2017, enactment of
the reduced federal corporate income tax rate, which is effective in 2018, with early adoption permitted.
The amendment can be adopted at the beginning of the period or on a retrospective basis. The Company
adopted the amendment in the first quarter of 2018 using the beginning of the period option.



(2)
Securities Available-for-Sale
Securities available-for-sale at June 30, 2018 and December 31, 2017 were as follows:
Description
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
June 30, 2018:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
1,239,890

 
$

 
$
46,749

 
$
1,193,141

Mortgage-backed securities*
 
29,669,859

 
2,580

 
1,018,572

 
28,653,867

Municipal bonds
 
14,616,311

 
28,727

 
350,519

 
14,294,519

 
 
$
45,526,060

 
$
31,307

 
$
1,415,840

 
$
44,141,527

December 31, 2017:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
1,239,357

 
$

 
$
5,562

 
$
1,233,795

Mortgage-backed securities*
 
27,331,766

 

 
547,177

 
26,784,589

Municipal bonds
 
15,050,942

 
107,569

 
47,414

 
15,111,097

 
 
$
43,622,065

 
$
107,569

 
$
600,153

 
$
43,129,481

*All mortgage-backed securities are issued by FNMA, FHLMC, or GNMA and are backed by residential mortgage loans.





11



The amortized cost and estimated fair value of securities available-for-sale at June 30, 2018 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
June 30, 2018
 
Amortized
cost
 
Fair value
Due in one year or less
$

 
$

Due after one year through five years
1,085,760

 
1,086,183

Due after five years, but less than ten years
7,198,710

 
7,072,507

Due after ten years
7,571,731

 
7,328,970

 
15,856,201

 
15,487,660

Mortgage-backed securities
29,669,859

 
28,653,867

 
$
45,526,060

 
$
44,141,527



The details of the sales of investment securities for the three and six months ended June 30, 2018 and 2017 are summarized in the following table.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Proceeds from sales
$

 
$

 
$
2,121,241

 

Gross gains on sales

 

 

 

Gross losses on sales

 

 
14,465

 

At June 30, 2018 and December 31, 2017, accrued interest receivable for securities available-for-sale totaled approximately $213,000 and $221,000, respectively.

12



The following tables show the Company’s available-for-sale investments’ gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at June 30, 2018 and December 31, 2017.
 
June 30, 2018
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$
953,916

 
$
36,120

 
$
239,225

 
$
10,629

 
$
1,193,141

 
$
46,749

Mortgage-backed securities
6,279,611

 
122,161

 
21,395,759

 
896,411

 
27,675,370

 
1,018,572

Municipal bonds
9,066,442

 
272,949

 
2,166,890

 
77,570

 
11,233,332

 
350,519

Total
$
16,299,969

 
$
431,230

 
$
23,801,874

 
$
984,610

 
$
40,101,843

 
$
1,415,840

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$
989,537

 
$
29

 
$
244,248

 
$
5,533

 
$
1,233,785

 
$
5,562

Mortgage-backed securities
5,944,732

 
80,034

 
20,843,664

 
467,143

 
26,788,396

 
547,177

Municipal bonds
4,913,243

 
18,791

 
2,224,660

 
28,623

 
7,137,903

 
47,414

Total
$
11,847,512

 
$
98,854

 
$
23,312,572

 
$
501,299

 
$
35,160,084

 
$
600,153

The Company’s assessment of other‑than‑temporary impairment is based on its reasonable judgment of the specific facts and circumstances impacting each individual security at the time such assessments are made. The Company reviews and considers factual information, including expected cash flows, the structure of the security, the credit quality of the underlying assets, and the current and anticipated market conditions.
The Company does not intend to sell its available-for-sale investment securities and it is not likely that the Company will be required to sell them before the recovery of its cost. Due to the issuers’ continued satisfactions of their obligations under the securities in accordance with their contractual terms and the expectation that they will continue to do so, and management’s intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, the Company believes that the investment securities identified in the tables above were temporarily impaired as of June 30, 2018 and December 31, 2017.

13



(3)
Loans Receivable
At June 30, 2018 and December 31, 2017, loans receivable consisted of the following segments:
 
June 30, 2018
 
December 31, 2017
Loans:
 
 
 
One-to-four family residential
$
53,094,260

 
$
56,091,358

Non-owner occupied one-to-four family residential
3,163,463

 
3,116,832

Commercial real estate
2,834,855

 
3,615,351

Consumer
6,503,164

 
6,145,488

Total loans receivable
65,595,742

 
68,969,029

Discounts on loans purchased
17,486

 
10,650

Deferred loan costs (fees)
(24,352
)
 
(29,964
)
Allowance for loan losses
(531,346
)
 
(538,319
)
 
$
65,057,530

 
$
68,411,396

Accrued interest receivable on loans receivable was $205,362 and $218,967 at June 30, 2018 and December 31, 2017, respectively.
The loan portfolio included approximately $39.6 million of fixed rate loans as of June 30, 2018 and $40.6 million as of December 31, 2017. The loan portfolio also included approximately $26.0 million and $28.4 million of variable rate loans as of June 30, 2018 and December 31, 2017, respectively.
The Company originates residential, commercial real estate loans and other consumer loans, primarily in its Hamilton County, and Buchanan County, Iowa market areas and their adjacent counties. A substantial portion of its borrowers’ ability to repay their loans is dependent upon economic conditions in the Company’s market area.

14



Allowance for Loan Losses
The following tables present the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2018 and December 31, 2017.
 
June 30, 2018
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
369,076

 
26,650

 
29,134

 
106,486

 
531,346

Total
$
369,076

 
$
26,650

 
$
29,134

 
$
106,486

 
$
531,346

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
275,515

 
$

 
$
275,515

Collectively evaluated for impairment
53,094,260

 
3,163,463

 
2,559,340

 
6,503,164

 
65,320,227

Total
$
53,094,260

 
$
3,163,463

 
$
2,834,855

 
$
6,503,164

 
$
65,595,742

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
393,341

 
25,893

 
33,204

 
85,881

 
538,319

Total
$
393,341

 
$
25,893

 
$
33,204

 
$
85,881

 
$
538,319

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
274,804

 
$

 
$
274,804

Collectively evaluated for impairment
56,091,358

 
3,116,832

 
3,340,547

 
6,145,488

 
68,694,225

Total
$
56,091,358

 
$
3,116,832

 
$
3,615,351

 
$
6,145,488

 
$
68,969,029



15



Activity in the allowance for loan losses by segment for the three and six months ended June 30, 2018 and 2017 is summarized in the following tables:
 
Three months ended June 30, 2018
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
402,310

 
$
19,276

 
$
2,423

 
$
(16,381
)
*
$
369,076

Non-owner occupied one-to-four family residential
26,893

 

 

 
(243
)
*
26,650

Commercial real estate
32,255

 

 

 
(3,121
)
*
29,134

Consumer
95,569

 
28,328

 

 
39,245

 
106,486

Total
$
557,027

 
$
47,604

 
$
2,423

 
$
19,500

 
$
531,346

 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
331,736

 
$
6,135

 
$
133

 
$
792

 
$
326,526

Non-owner occupied one-to-four family residential
28,696

 

 

 
1,654

 
30,350

Commercial real estate
40,799

 

 

 
(2,346
)
*
38,453

Consumer
99,144

 
13,923

 

 
17,900

 
103,121

Total
$
500,375

 
$
20,058

 
$
133

 
$
18,000

 
$
498,450

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
393,341

 
$
19,276

 
$
2,423

 
$
(7,412
)
*
$
369,076

Non-owner occupied one-to-four family residential
25,893

 

 

 
757

 
26,650

Commercial real estate
33,204

 

 

 
(4,070
)
*
29,134

Consumer
85,881

 
29,120

 

 
49,725

 
106,486

Total
$
538,319

 
$
48,396

 
$
2,423

 
$
39,000

 
$
531,346

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2017
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
319,849

 
$
10,945

 
$
133

 
$
17,489

 
$
326,526

Non-owner occupied one-to-four family residential
28,231

 
$

 
$

 
$
2,119

 
$
30,350

Commercial real estate
37,135

 
$

 
$

 
$
1,318

 
$
38,453

Consumer
101,899

 
$
13,923

 
$
71

 
$
15,074

 
$
103,121

Total
$
487,114

 
$
24,868

 
$
204

 
$
36,000

 
$
498,450

* The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.

16





(a)
Loan Portfolio Segment Risk Characteristics
One-to-four family residential: The Company generally retains most residential mortgage loans that are originated for its own portfolio. The market value of real estate securing residential real estate loans can fluctuate as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in the Company’s market could increase credit risk associated with its loan portfolio. Additionally, real estate lending typically involves large loan principal amounts and the repayment of the loans generally is dependent, in large part, on the borrower’s continuing financial stability, and is therefore more likely to be affected by adverse personal circumstances.
Non-owner occupied one-to-four family residential: The Company originates fixed-rate and adjustable-rate loans secured by non-owner occupied one-to-four family properties. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In deciding to originate a loan secured by a non-owner occupied one-to-four family residential property, management reviews the creditworthiness of the borrower and the expected cash flows from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. This segment is generally secured by one-to-four family properties.
Commercial real estate: On a very limited basis, the Company originates fixed-rate and adjustable-rate commercial real estate and land loans. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In recent years, the Company has significantly reduced the emphasis on these types of loans and does not intend to emphasize these types of loans in the future. This segment is generally secured by retail, industrial, service or other commercial properties and loans secured by raw land, including timber.
Consumer: Consumer loans typically have shorter terms, lower balances, higher yields, and higher rates of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. This segment consists mainly of loans collateralized by automobiles. The collateral securing these loans, may depreciate over time, may be difficult to recover and may fluctuate in value based on condition.
(b)
Charge‑off Policy
The Company requires a loan to be at least partially charged off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.
(c)
Troubled Debt Restructurings (TDR)
All loans deemed troubled debt restructurings, or “TDR”, are considered impaired, and are evaluated for collateral sufficiency. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. There were no new troubled debt restructurings in the first six months of 2018.



17



(d)
Loans Measured Individually for Impairment
Loans that are deemed to be impaired are reserved for with the necessary allocation. All loans deemed troubled debt restructurings are considered impaired. Generally loans for 1-4 family residential and consumer are collectively evaluated for impairment.
(e)
Loans Measured Collectively for Impairment
All loans not evaluated individually for impairment are grouped together by type and further segmented by risk classification. The Company’s historical loss experiences for each portfolio segment are calculated using a 12 quarter rolling average loss rate for estimating losses adjusted for qualitative factors. The qualitative factors consider economic and business conditions, changes in nature and volume of the loan portfolio, concentrations, collateral values, level and trends in delinquencies, external factors, lending policies, experience of lending staff, and monitoring of credit quality.
The following tables set forth the composition of each class of the Company’s loans by internally assigned credit quality indicators.
 
Pass
 
Special
mention/watch
 
Substandard
 
Total
June 30, 2018:
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
One-to-four family residential
$
51,758,334

 
$
957,429

 
$
378,497

 
$
53,094,260

Non-owner occupied one-to-four family residential
2,849,866

 
137,785

 
175,812

 
3,163,463

Commercial real estate
2,559,340

 

 
275,515

 
2,834,855

Consumer
6,305,635

 
187,908

 
9,621

 
6,503,164

Total
$
63,473,175

 
$
1,283,122

 
$
839,445

 
$
65,595,742

 
 
 
 
 
 
 
 
 
Pass
 
Special
mention/watch
 
Substandard
 
Total
December 31, 2017:
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
One-to-four family residential
$
54,042,992

 
$
1,412,334

 
$
636,032

 
$
56,091,358

Non-owner occupied one-to-four family residential
2,782,817

 
17,861

 
316,154

 
3,116,832

Commercial real estate
3,304,369

 
36,178

 
274,804

 
3,615,351

Consumer
5,830,415

 
252,722

 
62,351

 
6,145,488

Total
$
65,960,593

 
$
1,719,095

 
$
1,289,341

 
$
68,969,029

Special Mention/Watch – Loans classified as special mention/watch are assets that do not warrant adverse classification but possess credit deficiencies or potential weakness deserving close attention.
Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable, and improbable.

18



The Company had no impaired loan as of June 30, 2018 and December 31, 2017. No interest income was recorded on impaired loans during 2018 or 2017.
(f)
Nonaccrual and Delinquent Loans
Loans are placed on nonaccrual status when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 or more (unless the loan is well secured with marketable collateral).
A nonaccrual asset may be restored to an accrual status when all past-due principal and interest has been paid and the borrower has demonstrated satisfactory payment performance (excluding renewals and modifications that involve the capitalizing of interest).
Delinquency status of a loan is determined by the number of days that have elapsed past the loan’s payment due date, using the following classification groupings: 30-59 days, 60-89 days, and 90 days or more. Loans shown in the 30‑59 day’s and 60‑89 day’s columns in the table below reflect contractual delinquency status only, and include loans considered nonperforming due to classification as a TDR or being placed on nonaccrual.
The following tables set forth the composition of the Company’s past-due loans at June 30, 2018 and December 31, 2017.
 
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total loans receivable
 
Recorded investment > 90 days and accruing
June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
342,544

 
$
249,985

 
$
329,062

 
$
921,591

 
$
52,172,669

 
$
53,094,260

 
$

Non-owner occupied one-to-four family residential

 

 
175,812

 
175,812

 
2,987,651

 
3,163,463

 

Commercial real estate

 

 
275,515

 
275,515

 
2,559,340

 
2,834,855

 

Consumer
67,185

 
92,483

 
59,055

 
218,723

 
6,284,441

 
6,503,164

 

Total
$
409,729

 
$
342,468

 
$
839,444

 
$
1,591,641

 
$
64,004,101

 
$
65,595,742

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total loans receivable
 
Recorded investment > 90 days and accruing
December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
566,234

 
$
542,356

 
$
491,792

 
$
1,600,382

 
$
54,490,976

 
$
56,091,358

 
$
341,167

Non-owner occupied one-to-four family residential
17,861

 
177,037

 

 
194,898

 
2,921,934

 
3,116,832

 

Commercial real estate
36,178

 

 
274,804

 
310,982

 
3,304,369

 
3,615,351

 

Consumer
171,789

 
76,558

 
54,568

 
302,915

 
5,842,573

 
6,145,488

 
57,267

Total
$
792,062

 
$
795,951

 
$
821,164

 
$
2,409,177

 
$
66,559,852

 
$
68,969,029

 
$
398,434


19



The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of June 30, 2018 and December 31, 2017.
 
June 30, 2018
 
December 31, 2017
Loans
 
 
 
One-to-four family residential
$
83,115

 
$
150,625

Commercial real estate
275,515

 
274,804

Total
$
358,630

 
$
425,429

(4)
Deposits
At June 30, 2018 and December 31, 2017, deposits are summarized as follows:
 
June 30, 2018
 
December 31, 2017
Statement savings
$
15,413,006

 
$
14,536,815

Money market plus
11,126,752

 
11,749,674

NOW
18,221,556

 
18,749,026

Certificates of deposit
37,423,363

 
42,704,679

 
$
82,184,677

 
$
87,740,194


Included in the NOW accounts were approximately $5.0 million and $4.6 million of non-interest bearing deposits as of June 30, 2018 and December 31, 2017, respectively.
(5)
Taxes on Income
Taxes on income comprise the following:
 
June 30, 2018
 
Federal
 
State
 
Total
Current
$
27,099

 
$
12,900

 
$
39,999

Deferred
50,000

 
3,000

 
53,000

 
$
77,099

 
$
15,900

 
$
92,999

 
 
 
 
 
 
 
June 30, 2017
 
Federal
 
State
 
Total
Current
$
5,182

 
$
2,050

 
$
7,232

Deferred
(50,632
)
 
1,000

 
(49,632
)
 
$
(45,450
)
 
$
3,050

 
$
(42,400
)

Taxes on income for the six months ending June 30, 2018, and 2017, differ from the amounts computed by applying the federal income tax rate of 21% and 34% respectively to earnings before taxes on income for the following reasons, expressed in dollars:

20



 
June 30, 2018
 
June 30, 2017
Federal tax at statutory rate
$
84,836

 
$
21,761

Items affecting federal income tax rate:
 
 
 
State taxes on income, net of federal benefit
12,561

 
2,013

Tax-exempt income
(22,263
)
 
(43,749
)
Bank-owned life insurance
231

 
(22,809
)
Valuation allowance
4,000

 
13,000

Other
13,634

 
(12,616
)
 
$
92,999

 
$
(42,400
)

Federal income tax expense for the periods ended June 30, 2018 and December 31, 2017 was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the Bank.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at June 30, 2018 and December 31, 2017 are presented below:
 
June 30, 2018
 
December 31, 2017
Deferred tax assets:
 
 
 
Deferred directors’ fees
$
197,000

 
$
195,000

Allowance for loan losses
133,000

 
134,000

Net operating loss carryforward
135,000

 
165,000

AMT credit
34,720

 
34,720

Charitable contribution
59,000

 
59,000

Professional fees
48,000

 
49,000

Securities available-for-sale
351,523

 
121,082

Fixed assets
(8,000
)
 

Other
12,280

 
23,278

Gross deferred tax assets
962,523

 
781,080

Valuation allowance
(100,000
)
 
(96,000
)
Net deferred tax assets
862,523

 
685,080

Deferred tax liabilities:
 
 
 
Prepaid expenses
(14,000
)
 
(14,000
)
FHLB stock dividends
(25,000
)
 
(25,000
)
Intangible assets
(15,000
)
 
(15,000
)
Gross deferred tax liabilities
(54,000
)
 
(54,000
)
Net deferred tax assets
$
808,523

 
$
631,080


Based upon the Company’s level of historical taxable income and anticipated future taxable income over the periods that the deferred tax assets are deductible, management has reviewed whether it is more likely than not the Company will realize the benefits of these deductible differences. Management has determined that a valuation allowance was required for deferred tax assets at June 30, 2018 and December 31, 2017, related to the charitable contribution carryforward and Iowa corporate net operating loss carryovers. The charitable contribution expires if not used by 2020.

21



As of December 31, 2017, the Company had no material unrecognized tax benefits. The evaluation was performed for those tax years that remain open to audit. The Company files a consolidated tax return for federal purposes and separate tax returns for the State of Iowa purposes.
Under previous law, the provisions of the IRS and similar sections of Iowa law permitted the Bank to deduct from taxable income an allowance for bad debts based on 8% of taxable income before such deduction or actual loss experience. Legislation passed in 1996 eliminated the percentage of taxable income method as an option for computing bad debt deductions for 1996 and in future years.
Deferred taxes have been provided for the difference between tax bad debt reserves and the loan loss allowances recorded in the financial statements subsequent to December 31, 1987. However, at June 30, 2018 and December 31, 2017, retained earnings contain certain historical additions to bad debt reserves for income tax purposes of approximately $0 as of December 31, 1987, for which no deferred taxes have been provided because the Bank does not intend to use these reserves for purposes other than to absorb losses. If these amounts which qualified as bad debt deductions are used for purposes other than to absorb bad debt losses or adjustments arising from the carryback of net operating losses, income taxes may be imposed at the then-existing rates. The approximate amount of unrecognized tax liability associated with these historical additions is $0.
(6)
Stockholders’ Equity
(a)
Common Stock Repurchase
The Company repurchased no shares during the three and six months ended June 30, 2018 and 2017.
(b)
Regulatory Capital Requirements
The Company and WCF Financial Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and WCF Financial Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and WCF Financial Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes the Company and WCF Financial Bank met all capital adequacy requirements to which they were subject as of June 30, 2018 and December 31, 2017.

22



The Company’s and WCF Financial Bank’s capital amounts and ratios are presented in the following table as of June 30, 2018 and December 31, 2017 (dollars in thousands).
 
June 30, 2018
 
 
 
 
 
For capital adequacy
 
To be well-capitalized under
 
 
 
 
 
with capital conservation
 
prompt corrective action
 
Actual
 
buffer purposes
 
provisions
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
Tangible capital:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
$
28,802

 
22.16
%
 
$
5,197

 
4.00
%
 
N/A

 
N/A

WCF Financial Bank
19,575

 
15.97

 
4,902

 
4.00

 
6,127

 
5.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
28,802

 
53.29

 
7,471

 
6.38

 
8,446

 
6.50

WCF Financial Bank
19,575

 
38.82

 
7,046

 
6.38

 
7,965

 
6.50

 
 
 
 
 
 
 
 
 
 
 
 
Risk-based capital:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
28,795

 
53.28

 
5,000

 
9.88

 
5,405

 
10.00

WCF Financial Bank
19,568

 
39.86

 
4,662