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 March 31, 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 number: 001‑39182

FFBW, INC.

(Exact name of registrant as specified in its charter)

Maryland	37-1962248
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
1360 South Moorland Road	53005
Brookfield, Wisconsin
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (262) 542‑4448

Securities registered pursuant to Section 12(b) of the Act:

Common stock, par value $0.01 per share	The NASDAQ Stock Market, LLC
(Title of each class to be registered)	(Name of each exchange on which each class is to be registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒     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, 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 Act). YES ☐     NO ☒

As of May 8, 2020, there were 7,704,875 issued and outstanding shares of the Registrant’s Common Stock.

FFBW, Inc.

Form 10‑Q

Index

		Page
Part I. Financial Information		3
Item 1.	Financial Statements	3
	Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019	3
	Statements of Income for the Three Months Ended March 31, 2020 and 2019 (unaudited)	4
	Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019 (unaudited)	5
	Statements of Changes in Equity for the Three Months Ended March 31, 2020 and 2019 (unaudited)	6
	Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)	7
	Notes to Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38
Part II. Other Information		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
	Signature Page	41

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Part I. – Financial Information

Item 1.    Financial Statements

FFBW, Inc.

Balance Sheets

March 31, 2020 (Unaudited) and December 31, 2019

(In thousands, except share data)

	March 31,		December 31,
	2020		2019
Assets
Cash and due from banks	$	11,018	$	4,101
Fed funds sold		3,839		35,276
Cash and cash equivalents		14,857		39,377
Available for sale securities, stated at fair value		55,063		48,179
Loans held for sale		543		200
Loans, net of allowance for loan and lease losses of $2,307 and $2,264, respectively		192,916		189,291
Premises and equipment, net		4,744		4,807
Foreclosed assets		347		84
Other equity investments		780		780
Accrued interest receivable		816		725
Cash value of life insurance		7,117		7,068
Other assets		797		1,707
TOTAL ASSETS	$	277,980	$	292,218
Liabilities and Equity
Deposits	$	163,394	$	217,252
Advance payments by borrowers for taxes and insurance		380		46
FHLB advances		11,500		11,500
Accrued interest payable		259		51
Other liabilities		1,439		1,499
Total liabilities	$	176,972	$	230,348
Preferred stock ($0.01 par value, 1,000,000 authorized, no shares issued or outstanding as of  December 31, 2019 and 2018, respectively)	$	—	$	—
Common stock ($0.01 par value, 19,000,000 shares authorized, 7,704,875 and 7,867,008 shares issued, 7,704,875 and 7,702,478 shares outstanding as of March 31, 2020 and December 31, 2019, respectively)		77		67
Additional paid in capital		68,943		28,672
Unallocated common stock of Employee Stock Ownership Plan ("ESOP") (604,100 and 270,192 shares at March 31, 2020 and December 31, 2019, respectively)		(6,041)		(2,303)
Retained earnings		36,958		36,551
Accumulated other comprehensive income (loss), net of income taxes		1,071		344
Less treasury stock, 0 and 164,530 shares at cost, at March 31, 2020 and December 31, 2019, respectively		—		(1,461)
Total equity	$	101,008	$	61,870
TOTAL LIABILITIES AND EQUITY	$	277,980	$	292,218

(1) Share and per share amounts related to periods prior to the date of the completion of the Conversion (January 16, 2020) have been restated to give retroactive recognition to the exchange ratio applied to the Conversion (1.1730 to one).

See accompanying notes to financial statements.

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FFBW, Inc.

Statements of Income

Three Months Ended March 31, 2020 and 2019 (Unaudited)

(In thousands, except per share data)

	Three months ended
	March 31,
	2020		2019
Interest and dividend income:
Loans, including fees	$	2,435	$	2,448
Securities
Taxable		284		275
Tax-exempt		4		2
Other		84		25
Total interest and dividend income		2,807		2,750
Interest Expense:
Interest-bearing deposits		483		599
Borrowed funds		61		88
Total interest expense		544		687
Net interest income		2,263		2,063
Provision for loan losses		40		70
Net interest income after provision for loan losses		2,223		1,993
Noninterest income:
Service charges and other fees		55		35
Net gain on sale of loans		35		41
Net loss on sale of securities		—		(8)
Increase in cash surrender value of insurance		49		47
Other noninterest income		24		25
Total noninterest income		163		140
Noninterest expense:
Salaries and employee benefits		1,132		1,097
Occupancy and equipment		244		242
Data processing		206		175
Technology		60		78
Foreclosed assets, net		(16)		1
Professional fees		108		112
Other noninterest expense		110		103
Total noninterest expense		1,844		1,808
Income before income taxes		542		325
Provision for income taxes		135		76
Net income	$	407	$	249
Earnings per share
Basic	$	0.06	$	0.03
Diluted	$	0.06	$	0.03

See accompanying notes to financial statements.

4

FFBW, Inc.

Statement of Comprehensive Income (Loss)

Three Months Ended March 31, 2020 and 2019, (Unaudited)

(In thousands)

	Three months ended
	March 31,
	2020		2019
Net income	$	407	$	249
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period		997		592
Reclassification adjustment for losses realized in net income		—		8
Other comprehensive income (loss) before tax effect		997		600
Tax effect of other comprehensive income (loss) items		(270)		(163)
Other comprehensive income (loss), net of tax		727		437
Comprehensive income	$	1,134	$	686

See accompanying notes to financial statements.

5

FFBW, Inc.

Statement of Changes in Equity

For the Three Months Ended March 31, 2020 and 2019, (Unaudited)

(In thousands, except share data)

						Unallocated				Accumulated
	Number			Additional		Common				Other
	of	Common		Paid-In		Stock of		Retained		Comprehensive		Treasury
	Shares	Stock		Capital		ESOP		Earnings		Income (Loss)		Stock		Total
Balance at December 31, 2018	6,696,742	$	67	$	28,326	$	(2,433)	$	34,995	$	(593)	$	—	$	60,362
Net income	—		—		—		—		249		—		—		249
ESOP shares committed to be released (3,801 shares)	—		—		3		32		—		—		—		35
Stock based compensation expense	—		—		77		—		—		—		—		77
Other comprehensive loss	—		—		—		—		—		437		—		437
Repurchase of common stock	(29,436)		—		—		—		—		—		(319)		(319)
Balance at March 31, 2019	6,667,306	$	67	$	28,406	$	(2,401)	$	35,244	$	(156)	$	(319)	$	60,841
Balance at December 31, 2019	7,702,478	$	67	$	28,672	$	(2,303)	$	36,551	$	344	$	(1,461)	$	61,870
Corporate Reorganization:
Conversion of FFBW, Inc. (net of costs of $1.2 million)	2,397		10		41,561										41,571
Purchase of 341,485 shares of ESOP							(3,814)								(3,814)
Treasury stock retired					(1,461)								1,461		—
Contribution of FFBW, MHC					99										99
Net income									407						407
ESOP shares committed to be released (7,647 shares)					(15)		76								61
Stock based compensation expense					87										87
Other comprehensive income											727				727
Balance at March 31, 2020	7,704,875	$	77	$	68,943	$	(6,041)	$	36,958	$	1,071	$	—	$	101,008

See accompanying notes to financial statements.

6

FFBW, Inc.

Statements of Cash Flows

For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

(In thousands)

	Three months ended
	March 31,
	2020		2019
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income	$	407	$	249
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		40		70
Depreciation		79		84
Net accretion of loan portfolio discount and deposit premium		—		(34)
Net amortization on securities available for sale		81		103
(Gain) loss on sales and impairments of foreclosed assets		(11)		—
Loss on sale of available for sale securities		—		8
Increase in cash surrender value of life insurance		(49)		(47)
ESOP compensation		61		35
Stock based compensation		87		77
Changes in operating assets and liabilities:
Accrued interest receivable		(91)		(88)
Loans held for sale		(343)		679
Other assets		641		99
Accrued interest payable		208		294
Other liabilities		(60)		(24)
Net cash provided by operating activities	$	1,050	$	1,505
Cash flows from investing activities:
Proceeds from sales of available for sale securities	$	—	$	2,133
Maturities, calls, paydowns on available for sale securities		2,655		1,147
Purchases of available for sale securities		(8,624)		(3,209)
Net (increase) decrease in loans		(4,012)		572
Purchases of premises and equipment		(16)		(2)
Proceeds from redemption of FHLB stock		—		130
Proceeds from sale of foreclosed assets		95		—
Cash received in MHC merger		99		—
Net cash provided by (used in) investing activities	$	(9,803)	$	771
Cash flows from financing activities:
Net decrease in deposits	$	(53,858)	$	(2,267)
Net increase in advance payments by borrowers for taxes and insurance		334		375
Repayments of FHLB advances		—		(2,000)
Proceeds from FHLB advances		—		—
Repurchase of common stock		—		(319)
Purchase of shares of ESOP		(3,814)		—
Net proceeds from issuance of common stock		41,571		—
Net cash used in financing activities	$	(15,767)	$	(4,211)
Net increase (decrease) in cash and cash equivalents	$	(24,520)	$	(1,935)
Cash and cash equivalents at beginning		39,377		4,488
Cash and cash equivalents at end	$	14,857	$	2,553
Supplemental Cash Flow Disclosures:
Cash paid for interest	$	336	$	364
Loans transferred to foreclosed assets		347		—

See accompanying notes to financial statements

7

FFBW, Inc.

Form 10-Q

Notes to Financial Statements (Unaudited – In thousands, except share data)

NOTE 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of FFBW, Inc. and its wholly-owned subsidiary, First Federal Bank of Wisconsin, (collectively the “Company”) were prepared in accordance with instructions for Form 10‑Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America.

In the opinion of management, all adjustments necessary for a fair presentation of the financial statements have been included. The results of operations for the three month periods ended March 31, 2020 are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (“SEC”) as part of FFBW, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2019.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

NOTE 2 - Summary of Significant Accounting Policies

Organization

From October 2017 until January 2020, as discussed below, we operated in a two-tier mutual holding company structure. FFBW, Inc. (the “Company”) was a federal corporation that was the publicly traded stock holding company of First Federal Bank of Wisconsin (the “Bank”). At December 31, 2019, the Company had 7,702,478 shares of common stock outstanding, of which 3,436,424 shares, or 44.6%, were owned by the public, including 29,325 shares owned by FFBW Community Foundation, and the remaining 4,266,054 shares were held by FFBW, MHC (the “MHC”), a federally chartered mutual holding company and former parent company of the Company.

At December 31, 2019, the significant assets of the Company consisted of the capital stock of the Bank. The liabilities of the Company were insignificant. The Company was subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended. The Company was subject to regulation and examination by the Board of Governors of the Federal Reserve System (“the Federal Reserve Board”).

First Federal Bank of Wisconsin is a community bank headquartered in Waukesha, Wisconsin that provides financial services to individuals and businesses from our offices in Waukesha, Brookfield, and the Bay View neighborhood of Milwaukee.

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FFBW, Inc. (“New FFBW”), a Maryland corporation that was organized in September 2019, is a savings and loan holding company headquartered in Waukesha, Wisconsin. New FFBW was formed to be the successor to the Company upon completion of the second step mutual-to-stock conversion (the “Conversion”) of the MHC. Prior to completion of the Conversion, approximately 55.4% of the shares of common stock of the Company were owned by the MHC. In conjunction with the Conversion, the MHC and the Company merged into New FFBW. The Conversion was completed on January 16, 2020. In the Conversion, New FFBW sold 4,268,570 shares of common stock at $10.00 per share, for net proceeds of approximately $37.9 million (including purchase of 341,485 ESOP shares), and issued 3,436,430 shares of common stock in exchange for the shares of common stock of FFBW, Inc. a federal corporation, (“Old FFBW”) owned by stockholders of Old FFBW, other than FFBW, MHC, as of the effective date of the conversion.  As a result of the conversion, FFBW, MHC and Old FFBW have ceased to exist.

The Conversion was conducted pursuant to the MHC’s Plan of Conversion. The Plan of Conversion provided for the establishment, upon the completion of the Conversion, of special “liquidation accounts” for the benefit of certain depositors of the Bank in an amount equal to the MHC’s ownership interest in the stockholders’ equity of the Company as of the date of the latest balance sheet contained in the prospectus plus the MHC’s net assets (excluding its ownership of the Company). Following the completion of the Conversion, the Company and the Bank are not permitted to pay dividends on their capital stock if the shareholders' equity of New FFBW, or the shareholder's equity of the Bank, would be reduced below the amount of the liquidation accounts. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder's interest in the liquidation accounts. Direct costs of the conversion and public offering, totaling approximately $1.2 million, have been applied against the proceeds from the shares sold in the public offering.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair values of securities, fair value of financial instruments, the valuation of other real estate owned and the valuation of deferred income tax assets.

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue all interest and dividend income generated from financial instruments. Certain noninterest income items, including loan servicing income, gain on sales of loans, gain on sales of securities, and other noninterest income have been evaluated to not fall within the scope of ASC 606. Elements of noninterest income that are within the scope of ASC 606, are as follows:

Service charges and other fees - The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Management reviewed the deposit account agreements and determined that the agreements can be terminated at any time by either the Company or the account holder. Transaction fees, such as balance transfers, wires and overdraft charges are settled the day the performance obligation is satisfied. The Company's monthly service charges and maintenance fees are for services provided to the customer on a monthly basis and are considered a series of services that have the same pattern of transfer each month. The review of service charges assessed on deposit accounts included the amount of variable consideration that is a part of the monthly charges. It was found that the waiver of service charges due to insufficient funds and dormant account fees is immaterial and would not require a change in

9

the accounting treatment for these fees under the new revenue standards. Recognition of revenue under ASC 606 did not materially change the timing or magnitude of revenue recognition.

Interchange fees - Customers use a Bank-issued debit card to purchase goods and services, and the Company earns interchange fees on those transactions, typically a percentage of the sale amount of the transaction. The Company records the amount due when it receives the settlement from the payment network. Payments from the payment network are received and recorded into income on a daily basis. These fees are included in “service charges and other fees” on the Consolidated Statements of Operations. There are no contingent debit card interchange fees recorded by the Company that could be subject to a clawback in future periods. Recognition of revenue under ASC 606 did not materially change the timing or magnitude of revenue recognition.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and balances due from banks, non-maturity deposits in the Federal Home Loan Bank of Chicago (FHLB), and fed funds sold. The Company has not experienced any losses in such accounts.

Available for Sale Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital requirements, and other similar factors. Securities classified as available for sale are carried at fair value. Unrealized gains or losses are reported as increases or decreases in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.

Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient enough to allow for any anticipated recovery in fair value.

Loans Acquired in a Transfer

The Company acquires loans (including debt securities) individually and in groups or portfolios. These loans are initially measured at fair value with no allowance for loan losses. The Company’s allowance for loan losses on all acquired loans reflect only those losses incurred subsequent to acquisition.

Certain acquired loans may have experienced deterioration of credit quality between origination and the Company’s acquisition of the loans. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (for example, credit score, loan type, and date of origination). The Company considers expected prepayments and estimates the amount and timing of undiscounted principal, interest, and other cash flows expected at acquisition for each loan and aggregated pool of loans. The excess of the loan’s or pool’s scheduled contractual principal and interest payments over all cash flows expected at acquisition is calculated as the nonaccretable difference. The excess of cash flows expected to be collected over the fair value of each loan or pool (accretable yield) is accreted into interest income over the remaining life of the loan or pool.

At each reporting date, the Company continues to estimate cash flows expected to be collected for each loan or pool. If expected cash flows have decreased from the acquisition date estimate, the Company recognizes an allowance for loan

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losses. If expected cash flows have increased from the acquisition date estimate, the Company increases the amount of accretable yield to be recognized as interest income over the remaining life of the loan or pool.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Mortgage loans held for sale are sold with the mortgage servicing rights released by the Company. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loan sold.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for deferred loan fees and costs, charge-offs, and an allowance for loan losses. Interest on loans is accrued and credited to income based on the unpaid principal balance. Loan-origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is maintained at the level considered adequate by management to provide for losses that are probable as of the balance sheet date. The allowance for loan losses is established through a provision for loan losses charged to expense as losses are estimated to have occurred. Loan losses are charged against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. In determining the adequacy of the allowance balance, the Company makes evaluations of the loan portfolio and related off-balance sheet commitments, considers current economic conditions and historical loss experience, and reviews specific problem loans and other factors.

When establishing the allowance for loan losses, management categorizes loans into risk categories generally based on the nature of the collateral and the basis of repayment. These risk categories and their relevant risk characteristics are as follows:

Commercial development: These loans are secured by vacant land and/or property that are in the process of improvement. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. Construction loans include not only construction of new structures, but loans originated to finance additions to or alterations of existing structures. Until a permanent loan originates, or payoff occurs, all commercial construction loans secured by real estate are reported in this loan pool. Development loans also have the risk that improvements will not be completed on time, or in accordance with specifications and projected costs.

Commercial real estate: These loans are primarily secured by office and industrial buildings, warehouses, small retail shopping facilities, and various special purpose properties, including restaurants. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate market, such as geographic location and/or purpose type.

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Commercial and industrial: Commercial and industrial loans are extended primarily to small and middle market customers. Such credits typically comprise working capital loans, asset acquisition loans, and loans for other business purposes. Loans to closely held businesses are generally guaranteed in full by the owners of the business. Commercial and industrial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for commercial and industrial loans.

One-to-four family owner-occupied: These loans are generally to individuals and are underwritten by evaluating the credit history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations, the underlying collateral, and the loan to collateral value. Also included in this category are junior liens on one-to-four family residential properties. Underwriting standards for one-to-four family owner-occupied loans are heavily influenced by statutory requirements, which include, but are not limited to, loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements.

One-to-four family investor-owned: These loans may be to individuals or businesses and are subject to underwriting standards and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property(ies). The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate market, such as geographic location and/or purpose type.

Multifamily real estate: These loans include loans to finance non-farm properties with five or more units in structures primarily to accommodate households. Such credits are typically originated to finance the acquisition or refinancing of an apartment building. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the subject multifamily property, with assumptions made for vacancy rates. Cash flows of the borrowers rely on the receipt of rental income from the tenants of the property who are themselves subject to fluctuations in national and local economic conditions and unemployment trends.

Consumer: These loans may take the form of installment loans, demand loans, or single payment loans, and are extended to individuals for household, family, and other personal expenditures. These loans generally include direct consumer automobile loans and credit card loans. These loans are generally smaller in size and are underwritten by evaluating the credit history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations.

Management regularly evaluates the allowance for loan losses using the Company’s past loan loss experience, known and inherent risks in the loan portfolio, composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.

A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan agreement. Management determines whether a loan is impaired on a case-by-case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the borrower’s prior payment record, and any other relevant factors. Large groups of smaller-balance homogeneous loans, such as residential mortgage and consumer loans, are collectively evaluated in the allowance for loan losses analysis and are not subject to impairment analysis unless such loans have been subject to a restructuring agreement. Specific allowances for impaired loans are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.

In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Company to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

12

Troubled Debt Restructurings

Loans are accounted for as troubled debt restructurings when a borrower is experiencing financial difficulties that lead to a restructuring of the loan and the Company grants a “concession” to the borrower that they would not otherwise consider. These concessions include a modification of terms, such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or some combination thereof to facilitate repayment. Troubled debt restructurings are considered impaired loans.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Provisions for depreciation are computed on straight-line and accelerated methods over the estimated useful lives of the assets.

Other Equity Investments

Other Equity Investments consist of Federal Home Loan Bank (“FHLB”) stock and Bankers’ Bank stock. The Company's investment in the FHLB stock is carried at cost, which approximates fair value. The Company is required to hold the stock as a member of the FHLB and transfer of the stock is substantially restricted. The stock is evaluated for impairment on an annual basis.  The Company is required to adjust its reported value of Bankers’ Bank stock, which is considered an equity security without a readily determinable market value, if a comparable transaction is observed.

Income Taxes

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes. The differences relate principally to the allowances for loan losses, deferred compensation, depreciation, FHLB stock dividends and non-accrual interest. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

The Company’s policy is to recognize interest and penalties related to income tax issues as components of income tax expense. During the periods shown, the Company did not recognize any interest or penalties related to income tax expense in its statements of operations.

13

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Advertising

Advertising costs are expensed as incurred.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) is shown on the statements of comprehensive income. The Company’s accumulated other comprehensive income (loss) is composed of the unrealized gains (losses) on securities available for sale, net of tax and is shown on the statements of changes in equity. Reclassification adjustments out of other comprehensive income (loss) for losses realized on sales of securities available for sale comprise the entire balance of “net loss on sale of securities” on the statements of operations.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, unfunded commitments under lines of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

Life Insurance

The Company has purchased life insurance policies on certain key executives. Life insurance is measured at the amount that could be realized under the insurance contract as of the balance sheet date, which is generally the cash surrender value of the policy.

Subsequent Events

Subsequent events have been evaluated through May 8, 2020, which is the date the financial statements are available to be issued.

The outbreak of Coronavirus Disease 2019 (“COVID-19”) could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their obligations to the Company.  The World Health Organization has declared Covid-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak will likely cause disruptions in the U.S. economy and is highly likely to disrupt banking and other financial activity in the areas in which the Company operates and could potentially create widespread business continuity issues for the Company. 

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.  If the global response to contain COVID-19 escalates or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. 

14

Recent Accounting Pronouncements

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the Company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

The Company recently adopted the following Accounting Standards Updates (ASU) issued by the Financial Accounting Standards Board (FASB).

ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”

This ASU modifies the disclosure requirements on fair value measurements in Topic 820, including the removal, modification to, and addition of certain disclosure requirements. This ASU will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The majority of the disclosure changes are to be applied on a prospective basis. Although this ASU has a significant impact to the Company’s fair value disclosures, there is no additional impact to the financial statements.

The following ASUs have been issued by the FASB and may impact the Company's financial statements in future reporting periods:

ASU No. 2016-13, “Credit Losses (Topic 326).”

ASU No. 2019-04, “Codification Improvements to Topic 326.”

ASU No. 2019-05, “Financial Instruments-Credit Losses.”

ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently assessing the impact of adopting ASU 2016-13 on its financial statements.

ASU No. 2016-02, “Leases (Topic 842): Amendments to the Leases Analysis.”

ASU No. 2018-10, "Codification Improvements to Topic 842."

ASU No. 2018-11, "Targeted Improvements"

For lessees, Topic 842 requires leases to be recognized on the balance sheet, along with disclosure of key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, 2018-10 and 2018-11. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification expense recognition in the income statement.

For lessors, Topic 842 requires lessors to classify leases as sales-type, direct financing or operating leases. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating the lessor has transferred substantially all the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.

15

The new standard is effective for the Company on January 1, 2021, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) the new standard's effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company expects to adopt the new standard on January 1, 2021 using the effective date as its date of initial application. The Company is evaluating what impact this standard will have on its consolidated financial statements.

NOTE 3 – Earnings Per Share

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards and restricted stock units, though no actual shares of common stock related to restricted stock units are issued until the settlement of such units, to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company’s common stock. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. Antidilutive options are disregarded in earnings per share calculations.

The following table presents the earnings per share calculations for the three months ended March 31:

	March 31,
	2020		2019
Net income	$	407	$	249
Basic potential common shares
Weighted average shares outstanding		7,704,875		7,850,247
Weighted average unallocated Employee Stock Ownership Plan Shares		(607,924)		(284,085)
Basic weighted average shares outstanding		7,096,951		7,566,162
Dilutive potential common shares		—		258
Dilutive weighted average shares outstanding		7,096,951		7,566,420
Basic earnings per share	$	0.06	$	0.03
Diluted earnings per share	$	0.06	$	0.03

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NOTE 4 – Available for Sale Securities

Amortized costs and fair values of available for sale securities are summarized as follows:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2020
Obligations of the US government and US government sponsored agencies	$	866	$	22	$	—	$	888
Obligations of states and political subdivisions		10,957		205		(28)		11,134
Mortgage-backed securities		39,222		1,312		(60)		40,474
Certificates of deposit		750		25		—		775
Corporate debt securities		1,801		10		(19)		1,792
Total available for sale securities	$	53,596	$	1,574	$	(107)	$	55,063
December 31, 2019
Obligations of the US government and US government sponsored agencies	$	944	$	14	$	—	$	958
Obligations of states and political subdivisions		8,590		36		(21)		8,605
Mortgage-backed securities		35,095		486		(99)		35,482
Certificates of deposit		1,000		17		—		1,017
Corporate debt securities		2,080		37		—		2,117
Total available for sale securities	$	47,709	$	590	$	(120)	$	48,179

Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably, resulting in a material change in estimated fair value.

The following table presents the portion of the Company’s portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position:

	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		FairValue		Losses		Fair Value		Losses
March 31, 2020
Obligations of states and political subdivisions	$	1,638	$	(27)	$	1,052	$	(1)	$	2,690	$	(28)
Mortgage-backed securities		3,982		(53)		683		(7)		4,665		(60)
Corporate debt securities		1,014		(19)		—		—		1,014		(19)
Total	$	6,634	$	(99)	$	1,735	$	(8)	$	8,369	$	(107)
December 31, 2019
Obligations of states and political subdivisions	$	2,569	$	(17)	$	1,059	$	(4)	$	3,628	$	(21)
Mortgage-backed securities		7,604		(57)		4,372		(42)		11,976		(99)
Total	$	10,173	$	(74)	$	5,431	$	(46)	$	15,604	$	(120)

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At March 31, 2020, the investment portfolio included 8 securities available for sale, which had been in an unrealized loss position for greater than twelve months, and 16 securities available for sale, which had been in an unrealized loss position for less than twelve months. At December 31, 2019, the investment portfolio included 14 securities available for sale, which had been in an unrealized loss position for greater than twelve months, and 18 securities available for sale, which had been in an unrealized loss position for less than twelve months. Because these securities have a fixed interest rate, their fair value is sensitive to movements in market interest rates. These unrealized losses are considered temporary because the Company does not currently have the intent to sell the securities before recovery of the losses; therefore we expect to collect all contractually due amounts from these securities. Accordingly, these investments were reduced to their fair values through accumulated other comprehensive income, not through earnings.

We regularly assess our securities portfolio for OTTI. These assessments are based on the nature of the securities, the underlying collateral, the financial condition of the issuer, the extent and duration of the loss, our intent related to the individual securities, and the likelihood that we will have to sell securities prior to expected recovery. We did not have any impairment losses recognized in earnings for the three months ended March 31, 2020 or  March 31, 2019.

The amortized cost and fair value of available for sale securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities in mortgage-backed securities since the anticipated maturities are not readily determinable. Therefore, these securities are not included in the maturity categories in the following maturity summary listed below:

	March 31, 2020
	Amortized Cost		Fair Value
Due in one year or less	$	1,020	$	1,019
Due after one year through 5 years		2,708		2,731
Due after 5 years through 10 years		4,525		4,660
Due after 10 years		6,121		6,179
Subtotal	$	14,374	$	14,589
Mortgage-backed securities		39,222		40,474
Total	$	53,596	$	55,063

Proceeds from sales of available for sale securities during the three months ended March 31, 2020 and 2019 were $0 and $2,133, respectively. Gross realized gains on these sales amounted to $0 and $0, while gross realized losses on these sales were $0 and $8, respectively. 

Available for sale securities with a carrying value of $1,036 and $999 were pledged at March 31, 2020 and December 31, 2019, respectively.

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NOTE 5 - Loans

Major classifications of loans are as follows:

	March 31,		December 31,
	2020		2019
Commercial
Development	$	15,765	$	18,222
Real estate		75,046		68,621
Commercial and industrial		12,850		13,681
Residential real estate and consumer
One-to-four family owner-occupied		29,852		29,380
One-to-four family investor-owned		30,021		28,077
Multifamily		27,720		29,531
Consumer		4,148		4,230
Subtotal	$	195,402	$	191,742
Deferred loan fees		(179)		(187)
Allowance for loan losses		(2,307)		(2,264)
Net loans	$	192,916	$	189,291

Deposit accounts in an overdraft position and reclassified as loans approximated $2 and $6 at March 31, 2020 and December 31, 2019, respectively.

A summary of the activity in the allowance for loan losses by portfolio segment is as follows:

			Residential real
			estate
Three Months Ended	Commercial		and consumer		Total
March 31, 2020
Beginning balance	$	1,251	$	1,013	$	2,264
Provision for loan losses		50		(10)		40
Loans charged off		—		—		—
Recoveries of loans previously charged off		—		3		3
Total ending allowance balance	$	1,301	$	1,006	$	2,307
March 31, 2019
Beginning balance	$	940	$	1,178	$	2,118
Provision for loan losses		44		26		70
Loans charged off		—		—		—
Recoveries of loans previously charged off		—		—		—
Total ending allowance balance	$	984	$	1,204	$	2,188

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Information about how loans were evaluated for impairment and the related allowance for loan losses follows:

			Residential real
			estate and
March 31, 2020	Commercial		consumer		Total
Loans:
Individually evaluated for impairment	$	781	$	1,784	$	2,565
Collectively evaluated for impairment		102,880		89,957		192,837
Total loans	$	103,661	$	91,741	$	195,402
Allowance for loan losses:
Individually evaluated for impairment	$	142	$	77	$	219
Collectively evaluated for impairment		1,159		929		2,088
Total allowance for loan losses	$	1,301	$	1,006	$	2,307

			Residential real
			estate and
December 31, 2019	Commercial		consumer		Total
Loans:
Individually evaluated for impairment	$	798	$	1,457	$	2,255
Collectively evaluated for impairment		99,726		89,761		189,487
Total loans	$	100,524	$	91,218	$	191,742
Allowance for loan losses:
Individually evaluated for impairment	$	158	$	77	$	235
Collectively evaluated for impairment		1,093		936		2,029
Total allowance for loan losses	$	1,251	$	1,013	$	2,264

Information regarding impaired loans follows:

	Principal		Recorded		Related		Average		Interest
As of  March 31, 2020	Balance		Investment		Allowance		Investment		Recognized
Loans with related allowance for loan losses:
Commercial
Commercial and industrial	$	717	$	717	$	142	$	723	$	11
Residential real estate and consumer
One-to-four family investor-owned		411		393		77		398		—
Total loans with related allowance for loan losses		1,128		1,110		219		1,121		11
Loans with no related allowance for loan losses:
Commercial
Commercial and industrial		68		64		—		67		1
Residential real estate and consumer
One-to-four family owner-occupied		1,093		1,090		—		1,093		11
One-to-four family investor-owned		242		216		—		218		—
Consumer		98		85		—		87		—
Total loans with no related allowance for loan losses		1,501		1,455		—		1,465		12
Total impaired loans	$	2,629	$	2,565	$	219	$	2,586	$	23

20

	Principal		Recorded		Related		Average		Interest
As of December 31, 2019	Balance		Investment		Allowance		Investment		Recognized
Loans with related allowance for loan losses:
Commercial
Commercial and industrial	$	729	$	729	$	158	$	740	$	19
Residential real estate and consumer
One-to-four family investor-owned		415		403		77		412		—
Total loans with related allowance for loan losses		1,144		1,132		235		1,152		19
Loans with no related allowance for loan losses:
Commercial
Commercial and industrial		73		69		—		77		5
Residential real estate and consumer
One-to-four family owner-occupied		795		744		—		754		5
One-to-four family investor-owned		243		221		—		231		—
Consumer		114		89		—		98		—
Total loans with no related allowance for loan losses		1,225		1,123		—		1,160		10
Total impaired loans	$	2,369	$	2,255	$	235	$	2,312	$	29

There were no additional funds committed to impaired loans as of March 31, 2020 or December 31, 2019.

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for loan losses. The credit quality indicators monitored differ depending on the class of loan.

Commercial loans and one-to-four family investor-owned and multifamily loans are generally evaluated using the following internally prepared ratings:

“Pass” ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

“Special mention” ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

“Substandard” ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable.

“Doubtful” ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely.

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Information regarding the credit quality indicators most closely monitored for commercial loans by class follows:

			Special
	Pass		Mention		Substandard		Doubtful		Totals
March 31, 2020
Development	$	15,765	$	—	$	—	$	—	$	15,765
Real estate		74,467		579		—		—		75,046
Commercial and industrial		9,985		2,853		12		—		12,850
One-to-four family investor-owned		29,334		—		687		—		30,021
Multifamily		27,720		—		—		—		27,720
Totals	$	157,271	$	3,432	$	699	$	—	$	161,402
December 31, 2019
Development	$	18,222	$	—	$	—	$	—	$	18,222
Real estate		68,036		585		—		—		68,621
Commercial and industrial		10,888		2,779		14		—		13,681
One-to-four family investor-owned		27,453		—		624		—		28,077
Multifamily		29,531		—		—		—		29,531
Totals	$	154,130	$	3,364	$	638	$	—	$	158,132

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according to the contractual terms of the loan.

Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans by class follows:

	Performing		Non-performing		Totals
March 31, 2020
One-to-four family owner-occupied	$	29,852	$	—	$	29,852
Consumer		4,064		84		4,148
	$	33,916	$	84	$	34,000
December 31, 2019
One-to-four family owner-occupied	$	28,636	$	744	$	29,380
Consumer		4,141		89		4,230
	$	32,777	$	833	$	33,610

Loan aging information follows:

			Loans Past Due		Loans Past Due				Nonaccrual
	Current Loans		30-89 Days		90+ Days		Total Loans		Loans
March 31, 2020
Commercial
Development	$	15,765	$	—	$	—	$	15,765	$	—
Real estate		75,046		—		—		75,046		—
Commercial and industrial		12,850		—		—		12,850		12
Residential real estate and consumer
One-to-four family owner-occupied		29,683		169		—		29,852		—
One-to-four family investor-owned		29,934		87		—		30,021		610
Multifamily		27,720		—		—		27,720		—
Consumer		4,093		55		—		4,148		84
Total	$	195,091	$	311	$	—	$	195,402	$	706

22

			Loans Past Due		Loans Past Due				Nonaccrual
	Current Loans		30-89 Days		90+ Days		Total Loans		Loans
December 31, 2019
Commercial
Development	$	18,222	$	—	$	—	$	18,222	$	—
Real estate		68,621		—		—		68,621		—
Commercial and industrial		13,681		—		—		13,681		14
Residential real estate and consumer
One-to-four family owner-occupied		29,034		—		346		29,380		346
One-to-four family investor-owned		28,077		—		—		28,077		624
Multifamily		29,531		—		—		29,531		—
Consumer		4,230		—		—		4,230		86
Total	$	191,396	$	—	$	346	$	191,742	$	1,070

There are no loans 90 or more days past due and accruing interest as of March 31, 2020 or December 31, 2019.

When, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt-restructuring. Loan modifications may consist of forgiveness of interest and/or principal, a reduction of the interest rate, allowing interest-only payments for a period of time, and/or extending amortization terms. During the three months ended and as of March 31, 2020, there were no new troubled debt restructurings. No troubled debt restructurings defaulted within 12 months of their modification date during the three months ended March 31, 2020.  During the year ended and as of December 31, 2019, there were two commercial and industrial loans totaling $729 and  three one-to-four family owner-occupied loans totaling $285 that were restructured. $0 was charged to the allowance for loan losses related to these loans. No troubled debt restructurings defaulted within 12 months of their modifications during the year ended December 31, 2019. 

Management regularly monitors impaired loan relationships. In the event facts and circumstances change, an additional provision for loan losses may be necessary.

NOTE 6 - Deposits

The composition of deposits are as follows:

	March 31,		December 31,
	2020		2019
Non-interest bearing checking	$	20,519	$	20,733
Interest bearing checking		7,154		6,941
Money market		48,238		46,673
Statement savings accounts		14,204		12,359
Health savings accounts		10,745		10,670
Deposits held in escrow for stock subscriptions		—		52,648
Certificates of deposit		62,534		67,228
Total	$	163,394	$	217,252

Certificates of deposit that meet or exceed the FDIC insurance limit of $250 totaled $20,673 and $21,569 at March 31, 2020 and December 31, 2019, respectively.

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The scheduled maturities of certificates of deposit are as follows as of March 31, 2020:

2020	$	34,436
2021		23,241
2022		2,733
2023		1,041
2024		1,025
2025		58
Total	$	62,534

NOTE 7– FHLB Advances

FHLB advances consist of the following:

	March 31, 2020			December 31, 2019
	Rates	Amount		Rates	Amount
Fixed rate, fixed term advances	1.62% - 2.70%	$	7,500	1.62% - 2.70%	$	7,500
Fixed term advances with floating spread	0.84% - 2.02%		4,000	1.69% - 2.09%		4,000
		$	11,500		$	11,500

The following is a summary of scheduled maturities of fixed term FHLB advances as of March 31, 2020:

	Fixed Rate Advances				Adjustable Rate Advances
	Weighted				Weighted				Total
	Average Rate		Amount		Average Rate		Amount		Amount
2020	2.34	%	$	6,000	0.84	%	$	2,000	$	8,000
2021	—	%		—	2.02	%		2,000		2,000
2022	1.71	%		1,500	—	%		—		1,500
Total	2.21	%	$	7,500	1.43	%	$	4,000	$	11,500

Actual maturities may differ from the scheduled principal maturities due to call options on the various advances.

The Company has a master contract agreement with the FHLB that provides for a borrowing up to the lesser of a determined multiple of FHLB stock owned or a determined percentage of the book value of the Company’s qualifying one-to-four family, multifamily, and commercial real estate loans. The Company pledged approximately $134,181 and $147,039 of one-to-four family, multifamily, and commercial real estate loans to secure FHLB advances at March 31, 2020 and December 31, 2019, respectively. FHLB provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest, such as LIBOR, Federal funds or Treasury Bill rates. Fixed rate advances are priced in reference to market rates of interest at the time of the advance, namely the rates that FHLB pays to borrowers at various maturities. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $574 and $574 of FHLB stock owned by the Company at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020, the Company’s available and unused portion of this borrowing agreement based on the amount of FHLB stock was $3,194.

In addition, the Company has a $7,000 federal funds line of credit through Bankers’ Bank of Wisconsin, which was not drawn on as of March 31, 2020. The Company also has the authority to borrow through the Federal Reserve’s Discount Window.

24

NOTE 8 – Employee Stock Ownership Plan

The Company maintains a leveraged employee stock ownership plan (“ESOP”) that covers substantially all employees. The ESOP was established in conjunction with the Company’s initial stock offering completed in October 2017 and operates on a plan year ending December 31. The loan to fund the acquisition of stock by the ESOP was made by the Company. Additional shares were purchased by the ESOP in conjunction with the stock offering completed in January 2020, which was also financed by a loan from the Bank. The Bank makes annual contributions to the ESOP equal to the ESOP’s debt service. The ESOP shares initially were pledged as collateral for this debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. Because the debt is intercompany, it is eliminated in consolidation for presentation in these financial statements. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheet.

As shares are committed to be released from collateral and allocated to active participants, the Company reports compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-shares (EPS) computations. During the periods ended March 31,  2020 and 2019,  7,647 and 3,801 shares were committed to be released, respectively. During the three months ended March 31, 2020 the average fair value per share of stock was $10.15 resulting in total ESOP compensation expense of $61 for the three months ended March 31, 2020. During the three months ended March 31, 2019 the average fair value per share of stock was $10.66 resulting in total ESOP compensation expense of $35 for the three months ended March 31, 2019. The ESOP shares as of March 31, 2020 and December 31, 2019 were as follows:

	March 31, 2020		December 31, 2019
Shares allocated to active participants		32,406		15,907
Shares committed to be released and allocated to participants		7,647		12,960
Total unallocated shares		604,100		230,343
Total ESOP shares		644,153		259,210
Fair value of unallocated shares (based on $7.89 and $11.55 share price at March 31, 2020 and December 31, 2019, respectively)	$	4,766	$	2,660

NOTE 9 - Share-based Compensation Plans

The Company adopted the FFBW, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”) in 2018. ASC Topic 718 requires that the grant date fair value of equity awards to employees and directors be recognized as compensation expense over the period during which they are required to provide service in exchange for such awards.

The following table summarizes the impact of the Company’s share-based payment plans in the financial statements for the period shown:

	Three Months Ended
	March 31,
	2020		2019
Total cost of stock grant plan during the year	$	50	$	45
Total cost of stock option plan during the year		37		32
Total cost of share-based payment plans during the year	$	87	$	77
Amount of related income tax benefit recognized in income	$	23	$	21

Options are granted with an exercise price equal to no less than the market price of the Company’s shares at the date of grant: those option awards generally vest pro-rata over five years of service and have 10‑year contractual terms. Restricted shares typically vest pro-rata over a five year period, 20% per year beginning one year from the issuance date.

Share amounts related to periods prior to the date of the closing of the Offering on January 16, 2020 have been restated to give retroactive recognition to the 1.1730 exchange ratio applied in the offering.

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The following table summarizes stock options activity for the three months ended March 31, 2020:

	Outstanding						Nonvested
				Weighted
		Weighted		Average				Weighted
		Average		Remaining	Aggregate			Average
	Stock Option	Exercise		Contractual	Intrinsic		Number of	Grant Date Fair
	Awards	Price		Term (years)	Value		Options	Value
Balance at December 31, 2019	260,510	$	9.20				215,450	$	2.83
Granted	—		—				—		—
Vested	—		—				—		—
Exercised	—		—				—		—
Forfeited	—		—				—		—
Balance at March 31, 2020	260,510	$	9.20	8.76	$	—	215,450	$	2.83
Exercisable as of March 31, 2020	45,060	$	9.22	8.70	$	—

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions. Since the Company does not have sufficient historical fair value estimates of its stock, the Company calculates expected volatility using the historical volatility of the Dow Jones U.S. Financial Services Index. The risk-free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options is estimated based on the assumption that options will be exercised evenly throughout their life after vesting and represents the period of time that options granted are expected to remain outstanding.

There were no options granted during the three months ended March 31, 2020.

The following is a summary of changes in restricted shares for the three months ended March 31, 2020:

		Weighted
		Average
	Number of	Grant Date Fair
	Shares	Value
Nonvested stock awards as of December 31, 2019	90,790	$	9.20
Granted	—		—
Vested	—		—
Forfeited	—		—
Nonvested stock awards as of March 31, 2020	90,790	$	9.20

As of March 31, 2020, there was $1.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share option and non-vested share awards) granted under the 2018 Equity Incentive Plan. At March 31, 2020, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately2.3 years.

NOTE 10 – Equity and Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The 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 (set forth in the table below) of Common Equity Tier 1, Tier 1, and Total capital to risk-weighted

26

assets and of Tier 1 capital to average assets. It is management’s opinion, as of March 31, 2020, that the Bank meet all applicable capital adequacy requirements.

As of March 31, 2020, the Bank is categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum regulatory capital ratios as set forth in the table. There are no conditions or events since March 31, 2020 that management believes have changed the category.

The Bank’s actual capital amounts and ratios are presented in the following tables:

To Be Well

Capitalized

Under Prompt

For Capital Adequacy

Corrective

Actual

Purposes

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

March 31, 2020

Common Equity Tier 1 capital (to risk‑weighted assets)

$

72,159

34.9

%

$

≥   9,310

≥ 4.5

%

$

≥ 13,447

≥   6.5

%

Tier 1 capital (to risk‑weighted assets)

72,159

34.9

≥ 12,413

≥ 6.0

≥ 16,551

≥   8.0

Total capital (to risk‑weighted assets)

74,466

36.0

≥ 16,551

≥ 8.0

≥ 20,688

≥ 10.0

Tier 1 capital (to average assets)

72,159

26.1

≥ 11,051

≥ 4.0

≥ 13,814

≥   5.0

December 31, 2019

Common Equity Tier 1 capital (to risk‑weighted assets)

$

50,446

23.7

%

$

≥   9,591

≥ 4.5

%

$

≥ 13,854

≥   6.5

%

Tier 1 capital (to risk‑weighted assets)

50,446

23.7

≥ 12,788

≥ 6.0

≥ 17,051

≥   8.0

Total capital (to risk‑weighted assets)

52,710

24.7

≥ 17,051

≥ 8.0

≥ 21,313

≥ 10.0

Tier 1 capital (to average assets)

50,446

19.4

≥ 10,400

≥ 4.0

≥ 13,000

≥   5.0

NOTE 11 – Fair Value

Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

Following is a brief description of each level of the fair value hierarchy:

Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of the asset or liability.

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as impaired loans, may be measured at fair value on a nonrecurring basis.

Following is a description of the Company’s valuation methodology and significant inputs used for each asset and liability measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset or liability within the fair value hierarchy.

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Available for sale securities - Available for sale securities may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Loans - Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. Independent appraisals are obtained that utilize one or more valuation methodologies - typically they will incorporate a comparable sales approach and an income approach. Management routinely evaluates the fair value measurements of independent appraisers and adjusts those valuations based on differences noted between actual selling prices of collateral and the most recent appraised value. Such adjustments are usually significant, which results in a Level 3 classification. All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are not fair value measurements.

Foreclosed assets- Real estate acquired through or in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

Assets measured at fair value on a recurring basis are summarized below:

	Recurring Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
As of March 31, 2020
Assets:
Available for sale securities:	$	—	$	55,063	$	—	$	55,063
As of December 31, 2019
Assets:
Available for sale securities:	$	—	$	48,179	$	—	$	48,179

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Information regarding the fair value of assets measured at fair value on a nonrecurring basis follows:

			Nonrecurring Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Instruments		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
As of March 31, 2020
Assets:
Loans	$	891	$	—	$	—	$	891
Foreclosed assets		347		—		—		347
As of December 31, 2019
Assets:
Loans	$	897	$	—	$	—	$	897
Foreclosed assets		84		—		—		84

Loans with a carrying amount of $1,110 were considered impaired and were written down to their estimated fair value of $891 as of March 31, 2020. Loans with a carrying amount of $1,132 were considered impaired and were written down to their estimated fair value of $897 as of December 31, 2019. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $219 and $235 as of March 31, 2020 and December 31, 2019, respectively.

Foreclosed assets with a carrying amount of $347 and $84 were determined to be at their fair value as of March 31, 2020 and December 31, 2019, respectively.

The following presents quantitative information about nonrecurring Level 3 fair value measurements:

					Range/Weighted
	Fair Value		Valuation Technique	Unobservable Input(s)	Average
As of March 31, 2020
Loans	$	891	Market and/or income approach	Management discount on appraised values	10	%	-	20	%
Foreclosed assets	$	347	Market and/or income approach	Management discount on appraised values	10	%	-	20	%
As of December 31, 2019
Loans	$	897	Market and/or income approach	Management discount on appraised values	10	%	-	20	%
Foreclosed assets	$	84	Market and/or income approach	Management discount on appraised values	10	%	-	20	%

29

The carrying value and estimated fair value of financial instruments as of March 31, 2020 and December 31, 2019 follow:

	March 31, 2020
	Carrying			Fair Value
	Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,857	$	14,857	$	—	$	—
Available for sale securities		55,063		—		55,063		—
Loans held for sale		543		—		543		—
Loans		192,916		—		—		195,177
Accrued interest receivable		816		816		—		—
Cash value of life insurance		7,117		—		—		7,117
Other equity investments		780		—		—		780
Financial liabilities:
Deposits		163,394		99,526		—		63,120
Advance payments by borrowers for taxes and insurance		380		380		—		—
FHLB advances		11,500		—		—		11,622
Accrued interest payable		259		259		—		—

	December 31, 2019
	Carrying			Fair Value
	Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	39,377	$	39,377	$	—	$	—
Available for sale securities		48,179		—		48,179		—
Loans held for sale		200		—		200		—
Loans		189,291		—		—		190,561
Accrued interest receivable		725		725		—		—
Cash value of life insurance		7,068		—		—		7,068
Other equity investments		780		—		—		780
Financial liabilities:
Deposits		217,252		150,024		—		67,391
Advance payments by borrowers for taxes and insurance		46		46		—		—
FHLB advances		11,500		—		—		11,509
Accrued interest payable		51		51		—		—

Limitations - The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

Statements of our goals, intentions and expectations;

Statements regarding our business plans, prospects, growth and operating strategies;

Statements regarding the asset quality of our loan and investment portfolios; and

Estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

General economic conditions, either nationally or in our market areas, that are worse than expected;

· Economic and/or policy changes related to the COVID-19 pandemic;

· Changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

Our ability to access cost-effective funding;

Fluctuations in real estate values and both residential and commercial real estate market conditions;

Demand for loans and deposits in our market area;

Our ability to implement and change our business strategies;

Competition among depository and other financial institutions;

Inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

Adverse changes in the securities or secondary mortgage markets;

Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, including as a result of Basel III;

The impact of the Dodd-Frank Act and the implementing regulations;

Changes in the quality or composition of our loan or investment portfolios;

Technological changes that may be more difficult or expensive than expected;

The inability of third-party providers to perform as expected;

Our ability to manage market risk, credit risk and operational risk in the current economic environment;

Our ability to enter new markets successfully and capitalize on growth opportunities;

Our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

Changes in consumer spending, borrowing and savings habits;

Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

Our ability to retain key employees;

Our compensation expense associated with equity allocated or awarded to our employees; and

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Changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Impact of COVID-19

Economic activity in the first quarter of 2020 contracted sharply across the United States as a result of the COVID-19 pandemic, which mandated closures of non-essential businesses and restricted activities to attempt to slow the spread of the disease. This has become a global public health crisis, causing volatility and uncertainty in the markets, and large disruptions in many industries such as energy, hospitality and nonessential healthcare. Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed into law on March 27, 2020, allows financial institutions to exclude eligible modifications from TDR reporting, providing they are (1) related to COVID-19, (2) executed on a loan that was not more than 30 days past due as of December 31, 2019 and (3) executed between March 1, 2020 and the earlier of 60 days after the date of the termination of the national emergency or December 31, 2020. As of April 30, 2020, we had nine commercial customers with notes totaling $14.1 million and one residential customer with notes totaling $686,000 who qualified for deferrals under this program.

The CARES Act also 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”).  We enrolled in the PPP by completing the required documentation.   An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly “payroll costs”; or (2) $10.0 million.  PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity, and (c) principal and interest payments deferred for six months from the date of disbursement.  The SBA will guarantee 100% of the PPP loans made to eligible borrowers.  The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and at least 75% of the loan proceeds are used for payroll expenses, with the remaining 25% or less of the loan proceeds used for other qualifying expenses.  The Company disbursed 114 loans totaling $12.3 million in this round of PPP funding.  On April 27, 2020, the SBA resumed accepting PPP loan applications as a result of the Paycheck Protection Program and Health Care Enhancement Act which was passed on April 24, 2020. As of April 30, 2020, we had received approximately, 38 applications for up to $1.2 million of loans under the PPP.

Comparison of Financial Condition at March 31, 2020 and December 31, 2019

Total Assets. Total assets decreased $14.8 million, or 5.1%, to $278.0 million at March 31, 2020 from $292.2 million at December 31, 2019. The decrease was primarily a result of the decrease in fed funds sold of $31.4 million partially offset by an increase in available for sale securities of $6.9 million and an increase in net loans of $3.6 million.

Cash and due from banks. Cash and due from banks increased $6.9 million, or 168.7%, to $11.0 million at March 31, 2020 from $4.1 million at December 31, 2019.  

Fed funds sold. Fed funds sold decreased $31.4 million, or 89.1%, to $3.8 million at March 31, 2020 from $35.3 million at December 31, 2019, primarily from the use of the of cash from stock offering subscriptions in the conversion.

Net Loans.  Net loans increased $3.6 million, or 1.9%, to $192.9 million at March 31, 2020 from $189.3 million at December 31, 2019. The increase resulted from the net of increases in commercial real estate loans of $6.4 million, or 9.4%, one-to-four family owner-occupied loans of $472,000, or 1.6%, and one-to-four family investor-owned loans of

32

$1.9 million, or 6.9%, offset by decreases of $2.5 million, or 13.5%, in commercial development loans, $831,000, or 6.1%, in commercial business loans, $1.8 million, or 6.1%, in multifamily loans and $82,000, or 1.9%, in consumer loans.

During the three months ended March 31, 2020, we sold $3.9 million of one-to-four family owner-occupied residential real estate loans, on a servicing-released basis. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale of loans income.

Available for sale securities. Available for sale securities increased $6.9 million, or 14.3%, to $55.1 million at March 31, 2020 from $48.2 million at December 31, 2019. This was a result of deploying funds received from the stock offering subscriptions.

Other equity investments.  Other equity investments remained consistent at  $780,000 at March 31, 2020 and December 31, 2019, respectively.  

Deposits.  Deposits decreased $53.9 million, or 24.8%, to $163.4 million at March 31, 2020 from $217.3 million at December 31, 2019.  The decrease resulted primarily from $52.6 million of stock offering subscriptions being included in deposits as of December 31, 2019. In addition, certificates of deposit decreased $4.7 million, or 7.0%, to $62.5 million at March 31, 2020 from $67.2 million at December 31, 2019, and noninterest-bearing checking accounts decreased $214,000, or 1.0%, to $20.5 million at March 31, 2020, compared to $20.7 million at December 31, 2019. Partially offsetting these decreases, interest-bearing checking accounts increased $213,000, or 3.1%, to $7.1 million as of March 31, 2020 compared to $6.9 million as of December 31, 2019,   money market accounts increased $1.5 million to $48.2 million at March 31, 2020 from $46.7 million as of December 31, 2019, savings accounts increased $1.8 million, or 14.9%, to $14.2 million at March 31, 2020, compared to $12.4 million at December 31, 2019,  and health savings accounts increased $75,000, or 0.7%, to $10.8 million at March 31, 2020, compared to $10.7 million at December 31, 2019. Included in the certificates of deposit were brokered deposits of $8 million as of both March 31, 2020 and December 31, 2019.

Borrowings. Borrowings, consisting entirely of FHLB advances, remained consistent at $11.5 million at March 31, 2020 as well as December 31, 2019. The aggregate cost of outstanding advances from the FHLB was 2.10% at December 31, 2019, compared to the Bank’s cost of deposits of 1.25% at that date.

Other liabilities. Other liabilities decreased $60,000, or 4.0%, to $1.4 million at March 31, 2020 from $1.5 million at December 31, 2019.

Total Equity.  Total equity increased $39.1 million, or 63.3%, to $101.0 million at March 31, 2020 from $61.9 million at December 31, 2019. The increase resulted primarily from net stock offering proceeds of $37.9 million, net income of $407,000, and other comprehensive income of $727,000.

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of non-accrual and problem loans in order to minimize the Company’s risk of loss. Non-performing loans are defined as non-accrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is generally discontinued when contractual payments have become 90 or more days past due or when management has serious doubts about further collectability of principal or interest. Cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. a TDR typically involves the granting of some concession to the borrower involved in the loan modification, such as modifying the payment schedule or making interest changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10. 

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The following table identifies the various components of non-performing assets and other balance sheet information as of the dates indicated below and changes in the ALLL for the periods then ended:

	March 31,			December 31,
	2020 and			2019 and
	Three Months			Twelve Months
	Then			Then
	Ended			Ended
	(in thousands)
Nonperforming assets:
Nonaccrual loans	$	706		$	1,070
Accruing loans past due 90 days or more		—			—
Total nonperforming loans ("NPLs")	$	706		$	1,070
Foreclosed assets		347			84
Total nonperforming assets ("NPAs")	$	1,053		$	1,154
Troubled Debt Restructurings ("TDRs")		1,464			1,839
Nonaccrual TDRs		300			654
Average outstanding loan balance		194,528			197,766
Loans, end of period		195,402			191,742
ALLL, at beginning of period		2,264			2,118
Loans charged off:
Commercial		—			—
Residential real estate and consumer		—			(58)
Total loans charged off	$	—		$	(58)
Recoveries of loans previously charged off:
Residential real estate and consumer		3			3
Total recoveries of loans previous charged off		3			3
Net loans charged off ("NCOs'")	$	3		$	(55)
Additions to ALLL via provision for loan losses charged to operations		40			201
ALLL, at end of period	$	2,307		$	2,264
Ratios:
ALLL to NCOs (annualized)		(19,225.00)	%		4,116.36	%
NCOs (annualized) to average loans		(0.01)	%		0.03	%
ALLL to total loans		1.18	%		1.18	%
NPL to total loans		0.36	%		0.56	%
NPAs to total assets		0.38	%		0.39	%
Total Assets	$	277,980		$	292,218

Total loans past due decreased from $346,000 as of December 31, 2019 to $311,000 as of March 31, 2020. We believe our credit and underwriting policies continue to support more effective lending decisions by the Company, which increases the likelihood of maintaining loan quality going forward. Moreover, we believe the favorable trends regarding our nonperforming loans and nonperforming assets reflect our continued adherence to improved underwriting criteria and practices. We believe our current ALLL is adequate to cover probably losses in our current loan portfolio.

Non-performing loans of $706,000 as of March 31, 2020, which included $300,000 of non-accrual trouble debt restructured loans, reflected a decrease of $364,000 from the non-performing loan balance as of December 31, 2019.

Our non-performing assets were $1.1 million at March 31, 2020, or 0.38% of total assets, compared to $1.2 million, or 0.39% of total assets as of December 31, 2019.

Foreclosed assets increased $263,000 to $347,000 as of March 31, 2020, compared to $84,000 as of December 31, 2019. We strive to aggressively liquidate foreclosed assets as a part of our overall credit risk management strategy.

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Comparison of Operating Results for the Three Months Ended March 31, 2020 and March 31, 2019

General.  We had net income of $407,000 for the three months ended March 31, 2020, compared to net income of $249,000 for the three months ended March 31, 2019, an increase of $158,000, or 63.5%. The increase in net income was the net effect of an increase in net interest income after provision for loan losses of $230,000, or 11.5%, an increase in noninterest income of $23,000, or 16.4%, offset in part by an increase in noninterest expense of $36,000, or 2.0%, and an increase in income taxes of $59,000, or 77.6%.

Interest and dividend income. Interest and dividend income increased $57,000, or 2.1%, to $2.8 million for the three months ended March 31, 2020 from $2.7 million for the three months ended March 31, 2019. The increase was primarily attributable to a $71,000 increase in interest on available for sale securities and interest-bearing deposits, due to an increase in the average balance of those line items of $16.4 million quarter over quarter. This was partially offset by a decrease in interest on loans of $13,000, due to a decrease in the average balance of loans of $6.7 million quarter over quarter.

Interest Expense. Interest expense decreased $143,000, or 20.8%, to $544,000 for the three months ended March 31, 2020, from $687,000 for the three months ended March 31, 2019. Interest expense on interest-bearing deposits decreased $116,000, or 19.4%, quarter to quarter. The average cost of our interest-bearing deposits decreased 9 basis points to 1.36% from 1.45%, while the average balance of interest-bearing deposits decreased by $23.5 million, or 14.2%, during the same period. Interest expense on borrowings, consisting entirely of FHLB advances, decreased $27,000, or 30.7%, to $61,000 during the three months ended March 31, 2020 from $88,000 during the three months ended March 31, 2019, as the average balance of borrowings decreased $5.1 million to $11.5 million for the 2020 period from $16.6 million for 2019, and the cost of borrowings remained consistent at 2.12% for both periods.

Net Interest Income.  Net interest income increased $200,000, or 9.7%, to $2.3 million for the three months ended March 31, 2020 from $2.1 million for the three months ended March 31, 2019. Average net interest-earning assets increased $38.4 million to $104.7 million for 2020 from $66.3 million for 2019 due to the investment of fund received from the stock offering. Our net interest rate spread increased to 2.93% for the three months ended March 31, 2020 from 2.92% for the three months ended March 31, 2019, and our net interest margin increased to 3.51% for the first quarter of 2020 from 3.33% for the same quarter of 2019. 

Provision for Loan Losses.  We recorded a provision for loan losses of $40,000 for the three months ended March 31, 2020, compared to a $70,000 provision for the three months ended March 31, 2019. The allowance for loan losses remained consistent at $2.3 million, or 1.18% of total loans, at both March 31, 2020 and December 31, 2019. Classified (substandard, doubtful and loss) loans increased to $699,000 at March 31, 2020 from $638,000 at December 31, 2019. Total nonperforming loans decreased to $706,000 at March 31, 2020 from $1.1 million at December 31, 2019. Net recoveries for the three months ended March 31, 2020 were $3,000, compared to $0 for the prior year period. At March 31, 2020,  all of the nonperforming loans were contractually current.

Noninterest Income. Noninterest income increased $23,000, or 16.4%  for the three months ended March 31, 2020 to $163,000, compared to $140,000 for the same period in the prior year.  The increase was primarily due to service charges and other fees increasing $20,000, net gain/loss on sale of securities increasing $8,000, and increase in cash surrender value of life insurance increasing by $2,000 for the quarter. These gains were partially offset by a $6,000 reduction in net gain on sale of loans quarter-over-quarter.

Noninterest Expense.  Noninterest expense increased $36,000, or 2.0%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increase was due primarily to an increase of $35,000, or 3.2%, in salaries and employee benefits,  $2,000, or 0.8%, in occupancy and equipment expense, $31,000, or 17.7%, in data processing expenses, and $7,000, or 6.8%, in other operating expenses for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. These increases were offset in part by decreases of $18,000, or 23.1%, in technology expense, foreclosed assets expense of $17,000, and professional fees of $4,000, or 3.6%.

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Income Tax Expense.  We recorded an income tax expense of $135,000 for the three months ended March 31, 2020 compared to $76,000 for the three months ended March 31, 2019, an increase of $59,000, or 77.6%, due to increase in income before income taxes of $217,000.

Average balances and yields. The following tables sets forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual 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 or interest expense.

	For the Three Months Ended March 31,
	2020								2019
	Average								Average
	Outstanding								Outstanding					Yield/
	Balance			Interest		Yield/ Rate			Balance			Interest		Rate
	(in thousands)								(in thousands)
Interest-earning assets:
Loans	$	194,528		$	2,435		5.01	%	$	201,267		$	2,448	4.87	%
Available for sale securities		49,503			288		2.33	%		43,658			277	2.54	%
Interest-bearing deposits		13,163			76		2.31	%		2,595			16	2.47	%
Other equity investments		780			8		4.10	%		645			9	5.58	%
Total interest-earning assets		257,974			2,807		4.35	%		248,165			2,750	4.43	%
Noninterest-earning assets		42,844								16,233
Allowance for loan losses		(2,274)								(2,145)
Total assets	$	298,544							$	262,253
Interest-bearing liabilities:
Demand accounts	$	6,794			10		0.59	%	$	9,680			31	1.28	%
Money market accounts		45,702			133		1.16	%		41,202			111	1.08	%
Savings accounts		12,886			4		0.12	%		14,740			5	0.14	%
Health savings accounts		10,910			8		0.29	%		11,370			9	0.32	%
Certificates of deposit		65,514			328		2.00	%		88,272			443	2.01	%
Total interest-bearing deposits		141,806			483		1.36	%		165,264			599	1.45	%
Borrowings		11,500			61		2.12	%		16,596			88	2.12	%
Total interest-bearing liabilities		153,306			544		1.42	%		181,860			687	1.51	%
Noninterest-bearing deposits		21,737								17,716
Other non-interest bearing liabilities		34,630								1,969
Total liabilities		209,673								201,545
Equity		88,871								60,708
Total liabilities and equity	$	298,544							$	262,253
Net interest income					2,263								2,063
Net interest rate spread(1)							2.93	%						2.92	%
Net interest-earning assets(2)		104,668								66,305
Net interest margin(3)							3.51	%						3.33	%
Average of interest-earning assets to interest-bearing liabilities		168	%							136	%

(1)Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)Net interest margin represents net interest income divided by total interest-earning assets.

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Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in average rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period average rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	For Three Months Ended March 31,
	2020 vs. 2019
	Increase (Decrease) Due to				Total Increase
	Volume		Rate		(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	(82)	$	69	$	(13)
Available for sale securities		37		(26)		11
Interest-bearing deposits		65		(5)		60
Other equity investments		2		(3)		(1)
Total interest-earning assets	$	22	$	35	$	57
Interest-bearing liabilities:
Demand accounts	$	(9)	$	(12)	$	(21)
Money market accounts		12		10		22
Savings accounts		(1)		—		(1)
Health savings accounts		—		(1)		(1)
Certificates of deposit		(114)		(1)		(115)
Total deposits	$	(112)	$	(4)	$	(116)
Borrowings		(27)		—		(27)
Total interest-bearing liabilities		(139)		(4)		(143)
Change in net interest income	$	161	$	39	$	200

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB-Chicago. At March 31, 2020, we had $11.5 million outstanding in advances from the FHLB-Chicago. At March 31, 2020 we had $3.2 million available additional FHLB-Chicago advances based on the FHLB stock owned.

Additionally, at March 31, 2020 we had a $7 million federal funds rate line of credit with the Bankers’ Bank of Wisconsin, of which $0 was drawn at March 31, 2020.

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. Our most liquid assets are cash and cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our current strategy to change our mix of deposits to become less reliant on certificates of deposit, we anticipate that we will continue to allow a significant portion of higher-costing certificates of deposit to run off at maturity. We also anticipate continued

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use of FHLB-Chicago advances as well as continuing to utilize brokered certificates of deposit and online sources, as needed, to fund future loan growth and our operations.

At March 31, 2020, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $72.2 million, or 26.1% of adjusted total assets, which is above the well-capitalized required level of $13.8 million, or 5.0%; and total risk-based capital of $74.5 million, or 36.0% of risk-weighted assets, which is above the well-capitalized required level of $20.7 million, or 10.0%. Management is not aware of any conditions or events since March 31, 2020, that would change our category.

Item 3.        Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4.       Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the 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 and Exchange Act of 1934, as amended) as of March 31, 2020. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 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.

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Part II – Other Information

Item 1.        Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at March 31, 2020, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Item 1A.       Risk Factors

The presentation of Risk Factors is not required for smaller reporting companies like FFBW, Inc.

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

(a) There were no sales of unregistered securities during the period covered by this Report.

(b) Not applicable.

(c) There were no repurchases of equity securities during the period covered by this Report.

Item 3.      Defaults Upon Senior Securities

None.

Item 4.        Mine Safety Disclosures

Notapplicable.

Item 5.      Other Information

None.

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Item 6.         Exhibits

3.1	Amended and Restated Articles of Incorporation of FFBW(1)
3.2	Bylaws of FFBW(2)
4	Form of Common Stock Certificate(2)
31.1	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS XBRL Instance Document
	101.SCH XBRL Taxonomy Extension Schema Document
	101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB XBRL Taxonomy Extension Label Linkbase Document
	101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to pre-effective amendment No. 1 to the Registration Statement on Form S‑1 (file no. 333‑233740), filed on November 1, 2019.

(2) Incorporated by reference to the Registration Statement on Form S‑1 (file no. 333‑233740), filed on September 13, 2019.

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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		FFBW, Inc.
Date: May 8, 2020	By:	/s/ Edward H. Schaefer
		Edward H. Schaefer
		President and Chief Executive Officer
Date: May 8, 2020	By:	/s/ Nikola B. Schaumberg
		Nikola B. Schaumberg
		Chief Financial Officer

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