Company Quick10K Filing
WCF Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 3 $22
10-Q 2019-05-14 Quarter: 2019-03-31
10-K 2019-03-29 Annual: 2018-12-31
10-Q 2018-11-14 Quarter: 2018-09-30
10-Q 2018-08-15 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-29 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-10 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-24 Annual: 2016-12-31
10-Q 2016-11-10 Quarter: 2016-09-30
10-Q 2016-08-11 Quarter: 2016-06-30
10-Q 2016-06-23 Quarter: 2016-03-31
8-K 2019-07-15 Other Events, Exhibits
8-K 2019-05-22 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-04-24 Other Events, Exhibits
8-K 2019-01-30 Other Events, Exhibits
8-K 2018-12-19 Officers, Exhibits
8-K 2018-11-01 Other Events, Exhibits
8-K 2018-10-19 Delisting, Exhibits
8-K 2018-09-28 Officers, Exhibits
8-K 2018-08-22 Officers, Exhibits
8-K 2018-07-31 Other Events, Exhibits
8-K 2018-06-29 Officers, Exhibits
8-K 2018-05-29 Officers, Exhibits
8-K 2018-05-29 Shareholder Vote, Exhibits
8-K 2018-04-26 Other Events, Exhibits
8-K 2018-01-30 Officers, Other Events, Exhibits
WCFB 2019-03-31
Part I - Financial Information
Item 1 Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
Part II - Other Information
Item 1 Legal Proceedings
Item 1A Risk Factors
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 Other Information
Item 6 Exhibits
EX-31.1 a2019wcfbancorpq1exhibit311.htm
EX-31.2 a2019wcfbancorpq1exhibit312.htm
EX-32.1 a2019wcfbancorpq1exhibit32.htm

WCF Bancorp Earnings 2019-03-31

WCFB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
HVBC 33 344 312 0 0 1 4 13 0% 3.3 0%
GLBZ 31 378 343 0 0 1 4 21 5.7 0%
WCFB 22 133 105 0 0 -0 2 18 10.7 -0%
OPHC 7 111 106 0 0 -1 0 -5 -19.4 -1%
GLG 4 8 3 0 0 -4 -4 3 151% -0.6 -54%
FBMS 1 3,473 3,006 0 0 32 63 1 0.0 1%
SBFG 0 1,029 895 2 0 11 23 -42 0% -1.8 1%
AUB
MNSB
CFB

10-Q 1 a2019wcfbancorpincq110-q.htm 10-Q Document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

OR

[   ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 001-37382

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
YES [ X ]     NO [ ]
    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES [ X ]     NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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
[X]
 
 
 
Emerging growth company
[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

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

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

Title of class                Trading symbol        Name of exchange on which registered
Common Stock, par value $0.01         WCFB            The Nasdaq Stock Market

As of May 14, 2019, the Registrant had 2,561,542 shares of its common stock, par value $0.01 per share, issued and outstanding.



WCF Bancorp, Inc.
Form 10-Q

Index

 
 
 
 
Page
Part I - Financial Information
 
 
 
 
 
Item 1
 
Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018
 
 
 
 
 
 
 
 
Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
Item 3
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
 
 
Item 4
 
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
Item 1
 
Legal Proceedings
 
 
 
 
 
 
Item 1A
 
Risk Factors
 
 
 
 
 
 
Item 2
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
Item 3
 
Defaults upon Senior Securities
 
 
 
 
 
 
Item 4
 
Mine Safety Disclosures
 
 
 
 
 
 
Item 5
 
Other Information
 
 
 
 
 
 
Item 6
 
Exhibits
 
 
 
 
 
 
 
 
Signature Page
 



Part I – Financial Information

Item 1    Financial Statements

WCF Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2019 (unaudited) and December 31, 2018
Assets
March 31, 2019
 
December 31, 2018
Cash and due from banks
$
3,432,865

 
$
3,587,631

Federal funds sold
732,000

 
11,175,000

   Cash and cash equivalents
4,164,865

 
14,762,631

Time deposits in other financial institutions
4,536,380

 
4,540,687

Securities available-for-sale, at fair value
43,098,700

 
43,622,041

Loans receivable
72,016,626

 
64,314,968

Allowance for loan losses
(528,958
)
 
(508,920
)
   Loans receivable, net
71,487,668

 
63,806,048

Federal Home Loan Bank (FHLB) stock, at cost
736,800

 
1,110,000

Bankers' Bank stock, at cost
147,500

 
147,500

Office property and equipment, net
3,532,392

 
3,585,740

Deferred taxes on income
650,974

 
768,831

Income taxes receivable
28,092

 
34,739

Accrued interest receivable
512,012

 
424,909

Goodwill
55,148

 
55,148

Bank-owned life insurance
3,252,912

 
3,231,032

Prepaid expenses and other assets
1,217,693

 
1,275,166

Total assets
$
133,421,136

 
$
137,364,472

Liabilities and Stockholders' Equity
 
 
 
Deposits
$
89,117,264

 
$
83,577,825

FHLB advances
14,500,000

 
24,000,000

Advance payments by borrowers for taxes and insurance
367,109

 
556,494

Accrued interest payable
162,952

 
18,221

Accrued expenses and other liabilities
1,244,607

 
1,441,057

Total liabilities
105,391,932

 
109,593,597

Commitments and contingencies (Note 8)


 


Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; issued none

 

Common stock, $0.01 par value. Authorized 30,000,000 shares; 2,561,542 issued and outstanding at March 31, 2019 and December 31, 2018
25,615

 
25,615

Additional paid-in capital
14,223,738

 
14,223,738

Retained earnings, substantially restricted
15,429,913

 
15,565,683

Unearned ESOP shares
(1,191,116
)
 
(1,204,808
)
Accumulated other comprehensive (loss)
(458,946
)
 
(839,353
)
Total stockholders' equity
28,029,204

 
27,770,875

Total liabilities and stockholders' equity
$
133,421,136

 
$
137,364,472

 
 
 
 

See notes to consolidated financial statements.

1


WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
Interest income:
 
 
 
 
Loans receivable
$
753,735

 
$
739,664

 
Investment securities - taxable
219,707

 
160,729

 
Investment securities - tax exempt
53,424

 
62,793

 
Other interest earning assets
57,909

 
34,042

 
Total interest income
1,084,775

 
997,228

 
Interest expense:
 
 
 
 
Deposits
222,695

 
164,381

 
FHLB advances
103,056

 
77,425

 
Overnight borrowings
2,380

 

 
Total interest expense
328,131

 
241,806

 
Net interest income
756,644

 
755,422

 
Provision for losses on loans
30,000

 
19,500

 
Net interest income after provision for losses on loans
726,644

 
735,922

 
Noninterest income:
 
 
 
 
Fees and service charges
104,642

 
96,132

 
Gain (loss) on sale of securities available-for-sale, net
10,509

 
(14,465
)
 
Increase in cash value - bank-owned life insurance
21,880

 
23,309

 
Gain on sale of land

 
435,818

 
Other income (expense)
217

 
(9,923
)
 
Total noninterest income
137,248

 
530,871

 
Noninterest expense:
 
 
 
 
Compensation, payroll taxes, and employee benefits
351,475

 
368,902

 
Advertising
11,762

 
17,776

 
Office property and equipment
91,772

 
107,903

 
Federal insurance premiums
7,704

 
8,111

 
Data processing services
126,449

 
123,327

 
Charitable contributions
1,610

 
1,800

 
Other real estate expenses, net
7,433

 
4,923

 
Dues and subscriptions
7,882

 
10,797

 
Accounting, regulatory and professional fees
177,652

 
139,137

 
Debit card expenses

 
1,123

 
Other expenses
95,705

 
92,468

 
Total noninterest expense
879,444

 
876,267

 
(Loss) earnings before taxes on income
(15,552
)
 
390,526

 
Tax (benefit) expense
(329
)
 
106,002

 
Net (loss) income
$
(15,223
)
 
$
284,524

 
Basic earnings (loss) per common share
$
(0.01
)
 
$
0.12

 
Diluted earnings (loss) per common share
$
(0.01
)
 
$
0.12

 

See notes to consolidated financial statements.

2



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

 
Three Months Ended
March 31,
 
 
2019

2018
 
Net (loss) income
$
(15,223
)
 
$
284,524

 
 
 
 
 
 
Other comprehensive income (loss):

 

 
Net change in unrealized gains (losses) on securities
531,352

 
(734,338
)
 
Reclassification adjustment for net losses (gains) realized in net income
(10,509
)
 
14,465

 
Income tax (expense) benefit
(140,436
)
 
152,273

 
Other comprehensive income (loss)
380,407

 
(567,600
)
 
Comprehensive income (loss)
$
365,184

 
$
(283,076
)
 


See notes to consolidated financial statements.

3



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


 
Common stock
 
Additional paid-in capital
 
Retained earnings
 
Unearned ESOP shares
 
Accumulated other comprehensive income (loss)
 
 
Total
Balance at December 31, 2017
$
25,615

 
$
14,215,017

 
$
15,758,825

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

Net income

 

 
284,524

 

 

 
 
284,524

Other comprehensive loss

 

 

 

 
(567,600
)
 
 
(567,600
)
Reclass of stranded tax effects of rate change

 

 
61,135

 

 
(61,135
)
 
 

Release of ESOP Shares

 

 

 
13,692

 

 
 
13,692

Dividends paid on common stock,
$0.05 per common share

 

 
(120,171
)
 

 

 
 
(120,171
)
Balance at March 31, 2018
$
25,615

 
$
14,215,017

 
$
15,984,313

 
$
(1,245,884
)
 
$
(939,102
)
 
 
$
28,039,959

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
25,615

 
$
14,223,738

 
$
15,565,683

 
$
(1,204,808
)
 
$
(839,353
)
 
 
$
27,770,875

Net loss

 

 
(15,223
)
 

 

 
 
(15,223
)
Other comprehensive income

 

 

 

 
380,407

 
 
380,407

Release of ESOP Shares

 

 

 
13,692

 

 
 
13,692

Dividends paid on common stock,
$0.05 per common share

 

 
(120,547
)
 

 

 
 
(120,547
)
Balance at March 31, 2019
$
25,615

 
$
14,223,738

 
$
15,429,913

 
$
(1,191,116
)
 
$
(458,946
)
 
 
$
28,029,204

 
 
 
 
 
 
 
 
 
 
 
 
 

See notes to the consolidated financial statements.

4



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(15,223
)
 
$
284,524

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
148,079

 
186,139

Provision for losses on loans
30,000

 
19,500

ESOP expenses
13,692

 
13,692

Deferred taxes on income
(22,579
)
 
65,769

(Gain) loss on sales of securities
(10,509
)
 
14,465

Gain on sales of one-to-four family residential loans
(1,725
)
 

Proceeds from sales of one-to-four family residential loans
5,532,737

 

Originations of one-to-four family residential loans
(5,531,012
)
 

Loss on sale of other real estate owned

 
9,417

Gain on sale of land

 
(435,818
)
Increase in cash value of bank-owned life insurance
(21,880
)
 
(23,309
)
Change in:
 
 
 
Accrued interest receivable
(87,103
)
 
25,395

Prepaid expenses and other assets
57,473

 
7,062

Advance payments by borrowers for taxes and insurance
(189,385
)
 
(246,458
)
Accrued interest payable
144,731

 
96,874

Accrued expenses and other liabilities
(196,450
)
 
(96,366
)
Income tax receivable
6,647

 
40,320

Net cash used in operating activities
(142,507
)
 
(38,794
)
Cash flows from investing activities:
 
 
 
Proceeds from maturity of time deposits in other financial institutions
984,307

 
1,719,298

Purchase of time deposits in other financial institutions
(980,000
)
 
(1,719,000
)
Proceeds from calls and maturities of investment securities available-for-sale
260,000

 
1,455,555

Proceeds from sale of investment securities available-for-sale
1,700,899

 
2,121,241

Purchase of investment securities available-for-sale
(998,350
)
 
(7,372,195
)
Purchase of loans
(5,396,137
)
 

Net change in loans receivable
(2,315,483
)
 
1,585,210

Net change in FHLB stock
373,200

 
(6,600
)
Proceeds from sale of land

 
685,818

Purchase of office property and equipment
(2,587
)
 

Net cash used in investing activities
(6,374,151
)
 
(1,530,673
)
Cash flows from financing activities:
 
 
 
Net change in deposits
5,539,439

 
11,751

Net change in FHLB advances
(9,500,000
)
 

Dividends paid
(120,547
)
 
(120,171
)
Net cash used in financing activities
(4,081,108
)
 
(108,420
)
Net decrease in cash and cash equivalents
(10,597,766
)
 
(1,677,887
)
Cash and cash equivalents at beginning of year
14,762,631

 
5,982,400

Cash and cash equivalents at end of quarter
$
4,164,865

 
$
4,304,513

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
183,400

 
$
144,932

Taxes on income

 

Noncash investing activities:
 
 
 
Transfers to other real estate owned from loans

 
104,929

Loans to finance the sale of other real estate owned

 
26,267


See notes to consolidated financial statements.

5



WCF Bancorp, Inc. and Subsidiaries
Form 10-Q


Notes to Consolidated Financial Statements (unaudited)

(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements of WCF Bancorp, Inc. (the Company), and its wholly owned subsidiaries, WCF Financial Bank (the Bank) and Webster City Federal Service Corp, have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with Securities and Exchange Commission (SEC) rules and regulations. Accordingly, the statements do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto that were included in the Company’s annual report for the year ended December 31, 2018. The consolidated balance sheet of the Company as of December 31, 2018 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain reclassifications, none of each were material, have been made to conform prior year financial statements to the March 31, 2019 presentation. These reclassifications did not change previously reported net income or stockholders' equity. All significant intercompany transactions are eliminated in consolidation. In the opinion of the Company’s management, all adjustments necessary (i) for a fair presentation of the financial statements for the interim periods included herein and (ii) to make such financial statements not misleading have been made and are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from the estimates. For further information with respect to significant accounting policies followed by the Company in preparation of the financial statements, refer to the Company’s annual report for the year ended December 31, 2018.
As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of March 31, 2019, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

Prior to July 1, 2018, the Bank was a federally chartered bank regulated by The Office of the Comptroller of Currency. The Bank converted its charter and is now an Iowa state chartered commercial bank and a member of the Federal Home Loan Bank (FHLB) system. The Bank maintains insurance on deposits accounts with the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC).
Organization and Business
WCF Bancorp, Inc. (the Company) is an Iowa-chartered corporation organized in 2016 to be the successor to Webster City Federal Bancorp, a federal corporation (Old Bancorp) upon completion of the second-step conversion of WCF Financial M.H.C. from the mutual holding company to the stock holding company form of organization. WCF Financial M.H.C. (the MHC) was the former mutual holding company for Old Bancorp prior to the completion of the second-step conversion. In conjunction

6



with the second-step conversion, each of the MHC and Old Bancorp ceased to exist. The second-step conversion was completed on July 13, 2016.
The Company's principal business is the ownership and operation of the Bank. The Bank is a community bank and its deposits are insured by the FDIC. The primary business of the Bank is accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in real estate loans secured by one-to-four family residences. The Company and Bank are in the process of expanding its Commercial Real Estate offerings by adding commercial banking staff to support expansion into commercial banking. We also invest in investment securities. Our primary lending area is broader than our primary deposit market area and includes north central and northeastern Iowa. Our revenues are derived principally from interest on loans and securities, and from loan origination and servicing fees. Our primary sources of funds are deposits, principal and interest payments on loans and securities and advances from the FHLB. As a state savings bank, WCF Financial Bank is subject to comprehensive regulation and examination by the Federal Deposit Insurance Company (the FDIC) and the Iowa Division of Banking. As a savings and loan holding company, the Company is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve Board).
The primary business of WCF Financial Service Corp (the Service Corp), a wholly-owned subsidiary of the Bank, was the sale of credit life and disability insurance products that were previously disallowed by savings and loan regulations. Currently the Service Corp is inactive.

Investment Securities
Investment securities are classified based on the Company’s intended holding period. Securities that may be sold prior to maturity to meet liquidity needs, to respond to market changes, or to adjust the Company’s asset-liability position are classified as available-for-sale. Currently, all securities are classified as available-for-sale.
Securities available-for-sale are carried at fair value, with the aggregate unrealized gains or losses, net of the effect of taxes on income, reported as accumulated other comprehensive income or loss. Other-than-temporary impairment is recorded in net income. The Company’s net income reflects the full impairment (that is, the difference between the security’s amortized cost basis and fair value), if any, on debt securities that the Company intends to sell, or would more likely than not be required to sell, before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell, and believes that it will not more likely than not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in net income, while the rest of the fair value loss is recognized in other comprehensive income. The credit loss component recognized in net income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using the Company’s cash flow projections using its base assumptions.
A decline in the fair value of any available-for-sale security below cost and that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount by fair value for the credit portion of the loss. The impairment is charged to net income and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability to hold and lack of intent to sell the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, and the general market conditions.
Net realized gains or losses are shown in the consolidated statements of income in the noninterest income line using the specific identification method. There were $10,509 in net realized gains and $14,465 in net realized losses for the three months ended March 31, 2019 and 2018, respectively.


7



Loans Receivable, Net
Loans receivable are stated at the amount of unpaid principal, reduced by the allowance for loan losses, deferred loan fees and discounts on loans purchased. Loans receivable are charged against the allowance when management believes collectability of principal is unlikely.
Interest on loans receivable is accrued and credited to operations based primarily on the principal amount outstanding. Certain loan balances include unearned discounts, which are recorded as income over the term of the loan.
Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other impaired loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms.  Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, if accrued in the current year, or charged to the allowance for loan losses, if accrued in the prior year.  Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. 
Accrued interest receivable on loans receivable that become more than 90 days in arrears is charged to an allowance that is established by a charge to interest income. Interest income is subsequently recognized only to the extent cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is reasonably assured, in which case the loan is returned to accrual status.
Under the Company’s credit policies, commercial loans are considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate except, where more practical, at the observable market price of the loan or the fair value of the collateral, if the loan is collateral dependent.
Allowance for Loan Losses
The allowance for loan losses is based on management’s periodic evaluation of the loan portfolio and reflects an amount that, in management’s opinion, is appropriate to absorb probable losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, value of underlying collateral, and management’s estimate of probable credit losses.
Taxes on Income
Deferred income taxes are provided under the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties on unrecognized tax benefits are classified as other noninterest expense.

8



Regulatory Environment
The Company is subject to regulations of certain state and federal agencies, including periodic examinations by those regulatory agencies. The Company and the Bank are also subject to minimum regulatory capital requirements. At March 31, 2019 and December 31, 2018, capital levels exceeded minimum capital requirements (see Note 6).
Investment in Affiliate
The Company records its investment in an affiliate, New Castle Players, LLC, in which it has a 27.17% interest, using the equity method of accounting. The affiliate holds an investment in a local hotel in Webster City, Iowa. The Company records the value of its investment at period-end based on the affiliate’s most current available financial statements. The investment in affiliate is analyzed annually. If impairment is determined to be other-than-temporary, the carrying amount is written down to fair value. The investment is included as a component of prepaid expenses and other assets on the consolidated balance sheets, while the equity income earned is included as a component of other noninterest income on the consolidated statements of income. Summary unaudited financial information of the affiliate as of and for the three months ended March 31, 2019 and 2018 is presented below.
 
As of and For the
 
Three Months Ended
March 31,
 
2019
 
2018
Current assets
$
153,125

 
$
136,150

Long-term assets
1,631,944

 
1,669,687

Current liabilities
184,389

 
86,294

Total equity
1,600,680

 
1,719,544

Total revenue
996,735

 
924,323

Net income
159,957

 
140,603


















9



Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for the three months ended March 31, 2019 and 2018 is presented below.
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
Net (loss) income
$
(15,223
)
 
$
284,524

 
 
 
 
 
 
Weighted average common shares outstanding and diluted common shares outstanding
2,417,143

 
2,410,295

 
 
 
 
 
 
Basic earnings (losses) per common share
$
(0.01
)
 
$
0.12

 
Diluted earnings (losses) per common share
$
(0.01
)
 
$
0.12

 
 
 
 
 
 
Unearned Employee Stock Ownership Plan (ESOP) shares are not considered outstanding and are therefore not taken into account when computing earnings per share. Unearned ESOP shares are presented as a reduction to stockholders’ equity and represent shares to be allocated to ESOP participants in future periods for services provided to the Company. ESOP shares that have been committed to be released are considered outstanding and included for the purposes of computing basic and diluted earnings per share. 
Employee Stock Ownership Plan
The Company has an employee stock ownership plan (ESOP) covering substantially all employees. The cost of shares issued to the ESOP but not yet allocated to the participants is presented in the consolidated balance sheet as a reduction of stockholders' equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts and dividends paid for unallocated shares.

The shares of stock purchased by the ESOP are held in a suspense account until they are released for allocation among participants. The shares will be released annually from the suspense account and the released shares will be allocated to the participants on the basis of each participant’s compensation for the year of allocation. As shares are released from collateral, the Company recognizes compensation expense equal to the average market price of the shares during the period and the shares will be outstanding for earnings-per-share purposes. The shares not released are reported as unearned ESOP shares in the stockholders’ equity section on the consolidated balance sheets. At March 31, 2019 there were 22,249 allocated shares and 148,890 unallocated shares.   The fair value of unallocated ESOP shares at March 31, 2019 was $1,228,000.

Subsequent Events
The Company has evaluated subsequent events through May 14, 2019, which is the date the consolidated financial statements were issued. There are no subsequent events requiring recognition or disclosure in the consolidated financial statements by the Company.

Current Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. This update is effective for interim and annual periods beginning after December 15, 2018. The Company adopted the guidance

10



effective January 1, 2019, using the modified retrospective method. The Company's revenue is primarily composed of interest income on financial instruments, including investment securities and loans, which are excluded from the scope of this update. Also excluded from the scope of the update is revenue from bank-owned life insurance, loan fees and letter of credit fees. Deposit account related fees, including service charges, debit card usage fees, overdraft fees and wire transfer fees are within the scope of the guidance; however, revenue recognition practices did not change under the guidance, as deposit agreements are considered day-to-day contracts. Deposit account transaction related fees will continue to be recognized as the services are performed. Other noninterest income sources of revenue are considered immaterial. Implementation of the guidance did not change current business practices. Implementation of the guidance did not have a material impact on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects or recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entities' other deferred tax assets. This update was effective for the Company interim and annual periods beginning after December 15, 2018. The Company adopted the guidance effective January 1, 2019, using the modified retrospective method. Upon adoption, the fair value of the Company's loan portfolio is now presented using an exit price method. Also, the Company is no longer required to disclose the methodologies used for estimating fair value of financial assets and liabilities that are not measured at fair value on a recurring or nonrecurring basis. The remaining requirements of this update did not have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for leases with terms more than 12 months. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2018. The Company currently has no leases. In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements, which amends ASC 842, Leases. This update provides for an adoption option that will not require earlier periods to be restated at the adoption date. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This is in contrast to existing guidance whereby credit losses generally are not recognized until they are incurred. This update will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon

11



transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendment in this update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the December 22, 2017, enactment of Public Law 115-97, commonly know as the Tax Cut and Jobs Act (Tax Act), which reduced the federal corporate income tax rate and became effective in 2018. For public companies, the update was effective for annual periods beginning after December 15, 2018, with early adoption permitted. The amendment can be adopted at the beginning of the period or on a retrospective basis. The Company adopted the amendment effective January 1, 2018, using the beginning of period method. The reclassified amount was $61,135.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for interim and annual periods in fiscal years beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis, and the new disclosures will be adopted on a prospective basis. The adoption will not have a material effect on the Company's consolidated financial statements.



(2) Securities Available-for-Sale
Securities available-for-sale at March 31, 2019 and December 31, 2018 were as follows:
Description
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
March 31, 2019:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
3,740,704

 
$
10,227

 
$
12,816

 
$
3,738,115

Mortgage-backed securities*
 
25,146,794

 
6,741

 
600,019

 
24,553,516

Municipal bonds
 
13,805,897

 
70,014

 
81,125

 
13,794,786

Corporate bonds
 
998,364

 
13,919

 

 
1,012,283

 
 
$
43,691,759

 
$
100,901

 
$
693,960

 
$
43,098,700

December 31, 2018:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
3,740,431

 
$
8,531

 
$
34,913

 
$
3,714,049

Mortgage-backed securities*
 
26,511,033

 
3,911

 
866,060

 
25,648,884

Municipal bonds
 
14,484,479

 
29,095

 
254,466

 
14,259,108

 
 
$
44,735,943

 
$
41,537

 
$
1,155,439

 
$
43,622,041

*All mortgage-backed securities are issued by FNMA, FHLMC, or GNMA and are backed by residential mortgage loans.
The amortized cost and estimated fair value of securities available-for-sale at March 31, 2019 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

12



 
March 31, 2019
 
Amortized
cost
 
Fair value
Due in one year or less
$
2,926,752

 
$
2,936,795

Due after one year through five years
1,981,826

 
1,996,468

Due after five years, but less than ten years
7,299,136

 
7,291,215

Due after ten years
5,338,887

 
5,308,423

 
17,546,601

 
17,532,901

Mortgage-backed securities
25,146,794

 
24,553,516

Corporate bonds
998,364

 
1,012,283

 
$
43,691,759

 
$
43,098,700


The details of the sales of investment securities for the three months ended March 31, 2019 and 2018 are summarized in the following table.
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
Proceeds from sales
$
1,700,899

 
$
2,121,241

 
Gross gains on sales
11,073

 

 
Gross losses on sales
564

 
14,465

 
At March 31, 2019 and December 31, 2018, accrued interest receivable for securities available-for-sale totaled $331,443 and $231,087, respectively.

13



The following tables show the Company’s available-for-sale investments’ gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$

 
$

 
$
1,227,888

 
$
12,816

 
$
1,227,888

 
$
12,816

Mortgage-backed securities
1,719,658

 
14,131

 
20,661,492

 
585,888

 
22,381,150

 
600,019

Municipal bonds

 

 
8,017,017

 
81,125

 
8,017,017

 
81,125

Total
$
1,719,658

 
$
14,131

 
$
29,906,397

 
$
679,829

 
$
31,626,055

 
$
693,960

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$

 
$

 
$
1,205,518

 
$
34,913

 
$
1,205,518

 
$
34,913

Mortgage-backed securities
3,393,192

 
36,192

 
20,903,713

 
829,868

 
24,296,905

 
866,060

Municipal bonds
4,400,121

 
102,524

 
6,694,327

 
151,942

 
11,094,448

 
254,466

Total
$
7,793,313

 
$
138,716

 
$
28,803,558

 
$
1,016,723

 
$
36,596,871

 
$
1,155,439

The Company’s assessment of other‑than‑temporary impairment is based on its reasonable judgment of the specific facts and circumstances impacting each individual security at the time such assessments are made. The Company reviews and considers factual information, including expected cash flows, the structure of the security, the credit quality of the underlying assets, and the current and anticipated market conditions.
The Company does not intend to sell its available-for-sale investment securities and it is not likely that the Company will be required to sell them before the recovery of its cost. Due to the issuers’ continued satisfactions of their obligations under the securities in accordance with their contractual terms and the expectation that they will continue to do so, and management’s intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, the Company believes that the investment securities identified in the tables above were temporarily impaired as of March 31, 2019 and December 31, 2018.

14



(3)
Loans Receivable
At March 31, 2019 and December 31, 2018, loans receivable consisted of the following segments:
 
March 31, 2019
 
December 31, 2018
Loans:
 
 
 
One-to-four family residential
$
56,541,012

 
$
52,335,005

Non-owner occupied one-to-four family residential
3,211,965

 
3,013,417

Commercial real estate
5,367,251

 
2,162,851

Consumer
6,911,695

 
6,801,419

Total loans receivable
72,031,923

 
64,312,692

Premiums on loans purchased
16,284

 
30,318

Deferred loan costs (fees)
(31,581
)
 
(28,042
)
Allowance for loan losses
(528,958
)
 
(508,920
)
 
$
71,487,668

 
$
63,806,048

Accrued interest receivable on loans receivable was $180,569 and $193,822 at March 31, 2019 and December 31, 2018, respectively.
The loan portfolio included $40.3 million of fixed rate loans as of March 31, 2019 and $39.1 million as of December 31, 2018. The loan portfolio also included $31.7 million and $25.2 million of variable rate loans as of March 31, 2019 and December 31, 2018, respectively.
The Company originates residential, commercial real estate loans and other consumer loans, primarily in its Hamilton County, and Buchanan County, Iowa market areas and their adjacent counties. A substantial portion of its borrowers’ ability to repay their loans is dependent upon economic conditions in the Company’s market area.

15



Allowance for Loan Losses
The following tables present the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
367,973

 
13,245

 
53,218

 
94,522

 
528,958

Total
$
367,973

 
$
13,245

 
$
53,218

 
$
94,522

 
$
528,958

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
56,541,012

 
3,211,965

 
5,367,251

 
6,911,695

 
72,031,923

Total
$
56,541,012

 
$
3,211,965

 
$
5,367,251

 
$
6,911,695

 
$
72,031,923

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
407,086

 
13,252

 
19,110

 
69,472

 
508,920

Total
$
407,086

 
$
13,252

 
$
19,110

 
$
69,472

 
$
508,920

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
52,335,005

 
3,013,417

 
2,162,851

 
6,801,419

 
64,312,692

Total
$
52,335,005

 
$
3,013,417

 
$
2,162,851

 
$
6,801,419

 
$
64,312,692



16



Activity in the allowance for loan losses by segment for the three months ended March 31, 2019 and 2018 is summarized in the following tables:
 
Three months ended March 31, 2019
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
*
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
407,086

 
$

 
$

 
$
(39,113
)
 
$
367,973

Non-owner occupied one-to-four family residential
13,252

 

 

 
(7
)
 
13,245

Commercial real estate
19,110

 

 

 
34,108

 
53,218

Consumer
69,472

 
9,962

 

 
35,012

 
94,522

Total
$
508,920

 
$
9,962

 
$

 
$
30,000

 
$
528,958

 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
*
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
393,341

 
$

 
$

 
$
8,969

 
$
402,310

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

 

 

 
1,000

 
26,893

Commercial real estate
33,204

 

 

 
(949
)
 
32,255

Consumer
85,881

 
792

 

 
10,480

 
95,569

Total
$
538,319

 
$
792

 
$

 
$
19,500

 
$
557,027

* The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.
(a)
Loan Portfolio Segment Risk Characteristics
One-to-four family residential: The Company generally retains most residential mortgage loans that are originated for its own portfolio. The market value of real estate securing residential real estate loans can fluctuate as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in the Company’s market could increase credit risk associated with its loan portfolio. Additionally, real estate lending typically involves large loan principal amounts and the repayment of the loans generally is dependent, in large part, on the borrower’s continuing financial stability, and is therefore more likely to be affected by adverse personal circumstances.
Non-owner occupied one-to-four family residential: The Company originates fixed-rate and adjustable-rate loans secured by non-owner occupied one-to-four family properties. These loans may have a term of up to 25 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In deciding to originate a loan secured by a non-owner occupied one-to-four family residential property, management reviews the creditworthiness of the borrower and the expected cash flows from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. This segment is generally secured by one-to-four family properties.
Commercial real estate: On a very limited basis, the Company originates fixed-rate and adjustable-rate commercial real estate and land loans. These loans may have a term of up to 20 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. This segment is generally secured by retail, industrial, service or other commercial properties and loans secured by raw land, including timber.

17



Consumer: Consumer loans typically have shorter terms, lower balances, higher yields, and higher rates of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. This segment consists mainly of loans collateralized by automobiles. The collateral securing these loans, may depreciate over time, may be difficult to recover and may fluctuate in value based on condition.
(b)
Charge‑off Policy
The Company requires a loan to be at least partially charged off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.
(c)
Troubled Debt Restructurings (TDR)
All loans deemed troubled debt restructurings, or “TDR”, are considered impaired, and are evaluated for collateral sufficiency. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. There were no new troubled debt restructurings in the first three months of 2019 and 2018.
(d)
Loans Measured Individually for Impairment
Loans that are deemed to be impaired are reserved for with the necessary allocation. All loans deemed troubled debt restructurings are considered impaired. Generally loans for 1-4 family residential and consumer are collectively evaluated for impairment.
(e)
Loans Measured Collectively for Impairment
All loans not evaluated individually for impairment are grouped together by type and further segmented by risk classification. The Company’s historical loss experiences for each portfolio segment are calculated using a 12 quarter rolling average loss rate for estimating losses adjusted for qualitative factors. The qualitative factors consider economic and business conditions, changes in nature and volume of the loan portfolio, concentrations, collateral values, level and trends in delinquencies, external factors, lending policies, experience of lending staff, and monitoring of credit quality.

18



The following tables set forth the composition of each class of the Company’s loans by internally assigned credit quality indicators.
 
Pass
 
Special
mention/watch
 
Substandard
 
Doubtful
 
Total
March 31, 2019:
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
55,049,481

 
$
1,041,190

 
$
450,341

 
$

 
$
56,541,012

Non-owner occupied one-to-four family residential
3,069,186

 
142,779

 

 

 
3,211,965

Commercial real estate
5,367,251

 

 

 

 
5,367,251

Consumer
6,799,104

 
106,904

 
5,687

 

 
6,911,695

Total
$
70,285,022

 
$
1,290,873

 
$
456,028

 
$

 
$
72,031,923

 
 
 
 
 
 
 
 
 
 
 
Pass
 
Special
mention/watch
 
Substandard
 
Doubtful
 
Total
December 31, 2018:
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
50,712,926

 
$
1,041,019

 
$
581,060

 
$

 
$
52,335,005

Non-owner occupied one-to-four family residential
2,876,981

 
136,436

 

 

 
3,013,417

Commercial real estate
2,162,851

 

 

 

 
2,162,851

Consumer
6,301,242

 
436,522

 
63,655

 

 
6,801,419

Total
$
62,054,000

 
$
1,613,977

 
$
644,715

 
$

 
$
64,312,692

Special Mention/Watch – Loans classified as special mention/watch are assets that do not warrant adverse classification but possess credit deficiencies or potential weakness deserving close attention.
Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable, and improbable.
The Company had no impaired loans as of March 31, 2019 and December 31, 2018. No interest income was recorded on impaired loans during 2019 or 2018.
(f)
Nonaccrual and Delinquent Loans
Loans are placed on nonaccrual status when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 or more (unless the loan is well secured with marketable collateral) and in the process of collection.
A nonaccrual asset may be restored to an accrual status when all past-due principal and interest has been paid and the borrower has demonstrated satisfactory payment performance (excluding renewals and modifications that involve the capitalizing of interest).

19



Delinquency status of a loan is determined by the number of days that have elapsed past the loan’s payment due date, using the following classification groupings: 30-59 days, 60-89 days, and 90 days or more. Loans shown in the 30‑59 day’s and 60‑89 day’s columns in the table below reflect contractual delinquency status only, and include loans considered nonperforming due to classification as a TDR or being placed on nonaccrual.
The following tables set forth the composition of the Company’s past-due loans at March 31, 2019 and December 31, 2018.
 
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total loans receivable
 
Recorded investment > 90 days and accruing
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
558,307

 
$
155,244

 
$
450,341

 
$
1,163,892

 
$
55,377,120

 
$
56,541,012

 
$

Non-owner occupied one-to-four family residential
6,865

 

 

 
6,865

 
3,205,100

 
3,211,965

 

Commercial real estate

 

 

 

 
5,367,251

 
5,367,251

 

Consumer
34,810

 
19,762

 
5,687

 
60,259

 
6,851,436

 
6,911,695

 

Total
$
599,982

 
$
175,006

 
$
456,028

 
$
1,231,016

 
$
70,800,907

 
$
72,031,923

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total loans receivable
 
Recorded investment > 90 days and accruing
December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
706,658

 
$
283,116

 
$
369,058

 
$
1,358,832

 
$
50,976,173

 
$
52,335,005

 
$

Non-owner occupied one-to-four family residential

 

 

 

 
3,013,417

 
3,013,417

 

Commercial real estate

 

 

 

 
2,162,851

 
2,162,851

 

Consumer
229,899

 
23,400

 
63,655

 
316,954

 
6,484,465

 
6,801,419

 

Total
$
936,557

 
$
306,516

 
$
432,713

 
$
1,675,786

 
$
62,636,906

 
$
64,312,692

 
$

The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
December 31, 2018
Loans
 
 
 
One-to-four family residential
$
551,940

 
$
581,060

Non-owner occupied one-to-four family residential

 

Commercial real estate

 

Consumer
5,687

 
63,655

Total
$
557,627

 
$
644,715


20



(4)
Deposits
At March 31, 2019 and December 31, 2018, deposits are summarized as follows:
 
March 31, 2019
 
December 31, 2018
Statement savings
$
13,797,178

 
$
13,461,826

Money market plus
11,213,186

 
11,153,339

NOW
18,437,407

 
18,214,876

Certificates of deposit
45,669,493

 
40,747,784

 
$
89,117,264

 
$
83,577,825


Included in the NOW accounts were $5.7 million and $4.6 million of non-interest bearing deposits as of March 31, 2019 and December 31, 2018, respectively.
(5)
Tax benefit and expense
        Taxes on income comprise the following:
 
March 31, 2019
 
Federal
 
State
 
Total
Current
$
26,654

 
$
(4,404
)
 
$
22,250

Deferred
(25,094
)
 
2,515

 
(22,579
)
 
$
1,560

 
$
(1,889
)
 
$
(329
)
 
 
 
 
 
 
 
March 31, 2018
 
Federal
 
State
 
Total
Current
$
25,933

 
$
14,300

 
$
40,233

Deferred
65,769

 

 
65,769

 
$
91,702

 
$
14,300

 
$
106,002


Taxes on income differ from the amounts computed by applying the federal income tax rate of 21% to earnings before taxes on income for the following reasons, expressed in dollars:
 
March 31, 2019
 
March 31, 2018
Federal (benefit) tax at statutory rate
$
(3,266
)
 
$
82,010

Items affecting federal income tax rate:
 
 
 
State taxes on income, net of federal benefit
(1,492
)
 
11,297

Tax-exempt income
(10,057
)
 
(11,840
)
Bank-owned life insurance
(4,595
)
 
(4,895
)
Valuation allowance

 
2,000

Other
19,081

 
27,430

 
$
(329
)
 
$
106,002


Federal income tax expense for the periods ended March 31, 2019 and December 31, 2018 was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the Bank.

21



The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at March 31, 2019 and December 31, 2018 are presented below:
 
 
March 31, 2019
 
December 31, 2018
Deferred tax assets:
 
 
 
 
Deferred directors’ fees
 
$
178,000

 
$
185,000

Allowance for loan losses
 
132,000

 
127,000

Net operating loss carryforward
 
210,000

 
191,000

AMT credit
 
8,680

 
17,360

Charitable contribution
 
59,000

 
59,000

Professional fees
 
43,000

 
44,000

Securities available for sale
 
134,113

 
274,549

Other
 
32,181

 
19,922

Gross deferred tax assets
 
796,974

 
917,831

Valuation allowance
 
(88,000
)
 
(88,000
)
Net deferred tax assets
 
708,974

 
829,831

 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Prepaid expenses
 
(14,000
)
 
(14,000
)
FHLB stock dividends
 
(25,000
)
 
(25,000
)
Fixed assets
 
(5,000
)
 
(8,000
)
Intangible assets
 
(14,000
)
 
(14,000
)
Gross deferred tax liabilities
 
(58,000
)
 
(61,000
)
Net deferred tax assets
 
$
650,974

 
$
768,831


Based upon the Company’s level of historical taxable income and anticipated future taxable income over the periods that the deferred tax assets are deductible, management has reviewed whether it is more likely than not the Company will realize the benefits of these deductible differences. Management has determined that a valuation allowance was required for deferred tax assets at March 31, 2019 and December 31, 2018, related to the charitable contribution carryforward and Iowa corporate net operating loss carryovers. The charitable contribution expires in varying amounts between 2020 and 2023.
As of December 31, 2018, the Company had no material unrecognized tax benefits. The evaluation was performed for those tax years that remain open to audit. The Company files a consolidated tax return for federal purposes and separate tax returns for the State of Iowa purposes.
Under previous law, the provisions of the IRS and similar sections of Iowa law permitted the Bank to deduct from taxable income an allowance for bad debts based on 8% of taxable income before such deduction or actual loss experience. Legislation passed in 1996 eliminated the percentage of taxable income method as an option for computing bad debt deductions for 1996 and in future years.
Deferred taxes have been provided for the difference between tax bad debt reserves and the loan loss allowances recorded in the financial statements subsequent to December 31, 1987. However, at March 31, 2019 and December 31, 2018, retained earnings contain certain historical additions to bad debt reserves for income tax purposes of approximately $2,134,000 as of December 31, 1987, for which no deferred taxes have been provided because the Bank does not intend to use these reserves for purposes other than to absorb losses. If these amounts which qualified as bad debt deductions are used for purposes other than to absorb bad debt losses or adjustments arising from the carryback of net operating losses, income taxes may be

22



imposed at the then-existing rates. The approximate amount of unrecognized tax liability associated with these historical additions is $523,000.
(6)
Stockholders’ Equity
(a)
Common Stock Repurchase
The Company repurchased no shares during the three months ended March 31, 2019 and 2018.
(b)
Regulatory Capital Requirements
The Company and WCF Financial Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and WCF Financial Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and WCF Financial Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes the Company and WCF Financial Bank met all capital adequacy requirements to which they were subject as of March 31, 2019 and December 31, 2018.
The Company’s and WCF Financial Bank’s capital amounts and ratios are presented in the following table as of March 31, 2019 and December 31, 2018 (dollars in thousands).
 
March 31, 2019
 
 
 
 
 
For capital adequacy
 
To be well-capitalized
 
 
 
 
 
with capital conservation
 
under prompt corrective
 
Actual
 
buffer purposes
 
action provisions
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
Tangible capital:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
$
28,440

 
21.79
%
 
$
5,221

 
4.00
%
 
n/a

 
n/a

WCF Financial Bank
19,606

 
15.80

 
4,965

 
4.00

 
$
6,206

 
5.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
28,458

 
46.88

 
4,247

 
7.000

 
3,944

 
6.50

WCF Financial Bank
19,606

 
33.00

 
4,159

 
7.000

 
3,862

 
6.50

 
 
 
 
 
 
 
 
 
 
 
 
Risk-based capital:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
28,969

 
47.75

 
6,370

 
10.500

 
6,067

 
10.00

WCF Financial Bank
20,135

 
33.89

 
6,239

 
10.500

 
5,942

 
10.00

 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 risk-based capital:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
28,440

 
46.88

 
5,157

 
8.500

 
4,854

 
8.00

WCF Financial Bank
19,606

 
33.00

 
5,051

 
8.500

 
4,754

 
8.00



23



 
December 31, 2018
 
 
 
 
 
 
 
 
 
To be well-capitalized
 
 
 
 
 
For capital adequacy
 
 under prompt corrective
 
Actual
 
purposes
 
action provisions
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
Tangible capital:
 
 
 
 
 
 
 
 
 
 
 
Consolidated
$
28,534

 
22.50
%
 
$
5,081