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,June 30, 2018

OR

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

For the transition period from _______________ to _______________

Commission File No. 001-37382

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

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

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

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

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

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


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

As of May 11,August 14, 2018, the Registrant had 2,561,542 shares of its common stock, par value $0.01 per share, issued and outstanding.

WCF Bancorp, Inc.
Form 10-Q

Index

    Page
Part I - Financial Information
     
Item 1 Consolidated Financial Statements  
     
  Consolidated Balance Sheets as of March 31,June 30, 2018 (unaudited) and December 31, 2017 
1
     
  Consolidated Statements of Income for the Three and Six Months Ended March 31,June 30, 2018 and 2017 (unaudited) 
2
     
  Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March 31,June 30, 2018 and 2017 (unaudited) 
3
     
  Consolidated Statements of Changes in Equity for the ThreeSix Months Ended March 31,June 30, 2018 and 2017 (unaudited) 
4
     
  Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 2018 and 2017 (unaudited) 
5
     
  Notes to Consolidated Financial Statements (unaudited) 
6
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 
2728
     
Item 3 Quantitative and Qualitative Disclosures about Market Risk 
3031
     
Item 4 Controls and Procedures 
3031
     
Part II - Other Information
     
Item 1 Legal Proceedings 
3132
     
Item 1A Risk Factors 
3132
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 
3132
     
Item 3 Defaults upon Senior Securities 
3132
     
Item 4 Mine Safety Disclosures 
3132
     
Item 5 Other Information 
3132
     
Item 6 Exhibits 
3132
     
  Signature Page 
3233

Part I – Financial Information

Item 1    Financial Statements

WCF Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31,June 30, 2018 (unaudited) and December 31, 2017
AssetsMarch 31, 2018 December 31, 2017June 30, 2018 December 31, 2017
Cash and due from banks$2,970,513
 $3,310,400
$2,538,248
 $3,310,400
Federal funds sold1,334,000
 2,672,000
914,000
 2,672,000
Cash and cash equivalents4,304,513
 5,982,400
3,452,248
 5,982,400
Time deposits in other financial institutions4,545,580
 4,545,878
3,316,282
 4,545,878
Securities available-for-sale, at fair value46,043,859
 43,129,481
44,141,527
 43,129,481
Loans receivable67,285,051
 68,949,715
65,588,876
 68,949,715
Allowance for loan losses(557,027) (538,319)(531,346) (538,319)
Loans receivable, net66,728,024
 68,411,396
65,057,530
 68,411,396
Federal Home Loan Bank (FHLB) stock, at cost710,000
 703,400
710,000
 703,400
Bankers' Bank stock, at cost147,500
 147,500
147,500
 147,500
Office property and equipment, net3,723,042
 3,791,429
3,712,729
 3,791,429
Deferred taxes on income746,514
 631,080
808,523
 631,080
Income taxes receivable—
 40,320
1,596
 40,320
Accrued interest receivable414,460
 439,855
418,494
 439,855
Goodwill55,148
 55,148
55,148
 55,148
Bank-owned life insurance3,161,422
 3,138,112
3,185,043
 3,138,112
Prepaid expenses and other assets1,017,328
 1,205,146
1,007,156
 1,205,146
Total assets$131,597,390
 $132,221,145
$126,013,776
 $132,221,145
Liabilities and Stockholders' Equity      
Deposits$87,751,945
 $87,740,194
$82,184,677
 $87,740,194
FHLB advances14,000,000
 14,000,000
14,000,000
 14,000,000
Advance payments by borrowers for taxes and insurance281,316
 527,774
559,789
 527,774
Accrued interest payable110,856
 13,983
29,436
 13,983
Accrued expenses and other liabilities1,413,314
 1,509,680
1,431,190
 1,509,680
Total liabilities103,557,431
 103,791,631
98,205,092
 103,791,631
Commitments and contingencies (Note 8)

 



 

Stockholders' equity:      
Common stock, $0.01 par value. Authorized 30,000,000 shares; 2,561,542 issued and outstanding at March 31, 2018 and December 31, 201725,615
 25,615
Common stock, $0.01 par value. Authorized 30,000,000 shares; 2,561,542 issued and outstanding at June 30, 2018 and December 31, 201725,615
 25,615
Additional paid-in capital14,215,017
 14,215,017
14,215,017
 14,215,017
Retained earnings, substantially restricted15,966,849
 15,758,825
15,873,134
 15,758,825
Accumulated other comprehensive loss(921,638) (310,367)(1,072,890) (310,367)
Unearned ESOP Shares(1,245,884) (1,259,576)(1,232,192) (1,259,576)
Total stockholders' equity28,039,959
 28,429,514
27,808,684
 28,429,514
Total liabilities and stockholders' equity$131,597,390
 $132,221,145
$126,013,776
 $132,221,145
      

See notes to consolidated financial statements.

WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
Three Months Ended
March 31,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2018 20172018 2017 2018 2017
Interest income:          
Loans receivable$739,664
 $722,826
$742,852
 $725,320
 $1,482,516
 $1,448,145
Investment securities - taxable160,729
 152,251
219,221
 153,198
 379,950
 305,449
Investment securities - tax exempt62,793
 72,505
55,338
 70,839
 118,131
 143,345
Other interest earning assets34,042
 19,565
37,194
 22,263
 71,236
 41,828
Total interest income997,228
 967,147
1,054,605
 971,620
 2,051,832
 1,938,767
Interest expense:       
 
Deposits164,381
 149,373
163,936
 148,731
 328,317
 298,104
FHLB advances77,425
 14,850
78,285
 15,248
 155,710
 30,098
Total interest expense241,806
 164,223
242,221
 163,979
 484,027
 328,202
Net interest income755,422
 802,924
812,384
 807,641
 1,567,805
 1,610,565
Provision for losses on loans19,500
 18,000
19,500
 18,000
 39,000
 36,000
Net interest income after provision for losses on loans735,922
 784,924
792,884
 789,641
 1,528,805
 1,574,565
Noninterest income:       
 
Fees and service charges96,132
 99,066
113,260
 117,703
 209,392
 216,769
Loss on sale of securities available-for-sale, net(14,465) —
—
 —
 (14,465) —
Increase in cash value - bank-owned life insurance23,309
 41,555
23,622
 25,531
 46,931
 67,086
Gain on sale of land435,818
 —
—
 —
 435,818
 —
Other (loss) income(9,923) 17,700
(4,884) 19,119
 (14,807) 36,819
Total noninterest income530,871
 158,321
131,998
 162,353
 662,870
 320,674
Noninterest expense:       
 
Compensation, payroll taxes, and employee benefits368,902
 368,802
387,506
 391,128
 756,408
 759,930
Advertising17,776
 18,747
17,335
 25,587
 35,111
 44,334
Office property and equipment107,903
 123,807
101,703
 107,596
 209,607
 231,403
Federal insurance premiums8,111
 7,949
8,506
 8,966
 16,617
 16,915
Data processing services123,327
 108,004
117,670
 118,130
 240,997
 226,134
Charitable contributions1,800
 905
450
 5,600
 3,086
 6,505
Other real estate expenses, net4,923
 2,214
7,117
 4,477
 12,040
 6,691
Dues and subscriptions10,797
 8,526
9,002
 7,868
 19,798
 16,394
Accounting, regulatory and professional fees139,137
 142,943
159,106
 192,986
 298,243
 335,929
Debit card expenses1,123
 2,197
1,500
 2,210
 2,623
 4,407
Other expenses92,468
 91,757
101,534
 90,838
 193,165
 182,594
Total noninterest expense876,267
 875,851
911,429
 955,386
 1,787,695
 1,831,236
Earnings before taxes on income390,526
 67,394
13,453
 (3,392) 403,980
 64,003
Tax expense (benefit)106,002
 (10,480)(13,003) (31,921) 92,999
 (42,400)
Net income$284,524
 $77,874
$26,456
 $28,529
 $310,981
 $106,403
Basic earnings per common share$0.12
 $0.03
$0.01
 $0.01
 $0.13
 $0.04
Diluted earnings per common share$0.12
 $0.03
$0.01
 $0.01
 $0.13
 $0.04


See notes to consolidated financial statements.


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

Three Months Ended
March 31,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2018
20172018
2017 2018 2017
Net income$284,524
 $77,874
$26,456
 $28,529
 $310,981
 $106,403
       
 
Other comprehensive (loss) income
 

 
 
 
Net change in unrealized gains or losses on securities(734,338) 32,379
(161,403) 436,172
 (895,741) 460,169
Reclassification adjustment for net gain realized in net income(14,465) —
Reclassification adjustment for net loss realized in net income—
 —
 (14,465) —
Income tax (expense) benefit181,203
 (18,125)10,150
 (159,688) 191,353
 (169,431)
Other comprehensive (loss) income(567,600) 14,254
(151,253) 276,484
 (718,853) 290,738
Comprehensive (loss) income$(283,076) $92,128
$(124,797) $305,013
 $(407,872) $397,141


See notes to consolidated financial statements.


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) TotalCommon stock Additional paid-in capital Retained earnings Unearned ESOP shares Accumulated other comprehensive income (loss) Total
Balance at December 31, 2016$25,615
 $14,201,795
 $16,354,380
 $(1,314,344) $(420,466) $28,846,980
$25,615
 $14,201,795
 $16,354,380
 $(1,314,344) $(420,466) $28,846,980
Net income—
 —
 77,874
 —
 —
 77,874
—
 —
 106,403
 —
 —
 106,403
Other comprehensive income—
 —
 —
 —
 14,254
 14,254
—
 —
 —
 —
 290,738
 290,738
Release of ESOP Shares—
 —
 —
 13,692
 —
 13,692
—
 —
 —
 27,384
 —
 27,384
Dividends paid on common stock,                      
$0.05 per common share—
 —
 (119,862) —
 —
 (119,862)—
 —
 (239,724) —
 —
 (239,724)
Balance at March 31, 2017$25,615
 $14,201,795
 $16,312,392
 $(1,300,652) $(406,212) $28,832,938
Balance at June 30, 2017$25,615
 $14,201,795
 $16,221,059
 $(1,286,960) $(129,728) $29,031,781
                      
Balance at December 31, 2017$25,615
 $14,215,017
 $15,758,825
 $(1,259,576) $(310,367) $28,429,514
$25,615
 $14,215,017
 $15,758,825
 $(1,259,576) $(310,367) $28,429,514
Net income—
 —
 284,524
 —
 —
 284,524
—
 —
 310,981
 —
 —
 310,981
Other comprehensive loss—
 —
 —
 —
 (567,600) (567,600)—
 —
 —
 —
 (718,853) (718,853)
Reclass of stranded tax effects of rate change—

—

43,671

—

(43,671)
—
—

—

43,670

—

(43,670)
—
Release of ESOP Shares—
 —
 —
 13,692
 —
 13,692
—
 —
 —
 27,384
 —
 27,384
Dividends paid on common stock,                      
$0.05 per common share—
 —
 (120,171) —
 —
 (120,171)—
 —
 (240,342) —
 —
 (240,342)
Balance at March 31, 2018$25,615
 $14,215,017
 $15,966,849
 $(1,245,884) $(921,638) $28,039,959
Balance at June 30, 2018$25,615
 $14,215,017
 $15,873,134
 $(1,232,192) $(1,072,890) $27,808,684
                      

See notes to the consolidated financial statements.


WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,Six Months Ended June 30,
2018 20172018 2017
Cash flows from operating activities:      
Net income$284,524
 $77,874
$310,981
 $106,403
Adjustments to reconcile net income to net cash provided by (used in) operating activities:      
Depreciation and amortization186,139
 208,034
292,104
 417,789
Provision for losses on loans19,500
 18,000
39,000
 36,000
ESOP expenses13,692
 13,692
27,384
 27,384
Deferred taxes on income65,769
 (9,000)13,911
 (49,632)
Loss on sales of securities14,465
 —
14,465
 —
Gain on sales of one-to-four family residential loans—
 (6,169)
Proceeds from sales of one-to-four family residential loans—
 271,296
Originations of one-to-four family residential loans—
 (265,127)
Loss (Gain) on sale of other real estate owned9,417
 (9,095)30,947
 (7,995)
Increase in cash value of bank-owned life insurance(23,309) (41,555)(46,931) (67,086)
Change in:      
Accrued interest receivable25,395
 9,343
21,361
 31,542
Prepaid expenses and other assets257,062
 (97,326)269,200
 (112,290)
Advance payments by borrowers for taxes and insurance(246,458) (201,760)32,015
 60,007
Accrued interest payable96,874
 82,974
15,453
 9,665
Accrued expenses and other liabilities(96,366) (129,908)(78,393) (92,506)
Income tax receivable40,320
 (1,480)38,724
 10,600
Net cash provided by (used in) operating activities647,024
 (80,207)
Net cash provided by operating activities980,221
 369,881
Cash flows from investing activities:      
Proceeds from maturity of time deposits in other financial institutions1,719,298
 1,474,297
3,683,595
 2,948,595
Purchase of time deposits in other financial institutions(1,719,000) (1,474,000)(2,454,000) (2,948,000)
Proceeds from calls and maturities of investment securities available-for-sale1,455,555
 1,514,080
3,059,116
 3,646,681
Proceeds from sale of investment securities available-for-sale2,121,241
 —
2,121,241
 —
Purchase of investment securities available-for-sale(7,372,195) (2,127,347)(7,352,182) (2,127,370)
Net change in loans receivable1,585,210
 (452,788)3,212,591
 (1,143,855)
Net change in FHLB stock(6,600) (8,600)(6,600) (8,600)
Net cash used in investing activities(2,216,491) (1,074,358)
Purchase of office property and equipment21,725
 (2,849)
Net cash provided by investing activities2,285,486
 364,602
Cash flows from financing activities:      
Net change in deposits11,751
 2,443,260
(5,555,517) 379,724
Dividends paid(120,171) (119,862)(240,342) (239,724)
Net cash (used in) provided by financing activities(108,420) 2,323,398
(5,795,859) 140,000
Net (decrease) increase in cash and cash equivalents(1,677,887) 1,168,833
(2,530,152) 874,483
Cash and cash equivalents at beginning of year5,982,400
 3,022,578
5,982,400
 3,022,578
Cash and cash equivalents at end of quarter$4,304,513
 $4,191,411
$3,452,248
 $3,897,061
Supplemental disclosures of cash flow information:      
Cash paid during the year for:      
Interest$144,932
 $81,249
$312,864
 $318,537
Noncash investing activities:      
Transfers to other real estate owned from loans104,929
 5,584
$135,542
 $39,357
Transfers to finance the sale of other real estate owned26,267
 67,095
33,267
 67,095

See notes to consolidated financial statements.


WCF Bancorp, Inc. and Subsidiaries
Form 10-Q


Notes to Consolidated Financial Statements (unaudited)

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

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


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


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 $14,465 and $0 ofno net realized gains or losses for the three months ended March 31,June 30, 2018 and 2017, respectively, and $14,465 of net realized losses and $0 for the six months ended June 30, 2018 and 2017, respectively.
Loans Receivable, Net
Loans receivable are stated at the amount of unpaid principal, reduced by the allowance for loan losses, deferred loan fees and discounts on loans purchased. Loans receivable are charged against the allowance when management believes collectability of principal is unlikely.
Interest on loans receivable is accrued and credited to operations based primarily on the principal amount outstanding. Certain loan balances include unearned discounts, which are recorded as income over the term of the loan.
Accrued interest receivable on loans receivable that become more than 90 days in arrears is charged to an allowance that is established by a charge to interest income. Interest income is subsequently recognized only to the extent cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is reasonably assured, in which case the loan is returned to accrual status.
Under the Company’s credit policies, commercial loans are considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate except, where more practical, at the observable market price of the loan or the fair value of the collateral, if the loan is collateral dependent.
Allowance for Loan Losses
The allowance for loan losses is based on management’s periodic evaluation of the loan portfolio and reflects an amount that, in management’s opinion, is appropriate to absorb probable losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, value of underlying collateral, and management’s estimate of probable credit losses.
Taxes on Income
Deferred income taxes are provided under the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties on unrecognized tax benefits are classified as other noninterest expense.




Regulatory Environment
The Company is subject to regulations of certain state and federal agencies, including periodic examinations by those regulatory agencies.the Federal Reserve Board. The Bank is also subject to regulation and examination by the OCC and is subject to minimum regulatory capital


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

$143,100
Long-term assets1,618,452

1,713,871
Current liabilities108,406

77,280
Total equity1,659,851

1,779,691
Total revenue474,932

414,080
Net Income79,127

60,751
Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for the three and six months ended March 31,June 30, 2018 and March 31,June 30, 2017 is presented below.
Three Months Ended
March 31,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2018 20172018 2017 2018 2017
Net income$284,524
 $77,874
$26,456
 $28,529
 $310,981
 $106,403
       
 
Weighted average common shares outstanding and diluted common shares outstanding2,410,295
 2,404,096
2,410,295
 2,404,096
 2,410,295
 2,404,096
       
 
Basic earnings per common share$0.12
 $0.03
$0.01
 $0.01
 $0.13
 $0.04
Diluted earnings per common share$0.12
 $0.03
$0.01
 $0.01
 $0.13
 $0.04
          
Unearned ESOP shares are not considered outstanding and are therefore not taken into account when computing earnings per share. Unearned ESOP shares are presented as a reduction to stockholders’ equity and represent shares to be allocated to ESOP participants in future periods for services provided to the Company. ESOP shares that have been committed to be released are considered outstanding and included for the purposes of computing basic and diluted earnings per share.


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

The shares of stock purchased by the ESOP are held in a suspense account until they are released for allocation among participants. The shares will be released annually from the suspense account and the released shares will be allocated to the participants on the basis of each participant’s compensation for the year of allocation. As shares are released from collateral, the Company recognizes compensation expense equal to the average market price of the shares during the period and the shares will be outstanding for earnings-per-share purposes. The shares not released are reported as unearned ESOP shares in the stockholders’ equity section on the consolidated balance sheets. At March 31,June 30, 2018 there were 13,69127,384 allocated shares and 157,447143,756 unallocated shares.   The fair value of unallocated ESOP shares at March 31,June 30, 2018 was approximately $1,533,000.


$1,232,000.

Subsequent Events
On AprilJuly 25, 2018, the board of directors declared a $0.05 per share cash dividend payable on May 25,August 28, 2018 to shareholders of record as of May 11,August 13, 2018.

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


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

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

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. The amendment in this update allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the December 22, 2017, enactment of


the reduced federal corporate income tax rate, which is effective in 2018, with early adoption permitted.
The amendment can be adopted at the beginning of the period or on a retrospective basis. The Company
adopted the amendment in the first quarter of 2018 using the beginning of the period option.



(2)Securities Available-for-Sale
Securities available-for-sale at March 31,June 30, 2018 and December 31, 2017 were as follows:
Description Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value
March 31, 2018:        
June 30, 2018:        
U.S. agency securities $1,239,623
 $—
 $43,404
 $1,196,219
 $1,239,890
 $—
 $46,749
 $1,193,141
Mortgage-backed securities* 31,397,455
 —
 864,774
 30,532,681
 29,669,859
 2,580
 1,018,572
 28,653,867
Municipal bonds 14,629,911
 28,937
 343,889
 14,314,959
 14,616,311
 28,727
 350,519
 14,294,519
 $47,266,989
 $28,937
 $1,252,067
 $46,043,859
 $45,526,060
 $31,307
 $1,415,840
 $44,141,527
December 31, 2017:                
U.S. agency securities $1,239,357
 $—
 $5,562
 $1,233,795
 $1,239,357
 $—
 $5,562
 $1,233,795
Mortgage-backed securities* 27,331,766
 —
 547,177
 26,784,589
 27,331,766
 —
 547,177
 26,784,589
Municipal bonds 15,050,942
 107,569
 47,414
 15,111,097
 15,050,942
 107,569
 47,414
 15,111,097
 $43,622,065
 $107,569
 $600,153
 $43,129,481
 $43,622,065
 $107,569
 $600,153
 $43,129,481
*All mortgage-backed securities are issued by FNMA, FHLMC, or GNMA and are backed by residential mortgage loans.






The amortized cost and estimated fair value of securities available-for-sale at March 31,June 30, 2018 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


March 31, 2018June 30, 2018
Amortized
cost
 Fair value
Amortized
cost
 Fair value
Due in one year or less$—
 $—
$—
 $—
Due after one year through five years1,089,477
 1,090,398
1,085,760
 1,086,183
Due after five years, but less than ten years7,200,981
 7,072,735
7,198,710
 7,072,507
Due after ten years7,579,076
 7,348,045
7,571,731
 7,328,970
15,869,534
 15,511,178
15,856,201
 15,487,660
Mortgage-backed securities31,397,455
 30,532,681
29,669,859
 28,653,867
$47,266,989
 $46,043,859
$45,526,060
 $44,141,527


The details of the sales of investment securities for the three and six months ended March 31,June 30, 2018 and 2017 are summarized in the following table.
Three Months Ended
March 31,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2018 20172018 2017 2018 2017
Proceeds from sales$2,121,241
 $—
$—
 $—
 $2,121,241
 —
Gross gains on sales—
 —
—
 —
 —
 —
Gross losses on sales14,465
 —
—
 —
 14,465
 —
At March 31,June 30, 2018 and December 31, 2017, accrued interest receivable for securities available-for-sale totaled approximately $235,000$213,000 and $221,000, respectively.


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,June 30, 2018 and December 31, 2017.
March 31, 2018June 30, 2018
Up to 12 months Greater than 12 months TotalUp to 12 months Greater than 12 months Total
Fair value Gross unrealized loss Fair value Gross unrealized loss Fair value Gross unrealized lossFair value Gross unrealized loss Fair value Gross unrealized loss Fair value Gross unrealized loss
U.S. agency securities$957,353
 $32,447
 $238,866
 $10,957
 $1,196,219
 $43,404
$953,916
 $36,120
 $239,225
 $10,629
 $1,193,141
 $46,749
Mortgage-backed securities4,683,175
 109,394
 21,023,017
 755,380
 25,706,192
 864,774
6,279,611
 122,161
 21,395,759
 896,411
 27,675,370
 1,018,572
Municipal bonds9,491,726
 255,685
 2,160,673
 88,204
 11,652,399
 343,889
9,066,442
 272,949
 2,166,890
 77,570
 11,233,332
 350,519
Total$15,132,254
 $397,526
 $23,422,556
 $854,541
 $38,554,810
 $1,252,067
$16,299,969
 $431,230
 $23,801,874
 $984,610
 $40,101,843
 $1,415,840
                      
December 31, 2017December 31, 2017
Up to 12 months Greater than 12 months TotalUp to 12 months Greater than 12 months Total
Fair value Gross unrealized loss Fair value Gross unrealized loss Fair value Gross unrealized lossFair value Gross unrealized loss Fair value Gross unrealized loss Fair value Gross unrealized loss
U.S. agency securities$989,537
 $29
 $244,248
 $5,533
 $1,233,785
 $5,562
$989,537
 $29
 $244,248
 $5,533
 $1,233,785
 $5,562
Mortgage-backed securities5,944,732
 80,034
 20,843,664
 467,143
 26,788,396
 547,177
5,944,732
 80,034
 20,843,664
 467,143
 26,788,396
 547,177
Municipal bonds4,913,243
 18,791
 2,224,660
 28,623
 7,137,903
 47,414
4,913,243
 18,791
 2,224,660
 28,623
 7,137,903
 47,414
Total$11,847,512
 $98,854
 $23,312,572
 $501,299
 $35,160,084
 $600,153
$11,847,512
 $98,854
 $23,312,572
 $501,299
 $35,160,084
 $600,153
The Company’s assessment of other‑than‑temporary impairment is based on its reasonable judgment of the specific facts and circumstances impacting each individual security at the time such assessments are made. The Company reviews and considers factual information, including expected cash flows, the structure of the security, the credit quality of the underlying assets, and the current and anticipated market conditions.
The Company does not intend to sell its available-for-sale investment securities and it is not likely that the Company will be required to sell them before the recovery of its cost. Due to the issuers’ continued satisfactions of their obligations under the securities in accordance with their contractual terms and the expectation that they will continue to do so, and management’s intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, the Company believes that the investment securities identified in the tables above were temporarily impaired as of March 31,June 30, 2018 and December 31, 2017.


(3)Loans Receivable
At March 31,June 30, 2018 and December 31, 2017, loans receivable consisted of the following segments:
March 31, 2018 December 31, 2017June 30, 2018 December 31, 2017
Loans:      
One-to-four family residential$54,965,103
 $56,091,358
$53,094,260
 $56,091,358
Non-owner occupied one-to-four family residential3,080,597
 3,116,832
3,163,463
 3,116,832
Commercial real estate3,107,105
 3,615,351
2,834,855
 3,615,351
Consumer6,140,573
 6,145,488
6,503,164
 6,145,488
Total loans receivable67,293,378
 68,969,029
65,595,742
 68,969,029
Discounts on loans purchased17,700
 10,650
17,486
 10,650
Deferred loan costs (fees)(26,027) (29,964)(24,352) (29,964)
Allowance for loan losses(557,027) (538,319)(531,346) (538,319)
$66,728,024
 $68,411,396
$65,057,530
 $68,411,396
Accrued interest receivable on loans receivable was $179,731$205,362 and $218,967 at March 31,June 30, 2018 and December 31, 2017, respectively.
The loan portfolio included approximately $40.0$39.6 million of fixed rate loans as of March 31,June 30, 2018 and $40.6 million as of December 31, 2017. The loan portfolio also included approximately $27.3$26.0 million and $28.4 million of variable rate loans as of March 31,June 30, 2018 and December 31, 2017, respectively.
The Company originates residential, commercial real estate loans and other consumer loans, primarily in its Hamilton County, and Buchanan County, Iowa market areas and their adjacent counties. A substantial portion of its borrowers’ ability to repay their loans is dependent upon economic conditions in the Company’s market area.


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,June 30, 2018 and December 31, 2017.
March 31, 2018June 30, 2018
One-to-four family residential Non-owner occupied on-to-four family residential 
Commercial
real estate
 Consumer TotalOne-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 impairment402,310
 26,893
 32,255
 95,569
 557,027
369,076
 26,650
 29,134
 106,486
 531,346
Total$402,310
 $26,893
 $32,255
 $95,569
 $557,027
$369,076
 $26,650
 $29,134
 $106,486
 $531,346
                  
Loans receivable:                  
Individually evaluated for impairment$—
 $—
 $275,515
 $—
 $275,515
$—
 $—
 $275,515
 $—
 $275,515
Collectively evaluated for impairment54,965,103
 3,080,597
 2,831,590
 6,140,573
 67,017,863
53,094,260
 3,163,463
 2,559,340
 6,503,164
 65,320,227
Total$54,965,103
 $3,080,597
 $3,107,105
 $6,140,573
 $67,293,378
$53,094,260
 $3,163,463
 $2,834,855
 $6,503,164
 $65,595,742
                  
December 31, 2017December 31, 2017
One-to-four family residential Non-owner occupied on-to-four family residential 
Commercial
real estate
 Consumer TotalOne-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 impairment393,341
 25,893
 33,204
 85,881
 538,319
393,341
 25,893
 33,204
 85,881
 538,319
Total$393,341
 $25,893
 $33,204
 $85,881
 $538,319
$393,341
 $25,893
 $33,204
 $85,881
 $538,319
                  
Loans receivable:                  
Individually evaluated for impairment$—
 $—
 $274,804
 $—
 $274,804
$—
 $—
 $274,804
 $—
 $274,804
Collectively evaluated for impairment56,091,358
 3,116,832
 3,340,547
 6,145,488
 68,694,225
56,091,358
 3,116,832
 3,340,547
 6,145,488
 68,694,225
Total$56,091,358
 $3,116,832
 $3,615,351
 $6,145,488
 $68,969,029
$56,091,358
 $3,116,832
 $3,615,351
 $6,145,488
 $68,969,029



Activity in the allowance for loan losses by segment for the three and six months ended March 31,June 30, 2018 and 2017 is summarized in the following tables:
Three months ended March 31, 2018Three months ended June 30, 2018
Beginning Balance Charge-offs Recoveries Provisions Ending BalanceBeginning Balance Charge-offs Recoveries Provisions Ending Balance
Loans:                  
One-to-four family residential$393,341
 $—
 $—
 $8,969
 $402,310
$402,310
 $19,276
 $2,423
 $(16,381)*$369,076
Non-owner occupied one-to-four family residential25,893
 —
 —
 1,000
 26,893
26,893
 —
 —
 (243)*26,650
Commercial real estate33,204
 —
 —
 (949)*32,255
32,255
 —
 —
 (3,121)*29,134
Consumer85,881
 792
 —
 10,480
 95,569
95,569
 28,328
 —
 39,245
 106,486
Total$538,319
 $792
 $—
 $19,500
 $557,027
$557,027
 $47,604
 $2,423
 $19,500
 $531,346
                  
Three months ended March 31, 2017Three months ended June 30, 2017
Beginning Balance Charge-offs Recoveries Provisions Ending BalanceBeginning Balance Charge-offs Recoveries Provisions Ending Balance
Loans:                  
One-to-four family residential$319,849
 $4,810
 $—
 $16,697
 $331,736
$331,736
 $6,135
 $133
 $792
 $326,526
Non-owner occupied one-to-four family residential28,231
 —
 —
 465
 28,696
28,696
 —
 —
 1,654
 30,350
Commercial real estate37,135
 —
 —
 3,664
 40,799
40,799
 —
 —
 (2,346)*38,453
Consumer101,899
 —
 71
 (2,826)*99,144
99,144
 13,923
 —
 17,900
 103,121
Total$487,114
 $4,810
 $71
 $18,000
 $500,375
$500,375
 $20,058
 $133
 $18,000
 $498,450
         
Six Months Ended June 30, 2018
Beginning Balance Charge-offs Recoveries Provisions Ending Balance
Loans:         
One-to-four family residential$393,341
 $19,276
 $2,423
 $(7,412)*$369,076
Non-owner occupied one-to-four family residential25,893
 —
 —
 757
 26,650
Commercial real estate33,204
 —
 —
 (4,070)*29,134
Consumer85,881
 29,120
 —
 49,725
 106,486
Total$538,319
 $48,396
 $2,423
 $39,000
 $531,346
         
Six Months Ended June 30, 2017
Beginning Balance Charge-offs Recoveries Provisions Ending Balance
Loans:         
One-to-four family residential$319,849
 $10,945
 $133
 $17,489
 $326,526
Non-owner occupied one-to-four family residential28,231
 $—
 $—
 $2,119
 $30,350
Commercial real estate37,135
 $—
 $—
 $1,318
 $38,453
Consumer101,899
 $13,923
 $71
 $15,074
 $103,121
Total$487,114
 $24,868
 $204
 $36,000
 $498,450
* The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.




(a)Loan Portfolio Segment Risk Characteristics
One-to-four family residential: The Company generally retains most residential mortgage loans that are originated for its own portfolio. The market value of real estate securing residential real estate loans can fluctuate as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in the Company’s market could increase credit risk associated with its loan portfolio. Additionally, real estate lending typically involves large loan principal amounts and the repayment of the loans generally is dependent, in large part, on the borrower’s continuing financial stability, and is therefore more likely to be affected by adverse personal circumstances.
Non-owner occupied one-to-four family residential: The Company originates fixed-rate and adjustable-rate loans secured by non-owner occupied one-to-four family properties. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In deciding to originate a loan secured by a non-owner occupied one-to-four family residential property, management reviews the creditworthiness of the borrower and the expected cash flows from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. This segment is generally secured by one-to-four family properties.
Commercial real estate: On a very limited basis, the Company originates fixed-rate and adjustable-rate commercial real estate and land loans. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In recent years, the Company has significantly reduced the emphasis on these types of loans and does not intend to emphasize these types of loans in the future. This segment is generally


secured by retail, industrial, service or other commercial properties and loans secured by raw land, including timber.
Consumer: Consumer loans typically have shorter terms, lower balances, higher yields, and higher rates of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. This segment consists mainly of loans collateralized by automobiles. The collateral securing these loans, may depreciate over time, may be difficult to recover and may fluctuate in value based on condition.
(b)Charge‑off Policy
The Company requires a loan to be at least partially charged off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.
(c)Troubled Debt Restructurings (TDR)
All loans deemed troubled debt restructurings, or “TDR”, are considered impaired, and are evaluated for collateral sufficiency. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. There were no new troubled debt restructurings in the first threesix months of 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.


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 TotalPass 
Special
mention/watch
 Substandard Total
March 31, 2018:       
June 30, 2018:       
Loans              
One-to-four family residential$53,376,724
 $1,012,128
 $576,251
 $54,965,103
$51,758,334
 $957,429
 $378,497
 $53,094,260
Non-owner occupied one-to-four family residential2,747,677
 17,691
 315,229
 3,080,597
2,849,866
 137,785
 175,812
 3,163,463
Commercial real estate2,795,889
 35,701
 275,515
 3,107,105
2,559,340
 —
 275,515
 2,834,855
Consumer5,873,314
 223,150
 44,109
 6,140,573
6,305,635
 187,908
 9,621
 6,503,164
Total$64,793,604
 $1,288,670
 $1,211,104
 $67,293,378
$63,473,175
 $1,283,122
 $839,445
 $65,595,742
              
Pass 
Special
mention/watch
 Substandard TotalPass 
Special
mention/watch
 Substandard Total
December 31, 2017:              
Loans              
One-to-four family residential$54,042,992
 $1,412,334
 $636,032
 $56,091,358
$54,042,992
 $1,412,334
 $636,032
 $56,091,358
Non-owner occupied one-to-four family residential2,782,817
 17,861
 316,154
 3,116,832
2,782,817
 17,861
 316,154
 3,116,832
Commercial real estate3,304,369
 36,178
 274,804
 3,615,351
3,304,369
 36,178
 274,804
 3,615,351
Consumer5,830,415
 252,722
 62,351
 6,145,488
5,830,415
 252,722
 62,351
 6,145,488
Total$65,960,593
 $1,719,095
 $1,289,341
 $68,969,029
$65,960,593
 $1,719,095
 $1,289,341
 $68,969,029
Special Mention/Watch – Loans classified as special mention/watch are assets that do not warrant adverse classification but possess credit deficiencies or potential weakness deserving close attention.
Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable, and improbable.


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


only, and include loans considered nonperforming due to classification as a TDR or being placed on nonaccrual.
The following tables set forth the composition of the Company’s past-due loans at March 31,June 30, 2018 and December 31, 2017.
30-59 days
past due		 60-89 days
past due		 90 days
or more
past due		 Total
past due		 Current Total loans receivable Recorded investment > 90 days and accruing30-59 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, 2018:             
June 30, 2018:             
Loans                          
One-to-four family residential$460,075
 $259,130
 $432,381
 $1,151,586
 $53,813,517
 $54,965,103
 $284,509
$342,544
 $249,985
 $329,062
 $921,591
 $52,172,669
 $53,094,260
 $—
Non-owner occupied one-to-four family residential—
 17,691
 176,858
 194,549
 2,886,048
 3,080,597
 —
—
 —
 175,812
 175,812
 2,987,651
 3,163,463
 —
Commercial real estate35,701
 —
 275,515
 311,216
 2,795,889
 3,107,105
 —
—
 —
 275,515
 275,515
 2,559,340
 2,834,855
 —
Consumer119,861
 61,271
 37,574
 218,706
 5,921,867
 6,140,573
 39,226
67,185
 92,483
 59,055
 218,723
 6,284,441
 6,503,164
 —
Total$615,637
 $338,092
 $922,328
 $1,876,057
 $65,417,321
 $67,293,378
 $323,735
$409,729
 $342,468
 $839,444
 $1,591,641
 $64,004,101
 $65,595,742
 $—
                          
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 Current Total loans receivable Recorded investment > 90 days and accruing
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 Current Total loans receivable Recorded investment > 90 days and accruing
December 31, 2017:                          
Loans                          
One-to-four family residential$566,234
 $542,356
 $491,792
 $1,600,382
 $54,490,976
 $56,091,358
 $341,167
$566,234
 $542,356
 $491,792
 $1,600,382
 $54,490,976
 $56,091,358
 $341,167
Non-owner occupied one-to-four family residential17,861
 177,037
 —
 194,898
 2,921,934
 3,116,832
 —
17,861
 177,037
 —
 194,898
 2,921,934
 3,116,832
 —
Commercial real estate36,178
 —
 274,804
 310,982
 3,304,369
 3,615,351
 —
36,178
 —
 274,804
 310,982
 3,304,369
 3,615,351
 —
Consumer171,789
 76,558
 54,568
 302,915
 5,842,573
 6,145,488
 57,267
171,789
 76,558
 54,568
 302,915
 5,842,573
 6,145,488
 57,267
Total$792,062
 $795,951
 $821,164
 $2,409,177
 $66,559,852
 $68,969,029
 $398,434
$792,062
 $795,951
 $821,164
 $2,409,177
 $66,559,852
 $68,969,029
 $398,434


The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of March 31,June 30, 2018 and December 31, 2017.
March 31, 2018 December 31, 2017June 30, 2018 December 31, 2017
Loans      
One-to-four family residential$147,872
 $150,625
$83,115
 $150,625
Commercial real estate275,515
 274,804
275,515
 274,804
Total$423,387
 $425,429
$358,630
 $425,429


(4)Deposits
At March 31,June 30, 2018 and December 31, 2017, deposits are summarized as follows:
March 31, 2018 December 31, 2017June 30, 2018 December 31, 2017
Statement savings$15,047,022
 $14,536,815
$15,413,006
 $14,536,815
Money market plus11,441,057
 11,749,674
11,126,752
 11,749,674
NOW18,999,009
 18,749,026
18,221,556
 18,749,026
Certificates of deposit42,264,857
 42,704,679
37,423,363
 42,704,679
$87,751,945
 $87,740,194
$82,184,677
 $87,740,194

Included in the NOW accounts were approximately $4.9$5.0 million and $4.6 million of non-interest bearing deposits as of March 31,June 30, 2018 and December 31, 2017, respectively.
(5)Taxes on Income
Taxes on income comprise the following:
March 31, 2018June 30, 2018
Federal State TotalFederal State Total
Current$25,933
 $14,300
 $40,233
$27,099
 $12,900
 $39,999
Deferred65,769
 —
 65,769
50,000
 3,000
 53,000
$91,702
 $14,300
 $106,002
$77,099
 $15,900
 $92,999
          
March 31, 2017June 30, 2017
Federal State TotalFederal State Total
Current$(230) $(1,250) $(1,480)$5,182
 $2,050
 $7,232
Deferred(14,000) 5,000
 (9,000)(50,632) 1,000
 (49,632)
$(14,230) $3,750
 $(10,480)$(45,450) $3,050
 $(42,400)

Taxes on income for the threesix months ending March 31,June 30, 2018, and 2017, differ from the amounts computed by applying the federal income tax rate of 21% and 34% respectively to earnings before taxes on income for the following reasons, expressed in dollars:
 March 31, 2018 March 31, 2017
Federal tax at statutory rate$82,010
 $22,905
Items affecting federal income tax rate:   
State taxes on income, net of federal benefit11,297
 2,475
Tax-exempt income(11,840) (22,144)
Bank-owned life insurance(4,895) (14,129)
Valuation allowance2,000
 11,000
Other27,430
 (10,587)
 $106,002
 $(10,480)



 June 30, 2018 June 30, 2017
Federal tax at statutory rate$84,836
 $21,761
Items affecting federal income tax rate:   
State taxes on income, net of federal benefit12,561
 2,013
Tax-exempt income(22,263) (43,749)
Bank-owned life insurance231
 (22,809)
Valuation allowance4,000
 13,000
Other13,634
 (12,616)
 $92,999
 $(42,400)

Federal income tax expense for the periods ended March 31,June 30, 2018 and December 31, 2017 was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the Bank.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at March 31,June 30, 2018 and December 31, 2017 are presented below:
March 31, 2018 December 31, 2017June 30, 2018 December 31, 2017
Deferred tax assets:      
Deferred directors’ fees$185,000
 $195,000
$197,000
 $195,000
Allowance for loan losses139,000
 134,000
133,000
 134,000
Net operating loss carryforward98,000
 165,000
135,000
 165,000
AMT credit34,720
 34,720
34,720
 34,720
Charitable contribution59,000
 59,000
59,000
 59,000
Professional fees48,000
 49,000
48,000
 49,000
Securities available-for-sale301,492
 121,082
351,523
 121,082
Fixed assets3,000
 —
(8,000) —
Other30,302
 23,278
12,280
 23,278
Gross deferred tax assets898,514
 781,080
962,523
 781,080
Valuation allowance(98,000) (96,000)(100,000) (96,000)
Net deferred tax assets800,514
 685,080
862,523
 685,080
Deferred tax liabilities:      
Prepaid expenses(14,000) (14,000)(14,000) (14,000)
FHLB stock dividends(25,000) (25,000)(25,000) (25,000)
Intangible assets(15,000) (15,000)(15,000) (15,000)
Gross deferred tax liabilities(54,000) (54,000)(54,000) (54,000)
Net deferred tax assets$746,514
 $631,080
$808,523
 $631,080

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


As of December 31, 2017, the Company had no material unrecognized tax benefits. The evaluation was performed for those tax years that remain open to audit. The Company files a consolidated tax return for federal purposes and separate tax returns for the State of Iowa purposes.
Under previous law, the provisions of the IRS and similar sections of Iowa law permitted the Bank to deduct from taxable income an allowance for bad debts based on 8% of taxable income before such deduction or actual loss experience. Legislation passed in 1996 eliminated the percentage of taxable income method as an option for computing bad debt deductions for 1996 and in future years.
Deferred taxes have been provided for the difference between tax bad debt reserves and the loan loss allowances recorded in the financial statements subsequent to December 31, 1987. However, at March 31,June 30, 2018 and December 31, 2017, retained earnings contain certain historical additions to bad debt reserves for income tax purposes of approximately $2,134,000$0 as of December 31, 1987, for which no deferred taxes have been provided because the Bank does not intend to use these reserves for purposes other than to absorb losses. If these amounts which qualified as bad debt deductions are used for purposes other than to absorb


bad debt losses or adjustments arising from the carryback of net operating losses, income taxes may be imposed at the then-existing rates. The approximate amount of unrecognized tax liability associated with these historical additions is $523,000.$0.
(6)Stockholders’ Equity
(a)Common Stock Repurchase
The Company repurchased no shares during the three and six months ended March 31,June 30, 2018 and 2017.
(b)Regulatory Capital Requirements
The Company and WCF Financial Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and WCF Financial Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and WCF Financial Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes the Company and WCF Financial Bank met all capital adequacy requirements to which they were subject as of March 31,June 30, 2018 and December 31, 2017.


The Company’s and WCF Financial Bank’s capital amounts and ratios are presented in the following table as of March 31,June 30, 2018 and December 31, 2017 (dollars in thousands).
March 31, 2018June 30, 2018
    For capital adequacy To be well-capitalized under    For capital adequacy To be well-capitalized under
    with capital conservation prompt corrective action    with capital conservation prompt corrective action
Actual buffer purposes provisionsActual buffer purposes provisions
Amount Percent Amount Percent Amount PercentAmount Percent Amount Percent Amount Percent
Tangible capital:                      
Consolidated$28,876
 23.60% $5,259
 4.00% N/A
 N/A
$28,802
 22.16% $5,197
 4.00% N/A
 N/A
WCF Financial Bank19,486
 15.70
 4,958
 4.00
 2,753
 5.00%19,575
 15.97
 4,902
 4.00
 6,127
 5.00%
                      
Common equity tier 1:                      
Consolidated28,876
 50.60
 3,511
 6.38
 3,665
 6.50
28,802
 53.29
 7,471
 6.38
 8,446
 6.50
WCF Financial Bank19,486
 35.40
 3,571
 6.38
 3,579
 6.50
19,575
 38.82
 7,046
 6.38
 7,965
 6.50
                      
Risk-based capital:                      
Consolidated29,433
 51.50
 5,571
 9.88
 5,638
 10.00
28,795
 53.28
 5,000
 9.88
 5,405
 10.00
WCF Financial Bank20,043
 36.40
 5,441
 9.88
 5,507
 10.00
19,568
 39.86
 4,662
 9.88
 5,040
 10.00
                      
Tier 1 risk-based capital:                      
Consolidated28,876
 50.60
 4,443
 7.88
 4,511
 8.00
28,802
 53.29
 3,919
 7.88
 4,324
 8.00
WCF Financial Bank19,486
 35.40
 4,339
 7.88
 4,405
 8.00
19,575
 38.82
 3,654
 7.88
 4,032
 8.00

 December 31, 2017
         To be well-capitalized under
     For capital adequacy prompt corrective action
 Actual purposes provisions
 Amount Percent Amount Percent Amount Percent
Tangible capital:           
Consolidated$28,657
 23.40% $4,897
 4.00% N/A
 N/A
WCF Financial Bank19,117
 16.50
 4,637
 4.00
 5,796
 5.00%
            
Common equity tier 1:           
Consolidated28,657
 50.20
 3,283
 5.75
 3,712
 6.50
WCF Financial Bank19,117
 34.50
 3,191
 5.75
 3,607
 6.50
            
Risk-based capital:           
Consolidated29,195
 51.10
 5,282
 9.25
 5,710
 10.00
WCF Financial Bank19,655
 35.40
 5,133
 9.25
 5,549
 10.00
            
Tier 1 risk-based capital:           
Consolidated28,657
 50.20
 4,140
 7.25
 4,568
 8.00
WCF Financial Bank19,117
 34.50
 4,023
 7.25
 4,439
 8.00


In July 2013, the Federal Reserve Board and the OCC issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rules revised minimum capital requirements and adjusted prompt corrective action thresholds. The final rules revised the regulatory capital elements, added a new common equity Tier 1 capital ratio, increased the minimum Tier 1 capital ratio requirement, and implemented a new capital conservation buffer. The rules also permitted certain banking organizations to retain, through a one-time election, the existing treatment for AOCI. The Company and WCF Financial Bank made the election to retain the existing treatment, which excludes AOCI from regulatory capital amounts. The final rules took effect for the Company and WCF Financial Bank on January 1, 2015, subject to a transition period for certain parts of the rules.
Beginning in 2016, an additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer will be fully phased-in on January 1, 2019 at 2.50%. A banking organization with a conservation buffer of less than 2.50% (or the required phase-in amount in years prior to 2019) will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. As of March 31,June 30, 2018, the ratios for the Company and WCF Financial Bank were sufficient to meet the fully phased-in conservation buffer.
(c)Dividends and Restrictions Thereon
The Company declared and paid a $0.05 dividend in the first quarter ended March 31,June 30, 2018 and declared and paid a $0.05 in the first quarter ended March 31,June 30, 2017.
Capital Distributions. Federal regulations impose certain limitations on the payment of dividends and othergovern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the Bank. Undersavings association's capital account. A federal savings association must file an application with the regulations,Office of the Comptroller of the Currency for approval of a capital distribution if:
the total capital distributions for the applicable calendar year exceed the sum of the savings association's net income for that year to date plus the savings association's retained net income for the proceeding two years;
the savings association would not be at least adequately capitalized following the distribution;
the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or
the savings association is not eligible for expedited treatment of its filings.
Even if an application is not otherwise required, every savings association that is a subsidiary of a savings institution,and loan holding company, such as WCF Financial Bank, must file a notice with the Bank, that will meetFederal Reserve Board at least 30 days before the fully phased‑in capital requirements (as defined by the OCC regulations) subsequentboard of directors declares a dividend.
An application or notice related to a capital distribution is generally permitted to make suchmay be disapproved if:
the federal savings association would be undercapitalized following the distribution;
the proposed capital distribution without OCC approval so long as they have not been notified of raises safety and soundness concerns; or
the need for more than normal supervision by the OCC. The Bank has not been so notified and,capital distribution would violate a prohibition contained in any statute, regulation or agreement.


therefore, mayIn addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distributions duringdistribution if, after making such distribution, the calendar year equal to net income plus 50% of the amount by which the Bank’s capital exceeds the fully phased‑in capital requirement as measured at the beginning of the calendar year. A savings institution with total capital in excess of current minimum capital requirements but not in excess of the fully phased‑in requirements is permitted by the new regulations to make, without OCC approval, capital distributions of between 25% and 75% of its net income for the previous four quarters, less dividends already paid for such period. A savings institution that failswould fail to meet current minimumany applicable regulatory capital requirements is prohibited from making any capital distributions without prior approval from the OCC.requirement.



(7)Fair Value
FASB Accounting Standards Codification (ASC) 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset of liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.


A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These


valuation methodologies were applied to all of the Company’s financial assets and liabilities carried at fair value.
Cash and due from banks, federal funds sold, and time deposits in other financial institutions. The carrying amount is a reasonable estimate of fair value.
Securities available-for-sale. Investment securities classified as available-for-sale are reported at fair value on a recurring basis. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.
Loans receivable. The Company does not record loans at fair value on a recurring basis. For variable‑rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are determined using estimated future cash flows, discounted at the interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The Company does record nonrecurring fair value adjustments to loans to reflect (1) partial write‑downs to collateral value or (2) the establishment of specific loan reserves that are based on the observable market price of the loan or the appraised of the collateral. These loans are classified as Level 3.
FHLB and Bankers’ Bank stock. The value of FHLB and Bankers’ Bank stock is equivalent to its carrying value because the stock is redeemable at par value.
Accrued interest receivable and accrued interest payable. The recorded amount of accrued interest receivable and accrued interest payable approximates fair value as a result of the short‑term nature of the instruments.
Deposits. The fair value of deposits with no stated maturity, such as passbook, money market, noninterest‑bearing checking, and NOW accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low‑cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
FHLB advances. The fair value of the FHLB advances is based on the discounted value of the cash flows. The discount rate is estimated using the rates currently offered for fixed‑rate advances of similar remaining maturities.
The following tables summarize financial assets measured at fair value on a recurring basis as of March 31,June 30, 2018 and December 31, 2017, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value. The Company has no liabilities measured at fair value in the consolidated balance sheets.
March 31, 2018June 30, 2018
Level 1 inputs Level 2 inputs Level 3 inputs Total fair valueLevel 1 inputs Level 2 inputs Level 3 inputs Total fair value
U.S. agency securities$—
 $1,196,219
 $—
 $1,196,219
$—
 $1,193,141
 $—
 $1,193,141
Mortgage-backed securities*—
 30,532,681
 —
 30,532,681
—
 28,653,867
 —
 28,653,867
Municipal bonds—
 14,314,959
 —
 14,314,959
—
 14,294,519
 —
 14,294,519
Total$—
 $46,043,859
 $—
 $46,043,859
$—
 $44,141,527
 $—
 $44,141,527


 December 31, 2017
 Level 1 inputs Level 2 inputs Level 3 inputs Total fair value
U.S. agency securities$—
 $1,233,795
 $—
 $1,233,795
Mortgage-backed securities*—
 26,784,589
 —
 26,784,589
Municipal bonds—
 15,111,097
 —
 15,111,097
Total$—
 $43,129,481
 $—
 $43,129,481
*All mortgage-backed securities are issued by FNMA, FHLMC, or GNMA and are backed by residential mortgage loans.

There have been no changes in valuation methodologies at March 31,June 30, 2018 compared to December 31, 2017 and there were no transfers between levels during the periods ended March 31,June 30, 2018 and December 31, 2017.
The Company is required to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost or fair value accounting or write-downs of individual assets. As of March 31,June 30, 2018 and December 31, 2017, the Company did not have any material assets measured at fair value on a nonrecurring basis.
The estimated fair values of Company’s financial instruments (as described in note 1) at March 31,June 30, 2018 and December 31, 2017 were as follows:
 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Fair value Carrying Approximate Carrying ApproximateFair value Carrying Approximate Carrying Approximate
hierarchy amount fair value amount fair valuehierarchy amount fair value amount fair value
Financial assets:                
Cash and due from banksLevel 1 $2,970,513
 $2,970,513
 $3,310,400
 $3,310,400
Level 1 $2,538,248
 $2,538,248
 $3,310,400
 $3,310,400
Federal funds soldLevel 1 1,334,000
 1,334,000
 2,672,000
 2,672,000
Level 1 914,000
 914,000
 2,672,000
 2,672,000
Time deposits in otherLevel 1        Level 1        
financial institutions 4,545,580
 4,545,580
 4,545,878
 4,545,878
 3,316,282
 3,316,282
 4,545,878
 4,545,878
Securities available-for-sale
See
previous
table
 46,043,859
 46,043,859
 43,129,481
 43,129,481
See
previous
table
 44,141,527
 44,141,527
 43,129,481
 43,129,481
Loans receivable, net
Level 2 (1)
 66,728,024
 67,313,024
 68,411,395
 69,008,986
Level 2 (1)
 65,588,876
 66,104,876
 68,411,395
 69,008,986
FHLB stockLevel 1 710,000
 710,000
 703,400
 703,400
Level 1 710,000
 710,000
 703,400
 703,400
Bankers’ Bank stockLevel 1 147,500
 147,500
 147,500
 147,500
Level 1 147,500
 147,500
 147,500
 147,500
Accrued interest receivableLevel 1 414,460
 414,460
 439,855
 439,855
Level 1 418,494
 418,494
 439,855
 439,855
Bank owned life insuranceLevel 1 3,161,422
 3,161,422
 3,138,112
 3,138,112
Level 1 3,185,043
 3,185,043
 3,138,112
 3,138,112
Financial liabilities:                
DepositsLevel 2 87,751,945
 87,718,945
 87,740,194
 87,828,194
Level 2 82,184,677
 74,264,677
 87,740,194
 87,828,194
FHLB advancesLevel 2 14,000,000
 14,053,000
 14,000,000
 14,052,000
Level 2 14,000,000
 14,054,000
 14,000,000
 14,052,000
Accrued interest payableLevel 1 110,856
 110,856
 13,982
 13,982
Level 1 29,436
 29,436
 13,982
 13,982
(1) Impaired loans would have a fair value hierarchy of a Level 3. See previous disclosures.

(8)Commitments and Contingencies


The Company is involved with various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial statements.
The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit of approximately $178,000$134,000 and $201,000 as of March 31,June 30, 2018 and December 31, 2017, respectively. These commitments expire one year from origination and are both fixed and adjustable interest rates ranging from 2.99% to 5.00%.
(9)Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) components at March 31,June 30, 2018 and December 31, 2017 were as follows:
 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Unrealized holding losses on securities available-for-sale $(1,223,130) $(488,791) $(1,424,413) $(488,791)
Tax impact 301,492
 178,424
 351,523
 178,424
 $(921,638) $(310,367) $(1,072,890) $(310,367)

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

General

Management’s discussion and analysis of the financial condition at March 31,June 30, 2018 compared to December 31, 2017 and the results of operations for three and six months ended March 31,June 30, 2018 and 2017 is intended to assist in understanding the financial condition and results of operations of the Bank. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING 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,” “plan,” “seek,” “expect” 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 quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management 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.
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;


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 with depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments, our level of loan originations, or increases in the level of defaults, losses and prepayments on loans we have made and make;
adverse changes in the securities 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;
adverse changes in the national agriculture economy and the agriculture economy in our market area;
our compensation expense associated with equity allocated or awarded to our employees; and
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 our annual report on Form 10-K as filed with the Securities and Exchange Commission on March 29, 2018.

Comparison of Financial Condition at March 31,June 30, 2018 and December 31, 2017

Total assets decreased $624,000,$6.2 million, or 0.5%4.7%, to $131.6$126.0 million at March 31,June 30, 2018 from $132.2 million at December 31, 2017. The decrease was due to ana decrease in federal funds sold of $1.3$1.8 million, or 50.1%65.8%, to $1.3$0.9 million at March 31,June 30, 2018 from $2.7 million, at December 31, 2017. Cash and due from banks decreased $340,000,$772,000, or 10.4%23.4%, to $3.0$2.5 million at March 31,June 30, 2018 compared to $3.3 million at December 31, 2017. The decrease resulted from excess funds being used to finance additional investments. Investment securities available-for-sale increased $2.9$1.0 million, or 6.8%2.3%, to $46.0$44.1 million at March 31,June 30, 2018 from $43.1 million at December 31, 2017. The increase in investment securities available-for-sale was due to the additional investment of excess liquidity. Net loans receivable decreased $1.7$3.4 million, or 2.5%4.9%, to $66.7$65.1 million at March 31,June 30, 2018 from $68.4 million at December 31, 2017. The decrease in net loans receivable was primarily due to the large amount of payments/payoffs of one-to-four family residential and commerical.

Total liabilities decreased $234,000,$5.6 million, or 0.2%5.4%, to $103.6$98.2 million at March 31,June 30, 2018 from $103.8 million at December 31, 2017. The decrease in liabilities was mainly2017, due to the increased paymentsmaturity of property taxesa large Public Funds CD that was not renewed, as well as a few others due from borrowers. Deposits remained relatively unchanged at $87.8 million at March 31, 2018 compared to $87.7 million at December 31, 2017.competitive interest rates.

Stockholders' equity decreased $0.4 million$621,000 to $28.0$27.8 million at March 31,June 30, 2018 from $28.4 million at December 31, 2017. The decrease resulted from a $568,000$719,000 decrease in market value of securities available-for-sale, a $14,000$27,000 decrease in the anticipated release of ESOP shares and $120,000$240,000 in dividends paid on common stock at $0.05 per common share offset, in part, by net income of $301,000$311,000 during the quarter.period.





Comparison of Results of Operations for the Three Months Ended March 31,June 30, 2018 and 2017

Net income increased $207,000,decreased $3,000, or 265.4%10.3%, to $285,000$26,000 for the three months ended March 31,June 30, 2018, from $78,000$29,000 for the same period in 2017. Basic/diluted earnings per share were $0.12$0.01 for the three months ended March 31,June 30, 2018 and $0.03$0.01 for the same period in 2017. Total interest income increased $30,000,$83,000, or 3.1%8.5%, to $1.0$1.1 million for the 2018 quarter, compared to $1.0 million for the 2017 quarter. The increase in total interest income was from organica slight increase in average loan growth,yields, interest in taxable investment securities, and otherhigher average balances of interest-earning assets. Total interest expense increased $78,000 to $242,000 for the three months ended March 31,June 30, 2018 from $164,000 for the same period in 2017 due to higher average balancesborrowing rates of additional FHLB Advances period to period. The increase in net income is primarily due to a pre-tax gain of $436,000 ($329,000 after-tax) on the sale of land.

Each quarter an analysis of allowance factors is completed. Based on these factors, $19,500 provision for loan losses was recorded for the quarter ended March 31,June 30, 2018 compared to an $18,000 provision for the quarter ended March 31,June 30, 2017. The allowance for loan losses reflects the estimate believed to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31,June 30, 2018. While we believe the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the financial condition and results of operations.

Net interest income after provision for losses on loans increased $3,000, or 0.4%, to $793,000 for the three months ended June 30, 2018, from $790,000 for the three months ended June 30, 2017.

Noninterest income decreased $30,000, or 18.5%, to $132,000 for the three months ended June 30, 2018 from $162,000 for the same period in 2017. Fees and service charges decreased $5,000, or 4.2%, to $113,000 for the three months ended June 30, 2018 compared to $118,000 for the quarter ended June 30, 2017. Cash value of bank-owned life insurance decreased $2,000 for the three months ended June 30, 2018 compared to $26,000 for the quarter ended June 30, 2017. Other (loss) income decreased $24,000, for the three months ended June 30, 2018 from $19,000 for the same period in 2017.

Noninterest expense consists primarily of compensation and employee benefits, office property and equipment, data processing services, federal insurance premiums, charitable contributions and accounting, regulatory, and professional fees. Noninterest expense decreased to $911,000 for the quarter ended June 30, 2018 from $955,000 for the quarter ended June 30, 2017. Office property and equipment decreased $6,000, or 5.6%, to $102,000for the three months ended June 30, 2018 compared to$108,000 for the quarter ended June 30, 2017 due to decreases in depreciation expense. Data processing services remained unchanged for the three months ended June 30, 2018 compared to the three month period ended June 30, 2017. Federal insurance premiums remained unchanged at $9,000 during the three months ended June 30, 2018 and June 30, 2017. Accounting, regulatory and professional fees decreased $34,000, or 17.6%, to $159,000 in the second quarter of 2018 compared to $193,000 for the same quarter of 2017, due to reduced auditing and legal services.

We recognized an income tax benefit of $(13,000) for the three month period ended June 30, 2018 compared to an income tax benefit of $(32,000) for the 2017 quarter. This benefit was mainly due to non taxable interest earned.

Comparison of Results of Operations for the Six Months Ended June 30, 2018 and 2017

Net income increased $205,000 or 193.0%, to $311,000 for the six month ended June 30, 2018, from $106,000 for the same period in 2017. Basic/diluted earnings per share were $0.13 and $0.04 for the six months ended June 30, 2018 and 2017, respectively. Total interest income increased $113,000 or 5.8% to


$2.0 million for the six months ended June 30, 2018, compared to $1.9 million for the six months ended June 30, 2017. The increase in total interest income was from higher loan rates, interest in taxable investment securities, and other interest-earning assets. Total interest expense increased $156,000 to $484,000 for the six months ended June 30, 2018 from $328,000 for the six months ended June 30, 2017, due to additional borrowing.

Each quarter an analysis of allowance factors is completed. Based on these factors, $39,000 provision for loan losses was recorded for the six months ended June 30, 2018 compared to a $36,000 provision for the six months ended June 30, 2017. The allowance for loan losses reflects the estimate believed to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at June 30, 2018. While we believe the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the financial condition and results of operations.

Net interest income after provision for losses on loans decreased $49,000,$46,000, or 6.2%$2.9%, to $736,000$1.5 million for the threesix months ended March 31,June 30, 2018, from $785,000$1.6 million for the threesix months ended March 31,June 30, 2017.

Noninterest income increased $373,000,$348,000, or 236.1%108.4%, to $531,000$669,000 for the threesix months ended March 31,June 30, 2018 from $158,000$321,000 for the same period in 2017. The increase was due to the $436,000 profit onBank selling the sale of land owned by the Bank. The land sold is adjacentproperty to the Bank's main location and was originally purchasedwest of the bank for possible use by the Bank.a profit of $436,000. Fees and service charges decreased $3,000,$7,000, or 3.0%3.4%, to $96,000$209,000 for the threesix months ended March 31,June 30, 2018 compared to $99,000$217,000 for the quartersix months ended March 31,June 30, 2017. CashThis decrease was due to the evaluation of our fee structure and modifications of fee amounts. The decrease in cash value of bank-ownedbank owned life insurance increased $18,000of $20,000 for the threesix months ended March 31,June 30, 2018 compared to $42,000$67,000 cash value for the quartersix moths ended March 31, 2017.June 30, 2017 was due to lower rates. Other income decreased $28,000,$52,000 or 139.8%, to ($15,000) for the threesix months ended March 31,June 30, 2018 from $17,700$37,000 other income for the same period in 2017. This increasedecrease was mainly due to the profit onlosses associated with the sale of land mentioned above.investment in our affiliate.

Noninterest expense consists primarily of compensation and employee benefits, office property and equipment, data processing services, federal insurance premiums, charitable contributions and accounting, regulatory, and professional fees. During the threesix months ended March 31,June 30, 2018, noninterest expense remained unchanged at $876,000decreased $44,000, or 2.4%, to $1.8 million compared to $1.8 million for the quartersame six month period in 2017. Compensation and employee benefits decreased $4,000, or 0.5%, to $756,000 for the six months ended March 31,June 30, 2018 and 2017.compared to $760,000 for the six months ended June 30, 2017 due to changes in staffing. Office property and equipment decreased $16,000,$22,000, or 12.9%9.4%, to $108,000$210,000 for the six months ended June 30, 2018 compared to $231,000 for the threesix months ended March 31, 2018 compared to$124,000 for the quarter ended March 31,June 30, 2017 due to decreases in depreciation expense. Data processing services increased $15,000, or 13.9%,6.6% to $123,000$241,000 for the threesix months ended March 31,June 30, 2018 compared to $108,000$226,000 for the three month periodsix months ended March 31,June 30, 2017. This increase was due to additional services provided by our data processor. Federal insurance premiums remained the same at $8,000 during the three months ended March 31, 2018 and March 31, 2017. Accounting, regulatory and professional fees decreased $4,000,38,000, or 2.8%11.2%, to $139,000$298,000 in the first quarter ofsix months ended June 30, 2018 compared to $143,000$336,000 for the same quarter ofsix months ended June 30, 2017, due to reduceda decreased in auditing and legal services.

We recognized an income tax expense of $106,000$93,000 for the three month periodsix months ended March 31,June 30, 2018 compared to an income tax benefit of $10,000($42,000) for the 2017 quarter. This expense was mainly due to the profit on the sale of land.six months ended June 30, 2017.



Item 3Quantitative and Qualitative Disclosures About Market Risk

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

Item 4Controls and Procedures

Evaluation of disclosure controls and procedures.
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our 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,June 30, 2018. Based on that evaluation, our management, including the Chief Executive Officer and the Chief Financial Officer, concluded that our disclosure controls and procedures were effective.
Changes in internal controls.
There were no significant changes made in our internal controls during the period covered by this report or, to our knowledge, in other factors that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


Part II – Other Information

Item 1    Legal Proceedings

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

Item 1ARisk Factors

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

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 issuer repurchases of securities during the period covered by this Report.

Item 3    Defaults Upon Senior Securities

None.

Item 4Mine Safety Disclosures

Not applicable.

Item 5    Other Information

None.

Item 6
Exhibits

31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2
Certification of Chief Financial Officer 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


SIGNATURES

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

  WCF BANCORP, INC.
    
    
Date: May 15,August 14, 2018 /s/ Stephen L. Mourlam 
  Stephen L. Mourlam
  President and Chief Executive Officer
    
    
Date: May 15, 2018/s/ Stacy J. Johnson
Stacy J. Johnson
Chief Financial Officer

3233