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EX-31.2 - EXHIBIT 31.2 - WCF Bancorp, Inc.wcffinancialbankq3exhibit312.htm
EX-32 - EXHIBIT 32 - WCF Bancorp, Inc.wcffinancialbankq3exhibit32.htm
EX-31.1 - EXHIBIT 31.1 - WCF Bancorp, Inc.wcffinancialbankq3exhibit311.htm
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 September 30, 2016

OR

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

For the transition period from _______________ to _______________

Commission File No. 001-37382

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

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

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

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. (Check one)

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

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 November 10, 2016, the Registrant had 2,563,224 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 September 30, 2016 (unaudited) and December 31, 2015
 
 
 
 
 
 
 
 
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
Item 3
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
 
 
Item 4
 
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
Item 1
 
Legal Proceedings
 
 
 
 
 
 
Item 1A
 
Risk Factors
 
 
 
 
 
 
Item 2
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
Item 3
 
Defaults upon Senior Securities
 
 
 
 
 
 
Item 4
 
Mine Safety Disclosures
 
 
 
 
 
 
Item 5
 
Other Information
 
 
 
 
 
 
Item 6
 
Exhibits
 
 
 
 
 
 
 
 
Signature Page
 



Part I – Financial Information

Item 1    Financial Statements

WCF Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2016 (Unaudited) and December 31, 2015
Assets
September 30, 2016
 
December 31, 2015
Cash and due from banks
$
1,954,396

 
$
5,350,561

Federal funds sold
6,421,000

 
3,516,000

   Cash and cash equivalents
8,375,396

 
8,866,561

Time deposits in other financial institutions
5,041,168

 
2,950,111

Securities available-for-sale, at fair value
44,197,858

 
36,525,732

Loans
59,852,495

 
57,885,240

Allowance for loan losses
(474,183
)
 
(505,178
)
   Loans receivable, net
59,378,312

 
57,380,062

Federal Home Loan Bank (FHLB) stock, at cost
294,800

 
452,700

Bankers' Bank stock, at cost
147,500

 
147,500

Office property and equipment, net
4,384,327

 
4,570,371

Deferred taxes on income
558,169

 
486,849

Income taxes receivable
34,457

 

Accrued interest receivable
423,937

 
407,975

Goodwill
55,148

 
55,148

Prepaid expenses and other assets
1,161,068

 
1,072,915

 
$
124,052,140

 
$
112,915,924

Liabilities and Stockholders' Equity
 
 
 
Deposits
$
86,223,057

 
$
88,079,831

FHLB advances
4,000,000

 
8,000,000

Advance payments by borrowers for taxes and insurance
217,142

 
431,090

Accrued interest payable
91,913

 
9,008

Accrued expenses and other liabilities
3,938,474

 
1,812,853

Total liabilities
94,470,586

 
98,332,782

Commitments and contingencies (Note 8)


 


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

 

Common stock, $0.01 par value. Authorized 30,000,000 shares; 2,563,224 issued and outstanding at September 30, 2016 and 3,517,428 and 2,449,922 shares issued and outstanding at December 31, 2015 (1)
25,632

 
433,448

Additional paid-in capital
14,196,234

 
9,633,893

Retained earnings, substantially restricted
16,572,928

 
16,635,039

Accumulated other comprehensive income
155,864

 
93,177

Unearned ESOP Shares
(1,369,104
)
 

Treasury stock, no shares at September 30, 2016 and 1,067,506 shares December 31, 2015, at cost (1)

 
(12,212,415
)
Total stockholders' equity
29,581,554

 
14,583,142

Total liabilities and stockholders' equity
$
124,052,140

 
$
112,915,924

 
 
 
 
(1) Share and per share amounts related to periods prior to the date of completion of the Conversion (July 13, 2016) have been restated to give retroactive recognition to the exchange ratio applied to the Conversion (0.8115 to one)

See notes to consolidated financial statements.

1


WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Loans receivable
$
735,492

 
$
715,006

 
$
2,183,032

 
$
2,148,582

Investment securities - taxable
103,028

 
92,858

 
274,187

 
319,763

Investment securities - tax exempt
89,981

 
93,433

 
301,433

 
269,107

Other interest earning assets
33,182

 
13,290

 
69,604

 
46,831

Total interest income
961,683

 
914,587

 
2,828,256

 
2,784,283

Interest expense:
 
 
 
 
 
 
 
Deposits
142,548

 
135,592

 
432,284

 
427,384

FHLB advances
15,647

 
16,053

 
54,045

 
36,819

Total interest expense
158,195

 
151,645

 
486,329

 
464,203

Net interest income
803,488

 
762,942

 
2,341,927

 
2,320,080

Provision for losses on loans

 
50,000

 
20,000

 
130,000

Net interest income after provision for losses on loans
803,488

 
712,942

 
2,321,927

 
2,190,080

Noninterest income:
 
 
 
 
 
 
 
Fees and service charges
102,103

 
76,592

 
286,301

 
230,229

Gains on sale of securities available-for-sale, net
99,853

 
16,893

 
115,100

 
207,605

Gain on disposition of office property and equipment

 

 

 
137,437

Other income
26,582

 
225

 
44,077

 
303

Total noninterest income
228,538

 
93,710

 
445,478

 
575,574

Noninterest expense:
 
 
 
 
 
 
 
Compensation, payroll taxes, and employee benefits
334,542

 
302,841

 
981,288

 
925,100

Advertising
20,992

 
30,712

 
62,807

 
68,556

Office property and equipment
136,304

 
114,145

 
401,155

 
282,225

Federal insurance premiums
21,012

 
17,165

 
60,083

 
48,691

Data processing services
122,361

 
91,140

 
304,842

 
275,644

Charitable contributions
5,946

 

 
5,946

 
260,000

Other real estate expenses, net
1,956

 
132

 
4,917

 
3,923

Dues and subscriptions
10,142

 
12,834

 
41,619

 
51,521

Accounting, regulatory and professional fees
142,664

 
54,017

 
362,347

 
148,342

Debit card expenses
2,987

 
13,398

 
19,502

 
38,760

Other expenses
82,552

 
64,871

 
272,886

 
205,626

Total noninterest expense
881,458

 
701,255

 
2,517,392

 
2,308,388

Earnings before taxes on income
150,568

 
105,397

 
250,013

 
457,266

Tax expense (benefit)
82,100

 
(3,783
)
 
33,015

 
80,252

Net income
$
68,468

 
$
109,180

 
$
216,998

 
$
377,014

Basic earnings per common share
$
0.03

 
$
0.04

 
$
0.09

 
$
0.15

Diluted earnings per common share
$
0.03

 
$
0.04

 
$
0.09

 
$
0.15



See notes to consolidated financial statements.

2



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

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016

2015
 
2016
 
2015
Net income
$
68,468

 
$
109,180

 
$
216,998

 
$
377,014

 
 
 
 
 
 
 
 
Other comprehensive (loss) income:

 

 
 
 
 
Net change in unrealized gains (losses) on securities
(152,662
)
 
95,199

 
223,178

 
(91,166
)
Reclassification adjustment for net gain realized in net income
(99,853
)
 
(16,893
)
 
(115,100
)
 
(207,605
)
Tax (expense) benefit
89,471

 
(34,655
)
 
(45,391
)
 
106,102

Other comprehensive (loss) income
(163,044
)
 
43,651

 
62,687

 
(192,669
)
Comprehensive income (loss)
$
(94,576
)
 
$
152,831

 
$
279,685

 
$
184,345






























See notes to consolidated financial statements.

3



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


 
Common stock
 
Additional paid-in capital
 
Retained earnings
 
Unearned ESOP shares
 
Accumulated other comprehensive income (loss)
 
Treasury stock
 
Total
Balance at December 31, 2014
$
433,448

 
$
9,689,603

 
$
16,664,227

 
$

 
$
214,517

 
$
(12,179,317
)
 
$
14,822,478

Net income

 

 
377,014

 

 

 

 
377,014

Other comprehensive (loss)

 

 

 

 
(192,669
)
 

 
(192,669
)
Common stock repurchase

 

 

 

 

 
(33,098
)
 
(33,098
)
Dividends paid on common stock,
 
 
 
 
 
 

 
 
 
 
 
 
$0.09 per common share

 

 
(272,103
)
 

 

 

 
(272,103
)
Balance at September 30, 2015
$
433,448

 
$
9,689,603

 
$
16,769,138

 
$

 
$
21,848

 
$
(12,212,415
)
 
$
14,701,622

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
433,448

 
$
9,633,893

 
$
16,635,039

 
$

 
$
93,177

 
$
(12,212,415
)
 
$
14,583,142

Net income

 

 
216,998

 

 

 

 
216,998

Other comprehensive income

 

 

 

 
62,687

 

 
62,687

Second step conversion and stock offering, net of expenses
(407,816
)
 
4,562,341

 

 
(1,369,104
)
 

 
12,212,415

 
14,997,836

Dividends paid on common stock,
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.10 per common share

 

 
(279,109
)
 

 

 

 
(279,109
)
Balance at September 30, 2016
$
25,632

 
$
14,196,234

 
$
16,572,928

 
$
(1,369,104
)
 
$
155,864

 
$

 
$
29,581,554


See notes to the consolidated financial statements.

4



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
216,998

 
$
377,014

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
599,913

 
453,610

Provision for losses on loans
20,000

 
130,000

Charitable contribution - donation of building

 
260,000

Deferred taxes on income
(116,712
)
 
(40,081
)
Gain on sales of securities
(115,100
)
 
(207,605
)
Gain on sales of one-to-four family residential loans
(12,310
)
 
(21,133
)
Proceeds from sales of one-to-four family residential loans
1,189,200

 
2,107,333

Originations of one-to-four family residential loans
(1,176,890
)
 
(2,086,200
)
Write-down of other real estate owned

 
(7,200
)
Gain on sale of office property and equipment

 
(137,437
)
Change in:
 
 
 
Accrued interest receivable
(15,962
)
 
5,065

Prepaid expenses and other assets
(137,653
)
 
(374,199
)
Advance payments by borrowers for taxes and insurance
(213,948
)
 
(166,833
)
Accrued interest payable
82,905

 
84,330

Accrued expenses and other liabilities
2,125,621

 
(371,559
)
Income tax receivable
(34,457
)
 
54,303

Net cash provided by operating activities
2,411,605

 
59,408

Cash flows from investing activities:
 
 
 
Proceeds from maturity of time deposits in other financial institutions
3,315,111

 
7,174,000

Purchase of time deposits in other financial institutions
(5,406,168
)
 
(6,354,794
)
Proceeds from calls and maturities of investment securities available-for-sale
3,988,949

 
4,779,392

Proceeds from sale of investment securities available-for-sale
12,083,059

 
18,071,512

Purchase of investment securities available-for-sale
(23,855,716
)
 
(19,612,083
)
Net change in loans receivable
(1,968,750
)
 
(2,531,383
)
Net change in FHLB stock
157,900

 
(119,100
)
Proceeds from sale of office property and equipment

 
180,000

Purchase of office property and equipment
(79,108
)
 
(527,779
)
Net cash (used in) provided by investing activities
(11,764,723
)
 
1,059,765

Cash flows from financing activities:
 
 
 
Net change in deposits
(1,856,774
)
 
(4,375,388
)
Net change in FHLB advances
(4,000,000
)
 
3,000,000

Stock sale proceeds
15,744,744

 

Merger of WCF MHC into WCF Bancorp, Inc.
862,549

 

Cash paid for Treasury Stock

 
(33,098
)
Dividends paid
(279,109
)
 
(272,103
)
Stock offering costs
(1,609,457
)
 

Net cash provided by (used in) financing activities
8,861,953

 
(1,680,589
)
Net decrease in cash and cash equivalents
(491,165
)
 
(561,416
)
Cash and cash equivalents at beginning of year
8,866,561

 
4,039,704

Cash and cash equivalents at end of quarter
$
8,375,396

 
$
3,478,288

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
245,229

 
$
228,228

Taxes on income
116,726

 
112,754

Noncash investing activities:
 
 
 
Transfers to other real estate owned from loans
49,500

 
13,500


See notes to consolidated financial statements.

5



WCF Bancorp, Inc. and Subsidiaries
Form 10-Q


Notes to Consolidated Financial Statements (unaudited)

(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements of WCF Bancorp (the Company), and its wholly owned subsidiary WCF Financial Bank (the Bank), and Webster City Federal Service Corp, have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with 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, 2015. The consolidated balance sheet of the Company as of December 31, 2015, 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, 2015.
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 September 30, 2016, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

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 a 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) 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

6



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 2,563,224 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 Federal Deposit Insurance Corporation. 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 Federal Home Loan Bank of Des Moines (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.

7



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 $99,853 and $16,893 of net realized gains for the three months ended September 30, 2016 and 2015, respectively, and $115,100 and $207,605 for the nine months ended September 30, 2016 and 2015, 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 Company and the Bank are also subject to minimum regulatory capital requirements. At September 30, 2016 and December 31, 2015, capital levels exceeded minimum capital requirements.

8



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 financial statements on a one-month lag. 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 nine months ended September 30, 2016 and 2015 is presented below.
 
As of and For the
 
Nine Months Ended
September 30,
 
2016
 
2015
Current assets
$
162,802

 
$
195,703

Long-term assets
1,750,950

 
1,739,240

Current liabilities
57,880

 
90,193

Total equity
1,855,872

 
1,844,750

Total revenue
709,963

 
737,350

Net income
215,450

 
144,265

Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for the three and nine months ended September 30, 2016 and September 30, 2015 is presented below.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
68,468

 
$
109,180

 
$
216,998

 
$
377,014

 
 
 
 
 
 
 
 
Weighted average common shares outstanding and diluted common shares outstanding (1)
2,406,136

 
2,452,074

 
2,435,221

 
2,452,991

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.03

 
$
0.04

 
$
0.09

 
$
0.15

Diluted earnings per common share
$
0.03

 
$
0.04

 
$
0.09

 
$
0.15

 
 
 
 
 
 
 
 
(1) Share and per share amounts related to periods prior to the date of completion of the Conversion (July 13, 2016) have been restated to give retroactive recognition to the exchange ratio applied to the Conversion (0.8115 to one)
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 described in Note 1, 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

9



rate equal to the lowest “prime rate” published in The Wall Street Journal, to be repaid on a prorate 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 September 30, 2016 there were no allocated shares and 171,138 unallocated shares.   The fair value of unallocated ESOP shares at September 30, 2016 was $1,436,000.

Subsequent Events
The Company has evaluated subsequent events through November 10, 2016, which is the date the consolidated financial statements were issued. There are no subsequent events requiring recognition or disclosure in the consolidated financial statements as noted by the Company.

Current Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. This update 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 April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update simplifies the presentation of debt issuance costs by requiring the debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. This update was effective for annual periods beginning after December 15, 2015, and interim periods within fiscal years beginning after December 31, 2016. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects or recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update 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.

10



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in this update supersedes the requirements in ASC Topic 840, Leases. The update will require business entities to recognize lease assets and liabilities on the balance sheet and to disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. This update will be effective for annual periods beginning after December 15, 2019, 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.

(2)
Securities Available-for-Sale
Securities available-for-sale at September 30, 2016 and December 31, 2015 were as follows:
Description
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
September 30, 2016:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
1,248,444

 
$

 
$
3,013

 
$
1,245,431

Mortgage-backed securities
 
29,158,887

 
55,135

 
109,758

 
29,104,264

Municipal bonds
 
13,031,481

 
322,805

 
9,123

 
13,345,163

Corporate bonds
 
500,000

 
3,000

 

 
503,000

 
 
$
43,938,812

 
$
380,940

 
$
121,894

 
$
44,197,858

December 31, 2015:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
17,522,971

 
$
12,167

 
$
179,583

 
$
17,355,555

Municipal bonds
 
18,300,293

 
336,817

 
23,862

 
18,613,248

Corporate bonds
 
551,500

 
5,429

 

 
556,929

 
 
$
36,374,764

 
$
354,413

 
$
203,445

 
$
36,525,732

The amortized cost and estimated fair value of securities available-for-sale at September 30, 2016 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.
 
September 30, 2016
 
Amortized
cost
 
Fair value
Due in one year or less
$
724,529

 
$
729,055

Due after one year through five years
2,021,168

 
2,066,864

Due after five years, but less than ten years
7,639,567

 
7,895,470

Due after ten years
3,894,661

 
3,899,205

 
14,279,925

 
14,590,594

Mortgage-backed securities
29,158,887

 
29,104,264

Corporate bonds
500,000

 
503,000

 
$
43,938,812

 
$
44,197,858



The details of the sales of investment securities for the three and nine months ended September 30, 2016 and 2015 are summarized in the following table.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Proceeds from sales
$
4,791,663

 
$
6,192,712

 
$
12,083,059

 
$
18,071,512

Gross gains on sales
109,062

 
37,577

 
159,262

 
255,719

Gross losses on sales
9,209

 
20,684

 
44,162

 
48,114

At September 30, 2016 and December 31, 2015, accrued interest receivable for securities available-for-sale totaled $212,584 and $189,862, respectively.

11



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 September 30, 2016 and December 31, 2015.
 
September 30, 2016
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$
1,245,431

 
$
3,013

 
$

 
$

 
$
1,245,431

 
$
3,013

Mortgage-backed securities
8,244,030

 
51,720

 
5,319,274

 
58,038

 
13,563,304

 
109,758

Municipal bonds
1,516,757

 
9,123

 
583,229

 

 
2,099,986

 
9,123

Total
$
11,006,218

 
$
63,856

 
$
5,902,503

 
$
58,038

 
$
16,908,721

 
$
121,894

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
Mortgage-backed securities
$
13,669,247

 
$
157,996

 
$
1,390,849

 
$
21,587

 
$
15,060,096

 
$
179,583

Municipal bonds
2,549,250

 
23,862

 

 

 
2,549,250

 
23,862

Total
$
16,218,497

 
$
181,858

 
$
1,390,849

 
$
21,587

 
$
17,609,346

 
$
203,445

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 depressed as of September 30, 2016 and December 31, 2015.

12



(3)
Loans Receivable
At September 30, 2016 and December 31, 2015, loans receivable consisted of the following segments:
 
September 30, 2016
 
December 31, 2015
Loans:
 
 
 
One-to-four family residential
$
46,579,936

 
$
46,510,605

Non-owner occupied one-to-four family residential
3,789,338

 
4,030,249

Commercial real estate
3,055,142

 
2,974,668

Consumer
6,548,508

 
4,542,892

Total loans receivable
59,972,924

 
58,058,414

Discounts on loans purchased
(63,757
)
 
(84,907
)
Deferred loan costs (fees)
(56,672
)
 
(88,267
)
Allowance for loan losses
(474,183
)
 
(505,178
)
 
$
59,378,312

 
$
57,380,062

Accrued interest receivable on loans receivable was $211,353 and $218,113 at September 30, 2016 and December 31, 2015, respectively.
The loan portfolio included approximately $43.0 million and $42.9 million of fixed rate loans and approximately $17.0 million and $15.2 million of variable rate loans as of September 30, 2016 and December 31, 2015, 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.

13



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 September 30, 2016 and December 31, 2015.
 
September 30, 2016
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
316,613

 
29,475

 
33,307

 
94,788

 
474,183

Total
$
316,613

 
$
29,475

 
$
33,307

 
$
94,788

 
$
474,183

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
297,538

 
$

 
$
297,538

Collectively evaluated for impairment
46,579,936

 
3,789,338

 
2,757,604

 
6,548,508

 
59,675,386

Total
$
46,579,936

 
$
3,789,338

 
$
3,055,142

 
$
6,548,508

 
$
59,972,924

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
366,858

 
44,510

 
32,443

 
61,367

 
505,178

Total
$
366,858

 
$
44,510

 
$
32,443

 
$
61,367

 
$
505,178

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
302,412

 
$

 
$
302,412

Collectively evaluated for impairment
46,510,605

 
4,030,249

 
2,672,256

 
4,542,892

 
57,756,002

Total
$
46,510,605

 
$
4,030,249

 
$
2,974,668

 
$
4,542,892

 
$
58,058,414



14



Activity in the allowance for loan losses by segment for the three and nine months ended September 30, 2016 and 2015 is summarized in the following tables:
 
Three months ended September 30, 2016
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
367,057

 
$

 
$

 
$
(50,444
)
 
$
316,613

Non-owner occupied one-to-four family residential
31,963

 

 

 
(2,488
)
 
29,475

Commercial real estate
30,309

 
28,730

 

 
31,728

 
33,307

Consumer
86,926

 
13,342

 

 
21,204

 
94,788

Total
$
516,255

 
$
42,072

 
$

 
$

 
$
474,183

 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2015
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
276,924

 
$

 
$

 
$
29,516

 
$
306,440

Non-owner occupied one-to-four family residential
40,110

 

 

 
17,737

 
57,847

Commercial real estate
21,637

 

 

 
8,515

 
30,152

Consumer
58,519

 

 
152

 
(5,768
)
 
52,903

Total
$
397,190

 
$

 
$
152

 
$
50,000

 
$
447,342

 
Nine Months Ended September 30, 2016
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
366,858

 
$
5,610

 
$

 
$
(44,635
)
 
$
316,613

Non-owner occupied one-to-four family residential
44,510

 

 

 
(15,035
)
 
29,475

Commercial real estate
32,443

 
28,730

 

 
29,594

 
33,307

Consumer
61,367

 
16,955

 
300

 
50,076

 
94,788

Total
$
505,178

 
$
51,295

 
$
300

 
$
20,000

 
$
474,183

 
 
 
Nine Months Ended September 30, 2015
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
300,654

 
$
33,605

 
$

 
$
39,391

 
$
306,440

Non-owner occupied one-to-four family residential
26,949

 

 

 
30,898

 
57,847

Commercial real estate
15,192

 

 

 
14,960

 
30,152

Consumer
17,907

 
10,707

 
952

 
44,751

 
52,903

Total
$
360,702

 
$
44,312

 
$
952

 
$
130,000

 
$
447,342




15



(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 20 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In deciding to originate a loan secured by a non-owner occupied one-to-four family residential property, management reviews the creditworthiness of the borrower and the expected cash flows from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. This segment is generally secured by one-to-four family properties.
Commercial real estate: On a very limited basis, the Company originates fixed-rate and adjustable-rate commercial real estate and land loans. These loans may have a term of up to 20 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. 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 nine months of 2016.
(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

16



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
 
Doubtful
 
Total
September 30, 2016:
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
45,176,498

 
$
1,252,827

 
$
150,611

 
$

 
$
46,579,936

Non-owner occupied one-to-four family residential
3,690,818

 
98,520

 

 

 
3,789,338

Commercial real estate
2,757,604

 

 
297,538

 

 
3,055,142

Consumer
6,398,637

 
149,871

 

 

 
6,548,508

Total
$
58,023,557

 
$
1,501,218

 
$
448,149

 
$

 
$
59,972,924

 
 
 
 
 
 
 
 
 
 
 
Pass
 
Special
mention/watch
 
Substandard
 
Doubtful
 
Total
December 31, 2015:
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
44,448,707

 
$
1,876,618

 
$
185,280

 
$

 
$
46,510,605

Non-owner occupied one-to-four family residential
4,030,249

 

 

 

 
4,030,249

Commercial real estate
2,672,256

 

 
302,412

 

 
2,974,668

Consumer
4,416,516

 
126,376

 

 

 
4,542,892

Total
$
55,567,728

 
$
2,002,994

 
$
487,692

 
$

 
$
58,058,414

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 one impaired loan as of September 30, 2016 and December 31, 2015. No interest income was recorded on impaired loans during 2016 or 2015.
(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).

17



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 September 30, 2016 and December 31, 2015.
 
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
September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
702,850

 
$
324,085

 
$
376,502

 
$
1,403,437

 
$
45,176,499

 
$
46,579,936

 
$
225,891

Non-owner occupied one-to-four family residential
68,551

 
29,969

 

 
98,520

 
3,690,818

 
3,789,338

 

Commercial real estate

 

 
297,538

 
297,538

 
2,757,604

 
3,055,142

 

Consumer
53,265

 
15,224

 
81,382

 
149,871

 
6,398,637

 
6,548,508

 
81,382

Total
$
824,666

 
$
369,278

 
$
755,422

 
$
1,949,366

 
$
58,023,558

 
$
59,972,924

 
$
307,273

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
1,148,965

 
$
288,087

 
$
460,485

 
$
1,897,537

 
$
44,613,068

 
$
46,510,605

 
$
275,205

Non-owner occupied one-to-four family residential

 

 

 

 
4,030,249

 
4,030,249

 

Commercial real estate

 

 
302,412

 
302,412

 
2,672,256

 
2,974,668

 

Consumer
54,592

 
44,988

 
26,796

 
126,376

 
4,416,516

 
4,542,892

 
26,796

Total
$
1,203,557

 
$
333,075

 
$
789,693

 
$
2,326,325

 
$
55,732,089

 
$
58,058,414

 
$
302,001

The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of September 30, 2016 and December 31, 2015.
 
September 30, 2016
 
December 31, 2015
Loans
 
 
 
One-to-four family residential
$
150,611

 
$
185,280

Non-owner occupied one-to-four family residential

 

Commercial real estate
297,538

 
302,412

Consumer

 

Total
$
448,149

 
$
487,692


18



(4)
Deposits
At September 30, 2016 and December 31, 2015, deposits are summarized as follows:
 
September 30, 2016
 
December 31, 2015
Statement savings
$
11,280,852

 
$
11,163,443

Money market plus
11,378,935

 
11,688,644

NOW
17,558,984

 
18,968,879

Certificates of deposit
46,004,286

 
46,258,865

 
$
86,223,057

 
$
88,079,831


Included in the NOW accounts were approximately $4.6 million and $4.7 million of non-interest bearing deposits as of September 30, 2016 and December 31, 2015, respectively.
(5)
Taxes on Income
Taxes on income comprise the following:
 
September 30, 2016
 
Federal
 
State
 
Total
Current
$
24,747

 
$
11,268

 
$
36,015

Deferred
(11,000
)
 
8,000

 
(3,000
)
 
$
13,747

 
$
19,268

 
$
33,015

 
September 30, 2015
 
Federal
 
State
 
Total
Current
$
89,016

 
$
23,236

 
$
112,252

Deferred
(30,000
)
 
(2,000
)
 
(32,000
)
 
$
59,016

 
$
21,236

 
$
80,252


Taxes on income differ from the amounts computed by applying the federal income tax rate of 34% to earnings before taxes on income for the following reasons, expressed in dollars:
 
September 30, 2016
 
September 30, 2015
Federal tax at statutory rate
$
85,004

 
$
155,470

Items affecting federal income tax rate:
 
 
 
State taxes on income, net of federal benefit
12,717

 
14,016

Tax-exempt income
(94,458
)
 
(103,771
)
Building donation

 
(21,611
)
Valuation allowance

 
49,000

Other
29,752

 
(12,852
)
 
$
33,015

 
$
80,252



19



Federal income tax expense for the periods ended September 30, 2016 and December 31, 2015 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 September 30, 2016 and December 31, 2015 are presented below:
 
September 30, 2016
 
December 31, 2015
Deferred tax assets:
 
 
 
Deferred directors’ fees
$
356,000

 
$
369,000

Allowance for loan losses
177,000

 
188,000

Net operating loss carryforward
55,000

 

AMT credit
49,000

 
62,000

Charitable contribution
81,000

 
81,000

Professional fees
79,000

 

Other
10,000

 
34,000

Gross deferred tax assets
807,000

 
734,000

Valuation allowance
(65,000
)
 
(49,000
)
Net deferred tax assets
742,000

 
685,000

Deferred tax liabilities:
 
 
 
Securities
(92,831
)
 
(57,058
)
Prepaid expenses
(18,000
)
 
(18,000
)
FHLB stock dividends
(38,000
)
 
(38,000
)
Fixed assets
(9,000
)
 
(19,000
)
Intangible assets
(26,000
)
 
(28,000
)
Other

 
(38,093
)
Gross deferred tax liabilities
(183,831
)
 
(198,151
)
Net deferred tax assets
$
558,169

 
$
486,849


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 September 30, 2016 and December 31, 2015, related to the charitable contribution carryforward. The charitable contribution expires if not used by 2020. In addition, as of September 30, 2016, a $16,000 valuation allowance was recorded related to the deferred Iowa income tax items of WCF Financial M.H.C., subsequent to its merger with the Company.
As of December 31, 2015, 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 September 30, 2016 and December 31, 2015, retained earnings contain certain historical additions to bad debt reserves for income tax

20



purposes of approximately $2,134,000 as of December 31, 1987, for which no deferred taxes have been provided because the Bank does not intend to use these reserves for purposes other than to absorb losses. If these amounts which qualified as bad debt deductions are used for purposes other than to absorb bad debt losses or adjustments arising from the carryback of net operating losses, income taxes may be imposed at the then-existing rates. The approximate amount of unrecognized tax liability associated with these historical additions is $800,000.
(6)
Stockholders’ Equity
(a)
Common Stock Repurchase
The Company repurchased no shares during the three and nine months ended September 30, 2016 and repurchased 4,355 shares during the three and nine months ended September 30, 2015.
(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, l