Notes to Consolidated Financial Statements
(unaudited)
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(1)
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Basis of Presentation
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The accompanying unaudited consolidated financial statements of WCF Bancorp, Inc. (the Company), and its wholly owned subsidiary WCF Financial Bank (the Bank), and Webster City Federal Service Corp, have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with Securities and Exchange Commission (SEC) rules and regulations. Accordingly, the statements do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto that were included in the Company’s annual report for the year ended
December 31, 2017
. The consolidated balance sheet of the Company as of
December 31, 2017
has been derived from the audited consolidated balance sheet of the Company as of that date. All significant intercompany transactions are eliminated in consolidation. In the opinion of the Company’s management, all adjustments necessary (i) for a fair presentation of the financial statements for the interim periods included herein and (ii) to make such financial statements not misleading have been made and are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from the estimates. For further information with respect to significant accounting policies followed by the Company in preparation of the financial statements, refer to the Company’s annual report for the year ended
December 31, 2017
.
As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of
March 31, 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
of net realized losses for the three months ended
March 31, 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 Bank is also subject to minimum regulatory capital
requirements. At
March 31, 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.
Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for the
three
months ended
March 31, 2018
and
March 31, 2017
is presented below.
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Three Months Ended
March 31,
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2018
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2017
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Net income
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$
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284,524
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$
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77,874
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Weighted average common shares outstanding and diluted common shares outstanding
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2,410,295
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2,404,096
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Basic earnings per common share
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$
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0.12
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$
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0.03
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Diluted earnings per common share
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$
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0.12
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$
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0.03
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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.
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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 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
March 31, 2018
there were
13,691
allocated shares and
157,447
unallocated shares. The fair value of unallocated ESOP shares at
March 31, 2018
was approximately
$1,533,000
.
Subsequent Events
On April 25, 2018, the board of directors declared a
$0.05
per share cash dividend payable on May 25, 2018 to shareholders of record as of May 11, 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
L
osses (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.
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(2)
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Securities Available-for-Sale
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Securities available-for-sale at
March 31, 2018
and
December 31, 2017
were as follows:
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Description
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Amortized cost
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Gross unrealized gains
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Gross unrealized losses
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Fair value
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March 31, 2018:
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U.S. agency securities
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$
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1,239,623
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$
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—
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$
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43,404
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$
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1,196,219
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Mortgage-backed securities*
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31,397,455
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—
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864,774
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30,532,681
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Municipal bonds
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14,629,911
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28,937
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343,889
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14,314,959
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$
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47,266,989
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$
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28,937
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$
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1,252,067
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$
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46,043,859
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December 31, 2017:
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U.S. agency securities
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$
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1,239,357
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$
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—
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$
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5,562
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$
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1,233,795
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Mortgage-backed securities*
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27,331,766
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—
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547,177
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26,784,589
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Municipal bonds
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15,050,942
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107,569
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47,414
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15,111,097
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$
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43,622,065
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$
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107,569
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$
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600,153
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$
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43,129,481
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*All mortgage-backed securities are issued by FNMA, FHLMC, or GNMA and are backed by residential mortgage loans.
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The amortized cost and estimated fair value of securities available-for-sale at
March 31, 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.
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March 31, 2018
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Amortized
cost
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Fair value
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Due in one year or less
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$
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—
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$
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—
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Due after one year through five years
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1,089,477
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1,090,398
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Due after five years, but less than ten years
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7,200,981
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7,072,735
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Due after ten years
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7,579,076
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7,348,045
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15,869,534
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15,511,178
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Mortgage-backed securities
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31,397,455
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30,532,681
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$
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47,266,989
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$
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46,043,859
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The details of the sales of investment securities for the
three
months ended
March 31, 2018
and
2017
are summarized in the following table.
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Three Months Ended
March 31,
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2018
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2017
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Proceeds from sales
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$
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2,121,241
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$
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—
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Gross gains on sales
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—
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—
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Gross losses on sales
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14,465
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—
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At
March 31, 2018
and
December 31, 2017
, accrued interest receivable for securities available-for-sale totaled approximately
$235,000
and
$221,000
, respectively.
The following tables show the Company’s available-for-sale investments’ gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at
March 31, 2018
and
December 31, 2017
.
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March 31, 2018
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Up to 12 months
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Greater than 12 months
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Total
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Fair value
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Gross unrealized loss
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Fair value
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Gross unrealized loss
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Fair value
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Gross unrealized loss
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U.S. agency securities
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$
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957,353
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$
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32,447
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$
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238,866
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$
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10,957
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$
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1,196,219
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$
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43,404
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Mortgage-backed securities
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4,683,175
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109,394
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21,023,017
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755,380
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25,706,192
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864,774
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Municipal bonds
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9,491,726
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255,685
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2,160,673
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88,204
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11,652,399
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343,889
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Total
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$
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15,132,254
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$
|
397,526
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$
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23,422,556
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$
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854,541
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$
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38,554,810
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$
|
1,252,067
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|
December 31, 2017
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Up to 12 months
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Greater than 12 months
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Total
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Fair value
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Gross unrealized loss
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Fair value
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Gross unrealized loss
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Fair value
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Gross unrealized loss
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U.S. agency securities
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$
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989,537
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$
|
29
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$
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244,248
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$
|
5,533
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$
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1,233,785
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$
|
5,562
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Mortgage-backed securities
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5,944,732
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|
80,034
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20,843,664
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467,143
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26,788,396
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|
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547,177
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Municipal bonds
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4,913,243
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18,791
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2,224,660
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28,623
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7,137,903
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|
47,414
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Total
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$
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11,847,512
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$
|
98,854
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$
|
23,312,572
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$
|
501,299
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$
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35,160,084
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$
|
600,153
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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, 2018
and
December 31, 2017
.
At
March 31, 2018
and
December 31, 2017
, loans receivable consisted of the following segments:
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March 31, 2018
|
|
December 31, 2017
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Loans:
|
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One-to-four family residential
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$
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54,965,103
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$
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56,091,358
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Non-owner occupied one-to-four family residential
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3,080,597
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3,116,832
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Commercial real estate
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3,107,105
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3,615,351
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Consumer
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6,140,573
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6,145,488
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Total loans receivable
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67,293,378
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68,969,029
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Discounts on loans purchased
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17,700
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10,650
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Deferred loan costs (fees)
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(26,027
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)
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(29,964
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)
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Allowance for loan losses
|
(557,027
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)
|
|
(538,319
|
)
|
|
|
$
|
66,728,024
|
|
|
$
|
68,411,396
|
|
Accrued interest receivable on loans receivable was
$179,731
and
$218,967
at
March 31, 2018
and
December 31, 2017
, respectively.
The loan portfolio included approximately
$40.0 million
of fixed rate loans as of
March 31, 2018
and
$40.6 million
as of
December 31, 2017
. The loan portfolio also included approximately
$27.3 million
and
$28.4 million
of variable rate loans as of
March 31, 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, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
One-to-four family residential
|
|
Non-owner occupied on-to-four family residential
|
|
Commercial
real estate
|
|
Consumer
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Collectively evaluated for impairment
|
402,310
|
|
|
26,893
|
|
|
32,255
|
|
|
95,569
|
|
|
557,027
|
|
|
Total
|
$
|
402,310
|
|
|
$
|
26,893
|
|
|
$
|
32,255
|
|
|
$
|
95,569
|
|
|
$
|
557,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
275,515
|
|
|
$
|
—
|
|
|
$
|
275,515
|
|
|
Collectively evaluated for impairment
|
54,965,103
|
|
|
3,080,597
|
|
|
2,831,590
|
|
|
6,140,573
|
|
|
67,017,863
|
|
|
Total
|
$
|
54,965,103
|
|
|
$
|
3,080,597
|
|
|
$
|
3,107,105
|
|
|
$
|
6,140,573
|
|
|
$
|
67,293,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
One-to-four family residential
|
|
Non-owner occupied on-to-four family residential
|
|
Commercial
real estate
|
|
Consumer
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Collectively evaluated for impairment
|
393,341
|
|
|
25,893
|
|
|
33,204
|
|
|
85,881
|
|
|
538,319
|
|
|
Total
|
$
|
393,341
|
|
|
$
|
25,893
|
|
|
$
|
33,204
|
|
|
$
|
85,881
|
|
|
$
|
538,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
274,804
|
|
|
$
|
—
|
|
|
$
|
274,804
|
|
|
Collectively evaluated for impairment
|
56,091,358
|
|
|
3,116,832
|
|
|
3,340,547
|
|
|
6,145,488
|
|
|
68,694,225
|
|
|
Total
|
$
|
56,091,358
|
|
|
$
|
3,116,832
|
|
|
$
|
3,615,351
|
|
|
$
|
6,145,488
|
|
|
$
|
68,969,029
|
|
Activity in the allowance for loan losses by segment for the
three
months ended
March 31, 2018
and
2017
is summarized in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
|
|
Beginning Balance
|
|
Charge-offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
$
|
393,341
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,969
|
|
|
$
|
402,310
|
|
|
Non-owner occupied one-to-four family residential
|
25,893
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
26,893
|
|
|
Commercial real estate
|
33,204
|
|
|
—
|
|
|
—
|
|
|
(949
|
)
|
*
|
32,255
|
|
|
Consumer
|
85,881
|
|
|
792
|
|
|
—
|
|
|
10,480
|
|
|
95,569
|
|
|
Total
|
$
|
538,319
|
|
|
$
|
792
|
|
|
$
|
—
|
|
|
$
|
19,500
|
|
|
$
|
557,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
|
|
Beginning Balance
|
|
Charge-offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
$
|
319,849
|
|
|
$
|
4,810
|
|
|
$
|
—
|
|
|
$
|
16,697
|
|
|
$
|
331,736
|
|
|
Non-owner occupied one-to-four family residential
|
28,231
|
|
|
—
|
|
|
—
|
|
|
465
|
|
|
28,696
|
|
|
Commercial real estate
|
37,135
|
|
|
—
|
|
|
—
|
|
|
3,664
|
|
|
40,799
|
|
|
Consumer
|
101,899
|
|
|
—
|
|
|
71
|
|
|
(2,826
|
)
|
*
|
99,144
|
|
|
Total
|
$
|
487,114
|
|
|
$
|
4,810
|
|
|
$
|
71
|
|
|
$
|
18,000
|
|
|
$
|
500,375
|
|
|
|
|
|
|
|
* 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.
The Company requires a loan to be at least partially charged off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.
|
|
|
|
(c)
|
Troubled Debt Restructurings (TDR)
|
All loans deemed troubled debt restructurings, or “TDR”, are considered impaired, and are evaluated for collateral sufficiency. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. There were
no
new troubled debt restructurings in the first
three
months of
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
|
|
Total
|
|
March 31, 2018:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
$
|
53,376,724
|
|
|
$
|
1,012,128
|
|
|
$
|
576,251
|
|
|
$
|
54,965,103
|
|
|
Non-owner occupied one-to-four family residential
|
2,747,677
|
|
|
17,691
|
|
|
315,229
|
|
|
3,080,597
|
|
|
Commercial real estate
|
2,795,889
|
|
|
35,701
|
|
|
275,515
|
|
|
3,107,105
|
|
|
Consumer
|
5,873,314
|
|
|
223,150
|
|
|
44,109
|
|
|
6,140,573
|
|
|
Total
|
$
|
64,793,604
|
|
|
$
|
1,288,670
|
|
|
$
|
1,211,104
|
|
|
$
|
67,293,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special
mention/watch
|
|
Substandard
|
|
Total
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
$
|
54,042,992
|
|
|
$
|
1,412,334
|
|
|
$
|
636,032
|
|
|
$
|
56,091,358
|
|
|
Non-owner occupied one-to-four family residential
|
2,782,817
|
|
|
17,861
|
|
|
316,154
|
|
|
3,116,832
|
|
|
Commercial real estate
|
3,304,369
|
|
|
36,178
|
|
|
274,804
|
|
|
3,615,351
|
|
|
Consumer
|
5,830,415
|
|
|
252,722
|
|
|
62,351
|
|
|
6,145,488
|
|
|
Total
|
$
|
65,960,593
|
|
|
$
|
1,719,095
|
|
|
$
|
1,289,341
|
|
|
$
|
68,969,029
|
|
Special Mention/Watch – Loans classified as special mention/watch are assets that do not warrant adverse classification but possess credit deficiencies or potential weakness deserving close attention.
Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable, and improbable.
The Company had
one
impaired loan as of
March 31, 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, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 days
past due
|
|
60-89 days
past due
|
|
90 days
or more
past due
|
|
Total
past due
|
|
Current
|
|
Total loans receivable
|
|
Recorded investment > 90 days and accruing
|
|
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
$
|
460,075
|
|
|
$
|
259,130
|
|
|
$
|
432,381
|
|
|
$
|
1,151,586
|
|
|
$
|
53,813,517
|
|
|
$
|
54,965,103
|
|
|
$
|
284,509
|
|
|
Non-owner occupied one-to-four family residential
|
—
|
|
|
17,691
|
|
|
176,858
|
|
|
194,549
|
|
|
2,886,048
|
|
|
3,080,597
|
|
|
—
|
|
|
Commercial real estate
|
35,701
|
|
|
—
|
|
|
275,515
|
|
|
311,216
|
|
|
2,795,889
|
|
|
3,107,105
|
|
|
—
|
|
|
Consumer
|
119,861
|
|
|
61,271
|
|
|
37,574
|
|
|
218,706
|
|
|
5,921,867
|
|
|
6,140,573
|
|
|
39,226
|
|
|
Total
|
$
|
615,637
|
|
|
$
|
338,092
|
|
|
$
|
922,328
|
|
|
$
|
1,876,057
|
|
|
$
|
65,417,321
|
|
|
$
|
67,293,378
|
|
|
$
|
323,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 days
past due
|
|
60-89 days
past due
|
|
90 days
or more
past due
|
|
Total
past due
|
|
Current
|
|
Total loans receivable
|
|
Recorded investment > 90 days and accruing
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
$
|
566,234
|
|
|
$
|
542,356
|
|
|
$
|
491,792
|
|
|
$
|
1,600,382
|
|
|
$
|
54,490,976
|
|
|
$
|
56,091,358
|
|
|
$
|
341,167
|
|
|
Non-owner occupied one-to-four family residential
|
17,861
|
|
|
177,037
|
|
|
—
|
|
|
194,898
|
|
|
2,921,934
|
|
|
3,116,832
|
|
|
—
|
|
|
Commercial real estate
|
36,178
|
|
|
—
|
|
|
274,804
|
|
|
310,982
|
|
|
3,304,369
|
|
|
3,615,351
|
|
|
—
|
|
|
Consumer
|
171,789
|
|
|
76,558
|
|
|
54,568
|
|
|
302,915
|
|
|
5,842,573
|
|
|
6,145,488
|
|
|
57,267
|
|
|
Total
|
$
|
792,062
|
|
|
$
|
795,951
|
|
|
$
|
821,164
|
|
|
$
|
2,409,177
|
|
|
$
|
66,559,852
|
|
|
$
|
68,969,029
|
|
|
$
|
398,434
|
|
The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of
March 31, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Loans
|
|
|
|
|
One-to-four family residential
|
$
|
147,872
|
|
|
$
|
150,625
|
|
|
Commercial real estate
|
275,515
|
|
|
274,804
|
|
|
Total
|
$
|
423,387
|
|
|
$
|
425,429
|
|
At
March 31, 2018
and
December 31, 2017
, deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Statement savings
|
$
|
15,047,022
|
|
|
$
|
14,536,815
|
|
|
Money market plus
|
11,441,057
|
|
|
11,749,674
|
|
|
NOW
|
18,999,009
|
|
|
18,749,026
|
|
|
Certificates of deposit
|
42,264,857
|
|
|
42,704,679
|
|
|
|
$
|
87,751,945
|
|
|
$
|
87,740,194
|
|
Included in the NOW accounts were approximately
$4.9 million
and
$4.6 million
of non-interest bearing deposits as of
March 31, 2018
and
December 31, 2017
, respectively.
Taxes on income comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
Federal
|
|
State
|
|
Total
|
|
Current
|
$
|
25,933
|
|
|
$
|
14,300
|
|
|
$
|
40,233
|
|
|
Deferred
|
65,769
|
|
|
—
|
|
|
65,769
|
|
|
|
$
|
91,702
|
|
|
$
|
14,300
|
|
|
$
|
106,002
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
Federal
|
|
State
|
|
Total
|
|
Current
|
$
|
(230
|
)
|
|
$
|
(1,250
|
)
|
|
$
|
(1,480
|
)
|
|
Deferred
|
(14,000
|
)
|
|
5,000
|
|
|
(9,000
|
)
|
|
|
$
|
(14,230
|
)
|
|
$
|
3,750
|
|
|
$
|
(10,480
|
)
|
Taxes on income for the three months ending March 31, 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 benefit
|
11,297
|
|
|
2,475
|
|
|
Tax-exempt income
|
(11,840
|
)
|
|
(22,144
|
)
|
|
Bank-owned life insurance
|
(4,895
|
)
|
|
(14,129
|
)
|
|
Valuation allowance
|
2,000
|
|
|
11,000
|
|
|
Other
|
27,430
|
|
|
(10,587
|
)
|
|
|
$
|
106,002
|
|
|
$
|
(10,480
|
)
|
Federal income tax expense for the periods ended
March 31, 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, 2018
and
December 31, 2017
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Deferred tax assets:
|
|
|
|
|
Deferred directors’ fees
|
$
|
185,000
|
|
|
$
|
195,000
|
|
|
Allowance for loan losses
|
139,000
|
|
|
134,000
|
|
|
Net operating loss carryforward
|
98,000
|
|
|
165,000
|
|
|
AMT credit
|
34,720
|
|
|
34,720
|
|
|
Charitable contribution
|
59,000
|
|
|
59,000
|
|
|
Professional fees
|
48,000
|
|
|
49,000
|
|
|
Securities available-for-sale
|
301,492
|
|
|
121,082
|
|
|
Fixed assets
|
3,000
|
|
|
—
|
|
|
Other
|
30,302
|
|
|
23,278
|
|
|
Gross deferred tax assets
|
898,514
|
|
|
781,080
|
|
|
Valuation allowance
|
(98,000
|
)
|
|
(96,000
|
)
|
|
Net deferred tax assets
|
800,514
|
|
|
685,080
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Prepaid expenses
|
(14,000
|
)
|
|
(14,000
|
)
|
|
FHLB stock dividends
|
(25,000
|
)
|
|
(25,000
|
)
|
|
Intangible assets
|
(15,000
|
)
|
|
(15,000
|
)
|
|
Gross deferred tax liabilities
|
(54,000
|
)
|
|
(54,000
|
)
|
|
Net deferred tax assets
|
$
|
746,514
|
|
|
$
|
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, 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, 2018
and
December 31, 2017
, retained earnings contain certain historical additions to bad debt reserves for income tax purposes of approximately
$2,134,000
as of December 31, 1987, for which no deferred taxes have been provided because the Bank does not intend to use these reserves for purposes other than to absorb losses. If these amounts which qualified as bad debt deductions are used for purposes other than to absorb
bad debt losses or adjustments arising from the carryback of net operating losses, income taxes may be imposed at the then-existing rates. The approximate amount of unrecognized tax liability associated with these historical additions is
$523,000
.
|
|
|
|
(a)
|
Common Stock Repurchase
|
The Company repurchased
no
shares during the
three
months ended
March 31, 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, 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, 2018
and
December 31, 2017
(dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
For capital adequacy
|
|
To be well-capitalized under
|
|
|
|
|
|
|
with capital conservation
|
|
prompt corrective action
|
|
|
Actual
|
|
buffer purposes
|
|
provisions
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Tangible capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
28,876
|
|
|
23.60
|
%
|
|
$
|
5,259
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
|
WCF Financial Bank
|
19,486
|
|
|
15.70
|
|
|
4,958
|
|
|
4.00
|
|
|
2,753
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
28,876
|
|
|
50.60
|
|
|
3,511
|
|
|
6.38
|
|
|
3,665
|
|
|
6.50
|
|
|
WCF Financial Bank
|
19,486
|
|
|
35.40
|
|
|
3,571
|
|
|
6.38
|
|
|
3,579
|
|
|
6.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
29,433
|
|
|
51.50
|
|
|
5,571
|
|
|
9.88
|
|
|
5,638
|
|
|
10.00
|
|
|
WCF Financial Bank
|
20,043
|
|
|
36.40
|
|
|
5,441
|
|
|
9.88
|
|
|
5,507
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
28,876
|
|
|
50.60
|
|
|
4,443
|
|
|
7.88
|
|
|
4,511
|
|
|
8.00
|
|
|
WCF Financial Bank
|
19,486
|
|
|
35.40
|
|
|
4,339
|
|
|
7.88
|
|
|
4,405
|
|
|
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 Bank
|
19,117
|
|
|
16.50
|
|
|
4,637
|
|
|
4.00
|
|
|
5,796
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
28,657
|
|
|
50.20
|
|
|
3,283
|
|
|
5.75
|
|
|
3,712
|
|
|
6.50
|
|
|
WCF Financial Bank
|
19,117
|
|
|
34.50
|
|
|
3,191
|
|
|
5.75
|
|
|
3,607
|
|
|
6.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
29,195
|
|
|
51.10
|
|
|
5,282
|
|
|
9.25
|
|
|
5,710
|
|
|
10.00
|
|
|
WCF Financial Bank
|
19,655
|
|
|
35.40
|
|
|
5,133
|
|
|
9.25
|
|
|
5,549
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
28,657
|
|
|
50.20
|
|
|
4,140
|
|
|
7.25
|
|
|
4,568
|
|
|
8.00
|
|
|
WCF Financial Bank
|
19,117
|
|
|
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, 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, 2018
and declared and paid a
$0.05
in the first quarter ended
March 31, 2017
.
Federal regulations impose certain limitations on the payment of dividends and other capital distributions by the Bank. Under the regulations, a savings institution, such as the Bank, that will meet the fully phased‑in capital requirements (as defined by the OCC regulations) subsequent to a capital distribution is generally permitted to make such capital distribution without OCC approval so long as they have not been notified of the need for more than normal supervision by the OCC. The Bank has not been so notified and,
therefore, may make capital distributions during 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 fails to meet current minimum capital requirements is prohibited from making any capital distributions without prior approval from the OCC.
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, 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, 2018
|
|
|
Level 1 inputs
|
|
Level 2 inputs
|
|
Level 3 inputs
|
|
Total fair value
|
|
U.S. agency securities
|
$
|
—
|
|
|
$
|
1,196,219
|
|
|
$
|
—
|
|
|
$
|
1,196,219
|
|
|
Mortgage-backed securities*
|
—
|
|
|
30,532,681
|
|
|
—
|
|
|
30,532,681
|
|
|
Municipal bonds
|
—
|
|
|
14,314,959
|
|
|
—
|
|
|
14,314,959
|
|
|
Total
|
$
|
—
|
|
|
$
|
46,043,859
|
|
|
$
|
—
|
|
|
$
|
46,043,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2018
compared to
December 31, 2017
and there were no transfers between levels during the periods ended
March 31, 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, 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, 2018
and
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
Fair value
|
|
Carrying
|
|
Approximate
|
|
Carrying
|
|
Approximate
|
|
|
hierarchy
|
|
amount
|
|
fair value
|
|
amount
|
|
fair value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
Level 1
|
|
$
|
2,970,513
|
|
|
$
|
2,970,513
|
|
|
$
|
3,310,400
|
|
|
$
|
3,310,400
|
|
|
Federal funds sold
|
Level 1
|
|
1,334,000
|
|
|
1,334,000
|
|
|
2,672,000
|
|
|
2,672,000
|
|
|
Time deposits in other
|
Level 1
|
|
|
|
|
|
|
|
|
|
financial institutions
|
|
|
4,545,580
|
|
|
4,545,580
|
|
|
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
|
|
|
Loans receivable, net
|
Level 2
(1)
|
|
66,728,024
|
|
|
67,313,024
|
|
|
68,411,395
|
|
|
69,008,986
|
|
|
FHLB stock
|
Level 1
|
|
710,000
|
|
|
710,000
|
|
|
703,400
|
|
|
703,400
|
|
|
Bankers’ Bank stock
|
Level 1
|
|
147,500
|
|
|
147,500
|
|
|
147,500
|
|
|
147,500
|
|
|
Accrued interest receivable
|
Level 1
|
|
414,460
|
|
|
414,460
|
|
|
439,855
|
|
|
439,855
|
|
|
Bank owned life insurance
|
Level 1
|
|
3,161,422
|
|
|
3,161,422
|
|
|
3,138,112
|
|
|
3,138,112
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
Level 2
|
|
87,751,945
|
|
|
87,718,945
|
|
|
87,740,194
|
|
|
87,828,194
|
|
|
FHLB advances
|
Level 2
|
|
14,000,000
|
|
|
14,053,000
|
|
|
14,000,000
|
|
|
14,052,000
|
|
|
Accrued interest payable
|
Level 1
|
|
110,856
|
|
|
110,856
|
|
|
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
and
$201,000
as of
March 31, 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, 2018
and
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Unrealized holding losses on securities available-for-sale
|
|
$
|
(1,223,130
|
)
|
|
$
|
(488,791
|
)
|
|
Tax impact
|
|
301,492
|
|
|
178,424
|
|
|
|
|
$
|
(921,638
|
)
|
|
$
|
(310,367
|
)
|
