UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, ~~2017~~2018.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 001-37382

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)

Registrant's telephone number, including area code: (515) 832-3071

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



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

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

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x

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

Indicate by check mark whether the ~~Registrant~~registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~Registrant~~registrant was required to submit and post such files). YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of ~~Registrant~~registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x

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

Large accelerated filer o Accelerated filer o

Non-accelerated filer o ~~Smaller reporting company x~~

~~(Do~~Smaller ~~not check if a smaller~~ reporting company) x

Emerging growth company x

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, ~~2017~~2018 was $2023.81 million.

As of March 2829, ~~2018~~2019, there were 2,561,542 issued and outstanding shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

~~None~~Portions of the Proxy Statement for the 2019 Annual Meeting of Stockholders (Part III).

WCF Bancorp, Inc.

Form 10-K

Index

		Page
Part I
Item 1	Business	4
Item 1A	Risk Factors	3127
Item 1B	Unresolved Staff Comments	3127
Item 2	Properties	3127
Item 3	Legal Proceedings	3129
Item 4	Mine Safety Disclosures	3129
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3230
Item 6	Selected Financial Data	3230
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3230
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	4239
Item 8	Financial Statements and Supplementary Data	4340
Item 9	Changes in Disagreements with Accountants on Accounting and Financial Disclosure	7771
Item 9A	Controls and Procedures	7771
Item 9B	Other Information	7772
Part III
Item 10	Directors, Executive Officers and Corporate Governance	7873
Item 11	Executive Compensation	7873
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7873
Item 13	Certain Relationships and Related Transactions, and Director Independence	7873
Item 14	Principal Accounting Fees and Services	7873
Part IV
Item 15	Exhibits, Financial Statement Schedules	7974
Item 16	Form 10-K Summary	8074
Signatures		8075

Part I

Item 1 Business

Forward‑Looking Statements

This Form 10‑K contains forward‑looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward‑looking statements include, but are not limited to:


•	Statements of our goals, intentions and expectations;


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


•	Statements regarding the quality of our loan and investment portfolios; and


•	Estimates of our risks and future costs and benefits.

These forward‑looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward‑looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

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


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


•	Competition among depository and other financial institutions;


•	Inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;


•	Changes in consumer spending, borrowing and savings habits;


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


•	Our ability to successfully integrate acquired branches or entities;


•	Adverse changes in the securities markets;


•	Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;


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


•	Changes in our organization, compensation and benefit plans;


•	Our ability to retain key employees;


•	Changes in the level of government support for housing finance;


•	Significant increases in our loan losses


•	Weaknesses in internal control; and


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

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

WCF Bancorp, Inc.

WCF Bancorp, Inc., an Iowa corporation (the Company), was organized in March 2016. Upon completion of the mutual-to-stock conversion of WCF Financial, M.H.C. (the MHC) in July 2016, the Company became the registered savings and loan holding company of WCF Financial Bank (the Bank) and succeeded to all of the business and operations of Webster City Federal Bancorp (the Old Bancorp), a federal corporation, and each of Webster City Federal Bancorp and the MHC ceased to exist. Since the completion of the mutual-to-stock conversion, the Company has not engaged in any significant business activity other than owning the common stock of WCF Financial Bank and making a loan to Bank's Employee Stock Ownership Plan. Our executive office is located at 401 Fair Meadow Drive, Webster City, Iowa, and our telephone number at that address is (515) 832-3071.

a federal corporation, and each of Webster City Federal Bancorp and the MHC ceased to exist. Since the completion of the mutual-to-stock conversion, the Company has not engaged in any significant business activity other than owning the common stock of WCF Financial Bank and making a loan to the Bank's Employee Stock Ownership Plan. In connection to the Bank's conversion to an Iowa commercial bank charter, in June 2018, the Company became a bank holding company and continues to be examined by the Federal Reserve Board. Our executive office is located at 401 Fair Meadow Drive, Webster City, Iowa, and our telephone number at that address is (515) 832-3071.

WCF Financial Bank

WCF Financial Bank isconverted anto and became a State of Iowa-~~based~~chartered ~~community~~commercial bank in 2018. This is the first step in taking a stronger commercial focus in the markets that we serve. WCF Financial Bank was formally a federal savings association that was chartered and began operations in 1934, and has operated in Webster City, Iowa ~~continuously~~without interruption since ~~this~~that date. In January 2014 we completed our acquisition of Independence Federal Bank for Savings. We operate our banking business ~~through~~at our main office in Webster City, Iowa, and one full-service branch in Independence, Iowa. We believe our locations are strategically positioned within the State of Iowa along Highway 20, covering the central and eastern portions of the state.

We are engaged primarily in the business of attracting 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.~~and Oncommercial areal ~~limited~~estate ~~basis,~~loans. weWe ~~have~~are ~~also~~now ~~originated~~emphasizing commercial ~~real~~loans ~~estate~~as ~~loans,~~part ~~but~~of ~~have~~our ~~deemphasized~~product ~~the~~lineup. This ~~origination,~~coincides ~~and~~with ~~intend~~adding tocommercial ~~continue~~expertise to ~~deemphasize~~our bank staff and the ~~origination~~desire ofto ~~this~~build ~~type~~a ofcommercial ~~lending.~~loan structure to grow the bank. Our primary lending area is broader than our primary deposit market area and includes north central and northeastern Iowa. We also invest in securities. Our revenues are derived principally from interest on loans and securities, and from loan origination and 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 an Iowa-chartered commercial bank, we are regulated by the Iowa Division of Banking and the Federal Deposit Insurance Corporation (FDIC). We maintain strong relationships with our regulators in order to provide the depositors and shareholders a strong and secure institution.

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).

Available Information

Our website is located at www.wcfbank.com ~~and our investor relations website is located at https://www~~.~~snl.com/IRW/CorporateProfile/4049239.~~ The following filings are available through ~~our~~the investor relations tab on our website after we file them with the SEC: Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K. Information on these websites is not incorporated into, and should not be considered part of, this Annual Report.

We provide notifications of news, financial highlights and announcements regarding our financial performance, including SEC filings, regulatory filings and press releases, as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts. Additional corporate governance information, including our board committee charters and code of conduct, also is available on our investor relations website under the heading “Governance Documents.”

information, including our board committee charters and code of conduct, also is available on our investor relations website under the heading “Governance Documents.”

Market Area

We conduct our operations from our two offices located in Webster City, Iowa and Independence, Iowa. Webster City is the county seat for Hamilton County, Iowa, and Independence is the county seat of Buchanan County, Iowa. We consider Hamilton County and Buchanan County, Iowa, and the surrounding contiguous counties, to be our primary market area.

Hamilton County is located 60 miles north, and Buchanan County is 125 miles northeast, of Des Moines, Iowa. Both counties consist primarily of small towns and rural areas. According to S&P Global the total populations for Hamilton and Buchanan County in 2017 were 15,~~112~~115 and 21,~~099~~202, respectively. The population in Hamilton County has decreased between the years 2010 to 2017, with a population growth rate of (30.65)% annually, while the population in Buchanan County has increased between the years 2010 to 2017, with a population growth rate of .7%. The average median household income in 2017 for Hamilton County was $52,872, while the average median income in 2017 for Buchanan County was $60,272. By contrast, the national level of median household income in 2017 was $57,462. By 2023, the projected increases in household income are expected to be 13.2% for Hamilton County and .6% for Buchanan County. By 2023, the projected national level of increase in median household income is expected to be 15.6%.

to 2017, with a population growth rate of 0.17% annually. The average median household income in 2017 for Hamilton County was $55,836, while the average median income in 2017 for Buchanan County was $59,348. By contrast, the national level of median household income in 2017 was $57,652. By 2023, the projected increases in household income are expected to be 13.2% for Hamilton County and 6% for Buchanan County.

The economy of our market area is heavily dependent on farming and agriculture. The major employers in our market area include the Van Diest Supply Company and the Van Diest Medical Center, Webster City Community School District, John Deere, Pries Enterprises, Wapsie Valley Creamery, and Buchanan County Health Center.

Competition

We face intense competition in our market areas and from the internet both in making loans and attracting deposits. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds and insurance companies. Some of our competitors have greater name recognition and market presence, and offer certain services that we do not or cannot provide.

Lending Activities

Our primary lending activity is the origination of one-to-four family residential real estate loans. To a lesser extent, we also originate consumer loans and non-owner occupied one-to-four family residential real estate loans (which we sometimes refer to as one-to-four family investment property loans). On a very limited basis, we have originated commercial real estate and land loans. ~~However, in recent years we have significantly reduced the emphasis on these types of loans and we do not intend to emphasize these types of loans in the future.~~

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated:

	At December 31,
	2017					2016
	2018					2017
	Amount			Percent		Amount			Percent
	(Dollars in thousands)
One-to-four family residential real estate	$	5652,~~091~~335		81.4	%	$	4756,~~315~~091		7781.34	%
Non-owner occupied one-to-four family residential real estate	3,~~117~~013			4.56		3,~~650~~117			64.05
Commercial real estate	32,~~615~~163			53.24		3,~~597~~615			5.92
Consumer	6,~~146~~802			810.96		6,~~605~~146			~~10.~~8.9
Total loans receivable	6864,~~969~~313			100.0	%	6168,~~167~~969			100.0	%
Discount/Premium on loan purchases	1030					~~(57~~10		)
Deferred loan costs (fees)	(3028		)			(4730		)
Allowance for loan losses	(~~538~~509		)			(~~487~~538		)
Total loans receivable, net	$	6863,~~411~~806				$	6068,~~576~~411

Loan Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio at December 31, ~~2017~~2018. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, ~~2018~~2019. Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.

	One-to-four family residential real estate		Non-owner occupied one-to-four family residential real estate		Commercial real estate and land		Consumer		Total
	(In thousands)
Due During the Years Ending December 31,
2018	$	168	$	6	$	—	$	529	$	703
2019	86		7		4		409		506
2020 to 2021	677		32		67		2,631		3,407
2022 to 2026	2,708		361		661		1,909		5,639
2027 to 2031	8,889		1,199		1,506		55		11,649
2032 and beyond	43,563		1,512		1,377		613		47,065
Total	$	56,091	$	3,117	$	3,615	$	6,146	$	68,969



	One-to-four family residential real estate		Non-owner occupied one-to-four family residential real estate		Commercial real estate and land		Consumer		Total
	(In thousands)
Due During the Years Ending December 31,
2019	$	618	$	—	$	—	$	415	$	1,033
2020	106		5		—		639		750
2021 to 2022	505		57		63		2,605		3,230
2023to 2027	2,689		297		660		2,404		6,051
2028 to 2032	10,322		992		1,072		78		12,463
2033 and beyond	38,096		1,661		368		661		40,786

Total	$	52,335	$	3,013	$	2,163	$	6,802	$	64,313

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2018 that are contractually due after December 31, 2019.



	Due After December 31, 2019
	Fixed		Adjustable		Total
	(In thousands)
One-to-four family residential real estate	$	35,604	$	16,113	$	51,717
Non-owner occupied one-to-four family residential real estate	1,655		1,358		3,013
Commercial real estate	1,990		173		2,163
Consumer	6,387		—		6,387
Total	$	45,636	$	17,644	$	63,280

Loan Approval Procedures and Authority. We make loans according to written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors. The consumer loan approval process is intended to assess the borrower’s ability to repay the loan and value of the property that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s employment and credit history and information on the historical and projected income and expenses of the borrower. We require “full documentation” on all of our loan applications. The commercial loan approval process has developed underwriting standards that are standard in the commercial industry and promote sound quality standards for the institution.

Our policies and loan approval limits are established by the board of directors. The management team internally has loan authority up to $1,000,000. Loans above $1,000,000 require the Board of Director loan committee approval. Loans not requiring Board of Director loan committee approval are reviewed and confirmed at the Board Meeting the following month.

We require appraisals of all real property securing commercial real estate, one-to-four family residential real estate loans and non-owner occupied one-to-four family residential real estate loans. All appraisers are state-licensed or state-certified appraisers, and are approved by the board of directors annually.

One-to-Four Family Residential Real Estate Loans. Our primary lending consists of originating and purchasing owner occupied, one-to-four family residential real estate loans, substantially all of which are primarily secured by properties located in Hamilton, Linn and Buchanan Counties in Iowa. At December 31, 2018, $52.3 million, or 81.4% of our total loan portfolio, consisted of owner-occupied one-to-four family residential real estate loans. We offer these loans with fixed-rate maturities of up to 30 years as well as adjustable rates. In recent years, in the historically low interest rate environment, nearly all of our

~~The~~one-to-four ~~following~~family ~~table~~residential ~~sets~~real ~~forth~~estate ~~the~~loan ~~scheduled~~originations ~~repayments~~have ofhad fixed-rates ~~and~~of ~~adjustable-rate~~interest. ~~loans~~The ataverage ~~December~~loan ~~31,~~balance ~~2017~~of ~~that~~our ~~are~~one-to-four ~~contractually~~family ~~due~~residential ~~after~~real estate loans at December 31, 2018 was $59,000.

	Due After December 31, 2018
	Fixed		Adjustable		Total
	(In thousands)
One-to-four family residential real estate	$	29,359	$	26,564	$	55,923
Non-owner occupied one-to-four family residential real estate	1,941		1,170		3,111
Commercial real estate	2,967		648		3,615
Consumer	5,617		—		5,617
Total	$	39,884	$	28,382	$	68,266

One-to-four family residential real estate loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate one-to-four family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which is generally $484,350 for single-family homes. We maintain in our portfolio all of the loans that we originate, except we currently sell most fixed-rate one-to-four family residential real estate loans with maturities of greater than 15 years.

~~Loan~~Our ~~Approval~~adjustable-rate ~~Procedures~~one-to-four ~~and~~family ~~Authority.~~residential Wereal ~~make~~estate loans ~~according~~generally toconsist ~~written,~~of ~~non-discriminatory~~loans ~~underwriting~~with ~~standards~~initial ~~and~~interest ~~loan~~rates ~~origination~~fixed ~~procedures~~for ~~established~~one, bythree, ~~our~~five ~~board~~or ofseven ~~directors.~~years, ~~The~~and ~~loan~~annual ~~approval~~adjustments ~~process~~thereafter isare ~~intended~~indexed tobased ~~assess~~on ~~the~~changes ~~borrower’s~~in ~~ability to repay~~ the ~~loan~~Monthly ~~and~~Federal ~~value~~Cost of ~~the~~Funds ~~property that will secure the loan~~Index. ToOur ~~assess~~adjustable-rate ~~the borrower’s ability~~ one-to-four ~~repay,~~family weresidential ~~review~~real ~~the~~estate ~~borrower’s~~loans ~~employment~~generally ~~and~~have ~~credit~~an ~~history~~interest ~~and~~rate ~~information~~adjustment onlimit ~~the~~of ~~historical~~200 ~~and~~basis ~~projected~~points ~~income~~per ~~and~~adjustment, ~~expenses~~with ofa ~~the~~maximum ~~borrower.~~lifetime Weinterest ~~require~~rate ~~“full~~adjustment ~~documentation”~~limit ~~on all~~ of ~~our~~600 ~~loan~~basis ~~applications~~points.

~~Our~~Generally, ~~policies~~we ~~and~~originate ~~loan approval limits are established by the board of directors. For~~ one-to-four family residential real estate loans, awith loan-to-value ~~officer~~ratios ~~has loan authority~~ of up to ~~$250~~80%,~~000.~~ ~~All~~and ~~one-to-four~~will, ~~family~~on ~~residential~~occasion, ~~real~~originate ~~estate~~ loans ~~above~~with ~~$250,000~~a ~~require~~loan-to-value ~~the~~ratio ~~approval~~ of ~~our~~up ~~board~~to of90% ~~directors.~~with ~~For~~private ~~consumer~~mortgage ~~loans,~~insurance ~~our~~or ~~loan~~readily ~~officers~~marketable ~~have~~collateral. ~~loan~~During ~~authority~~the ofyears upended toDecember ~~$25~~31,~~000.~~ ~~All~~2018 ~~consumer~~and ~~loans~~2017, ~~above~~we ~~$25,000~~did ~~require~~not ~~the~~originate ~~approval~~a ofsignificant ~~the~~amount ~~loan~~of ~~committee,~~one-to-four ~~which~~family isresidential ~~comprised~~real ofestate ~~the~~loans ~~Chief~~with ~~Lending~~loan-to-value ~~Officer,~~ratios ~~President/CEO,~~in ~~and~~excess ~~Market~~of ~~President~~80%. All ~~loans~~borrowers are ~~reviewed~~required byto ~~the~~obtain ~~Chief~~an ~~Lending~~abstract ~~Officer,~~of title and ~~all~~a ~~loans~~title ~~not~~opinion. ~~requiring~~We ~~board~~also ~~approval~~require ~~are~~fire ~~ratified~~and atcasualty ~~the~~insurance ~~next~~and, ~~regularly~~where ~~scheduled~~circumstances ~~board~~warrant, ~~meeting~~flood insurance.

We require appraisals of all real property securing one-to-four family residential real estate loans and non-owner occupied one-to-four family residential real estate loans. All appraisers are state-licensed or state-certified appraisers, and are approved by the board of directors annually.

One-to-Four Family Residential Real Estate Loans. Our primary lending consists of originating owner occupied, one-to-four family residential real estate loans, substantially all of which are primarily secured by properties located near our branch offices. At December 31, 2017, $56.1 million, or 81.3% of our total loan portfolio, consisted of owner occupied one-to-four family residential real estate loans. We offer these loans with fixed-rate maturities of up to 30 years as well as adjustable rates. In recent years, in the historically low interest rate environment, nearly all of our one-to-four family residential real estate loan originations have had fixed-rates of interest. The average loan balance of our one-to-four family residential real estate loans at December 31, 2017 was $55,000.

One-to-four family residential real estate loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate one-to-four family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which is generally $417,000 for single-family homes. We maintain in our portfolio all of the loans that we originate, except we currently sell most fixed-rate one-to-four family residential real estate loans with maturities of greater than 20 years.

Our adjustable-rate one-to-four family residential real estate loans generally consist of loans with initial interest rates fixed for one, three, five or seven years, and annual adjustments thereafter are indexed based on changes in the Monthly Federal Cost of Funds Index. Our adjustable-rate one-to-four family residential real estate loans generally have an interest rate adjustment limit of 200 basis points per adjustment, with a maximum lifetime interest rate adjustment limit of 600 basis points. In the current

low interest rate environment, we have originated a significant dollar amount of adjustable-rate one-to-four family residential real estate loans.

Generally, we originate one-to-four family residential real estate loans with loan-to-value ratios of up to 80%, and will, on occasion, originate loans with a loan-to-value ratio of up to 90% with private mortgage insurance or readily marketable collateral. During the years ended December 31, 2017 and 2016, we did not originate a significant amount of one-to-four family residential real estate loans with loan-to-value ratios in excess of 80%. All borrowers are required to obtain an abstract of title and a title opinion. We also require fire and casualty insurance and, where circumstances warrant, flood insurance.

We do not offer “interest only” mortgage loans on one-to-four family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).

Non-~~owner~~Owner ~~occupied~~Occupied One-to-~~four~~Four ~~family~~Family Residential Real Estate Loans. At December 31, ~~2017~~2018, $3.10 million, or 4.57%, of our total loan portfolio, consisted of non-owner occupied, or “investment,” one-to-four family residential real estate loans, all of which were secured by properties located in our market area. At December 31, ~~2017~~2018, our non-owner occupied one-to-four family residential real estate loans had an average balance of $3135,000.

We originate 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 2025 years. In recent years, in the historically low interest rate environment, nearly all of our non-owner occupied one-to-four family residential loan originations have fixed-rates of interest. We generally 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, we review the creditworthiness of the borrower, the expected cash flow from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. We require an abstract of title, a title opinion, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property.

Non-owner occupied one-to-four family residential loans generally carry higher interest rates and have shorter terms than one-to-four family residential mortgage loans. Non-owner occupied one-to-four family residential loans, however, entail greater credit risks compared to the owner occupied one-to-four family residential mortgage loans we originate. The payment of loans secured by income-producing properties typically depends on the sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions could affect the value of the collateral for the loan or the future cash flow of the property.

Commercial Real Estate Loans. On a very limited basis, we have offered commercial real estate loans. In recent years we have significantly reduced the origination of these types of loans, and we do not intend to emphasize the origination of these types of loans in the future. At December 31, 2017, $3.6 million, or 5.2% of our total loan portfolio, consisted of commercial real estate loans, which are generally secured by retail, industrial, service or other commercial properties and loans secured by raw land. At December 31, 2017, our commercial real estate loans had an average balance of $77,000 and the latest maturity assuming all payments received as scheduled is January 2048. 8

WeCommercial ~~have~~Real ~~offered~~Estate ~~fixed-rate~~Loans. WCF ~~and~~Financial ~~adjustable-rate~~Bank is expanding its Commercial Real Estate offerings as the Bank has added commercial banking staff to support this expansion into commercial banking. At December 31, 2018, $2.2 million, or 3.4% of our total loan portfolio, consisted of commercial real estate loans., Inwhich ~~recent~~are ~~years~~generally secured by retail, inindustrial, ~~the~~service ~~historically~~or ~~low~~other ~~interest~~commercial ~~rate~~properties ~~environment,~~and ~~nearly~~loans ~~all~~secured ofby raw land. At December 31, 2018, our commercial real estate ~~loan~~loans ~~originations~~had ~~have~~an average balance of $68,000.

9Currently, we offer variable rate commercial loans. In the past, we have offered fixed-rate and adjustable-rate commercial real estate loans. In recent years, in the historically low interest rate environment, nearly all of our commercial real estate loan originations have had adjustable-rates of interest. These loans generally have terms of up to 20 years. We generally lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. The underwriting of commercial real estate loans includes but is not limited to evaluating the type of property securing the loan, the creditworthiness of the borrower, the expected cash flow from the property securing the loan, the global cash flow of the business, the cash flow requirements of the borrower, the value and condition of the property securing the loan and the borrower’s experience in owning or managing similar property. In evaluating a proposed commercial real estate loan, we emphasize the debt service coverage, generally requiring a minimum ratio of 1.20 times computed after deduction for a vacancy factor and property expenses we deem appropriate. Commercial real estate loans afford us the opportunity to earn higher yields than those obtainable on one-to-four family residential real estate lending and greater growth potential In addition, adjustable rate terms allow the bank to better manage the overall interest rate risk of the bank. Nevertheless, commercial real estate lending may involve greater risk than one-to-four family residential real estate loans because the loans generally have larger principal balances and repayment of these loans is dependent on the successful operation or management of the commercial property securing the loan. The success of the loan may also be affected by many factors outside the control of the borrower. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties. Properly managed, this risk is mitigated by the bank with strong underwriting standards.

~~had~~Consumer ~~adjustable-rates of interest~~Loans. ~~These loans generally have terms of up to 20 years.~~ We ~~generally~~offer ~~lend~~a upvariety ~~to 75%~~ of ~~the~~consumer ~~property’s~~loans ~~appraised~~including ~~value.~~new ~~Appraised~~and ~~values~~used ~~are~~automobile ~~determined~~loans, byhome animprovement ~~outside~~and ~~independent~~home ~~appraiser.~~equity ~~In evaluating the property securing the loan~~loans, werecreational ~~review~~vehicle ~~the creditworthiness of the borrower~~loans, ~~the~~and ~~expected~~loans ~~cash~~secured ~~flow~~by ~~from~~certificates ~~the~~of ~~property~~deposits. ~~securing~~At ~~the~~December ~~loan~~31, ~~the~~2018, ~~cash~~consumer ~~flow~~loans ~~requirements~~totaled of$6.8 ~~the borrower~~million, ~~the value and condition of the property securing the loan and the borrower’s experience in owning~~ or ~~managing similar property~~10.6% ~~In evaluating a proposed commercial real estate loan, we emphasize the ratio~~ of ~~the~~our ~~property’s projected net cash flow to the~~ loan’s ~~debt~~portfolio, ~~service requirement (generally requiring a minimum ratio~~ of 1which $4.155 ~~times)~~million, ~~computed~~or ~~after deduction for a vacancy factor and property expenses we deem appropriate~~65.8% ~~We require an abstract~~ of ~~title,~~total aconsumer ~~title opinion~~loans, ~~fire~~were ~~and~~automobile ~~extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property~~loans.

Commercial real estate loans afford us the opportunity to earn higher yields than those obtainable on one-to-four family residential real estate lending. Nevertheless, commercial real estate lending may involve greater risk than one-to-four family residential real estate loans because the loans generally have larger principal balances and repayment of these loans is dependent on the successful operation or management of the commercial property securing the loan. The success of the loan may also be affected by many factors outside the control of the borrower. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties. Land loans pose additional risks because the property generally does not produce income and may be relatively illiquid.

Consumer Loans. We offer a variety of consumer loans including new and used automobile loans, home improvement and home equity loans, recreational vehicle loans, and loans secured by certificates of deposits. At December 31, 2017, consumer loans totaled $6.1 million, or 8.9% of our loan portfolio, of which $4.1 million, or 66.6%, were automobile loans. At this date, $156,000 of our consumer loans were unsecured.

Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. We intend to continue to emphasize and grow our portfolio of consumer loans in the future.

Consumer loans generally have greater risk compared to longer-term loans secured by improved, owner occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

We also offer home equity loans secured by a first or second mortgage on residential property. Our home equity loans are made with fixed or adjustable rates, and with combined loan-to-value ratios up to 90% on an owner occupied principal residence or 100% with equity protection program insurance.

Loan Originations, Purchases, Sales and Servicing. Lending activities are conducted by our loan personnel operating at our offices. All loans that we originate are underwritten pursuant to our standard policies and procedures. Our ability to originate loans is dependent upon the relative customer demand for such loans and competition from other lenders, which is affected by market interest rates as well as anticipated future market interest rates. Our loan origination and sales activity may be adversely affected by a rising interest rate environment, which typically results in decreased loan demand. Our loan ~~originations are generated by our loan personnel, existing customers, referrals from realtors, residential home builders, automobile dealers and walk-in business.~~

~~In previous years we have not purchased loans. In December 2017 we purchased $~~9~~.8 million in one-to-four family residential loans located in Linn County Iowa. Pursuant to our acquisition of Independence~~

10originations are generated by our loan personnel, existing customers, referrals from realtors, residential home builders, automobile dealers and walk-in business.

In previous years we have not purchased loans. In December 2017 we purchased $9.8 million in one-to-four family residential loans located in Linn County, Iowa. Pursuant to our acquisition of Independence Bank in January 2014, we acquired $10.5 million in loans, substantially all of which were secured by properties located in Buchanan County, Iowa.

Substantially all of the one-to-four family residential real estate loans that we originate meet the underwriting guidelines established by Fannie Mae and Freddie Mac. In recent years, we have sold our conforming, fixed-rate one-to-four family residential real estate loans that have terms of greater than 20 years, on a servicing-released basis.

The following table sets forth our loan origination, purchase, sale and principal repayment activity during the periods indicated.

	Years Ended December 31,
	2017			2016
	2018			2017
	(in thousands)
Total loans, at beginning of period	$	6168,~~167~~969		$	5861,~~058~~167
Loans originated:
One-to-four family residential	75,~~210~~944			107,~~704~~210
Non-owner occupied one-to-four family residential real estate	~~432~~839			~~180~~432
Commercial real estate	~~569~~332			~~995~~569
Consumer	23,~~805~~886			52,~~944~~805
Total loans originated	11,~~016~~001			1711,~~823~~016
Loans purchased:
One-to-four family residential	~~9,806~~—			—9,806
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			—
Consumer	—			—
Total loans purchased	~~9,806~~—			—9,806
Loans sold:
One-to-four family residential	(~~850~~563		)	(~~1,448~~850		)
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			—
Consumer	—			—
Total loans sold	(~~850~~563		)	(~~1,448~~850		)
Other:
Principal repayments	(1215,~~170~~094		)	(1312,~~266~~170		)
Net loan activity	7(4,~~802~~656		)	37,~~109~~802
Total loans, including loans held for sale, at end of period	$	6864,~~969~~313		$	6168,~~167~~969

Non-Performing and Problem Assets

Delinquency Procedures. When a borrower fails to make a required monthly loan payment, a late notice is generated, generally on the 15th day after the payment due date, stating the payment and late charges due. A follow-up notice is sent on the 29th day after the payment due date, and again on the 45th day only if the loan is for a personal residence. On a case-by-case basis, we will also include follow-up phone calls. The accrual of interest on loans is discontinued at the time future payments are not reasonably assured or the loan is 90 days delinquent, unless the credit is well secured and in the process of collection. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Our CEO or Chief Lending Officer determines on a case-by-case basis further actions. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will be permitted to continue to make payments. The loan will remain on nonaccrual status until a timely repayment history has been established.

When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate held for sale until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell which establishes a new cost basis. Any write-down resulting from the acquisition is charged to the allowance for loan losses. Estimated fair value is based on a new appraisal or an in-house evaluation which is obtained as soon as practicable. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized as long as the total cost basis of the property does not exceed estimated fair value less estimated costs to sell.

Delinquent Loans. The following table sets forth our loan delinquencies by type and amount of type at the dates indicated.

	Loans Delinquent For						Total
	30-89 Days			90 Days and Over
	Number	Amount		Number	Amount		Number	Amount
	(Dollars in thousands)
At December 31, 2018
One-to-four family residential	25	$	990	7	$	369	32	$	1,359
Non-owner occupied one-to-four family residential real estate	—	—		—	—		—	—
Commercial real estate	—	—		—	—		—	—
Consumer	31	253		9	64		40	317
Total	56	1,243		16	433		72	1,676
At December 31, 2017
One-to-four family residential	27	$	1,108	10	$	492	37	$	1,600
Non-owner occupied one-to-four family residential real estate	1	18		6	177		7	195
Commercial real estate	1	36		1	275		2	311
Consumer	33	249		9	54		42	303
Total	62	~~1,411~~$	1,411	26	~~998~~$	998	88	~~2,409~~$	2,409
At December 31, 2016
One-to-four family residential	25	$	978	7	$	258	32	$	1,236
Non-owner occupied one-to-four family residential real estate	1	36		2	57		3	93
Commercial real estate	1	27		1	298		2	325
Consumer	28	271		2	1		30	272
Total	55	$	1,312	12	$	614	67	$	1,926

Non-Performing Assets. The accrual of interest on loans is discontinued at the time future payments are not reasonably assured or the loan is 90 days delinquent, unless the credit is well secured and in the process of collection. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans is applied against principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. Restructured loans are restored to accrual status when the obligation is brought current, has performed in accordance with the revised contractual terms for a reasonable period of time (typically six months) and the ultimate collectibility of the total contractual principal and interest is reasonably assured.

interest credited to income is reversed. Interest received on nonaccrual loans is applied against principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Restructured loans are restored to accrual status when the obligation is brought current, has performed in accordance with the revised contractual terms for a reasonable period of time (typically six months) and the ultimate collectability of the total contractual principal and interest is reasonably assured.

The following table sets forth information regarding our non-performing assets at the dates indicated. We had no troubled debt restructurings (TDRs) at the dates indicated.



	At December 31,
	2018			2017
	(Dollars in thousands)

Non-accrual loans:
One-to-four family residential real estate	$	581		$	151
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			275
Consumer	64			—
Total	645			426

Accruing loans 90 days or more past due:
One-to-four family residential real estate	$	—		$	341
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			—
Consumer	—			57
Total loans 90 days or more past due	—			398

Total non-performing loans	645			824

Real estate owned	421			48
Other non-performing assets	—			—

Total non-performing assets	$	1,066		$	872

Ratios:
Total non-performing loans to total loans	1.00		%	1.19		%
Total non-performing assets to total assets	0.78		%	0.66		%

For the year ended December 31, 2018, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was immaterial, and the amount of interest we recorded on these loans was $0.

At December 31, 2018, nonaccrual loans consisted of 10 one-to-four family residential real estate loans totaling $581,060 and nine consumer loans totaling $63,655.

At December 31, 2018, we had $1.61 million in loans that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings, but where known information about possible credit problems of borrowers caused management to have concerns as to the ability of the borrowers to comply with existing loan repayment terms and that could result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

Troubled Debt Restructurings. Troubled debt restructurings are defined under ASC 310-40 to include loans for which either a portion of interest or principal has been forgiven, or for loans modified at interest rates or on terms materially less favorable than current market rates. At December 31, 2018 and 2017, we had no loans that were classified as a troubled debt restructuring.

	At December 31,
	2017			2016
	(Dollars in thousands)
Non-accrual loans:
One-to-four family residential real estate	$	151		$	292
Non-owner occupied one-to-four family residential real estate	—			314
Commercial real estate	275			297
Consumer	—			9
Total	426			912
Accruing loans 90 days or more past due:
One-to-four family residential real estate	$	341		$	193
Non-owner occupied one-to-four family residential real estate	—			57
Commercial real estate	—			—
Consumer	54			1
Total loans 90 days or more past due	395			251
Total non-performing loans	821			1,163
Real estate owned	48			58
Other non-performing assets	—			—
Total non-performing assets	$	869		$	1,221
Ratios:
Total non-performing loans to total loans	1.19		%	1.90		%
Total non-performing assets to total assets	0.66		%	0.99		%

Foreclosed Real Estate Held for Sale. At December 31, 2018, we had $420.6 thousand in foreclosed real estate held for sale.

~~For~~Classified ~~the~~Assets. ~~year~~Federal ~~ended~~regulations ~~December~~provide 31that loans and other assets of lesser quality should be classified as “substandard”, ~~2017~~“doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, ~~gross~~if ~~interest~~any. ~~income~~“Substandard” assets include those characterized by the “distinct possibility” that ~~would~~the ~~have~~insured ~~been~~institution ~~recorded~~will ~~had~~sustain ~~our~~“some ~~non-accruing~~loss” ~~loans~~if ~~been~~the ~~current~~deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in ~~accordance~~those classified “substandard,” with ~~their~~the ~~original~~added ~~terms~~characteristic ~~was~~that ~~immaterial~~the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the ~~amount~~establishment of ~~interest~~a wespecific ~~recorded~~loss onreserve ~~these~~is ~~loans~~not ~~was~~warranted. $0Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention/watch” by our management.

At December 31, 2017, nonaccrual loans consisted of two one-to-four family residential real estate loans totaling $150,625, and one commercial real estate loan totaling $274,804.

At December 31, 2017, we had $1.4 million in loans that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings, but where known information about possible credit problems of borrowers caused management to have concerns as to the ability of the borrowers to comply with existing loan repayment terms and that could result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

Troubled Debt Restructurings. Troubled debt restructurings are defined under ASC 310-40 to include loans for which either a portion of interest or principal has been forgiven, or for loans modified at interest rates or on terms materially less favorable than current market rates. At December 31, 2017 and 2016, we had no loans that were classified as a troubled debt restructuring.

Foreclosed Real Estate Held for Sale. At December 31, 2017, we had $48,200 in foreclosed real estate held for sale, consisting of two residential real estate properties.

Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard”, “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the

insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention/watch” by our management.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required to charge-off the amount of such assets. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional loss allowances.

In connection with the filing of our periodic reports and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or because of delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of each loan on our watch list with the Loan Committee and then with the full board of directors at the next regularly scheduled board meeting. If the asset quality of a loan deteriorates, the classification is changed to “special mention/watch,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.”

Assets that do not expose us to risk sufficient to warrant classification, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention/watch. As of December 31, ~~2017~~2018, we had $1.76 million of assets designated as special mention/watch.

We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets at December 31, ~~2017~~2018, substandard assets consisted of loans of $1644.37 ~~million~~thousand. There were no doubtful or loss assets at December 31, ~~2017~~2018.

As of December 31, ~~2017~~2018, our largest substandard loan classification had a principal balance of $~~274,804~~132.0 thousand and was secured by ~~raw~~a ~~land~~single family residence. Management believes this loan is adequately collateralized.

~~The following table sets forth our amounts of classified loans and loans designated as special mention as of December 31, 2017 and 2016.~~ 13

	At December 31,
	2017		2016
	(In thousands)
Classification of loans:
Substandard	$	1,289	$	1,107
Doubtful	—		—
Loss	—		—
Total classified loans	$	1,289	$	1,107
Special mention	$	1,637	$	1,575

The following table sets forth our amounts of classified loans and loans designated as special mention as of December 31, 2018 and 2017.



	At December 31,
	2018		2017
	(In thousands)
Classification of loans:
Substandard	$	645	$	1,289
Doubtful	—		—
Loss	—		—
Total classified loans	$	645	$	1,289
Special mention	$	1,614	$	1,719

Allowance for Loan Losses

Analysis and Determination of the Allowance for Loan Losses. Our allowance for loan losses is the amount considered necessary to reflect probable incurred losses in our loan portfolio. We evaluate the need to establish allowances against losses on loans on at least a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for impaired loans, and (2) a general valuation allowance for non-impaired loans. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

Specific Allowances on Impaired Loans. We establish a specific allowance when non-owner occupied one-to-four family residential real estate and commercial loans are determined to be impaired. Loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Factors in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral for the mortgage.

General Valuation Allowance on Non-impaired Loans. We establish a general allowance for non-impaired loans to recognize the probable losses associated with lending activities. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience ~~for~~with ~~the~~a ~~last~~rolling ~~three~~12-quarter ~~years~~average, adjusted for qualitative factors that could impact the allowance for loan losses. These qualitative factors may include risk selection and underwriting standards, and other changes in lending policies, procedures and practices; level of experience, ability, and depth of lending management and other relevant staff experience; quality of the loan review system; nature, trends in volume of the portfolio and terms of loans; volume and severity of past due loans; value of underlying collateral for collateral dependent loans; credit concentrations and levels of such concentrations; external factors (i.e. competition, legal and regulatory) on level of estimated credit losses; and national, regional and local economic trends and conditions. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current real estate environment.

In addition, as an integral part of their examination process, the ~~OCC~~Iowa Division of Banking and the FDIC with respect to WCF Financial Bank, and the Federal Reserve ~~Bank~~Board ~~of Kansas City~~ with respect to WCF Bancorp, Inc. will periodically review our allowance for loan losses and may require that we recognize additions to the allowance based on their judgment of information available to them at the time of their examinations.

The allowance for loan losses increased $51,000, or 10.5%, to $538,000 at December 31, 2017 from $487,000 at December 31, 2016. In addition, the allowance for loan losses to total loans receivable decreased to 0.78% at December 31, 2017 from 0.80% at December 31, 2016. The allowance for loan losses as a percentage of non-performing loans increased to 65.53% at December 31, 2017 from 41.87% at December 31, 2016. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at December 31, 2017 and 2016.14

The allowance for loan losses decreased $29,000, or 5.4%, to $509,000 at December 31, 2018 from $538,000 at December 31, 2017. However, the allowance for loan losses to total loans receivable increased to 0.79% at December 31, 2018 from 0.78% at December 31, 2017. The allowance for loan losses as a percentage of non-performing loans increased to 78.91% at December 31, 2018 from 65.29% at December 31, 2017. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at December 31, 2018 and 2017.

Allowance for Loan Losses. The following table sets forth information regarding our allowance for loan losses and other ratios at or for the dates indicated.



	At or For the Years Ended December 31,
	2018			2017
	(Dollars in thousands)

Balance at beginning of year	$	538		$	487

Charge-offs:
One-to-four family residential	(67		)	(11		)
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			—
Consumer	(61		)	(14		)
Total charge-offs	(128		)	(25		)

Recoveries:
One-to-four family residential	—			—
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			—
Consumer	21			—
Total recoveries	21			—

Net charge-offs	(107		)	(25		)

Provision for loan losses	78			76

Balance at end of year	$	509		$	538

Ratios:
Net charge-offs to average loans outstanding	0.17		%	0.04		%
Allowance for loan losses to non-performing loans at end of year	78.91		%	65.29		%
Allowance for loan losses to total loans at end of year	0.79		%	0.78		%

	At or For the Years Ended December 31,
	2017			2016
	(Dollars in thousands)
Balance at beginning of year	$	487		$	505
Charge-offs:
One-to-four family residential	(11		)	(15		)
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			(29		)
Consumer	(14		)	(38		)
Total charge-offs	(25		)	(82		)
Recoveries:
One-to-four family residential	—			—
Non-owner occupied one-to-four family residential real estate	—			—
Commercial real estate	—			—
Consumer	—			4
Total recoveries	—			4
Net charge-offs	(25		)	(78		)
Provision for loan losses	76			60
Balance at end of year	$	538		$	487
Ratios:
Net charge-offs to average loans outstanding	0.04		%	0.13		%
Allowance for loan losses to non-performing loans at end of year	65.53		%	41.87		%
Allowance for loan losses to total loans at end of year	0.78		%	0.80		%

Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2017						2016
	2018						2017
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans
	(Dollars in thousands)
One-to-four family residential	$	~~393~~407	7380.10	%	81.4	%	$	~~320~~393	6573.71	%	7781.34	%
Non-owner occupied one-to-four family residential real estate	2613		42.85		4.56		2826		54.8		64.05
Commercial real estate	3319		63.17		53.24		3733		7.6.1		5.92
Consumer	8670		1613.08		810.96		~~102~~86		2016.90		~~10.~~8.9
Total allowance for loan losses	$	~~538~~509	100.0	%	100.0	%	$	~~487~~538	100.0	%	100.0	%

Investment Activities

General. Our investment policy is established by the board of directors. Our investment policy dictates that investment decisions will be made based on the safety of the investment, liquidity and pledging requirements, our interest rate risk and our potential long term earnings. The Investment Committee of the board of directors is responsible for overseeing our investment program and evaluating on an ongoing basis our investment policy and objectives. Our Chief Executive Officer has the authority to purchase securities within specific guidelines established by the investment policy. All transactions are reviewed by the board of directors at its regular meetings. U.S. GAAP requires that securities be categorized as “held to maturity,” “trading securities” or “available-for-sale,” based on management’s intent as to the ultimate disposition of each security. U.S. GAAP allows debt securities to be classified as “held to maturity” and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security’s prepayment risk, increases in loan demand, or other similar factors cannot be classified as “held to maturity.”

At December 31, ~~2017~~2018, all of our securities were classified as available-for-sale.

Our investment policy does not permit hedging activities, such as futures, options or swap transactions, gains trading or short sales. Additionally, securities deemed unacceptable for our portfolio include any security whose interest rate is tied to a foreign currency exchange rate.

The following table sets forth the amortized cost and fair value of our securities portfolio (excluding Federal Home Loan Bank of Des Moines and Bankers’ Bank common stock) at the dates indicated. At the dates indicated, all of our investment securities were held as available-for-sale.

	At December 31,
	2017				2016
	2018				2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
U.S government and agency securities	$	13,~~239~~740	$	13,~~234~~714	$	~~250~~1,239	$	~~243~~1,234
Mortgage-backed securities(1)	2726,~~332~~511		2625,~~784~~649		3127,~~885~~332		3126,~~397~~784
Municipal securities	1514,~~051~~484		1514,~~111~~259		1215,~~685~~051		1215,~~514~~111
Corporate securities	—		—		500		499
Total securities available-for-sale	$	44,735	$	43,622	$	43,622	$	43,129
Total securities available-for-sale	$	43,622	$	43,129	$	45,320	$	44,653



(1) Represents securities issued by Fannie Mae, Freddie Mac or Ginnie Mae, and are backed by residential mortgage loans.

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio and the mortgage-backed securities portfolio at December 31, 2017 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent yield adjustments were made. Our municipal securities are all tax-exempt. All of our securities at this date were held as available-for-sale.16

17Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio and the mortgage-backed securities portfolio at December 31, 2018 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent yield adjustments were made. Our municipal securities are all tax-exempt. All of our securities at this date were held as available-for-sale.

	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
U.S. government and agency securities	$	—2,500	—3.58	%	$	—	—	%	$	1,~~239~~240	2.66	%	$	—	—	%	$	13,~~239~~740	$	13,~~234~~714	23.6641	%
Mortgage-backed securities	—		—		2423,~~137~~078		1.7695		3,~~195~~433		2.4973		—		—		2726,~~332~~511		2625,~~784~~649		12.8504
Municipal securities	~~105~~429		41.4085		2,~~593~~244		23.9020		6,~~003~~467		21.9688		65,~~350~~345		31.0828		1514,~~051~~485		1514,~~111~~259		3.0105
Corporate securities	—		—		—		—		—		—		—		—		—		—		—
Total securities available-for-sale	$	2,929	3.33	%	$	25,322	2.06	%	$	11,140	2.23	%	$	5,345	1.28	%	$	44,736	$	43,622	2.48	%
Total securities available-for-sale	$	105	4.40	%	$	26,730	1.87	%	$	10,437	2.78	%	$	6,350	3.08	%	$	43,622	$	43,129	2.27	%

Sources of Funds

General. Deposits traditionally have been our primary source of funds for our lending activities and, as applicable, other investments. We also borrow from the Federal Home Loan Bank of Des Moines to supplement cash flow needs, and at December 31, ~~2017~~2018 we had $1424.0 million of FHLB advances outstanding. The Bank had an additional $13.3 million available for funding at the FHLB on December 31, 2018. We also have an available line of credit in the amount of $2.5 million at Bankers’ Bank, of which there was no amount outstanding at December 31, ~~2017~~2018. Our additional sources of funds are scheduled loan repayments, loan prepayments, retained earnings and the proceeds of loan and securities sales.

Deposits. We accept deposits primarily from individuals who reside in and businesses located in our market area. We rely on our competitive pricing and products, convenient location and quality customer service to attract and retain deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of statement savings accounts, money market accounts, NOW accounts and certificates of deposits.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals. ~~Historically~~We we have not relied on brokered deposits and at December 31, ~~2017~~2018 and ~~2016~~2017, we did not have any brokered deposits, however it may provide a source of future funding.

1817

The following table sets forth the distribution of average total deposits by account type, for the periods indicated.

	For the Years Ended December 31,
	2017						2016
	2018						2017
	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Statement savings	$	14,~~369~~510	1617.5	%	0.2324	%	$	1114,~~509~~369	1216.85	%	210.23	%
Money market	11,~~373~~114		13.14		0.3084		11,~~185~~373		1213.41		0.3230
NOW	1817,~~337~~711		21.14		0.0805		2018,~~542~~337		2221.91		0.0908
Certificates of deposit	4239,~~785~~406		4947.37		1.2148		4642,~~638~~785		5149.93		1.0721
Total deposits	$	8682,~~864~~741	100.0	%	0.7286	%	$	8986,~~874~~864	100.0	%	0.6872	%

The following table sets forth all our certificates of deposit classified by interest rate as of the dates indicated.

	At December 31,
	2017		2016
	2018		2017
	(In thousands)
Interest Rate:
Less than 1%	$	~~16,330~~—	$	1316,~~881~~330
1.00% - 1.99%	2627,~~375~~048		2526,~~083~~375
2.00% - 2.99%	—13,700		~~6,435~~—
Total	$	4240,~~705~~748	$	4542,~~399~~705

The following table sets forth the amount and maturities of all our certificates of deposit by interest rate at December 31, ~~2017~~2018.

	At December 31, 2017
	At December 31, 2018
	Period to Maturity
	Less Thanor Equal toOne Year		Over OneYear to TwoYears		Over TwoYears toThree Years		Over ThreeYears		Total		Percentageof TotalCertificateAccounts
	(Dollars in thousands)
Interest Rate:
Less than or equal to1.00%	$	~~16,330~~—	$	—	$	—	$	—	$	~~16,330~~—	~~38.2~~—	%
1.00% - 1.99%	411,~~831~~654		85,~~800~~018		4,~~582~~618		85,~~162~~758		2627,~~375~~048		6166.84
Total	$	21,161	$	8,800	$	4,582	$	8,162	$	42,705	100	%
2.00% - 2.99%	11,905		1,697		98		—		13,700		33.6
Total	$	23,559	$	6,715	$	4,716	$	5,758	$	40,748	100	%

1918

As of December 31, ~~2017~~2018, the aggregate amount of our outstanding certificates of deposit in amounts greater than or equal to $100,000 was $1415.60 million. The following table sets forth the maturity of those certificates as of December 31, ~~2017~~2018.

	At December 31, 2017
	At December 31, 2018
	(In thousands)
Three months or less	$	~~1,018~~892
Over three months through six months	3,~~614~~853
Over six months through one year	36,~~684~~441
Over one year to three years	32,~~151~~229
Over three years	31,~~095~~614
Total	$	1415,~~562~~029

Borrowings. We may obtain advances from the FHLB of Des Moines utilizing the security of the common stock we own in the FHLB of Des Moines and qualifying residential mortgage loans as collateral, provided certain standards related to creditworthiness are met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. FHLB of Des Moines advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending. The following table sets forth information concerning balances and interest rates on our borrowings at and for the periods shown:

	At or For the Years EndedDecember 31,
	2017			2016
	2018			2017
	(Dollars in thousands)
FHLB:
Balance at end of period	$	1424,000		$	514,~~500~~000
Average balance during period	$	414,~~315~~055		$	64,~~707~~315
Maximum outstanding at any month end	$	1424,000		$	814,000
Weighted average interest rate at end of period	2.2153		%	12.0821		%
Average interest rate during period	12.3731		%	01.9937		%

Personnel

As of December 31, ~~2017~~2018, we had 25 full-time equivalent employees. Our employees are not represented by any collective bargaining group. We believe that we have a good working relationship with our employees.

Subsidiary Activity

WCF Financial Bank is the only direct subsidiary of WCF Bancorp, Inc. WCF Financial Bank has one subsidiary, WCF Financial Service Corp., an inactive Iowa corporation that previously provided insurance products, but no longer conducts any business.

Supervision and Regulation

General

~~As a federal savings bank,~~ WCF Financial Bank is ~~subject~~an toIowa-chartered ~~examination~~bank and ~~regulation~~as bysuch ~~the OCC, and~~ is ~~also~~examined ~~subject to examination~~ by the ~~Federal~~Iowa ~~Deposit~~Division ~~Insurance~~of ~~Corporation~~Banking (~~FDIC~~the “Iowa Division”). ~~The~~as ~~federal~~its ~~system~~primary ofstate ~~regulation~~regulator and ~~supervision~~by ~~establishes~~the aFederal ~~comprehensive~~Deposit ~~framework~~Insurance ofCorporation ~~activities~~(“FDIC”) inas ~~which~~its ~~WCF~~primary ~~Financial~~federal ~~Bank~~regulator ~~may engage~~ and ~~is intended primarily for~~ the ~~protection~~insurer of ~~depositors~~its ~~and~~deposit ~~the FDIC’s Deposit Insurance Fund~~accounts. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors, and not for the protection of security holders. WCF Financial Bank also is a member of and owns stock in the Federal Home Loan Bank of Des Moines, which is one of the 11 regional banks in the Federal Home Loan Bank System.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; determine the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as WCF Financial Bank or WCF Bancorp Inc., from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.19

Inmay ~~addition,~~engage weand ~~must~~is ~~comply~~intended ~~with~~primarily ~~significant~~for ~~anti-money~~the ~~laundering~~protection ~~and~~of ~~anti-terrorism~~the ~~laws~~FDIC’s deposit insurance fund and ~~regulations~~depositors, ~~Community~~and ~~Reinvestment~~not ~~Act~~for ~~laws~~the protection of security holders. Under this system of state and ~~regulations~~federal regulation, ~~and~~financial ~~fair~~institutions ~~lending~~are ~~laws~~periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and ~~regulations~~sensitivity to market interest rates. The ~~Government~~Iowa ~~agencies~~Division ~~have~~and the ~~authority~~FDIC toexamine ~~impose~~WCF ~~monetary~~Financial ~~penalties~~Bank and ~~other~~prepare ~~sanctions~~reports for the consideration of the Bank’s Board of Directors on ~~institutions~~any ~~that~~operating ~~fail~~deficiencies. WCF toFinancial ~~comply~~Bank’s relationship with ~~these~~its ~~laws~~depositors and ~~regulations~~borrowers also is regulated to a great extent by federal law and, ~~which~~to ~~could~~a ~~significantly~~much ~~affect~~lesser ~~our~~extent, ~~business~~state ~~activities~~law, ~~including~~especially ~~our~~in ~~ability~~matters toconcerning ~~acquire~~the ~~other~~ownership ~~financial~~of ~~institutions~~deposit oraccounts ~~expand~~and ~~our~~the ~~branch~~form ~~network~~and content of WCF Financial Bank’s loan documents.

AsAny achange ~~savings~~in ~~and~~these ~~loan~~laws ~~holding~~or ~~company~~regulations, ~~WCF~~whether ~~Bancorp,~~by ~~Inc. is required to comply with~~ the ~~rules~~Iowa ~~and~~Division, ~~regulations of~~ the ~~Federal~~FDIC ~~Reserve~~or ~~Board.~~Congress, Itcould ishave ~~required~~a tomaterial ~~file~~adverse ~~certain~~impact ~~reports~~on ~~with the Federal Reserve Board and will be subject to examination by and the enforcement authority of the Federal Reserve Board.~~ WCF Bancorp, ~~Inc.~~WCF isFinancial ~~also~~Bank ~~be subject to the rules~~ and ~~regulations~~their ~~of the Securities and Exchange Commission under the federal securities laws~~operations.

~~Any~~In ~~change~~connection inwith ~~applicable~~WCF ~~laws~~Financial orBank’s ~~regulations,~~conversion ~~whether~~of byits ~~the~~charter ~~OCC~~from a federal savings association to an Iowa bank, WCF Bancorp applied to the ~~FDIC,~~Board of Governors of the Federal Reserve ~~Board~~System or(the ~~Congress,~~“Federal Reserve”) ~~could~~to ~~have~~become a ~~material~~registered ~~adverse~~bank ~~impact~~holding oncompany. Accordingly, ~~the~~WCF ~~operations~~Bancorp continues to be required to file certain reports with, is subject to examination by, and ~~financial~~otherwise ~~performance~~must comply with the rules and regulations of the Federal Reserve. WCF Bancorp, ~~Inc.~~is also subject to the rules and ~~WCF~~regulations ~~Financial~~of ~~Bank~~the Securities and Exchange Commission (“SEC”) under the federal securities laws.

~~Set~~Certain ~~forth below is a brief description of material~~ regulatory requirements that are ~~or will be~~ applicable to WCF Financial Bank and WCF Bancorp, ~~Inc.~~are ~~The~~described below. This description ~~is limited to certain material aspects~~ of ~~the~~ statutes and regulations ~~addressed, and~~ is not intended to be a complete description of such statutes and regulations and their effects on WCF Financial Bank and WCF Bancorp, ~~Inc~~and is qualified in its entirety by reference to the actual statutes and regulations.

Capital Requirements. Federal regulations require federally insured depository institutions meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The current capital requirements were effective January 1, 2015 and are the result of a final rule implementing recommendations of the Basel Committee on Banking ~~Regulation~~Supervision (“BASEL III”) and certain requirements of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”).

~~Business~~For ~~Activities.~~purposes Aof ~~federal~~the ~~savings~~regulatory ~~association~~capital ~~derives~~requirements, ~~its~~common ~~lending~~equity ~~and~~Tier 1 ~~investment~~capital ~~powers~~is ~~from~~generally ~~the~~defined ~~Home~~as ~~Owners~~common stockholders’ ~~Loan~~equity ~~Act,~~and retained earnings. Tier 1 capital is generally defined as ~~amended,~~common equity Tier 1 and ~~applicable~~additional ~~federal~~Tier ~~regulations~~1 capital. ~~Under~~Additional ~~these~~Tier ~~laws~~1 ~~and~~capital ~~regulations,~~includes ~~WCF~~certain ~~Financial~~noncumulative ~~Bank~~perpetual ~~may~~preferred ~~invest~~stock and related surplus and minority interests in ~~mortgage~~equity ~~loans~~accounts ~~secured~~of byconsolidated ~~residential~~subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and ~~commercial~~Tier ~~real~~2 ~~estate~~capital. Tier 2 capital is comprised of capital instruments and related surplus, ~~commercial~~meeting ~~business~~specified requirements, and ~~consumer~~may ~~loans~~include cumulative preferred stock and long-term perpetual preferred stock, ~~certain~~mandatory ~~types~~convertible ofsecurities, intermediate preferred stock and subordinated debt. ~~securities~~Also included in Tier 2 capital is the allowance for loan and ~~certain~~lease ~~other~~losses limited to a maximum of 1.25% of risk-weighted assets and, ~~subject~~for institutions that made such an election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to ~~applicable~~45% ~~limits~~of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). WCF ~~Financial~~Bancorp ~~Bank~~has ~~may~~exercised ~~also~~the ~~establish~~opt-out ~~subsidiaries~~and ~~that~~therefore ~~may~~does ~~engage~~not include AOCI in its regulatory capital determinations. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to four- family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a

risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in starting on January 1, 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented at 2.5% on January 1, 2019. At December 31, 2018, WCF Financial Bank exceeded the fully phased in regulatory requirement for the capital conservation buffer.

Legislation enacted in May 2018 requires the federal banking agencies, including the FDIC, to establish for qualifying institutions with assets of less than $10 billion a “community bank leverage ratio” of between 8% to 10% tangible equity/consolidated assets. Institutions with capital levels meeting or exceeding the specified requirement will be considered to comply with the applicable regulatory capital requirements, including all risk-based requirements. The establishment of the community bank leverage ratio is subject to notice and comment rulemaking by the federal regulators. A proposed rule issued by the federal regulators in December 2018 would specify a 9% community bank leverage ratio minimum for institutions to opt into the alternative framework.

Federal banking agency regulations related to risk-based capital standards for insured institutions ensure that those standards take adequate account of interest-rate risk, concentration of credit risk, and the risk of nontraditional activities, as well as to reflect the actual performance and expected risk of loss on multi-family residential loans. The FDIC, along with the other federal banking agencies, adopted a regulation providing that the agencies will take into account the exposure of a bank’s capital and economic value to changes in interest rate risk in assessing a bank’s capital adequacy. The FDIC also has authority to establish individual minimum capital requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances. In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk.

Prompt Corrective Action Regulations. Under prompt corrective action regulations, the FDIC is authorized and, under certain circumstances, required to take supervisory actions against undercapitalized member banks. The extent of supervisory action depends upon the degree of the institution’s undercapitalization. For this purpose, an insured institution is placed in one of the following five categories based on the bank’s capital:


•	well-capitalized (at least 5% leverage capital, 8% Tier 1 risk-based capital, 10% total risk-based capital and 6.5% common equity Tier 1 risk-based capital);


•	adequately capitalized (at least 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital and 4.5% common equity Tier 1 risk-based capital);


•	undercapitalized (less than 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital or 4.5% common equity Tier 1 risk-based capital);


•	significantly undercapitalized (less than 3% leverage capital, 4% Tier 1 risk-based capital, 6% total risk-based capital or 3% common equity Tier 1 risk-based capital); and


•	critically undercapitalized (less than 2% tangible capital).

The previously referenced proposed rulemaking to establish a “community bank leverage ratio” would adjust the referenced categories for qualifying institutions that opt into the alternative framework for regulatory capital requirements.

At December 31, 2018, WCF Financial Bank met the criteria for being considered “well-capitalized.”

inStandards ~~certain~~for ~~activities~~Safety ~~not~~and ~~otherwise~~Soundness. ~~permissible~~As required by statute, the federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for ~~WCF~~Safety ~~Financial~~and ~~Bank~~Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, ~~including~~internal ~~real~~audit ~~estate~~system, ~~investment~~credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and ~~securities~~compensation, fees and ~~insurance~~benefits. ~~brokerage~~The agencies have also established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

~~Capital~~Investment ~~Requirements~~Activities. ~~Federal~~All ~~regulations~~state-chartered ~~require~~FDIC-insured ~~federally~~banks ~~insured~~are ~~depository~~generally ~~institutions~~limited in their investment activities to ~~meet~~principal ~~several~~and ~~minimum~~equity ~~capital~~investments ~~standards:~~of athe ~~4.0%~~type ~~Tier~~and 1in ~~capital~~the toamount ~~total~~authorized ~~assets~~for ~~leverage~~national ~~ratio~~banks, anotwithstanding ~~common~~state ~~equity~~law, ~~Tier~~subject 1to ~~capital~~certain toexceptions. ~~risk~~For example, state-~~based~~chartered ~~assets~~banks ~~ratio~~may, ofwith ~~5.125%~~FDIC approval, acontinue ~~total~~to ~~capital~~exercise state authority to ~~risk-based~~invest ~~assets~~in ofcommon ~~8.625%,~~or ~~and~~preferred stocks listed on a ~~Tier~~national 1securities ~~capital~~exchange toor ~~risk-based~~the ~~assets~~NASDAQ ~~ratio~~Global Market and in the shares of ~~6.625%.~~an ~~These~~investment ~~capital~~company ~~requirements~~registered ~~were~~under ~~effective~~the ~~January~~Investment 1Company Act of 1940, ~~2015~~as ~~and~~amended. ~~are~~The ~~the~~maximum ~~result~~permissible investment is 100% of aTier ~~final~~1 ~~rule~~Capital, ~~implementing~~as ~~recommendations~~specified ofby the ~~Basel~~FDIC’s ~~Committee~~regulations, onor ~~Banking~~the ~~Supervision~~maximum ~~and~~amount ~~certain~~permitted ~~requirements~~by ofIowa ~~the~~law, ~~Dodd-Frank~~whichever ~~Act~~is less.

In ~~determining~~addition, the ~~amount~~FDIC ofis ~~risk-weighted~~authorized ~~assets~~to ~~for~~permit ~~purposes~~such ~~of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by~~ a ~~risk~~state ~~weight~~bank ~~factor~~to ~~assigned~~engage ~~by the regulations based on the risks believed inherent~~ in ~~the~~state-authorized ~~type~~activities ofor ~~asset.~~investments ~~Higher~~not ~~levels~~permissible ~~of capital are required~~ for ~~asset~~national ~~categories~~banks ~~believed~~(other tothan ~~present~~non-subsidiary ~~greater risk. Common~~ equity ~~Tier~~investments) 1if ~~capital~~it ismeets ~~generally~~all ~~defined~~applicable ascapital ~~common~~requirements ~~stockholders’ equity~~ and ~~retained~~it ~~earnings. Tier 1 capital~~ is ~~generally~~determined ~~defined~~that assuch ~~common~~activities ~~equity~~or ~~Tier~~investments 1do ~~and~~not ~~additional~~pose ~~Tier~~a 1significant ~~capital.~~risk ~~Additional~~to ~~Tier~~the 1Deposit ~~capital~~Insurance ~~includes~~Fund. ~~certain~~The ~~noncumulative~~FDIC ~~perpetual~~has ~~preferred~~adopted ~~stock~~procedures ~~and~~for ~~related~~institutions ~~surplus~~seeking ~~and~~approval ~~minority~~to ~~interests~~engage in ~~equity~~such ~~accounts~~activities ofor ~~consolidated subsidiaries~~investments. ~~Total~~In ~~capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus~~addition, ~~meeting~~a ~~specified~~nonmember ~~requirements,~~bank ~~and~~ may ~~include~~control ~~cumulative~~a ~~preferred~~subsidiary ~~stock~~that ~~and~~engages ~~long-term~~in ~~perpetual~~activities ~~preferred~~as ~~stock,~~principal ~~mandatory~~that ~~convertible~~would ~~securities,~~only ~~intermediate~~be ~~preferred~~permitted ~~stock~~for ~~and~~a ~~subordinated~~national ~~debt.~~bank ~~Also~~to ~~included~~conduct in ~~Tier~~a 2“financial ~~capital~~subsidiary” isif ~~the allowance for loan and lease losses limited to~~ a ~~maximum~~bank ofmeets ~~1.25%~~specified ofconditions ~~risk-weighted assets~~ and, ~~for~~deducts ~~institutions~~its ~~that~~investment ~~have~~in ~~exercised an opt-out election regarding~~ the ~~treatment~~subsidiary ~~of Accumulated Other Comprehensive Income, up to 45% of net unrealized gains on available-~~for~~-sale~~ ~~equity securities with readily determinable fair market values. Calculation of all types of~~ regulatory capital ~~is subject to deductions and adjustments specified in the regulations~~purposes. In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

InBranching ~~addition~~Authority. toIowa ~~establishing~~banks, ~~the~~such ~~minimum~~as ~~regulatory~~WCF ~~capital~~Financial ~~requirements~~Bank, have the ~~regulations~~authority ~~limit~~under ~~capital~~Iowa ~~distributions~~law ~~and~~to ~~certain~~establish ~~discretionary~~branches ~~bonus~~anywhere ~~payments~~in the State of Iowa, subject to ~~management~~receipt ifof ~~the~~all ~~institution~~required ~~does~~regulatory ~~not~~approvals. ~~hold~~The aDodd-Frank ~~“capital~~Act ~~conservation~~permits ~~buffer”~~well-capitalized ~~consisting~~and ofwell-managed ~~2.5%~~banks to establish new interstate branches or the acquisition of ~~common~~individual ~~equity~~branches ~~Tier~~of 1a ~~capital~~bank toin ~~risk-weighted~~another ~~asset~~state ~~above~~(rather than the ~~amount~~acquisition ~~necessary~~of toan ~~meet~~out-of-state ~~its~~bank ~~minimum~~in ~~risk-based~~its ~~capital~~entirety) ~~requirements~~without impediments. ~~The~~Federal ~~capital~~law ~~conservation~~permits ~~buffer~~state ~~requirement~~and isnational ~~being~~banks ~~phased~~to merge with banks in ~~beginning~~other ~~January~~states 1,subject ~~2016~~to: at(i) regulatory ~~0.625%~~approval; of(ii) ~~risk-weighted~~federal ~~assets~~and state deposit concentration limits; and ~~increasing~~(iii) ~~each~~state ~~year~~law ~~until~~limitations ~~fully~~requiring ~~implemented~~the atmerging ~~2.5%~~bank to have been in existence for a minimum period of ~~risk-weighted~~time ~~assets~~(not onto ~~January~~exceed 1,five ~~2019~~years) prior to the merger.

AtDividend ~~December~~Payments. 31The primary source of funds for the Company is dividends from WCF Financial Bank. Under the Iowa Banking Act, ~~2017~~Iowa-chartered banks generally may pay dividends only out of undivided profits. The Iowa Division of Banking may restrict the declaration or payment of a dividend by an Iowa-chartered bank, such as WCF Financial Bank’s. The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital ~~exceeded~~pursuant ~~all~~to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, WCF Financial Bank exceeded its capital requirements under applicable guidelines as of December 31, 2018. Notwithstanding the availability of funds for dividends, however, the FDIC and the Iowa Division of Banking may prohibit the payment of dividends by WCF Financial Bank if either or both determine such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

~~Loans-to-One~~Community ~~Borrower.~~Reinvestment ~~Generally,~~Act aRequirements. ~~federal~~The ~~savings~~Community ~~association~~Reinvestment ~~may~~Act ~~not~~(CRA) ~~make~~requires aWCF ~~loan~~Financial orBank ~~extend credit~~ to have a ~~single~~continuing orand ~~related~~affirmative ~~group~~obligation ~~of borrowers~~ in ~~excess~~a ofsafe ~~15%~~and ofsound ~~unimpaired~~manner ~~capital~~to ~~and~~help ~~surplus.~~meet Anthe ~~additional~~credit ~~amount~~needs ~~may~~of beits ~~loaned~~entire community, ~~equal~~including tolow- ~~10%~~and ofmoderate-income ~~unimpaired~~neighborhoods. ~~capital~~State and ~~surplus,~~federal ifregulators ~~the~~regularly ~~loan~~assess isWCF ~~secured~~Financial byBank’s ~~readily~~record ~~marketable~~of ~~collateral,~~meeting ~~which~~the ~~generally~~credit ~~does~~needs ~~not~~of ~~include~~its ~~real estate~~communities. AsApplications offor ~~December~~additional ~~31,~~acquisitions ~~2017,~~would ~~WCF~~be ~~Financial~~affected ~~Bank~~by ~~was in compliance with~~ the ~~loans-to-one borrower limitations.~~

Qualified Thrift Lender Test. As a federal savings association, WCF Financial Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, WCF Financial Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business.

evaluation of WCF Financial Bank’s ~~also~~effectiveness ~~may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined~~ in ~~the~~meeting ~~Internal~~its ~~Revenue~~CRA ~~Code of 1986, as amended~~requirements. ~~This~~WCF ~~test~~Financial ~~generally~~Bank ~~requires~~received a ~~savings~~“satisfactory” ~~association~~Community toReinvestment ~~have~~Act atrating ~~least~~in ~~75% of~~ its ~~deposits~~most ~~held~~recent byfederal ~~the public and earn at least 25% of its income from loans and U~~examination.S. ~~government obligations. Alternatively, a savings association can satisfy this test by maintaining at least 60% of its assets in cash, real estate loans and U.S. Government or state obligations.~~

AInsurance ~~savings~~of ~~association~~Deposit ~~that~~Accounts. WCF ~~fails~~Financial ~~the qualified thrift lender test must operate under specified restrictions set forth in the Home Owners~~Bank’s ~~Loan~~deposits ~~Act.~~are ~~The~~insured ~~Dodd-Frank~~up ~~Act~~to ~~made~~applicable ~~noncompliance~~limits ~~with~~by the ~~QTL~~Deposit ~~test~~Insurance ~~subject~~Fund ~~to agency enforcement action for a violation~~ of ~~law~~the FDIC. Deposit Atinsurance ~~December~~per ~~31,~~account ~~2017,~~owner ~~WCF~~is ~~Financial Bank satisfied the QTL test~~$250,000.

~~Capital~~The ~~Distributions.~~FDIC ~~Federal~~imposes ~~regulations~~an ~~govern~~assessment ~~capital~~for ~~distributions~~deposit byinsurance aon ~~federal~~all ~~savings~~depository ~~association~~institutions. Under the FDIC’s risk-based assessment system, ~~which~~insured ~~include~~institutions ~~cash~~are ~~dividends~~assigned to risk categories based on supervisory evaluations, ~~stock~~regulatory ~~repurchases~~capital levels and certain other ~~transactions~~factors. ~~charged~~An toinstitution’s assessment rate depends upon the ~~savings~~category ~~association~~to which it is assigned and certain adjustments specified by FDIC regulations, with less risky institutions paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2 1/2 to 45 basis points of each institution’s total assets less tangible capital. ~~account~~The FDIC may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking. AThe ~~federal~~FDIC’s ~~savings~~current ~~association~~system ~~must~~represents ~~file~~a anchange, ~~application~~required ~~with~~by the ~~OCC~~Dodd-Frank ~~for~~Act, ~~approval~~from its prior practice of abasing ~~capital~~the ~~distribution~~assessment ~~if:~~on an institution’s volume of deposits.

•The Dodd-Frank Act increased the ~~total~~minimum ~~capital~~target ~~distributions~~Deposit ~~for~~Insurance ~~the~~Fund ~~applicable~~ratio ~~calendar~~from ~~year~~1.15% ~~exceed~~of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the ~~sum~~1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the ~~savings~~increase. ~~association’s~~The ~~net~~FDIC ~~income~~indicated that the 1.35% ratio was exceeded in November 2018. Insured institutions of less than $10 billion of assets will receive credits for the portion of their assessments that ~~year~~contributed to ~~date~~raising ~~plus~~the reserve ratio between 1.15% and 1.35%. The Dodd-Frank Act eliminated the ~~savings~~1.5% ~~association’s~~maximum ~~retained~~fund ~~net~~ratio, ~~income~~instead ~~for~~leaving it to the ~~preceding~~discretion ~~two~~of ~~years;~~the FDIC and the FDIC has exercised that discretion by establishing a long-range fund ratio of 2%.

•The ~~the~~FDIC ~~savings~~has ~~association~~authority ~~would~~to ~~not~~increase beinsurance atassessments. ~~least~~A ~~adequately~~significant ~~capitalized~~increase ~~following~~in insurance premiums would likely have an adverse effect on the ~~distribution;~~operating expenses and results of operations of WCF Financial Bank. Future insurance assessment rates cannot be predicted.

•Insurance of deposits may be terminated by the ~~distribution~~FDIC ~~would~~upon ~~violate~~a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable ~~statute~~law, regulation, ~~agreement~~rule order or regulatory condition; imposed in writing. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.

•In addition to the ~~savings~~FDIC ~~association~~assessments, the Financing Corporation (“FICO”) is ~~not~~authorized ~~eligible~~to ~~for~~impose ~~expedited~~and ~~treatment~~collect, with the approval of ~~its~~the ~~filings~~FDIC, ~~generally~~assessments ~~due~~for toanticipated anpayments, ~~unsatisfactory~~issuance ~~CAMELS~~costs ~~rating~~and orcustodial ~~being~~fees ~~subject~~on bonds issued by the FICO in the 1980s to arecapitalize ~~cease~~the former Federal Savings and ~~desist~~Loan ~~order~~Insurance orCorporation. ~~formal~~The ~~written~~bonds ~~agreement~~issued ~~that~~by ~~requires~~the ~~action~~FICO are due to ~~improve~~mature in 2017 through 2019. For the ~~institution’s~~quarter ~~financial~~ended ~~condition~~December 31, 2018, the annualized FICO assessment was equal to 0.32 basis points of total assets less tangible capital.

~~Even~~Supervisory ifAssessments. anAll ~~application~~Iowa isbanks ~~not~~are ~~otherwise~~ required, ~~every~~to ~~savings~~pay ~~association~~supervisory ~~that~~assessments isto athe ~~subsidiary~~Iowa Division of aBanking ~~savings~~to ~~and~~fund ~~loan~~the ~~holding~~operations ~~company,~~of ~~such~~that asagency. ~~WCF~~The ~~Financial~~amount ~~Bank,~~of ~~must still file a notice with~~ the ~~Federal~~assessment ~~Reserve~~is ~~Board~~calculated aton ~~least 30 days before~~ the ~~board~~basis of ~~directors~~WCF ~~declares~~Financial aBank’s ~~dividend~~total ~~or approves a capital distribution~~assets.

AFederal ~~notice~~Home orLoan ~~application~~Bank ~~related~~System. WCF toFinancial Bank is a member of the Federal Home Loan Bank System, which consists of eleven regional Federal Home Loan Banks. The FHLB System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the FHLB of Des Moines, WCF Financial Bank is required to acquire and hold shares of capital ~~distribution~~stock ~~may~~in bethe ~~disapproved~~FHLB. As ~~if:~~of December 31, 2018, WCF Financial Bank held $1.11 million of capital stock in the FHLB of Des Moines and was in compliance with this requirement.

• the federal savings association would be undercapitalized following the distribution;

• the proposed capital distribution raises safety and soundness concerns; or

• the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.

Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination of a federal savings association, the OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in

denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.

The Community Reinvestment Act requires all institutions insured by the Federal Deposit Insurance Corporation to publicly disclose their rating. WCF Financial Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with an insured depository institution such as WCF Financial Bank. WCF Bancorp, Inc. is an affiliate of WCF Financial Bank because of its control of WCF Financial Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

WCF Financial Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

• be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and

• not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of WCF Financial Bank’s capital

In addition, extensions of credit in excess of certain limits must be approved by WCF Financial Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting,

interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Interstate Banking and Branching. Federal law permits well capitalized and well managed holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, among other things, recent amendments made by the Dodd-Frank Act permit banks to establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for the banks chartered by that state.

Prompt Corrective Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

The applicable OCC regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015. Under the amended regulations, an institution is deemed to be “well capitalized” if it has a tangible capital ratio of 5.0% or greater, a common equity Tier 1 ratio of 6.5% or greater, a total risk-based capital ratio of 10.0% or greater, and a Tier 1 risk-based capital ratio of 8.0% or greater. An institution is “adequately capitalized” if it has a tangible capital ratio of 4.0% or greater, a common equity Tier 1 ratio of 5.75% or greater, a total risk-based capital ratio of 9.25% or greater, and a Tier 1 risk-based capital ratio of 7.25% or greater, and a leverage ratio of 4.0% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.00%, a Tier 1 risk-based capital ratio of less than 6.00%. An institution is deemed to be “significantly undercapitalized” if it has a tangible capital ratio of less than 3.0%, a common equity Tier 1 ratio of less than 3.0%, a total risk-based capital ratio of less than 6.0%, or a Tier 1 risk-based capital ratio of less than 4.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the Federal Reserve Board to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss

directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

At December 31, 2017, WCF Financial Bank met the criteria for being considered “well capitalized.”

Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as WCF Financial Bank. Deposit accounts in WCF Financial Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments. Institutions deemed to be less risky pay lower rates while institutions deemed riskier pay higher rates. Assessment rates (inclusive of possible adjustments) currently range from 2 1/2 to 45 basis points of each institution’s total assets less tangible capital. The FDIC may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking. The FDIC’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s deposits.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC, which has exercised that discretion by establishing a long range fund ratio of 2%.

The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of WCF Financial Bank. We cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that may lead to termination of our deposit insurance.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the year ended December 31, 2017, the annualized FICO assessment was equal to 0.70 basis points of total assets less tangible capital.

Privacy Regulations. Federal regulations generally require that WCF Financial Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, WCF Financial Bank is required to provide its customers with the ability to “optout” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. WCF Financial Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

USA Patriot Act. WCF Financial Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures,

expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements.

Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Other Regulations

~~Interest and other charges collected or contracted for by~~ WCF Financial Bank’s ~~are subject to state usury laws and federal laws concerning interest rates. Loan~~ operations are also subject to ~~state and~~ federal laws applicable to credit transactions, such as the:

• ~~Home~~Truth-In-Lending ~~Mortgage Disclosure~~ Act ~~of 1975~~, ~~requiring~~governing ~~financial~~disclosures ~~institutions~~of tocredit ~~provide~~terms ~~information~~ to ~~enable~~consumer ~~the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves~~borrowers;


•	Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services;


•	Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;


•	Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act ~~of 1978~~, governing the use and provision of information to credit reporting agencies; ~~and~~

• ~~Rules~~fair ~~and~~lending ~~regulations of the various federal and state agencies charged with the responsibility of implementing such federal and state~~ laws.;

~~The~~• ~~deposit~~Unfair ~~operations~~or ofDeceptive ~~WCF~~Acts ~~Financial~~or ~~Bank~~Practices ~~also~~laws ~~are~~and ~~subject to, among others, the:~~regulations;


•	Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;


•	Truth in Savings Act; and


•	rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of WCF Financial Bank are further subject to the:


•	Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• ~~Check~~Electronic ~~Clearing~~Funds ~~for~~Transfer ~~the 21st Century~~ Act ~~(also~~and ~~known~~Regulation asE ~~“Check~~promulgated ~~21”)~~thereunder, which ~~gives~~govern ~~“substitute~~automatic ~~checks,”~~deposits ~~such~~to asand ~~digital~~withdrawals ~~check~~from ~~images~~deposit accounts and ~~copies~~customers’ ~~made~~rights ~~from~~and ~~that~~liabilities ~~image,~~arising from the ~~same~~use ~~legal~~of ~~standing~~automated asteller ~~the~~machines ~~original~~and ~~paper~~other ~~check;~~electronic ~~and~~banking services;

• ~~Electronic~~Check ~~Funds~~Clearing ~~Transfer~~for the 21st Century Act ~~and~~(also ~~Regulation~~known Eas ~~promulgated~~“Check ~~thereunder~~21”), which ~~govern~~gives ~~automatic~~“substitute ~~deposits~~checks,” tosuch ~~and~~as ~~withdrawals~~digital ~~from~~check ~~deposit~~images ~~accounts~~ and ~~customers’~~copies ~~rights~~made ~~and~~from ~~liabilities~~that ~~arising~~image, ~~from~~ the ~~use~~same oflegal ~~automated~~standing ~~teller~~as ~~machines~~the ~~and~~original ~~other~~paper ~~electronic banking services.~~check;

~~Federal~~The ~~Reserve~~USA ~~System~~PATRIOT Act, which requires financial institutions to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

The ~~Federal Reserve Board regulations require depository institutions to maintain non~~Gramm-~~interest~~Leach-~~earning~~Bliley ~~reserves~~Act, ~~against~~which ~~their~~places ~~transaction~~limitations ~~accounts~~on ~~(primarily~~the ~~NOW~~sharing ~~and~~of ~~regular~~consumer ~~checking~~financial ~~accounts).~~information ~~The~~by ~~Federal~~financial ~~Reserve~~institutions ~~Board~~with ~~regulations~~unaffiliated ~~generally~~third ~~require~~parties. Specifically, ~~that~~the ~~reserves~~Gramm-Leach-Bliley beAct ~~maintained~~requires ~~against~~all ~~aggregate~~financial ~~transaction~~institutions ~~accounts~~offering asfinancial ~~follows:~~products ~~for that portion of transaction accounts aggregating $103.6 million~~ or ~~less~~services ~~(which~~to ~~may~~retail becustomers ~~adjusted~~to byprovide ~~the~~such ~~Federal~~customers ~~Reserve~~with ~~Board)~~ the ~~reserve~~financial ~~requirement~~institution’s isprivacy ~~3.0%~~policy and ~~the~~provide ~~amounts~~such ~~greater~~customers ~~than~~the ~~$103.6~~opportunity ~~million~~to ~~require~~“opt aout” ~~10.0%~~of ~~reserve~~the ~~(which~~sharing ~~may~~of becertain ~~adjusted~~personal ~~annually~~financial byinformation ~~the~~with ~~Federal~~unaffiliated ~~Reserve~~third ~~Board between 8~~parties.~~0% and 14.0%).~~

~~The~~Regulation ~~first~~and ~~$14.5~~Supervision ~~million~~ of ~~otherwise reservable balances (which may be adjusted by~~ the ~~Federal Reserve Board) are exempted from the reserve requirements. WCF Financial Bank is in compliance with these requirements.~~Company

27WCF Bancorp is subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve. WCF Bancorp is required to obtain the prior approval of the Federal Reserve to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve approval would be required for WCF Bancorp to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve, prior approval may also be necessary from other agencies having supervisory jurisdiction over the bank to be acquired before any bank acquisition can be completed.

~~Federal Home Loan Bank System~~24

~~WCF~~A ~~Financial~~bank ~~Bank~~holding company is agenerally ~~member~~prohibited offrom ~~the~~engaging ~~Federal~~in ~~Home~~non-banking ~~Loan~~activities, ~~Bank~~or ~~System,~~acquiring ~~which~~direct ~~consists~~or indirect control of 11more ~~regional~~than ~~Federal~~5% ~~Home~~of ~~Loan~~the ~~Banks.~~voting ~~The~~securities ~~Federal~~of ~~Home~~any ~~Loan~~company ~~Bank~~engaged ~~provides~~in anon-banking ~~central~~activities. ~~credit~~One ~~facility~~of ~~primarily~~the ~~for~~principal ~~member~~exceptions ~~institutions.~~to ~~Members~~this ofprohibition is for activities found by the Federal ~~Home~~Reserve ~~Loan~~to ~~Bank~~be ~~are~~so ~~required~~closely related to ~~acquire~~banking ~~and~~or ~~hold~~managing ~~shares~~or ofcontrolling ~~capital~~banks ~~stock~~as into ~~the~~be ~~Federal~~a ~~Home~~proper ~~Loan~~incident ~~Bank~~thereto. ~~WCF~~Some ~~Financial~~of ~~Bank~~the ~~was~~principal inactivities ~~compliance~~that ~~with~~the ~~this~~Federal ~~requirement~~Reserve athas ~~December~~determined ~~31,~~by ~~2017.~~regulation ~~Based~~to onbe ~~redemption~~so ~~provisions~~closely ofrelated ~~the~~to ~~Federal~~banking ~~Home~~are: ~~Loan~~(i) making ~~Bank~~or ofservicing ~~Des~~loans; ~~Moines,~~(ii) performing ~~the~~certain ~~stock~~data ~~has~~processing noservices; ~~quoted~~(iii) providing ~~market~~discount ~~value~~brokerage ~~and~~services; is(iv) acting ~~carried~~as atfiduciary, ~~cost.~~investment ~~WCF~~or ~~Financial~~financial ~~Bank~~advisor; ~~reviews~~(v) leasing ~~for~~personal ~~impairment,~~or ~~based~~real onproperty; ~~the~~(vi) making ~~ultimate~~investments ~~recoverability,~~in ~~the~~corporations ~~cost~~or ~~basis~~projects ofdesigned ~~the~~primarily ~~Federal~~to ~~Home~~promote ~~Loan~~community ~~Bank~~welfare; ofand ~~Des~~(vii) acquiring ~~Moines~~a ~~stock.~~savings Asand ofloan ~~December~~association ~~31,~~whose ~~2017,~~direct noand ~~impairment~~indirect ~~has~~activities ~~been~~are ~~recognized~~limited to those permitted for bank holding companies.

~~Holding~~The ~~Company~~Gramm-Leach-Bliley ~~Regulation~~Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

~~WCF~~A ~~Bancorp,~~bank ~~Inc.~~holding company is agenerally ~~unitary~~required ~~savings~~to ~~and~~give ~~loan~~the ~~holding~~Federal ~~company~~Reserve ~~subject~~prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to ~~regulation~~10% ~~and~~or ~~supervision~~more byof the ~~Federal~~company’s ~~Reserve~~consolidated ~~Board~~net worth. The Federal Reserve ~~Board~~may ~~has~~disapprove ~~enforcement~~such ~~authority~~a ~~over~~purchase ~~WCF~~or ~~Bancorp,~~redemption ~~Inc.~~if ~~and~~it ~~its~~determines ~~non-savings~~that ~~institution~~the ~~subsidiaries.~~proposal ~~Among~~would ~~other~~constitute ~~things~~an unsafe and unsound practice, ~~this~~or ~~authority~~would ~~permits~~violate ~~the~~any law, regulation, Federal Reserve ~~Board~~order toor ~~restrict~~directive, or ~~prohibit~~any ~~activities~~condition ~~that~~imposed ~~are~~by, ~~determined~~or towritten beagreement awith, ~~risk~~the Federal Reserve. There is an exception to ~~WCF~~this ~~Financial~~approval ~~Bank~~requirement for well-capitalized bank holding companies that meet certain other conditions.

AsThe Federal Reserve has issued a ~~savings~~policy ~~and~~statement ~~loan~~regarding ~~holding~~capital ~~company~~distributions, ~~WCF~~including ~~Bancorp~~dividends, ~~Inc~~by bank holding companies. In general, the Federal Reserve’s ~~activities~~policies ~~are~~provide ~~limited~~that todividends ~~those~~should ~~activities~~be ~~permissible~~paid byonly ~~law~~out ~~for~~of ~~financial~~current earnings and only if the prospective rate of earnings retention by the bank holding ~~companies~~company orappears ~~multiple~~consistent ~~savings~~with the organization’s capital needs, asset quality and ~~loan~~overall ~~holding~~financial ~~companies~~condition. AThe ~~financial~~Federal Reserve’s policies also require that a bank holding company ~~may~~serve ~~engage~~as ina ~~activities~~source ~~that~~of ~~are~~ financial instrength ~~nature,~~to ~~incidental~~its subsidiary banks by standing ready to ~~financial~~use ~~activities~~available orresources ~~complementary~~to provide adequate capital funds to athose banks during periods of financial ~~activity.~~stress ~~Such~~or ~~activities~~adversity ~~include~~and ~~lending~~by maintaining the financial flexibility and ~~other~~capital-raising ~~activities~~capacity ~~permitted~~to obtain additional resources for ~~bank~~assisting ~~holding~~its ~~companies~~subsidiary ~~under~~banks ~~Section~~where ~~4(c)(8)~~necessary. The Dodd-Frank Act codified the source of strength doctrine. Under the ~~Bank~~prompt ~~Holding~~corrective ~~Company~~action ~~Act~~laws, ~~insurance~~the ~~and~~ability ~~underwriting~~of ~~equity~~a ~~securities.~~bank ~~Multiple~~holding ~~savings~~company ~~and~~to ~~loan~~pay ~~holding~~dividends ~~companies~~may ~~are~~be ~~authorized~~restricted toif ~~engage~~a insubsidiary ~~activities~~bank ~~specified~~becomes byundercapitalized. ~~federal~~In ~~regulation~~addition, ~~including~~the ~~activities~~Federal ~~permitted~~Reserve ~~for~~has issued guidance that requires consultation with the agency prior to a bank holding ~~companies~~company’s ~~under~~payment ~~Section~~of ~~4(c)(8)~~dividends of repurchase of stock under certain circumstances. These regulatory policies could affect the ~~Bank~~ability ~~Holding~~of ~~Company~~WCF ~~Act~~Bancorp to pay dividends, repurchase its stock or otherwise engage in capital distributions.

~~Federal~~The ~~law~~status ~~prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5%~~ of ~~another~~WCF ~~savings~~Bancorp ~~institution~~as orregistered ~~savings~~a ~~and~~bank ~~loan~~ holding company ~~without~~under ~~prior written approval of~~ the ~~Federal~~Bank ~~Reserve~~Holding ~~Board,~~Company ~~and~~Act ~~from~~does ~~acquiring or retaining control of any depository institution~~ not ~~insured~~exempt byit ~~the~~from ~~FDIC.~~certain Infederal ~~evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such things as the financial~~ and ~~managerial~~state ~~resources~~laws and ~~future~~regulations ~~prospects~~applicable ofto ~~the~~corporations ~~company~~generally, ~~and~~including, ~~institution~~without ~~involved~~limitation, ~~the~~certain ~~effect~~provisions of the ~~acquisition on and the risk to the~~ federal ~~deposit~~securities ~~insurance fund, the convenience and needs of the community and competitive factors~~laws. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition under Section 13(k) of the Federal Deposit Insurance Act or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies.

~~Savings~~Change and loan holding companies historically have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act requires the Federal Reserve Board to establish minimum consolidated capital requirements for all depository institution holding companies that are as stringent as those required for the insured depository subsidiaries. However, legislation was enacted in ~~December~~Control 2014 that required the Federal Reserve Board to amend its “Small Bank Holding Company” exemption from consolidated holding company capital requirements to generally extend its applicability to bank and savings and loan holding companies of up to $1 billion in assets. Regulations implementing this amendment were effective May 15, 2015. Consequently, savings and loan holding companies of under $1 billion in consolidated assets remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases.

~~The~~Under ~~Dodd-Frank~~the Change in Bank Control Act, ~~extended~~no ~~the~~person ~~“source~~may acquire control of ~~strength”~~a ~~doctrine~~bank toholding ~~savings~~company ~~and~~such ~~loan~~as ~~holding~~WCF ~~companies.~~Bancorp ~~The~~unless the Federal Reserve ~~Board~~has been given 60 days’ prior written notice and has ~~promulgated~~not ~~regulations~~issued ~~implementing~~a notice disapproving the ~~“source~~proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of ~~strength”~~the ~~policy~~acquirer ~~that~~and ~~require~~the ~~holding~~competitive ~~companies~~effects toof ~~act~~the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a ~~source~~majority of ~~strength~~the tocompany’s ~~their~~directors, ~~subsidiary~~or ~~depository~~a ~~institutions~~determination by ~~providing~~the ~~capital~~regulator that the acquirer has the power to direct, ~~liquidity~~or ~~and~~directly ~~other~~or ~~support~~indirectly into ~~times~~exercise a controlling influence over, the management or policies of ~~financial~~the ~~stress~~institution. Acquisition of more than 10% of any class of a bank holding company’s

2825

~~The~~voting ~~Federal~~stock ~~Reserve~~constitutes ~~Board has issued~~ a ~~policy~~rebuttable ~~statement~~presumption ~~regarding the payment~~ of ~~dividends~~control ~~and~~under the ~~repurchase~~regulations ofunder shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances ~~such~~including as where ~~the company’s net income for the past four quarters~~, ~~net~~as ~~of dividends previously paid over that period,~~ is ~~insufficient to fully fund~~ the ~~dividend~~case ~~or the company’s overall rate of earnings retention is inconsistent~~ with ~~the~~WCF company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reductionBancorp, ~~as of~~ the ~~end~~issuer ofhas aregistered ~~quarter,~~securities inunder ~~the~~Section 12 ~~amount~~ of ~~such equity instruments outstanding compared with~~ the ~~beginning~~Securities ofExchange ~~the~~Act ~~quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability~~ of ~~WCF Bancorp, Inc~~1934. ~~to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.~~

Federal Securities Laws

WCF Bancorp,’s ~~Inc.~~ common stock is registered with the Securities and Exchange Commission. ~~WCF~~under ~~Bancorp,~~the ~~Inc~~Securities Exchange Act of 1934. WCF Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 isaddresses, ~~intended~~among toother ~~improve~~issues, corporate ~~responsibility~~governance, toauditing ~~provide~~and ~~for enhanced penalties for~~ accounting, ~~and~~executive ~~auditing~~compensation, ~~improprieties at publicly traded companies~~ and toenhanced ~~protect investors by improving the accuracy~~ and ~~reliability~~timely disclosure of corporate ~~disclosures pursuant to the securities laws~~information. We have prepared policies, procedures and systems designed to ~~comply~~ensure compliance with ~~these~~the ~~regulations,~~Sarbanes-Oxley ~~and~~Act ~~we review~~ and ~~document~~related ~~such policies, procedures and systems to ensure continued compliance with these~~ regulations.

~~Change~~Insider Transactions. WCF Financial Bank is subject to certain restrictions imposed by federal law on “covered transactions” between WCF Financial Bank and its “affiliates.” WCF Bancorp is an affiliate of WCF Financial Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in ~~Control~~the ~~Regulations~~stock or other securities of the Company, and the acceptance of the stock or other securities of the Company as collateral for loans made by WCF Financial Bank. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

~~Under~~Certain ~~the~~limitations ~~Change~~and inreporting ~~Bank~~requirements ~~Control~~are ~~Act,~~also noplaced ~~person~~on ~~may~~extensions ~~acquire control~~ of acredit ~~savings~~by ~~and loan holding company such as~~ WCF ~~Bancorp,~~Financial ~~Inc.~~Bank ~~unless~~to ~~the~~its ~~Federal~~directors ~~Reserve Board has been given 60 days prior written notice~~ and ~~has not issued a notice disapproving the proposed acquisition~~officers, ~~taking~~to ~~into~~directors ~~consideration certain factors, including the financial~~ and ~~managerial~~officers ~~resources~~ of the ~~acquirer~~Company and ~~the~~its ~~competitive effects of the acquisition. Control~~subsidiaries, asto ~~defined~~principal ~~under~~stockholders ~~federal law, means ownership, control~~ of orthe ~~holding~~Company ~~irrevocable~~and ~~proxies~~to ~~representing~~“related ~~more~~interests” ~~than 25%~~ of ~~any~~such ~~class of voting stock~~directors, ~~control~~officers inand ~~any~~principal ~~manner~~stockholders. ~~of the election of a majority of the institution’s directors~~In addition, orfederal alaw ~~determination~~and byregulations ~~the~~may ~~regulator~~affect ~~that~~ the ~~acquiror~~terms ~~has~~upon ~~the~~which ~~power,~~any ~~directly~~person orwho ~~indirectly,~~is ~~to exercise~~ a ~~controlling~~director ~~influence over the management~~ or ~~policies~~officer of the ~~institution.~~Company ~~Acquisition~~or ofWCF ~~more~~Financial ~~than~~Bank, ~~10%~~or ~~of any class of~~ a ~~savings~~principal ~~and~~stockholder ~~loan holding company’s voting stock constitutes a rebuttable determination~~ of ~~control under~~ the ~~regulations under certain circumstances including where~~Company, asmay isobtain ~~the~~credit ~~case~~from banks with which WCF ~~Bancorp,~~Financial ~~Inc.,~~Bank ~~the~~maintains ~~issuer~~a ~~has~~correspondent ~~registered securities under Section 12 of the Securities Exchange Act of 1934~~relationship.

InTransaction ~~addition,~~Account ~~federal~~Reserves. Federal Reserve regulations ~~provide~~require ~~that~~FDIC-insured noinstitutions ~~company~~to ~~may~~maintain ~~acquire~~reserves ~~control~~against oftheir atransaction ~~savings~~accounts (primarily NOW and ~~loan~~regular ~~holding~~checking ~~company~~accounts). ~~without~~For 2019, the ~~prior~~first ~~approval~~$16.3 million of ~~the~~otherwise ~~Federal~~reservable ~~Reserve~~balances ~~Board.~~are ~~Any~~exempt ~~company~~from ~~that~~reserves ~~acquires~~and ~~such~~have ~~control~~a ~~becomes~~0% areserve ~~“savings~~requirement; ~~and~~for ~~loan~~transaction ~~holding~~accounts ~~company”~~aggregating ~~subject~~between $16.3 million to ~~registration~~$124.2 million, ~~examination~~the reserve requirement is 3% of those transaction account balances; and ~~regulation~~for net transaction accounts in excess of $124.2 million, the reserve requirement is 10% of the aggregate amount of total transaction account balances in excess of $124.2 million. These reserve requirements are subject to annual adjustment by the Federal Reserve ~~Board~~.

TAXATION

WCF Bancorp, Inc. and WCF Financial Bank are subject to federal and state income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal and state taxation is intended only to summarize certain pertinent tax matters and is not a comprehensive description of the tax rules applicable to WCF Bancorp, Inc. or WCF Financial Bank.

WCF Bancorp, Inc. is currently open to audit under statute of limitations by the Internal Revenue Service and state taxing authorities for the fiscal years ended December 31, ~~2014~~2015 through December 31, ~~2017~~2018. Neither the federal tax return nor the state tax return has been audited for the last five years.

Federal Taxation

Method of Accounting. For federal income tax purposes, WCF Bancorp, Inc. and WCF Financial Bank currently report their income and expenses on the accrual method of accounting and use a tax year ending December 31 for filing their federal income tax returns.

Bad Debt Reserves. Prior to the Small Business Protection Act of 1996 (the “1996 Act”), WCF Financial Bank was permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at our taxable income. As a result of the 1996 Act, WCF Financial Bank has elected to use the experience method in computing its bad debt deduction beginning with its 1996 federal tax return. Savings institutions were required to recapture any excess reserves over those established as of December 31, 1987 (base year reserve). At December 31, 2017, WCF Financial Bank had no reserves subject to recapture in excess of its base year reserves.26

~~Taxable~~Bad ~~Distributions~~Debt ~~and Recapture~~Reserves. Prior to the Small Business Protection Act of 1996 (the “1996 Act”), ~~bad~~WCF ~~debt~~Financial ~~reserves~~Bank ~~created~~was ~~prior~~permitted to ~~January~~establish 1,a ~~1988~~reserve ~~were~~for ~~subject~~bad debts and to ~~recapture~~make ~~into~~annual ~~taxable~~additions ~~income~~to ifthe ~~WCF~~reserve. ~~Financial~~These ~~Bank~~additions ~~failed~~could, towithin ~~meet~~specified ~~certain~~formula ~~thrift~~limits, ~~asset~~be ~~and~~deducted ~~definitional~~in ~~tests.~~arriving ~~Federal~~at ~~legislation~~our ~~has~~taxable ~~eliminated~~income. ~~these~~As ~~thrift-related~~a ~~recapture~~result ~~rules.~~of Atthe ~~December~~1996 31Act, ~~2017,~~WCF ~~our~~Financial ~~total~~Bank ~~federal~~has ~~pre-1988~~elected ~~base~~to ~~year~~use ~~reserve~~the ~~was~~experience ~~$2.1~~method ~~million.~~in ~~However,~~computing ~~under~~its ~~current~~bad ~~law,~~debt ~~pre-1988~~deduction ~~base~~beginning ~~year~~with ~~reserves~~its ~~remain~~1996 ~~subject~~federal tax return. Savings institutions were required to recapture ifany ~~WCF~~excess ~~Financial~~reserves ~~Bank~~over ~~makes~~those ~~certain~~established ~~non-dividend~~as ~~distributions~~of December 31, ~~repurchases~~1987 ~~any~~(base ofyear ~~its~~reserve). ~~stock~~At December 31, ~~pays~~2018, ~~dividends~~WCF inFinancial ~~excess~~Bank ofhad ~~tax~~no ~~earnings~~reserves ~~and~~subject ~~profits,~~to orrecapture ~~ceases~~in toexcess ~~maintain~~of aits ~~bank~~base ~~charter~~year reserves.

~~Alternative~~Taxable ~~Minimum~~Distributions ~~Tax~~and Recapture. ~~The~~Prior ~~Internal~~to ~~Revenue~~the ~~Code~~1996 ~~imposes~~Act, anbad ~~alternative~~debt ~~minimum~~reserves ~~tax~~created ~~(“AMT”)~~prior atto aJanuary ~~rate~~1, of1988 ~~20%~~were onsubject ato ~~base~~recapture ofinto ~~regular~~ taxable income ~~plus~~if ~~certain~~WCF ~~tax~~Financial ~~preferences,~~Bank ~~which~~failed weto ~~refer~~meet tocertain asthrift ~~“alternative~~asset ~~minimum~~and ~~taxable~~definitional ~~income~~tests.” ~~The~~Federal ~~AMT~~legislation ishas ~~payable~~eliminated tothese ~~the~~thrift-related ~~extent~~recapture ~~such~~rules. ~~alternative~~At ~~minimum~~December ~~taxable~~31, ~~income~~2018, isour intotal ~~excess~~federal ofpre-1988 anbase ~~exemption~~year ~~amount~~reserve ~~and~~was ~~the~~$2.1 ~~AMT exceeds the regular income tax~~million. ~~Net~~However, ~~operating~~under ~~losses~~current ~~can~~law, ~~offset~~pre-1988 nobase ~~more~~year ~~than~~reserves ~~90%~~remain ofsubject ~~alternative~~to ~~minimum~~recapture ~~taxable~~if ~~income.~~WCF ~~Certain~~Financial ~~AMT~~Bank ~~payments~~makes ~~may~~certain benon-dividend ~~used~~distributions, asrepurchases ~~credits~~any ~~against~~of ~~regular~~its ~~tax~~stock, ~~liabilities~~pays dividends in ~~future~~excess ~~years.~~of Attax ~~December~~earnings ~~31,~~and ~~2017~~profits, ~~WCF~~or ~~Bancorp,~~ceases ~~Inc. had $35,000 of AMT payments available~~ to ~~carry~~maintain ~~forward~~a tobank ~~future periods~~charter.

~~Net~~Alternative ~~Operating~~Minimum ~~Loss Carryovers~~Tax. AThe ~~company~~Internal ~~may~~Revenue ~~carry~~Code ~~back~~imposed ~~net~~an ~~operating~~alternative ~~losses~~minimum totax ~~the~~(“AMT”) ~~preceding~~at ~~two~~a rate of 20% on a base of regular taxable ~~years~~income ~~and~~plus ~~forward~~certain tax preferences, which we refer to ~~the~~as ~~succeeding~~“alternative 20minimum taxable income” in years prior to 2018. The AtAMT ~~December~~was ~~31,~~payable ~~2017,~~to ~~WCF~~the ~~Bancorp,~~extent ~~Inc.~~such ~~had~~alternative ~~$694,000~~minimum taxable income is in ~~net~~excess of an exemption amount and the AMT exceeds the regular income tax. Net operating ~~loss~~losses ~~carry~~previously ~~forwards~~offset ~~for~~no ~~federal~~more than 90% of alternative minimum taxable income. Certain past AMT payments were used as credits against regular tax ~~purposes,~~liabilities and are refundable in future years. At December 31, 2018, WCF Bancorp, Inc. had $~~382~~17,000 inof ~~net~~AMT ~~operating~~credits ~~loss~~available ~~carryforwards~~to ~~for~~carry ~~Iowa~~forward ~~income~~to ~~tax~~future ~~purposes~~periods.

~~Corporate~~Net ~~Dividends-Received~~Operating ~~Deduction~~Loss Carryovers. ~~WCF~~A ~~Bancorp,~~company ~~Inc.~~ may ~~exclude~~carry ~~from~~forward ~~its~~net ~~income~~operating ~~100%~~loss ofcarry ~~dividends~~overs. ~~received~~Under ~~from~~current ~~WCF~~tax ~~Financial~~law ~~Bank~~federal asnet aoperating ~~member~~losses ofarising ~~the~~in ~~same~~years ~~affiliated~~ended ~~group~~after ofDecember ~~corporations.~~31, ~~The~~2017 ~~corporate~~do ~~dividends-received~~not ~~deduction~~expire. isAt ~~80%~~December in31, ~~the~~2018, ~~case~~WCF ofBancorp, ~~dividends~~Inc. ~~received~~had ~~from~~$821,000 ~~a corporation~~ in ~~which~~net aoperating ~~corporate~~loss ~~recipient~~carry ~~owns~~forwards atfor ~~least~~federal ~~20%~~income oftax ~~its stock~~purposes, and ~~corporations~~$482,000 ~~that~~in ~~own~~net ~~less~~operating ~~than~~loss ~~20%~~carry offorwards ~~the~~for ~~stock~~Iowa ofincome atax ~~corporation~~purposes ~~distributing~~which aexpire ~~dividend~~from ~~may~~2036 ~~deduct~~to ~~only 70% of dividends received or accrued on their behalf~~2037.

30Corporate Dividends-Received Deduction. WCF Bancorp, Inc. may exclude from its income 100% of dividends received from WCF Financial Bank as a member of the same affiliated group of corporations. The corporate dividends-received deduction is 65% in the case of dividends received from a corporation in which a corporate recipient owns at least 20% of its stock, and corporations that own less than 20% of the stock of a corporation distributing a dividend may deduct only 50% of dividends received or accrued on their behalf.

State Taxation

WCF Bancorp, Inc. files an Iowa corporation tax return, and the Bank files an Iowa franchise income tax return. The Iowa corporate income tax rate ranges from 6% to 12% depending upon Iowa taxable income. Interest from federal securities is not taxable for purposes of the Iowa corporate income tax.

Iowa imposes a financial institution franchise tax, in lieu of the corporate income tax, on the Iowa franchise taxable income of financial institutions at the rate of 5%. Iowa franchise taxable income is generally similar to federal taxable income except that interest from state and municipal obligations is taxable, and no deduction is allowed for state franchise taxes. Net ~~The net~~ operating ~~loss~~losses ~~carryforward~~may ~~rules~~be ~~are~~carried ~~similar~~forward to the ~~federal~~succeeding ~~rules.~~20 ~~However,~~taxable ~~Iowa no longer allows carrybacks of net operating losses for tax~~ years ~~beginning on or after January 1, 2009~~.

Item 1A Risk Factors

This item is not applicable because we are a smaller reporting company.

Item 1B Unresolved Staff Comments

Not applicable.

Item 2 Properties

The following table sets forth certain information relating to our properties as of December 31, ~~2017~~2018.

	YearOpened	Owned/Leased	Date of LeaseExpiration	Net BookValue as of
Location				December 31, 2017
				(In thousands)
Main Office:
401 Fair Meadow Drive	1934	Owned	Not applicable	$	2,663
Webster City, Iowa
Full Service Branch:
305 First Street West	2014	Owned	Not applicable	$	223
Independence, Iowa



	Year Opened	Owned/ Leased	Date of Lease Expiration	Net Book Value as of
Location	Year Opened	Owned/ Leased	Date of Lease Expiration	December 31, 2018
				(In thousands)
Main Office:
401 Fair Meadow Drive	1934	Owned	Not applicable	$	2,479
Webster City, Iowa
Full Service Branch:
305 First Street West	2014	Owned	Not applicable	$	204
Independence, Iowa

We believe that our facilities are adequate for the business conducted.

In 2018 the Bank sold a portion of its existing property at Fair Meadow Drive.

Item 3 Legal Proceedings

At December 31, ~~2017~~2018, there were no material legal proceedings to which the Company or the Bank is a party or of which any of its property is subject. From time to time, the Company and the Bank is a party to various legal proceedings incident to its business.

Item 4 Mine Safety Disclosures

Not applicable.

3129

Part II


Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

Shares of the Company’s common stock ~~commenced~~are trading on the NASDAQ Capital Market ~~on July 14, 2016~~ under the symbol “WCFB” ~~following the completion of the conversion and offering~~. ~~Prior to that date, trades in the common stock of Webster City Federal Bancorp had been quoted on the OTC Pink Marketplace operated by the OTC Markets Group Inc. under the symbol “WCFB.”~~

~~The~~On ~~following~~March 14, ~~table~~2019, ~~sets~~the ~~forth~~Company ~~the~~had ~~high~~192 ~~and~~stockholders ~~low~~of ~~trading~~record. ~~prices~~Certain ~~for~~shares of WCF Bancorp, Inc. ~~and~~are ~~Webster~~held ~~City~~in ~~Federal~~“nominee” ~~Bancorp~~or ~~common~~“street” ~~stock~~name ~~for each quarter during the last two fiscal years~~and, ~~as obtained from NASDAQ and the OTC Pink Marketplace operated by OTC Markets Group Inc.~~accordingly, ~~and~~ the ~~dividends~~number ~~paid~~of ~~during~~beneficial ~~those~~owners ~~periods.~~of Wesuch ~~have~~shares ~~adjusted~~is ~~the~~not ~~share~~known ~~prices~~or toincluded ~~reflect the 0.8115 exchange ratio~~ in the ~~conversion~~foregoing ~~effective July 14, 2016~~number.

	Price per share				Dividends
	High		Low		Paid
Year Ending December 31, 2017
Fourth quarter	$	9.98	$	9.21	$	0.05
Third quarter	11.00		9.06		0.05
Second quarter	11.62		9.70		0.05
First quarter	10.30		9.30		0.05
Year Ending December 31, 2016
Fourth quarter	10.18		8.33		0.05
Third quarter	8.79		7.90		0.05
Second quarter	8.90		7.60		—
First quarter	8.90		7.12		0.05

On March 28, 2018, the Company had 187 stockholders of record, not including those who hold shares in “street name.”

Stock Repurchases

The Company did not repurchase any shares of its common stock during the quarter or year ended December 31, ~~2017~~2018.

Item 6 Selected Financial Data

This item is not applicable because we are a smaller reporting company.

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations ~~at December 31, 2017 and 2016 and~~ for the years ended December 31, ~~2017~~2018 and ~~2016~~2017 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the audited consolidated financial statements and the notes thereto, appearing in Part II, Item 8 of this report. All references herein to the “Company”, “we”, “us”, or similar terms refer to WCF Bancorp, Inc. and its subsidiaries.

Overview

Our profitability is highly dependent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds.

Our net income ~~decreased~~increased $~~226~~343,000, or ~~207~~295.37%, to a ~~loss~~profit of $~~116~~226,000, or $(0.~~05)~~09 per share, for the year ended December 31, ~~2017~~2018, compared to ~~income~~a net loss of $~~109~~116,000, or $0.05 per share, for the year ended December 31, ~~2016~~2017. The ~~decrease~~increase was due in large part to the ~~new~~sale ~~tax~~of ~~reform~~bank ~~bill~~owned ~~that~~property ~~was~~in ~~signed~~2018 ~~into~~which ~~law~~resulted onin ~~December~~a ~~22,~~gain ~~2017~~on ~~which~~sale ~~changed~~of ~~the~~$436,000 ~~federal~~and ~~corporate~~for ~~tax~~lower ~~from~~income ~~34%~~tax toexpense ~~21%. This change~~ in ~~tax~~2018. ~~rate~~Noninterest ~~adjusted~~expense ~~our~~increased ~~deferred~~by ~~taxes and amounted to~~ $~~302~~100,000 into ~~additional tax expense~~$3.7 ~~This~~million ~~non-recurring adjustment was the main factor~~ in ~~the~~2018 ~~decrease~~compared ofto ~~net income. Noninterest expense was unchanged at~~ $3.6 million ~~for~~in 2017 ~~and 2016~~. Compensation, payroll taxes, and employee benefits increased $8174,000 to $1.56 million in ~~2017~~2018 from $1.45 million in ~~2016~~2017. The increase was due to the additional compensation to match current job descriptions.

An increase in interest rates will present us with a challenge in managing our interest rate risk. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which can result in interest expense increasing more rapidly than interest income as interest rates increase. Therefore, increases in interest rates may adversely affect our net interest income, which would have an adverse effect on our results of operations. As described in “ - Market Risk,” we expect that our net interest income and our net portfolio value would decrease as a result of an instantaneous increase in interest rates. We use a variety of strategies to help manage interest rate risk, as described in “ - Market Risk.”

Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the general economic conditions in north central and northeastern Iowa. Local economic conditions have a significant impact on our lending operations, the ability of our borrowers to repay these loans and the value of the collateral securing these loans. Although we do not originate agricultural real estate or agricultural business loans, our market ~~are~~area is largely rural and agricultural. Accordingly, the agricultural economy generally has a significant effect on the financial stability of many of our customers. In addition, changes in economic conditions could result in increased actual losses or increased losses inherent in our loan portfolio, either of which could require us to significantly increase our provision for loan losses. Changes in economic conditions could further negatively affect us. A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could adversely affect our results of operations, financial condition and earnings. We are subject to specific market risks due to the dependence by many of our customers on an agriculture economy.

inherent in our loan portfolio, either of which could require us to significantly increase our provision for loan losses. Changes in economic conditions could further negatively affect us. A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could adversely affect our results of operations, financial condition and earnings. We are subject to specific market risks due to the dependence by many of our customers on an agriculture economy.

Business Strategy

Our goal is to build stockholder value by operating a ~~well-capitalized~~growing and profitable financial institution that delivers a superior banking experience to our customers. We have ~~sought~~a strong capital position and excellent asset quality and plan to ~~accomplish~~leverage ~~this~~that ~~objective~~with byquality ~~adopting~~growth ain ~~business~~the ~~strategy~~commercial, ~~designed~~agricultural, residential real estate and consumer sectors. We are currently building the infrastructure to ~~maintain~~add athe ~~strong~~commercial ~~capital~~and ~~position~~agriculture lines of business to strengthen our ability to grow and ~~high~~add ~~asset~~scale ~~quality~~to our current banking operation.

Our current principal business strategies are:

• ~~Continuing~~Focus toon ~~emphasize~~building commercial and agricultural infrastructure in the ~~origination~~organization. ofAdding ~~one-to-four~~staffing ~~family~~depth ~~residential~~in ~~real~~the ~~estate~~commercial ~~loans.~~lending Weand deposit area will ~~continue~~be needed to ~~emphasize~~accomplish ~~the~~this ~~origination~~goal ofas ~~one-~~well as to~~-four~~ ~~family~~ensure ~~residential~~that ~~real~~quality ~~estate~~objectives ~~loans~~are inmet. ~~our~~The ~~market~~ability ~~area.~~to Atadd ~~December~~the ~~31,~~commercial ~~2017,~~and ~~$56.1~~agricultural ~~million,~~business orlines ~~81.4%~~will ofallow us to grow the bank to meet our ~~total~~objectives, ~~loan~~diversify the portfolio, ~~consisted~~and ofadd ~~owner-occupied~~shorter ~~one-to-four~~term ~~family~~assets ~~residential~~and ~~real~~loans ~~estate~~that ~~loans,~~reprice ~~compared~~on a shorter term horizon to ~~$47~~the asset mix.3 ~~million,~~This orwill ~~77.3%~~allow ofthe ~~our~~bank ~~total~~the ~~loan~~ability ~~portfolio,~~to grow at ~~December~~a ~~31,~~faster ~~2016.~~rate Wewith ~~will~~higher ~~continue~~earning toassets ~~originate~~that ~~these~~are ~~types~~substantially ofless ~~loans~~interest rate sensitive. Strategically we are interested in growing commercial deposits because itthey istend ato ~~strong~~be ~~recurring~~larger ~~source~~accounts ofand ~~interest~~less ~~income~~price sensitive than retail deposits.

33• Continuing to emphasize the origination of one-to-four family residential real estate loans. We will continue to emphasize the origination of one-to-four family residential real estate loans in our market area. At December 31, 2018, $52.3 million, or 81.4% of our total loan portfolio, consisted of owner-occupied one-to-four family residential real estate loans, compared to $56.1 million, or 81.4% of our total loan portfolio, at December 31, 2017. We will continue to originate these types of loans because it is a strong recurring source of interest income.

• Continuing to increase the origination of consumer loans. We plan to continue to increase the origination of consumer loans, including our direct automobile loans. Our consumer loans ~~decreased~~increased $~~459~~656,000 during ~~2017~~2018 to $6.18 million at December 31, ~~2017~~2018 from $6.61 million at December 31, ~~2016~~2017. Our consumer loans generally carry higher interest rates and shorter maturities than our one-to-four family residential real estate loans, thereby increasing our interest income and reducing our interest rate risk. In addition, we will attempt to expand our relationships with our consumer loan borrowers with the goal of increasing our interest income.

• ~~Applying~~Continuing to apply disciplined underwriting practices to maintain the quality of our loan portfolio. We believe that strong asset quality is a key to long-term financial success. Our goal is to maintain strong asset quality with moderate credit risk. We seek to accomplish this by applying conservative underwriting standards and by pursuing diligent monitoring and collection efforts. At December 31, ~~2017~~2018, our nonperforming loans (loans which are 90 or more days delinquent and loans which are less than 90 days delinquent but classified as nonaccrual) were 1.20% of our total loan portfolio.

• Enhancing core earnings by increasing lower-cost transaction and savings accounts. Demand, checking and money market accounts are a lower-cost source of funds than time deposits, and we have made a concerted effort to increase lower-cost transaction deposit accounts and reduce time deposits. Our ratio of core deposits (which we define as all deposit accounts except for certificate of deposit accounts) to total deposits has ~~increased~~decreased to 51.32% at December 31, ~~2017~~2018 from 4751.93% at December 31, ~~2016~~2017. We plan to continue to market our core transaction accounts (primarily checking accounts), by emphasizing our high quality service and competitive pricing of these products. Additionally, we believe our implementation of additional products and improved technological services such as remote deposit capture will increase our core deposits.


•	Managing interest rate risk. We intend to continue to manage our interest rate risk by maintaining our strategy of selling conforming, fixed-rate, one-to-four family residential real estate loans with terms of more than 20 years and increasing our originations of shorter-term consumer loans.

•

Growing our business by expanding our branch network. As opportunities arise and conditions permit, we will consider opportunities to expand our branch network through whole-bank or branch acquisitions, de novo branching or both. Although we do not currently have any agreements or understandings regarding specific acquisitions or de novo branching opportunities, our strategy is to grow our business within our consolidating market environment.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, other-than-temporary impairment of investment securities and the realizability of deferred tax assets. Management has discussed the development, selection and application of these critical accounting policies with the Audit Committee of the board of directors.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged against income.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal and external loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change. The allowance for loan losses has two components: general and specific as further discussed below.

34The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: one-to-four family residential real estate loans, consumer loans, non-owner occupied one-to-four family real estate loans and commercial real estate loans and land loans. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; loan concentrations, trends in volume and terms of loans; changes in lending practices and procedures; changes in lending management and staff; changes in the value of underlying collateral; changes in the quality of the loan review system; national and local economic trends and conditions; and the effects of other external factors. There were no changes in our policies or methodology pertaining to the general component of the allowance for loan losses during the year ended December 31, 2018.

susceptible to significant change. The allowance for loan losses has two components: general and specific as further discussed below.

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: one-to-four family residential real estate loans, consumer loans, non-owner occupied one-to-four family real estate loans and commercial real estate loans and land loans. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; loan concentrations, trends in volume and terms of loans; changes in lending practices and procedures; changes in lending management and staff; changes in the value of underlying collateral; changes in the quality of the loan review system; national and local economic trends and conditions; and the effects of other external factors. There were no changes in our policies or methodology pertaining to the general component of the allowance for loan losses during the year ended December 31, 2017.

The specific component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent or foreclosure is probable. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual one-to-four family residential real estate loans or consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring (“TDR”) agreement.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the ~~contractual~~original terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

We periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a TDR. All TDRs are initially classified as impaired.

Other-Than-Temporary Impairment of Securities. Management periodically reviews all investment securities with significant declines in fair value for potential other-than-temporary impairment. Accounting Standard Codification (ASC) 320-10-Investment addresses the determination as to when an investment is considered impaired, whether the impairment is other-than-temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.

Deferred Tax Assets and Liabilities. 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.

35Comparison of Financial Condition at December 31, 2018 and December 31, 2017

~~Comparison~~Total ofassets ~~Financial~~increased ~~Condition~~$5.2 million, or 3.9%, to $137.4 million at December 31, 2018 from $132.2 million at December 31, 2017. The increase was primarily due to an increase in federal funds sold of $8.5 million arising from a $12 million draw on FHLB advances in the latter part of December 2018. Cash and due from banks increased $0.3 million, or 8.4%, to $3.6 million at December 31, ~~2016~~2018 compared to $3.3 million at December 31, 2017. Federal funds sold increased $8.5 million, or 318.2%, to $11.2 million at December 31, 2018 from $2.7 million at December 31, 2017. Net loans receivable decreased $4.6 million, or 6.7%, to $63.8 million at December 31, 2018 from $68.4 million at December 31, 2017. The decrease in net loans receivable was primarily due to an decrease of $3.8 million, or 6.7%, in one-to-four family residential real estate to $52.3 million at December 31, 2018 from $56.1 million at December 31, 2017, along with a decrease of $103,000, or 3.3%, in non-owner occupied one-to-four family residential loans to $3.0 million at December 31, 2018 from $3.1 million at December 31, 2017. Commercial real estate loan balances decreased $1.4 million to $2.2 million on December 31, 2018 from $3.6 million on December 31, 2017. These decreases were partially offset by an increase of $656,000 in consumer loans to $6.8 million at December 31, 2018 from $6.1 million at December 31, 2017.

Total ~~assets~~liabilities increased $85.68 million, or 65.96%, to $~~132~~109.26 million at December 31, ~~2017~~2018 from $~~123~~103.68 million at December 31, ~~2016~~2017. The increase ~~was primarily due to the $9.8 million purchase of mortgage loans~~ in ~~December~~liabilities ~~2017.~~was ~~Cash~~mainly ~~and~~ due ~~from~~to ~~banks~~FHLB ~~increased~~advances ~~$1.6~~increasing ~~million, or 92.9%, to~~ $310.30 million ~~at December 31~~, ~~2017 compared~~ to $124.70 million atas of December 31, ~~2016.~~2018 ~~Federal~~from ~~funds sold increased~~ $114.40 million, oras ~~104.6%,~~of ~~to $2.7 million at~~ December 31, 2017 ~~from $1~~.3 ~~million~~Deposits at December 31, ~~2016.~~2018 ~~Net~~were ~~loans receivable increased~~ $783.86 million, orcompared ~~12.9%,~~ to $6887.47 million at December 31, 2017 ~~from $60~~.6 ~~million at December 31, 2016.~~ The ~~increase~~decrease in ~~net~~deposits ~~loans receivable~~ was primarily due to ana ~~increase of~~ $82.80 million, ordecrease ~~18.5%,~~ in ~~one-to-four~~certificates ~~family~~of ~~residential~~deposit ~~real estate to $56.1 million at December 31~~balances, ~~2017~~along ~~from~~with ~~$47.3 million at December 31, 2016, offset in part by~~ a decrease of $~~533,000, or (14.6)%, in non-owner occupied one-to-four family residential to $3.~~1 ~~million at December 31, 2017 from $3~~.60 million ~~at December 31, 2016, and an decrease of $459,000~~ in ~~consumer~~statement ~~loans~~savings ~~to $6~~balances.~~1 million at December 31, 2017 from $6.6 million at December 31, 2016.~~

~~Total~~Stockholders ~~liabilities~~equity ~~increased~~decreased $~~9.0 million~~659,000, or 92.53%, to $~~103~~27.8 million at December 31, ~~2017~~2018 from $9428.84 million at December 31, ~~2016~~2017. The ~~increase~~decrease in ~~liabilities~~stockholders’ ~~was~~equity ~~mainly~~resulted ~~due~~from to the ~~increase~~net effect of ~~FHLB advances, used to purchase the mortgage loans mentioned above. FHLB advances increased~~ $~~8.5 million~~226,000 ~~to $14.0 million as~~ of ~~December 31,~~net ~~2017~~income ~~from~~realized ~~$5.5~~during ~~million~~the asyear ofended December 31, ~~2016. Deposits at December 31~~2018, ~~2017~~which ~~were~~was ~~$87.7~~offset ~~million~~by ~~compared to~~ $~~87.1 million at December 31~~481,000 ~~2016.~~paid ~~The increase~~ in ~~deposits~~dividends ~~was~~and ~~primarily~~a ~~due~~decline toin ~~increased~~Accumulated ~~rates~~Other ~~offered~~Comprehensive onIncome ~~various~~(Loss) ~~products~~of $530,000.

Stockholders equity decreased $417,000, or 1.4%, to $28.4 million at December 31, 2017 from $28.8 million at December 31, 2016. The decrease in stockholders’ equity resulted from the $116,000 of net loss during the year ended December 31, 2017, and $479,000 paid in dividends.33

Comparison of Results of Operations for the Years Ended December 31, ~~2017~~2018 and ~~2016~~2017

Net income ~~decreased~~increased $~~226~~343,000, or ~~207~~295.37%, to ~~a net loss of~~ $~~116~~226,000 for the year ended December 31, ~~2017~~2018, ~~from~~compared to a net ~~income~~loss of $~~109~~116,000 for the year ended December 31, ~~2016~~2017. Basic/diluted earnings per share were $(0.~~05)~~09 for ~~2017~~2018 compared to a net loss per share of $0.05 for ~~2016~~2017. Total interest income increased $42251,000, or 16.16%, to $34.81 million for the year ended December 31, ~~2017~~2018, from $3.8 million for the year ended December 31, ~~2016~~2017. ~~The~~This increase was ~~mainly~~primarily ~~from~~caused ~~loan~~by a $198,000 increase in taxable municipal bond interest ~~received~~income ~~due~~in to2018, ~~the~~along with a $52,000 increase in ~~loans~~interest ~~outstanding~~income ~~during~~from ~~the~~other ~~year~~earning assets. Total interest expense was $~~654~~1,044,000 for the year ended December 31, ~~2017~~2018, compared to $~~639~~654,000 for the year ended December 31, ~~2016~~2017. The increase was due to higher interest being paid on deposits and FHLB advances during ~~2017~~2018, compared to ~~2016~~2017.

Each quarter an analysis of the factors described in “Critical Accounting Policies - Allowance for Loan Losses” is completed. Based on these factors, a $7678,000 provision for loan losses was recorded for the year ended December 31, ~~2017~~2018, compared to a provision of $6076,000 for the year ended December 31, ~~2016~~2017. The allowance for loan losses reflects the estimate believed to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, ~~2017~~2018 compared to those at December 31, ~~2016~~2017. While we believed the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the financial condition and results of operations.

Net interest income after provision for losses on loans ~~increased~~decreased $11141,000, or 0.4.6%, to $3.10 million for the year ended December 31, ~~2017~~2018, from $3.1 million for the year ended December 31, ~~2016~~2017.

Noninterest income increased $18380,000, or 362.02% to $~~611~~992,000, for the year ended December 31, ~~2017~~2018 from $~~594~~611,000 for the year ended December 31, ~~2016~~2017. The increase was due mainly to the ~~increase~~gain on the sale of bank owned property of $27436,000. Earnings from the cash value of bank-owned life insurance policies decreased $23,000 orto ~~6.7%~~$93,000 in 2018 from $116,000 in 2017.

36Noninterest expense consists primarily of compensation and employee benefits, office property and equipment, data processing services, FDIC insurance premiums, charitable contributions and professional fees. During the year ended December 31, 2018, noninterest expense increased $93,000, or 2.6%, to $3.7 million, compared to $3.6 million for the year ended December 31, 2017. Compensation and employee benefits increased $74,000, or 5.0%, due to an increase in salaries for 2018, increased costs associated with the hiring of a new CEO and the related costs of employee retirements. Office property and equipment expense decreased $80,000 in 2018 due mainly to a reduction in building depreciation expense resulting from assets becoming fully depreciated during the year. Accounting, regulatory and professional fees also decreased $30,000 in 2018 due to a decrease in legal expenses. Other Real Estate expense increased $48,000 due to an increase in the expenses related to the number of properties repossessed by the bank in 2018. Other expense increased $100,000 due partially to an expense arising from escheat accrual involving unclaimed property.

inWe ~~fees~~recognized ~~and~~income ~~service~~tax ~~charges~~expense toof $~~432~~21,000 ~~from $405,000~~ for ~~years~~the ~~ending~~year ~~2017~~ended ~~and 2016~~December 31, ~~respectively. Gains~~2018 oncompared ~~the~~to ~~sale~~an income expense of ~~securities~~$218,000 ~~decreased~~for tothe $0year inended December 31, 2017. ~~from~~On ~~$145~~December 22,~~000~~ ~~in 2016~~2017, astax ~~there~~reform ~~were~~was nopassed, ~~securities~~changing ~~sold~~the incorporate ~~2017.~~federal ~~Earnings~~tax rate from ~~the~~35% ~~increase~~to in21% ~~cash~~which ~~value~~required ofan ~~bank~~adjustment ~~owned~~to ~~life~~deferred ~~insurance~~tax ~~increased~~assets of $95302,000. toThis ~~$116,000~~was ~~in 2017~~a ~~from~~non-recurring ~~$21,000~~adjustment in ~~2016,~~the ~~due~~deferred totax ~~higher~~asset ~~amounts~~account ofwhich ~~insurance~~affected ~~outstanding~~period ~~during~~ending ~~the~~December ~~year~~31, 2017.

Noninterest expense consists primarily of compensation and employee benefits, office property and equipment, data processing services, FDIC insurance premiums, charitable contributions and professional fees. During the year ended December 31, 2017, noninterest expense increased $18,000, or 0.5%, to $3.6 million, compared to $3.6 million for the year ended December 31, 2016. Compensation and employee benefits increased $81,000, or 5.8%, due to additional ESOP expense in 2017 and certain staff positions were duplicated during portions of the year to allow for training due to retirement of key personnel. FDIC insurance premiums decreased $25,000, or 42.4%, during the year ended December 31, 2017, due to the change in rate structure. Data processing services increased $45,000, or 10.7%, for the year ended December 31,2017 compared to the same period in 2016. The increase was due to additional services contracted in 2017 to assist with loan processing and accounting procedures. Other expenses, which include but is not limited to, debit card expense, credit report expense and office supplies decreased $59,000 in 2017 compared to the same time period in 2016.

We recognized income tax expense of $218,000 for the year ended December 31, 2017 compared to an income (benefit) of $18,000 for the year ended December 31, 2016. On December 22, 2017, tax reform was passed, changing the corporate federal tax rate from 35% to 21% which required an adjustment to deferred tax assets of $302,000. This was a non-recurring adjustment to update the appropriate balance in the deferred tax asset account which affected period ending December 31, 2017.

Average Balance Sheet

Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

3734

	For the Year Ended December 31,
	2017						2016
	2018						2017
	Average Outstanding Balance		Interest		Yield/Rate		Average OutstandingBalance		Interest		Yield/Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (1)	$	6065,~~442~~458	$	2,~~847~~936	4.7149	%	$	5860,~~558~~442	$	2,~~919~~847	4.9871	%
Investment securities - taxable	3134,~~080~~447		~~598~~796		12.9231		2431,~~173~~080		~~401~~598		1.6692
Investment securities - non-taxable	119,~~633~~288		~~278~~191		2.3906		1511,~~977~~633		~~374~~278		2.3439
Other interest-earning assets	95,~~648~~349		~~105~~156		12.0992		149,~~010~~648		92105		01.6609
Total interest-earning assets	~~112~~114,~~803~~542		34,~~828~~079		3.3956		112,~~718~~803		3,~~786~~828		3.3639
Noninterest-earning assets	912,~~705~~546						79,~~654~~705
Total assets	$	~~122~~127,~~508~~088					$	~~120~~122,~~372~~508
Interest-bearing liabilities:
Savings accounts	14,~~369~~510		3335		0.2324		1114,~~509~~369		$	2433	0.2123
Money market accounts	11,~~373~~114		3493		0.3084		11,~~185~~373		3634		0.3230
NOW	13,~~739~~245		119		0.0807		1513,~~312~~739		1411		0.0908
Certificates of deposit (2)	4239,~~808~~406		~~517~~576		1.2146		4642,~~638~~808		~~499~~517		1.0721
Total interest-bearing deposits	8278,~~289~~275		~~595~~713		0.7291		8482,~~644~~289		~~573~~595		0.6872
Advances from FHLB of Des Moines	414,~~315~~242		59331		12.3732		64,~~708~~315		6659		01.9837
Total interest-bearing liabilities	8692,~~604~~517		~~654~~1,044		01.7613		9186,~~352~~604		~~639~~654		0.7076
Noninterest-bearing checking deposits	4,~~611~~466						54,~~230~~611
Noninterest-bearing liabilities	2,~~326~~215						2,~~474~~326
Total liabilities	9399,~~541~~198						9993,~~056~~541
Equity	2827,~~967~~890						2128,~~316~~967
Total liabilities and equity	$	~~122~~127,~~508~~088					$	~~120~~122,~~372~~508
Net interest income			$	3,~~174~~035					$	3,~~147~~174
Net interest rate spread (3)					2.6343	%					2.6663	%
Net interest-earning assets (4)	$	2622,~~199~~025					$	2126,~~366~~199
Net interest margin (5)					2.8165	%					2.7981	%
Average of interest-earning assets to interest-bearing liabilities					~~130~~123.2581	%					~~123~~130.3925	%

(1) Amortization of fees, discounts and premiums included in interest income were $3233,000 and $3132,000 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively. (2) Amortization of premiums included in interest expense were $1510,000 and $6515,000 for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively. (3) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities. (4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. (5) Net interest margin represents net interest income divided by total interest-earning assets.

Rate/Volume Analysis

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

3835

	Years Ended December 31,
	2017 vs. 2016
	2018 vs. 2017
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate
	(In thousands)
Interest-earning assets:
Loans (1)	$	94236		$	(~~166~~147	)	$	~~(72~~89	)
Securities available-for-sale - taxable	~~115~~65			82133			~~197~~198
Securities available-for-sale - non-taxable	(~~102~~56		)	6(31		)	(9687		)
Other interest-earning assets	(2947		)	4298			1351
Total interest-earning assets	78198			~~(36~~53		)	42251
Interest-bearing liabilities:
Savings accounts	6—			32			92
Money market accounts	(1		)	(360		)	(259		)
NOW accounts	(1—		)	(2		)	(32		)
Certificates of deposit (2)	(41		)	59100			1859
Total deposits	(3542		)	57160			22118
Borrowings	~~(24~~7		)	17—			(7		)
Total interest-bearing liabilities	(59		)	74			15
FHLB Advances	133			133			266
Change in net interest income	$	137		$	(110	)	$	27
Total interest-bearing liabilities	97			293			390
Change in net interest income	$	101		$	(240	)	$	(139	)

Market Risk

The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk (“IRR”). Our assets, consisting primarily of one-to-four family residential real estate loans, have longer maturities than our liabilities, consisting primarily of deposits and other borrowings. As a result, a principal part of our business strategy is to manage IRR and reduce the exposure of our net interest income (“NII”) to changes in market interest rates. Accordingly, our board of directors has established an Asset/Liability Management Committee which is responsible for evaluating the IRR inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. With the assistance of an IRR management consultant, the committee monitors the level of IRR on a regular basis and generally meets at least on a quarterly basis to review our asset/liability policies and IRR position.

We have sought to manage our IRR to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset/liability management, we currently use the following strategies to manage our IRR: (i) using alternative funding sources, such as advances from the FHLB Des Moines, to “match fund” certain investments and/or loans; (ii) selling our fixed-rate conforming one-to-four family residential real estate loans with terms of greater than 20 years; (iii) continuing to emphasize increasing core deposits; (iv) offering adjustable rate and shorter-term consumer loans; and (v) investing in securities

3936

~~core deposits; (iv) offering adjustable rate and shorter-term consumer loans; and (v) investing in securities~~ with variable rates or fixed rates with shorter durations. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans and securities with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our NII to changes in market interest rates.

Economic Value of Equity Analysis. We analyze the sensitivity of our financial condition to changes in interest rates through our economic value of equity model. This analysis measures the difference between predicted changes in the fair value of our assets and predicted changes in the present value of our liabilities assuming various changes in current interest rates. The table below represents an analysis of our IRR as measured by the estimated changes in our economic value of equity, resulting from an instantaneous and sustained parallel shift in the yield curve (+100, +200 and +300 basis points and -100 basis points) at December 31, ~~2017~~2018.

Change in Interest Rates (basis points) (1)	Estimated EVE (2)		Estimated Increase (Decrease) in EVE					EVE as a Percentage of Fair Value of Assets (3)
								EVE Ratio (4)		Increase (Decrease) (basis points)
			Amount			Percent
(Dollars in thousands)
300	$	17,~~723~~853	$	(78,~~871~~411	)	(3032.7502	)%	1615.2151	%	$	(~~425~~4.70	)
200	2021,~~988~~132		(45,~~606~~132		)	(1819.54	)	1817.2656		(~~220~~2.65		)
100	2324,~~804~~083		(12,~~790~~181		)	(68.9930	)	19.8022		(660.99		)
—	2526,~~594~~264		—			—		20.4621		—
(100)	2527,~~687~~043		93779			(02.3697	)	1920.9624		~~(50~~0.03		)



(1) Assumes an immediate uniform change in interest rates at all maturities.
(2) EVE is the fair value of expected cash flows from assets, less the fair value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts.
(3) Fair value of assets represents then amount at which an asset could be exchanged between knowledgeable and willing parties in an arms length transaction.
(4) EVE Ratio represents EVE divided by the fair value of assets.

The table above indicates that at December 31, ~~2017~~2018, in the event of a 100 basis point decrease in interest rates, we would experience a 03.40% ~~decrease~~increase in our economic value of equity. In the event of a 300 basis points increase in interest rates, we would experience a decrease of 3032.80% in economic value of equity.

The preceding simulation analysis does not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.

Liquidity and Capital Resources

The term “liquidity” refers to the ability of WCF Bancorp, Inc. and WCF Financial Bank to meet current and future short-term financial obligations. WCF Bancorp, Inc. and WCF Financial Bank further define liquidity as the ability to generate adequate amounts of cash to fund loan originations, deposit withdrawals and operating expenses. Liquidity management is both a daily and long-term function of business management. WCF Financial Bank’s primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and investment securities, and FHLB advances. WCF Financial Bank can borrow funds from the FHLB based on eligible collateral of loans and securities. WCF Financial Bank had FHLB advances of $24.0 million outstanding as of December 31, 2018 with unused borrowing capacity of $13.3 million.

4037

~~prepayments of loan principal and investment securities, and FHLB advances.~~ WCF Financial Bank’s ~~can~~primary ~~borrow~~investing ~~funds~~activities ~~from~~are the ~~FHLB~~origination ~~based~~of onloans ~~eligible~~and ~~collateral~~the purchase of ~~loans~~investment ~~and~~ securities. WCF Financial Bank’s ~~had~~originations ~~FHLB~~net ~~advances~~ of loan principal repayments were $144.06 million ~~outstanding~~for asthe ofyear ended December 31, ~~2017~~2018 ~~with~~and ~~unused borrowing capacity of~~ $187.8 million. ~~Additionally,~~for atthe year ended December 31, 2017,. Historically we ~~had~~have ~~the~~not ~~ability~~purchased loans. We did not purchase any loans during 2018 compared to ~~borrow~~$9.8 million in 2017. Purchases of securities totaled $29.58 million ~~from~~and $6.4 million for the ~~Bankers’~~years ~~Bank~~ended December 31, 2018 and 2017, respectively.

WCF Financial Bank’s primary investing activities are the origination of loans and the purchase of investment securities. WCF Financial Bank’s originations net of loan principal repayments were $3.2 million for the year ended December 31, 2017 and $3.2 million for the year ended December 31, 2016. Historically we have not purchased loans, but we did purchase $9.8 million loans during 2017 and $0 in 2016. Purchases of securities totaled $6.4 million and $29.3 million for the years ended December 31, 2017 and 2016, respectively.

Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. Deposit flows are affected by the level of interest rates, by the interest rates and products offered by competitors and by other factors. WCF Financial Bank monitors its liquidity position frequently and anticipates that it will have sufficient funds to meet its current funding commitments.

Certificates of deposit totaled $4240.7 million at December 31, ~~2017~~2018, of which $2123.26 million had maturities of one year or less. WCF Financial Bank relies on competitive rates, customer service and long-standing relationships with customers to retain deposits. Based on our experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with us.

WCF Bancorp, Inc. is a separate legal entity from WCF Financial Bank and must provide for its own liquidity needs, such as repurchasing stock and paying dividends to stockholders. WCF Bancorp Inc.’s primary source of liquidity is the dividends it receives from WCF Financial Bank. At December 31, ~~2017~~2018, WCF Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents of $23.20 million.

The net proceeds from the stock offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the stock offering, which will increase our net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, as well as other factors associated with the stock offering, our return on equity will be adversely affected following the stock offering.

Management is not aware of any other known trends, events or uncertainties that will have, or are reasonably likely to have, a material effect on WCF Bancorp Inc.’s or WCF Financial Bank’s liquidity, capital or operations, nor is management aware of any current recommendations by regulatory authorities which, if implemented, would have a material effect on WCF Bancorp Inc.’s or WCF Financial Bank’s liquidity, capital or operations.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit, and letters of credit.

41For the year ended December 31, 2018, we did not engage in any off-balance sheet transactions other than unused lines of credit in the normal course of our lending activities.

For the year ended December 31, 2017, we did not engage in any off-balance sheet transactions other than unused lines of credit in the normal course of our lending activities.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements that are applicable to the Company, please see Note 1 of the notes to the Company’s consolidated financial statements~~, beginning on page 56~~.

Effect of Inflation and Changing Prices

The financial statements and related financial data presented in this prospectus have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 7A Quantitative and Qualitative Disclosures About Market Risk

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

4239

Item 8 Financial Statements and Supplementary Data

Description
Report of Independent Registered Public Accounting Firm		4441
Consolidated Balance Sheets as of December 31, 2017 and 2016		45
Consolidated Balance Sheets as of December 31, 2018 and 2017		42
Consolidated Statements of Operations for the Years ended December 31, 2017 and 2016		45
Consolidated Statements of Operations for the Years ended December 31, 2018 and 2017		43
Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2017 and 2016		46
Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2018 and 2017		44
Consolidated Statements of Changes in Equity for the Years ended December 31, 2017 and 2016		47
Consolidated Statements of Changes in Stockholders' Equity for the Years ended December 31, 2018 and 2017		45
Consolidated Statements of Cash Flows for the Years ended December 31, 2017 and 2016		48
Consolidated Statements of Cash Flows for the Years ended December 31, 2018 and 2017		46
Notes to Consolidated Financial Statements		4947

4340

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of WCF Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of WCF Bancorp, Inc. and its subsidiaries (the Company) as of December 31, ~~2017~~2018 and ~~2016~~2017, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for the years then ended and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2018 and ~~2016~~2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company's auditor since 2015.

Des Moines, Iowa

March 29, ~~2018~~2019

4441

WCF Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, ~~2017~~2018 and ~~2016~~2017

Assets	~~2017~~2018			~~2016~~2017
Cash and due from banks	$	3,~~310~~587,~~400~~631		$	13,~~716~~310,~~578~~400
Federal funds sold	211,~~672~~175,000			12,~~306~~672,000
Cash and cash equivalents	514,~~982~~762,~~400~~631			35,~~022~~982,~~578~~400
Time deposits in other financial institutions	4,~~545~~540,~~878~~687			54,~~037~~545,~~068~~878
Securities available-for-sale, at fair value	43,~~129~~622,~~481~~041			4443,~~652~~129,~~837~~481
Loans receivable	6864,~~949~~314,~~715~~968			6168,~~063~~949,~~501~~715
Allowance for loan losses	(~~538~~508,~~319~~920		)	(~~487~~538,~~114~~319		)
Loans receivable, net	6863,~~411~~806,~~396~~048			6068,~~576~~411,~~387~~396
Federal Home Loan Bank (FHLB) stock, at cost	~~703~~1,~~400~~110,000			~~354~~703,~~800~~400
Bankers' Bank stock, at cost	147,500			147,500
Office property and equipment, net	3,~~791~~585,~~429~~740			43,~~041~~791,~~525~~429
Deferred taxes on income	~~631~~768,~~080~~831			~~934~~631,~~579~~080
Income taxes receivable	4034,~~320~~739			6040,~~839~~320
Accrued interest receivable	~~439~~424,~~855~~909			~~422~~439,~~949~~855
Goodwill	55,148			55,148
Bank-owned life insurance	3,~~138~~231,~~112~~032			3,~~021~~138,~~501~~112
Prepaid expenses and other assets	1,~~205~~275,~~146~~166			1,~~319~~205,~~636~~146
	$	~~132~~137,~~221~~364,~~145~~472		$	~~123~~132,~~647~~221,~~347~~145
Liabilities and Stockholders' Equity
Deposits	$	8783,~~740~~577,~~194~~825		$	87,~~089~~740,~~680~~194
FHLB advances	1424,000,000			514,~~500~~000,000
Advance payments by borrowers for taxes and insurance	~~527~~556,~~774~~494			~~492~~527,~~133~~774
Accrued interest payable	1318,~~983~~221			313,~~196~~983
Accrued expenses and other liabilities	1,~~509~~441,~~680~~057			1,~~715~~509,~~358~~680
Total liabilities	~~103~~109,~~791~~593,~~631~~597			94103,~~800~~791,~~367~~631
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; issued none	—			—
Common stock, $.01 par value. Authorized 30,000,000 shares; issued 2,561,542 shares issued and outstanding at December 31, 2017 and 2,561,542 shares issued and outstanding at December 31, 2016 (1)	25,615			25,615
Common stock, $.01 par value. Authorized 30,000,000 shares; 2,561,542 shares issued and outstanding at December 31, 2018 and December 31, 2017	25,615			25,615
Additional paid-in capital	14,~~215~~223,~~017~~738			14,~~201~~215,~~795~~017
Retained earnings, substantially restricted	15,~~758~~565,~~825~~683			1615,~~354~~758,~~380~~825
Unearned ESOP Shares	(1,~~259~~204,~~576~~808		)	(1,~~314~~259,~~344~~576		)
Accumulated other comprehensive income (loss)	(310,367		)	(420,466		)
Accumulated other comprehensive loss	(839,353		)	(310,367		)
Total stockholders' equity	2827,~~429~~770,~~514~~875			28,~~846~~429,~~980~~514
Total liabilities and stockholders' equity	$	~~132~~137,~~221~~364,~~145~~472		$	~~123~~132,~~647~~221,~~347~~145

(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.

WCF Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

Years ended December 31, ~~2017~~2018 and ~~2016~~2017

	2017			2016
	Twelve Months EndedDecember 31,
	2018			2017
Interest income:
Loans receivable	$	2,~~847~~935,~~293~~821		$	2,~~919~~847,~~096~~293
Investment securities - taxable	~~598~~795,~~001~~790			~~400~~598,~~886~~001
Investment securities - tax exempt	~~278~~190,~~312~~883			~~373~~278,~~559~~312
Other interest earning assets	~~104~~156,~~519~~417			92104,~~327~~519
Total interest income	34,~~828~~078,~~125~~911			3,~~785~~828,~~868~~125
Interest expense:
Deposits	~~594~~712,~~757~~667			~~572~~594,~~549~~757
FHLB advances	59324,~~168~~930			6659,~~431~~168
Total interest expense	653,925			638,980
Overnight borrowings	6,560			—
Net interest income	3,174,200			3,146,888
Total interest expense	1,044,157			653,925
Provision for losses on loans	76,000			60,000
Net interest income	3,034,754			3,174,200
Net interest income after provision for losses on loans	3,098,200			3,086,888
Provision for losses on loans	78,000			76,000
Net interest income after provision for losses on loans	2,956,754			3,098,200
Noninterest income:
Fees and service charges	~~431~~438,~~907~~874			~~395~~431,~~141~~907
Gains on sale of securities available-for-sale, net	—			144,820
Losses on sale of securities available-for-sale, net	(14,465		)	—
Increase in cash value - bank-owned life insurance	116,611			21,501
Gain on sale of land	435,818			—
Other income	62,908			32,242
Increase in cash value - bank-owned life insurance	92,920			116,611
Total noninterest income	611,426			593,704
Other income	38,729			62,908
Total noninterest income	991,876			611,426
Noninterest expense:
Compensation, payroll taxes, and employee benefits	1,~~485~~559,~~549~~324			1,~~404~~485,~~724~~549
Advertising	9166,~~191~~721			8991,~~796~~191
Office property and equipment	~~450~~370,~~270~~737			~~467~~450,~~505~~270
Federal insurance premiums	3325,~~862~~024			5933,~~202~~862
Data processing services	~~464~~487,~~942~~087			~~419~~464,~~971~~942
Charitable contributions	53,~~955~~846			125,~~434~~955
Other real estate expenses, net	2068,~~939~~871			2220,~~736~~939
Dues and subscriptions	3736,~~701~~948			5537,~~649~~701
Accounting, regulatory and professional fees	~~658~~628,~~987~~483			~~640~~658,~~071~~987
Debit card expenses	62,~~568~~623			226,~~435~~568
Other expenses	~~351~~451,~~774~~404			~~395~~351,~~024~~774
Total noninterest expense	3,~~607~~701,~~738~~068			3,~~589~~607,~~547~~738
Earnings before taxes on income	~~101~~247,~~888~~562			91101,~~045~~888
Tax expense (benefit)	~~217~~21,~~993~~155			~~(18~~217,~~368~~993		)
Net (loss) income	$	(116,105	)	$	109,413
Net income (loss)	$	226,407		$	(116,105	)
Basic earnings per common share	$	(0.05	)	$	0.05
Basic earnings (loss) per common share	$	0.09		$	(0.05	)
Diluted earnings per common share	$	(0.05	)	$	0.05
Diluted earnings (loss) per common share	$	0.09		$	(0.05	)

See notes to consolidated financial statements.

4543

WCF Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Years ended December 31, ~~2017~~2018 and ~~2016~~2017

	2017			2016
	2018			2017
Net (loss) income	$	(116,105	)	$	109,413
Net income (loss)	$	226,407		$	(116,105	)
Other comprehensive income (loss):
Net change in unrealized gain (loss) on securities	~~177~~(635,~~834~~783		)	~~(672~~177,~~773~~834		)
Reclassification adjustment for net gains realized in net income	—			(144,820		)
Reclassification adjustment for net losses realized in net income	14,465			—
Income tax (expense) benefit	(67,735		)	303,950
Income tax benefit (expense)	153,467			(67,735		)
Other comprehensive income (loss)	~~110~~(467,~~099~~851		)	~~(513~~110,~~643~~099		)
Comprehensive (loss)	$	(6,006	)	$	(404,230	)
Comprehensive loss	$	(241,444	)	$	(6,006	)

See notes to consolidated financial statements.

4644

WCF Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

Years ended December 31, ~~2017~~2018 and ~~2016~~2017

	Common stock			Additional paid-in capital		Retained earnings			Unearned ESOP Shares			Accumulated other comprehensive income (loss)			~~Treasury stock~~	Total			~~Total~~
Balance at December 31, 2015	$	433,448		$	9,633,893	$	16,635,039		$	—		$	93,177		$	(12,212,415	)		$	14,583,142
Balance at December 31, 2016	$	25,615		$	14,201,795	$	16,354,380		$	(1,314,344	)	$	(420,466	)		$	28,846,980
Net income	—			—		109,413			—			—			—				109,413
Net loss	—			—		(116,105		)	—			—				(116,105		)
Other comprehensive (loss)	—			—		—			—			(513,643		)	—				(513,643		)
Other comprehensive income	—			—		—			—			110,099				110,099
Second step conversion and stock offering, net of expenses	(407,833		)	4,562,358		—			(1,369,104		)	—			12,212,415				14,997,836
Release of ESOP shares	—			13,222		—			54,768			—				67,990
Release of ESOP shares	—			5,544		—			54,760			—			—				60,304
Dividends paid on comm stock,
Dividends paid on comm stock,
$0.20 per common share	—			—		(479,450		)	—			—				(479,450		)
$0.16 per common share	—			—		(390,072		)	—			—			—				(390,072		)
Balance at December 31, 2017	25,615			14,215,017		15,758,825			(1,259,576		)	(310,367		)		28,429,514
Balance at December 31, 2016	25,615			14,201,795		16,354,380			(1,314,344		)	(420,466		)	—				28,846,980
Net income	—			—		226,407			—			—				226,407
Net loss	—			—		(116,105		)	—			—			—				(116,105		)
Other comprehensive loss	—			—		—			—			(467,851		)		(467,851		)
Other comprehensive (loss)	—			—		—			—			110,099			—				110,099
Reclass of stranded tax effects of tax rate change	—			—		61,135			—			(61,135		)		—
Release of ESOP shares	—			138,~~222~~721		—			54,768			—			—	63,489			~~67,990~~
Dividends paid on common stock,
$0.20 per common share	—			—		(~~479~~480,~~450~~684		)	—			—			—	(480,684		)	~~(479,450~~		)
Balance at December 31, 2017	$	25,615		$	14,215,017	$	15,758,825		$	(1,259,576	)	$	(310,367	)	$	—			$	28,429,514
Balance at December 31, 2018	$	25,615		$	14,223,738	$	15,565,683		$	(1,204,808	)	$	(839,353	)		$	27,770,875

See notes to the consolidated financial statements.

4745

WCF Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years ended December 31, ~~2017~~2018 and ~~2016~~2017

	2017			2016
	Twelve Months Ended December 31,
	2018			2017
Cash flows from operating activities:
Net (loss) income	$	(116,105	)	$	109,413
Net income (loss)	$	226,407		$	(116,105	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	~~831~~706,~~958~~809			~~846~~831,~~060~~958
Provision for losses on loans	7678,000			6076,000
ESOP expenses	6763,~~990~~489			6067,~~304~~990
Deferred taxes on income	~~236~~15,~~134~~716			~~(75~~236,~~093~~134		)
Gain on sales of securities	—14,465			~~(144,820~~—		)
Gain on sales of one-to-four family residential loans	(114,~~560~~562		)	(1911,~~055~~560		)
Proceeds from sales of one-to-four family residential loans	~~861~~568,~~860~~062			1861,~~448,255~~860
Originations of one-to-four family residential loans	(~~850~~563,~~300~~500		)	(1850,~~429,200~~300		)
(Gain) Loss on sale of other real estate owned	(9,995		)	20,509
(Gain) loss on sale of other real estate owned	14,590			(9,995		)
Increase in cash value of bank-owned life insurance	(116,611		)	(21,501		)
Gain on sale of land	(435,818		)	0
Write-downs of other real estate owned	48,243			0
Increase in cash value of bank-owned life insurance	(92,920		)	(116,611		)
Change in:
Accrued interest receivable	~~(16~~14,~~905~~946		)	(1416,~~974~~905		)
Prepaid expenses and other assets	~~137~~52,~~372~~399			~~(96~~137,~~515~~372		)
Advance payments by borrowers for taxes and insurance	3528,~~641~~720			6135,~~043~~641
Accrued interest payable	104,~~786~~238			(510,~~812~~786		)
Accrued expenses and other liabilities	(~~205~~68,~~678~~621		)	(97205,~~495~~678		)
Income tax receivable	205,~~519~~581			~~(60~~20,~~839~~519		)
Net cash provided by (used in) operating activities	951,106			640,280
Net cash provided by operating activities	676,244			951,106
Cash flows from investing activities:
Purchase of bank-owned life insurance	—			(3,000,000		)
Proceeds from maturity of time deposits in other financial institutions	3,925,191			6,134,190
Proceeds from maturity of time deposits in other financial institutions	6,134,190			5,291,801
Purchase of time deposits in other financial institutions	(3,920,000		)	(5,643,000		)
Purchase of time deposits in other financial institutions	(5,643,000		)	(7,378,758		)
Proceeds from calls and maturities of securities available-for-sale	6,158,406			7,608,178
Proceeds from calls and maturities of securities available-for-sale	7,608,178			6,046,373
Proceeds from sale of securities available-for-sale	2,121,241			—
Proceeds from sale of securities available-for-sale	—			14,002,711
Purchase of securities available-for-sale	(9,853,924		)	(6,444,141		)
Purchase of securities available-for-sale	(6,444,141		)	(29,329,588		)
Purchase of loans	—			(9,789,292		)
Purchase of loans	(9,789,292		)	—
Net change in loans receivable	3,963,974			1,865,025
Net change in loans receivable	1,865,025			(3,174,532		)
Net change in FHLB stock	(406,600		)	(348,600		)
Net change in FHLB stock	(348,600		)	97,900
Proceeds from sale of office property and equipment	685,818			—
Purchase of office property and equipment	(4455,~~708~~186		)	(8844,~~363~~708		)
Net cash provided by (used in) investing activities	(62,~~662~~747,~~348~~040		)	(176,~~532~~662,~~456~~348		)
Cash flows from financing activities:
Net change in deposits	~~650~~(4,~~514~~162,369		)	~~(990~~650,~~151~~514		)
Net change in FHLB advances	810,~~500~~000,000			(28,500,000		)
Stock sale proceeds	—			15,744,744
Dividends paid	(480,684		)	(479,450		)
Merger of WCF MHC into WCF Bancorp, Inc.	—			793,129
Net cash provided by financing activities	5,356,947			8,671,064
Dividends paid	(479,450		)	(390,072		)
Net increase in cash and cash equivalents	8,780,231			2,959,822
Stock offering costs	—			(1,609,457		)
Cash and cash equivalents at beginning of year	5,982,400			3,022,578
Net cash provided by financing activities	8,671,064			11,048,193
Cash and cash equivalents at end of year	$	14,762,631		$	5,982,400
Net increase (decrease) in cash and cash equivalents	2,959,822			(5,843,983		)
Cash and cash equivalents at beginning of year	3,022,578			8,866,561
Cash and cash equivalents at end of year	$	5,982,400		$	3,022,578
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest	$	~~643~~1,~~138~~039,919		$	~~644~~643,~~792~~138
Taxes on income	~~(38,660~~—		)	~~127~~(38,~~206~~660		)
Noncash investing activities:
Transfers to other real estate owned from loans	86588,~~353~~367			~~141~~86,~~218~~353
Transfer to finance the sale of other real estate owned	7324,~~095~~993			5973,~~425~~095
Noncash financing activities:
Deferred taxes assumed in mutual conversion	—			69,420

See notes to consolidated financial statements.

4846

WCF Bancorp, Inc. and Subsidiaries

Form 10-K

Notes to Consolidated Financial Statements


(1)	Basis of Presentation

Description of Business

WCF Bancorp, Inc. (the Company) is aan Iowa-chartered corporation organized in 2016 to be the successor to Webster City Federal Bancorp (the Old Bancorp), a federal corporation, upon completion of the second-step conversion of WCF Financial, M.H.C. (the MHC) from a mutual holding company to a stock holding company form of organization. The MHC was the former mutual holding company for the Old Bancorp prior to the completion of the second-step conversion. Upon consummation of the second-step conversion, the MHC and the Old Bancorp ceased to exist. The second-step conversion was completed on July 13, 2016 ~~at which time the Company sold 2,139,231 shares of its common stock (including 171,138 shares purchased by WCF Financial Bank's (the Bank) employee stock ownership plan) at $8~~.00 per share for gross proceeds of $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 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 issued 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 (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, the Company also originates consumer loans and non ~~owner~~-owner occupied one-to-four family residential real estate loans. On a limited basis the Company has also originated commercial real estate loans~~, but has deemphasized the origination, and intend to continue to deemphasize the origination, of this type of lending~~. The Company also invests in securities. The ~~Compnay~~Company's primary lending area is broader than our primary deposit market area and includes north central and northeastern Iowa. The Company's revenues are derived principally from interest on loans and securities, and from loan origination and servicing fees. The Company's 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~~state ~~savings~~chartered ~~bank~~financial institution, the Bank is subject to comprehensive regulation and examination by the Office of the ~~Comptroller~~Iowa Division of Banking and the ~~Currency~~Federal Deposit Insurance Corporation (the ~~OCC~~FDIC). As a ~~savings~~bank ~~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).

Prior to July 1, 2018, the Bank was a federally chartered savings association regulated by the Office of the Comptroller of Currency. The Bank converted its charter and is now an Iowa-chartered commercial bank and a member of the Federal Home Loan Bank (FHLB) system. The Bank maintains insurance on deposits accounts with the Deposit Insurance Fund of the FDIC.

The primary business of WCF Financial Service Corp (the Service Corp), a wholly-owned subsidiary of the Bank, was the sale of credit life and disability insurance products that were previously disallowed by savings and loan regulations. Currently the Service Corp is inactive.

Principals of Consolidation

The consolidated financial statements include the accounts of WCF Bancorp, Inc. and its subsidiaries. All material ~~intercompany~~inter-company accounts and transactions have been eliminated.

Use of Estimates

The accompanying audited consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) and in accordance with SEC rules and regulations.

In preparing the consolidated 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. Significant items subject to such estimates and assumptions include the allowance for loan losses, valuation of investments, and deferred tax asset and liabilities including valuation allowance.

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 December 31, 2017, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.47

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 December 31, 2018, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

Reclassification

Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation. The reclassifications had no effect on previously reported net income or stockholders' equity.

Segment Information

An operating segment is generally defined as a component of a business for which discrete financial information is available and whose operating results are regularly reviewed by the chief operation decision-maker. The Company has determined that its business is comprised of one operating segment, which is banking. The banking segment generates revenue through interest and fees on loans, service charges on deposit accounts, interest on investment securities, and other miscellaneous banking related activities. This segment includes the Company, WCF Financial Bank, its subsidiary, and related elimination entries between them.

Comprehensive Income

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss) (OCI). OCI consists of the net change in unrealized gains and losses on the Company's securities available-for-sale, including the noncredit-related portion of unrealized gains and losses of OTTI securities.

Cash and Cash Equivalents

For the purpose of reporting cash flows, the Company includes cash and funds due from other depository institutions. The Company maintains amounts due from banks which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Included as cash equivalents at December 31, ~~2017~~ 2018 and ~~2016~~2017 were interest-bearing deposits totaling $514,~~451~~177,~~778~~356 and $25,~~362~~451,~~986~~778, respectively.

Time Deposits in Other Financial Institutions

Time deposits in other financial institutions consist of certificate of deposit not meeting the definition of cash and cash equivalents. All certificates are held by other banks, are recorded at cost and mature from January ~~2018~~2019 through ~~August~~December ~~2021~~2023.

Securities

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 lacks 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 (loss). 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 to 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. Net realized gains of $0 and $144,820 were recorded in 2017 and 2016, respectively.48

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. Net realized losses of $14,465 and $0 were recorded in 2018 and 2017, respectively.

FHLB Stock

FHLB stock represents equity ~~interst~~interest in the Federal Home Loan Bank (FHLB) of Des Moines and its carried at cost due to the restricted nature of the stock and is evaluated for potential impairment annually. There was no impairment in ~~2017~~2018 and ~~2016~~2017.

Bankers' Bank Stock

Bankers' Bank stock represents equity interest in Bankers' Bank of Madison (Bankers' Bank) and is carried at cost due to the restricted nature of the stock and is evaluated for potential impairment annually. There was no impairment in ~~2017~~2018 and ~~2016~~2017.

Loans Receivable

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.

Loan Origination Fees and Related Costs

Mortgage loan origination fees and certain direct loan origination costs are deferred, and the net fee or cost is amortized using the interest method over the estimated life of the loan. Premiums and discounts in connection with loans purchased are amortized over the term of the loans using the interest method.

Financial Instruments with Off-Balance Sheet Risk

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements (see note 11). The Company evaluates each customer's creditworthiness on a case-by-case ~~basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management's credit evaluation of the counterparty.~~

basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management's credit evaluation of the counter party.

Office Property and Equipment, Net

Office property and equipment are recorded at cost less accumulated depreciation. Depreciation is provided primarily by the straight-line method over the estimated useful lives of the related assets, which range from 10 to 40 years for the office building and improvements and 5 to 25 years for furniture, fixtures, and equipment.

Maintenance and repairs expenditures are charged against income. Expenditures for improvements are capitalized and subsequently depreciated. The cost and accumulated depreciation of assets retired or otherwise disposed of are eliminated from the asset and accumulated depreciation accounts. Related profit or loss from such transactions is credited or charged to income.

51At December 31, 2018 and 2017, the cost and accumulated depreciation of office property and equipment were as follows:

At December 31, 2017 and 2016, the cost and accumulated depreciation of office property and equipment were as follows:



	2018		2017

Land	$	804,000	$	804,000
Office building and improvements	3,657,779		3,657,779
Furniture, fixtures, and equipment	513,347		531,727
	4,975,126		4,993,506
Less accumulated deprecation	1,389,386		1,202,077
	$	3,585,740	$	3,791,429

	2017		2016
Land	$	804,000	$	804,000
Office building and improvements	3,657,779		3,654,921
Furniture, fixtures, and equipment	531,727		489,877
	4,993,506		4,948,798
Less accumulated deprecation	1,202,077		907,273
	$	3,791,429	$	4,041,525

Depreciation expense was $260,875 and $294,804 for the years ended December 31, 2018 and 2017, respectively.

Depreciation expense was $294,804 and $367,210 for the years ended December 31, 2017 and 2016, respectively.

Goodwill Accounting Policy

Goodwill is not amortized but is subject to a qualitative impairment test to determine if it is more likely than not that goodwill is impaired. If it is determined impairment is more likely than not, a quantitative test is performed to measure the impairment, if any. The Company has completed its annual qualitative test and determined no impairment existed as of December 31, ~~2017~~2018 and ~~2016~~2017.

Bank-owned life insurance

The carrying amount of bank-owned life insurance consists of the initial premium paid, plus increases in cash value, less the carrying amount associated with any death benefit received. Death benefits paid in excess of the applicable carrying amount are recognized as income. Increases in cash value and the portion of death benefits recognized as income are exempt from income taxes.

Revenue Recognition

Interest income and expenses are recognized on the accrual method based on the respective outstanding balances of the assets and liabilities. Other revenue is recognized at the time the service is rendered.

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. There were no interest and penalties on unrecognized tax benefits for the years ending December 31, 2017 and 2016.~~

noninterest expense. There were no interest and penalties on unrecognized tax benefits for the years ending December 31, 2018 and 2017.

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 December 31, 2018 and 2017, capital levels exceeded minimum capital requirements (see note 9).

requirements. At December 31, 2017 and 2016, capital levels exceeded minimum capital requirements (see note 9).

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. In ~~2017~~2018 and ~~2016~~2017, the Company recorded its investment in affiliate value based on the affiliates December 31, ~~2017~~2018 and December 31, ~~2016~~2017 financial statements, respectively.

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 in affiliate 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 periods ending December 31, ~~2017~~2018 and December 31, ~~2016~~2017 is presented below.

	As of and for the period ending
	December 31, 2017		December 31, 2016
	December 31, 2018		December 31, 2017
Current assets	$	~~136~~153,~~150~~125	$	94136,~~556~~150
Long-term assets	1,~~669~~631,~~687~~944		1,~~741~~669,~~253~~687
Current liabilities	86184,~~294~~389		5486,~~717~~294
Total equity	1,~~719~~600,~~544~~680		1,~~781~~719,~~092~~544
Total revenue	~~924~~996,~~323~~735		~~906~~924,~~452~~323
Net income	~~140~~159,~~603~~957		140,~~670~~603

Earnings per Common Share

The calculation of earnings per common share and diluted earnings per common share for the twelve months ended ~~months ended~~ December 31, ~~2017~~2018 and December 31, ~~2016~~2017 is presented below.

	December 31,
	2017			2016
	2018			2017
Net income	$	~~(116~~226,~~105~~407	)	$	~~109~~(116,~~413~~105	)
Weighted average common shares outstanding and diluted common shares outstanding (1)	2,404,096			2,425,313
Weighted average common shares outstanding and diluted common shares outstanding	2,410,295			2,404,096
Basic earnings (loss) per common share	$	(0.0509	)	$	(0.05	)
Diluted earnings (loss) per common share	$	(0.0509	)	$	(0.05	)

Unearned employee stock ownership plan (ESOP) shares are not considered outstanding and are therefore not taken into account when computing earnings per share. Unearned ESOP shares are presented as a reduction to stockholders’ equity and represent shares to be allocated to ESOP participants in future periods for services provided to the Company. ESOP shares that have been committed to be released are considered outstanding when committed to be released and included for the purposes of computing basic and diluted earnings per share.

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Employee Stock Ownership Plan

The Company has an employee stock ownership plan (ESOP) covering substantially all employees. The cost of shares issued to the ESOP but not yet allocated to participants is presented in the consolidated balance sheets as a reduction of stockholders' equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts and dividends paid for unallocated shares. See footnote 8 for additional ESOP disclosures.

Subsequent Events

The Company has evaluated subsequent events through March 29, ~~2018~~2019, which is the date the consolidated financial statements were issued. There are no subsequent events requiring recognition or disclosure in the consolidated financial statements ~~as noted~~ by the Company, ~~except~~other asthan ~~described~~the item noted below.

On February 28, ~~2018,~~2019 the Company ~~sold~~purchased ~~land held for sale, resulting in~~ a ~~pre-tax~~pool ~~gain~~ of ~~approximately~~one-to-four ~~$436,000~~family ~~which~~residential ~~will~~real beestate ~~recorded~~loans intotaling ~~the first quarter of 2018~~$5.4 ~~As of December 31, 2017, the land had a cost basis of $250,000, and recorded in Prepaid expenses and other assets on the consolidated financial statements~~million.

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 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 of 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 an entity's other deferred tax assets. This update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires that financial assets measured at amortized cost should be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This is in contrast to existing guidance whereby credit losses generally are not recognized until they are incurred. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in ASU 2017-08 shorten the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company currently amortizes premiums on callable debt securities to the earliest

5452

~~ASU 2017-08 shorten the amortization period for the premium on certain purchased callable debt securities to the earliest~~ call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company currently amortizes premiums on callable debt securities to the earliest call date. As such, the amendments in ASU 2017-08 will not impact the Company's consolidated financial statements, results of operations and liquidity.

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 ~~plans~~adopted ~~to adopt~~ the amendment in the first quarter of 2018 using the beginning of the period option. The reclassified amount ~~will~~was be approximately $6461,000.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The company is currently evaluating the impact of this new standard on its consolidated financial statements.


(2)	Securities Available-for-Sale

Securities available-for-sale at December 31, ~~2017~~2018 and ~~2016~~2017 were as follows:

Description	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
December 31, 2018:
U.S. agency securities	$	3,740,431	$	8,531	$	34,913	$	3,714,049
Mortgage-backed securities*	26,511,033		3,911		866,060		25,648,884
Municipal bonds	14,484,479		29,095		254,466		14,259,108
	$	44,735,943	$	41,537	$	1,155,439	$	43,622,041
December 31, 2017:
U.S. agency securities	$	1,239,357	$	—	$	5,562	$	1,233,795
Mortgage-backed securities*	27,331,766		—		547,177		26,784,589
Municipal bonds	15,050,942		107,569		47,414		15,111,097
	$	43,622,065	$	107,569	$	600,153	$	43,129,481
December 31, 2016:
U.S. agency securities	$	249,667	$	—	$	6,602	$	243,065
Mortgage-backed securities*	31,884,681		3,206		491,081		31,396,806
Municipal bonds	12,685,114		68,278		239,306		12,514,086
Corporate bonds	500,000		—		1,120		498,880
	$	45,319,462	$	71,484	$	738,109	$	44,652,837



* All mortgage-backed securities are issued by Fannie Mae, Freddie Mac or Ginnie Mae and are backed by residential mortgage loans.

The amortized cost and estimated fair value of securities available-for-sale at December 31, ~~2017~~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.



	December 31, 2018
	Amortized cost		Fair value
Due in one year or less	$	2,929,391	$	2,936,751
Due after one year through five years	2,243,676		2,480,422
Due after five years, but less than ten years	7,706,615		7,356,480
Due after ten years	5,345,228		5,199,504
	18,224,910		17,973,157
Mortgage-backed securities	26,511,033		25,648,884
	$	44,735,943	$	43,622,041

	December 31, 2017
	Amortizedcost		Fair value
Due in one year or less	$	—	$	—
Due after one year through five years	2,392,933		2,402,368
Due after five years, but less than ten years	7,547,387		7,602,697
Due after ten years	6,349,979		6,339,827
	16,290,299		16,344,892
Mortgage-backed securities	27,331,766		26,784,589
	$	43,622,065	$	43,129,481

The details of the sales of investment securities for the years ended December 31, ~~2017~~2018 and ~~2016~~2017 are summarized in the following table.

	2017		2016
	2018		2017
Proceeds from sales	$	—2,121,241	$	~~14,002,711~~—
Gross gains on sales	—7,280		~~188,982~~—
Gross losses on sales	—21,745		~~44,162~~—

At December 31, ~~2017~~2018 and December 31, ~~2016~~2017, accrued interest receivable for securities available-for-sale totaled $~~220~~231,~~888~~087 and $~~196~~220,~~227~~888, respectively.

56The 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 December 31, 2018 and December 31, 2017.

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 December 31, 2017 and December 31, 2016.



	December 31, 2018
	Up to 12 months				Greater than 12 months				Total
	Fair value		Gross unrealized loss		Fair value		Gross unrealized loss		Fair value		Gross unrealized loss
U.S. agency securities	$	—	$	—	$	1,205,518	$	34,913	$	1,205,518	$	34,913
Mortgage-backed securities	3,393,192		36,192		20,903,713		829,868		24,296,905		866,060
Municipal bonds	4,400,121		102,524		6,694,327		151,942		11,094,448		254,466
Total	$	7,793,313	$	138,716	$	28,803,558	$	1,016,723	$	36,596,871	$	1,155,439

	December 31, 2017
	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	$	989,537	$	29	$	244,248	$	5,533	$	1,233,785	$	5,562
Mortgage-backed securities	5,944,732		80,034		20,843,664		467,143		26,788,396		547,177
Municipal bonds	4,913,243		18,791		2,224,660		28,623		7,137,903		47,414
Total	$	11,847,512	$	98,854	$	23,312,572	$	501,299	$	35,160,084	$	600,153

	December 31, 2017
	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	$	989,537	$	29	$	244,248	$	5,533	$	1,233,785	$	5,562
Mortgage-backed securities	5,944,732		80,034		20,843,664		467,143		26,788,396		547,177
Municipal bonds	4,913,243		18,791		2,224,660		28,623		7,137,903		47,414
Total	$	11,847,512	$	98,854	$	23,312,572	$	501,299	$	35,160,084	$	600,153
	December 31, 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	$	243,065	$	6,602	$	—	$	—	$	243,065	$	6,602
Mortgage-backed securities	23,646,101		404,287		5,401,593		86,794		29,047,694		491,081
Municipal bonds	8,798,581		239,306		—		—		8,798,581		239,306
Corporate bonds	498,880		1,120		—		—		498,880		1,120
Total	$	33,186,627	$	651,315	$	5,401,593	$	86,794	$	38,588,220	$	738,109

As of December 31, 2018 and 2017, the Company had 78 and 63, respectively, individual securities that were in an unrealized loss position.

As of December 31, 2017 and 2016 , the Company had 63 and 65, respectively, individual securities that were in an unrealized loss position.

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 when making its assessment.

The Company lacks intent to sell its available-for-sale investment securities and it is not more likely than not 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 lack of intent to sell 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 December 31, ~~2017~~2018 and December 31, ~~2016~~2017.

5754


(3)	Loans Receivable

At December 31, ~~2017~~2018 and ~~2016~~2017, loans receivable consisted of the following segments:

	2017			2016
	2018			2017
Loans:
One-to-four family residential	$	5652,~~091~~335,~~358~~005		$	4756,~~315~~091,~~025~~358
Non-owner occupied one-to-four family residential	3,~~116~~013,~~832~~417			3,~~650~~116,~~171~~832
Commercial real estate	32,~~615~~162,~~351~~851			3,~~596~~615,~~717~~351
Consumer	6,~~145~~801,~~488~~419			6,~~604~~145,~~757~~488
Total loans receivable	6864,~~969~~312,~~029~~692			6168,~~166~~969,~~670~~029
Premiums/Discounts on loans purchased	1030,~~650~~318			~~(56~~10,~~707~~650		)
Deferred loan fees	(2928,~~964~~042		)	(4629,~~462~~964		)
Allowance for loan losses	(~~538~~508,~~319~~920		)	(~~487~~538,~~114~~319		)
	$	6863,~~411~~806,~~396~~048		$	6068,~~576~~411,~~387~~396

Accrued interest receivable on loans receivable was $~~218~~193,~~967~~822 and $~~226~~218,~~722~~967 at December 31, ~~2017~~2018 and ~~2016~~2017, respectively.

The loan portfolio included $4046.67 million and $4340.16 million of fixed rate loans and $2817.46 million and $1828.14 million of variable rate loans as of December 31, ~~2017~~2018 and ~~2016~~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.

Loan customers of the Company include certain directors, officers, and their related interests and associates. All loans to this group were made in the ordinary course of business at prevailing terms and conditions. Changes in such loans during the years ended December 31, ~~2017~~2018 and ~~2016~~2017 were as follows:

	2017			2016
	2018			2017
Balance at beginning of year	$	~~772~~173,~~472~~362		$	~~498~~772,~~292~~472
Change in Classification	(280,413		)	—
Change in classification	—			(280,413		)
Additions	—11,060			~~325,599~~—
Repayments/refinances	(~~318~~8,~~697~~114		)	(51318,~~419~~697		)
Ending balance	$	~~173~~176,~~362~~308		$	~~772~~173,~~472~~362

5855


(4)	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 December 31, ~~2017~~2018 and ~~2016~~2017.

	December 31, 2018
	One-to-four family residential		Non-owner occupied on-to-four family residential		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	407,086		13,252		19,110		69,472		508,920
Total	$	407,086	$	13,252	$	19,110	$	69,472	$	508,920
Loans receivable:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	52,335,005		3,013,417		2,162,851		6,801,419		64,312,692
Total	$	52,335,005	$	3,013,417	$	2,162,851	$	6,801,419	$	64,312,692
	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
	December 31, 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	319,849		28,231		37,135		101,899		487,114
Total	$	319,849	$	28,231	$	37,135	$	101,899	$	487,114
Loans receivable:
Individually evaluated for impairment	$	—	$	—	$	297,538	$	—	$	297,538
Collectively evaluated for impairment	47,315,025		3,650,171		3,299,179		6,604,757		60,869,132
Total	$	47,315,025	$	3,650,171	$	3,596,717	$	6,604,757	$	61,166,670

5956

Activity in the allowance for loan losses by segment for the years ended December 31, ~~2017~~2018 and ~~2016~~2017 is summarized in the following tables:

	December 31, 2018
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans receivable:
One-to-four family residential	$	393,341	$	67,870	$	—	$	81,615			$	407,086
Non-owner occupied one-to-four family residential	25,893		—		—		(12,641		)	*	13,252
Commercial real estate	33,204		—		—		(14,094		)	*	19,110
Consumer	85,881		60,845		21,316		23,120				69,472
Total	$	538,319	$	128,715	$	21,316	$	78,000			$	508,920
	December 31, 2017
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans receivable:
One-to-four family residential	$	319,849	$	10,944	$	133	$	84,303			$	393,341
Non-owner occupied one-to-four family residential	28,231		—		—		(2,338		)	*	25,893
Commercial real estate	37,135		—		—		(3,931		)	*	33,204
Consumer	101,899		14,055		71		(2,034		)	*	85,881
Total	$	487,114	$	24,999	$	204	$	76,000			$	538,319
	December 31, 2016
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans receivable:
One-to-four family residential	$	366,858	$	14,727	$	—	$	(32,282	)	*	$	319,849
Non-owner occupied one-to-four family residential	44,510		—		—		(16,279		)	*	28,231
Commercial real estate	32,443		28,730		245		33,177				37,135
Consumer	61,367		38,327		3,475		75,384				101,899
Total	$	505,178	$	81,784	$	3,720	$	60,000			$	487,114



* 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 3025 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 3020 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.

60Consumer: 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

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.57

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 troubled debt restructurings in ~~2017~~2018 or ~~2016~~2017.


(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 1one-4to-four 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 as of December 31, 2018 and 2017.



	Pass		Special mention/watch		Substandard		Doubtful		Total
December 31, 2018:
Loans receivable
One-to-four family residential	$	50,712,926	$	1,041,019	$	581,060	$	—	$	52,335,005
Non-owner occupied one-to-four family residential	2,876,981		136,436		—		—		3,013,417
Commercial real estate	2,162,851		—		—		—		2,162,851
Consumer	6,301,242		436,522		63,655		—		6,801,419
Total	$	62,054,000	$	1,613,977	$	644,715	$	—	$	64,312,692

	Pass		Special mention/watch		Substandard		Doubtful		Total
December 31, 2017:
Loans receivable
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

The following tables set forth the composition of each class of the Company’s loans by internally assigned credit quality indicators as of December 31, 2017 and 2016.

	Pass		Special mention/watch		Substandard		Doubtful		Total
December 31, 2017:
Loans receivable
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
	Pass		Special mention/watch		Substandard		Doubtful		Total
December 31, 2016:
Loans receivable
One-to-four family residential	$	45,851,480	$	978,513	$	485,032	$	—	$	47,315,025
Non-owner occupied one-to-four family residential	3,299,494		36,298		314,379		—		3,650,171
Commercial real estate	3,009,623		289,556		297,538		—		3,596,717
Consumer	6,324,360		270,478		9,919		—		6,604,757
Total	$	58,484,957	$	1,574,845	$	1,106,868	$	—	$	61,166,670

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~~loans with a balance of $~~274,804~~0 and $~~297~~274,~~538~~804 as of December 31, ~~2017~~2018 and ~~2016~~2017, respectively. No interest income was recorded on impaired loans during ~~2017~~2018 or ~~2016~~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) and in the process of collection.

A nonaccrual asset may be restored to an accrual status when all past‑due principal and interest has been paid and the borrower has demonstrated satisfactory payment performance (excluding renewals and modifications that involve the capitalizing of interest).

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 days and 60‑89 days 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.

6259

~~only,~~The ~~and~~following ~~include~~tables ~~loans~~set ~~considered~~forth ~~nonperforming~~the ~~due~~composition toof ~~classification~~the asCompany’s apast-due ~~TDR~~loans orat ~~being~~December 31, ~~placed~~2018 onand ~~nonaccrual~~2017.

The following tables set forth the composition of the Company’s past-due loans at December 31, 2017 and 2016.



	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans receivable		Recorded investment > 90 days and accruing
December 31, 2018:
Loans receivable
One-to-four family residential	$	706,658	$	283,116	$	369,058	$	1,358,832	$	50,976,173	$	52,335,005	$	—
Non-owner occupied one-to-four family residential	—		—		—		—		3,013,417		3,013,417		—
Commercial real estate	—		—		—		—		2,162,851		2,162,851		—
Consumer	229,899		23,400		63,655		316,954		6,484,465		6,801,419		—
Total	$	936,557	$	306,516	$	432,713	$	1,675,786	$	62,636,906	$	64,312,692	$	—

	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 receivable
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

	30-59 days past due		60-89 days past due		90 daysor morepast due		Totalpast due		Current		Total loans receivable		Recorded investment > 90 days and accruing
December 31, 2017:
Loans receivable
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
	30-59 days past due		60-89 days past due		90 daysor morepast due		Totalpast due		Current		Total loans receivable		Recorded investment > 90 days and accruing
December 31, 2016:
Loans receivable
One-to-four family residential	$	706,135	$	272,378	$	258,009	$	1,236,522	$	46,078,503	$	47,315,025	$	193,251
Non-owner occupied one-to-four family residential	—		36,298		56,639		92,937		3,557,234		3,650,171		56,639
Commercial real estate	27,143		—		297,538		324,681		3,272,036		3,596,717		—
Consumer	190,455		80,023		1,365		271,843		6,332,914		6,604,757		1,365
Total	$	923,733	$	388,699	$	613,551	$	1,925,983	$	59,240,687	$	61,166,670	$	251,255

The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of December 31, 2018 and 2017.

The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of December 31, 2017 and 2016.



	December 31,
	2018		2017
Loans receivable
One-to-four family residential	$	581,060	$	150,625
Non-owner occupied one-to-four family residential	—		—
Commercial real estate	—		274,804
Consumer	63,655		—
Total	$	644,715	$	425,429

	December 31,
	2017		2016
Loans receivable
One-to-four family residential	$	150,625	$	291,779
Non-owner occupied one-to-four family residential	—		314,380
Commercial real estate	274,804		297,538
Consumer	—		8,554
Total	$	425,429	$	912,251


(5)	Deposits

At December 31, ~~2017~~2018 and ~~2016~~2017, deposits are summarized as follows:

	2017		2016
	2018		2017
Statement savings	$	1413,~~536~~461,~~815~~826	$	1214,~~031~~536,~~554~~815
Money market plus	11,~~749~~153,~~674~~339		11,~~169~~749,~~038~~674
NOW	18,~~749~~214,~~026~~876		18,~~489~~749,~~727~~026
Certificates of deposit	4240,~~704~~747,~~679~~784		4542,~~399~~704,~~361~~679
	$	8783,~~740~~577,~~194~~825	$	87,~~089~~740,~~680~~194

Included in the NOW accounts were $4.68 million and $4.86 million of non-interest bearing deposits as of December 31, ~~2017~~2018 and ~~2016~~2017, respectively.

The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was $79.10 million and $57.01 million at December 31, ~~2017~~2018 and ~~2016~~2017 , respectively.

At December 31, ~~2017~~2018, the scheduled maturities of certificates of deposits were as follows:

	2017
	2018
2018	$	21,161,249
2019	$	23,558,991
2019	8,799,600
2020	6,715,085
2020	4,581,725
2021	4,715,960
2021	4,315,568
2022	3,670,299
2022	3,846,537
2023	2,087,449
	$	4240,~~704~~747,~~679~~784

Interest expense on deposits for the years ended December 31, ~~2017~~2018 and ~~2016~~2017 is summarized as follows:

	2017		2016
	2018		2017
Statement savings	$	3234,~~743~~642	$	2332,~~727~~743
Money market plus and NOW	44102,~~410~~424		5044,~~080~~410
Certificates of deposit	~~517~~575,~~604~~601		~~498~~517,~~742~~604
	$	~~594~~712,~~757~~667	$	~~572~~594,~~549~~757

Public funds amounted to $6.9.7 million and $36.39 million as of December 31, ~~2017~~2018 and ~~2016~~2017, respectively, including deposits of $7.5 million and $5.0 million from a single customer in 2018 and 2017.


(6)	Advances from Federal Home Loan Bank

The following is a summary of advances from FHLB at December 31, ~~2017~~2018 and ~~2016~~2017:

FHLB of Des Moines maturity in fiscal year ending December 31	Weighted average fixed interest rate	~~2017~~2018		~~2016~~2017
2017	1.08%	$	—	$	5,500,000
2018	2.03%	$	—	$	6,000,000
2018	2.03%	6,000,000		—
2019	2.56%	19,000,000		3,000,000
2019	2.23%	3,000,000		—
2020	2.36%	3,000,000		3,000,000
2020	2.36%	3,000,000		—
2021	2.52%	2,000,000		2,000,000
2021	2.52%	2,000,000		—
		$	24,000,000	$	14,000,000
		$	14,000,000	$	5,500,000

Advances from the FHLB are secured by stock in the FHLB. In addition, the Bank has agreed to maintain unencumbered additional security in the form of certain residential mortgage loans aggregating no less than 125% of outstanding advances. The advance requires monthly interest payments and principal is due at maturity. The FHLB advances at December 31, 2017 and 2016 are collateralized by one-to-four family owner and nonowner residential real estate loans with a carrying value of $46.8 million and $47.7 million, respectively.

The Bank also has an available a line of credit in the amount of $2.5 million at Bankers’ Bank. As of December 31, 2017 and 2016, there were no amounts outstanding, and there had been no draws on the line of credit during 2017 or 2016. 61

64125% of outstanding advances. The advance requires monthly interest payments and principal is due at maturity. The FHLB advances at December 31, 2018 and 2017 are collateralized by one-to-four family owner and non-owner residential real estate loans with a carrying value of $37.3 million and $46.8 million, respectively.

The Bank also has an available a line of credit in the amount of $2.5 million at Bankers’ Bank. As of December 31, 2018 and 2017, there were no amounts outstanding, and there had been no draws on the line of credit during 2018 or 2017.


(7)	Taxes on Income

Taxes on income comprise the following for the years ended December 31, ~~2017~~2018 and ~~2016~~2017:

	2018
	Federal			State		Total
Current	$	1,744		$	3,695	$	5,439
Deferred	11,731			3,985		15,716
	$	13,475		$	7,680	$	21,155
	2017
	Federal			State		Total
Current	$	(24,341	)	$	6,200	$	(18,141	)
Deferred	230,134			6,000		236,134
	$	205,793		$	12,200	$	217,993
	2016
	Federal			State		Total
Current	$	51,357		$	5,368	$	56,725
Deferred	(86,093		)	11,000		(75,093		)
	$	(34,736	)	$	16,368	$	(18,368	)

Taxes on income differ from the amounts computed by applying the federal income tax rate of 21% for 2018 and 34% for 2017 to earnings before taxes on income for the following reasons, expressed in dollars at December 31, ~~2017~~2018 and ~~2016~~2017:

	2017			2016
	2018			2017
Federal tax at statutory rate	$	3451,~~642~~988		$	3034,~~955~~642
Items affecting federal income tax rate:
State taxes on income, net of federal benefit	86,~~052~~067			108,~~803~~052
Tax-exempt income	(8455,~~963~~304		)	(~~120~~84,~~043~~963		)
Valuation allowance	(108,000		)	35(10,000		)
Effect of change in federal tax rate (1)	~~302,000~~—			—302,000
Other	~~(31~~26,~~738~~404		)	24(31,~~917~~738		)
	$	~~217~~21,~~993~~155		$	~~(18~~217,~~368~~993	)



(1) Represents the adjustment from the Tax Cut and Jobs Act adopted December 22, 2017

Federal income tax expense for the years ending December 31, ~~2017~~2018 and ~~2016~~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.

6562

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, ~~2017~~2018 and ~~2016~~2017 are presented below:

	2017			2016
	2018			2017
Deferred tax assets:
Deferred directors’ fees	$	~~195~~185,000		$	~~338~~195,000
Allowance for loan losses	~~134~~127,000			~~182~~134,000
Net operating loss carryforward	~~165~~191,000			~~138~~165,000
AMT credit carryforward	3417,~~720~~360			3534,~~000~~720
Charitable contribution carryforward	59,000			8659,000
Professional fees	4944,000			7749,000
Securities available for sale	~~121~~274,~~082~~549			~~246~~121,~~159~~082
Other	2319,~~278~~922			2823,~~420~~278
Gross deferred tax assets	~~781~~917,~~080~~831			1781,~~130,579~~080
Valuation allowance	(9688,000		)	(~~106~~96,000		)
Net deferred tax assets	~~685~~829,~~080~~831			1685,~~024,579~~080
Deferred tax liabilities:
Securities	—			—
Prepaid expenses	(14,000		)	(14,000		)
Prepaid expenses	(14,000		)	(21,000		)
FHLB stock dividends	(25,000		)	(25,000		)
FHLB stock dividends	(25,000		)	(38,000		)
Fixed assets	(8,000		)	—
Fixed assets	—			(6,000		)
Intangible assets	(14,000		)	(15,000		)
Intangible assets	(15,000		)	(25,000		)
Gross deferred tax liabilities	(61,000		)	(54,000		)
Other	—			—
Net deferred tax assets	$	768,831		$	631,080
Gross deferred tax liabilities	(54,000		)	(90,000		)
Net deferred tax assets	$	631,080		$	934,579

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 December 31, ~~2017~~2018 and ~~2016~~2017, related to the charitable contribution carryforward. The charitable contribution expires ifin ~~not~~varying ~~used~~amounts bybetween 2020 and 2023. In addition, as of December 31, ~~2017~~2018, a $3426,000 valuation allowance was recorded related to the deferred Iowa income tax items of WCF Bancorp, Inc. As of December 31, ~~2017~~2018 the Company had a federal net operating loss carryforward of $~~693~~821,000 and a state net operating loss carryforward of $~~382~~482,000 which expire from ~~2035~~2036 to 2037 under current tax law federal net operating losses arising in years ended after December 31, 2017 do not expire.

As of December 31, ~~2017~~2018, the Company had no material unrecognized tax benefits. The evaluation was performed for those tax years that remain open to audit. The Company files a consolidated tax return for federal purposes and separate tax returns for the State of Iowa purposes.

Under previous law, the provisions of the IRS and similar sections of Iowa law permitted the Bank to deduct from taxable income an allowance for bad debts based on 8% of taxable income before such deduction or actual loss experience. Legislation passed in 1996 eliminated the percentage of taxable income method as an option for computing bad debt deductions for 1996 and in future years.

Deferred taxes have been provided for the difference between tax bad debt reserves and the loan loss allowances recorded in the financial statements subsequent to December 31, 1987. However, at December 31, ~~2017~~2018 and ~~2016~~2017, retained earnings contain certain historical additions to bad debt reserves for income tax purposes of $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.

6663

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.


(8)	Benefit Plans


(a)	Retirement Plans

The Bank is a participant in the Financial Institutions Retirement Fund (FIRF), and all of its officers and employees hired prior to November 1, 2008 are covered by the retirement plan. In August 2008, the board of directors passed a resolution to change the Employer’s Basis of Participation in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Defined Benefit Plan). The amendment excludes employees who began employment after November 1, 2008 from receiving benefits under the defined-benefit plan. The defined-benefit plan had total assets of $5.13 million and total liabilities of $5.3 million with ana ~~excess~~ funding shortfall in the plan of $~~141~~34,~~495~~216 as of June 30, ~~2017~~2018, the date of the latest actuarial valuation. In ~~2016~~2017 the defined-benefit plan had total assets of $45.91 million and total liabilities of $~~4.7~~5 million with an excess funding in the plan of $~~215~~141,~~758~~495 as of June 30, ~~2016~~2017, the date of the latest actuarial valuation. The Company has not undertaken, and does not intend, to voluntarily withdraw or partially withdraw from the defined-benefit plan. Additionally, there are no known intentions to terminate the defined-benefit plan.

The Company’s contribution to the Pentegra Defined Benefit Plan was less than five percent of all contributions received. The table below provides additional information for the defined-benefit plan:

Plan Name		Pentegra Defined Benefit Plan for Financial Institutions
Plan numbers		13-5645888 #333
Funded status:
Plan year ending 6/30/18		At least 80% funded
Plan year ending 6/30/17		At least 80% funded
Plan year ending 6/30/16		At least 80% funded
Employer contributions:
Plan year ending 6/30/18		$90,154
Plan year ending 6/30/17		$62,434
Plan year ending 6/30/16		$28,730
Surcharge imposed		No
Rehabilitation plan in place		No
Minimum contribution required		Yes

The minimum contributions required relate to on-going servicing costs associated with managing the plan and do not relate to a minimum contribution required to keep the funding status above critical levels.

On November 1, 2008, the Company began participating in the Pentegra Defined Contribution Plan. The defined-contribution plan covers employees who began employment after November 1, 2008, with a company match of employee contributions up to 6% of the employee’s salary. Employees covered under the defined-benefit plan can also participate in the defined-contribution plan, but the company match is only available to employees who began employment after November 1, 2008. On January 1, 2012 the Company switched defined-contribution plan providers from Pentegra Defined Contribution Plan to Architect 401(k) MEP, provided by The Finway Group. There were $179,~~283~~605 and $1117,~~656~~283 in contributions made by the Company to the defined-contribution plan in ~~2017~~2018 and ~~2016~~2017, respectively.


(b)	Deferred Compensation

The Company has deferred compensation agreements with certain directors. At December 31, ~~2017~~2018 and ~~2016~~2017, accrued deferred compensation of $~~780~~739,~~886~~536 and $~~905~~780,~~554~~886, respectively, was recorded in accrued expenses and other liabilities. Directors’ fees deferred were $129,~~400~~000 and $1312,~~200~~400 for ~~2017~~2018 and ~~2016~~2017, respectively. Retired directors withdrew $~~137~~135,~~068~~914 and $~~138~~137,~~028~~068 in ~~2017~~2018 and ~~2016~~2017, respectively. Interest of $3543,~~151~~371 and $4035,~~275~~151 was accrued in ~~2017~~2018 and ~~2016~~2017, respectively.


(c)	Employee Stock Ownership Plan

The Company established an 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 rate equal to the lowest Prime Rate published in The Wall Street Journal, to be repaid on a prorated 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 are to be released annually from the suspense account and the released shares will be allocated to 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. The Company recognizes compensation expenses for dividends paid to unallocated shares. Committed to be released shares are considered 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 December 31, 2017 there were 13,691 allocated shares and 157,447 unallocated shares. The fair value of unallocated ESOP shares at December 31, 2017 was $1.5 million.64

equal to the lowest Prime Rate published in The Wall Street Journal, to be repaid on a prorated 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 are to be released annually from the suspense account and the released shares will be allocated to 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. The Company recognizes compensation expenses for dividends paid to unallocated shares. Committed to be released shares are considered 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 December 31, 2018 there were 20,537 allocated shares and 150,601 unallocated shares. The fair value of unallocated ESOP shares at December 31, 2018 was $1.2 million.


(9)	Stockholders’ Equity


(a)	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 December 31, ~~2017~~2018 and ~~2016~~2017.

The Company’s and WCF Financial Bank’s capital amounts and ratios are presented in the following table as of December 31, ~~2017~~2018 and ~~2016~~2017 (dollars in thousands).

6865

December 31, 2017

December 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,~~657~~534

2322.4050

45,~~897~~081

4.00

Nn/Aa

WCF Financial Bank

19,~~117~~567

16.5030

4,~~637~~792

4.00

5,~~796~~990

5.00

Common equity tier 1:

Consolidated

28,~~657~~534

5049.2000

3,~~283~~712

56.75375

3,~~712~~785

6.50

WCF Financial Bank

19,~~117~~567

34.5040

3,~~191~~631

56.75375

3,~~607~~702

6.50

Risk-based capital:

Consolidated

29,~~195~~043

5149.1090

5,~~282~~750

9.25875

5,~~710~~823

10.00

WCF Financial Bank

1920,~~655~~076

35.4020

5,~~133~~625

9.25875

5,~~549~~696

10.00

Tier 1 risk-based capital:

Consolidated

28,~~657~~534

5049.2000

4,~~140~~585

7.25875

4,~~568~~658

8.00

WCF Financial Bank

19,~~117~~567

34.5040

4,~~023~~486

7.25875

4,~~439~~557

8.00

December 31, 2016

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

2928,~~192~~657

2423.3040

4,~~812~~897

4.00

N/A

WCF Financial Bank

1819,~~993~~117

16.0050

4,~~753~~637

4.00

5,~~941~~796

5.00

Common equity tier 1:

Consolidated

2928,~~192~~657

5550.3020

23,~~706~~283

5.1375

3,~~432~~712

6.50

WCF Financial Bank

1819,~~993~~117

3634.8050

23,~~648~~191

5.1375

3,~~359~~607

6.50

Risk-based capital:

Consolidated

29,~~679~~195

5651.2010

45,~~554~~282

89.6325

5,~~280~~710

10.00

WCF Financial Bank

19,~~480~~655

3735.7040

45,~~457~~133

89.6325

5,~~167~~549

10.00

Tier 1 risk-based capital:

Consolidated

2928,~~192~~657

5550.3020

34,~~498~~140

67.6325

4,~~224~~568

8.00

WCF Financial Bank

1819,~~993~~117

3634.8050

34,~~423~~023

67.6325

4,~~134~~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

6966

~~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 December 31, ~~2017~~2018, the ratios for the Company and WCF Financial Bank were sufficient to meet the fully phased-in conservation buffer.


(b)	Dividends and Restrictions Thereon

The Company declared and paid a ~~$0.05~~dividend ~~all~~of ~~four quarters for year ended December 31, 2017. In 2016 the Company declared and paid and a~~ $0.~~06 dividend in the first quarter and a $.~~05 ~~dividend~~per share in ~~both~~each of the ~~third~~four ~~and~~quarters ~~fourth~~for ~~quarters~~years ended December 31, ~~2016~~2018 ,and ~~not~~December ~~paying a dividend in the second quarter of 2016. Per Share amounts related to periods prior to the date of completion of the Conversion (July 13~~31, ~~2016) have been restated to give retroactive recognition to the exchange ratio applied to the Conversion (0~~2017.~~8115 to one).~~

~~Federal~~The ~~regulations~~primary ~~impose~~source ~~certain~~of ~~limitations~~funds onfor the ~~payment~~Company ofis dividends ~~and~~from ~~other~~WCF ~~capital~~Financial ~~distributions by the~~ Bank. Under the ~~regulations~~Iowa Banking Act, aIowa-chartered ~~savings~~banks ~~institution,~~generally ~~such~~may aspay ~~the~~dividends ~~Bank,~~only ~~that~~out ~~will~~of ~~meet~~undivided ~~the~~profits. ~~fully~~The ~~phased-in~~Iowa ~~capital~~Division ~~requirements~~of ~~(as~~Banking ~~defined~~may byrestrict the ~~OCC~~declaration ~~regulations)~~or ~~subsequent~~payment toof a ~~capital~~dividend ~~distribution~~by isan ~~generally~~Iowa-chartered ~~permitted~~bank, ~~to make~~ such ~~capital distribution without OCC approval so long~~ as ~~they~~WCF ~~have~~Financial ~~not~~Bank. ~~been~~The ~~notified~~payment of ~~the~~dividends ~~need~~by ~~for~~any ~~more~~FDIC-insured ~~than~~institution ~~normal~~is ~~supervision~~affected by the ~~OCC.~~requirement ~~The~~to ~~Bank~~maintain ~~has~~adequate ~~not~~capital ~~been~~pursuant soto ~~notified~~applicable capital adequacy guidelines and, ~~therefore~~regulations, ~~may~~and ~~make~~an ~~capital~~FDIC-insured ~~distributions~~institution ~~during~~generally ~~the~~is ~~calendar~~prohibited ~~year~~from ~~equal~~paying toany ~~net~~dividends ~~income~~if, ~~plus~~following ~~50%~~payment ofthereof, the ~~amount~~institution bywould ~~which~~be ~~the~~undercapitalized. ~~Bank’s~~As ~~capital~~described ~~exceeds~~above, ~~the~~WCF ~~fully~~Financial ~~phased‑in~~Bank ~~capital~~exceeded ~~requirement~~its ascapital ~~measured~~requirements atunder ~~the~~applicable ~~beginning~~guidelines as of ~~the~~December ~~calendar~~31, ~~year~~2018. ANotwithstanding ~~savings~~the ~~institution~~availability ~~with~~of ~~total~~funds ~~capital~~for individends, ~~excess~~however, ofthe ~~current~~FDIC ~~minimum~~and ~~capital~~the ~~requirements~~Iowa ~~but~~Division ~~not~~of inBanking ~~excess~~may ofprohibit the ~~fully~~payment ~~phased‑in~~of ~~requirements~~dividends ~~is permitted~~ by ~~the~~WCF ~~new~~Financial ~~regulations~~Bank toif ~~make,~~either ~~without~~or ~~OCC~~both ~~approval,~~determine ~~capital~~such ~~distributions~~payment ofwould ~~between~~constitute ~~25%~~an ~~and~~unsafe ~~75%~~or ofunsound ~~its~~practice. ~~net~~In ~~income~~addition, ~~for~~under the ~~previous~~Basel ~~four~~III ~~quarters~~Rule, ~~less~~institutions ~~dividends~~that ~~already~~seek ~~paid~~the ~~for~~freedom ~~such~~to ~~period.~~pay Adividends ~~savings~~will ~~institution~~have ~~that fails~~ to ~~meet~~maintain ~~current~~2.5% ~~minimum~~in ~~capital~~Common ~~requirements~~Equity isTier ~~prohibited~~1 ~~from~~Capital ~~making~~attributable ~~any~~to the capital ~~distributions~~conservation ~~without prior approval from the OCC~~buffer.


(10)	Fair Value

FASB Accounting Standards Codification (ASC) 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset of liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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.


•	Bankers’ Bank and Federal Home Loan Bank (FHLB) stock. The value of Bankers’ Bank and FHLB 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.

7167

The following tables summarize financial assets measured at fair value on a recurring basis as of December 31, ~~2017~~2018 and ~~2016~~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 on a recurring basis in the consolidated balance sheets.



	December 31, 2018
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
U.S. agency securities	$	—	$	3,714,049	$	—	$	3,714,049
Mortgage-backed securities	—		25,648,884		—		25,648,884
Municipal bonds	—		14,259,108		—		14,259,108
Total	$	—	$	43,622,041	$	—	$	43,622,041



	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

	December 31, 2016
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
U.S. agency securities	$	—	$	243,065	$	—	$	243,065
Mortgage-backed securities	—		31,396,806		—		31,396,806
Municipal bonds	—		12,514,086		—		12,514,086
Corporate bonds	—		498,880		—		498,880
Total	$	—	$	44,652,837	$	—	$	44,652,837

There have been no changes in valuation methodologies at December 31, 2018 compared to December 31, 2017 and there were no transfers between levels during the periods ended December 31, 2018 and 2017.

~~There~~The ~~have~~Company ~~been~~is norequired ~~changes~~to inmeasure ~~valuation~~certain ~~methodologies~~assets at ~~December~~fair value on a nonrecurring basis in accordance with U.S. ~~31,~~generally ~~2017~~accepted ~~compared~~accounting principles. These adjustments to ~~December 31,~~fair ~~2016~~value ~~and~~usually ~~there~~result ~~were~~from noapplication ~~transfers~~of ~~between~~lower‑of‑cost ~~levels~~or ~~during~~fair ~~the~~value ~~periods~~accounting ~~ended~~or write‑downs of individual assets. As of December 31, ~~2017~~2018 and ~~2016~~December 31, 2017, the Company did not have any material assets measured at fair value on a nonrecurring basis.

The ~~Company~~estimated ~~is required to measure certain assets at~~ fair ~~value~~values ~~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~~Company’s orfinancial ~~fair~~instruments ~~value~~at ~~accounting or write‑downs of individual assets. As of~~ December 31, ~~2017~~2018 and ~~December 31,~~2017 ~~2016,~~were ~~the~~as ~~Company did not have any material assets measured at fair value on a nonrecurring basis.~~follows:

December 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

3,587,631

3,310,400

Federal funds sold

Level 1

Filing Compare · WCF Bancorp, Inc.