Basis of Presentation

Description of Business

WCF Bancorp, Inc. (the Company) is a 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 approximately $17.1 million. Expenses related to the stock offering totaled $1.7 million and were netted against proceeds. As a part of the second-step conversion, each of the outstanding shares of common stock of Old Bancorp held by persons other than the MHC 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-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'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 savings bank, the Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the OCC). As a savings and loan holding company, the Company is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve Board).

The primary business of WCF Financial Service Corp (the Service Corp), 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 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, 2016, 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 consists of net income and other comprehensive income (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, 2016 and 2015 were interest-bearing deposits totaling $2,362,986 and $7,846,000, 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 2017 through August 2021.

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 $144,820 and $207,605 were recorded in 2016 and 2015, respectively.

FHLB Stock

FHLB stock represents equity interst 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 2016 and 2015.

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 2016 and 2015.

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.

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.

At December 31, 2016 and 2015, the cost and accumulated depreciation of office property and equipment were as follows:



	2016		2015

Land	$	804,000	$	804,000
Office building and improvements	3,654,921		3,618,923
Furniture, fixtures, and equipment	489,877		437,512
	4,948,798		4,860,435
Less accumulated deprecation	907,273		540,064
	$	4,041,525	$	4,320,371

Depreciation expense was $367,210 and $275,343 for the years ended December 31, 2016 and 2015, 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 indicators existed as of December 31, 2016 and 2015.

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, 2016 and 2015.

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, 2016 and 2015, 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 2015, the Company recorded its investment in affiliate value based on a one-month lag. In 2016, the Company recorded its investment in affiliate value based on the affiliate's December 31, 2016 financial statements, which resulted in a 13-month period of affiliate activity being recorded in the Company's consolidated financial statements. The impact of the additional month of activity was not material.

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, 2016 and November 30, 2015 is presented below.



	As of and for the period ending
	December 31, 2016		November 30, 2015

Current assets	$	94,556	$	192,299
Long-term assets	1,741,253		1,740,175
Current liabilities	54,717		89,022
Total equity	1,781,092		1,843,452
Total revenue	906,452		879,876
Net income	140,670		142,968

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, 2016 and December 31, 2015 is presented below.



	December 31,
	2016		2015
Net income	$	109,413	$	393,865

Weighted average common shares outstanding and diluted common shares outstanding (1)	2,425,313		2,452,991

Basic earnings per common share	$	0.05	$	0.16
Diluted earnings per common share	$	0.05	$	0.16



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

Unearned 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.

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 24, 2017, which is the date the consolidated financial statements were issued. There are no subsequent events requiring recognition or disclosure in the consolidated financial statements as noted by the Company.

Current Accounting Developments

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. This update will be effective for interim and annual periods beginning after December 15, 2018. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.

In 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.