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Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

   
  For the quarterly period ended June 30, 2018

 

OR

 

[   ]

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

   
  For the transition period from _______________ to _______________

 

Commission File No. 001-38239

 

FFBW, Inc.

(Exact name of registrant as specified in its charter)

 

Federal

 

82-3027075 

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     

1360 South Moorland Road 

Brookfield, Wisconsin 

 

53005

(Address of Principal Executive Offices)

 

(Zip Code)

 

(262) 542-4448

(Registrant’s telephone number)

 

N/A

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES [X]     NO [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [X ]     NO [ ]

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [X]

(Do not check if a smaller reporting company)

Emerging growth company [X]

 

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

 

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

 

6,612,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of August 6, 2018.

 

 

 

FFBW, Inc.

Form 10-Q

 

Index 

 

   

Page

Part I. Financial Information

     

Item 1.

Financial Statements

2
     
 

Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017

2

     
 

Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

3

     
 

Statements of Comprehensive Income for the Three and Six Months Ended June, 2018 and 2017 (unaudited)

4

     
 

Statements of Changes in Equity for the Six Months Ended June 30, 2018 and 2017 (unaudited)

5

     
 

Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)

6

     
 

Notes to Financial Statements (unaudited)

7

     

Item 2.

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

26
     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37
     

Item 4.

Controls and Procedures

37
     

Part II. Other Information

     

Item 1.

Legal Proceedings

37
     

Item 1A.

Risk Factors

37
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37
     

Item 3.

Defaults upon Senior Securities

37
     

Item 4.

Mine Safety Disclosures

37
     

Item 5.

Other Information

37
     

Item 6.

Exhibits

38
     
 

Signature Page

39

 

 

 

Part I.Financial Information

 

Item 1.

Financial Statements

 

FFBW, Inc.

Balance Sheets 

June 30, 2018 (Unaudited) and December 31, 2017

(Dollars in Thousands)

 

   

June 30,

   

December 31,

 

 

 

2018

   

2017

 
Assets                
                 

Cash and due from banks

  $ 2,393     $ 3,285  

Fed funds sold

    -       8,528  

Cash and cash equivalents

    2,393       11,813  

Available for sale securities, stated at fair value

    55,135       58,012  

Loans held for sale

    -       109  

Loans, net of allowance for loan and lease losses of $1,908 and $1,800, respectively

    193,057       171,355  

Premises and equipment, net

    5,161       5,290  

Foreclosed assets

    -       619  

FHLB stock, at cost

    1,098       514  

Accrued interest receivable

    821       782  

Cash value of life insurance

    6,653       6,558  

Other assets

    1,593       1,429  
                 

TOTAL ASSETS

  $ 265,911     $ 256,481  
                 
                 

Liabilities and Equity

               
                 

Deposits

  $ 166,334     $ 182,913  

Advance payments by borrowers for taxes and insurance

    812       36  

FHLB advances

    38,000       12,750  

Accrued interest payable

    360       37  

Other liabilities

    1,104       1,256  

Total liabilities

  $ 206,610     $ 196,992  
                 

Preferred stock ($0.01 par value, 1,000,000 authorized, no shares issued or outstanding as of June 30, 2018 and December 31, 2017, respectively)

  $ -     $ -  

Common stock ($0.01 par value, 19,000,000 authorized, 6,612,500 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively)

    66       66  

Additional paid in capital

    28,302       28,296  

Unallocated common stock of Employee Stock Ownership Plan ("ESOP") (249,783 and 256,263 shares at June 30, 2018 and December 31, 2017, respectively)

    (2,498 )     (2,563 )

Retained earnings

    34,413       33,937  

Accumulated other comprehensive loss, net of income taxes

    (982 )     (247 )

Total equity

  $ 59,301     $ 59,489  
                 

TOTAL LIABILITIES AND EQUITY

  $ 265,911     $ 256,481  

 

The accompanying notes are an integral part of these financial statements.

 

 

 

FFBW, Inc.

Statements of Income

Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)

(Dollars in Thousands, except Per Share Data)

 

   

Three months ended June 30,

   

Six months ended June 30,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Interest and dividend income:

                               

Loans, including fees

  $ 2,332     $ 1,903     $ 4,307     $ 3,756  

Securities

                               
Taxable     339       212       679       453  
Tax-exempt     14       44       37       79  

Other

    15       8       31       12  
                                 

Total interest and dividend income

    2,700       2,167       5,054       4,300  
                                 

Interest Expense:

                               

Interest-bearing deposits

    342       329       688       648  

Borrowed funds

    116       60       169       118  
                                 

Total interest expense

    458       389       857       766  
                                 

Net interest income

    2,242       1,778       4,197       3,534  

Provision for loan losses

    189       52       304       103  
                                 

Net interest income after provision for loan losses

    2,053       1,726       3,893       3,431  
                                 

Noninterest income:

                               

Service charges and other fees

    91       65       185       124  

Net gain on sale of loans

    36       47       75       133  

Net gain on sale of securities

    1       22       9       22  

Increase in cash surrender value of insurance

    49       50       95       100  

Other noninterest income

    23       12       47       16  
                                 

Total noninterest income

    200       196       411       395  
                                 

Noninterest expense:

                               

Salaries and employee benefits

    1,132       1,027       2,185       2,039  

Occupancy and equipment

    245       260       496       546  

Data processing

    178       145       349       301  

Foreclosed assets, net

    (9 )     19       37       27  

Professional fees

    71       120       213       230  

Other

    199       219       411       468  
                                 

Total noninterest expense

    1,816       1,790       3,691       3,611  
                                 

Income before income taxes

    437       132       613       215  

Provision for income taxes

    84       21       137       23  
                                 

Net income

  $ 353     $ 111     $ 476     $ 192  
                                 

Earnings per share

                               

Basic

  $ 0.06     N/A     $ 0.07     N/A  

Diluted

  $ 0.06     N/A     $ 0.07     N/A  

 

The accompanying notes are an integral part of these financial statements.

 

 

 

FFBW, Inc.

Statement of Comprehensive Income

Three and Six Months Ended June 30, 2018 and 2017, (Unaudited)

(Dollars in Thousands)

 

   

Three months ended

June 30,

   

Six months ended

June 30,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Net income

  $ 353     $ 111     $ 476     $ 192  

Other comprehensive income:

                               

Unrealized holding gains (losses) arising during the period

    (262 )     110       (956 )     227  

Reclassification adjustment for gains realized in net income

    (1 )     (22 )     (9 )     (22 )

Other comprehensive income (loss) before tax effect

    (263 )     88       (965 )     205  

Tax effect of other comprehensive income items

    136       (31 )     230       (72 )

Other comprehensive income (loss), net of tax

    (127 )     57       (735 )     133  

Comprehensive income (loss)

  $ 226     $ 168     $ (259 )   $ 325  

 

The accompanying notes are an integral part of these financial statements.

 

 

 

FFBW, Inc.

Statement of Changes in Equity

For the Six Months Ended June 30, 2018 and 2017, (Unaudited)

(Dollars in Thousands)

 

   

Number of

Shares

   

Common

Stock

   

Additional

Paid-In

Capital

   

Unallocated

Common

Stock of

ESOP

   

Retained

Earnings

   

Accumulated

Other

Comprehensive Income (Loss)

   

Total

 

Balance at December 31, 2016

    -     $ -     $ -     $ -     $ 34,123     $ (125 )   $ 33,998  

Net income

    -       -       -       -       192       -       192  

Other comprehensive income

    -       -       -       -       -       133       133  

Balance at June 30, 2017

    -     $ -     $ -     $ -     $ 34,315     $ 8     $ 34,323  
                                                         

Balance at December 31, 2017

    6,612,500     $ 66     $ 28,296     $ (2,563 )   $ 33,937     $ (247 )   $ 59,489  

Net income

    -       -       -       -       476       -       476  

ESOP shares committed to be released (6,480 shares)

    -       -       6       65       -       -       71  

Other comprehensive loss

    -       -       -       -       -       (735 )     (735 )

Balance at June 30, 2018

    6,612,500     $ 66     $ 28,302     $ (2,498 )   $ 34,413     $ (982 )   $ 59,301  

  

The accompanying notes are an integral part of these financial statements.

 

 

 

FFBW, Inc.

Statements of Cash Flows

For the Six Months Ended June 30, 2018 and 2017 (Unaudited)

(Dollars in Thousands)

 

   

For the six months ended June 30,

 
   

2018

   

2017

 

Net decrease in cash and cash equivalents:

               

Cash flows from operating activities:

               

Net income

    476       192  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for loan losses

    304       103  

Depreciation

    167       249  

Accretion of loan portfolio discount and deposit premium

    (46 )     (198 )

Net amortization (accretion) on securities available for sale

    272       272  

Loss on sales and impairments of foreclosed assets

    17       -  

Gain on sale of available for sale securities

    (9 )     (22 )

Increase in cash surrender value of life insurance

    (95 )     (100 )

Accretion of discount on FHLB advances

    -       (14 )

ESOP compensation

    71       -  
                 

Changes in operating assets and liabilities:

               

Accrued interest receivable

    (39 )     44  

Loans held for sale

    109       461  

Other assets

    66       (97 )

Accrued interest payable

    323       294  

Other liabilities

    (152 )     (488 )

Net cash provided by operating activities

    1,464       696  
                 

Cash flows from investing activities:

               

Proceeds from sales of available for sale securities

    6,437       5,906  

Maturities, calls, paydowns on securities

    3,079       3,538  

Purchases of available for sale securities

    (7,867 )     (6,957 )

Net (increase) decrease in loans

    (22,259 )     188  

Purchases of premises and equipment

    (38 )     (280 )

Proceeds from redemption of FHLB stock

    (584 )     833  

Proceeds from sale of equipment

    -       23  

Purchase of life insurance

    -       (6 )

Proceeds from sale of foreclosed assets

    823       457  

Net cash (used) provided by investing activities

    (20,409 )     3,702  
                 

Cash flows from financing activities:

               

Net increase (decrease) in deposits

    (16,501 )     307  

Net increase in advance payments by borrowers for taxes and insurance

    776       663  

Net increase (decrease) in FHLB open line of credit

    -       (5,000 )

Repayments of FHLB advances

    -       (6,500 )

Proceeds from FHLB advances

    25,250       5,000  

Net cash provided (used) in financing activities

  $ 9,525     $ (5,530 )

Net decrease in cash and cash equivalents

  $ (9,420 )   $ (1,132 )

Cash and cash equivalents at beginning

    11,813       6,911  

Cash and cash equivalents at end

  $ 2,393     $ 5,779  
                 

Supplemental Cash Flow Disclosures:

               

Cash paid for interest

  $ 534     $ 473  

Cash paid for income taxes

    40       -  

Loans transferred to foreclosed assets

    221       560  

Financed sales of foreclosed assets

    21       -  

 

The accompanying notes are an integral part of these financial statements.

 

 

FFBW, Inc.

Form 10-Q

 

 

 

Notes to Financial Statements (Unaudited – Dollars in Thousands)

 

Note 1 – Basis of Presentation

 

The accompanying unaudited consolidated financial statements of FFBW, Inc. and its wholly-owned subsidiary (collectively the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America.

 

In the opinion of management, all adjustments necessary for a fair presentation of the financial statements have been included. The results of operations for the six month periods ended June 30, 2018 are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (“SEC”) as part of FFBW, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

 

 

Note 2Nature of Business and Summary of Significant Accounting Policies

 

Organization

 

On October 10, 2017, First Federal Bank of Wisconsin (“the Bank”) converted to a stock savings bank and is reorganized into the mutual holding company structure.  The Bank issued all of its outstanding stock to a new holding company, FFBW, Inc., (the “Company”) which sold 2,950,625 shares of common stock to the public at $10.00 per share, and contributed an additional 25,000 shares to FFBW Community Foundation, representing 45% of its outstanding shares of common stock.  This amount included shares purchased by the Bank’s employee stock ownership plan (“ESOP”), which purchased 3.92% of the Company’s outstanding common upon the completion of the reorganization and stock issuance.  FFBW, Inc. is organized as a corporation under the laws of the United States.  FFBW, MHC has been organized as a mutual holding company under the laws of the United States and owns 55% of the outstanding common stock of FFBW, Inc.    

 

The cost of the reorganization and the issuing of the common stock were deferred and deducted from the sales proceeds of the offering.  Reorganization costs of $1,394 were recognized.  

 

At June 30, 2018, the significant assets of the Company were the capital stock of the Bank, and a loan to the First Federal Bank of Wisconsin Employee Stock Ownership Plan (“ESOP”). The liabilities of the Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended. The Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“the Federal Reserve Board”).

 

First Federal Bank of Wisconsin is a community bank headquartered in Waukesha, Wisconsin that provides financial services to individuals and businesses from our offices in Waukesha, Brookfield, and the Bay View neighborhood.

 

Use of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair values of securities, fair value of financial instruments, the valuation of other real estate owned and the valuation of deferred income tax assets.

 

 

Cash and Cash Equivalents

 

For purposes of reporting cash flows, cash and cash equivalents include cash, balances due from banks, fed funds sold and non-maturity deposits in the Federal Home Loan Bank of Chicago (FHLB). The Company may at times maintain balances at financial institutions that exceed federally insured limits. The Company has not experienced any losses in such accounts.

 

Available for Sale Securities

 

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity.  Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital requirements, and other similar factors.  Securities classified as available for sale are carried at fair value.  Unrealized gains or losses are reported as increases or decreases in other comprehensive income, net of the related deferred tax effect.  Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.

 

Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient enough to allow for any anticipated recovery in fair value.

 

Loans Acquired in a Transfer 

 

The Company acquires loans (including debt securities) individually and in groups or portfolios. These loans are initially measured at fair value with no allowance for loan losses. The Company's allowance for loan losses on all acquired loans reflect only those losses incurred subsequent to acquisition.

 

Certain acquired loans may have experienced deterioration of credit quality between origination and the Company's acquisition of the loans. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (for example, credit score, loan type, and date of origination). The Company considers expected prepayments and estimates the amount and timing of undiscounted principal, interest, and other cash flows expected at acquisition for each loan and aggregated pool of loans. The excess of the loan's or pool's scheduled contractual principal and interest payments over all cash flows expected at acquisition is calculated as the nonaccretable difference. The excess of cash flows expected to be collected over the fair value of each loan or pool (accretable yield) is accreted into interest income over the remaining life of the loan or pool.

 

At each reporting date, the Company continues to estimate cash flows expected to be collected for each loan or pool. If expected cash flows have decreased from the acquisition date estimate, the Company recognizes an allowance for loan losses. If expected cash flows have increased from the acquisition date estimate, the Company increases the amount of accretable yield to be recognized as interest income over the remaining life of the loan or pool.

 

Loans  

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for deferred loan fees and costs, charge-offs, and an allowance for loan losses. Interest on loans is accrued and credited to income based on the unpaid principal balance. Loan-origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

 

The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

 

Allowance for Loan Losses

 

The allowance for loan losses is maintained at the level considered adequate by management to provide for losses that are probable as of the balance sheet date. The allowance for loan losses is established through a provision for loan losses charged to expense as losses are estimated to have occurred. Loan losses are charged against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. In determining the adequacy of the allowance balance, the Company makes evaluations of the loan portfolio and related off-balance sheet commitments, considers current economic conditions and historical loss experience, and reviews specific problem loans and other factors.

 

When establishing the allowance for loan losses, management categorizes loans into risk categories generally based on the nature of the collateral and the basis of repayment. These risk categories and their relevant risk characteristics are as follows:

 

Commercial development: These loans are secured by vacant land and/or property that are in the process of improvement. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. Construction loans include not only construction of new structures, but loans originated to finance additions to or alterations of existing structures. Until a permanent loan originates, or payoff occurs, all commercial construction loans secured by real estate are reported in this loan pool. Development loans also have the risk that improvements will not be completed on time, or in accordance with specifications and projected costs.

 

Commercial real estate: These loans are primarily secured by office and industrial buildings, warehouses, small retail shopping facilities, and various special purpose properties, including restaurants. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate market, such as geographic location and/or purpose type.

 

Commercial and industrial: Commercial and industrial loans are extended primarily to small and middle market customers. Such credits typically comprise working capital loans, asset acquisition loans, and loans for other business purposes. Loans to closely held businesses are generally guaranteed in full by the owners of the business. Commercial and industrial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for commercial and industrial loans.

 

1-4 family owner-occupied: These loans are generally to individuals and are underwritten by evaluating the credit history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations, the underlying collateral, and the loan to collateral value. Also included in this category are junior liens on 1-4 family residential properties. Underwriting standards for single family loans are heavily influenced by statutory requirements, which include, but are not limited to, loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements.

 

1-4 family investor-owned: These loans may be to individuals or businesses and are subject to underwriting standards and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property(ies). The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate market, such as geographic location and/or purpose type.

 

Multifamily real estate: These loans include loans to finance non-farm properties with five or more units in structures primarily to accommodate households. Such credits are typically originated to finance the acquisition or refinancing of an apartment building. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the subject multifamily property, with assumptions made for vacancy rates. Cash flows of the borrowers rely on the receipt of rental income from the tenants of the property who are themselves subject to fluctuations in national and local economic conditions and unemployment trends.

 

Consumer: These loans may take the form of installment loans, demand loans, or single payment loans, and are extended to individuals for household, family, and other personal expenditures. These loans generally include direct consumer automobile loans and credit card loans. These loans are generally smaller in size and are underwritten by evaluating the credit history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations.

 

 

Management regularly evaluates the allowance for loan losses using the Company’s past loan loss experience, known and inherent risks in the loan portfolio, composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.

 

A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan agreement. Management determines whether a loan is impaired on a case-by-case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the borrower’s prior payment record, and any other relevant factors. Large groups of smaller-balance homogeneous loans, such as residential mortgage and consumer loans, are collectively evaluated in the allowance for loan losses analysis and are not subject to impairment analysis unless such loans have been subject to a restructuring agreement. Specific allowances for impaired loans are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.

 

In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Company to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

 

Troubled Debt Restructurings 

 

Loans are accounted for as troubled debt restructurings when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants a “concession” to the borrower that they would not otherwise consider. These concessions include a modification of terms such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or some combination thereof to facilitate repayment. Troubled debt restructurings are considered impaired loans.

 

Foreclosed Assets

 

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

 

Premises and Equipment

 

Depreciable assets are stated at cost less accumulated depreciation. Provisions for depreciation are computed on straight-line and accelerated methods over the estimated useful lives of the assets.

 

Federal Home Loan Bank Stock

 

The Company's investment in Federal Home Loan Bank ("FHLB") stock is carried at cost, which approximates fair value. The Company is required to hold the stock as a member of the FHLB, and transfer of the stock is substantially restricted. The stock is evaluated for impairment on an annual basis.

 

Income Taxes

 

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

 

As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes. The differences relate principally to the allowances for loan losses, deferred compensation, depreciation, FHLB stock dividends and non-accrual interest. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

 

The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

 

The Company's policy is to recognize interest and penalties related to income tax issues as components of income tax expense. During the periods shown, the Company did not recognize any interest or penalties related to income tax expense in its statement of income.

 

Transfers of Financial Assets 

 

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

 

Advertising 

 

Advertising costs are expensed as incurred.

 

Other Comprehensive Income (Loss)

 

Other comprehensive loss is shown on the statements of comprehensive income (loss). The Company’s accumulated other comprehensive income (loss) is composed of the unrealized loss on securities available for sale, net of tax and is shown on the statements of equity. Reclassification adjustments out of other comprehensive loss for gains realized on sales of securities available for sale comprise the entire balance of “net gain on sale of securities” on the statements of income.

 

Off-Balance Sheet Financial Instruments

 

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, unfunded commitments under lines of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

 

Life Insurance

 

The Company has purchased life insurance policies on certain key executives. Life insurance is measured at the amount that could be realized under the insurance contract as of the balance sheet date, which is generally the cash surrender value of the policy.

 

Subsequent Events 

 

Management has reviewed the Company’s operations for potential disclosure or financial statement impacts related to events occurring after June 30, 2018, but prior to the release of these financial statements. Based on the results of this review, no subsequent event disclosure or financial statement impacts to these financial statements are required as of August 6, 2018.

 

Recent Accounting Pronouncements

 

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the Company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

 

 

The following Accounting Standards Updates (ASUs) have been issued by the Financial Accounting Standards Board (FASB) and may impact the Company's financial statements in future reporting periods.

 

ASU No. 2016-13, “Credit Losses (Topic 326).” ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently assessing the impact of adopting ASU 2016-13 on its financial statements.

 

ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU would also require entities to disclose key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. Management is currently evaluating the impact that ASU 2016-02 will have on the Company’s consolidated financial position, results of operations and disclosures.

 

ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The standard makes a number of changes to the recognition and measurement standards of financial instruments, including the following changes: 1) equity securities with a readily determinable fair value will have to be measured at fair value with changes in fair value recognized in net income; 2) entities that are public business entities will no longer be required to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; and 3) entities that are public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. This standard is effective for financial statements issued for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. The adoption of this standard is not expected to have a material impact on our financial condition or results of operations, except that the Company will no longer disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost.

 

ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The amendment supersedes and replaces nearly all existing revenue recognition guidance. Under the amended guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim periods beginning after December 15, 2018. Adoption of ASU No. 2014-04 and ASU 2015-14 is not expected to have a material impact on the Company’s financial statements, but significant disclosures to the Notes thereto will be required.

 

 

Note 3 Earnings Per Share

 

Earnings per share is based on net income divided by the weighted average number of shares outstanding during the period, including allocated and committed-to-be-released Employee Stock Ownership Plan (“ESOP”) shares.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2018

    2017     2018     2017  

Net income

  $ 353    

*

    $ 476    

*

 

Basic potential common shares

                           

Weighted average shares outstanding

    6,612,500    

*

      6,612,500    

*

 

Weighted average unallocated Employee Stock Ownership Plan Shares

    (250,863 )  

*

      (252,483 )  

*

 

Basic weighted average shares outstanding

    6,361,637    

*

      6,360,017    

*

 

Dilutive potential common shares

    -    

*

      -    

*

 

Dilutve weighted average shares outstanding

    6,361,637    

*

      6,360,017    

*

 

Basic earnings per share

  $ 0.06    

*

    $ 0.07    

*

 

Diluted earnings per share

  $ 0.06    

*

    $ 0.07    

*

 

 

 

* Earnings per share for the three and six months ended June 30, 2017 is not applicable because the public offering was completed in October 2017.

 

 

 

Note 4 Available for Sale Securities

 

Amortized costs and fair values of available for sale securities are summarized as follows:

 

 

   

Amortized Cost

   

Gross Unrealized

Gains

   

Gross Unrealized

Losses

   

Estimated Fair

Value

 

June 30, 2018

                               

Obligations of the US government and US government sponsored agencies

  $ 1,875     $ 3     $ (7 )   $ 1,871  

Obligations of states and political subdivisions

    9,894       40       (149 )     9,785  

Mortgage-backed securities

    35,626       17       (1,079 )     34,564  

Certificates of deposit

    4,000       1       (103 )     3,898  

Corporate debt securities

    5,085       8       (76 )     5,017  

Total available for sale securities

  $ 56,480     $ 69     $ (1,414 )   $ 55,135  
                                 

December 31, 2017

                               

Obligations of the US government and US government sponsored agencies

  $ 2,211     $ 11     $ (2 )   $ 2,220  

Obligations of states and political subdivisions

    13,102       104       (69 )     13,137  

Mortgage-backed securities

    33,908       14       (455 )     33,467  

Certificates of deposit

    4,000       6       (9 )     3,997  

Corporate debt securities

    5,171       29       (9 )     5,191  

Total available for sale securities

  $ 58,392     $ 164     $ (544 )   $ 58,012  

 

 

Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably, resulting in a material change in estimated fair value.

 

 

The following table presents the portion of the Company's portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position:

 

 

   

Less Than 12 Months

   

12 Months or More

   

Total

 
   

Fair Value

   

Unrealized Losses

   

Fair Value

   

Unrealized Losses

   

Fair Value

   

Unrealized Losses

 

June 30, 2018

                                               

Obligations of the US government and US government sponsored agencies

  $ 1,383     $ (6 )   $ 138     $ (1 )   $ 1,521     $ (7 )

Obligations of states and political subdivisions

    4,336       (78 )     2,598       (71 )     6,934       (149 )

Mortgage-backed securities

    22,561       (640 )     10,975       (439 )     33,536       (1,079 )

Certificates of deposit

    3,647       (103 )     -       -       3,647       (103 )

Corporate debt securities

    4,346       (76 )     -       -       4,346       (76 )

Total

  $ 36,273     $ (903 )   $ 13,711     $ (511 )   $ 49,984     $ (1,414 )

December 31, 2017

                                               

Obligations of the US government and US government sponsored agencies

  $ 235     $ (2 )   $ -     $ -     $ 235     $ (2 )

Obligations of states and political subdivisions

    3,180       (23 )     2,660       (46 )     5,840       (69 )

Mortgage-backed securities

    22,685       (213 )     9,270       (242 )     31,955       (455 )

Certificates of deposit

    2,492       (9 )     -       -       2,492       (9 )

Corporate debt securities

    2,683       (8 )     250       (1 )     2,933       (9 )

Total

  $ 31,275     $ (255 )   $ 12,180     $ (289 )   $ 43,455     $ (544 )

 

At June 30, 2018, the investment portfolio included 34 securities available for sale, which had been in an unrealized loss position for greater than twelve months, and 91 securities available for sale, which had been in an unrealized loss position for less than twelve months. At December 31, 2017, the investment portfolio included 27 securities available for sale, which had been in an unrealized loss position for greater than twelve months, and 73 securities available for sale, which had been in an unrealized loss position for less than twelve months. Because these securities have a fixed interest rate, their fair value is sensitive to movements in market interest rates. These unrealized losses are considered temporary because the Company does not intend to sell them prior to maturity; therefore we expect to collect all contractually due amounts from these securities. Accordingly, these investments were reduced to their fair values through accumulated other comprehensive income, not through earnings.

 

We regularly assess our securities portfolio for OTTI. The assessments are based on the nature of the securities, the underlying collateral, the financial condition of the issuer, the extent and duration of the loss, our intent related to the individual securities, and the likelihood that we will have to sell securities prior to expected recovery. We did not have any impairment losses recognized in earnings for the three months ended June 30, 2018 or June 30, 2017.

 

The amortized cost and fair value of available for sale securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities in mortgage-backed securities since the anticipated maturities are not readily determinable. Therefore, these securities are not included in the maturity categories in the following maturity summary listed below:

 

   

June 30, 2018

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 1,516     $ 1,513  

Due after one year through 5 years

    8,464       8,355  

Due after 5 years through 10 years

    5,384       5,286  

Due after 10 years

    5,490       5,417  
                 

Subtotal

  $ 20,854     $ 20,571  

Mortgage-backed securities

    35,626       34,564  
                 

Total

  $ 56,480     $ 55,135  

 

 

Proceeds from sales of available for sale securities during the six months ended June 30, 2018 and June 30, 2017 were $6,437 and $5,906, respectively. Gross realized gains, during the six months ended June 30, 2018 and June 30, 2017 on these sales amounted to $24 and $83, respectively. Gross realized losses on these sales were $15 and $61, during the six months ended June 30, 2018 and June 30, 2017, respectively.

 

There were $939 of pledged securities at June 30, 2018 and none at December 31, 2017.

 

 

Note 5 Loans

 

 

 

Major classifications of loans are as follows:

 

   

June 30,

   

December 31,

 
   

2018

   

2017

 
Commercial                

Development

  $ 7,275     $ 1,498  

Real estate

    59,961       53,202  

Commercial and industrial

    11,008       10,135  

Residential real estate and consumer

               

1-4 family owner-occupied

    50,604       47,448  

1-4 family investor-owned

    32,971       33,658  

Multifamily

    37,953       31,677  

Consumer

    1,957       1,613  
Subtotal   $ 201,729       179,231  

Deferred loan fees

    (67 )     (74 )

Loans in process

    (6,697 )     (6,002 )

Allowance for loan losses

    (1,908 )     (1,800 )

Net loans

  $ 193,057     $ 171,355  

 

 

Analysis of the allowance for loan losses for the three and six months ended June 30, 2018 and 2017 follows:

 

Three Months Ended

 

Commercial

   

Residential real estate

and consumer

   

Total

 
                         

Balance at March 31, 2018

  $ 738     $ 1,071     $ 1,809  

Provision for loan losses

    92       97       189  

Loans charged off

    (24 )     (66 )     (90 )

Recoveries of loans previously charged off

    -       -       -  

Balance at June 30, 2018

  $ 806     $ 1,102     $ 1,908  
                         
                         

Balance at March 31, 2017

  $ 468     $ 1,010     $ 1,478  

Provision for loan losses

    37       15       52  

Loans charged off

    -       (11 )     (11 )

Recoveries of loans previously charged off

    -       -       -  

Balance at June 30, 2017

  $ 505     $ 1,014     $ 1,519  

 

Six Months Ended

 

Commercial

   

Residential real estate

and consumer

   

Total

 
                         

Balance at December 31, 2017

  $ 660     $ 1,140     $ 1,800  

Provision for loan losses

    170       134       304  

Loans charged off

    (24 )     (172 )     (196 )

Recoveries of loans previously charged off

    -       -       -  

Balance at June 30, 2018

  $ 806     $ 1,102     $

1,908

 
                         
                         

Balance at December 31, 2016

  $ 348     $ 1,130     $ 1,478  

Provision for loan losses

    157       (54 )     103  

Loans charged off

    -       (97 )     (97 )

Recoveries of loans previously charged off

    -       35       35  

Balance at June 30, 2017

  $ 505     $ 1,014     $ 1,519  

 

 

 

Allowance for loan losses at June 30, 2018:

 

Commercial

   

Residential real estate

and consumer

   

Total

 

Individually evaluated for impairment

  $ -     $ 34     $ 34  

Collectively evaluated for impairment

    806       1,068       1,874  

Total allowance for loan losses

  $ 806     $ 1,102     $ 1,908  
                         

Allowance for loan losses at December 31, 2017:

                       

Individually evaluated for impairment

  $ -     $ 179     $ 179  

Collectively evaluated for impairment

    660       961       1,621  

Total allowance for loan losses

  $ 660     $ 1,140     $ 1,800  

 

 

June 30, 2018

 

Commercial

   

Residential real estate

and consumer

       

Loans:

                       

Individually evaluated for impairment

  $ 73     $ 1,499     $ 1,572  

Collectively evaluated for impairment

    78,171       121,986       200,157  

Total loans

  $ 78,244     $ 123,485     $ 201,729  
                         

December 31, 2017

                       

Loans:

                       

Individually evaluated for impairment

  $ 192     $ 2,112     $ 2,304  

Collectively evaluated for impairment

    64,643       112,284       176,927  

Total loans

  $ 64,835     $ 114,396     $ 179,231  

 

Analysis for loans evaluated for impairment as of June 30, 2018 and December 31, 2017, follows:

 

As of June 30, 2018

 

Principal

Balance

   

Recorded

Investment

   

Related

Allowance

   

Average

Investment

   

Interest

Recognized

 

Loan with related allowance for loan losses:

                                       

Residential real estate and consumer

                                       

1-4 family investor-owned

  $ 102     $ 99     $ 34     $ 101     $ -  
                                         

Loans with no related allowance for loan losses:

                                       

Commercial

                                       

Commercial and industrial

    75       73       -       76       2  

Residential real estate and consumer

                                       

1-4 family owner-occupied

    1,205       1,132       -       1,182       12  

1-4 family investor-owned

    250       250       -       250       -  

Consumer

    18       18       -       19       -  

Total loans with no related allowance

    1,548       1,473       -       1,527       14  

Total impaired loans

  $ 1,650     $ 1,572     $ 34     $ 1,628     $ 14  

 

As of December 31, 2017

 

Principal

Balance

   

Recorded

Investment

   

Related

Allowance

   

Average

Investment

   

Interest

Recognized

 

Loan with related allowance for loan losses:

                                       

Residential real estate and consumer

                                       

1-4 family investor-owned

  $ 375     $ 330     $ 179     $ 312     $ 8  
                                         

Loans with no related allowance for loan losses:

                                       

Commercial

                                       

Commercial and industrial

    198       192       -       204       -  

Residential real estate and consumer

                                       

1-4 family owner-occupied

    1,158       1,099       -       1,443       1  

1-4 family investor-owned

    716       683       -       1,289       24  

Consumer

    -       -       -       -       -  

Total loans with no related allowance

    2,072       1,974       -       2,936       25  

Total impaired loans

  $ 2,447     $ 2,304     $ 179     $ 3,248     $ 33  

 

 

As of December 31, 2017, approximately $50 is committed to one impaired loan relationship to finance costs relating to the disposal of several properties. At June 30, 2018, no additional funds are committed to be advanced in connection with impaired loans.

 

 

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for loan losses. The credit quality indicators monitored differ depending on the class of loan. 

 

Commercial loans are generally evaluated using the following internally prepared ratings:

 

“Pass” ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

 

“Special mention” ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

 

“Substandard” ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable.

  

“Doubtful” ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely.

 

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according to the contractual terms of the loan.

 

Information regarding the credit quality indicators most closely monitored for commercial loans by class as of June 30, 2018 and December 31, 2017, follows:

 

   

Pass

   

Special Mention

   

Substandard

   

Doubtful

   

Totals

 

June 30, 2018

                                       

Development

  $ 7,275     $ -     $ -     $ -     $ 7,275  

Real estate

    58,848       1,113       -       -       59,961  

Commercial and industrial

    10,985       23       -       -       11,008  

1-4 family investor-owned

    31,931       790       250       -       32,971  

Multifamily

    37,953       -       -       -       37,953  

Totals

  $ 146,992     $ 1,926     $ 250     $ -     $ 149,168  

December 31, 2017

                                       

Development

  $ 1,498     $ -     $ -     $ -     $ 1,498  

Real estate

    51,939       1,263       -       -       53,202  

Commercial and industrial

    9,435       586       114       -       10,135  

1-4 family investor-owned

    31,964       1,449       149       96       33,658  

Multifamily

    31,677       -       -       -       31,677  

Totals

  $ 126,513     $ 3,298     $ 263     $ 96     $ 130,170  

 

Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans by class as of June 30, 2018 and December 31, 2017, follows:

 

   

Performing

   

Non-performing

   

Total

 

June 30, 2018

                       

1-4 family owner-occupied

    49,985       619       50,604  

Consumer

    1,858       99       1,957  
    $ 51,843     $ 718     $ 52,561  

December 31, 2017

                       

1-4 family owner-occupied

    46,349       1,099       47,448  

Consumer

    1,613       -       1,613  
    $ 47,962     $ 1,099     $ 49,061  

 

 

Loan aging information as of June 30, 2018, follows:

 

           

Loans Past Due

   

Loans Past Due

           

Nonaccrual

 

June 30, 2018

 

Current Loans

   

30-89 Days

   

90+ Days

   

Total Loans

   

Loans

 

Commercial

                                       

Development

  $ 7,275     $ -     $ -     $ 7,275     $ -  

Real estate

    59,846       115       -       59,961       -  

Commercial and industrial

    11,008       -       -       11,008       -  

Residential real estate and consumer

                                       

1-4 family owner-occupied

    50,276       211       117       50,604       619  

1-4 family investor-owned

    32,893       78       -       32,971       349  

Multifamily

    37,953       -       -       37,953       -  

Consumer

    1,957       -       -       1,957       -  

Total

  $ 201,208     $ 404     $ 117     $ 201,729     $ 968  

 

Loan aging information as of December 31, 2017, follows:

 

           

Loans Past Due

   

Loans Past Due

           

Nonaccrual

 

December 31, 2017

 

Current Loans

   

30-89 Days

   

90+ Days

   

Total Loans

   

Loans

 

Commercial

                                       

Development

  $ 1,498     $ -     $ -     $ 1,498     $ -  

Real estate

    53,202       -       -       53,202       -  

Commercial and industrial

    9,946       75       114       10,135       114  

Residential real estate and consumer

                                       

1-4 family owner-occupied

    46,943       436       69       47,448       580  

1-4 family investor-owned

    33,209       205       244       33,658       549  

Multifamily

    31,677       -       -       31,677       -  

Consumer

    1,607       6       -       1,613       -  

Total

  $ 178,082     $ 722     $ 427     $ 179,231     $ 1,243  

 

There were no loans past due ninety days or more and still accruing interest as of June 30, 2018 and December 31, 2017.

 

When, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt restructuring. Loan modifications may consist of forgiveness of interest and/or principal, a reduction of the interest rate, interest-only payments for a period of time, and/or extending amortization terms. During the six months ended and as of June 30, 2018, there was a 1-4 family investor-owned property totaling $250 and a commercial and industrial totaling $20 that were new troubled debt restructurings. $24 was charged to the allowance for losses related to these loans. No troubled debt restructurings defaulted within 12 months of their modification date during the six months ended June 30, 2018. During the year ended December 31, 2017, the Company had two 1 – 4 family investor-owned properties totaling $331 default that were restructured within twelve months. $82 was charged to the allowance for loan losses relating to these properties.  There were no other troubled debt restructurings during the year ended December 31, 2017.

 

Management regularly monitors impaired loan relationships. In the event facts and circumstances change, an additional provision for loan losses may be necessary.

 

 

 

Note 6 Deposits

 

The composition of deposits are as follows:

 

   

June 30,

   

December 31,

 
   

2018

   

2017

 
                 

Non-interest bearing checking

  $ 18,438     $ 22,271  

Interest bearing checking

    4,794       4,017  

Money market

    50,379       54,472  

Statement savings accounts

    13,981       14,030  

Health savings accounts

    11,512       11,335  

Certificates of deposit

    67,230       76,788  
                 

Total

  $ 166,334     $ 182,913  

 

Certificates of deposit that meet or exceed the FDIC insurance limit of two hundred fifty thousand dollars totaled $12,781 and $12,424 as of June 30, 2018 and December 31, 2017, respectively.

 

The scheduled maturities of certificates of deposit are as follows as of June 30, 2018:

 

2018

  $ 19,159  

2019

    28,390  

2020

    12,192  

2021

    4,693  

2022

    1,354  

Thereafter

    1,442  
         

Total

  $ 67,230  

 

 

Note 7 FHLB Advances

 

FHLB advances consist of the following:

 

   

June 30, 2018

   

December 31, 2017

 
   

Rates

   

Amount

   

Rates

   

Amount

 
Open line of credit   2.12% - 2.12%       6,750                 -  

Fixed rate, fixed term advances

  1.42% - 2.06%       23,250     1.42% - 1.92%       4,750  

Fixed term advances with floating spread

  1.32% - 1.74%       8,000     1.39% - 1.96%       8,000  
                38,000                 12,750  

 

 

The following is a summary of scheduled maturities of fixed term FHLB advances as of June 30, 2018:

 

   

Fixed Rate Advances

   

Adjustable Rate Advances

         
   

Weighted Average Rate

   

Amount

   

Weighted Average Rate

   

Amount

   

Total Amount

 
                                         
Open line of credit     2.12 %     6,750       - %     -     $

6,750

 

2018

    2.05 %    

18,500

      1.32 %     2,000     $ 20,500  

2019

    1.78 %     2,750       1.51 %     2,000     $ 4,750  

2020

    1.62 %     2,000       1.66 %     2,000     $ 4,000  

2021

    -       -       1.74 %     2,000     $ 2,000  
                                         

Total

    2.01 %   $ 30,000       1.56 %   $ 8,000     $ 38,000  

 

 

Actual maturities may differ from the scheduled principal maturities due to call options on the various advances. The Company has a master contract agreement with the FHLB that provides for a borrowing up to the lesser of a determined multiple of FHLB stock owned or a determined percentage of the book value of the Company’s qualifying 1-4 family, multifamily, and commercial real estate loans. The Company pledged approximately $164,011 and $135,760 of 1-4 family, multifamily, and commercial real estate loans to secure FHLB advances at June 30, 2018 and December 31, 2017, respectively. FHLB provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest, such as LIBOR, Federal funds or Treasury Bill rates. Fixed rate advances are priced in reference to market rates of interest at the time of the advance, namely the rates that FHLB pays to borrowers at various maturities. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $1,098 and $514 of FHLB stock owned by the Company at June 30, 2018 and December 31, 2017, respectively.

 

At June 30, 2018 and December 31, 2017, the Company’s available and unused portion of this borrowing agreement was $2,000. Additionally, the Company has a fluctuating $5,000 letter of credit under this agreement, which collateralizes certain public deposits. In addition, the Company has a $7,000 federal funds line of credit through Bankers’ Bank of Wisconsin, which was not drawn on as of June 30, 2018 or December 31, 2017. The Company also has the authority to borrow through the Federal Reserve’s Discount Window.

 

 

Note 8 Employee Stock Ownership Plan

 

 

The Company maintains a leveraged employee stock ownership plan (“ESOP”) that covers substantially all employees. The ESOP was established in conjunction with the Company’s stock offering completed in October 2017 and operates on a plan year ending September 30. The loan to fund the acquisition of stock by the ESOP was made by the Company. The Bank makes annual contributions to the ESOP equal to the ESOP’s debt service. The ESOP shares initially were pledged as collateral for this debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. Because the debt is intercompany, it is eliminated in consolidation for presentation in these financial statements. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheet. As shares are committed to be released from collateral and allocated to active participants, the Company reports compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-shares (EPS) computations. During the period ended June 30, 2018, 6,480 shares were committed to be released. During the period ended June 30, 2018, the average fair value per share of stock was $10.95 resulting in total ESOP compensation expense of $71 for the six months ended June 30, 2018. The ESOP shares as of June 30, 2018 and December 31, 2017 were as follows:

 

   

June 30, 2018

   

December 31, 2017

 

Shares committed to be released and allocated to participants

    9,427       2,947  

Total unallocated shares

    249,783       256,263  

Total ESOP shares

    259,210       259,210  

 

 

 

Note 9 Regulatory Capital Ratios

 

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1, Tier 1, and Total capital to risk-weighted assets and of Tier 1 capital to average assets. It is management's opinion, as of December 31, 2017 and as of June 30, 2018, that the Bank meets all applicable capital adequacy requirements.

 

As of June 30, 2018, and December 31, 2017, the Bank is categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum regulatory capital ratios as set forth in the table. There are no conditions or events since June 30, 2018 that management believes have changed the Bank's category.

 

The Bank's actual capital amounts and ratios are presented in the following tables:

 

   

 

   

 

   

To Be Well Capitalized

 
    Actual    

For Capital Adequacy

Purposes

   

Under Prompt

Corrective Action

Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

June 30, 2018

                                               

Common Equity Tier 1 capital (to risk-weighted assets)

  $ 48,073       24.14 %   $8,963     4.50%     $12,947     6.50%  

Tier 1 capital (to risk-weighted assets)

    48,073       24.14 %   11,951     6.00     15,934     8.00  

Total capital (to risk-weighted assets)

    49,981       25.09 %   15,934     8.00     19,918     10.00  

Tier 1 capital (to average assets)

    48,073       18.59 %   10,342     4.00     12,927     5.00  
                                                 

December 31, 2017

                                               

Common Equity Tier 1 capital (to risk-weighted assets)

  $ 47,513       26.82 %   $7,973     4.50%     $11,517     6.50%  

Tier 1 capital (to risk-weighted assets)

    47,513       26.82 %   10,631     6.00     14,174     8.00  

Total capital (to risk-weighted assets)

    49,313       27.83 %   14,174     8.00     17,718     10.00  

Tier 1 capital (to average assets)

    47,513       17.20 %   11,051     4.00     13,813     5.00  

 

 

Note 10 Fair Value Measurements

 

Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

 

Following is a brief description of each level of the fair value hierarchy:

 

Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

 

Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

 

Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of the asset or liability.

 

 

Some assets and liabilities, such as available for sale securities, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as impaired loans, may be measured at fair value on a nonrecurring basis.

 

Following is a description of the valuation methodology used for each asset measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset within the fair value hierarchy. 

 

Available for sale securities – Available for sale securities may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage-related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

 

Information regarding the fair value of assets measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 follows:

 

 

           

Recurring Fair Value Measurements Using

 
   

Assets Measured at

   

Quoted Prices in Active Markets for Identical

Instruments

   

Significant Other Observable Inputs

   

Significant Unobservable

Inputs

 
   

Fair Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 
                                 

June 30, 2018

                               

Assets - Available for sale securities

    55,135       -       55,135       -  
                                 

December 31, 2017

                               

Assets - Available for sale securities

    58,012       -       58,012       -  

 

 

Loans - Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are not fair value measurements. Fair value measurements of underlying collateral that utilize observable market data, such as independent appraisals reflecting recent comparable sales are considered Level 2 measurements. Other fair value measurements that incorporate estimated assumptions market participants would use to measure fair value are considered Level 3 measurements.

 

Foreclosed Assets – Real estate acquired through or in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

 

 

Information regarding the fair value of assets measured at fair value on a nonrecurring basis as of June 30, 2018 and December 31, 2017 follows:

 

 

           

Nonrecurring Fair Value Measurements Using

 
   

Assets Measured

at

   

Quoted Prices in

Active Markets for

Identical

Instruments

   

Significant Other

Observable Inputs

   

Significant

Unobservable

Inputs

 
   

Fair Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 
                                 

As of June 30, 2018

                               

Assets:

                               

Loans

    65       -       -       65  

Foreclosed assets

    -       -       -       -  
                                 

As of December 31, 2017

                               

Assets :

                               

Loans

    151       -       -       151  

Foreclosed assets

    619       -       -       619  

 

The Company estimates fair value of all financial instruments regardless of whether such instruments are measured at fair value. The following methods and assumptions were used by the Company to estimate fair value of financial instruments not previously discussed.

 

Cash and cash equivalents - Fair value approximates the carrying value.

 

Loans held for sale - Fair value is based on commitments on hand from investors or prevailing market prices.

 

Loans - Fair value of variable rate loans that reprice frequently is based on carrying values. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair value of impaired and other nonperforming loans is estimated using discounted expected future cash flows or the fair value of underlying collateral, if applicable.

 

FHLB stock - Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

 

Accrued interest receivable and payable - Fair value approximates the carrying value.

 

Cash value of life insurance - Fair value is based on reported values of the assets.

 

Deposits and advance payments by borrowers for taxes and insurance - Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, including advance payments by borrowers for taxes and insurance, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently being offered on similar time deposits.

 

FHLB advances - Fair value of fixed rate, fixed term borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowings with variable rates or maturing within 90 days approximates the carrying value of these borrowings.

 

Off-balance-sheet instruments - Fair value is based on quoted market prices of similar financial instruments where available. If a quoted market price is not available, fair value is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the counterparty’s credit standing. Since the estimated fair value of off-balance-sheet instruments is not material, no amounts are presented in the following schedule.

 

 

The carrying value and estimated fair value of financial instruments at June 30, 2018 and December 31, 2017 follow:

 

   

June 30, 2018

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

 

Financial assets:

                               

Cash and cash equivalents

    2,393       2,393       -       -  

Available for sale securities

    55,135       -       55,135       -  

Loans held for sale

    -       -       -       -  

Loans

    193,057       -       -       193,014  

Accrued interest receivable

    821       821       -       -  

Cash value of life insurance

    6,653       -       -       6,653  

FHLB stock

    1,098       -       -       1,098  
                                 

Financial liabilities:

                               

Deposits

    166,334       99,104       -       66,797  

Advance payments by borrowers for taxes and insurance

    812       812       -       -  

FHLB advances

    38,000       -       -       37,736  

Accrued interest payable

    360       360       -       -  

 

   

December 31, 2017

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

 

Financial assets:

                               

Cash and cash equivalents

    11,813       11,813       -       -  

Available for sale securities

    58,012       -       58,012       -  

Loans held for sale

    109       -       109       -  

Loans

    171,355       -       -       171,729  

Accrued interest receivable

    782       782       -       -  

Cash value of life insurance

    6,558       -       -       6,558  

FHLB stock

    514       -       -       514  
                                 

Financial liabilities:

                               

Deposits

    182,913       106,125       -       76,099  

Advance payments by borrowers for taxes and insurance

    36       36       -       -  

FHLB advances

    12,750       -       -       12,597  

Accrued interest payable

    37       37       -       -  

 

Limitations – The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value of other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

 

 

 

Item 2.

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

 

General 

 

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended June 30, 2018 and 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 unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

 

statements of our goals, intentions and expectations;

 

 

statements regarding our business plans, prospects, growth and operating strategies;

 

 

statements regarding the quality of our loan and investment portfolios; and

 

 

estimates of our risks and future costs and benefits.

 

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

 

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

 

 

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

 

 

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

 

 

our ability to access cost-effective funding;

 

 

fluctuations in real estate values and both residential and commercial real estate market conditions;

 

 

demand for loans and deposits in our market area;

 

 

our ability to implement and change our business strategies;

 

 

competition among depository and other financial institutions;

 

 

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

 

 

adverse changes in the securities or secondary mortgage markets;

 

 

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, including as a result of Basel III;

 

 

 

the impact of the Dodd-Frank Act and the implementing regulations;

 

 

changes in the quality or composition of our loan or investment portfolios;

 

 

technological changes that may be more difficult or expensive than expected;

 

 

the inability of third-party providers to perform as expected;

 

 

our ability to manage market risk, credit risk and operational risk in the current economic environment;

 

 

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

 

 

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

 

 

changes in consumer spending, borrowing and savings habits;

 

 

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

 

 

our ability to retain key employees;

 

 

our compensation expense associated with equity allocated or awarded to our employees; and

 

 

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

 

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

 

Critical Accounting Policies

 

There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

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

 

Total Assets. Total assets increased $9.4 million, or 3.7%, to $265.9 million at June 30, 2018 from $256.5 million at December 31, 2017. The increase resulted primarily due to the increase in loans outstanding of $21.7 million funded primarily by borrowings, offset by a decrease in fed funds sold of $8.5 million and available for sale securities of $2.9 million. 

 

Cash and due from banks. Cash and due from banks decreased $892,000, or 27.2%, to $2.4 million at June 30, 2018 from $3.3 million at December 31, 2017. The decrease resulted primarily from deploying the funds for increased loan growth.

 

Fed funds sold. Fed funds sold decreased $8.5 million, or 100%, to $0 at June 30, 2018 from $8.5 million at December 31, 2017. The decrease resulted primarily from deploying the funds for increased loan growth.

 

 

Net Loans.  Net loans increased $21.7 million, or 12.7%, to $193.1 million at June 30, 2018 from $171.4 million at December 31, 2017. The increase resulted primarily from increases in commercial real estate loans of $6.8 million, or 12.7%, commercial development loans of $5.8 million, or 385.6%, and multifamily of $6.3 million, or 19.8%.

 

During the six months ended June 30, 2018, we sold $4.1 million of one- to four family, owner-occupied residential real estate loans, on a servicing-released basis. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale of loans income and manage interest rate risk.

 

Available for sale securities. Available for sale securities decreased $2.9 million, or 5.0%, to $55.1 million at June 30, 2018 from $58.0 million at December 31, 2017. This was a result of sales of $6.4 million and maturities, normal paydowns and amortization of $3.4 million offset by purchases of $7.9 million.

 

FHLB stock. The FHLB increased by $584,000, or 113.6%, to $1.1 million at June 30, 2018 from $514,000 at December 31, 2017.

 

Deposits.  Deposits decreased $16.6 million, or 9.1%, to $166.3 million at June 30, 2018 from $182.9 million at December 31, 2017. Noninterest-bearing checking accounts decreased $3.8 million, or 17.2%, to $18.4 million as of June 30, 2018 compared to $22.3 million as of December 31, 2017. Interest-bearing checking accounts increased $777,000, or 19.3%, to $4.8 million at June 30, 2018 from $4.0 million at December 31, 2017. Additionally, money market accounts decreased $4.1 million to $50.4 million at June 30, 2018, compared to $54.5 million at December 31, 2017, and savings accounts decreased $49,000 to $14.0 million at June 30, 2018, compared to $14.0 million at December 31, 2017. Certificates of deposit decreased $9.6 million, or 12.4% from $76.8 million as of December 31, 2017 to $67.2 million as of June 30, 2018. Health savings accounts increased $177,000 to $11.5 million at June 30, 2018 from $11.4 million as of December 31, 2017.

 

Borrowings. Borrowings, consisting entirely of FHLB advances, increased $25.2 million, or 198.0%, to $38.0 million at June 30, 2018 from $12.8 million December 31, 2017. The aggregate cost of outstanding FHLB advances was 1.78% at June 30, 2018, compared to the cost of deposits of 0.88% at that date. The increase was due to loan fundings and the decrease in certificates of deposit.

 

Other liabilities. Other liabilities decreased $152,000, or 12.1%, to $1.1 million at June 30, 2018 from $1.3 million at December 31, 2017.

 

Total Equity.  Total equity decreased $188,000, or 0.3%, to $59.3 million at June 30, 2018 from $59.5 million at December 31, 2017. The decrease resulted from the net unrealized loss in available for sale securities, offset in part by net income of $476,000 for the period.

 

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of non-accrual and problem loans in order to minimize the Company’s risk of loss. Non-performing loans are defined as non-accrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is generally discontinued when contractual payments have become 90 days past due or when management has serious doubts about further collectability of principal or interest. Cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. A TDR typically involves the granting of some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10.

 

 

The following table identifies the various components of non-performing assets and other balance sheet information as of the dates indicated below and changes in the ALLL for the periods then ended:

 

   

June 30, 2018 and Six

Months Then Ended

   

December 31, 2017 and

Twelve Months Then

Ended

   

December 31, 2016 and

Twelve Months Then

Ended

 
   

(in thousands)

 

Nonperforming assets:

                       

Nonaccrual loans

    968       1,243       2,899  

Accruing loans past due 90 days or more

    -       -       -  

Total nonperforming loans ("NPLs")

    968       1,243       2,899  

Foreclosed assets

    -       619       667  

Total nonperforming assets ("NPAs")

    968       1,862       3,566  

Troubled Debt Restructurings ("TDRs")

    1,060       1,630       5,167  

Nonaccrual TDRs

    851       969       2,887  

Average outstanding loan balance

   

180,390

      170,577       172,892  

Loans, end of period

    201,729       179,231       170,823  

ALLL, at beginning of period

    1,800       1,478       1,551  

Loans charged off:

                       

Commercial

    (24 )     -       -  

Residential real estate and consumer

    (172 )     (133 )     (917 )

Total loans charged off

    (196 )     (133 )     (917 )

Recoveries of loans previously charged off:

                       

Residential real estate and consumer

    -       36       -  

Total recoveries of loans previous charged off

    -       36       -  

Net loans charged off ("NCOs'")

    (196 )     (97 )     (917 )

Additions to ALLL via provision for loan losses charged to operations

    304       419       844  

ALLL, at end of period

    1,908       1,800       1,478  

Ratios:

                       

ALLL to NCOs (annualized)

    486.73 %     1855.67 %     161.18 %

NCOs (annualized) to average loans

    0.22 %     0.06 %     0.53 %

ALLL to total loans

    0.95 %     1.00 %     0.87 %

NPL to total loans

    0.48 %     0.69 %     1.70 %

NPAs to total assets

    0.36 %     0.73 %     1.48 %

Total Assets

    265,911       256,481       241,555  

 

Loans 30 to 89 days past due decreased $318,000 during the six month period ended June 30, 2018 to $404,000 compared to $722,000 at December 31, 2017, which management believes is indicative of a decreasing likelihood of loans migrating toward nonaccrual or nonperforming status in the future. We believe our credit and underwriting policies continue to support more effective lending decisions by the Company, which increases the likelihood of maintain loan quality going forward. Moreover, we believe the favorable trends regarding our nonperforming loans and nonperforming assets reflect our continued adherence to improved underwriting criteria and practices along with improvements in macroeconomic factors in our credit markets. We believe our current ALLL is adequate to cover probable losses in our current loan portfolio.

 

Non-performing loans of $968,000 at June 30, 2018, which included $851,000 of non-accrual troubled debt restructured loans, reflected a decrease of $275,000 from the non-performing loans balance of $1.2 million at December 31, 2017. The decrease in non-performing loans included charge offs of $196,000. $172,000 of these non-performing loan relationships are secured by 1-4 family loans and $24,000 by commercial assets.

 

 

Our non-performing assets were $968,000 at June 30, 2018, or 0.36% of total assets, compared to $1.9 million, or 0.73% of total assets, at December 31, 2017. The decrease in non-performing assets since December 31, 2017 was primarily a result of a decrease in nonaccrual of $275,000 and a decrease in foreclosed assets of $619,000. The decrease in nonaccrual included charge offs of $196,000.

 

Foreclosed assets decreased $619,000, from $619,000 at December 31, 2017 to $0 at June 30, 2018. We continue to aggressively liquidate foreclosed assets as part of our overall credit risk strategy.

 

Net charge offs for the six month period ended June 30, 2018 were $196,000, compared to $62,000 for six month period ended June 30, 2017. The ratio of annualized net charge-offs to average loans receivable was 0.22% for the six month period ended June 30, 2018, compared to 0.06% for the twelve months ended December 31, 2017. Net charge-offs increased during the current year to date period primarily a result of selling nonperforming assets.

 

Comparison of Operating Results for the Three Months Ended June 30, 2018 and June 30, 2017

 

General.  We had net income of $353,000 for the three months ended June 30, 2018, compared to net income of $111,000 for the three months ended June 30, 2017, an increase of $242,000, or 218.0%. The increase in net income was the net effect of an increase in net interest income of $464,000, or 26.1%, an increase of $4,000, or 2.0%, in noninterest income, offset partially by an increase in the provision for loan losses of $137,000, or 263.5%, and an increase in noninterest expense of $26,000, or 1.5%.

 

Interest and dividend income. Interest and dividend income increased $533,000, or 24.6%, to $2.7 million for the three months ended June 30, 2018 from $2.2 million for the three months ended June 30, 2017. The increase was primarily attributable to a $429,000 increase in interest on loans resulting from an increase of $19.5 million in the average balance of loans quarter to quarter with a 44 basis point increase in yield quarter to quarter. Two loans previously on nonaccrual status paid off during the quarter ended June 30, 2018, allowing for more than $136,000 in interest income to be recognized, which accounts for 29 basis points. Additionally, we had a $97,000 increase in interest on available for sale securities, due to an increase in the average balance of available for sale securities of $11.0 million quarter to quarter with a yield increase of 25 basis points quarter to quarter.

 

 Interest Expense. Interest expense increased $69,000, or 17.7%, to $458,000 for the three months ended June 30, 2018, from $389,000 for the three months ended June 30, 2017. Interest expense on borrowings, consisting entirely of FHLB advances, increased $56,000, or 93.3%, to $116,000 during the three months ended June 30, 2018 from $60,000 during the three months ended June 30, 2017, as the average balance of borrowings increased $10.1 million to $25.2 million for the three months ended June 30, 2018 from $15.1 million for the three months ended June 30, 2017, also the cost of borrowings increased 25 basis points to 1.84% for the three months ended June 30, 2018 from 1.59% for the three months ended June 30, 2017.  Interest expense on interest-bearing deposits increased $13,000 quarter to quarter. The average cost of our interest-bearing deposits increased 9 basis points to 0.89% from 0.80%, while the average balance of interest-bearing deposits decreased by $11.0 million, or 6.6%, during the same period.

 

Net Interest Income.  Net interest income increased $464,000, or 26.1%, to $2.2 million for the three months ended June 30, 2018 from $1.8 million for the three months ended June 30, 2017. Average net interest-earning assets increased $33.1 million to $67.0 million for the 2018 quarter from $33.9 million for the 2017 quarter. The increase was due primarily to the increase in loans as well as non-interest bearing deposit accounts and equity. Our net interest rate spread increased to 3.37% for the three months ended June 30, 2018 from 3.19% for the three months ended June 30, 2017, and our net interest margin increased to 3.64% for the 2018 quarter from 3.33% for the 2017 quarter.

 

Provision for Loan Losses.  We recorded a provision for loan losses of $189,000 for the three months ended June 30, 2018, compared to a $52,000 provision for the three months ended June 30, 2017, an increase of $137,000, or 263.5%. The increase in the provision for loan losses in the 2018 quarter compared to the 2017 quarter was a result of charge-offs in the current quarter. The allowance for loan losses was $1.9 million, or 0.95% of total loans, at June 30, 2018, compared to $1.5 million, or 0.88% of total loans, at June 30, 2017. Classified (substandard, doubtful and loss) commercial loans decreased to $250,000 at June 30, 2018 from $621,000 at June 30, 2017. Total nonperforming loans decreased to $968,000 at June 30, 2018 from $1.8 million at June 30, 2017. Net charge-offs for the three months ended June 30, 2018 were $90,000, compared to $11,000 for the prior year period. At June 30, 2018, $851,000, or 87.9%, of the nonperforming loans were contractually current.

 

 

Noninterest IncomeNoninterest income increased $4,000, or 2.0%, to $200,000 for the three months ended June 30, 2018 from $196,000 for the three months ended June 30, 2017. The increase resulted primarily from the increase in service charges and fees of $26,000 and other income of $11,000 consisting primarily from the rental income from our Brookfield branch office, offset by a decrease in net gain on sale of securities of $21,000, net gain on sale of loans of $11,000, and increase in cash surrender value of insurance of $1,000.

 

Noninterest Expense.  Noninterest expense increased $26,000, or 1.5%, to $1.8 million for the three months ended June 30, 2018 from $1.8 million for the three months ended June 30, 2017. The increase was due to the increase in salaries and employee benefits of $105,000, data processing of $33,000 offset by a decrease in foreclosed assets expense of $28,000, professional fees of $49,000, occupancy of equipment of $15,000 and other noninterest expense of $20,000, which primarily is a reduction in FDIC insurance expense.

 

Income Tax Expense.  We recorded an income tax expense of $84,000 for the three months ended June 30, 2018 compared to an income tax expense of $21,000 for the three months ended June 30, 2017, an increase of $63,000, or 300.0%. The increase reflected an increase of $305,000 in income before income taxes to $437,000 for the 2018 quarter compared to $132,000 for the 2017 quarter.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”). The Act amends the Internal Revenue Code to reduce corporate tax rates and modify various tax policies, credits, and deductions. The Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate, which is effective for the Company beginning January 1, 2018.

 

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

 

General.  We had net income of $476,000 for the six months ended June 30, 2018, compared to net income of $192,000 for the six months ended June 30, 2017, an increase of $284,000, or 147.9%. The increase in net income was the net effect of an increase in net interest income of $663,000, or 18.8%, and an increase of $16,000, or 4.1%, in noninterest income, offset partially by an increase in the provision for loan losses of $201,000, or 195.1% and an increase in noninterest expense of $80,000, or 2.2%.

 

Interest and dividend income. Interest and dividend income increased $754,000, or 17.5%, to $5.1 million for the six months ended June 30, 2018 from $4.3 million for the six months ended June 30, 2017. The increase was primarily attributable to a $551,000 increase in interest on loans resulting from an increase of $13.6 million in the average balance of loans quarter to quarter with a 27 basis point increase in yield period to period. Two loans previously on nonaccrual status paid off during the quarter, allowing for more than $136,000 in interest income to be recognized, which accounts for 15 basis points. Additionally, we had a $184,000 increase in interest on available for sale securities, due to an increase in the average balance of available for sale securities of $11.5 million period to period with a yield increase of 19 basis points period to period.

 

 Interest Expense. Interest expense increased $91,000, or 11.9%, to $857,000 for the six months ended June 30, 2018, from $766,000 for the six months ended June 30, 2017. Interest expense on borrowings, consisting entirely of FHLB advances, increased $51,000, or 43.2%, to $169,000 during the six months ended June 30, 2018 from $118,000 during the six months ended June 30, 2017, as the average balance of borrowings increased $2.1 million to $19.9 million for the six months ended June 30, 2018 from $17.8 million for the six months ended June 30, 2017, and the cost of borrowings increased 46 basis points to 1.70% for the six months ended June 30, 2018 from 1.24% for the six months ended June 30, 2017.  Interest expense on interest-bearing deposits increased $40,000 period to period. The average cost of our interest-bearing deposits increased 10 basis points to 0.88% from 0.78%, while the average balance of interest-bearing deposits decreased by $9.9 million, or 6.0%, during the same period.

 

 

Net Interest Income.  Net interest income increased $663,000, or 18.8%, to $4.2 million for the six months ended June 30, 2018 from $3.5 million for the six months ended June 30, 2017. Average net interest-earning assets increased $35.1 million to $66.3 million for the 2018 period from $31.2 million for the 2017 period. The increase was due primarily to the increase in loans as well as non-interest bearing deposit accounts and equity. Our net interest rate spread increased to 3.19% for the six months ended June 30, 2018 from 3.16% for the six months ended June 30, 2017, and our net interest margin increased to 3.46% for the 2018 period from 3.28% for the 2017 period.

 

Provision for Loan Losses.  We recorded a provision for loan losses of $304,000 for the six months ended June 30, 2018, compared to a $103,000 provision for the six months ended June 30, 2017, an increase of $201,000, or 195.1%. The increase in the provision for loan losses in the 2018 period compared to the 2017 period was a result of charge-offs in the current period. The allowance for loan losses was $1.9 million, or 0.95% of total loans, at June 30, 2018, compared to $1.5 million, or 0.88% of total loans, at June 30, 2017. Classified (substandard, doubtful and loss) commercial loans decreased to $250,000 at June 30, 2018 from $621,000 at June 30, 2017. Total nonperforming loans decreased to $968,000 at June 30, 2018 from $1.8 million at June 30, 2017. Net charge-offs for the six months ended June 30, 2018 were $196,000, compared to $62,000 for the prior year period. At June 30, 2018, $851,000, or 87.9%, of the nonperforming loans were contractually current.

 

Noninterest IncomeNoninterest income increased $16,000, or 4.1%, to $411,000 for the six months ended June 30, 2018 from $395,000 for the six months ended June 30, 2017. The increase resulted primarily from the increase in service charges and fees of $61,000 and other income of $31,000 consisting primarily from the rental income from our Brookfield branch office, offset by a decrease in net gain on sale of securities of $13,000, net gain on sale of loans of $58,000 and decrease of $5,000 in the increase in cash surrender value of insurance. 

 

Noninterest Expense.  Noninterest expense increased $80,000, or 2.2%, to $3.7 million for the six months ended June 30, 2018 from $3.6 million for the six months ended June 30, 2017. The increase was due to the increase in salaries and employee benefits of $146,000, data processing of $48,000, and foreclosed assets expense of $10,000, primarily due to the sale of other real estate owned, offset by a decrease in professional fees of $17,000, occupancy of equipment of $50,000 and other noninterest expense of $57,000, which primarily is a reduction in FDIC insurance expense.

 

Income Tax Expense.  We recorded an income tax expense of $137,000 for the six months ended June 30, 2018 compared to an income tax expense of $23,000 for the six months ended June 30, 2017, an increase of $114,000, or 495.7%. The increase reflected an increase of $398,000 in income before income taxes to $613,000 for the 2018 period compared to $215,000 for the 2017 period.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”). The Act amends the Internal Revenue Code to reduce corporate tax rates and modify various tax policies, credits, and deductions. The Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate, which is effective for the Company beginning January 1, 2018.

 

 

Analysis of Net Interest Income

 

Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Average balances are derived from daily average balances for all periods presented in the table. Non-accrual loans were included in the computation of average balances but have been reflected in the tables as loans carrying a zero yield. No tax-equivalent yield adjustments were made, as the effect thereof was not material. The yields set forth below include the effect of loans fees, discounts and premiums that are amortized or accreted to interest income.

 

   

For the Three Months Ended June 30,

 
   

2018

   

2017

 
   

Average Outstanding Balance

   

Interest

   

Yield/ Rate

   

Average Outstanding Balance

   

Interest

   

Yield/ Rate

 
   

(in thousands)

           

(in thousands)

         

Interest-earning assets:

                                               

Loans

  $ 185,665     $ 2,332       5.02 %   $ 166,192     $ 1,903       4.58 %

Available for sale securities

    57,490       353       2.46 %     46,465       256       2.20 %

Interest-bearing deposits

    2,071       3       0.58 %     452       4       3.54 %

FHLB stock

    841       12       5.71 %     697       4       2.30 %

Total interest-earning assets

    246,067       2,700       4.39 %     213,806       2,167       4.05 %

Noninterest-earning assets

    15,901                       21,745                  

Allowance for loan losses

    (1,855 )                     (1,528 )                

Total assets

  $ 260,113                     $ 234,023                  
                                                 

Interest-bearing liabilities:

                                               

Demand accounts

  $ 4,817       4       0.33 %   $ 4,167       5       0.48 %

Money market accounts

    52,327       103       0.79 %     54,362       65       0.48 %

Savings accounts

    15,196       7       0.18 %     16,765       4       0.10 %

Health savings accounts

    11,642       6       0.21 %     11,504       7       0.24 %

Certificates of deposit

    69,890       222       1.27 %     78,033       248       1.27 %

Total interest-bearing deposits

    153,872       342       0.89 %     164,831       329       0.80 %

Borrowings

    25,197       116       1.84 %     15,107       60       1.59 %

Total interest-bearing liabilities

    179,069       458       1.02 %     179,938       389       0.86 %

Noninterest-bearing deposits

    20,783                       16,551                  

Other non-interest bearing liabilities

    1,123                       3,041                  

Total liabilities

    200,975                       199,530                  

Equity

    59,138                       34,493                  

Total liabilities and equity

  $ 260,113                     $ 234,023                  
                                                 

Net interest income

            2,242                       1,778          

Net interest rate spread

                    3.37 %                     3.19 %

Net interest-earning assets

    66,998                       33,868                  

Net interest margin

                    3.64 %                     3.33 %

Average of interest-earning assets to interest-bearing liabilities

    137 %                     119 %                

 

 

   

For the Six Months Ended June 30,

 
   

2018

   

2017

 
   

Average Outstanding Balance

   

Interest

   

Yield/ Rate

   

Average Outstanding Balance

   

Interest

   

Yield/ Rate

 
   

(in thousands)

           

(in thousands)

         

Interest-earning assets:

                                               

Loans

  $

180,390

    $ 4,307      

4.78

%   $ 166,742     $ 3,756       4.51 %

Available for sale securities

   

58,451

      716       2.45 %     46,984       532       2.26 %

Interest-bearing deposits

   

3,293

      15       0.91 %     1,046       5       0.96 %

FHLB stock

    700       16      

4.57

%     833       7       1.68 %

Total interest-earning assets

   

242,834

      5,054       4.16 %     215,605       4,300       3.99 %

Noninterest-earning assets

    16,414                       22,035                  

Allowance for loan losses

    (1,835 )                     (1,502 )                

Total assets

  $ 257,413                     $ 236,138                  
                                                 

Interest-bearing liabilities:

                                               

Demand accounts

  $ 4,502       7       0.31 %   $ 4,583       11       0.48 %

Money market accounts

    52,764       185       0.70 %     53,810       111       0.41 %

Savings accounts

    15,329       15       0.20 %     16,951       9       0.11 %

Health savings accounts

    11,596       13       0.22 %     11,625       14       0.24 %

Certificates of deposit

    72,493       468       1.29 %     79,629       503       1.26 %

Total interest-bearing deposits

    156,684       688       0.88 %     166,598       648       0.78 %

Borrowings

    19,862       169       1.70 %     19,027       118       1.24 %

Total interest-bearing liabilities

    176,546       857       0.97 %     185,625       766       0.83 %

Noninterest-bearing deposits

    20,538                       15,016                  

Other non-interest bearing liabilities

    1,199                       1,186                  

Total liabilities

    198,283                       201,827                  

Equity

    59,130                       34,311                  

Total liabilities and equity

  $ 257,413                     $ 236,138                  
                                                 

Net interest income

            4,197                       3,534          

Net interest rate spread

                    3.19 %                     3.16 %

Net interest-earning assets

    66,288                      

29,980

                 

Net interest margin

                    3.46 %                     3.28 %

Average of interest-earning assets to interest-bearing liabilities

    138 %                     116 %                

 

 

Rate/Volume Analysis. The following table presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e. holding the initial rate constant); and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e. holding the initial balance constant). Changes due to both rate and volume which cannot be segregated have been allocated in proportion to the relationship of the dollar amounts of the change in each category.

 

   

For Three Months Ended June 30,

         
   

2018 vs. 2017

         
   

Increase (Decrease) Due to

   

Total Increase

(Decrease)

 
   

Volume

   

Rate

         
   

(In thousands)

 
                         

Interest-earning assets:

                       

Loans

  $ 223     $ 206     $ 429  

Available for sale securities

    61       36       97  

Interest-bearing deposits

    14       (15 )     (1 )

FHLB Stock

    1       7       8  

Total interest-earning assets

  $ 299     $ 234     $ 533  
                         

Interest-bearing liabilities:

                       

Demand accounts

  $ 1     $ (2 )   $ (1 )

Money market accounts

    (2 )     40       38  

Savings accounts

    -       3       3  

Health savings accounts

    -       (1 )     (1 )

Certificates of deposit

    (26 )     -       (26 )

Total deposits

  $ (27 )   $ 40     $ 13  
                         

Borrowings

    40       16       56  
                         

Total interest-bearing liabilities

    13       56       69  
                         

Change in net interest income

  $ 286     $ 178     $ 464  

 

 

   

For Six Months Ended June 30,

         
   

2018 vs. 2017

         
   

Increase (Decrease) Due to

   

Total

Increase

(Decrease)

 
   

Volume

   

Rate

         
   

(In thousands)

 
                         

Interest-earning assets:

                       

Loans

  $ 307     $ 244       551  

Available for sale securities

    130       54       184  

Interest-bearing deposits

    11      

(1

)     10  

FHLB Stock

    (1 )     10       9  

Total interest-earning assets

  $ 447     $ 307     $ 754  
                         

Interest-bearing liabilities:

                       

Demand accounts

  $
-
-
    $ (4 )   $ (4 )

Money market accounts

    (2 )     76       74  

Savings accounts

    (1 )     7       6  

Health savings accounts

    -       (1 )     (1 )

Certificates of deposit

    (45 )     10       (35 )

Total deposits

  $ (48 )   $ 88     $ 40  
                         

Borrowings

    5       46       51  
                         

Total interest-bearing liabilities

    (43 )     134       91  
                         

Change in net interest income

  $ 490     $ 173     $ 663  

 

 

Liquidity and Capital Resources. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB-Chicago. At June 30, 2018, we had $38.0 million outstanding in advances from the FHLB-Chicago. At June 30, 2018, due to the FHLB-Chicago’s repurchase of its stock, we had no available additional FHLB-Chicago advances.

 

Additionally, at June 30, 2018 we had a $7.0 million federal funds rate line of credit with the Bankers’ Bank of Wisconsin, of which $0 was drawn at June 30, 2018.

 

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents and available for sale investment securities. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. 

 

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our current strategy to change our mix of deposits to become less reliant on certificates of deposit, we anticipate that we will continue to allow a significant portion of higher-costing certificates of deposit to run off at maturity. We also anticipate continued use of FHLB-Chicago advances as well as continuing to utilize non-core funding sources, such as the Certificate of Depository Registry Service (CDARS), as needed, to fund future loan growth and our operations. 

 

 

At June 30, 2018, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital of $48.1 million, or 18.6% of adjusted total assets, which is above the well-capitalized required level of $12.9 million, or 5.0%; and total risk-based capital of $50.0 million, or 25.1% of risk-weighted assets, which is above the well-capitalized required level of $19.9 million, or 10.0%. Management is not aware of any conditions or events since the most recent notification that would change our category.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4.

Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2018. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

 

During the quarter ended June 30, 2018, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II – Other Information

 

Item 1.

Legal Proceedings

 

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

 

Item 1A.

Risk Factors

 

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

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

(a)

There were no sales of unregistered securities during the period covered by this Report.

 

 

(b)

Not applicable.

 

 

(c)

There were no issuer repurchases of securities during the period covered by this Report.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

 

Item 6.

Exhibits

 

 

3.1

Charter of FFBW, Inc. (1)

 

 

3.2

Bylaws of FFBW, Inc. (2)

 

 

31.1

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

 

 

31.2

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

 

 

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.0

The following materials for the quarter ended June 30, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Comprehensive Income, (iv) Statements of Cash Flows, and (v) Notes to Financial Statements

 


 

 

(1)

Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-218736).

 

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-218736).

 

 

SIGNATURES

 

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

 

   

FFBW, INC.

     
     

Date:  August 6, 2018

 

/s/ Edward H. Schaefer

   

Edward H. Schaefer

   

President and Chief Executive Officer

     
     

Date:  August 6, 2018

 

/s/ Nikola B. Schaumberg                    

   

Nikola B. Schaumberg

   

Chief Financial Officer

 

39