Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - Waterstone Financial, Inc. | Financial_Report.xls |
EX-31.2 - Waterstone Financial, Inc. | exhibit312.htm |
EX-32.1 - Waterstone Financial, Inc. | exhibit321.htm |
EX-31.1 - Waterstone Financial, Inc. | exhibit311.htm |
EX-32.2 - Waterstone Financial, Inc. | exhibit322.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
T Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2014
OR
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-36271
WATERSTONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Maryland
|
90-1026709
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer Identification No.)
|
|
|
11200 W. Plank Court Wauwatosa, Wisconsin
|
53226
|
(Address of principal executive offices)
|
(Zip Code)
|
(414) 761-1000
(Registrant's telephone number, including area code)
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 filing requirements for the past 90 days.
Yes T No o
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 T No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
Accelerated filer T
|
Non-accelerated filer o
|
Smaller reporting company o
|
|
(Do not check if smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No T
The number of shares outstanding of the issuer's common stock, $0.01 par value per share, was 34,415,900 at July 31, 2014
WATERSTONE FINANCIAL, INC.
10-Q INDEX
|
Page No.
|
|
|
3
|
|
|
|
3
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
|
8 - 40
|
|
|
|
41 - 63
|
|
64
|
|
65
|
|
|
|
65
|
|
|
|
65
|
|
65
|
|
66
|
|
66
|
|
|
|
- 2 -
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
|
||||||||
|
June 30, 2014
|
December 31, 2013
|
||||||
Assets
|
(In Thousands, except share data)
|
|||||||
Cash
|
$
|
69,228
|
428,832
|
|||||
Federal funds sold
|
39,962
|
93
|
||||||
Interest-earning deposits in other financial institutions and other short term investments
|
3,376
|
244
|
||||||
Cash and cash equivalents
|
112,566
|
429,169
|
||||||
Securities available for sale (at fair value)
|
278,701
|
213,418
|
||||||
Loans held for sale (at fair value)
|
168,470
|
97,021
|
||||||
Loans receivable
|
1,120,657
|
1,092,676
|
||||||
Less: Allowance for loan losses
|
21,227
|
24,264
|
||||||
Loans receivable, net
|
1,099,430
|
1,068,412
|
||||||
|
||||||||
Office properties and equipment, net
|
26,936
|
27,090
|
||||||
Federal Home Loan Bank stock (at cost)
|
17,500
|
17,500
|
||||||
Cash surrender value of life insurance
|
50,010
|
39,378
|
||||||
Real estate owned
|
22,117
|
22,663
|
||||||
Prepaid expenses and other assets
|
26,662
|
32,388
|
||||||
Total assets
|
$
|
1,802,392
|
1,947,039
|
|||||
|
||||||||
Liabilities and Shareholders' Equity
|
||||||||
Liabilities:
|
||||||||
Demand deposits
|
$
|
87,718
|
93,275
|
|||||
Money market and savings deposits
|
121,695
|
513,716
|
||||||
Time deposits
|
639,225
|
637,750
|
||||||
Total deposits
|
848,638
|
1,244,741
|
||||||
|
||||||||
Short-term borrowings
|
20,686
|
21,197
|
||||||
Long-term borrowings
|
434,000
|
434,000
|
||||||
Advance payments by borrowers for taxes
|
16,610
|
2,482
|
||||||
Other liabilities
|
24,449
|
30,147
|
||||||
Total liabilities
|
1,344,383
|
1,732,567
|
||||||
|
||||||||
Shareholders' equity:
|
||||||||
Preferred stock (par value $.01 per share)
|
||||||||
Authorized - 50,000,000 shares in 2014 and 20,000,000 in 2013, no shares issued
|
-
|
-
|
||||||
Common stock (par value $.01 per share)
|
||||||||
Authorized - 100,000,000 shares in 2014 and 200,000,000 in 2013
|
||||||||
Issued - 34,413,705 in 2014 and 34,073,670 in 2013
|
||||||||
Outstanding - 34,413,705 in 2014 and 31,349,317 in 2013
|
344
|
341
|
||||||
Additional paid-in capital
|
313,803
|
110,480
|
||||||
Retained earnings
|
153,409
|
151,195
|
||||||
Unearned ESOP shares
|
(10,292
|
)
|
(854
|
)
|
||||
Accumulated other comprehensive income (loss), net of taxes
|
745
|
(1,429
|
)
|
|||||
Treasury shares (0 in 2014 and 2,724,353 in 2013), at cost
|
-
|
(45,261
|
)
|
|||||
Total shareholders' equity
|
458,009
|
214,472
|
||||||
Total liabilities and shareholders' equity
|
$
|
1,802,392
|
1,947,039
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 3 -
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
(In Thousands, except per share amounts)
|
|||||||||||||||
|
||||||||||||||||
Interest income:
|
||||||||||||||||
Loans
|
$
|
14,568
|
14,862
|
28,236
|
30,075
|
|||||||||||
Mortgage-related securities
|
748
|
419
|
1,307
|
856
|
||||||||||||
Debt securities, federal funds sold and short-term investments
|
825
|
617
|
1,651
|
1,153
|
||||||||||||
Total interest income
|
16,141
|
15,898
|
31,194
|
32,084
|
||||||||||||
Interest expense:
|
||||||||||||||||
Deposits
|
1,125
|
1,353
|
2,185
|
2,819
|
||||||||||||
Borrowings
|
4,406
|
4,624
|
8,699
|
9,198
|
||||||||||||
Total interest expense
|
5,531
|
5,977
|
10,884
|
12,017
|
||||||||||||
Net interest income
|
10,610
|
9,921
|
20,310
|
20,067
|
||||||||||||
Provision for loan losses
|
285
|
1,200
|
535
|
2,960
|
||||||||||||
Net interest income after provision for loan losses
|
10,325
|
8,721
|
19,775
|
17,107
|
||||||||||||
Noninterest income:
|
||||||||||||||||
Service charges on loans and deposits
|
333
|
348
|
587
|
713
|
||||||||||||
Increase in cash surrender value of life insurance
|
305
|
261
|
452
|
401
|
||||||||||||
Mortgage banking income
|
22,188
|
25,455
|
36,690
|
47,443
|
||||||||||||
Loss on sale of available for sale securities
|
-
|
-
|
—
|
(9
|
)
|
|||||||||||
Other
|
370
|
643
|
2,526
|
1,192
|
||||||||||||
Total noninterest income
|
23,196
|
26,707
|
40,255
|
49,740
|
||||||||||||
Noninterest expenses:
|
||||||||||||||||
Compensation, payroll taxes, and other employee benefits
|
18,190
|
19,944
|
33,249
|
36,426
|
||||||||||||
Occupancy, office furniture, and equipment
|
2,621
|
1,862
|
5,306
|
3,778
|
||||||||||||
Advertising
|
838
|
796
|
1,574
|
1,620
|
||||||||||||
Data processing
|
559
|
484
|
1,118
|
961
|
||||||||||||
Communications
|
398
|
342
|
820
|
750
|
||||||||||||
Professional fees
|
522
|
730
|
1,030
|
1,135
|
||||||||||||
Real estate owned
|
705
|
12
|
1,253
|
153
|
||||||||||||
FDIC insurance premiums
|
304
|
380
|
710
|
1,053
|
||||||||||||
Other
|
3,466
|
2,897
|
6,174
|
5,442
|
||||||||||||
Total noninterest expenses
|
27,603
|
27,447
|
51,234
|
51,318
|
||||||||||||
Income before income taxes
|
5,918
|
7,981
|
8,796
|
15,529
|
||||||||||||
Income tax expense
|
2,148
|
3,054
|
3,142
|
5,977
|
||||||||||||
Net income
|
$
|
3,770
|
4,927
|
5,654
|
9,552
|
|||||||||||
Income per share:
|
||||||||||||||||
Basic
|
$
|
0.11
|
0.14
|
0.17
|
0.28
|
|||||||||||
Diluted
|
$
|
0.11
|
0.14
|
0.16
|
0.28
|
|||||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
34,021
|
34,175
|
34,143
|
34,163
|
||||||||||||
Diluted
|
34,252
|
34,420
|
34,385
|
34,402
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 4 -
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
(In Thousands)
|
|||||||||||||||
Net income
|
$
|
3,770
|
4,927
|
5,654
|
9,552
|
|||||||||||
|
||||||||||||||||
Other comprehensive (loss) income, net of tax:
|
||||||||||||||||
Net unrealized holding (loss) gain on available for sale securities:
|
||||||||||||||||
Net unrealized holding (loss) gain arising during the period, net of tax benefit (expense) of ($476), $1,895, ($1,399), $2,120, respectively
|
738
|
(2,881
|
)
|
2,164
|
(3,222
|
)
|
||||||||||
|
||||||||||||||||
Reclassification adjustment for net loss (gain) included in net income during the period, net of tax (benefit) expense of ($7), $0, ($7), ($4), respectively
|
10
|
-
|
10
|
5
|
||||||||||||
|
||||||||||||||||
Total other comprehensive (loss) income
|
748
|
(2,881
|
)
|
2,174
|
(3,217
|
)
|
||||||||||
Comprehensive income
|
$
|
4,518
|
2,046
|
7,828
|
6,335
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 5 -
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Additional
|
Unearned
|
Other
|
Total
|
||||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Retained
|
ESOP
|
Comprehensive
|
Treasury
|
Shareholders'
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Shares
|
Income (Loss)
|
Shares
|
Equity
|
||||||||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||||||||||
Balances at December 31, 2012
|
31,348
|
$
|
341
|
110,490
|
136,487
|
(1,708
|
)
|
2,285
|
(45,261
|
)
|
202,634
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
-
|
-
|
-
|
9,552
|
-
|
-
|
-
|
9,552
|
||||||||||||||||||||||||
Other comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
(3,217
|
)
|
-
|
(3,217
|
)
|
||||||||||||||||||||||
Total comprehensive income
|
6,335
|
|||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
ESOP shares committed to be released to Plan participants
|
-
|
-
|
(117
|
)
|
-
|
428
|
-
|
-
|
311
|
|||||||||||||||||||||||
Stock based compensation
|
1
|
-
|
65
|
-
|
-
|
-
|
-
|
65
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balances at June 30, 2013
|
31,349
|
$
|
341
|
110,438
|
146,039
|
(1,280
|
)
|
(932
|
)
|
(45,261
|
)
|
209,345
|
||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balances at December 31, 2013
|
31,349
|
$
|
341
|
110,480
|
151,195
|
(854
|
)
|
(1,429
|
)
|
(45,261
|
)
|
214,472
|
||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
-
|
-
|
-
|
5,654
|
-
|
-
|
-
|
5,654
|
||||||||||||||||||||||||
Other comprehensive income
|
-
|
-
|
-
|
-
|
-
|
2,174
|
-
|
2,174
|
||||||||||||||||||||||||
Total comprehensive income
|
7,828
|
|||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Purchase of ESOP Shares
|
-
|
-
|
-
|
-
|
(10,000
|
)
|
-
|
-
|
(10,000
|
)
|
||||||||||||||||||||||
ESOP shares committed to be released to Plan participants
|
-
|
-
|
5
|
-
|
562
|
-
|
-
|
567
|
||||||||||||||||||||||||
Cash dividend
|
-
|
-
|
-
|
(3,440
|
)
|
-
|
-
|
-
|
(3,440
|
)
|
||||||||||||||||||||||
Stock based compensation
|
8
|
-
|
160
|
-
|
-
|
-
|
-
|
160
|
||||||||||||||||||||||||
Merger of Lamplighter, MHC
|
(23,050
|
)
|
(231
|
)
|
305
|
-
|
-
|
-
|
-
|
74
|
||||||||||||||||||||||
Exchange of common stock
|
(8,299
|
)
|
(83
|
)
|
83
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
Treasury stock retired
|
-
|
(27
|
)
|
(45,234
|
)
|
-
|
-
|
-
|
45,261
|
-
|
||||||||||||||||||||||
Proceeds of stock offering, net of costs
|
34,406
|
344
|
248,004
|
-
|
-
|
-
|
-
|
248,348
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balances at June 30, 2014
|
34,414
|
$
|
344
|
313,803
|
153,409
|
(10,292
|
)
|
745
|
-
|
458,009
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 6 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Six months ended June 30,
|
|||||||
|
2014
|
2013
|
||||||
|
(In Thousands)
|
|||||||
|
||||||||
Operating activities:
|
||||||||
Net income
|
$
|
5,654
|
9,552
|
|||||
Adjustments to reconcile net cash (used in) income to net cash provided by operating activities:
|
||||||||
Provision for loan losses
|
535
|
2,960
|
||||||
Provision for depreciation
|
1,630
|
1,226
|
||||||
Deferred income taxes
|
1,247
|
3,624
|
||||||
Stock based compensation
|
122
|
65
|
||||||
Net amortization of premium/discount on debt and mortgage related securities
|
811
|
1,233
|
||||||
Amortization of unearned ESOP shares
|
567
|
311
|
||||||
Amortization and impairment of mortgage servicing rights
|
342
|
569
|
||||||
Gain on sale of loans held for sale
|
(37,210
|
)
|
(43,399
|
)
|
||||
Loans originated for sale
|
(767,020
|
)
|
(978,327
|
)
|
||||
Proceeds on sales of loans originated for sale
|
732,781
|
1,023,294
|
||||||
Increase in accrued interest receivable
|
(140
|
)
|
(395
|
)
|
||||
Increase in cash surrender value of life insurance
|
(452
|
)
|
(401
|
)
|
||||
Decrease in accrued interest on deposits and borrowings
|
(33
|
)
|
(135
|
)
|
||||
Increase in other liabilities
|
6,025
|
1,754
|
||||||
Increase (decrease) in accrued tax payable
|
1,005
|
(2,190
|
)
|
|||||
Loss on sale of available for sale securities
|
-
|
9
|
||||||
Net loss (gain) related to real estate owned
|
278
|
(802
|
)
|
|||||
Gain on sale of mortgage servicing rights
|
(1,786
|
)
|
-
|
|||||
Other
|
3,809
|
(8,229
|
)
|
|||||
Net cash (used in) provided by operating activities
|
(51,835
|
)
|
10,719
|
|||||
|
||||||||
Investing activities:
|
||||||||
Net (increase) decrease in loans receivable
|
(38,484
|
)
|
12,117
|
|||||
Purchases of:
|
||||||||
Debt securities
|
(15,997
|
)
|
(34,555
|
)
|
||||
Mortgage related securities
|
(70,119
|
)
|
(7,160
|
)
|
||||
Certificates of deposit
|
(735
|
)
|
(980
|
)
|
||||
Premises and equipment, net
|
(1,518
|
)
|
(2,093
|
)
|
||||
Bank owned life insurance
|
(10,180
|
)
|
(180
|
)
|
||||
Proceeds from:
|
||||||||
Principal repayments on mortgage-related securities
|
14,552
|
21,902
|
||||||
Maturities of debt securities
|
9,785
|
2,060
|
||||||
Sales of debt securities
|
-
|
921
|
||||||
Sales of real estate owned
|
7,085
|
14,466
|
||||||
Net cash (used in) provided by investing activities
|
(105,611
|
)
|
6,498
|
|||||
|
||||||||
Financing activities:
|
||||||||
Net decrease in deposits
|
(5,799
|
)
|
(46,506
|
)
|
||||
Net increase (decrease) in short-term borrowings
|
(511
|
)
|
10,158
|
|||||
Net change in advance payments by borrowers for taxes
|
716
|
2,030
|
||||||
Cash dividends on common stock
|
(1,719
|
)
|
-
|
|||||
Financing for purchase of ESOP
|
(10,000
|
)
|
-
|
|||||
Proceeds from stock option exercises
|
38
|
-
|
||||||
Stock offering funds returned to subscribers
|
(141,882
|
)
|
-
|
|||||
Net cash used in financing activities
|
(159,157
|
)
|
(34,318
|
)
|
||||
Decrease in cash and cash equivalents
|
(316,603
|
)
|
(17,101
|
)
|
||||
Cash and cash equivalents at beginning of period
|
429,169
|
71,469
|
||||||
Cash and cash equivalents at end of period
|
$
|
112,566
|
54,368
|
|||||
|
||||||||
Supplemental information:
|
||||||||
Cash paid or credited during the period for:
|
||||||||
Income tax payments
|
822
|
4,573
|
||||||
Interest payments
|
10,916
|
12,151
|
||||||
Noncash activities:
|
||||||||
Loans receivable transferred to real estate owned
|
6,931
|
8,404
|
||||||
Deposits utilized to purchase common stock
|
248,422
|
-
|
||||||
Dividends declared but not paid in other liabilities
|
1,721
|
-
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 7 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On June 6, 2013, the Board of Directors of Lamplighter Financial, MHC ("MHC") and the Board of Directors of Waterstone Financial, Inc., a federal corporation, ("Waterstone-Federal") adopted a Plan of Conversion and Reorganization (the "Plan"). Pursuant to the Plan, Waterstone Financial, Inc., a Maryland corporation, ("New Waterstone") was organized and the MHC converted from the mutual holding company form of organization to the fully public form on January 22, 2014. As part of the conversion, the MHC's ownership interest of Waterstone-Federal was offered for sale in a public offering. A total of 25,300,000 shares were sold in the offering at a price $10.00 per share, resulting in gross proceeds of $253.0 million. Expenses related to the offering totaled approximately $4.7 million. The existing publicly held shares of Waterstone-Federal were exchanged for new shares of common stock of New Waterstone at a conversion ratio of 1.0973-to-one. The exchange ratio ensured that immediately after the conversion and public offering, the public shareholders of Waterstone-Federal owned the same aggregate percentage of New Waterstone common stock that they owned immediately prior to that time (excluding shares purchased in the stock offering and cash received in lieu of fractional shares). When the conversion and public offering was completed, New Waterstone became the holding company of WaterStone Bank SSB and succeeded to all of the business and operations of Waterstone-Federal and each of Waterstone-Federal and Lamplighter Financial, MHC ceased to exist. Approximately 34,405,458 shares of New Waterstone common stock were outstanding after the completion of the offering and exchange.
The Plan provided for the establishment of special "liquidation accounts" for the benefit of certain depositors of WaterStone Bank in an amount equal to the greater of the MHC's ownership interest in the retained earnings of the Company as of the date of the latest balance sheet contained in the prospectus or the retained earnings of WaterStone Bank at the time it reorganized into the MHC. Following the completion of the conversion, under the rules of the Board of Governors of the Federal Reserve System, WaterStone Bank is not permitted to pay dividends on its capital stock to Waterstone Financial, Inc., its sole shareholder, if WaterStone Bank's shareholder's equity would be reduced below the amount of the liquidation accounts. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder's interest in the liquidation accounts.
Share amounts have been restated to reflect the completion of our second-step conversion on January 22, 2014 at a conversion ratio of 1.0973 unless noted otherwise.
The unaudited interim consolidated financial statements include the accounts of Waterstone Financial, Inc. (the "Company") and the Company's subsidiaries.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information, Rule 10-01 of Regulation S-X and the instructions to Form 10-Q. The financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations, changes in shareholders' equity, and cash flows of the Company for the periods presented.
The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company's December 31, 2013 Annual Report on Form 10-K. Operating results for the six and three months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or for any other period.
The preparation of the unaudited consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the allowance for loan losses, deferred income taxes and real estate owned. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications did not result in any changes to previously reported net income or shareholders' equity.
- 8 -
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose. In these cases, the unrecognized tax benefit should be presented as a liability. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this standard did not have a material impact on the Company's consolidated financial position or results of operations.
In January 2014, the FASB issued ASU No. 2014-04, "Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." This ASU clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar agreement. In addition, the amendment requires interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure in accordance with local requirements of the applicable jurisdiction. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. An entity can elect to adopt the amendments using either a modified retrospective method or a prospective transition method. Early adoption is permitted. The Company is in the process of evaluating the impact of this standard to its results of operations, financial position, and liquidity.
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." The ASU is a converged standard between the FASB and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU is revenue recognition that represents 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. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this standard to its results of operations, financial position, and liquidity.
In June 2014, the FASB issued ASU No. 2014-11, "Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." This ASU requires secured borrowing accounting treatment for repurchase-to-maturity transactions and provides guidance on accounting for repurchase financing arrangements. This ASU is effective for interim and annual reporting periods beginning after December 15, 2014. The Company is in the process of evaluating the impact of this standard to its results of operations, financial position, and liquidity.
In June 2014, the FASB also issued ASU No. 2014-12, "Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in estimating the grant-date fair value of the award. This ASU is effective for interim and annual reporting periods beginning after December 15, 2015 with earlier adoption permitted. The adoption of this standard is not expected to have a material impact to the Company's consolidated financial position or results of operations.
- 9 -
Note 2— Securities Available for Sale
The amortized cost and fair values of the Company's investment in securities available for sale follow:
|
June 30, 2014
|
|||||||||||||||
|
Amortized cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Fair value
|
||||||||||||
|
(In Thousands)
|
|||||||||||||||
Mortgage-backed securities
|
$
|
112,887
|
1,598
|
(262
|
)
|
114,223
|
||||||||||
Collateralized mortgage obligations:
|
||||||||||||||||
Government sponsored enterprise issued
|
65,452
|
407
|
(39
|
)
|
65,820
|
|||||||||||
Mortgage-related securities
|
178,339
|
2,005
|
(301
|
)
|
180,043
|
|||||||||||
|
||||||||||||||||
Government sponsored enterprise bonds
|
9,256
|
5
|
(37
|
)
|
9,224
|
|||||||||||
Municipal securities
|
76,700
|
1,113
|
(1,065
|
)
|
76,748
|
|||||||||||
Other debt securities
|
5,000
|
312
|
-
|
5,312
|
||||||||||||
Debt securities
|
90,956
|
1,430
|
(1,102
|
)
|
91,284
|
|||||||||||
Certificates of deposit
|
7,350
|
27
|
(3
|
)
|
7,374
|
|||||||||||
|
$
|
276,645
|
3,462
|
(1,406
|
)
|
278,701
|
December 31, 2013
|
||||||||||||||||
|
Amortized cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Fair value
|
||||||||||||
|
(In Thousands)
|
|||||||||||||||
Mortgage-backed securities
|
$
|
104,462
|
1,192
|
(731
|
)
|
104,923
|
||||||||||
Collateralized mortgage obligations:
|
||||||||||||||||
Government sponsored enterprise issued
|
18,946
|
320
|
(25
|
)
|
19,241
|
|||||||||||
Mortgage-related securities
|
123,408
|
1,512
|
(756
|
)
|
124,164
|
|||||||||||
|
||||||||||||||||
Government sponsored enterprise bonds
|
18,171
|
4
|
(241
|
)
|
17,934
|
|||||||||||
Municipal securities
|
61,014
|
802
|
(3,023
|
)
|
58,793
|
|||||||||||
Other debt securities
|
5,000
|
160
|
-
|
5,160
|
||||||||||||
Debt securities
|
84,185
|
966
|
(3,264
|
)
|
81,887
|
|||||||||||
Certificates of deposit
|
7,350
|
32
|
(15
|
)
|
7,367
|
|||||||||||
|
$
|
214,943
|
2,510
|
(4,035
|
)
|
213,418
|
- 10 -
The Company's mortgage-backed securities and collateralized mortgage obligations issued by government sponsored enterprises are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. At June 30, 2014, $98.2 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company. At December 31, 2013, $988,000 of the Company's government sponsored enterprise bonds and $99.7 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company. As of December 31, 2013, $1.2 million of municipal securities were pledged as collateral to secure Federal Home Loan Bank advances.
The amortized cost and fair values of investment securities by contractual maturity at June 30, 2014 are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
Amortized
Cost
|
Fair
Value
|
||||||
|
(In Thousands)
|
|||||||
Debt and other securities
|
||||||||
Due within one year
|
$
|
5,176
|
5,260
|
|||||
Due after one year through five years
|
23,237
|
23,667
|
||||||
Due after five years through ten years
|
32,859
|
32,336
|
||||||
Due after ten years
|
37,034
|
37,395
|
||||||
Mortgage-related securities
|
178,339
|
180,043
|
||||||
|
$
|
276,645
|
278,701
|
Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
|
June 30, 2014
|
|||||||||||||||||||||||
|
Less than 12 months
|
12 months or longer
|
Total
|
|||||||||||||||||||||
|
Fair value
|
Unrealized loss
|
Fair value
|
Unrealized loss
|
Fair value
|
Unrealized loss
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Mortgage-backed securities
|
$
|
23,327
|
(62
|
)
|
13,605
|
(200
|
)
|
36,932
|
(262
|
)
|
||||||||||||||
Collateralized mortgage obligations:
|
||||||||||||||||||||||||
Government sponsored enterprise issued
|
15,776
|
(39
|
)
|
-
|
-
|
15,776
|
(39
|
)
|
||||||||||||||||
Government sponsored enterprise bonds
|
1,499
|
(1
|
)
|
3,464
|
(36
|
)
|
4,963
|
(37
|
)
|
|||||||||||||||
Municipal securities
|
13,329
|
(119
|
)
|
34,497
|
(946
|
)
|
47,826
|
(1,065
|
)
|
|||||||||||||||
Certificates of deposit
|
979
|
(1
|
)
|
733
|
(2
|
)
|
1,712
|
(3
|
)
|
|||||||||||||||
|
$
|
54,910
|
(222
|
)
|
52,299
|
(1,184
|
)
|
107,209
|
(1,406
|
)
|
|
December 31, 2013
|
|||||||||||||||||||||||
|
Less than 12 months
|
12 months or longer
|
Total
|
|||||||||||||||||||||
|
Fair value
|
Unrealized loss
|
Fair value
|
Unrealized loss
|
Fair value
|
Unrealized loss
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Mortgage-backed securities
|
$
|
45,094
|
(539
|
)
|
5,349
|
(192
|
)
|
50,443
|
(731
|
)
|
||||||||||||||
Collateralized mortgage obligations:
|
||||||||||||||||||||||||
Government sponsored enterprise issued
|
5,669
|
(25
|
)
|
-
|
-
|
5,669
|
(25
|
)
|
||||||||||||||||
Government sponsored enterprise bonds
|
15,530
|
(241
|
)
|
-
|
-
|
15,530
|
(241
|
)
|
||||||||||||||||
Municipal securities
|
37,498
|
(2,546
|
)
|
4,708
|
(477
|
)
|
42,206
|
(3,023
|
)
|
|||||||||||||||
Certificates of deposit
|
3,660
|
(15
|
)
|
-
|
-
|
3,660
|
(15
|
)
|
||||||||||||||||
|
$
|
107,451
|
(3,366
|
)
|
10,057
|
(669
|
)
|
117,508
|
(4,035
|
)
|
- 11 -
The Company reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. In evaluating whether a security's decline in market value is other-than-temporary, management considers the length of time and extent to which the fair value has been less than cost, financial condition of the issuer and the underlying obligors, quality of credit enhancements, volatility of the fair value of the security, the expected recovery period of the security and ratings agency evaluations. In addition the Company may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds and the value of any underlying collateral. For certain securities in unrealized loss positions, the Company prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.
As of June 30, 2014, the Company held two municipal securities that had previously been deemed to be other-than-temporarily impaired. Both securities were issued by a tax incremental district in a municipality located in Wisconsin. During the year ended December 31, 2012, the Company received audited financial statements with respect to the municipal issuer that called into question the ability of the underlying taxing district that issued the securities to operate as a going concern. During the year ended December 31, 2012, the Company's analysis of these securities resulted in $100,000 in credit losses that were charged to earnings with respect to these two municipal securities. An additional $17,000 credit loss was recognized during the six months ended June 30, 2014 for these municipal bonds. During the six months ended June 30, 2014, there were sales in the market of municipal issuer bonds at a discounted price that resulted in the Company recording additional credit losses. As of June 30, 2014, these securities had a combined amortized cost of $198,000 and a combined estimated fair value of $176,000.
As of June 30, 2014, the Company had eighty two municipal securities, six mortgage-backed securities, three government sponsored enterprise bonds, and three certificate of deposit which had been in an unrealized loss position for twelve months or longer. These securities were determined not to be other-than-temporarily impaired as of June 30, 2014. The Company has determined that the decline in fair value of these securities is primarily attributable to an increase in market interest rates compared to the stated rates on these securities and is not attributable to credit deterioration. As the Company does not intend to sell nor is it more likely than not that it will be required to sell these securities before recovery of the amortized cost basis, these securities are not considered other-than-temporarily impaired.
Continued deterioration of general economic market conditions could result in the recognition of future other than temporary impairment losses within the investment portfolio and such amounts could be material to our consolidated financial statements.
During the six months ended June 30, 2013, proceeds from the sale of securities totaled $921,000 and resulted in losses totaling $9,000. The $9,000 included in loss on sale of available for sale securities in the consolidated statements of income during the six months ended June 30, 2013 was reclassified from accumulated other comprehensive income. There were no sales of securities during the six months ended June 30, 2014.
The following table presents the change in other-than-temporary credit related impairment charges on securities available for sale for which a portion of the other-than-temporary impairments related to other factors was recognized in other comprehensive loss.
|
(In Thousands)
|
|||
Credit-related impairments on securities as of December 31, 2012
|
$
|
100
|
||
Credit-related impairments related to securities for which an other- than-temporary impairment was not previously recognized
|
-
|
|||
Increase in credit-related impairments related to securities for which an other-than-temporary impairment was previously recognized
|
-
|
|||
Reduction for sales of securities for which other-than-temporary was previously recognized
|
-
|
|||
Credit-related impairments on securities as of December 31, 2013
|
100
|
|||
Credit-related impairments related to securities for which an other- than-temporary impairment was not previously recognized
|
-
|
|||
Increase in credit-related impairments related to securities for which an other-than-temporary impairment was previously recognized
|
17
|
|||
Credit-related impairments on securities as of June 30, 2014
|
$
|
117
|
- 12 -
Note 3 - Loans Receivable
Loans receivable at June 30, 2014 and December 31, 2013 are summarized as follows:
|
June 30, 2014
|
December 31, 2013
|
||||||
|
(In Thousands)
|
|||||||
Mortgage loans:
|
||||||||
Residential real estate:
|
||||||||
One- to four-family
|
$
|
410,665
|
413,614
|
|||||
Multi-family
|
532,747
|
521,597
|
||||||
Home equity
|
32,661
|
35,432
|
||||||
Construction and land
|
30,011
|
31,905
|
||||||
Commercial real estate
|
92,271
|
71,698
|
||||||
Consumer
|
127
|
134
|
||||||
Commercial loans
|
22,175
|
18,296
|
||||||
|
$
|
1,120,657
|
1,092,676
|
The Company provides several types of loans to its customers, including residential, construction, commercial and consumer loans. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to one borrower or to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. While credit risks are geographically concentrated in the Company's Milwaukee metropolitan area, and while 87.1% of the Company's loan portfolio involves loans that are secured by residential real estate, there are no concentrations with individual or groups of related borrowers. While the real estate collateralizing these loans is residential in nature, it ranges from owner-occupied single family homes to large apartment complexes. In addition, real estate collateralizing $56.5 million, or 5.0% of total loans, is located outside of the state of Wisconsin.
Qualifying loans receivable totaling $833.6 million and $882.9 million at June 30, 2014 and December 31, 2013, respectively, are pledged as collateral against $350.0 million in outstanding Federal Home Loan Bank of Chicago advances under a blanket security agreement.
As of June 30, 2014 and December 31, 2013, there are no loans that are 90 or more days past due and still accruing interest.
- 13 -
An analysis of past due loans receivable as of June 30, 2014 and December 31, 2013 follows:
|
As of June 30, 2014
|
|||||||||||||||||||||||
|
1-59 Days Past Due (1)
|
60-89 Days Past Due (2)
|
90 Days or Greater
|
Total Past Due
|
Current (3)
|
Total Loans
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Mortgage loans:
|
||||||||||||||||||||||||
Residential real estate:
|
||||||||||||||||||||||||
One- to four-family
|
$
|
6,938
|
700
|
16,223
|
23,861
|
386,804
|
410,665
|
|||||||||||||||||
Multi-family
|
4,091
|
3,528
|
7,334
|
14,953
|
517,794
|
532,747
|
||||||||||||||||||
Home equity
|
416
|
90
|
365
|
871
|
31,790
|
32,661
|
||||||||||||||||||
Construction and land
|
47
|
-
|
1,649
|
1,696
|
28,315
|
30,011
|
||||||||||||||||||
Commercial real estate
|
639
|
228
|
710
|
1,577
|
90,694
|
92,271
|
||||||||||||||||||
Consumer
|
-
|
-
|
-
|
-
|
127
|
127
|
||||||||||||||||||
Commercial loans
|
660
|
-
|
267
|
927
|
21,248
|
22,175
|
||||||||||||||||||
Total
|
$
|
12,791
|
4,546
|
26,548
|
43,885
|
1,076,772
|
1,120,657
|
|
As of December 31, 2013
|
|||||||||||||||||||||||
|
1-59 Days Past Due (1)
|
60-89 Days Past Due (2)
|
90 Days or Greater
|
Total Past Due
|
Current (3)
|
Total Loans
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Mortgage loans:
|
||||||||||||||||||||||||
Residential real estate:
|
||||||||||||||||||||||||
One- to four-family
|
$
|
4,994
|
5,236
|
17,499
|
27,729
|
385,885
|
413,614
|
|||||||||||||||||
Multi-family
|
804
|
1,293
|
7,743
|
9,840
|
511,757
|
521,597
|
||||||||||||||||||
Home equity
|
373
|
205
|
465
|
1,043
|
34,389
|
35,432
|
||||||||||||||||||
Construction and land
|
-
|
39
|
4,195
|
4,234
|
27,671
|
31,905
|
||||||||||||||||||
Commercial real estate
|
287
|
-
|
357
|
644
|
71,054
|
71,698
|
||||||||||||||||||
Consumer
|
-
|
-
|
-
|
-
|
134
|
134
|
||||||||||||||||||
Commercial loans
|
-
|
-
|
521
|
521
|
17,775
|
18,296
|
||||||||||||||||||
Total
|
$
|
6,458
|
6,773
|
30,780
|
44,011
|
1,048,665
|
1,092,676
|
(1) | Includes $2.8 million and $1.1 million for June 30, 2014 and December 31, 2013, respectively, which are on non-accrual status. |
(2) | Includes $4.1 million and $5.7 million for June 30, 2014 and December 31, 2013, respectively, which are on non-accrual status. |
(3) | Includes $12.6 million and $12.9 million for June 30, 2014 and December 31, 2013, respectively, which are on non-accrual status. |
- 14 -
A summary of the activity for the six months ended June 30, 2014 and 2013 in the allowance for loan losses follows:
|
One- to Four- Family
|
Multi-Family
|
Home Equity
|
Construction and Land
|
Commercial Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||||||||||
Six months ended June 30, 2014
|
||||||||||||||||||||||||||||||||
Balance at beginning of period
|
$
|
11,549
|
7,211
|
1,807
|
1,613
|
1,402
|
34
|
648
|
24,264
|
|||||||||||||||||||||||
Provision (credit) for loan losses
|
(979
|
)
|
1,561
|
(767
|
)
|
195
|
472
|
(25
|
)
|
78
|
535
|
|||||||||||||||||||||
Charge-offs
|
(1,298
|
)
|
(2,690
|
)
|
(39
|
)
|
(142
|
)
|
-
|
(4
|
)
|
(243
|
)
|
(4,416
|
)
|
|||||||||||||||||
Recoveries
|
740
|
23
|
6
|
63
|
6
|
3
|
3
|
844
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
10,012
|
6,105
|
1,007
|
1,729
|
1,880
|
8
|
486
|
21,227
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Six months ended June 30, 2013
|
||||||||||||||||||||||||||||||||
Balance at beginning of period
|
$
|
17,819
|
7,734
|
2,097
|
1,323
|
1,259
|
30
|
781
|
31,043
|
|||||||||||||||||||||||
Provision (credit) for loan losses
|
2,115
|
(335
|
)
|
163
|
926
|
110
|
3
|
(22
|
)
|
2,960
|
||||||||||||||||||||||
Charge-offs
|
(5,686
|
)
|
(732
|
)
|
(524
|
)
|
(134
|
)
|
(95
|
)
|
-
|
-
|
(7,171
|
)
|
||||||||||||||||||
Recoveries
|
608
|
201
|
70
|
51
|
-
|
2
|
3
|
935
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
14,856
|
6,868
|
1,806
|
2,166
|
1,274
|
35
|
762
|
27,767
|
A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of June 30, 2014 follows:
|
One- to Four- Family
|
Multi-
Family
|
Home
Equity
|
Construction
and Land
|
Commercial
Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||||||||||
Allowance related to loans individually evaluated for impairment
|
$
|
2,287
|
1,176
|
515
|
588
|
416
|
-
|
58
|
5,040
|
|||||||||||||||||||||||
Allowance related to loans collectively evaluated for impairment
|
7,725
|
4,929
|
492
|
1,141
|
1,464
|
8
|
428
|
16,187
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balance at end of period
|
$
|
10,012
|
6,105
|
1,007
|
1,729
|
1,880
|
8
|
486
|
21,227
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Loans individually evaluated for impairment
|
$
|
36,023
|
14,221
|
1,447
|
3,903
|
1,634
|
-
|
364
|
57,592
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Loans collectively evaluated for impairment
|
374,642
|
518,526
|
31,214
|
26,108
|
90,637
|
127
|
21,811
|
1,063,065
|
||||||||||||||||||||||||
Total gross loans
|
$
|
410,665
|
532,747
|
32,661
|
30,011
|
92,271
|
127
|
22,175
|
1,120,657
|
- 15 -
A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of the year ended December 31, 2013 follows:
|
One- to Four-
Family
|
Multi-
Family
|
Home
Equity
|
Construction
and Land
|
Commercial
Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||||||||||
Allowance related to loans individually evaluated for impairment
|
$
|
2,631
|
2,196
|
862
|
624
|
370
|
-
|
258
|
6,941
|
|||||||||||||||||||||||
Allowance related to loans collectively evaluated for impairment
|
8,918
|
5,015
|
945
|
989
|
1,032
|
34
|
390
|
17,323
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balance at end of period
|
$
|
11,549
|
7,211
|
1,807
|
1,613
|
1,402
|
34
|
648
|
24,264
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Loans individually evaluated for impairment
|
$
|
37,064
|
17,221
|
1,956
|
6,527
|
1,298
|
17
|
580
|
64,663
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Loans collectively evaluated for impairment
|
376,550
|
504,376
|
33,476
|
25,378
|
70,400
|
117
|
17,716
|
1,028,013
|
||||||||||||||||||||||||
Total gross loans
|
$
|
413,614
|
521,597
|
35,432
|
31,905
|
71,698
|
134
|
18,296
|
1,092,676
|
The following table presents information relating to the Company's internal risk ratings of its loans receivable as of June 30, 2014 and December 31, 2013:
|
One- to Four- Family
|
Multi-Family
|
Home
Equity
|
Construction
and Land
|
Commercial
Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||||||||||
At June 30, 2014
|
||||||||||||||||||||||||||||||||
Substandard
|
$
|
35,986
|
12,170
|
1,777
|
3,902
|
1,633
|
-
|
364
|
55,832
|
|||||||||||||||||||||||
Watch
|
9,423
|
8,448
|
458
|