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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 -


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 
 
(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 -


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
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 -


WATERSONE FINANCIAL, INC. AND SUBSIDIARIES
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 -


WATERSONE FINANCIAL, INC. AND SUBSIDIARIES
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 -


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
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 -


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 — Basis of Presentation
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 -

Impact of Recent Accounting Pronouncements

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
     
1,387
     
1,788
     
-