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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 September 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 34,420,094 at October 31, 2014


WATERSTONE FINANCIAL, INC.

10-Q INDEX

 
Page No.
 
 
3
 
 
3
3
4
5
6
7
8 - 32
 
 
33 - 53
54
55
 
 
55
 
 
55
55
55
55
 
 
 
 
 
 
 
 
- 2 -


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


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

 
 
(Unaudited)
   
 
 
 
September 30, 2014
   
December 31, 2013
 
Assets
 
(In Thousands, except share data)
 
Cash
 
$
110,848
     
428,832
 
Federal funds sold
   
25,732
     
93
 
Interest-earning deposits in other financial institutions and other short term investments
   
4,702
     
244
 
Cash and cash equivalents
   
141,282
     
429,169
 
Securities available for sale (at fair value)
   
279,373
     
213,418
 
Loans held for sale (at fair value)
   
144,193
     
97,021
 
Loans receivable
   
1,111,719
     
1,092,676
 
Less: Allowance for loan losses
   
20,439
     
24,264
 
Loans receivable, net
   
1,091,280
     
1,068,412
 
 
               
Office properties and equipment, net
   
26,274
     
27,090
 
Federal Home Loan Bank stock (at cost)
   
17,500
     
17,500
 
Cash surrender value of life insurance
   
50,640
     
39,378
 
Real estate owned
   
25,837
     
22,663
 
Prepaid expenses and other assets
   
22,946
     
32,388
 
Total assets
 
$
1,799,325
     
1,947,039
 
 
               
Liabilities and Shareholders' Equity
               
Liabilities:
               
Demand deposits
 
$
90,600
     
93,275
 
Money market and savings deposits
   
119,974
     
513,716
 
Time deposits
   
664,577
     
637,750
 
Total deposits
   
875,151
     
1,244,741
 
 
               
Short-term borrowings
   
-
     
21,197
 
Long-term borrowings
   
434,000
     
434,000
 
Advance payments by borrowers for taxes
   
23,129
     
2,482
 
Other liabilities
   
18,532
     
30,147
 
Total liabilities
   
1,350,812
     
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 - 34,420,094 in 2014 and 34,073,670 in 2013
               
Outstanding - 34,420,094 in 2014 and 31,349,317 in 2013
   
344
     
341
 
Additional paid-in capital
   
313,841
     
110,480
 
Retained earnings
   
156,611
     
151,195
 
Unearned ESOP shares
   
(22,848
)
   
(854
)
Accumulated other comprehensive income (loss), net of taxes
   
565
     
(1,429
)
Treasury shares (0 in 2014 and 2,724,353 in 2013), at cost
   
-
     
(45,261
)
Total shareholders' equity
   
448,513
     
214,472
 
Total liabilities and shareholders' equity
 
$
1,799,325
     
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 September 30,
   
Nine months ended September 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
 
 
(In Thousands, except per share amounts)
 
 
 
   
   
   
 
Interest income:
 
   
   
   
 
Loans
 
$
14,942
     
14,425
     
43,178
     
44,500
 
Mortgage-related securities
   
835
     
455
     
2,142
     
1,311
 
Debt securities, federal funds sold and short-term investments
   
823
     
653
     
2,474
     
1,806
 
Total interest income
   
16,600
     
15,533
     
47,794
     
47,617
 
Interest expense:
                               
Deposits
   
1,337
     
1,237
     
3,522
     
4,055
 
Borrowings
   
4,349
     
4,718
     
13,048
     
13,917
 
Total interest expense
   
5,686
     
5,955
     
16,570
     
17,972
 
Net interest income
   
10,914
     
9,578
     
31,224
     
29,645
 
Provision for loan losses
   
315
     
1,000
     
850
     
3,960
 
Net interest income after provision for loan losses
   
10,599
     
8,578
     
30,374
     
25,685
 
Noninterest income:
                               
Service charges on loans and deposits
   
317
     
316
     
904
     
1,029
 
Increase in cash surrender value of life insurance
   
630
     
528
     
1,082
     
929
 
Mortgage banking income
   
22,053
     
18,173
     
58,743
     
65,616
 
Loss on sale of available for sale securities
   
-
     
-
     
     
(9
)
Other
   
911
     
2,013
     
3,436
     
3,205
 
Total noninterest income
   
23,911
     
21,030
     
64,165
     
70,770
 
Noninterest expenses:
                               
Compensation, payroll taxes, and other employee benefits
   
18,169
     
16,575
     
51,418
     
53,001
 
Occupancy, office furniture, and equipment
   
2,577
     
2,218
     
7,883
     
5,995
 
Advertising
   
678
     
718
     
2,252
     
2,339
 
Data processing
   
582
     
516
     
1,701
     
1,476
 
Communications
   
430
     
398
     
1,250
     
1,148
 
Professional fees
   
441
     
626
     
1,471
     
1,762
 
Real estate owned
   
665
     
(163
)
   
1,918
     
(9
)
FDIC insurance premiums
   
336
     
516
     
1,046
     
1,569
 
Other
   
3,152
     
3,012
     
9,325
     
8,453
 
Total noninterest expenses
   
27,030
     
24,416
     
78,264
     
75,734
 
Income before income taxes
   
7,480
     
5,192
     
16,275
     
20,721
 
Income tax expense
   
2,715
     
1,973
     
5,857
     
7,950
 
Net income
 
$
4,765
     
3,219
     
10,418
     
12,771
 
Income per share:
                               
Basic
 
$
0.14
     
0.09
     
0.31
     
0.37
 
Diluted
 
$
0.14
     
0.09
     
0.31
     
0.37
 
Weighted average shares outstanding:
                               
Basic
   
33,003
     
34,196
     
33,759
     
34,174
 
Diluted
   
33,232
     
34,471
     
33,997
     
34,428
 

See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 4 -


WATERSONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)




 
 
Three months ended September 30,
   
Nine months ended September 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
 
 
(In Thousands)
 
Net income
 
$
4,765
     
3,219
     
10,418
     
12,771
 
 
                               
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 $116, ($30), ($1,281), $2,090, respectively
   
(180
)
   
38
     
1,984
     
(3,184
)
 
                               
Reclassification adjustment for net loss (gain) included in net income during the period, net of tax (benefit) expense of $0, $0, ($7), ($4), respectively
   
-
     
-
     
10
     
5
 
 
                               
Total other comprehensive (loss) income
   
(180
)
   
38
     
1,994
     
(3,179
)
Comprehensive income
 
$
4,585
     
3,257
     
12,412
     
9,592
 


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
   
-
     
-
     
-
     
12,771
     
-
     
-
     
-
     
12,771
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(3,179
)
   
-
     
(3,179
)
Total comprehensive income
                                                           
9,592
 
 
                                                               
ESOP shares committed to be released to Plan participants
   
-
     
-
     
(130
)
   
-
     
641
     
-
     
-
     
511
 
Stock based compensation
   
1
     
-
     
96
     
-
     
-
     
-
     
-
     
96
 
 
                                                               
Balances at September 30, 2013
   
31,349
   
$
341
     
110,456
     
149,258
     
(1,067
)
   
(894
)
   
(45,261
)
   
212,833
 
 
                                                               
 
                                                               
Balances at December 31, 2013
   
31,349
   
$
341
     
110,480
     
151,195
     
(854
)
   
(1,429
)
   
(45,261
)
   
214,472
 
 
                                                               
Comprehensive income:
                                                               
Net income
   
-
     
-
     
-
     
10,418
     
-
     
-
     
-
     
10,418
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
1,994
     
-
     
1,994
 
Total comprehensive income
                                                           
12,412
 
 
                                                               
Purchase of ESOP Shares
   
-
     
-
     
-
     
-
     
(22,884
)
   
-
     
-
     
(22,884
)
ESOP shares committed to be released to Plan participants
   
-
     
-
     
5
     
-
     
890
     
-
     
-
     
895
 
Cash dividend, $0.05 per share
   
-
     
-
     
-
     
(5,002
)
   
-
     
-
     
-
     
(5,002
)
Stock based compensation
   
14
     
-
     
198
     
-
     
-
     
-
     
-
     
198
 
Merger of Lamplighter Financial, 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 September 30, 2014
   
34,420
   
$
344
     
313,841
     
156,611
     
(22,848
)
   
565
     
-
     
448,513
 

See Accompanying Notes to Unaudited Consolidated Financial Statements.
 
 
 
- 6 -


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

 
 
Nine months ended September 30,
 
 
 
2014
   
2013
 
 
 
(In Thousands)
 
 
       
Operating activities:
       
Net income
 
$
10,418
     
12,771
 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Provision for loan losses
   
850
     
3,960
 
Provision for depreciation
   
2,463
     
1,936
 
Deferred income taxes
   
1,897
     
4,586
 
Stock based compensation
   
149
     
96
 
Net amortization of premium/discount on debt and mortgage related securities
   
1,215
     
1,764
 
Amortization of unearned ESOP shares
   
895
     
511
 
Amortization and impairment of mortgage servicing rights
   
321
     
790
 
Gain on sale of loans held for sale
   
(52,764
)
   
(56,776
)
Loans originated for sale
   
(1,256,795
)
   
(1,419,834
)
Proceeds on sales of loans originated for sale
   
1,262,387
     
1,513,039
 
Increase in accrued interest receivable
   
(420
)
   
(499
)
Increase in cash surrender value of life insurance
   
(1,082
)
   
(929
)
Decrease in accrued interest on deposits and borrowings
   
(46
)
   
(142
)
Increase (decrease) in other liabilities
   
552
     
(4,590
)
Increase (decrease) in accrued tax payable
   
1,692
     
(2,980
)
Loss on sale of available for sale securities
   
-
     
9
 
Net loss (gain) related to real estate owned
   
591
     
(1,313
)
Gain on sale of mortgage servicing rights
   
(2,393
)
   
(1,345
)
Other
   
7,191
     
(3,722
)
Net cash (used in) provided by operating activities
   
(22,879
)
   
47,332
 
 
               
Investing activities:
               
Net (increase) decrease in loans receivable
   
(37,141
)
   
21,084
 
Purchases of:
               
Debt securities
   
(15,997
)
   
(37,595
)
Mortgage related securities
   
(80,837
)
   
(11,182
)
Certificates of deposit
   
(735
)
   
(1,225
)
Premises and equipment, net
   
(1,703
)
   
(3,768
)
Bank owned life insurance
   
(10,180
)
   
(241
)
Proceeds from:
               
Principal repayments on mortgage-related securities
   
20,662
     
30,505
 
Maturities of debt securities
   
13,020
     
4,925
 
Sales of debt securities
   
-
     
921
 
Sales of real estate owned
   
9,579
     
23,312
 
Net cash (used in) provided by investing activities
   
(103,332
)
   
26,736
 
 
               
Financing activities:
               
Net increase (decrease) in deposits
   
20,714
     
(67,228
)
Net decrease in short-term borrowings
   
(21,197
)
   
(8,645
)
Net change in advance payments by borrowers for taxes
   
6,911
     
8,243
 
Cash dividends on common stock
   
(3,387
)
   
-
 
Financing for purchase of ESOP
   
(22,884
)
   
-
 
Proceeds from stock option exercises
   
49
     
-
 
Stock offering funds returned to subscribers
   
(141,882
)
   
-
 
Net cash used in financing activities
   
(161,676
)
   
(67,630
)
(Decrease) increase in cash and cash equivalents
   
(287,887
)
   
6,438
 
Cash and cash equivalents at beginning of period
   
429,169
     
71,469
 
Cash and cash equivalents at end of period
 
$
141,282
     
77,907
 
 
               
Supplemental information:
               
Cash paid or credited during the period for:
               
Income tax payments
   
2,199
     
6,263
 
Interest payments
   
16,616
     
18,114
 
Noncash activities:
               
Loans receivable transferred to real estate owned
   
13,423
     
10,117
 
Deposits utilized to purchase common stock
   
248,422
     
-
 
Dividends declared but not paid in other liabilities
   
1,615
     
-
 

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 and per 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 three and nine months ended September 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.

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.
 

 
- 8 -

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.


Note 2— Securities Available for Sale

The amortized cost and fair values of the Company's investment in securities available for sale follow:

 
 
September 30, 2014
 
 
 
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
 
 
(In Thousands)
 
Mortgage-backed securities
 
$
120,675
     
1,340
     
(466
)
   
121,549
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
61,955
     
275
     
(139
)
   
62,091
 
Mortgage-related securities
   
182,630
     
1,615
     
(605
)
   
183,640
 
 
                               
Government sponsored enterprise bonds
   
6,751
     
4
     
(53
)
   
6,702
 
Municipal securities
   
76,619
     
1,151
     
(681
)
   
77,089
 
Other debt securities
   
5,000
     
300
     
-
     
5,300
 
Debt securities
   
88,370
     
1,455
     
(734
)
   
89,091
 
Certificates of deposit
   
6,615
     
28
     
(1
)
   
6,642
 
 
 
$
277,615
     
3,098
     
(1,340
)
   
279,373
 


 
 
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
 


- 9 -

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 September 30, 2014, $98.6 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company.  As of September 30, 2014, $1.3 million of municipal securities were pledged as collateral to secure Federal Home Loan Bank advances.  At December 31, 2013, $987,000 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 September 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
 
$
6,269
     
6,339
 
Due after one year through five years
   
18,898
     
19,260
 
Due after five years through ten years
   
39,025
     
38,692
 
Due after ten years
   
30,793
     
31,442
 
Mortgage-related securities
   
182,630
     
183,640
 
 
 
$
277,615
     
279,373
 

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:

 
 
September 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
 
$
46,657
     
(241
)
   
12,898
     
(225
)
   
59,555
     
(466
)
Collateralized mortgage obligations:
                                               
  Government sponsored enterprise issued
   
42,648
     
(139
)
   
-
     
-
     
42,648
     
(139
)
Government sponsored enterprise bonds
   
-
     
-
     
3,447
     
(53
)
   
3,447
     
(53
)
Municipal securities
   
11,777
     
(67
)
   
29,578
     
(614
)
   
41,355
     
(681
)
Certificates of deposit
   
734
     
(1
)
   
-
     
-
     
734
     
(1
)
 
 
$
101,816
     
(448
)
   
45,923
     
(892
)
   
147,739
     
(1,340
)

 
 
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
)

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.

 
- 10 -

As of September 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 that was charged to earnings during the nine months ended September 30, 2014 for these municipal bonds.  During the nine months ended September 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 September 30, 2014, these securities had a combined amortized cost of $198,000 and a combined estimated fair value of $181,000.

As of September 30, 2014, the Company had 72 municipal securities, six mortgage-backed securities, and three government sponsored enterprise bonds 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 September 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 nine months ended September 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 nine months ended September 30, 2013 was reclassified from accumulated other comprehensive income.  There were no sales of securities during the nine months ended September 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 September 30, 2014
 
$
117
 

Note 3 - Loans Receivable


Loans receivable at September 30, 2014 and December 31, 2013 are summarized as follows:

 
 
September 30, 2014
   
December 31, 2013
 
 
 
(In Thousands)
 
Mortgage loans:
       
Residential real estate:
       
One- to four-family
 
$
409,209
     
413,614
 
Multi-family
   
532,074
     
521,597
 
Home equity
   
30,187
     
35,432
 
Construction and land
   
24,714
     
31,905
 
Commercial real estate
   
94,703
     
71,698
 
Consumer
   
131
     
134
 
Commercial loans
   
20,701
     
18,296
 
 
 
$
1,111,719
     
1,092,676
 

- 11 -

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, 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.

Qualifying loans receivable totaling $851.0 million and $882.9 million at September 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 September 30, 2014 and December 31, 2013, there are no loans that are 90 or more days past due and still accruing interest.


An analysis of past due loans receivable as of September 30, 2014 and December 31, 2013 follows:

 
As of September 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
 
$
1,973
     
2,177
     
12,523
     
16,673
     
392,536
     
409,209
 
Multi-family
   
316
     
281
     
14,874
     
15,471
     
516,603
     
532,074
 
Home equity
   
192
     
99
     
194
     
485
     
29,702
     
30,187
 
Construction and land
   
47
     
-
     
402
     
449
     
24,265
     
24,714
 
Commercial real estate
   
-
     
-
     
1,085
     
1,085
     
93,618
     
94,703
 
Consumer
   
-
     
-
     
-
     
-
     
131
     
131
 
Commercial loans
   
193
     
-
     
266
     
459
     
20,242
     
20,701
 
Total
 
$
2,721
     
2,557
     
29,344
     
34,622
     
1,077,097
     
1,111,719
 

 
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 $564,000 and $1.1 million for September 30, 2014 and December 31, 2013, respectively, which are on non-accrual status.
(2) Includes $1.3 million and $5.7 million for September 30, 2014 and December 31, 2013, respectively, which are on non-accrual status.
(3) Includes $12.0 million and $12.9 million for September 30, 2014 and December 31, 2013, respectively, which are on non-accrual status.

A summary of the activity for the nine months ended September 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)
 
Nine months ended September 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
   
(1,540
)
   
2,897
     
(1,098
)
   
29
     
476
     
(26
)
   
112
     
850
 
Charge-offs
   
(1,900
)
   
(3,462
)
   
(191
)
   
(418
)
   
(186
)
   
(5
)
   
(293
)
   
(6,455
)
Recoveries
   
1,652
     
23
     
11
     
63
     
23
     
5
     
3
     
1,780
 
Balance at end of period
 
$
9,761
     
6,669
     
529
     
1,287
     
1,715
     
8
     
470
     
20,439
 
 
                                                               
Nine months ended September 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
   
1,178
     
883
     
252
     
1,526
     
280
     
(3
)
   
(156
)
   
3,960
 
Charge-offs
   
(7,986
)
   
(1,267
)
   
(575
)
   
(1,366
)
   
(128
)
   
-
     
(6
)
   
(11,328
)
Recoveries
   
694
     
205
     
73
     
51
     
-
     
5
     
5
     
1,033
 
Balance at end of period
 
$
11,705
     
7,555
     
1,847
     
1,534
     
1,411
     
32
     
624
     
24,708
 


- 12 -

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of September 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
 
$
2,468
     
2,128
     
53
     
330
     
262
     
-
     
57
     
5,298
 
Allowance related to loans collectively evaluated for impairment
   
7,293
     
4,541
     
476
     
957
     
1,453
     
8
     
413
     
15,141
 
 
                                                               
Balance at end of period
 
$
9,761
     
6,669
     
529
     
1,287
     
1,715
     
8
     
470
     
20,439
 
 
                                                               
Loans individually evaluated for impairment
 
$
29,746
     
19,799
     
526
     
3,330
     
2,748
     
-
     
360
     
56,509
 
 
                                                               
Loans collectively evaluated for impairment
   
379,463
     
512,275
     
29,661
     
21,384
     
91,955
     
131
     
20,341
     
1,055,210
 
Total gross loans
 
$
409,209
     
532,074
     
30,187
     
24,714
     
94,703
     
131
     
20,701
     
1,111,719
 

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of 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 September 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 September 30, 2014
 
   
   
   
   
   
   
   
 
Substandard
 
$
29,653
     
17,112
     
626
     
3,330
     
2,749
     
-
     
360
     
53,830
 
Watch
   
7,010
     
6,676
     
556
     
1,383
     
2,208
     
-
     
851
     
18,684