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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, 2015

OR

      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      

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      

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 
Accelerated filer T
Non-accelerated filer 
Smaller reporting company 
 
(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                  No      T

The number of shares outstanding of the issuer's common stock, $0.01 par value per share, was 30,027,898 at July 30, 2015.
 

WATERSTONE FINANCIAL, INC.

10-Q INDEX

 
Page No.
   
 3
   
 3
 4
 5
 6
 7
 8 - 33
 
   
 33 - 51
 51 - 52
 52
   
 53
   
 53
 53
53
53
53
54
 54
 54
   

 
 
 
 
- 2 -

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


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

   
(Unaudited)
     
   
June 30, 2015
   
December 31, 2014
 
Assets
 
(In Thousands, except share data)
 
Cash
 
$
28,631
     
145,846
 
Federal funds sold
   
11,623
     
21,268
 
Interest-earning deposits in other financial institutions and other short term investments
   
7,857
     
5,706
 
Cash and cash equivalents
   
48,111
     
172,820
 
Securities available for sale (at fair value)
   
269,495
     
273,443
 
Loans held for sale (at fair value)
   
207,920
     
125,073
 
Loans receivable
   
1,094,589
     
1,094,990
 
Less: Allowance for loan losses
   
18,360
     
18,706
 
Loans receivable, net
   
1,076,229
     
1,076,284
 
                 
Office properties and equipment, net
   
24,859
     
25,562
 
Federal Home Loan Bank stock (at cost)
   
19,500
     
17,500
 
Cash surrender value of life insurance
   
51,587
     
50,848
 
Real estate owned, net
   
14,326
     
18,706
 
Prepaid expenses and other assets
   
25,196
     
23,144
 
Total assets
 
$
1,737,223
     
1,783,380
 
                 
Liabilities and Shareholders' Equity
               
Liabilities:
               
Demand deposits
 
$
96,969
     
92,162
 
Money market and savings deposits
   
121,549
     
119,163
 
Time deposits
   
631,796
     
652,635
 
Total deposits
   
850,314
     
863,960
 
                 
Borrowings
   
444,000
     
434,000
 
Advance payments by borrowers for taxes
   
16,634
     
4,991
 
Other liabilities
   
24,837
     
30,192
 
Total liabilities
   
1,335,785
     
1,333,143
 
                 
Shareholders' equity:
               
Preferred stock (par value $.01 per share)
               
Authorized -  50,000,000 shares in 2015 and 50,000,000 in 2014, no shares issued
   
-
     
-
 
Common stock (par value $.01 per share)
               
Authorized - 100,000,000 shares in 2015 and 100,000,000 in 2014
               
Issued - 30,706,713 in 2015 and 34,420,094 in 2014
               
Outstanding - 30,706,713 in 2015 and 34,420,094 in 2014
   
307
     
344
 
Additional paid-in capital
   
315,922
     
313,894
 
Retained earnings
   
162,575
     
157,304
 
Unearned ESOP shares
   
(21,958
)
   
(22,552
)
Accumulated other comprehensive income, net of taxes
   
114
     
1,247
 
Cost of shares repurchased (4,307,477 shares in 2015 and 0 shares in 2014)
   
(55,522
)
   
-
 
Total shareholders' equity
   
401,438
     
450,237
 
Total liabilities and shareholders' equity
 
$
1,737,223
     
1,783,380
 

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,
 
   
2015
   
2014
   
2015
   
2014
 
   
(In Thousands, except per share amounts)
 
                 
Interest income:
               
Loans
 
$
14,065
     
14,568
     
27,378
     
28,236
 
Mortgage-related securities
   
820
     
748
     
1,659
     
1,307
 
Debt securities, federal funds sold and short-term investments
   
857
     
825
     
1,723
     
1,651
 
Total interest income
   
15,742
     
16,141
     
30,760
     
31,194
 
Interest expense:
                               
Deposits
   
1,358
     
1,125
     
2,711
     
2,185
 
Borrowings
   
4,324
     
4,406
     
8,553
     
8,699
 
Total interest expense
   
5,682
     
5,531
     
11,264
     
10,884
 
Net interest income
   
10,060
     
10,610
     
19,496
     
20,310
 
Provision for loan losses
   
805
     
285
     
1,140
     
535
 
Net interest income after provision for loan losses
   
9,255
     
10,325
     
18,356
     
19,775
 
Noninterest income:
                               
Service charges on loans and deposits
   
443
     
333
     
849
     
587
 
Increase in cash surrender value of life insurance
   
352
     
305
     
559
     
452
 
Mortgage banking income
   
29,577
     
22,188
     
50,616
     
36,690
 
Gain on sale of available for sale securities
   
-
     
-
     
44
     
-
 
Other
   
668
     
370
     
1,005
     
2,526
 
Total noninterest income
   
31,040
     
23,196
     
53,073
     
40,255
 
Noninterest expenses:
                               
Compensation, payroll taxes, and other employee benefits
   
23,272
     
18,190
     
41,350
     
33,249
 
Occupancy, office furniture, and equipment
   
2,269
     
2,621
     
4,712
     
5,306
 
Advertising
   
712
     
838
     
1,365
     
1,574
 
Data processing
   
630
     
559
     
1,205
     
1,118
 
Communications
   
351
     
398
     
721
     
820
 
Professional fees
   
632
     
522
     
1,129
     
1,030
 
Real estate owned
   
686
     
705
     
1,229
     
1,253
 
FDIC insurance premiums
   
271
     
304
     
607
     
710
 
Other
   
3,124
     
3,466
     
6,057
     
6,174
 
Total noninterest expenses
   
31,947
     
27,603
     
58,375
     
51,234
 
Income before income taxes
   
8,348
     
5,918
     
13,054
     
8,796
 
Income tax expense
   
3,064
     
2,148
     
4,754
     
3,142
 
Net income
 
$
5,284
     
3,770
     
8,300
     
5,654
 
Income per share:
                               
Basic
 
$
0.17
     
0.11
     
0.26
     
0.17
 
Diluted
 
$
0.17
     
0.11
     
0.26
     
0.16
 
Weighted average shares outstanding:
                               
Basic
   
29,841
     
34,021
     
31,098
     
34,143
 
Diluted
   
30,191
     
34,252
     
31,413
     
34,385
 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

- 4 -

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




   
Three months ended June 30,
   
Six months ended June 30,
 
   
2015
   
2014
   
2015
   
2014
 
   
(In Thousands)
 
Net income
 
$
5,284
     
3,770
     
8,300
     
5,654
 
                                 
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 $1,557, ($476), $714, ($1,399), respectively
   
(2,410
)
   
738
     
(1,106
)
   
2,164
 
                                 
Reclassification adjustment for net loss (gain) included in net income during the period, net of tax (benefit) expense of $0, ($7), $17, ($7), respectively
   
-
     
10
     
(27
)
   
10
 
                                 
Total other comprehensive (loss) income
   
(2,410
)
   
748
     
(1,133
)
   
2,174
 
Comprehensive income
 
$
2,874
     
4,518
     
7,167
     
7,828
 


See Accompanying Notes to Unaudited Consolidated Financial Statements.

 
 
 
 
 
 
 
 
 
 
- 5 -

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)


   
Common Stock
   
Additional Paid-In
   
Retained
   
Unearned ESOP
   
Accumulated Other Comprehensive
   
Treasury
   
Cost of Shares
   
Total Shareholders'
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Shares
   
Income (Loss)
   
Shares
   
Repurchased
   
Equity
 
       
(In Thousands)
 
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, $0.10 per share
   
-
     
-
     
-
     
(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
 
                                                                         
                                                                         
Balances at December 31, 2014
   
34,420
   
$
344
     
313,894
     
157,304
     
(22,552
)
   
1,247
     
-
     
-
     
450,237
 
                                                                         
Comprehensive income:
                                                                       
Net income
   
-
     
-
     
-
     
8,300
     
-
     
-
     
-
     
-
     
8,300
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(1,133
)
   
-
     
-
     
(1,133
)
Total comprehensive income
                                                                   
7,167
 
                                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
88
     
-
     
594
     
-
     
-
     
-
     
682
 
Cash dividend, $0.10 per share
   
-
     
-
     
-
     
(3,029
)
   
-
     
-
     
-
     
-
     
(3,029
)
Stock based compensation activity, net of tax
   
594
     
6
     
89
     
-
     
-
     
-
     
-
     
-
     
95
 
Stock compensation expense
   
-
     
-
     
1,851
     
-
     
-
     
-
     
-
     
-
     
1,851
 
Purchase of common stock returned to authorized but unissued
   
(4,307
)
   
(43
)
   
-
     
-
     
-
     
-
     
-
     
(55,522
)
   
(55,565
)
                                                                         
Balances at June 30, 2015
   
30,707
   
$
307
     
315,922
     
162,575
     
(21,958
)
   
114
     
-
     
(55,522
)
   
401,438
 

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,
 
   
2015
   
2014
 
   
(In Thousands)
 
         
Operating activities:
       
Net income
 
$
8,300
     
5,654
 
Adjustments to reconcile net income to net cash used in operating activities:
               
Provision for loan losses
   
1,140
     
535
 
Provision for depreciation
   
1,571
     
1,630
 
Stock based compensation
   
1,851
     
122
 
Net amortization of premium/discount on debt and mortgage related securities
   
685
     
811
 
Amortization of unearned ESOP shares
   
682
     
567
 
Amortization and impairment of mortgage servicing rights
   
385
     
342
 
Gain on sale of loans held for sale
   
(48,472
)
   
(37,210
)
Loans originated for sale
   
(995,131
)
   
(767,020
)
Proceeds on sales of loans originated for sale
   
960,756
     
732,781
 
Decrease (increase) in accrued interest receivable
   
39
     
(140
)
Increase in cash surrender value of life insurance
   
(559
)
   
(452
)
Decrease in accrued interest on deposits and borrowings
   
(41
)
   
(33
)
Increase in other liabilities
   
4,490
     
6,025
 
Increase in accrued tax receivable
   
2,402
     
1,005
 
Gain on sale of available for sale securities
   
(44
)
   
-
 
Net loss related to real estate owned
   
379
     
278
 
Gain on sale of mortgage servicing rights
   
(262
)
   
(1,786
)
Other
   
(4,225
)
   
5,056
 
Net cash used in operating activities
   
(66,054
)
   
(51,835
)
                 
Investing activities:
               
Net increase in loans receivable
   
(10,151
)
   
(38,484
)
Purchases of:
               
Debt securities
   
(10,000
)
   
(15,997
)
Mortgage related securities
   
(15,933
)
   
(70,119
)
Certificates of deposit
   
-
     
(735
)
Premises and equipment, net
   
(931
)
   
(1,518
)
Bank owned life insurance
   
(180
)
   
(10,180
)
FHLB stock
   
(2,000
)
   
-
 
Proceeds from:
               
Principal repayments on mortgage-related securities
   
20,652
     
14,552
 
Maturities of debt securities
   
5,690
     
9,785
 
Sales of debt securities
   
1,034
     
-
 
Sales of real estate owned
   
13,475
     
7,085
 
Net cash provided by (used in) investing activities
   
1,656
     
(105,611
)
                 
Financing activities:
               
Net decrease in deposits
   
(13,646
)
   
(5,799
)
Net change in borrowings
   
10,000
     
(511
)
Net change in advance payments by borrowers for taxes
   
1,924
     
716
 
Cash dividends on common stock
   
(3,113
)
   
(1,719
)
Financing for purchase of ESOP
   
0
     
(10,000
)
Purchase of common stock returned to authorized but unissued
   
(55,565
)
   
-
 
Proceeds from stock option exercises
   
89
     
38
 
Stock offering funds returned to subscribers
   
-
     
(141,882
)
Net cash used in financing activities
   
(60,311
)
   
(159,157
)
Decrease in cash and cash equivalents
   
(124,709
)
   
(316,603
)
Cash and cash equivalents at beginning of period
   
172,820
     
429,169
 
Cash and cash equivalents at end of period
 
$
48,111
     
112,566
 
                 
Supplemental information:
               
Cash paid or credited during the period for:
               
Income tax payments
   
2,303
     
822
 
Interest payments
   
11,305
     
10,916
 
Noncash activities:
               
Loans receivable transferred to real estate owned
   
9,066
     
6,930
 
Deposits utilized to purchase common stock
   
-
     
248,422
 
Dividends declared but not paid in other liabilities
   
1,536
     
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 words "Waterstone Financial," "we" and "our" thus are intended to refer to Waterstone-Federal and its subsidiaries with respect to matters and time periods occurring on or before January 22, 2014, and to New Waterstone and its subsidiaries with respect to matters and time periods occurring thereafter.

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, 2014 Annual Report on Form 10-K. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 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 -

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, 2015
 
   
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
108,563
     
1,296
     
(365
)
   
109,494
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
60,689
     
288
     
(110
)
   
60,867
 
Mortgage-related securities
   
169,252
     
1,584
     
(475
)
   
170,361
 
                                 
Government sponsored enterprise bonds
   
4,750
     
6
     
(2
)
   
4,754
 
Municipal securities
   
72,174
     
920
     
(558
)
   
72,536
 
Other debt securities
   
17,402
     
132
     
(610
)
   
16,924
 
Debt securities
   
94,326
     
1,058
     
(1,170
)
   
94,214
 
Certificates of deposit
   
4,900
     
20
     
-
     
4,920
 
   
$
268,478
     
2,662
     
(1,645
)
   
269,495
 


   
December 31, 2014
 
   
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
115,670
     
1,582
     
(124
)
   
117,128
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
58,821
     
320
     
(70
)
   
59,071
 
Mortgage-related securities
   
174,491
     
1,902
     
(194
)
   
176,199
 
                                 
Government sponsored enterprise bonds
   
6,750
     
2
     
(41
)
   
6,711
 
Municipal securities
   
76,037
     
1,442
     
(371
)
   
77,108
 
Other debt securities
   
7,404
     
159
     
(35
)
   
7,528
 
Debt securities
   
90,191
     
1,603
     
(447
)
   
91,347
 
Certificates of deposit
   
5,880
     
17
     
-
     
5,897
 
   
$
270,562
     
3,522
     
(641
)
   
273,443
 


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, 2015, $95.8  million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company.  As of June 30, 2015, $2.8 million of mortgage related securities were pledged as collateral to secure mortgage banking related activities. At December 31, 2014, $98.2 million of the Company's government sponsored enterprise bonds and $1.3 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations and mortgage banking related activities, respectively.

The amortized cost and fair values of investment securities by contractual maturity at June 30, 2015 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
 
$
6,677
     
6,770
 
Due after one year through five years
   
20,292
     
20,444
 
Due after five years through ten years
   
42,267
     
42,021
 
Due after ten years
   
29,990
     
29,899
 
Mortgage-related securities
   
169,252
     
170,361
 
   
$
268,478
     
269,495
 

- 9 -

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, 2015
 
   
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
 
$
19,255
     
(235
)
   
6,251
     
(130
)
   
25,506
     
(365
)
Collateralized mortgage obligations:
                                               
  Government sponsored enterprise issued
   
22,199
     
(110
)
   
-
     
-
     
22,199
     
(110
)
Government sponsored enterprise bonds
   
2,998
     
(2
)
   
-
     
-
     
2,998
     
(2
)
Municipal securities
   
31,989
     
(354
)
   
5,436
     
(204
)
   
37,425
     
(558
)
Other debt securities
   
14,401
     
(610
)
   
-
     
-
     
14,401
     
(610
)
   
$
90,842
     
(1,311
)
   
11,687
     
(334
)
   
102,529
     
(1,645
)

   
December 31, 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
 
$
10,537
     
(13
)
   
12,489
     
(111
)
   
23,026
     
(124
)
Collateralized mortgage obligations:
                                               
Government sponsored enterprise issued
   
23,131
     
(70
)
   
-
     
-
     
23,131
     
(70
)
Government sponsored enterprise bonds
   
2,739
     
(11
)
   
2,970
     
(30
)
   
5,709
     
(41
)
Municipal securities
   
5,671
     
(19
)
   
21,344
     
(352
)
   
27,015
     
(371
)
Other debt securities
   
4,977
     
(35
)
   
-
     
-
     
4,977
     
(35
)
Certificates of deposit
   
490
     
-
     
-
     
-
     
490
     
-
 
   
$
47,545
     
(148
)
   
36,803
     
(493
)
   
84,348
     
(641
)

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.

As of June 30, 2015, 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 year ended December 31, 2014 for these municipal bonds.  During the year ended December 31, 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, 2015, these securities had a combined amortized cost of $202,000 and a combined estimated fair value of $264,000.

As of June 30, 2015, the Company had 14 municipal securities and four mortgage-backed securities 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, 2015. 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.

- 10 -

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, 2015, proceeds from the sale of securities totaled $1.0 million and resulted in gains totaling $44,000.  The $44,000 included in gain on sale of available for sale securities in the consolidated statements of income during the six months ended June 30, 2015 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, 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
 
Reduction for sales of securities for which other-than-temporary was previously recognized
   
-
 
Credit-related impairments on securities as of December 31, 2014
   
117
 
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
   
-
 
Credit-related impairments on securities as of June 30, 2015
 
$
117
 

Note 3 - Loans Receivable


Loans receivable at June 30, 2015 and December 31, 2014 are summarized as follows:

   
June 30, 2015
   
December 31, 2014
 
   
(In Thousands)
 
Mortgage loans:
       
Residential real estate:
       
One- to four-family
 
$
393,724
     
411,979
 
Multi-family
   
531,729
     
522,281
 
Home equity
   
26,404
     
29,207
 
Construction and land
   
14,792
     
17,081
 
Commercial real estate
   
103,334
     
94,771
 
Consumer
   
863
     
200
 
Commercial loans
   
23,743
     
19,471
 
   
$
1,094,589
     
1,094,990
 

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 $832.2 million and $844.2 million at June 30, 2015 and December 31, 2014, respectively, are pledged as collateral against $360.0 million in outstanding Federal Home Loan Bank of Chicago advances under a blanket security agreement.

As of June 30, 2015 and December 31, 2014, there were no loans 90 or more days past due and still accruing interest.


- 11 -

An analysis of past due loans receivable as of June 30, 2015 and December 31, 2014 follows:

 
As of June 30, 2015
 
 
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
 
$
2,266
     
989
     
13,059
     
16,314
     
377,410
     
393,724
 
Multi-family
   
1,490
     
-
     
4,583
     
6,073
     
525,656
     
531,729
 
Home equity
   
313
     
60
     
78
     
451
     
25,953
     
26,404
 
Construction and land
   
31
     
-
     
347
     
378
     
14,414
     
14,792
 
Commercial real estate
   
402
     
-
     
77
     
479
     
102,855
     
103,334
 
Consumer
   
-
     
-
     
-
     
-
     
863
     
863
 
Commercial loans
   
40
     
5
     
-
     
45
     
23,698
     
23,743
 
Total
 
$
4,542
     
1,054
     
18,144
     
23,740
     
1,070,849
     
1,094,589
 

 
As of December 31, 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
 
$
3,767
     
3,743
     
12,196
     
19,706
     
392,273
     
411,979
 
Multi-family
   
462
     
280
     
11,092
     
11,834
     
510,447
     
522,281
 
Home equity
   
268
     
153
     
250
     
671
     
28,536
     
29,207
 
Construction and land
   
90
     
-
     
362
     
452
     
16,629
     
17,081
 
Commercial real estate
   
225
     
-
     
947
     
1,172
     
93,599
     
94,771
 
Consumer
   
-
     
-
     
-
     
-
     
200
     
200
 
Commercial loans
   
34
     
-
     
265
     
299
     
19,172
     
19,471
 
Total
 
$
4,846
     
4,176
     
25,112
     
34,134
     
1,060,856
     
1,094,990
 

(1) Includes $250,000 and $1.6 million at June 30, 2015 and December 31, 2014, respectively, which are on non-accrual status.
(2) Includes $559,000 and $795,000 at June 30, 2015 and December 31, 2014, respectively, which are on non-accrual status.
(3) Includes $9.8 million and $10.5 million at June 30, 2015 and December 31, 2014, respectively, which are on non-accrual status.

A summary of the activity for the six months ended June 30, 2015 and 2014 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, 2015
                             
Balance at beginning of period
 
$
9,877
     
5,358
     
422
     
687
     
1,951
     
8
     
403
     
18,706
 
Provision (credit) for loan losses
   
1,402
     
(147
)
   
(54
)
   
47
     
(115
)
   
(2
)
   
9
     
1,140
 
Charge-offs
   
(1,220
)
   
(1,304
)
   
(48
)
   
(47
)
   
(45
)
   
-
     
-
     
(2,664
)
Recoveries
   
289
     
753
     
95
     
33
     
5
     
3
     
-
     
1,178
 
Balance at end of period
 
$
10,348
     
4,660
     
415
     
720
     
1,796
     
9
     
412
     
18,360
 
                                                                 
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
 


- 12 -

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of June 30, 2015 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
 
$
3,327
     
15
     
61
     
46
     
303
     
-
     
5
     
3,757
 
Allowance related to loans collectively evaluated for impairment
   
7,021
     
4,645
     
354
     
674
     
1,493
     
9
     
407
     
14,603
 
                                                                 
Balance at end of period
 
$
10,348
     
4,660
     
415
     
720
     
1,796
     
9
     
412
     
18,360
 
                                                                 
Loans individually evaluated for impairment
 
$
27,127
     
8,000
     
430
     
2,110
     
2,446
     
-
     
34
     
40,147
 
                                                                 
Loans collectively evaluated for impairment
   
366,597
     
523,729
     
25,974
     
12,682
     
100,888
     
863
     
23,709
     
1,054,442
 
Total gross loans
 
$
393,724
     
531,729
     
26,404
     
14,792
     
103,334
     
863
     
23,743
     
1,094,589
 

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of December 31, 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
 
$
2,386
     
731
     
63
     
13
     
526
     
-
     
7
     
3,726
 
Allowance related to loans collectively evaluated for impairment
   
7,491
     
4,627
     
359
     
674
     
1,425
     
8
     
396
     
14,980
 
                                                                 
Balance at end of period
 
$
9,877
     
5,358
     
422
     
687
     
1,951
     
8
     
403
     
18,706
 
                                                                 
Loans individually evaluated for impairment
 
$
29,509
     
15,562
     
589
     
2,266
     
3,077
     
-
     
299
     
51,302
 
                                                                 
Loans collectively evaluated for impairment
   
382,470
     
506,719
     
28,618
     
14,815
     
91,694
     
200
     
19,172
     
1,043,688
 
Total gross loans
 
$
411,979
     
522,281
     
29,207
     
17,081
     
94,771
     
200
     
19,471
     
1,094,990
 

The following table presents information relating to the Company's internal risk ratings of its loans receivable as of June 30, 2015 and December 31, 2014:

   
One- to Four- Family
   
Multi-Family
   
Home
Equity
   
Construction
and Land
   
Commercial
Real Estate
   
Consumer
   
Commercial
   
Total
 
   
(In Thousands)
 
At June 30, 2015
                               
Substandard
 
$
27,228
     
5,826
     
642
     
2,110
     
2,446
     
-
     
35
     
38,287
 
Watch
   
8,982
     
5,106
     
315
     
1,405
     
2,334
     
-
     
446
     
18,588
 
Pass
   
357,514
     
520,797
     
25,447
     
11,277
     
98,554
     
863