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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, 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 29,429,464 at October 29, 2015.
 

WATERSTONE FINANCIAL, INC.

10-Q INDEX

 
Page No.
   
 3
   
 3
 3
 4
 5
 6
 7
 8 - 32
   
 32 - 49
 49 - 50
 50
   
 50
   
 50
 50
50
51
51
51
 51
 51
   

 
 
 
 
 
 
 
 
- 2 -

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


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

   
(Unaudited)
     
   
September 30, 2015
   
December 31, 2014
 
Assets
 
(Dollars In Thousands, except share and per share data)
 
Cash
 
$
80,498
     
145,846
 
Federal funds sold
   
37,391
     
21,268
 
Interest-earning deposits in other financial institutions and other short term investments
   
12,511
     
5,706
 
Cash and cash equivalents
   
130,400
     
172,820
 
Securities available for sale (at fair value)
   
257,536
     
273,443
 
Loans held for sale (at fair value)
   
141,808
     
125,073
 
Loans receivable
   
1,100,641
     
1,094,990
 
Less: Allowance for loan losses
   
16,928
     
18,706
 
Loans receivable, net
   
1,083,713
     
1,076,284
 
                 
Office properties and equipment, net
   
25,195
     
25,562
 
Federal Home Loan Bank stock (at cost)
   
19,500
     
17,500
 
Cash surrender value of life insurance
   
52,223
     
50,848
 
Real estate owned, net
   
12,156
     
18,706
 
Prepaid expenses and other assets
   
22,178
     
23,144
 
Total assets
 
$
1,744,709
     
1,783,380
 
                 
Liabilities and Shareholders' Equity
               
Liabilities:
               
Demand deposits
 
$
96,344
     
92,162
 
Money market and savings deposits
   
136,486
     
119,163
 
Time deposits
   
640,325
     
652,635
 
Total deposits
   
873,155
     
863,960
 
                 
Borrowings
   
434,000
     
434,000
 
Advance payments by borrowers for taxes
   
23,839
     
4,991
 
Other liabilities
   
23,121
     
30,192
 
Total liabilities
   
1,354,115
     
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 - 29,436,864 in 2015 and 34,420,094 in 2014
               
Outstanding - 29,436,864 in 2015 and 34,420,094 in 2014
   
294
     
344
 
Additional paid-in capital
   
316,460
     
313,894
 
Retained earnings
   
166,398
     
157,304
 
Unearned ESOP shares
   
(21,661
)
   
(22,552
)
Accumulated other comprehensive income, net of taxes
   
1,228
     
1,247
 
Cost of shares repurchased (5,581,715 shares in 2015 and 0 shares in 2014)
   
(72,125
)
   
-
 
Total shareholders' equity
   
390,594
     
450,237
 
Total liabilities and shareholders' equity
 
$
1,744,709
     
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 September 30,
   
Nine months ended September 30,
 
   
2015
   
2014
   
2015
   
2014
 
   
(In Thousands, except per share amounts)
 
                 
Interest income:
               
Loans
 
$
14,117
     
14,942
     
41,495
     
43,178
 
Mortgage-related securities
   
792
     
835
     
2,451
     
2,142
 
Debt securities, federal funds sold and short-term investments
   
886
     
823
     
2,609
     
2,474
 
Total interest income
   
15,795
     
16,600
     
46,555
     
47,794
 
Interest expense:
                               
Deposits
   
1,540
     
1,337
     
4,251
     
3,522
 
Borrowings
   
4,345
     
4,349
     
12,898
     
13,048
 
Total interest expense
   
5,885
     
5,686
     
17,149
     
16,570
 
Net interest income
   
9,910
     
10,914
     
29,406
     
31,224
 
Provision for loan losses
   
580
     
315
     
1,720
     
850
 
Net interest income after provision for loan losses
   
9,330
     
10,599
     
27,686
     
30,374
 
Noninterest income:
                               
Service charges on loans and deposits
   
364
     
317
     
1,213
     
904
 
Increase in cash surrender value of life insurance
   
636
     
630
     
1,195
     
1,082
 
Mortgage banking income
   
26,708
     
22,053
     
77,324
     
58,743
 
Gain on sale of available for sale securities
   
-
     
-
     
44
     
-
 
Other
   
843
     
911
     
1,848
     
3,436
 
Total noninterest income
   
28,551
     
23,911
     
81,624
     
64,165
 
Noninterest expenses:
                               
Compensation, payroll taxes, and other employee benefits
   
21,234
     
18,169
     
62,584
     
51,418
 
Occupancy, office furniture, and equipment
   
2,292
     
2,577
     
7,004
     
7,883
 
Advertising
   
755
     
678
     
2,120
     
2,252
 
Data processing
   
592
     
582
     
1,797
     
1,701
 
Communications
   
332
     
430
     
1,053
     
1,250
 
Professional fees
   
642
     
441
     
1,771
     
1,471
 
Real estate owned
   
646
     
665
     
1,875
     
1,918
 
FDIC insurance premiums
   
243
     
336
     
851
     
1,046
 
Other
   
3,050
     
3,152
     
9,106
     
9,325
 
Total noninterest expenses
   
29,786
     
27,030
     
88,161
     
78,264
 
Income before income taxes
   
8,095
     
7,480
     
21,149
     
16,275
 
Income tax expense
   
2,896
     
2,715
     
7,651
     
5,857
 
Net income
 
$
5,199
     
4,765
     
13,498
     
10,418
 
Income per share:
                               
Basic
 
$
0.19
     
0.14
     
0.45
     
0.31
 
Diluted
 
$
0.19
     
0.14
     
0.45
     
0.31
 
Weighted average shares outstanding:
                               
Basic
   
27,490
     
33,003
     
29,882
     
33,759
 
Diluted
   
27,795
     
33,232
     
30,145
     
33,997
 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

- 4 -

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




   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2015
   
2014
   
2015
   
2014
 
   
(In Thousands)
 
Net income
 
$
5,199
     
4,765
     
13,498
     
10,418
 
                                 
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 ($718), $116, ($4), ($1,281), respectively
   
1,114
     
(180
)
   
8
     
1,984
 
                                 
Reclassification adjustment for net (gain) loss included in net income during the period, net of tax expense (benefit) of $0, $0, $17, ($7), respectively
   
-
     
-
     
(27
)
   
10
 
                                 
Total other comprehensive (loss) income
   
1,114
     
(180
)
   
(19
)
   
1,994
 
Comprehensive income
 
$
6,313
     
4,585
     
13,479
     
12,412
 


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
   
-
     
-
     
-
     
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, $0.15 per share
   
-
     
-
     
-
     
(5,002
)
   
-
     
-
     
-
     
-
     
(5,002
)
Stock based compensation
   
14
     
-
     
198
     
-
     
-
     
-
     
-
     
-
     
198
 
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 September 30, 2014
   
34,420
   
$
344
     
313,841
     
156,611
     
(22,848
)
   
565
     
-
     
-
     
448,513
 
                                                                         
                                                                         
Balances at December 31, 2014
   
34,420
   
$
344
     
313,894
     
157,304
     
(22,552
)
   
1,247
     
-
     
-
     
450,237
 
                                                                         
Comprehensive income:
                                                                       
Net income
   
-
     
-
     
-
     
13,498
     
-
     
-
     
-
     
-
     
13,498
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(19
)
   
-
     
-
     
(19
)
Total comprehensive income
                                                                   
13,479
 
                                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
136
     
-
     
891
     
-
     
-
     
-
     
1,027
 
Cash dividend, $0.15 per share
   
-
     
-
     
-
     
(4,404
)
   
-
     
-
     
-
     
-
     
(4,404
)
Stock based compensation activity
   
599
     
6
     
96
     
-
     
-
     
-
     
-
     
-
     
102
 
Stock compensation expense
   
-
     
-
     
2,334
     
-
     
-
     
-
     
-
     
-
     
2,334
 
Purchase of common stock returned to authorized but unissued
   
(5,582
)
   
(56
)
   
-
     
-
     
-
     
-
     
-
     
(72,125
)
   
(72,181
)
                                                                         
Balances at September 30, 2015
   
29,437
   
$
294
     
316,460
     
166,398
     
(21,661
)
   
1,228
     
-
     
(72,125
)
   
390,594
 

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,
 
   
2015
   
2014
 
   
(In Thousands)
 
         
Operating activities:
       
Net income
 
$
13,498
     
10,418
 
Adjustments to reconcile net income to net cash provided by (used) in operating activities:
               
Provision for loan losses
   
1,720
     
850
 
Provision for depreciation
   
2,337
     
2,463
 
Stock based compensation
   
2,334
     
149
 
Net amortization of premium/discount on debt and mortgage related securities
   
1,011
     
1,215
 
Amortization of unearned ESOP shares
   
1,027
     
895
 
Amortization and impairment of mortgage servicing rights
   
422
     
321
 
Gain on sale of loans held for sale
   
(75,935
)
   
(52,764
)
Loans originated for sale
   
(1,545,098
)
   
(1,256,795
)
Proceeds on sales of loans originated for sale
   
1,604,297
     
1,262,387
 
Increase in accrued interest receivable
   
(218
)
   
(420
)
Increase in cash surrender value of life insurance
   
(1,195
)
   
(1,082
)
Decrease in accrued interest on deposits and borrowings
   
(34
)
   
(46
)
Increase in other liabilities
   
2,846
     
552
 
Increase in accrued tax receivable
   
2,591
     
1,692
 
Gain on sale of available for sale securities
   
(44
)
   
-
 
Net loss related to real estate owned
   
427
     
591
 
Gain on sale of mortgage servicing rights
   
(807
)
   
(2,393
)
Other
   
(1,426
)
   
9,088
 
Net cash provided by (used in) operating activities
   
7,753
     
(22,879
)
                 
Investing activities:
               
Net increase in loans receivable
   
(20,868
)
   
(37,141
)
Purchases of:
               
Debt securities
   
(10,000
)
   
(15,997
)
Mortgage related securities
   
(15,933
)
   
(80,837
)
Certificates of deposit
   
-
     
(735
)
Premises and equipment, net
   
(2,042
)
   
(1,703
)
Bank owned life insurance
   
(180
)
   
(10,180
)
FHLB stock
   
(2,000
)
   
-
 
Proceeds from:
               
Principal repayments on mortgage-related securities
   
31,647
     
20,662
 
Maturities of debt securities
   
8,160
     
13,020
 
Sales of debt securities
   
1,034
     
-
 
Sales of real estate owned
   
18,332
     
9,579
 
Net cash provided by (used in) investing activities
   
8,150
     
(103,332
)
                 
Financing activities:
               
Net increase in deposits
   
9,195
     
20,714
 
Net change in borrowings
   
-
     
(21,197
)
Net change in advance payments by borrowers for taxes
   
9,070
     
6,911
 
Cash dividends on common stock
   
(4,509
)
   
(3,387
)
Financing for purchase of ESOP
   
-
     
(22,884
)
Purchase of common stock returned to authorized but unissued
   
(72,181
)
   
-
 
Proceeds from stock option exercises
   
102
     
49
 
Stock offering funds returned to subscribers
   
-
     
(141,882
)
Net cash used in financing activities
   
(58,323
)
   
(161,676
)
Decrease in cash and cash equivalents
   
(42,420
)
   
(287,887
)
Cash and cash equivalents at beginning of period
   
172,820
     
429,169
 
Cash and cash equivalents at end of period
 
$
130,400
     
141,282
 
                 
Supplemental information:
               
Cash paid or credited during the period for:
               
Income tax payments
   
10,234
     
2,199
 
Interest payments
   
17,183
     
16,616
 
Noncash activities:
               
Loans receivable transferred to real estate owned
   
11,719
     
13,423
 
Deposits utilized to purchase common stock
   
-
     
248,422
 
Dividends declared but not paid in other liabilities
   
1,516
     
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 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 nine months ended September 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:

   
September 30, 2015
 
   
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
101,865
     
1,832
     
(123
)
   
103,574
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
56,151
     
451
     
(46
)
   
56,556
 
Mortgage-related securities
   
158,016
     
2,283
     
(169
)
   
160,130
 
                                 
Government sponsored enterprise bonds
   
3,750
     
15
     
-
     
3,765
 
Municipal securities
   
72,089
     
1,228
     
(227
)
   
73,090
 
Other debt securities
   
17,402
     
212
     
(500
)
   
17,114
 
Debt securities
   
93,241
     
1,455
     
(727
)
   
93,969
 
Certificates of deposit
   
3,430
     
10
     
(3
)
   
3,437
 
   
$
254,687
     
3,748
     
(899
)
   
257,536
 


   
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 September 30, 2015, $94.2 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company.  As of September 30, 2015, $2.6 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.

- 9 -

The amortized cost and fair values of investment securities by contractual maturity at September 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
 
$
5,826
     
5,895
 
Due after one year through five years
   
18,874
     
19,090
 
Due after five years through ten years
   
43,264
     
43,486
 
Due after ten years
   
28,707
     
28,935
 
Mortgage-related securities
   
158,016
     
160,130
 
   
$
254,687
     
257,536
 

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, 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
 
$
10,051
     
(80
)
   
5,953
     
(43
)
   
16,004
     
(123
)
Collateralized mortgage obligations:
                                               
  Government sponsored enterprise issued
   
3,458
     
(46
)
   
-
     
-
     
3,458
     
(46
)
Municipal securities
   
15,139
     
(94
)
   
5,496
     
(133
)
   
20,635
     
(227
)
Other debt securities
   
9,500
     
(500
)
   
-
     
-
     
9,500
     
(500
)
Certificates of Deposit
   
242
     
(3
)
   
-
     
-
     
242
     
(3
)
   
$
38,390
     
(723
)
   
11,449
     
(176
)
   
49,839
     
(899
)

   
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.

- 10 -

As of September 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 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 September 30, 2015, these securities had a combined amortized cost of $198,000 and a combined estimated fair value of $266,000.

As of September 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 September 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.

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, 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 nine months ended September 30, 2015 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, 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 September 30, 2015
 
$
117
 

 
 
 
 
- 11 -

Note 3 - Loans Receivable


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

   
September 30, 2015
   
December 31, 2014
 
   
(In Thousands)
 
Mortgage loans:
       
Residential real estate:
       
One- to four-family
 
$
394,308
     
411,979
 
Multi-family
   
526,276
     
522,281
 
Home equity
   
26,035
     
29,207
 
Construction and land
   
16,336
     
17,081
 
Commercial real estate
   
113,294
     
94,771
 
Consumer
   
383
     
200
 
Commercial loans
   
24,009
     
19,471
 
   
$
1,100,641
     
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.

Qualifying loans receivable totaling $853.7 million and $844.2 million at September 30, 2015 and December 31, 2014, 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, 2015 and December 31, 2014, there were no loans 90 or more days past due and still accruing interest.


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

 
As of September 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
 
$
1,726
     
456
     
8,346
     
10,528
     
383,780
     
394,308
 
Multi-family
   
797
     
-
     
3,497
     
4,294
     
521,982
     
526,276
 
Home equity
   
64
     
99
     
144
     
307
     
25,728
     
26,035
 
Construction and land
   
-
     
-
     
304
     
304
     
16,032
     
16,336
 
Commercial real estate
   
148
     
-
     
77
     
225
     
113,069
     
113,294
 
Consumer
   
-
     
-
     
-
     
-
     
383
     
383
 
Commercial loans
   
4
     
-
     
-
     
4
     
24,005
     
24,009
 
Total
 
$
2,739
     
555
     
12,368
     
15,662
     
1,084,979
     
1,100,641
 

 
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 $1.1 million and $1.6 million at September 30, 2015 and December 31, 2014, respectively, which are on non-accrual status.
(2) Includes $386,000 and $795,000 at September 30, 2015 and December 31, 2014, respectively, which are on non-accrual status.
(3) Includes $8.0 million and $10.5 million at September 30, 2015 and December 31, 2014, respectively, which are on non-accrual status.

- 12 -

A summary of the activity for the nine months ended September 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)
 
Nine months ended September 30, 2015
                             
Balance at beginning of period
 
$
9,877
     
5,358
     
422
     
687
     
1,951
     
8
     
403
     
18,706
 
Provision (credit) for loan losses
   
1,032
     
615
     
(5
)
   
157
     
(204
)
   
(2
)
   
127
     
1,720
 
Charge-offs
   
(3,212
)
   
(1,501
)
   
(72
)
   
(84
)
   
(45
)
   
-
     
-
     
(4,914
)
Recoveries
   
436
     
789
     
101
     
45
     
40
     
5
     
-
     
1,416
 
Balance at end of period
 
$
8,133
     
5,261
     
446
     
805
     
1,742
     
11
     
530
     
16,928
 
                                                                 
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
 


A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of September 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
 
$
1,146
     
637
     
116
     
9
     
158
     
-
     
4
     
2,070
 
Allowance related to loans collectively evaluated for impairment
   
6,987
     
4,624
     
330
     
796
     
1,584
     
11
     
526
     
14,858
 
                                                                 
Balance at end of period
 
$
8,133
     
5,261
     
446
     
805
     
1,742
     
11
     
530
     
16,928
 
                                                                 
Loans individually evaluated for impairment
 
$
20,874
     
7,580
     
413
     
1,986
     
2,436
     
-
     
31
     
33,320
 
                                                                 
Loans collectively evaluated for impairment
   
373,434
     
518,696
     
25,622
     
14,350
     
110,858
     
383
     
23,978
     
1,067,321
 
Total gross loans
 
$
394,308
     
526,276
     
26,035
     
16,336
     
113,294
     
383
     
24,009
     
1,100,641
 

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
 

 
- 13 -

The following table presents information relating to the Company's internal risk ratings of its loans receivable as of September 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 September 30, 2015
                               
Substandard
 
$
21,921
     
5,411
     
594
     
1,986
     
2,436
     
-
     
31
     
32,379
 
Watch
   
7,902
     
4,578
     
284
     
975
     
2,301
     
-
     
1,867
     
17,907
 
Pass
   
364,485
     
516,287
     
25,157
     
13,375
     
108,557
     
383