Attached files
file | filename |
---|---|
EX-32.2 - Waterstone Financial, Inc. | exhibit322.htm |
EX-32.1 - Waterstone Financial, Inc. | exhibit321.htm |
EX-31.2 - Waterstone Financial, Inc. | exhibit312.htm |
EX-31.1 - Waterstone Financial, Inc. | exhibit311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
T Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016
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 29,164,384 at July 28, 2016.
WATERSTONE FINANCIAL, INC.
10-Q INDEX
Page No.
|
|
3 | |
3 | |
3 | |
4 | |
5 | |
6 | |
7 | |
8 - 37 | |
38 - 61 | |
62 - 63 | |
63 | |
64 | |
64 | |
64
64
65
65
65
|
|
65 | |
65 | |
- 2 -
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
|
||||||||
June 30, 2016
|
December 31, 2015
|
|||||||
Assets
|
(Dollars In Thousands, except share and per share data)
|
|||||||
Cash
|
$
|
40,887
|
$
|
57,419
|
||||
Federal funds sold
|
31,301
|
20,297
|
||||||
Interest-earning deposits in other financial institutions and other short term investments
|
10,268
|
22,755
|
||||||
Cash and cash equivalents
|
82,456
|
100,471
|
||||||
Securities available for sale (at fair value)
|
253,726
|
269,658
|
||||||
Loans held for sale (at fair value)
|
208,807
|
166,516
|
||||||
Loans receivable
|
1,130,036
|
1,114,934
|
||||||
Less: Allowance for loan losses
|
15,705
|
16,185
|
||||||
Loans receivable, net
|
1,114,331
|
1,098,749
|
||||||
Office properties and equipment, net
|
24,518
|
25,328
|
||||||
Federal Home Loan Bank stock (at cost)
|
14,850
|
19,500
|
||||||
Cash surrender value of life insurance
|
60,454
|
49,562
|
||||||
Real estate owned, net
|
8,637
|
9,190
|
||||||
Prepaid expenses and other assets
|
31,487
|
23,755
|
||||||
Total assets
|
$
|
1,799,266
|
$
|
1,762,729
|
||||
Liabilities and Shareholders' Equity
|
||||||||
Liabilities:
|
||||||||
Demand deposits
|
$
|
106,059
|
$
|
102,673
|
||||
Money market and savings deposits
|
154,550
|
140,631
|
||||||
Time deposits
|
682,100
|
650,057
|
||||||
Total deposits
|
942,709
|
893,361
|
||||||
Borrowings
|
414,745
|
441,203
|
||||||
Advance payments by borrowers for taxes
|
16,011
|
3,661
|
||||||
Other liabilities
|
25,220
|
32,574
|
||||||
Total liabilities
|
1,398,685
|
1,370,799
|
||||||
Shareholders' equity:
|
||||||||
Preferred stock (par value $.01 per share)
|
||||||||
Authorized - 50,000,000 shares in 2016 and in 2015, no shares issued
|
-
|
-
|
||||||
Common stock (par value $.01 per share)
|
||||||||
Authorized - 100,000,000 shares in 2016 and in 2015
|
||||||||
Issued - 29,163,190 in 2016 and 29,407,455 in 2015
|
||||||||
Outstanding - 29,163,190 in 2016 and 29,407,455 in 2015
|
292
|
294
|
||||||
Additional paid-in capital
|
318,187
|
317,022
|
||||||
Retained earnings
|
176,163
|
168,089
|
||||||
Unearned ESOP shares
|
(20,771
|
)
|
(21,365
|
)
|
||||
Accumulated other comprehensive income, net of taxes
|
3,257
|
582
|
||||||
Cost of shares repurchased (5,908,150 shares at June 30, 2016 and 5,624,415 shares at December 31, 2015)
|
(76,547
|
)
|
(72,692
|
)
|
||||
Total shareholders' equity
|
400,581
|
391,930
|
||||||
Total liabilities and shareholders' equity
|
$
|
1,799,266
|
$
|
1,762,729
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 3 -
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
(In Thousands, except per share amounts)
|
||||||||||||||||
Interest income:
|
||||||||||||||||
Loans
|
$
|
14,073
|
$
|
14,065
|
$
|
27,857
|
$
|
27,378
|
||||||||
Mortgage-related securities
|
790
|
820
|
1,628
|
1,659
|
||||||||||||
Debt securities, federal funds sold and short-term investments
|
885
|
857
|
1,859
|
1,723
|
||||||||||||
Total interest income
|
15,748
|
15,742
|
31,344
|
30,760
|
||||||||||||
Interest expense:
|
||||||||||||||||
Deposits
|
1,835
|
1,358
|
3,554
|
2,711
|
||||||||||||
Borrowings
|
3,748
|
4,324
|
7,642
|
8,553
|
||||||||||||
Total interest expense
|
5,583
|
5,682
|
11,196
|
11,264
|
||||||||||||
Net interest income
|
10,165
|
10,060
|
20,148
|
19,496
|
||||||||||||
Provision for loan losses
|
-
|
805
|
205
|
1,140
|
||||||||||||
Net interest income after provision for loan losses
|
10,165
|
9,255
|
19,943
|
18,356
|
||||||||||||
Noninterest income:
|
||||||||||||||||
Service charges on loans and deposits
|
616
|
443
|
953
|
849
|
||||||||||||
Increase in cash surrender value of life insurance
|
471
|
352
|
712
|
559
|
||||||||||||
Mortgage banking income
|
34,980
|
29,577
|
55,594
|
50,616
|
||||||||||||
Gain on sale of available for sale securities
|
-
|
-
|
-
|
44
|
||||||||||||
Other
|
284
|
668
|
537
|
1,005
|
||||||||||||
Total noninterest income
|
36,351
|
31,040
|
57,796
|
53,073
|
||||||||||||
Noninterest expenses:
|
||||||||||||||||
Compensation, payroll taxes, and other employee benefits
|
25,709
|
23,272
|
43,395
|
41,350
|
||||||||||||
Occupancy, office furniture, and equipment
|
2,419
|
2,269
|
4,755
|
4,712
|
||||||||||||
Advertising
|
655
|
712
|
1,313
|
1,365
|
||||||||||||
Data processing
|
638
|
630
|
1,281
|
1,205
|
||||||||||||
Communications
|
372
|
351
|
714
|
721
|
||||||||||||
Professional fees
|
489
|
632
|
1,012
|
1,129
|
||||||||||||
Real estate owned
|
163
|
686
|
307
|
1,229
|
||||||||||||
FDIC insurance premiums
|
155
|
271
|
360
|
607
|
||||||||||||
Other
|
3,631
|
3,124
|
6,316
|
6,057
|
||||||||||||
Total noninterest expenses
|
34,231
|
31,947
|
59,453
|
58,375
|
||||||||||||
Income before income taxes
|
12,285
|
8,348
|
18,286
|
13,054
|
||||||||||||
Income tax expense
|
4,518
|
3,064
|
6,658
|
4,754
|
||||||||||||
Net income
|
$
|
7,767
|
$
|
5,284
|
$
|
11,628
|
$
|
8,300
|
||||||||
Income per share:
|
||||||||||||||||
Basic
|
$
|
0.29
|
$
|
0.17
|
$
|
0.43
|
$
|
0.26
|
||||||||
Diluted
|
$
|
0.29
|
$
|
0.17
|
$
|
0.43
|
$
|
0.26
|
||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
26,919
|
29,841
|
26,942
|
31,098
|
||||||||||||
Diluted
|
27,204
|
30,191
|
27,243
|
31,413
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 4 -
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
Net income
|
$
|
7,767
|
$
|
5,284
|
$
|
11,628
|
$
|
8,300
|
||||||||
Other comprehensive income (loss), net of tax:
|
||||||||||||||||
Net unrealized holding gain (loss) on available for sale securities:
|
||||||||||||||||
Net unrealized holding gain (loss) arising during the period, net of tax (expense) benefit of ($528), $1,557, ($1,728), $714, respectively
|
815
|
(2,410
|
)
|
2,675
|
(1,106
|
)
|
||||||||||
Reclassification adjustment for net gain included in net income during the period, net of tax expense of $0, $0, $0, $17, respectively
|
-
|
-
|
-
|
(27
|
)
|
|||||||||||
Total other comprehensive income (loss)
|
815
|
(2,410
|
)
|
2,675
|
(1,133
|
)
|
||||||||||
Comprehensive income
|
$
|
8,582
|
$
|
2,874
|
$
|
14,303
|
$
|
7,167
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 5 -
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock
|
Additional
Paid-In
Capital
|
Retained
Earnings
|
Unearned
ESOP
Shares
|
Accumulated
Other
Comprehensive Income
|
Cost of
Shares
Repurchased
|
Total
Shareholders'
Equity
|
||||||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
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 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
|
|||||||||||||||
Balances at December 31, 2015
|
29,407
|
$
|
$294
|
$
|
317,022
|
$
|
168,089
|
$
|
(21,365
|
)
|
$
|
582
|
$
|
(72,692
|
)
|
$
|
391,930
|
|||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
-
|
-
|
-
|
11,628
|
-
|
-
|
-
|
11,628
|
||||||||||||||||||||||||
Other comprehensive income
|
-
|
-
|
-
|
-
|
-
|
2,675
|
-
|
2,675
|
||||||||||||||||||||||||
Total comprehensive income
|
14,303
|
|||||||||||||||||||||||||||||||
ESOP shares committed to be released to Plan participants
|
-
|
-
|
145
|
-
|
594
|
-
|
-
|
739
|
||||||||||||||||||||||||
Cash dividend, $0.13 per share
|
-
|
-
|
-
|
(3,554
|
)
|
-
|
-
|
-
|
(3,554
|
)
|
||||||||||||||||||||||
Stock based compensation activity
|
40
|
-
|
78
|
-
|
-
|
-
|
-
|
78
|
||||||||||||||||||||||||
Stock compensation expense
|
-
|
-
|
942
|
-
|
-
|
-
|
-
|
942
|
||||||||||||||||||||||||
Purchase of common stock returned to authorized but unissued
|
(284
|
)
|
(2
|
)
|
-
|
-
|
-
|
-
|
(3,855
|
)
|
(3,857
|
)
|
||||||||||||||||||||
Balances at June 30, 2016
|
29,163
|
$
|
$292
|
$
|
318,187
|
$
|
176,163
|
$
|
(20,771
|
)
|
$
|
3,257
|
$
|
(76,547
|
)
|
$
|
400,581
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 6 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
|
||||||||
2016
|
2015
|
|||||||
(In Thousands)
|
||||||||
Operating activities:
|
||||||||
Net income
|
$
|
11,628
|
$
|
8,300
|
||||
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
Provision for loan losses
|
205
|
1,140
|
||||||
Provision for depreciation
|
1,447
|
1,571
|
||||||
Stock based compensation
|
942
|
1,851
|
||||||
Net amortization of premium/discount on debt and mortgage related securities
|
510
|
685
|
||||||
Amortization of unearned ESOP shares
|
739
|
682
|
||||||
Amortization and impairment of mortgage servicing rights
|
389
|
385
|
||||||
Gain on sale of loans held for sale
|
(54,929
|
)
|
(48,472
|
)
|
||||
Loans originated for sale
|
(1,046,354
|
)
|
(995,131
|
)
|
||||
Proceeds on sales of loans originated for sale
|
1,058,992
|
960,756
|
||||||
(Increase) decrease in accrued interest receivable
|
(21
|
)
|
39
|
|||||
Increase in cash surrender value of life insurance
|
(712
|
)
|
(559
|
)
|
||||
Decrease in accrued interest on deposits and borrowings
|
(211
|
)
|
(41
|
)
|
||||
Increase in other liabilities
|
4,149
|
4,490
|
||||||
(Increase) decrease in accrued tax receivable
|
(367
|
)
|
2,402
|
|||||
Gain on sale of available for sale securities
|
-
|
(44
|
)
|
|||||
Net loss related to real estate owned
|
3
|
379
|
||||||
Gain on sale of mortgage servicing rights
|
-
|
(262
|
)
|
|||||
Other
|
(9,447
|
)
|
(4,225
|
)
|
||||
Net cash used in operating activities
|
(33,037
|
)
|
(66,054
|
)
|
||||
Investing activities:
|
||||||||
Net increase in loans receivable
|
(18,910
|
)
|
(10,151
|
)
|
||||
Purchases of:
|
||||||||
Debt securities
|
-
|
(10,000
|
)
|
|||||
Mortgage related securities
|
(5,236
|
)
|
(15,933
|
)
|
||||
Premises and equipment, net
|
(689
|
)
|
(931
|
)
|
||||
Bank owned life insurance
|
(10,180
|
)
|
(180
|
)
|
||||
FHLB stock
|
(2,250
|
)
|
(2,000
|
)
|
||||
Proceeds from:
|
||||||||
Principal repayments on mortgage-related securities
|
19,115
|
20,652
|
||||||
Maturities of debt securities
|
5,945
|
5,690
|
||||||
Sales of debt securities
|
-
|
1,034
|
||||||
Sales of FHLB stock
|
6,900
|
-
|
||||||
Sales of real estate owned
|
3,712
|
13,475
|
||||||
Net cash (used in) provided by investing activities
|
(1,593
|
)
|
1,656
|
|||||
Financing activities:
|
||||||||
Net increase (decrease) in deposits
|
49,348
|
(13,646
|
)
|
|||||
Net change in short term borrowings
|
(6,458
|
)
|
10,000
|
|||||
Repayment of long term debt
|
(70,000
|
)
|
-
|
|||||
Proceeds from long term debt
|
50,000
|
-
|
||||||
Net change in advance payments by borrowers for taxes
|
175
|
1,924
|
||||||
Cash dividends on common stock
|
(2,671
|
)
|
(3,113
|
)
|
||||
Purchase of common stock returned to authorized but unissued
|
(3,857
|
)
|
(55,565
|
)
|
||||
Proceeds from stock option exercises
|
78
|
89
|
||||||
Net cash provided by (used in) financing activities
|
16,615
|
(60,311
|
)
|
|||||
Decrease in cash and cash equivalents
|
(18,015
|
)
|
(124,709
|
)
|
||||
Cash and cash equivalents at beginning of period
|
100,471
|
172,820
|
||||||
Cash and cash equivalents at end of period
|
$
|
82,456
|
$
|
48,111
|
||||
Supplemental information:
|
||||||||
Cash paid or credited during the period for:
|
||||||||
Income tax payments
|
$
|
6,545
|
$
|
2,303
|
||||
Interest payments
|
11,407
|
11,305
|
||||||
Noncash activities:
|
||||||||
Loans receivable transferred to real estate owned
|
3,123
|
9,066
|
||||||
Dividends declared but not paid in other liabilities
|
2,304
|
1,536
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 7 -
The unaudited interim consolidated financial statements include the accounts of Waterstone Financial, Inc. (the "Company") and the Company's subsidiaries.
WaterStone Bank (the "Bank") is a community bank that has served the banking needs of its customers since 1921. WaterStone Bank also has an active mortgage banking subsidiary, Waterstone Mortgage Corporation.
WaterStone Bank conducts its community banking business from 11 banking offices located in Milwaukee, Washington and Waukesha Counties, Wisconsin, as well as a loan production office in Minneapolis, Minnesota. WaterStone Bank's principal lending activity is originating one- to four-family and multi-family residential real estate loans for retention in its portfolio. WaterStone Bank also offers home equity loans and lines of credit, construction and land loans, commercial real estate and commercial business loans, and consumer loans. WaterStone Bank funds its loan production primarily with retail deposits and Federal Home Loan Bank advances. Our deposit offerings include: certificates of deposit, money market savings accounts, transaction deposit accounts, non-interest bearing demand accounts and individual retirement accounts. Our investment securities portfolio is comprised principally of mortgage-backed securities, government-sponsored enterprise bonds and municipal obligations.
WaterStone Bank's mortgage banking operations are conducted through its wholly-owned subsidiary, Waterstone Mortgage Corporation. Waterstone Mortgage Corporation originates single-family residential real estate loans for sale into the secondary market. Waterstone Mortgage Corporation utilizes lines of credit provided by WaterStone Bank as a primary source of funds, and also utilizes a line of credit with another financial institution as needed.
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, 2015 Annual Report on Form 10-K. Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 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
ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13") requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 is effective for public companies for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are in the process of evaluating the impact adoption of ASU 2016-13 will have on our consolidated financial statements and disclosures.
ASU 2016-02 "Lease (Topic 842)" ("ASU 2016-02") requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 is effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. We are in the process of evaluating the impact adoption of ASU 2016-13 will have on our consolidated financial statements and disclosures.
- 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, 2016
|
||||||||||||||||
Amortized cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Fair value
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
Mortgage-backed securities
|
$
|
84,445
|
$
|
2,388
|
$
|
(3
|
)
|
$
|
86,830
|
|||||||
Collateralized mortgage obligations:
|
||||||||||||||||
Government sponsored enterprise issued
|
67,855
|
1,112
|
-
|
68,967
|
||||||||||||
Mortgage-related securities
|
152,300
|
3,500
|
(3
|
)
|
155,797
|
|||||||||||
Government sponsored enterprise bonds
|
3,750
|
28
|
-
|
3,778
|
||||||||||||
Municipal securities
|
72,371
|
3,155
|
(6
|
)
|
75,520
|
|||||||||||
Other debt securities
|
17,400
|
128
|
(628
|
)
|
16,900
|
|||||||||||
Debt securities
|
93,521
|
3,311
|
(634
|
)
|
96,198
|
|||||||||||
Certificates of deposit
|
1,715
|
16
|
-
|
1,731
|
||||||||||||
$
|
247,536
|
$
|
6,827
|
$
|
(637
|
)
|
$
|
253,726
|
December 31, 2015
|
||||||||||||||||
Amortized cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Fair value
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
Mortgage-backed securities
|
$
|
95,911
|
$
|
1,004
|
$
|
(248
|
)
|
$
|
96,667
|
|||||||
Collateralized mortgage obligations:
|
||||||||||||||||
Government sponsored enterprise issued
|
70,605
|
123
|
(300
|
)
|
70,428
|
|||||||||||
Mortgage-related securities
|
166,516
|
1,127
|
(548
|
)
|
167,095
|
|||||||||||
Government sponsored enterprise bonds
|
3,750
|
-
|
(4
|
)
|
3,746
|
|||||||||||
Municipal securities
|
77,509
|
1,730
|
(80
|
)
|
79,159
|
|||||||||||
Other debt securities
|
17,401
|
209
|
(647
|
)
|
16,963
|
|||||||||||
Debt securities
|
98,660
|
1,939
|
(731
|
)
|
99,868
|
|||||||||||
Certificates of deposit
|
2,695
|
4
|
(4
|
)
|
2,695
|
|||||||||||
$
|
267,871
|
$
|
3,070
|
$
|
(1,283
|
)
|
$
|
269,658
|
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, 2016, $93.0 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company. As of June 30, 2016, $2.2 million of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities. At December 31, 2015, $94.1 million of the Company's government sponsored enterprise bonds and $2.5 million of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities, respectively.
- 9 -
The amortized cost and fair values of investment securities by contractual maturity at June 30, 2016 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
|
$
|
10,945
|
$
|
11,026
|
||||
Due after one year through five years
|
19,526
|
19,799
|
||||||
Due after five years through ten years
|
42,011
|
44,103
|
||||||
Due after ten years
|
22,754
|
23,001
|
||||||
Mortgage-related securities
|
152,300
|
155,797
|
||||||
$
|
247,536
|
$
|
253,726
|
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, 2016
|
||||||||||||||||||||||||
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
|
$
|
-
|
$
|
-
|
$
|
2,177
|
$
|
(3
|
)
|
$
|
2,177
|
$
|
(3
|
)
|
||||||||||
Collateralized mortgage obligations:
|
||||||||||||||||||||||||
Government sponsored enterprise issued
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Municipal securities
|
6,603
|
(6
|
)
|
-
|
-
|
6,603
|
(6
|
)
|
||||||||||||||||
Other debt securities
|
-
|
-
|
9,372
|
(628
|
)
|
9,372
|
(628
|
)
|
||||||||||||||||
Certificates of deposit
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
$
|
6,603
|
$
|
(6
|
)
|
$
|
11,549
|
$
|
(631
|
)
|
$
|
18,152
|
$
|
(637
|
)
|
December 31, 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
|
$
|
18,488
|
$
|
(163
|
)
|
$
|
5,577
|
$
|
(85
|
)
|
$
|
24,065
|
$
|
(248
|
)
|
|||||||||
Collateralized mortgage obligations:
|
||||||||||||||||||||||||
Government sponsored enterprise issued
|
48,281
|
(300
|
)
|
-
|
-
|
48,281
|
(300
|
)
|
||||||||||||||||
Government sponsored enterprise bonds
|
3,246
|
(4
|
)
|
-
|
-
|
3,246
|
(4
|
)
|
||||||||||||||||
Municipal securities
|
9,409
|
(18
|
)
|
5,555
|
(62
|
)
|
14,964
|
(80
|
)
|
|||||||||||||||
Other debt securities
|
14,363
|
(647
|
)
|
-
|
-
|
14,363
|
(647
|
)
|
||||||||||||||||
Certificates of deposit
|
976
|
(4
|
)
|
-
|
-
|
976
|
(4
|
)
|
||||||||||||||||
$
|
94,763
|
$
|
(1,136
|
)
|
$
|
11,132
|
$
|
(147
|
)
|
$
|
105,895
|
$
|
(1,283
|
)
|
- 10 -
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, the 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, 2016, 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 charged to earnings with respect to these two municipal securities. 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. An additional $17,000 credit loss was charged to earnings during the year ended December 31, 2014 for these municipal bonds. As of June 30, 2016, these securities had a combined amortized cost of $198,000 and total life-to-date impairment of $117,000.
As of June 30, 2016, the Company had two mortgage-backed securities and one other debt security 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, 2016. 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.
There were no sales of securities during the six months ended June 30, 2016. 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.
- 11 -
Note 3 - Loans Receivable
Loans receivable at June 30, 2016 and December 31, 2015 are summarized as follows:
June 30, 2016
|
December 31, 2015
|
|||||||
(In Thousands)
|
||||||||
Mortgage loans:
|
||||||||
Residential real estate:
|
||||||||
One- to four-family
|
$
|
383,029
|
$
|
381,992
|
||||
Multi-family
|
544,753
|
547,250
|
||||||
Home equity
|
23,173
|
24,326
|
||||||
Construction and land
|
16,842
|
19,148
|
||||||
Commercial real estate
|
134,537
|
118,820
|
||||||
Consumer
|
342
|
361
|
||||||
Commercial loans
|
27,360
|
23,037
|
||||||
$
|
1,130,036
|
$
|
1,114,934
|
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 the Company's credit risks are geographically concentrated in the Milwaukee metropolitan area, there are no concentrations with individual or groups of related borrowers.
Qualifying loans receivable totaling $885.2 million and $872.8 million at June 30, 2016 and December 31, 2015, respectively, are pledged as collateral against $330.0 million in outstanding Federal Home Loan Bank of Chicago (FHLBC) advances under a blanket security agreement.
As of June 30, 2016 and December 31, 2015, there were no loans 90 or more days past due and still accruing interest.
An analysis of past due loans receivable as of June 30, 2016 and December 31, 2015 follows:
As of June 30, 2016
|
||||||||||||||||||||||||
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
|
$
|
1,064
|
$
|
99
|
$
|
5,441
|
$
|
6,604
|
$
|
376,425
|
$
|
383,029
|
||||||||||||
Multi-family
|
379
|
-
|
700
|
1,079
|
543,674
|
544,753
|
||||||||||||||||||
Home equity
|
30
|
-
|
58
|
88
|
23,085
|
23,173
|
||||||||||||||||||
Construction and land
|
-
|
-
|
66
|
66
|
16,776
|
16,842
|
||||||||||||||||||
Commercial real estate
|
-
|
-
|
209
|
209
|
134,328
|
134,537
|
||||||||||||||||||
Consumer
|
-
|
-
|
-
|
-
|
342
|
342
|
||||||||||||||||||
Commercial loans
|
-
|
2
|
26
|
28
|
27,332
|
27,360
|
||||||||||||||||||
Total
|
$
|
1,473
|
$
|
101
|
$
|
6,500
|
$
|
8,074
|
$
|
1,121,962
|
$
|
1,130,036
|
As of December 31, 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
|
$
|
851
|
$
|
1,133
|
$
|
6,503
|
$
|
8,487
|
$
|
373,505
|
$
|
381,992
|
||||||||||||
Multi-family
|
—
|
207
|
1,858
|
2,065
|
545,185
|
547,250
|
||||||||||||||||||
Home equity
|
255
|
96
|
110
|
461
|
23,865
|
24,326
|
||||||||||||||||||
Construction and land
|
-
|
-
|
238
|
238
|
18,910
|
19,148
|
||||||||||||||||||
Commercial real estate
|
57
|
-
|
223
|
280
|
118,540
|
118,820
|
||||||||||||||||||
Consumer
|
-
|
-
|
-
|
-
|
361
|
361
|
||||||||||||||||||
Commercial loans
|
-
|
-
|
-
|
-
|
23,037
|
23,037
|
||||||||||||||||||
Total
|
$
|
1,163
|
$
|
1,436
|
$
|
8,932
|
$
|
11,531
|
$
|
1,103,403
|
$
|
1,114,934
|
(1) | Includes $447,000 and $315,000 at June 30, 2016 and December 31, 2015, respectively, which are on non-accrual status. |
(2) | Includes $32,000 and $467,000 at June 30, 2016 and December 31, 2015, respectively, which are on non-accrual status. |
(3) | Includes $4.4 million and $7.9 million at June 30, 2016 and December 31, 2015, respectively, which are on non-accrual status. |
- 12 -
A summary of the activity for the six months ended June 30, 2016 and 2015 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, 2016
|
||||||||||||||||||||||||||||||||
Balance at beginning of period
|
$
|
7,763
|
$
|
5,000
|
$
|
433
|
$
|
904
|
$
|
1,680
|
$
|
9
|
$
|
396
|
$
|
16,185
|
||||||||||||||||
Provision (credit) for loan losses
|
(103
|
)
|
(5
|
)
|
(2
|
)
|
(13
|
)
|
52
|
1
|
275
|
205
|
||||||||||||||||||||
Charge-offs
|
(464
|
)
|
(445
|
)
|
(62
|
)
|
(3
|
)
|
-
|
-
|
-
|
(974
|
)
|
|||||||||||||||||||
Recoveries
|
178
|
59
|
19
|
33
|
-
|
-
|
-
|
289
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
7,374
|
$
|
4,609
|
$
|
388
|
$
|
921
|
$
|
1,732
|
$
|
10
|
$
|
671
|
$
|
15,705
|
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
|
A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of June 30, 2016 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
|
$
|
605
|
$
|
-
|
$
|
75
|
$
|
-
|
$
|
88
|
$
|
-
|
$
|
2
|
$
|
770
|
||||||||||||||||
Allowance related to loans collectively evaluated for impairment
|
6,769
|
4,609
|
313
|
921
|
1,644
|
10
|
669
|
14,935
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
7,374
|
$
|
4,609
|
$
|
388
|
$
|
921
|
$
|
1,732
|
$
|
10
|
$
|
671
|
$
|
15,705
|
||||||||||||||||
Loans individually evaluated for impairment
|
$
|
12,124
|
$
|
4,287
|
$
|
319
|
$
|
504
|
$
|
1,631
|
$
|
-
|
$
|
48
|
$
|
18,913
|
||||||||||||||||
Loans collectively evaluated for impairment
|
370,905
|
540,466
|
22,854
|
16,338
|
132,906
|
342
|
27,312
|
1,111,123
|
||||||||||||||||||||||||
Total gross loans
|
$
|
383,029
|
$
|
544,753
|
$
|
23,173
|
$
|
16,842
|
$
|
134,537
|
$
|
342
|
$
|
27,360
|
$
|
1,130,036
|
- 13 -
A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of December 31, 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
|
$
|
1,114
|
$
|
242
|
$
|
108
|
$
|
3
|
$
|
106
|
$
|
-
|
$
|
3
|
$
|
1,576
|
||||||||||||||||
Allowance related to loans collectively evaluated for impairment
|
6,649
|
4,758
|
325
|
901
|
1,574
|
9
|
393
|
14,609
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
7,763
|
$
|
5,000
|
$
|
433
|
$
|
904
|
$
|
1,680
|
$
|
9
|
$
|
396
|
$
|
16,185
|
||||||||||||||||
Loans individually evaluated for impairment
|
$
|
18,385
|
$
|
5,100
|
$
|
472
|
$
|
1,795
|
$
|
1,766
|
$
|
-
|
$
|
27
|
$
|
27,545
|
||||||||||||||||
Loans collectively evaluated for impairment
|
363,607
|
542,150
|
23,854
|
17,353
|
117,054
|
361
|
23,010
|
1,087,389
|
||||||||||||||||||||||||
Total gross loans
|
$
|
381,992
|
$
|
547,250
|
$
|
24,326
|
$
|
19,148
|
$
|
118,820
|
$
|
361
|
$
|
23,037
|
$
|
1,114,934
|
The following table presents information relating to the Company's internal risk ratings of its loans receivable as of June 30, 2016 and December 31, 2015:
One
to Four- Family
|
Multi-Family
|
Home
Equity
|
Construction
and Land
|
Commercial
Real Estate
|
Consumer
|
Commercial
|
Total
|
|||||||||||||||||||||||||
(In Thousands)
|
||||||||||||||||||||||||||||||||
At June 30, 2016
|
||||||||||||||||||||||||||||||||
Substandard
|
$
|
14,271
|
$
|
1,757
|
$
|
406
|
$
|
66
|
$
|
1,631
|
$
|
-
|
$
|
47
|
$
|
18,178
|
||||||||||||||||
Watch
|
9,800
|
2,931
|
113
|
874
|
1,465
|
-
|
3,070
|
18,253
|
||||||||||||||||||||||||
Pass
|
358,958
|
540,065
|
22,654
|
15,902
|
131,441
|
342
|
24,243
|
1,093,605
|
||||||||||||||||||||||||
$
|
383,029
|
$
|
544,753
|
$
|
23,173
|
$
|
16,842
|
$
|
134,537
|
$
|
342
|
$
|
27,360
|
$
|
1,130,036
|
|||||||||||||||||
At December 31, 2015
|
||||||||||||||||||||||||||||||||
Substandard
|
$
|
19,148
|
$
|
2,553
|
$
|
684
|
$
|
1,794
|
$
|
1,766
|
$
|
-
|
$
|
55
|
$
|
26,000
|
||||||||||||||||
Watch
|
11,352
|
3,634
|
128
|
-
|
1,161
|
-
|
402
|
16,677
|
||||||||||||||||||||||||
Pass
|
351,492
|
541,063
|
23,514
|
17,354
|
115,893
|
361
|
22,580
|
1,072,257
|
||||||||||||||||||||||||
$
|
381,992
|
$
|
547,250
|
$
|
24,326
|
$
|
19,148
|
$
|
118,820
|
$
|
361
|
$
|
23,037
|
$
|
1,114,934
|
- 14 -
Factors that are important to managing overall credit quality include sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an allowance for loan losses, and sound non-accrual and charge-off policies. Our underwriting policies require an officers' loan committee review and approval of all loans in excess of $500,000. In addition, we utilize an independent loan review function for all loans. Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we maintain a loan review system under which our credit management personnel review non-owner occupied one- to four-family, multi-family, construction and land, commercial real estate and commercial loans that individually, or as part of an overall borrower relationship exceed $1.0 million in potential exposure. Loans meeting these criteria are reviewed on an annual basis, or more frequently, if the loan renewal is less than one year. With respect to this review process, management has determined that pass loans include loans that exhibit acceptable financial statements, cash flow and leverage. Watch loans have potential weaknesses that deserve management's attention, and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Substandard loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These loans generally have a well-defined weakness that may jeopardize liquidation of the debt and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Finally, a loan is considered to be impaired when it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management has determined that all non-accrual loans and loans modified under troubled debt restructurings meet the definition of an impaired loan.
The Company's procedures dictate that an updated valuation must be obtained with respect to underlying collateral at the time a loan is deemed impaired. Updated valuations may also be obtained upon transfer from loans receivable to real estate owned based upon the age of the prior appraisal, changes in market conditions or known changes to the physical condition of the property.
Estimated fair values are reduced to account for sales commissions, broker fees, unpaid property taxes and additional selling expenses to arrive at an estimated net realizable value. The adjustment factor is based upon the Company's actual experience with respect to sales of real estate owned over the prior two years. In situations in which we are placing reliance on an appraisal that is more than one year old, an additional adjustment factor is applied to account for downward market pressure since the date of appraisal. The additional adjustment factor is based upon relevant sales data available for our general operating market as well as company-specific historical net realizable values as compared to the most recent appraisal prior to disposition.
With respect to multi-family income-producing real estate, appraisals are reviewed and estimated collateral values are adjusted by updating significant appraisal assumptions to reflect current real estate market conditions. Significant assumptions reviewed and updated include the capitalization rate, rental income and operating expenses. These adjusted assumptions are based upon recent appraisals received on similar properties as well as on actual experience related to real estate owned and currently under Company management.
The following tables present data on impaired loans at June 30, 2016 and December 31, 2015.
As of or for the Six Months Ended June 30, 2016
|
||||||||||||||||||||||||
Recorded
Investment
|
Unpaid
Principal
|
Reserve
|
Cumulative
Charge-Offs
|
Average
|