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EX-32.1 - Waterstone Financial, Inc.exhibit321.htm
EX-32.2 - Waterstone Financial, Inc.exhibit322.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 September 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 29,385,903 at October 28, 2016.


WATERSTONE FINANCIAL, INC.

10-Q INDEX

 
Page No.
   
 3
   
 3
 3
 4
 6
 7
 8 - 29
   
 30 - 46
 47
 48
   
 48
   
 48
 48
48
49
49
49
 49
 49
   

 
 
 
 
 
 
 
 
 
- 2 -

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


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

   
(Unaudited)
       
   
September 30, 2016
   
December 31, 2015
 
Assets
 
(Dollars In Thousands, except share and per share data)
 
Cash
 
$
22,388
   
$
57,419
 
Federal funds sold
   
21,914
     
20,297
 
Interest-earning deposits in other financial institutions and other short term investments
   
10,018
     
22,755
 
Cash and cash equivalents
   
54,320
     
100,471
 
Securities available for sale (at fair value)
   
245,396
     
269,658
 
Loans held for sale (at fair value)
   
227,765
     
166,516
 
Loans receivable
   
1,151,696
     
1,114,934
 
Less: Allowance for loan losses
   
15,633
     
16,185
 
Loans receivable, net
   
1,136,063
     
1,098,749
 
                 
Office properties and equipment, net
   
24,044
     
25,328
 
Federal Home Loan Bank stock (at cost)
   
12,600
     
19,500
 
Cash surrender value of life insurance
   
61,188
     
49,562
 
Real estate owned, net
   
7,454
     
9,190
 
Prepaid expenses and other assets
   
26,205
     
23,755
 
Total assets
 
$
1,795,035
   
$
1,762,729
 
                 
Liabilities and Shareholders' Equity
               
Liabilities:
               
Demand deposits
 
$
110,872
   
$
102,673
 
Money market and savings deposits
   
157,472
     
140,631
 
Time deposits
   
687,304
     
650,057
 
Total deposits
   
955,648
     
893,361
 
                 
Borrowings
   
377,983
     
441,203
 
Advance payments by borrowers for taxes
   
25,268
     
3,661
 
Other liabilities
   
26,579
     
32,574
 
Total liabilities
   
1,385,478
     
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 - 29,385,903 in 2016 and 29,407,455 in 2015
               
Outstanding - 29,385,903 in 2016 and 29,407,455 in 2015
   
294
     
294
 
Additional paid-in capital
   
322,164
     
317,022
 
Retained earnings
   
181,460
     
168,089
 
Unearned ESOP shares
   
(20,475
)
   
(21,365
)
Accumulated other comprehensive income, net of taxes
   
2,661
     
582
 
Cost of shares repurchased (5,908,150 shares at September 30, 2016 and 5,624,415 shares at December 31, 2015)
   
(76,547
)
   
(72,692
)
Total shareholders' equity
   
409,557
     
391,930
 
Total liabilities and shareholders' equity
 
$
1,795,035
   
$
1,762,729
 

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,
 
   
2016
   
2015
   
2016
   
2015
 
   
(In Thousands, except per share amounts)
 
                         
Interest income:
                       
Loans
 
$
14,754
   
$
14,117
   
$
42,611
   
$
41,495
 
Mortgage-related securities
   
743
     
792
     
2,371
     
2,451
 
Debt securities, federal funds sold and short-term investments
   
833
     
886
     
2,692
     
2,609
 
Total interest income
   
16,330
     
15,795
     
47,674
     
46,555
 
Interest expense:
                               
Deposits
   
1,923
     
1,540
     
5,477
     
4,251
 
Borrowings
   
3,082
     
4,345
     
10,724
     
12,898
 
Total interest expense
   
5,005
     
5,885
     
16,201
     
17,149
 
Net interest income
   
11,325
     
9,910
     
31,473
     
29,406
 
Provision for loan losses
   
135
     
580
     
340
     
1,720
 
Net interest income after provision for loan losses
   
11,190
     
9,330
     
31,133
     
27,686
 
Noninterest income:
                               
Service charges on loans and deposits
   
789
     
364
     
1,742
     
1,213
 
Increase in cash surrender value of life insurance
   
734
     
636
     
1,446
     
1,195
 
Mortgage banking income
   
35,552
     
26,708
     
91,146
     
77,324
 
Gain on sale of available for sale securities
   
-
     
-
     
-
     
44
 
Other
   
337
     
843
     
874
     
1,848
 
Total noninterest income
   
37,412
     
28,551
     
95,208
     
81,624
 
Noninterest expenses:
                               
Compensation, payroll taxes, and other employee benefits
   
27,573
     
21,234
     
70,968
     
62,584
 
Occupancy, office furniture, and equipment
   
2,319
     
2,292
     
7,074
     
7,004
 
Advertising
   
661
     
755
     
1,974
     
2,120
 
Data processing
   
616
     
592
     
1,897
     
1,797
 
Communications
   
374
     
332
     
1,088
     
1,053
 
Professional fees
   
474
     
642
     
1,486
     
1,771
 
Real estate owned
   
37
     
646
     
344
     
1,875
 
FDIC insurance premiums
   
140
     
243
     
500
     
851
 
Other
   
3,347
     
3,050
     
9,663
     
9,106
 
Total noninterest expenses
   
35,541
     
29,786
     
94,994
     
88,161
 
Income before income taxes
   
13,061
     
8,095
     
31,347
     
21,149
 
Income tax expense
   
5,556
     
2,896
     
12,214
     
7,651
 
Net income
 
$
7,505
   
$
5,199
   
$
19,133
   
$
13,498
 
Income per share:
                               
Basic
 
$
0.28
   
$
0.19
   
$
0.71
   
$
0.45
 
Diluted
 
$
0.27
   
$
0.19
   
$
0.70
   
$
0.45
 
Weighted average shares outstanding:
                               
Basic
   
27,043
     
27,490
     
26,976
     
29,882
 
Diluted
   
27,429
     
27,795
     
27,283
     
30,145
 

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,
 
   
2016
   
2015
   
2016
   
2015
 
   
(In Thousands)
 
Net income
 
$
7,505
   
$
5,199
   
$
19,133
   
$
13,498
 
                                 
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 $385, ($718), ($1,341), ($4), respectively
   
(596
)
   
1,114
     
2,079
     
8
 
                                 
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 (loss) income
   
(596
)
   
1,114
     
2,079
     
(19
)
Comprehensive income
 
$
6,909
   
$
6,313
   
$
21,212
   
$
13,479
 

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
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
   
-
     
-
     
-
     
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 compensation activity, net of tax
   
599
     
6
     
96
     
-
     
-
     
-
     
-
     
102
 
Stock compensation expense
   
-
     
-
     
2,334
     
-
     
-
     
-
     
-
     
2,334
 
Repurchase 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
 
                                                                 
                                                                 
Balances at December 31, 2015
   
29,407
   
$
$294
   
$
317,022
   
$
168,089
   
$
(21,365
)
 
$
582
   
$
(72,692
)
 
$
391,930
 
                                                                 
Comprehensive income:
                                                               
Net income
   
-
     
-
     
-
     
19,133
     
-
     
-
     
-
     
19,133
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
2,079
     
-
     
2,079
 
Total comprehensive income
                                                           
21,212
 
                                                                 
ESOP shares committed to be released to Plan participants
   
-
     
-
     
278
     
-
     
890
     
-
     
-
     
1,168
 
Cash dividend, $0.21 per share
   
-
     
-
     
-
     
(5,762
)
   
-
     
-
     
-
     
(5,762
)
Stock based compensation activity
   
263
     
3
     
3,434
     
-
     
-
     
-
     
-
     
3,437
 
Stock compensation expense
   
-
     
-
     
1,430
     
-
     
-
     
-
     
-
     
1,430
 
Repurchase of common stock returned to authorized but unissued
   
(284
)
   
(3
)
   
-
     
-
     
-
     
-
     
(3,855
)
   
(3,858
)
Balances at September 30, 2016
   
29,386
   
$
$294
   
$
322,164
   
$
181,460
   
$
(20,475
)
 
$
2,661
   
$
(76,547
)
 
$
409,557
 

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,
 
   
2016
   
2015
 
   
(In Thousands)
 
             
Operating activities:
           
Net income
 
$
19,133
   
$
13,498
 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Provision for loan losses
   
340
     
1,720
 
Provision for depreciation
   
2,061
     
2,337
 
Stock based compensation
   
1,430
     
2,334
 
Net amortization of premium/discount on debt and mortgage related securities
   
749
     
1,011
 
Amortization of unearned ESOP shares
   
1,168
     
1,027
 
Amortization and impairment of mortgage servicing rights
   
513
     
422
 
Gain on sale of loans held for sale
   
(93,481
)
   
(75,935
)
Loans originated for sale
   
(1,756,454
)
   
(1,545,098
)
Proceeds on sales of loans originated for sale
   
1,788,685
     
1,604,297
 
Increase in accrued interest receivable
   
(204
)
   
(218
)
Increase in cash surrender value of life insurance
   
(1,446
)
   
(1,195
)
Decrease in accrued interest on deposits and borrowings
   
(615
)
   
(34
)
Increase in other liabilities
   
5,893
     
2,846
 
(Increase) decrease in accrued tax receivable
   
(172
)
   
2,591
 
Gain on sale of available for sale securities
   
-
     
(44
)
Net (gain) loss related to real estate owned
   
(123
)
   
427
 
Gain on sale of mortgage servicing rights
   
-
     
(807
)
Other
   
(3,784
)
   
(1,426
)
Net cash (used in) provided by operating activities
   
(36,307
)
   
7,753
 
                 
Investing activities:
               
Net increase in loans receivable
   
(41,096
)
   
(20,868
)
Purchases of:
               
Debt securities
   
(4,140
)
   
(10,000
)
Mortgage related securities
   
(5,236
)
   
(15,933
)
Premises and equipment, net
   
(925
)
   
(2,042
)
Bank owned life insurance
   
(10,180
)
   
(180
)
FHLB stock
   
(4,500
)
   
(2,000
)
Proceeds from:
               
Principal repayments on mortgage-related securities
   
29,689
     
31,647
 
Maturities of debt securities
   
6,620
     
8,160
 
Sales of debt securities
   
-
     
1,034
 
Sales of FHLB stock
   
11,400
     
-
 
Sales of real estate owned
   
5,304
     
18,332
 
Net cash (used in) provided by investing activities
   
(13,064
)
   
8,150
 
                 
Financing activities:
               
Net increase in deposits
   
62,288
     
9,195
 
Net change in short term borrowings
   
56,780
     
-
 
Repayment of long term debt
   
(220,000
)
   
-
 
Proceeds from long term debt
   
100,000
     
-
 
Net change in advance payments by borrowers for taxes
   
9,405
     
9,070
 
Cash dividends on common stock
   
(4,832
)
   
(4,509
)
Purchase of common stock returned to authorized but unissued
   
(3,858
)
   
(72,181
)
Proceeds from stock option exercises
   
3,437
     
102
 
Net cash provided by (used in) financing activities
   
3,220
     
(58,323
)
Decrease in cash and cash equivalents
   
(46,151
)
   
(42,420
)
Cash and cash equivalents at beginning of period
   
100,471
     
172,820
 
Cash and cash equivalents at end of period
 
$
54,320
   
$
130,400
 
                 
Supplemental information:
               
Cash paid or credited during the period for:
               
Income tax payments
 
$
11,009
   
$
10,234
 
Interest payments
   
16,816
     
17,183
 
Noncash activities:
               
Loans receivable transferred to real estate owned
   
3,442
     
11,719
 
Dividends declared but not paid in other liabilities
   
2,322
     
1,516
 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

- 7 -

Note 1 — Basis of Presentation

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 segment, 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 nine months ended September 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:

   
September 30, 2016
 
   
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
78,582
   
$
2,201
   
$
(1
)
 
$
80,782
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
62,993
     
770
     
-
     
63,763
 
Mortgage-related securities
   
141,575
     
2,971
     
(1
)
   
144,545
 
                                 
Government sponsored enterprise bonds
   
3,750
     
15
     
-
     
3,765
 
Municipal securities
   
75,750
     
2,721
     
(6
)
   
78,465
 
Other debt securities
   
17,399
     
216
     
(723
)
   
16,892
 
Debt securities
   
96,899
     
2,952
     
(729
)
   
99,122
 
Certificates of deposit
   
1,715
     
14
     
-
     
1,729
 
   
$
240,189
   
$
5,937
   
$
(730
)
 
$
245,396
 


   
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 September 30, 2016, $91.7 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company.  As of September 30, 2016, $2.0 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.

The amortized cost and fair values of investment securities by contractual maturity at September 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
 
$
13,145
   
$
13,207
 
Due after one year through five years
   
21,265
     
21,521
 
Due after five years through ten years
   
41,448
     
43,262
 
Due after ten years
   
22,756
     
22,861
 
Mortgage-related securities
   
141,575
     
144,545
 
   
$
240,189
   
$
245,396
 

- 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:

   
September 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
 
$
-
   
$
-
   
$
1,342
   
$
(1
)
 
$
1,342
   
$
(1
)
Collateralized mortgage obligations:
                                               
  Government sponsored enterprise issued
   
-
     
-
     
-
     
-
     
-
     
-
 
Municipal securities
   
6,456
     
(5
)
   
2,999
     
(1
)
   
9,455
     
(6
)
Other debt securities
   
-
     
-
     
9,277
     
(723
)
   
9,277
     
(723
)
Certificates of deposit
   
-
     
-
     
-
     
-
     
-
     
-
 
   
$
6,456
   
$
(5
)
 
$
13,618
   
$
(725
)
 
$
20,074
   
$
(730
)


   
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
)

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 September 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 September 30, 2016, these securities had a combined amortized cost of $198,000 and total life-to-date impairment of $117,000.

As of September 30, 2016, the Company had one mortgage-backed security, one municipal security, 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 September 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 nine months ended September 30, 2016.  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.

- 10 -

Note 3 - Loans Receivable

Loans receivable at September 30, 2016 and December 31, 2015 are summarized as follows:

   
September 30, 2016
   
December 31, 2015
 
   
(In Thousands)
 
Mortgage loans:
           
Residential real estate:
           
One- to four-family
 
$
389,267
   
$
381,992
 
Multi-family
   
551,487
     
547,250
 
Home equity
   
22,394
     
24,326
 
Construction and land
   
21,571
     
19,148
 
Commercial real estate
   
137,298
     
118,820
 
Consumer
   
339
     
361
 
Commercial loans
   
29,340
     
23,037
 
   
$
1,151,696
   
$
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 $896.4 million and $872.8 million at September 30, 2016 and December 31, 2015, respectively, are pledged as collateral against $280.0 million in outstanding Federal Home Loan Bank of Chicago (FHLBC) advances under a blanket security agreement.

As of September 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 September 30, 2016 and December 31, 2015 follows:

 
As of September 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
 
$
1,546
   
$
1,303
   
$
4,999
   
$
7,848
   
$
381,419
   
$
389,267
 
Multi-family
   
130
     
-
     
404
     
534
     
550,953
     
551,487
 
Home equity
   
37
     
35
     
58
     
130
     
22,264
     
22,394
 
Construction and land
   
-
     
-
     
-
     
-
     
21,571
     
21,571
 
Commercial real estate
   
10
     
-
     
207
     
217
     
137,081
     
137,298
 
Consumer
   
-
     
-
     
-
     
-
     
339
     
339
 
Commercial loans
   
-
     
1
     
26
     
27
     
29,313
     
29,340
 
Total
 
$
1,723
   
$
1,339
   
$
5,694
   
$
8,756
   
$
1,142,940
   
$
1,151,696
 

 
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 $187,000 and $315,000 at September 30, 2016 and December 31, 2015, respectively, which are on non-accrual status.
(2)
Includes $48,000 and $467,000 at September 30, 2016 and December 31, 2015, respectively, which are on non-accrual status.
(3)
Includes $4.7 million and $7.9 million at September 30, 2016 and December 31, 2015, respectively, which are on non-accrual status.

- 11 -

A summary of the activity for the nine months ended September 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)
 
Nine months ended September 30, 2016
                                           
Balance at beginning of period
 
$
7,763
   
$
5,000
   
$
433
   
$
904
   
$
1,680
   
$
9
   
$
396
   
$
16,185
 
Provision (credit) for loan losses
   
141
     
23
     
(25
)
   
(123
)
   
33
     
3
     
288
     
340
 
Charge-offs
   
(801
)
   
(488
)
   
(62
)
   
(3
)
   
-
     
-
     
-
     
(1,354
)
Recoveries
   
246
     
134
     
24
     
58
     
-
     
-
     
-
     
462
 
Balance at end of period
 
$
7,349
   
$
4,669
   
$
370
   
$
836
   
$
1,713
   
$
12
   
$
684
   
$
15,633
 

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
 

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of September 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
 
$
532
   
$
-
   
$
73
   
$
-
   
$
77
   
$
-
   
$
1
   
$
683
 
Allowance related to loans collectively evaluated for impairment
   
6,817
     
4,669
     
297
     
836
     
1,636
     
12
     
683
     
14,950
 
Balance at end of period
 
$
7,349
   
$
4,669
   
$
370
   
$
836
   
$
1,713
   
$
12
   
$
684
   
$
15,633
 
                                                                 
Loans individually evaluated for impairment
 
$
12,021
   
$
3,967
   
$
373
   
$
437
   
$
726
   
$
-
   
$
44
   
$
17,568
 
Loans collectively evaluated for impairment
   
377,246
     
547,520
     
22,021
     
21,134
     
136,572
     
339
     
29,296
     
1,134,128
 
Total gross loans
 
$
389,267
   
$
551,487
   
$
22,394
   
$
21,571
   
$
137,298
   
$
339
   
$
29,340
   
$
1,151,696
 

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 September 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 September 30, 2016
                                               
Substandard
 
$
14,415
   
$
1,445
   
$
406
   
$
   
$
725
   
$
-
   
$
44
   
$
17,035
 
Watch
   
9,923
     
2,920
     
194
     
873
     
1,053
     
-
     
2,896
     
17,859
 
Pass
   
364,929
     
547,122
     
21,794
     
20,698
     
135,520
     
339
     
26,400
     
1,116,802
 
   
$
389,267
   
$
551,487
   
$
22,394
   
$
21,571
   
$
137,298
   
$
339
   
$
29,340
   
$
1,151,696
 
                                                                 
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
 

- 12 -

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 September 30, 2016 and December 31, 2015.

   
As of or for the Nine Months Ended September 30, 2016
 
   
Recorded
Investment
   
Unpaid
Principal
   
Reserve
   
Cumulative
Charge-Offs
   
Average
Recorded
Investment
   
Interest
Paid
 
   
(In Thousands)
 
Total Impaired with Reserve