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, 2017
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", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer T
|
Non-accelerated filer ☐
|
Smaller reporting company ☐
|
Emerging growth company ☐
|
(Do not check if smaller reporting company)
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 29,555,466 at July 28, 2017.
WATERSTONE FINANCIAL, INC.
10-Q INDEX
Page No.
|
||||
3 | ||||
3 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 - 34 | ||||
35 - 53 | ||||
54 | ||||
55 | ||||
55 | ||||
55 | ||||
55
55
56
56
56
|
||||
56 | ||||
56 | ||||
- 2 -
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
|
||||||||
June 30, 2017
|
December 31, 2016
|
|||||||
Assets
|
(Dollars In Thousands, except share and per share data)
|
|||||||
Cash
|
$
|
84,013
|
$
|
7,878
|
||||
Federal funds sold
|
29,382
|
26,828
|
||||||
Interest-earning deposits in other financial institutions and other short term investments
|
16,165
|
12,511
|
||||||
Cash and cash equivalents
|
129,560
|
47,217
|
||||||
Securities available for sale (at fair value)
|
209,079
|
226,795
|
||||||
Loans held for sale (at fair value)
|
196,644
|
225,248
|
||||||
Loans receivable
|
1,225,762
|
1,177,884
|
||||||
Less: Allowance for loan losses
|
14,612
|
16,029
|
||||||
Loans receivable, net
|
1,211,150
|
1,161,855
|
||||||
Office properties and equipment, net
|
23,170
|
23,655
|
||||||
Federal Home Loan Bank stock (at cost)
|
18,675
|
13,275
|
||||||
Cash surrender value of life insurance
|
64,978
|
61,509
|
||||||
Real estate owned, net
|
4,784
|
6,118
|
||||||
Prepaid expenses and other assets
|
28,270
|
24,947
|
||||||
Total assets
|
$
|
1,886,310
|
$
|
1,790,619
|
||||
Liabilities and Shareholders' Equity
|
||||||||
Liabilities:
|
||||||||
Demand deposits
|
$
|
119,585
|
$
|
120,371
|
||||
Money market and savings deposits
|
153,743
|
162,456
|
||||||
Time deposits
|
664,065
|
666,584
|
||||||
Total deposits
|
937,393
|
949,411
|
||||||
Borrowings
|
498,103
|
387,155
|
||||||
Advance payments by borrowers for taxes
|
18,842
|
4,716
|
||||||
Other liabilities
|
23,965
|
38,647
|
||||||
Total liabilities
|
1,478,303
|
1,379,929
|
||||||
Shareholders' equity:
|
||||||||
Preferred stock (par value $.01 per share)
|
||||||||
Authorized - 50,000,000 shares in 2017 and in 2016, no shares issued
|
-
|
-
|
||||||
Common stock (par value $.01 per share)
|
||||||||
Authorized - 100,000,000 shares in 2017 and in 2016
|
||||||||
Issued - 29,554,466 in 2017 and 29,430,123 in 2016
|
||||||||
Outstanding - 29,554,466 in 2017 and 29,430,123 in 2016
|
296
|
294
|
||||||
Additional paid-in capital
|
325,003
|
322,934
|
||||||
Retained earnings
|
179,512
|
184,565
|
||||||
Unearned ESOP shares
|
(19,584
|
)
|
(20,178
|
)
|
||||
Accumulated other comprehensive income (loss), net of taxes
|
237
|
(378
|
)
|
|||||
Cost of shares repurchased (5,957,833 shares at June 30, 2017 and 5,908,150 shares at December 31, 2016)
|
(77,457
|
)
|
(76,547
|
)
|
||||
Total shareholders' equity
|
408,007
|
410,690
|
||||||
Total liabilities and shareholders' equity
|
$
|
1,886,310
|
$
|
1,790,619
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 3 -
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
(In Thousands, except per share amounts)
|
||||||||||||||||
Interest income:
|
||||||||||||||||
Loans
|
$
|
14,985
|
$
|
14,073
|
$
|
29,223
|
$
|
27,857
|
||||||||
Mortgage-related securities
|
678
|
790
|
1,374
|
1,628
|
||||||||||||
Debt securities, federal funds sold and short-term investments
|
877
|
885
|
1,729
|
1,859
|
||||||||||||
Total interest income
|
16,540
|
15,748
|
32,326
|
31,344
|
||||||||||||
Interest expense:
|
||||||||||||||||
Deposits
|
1,838
|
1,835
|
3,633
|
3,554
|
||||||||||||
Borrowings
|
2,221
|
3,748
|
4,317
|
7,642
|
||||||||||||
Total interest expense
|
4,059
|
5,583
|
7,950
|
11,196
|
||||||||||||
Net interest income
|
12,481
|
10,165
|
24,376
|
20,148
|
||||||||||||
Provision for loan losses
|
25
|
-
|
(1,186
|
)
|
205
|
|||||||||||
Net interest income after provision for loan losses
|
12,456
|
10,165
|
25,562
|
19,943
|
||||||||||||
Noninterest income:
|
||||||||||||||||
Service charges on loans and deposits
|
481
|
616
|
848
|
953
|
||||||||||||
Increase in cash surrender value of life insurance
|
470
|
471
|
788
|
712
|
||||||||||||
Loss on sale of securities
|
(107
|
)
|
-
|
(107
|
)
|
-
|
||||||||||
Mortgage banking income
|
36,224
|
34,980
|
60,911
|
55,594
|
||||||||||||
Other
|
173
|
284
|
738
|
537
|
||||||||||||
Total noninterest income
|
37,241
|
36,351
|
63,178
|
57,796
|
||||||||||||
Noninterest expenses:
|
||||||||||||||||
Compensation, payroll taxes, and other employee benefits
|
27,584
|
25,709
|
47,579
|
43,395
|
||||||||||||
Occupancy, office furniture, and equipment
|
2,527
|
2,419
|
5,054
|
4,755
|
||||||||||||
Advertising
|
869
|
655
|
1,593
|
1,313
|
||||||||||||
Data processing
|
633
|
638
|
1,231
|
1,281
|
||||||||||||
Communications
|
397
|
372
|
776
|
714
|
||||||||||||
Professional fees
|
717
|
489
|
1,324
|
1,012
|
||||||||||||
Real estate owned
|
(133
|
)
|
163
|
278
|
307
|
|||||||||||
FDIC insurance premiums
|
117
|
155
|
237
|
360
|
||||||||||||
Other
|
3,476
|
3,631
|
7,173
|
6,316
|
||||||||||||
Total noninterest expenses
|
36,187
|
34,231
|
65,245
|
59,453
|
||||||||||||
Income before income taxes
|
13,510
|
12,285
|
23,495
|
18,286
|
||||||||||||
Income tax expense
|
4,622
|
4,518
|
8,035
|
6,658
|
||||||||||||
Net income
|
$
|
8,888
|
$
|
7,767
|
$
|
15,460
|
$
|
11,628
|
||||||||
Income per share:
|
||||||||||||||||
Basic
|
$
|
0.32
|
$
|
0.29
|
$
|
0.56
|
$
|
0.43
|
||||||||
Diluted
|
$
|
0.32
|
$
|
0.29
|
$
|
0.55
|
$
|
0.43
|
||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
27,487
|
26,919
|
27,406
|
26,942
|
||||||||||||
Diluted
|
27,955
|
27,204
|
27,913
|
27,243
|
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,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
Net income
|
$
|
8,888
|
$
|
7,767
|
$
|
15,460
|
$
|
11,628
|
||||||||
Other comprehensive income, net of tax:
|
||||||||||||||||
Net unrealized holding gain on available for sale securities:
|
||||||||||||||||
Net unrealized holding gain arising during the period, net of tax expense of ($204), ($528), ($356), ($1,728), respectively
|
316
|
815
|
550
|
2,675
|
||||||||||||
Reclassification adjustment for net loss included in net income during the period, net of tax benefit of ($42), $0, ($42), $0, respectively
|
65
|
-
|
65
|
-
|
||||||||||||
Total other comprehensive income
|
381
|
815
|
615
|
2,675
|
||||||||||||
Comprehensive income
|
$
|
9,269
|
$
|
8,582
|
$
|
16,075
|
$
|
14,303
|
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 (Loss)
|
Cost of
Shares
Repurchased
|
Total
Shareholders'
Equity
|
||||||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
(Dollars In Thousands, except per share amounts)
|
||||||||||||||||||||||||||||||||
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 compensation activity, net of tax
|
40
|
-
|
78
|
-
|
-
|
-
|
-
|
78
|
||||||||||||||||||||||||
Stock compensation expense
|
-
|
-
|
942
|
-
|
-
|
-
|
-
|
942
|
||||||||||||||||||||||||
Repurchase 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
|
|||||||||||||||
Balances at December 31, 2016
|
29,430
|
$
|
$294
|
$
|
322,934
|
$
|
184,565
|
$
|
(20,178
|
)
|
$
|
(378
|
)
|
$
|
(76,547
|
)
|
$
|
410,690
|
||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
-
|
-
|
-
|
15,460
|
-
|
-
|
-
|
15,460
|
||||||||||||||||||||||||
Other comprehensive income
|
-
|
-
|
-
|
-
|
-
|
615
|
-
|
615
|
||||||||||||||||||||||||
Total comprehensive income
|
16,075
|
|||||||||||||||||||||||||||||||
ESOP shares committed to be released to Plan participants
|
-
|
-
|
315
|
-
|
594
|
-
|
-
|
909
|
||||||||||||||||||||||||
Cash dividend, $0.74 per share
|
-
|
-
|
-
|
(20,513
|
)
|
-
|
-
|
-
|
(20,513
|
)
|
||||||||||||||||||||||
Stock based compensation activity
|
174
|
2
|
806
|
-
|
-
|
-
|
-
|
808
|
||||||||||||||||||||||||
Stock compensation expense
|
-
|
-
|
948
|
-
|
-
|
-
|
-
|
948
|
||||||||||||||||||||||||
Repurchase of common stock returned to authorized but unissued
|
(50
|
)
|
-
|
-
|
-
|
-
|
-
|
(910
|
)
|
(910
|
)
|
|||||||||||||||||||||
Balances at June 30, 2017
|
29,554
|
$
|
$296
|
$
|
325,003
|
$
|
179,512
|
$
|
(19,584
|
)
|
$
|
237
|
$
|
(77,457
|
)
|
$
|
408,007
|
See Accompanying Notes to Unaudited Consolidated Financial Statements.
- 6 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
|
||||||||
2017
|
2016
|
|||||||
(In Thousands)
|
||||||||
Operating activities:
|
||||||||
Net income
|
$
|
15,460
|
$
|
11,628
|
||||
Adjustments to reconcile net income to net cash provided by (used in)operating activities:
|
||||||||
Provision for loan losses
|
(1,186
|
)
|
205
|
|||||
Provision for depreciation
|
1,043
|
1,447
|
||||||
Stock based compensation
|
948
|
942
|
||||||
Net amortization of premium/discount on debt and mortgage related securities
|
365
|
510
|
||||||
Amortization of unearned ESOP shares
|
909
|
739
|
||||||
Amortization and impairment of mortgage servicing rights
|
49
|
389
|
||||||
Gain on sale of loans held for sale
|
(60,277
|
)
|
(54,929
|
)
|
||||
Loans originated for sale
|
(1,219,226
|
)
|
(1,046,354
|
)
|
||||
Proceeds on sales of loans originated for sale
|
1,308,107
|
1,058,992
|
||||||
Increase in accrued interest receivable
|
(153
|
)
|
(21
|
)
|
||||
Increase in cash surrender value of life insurance
|
(788
|
)
|
(712
|
)
|
||||
Increase (decrease) in accrued interest on deposits and borrowings
|
70
|
(211
|
)
|
|||||
(Decrease) increase in other liabilities
|
(560
|
)
|
4,149
|
|||||
Increase in accrued tax receivable
|
(1,132
|
)
|
(367
|
)
|
||||
Loss on sale of securities
|
107
|
-
|
||||||
Net loss related to real estate owned
|
102
|
3
|
||||||
Gain on sale of mortgage servicing rights
|
(308
|
)
|
-
|
|||||
Other
|
(1,899
|
)
|
(9,447
|
)
|
||||
Net cash provided by (used in) operating activities
|
41,524
|
(33,037
|
)
|
|||||
Investing activities:
|
||||||||
Net increase in loans receivable
|
(49,033
|
)
|
(18,910
|
)
|
||||
Net change in FHLB stock
|
(5,400
|
)
|
4,650
|
|||||
Purchases of:
|
||||||||
Mortgage related securities
|
(4,976
|
)
|
(5,236
|
)
|
||||
Premises and equipment, net
|
(695
|
)
|
(689
|
)
|
||||
Bank owned life insurance
|
(2,680
|
)
|
(10,180
|
)
|
||||
Proceeds from:
|
||||||||
Principal repayments on mortgage-related securities
|
16,940
|
19,115
|
||||||
Maturities of debt securities
|
5,845
|
5,945
|
||||||
Sale of debt securities
|
448
|
-
|
||||||
Sales of real estate owned
|
2,119
|
3,712
|
||||||
Net cash used in investing activities
|
(37,432
|
)
|
(1,593
|
)
|
||||
Financing activities:
|
||||||||
Net (decrease) increase in deposits
|
(12,018
|
)
|
49,348
|
|||||
Net change in short term borrowings
|
34,948
|
(6,458
|
)
|
|||||
Repayment of long term debt
|
(24,000
|
)
|
(70,000
|
)
|
||||
Proceeds from long term debt
|
100,000
|
50,000
|
||||||
Net change in advance payments by borrowers for taxes
|
(241
|
)
|
175
|
|||||
Cash dividends on common stock
|
(20,336
|
)
|
(2,671
|
)
|
||||
Purchase of common stock returned to authorized but unissued
|
(910
|
)
|
(3,857
|
)
|
||||
Proceeds from stock option exercises
|
808
|
78
|
||||||
Net cash provided by financing activities
|
78,251
|
16,615
|
||||||
Increase (decrease) in cash and cash equivalents
|
82,343
|
(18,015
|
)
|
|||||
Cash and cash equivalents at beginning of period
|
47,217
|
100,471
|
||||||
Cash and cash equivalents at end of period
|
$
|
129,560
|
$
|
82,456
|
||||
Supplemental information:
|
||||||||
Cash paid or credited during the period for:
|
||||||||
Income tax payments
|
$
|
9,332
|
$
|
6,545
|
||||
Interest payments
|
7,880
|
11,407
|
||||||
Noncash activities:
|
||||||||
Loans receivable transferred to real estate owned
|
923
|
3,123
|
||||||
Dividends declared but not paid in other liabilities
|
3,514
|
2,304
|
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 SSB (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, multi-family residential real estate, and commercial real estate loans for retention in its portfolio. WaterStone Bank also offers home equity loans and lines of credit, construction and land loans, 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, 2016 Annual Report on Form 10-K. Operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 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
Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers." New authoritative accounting guidance under ASC Topic 606, "Revenue from Contracts with Customers" amended prior guidance to require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and to provide clarification on identifying performance obligations and licensing implementation guidance. The new authoritative guidance was initially effective for reporting periods after January 1, 2017 but was deferred to January 1, 2018. The Company is evaluating the new guidance but does not expect it to have a material impact on the Company's statements of operations or financial condition.
ASC Topic 825 "Financial Instruments." New authoritative accounting guidance under ASC Topic 825, "Financial Instruments" amended prior guidance to require equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The new guidance simplifies the impairment assessment of equity investments without readily determinable fair values, requires public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from changes in the instrument-specific credit risk when the entity has selected the fair value option for financial instruments and requires separate presentation of financial assets and liabilities by measurement category and form of financial asset. The new authoritative guidance will be effective for reporting periods after January 1, 2018 and is not expected to have a material impact on the Company's statements of operations or financial condition.
ASC Topic 842 "Leases." New authoritative accounting guidance under ASC Topic 842, "Leases" amended prior guidance to require lessees to recognize the assets and liabilities arising from all leases on the balance sheet. The new authoritative guidance defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. In addition, the qualifications for a sale and leaseback transaction have been amended. The new authoritative guidance also requires qualitative and quantitative disclosures by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The new authoritative guidance will be effective for reporting periods after January 1, 2019. The Company is evaluating the new guidance and its impact on the Company's statements of operations and financial condition.
- 8 -
ASC Topic 718 "Compensation - Stock Compensation." New authoritative accounting guidance under ASC Topic 718, "Compensation - Stock Compensation" amended prior guidance on several aspects, including the income tax consequences, classification of awards as either equity or liability, and classification on the statement of cash flows. The new authoritative guidance allows for all excess tax benefits and tax deficiencies to be recognized as income tax benefit or expense in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. For earnings per share, anticipated excess tax benefits will not be included in assumed proceeds when applying the treasury method for computing dilutive shares. For the statement of cash flows, excess tax benefits should be classified along with other income tax cash flows as an operating activity, and cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The new authoritative guidance also allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. The Company adopted this standard on January 1, 2017 and the standard did not have a material impact on its consolidated financial statements.
ASC Topic 326 "Financial Instruments - Credit Losses." New authoritative accounting guidance under ASC Topic 326, "Financial Instruments - Credit Losses" amended the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information for credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new authoritative guidance also requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected (net of the allowance for credit losses). In addition, the credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses rather than a write-down. The new authoritative guidance will be effective for reporting periods after January 1, 2020. The Company is evaluating the new guidance and its impact on the Company's statements of operations and financial condition.
- 9 -
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, 2017
|
||||||||||||||||
Amortized cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Fair value
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
Mortgage-backed securities
|
$
|
66,297
|
$
|
612
|
$
|
(163
|
)
|
$
|
66,746
|
|||||||
Collateralized mortgage obligations:
|
||||||||||||||||
Government sponsored enterprise issued
|
56,695
|
64
|
(319
|
)
|
56,440
|
|||||||||||
Mortgage-related securities
|
122,992
|
676
|
(482
|
)
|
123,186
|
|||||||||||
Government sponsored enterprise bonds
|
2,500
|
1
|
(2
|
)
|
2,499
|
|||||||||||
Municipal securities
|
63,747
|
1,590
|
(8
|
)
|
65,329
|
|||||||||||
Other debt securities
|
17,397
|
52
|
(612
|
)
|
16,837
|
|||||||||||
Debt securities
|
83,644
|
1,643
|
(622
|
)
|
84,665
|
|||||||||||
Certificates of deposit
|
1,225
|
4
|
(1
|
)
|
1,228
|
|||||||||||
$
|
207,861
|
$
|
2,323
|
$
|
(1,105
|
)
|
$
|
209,079
|
December 31, 2016
|
||||||||||||||||
Amortized cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Fair value
|
|||||||||||||
(In Thousands)
|
||||||||||||||||
Mortgage-backed securities
|
$
|
72,858
|
$
|
798
|
$
|
(243
|
)
|
$
|
73,413
|
|||||||
Collateralized mortgage obligations:
|
||||||||||||||||
Government sponsored enterprise issued
|
62,297
|
70
|
(365
|
)
|
62,002
|
|||||||||||
Mortgage-related securities
|
135,155
|
868
|
(608
|
)
|
135,415
|
|||||||||||
Government sponsored enterprise bonds
|
2,500
|
4
|
(1
|
)
|
2,503
|
|||||||||||
Municipal securities
|
70,311
|
685
|
(300
|
)
|
70,696
|
|||||||||||
Other debt securities
|
17,399
|
154
|
(603
|
)
|
16,950
|
|||||||||||
Debt securities
|
90,210
|
843
|
(904
|
)
|
90,149
|
|||||||||||
Certificates of deposit
|
1,225
|
7
|
(1
|
)
|
1,231
|
|||||||||||
$
|
226,590
|
$
|
1,718
|
$
|
(1,513
|
)
|
$
|
226,795
|
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, 2017, $63.9 million of the Company's mortgage related securities were pledged as collateral to secure repurchase agreement obligations of the Company. As of June 30, 2017, $2.9 million of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities. At December 31, 2016, $93.2 million of the Company's government sponsored enterprise bonds and $2.4 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 June 30, 2017 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
|
$
|
9,486
|
$
|
9,484
|
||||
Due after one year through five years
|
20,358
|
20,504
|
||||||
Due after five years through ten years
|
38,150
|
39,470
|
||||||
Due after ten years
|
16,875
|
16,435
|
||||||
Mortgage-related securities
|
122,992
|
123,186
|
||||||
$
|
207,861
|
$
|
209,079
|
- 10 -
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, 2017
|
||||||||||||||||||||||||
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
|
$
|
10,436
|
$
|
(144
|
)
|
$
|
1,054
|
$
|
(19
|
)
|
$
|
11,490
|
$
|
(163
|
)
|
|||||||||
Collateralized mortgage obligations:
|
||||||||||||||||||||||||
Government sponsored enterprise issued
|
37,476
|
(319
|
)
|
-
|
-
|
37,476
|
(319
|
)
|
||||||||||||||||
Government sponsored enterprise bonds
|
1,998
|
(2
|
)
|
-
|
-
|
1,998
|
(2
|
)
|
||||||||||||||||
Municipal securities
|
9,322
|
(8
|
)
|
-
|
-
|
9,322
|
(8
|
)
|
||||||||||||||||
Other debt securities
|
-
|
-
|
9,388
|
(612
|
)
|
9,388
|
(612
|
)
|
||||||||||||||||
Certificates of deposit
|
489
|
(1
|
)
|
-
|
-
|
489
|
(1
|
)
|
||||||||||||||||
$
|
59,721
|
$
|
(474
|
)
|
$
|
10,442
|
$
|
(631
|
)
|
$
|
70,163
|
$
|
(1,105
|
)
|
December 31, 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
|
$
|
23,433
|
$
|
(222
|
)
|
$
|
1,068
|
$
|
(21
|
)
|
$
|
24,501
|
$
|
(243
|
)
|
|||||||||
Collateralized mortgage obligations:
|
||||||||||||||||||||||||
Government sponsored enterprise issued
|
39,395
|
(365
|
)
|
-
|
-
|
39,395
|
(365
|
)
|
||||||||||||||||
Government sponsored enterprise bonds
|
2,000
|
(1
|
)
|
-
|
-
|
2,000
|
(1
|
)
|
||||||||||||||||
Municipal securities
|
32,141
|
(300
|
)
|
-
|
-
|
32,141
|
(300
|
)
|
||||||||||||||||
Other debt securities
|
-
|
-
|
9,397
|
(603
|
)
|
9,397
|
(603
|
)
|
||||||||||||||||
Certificates of deposit
|
489
|
(1
|
)
|
-
|
-
|
489
|
(1
|
)
|
||||||||||||||||
$
|
97,458
|
$
|
(889
|
)
|
$
|
10,465
|
$
|
(624
|
)
|
$
|
107,923
|
$
|
(1,513
|
)
|
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.
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, 2015
|
$
|
117
|
||
Credit-related impairments related to securities for which an other- than-temporary impairment was not previously recognized
|
-
|
|||
Decrease in credit-related impairments related to securities for which an other-than-temporary impairment was previously recognized
|
(23
|
)
|
||
Credit-related impairments on securities as of December 31, 2016
|
94
|
|||
Credit-related impairments related to securities for which an other- than-temporary impairment was not previously recognized
|
-
|
|||
Increase in credit-related impairments related to securities for which an other-than-temporary impairment was previously recognized
|
-
|
|||
Credit-related impairments on securities as of June 30, 2017
|
$
|
94
|
As of June 30, 2017, the Company held one municipal security that had previously been deemed to be other-than-temporarily impaired. The security was 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 security to operate as a going concern. During the year ended December 31, 2012, the Company's analysis of this security resulted in $77,000 in credit losses charged to earnings with respect to this municipal security. An additional $17,000 credit loss was charged to earnings during the year ended December 31, 2014 with respect to this security as a sale occurred at a discounted price. As of June 30, 2017, this security had a combined amortized cost of $116,000 and total life-to-date impairment of $94,000.
As of June 30, 2017, the Company had one mortgage-backed 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 June 30, 2017. 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.
- 11 -
Deterioration of general economic market conditions could result in the recognition of future other than temporary impairment losses within the investment portfolio and such amounts could be material to our consolidated financial statements.
During the six months ended June 30, 2017, proceeds from the sale of securities totaled $448,000 and resulted in losses totaling $107,000. The $107,000 included in loss on sale of available for sale securities in the consolidated statements of income during the six months ended June 30, 2017 was reclassified from accumulated other comprehensive income. There were no sales of securities during the six months ended June 30, 2016.
Note 3 - Loans Receivable
Loans receivable at June 30, 2017 and December 31, 2016 are summarized as follows:
June 30, 2017
|
December 31, 2016
|
|||||||
(In Thousands)
|
||||||||
Mortgage loans:
|
||||||||
Residential real estate:
|
||||||||
One- to four-family
|
$
|
412,139
|
$
|
392,817
|
||||
Multi-family
|
574,468
|
558,592
|
||||||
Home equity
|
21,046
|
21,778
|
||||||
Construction and land
|
14,906
|
18,179
|
||||||
Commercial real estate
|
176,934
|
159,401
|
||||||
Consumer
|
291
|
319
|
||||||
Commercial loans
|
25,978
|
26,798
|
||||||
$
|
1,225,762
|
$
|
1,177,884
|
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 $933.3 million and $911.9 million at June 30, 2017 and December 31, 2016, respectively, are pledged as collateral against $415.0 million in outstanding Federal Home Loan Bank of Chicago (FHLBC) advances under a blanket security agreement.
Certain of the Company's executive officers, directors, employees, and their related interests have loans with the Bank. As of June 30, 2017 and December 31, 2016, loans aggregating approximately $4.6 million and $5.1 million, respectively, were outstanding to such parties. None of these loans were considered impaired as of June 30, 2017 or December 31, 2016.
As of June 30, 2017 and December 31, 2016, there were no loans 90 or more days past due and still accruing interest.
- 12 -
An analysis of past due loans receivable as of June 30, 2017 and December 31, 2016 follows:
As of June 30, 2017
|
||||||||||||||||||||||||
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
|
$
|
1,924
|
$
|
1,057
|
$
|
4,317
|
$
|
7,298
|
$
|
404,841
|
$
|
412,139
|
||||||||||||
Multi-family
|
129
|
-
|
763
|
892
|
573,576
|
574,468
|
||||||||||||||||||
Home equity
|
155
|
-
|
56
|
211
|
20,835
|
21,046
|
||||||||||||||||||
Construction and land
|
-
|
-
|
37
|
37
|
14,869
|
14,906
|
||||||||||||||||||
Commercial real estate
|
164
|
212
|
186
|
562
|
176,372
|
176,934
|
||||||||||||||||||
Consumer
|
-
|
-
|
-
|
-
|
291
|
291
|
||||||||||||||||||
Commercial loans
|
-
|
-
|
26
|
26
|
25,952
|
25,978
|
||||||||||||||||||
Total
|
$
|
2,372
|
$
|
1,269
|
$
|
5,385
|
$
|
9,026
|
$
|
1,216,736
|
$
|
1,225,762
|
As of December 31, 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
|
$
|
2,403
|
$
|
7
|
$
|
4,623
|
$
|
7,033
|
$
|
385,784
|
$
|
392,817
|
||||||||||||
Multi-family
|
376
|
-
|
401
|
777
|
557,815
|
558,592
|
||||||||||||||||||
Home equity
|
82
|
-
|
35
|
117
|
21,661
|
21,778
|
||||||||||||||||||
Construction and land
|
-
|
-
|
-
|
-
|
18,179
|
18,179
|
||||||||||||||||||
Commercial real estate
|
-
|
-
|
203
|
203
|
159,198
|
159,401
|
||||||||||||||||||
Consumer
|
-
|
-
|
-
|
-
|
319
|
319
|
||||||||||||||||||
Commercial loans
|
42
|
-
|
27
|
69
|
26,729
|
26,798
|
||||||||||||||||||
Total
|
$
|
2,903
|
$
|
7
|
$
|
5,289
|
$
|
8,199
|
$
|
1,169,685
|
$
|
1,177,884
|
(1) |
Includes $59,000 and $148,000 at June 30, 2017 and December 31, 2016, respectively, which are on non-accrual status.
|
(2) |
Includes $1.3 million and $- at June 30, 2017 and December 31, 2016, respectively, which are on non-accrual status.
|
(3) |
Includes $1.9 million and $4.4 million at June 30, 2017 and December 31, 2016, respectively, which are on non-accrual status.
|
A summary of the activity for the six months ended June 30, 2017 and 2016 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, 2017
|
||||||||||||||||||||||||||||||||
Balance at beginning of period
|
$
|
7,164
|
$
|
4,809
|
$
|
364
|
$
|
1,016
|
$
|
1,951
|
$
|
12
|
$
|
713
|
$
|
16,029
|
||||||||||||||||
Provision (credit) for loan losses
|
(187
|
)
|
(376
|
)
|
1
|
(310
|
)
|
(166
|
)
|
(1
|
)
|
(147
|
)
|
(1,186
|
)
|
|||||||||||||||||
Charge-offs
|
(392
|
)
|
(44
|
)
|
-
|
(14
|
)
|
-
|
-
|
-
|
(450
|
)
|
||||||||||||||||||||
Recoveries
|
119
|
43
|
17
|
40
|
-
|
-
|
-
|
219
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
6,704
|
$
|
4,432
|
$
|
382
|
$
|
732
|
$
|
1,785
|
$
|
11
|
$
|
566
|
$
|
14,612
|
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
|
- 13 -
A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of June 30, 2017 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
|
$
|
986
|
$
|
45
|
$
|
85
|
$
|
-
|
$
|
58
|
$
|
-
|
$
|
-
|
$
|
1,174
|
||||||||||||||||
Allowance related to loans collectively evaluated for impairment
|
5,718
|
4,387
|
297
|
732
|
1,727
|
11
|
566
|
13,438
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
6,704
|
$
|
4,432
|
$
|
382
|
$
|
732
|
$
|
1,785
|
$
|
11
|
$
|
566
|
$
|
14,612
|
||||||||||||||||
Loans individually evaluated for impairment
|
$
|
10,024
|
$
|
3,686
|
$
|
273
|
$
|
37
|
$
|
691
|
$
|
-
|
$
|
26
|
$
|
14,737
|
||||||||||||||||
Loans collectively evaluated for impairment
|
402,115
|
570,782
|
20,773
|
14,869
|
176,243
|
291
|
25,952
|
1,211,025
|
||||||||||||||||||||||||
Total gross loans
|
$
|
412,139
|
$
|
574,468
|
$
|
21,046
|
$
|
14,906
|
$
|
176,934
|
$
|
291
|
$
|
25,978
|
$
|
1,225,762
|
A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of December 31, 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
|
$
|
499
|
$
|
-
|
$
|
79
|
$
|
-
|
$
|
83
|
$
|
-
|
$
|
1
|
$
|
662
|
||||||||||||||||
Allowance related to loans collectively evaluated for impairment
|
6,665
|
4,809
|
285
|
1,016
|
1,868
|
12
|
712
|
15,367
|
||||||||||||||||||||||||
Balance at end of period
|
$
|
7,164
|
$
|
4,809
|
$
|
364
|
$
|
1,016
|
$
|
1,951
|
$
|
12
|
$
|
713
|
$
|
16,029
|
||||||||||||||||
Loans individually evaluated for impairment
|
$
|
10,920
|
$
|
3,941
|
$
|
442
|
$
|
-
|
$
|
718
|
$
|
-
|
$
|
41
|
$
|
16,062
|
||||||||||||||||
Loans collectively evaluated for impairment
|
381,897
|
554,651
|
21,336
|
18,179
|
158,683
|
319
|
26,757
|
1,161,822
|
||||||||||||||||||||||||
Total gross loans
|
$
|
392,817
|
$
|
558,592
|
$
|
21,778
|
$
|
18,179
|
$
|
159,401
|
$
|
319
|
$
|
26,798
|
$
|
1,177,884
|
The following table presents information relating to the Company's internal risk ratings of its loans receivable as of June 30, 2017 and December 31, 2016:
One
to Four- Family
|
Multi-Family
|
Home
Equity
|
Construction
and Land
|
Commercial
Real Estate
|
Consumer
|
Commercial
|
Total
|
|||||||||||||||||||||||||
(In Thousands)
|
||||||||||||||||||||||||||||||||
At June 30, 2017
|
||||||||||||||||||||||||||||||||
Substandard
|
$
|
9,647
|
$
|
1,198
|
$
|
242
|
$
|
37
|
$
|
691
|
$
|
-
|
$
|
906
|
$
|
12,721
|
||||||||||||||||
Watch
|
9,702
|
2,989
|
53
|
-
|
598
|
-
|
1,372
|
14,714
|
||||||||||||||||||||||||
Pass
|
392,790
|
570,281
|
20,751
|
14,869
|
175,645
|
291
|
23,700
|
1,198,327
|
||||||||||||||||||||||||
$
|
412,139
|
$
|
574,468
|
$
|
21,046
|
$
|
14,906
|
$
|
176,934
|
$
|
291
|
$
|
25,978
|
$
|
1,225,762
|
|||||||||||||||||
At December 31, 2016
|
||||||||||||||||||||||||||||||||
Substandard
|
$
|
12,845
|
$
|
1,427
|
$
|
428
|
$
|
-
|
$
|
717
|
$
|
-
|
$
|
41
|
$
|
15,458
|
||||||||||||||||
Watch
|
10,509
|
3,975
|
149
|
436
|
1,389
|
-
|
3,671
|
20,129
|
||||||||||||||||||||||||
Pass
|
369,463
|
553,190
|
21,201
|
17,743
|
157,295
|
319
|
23,086
|
1,142,297
|
||||||||||||||||||||||||
$
|
392,817
|
$
|
558,592
|
$
|
21,778
|
$
|
18,179
|
$
|
159,401
|
$
|
319
|
$
|
26,798
|
$
|
1,177,884
|
- 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, 2017 and December 31, 2016.
As of or for the Six Months Ended June 30, 2017
|
||||||||||||||||||||||||
Recorded
Investment
|
Unpaid
Principal
|
Reserve
|
Cumulative
Charge-Offs
|
Average
Recorded
Investment
|
Interest
Paid
|
|||||||||||||||||||
(In Thousands)
|
||||||||||||||||||||||||
Total Impaired with Reserve
|
||||||||||||||||||||||||
One- to four-family
|
$
|
3,384
|
$
|
3,384
|
$
|
986
|
$
|
-
|
$
|
3,410
|
$
|
65
|
||||||||||||
Multi-family
|
373
|
373
|
45
|
-
|
374
|
-
|
||||||||||||||||||
Home equity
|
163
|
163
|
85
|
-
|
167
|
6
|
||||||||||||||||||
Construction and land
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||