Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File No. 333-169432
Wolverine Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 27-3939016_ | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
5710 Eastman Avenue, Midland, Michigan | 48640 | |
(Address of Principal Executive Offices) | Zip Code |
(989) 631-4280
(Registrant’s telephone number)
N/A
(Former name or former address, if changed since last report)
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 requirements for the past 90 days. YES x 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 ¨ 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The number of shares outstanding of the Registrant’s common stock, $0.01 per share, as of May 16, 2011, was 2,507,500.
Table of Contents
Form 10-Q
Index
Table of Contents
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
Assets
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash and due from banks | $ | 452 | $ | 386 | ||||
Interest-earning demand deposits | 37,685 | 48,550 | ||||||
Cash and cash equivalents | 38,137 | 48,936 | ||||||
Interest-earning time deposits | 20,554 | 14,931 | ||||||
Held to maturity securities | 326 | 388 | ||||||
Loans held for sale | 417 | 748 | ||||||
Loans, net of allowance for loan losses of $9,732 and $9,775 | 238,274 | 233,291 | ||||||
Premises and equipment, net | 1,588 | 1,644 | ||||||
Federal Home Loan Bank stock | 4,609 | 4,609 | ||||||
Real estate owned | 2,802 | 2,375 | ||||||
Accrued interest receivable | 871 | 851 | ||||||
Other assets | 5,647 | 6,433 | ||||||
Total assets | $ | 313,225 | $ | 314,206 | ||||
Liabilities and Retained Earnings | ||||||||
Liabilities | ||||||||
Deposits | $ | 175,338 | $ | 174,692 | ||||
Federal Home Loan Bank advances | 71,811 | 76,795 | ||||||
Stock conversion related liabilities | — | 19,108 | ||||||
Interest payable and other liabilities | 2,185 | 1,667 | ||||||
Total liabilities | 249,334 | 272,262 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common Stock, $0.01 par value per share: | ||||||||
Issued and outstanding – 2,507,500 | $ | 25 | $ | — | ||||
Additional paid-in capital | 23,726 | — | ||||||
Unearned Employee stock ownership plan (ESOP) | (2,006 | ) | — | |||||
Retained earnings | 42,146 | 41,944 | ||||||
Total stockholders’ equity | 63,891 | 41,944 | ||||||
Total liabilities and stockholders’ equity | $ | 313,225 | $ | 314,206 | ||||
The accompanying notes are an integral part of these financial statements.
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Table of Contents
Condensed Consolidated Statements of Income
(Dollars in Thousands, except per share data)
Three Months Ended | March 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Interest and Dividend Income | ||||||||
Loans | $ | 3,497 | $ | 3,657 | ||||
Investment securities and other | 105 | 168 | ||||||
Total interest and dividend income | 3,602 | 3,825 | ||||||
Interest Expense | ||||||||
Deposits | 508 | 836 | ||||||
Borrowings | 810 | 1,078 | ||||||
Total interest expense | 1,318 | 1,914 | ||||||
Net Interest Income | 2,284 | 1,911 | ||||||
Provision for Loan Losses | 360 | 300 | ||||||
Net Interest Income After Provision for Loan Losses | 1,924 | 1,611 | ||||||
Noninterest Income | ||||||||
Service charges and fees | 58 | 66 | ||||||
Net gain on loan sales | 136 | 90 | ||||||
Gross income on real estate owned | 56 | — | ||||||
Loan fees earned | 66 | 40 | ||||||
Gain on sale of real estate owned | 55 | — | ||||||
Other | 72 | 36 | ||||||
Total noninterest income | 443 | 232 | ||||||
Noninterest Expense | ||||||||
Salaries and employee benefits | 852 | 939 | ||||||
Net occupancy and equipment expense | 183 | 185 | ||||||
Information technology expense | 52 | 59 | ||||||
Federal deposit insurance corporation premiums | 70 | 70 | ||||||
Professional and services fees | 154 | 100 | ||||||
Other real estate owned expense | 398 | 36 | ||||||
Loan legal expense | 45 | 39 | ||||||
Other | 305 | 268 | ||||||
Total noninterest expense | 2,059 | 1,696 | ||||||
Income Before Income Tax | 308 | 147 | ||||||
Provision for Income Taxes | 106 | 51 | ||||||
Net Income | $ | 202 | $ | 96 | ||||
Earnings Per Share: | ||||||||
Basic | $ | 0.06 | (1) | N/A | ||||
Diluted | $ | 0.06 | (1) | N/A | ||||
(1) | Calculated from the effective date of January 20, 2011. |
The accompanying notes are an integral part of these financial statements.
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Table of Contents
Condensed Consolidated Statement of Cash Flows
(Dollars in Thousands)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Operating Activities | ||||||||
Net income | $ | 202 | $ | 96 | ||||
Items not requiring (providing) cash | ||||||||
Depreciation | 54 | 64 | ||||||
Provision for loan losses | 360 | 300 | ||||||
Deferred income taxes | (968 | ) | (293 | ) | ||||
Gain on other real estate owned | (55 | ) | — | |||||
Loans originated for sale | (6,231 | ) | (5,328 | ) | ||||
Proceeds from loans sold | 6,699 | 5,160 | ||||||
Gain on sale of loans | (136 | ) | (90 | ) | ||||
Changes in | ||||||||
Interest receivable and other assets | 2,035 | (350 | ) | |||||
Interest payable and other liabilities | 518 | 1,915 | ||||||
Net cash provided by operating activities | 2,478 | 1,474 | ||||||
Investing Activities | ||||||||
Net change in interest-bearing deposits | (5,623 | ) | (12,498 | ) | ||||
Proceeds from calls, maturities and pay-downs of held to maturity securities | 62 | — | ||||||
Net change in loans | (6,274 | ) | 4,291 | |||||
Proceeds from sale of premises and equipment | 33 | — | ||||||
Proceeds from sale of real estate owned | 255 | 35 | ||||||
Purchase of FHLB stock | ||||||||
Purchase of premises and equipment | (30 | ) | (2 | ) | ||||
Net cash used in investing activities | (11,577 | ) | (8,174 | ) | ||||
Financing Activities | ||||||||
Net change in demand deposits, money market, checking and savings accounts | (5,607 | ) | 7,320 | |||||
Net change in certificates of deposit | 6,254 | 6,254 | ||||||
Proceeds from stock conversion | 2,637 | — | ||||||
Proceeds from Federal Home Loan Bank advances | — | 10,000 | ||||||
Repayment of Federal Home Loan Bank advances | (4,984 | ) | (10,254 | ) | ||||
Net cash provided by (used in) financing activities | (1,700 | ) | 13,320 | |||||
Increase (Decrease) in Cash and Cash Equivalents | (10,799 | ) | 6,620 | |||||
Cash and Cash Equivalents, Beginning of Period | 48,936 | 23,324 | ||||||
Cash and Cash Equivalents, End of Period | $ | 38,137 | $ | 29,944 | ||||
Supplemental Disclosures of Cash Flows Information | ||||||||
Interest paid | $ | 1,340 | $ | 1,913 | ||||
Income taxes paid | — | — | ||||||
Loans transferred to real estate owned | 931 | 308 |
The accompanying notes are an integral part of these financial statements.
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Condensed Statements of Changes in Stockholders’ Equity (Unaudited)
(Dollars in Thousands, except share data)
Common Stock | Additional Paid-in Capital | Unallocated ESOP Shares | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
Balances at January 1, 2011 | $ | — | $ | — | $ | — | $ | 41,944 | $ | 41,944 | ||||||||||
Three months ended March 31, 2011 | ||||||||||||||||||||
Net income | — | — | — | 202 | 202 | |||||||||||||||
Issuance of 2,507,500 shares of common stock, net of offering costs | 25 | 23,726 | (2,006 | ) | — | 21,745 | ||||||||||||||
Balances at March 31, 2011 | $ | 25 | $ | 23,726 | $ | (2,006 | ) | $ | 42,146 | $ | 63,891 | |||||||||
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Table of Contents
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
Note 1: | Basis of Presentation |
The unaudited condensed consolidated financial statements of Wolverine Bancorp, Inc. (the “Company”), the holding company of Wolverine Bank, (the “Bank”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) believed necessary for a fair presentation have been included. The condensed consolidated balance sheet of the Company as of December 31, 2010 has been derived from the audited consolidated balance sheet of the Bank as of that date. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto filed as part of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2011.
Note 2: | Plan of Conversion and Change in Corporate Form |
On January 19, 2011, the Bank converted into a stock savings bank structure with the establishment of the Company, as the parent holding company of the Bank. In connection with the conversion, 2,507,500 shares of the Company’s common stock were issued at $10.00 per share for total gross offering proceeds of $25,075. Expenses related to the offering were approximately $1.3 million. In addition, the Bank’s Board of Directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering, for a total of $2,006. The Company is incorporated under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank.
The common stock began trading on the NASDAQ Capital Market on January 20, 2011 under the symbol “WBKC”.
In accordance with Office of Thrift Supervision (“OTS”) regulations, at the time of the completion of the Bank’s mutual to stock conversion, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders and supplemental eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s or and supplemental eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Company may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
Note 3: | Accounting Developments |
In April 2011, the FASB issued ASU No. 2011-02,Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.ASU 2011-02 clarifies the guidance in ASC 310-40Receivables: Troubled Debt Restructurings by Creditors.Creditors are required to identify a restructuring as a troubled debt restructuring if the restructuring constitutes a concession and the debtor is experiencing financial difficulties. ASU 2011-02 clarifies guidance on whether a creditor has granted a concession and clarifies the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. In addition, ASU 2011-02 also precludes the creditor from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. The effective date of ASU 2011-2 for public entities is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. If, as a result of adoption, an entity identifies newly impaired receivables, an entity should apply the amendments for purposes of measuring impairment prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company intends to adopt the methodologies prescribed by this ASU by the date required and is currently evaluating the impact of adopting this ASU.
Note 4: | Securities |
The amortized cost and approximate fair values of securities are as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Approximate Fair Value | |||||||||||||
Held to Maturity Securities: | ||||||||||||||||
March 31, 2011 | ||||||||||||||||
Municipals (Unaudited) | $ | 326 | $ | — | $ | — | $ | 326 | ||||||||
December 31, 2010 | ||||||||||||||||
Municipals | $ | 388 | $ | — | $ | — | $ | 388 | ||||||||
The amortized cost and fair value of securities at March 31, 2011 and December 31, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2011 | December 31, 2010 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(Unaudited) | ||||||||||||||||
Within one year | $ | — | $ | — | $ | — | $ | — | ||||||||
One to five years | — | — | — | — | ||||||||||||
Five to ten years | 326 | 326 | 388 | 388 | ||||||||||||
After ten years | — | — | — | — | ||||||||||||
Totals | $ | 326 | $ | 326 | $ | 388 | $ | 388 | ||||||||
There were no sales of securities during the three months ended March 31, 2011 and 2010.
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
Note 5: | Loans and Allowance for Loan Losses |
Categories of loans include:
March 31, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
Real Estate | ||||||||
One-to four-family | $ | 75,888 | $ | 76,801 | ||||
Home equity | 11,819 | 12,252 | ||||||
Commercial mortgage loans | ||||||||
Commercial real estate | 85,130 | 84,172 | ||||||
Multifamily | 43,639 | 37,485 | ||||||
Land | 16,157 | 16,071 | ||||||
Construction | 14,939 | 13,126 | ||||||
Commercial Non-mortgage | 10,471 | 10,434 | ||||||
Consumer | 1,180 | 1,229 | ||||||
Total loans | 259,223 | 251,570 | ||||||
Less | ||||||||
Net deferred loan fees, premiums and discounts | 405 | 345 | ||||||
Undisbursed portion of loans | 10,812 | 8,159 | ||||||
Allowance for loan losses | 9,732 | 9,775 | ||||||
Net loans | $ | 238,274 | $ | 233,291 | ||||
Activity in the allowance for loan losses was as follows:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Balance, beginning of period | $ | 9,775 | $ | 6,507 | ||||
Provision charged to expense | 360 | 300 | ||||||
Losses charged off, net of recoveries of $3, $240 | (403 | ) | 207 | |||||
Balance, end of period | $ | 9,732 | $ | 7,014 | ||||
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2011 and December 31, 2010:
Loan Class | 1-4 Family | Home Equity | Commercial Real Estate | Multifamily | Land | Construction | Commercial Non-Mortgage | Consumer | Total | |||||||||||||||||||||||||||
As of March 31, 2011 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Balance, beginning of year | $ | 2,079 | $ | 313 | $ | 3,914 | $ | 1,765 | $ | 1,036 | $ | 367 | $ | 269 | $ | 32 | $ | 9,775 | ||||||||||||||||||
Provision charged to expense | (30 | ) | (2 | ) | 113 | 148 | 104 | 38 | (7 | ) | (4 | ) | 360 | |||||||||||||||||||||||
Losses charged off | (39 | ) | — | (366 | ) | — | — | — | — | (1 | ) | (406 | ) | |||||||||||||||||||||||
Recoveries | — | — | — | — | 1 | — | — | 2 | 3 | |||||||||||||||||||||||||||
Balance, end of year | $ | 2,010 | $ | 311 | $ | 3,661 | $ | 1,913 | $ | 1,141 | $ | 405 | $ | 262 | $ | 29 | $ | 9,732 | ||||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 108 | $ | 15 | $ | 1,527 | $ | 819 | $ | 736 | $ | 31 | $ | — | $ | — | $ | 3,236 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 1,902 | $ | 296 | $ | 2,134 | $ | 1,094 | $ | 405 | $ | 374 | $ | 262 | $ | 29 | $ | 6,496 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending Balance | $ | 75,888 | $ | 11,819 | $ | 85,130 | $ | 43,639 | $ | 16,157 | $ | 14,939 | $ | 10,471 | $ | 1,180 | $ | 259,223 | ||||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 3,062 | $ | 241 | $ | 8,067 | $ | 9,160 | $ | 7,826 | $ | 231 | $ | — | $ | — | $ | 28,587 | ||||||||||||||||||
$ | 72,826 | $ | 11,578 | $ | 77,063 | $ | 34,479 | $ | 8,331 | $ | 14,708 | $ | 10,471 | $ | 1,180 | $ | 230,636 | |||||||||||||||||||
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
Loan Class | 1-4 Family | Home Equity | Commercial Real Estate | Multifamily | Land | Construction | Commercial Non-Mortgage | Consumer | Total | |||||||||||||||||||||||||||
As of December 31, 2010 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Balance, beginning of year | $ | 1,246 | $ | 161 | $ | 3,019 | $ | 949 | $ | 838 | $ | 129 | $ | 148 | $ | 17 | $ | 6,507 | ||||||||||||||||||
Provision charged to expense | 812 | 152 | 2,263 | 816 | 80 | 228 | 121 | 19 | 4,491 | |||||||||||||||||||||||||||
Losses charged off | (33 | ) | — | (1,597 | ) | — | (109 | ) | — | — | (7 | ) | (1,746 | ) | ||||||||||||||||||||||
Recoveries | 54 | — | 229 | — | 227 | 10 | — | 3 | 523 | |||||||||||||||||||||||||||
Balance, end of year | $ | 2,079 | $ | 313 | $ | 3,914 | $ | 1,765 | $ | 1,036 | $ | 367 | $ | 269 | $ | 32 | $ | 9,775 | ||||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 108 | $ | — | $ | 1,798 | $ | 819 | $ | 633 | $ | 21 | $ | — | $ | — | $ | 3,379 | ||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 1,971 | $ | 313 | $ | 2,116 | $ | 946 | $ | 403 | �� | $ | 346 | $ | 269 | $ | 32 | $ | 6,396 | |||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Ending Balance | $ | 76,801 | $ | 12,252 | $ | 84,172 | $ | 37,485 | $ | 16,071 | $ | 13,126 | $ | 10,434 | $ | 1,229 | $ | 251,570 | ||||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 2,798 | $ | 210 | $ | 9,075 | $ | 9,048 | $ | 8,067 | $ | 231 | $ | — | $ | — | $ | 29,429 | ||||||||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 74,003 | $ | 12,042 | $ | 75,097 | $ | 28,437 | $ | 8,004 | $ | 12,895 | $ | 10,434 | $ | 1,229 | $ | 222,141 | ||||||||||||||||||
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The following table presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2011(unaudited) and December 31, 2010:
1-4 Family | Home Equity | Commercial Real Estate | Multifamily | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
Pass | $ | 67,608 | $ | 68,831 | $ | 11,520 | $ | 11,982 | $ | 58,536 | $ | 56,335 | $ | 25,140 | $ | 20,017 | ||||||||||||||||
Pass (Closely Monitored) | 4,705 | 4,494 | 17 | 17 | 8,424 | 9,284 | 7,057 | 10,716 | ||||||||||||||||||||||||
Special Mention | 593 | 492 | 41 | 43 | 11,077 | 10,433 | 6,407 | 1,701 | ||||||||||||||||||||||||
Substandard | 2,982 | 2,984 | 241 | 210 | 7,093 | 8,120 | 5,035 | 5,051 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
$ | 75,888 | $ | 76,801 | $ | 11,819 | $ | 12,252 | $ | 85,130 | $ | 84,172 | $ | 43,639 | $ | 37,485 | |||||||||||||||||
Land | Construction | Commercial Non-Mortgage | Consumer | Total | ||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
Pass | $ | 4,603 | $ | 4,130 | $ | 14,433 | $ | 12,895 | $ | 9,088 | $ | 9,041 | $ | 1,151 | $ | 1,199 | $ | 192,079 | $ | 184,430 | ||||||||||||||||||||
Pass (Closely Monitored) | 1,723 | 2,902 | 275 | — | 818 | 1,203 | 29 | 30 | 23,046 | 28,646 | ||||||||||||||||||||||||||||||
Special Mention | 2,006 | 1,105 | — | — | 565 | 190 | — | — | 20,690 | 13,964 | ||||||||||||||||||||||||||||||
Substandard | 7,826 | 7,934 | 231 | 231 | — | — | — | — | 23,408 | 24,530 | ||||||||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Loss | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
$ | 16,157 | $ | 16,071 | $ | 14,939 | $ | 13,126 | $ | 10,471 | $ | 10,434 | $ | 1,180 | $ | 1,229 | $ | 259,223 | $ | 251,570 | |||||||||||||||||||||
The Pass asset quality rating encompasses assets that have performed as expected. These assets generally do not have delinquency or servicing issues. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage.
The Closely Monitored asset quality rating encompasses assets that have been brought to the attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets. This grade includes “pass grade” loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile.
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.
The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness(es) based upon objective evidence; assets characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are note correcting; or the possibility that liquidation will not be timely. Loans categorized in this grade possess a well defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended.
The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of the bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be realized in the future.
The following table presents the Company’s loan portfolio aging analysis as of March 31, 2011 and December 31, 2010:
As of March 31, 2011: | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Nonaccrual | Total Past Due | Current | Total Loan Receivable | Total Loans>90 Days & Accruing | ||||||||||||||||||||||||
1-4 Family | $ | 247 | $ | 92 | $ | — | $ | 1,120 | $ | 1,459 | $ | 74,429 | $ | 75,888 | $ | — | ||||||||||||||||
Home Equity | — | 15 | — | 207 | 222 | 11,597 | 11,819 | — | ||||||||||||||||||||||||
Commercial Real Estate | — | 251 | — | 3,387 | 3,638 | 81,492 | 85,130 | — | ||||||||||||||||||||||||
Multifamily | 4,253 | — | — | — | 4,253 | 39,386 | 43,639 | — | ||||||||||||||||||||||||
Land | 22 | — | — | 3,272 | 3,294 | 12,863 | 16,157 | — | ||||||||||||||||||||||||
Construction | — | — | — | 92 | 92 | 14,847 | 14,939 | — | ||||||||||||||||||||||||
Commercial Non-Real Estate | — | — | — | — | — | 10,471 | 10,471 | — | ||||||||||||||||||||||||
Consumer | — | — | — | — | — | 1,180 | 1,180 | — | ||||||||||||||||||||||||
Total | $ | 4,522 | $ | 358 | $ | — | $ | 8,078 | $ | 12,958 | $ | 246,265 | $ | 259,223 | $ | — | ||||||||||||||||
11
Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
As of December 31, 2010: | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Nonaccrual | Total Past Due | Current | Total Loan Receivable | Total Loans>90 Days & Accruing | ||||||||||||||||||||||||
1-4 Family | $ | 129 | $ | 598 | $ | — | $ | 1,118 | $ | 1,845 | $ | 74,956 | $ | 76,801 | $ | — | ||||||||||||||||
Home Equity | — | 115 | — | 76 | 191 | 12,061 | 12,252 | — | ||||||||||||||||||||||||
Commercial Real Estate | 83 | 97 | — | 4,051 | 4,231 | 79,941 | 84,172 | — | ||||||||||||||||||||||||
Multifamily | — | 4,266 | — | 4,266 | 33,219 | 37,485 | — | |||||||||||||||||||||||||
Land | 54 | — | — | 2,069 | 2,123 | 13,948 | 16,071 | — | ||||||||||||||||||||||||
Construction | — | — | — | 92 | 92 | 13,034 | 13,126 | — | ||||||||||||||||||||||||
Commercial Non-Real Estate | — | — | — | — | — | 10,434 | 10,434 | — | ||||||||||||||||||||||||
Consumer | — | — | — | — | — | 1,229 | 1,229 | — | ||||||||||||||||||||||||
Total | $ | 266 | $ | 5,076 | $ | — | $ | 7,406 | $ | 12,748 | $ | 238,822 | $ | 251,570 | $ | — | ||||||||||||||||
At March 31, 2011 and December 31, 2010, there were no accruing loans delinquent 90 days or more. Nonaccruing loans at March 31, 2011 and December 31, 2010 were $8,078 and $7,406, respectively.
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
12
Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The following table presents impaired loans without a specific valuation allowance for the period ended March 31, 2011:
As of March 31, 2011 | Recorded Balance | Unpaid Principal Balance | Specific Allowance | Average Balance | Interest Income | |||||||||||||||
Loans w/o a specific valuation allowance | ||||||||||||||||||||
1-4 Family | $ | 2,016 | $ | 2,016 | $ | — | $ | 1,787 | $ | 32 | ||||||||||
Home Equity | 110 | 110 | — | 160 | 2 | |||||||||||||||
Commercial Real Estate | 2,459 | 2,459 | — | — | 41 | |||||||||||||||
Multifamily | — | — | — | — | — | |||||||||||||||
Land | 22 | 22 | — | 152 | — | |||||||||||||||
Construction | — | — | — | 70 | — | |||||||||||||||
Commercial Non-Real Estate | — | — | — | — | — | |||||||||||||||
Consumer | — | — | — | — | — | |||||||||||||||
Subtotal: | $ | 4,607 | $ | 4,607 | $ | — | $ | 2,169 | $ | 75 |
The following table presents impaired loans with a specific valuation allowance for the period ended March 31, 2011:
Loans with a specific valuation allowance | Recorded Balance | Unpaid Principal Balance | Specific Allowance | Average Balance | Interest Income | |||||||||||||||
As of March 31, 2011: | ||||||||||||||||||||
1-4 Family | $ | 1,046 | $ | 1,046 | $ | 108 | $ | 1,133 | $ | 15 | ||||||||||
Home Equity | 131 | 131 | 15 | 66 | 1 | |||||||||||||||
Commercial Real Estate | 5,608 | 5,608 | 1,527 | 6,212 | 88 | |||||||||||||||
Multifamily | 9,160 | 9,160 | 819 | 9,104 | 86 | |||||||||||||||
Land | 7,804 | 7,804 | 736 | 7,795 | 60 | |||||||||||||||
Construction | 231 | 231 | 31 | 162 | 3 | |||||||||||||||
Commercial Non-Real Estate | — | — | — | — | — | |||||||||||||||
Consumer | — | — | — | — | — | |||||||||||||||
Subtotal: | $ | 23,980 | $ | 23,980 | $ | 3,236 | $ | 24,472 | $ | 172 |
13
Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The following table presents total impaired loans for the period ended March 31, 2011:
Total impaired loans | Recorded Balance | Unpaid Principal Balance | Specific Allowance | Average Balance | Interest Income | |||||||||||||||
As of March 31, 2011: | ||||||||||||||||||||
1-4 Family | $ | 3,062 | $ | 3,062 | $ | 119 | $ | 2,920 | $ | 47 | ||||||||||
Home Equity | 241 | 241 | 10 | 226 | 3 | |||||||||||||||
Commercial Real Estate | 8,067 | 8,067 | 1,542 | 6,212 | 129 | |||||||||||||||
Multifamily | 9,160 | 9,160 | 819 | 9,104 | 86 | |||||||||||||||
Land | 7,826 | 7,826 | 724 | 7,947 | 60 | |||||||||||||||
Construction | 231 | 231 | 22 | 232 | 3 | |||||||||||||||
Commercial Non-Real Estate | — | — | — | — | — | |||||||||||||||
Consumer | — | — | — | — | — | |||||||||||||||
Total | $ | 28,587 | $ | 28,587 | $ | 3,236 | $ | 26,641 | $ | 328 | ||||||||||
The following table presents impaired loans without a specific valuation allowance for the period ended December 31, 2010:
As of December 31, 2010 | Recorded Balance | Unpaid Principal Balance | Specific Allowance | |||||||||
Loans w/o a specific valuation allowance | ||||||||||||
1-4 Family | $ | 1,577 | $ | 1,577 | $ | — | ||||||
Home Equity | 210 | 210 | — | |||||||||
Commercial Real Estate | 2,260 | 2,260 | — | |||||||||
Multifamily | — | — | — | |||||||||
Land | 282 | 282 | — | |||||||||
Construction | 140 | 140 | — | |||||||||
Commercial Non-Real Estate | — | — | — | |||||||||
Consumer | — | — | — | |||||||||
Subtotal: | $ | 4,469 | $ | 4,469 | $ | — |
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The following table presents impaired loans with a specific valuation allowance for the period ended December 31, 2010:
Loans with a specific valuation allowance | Recorded Balance | Unpaid Principal Balance | Specific Allowance | |||||||||
As of December 31, 2010: | ||||||||||||
1-4 Family | $ | 1,220 | $ | 1,220 | $ | 108 | ||||||
Home Equity | — | — | — | |||||||||
Commercial Real Estate | 6,815 | 6,815 | 1,798 | |||||||||
Multifamily | 9,048 | 9,048 | 819 | |||||||||
Land | 7,785 | 7,785 | 633 | |||||||||
Construction | 92 | 92 | 21 | |||||||||
Commercial Non-Real Estate | — | — | — | |||||||||
Consumer | — | — | — | |||||||||
Subtotal: | $ | 24,960 | $ | 24,960 | $ | 3,379 |
The following table presents total impaired loans for the period ended December 31, 2010:
Total impaired loans | Recorded Balance | Unpaid Principal Balance | Specific Allowance | |||||||||
As of December 31, 2010: | ||||||||||||
1-4 Family | $ | 2,797 | $ | 2,797 | $ | 108 | ||||||
Home Equity | 210 | 210 | — | |||||||||
Commercial Real Estate | 9,075 | 9,075 | 1,798 | |||||||||
Multifamily | 9,048 | 9,048 | 819 | |||||||||
Land | 8,067 | 8,067 | 633 | |||||||||
Construction | 232 | 232 | 21 | |||||||||
Commercial Non-Real Estate | — | — | — | |||||||||
Consumer | — | — | — | |||||||||
Total | $ | 29,429 | $ | 29,429 | $ | 3,379 | ||||||
15
Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Condensed Notes to Consolidated Interim Financial Statements
Impaired loans totaled $28,587 and $29,429 at March 31, 2011 and December 31, 2010, respectively. An allowance for loan losses of $3,236 and $3,379 relates to impaired loans at March 31, 2011 and December 31, 2010, respectively.
Interest of $286 and $271 was recognized on average impaired loans of $24,095 and $15,105 for March 31, 2011 and 2010, respectively. Cash collected on interest on impaired loans through March 31, 2011 and 2010 was $332 and $173, respectively.
As of March 31, 2011 and December 31, 2010, the Company has $97,100 and $89,406 of loans outstanding to lessors of rental properties including $62,191 and $61,377 of residential and $34,909 and $28,029 of nonresidential properties.
Note 6: | Disclosures About Fair Value of Assets and Liabilities |
ASC Topic 820,Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets under the valuation hierarchy. The Bank has no assets or liabilities measured at fair value on a recurring basis and no liabilities measured at fair value on a nonrecurring basis.
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Bank will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method generally requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.
Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010:
Fair Value Measurements Using | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
March 31, 2011 | ||||||||||||||||
Impaired loans | $ | 1,845 | $ | — | $ | — | $ | 1,845 | ||||||||
December 31, 2010 | ||||||||||||||||
Impaired loans | $ | 20,988 | $ | — | $ | — | $ | 20,988 |
The following table presents estimated fair values of the Bank’s financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Bank does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 38,137 | $ | 38,137 | $ | 48,936 | $ | 48,936 | ||||||||
Interest-earning time deposits | 20,554 | 20,554 | 14,931 | 14,931 | ||||||||||||
Held to maturity securities | 326 | 326 | 388 | 388 | ||||||||||||
Loans held for sale | 417 | 420 | 748 | 754 | ||||||||||||
Loans, net of allowance for loan losses | 238,274 | 243,849 | 233,291 | 237,704 | ||||||||||||
Federal Home Loan Bank stock | 4,609 | 4,609 | 4,609 | 4,609 | ||||||||||||
Interest receivable | 871 | 871 | 851 | 851 | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 175,338 | 176,462 | 174,692 | 177,089 | ||||||||||||
Federal Home Loan Bank advances | 71,811 | 77,752 | 76,795 | 83,337 | ||||||||||||
Stock conversion related liabilities | — | — | 19,108 | 19,108 | ||||||||||||
Interest payable | 280 | 280 | 301 | 301 |
The following methods and assumptions were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
Cash and Cash Equivalents, Interest-Earning Time Deposits, Federal Home Loan Bank Stock, Interest Receivable, Stock Conversion Related Liabilities and Interest Payable
The carrying amount approximates fair value.
Held to Maturity Securities
Fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.
Loans Held for Sale
Fair value is estimated using quoted market prices from the secondary market.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits
Deposits include demand deposits, savings accounts, checking accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank Advances
Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
Commitments to Originate Loans, Letters of Credit and Lines of Credit
Loan commitments and letters-of-credit generally have short-term, variable rate features and contain clauses which limit the Bank’s exposure to changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.
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Table of Contents
Wolverine Bancorp, Inc.
Form 10-Q
(Table Amounts in Thousands)
Notes to Consolidated Interim Financial Statements (Unaudited)
Note 7: | Earnings Per Share |
Three Months Ended | ||||
March 31, 2011 | ||||
Basic and diluted | ||||
Earnings: | ||||
Net Income (1) | $ | 142 | ||
Shares (1): | ||||
Weighted average common shares outstanding | 2,507 | |||
Less: Average unallocated ESOP shares | (201 | ) | ||
Average shares | 2,306 | |||
Net income per common share, basic and diluted (1) | $ | 0.06 | ||
(1) | Calculated from the effective date of January 20, 2011 to the period end. |
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Management’s discussion and analysis of the financial condition and results of operations at and for three months ended March 31, 2011 and 2010 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:
• | statements of the Company’s goals, intentions and expectations; |
• | statements regarding the Company’s business plans, prospects, growth and operating strategies; |
• | statements regarding the asset quality of the Company’s loan and investment portfolios; and |
• | estimates of the Company’s risks and future costs and benefits. |
These forward-looking statements are based on the Company’s current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The Company is under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
• | general economic conditions, either nationally or in the Company’s market areas, that are worse than expected; |
• | competition among depository and other financial institutions; |
• | changes in the interest rate environment that reduce the Company’s margins or reduce the fair value of financial instruments; |
• | adverse changes in the securities markets; |
• | changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
• | the Company’s ability to enter new markets successfully and capitalize on growth opportunities; |
• | the Company’s ability to successfully integrate acquired entities, if any; |
• | changes in consumer spending, borrowing and savings habits; |
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Table of Contents
• | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; |
• | changes in the Company’s organization, compensation and benefit plans; |
• | changes in the Company’s financial condition or results of operations that reduce capital; and |
• | changes in the financial condition or future prospects of issuers of securities that the Company owns. |
Because of these and a wide variety of other uncertainties, the Company’s actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in Wolverine Bancorp, Inc.’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on March 30, 2011.
Comparison of Financial Condition at March 31, 2011 and December 31, 2010
Total assets decreased $1.0 million, or 0.3%, to $313.2 million at March 31, 2011 from $314.2 million at December 31, 2010. The decrease was primarily the result of a decrease in cash and cash equivalents, offset by an increase in interest-earning time deposits and net loans.
Cash and cash equivalents decreased $10.8 million, or 22.1%, to $38.1 million at March 31, 2011 from $48.9 million at December 31, 2010, and interest-earning time deposits increased $5.6 million, or 37.6%, to $20.5 million at March 31, 2011 from $14.9 million at December 31, 2010. The net decrease in cash and cash equivalents and in interest-earning time deposits was primarily the result of paying off maturing FHLB advances and funding new loan originations.
Net loans increased $5.0 million, or 2.1%, to $238.3 million at March 31, 2011 from $233.3 million at December 31, 2010 as the Company’s multifamily loans increased $6.1 million, or 16.3%, to $43.6 million at March 31, 2001 from $37.5 million at December 31, 2010. Additionally, construction loans increased by $1.8 million, or 13.7%, to $14.9 million at March 31, 2011 from $13.1 million at December 31, 2010. These increases were offset by undisbursed loan funds increasing $2.6 million, or 31.7%, to $10.8 million at March 31, 2011 from $8.2 million at December 31, 2010.
Securities held to maturity, consisting of one municipal security at March 31, 2011 and at December 31, 2010, decreased $62,000 to $326,000 at March 31, 2011 from $388,000 at December 31, 2010.
Real estate owned increased $427,000, or 17.8%, to $2.8 million at March 31, 2011 from $2.4 million at December 31, 2010. The increase in real estate owned resulted primarily from the foreclosure of three commercial mortgage properties totaling $638,000, offset by sales of $315,000.
Other assets, consisting primarily of prepaid FDIC assessments and deferred federal taxes, decreased $786,000, or 12.3%, to $5.6 million at March 31, 2011, from $6.4 million at December 31, 2010. The decrease was primarily attributable to conversion related expenses held in an ‘other asset’ account.
Deposits increased $646,000, or 0.4%, to $175.3 million at March 31, 2011 from $174.7 million at December 31, 2010. Certificates of deposit decreased $6.0 million, or 6.9%, to $81.1 million at March 31, 2011 from $87.1 million at December 31, 2010. The Bank’s core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts)
21
Table of Contents
increased $6.6 million, or 7.5%, to $94.2 million at March 31, 2011 from $87.6 million at December 31, 2010. The increase in the Bank’s core deposits resulted primarily from continuing to build relationships with the Bank’s existing customers as well as the Bank’s marketing efforts for new customers.
Federal Home Loan Bank advances decreased $5.0 million to $71.8 million at March 31, 2011 from $76.8 million at December 31, 2010 as a result of paying off maturing advances.
Total stockholders’ equity increased $21.9 million, or 52.3%, to $63.9 million at March 31, 2011 from $41.9 million at December 31, 2010. The increase resulted from the Company’s initial public offering net proceeds of $21.7 million which closed on January 19, 2011, and net income of $202,000 during the three months ended March 31, 2011. The gross proceeds were $25.1 million which were netted against an unearned ESOP of $2.0 million and offering expenses of $1.3 million.
Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010
General.The Company recorded net income of $202,000 for the three months ended March 31, 2011 compared to net income of $96,000 for the three months ended March 31, 2010. Net interest income increased $373,000 to $2.3 million for the three months ended March 31, 2011 from $1.9 million for the three months ended March 31, 2010, and other noninterest income increased $211,000 to $443,000 for the three months ended March 31, 2011 from $232,000 for the year earlier period.
Interest and Dividend Income.Interest and dividend income decreased $223,000, or 6.2%, to $3.6 million for the three months ended March 31, 2011 from $3.8 million for the three months ended March 31, 2010, as the average balance of interest-earning assets decreased $8.2 million to $298.8 million for the three months ended March 31, 2011 from $307.0 million for the three months ended March 31, 2010, and the average yield on interest-earning assets decreased 16 basis points to 4.82% during the 2011 period from 4.98% during the 2010 period. The decrease in the Company’s average yield on interest-earning assets was due primarily to the general decline in market interest rates as well as low-yielding cash and cash equivalents.
The biggest component decrease in average interest-earning assets was in net loans, which decreased $4.5 million, or 1.9%, to $236.5 million for the three months ended March 31, 2011 from $241.0 million for the three months ended March 31, 2010. Additionally, the average balance of securities held-to-maturity decreased $1.1 million, or 78.6%, to $326,000 for the March 31, 2011 period from $1.4 million for the March 31, 2010 period. The average balance of other interest-earning assets, consisting of interest-earning overnight funds and time deposits, decreased $2.5 million to $57.3 million during the 2011 period from $59.8 million during the 2010 period, the average yield on other interest-earning assets decreased to 0.50% from 0.88%, resulting in a $59,000 decrease in interest income from other interest-earning assets to $72,000 for the three months ended March 31, 2011 from $131,000 for the three months ended March 31, 2010.
Interest income on loans decreased $160,000, or 4.3%, to $3.5 million for the three months ended March 31, 2011 from $3.7 million for the three months ended March 31, 2010, as the average yield on loans decreased 15 basis points to 5.92% for the three months ended March 31, 2011 from 6.07% for the three months ended March 31, 2010 reflecting the lower market interest rate environment, and the average balance of loans decreased $4.5 million, or 1.9%, to $236.5 million for the three months ended March 31, 2011 from $241.0 million for the three months ended March 31, 2010.
Interest income on investment securities, other interest-earning assets and FHLB of Indianapolis stock decreased $63,000, or 37.5%, to $105,000 for the three months ended March 31, 2011 from $168,000 for the three months ended March 31, 2010. This is primarily attributable to a decrease in the average balance of investment securities held to maturity. The average balance as of March 31, 2010 of investment securities held to maturity was $1.4 million, compared to the average balance as of March 31, 2011 of $326,000. This decrease of $1.1 million represents a decrease of 78.6%.
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Table of Contents
Interest Expense.Interest expense decreased $596,000, or 31.4%, to $1.3 million for the three months ended March 31, 2011 from $1.9 million for the three months ended March 31, 2010, as the average balance of interest-bearing liabilities decreased $23.2 million, or 8.7%, to $243.9 million for the three months ended March 31, 2011 from $267.1 million for the three months ended March 31, 2010, and the average rate the Company paid on these liabilities decreased 71 basis points to 2.16% from 2.87%. The biggest component decrease was in interest expense on certificates of deposit which decreased $342,000, or 45.4%, to $410,000 for the three months ended March 31, 2011 from $752,000 for the three months ended March 31, 2010, resulting from an $22.3 million decrease in the average balance of certificates of deposits to $81.8 million for the three months ended March 31, 2011 from $104.1 million for the three months ended March 31, 2010, and a 88 basis point decrease in the cost of these funds to 2.01% for the 2011 period from 2.89% for the 2010 period.
The average balance of the Company’s core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $17.0 million, or 23.2%, to $90.3 million for the three months ended March 31, 2011 from $73.3 million for the three months ended March 31, 2010. Correspondingly, the interest on core deposits increased $14,000 to $98,000 for the 2011 period from $84,000 for the 2010 period.
Interest expense on borrowed funds, consisting entirely of Federal Home Loan Bank advances, decreased by $268,000, or 24.4%, to $810,000 for the three months ended March 31, 2011 from $1.1 million for the three months ended March 31, 2010, as the Company’s average balance of these borrowings decreased $17.9 million and the average rate paid decreased 30 basis points to 4.51% from 4.81%.
Net Interest Income.Net interest income increased $373,000, or 19.6%, to $2.3 million for the three months ended March 31, 2011 from $1.9 million for the three months ended March 31, 2010, as the Company’s net interest-earning assets increased to $54.8 million from $39.8 million, the Company’s net interest rate spread increased 54 basis points to 2.66% from 2.12% and the Company’s net interest margin increased 57 basis points to 3.06% from 2.49%. The increases in the Company’s net interest rate spread and net interest margin reflected the paying off of the Company’s maturing, higher interest rate FHLB advances and managing the maturities of higher interest rate certificates of deposit, offset by the Company’s ongoing interest rate risk strategy of selling in the secondary market long-term, fixed-rate one- to four-family residential mortgage loans during the current low interest rate environment.
Provision for Loan Losses.Based on the Company’s analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” the Company recorded a provision for loan losses of $360,000 for the three months ended March 31, 2011 and a provision for loan losses of $300,000 for the three months ended March 31, 2010. The primary reasons for the increase in the provision for loan losses were continued escalated levels of non-performing loans as well as a continued decline in the economy in the Company’s primary market area and in Michigan as a whole, including elevated levels of unemployment, declining collateral values and increasing trends in delinquencies and classified assets. At March 31, 2011, non-performing loans totaled $8.7 million, or 3.7% of total loans, as compared to $11.4 million, or 4.8% of total loans, at March 31, 2010. The decrease in non-performing loans was primarily in the commercial real estate loan portfolio, a higher risk portfolio compared to the Company’s one- to four-family residential mortgage loan portfolio. The Company had one loan relationship that was non-performing as of March 31, 2010, and the Company received a deed-in-lieu of foreclosure in the fourth quarter of 2010. The gross total of this relationship was $2.7 million as of March 31, 2010. The allowance for loan losses to total loans receivable decreased to 3.9% at March 31, 2011 from 4.0% at December 31, 2010.
The allowance for loan losses as a percentage of non-performing loans increased to 112.3% at March 31, 2011 from 61.7% at March 31, 2010. To the best of the Company’s knowledge, the Company has provided for all losses that are both probable and reasonable to estimate at March 31, 2011 and 2010.
Noninterest Income.Noninterest income increased by $211,000, or 90.9%, to $443,000 for the three months ended March 31, 2011 from $232,000 for the three months ended March 31, 2010. The increase was primarily attributable to an increase in gain on sale of mortgage loans of $46,000, an
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increase in gross rental income on real estate owned of $56,000 due to increased volume on foreclosed rental properties, gain on the sale of real estate owned of $55,000, and a $31,000 gain on the sale of a fixed asset.
Noninterest Expense.Noninterest expense increased $363,000, or 21.4%, to $2.1 million for the three months ended March 31, 2011 from $1.7 million for the three months ended March 31, 2010, primarily attributable to a $362,000 increase in real estate owned expenses due to increased volume of legal and maintenance expenses on foreclosed rental properties, an increase of $54,000 in professional and service fees due to increased legal expenses for regulatory report counsel and review, offset by a reduction of $87,000 in salaries and related expenses due to reduced retirement expenses reflecting the impact of terminating our pension plan in 2010.
Income Tax Expense (Benefit).The Company recorded a $106,000 income tax expense for the three months ended March 31, 2011 compared to a $51,000 income tax expense for the 2010 period, reflecting the income of $308,000 before income tax expense during the three months ended March 31, 2011 versus income before income tax of $147,000 for the three months ended March 31, 2010. The Company’s effective tax expense rate was 34.5% for the three months ended March 31, 2011 compared to an effective tax rate of 34.7% for the three months ended March 31, 2010.
Asset Quality
Real estate owned totaled $2.8 million, or 0.9% of total assets, at March 31, 2011 as compared to $862,000, or 0.3% of total assets, at March 31, 2010. One relationship comprised $913,000, or 32.6% of the real estate owned as of March 31, 2010. Non-performing assets totaled $11.4 million, or 3.6% of total assets, at March 31, 2011 as compared to $12.2 million, or 3.9% of total assets, at March 31, 2010.
At March 31, 2011, the Company had 34 loans, totaling $7.9 million, for which the Company had temporarily extended the maturities while working on the loan renewal process. During the renewal process, the borrowers continue repayment according to the original loan terms which are at market interest rates. Of these loans, five loans totaling $827,000 were classified as substandard and six loans, totaling $1.2 million, were considered special mention. At March 31, 2011, none of these loans was considered a troubled debt restructuring, and all of these loans were considered performing at March 31, 2011.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable, as the Registrant is a smaller reporting company.
ITEM 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the and Chief Operating Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2011. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended March 31, 2011, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.
Not applicable, as the Registrant is a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | There were no sales of unregistered securities during the period covered by this Report. |
(b) | Not applicable. |
(c) | There were no issuer repurchases of securities during the period covered by this Report. |
Item 3. Defaults Upon Senior Securities
None.
None.
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WOLVERINE BANCORP, INC. | ||
Date: May 16, 2011 | /s/ David H. Dunn | |
David H. Dunn | ||
President and Chief Executive Officer | ||
Date: May 16, 2011 | /s/ Rick A. Rosinski | |
Rick A. Rosinski | ||
Chief Operating Officer and Treasurer |
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