Wolverine Bancorp 10-Q 2014 Q3 Quarterly report

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 September 30, 2014

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. 001-35034

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  x    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 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 October 30, 2014, was 2,268,306.

Wolverine Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013		1
	Condensed Consolidated Statements of Income and Comprehensive Income for the three months and nine months ended September 30, 2014 and 2013 (unaudited)		2
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)		3
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2014 (unaudited)		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		39
Item 4.	Controls and Procedures		40
Part II. Other Information
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3.	Defaults upon Senior Securities		41
Item 4.	Mine Safety Disclosures		41
Item 5.	Other Information		41
Item 6.	Exhibits		41
	Signature Page		42

Wolverine Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Amounts in Thousands, except per share data)

	September 30, 2014			December 31, 2013
	(Unaudited)
Assets
Cash and due from banks	$	518		$	791
Interest-earning demand deposits		32,403			25,390
Cash and cash equivalents		32,921			26,181
Held to maturity securities		—			123
Loans held for sale		852			1,325
Loans, net of allowance for loan losses of $8,492 and $7,597		294,607			259,381
Premises and equipment, net		1,442			1,569
Federal Home Loan Bank stock		3,320			3,320
Other real estate owned		473			872
Accrued interest receivable		844			699
Other assets		4,212			4,291
Total assets	$	338,671		$	297,761
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	220,510		$	172,983
Federal Home Loan Bank advances		50,000			61,994
Fed funds purchased		3,000			—
Interest payable and other liabilities		3,700			2,459
Total liabilities		277,210			237,436
Commitments and Contingencies
Stockholders’ Equity
Common Stock, $0.01 par value per share:
Authorized – 100,000,000 shares
Issued and outstanding – 2,272,306 and 2,297,725 at September 30, 2014 and December 31, 2013		23			23
Additional paid-in capital		18,554			18,952
Unearned employee stock ownership plan (ESOP)		(1,666	)		(1,666	)
Retained earnings		44,550			43,016
Total stockholders’ equity		61,461			60,325
Total liabilities and stockholders’ equity	$	338,671		$	297,761

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Wolverine Bancorp, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Amounts in Thousands, except per share data)

	Three Months Ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
	(Unaudited)						(Unaudited)
Interest and Dividend Income
Loans	$	3,754		$	3,208		$	10,719		$	9,839
Investment securities and other		44			73			160			201
Total interest and dividend income		3,798			3,281			10,879			10,040
Interest Expense
Deposits		305			204			790			637
Borrowings		512			595			1,549			1,764
Total interest expense		817			799			2,339			2,401
Net Interest Income		2,981			2,482			8,540			7,639
Provision for Loan Losses		300			115			795			790
Net Interest Income After Provision for Loan Losses		2,681			2,367			7,745			6,849
Noninterest Income
Service charges and fees		68			60			173			170
Net gain on loan sales		181			347			472			1,326
Net (loss) gain on sale of real estate owned		(40	)		(2	)		(37	)		106
Other		49			49			126			157
Total noninterest income		258			454			734			1,759
Noninterest Expense
Salaries and employee benefits		1,035			1,399			3,564			4,039
Net occupancy and equipment expense		227			227			675			636
Information technology expense		59			58			181			172
Federal deposit insurance corporation premiums		49			56			163			165
Professional and services fees		93			68			345			252
Other real estate owned expense		7			21			65			50
Loan legal expense		(20	)		24			27			123
Advertising expense		38			65			130			199
Michigan business tax		43			47			140			140
Other		244			248			796			787
Total noninterest expense		1,775			2,213			6,086			6,563
Income Before Income Tax		1,164			608			2,393			2,045
Provision for Income Taxes		415			214			859			690
Net Income and Comprehensive Income	$	749		$	394		$	1,534		$	1,355
Earnings Per Share:
Basic	$	0.36		$	0.18		$	0.73		$	0.60
Diluted	$	0.35		$	0.18		$	0.72		$	0.60

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in Thousands)

	Nine months ended September 30,
	2014			2013
	(Unaudited)
Operating Activities
Net income	$	1,534		$	1,355
Items not requiring (providing) cash
Depreciation		191			159
Provision for loan losses		795			790
Amortization of Federal Home Loan Bank advance prepayment penalty		6			51
Loss (gain) on other real estate owned		37			(91	)
Loans originated for sale		(14,421	)		(43,923	)
Proceeds from loans sold		15,269			47,380
Net gain on sale of loans		(472	)		(1,315	)
Share based compensation		235			249
Changes in
Interest receivable and other assets		99			(400	)
Interest payable and other liabilities		1,239			(55	)
Net cash provided by operating activities		4,512			4,200
Investing Activities
Proceeds from calls, maturities and pay-downs of held to maturity securities		123			118
Net change in loans		(36,275	)		14,643
Proceeds from sale of real estate owned		551			657
Purchase of premises and equipment		(63	)		(158	)
Net cash provided (used) by investing activities		(35,664	)		15,260
Financing Activities
Net change in demand deposits, money market, checking and savings accounts		14,009			(1,606	)
Net change in certificates of deposit		33,517			7,109
Net change in Fed funds purchased		3,000			—
Repayment of Federal Home Loan Bank advances		(12,000	)		—
Proceeds from stock options exercised		28			—
Purchase of common stock		(662	)		(958	)
Net cash provided (used) by financing activities		37,892			4,545
Change in Cash and Cash Equivalents		6,740			24,005
Cash and Cash Equivalents, Beginning of Period		26,181			16,552
Cash and Cash Equivalents, End of Period	$	32,921		$	40,557
Supplemental Disclosures of Cash Flows Information
Interest paid	$	2,335		$	2,405
Income taxes paid		910			710
Loans transferred to real estate owned		255			523

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Change in Stockholders’ Equity

(Amounts in Thousands, except share data)

(Unaudited)

	Common Stock		Additional Paid-in Capital			Unearned ESOP Shares			Retained Earnings		Total Stockholders’ Equity
Balances at January 1, 2014	$	23	$	18,952		$	(1,666	)	$	43,016	$	60,325
Net income		—		—			—			1,534		1,534
Purchase of 29,541 shares of common stock		—		(662	)		—			—		(662	)
Share based compensation expense		—		235			—			—		235
Exercised options		—		29			—			—		29
Balances at September 30, 2014	$	23	$	18,554		$	(1,666	)	$	44,550	$	61,461

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed 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, 2013 has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the nine month period ended September 30, 2014 is not necessarily indicative of the results that may be expected for the year ending December 31, 2014. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto filed as part of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2014.

Note 2: Accounting Developments

Financial Accounting Standards Board (“FASB”)

In January 2014, the Financial Accounting Standards Board (FASB) issuedAccounting Standards Update (ASU) 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to reduce diversity by clarifying when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In January 2014, the FASB issuedASU 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects,” to permit entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The ASU modifies the conditions that an entity must meet to be eligible to use a method other than the equity or cost methods to account for qualified affordable housing project investments. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2014-08- Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity – In April 2014, FASB issued ASU 2014-08. This update seeks to better define the groups of assets which qualify for discontinued operations, in order to ease the burden and cost for prepares and stakeholders. This issue changed “the criteria for reporting discontinued operations” and related reporting requirements, including the provision for disclosures about the “disposal of and individually significant component of an entity that does not qualify for discontinued operations presentation.”

The amendments in this Update are effective for fiscal years beginning after December 15, 2014. Early adoption is permitted only for disposals or classifications as held for sale. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

5

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Accounting Standards Update No. 2014-09- Revenue from Contracts with Customers – In May 2014, FASB, in joint cooperation with IASB, issued ASU 2014-09. The topic of Revenue Recognition had become broad, with several other regulatory agencies issuing standards which lacked cohesion. The new guidance establishes a “common framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements.

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

Accounting Standards Update No. 2014-11- Transfers and Servicing – In June 2014, FASB, issued ASU 2014-11. This update addresses the concerns of stakeholders’ by changing the accounting practices surrounding repurchase agreements. The new guidance changes the “accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements.”

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2015. Early adoption is prohibited. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

Accounting Standards Update No. 2014-12- Compensation – Stock Compensation – In June 2014, FASB, issued ASU 2014-12. This update defines the accounting treatment for share-based payments and “resolves the diverse accounting treatment of those awards in practice.” The new requirement mandates that “a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.” Compensation cost will now be recognized in the period in which it becomes likely that the performance target will be met.

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

6

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 3: 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:
September 30, 2014
Municipal	$	—	$	—	$	—	$	—
December 31, 2013
Municipal	$	123	$	—	$	—	$	123

There were no sales of securities during the three or nine months ended September 30, 2014 and 2013.

7

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 4: Loans and Allowance for Loan Losses

Categories of loans include:

	September 30,		December 31,
	2014		2013
Real Estate
One-to four-family	$	45,959	$	49,726
Home equity		6,991		7,912
Commercial mortgage loans
Commercial real estate		149,929		126,154
Multifamily		61,017		62,790
Land		10,257		9,734
Construction		23,291		8,669
Commercial Non-mortgage		15,344		7,226
Consumer		1,132		1,167
Total loans		313,920		273,378
Less
Net deferred loan fees, premiums and discounts		578		467
Undisbursed portion of loans		10,243		5,933
Allowance for loan losses		8,492		7,597
Net loans	$	294,607	$	259,381

The risk characteristics of each loan portfolio segment are as follows:

1-4 Family, Home Equity, and Consumer

With respect to residential loans that are secured by one-to four-family residences and are primarily owner-occupied, we generally establish a maximum loan-to-value ratio and require PMI if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to four-family residences, and consumer loans are typically secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties.

Home equity loans secured by second mortgages have greater risk than one- to four-family residential mortgage loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans, decreases in real estate values could adversely affect the value of property used as collateral for our loans.

8

Wolverine Bancorp, Inc.

Form 10-Q

(Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Consumer and other loans generally have greater risk compared to longer-term loans secured by improved, owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Commercial real estate and multifamily

Commercial real estate and multifamily loans generally have greater credit risk than the owner-occupied one- to four-family residential mortgage loans that we originate for retention in our loan portfolio. Repayment of these loans generally depends, in large part, on sufficient income from the property securing the loan or the borrower’s business to cover operating expenses and debt service. These types of loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our commercial real estate and multifamily loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination.

Land

Land loans generally have greater credit risk than the owner-occupied one-to four-family residential mortgage loans that we originate for retention in our portfolio. Repayment of these loans generally depends, in large part, on the sale of the land. The sale of land can either take place when the land is undeveloped, or developed. Generally, other cash flow sources of the borrower are utilized to make additional payments on land loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our land loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination.

Construction

Construction loans include those for one- to four-family residential properties and commercial properties, including multifamily loans and commercial “mixed-use” buildings and homes built by developers on speculation. With respect to construction loans for one- to four-family residential properties and which are primarily owner-occupied, we generally establish a maximum loan-to-value ratio and require PMI if that ratio is exceeded. These are generally “interest-only” loans during the construction period which typically does not exceed nine months. Construction loans for commercial real estate are made in accordance with a schedule reflecting the cost of construction, and are generally limited to a 75% loan-to-completed appraised value ratio. For all construction loans, we generally require that a commitment for permanent financing be in place prior to closing the construction loan

9

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Repayment of one-to four-family residential property loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment of commercial property loans and homes built by developers on speculation is normally expected from the property’s eventual rental income, income from the borrower’s operations, the personal resources of the guarantor, or the sale of the subject property. Generally, before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-licensed appraiser. We generally review and inspect properties before disbursement of funds during the term of the construction loan.

Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Commercial non-mortgage

Commercial non-mortgage loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial non-mortgage loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.

As a result, the availability of funds for the repayment of commercial non-mortgage loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. In determining the appropriate level of allowance for loan loss, we analyze various components of our portfolio. The following components are analyzed: all substandard loans on an individual basis; all loans that are designated special mention or closely monitored; loans not classified according to purpose or collateral type; and overdrawn deposit account balances.

We also factor in historical loss experience and qualitative considerations, including trends in charge offs and recoveries; trends in delinquencies and impaired/classified loans; effects of credit concentrations; changes in underwriting standards and loan review system; experience in lending staff; current industry conditions; and current market conditions.

In instances where risk and loss exposure is clearly identified with a particular asset, the asset or a portion of the asset will be charged off.

10

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed 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 September 30, 2014, December 31, 2013 and September 30, 2013:

Loan Class	1-4 Family			Home Equity			Commercial Real Estate		Multifamily			Land		Construction		Commercial Non- Mortgage		Consumer			Total
Year to date analysis as of September 30, 2014
Allowance for loan losses:
Balance, beginning of period	$	1,354		$	251		$	2,861	$	1,514		$	1,145	$	285	$	157	$	30		$	7,597
Provision charged to expense		(440	)		(122	)		321		(134	)		248		779		158		(15	)		795
Losses charged off		(55	)		—			—		—			—		—		—		(1	)		(56	)
Recoveries		51			—			9		—			93		—		—		4			157
Balance, end of period	$	910		$	129		$	3,191	$	1,380		$	1,486	$	1,064	$	315	$	18		$	8,493
Ending Balance: individually evaluated for impairment	$	—		$	—		$	200	$	100		$	850	$	750	$	—	$	—		$	1,900
Ending balance: collectively evaluated for impairment	$	910		$	129		$	2,991	$	1,280		$	636	$	314	$	315	$	18		$	6,593
Loans:
Ending Balance	$	45,959		$	6,991		$	149,929	$	61,017		$	10,257	$	23,291	$	15,344	$	1,132		$	313,920
Ending Balance: individually evaluated for impairment	$	1,615		$	63		$	9,312	$	8,257		$	3,455	$	5,349	$	363	$	—			28,414
Ending Balance: collectively evaluated for impairment	$	44,344		$	6,928		$	140,617	$	52,760		$	6,820	$	17,942	$	14,981	$	1,132		$	285,506

11

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Loan Class	1-4 Family			Home Equity			Commercial Real Estate		Multifamily		Land		Construction		Commercial Non- Mortgage		Consumer		Total
Quarter to date analysis as of September 30, 2014
Allowance for loan losses:
Balance, beginning of period	$	988		$	154		$	3,179	$	1,333	$	1,377	$	808	$	253	$	17	$	8,108
Provision charged to expense		(77	)		(25	)		10		47		27		256		62		—		300
Losses charged off		(25	)		—			—		—		—		—		—		—		(25	)
Recoveries		25			—			2		—		82		—		—		1		110
Balance, end of period	$	910		$	129		$	3,191	$	1,380	$	1,486	$	1,064	$	315	$	18	$	8,493

12

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Loan Class	1-4 Family			Home Equity			Commercial Real Estate		Multifamily		Land		Construction			Commercial Non- Mortgage			Consumer			Total
Year to date analysis as of December 31, 2013
Allowance for loan losses:
Balance, beginning of year	$	1,433		$	266		$	2,663	$	1,497	$	312	$	302		$	166		$	32		$	6,671
Provision charged to expense		116			(16	)		98		17		651		(17	)		(14	)		(5	)		830
Losses charged off		(210	)		—			—		—		—		—			—			(2	)		(212	)
Recoveries		15			1			100		—		182		—			5			5			308
Balance, end of year	$	1,354		$	251		$	2,861	$	1,514	$	1,145	$	285		$	157		$	30		$	7,597
Ending Balance: individually evaluated for impairment	$	—		$	—		$	345	$	100	$	850	$	—		$	—		$	—		$	1,295
Ending balance: collectively evaluated for impairment	$	1,354		$	251		$	2,516	$	1,414	$	295	$	285		$	157		$	30		$	6,302
Loans:
Ending Balance	$	49,726		$	7,912		$	126,154	$	62,790	$	9,734	$	8,669		$	7,226		$	1,167		$	273,378
Ending Balance: individually evaluated for impairment	$	2,494		$	—		$	11,067	$	8,462	$	4,162		—		$	600		$	—		$	26,785
Ending Balance: collectively evaluated for impairment	$	47,232		$	7,912		$	115,087	$	54,328	$	5,572	$	8,669		$	6,626		$	1,167		$	246,593

13

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Loan Class	1-4 Family			Home Equity		Commercial Real Estate		Multifamily		Land		Construction		Commercial Non- Mortgage		Consumer			Total
Year to date analysis as of September 30, 2013
Allowance for loan losses:
Balance, beginning of period	$	1,433		$	266	$	2,663	$	1,497	$	312	$	302	$	166	$	32		$	6,671
Provision charged to expense		—			—		—		—		790		—		—		—			790
Losses charged off		(182	)		—		—		—		—		—		—		(2	)		(184	)
Recoveries		11			1		43		—		125		—		5		4			189
Balance, end of period	$	1,262		$	267	$	2,706	$	1,497	$	1,227	$	302	$	171	$	34		$	7,466
Ending Balance: individually evaluated for impairment	$	9		$	—	$	383	$	48	$	840	$	—	$	15	$	—		$	1,295
Ending balance: collectively evaluated for impairment	$	1,253		$	267	$	2,323	$	1,449	$	387	$	302	$	156	$	34		$	6,171
Loans:
Ending Balance	$	51,111		$	7,933	$	113,858	$	60,674	$	10,250	$	9,815	$	3,944	$	1,114		$	258,699
Ending Balance: individually evaluated for impairment	$	2,793		$	—	$	10,926	$	8,532	$	4,342	$	—	$	657	$	—		$	27,250
Ending Balance: collectively evaluated for impairment	$	48,318		$	7,933	$	102,932	$	52,142	$	5,908	$	9,815	$	3,287	$	1,114		$	231,449

Loan Class	1-4 Family			Home Equity		Commercial Real Estate		Multifamily		Land		Construction		Commercial Non- Mortgage		Consumer		Total
Quarter to date analysis as of September 30, 2013
Allowance for loan losses:
Balance, beginning of period	$	1,427		$	267	$	2,705	$	1,497	$	987	$	302	$	166	$	33	$	7,384
Provision charged to expense		—			—		—		—		115		—		—		—		115
Losses charged off		(170	)		—		—		—		—		—		—		—		(170	)
Recoveries		5			—		1		—		125		—		5		1		137
Balance, end of period	$	1,262		$	267	$	2,706	$	1,497	$	1,227	$	302	$	171	$	34	$	7,466

14

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Consistent with regulatory guidance, charge offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. Our policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except one-to-four family residential loans and consumer loans, we promptly charge off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

We charge off one-to-four family residential and consumer loans, or portions thereof, when we reasonably determine the amount of the loss. We adhere to timeframes established by applicable regulatory guidance which provides for the charge off of one-to-four family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which we can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

The following table presents the credit risk profile of our loan portfolio based on rating category and payment activity as of September 30, 2014 and December 31, 2013:

	1-4 Family				Home Equity				Commercial Real Estate				Multifamily
	2014		2013		2014		2013		2014		2013		2014		2013
Pass	$	42,934	$	45,735	$	6,991	$	7,806	$	129,421	$	107,825	$	46,963	$	48,808
Pass (Closely Monitored)		1,471		1,827		—		106		8,655		4,081		9,348		9,170
Special Mention		416		818		—		—		2,705		4,992		—		—
Substandard		1,138		1,346		—		—		9,148		9,256		4,706		4,812
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—
	$	45,959	$	49,726	$	6,991	$	7,912	$	149,929	$	126,154	$	61,017	$	62,790

15

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

	Land				Construction				Commercial Non-Mortgage				Consumer				Total
	2014		2013		2014		2013		2014		2013		2014		2013		2014		2013
Pass	$	5,157	$	3,742	$	17,942	$	8,669	$	14,638	$	6,540	$	1,132	$	1,167	$	265,178	$	230,292
Pass (Closely Monitored)		1,702		1,830		—		—		343		55		—		—		21,519		17,069
Special Mention		—		43		—		—		23		36		—		—		3,144		5,889
Substandard		3,398		4,119		5,349		—		340		595		—		—		24,079		20,128
Doubtful		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—
	$	10,257	$	9,734	$	23,291	$	8,669	$	15,344	$	7,226	$	1,132	$	1,167	$	313,920	$	273,378

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis is performed during the loan approval process and is updated as circumstances warrant.

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 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.

The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserve 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.

16

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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 we will sustain some loss if the deficiencies are not corrected; 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 is a summary of our past due and non-accrual loans as of September 30, 2014 and December 31, 2013:

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans>90 Days & Accruing		Total Nonaccrual
1-4 Family	$	14	$	—	$	108	$	122	$	45,837	$	45,959	$	—	$	147
Home Equity		—		—		—		—		6,991		6,991		—		—
Commercial Real Estate		630		1,896		—		2,526		147,403		149,929		—		1,273
Multifamily		—		—		—		—		61,017		61,017		—		—
Land		48		—		2,899		2,947		7,310		10,257		—		3,516
Construction		—		—		—		—		23,291		23,291		—		—
Commercial Non-Mortgage		—		30		23		53		15,291		15,344		—		123
Consumer		—		—		—		—		1,132		1,132		—		—
Total	$	692	$	1,926	$	3,030	$	5,648	$	308,272	$	313,920	$	—	$	5,059

17

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

As of December 31, 2013:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans>90 Days & Accruing		Total Nonaccrual
1-4 Family	$	217	$	—	$	254	$	471	$	49,255	$	49,726	$	—	$	254
Home Equity		—		—		—		—		7,912		7,912		—		—
Commercial Real Estate		716		667		49		1,432		124,722		126,154		—		779
Multifamily		—		—		1,363		1,363		61,427		62,790		1,363		—
Land		—		—		4,068		4,068		5,666		9,734		27		4,041
Construction		—		—		—		—		8,669		8,669		—		—
Commercial Non-Mortgage		—		—		36		36		7,190		7,226		—		157
Consumer		—		—		—		—		1,167		1,167		—		—
Total	$	933	$	667	$	5,770	$	7,370	$	266,008	$	273,378	$	1,390	$	5,231

Nonaccrual Loan and Past Due Loans. The accrual of interest is discontinued on all loan classes at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. We generally require a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

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 we will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing 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. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

18

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents impaired loans at September 30, 2014:

	Recorded Balance		Unpaid Principal Balance		Specific Allowance		QTD Average Balance		YTD Average Balance		QTD Interest Income		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	1.436	$	1,680	$	—	$	1,453	$	1,474	$	22	$	58
Home Equity		63		63		—		64		64		—		1
Commercial Real Estate		6,294		8,561		—		6,778		7,499		60		235
Multifamily		6,912		7,726		—		6,942		7,034		85		290
Land		529		809		—		612		912		1		3
Construction		—		1		—		—		—		—		—
Commercial Non-Mortgage		23		23		—		137		245		—		5
Consumer		—		—		—		—		—		—		—
Loans with a specific valuation allowance
1-4 Family		179		179		—		179		180		2		7
Home Equity		—		—		—		—		—		—		—
Commercial Real Estate		3,018		3,018		200		3,038		3,025		50		151
Multifamily		1,345		1,345		100		1,345		1,355		21		62
Land		2,926		4,285		850		3,192		3,159		—		1
Construction		5,349		5,349		750		5,349		3,566		44		107
Commercial Non-Mortgage		340		339		—		345		346		4		13
Consumer		—		—		—		—		—		—		—
Total
1-4 Family	$	1,615	$	1,859	$	—	$	1,632	$	1,654	$	24	$	65
Home Equity		63		63		—		64		64		—		1
Commercial Real Estate		9,312		11,579		200		9,816		10,524		110		386
Multifamily		8,257		9,071		100		8,287		8,389		106		352
Land		3,455		5,094		850		3,804		4,071		1		4
Construction		5,349		5,350		750		5,349		3,566		44		107
Commercial Non-Mortgage		363		362		—		482		591		4		18
Consumer		—		—		—		—		—		—		—
Total	$	28,414	$	33,378	$	1,900	$	29,434	$	28,859	$	289	$	933

19

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents impaired loans at December 31, 2013:

	Recorded Balance		Unpaid Principal Balance		Specific Allowance		YTD Average Balance		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	2,494	$	2,712	$	—	$	2,668	$	225
Home Equity		—		—		—		—		—
Commercial Real Estate		7,128		9,152		—		7,630		315
Multifamily		7,099		7,914		—		7,325		409
Land		742		1,672		—		913		48
Construction		—		—		—		—		—
Commercial Non-Mortgage		600		600		—		726		30
Consumer		—		—		—		4		—
Loans with a specific valuation allowance
1-4 Family		—		—		—		—		—
Home Equity		—		—		—				—
Commercial Real Estate		3,939		3,939		345		2,843		218
Multifamily		1,363		1,363		100		1,100		33
Land		3,420		4,730		850		3,641		—
Construction		—		—		—		—		—
Commercial Non-Mortgage		—		—		—		—		—
Consumer		—		—		—		—		—
Totals
1-4 Family	$	2,494	$	2,712	$	—	$	2,668	$	225
Home Equity		—		—		—		—		—
Commercial Real Estate		11,067		13,091		345		10,473		533
Multifamily		8,462		9,277		100		8,425		442
Land		4,162		6,402		850		4,554		48
Construction		—		—		—		—		—
Commercial Non-Mortgage		600		600		—		726		30
Consumer		—		—		—		4		—
Total	$	26,785	$	32,082	$	1,295	$	26,850	$	1,278

20

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents impaired loans at September 30, 2013:

	Recorded Balance		Unpaid Principal Balance		Specific Allowance		QTD Average Balance		YTD Average Balance		QTD Interest Income		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	2,730	$	3,109	$	—	$	3,166	$	2,913	$	34	$	225
Home Equity		—		—		—		—		—		—		—
Commercial Real Estate		8,439		10,541		—		13,896		9,037		177		505
Multifamily		7,715		8,529		—		5,520		7,139		75		271
Land		735		1,747		—		4,360		6,615		243		73
Construction		—		2		—		96		114		—		1
Commercial Non-Mortgage		266		266		—		392		314		5		11
Consumer		—		—		—		—		—		—		—
Loans with a specific valuation allowance
1-4 Family	$	63	$	63	$	9	$	82	$	109	$	2	$	3
Home Equity		—		—		—		—		—		—		—
Commercial Real Estate		2,487		2,487		383		3,402		4,707		34		45
Multifamily		817		817		48		1,229		969		15		28
Land		3,607		4,834		840		1,409		560		—		403
Construction		—		—		—		—		—		—		—
Commercial Non-Mortgage		391		391		15		398		461		6		22
Consumer		—		—		—		—		—		—
Total
1-4 Family	$	2,793	$	3,172	$	9	$	3,248	$	3,022	$	36	$	228
Home Equity		—		—		—		—		—		—		—
Commercial Real Estate		10,926		13,028		383		17,298		13,744		211		550
Multifamily		8,532		9,346		48		6,749		8,108		90		299
Land		4,342		6,581		840		5,769		7,175		243		476
Construction		—		2		—		96		114		—		1
Commercial Non-Mortgage		657		657		15		790		775		11		33
Consumer		—		—		—		—		—		—		—
Total	$	27,250	$	32,786	$	1,295	$	33,950	$	32,938	$	591	$	1,587

21

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assumed, in which case interest is recognized on a cash basis and is reasonable compared to interest income noted above.

Troubled Debt Restructuring (TDR)

We may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that we would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring. We may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

We identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

For one-to-four family residential and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure. There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

When considering a loan restructure, management will determine if: (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

When a loan is restructured, the new terms often require a reduced monthly debt service payment. No TDRs that were on non-accrual status at the time the concessions were granted have been returned to accrual status. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt. If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance with the new loan terms. To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.

For retail loans, an analysis of the individual’s ability to service the new required payments is performed. If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance to the new loan terms. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status. Retail TDRs remain on nonaccrual status until sufficient payments have been made to bring the past due principal and interest current and/or after six months of performance to the new loan terms at which point the loan could be transferred to accrual status.

22

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table summarizes the loans that were restructured as TDRs during the three and nine months ended September 30, 2014:

	Three Months Ended						Nine months ended
	September 30, 2014						September 30, 2014
			Balance		Balance				Balance		Balance
			prior to		after				prior to		after
	Count		TDR		TDR		Count		TDR		TDR
	(Dollars in thousands)
Commercial real estate		—		—		—		1		900		900
Total loans		—	$	—	$	—		1	$	900	$	900

We had no TDRs that had payment defaults during the three months ended September 2014 and 2013. Default occurs when a TDR is 90 days or more past due, transferred to nonaccrual status, or transferred to other real estate owned within twelve months of restructuring.

Management monitors the TDRs based on the type of modification or concession granted to the borrower. These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions. Management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal. Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure.

23

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 5: 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. We have no assets or liabilities measured at fair value on a recurring basis and no liabilities measured at fair value on a nonrecurring basis.

Nonrecurring Measurements

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 September 30, 2014 and December 31, 2013.

24

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

			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)
September 30, 2014
Collateral-dependent Impaired loans	$	55	$	—	$	—	$	55
December 31, 2013
Collateral-dependent Impaired loans	$	7,681	$	—	$	—	$	7,681

Collateral-dependent Impaired Loans

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or an evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent or subsequently as deemed necessary and approved by management. Appraisals are reviewed for accuracy and consistency by the Credit Analysis department. Typically, appraisers are selected from the list of approved appraisers maintained by the Underwriting department. The appraised values may be reduced by discounts to consider a lack of marketability or estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Credit Analysis department and approved by management.

Unobservable (Level 3) inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than good will at September 30, 2014 and December 31, 2013.

	Collateral-dependent Impaired Loans
	Fair Value		Valuation Technique		Unobservable Inputs		Range (Weighted Average)
As of September 30, 2014 Collateral-dependent impaired loans	$	55		Market comparable properties		Marketability discount		38% (38	%)
December 31, 2013 Collateral-dependent impaired loans	$	7,681		Market comparable properties		Marketability discount		9%-46% (34	%)

25

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Fair Value of Financial Instruments

The following table presents estimated fair values of our financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value at the individual dates. 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, we do not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2014
Financial assets
Cash and cash equivalents	$	32,921	$	32,921	$	—	$	—
Loans held for sale		852		—		852		—
Loans, net of allowance for loan losses		294,607		—		—		296,276
Federal Home Loan Bank stock		3,320		—		3,320		—
Interest receivable		844		844		—		—
Financial liabilities
Deposits		220,510		113,130		—		108,874
Federal Home Loan Bank advances		50,000		—		50,853		—
Fed funds purchased		3,000		—		3,000		—
Interest payable		142		142		—		—

26

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of December 31, 2013
Financial assets
Cash and cash equivalents	$	26,181	$	26,181	$	—	$	—
Held to maturity securities		123		—		123		—
Loans held for sale		1,325		—		1,330		—
Loans, net of allowance for loan losses		276,965		—		—		280,407
Federal Home Loan Bank stock		3,320		—		3,320		—
Interest receivable		699		699		—		—
Financial liabilities
Deposits	$	172,983	$	99,121	$	—	$	74,339
Federal Home Loan Bank advances		61,994		—		60,653		—
Interest payable		138		138		—		—

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.

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Interest Receivable, 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.

27

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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 us for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Repurchase Agreements, Federal Funds Purchased and Other Borrowed Funds

Fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Bank for repurchases and borrowings with similar terms and maturities.

The estimated fair value for overnight repurchase agreements, federal funds purchased and other borrowings is book value.

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 our 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.

28

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 6: Earnings Per Share (In thousands except per share amounts)

Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding for the year, plus an incremental number of common-equivalent shares computed using the treasury stock method.

Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common stock in undistributed earnings for purposes of computing EPS. Accordingly, the Company is required to calculate basic and diluted EPS using the two-class method. Restricted stock awards granted by the Company are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.

Unearned ESOP shares, which are not vested and unvested restricted stock awards are excluded from the computation of average shares outstanding.

29

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Earnings per share analysis for three months ended September 30, 2014 and 2013 is as follows (dollars in thousands, except per share data):

	Three months ended September 30, 2014			Three months ended September 30, 2013
Net income	$	749		$	394
Income allocated to participating securities		(19	)		(12	)
Income attributable to common shareholders		730			382
Weighted average shares outstanding (in thousands)		2,276			2,420
Less: average unearned ESOP and unvested restricted stock		(224	)		(245	)
Average Shares		2,052			2,175
Effect of diluted based awards		12			—
Average common and common-equivalent shares for diluted EPS (in thousands)		2,064			2,175
Basic EPS	$	.36		$	.18
Diluted EPS	$	.35		$	.18

Nine months ended September 30, 2014 and 2013 is as follows (dollars in thousands, except per share data):

	Nine months ended September 30, 2014			Nine months ended September 30, 2013
Net income	$	1,534		$	1,355
Income allocated to participating securities		(38	)		(41	)
Income attributable to common shareholders		1,496			1,314
Weighted average shares outstanding (in thousands)		2,276			2,420
Less: average unearned ESOP and unvested restricted stock		(224	)		(245	)
Average Shares		2,052			2,175
Effect of diluted based awards		12			—
Average common and common-equivalent shares for diluted EPS (in thousands)		2,064			2,175
Basic EPS	$	.73		$	.60
Diluted EPS	$	.72		$	.60

30

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

(Dollars in Thousands)

Note 7: Share-Based Compensation

In May 2013, the Company’s stockholders approved the Wolverine Bancorp, Inc. 2013 Equity Incentive Plan (“Plan”) which provides for awards of stock options and restricted stock to key officers and outside directors. The cost of the Plan is based on the fair value of the awards on the grant date. The fair value of restricted stock awards is based on the closing price of the Company’s stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on management’s judgments regarding future events, are subjective in nature, and contain uncertainties inherent in an estimate. The cost of the awards are being recognized on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards.

Until such time as awards of stock are granted and vest or options are exercised, shares of the Company’s common stock under the Plan shall be authorized but unissued shares. The maximum number of shares authorized under the plan is 351,050. Total share-based compensation expense for the nine months ended September 30, 2014 and 2013 was $235 and $249 respectively.

Stock Options

The table below presents the stock option activity for the period shown:

	Options			Weighted average exercise price		Remaining contractual life (years)		Aggregate intrinsic value
Options outstanding at January 1, 2014		129,080		$	17.30		9	$	516
Granted		2,350			22.01		10		—
Exercised		(5,004	)		17.32		—		—
Forfeited		(1,968	)		17.50		—		—
Expired		—			—		—		—
Options outstanding at September 30, 2014		124,458		$	17.39		8	$	636
Exercisable at September 30, 2014		23,820		$	17.30		8	$	129

As of September 30, 2014, the Company had $186 of unrecognized compensation expense related to stock options. The total fair value of shares vested for the nine month ended September 30, 2014 was $1,081. Stock option expense for the three and nine months ended September 30, 2014 was $17 and $47 respectively. Stock option expense for the three and nine months ended September 30, 2013 was $17 and $52.

31

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The fair value of the Company’s stock options granted on May 30, 2014 was determined using the Black-Scholes option pricing formula. The following assumptions were used in the formula:

Expected volatility		18.02	%
Risk-free interest rate		2.14	%
Expected dividend yield		1.90	%
Expected life (in years)		7.50
Exercise price for the stock options	$	22.01

Expected volatility – Based on the historical volatility of share price.

Risk-free interest rate – Based on the U.S. Treasury yield curve and expected life of the options at the time of grant.

Expected dividend yield – The Company currently does not pay a dividend; therefore, the expected dividend yield was estimated for the portion of the life of the options that the Company expects to pay a dividend.

Expected life – Based on an average of the five year vesting period and the ten year contractual term of the stock option plan.

Exercise price for the stock options – Based on the closing price of the Company’s stock on the date of grant.

Restricted Stock Awards

Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them the right to receive dividends.

The table below presents the restricted stock award activity for the period shown:

	Service- Based Restricted stock awards			Weighted average grant date fair value
Non-vested at January 1, 2014		59,723		$	17.33
Granted		1,175			22.01
Vested		(11,944	)		17.33
Forfeited		249			18.82
Non-vested at September 30, 2014		49,203		$	17.33

As of September 30, 2014, the Company had $774 of unrecognized compensation expense related to restricted stock awards. The cost of the restricted stock awards will be amortized in monthly installments over the five-year vesting period. Restricted stock expense for three months and nine months ended September 30, 2014 was $59 and $188 respectively. Restricted stock expense for the three and nine months ended September 30, 2013 was $67 and $197.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of the financial condition at September 30, 2014 and the results of operations for the three and nine months ended September 30, 2014 and 2013 is intended to assist in understanding our financial condition and results of operations. 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) is designed to provide a narrative on our financial condition, results of operations, liquidity, critical accounting policies, off-balance sheet arrangements and the future impact of accounting standards. It is useful to read our MD&A in conjunction with the consolidated financial statements contained in Part I in this Quarterly Report on Form 10-Q (this “Form 10-Q”), our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Form 10-K”), and our other reports on Forms 10-Q and current reports on Forms 8-K and other publicly available information.

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:

32

• statements of our goals, intentions and expectations;

• statements regarding our business plans, prospects, growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are 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 our market areas, that are worse than expected;

• competition among depository and other financial institutions;

• changes in the interest rate environment that reduce our 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;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• our ability to successfully integrate acquired entities, if any;

• changes in consumer spending, borrowing and savings habits;

• 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 our organization, compensation and benefit plans;

• changes in our financial condition or results of operations that reduce capital; and

• changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies.

33

Allowance for Loan Losses. We believe that the allowance for loan losses and related provision for loan losses are particularly susceptible to change in the near term, due to changes in credit quality which are evidenced by trends in charge offs and in the volume and severity of past due loans. In addition, our portfolio is comprised of a substantial amount of commercial real estate loans which generally have greater credit risk than one- to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous.

The allowance for loan losses is maintained at a level to cover probable credit losses inherent in the loan portfolio at the balance sheet date. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level. The estimate of our credit losses is applied to two general categories of loans:

• loans that we evaluate individually for impairment under ASC 310-10, “Receivables;” and

• groups of loans with similar risk characteristics that we evaluate collectively for impairment under ASC 450-20, “Loss Contingencies.”

The allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The factors used to evaluate the collectability of the loan portfolio include, but are not limited to, current economic conditions, our historical loss experience, the nature and volume of the loan portfolio, the financial strength of the borrower, and estimated value of any underlying collateral. This evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results. See also “Business of Wolverine Bank—Allowance for Loan Losses.”

Income Tax Accounting. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. Under U.S. GAAP, a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. Any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings. Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. The benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability, which could adversely affect our future income tax expense.

We believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets. We believe our tax liabilities and assets are properly recorded in the consolidated financial statements at September 30, 2014 and December 31, 2013 and no valuation allowance was necessary.

34

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

Total assets increased $41.0 million, or 13.7%, to $338.7 million at September 30, 2014 from $297.7 million at December 31, 2013. The increase was primarily a result of a $35.2 million increase in net loans.

Loans held for sale decreased $473,000, or 35.7%, to $852,000 at September 30, 2014 from $1.3 million at December 31, 2013.

Net loans increased $35.2 million, or 13.6%, to $294.6 million at September 30, 2014 from $259.4 million at December 31, 2013. Commercial real estate loans increased $23.8 million, or 18.8%, and construction loans increased $14.6 million, or 168.7%, partially offset by a decrease of $3.7 million, or 7.6%, in one-to four-family loans.

The undisbursed portion of loans increased $4.3 million to $10.2 million at September 30, 2014 from $5.9 million at December 31, 2013 due primarily to a net increase in undisbursed construction loans of $3.4 million.

Securities held to maturity decreased to $0 from $123,000 at December 31, 2013 due to the payoff of one municipal security.

Other real estate owned decreased $399,000, or 45.8%, to $473,000 at September 30, 2014, from $872,000 at December 31, 2013 primarily resulting from one loan transferred to REO totaling $255,000 and sales totaling $551,000.

Other assets, consisting primarily of net deferred and accrued federal taxes, decreased $79,000, or 1.8%, to $4.2 million at September 30, 2014, from $4.3 million at December 31, 2013.

Deposits increased $47.5 million to $220.5 million at September 30, 2014 from $173.0 million at December 31, 2013 primarily to fund new loan growth. Core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts) increased $16.5 million.

Certificates of deposit increased $33.5 million, or 45.4%, to $107.4 million at September 30, 2014 from $73.9 million at December 31, 2013 to fund new loan growth. Certificate of deposit growth in 2014 consists of both in-market and out-of-market deposits. Out-of-market deposits were primarily issued through two vehicles, a deposit listing service and brokered deposits. Deposit listing services are used by financial institutions to both issue and purchase certificate of deposits directly from other companies, primarily financial institutions. Financial institutions can also use brokers as a mechanism to raise funds. The total amount of deposits issued through a deposit listing service was $18.7 million with a weighted average rate of 1.22%. The total amount of brokered deposits issued in 2014 was $11.4 million with a weighted average rate of 1.42%. The average original maturity of these deposits is approximately three years.

Federal Home Loan Bank advances decreased $12.0 million from $62.0 million at December 31, 2013 to $50.0 million at September 30, 2014 due to the maturity of $12.0 million dollars in advances.

Interest payable and other liabilities, consisting primarily of liabilities for checks and money orders and accrued expenses increased $1.2 million, or 50.5%, to $3.7 million at September 30, 2014 from $2.5 million primarily due to a $752,000 increase in liability for checks and money orders and a $231,000 increase in borrower’s prepaid taxes and insurances.

35

Total stockholders’ equity increased $1.1 million, or 1.9%, to $61.5 million at September 30, 2014 from $60.3 million at December 31, 2013 primarily due to net income of $1.5 million and purchases of stock totaling $585,000.

Comparison of Operating Results for the Three Months Ended September 30, 2014 and 2013

General.We recorded net income of $749,000 for the three months ended September 30, 2014 compared to net income of $394,000 for the three months ended September 30, 2013 primarily due to an increase in interest income from loans. Salaries and employee benefits expense decreased $364,000 to $1.0 million for the three months ended September 30, 2014 from $1.4 million for the three months ended September 30, 2013. This was partially offset by a decrease of $164,000 in net gain on loan sales from $345,000 to $181,000.

Interest and Dividend Income.Interest and dividend income increased $516,000, or 15.7%, to $3.8 million for the three months ended September 30, 2014. Average balances of interest-earnings assets increased $45.4 million to $327.5 million for the three months ended September 30, 2014 from $282.1 million for the three months ended September 30, 2013. This was partially offset by an increase of 1 basis point in the average yield on interest-earning assets to 4.64% during the 2014 period from 4.63% during the 2013 period as a result of a low-interest rate environment.

Average net loans increased $51.8 million, or 21.4%, to $294.0 million for the three months ended September 30, 2014 from $242.2 million for the three months ended September 30, 2013. As a result, interest income on loans increased $546,000, or 17.0%, to $3.8 million for the three months ended September 30, 2014. This was partially offset by the average yield on loans decreasing 19 basis points to 5.11% for the three months ended September 30, 2014 from 5.30% for the three months ended September 30, 2013. The decrease in average yield on loans was attributable to a continuing low interest rate environment.

Income from dividends and municipal bonds decreased $29,000 to $44,000 for the quarter ended September 30, 2014 from $73,000 for the quarter ended September 30, 2013 due primarily to a decrease in dividends received from investment.

Interest Expense.Interest expense increased $17,000, or 2.1%, to $816,000 for the three months ended September 30, 2014 from $799,000 for the three months ended September 30, 2013. Interest expense on deposits increased $101,000 to $305,000 for the three months ended September 30, 2014 from $204,000 for the three months ended September 30, 2013. This was offset by a decrease in interest expense on borrowed funds of $83,000 to $512,000 for the three months ended September 30, 2014 from $595,000 for the three months ended September 30, 2013, due to the payoff of $12.0 million in maturing advances.

Average interest-bearing liabilities increased $46.3 million, or 20.7%, to $270.0 million for the three months ended September 30, 2014 from $223.7 million for the three months ended September 30, 2013. The average rate paid on these liabilities decreased 22 basis points to 1.21% from 1.43%. Interest expense on certificates of deposit increased $98,000, or 70.0%, to $238,000 for the three months ended September 30, 2014 from $140,000 for the three months ended September 30, 2013. The average balance of certificates of deposits increased to $106.9 million for the three months ended September 30, 2014, from $61.3 million for the three months ended September 30, 2013. Additionally, the rate on certificates of deposit decreased 2 basis points to 0.89% for the three months ended September 30, 2014 from 0.91% for the three months ended September 30, 2013 reflecting the continuing low interest rate environment.

The average balance of core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $11.2 million, or 11.1%, to $111.7 million for the three months ended September 30, 2014 from $100.5 million for the three months ended September 30, 2013. The interest on core deposits increased $3,000 to $67,000 for the three months ended September 30, 2014 from $64,000 for three months ended September 30, 2013. The rate on core deposits for the three months ended September 30, 2014 decreased two basis points to 0.24% from 0.26% for the three months ended September 30, 2013.

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Net Interest Income.Net interest income increased $498,000, or 20.1%, to $3.0 million for the three months ended September 30, 2014 from $2.5 million for the three months ended September 30, 2013, as our average net loans increased to $294.0 million from $242.2 million. Changes in net interest income are influenced by a variety of factors, including changes in the level and mix of interest-earning assets and interest-bearing liabilities, the level and direction of interest rates, the difference between short-term and long-term interest rates and the general strength of the economy.

Provision for Loan Losses.Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in our Annual Report on Form 10-K for 2013, we recorded a provision for loan losses of $300,000 for the three months ended September 30, 2014 and a provision for loan losses of $115,000 for the three months ended September 30, 2013. We have continued with additional provisions in 2014 based upon management’s calculation and, because management is still concerned with elevated levels of non-performing assets, delinquencies and classified assets as well the Michigan economy, elevated levels of unemployment, and some declining collateral values. At September 30, 2014, non-performing loans totaled $4.9 million, or 1.6% of total loans, as compared to $8.9 million, or 3.7% of total loans, at September 30, 2013. The allowance for loan losses to total loans receivable decreased to 2.7% at September 30, 2014 from 2.9% for the period ended September 30, 2013.

All loans rated substandard are reviewed for impairment at least quarterly. Overall, management continues to focus on resolving non-performing assets and improving asset quality. In addition to our collections department personnel in working out loans, we continue to involve business development officers and, on significant assets, underwriters and senior management.

Noninterest Income.Noninterest income decreased $196,000, or 43.1%, to $258,000 for the three months ended September 30, 2014 from $454,000 for the three months ended September 30, 2013. The decrease was primarily due to net gains on loan sales, which decreased $163,000 due to a decline in mortgage activity.

Noninterest Expense. Noninterest expense decreased $507,000, or 22.2% for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013. This was due to a decrease of $364,000 in salaries and employee benefits, related to a reduction in staffing, and a $27,000 decrease in advertising expense. This was offset in part by an increase in professional and service fees expense of $25,000, or 37.3%.

Income Tax Expense.We recorded $415,000 of income tax expense for the three months ended September 30, 2014 compared to $214,000 of income tax expense for the three months ended September 30, 2013. Our effective tax rate was 35.7% for the three months ended September 30, 2014 and 35.2% for the three months ended September 30, 2013.

Comparison of Operating Results for the Nine months ended September 30, 2014 and 2014

General.We recorded net income of $1.5 million for the nine months ended September 30, 2014 compared to net income of $1.4 million for the nine months ended September 30, 2013. Net interest income increased $896,000 to $8.5 million for the nine months ended September 30, 2014 from $7.6 million for the nine months ended September 30, 2013, and other noninterest income decreased $1.0 million to $735,000 for the nine months ended September 30, 2014 from $1.8 million for the year earlier period.

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Interest and Dividend Income.Interest and dividend income increased $839,000, or 8.4%, to $10.9 million for the nine months ended September 30, 2014 from $10.0 million for the nine months ended September 30, 2013, as the average balance of interest-earning assets increased $36.6 million to $317.2 million for the nine months ended September 30, 2014 from $281.0 million for the nine months ended September 30, 2013, and the average yield on interest-earning assets decreased 18 basis points to 4.57% during the 2014 period from 4.75% during the 2013 period. The decrease in our average yield on interest-earning assets was due primarily to the decrease in yield on net loans.

Interest income on loans increased $880,000, or 8.9%, to $10.7 million for the nine months ended September 30, 2014 from $9.8 million for the nine months ended September 30, 2013, as the average balance of loans increased $34.8 million to $282.3 million for the nine months ended September 30, 2014 from $247.5 million for the nine months ended September 30, 2013. This was partially offset by a decrease in the average yield on loans of 24 basis points to 5.06% for the nine months ended September 30, 2014 from 5.30% for the nine months ended September 30, 2013 reflecting the lower market interest rate environment.

Interest income on investment securities and other interest-earning assets, and dividends on FHLB of Indianapolis stock decreased $6,000, or 3.5%, to $160,000 for the nine months ended September 30, 2014 from $154,000 for the nine months ended September 30, 2013.

Interest Expense.Interest expense decreased $62,000, or 2.6%, to $2.3 million for the nine months ended September 30, 2014 from $2.4 million for the nine months ended September 30, 2013, as the average rate paid on these liabilities decreased 25 basis points to 1.19% from 1.44%, partially offset by an increase in interest-bearing liabilities of $38.9 million, or 17.5%, to $261.1 million for the nine months ended September 30, 2014 from $222.2 million for the nine months ended September 30, 2013.

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $11.3 million, or 11.6%, to $109.5 million for the nine months ended September 30, 2014 from $98.2 million for the nine months ended September 30, 2013. Also, the interest on core deposits increased $5,000 to $190,000 for the 2014 period from $185,000 for the 2013 period.

Interest expense on certificates of deposits increased $146,000 or 32.4% to $599,000 for the nine months ended September 30, 2014 from $453,000 for the nine months ended September 30, 2013. This was primarily due to an increase in the average balance of certificates of deposits of $37.7 million to $99.8 million for the 2014 period, from $62.1 million for the 2013 period. Also the yield on certificates of deposit decreased 17 basis points to 0.80% for the 2014 period from 0.97% for the 2013 period.

Net Interest Income.Net interest income increased $901,000, or 11.8%, to $8.5 million for the nine months ended September 30, 2014 from $7.6 million for the nine months ended September 30, 2013, as our average net loans increased $34.8 million from $282.3 million to $247.5 million, as our net interest rate spread decreased 6 basis points to 3.38% from 3.32% and our net interest margin decreased 4 basis points to 3.50% from 3.54%. The increase in net interest income reflected the increase in net loans, historical restructuring of FHLB advances; paying off of our maturing, higher interest rate FHLB advances; managing the maturities of higher interest rate certificates of deposit; managing the inflow, interest rates, and term structure of new deposits; and by our 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 our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in the December 31, 2013 Annual Report on Form 10-K, we recorded a provision for loan losses of $795,000 for the nine months ended September 30, 2014 and a provision for loan losses of $790,000 for the nine months ended September 30, 2013. We have continued with additional provisions in 2014 based on managements’ calculaton and, because management is still concerned with elevated levels of non-performing assets, delinquencies and classified assets as well the Michigan economy, elevated levels of unemployment, and some declining collateral values.

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The allowance for loan losses as a percentage of non-performing loans increased to 174.0% at September 30, 2014 from 84.3% at September 30, 2013. To the best of our knowledge, we have provided for all losses that are both probable and incurred and are reasonable to estimate at September 30, 2014 and 2013.

Noninterest Income.Noninterest income decreased $1.0 million, or 57.0%, to $735,000 for the nine months ended September 30, 2014 from $1.8 million for the nine months ended September 30, 2013. The decrease was primarily attributable to a decrease of $843,000 in gain on sale of mortgage loans, and a decrease of $106,000 in net gain on the sale of other real estate owned.

Noninterest Expense. Noninterest expense decreased $477,000, or 7.3%, to $6.0 million for the nine months ended September 30, 2014 from $6.6 million for the nine months ended September 30, 2013. The decrease was primarily attributable to a decrease of $475,000 in salaries and employee benefits, related to the reorganization of bank personnel and a redesign of operational processes, and a decrease of $96,000 in loan legal expense.

Income Tax Expense. We recorded a $859,000 income tax expense for the nine months ended September 30, 2014 compared to a $690,000 income tax expense for the 2013 period, reflecting the income of $2.4 million before income tax expense during the nine months ended September 30, 2014 versus income before income tax of $2.0 million for the nine months ended September 30, 2013. Our effective tax expense rate was 35.9% for the nine months ended September 30, 2014 compared to an effective tax expense rate of 33.7% for the nine months ended September 30, 2013.

Asset Quality

Other real estate owned totaled $473,000, or 0.1% of total assets, at September 30, 2014 compared to $801,000, or 0.3% of total assets, at December 31, 2013. The largest relationship as of September 30, 2014 was $420,000, or 89.0% of other real estate owned, which consisted of an office building and vacant lots.

Non-performing assets, which includes non-performing loans, other real estate owned and troubled debt restructurings, totaled $5.7 million, or 1.7% of total assets, at September 30, 2014 compared to $7.1 million, or 2.4% of total assets, at December 31, 2013. We believe that the decreases in nonperforming assets are a sign of improvement in the credit quality of our loan portfolio. However, our level of nonperforming assets has remained elevated, compared to historical levels, due to the unfavorable economic climate within the State of Michigan.

Our largest substandard relationship as of September 30, 2014 has a total substandard balance of $4.7 million or $4.2 million net of funds held on deposit, and this loan was downgraded to substandard during the second quarter of 2014. The loan is current with payments and property taxes. The borrower has the capacity and global cash flow and so far as demonstrated the willingness to keep payments current. If this situation deteriorates further, and thus jeopardizes the full collection of principal and interest, it would mean changing the loan to nonaccrual. Of the $23.9 million loans rated substandard, approximately $18.6 million are performing.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting company.

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Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2014. Based on that evaluation, our management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, concluded that our disclosure controls and procedures were effective.

During the quarter ended September 30, 2014, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

We are 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 our financial condition or results of operations.

Item 1A. Risk Factors

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) The following table presents for the periods indicated a summary of the purchases made by or on behalf of the company of shares of its common stock.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)(2)
July 1, 2014 through July 31, 2014		3,300	$	22.70		3,300		60,055
August 1, 2014 through August 31, 2014		3,000	$	22.50		3,000		57,055
September 1, 2014 through September 30, 2014		3,241	$	22.42		3,241		53,841
		9,541				9,541

(1) The Company’s board of directors approved a stock repurchase program on December 10, 2012 for the repurchase of 122,954 shares of common stock.

(2) The Company’s board of directors approved a stock repurchase program on December 9, 2013 for the repurchase of 119,167 shares of common stock.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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
101	INS XBRL Instance
101	SCH XBRL Taxonomy Extension Schema
101	CAL XBRL Taxonomy Extension Calculation
101	DEF XBRL Taxonomy Extension Definition
101	LAB XBRL Taxonomy Extension Label
101	PRE XBRL Taxonomy Extension Presentation

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SIGNATURES

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: November 14, 2014	/s/ David H. Dunn
	David H. Dunn
	President and Chief Executive Officer
Date: November 14, 2014	/s/ Rick A. Rosinski
	Rick A. Rosinski
	Chief Operating Officer and Treasurer

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