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Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 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 August 12, 2014, was 2,280,844.

 

 

 


Table of Contents

Wolverine Bancorp, Inc.

Form 10-Q

Index

 

         Page  
  Part I. Financial Information   
Item 1.  

Condensed Consolidated Financial Statements

  
 

Condensed Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013

     1   
 

Condensed Consolidated Statements of Income and Comprehensive Income for the three months and six months ended June 30, 2014 and 2013 (unaudited)

     2   
 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)

     3   
 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 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

     38   
Item 4.  

Controls and Procedures

     39   
  Part II. Other Information   
Item 1.   Legal Proceedings      39   
Item 1A.   Risk Factors      39   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      39   
Item 3.   Defaults upon Senior Securities      40   
Item 4.   Mine Safety Disclosures      40   
Item 5.   Other Information      40   
Item 6.   Exhibits      40   
  Signature Page      41   


Table of Contents

Wolverine Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Amounts in Thousands, except per share data)

Assets

 

     June 30,
2014
    December 31,
2013
 
     (Unaudited)        

Cash and due from banks

   $ 502      $ 791   

Interest-earning demand deposits

     37,664        25,390   
  

 

 

   

 

 

 

Cash and cash equivalents

     38,166        26,181   

Held to maturity securities

     57        123   

Loans held for sale

     1,883        1,325   

Loans, net of allowance for loan losses of $8,108 and $7,597

     286,927        259,381   

Premises and equipment, net

     1,452        1,569   

Federal Home Loan Bank stock

     3,320        3,320   

Other real estate owned

     604        872   

Accrued interest receivable

     817        699   

Other assets

     4,535        4,291   
  

 

 

   

 

 

 

Total assets

   $ 337,761      $ 297,761   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities

    

Deposits

   $ 221,235      $ 172,983   

Federal Home Loan Bank advances

     52,000        61,994   

Interest payable and other liabilities

     3,670        2,459   
  

 

 

   

 

 

 

Total liabilities

     276,905        237,436   
  

 

 

   

 

 

 

Commitments and Contingencies

    

Stockholders’ Equity

    

Common Stock, $0.01 par value per share:

    

Authorized – 100,000,000 shares

    

Issued and outstanding – 2,280,844 and 2,297,725 at June 30, 2014 and December 31,2013

     23        23   

Additional paid-in capital

     18,698        18,952   

Unearned employee stock ownership plan (ESOP)

     (1,666     (1,666

Retained earnings

     43,801        43,016   
  

 

 

   

 

 

 

Total stockholders’ equity

     60,856        60,325   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 337,761      $ 297,761   
  

 

 

   

 

 

 

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

 

1


Table of Contents

Wolverine Bancorp, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Amounts in Thousands, except per share data)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013  
     (Unaudited)      (Unaudited)  

Interest and Dividend Income

           

Loans

   $ 3,605       $ 3,321       $ 6,965       $ 6,631   

Investment securities and other

     66         84         116         128   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividend income

     3,671         3,405         7,081         6,759   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest Expense

           

Deposits

     294         209         485         433   

Borrowings

     507         587         1,037         1,169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     801         796         1,522         1,602   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income

     2,870         2,609         5,559         5,157   

Provision for Loan Losses

     195         350         495         675   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income After Provision for Loan Losses

     2,675         2,259         5,064         4,482   
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest Income

           

Service charges and fees

     54         56         105         110   

Net gain on loan sales

     171         434         291         970   

Net gain (loss) on sale of real estate owned

     23         6         3         100   

Other

     47         74         77         125   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest income

     295         570         476         1,305   
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest Expense

           

Salaries and employee benefits

     1,298         1,348         2,529         2,640   

Net occupancy and equipment expense

     227         231         448         409   

Information technology expense

     62         57         122         114   

Federal deposit insurance corporation premiums

     61         51         114         109   

Professional and services fees

     102         55         252         184   

Other real estate owned expense

     39         11         58         29   

Loan legal expense

     34         52         47         99   

Advertising expense

     52         69         92         134   

Michigan business tax

     45         46         97         93   

Other

     286         271         552         539   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest expense

     2,206         2,191         4,311         4,350   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Before Income Tax

     764         638         1,229         1,437   

Provision for Income Taxes

     284         202         444         476   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income and Comprehensive Income

   $ 480       $ 436       $ 785       $ 961   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Per Share:

           

Basic

   $ 0.23       $ 0.19       $ 0.37       $ 0.42   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.23       $ 0.19       $ 0.37       $ 0.42   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

2


Table of Contents

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in Thousands)

 

    

Six months ended

June 30,

 
     2014     2013  
     (Unaudited)  

Operating Activities

    

Net income

   $ 785      $ 961   

Items not requiring (providing) cash

    

Depreciation

     127        103   

Provision for loan losses

     495        675   

Amortization of Federal Home Loan Bank advance prepayment penalty

     6        34   

Gain on other real estate owned

     (3     (100

Loans originated for sale

     (9,515     (37,362

Proceeds from loans sold

     9,248        39,052   

Net gain on sale of loans

     (291     (970

Share based compensation

     160        165   

Changes in

    

Interest receivable and other assets

     (345     312   

Interest payable and other liabilities

     1,211        1,420   
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,878        4,290   
  

 

 

   

 

 

 

Investing Activities

    

Proceeds from calls, maturities and pay-downs of held to maturity securities

     66        69   

Net change in loans

     (28,312     8,884   

Proceeds from sale of real estate owned

     525        636   

Purchase of premises and equipment

     (10     (63
  

 

 

   

 

 

 

Net cash provided (used) by investing activities

     (27,731     9,526   
  

 

 

   

 

 

 

Financing Activities

    

Net change in demand deposits, money market, checking and savings accounts

     12,818        (3,374

Net change in certificates of deposit

     35,434        3,319   

Repayment of Federal Home Loan Bank advances

     (10,000     —     

Proceeds from stock options exercised

     28        —     

Purchase of common stock

     (442     (661
  

 

 

   

 

 

 

Net cash provided (used) by financing activities

     37,838        (716
  

 

 

   

 

 

 

Change in Cash and Cash Equivalents

     11,985        13,100   

Cash and Cash Equivalents, Beginning of Period

     26,181        16,552   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 38,166      $ 29,652   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flows Information

    

Interest paid

   $ 1,521      $ 1,606   

Income taxes paid

     600        860   

Loans transferred to real estate owned

     255        81   

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

 

3


Table of Contents

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

     —           —          —          785         785   

Purchase of 16,000 shares of common stock

     —           (442     —          —           (442

Share based compensation expense

     —           160        —          —           160   

Exercised options

     —           28        —          —           28   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balances at June 30, 2014

   $ 23       $ 18,698      $ (1,666   $ 43,801       $ 60,856   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

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

 

4


Table of Contents

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 six month period ended June 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) issued Accounting 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 issued ASU 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


Table of Contents

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


Table of Contents

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:

           

June 30, 2014

           

Municipal

   $ 57       $ —         $ —         $ 57   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2013

           

Municipal

   $ 123       $ —         $ —         $ 123   
  

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost and fair value of securities at June 30, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     June 30, 2014  
     Amortized
Cost
     Fair
Value
 

Within one year

   $ 57       $ 57   
  

 

 

    

 

 

 

Totals

   $ 57       $ 57   
  

 

 

    

 

 

 

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

 

7


Table of Contents

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:

 

     June 30,
2014
     December 31,
2013
 

Real Estate

     

One-to four-family

   $ 50,397       $ 49,726   

Home equity

     7,219         7,912   

Commercial mortgage loans

     

Commercial real estate

     147,191         126,154   

Multifamily

     60,248         62,790   

Land

     9,568         9,734   

Construction

     23,609         8,669   

Commercial Non-mortgage

     12,801         7,226   

Consumer

     1,144         1,167   
  

 

 

    

 

 

 

Total loans

     312,177         273,378   

Less

     

Net deferred loan fees, premiums and discounts

     633         467   

Undisbursed portion of loans

     16,509         5,933   

Allowance for loan losses

     8,108         7,597   
  

 

 

    

 

 

 

Net loans

   $ 286,927       $ 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


Table of Contents

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


Table of Contents

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


Table of Contents

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 June 30, 2014, December 31, 2013 and June 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 June 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

     (363     (97     311         (181     221         523         96         (15     495   

Losses charged off

     (30     —          —           —          —           —           —           (1     (31

Recoveries

     26        —          7         —          11         —           —           3        47   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, end of period

   $ 987      $ 154      $ 3,179       $ 1,333      $ 1,377       $ 808       $ 253       $ 17      $ 8,108   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

   $ —        $ —        $ 200       $ 100      $ 850       $ 500       $ —         $ —        $ 1,650   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 987      $ 154      $ 2,979       $ 1,233      $ 527       $ 308       $ 253       $ 17      $ 6,458   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Loans:

                      

Ending Balance

   $ 50,397      $ 7,219      $ 147,191       $ 60,248      $ 9,568       $ 23,609       $ 12,801       $ 1,144      $ 312,177   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

   $ 1,449      $ 63      $ 9,779       $ 8,316      $ 3,888       $ 5,349       $ 595       $ —        $ 29,439   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance: collectively evaluated for impairment

   $ 48,948      $ 7,156      $ 137,412       $ 51,932      $ 5,680       $ 18,260       $ 12,206       $ 1,144      $ 282,738   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

11


Table of Contents

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 June 30, 2014

                     

Allowance for loan losses:

                     

Balance, beginning of period

   $ 1,006      $ 148       $ 3,475      $ 1,338      $ 1,422      $ 390       $ 126       $ 14      $ 7,919   

Provision charged to expense

     (5     6         (300     (5     (49     419         126         3        195   

Losses charged off

     (30     —           —          —          —          —           —           (1     (31

Recoveries

     16        —           4        —          4        —           —           1        25   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance, end of period

   $ 987      $ 154       $ 3,179      $ 1,333      $ 1,377      $ 808       $ 253       $ 17      $ 8,108   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

12


Table of Contents

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


Table of Contents

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 June 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

     —          —           —           —           675         —           —           —          675   

Losses charged off

     (12     —           —           —           —           —           —           (2     (14

Recoveries

     6        1         42         —           —           —           —           3        52   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, end of period

   $ 1,427      $ 267       $ 2,705       $ 1,497       $ 987       $ 302       $ 166       $ 33      $ 7,384   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

   $ 9      $ —         $ 238       $ 48       $ 840       $ —         $ 15       $ —        $ 1,150   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,418      $ 267       $ 2,467       $ 1,449       $ 147       $ 302       $ 151       $ 33      $ 6,234   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Loans:

                        

Ending Balance

   $ 52,937      $ 8,135       $ 105,975       $ 62,618       $ 9,896       $ 13,677       $ 3,589       $ 1,157      $ 257,984   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

   $ 2,519      $ —         $ 11,383       $ 8,597       $ 4,588       $ 325       $ 957       $ —        $ 28,369   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending Balance: collectively evaluated for impairment

   $ 50,418      $ 8,135       $ 94,592       $ 54,021       $ 5,308       $ 13,352       $ 2,632       $ 1,157      $ 229,615   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

Loan Class    1-4
Family
    Home
Equity
    Commercial
Real Estate
    Multifamily     Land      Construction     Commercial
Non-
Mortgage
     Consumer     Total  

Quarter to date analysis as of June 30, 2013

                    

Allowance for loan losses:

                    

Balance, beginning of period

   $ 1,445      $ 292      $ 2,856      $ 1,655      $ 265       $ 351      $ 93       $ 32      $ 6,989   

Provision charged to expense

     (21     (26     (193     (158     722         (49     73         2        350   

Losses charged off

     —          —          —          —          —           —          —           (2     (2

Recoveries

     3        1        42        —          —           —          —           1        47   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, end of period

   $ 1,427      $ 267      $ 2,705      $ 1,497      $ 987       $ 302      $ 166       $ 33      $ 7,384   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

14


Table of Contents

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 June 30, 2014 and December 31, 2013:

 

     1-4 Family      Home Equity     

Commercial Real

Estate

     Multifamily  
     2014      2013      2014      2013      2014      2013      2014      2013  

Pass

   $ 47,216       $ 45,735       $ 7,219       $ 7,806       $ 130,383       $ 107,825       $ 46,678       $ 48,808   

Pass (Closely Monitored)

     1,709         1,827         —           106         3,762         4,081         8,850         9,170   

Special Mention

     419         818         —           —           4,211         4,992         —           —     

Substandard

     1,053         1,346         —           —           8,835         9,256         4,720         4,812   

Doubtful

     —           —           —           —           —           —           —           —     

Loss

     —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 50,397       $ 49,726       $ 7,219       $ 7,912       $ 147,191       $ 126,154       $ 60,248       $ 62,790   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

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

   $ 4,162       $ 3,742       $ 18,260       $ 8,669       $ 12,073       $ 6,540       $ 1,144       $ 1,167       $ 267,135       $ 230,292   

Pass (Closely Monitored)

     2,165         1,830         —           —           133         55         —           —           16,619         17,069   

Special Mention

     —           43         —           —           27         36         —           —           4,657         5,889   

Substandard

     3,241         4,119         5,349         —           568         595         —           —           23,766         20,128   

Doubtful

     —           —           —           —           —           —           —           —           —           —     

Loss

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,568       $ 9,734       $ 23,609       $ 8,669       $ 12,801       $ 7,226       $ 1,144       $ 1,167       $ 312,177       $ 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


Table of Contents

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 June 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

   $ 86       $ —         $ 138       $ 224       $ 50,173       $ 50,397       $ —         $ 138   

Home Equity

     —           —           —           —           7,219         7,219         —           —     

Commercial Real Estate

     181         504         44         729         146,462         147,191         —           713   

Multifamily

     —           —           —           —           60,248         60,248         —           —     

Land

     49         —           3,165         3,214         6,354         9,568         —           4,007   

Construction

     —           —           —           —           23,609         23,609         —           —     

Commercial Non-Mortgage

     —           —           27         27         12,774         12,801         —           143   

Consumer

     —           —           —           —           1,144         1,144         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 316       $ 504       $ 3,374       $ 4,194       $ 307,983       $ 312,177       $ —         $ 5,001   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

                                                                                                                                       
     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
 

As of December 31, 2013:

                       

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


Table of Contents

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 June 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

   $ 1,269       $ 1,579       $ —         $ 1,472       $ 1,780       $ 16       $ 37   

Home Equity

     63         63         —           64         65         1         1   

Commercial Real Estate

     6,741         9,180         —           7,036         7,607         110         175   

Multifamily

     6,971         7,786         —           7,002         7,034         123         205   

Land

     696         1,070         —           701         912         —           1   

Construction

     —           1         —           —           —           —           —     

Commercial Non-Mortgage

     251         251         —           254         244         2         5   

Consumer

     —           —           —           —           —           —           —     

Loans with a specific valuation allowance

                 

1-4 Family

     180         180         —           180         181         3         5   

Home Equity

     —           —           —           —           —           —           —     

Commercial Real Estate

     3,038         3,054         200         3,058         3,085         38         101   

Multifamily

     1,345         1,345         100         1,348         1,353         20         41   

Land

     3,192         4,531         850         3,290         3,342         1         1   

Construction

     5,349         5,349         500         2,674         1,783         64         64   

Commercial Non-Mortgage

     344         344         —           350         358         4         9   

Consumer

     —           —           —           —           —           —           —     

Total

                 

1-4 Family

   $ 1,449       $ 1,759       $ —         $ 1,652       $ 1,961       $ 19       $ 42   

Home Equity

     63         63         —           64         65         1         1   

Commercial Real Estate

     9,779         12,234         200         10,094         10,692         148         276   

Multifamily

     8,316         9,131         100         8,350         8,387         143         246   

Land

     3,888         5,601         850         3,991         4,254         1         2   

Construction

     5,349         5,350         500         2,674         1,783         64         64   

Commercial Non-Mortgage

     595         595         —           604         602         6         14   

Consumer

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 29,439       $ 34,734       $ 1,650       $ 27,429       $ 27,744       $ 382       $ 645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

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


Table of Contents

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 June 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

   $ 2,456       $ 2,665       $ —         $ 2,711       $ 2,767       $ 28       $ 180   

Home Equity

     —           —           —           —           —           —           —     

Commercial Real Estate

     7,607         9,776         —           9,495         6,989         176         266   

Multifamily

     7,768         8,584         —           10,431         8,637         112         217   

Land

     971         2,980         —           6,260         7,033         55         274   

Construction

     325         327         —           218         123         1         4   

Commercial Non-Mortgage

     539         641         —           552         275         6         29   

Consumer

     —           —           —           —           —           —           —     

Loans with a specific valuation allowance

                    

1-4 Family

   $ 63       $ 63       $ 9       $ 103       $ 142       $ 2       $ 2   

Home Equity

     —           —           —           —           —           —           —     

Commercial Real Estate

     3,776         3,776         238         3,762         4,978         56         90   

Multifamily

     829         829         48         836         840         14         18   

Land

     3,617         4,910         840         1,665         839         26         289   

Construction

     —           —           —           —           —           —           —     

Commercial Non-Mortgage

     418         418         15         425         492         8         6   

Consumer

     —           —           —           —           —           —        

Total

           

1-4 Family

   $ 2,519       $ 2,728       $ 9       $ 2,814       $ 2,909       $ 30       $ 182   

Home Equity

     —           —           —           —           —           —           —     

Commercial Real Estate

     11,383         13,552         238         13,257         11,967         232         356   

Multifamily

     8,597         9,413         48         11,267         9,477         126         235   

Land

     4,588         7,890         840         7,925         7,872         81         563   

Construction

     325         327         —           218         123         1         4   

Commercial Non-Mortgage

     957         1,059         15         977         767         14         35   

Consumer

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 28,369       $ 34,969       $ 1,150       $ 36,458       $ 33,115       $ 484       $ 1,375   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

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


Table of Contents

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

There were no loans that were restructured as TDRs during the three months ended June 30, 2014.

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

 

     Three Months Ended      Six Months Ended  
     June 30, 2014      June 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         1         900         900   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

     1       $ 900       $ 900         1       $ 900       $ 900   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We had no TDRs that had payment defaults during the three months ended June 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


Table of Contents

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 June 30, 2014 and December 31, 2013.

 

            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)
 

June 30, 2014

           

Collateral-dependent

Impaired loans

   $ 43       $ —         $ —         $ 43   

December 31, 2013

           

Collateral-dependent

Impaired loans

   $ 7,681       $ —         $ —         $ 7,681   

 

24


Table of Contents

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

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 June 30, 2014 and December 31, 2013.

 

     Collateral-dependent Impaired Loans
     Fair Value      Valuation
Technique
   Unobservable
Inputs
   Range (Weighted
Average)

As of June 30, 2014 Collateral-dependent impaired loans

   $ 43       Market
comparable
properties
   Marketability
discount
   10%(10%)

December 31, 2013 Collateral-dependent impaired loans

   $ 7,681       Market

comparable

properties

   Marketability
discount
   9%-46% (34%)

 

25


Table of Contents

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 June 30, 2014

           

Financial assets

           

Cash and cash equivalents

   $ 38,166       $ 38,166       $ —         $ —     

Held to maturity securities

     57         —           57         —     

Loans held for sale

     1,883         —           1,883         —     

Loans, net of allowance for loan losses

     286,927         —           —           289,814   

Federal Home Loan Bank stock

     3,320         —           3,320         —     

Interest receivable

     817         817         —           —     

Financial liabilities

           

Deposits

     221,235         89,643         —           110,296   

Federal Home Loan Bank advances

     52,000         —           52,555         —     

Interest payable

     139         139         —           —     

 

26


Table of Contents

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


Table of Contents

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.

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.

 

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.

 

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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 June 30, 2014 and 2013 is as follows (dollars in thousands, except per share data):

 

     Three months ended
June 30, 2014
    Three months ended
June 30, 2013
 

Net income

   $ 480      $ 436   

Income allocated to participating securities

     (14     (15
  

 

 

   

 

 

 

Income attributable to common shareholders

     466        421   
  

 

 

   

 

 

 

Weighted average shares outstanding (in thousands)

     2,288        2,439   

Less: average unearned ESOP and unvested restricted stock

     (226     (177
  

 

 

   

 

 

 

Average Shares

     2,062        2,262   

Effect of diluted based awards

     12        —     
  

 

 

   

 

 

 

Average common and common-equivalent shares for diluted EPS (in thousands)

     2,074        2,262   
  

 

 

   

 

 

 

Basic EPS

   $ .23      $ .19   

Diluted EPS

   $ .23      $ .19   

Six Months Ended June 30, 2014 and 2013 is as follows (dollars in thousands, except per share data):

 

     Six Months Ended
June 30, 2014
    Six Months Ended
June 30, 2013
 

Net income

   $ 785      $ 961   

Income allocated to participating securities

     (22     (32
  

 

 

   

 

 

 

Income attributable to common shareholders

     763        929   
  

 

 

   

 

 

 

Weighted average shares outstanding (in thousands)

     2,292        2,447   

Less: average unearned ESOP and unvested restricted stock

     (226     (177
  

 

 

   

 

 

 

Average Shares

     2,066        2,270   

Effect of diluted based awards

     12        —     
  

 

 

   

 

 

 

Average common and common-equivalent shares for diluted EPS (in thousands)

     2,078        2,270   
  

 

 

   

 

 

 

Basic EPS

   $ .37      $ .42   

Diluted EPS

   $ .37      $ .42   

 

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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 six months ended June 30, 2014 and 2013 was $160 and $165 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         —           —     

Exercised

     (4,001     17.32         —           —     

Forfeited

     (1,968     17.50         —           —     

Expired

     —          —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Options outstanding at June 30, 2014

     125,461      $ 17.38         9       $ 667   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2014

     23,820      $ 17.30         8.14       $ 129   
  

 

 

   

 

 

    

 

 

    

 

 

 

As of June 30, 2014, the Company had $201 of unrecognized compensation expense related to stock options. The total fair value of shares vested for the six months ended June 30, 2014 was $541. Stock option expense for the three and six months ended June 30, 2014 was $16 and $31 respectively. Stock option expense for the three and six months ended June 30, 2013 was $17 and $36.

 

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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

     (229     18.82   

Forfeited

     —          —     
  

 

 

   

 

 

 

Non-vested at June 30, 2014

     60,669      $ 17.41   
  

 

 

   

 

 

 

As of June 30, 2014, the Company had $838 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 six months ended June 30, 2014 was $63 and $129 respectively. Restricted stock expense for the three and six months ended June 30, 2013 was $66 and $129.

 

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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 June 30, 2014 and the results of operations for the three and six months ended June 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:

 

    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;

 

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    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.

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

 

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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 June 30, 2014 and December 31, 2013 and no valuation allowance was necessary.

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

Total assets increased $40.0 million, or 13.4%, to $337.8 million at June 30, 2014 from $297.7 million at December 31, 2013. The increase was primarily a result of a $27.5 million increase in net loans.

Loans held for sale increased $558,000, or 42.1%, to $1.9 million at June 30, 2014 from $1.3 million at December 31, 2013.

Net loans increased $27.5 million, or 10.6%, to $286.9 million at June 30, 2014 from $259.4 million at December 31, 2013. Commercial real estate loans increased $21.0 million, or 16.7%, and construction loans increased $14.9 million, or 172.3%, partially offset by a decrease of $2.5 million, or 4.0%, in multifamily loans.

The undisbursed portion of loans increased $10.6 million to $16.5 million at June 30, 2014 from $5.9 million at December 31, 2013 due primarily to a net increase in undisbursed construction loans of $8.1 million.

Securities held to maturity, consisting of one municipal security at June 30, 2014, decreased $66,000, or 53.7%, to $57,000 from $123,000 at December 31, 2013 due to a principal paydown.

Other real estate owned decreased $268,000, or 30.7%, to $604,000 at June 30, 2014, from $872,000 at December 31, 2013 resulting from one loan transferred to REO totaling $255,000 and eight sales totaling $374,000.

Other assets, consisting primarily of net deferred and accrued federal taxes, increased $244,000, or 5.7%, to $4.5 million at June 30, 2014, from $4.3 million at December 31, 2013 primarily due to a $89,000 increase in accrued federal income taxes, a $43,000 increase in prepaid service maintenance contracts, and a $32,000 increase in prepaid bond and insurance premiums.

 

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Deposits increased $48.2 million to $221.2 million at June 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 $15.5 million.

Certificates of deposit increased $35.4 million, or 48.0%, to $109.3 million at June 30, 2014 from $73.9 million at December 31, 2013 to fund new loan growth. Certificate deposit of 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 $10.0 million from $62.0 million at December 31, 2013 to $52.0 million at June 30, 2014 due to the payoff of a $10.0 million advance at maturity.

Interest payable and other liabilities, consisting primarily of liabilities for checks and money orders and accrued expenses increased $1.2 million, or 49.2%, to $3.7 million at June 30, 2014 from $2.5 million primarily due to a $1.4 million increase in prepaid taxes and insurances, partially offset by a decrease of $442,000 in liability for checks and money orders.

Total stockholders’ equity increased $531,000, or 0.9%, to $60.9 million at June 30, 2014 from $60.3 million at December 31, 2013 primarily due to net income of $785,000.

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

General. We recorded net income of $480,000 for the three months ended June 30, 2014 compared to net income of $436,000 for the three months ended June 30, 2013 primarily due to a decrease in net gains on loan sales. Gain on loan sales decreased $263,000 to $171,000 for the three months ended June 30, 2014 from $434,000 for the three months ended June 30, 2013. This was partially offset by an increase of $261,000 in net interest income from loans from $2.6 million to $2.9 million.

We have experienced significant declines in residential mortgage originations primarily due to decreased refinance activity, a slow real estate purchase market, and higher interest rates as compared to 2012 and early 2013. To offset the decline in mortgage activity, management embarked on several cost savings measures in late 2013 and the beginning of the first quarter of 2014. This included a reorganization of bank personnel and a redesign of operational processes aimed at reallocating resources to areas of need and creating efficiencies that will not only reduce operational costs, but also reduce loan processing time. The full impact of these measures should be realized in the second half of 2014, management estimates annualized savings of approximately $745,000 of salaries and benefits expenses.

Interest and Dividend Income. Interest and dividend income increased $266,000, or 7.8%, to $3.7 million for the three months ended June 30, 2014. Average balances increased $48.7 million in interest-earning assets to $329.7 million for the three months ended June 30, 2014 from $279.4 million for the three months ended June 30, 2013. This was partially offset by a decrease of 35 basis points in the average yield on earning assets to 4.45% during the 2014 period from 4.83% during the 2013 period as a result of a low-interest rate environment.

Average net loans increased $35.1 million, or 14.2%, to $282.9 million for the three months ended June 30, 2014 from $246.0 million for the three months ended June 30, 2013. As a result, interest income on loans increased $284,000, or 8.6%, to $3.6 million for the three months ended June 30, 2014. This was partially offset by the average yield on loans decreasing 26 basis points to 5.10% for the three months ended June 30, 2014 from 5.40% for the three months ended June 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 $18,000 to $66,000 for the period ended June 30, 2014 from $84,000 for the three months ended June 30, 2013 due primarily to a decrease in dividends received from service corp.

Interest Expense. Interest expense increased $5,000, or 0.6%, to $801,000 for the three months ended June 30, 2014 from $796,000 for the three months ended June 30, 2013. Interest expense on deposits increased $85,000 to $294,000 for the three months ended June 30, 2014 from $209,000 for the

 

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three months ended June 30, 2013. This was offset by a decrease in interest expense on borrowed funds of $80,000 to $507,000 for the three months ended June 30, 2014 from $587,000 for the three months ended June 30, 2013, due to the payoff of a $10.0 million maturing advance.

Average interest-bearing liabilities increased $52.2 million, or 23.5%, to $273.9 million for the three months ended June 30, 2014 from $221.7 million for the three months ended June 30, 2013. The average rate paid on these liabilities decreased 27 basis points to 1.17% from 1.44%. Interest expense on certificates of deposit increased $83,000, or 56.1%, to $229,000 for the three months ended June 30, 2014 from $146,000 for the three months ended June 30, 2013. The average balance of certificates of deposits increased to $110.8 million for the three months ended June 30, 2014, from $61.0 million for the three months ended June 30, 2013. Additionally, the rate on certificates of deposit decreased 13 basis points to 0.83% for the three months ended June 30, 2014 from 0.96% for the three months ended June 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 $12.2 million, or 12.4%, to $111.0 million for the three months ended June 30, 2014 from $98.8 million for the three months ended June 30, 2013. The interest on core deposits increased $4,000 to $66,000 for the three months ended June 30, 2014 from $62,000 for three months ended June 30, 2013. The rate on core deposits for the three months ended June 30, 2014 decreased one basis points to 0.24% from 0.25% for the three months ended June 30, 2013.

Net Interest Income. Net interest income increased $261,000, or 10.0%, to $2.9 million for the three months ended June 30, 2014 from $2.6 million for the three months ended June 30, 2013, as our average net loans increased to $282.9 million from $247.8 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 $195,000 for the three months ended June 30, 2014 and a provision for loan losses of $350,000 for the three months ended June 30, 2013. We have continued with additional provisions in 2014 primarily due to additional growth in loans. However, 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 June 30, 2014, non-performing loans totaled $5.6 million, or 2.0% of total loans, as compared to $7.2 million, or 2.8% of total loans, at June 30, 2013. The allowance for loan losses to total loans receivable decreased to 2.75% at June 30, 2014 from 2.9% for the period ended June 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 $275,000, or 48.3%, to $295,000 for the three months ended June 30, 2014 from $570,000 for the three months ended June 30, 2013. The decrease was primarily due to net gains on loan sales, which decrease $263,000 due to a decline in mortgage activity.

Noninterest Expense. Noninterest expense increased $15,000, or 0.7% for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. This was due to an increase of $47,000 in professional and service fees and a $28,000 increase in other real estate owned expense. This was offset by a decrease in salaries and employee benefits expense of $50,000, or 3.7%.

Income Tax Expense. We recorded $284,000 of income tax expense for the three months ended June 30, 2014 compared to $202,000 of income tax expense for the three months ended June 30, 2013. Our effective tax rate was 37.1% for the three months ended June 30, 2014 and 31.6% for the three months ended June 30, 2013.

 

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Comparison of Operating Results for the Six Months Ended June 30, 2014 and 2014

General. We recorded net income of $785,000 for the six months ended June 30, 2014 compared to net income of $961,000 for the six months ended June 30, 2013. Net interest income increased $402,000 to $5.6 million for the six months ended June 30, 2014 from $5.2 million for the six months ended June 30, 2013, and other noninterest income decreased $829,000 to $476,000 for the six months ended June 30, 2014 from $1.3 million for the year earlier period.

Interest and Dividend Income. Interest and dividend income increased $322,000, or 4.8%, to $7.1 million for the six months ended June 30, 2014 from $6.8 million for the six months ended June 30, 2013, as the average balance of interest-earning assets increased $32.2 million to $312.1 million for the six months ended June 30, 2014 from $279.0 million for the six months ended June 30, 2013, and the average yield on interest-earning assets decreased 30 basis points to 4.54% during the 2014 period from 4.84% 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 $334,000, or 5.0%, to $7.0 million for the six months ended June 30, 2014 from $6.6 million for the six months ended June 30, 2013, as the average yield on loans decreased 29 basis points to 5.04% for the six months ended June 30, 2014 from 5.33% for the six months ended June 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 $12,000, or 9.4%, to $116,000 for the six months ended June 30, 2014 from $128,000 for the six months ended June 30, 2013. This decrease was primarily attributable to a decrease in dividends received from service corporation.

Interest Expense. Interest expense decreased $80,000, or 5.0%, to $1.5 million for the six months ended June 30, 2014 from $1.6 million for the six months ended June 30, 2013, as the average rate paid on these liabilities decreased 26 basis points to 1.19% from 1.45%, partially offset by an increase in interest-bearing liabilities of $35.2 million, or 15.9%, to $256.6 million for the six months ended June 30, 2014 from $221.4 million for the six months ended June 30, 2013.

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $11.5 million, or 11.9%, to $108.5 million for the six months ended June 30, 2014 from $97.0 million for the six months ended June 30, 2013. Also, the interest on core deposits increased $3,000 to $123,000 for the 2014 period from $120,000 for the 2013 period.

Interest expense on certificates of deposits increased $48,000 or 15.3% to $361,000 for the six months ended June 30, 2014 from $313,000 for the six months ended June 30, 2013. This was primarily due to an increase in the average balance of certificates of deposits of $33.7 million to $96.2 million for the 2014 period, from $62.5 million for the 2013 period. Also the yield on certificates of deposit decreased 25 basis points to 0.75% for the 2014 period from 1.00% for the 2013 period.

Net Interest Income. Net interest income increased $402,000, or 7.8%, to $5.6 million for the six months ended June 30, 2014 from $5.2 million for the six months ended June 30, 2013, as our average net loans increased $26.3 million from $250.1 million to $276.4 million, our net interest rate spread decreased 5 basis points to 3.35% from 3.40% and our net interest margin decreased 11 basis points to 3.47% from 3.56%. 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; and managing the maturities of higher interest rate certificates of deposit; managing the inflow, interest rates, and term structure of new deposits; offset 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.

 

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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 $495,000 for the six months ended June 30, 2014 and a provision for loan losses of $675,000 for the six months ended June 30, 2013. We have continued with additional provisions in 2014 because of loan growth, elevated levels of non-performing assets, delinquencies and classified assets, as well as continued concerns about the Michigan economy, elevated levels of unemployment, and some declining collateral values.

The allowance for loan losses as a percentage of non-performing loans increased to 145.9% at June 30, 2014 from 79.3% at June 30, 2013. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at June 30, 2014 and 2013.

Noninterest Income. Noninterest income decreased $829,000, or 63.5%, to $476,000 for the six months ended June 30, 2014 from $1.3 million for the six months ended June 30, 2013. The decrease was primarily attributable to a decrease of $679,000 in gain on sale of mortgage loans, and a decrease of $97,000 in net gain on the sale of other real estate owned.

Noninterest Expense. Noninterest expense remained constant at $4.3 million for the six months ended June 30, 2013 to the six months ended June 30, 2014.

Income Tax Expense. We recorded a $444,000 income tax expense for the six months ended June 30, 2014 compared to a $476,000 income tax expense for the 2013 period, reflecting the income of $1.2 million before income tax expense during the six months ended June 30, 2014 versus income before income tax of $1.4 million for the six months ended June 30, 2013. Our effective tax expense rate was 36.1% for the six months ended June 30, 2014 compared to an effective tax expense rate of 33.1% for the six months ended June 30, 2013.

Asset Quality

Other real estate owned totaled $604,000, or 0.2% of total assets, at June 30, 2014 compared to $872,000, or 0.3% of total assets at December 31, 2013. The largest relationship as of June 30, 2014 was $426,900, or 71.0% 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 $6.3 million, or 1.9% of total assets, at June 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 June 30, 2014 has a total balance of $5.3 million or $4.1 million net of funds held in escrow and 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 jeopardize the full collection of principal and interest, it would mean changing the loan to non-accrual. Of the $23.9 million loans rated substandard, approximately $19.3 million are performing.

At June 30, 2014, we had three loans, totaling $215,000, for which we had temporarily extended the maturities while working on the loan renewal process. During the renewal process, the borrowers continue repayment according to the original loan terms which are at market interest rates. At June 30, 2014, none of these loans was considered substandard or a troubled debt restructuring, and all of these loans were considered performing at June 30, 2014.

 

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 June 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 June 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)
 

April 1, 2014 through April 30, 2014

     —         $ —           —           79,355   

May 1, 2014 through May 31, 2014

     16,000       $ 22.17         16,000         63,355   

June 1, 2014 through June 30, 2014

     —         $ —           —           63,355   
  

 

 

       

 

 

    
     16,000            16,000      
  

 

 

       

 

 

    

 

(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.

Item 3. Defaults Upon Senior Securities

None.

 

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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: August 14, 2014    

/s/ David H. Dunn

    David H. Dunn
    President and Chief Executive Officer
Date: August 14, 2014    

/s/ Rick A. Rosinski

    Rick A. Rosinski
    Chief Operating Officer and Treasurer

 

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