UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

March 31, 2015

 

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. 000-55356

 

                 MW BANCORP, INC.                 

(Exact name of registrant as specified in its charter)

 

Maryland		47-2259704
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
2110 Beechmont Avenue
Cincinnati, Ohio		45230
(Address of principal		(Zip Code)
executive office)

 

(513) 231-7871

(Registrant’s telephone number, including area code)

 

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 filing 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes    ¨   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨    Accelerated filer ¨     Non-accelerated filer ¨     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 

 

As of May 11, 2015, the latest practicable date, 876,163 shares of the registrant’s common stock, $.01 par value, were issued and outstanding.

 

 

MW Bancorp, Inc.

 

Index to Quarterly Report on Form 10-Q

 

PART I – FINANCIAL INFORMATION
Item 1 Interim Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of March 31, 2015 and June 30, 2014	3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2015 and 2014	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2015 and 2014	5
Condensed Consolidated Statements of Shareholders’ Equity for the Nine Months Ended March 31, 2015 and 2014	6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014	7
Notes to Condensed Consolidated Financial Statements	8
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3 Quantitative and Qualitative Disclosures About Market Risk	52
Item 4 Controls and Procedures	52
PART II – OTHER INFORMATION
Item 1  Legal Proceedings	53
Item 1A  Risk Factors	53
Item 2  Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3  Defaults Upon Senior Securities	53
Item 4  Mine Safety Disclosures	53
Item 5  Other Information	53
Item 6  Exhibits	53
SIGNATURES	53

 

 

Part I – Financial Information

 

Item 1. Financial Statements

 

MW Bancorp, Inc.

Condensed Consolidated Balance Sheets

March 31, 2015 and June 30, 2014

(In thousands, except share data)

 

		March 31,				June 30,
		2015				2014
		(Unaudited)
Assets
Cash and due from banks		$	82			$	1,793
Interest-bearing demand deposits			4,857				2,677
Cash and cash equivalents			4,939				4,470
Interest-bearing time deposits in other financial institutions			3,100				3,998
Available-for-sale securities			4,043				5,416
Held-to-maturity securities (fair value of $1,756 at March 31, 2015 and $2,326 at June 30, 2014)			1,826				2,374
Loans, net of allowance for loan losses of $1,599 and $1,537			80,443				67,284
Premises and equipment, net			342				385
Federal Home Loan Bank stock, at cost			1,164				1,164
Foreclosed assets, net			78				158
Accrued interest receivable			214				187
Company owned life insurance			3,351				3,282
Other assets			113				395
Total assets		$	99,613			$	89,113
Liabilities and Shareholders' Equity
Liabilities
Deposits
Demand and money market		$	10,301			$	5,597
Savings			9,078				9,058
Time			42,826				46,055
Total deposits			62,205				60,710
Federal Home Loan Bank advances			21,540				17,333
Directors deferred compensation			-				2,012
Other liabilities			189				229
Total liabilities			83,934				80,284
Commitments and Contigent Liabilities			-				-
Shareholders' Equity
Preferred stock - authorized 1,000,000 shares, $0.01 par value, none issued			-				-
Common stock - authorized 30,000,000 shares, $0.01 par value, 876,163 shares issued and outstanding at March 31, 2015			9				-
Additional paid-in capital			7,386				-
Shares acquired by ESOP			(701	)			-
Retained earnings			9,064				8,922
Accumulated other comprehensive loss			(79	)			(93	)
Total equity			15,679				8,829
Total liabilities and equity		$	99,613			$	89,113

 

See Notes to Condensed Consolidated Financial Statements

 

 

MW Bancorp, Inc.

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended March 31, 2015 and 2014

(In thousands)

 

		Three Months Ended March 31,								Nine Months Ended March 31,
		2015				2014				2015				2014
		(Unaudited)
Interest Income
Loans, including fees		$	808			$	695			$	2,342			$	2,006
Taxable securities			23				45				78				126
Tax exempt securities			-				10				-				24
Interest-bearing deposits			33				24				87				64
Total interest income			864				774				2,507				2,220
Interest Expense
Deposits			173				177				523				533
Federal Home Loan Bank advances			74				57				212				150
Total interest expense			247				234				735				683
Net Interest Income			617				540				1,772				1,537
Provision for Loan Losses			5				15				35				245
Net Interest Income After Provision for Loan Losses			612				525				1,737				1,292
Noninterest Income
Gain on sale of loans			12				9				39				13
Gain (loss) on sale of foreclosed assets, net			(3	)			87				15				113
Income from Bank owned life insurance			22				23				69				71
Other operating			8				10				21				22
Total noninterest income			39				129				144				219
Noninterest Expense
Salaries, employee benefits and directors fees			331				330				1,021				1,065
Occupancy and equipment			36				40				102				119
Data processing			28				27				68				70
Franchise taxes			13				17				51				89
FDIC insurance premiums			12				17				49				57
Professional services			74				46				199				161
Advertising			6				12				28				73
Office supplies			5				12				19				29
Business entertainment			9				3				25				27
Other			74				55				177				176
Total noninterest expense			588				559				1,739				1,866
Income (Loss) Before Federal Income Taxes (Benefits)			63				95				142				(355	)
Federal Income Tax Expense (Benefit)			-				(14	)			-				(29	)
Net Income (Loss)		$	63			$	109			$	142			$	(326	)

 

See Notes to Condensed Consolidated Financial Statements

 

 

MW Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the Three and Nine Months Ended March 31, 2015 and 2014

(In thousands)

 

		Three Months Ended March 31,								Nine Months Ended March 31,
		2015				2014				2015				2014
		(Unaudited)
Net income (loss)		$	63			$	109			$	142			$	(326	)
Other comprehensive income:
Unrealized holding gains on securities available for sale			1				41				6				47
Net unrealized holding loss at time of transfer for available-for-sale securities transferred to held-to-maturity			-				-				-				(31	)
Amortization of net unrealized holding loss on held-to-maturity securities			4				1				8				4
Net unrealized gains			5				42				14				20
Tax effect			-				(14	)			-				(29	)
Total other comprehensive income (loss)			5				28				14				(9	)
Comprehensive income (loss)		$	68			$	137			$	156			$	(335	)

 

See Notes to Condensed Consolidated Financial Statements

 

 

MW Bancorp, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

For the Nine Months Ended March 31, 2015 and 2014

(In thousands)

 

Nine Months Ended March 31, 2015

 

																		Accumulated
						Additional				Shares								Other
		Common				Paid-in				Acquired				Retained				Comprehensive				Total
		Stock				Capital				by ESOP				Earnings				Income (Loss)				Equity
		(Unaudited)
Beginning Balance		$	-			$	-			$	-			$	8,922			$	(93	)		$	8,829
Proceeds from issuance of common stock			9				7,386				(701	)			-				-				6,694
Net income			-				-				-				142				-				142
Other comprehensive income			-				-				-				-				14				14
Ending Balance		$	9			$	7,386			$	(701	)		$	9,064			$	(79	)		$	15,679

 

Nine Months Ended March 31, 2014

 

																		Accumulated
						Additional				Shares								Other
		Common				Paid-in				Acquired				Retained				Comprehensive				Total
		Stock				Capital				by ESOP				Earnings				Income (Loss)				Equity
		(Unaudited)
Beginning Balance		$	-			$	-			$	-			$	9,404			$	(124	)		$	9,280
Net loss			-				-				-				(326	)			-				(326	)
Other comprehensive income (loss)			-				-				-				-				(10	)			(10	)
Ending Balance		$	-			$	-			$	-			$	9,078			$	(134	)		$	8,944

 

See Notes to Condensed Consolidated Financial Statements

 

 

MW Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Nine Months Ended March 31, 2015 and 2014

(In thousands)

 

		Nine Months Ended March 31,
		2015				2014
		(Unaudited)
Cash Flows from Operating Activities
Net income (loss)		$	142			$	(326	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation and amortization			68				65
Amortization of premiums and discounts on securities, net			70				57
Accretion of deferred loan origination fees and costs, net			(37	)			(19	)
Provision for loan losses			35				245
Gain on sale of loans			(39	)			(13	)
Proceeds from sales of loans			1,973				733
Loans originated for sale			(1,948	)			(724	)
Gain on sale of foreclosed assets			(15	)			(113	)
Impairment loss on foreclosed assets			-				13
Net changes in:
Accrued interest receivable			(27	)			(31	)
Other assets			296				(297	)
Cash surrender value of life insurance			(69	)			(71	)
Other liabilities			(40	)			(90	)
Directors deferred compensation			(2,012	)			(17	)
Net cash used in operating activities			(1,603	)			(588	)
Cash Flows from Investing Activities
Net change in interest-bearing deposits in other financial institutions			898				(1,748	)
Purchases of available-for-sale securities			-				(5,117	)
Proceeds from maturities of available-for-sale securities			500				-
Principal repayments of held-to-maturity securities			549				357
Proceeds from sales of available-for-sale securities			-				3,562
Principal repayments from available-for-sale mortgage-backed securities			816				568
Net change in loans			(13,235	)			(4,539	)
Purchase of premises and equipment			(25	)			(155	)
Proceeds from sale of foreclosed assets			173				764
Net cash used in investing activities			(10,324	)			(6,308	)
Cash Flows from Financing Activities
Net change in deposits			1,495				1,672
Proceeds from Federal Home Loan Bank advances			14,500				5,000
Repayment of Federal Home Loan Bank advances			(10,293	)			(1,025	)
Proceeds from issuance of common stock			6,694				-
Net cash provided by financing activities			12,396				5,647
Net Change in Cash and Cash Equivalents			469				(1,249	)
Beginning Cash and Cash Equivalents			4,470				4,064
Ending Cash and Cash Equivalents		$	4,939			$	2,815
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and borrowings		$	729			$	678
Income taxes		$	-			$	-
Supplemental Disclosure of Noncash Investing Activities
Transfer of securities from available for sale to held to maturity at fair value		$	-			$	2,894
Transfer from foreclosed assets to loans		$	-			$	128
Transfers from loans to foreclosed assets		$	78			$	-
Recognition of deferred gain on sale of foreclosed assets		$	-			$	18

 

See Notes to Condensed Consolidated Financial Statements

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 1:

Basis of Presentation

 

MW Bancorp, Inc. (the “Company” or the “Registrant”), headquartered in Cincinnati, Ohio, was formed to serve as the stock holding company for Mt. Washington Savings Bank (the “Bank”) following its mutual-to-stock conversion. The conversion was completed effective January 29, 2015. The Company issued 876,163 shares at an offering price of $10.00 per share.

 

The accompanying unaudited condensed balance sheet of the Company as of June 30, 2014, which has been derived from audited financial statements, and unaudited condensed consolidated financial statements of the Company as of March 31, 2015 and for the three and nine months ended March 31, 2015 and 2014, were prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed financial statements should be read in conjunction with the financial statements and notes thereto of the Company for the year ended June 30, 2014 included in the Registrant’s Form S-1. Reference is made to the accounting policies of the Company described in the Notes to the Financial Statements contained in the Form S-1.

 

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the unaudited financial statements have been included to present fairly the financial position as of March 31, 2015 and the results of operations for the three and nine months ended March 31, 2015 and 2014, and cash flows for the nine months ended March 31, 2015 and 2014. All interim amounts have not been audited and the results of operations for the three and nine months ended March 31, 2015, herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year.

 

Principles of Consolidation

 

The consolidated financial statements as of and for the periods ended March 31, 2015, include MW Bancorp, Inc. and its wholly owned subsidiary, Mt. Washington Savings Bank, together referred to as “the Company.” Intercompany transactions and balances have been eliminated in consolidation. The financial statements as of June 30, 2014 and for the three and nine months ended March 31, 2014 represent Mt. Washington Savings Bank only, as the conversion to stock form, including the formation of MW Bancorp, Inc. was completed on January 29, 2015. References herein to the “Company” for periods prior to the completion of the stock conversion should be deemed to refer to the “Bank”.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of deferred tax assets and fair values of financial instruments.

 

Earnings Per Share

 

Earnings per share disclosures are not applicable to the three and nine month periods ended March 31, 2015 and 2014, as the Company completed the conversion to stock form on January 29, 2015.

 

Reclassifications

 

Certain reclassifications have been made to the June 30, 2014 balance sheet to conform to the March 31, 2015 balance sheet presentation. These reclassifications had no effect on results of operations or equity.

 

Note 2:

Securities

 

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In thousands)
Available-for-sale Securities:
March 31, 2015
Mortgage-backed securities of U.S. government sponsored entities - residential		$	4,017			$	31			$	(5	)		$	4,043
June 30, 2014
U. S. Government agency bonds		$	500			$	2			$	-			$	502
Mortgage-backed securities of U.S. government sponsored entities - residential			4,896				22				(4	)			4,914
		$	5,396			$	24			$	(4	)		$	5,416

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In thousands)
Held-to-maturity Securities:
March 31, 2015
Mortgage-backed securities of U.S. government sponsored entities - residential		$	1,826			$	-			$	(70	)		$	1,756
June 30, 2014
Mortgage-backed securities of U.S. government sponsored entities - residential		$	2,374			$	-			$	(48	)		$	2,326

 

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at March 31, 2015, 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. Securities not due at a single maturity date are shown separately.

 

		March 31, 2015
		Available-for-sale								Held-to-maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
		(In thousands)
Mortgage-backed securities of U.S. government sponsored entities - residential - not due at a single maturity date		$	4,017			$	4,043			$	1,826			$	1,756

 

The Company had no sales of investment securities during the three and nine month periods ended March 31, 2015. Proceeds from sales of investment securities during the nine month period ended March 31, 2014 were $3.6 million and such sale did not result in recognition of a gain or loss in that period. The Company had no sales of investment securities during the three month period ended March 31, 2014.

 

The Company had not pledged any of its investment securities at March 31, 2015 and June 30, 2014.

 

At March 31, 2015 and June 30, 2014, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of the Company’s equity.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

On August 1, 2013, the Company reclassified its collateralized mortgage obligation portfolio to held-to-maturity from available-for sale because management intends to hold these securities to maturity. The securities had a total amortized cost of $2.925 million and a corresponding fair value of $2.894 million, therefore the gross unrealized loss on these securities at the date of transfer was $31,000. The unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive loss and is being amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the remaining holding loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the losses for securities transferred from available-for-sale to held-to-maturity was $18,000 at March 31, 2015.

 

The following tables show the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2015 and June 30, 2014:

 

		Less than 12 Months								12 Months or Longer								Total
Description of Securities		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(In thousands)
March 31, 2015
Available-for-sale Securities:
Mortgage-backed securities of U.S. sponsored entities - residential		$	-			$	-			$	631			$	(5	)		$	631			$	(5	)
Held-to-maturity Securities:
Mortgage-backed securities - of U.S. sponsored entities - residential			-				-				1,756				(70	)			1,756				(70	)
		$	-			$	-			$	2,387			$	(75	)		$	2,387			$	(75	)
June 30, 2014
Available-for-sale Securities:
Mortgage-backed securities of U.S. sponsored entities - residential		$	1,365			$	(4	)		$	-			$	-			$	1,365			$	(4	)
Held-to-maturity Securities:
Mortgage-backed securities - of U.S. sponsored entities - residential			2,326				(48	)			-				-				2,326				(48	)
		$	3,691			$	(52	)		$	-			$	-			$	3,691			$	(52	)

 

Other-than-temporary Impairment

 

At March 31, 2015 and June 30, 2014, all of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015 and June 30, 2014.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 3:

Loans and Allowance for Loan Losses

 

Loans at March 31, 2015 and June 30, 2014 include:

 

		March 31,				June 30,
		2015				2014
		(In thousands)
Real estate loans
One- to four-family residential		$	60,586			$	54,069
Multi-family residential			5,480				2,124
Commercial			12,520				8,998
Construction			2,018				2,796
Consumer and other			1,404				812
Total loans			82,008				68,799
Less:
Net deferred loan costs			(34	)			(22	)
Allowance for loan losses			1,599				1,537
Net loans		$	80,443			$	67,284

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following tables present, by portfolio segment, the activity in the allowance for loan losses for the three and nine months ended March 31, 2015:

 

		Real Estate
		1-4 Family				1-4 Family
		Owner				Non-Owner				Multi-
		Occupied				Occupied				family				Commercial				Construction				Consumer				Total
		(In thousands)
Three Months Ended March 31, 2015
Allowance for loan losses:
Balance, January 1, 2015		$	1,105			$	282			$	2			$	145			$	39				-			$	1,573
Provision for loan losses			7				24				-				(25	)			1				(2	)			5
Charge-offs			-				-				-				-				-				-				-
Recoveries			19				-				-				-				-				2				21
Balance, March 31, 2015		$	1,131			$	306			$	2			$	120	#		$	40			$	-			$	1,599
Nine Months Ended March 31, 2015
Allowance for loan losses:
Balance, July 1, 2014		$	1,065			$	278			$	33			$	105			$	56			$	-			$	1,537
Provision for loan losses			43				28				(31	)			15				(16	)			(4	)			35
Charge-offs			(3	)			-				-				-				-				-				(3	)
Recoveries			26				-				-				-				-				4				30
Balance, March 31, 2015		$	1,131			$	306			$	2			$	120			$	40			$	-			$	1,599

 

		Real Estate
		1-4 Family				1-4 Family
		Owner				Non-Owner				Multi-
		Occupied				Occupied				family				Commercial				Construction				Consumer				Total
		(In thousands)
March 31, 2015
Allowance for loan losses:
Ending balance, individually evaluated for impairment		$	138			$	93			$	-			$	-			$	-			$	-			$	231
Ending balance, collectively evaluated for impairment		$	993			$	213			$	2			$	120			$	40			$	-			$	1,368
Loans:
Ending balance		$	49,911			$	10,675			$	5,480			$	12,520			$	2,018			$	1,404			$	82,008
Ending balance; individually evaluated for impairment		$	1,319			$	297			$	-			$	154			$	-			$	-			$	1,770
Ending balance; collectively evaluated for impairment		$	48,592			$	10,378			$	5,480			$	12,366			$	2,018			$	1,404			$	80,238

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following tables present, by portfolio segment, the activity in the allowance for loan losses for the three and nine months ended March 31, 2014:

 

		Real Estate
		1-4 Family				1-4 Family
		Owner				Non-Owner				Multi-
		Occupied				Occupied				family				Commercial				Construction				Consumer				Total
		(In thousands)
Three Months Ended March 31, 2014
Allowance for loan losses:
Balance, January 1, 2014		$	1,093			$	309			$	16			$	126			$	29				5			$	1,578
Provision for loan losses			(125	)			84				43				5				7				1				15
Charge-offs			(1	)			-				-				-				-				-				(1	)
Recoveries			6				-				-				-				-				-				6
Balance, March 31, 2014		$	973			$	393			$	59			$	131	#		$	36			$	6			$	1,598
Nine Months Ended March 31, 2014
Allowance for loan losses:
Balance, July 1, 2013		$	1,008			$	273			$	19			$	77			$	15			$	6			$	1,398
Provision for loan losses			12				120				40				54				21				(2	)			245
Charge-offs			(55	)			-				-				-				-				-				(55	)
Recoveries			8				-				-				-				-				2				10
Balance, March 31, 2014		$	973			$	393			$	59			$	131			$	36			$	6			$	1,598
June 30, 2014
Allowance for loan losses:
Ending balance, individually evaluated for impairment		$	205			$	114			$	-			$	-			$	-			$	-			$	319
Ending balance, collectively evaluated for impairment		$	860			$	164			$	33			$	105			$	56			$	-			$	1,218
Loans:
Ending balance		$	45,255			$	8,814			$	2,124			$	8,998			$	2,796			$	812			$	68,799
Ending balance; individually evaluated for impairment		$	1,810			$	340			$	-			$	159			$	-			$	-			$	2,309
Ending balance; collectively evaluated for impairment		$	43,445			$	8,474			$	2,124			$	8,839			$	2,796			$	812			$	66,490

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Internal Risk Categories

 

The Company has adopted a standard loan grading system for all loans. Loans are selected for a grading review based on certain characteristics, including concentrations of credit, subprime criteria and upon delinquency of 90 days or more. Definitions are as follows:

 

Pass: Loans categorized as Pass are higher quality loans that do not fit any of the other categories described below.

 

Special Mention: The loans identified as special mention have an obvious flaw or a potential weakness that deserves special management attention, but which has not yet impacted collectability. These flaws or weaknesses, if left uncorrected, may result in the deterioration of the prospects of repayment or the deterioration of the Company’s credit position.

 

Substandard: These are loans with a well-defined weakness, where the Company has a serious concern about the borrower’s ability to make full repayment if the weaknesses are not corrected. The loan may contain a flaw, which could impact the borrower’s ability to repay, or the borrower’s continuance as a “going concern”. When collateral values are not sufficient to secure the loan and other weaknesses are present, the loan may be rated substandard. A loan will also be graded substandard when full repayment is expected, but it must come from the liquidation of collateral. One-to-four family residential real estate loans and home equity loans that are past due 90 days or more with loan to value ratios greater than 60 percent are classified as substandard.

 

Doubtful: These are loans with major defined weaknesses, where future charge off of a part of the credit is highly likely. The primary repayment source is no longer viable and the viability of the secondary source of repayment is in doubt. The amount of loss is uncertain due to circumstances within the credit that are not yet fully developed and the loan is rated “Doubtful” until the loss can be accurately estimated.

 

Loss: These are near term charge offs. Loans classified as loss are considered uncollectible and of such little value that it is not desirable to continue carrying them as assets on the Company’s financial statements, even though partial recovery may be possible at some future time.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of March 31, 2015 and June 30, 2014.

 

		March 31, 2015
		Real Estate
		1-4 Family				1-4 Family
		Owner				Non-Owner				Multi-
		Occupied				Occupied				family				Commercial				Construction				Consumer				Total
		(In thousands)
Pass		$	48,764			$	9,950			$	5,480			$	12,520			$	2,018			$	1,404			$	80,136
Special mention			-				-				-				-				-				-				-
Substandard			1,147				725				-				-				-				-				1,872
Doubtful			-				-				-				-				-				-				-
Total		$	49,911			$	10,675			$	5,480			$	12,520			$	2,018			$	1,404			$	82,008

 

		June 30, 2014
		Real Estate
		1-4 Family				1-4 Family
		Owner				Non-Owner				Multi-
		Occupied				Occupied				family				Commercial				Construction				Consumer				Total
		(In thousands)
Pass		$	43,724			$	8,434			$	2,124			$	8,998			$	2,796			$	812			$	66,888
Special mention			-				-				-				-				-				-				-
Substandard			1,531				380				-				-				-				-				1,911
Doubtful			-				-				-				-				-				-				-
Total		$	45,255			$	8,814			$	2,124			$	8,998			$	2,796			$	812			$	68,799

 

The Company has a portfolio of loans designated as subprime, defined as those loans made to borrowers with a credit score below 660. These loans are primarily secured by 1-4 family real estate, including both owner-occupied and non-owner occupied properties. Subprime loans totaled $6.6 million and $9.3 million at March 31, 2015 and June 30, 2014, respectively. The decrease was due primarily to updated credit reviews of borrowers in the portfolio and the Company concluded that certain borrowers no longer met the criteria for subprime credit status.

 

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the past year.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of March 31, 2015 and June 30, 2014:

 

		March 31, 2015
																										Total Loans >
		30-59 Days				60-89 Days				Greater Than				Total								Total Loans				90 Days &
		Past Due				Past Due				90 Days				Past Due				Current				Receivable				Accruing
		(In thousands)
Real estate
1-4 family owner-occupied		$	-			$	-			$	-			$	-			$	49,911			$	49,911			$	-
1-4 family non-owner occupied			-				-				-				-				10,675				10,675				-
Multi-family residential			-				-				-				-				5,480				5,480				-
Commercial			88				-				-				88				12,432				12,520				-
Construction			-				-				-				-				2,018				2,018				-
Consumer and other			-				-				-				-				1,404				1,404				-
Total		$	88			$	-			$	-			$	88			$	81,920			$	82,008			$	-

 

		June 30, 2014
																										Total Loans >
		30-59 Days				60-89 Days				Greater Than				Total								Total Loans				90 Days &
		Past Due				Past Due				90 Days				Past Due				Current				Receivable				Accruing
		(In thousands)
Real estate
1-4 family owner-occupied		$	430			$	-			$	402			$	832			$	44,423			$	45,255			$	-
1-4 family non-owner occupied			-				-				-				-				8,814				8,814				-
Multi-family residential			-				-				-				-				2,124				2,124				-
Commercial			-				-				-				-				8,998				8,998				-
Construction			-				-				-				-				2,796				2,796				-
Consumer and other			-				-				-				-				812				812				-
Total		$	430			$	-			$	402			$	832			$	67,967			$	68,799			$	-

 

A loan is considered impaired when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming multi-family and commercial loans but also include loans modified in troubled debt restructurings.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following table presents impaired loan information as of and for the three and nine months ended March 31, 2015:

 

														For the Three Months Ended								For the Nine Months Ended
		As of March 31, 2015												March 31, 2015								March 31, 2015
						Unpaid				Allowance for Loan				Average				Interest				Average				Interest
		Recorded Investment				Principal Balance				Losses Allocated				Recorded Investment				Income Recognized				Recorded Investment				Income Recognized
		(In thousands)
Loans with no related allowance recorded:
Real estate
1-4 family owner-occupied		$	778			$	933			$	-			$	983			$	-				1,061			$	-
1-4 family non-owner occupied			74				89				-				95				-				93				-
Multi-family residential			-				-				-				-				-				-				-
Commercial			154				169				-				155				-				155				-
Construction			-				-				-				-				-				-				-
Consumer and other			-				-				-				-				-
Loans with an allowance recorded:
Real estate
1-4 family owner-occupied			541				613				138				555				-				559				-
1-4 family non-owner occupied			223				257				93				225				-				228				-
Multi-family residential			-				-				-				-				-				-				-
Commercial			-				-				-				-				-				-				-
Construction			-				-				-				-				-				-				-
Consumer and other			-				-				-				-				-				-				-
Totals		$	1,770			$	2,061			$	231			$	2,013			$	-			$	2,096			$	-

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following table presents impaired loan information as of June 30, 2014 and for the three and nine months ended March 31, 2014:

 

														For the Three Months Ended								For the Nine Months Ended
		As of June 30, 2014												March 31, 2014								March 31, 2014
						Unpaid				Allowance for Loan				Average				Interest				Average				Interest
		Recorded Investment				Principal Balance				Losses Allocated				Recorded Investment				Income Recognized				Recorded Investment				Income Recognized
		(In thousands)
Loans with no related allowance recorded:
Real estate
1-4 family owner-occupied		$	918			$	1,003			$	-			$	1,313			$	-			$	1,218			$	-
1-4 family non-owner occupied			102				114				-				82				-				84				-
Multi-family residential			-				-				-				-				-				178				-
Commercial			159				159				-				176				-				-				-
Construction			-				-				-				-				-				-				-
Consumer and other			-				-				-				-				-				-				-
Loans with an allowance recorded:
Real estate
1-4 family owner-occupied			892				905				205				955				-				943				-
1-4 family non-owner occupied			238				263				114				308				-				313				-
Multi-family residential			-				-				-				-				-				53				-
Commercial			-				-				-				53				-				-				-
Construction			-				-				-				-				-				-				-
Consumer and other			-				-				-				-				-				-				-
Totals		$	2,309			$	2,444			$	319			$	2,887			$	-			$	2,789			$	-

 

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following table presents the Company’s nonaccrual loans at March 31, 2015 and June 30, 2014. The table excludes performing troubled debt restructurings.

 

		March 31,				June 30,
		2015				2014
		(In thousands)
Real estate
1-4 family owner-occupied		$	815			$	1,099
1-4 family non-owner occupied			297				340
Multi-family residential			-				-
Commercial			-				-
Construction			-				-
Consumer and other			-				-
Total nonaccrual		$	1,112			$	1,439

 

At March 31, 2015 and June 30, 2014, the Company had certain loans that were modified in troubled debt restructurings and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan. The Company had loans modified in a troubled debt restructuring totaling $1.3 million and $1.7 million at March 31, 2015 and June 30, 2014, respectively. Troubled debt restructured loans had specific allowances totaling $113,000 and $148,000 at March 31, 2015 and June 30, 2014, respectively. At March 31, 2015, the Company had no commitments to lend additional funds to borrowers with troubled debt restructured loans.

 

The Company had no modified loans that were identified as troubled debt restructurings during the three and nine months ended March 31, 2015. The Company had one modified loan that was identified as a troubled debt restructuring during the three and nine months ended March 31, 2014.

 

The following table presents information regarding troubled debt restructurings by class for the three and nine months ended March 31, 2014. Newly classified troubled debt restructurings were as follows:

 

 

		Number of Loans				Pre- Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment
		(Dollars in thousands)
March 31, 2014
Real estate
1-4 family owner-occupied			1			$	190			$	190

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Newly restructured loans by type of modification are as follows for the three and nine months ended March 31, 2014.

 

		Interest Only				Term				Combination				Total Modification
		(In thousands)
March 31, 2014
Real estate
1-4 family owner-occupied		$	190			$	-			$	-			$	190

 

The troubled debt restructuring described above increased the allowance for loan losses by $0 and resulted in a charge-off of $18,000 during the three and nine month periods ended March 31, 2014.

 

The Company had no troubled debt restructurings modified during the twelve months ended March 31, 2015 and 2014 that subsequently defaulted during the three and nine month periods ended March 31, 2015 and 2014. A loan is considered to be in payment default once it is 30 days contractually past due under the loan’s modified terms.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 4:

Regulatory Matters

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements. Quantitative measures established by regulation to ensure capital adequacy requires the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to total assets (as defined). Management believes, as of March 31, 2015 and June 30, 2014 , that the Bank meets all capital adequacy requirements to which it is subject.

 

Effective January 1, 2015, the Bank is subject to the new capital requirements set forth by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The Bank has chosen to exclude unrealized gains and losses from capital. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

 

As of March 31, 2015 and June 30, 2014, the most recent notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The Bank’s actual capital amounts and ratios are presented in the following table:

 

		Actual								For Capital Adequacy Purposes								To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(Dollars in thousands)
As of March 31, 2015
Total Capital
(to Risk-Weighted Assets)		$	14,708				25.9	%		$	4,547				8.0	%		$	5,683				10.0	%
Tier I Capital
(to Risk-Weighted Assets)		$	13,987				24.6	%		$	3,410				6.0	%		$	4,547				8.0	%
Common Equity
(to Risk-Weighted Assets)		$	13,987				24.6	%		$	2,557				4.5	%		$	3,694				6.5	%
Tier I Capital
(to Total Assets)		$	13,987				14.0	%		$	3,984				4.0	%		$	4,980				5.0	%
As of June 30, 2014
Total Capital
(to Risk-Weighted Assets)		$	9,511				20.6	%		$	3,699				8.0	%		$	4,623				10.0	%
Tier I Capital
(to Risk-Weighted Assets)		$	8,922				19.3	%		$	1,849				4.0	%		$	2,774				6.0	%
Tier I Capital
(to Total Assets)		$	8,922				10.0	%		$	3,565				4.0	%		$	4,456				5.0	%

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 5:

Disclosures about Fair Value of Assets and Liabilities

 

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

 

Level 1

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2

Significant other 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.

 

Level 3

Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

Recurring Measurements

 

The following table presents the fair value measurement of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2015 and June 30, 2014:

 

						Fair Value Measurement Using
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
March 31, 2015
Mortgage-backed securities of U.S. of government sponsored entities - residential		$	4,043			$	-			$	4,043			$	-
June 30, 2014
U. S. Government agency bonds		$	502			$	-			$	502			$	-
Mortgage-backed securities of U.S. of government sponsored entities - residential			4,914				-				4,914				-
		$	5,416			$	-			$	5,416			$	-

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There were no assets classified within Level 3 of the fair value hierarchy measured on a recurring basis. There were no transfers between Level 1 and Level 2 during the periods ended March 31, 2015 and 2014.

 

Available-for-sale Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flow. Such securities are classified within Level 2 of the valuation hierarchy.

 

Nonrecurring Measurements

 

The following table presents fair value measurements of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which fair value measurements fall at March 31, 2015 and June 30, 2014:

 

						Fair Value Measurement Using
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
March 31, 2015
Impaired loans – residential
One-to-four family owner occupied		$	274			$	-			$	-			$	274
One-to-four family non-owner occupied			130				-				-				130
June 30, 2014
Impaired loans - residential
One-to-four family owner occupied		$	459			$	-			$	-			$	459
One-to-four family non-owner occupied			134				-				-				134

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

 

Impaired Loans (Collateral Dependent)

 

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Unobservable (Level 3) Inputs

 

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements:

 

		Fair Value at March 31, 2015				Valuation Technique		Unobservable Inputs		Range (Weighted  Average)
		(In thousands)
Impaired loans (collateral dependent) - one-to-four family owner occupied residential real estate		$	274			Sales comparison approach		Adjustment for differences between the comparable real estate sales		(18)%-(24)% 4%
Impaired loans (collateral dependent) - one-to-four family non-owner occupied residential real estate		$	130			Sales comparison approach		Adjustment for differences between the comparable real estate sales		(3)%-(19)% (12)%

 

		Fair Value at June 30, 2014				Valuation Technique		Unobservable Inputs		Range (Weighted Average)
		(In thousands)
Impaired loans (collateral dependent) - one-to-four family owner occupied residential real estate		$	459			Sales comparison approach		Adjustment for differences between the comparable real estate sales		(19)%-(24)% 2%
Impaired loans (collateral dependent) - one-to-four family non-owner occupied residential real estate		$	134			Sales comparison approach		Adjustment for differences between the comparable real estate sales		(24)%-(10)% (11)%

 

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a recorded principal balance of $633,000 and $892,000 with a valuation allowance of $229,000 and $299,000 at March 31, 2015 and June 30, 2014, respectively. These impaired loans required an increase (decrease) to the allowance for loan losses of $(1,000) and $298,000 for the three month periods ended March 31, 2015 and 2014, respectively. These impaired loans required an increase (decrease) to the allowance for loan losses of $(59,000) and $536,000 for the nine month periods ended March 31, 2015 and 2014, respectively.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Fair Value of Financial Instruments

 

The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2015 and June 30, 2014.

 

						Fair Value Measurement Using
		Carrying Amount				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
		(In thousands)
March 31, 2015
Financial assets
Cash and cash equivalents		$	4,939			$	4,939			$	-			$	-			$	4,939
Interest-bearing time deposits			3,100				-				3,100				-				3,100
Held-to-maturity securities			1,826				-				1,756				-				1,756
Loans			80,443				-				-				81,124				81,124
Federal Home Loan Bank stock			1,164				n/a				n/a				n/a				n/a
Accrued interest receivable			214				-				214				-				214
Financial liabilities
Deposits			62,205				-				63,115				-				63,115
Federal Home Loan Bank advances			21,540				-				21,528				-				21,528
Accrued interest payable			29				-				29				-				29
June 30, 2014
Financial assets
Cash and cash equivalents		$	4,470			$	4,470			$	-			$	-			$	4,470
Interest-bearing time deposits			3,998				-				1,756				2,248				4,004
Held-to-maturity securities			2,374				-				2,326				-				2,326
Loans			67,284				-				-				68,619				68,619
Federal Home Loan Bank stock			1,164				n/a				n/a				n/a				n/a
Accrued interest receivable			187				-				187				-				187
Financial liabilities
Deposits			60,710				-				60,775				-				60,775
Federal Home Loan Bank advances			17,333				-				17,144				-				17,144
Accrued interest payable			23				-				23				-				23

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

 

Cash and Cash Equivalents and Interest-bearing Time Deposits

 

The carrying amount of cash, short-term instruments and time deposits approximate fair value and are classified as Level 1.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Held-to-Maturity Securities

 

The fair value of held-to-maturity securities was estimated by using pricing models that contain market pricing and information, quoted prices of securities with similar characteristics or discounted cash flows that use credit-adjusted discount rates resulting in a Level 2 classification.

  

Loans

 

Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value of collateral as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

  

Federal Home Loan Bank Stock

 

It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

  

Accrued Interest Receivable and Payable

 

The carrying amounts of accrued interest approximate fair value resulting in a Level 2 classification.

  

Deposits

 

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

  

Federal Home Loan Bank Advances

 

The fair values of FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

 

  

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Off Balance Sheet Instruments

 

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

 

Note 6:

Accumulated Other Comprehensive Income (Loss)

 

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ended March 31, 2015 and 2014 are as follows:

 

						Unrealized
		Unrealized				gains and losses
		Gains and Losses				on securities
		on Available				transferred from
		for Sale				Available for Sale to
		Securities				Held to Maturity				Total
		(In thousands)
Three Months Ended March 31, 2015
Balance, January 1, 2015		$	(62	)		$	(22	)		$	(84	)
Other comprehensive income			1				-				1
Accretion of unrealized losses on securities transferred from available for sale to held to maturity recognized in other comprehensive income			-				4				4
Net current period other comprehensive income			1				4				5
Balance, March 31, 2015		$	(61	)		$	(18	)		$	(79	)
Nine Months Ended March 31, 2015
Balance, July 1, 2014		$	(67	)		$	(26	)		$	(93	)
Other comprehensive income			6				-				6
Accretion of unrealized losses on securities transferred from available for sale to held to maturity recognized in other comprehensive income			-				8				8
Net current period other comprehensive income			6				8				14
Balance, March 31, 2015		$	(61	)		$	(18	)		$	(79	)

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

  

						Unrealized
		Unrealized				gains and losses
		Gains and Losses				on securities
		on Available				transferred from
		for Sale				Available for Sale to
		Securities				Held to Maturity				Total
		(In thousands)
Three Months Ended March 31, 2014
Balance, January 1, 2014		$	(133	)		$	(28	)		$	(161	)
Other comprehensive loss			27				-				27
Accretion of unrealized losses on securities transferred from available for sale to held to maturity recognized in other comprehensive income			-				1				1
Net current period other comprehensive income (loss)			27				1				28
Balance, March 31, 2014		$	(106	)		$	(27	)		$	(133	)
Nine Months Ended March 31, 2014
Balance, July 1, 2013		$	(124	)		$	-			$	(124	)
Other comprehensive loss, net of tax			18				-				18
Transfer of securities from available for sale to held to maturity			-				(31	)			(31	)
Accretion of unrealized losses on securities transferred from available for sale to held to maturity recognized in other comprehensive income			-				4				4
Net current period other comprehensive loss			18				(27	)			(9	)
Balance, March 31, 2014		$	(106	)		$	(27	)		$	(133	)

 

There were no material items reclassified from accumulated other comprehensive income (loss) to the statement of operations for the three and nine month periods ended March 31, 2015 and 2014.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 7:

Employee Stock Ownership Plan

 

On January 29, 2015, the Bank announced the formation of the Mt. Washington Savings Bank ESOP Plan (“ESOP”), a non-contributory plan for its employees. As part of the Company’s stock conversion, shares were purchased with a loan from MW Bancorp, Inc. All employees of the Bank meeting certain tenure requirements are entitled to participate in the ESOP. Compensation expense related to the ESOP was $8,000 for the period ended March 31, 2015.

 

A summary of the unallocated share activity of the Bank’s ESOP is presented for the period ended March 31, 2015:

 

Balance, beginning of year			-
New share purchases			70,093
Shares released to participants			-
Share allocated to participants			-
Balance, end of period			70,093

 

The stock price at the formation date was $10.00. The aggregate fair value of the 70,093 unallocated shares was $844,621 based on the $12.05 closing price of our common stock on March 31, 2015.

 

Note 8:

Directors Deferred Compensation

 

The Company had a nonqualified Directors Deferred Compensation Plan (the “Plan”) which provided for the payment of benefits upon termination of service with the Company as a director and vesting in the Plan after five years of service. The Plan specified monthly payments for 10 years based upon 80% of the Director’s final year Director’s fees upon reaching the retirement age defined by the Plan. On June 25, 2013, the company elected to terminate and liquidate the Plan, and the termination cost was determined to be approximately $2.0 million, which was reflect on the Company’s balance sheet at June 30, 2014. The funds were fully disbursed in July 2014 and February 2015.

 

Note 9:

Recent Accounting Pronouncements

 

FASB ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, a consensus of the FASB Emerging Issues Task Force, in Accounting Standards Update No. 2014-04, issued in January 2014. The amendments in this update provides clarification on when an in-substance repossession or foreclosure occurs, including when a creditor should be considered to have received physical possession of the residential real estate property collateralizing a consumer mortgage loan, when to derecognize the loan and recognize the foreclosed property. The amendments in this update are effective for public business entities for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this update using either a modified retrospective transition method or a prospective transition method. This standard did not have a material impact on the Company’s financial statements.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

FASB ASU 2014-09, Revenue from Contracts with Customers. In May 2014, the FASB issued amended guidance on revenue recognition from contracts with customers. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most contract revenue recognition guidance, including industry-specific guidance. The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within the reporting period, and should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. Early adoption is prohibited. Management is currently in the process of evaluating the impact of the amended guidance on the Company’s financial statements.

 

FASB ASU 2014-11, Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued in June 2014. The amendments in this Update require disclosures for certain transactions comprising a transfer of a financial asset accounted for as a sale and an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. This Update also requires certain disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. The accounting changes in this Update are effective for public business entities for the first interim or annual period beginning after December 15, 2014. For public business entities, the disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and for disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This standard did not have a material impact on the Company’s financial statements.

 

Note 10:

Plan of Conversion and Change in Corporate Form

 

On August 28, 2014, the Board of Directors of the Bank adopted a plan of conversion (Plan). The Plan was approved by the Federal Deposit Insurance Corporation and the Ohio Division of Financial Institutions and by an affirmative vote of at least a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting held on December 22, 2014. The Plan set forth that the Bank proposed to convert into a stock savings bank structure with the establishment of a stock holding company (MW Bancorp, Inc.), as parent of the Bank.

 

 

MW Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

  

The Bank converted to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to MW Bancorp, Inc. Pursuant to the Plan, the Bank determined the total offering value and number of shares of common stock based upon an independent appraiser’s valuation. The stock was priced at $10.00 per share. In addition, the Bank’s Board of Directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering. The offering of common shares in MW Bancorp, Inc. was conducted in December 2014 and shares were issued effective January 29, 2015. Proceeds from the sale of shares totaled $8.8 million. MW Bancorp, Inc. was organized as a corporation under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank upon completion of the conversion.

 

The costs of issuing the common stock were deducted from the sales proceeds of the offering.

 

At the completion of the conversion to stock form, the Bank established a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefits of eligible savings account holders who maintain deposit accounts in the Bank after conversion.

 

The conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended March 31, 2015 and 2014 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

 

Critical Accounting Policies

 

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

 

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

 

The following represent our critical accounting policies:

 

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary for probable incurred credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

 

Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The analysis has two components, specific and general allowances. The specific percentage allowance is for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allowance, which is for loans reviewed collectively, is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent twelve quarters. All periods are evenly weighted within the twelve quarter loss history. The methodology used in calculation of loss factors is consistently applied to all loan segments. This analysis establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of the allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on factors beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

 

Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. At both March 31, 2015 and June 30, 2014, our deferred tax asset was reduced by a $2.1 million valuation allowance, which represented full valuation allowance applied to our net deferred tax assets. The Company maintained a full valuation allowance against its net deferred tax asset as of and for the three and nine months ended March 31, 2015 and 2014, and as of and for the year ended June 30, 2014.

 

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Company estimates fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by the Company can be found in Note 5 to the Form 10-Q — “Disclosures About Fair Value of Assets and Liabilities.”

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Financial Condition at March 31, 2015 and June 30, 2014

 

Total Assets. Total assets were $99.6 million at March 31, 2015, an increase of $10.5 million, or 11.8%, over the $89.1 million total at June 30, 2014. The increase was primarily comprised of a $13.2 million increase in net loans, which was partially offset by a decrease in interest-bearing deposits in other financial institutions of $898,000 and a decrease in investment securities of $1.9 million.

 

Net Loans. Net loans increased by $13.2 million, or 19.6%, to $80.4 million at March 31, 2015 from $67.3 million at June 30, 2014. During the nine months ended March 31, 2015, we originated $25.8 million of loans, which represented approximately 37.4% of our total loan portfolio at June 30, 2014. These new loan originations were comprised primarily of $16.0 million of one- to four-family residential real estate loans, $5.1 million of commercial real estate loans, $2.2 million of construction loans and $2.2 of multi-family residential real estate loans. During the nine months ended March 31, 2015, we originated and sold $1.9 million of loans in the secondary market. During the nine months ended March 31, 2015, one- to four-family residential real estate loans increased $6.5 million, or 12.1%, to $60.6 million at March 31, 2015, from $54.1 million at June 30, 2014; commercial real estate loans increased $3.5 million, or 39.1%, to $12.5 million at March 31, 2015; multi-family residential real estate loans increased $3.4 million, or 158%, to $5.5 million at March 31, 2015; and construction loans decreased $778,000, or 27.8%, to $2.0 million at March 31, 2015.

 

Increases in loan balances reflect our strategy to grow and diversify our loan portfolio, with an emphasis on increasing commercial and multi-family residential loans, as a shift in strategy from our traditional focus on one-to four-family residential loans. Such growth has been achieved amid strong competition for commercial real estate, multi-family and one- to four-family residential mortgage loans in our market area in the current low interest rate environment.

 

During the latter part of fiscal 2013, we initiated a program to sell certain fixed-rate, 30-year term mortgage loans in the secondary market. We have sold loans on both a servicing released and servicing retained basis, in transactions with the FHLB-Cincinnati, through its mortgage purchase program, and other investors. We sold $1.9 million of loans in the nine months ended March 31, 2015. Total loans sold and serviced had accumulated to $2.3 million at March 31, 2015. Management intends to continue this sales activity in future periods.

 

Interest Bearing Deposits in Other Financial Institutions. Interest-bearing time deposits in other banks decreased by $898,000, or 22.5%, to a total of $3.1 million at March 31, 2015, compared to $4.0 million at June 30, 2014. Management began to invest in certificates of deposit during the year ended June 30, 2013, to increase the yield on liquid assets beyond the rates available in overnight funds.

 

Investment Securities. Investment securities decreased $1.9 million, or 24.7%, to $5.9 million at March 31, 2015 from $7.8 million at June 30, 2014. The decrease consisted primarily of called securities and principal repayments on mortgage-backed securities during the nine months ended March 31, 2015.

 

The yield on our investment securities decreased to 1.56% for the nine months ended March 31, 2015 compared to 1.89% for the nine months ended March 31, 2014, as a result of the maturity and sales of securities during the period and the continuing low interest rate environment. At March 31, 2015, investment securities classified as available-for-sale and held-to-maturity consisted entirely of government-sponsored mortgage-backed securities.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Foreclosed Assets. Foreclosed assets totaled $78,000 at March 31, 2015 compared to $158,000 at June 30, 2014, as we sold $173,000 of foreclosed properties and added $78,000 of assets through foreclosure. At March 31, 2015, our foreclosed assets consisted of one parcel of one- to four-family residential real estate.

 

Deposits. Deposits increased by $1.5 million, or 2.5%, to $62.2 million at March 31, 2015 from $60.7 million at June 30, 2014. Our core deposits, which consist of all deposit account types except certificates of deposit, increased $4.7 million, or 32.2%, to $19.4 million at March 31, 2015 from $14.7 million at June 30, 2014. Certificates of deposit decreased $3.2 million, or 7.0%, to $42.8 million at March 31, 2015 from $46.0 million at June 30, 2014. During the nine months ended March 31, 2015, management continued its strategy of pursuing growth in demand accounts and other lower cost core deposits. Demand accounts were first offered by the Company during the year ended June 30, 2013 and totaled $7.7 million at March 31, 2015. Management intends to continue its efforts to increase core deposits, with a special emphasis on growth in consumer and business demand deposits.

 

Federal Home Loan Bank Advances. Federal Home Loan Bank advances increased $4.2 million, or 24.3%, to $21.5 million at March 31, 2015 from $17.3 million at June 30, 2014. Management has pursued a strategy of periodically increasing these advances to take advantage of this low-cost source of funding during the low interest rate environment for growth in the Company’s loans and investments. The aggregate cost of these advances was 1.49% at March 31, 2015, compared to the Company’s cost of deposits of 1.14% at that date.

 

Directors Deferred Compensation. The Company had a nonqualified Directors Deferred Compensation Plan (the “Plan”) which provided for the payment of benefits upon termination of service with the Company as a director and vesting in the Plan after five years of service. The Plan specified monthly payments for 10 years based upon 80% of the Director’s final year Director’s fees upon reaching the retirement age defined by the Plan. On June 25, 2013, the company elected to terminate and liquidate the Plan, and the termination cost was determined to be approximately $2.0 million, which was reflect on the Company’s balance sheet at June 30, 2014. The funds were fully disbursed in July 2014 and February 2015.

 

Shareholders’ Equity. Total shareholders’ equity increased $6.9 million, or 77.6%, to $15.7 million at March 31, 2015 compared to $8.8 million at June 30, 2014. The increase was primarily attributable to the $6.7 million of net proceeds from the Company’s issuance of 876,163 shares of common stock at an offering price of $10.00 per share, less total offering costs of $1.4 million and shares acquired by the ESOP totaling $701,000. In addition, the Company reported net income of $142,000 for the nine months ended March 31, 2015, and a $14,000 decrease in the accumulated other comprehensive loss.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Three Month Periods Ended March 31, 2015 and 2014

 

General. Our net income for the three months ended March 31, 2015 was $63,000, compared to net income of $109,000 for the three months ended March 31, 2014, a decrease of $46,000. The decrease in net income was primarily due to a $90,000 decrease in noninterest income, a $29,000 increase in noninterest expenses and a $14,000 decrease in federal income tax credits, which were partially offset by a $77,000 increase in net interest income and a $10,000 decrease in the provision for loan losses.

 

Average Balance Sheets. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are accreted to interest income.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

		Three Months Ended March 31,
		2015												2014
		Average Outstanding Balance				Interest				Yield/ Rate				Average Outstanding Balance				Interest				Yield/ Rate
		(Dollars in thousands)
Interest-earning assets:
Loans		$	80,164			$	808				4.03	%		$	64,211			$	695				4.33	%
Investment securities			6,080				23				1.51	%			11,756				55				1.87	%
Other interest-earning assets (1)			7,380				33				1.79	%			7,727				24				1.24	%
Total interest-earning assets			93,624				864				3.69	%			83,694				774				3.70	%
Non-interest-earning assets			4,970												4,673
Allowance for loan losses			(1,585	)											(1,586	)
Total assets		$	97,009											$	86,781
Interest-bearing liabilities:
Interest-bearing demand		$	6,239				11				0.71	%		$	652				-				0.03	%
Money market accounts			2,699				4				0.59	%			3,469				4				0.46	%
Savings accounts			9,191				6				0.26	%			9,756				5				0.21	%
Certificates of deposit			42,360				152				1.44	%			47,016				168				1.43	%
Total deposits			60,489				173				1.14	%			60,893				177				1.16	%
FHLB advances			19,868				74				1.49	%			14,673				57				1.55	%
Total interest-bearing liabilities			80,357				247				1.23	%			75,566				234				1.24	%
Non-interest-bearing liabilities			4,348												2,319
Total liabilities			84,705												77,885
Equity			12,304												8,896
Total liabilities and equity		$	97,009											$	86,781
Net interest income						$	617											$	540
Net interest rate spread (2)											2.46	%											2.46	%
Net interest-earning assets (3)		$	13,267											$	8,128
Net interest margin (4)											2.64	%											2.58	%
Average interest-earning assets to interest-bearing liabilities			116.51	%											110.76	%

 

(1)

Consists of stock in the FHLB and interest bearing demand and time deposits in other banks.

(2)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3)

Net interest-earnings assets represents total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Rate/Volume Table. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to the changes due to volume and the changes due to rate in proportion to the relationship of the absolute dollar amounts of change in each.

 

		For the three months ended March 31, 2015 vs. 2014
		Increase (decrease) due to
										Total Increase
		Volume				Rate				(Decrease)
		(In thousands)
Interest-earning assets:
Loans		$	164			$	(51	)		$	113
Investment securities			(23	)			(9	)			(32	)
Other interest-earning assets			(1	)			10				9
Total interest-earning assets			140				(50	)			90
Interest-bearing liabilities:
Interest-bearing demand		$	-			$	11			$	11
Money market accounts			(1	)			1				-
Savings accounts			-				1				1
Certificates of deposit			(17	)			1				(16	)
Total deposits			(18	)			14				(4	)
FHLB advances			19				(2	)			17
Total interest-bearing liabilities			1				12				13
Change in net interest income		$	139			$	(62	)		$	77

 

Interest Income. Interest income increased $90,000, or 11.6%, to $864,000 for the three months ended March 31, 2015 from $774,000 for the three months ended March 31, 2014. This increase was primarily attributable to a $113,000 increase in interest on loans receivable, which was partially offset by a $32,000 decrease in interest on investment securities. The average balance of loans during the three months ended March 31, 2015 increased by $16.0 million, or 24.8%, from the balance for the three months ended March 31, 2014, while the average yield on loans decreased by 30 basis points to 4.03% for the three months ended March 31, 2015 from 4.33% for the three months ended March 31, 2014. The decrease in average yield on loans was due to the declining interest rate environment, as well as an increase in payoffs of higher interest rate loans as customers refinanced loans at lower interest rates. The average balance of investment securities decreased $5.7 million to $6.1 million for the three months ended March 31, 2015 from $11.8 million for the three months ended March 31, 2014, while the average yield on investment securities decreased by 36 basis points to 1.51% for the three months ended March 31, 2015 from 1.87% for the three months ended March 31, 2014. The decrease in average yield on securities was due to the declining interest rate environment, as well as our decision to invest in shorter-term securities, which generally bear interest at a lower rate than longer-term securities. Interest income on other interest-earning assets, including certificates of deposit in other financial institutions, increased $9,000, or 37.5%, for the three months ended March 31, 2015, as an increase in the average yield of 55 basis points, to 1.79% for the three months ended March 31, 2015 was partially offset by a decrease in the average balance of $347,000 period-to-period. The increase in interest income on other interest earning assets was due primarily to recognition of $26,000 of a $120,000 Bank Enterprise Award the Company received during the period from the U.S. Government-sponsored Community Development Financial Institutions Fund (“CDFI”) based on certificates of deposit placed with qualifying financial institutions participating in the program. The award is being accreted into interest income over the remaining term of the certificates of deposit, and will result in recognition of interest income totaling approximately $13,000 per quarter over the next seven quarters.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Interest Expense. Total interest expense increased $13,000, or 5.6%, to $247,000 for the three months ended March 31, 2015 from $234,000 for the three months ended March 31, 2014. Interest expense on deposit accounts decreased $4,000, or 2.3%, to $173,000 for the three months ended March 31, 2015 from $177,000 for the three months ended March 31, 2014. The decrease was primarily due to a decrease of $404,000, or 0.7%, in the average balance of deposits to $60.5 million for the three months ended March 31, 2015, and a decrease of 2 basis points in the average cost of interest-bearing deposits to 1.14% for the three months ended March 31, 2015 from 1.16% for the three months ended March 31, 2014, reflecting the declining interest rate environment.

 

Interest expense on FHLB advances increased $17,000 to $74,000 for the three months ended March 31, 2015 from $57,000 for the three months ended March 31, 2014. The average balance of advances increased by $5.2 million, or 35.4%, to $19.9 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, while the average cost of these advances decreased by six basis points to 1.49% from 1.55%. As noted above, management elected to increase outstanding advances as a source of lower-cost funding.

 

Net Interest Income. Net interest income increased $77,000, or 14.3%, to $617,000 for the three months ended March 31, 2015 compared to $540,000 for the three months ended March 31, 2014. The increase reflected the increase in average net interest earning assets of $5.2 million period-to-period, while the interest rate spread was unchanged at 2.46% for both the three months ended March 31, 2015 and 2014. Our net interest margin increased to 2.64% for the three months ended March 31, 2015 from 2.58% for the three months ended March 31, 2014. The interest rate spread and net interest margin were impacted by a continuation of a low interest rate environment.

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies—Allowance for Loan Losses,” we recorded a provision for loan losses of $5,000 for the three months ended March 31, 2015 and $15,000 for the three months ended March 31, 2014. The allowance for loan losses was $1.6 million, or 1.95% of total loans, at March 31, 2015, compared to $1.5 million, or 2.23% of total loans, at June 30, 2014. The decrease in the provision for loan losses in the three months ended March 31, 2015, compared to the three months ended March 31, 2014, was due primarily to lesser balances of nonperforming loans and delinquent loans in the fiscal 2015 period. Total nonperforming loans were $1.1 million at March 31, 2015, compared to $1.6 million at March 31, 2014. Classified loans declined to $1.9 million at March 31, 2015, compared to $2.8 million at March 31, 2014, and total loans past due greater than 30 days were $88,000 and $2.1 million at those respective dates. Net recoveries totaled $21,000 for the three months ended March 31, 2015, compared to net recoveries of $5,000 for the three months ended March 31, 2014. As a percentage of nonperforming loans, the allowance for loan losses was 143.8% at March 31, 2015 compared to 97.6% at March 31, 2014. Management has continued a strategy focused on resolution of problem loans and a reduction of the Company’s volume of nonperforming loans. The provision for loan losses in the three months ended March 31, 2015 and 2014 was attributable primarily to estimated losses recognized on certain impaired loans as well as the Company’s overall growth in loans and the change in the loan product mix, as the Company continued its efforts to diversify the loan portfolio from its traditional focus on one-to four-family residential loans.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover probable incurred losses in the loan portfolio at March 31, 2015 and 2014. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

 

Non-Interest Income. Non-interest income decreased $90,000, or 69.8%, to $39,000 for the three months ended March 31, 2015 from $129,000 for the three months ended March 31, 2014. The decrease was primarily due to the effects of a gain on sale of foreclosed assets of $87,000 in the 2014 fiscal period compared to a loss on sale of $3,000 in the 2015 fiscal period, which was partially offset by an increase in gain on sale of loans of $3,000, as the Company continued a program to sell certain loans in the secondary market.

 

Non-Interest Expense. Non-interest expense increased $29,000, or 5.2%, to $588,000 for the three months ended March 31, 2015 compared to $559,000 for the three months ended March 31, 2014. The increase was primarily attributable to a $28,000 increase in professional services, as the Company incurred costs in the quarter ended March 31, 2015 related to the reporting requirements of a public stock company. Other expense categories, including occupancy and equipment, franchise taxes, FDIC insurance premiums, advertising and office supplies were modestly lower due to management’s continuing efforts to control operating costs. Salaries, employee benefits and directors fees expense increased by $1,000, or 0.3%, as the incremental expense associated with the new ESOP plan, totaling $12,000 during the three months ended March 31, 2015 was offset by a decrease in directors fees, as the Company’s Board members elected to reduce Board fees in order to enhance the Company’s financial performance.

 

Non-interest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to possible implementation of one or more stock-based benefit plans, if approved by our stockholders.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Federal Income Taxes. The Company did not record federal income taxes in the three month period ended March 31, 2015, primarily as a result of the net operating loss carryforward available as well as the full impairment valuation allowance maintained on the Company’s deferred tax assets. The Company recognized a $14,000 credit provision in the three month period ended March 31, 2014, due to accounting requirements related to its other comprehensive income. Management evaluated the deferred tax asset based upon a projection of future operating results and determined that a full impairment valuation allowance was required at both March 31, 2015 and 2014. The Company has a total valuation allowance on its net deferred tax assets of $2.1 million at March 31, 2015. The deferred tax asset will only be recognized in future periods when it is more likely than not that the net deferred tax asset can be realized, primarily through the generation of sustainable taxable income.

 

Comparison of Operating Results for the Nine Month Periods Ended March 31, 2015 and 2014

 

General. Our net income for the nine months ended March 31, 2015 was $142,000, compared to a net loss of $326,000 for the nine months ended March 31, 2014, an increase of $468,000. The increase in net income was primarily due to a $235,000 increase in net interest income, a $210,000 decrease in the provision for loan losses and a $127,000 decrease in noninterest expenses, which were partially offset by a $75,000 decrease in noninterest income and a $29,000 increase in federal income taxes.

 

Average Balance Sheets. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are accreted to interest income.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

		Nine Months Ended March 31,
		2015												2014
		Average Outstanding Balance				Interest				Yield/ Rate				Average Outstanding Balance				Interest				Yield/ Rate
		(Dollars in thousands)
Interest-earning assets:
Loans		$	75,272			$	2,342				4.15	%		$	61,748			$	2,006				4.33	%
Investment securities			6,663				78				1.56	%			10,583				150				1.89	%
Other interest-earning assets(1)			6,500				87				1.78	%			8,411				64				1.01	%
Total interest-earning assets			88,436				2,507				3.78	%			80,742				2,220				3.67	%
Non-interest-earning assets			5,274												4,386
Allowance for loan losses			(1,562	)											(1,463	)
Total assets		$	92,148											$	83,665
Interest-bearing liabilities:
Interest-bearing demand		$	4,923				25				0.68	%		$	370				-
Money market accounts			3,045				11				0.48	%			1,864				7				0.50	%
Savings accounts			9,007				15				0.22	%			10,243				15				0.20	%
Certificates of deposit			43,615				472				1.44	%			47,592				511				1.43	%
Total deposits			60,590				523				1.15	%			60,069				533				1.18	%
FHLB advances			18,809				212				1.50	%			12,705				150				1.57	%
Total interest-bearing liabilities			79,399				735				1.23	%			72,774				683				1.25	%
Non-interest-bearing liabilities			2,752												1,738
Total liabilities			82,151												74,512
Equity			9,997												9,153
Total liabilities and equity		$	92,148											$	83,665
Net interest income						$	1,772											$	1,537
Net interest rate spread (2)											2.55	%											2.42	%
Net interest-earning assets (3)		$	9,037											$	7,968
Net interest margin (4)											2.67	%											2.54	%
Average interest-earning assets to interest-bearing liabilities			111.38	%											110.95	%

 

(1)

Consists of stock in the FHLB and interest bearing demand and time deposits in other banks.

(2)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3)

Net interest-earnings assets represents total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Rate/Volume Table. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to the changes due to volume and the changes due to rate in proportion to the relationship of the absolute dollar amounts of change in each.

 

		For the nine months ended March 31, 2015 vs. 2014
		Increase (decrease) due to
										Total Increase
		Volume				Rate				(Decrease)
		(In thousands)
Interest-earning assets:
Loans		$	424			$	(88	)		$	336
Investment securities			(49	)			(23	)			(72	)
Other interest-earning assets			(18	)			41				23
Total interest-earning assets			357				(70	)			287
Interest-bearing liabilities:
Interest-bearing demand		$	-			$	25			$	25
Money market accounts			4				-				4
Savings accounts			(2	)			2				-
Certificates of deposit			(43	)			4				(39	)
Total deposits			(41	)			31				(10	)
FHLB advances			69				(7	)			62
Total interest-bearing liabilities			28				24				52
Change in net interest income		$	329			$	(94	)		$	235

 

Interest Income. Interest income increased $287,000, or 12.9%, to $2.5 million for the nine months ended March 31, 2015 from $2.2 million for the nine months ended March 31, 2014. This increase was primarily attributable to a $336,000 increase in interest on loans receivable, which was partially offset by a $72,000 decrease in interest on investment securities. The average balance of loans during the nine months ended March 31, 2015 increased by $13.5 million, or 21.9%, from the average balance for the nine months ended March 31, 2014, while the average yield on loans decreased by 18 basis point to 4.15% for the nine months ended March 31, 2015 from 4.33% for the nine months ended March 31, 2014. The average balance of investment securities decreased $3.9 million to $6.7 million for the nine months ended March 31, 2015 from $10.6 million for the nine months ended March 31, 2014, while the average yield on investment securities decreased by 33 basis points to 1.56% for the nine months ended March 31, 2015 from 1.89% for the nine months ended March 31, 2014. The decrease in average yield on securities was due to the declining interest rate environment, as well as our decision to invest in shorter-term securities, which generally bear interest at a lower rate than longer-term securities. Interest income on other interest-bearing deposits, including certificates of deposit in other financial institutions, increased $23,000, or 35.9%, for the nine months ended March 31, 2015, as an increase in the average yield of 77 basis points, to 1.78% for the nine months ended March 31, 2014 was partially offset by a decrease in the average balance of $1.9 million period-to-period. The increase in interest income on other interest earning deposits was due primarily to recognition of $30,000 of a $120,000 Bank Enterprise Award the Company received during the period from the U.S. Government-sponsored Community Development Financial Institutions Fund (“CDFI”) based on certificates of deposit placed with qualifying financial institutions participating in the program. The award is being accreted into interest income over the remaining term of the certificates of deposit, and will result in recognition of interest income totaling approximately $13,000 per quarter over the next seven quarters.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Interest Expense. Total interest expense increased $52,000, or 7.6%, to $735,000 for the nine months ended March 31, 2015 from $683,000 for the nine months ended March 31, 2014. Interest expense on deposit accounts decreased $10,000, or 1.9%, to $523,000 for the nine months ended March 31, 2015 from $533,000 for the nine months ended March 31, 2014. The decrease was primarily due to a decrease of three basis points in the average cost of interest-bearing deposits, to 1.15% for the nine months ended March 31, 2015, from 1.18% for the nine months ended March 31, 2014, reflecting the declining interest rate environment, which was partially offset by an increase of $521,000, or 0.9%, in the average balance of deposits, to $60.6 million for the nine months ended March 31, 2015 compared to $60.1 million for the nine months ended March 31, 2014.

 

Interest expense on FHLB advances increased $62,000, or 41.3%, to $212,000 for the nine months ended March 31, 2015 from $150,000 for the nine months ended March 31, 2014. The average balance of advances increased by $6.1 million, or 48.0%, to $18.8 million for the nine months ended March 31, 2015 compared to the nine months ended March 31, 2014, while the average cost of these advances decreased by 7 basis points to 1.50% for the nine months ended March 31, 2015, from 1.57% for the nine months ended March 31, 2014. As noted above, management elected to increase outstanding advances as a source of lower-cost funding.

 

Net Interest Income. Net interest income increased $235,000, or 15.3%, to $1.8 million for the nine months ended March 31, 2015 compared to $1.5 million for the nine months ended March 31, 2014. The increase reflected the increase in the interest rate spread to 2.55% for the nine months ended March 31, 2015 from 2.42% for the nine months ended March 31, 2014, while the average net interest earning assets increased $1.1 million, or 13.4%, period-to-period. Our net interest margin increased by 13 basis points to 2.67% for the nine months ended March 31, 2015, from 2.54% for the nine months ended March 31, 2014. The interest rate spread and net interest margin were impacted by a continuation of a low interest rate environment.

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies—Allowance for Loan Losses,” we recorded a provision for loan losses of $35,000 for the nine months ended March 31, 2015 and $245,000 for the nine months ended March 31, 2014. The allowance for loan losses was $1.6 million, or 1.95% of total loans, at March 31, 2015, compared to $1.5 million, or 2.23% of total loans, at June 30, 2014. The decrease in the provision for loan losses in the nine months ended March 31, 2015 compared to the nine months ended March 31, 2014 was due primarily to lesser balances of nonperforming loans and delinquent loans in the fiscal 2015 period as compared to the fiscal 2014 period. Total nonperforming loans were $1.1 million at March 31, 2015, compared to $1.6 million at March 31, 2014. Classified loans declined to $1.9 million at March 31, 2015, compared to $2.8 million at March 31, 2014, and total loans past due greater than 30 days were $88,000 and $2.1 million at those respective dates. Net recoveries totaled $27,000 for the nine months ended March 31, 2015, compared to net charge-offs of $45,000 for the nine months ended March 31, 2014. As a percentage of nonperforming loans, the allowance for loan losses was 143.8% at March 31, 2015 compared to 97.6% at March 31, 2014. Management has continued a strategy focused on resolution of problem loans and a reduction of the Company’s volume of nonperforming loans. The provision for loan losses in the nine months ended March 31, 2015 and 2014 was attributable primarily to estimated losses recognized on certain impaired loans as well as the Company’s overall growth in loans and the change in the loan product mix, as the Company continued its efforts to diversify the loan portfolio from its traditional focus on one-to four-family residential loans.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover probable incurred losses in the loan portfolio at March 31, 2015 and 2014. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

 

Non-Interest Income. Non-interest income decreased $75,000, or 34.3%, to $144,000 for the nine months ended March 31, 2015 from $219,000 for the nine months ended March 31, 2014. The decrease was primarily due to a $98,000 decrease in gains on sales of foreclosed real estate, from $113,000 for the nine months ended March 31, 2015 to $15,000 for the nine months ended March 31, 2014, which was partially offset by an increase in gains on sale of loans of $26,000 period-to-period, as the Company continued a program to sell certain loans in the secondary market.

 

Non-Interest Expense. Non-interest expense decreased $127,000, or 6.8%, to $1.7 million for the nine months ended March 31, 2015, compared to $1.9 million for the nine months ended March 31, 2014. The decrease was due primarily to a $44,000 decrease in salaries, employee benefits and directors fees, a $38,000 decrease in franchise taxes, a $45,000 decrease in advertising and decreases in most other operating expense categories, all of which were partially offset by a $38,000 increase in professional services. The decrease in compensation was due primarily to a decrease of $38,000 in directors fees, as the Company’s Board members elected to reduce Company fees in order to enhance the Company’s financial performance, and the effects of a nonrecurring $53,000 severance charge recognized in the fiscal 2014 period, due to departures of certain Company employees and a $38,000 decrease in employee health care expense, which were partially offset by an $81,000 increase in employee compensation period-to-period. The increase in compensation expense was due to the addition of new Company staff, including a senior lending officer, and payment of bonus incentive compensation to the Company’s employees totaling approximately $32,000. The decrease in franchise taxes was due to the decline in the franchise tax rate which became effective in the fiscal 2015 period. The decrease in advertising and other expense categories resulted from management’s continuing efforts to control operating costs.

 

Non-interest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to possible implementation of one or more stock-based benefit plans, if approved by our stockholders.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Federal Income Taxes. Federal income tax credits decreased by $29,000 due to a benefit of $29,000 recognized for the nine months ended March 31, 2014. The Company did not record federal income tax expense for the nine months ended March 31, 2015 due to the availability of net operating loss carryforwards. The federal income tax benefit recognized in the fiscal 2014 period related primarily to the tax effects of changes in the accumulated other comprehensive income, required as a result of the full impairment valuation allowance maintained on the Company’s deferred tax assets in fiscal 2014. Management evaluated the deferred tax asset based upon a projection of future operating results and determined that a full impairment valuation allowance was required at both March 31, 2015 and 2014. The Company has a total valuation allowance on its net deferred tax assets of $2.1 million at March 31, 2015. The deferred tax asset will only be recognized in future periods when it is more likely than not that the net deferred tax asset can be realized, primarily through the generation of sustainable taxable income.

 

Liquidity and Capital Resources

 

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities, sales or calls of securities. We also have the ability to borrow from the FHLB. At March 31, 2015, we had the capacity to borrow approximately $21.5 million from the FHLB and have an additional $5.0 million on a line of credit with the FHLB. At March 31, 2015, we had $21.5 million outstanding in advances from the FHLB.

 

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

 

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash used in operating activities was $1.6 million and $570,000 for the nine months ended March 31, 2015 and 2014, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on mortgage-backed securities, was $10.3 million and $6.3 million for the nine months ended March 31, 2015 and 2014, respectively. During the nine months ended March 31, 2015, we did not purchase or sell any securities designated as available for sale, while during the nine months ended March 31, 2014, we purchased $5.1 million and sold $3.6 million, of such securities. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and Federal Home Loan Bank advances, and in the fiscal 2015 period included the proceeds from the issuance of common stock, was $12.4 million and $5.6 million for the nine months ended March 31, 2015 and 2014, respectively. These funding increases also reflected our strategy of borrowing at lower interest rates to fund loan originations.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

 

At March 31, 2015, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $14.0 million, or 14.0% of adjusted total assets, which is above the well-capitalized required level of $5.0 million, or 5.0%; and total risk-based capital of $14.7 million, or 25.9% of risk-weighted assets, which is above the well-capitalized required level of $5.7 million, or 10.0%. Accordingly, Mt. Washington Savings Bank was categorized as well capitalized at March 31, 2015. Management is not aware of any conditions or events since the most recent notification that would change our category.

 

Effective January 1, 2015, the Bank is subject to the new capital requirements set forth by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The Bank has chosen to exclude unrealized gains and losses from capital. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

 

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At March 31, 2015, we had outstanding commitments to originate loans of $8.0 million, including undisbursed funds on construction loans and funds available on undrawn lines of credit. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2015 totaled $19.3 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

 

 

MW Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for equipment, agreements with respect to borrowed funds and deposit liabilities.

 

Forward-Looking Statements

 

This document contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and similar expressions. These forward-looking statements include: statements of goals, intentions and expectations, statements regarding prospects and business strategy, statements regarding asset quality and market risk, and estimates of future costs, benefits and results.

 

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following: (1) general economic conditions, (2) competitive pressure among financial services companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand, (6) changes in legislation or regulation, (7) changes in accounting principles, policies and guidelines and (8) other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

 

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. We have no obligation to update or revise any forward-looking statements to reflect any changed assumptions, any unanticipated events or any changes in the future.

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable as the Registrant is a smaller reporting company.

 

ITEM 4

Controls and Procedures

 

(a)

Evaluation of disclosure controls and procedures.

 

Under the supervision and with the participation of the Registrant’s management, including our Chief Executive Officer and Chief Financial Officer, the Registrant evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as a result of the material weakness that existed in the Company's internal control over financial reporting as previously described in the Registrant's Registration Statement on Form S-1, as amended, as filed with the SEC.

 

(b)

Changes in internal controls.

 

There has been no change made in the Registrant’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting, other than described below.

 

In connection with the audit of our fiscal 2013 and 2014 financial statements, our independent registered public accounting firm issued a letter to our audit committee identifying three material weaknesses in our internal control over financial reporting. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses related to (i) our process and conclusion with respect to our assessment of the ability to realize our net deferred tax assets, (ii) weaknesses identified in the fiscal 2013 allowance for loan loss (“ALL”) calculation, and (iii) weaknesses identified in the fiscal 2014 ALL calculation. Information surrounding each material weakness is as follows:

 

Deferred Tax Asset Valuation Allowance: An effective internal control was not in place to evaluate our ability to realize the Company’s net deferred tax asset. Our management has addressed this material weakness by implementing a control which requires a review of the quarter-end deferred tax asset analysis by both an appropriate member of our management and an independent third party. Although we believe this control is adequate, the aforementioned control has not been in place for a sufficient period to ensure the material weakness has been remediated.

 

ALL Calculation: An internal control applied to the preparation and review of the ALL calculation did not operate with sufficient precision to detect potential misstatements. Subsequent to fiscal 2014, management has implemented revisions to the ALL calculation to address these deficiencies. Furthermore, management has implemented a more precise supervisory review procedure applied to the ALL calculation. The enhanced review specifically includes review of (1) loan classifications within the calculation, both individually and in the aggregate, (2) the measurement of impairment applied to impaired loans, and (3) the estimated costs to sell percentage applied to impaired loans. Although we believe these controls are adequate, the aforementioned controls have not been in place for a sufficient period to ensure the material weakness has been remediated.

 

 

MW Bancorp, Inc.

Part II

Other Information

 

ITEM 1

Legal Proceedings

 

We are not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. At March 31, 2015, we were not involved in any legal proceedings the outcome of which would be material to 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)

There were no issuer repurchases of securities during the period covered by this report.

 

ITEM 3.

Defaults Upon Senior Securities

 

None.

 

ITEM 4.

Mine Safety Disclosures

 

Not applicable.

 

ITEM 5.

Other Information

 

None.

 

ITEM 6.		Exhibits
Exhibit
Number		Description
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		Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

MW Bancorp, Inc.

 

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.

 

				MW Bancorp, Inc.
Date:	May 15, 2015		By:	/s/Gregory P. Niesen
				Gregory P. Niesen
				President and Chief Executive Officer
Date:	May 15, 2015		By:	/s/Jill M. Ulrich
				Jill M. Ulrich
				Senior Vice President and Chief Financial Officer