Wolverine Bancorp, Inc. - FORM 10-Q

Wolverine Bancorp, Inc. - FORM 10-Q - August 14, 2015

Attached files

Attached files

Wolverine Bancorp, Inc. Reports

file	filename
EX-32 - EX-32 - Wolverine Bancorp, Inc.	d84103dex32.htm
EX-31.2 - EX-31.2 - Wolverine Bancorp, Inc.	d84103dex312.htm
EX-31.1 - EX-31.1 - Wolverine Bancorp, Inc.	d84103dex311.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 001-35034

Wolverine Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Maryland		27-3939016
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

5710 Eastman Avenue, Midland, Michigan		48640
(Address of Principal Executive Offices)		Zip Code

(989) 631-4280

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES x NO ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The number of shares outstanding of the Registrant’s common stock, $0.01 per share, as of August 10, 2015, was 2,207,551.

Wolverine Bancorp, Inc.

Form 10-Q

Index


		Page

Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014		1

	Condensed Consolidated Statements of Income and Comprehensive Income for the three months and six months ended June 30, 2015 and 2014 (unaudited)		2

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)		3

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2015 (unaudited)		4

	Notes to Condensed Consolidated Financial Statements (unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		38
Item 4.	Controls and Procedures		38

Part II. Other Information

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

Wolverine Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Amounts in Thousands, except per share data)


	June 30, 2015			December 31, 2014
	(Unaudited)
Assets
Cash and due from banks	$	358		$	477
Interest-earning demand deposits		40,114			29,209

Cash and cash equivalents		40,472			29,686
Interest-earning time deposits		5,655			—
Investment securities held to maturity		500			—
Loans held for sale		2,004			570
Loans, net of allowance for loan losses of $9,176 and $7,976		299,297			296,477
Premises and equipment, net		1,343			1,384
Federal Home Loan Bank stock		2,700			2,500
Other real estate owned		332			335
Accrued interest receivable		870			777
Other assets		4,709			4,895

Total assets	$	357,882		$	336,624


Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	235,537		$	223,529
Federal Home Loan Bank advances		57,000			50,000
Interest payable and other liabilities		3,443			1,557

Total liabilities		295,980			275,086


Commitments and Contingencies
Stockholders’ Equity
Common Stock, $0.01 par value per share:
Authorized – 100,000,000 shares
Issued and outstanding – 2,207,551 and 2,263,848		22			23
at June 30, 2015 and December 31, 2014		17,482			18,640
Unearned employee stock ownership plan (ESOP)		(1,511	)		(1,564	)
Additional paid-in capital		45,909			44,439


Retained earnings

Total stockholders’ equity		61,902			61,538

Total liabilities and stockholders’ equity	$	357,882		$	336,624

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

Wolverine Bancorp, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Amounts in Thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015			2014
	(Unaudited)				(Unaudited)
Interest and Dividend Income
Loans	$	3,670	$	3,605	$	7,285		$	6,965
Investment securities and other		63		66		125			116

Total interest and dividend income		3,733		3,671		7,410			7,081


Interest Expense
Deposits		350		294		675			485
Borrowings		529		507		1,054			1,037

Total interest expense		879		801		1,729			1,522


Net Interest Income		2,854		2,870		5,681			5,559

Provision for Loan Losses		250		195		500			495


Net Interest Income After Provision for Loan Loss		2,604		2,675		5,181			5,064


Noninterest Income
Service charges and fees		75		54		142			105
Net gain on loan sales		136		171		312			291
Net gain (loss) on sale of real estate owned		—		23		(37	)		3
Other		88		47		197			77

Total noninterest income		299		296		614			476


Noninterest Expense
Salaries and employee benefits		1,048		1,298		2,076			2,529
Net occupancy and equipment expense		204		227		424			448
Information technology expense		58		62		115			122
Federal deposit insurance corporation premiums		58		61		104			114
Professional and services fees		82		102		189			252
Other real estate owned expense		18		39		30			58
Loan legal expense		49		34		113			47
Advertising expense		47		52		67			92
Michigan business tax		47		45		93			97
Other		238		286		453			552

Total noninterest expense		1,849		2,206		3,664			4,311


Income Before Income Tax		1,054		764		2,131			1,229

Provision for Income Taxes		323		284		661			444


Net Income and Comprehensive Income	$	731	$	480	$	1,470		$	785


Earnings Per Share:

Basic	$	0.36	$	0.23	$	0.72		$	0.37


Diluted	$	0.35	$	0.23	$	0.71		$	0.37

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

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in Thousands)


	Six months ended June 30,
	2015			2014
	(Unaudited)
Operating Activities	$	1,470		$	785
Net income
Items not requiring (providing) cash
Depreciation		118			127
Deferred income taxes		(294	)		—
Provision for loan losses		500			495
Loss (gain) on other real estate owned		37			(3	)
Loans originated for sale		(11,420	)		(9,515	)
Proceeds from loans sold		10,298			9,248
Net gain on sale of loans		(312	)		(291	)
Share based compensation		157			160
Earned ESOP shares		131			—
Changes in
Interest receivable and other assets		392			(349	)
Interest payable and other liabilities		1,886			1,211

Net cash provided by operating activities		2,963			1,868


Investing Activities
Net change in interest-bearing deposits		(5,655	)		—
Purchase of held to maturity securities		(500	)		—
Proceeds from calls, maturities and pay-downs of held to maturity securities		—			66
Net change in loans		(3,448	)		(28,312	)
Proceeds from sale of real estate owned		87			525
Purchase of FHLB stock		(200	)		—
Purchase of premises and equipment		(77	)		—

Net cash used by investing activities		(9,793	)		(27,721	)


Financing Activities
Net change in demand deposits, money market, checking and savings accounts		9,075			12,818
Net change in certificates of deposit		2,934			35,434
Repayment of Federal Home Loan Bank advances		(3,000	)		(10,000	)
Proceeds from Federal Home Loan Bank advances		10,000			—
Proceeds from stock options exercised		—			28
Purchase of common stock		(1,394	)		(442	)

Net cash provided by financing activities		17,615			37,838


Change in Cash and Cash Equivalents		10,785			11,985

Cash and Cash Equivalents, Beginning of Period		29,686			26,181


Cash and Cash Equivalents, End of Period	$	40,472		$	38,166


Supplemental Disclosures of Cash Flows Information
Interest paid	$	1,721		$	1,521
Income taxes paid		485			600
Loans transferred to real estate owned		128			255

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

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Change in Stockholders’ Equity

(Amounts in Thousands, except share data)

(Unaudited)


	Common Stock			Additional Paid-in Capital			Unearned ESOP Shares			Retained Earnings		Total Stockholders’ Equity
Balances at January 1, 2015	$	23		$	18,640		$	(1,564	)	$	44,439	$	61,538
Net Income		—			—			—			1,470		1,470
Purchase of 58,183 shares of common stock		(1	)		(1,393	)		—			—		(1,394	)
Share based compensation expense		—			157			—			—		157
ESOP shares earned		—			78			53			—		131

Balances at June 30, 2015	$	22		$	17,482		$	(1,511	)	$	45,909	$	61,902

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 1:

Basis of Presentation

The unaudited condensed consolidated financial statements of Wolverine Bancorp, Inc. (the “Company”), the holding company of Wolverine Bank (the “Bank”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) believed necessary for a fair presentation have been included. The condensed consolidated balance sheet of the Company as of December 31, 2014 has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the three and six month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto filed as part of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2015.

Note 2:

Accounting Developments

The FASB has issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” Existing GAAP does not include explicit guidance about a customer’s accounting for fees paid in a cloud computing arrangement. Examples of cloud computing arrangements include: (a) software as a service; (b) platform as a service; (c) infrastructure as a service; and (d) other similar hosting arrangements. The amendments add guidance to Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software, which will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance already exists in the FASB Accounting Standards Codification™ in paragraphs 985-605-55-121 through 55-123, but it is included in a Subtopic applied by cloud service providers to determine whether an arrangement includes the sale or license of software. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted for all entities. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. The Company will adopt the methodologies prescribed by this ASU by the date required, and is still evaluating the impact the ASU will have on its financial position or results of operations.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The FASB has issued an ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ (Codification) and improves current GAAP by:

•

Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met.

•

Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE).

•

Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

The ASU will be effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. The Company will adopt the methodologies prescribed by this ASU by the date required, and is still evaluating the impact the ASU will have on its financial position or results of operations.

In May 2014, the FASB, in joint cooperation with IASB, issued ASU 2014-09, “Revenue from Contracts with Customers.” The topic of Revenue Recognition had become broad, with several other regulatory agencies issuing standards which lacked cohesion. The new guidance establishes a “common framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and is still evaluating the impact the ASU will have on its financial position or results of operations.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 3:

Securities

The amortized cost and approximate fair values of securities are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
Held to Maturity Securities:
June 30, 2015
Treasury bond	$	500	$	—	$	—	$	500

The amortized cost and fair value of securities at June 30, 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.


	June 30, 2015
	Amortized Cost		Fair Value

Within one year	$	500	$	500
One to five years		—		—
Five to ten years		—		—
After ten years		—		—


Totals	$	500	$	500

There were no sales of securities during the three or six months ended June 30, 2015 and 2014.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 4:

Loans and Allowance for Loan Losses

Categories of loans include:


	June 30, 2015		December 31, 2014
Real Estate
One-to four-family	$	42,751	$	44,316
Home Equity		6,390		6,645
Commercial mortage loans
Commercial real estate		159,942		153,705
Multifamily		63,182		61,204
Land		11,931		10,060
Construction		19,427		21,673
Commercial Non-mortgage		15,053		14,717
Consumer		1,299		1,142

Total loans		319,975		313,462

Less
Net deferred loan fees, premiums and discounts		559		555
Undisbursed portion of loan		10,943		8,454
Allowance for loan losses		9,176		7,976


Net Loans	$	299,297	$	296,477

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

1-4 Family, Home Equity, and Consumer

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

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

Wolverine Bancorp, Inc.

Form 10-Q

(Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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

Commercial real estate and multifamily

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

Land

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

Construction

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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

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

Commercial non-mortgage

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

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

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

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2015, December 31, 2014 and June 30, 2014:


Loan Class	1-4 Family			Home Equity		Commercial Real Estate		Multifamily		Land		Construction		Commerical Non-Mortage		Consumer			Total
Year to date analysis as of June 30, 2015
Allowance for loan losses:

Balance, beginning of period	$	881		$	100	$	3,573	$	1,391	$	1,205	$	539	$	269	$	18		$	7,976
Provision charged to expense		142			12		3		131		77		83		48		4		$	500
Losses charged off		(45	)		—		—		—		—		—		—		(1	)	$	(46	)
Recoveries		22			—		715		—		7		—		—		2		$	746

Balance, end of period	$	1,000		$	112	$	4,291	$	1,522	$	1,289	$	622	$	317	$	23		$	9,176

Ending Balance: individually evaluated for impairment		—			—		200		100		850		—		—		—		$	1,150

Ending balance: collectively evaluated for impairment	$	1,000		$	112	$	4,091	$	1,422	$	439	$	622	$	317	$	23		$	8,026

Loans:
Ending Balance		42,751			6,390		159,942		63,182		11,931		19,427		15,053		1,299			319,975


Ending Balance: individually evaluated for impairment		1,550			—		13,005		8,058		2,703		—		317		—			25,633

Ending balance: collectively evaluated for impairment		41,201			6,390		146,937		55,124		9,228		19,427		14,736		1,299			294,342


Loan Class	1-4 Family		Home Equity		Commercial Real Estate			Multifamily		Land			Construction		Commerical Non-Mortage		Consumer		Total
Quarter to date analysis as of June 30, 2015
Allowance for loan losses:

Balance, beginning of period	$	874	$	91	$	3,743		$	1,301	$	1,362		$	617	$	229	$	19	$	8,236

Provision charged to expense		120		21		(128	)		221		(80	)		5		88		3		250
Losses charged off		—		—		—			—		—			—		—		—		—
Recoveries		6		—		676			—		7			—		—		1		690

Balance, end of period	$	1,000	$	112	$	4,291		$	1,522	$	1,289		$	622	$	317	$	23	$	9,176

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


Loan Class	1-4 Family			Home Equity			Commercial Real Estate		Multifamily			Land			Construction			Commerical Non-Mortage		Consumer			Total
Year to date analysis as of December 31, 2014

Allowance for loan losses:

Balance, beginning of period	$	1,354		$	251		$	2,861	$	1,514		$	1,145		$	285		$	157	$	30		$	7,597

Provision charged to expense		(475	)		(151	)		702		(123	)		(33	)		1,004			112		(16	)		1,020
Losses charged off		(55	)		—			—		—			—			(750	)		—		(1	)		(806	)
Recoveries		57			—			10		—			93			—			—		5			165

Balance, end of period	$	881		$	100		$	3,573	$	1,391		$	1,205		$	539		$	269	$	18		$	7,976

Ending Balance: individually evaluated for impairment		—			—			200		100			850			—			—		—			1,150

Ending balance: collectively evaluated for impairment	$	881		$	100		$	3,373	$	1,291		$	355		$	539		$	269	$	18		$	6,826

Loans:
Ending Balance		44,316			6,645			153,705		61,204			10,060			21,673			14,717		1,142			313,462

Ending Balance: individually evaluated for impairment		1,645			63			8,956		8,192			3,224			5,349			351		—			27,780

Ending balance: collectively evaluated for impairment	$	42,671		$	6,582		$	144,749	$	53,012		$	6,836		$	16,324		$	14,366	$	1,142		$	285,682

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


Loan Class	1-4 Family			Home Equity			Commercial Real Estate		Multifamily			Land		Construction		Commerical Non-Mortage		Consumer			Total
Year to date analysis as of June 30, 2014

Allowance for loan losses:

Balance, beginning of period	$	1,354		$	251		$	2,861	$	1,514		$	1,145	$	285	$	157	$	30		$	7,597

Provision charged to expense		(363	)		(97	)		311		(181	)		221		523		96		(15	)		495
Losses charged off		(30	)		—			—		—			—		—		—		(1	)		(31	)
Recoveries		26			—			7		—			11		—		—		3			47

Balance, end of period	$	987		$	154		$	3,179	$	1,333		$	1,377	$	808	$	253	$	17		$	8,108

Ending Balance: individually evaluated for impairment		—			—			200		100			850		500		—		—			1,650

Ending balance: collectively evaluated for impairment	$	987		$	154		$	2,979	$	1,233		$	527	$	308	$	253	$	17		$	6,458

Loans:
Ending Balance		50,397			7,219			147,191		60,248			9,568		23,609		12,801		1,144			312,177

Ending Balance: individually evaluated for impairment		1,449			63			9,779		8,316			3,888		5,349		595		—			29,439

Ending balance: collectively evaluated for impairment	$	48,948		$	7,156		$	137,412	$	51,932		$	5,680	$	18,260	$	12,206	$	1,144		$	282,738


Loan Class	1-4 Family			Home Equity		Commercial Real Estate			Multifamily			Land			Construction		Commerical Non-Mortage		Consumer			Total
Quarter to date analysis as of June 30, 2014
Allowance for loan losses:
Balance, beginning of period	$	1,006		$	148	$	3,475		$	1,338		$	1,422		$	390	$	126	$	14		$	7,919

Provision charged to expense		(5	)		6		(300	)		(5	)		(49	)		418		127		3			195
Losses charged off		(30	)		—		—			—			—			—		—		(1	)		(31	)
Recoveries		16			—		4			—			4			—		—		1			25

Balance, end of period	$	987		$	154	$	3,179		$	1,333		$	1,377		$	808	$	253	$	17		$	8,108

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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

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

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

The following table presents the credit risk profile of our loan portfolio based on rating category and payment activity as of June 30, 2015 and December 31, 2014:


	1-4 Family				Home Equity				Commercial Real Estate				Multifamily
	2015		2014		2015		2014		2015		2014		2015		2014
Pass	$	39,197	$	40,253	$	6,390	$	6,645	$	136,685	$	131,833	$	49,410	$	47,308
Pass (Closely Monitored)		2,054		2,446		—		—		9,246		10,446		9,211		9,244
Special Mention		229		413		—		—		1,429		2,383		—		—
Substandard		1,271		1,204		—		—		12,582		9,043		4,561		4,652
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

	$	42,751	$	44,316	$	6,390	$	6,645	$	159,942	$	153,705	$	63,182	$	61,204

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


	Land				Construction				Mortgage				Consumer				Total
	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
Pass		7,794		5,160		19,427		18,213		14,404		14,023		1,299		1,142		274,606		264,577
Pass (Closely Monitored)		1,900		2,156		—		—		332		343		—		—		22,743		24,635
Special Mention		—		—		—		—		—		19		—		—		1,658		2,815
Substandard		2,237		2,744		—		3,460		317		332		—		—		20,968		21,435
Doubtful		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—

	$	11,931	$	10,060	$	19,427	$	21,673	$	15,053	$	14,717	$	1,299	$	1,142	$	319,975	$	313,462

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

The Pass asset quality rating encompasses assets that have performed as expected. These assets generally do not have delinquency or servicing issues. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage.

The Closely Monitored asset quality rating encompasses assets that have been brought to the attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets. This grade includes loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile.

The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness(es) based upon objective evidence; assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected; or the possibility that liquidation will not be timely. Loans categorized in this grade possess a well defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended.

The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of the Bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be realized in the future.

The following table is a summary of our past due and non-accrual loans as of June 30, 2015 and December 31, 2014:


As of June 30, 2015	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans >90 Days & Accruing		Total Nonaccrual
1-4 Family	$	149	$	—	$	48	$	197	$	42,554	$	42,751	$	—	$	66
Home Equity		—		—		—		—		6,390		6,390		—		—
Commercial Real Estate		3,866		691		181		4,738		155,204		159,942		—		5,241
Multifamily		—		—		—		—		63,182		63,182		—		—
Land		—		—		2,237		2,237		9,694		11,931		—		2,408
Construction		—		—		—		—		19,427		19,427		—		—
Commercial Non-Mortgage		—		—		—		—		15,053		15,053		—		—
Consumer		—		—		—		—		1,299		1,299		—		—

Total	$	4,015	$	691	$	2,466	$	7,172	$	312,803	$	319,975	$	—	$	7,715

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


As of December 31, 2014:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans >90 Days & Accruing		Total Nonaccrual
1-4 Family	$	334	$	152	$	107	$	593	$	43,723	$	44,316	$	—	$	107

Home Equity		—		—		—		—		6,645		6,645		—		—

Commercial Real Estate		818		634		649		2,101		151,604		153,705		—		1,339

Multifamily		—		—		—		—		61,204		61,204		—		—

Land		—		—		2,700		2,700		7,360		10,060		—		2,700

Construction		3,960		—		—		3,960		17,713		21,673		—		3,960

Commercial Non-Mortgage		—		—		19		19		14,698		14,717		—		19

Consumer		—		—		—		—		1,142		1,142		—		—

Total	$	5,112	$	786	$	3,475	$	9,373	$	304,089	$	313,462	$	—	$	8,125

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

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

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable we will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents impaired loans at June 30, 2015:


	Recorded Balance		Unpaid Principal Balance		Specific Allowance		QTD Average Balance		YTD Average Balance		QTD Interest Income		YTD Interest Income

Loans without a specific valuation allowance :
1-4 Family	$	1,373	$	1,562	$	—	$	1,478	$	1,474	$	16	$	34
Home Equity		—		—		—		30		41		—		—
Commercial real estate		10,459		12,627		—		10,855		11,029		51		117
Multi Family		6,719		7,533		—		6,750		6,782		82		162
Land		466		740		—		488		326		7		14
Construction		—		2		—		—		1,783		—		—
Commercial Non-Mortgage		—		—		—		—		6		—		—
Consumer		—		—		—		—		—		—		—
Loans with a specific valuation allowance :
1-4 Family	$	177	$	177	$	—	$	177	$	177	$	2	$	6
Home Equity		—		—		—		—		—		—		—
Commercial real estate		2,546		2,546		200		2,567		2,687		43		91
Multi Family		1,339		1,339		100		1,341		1,342		20		40
Land		2,237		3,937		850		2,323		2,448		—		—
Construction		—		—		—		—		—		—		—
Commercial Non-Mortgage		317		317		—		321		324		6		11
Consumer		—		—		—		—		—		—		—
Totals
1-4 Family	$	1,550	$	1,739	$	—	$	1,655	$	1,651	$	18	$	40
Home Equity		—		—		—		30		41		—		—
Commercial real estate		13,005		15,173		200		13,422		13,716		94		208
Multi Family		8,058		8,872		100		8,091		8,124		102		202
Land		2,703		4,677		850		2,811		2,774		7		14
Construction		—		2		—		—		1,783		—		—
Commercial Non-Mortgage		317		317		—		321		330		6		11
Consumer		—		—		—		—		—		—		—

Total	$	25,633	$	30,780	$	1,150	$	26,330	$	28,419	$	227	$	475

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents impaired loans at December 31, 2014:


	Recorded Balance		Unpaid Principal Balance		Specific Allowance		YTD Average Balance		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	1,467	$	1,643	$	—	$	1,472	$	77
Home Equity		63		63		—		65		2
Commercial Real Estate		6,029		8,309		—		6,680		323
Multifamily		6,847		7,661		—		6,941		392
Land		524		805		—		504		4
Construction		5,349		4,712		—		3,664		57
Commercial Non-Mortgage		19		19		—		137		5
Consumer		—		—		—		—		—
Loans with a specific valuation allowance
1-4 Family	$	178	$	178	$	—	$	180	$	8
Home Equity		—		—		—		—		—
Commercial Real Estate		2,927		2,927		200		3,000		200
Multifamily		1,345		1,345		100		1,355		83
Land		2,700		4,060		850		3,044		1
Construction		—		—		—		2,674		107
Commercial Non-Mortgage		332		332		—		343		18
Consumer		—		—		—		—		—
Totals
1-4 Family	$	1,645	$	1,821	$	—	$	1,652	$	85
Home Equity		63		63		—		65		2
Commercial Real Estate		8,956		11,236		200		9,680		523
Multifamily		8,192		9,006		100		8,296		475
Land		3,224		4,865		850		3,548		5
Construction		5,349		4,712		—		6,338		164
Commercial Non-Mortgage		351		351		—		480		23
Consumer		—		—		—		—		—

Total	$	27,780	$	32,054	$	1,150	$	30,059	$	1,277

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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


	Recorded Balance		Unpaid Principal Balance		Specific Allowance		QTD Average Balance		YTD Average Balance		QTD Interest Income		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	1,269	$	1,579	$	—	$	1,472	$	1,780	$	16	$	37
Home Equity		63		63		—		64		65		1		1
Commercial Real Estate		6,741		9,180		—		7,036		7,607		110		175
Multifamily		6,971		7,786		—		7,002		7,034		123		205
Land		696		1,070		—		701		912		—		1
Construction		—		1		—		—		—		—		—
Commercial Non-Mortgage		251		251		—		254		244		2		5
Consumer		—		—		—		—		—		—		—
Loans with a specific valuation allowance
1-4 Family		180		180		—		180		181		3		5
Home Equity		—		—		—		—		—		—		—
Commercial Real Estate		3,038		3,054		200		3,058		3,085		38		101
Multifamily		1,345		1,345		100		1,348		1,353		20		41
Land		3,192		4,531		850		3,290		3,342		1		1
Construction		5,349		5,349		500		2,674		1,783		64		64
Commercial Non-Mortgage		344		344		—		350		358		4		9
Consumer		—		—		—		—		—		—		—
Total
1-4 Family	$	1,449	$	1,759	$	—	$	1,652	$	1,961	$	19	$	42
Home Equity		63		63		—		64		65		1		1
Commercial Real Estate		9,779		12,234		200		10,094		10,692		148		276
Multifamily		8,316		9,131		100		8,350		8,387		143		246
Land		3,888		5,601		850		3,991		4,254		1		2
Construction		5,349		5,350		500		2,674		1,783		64		64
Commercial Non-Mortgage		595		595		—		604		602		6		14
Consumer		—		—		—		—		—		—		—

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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

Troubled Debt Restructuring (TDR)

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

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

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

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

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

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table summarizes the loans that were restructured as TDRs during the three and six months ended June 30, 2015:


	Three Months Ended June 30, 2015						Six months ended June 30, 2015
	Count		Balance prior to TDR		Balance after TDR		Count		Balance prior to TDR		Balance after TDR
	(Dollars in thousands)

Commercial real estate		2		745		745		2		745		745

Total loans		2	$	745	$	745		2	$	745	$	745

Both of the commercial real estate TDRs in 2015 were modified with rate reductions and term extensions.

We had no TDRs that had payment defaults during the six months ended June 2015. Default occurs when a TDR is 90 days or more past due, transferred to nonaccrual status, or transferred to other real estate owned within twelve months of restructuring.

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

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


	Three Months Ended						Six months ended
	June 30, 2014						June 30, 2014
	Count		Balance prior to TDR		Balance after TDR		Count		Balance prior to TDR		Balance after TDR
	(Dollars in thousands)

Commercial real estate		1		900		900		1		900		900

Total loans		1	$	900	$	900		1	$	900	$	900

The commercial real estate TDR in 2014 was modified with a payment restructuring.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 5:

Disclosures About Fair Value of Assets and Liabilities

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in active markets for identical assets or liabilities.

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets under the valuation hierarchy. We have no assets or liabilities measured at fair value on a recurring basis and no liabilities measured at fair value on a nonrecurring basis.

Nonrecurring Measurements

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2015 and December 31, 2014.


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

June 30, 2015
Collateral-dependent Impaired loans	$	—	$	—	$	—	$	—

December 31, 2014
Collateral-dependent Impaired loans	$	3,822	$	—	$	—	$	3,822

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Collateral-dependent Impaired Loans

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

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

Unobservable (Level 3) inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than good will at June 30, 2015 and December 31, 2014.


	Collateral-dependent Impaired Loans
	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
As of June 30, 2015 Collateral-dependent impaired loans	$	—	Market comparable properties	Marketability discount	— %
As of December 31, 2014 Collateral-dependent impaired loans	$	3,822	Market comparable properties	Marketability discount	6%-38% (7%)

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Fair Value of Financial Instruments

The following table presents estimated fair values of our financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value at the individual dates. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, we do not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of June 30, 2015
Financial Assets
Cash and cash equivalents	$	40,472	$	40,472	$	—	$	—
Interest-earning time deposits		5,655		5,655		—		—
Held to maturity securities		500		—		500		—
Loans held for sale		2,004		—		2,009		—
Loans, net of allowance for loan losses		299,297		—		—		303,364
Federal Home Loan Bank stock		2,700		—		2,700		—
Interest receivable		870		—		870		—

Financial liabilities
Deposits	$	235,537	$	124,584	$	—	$	113,425
Federal Home Loan Bank advances		57,000		—		57,627		—
Interest payable		186		—		186		—

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

As of December 31, 2014

Financial assets
Cash and cash equivalents	$	29,686	$	29,686	$	—	$	—
Interest-earning time deposits		—		—		—		—
Loans held for sale		570		—		570		—
Loans, net of allowance for loan losses		296,477		—		—		299,514
Federal Home Loan Bank stock		2,500		—		2,500		—
Interest receivable		777		—		777		—

Financial liabilities

Deposits	$	223,529	$	114,418	$	—	$	110,560
Federal Home Loan Bank advances		50,000		—		50,567		—
Interest payable		157		—		157		—

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

Cash and Cash Equivalents, Interest-Earning Time Deposits, Federal Home Loan Bank Stock, Interest Receivable, and Interest Payable

The carrying amount approximates fair value.

Held to Maturity Securities

Fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.

Loans Held for Sale

Fair value of loans held for sale is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar remaining maturities.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include demand deposits, savings accounts, checking accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Advances

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

Commitments to Originate Loans, Letters of Credit and Lines of Credit

Loan commitments and letters-of-credit generally have short-term, variable rate features and contain clauses which limit our exposure to changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 6:

Earnings Per Share (In thousands except per share amounts)

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

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

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Earnings per share analysis for three months ended June 30, 2015 and 2014 is as follows (dollars in thousands, except per share data):


	Three months ended			Three months ended
	June 30, 2015			June 30, 2014
Net Income	$	731		$	480
Income allocated to participating securities		(16	)		(14	)

Income attributable to common shareholders		715			466


Weighted average shares outstanding (in thousands)		2,220			2,288
Less: average unearned ESOP and unvested restricted stock		(213	)		(226	)

Average Shares		2,007			2,062
Effect of diluted based awards		21			12

Average common and common-equivalent shares for diluted EPS (in thousands)		2,028			2,074


Basic EPS	$	0.36		$	0.23
Diluted EPS	$	0.35		$	0.23

Six Months Ended June 30, 2015 and 2014 is as follows (dollars in thousands, except per share data):


	Six months ended			Six months ended
	June 30, 2015			June 30, 2014
Net Income	$	1,470		$	785
Income allocated to participating securities		(32	)		(22	)

Income attributable to common shareholders		1,438			763


Weighted average shares outstanding (in thousands)		2,220			2,292
Less: average unearned ESOP and unvested restricted stock		(214	)		(226	)

Average Shares		2,006			2,066
Effect of diluted based awards		21			12

Average common and common-equivalent shares for diluted EPS (in thousands)		2,027			2,078


Basic EPS	$	0.72		$	0.37
Diluted EPS	$	0.71		$	0.37

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

(Dollars in Thousands)

Note 7:

Share-Based Compensation

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

Until such time as awards of stock are granted and vest or options are exercised, shares of the Company’s common stock under the Plan shall be authorized but unissued shares. The maximum number of shares authorized under the plan is 351,050. Total share-based compensation expense for the six months ended June 30, 2015 and 2014 was $157 and $160 respectively. Total shared-based compensation expense for the three months ended June 30, 2015 and 2014 was $78 and $79 respectively.

Stock Options

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


	Options		Weighted average exercise price		Remaining contractual life (years)		Aggregate intrinsic value
Options outstanding at January 1, 2015		121,449	$	17.45		8	$	789
Granted		2,000		26.65		10		—
Exercised		—		—		—		—
Forfeited		—		—		—		—
Expired		—		—		—		—

Options outstanding at June 30, 2015		123,449	$	17.54		8	$	992

Exercisable at June 30, 2015		48,098	$	17.35		7	$	395

The weighted average grant date fair value of the options award in 2015 was $8.

As of June 30, 2015, the Company had $140 of unrecognized compensation expense related to stock options. Stock option expense for the three and six months ended June 30, 2015 was $15 and $31 respectively. Stock option expense for the three and six months ended June 30, 2014 was $16 and $31 respectively.

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The fair value of the Company’s stock options granted on May 30, 2015 was determined using the Black-Scholes option pricing formula. The following assumptions were used in the formula:


Expected volatility		17.29	%
Risk-free interest rate		2.00	%
Expected dividend yield		3.43	%
Expected life (in years)		7.50
Exercise price for the stock options	$	26.65

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

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

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

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

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

Restricted Stock Awards

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

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


	Service-Based Restricted stock awards		Weighted average grant date fair value
Non-vested at January 1, 2015		43,974	$	17.44
Granted		2,000		26.65
Vested		402		20.68
Forfeited		—		—

Non-vested at June 30, 2015		45,572	$	17.83

As of June 30, 2015, the Company had $601 of unrecognized compensation expense related to restricted stock awards. The cost of the restricted stock awards will be amortized in monthly installments over the five-year vesting period. Restricted stock expense for three months and six months ended June 30, 2015 was $63 and $126 respectively. Restricted stock expense for the three and six months ended June 30, 2014 was $63 and $129.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of the financial condition at June 30, 2015 and the results of operations for the three months ended June 30, 2015 and 2014 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) is designed to provide a narrative on our financial condition, results of operations, liquidity, critical accounting policies, off-balance sheet arrangements and the future impact of accounting standards. It is useful to read our MD&A in conjunction with the consolidated financial statements contained in Part I in this Quarterly Report on Form 10-Q (this “Form 10-Q”), our Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”), and our other reports on Forms 10-Q and current reports on Forms 8-K and other publicly available information

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

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

•

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

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

competition among depository and other financial institutions;

•

changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

•

adverse changes in the securities markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

•

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

•

our ability to successfully integrate acquired entities, if any;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

•

changes in our organization, compensation and benefit plans;

•

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

•

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

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

Critical Accounting Policies

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

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

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

•

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

•

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

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

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

We believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets. We believe our tax liabilities and assets are properly recorded in the consolidated financial statements at June 30, 2015 and December 31, 2014 and no valuation allowance was necessary.

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

Total assets increased $21.3 million, or 6.3%, to $357.9 million at June 30, 2015 from $336.6 million at December 31, 2014. The increase was primarily a result of an increase of $10.7 million of cash and cash equivalents resulting from the purchase of a $10.0 million FHLB advance, a $3.0 million increase in loans, and a $12.0 million increase in deposits.

Loans held for sale increased $1.4 million to $2.0 million at June 30, 2015 from $570,000 at December 31, 2014.

Net loans increased $2.8 million, or 1.0%, to $299.3 million at June 30, 2015 from $296.5 million at December 31, 2014. Commercial real estate loans increased $6.2 million, or 4.0%, multifamily loans increased $2.0 million, or 3.2%, partially offset by a decrease of $2.2 million, or 10.4%, in construction loans.

The undisbursed portion of loans increased $2.5 million to $11.0 million at June 30, 2015 from $8.5 million at December 31, 2014 due primarily to a net increase in undisbursed construction loans of $2.4 million.

Securities held to maturity increased to $500,000 at June 30, 2015 from $0 at December 31, 2014 due to the purchase of a treasury bond.

Other real estate owned decreased $3,000, or 0.9%, to $332,000 at June 30, 2015, from $335,000 at December 31, 2014 primarily resulting from sales of $101,000 and write-downs of $30,000 offset by two loans transferred to real estate in judgment totaling $128,000.

Other assets, consisting primarily of net deferred and accrued federal taxes, decreased $186,000 to $4.7 million at June 30, 2015 from $4.9 million at December 31, 2014.

Deposits increased $12.0 million to $235.5 million at June 30, 2015 from $223.5 million at December 31, 2014. Core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts) increased $9.0 million. Certificates of deposit increased $2.9 million, or 2.7%, to $112.0 million at June 30, 2015 from $109.1 million at December 31, 2014.

Federal Home Loan Bank advances increased $7.0 million from $50.0 million at December 31, 2014 to $57.0 million at June 30, 2015 due to proceeds of $10.0 million from advances and the payoff of a $3.0 million maturing advance.

Interest payable and other liabilities, consisting primarily of liabilities for checks and money orders and accrued expenses increased $1.9 million, or 121.1%, to $3.4 million at June 30, 2015 from $1.6 million primarily due to a $1.8 million increase in borrower’s prepaid taxes and insurances.

Total stockholders’ equity increased $364,000, or 0.6%, to $61.9 million at June 30, 2015 from $61.5 million at December 31, 2014, primarily due to net income of $1.5 million partially offset by stock repurchases of $1.4 million.

Comparison of Operating Results for the Three Months Ended June 30, 2015 and 2014

General. We recorded net income of $731,000 for the three months ended June 30, 2015 compared to net income of $480,000 for the three months ended June 30, 2014 primarily due to a decrease in salaries and employee benefits expense of $300,000 to $1.0 million for the three months ended June 30, 2015 from $1.3 million for the three months ended June 30, 2014.

Interest and Dividend Income. Interest and dividend income increased $62,000, or 1.6%, to $3.7 million for the three months ended June 30, 2015. Average balances of interest-earnings assets increased $20.8 million to $350.5 million for the three months ended June 30, 2015 from $329.7 million for the three months ended June 30, 2014 as the average yield on interest-earning assets decreased 19 basis points to 4.26% during the 2015 period from 4.45% during the 2014 period reflecting lower market interest rates.

Interest income on loans increased $65,000, or 1.8%, to $3.7 million for the three months ended June 30, 2015 from $3.6 million for the three months ended June 30, 2014 as average net loans increased $14.8 million, or 5.2%, to $297.7 million for the three months ended June 30, 2015 from $282.9 million for the three months ended June 30, 2014 and the average yield decreased to 4.26% during the 2015 period versus 5.10% during the 2014 period.

Income from dividends and investment securities decreased $3,000 to $63,000 for the quarter ended June 30, 2015 from $66,000 for the quarter ended June 30, 2014.

Interest Expense. Interest expense increased $78,000, or 9.7%, to $879,000 for the three months ended June 30, 2015 from $801,000 for the three months ended June 30, 2014. Interest expense on deposits increased $56,000 to $350,000 during the 2015 period from $294,000 during the 2014 period. Interest expense on borrowed funds increased $22,000 to $529,000 for the three months ended June 30, 2015 from $507,000 for the three months ended June 30, 2014.

Average interest-bearing liabilities increased $19.3 million, or 7.0%, to $293.2 million for the three months ended June 30, 2015 from $273.9 million for the three months ended June 30, 2014. The

average rate paid on these liabilities increased 3 basis points to 1.20% from 1.17%. Interest expense on certificates of deposit increased $38,000, or 16.6%, to $267,000 for the three months ended June 30, 2015 from $229,000 for the three months ended June 30, 2014. The average balance of certificates of deposits decreased to $110.7 million for the three months ended June 30, 2015, from $110.8 million for the three months ended June 30, 2014. Additionally, the rate on certificates of deposit increased 14 basis points to 0.97% for the three months ended June 30, 2015 from 0.83% for the three months ended June 30, 2014 primarily due to increased brokered deposits.

The average balance of core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $12.4 million, or 11.2%, to $123.5 million for the three months ended June 30, 2015 from $111.1 million for the three months ended June 30, 2014. The interest on core deposits increased $17,000 to $83,000 for the three months ended June 30, 2015 from $66,000 for three months ended June 30, 2014. The rate on core deposits for the three months ended June 30, 2015 increased three basis points to 0.27% from 0.24% for the three months ended June 30, 2014.

Net Interest Income. Net interest income remained constant at $2.9 million for the three months ended June 30, 2015 and June 30, 2014, as our average net loans increased to $297.7 million from $282.9 million. Changes in net interest income are influenced by a variety of factors, including changes in the level and mix of interest-earning assets and interest-bearing liabilities, the level and direction of interest rates, the difference between short-term and long-term interest rates and the general strength of the economy.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in our Annual Report on Form 10-K for 2014, we recorded a provision for loan losses of $250,000 for the three months ended June 30, 2015 and a provision for loan losses of $195,000 for the three months ended June 30, 2014. We have continued with additional provisions in 2015 based upon management’s calculation, and because management is still concerned with elevated levels of non-performing assets, delinquencies and classified assets as well the Michigan economy, elevated levels of unemployment, and some declining collateral values. At June 30, 2015, non-performing loans totaled $8.4 million, or 2.8% of total loans, as compared to $5.6 million, or 2.0% of total loans, at June 30, 2014. The allowance for loan losses to total loans receivable increased to 2.97% at June 30, 2015 from 2.75% for the period ended June 30, 2014. All loans rated substandard are reviewed for impairment at least quarterly. Overall, management continues to focus on resolving non-performing assets and improving asset quality. In addition to our collections department personnel in working out loans, we continue to involve business development officers and, on significant assets, underwriters and senior management.

Noninterest Income. Noninterest income increased $3,000, or 0.01%, to $299,000 for the three months ended June 30, 2015 from $296,000 for the three months ended June 30, 2014. This was primarily due to increases in loan fees earned, rental income, and service charges and fees.

Noninterest Expense. Noninterest expense decreased $357,000, or 16.2%, for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014. This was primarily due to a decrease of $250,000 in salaries and employee benefits due a reorganization of bank personnel and a redesign of operational processes that reallocated resources to areas of need and created efficiencies that reduced operational costs, and decreases of $23,000 in net occupancy and equipment expense, $21,000 in other real estate owned expense, and $19,000 in professional and service fees.

Income Tax Expense. We recorded $323,000 of income tax expense for the three months ended June 30, 2015 compared to $284,000 of income tax expense for the three months ended June 30, 2014. Our effective tax rate was 30.7% for the three months ended June 30, 2015 and 37.1% for the three months ended June 30, 2014.

Comparison of Operating Results for the Six Months Ended June 30, 2015 and 2014

General. We recorded net income of $1.5 million for the six months ended June 30, 2015 compared to net income of $785,000 for the six months ended June 30, 2014. Net interest income increased $122,000 to $5.7 million for the six months ended June 30, 2015 from $5.6 million for the six months ended June 30, 2014, and other noninterest income increased $138,000 to $614,000 for the six months ended June 30, 2015 from $476,000 for the year earlier period. Additionally, operating expenses decreased $400,000 to $1.8 million for the six months ended June 30, 2015 from $2.2 million for the six months ended June 30, 2014.

Interest and Dividend Income. Interest and dividend income increased $329,000, or 4.6%, to $7.4 million for the six months ended June 30, 2015 from $7.1 million for the six months ended June 30, 2014, as the average balance of interest-earning assets increased $36.0 million to $348.1 million for the six months ended June 30, 2015 from $312.1 million for the six months ended June 30, 2014. The average yield on interest-earning assets decreased 28 basis points to 4.26% during the 2014 period from 4.54% during the 2014 period resulting primarily from a decrease in yield on net loans.

Interest income on loans increased $320,000, or 4.6%, to $7.3 million for the six months ended June 30, 2015 from $7.0 million for the six months ended June 30, 2014, as the average yield on loans decreased 9 basis points to 4.95% for the six months ended June 30, 2015 from 5.04% for the six months ended June 30, 2014 reflecting the lower market interest rate environment.

Interest income on investment securities and other interest-earning assets, and dividends on FHLB of Indianapolis stock increased $9,000, or 8.0%, to $125,000 for the six months ended June 30, 2015 from $116,000 for the six months ended June 30, 2014.

Interest Expense. Interest expense increased $207,000, or 13.6%, to $1.7 million for the six months ended June 30, 2015 from $1.5 million for the six months ended June 30, 2014 due to an increase in interest-bearing liabilities of $35.0 million, or 13.6%, to $291.6 million for the six months ended June 30, 2015 from $256.6 million for the six months ended June 30, 2014. The average rate paid on these liabilities remained constant at 1.19%.

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $13.1 million, or 12.1%, to $121.6 million for the six months ended June 30, 2015 from $108.5 million for the six months ended June 30, 2014. Also, the interest on core deposits increased $29,000 to $152,000 for the 2015 period from $123,000 for the 2014 period.

Interest expense on certificates of deposits increased $162,000 or 44.9% to $523,000 for the six months ended June 30, 2015 from $361,000 for the six months ended June 30, 2014. This was primarily due to an increase in the average balance of certificates of deposits of $14.4 million to $110.6 million for the 2015 period, from $96.2 million for the 2014 period. Additionally, the yield on certificates of deposit increased 20 basis points to 0.95% for the 2015 period from 0.75% for the 2014 period reflecting an increase in our amount of brokered deposits.

Net Interest Income. Net interest income increased $123,000, or 2.2%, to $5.7 million for the six months ended June 30, 2015 from $5.6 million for the six months ended June 30, 2014, as our average net loans increased $17.7 million from $276.4 million to $294.1 million. Our net interest rate spread decreased 28 basis points to 3.07% from 3.35% and our net interest margin decreased 28 basis points to 3.19% from 3.47%. The increase in net interest income reflected the increase in net loans, historical restructuring of FHLB advances; paying off of our maturing, higher interest rate FHLB advances; and managing the maturities of higher interest rate certificates of deposit; managing the inflow, interest rates, and term structure of new deposits; offset by a new Federal Home Loan Bank advance of $10.0 million and our ongoing interest rate risk strategy of selling in the secondary market long-term, fixed-rate one- to four-family residential mortgage loans during the current low interest rate environment.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in the December 31, 2014 Annual Report on Form 10-K, we recorded a provision for loan losses of $500,000 for the six months ended June 30, 2015 and a provision for loan losses of $495,000 for the six months ended June 30, 2014. We have continued with additional provisions in 2015 because of loan growth, elevated levels of non-performing assets, delinquencies and classified assets, as well as continued concerns about the Michigan economy, elevated levels of unemployment, and some declining collateral values.

The allowance for loan losses as a percentage of non-performing loans decreased to 110.7% at June 30, 2015 from 145.9% at June 30, 2014. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at June 30, 2015 and 2014.

Noninterest Income. Noninterest income increased $138,000, or 28.9%, to $614,000 for the six months ended June 30, 2015 from $476,000 for the six months ended June 30, 2014. The increase was primarily attributable to an increase of $109,000 in loan fees earned, and an increase of $37,000 in service charges and fees.

Noninterest Expense. Noninterest expense decreased $647,000, or 15.0% for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. This was primarily due to a decrease of $453,000 in salaries and employee benefits due a reorganization of bank personnel and a redesign of operational processes that reallocated resources to areas of need and created efficiencies that reduced operational costs, and a decrease of $63,000 in professional and service fees.

Income Tax Expense. We recorded a $661,000 income tax expense for the six months ended June 30, 2015 compared to a $444,000 income tax expense for the 2014 period, reflecting the income of $2.1 million before income tax expense during the six months ended June 30, 2015 versus income before income tax of $1.2 million for the six months ended June 30, 2014. Our effective tax expense rate was 31.0% for the six months ended June 30, 2015 compared to an effective tax expense rate of 36.1% for the six months ended June 30, 2014.

Asset Quality

Other real estate owned totaled $332,000, or 0.1% of total assets, at June 30, 2015 compared to $335,000, or 0.1% of total assets, at December 31, 2014. The largest relationship as of June 30, 2015 was $204,000, or 78.8% of other real estate owned, which consisted of land.

Non-performing assets, which includes non-performing loans, other real estate owned and troubled debt restructurings, totaled $8.6 million, or 2.4% of total assets, at June 30, 2015 compared to $9.4 million, or 2.8% of total assets, at December 31, 2014.

Our largest substandard and non-performing relationship as of June 30, 2015 has a balance of $3.3 million. Of the $21.1 million loans rated substandard, approximately $12.3 million are performing.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2015. Based on that evaluation, our management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, concluded that our disclosure controls and procedures were effective.

During the quarter ended June 30, 2015, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

As of first quarter 2015 the Company has adopted new minimum risk-based capital and leverage ratios and refines the definition of what constitutes as “capital” for purposes of calculating these ratios based on rules effective January 1, 2015. The new minimum capital requirements include: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based asset capital ratio of 6% (increased from 4%); a “capital conservation buffer” of 2.5%, and resulting in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7%, (ii) a Tier 1 risk-based asset capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until January 2019. These changes had no significant impact on the Company.

Part II – Other Information

Item 1. Legal Proceedings

We are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on our financial condition or results of operations.

Item 1A.

Risk Factors

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

There were no sales of unregistered securities during the period covered by this Report.

(b)

Not applicable.

(c)

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


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs^(1)(2)(3)
April 1, 2015 through April 30, 2015		—	$	—		—		103,136
May 1, 2015 through May 31, 2015		—	$	—		—		103,136
June 1, 2015 through June 30, 2015		—	$	—		—		103,136

		0				0

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

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

(3)	The Company’s board of directors approved a stock repurchase program on February 9, 2015 for the repurchase of 110,664 shares of common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		INS XBRL Instance

101		SCH XBRL Taxonomy Extension Schema

101		CAL XBRL Taxonomy Extension Calculation

101		DEF XBRL Taxonomy Extension Definition

101		LAB XBRL Taxonomy Extension Label

101		PRE XBRL Taxonomy Extension Presentation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


				WOLVERINE BANCORP, INC.

Date: August 14, 2015				/s/ David H. Dunn
				David H. Dunn
				President and Chief Executive Officer

Date: August 14, 2015				/s/ Rick A. Rosinski
				Rick A. Rosinski
				Chief Operating Officer and Treasurer

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company