Attached files

file filename
EX-32 - EXHIBIT 32 - Wolverine Bancorp, Inc.ex32.htm
EX-31.2 - EXHIBIT 31.2 - Wolverine Bancorp, Inc.ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Wolverine Bancorp, Inc.ex31-1.htm
Table Of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

[X]

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

   
  For the quarterly period ended June 30, 2016

OR

[   ]

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

   
  For the transition period from _______________ to ______________________

 

Commission File No. 001-35034

 

Wolverine Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

     Maryland      

   27-3939016   

 

 

(State or other jurisdiction of

(I.R.S. Employer

 

 

incorporation or organization)

Identification Number)

 

 

 

 

 

 

5710 Eastman Avenue, Midland, Michigan

48640

 

 

(Address of Principal Executive Offices)

Zip Code

 

                 

  (989) 631-4280 

(Registrant’s telephone number)

  

 

                                             N/A                                             

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES   X      NO        .

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES   X     NO        .

 

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

 

 

Large accelerated filer

Accelerated filer 

 

Non-accelerated filer     

Smaller reporting company 

(Do not check if smaller reporting company)      

 

 

 

           

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 July 31, 2016, was 2,118,635.

 

  

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, 2016 (unaudited) and December 31, 2015

 1

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income for the three months and six months ended June 30, 2016 and 2015 (unaudited) 

 2

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)

 3

 

 

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2016 (unaudited)

 4

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)  

 5

 

 

 

Item 2.  

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

 33

Item 3.  

Quantitative and Qualitative Disclosures about Market Risk  

 40

Item 4.  

Controls and Procedures

 40

 

 

 

Part II. Other Information

 

 

 

Item 1.

Legal Proceedings  

 40

Item 1A.  Risk Factors 40
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  41
Item 3.   Defaults upon Senior Securities  41
Item 4.   Mine Safety Disclosures 41
Item 5. Other Information 41
Item 6.  Exhibits  42
  Signature Page  

 

  

Wolverine Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Amounts in Thousands, except per share data)

 

 

   

June 30, 2016

   

December 31, 2015

 
   

(unaudited)

         
Assets                
                 

Cash and due from banks

  $ 369     $ 334  

Interest-earning demand deposits

    18,929       52,531  

Cash and cash equivalents

    19,298       52,865  

Interest-earning time deposits

    16,171       39,021  

Investment securities held to maturity

    498       500  

Loans held for sale

    857       581  

Loans, net of allowance for loan losses of $9,829 and $10,061

    331,830       314,613  

Premises and equipment, net

    1,207       1,285  

Federal Home Loan Bank stock

    2,700       2,700  

Other real estate owned

    203       130  

Accrued interest receivable

    911       967  

Other assets

    5,082       5,151  

Total assets

  $ 378,757     $ 417,813  
                 

Liabilities and Stockholders’ Equity

               

Liabilities

               

Deposits

  $ 264,501     $ 281,701  

Federal Home Loan Bank advances

    47,000       47,000  

Federal funds purchased

    -       24,000  

Interest payable and other liabilities

    4,562       4,632  

Total liabilities

    316,063       357,333  
                 

Commitments and Contingencies

               

Stockholders’ Equity

               

Common Stock, $0.01 par value per share:

               

Authorized – 100,000,000 shares

               

Issued and outstanding – 2,144,935 and 2,158,034 at June 30, 2016 and December 31, 2015

    21       22  

Unearned employee stock ownership plan (ESOP)

    (1,359 )     (1,410 )

Additional paid-in capital

    16,414       16,401  

Retained earnings

    47,618       45,467  

Total stockholders’ equity

    62,694       60,480  

Total liabilities and stockholders’ equity

  $ 378,757     $ 417,813  

 

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,

 
   

2016

   

2015

   

2016

   

2015

 
   

(Unaudited)

   

(Unaudited)

 

Interest and Dividend Income

                               

Loans

  $ 4,069     $ 3,670     $ 8,001     $ 7,285  

Investment securities and other

    100       63     $ 229       125  

Total interest and dividend income

    4,169       3,733       8,230       7,410  
                                 

Interest Expense

                               

Deposits

    508       350       1,016       675  

Borrowings

    465       529       924       1,054  

Total interest expense

    973       879       1,940       1,729  
                                 

Net Interest Income

    3,196       2,854       6,290       5,681  
                                 

Provision (credit) for Loan Losses

    (200 )     250       (200 )     500  
                                 

Net Interest Income After Provision for Loan Losses

    3,396       2,604       6,490       5,181  
                                 

Noninterest Income

                               

Service charges and fees

    59       75       139       142  

Net gain on loan sales

    112       136       208       312  

Net gain (loss) on sale of real estate owned

    10       -       37       (37 )

Other

    97       88       177       197  

Total noninterest income

    278       299       561       614  
                                 

Noninterest Expense

                               

Salaries and employee benefits

    1,165       1,048       2,255       2,076  

Net occupancy and equipment expense

    196       204       403       424  

Information technology expense

    59       58       121       115  

Federal deposit insurance corporation premiums

    55       58       109       104  

Professional and services fees

    129       82       223       189  

Other real estate owned expense

    9       18       33       30  

Loan legal expense (recovery)

    (11 )     49       70       113  

Advertising expense

    33       47       54       67  

Michigan business tax

    45       47       90       93  

Other

    223       238       432       453  

Total noninterest expense

    1,903       1,849       3,790       3,664  
                                 

Income Before Income Tax

    1,771       1,054       3,261       2,131  
                                 

Provision for Income Taxes

    587       323       1,110       661  
                                 

Net Income and Comprehensive Income

  $ 1,184     $ 731     $ 2,151     $ 1,470  
                                 

Earnings Per Share:

                               
                                 

Basic

  $ 0.59     $ 0.36     $ 1.07     $ 0.72  
                                 

Diluted

  $ 0.58     $ 0.35     $ 1.05     $ 0.71  

 

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, 

 
   

2016

   

2015

 
   

(Unaudited)

 
Operating Activities                

Net income

  $ 2,151     $ 1,470  

Items not requiring (providing) cash

               

Depreciation

    114       118  

Provision (credit) for loan losses

    (200 )     500  

Loss (gain) on other real estate owned

    (37 )     37  

Loans originated for sale

    (6,826 )     (11,420 )

Proceeds from loans sold

    6,758       10,298  

Net gain on sale of loans

    (208 )     (312 )

Share based compensation

    173       157  

Earned ESOP shares

    131       131  

Changes in

               

Interest receivable and other assets

    (263 )     392  

Interest payable and other liabilities

    355       1,592  

Net cash provided by (used in) operating activities

    2,148       2,963  
                 

Investing Activities

               

Net change in interest-bearing time deposits

    22,850       (5,655 )

Purchase of held to maturity securities

    (498 )     (500 )

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

    500       -  

Net change in loans

    (17,210 )     (3,448 )

Proceeds from sale of real estate owned

    119       87  

Purchase of FHLB stock

    -       (200 )

Purchase of premises and equipment

    (35 )     (77 )

Net cash provided by (used in) investing activities

    5,726       (9,793 )
                 
                 

Financing Activities

               

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

    (11,567 )     9,075  

Net change in certificates of deposit

    (5,633 )     2,934  

Repayment of Federal Home Loan Bank advances

    -       (3,000 )

Proceeds from Federal Home Loan Bank advances

    -       10,000  

Net change in Fed funds purchased

    (24,000 )     -  

Proceeds from stock options exercised

    27       -  

Purchase of common stock

    (268 )     (1,394 )

Net cash provided by (used in) financing activities

    (41,441 )     17,615  
                 

Change in Cash and Cash Equivalents

    (33,567 )     10,785  
                 

Cash and Cash Equivalents, Beginning of Period

    52,865       29,686  
                 

Cash and Cash Equivalents, End of Period

  $ 19,298     $ 40,472  
                 

Supplemental Disclosures of Cash Flows Information

               

Interest paid

  $ 1,876     $ 1,721  

Income taxes paid

    600       485  

Loans transferred to real estate owned

    192       128  

  

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, 2016

  $ 22     $ 16,401     $ (1,410 )   $ 45,467     $ 60,480  

Net Income

    -       -       -       2,151       2,151  

Purchase of 10,875 shares of common stock

    (1 )     (267 )     -       -       (268 )

Exercised options

    -       27       -       -       27  

Share based compensation expense

    -       173       -       -       173  

ESOP shares earned

    -       80       51       -       131  

Balances at June 30, 2016

  $ 21     $ 16,414     $ (1,359 )   $ 47,618     $ 62,694  

 

 

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, 2015 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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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 30, 2016.

 

 

Note 2:

Accounting Developments

 

FASB Accounting Standards Update No. 2016-13, Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

 

Summary – The FASB has issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

 

The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

 

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

 

The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

 

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

 

The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). For public companies that are not SEC filers, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

 

 

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

For all other organizations, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

 

FASB Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

 

Summary - The FASB has issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients. These amendments are effective at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Topic 606 is effective for nonpublic entities one year later. Following is a summary of the clarifying guidance and practical expedients in the amendments.

 

FASB Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

 

Summary - The FASB has issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606.

 

The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The effective date for nonpublic entities is deferred by one year.

 

FASB Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share- Based Payment Accounting

 

Summary - The amendments in ASU 2016-09 simplify several aspects of accounting for employee share-based payments including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some areas of the simplification apply only to nonpublic entities. The new guidance will require all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled and additional paid in capital pools will be eliminated. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Companies will be required to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as currently required, through an accounting policy election. The guidance will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer's income tax withholding obligation.

 

  

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

The guidance requires an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made available for issuance, however all of the guidance must be adopted in the same period. If early adoption is elected in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period.

 

FASB Accounting Standards Update No. 2016-07, Investments -Equity Method and Joint Ventures (Topic 323)

 

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.

 

The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

 

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

 

The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted.

 

FASB Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments

 

Summary - The FASB has issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options.

 

Topic 815, Derivatives and Hedging, requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met.

 

  

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract (the “clearly and closely related” criterion).

 

U.S. GAAP provides specific guidance for assessing whether call (put) options that can accelerate the repayment of principal on a debt instrument meet the clearly and closely related criterion. The guidance states that for contingent call (put) options to be considered clearly and closely related, they can be indexed only to interest rates or credit risk.

 

The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.

 

Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period.

 

FASB Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

 

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument.

 

The term novation, as it relates to derivative instruments, refers to replacing one of the parties to a derivative instrument with a new party. In practice, derivative instrument novations may occur for a variety of reasons, including financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, an entity managing against internal credit limits, or in response to laws or regulatory requirements. The derivative instrument that is the subject of a novation may be the hedging instrument in a hedging relationship that has been designated under Topic 815, Derivatives and Hedging.

 

The issue is whether a change in the counterparty to a derivative instrument that has been designated as a hedging instrument, in and of itself, results in a requirement to dedesignate that hedging relationship and therefore discontinue the application of hedge accounting. The guidance in Topic 815 is not explicitly clear about the effect on an existing hedging relationship, if any, of a change in the counterparty to a derivative instrument that has been designated as a hedging instrument. Furthermore, the existing guidance, which is limited, is interpreted and applied inconsistently in practice.

 

The amendments clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria.

 

  

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments may be applied on either a prospective basis or a modified retrospective basis.

 

FASB Accounting Standards Update No. 2016-02 - Leases (Topic 842)

 

Summary - The FASB has issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

 

• A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

• A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

 

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.

 

Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance.

 

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

 

FASB Accounting Standards Update No. 2014-09 - Revenue from Contracts with Customers

 

Summary - The FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. For a public business entity the ASU is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted.

 

 

  

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, 2016

                               

Treasury bond

  $ 498     $ 2     $ --     $ 500  

 

    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Approximate
Fair Value
 

Held to Maturity Securities:

                               

December 31, 2015

                               

Treasury bond

  $ 500     $ --     $ --     $ 500  

 

 

The amortized cost and fair value of securities at June 30, 2016, 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, 2016

 
   

Amortized
Cost

   

Fair
Value

 
                 

Within one year

  $ 498     $ 500  

One to five years

           

Five to ten years

           

After ten years

           
                 

Totals

  $ 498     $ 500  

 

 

There were no sales of securities during the three or six months ended June 30, 2016 and 2015.

 

 

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, 2016

   

December 31, 2015

 

Real Estate

               

One-to four-family

  $ 38,088     $ 39,719  

Home equity

    4,622       5,459  

Commercial mortgage loans

               

Commercial real estate

    198,480       183,934  

Multifamily

    59,823       58,804  

Land

    12,197       12,543  

Construction

    12,764       14,785  

Commercial Non-mortgage

    19,135       14,826  

Consumer

    1,071       1,221  

Total loans

    346,180       331,291  
                 

Less

               

Net deferred loan costs, premiums and discounts

    569       567  

Undisbursed portion of loan

    3,952       6,050  

Allowance for loan losses

    9,829       10,061  
                 

Net Loans

  $ 331,830     $ 314,613  

 

 

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.

 

  

Wolverine Bancorp, Inc.

Form 10-Q

(Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

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.

 

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.

 

  

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

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

 

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. 

 

   

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

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.

 

 

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, 2016, December 31, 2015 and June 30, 2015:

 

Loan Class

 

1-4

Family

   

Home

Equity

   

Commercial Real Estate

   

Multifamily

   

Land

   

Construction

   

Commercial Non-

Mortgage

   

Consumer

   

Total

 
Year to date analysis as of June 30, 2016                                                                        

Allowance for loan losses:

                                                                       

Balance, beginning of period

  $ 948     $ 108     $ 4,913     $ 1,515     $ 1,605     $ 604     $ 344     $ 24     $ 10,061  

Provision (credit) charged to expense

    (190 )     (45 )     777       (250 )     (168 )     (354 )     43       (13 )     (200 )

Losses charged off

    (67 )     -       (61 )     -       -       -       -       -       (128 )

Recoveries

    27       -       39       -       29       -       -       1       96  

Balance, end of period

  $ 718     $ 63     $ 5,668     $ 1,265     $ 1,466     $ 250     $ 387     $ 12     $ 9,829  

Ending Balance: individually evaluated for impairment

  $ -     $ -     $ 315     $ -     $ 750     $ -     $ -     $ -     $ 1,065  

Ending balance: collectively evaluated for impairment

  $ 718     $ 63     $ 5,353     $ 1,265     $ 716     $ 250     $ 387     $ 12     $ 8,764  

Loans:

                                                                       

Ending Balance

  $ 38,088     $ 4,622     $ 198,480     $ 59,823     $ 12,197     $ 12,764     $ 19,135     $ 1,071     $ 346,180  

Ending Balance: individually evaluated for impairment

  $ 1,071     $ -     $ 8,095     $ 7,003     $ 1,520     $ -     $ -     $ -     $ 17,689  

Ending balance: collectively evaluated for impairment

  $ 37,017     $ 4,622     $ 190,385     $ 52,820     $ 10,677     $ 12,764     $ 19,135     $ 1,071     $ 328,491  

 

 

 

Loan Class

 

1-4

Family

   

Home

Equity

   

Commercial

Real Estate

   

Multifamily

   

Land

   

Construction

   

Commercial Non-

Mortgage

   

Consumer

   

Total

 
Quarter to date analysis as of June 30, 2016                                                                        

Allowance for loan losses:

                                                                       

Balance, beginning of period

  $ 909     $ 99     $ 4,822     $ 1,409     $ 1,634     $ 736     $ 392     $ 23     $ 10,024  

Provision (credit) charged to expense

    (213 )     (36 )     891       (144 )     (196 )     (486 )     (5 )     (11 )     (200 )

Losses charged off

    (1 )     -       (45 )     -       -       -       -       -       (46 )

Recoveries

    23       -       -       -       28       -       -       -       51  

Balance, end of period

  $ 718     $ 63     $ 5,668     $ 1,265     $ 1,466     $ 250     $ 387     $ 12     $ 9,829  

  

  

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements 

 

 

Loan Class

 

1-4

Family

   

Home

Equity

   

Commercial Real Estate

   

Multifamily

   

Land

   

Construction

   

Commercial Non-

Mortgage

   

Consumer

   

Total

 
Year to date analysis as of December 31, 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

    79       8       72       124       374       65       75       3       800  

Losses charged off

    (45 )     -       -       -       -       -       -       (1 )     (46 )

Recoveries

    33       -       1,268       -       26       -       -       4       1,331  

Balance, end of period

  $ 948     $ 108     $ 4,913     $ 1,515     $ 1,605     $ 604     $ 344     $ 24     $ 10,061  

Ending Balance: individually evaluated for impairment

  $ -     $ -     $ 200     $ 100     $ 850     $ -     $ -     $ -     $ 1,150  

Ending balance: collectively evaluated for impairment

  $ 948     $ 108     $ 4,713     $ 1,415     $ 755     $ 604     $ 344     $ 24     $ 8,911  

Loans:

                                                                       

Ending Balance

  $ 39,719     $ 5,459     $ 183,934     $ 58,804     $ 12,543     $ 14,785     $ 14,826     $ 1,221     $ 331,291  

Ending Balance: individually evaluated for impairment

  $ 1,504     $ -     $ 12,280     $ 7,877     $ 1,883     $ -     $ 295     $ -     $ 23,839  

Ending balance: collectively evaluated for impairment

  $ 38,215     $ 5,459     $ 171,654     $ 50,927     $ 10,660     $ 14,785     $ 14,531     $ 1,221     $ 307,452  

  

  

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements

 

 

Loan Class

 

1-4

Family

   

Home

Equity

   

Commercial Real Estate

   

Multifamily

   

Land

   

Construction

   

Commercial Non-

Mortgage

   

Consumer

   

Total

 
Year to date analysis as of June 30, 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

   

Commercial Non-

Mortgage

   

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  

 

 

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.

 

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

 

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, 2016 and December 31, 2015:

 

 

   

1-4 Family

   

Home Equity

   

Commercial Real Estate

   

Multifamily

 
   

2016

   

2015

   

2016

   

2015

   

2016

   

2015

   

2016

   

2015

 

Pass

  $ 35,767     $ 36,941     $ 4,622     $ 5,459     $ 159,528     $ 150,122     $ 48,253     $ 46,230  
                                                                 

Pass (Closely Monitored)

    1,123       1,437       -       -       28,947       21,156       7,960       8,142  
                                                                 

Special Mention

    298       225       -       -       2,473       751       -       -  
                                                                 

Substandard

    900       1,116       -       -       7,532       11,905       3,610       4,432  
                                                                 

Doubtful

    -       -       -       -       -       -       -       -  
                                                                 

Loss

    -       -       -       -       -       -       -       -  
                                                                 
    $ 38,088     $ 39,719     $ 4,622     $ 5,459     $ 198,480     $ 183,934     $ 59,823     $ 58,804  

 

 

 

   

Land

   

Construction

   

Commercial Non-Mortgage

   

Consumer

   

Total

 
   

2016

   

2015

   

2016

   

2015

   

2016

   

2015

   

2016

   

2015

   

2016

   

2015

 

Pass

  $ 9,522     $ 9,462     $ 12,764     $ 14,785     $ 15,340     $ 9,626     $ 1,071     $ 1,221     $ 286,867     $ 273,846  
                                                                                 

Pass (Closely Monitored)

    1,156       1,239       -       -       328       4,904       -       -       39,514       36,878  
                                                                                 

Special Mention

    -       -       -       -       3,467       -       -       -       6,238       976  
                                                                                 

Substandard

    1,519       1,842       -       -       -       296       -       -       13,561       19,591  
                                                                                 

Doubtful

    -       -       -       -       -       -       -       -       -       -  
                                                                                 

Loss

    -       -       -       -       -       -       -       -       -       -  
                                                                                 
    $ 12,197     $ 12,543     $ 12,764     $ 14,785     $ 19,135     $ 14,826     $ 1,071     $ 1,221     $ 346,180     $ 331,291  

  

 

 Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

 

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, 2016 and December 31, 2015:

 

As of June 30, 2016

 

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

  $ 56     $ -     $ 147     $ 203     $ 37,885     $ 38,088     $ -     $ 147  

Home Equity

    -       -       -       -       4,622       4,622       -       -  

Commercial Real Estate

    136       666       326       1,128       197,352       198,480       -       4,880  

Multifamily

    -       -       -       -       59,823       59,823       -       551  

Land

    -       -       1,519       1,519       10,678       12,197       -       1,519  

Construction

    -       -       -       -       12,764       12,764       -       -  
                                                                 

Commercial Non-Mortgage

    -       -       -       -       19,135       19,135       -       -  
                                                                 

Consumer

    -       -       -       -       1,071       1,071       -       -  

Total

  $ 192     $ 666     $ 1,992     $ 2,850     $ 343,330     $ 346,180     $ -     $ 7,097  

  

 

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, 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

  $ 151     $ 152     $ -     $ 303     $ 39,416     $ 39,719     $ -     $ 99  
                                                                 

Home Equity

    -       -       -       -       5,459       5,459       -       -  
                                                                 

Commercial Real Estate

    6       1,011       -       1,017       182,917       183,934       -       5,188  
                                                                 

Multifamily

    1,291       -       -       1,291       57,513       58,804       -       -  
                                                                 

Land

    -       -       1,842       1,842       10,701       12,543       -       1,842  
                                                                 

Construction

    -       -       -       -       14,785       14,785       -       -  
                                                                 

Commercial Non-Mortgage

    -       -       -       -       14,826       14,826       -       -  
                                                                 

Consumer

    -       -       -       -       1,221       1,221       -       -  
                                                                 

Total

  $ 1,448     $ 1,163     $ 1,842     $ 4,453     $ 326,838     $ 331,291     $ -     $ 7,129  

  

 

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, 2016:
 

 

 

   

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

  $ 1,071     $ 1,198     $ -     $ 1,184     $ 1,271     $ 14     $ 24  

Home Equity

    -       -       -       -       -       -       -  

Commercial real estate

    7,599       9,575       -       8,941       9,265       52       99  

Multi Family

    7,003       7,850       -       7,242       7,454       129       204  

Land

    -       -       -       48       45       -       -  

Construction

    -       -       -       -       -       -       -  

Commercial Non-Mortgage

    -       -       -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  

Loans with a specific valuation allowance:

                                                       

1-4 Family

  $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Home Equity

    -       -       -       -       -       -       -  

Commercial real estate

    496       550       315       248       165       4       4  

Multi Family

    -       -       -       -       -       -       -  

Land

    1,520       3,417       750       1,598       1,680       -       -  

Construction

    -       -       -       -       -       -       -  

Commercial Non-Mortgage

    -       -       -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  

Totals

                                                       

1-4 Family

  $ 1,071     $ 1,198     $ -     $ 1,184     $ 1,271     $ 14     $ 24  

Home Equity

    -       -       -       -       -       -       -  

Commercial real estate

    8,095       10,125       315       9,189       9,430       56       103  

Multi Family

    7,003       7,850       -       7,242       7,454       129       204  

Land

    1,520       3,417       750       1,646       1,725       -       -  

Construction

    -       -       -       -       -       -       -  

Commercial Non-Mortgage

    -       -       -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  

Total

  $ 17,689     $ 22,590     $ 1,065     $ 19,261     $ 19,880     $ 199     $ 331  

  

 

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands Except Per Share Amounts)

Notes to Condensed Consolidated Interim Financial Statements

 

The following table presents impaired loans at December 31, 2015:

 

   

Recorded

Balance

   

Unpaid

Principal

Balance

   

Specific

Allowance

   

YTD Average

Balance

   

YTD Interest

Income

 
                                         

Loans without a specific valuation allowance:

                                       

1-4 Family

  $ 1,504     $ 1,633     $ -     $ 1,791     $ 80  

Home Equity

    -       -       -       15       -  

Commercial real estate

    9,912       11,820       -       10,508       289  

Multi Family

    6,586       7,400       -       6,685       359  

Land

    41       96       -       371       22  

Construction

    -       -       -       -       -  

Commercial Non-Mortgage

    295       295       -       311       22  

Consumer

    -       -       -       -       -  

Loans with a specific valuation allowance:

                                       

1-4 Family

  $ -     $ -     $ -     $ -     $ -  

Home Equity

    -       -       -       -       -  

Commercial real estate

    2,368       2,368       200       2,499       175  

Multi Family

    1,291       1,291       100       1,319       77  

Land

    1,842       3,640       850       2,115       -  

Construction

    -       -       -       -       -  

Commercial Non-Mortgage

    -       -       -       -       -  

Consumer

    -       -       -       -       -  

Totals

                                       

1-4 Family

  $ 1,504     $ 1,633     $ -     $ 1,791     $ 80  

Home Equity

    -       -       -       15       -  

Commercial real estate

    12,280       14,188       200       13,007       464  

Multi Family

    7,877       8,691       100       8,004       436  

Land

    1,883       3,736       850       2,486       22  

Construction

    -       -       -       -       -  

Commercial Non-Mortgage

    295       295       -       311       22  

Consumer

    -       -       -       -       -  

Total

  $ 23,839     $ 28,543     $ 1,150     $ 25,614     $ 1,024  

  

 

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)

 

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, 2016:

 

 

 

   

Three months ended

   

Six months ended

 
   

June 30, 2016

   

June 30, 2016

 
   

Count

   

Balance

prior to

TDR

   

Balance

after

TDR

   

Count

   

Balance

prior to

TDR

   

Balance

after

TDR

 
   

(Dollars in thousands)

 
                                                 

Commercial real estate

    -       -       -       1       996       996  

Total loans

    -     $ -     $ -       1     $ 996     $ 996  

  

 

The commercial real estate TDR in 2016 was modified with a forbearance agreement and maturity extension.

 

We had one one-to-four family TDR for $202 that had payment defaults during the six months ended June 30, 2016. 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, 2015:

 

   

Three months ended

   

Six months ended

 
   

June 30, 2015

   

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  

 

The commercial real estate TDRs in 2015 were modified with an interest rate reduction.  

 

 

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 condensed 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.

 

Recurring and Nonrecurring Measurements

 

There were no assets or liabilities requiring fair value measurement on a recurring or nonrecurring basis during the six months ended June 30, 2016 and June 30, 2015.

 

 

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 instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Because no market exists for certain 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

 

As of June 30, 2016

 

Carrying

Amount

   

Quoted

Prices in

Active

Markets

for

Identical

Assets

(Level 1)

   

Significant

Other

Observable

Inputs (Level

2)

   

Significant

Unobservable

Inputs (Level 3)

 

Financial Assets

                               

Cash and cash equivalents

  $ 19,298     $ 19,298     $ -     $ -  

Interest-earning time deposits

    16,171       16,171       -       -  

Held to maturity securities

    498       -       500       -  

Loans held for sale

    857       -       859       -  

Loans, net of allowance for loan losses

    331,830       -       -       335,823  

Federal Home Loan Bank stock

    2,700       -       3,032       -  

Interest receivable

    911       -       911       -  
                                 

Financial liabilities

                               

Deposits

  $ 264,501     $ 113,256     $ -     $ 153,323  

Federal Home Loan Bank advances

    47,000       -       46,380       -  

Interest payable

    297       -       297       -  

 

 

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

 

As of December 31, 2015

 

Carrying

Amount

   

Quoted

Prices in

Active

Markets

for

Identical

Assets

(Level 1)

   

Significant

Other

Observable

Inputs (Level

2)

   

Significant Unobservable

Inputs (Level 3)

 

Financial Assets

                               

Cash and cash equivalents

  $ 52,865     $ 52,865     $ -     $ -  

Interest-earning time deposits

    39,021       39,021       -       -  

Held to maturity securities

    500       -       500       -  

Loans held for sale

    581       -       583       -  

Loans, net of allowance for loan losses

    314,613       -       -       318,525  

Federal Home Loan Bank stock

    2,700       -       2,700       -  

Interest receivable

    967       -       967       -  
                                 

Financial liabilities

                               

Deposits

  $ 281,701     $ 117,916     $ -     $ 165,657  

Federal Home Loan Bank advances

    47,000       -       46,390       -  

Federal funds purchased

    24,000       -       24,000       -  

Interest payable

    233       -       233       -  

 

 

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, Federal Funds Purchased, 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.

 

 

 

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 the three months ended June 30, 2016 and 2015 is as follows (dollars in thousands, except per share data):

 

 

 

   

Three months ended

June 30, 2016

   

Three months ended

June 30, 2015

 

Net Income

  $ 1,184     $ 731  

Dividends and undistributed earnings allocated to participating securities

    (20 )     (16 )

Income attributable to common shareholders

    1,164       715  
                 

Weighted average shares outstanding (in thousands)

    2,152       2,220  

Less: average unearned ESOP and unvested restricted stock

    (177 )     (213 )

Average Shares

    1,975       2,007  

Effect of dilutive based awards

    32       21  

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

    2,007       2,028  
                 

Basic EPS

  $ 0.59     $ 0.36  

Diluted EPS

  $ 0.58     $ 0.35  

  

 

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

(Dollars in Thousands)

 

Six Months Ended June 30, 2016 and 2015 as follows (dollars in thousands, except per share data):

 

   

Six months ended

June 30, 2016

   

Six months ended

June 30, 2015

 

Net Income

  $ 2,151     $ 1,470  

Dividends and undistributed earnings allocated to participating securities

    (37 )     (32 )

Income attributable to common shareholders

    2,114       1,438  
                 

Weighted average shares outstanding (in thousands)

    2,154       2,220  

Less: average unearned ESOP and unvested restricted stock

    (177 )     (214 )

Average Shares

    1,977       2,006  

Effect of dilutive based awards

    32       21  

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

    2,009       2,027  
                 

Basic EPS

  $ 1.07     $ 0.72  

Diluted EPS

  $ 1.05     $ 0.71  

  

 

 

Note 7:

Share-Based Compensation

 

In May 2012, the Company’s stockholders approved the Wolverine Bancorp, Inc. 2012 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 shared-based compensation expense for the six months ended June 30, 2016 and 2015 was $173 and $157 respectively.

 

 

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

(Dollars in Thousands)

 

 

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, 2016

    128,949     $ 17.91       7     $ 1,123  

Granted

    --       --       --       --  

Exercised

    (1,503 )     17.30       --       --  

Forfeited

    (3,888 )     19.58       --       --  

Expired

    --       --       --       --  

Options outstanding at June 30, 2016

    123,558     $ 17.86       7     $ 1,082  

Exercisable at June 30, 2016

    70,909     $ 17.40       7     $ 655  

 

 

 

As of June 30, 2016, the Company had $92 of unrecognized compensation expense related to stock options. Stock option expense for the three and six months ended June 30, 2016 was $17 and $33 respectively. Stock option expense for the three and six months ended June 30, 2015 was $15 and $31 respectively.

 

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:  

 

 

As of June 30, 2016, the Company had $460 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 the three and six months ended June 30, 2016 was $69 and $140 respectively. Restricted stock expense for the three and six months ended June 30, 2015 was $63 and $126 respectively.

 

 

   

Service-Based Restricted stock

awards

   

Weighted average grant date

fair value

 

Non-vested at January 1, 2016

    36,534     $ 19.16  

Granted

    -       -  

Vested

    509       24.49  

Forfeited

    2,721       19.02  

Non-vested at June 30, 2016

    33,304       19.07  

  

 

Wolverine Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

(Dollars in Thousands)

 

 

 

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, 2016 and the results of operations for the three and six months ended June 30, 2016 and 2015 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, 2015 (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, 2016 and December 31, 2015 and no valuation allowance was necessary.

 

Comparison of Financial Condition at June 30, 2016 and December 31, 2015

 

Total assets decreased $39.0 million, or 9.3%, to $378.8 million at June 30, 2016 from $417.8 million at December 31, 2015. The decrease was primarily the result of a decrease of $33.6 million in cash and cash equivalents and a decrease of $22.9 million in interest earning time deposits, offset in part by an increase of $17.2 million in loans.

 

Loans held for sale increased $276,000 to $857,000 at June 30, 2016 from $581,000 at December 31, 2015.

 

  

Net loans increased $17.2 million, or 5.5%, to $331.8 million at June 30, 2016 from $314.6 million at December 31, 2015. Commercial real estate loans increased $14.5 million, or 7.9%, multi-family loans increased $1.0 million, or 1.7%, and commercial non-mortgage loans increased $4.3 million, or 29.1%, partially offset by a decrease of $2.0 million, or 13.7%, in construction loans.

 

The undisbursed portion of loans decreased $2.1 million to $4.0 million at June 30, 2016 from $6.1 million at December 31, 2015 due primarily to a net decrease in undisbursed construction loans of $1.4 million.

 

Other real estate owned increased $73,000, or 56.2%, to $203,000 at June 30, 2016, from $130,000 at December 31, 2015 resulting from three loans transferred to real estate owned totaling $192,000, offset by sales of $119,000.

 

Other assets, consisting primarily of net deferred and accrued federal taxes, decreased $69,000 to $5.1 million at June 30, 2016 from $5.2 million at December 31, 2015.

 

Deposits decreased $17.2 million to $264.5 million at June 30, 2016 from $281.7 million at December 31, 2015. Core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts) decreased $7.2 million. Certificates of deposit decreased $12.3 million, or 7.5%, to $151.5 million at June 30, 2016 from $163.8 million at December 31, 2015.

 

Federal Home Loan Bank advances remained unchanged at $47.0 million at June 30, 2016 and December 31, 2015.

 

Federal Funds purchased decreased $24.0 million, or 100.0%, to $0 at June 30, 2016 from $24.0 million at December 31, 2015.

 

Interest payable and other liabilities, consisting primarily of liabilities for checks and money orders, and accrued expenses, remained constant at $4.6 million from June 30, 2015 to June 30, 2016.

 

Total stockholders’ equity increased $2.2 million, or 3.6%, to $62.7 million at June 30, 2016 from $60.5 million at December 31, 2015, primarily due to net income of $2.2 million.

 

 

Comparison of Operating Results for the Three Months ended June 30, 2016 and 2015

 

General. We recorded net income of $1.2 million for the three months ended June 30, 2016 compared to net income of $731,000 for the three months ended June 30, 2015 primarily due to a decrease in provision for loan loss expense of $450,000 for the three months ended June 30, 2016 from $250,000 for the three months ended June 30, 2015, and an increase in interest income on loans of $399,000 to $4.1 million for the three months ended June 30, 2016 from $3.7 million for the three months ended June 30, 2015.

 

Interest and Dividend Income. Interest and dividend income increased $436,000, or 11.7%, to $4.2 million for the three months ended June 30, 2016. Average balances of interest-earnings assets increased $26.5 million to $377.0 million for the three months ended June 30, 2016 from $350.5 million for the three months ended June 30, 2015, and the average yield on interest-earning assets increased 16 basis point to 4.42% during the 2016 period from 4.26% during the 2015 period reflecting higher market interest rates.

 

  

Interest income on loans increased $399,000, or 10.9%, to $4.1 million for the three months ended June 30, 2016 from $3.7 million for the three months ended June 30, 2015 as average net loans increased $35.4 million, or 11.9%, to $333.1 million for the three months ended June 30, 2016 from $297.7 million for the three months ended June 30, 2015, primarily due to an increase of 63 basis points in the average yield to 4.89% during the 2016 period versus 4.26% during the 2015 period.

 

Income from dividends and investment securities increased $37,000 to $100,000 for the quarter ended June 30, 2016 from $63,000 for the quarter ended June 30, 2015.

 

Interest Expense. Interest expense increased $94,000, or 10.7%, to $973,000 for the three months ended June 30, 2016 from $879,000 for the three months ended June 30, 2015. Interest expense on deposits increased $158,000 to $508,000 during the 2016 period from $350,000 during the 2015 period. Interest expense on borrowed funds decreased $64,000 to $465,000 for the three months ended June 30, 2016 from $529,000 for the three months ended June 30, 2015.

 

Average interest-bearing liabilities increased $21.2 million, or 7.2%, to $314.4 million for the three months ended June 30, 2016 from $293.2 million for the three months ended June 30, 2015. The average rate paid on these liabilities increased four basis points to 1.24% during the 2016 period from 1.20% during the 2015 period. Interest expense on certificates of deposit increased $176,000, or 65.9%, to $443,000 for the three months ended June 30, 2016 from $267,000 for the three months ended June 30, 2015. The average balance of certificates of deposits increased to $155.7 million for the three months ended June 30, 2016, from $110.7 million for the three months ended June 30, 2015. Additionally, the rate on certificates of deposit increased 17 basis points to 1.14% for the three months ended June 30, 2016 from 0.97% for the three months ended June 30, 2015 primarily due to increased market interest rate environment.

 

The average balance of core deposits, consisting of checking accounts, money market accounts and savings accounts, decreased $11.8 million, or 9.6%, to $111.7 million for the three months ended June 30, 2016 from $123.5 million for the three months ended June 30, 2015. The interest on core deposits decreased $18,000 to $65,000 for the three months ended June 30, 2016 from $83,000 for three months ended June 30, 2015. The rate on core deposits for the three months ended June 30, 2016 decreased four basis points to 0.23% from 0.27% for the three months ended June 30, 2015.

 

Net Interest Income. Net interest income increased $341,000 to $3.2 million for the three months ended June 30, 2016 from $2.9 million for the three months ended June 30, 2015, as our average net loans increased to $333.1 million from $297.7 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,” we recorded a negative provision for loan losses expense of $200,000 for the three months ended June 30, 2016 and a provision for loan losses of $250,000 for the three months ended June 30, 2015. At June 30, 2016, non-performing loans totaled $7.1 million, or 2.1% of total loans, as compared to $7.1 million, or 2.2% of total loans, at December 31, 2015. The allowance for loan losses to total loans receivable was 2.8% at June 30, 2016 and 3.0% at December 31, 2015. We have a negative provision expense in 2016 primarily because of continued economic improvement, stabilized levels of non-performing assets, stabilized delinquencies and reduced specific allocations offset partially by increased levels of special mention and closely monitored loans. All loans rated substandard are reviewed for impairment at least quarterly. Overall, management continues to focus on resolving non-performing assets and improving asset quality. In addition to our collections department personnel in working out loans, we continue to involve business development officers and, on significant assets, underwriters and senior management.

 

  

Noninterest Income. Noninterest income decreased $21,000, or 7.6%, to $278,000 for the three months ended June 30, 2016 from $299,000 for the three months ended June 30, 2015. This was primarily due to a decrease of $25,000 in net gain on loan sales and a $16,000 decrease in service charges and fees, partially offset by an increase of $21,000 in loan fees earned and a $10,000 in gain on sale of real estate owned.

 

Noninterest Expense. Noninterest expense increased $56,000, or 3.0%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. This was primarily due to an increase of $117,000 in salaries and employee benefits, offset in part by a $61,000 decrease in loan legal expense due to reimbursement of legal expenses previously incurred.

 

Income Tax Expense. We recorded $587,000 of income tax expense for the three months ended June 30, 2016 compared to $323,000 of income tax expense for the three months ended June 30, 2015. Our effective tax rate was 33.1% for the three months ended June 30, 2016 and 30.7% for the three months ended June 30, 2015.

 

 

Comparison of Operating Results for the Six Months Ended June 30, 2016 and 2015

 

General. We recorded net income of $2.2 million for the six months ended June 30, 2016 compared to net income of $1.5 million for the six months ended June 30, 2015. Net interest income increased $609,000 to $6.3 million for the six months ended June 30, 2016 from $5.7 million for the six months ended June 30, 2015.

 

Interest and Dividend Income. Interest and dividend income increased $820,000, or 11.1%, to $8.2 million for the six months ended June 30, 2016 from $7.4 million for the six months ended June 30, 2015, as the average balance of interest-earning assets increased $30.9 million to $379.0 million for the six months ended June 30, 2016 from $348.1 million for the six months ended June 30, 2015. The average yield on interest-earning assets increased eight basis points to 4.34% during the 2016 period from 4.26% during the 2015 period.

 

Interest income on loans increased $716,000, or 9.8%, to $8.0 million for the six months ended June 30, 2016 from $7.3 million for the six months ended June 30, 2015, as the average yield on loans decreased six basis points to 4.89% for the six months ended June 30, 2016 from 4.95% for the six months ended June 30, 2015 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 $104,000, or 82.5%, to $229,000 for the six months ended June 30, 2016 from $125,000 for the six months ended June 30, 2015.

 

Interest Expense. Interest expense increased $211,000, or 12.2%, to $1.9 million for the six months ended June 30, 2016 from $1.7 million for the six months ended June 30, 2015 due to an increase in interest-bearing liabilities of $27.8 million, or 9.5%, to $319.5 million for the six months ended June 30, 2016 from $291.6 million for the six months ended June 30, 2015. The average rate paid on these liabilities increased two basis points to 1.21% for the 2016 period from 1.19% for the 2015 period.

 

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, decreased $9.6 million, or 7.9%, to $112.0 million for the six months ended June 30, 2016 from $121.6 million for the six months ended June 30, 2015. Also, the interest on core deposits decreased $16,000 to $136,000 for the 2016 period from $152,000 for the 2015 period.

 

Interest expense on certificates of deposits increased $357,000 or 68.3% to $880,000 for the six months ended June 30, 2016 from $523,000 for the six months ended June 30, 2015. This was primarily due to an increase in the average balance of certificates of deposits of $49.9 million to $160.5 million for the 2016 period, from $110.6 million for the 2015 period. Also the yield on certificates of deposit increased 15 basis points to 1.10% for the 2016 period from 0.95% for the 2015 period.

 

  

Net Interest Income. Net interest income increased $609,000, or 10.7%, to $6.3 million for the six months ended June 30, 2016 from $5.7 million for the six months ended June 30, 2015, as our average net loans increased $33.4 million from $294.1 million to $327.5 million. Our net interest rate spread decreased six basis points to 3.13% from 3.07% and our net interest margin increased seven basis points to 3.26% from 3.19%. The increase in net interest income reflected the increase in net loans, historical restructuring of FHLB advances; paying off of our maturing, higher interest rate FHLB advances; and managing the maturities of higher interest rate certificates of deposit; managing the inflow, interest rates, and term structure of new deposits; offset by our ongoing interest rate risk strategy of selling in the secondary market long-term, fixed-rate one- to four-family residential mortgage loans during the current low interest rate environment.

 

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in the December 31, 2015 Annual Report on Form 10-K, we recorded a negative provision for loan losses of $200,000 for the six months ended June 30, 2016 and a provision for loan losses of $500,000 for the six months ended June 30, 2015. We have a negative provision expense in 2016 primarily because of continued economic improvement, stabilized levels of non-performing assets, stabilized delinquencies and reduced specific allocations offset partially by increased levels of special mention and closely monitored loans.

 

The allowance for loan losses as a percentage of non-performing loans increased to 137.4% at June 30, 2016 from 110.7% at June 30, 2015. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at June 30, 2016 and 2015.

 

Noninterest Income. Noninterest income decreased $53,000, or 8.6%, to $561,000 for the six months ended June 30, 2016 from $614,000 for the six months ended June 30, 2015. The decrease was primarily attributable to a decrease of $104,000 in net gain on loan sales offset in part by a $74,000 change in gain (loss) on the sale of other real estate owned.

 

Noninterest Expense. Noninterest expense increased $126,000, or 3.4% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. This was primarily due to an increase of $179,000 in salaries and employee benefits offset in part by of decrease of $43,000 in loan legal expense.

 

Income Tax Expense. We recorded a $1.1 million income tax expense for the six months ended June 30, 2016 compared to a $661,000 income tax expense for the 2015 period, reflecting the income of $3.3 million before income tax expense during the six months ended June 30, 2016 versus income before income tax of $2.1 million for the six months ended June 30, 2015. Our effective tax expense rate was 34.0% for the six months ended June 30, 2016 compared to an effective tax expense rate of 31.0% for the six months ended June 30, 2015.

 

Asset Quality

 

Other real estate owned totaled $203,000, or 0.03% of total assets, at June 30, 2016 compared to $130,000, or 0.1% of total assets, at December 31, 2015. The largest relationship as of June 30, 2016 was $78,000, or 38.4% of other real estate owned, which consisted of a multifamily property.

 

Non-performing assets, which includes non-performing loans, other real estate owned and troubled debt restructurings, totaled $7.4 million, or 1.9% of total assets, at June 30, 2016 compared to $7.5 million, or 1.8% of total assets, at December 31, 2015.

 

  

Our largest substandard and non-performing relationship as of June 30, 2016 has a balance of $3.2 million. Of the $13.6 million loans rated substandard, approximately $7.1 million are performing.

 

New Capital Requirements

 

As of January 1, 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.

 

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, 2016. 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, 2016, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Part II – Other Information

 

Item 1.

Legal Proceedings 

 

 

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

 

Item 1A.

Risk Factors

 

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

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

 

 

(a)

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

 

 

(b)

Not applicable.

 

 

(c)

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

Period

 

Total Number of

Shares Purchased

   

Average Price

Paid per Share

   

Total Number of

Shares Purchased

as Part of

Publicly

Announced Plans

or Program

   

Maximum Number

of Shares that May

Yet Be Purchased

Under the Plans or

Programs(1), (2), (3), (4), (5)

 

April 1, 2016 through April 30, 2016

    --     $ --       --       153,195  

May 1, 2016 through May 31, 2016

    3,500     $ 25.50       3,500       149,695  

June 1, 2016 through June 30, 2016

    --     $ --       --       149,695  
      3,500               3,500          

 

(1)

The Company’s board of directors approved a stock repurchase program on February 14, 2012 for the repurchase of 125,375 shares of common stock.

 

(2)

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

 

(3)

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.

 

(4)

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

 

(5)

The Company’s board of directors approved a stock repurchase program on December 14, 2015 for the repurchase of 107,647 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 15, 2016

 

/s/ David H. Dunn

 

 

 

David H. Dunn

 

 

 

President and Chief Executive Officer

 

       
       
Date:     August 15, 2016    /s/ Rick A. Rosinski       
    Rick A. Rosinski  
    Chief Operating Officer and Treasurer  

 

 

 

43