Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WBKC > SEC Filings for WBKC > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for WOLVERINE BANCORP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WOLVERINE BANCORP, INC.


14-Aug-2013

Quarterly Report


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, 2013 and the results of operations for the three and six months ended June 30, 2013 and 2012 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 fiscal year ended December 31, 2012 (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.


Table of Contents

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.


Table of Contents

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

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

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

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

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

We believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets. We believe our tax liabilities and assets are properly recorded in the consolidated financial statements at June 30, 2013 and December 31, 2012 and no valuation allowance was necessary.


Table of Contents

Comparison of Financial Condition at June 30, 2013 and December 31, 2012

Total assets increased $1.9 million, or 0.7%, to $287.1 million at June 30, 2013 from $285.3 million at December 31, 2012. The increase resulted from an increase of $13.2 million in interest-earning demand deposits, offset in part by a decrease of $9.5 million in net loans.

Cash and cash equivalents increased $13.1 million, or 79.1%, to $29.7 million at June 30, 2013 from $16.6 million at December 31, 2012. The increase was a result of an increase of $13.2 million, or 81.7%, in interest-earning demand deposits, due to increased funds in our Federal Reserve and cash management accounts attributable to an increase in other liabilities and a decrease in loans.

Loans held for sale decreased $690,000, or 26.2%, to $2.0 million at June 30, 2013 from $2.6 million at December 31, 2012. The decrease was attributable to lower loan volume.

Net loans decreased $9.5 million, or 3.7%, to $244.4 million at June 30, 2013 from $253.8 million at December 31, 2012. The loan portfolio decreased primarily as a result of one-to four-family loans decreasing $5.2 million or 9.0%, and commercial non-mortgage loans decreasing $3.2 million or 46.7%. These decreases were offset in part by an increase of $1.9 million, or 3.1%, in multi-family commercial loans and an increase of $1.4 million or 11.5% in construction loans.

Securities held to maturity, consisting of one municipal security at June 30, 2013, decreased $69,000, or 28.6%, to $172,000 from $241,000 at December 31, 2012 due to a paydown.

Other real estate owned decreased $456,000, or 54.0%, to $388,000 at June 30, 2013, from $844,000 at December 31, 2012. The decrease in other real estate owned resulted from the sale of ten properties totaling $536,000.

Other assets, consisting primarily of prepaid FDIC assessments and deferred federal taxes, decreased $430,000, or 9.7%, to $4.0 million at June 30, 2013, from $4.4 million at December 31, 2012 primarily due to a $391,000 decrease in accrued federal income taxes.

Deposits decreased $56,000 to $158.5 million at June 30, 2013 from $158.6 million at December 31, 2012. Core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts) increased $4.0 million. This increase was more than offset by a decrease in certificates of deposit of $5.3 million, or 8.1%, to $60.0 million at June 30, 2013 from $65.3 million at December 31, 2012.

Federal Home Loan Bank advances remained unchanged from December 31, 2012 to June 30, 2013 at $61.9 million.

Interest payable and other liabilities, consisting primarily of liabilities for checks and money orders and accrued expenses, increased $1.4 million, or 60.6%, to $3.8 million at June 30, 2013, from $2.3 million at December 31, 2012. The increase was primarily due to an increase in borrower's prepaid taxes and insurances of $1.2 million to $1.7 million as of June 30, 2013 from $504,000 as of December 31, 2012 and an increase of $331,000 in liability for checks and money orders issued to $708,000 as of June 30, 2013 from $377,000 as of December 31, 2012.

Total stockholders' equity increased $465,000, or 0.7%, to $63.0 million at June 30, 2013 from $62.4 million at December 31, 2012 primarily due to net income of $961,000, in part offset by purchases of 35,300 shares of common stock, totaling $660,000 pursuant to the announced stock repurchase program which was were approved by our Board of Directors on February 14, 2012 and December 10, 2012.


Table of Contents

Comparison of Operating Results for the Three Months Ended June 30, 2013 and 2012

General. We recorded net income of $436,000 for the three months ended June 30, 2013 compared to net income of $511,000 for the three months ended June 30, 2012. The decrease in net income resulted primarily from an increase of $259,000 in salaries and employee benefits expense to $1.3 million for the three months ended June 30, 2013 from $1.1 million for the three months ended June 30, 2012. The decrease in net income was also attributable in part to a $140,000 decrease in interest income earned from loans to $3.3 million for the three months ended June 30, 2013 from $3.5 million for the three months ended June 30, 2012 due to a decrease in net loans.

Interest and Dividend Income. Interest and dividend income decreased $117,000, or 3.3%, to $3.4 million for the three months ended June 30, 2013, as the average yield on interest-earning assets decreased 25 basis points to 4.83% during the 2013 period from 5.08% during the 2012 period. The average balance of interest-earning assets increased $2.0 million to $279.4 million for the three months ended June 30, 2013 from $277.4 million for the three months ended June 30, 2012.

The biggest component of the increase in average interest-earning assets was in other interest-earning assets, consisting of interest-earning overnight funds and time deposits, which increased $4.1 million, or 16.8%, to $28.7 million for the three months ended June 30, 2013 from $24.6 million for the three months ended June 30, 2012. The average yield on other interest-earning assets decreased 14 basis points from 0.34% to 0.20%. There was an increase in interest income from other interest-earning assets of $18,000 to $43,000 for the three months ended June 30, 2013 from $25,000 for the three months ended June 30, 2012. The increase in interest and dividend income was primarily attributable to an increase of $24,000 in dividends received from service corporation from $4,000 as of June 30, 2012 to $28,000 as of June 30, 2013.

Average net loans decreased $2.2 million, or 0.9%, to $246.0 million for the three months ended June 30, 2013 from $248.2 million for the three months ended June 30, 2012. Interest income on loans decreased $140,000, or 4.0%, to $3.3 million for the three months ended June 30, 2013, as the average yield on loans decreased 18 basis points to 5.40% for the three months ended June 30, 2013 from 5.58% for the three months ended June 30, 2012. The decrease in interest income on loans was attributable to the decrease in net loans, the continuing low interest rate environment, and was also in part a result of shifts in the mix between loan types in our portfolio from higher yielding loan types to lower yielding types.

Interest Expense. Interest expense decreased $177,000, or 18.2%, to $796,000 for the three months ended June 30, 2013 from $974,000 for the three months ended June 30, 2012 as we experienced a decrease of $3.7 million in average interest-bearing liabilities, or 1.7%, to $221.7 million for the three months ended June 30, 2013 from $218.0 million for the three months ended June 30, 2012. The average rate we paid on these liabilities decreased 35 basis points to 1.44% from 1.79% attributable to the low interest rate environment and a continued shift to lower cost core deposits from higher cost certificates of deposit. Interest expense on certificates of deposit decreased $121,000, or 45.2%, to $146,000 for the three months ended June 30, 2013 from $267,000 for the three months ended June 30, 2012 resulting primarily from a $4.4 million decrease in the average balance of certificates of deposits to $61.0 million for the 2013 period, from $65.4 million for the 2012 period. Additionally, the rate on certificates of deposit decreased 67 basis points to 0.96% for the 2013 period from 1.63% for the 2012 period. This was a result of runoff of higher priced certificates of deposit as well as the low interest rate environment.

The average balance of core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $8.1 million, or 8.9%, to $98.8 million for the three months ended June 30, 2013 from $90.7 million for the three months ended June 30, 2012. The interest on core deposits decreased $5,000 to $62,000 for the 2013 period from $67,000 for the 2012 period, as the rate on these deposits for the three months ended June 30, 2013 decreased 5 basis points, or 14.6%, to 0.25% from 0.30% for the three months ended June 30, 2012.

Interest expense on borrowed funds, consisting entirely of Federal Home Loan Bank advances, decreased $53,000, or 8.1%, to $587,000 for the three months ended June 30, 2013 from $640,000 for the three months ended June, 2012, as the average balance of our borrowings increased $67,000 due to amortization of prepaid fees on borrowed funds and the average rate paid on these borrowings decreased


Table of Contents

33 basis points to 3.80% from 4.13%. The decrease in the rate was due to two restructures of outstanding advances as well as a $2.0 million advance that paid off in 2012. First, in the third quarter of 2012, we restructured $18.0 million of outstanding advances under the Federal Home Loan Bank of Indianapolis' "blend and extend" program, with a rate of 3.78% and a weighted average remaining maturity of 19 months to 2.69% with a weighted average remaining maturity of 62 months. In addition, in the second quarter of 2012, we restructured $22.0 million of outstanding advances under the aforementioned program, with a rate of 5.51% with a weighted average remaining maturity of 4 years to 4.22% with a weighted average remaining maturity of 9 years.

Net Interest Income. Net interest income increased $60,000, or 2.4%, to $2.6 million for the three months ended June 30, 2013 from $2.5 million for the three months ended June 30, 2012, as our average net interest-earning assets decreased to $57.7 million from $59.4 million, and net interest rate spread increased 10 basis points to 3.39% from 3.29% and net interest margin increased 8 basis points to 3.64% from 3.55%. Changes in the our net interest income are influenced by a variety of factors, including changes in the level and mix of interest-earning assets and interest-bearing liabilities, the level and direction of interest rates, the difference between short-term and long-term interest rates and the general strength of the economy.

Provision for Loan Losses. Based on our analysis of the factors described in "Critical Accounting Policies - Allowance for Loan Losses," in our Annual Report on Form 10-K for 2012, we recorded a provision for loan losses of $350,000 for the three months ended June 30, 2013 and a provision for loan losses of $300,000 for the three months ended June 30, 2012. We have continued with additional provisions in 2013 because of elevated levels of non-performing assets, delinquencies and classified assets, as well as continued concerns about the Michigan economy, elevated levels of unemployment, and some declining collateral values. At June 30, 2013, non-performing loans totaled $7.2 million, or 2.8% of total loans, as compared to $11.2 million, or 4.6% of total loans, at June 30, 2012. The allowance for loan losses to total loans receivable increased to 2.9% at June 30, 2013 from 2.6% at June 30, 2012.

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

Noninterest Income. Noninterest income increased $62,000, or 12.3%, to $570,000 for the three months ended June 30, 2013 from $508,000 for the three months ended June 30, 2012. The increase was primarily attributable to an increase of $37,000 in net gains on the sale of other real estate owned.

Noninterest Expense. Noninterest expense increased $213,000, or 10.8%, to $2.2 million for the three months ended June 30, 2013 from $2.0 million for the three months ended June 30, 2012. The increase was primarily due to an increase of $259,000 or 23.8%, in salaries and employee benefits expense, primarily as a result of the creation of an equity incentive plan and increased salaries expense and an increase of $30,000 due to loan legal expenses. This was partially offset by a decrease of $66,000 in professional fees and a $61,000 decrease in other real estate owned expense due to decreased properties owned.

Income Tax Expense. We recorded $202,000 of income tax expense for the three months ended June 30, 2013 compared to $266,000 of income tax expense for the 2012 quarter. Our effective tax rate was 31.6% for the three months ended June 30, 2013 and 34.2% the three months ended June 30, 2012.

Comparison of Operating Results for the Six Months Ended June 30, 2013 and 2012

General. We recorded net income of $961,000 for the six months ended June 30, 2013 compared to net income of $802,000 for the six months ended June 30, 2012. Net interest income increased $19,000 to $5.2 million for the six months ended June 30, 2013 from $5.1 million for the six months ended June 30, 2012, and other noninterest income increased $300,000 to $1.3 million for the six months ended June 30, 2013 from $1.0 million for the year earlier period.


Table of Contents

Interest and Dividend Income. Interest and dividend income decreased $400,000, or 5.6%, to $6.8 million for the six months ended June 30, 2013 from $7.2 million for the six months ended June 30, 2012, as the average balance of interest-earning assets decreased $625,000 to $279.0 million for the six months ended June 30, 2013 from $279.6 million for the six months ended June 30, 2012, and the average yield on interest-earning assets decreased 28 basis points to 4.84% during the 2013 period from 5.12% during the 2012 period. The drop in our average yield on interest-earning assets was due primarily to the decrease in yield on net loans.

Interest income on loans decreased $372,000, or 5.3%, to $6.8 million for the six months ended June 30, 2013 from $7.2 million for the six months ended June 30, 2012, as the average yield on loans decreased 37 basis points to 5.33% for the six months ended June 30, 2013 from 5.69% for the six months ended June 30, 2012 reflecting the lower market interest rate environment, partially offset by an increase in the average balance of loans of $3.0 million, or 1.2%, to $249.0 million for the six months ended June 30, 2013 from $246.0 million for the six months ended June 30, 2012.

Interest-earning overnight funds and time deposits decreased $3.7 million, or 12.8% to $25.3 million for the six months ended June 30, 2013 from $29.0 million for the six months ended June 30, 2012. The average yield on these investments decreased 9 basis points from 0.51% to 0.42%, resulting in a $21,000 decrease in interest income from other interest-earning assets to $53,000 for the six months ended June 30, 2013 from $73,000 for the six months ended June 30, 2012.

Interest income on investment securities and other interest-earning assets, and dividends on FHLB of Indianapolis stock decreased $27,000, or 17.6%, to $128,000 for the six months ended June 30, 2013 from $155,000 for the six months ended June 30, 2012. This decrease was primarily attributable to a decrease in the average balance of other interest-earning assets, consisting of interest-earning overnight funds, and time deposits and a decrease in the weighted average yield paid on these interest-earning assets. The average balance for the six months ended June 30, 2012 of other interest-earning assets was $29.0 million, compared to the average balance for the six months ended June 30, 2013 of $25.3 million. This decrease of $3.7 million represents a decrease of 12.8%. The decrease in other interest-earning assets caused the weighted average yield paid on these interest-earning assets to decrease 7 basis points to 0.85% for the 2013 period from 0.92% for the 2012 period.

Interest Expense. Interest expense decreased $417,000, or 20.7%, to $1.6 million for the six months ended June 30, 2013 from $2.0 million for the six months ended June 30, 2012, as the average rate paid on these liabilities decreased 38 basis points to 1.45% from 1.83%, partially offset by an increase in interest-bearing liabilities of $760,000, or 0.3%, to $221.4 million for the six months ended June 30, 2013 from $220.7 million for the six months ended June 30, 2012.

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $5.5 million, or 6.1%, to $97.0 million for the six months ended June 30, 2013 from $91.4 million for the six months ended June 30, 2012. Also, the interest on core deposits decreased $20,000 to $120,000 for the 2013 period from $140,000 for the 2012 period.

Interest expense on certificates of deposits decreased $245,000 or 43.9% to $313,000 for the six months ended June 30, 2013 from $557,000 for the six months ended June 30, 2012. This was primarily due to a decrease in the average balance of certificates of deposits of $4.2 million to $62.5 million for the 2013 period, from $66.7 million for the 2012 period. Also the yield on certificates of deposit decreased 67 basis points to 1.00% for the 2013 period from 1.67% for the 2012 period.

Net Interest Income. Net interest income increased $18,000, or 0.3%, to $5.2 million for the six months ended June 30, 2013 from $5.1 million for the six months ended June 30, 2012, as our net interest-earning assets decreased to $57.6 million from $59.0 million, our net interest rate spread increased 11 basis points to 3.40% from 3.29% and our net interest margin increased 8 basis points to 3.64% from 3.56%. The increases in our net interest rate spread and net interest margin reflected the 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, 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.

. . .

  Add WBKC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WBKC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.