Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
1. Basis of Presentation
The Unaudited Condensed Consolidated Financial
Statements include the accounts of Bank Mutual Corporation (the “Company”), its wholly-owned subsidiary Bank Mutual
(the “Bank”), and the Bank’s subsidiaries.
The accompanying Unaudited Condensed Consolidated
Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”)
for interim financial information, Rule 10-01 of Regulation S-X, and the instructions to Form 10-Q. The financial statements do
not include all of the information and footnotes required by GAAP for complete financial information. However, in the opinion of
management, all adjustments (consisting of normal recurring entries) necessary for a fair presentation of operations, cash flows,
and financial position have been included in the accompanying financial statements. This report should be read in conjunction with
the Company’s 2015 Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2016, are not
necessarily indicative of the results that may be expected for the full year ending December 31, 2016.
In 2014 the Financial Accounting Standards
Board (“FASB”) issued new accounting guidance related to the recognition of revenue from contracts with customers.
In 2015 the FASB deferred the effective date one year from the date in the original guidance. The guidance is effective for fiscal
years and interim periods beginning after December 15, 2018, which will be the first quarter of 2019 for the Company. In 2016 the
FASB issued two new pronouncements to amend and clarify the original guidance with no change to the effective date. The Company’s
adoption of this item is not expected to have a material impact on its results of operations or financial condition.
In 2015 the FASB issued new accounting
guidance relating to the consolidation of legal entities for financial reporting purposes. For public companies, the guidance is
effective for periods beginning after December 15, 2015, which was the first quarter of 2016 for the Company. The Company’s
adoption of this new guidance did not have a material impact on its results of operations or financial condition.
In 2016 the FASB issued new accounting
guidance related to certain aspects of the recognition and measurement of financial assets and liabilities. For public companies
the guidance is effective for periods beginning after December 15, 2017, which will be the first quarter of 2018 for the Company.
Early application of some aspects of the new guidance is also permitted, although the Company does not intend to adopt the guidance
early. The Company’s eventual adoption of this new guidance is not expected to have a material impact on its results of operations
or financial condition.
In 2016 the FASB issued new accounting
guidance related to the accounting for lease assets and liabilities. For public companies the guidance is effective for periods
beginning after December 15, 2018, which will be the first quarter of 2019 for the Company. The Company’s adoption of this
item is not expected to have a material impact on its results of operations or financial condition.
In 2016 the FASB issued new accounting
guidance related to the accounting for employee share-based compensation. For public companies the guidance is effective for periods
beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance in the first quarter of 2016.
The Company’s adoption of this item did not have a material impact on its results of operations or financial condition.
In 2016 the FASB issued new accounting
guidance related to the measurement of credit losses on financial instruments. The new guidance replaces the current methodology
of measuring credit losses based on incurred losses at the balance sheet date with a methodology that measures credit losses based
on the current estimate of expected credit losses. For the Company this guidance is effective for periods beginning after December
15, 2019, which will be the first quarter of 2020. Management has not yet completed the complex analysis required to determine
the impact adoption of this new guidance could have on the Company’s results of operations or financial condition.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
2. Mortgage-Related Securities Available-for-Sale
and Held-to-Maturity
The amortized cost and fair value of mortgage-related
securities available-for-sale and held-to-maturity are as follows:
|
|
June 30, 2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
208,327
|
|
|
$
|
3,543
|
|
|
$
|
(3
|
)
|
|
$
|
211,867
|
|
Federal National Mortgage Association
|
|
|
177,429
|
|
|
|
3,070
|
|
|
|
(124
|
)
|
|
|
180,375
|
|
Government National Mortgage Association
|
|
|
2,518
|
|
|
|
28
|
|
|
|
–
|
|
|
|
2,546
|
|
Private-label CMOs
|
|
|
19,061
|
|
|
|
307
|
|
|
|
(285
|
)
|
|
|
19,083
|
|
Total available-for-sale
|
|
$
|
407,335
|
|
|
$
|
6,948
|
|
|
$
|
(412
|
)
|
|
$
|
413,871
|
|
Securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
$
|
110,474
|
|
|
$
|
4,005
|
|
|
|
–
|
|
|
$
|
114,479
|
|
Total held-to-maturity
|
|
$
|
110,474
|
|
|
$
|
4,005
|
|
|
|
–
|
|
|
$
|
114,479
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
215,255
|
|
|
$
|
1,823
|
|
|
$
|
(800
|
)
|
|
$
|
216,278
|
|
Federal National Mortgage Association
|
|
|
169,792
|
|
|
|
853
|
|
|
|
(874
|
)
|
|
|
169,771
|
|
Government National Mortgage Association
|
|
|
21
|
|
|
|
3
|
|
|
|
–
|
|
|
|
24
|
|
Private-label CMOs
|
|
|
21,600
|
|
|
|
446
|
|
|
|
(245
|
)
|
|
|
21,801
|
|
Total available-for-sale
|
|
$
|
406,668
|
|
|
$
|
3,125
|
|
|
$
|
(1,919
|
)
|
|
$
|
407,874
|
|
Securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
$
|
120,891
|
|
|
$
|
750
|
|
|
|
–
|
|
|
$
|
121,641
|
|
Total held-to-maturity
|
|
$
|
120,891
|
|
|
$
|
750
|
|
|
|
–
|
|
|
$
|
121,641
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
2. Mortgage-Related Securities Available-for-Sale
and Held-to-Maturity (continued)
The following tables summarize mortgage-related
securities by amount of time the securities have had a gross unrealized loss as of the dates indicated:
|
|
June 30, 2016
|
|
|
|
Less Than 12 Months
|
|
|
Greater Than 12 Months
|
|
|
|
|
|
|
|
|
|
in an Unrealized
Loss Position
|
|
|
in an Unrealized
Loss Position
|
|
|
Gross
|
|
|
Total
|
|
:
|
|
Unrealized
Loss
Amount
|
|
|
Number of
Securities
|
|
|
Estimated
Fair
Value
|
|
|
Unrealized
Loss
Amount
|
|
|
Number of
Securities
|
|
|
Estimated
Fair
Value
|
|
|
Unrealized
Loss
Amount
|
|
|
Estimated
Fair
Value
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
3
|
|
|
|
1
|
|
|
$
|
193
|
|
|
$
|
3
|
|
|
$
|
193
|
|
Federal National Mortgage
Association
|
|
$
|
62
|
|
|
|
1
|
|
|
$
|
3,005
|
|
|
|
62
|
|
|
|
5
|
|
|
|
16,681
|
|
|
|
124
|
|
|
|
19,686
|
|
Private-label
CMOs
|
|
|
6
|
|
|
|
3
|
|
|
|
2,991
|
|
|
|
279
|
|
|
|
11
|
|
|
|
10,786
|
|
|
|
285
|
|
|
|
13,777
|
|
Total
available-for-sale
|
|
$
|
68
|
|
|
|
4
|
|
|
$
|
5,996
|
|
|
$
|
344
|
|
|
|
17
|
|
|
$
|
27,660
|
|
|
$
|
412
|
|
|
$
|
33,656
|
|
|
|
December 31, 2015
|
|
|
|
Less Than 12 Months
|
|
|
Greater Than 12 Months
|
|
|
|
|
|
|
|
|
|
in an Unrealized
Loss Position
|
|
|
in an Unrealized
Loss Position
|
|
|
Gross
|
|
|
Total
|
|
:
|
|
Unrealized
Loss
Amount
|
|
|
Number of
Securities
|
|
|
Estimated
Fair
Value
|
|
|
Unrealized
Loss
Amount
|
|
|
Number of
Securities
|
|
|
Estimated
Fair
Value
|
|
|
Unrealized
Loss
Amount
|
|
|
Estimated
Fair
Value
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
|
$
|
777
|
|
|
|
17
|
|
|
$
|
107,807
|
|
|
$
|
23
|
|
|
|
3
|
|
|
$
|
7,937
|
|
|
$
|
800
|
|
|
$
|
115,744
|
|
Federal National Mortgage
Association
|
|
|
634
|
|
|
|
16
|
|
|
|
79,273
|
|
|
|
240
|
|
|
|
4
|
|
|
|
10,679
|
|
|
|
874
|
|
|
|
89,952
|
|
Private-label
CMOs
|
|
|
1
|
|
|
|
1
|
|
|
|
1,357
|
|
|
|
244
|
|
|
|
10
|
|
|
|
10,574
|
|
|
|
245
|
|
|
|
11,931
|
|
Total
available-for-sale
|
|
$
|
1,412
|
|
|
|
34
|
|
|
$
|
188,437
|
|
|
$
|
507
|
|
|
|
17
|
|
|
$
|
29,190
|
|
|
$
|
1,919
|
|
|
$
|
217,627
|
|
The Company determined that the unrealized
losses on its mortgage-related securities were temporary as of June 30, 2016, and December 31, 2015. The Company does not intend
to sell these securities and it is unlikely that it will be required to sell these securities before the recovery of their amortized
cost. The Company believes it is probable that it will receive all future contractual cash flows related to these securities. This
determination was based on management’s judgment regarding the nature of the loan collateral that supports the securities,
a review of the current ratings issued on the securities by various credit rating agencies, recent trends in the fair market values
of the securities and, in the case of private-label collateralized mortgage obligations (“CMOs”), a review of the actual
delinquency and/or default performance of the loan collateral that supports the securities.
As of June 30, 2016, and December 31, 2015,
the Company had private-label CMOs, with a fair value of $13,696 and $15,725, respectively, and unrealized gains of $84 and $237,
respectively, that were rated less than investment grade. These private-label CMOs were analyzed using modeling techniques that
considered the priority of cash flows in the CMO structure and various default and loss rate scenarios that management considered
appropriate given the nature of the loan collateral.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
2. Mortgage-Related Securities Available-for-Sale
and Held-to-Maturity (continued)
The following table contains a summary
of other-than-temporary impairment (“OTTI”) related to credit losses that have been recognized in earnings as of the
dates indicated for private label CMOs, as well as the end of period values for securities that have experienced such losses:
|
|
Three Months Ended
June 30
|
|
|
Six Months Ended
June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Beginning balance of unrealized OTTI related to credit losses
|
|
$
|
557
|
|
|
$
|
692
|
|
|
$
|
592
|
|
|
$
|
789
|
|
Reductions for increase in cash flows expected to be received
|
|
|
(35
|
)
|
|
|
(35
|
)
|
|
|
(70
|
)
|
|
|
(132
|
)
|
Ending balance of unrealized OTTI related to credit losses
|
|
$
|
522
|
|
|
$
|
657
|
|
|
$
|
522
|
|
|
$
|
657
|
|
Adjusted cost at end of period
|
|
$
|
3,810
|
|
|
$
|
4,911
|
|
|
$
|
3,810
|
|
|
$
|
4,911
|
|
Estimated fair value at end of period
|
|
$
|
4,098
|
|
|
$
|
5,390
|
|
|
$
|
4,098
|
|
|
$
|
5,390
|
|
Results of operations included no gross
realized gains or losses on the sale of securities during the three and six months ended June 30, 2016 or 2015.
Mortgage-related securities available-for-sale
with a fair value of approximately $86,952 and $67,923 at June 30, 2016, and December 31, 2015, respectively, were pledged to secure
deposits, borrowings, and for other purposes as permitted or required by law.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable
The following table summarizes the components of loans receivable
as of the dates indicated:
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
233,597
|
|
|
$
|
235,313
|
|
Commercial real estate
|
|
|
332,514
|
|
|
|
299,550
|
|
Multi-family real estate
|
|
|
517,703
|
|
|
|
409,674
|
|
Construction and development loans:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
34,001
|
|
|
|
28,156
|
|
Multi-family real estate
|
|
|
263,701
|
|
|
|
291,380
|
|
Land and land development
|
|
|
10,583
|
|
|
|
11,143
|
|
Total construction and development
|
|
|
308,285
|
|
|
|
330,679
|
|
Total commercial loans
|
|
|
1,392,099
|
|
|
|
1,275,216
|
|
Retail loans:
|
|
|
|
|
|
|
|
|
One- to four-family first mortgages:
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
449,800
|
|
|
|
461,797
|
|
Construction
|
|
|
40,106
|
|
|
|
42,357
|
|
Total one- to four-family first mortgages
|
|
|
489,906
|
|
|
|
504,154
|
|
Home equity loans:
|
|
|
|
|
|
|
|
|
Fixed term home equity
|
|
|
114,695
|
|
|
|
122,985
|
|
Home equity lines of credit
|
|
|
72,569
|
|
|
|
75,261
|
|
Total home equity loans
|
|
|
187,264
|
|
|
|
198,246
|
|
Other consumer loans:
|
|
|
|
|
|
|
|
|
Student
|
|
|
7,490
|
|
|
|
8,129
|
|
Other
|
|
|
11,336
|
|
|
|
11,678
|
|
Total other consumer loans
|
|
|
18,826
|
|
|
|
19,807
|
|
Total retail loans
|
|
|
695,996
|
|
|
|
722,207
|
|
Gross loans receivable
|
|
|
2,088,095
|
|
|
|
1,997,423
|
|
Undisbursed loan proceeds
|
|
|
(210,269
|
)
|
|
|
(238,124
|
)
|
Allowance for loan losses
|
|
|
(17,962
|
)
|
|
|
(17,641
|
)
|
Deferred fees and costs, net
|
|
|
(1,805
|
)
|
|
|
(1,640
|
)
|
Total loans receivable, net
|
|
|
1,858,059
|
|
|
$
|
1,740,018
|
|
The Company’s commercial and retail borrowers are primarily
located in the Company’s local lending areas in Wisconsin, Illinois, Michigan, Minnesota, and Iowa, as is the real estate
and non-real estate collateral that secures the Company’s loans.
At June 30, 2016, and December 31, 2015,
certain one- to four-family mortgage loans, multi-family mortgage loans, and home equity loans with aggregate carrying values of
approximately $563,000 and $496,000 were pledged to secure advances from the Federal Home Loan Bank (“FHLB”) of Chicago.
The unpaid principal balance of loans serviced
for others was $1,016,474 and $1,038,588 at June 30, 2016, and December 31, 2015, respectively. These loans are not reflected in
the consolidated financial statements.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
The following tables summarize the activity
in the allowance for loan losses by loan portfolio segment for the periods indicated. The tables also summarize the allowance for
loan loss and loans receivable by the nature of the impairment evaluation, either individually or collectively, at the dates indicated
(the loans receivable amounts in the table are net of undisbursed loan proceeds).
|
|
At or for
the Six Months Ended June 30, 2016
|
|
|
|
Commercial
and
Industrial
|
|
|
Commercial
Real
Estate
|
|
|
Multi-
Family
Real Estate
|
|
|
Construction
and
Development
|
|
|
One- to
Four-
Family
|
|
|
Home Equity
and Other
Consumer
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,658
|
|
|
$
|
4,796
|
|
|
$
|
3,337
|
|
|
$
|
2,835
|
|
|
$
|
1,835
|
|
|
$
|
1,180
|
|
|
$
|
17,641
|
|
Provision (recovery)
|
|
|
(337
|
)
|
|
|
(487
|
)
|
|
|
1,564
|
|
|
|
(369
|
)
|
|
|
133
|
|
|
|
87
|
|
|
|
591
|
|
Charge-offs
|
|
|
–
|
|
|
|
(99
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(84
|
)
|
|
|
(223
|
)
|
|
|
(406
|
)
|
Recoveries
|
|
|
4
|
|
|
|
19
|
|
|
|
30
|
|
|
|
–
|
|
|
|
33
|
|
|
|
50
|
|
|
|
136
|
|
Ending balance
|
|
$
|
3,325
|
|
|
$
|
4,229
|
|
|
$
|
4,931
|
|
|
$
|
2,466
|
|
|
$
|
1,917
|
|
|
$
|
1,094
|
|
|
$
|
17,962
|
|
Loss
allowance individually evaluated for impairment
|
|
$
|
196
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
196
|
|
Loss
allowance collectively evaluated for impairment
|
|
$
|
3,129
|
|
|
$
|
4,229
|
|
|
$
|
4,931
|
|
|
$
|
2,466
|
|
|
$
|
1,917
|
|
|
$
|
1,094
|
|
|
$
|
17,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivable balances
at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated
for impairment
|
|
$
|
8,632
|
|
|
$
|
6,391
|
|
|
$
|
3,993
|
|
|
$
|
2,021
|
|
|
$
|
3,511
|
|
|
$
|
876
|
|
|
$
|
25,424
|
|
Loans
collectively evaluated for impairment
|
|
|
224,965
|
|
|
|
326,123
|
|
|
|
513,710
|
|
|
|
116,299
|
|
|
|
466,091
|
|
|
|
205,214
|
|
|
|
1,852,402
|
|
Total
loans receivable
|
|
$
|
233,597
|
|
|
$
|
332,514
|
|
|
$
|
517,703
|
|
|
$
|
118,320
|
|
|
$
|
469,602
|
|
|
$
|
206,090
|
|
|
$
|
1,877,826
|
|
|
|
At or for the Six Months Ended June 30, 2015
|
|
|
|
Commercial
and
Industrial
|
|
|
Commercial
Real
Estate
|
|
|
Multi-
Family
Real Estate
|
|
|
Construction
and
Development
|
|
|
One- to
Four-
Family
|
|
|
Home Equity
and Other
Consumer
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,349
|
|
|
$
|
6,880
|
|
|
$
|
6,078
|
|
|
$
|
2,801
|
|
|
$
|
3,004
|
|
|
$
|
1,177
|
|
|
$
|
22,289
|
|
Provision (recovery)
|
|
|
33
|
|
|
|
(370
|
)
|
|
|
(1,678
|
)
|
|
|
60
|
|
|
|
(253
|
)
|
|
|
492
|
|
|
|
(1,716
|
)
|
Charge-offs
|
|
|
(74
|
)
|
|
|
(69
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(218
|
)
|
|
|
(348
|
)
|
|
|
(709
|
)
|
Recoveries
|
|
|
6
|
|
|
|
83
|
|
|
|
–
|
|
|
|
–
|
|
|
|
41
|
|
|
|
46
|
|
|
|
176
|
|
Ending balance
|
|
$
|
2,314
|
|
|
$
|
6,524
|
|
|
$
|
4,400
|
|
|
$
|
2,861
|
|
|
$
|
2,574
|
|
|
$
|
1,367
|
|
|
$
|
20,040
|
|
Loss allowance individually evaluated for impairment
|
|
|
–
|
|
|
$
|
262
|
|
|
$
|
621
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
883
|
|
Loss allowance collectively evaluated for impairment
|
|
$
|
2,314
|
|
|
$
|
6,262
|
|
|
$
|
3,779
|
|
|
$
|
2,861
|
|
|
$
|
2,574
|
|
|
$
|
1,367
|
|
|
$
|
19,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivable balances at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
8,032
|
|
|
$
|
9,815
|
|
|
$
|
9,538
|
|
|
$
|
2,136
|
|
|
$
|
4,786
|
|
|
$
|
549
|
|
|
$
|
34,856
|
|
Loans collectively evaluated for impairment
|
|
|
202,658
|
|
|
|
263,403
|
|
|
|
339,750
|
|
|
|
111,473
|
|
|
|
470,984
|
|
|
|
226,709
|
|
|
|
1,614,977
|
|
Total loans receivable
|
|
$
|
210,690
|
|
|
$
|
273,218
|
|
|
$
|
349,288
|
|
|
$
|
113,609
|
|
|
$
|
475,770
|
|
|
$
|
227,258
|
|
|
$
|
1,649,833
|
|
The Company adjusts certain factors used
to determine the allowance for loan losses on loans that are collectively evaluated for impairment. Management considered these
adjustments necessary and prudent in light of trends in net charge-offs, real estate values, economic conditions, and unemployment.
The Company estimates that these changes, as well as overall changes in the balance of loans to which these factors were applied,
resulted in an increase (decrease) in the total allowance for loan losses of $1,149 and $660 during the three and six months ended
June 30, 2016, and of $(1,097) and $(2,228) during the three and six months ended June 30, 2015.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
The following tables present information
regarding impaired loans that have a related allowance for loan loss and those that do not as of the dates indicated (the loans
receivable amounts in the table are net of undisbursed loan proceeds).
|
|
June 30, 2016
|
|
Impaired loans with an allowance recorded:
|
|
Loans
Receivable
Balance, Net
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
for Loss
|
|
|
Average Loan
Receivable
Balance, Net
|
|
|
Interest
Income
Recognized
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Lines of credit
|
|
$
|
1,898
|
|
|
$
|
1,960
|
|
|
$
|
196
|
|
|
$
|
3,042
|
|
|
$
|
52
|
|
Total commercial and industrial
|
|
|
1,898
|
|
|
|
1,960
|
|
|
|
196
|
|
|
|
3,042
|
|
|
|
52
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Retail/wholesale/mixed
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Industrial/warehouse
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total commercial real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Land and land development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total construction and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Student
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total home equity and other consumer
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total with an allowance recorded
|
|
$
|
1,898
|
|
|
$
|
1,960
|
|
|
$
|
196
|
|
|
$
|
3,042
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
92
|
|
|
$
|
107
|
|
|
|
–
|
|
|
$
|
105
|
|
|
$
|
3
|
|
Lines of credit
|
|
|
2,273
|
|
|
|
2,352
|
|
|
|
–
|
|
|
|
1,440
|
|
|
|
61
|
|
Total commercial and industrial
|
|
|
2,365
|
|
|
|
2,459
|
|
|
|
–
|
|
|
|
1,545
|
|
|
|
64
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
2,043
|
|
|
|
2,418
|
|
|
|
–
|
|
|
|
2,084
|
|
|
|
76
|
|
Retail/wholesale/mixed
|
|
|
1,472
|
|
|
|
2,254
|
|
|
|
–
|
|
|
|
1,549
|
|
|
|
58
|
|
Industrial/warehouse
|
|
|
187
|
|
|
|
265
|
|
|
|
–
|
|
|
|
191
|
|
|
|
7
|
|
Other
|
|
|
2
|
|
|
|
153
|
|
|
|
–
|
|
|
|
7
|
|
|
|
7
|
|
Total commercial real estate
|
|
|
3,704
|
|
|
|
5,090
|
|
|
|
–
|
|
|
|
3,831
|
|
|
|
148
|
|
Multi-family real estate
|
|
|
286
|
|
|
|
292
|
|
|
|
–
|
|
|
|
193
|
|
|
|
12
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
548
|
|
|
|
597
|
|
|
|
–
|
|
|
|
581
|
|
|
|
–
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Land and land development
|
|
|
157
|
|
|
|
215
|
|
|
|
–
|
|
|
|
162
|
|
|
|
8
|
|
Total construction and development
|
|
|
705
|
|
|
|
812
|
|
|
|
–
|
|
|
|
743
|
|
|
|
8
|
|
One- to four-family
|
|
|
2,764
|
|
|
|
3,132
|
|
|
|
–
|
|
|
|
2,549
|
|
|
|
31
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
816
|
|
|
|
898
|
|
|
|
–
|
|
|
|
729
|
|
|
|
6
|
|
Student
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
60
|
|
|
|
166
|
|
|
|
–
|
|
|
|
72
|
|
|
|
1
|
|
Total home equity and other consumer
|
|
|
876
|
|
|
|
1,064
|
|
|
|
–
|
|
|
|
801
|
|
|
|
7
|
|
Total with no allowance recorded
|
|
$
|
10,700
|
|
|
$
|
12,849
|
|
|
|
–
|
|
|
$
|
9,662
|
|
|
$
|
270
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
|
|
December 31, 2015
|
|
Impaired loans with an allowance recorded:
|
|
Loans
Receivable
Balance, Net
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
for Loss
|
|
|
Average Loan
Receivable
Balance, Net
|
|
|
Interest
Income
Recognized
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Lines of credit
|
|
$
|
2,783
|
|
|
$
|
2,795
|
|
|
$
|
535
|
|
|
$
|
557
|
|
|
$
|
142
|
|
Total commercial and industrial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail/wholesale/mixed
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,538
|
|
|
|
–
|
|
Industrial/warehouse
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total commercial real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,538
|
|
|
|
–
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,112
|
|
|
|
–
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Land and land development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total construction and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Student
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total home equity and other consumer
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total with an allowance recorded
|
|
$
|
2,783
|
|
|
$
|
2,795
|
|
|
$
|
535
|
|
|
$
|
3,207
|
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
116
|
|
|
$
|
133
|
|
|
|
–
|
|
|
$
|
129
|
|
|
$
|
3
|
|
Lines of credit
|
|
|
2,016
|
|
|
|
2,032
|
|
|
|
–
|
|
|
|
422
|
|
|
|
117
|
|
Total commercial and industrial
|
|
|
2,132
|
|
|
|
2,165
|
|
|
|
–
|
|
|
|
551
|
|
|
|
120
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
2,126
|
|
|
|
2,426
|
|
|
|
–
|
|
|
|
833
|
|
|
|
148
|
|
Retail/wholesale/mixed
|
|
|
1,637
|
|
|
|
2,348
|
|
|
|
–
|
|
|
|
1,672
|
|
|
|
79
|
|
Industrial/warehouse
|
|
|
194
|
|
|
|
265
|
|
|
|
–
|
|
|
|
204
|
|
|
|
18
|
|
Other
|
|
|
11
|
|
|
|
155
|
|
|
|
–
|
|
|
|
22
|
|
|
|
14
|
|
Total commercial real estate
|
|
|
3,968
|
|
|
|
5,194
|
|
|
|
–
|
|
|
|
2,731
|
|
|
|
259
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
597
|
|
|
|
597
|
|
|
|
–
|
|
|
|
597
|
|
|
|
–
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Land and land development
|
|
|
169
|
|
|
|
220
|
|
|
|
–
|
|
|
|
187
|
|
|
|
17
|
|
Total construction and development
|
|
|
766
|
|
|
|
817
|
|
|
|
|
|
|
|
784
|
|
|
|
17
|
|
One- to four-family
|
|
|
2,703
|
|
|
|
3,168
|
|
|
|
–
|
|
|
|
3,744
|
|
|
|
70
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
703
|
|
|
|
805
|
|
|
|
–
|
|
|
|
509
|
|
|
|
21
|
|
Student
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
82
|
|
|
|
184
|
|
|
|
–
|
|
|
|
87
|
|
|
|
1
|
|
Total home equity and other consumer
|
|
|
785
|
|
|
|
989
|
|
|
|
–
|
|
|
|
596
|
|
|
|
22
|
|
Total with no allowance recorded
|
|
$
|
10,354
|
|
|
$
|
12,333
|
|
|
|
–
|
|
|
$
|
8,406
|
|
|
$
|
488
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
The following tables present information
relating to the Company’s internal risk ratings of its loans receivable as of the dates indicated (all amounts in the tables
are net of undisbursed loan proceeds):
|
|
June 30, 2016
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
65,776
|
|
|
$
|
6,846
|
|
|
$
|
110
|
|
|
$
|
665
|
|
|
$
|
73,397
|
|
Lines of credit
|
|
|
116,310
|
|
|
|
34,189
|
|
|
|
1,734
|
|
|
|
7,967
|
|
|
|
160,200
|
|
Total commercial and industrial
|
|
|
182,086
|
|
|
|
41,035
|
|
|
|
1,844
|
|
|
|
8,632
|
|
|
|
233,597
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
100,397
|
|
|
|
4,634
|
|
|
|
14,517
|
|
|
|
2,043
|
|
|
|
121,591
|
|
Retail/wholesale/mixed use
|
|
|
109,709
|
|
|
|
27,050
|
|
|
|
14,566
|
|
|
|
3,896
|
|
|
|
155,221
|
|
Industrial/warehouse
|
|
|
43,341
|
|
|
|
4,325
|
|
|
|
–
|
|
|
|
450
|
|
|
|
48,116
|
|
Other
|
|
|
7,584
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2
|
|
|
|
7,586
|
|
Total commercial real estate
|
|
|
261,031
|
|
|
|
36,009
|
|
|
|
29,083
|
|
|
|
6,391
|
|
|
|
332,514
|
|
Multi-family real estate
|
|
|
505,841
|
|
|
|
–
|
|
|
|
7,869
|
|
|
|
3,993
|
|
|
|
517,703
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
6,541
|
|
|
|
–
|
|
|
|
–
|
|
|
|
548
|
|
|
|
7,089
|
|
Multi-family real estate
|
|
|
100,666
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
100,666
|
|
Land and land development
|
|
|
8,901
|
|
|
|
191
|
|
|
|
–
|
|
|
|
1,473
|
|
|
|
10,565
|
|
Total construction/development
|
|
|
116,108
|
|
|
|
191
|
|
|
|
–
|
|
|
|
2,021
|
|
|
|
118,320
|
|
One- to four-family
|
|
|
463,781
|
|
|
|
441
|
|
|
|
1,869
|
|
|
|
3,511
|
|
|
|
469,602
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
186,448
|
|
|
|
–
|
|
|
|
–
|
|
|
|
816
|
|
|
|
187,264
|
|
Student
|
|
|
7,490
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,490
|
|
Other
|
|
|
11,276
|
|
|
|
–
|
|
|
|
–
|
|
|
|
60
|
|
|
|
11,336
|
|
Total home equity and other consumer
|
|
|
205,214
|
|
|
|
–
|
|
|
|
–
|
|
|
|
876
|
|
|
|
206,090
|
|
Total
|
|
$
|
1,734,061
|
|
|
$
|
77,676
|
|
|
$
|
40,665
|
|
|
$
|
25,424
|
|
|
$
|
1,877,826
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
|
|
December 31, 2015
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
53,785
|
|
|
$
|
5,536
|
|
|
$
|
252
|
|
|
$
|
2,605
|
|
|
$
|
62,178
|
|
Lines of credit
|
|
|
145,118
|
|
|
|
17,086
|
|
|
|
1,299
|
|
|
|
9,632
|
|
|
|
173,135
|
|
Total commercial and industrial
|
|
|
198,903
|
|
|
|
22,622
|
|
|
|
1,551
|
|
|
|
12,237
|
|
|
|
235,313
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
69,223
|
|
|
|
5,567
|
|
|
|
15,063
|
|
|
|
2,126
|
|
|
|
91,979
|
|
Retail/wholesale/mixed use
|
|
|
103,634
|
|
|
|
28,091
|
|
|
|
14,510
|
|
|
|
6,599
|
|
|
|
152,834
|
|
Industrial/warehouse
|
|
|
46,545
|
|
|
|
1,326
|
|
|
|
588
|
|
|
|
1,598
|
|
|
|
50,057
|
|
Other
|
|
|
4,669
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11
|
|
|
|
4,680
|
|
Total commercial real estate
|
|
|
224,071
|
|
|
|
34,984
|
|
|
|
30,161
|
|
|
|
10,334
|
|
|
|
299,550
|
|
Multi-family real estate
|
|
|
394,097
|
|
|
|
7,338
|
|
|
|
–
|
|
|
|
8,239
|
|
|
|
409,674
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
13,928
|
|
|
|
–
|
|
|
|
–
|
|
|
|
597
|
|
|
|
14,525
|
|
Multi-family real estate
|
|
|
93,635
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
93,635
|
|
Land and land development
|
|
|
9,411
|
|
|
|
69
|
|
|
|
–
|
|
|
|
1,517
|
|
|
|
10,997
|
|
Total construction/development
|
|
|
116,974
|
|
|
|
69
|
|
|
|
–
|
|
|
|
2,114
|
|
|
|
119,157
|
|
One- to four-family
|
|
|
471,412
|
|
|
|
2,059
|
|
|
|
671
|
|
|
|
3,410
|
|
|
|
477,552
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
197,543
|
|
|
|
–
|
|
|
|
–
|
|
|
|
703
|
|
|
|
198,246
|
|
Student
|
|
|
8,129
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,129
|
|
Other
|
|
|
11,596
|
|
|
|
–
|
|
|
|
–
|
|
|
|
82
|
|
|
|
11,678
|
|
Total home equity and other consumer
|
|
|
217,268
|
|
|
|
–
|
|
|
|
–
|
|
|
|
785
|
|
|
|
218,053
|
|
Total
|
|
$
|
1,622,725
|
|
|
$
|
67,072
|
|
|
$
|
32,383
|
|
|
$
|
37,119
|
|
|
$
|
1,759,299
|
|
Loans rated “pass” or “watch”
are generally current on contractual loan and principal payments and comply with other contractual loan terms. Pass loans generally
have no noticeable credit deficiencies or potential weaknesses. Loans rated watch, however, will typically exhibit early signs
of credit deficiencies or potential weaknesses that deserve management’s close attention. Loans rated “special mention”
do not currently expose the Company to a sufficient degree of risk to warrant a lower rating, but possess clear trends in credit
deficiencies or potential weaknesses that deserve management’s close attention. The allowance for loan losses on loans rated
pass, watch, or special mention is typically evaluated collectively for impairment using a homogenous pool approach. This approach
utilizes quantitative factors developed by management from its assessment of historical loss experience, qualitative factors, and
other considerations.
Loans rated “substandard” involve
a distinct possibility that the Company could sustain some loss if deficiencies associated with the loan are not corrected. Loans
rated “doubtful” indicate that full collection is highly questionable or improbable. The Company did not have any loans
that were rated doubtful at June 30, 2016, or December 31, 2015. Loans rated substandard or doubtful that are also considered in
management’s judgment to be impaired are generally analyzed individually to determine an appropriate allowance for loan loss.
A loan rated “loss” is considered uncollectible, even if a partial recovery could be expected in the future. The Company
generally charges off loans that are rated as a loss. As such, the Company did not have any loans that were rated loss at June
30, 2016, or December 31, 2015.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
The following tables contain information
relating to the past due and non-accrual status of the Company’s loans receivable as of the dates indicated (all amounts
in the table are net of undisbursed loan proceeds):
|
|
June 30, 2016
|
|
|
|
Past Due Status
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
30-59
Days
|
|
|
60-89
Days
|
|
|
> 90
Days
|
|
|
Total
Past Due
|
|
|
Total
Current
|
|
|
Total
Loans
|
|
|
Non-
Accrual
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
128
|
|
|
|
–
|
|
|
$
|
31
|
|
|
$
|
159
|
|
|
$
|
73,238
|
|
|
$
|
73,397
|
|
|
$
|
92
|
|
Lines of credit
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
160,200
|
|
|
|
160,200
|
|
|
|
4,171
|
|
Total commercial and industrial
|
|
|
128
|
|
|
|
–
|
|
|
|
31
|
|
|
|
159
|
|
|
|
233,438
|
|
|
|
233,597
|
|
|
|
4,263
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
1,725
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,725
|
|
|
|
119,866
|
|
|
|
121,591
|
|
|
|
2,043
|
|
Retail/wholesale/mixed
|
|
|
–
|
|
|
|
–
|
|
|
|
592
|
|
|
|
592
|
|
|
|
154,629
|
|
|
|
155,221
|
|
|
|
1,472
|
|
Industrial/warehouse
|
|
|
187
|
|
|
|
–
|
|
|
|
–
|
|
|
|
187
|
|
|
|
47,929
|
|
|
|
48,116
|
|
|
|
187
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,586
|
|
|
|
7,586
|
|
|
|
2
|
|
Total commercial real estate
|
|
|
1,912
|
|
|
|
|
|
|
|
592
|
|
|
|
2,504
|
|
|
|
330,010
|
|
|
|
332,514
|
|
|
|
3,704
|
|
Multi-family real estate
|
|
|
469
|
|
|
|
–
|
|
|
|
–
|
|
|
|
469
|
|
|
|
517,234
|
|
|
|
517,703
|
|
|
|
286
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
548
|
|
|
|
548
|
|
|
|
6,541
|
|
|
|
7,089
|
|
|
|
548
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
100,666
|
|
|
|
100,666
|
|
|
|
–
|
|
Land and land development
|
|
|
473
|
|
|
|
–
|
|
|
|
–
|
|
|
|
473
|
|
|
|
10,092
|
|
|
|
10,565
|
|
|
|
157
|
|
Total construction
|
|
|
473
|
|
|
|
–
|
|
|
|
548
|
|
|
|
1,021
|
|
|
|
117,299
|
|
|
|
118,320
|
|
|
|
705
|
|
One- to four-family
|
|
|
6,394
|
|
|
$
|
1,711
|
|
|
|
2,700
|
|
|
|
10,805
|
|
|
|
458,797
|
|
|
|
469,602
|
|
|
|
2,764
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
437
|
|
|
|
100
|
|
|
|
816
|
|
|
|
1,353
|
|
|
|
185,911
|
|
|
|
187,264
|
|
|
|
816
|
|
Student
|
|
|
203
|
|
|
|
121
|
|
|
|
239
|
|
|
|
563
|
|
|
|
6,927
|
|
|
|
7,490
|
|
|
|
–
|
|
Other
|
|
|
69
|
|
|
|
63
|
|
|
|
60
|
|
|
|
192
|
|
|
|
11,144
|
|
|
|
11,336
|
|
|
|
60
|
|
Total home equity and other consumer
|
|
|
709
|
|
|
|
284
|
|
|
|
1,115
|
|
|
|
2,108
|
|
|
|
203,982
|
|
|
|
206,090
|
|
|
|
876
|
|
Total
|
|
$
|
10,085
|
|
|
$
|
1,995
|
|
|
$
|
4,986
|
|
|
$
|
17,066
|
|
|
$
|
1,860,760
|
|
|
$
|
1,877,826
|
|
|
$
|
12,598
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
3. Loans Receivable (continued)
|
|
December 31, 2015
|
|
|
|
Past Due Status
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
30-59
Days
|
|
|
60-89
Days
|
|
|
> 90
Days
|
|
|
Total
Past Due
|
|
|
Total
Current
|
|
|
Total
Loans
|
|
|
Non-
Accrual
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
|
–
|
|
|
|
–
|
|
|
$
|
61
|
|
|
$
|
61
|
|
|
$
|
62,117
|
|
|
$
|
62,178
|
|
|
$
|
116
|
|
Lines of credit
|
|
$
|
8,901
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,901
|
|
|
|
164,234
|
|
|
|
173,135
|
|
|
|
4,799
|
|
Total commercial and industrial
|
|
|
8,901
|
|
|
|
–
|
|
|
|
61
|
|
|
|
8,962
|
|
|
|
226,351
|
|
|
|
235,313
|
|
|
|
4,915
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
91,979
|
|
|
|
91,979
|
|
|
|
2,126
|
|
Retail/wholesale/mixed
|
|
|
768
|
|
|
$
|
2
|
|
|
|
684
|
|
|
|
1,454
|
|
|
|
151,380
|
|
|
|
152,834
|
|
|
|
1,637
|
|
Industrial/warehouse
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
50,057
|
|
|
|
50,057
|
|
|
|
194
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,680
|
|
|
|
4,680
|
|
|
|
11
|
|
Total commercial real estate
|
|
|
768
|
|
|
|
2
|
|
|
|
684
|
|
|
|
1,454
|
|
|
|
298,096
|
|
|
|
299,550
|
|
|
|
3,968
|
|
Multi-family real estate
|
|
|
721
|
|
|
|
–
|
|
|
|
–
|
|
|
|
721
|
|
|
|
408,953
|
|
|
|
409,674
|
|
|
|
–
|
|
Construction and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
597
|
|
|
|
597
|
|
|
|
13,928
|
|
|
|
14,525
|
|
|
|
597
|
|
Multi-family real estate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
93,635
|
|
|
|
93,635
|
|
|
|
–
|
|
Land and land development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,997
|
|
|
|
10,997
|
|
|
|
169
|
|
Total construction
|
|
|
–
|
|
|
|
–
|
|
|
|
597
|
|
|
|
597
|
|
|
|
118,560
|
|
|
|
119,157
|
|
|
|
766
|
|
One- to four-family
|
|
|
6,490
|
|
|
|
2,959
|
|
|
|
2,634
|
|
|
|
12,083
|
|
|
|
465,469
|
|
|
|
477,552
|
|
|
|
2,703
|
|
Home equity and other consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
1,214
|
|
|
|
217
|
|
|
|
703
|
|
|
|
2,134
|
|
|
|
196,112
|
|
|
|
198,246
|
|
|
|
703
|
|
Student
|
|
|
178
|
|
|
|
62
|
|
|
|
484
|
|
|
|
724
|
|
|
|
7,405
|
|
|
|
8,129
|
|
|
|
–
|
|
Other
|
|
|
38
|
|
|
|
49
|
|
|
|
82
|
|
|
|
169
|
|
|
|
11,509
|
|
|
|
11,678
|
|
|
|
82
|
|
Total home equity and other consumer
|
|
|
1,430
|
|
|
|
328
|
|
|
|
1,269
|
|
|
|
3,027
|
|
|
|
215,026
|
|
|
|
218,053
|
|
|
|
785
|
|
Total
|
|
$
|
18,310
|
|
|
$
|
3,289
|
|
|
$
|
5,245
|
|
|
$
|
26,844
|
|
|
$
|
1,732,455
|
|
|
$
|
1,759,299
|
|
|
$
|
13,137
|
|
As of June 30, 2016, and December 31, 2015,
$239 and $484 in student loans, respectively, were 90-days past due, but remained on accrual status because such loans were originated
under programs guaranteed by the federal government. No other loans 90-days past due were in accrual status as of either date.
The Company classifies a loan modification as a troubled debt
restructuring (“TDR”) when it has granted a borrower experiencing financial difficulties a concession that it would
otherwise not consider. Loan modifications that result in insignificant delays in the receipt of payments (generally six months
or less) are not considered TDRs under the Company’s TDR policy. TDRs are relatively insignificant and/or infrequent in the
Company and generally consist of loans placed in interest-only status for a short period of time or payment forbearance for greater
than six months. As of June 30, 2016, and December 31, 2015, TDRs were $8,264 and $8,704, respectively, and consisted primarily
of commercial and industrial and one- to four-family mortgage loans. TDRs in accrual status as of those same dates were $2,900
and $2,558, respectively. Additions to TDRs during the six months ended June 30, 2016 and 2015, were immaterial. In addition, TDRs
that experienced a payment default within one year of their restructuring during these six months ended June 30, 2016, and twelve
months ended June 30, 2015, were also immaterial. TDRs are evaluated for impairment and appropriate credit losses are recorded
in accordance with the Company’s accounting policies and GAAP.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
4. Mortgage Servicing Rights
The following table presents the activity
in the Company’s mortgage servicing rights (“MSRs”) for the periods indicated:
|
|
Six Months Ended June 30
|
|
|
|
2016
|
|
|
2015
|
|
MSRs at beginning of the period, net
|
|
$
|
7,205
|
|
|
$
|
7,867
|
|
Additions
|
|
|
616
|
|
|
|
623
|
|
Amortization
|
|
|
(987
|
)
|
|
|
(1,000
|
)
|
MSRs at end of the period, net
|
|
$
|
6,834
|
|
|
$
|
7,490
|
|
The following table shows the estimated
future amortization expense for MSRs for the periods indicated:
|
|
|
|
Amount
|
|
Estimate for six months ending December 31:
|
|
2016
|
|
$
|
701
|
|
Estimate for years ending December 31:
|
|
2017
|
|
|
1,190
|
|
|
|
2018
|
|
|
1,003
|
|
|
|
2019
|
|
|
816
|
|
|
|
2020
|
|
|
661
|
|
|
|
2021
|
|
|
591
|
|
|
|
Thereafter
|
|
|
1,872
|
|
|
|
Total
|
|
$
|
6,834
|
|
The projections of amortization expense
shown above for MSRs are based on existing asset balances and the existing interest rate environment as of June 30, 2016. Future
amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest
rates, and market conditions.
5. Other Assets
The following table summarizes the components of other assets
as of the dates indicated:
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Accrued interest:
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
5,030
|
|
|
$
|
4,894
|
|
Mortgage-related securities
|
|
|
1,112
|
|
|
|
1,141
|
|
Total accrued interest
|
|
|
6,142
|
|
|
|
6,035
|
|
Foreclosed properties and repossessed assets:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
1,355
|
|
|
|
1,685
|
|
Land and land development
|
|
|
746
|
|
|
|
747
|
|
One-to four-family
|
|
|
667
|
|
|
|
874
|
|
Total foreclosed properties and repossessed assets
|
|
|
2,768
|
|
|
|
3,306
|
|
Bank-owned life insurance
|
|
|
62,593
|
|
|
|
61,656
|
|
Premises and equipment, net
|
|
|
48,458
|
|
|
|
49,218
|
|
Federal Home Loan Bank stock, at cost
|
|
|
18,365
|
|
|
|
17,591
|
|
Deferred tax asset, net
|
|
|
13,262
|
|
|
|
16,485
|
|
Other assets
|
|
|
32,656
|
|
|
|
24,037
|
|
Total other assets
|
|
$
|
184,244
|
|
|
$
|
178,328
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
5. Other Assets (continued)
Residential one-to four-family mortgage
loans that were in the process of foreclosure were $2,012 and $2,576 at June 30, 2016, and December 31, 2015, respectively.
6. Deposit Liabilities
The following table summarizes the components of deposit liabilities
as of the dates indicated:
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Checking accounts:
|
|
|
|
|
|
|
|
|
Non-interest-bearing
|
|
$
|
236,252
|
|
|
$
|
213,761
|
|
Interest-bearing
|
|
|
269,860
|
|
|
|
277,606
|
|
Total checking accounts
|
|
|
506,112
|
|
|
|
491,367
|
|
Money market accounts
|
|
|
555,549
|
|
|
|
542,020
|
|
Savings accounts
|
|
|
228,520
|
|
|
|
217,633
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
334,844
|
|
|
|
282,584
|
|
After one but within two years
|
|
|
155,504
|
|
|
|
182,599
|
|
After two but within three years
|
|
|
48,687
|
|
|
|
61,806
|
|
After three but within four years
|
|
|
5,772
|
|
|
|
15,373
|
|
After four but within five years
|
|
|
1,749
|
|
|
|
2,209
|
|
Total certificates of deposits
|
|
|
546,556
|
|
|
|
544,571
|
|
Total deposit liabilities
|
|
$
|
1,836,737
|
|
|
$
|
1,795,591
|
|
7. Borrowings
The following table summarizes borrowings as of the dates indicated:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
FHLB overnight advances
|
|
$
|
205,000
|
|
|
|
0.30
|
%
|
|
$
|
130,000
|
|
|
|
0.16
|
%
|
FHLB term advances maturing in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
60,000
|
|
|
|
0.59
|
|
|
|
75,950
|
|
|
|
0.63
|
|
2017
|
|
|
53,866
|
|
|
|
1.19
|
|
|
|
56,183
|
|
|
|
1.20
|
|
2018
|
|
|
32,211
|
|
|
|
2.21
|
|
|
|
34,607
|
|
|
|
2.18
|
|
2019
|
|
|
17,834
|
|
|
|
3.04
|
|
|
|
19,127
|
|
|
|
2.98
|
|
2020
|
|
|
25,448
|
|
|
|
3.67
|
|
|
|
26,853
|
|
|
|
3.62
|
|
2021
|
|
|
15,673
|
|
|
|
3.01
|
|
|
|
16,971
|
|
|
|
2.97
|
|
Thereafter
|
|
|
12,522
|
|
|
|
4.55
|
|
|
|
12,684
|
|
|
|
4.55
|
|
Total borrowings
|
|
$
|
422,554
|
|
|
|
1.15
|
%
|
|
$
|
372,375
|
|
|
|
1.27
|
%
|
All of the Company’s term advances
from the FHLB of Chicago are subject to prepayment penalties if voluntarily repaid by the Company prior to stated maturity.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
7. Borrowings (continued)
As discussed in Note 12, “Financial
Instruments with Off-Balance Sheet Risk and Derivative Financial Instruments,” the Company has entered into cash flow hedges
using interest rate swaps to manage the interest rate risk exposure associated with certain forecasted borrowings from the FHLB
of Chicago. Two advances maturing in July 2016 of $10,000 each have corresponding pay-fixed interest rate swaps that mature in
2018 and 2019, respectively. Although these advances have stated interest rates of 0.45%, they have effective interest rates including
the impact of the interest rate swaps of 1.09% and 1.35%, respectively. However, these advances have been included in the table,
above, at their contractual rates and maturities. If they had been included in the table at their hedge-adjusted rates and maturities,
the advances reported as maturing in 2018 and 2019 would have each been $10,000 higher and the weighted average rates for those
maturity years would have been 1.94% and 2.43% as of June 30, 2016, respectively. Furthermore, the weighted average rate reported
for total borrowings would have been 1.18% as of the same date.
The Company is required to pledge certain
unencumbered mortgage loans and mortgage-related securities as collateral against its outstanding advances from the FHLB of Chicago.
Advances are also collateralized by the shares of capital stock of the FHLB of Chicago that are owned by the Company. The Company’s
borrowings at the FHLB of Chicago are limited to the lesser of: (i) 35% of total assets; (ii) 22.2 times the FHLB of Chicago capital
stock owned by the Company; or (iii) the total of 80% of the book value of one- to four-family mortgage loans, 72% of the book
value of certain multi-family mortgage loans, 51% of the book value of certain home equity loans, and 98% of the fair value of
certain mortgage-related securities.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
8. Regulatory Capital Requirements
The Company and Bank are subject to various regulatory capital
requirements administered by federal banking agencies and as defined in applicable regulations. Failure to meet minimum capital
requirements can initiate certain mandatory actions and possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures
of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and
Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Management believes that, as of June 30, 2016, and December 31, 2015, the Company and the Bank met
or exceeded all regulatory capital adequacy requirements to which it is subject.
The following table presents the Company
and the Bank’s actual and required regulatory capital amounts and ratios as of the dates indicated.
|
|
Actual
|
|
|
Required to be
Adequately
Capitalized
|
|
|
Required to be Well
Capitalized
|
|
As of June 30, 2016:
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
At the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-weighted capital
|
|
$
|
303,819
|
|
|
|
15.32
|
%
|
|
$
|
158,633
|
|
|
|
8.00
|
%
|
|
$
|
198,291
|
|
|
|
10.00
|
%
|
Tier 1 risk-weighted capital
|
|
|
285,857
|
|
|
|
14.42
|
|
|
|
118,975
|
|
|
|
6.00
|
|
|
|
158,633
|
|
|
|
8.00
|
|
CET1 risk-weighted capital
|
|
|
285,857
|
|
|
|
14.42
|
|
|
|
89,231
|
|
|
|
4.50
|
|
|
|
128,889
|
|
|
|
6.50
|
|
Tier 1 leverage capital
|
|
|
285,857
|
|
|
|
11.29
|
|
|
|
101,312
|
|
|
|
4.00
|
|
|
|
126,640
|
|
|
|
5.00
|
|
At the Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-weighted capital
|
|
$
|
277,153
|
|
|
|
13.98
|
%
|
|
$
|
158,613
|
|
|
|
8.00
|
%
|
|
$
|
198,266
|
|
|
|
10.00
|
%
|
Tier 1 risk-weighted capital
|
|
|
259,191
|
|
|
|
13.07
|
|
|
|
118,960
|
|
|
|
6.00
|
|
|
|
158,613
|
|
|
|
8.00
|
|
CET1 risk-weighted capital
|
|
|
259,191
|
|
|
|
13.07
|
|
|
|
89,220
|
|
|
|
4.50
|
|
|
|
128,873
|
|
|
|
6.50
|
|
Tier 1 leverage capital
|
|
|
259,191
|
|
|
|
10.14
|
|
|
|
102,282
|
|
|
|
4.00
|
|
|
|
127,853
|
|
|
|
5.00
|
|
As of December 31, 2015:
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
At the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-weighted capital
|
|
$
|
296,709
|
|
|
|
15.83
|
%
|
|
$
|
149,922
|
|
|
|
8.00
|
%
|
|
$
|
187,402
|
|
|
|
10.00
|
%
|
Tier 1 risk-weighted capital
|
|
|
279,068
|
|
|
|
14.89
|
|
|
|
112,441
|
|
|
|
6.00
|
|
|
|
149,922
|
|
|
|
8.00
|
|
CET1 risk-weighted capital
|
|
|
279,068
|
|
|
|
14.89
|
|
|
|
84,331
|
|
|
|
4.50
|
|
|
|
121,811
|
|
|
|
6.50
|
|
Tier 1 leverage capital
|
|
|
279,068
|
|
|
|
11.37
|
|
|
|
98,197
|
|
|
|
4.00
|
|
|
|
122,747
|
|
|
|
5.00
|
|
At the Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-weighted capital
|
|
$
|
272,568
|
|
|
|
14.55
|
%
|
|
$
|
149,900
|
|
|
|
8.00
|
%
|
|
$
|
187,375
|
|
|
|
10.00
|
%
|
Tier 1 risk-weighted capital
|
|
|
254,927
|
|
|
|
13.61
|
|
|
|
112,425
|
|
|
|
6.00
|
|
|
|
149,900
|
|
|
|
8.00
|
|
CET1 risk-weighted capital
|
|
|
254,927
|
|
|
|
13.61
|
|
|
|
84,319
|
|
|
|
4.50
|
|
|
|
121,794
|
|
|
|
6.50
|
|
Tier 1 leverage capital
|
|
|
254,927
|
|
|
|
10.48
|
|
|
|
97,328
|
|
|
|
4.00
|
|
|
|
121,660
|
|
|
|
5.00
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
9. Earnings Per Share
The following table summarizes the computation of basic and
diluted earnings per share for the periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,949
|
|
|
$
|
3,589
|
|
|
$
|
8,422
|
|
|
$
|
7,142
|
|
Weighted average shares outstanding
|
|
|
45,047,410
|
|
|
|
45,960,012
|
|
|
|
45,058,399
|
|
|
|
46,099,294
|
|
Vested restricted stock for period
|
|
|
118,509
|
|
|
|
65,934
|
|
|
|
105,025
|
|
|
|
57,458
|
|
Basic shares outstanding
|
|
|
45,165,919
|
|
|
|
46,025,946
|
|
|
|
45,163,424
|
|
|
|
46,156,752
|
|
Net dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option shares
|
|
|
412,784
|
|
|
|
364,640
|
|
|
|
399,451
|
|
|
|
351,327
|
|
Non-vested restricted stock
|
|
|
54,410
|
|
|
|
36,288
|
|
|
|
50,799
|
|
|
|
33,265
|
|
Diluted shares outstanding
|
|
|
45,633,113
|
|
|
|
46,426,874
|
|
|
|
45,613,674
|
|
|
|
46,541,344
|
|
Basic earnings per share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.18
|
|
|
$
|
0.15
|
|
Diluted earnings per share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.18
|
|
|
$
|
0.15
|
|
The Company had stock options for
362,534 and 361,000 shares outstanding as of June 30, 2016 and 2015, respectively, that were not included in the computation
of diluted earnings per share because they were anti-dilutive. These options had weighted average exercise prices of $8.17
and $8.07 per share as of those dates, respectively.
10. Employee Benefit Plans
The Company has a discretionary, defined contribution savings
plan (the “Savings Plan”). The Savings Plan is qualified under Sections 401 and 401(k) of the Internal Revenue Code
and provides employees meeting certain minimum age and service requirements the ability to make contributions to the Savings Plan
on a pretax basis. The Company then matches a percentage of the employee’s contributions. Matching contributions expensed
by the Company were $210 and $214 during the three months ended June 30, 2016 and 2015, respectively, and $425 and $408 during
the six months ended June 30, 2016 and 2015, respectively.
The Company also has a qualified defined
benefit pension plan covering employees meeting certain minimum age and service requirements and a supplemental defined benefit
pension plan for certain eligible employees. The supplemental pension plan is funded through a "rabbi trust" arrangement.
The benefits under these plans are generally based on the employee’s years of service and average annual wages, as defined
in the plan. The Company’s funding policy is to contribute annually the amount necessary to satisfy the requirements of the
Employee Retirement Income Security Act of 1974. In prior periods the Company closed the qualified defined benefit pension plan
to new participants and froze the benefits of all existing participants. These changes resulted in the future benefits under the
Company’s supplemental defined benefit pension plan also being effectively frozen.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
10. Employee Benefit Plans (continued)
The following table summarizes the qualified
plan’s net periodic benefit cost for the periods indicated:
|
|
Three Months Ended
June 30
|
|
|
Six Months Ended
June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
|
–
|
|
|
$
|
242
|
|
|
|
–
|
|
|
$
|
484
|
|
Interest cost
|
|
$
|
669
|
|
|
|
660
|
|
|
$
|
1,338
|
|
|
|
1,320
|
|
Expected return on plan assets
|
|
|
(861
|
)
|
|
|
(735
|
)
|
|
|
(1,722
|
)
|
|
|
(1,470
|
)
|
Amortization of net loss from earlier periods
|
|
|
57
|
|
|
|
656
|
|
|
|
114
|
|
|
|
1,312
|
|
Net periodic benefit cost
|
|
$
|
(135
|
)
|
|
$
|
823
|
|
|
$
|
(270
|
)
|
|
$
|
1,646
|
|
The following table summarizes the supplemental
plan’s net periodic costs for the periods indicated.
|
|
Three Months Ended
June 30
|
|
|
Six Months Ended
June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest cost
|
|
$
|
93
|
|
|
$
|
99
|
|
|
$
|
186
|
|
|
$
|
198
|
|
Amortization of net loss from earlier periods
|
|
|
26
|
|
|
|
23
|
|
|
|
52
|
|
|
|
46
|
|
Net periodic benefit cost
|
|
$
|
119
|
|
|
$
|
122
|
|
|
$
|
238
|
|
|
$
|
244
|
|
A contribution of $650,000 to the qualified
plan is expected to be made in the third quarter of 2016. This contribution was determined based on a number of factors, including
the results of an actuarial valuation report as of January 1, 2016. No contribution is necessary for the supplemental plan.
11. Stock-Based Benefit Plans
In 2004 the Company’s
shareholders approved the 2004 Stock Incentive Plan (the “2004 Plan”). Options and restricted stock granted under
the 2004 Plan vested over five years and options had expiration terms of ten years. No further awards may be made under the
2004 Plan.
In 2014 the Company’s shareholders
approved the 2014 Incentive Compensation Plan (the “2014 Plan”), which provides for the award of stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares, and cash awards. Stock-related awards under
the 2014 Plan vest over a period of three or more years and, if applicable, have a maximum term of ten years. The number of shares
of common stock of the Company that may be issued under the 2014 Plan is limited to 3,000,000 shares. As of June 30, 2016, 2,497,600
shares remain eligible for award under the 2014 Plan.
Restricted stock grants are amortized to
compensation expense as the Company’s employees and directors become vested in the granted shares. The amount amortized to
expense was $204 and $201 for the three months ended June 30, 2016 and 2015, respectively. The amount amortized to expense was
$479 and $405 for the six months ended June 30, 2016 and 2015, respectively. Outstanding non-vested restricted stock grants had
a fair value of $2,286 and an unamortized cost of $1,986 at June 30, 2016. The cost of these shares is expected to be recognized
over a weighted-average period of 1.31 years.
During the three months ended June 30,
2016 and 2015, the Company recorded stock option compensation expense of $90 and $102, respectively. During the six months ended
June 30, 2016 and 2015, the Company recorded stock option compensation expense of $180 and $207, respectively. As of June 30, 2016,
there was $611 in total unrecognized stock option compensation expense related to non-vested options. This cost is expected to
be recognized over a weighted-average period of 1.07 years.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
11. Stock-Based Benefit Plans (continued)
The following table summarizes the activity
in the Company’s stock options during the periods indicated:
|
|
Six Months Ended June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of period
|
|
|
1,421,500
|
|
|
$
|
5.4378
|
|
|
|
1,631,000
|
|
|
$
|
5.2980
|
|
Granted
|
|
|
56,300
|
|
|
|
7.2900
|
|
|
|
37,000
|
|
|
|
6.7000
|
|
Exercised
|
|
|
(57,334
|
)
|
|
|
4.9148
|
|
|
|
(71,900
|
)
|
|
|
4.5487
|
|
Forfeited
|
|
|
(5,132
|
)
|
|
|
6.1322
|
|
|
|
(16,600
|
)
|
|
|
5.5808
|
|
Outstanding at end of period
|
|
|
1,415,334
|
|
|
$
|
5.5301
|
|
|
|
1,579,500
|
|
|
$
|
5.3619
|
|
The following table provides additional
information regarding the Company’s outstanding options as of June 30, 2016.
|
|
Remaining
|
|
|
Non-Vested Options
|
|
|
Vested Options
|
|
|
|
Contractual
Life
|
|
|
Stock
Options
|
|
|
Intrinsic
Value
|
|
|
Stock
Options
|
|
|
Intrinsic
Value
|
|
Exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$11.160
|
|
|
1.8
|
|
|
|
–
|
|
|
|
–
|
|
|
|
32,000
|
|
|
|
–
|
|
$12.025
|
|
|
2.1
|
|
|
|
–
|
|
|
|
–
|
|
|
|
50,000
|
|
|
|
–
|
|
$7.226
|
|
|
3.8
|
|
|
|
–
|
|
|
|
–
|
|
|
|
50,000
|
|
|
$
|
23
|
|
$4.740
|
|
|
4.5
|
|
|
|
–
|
|
|
|
–
|
|
|
|
70,000
|
|
|
|
206
|
|
$5.050
|
|
|
4.5
|
|
|
|
–
|
|
|
|
–
|
|
|
|
236,000
|
|
|
|
621
|
|
$4.300
|
|
|
4.7
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,000
|
|
|
|
85
|
|
$3.720
|
|
|
5.1
|
|
|
|
2,500
|
|
|
$
|
10
|
|
|
|
10,000
|
|
|
|
40
|
|
$3.390
|
|
|
5.5
|
|
|
|
65,000
|
|
|
|
279
|
|
|
|
243,000
|
|
|
|
1,042
|
|
$3.800
|
|
|
5.8
|
|
|
|
2,000
|
|
|
|
8
|
|
|
|
8,000
|
|
|
|
31
|
|
$4.820
|
|
|
6.6
|
|
|
|
95,200
|
|
|
|
272
|
|
|
|
148,600
|
|
|
|
425
|
|
$5.360
|
|
|
6.8
|
|
|
|
8,000
|
|
|
|
19
|
|
|
|
12,000
|
|
|
|
28
|
|
$5.700
|
|
|
6.9
|
|
|
|
8,000
|
|
|
|
16
|
|
|
|
12,000
|
|
|
|
24
|
|
$6.340
|
|
|
7.1
|
|
|
|
6,000
|
|
|
|
8
|
|
|
|
4,000
|
|
|
|
5
|
|
$7.170
|
|
|
7.6
|
|
|
|
109,800
|
|
|
|
56
|
|
|
|
77,100
|
|
|
|
39
|
|
$6.010
|
|
|
7.8
|
|
|
|
4,500
|
|
|
|
8
|
|
|
|
3,000
|
|
|
|
5
|
|
$5.850
|
|
|
7.9
|
|
|
|
6,666
|
|
|
|
12
|
|
|
|
13,334
|
|
|
|
24
|
|
$6.100
|
|
|
8.1
|
|
|
|
13,333
|
|
|
|
21
|
|
|
|
6,667
|
|
|
|
11
|
|
$6.700
|
|
|
8.6
|
|
|
|
19,996
|
|
|
|
20
|
|
|
|
10,338
|
|
|
|
10
|
|
$7.190
|
|
|
9.1
|
|
|
|
7,000
|
|
|
|
3
|
|
|
|
–
|
|
|
|
–
|
|
$7.290
|
|
|
9.6
|
|
|
|
56,300
|
|
|
|
22
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
|
|
|
|
|
404,295
|
|
|
$
|
754
|
|
|
|
1,011,039
|
|
|
$
|
2,619
|
|
Weighted-average remaining contractual life
|
|
|
|
|
|
|
7.3 years
|
|
|
|
|
|
|
|
5.3 years
|
|
|
|
|
|
Weighted-average exercise price
|
|
|
|
|
|
$
|
5.8175
|
|
|
|
|
|
|
$
|
5.4152
|
|
|
|
|
|
There were 57,334 options exercised during
the six months ended June 30, 2016, which had an intrinsic value of $155. There were 71,900 options exercised during the six months
ended June 30, 2015, which had an intrinsic value of $190. The weighted average grant date fair value of non-vested options at
June 30, 2016, was $1.75 per share. During the six months ended June 30, 2016, options for 56,300 shares were granted, options
for 243,038 shares became vested, and 5,132 non-vested options shares were forfeited.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
11. Stock-Based Benefit Plans (continued)
The Company uses the Black-Scholes option-pricing
model to estimate the fair value of granted options. This model was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. However, the Company's stock options have characteristics significantly
different from traded options and changes in the subjective input assumptions can materially affect the fair value estimate. Option
valuation models such as Black-Scholes require the input of highly subjective assumptions including the expected stock price volatility,
which is computed using ten years of actual price activity in the Company’s stock. The Company uses historical data of employee
behavior as a basis to estimate the expected life of the options, as well as forfeitures due to employee terminations. The Company
also uses its actual dividend yield at the time of the grant, as well as actual U.S. Treasury yields in effect at the time of the
grant to estimate the risk-free rate. The following weighted-average assumptions were used to value 56,300 options granted during
the six month period ended June 30, 2016: risk free rate of 1.80%, dividend yield of 2.74%, expected stock volatility of 31%, and
expected term to exercise of 7.5 years. These options had a weighted-average value of $2.28 per option using these assumptions.
The following weighted-average assumptions were used to value 37,000 options granted during the six month period ended June 30,
2015: risk free rate of 1.75%, dividend yield of 2.40%, expected stock volatility of 34%, and expected term to exercise of 7.5
years. These options had a weighted-average value of $2.09 per option using these assumptions.
12. Financial Instruments with Off-Balance
Sheet Risk and Derivative Financial Instruments
The Company is party to financial instruments
with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments
consist of commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the Consolidated Statements of Financial Condition. The contract amounts reflect the extent of involvement
the Company has in particular classes of financial instruments and also represents the Company’s maximum exposure to credit
loss.
Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and generally require payment of a fee. As some commitments expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates the
collateral needed and creditworthiness of each customer on a case by case basis. The Company generally extends credit only on a
secured basis. Collateral obtained varies, but consists principally of one- to four-family residences.
Off-balance sheet financial instruments
or obligations whose contract amounts represent credit and/or interest rate are summarized in the following table as of the dates
indicated:
|
|
June 30
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Unused commercial lines of credit
|
|
$
|
158,779
|
|
|
$
|
146,183
|
|
Commercial loans
|
|
|
10,034
|
|
|
|
6,772
|
|
Standby letters of credit
|
|
|
4,359
|
|
|
|
4,458
|
|
Real estate loan commitments:
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
62,917
|
|
|
|
36,921
|
|
Adjustable rate
|
|
|
349,040
|
|
|
|
308,173
|
|
Unused consumer lines of credit
|
|
|
165,730
|
|
|
|
164,989
|
|
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
12. Financial Instruments with Off-Balance
Sheet Risk and Derivative Financial Instruments (continued)
The Company sells substantially all of
its long-term, fixed-rate, one- to four-family loan originations in the secondary market. The Company uses interest rate lock commitments
(“IRLCs”) and forward commitments to sell loans to manage interest rate risk associated with its loan sales activities,
both of which are considered to be free-standing derivative financial instruments under GAAP. Changes in the fair value of the
derivative instruments are recognized currently through earnings. During the three months ended June 30, 2016 and 2015, net unrealized
gains (losses) of $(42) and $170, respectively, were recognized in net gain on loan sales activities on these derivative instruments.
During the six months ended June 30, 2016 and 2015, net unrealized gains of $36 and $206, respectively, were recognized in net
gain on loan sales activities on these derivative instruments. These amounts were exclusive of net unrealized gains (losses) of
$96 and $16 on loans held-for-sale for the three months ended June 30, 2016 and 2015, respectively, and $137 and $(80) for the
six month ended June 30, 2016 and 2015, respectively, which were also included in net gain on loan sales activities.
The Company enters into interest rate swap
arrangements to manage the interest rate risk exposure associated with specific commercial loan relationships at the time such
loans are originated. These interest rate swaps, as well as the embedded derivatives associated with certain of its commercial
loan relationships, are free-standing derivative instruments under GAAP. As such, changes in the fair value of these derivative
instruments are recognized currently through earnings. During the three months ended June 30, 2016 and 2015, net unrealized gains
of $85 and $205, respectively, and net losses of $85 and $205, respectively, related to interest rate swaps and embedded derivatives
were recorded in loan-related fees. During the six months ended June 30, 2016 and 2015, net unrealized gains of $453 and $55, respectively,
and net losses of $453 and $55, respectively, related to interest rate swaps and embedded derivatives were recorded in loan-related
fees.
The Company also enters into interest
rate swap arrangements to manage the interest rate risk exposure associated with certain forecasted borrowings from the FHLB
of Chicago. These interest rate swaps have been designated as forecasted transaction cash flow hedges by management (refer to
Note 7, “Borrowings”). As such, the effective portion of the change in the fair value of these derivatives is
recorded in other comprehensive income and the ineffective portion was recorded in interest expense. During the three and six
months ended June 30, 2016, $40 and $198 in unrealized loss net of tax related to interest rate swaps was recorded in other
comprehensive income, respectively. There was no net unrealized gain or loss related to interest rate swaps recorded in other
comprehensive income during the three and six months ended June 30, 2015. There was no ineffective portion of this hedge for
any of these periods.
The following table summarizes the Company’s
derivative assets and liabilities as of the dates indicated:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Notional
Amount
|
|
|
Fair Value
|
|
|
Notional
Amount
|
|
|
Fair Value
|
|
Interest rate lock commitments
|
|
$
|
20,027
|
|
|
$
|
573
|
|
|
$
|
7,961
|
|
|
$
|
166
|
|
Forward commitments to sell loans
|
|
|
20,744
|
|
|
|
(446
|
)
|
|
|
9,543
|
|
|
|
(72
|
)
|
Embedded free-standing derivatives on commercial loans
|
|
|
23,283
|
|
|
|
1,157
|
|
|
|
23,559
|
|
|
|
705
|
|
Receive-fixed free-standing interest rate swaps
|
|
|
195,126
|
|
|
|
12,183
|
|
|
|
82,780
|
|
|
|
2,648
|
|
Pay-fixed free-standing interest rate swaps
|
|
|
218,409
|
|
|
|
(13,340
|
)
|
|
|
106,339
|
|
|
|
(3,353
|
)
|
Pay-fixed cash flow hedge interest rate swaps
|
|
|
20,000
|
|
|
|
(331
|
)
|
|
|
20,000
|
|
|
|
–
|
|
Net unrealized gains (losses)
|
|
|
|
|
|
$
|
(204
|
)
|
|
|
|
|
|
$
|
94
|
|
The unrealized gains shown in the above
table were included as a component of other assets as of the dates indicated. The unrealized losses were included in other liabilities
as of the dates indicated.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
13. Fair Value Measurements
Fair value is 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
(exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable. The Company primarily applies the market approach for recurring value measurements
and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the
use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value measurements based
on the observability of those inputs. Accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1), the next highest priority is given to prices based on models, methodologies, and/or management judgments
that rely on direct or indirect observable inputs (Level 2), and the lowest priority to prices derived from models, methodologies,
and/or management judgments that rely on significant unobservable inputs (Level 3). There were no transfers of assets or liabilities
between categories of the fair value hierarchy during the six months ended June 30, 2016.
The methods and assumptions used by the
Company in estimating the fair value of its financial instruments, whether or not such fair values are recognized in the consolidated
financial statements, are summarized below:
Cash and Cash Equivalents
The
carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets’
fair values. The Company considers the fair value of cash and cash equivalents to be Level 1 in the fair value hierarchy.
Mortgage-Related Securities Available-for-Sale
and Held-to-Maturity
Fair values for these securities are based on price estimates obtained from a third-party independent
pricing service. This service utilizes pricing models that vary by asset class and incorporate available trade, bid, ask, and
other market information of comparable instruments. For structured securities, such as CMOs, the pricing models include cash flow
estimates that consider the impact of loan performance data, including, but not limited to, expectations relating to loan prepayments,
default rates, and loss severities. Management has reviewed the pricing methodology used by its pricing service to verify that
prices are determined in accordance with the fair value guidance specified in GAAP. The Company considers the fair value of mortgage-related
securities to be Level 2 in the fair value hierarchy.
Loans Receivable
Loans
receivable are segregated by type such as one- to four-family, multi-family, and commercial real estate mortgage loans, consumer
loans, and commercial business loans. The fair value of each type is calculated by discounting scheduled cash flows through the
expected maturity of the loans using estimated market discount rates that reflect the credit and interest rate risk inherent in
the loan type. The estimated maturity is based on the Company’s historical experience with prepayments for each loan classification,
modified, as required, by an estimate of the effect of current economic and lending conditions. The Company considers the fair
value of loans receivable to be Level 3 in the fair value hierarchy.
Mortgage Servicing Rights
The Company estimates the fair market value of MSRs for those loans that are sold with servicing rights retained. For valuation
purposes, the related loans are stratified into pools by product type and, within product type, by interest rates. The fair value
of the MSR pools is based upon the present value of estimated future cash flows using current market assumptions for prepayments,
servicing cost, and other factors. The Company considers the fair value of MSRs to be Level 3 in the fair value hierarchy.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
13. Fair Value Measurements (continued)
The following table summarizes the significant
inputs utilized by the Company to estimate the fair value of its MSRs as of June 30, 2016:
|
|
Weighted-
Average
|
|
|
Range
|
Loan size
|
|
$
|
116
|
|
|
$1-$417
|
Contractual interest rate
|
|
|
3.72
|
%
|
|
2.50%-7.10%
|
Constant prepayment rate (“CPR”)
|
|
|
13.12
|
%
|
|
2.56%-24.19%
|
Remaining maturity in months
|
|
|
218
|
|
|
2-480
|
Servicing fee
|
|
|
0.25
|
%
|
|
–
|
Annual servicing cost per loan (not in thousands)
|
|
$
|
60
|
|
|
–
|
Annual ancillary income per loan (not in thousands)
|
|
$
|
30
|
|
|
–
|
Discount rate
|
|
|
9.17
|
%
|
|
9.13%-10.88%
|
MSR pools with an amortized cost basis
greater than fair value are carried at fair value in the Company’s financial statements. There were no pools determined to
be impaired at June 30, 2016, or December 31, 2015. Accordingly, the Company had no valuation allowance as of June 30, 2016, or
December 31, 2015.
Federal Home Loan Bank Stock
FHLB of Chicago stock is carried at cost, which is its redeemable (fair) value, since the market for this stock is restricted.
The Company considers the fair value of FHLB of Chicago stock to be Level 2 in the fair value hierarchy.
Accrued Interest Receivable and Payable
The carrying values of accrued interest receivable and payable approximate their fair value. The Company considers the fair value
of accrued interest receivable and payable to be Level 2 in the fair value hierarchy.
Deposit Liabilities and Advance Payments
by Borrowers for Taxes and Insurance
Fair value for demand deposits equal book value. The Company considers the fair value
of demand deposits to be Level 2 in the fair value hierarchy. Fair values for certificates of deposits are estimated using a discounted
cash flow calculation that applies current market borrowing interest rates to a schedule of aggregated expected monthly maturities
on deposits. The Company considers the fair value of certificates of deposit to be Level 3 in the fair value hierarchy. The advance
payments by borrowers for taxes and insurance are equal to their carrying amounts at the reporting date. The Company considers
the fair value of advance payment by borrowers to be Level 2 in the fair value hierarchy.
Borrowings
The fair value
of long-term borrowings is estimated using discounted cash flow calculations with the discount rates equal to interest rates currently
being offered for borrowings with similar terms and maturities. The carrying value on short-term borrowings approximates fair value.
The Company considers the fair value of borrowings to be Level 2 in the fair value hierarchy.
Financial Instruments with
Off-Balance Sheet Risk and Derivative Financial Instruments
Off-balance sheet financial instruments consist of
commitments to extend credit, IRLCs, forward commitments to sell loans, interest rate swaps, and embedded derivatives related
to certain commercial loan relationships. Commitments to extend credit that are not IRLCs generally carry variable rates of
interest. As such, the fair value of these instruments is not material. The Company considers the fair value of these
instruments to be Level 2 in the fair value hierarchy. The carrying value of IRLCs, forward commitments to sell loans,
interest rate swaps, and embedded derivatives is equal to their fair value. For IRLCs and forward commitments, the fair value
is the difference between the current market prices for securities collateralized by similar loans and the notional amounts
of the IRLCs and forward commitments. The fair value of the Company’s interest rate swaps and embedded derivatives is
determined using discounted cash flow analysis on the expected cash flows of each derivative and also includes a
nonperformance or credit risk component. The Company considers the fair value of IRLCs, forward commitments to sell loans,
interest rate swaps, and embedded derivatives to be Level 2 in the fair value hierarchy.
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
13. Fair Value Measurements (continued)
The carrying values and fair values of
the Company’s financial instruments are presented in the following table as of the indicated dates.
|
|
June 30
2016
|
|
|
December 31
2015
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Cash and cash equivalents
|
|
$
|
41,207
|
|
|
$
|
41,207
|
|
|
$
|
44,501
|
|
|
$
|
44,501
|
|
Mortgage related securities available-for-sale
|
|
|
413,871
|
|
|
|
413,871
|
|
|
|
407,874
|
|
|
|
407,874
|
|
Mortgage related securities held-to-maturity
|
|
|
110,474
|
|
|
|
114,479
|
|
|
|
120,891
|
|
|
|
121,641
|
|
Loans held-for-sale
|
|
|
5,453
|
|
|
|
5,453
|
|
|
|
3,350
|
|
|
|
3,350
|
|
Loans receivable, net
|
|
|
1,858,059
|
|
|
|
1,876,576
|
|
|
|
1,740,018
|
|
|
|
1,751,670
|
|
Mortgage servicing rights, net
|
|
|
6,834
|
|
|
|
7,358
|
|
|
|
7,205
|
|
|
|
9,455
|
|
Federal Home Loan Bank stock
|
|
|
18,365
|
|
|
|
18,365
|
|
|
|
17,591
|
|
|
|
17,591
|
|
Accrued interest receivable
|
|
|
6,142
|
|
|
|
6,142
|
|
|
|
6,035
|
|
|
|
6,035
|
|
Deposit liabilities
|
|
|
1,836,737
|
|
|
|
1,819,919
|
|
|
|
1,795,591
|
|
|
|
1,786,934
|
|
Borrowings
|
|
|
422,554
|
|
|
|
431,592
|
|
|
|
372,375
|
|
|
|
378,266
|
|
Advance payments by borrowers
|
|
|
19,921
|
|
|
|
19,921
|
|
|
|
3,382
|
|
|
|
3,382
|
|
Accrued interest payable
|
|
|
1,145
|
|
|
|
1,145
|
|
|
|
1,091
|
|
|
|
1,091
|
|
Unrealized gain (loss) on off-balance-sheet items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
|
|
573
|
|
|
|
573
|
|
|
|
166
|
|
|
|
166
|
|
Forward commitments to sell loans
|
|
|
(446
|
)
|
|
|
(446
|
)
|
|
|
(72
|
)
|
|
|
(72
|
)
|
Embedded free-standing derivatives on commercial loans
|
|
|
1,157
|
|
|
|
1,157
|
|
|
|
705
|
|
|
|
705
|
|
Receive-fixed free-standing interest rate swaps
|
|
|
12,183
|
|
|
|
12,183
|
|
|
|
2,648
|
|
|
|
2,648
|
|
Pay-fixed free-standing interest rate swaps
|
|
|
(13,340
|
)
|
|
|
(13,340
|
)
|
|
|
(3,353
|
)
|
|
|
(3,353
|
)
|
Pay-fixed cash flow hedge interest rate swaps
|
|
|
(331
|
)
|
|
|
(331
|
)
|
|
|
–
|
|
|
|
–
|
|
The following table segregates by fair
value hierarchy (i.e., Level 1, 2, or 3) all of the Company's assets and liabilities that were accounted for at fair value on a
recurring basis as of the dates indicated:
|
|
At June 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Loans held-for-sale
|
|
|
–
|
|
|
$
|
5,453
|
|
|
|
–
|
|
|
$
|
5,453
|
|
Mortgage-related securities available-for-sale
|
|
|
–
|
|
|
|
413,871
|
|
|
|
–
|
|
|
|
413,871
|
|
|
|
At December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Loans held-for-sale
|
|
|
–
|
|
|
$
|
3,350
|
|
|
|
–
|
|
|
$
|
3,350
|
|
Mortgage-related securities available-for-sale
|
|
|
–
|
|
|
|
407,874
|
|
|
|
–
|
|
|
|
407,874
|
|
Impaired Loans
For non-accrual loans greater
than an established threshold and individually evaluated for impairment and all renegotiated loans, impairment is measured based
on: (i) the fair value of the loan or the fair value of the collateral less estimated selling costs (collectively the “collateral
value method”) or (ii) the present value of the estimated cash flows discounted at the loan’s original effective interest
rate (the “discounted cash flow method”). The resulting valuation allowance, if any, is a component of the allowance
for loan losses. The discounted cash flow method is a fair value measure. For the collateral value method, the Company generally
obtains appraisals on a periodic basis to support the fair value of collateral underlying the loans. Appraisals are performed
by independent certified and/or licensed appraisers that have been reviewed by the Company and incorporate information such as
recent sales prices for comparable properties, costs of construction, and net
Bank Mutual Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2016
(Dollars in Thousands, Except Share and
Per Share Amounts)
13. Fair Value Measurements (continued)
operating income of the property or business.
Selling costs are generally estimated at 10%. Appraised values may be further discounted based on management judgment regarding
changes in market conditions and other factors since the time of the appraisal. A significant unobservable input in using net operating
income to estimate fair value is the capitalization rate. At June 30, 2016, the range of capitalization rates utilized to determine
the fair value of the underlying collateral on certain loans was 5.5% to 12%. The Company considers these fair values to be Level
3 in the fair value hierarchy. For those loans individually evaluated for impairment using the collateral value method, a valuation
allowance of $196 was recorded for loans with a recorded investment of $25,424 at June 30, 2016. These amounts were $535 and $37,119
at December 31, 2015, respectively. Provision for (recovery of) loan losses related to these loans was $(339) during the six months
ended June 30, 2016, and $535 during the twelve month period ended December 31, 2015. Provision for (recovery of) loan losses related
to impaired loans at June 30, 2015, was $(21) for the six months ended June 30, 2015.
Foreclosed Properties
Foreclosed
properties acquired through, or in lieu of, loan foreclosure are recorded at the lower of cost or fair value less estimated costs
to sell. In determining fair value, the Company generally obtains appraisals to support the fair value of foreclosed properties,
as described in the previous paragraph. In certain instances, the Company may also use the selling list price, less estimated costs
to sell, as the fair value of foreclosed properties. In such instances, the list price is generally less than the appraised value.
The Company considers these fair values to be Level 3 in the fair value hierarchy. As of June 30, 2016, $2,252 in foreclosed properties
was valued at collateral value compared to $2,794 at December 31, 2015. Losses of $19 and $330 related to these foreclosed properties
were recorded during the six months ended June 30, 2016, and the twelve months ended December 31, 2015, respectively. Losses on
foreclosed properties valued at collateral value at June 30, 2015 were $425 for the six months ended June 30, 2015.