MILWAUKEE, July 20, 2016 /PRNewswire/ -- Bank Mutual
Corporation (NASDAQ: BKMU) reported net income of $3.9 million or $0.09 per diluted share in the second quarter of
2016, which was a 10% increase over net income of $3.6 million or $0.08 per diluted share in the same quarter of
2015. Year-to-date, Bank Mutual Corporation ("Bank Mutual")
reported net income of $8.4 million
or $0.18 per diluted share in 2016
compared to $7.1 million or
$0.15 per diluted share in the same
six-month period in 2015. The improvements between these
periods were primarily due to higher net interest income, higher
loan-related fees, lower compensation-related expenses, and lower
occupancy, equipment, and data processing costs. Also
contributing were net gains and expenses on foreclosed real estate
in the 2016 periods compared to net losses and expenses in the 2015
periods. These improvements were partially offset by
provision for loan losses in the 2016 periods compared to
recoveries in the 2015 periods, as well as higher advertising and
marketing expenses and higher income tax expense. Also
impacting the year-to-date comparison were lower brokerage and
insurance commissions in 2016 compared to 2015.
David A. Baumgarten, President
and Chief Executive Officer of Bank Mutual, commented, "Annualized
loan growth of almost 16% in the second quarter of 2016 continued
to exceed our expectations and contributed to our best quarter ever
for loan-related fee income." He added, "However, that same
rate environment continued to put pressure on our net interest
margin, which declined for the second quarter in a row. Even
with this development, the dollar amount of our second quarter net
interest income was the highest it has been since 2009…excluding
the impact call premiums from mortgage securities had in prior
periods." Baumgarten continued, "We are also pleased that our
earnings in 2016 have improved over prior-year period earnings
despite a meaningful increase in our provision for loan losses in
the most recent quarter." He concluded, "Although we believe
the credit quality in our loan portfolio remains strong, recent
economic and market developments noted in this release prompted us
to end a long period of recoveries in our allowance for loan
losses."
Bank Mutual's net interest income increased by $556,000 or 3.3% and by $1.0 million or 3.1% during the three and six
months ended June 30, 2016,
respectively, compared to the same periods in 2015,
respectively. These increases were due in part to an increase
in Bank Mutual's average earning assets in the 2016 periods
compared to the same periods in the prior year, as well an increase
in funding from non-interest bearing checking accounts between the
periods. Also contributing to the increase in the 2016
year-to-date period was a call premium of $482,000 that Bank Mutual received on a
mortgage-related security that was called in the first quarter of
the year. These developments were partially offset by a
decrease in Bank Mutual's net interest margin in the 2016 periods
compared to the same periods in 2015.
Bank Mutual's average earning assets increased by $167.0 million or 7.7% during the six months
ended June 30, 2016, compared to the
same period in 2015. This increase was primarily attributable
to a $160.0 million or 9.9% increase
in average loans receivable during the 2016 six-month period
compared to the same period in the prior year.
Also contributing favorably to Bank Mutual's net interest income
in the 2016 periods, as well as its net interest margin, was an
increase in funding from non-interest-bearing checking
accounts. The average balance in these accounts increased by
$26.5 million or 13.2% during the six
months ended June 30, 2016, compared
to the same period in 2015.
Bank Mutual's net interest margin was 3.01% during the first six
months of 2016. Excluding the impact of the aforementioned
call premium, net interest margin during the first six months of
2016 would have been 2.97%, which compares to 3.15% during the same
six-month period in 2015. In the 2016 six-month period the
average yield on Bank Mutual's earning assets decreased by 14 basis
points (excluding the call premium) and its average cost of funds
increased by five basis points compared to the prior-year six-month
period. The decrease in the average yield on earning assets
was largely due to the continued repricing of Bank Mutual's loan
portfolio to lower yields in the current interest rate environment,
as well as its continued emphasis on the origination of
variable-rate loans, which generally have lower initial yields than
fixed-rate loans. Also contributing to the decrease in yield
on earning assets was the purchase of mortgage-related securities
in 2016 at yields that were less than the prevailing rates in the
investment portfolio.
The increase in Bank Mutual's average cost of funds was
primarily due to a six basis point increase in its average cost of
deposits during the first six months of 2016 compared to the same
period in the prior year. The impact of this increase was
offset slightly by a decline in the average cost of borrowings from
the Federal Home Loan Bank ("FHLB") of Chicago. This decline
was caused by an increase in overnight borrowings, which were drawn
to fund growth in earning assets, as previously noted.
Overnight borrowings generally have a lower interest cost than the
rates Bank Mutual offers on its certificates of
deposit.
Bank Mutual's provision for (recovery of) loan losses was
$1.2 million in the second quarter of
2016 compared to $(752,000) in the
same quarter last year. The provision (recovery) for the six
months ended June 30, 2016, was
$591,000 compared to $(1.7) million in the same period last year.
Management believes that general economic, employment, and
real estate conditions continue to be relatively stable in Bank
Mutual's local markets. In addition, Bank Mutual's level of
non-performing and classified loans, as well as its actual loan
charge-offs, have continued to trend lower in recent periods, as
noted elsewhere in this release. However, economic growth in
the United States has slowed in
recent months and the global economy, in addition to also having
slowed, has experienced political-, trade-, and currency-related
challenges. Management believes that these developments could
be early indications of emerging difficulties in the credit and
lending environment for Bank Mutual. These conclusions, along
with an assessment of the credit risk inherent in Bank Mutual's
loan portfolio, have contributed to management's conclusion that
the allowance for loan losses as a percent of total loans has
reached a general level that management considers
appropriate. As such, Bank Mutual's allowance for loan losses
increased from $17.0 million or 0.95%
of loans receivable at March 31,
2016, to $18.0 million or
0.97% at June 30, 2016, which is the
primary reason for the provision for loan losses in the 2016
periods. Management anticipates that Bank Mutual's provision
for loan losses may continue to consist of provisions rather than
recoveries for the foreseeable future. This is expected to be
particularly true if Bank Mutual's loan portfolio continues to grow
as it has in recent periods.
Trends in the credit quality of Bank Mutual's loan portfolio are
subject to many factors that are outside of Bank Mutual's control,
such as economic and market conditions that can fluctuate
considerably from period to period. As such, there can be no
assurances that there will not be significant fluctuations in Bank
Mutual's non-performing loans, classified loans, and/or loan
charge-off activity from period to period, which may result in
significant variability in Bank Mutual's provision for loan
losses.
Deposit-related fees and charges declined by $21,000 or 0.7% and by $59,000 or 1.0% during the three and six months
ended June 30, 2016, respectively,
compared to the same periods in the previous year,
respectively. Deposit-related fees and charges consist of
overdraft fees, ATM and debit card fees, merchant processing fees,
account service charges, and other revenue items related to
services performed by Bank Mutual for its retail and commercial
deposit customers. Management attributes the decline in
deposit-related fees and charges to changes in customer spending
behavior in recent years which has resulted in lower revenue from
overdraft charges and from check printing commissions. These
developments have been partially offset by increased revenue from
treasury management and merchant card processing services that Bank
Mutual offers to commercial depositors.
Loan-related fees were $1.6
million and $2.9 million
during the three and six months ended June
30, 2016, respectively. These amounts compared to
$490,000 and $927,000 during the same periods in 2015,
respectively. Loan-related fees consist of periodic income
from lending activities that are not deferred as yield adjustments
under the applicable accounting rules. The largest source of
fees in this revenue category is interest rate swap fees related to
commercial loan relationships. Bank Mutual mitigates the
interest rate risk associated with certain of its loan
relationships by executing interest rate swaps, the accounting for
which results in the recognition of a certain amount of fee income
at the time the swap contracts are executed. The increases in
loan-related fees in the 2016 periods were the result of increased
loan production, as well as a lower interest rate environment that
has increased borrower preference for the types of loan
transactions that generate interest rate swap fees. Management
believes this source of revenue will vary considerably from period
to period depending on the rate environment and on borrower
preference for the types of transactions that generate interest
rate swaps.
Brokerage and insurance commissions were $846,000 during the second quarter of 2016, which
was $24,000 or 2.9% higher than the
same quarter in the previous year. Year-to-date this source
of revenue was $274,000 or 13.8%
lower than the same period in 2015. This revenue item
generally consists of commissions earned on sales of tax-deferred
annuities, mutual funds, and certain other securities, fees earned
for investment advisory services, and commissions earned on sales
of personal and business insurance products. However, the
prior year periods include certain non-recurring incentive
payments. Excluding these payments, brokerage and insurance
commissions during the three and six months ended June 30, 2016, were over 30% higher in 2016
periods than they were in the same periods of 2015,
respectively. Management attributes this increase to new
products, services, systems, and investment advisors that Bank
Mutual has added in recent periods.
Mortgage banking revenue, net, was $1.1
million and $2.0 million
during three and six months ended June 30,
2016, respectively. This compared to $974,000 and $1.8
million during the same periods in 2015, respectively.
The following table presents the components of mortgage
banking revenue, net, for the periods indicated:
|
Three Months
Ended
June 30
|
|
Six Months
Ended
June 30
|
|
2016
|
2015
|
|
2016
|
2015
|
|
(Dollars in
thousands)
|
Gross loan servicing
fees
|
$637
|
$666
|
|
$1,283
|
$1,342
|
MSR
amortization
|
(554)
|
(492)
|
|
(987)
|
(1,000)
|
Change in MSR
valuation allowance
|
–
|
–
|
|
–
|
–
|
Loan servicing revenue, net
|
83
|
174
|
|
296
|
342
|
Gain on loan sales
activities, net
|
1,059
|
800
|
|
1,671
|
1,499
|
Mortgage banking revenue, net
|
$1,142
|
$974
|
|
$1,967
|
$1,841
|
Loan servicing revenue, net, decreased during the three- and
six-month periods in 2016 compared to the same periods in
2015. These decreases were caused in part by a decline in
gross servicing fees due to an overall decline in loans serviced
for third-party investors. As of June
30, 2016, Bank Mutual serviced $1.02
billion in loans for third-party investors compared to
$1.04 billion at December 31, 2015. Also contributing
to the decrease in loan servicing revenue, net, in the second
quarter of 2016 was an increase in amortization of mortgage
servicing rights ("MSRs"). This increase was caused by lower
market interest rates for one- to four-family loans in the second
quarter, which resulted in increased loan prepayment activity and
faster amortization of the related MSRs.
The change in valuation allowance that Bank Mutual establishes
against its MSRs is recorded as a recovery or loss, as the case may
be, in the period in which the change occurs. As of
June 30, 2016, Bank Mutual had no
valuation allowance against its MSRs, which had a net book value of
$6.8 million as of that date.
MSR valuation allowances typically increase in periods of lower
market interest rates, which results in a charge to earnings in the
period of the increase. During lower market interest rate
environments, such as that which has occurred in recent months,
loan refinance activity and expectations for future loan
prepayments generally increase, which typically reduces the fair
value of MSRs and results in an increase in the MSR valuation
allowance. However, market interest rates for one- to
four-family mortgage loans as of June 30,
2016, were not sufficiently low enough to generate an MSR
valuation allowance as of that date. However, there can
be no assurances that an increase in the MSR valuation allowance
will not be required in the future, particularly if market interest
rates for one- to four-family residential loans remain low or
decline further.
Gain on loan sales activities, net, was $1.1 million and $1.7
million during the three and six months ended June 30, 2016 and 2015, respectively, compared to
$800,000 and $1.5 million during the same periods in 2015,
respectively. Bank Mutual typically sells most of the
fixed-rate, one- to four-family mortgage loans that it
originates. During the first six months of 2016, sales of
these loans were $62.6 million, which
was $6.6 million or 11.7% higher than
the same period of 2015. Management attributes this increase
to lower market interest rates for one- to four-family mortgage
loans in 2016 compared to 2015. Management expects that lower
rates, combined with expectations for an improving housing market
in the near term, may result in higher originations and sales of
residential loans by Bank Mutual during the remainder of 2016
compared to the same period in 2015. As of June 30, 2016, Bank Mutual's pipeline of
residential loans intended for sale was the highest it had been
since early 2013. However, the origination and sale of
residential loans are subject to variations in market interest
rates and other factors outside of management's control.
Accordingly, there can be no assurances that such originations and
sales will increase or will not vary considerably from period to
period.
During the second quarter of 2015 Bank Mutual recorded a
$154,000 gain on the disposition of a
real estate property that it held for investment purposes. On
a year-to-date basis in 2015, this gain was more than offset by a
$320,000 loss that Bank Mutual
recorded in the first quarter of that year on certain other real
estate properties that it held for investment purposes. No
real estate properties were sold during the first six months of
2016. Bank Mutual continues to actively market certain of the
properties that it holds for investment purposes. There can
be no assurances that Bank Mutual will be able to sell such
properties or that gains or losses on sales, if any, will not
fluctuate considerably from period to period.
Compensation-related expenses decreased by $830,000 or 7.5% and by $1.5 million or 6.9% during the three and six
months ended June 30, 2016,
respectively, compared to the same periods in 2015,
respectively. These decreases were mostly due to lower costs
associated with Bank Mutual's defined benefit pension plan, which
was due in part to an increase in the discount rate used to
determine the present value of the pension obligation, but also to
a freeze of the plan's benefits at the end of 2015. This
latter change also resulted in a lengthening of the amortization
period for unrealized losses in the pension plan, which further
contributed to lower pension costs in 2016. Also contributing
to the decreases in compensation-related expenses in the 2016
periods compared to the same periods in the prior year was a
decline in the number of employees at Bank Mutual. This
decline was primarily due to the consolidation of seven retail
banking offices in the second quarter of 2015 and an additional
four in the first quarter of 2016. These developments were
partially offset by normal annual merit increases granted to most
employees at the beginning of 2016, as well as higher stock-based
compensation and employee commission expense compared to the 2015
periods.
Occupancy, equipment, and data processing expenses were
$3.3 million and $6.8 million during the three and six months
ended June 30, 2016,
respectively. These amounts compared to $3.3 million and $7.1
million during the same periods in 2015, respectively.
The six-month period in the prior year included $269,000 in one-time costs associated with Bank
Mutual's announcement that it was consolidating seven retail branch
offices. Other on-going occupancy costs declined by
$243,000 during the first half of
2016 compared to the same period in 2015 due to reduced operating
costs related to such consolidations, as well as four other branch
consolidations that were completed in the first quarter of
2016. However, these cost reductions were substantially
offset by increased data processing, software, and equipment costs
associated with other initiatives undertaken by Bank Mutual over
the past eighteen months.
Advertising and marketing-related expenses were $970,000 and $1.6
million during the three and six months ended June 30, 2016, respectively, compared to
$555,000 and $868,000 during the same periods in 2015,
respectively. Bank Mutual has increased spending on
advertising and marketing in 2016 in an effort to increase sales
and expand Bank Mutual's overall brand awareness, especially as
such relates to the retail deposit business. Management
anticipates that for the entire year 2016 Bank Mutual's advertising
and marketing-related expenses are likely to be 20% to 25% higher
than it was in 2015. However, this increase depends on future
management decisions and there can be no assurances.
Federal deposit insurance premiums were $383,000 and $358,000 during the three months ended
June 30, 2016 and 2015,
respectively. Year-to-date, these premiums were $805,000 and $728,000 in 2016 and 2015, respectively.
These increases were due primarily to an increase in Bank Mutual's
total assets in the 2016 periods compared to 2015. Earlier in
2016 the Federal Deposit Insurance Corporation ("FDIC") issued a
final rule that changes how insured financial institutions less
than $10 billion in assets, such as
Bank Mutual, will be assessed for deposit insurance. Although
the new rule became effective on July 1,
2016, deposit insurance assessment rates will not change for
insured institutions until the FDIC's deposit insurance fund
reaches a certain level, as specified in the new rule.
Industry observers estimates this level could be reached in the
third quarter of 2016, although there can be no assurances.
Once the new deposit insurance assessment rates become effective,
management estimates that Bank Mutual's federal deposit insurance
premiums could decline by approximately 25% per quarter. The
final rule also established a process for the creation of insurance
premium credits for insured institutions with less than
$10 billion in assets. These
credits would be determined by the FDIC at a future date in
accordance with performance measures established for the deposit
insurance fund, as specified in the new rule. The credits
could be used by insured institutions to offset future premium
costs until the credits are exhausted. At this time,
management is unable to determine the amount or timing of the
credits that it might be awarded, if any.
Net losses (gains) and expenses on foreclosed real estate were
$(131,000) and $393,000 during the three months ended
June 30, 2016 and 2015, respectively.
On a year-to-date basis these amounts were $(89,000) and $539,000 in 2016 and 2015, respectively. In
general, Bank Mutual has experienced net gains on disposition of
foreclosed properties in recent months, as well as lower expenses
on foreclosed real estate due to reduced holdings of such
properties.
Other non-interest expenses were $2.3
million in the second quarter of 2016 compared to a similar
amount in the same quarter of last year. Year-to-date, other
non-interest expenses were $4.7
million in 2016 compared to $4.5
million in 2015. In the 2016 year-to-date period Bank
Mutual prepaid $9.2 million in
fixed-rate FHLB of Chicago
advances. These advances had originally been drawn to fund
the purchase of mortgage-related securities that were called by the
issuer during the period, as previously noted. Management
elected to prepay these advances concurrent with the call, which
resulted in a prepayment penalty of $207,000.
Income tax expense was $2.3
million and $2.1 million
during the second quarters of 2016 and 2015, respectively, and was
$4.9 million and $4.2 million during the year-to-date periods in
the same years, respectively. The effective tax rates
("ETRs") for the quarter periods were 37.3% and 36.8%,
respectively, and for the year-to-date periods were $36.9% and
36.8%, respectively. Bank Mutual's ETR will vary from period
to period due primarily to the impact of non-taxable revenue items,
such as earnings from BOLI and tax-exempt interest
income.
Bank Mutual's total assets increased by $118.0 million or 4.7% during the six months
ended June 30, 2016, due principally
to an increase in total loans receivable. This increase was
primarily funded by additional borrowings, deposit liabilities, and
advance payments by borrowers. Bank Mutual's total
shareholders' equity was $286.8
million at June 30, 2016,
compared to $279.4 million at
December 31, 2015.
Bank Mutual's loans receivable increased by $118.0 million or 6.8% during the six months
ended June 30, 2016. During
this period increases in multi-family, commercial real estate, and
construction loans (net of the undisbursed portion) were partially
offset by declines in Bank Mutual's other loan categories.
Management attributes the increases in part to a low interest rate
environment that has encouraged loan growth in Bank Mutual's local
markets, particularly for loans secured by multi-family and
commercial real estate. This rate environment has also
improved the competitiveness of Bank Mutual's loan offerings linked
to its interest rate swap loan program, as noted earlier in this
release. Because of this improvement, Bank Mutual has been
able to increase new loan production, as well as retain in its loan
portfolio a larger portion of construction loans transitioning to
permanent financing than it typically has in prior periods.
However, management is not certain that the loan growth experienced
in recent periods can be sustained in the future. The loan
portfolio is subject to economic, market, and competitive factors
outside of Bank Mutual's control and there can be no assurances
that expected loan growth will continue or that total loans will
not decrease in future periods.
Bank Mutual's deposit liabilities increased by $41.1 million or 2.3% during the six months ended
June 30, 2016. Transaction
deposits, which consist of checking, savings, and money market
accounts, increased by $39.2 million
or 3.1% during the period and certificates of deposit increased by
$1.9 million or 0.4%.
Management believes that the low interest rate environment that has
persisted for the past few years has encouraged some customers to
switch to transaction deposits in an effort to retain flexibility
in the event interest rates increase in the future. If
interest rates increase in the future, customer preference may
shift from transaction deposits back to certificates of deposit,
which typically have a higher interest cost to Bank Mutual.
This development could increase Bank Mutual's cost of funds in the
future, which would also have an adverse impact on its net interest
margin.
Bank Mutual's shareholders' equity was $286.8 million at June 30,
2016, compared to $279.4
million at December 31,
2015. This increase was due to $8.4
million in net income and a $3.1
million decrease in accumulated other comprehensive
loss. These developments were only partially offset by
$4.8 million in regular cash
dividends. The decrease in accumulated other comprehensive
loss was mostly due to an increase in the fair value of
available-for-sale securities (net of income tax effect), which was
caused by a decline in market interest rates during the period.
Bank Mutual did not repurchase a significant amount of its
common stock during the six months ended June 30, 2016. The book value of Bank
Mutual's common stock was $6.29 per
share at June 30, 2016, compared to
$6.15 at December 31, 2015.
Bank Mutual's non-performing loans were $12.8 million or 0.69% of loans receivable as of
June 30, 2016, compared to
$13.6 million or 0.78% of loans
receivable as of December 31,
2015. Non-performing assets, which includes non-performing
loans, were $15.6 million or 0.60% of
total assets and $16.9 million or
0.68% of total assets as of these same dates,
respectively. Non-performing assets are classified as
"substandard" in accordance with Bank Mutual's internal risk rating
policy. In addition to these non-performing assets, at
June 30, 2016, management was closely
monitoring $53.3 million in
additional loans that were classified as either "special mention"
or "substandard" in accordance with Bank Mutual's internal risk
rating policy. This amount compared to $55.9 million at December
31, 2015. As of June 30,
2016, most of these additional classified loans were secured
by commercial real estate, multi-family real estate, land, and
certain commercial business assets. Management does not
believe any of these loans were impaired as of June 30, 2016, although there can be no
assurances that the loans will not become impaired in future
periods.
Bank Mutual's allowance for loan losses was $18.0 million or 0.97% of loans receivable at
June 30, 2016, compared to
$17.6 million or 1.01% at
December 31, 2015. As a percent
of non-performing loans, Bank Mutual's allowance for loan losses
was 139.9% at June 30, 2016, compared
to 129.5% at December 31, 2015.
The reason for the increase in Bank Mutual's allowance for loan
losses during the six months ended June 30,
2016, was described earlier in this release.
Management believes the allowance for loan losses at June 30, 2016, was adequate to cover probable and
estimable losses in Bank Mutual's loan portfolio as of that
date. However, future increases to the allowance may be
necessary and results of operations could be adversely affected if
future conditions differ from the assumptions used by management to
determine the allowance for loan losses as of the end of the
period.
Bank Mutual Corporation is the third largest financial
institution holding company headquartered in the state of
Wisconsin based on total
assets. Its stock is quoted on the NASDAQ Global Select
Market under the ticker BKMU. As of June 30, 2016, its subsidiary bank operated 64
banking locations in the state of Wisconsin and one in Minnesota.
Cautionary
Statements
This release contains or incorporates by reference various
forward-looking statements concerning Bank Mutual's prospects that
are based on the current expectations and beliefs of
management. Forward-looking statements may contain, and are
intended to be identified by, words such as "anticipate,"
"believe," "estimate," "expect," "objective," "projection,"
"intend," and similar expressions; the use of verbs in the future
tense and discussions of periods after the date on which this
report is issued are also forward-looking statements. The
statements contained herein and such future statements involve or
may involve certain assumptions, risks, and uncertainties, many of
which are beyond Bank Mutual's control, that could cause Bank
Mutual's actual results and performance to differ materially from
what is stated or expected. In addition to the assumptions
and other factors referenced specifically in connection with such
statements, the following factors could impact the business and
financial prospects of Bank Mutual: general economic
conditions, including volatility in credit, lending, and financial
markets; weakness and declines in the real estate market, which
could affect both collateral values and loan activity; periods of
relatively high unemployment or economic weakness and other factors
which could affect borrowers' ability to repay their loans;
negative developments affecting particular borrowers, which could
further adversely impact loan repayments and collection;
legislative and regulatory initiatives and changes, including
action taken, or that may be taken, in response to difficulties in
financial markets and/or which could negatively affect the rights
of creditors; monetary and fiscal policies of the federal
government; the effects of further regulation and consolidation
within the financial services industry; regulators' strict
expectations for financial institutions' capital levels and
restrictions imposed on institutions, as to payments of dividends,
share repurchases, or otherwise, to maintain or achieve those
levels; recent, pending, and/or potential rulemaking or other
actions by various federal regulatory agencies that could affect
Bank Mutual; increased competition and/or disintermediation within
the financial services industry; changes in tax rates, deductions
and/or policies; potential further changes in FDIC premiums and
other governmental assessments; changes in deposit flows; changes
in the cost of funds; fluctuations in general market rates of
interest and/or yields or rates on competing loans, investments,
and sources of funds; demand for loan or deposit products;
illiquidity of financial markets and other negative developments
affecting particular investment and mortgage-related securities,
which could adversely impact the fair value of and/or cash flows
from such securities; changes in customers' demand for other
financial services; Bank Mutual's potential inability to carry out
business plans or strategies; changes in accounting policies or
guidelines; natural disasters, acts of terrorism, or developments
in the war on terrorism or other global conflicts; the risk of
failures in computer or other technology systems or data
maintenance, or breaches of security relating to such systems; and
the factors discussed in Bank Mutual's filings with the Securities
and Exchange Commission, particularly under Part I, Item 1A, "Risk
Factors," of Bank Mutual's 2015 Annual Report on Form 10-K.
Bank Mutual
Corporation and Subsidiaries
|
Unaudited
Consolidated Statements of Financial Condition
|
(Dollars in
thousands, except per share data)
|
|
June
30
|
|
December
31
|
|
|
2016
|
|
2015
|
|
ASSETS
|
|
|
|
|
Cash and due
from banks
|
$29,753
|
|
$27,971
|
|
Interest-earning deposits
|
11,454
|
|
16,530
|
|
Cash and
cash equivalents
|
41,207
|
|
44,501
|
|
Mortgage-related securities available-for-sale,
at fair value
|
413,871
|
|
407,874
|
|
Mortgage-related securities held-to-maturity,
at amortized cost (fair value
of $114,479 in 2016 and $121,641 in 2015)
|
|
|
|
|
110,474
|
|
120,891
|
|
Loans
held-for-sale
|
5,453
|
|
3,350
|
|
Loans
receivable (net of allowance for loan losses of
$17,962 in 2016 and $17,641
in 2015)
|
|
|
|
|
1,858,059
|
|
1,740,018
|
|
Mortgage
servicing rights, net
|
6,834
|
|
7,205
|
|
Other
assets
|
184,244
|
|
178,328
|
|
|
|
|
|
|
Total
assets
|
$2,620,142
|
|
$2,502,167
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deposit
liabilities
|
$1,836,737
|
|
$1,795,591
|
|
Borrowings
|
422,554
|
|
372,375
|
|
Advance
payments by borrowers for taxes and insurance
|
19,921
|
|
3,382
|
|
Other
liabilities
|
54,084
|
|
51,425
|
|
Total
liabilities
|
2,333,296
|
|
2,222,773
|
|
Equity:
|
|
|
|
|
Preferred stock - $0.01 par value:
|
|
|
|
|
Authorized - 20,000,000
shares in 2016 and 2015
|
|
|
|
|
Issued and outstanding -
none in 2016 and 2015
|
-
|
|
-
|
|
Common
stock - $0.01 par value:
|
|
|
|
|
Authorized - 200,000,000
shares in 2016 and 2015
|
|
|
|
|
Issued - 78,783,849 shares
in 2016 and 2015
|
|
|
|
|
Outstanding - 45,590,282
shares in 2016 and 45,443,548 in 2015
|
788
|
|
788
|
|
Additional paid-in capital
|
485,041
|
|
486,273
|
|
Retained
earnings
|
168,121
|
|
164,482
|
|
Accumulated other comprehensive loss
|
(6,271)
|
|
(9,365)
|
|
Treasury
stock - 33,193,567 shares in 2016 and 33,340,301 in
2015
|
(360,833)
|
|
(362,784)
|
|
Total shareholders'
equity
|
286,846
|
|
279,394
|
|
|
|
|
|
|
Total liabilities and
equity
|
$2,620,142
|
|
$2,502,167
|
|
Bank Mutual
Corporation and Subsidiaries
|
Unaudited
Consolidated Statements of Income
|
(Dollars in
thousands, except per share data)
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June
30
|
|
June
30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
Loans
|
$17,360
|
|
$16,337
|
|
$34,296
|
|
$32,854
|
|
Mortgage-related securities
|
2,722
|
|
2,871
|
|
5,983
|
|
5,713
|
|
Investment securities
|
119
|
|
57
|
|
221
|
|
104
|
|
Interest-earning deposits
|
10
|
|
6
|
|
18
|
|
10
|
|
Total interest
income
|
20,211
|
|
19,271
|
|
40,518
|
|
38,681
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Deposits
|
1,446
|
|
1,152
|
|
2,851
|
|
2,246
|
|
Borrowings
|
1,247
|
|
1,157
|
|
2,500
|
|
2,309
|
|
Total interest
expense
|
2,693
|
|
2,309
|
|
5,351
|
|
4,555
|
|
Net interest
income
|
17,518
|
|
16,962
|
|
35,167
|
|
34,126
|
|
Provision for
(recovery of) loan losses
|
1,164
|
|
(752)
|
|
591
|
|
(1,716)
|
|
Net interest income
after provision for loan losses
|
16,354
|
|
17,714
|
|
34,576
|
|
35,842
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Deposit-related fees and charges
|
2,928
|
|
2,949
|
|
5,693
|
|
5,752
|
|
Loan-related fees
|
1,607
|
|
490
|
|
2,865
|
|
927
|
|
Brokerage and insurance commissions
|
846
|
|
822
|
|
1,714
|
|
1,988
|
|
Mortgage
banking revenue, net
|
1,142
|
|
974
|
|
1,967
|
|
1,841
|
|
Income
from bank-owned life insurance ("BOLI")
|
463
|
|
473
|
|
927
|
|
942
|
|
Gain
(loss) on real estate held for investment
|
-
|
|
154
|
|
-
|
|
(166)
|
|
Other
non-interest income
|
23
|
|
45
|
|
88
|
|
170
|
|
Total non-interest
income
|
7,009
|
|
5,907
|
|
13,254
|
|
11,454
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Compensation, payroll taxes, and other employee
benefits
|
10,236
|
|
11,066
|
|
20,703
|
|
22,230
|
|
Occupancy, equipment, and data processing costs
|
3,284
|
|
3,315
|
|
6,816
|
|
7,115
|
|
Advertising and marketing
|
970
|
|
555
|
|
1,555
|
|
868
|
|
Federal
deposit insurance premiums
|
383
|
|
358
|
|
805
|
|
728
|
|
Losses
(gains) and expenses on foreclosed real estate,
net
|
(131)
|
|
393
|
|
(89)
|
|
539
|
|
Other
non-interest expense
|
2,327
|
|
2,255
|
|
4,697
|
|
4,520
|
|
Total non-interest
expense
|
17,069
|
|
17,942
|
|
34,487
|
|
36,000
|
|
Income before income
tax expense
|
6,294
|
|
5,679
|
|
13,343
|
|
11,296
|
|
Income tax
expense
|
2,345
|
|
2,090
|
|
4,921
|
|
4,154
|
|
Net
income
|
$3,949
|
|
$3,589
|
|
8,422
|
|
7,142
|
|
|
|
|
|
|
|
|
|
|
Per share
data:
|
|
|
|
|
|
|
|
|
Earnings
per share-basic
|
$0.09
|
|
$0.08
|
|
$0.18
|
|
$0.15
|
|
Earnings
per share-diluted
|
$0.09
|
|
$0.08
|
|
$0.18
|
|
$0.15
|
|
Cash
dividends paid
|
$0.055
|
|
$0.050
|
|
$0.105
|
|
$0.090
|
|
Bank Mutual
Corporation and Subsidiaries
|
Unaudited
Supplemental Financial Information
|
(Dollars in
thousands, except per share amounts and
ratios)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June
30
|
|
June
30
|
Loan Originations
and Sales
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Loans
originated for portfolio:
|
|
|
|
|
|
|
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
|
$15,271
|
|
$17,880
|
|
$21,232
|
|
$46,415
|
Commercial real
estate
|
|
30,218
|
|
17,912
|
|
45,702
|
|
28,216
|
Multi-family
|
|
65,359
|
|
15,798
|
|
111,167
|
|
35,251
|
Construction and
development
|
|
24,172
|
|
101,825
|
|
84,102
|
|
136,808
|
Total
commercial loans
|
|
135,020
|
|
153,415
|
|
262,203
|
|
246,690
|
Retail
loans
|
|
|
|
|
|
|
|
|
One- to four-family
first mortgages
|
|
25,493
|
|
25,888
|
|
42,184
|
|
40,602
|
Home equity
|
|
9,313
|
|
9,769
|
|
15,342
|
|
15,829
|
Other
consumer
|
|
531
|
|
434
|
|
1,137
|
|
752
|
Total
retail loans
|
|
35,337
|
|
36,091
|
|
58,663
|
|
57,183
|
Total
loans originated for portfolio
|
|
$170,357
|
|
$189,506
|
|
$320,866
|
|
$303,873
|
|
|
|
|
|
|
|
|
|
Mortgage loans
originated for sale
|
|
$43,320
|
|
$30,465
|
|
$64,548
|
|
$56,595
|
|
|
|
|
|
|
|
|
|
Mortgage loan
sales
|
|
$41,963
|
|
$30,638
|
|
$62,582
|
|
$56,008
|
|
|
|
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
|
|
|
|
Loan Portfolio
Analysis
|
|
2016
|
|
2015
|
|
|
|
|
Commercial
loans:
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$233,588
|
|
$235,313
|
|
|
|
|
Commercial real estate
|
|
332,513
|
|
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
|
|
1,392,089
|
|
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
|
|
11,346
|
|
11,678
|
|
|
|
|
Total
consumer loans
|
|
18,836
|
|
19,807
|
|
|
|
|
Total
retail loans
|
|
696,006
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans serviced
for others
|
|
$1,016,474
|
|
$1,038,588
|
|
|
|
|
Bank Mutual
Corporation and Subsidiaries
|
Unaudited
Supplemental Financial Information (continued)
|
(Dollars in
thousands, except per share amounts and
ratios)
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
Non-Performing
Loans and Assets
|
|
2016
|
|
2015
|
Non-accrual
commercial loans:
|
|
|
|
|
Commercial and industrial
|
|
$4,263
|
|
$4,915
|
Commercial real estate
|
|
3,704
|
|
3,968
|
Multi-family
|
|
286
|
|
-
|
Construction and development
|
|
705
|
|
766
|
Total commercial
loans
|
|
8,958
|
|
9,649
|
Non-accrual
retail loans:
|
|
|
|
|
One- to four-family first mortgages
|
|
2,764
|
|
2,703
|
Home equity
|
|
816
|
|
703
|
Other consumer
|
|
60
|
|
82
|
Total non-accrual
retail loans
|
|
3,640
|
|
3,488
|
Total non-accrual
loans
|
|
12,598
|
|
13,137
|
Accruing loans
delinquent 90 days or more
|
|
239
|
|
484
|
Total non-performing
loans
|
|
12,837
|
|
13,621
|
Foreclosed
real estate and repossessed assets
|
|
2,768
|
|
3,306
|
Total non-performing
assets
|
|
$15,605
|
|
$16,927
|
Non-performing
loans to loans receivable, net
|
|
0.69%
|
|
0.78%
|
Non-performing
assets to total assets
|
|
0.60%
|
|
0.68%
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
Special Mention
and Substandard Loans
|
|
2016
|
|
2015
|
(includes all
non-performing loans, above)
|
|
|
|
|
Commercial
loans:
|
|
|
|
|
Commercial and
industrial
|
|
$10,476
|
|
$13,788
|
Commercial real
estate
|
|
35,474
|
|
40,495
|
Multi-family
|
|
11,862
|
|
8,239
|
Construction and
development
|
|
2,021
|
|
2,114
|
Total commercial loans
|
|
59,833
|
|
64,636
|
Retail
loans:
|
|
|
|
|
One- to four-family first
mortgages
|
|
5,380
|
|
4,081
|
Home equity
|
|
816
|
|
703
|
Other consumer
|
|
60
|
|
82
|
Total
retail loans
|
|
6,256
|
|
4,866
|
Total
|
|
$66,089
|
|
$69,502
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
June
30
|
Activity in
Allowance for Loan Losses
|
|
2016
|
|
2015
|
Balance at the
beginning of the period
|
|
$17,641
|
|
$22,289
|
Provision for
(recovery of) loan losses
|
|
591
|
|
(1,716)
|
Charge-offs:
|
|
|
|
|
Commercial and
industrial
|
|
-
|
|
(74)
|
Commercial real
estate
|
|
(99)
|
|
(69)
|
Multi-family
|
|
-
|
|
-
|
Construction and
development
|
|
-
|
|
-
|
One- to four-family first
mortgages
|
|
(84)
|
|
(218)
|
Home equity
|
|
(35)
|
|
(42)
|
Other
consumer
|
|
(188)
|
|
(306)
|
Total
charge-offs
|
|
(406)
|
|
(709)
|
Recoveries:
|
|
|
|
|
Commercial and
industrial
|
|
4
|
|
6
|
Commercial real
estate
|
|
19
|
|
83
|
Multi-family
|
|
30
|
|
-
|
Construction and
development
|
|
-
|
|
-
|
One- to four-family first
mortgages
|
|
33
|
|
41
|
Home equity
|
|
9
|
|
21
|
Other
consumer
|
|
41
|
|
25
|
Total
recoveries
|
|
136
|
|
176
|
Net
charge-offs
|
|
(270)
|
|
(533)
|
Balance at end
of period
|
|
$17,962
|
|
$20,040
|
Net charge-offs
to average loans, annualized
|
|
0.03%
|
|
0.07%
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
Allowance
Ratios
|
|
2016
|
|
2015
|
Allowance for
loan losses to non-performing loans
|
|
139.92%
|
|
129.51%
|
Allowance for
loan losses to total loans
|
|
0.97%
|
|
1.01%
|
Bank Mutual
Corporation and Subsidiaries
|
Unaudited
Supplemental Financial Information (continued)
|
(Dollars in
thousands, except per share amounts and
ratios)
|
|
|
|
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
|
|
|
|
Deposit
Liabilities Analysis
|
|
2016
|
|
2015
|
|
|
|
|
Non-interest-bearing checking
|
|
$236,252
|
|
$213,761
|
|
|
|
|
Interest-bearing checking
|
|
269,860
|
|
277,606
|
|
|
|
|
Savings
accounts
|
|
228,520
|
|
217,633
|
|
|
|
|
Money market
accounts
|
|
555,549
|
|
542,020
|
|
|
|
|
Certificates of
deposit
|
|
546,556
|
|
544,571
|
|
|
|
|
Total deposit liabilities
|
|
$1,836,737
|
|
$1,795,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June
30
|
|
June
30
|
Selected Operating
Ratios
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net interest
margin (1)
|
|
2.95%
|
|
3.11%
|
|
3.01%
|
|
3.15%
|
Net interest
rate spread
|
|
2.87%
|
|
3.02%
|
|
2.92%
|
|
3.07%
|
Return on
average assets
|
|
0.61%
|
|
0.60%
|
|
0.66%
|
|
0.60%
|
Return on
average shareholders' equity
|
|
5.54%
|
|
5.10%
|
|
5.93%
|
|
5.07%
|
Efficiency
ratio (2)
|
|
69.59%
|
|
78.99%
|
|
71.22%
|
|
78.70%
|
Non-interest
expense as a percent of average assets
|
|
2.65%
|
|
2.99%
|
|
2.72%
|
|
3.02%
|
Shareholders'
equity to total assets at end of period
|
|
10.95%
|
|
11.53%
|
|
10.95%
|
|
11.53%
|
(1) Net
interest margin is determined by dividing net interest income by
average earning assets for the periods indicated.
|
(2) Efficiency
ratio is determined by dividing non-interest expense by the sum of
net interest income, and non-interest income excluding real estate held for investment for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June
30
|
|
June
30
|
Other
Information
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Average earning
assets
|
|
$2,372,125
|
|
$2,183,110
|
|
$2,335,504
|
|
$2,168,543
|
Average
assets
|
|
2,576,881
|
|
2,399,513
|
|
2,540,068
|
|
2,386,272
|
Average
interest bearing liabilities
|
|
1,976,983
|
|
1,828,437
|
|
1,946,917
|
|
1,817,408
|
Average
shareholders' equity
|
|
285,059
|
|
281,468
|
|
283,855
|
|
281,514
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
As
used in basic earnings per share
|
|
45,165,919
|
|
46,025,946
|
|
45,163,424
|
|
46,156,752
|
As
used in diluted earnings per share
|
|
45,633,113
|
|
46,426,874
|
|
45,613,674
|
|
46,541,344
|
|
|
|
|
|
|
|
|
|
|
|
June
30
|
|
December
31
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
Number of
shares outstanding (net of treasury shares)
|
|
45,590,282
|
|
45,443,548
|
|
|
|
|
Book value per
share
|
|
$6.29
|
|
$6.15
|
|
|
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/bank-mutual-corporation-reports-10-increase-in-net-income-for-the-second-quarter-of-2016-300301590.html
SOURCE Bank Mutual Corporation