UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

            Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021

OR

      Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-36271

WATERSTONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)

Maryland
90-1026709
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
   
11200 W. Plank Court Wauwatosa, Wisconsin
53226
(Address of principal executive offices)
(Zip Code)

(414) 761-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 Par Value
 
WSBF
 
The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes                  No      

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

Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                  No      
The number of shares outstanding of the issuer’s common stock, $0.01 par value per share, was 25,232,284 at May 4, 2021.












WATERSTONE FINANCIAL, INC.

10-Q INDEX

 
Page No.
   
PART I. FINANCIAL INFORMATION
 
   
Item l. Financial Statements
 
3
4
5
6
7
   
   
PART II. OTHER INFORMATION
 
   
   





PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 
(Unaudited)
       
   
March 31, 2021
   
December 31, 2020
 
Assets
 
(Dollars In Thousands, except share and per share data)
 
Cash
 
$
160,144
   
$
56,190
 
Federal funds sold
   
19,029
     
18,847
 
Interest-earning deposits in other financial institutions and other short term investments
   
19,228
     
19,730
 
Cash and cash equivalents
   
198,401
     
94,767
 
Securities available for sale (at fair value)
   
162,263
     
159,619
 
Loans held for sale (at fair value)
   
341,293
     
402,003
 
Loans receivable
   
1,335,423
     
1,375,137
 
Less: Allowance for loan losses
   
17,780
     
18,823
 
Loans receivable, net
   
1,317,643
     
1,356,314
 
                 
Office properties and equipment, net
   
23,402
     
23,722
 
Federal Home Loan Bank stock (at cost)
   
26,720
     
26,720
 
Cash surrender value of life insurance
   
63,874
     
63,573
 
Real estate owned, net
   
150
     
322
 
Prepaid expenses and other assets
   
64,265
     
57,547
 
Total assets
 
$
2,198,011
   
$
2,184,587
 
                 
Liabilities and Shareholders’ Equity
               
Liabilities:
               
Demand deposits
 
$
194,978
   
$
188,225
 
Money market and savings deposits
   
318,959
     
295,317
 
Time deposits
   
705,754
     
701,328
 
Total deposits
   
1,219,691
     
1,184,870
 
                 
Borrowings
   
490,505
     
508,074
 
Advance payments by borrowers for taxes
   
12,048
     
3,522
 
Other liabilities
   
45,086
     
75,003
 
Total liabilities
   
1,767,330
     
1,771,469
 
                 
Shareholders’ equity:
               
Preferred stock (par value $0.01 per share)
               
Authorized -  50,000,000 shares at March 31, 2021 and at December 31, 2020, no shares issued
   
-
     
-
 
Common stock (par value $0.01 per share)
               
Authorized - 100,000,000 shares at March 31, 2021 and at December 31, 2020
               
Issued - 25,230,284 at March 31, 2021 and 25,087,976 at December 31, 2020
               
Outstanding - 25,230,284 at March 31, 2021 and 25,087,976 at December 31, 2020
   
252
     
251
 
Additional paid-in capital
   
182,533
     
180,684
 
Retained earnings
   
261,859
     
245,287
 
Unearned ESOP shares
   
(15,133
)
   
(15,430
)
Accumulated other comprehensive income, net of taxes
   
1,170
     
2,326
 
Total shareholders’ equity
   
430,681
     
413,118
 
Total liabilities and shareholders’ equity
 
$
2,198,011
   
$
2,184,587
 

See accompanying notes to unaudited consolidated financial statements.



WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
Three months ended March 31,
 
   
2021
   
2020
 
   
(In Thousands, except per share amounts)
 
             
Interest income:
           
Loans
 
$
16,603
   
$
17,687
 
Mortgage-related securities
   
491
     
702
 
Debt securities, federal funds sold and short-term investments
   
875
     
1,063
 
Total interest income
   
17,969
     
19,452
 
Interest expense:
               
Deposits
   
1,517
     
4,318
 
Borrowings
   
2,500
     
2,608
 
Total interest expense
   
4,017
     
6,926
 
Net interest income
   
13,952
     
12,526
 
Provision (credit) for loan losses
   
(1,070
)
   
785
 
Net interest income after provision (credit) for loan losses
   
15,022
     
11,741
 
Noninterest income:
               
Service charges on loans and deposits
   
690
     
481
 
Increase in cash surrender value of life insurance
   
301
     
353
 
Mortgage banking income
   
54,391
     
30,406
 
Other
   
817
     
224
 
Total noninterest income
   
56,199
     
31,464
 
Noninterest expenses:
               
Compensation, payroll taxes, and other employee benefits
   
34,123
     
24,401
 
Occupancy, office furniture, and equipment
   
2,565
     
2,741
 
Advertising
   
824
     
900
 
Data processing
   
971
     
1,006
 
Communications
   
331
     
338
 
Professional fees
   
(315
)
   
1,832
 
Real estate owned
   
(12
)
   
11
 
Loan processing expense
   
1,335
     
1,076
 
Other
   
3,178
     
2,903
 
Total noninterest expenses
   
43,000
     
35,208
 
Income before income taxes
   
28,221
     
7,997
 
Income tax expense
   
6,877
     
1,928
 
Net income
 
$
21,344
   
$
6,069
 
Income per share:
               
Basic
 
$
0.90
   
$
0.24
 
Diluted
 
$
0.89
   
$
0.24
 
Weighted average shares outstanding:
               
Basic
   
23,735
     
25,405
 
Diluted
   
23,950
     
25,612
 

See accompanying notes to unaudited consolidated financial statements.



WATERSONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
Three months ended March 31,
 
   
2021
   
2020
 
   
(In Thousands)
 
Net income
 
$
21,344
   
$
6,069
 
                 
Other comprehensive (loss) income, net of tax:
               
Net unrealized holding (loss) gains on available for sale securities:
               
Net unrealized holding (loss) gains arising during the period, net of tax benefit (expense) of $432 and $(319), respectively
   
(1,156
)
   
850
 
Total other comprehensive (loss) income
   
(1,156
)
   
850
 
Comprehensive income
 
$
20,188
   
$
6,919
 

See accompanying notes to unaudited consolidated financial statements.




WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)


 
Common Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive Income (Loss)
   
Total
Shareholders'
Equity
 
   
Shares
   
Amount
                               
For the three months ended March 31, 2020
 
(In Thousands, except per share amounts)
 
Balances at December 31, 2019
   
27,148
   
$
271
   
$
211,997
   
$
197,393
   
$
(16,617
)
 
$
642
   
$
393,686
 
                                                         
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
6,069
     
-
     
-
     
6,069
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
850
     
850
 
Total comprehensive income
                                                   
6,919
 
                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
152
     
-
     
297
     
-
     
449
 
Cash dividend declared, $0.62 per share
   
-
     
-
     
-
     
(15,650
)
   
-
     
-
     
(15,650
)
Proceeds from stock option exercises
   
39
     
1
     
452
     
-
     
-
     
-
     
453
 
Stock compensation expense
   
-
     
-
     
214
     
-
     
-
     
-
     
214
 
Purchase of common stock returned to authorized but unissued
   
(912
)
   
(9
)
   
(14,236
)
   
-
     
-
     
-
     
(14,245
)
Balances at March 31, 2020
   
26,275
   
$
263
   
$
198,579
   
$
187,812
   
$
(16,320
)
 
$
1,492
   
$
371,826
 
                                                         
For the three months ended March 31, 2021
 
(In Thousands, except per share amounts)
 
Balances at December 31, 2020
   
25,088
   
$
251
   
$
180,684
   
$
245,287
   
$
(15,430
)
 
$
2,326
   
$
413,118
 
                                                         
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
21,344
     
-
     
-
     
21,344
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(1,156
)
   
(1,156
)
Total comprehensive income
                                                   
20,188
 
                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
223
     
-
     
297
     
-
     
520
 
Cash dividend declared, $0.20 per share
   
-
     
-
     
-
     
(4,772
)
   
-
     
-
     
(4,772
)
Proceeds from stock option exercises
   
142
     
1
     
1,458
     
-
     
-
     
-
     
1,459
 
Stock compensation expense
   
-
     
-
     
175
     
-
     
-
     
-
     
175
 
Purchase of common stock returned to authorized but unissued
   
-
     
-
     
(7
)
   
-
     
-
     
-
     
(7
)
Balances at March 31, 2021
   
25,230
   
$
252
   
$
182,533
   
$
261,859
   
$
(15,133
)
 
$
1,170
   
$
430,681
 

See accompanying notes to unaudited consolidated financial statements






WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three months ended March 31,
 
   
2021
   
2020
 
   
(In Thousands)
 
             
Operating activities:
           
Net income
 
$
21,344
   
$
6,069
 
Adjustments to reconcile net income to cash provided by (used) in operating activities:
               
Provision (credit) for loan losses
   
(1,070
)
   
785
 
Depreciation, amortization, accretion
   
1,749
     
1,257
 
Deferred taxes
   
2,059
     
40
 
Stock based compensation
   
175
     
214
 
Origination of mortgage servicing rights
   
(3,516
)
   
(58
)
Gain on sale of loans held for sale
   
(53,708
)
   
(31,837
)
Loans originated for sale
   
(1,109,074
)
   
(687,694
)
Proceeds on sales of loans originated for sale
   
1,223,492
     
676,918
 
Decrease (increase) in accrued interest receivable
   
33
     
(147
)
Increase in cash surrender value of life insurance
   
(301
)
   
(353
)
Increase in derviative assets
   
(544
)
   
(6,571
)
Decrease in accrued interest on deposits and borrowings
   
(102
)
   
(38
)
(Increase) decrease in prepaid tax expense
   
(463
)
   
96
 
Legal settlement
   
(4,250
)
   
-
 
(Decrease) increase in derviative liabilities
   
(5,140
)
   
9,465
 
Net gain related to real estate owned
   
(11
)
   
(5
)
Change in other assets and other liabilities, net
   
(11,282
)
   
(5,804
)
Net cash provided by (used in) operating activities
   
59,391
     
(37,663
)
                 
Investing activities:
               
Net decrease (increase) in loans receivable
   
39,742
     
(21,293
)
Purchases of:
               
FHLB stock
   
-
     
(1,800
)
Mortgage related securities
   
(16,153
)
   
(686
)
Debt securities
   
-
     
(2,500
)
Premises and equipment, net
   
(268
)
   
(241
)
Proceeds from:
               
Principal repayments on mortgage-related securities
   
11,022
     
9,729
 
Maturities of debt securities
   
885
     
1,555
 
Sales of real estate owned
   
183
     
59
 
Net cash provided by (used in) investing activities
   
35,411
     
(15,177
)
                 
Financing activities:
               
Net increase in deposits
   
34,821
     
18,292
 
Net change in short term borrowings
   
(17,569
)
   
38,618
 
Cash paid for advance payments by borrowers for taxes
   
(5,025
)
   
(3,040
)
Cash dividends on common stock
   
(4,847
)
   
(2,414
)
Purchase of common stock returned to authorized but unissued
   
(7
)
   
(14,245
)
Proceeds from stock option exercises
   
1,459
     
453
 
Net cash provided by financing activities
   
8,832
     
37,664
 
Increase (decrease) in cash and cash equivalents
   
103,634
     
(15,176
)
Cash and cash equivalents at beginning of period
   
94,767
     
74,300
 
Cash and cash equivalents at end of period
 
$
198,401
   
$
59,124
 
                 
Supplemental information:
               
Cash paid or credited during the period for:
               
Income tax payments
 
$
5,281
   
$
1,791
 
Interest payments
   
4,119
     
6,964
 
Noncash activities:
               
Dividends declared but not paid in other liabilities
   
5,157
     
16,737
 

See accompanying notes to unaudited consolidated financial statements.






Note 1 — Basis of Presentation

The unaudited interim consolidated financial statements include the accounts of Waterstone Financial, Inc. (the “Company”) and the Company’s subsidiaries.

WaterStone Bank SSB (the "Bank") is a community bank that has served the banking needs of its customers since 1921. WaterStone Bank also has an active mortgage banking subsidiary, Waterstone Mortgage Corporation.

WaterStone Bank conducts its community banking business from 14 banking offices located in Milwaukee, Washington and Waukesha Counties, Wisconsin. WaterStone Bank's principal lending activity is originating one- to four-family, multi-family residential real estate, and commercial real estate loans for retention in its portfolio. WaterStone Bank also offers home equity loans and lines of credit, construction and land loans, commercial business loans, and consumer loans. WaterStone Bank funds its loan production primarily with retail deposits and Federal Home Loan Bank advances. Our deposit offerings include: certificates of deposit, money market savings accounts, transaction deposit accounts, non-interest bearing demand accounts and individual retirement accounts. Our investment securities portfolio is comprised principally of mortgage-backed securities, government-sponsored enterprise bonds and municipal obligations.

WaterStone Bank's mortgage banking operations are conducted through its wholly-owned subsidiary, Waterstone Mortgage Corporation.  Waterstone Mortgage Corporation originates single-family residential real estate loans for sale into the secondary market.  Waterstone Mortgage Corporation utilizes lines of credit provided by WaterStone Bank as a primary source of funds, and also utilizes a line of credit with another financial institution as needed.

The accompanying unaudited consolidated financial statements have been prepared in accordance with 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 statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations, changes in shareholders’ equity, and cash flows of the Company for the periods presented.

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s December 31, 2020 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other period.

The preparation of the unaudited consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the allowance for loan losses, income taxes, and fair value measurements. Actual results could differ from those estimates.

Impacts of COVID-19

In March, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak and continuing spread of COVID-19 could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which may negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impacts are unknown at this time.

Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. There were no significant subsequent events for the three months ended March 31, 2021 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.



Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.  These reclassifications did not result in any changes to previously reported net income. The Company reclassed certain line items in the Consolidated Statements of Cash Flows.

Impact of Recent Accounting Pronouncements

ASC Topic 326 "Financial Instruments - Credit Losses." Authoritative accounting guidance under ASC Topic 326, "Financial Instruments - Credit Losses" amended the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information for credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The authoritative guidance also requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected (net of the allowance for credit losses). In addition, the credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses rather than a write-down.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. It included an option for entities to delay the adoption of ASC Topic 326 until the earlier of the termination date of the national emergency declaration by the President or December 31, 2020. Due to the uncertainty on the economy and unemployment from COVID-19, the Company determined to delay its adoption of ASC Topic 326 and has calculated and recorded its provision for loan losses under the incurred loss model that existed prior to ASC Topic 326. On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law. The legislation extended the delay of the adoption of ASC Topic 326 allowed under the CARES Act until the earlier of the termination date of the national emergency declaration by the President or January 1, 2022.

The Company has input the available historical Company data to build an internal model and is reviewing the assumptions to support the calculation under ASC Topic 326. Management’s methodology for estimating the allowance for credit losses under the current expected credit losses (CECL) model includes the use of relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience by vintage classified by loans with similar risk profiles provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as changes in underwriting standards, portfolio mix, portfolio volume, delinquency rates, interest rates, or other relevant factors. Management will continue to review and adjust these and other factors. Ongoing evaluations have been performed by vintage adjusted for prepayments. For two portfolio segments, management expects to use a weighted average remaining maturity methodology, which contemplates loss expectations on a pool basis, relying on historic loss rates.

Financial statement users should be aware that the allowance for credit loss is, by design, inherently sensitive to changes in economic outlook, loan and lease portfolio composition, portfolio duration, and other factors.

As we continue to evaluate the provisions of ASC Topic 326 as of and for the three months ended March 31, 2021, we are considering the following in developing our forecast and its effect on our CECL calculations:

Duration, extent and severity of COVID-19;
Effect of government assistance; and
Unemployment and effect on economies and markets.





Note 2— Securities Available for Sale

The amortized cost and fair values of the Company’s investment in securities available for sale follow:

 
March 31, 2021
 
   
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
23,862
   
$
868
   
$
(152
)
 
$
24,578
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
67,447
     
1,428
     
(460
)
   
68,415
 
Private -label issued
   
3,081
     
49
     
-
     
3,130
 
Mortgage-related securities
   
94,390
     
2,345
     
(612
)
   
96,123
 
                                 
Government sponsored enterprise bonds
   
2,500
     
-
     
(32
)
   
2,468
 
Municipal securities
   
50,574
     
1,683
     
(16
)
   
52,241
 
Other debt securities
   
12,500
     
24
     
(1,093
)
   
11,431
 
Debt securities
   
65,574
     
1,707
     
(1,141
)
   
66,140
 
   
$
159,964
   
$
4,052
   
$
(1,753
)
 
$
162,263
 

 
December 31, 2020
 
   
Amortized cost
   
Gross unrealized gains
   
Gross unrealized losses
   
Fair value
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
24,005
   
$
1,110
   
$
(15
)
 
$
25,100
 
Collateralized mortgage obligations:
                               
Government sponsored enterprise issued
   
61,604
     
1,693
     
(13
)
   
63,284
 
Private label issued
   
3,611
     
54
     
-
     
3,665
 
Mortgage-related securities
   
89,220
     
2,857
     
(28
)
   
92,049
 
                                 
Government sponsered enterprise bonds
   
2,500
     
3
     
-
     
2,503
 
Municipal securities
   
51,512
     
2,102
     
-
     
53,614
 
Other debt securities
   
12,500
     
46
     
(1,093
)
   
11,453
 
Debt securities
   
66,512
     
2,151
     
(1,093
)
   
67,570
 
   
$
155,732
   
$
5,008
   
$
(1,121
)
 
$
159,619
 

The Company’s mortgage-backed securities and collateralized mortgage obligations issued by government sponsored enterprises are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. At March 31, 2021, $687,000 of the Company’s mortgage related securities were pledged as collateral to secure mortgage banking related activities. At December 31, 2020, $785,000 of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities and $7.2 million were pledged as collateral to secure back-to-back swaps.

The amortized cost and fair values of investment securities by contractual maturity at March 31, 2021 are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
Amortized
Cost
   
Fair
Value
 
   
(In Thousands)
 
Debt and other securities
           
Due within one year
 
$
9,390
   
$
9,456
 
Due after one year through five years
   
33,922
     
34,913
 
Due after five years through ten years
   
17,143
     
16,649
 
Due after ten years
   
5,119
     
5,122
 
Mortgage-related securities
   
94,390
     
96,123
 
   
$
159,964
   
$
162,263
 



Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:

 
March 31, 2021
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Fair value
   
Unrealized loss
   
Fair value
   
Unrealized loss
   
Fair value
   
Unrealized loss
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
4,308
   
$
(152
)
 
$
-
   
$
-
   
$
4,308
   
$
(152
)
Collateralized mortgage obligations:
                                               
Government sponsored enterprise issued
   
19,956
     
(460
)
   
-
     
-
     
19,956
     
(460
)
Government sponsored enterprise bonds
   
2,468
     
(32
)
   
-
     
-
     
2,468
     
(32
)
Municipal securities
   
3,171
     
(16
)
   
-
     
-
     
3,171
     
(16
)
Other debt securities
   
-
     
-
     
8,907
     
(1,093
)
   
8,907
     
(1,093
)
   
$
29,903
   
$
(660
)
 
$
8,907
   
$
(1,093
)
 
$
38,810
   
$
(1,753
)


 
December 31, 2020
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Fair value
   
Unrealized loss
   
Fair value
   
Unrealized loss
   
Fair value
   
Unrealized loss
 
   
(In Thousands)
 
Mortgage-backed securities
 
$
2,089
   
$
(15
)
 
$
-
   
$
-
   
$
2,089
   
$
(15
)
Collateralized mortgage obligations:
                                               
Government sponsored enterprise issued
   
4,880
     
(13
)
   
-
     
-
     
4,880
     
(13
)
Municipal securities
   
-
     
-
     
-
     
-
     
-
     
-
 
Other debt securities
   
-
     
-
     
8,907
     
(1,093
)
   
8,907
     
(1,093
)
   
$
6,969
   
$
(28
)
 
$
8,907
   
$
(1,093
)
 
$
15,876
   
$
(1,121
)

The Company reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. In evaluating whether a security’s decline in market value is other-than-temporary, management considers the length of time and extent to which the fair value has been less than cost, the financial condition of the issuer and the underlying obligors, quality of credit enhancements, volatility of the fair value of the security, the expected recovery period of the security and ratings agency evaluations. In addition, the Company may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds and the value of any underlying collateral.

As of March 31, 2021, the Company held one municipal security that had previously been deemed to be other-than-temporarily impaired. The security was issued by a tax incremental district in a municipality located in Wisconsin. During the year ended December 31, 2012, the Company received audited financial statements with respect to the municipal issuer that called into question the ability of the underlying taxing district that issued the security to operate as a going concern. During the year ended December 31, 2012, the Company's analysis of this security resulted in $77,000 in credit losses charged to earnings with respect to this municipal security. An additional $17,000 credit loss was charged to earnings during the year ended December 31, 2014 with respect to this security as a sale occurred at a discounted price.  There have been no additional credit losses related to the security.  As of March 31, 2021, this security had an amortized cost of $116,000 and total life-to-date impairment of $94,000.

As of March 31, 2021, the Company had one corporate debt security, included in other debt securities, which had been in an unrealized loss position for twelve months or longer. The security was determined not to be other-than-temporarily impaired as of March 31, 2021. The Company has determined that the decline in fair value of these securities is not attributable to credit deterioration, and as the Company does not intend to sell nor is it more likely than not that it will be required to sell these securities before recovery of the amortized cost basis, this security is not considered other-than-temporarily impaired.

During the three months ended March 31, 2021 and March 31, 2020, there were no sales of securities.





Note 3 - Loans Receivable

Loans receivable at March 31, 2021 and December 31, 2020 are summarized as follows:

 
March 31, 2021
   
December 31, 2020
 
   
(In Thousands)
 
Mortgage loans:
           
Residential real estate:
           
One- to four-family
 
$
401,170
   
$
426,792
 
Multi-family
   
572,165
     
571,948
 
Home equity
   
14,673
     
14,820
 
Construction and land
   
57,123
     
77,080
 
Commercial real estate
   
241,790
     
238,375
 
Consumer
   
698
     
736
 
Commercial loans
   
47,804
     
45,386
 
   
$
1,335,423
   
$
1,375,137
 

The Company provides several types of loans to its customers, including residential, construction, commercial and consumer loans. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to one borrower or to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. While the Company's credit risks are geographically concentrated in the Milwaukee metropolitan area, there are no concentrations with individual or groups of related borrowers. While the real estate collateralizing these loans is primarily residential in nature, it ranges from owner-occupied single family homes to large apartment complexes.

Qualifying loans receivable totaling $1.01 billion and $1.07 billion at March 31, 2021 and December 31, 2020, respectively, were pledged as collateral against $474.0 million and $499.0 million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at March 31, 2021 and December 31, 2020.

Certain of the Company's executive officers, directors, employees, and their related interests have loans with the Bank. Loans outstanding to such parties were approximately $7.0 million as of March 31, 2021 and $7.2 million as of December 31, 2020.  None of these loans were past due or considered impaired as of March 31, 2021 or December 31, 2020.

As of March 31, 2021, there were no loans 90 or more days past due and still accruing interest.  As of December 31, 2020, there was a $586,000 loan that was 90 or more days past due and still accruing interest.  The Bank received full payoff of the loan subsequent to December 31, 2020.

An analysis of past due loans receivable as of March 31, 2021 and December 31, 2020 follows:

As of March 31, 2021
 
 
1-59 Days Past Due (1)
   
60-89 Days Past Due (2)
   
90 Days or Greater
   
Total Past Due
   
Current (3)
   
Total Loans
 
 
(In Thousands)
 
Mortgage loans:
                                 
Residential real estate:
                                 
One- to four-family
 
$
4,170
   
$
-
   
$
2,159
   
$
6,329
   
$
394,841
   
$
401,170
 
Multi-family
   
-
     
-
     
314
     
314
     
571,851
     
572,165
 
Home equity
   
36
     
-
     
30
     
66
     
14,607
     
14,673
 
Construction and land
   
-
     
-
     
43
     
43
     
57,080
     
57,123
 
Commercial real estate
   
-
     
-
     
30
     
30
     
241,760
     
241,790
 
Consumer
   
-
     
-
     
-
     
-
     
698
     
698
 
Commercial loans
   
140
     
-
     
-
     
140
     
47,664
     
47,804
 
Total
 
$
4,346
   
$
-
   
$
2,576
   
$
6,922
   
$
1,328,501
   
$
1,335,423
 



As of December 31, 2020
 
 
1-59 Days Past Due (1)
   
60-89 Days Past Due (2)
   
90 Days or Greater
   
Total Past Due
   
Current (3)
   
Total Loans
 
 
(In Thousands)
 
Mortgage loans:
                                 
Residential real estate:
                                 
One- to four-family
 
$
3,796
   
$
142
   
$
3,530
   
$
7,468
   
$
419,324
   
$
426,792
 
Multi-family
   
-
     
-
     
314
     
314
     
571,634
     
571,948
 
Home equity
   
-
     
-
     
30
     
30
     
14,790
     
14,820
 
Construction and land
   
-
     
-
     
43
     
43
     
77,037
     
77,080
 
Commercial real estate
   
-
     
-
     
41
     
41
     
238,334
     
238,375
 
Consumer
   
-
     
-
     
-
     
-
     
736
     
736
 
Commercial loans
   
-
     
-
     
-
     
-
     
45,386
     
45,386
 
Total
 
$
3,796
   
$
142
   
$
3,958
   
$
7,896
   
$
1,367,241
   
$
1,375,137
 


(1)   Includes $394,000 and $611,000 at March 31, 2021 and December 31, 2020, respectively, which are on non-accrual status.

(2)   Includes $- and $- at March 31, 2021 and December 31, 2020, respectively, which are on non-accrual status.

(3)   Includes $1.2 million and $1.6 million at March 31, 2021 and December 31, 2020, respectively, which are on non-accrual status.

A summary of the activity for the three months ended March 31, 2021 and 2020 in the allowance for loan losses follows:

 
One- to
Four- Family
   
Multi-Family
   
Home Equity
   
Construction and Land
   
Commercial Real Estate
   
Consumer
   
Commercial
   
Total
 
   
(In Thousands)
 
Three months ended March 31, 2021
                               
Balance at beginning of period
 
$
5,459
   
$
5,600
   
$
194
   
$
1,755
   
$
5,138
   
$
35
   
$
642
   
$
18,823
 
Provision (credit) for loan losses
   
(862
)
   
421
     
(15
)
   
(505
)
   
(123
)
   
(2
)
   
16
     
(1,070
)
Charge-offs
   
(14
)
   
-
     
-
     
-
     
-
     
-
     
-
     
(14
)
Recoveries
   
11
     
23
     
4
     
1
     
2
     
-
     
-
     
41
 
Balance at end of period
 
$
4,594
   
$
6,044
   
$
183
   
$
1,251
   
$
5,017
   
$
33
   
$
658
   
$
17,780
 

Three months ended March 31, 2020
                                     
Balance at beginning of period
 
$
4,907
   
$
4,138
   
$
201
   
$
610
   
$
2,145
   
$
14
   
$
372
   
$
12,387
 
Provision (credit) for loan losses
   
(234
)
   
160
     
32
     
76
     
654
     
10
     
87
     
785
 
Charge-offs
   
(6
)
   
-
     
-
     
-
     
-
     
(1
)
   
-
     
(7
)
Recoveries
   
47
     
3
     
6
     
1
     
4
     
-
     
-
     
61
 
Balance at end of period
 
$
4,714
   
$
4,301
   
$
239
   
$
687
   
$
2,803
   
$
23
   
$
459
   
$
13,226
 



A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of March 31, 2021 follows:

 
One- to
Four- Family
   
Multi-
Family
   
Home
Equity
   
Construction
and Land
   
Commercial
Real Estate
   
Consumer
   
Commercial
   
Total
 
   
(In Thousands)
 
Allowance related to loans individually evaluated for impairment
 
$
21
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
21
 
Allowance related to loans collectively evaluated for impairment
   
4,573
     
6,044
     
183
     
1,251
     
5,017
     
33
     
658
     
17,759
 
Balance at end of period
 
$
4,594
   
$
6,044
   
$
183
   
$
1,251
   
$
5,017
   
$
33
   
$
658
   
$
17,780
 
                                                                 
Loans individually evaluated for impairment
 
$
6,462
   
$
314
   
$
59
   
$
43
   
$
6,964
   
$
-
   
$
1,097
   
$
14,939
 
Loans collectively evaluated for impairment
   
394,708
     
571,851
     
14,614
     
57,080
     
234,826
     
698
     
46,707
     
1,320,484
 
Total gross loans
 
$
401,170
   
$
572,165
   
$
14,673
   
$
57,123
   
$
241,790
   
$
698
   
$
47,804
   
$
1,335,423
 

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of December 31, 2020 follows:

 
One- to
Four-Family
   
Multi-
Family
   
Home
Equity
   
Construction
and Land
   
Commercial
Real Estate
   
Consumer
   
Commercial
   
Total
 
   
(In Thousands)
 
Allowance related to loans individually evaluated for impairment
 
$
23
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
23
 
Allowance related to loans collectively evaluated for impairment
   
5,436
     
5,600
     
194
     
1,755
     
5,138
     
35
     
642
     
18,800
 
Balance at end of period
 
$
5,459
   
$
5,600
   
$
194
   
$
1,755
   
$
5,138
   
$
35
   
$
642
   
$
18,823
 
                                                                 
Loans individually evaluated for impairment
 
$
7,805
   
$
341
   
$
63
   
$
43
   
$
7,248
   
$
-
   
$
1,097
   
$
16,597
 
Loans collectively evaluated for impairment
   
418,987
     
571,607
     
14,757
     
77,037
     
231,127
     
736
     
44,289
     
1,358,540
 
Total gross loans
 
$
426,792
   
$
571,948
   
$
14,820
   
$
77,080
   
$
238,375
   
$
736
   
$
45,386
   
$
1,375,137
 



The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of March 31, 2021 and December 31, 2020:

 
One
to Four- Family
   
Multi-Family
   
Home
Equity
   
Construction
and Land
   
Commercial
Real Estate
   
Consumer
   
Commercial
   
Total
 
   
(In Thousands)
 
At March 31, 2021
                                               
Substandard
 
$
6,462
   
$
314
   
$
242
   
$
43
   
$
6,964
   
$
-
   
$
1,796
   
$
15,821
 
Watch
   
6,164
     
272
     
83
     
4,269
     
5,585
     
-
     
3,127
     
19,500
 
Pass
   
388,544
     
571,579
     
14,348
     
52,811
     
229,241
     
698
     
42,881
     
1,300,102
 
   
$
401,170
   
$
572,165
   
$
14,673
   
$
57,123
   
$
241,790
   
$
698
   
$
47,804
   
$
1,335,423
 
                                                                 
At December 31, 2020
                                                               
Substandard
 
$
7,804
   
$
341
   
$
248
   
$
43
   
$
6,026
   
$
-
   
$
710
   
$
15,172
 
Watch
   
7,667
     
275
     
15
     
4,282
     
6,714
     
-
     
4,101
     
23,054
 
Pass
   
411,321
     
571,332
     
14,557
     
72,755
     
225,635
     
736
     
40,575
     
1,336,911
 
   
$
426,792
   
$
571,948
   
$
14,820
   
$
77,080
   
$
238,375
   
$
736
   
$
45,386
   
$
1,375,137
 

Factors that are important to managing overall credit quality include sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an allowance for loan losses, and sound non-accrual and charge-off policies.  Our underwriting policies require an officers' loan committee review and approval of all loans in excess of $500,000.  A member of the credit department, independent of the loan originator, performs a loan review for all loans. Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we maintain a loan review system under which our credit management personnel review non-owner occupied one- to four-family, multi-family, construction and land, and commercial real estate loans that individually, or as part of an overall borrower relationship exceed $1.0 million in potential exposure and review commercial loans that individually, or as part of an overall borrower relationship exceed $200,000 in potential exposure.  Loans meeting these criteria are reviewed on an annual basis, or more frequently, if the loan renewal is less than one year.  With respect to this review process, management has determined that pass loans include loans that exhibit acceptable financial statements, cash flow and leverage. Watch loans have potential weaknesses that deserve management's attention, and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Substandard loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These loans generally have a well-defined weakness that may jeopardize liquidation of the debt and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  Finally, a loan is considered to be impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management has determined that all non-accrual loans and loans modified under troubled debt restructurings meet the definition of an impaired loan.

The Company's procedures dictate that an updated valuation must be obtained with respect to underlying collateral at the time a loan is deemed impaired. Updated valuations may also be obtained upon transfer from loans receivable to real estate owned based upon the age of the prior appraisal, changes in market conditions or known changes to the physical condition of the property.

Estimated fair values are reduced to account for sales commissions, broker fees, unpaid property taxes and additional selling expenses to arrive at an estimated net realizable value.  The adjustment factor is based upon the Company's actual experience with respect to sales of real estate owned over the prior two years.  In situations in which we are placing reliance on an appraisal that is more than one year old, an additional adjustment factor is applied to account for downward market pressure since the date of appraisal. The additional adjustment factor is based upon relevant sales data available for our general operating market as well as company-specific historical net realizable values as compared to the most recent appraisal prior to disposition.

With respect to multi-family income-producing real estate, appraisals are reviewed and estimated collateral values are adjusted by updating significant appraisal assumptions to reflect current real estate market conditions. Significant assumptions reviewed and updated include the capitalization rate, rental income and operating expenses. These adjusted assumptions are based upon recent appraisals received on similar properties as well as on actual experience related to real estate owned and currently under Company management.



The following tables present data on impaired loans at March 31, 2021 and December 31, 2020.

 
As of March 31, 2021
 
   
Recorded
Investment
   
Unpaid
Principal
   
Reserve
   
Cumulative
Charge-Offs
 
   
(In Thousands)
 
Total Impaired with Reserve
                       
One- to four-family
 
$
206
   
$
206
   
$
21
   
$
-
 
Multi-family
   
-
     
-
     
-
     
-
 
Home equity
   
-
     
-
     
-
     
-
 
Construction and land
   
-
     
-
     
-
     
-
 
Commercial real estate
   
-
     
-
     
-
     
-
 
Consumer
   
-
     
-
     
-
     
-
 
Commercial
   
-
     
-
     
-
     
-
 
     
206
     
206
     
21
     
-
 
Total Impaired with no Reserve