Bank Mutual Corporation Reports 35% Increase In Net Income For The Second Quarter Of 2014

MILWAUKEE, July 16, 2014 /PRNewswire/ -- Bank Mutual Corporation (NASDAQ: BKMU) reported net income of $3.6 million or $0.08 per diluted share in the second quarter of 2014, which was a 35.1% improvement over net income of $2.6 million or $0.06 per diluted share in the same quarter in 2013.  Year-to-date, Bank Mutual Corporation ("Bank Mutual") reported net income of $6.4 million or $0.14 per diluted share in 2014 compared to $5.2 million or $0.11 per diluted share in the same six-month period in 2013.  These improvements were due primarily to higher net interest income, lower provision for loan losses, and lower compensation-related expenses.  These developments were partially offset by lower net mortgage banking revenue and, for the year-to-date period, a non-recurring charge in the first quarter of 2014 related to state income taxes.

David A. Baumgarten, President and Chief Executive Officer of Bank Mutual, noted, "Our net interest margin increased to 3.32% in the second quarter, which was another record for the bank."  Baumgarten continued, "This improvement, together with other favorable trends in our financial condition and operating results, pushed earnings in the second quarter to the highest level in nearly five years."  Baumgarten concluded, "We remain reasonably confident that earnings will continue to trend higher in the near term, although there can be no assurances."  

Bank Mutual's net interest income increased by $1.2 million or 7.5% and by $2.2 million or 6.7% during the three and six months ended June 30, 2014, respectively, compared to the same periods in 2013.  These increases were primarily attributable to a 28 basis point improvement in Bank Mutual's net interest margin, from 3.01% during the first half of 2013 to 3.29% during the same period in the current year.  In the quarter just ended, Bank Mutual's net interest margin improved to 3.32% compared to 3.02% in the second quarter of last year.  The improvements in net interest margin were due principally to an improved earning asset mix and an improved funding mix between these periods.  Specifically, Bank Mutual's average loans receivable increased by $91.0 million or 6.4% during the first six months of 2014 compared to the same period in 2013 and its average mortgage-related securities, investment securities, and overnight investments declined by $141.3 million or 19.2% in the aggregate between these same periods.  Loans receivable generally have a higher yield than securities and overnight investments. 

With respect to Bank Mutual's funding mix, its average checking and savings deposits increased by $35.6 million or 3.9% in the aggregate during the first half of 2014 compared to the same period in 2013 and its average certificates of deposit declined by $164.2 million or 21.5% between these periods. Checking and savings deposits generally have a lower interest cost (or no interest cost) than certificates of deposits.  Also contributing to the improvement in funding mix during the first six months of 2014 was $37.5 million in average overnight borrowings from the Federal Home Loan Bank ("FHLB") of Chicago compared to no such borrowings in the 2013 year-to-date period.  These borrowings, which were drawn to fund loan growth and net deposit outflows in recent months, had an average interest cost of only 0.13% during the first half of 2014, which is also a lower cost than certificates of deposit.

Also contributing to the improvement in net interest margin during the six months ended June 30, 2014, compared to the same period in 2013 was a 46 basis point decline in the average cost of Bank Mutual's certificates of deposit. Management anticipates that Bank Mutual's cost of certificates of deposit will decline only modestly (if at all) during the remainder of 2014, although there can be no assurances. 

The favorable impact of the aforementioned developments on net interest income was partially offset by a $50.3 million or 2.3% decrease in average earning assets during the six months ended June 30, 2014, compared to the same period in 2013.  Bank Mutual's earning assets have declined in recent periods as it has used available cash flow to fund a net decrease in its liabilities, particularly its certificates of deposit, as previously noted.

Bank Mutual's provision for loan losses was $321,000 in the second quarter of 2014 compared to $1.7 million in the same quarter last year.  The provision for the six months ended June 30, 2014, was $334,000 compared to $2.6 million in the same period last year.  The decline in the provision for loan loss during these periods was due principally to an improvement in the general credit quality of Bank Mutual's loan portfolio, as evidenced by a decrease in the overall level of Bank Mutual's classified loans, as described later in this release.  This improvement resulted in a decline in the portion of Bank Mutual's allowance for loan loss that is determined primarily by internal risk ratings and the level of loans within each rating.  General economic, employment, and real estate conditions continue to improve in Bank Mutual's markets, although at a relatively slow pace.  However, current conditions continue to be challenging for some borrowers.  As such, there can be no assurances that classified loans and/or non-performing loans will continue to trend lower in future periods or that Bank Mutual's provision for loan losses will not vary considerably from period to period. 

Deposit-related fees and charges decreased modestly during each of the three- and six-month periods ended June 30, 2014, respectively, compared to the same periods in the previous year.  Deposit-related fees and charges consist of overdraft fees, ATM and debit card fees, merchant processing fees, account services charges, and other revenue items related to services performed by Bank Mutual for its retail and commercial deposit customers.  In previous periods, Bank Mutual had reported ATM and debit card fees, merchant processing fees, and certain other items as a component of other income.  Management attributes the decrease in deposit-related fees and charges during the 2014 periods to changes in deposit customer spending behavior in recent periods which has resulted in lower revenue from overdraft charges and from check printing commissions.  These developments were partially offset by increased revenue from treasury management and merchant card processing services that Bank Mutual offers to commercial depositors.  Also contributing was increased revenue from a debit card reward program that Bank Mutual implemented in 2013.

Brokerage and insurance commissions were $691,000 during the second quarter of 2014, which was $287,000 or 29.3% lower than the same period in the previous year.  On a year-to-date basis, this source of revenue was $1.4 million in 2014, which was a $292,000 or 17.5% decline from the same period in 2013.   This revenue item consists of commissions earned on sales of tax-deferred annuities, mutual funds, and certain other securities, as well as personal and business insurance products.  These decreases were primarily due to a decline in customer demand for tax-deferred annuities in the most recent quarter.  In addition, commission revenue in the 2013 periods benefited from higher commissions from sales of equity-related investments.  

Mortgage banking revenue, net, was $792,000 and $1.4 million during the three and six-month periods ended June 30, 2014, respectively. This compared to $2.4 million and $5.1 million during the same periods in 2013, respectively.  The following table presents the components of mortgage banking revenue, net, for the periods indicated (in prior periods these components had been presented as separate line items in the consolidated statements of income):

 


Three Months Ended
June 30


Six Months Ended
June 30


2014

2013


2014

2013


(Dollars in thousands)

Gross loan servicing fees

$702

$722


$1,418

$1,437

Mortgage servicing rights amortization

(456)

(785)


(878)

(1,793)

Mortgage servicing rights valuation recovery

1

1,115


1

2,229

    Loan servicing revenue, net

247

1,052


541

1,873

Gain on loan sales activities, net

545

1,382


881

3,242

    Mortgage banking revenue, net

$792

$2,434


$1,422

$5,115

 

Loan servicing revenue, net, was $247,000 in the second quarter of 2014 compared to $1.1 million in the same period in 2013.  On a year-to-date basis, this revenue item was $541,000 in 2014 compared to $1.9 million in 2013.  The change in the valuation allowance that Bank Mutual maintains against its mortgage servicing rights ("MSRs") is recorded as a recovery or loss, as the case may be, in the period in which the change occurs.  Higher market interest rates for residential loans beginning in early 2013 and continuing into 2014 resulted in lower future prepayment expectations on the loans underlying Bank Mutual's MSRs, which resulted in a recovery of substantially all of the related valuation allowance in 2013.  Higher rates also resulted in substantially lower MSR amortization in the 2014 periods compared to the same periods in 2013 due to a lower level of actual loan prepayments.  As of June 30, 2014, Bank Mutual's MSRs had a net book value of $8.2 million.  As of the same date Bank Mutual serviced $1.1 billion in loans for third-party investors compared to $1.2 billion one year ago.  

Gain on loan sales activities, net, was $545,000 and $881,000 during the three- and six-month periods ended June 30, 2014, respectively, compared to $1.4 million and $3.2 million in the same periods last year, 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 2014 sales of these loans were $156.8 million or 84.5% lower than they were during the same period in 2013.  Increases in market interest rates for mortgage loans during 2013 and continuing into 2014 have resulted in lower originations and sales of fixed-rate, one- to four-family loans in recent periods.  If market interest rates remain at their current level or trend higher, management anticipates that Bank Mutual's gains on sales of loans will continue to be substantially lower during the remainder of 2014 than they were in 2013. 

Income from bank-owned life insurance ("BOLI") was $582,000 during the three months ended June 30, 2014, compared to $426,000 during the same period in 2013.  On a year-to-date basis, income from BOLI was $1.1 million in 2014 compared to $1.2 million in the same period of 2013.  Results in the second quarter of 2014 included a payout of excess death benefits under the terms of the insurance contracts.  The second quarter of 2013 does not include any payouts related to excess death benefits.  On a year-to-date basis, however, payouts of excess death benefits in 2014 were lower than they were during the same six-month period in 2013.

Other non-interest income was $636,000 during the second quarter of 2014 compared to $182,000 during the same quarter in 2013.  During the six-month period, other non-interest income was $888,000 in 2014 compared to $598,000 in the same period last year.  These changes were due primarily to increased fee income from interest rate swaps related to the certain commercial lending relationships.  In late 2013 Bank Mutual began to mitigate the interest rate risk associated with these types of lending relationships by executing interest rate swaps related to the relationships, the accounting for which resulted in the recognition of a certain amount of fee income at the time the swap contracts were executed.  Management expects that this source of revenue will vary from period to period depending on borrower preference for the types of lending relationships that generate the need for the interest rate swaps.

Compensation-related expenses decreased by $855,000 or 7.8% and $2.0 million or 9.3% during the three- and six-month periods ended June 30, 2014, respectively, compared to the same periods in 2013, respectively.  These decreases were due primarily to lower costs related to Bank Mutual's defined benefit pension plan, the benefits of which were frozen for most participants effective December 31, 2013.  Also contributing to the decrease in this plan's costs was an increase in the discount rate used to determine the present value of the pension obligation.  Compensation-related expense was also lower in the 2014 periods because of a change in the manner in which employees earn vacation and other paid time off benefits beginning in 2014. Management anticipates that this change, which is non-recurring, will reduce full-year compensation expense in 2014 by approximately $1.3 million compared to 2013. 

The favorable developments described in the preceding paragraph were partially offset by an increase in employer contributions to Bank Mutual's defined contribution savings plan.  This increase was intended to partially offset the effects of the changes that were made to the defined benefit pension plan, as previously described.  Also offsetting the favorable developments described in the preceding paragraph was the impact of normal annual merit increases granted to most employees in the first quarter of 2014.  

Occupancy and equipment expenses increased by $153,000 or 5.3% during the three months ended June 30, 2014, compared to the same period in the prior year.  Year-to-date, occupancy and equipment expenses increased by $424,000 or 7.1% in 2014 compared to the same six month period in 2013.  Most of these increases were caused by increased snow removal costs and utility expenses earlier in 2014 due to harsh winter conditions compared to the prior year.  Also contributing were increased maintenance and repair costs in the 2014 periods relative to the 2013 periods.

Federal deposit insurance premiums were $372,000 during the second quarter 2014, which was $136,000 or 57.6% higher than the same period in 2013.  On a year-to-date basis, these premiums were $746,000 in 2014, which was $297,000 or 28.5% lower than the same period in 2013.  The year-to-date decrease was caused by continued improvement in Bank Mutual's financial condition and operating results which, under the Federal Deposit Insurance Corporation's ("FDIC") risk-based premium assessment system, has resulted in a lower insurance assessment rate.   Also contributing to the decrease was a lower level of average total assets in the first half of 2014 compared to 2013.  The FDIC uses average total assets as the assessment base for determining the insurance premium.  The quarterly increase in deposit insurance premiums was caused by a $250,000 retroactive credit Bank Mutual received in the second quarter of 2013 that was also related to its improved condition and results, but which related to premiums that had been paid in earlier periods.

Advertising and marketing-related expenses declined by $30,000 or 5.6% during the second quarter of 2014 compared to the same quarter in the previous year.  Year-to-date, advertising and marketing expenses declined by $93,000 or 8.8% in 2014 compared to the same six month period in the prior year.  At this time management expects advertising and marketing-related expenses for the full year of 2014 to be about 5% higher than they were in 2013.  However, this will depend on future management decisions and there can be no assurances.

Net losses and expenses on foreclosed real estate were $607,000 and $967,000 during the three and six months ended June 30, 2014, respectively, compared to $443,000 and $1.6 million during the same period of last year.  In general, Bank Mutual has experienced lower losses and expenses on foreclosed real estate in recent periods due to lower levels of foreclosed properties.   Management does not consider the increase in the second quarter of 2014 to be indicative of a reversal in this general trend, although there can be no assurances.

Other non-interest expense was $2.6 million and $4.9 million during the three and six months ended June 30, 2014, respectively, compared to $2.3 million and $4.7 million during the same periods in 2013, respectively.  These increases were primarily due to increased legal, consulting, and other professional costs incurred in 2014 that related to certain management initiatives and other legal matters.

Income tax expense was $2.0 million and $1.5 million during the three months ended June 30, 2014 and 2013, respectively, and was $4.4 million and $2.7 million during the six months ended as of the same dates, respectively.  Bank Mutual's effective tax rates ("ETRs") during the second quarters of 2014 and 2013 were 35.7% and 35.9%, respectively.  The 2014 year-to-date period includes a non-recurring charge of $518,000 (net of federal income tax benefit) that was related to a payment by Bank Mutual to the Wisconsin Department of Revenue (the "Department") to settle a tax matter that has been previously disclosed.  Excluding this non-recurring charge, as well as the related federal tax benefit, Bank Mutual's effective tax rates ("ETRs") during the first six months of 2014 and 2013 were 36.1% and 34.1%, respectively.  Bank Mutual's ETR will vary from period to period depending primarily on the impact of non-taxable revenue items, such as tax-exempt interest income and earnings from BOLI.  Bank Mutual's ETR will generally be higher in periods in which these non-taxable revenue items comprise a smaller portion of pre-tax income.       

Bank Mutual's total assets decreased by $9.5 million or 0.4% during the six months ended June 30, 2014.  During this period Bank Mutual's mortgage-related securities available-for-sale declined by $50.5 million due primarily to the receipt of periodic principal repayments.  In addition, overnight borrowings from the FHLB of Chicago, which are a component of borrowings, increased by $25.0 million during the period and advance payments from borrowers for taxes and insurance increased by $18.2 million, the latter due primarily to seasonal trends.  Cash flows from these sources funded a $47.5 million increase in Bank Mutual's loans receivable and a $46.6 million decrease in its deposit liabilities.  Bank Mutual's total shareholders' equity increased from $281.0 million at December 31, 2013, to $285.8 million at June 30, 2014.         

Bank Mutual's loans receivable increased by $47.5 million or 3.1% during the six months ended June 30, 2014.  During the first half of 2014 commercial and industrial loans increased by $39.4 million or 23.6% on increased originations and credit line utilization by borrowers.  In addition, multi-family real estate loans increased by $20.3 million or 7.6% on increased originations and construction disbursements on existing loans.  Finally, one- to four-family loans increased by $10.2 million or 2.1% despite a lower level of originations in the first half of 2014 compared to the same period in 2013.  This development was caused by higher market interest rates, as previously noted, which has significantly reduced the amount of prepayment activity in the one- to four-family loan portfolio in recent trends.  In contrast, Bank Mutual's portfolio of commercial real estate loans declined by $27.4 million or 9.9% during the first half of 2014 due to low borrower demand and aggressive competition for these types of loans in recent periods.  Bank Mutual's portfolios of home equity and consumer loans have declined modestly in recent periods for similar reasons.  Growth in total loans 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 in 2014 or that total loans will not decrease during the period.

Bank Mutual's deposit liabilities decreased by $46.6 million or 2.6% during the six months ended June 30, 2014.  Certificates of deposit declined by $76.3 million or 12.0% during the period while core deposits, consisting of checking, savings and money market accounts, increased by $29.7 million or 2.6%.  Bank Mutual continues to closely manage the rates it offers on certificates of deposit to control its overall liquidity position, which has resulted in a decline in certificates of deposit in recent periods.  Core deposits have increased in recent periods in response to management's efforts to increase sales of such products and related services to commercial businesses, as well as efforts to focus its retail sales efforts on such products and related services.  Also contributing to the increase in core deposits in recent periods, however, was customer reaction to the low interest rate environment for deposit products.  Management believes that this environment has encouraged some customers to switch to core deposits in an effort to retain flexibility in the event interest rates rise in the future.  If interest rates increase in the future, customer preference may shift from core 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 could have an adverse impact on its net interest margin.

Bank Mutual's shareholders' equity increased from $281.0 million at December 31, 2013, to $285.8 million at June 30, 2014.  This increase was due primarily to net income during the period, partially offset by the payment of cash dividends of $0.03 and $0.04 per share to shareholders during the first and second quarters, respectively.  The book value of Bank Mutual's common stock was $6.14 per share at June 30, 2014, compared to $6.05 per share at December 31, 2013. 

Bank Mutual's ratio of shareholders' equity to total assets was 12.22% at June 30, 2014, compared to 11.97% at December 31, 2013.  The increase in this ratio was caused by the reasons noted in the previous paragraph.  Also contributing was a decline in Bank Mutual's total assets during the period, as previously described.  Bank Mutual's subsidiary bank is "well capitalized" for regulatory capital purposes.  As of March 31, 2014 (the latest information available), the subsidiary bank had a total risk-based capital ratio of 18.24% and a Tier 1 capital ratio of 11.18%.  The minimum ratios to be considered "well capitalized" under current supervisory regulations are 10% for total risk-based capital and 6% for Tier 1 capital.  The minimum ratios to be considered "adequately capitalized" are 8% and 4%, respectively.  

In 2013 the Board of Governors of the Federal Reserve ("FRB") and the Office of the Comptroller of the Currency ("OCC") published final regulatory capital rules under Basel III.  These new rules will become effective on January 1, 2015, although certain aspects of the new rules will phase in over the following four years.  At this time management does not expect these new rules to have a significant impact on the regulatory capital of Bank Mutual's subsidiary bank, its financial condition, or its results of operations, although there can be no assurances.  In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") will eventually impose specific capital requirements on savings and loan holding companies such as Bank Mutual.  These developments, as well as other requirements that could be imposed by regulators, may impact the ability of Bank Mutual and/or its subsidiary bank to pay dividends or, in the case of Bank Mutual, repurchase its common stock.   

Bank Mutual's non-performing loans were $9.9 million or 0.63% of loans receivable as of June 30, 2014, compared to $13.0 million or 0.86% of loans receivable as of December 31, 2013.  Non-performing assets, which includes non-performing loans, were $16.0 million or 0.68% of total assets and $19.7 million or 0.84% 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 non-performing assets, at June 30, 2014, management was closely monitoring $36.6 million in additional loans that were classified as "special mention" and $41.6 million in additional loans that were classified as "substandard" in accordance with Bank Mutual's internal risk rating policy.  These amounts compared to $52.7 million and $36.1 million, respectively, as of December 31, 2013.  As of June 30, 2014, most of the additional loans that were classified as "special mention" or "substandard" were secured by commercial real estate, multi-family real estate, land, and certain commercial business assets.  The decrease in loans classified as "special mention" was due primarily to the downgrade of certain loans to "substandard" during the period.  However, this development was largely offset by a number of other "substandard" loans that paid off during the period or were upgraded due to the improved financial condition and operating results of the borrowers.  In a number of the instances in which loans were downgraded from "special mention" to "substandard," management believes the conditions that caused the downgrade could be temporary, and that such loans may be upgraded in the future, rather than experience additional deterioration.  However, there can be no assurances.  Management does not believe any of these particular loans were impaired as of June 30, 2014.  

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.  As such, there can be no assurances that there will not be significant fluctuations in Bank Mutual's non-performing assets and/or classified loans in future periods or that there will not be significant variability in Bank Mutual's provision for loan losses from period to period. 

Bank Mutual's allowance for loan losses was $22.8 million or 1.46% of total loans at June 30, 2014, compared to $23.6 million or 1.56% of total loans at December 31, 2013.  As a percent of non-performing loans, Bank Mutual's allowance for loan losses was 231.2% at June 30, 2014, compared to 181.6% at December 31, 2013.  Management believes the allowance for loan losses at June 30, 2014, 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.  Its stock is quoted on the NASDAQ Global Select Market under the ticker BKMU.  Its subsidiary bank, Bank Mutual, operates 75 banking locations in the state of Wisconsin and one in Minnesota.

Cautionary Statements         

This report 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 further 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, including substantial changes under the Dodd-Frank Act; regulators' strict expectations for financial institutions' capital levels and restrictions imposed on institutions, as to payments of dividends or otherwise, to maintain or achieve those levels, including the possible effects of new regulatory capital requirements under Basel III; recent, pending, and/or potential rulemaking or other actions by the Consumer Financial Protection Bureau ("CFPB"); potential regulatory or other actions affecting Bank Mutual or its subsidiary bank; potential changes in the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), which could impact the home mortgage market; 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; 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 2013 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


2014


2013

 ASSETS 




 Cash and due from banks 

$23,133


$23,747

 Interest-earning deposits 

14,217


18,709

   Cash and cash equivalents 

37,350


42,456

 Mortgage-related securities available-for-sale, at fair value 

396,085


446,596

 Mortgage-related securities held-to-maturity, at amortized cost 




     (fair value of $155,863 in 2014 and $153,223 in 2013) 

154,326


155,505

 Loans held-for-sale 

2,968


1,798

 Loans receivable (net of allowance for loan losses of $22,794 




     in 2014 and $23,565 in 2013) 

1,556,459


1,508,996

 Mortgage servicing rights, net 

8,213


8,737

 Other assets 

182,457


183,261





     Total assets 

$2,337,858


$2,347,349





 LIABILITIES AND EQUITY 




 Liabilities: 




   Deposit liabilities 

$1,716,106


$1,762,682

   Borrowings 

269,291


244,900

   Advance payments by borrowers for taxes and insurance 

21,651


3,431

   Other liabilities 

41,236


52,414

     Total liabilities 

2,048,284


2,063,427

 Equity: 




   Preferred stock - $0.01 par value: 




     Authorized - 20,000,000 shares in 2014 and 2013 




     Issued and outstanding - none in 2014 and 2013 

-


-

   Common stock - $0.01 par value: 




     Authorized - 200,000,000 shares in 2014 and 2013 




     Issued - 78,783,849 shares in 2014 and 2013 




     Outstanding - 46,559,284 shares in 2014 and 46,438,284 in 2013 

788


788

   Additional paid-in capital 

488,127


489,238

   Retained earnings 

154,547


151,384

   Accumulated other comprehensive loss 

(1,083)


(2,319)

   Treasury stock - 32,224,565 shares in 2014 and 32,345,565 in 2013 

(356,577)


(358,054)

     Total shareholders' equity 

285,802


281,037

   Non-controlling interest in real estate partnership 

3,772


2,885

     Total equity including non-controlling interest 

289,574


283,922





     Total liabilities and equity 

$2,337,858


$2,347,349

 

 

 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 


2014


2013


2014


2013

 Interest income: 








   Loans 

$16,518


$15,974


$32,810


$32,182

   Mortgage-related securities 

3,243


3,538


6,598


7,465

   Investment securities 

33


10


56


23

   Interest-earning deposits 

4


38


7


65

      Total interest income 

19,798


19,560


39,471


39,735

 Interest expense: 








   Deposits 

1,226


2,173


2,588


4,938

   Borrowings 

1,170


1,197


2,333


2,422

   Advance payment by borrowers for taxes and insurance 

-


1


-


1

      Total interest expense 

2,396


3,371


4,921


7,361

      Net interest income 

17,402


16,189


34,550


32,374

 Provision for loan losses 

321


1,730


334


2,622

      Net interest income after provision for loan losses 

17,081


14,459


34,216


29,752

 Non-interest income: 








   Deposit-related fees and charges 

3,003


3,047


5,861


5,966

   Brokerage and insurance commissions 

691


978


1,378


1,670

   Mortgage banking revenue, net 

792


2,434


1,422


5,115

   Income from bank-owned life insurance ("BOLI") 

582


426


1,050


1,150

   Other non-interest income 

636


182


888


598

      Total non-interest income 

5,704


7,067


10,599


14,499

 Non-interest expense: 








   Compensation, payroll taxes, and other employee benefits 

10,153


11,008


20,013


22,061

   Occupancy and equipment 

3,014


2,861


6,364


5,940

   Federal insurance premiums  

372


236


746


1,043

   Advertising and marketing 

505


535


969


1,062

   Losses and expenses on foreclosed real estate, net 

607


443


967


1,575

   Other non-interest expense 

2,569


2,328


4,920


4,726

      Total non-interest expense 

17,220


17,411


33,979


36,407

      Income before income tax expense  

5,565


4,115


10,836


7,844

 Income tax expense  

1,988


1,478


4,427


2,677

      Net income before non-controlling interest 

3,577


2,637


6,409


5,167

 Net loss attributable to non-controlling interest 

1


12


13


27

      Net income  

$3,578


$2,649


$6,422


$5,194









 Per share data: 








   Earnings per share-basic  

$0.08


$0.06


$0.14


$0.11

   Earnings per share-diluted 

$0.08


$0.06


$0.14


$0.11

   Cash dividends paid 

$0.04


$0.02


$0.07


$0.04

 

 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

2014


2013


2014


2013

  Loans originated for portfolio:








    Commercial loans:








      Commercial and industrial

$24,732


$10,593


$43,570


$22,444

      Commercial real estate

7,384


6,068


14,297


10,205

      Multi-family

49,284


17,816


57,472


29,499

      Construction and development

28,602


23,917


32,552


45,024

        Total commercial loans

110,002


58,394


147,891


107,172

    Retail loans








      One- to four-family first mortgages

15,289


28,225


30,316


45,375

      Home equity

8,818


11,403


16,705


23,794

      Other consumer

394


886


730


1,861

        Total retail loans

24,501


40,514


47,751


71,030

        Total loans originated for portfolio

$134,503


$98,908


$195,642


$178,202









  Mortgage loans originated for sale

$19,219


$78,393


$32,262


$188,743









  Mortgage loan sales

$18,076


$81,757


$28,713


$185,536










 June 30 


December 31





Loan Portfolio Analysis

2014


2013





  Commercial loans: 








    Commercial and industrial

$206,170


$166,788





    Commercial real estate

249,187


276,547





    Multi-family real estate

286,154


265,841





  Construction and development loans:








      Commercial real estate

29,737


27,815





      Multi-family real estate

145,752


164,685





      Land and land development

5,813


6,962





        Total construction and development

181,302


199,462





        Total commercial loans

922,813


908,638





  Retail loans:








    One- to four-family first mortgages








      Permanent

458,235


449,230





      Construction

42,190


40,968





        Total one- to four-family first mortgages

500,425


490,198





    Home equity loans:








      Fixed term home equity

144,649


148,688





      Home equity lines of credit

79,335


79,470





        Total home equity loans

223,984


228,158





    Other consumer loans:








      Student

10,342


11,177





      Other

12,591


12,942





        Total consumer loans

22,933


24,119





        Total retail loans

747,342


742,475





        Gross loans receivable

1,670,155


1,651,113





  Undisbursed loan proceeds

(89,924)


(117,439)





  Allowance for loan losses

(22,794)


(23,565)





  Deferred fees and costs, net

(978)


(1,113)





      Total loans receivable, net

$1,556,459


$1,508,996













 Loans serviced for others 

$1,112,812


$1,148,109





 

 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

2014


2013

  Non-accrual commercial loans:




    Commercial and industrial

$209


$284

    Commercial real estate

2,534


4,401

    Multi-family

1,423


1,783

    Construction and development

639


728

      Total commercial loans

4,805


7,196

  Non-accrual retail loans:




    One- to four-family first mortgages

4,256


4,556

    Home equity

448


676

    Other consumer

61


104

      Total non-accrual retail loans

4,765


5,336

      Total non-accrual loans

9,570


12,532

  Accruing loans delinquent 90 days or more

291


443

      Total non-performing loans

9,861


12,975

  Foreclosed real estate and repossessed assets

6,138


6,736

      Total non-performing assets

$15,999


$19,711

 Non-performing loans to loans receivable, net 

0.63%


0.86%

 Non-performing assets to total assets 

0.68%


0.84%



June 30


December 31

Special Mention and Substandard Loans

2014


2013

(includes all non-performing loans, above)




   Commercial loans: 




     Commercial and industrial 

$16,650


$9,171

     Commercial real estate 

51,227


56,589

     Multi-family 

10,611


11,614

     Construction and development 

2,293


18,109

         Total commercial loans 

80,781


95,483

   Retail loans: 




     One- to four-family first mortgages

6,779


5,502

     Home equity

448


676

     Other consumer

61


104

        Total retail loans 

7,288


6,282

        Total  

$88,069


$101,765






 Six Months Ended June 30 

Activity in Allowance for Loan Losses

2014


2013

 Balance at the beginning of the period 

$23,565


$21,577

 Provision for loan losses 

334


2,622

 Charge-offs: 




     Commercial and industrial 

-


(199)

     Commercial real estate 

(557)


(493)

     Multi-family 

(241)


-

     Construction and development 

-


(6)

     One- to four-family first mortgages 

(429)


(860)

     Home equity 

(72)


(648)

     Other consumer 

(239)


(190)

       Total charge-offs 

(1,538)


(2,396)

  Recoveries: 




     Commercial and industrial 

1


3

     Commercial real estate 

129


414

     Multi-family 

-


-

     Construction and development 

142


-

     One- to four-family first mortgages 

135


247

     Home equity 

11


52

     Other consumer 

15


23

       Total recoveries 

433


739

       Net charge-offs 

(1,105)


(1,657)

       Balance at end of period 

$22,794


$22,542

 Net charge-offs to average loans, annualized 

0.15%


0.23%






June 30


December 31

Allowance Ratios

2014


2013

 Allowance for loan losses to non-performing loans 

231.15%


181.62%

 Allowance for loan losses to total loans 

1.46%


1.56%

 

 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

2014


2013





 Non-interest-bearing checking 

$176,793


$161,639





 Interest-bearing checking 

240,502


245,923





 Savings accounts 

225,129


220,236





 Money market accounts  

516,070


501,020





 Certificates of deposit 

557,612


633,864





    Total deposit liabilities 

$1,716,106


$1,762,682








 Three Months Ended  


 Six Months Ended  


 June 30 


 June 30 

Selected Operating Ratios

2014


2013


2014


2013

 Net interest margin (1) 

3.32%


3.02%


3.29%


3.01%

 Net interest rate spread 

3.24%


2.93%


3.22%


2.93%

 Return on average assets 

0.61%


0.45%


0.55%


0.44%

 Return on average shareholders' equity 

5.03%


3.86%


4.53%


3.80%

 Efficiency ratio (2) 

74.53%


74.87%


75.26%


77.67%

 Non-interest expense as a percent of average assets  

2.96%


2.94%


2.92%


3.06%

 Shareholders' equity to total assets at end of period 

12.22%


11.65%


12.22%


11.65%

 (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 for the periods indicated.











 Three Months Ended  


 Six Months Ended  


 June 30 


 June 30 

Other Information

2014


2013


2014


2013

 Average earning assets 

$2,098,722


$2,140,748


$2,099,269


$2,149,567

 Average assets 

2,327,977


2,372,474


2,328,522


2,380,633

 Average interest bearing liabilities 

1,806,422


1,884,497


1,809,114


1,905,817

 Average shareholders' equity 

284,692


274,350


283,529


273,631

 Weighted average number of shares outstanding: 








    As used in basic earnings per share 

46,292,016


46,224,831


46,286,760


46,220,262

    As used in diluted earnings per share 

46,526,843


46,366,959


46,558,598


46,349,463







June 30


December 31






2014


2013





 Number of shares outstanding (net of treasury shares) 

46,559,284


46,438,284





 Book value per share 

$6.14


$6.05
















June 30


December 31





Weighted Average Net Interest Rate Spread

2014


2013





 Yield on loans 

4.15%


4.30%





 Yield on investments 

2.33%


2.33%





 Combined yield on loans and investments 

3.67%


3.74%





 Cost of deposits 

0.27%


0.34%





 Cost of borrowings 

1.76%


1.93%





 Total cost of funds 

0.47%


0.54%





 Interest rate spread 

3.20%


3.20%





 

SOURCE Bank Mutual Corporation



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