SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





[X]
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934





For the quarterly period ended September 30, 2010





OR





[   ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





For the transition period from _______________ to _______________





Commission File No. 333-169432





Wolverine Bancorp, Inc.


(Exact name of registrant as specified in its charter)





Maryland

27-3939016(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)5710 Eastman Avenue, Midland, Michigan

48640(Address of Principal Executive Offices)

Zip Code





(989) 631-4280


(Registrant’s telephone number)





N/A


(Former name or former address, if changed since last report)





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 requirements for the past 90 days.


YES [   ]     NO [X]





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)





Large accelerated filer [   ]

Accelerated filer [   ]Non-accelerated filer [   ]

Smaller reporting company [X](Do not check if smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


YES [   ]     NO [X]





No shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of December 27, 2010.










Wolverine Bancorp, Inc.


Form 10-Q





Index





PagePart I. Financial InformationItem 1.

Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009

1Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2010 and 2009 (unaudited)

2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (unaudited)

3Notes to Condensed Consolidated Financial Statements (unaudited)

4Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

9Item 3.

Quantitative and Qualitative Disclosures about Market Risk

16Item 4.

Controls and Procedures

16Part II. Other InformationItem 1.

Legal Proceedings

17Item 1A.

Risk Factors

17Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17Item 3.

Defaults upon Senior Securities

17Item 4.

[Reserved]

17Item 5.

Other Information

17Item 6.

Exhibits

17Signature Page

18





EXPLANATORY NOTE





Wolverine Bancorp, Inc., a Maryland corporation (the “Registrant”), was formed on September 10, 2010 to serve as the stock holding company for Wolverine Bank (the “Bank”) as part of the Bank’s mutual-to-stock conversion.  As of September 30, 2010, the conversion had not been completed, and, as of that date, the Registrant had no assets or liabilities, and had not conducted any business other than that of an organizational nature.  Accordingly, financial and other information of the Bank is included in this Quarterly Report.











Part I. – Financial Information





Item 1.
Financial Statements





Wolverine Bank


Condensed Consolidated Balance Sheets


(In Thousands)





Assets





September 30,

2010


December 31,

2009(Unaudited)Cash and due from banks

$
527


$
424Interest-earning demand deposits


26,884



22,900Cash and cash equivalents


27,411



23,324Interest-earning time deposits


25,191



22,719Held to maturity securities


388



1,420Loans, net of allowance for loan losses of $10,660 and $6,507


240,005



245,036Premises and equipment, net


1,696



1,872Federal Home Loan Bank stock


4,700



4,700Real estate owned


1,006



590Accrued interest receivable


980



990Other assets


6,251



4,088Total assets

$
307,628


$
304,739Liabilities and Retained EarningsLiabilitiesDeposits

$
176,557


$
167,490Federal Home Loan Bank advances


84,000



90,000Interest payable and other liabilities


5,253



1,693Total liabilities


265,810



259,183Commitments and ContingenciesShareholders’ EquityRetained Earnings - substantially restricted


41,818



45,556Total liabilities and retained earnings

$
307,628


$
304,739





The accompanying notes are an integral part of these financial statements.





1





Wolverine Bank


Condensed Consolidated Statements of Operations


(In Thousands)





Three Months Ended

September 30,


Nine Months Ended

September 30,2010


2009


2010


2009(Unaudited)Interest and Dividend IncomeLoans

$
3,681


$
3,920


$
10,977


$
12,268Investment securities and other


113



194



441



659Total interest and dividend income


3,794



4,114



11,418



12,927Interest ExpenseDeposits


802



898



2,466



2,997Borrowings


1,024



1,172



3,153



3,496Total interest expense


1,826



2,070



5,619



6,493Net Interest Income


1,968



2,044



5,799



6,434Provision for Loan Losses


500



450



3,980



1,970Net Interest Income After Provision for Loan Losses


1,468



1,594



1,819



4,464Noninterest IncomeService charges and fees


222



76



351



204Net gains on loan sales


344



289



557



1,101Other


35



31



105



91Total noninterest income


601



396



1,013



1,396Noninterest ExpenseSalaries and employee benefits


925



927



5,707



2,632Net occupancy and equipment expense


166



216



539



624Data processing expense


57



56



173



170Federal deposit insurance corporation premiums


73



66



215



334Professional and service fees


104



69



280



211Real estate owned expense


66



123



170



181Other


430



262



1,398



754Total noninterest expense


1,821



1,719



8,482



4,906Income (Loss) Before Income Tax


248



271



(5,650
)


954Provision (benefit) for Income Taxes


86



68



(1,915
)


302Net Income (Loss)

$
162


$
203


$
(3,735
)

$
652





The accompanying notes are an integral part of these financial statements.





2





Wolverine Bank





Condensed Consolidated Statement of Cash Flows


(Dollars in Thousands)





Nine Months Ended

September 30,2010


2009(Unaudited)Operating ActivitiesNet income (loss)

$
(3,735
)

$
652Items not requiring (providing) cashDepreciation


181



201Provision for loan losses


3,980



1,970Loss on other real estate owned


(279
)


183Loans originated for sale


(27,273
)


(55,813
)Proceeds from loans sold


27,828



56,914Gain on sale of loans


(557
)


(1,101
)Changes inInterest receivable and other assets


(1,736
)


(570
)Interest payable and other liabilities


3,560



8Net cash provided by operating activities


1,969



2,444Investing ActivitiesNet change in interest-bearing deposits


(2,472
)


(715
)Proceeds from calls and maturities of held to maturity securities


1,032



14,635Net change in loans


138



14,185Proceeds from sale of real estate owned


359



978Purchase of premises and equipment


(5
)


(358
)Net cash provided by (used in) investing activities


(948
)


28,725Financing ActivitiesNet change in demand deposits, money market, NOW and savings accounts


17,982



3,662Net change in certificates of deposit


(8,916
)


(19,659
)Proceeds from Federal Home Loan Bank advances


10,000



—Repayment of Federal Home Loan Bank advances


(16,000
)


(2,000
)Net cash provided by (used in) financing activities


3,066



(17,997
)Increase (Decrease) in Cash and Cash Equivalents


4,087



13,172Cash and Cash Equivalents, Beginning of Period


23,324



6,466Cash and Cash Equivalents, End of Period

$
27,411


$
19,638Supplemental Disclosures of Cash Flows InformationInterest paid

$
5,625


$
6,594Income taxes paid


—



1,405Loans transferred to real estate owned


914



1,007





The accompanying notes are an integral part of these financial statements.





3





Wolverine Bank


Form 10-Q


(Dollars in Thousands)





Notes to Condensed Consolidated Financial Statements





Note 1:
Basis of Presentation





The unaudited condensed consolidated financial statements of Wolverine Bank (the "Bank") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) believed necessary for a fair presentation have been included.  The condensed consolidated balance sheet of the Bank as of December 31, 2009 has been derived from the audited consolidated balance sheet of the Bank as of that date.  Operating results for the three and nine month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  These consolidated financial statements should be read in conjunction with the Bank’s audit financial statements and notes thereto filed as part of Wolverine Bancorp’s Prospectus dated November 12, 2010 as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on November 23, 2010.





Note 2:
Accounting Developments





FASB ASU 2009-16, Transfers and Servicing (Topic 860); Accounting for Transfers of Financial Assets – In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC Topic 860, Accounting for Transfers of Financial Assets, which pertains to securitizations.  ASU 2009-16 requires more information about transfers of financial assets, including securitization transactions, and where entities have continued exposure to the risks related to transferred assets. The Bank adopted ASU 2009-16 effective January 1, 2010 and adoption did not have a material effect on its financial position or results of operations.





ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820):  Improving Disclosures about Fair Value Measurements. In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820):  Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers.  It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements.  The Bank’s disclosures about fair value measurements are presented in Note 5 - Disclosures About Fair Value of Assets and Liabilities.  These new disclosure requirements were effective for the period ended March 31, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010.  There was no significant effect to the Bank’s financial statement disclosure upon adoption of this ASU.





FASB ASU 2010-18 - Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset.In April, 2010, FASB issued ASU 2010-18 - Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset.  This Update clarifies that modifications of loans that are accounted for within a pool under Subtopic 310-30, which provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition, do not result in the removal of those loans from the pool even if the modification would otherwise be considered a troubled debt restructuring.





4





An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments do not affect the accounting for loans under the scope of Subtopic 310-30 that are not accounted for within pools.  Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40. The Bank has adopted ASU 2010-18, but does not anticipate that its adoption will have an impact on its financial statements.





ASU No. 2010-20, Receivables (Topic 310):  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310):  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  ASU 2010-20 requires that more information be disclosed about the credit quality of a bank’s loans and the allowance for loan losses held against those loans.  A bank will need to disaggregate new and existing disclosure based on how it develops its allowance for loan losses and how it manages credit exposures.  Existing disclosures to be presented on a disaggregated basis include a roll-forward of the allowance for loan losses, the related recorded investment in such loans, the nonaccrual status of loans, and impaired loans.  Additional disclosure is also required about the credit quality indicators of loans by class at the end of the reporting period, the aging of past due loans, information about troubled debt restructurings, and significant purchases and sales of loans during the reporting period by class.  For public companies, ASU 2010-20 requires certain disclosures as of the end of a reporting period effective for periods ending on or after December 15, 2010. Other required disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010.  The Bank anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.





Note 3:
Securities





The amortized cost and approximate fair values of securities are as follows:





Amortized

Cost


Gross

Unrealized

Gains


Gross

Unrealized

Losses


Approximate

Fair ValueHeld to Maturity Securities:September 30, 2010Municipals (unaudited)

$
388


$
—


$
—


$
388December 31, 2009U.S. Government sponsored agencies

$
1,000


$
16


$
—


$
1,016Municipals


420



—



—



420$
1,420


$
16


$
—


$
1,436





The amortized cost and fair value of securities at September 30, 2010 and December 31, 2009, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.





September 30, 2010


December 31, 2009Amortized

Cost


Fair

Value


Amortized

Cost


Fair

Value(Unaudited)Within one year

$
—


$
—


$
—


$
—One to five years


—



—



1,000



1,016Five to ten years










—



—After ten years


388



388



420



420Totals

$
388


$
388


$
1,420


$
1,436





5





There were no sales of securities during the nine months ended September 30, 2010 or the year ended December 31, 2009.





Note 4:
Loans and Allowance for Loan Losses





Categories of loans include:





September 30,

2010


December 31,

2009(Unaudited)Real EstateFixed-rate residential

$
72,185


$
77,288Adjustable-rate residential


8,297



8,544Commercial real estate


138,382



136,614Construction


17,213



7,551Home equity


12,027



11,775Commercial non-real estate


10,227



10,521Consumer


1,358



1,325Total loans


259,689



253,618LessNet deferred loan fees, premiums and discounts


401



351Undisbursed portion of loans


8,623



1,724Allowance for loan losses


10,660



6,507Net loans

$
240,005


$
245,036





Activity in the allowance for loan losses was as follows:





Nine Months Ended

September 302010


2009(Unaudited)Balance, beginning of period

$
6,507


$
3,379Provision charged to expense


3,980



1,970Losses charged off, net of recoveries of $48 (unaudited), $235 (unaudited)


173



(117
)Balance, end of period

$
10,660


$
5,232





Impaired loans totaled $28,122 and $14,125 at September 30, 2010 and December 31, 2009 respectively.  An allowance for loan losses of $4,614 and $3,015 relates to impaired loans at September 30, 2010 and December 31, 2009 respectively.  There were no impaired loans at September 30, 2010 and December 31, 2009 that did not have a specific allowance for loan losses.





Interest income of $624 and $58 was recognized on average impaired loans of $20,102 and $7,740 for the nine months ended September 30, 2010 and 2009, respectively.  Cash collected on impaired loans for the nine months ended September 30, 2010 and 2009 was $547 and $18, respectively.





At September 30, 2010 and December 31, 2009 there were no accruing loans delinquent 90 days or more.  Nonaccruing loans at September 30, 2010 and December 31, 2009 were $10,539 and $7,240, respectively.





6





Note 5:
Disclosures About Fair Value of Assets and Liabilities





ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:





Level 1
Quoted prices in active markets for identical assets or liabilities.





Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities





Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities





Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets under the valuation hierarchy.  The Bank has no assets or liabilities measured at fair value on a recurring basis and no liabilities measured at fair value on a nonrecurring basis.





Impaired Loans (Collateral Dependent)





Loans for which it is probable that the Bank will not collect all principal and interest due according to contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.





If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized.  This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.


Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.





The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2010 and December 31, 2009:





Fair Value Measurements UsingFair

Value


Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)


Significant

Other

Observable

Inputs

(Level 2)


Significant

Unobservable

Inputs

(Level 3)September 30, 2010Impaired loans

$
23,508


$
—


$
—


$
23,508December 31, 2009Impaired loans

$
11,110


$
—


$
—


$
11,110





7





The following table presents estimated fair values of the Bank’s financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.  The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.  Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Bank does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.





September 30

2010


December 31

2009Carrying

Amount


Fair

Value


Carrying

Amount


Fair

Value(Unaudited)Financial assetsCash and cash equivalents

$
27,411


$
27,411


$
23,324


$
23,324Interest bearing time deposits


25,191



25,191



22,719



22,719Held to maturity securities


388



388



1,420



1,436Loans, net of allowance for loan losses


240,005



242,916



245,036



252,150Federal Home Loan Bank stock


4,700



4,700



4,700



4,700Interest receivable


980



980



990



990Financial liabilitiesDeposits


176,557



178,479



167,490



169,323Federal Home Loan Bank advances


84,000



92,942



90,000



95,352Interest payable


343



343



350



350





The following methods and assumptions were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.





Cash and Cash Equivalents, Interest-Bearing Time Deposits, Federal Home Loan Bank Stock, Interest Receivable and Interest Payable





The carrying amount approximates fair value.





Held to Maturity Securities





Fair values equal quoted market prices, if available.  If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.





Loans





The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics were aggregated for purposes of the calculations.





Deposits





Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits.  The carrying amount approximates fair value.  The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.





8





Federal Home Loan Bank Advances





Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.





Commitments to Originate Loans, Letters of Credit and Lines of Credit


Loan commitments and letters-of-credit generally have short-term, variable rate features and contain clauses which limit the Bank’s exposure to changes in customer credit quality.  Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.





NOTE 6:
Plan of Conversion





On July 12, 2010, the Bank’s Board of Directors adopted a Plan of Conversion (the “Plan”) to convert from a federal mutual savings bank to a capital stock bank (the “Conversion”), and as amended on August 30, 2010.  A new Maryland-chartered corporation, Wolverine Bancorp, Inc. (the “Company”), was formed in September 2010, which, upon consummation of the Conversion and offering, will become the savings and loan holding company of the Bank. The Plan is subject to approval of the members of the Bank, which approval was received at a Special Meeting of Members on December 22, 2010. Additionally, the Plan is subject to the final approval of the Office of Thrift Supervision (“OTS”). As part of the Conversion and offering, the Company filed a registration statement with the U.S. Securities and Exchange Commission.  Upon receipt of the final approval of the OTS and the consummation of the Conversion and offering, the Bank will become the wholly owned subsidiary of the Company, and the Company will issue and sell shares of its capital stock to eligible depositors of the Bank and the public pursuant to an independent valuation appraisal of the Bank and the Company on a converted basis that has been conducted by an independent appraisal firm that is experienced in appraising financial institutions in connection with mutual to stock conversions.
 
 The cost of the Conversion and issuing the capital stock will be deferred and deducted from the proceeds of the offering.  In the event the conversion and offering are not completed, any deferred costs will be charged to operations.  Through September 30, 2010, the Bank had incurred approximately $252 in conversion costs, which are included in prepaid expenses and other assets on the balance sheet.
 
 In accordance with OTS regulations, at the time of the Conversion, the Bank will substantially restrict retained earnings by establishing a liquidation account.  The liquidation account will be maintained for the benefit of eligible holders who continue to maintain their accounts at the Bank after the Conversion.  The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account.  In the event of a complete liquidation of the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held.  The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations





General





Management’s discussion and analysis of the financial condition and results of operations at and for three and nine months ended September 30, 2010 and 2009 is intended to assist in understanding the financial condition and results of operations of the Bank.  The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.





9





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning.  These forward-looking statements include, but are not limited to:





●
statements of our goals, intentions and expectations;





●
statements regarding our business plans, prospects, growth and operating strategies;





●
statements regarding the asset quality of our loan and investment portfolios; and





●
estimates of our risks and future costs and benefits.





These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.  We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.





The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:





●
general economic conditions, either nationally or in our market areas, that are worse than expected;





●
competition among depository and other financial institutions;





●
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;





●
adverse changes in the securities markets;





●
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;





●
our ability to enter new markets successfully and capitalize on growth opportunities;





●
our ability to successfully integrate acquired entities, if any;





●
changes in consumer spending, borrowing and savings habits;





●
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;





●
changes in our organization, compensation and benefit plans;





●
changes in our financial condition or results of operations that reduce capital available to pay dividends; and





●
changes in the financial condition or future prospects of issuers of securities that we own.





10





Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.





Critical Accounting Policies





There are no material changes to the critical accounting policies disclosed in Wolverine Bancorp, Inc.’s Prospectus dated November 12, 2010, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on November 23, 2010.





Comparison of Financial Condition at September 30, 2010 and December 31, 2009





Total assets increased $2.9 million, or 0.9%, to $307.6 million at September 30, 2010 from $304.7 million at December 31, 2009.  The increase was primarily the result of an increase in cash and cash equivalents, interest earning deposits and other assets, partially offset by a decrease in net loans and investment securities, held to maturity.





Cash and cash equivalents increased $4.1 million, or 17.5%, to $27.4 million at September 30, 2010 from $23.3 million at December 31, 2009, and interest earning deposits increased $2.5 million, or 10.9%, to $25.2 million at September 30, 2010 from $22.7 million at December 31, 2009. The increases in cash and cash equivalents and in interest earning deposits were primarily the result of loan prepayments and refinances, some of which were sold into the secondary market consistent with our interest rate risk management strategy during the low interest rate environment in 2010.





Net loans decreased $5.0 million, or 2.1%, to $240.0 million at September 30, 2010 from $245.0 million at December 31, 2009 as our one- to four-family residential mortgage loans decreased by $5.4 million, to $80.5 million at September 30, 2010 from $85.8 million at December 31, 2009, primarily due to repayments, refinances and sales. Additionally, undisbursed loan funds increased $6.9 million, or 405.9%, to $8.6 million at September 30, 2010 from $1.7 million at December 31, 2009.  These items were offset by an increase in construction loans of $9.6 million, or 126.3%, to $17.2 million at September 30, 2010 from $7.5 million at December 31, 2009.





Securities held to maturity, consisting of one municipal security at September 30, 2010, decreased $1.0 million to $388,000 at September 30, 2010 from $1.4 million at December 31, 2009.





Real estate owned increased $416,000, or 70.5%, to $1.0 million at September 30, 2010 from $590,000 at December 31, 2009. The increase in real estate owned resulted primarily from two one- to four-family residential mortgage properties, one non-residential property and one land property that we foreclosed on during the first half of 2010.





Other assets, consisting primarily of prepaid FDIC assessments and deferred federal taxes, increased $2.1 million, or 52.5%, to $6.2 million at September 30, 2010, from $4.1 million at December 31, 2009. The increase was primarily attributable to an increase in deferred taxes.





Deposits increased $9.0 million, or 5.4%, to $176.6 million at September 30, 2010 from $167.5 million at December 31, 2009.  Certificates of deposit decreased $8.9 million, or 8.4%, to $96.7 million at September 30, 2010 from $105.7 million at December 31, 2009.  Our core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts) increased $18.1 million, or 29.2%, to $79.9 million at September 30, 2010 from $61.8 million at December 31, 2009. We believe the increase in our core deposits resulted primarily from continuing to build relationships with our existing customers as well as our marketing efforts with new customers.





Federal Home Loan Bank advances decreased $6.0 million to $84.0 million at September 30, 2010 from $90.0 million at December 31, 2009 as a result of paying off maturing advances.





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Total equity capital decreased $3.7 million, or 8.2%, to $41.8 million at September 30, 2010 from $45.6 million at December 31, 2009.  The decrease resulted from a net loss of $3.7 million during the nine months ended September 30, 2010.





Comparison of Operating Results for the Nine Months Ended September 30, 2010 and 2009





General.We recorded a net loss of $3.7 million for the nine months ended September 30, 2010 compared to net income of $652,000 for the nine months ended September 30, 2009.  Our net loss during the 2010 period resulted primarily from a $4.0 million provision for loan losses charge taken during the period and a charge of $3.2 million taken in connection with the freezing and funding of our multi-employer defined benefit pension plan. In addition to these charges, net interest income decreased $635,000 to $5.8 million for the nine months ended September 30, 2010 from $6.4 million for the nine months ended September 30, 2009, and other noninterest income decreased $383,000 to $1.0 million for the nine months ended September 30, 2010 from $1.4 million for the year earlier period.





Interest and Dividend Income.Interest and dividend income decreased $1.5 million, or 11.7%, to $11.4 million for the nine months ended September 30, 2010 from $12.9 million for the nine months ended September 30, 2009, as the average balance of interest earning assets decreased $2.3 million to $308.1 million for the nine months ended September 30, 2010 from $310.4 million for the nine months ended September 30, 2009, and the average yield on interest earning assets decreased 61 basis points to 4.94% during the 2010 period from 5.55% during the 2009 period.  The decrease in our average yield on interest earning assets was due primarily to the general decline in market interest rates as well as the higher balances of low-yielding cash and cash equivalents.





The biggest component decrease in average interest earning assets was in net loans, which decreased $15.2 million, or 5.7%, to $248.7 million for the nine months ended September 30, 2010 from $263.9 million for the nine months ended September 30, 2009. Additionally, the average balance of securities held-to-maturity decreased $3.2 million, or 76.2%, to $1.0 million for the September 30, 2010 period from $4.2 million for the September 30, 2009 period. Although the average balance of other interest earning assets, consisting of interest earning demand and time deposits, increased $16.1 million to $53.7 million during the 2010 period from $37.7 million during the 2009 period, the average yield on other interest earning assets decreased to 0.88% from 1.76%, resulting in a $141,000 decrease in interest income from other interest earning assets to $356,000 for the nine months ended September 30, 2010 from $497,000 for the nine months ended September 30, 2009.





Interest income on loans decreased $1.3 million, or 10.5%, to $11.0 million for the nine months ended September 30, 2010 from $12.3 million for the nine months ended September 30, 2009, as the average yield on loans decreased 32 basis points to 5.88% for the nine months ended September 30, 2010 from 6.20% for the nine months ended September 30, 2009 reflecting the lower market interest rate environment, and the average balance of loans decreased $15.1 million, or 5.7%, to $248.7 million for the nine months ended September 30, 2010 from $263.9 million for the nine months ended September 30, 2009.





Interest income on investment securities, other interest earning assets and FHLB of Indianapolis stock decreased $217,000, or 32.9%, to $442,000 for the nine months ended September 30, 2010 from $659,000 for the nine months ended September 30, 2009.





Interest Expense.Interest expense decreased $874,000, or 13.5%, to $5.6 million for the nine months ended September 30, 2010 from $6.5 million for the nine months ended September 30, 2009, as the average balance of interest-bearing liabilities decreased $1.6 million, or 0.6%, to $263.3 million for the nine months ended September 30, 2010 from $265.0 million for the nine months ended September 30, 2009, and the average rate we paid on these liabilities decreased 43 basis points to 2.84% from 3.27%.





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The biggest component decrease was in interest expense on certificates of deposit which decreased $545,000, or 19.9%, to $2.2 million for the nine months ended September 30, 2010 from $2.7 million for the nine months ended September 30, 2009, resulting from an $11.8 million decrease in the average balance of certificates of deposits to $101.8 million for the nine months ended September 30, 2010 from $113.6 million for the nine months ended September 30, 2009, and a 34 basis point decrease in the cost of these funds to 2.88% for the 2010 period from 3.22% for the 2009 period.





The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $14.0 million, or 23.4%, to $73.6 million for the nine months ended September 30, 2010 from $59.7 million for the nine months ended September 30, 2009; however, the interest on core deposits increased $14,000 to $268,000 for the 2010 period from $254,000 for the 2009 period.





Interest expense on borrowed funds, consisting entirely of Federal Home Loan Bank advances, decreased by $343,000, or 9.8%, to $3.2 million for the nine months ended September 30, 2010 from $3.5 million for the nine months ended September 30, 2009, as our average balance of these borrowings decreased $3.8 million and the average rate paid decreased 30 basis points to 4.78% from 5.08%.





Net Interest Income.Net interest income decreased $635,000, or 9.9%, to $5.8 million for the nine months ended September 30, 2010 from $6.4 million for the nine months ended September 30, 2009, as our net interest earning assets decreased to $44.8 million from $45.5 million, our net interest rate spread decreased 18 basis points to 2.10% from 2.28% and our net interest margin decreased 24 basis points to 2.51% from 2.76%. The decreases in our net interest rate spread and net interest margin reflected our ongoing interest rate risk strategy of selling in the secondary market long-term, fixed-rate one- to four-family residential mortgage loans during the current low interest rate environment, as well as an increase in our non-accrual loans, which increased to $10.5 million at September 30, 2010 from $6.6 million at September 30, 2009.





Provision for Loan Losses.Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” we recorded a provision for loan losses of $4.0 million for the nine months ended September 30, 2010 and a provision for loan losses of $2.0 million for the nine months ended September 30, 2009. The primary reason for the increase in the provision for loan losses was an increase in our non-performing loans as well as a continued decline in the economy in our primary market area and in Michigan as a whole, including increased unemployment, declining collateral values and increasing trends in delinquencies and classified assets. At September 30, 2010, non-performing loans totaled $10.9 million, or 4.33% of total loans, as compared to $7.2 million, or 2.80% of total loans, at September 30, 2009. The increase in non-performing loans was primarily in the commercial real estate loan portfolio, a higher risk portfolio compared to our one- to four-family residential mortgage loan portfolio.  The allowance for loan losses to total loans receivable increased to 4.25% at September 30, 2010 from 2.05% at September 30, 2009.





The allowance for loan losses as a percentage of non-performing loans increased to 98.0% at September 30, 2010 from 73.0% at September, 2009. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2010 and 2009.





Noninterest Income.Noninterest income decreased by $383,000, or 27.4%, to $1.0 million for the nine months ended September 30, 2010 from $1.4 million for the nine months ended September 30, 2009.  The decrease was due primarily to a $543,000 decrease in net gains on loan sales, reflecting the significant amount of fixed-rate, long-term residential mortgage loans that we sold during the 2009 period.





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Noninterest Expense.Noninterest expense increased $3.6 million, or 72.9%, to $8.5 million for the nine months ended September 30, 2010 from $4.9 million for the nine months ended September 30, 2009, primarily attributable to a $3.1 million increase in salaries and employee benefits expense during the 2010 period versus the year earlier period, as we incurred a $3.2 million charge in June 2010 in connection with the freezing and funding of our multi-employer defined benefit pension plan, and a $484,000 increase in other expense resulting from a $356,000 expense we incurred in connection with an external wire fraud.





Income Tax Expense (Benefit).We recorded a $1.9 million income tax benefit for the nine months ended September 30, 2010 compared to a $302,000 income tax expense for the 2009 period, reflecting the loss of $5.7 million before income tax expense during the nine months ended September 30, 2010 versus income before income tax of $954,000 for the nine months ended September 30, 2009.  Our effective tax benefit rate was 33.9% for the nine months ended September 30, 2010 compared to an effective tax rate of 31.7% for the nine months ended September 30, 2009.





Comparison of Operating Results for the Three Months Ended September 30, 2010 and 2009





General.We recorded net income of $162,000 for the three months ended September 30, 2010 compared to net income of $203,000 for the three months ended September 30, 2009.  Net interest income decreased $76,000 to $2.0 million for the three months ended September 30, 2010 from $2.0 million for the three months ended September 30, 2009, and other noninterest income increased $205,000 to $601,000 for the three months ended September 30, 2010 from $396,000 for the prior year period.





Interest and Dividend Income.Interest and dividend income decreased $320,000, or 7.8%, to $3.8 million for the three months ended September 30, 2010 from $4.1 million for the three months ended September 30, 2009, as the average balance of interest earning assets increased $4.3 million to $304.3 million for the three months ended September 30, 2010 from $300.0 million for the three months ended September 30, 2009, but the average yield on interest earning assets decreased 50 basis points to 4.99% during the 2010 period from 5.49% during the 2009 period.  The decrease in our average yield on interest earning assets was due primarily to the general decline in market interest rates as well as the higher balances of low-yielding cash and cash equivalents.





The biggest component decrease in average interest earning assets was in net loans, which decreased $7.6 million, or 2.9%, to $248.8 million for the three months ended September 30, 2010 from $256.4 million for the three months ended September 30, 2009. Additionally, the average balance of securities held-to-maturity decreased $1.3 million, or 76.6%, to $388,000 for the September 30, 2010 period from $1.7 million for the September 30, 2009 period. Although the average balance of other interest earning assets, consisting of interest earning demand and time deposits, increased $13.1 million, to $50.3 million during the 2010 period from $37.2 million during the 2009 period, the average yield on other interest earning assets decreased to 0.78% from 1.51%, resulting in a $43,000 decrease in interest income from other interest earning assets to $98,000 for the three months ended September 30, 2010 from $141,000 for the three months ended September 30, 2009.





Interest income on loans decreased $238,000, or 6.1%, to $3.7 million for the three months ended September 30, 2010 from $3.9 million for the three months ended September 30, 2009, as the average yield on loans decreased 19 basis points to 5.92% for the three months ended September 30, 2010 from 6.11% for the three months ended September 30, 2009, reflecting the lower market interest rate environment, and the average balance of loans decreased $7.6 million, or 2.9%, to $248.8 million for the three months ended September 30, 2010 from $256.4 million for the three months ended September 30, 2009.





Interest income on investment securities, other interest earning assets and FHLB of Indianapolis stock decreased $81,000, or 41.5%, to $114,000 for the three months ended September 30, 2010 from $195,000 for the three months ended September 30, 2009.




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Interest Expense.Interest expense decreased $244,000, or 11.8%, to $1.8 million for the three months ended September 30, 2010 from $2.1 million for the three months ended September 30, 2009, as the average balance of interest-bearing liabilities increased $4.0 million, or 1.6%, to $258.7 million for the three months ended September 30, 2010 from $254.7 million for the three months ended September 30, 2009, but the average rate we paid on these liabilities decreased 43 basis points to 2.82% from 3.25%. The biggest component decrease was in interest expense on certificates of deposit which decreased $112,000, or 13.6%, to $710,000 for the three months ended September 30, 2010 from $822,000 for the three months ended September 30, 2009, resulting from a $6.3 million decrease in the average balance of certificates of deposits to $97.0 million for the three months ended September 30, 2010 from $103.4 million for the three months ended September 30, 2009, and a 25 basis point decrease in the cost of these funds to 2.93% for the 2010 period from 3.18% for the 2009 period.





The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $16.8 million, or 27.7%, to $76.9 million for the three months ended September 30, 2010 from $60.3 million for the three months ended September 30, 2009, and the interest on core deposits increased $16,000 to $92,000 for the 2010 period from $76,000 for the 2009 period, as we were able to reprice our deposits downward in the declining market interest rate environment.





Interest expense on borrowed funds, consisting entirely of Federal Home Loan Bank advances, decreased by $147,000, or 12.5%, to $1.0 million for the three months ended September 30, 2010 from $1.2 million for the three months ended September 30, 2009, as our average balance of these borrowings decreased $6.3 million and the average rate paid decreased 31 basis points to 4.84% from 5.15%.





Net Interest Income.Net interest income decreased $76,000, or 3.7%, to $2.0 million for the three months ended September 30, 2010 from $2.0 million for the three months ended September 30, 2009, as our net interest earning assets increased to $45.6 million from $45.3 million, our net interest rate spread decreased 7 basis points to 2.16% from 2.23%, and our net interest margin decreased 14 basis points to 2.59% from 2.73%. The decreases in our net interest rate spread and net interest margin reflected our ongoing interest rate risk strategy of selling into the secondary market long-term, fixed-rate one- to four-family residential mortgage loans during the low interest rate environment as well as an increase in our non-accrual loans, which increased to $10.5 million at September 30, 2010 from $6.6 million at September 30, 2009.





Provision for Loan Losses.Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” we recorded a provision for loan losses of $500,000 for the three months ended September 30, 2010 and a provision for loan losses of $450,000 for the three months ended September 30, 2009. The primary reason for the increase in the provision for loan losses was a continued decline in the economy in our primary market area as well as in Michigan as a whole, including increased unemployment, declining collateral values and increasing trends in delinquencies and classified assets. At September 30, 2010, non-performing loans totaled $10.9 million, or 4.33% of total loans, as compared to $7.2 million, or 2.80% of total loans, at September 30, 2009. The increase in non-performing loans was primarily in the commercial real estate loan portfolio, a higher risk portfolio as compared to our one- to four-family residential mortgage loan portfolio.  The allowance for loan losses to total loans receivable increased to 4.25% at September 30, 2010 as compared to 2.05% at September 30, 2009.





The allowance for loan losses as a percentage of non-performing loans increased to 98.0% at September 30, 2010 from 73.0% at September 30, 2009. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2010 and 2009.





15





Noninterest Income.Noninterest income increased by $205,000, or 51.8%, to $601,000 for the three months ended September 30, 2010 from $396,000 for the three months ended September 30, 2009.  The increase was due primarily to a $56,000 increase in gain on loan sales and a $159,000 increase in income on real estate owned.





Noninterest Expense.Noninterest expense increased $102,000, or 5.9%, to $1.8 million for the three months ended September 30, 2010 from $1.7 million for the three months ended September 30, 2009, primarily attributable to a $100,000 increase in expense on real estate owned.





Income Tax Expense.We recorded an $86,000 income tax expense for the three months ended September 30, 2010 compared to a $68,000 income tax expense for the 2009 period.  Our effective tax rate was 34.7% for the three months ended September 30, 2010 compared to an effective tax rate of 25.1% for the three months ended September 30, 2009.





Asset Quality





Non-performing loans totaled $10.9 million, or 4.33% of total loans, at September 30, 2010 compared to $10.7 million, or 4.32% of total loans at June 30, 2010 and $7.8 million, or 3.1% of total loans at December 31, 2009.





At September 30, 2010, we had 62 loans, totaling $15.2 million, for which we had temporarily extended the maturities while working on the loan renewal process.  During the renewal process, the borrowers continue repayment according to the original loan terms which are at market interest rates. Of these loans, 12 loans totaling $4.6 million, were classified as substandard and eight loans, totaling $1.6 million, were considered special mention. At September 30, 2010, none of these loans was considered a troubled debt restructuring, and all of these loans were considered performing at September 30, 2010.





Item 3.
Quantitative and Qualitative Disclosures About Market Risk





Not applicable, as the Registrant is a smaller reporting company.





Item 4.
Controls and Procedures





An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the and Chief Operating Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2010. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, concluded that the Company’s disclosure controls and procedures were effective.





During the quarter ended September 30, 2010, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.





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Part II – Other Information





Item 1.
Legal Proceedings





The Bank is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.





Item 1A.
Risk Factors





Not applicable, as the Registrant is a smaller reporting company.





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds





(a)
There were no sales of unregistered securities during the period covered by this Report.





(b)
Not applicable.





(c)
There were no issuer repurchases of securities during the period covered by this Report.





Item 3.
Defaults Upon Senior Securities





None.





Item 4.
[Reserved]





Item 5.
Other Information





None.





Item 6.
Exhibits





31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





WOLVERINE BANCORP, INC.Date:  December 27, 2010

/s/ David H. DunnDavid H. DunnPresident and Chief Executive OfficerDate:  December 27, 2010

/s/ Rick A. RosinskiRick A. RosinskiChief Operating Officer and Treasurer