- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

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, 2012

¨	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. 001-35034

Wolverine Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Maryland		27-3939016
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 x NO ¨ .

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 x 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)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The number of shares outstanding of the Registrant’s common stock, $0.01 per share, as of November 12, 2012, was 2,498,982.

Wolverine Bancorp, Inc.

Form 10-Q

Index


		Page
	Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011		1

	Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months and Nine Months Ended September 30, 2012 and 2011 (unaudited)		2

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (unaudited)		3

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2012 (unaudited)		4

	Notes to Condensed Consolidated Financial Statements (unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		38
Item 4.	Controls and Procedures		38

	Part II. Other Information

Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3.	Defaults upon Senior Securities		39
Item 4.	Mine Safety Disclosures		39
Item 5.	Other Information		39
Item 6.	Exhibits		39
	Signature Page		40

Part I. Financial Information

Item 1.

Financial Statements

Wolverine Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Amounts in Thousands)


	September 30,			December 31,
	2012			2011
	(Unaudited)
Assets
Cash and due from banks	$	371		$	454
Interest-earning demand deposits		18,845			13,669

Cash and cash equivalents		19,216			14,123
Interest-earning time deposits		—			21,146
Held to maturity securities		242			315
Loans held for sale		4,503			666
Loans, net of allowance for loan losses of $6,407 and $9,503		249,254			243,663
Premises and equipment, net		1,529			1,503
Federal Home Loan Bank stock		4,391			4,391
Other real estate owned		991			1,365
Accrued interest receivable		809			833
Other assets		3,349			5,677

Total assets	$	284,284		$	293,682

Liabilities and Stockholders’ Equity

Liabilities
Deposits	$	152,398		$	161,364
Federal Home Loan Bank advances		61,910			65,860
Interest payable and other liabilities		4,290			1,481

Total liabilities		218,598			228,705

Commitments and Contingencies

Stockholders’ Equity

Common Stock, $0.01 par value per share:
Issued and outstanding – 2,552,105 and 2,507,500 at September 30, 2012 and December 31, 2011	$	25		$	25
Additional paid-in capital		23,333			23,806
Unearned employee stock ownership plan (ESOP)		(1,906	)		(1,906	)
Retained earnings		44,234			43,052

Total stockholders’ equity		65,686			64,977

Total liabilities and stockholders’ equity	$	284,284		$	293,682

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

Wolverine Bancorp, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Amounts in Thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Unaudited)						(Unaudited)
Interest and Dividend Income
Loans	$	3,432		$	3,538		$	10,435		$	10,553
Investment securities and other		49			80			204			266

Total interest and dividend income		3,481			3,618			10,639			10,819

Interest Expense
Deposits		286			436			984			1,409
Borrowings		594			805			1,915			2,455

Total interest expense		880			1,241			2,899			3,864

Net Interest Income		2,601			2,377			7,740			6,955
Provision for Loan Losses		475			325			1,425			1,085

Net Interest Income After Provision for Loan Losses		2,126			2,052			6,315			5,870

Noninterest Income
Service charges and fees		55			67			177			190
Net gain on loan sales		707			216			1,483			433
Gross income on real estate owned		—			20			2			111
Loan fees earned		(44	)		53			38			172
Net gain (loss) on sale of real estate owned		(67	)		(122	)		(130	)		(47	)
Recovery of wire transfer fraud		—			165			—			165
Other		40			42			126			158

Total noninterest income		691			441			1,696			1,182

Noninterest Expense
Salaries and employee benefits		1,329			917			3,497			2,640
Net occupancy and equipment expense		210			201			605			570
Information technology expense		49			62			168			181
Federal deposit insurance corporation premiums		69			73			211			215
Professional and services fees		120			147			397			435
Other real estate owned expense		48			118			192			664
Loan legal expense		16			24			71			101
Other		392			335			1,066			952

Total noninterest expense		2,233			1,877			6,207			5,5758

Income Before Income Tax		584			616			1,804			1,294
Provision for Income Taxes		204			210			622			443

Net Income and Comprehensive Income	$	380		$	406		$	1,182		$	851

Earnings Per Share:
Basic	$	0.16		$	0.18		$	0.51		$	0.34

Diluted	$	0.16		$	0.18		$	0.51		$	0.34

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

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in Thousands)


	Nine Months Ended September 30,
	2012			2011
	(Unaudited)
Operating Activities
Net income	$	1,182		$	851
Items not requiring (providing) cash
Depreciation		175			161
Provision for loan losses		1,425			1,085
Writedowns of other real estate					378
Amortization of Federal Home Loan Bank advance prepayment penalty		50			49
Loss on other real estate owned		130			47
Loans originated for sale		(73,757	)		(23,016	)
Proceeds from loans sold		71,403			23,337
Gain on sale of loans		(1,483	)		(433	)
Gain on sale of premises or equipment		(1	)		(31	)
Changes in
Interest receivable and other assets		2,292			1,100
Interest payable and other liabilities		2,809			534

Net cash provided by operating activities		4,225			4,062

Investing Activities
Net change in interest-bearing deposits		21,146			(15,415	)
Proceeds from calls, maturities and pay-downs of held to maturity securities		74			73
Net change in loans		(7,510	)		(10,532	)
Proceeds from sale of premises and equipment		23			64
Proceeds from sale of real estate owned		797			1,911
Redemption of FHLB stock		—			219
Purchase of premises and equipment		(223	)		(87	)

Net cash provided by (used in) investing activities		14,307			(23,767	)

Financing Activities
Net change in demand deposits, money market, checking and savings accounts		782			61
Net change in certificates of deposit		(9,748	)		(11,326	)
Proceeds from stock conversion		—			2,676
Issuance of Stock Award		36			—
Proceeds from Federal Home Loan Bank advances		22,000			—
Repayment of Federal Home Loan Bank advances		(26,000	)		(7,000	)
Purchase of treasury stock		(509	)		—

Net cash used in financing activities		(13,439	)		(15,589	)

Increase (Decrease) in Cash and Cash Equivalents		5,093			(35,294	)
Cash and Cash Equivalents, Beginning of Period		14,123			48,936

Cash and Cash Equivalents, End of Period	$	19,216		$	13,642

Supplemental Disclosures of Cash Flows Information
Interest paid	$	2,972		$	3,901
Income taxes paid		650			145
Loans transferred to real estate owned		493			966

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

Wolverine Bancorp, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(Amounts in Thousands, except share data)


	Common Stock		Additional Paid-in Capital			Unearned ESOP Shares			Retained Earnings		Total Stockholders’ Equity
Balances at January 1, 2012	$	25	$	23,806		$	(1,906	)	$	43,052	$	64,977
Net income		—		—			—			1,182		1,182
Purchase of 30,618 shares of common stock		—		(509	)		—			—		(509	)
Share based compensation expense		—		36								36

Balances at September 30, 2012	$	25	$	23,333		$	(1,906	)	$	44,234	$	65,686

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

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 1: Basis of Presentation

The unaudited condensed consolidated financial statements of Wolverine Bancorp, Inc. (the “Company”), the holding company 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 Company as of December 31, 2011 has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the nine month period ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto filed as part of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 30, 2012.

Note 2: Plan of Conversion and Change in Corporate Form

On January 19, 2011, the Bank converted to a stock savings bank structure and established the Company, as the parent holding company of the Bank. In connection with the conversion, 2,507,500 shares of the Company’s common stock were issued at $10.00 per share for total gross offering proceeds of $25.1 million. Expenses related to the offering were approximately $1.3 million. In addition, the Bank’s Board of Directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering, for a total of $2.0 million. The Company is incorporated under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank.

The common stock began trading on the NASDAQ Capital Market on January 20, 2011 under the symbol “WBKC”.

In accordance with Office of Thrift Supervision (“OTS”) regulations, at the time of the completion of the Bank’s mutual to stock conversion, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders and supplemental eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s or and supplemental 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 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. We may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount. The initial liquidation account amount was $41.7 million.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 3: Accounting Developments

The FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income . This ASU amendment allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is to be applied retrospectively. For public entities, the amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-05 did not have a material impact on the Company’s financial statements.

The FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income for all periods presented. Entities are still required to present reclassification adjustments within other comprehensive income either on the face of the statement that reports other comprehensive income or in the notes to the financial statements. The requirement to present comprehensive income in either a single continuous statement or two consecutive condensed statements remains for both annual and interim reporting. The deferral of the requirement for the presentation of reclassification adjustments is intended to be temporary until the FASB reconsiders the operational concerns and needs of financial statement users.

The Company adopted the amendments in this Update at the same time as ASU 2011-05, which became effective beginning in the interim period ended March 31, 2012. As the Company had no reclassifications adjustments within other comprehensive income, ASU No. 2011-12 had no impact on its financial statements.

Accounting Standards Update No. 2011-11—Balance Sheet (Topic 210). In December 2011, FASB issued ASU 2011-11. The objective of this Update is to provide enhanced disclosures that will enable users of financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45.

An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 4: Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
Held to Maturity Securities:
September 30, 2012
Municipal	$	242	$	—	$	—	$	242

December 31, 2011
Municipal	$	315	$	—	$	—	$	315

The amortized cost and fair value of securities at September 30, 2012, 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, 2012
	Amortized Cost		Fair Value
Within one year	$	—	$	—
One to five years		—		—
Five to ten years		242		242
After ten years		—		—

Totals	$	242	$	242

There were no sales of securities during the nine months ended September 30, 2012 and 2011.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 5: Loans and Allowance for Loan Losses

Categories of loans include:


	September 30,		December 31,
	2012		2011
Real Estate
One-to four-family	$	60,993	$	68,287
Home equity		10,513		13,572
Commercial mortgage loans
Commercial real estate		104,699		89,463
Multifamily		54,367		51,411
Land		11,807		13,445
Construction		13,238		19,704
Commercial Non-mortgage		7,222		7,675
Consumer		1,147		1,247

Total loans		263,986		264,804

Less
Net deferred loan fees, premiums and discounts		448		440
Undisbursed portion of loans		7,877		11,198
Allowance for loan losses		6,407		9,503

Net loans	$	249,254	$	243,663

The risk characteristics of each loan portfolio segment are as follows:

1-4 Family, Home Equity, and Consumer

With respect to residential loans that are secured by one-to four-family residences and are primarily owner-occupied, we generally establish a maximum loan-to-value ratio and require PMI if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to four-family residences, and consumer loans are typically secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties.

Home equity loans secured by second mortgages have greater risk than one- to four-family residential mortgage loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans, decreases in real estate values could adversely affect the value of property used as collateral for our loans.

Wolverine Bancorp, Inc.

Form 10-Q

(Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Consumer and other loans generally have greater risk compared to longer-term loans secured by improved, owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Commercial real estate and multifamily

Commercial real estate and multifamily loans generally have greater credit risk than the owner-occupied one- to four-family residential mortgage loans that we originate for retention in our loan portfolio. Repayment of these loans generally depends, in large part, on sufficient income from the property securing the loan or the borrower’s business to cover operating expenses and debt service. These types of loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our commercial real estate and multifamily loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination.

Land

Land loans generally have greater credit risk than the owner-occupied one-to four-family residential mortgage loans that we originate for retention in our portfolio. Repayment of these loans generally depends, in large part, on the sale of the land. The sale of land can either take place when the land is undeveloped, or developed. Generally, other cash flow sources of the borrower are utilized to make additional payments on land loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our land loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination.

Construction

Construction loans include those for one- to four-family residential properties and commercial properties, including multifamily loans and commercial “mixed-use” buildings and homes built by developers on speculation. With respect to construction loans for one- to four-family residential properties and which are primarily owner-occupied, we generally establish a maximum loan-to-value ratio and require PMI if that ratio is exceeded. These are generally “interest-only” loans during the construction period which typically does not exceed nine months. Construction loans for commercial real estate are made in accordance with a schedule reflecting the cost of construction, and are generally limited to a 75% loan-to-completed appraised value ratio. For all construction loans, we generally require that a commitment for permanent financing be in place prior to closing the construction loan

Wolverine Bancorp, Inc.

Form 10-Q

(Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Repayment of one-to four-family residential property loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment of commercial property loans and homes built by developers on speculation is normally expected from the property’s eventual rental income, income from the borrower’s operations, the personal resources of the guarantor, or the sale of the subject property. Generally, before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-licensed appraiser. We generally review and inspect properties before disbursement of funds during the term of the construction loan.

Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Commercial non-mortgage

Commercial non-mortgage loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial non-mortgage loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial non-mortgage loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

In determining the appropriate level of allowance for loan loss, we analyze various components of our portfolio. The following components are analyzed: all substandard loans on an individual basis; all loans that are designated special mention or closely monitored; loans not classified according to purpose or collateral type; and overdrawn deposit account balances.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

We also factor in historical loss experience and qualitative considerations, including trends in charge offs and recoveries; trends in delinquencies and impaired/classified loans; effects of credit concentrations; changes in underwriting standards and loan review system; experience in lending staff; current industry conditions; and current market conditions.

In instances where risk and loss exposure is clearly identified with a particular asset, the asset or a portion of the asset will be charged off.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2012, December 31, 2011 and September 30, 2011:


Loan Class	1-4 Family			Home Equity			Commercial Real Estate			Multifamily			Land			Construction			Commercial Non- Mortgage			Consumer			Total
Year to date analysis as of September 30, 2012
Allowance for loan losses:
Balance, beginning of year	$	1,580		$	290		$	3,462		$	1,933		$	1,622		$	423		$	165		$	28		$	9,503
Provision charged to expense		(65	)		(51	)		309			572			582			(100	)		179			(1	)		1,425
Losses charged off		(61	)		—			(1,252	)		(1,241	)		(1,918	)		(2	)		(169	)		(4	)		(4,647	)
Recoveries		26			16			25			55			—			—			—			4			126

Balance, end of period	$	1,480		$	255		$	2,544		$	1,319		$	286		$	321		$	175		$	27		$	6,407

Ending Balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	100		$	—		$	—		$	—		$	100

Ending balance: collectively evaluated for impairment	$	1,480		$	255		$	2,544		$	1,319		$	186		$	321		$	175		$	27		$	6,307

Loans:
Ending Balance	$	60,993		$	10,513		$	104,699		$	54,367		$	11,807		$	13,238		$	7,222		$	1,147		$	263,986

Ending Balance: individually evaluated for impairment	$	1,867		$	—		$	6,287		$	8,127		$	5,397		$	—		$	278		$	—		$	21,956

Ending Balance: collectively evaluated for impairment	$	59,126		$	10,513		$	98,412		$	46,240		$	6,410		$	13,238		$	6,944		$	1,147		$	242,030


Loan Class	1-4 Family			Home Equity			Commercial Real Estate			Multifamily			Land			Construction			Commercial Non- Mortgage			Consumer			Total
Quarter to date analysis as of September 30, 2012
Allowance for loan losses:
Balance, beginning of year	$	1,514		$	290		$	2,425		$	1,327		$	314		$	411		$	189		$	30		$	6,500
Provision charged to expense		(38	)		(35	)		91			(10	)		404			(90	)		155			(2	)		475
Losses charged off		—			—			—			—			(432	)		—			(169	)		(1	)		(602	)
Recoveries		4			—			28			2			—			—			—			—			34

Balance, end of period	$	1,480		$	255		$	2,544		$	1,319		$	286		$	321		$	175		$	27		$	6,407

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


Loan Class	1-4 Family			Home Equity			Commercial Real Estate			Multifamily		Land			Construction		Commercial Non- Mortgage			Consumer			Total
Year to date analysis as of December 31, 2011
Allowance for loan losses:
Balance, beginning of year	$	2,079		$	313		$	3,914		$	1,765	$	1,036		$	367	$	269		$	32		$	9,775
Provision charged to expense		(166	)		138			328			168		973			56		(104	)		(8	)		1,385
Losses charged off		(335	)		(161	)		(785	)		—		(391	)		—		—			(3	)		(1,675	)
Recoveries		2			—			5			—		4			—		—			7			18

Balance, end of year	$	1,580		$	290		$	3,462		$	1,933	$	1,622		$	423	$	165		$	28		$	9,503

Ending Balance: individually evaluated for impairment	$	111		$	—		$	1,538		$	829	$	1,332		$	2	$	—		$	—		$	3,812

Ending balance: collectively evaluated for impairment	$	1,469		$	290		$	1,924		$	1,104	$	290		$	421	$	165		$	28		$	5,691

Loans:
Ending Balance	$	68,287		$	13,572		$	89,463		$	51,411	$	13,445		$	19,704	$	7,675		$	1,247		$	264,804

Ending Balance: individually evaluated for impairment	$	3,314		$	327		$	9,206		$	9,854	$	8,710		$	174	$	375		$	—		$	31,960

Ending Balance: collectively evaluated for impairment	$	64,973		$	13,245		$	80,257		$	41,557	$	4,735		$	19,530	$	7,300		$	1,247		$	232,844


Loan Class	1-4 Family			Home Equity			Commercial Real Estate			Multifamily		Land			Construction		Commercial Non-Mortgage			Consumer			Total
Year to date analysis as of September 30, 2011
Allowance for loan losses:
Balance, beginning of year	$	2,079		$	313		$	3,914		$	1,765	$	1,036		$	367	$	269		$	32		$	9,775
Provision charged to expense		(23	)		129			269			109		641			15		(53	)		(2	)		1,085
Losses charged off		(114	)		(111	)		(693	)		—		—			—		—			(2	)		(920	)
Recoveries		2			—			5			—		1			—		—			6			14

Balance, end of year	$	1,944		$	331		$	3,495		$	1,874	$	1,678		$	382	$	216		$	34		$	9,954

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


Loan Class	1-4 Family			Home Equity			Commercial Real Estate			Multifamily			Land			Construction			Commercial Non- Mortgage			Consumer			Total
Quarter to date analysis as of September 30, 2011
Allowance for loan losses:
Balance, beginning of quarter	$	1,971		$	337		$	3,608		$	1,894		$	1,685		$	389		$	220		$	34		$	10,138
Provision charged to expense		48			105			212			(20	)		(7	)		(7	)		(4	)		(2	)		325
Losses charged off		(75	)		(111	)		(325	)		—			—			—			—			—			(511	)
Recoveries		—			—			—			—			—			—			—			2			2

Balance, end of period	$	1,944		$	331		$	3,495		$	1,874		$	1,678		$	382		$	216		$	34		$	9,954

Consistent with regulatory guidance, charge offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. Our policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except one-to-four family residential loans and consumer loans, we promptly charge off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

We charge off one-to-four family residential and consumer loans, or portions thereof, when we reasonably determine the amount of the loss. We adhere to timeframes established by applicable regulatory guidance which provides for the charge off of one-to-four family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which we can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents the credit risk profile of our loan portfolio based on rating category and payment activity as of September 30, 2012 and December 31, 2011:


	1-4 Family				Home Equity				Commercial Real Estate				Multifamily
	2012		2011		2012		2011		2012		2011		2012		2011
Pass	$	55,494	$	61,574	$	10,470	$	13,331	$	80,177	$	63,107	$	38,458	$	34,012
Pass (Closely Monitored)		3,258		3,387		43		—		9,527		9,136		6,086		5,581
Special Mention		1,052		508		—		35		8,911		8,512		5,439		6,043
Substandard		1,189		2,818		—		206		6,084		8,708		4,384		5,775
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

	$	60,993	$	68,287	$	10,513	$	13,572	$	104,699	$	89,463	$	54,367	$	51,411


	Land				Construction				Commercial Non-Mortgage				Consumer				Total
	2012		2011		2012		2011		2012		2011		2012		2011		2012		2011
Pass	$	5,099	$	3,043	$	12,912	$	19,410	$	6,779	$	7,034	$	1,122	$	1,242	$	210,512	$	202,753
Pass (Closely Monitored)		840		797		—		120		72		162		25		5		19,849		19,188
Special Mention		602		1,572		326		—		94		104		—		—		16,424		16,774
Substandard		5,266		8,033		—		174		277		375		—		—		17,201		26,089
Doubtful		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—

	$	11,807	$	13,445	$	13,238	$	19,704	$	7,222	$	7,675	$	1,147	$	1,247	$	263,986	$	264,804

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis is performed during the loan approval process and is updated as circumstances warrant.

The Pass asset quality rating encompasses assets that have performed as expected. These assets generally do not have delinquency or servicing issues. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage.

The Pass (Closely Monitored) asset quality rating encompasses assets that have been brought to the attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets. This grade includes “pass grade” loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.

The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness(es) based upon objective evidence; assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected; or the possibility that liquidation will not be timely. Loans categorized in this grade possess a well defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended.

The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of the Bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be realized in the future.

The following table is a summary of our past due and non-accrual loans as of September 30, 2012 and December 31, 2011:


As of September 30, 2012:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans>90 Days & Accruing		Total Nonaccrual
1-4 Family	$	—	$	—	$	126	$	126	$	60,867	$	60,993	$	—	$	818
Home Equity		—		—		—		—		10,513		10,513		—		—
Commercial Real Estate		652		173		1,359		2,184		102,515		104,699		—		3,019
Multifamily		3,932		—		—		3,932		50,435		54,367		—		—
Land		—		—		4,988		4,988		6,819		11,807		—		5,304
Construction		—		—		—		—		13,238		13,238		—		—
Commercial Non-Mortgage		—		—		270		270		6,952		7,222		—		277
Consumer		—		—		—		—		1,147		1,147		—		—

Total	$	4,584	$	173	$	6,743	$	11,500	$	252,486	$	263,986	$	—	$	9,418

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


As of December 31, 2011:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans>90 Days & Accruing		Total Nonaccrual
1-4 Family	$	1,117	$	83	$	575	$	1,775	$	66,512	$	68,287	$	—	$	922
Home Equity		—		—		165		165		13,407		13,572		—		165
Commercial Real Estate		614		128		980		1,722		87,741		89,463		—		3,652
Multifamily		4,199		—		—		4,199		47,212		51,411		—		—
Land		—		—		906		906		12,539		13,445		—		7,833
Construction		—		—		—		—		19,704		19,704		—		2
Commercial Non-Mortgage		—		—		375		375		7,300		7,675		—		375
Consumer		—		—		—		—		1,247		1,247		—		—

Total	$	5,930	$	211	$	3,001	$	9,142	$	255,662	$	264,804	$	—	$	12,949

Nonaccrual Loan and Past Due Loans. The accrual of interest is discontinued on all loan classes at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. We generally require a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable we will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following tables present impaired loans for the period ended September 30, 2012:


As of September 30, 2012	Recorded Balance		Unpaid Principal Balance		Specific Allowance		QTD Average Balance		YTD Average Balance		QTD Interest Income		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	1,867	$	2,002	$	—	$	2,273	$	2,519	$	27	$	77
Home Equity		—		—		—		51		171		—		—
Commercial Real Estate		6,287		8,452		—		8,755		8,621		110		283
Multifamily		8,127		8,941		—		8,695		9,285		141		413
Land		1,166		2,955		—		3,133		4,849		36		133
Construction		—		2		—		2		40		—		—
Commercial Non-Mortgage		278		372		—		372		374		3		9
Consumer		—		—		—		—		—		—		—
Loans with a specific valuation allowance
1-4 Family	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home Equity		—		—		—		—		—		—		—
Commercial Real Estate		—		—		—		—		—		—		—
Multifamily		—		—		—		—		—		—		—
Land		4,231		5,190		100		5,160		4,086		52		157
Construction		—		—		—		—		—		—		—
Commercial Non-Mortgage		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—
Total
1-4 Family	$	1,867	$	2,002	$	—	$	2,273	$	2,519	$	27	$	77
Home Equity		—		—		—		51		171		—		—
Commercial Real Estate		6,287		8,452		—		8,755		8,621		110		283
Multifamily		8,127		8,941		—		8,695		9,285		141		413
Land		5,397		8,145		100		8,293		8,935		88		290
Construction		—		2		—		2		40		—		—
Commercial Non-Mortgage		278		372		—		372		374		3		9
Consumer		—		—		—		—		—		—		—

Total	$	21,956	$	27,914	$	100	$	28,441	$	29,945	$	369	$	1,072

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following tables present impaired loans for the period ended December 31, 2011:


As of December 31, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		YTD Average Balance		YTD Interest Income
Loans without a specific valuation allowance
1-4 Family	$	1,921	$	1,963	$	—	$	1,777	$	114
Home Equity		327		432		—		190		22
Commercial Real Estate		3,018		3,046		—		2,560		157
Multifamily		290		290		—		131		5
Land		—		—		—		85		—
Construction		172		172		—		73		5
Commercial Non-Mortgage		375		375		—		293		11
Consumer		—		—		—		—		—
Loans with a specific valuation allowance
1-4 Family	$	1,393	$	1,423	$	111	$	1,249	$	51
Home Equity		—		—		—		72		—
Commercial Real Estate		6,188		6,653		1,538		5,975		334
Multifamily		9,564		9,565		829		9,391		538
Land		8,710		9,386		1,332		8,180		377
Construction		2		2		2		112		—
Commercial Non-Mortgage		—		—		—		—		—
Consumer		—		—		—		—		—
Total
1-4 Family	$	3,314	$	3,386	$	111	$	3,026	$	165
Home Equity		327		432		—		262		22
Commercial Real Estate		9,206		9,699		1,538		8,535		491
Multifamily		9,854		9,855		829		9,522		543
Land		8,710		9,386		1,332		8,265		377
Construction		174		174		2		185		5
Commercial Non-Mortgage		375		375		—		293		11
Consumer		—		—		—		—		—

Total	$	31,960	$	33,307	$	3,812	$	30,088	$	1,614

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following tables present impaired loans for the period ended September 30, 2011:


As of September 30, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		YTD Average Balance		YTD Interest Income
Loans w/o a specific valuation allowance
1-4 Family	$	1,610	$	1,610	$	—	$	1,738	$	73
Home Equity		331		331		—		164		6
Commercial Real Estate		2,733		2,733		—		2,328		73
Multifamily		393		393		—		50		—
Land		—		—		—		90		—
Construction		172		172		—		49		—
Commercial Non-Mortgage		377		377		—		252		8
Consumer		—		—		—		—		—
Loans w/ a specific valuation allowance
1-4 Family	$	1,656	$	1,656	$	181	$	1,300	$	65
Home Equity		115		115		5		91		14
Commercial Real Estate		6,032		6,032		1,525		5,907		281
Multifamily		9,605		9,605		828		9,417		392
Land		8,957		8,957		1,329		8,173		287
Construction		92		92		21		127		3
Commercial Non-Mortgage		—		—		—		—		—
Consumer		—		—		—		—		—
Total
1-4 Family	$	3,266	$	3,266	$	181	$	3,038	$	138
Home Equity		446		446		5		255		20
Commercial Real Estate		8,765		8,765		1,525		8,235		354
Multifamily		9,998		9,998		828		9,467		392
Land		8,957		8,957		1,329		8,263		287
Construction		264		264		21		176		3
Commercial Non-Mortgage		377		377		—		252		8
Consumer		—		—		—		—		—

Total	$	32,073	$	32,073	$	3,889	$	29,686	$	1,202

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assumed, in which case interest is recognized on a cash basis and is reasonable compared to interest income noted above.

Troubled Debt Restructuring (TDR)

We may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that we would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring. We may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

We identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

For one-to-four family residential and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure. There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

When considering a loan restructure, management will determine if: (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

When a loan is restructured, the new terms often require a reduced monthly debt service payment. No TDRs that were on non-accrual status at the time the concessions were granted have been returned to accrual status. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt. If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance with the new loan terms. To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.

For retail loans, an analysis of the individual’s ability to service the new required payments is performed. If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance to the new loan terms. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status. Retail TDRs remain on nonaccrual status until sufficient payments have been made to bring the past due principal and interest current and/or after six months of performance to the new loan terms at which point the loan could be transferred to accrual status.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Effective July 1, 2011, we adopted the provisions of Accounting Standards Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring . As a result of adopting the provisions of ASU 2011-02, we reassessed all loan modifications occurring since January 1, 2011 for identification as TDRs.

The following table summarizes the loans that have been restructured as TDRs during the three and nine months ended September 30, 2012:


	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
			Balance		Balance				Balance		Balance
			prior to		after				prior to		after
	Count		TDR		TDR		Count		TDR		TDR
	(Dollars in thousands)
Commercial Real Estate		1		639		639		4		876		882

Commercial Permanent Balloon		1		510		510		1		510		510

Total loans		2	$	1,149	$	1,149		5	$	1,386	$	1,392

We had no TDRs that had payment defaults during 2012. Default occurs when a TDR is 90 days or more past due, transferred to nonaccrual status, or transferred to other real estate owned within twelve months of restructuring. Management monitors the TDRs based on the type of modification or concession granted to the borrower. These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions. During the three and nine months ended September 30, 2012 and September 30, 2011, management predominantly utilized rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal. Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure.

The following table summarizes the loans that have been restructured as TDRs during the three and nine months ended September 30, 2011:


	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
			Balance		Balance				Balance		Balance
			prior to		after				prior to		after
	Count		TDR		TDR		Count		TDR		TDR
	(Dollars in thousands)
One-to four-family		—	$	—	$	—		2	$	315	$	315
Home equity		—		—		—		2		115		115
Commercial real estate		1		489		539		6		2,752		2,802
Land		—		—		—		3		309		309
Construction		—		—		—		1		90		90

Total loans		1	$	489	$	539		14	$	3,581	$	3,631

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table sets forth our TDRs that had payment defaults during 2011. Of the total, one loan totaling $97,000 was subsequently foreclosed and is included in the September 30, 2011 other real estate owned balance. This loan had a specific reserve of $84,000, making the amount transferred to other real estate owned $13,000.


			Default
	Count		Balance
	(Dollars in thousands)
One-to-four family residential		1	$	97
Home equity		1	$	25

Total loans		2	$	122

Wolverine Bancorp, Inc.

Form 10-Q

(Dollars in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Note 6: 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. We have no assets or liabilities measured at fair value on a recurring basis and no liabilities measured at fair value on a nonrecurring basis.

Transfers between Levels

There were no transfers between Levels 1, 2 and 3 during the three months ended September 30, 2012.

Nonrecurring Measurements

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, 2012 and December 31, 2011.


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2012
Impaired loans	$	5,176	$	—	$	—	$	5,176

December 31, 2011
Impaired loans	$	9,587	$	—	$	—	$	9,587

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts and Dollars in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Collateral-dependent Impaired Loans

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or an evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent or subsequently as deemed necessary and approved by management. Appraisals are reviewed for accuracy and consistency by the Credit Analysis department. Typically, appraisers are selected from the list of approved appraisers maintained by the Underwriting department. The appraised values may be reduced by discounts to consider a lack of marketability or estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Credit Analysis department and approved by management.

Unobservable (Level 3) inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than good will.


	Fair Value at September 30, 2012		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent impaired loans	$	5,176	Market comparable properties	Marketability discount	21% - 41% (27%)

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Fair Value of Financial Instruments

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012.


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	19,216	$	19,216	$	—	$	—
Held to maturity securities		242		—		242		—
Loans held for sale		4,503		—		4,628		—
Loans, net of allowance for loan losses		249,254		—		—		252,582
Federal Home Loan Bank stock		4,391		—		4,391		—
Interest receivable		809		—		809		—
Financial liabilities
Deposits		152,398		90,530		—		62,694
Federal Home Loan Bank advances		61,910		—		67,642		—
Interest payable		150		—		150		—

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

The following table presents estimated fair values of our 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, we do not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.


	December 31, 2011
	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	14,123	$	14,123
Interest-earning time deposits		21,146		21,146
Held to maturity securities		315		315
Loans held for sale		666		674
Loans, net of allowance for loan losses		243,663		245,377
Federal Home Loan Bank stock		4,391		4,391
Interest receivable		833		833

Financial liabilities
Deposits		161,364		164,968
Federal Home Loan Bank advances		65,860		74,229
Interest payable		226		226

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-Earning Time Deposits, Federal Home Loan Bank Stock, Interest Receivable, Stock Conversion Related Liabilities 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 Held for Sale

Fair value is estimated using quoted market prices from the secondary market.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

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, checking 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.

Federal Home Loan Bank Advances

Rates currently available to us 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 our 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 7: Earnings Per Share


	Three Months Ended			Nine Months Ended
	September 30, 2012			September 30, 2012
Basic and diluted
Earnings:
Net Income	$	380		$	1,182

Shares:
Weighted average common shares outstanding		2,516			2,514
Less: Average unallocated ESOP shares		(186	)		(186	)

Average shares		2,330			2,328

Net income per common share, basic and diluted	$	0.16		$	0.51

Options to purchase 139,158 shares of common stock at $17.30 per share were outstanding at September 30, 2012, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)


	Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
Basic and diluted
Earnings:
Net Income (1)	$	406		$	792

Shares (1):
Weighted average common shares outstanding		2,507			2,507
Less: Average unallocated ESOP shares		(201	)		(201	)

Average shares		2,306			2,306

Net income per common share, basic and diluted (1)	$	0.18		$	0.34

(1)	Calculated from January 20, 2011, the effective date of the conversion and stock offering to the period end.

Note 8: Share Based Compensation

In May 2012, the Company’s stockholders approved the Wolverine Bancorp, Inc. 2012 Equity Incentive Plan (“Plan”) which provides for awards of stock options and restricted stock to key officers and outside directors. The cost of the Plan is based on the fair value of the awards on the grant date. The fair value of restricted stock awards is based on the closing price of the Company’s stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on management’s judgments regarding future events, are subjective in nature, and contain uncertainties inherent in an estimate. The cost of the awards are being recognized on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards.

Until such time as awards of stock are granted and vest or options are exercised, shares of the Company’s common stock under the Plan shall be authorized but unissued shares. The maximum number of shares authorized under the plan is 351,050. Total share-based compensation expense for the three and nine months ended September 30, 2012 was $36,000.

Stock Options

The table below presents the stock option activity for the period shown:


	Options		Weighted average exercise price		Remaining contractual life (years)
Options outstanding at July 1, 2012		—		—		—
Granted		139,158	$	17.30		10
Exercised		—		—		—
Forfeited		—		—		—
Expired		—		—		—

Options outstanding at September 30, 2012		139,158		—		10

As of September 30, 2012, the Company had $341,000 of unrecognized compensation expense related to stock options. The cost of stock options will be amortized in monthly installments over the five-year vesting period. There were no exercisable options vested in the three or nine months ended September 30, 2012. Stock option expense for the three and nine months ended September 30, 2012 was $8,000. The aggregate grant date fair value of the stock options was $349,000. The total intrinsic value of options as of September 30, 2012, was $28,000.

The fair value of the Company’s stock options was determined using the Black-Scholes option pricing formula. The following assumptions were used in the formula:


Expected volatility		17.37	%
Risk-free interest rate		1.34	%
Expected dividend yield		2.00	%
Expected life (in years)		7.50
Exercise price for the stock options	$	17.30

Expected volatility — Based on the historical volatility of share price.

Risk-free interest rate — Based on the U.S. Treasury yield curve and expected life of the options at the time of grant.

Expected dividend yield — The Company currently does not pay a dividend; therefore, the expected dividend yield was estimated for the portion of the life of the options that the Company expects to pay a dividend.

Expected life — Based on an average of the five year vesting period and the ten year contractual term of the stock option plan.

Exercise price for the stock options — Based on the closing price of the Company’s stock on the date of grant.

Wolverine Bancorp, Inc.

Form 10-Q

(Table Amounts in Thousands)

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)

Restricted Stock Awards

Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them the right to receive dividends.

The table below presents the restricted stock award activity for the period shown:


	Service- Based Restricted stock awards		Weighted average grant date fair value
Non-vested at July 1, 2012		—		—
Granted		75,223	$	17.30
Vested		—		—
Forfeited		—		—

Non-vested at September 30, 2012		75,223	$	17.30

As of September 30, 2012, the Company had $1.3 million of unrecognized compensation expense related to restricted stock awards. The cost of the restricted stock awards will be amortized in monthly installments over the five-year vesting period. Restricted stock expense for the three and nine months ended September 30, 2012 was $28,000.

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 months and nine months ended September 30, 2012 and 2011 is intended to assist in understanding our financial condition and results of operations. 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.

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;

•

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; and

•

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

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

We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies.

Allowance for Loan Losses. We believe that the allowance for loan losses and related provision for loan losses are particularly susceptible to change in the near term, due to changes in credit quality which are evidenced by trends in charge offs and in the volume and severity of past due loans. In addition, our portfolio is comprised of a substantial amount of commercial real estate loans which generally have greater credit risk than one- to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous.

The allowance for loan losses is maintained at a level to cover probable credit losses inherent in the loan portfolio at the balance sheet date. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level. The estimate of our credit losses is applied to two general categories of loans:

•

loans that we evaluate individually for impairment under ASC 310-10, “Receivables;” and

•

groups of loans with similar risk characteristics that we evaluate collectively for impairment under ASC 450-20, “Loss Contingencies.”

The allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The factors used to evaluate the collectability of the loan portfolio include, but are not limited to, current economic conditions, our historical loss experience, the nature and volume of the loan portfolio, the financial strength of the borrower, and estimated value of any underlying collateral. This evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results. See also “Business of Wolverine Bank—Allowance for Loan Losses.”

Income Tax Accounting. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. Under U.S. GAAP, a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods, while negative evidence includes

any cumulative losses in the current year and prior two years and general business and economic trends. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. Any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings. Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. The benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability, which could adversely affect our future income tax expense.

We believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets. We believe our tax liabilities and assets are properly recorded in the consolidated financial statements at September 30, 2012 and December 31, 2011 and no valuation allowance was necessary.

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

Total assets decreased $9.7 million, or 3.3%, to $284.0 million at September 30, 2012 from $293.7 million at December 31, 2011. The decrease resulted from a decrease of $21.2 million in interest-earning time deposits, offset in part by an increase of $5.1 million in cash and cash equivalents and an increase of $5.3 million in net loans.

Cash and cash equivalents increased $5.1 million, or 36.2%, to $19.2 million at September 30, 2012 from $14.1 million at December 31, 2011, and interest-earning time deposits decreased $21.1 million, or 100%, to $0 at September 30, 2012 from $21.1 million at December 31, 2011. The net increase in cash and cash equivalents and funds received from maturing interest-earning time deposits were used to pay down Federal Home Loan Bank advances, customer certificates of deposits and funding of loan originations.

Loans held for sale increased $3.8 million, or 576%, to $4.5 million at September 30, 3012 from $666,000 at December 31, 2011. This increase reflects the low rate environment that has facilitated a historically high volume of secondary market lending.

Net loans increased $5.3 million, or 2.2%, to $249.0 million at September 30, 2012 from $243.7 million at December 31, 2011. The loan portfolio increased primarily as a result of commercial real estate loans increasing $15.2 million or 17.0%, the undisbursed portion of loans decreasing by $3.3 million or 29.7% and the allowance for loan losses decreasing $3.1 million, or 32.6%. These were offset by construction loans decreasing $6.5 million, or 32.8%, one-to four-family residential real estate loans decreasing $7.3 million, or 10.7%, and home equity loans decreasing $3.1 million, or 22.5%. The decrease in one-to-four residential real estate loans and home equity loans are primarily due to borrower’s refinancing in the current low interest rate environment.

The decrease in our allowance for loan losses was due to the March 31, 2012 charging off of $3.8 million of specific reserves on collateral-dependent impaired loans. These charge offs were considered confirmed losses and the majority of the charge offs were based on recent appraisal values or evaluations. The allowance for loan losses as a percentage of total loans decreased to 2.6% as of September 30, 2012, from 3.7% at December 31, 2011. Management believes, we feel we are adequately covered because of the aforementioned charge offs taken during the three months ended March 31, 2012.

Securities held to maturity, consisting of one municipal security at September 30, 2012 decreased $73,000, or 23.2%, to $242,000 from $315,000 at December 31, 2011 due to paydowns.

Other real estate owned decreased $409,000, or 29.2%, to $991,000 at September 30, 2012, from $1.4 million at December 31, 2011. The decrease in other real estate owned resulted from sale proceeds of $809,000 and writedowns of $70,000, offset by new foreclosures of $312,000.

Other assets, consisting primarily of prepaid FDIC assessments and deferred federal taxes, decreased $2.4 million, or 42.1%, to $3.3 million at September 30, 2012, from $5.7 million at December 31, 2011. The decrease was primarily attributable to a net decrease in our deferred and accrued federal income taxes of $1.9 million which was primarily attributable to a refund of 2008 and 2009 federal income taxes resulting from our 2010 loss carryback.

Deposits decreased by $9.0 million, or 5.6%, to $152.4 million at September 30, 2012 from $161.4 million at December 31, 2011. Certificates of deposit decreased $9.7 million, or 13.6%, to $61.9 million at September 30, 2012 from $71.6 million at December 31, 2011. Our core deposits (consisting of interest-bearing and noninterest-bearing checking accounts, money market accounts and savings accounts) remained at $89.8 million.

Federal Home Loan Bank advances decreased $4.0 million to $61.9 million at September 30, 2012 from $65.9 million at December 31, 2011 as a result of paying off maturing advances.

Interest payable and other liabilities, consisting mainly of liabilities for checks and money orders and accrued expenses, increased $2.8 million, or 187.0% to $4.3 million at September 30, 2012, from $1.5 million at December 31, 2011. The increase was primarily due to increased month-end activity in our liability for checks and money orders of $1.9 million and a $422,000 increase in borrowers’ prepaid taxes and insurances.

Total stockholders’ equity increased $709,000, or 1.1%, to $65.7 million at September 30, 2012 from $65.0 million at December 31, 2011 primarily due to net income of $1.2 million. This was offset by purchases of 30,618 shares of Wolverine Bancorp, Inc. common stock, totaling $509,000 pursuant to our announced stock repurchase program which was approved by our Board of Directors on February 14, 2012.

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

General. We recorded net income of $380,000 for the three months ended September 30, 2012 compared to net income of $406,000 for the three months ended September 30, 2011. The decrease in our net income is primarily due to an increase in our provision for loan losses of $150,000 to $475,000 for the three months ended September 30, 2012 from $325,000 for the three months ended September 30, 2011 and an increase of $356,000 in non-interest expense offset in part by a $491,000 increase of gain on sale of loans.

Interest and Dividend Income. Interest and dividend income decreased by $137,000, or 3.8%, to $3.5 million for the three months ended September 30, 2012, as the average balance of interest-earning assets decreased $13.0 million to $277.7 million for the three months ended September 30, 2012 from $290.7 million for the three months ended September 30, 2011. The decrease in the average balance of interest-earning assets was partially offset by an increase in the average yield on interest-earning assets of 3 basis points to 5.01% during the 2012 period from 4.98% during the 2011 period.

The biggest component of the decrease in average interest-earning assets was in other interest-earning assets, consisting of interest-earning overnight funds and time deposits, which decreased $19.0 million, or 44.9%, to $23.3 million for the three months ended September 30, 2012 from $42.4 million for the three months ended September 30, 2011. The average yield on these assets decreased 22 basis points from 0.46% to 0.24%. The decrease in the average balance resulted in a $35,000 decrease in interest income from other interest-earning assets to $14,000 for the three months ended September 30, 2012 from $49,000 for the three months ended September 30, 2011.

Average net loans increased $6.1 million, or 2.5%, to $249.7 million for the three months ended September 30, 2012 from $243.6 million for the three months ended September 30, 2011. Interest income

on loans decreased slightly by $106,000, or 3%, to $3.4 million for the three months ended September 30, 2012, as the average yield on loans decreased 31 basis points to 5.50% for the three months ended September 30, 2012 from 5.81% for the three months ended September 30, 2011 reflecting the lower market interest rate environment.

Interest Expense. Interest expense decreased $361,000, or 29.1%, to $880,000 for the three months ended September 30, 2012 from $1.2 million for the three months ended September 30, 2011, as the average balance of interest-bearing liabilities decreased $17.7 million, or 7.6%, to $215.9 million for the three months ended September 30, 2012 from $233.6 million for the three months ended September 30, 2011, and the average rate we paid on these liabilities decreased 50 basis points to 1.63% from 2.13%. The biggest component of the decrease was interest expense on Federal Home Loan Bank advances which decreased $211,000, or 26.2%, to $594,000 for the three months ended September 30, 2012 from $805,000 for the three months ended September 30, 2011. This resulted from a $8.6 million decrease in the average balance of Federal Home Loan Bank advances to $61.9 million for the three months ended September 30, 2012 from $70.5 million for the three months ended September 30, 2011 as management determined not to renew maturing advances, and a 73 basis point decrease in the average rate paid on borrowings from 4.57% for the three months ended September 30, 2011 to 3.84% for the three months ended September 30, 2012.

Interest expense on certificates of deposits decreased $130,000 or 36.8%, to $223,000 for the three months ended September 30, 2012 from $353,000 for the three months ended September 30, 2011 resulting primarily from a $13.8 million decrease in the average balance of certificates of deposits to $62.2 million for the 2012 period, from $76.0 million for the 2011 period. The decrease in the balance of certificates of deposits was primarily due to customer withdrawals resulting from a decrease in rates paid on these deposits in the continuing low interest rate environment. Additionally, the yield on certificates of deposit decreased 42 basis points to 1.44% for the 2012 period from 1.86% for the 2011 period.

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $4.8 million, or 5.5%, to $91.8 million for the three months ended September 30, 2012 from $87.0 million for the three months ended September 30, 2011. However, the interest on core deposits decreased $20,000 to $63,000 for the 2012 period from $83,000 for the 2011 period, as the yield on these deposits for the three months ended September 30, 2012 decreased 11 basis points, or 28.2%, to 0.27% from 0.38% for the three months ended September 30, 2011.

Interest expense on borrowed funds, consisting entirely of Federal Home Loan Bank advances, decreased $211,000, or 26.2%, to $594,000 for the three months ended September 30, 2012 from $805,000 for the three months ended September 30, 2011, as the average balance of our borrowings decreased $8.6 million and the average rate paid on these borrowings decreased 73 basis points to 3.84% from 4.57%. The decrease in the rate was due to two restructures of outstanding advances. First, in the third quarter of 2011, we restructured $18.0 million of outstanding advances under the Federal Home Loan Bank of Indianapolis’ ‘blend and extend’ program, with a rate of 3.78% and a weighted average remaining maturity of 19 months to 2.69% with a weighted average remaining maturity of 62 months. In addition, in the second quarter of 2012, we restructured $22.0 million of outstanding advances under the aforementioned program, with a rate of 5.51% with a weighted average remaining maturity of 4 years to 4.22% with a weighted average remaining maturity of 9 years.

Net Interest Income. Net interest income increased $224,000, or 9.4%, to $2.6 million for the three months ended September 30, 2012 from $2.4 million for the three months ended September 30, 2011, as our average net interest-earning assets increased to $61.8 million from $57.1 million, our net interest rate spread increased 53 basis points to 3.38% from 2.85% and our net interest margin increased 47 basis points to 3.63% from 3.17%. The increases in our net interest rate spread and net interest margin reflected the restructuring of FHLB advances; paying off of our maturing, higher interest rate FHLB advances; and runoff of higher interest rate certificates of deposit, offset by 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, and an increase in our average net loans.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in our Annual Report on Form 10-K for 2011, we recorded a provision for loan losses of $475,000 for the three months ended September 30, 2012 and a provision for loan losses of $325,000 for the three months ended September 30, 2011. We have continued with additional provisions in 2012 because of elevated levels of non-performing assets, delinquencies and classified assets, as well as continued concerns about the Michigan economy, elevated levels of unemployment, and some declining collateral values. At September 30, 2012, non-performing loans totaled $11.1 million, or 4.4% of total loans, as compared to $15.3 million, or 6.3% of total loans, at September 30, 2011. The large decrease in non-performing loans is significantly due to the aforementioned charging off of the specific reserves which took place during the three months ended March 31, 2012 and a $600,000 charge-off relating to one relationship recorded in September 2012.

The allowance for loan losses to total loans receivable decreased to 2.6% at September 30, 2012 from 3.9% at September 30, 2011. This ratio was at 3.7% at December 31, 2011. The decrease in our allowance for loan losses was primarily due to the charge off and elimination of all previously established specific valuation allowances, which totaled $3.8 million. We are not required to maintain an allowance for loan losses on these loans as the loan balance has already been written down to the estimated collateral values on our collateral dependent impaired loans. Therefore, the ratio of the allowance for loan losses to total loans and the ratio of the allowance for loan losses to non-performing loans has been adversely affected by these charge offs. Correspondingly, the amount of non-performing loans decreased from $16.0 million as of December 31, 2011 to $11.1 million as of September 30, 2012 primarily as a result of these charge offs.

All loans rated substandard are reviewed for impairment at least quarterly. Overall, management continues to focus on resolving non-performing assets and improving asset quality. In addition to our collections department personnel in working out loans, we continue to involve business development officers and, on significant assets, underwriters and senior management.

Noninterest Income. Noninterest income increased by $250,000, or 56.7%, to $691,000 for the three months ended September 30, 2012 from $441,000 for the three months ended September 30, 2011. The increase was primarily attributable to an increase of $491,000 in net gain on loan sales. This was offset by decreases in loan fees earned which are now netted against the fees paid to our mortgage loan processing provider that was engaged in 2012. Additionally, miscellaneous income decreased from the prior year period due to a $165,000 settlement of an insurance claim made under our financial institution bond received in 2011. The settlement relates to an expense we incurred in connection with an external wire transfer in June 2010.

Noninterest Expense. Noninterest expense increased by $356,000, or 19.0%, to $2.2 million for the three months ended September 30, 2012 from $1.9 million for the three months ended September 30, 2011. The increase was primarily due to an increase of $412,000 or 44.9% in salaries and employee benefits expense due to increased staff and new positions. This was offset by a decrease of $27,000 in professional and service fees.

Income Tax Expense. We recorded $204,000 of income tax expense for the three months ended September 30, 2012 compared to $210,000 of income tax expense for the 2011 quarter. Our effective tax rate was 34.9% for the three months ended September 30, 2012 and 34.1% the three months ended September 30, 2011.

Comparison of Operating Results for the Nine Months Ended September 30, 2012 and 2011

General. We recorded net income of $1.2 million for the nine months ended September 30, 2012 compared to net income of $851,000 for the nine months ended September 30, 2011. Net interest income increased $785,000 to $7.7 million for the nine months ended September 30, 2012 from $7.0 million for the nine months ended September 30, 2011, and other noninterest income increased $514,000 to $1.7 million for the nine months ended September 30, 2012 from $1.2 million for the year earlier period.

Interest and Dividend Income. Interest and dividend income decreased by $180,000, or 1.7%, to $10.6 million for the nine months ended September 30, 2012 from $10.8 million for the nine months ended September 30, 2011, as the average balance of interest-earning assets decreased $16.6 million to $279.0 million for the nine months ended September 30, 2012 from $295.6 million for the nine months ended September 30, 2011, and the average yield on interest-earning assets increased 20 basis points to 5.08% during the 2012 period from 4.88% during the 2011 period. The increase in our average yield on interest-earning assets was due primarily to an increase in net loans and a decrease in lower-yielding other interest-earning assets.

The biggest component decrease in average interest-earning assets was in the other interest-earning assets category, consisting of interest-earning overnight funds and time deposits, which decreased $23.1 million, or 46.0%, to $27.1 million for the nine months ended September 30, 2012 from $50.3 million for the nine months ended September 30, 2011. The average yield on these investments decreased 2 basis points from 0.45% to 0.43%. This was offset by the increase in average net loans of $6.8 million or 2.8%, to $247.2 million for the nine months ended September 30, 2012 from $240.5 million for the nine months ended September 30, 2011.

Interest income on loans decreased by $118,000, or 1.1%, to $10.4 million for the nine months ended September 30, 2012 from $10.6 million for the nine months ended September 30, 2011, as the average yield on loans decreased 22 basis points to 5.63% for the nine months ended September 30, 2012 from 5.85% for the nine months ended September 30, 2011 reflecting the lower market interest rate environment, and the average balance of loans increased $6.8 million, or 2.8%, to $247.2 million for the nine months ended September 30, 2012 from $240.5 million for the nine months ended September 30, 2011.

Interest income on investment securities and other interest-earning assets, and dividends on FHLB of Indianapolis stock, decreased $62,000, or 23.3%, to $204,000 for the nine months ended September 30, 2012 from $266,000 for the nine months ended September 30, 2011. This decrease was primarily attributable to a decrease in the average balance of other interest-earning assets, consisting of interest-earning overnight funds, and time deposits and a decrease in the weighted average yield paid on these interest-earning assets. The average for the nine months ended September 30, 2011 of other interest-earning assets was $27.1 million, compared to the average balance for the nine months ended September 30, 2012 of $50.3 million. This decrease of $23.2 million represents a decrease of 46.0%. This shift in asset mix caused the weighted average yield paid on these interest-earning assets to decrease 2 basis points to 0.43% for the 2012 period from 0.45% for the 2011 period.

Interest Expense. Interest expense decreased $965,000, or 25.0%, to $2.9 million for the nine months ended September 30, 2012 from $3.9 million for the nine months ended September 30, 2011, as the average balance of interest-bearing liabilities decreased $20.5 million, or 8.6%, to $219.1 million for the nine months ended September 30, 2012 from $239.6 million for the nine months ended September 30, 2011 and the average rate paid on these liabilities decreased 39 basis points to 1.76% from 2.15%. The biggest component of the decrease was interest expense on Federal Home Loan Bank advances which decreased $540,000, or 22.0%, to $1.9 million for the nine months ended September 30, 2012 from $2.5 million for the nine months ended September 30, 2011. This resulted from a $9.0 million decrease in the average balance of Federal Home Loan Bank advances to $62.3 million for the nine months ended September 30, 2012 from $71.4 million for the nine months ended September 30, 2011 and a 49 basis point decrease in the average rate paid on borrowing from 4.59% for the nine months ended September 30, 2011 to 4.10% for the nine months ended September 30, 2012. The decrease in the average balance of these borrowings was due to our strategy of not renewing our maturing advances and paying them off when they come due. Additionally, the impact of restructuring our advances decreased the average rate from the 2011 period to the 2012 period.

The average balance of our core deposits, consisting of checking accounts, money market accounts and savings accounts, increased $2.3 million, or 2.6%, to $91.6 million for the nine months ended September 30, 2012 from $89.3 million for the nine months ended September 30, 2011. The interest expense on core deposits, however, decreased $67,000 to $203,000 for the 2012 period from $270,000 for the 2011 period as the average rate paid on these deposits decreased 10 basis points to .3% from .4%.

Interest expense on certificates of deposits decreased $358,000, or 31.4%, to $781,000 for the nine months ended September 30, 2012 from $1.1 million for the nine months ended September 30, 2011 as the average balance of certificates of deposits decreased $13.8 million to $65.2 million for the 2012 period, from $79.0 million for the 2011 period and the rate on certificates of deposit decreased 33 basis points to 1.60% for the 2012 period from 1.92% for the 2011 period.

Net Interest Income. Net interest income increased $785,000, or 11.3%, to $7.7 million for the nine months ended September 30, 2012 from $7.0 million for the nine months ended September 30, 2011, as our net interest-earning assets increased to $59.9 million from $55.9 million, our net interest rate spread increased 59 basis points to 3.32% from 2.73% and our net interest margin increased 56 basis points to 3.59% from 3.03%. The increases in our net interest rate spread and net interest margin reflected the restructuring of FHLB advances; paying off of our maturing, higher interest rate FHLB advances; and runoff of higher interest rate certificates of deposit, offset by 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.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” in our Annual Report on Form 10-K, filed with the SEC on March 30,2012, we recorded a provision for loan losses of $1.4 million for the nine months ended September 30, 2012 and a provision for loan losses of $1.1 million for the nine months ended September 30, 2011. We have continued with additional provisions in 2012 because of elevated levels of non-performing assets, delinquencies and classified assets, as well as continued concerns about the Michigan economy, elevated levels of unemployment, and some declining collateral values.

The allowance for loan losses as a percentage of non-performing loans increased to 70.3% at September 30, 2012 from 65.1% at September 30, 2011. To the best of our knowledge, we have provided for all losses that are probable and incurred and reasonable to estimate at September 30, 2012 and 2011.

Noninterest Income. Noninterest income increased by $514,000, or 43.5%, to $1.7 million for the nine months ended September 30, 2012 from $1.2 million for the nine months ended September 30, 2011. The increase was primarily attributable to an increase of $1.1 million in gain on sale of mortgage loans, offset in part by decreases in gross rental income on other real estate owned of $109,000 due to a decreased number of foreclosed rental properties and writedowns on current other real estate owned properties. Additionally, there were decreases in loan fees earned $134,000 primarily due to the net effect of mortgage loan processing expense.

Noninterest Expense . Noninterest expense increased by $449,000, or 7.8%, to $6.2 million for the nine months ended September 30, 2012 from $5.7 million for the nine months ended September 30, 2011. The increase was primarily due to an increase of $857,000 or 32.5%, in salaries and employee benefits expense due to increased staff, overtime wages and temporary staff. This was offset in part by a decrease of $239,000 in other real estate owned expenses due to a decrease in foreclosed properties.

Income Tax Expense . We recorded a $622,000 income tax expense for the nine months ended September 30, 2012 compared to a $443,000 income tax expense for the 2011 period, reflecting the income of $1.8 million before income tax expense during the nine months ended September 30, 2012 versus income before income tax of $1.3 million for the nine months ended September 30, 2011. Our effective tax expense rate was 34.5% for the nine months ended September 30, 2012 compared to an effective tax expense rate of 34.2% for the nine months ended September 30, 2011.

Asset Quality

Other real estate owned totaled $991,000, or 0.3% of total assets, at September 30, 2012 as compared to $1.4 million, or 0.5% of total assets, at September 30, 2011. The largest relationship as of September 30, 2012 was $270,000, or 27.0% of other real estate owned, which consisted of a commercial real estate property, a single family home and land.

Non-performing assets, which includes non-performing loans, other real estate owned and troubled debt restructurings, totaled $11.9 million, or 4.2% of total assets, at September 30, 2012 as compared to $16.3 million, or 5.4% of total assets, at September 30, 2011.

The largest substandard relationship as of September 30, 2012 has a total balance of $4.3 million. Of the $18.0 million loans rated substandard, approximately $8.9 million are performing.

At September 30, 2012, we had 7 loans, totaling $510,000, 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 the remaining loans, one was classified as substandard, totaling $106,000. At September 30, 2012, none of these loans was considered a troubled debt restructuring, and all of these loans were considered performing at September 30, 2012.

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 our management, including the Chief Executive Officer and the Chief Operating Officer, of the effectiveness of the design and operation of our 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, 2012. Based on that evaluation, our management, including the Chief Executive Officer and the Chief Operating Officer and Treasurer, concluded that our disclosure controls and procedures were effective.

During the quarter ended September 30, 2012, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II – Other Information

Item 1.

Legal Proceedings

We are 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 our 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)

The following table presents for the periods indicated a summary of the purchases made by or on behalf of Wolverine Bancorp, Inc. of shares of its common stock.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
July 1, 2012 through July 31, 2012		4,000	$	16.50		4,000		114,099
August 1, 2012 through August 31, 2012		12,500	$	16.76		12,500		101,599
September 1, 2012 through September 30, 2012		6,842	$	17.41		6,842		94,757

		23,342				23,342

⁽¹⁾	The Company’s board of directors approved a stock repurchase program on February 14, 2012 for the repurchase of 125,375 shares of common stock.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

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

101		INS XBRL Instance

101		SCH XBRL Taxonomy Extension Schema

101		CAL XBRL Taxonomy Extension Calculation

101		DEF XBRL Taxonomy Extension Definition

101		LAB XBRL Taxonomy Extension Label

101		PRE XBRL Taxonomy Extension Presentation

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: November 14, 2012						/s/ David H. Dunn
						David H. Dunn
						President and Chief Executive Officer

Date: November 14, 2012						/s/ Rick A. Rosinski
						Rick A. Rosinski
						Chief Operating Officer and Treasurer