Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $26.3 million, or $1.08 per diluted share for the quarter ended September 30, 2020 compared to $10.9 million, or $0.42 per diluted share for the quarter ended September 30, 2019. Net income per diluted share was $2.15 for the nine months ended September 30, 2020 compared to net income per diluted share of $1.03 for the nine months ended September 30, 2019.

“We are proud of the efforts from the entire team that resulted in a second consecutive record quarterly profits,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “The ability to service and meet the demands of customers continues to show in our results. Our strong financial position has aided us in an environment that continues to present challenges.”

Highlights of the Quarter Ended September 30, 2020

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $26.3 million for the quarter ended September 30, 2020, compared to $10.9 million for the quarter ended September 30, 2019.
  • Consolidated return on average assets was 4.78% for the quarter ended September 30, 2020 compared to 2.17% for the quarter ended September 30, 2019.
  • Consolidated return on average equity was 26.30% for the quarter ended September 30, 2020 and 11.15% for the quarter ended September 30, 2019.
  • Dividends declared totaled $0.12 per share and we repurchased approximately 800,000 shares at a cost of $12.3 million during the quarter ended September 30, 2020 as a result of our strong financial position.

Community Banking Segment

  • Pre-tax income totaled $7.7 million for the quarter ended September 30, 2020, which represents a 11.3% decrease compared to $8.7 million for the quarter ended September 30, 2019.
  • Net interest income totaled $13.5 million for the quarter ended September 30, 2020, which represents a 3.1% decrease compared to $13.9 million for the quarter ended September 30, 2019.
  • Average loans held for investment totaled $1.43 billion during the quarter ended September 30, 2020, which represents an increase of $49.7 million, or 3.6%, compared to $1.38 billion for the quarter ended September 30, 2019. The $30.1 million of loans originated throughout the nine months ended September 30, 2020 for the Paycheck Protection Program (PPP) contributed to the growth. Average loans held for investment increased $8.5 million, or 2.4% annualized, compared to $1.42 billion for the quarter ended June 30, 2020.
  • Net interest margin decreased 17 basis points to 2.63% for the quarter ended September 30, 2020 compared to 2.80% for the quarter ended September 30, 2019, which was a result of the decrease in yield of interest-earning assets as rates on loans, investments, and cash decreased. Net interest margin increased one basis point compared to 2.62% for the quarter ended June 30, 2020.
  • The segment had a $1.0 million provision for loan losses for the quarter ended September 30, 2020 compared to a negative provision for loan losses of $150,000 for the quarter ended September 30, 2019. The provision expense recorded during the third quarter of 2020 was primarily due to an increase in the loan downgrades to our Watch category. Net recoveries totaled $85,000 for the quarter ended September 30, 2020, compared to net recoveries of $10,000 for the quarter ended September 30, 2019.
  • Noninterest income increased $1.7 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, primarily due to a gain on death benefit as there were two death benefits received on bank-owned life insurance policies in the current quarter.
  • Noninterest expense increased $1.1 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. Compensation, payroll taxes and other employee benefits expense increased $925,000 due to increases in health insurance claims, salaries related to the addition of two bank branch locations and annual merit increases, in addition to an increase in variable compensation expense as the company met certain performance incentives. Other noninterest expense increased $235,000 as we received a credit for FDIC premiums in 2019 but not in 2020.
  • The efficiency ratio was 47.23% for the quarter ended September 30, 2020, compared to 43.97% for the quarter ended September 30, 2019.
  • Average deposits (excluding escrow accounts) totaled $1.18 billion during the quarter ended September 30, 2020, an increase of $133.8 million, or 12.8%, compared to $1.05 billion during the quarter ended September 30, 2019. Average deposits increased $52.8 million, or 18.7% annualized compared to the $1.13 billion for the quarter ended June 30, 2020.
  • Nonperforming assets as percentage of total assets was 0.31% at September 30, 2020, 0.28% at June 30, 2020, and 0.41% at September 30, 2019.
  • Past due loans as percentage of total loans was 0.39% at September 30, 2020, 0.45% at June 30, 2020, and 0.62% at September 30, 2019.
  • The PPP loans totaled $30.1 million as of September 30, 2020.
  • The Company held approximately $8.9 million in loans, representing 0.6% of the total loan portfolio as of September 30, 2020, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $8.9 million in loans, $3.2 million qualify as modifications under the CARES Act. The remaining $5.7 million represents a loan that is classified as a troubled debt restructuring. As of June 30 2020, the Company held approximately $121.1 million in loans, representing 8.4% of the total loan portfolio at that date, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic and qualified as modifications under the CARES Act.

Mortgage Banking Segment

  • Pre-tax income totaled $27.4 million for the quarter ended September 30, 2020, compared to $5.7 million for the quarter ended September 30, 2019.
  • Loan originations increased $445.4 million, or 52.3%, to $1.30 billion during the quarter ended September 30, 2020, compared to $851.3 million during the quarter ended September 30, 2019. Origination volume relative to purchase activity accounted for 64.1% of originations for the quarter ended September 30, 2020 compared to 79.0% of total originations for the quarter ended September 30, 2019.
  • Mortgage banking income increased $36.6 million, or 100.2%, to $73.1 million for the quarter ended September 30, 2020, compared to $36.5 million for the quarter ended September 30, 2019.
  • Gross margin on loans sold increased to 5.44% for the quarter ended September 30, 2020, compared to 4.30% for the quarter ended September 30, 2019.
  • Total compensation, payroll taxes and other employee benefits increased $10.9 million, or 46.3%, to $34.6 million during the quarter ended September 30, 2020 compared to $23.6 million during the quarter ended September 30, 2019. The increase primarily related to increased commission expense and branch manager compensation driven by increased loan origination volume and branch profitability.
  • Professional fees increased $3.8 million to $4.5 million primarily due to a tentative settlement agreement related to the Herrington litigation.
  • Other noninterest expense increased $719,000, or 41.7%, to $2.4 million during the quarter ended September 30, 2020 compared to $1.7 million during the quarter ended September 30, 2019. The increase related to amortization of mortgage servicing rights as the value of the servicing portfolio has increased in 2020 compared to 2019.

About Waterstone Financial, Inc.

WaterStone Bank, established in 1921, offers a full suite of personal and business banking products. The community bank has branches in Wauwatosa/State St, Brookfield, Fox Point/North Shore, Franklin/Hales Corners, Germantown/Menomonee Falls, Greenfield/Loomis Rd, Milwaukee/Oklahoma Ave, Oak Creek/27th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha, West Allis/Greenfield Ave, West Allis/National Ave, Wisconsin along with a commercial lending branch in Minneapolis, Minnesota. WaterStone Bank is the parent company to Waterstone Mortgage, which has the ability to lend in 48 states. For more information about WaterStone Bank, go to http://www.wsbonline.com. Follow WaterStone Bank on Facebook, Twitter, LinkedIn, YouTube, and Instagram.

Forward-Looking Statements

This press release contains statements or information that may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements include, without limitation, statements regarding expected financial and operating activities and results that are preceded by, followed by, or that include words such as “may,” “expects,” “anticipates,” “estimates” or “believes.”  Any such statements are based upon current expectations that involve a number of risks and uncertainties and are subject to important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements.  Factors that might cause such a difference include changes in interest rates; demand for products and services; the degree of competition by traditional and nontraditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies, including significant disruption to financial market and other economic activity caused by the outbreak of COVID-19; and other factors, including risk factors referenced in Item 1A. Risk Factors in Waterstone’s most recent Annual Report on Form 10-K and as may be described from time to time in Waterstone’s subsequent SEC filings, which factors are incorporated herein by reference.  Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect only Waterstone’s belief as of the date of this press release.

Contact: Mark R. GerkeChief Financial Officer414-459-4012markgerke@wsbonline.com

 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
  For The Three MonthsEnded September 30, For The Nine MonthsEnded September 30,
    2020     2019     2020     2019  
  (In Thousands, except per share amounts)
Interest income:                        
Loans $ 18,224   $ 18,558   $ 54,404   $ 53,688  
Mortgage-related securities   588     737     1,960     2,260  
Debt securities, federal funds sold and short-term investments   732     1,083     2,493     3,515  
Total interest income   19,544     20,378     58,857     59,463  
Interest expense:                        
Deposits   3,495     4,479     11,760     12,813  
Borrowings   2,640     2,745     7,913     7,579  
Total interest expense   6,135     7,224     19,673     20,392  
Net interest income   13,409     13,154     39,184     39,071  
Provision for loan losses   1,025     (80 )   6,310     (730 )
Net interest income after provision for loan losses   12,384     13,234     32,874     39,801  
Noninterest income:                        
Service charges on loans and deposits   672     503     3,384     1,272  
Increase in cash surrender value of life insurance   714     728     1,587     1,579  
Mortgage banking income   72,112     36,062     166,292     93,526  
Other   2,265     201     2,868     564  
Total noninterest income   75,763     37,494     174,131     96,941  
Noninterest expenses:                        
Compensation, payroll taxes, and other employee benefits   39,405     27,514     100,695     75,227  
Occupancy, office furniture, and equipment   2,469     2,629     7,744     8,085  
Advertising   861     913     2,625     2,834  
Data processing   922     1,003     3,023     2,641  
Communications   339     358     994     1,039  
Professional fees   4,738     954     7,647     2,438  
Real estate owned   11     24     55     75  
Loan processing expense   1,336     858     3,620     2,542  
Other   2,920     1,979     9,495     6,055  
Total noninterest expenses   53,001     36,232     135,898     100,936  
Income before income taxes   35,146     14,496     71,107     35,806  
Income tax expense   8,853     3,572     17,797     8,697  
Net income $ 26,293   $ 10,924   $ 53,310   $ 27,109  
Income per share:                        
Basic $ 1.08   $ 0.42   $ 2.16   $ 1.04  
Diluted $ 1.08   $ 0.42   $ 2.15   $ 1.03  
Weighted average shares outstanding:                        
Basic   24,297     25,772     24,720     26,168  
Diluted   24,380     25,962     24,842     26,372  
                         

 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
   September 30,   December 31, 
    2020     2019  
  (Unaudited)  
Assets (In Thousands, except per share amounts)
Cash $ 54,681   $ 52,814  
Federal funds sold   21,151     12,704  
Interest-earning deposits in other financial institutions and other short term investments   10,730     8,782  
Cash and cash equivalents   86,562     74,300  
Securities available for sale (at fair value)   153,201     178,476  
Loans held for sale (at fair value)   385,803     220,123  
Loans receivable   1,434,132     1,388,031  
Less: Allowance for loan losses   18,844     12,387  
Loans receivable, net   1,415,288     1,375,644  
             
Office properties and equipment, net   23,961     25,028  
Federal Home Loan Bank stock (at cost)   26,720     21,150  
Cash surrender value of life insurance   63,255     69,665  
Real estate owned, net   772     748  
Prepaid expenses and other assets   65,260     31,213  
Total assets $ 2,220,822   $ 1,996,347  
             
Liabilities and Shareholders' Equity            
Liabilities:            
Demand deposits $ 169,218   $ 130,063  
Money market and savings deposits   271,283     197,942  
Time deposits   744,150     739,771  
Total deposits   1,184,651     1,067,776  
             
Borrowings   552,126     483,562  
Advance payments by borrowers for taxes   25,987     4,212  
Other liabilities   58,629     47,111  
Total liabilities   1,821,393     1,602,661  
             
Shareholders' equity:            
Preferred stock   -     -  
Common stock   252     271  
Additional paid-in capital   182,960     211,997  
Retained earnings   229,289     197,393  
Unearned ESOP shares   (15,727 )   (16,617 )
Accumulated other comprehensive income, net of taxes   2,655     642  
Total shareholders' equity   399,429     393,686  
Total liabilities and shareholders' equity $ 2,220,822   $ 1,996,347  
             
Share Information             
Shares outstanding   25,220     27,148  
Book value per share $ 15.84   $ 14.50  
Closing market price $ 15.49   $ 19.03  
Price to book ratio   97.79 %   131.24 %
             
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  September 30, June 30, March 31, December 31, September 30,
    2020     2020     2020     2019     2019  
  (Dollars in Thousands, except per share amounts)
Condensed Results of Operations:                              
Net interest income $ 13,409   $ 13,249   $ 12,526   $ 13,126   $ 13,154  
Provision for loan losses   1,025     4,500     785     (170 )   (80 )
Total noninterest income   75,763     66,904     31,464     33,809     37,494  
Total noninterest expense   53,001     47,689     35,208     35,337     36,232  
Income before income taxes   35,146     27,964     7,997     11,768     14,496  
Income tax expense   8,853     7,016     1,928     2,974     3,572  
Net income $ 26,293   $ 20,948   $ 6,069   $ 8,794   $ 10,924  
Income per share – basic $ 1.08   $ 0.86   $ 0.24   $ 0.34   $ 0.42  
Income per share – diluted $ 1.08   $ 0.85   $ 0.24   $ 0.34   $ 0.42  
Dividends declared per share $ 0.12   $ 0.12   $ 0.62   $ 0.12   $ 0.12  
                               
Performance Ratios (annualized):                              
Return on average assets - QTD   4.78 %   3.87 %   1.21 %   1.75 %   2.17 %
Return on average equity - QTD   26.30 %   22.39 %   6.24 %   8.91 %   11.15 %
Net interest margin - QTD   2.63 %   2.62 %   2.68 %   2.79 %   2.80 %
                               
Return on average assets - YTD   3.35 %   2.59 %   1.21 %   1.82 %   1.84 %
Return on average equity - YTD   18.02 %   14.03 %   6.24 %   9.14 %   9.21 %
Net interest margin - YTD   2.64 %   2.65 %   2.68 %   2.83 %   2.85 %
                               
Asset Quality Ratios:                              
Past due loans to total loans   0.39 %   0.45 %   0.78 %   0.47 %   0.62 %
Nonaccrual loans to total loans   0.42 %   0.39 %   0.48 %   0.51 %   0.46 %
Nonperforming assets to total assets   0.31 %   0.28 %   0.36 %   0.39 %   0.41 %
Allowance for loan loss to loans receivable   1.31 %   1.24 %   0.94 %   0.89 %   0.91 %
                               
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
           
  At or For the Three Months Ended
  September 30, June 30, March 31, December 31, September 30,
    2020     2020     2020     2019     2019  
Average balances (Dollars in Thousands)
Interest-earning assets                              
Loans receivable and held for sale $ 1,766,715   $ 1,759,970   $ 1,562,097   $ 1,573,190   $ 1,579,575  
Mortgage related securities   96,529     105,727     112,089     110,426     114,051  
Debt securities, federal funds sold and short term investments   166,160     164,306     206,485     183,447     169,621  
Total interest-earning assets   2,029,404     2,030,003     1,880,671     1,867,063     1,863,247  
Noninterest-earning assets   160,526     147,342     132,283     125,904     137,723  
Total assets $ 2,189,930   $ 2,177,345   $ 2,012,954   $ 1,992,967   $ 2,000,970  
                               
Interest-bearing liabilities                              
Demand accounts $ 50,590   $ 45,289   $ 39,886   $ 38,650   $ 37,015  
Money market, savings, and escrow accounts   282,349     252,500     218,942     215,332     206,474  
Certificates of deposit   741,265     730,573     734,147     737,726     739,544  
Total interest-bearing deposits   1,074,204     1,028,362     992,975     991,708     983,033  
Borrowings   531,588     609,863     495,595     485,482     509,099  
Total interest-bearing liabilities   1,605,792     1,638,225     1,488,570     1,477,190     1,492,132  
                               
Noninterest-bearing demand deposits   129,911     115,605     92,627     85,815     86,849  
Noninterest-bearing liabilities   56,451     47,140     40,609     38,580     33,130  
Total liabilities   1,792,154     1,800,970     1,621,806     1,601,585     1,612,111  
Equity   397,776     376,375     391,148     391,382     388,859  
Total liabilities and equity $ 2,189,930   $ 2,177,345   $ 2,012,954   $ 1,992,967   $ 2,000,970  
                               
Average Yield/Costs (annualized)                              
Loans receivable and held for sale   4.10 %   4.23 %   4.55 %   4.68 %   4.66 %
Mortgage related securities   2.42 %   2.55 %   2.52 %   2.58 %   2.56 %
Debt securities, federal funds sold and short term investments   1.75 %   1.71 %   2.07 %   2.19 %   2.53 %
Total interest-earning assets   3.83 %   3.93 %   4.16 %   4.31 %   4.34 %
                               
Demand accounts   0.09 %   0.08 %   0.08 %   0.10 %   0.09 %
Money market and savings accounts   0.67 %   0.74 %   0.78 %   0.66 %   0.57 %
Certificates of deposit   1.62 %   1.91 %   2.13 %   2.20 %   2.24 %
Total interest-bearing deposits   1.29 %   1.54 %   1.75 %   1.79 %   1.81 %
Borrowings   1.98 %   1.76 %   2.12 %   2.20 %   2.14 %
Total interest-bearing liabilities   1.52 %   1.62 %   1.87 %   1.92 %   1.92 %
                               
COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  September 30, June 30, March 31, December 31, September 30,
    2020     2020     2020     2019     2019  
  (Dollars in Thousands)
Condensed Results of Operations:                              
Net interest income $ 13,461   $ 13,701   $ 12,908   $ 13,472   $ 13,885  
Provision for loan losses   1,000     4,325     750     (200 )   (150 )
Total noninterest income   3,104     2,936     1,028     1,645     1,415  
Noninterest expenses:                              
Compensation, payroll taxes, and other employee benefits   5,000     4,906     5,168     4,693     4,075  
Occupancy, office furniture and equipment   874     866     1,014     894     942  
Advertising   252     297     248     317     202  
Data processing   490     678     605     583     588  
Communications   113     91     97     93     90  
Professional fees   266     226     198     162     223  
Real estate owned   11     33     11     (251 )   24  
Loan processing expense   -     -     -     -     -  
Other   818     532     580     498     583  
Total noninterest expense   7,824     7,629     7,921     6,989     6,727  
Income before income taxes   7,741     4,683     5,265     8,328     8,723  
Income tax expense   1,565     574     1,154     2,033     1,982  
Net income $ 6,176   $ 4,109   $ 4,111   $ 6,295   $ 6,741  
                               
Efficiency ratio - QTD   47.23 %   45.86 %   56.84 %   46.23 %   43.97 %
Efficiency ratio - YTD   49.59 %   50.86 %   56.84 %   47.74 %   48.27 %
                               
MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  September 30, June 30, March 31, December 31, September 30,
    2020     2020     2020     2019     2019  
  (Dollars in Thousands)
Condensed Results of Operations:                              
Net interest income $ (58 ) $ (511 ) $ (379 ) $ (399 ) $ (774 )
Provision for loan losses   25     175     35     30     70  
Total noninterest income   73,143     64,218     30,798     32,440     36,535  
Noninterest expenses:                              
Compensation, payroll taxes, and other employee benefits   34,559     32,139     19,387     21,975     23,616  
Occupancy, office furniture and equipment   1,595     1,668     1,727     1,627     1,687  
Advertising   609     567     652     734     711  
Data processing   426     413     395     402     411  
Communications   226     226     241     227     268  
Professional fees   4,465     850     1,620     1,000     688  
Real estate owned   -     -     -     30     -  
Loan processing expense   1,336     1,208     1,076     746     858  
Other   2,444     3,239     2,552     1,918     1,725  
Total noninterest expense   45,660     40,310     27,650     28,659     29,964  
Income before income taxes   27,400     23,222     2,734     3,352     5,727  
Income tax expense   7,284     6,440     768     921     1,584  
Net income $ 20,116   $ 16,782   $ 1,966   $ 2,431   $ 4,143  
                               
Efficiency ratio - QTD   62.48 %   63.27 %   90.90 %   89.44 %   83.79 %
Efficiency ratio - YTD   67.95 %   72.70 %   90.90 %   87.47 %   86.79 %
                               
Loan originations $ 1,296,725   $ 1,142,683   $ 708,840   $ 777,073   $ 851,297  
Purchase   64.1 %   55.5 %   68.3 %   72.1 %   79.0 %
Refinance   35.9 %   44.5 %   31.7 %   27.9 %   21.0 %
Gross margin on loans sold(1)   5.44 %   5.45 %   4.08 %   4.27 %   4.30 %
                               
(1) - Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations
      
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