WSBF Waterstone Financial Inc

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