Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $27.8 million, or $1.17 per diluted share for the quarter ended December 31, 2020 compared to $8.8 million, or $0.34 per diluted share for the quarter ended December 31, 2019. Net income per diluted share was $3.30 for the year ended December 31, 2020 compared to net income per diluted share of $1.37 for the year ended December 31, 2019.

“Our financial results continue to be outstanding, as we have just completed our third consecutive quarter of record profits,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “The turbulent environment of 2020 demonstrated the synergies, and profitability, a community bank and its mortgage subsidiary can achieve working in harmony. Waterstone’s entire team navigated the rocky seas presented by a pandemic, achieving record results, and enhancing shareholders with dividends of $1.28 per share paid during the year.”

Highlights of the Quarter Ended December 31, 2020

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $27.8 million for the quarter ended December 31, 2020, compared to $8.8 million for the quarter ended December 31, 2019.
  • Consolidated return on average assets was 4.96% for the quarter ended December 31, 2020 compared to 1.75% for the quarter ended December 31, 2019.
  • Consolidated return on average equity was 27.11% for the quarter ended December 31, 2020 and 8.91% for the quarter ended December 31, 2019.
  • Dividends declared totaled $0.50 per share, which included a quarterly dividend of $0.20 per share and a special dividend of $0.30 per share. The quarterly dividend declared during the quarter represents an increase of $0.08, or 66.7%, compared to quarterly dividend rate paid in previous quarters during 2020.
  • We repurchased approximately 203,000 shares at a cost of $3.5 million during the quarter ended December 31, 2020.

Community Banking Segment

  • Pre-tax income totaled $8.7 million for the quarter ended December 31, 2020, which represents a 4.8% increase compared to $8.3 million for the quarter ended December 31, 2019.
  • Net interest income totaled $14.5 million for the quarter ended December 31, 2020, which represents an 8.0% increase compared to $13.5 million for the quarter ended December 31, 2019.
  • Average loans held for investment totaled $1.40 billion during the quarter ended December 31, 2020, which represents an increase of $21.6 million, or 1.6%, compared to $1.38 billion for the quarter ended December 31, 2019. The Paycheck Protection Program (PPP) loans originated during the year ended December 31, 2020, contributed to the growth. Average loans held for investment decreased $26.6 million, or 7.5% annualized, compared to $1.43 billion for the quarter ended September 30, 2020 as PPP loans started to pay off during the fourth quarter.
  • The PPP loans totaled $18.1 million as of December 31, 2020.
  • Net interest margin decreased six basis points to 2.73% for the quarter ended December 31, 2020 compared to 2.79% for the quarter ended December 31, 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 10 basis points compared to 2.63% for the quarter ended September 30, 2020, driven by lower average rates on deposits.
  • The segment had no provision for loan losses for the quarter ended December 31, 2020 compared to a negative provision for loan losses of $200,000 for the quarter ended December 30, 2019. Net charge-offs totaled $51,000 for the quarter ended December 31, 2020, compared to net recoveries of $10,000 for the quarter ended December 31, 2019.  
  • The efficiency ratio was 46.15% for the quarter ended December 31, 2020, compared to 46.23% for the quarter ended December 31, 2019.
  • Average deposits (excluding escrow accounts) totaled $1.19 billion during the quarter ended December 31, 2020, an increase of $137.9 million, or 13.1%, compared to $1.06 billion during the quarter ended December 31, 2019. Average deposits increased $13.0 million, or 4.4% annualized compared to the $1.18 billion for the quarter ended September 30, 2020.
  • Nonperforming assets as percentage of total assets was 0.27% at December 31, 2020, 0.31% at September 30, 2020, and 0.39% at December 31, 2019.
  • Past due loans as percentage of total loans was 0.57% at December 31, 2020, 0.39% at September 30, 2020, and 0.47% at December 31, 2019.
  • The Company held approximately $9.2 million in loans, representing 0.7% of the total loan portfolio as of December 31, 2020, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $9.2 million in loans, $1.2 million qualify as modifications under the CARES Act. The remaining $8.0 million represents three loans that are classified as troubled debt restructurings.

Mortgage Banking Segment

  • Pre-tax income totaled $28.3 million for the quarter ended December 31, 2020, compared to $3.4 million for the quarter ended December 31, 2019.
  • Loan originations increased $505.2 million, or 65.0%, to $1.28 billion during the quarter ended December 31, 2020, compared to $777.1 million during the quarter ended December 31, 2019. Origination volume relative to purchase activity accounted for 59.2% of originations for the quarter ended December 31, 2020 compared to 72.1% of total originations for the quarter ended December 31, 2019.
  • Mortgage banking income increased $36.1 million, or 111.2%, to $68.5 million for the quarter ended December 31, 2020, compared to $32.4 million for the quarter ended December 31, 2019.
  • Gross margin on loans sold increased to 5.40% for the quarter ended December 31, 2020, compared to 4.27% for the quarter ended December 31, 2019.

Recent Developments:

COVID-19 Pandemic and the CARES Act

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law at the end of March 2020, allowed for a temporary delay in the adoption of accounting guidance under Accounting Standards Codification Topic 326, “Financial Instruments – Credit Losses (“CECL”) until the earlier of December 31, 2020 or the end of the COVID-19 national emergency. During the quarter ended March 31, 2020, pursuant to the CARES Act and guidance from the Securities and Exchange Commission (“SEC”) and Financial Accounting Standards Board (“FASB”), we elected to delay adoption of CECL.  On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. Among other provisions, this Act extended the temporary delay on the adoption of CECL until the earlier of January 1, 2022 or the end of the COVID-19 national emergency. We have elected to delay adoption of CECL. As a result, our financial statements for the quarter and year ended December 31, 2020 include an allowance for loan losses that was prepared under the existing incurred loss methodology.

About Waterstone Financial, Inc.

Waterstone Financial, Inc. is the savings and loan holding company for WaterStone Bank. WaterStone Bank was established in 1921 and offers a full suite of personal and business banking products. The 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, and West Allis/National Ave, Wisconsin. 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.

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.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
  For The Three Months Ended December 31, For The Year Ended December 31,
    2020     2019     2020     2019  
  (In Thousands, except per share amounts)
Interest income:        
Loans $ 18,229   $ 18,547   $ 72,633   $ 72,235  
Mortgage-related securities   528     718     2,488     2,978  
Debt securities, federal funds sold and short-term investments   870     1,013     3,363     4,528  
Total interest income   19,627     20,278     78,484     79,741  
Interest expense:                        
Deposits   2,605     4,465     14,365     17,278  
Borrowings   2,706     2,687     10,619     10,266  
Total interest expense   5,311     7,152     24,984     27,544  
Net interest income   14,316     13,126     53,500     52,197  
Provision for loan losses   30     (170 )   6,340     (900 )
Net interest income after provision for loan losses   14,286     13,296     47,160     53,097  
Noninterest income:                        
Service charges on loans and deposits   1,078     1,091     4,462     2,363  
Increase in cash surrender value of life insurance   318     356     1,905     1,935  
Mortgage banking income   66,953     32,140     233,245     125,666  
Other   1,537     222     4,405     786  
Total noninterest income   69,886     33,809     244,017     130,750  
Noninterest expenses:                        
Compensation, payroll taxes, and other employee benefits   38,351     26,491     139,046     101,718  
Occupancy, office furniture, and equipment   2,479     2,521     10,223     10,606  
Advertising   1,066     1,051     3,691     3,885  
Data processing   918     989     3,941     3,630  
Communications   335     320     1,329     1,359  
Professional fees   471     1,167     8,118     3,605  
Real estate owned   (63 )   (221 )   (8 )   (146 )
Loan processing expense   1,026     746     4,646     3,288  
Other   2,580     2,273     12,075     8,328  
Total noninterest expenses   47,163     35,337     183,061     136,273  
Income before income taxes   37,009     11,768     108,116     47,574  
Income tax expense   9,174     2,974     26,971     11,671  
Net income $ 27,835   $ 8,794   $ 81,145   $ 35,903  
Income per share:                        
Basic $ 1.17   $ 0.34   $ 3.32   $ 1.38  
Diluted $ 1.17   $ 0.34   $ 3.30   $ 1.37  
Weighted average shares outstanding:                        
Basic   23,703     25,586     24,464     26,021  
Diluted   23,877     25,852     24,607     26,247  

 

 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  December 31, December 31,
    2020     2019  
  (Unaudited)  
Assets (In Thousands, except per share amounts)
Cash $ 56,190   $ 52,814  
Federal funds sold   18,847     12,704  
Interest-earning deposits in other financial institutions and other short term investments   19,730     8,782  
Cash and cash equivalents   94,767     74,300  
Securities available for sale (at fair value)   159,619     178,476  
Loans held for sale (at fair value)   402,003     220,123  
Loans receivable   1,375,137     1,388,031  
Less: Allowance for loan losses   18,823     12,387  
Loans receivable, net   1,356,314     1,375,644  
     
Office properties and equipment, net   23,722     25,028  
Federal Home Loan Bank stock (at cost)   26,720     21,150  
Cash surrender value of life insurance   63,573     69,665  
Real estate owned, net   322     748  
Prepaid expenses and other assets   57,547     31,213  
Total assets $ 2,184,587   $ 1,996,347  
     
Liabilities and Shareholders' Equity    
Liabilities:    
Demand deposits $ 188,225   $ 130,063  
Money market and savings deposits   295,317     197,942  
Time deposits   701,328     739,771  
Total deposits   1,184,870     1,067,776  
     
Borrowings   508,074     483,562  
Advance payments by borrowers for taxes   3,522     4,212  
Other liabilities   75,003     47,111  
Total liabilities   1,771,469     1,602,661  
     
Shareholders' equity:    
Preferred stock   -     -  
Common stock   251     271  
Additional paid-in capital   180,684     211,997  
Retained earnings   245,287     197,393  
Unearned ESOP shares   (15,430 )   (16,617 )
Accumulated other comprehensive income, net of taxes   2,326     642  
Total shareholders' equity   413,118     393,686  
Total liabilities and shareholders' equity $ 2,184,587   $ 1,996,347  
     
Share Information    
Shares outstanding   25,088     27,148  
Book value per share $ 16.47   $ 14.50  
Closing market price $ 18.82   $ 19.03  
Price to book ratio   114.27 %   131.24 %
     
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
    2020     2020     2020     2020     2019  
  (Dollars in Thousands, except per share amounts)
Condensed Results of Operations:          
Net interest income $ 14,316   $ 13,409   $ 13,249   $ 12,526   $ 13,126  
Provision for loan losses   30     1,025     4,500     785     (170 )
Total noninterest income   69,886     75,763     66,904     31,464     33,809  
Total noninterest expense   47,163     53,001     47,689     35,208     35,337  
Income before income taxes   37,009     35,146     27,964     7,997     11,768  
Income tax expense   9,174     8,853     7,016     1,928     2,974  
Net income $ 27,835   $ 26,293   $ 20,948   $ 6,069   $ 8,794  
Income per share - basic $ 1.17   $ 1.08   $ 0.86   $ 0.24   $ 0.34  
Income per share - diluted $ 1.17   $ 1.08   $ 0.85   $ 0.24   $ 0.34  
Dividends declared per share $ 0.50   $ 0.12   $ 0.12   $ 0.62   $ 0.12  
           
Performance Ratios (annualized):          
Return on average assets - QTD   4.96 %   4.78 %   3.87 %   1.21 %   1.75 %
Return on average equity - QTD   27.11 %   26.30 %   22.39 %   6.24 %   8.91 %
Net interest margin - QTD   2.73 %   2.63 %   2.62 %   2.68 %   2.79 %
           
Return on average assets - YTD   3.77 %   3.35 %   2.59 %   1.21 %   1.82 %
Return on average equity - YTD   20.18 %   18.02 %   14.03 %   6.24 %   9.14 %
Net interest margin - YTD   2.67 %   2.64 %   2.65 %   2.68 %   2.83 %
           
Asset Quality Ratios:          
Past due loans to total loans   0.57 %   0.39 %   0.45 %   0.78 %   0.47 %
Nonaccrual loans to total loans   0.40 %   0.42 %   0.39 %   0.48 %   0.51 %
Nonperforming assets to total assets   0.27 %   0.31 %   0.28 %   0.36 %   0.39 %
Allowance for loan losses to loans receivable   1.37 %   1.31 %   1.24 %   0.94 %   0.89 %
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
    2020     2020     2020     2020     2019  
Average balances (Dollars in Thousands)
Interest-earning assets          
Loans receivable and held for sale $ 1,775,455   $ 1,766,715   $ 1,759,970   $ 1,562,097   $ 1,573,190  
Mortgage related securities   91,199     96,529     105,727     112,089     110,426  
Debt securities, federal funds sold and short term investments   217,356     166,160     164,306     206,485     183,447  
    Total interest-earning assets   2,084,010     2,029,404     2,030,003     1,880,671     1,867,063  
Noninterest-earning assets   147,573     160,526     147,342     132,283     125,904  
    Total assets $ 2,231,583   $ 2,189,930   $ 2,177,345   $ 2,012,954   $ 1,992,967  
           
Interest-bearing liabilities          
Demand accounts $ 53,771   $ 50,590   $ 45,289   $ 39,886   $ 38,650  
Money market, savings, and escrow accounts   304,467     282,349     252,500     218,942     215,332  
Certificates of deposit   726,132     741,265     730,573     734,147     737,726  
    Total interest-bearing deposits   1,084,370     1,074,204     1,028,362     992,975     991,708  
Borrowings   546,070     531,588     609,863     495,595     485,482  
    Total interest-bearing liabilities   1,630,440     1,605,792     1,638,225     1,488,570     1,477,190  
Noninterest-bearing demand deposits   128,665     129,911     115,605     92,627     85,815  
Noninterest-bearing liabilities   64,001     56,451     47,140     40,609     38,580  
    Total liabilities   1,823,106     1,792,154     1,800,970     1,621,806     1,601,585  
Equity   408,477     397,776     376,375     391,148     391,382  
    Total liabilities and equity $ 2,231,583   $ 2,189,930   $ 2,177,345   $ 2,012,954   $ 1,992,967  
           
Average Yield/Costs (annualized)          
Loans receivable and held for sale   4.08 %   4.10 %   4.23 %   4.55 %   4.68 %
Mortgage related securities   2.30 %   2.42 %   2.55 %   2.52 %   2.58 %
Debt securities, federal funds sold and short term investments   1.59 %   1.75 %   1.71 %   2.07 %   2.19 %
    Total interest-earning assets   3.75 %   3.83 %   3.93 %   4.16 %   4.31 %
           
Demand accounts   0.07 %   0.09 %   0.08 %   0.08 %   0.10 %
Money market and savings accounts   0.53 %   0.67 %   0.74 %   0.78 %   0.66 %
Certificates of deposit   1.20 %   1.62 %   1.91 %   2.13 %   2.20 %
    Total interest-bearing deposits   0.96 %   1.29 %   1.54 %   1.75 %   1.79 %
Borrowings   1.97 %   1.98 %   1.76 %   2.12 %   2.20 %
    Total interest-bearing liabilities   1.30 %   1.52 %   1.62 %   1.87 %   1.92 %
           
COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
    2020     2020     2020     2020     2019  
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $ 14,546   $ 13,461   $ 13,701   $ 12,908   $ 13,472  
Provision for loan losses   -     1,000     4,325     750     (200 )
Total noninterest income   1,655     3,104     2,936     1,028     1,645  
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits   5,159     5,000     4,906     5,168     4,693  
Occupancy, office furniture and equipment   934     874     866     1,014     894  
Advertising   244     252     297     248     317  
Data processing   511     490     678     605     583  
Communications   110     113     91     97     93  
Professional fees   5     266     226     198     162  
Real estate owned   (63 )   11     33     11     (251 )
Loan processing expense   -     -     -     -     -  
Other   577     818     532     580     498  
Total noninterest expense   7,477     7,824     7,629     7,921     6,989  
Income before income taxes   8,724     7,741     4,683     5,265     8,328  
Income tax expense   1,926     1,565     574     1,154     2,033  
Net income $ 6,798   $ 6,176   $ 4,109   $ 4,111   $ 6,295  
           
Efficiency ratio - QTD   46.15 %   47.23 %   45.86 %   56.84 %   46.23 %
Efficiency ratio - YTD   48.71 %   49.59 %   50.86 %   56.84 %   47.74 %
           

        

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
    2020     2020     2020     2020     2019  
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $ (223 ) $ (58 ) $ (511 ) $ (379 ) $ (399 )
Provision for loan losses   30     25     175     35     30  
Total noninterest income   68,500     73,143     64,218     30,798     32,440  
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits   33,347     34,559     32,139     19,387     21,975  
Occupancy, office furniture and equipment   1,545     1,595     1,668     1,727     1,627  
Advertising   822     609     567     652     734  
Data processing   402     426     413     395     402  
Communications   225     226     226     241     227  
Professional fees   441     4,465     850     1,620     1,000  
Real estate owned   -     -     -     -     30  
Loan processing expense   1,026     1,336     1,208     1,076     746  
Other   2,110     2,444     3,239     2,552     1,918  
Total noninterest expense   39,918     45,660     40,310     27,650     28,659  
Income before income taxes   28,329     27,400     23,222     2,734     3,352  
Income tax expense   7,252     7,284     6,440     768     921  
Net income $ 21,077   $ 20,116   $ 16,782   $ 1,966   $ 2,431  
           
Efficiency ratio - QTD   58.46 %   62.48 %   63.27 %   90.90 %   89.44 %
Efficiency ratio - YTD   65.20 %   67.95 %   72.70 %   90.90 %   87.47 %
           
Loan originations $ 1,282,321   $ 1,296,725   $ 1,142,683   $ 708,840   $ 777,073  
Purchase   59.2 %   64.1 %   55.5 %   68.3 %   72.1 %
Refinance   40.8 %   35.9 %   44.5 %   31.7 %   27.9 %
Gross margin on loans sold(1)   5.40 %   5.44 %   5.45 %   4.08 %   4.27 %
(1) - Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations
           

Contact: Mark R. GerkeChief Financial Officer414.459.4012markgerke@wsbonline.com

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