Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $21.3 million, or $0.89 per diluted share for the quarter ended March 31, 2021 compared to $6.1 million, or $0.24 per diluted share for the quarter ended March 31, 2020.

“We've started the year strong with a record first quarter profit driven by continued strong mortgage origination volumes at the mortgage banking segment”, said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “Our team’s commitment to meeting the needs of our customers has continued to show through our results. I continue to be impressed with the efforts of all the employees from both the community banking and mortgage banking segments as we continue to deliver in a challenging environment.”

Highlights of the Quarter Ended March 31, 2021

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $21.3 million for the quarter ended March 31, 2021, compared to $6.1 million for the quarter ended March 31, 2020.
  • Consolidated return on average assets was 3.99% for the quarter ended March 31, 2021 compared to 1.21% for the quarter ended March 31, 2020.
  • Consolidated return on average equity was 20.49% for the quarter ended March 31, 2021 and 6.24% for the quarter ended March 31, 2020.
  • Dividends declared during the quarter ended March 31, 2021 totaled $0.20 per common share.

Community Banking Segment

  • Pre-tax income totaled $9.1 million for the quarter ended March 31, 2021, which represents a 73.4% increase compared to $5.3 million for the quarter ended March 31, 2020.
  • Net interest income totaled $14.2 million for the quarter ended March 31, 2021, which represents a 10.4% increase compared to $12.9 million for the quarter ended March 31, 2020.
  • Average loans held for investment totaled $1.35 billion during the quarter ended March 31, 2021, which represents a decrease of $46.5 million, or 3.3%, compared to $1.39 billion for the quarter ended March 31, 2020. Average loans held for investment decreased $55.8 million compared to $1.40 billion for the quarter ended December 31, 2020 as loans continue to prepay at an accelerated rate.
  • Net interest margin increased 12 basis points to 2.80% for the quarter ended March 31, 2021 compared to 2.68% for the quarter ended March 31, 2020, which was a result of lower average rates on deposits, as certificate of deposits repriced at lower rates. Net interest margin increased seven basis points compared to 2.73% for the quarter ended December 31, 2020, driven by lower average rates on deposits, as certificate of deposits repriced at lower rates.
  • The segment had a negative provision for loan losses of $1.1 million for the quarter ended March 31, 2021 compared to a $750,000 provision for loan losses for the quarter ended March 31, 2020. Net recoveries totaled $27,000 for the quarter ended March 31, 2021, compared to net recoveries of $54,000 for the quarter ended March 31, 2020. 
  • Noninterest income increased $215,000 for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020, due primarily to increases on service charges on loans as prepayments increased, partially offset by a decrease in income from cash surrender value of bank owned life insurance policies. 
  • Noninterest expense decreased $460,000 for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. Compensation, payroll taxes and other employee benefits expense decreased $193,000 due to decreases in health insurance claims. Data processing expense decreased $94,000 due to the implementation of a new digital banking platform in 2020. Other noninterest expense decreased $140,000 as certain loan-related expenses decreased offset by a decrease of credits received for FDIC premiums in 2020 but not in 2021. 
  • The efficiency ratio was 48.17% for the quarter ended March 31, 2021, compared to 56.84% for the quarter ended March 31, 2020.
  • Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended March 31, 2021, an increase of $128.8 million, or 12.0%, compared to $1.08 billion during the quarter ended March 31, 2020. Average deposits increased $12.8 million, or 4.3% annualized compared to the $1.19 billion for the quarter ended December 31, 2020.
  • Nonperforming assets as percentage of total assets was 0.20% at March 31, 2021, 0.27% at December 31, 2020, and 0.36% at March 31, 2020.
  • Past due loans as percentage of total loans was 0.52% at March 31, 2021, 0.57% at December 31, 2020, and 0.78% at March 31, 2020.
  • PPP loans totaled $19.4 million as of March 31, 2021.  The average balance for the quarter ended March 31, 2021 was $18.0 million. PPP loan interest income recognized was approximately $44,000 and the amortization of fee income was approximately $354,000. Net interest margin, excluding the impact of the PPP loans, was 2.74%.  Net interest margin for the quarter ended March 31, 2021, including the impact of the PPP loans, was 2.80%.
  • The Company held approximately $9.5 million in loans, representing 0.7% of the total loan portfolio as of March 31, 2021, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $9.5 million in loans, $910,000 qualify as modifications under the Coronavirus Aid, Relief and Economic Security (“CARES Act”). The remaining $8.6 million is composed of three loan relationships that are classified as troubled debt restructurings. 

Mortgage Banking Segment

  • Pre-tax income totaled $19.1 million for the quarter ended March 31, 2021, compared to $2.7 million for the quarter ended March 31, 2020.
  • Loan originations increased $406.3 million, or 57.3%, to $1.12 billion during the quarter ended March 31, 2021, compared to $708.8 million during the quarter ended March 31, 2020. Origination volume relative to purchase activity accounted for 56.1% of originations for the quarter ended March 31, 2021 compared to 68.3% of total originations for the quarter ended March 31, 2020.
  • Mortgage banking income increased $24.2 million, or 78.7%, to $55.0 million for the quarter ended March 31, 2021, compared to $30.8 million for the quarter ended March 31, 2020.
  • Gross margin on loans sold increased to 4.86% for the quarter ended March 31, 2021, compared to 4.08% for the quarter ended March 31, 2020. 
  • Total compensation, payroll taxes and other employee benefits increased $9.9 million, or 50.9%, to $29.3 million during the quarter ended March 31, 2021 compared to $19.4 million during the quarter ended March 31, 2020. The increase primarily related to increased commission expense, performance bonuses, and branch manager compensation driven by increased loan origination volume and branch profitability.
  • Professional fees decreased $2.1 million to $524,000 of income during the quarter ended March 31, 2021 compared to $1.6 million of expense during the quarter ended March 31, 2020.  The decrease related to receiving a legal settlement during the quarter ended March 31, 2021, along with a decrease in litigation costs compared to the prior year, as the Herrington settlement was resolved.

Recent Developments:

COVID-19 Pandemic and the CARES Act

The 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 60th day after 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 January 1, 2022.  We have elected to continue 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 March 31,
  2021 2020
  (In Thousands, except per share amounts)
Interest income:      
Loans $ 16,603   $ 17,687
Mortgage-related securities 491   702
Debt securities, federal funds sold and short-term investments 875   1,063
Total interest income 17,969   19,452
Interest expense:      
Deposits 1,517   4,318
Borrowings 2,500   2,608
Total interest expense 4,017   6,926
Net interest income 13,952   12,526
Provision for loan losses (1,070 ) 785
Net interest income after provision for loan losses 15,022   11,741
Noninterest income:      
Service charges on loans and deposits 690   481
Increase in cash surrender value of life insurance 301   353
Mortgage banking income 54,391   30,406
Other 817   224
Total noninterest income 56,199   31,464
Noninterest expenses:      
Compensation, payroll taxes, and other employee benefits 34,123   24,401
Occupancy, office furniture, and equipment 2,565   2,741
Advertising 824   900
Data processing 971   1,006
Communications 331   338
Professional fees (315 ) 1,832
Real estate owned (12 ) 11
Loan processing expense 1,335   1,076
Other 3,178   2,903
Total noninterest expenses 43,000   35,208
Income before income taxes 28,221   7,997
Income tax expense 6,877   1,928
Net income $ 21,344   $ 6,069
Income per share:      
Basic $ 0.90   $ 0.24
Diluted $ 0.89   $ 0.24
Weighted average shares outstanding:      
Basic 23,735   25,405
Diluted 23,950   25,612
       
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
   March 31,     December 31,   
  2021   2020  
  (Unaudited)      
Assets (In Thousands, except per share amounts)  
Cash $                      160,144   $                        56,190  
Federal funds sold                          19,029                            18,847  
Interest-earning deposits in other financial institutions and other short term investments                          19,228                            19,730  
Cash and cash equivalents                        198,401                            94,767  
Securities available for sale (at fair value)                        162,263                          159,619  
Loans held for sale (at fair value)                        341,293                          402,003  
Loans receivable                     1,335,423                       1,375,137  
Less: Allowance for loan losses                          17,780                            18,823  
Loans receivable, net                     1,317,643                       1,356,314  
         
Office properties and equipment, net                          23,402                            23,722  
Federal Home Loan Bank stock (at cost)                          26,720                            26,720  
Cash surrender value of life insurance                          63,874                            63,573  
Real estate owned, net                               150                                 322  
Prepaid expenses and other assets                          64,265                            57,547  
Total assets $                   2,198,011   $                   2,184,587  
         
Liabilities and Shareholders' Equity        
Liabilities:        
Demand deposits $                      194,978   $                      188,225  
Money market and savings deposits                        318,959                          295,317  
Time deposits                        705,754                          701,328  
Total deposits                     1,219,691                       1,184,870  
         
Borrowings                        490,505                          508,074  
Advance payments by borrowers for taxes                          12,048                              3,522  
Other liabilities                          45,086                            75,003  
Total liabilities                     1,767,330                       1,771,469  
         
Shareholders' equity:        
Preferred stock                                    -                                      -  
Common stock                               252                                 251  
Additional paid-in capital                        182,533                          180,684  
Retained earnings                        261,859                          245,287  
Unearned ESOP shares                        (15,133 )                        (15,430 )
Accumulated other comprehensive income, net of taxes                            1,170                              2,326  
Total shareholders' equity                        430,681                          413,118  
Total liabilities and shareholders' equity $                   2,198,011   $                   2,184,587  
         
Share Information         
Shares outstanding                          25,230                            25,088  
Book value per share $                          17.07   $                          16.47  
Closing market price $                          20.42   $                          18.82  
Price to book ratio 119.63 % 114.27 %
         

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
                     
       At or For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2021   2020   2020   2020   2020  
  (Dollars in Thousands, except per share amounts)
Condensed Results of Operations:                    
Net interest income $  13,952   $  14,316   $  13,409   $  13,249   $  12,526  
Provision for loan losses  (1,070 )  30    1,025    4,500    785  
Total noninterest income  56,199    69,886    75,763    66,904    31,464  
Total noninterest expense  43,000    47,163    53,001    47,689    35,208  
Income before income taxes  28,221    37,009    35,146    27,964    7,997  
Income tax expense  6,877    9,174    8,853    7,016    1,928  
Net income $  21,344   $  27,835   $  26,293   $  20,948   $  6,069  
Income per share – basic $  0.90   $  1.17   $  1.08   $  0.86   $  0.24  
Income per share – diluted  $  0.89   $  1.17   $  1.08   $  0.85   $  0.24  
Dividends declared per share $  0.20   $  0.50   $  0.12   $  0.12   $  0.62  
                     
Performance Ratios (annualized):                    
Return on average assets - QTD 3.99 % 4.96 % 4.78 % 3.87 % 1.21 %
Return on average equity - QTD 20.49 % 27.11 % 26.30 % 22.39 % 6.24 %
Net interest margin - QTD 2.80 % 2.73 % 2.63 % 2.62 % 2.68 %
                     
Return on average assets - YTD 3.99 % 3.77 % 3.35 % 2.59 % 1.21 %
Return on average equity - YTD 20.49 % 20.18 % 18.02 % 14.03 % 6.24 %
Net interest margin - YTD 2.80 % 2.67 % 2.64 % 2.65 % 2.68 %
                     
Asset Quality Ratios:                    
Past due loans to total loans 0.52 % 0.57 % 0.39 % 0.45 % 0.78 %
Nonaccrual loans to total loans 0.31 % 0.40 % 0.42 % 0.39 % 0.48 %
Nonperforming assets to total assets 0.20 % 0.27 % 0.31 % 0.28 % 0.36 %
Allowance for loan losses to loans receivable 1.33 % 1.37 % 1.31 % 1.24 % 0.94 %
                     
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
      (Unaudited)
 
   At or For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2021   2020   2020   2020   2020  
Average balances (Dollars in Thousands)
Interest-earning assets                    
Loans receivable and held for sale $ 1,657,260   $ 1,775,455   $ 1,766,715   $ 1,759,970   $ 1,562,097  
Mortgage related securities 90,457   91,199   96,529   105,727   112,089  
Debt securities, federal funds sold and short term investments 273,929   217,356   166,160   164,306   206,485  
Total interest-earning assets 2,021,646   2,084,010   2,029,404   2,030,003   1,880,671  
Noninterest-earning assets 147,781   147,573   160,526   147,342   132,283  
Total assets $ 2,169,427   $ 2,231,583   $ 2,189,930   $ 2,177,345   $ 2,012,954  
                     
Interest-bearing liabilities                    
Demand accounts $ 55,552   $ 53,771   $ 50,590   $ 45,289   $ 39,886  
Money market, savings, and escrow accounts 314,418   304,467   282,349   252,500   218,942  
Certificates of deposit 705,712   726,132   741,265   730,573   734,147  
Total interest-bearing deposits 1,075,682   1,084,370   1,074,204   1,028,362   992,975  
Borrowings 482,665   546,070   531,588   609,863   495,595  
Total interest-bearing liabilities 1,558,347   1,630,440   1,605,792   1,638,225   1,488,570  
                     
Noninterest-bearing demand deposits 138,446   128,665   129,911   115,605   92,627  
Noninterest-bearing liabilities 50,188   64,001   56,451   47,140   40,609  
Total liabilities 1,746,981   1,823,106   1,792,154   1,800,970   1,621,806  
Equity 422,446   408,477   397,776   376,375   391,148  
Total liabilities and equity $ 2,169,427   $ 2,231,583   $ 2,189,930   $ 2,177,345   $ 2,012,954  
                     
Average Yield/Costs (annualized)                    
Loans receivable and held for sale 4.06 % 4.08 % 4.10 % 4.23 % 4.55 %
Mortgage related securities 2.20 % 2.30 % 2.42 % 2.55 % 2.52 %
Debt securities, federal funds sold and short term investments 1.30 % 1.59 % 1.75 % 1.71 % 2.07 %
Total interest-earning assets 3.60 % 3.75 % 3.83 % 3.93 % 4.16 %
                     
Demand accounts 0.07 % 0.07 % 0.09 % 0.08 % 0.08 %
Money market and savings accounts 0.32 % 0.53 % 0.67 % 0.74 % 0.78 %
Certificates of deposit 0.72 % 1.20 % 1.62 % 1.91 % 2.13 %
Total interest-bearing deposits 0.57 % 0.96 % 1.29 % 1.54 % 1.75 %
Borrowings 2.10 % 1.97 % 1.98 % 1.76 % 2.12 %
Total interest-bearing liabilities 1.05 % 1.30 % 1.52 % 1.62 % 1.87 %
                     
COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited) 
 
  At or For the Three Months Ended     
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2021   2020   2020   2020   2020  
  (Dollars in Thousands)     
Condensed Results of Operations:                    
Net interest income $ 14,247   $ 14,546   $ 13,461   $ 13,701   $ 12,908  
Provision for loan losses (1,100 ) -   1,000   4,325   750  
Total noninterest income 1,243   1,655   3,104   2,936   1,028  
Noninterest expenses:                    
Compensation, payroll taxes, and other employee benefits 4,975   5,159   5,000   4,906   5,168  
Occupancy, office furniture and equipment 1,025   934   874   866   1,014  
Advertising 209   244   252   297   248  
Data processing 511   511   490   678   605  
Communications 119   110   113   91   97  
Professional fees 194   5   266   226   198  
Real estate owned (12 ) (63 ) 11   33   11  
Loan processing expense -   -   -   -   -  
Other 440   577   818   532   580  
Total noninterest expense 7,461   7,477   7,824   7,629   7,921  
Income before income taxes 9,129   8,724   7,741   4,683   5,265  
Income tax expense 1,786   1,926   1,565   574   1,154  
Net income $ 7,343   $ 6,798   $ 6,176   $ 4,109   $ 4,111  
                     
Efficiency ratio - QTD 48.17 % 46.15 % 47.23 % 45.86 % 56.84 %
Efficiency ratio - YTD 48.17 % 48.71 % 49.59 % 50.86 % 56.84 %
                     

  

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
 
  At or For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2021   2020   2020   2020   2020  
  (Dollars in Thousands)
Condensed Results of Operations:                    
Net interest income $ (350 ) $ (223 ) $ (58 ) $ (511 ) $ (379 )
Provision for loan losses 30   30   25   175   35  
Total noninterest income 55,035   68,500   73,143   64,218   30,798  
Noninterest expenses:                    
Compensation, payroll taxes, and other employee benefits 29,262   33,347   34,559   32,139   19,387  
Occupancy, office furniture and equipment 1,540   1,545   1,595   1,668   1,727  
Advertising 615   822   609   567   652  
Data processing 454   402   426   413   395  
Communications 212   225   226   226   241  
Professional fees (524 ) 441   4,465   850   1,620  
Real estate owned -   -   -   -   -  
Loan processing expense 1,335   1,026   1,336   1,208   1,076  
Other 2,681   2,110   2,444   3,239   2,552  
Total noninterest expense 35,575   39,918   45,660   40,310   27,650  
Income before income taxes 19,080   28,329   27,400   23,222   2,734  
Income tax expense 5,096   7,252   7,284   6,440   768  
Net income $ 13,984   $ 21,077   $ 20,116   $ 16,782   $ 1,966  
                     
Efficiency ratio - QTD 65.05 % 58.46 % 62.48 % 63.27 % 90.90 %
Efficiency ratio - YTD 65.05 % 65.20 % 67.95 % 72.70 % 90.90 %
                     
Loan originations $ 1,115,091   $ 1,282,321   $ 1,296,725   $ 1,142,683   $ 708,840  
Purchase 56.1 % 59.2 % 64.1 % 55.5 % 68.3 %
Refinance 43.9 % 40.8 % 35.9 % 44.5 % 31.7 %
Gross margin on loans sold(1) 4.86 % 5.40 % 5.44 % 5.45 % 4.08 %
(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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