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Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2020

Waterstone Financial, Inc.
·19 min read

WAUWATOSA, Wis., Oct. 26, 2020 (GLOBE NEWSWIRE) -- 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. Gerke
Chief Financial Officer
414-459-4012
markgerke@wsbonline.com

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

For The Three Months
Ended September 30,

For The Nine Months
Ended 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