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Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2020

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Waterstone Financial, Inc.
·18 min read
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WAUWATOSA, Wis., Jan. 28, 2021 (GLOBE NEWSWIRE) -- 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. Gerke
Chief Financial Officer
414.459.4012
markgerke@wsbonline.com