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

October 26, 2020 4:02 PM EDT

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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
      


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