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

July 27, 2020 4:02 PM EDT

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WAUWATOSA, Wis., July 27, 2020 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $20.9 million, or $0.85 per diluted share for the quarter ended June 30, 2020 compared to $9.6 million, or $0.37 per diluted share for the quarter ended June 30, 2019. Net income per diluted share was $1.08 for the six months ended June 30, 2020 compared to net income per diluted share of $0.61 for the six months ended June 30, 2019.

“Our success this quarter exemplifies the synergies that exist between our community bank and its wholly owned independent mortgage subsidiary,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “The funding and capital provided by the Bank, combined with the exceptional sales culture of the mortgage company resulted in record quarterly earnings. Waterstone Mortgage reached a new quarterly record, achieving more than $1.1 billion in loan originations, helping nearly 5,000 homeowners either purchase or refinance a residence. In the Community Bank segment, we successfully launched our new digital banking platform, which will provide our consumer and business customers with additional banking tools and an enhanced user experience. Our employees have embraced the challenges in this unprecedented environment and navigated through the turbulent times, exhibiting their continued hard work and dedication.”

Highlights of the Quarter Ended June 30, 2020

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $20.9 million for the quarter ended June 30, 2020, compared to $9.6 million for the quarter ended June 30, 2019.
  • Consolidated return on average assets was 3.87% for the quarter ended June 30, 2020 compared to 1.95% for the quarter ended June 30, 2019.
  • Consolidated return on average equity was 22.39% for the quarter ended June 30, 2020 and 9.96% for the quarter ended June 30, 2019.
  • Dividends declared totaled $0.12 per share and we repurchased $6.1 million of shares during the quarter ended June 30, 2020 as a result of our strong financial position.

Community Banking Segment

  • Pre-tax income totaled $4.7 million for the quarter ended June 30, 2020, which represents a 36.5% decrease compared to $7.4 million for the quarter ended June 30, 2019.
  • Net interest income totaled $13.7 million for the quarter ended June 30, 2020, which represents a 1.3% increase compared to $13.5 million for the quarter ended June 30, 2019.
  • Average loans held for investment totaled $1.42 billion during the quarter ended June 30, 2020, which represents an increase of $44.5 million, or 3.2%, compared to $1.38 billion for the quarter ended June 30, 2019. The $29.8 million of loans originated throughout the quarter ended June 30, 2020 for the Paycheck Protection Program (PPP) contributed to the growth. Average loans held for investment increased $27.5 million, or 7.9% annualized, compared to $1.39 billion for the quarter ended March 31, 2020.
  • Net interest margin decreased 20 basis points to 2.62% for the quarter ended June 30, 2020 compared to 2.82% for the quarter ended June 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 decreased six basis points compared to 2.68% for the quarter ended March 31, 2020.
  • The segment had a $4.3 million provision for loan losses for the quarter ended June 30, 2020 compared to no provision for loan losses for the quarter ended June 30, 2019. The provision expense recorded during the second quarter of 2020 primarily consisted of an increased allocation related to the economic qualitative factor, across all portfolio segments, driven by the pandemic and its significant impact on the economy and employment. Net recoveries totaled $8,000 for the quarter ended June 30, 2020, compared to net recoveries of $26,000 for the quarter ended June 30, 2019. 
  • Noninterest income increased $1.9 million for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019 as fees earned on swaps and prepayment penalty fees increased.
  • Noninterest expense increased $394,000 for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. Compensation, payroll taxes and other employee benefits expense increased $235,000 as salaries increased due to annual merit increases and additional branches added in late 2019.  In addition, the increase in total compensation reflects an increase in variable and incentive based awards. Data processing expense increased $185,000 as we transitioned to a new digital platform in the quarter. 
  • The efficiency ratio was 45.86% for the quarter ended June 30, 2020, compared to 49.52% for the quarter ended June 30, 2019.
  • Average deposits (excluding escrow accounts) totaled $1.13 billion during the quarter ended June 30, 2020, an increase of $85.3 million, or 8.2%, compared to $1.04 billion during the quarter ended June 30, 2019. Average deposits increased $50.2 million, or 18.7% annualized compared to the $1.08 billion for the quarter ended March 31, 2020 as the average deposit account balance increased approximately 6.5%.
  • Nonperforming assets as percentage of total assets was 0.28% at June 30, 2020, 0.36% at March 31, 2020, and 0.37% at June 30, 2019.
  • Past due loans as percentage of total loans was 0.45% at June 30, 2020, 0.78% at March 31, 2020, and 0.61% at June 30, 2019.
  • The PPP loans totaled $29.8 million as of June 30, 2020. 
  • The Company had modified 191 loans aggregating $113.9 million consisting of payment of interest (deferral of principal) for a period ranging from 90 to 180 days as of June 30, 2020. In addition, the Company had modified 16 loans aggregating $7.9 million consisting of the deferral of principal and interest for a period of three to eight months. 

Mortgage Banking Segment

  • Pre-tax income totaled $23.2 million for the quarter ended June 30, 2020, compared to $5.4 million for the quarter ended June 30, 2019.
  • Loan originations increased $349.4 million, or 44.1%, to $1.14 billion during the quarter ended June 30, 2020, compared to $793.3 million during the quarter ended June 30, 2019. Origination volume relative to purchase activity accounted for 55.5% of originations for the quarter ended June 30, 2020 compared to 87.6% of total originations for the quarter ended June 30, 2019.
  • Mortgage banking income increased $29.9 million, or 86.9%, to $64.2 million for the quarter ended June 30, 2020, compared to $34.4 million for the quarter ended June 30, 2019.
  • Gross margin on loans sold increased to 5.45% for the quarter ended June 30, 2020, compared to 4.29% for the quarter ended June 30, 2019. 
  • Total compensation, payroll taxes and other employee benefits increased $9.6 million, or 42.3%, to $32.1 million during the quarter ended June 30, 2020 compared to $22.6 million during the quarter ended June 30, 2019.  The increase primarily related to increased commission expense and branch manager compensation driven by increased loan origination volume and branch profitability.
  • Other noninterest expense increased $2.1 million, or 173.1%, to $3.2 million during the quarter ended June 30, 2020 compared to $1.2 million during the quarter ended June 30, 2019.  The increase related to a $1.5 million increase in the provision for losses on loans sold to the secondary market in anticipation of increased losses that result from both early payoff and early default provisions with investors.  If triggered, the default provisions require a return of servicing release premium or an obligation to repurchase the loan.  The increased provision is driven by both an increase in the number and volume of loans sold, as well as expectations of increased defaults resulting from COVID-19 pandemic challenges faced by borrowers.

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, Oak Creek/27th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin along with a commercial lending office 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.

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 June 30,For The Six Months Ended June 30,
  2020 2019 2020 2019 
  (In Thousands, except per share amounts)
Interest income:    
Loans$  18,493$  18,026$  36,180$  35,130 
Mortgage-related securities   670   764   1,372   1,523 
Debt securities, federal funds sold and short-term investments    698   1,123   1,761   2,432 
Total interest income   19,861   19,913   39,313   39,085 
Interest expense:    
Deposits   3,947   4,344    8,265   8,334 
Borrowings   2,665   2,588   5,273   4,834 
Total interest expense   6,612   6,932   13,538   13,168 
Net interest income    13,249   12,981   25,775   25,917 
Provision for loan losses   4,500   30   5,285   (650)
Net interest income after provision for loan losses   8,749    12,951   20,490   26,567 
Noninterest income:    
Service charges on loans and deposits   2,231   390   2,712   769 
Increase in cash surrender value of life insurance    520   507   873   851 
Mortgage banking income   63,774   34,105   94,180   57,464 
Other   379   188   603    363 
Total noninterest income   66,904   35,190   98,368   59,447 
Noninterest expenses:    
Compensation, payroll taxes, and other employee benefits   36,889   27,074   61,290   47,713 
Occupancy, office furniture, and equipment   2,534   2,680   5,275   5,456 
Advertising   864   963   1,764   1,921 
Data processing   1,095   869   2,101   1,638 
Communications   317   353   655   681 
Professional fees   1,077   789   2,909   1,484 
Real estate owned   33   19   44   51 
Loan processing expense   1,208   879   2,284   1,684 
Other    3,672   1,729   6,575   4,076 
Total noninterest expenses   47,689   35,355   82,897   64,704 
Income before income taxes   27,964   12,786   35,961   21,310 
Income tax expense   7,016   3,143   8,944   5,125 
Net income$  20,948$  9,643$  27,017$  16,185 
Income per share:    
Basic$  0.86$  0.37$  1.08$  0.61 
Diluted$  0.85$  0.37$  1.08$  0.61 
Weighted average shares outstanding:    
Basic 24,464 26,242 24,934 26,370 
Diluted 24,513 26,412 25,071 26,572 


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION  
 
  June 30,  December 31,
  2020  2019 
 (Unaudited) 
Assets(In Thousands, except per share amounts)
Cash$  63,636 $  52,814 
Federal funds sold   11,992    12,704 
Interest-earning deposits in other financial institutions and other short term investments   1,291     8,782 
Cash and cash equivalents   76,919    74,300 
Securities available for sale (at fair value)   164,112    178,476 
Loans held for sale (at fair value)   383,389    220,123 
Loans receivable   1,433,803    1,388,031 
Less: Allowance for loan losses   17,734    12,387 
Loans receivable, net   1,416,069    1,375,644 
   
Office properties and equipment, net   24,183    25,028 
Federal Home Loan Bank stock (at cost)    26,720    21,150 
Cash surrender value of life insurance   70,718    69,665 
Real estate owned, net   702    748 
Prepaid expenses and other assets   54,761    31,213 
Total assets$  2,217,573 $  1,996,347 
   
Liabilities and Shareholders' Equity  
Liabilities:  
Demand deposits$   171,016 $  130,063 
Money market and savings deposits   247,233    197,942 
Time deposits   739,417    739,771 
Total deposits    1,157,666    1,067,776 
   
Borrowings   599,102    483,562 
Advance payments by borrowers for taxes   20,828    4,212 
Other liabilities   54,358    47,111 
Total liabilities   1,831,954    1,602,661 
   
Shareholders' equity:  
Preferred stock   -     - 
Common stock   258    271 
Additional paid-in capital   192,762     211,997 
Retained earnings   205,863     197,393 
Unearned ESOP shares   (16,023)   (16,617)
Accumulated other comprehensive income, net of taxes   2,759    642 
Total shareholders' equity   385,619    393,686 
Total liabilities and shareholders' equity$  2,217,573 $  1,996,347 
   
Share Information   
Shares outstanding   25,843     27,148 
Book value per share$  14.92 $  14.50 
Closing market price$  14.83 $  19.03 
Price to book ratio 99.40% 131.24%


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
      
 At or For the Three Months Ended
 June 30,March 31,December 31,September 30,June 30,
  2020  2020  2019  2019  2019 
 (Dollars in Thousands, except per share amounts)
Condensed Results of Operations:     
Net interest income$ 13,249 $ 12,526 $ 13,126 $ 13,154 $ 12,981 
Provision for loan losses  4,500   785   (170)  (80)  30 
Total noninterest income  66,904   31,464   33,809   37,494   35,190 
Total noninterest expense  47,689   35,208   35,337   36,232   35,355 
Income before income taxes  27,964   7,997   11,768   14,496   12,786 
Income tax expense  7,016   1,928   2,974   3,572   3,143 
Net income$ 20,948 $ 6,069 $ 8,794 $ 10,924 $ 9,643 
Income per share – basic$ 0.86 $ 0.24 $ 0.34 $ 0.42 $ 0.37 
Income per share – diluted$ 0.85 $ 0.24 $ 0.34 $ 0.42 $ 0.37 
Dividends declared per share$ 0.12 $ 0.62 $ 0.12 $ 0.12 $ 0.12 
      
Performance Ratios (annualized):     
Return on average assets - QTD 3.87% 1.21% 1.75% 2.17% 1.95%
Return on average equity - QTD 22.39% 6.24% 8.91% 11.15% 9.96%
Net interest margin - QTD 2.62% 2.68% 2.79% 2.80% 2.82%
      
Return on average assets - YTD 2.59% 1.21% 1.82% 1.84% 1.67%
Return on average equity - YTD 14.03% 6.24% 9.14% 9.21% 8.28%
Net interest margin - YTD 2.65% 2.68% 2.83% 2.85% 2.88%
      
Asset Quality Ratios:     
Past due loans to total loans 0.45% 0.78% 0.47% 0.62% 0.61%
Nonaccrual loans to total loans 0.39% 0.48% 0.51% 0.46% 0.41%
Nonperforming assets to total assets 0.28% 0.36% 0.39% 0.41% 0.37%
Allowance for loan loss to loans receivable 1.24% 0.94% 0.89% 0.91% 0.92%



WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES    
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS   
(Unaudited)     
      
 At or For the Three Months Ended   
 June 30,March 31,December 31,September 30,June 30,
  2020  2020  2019  2019  2019 
Average balances(Dollars in Thousands)   
Interest-earning assets     
Loans receivable and held for sale$  1,759,970 $  1,562,097 $  1,573,190 $  1,579,575 $  1,552,199 
Mortgage related securities   105,727    112,089     110,426    114,051    114,537 
Debt securities, federal funds sold and short term investments   164,306    206,485    183,447    169,621    180,111 
  Total interest-earning assets   2,030,003    1,880,671    1,867,063    1,863,247    1,846,847 
Noninterest-earning assets   147,342    132,283    125,904    137,723    136,263 
  Total assets$  2,177,345 $  2,012,954 $  1,992,967 $  2,000,970 $  1,983,110 
      
Interest-bearing liabilities     
Demand accounts$   45,289 $  39,886 $  38,650 $  37,015 $  35,744 
Money market, savings, and escrow accounts   252,500    218,942    215,332    206,474    193,542 
Certificates of deposit   730,573    734,147    737,726    739,544    736,798 
  Total interest-bearing deposits   1,028,362    992,975    991,708    983,033    966,084 
Borrowings   609,863    495,595    485,482    509,099    504,940 
  Total interest-bearing liabilities   1,638,225    1,488,570    1,477,190    1,492,132    1,471,024 
Noninterest-bearing demand deposits   115,605    92,627    85,815    86,849    91,545 
Noninterest-bearing liabilities   47,140    40,609    38,580    33,130    32,143 
  Total liabilities   1,800,970    1,621,806    1,601,585    1,612,111     1,594,712 
Equity   376,375    391,148    391,382    388,859    388,398 
  Total liabilities and equity$   2,177,345 $  2,012,954 $  1,992,967 $  2,000,970 $  1,983,110 
      
Average Yield/Costs (annualized)     
Loans receivable and held for sale 4.23% 4.55% 4.68% 4.66% 4.66%
Mortgage related securities 2.55% 2.52% 2.58% 2.56% 2.68%
Debt securities, federal funds sold and short term investments 1.71% 2.07% 2.19% 2.53% 2.50%
  Total interest-earning assets 3.93% 4.16% 4.31% 4.34% 4.32%
      
Demand accounts 0.08% 0.08% 0.10% 0.09% 0.09%
Money market and savings accounts 0.74% 0.78% 0.66% 0.57% 0.66%
Certificates of deposit 1.91% 2.13% 2.20% 2.24% 2.19%
  Total interest-bearing deposits 1.54% 1.75% 1.79% 1.81% 1.80%
Borrowings 1.76% 2.12% 2.20% 2.14% 2.06%
  Total interest-bearing liabilities 1.62% 1.87% 1.92% 1.92% 1.89%



COMMUNITY BANKING SEGMENT     
SUMMARY OF KEY QUARTERLY FINANCIAL DATA    
(Unaudited)     
      
 At or For the Three Months Ended  
 June 30,March 31,December 31,September 30,June 30,
  2020  2020  2019  2019  2019 
 (Dollars in Thousands)   
Condensed Results of Operations:     
Net interest income$ 13,701 $ 12,908 $ 13,472 $ 13,885 $ 13,530 
Provision for loan losses   4,325    750    (200)   (150)    - 
Total noninterest income   2,936    1,028    1,645    1,415    1,079 
Noninterest expenses:     
Compensation, payroll taxes, and other employee benefits   4,906    5,168    4,693    4,075    4,671 
Occupancy, office furniture and equipment   866    1,014    894    942    944 
Advertising   297    248    317    202    220 
Data processing   678    605    583    588    493 
Communications   91    97    93    90    93 
Professional fees   226    198    162    223     160 
Real estate owned   33    11    (251)   24    19 
Loan processing expense   -    -    -     -    - 
Other 532  580  498  583  635 
Total noninterest expense 7,629  7,921  6,989  6,727  7,235 
Income before income taxes 4,683  5,265  8,328  8,723  7,374 
Income tax expense 574  1,154  2,033  1,982  1,594 
Net income$ 4,109 $ 4,111 $ 6,295 $ 6,741 $ 5,780 
      
Efficiency ratio - QTD 45.86% 56.84% 46.23% 43.97% 49.52%
Efficiency ratio - YTD 50.86% 56.84% 47.74% 48.27% 50.56%

                                            

MORTGAGE BANKING SEGMENT     
SUMMARY OF KEY QUARTERLY FINANCIAL DATA   
(Unaudited)     
      
 At or For the Three Months Ended  
 June 30,March 31,December 31,September 30,June 30,
  2020  2020  2019  2019  2019 
 (Dollars in Thousands)   
Condensed Results of Operations:     
Net interest income$ (511)$ (379)$ (399)$ (774)$ (529)
Provision for loan losses  175   35   30   70   30 
Total noninterest income  64,218   30,798   32,440   36,535   34,364 
Noninterest expenses:     
Compensation, payroll taxes, and other employee benefits  32,139   19,387   21,975   23,616   22,579 
Occupancy, office furniture and equipment  1,668   1,727   1,627   1,687   1,736 
Advertising  567   652   734   711   743 
Data processing  413   395   402   411   372 
Communications  226   241   227   268   260 
Professional fees  850   1,620   1,000   688   620 
Real estate owned  -   -   30   -   - 
Loan processing expense  1,208   1,076   746   858   879 
Other  3,239   2,552   1,918   1,725   1,186 
Total noninterest expense  40,310   27,650   28,659   29,964   28,375 
Income before income taxes  23,222   2,734   3,352   5,727   5,430 
Income tax expense  6,440   768   921   1,584   1,545 
Net income$ 16,782 $ 1,966 $ 2,431 $ 4,143 $ 3,885 
      
Efficiency ratio - QTD 63.27% 90.90% 89.44% 83.79% 83.86%
Efficiency ratio - YTD 72.20% 90.90% 87.47% 86.79% 88.66%
      
Loan originations$ 1,142,683 $ 708,840 $ 777,073 $ 851,297 $ 793,254 
Purchase 55.5% 68.3% 72.1% 79.0% 87.6%
Refinance 44.5% 31.7% 27.9% 21.0% 12.4%
Gross margin on loans sold(1) 5.45% 4.08% 4.27% 4.30% 4.29%
(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 



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