Waterstone Financial, Inc. Announces Results of Operations for the Quarter Ended March 31, 2021

Wauwatosa, Wisconsin, UNITED STATES


WAUWATOSA, Wis., April 26, 2021 (GLOBE NEWSWIRE) -- 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,
 20212020
 (In Thousands, except per share amounts)
Interest income:   
Loans$16,603 $17,687
Mortgage-related securities491 702
Debt securities, federal funds sold and short-term investments875 1,063
Total interest income17,969 19,452
Interest expense:   
Deposits1,517 4,318
Borrowings2,500 2,608
Total interest expense4,017 6,926
Net interest income13,952 12,526
Provision for loan losses(1,070)785
Net interest income after provision for loan losses15,022 11,741
Noninterest income:   
Service charges on loans and deposits690 481
Increase in cash surrender value of life insurance301 353
Mortgage banking income54,391 30,406
Other817 224
Total noninterest income56,199 31,464
Noninterest expenses:   
Compensation, payroll taxes, and other employee benefits34,123 24,401
Occupancy, office furniture, and equipment2,565 2,741
Advertising824 900
Data processing971 1,006
Communications331 338
Professional fees(315)1,832
Real estate owned(12)11
Loan processing expense1,335 1,076
Other3,178 2,903
Total noninterest expenses43,000 35,208
Income before income taxes28,221 7,997
Income tax expense6,877 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:   
Basic23,735 25,405
Diluted23,950 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 ratio119.63%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 - QTD3.99%4.96%4.78%3.87%1.21%
Return on average equity - QTD20.49%27.11%26.30%22.39%6.24%
Net interest margin - QTD2.80%2.73%2.63%2.62%2.68%
           
Return on average assets - YTD3.99%3.77%3.35%2.59%1.21%
Return on average equity - YTD20.49%20.18%18.02%14.03%6.24%
Net interest margin - YTD2.80%2.67%2.64%2.65%2.68%
           
Asset Quality Ratios:          
Past due loans to total loans0.52%0.57%0.39%0.45%0.78%
Nonaccrual loans to total loans0.31%0.40%0.42%0.39%0.48%
Nonperforming assets to total assets0.20%0.27%0.31%0.28%0.36%
Allowance for loan losses to loans receivable1.33%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 securities90,457 91,199 96,529 105,727 112,089 
Debt securities, federal funds sold and short term investments273,929 217,356 166,160 164,306 206,485 
Total interest-earning assets2,021,646 2,084,010 2,029,404 2,030,003 1,880,671 
Noninterest-earning assets147,781 147,573 160,526 147,342 132,283 
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 accounts314,418 304,467 282,349 252,500 218,942 
Certificates of deposit705,712 726,132 741,265 730,573 734,147 
Total interest-bearing deposits1,075,682 1,084,370 1,074,204 1,028,362 992,975 
Borrowings482,665 546,070 531,588 609,863 495,595 
Total interest-bearing liabilities1,558,347 1,630,440 1,605,792 1,638,225 1,488,570 
           
Noninterest-bearing demand deposits138,446 128,665 129,911
 115,605
 92,627
 
Noninterest-bearing liabilities50,188 64,001 56,451 47,140 40,609 
Total liabilities1,746,981 1,823,106 1,792,154 1,800,970 1,621,806 
Equity422,446 408,477 397,776 376,375 391,148 
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 sale4.06%4.08%4.10%4.23%4.55%
Mortgage related securities2.20%2.30%2.42%2.55%2.52%
Debt securities, federal funds sold and short term investments1.30%1.59%1.75%1.71%2.07%
Total interest-earning assets3.60%3.75%3.83%3.93%4.16%
           
Demand accounts0.07%0.07%0.09%0.08%0.08%
Money market and savings accounts0.32%0.53%0.67%0.74%0.78%
Certificates of deposit0.72%1.20%1.62%1.91%2.13%
Total interest-bearing deposits0.57%0.96%1.29%1.54%1.75%
Borrowings2.10%1.97%1.98%1.76%2.12%
Total interest-bearing liabilities1.05%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 income1,243 1,655 3,104 2,936 1,028 
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits4,975 5,159 5,000 4,906 5,168 
Occupancy, office furniture and equipment1,025 934 874 866 1,014 
Advertising209 244 252 297 248 
Data processing511 511 490 678 605 
Communications119 110 113 91 97 
Professional fees194 5 266 226 198 
Real estate owned(12)(63)11 33 11 
Loan processing expense- - - - - 
Other440 577 818 532 580 
Total noninterest expense7,461 7,477 7,824 7,629 7,921 
Income before income taxes9,129 8,724 7,741 4,683 5,265 
Income tax expense1,786 1,926 1,565 574 1,154 
Net income$7,343 $6,798 $6,176 $4,109 $4,111 
           
Efficiency ratio - QTD48.17%46.15%47.23%45.86%56.84%
Efficiency ratio - YTD48.17%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 losses30 30 25 175 35 
Total noninterest income55,035 68,500 73,143 64,218 30,798 
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits29,262 33,347 34,559 32,139 19,387 
Occupancy, office furniture and equipment1,540 1,545 1,595 1,668 1,727 
Advertising615 822 609 567 652 
Data processing454 402 426 413 395 
Communications212 225 226 226 241 
Professional fees(524)441 4,465 850 1,620 
Real estate owned- - - - - 
Loan processing expense1,335 1,026 1,336 1,208 1,076 
Other2,681 2,110 2,444 3,239 2,552 
Total noninterest expense35,575 39,918 45,660 40,310 27,650 
Income before income taxes19,080 28,329 27,400 23,222 2,734 
Income tax expense5,096 7,252 7,284 6,440 768 
Net income$13,984 $21,077 $20,116 $16,782 $1,966 
           
Efficiency ratio - QTD65.05%58.46%62.48%63.27%90.90%
Efficiency ratio - YTD65.05%65.20%67.95%72.70%90.90%
           
Loan originations$1,115,091 $1,282,321 $1,296,725 $1,142,683 $708,840 
Purchase56.1%59.2%64.1%55.5%68.3%
Refinance43.9%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. Gerke
Chief Financial Officer
414-459-4012
markgerke@wsbonline.com