MIL-OSI: Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2021

5

Source: GlobeNewswire (MIL-OSI)

WAUWATOSA, Wis., July 20, 2021 (GLOBE NEWSWIRE) — Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $17.9 million, or $0.74 per diluted share for the quarter ended June 30, 2021 compared to $20.9 million, or $0.85 per diluted share for the quarter ended June 30, 2020. Net income per diluted share was $1.64 for the six months ended June 30, 2021 compared to net income per diluted share of $1.08 for the six months ended June 30, 2020.

“Our Company’s strong performance continued during the second quarter and we were excited to declare and pay a $0.50 special dividend during the quarter,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “Our business model has allowed us to maximize the opportunity presented by the current market, return capital to our shareholders and continue to enhance our book value.”

Highlights of the Quarter Ended June 30, 2021

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $17.9 million for the quarter ended June 30, 2021, compared to $20.9 million for the quarter ended June 30, 2020.
  • Consolidated return on average assets was 3.25% for the quarter ended June 30, 2021 compared to 3.87% for the quarter ended June 30, 2020.
  • Consolidated return on average equity was 16.49% for the quarter ended June 30, 2021 and 22.39% for the quarter ended June 30, 2020.
  • Dividends declared during the quarter ended June 30, 2021 totaled $0.70 per common share, which included a quarterly dividend of $0.20 per share and a special dividend of $0.50 per share.
  • We repurchased approximately 59,000 shares at a cost of $1.1 million during the quarter ended June 30, 2021.

Community Banking Segment

  • Pre-tax income totaled $9.7 million for the quarter ended June 30, 2021, which represents a 106.4% increase compared to $4.7 million for the quarter ended June 30, 2020.
  • Net interest income totaled $14.5 million for the quarter ended June 30, 2021, which represents a 6.0% increase compared to $13.7 million for the quarter ended June 30, 2020.
  • Average loans held for investment totaled $1.32 billion during the quarter ended June 30, 2021, which represents a decrease of $101.6 million, or 7.2%, compared to $1.42 billion for the quarter ended June 30, 2020. Average loans held for investment decreased $27.7 million compared to $1.35 billion for the quarter ended March 31, 2021 as residential real estate loans continue to prepay at an accelerated rate.
  • Net interest margin increased 16 basis points to 2.78% for the quarter ended June 30, 2021 compared to 2.62% for the quarter ended June 30, 2020, which was a result of lower average rates on deposits, as certificate of deposits repriced at lower rates. Net interest margin decreased two basis points compared to 2.80% for the quarter ended March 31, 2021, driven by a decrease in PPP loan fees as the first round loan payoffs decreased.
  • The segment had a negative provision for loan losses of $750,000 for the quarter ended June 30, 2021 compared to a $4.3 million provision for loan losses for the quarter ended June 30, 2020. Net recoveries totaled $378,000 for the quarter ended June 30, 2021 as one significant loan recovery payment was made in the quarter, compared to net recoveries of $8,000 for the quarter ended June 30, 2020.  
  • Noninterest income decreased $1.3 million for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, due primarily to decreases on service charges on loans from fees earned on swaps.
  • Noninterest expense decreased $397,000 for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020. Compensation, payroll taxes and other employee benefits expense decreased $32,000 primarily due to a decrease in variable compensation offset by increases in health insurance and employee stock ownership plan expenses. Data processing expense decreased $212,000 due to the implementation of a new digital banking platform in 2020. Other noninterest expense decreased $71,000 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 44.79% for the quarter ended June 30, 2021, compared to 45.86% for the quarter ended June 30, 2020.
  • Average deposits (excluding escrow accounts) totaled $1.23 billion during the quarter ended June 30, 2021, an increase of $103.4 million, or 9.2%, compared to $1.13 billion during the quarter ended June 30, 2020. Average deposits increased $24.8 million, or 8.2% annualized compared to the $1.21 billion for the quarter ended March 31, 2021.
  • Nonperforming assets as percentage of total assets was 0.20% at June 30, 2021, 0.20% at March 31, 2021, and 0.28% at June 30, 2020.
  • Past due loans as percentage of total loans was 0.53% at June 30, 2021, 0.52% at March 31, 2021, and 0.45% at June 30, 2020.
  • PPP loans totaled $16.9 million as of June 30, 2021. The average balance for the quarter ended June 30, 2021 was $19.5 million. For the quarter ended June 30, 2021, PPP loan interest income recognized was approximately $49,000 and the amortization of fee income was approximately $286,000. Net interest margin, excluding the impact of the PPP loans, was 2.74%. Net interest margin for the quarter ended June 30, 2021, including the impact of the PPP loans, was 2.78%.
  • The Company held approximately $3.5 million in loans, representing 0.3% of the total loan portfolio as of June 30, 2021, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $3.5 million in loans, $559,000 qualify as modifications under the Coronavirus Aid, Relief and Economic Security (“CARES Act”). The remaining $2.9 million is composed of three loan relationships that are classified as troubled debt restructurings.

Mortgage Banking Segment

  • Pre-tax income totaled $14.2 million for the quarter ended June 30, 2021, compared to $23.2 million for the quarter ended June 30, 2020.
  • Loan originations decreased $77.5 million, or 6.8%, to $1.07 billion during the quarter ended June 30, 2021, compared to $1.14 billion during the quarter ended June 30, 2020. Origination volume relative to purchase activity accounted for 75.4% of originations for the quarter ended June 30, 2021 compared to 55.5% of total originations for the quarter ended June 30, 2020.
  • Mortgage banking non-interest income decreased $13.7 million, or 21.3%, to $50.6 million for the quarter ended June 30, 2021, compared to $64.2 million for the quarter ended June 30, 2020.
  • Gross margin on loans sold decreased to 4.81% for the quarter ended June 30, 2021, compared to 5.45% for the quarter ended June 30, 2020.
  • Total compensation, payroll taxes and other employee benefits decreased $3.0 million, or 9.2%, to $29.2 million during the quarter ended June 30, 2021 compared to $32.1 million during the quarter ended June 30, 2020. The decrease primarily related to decreased commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased.
  • Professional fees decreased $489,000 to $361,000 during the quarter ended June 30, 2021 compared to $850,000 of expense during the quarter ended June 30, 2020. The decrease related to a decrease in litigation costs compared to the prior year, as the Herrington settlement was resolved in 2020.
  • Other noninterest expense decreased $561,000 to $2.7 million during the quarter ended June 30, 2021 compared to $3.2 million during the quarter ended June 30, 2020. The decrease related to a decrease in the provision for losses on loans sold to the secondary market that results from both early payoff and early default provisions with investors. The decreased provision is driven by both an decrease in the number and volume of loans sold, as well as actual default activity resulting from COVID-19 pandemic was lower than expected.

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 June 30, 2021 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 June 30,
For The Six Months
Ended June 30,
    2021     2020   2021     2020
  (In Thousands, except per share amounts)
Interest income:        
Loans $ 16,480   $ 18,493 $ 33,083   $ 36,180
Mortgage-related securities   486     670   977     1,372
Debt securities, federal funds sold and short-term investments   858     698   1,733     1,761
Total interest income   17,824     19,861   35,793     39,313
Interest expense:        
Deposits   1,078     3,947   2,595     8,265
Borrowings   2,469     2,665   4,969     5,273
Total interest expense   3,547     6,612   7,564     13,538
Net interest income   14,277     13,249   28,229     25,775
Provision (credit) for loan losses   (750 )   4,500   (1,820 )   5,285
Net interest income after provision for loan losses   15,027     8,749   30,049     20,490
Noninterest income:        
Service charges on loans and deposits   657     2,231   1,347     2,712
Increase in cash surrender value of life insurance   684     520   985     873
Mortgage banking income   49,649     63,774   104,040     94,180
Other   1,054     379   1,871     603
Total noninterest income   52,044     66,904   108,243     98,368
Noninterest expenses:        
Compensation, payroll taxes, and other employee benefits   33,926     36,889   68,049     61,290
Occupancy, office furniture, and equipment   2,293     2,534   4,858     5,275
Advertising   911     864   1,735     1,764
Data processing   914     1,095   1,885     2,101
Communications   326     317   657     655
Professional fees   569     1,077   254     2,909
Real estate owned       33   (12 )   44
Loan processing expense   1,200     1,208   2,535     2,284
Other   3,158     3,672   6,336     6,575
Total noninterest expenses   43,297     47,689   86,297     82,897
Income before income taxes   23,774     27,964   51,995     35,961
Income tax expense   5,880     7,016   12,757     8,944
Net income $ 17,894   $ 20,948 $ 39,238   $ 27,017
Income per share:        
Basic $ 0.75   $ 0.86 $ 1.65   $ 1.08
Diluted $ 0.74   $ 0.85 $ 1.64   $ 1.08
Weighted average shares outstanding:        
Basic   23,848     24,464   23,792     24,934
Diluted   24,029     24,513   23,996     25,071
                     
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  June 30, December 31,
    2021     2020  
  (Unaudited)  
Assets (In Thousands, except per share amounts)
Cash $ 197,981   $ 56,190  
Federal funds sold   11,531     18,847  
Interest-earning deposits in other financial institutions and other short term investments   19,227     19,730  
Cash and cash equivalents   228,739     94,767  
Securities available for sale (at fair value)   172,224     159,619  
Loans held for sale (at fair value)   352,627     402,003  
Loans receivable   1,296,441     1,375,137  
Less: Allowance for loan losses   17,410     18,823  
Loans receivable, net   1,279,031     1,356,314  
     
Office properties and equipment, net   23,186     23,722  
Federal Home Loan Bank stock (at cost)   26,538     26,720  
Cash surrender value of life insurance   64,738     63,573  
Real estate owned, net   150     322  
Prepaid expenses and other assets   54,720     57,547  
Total assets $ 2,201,953   $ 2,184,587  
     
Liabilities and Shareholders’ Equity    
Liabilities:    
Demand deposits $ 208,523   $ 188,225  
Money market and savings deposits   351,394     295,317  
Time deposits   671,143     701,328  
Total deposits   1,231,060     1,184,870  
     
Borrowings   475,000     508,074  
Advance payments by borrowers for taxes   17,657     3,522  
Other liabilities   46,498     75,003  
Total liabilities   1,770,215     1,771,469  
     
Shareholders’ equity:    
Preferred stock        
Common stock   252     251  
Additional paid-in capital   182,346     180,684  
Retained earnings   263,048     245,287  
Unearned ESOP shares   (14,837 )   (15,430 )
Accumulated other comprehensive income, net of taxes   929     2,326  
Total shareholders’ equity   431,738     413,118  
Total liabilities and shareholders’ equity $ 2,201,953   $ 2,184,587  
     
Share Information    
Shares outstanding   25,213     25,088  
Book value per share $ 17.12   $ 16.47  
Closing market price $ 19.66   $ 18.82  
Price to book ratio   114.84 %   114.27 %
     
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,
    2021     2021     2020     2020     2020  
  (Dollars in Thousands, except per share amounts)
Condensed Results of Operations:          
Net interest income $ 14,277   $ 13,952   $ 14,316   $ 13,409   $ 13,249  
Provision (credit) for loan losses   (750 )   (1,070 )   30     1,025     4,500  
Total noninterest income   52,044     56,199     69,886     75,763     66,904  
Total noninterest expense   43,297     43,000     47,163     53,001     47,689  
Income before income taxes   23,774     28,221     37,009     35,146     27,964  
Income tax expense   5,880     6,877     9,174     8,853     7,016  
Net income $ 17,894   $ 21,344   $ 27,835   $ 26,293   $ 20,948  
Income per share basic $ 0.75   $ 0.90   $ 1.17   $ 1.08   $ 0.86  
Income per share diluted $ 0.74   $ 0.89   $ 1.17   $ 1.08   $ 0.85  
Dividends declared per share $ 0.70   $ 0.20   $ 0.50   $ 0.12   $ 0.12  
           
Performance Ratios (annualized):          
Return on average assets – QTD   3.25 %   3.99 %   4.96 %   4.78 %   3.87 %
Return on average equity – QTD   16.49 %   20.49 %   27.11 %   26.30 %   22.39 %
Net interest margin – QTD   2.78 %   2.80 %   2.73 %   2.63 %   2.62 %
           
Return on average assets – YTD   3.62 %   3.99 %   3.77 %   3.35 %   2.59 %
Return on average equity – YTD   18.49 %   20.49 %   20.18 %   18.02 %   14.03 %
Net interest margin – YTD   2.79 %   2.80 %   2.67 %   2.64 %   2.65 %
           
Asset Quality Ratios:          
Past due loans to total loans   0.53 %   0.52 %   0.57 %   0.39 %   0.45 %
Nonaccrual loans to total loans   0.34 %   0.31 %   0.40 %   0.42 %   0.39 %
Nonperforming assets to total assets   0.20 %   0.20 %   0.27 %   0.31 %   0.28 %
Allowance for loan losses to loans receivable   1.34 %   1.33 %   1.37 %   1.31 %   1.24 %
                               
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,
    2021     2021     2020     2020     2020  
Average balances (Dollars in Thousands)
Interest-earning assets          
Loans receivable and held for sale $ 1,655,078   $ 1,657,260   $ 1,775,455   $ 1,766,715   $ 1,759,970  
Mortgage related securities   100,056     90,457     91,199     96,529     105,727  
Debt securities, federal funds sold and short term investments   308,105     273,929     217,356     166,160     164,306  
Total interest-earning assets   2,063,239     2,021,646     2,084,010     2,029,404     2,030,003  
Noninterest-earning assets   143,375     147,781     147,573     160,526     147,342  
Total assets $ 2,206,614   $ 2,169,427   $ 2,231,583   $ 2,189,930   $ 2,177,345  
           
Interest-bearing liabilities          
Demand accounts $ 63,610   $ 55,552   $ 53,771   $ 50,590   $ 45,289  
Money market, savings, and escrow accounts   350,270     314,418     304,467     282,349     252,500  
Certificates of deposit   690,196     705,712     726,132     741,265     730,573  
Total interest-bearing deposits   1,104,076     1,075,682     1,084,370     1,074,204     1,028,362  
Borrowings   480,054     482,665     546,070     531,588     609,863  
Total interest-bearing liabilities   1,584,130     1,558,347     1,630,440     1,605,792     1,638,225  
                               
Noninterest-bearing demand deposits   141,648     138,446     128,665     129,911     115,605  
Noninterest-bearing liabilities   45,658     50,188     64,001     56,451     47,140  
Total liabilities   1,771,436     1,746,981     1,823,106     1,792,154     1,800,970  
Equity   435,178     422,446     408,477     397,776     376,375  
Total liabilities and equity $ 2,206,614   $ 2,169,427   $ 2,231,583   $ 2,189,930   $ 2,177,345  
           
Average Yield/Costs (annualized)          
Loans receivable and held for sale   3.99 %   4.06 %   4.08 %   4.10 %   4.23 %
Mortgage related securities   1.95 %   2.20 %   2.30 %   2.42 %   2.55 %
Debt securities, federal funds sold and short term investments   1.12 %   1.30 %   1.59 %   1.75 %   1.71 %
Total interest-earning assets   3.47 %   3.60 %   3.75 %   3.83 %   3.93 %
           
Demand accounts   0.08 %   0.07 %   0.07 %   0.09 %   0.08 %
Money market and savings accounts   0.23 %   0.32 %   0.53 %   0.67 %   0.74 %
Certificates of deposit   0.50 %   0.72 %   1.20 %   1.62 %   1.91 %
Total interest-bearing deposits   0.39 %   0.57 %   0.96 %   1.29 %   1.54 %
Borrowings   2.06 %   2.10 %   1.97 %   1.98 %   1.76 %
Total interest-bearing liabilities   0.90 %   1.05 %   1.30 %   1.52 %   1.62 %
           
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,
    2021     2021     2020     2020     2020  
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $ 14,517   $ 14,247   $ 14,546   $ 13,461   $ 13,701  
Provision for loan losses   (750 )   (1,100 )       1,000     4,325  
Total noninterest income   1,630     1,243     1,655     3,104     2,936  
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits   4,874     4,975     5,159     5,000     4,906  
Occupancy, office furniture and equipment   887     1,025     934     874     866  
Advertising   260     209     244     252     297  
Data processing   466     511     511     490     678  
Communications   86     119     110     113     91  
Professional fees   198     194     5     266     226  
Real estate owned       (12 )   (63 )   11     33  
Loan processing expense                    
Other   461     440     577     818     532  
Total noninterest expense   7,232     7,461     7,477     7,824     7,629  
Income before income taxes   9,665     9,129     8,724     7,741     4,683  
Income tax expense   2,128     1,786     1,926     1,565     574  
Net income $ 7,537   $ 7,343   $ 6,798   $ 6,176   $ 4,109  
           
Efficiency ratio – QTD   44.79 %   48.17 %   46.15 %   47.23 %   45.86 %
Efficiency ratio – YTD   46.44 %   48.17 %   48.71 %   49.59 %   50.86 %
           
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,
    2021     2021     2020     2020     2020  
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $ (251 ) $ (350 ) $ (223 ) $ (58 ) $ (511 )
Provision for loan losses       30     30     25     175  
Total noninterest income   50,556     55,035     68,500     73,143     64,218  
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits   29,170     29,262     33,347     34,559     32,139  
Occupancy, office furniture and equipment   1,406     1,540     1,545     1,595     1,668  
Advertising   651     615     822     609     567  
Data processing   443     454     402     426     413  
Communications   240     212     225     226     226  
Professional fees   361     (524 )   441     4,465     850  
Real estate owned                    
Loan processing expense   1,200     1,335     1,026     1,336     1,208  
Other   2,678     2,681     2,110     2,444     3,239  
Total noninterest expense   36,149     35,575     39,918     45,660     40,310  
Income before income taxes   14,156     19,080     28,329     27,400     23,222  
Income tax expense   3,761     5,096     7,252     7,284     6,440  
Net income $ 10,395   $ 13,984   $ 21,077   $ 20,116   $ 16,782  
           
Efficiency ratio – QTD   71.86 %   65.05 %   58.46 %   62.48 %   63.27 %
Efficiency ratio – YTD   68.32 %   65.05 %   65.20 %   67.95 %   72.70 %
           
Loan originations $ 1,065,161   $ 1,115,091   $ 1,282,321   $ 1,296,725   $ 1,142,683  
Purchase   75.4 %   56.1 %   59.2 %   64.1 %   55.5 %
Refinance   24.6 %   43.9 %   40.8 %   35.9 %   44.5 %
Gross margin on loans sold(1)   4.81 %   4.86 %   5.40 %   5.44 %   5.45 %
(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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