UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

            Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020

OR

      Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Commission File Number 001-36271

WATERSTONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)

Maryland
90-1026709
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
   
11200 W. Plank Court Wauwatosa, Wisconsin
53226
(Address of principal executive offices)
(Zip Code)

(414) 761-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 Par Value
 
WSBF
 
The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      T            No      

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      T            No      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 
Accelerated filer T
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                  No      

The number of shares outstanding of the issuer’s common stock, $0.01 par value per share, was 25,906,848 at August 5, 2020.






WATERSTONE FINANCIAL, INC.

10-Q INDEX

 
Page No.
   
PART I. FINANCIAL INFORMATION
 
   
Item l. Financial Statements
 
   
   
PART II. OTHER INFORMATION
 
   
   
- 2 -


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 
(Unaudited)
       
   
June 30, 2020
   
December 31, 2019
 
Assets
 
(Dollars In Thousands, except share and per share data)
 
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 (par value $0.01 per share)
               
Authorized -  50,000,000 shares at June 30, 2020 and at December 31, 2019, no shares issued
   
-
     
-
 
Common stock (par value $0.01 per share)
               
Authorized - 100,000,000 shares at June 30, 2020 and at December 31, 2019
               
Issued - 25,843,314 at June 30, 2020 and 27,148,411 at December 31, 2019
               
Outstanding - 25,843,314 at June 30, 2020 and 27,148,411 at December 31, 2019
   
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
 

See accompanying notes to unaudited consolidated financial statements.
- 3 -




WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
Three months ended June 30,
   
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 (credit) 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
 

See accompanying notes to unaudited consolidated financial statements.
- 4 -



WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three months ended June 30,
   
Six months ended June 30,
 
   
2020
   
2019
   
2020
   
2019
 
   
(In Thousands)
 
Net income
 
$
20,948
   
$
9,643
   
$
27,017
   
$
16,185
 
                                 
Other comprehensive income, net of tax:
                               
Net unrealized holding gain on available for sale securities:
                               
Net unrealized holding gain arising during the period, net of tax expense of $(476), ($562), $(795), ($1,127), respectively
   
1,267
     
1,506
     
2,117
     
3,016
 
Total other comprehensive income
   
1,267
     
1,506
     
2,117
     
3,016
 
Comprehensive income
 
$
22,215
   
$
11,149
   
$
29,134
   
$
19,201
 

See accompanying notes to unaudited consolidated financial statements.
- 5 -




WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)


 
Common Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive Income (Loss)
   
Total
Shareholders'
Equity
 
   
Shares
   
Amount
                               
For the six months ended June 30, 2020
 
(In Thousands, except per share amounts)
 
Balances at January 1, 2020
   
27,148
   
$
271
   
$
211,997
   
$
197,393
   
$
(16,617
)
 
$
642
   
$
393,686
 
                                                         
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
27,017
     
-
     
-
     
27,017
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
2,117
     
2,117
 
Total comprehensive income
                                                   
29,134
 
                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
228
     
-
     
594
     
-
     
822
 
Cash dividend declared, $0.74 per share
   
-
     
-
     
-
     
(18,547
)
   
-
     
-
     
(18,547
)
Stock compensation activity, net of tax
   
45
     
1
     
530
     
-
     
-
     
-
     
531
 
Stock compensation expense
   
-
     
-
     
389
     
-
     
-
     
-
     
389
 
Purchase of common stock returned to authorized but unissued
   
(1,350
)
   
(14
)
   
(20,382
)
   
-
     
-
     
-
     
(20,396
)
Balances at June 30, 2020
   
25,843
   
$
258
   
$
192,762
   
$
205,863
   
$
(16,023
)
 
$
2,759
   
$
385,619
 
                                                         
For the six months ended June 30, 2019
 
(In Thousands, except per share amounts)
 
Balances at January 1, 2019
   
28,463
   
$
285
   
$
232,406
   
$
187,153
   
$
(17,804
)
 
$
(2,361
)
 
$
399,679
 
                                                         
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
16,185
     
-
     
-
     
16,185
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
3,016
     
3,016
 
Total comprehensive income
                                                   
19,201
 
                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
281
     
-
     
594
     
-
     
875
 
Cash dividend declared, $0.74 per share
   
-
     
-
     
-
     
(19,518
)
   
-
     
-
     
(19,518
)
Stock based compensation activity
   
31
     
-
     
394
     
-
     
-
     
-
     
394
 
Stock compensation expense
   
-
     
-
     
598
     
-
     
-
     
-
     
598
 
Purchase of common stock returned to authorized but unissued
   
(868
)
   
(9
)
   
(14,417
)
   
-
     
-
     
-
     
(14,426
)
Balances at June 30, 2019
   
27,626
   
$
276
   
$
219,262
   
$
183,820
   
$
(17,210
)
 
$
655
   
$
386,803
 
- 6 -



 
Common Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive Income (Loss)
   
Total
Shareholders'
Equity
 
   
Shares
   
Amount
                               
For the three months ended June 30, 2020
 
(In Thousands, except per share amounts)
 
Balances at April 1, 2020
   
26,275
   
$
263
   
$
198,579
   
$
187,812
   
$
(16,320
)
 
$
1,492
   
$
371,826
 
                                                         
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
20,948
     
-
     
-
     
20,948
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
1,267
     
1,267
 
Total comprehensive income
                                                   
22,215
 
                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
76
     
-
     
297
     
-
     
373
 
Cash dividend declared, $0.12 per share
   
-
     
-
     
-
     
(2,897
)
   
-
     
-
     
(2,897
)
Stock compensation activity, net of tax
   
6
     
-
     
78
     
-
     
-
     
-
     
78
 
Stock compensation expense
   
-
     
-
     
175
     
-
     
-
     
-
     
175
 
Purchase of common stock returned to authorized but unissued
   
(438
)
   
(5
)
   
(6,146
)
   
-
     
-
     
-
     
(6,151
)
Balances at June 30, 2020
   
25,843
   
$
258
   
$
192,762
   
$
205,863
   
$
(16,023
)
 
$
2,759
   
$
385,619
 
                                                         
For the three months ended June 30, 2019
 
(In Thousands, except per share amounts)
 
Balances at April 1, 2019
   
28,004
   
$
280
   
$
225,243
   
$
177,303
   
$
(17,507
)
 
$
(851
)
 
$
384,468
 
                                                         
Comprehensive income:
                                                       
Net income
   
-
     
-
     
-
     
9,643
     
-
     
-
     
9,643
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
1,506
     
1,506
 
Total comprehensive income
                                                   
11,149
 
                                                         
ESOP shares committed to be released to Plan participants
   
-
     
-
     
141
     
-
     
297
     
-
     
438
 
Cash dividend declared, $0.12 per share
   
-
     
-
     
-
     
(3,126
)
   
-
     
-
     
(3,126
)
Stock based compensation activity
   
8
     
-
     
102
     
-
     
-
     
-
     
102
 
Stock compensation expense
   
-
     
-
     
229
     
-
     
-
     
-
     
229
 
Purchase of common stock returned to authorized but unissued
   
(386
)
   
(4
)
   
(6,453
)
   
-
     
-
     
-
     
(6,457
)
Balances at June 30, 2019
   
27,626
   
$
276
   
$
219,262
   
$
183,820
   
$
(17,210
)
 
$
655
   
$
386,803
 

See accompanying notes to unaudited consolidated financial statements.
- 7 -


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Six months ended June 30,
 
   
2020
   
2019
 
   
(In Thousands)
 
             
Operating activities:
           
Net income
 
$
27,017
   
$
16,185
 
Adjustments to reconcile net income to used in provided by operating activities:
               
Provision (credit) for loan losses
   
5,285
     
(650
)
Provision for depreciation
   
1,290
     
1,215
 
Deferred taxes
   
(1,855
)
   
1,768
 
Stock based compensation
   
389
     
598
 
Net amortization of premium/discount on debt and mortgage related securities
   
79
     
113
 
Amortization of unearned ESOP shares
   
822
     
875
 
Amortization and impairment of mortgage servicing rights
   
247
     
109
 
Gain on sale of loans held for sale
   
(94,345
)
   
(58,304
)
Loans originated for sale
   
(1,795,178
)
   
(1,270,121
)
Proceeds on sales of loans originated for sale
   
1,726,257
     
1,225,989
 
Decrease (increase) in accrued interest receivable
   
283
     
(259
)
Increase in cash surrender value of life insurance
   
(873
)
   
(851
)
(Decrease) increase in accrued interest on deposits and borrowings
   
(155
)
   
136
 
Decrease in prepaid tax expense
   
3,731
     
76
 
Net gain related to real estate owned
   
(5
)
   
(20
)
Change in other assets and other liabilities
   
(7,198
)
   
(14,736
)
Net cash used in operating activities
   
(134,209
)
   
(97,877
)
                 
Investing activities:
               
Net (increase) decrease in loans receivable
   
(46,009
)
   
7,697
 
Purchases of:
               
FHLB stock
   
(5,570
)
   
(2,925
)
Mortgage related securities
   
(4,455
)
   
(6,759
)
Debt securities
   
(2,500
)
   
-
 
Bank owned life insurance
   
(180
)
   
(180
)
Premises and equipment, net
   
(478
)
   
(1,722
)
Proceeds from:
               
Principal repayments on mortgage-related securities
   
20,791
     
12,930
 
Maturities of debt securities
   
3,360
     
1,835
 
Sales of real estate owned
   
353
     
1,204
 
Net cash (used in) provided by investing activities
   
(34,688
)
   
12,080
 
                 
Financing activities:
               
Net increase in deposits
   
89,890
     
16,501
 
Net change in short term borrowings
   
115,540
     
18,635
 
Repayment of long term debt
   
-
     
(100,000
)
Proceeds from long term debt
   
-
     
165,000
 
Cash paid for advance payments by borrowers for taxes
   
4,710
     
3,511
 
Cash dividends on common stock
   
(18,759
)
   
(19,774
)
Purchase of common stock returned to authorized but unissued
   
(20,396
)
   
(14,426
)
Proceeds from stock option exercises
   
531
     
394
 
Net cash provided by financing activities
   
171,516
     
69,841
 
Increase (decrease) in cash and cash equivalents
   
2,619
     
(15,956
)
Cash and cash equivalents at beginning of period
   
74,300
     
86,101
 
Cash and cash equivalents at end of period
 
$
76,919
   
$
70,145