Waterstone Financial Inc. has a market cap of $122.9 million; its shares were traded at around $3.97 with and P/S ratio of 1.2. WSBF is in the portfolios of John Keeley of Keeley Fund Management.
Highlight of Business Operations:During the nine-month period ended September 30, 2010, our results of operations continued to be adversely affected by elevated levels of nonperforming loans and real estate owned. Weaknesses in our loan portfolio have required that we establish higher provisions for loan losses and incur significant loan charge-offs. The continued downturn in the local real estate market requires the Company to continually reevaluate the assumptions used to determine the fair value of collateral and net present value of discounted future estimated cash flows related to loans receivable to ensure that the allowance for loan losses continues to be an accurate reflection of management s best estimate of the amount needed to provide for the probable and estimable loss on impaired loans and other incurred losses in the loan portfolio. As a result, the Company determined that a provision for loan losses of $18.7 million was necessary during the nine months ended September 30, 2010 in order to maintain the allowance for loan losses at an appropriate level in relation to the risks management believe are inherent and estimable in our portfolio. Additional information regarding loan quality and its impact on our financial condition and results of operations can be found in the “Asset Quality” discussion. Our results of operations are also affected by noninterest income and noninterest expense. Noninterest income consists primarily of mortgage banking fee income. A significant increase in the sale of mortgage loans in the secondary market, resulting from a decline in mortgage interest rates during the period and additional mortgage banking offices added over the past twelve months, yielded a $12.2 million increase in mortgage banking income during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. In addition to the increase in mortgage banking activity, the increase in noninterest income compared to the prior period resulted from an $1.1 million decrease in impairment charge on securities considered to be other than temporarily impaired. Noninterest expense consists primarily of compensation and employee benefits, FDIC insurance premiums, occupancy expenses and real estate owned expense. The primary reason for the increase in noninterest expense compared to the prior year relates to the expansion of our mortgage banking operations. Of the $14.2 million increase in noninterest expense for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, $11.4 million relates to our mortgage banking operations. In 2010 our noninterest expense has been and will continue to be adversely affected by higher deposit insurance premium assessments from the FDIC. FDIC insurance premium expense has increased $1.3 million during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Our results of operations are also significantly affected by general and local economic and competitive conditions, governmental policies and actions of regulatory authorities.
Congress recently enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act will eliminate our current primary federal regulator, the Office of Thrift Supervision. The Dodd-Frank Act authorizes the Board of Governors of the Federal Reserve System to supervise and regulate all savings and loan holding companies like the Company, in addition to bank holding companies which it currently regulates. As a result, the Federal Reserve Board s current regulations applicable to bank holding companies, including holding company capital requirements, will apply to savings and loan holding companies like the Company. These capital requirements are substantially similar to the capital requirements currently applicable to the Bank. The Dodd-Frank Act also requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Bank holding companies with assets of less than $500 million are exempt from these capital requirements. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. We do not have any outstanding trust preferred securities. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives. The Company will be regulated by the FDIC following the elimination of the OTS.
The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.
General - Net loss for the nine months ended September 30, 2010 totaled $1.4 million, or $0.05 for both basic and diluted loss per share, compared to net loss of $5.8 million, or $0.19 for both basic and diluted loss per share, for the nine months ended September 30, 2009. The nine months ended September 30, 2010 generated an annualized loss on average assets of 0.10% and an annualized loss on average equity of 1.14%, compared to an annualized loss on average assets of 0.41% and an annualized loss on average equity of 4.63% for the comparable period in 2009. The results of operations for the nine months ended September 30, 2010 reflect continuing deterioration in asset quality which resulted in an $18.7 million provision for loan losses during the current year. The current year-to-date provision represents a $317,000 decrease from the $19.1 million provision for loan losses for the nine months ended September 30, 2009. Increases of $5.0 million in net interest income and $12.2 million in mortgage banking income and a $1.1 million decrease in impairment charge on securities considered to be other-than-temporarily impaired for the first nine months of 2010 over the prior year were partially offset by increases of $8.6 million in compensation expense, $1.5 million in real estate owned expense and a $2.8 million increase in other noninterest expense of which $1.3 million was attributable to FDIC insurance expense and $1.2 million was attributable to expenses related to the expansion of our mortgage banking operations. Loan charge-off activity and specific loan reserves are discussed in additional detail in the Asset Quality section. The net interest margin for the nine months ended September 30, 2010 was 2.82% compared to 2.34% for the nine months ended September 30, 2009.
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