Waterstone Financial Inc. has a market cap of $95.3 million; its shares were traded at around $3.05 with and P/S ratio of 0.8.
Highlight of Business Operations:During the three-month period ended March 31, 2011, 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 $4.9 million was necessary during the three months ended March 31, 2011 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 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 $2.6 million increase in mortgage
banking income during the three months ended March 31, 2011 compared to the three months ended March 31, 2010. 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 $4.3 million increase in noninterest expense for the three months ended March 31, 2011, compared to the three months ended March 31, 2010, $3.5 million relates to our mortgage banking operations. During 2011 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 totaled $1.1 million during the three months ended March 31, 2011 and 2010, which are significantly higher than historical levels. Our results of operations are also significantly affected by general and local economic and competitive conditions, governmental policies and actions of regulatory authorities.
General - Net loss for the three months ended March 31, 2011 totaled $1.5 million, or $0.05 for both basic and diluted loss per share, compared to net income of $176,000, or $0.01 for both basic and diluted loss per share, for the three months ended March 31, 2010. The three months ended March 31, 2010 generated an annualized loss on average assets of 0.35% and an annualized loss on average equity of 3.67%, compared to an annualized return on average assets of 0.04% and an annualized return on average equity of 0.42% for the comparable period in 2010. The decrease in the results of operations for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 reflects a $506,000 decrease in net interest income, a $365,000 increase in real estate owned expense and a $901,000 decrease in the pre-tax results of operations from our mortgage banking operations. The provision for loan losses totaled $4.9 million during the three months ended March 31, 2011, compared to $5.5 million for the three months ended March 31, 2010. Loan charge-off activity and specific loan loss reserves are discussed in additional detail in the Asset Quality section. The net interest margin decreased slightly to 2.90% for the three months ended March 31, 2011 compared to 2.92% for the three months ended March 31, 2010.
Mortgage banking segment assets (which consist predominantly of loans held for sale) decreased $68.3 million, or 62.8%, to $40.6 million as of March 31, 2011 compared to $108.9 million as of December 31, 2010. Additional details are provided in the “Loans Held for Sale” section. The $2.6 million increase in mortgage banking revenues from the three months ended March 31, 2010 to the three months ended March 31, 2011 was attributable to increased margins on the sale of loans held for sale as well as an increase in the volume of loans sold. The major components of mortgage banking revenues include fees and premiums associated with the sale of residential loans held for sale, which are discussed in section “Mortgage Banking Income.” The major expenses for the mortgage banking segment are compensation, payroll taxes and other employee benefits, as well as occupancy, office furniture and equipment and other expenses, which are covered generally in the consolidated discussion in section “Noninterest Expense.”
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