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Waterstone Financial Inc. Reports Operating Results (10-K)

March 09, 2012 | About:
10qk

10qk

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Waterstone Financial Inc. (WSBF) filed Annual Report for the period ended 2011-12-31.

Waterstone Finl has a market cap of $72.5 million; its shares were traded at around $2.41 with and P/S ratio of 0.6.

Highlight of Business Operations:

In addition to the lending activities previously discussed, the Company also originates residential mortgage loans for the purpose of sale on the secondary market. The Company originated $1.03 billion in mortgage loans held for sale during the year ended December 31, 2011 as compared to $1.08 billion during the year ended December 31, 2010. Proceeds from sales to third parties during the year ended December 31, 2011 totaled $1.07 billion as compared to $1.07 billion during the year ended December 31, 2010. These sales generated approximately $39.8 million and $35.5 million in mortgage banking income for the periods ended December 31, 2011 and 2010, respectively. Despite the increase in revenues generated by the our mortgage banking operations, net income related to this segment decreased by $839,000 to $1.7 million during the year ended December 31, 2011 compared to $2.5 million during the year ended December 31, 2010. The decrease in net income was the result of an increase in compensation, occupancy and other administrative expenses. The increase in mortgage banking income was the result of an increase in average sales margin which was driven by the following factors: an increase in pricing on all products in all geographic markets, a change in product mix towards real estate purchase loans which yield a higher margin than loans originated for the purpose of a refinancing and change in the geographic composition of origination activity towards higher yielding geographic markets. Despite the increase in pricing, overall loan origination volumes remained relatively consistent which reflects the continued strong demand for fixed-rate loans due in large part to historically low interest rates on these products. While the loan origination volume remained relatively consistent during the years ended December 31, 2011 and 2010, there was a shift in the mix of loan purpose toward loans originated for the purpose of a residential property purchase, which yield a higher return, as opposed to a loan originated for the purpose of refinancing an existing mortgage loan. During the year ended December 31, 2011, approximately 64% of all loans were originated for purchase and 36% were originated to refinance an existing loan. During the year ended December 31, 2010, approximately 45% of all loans were originated for purchase and 55% were originated to refinance an existing loan. In addition to the shift in product mix during the year ended December 31, 2011, there was a shift in origination volume by geographic market. Loan origination volumes increased by a combined $164.1 million during the year ended December 31, 2011 as compared to the year ended December 31, 2010 with respect to three of our higher yielding geographic markets. In addition, during the same time frame, loan origination volumes decreased by approximately $165.5 million in one of our lower yielding geographic markets. While margins increased in all markets, this shift in origination volumes by market, resulted in higher average margins during the year ended December 31, 2011. Compensation expense increased $3.5 million, or 14.7%, to $26.9 million for the year ended December 31, 2011 compared to $23.5 million during the year ended December 31, 2010. The increase resulted from both an increase in commissions earned on the higher margin sales noted above, as well as an increase in administrative compensation expenses that resulted from an increased cost of compliance related to new regulations. Occupancy expense increased $778,000, or 31.8%, to $3.2 million during the year ended December 31, 2011 as compared to $2.4 million during the year ended December 31, 2010. The increase resulted from an expansion of the branch network that occurred primarily throughout the year ended December 31, 2010. The year ended December 31, 2011 now reflects a full year of expense related to those locations. Other noninterest expense increased $1.8 million, or 30.6%, to $7.9 million during the year ended December 31, 2011 as compared to $6.0 million during the year ended December 31, 2010. The increase resulted from an expansion of the branch network that occurred primarily throughout the year ended December 31, 2010. The year ended December 31, 2011 now reflects a full year of expense related to those locations.

Compensation expense increased $3.5 million, or 14.7%, to $26.9 million for the year ended December 31, 2011 compared to $23.5 million during the year ended December 31, 2010. The increase resulted from both an increase in commissions earned on the higher margin sales noted above, as well as an increase in administrative compensation expenses that resulted from an increased cost of compliance related to new regulations. Occupancy expense increased $778,000, or 31.8%, to $3.2 million during the year ended December 31, 2011 as compared to $2.4 million during the year ended December 31, 2010. The increase resulted from an expansion of the branch network that occurred primarily throughout the year ended December 31, 2010. The year ended December 31, 2011 now reflects a full year of expense related to those locations. Other noninterest expense increased $1.8 million, or 30.6%, to $7.9 million during the year ended December 31, 2011 as compared to $6.0 million during the year ended December 31, 2010. The increase resulted from an expansion of the branch network that occurred primarily throughout the year ended December 31, 2010. The year ended December 31, 2011 now reflects a full year of expense related to those locations.

Consistent with our overall business and asset/liability management strategy, which focuses on sustaining adequate levels of core earnings, our investment portfolio is comprised primarily of securities that are classified as available for sale. At December 31, 2011 and 2010, we owned one structured note that has been classified as held to maturity. During the year ended December 31, 2011, collateralized mortgage obligations with a total book value of $3.2 million were sold at a gain of $53,000. During the year ended December 31, 2010, municipal securities with a total book value of $14.0 million were sold at a gain of $11,000. During the same period, collateralized mortgage obligations with a total book value of $6.7 million were sold at a gain of $44,000. Two available for sale municipal securities with a total book value of $503,000 were sold in 2009 at a gain of $12,000. Impairment losses of $456,000 and $1.1 million were recognized as an other than temporary impairment during 2011 and 2009, respectively, related to collateralized mortgage obligations. There were no impairment losses recognized as other than temporary impairment during the year ended December 31, 2010. A cumulative effect adjustment of $1.1 million was made in 2009 effective January 1, 2009 in connection with the early adoption of new guidance impacting ASC Topic 820, Fair Value Measurements and Disclosures, which partially reversed the impairment loss recognized during the year ended December 31, 2008.

Mortgage banking income increased $4.4 million, or 12.4%, to $39.8 million for the year ended December 31, 2011, compared to $35.5 million during the comparable period in 2010. The $4.4 million increase in mortgage banking income was primarily the result of an increase in average sales margin which was driven by the following factors: an increase in pricing on all products in all geographic markets, a change in product mix towards real estate purchase loans which yield a higher margin than loans originated for the purpose of a refinancing and change in the geographic composition of origination activity towards higher yielding geographic markets. Despite the increase in pricing, overall loan origination volumes remained relatively consistent which reflects the continued strong demand for fixed-rate loans due in large part to historically low interest rates on these products. While the loan origination volume remained relatively consistent during the years ended December 31, 2011 and 2010, there was a shift in the mix of loan purpose toward loans originated for the purpose of a residential property purchase, which yield a higher return, as opposed to a loan originated for the purpose of refinancing an existing mortgage loan. During the year ended December 31, 2011, approximately 64% of all loans were originated for purchase and 36% were originated to refinance an existing loan. During the year ended December 31, 2010, approximately 45% of all loans were originated for purchase and 55% were originated to refinance an existing loan. In addition to the shift in product mix during the year ended December 31, 2011, there was a shift in origination volume by geographic market. Loan origination volumes increased by a combined $164.1 million during the year ended December 31, 2011 as compared to the year ended December 31, 2010 with respect to three of our higher yielding geographic markets. In addition, during the same time frame, loan origination volumes decreased by approximately $165.5 million in one of our lower yielding geographic markets. While margins increased in all markets, this shift in origination volumes by market, resulted in higher average margins during the year ended December 31, 2011.

Real estate owned expense increased $5.6 million, or 84.4%, to $12.1 million during the year ended December 31, 2011 from $6.6 million during the comparable period in 2010. Real estate owned expense includes the net operating and carrying costs related to the properties. In addition, it includes net gain or loss recognized upon the sale of a foreclosed property, as well as write-downs recognized to maintain the properties at their estimated fair value. The increase in real estate owned expense results from an increase in properties under management and an increase in write downs of asset values, which is reflective of a strategy to become more aggressive in pricing specific properties to expedite the sale process. During the year ended December 31, 2011, net operating expense, which includes but is not limited to property taxes, maintenance and management fees, net of rental income increased $180,000, or 3.0%, to $6.1 million from $5.9 million during the year ended December 31, 2010. The increase in net operating expense compared to the prior period resulted from an increase in the number of properties owned. The average balance of real estate owned totaled $60.3 million for the year ended December 31, 2011 compared to $53.7 million for the year ended December 31, 2010. Net losses recognized on write-down of real estate owned net of net gains on sales totaled $6.1 million during the year ended December 31, 2011, compared to $675,000 during the year ended December 31, 2010.

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