Waterstone Finl has a market cap of $95.6 million; its shares were traded at around $3.05 with and P/S ratio of 0.8.
Highlight of Business Operations:Mortgage banking segment assets (which consist predominantly of loans held for sale) increased $1.4 million, or 1.4%, to $101.6 million as of March 31, 2012 compared to $100.2 million as of December 31, 2011. Additional details are provided in the “Loans Held for Sale” section. Mortgage banking revenues increased $8.0 million, or 130.4%, to $14.2 million for the three months ended March 31, 2012 compared to $6.2 million during the three months ended March 31, 2011. The $8.0 million increase in mortgage banking revenues was attributable to both an increase in loan origination volume, as well as increased margins. Loans originated for sale on the secondary market totaled $326.9 million during the three months ended March 31, 2012, which represents a $143.9 million, or 78.6%, increase in originations from the three months ended March 31, 2011, which totaled $183.0 million. In addition to the increase in revenues resulting from the increase in origination volume, mortgage banking revenues increased due to an increase in average sales margin. The increase in average sales margin 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 purchases which yield a higher margin than loans originated for the purpose of a refinancing and a change in the geographic composition or origination activity towards higher yielding markets. 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.”
Finally, interest income from other interest earning assets (comprised of debt securities, federal funds sold and short-term investments) decreased to $707,000 for the three months ended March 31, 2012 compared to $835,000 for the three months ended March 31, 2011. Interest income decreased due to a decrease of $26.6 million, or 11.8%, in the average balance of other earning assets to $198.3 million during the three months ended March 31, 2012 from $224.9 million during the comparable period in 2011. The decrease in interest income from other earning assets also reflects a 8 basis point decline in the average yield on other earning assets to 1.43% for the three months ended March 31, 2012 from 1.51% for the comparable period in 2011.
Real estate owned expense decreased $360,000, or 20.1%, to $1.4 million during the three months ended March 31, 2012 from $1.8 million during the comparable period in 2011. 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 the appropriate estimated fair value. The decrease in real estate owned expense results from a decrease in net property management expense and a decrease in write-downs of asset values, partially offset by a decrease in gains on the sales of properties. During the three months ended March 31, 2012, net operating expense, which includes but is not limited to property taxes, maintenance and management fees, net of rental income decreased $642,000, or 40.9%, to $929,000 from $1.6 million during the comparable period in 2011. The decrease in net operating expense compared to the prior period resulted from a decrease in average balance of properties owned. The average balance of real estate owned totaled $56.4 million for the three months ended March 31, 2012 compared to $60.8 million for the three months ended March 31, 2011. Net losses recognized on the sale or write-down of real estate owned totaled $506,000 during the three months ended March 31, 2012, compared to a net loss of $225,000 during the comparable period in 2011.
Securities Available for Sale – Securities available for sale increased by $8.4 million, or 4.1%, to $215.0 million at March 31, 2012 from $206.5 million at December 31, 2011. This increase reflects a $34.1 million increase in mortgage backed securities and a $10.0 million increase in government sponsored enterprise issued collateralized mortgage obligations, partially offset by a $24.0 million decrease in government sponsored enterprise bonds and a $12.5 million decrease in municipal securities. During the three months ended March 31, 2012, the proceeds from maturities and calls of government sponsored enterprise securities and from the sale of municipal securities were reinvested in mortgage related securities deemed to provide a better risk-adjusted return. The Company sold $11.6 million in short-term municipal securities in March of 2012 at a gain of $241,000 in order to capture the related value of the tax-exempt feature of the securities not otherwise realized due to the Company s taxable loss position. As of March 31, 2012, the Company holds two available for sale private label issue collateralized mortgage obligations with a total fair value of $18.1 million and an amortized cost of $19.0 million that were determined to be other than temporarily impaired. The $897,000 unrealized loss (before taxes) is included in other comprehensive income. During the three months ended March 31, 2012, $4,000 was recognized as additional other than temporary impairment with respect to one of the private label issue collateralized mortgage obligations which was charged against earnings.
Total real estate owned decreased by $660,000, or 1.2%, to $56.0 million at March 31, 2012, compared to $56.7 million at December 31, 2011. During the three months ended March 31, 2012, $6.3 million was transferred from loans to real estate owned upon completion of foreclosure. Declines in property values evidenced by updated appraisals, responses to list prices on properties held for sale and/or deterioration in the condition of properties resulted in write-downs totaling $875,000 during the three months ended March 31, 2012. During the same period, sales of real estate owned totaled $6.1 million. New appraisals received on real estate owned and collateral dependent impaired loans are based upon an “as is value” assumption. During the period of time in which we are awaiting receipt of an updated appraisal, loans evaluated for impairment based upon collateral value are measured by the following:
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