Update: Waterstone Financial Earnings

| About: Waterstone Financial, (WSBF)
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Waterstone Financial reported 2Q earnings.

In line with my expectations, the bank easily beat last quarter's earnings but that still isn't saying much.

Until the bank is freed from its heavy debt load, earnings will continue to look weak compared to the majority of its peers.

Waterstone Financial (NASDAQ:WSBF) reported sequential net income growth of 100%, but this was mostly due to a bad first quarter, and earnings were actually down 22.4% from the second quarter of last year. And, it could have been a down by a lot more considering that this quarter benefited from a much smaller provision expense, down $950 thousand YOY.

One of my major concerns has been the bank's level of nonperforming assets, and it is still high at 3.78% of all assets. Earnings were helped by a lower provision expense, but if you're looking at a comparable regional bank, you may start to question the decline, because the allowance account only covers 50% of past due loans and 32% of all nonperforming assets. Allowances have declined in each of the last 5-quarters.

If the bank can off-load some of its owned real estate, and kick-start bad loans, investors may eventually see margins improve. Expensive debt and a heavy reliance on non-interest income makes it almost impossible for the bank to grow by more than 5% a year. The majority of the bank's debt matures in 2016, a little too far out for me to want to get in now, but I will continue to monitor this one because interest expenses are the single largest contributor to the bank's weak performance, and they will not be around forever.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.