Critical Review: Northeast Bancorp (NASDAQ:NBN) & Waterstone Financial (NASDAQ:WSBF)

Northeast Bancorp (NASDAQ:NBN) and Waterstone Financial (NASDAQ:WSBF) are both small-cap finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their earnings, dividends, institutional ownership, risk, profitability, analyst recommendations and valuation.

Dividends

Northeast Bancorp pays an annual dividend of $0.04 per share and has a dividend yield of 0.0%. Waterstone Financial pays an annual dividend of $0.60 per share and has a dividend yield of 3.6%. Northeast Bancorp pays out 0.4% of its earnings in the form of a dividend. Waterstone Financial pays out 45.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Institutional & Insider Ownership

62.7% of Waterstone Financial shares are held by institutional investors. 14.2% of Northeast Bancorp shares are held by insiders. Comparatively, 7.4% of Waterstone Financial shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Valuation and Earnings

This table compares Northeast Bancorp and Waterstone Financial”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Northeast Bancorp	$351.00 million	2.48	$83.44 million	$10.64	9.95
Waterstone Financial	$133.68 million	2.28	$18.69 million	$1.33	12.39

Northeast Bancorp has higher revenue and earnings than Waterstone Financial. Northeast Bancorp is trading at a lower price-to-earnings ratio than Waterstone Financial, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current recommendations and price targets for Northeast Bancorp and Waterstone Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Northeast Bancorp	0	1	1	0	2.50
Waterstone Financial	0	0	1	0	3.00

Northeast Bancorp currently has a consensus price target of $102.00, indicating a potential downside of 3.68%. Given Northeast Bancorp’s higher possible upside, research analysts clearly believe Northeast Bancorp is more favorable than Waterstone Financial.

Profitability

This table compares Northeast Bancorp and Waterstone Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Northeast Bancorp	24.36%	18.52%	2.12%
Waterstone Financial	12.08%	6.99%	1.07%

Volatility & Risk

Northeast Bancorp has a beta of 0.55, suggesting that its share price is 45% less volatile than the S&P 500. Comparatively, Waterstone Financial has a beta of 0.82, suggesting that its share price is 18% less volatile than the S&P 500.

Summary

Northeast Bancorp beats Waterstone Financial on 10 of the 15 factors compared between the two stocks.

About Northeast Bancorp

Northeast Bank provides banking services to individual and corporate customers in Maine. The company's deposit products include demand deposit, NOW, money market, savings, certificate of deposit, and individual retirement accounts, as well as checking accounts. Its loan portfolio comprises residential mortgage loans; multi-family and other commercial real estate loans; commercial and industrial loans, such as term loans, lines of credit and equipment, and receivables financing; consumer loans comprising mobile home and overdraft, and deposit-secured loans; and small business administration loans. In addition, the company offers telephone banking, online banking and bill payment, mobile banking, cash management, and remote deposit capture services, as well as debit and credit card, ATM, electronic transfer, and check services. Further, it provides various services, such as money market, merchant, and payroll and HR. Northeast Bank was founded in 1872 and is headquartered in Portland, Maine.

About Waterstone Financial

Waterstone Financial, Inc. operates as a bank holding company for WaterStone Bank SSB that provides various financial services to customers in southeastern Wisconsin, the United States. It operates in two segments, Community Banking and Mortgage Banking. The Community Banking segment offers consumer and business banking products and services, such as deposit and transactional solutions, including checking accounts, online banking and bill pay services, money transfer services, as well as credit, debit, and pre-paid cards; investable funds solutions comprising savings, money market deposits, individual retirement accounts, and certificates of deposit; residential mortgages, home equity loans and lines of credit, personal and installment loans, real estate financing, business loans, and business lines of credit; and fixed and variable annuities, insurance products, and trust and investment management accounts. It also provides transaction deposits, interest bearing transaction accounts, demand deposits, non-interest-bearing demand accounts, and time deposits; secured and unsecured lines; commercial real estate construction loans; term loans for working capital, inventory, and general corporate use; and personal term loans and investment services. The Mortgage Banking segment offers residential mortgage loans for the purpose of sale in the secondary market. It also invests in a portfolio of securities include mortgage-backed securities, government-sponsored and private-label enterprise bonds, collateralized mortgage and municipal obligations, and other debt securities. The company was formerly known as Wauwatosa Holdings, Inc. and changed its name to Waterstone Financial, Inc. in August 2008. The company was founded in 1921 and is based in Wauwatosa, Wisconsin.