WSBF Waterstone Financial Inc

Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $8.0 million, or $0.36 per diluted share for the quarter ended June 30, 2022 compared to $17.9 million, or $0.74 per diluted share for the quarter ended June 30, 2021. Net income per diluted share was $0.58 for the six months ended June 30, 2022 compared to net income per diluted share of $1.64 for the six months ended June 30, 2021.

“The community banking segment achieved strong loan growth, specifically in the commercial real estate market,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “We were able to reduce our borrowings and fund our loan growth through the deposits that we have raised over the past few years. The mortgage banking segment continues to focus on efficiencies to remain profitable, as origination volumes decreased in response to higher interest rates. Additionally, we were able to continue returning strong shareholder value through our largest quarterly stock buyback since 2015.”

Highlights of the Quarter Ended June 30, 2022

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $8.0 million for the quarter ended June 30, 2022, compared to $17.9 million for the quarter ended June 30, 2021.
• Consolidated return on average assets was 1.61% for the quarter ended June 30, 2022 compared to 3.25% for the quarter ended June 30, 2021.
• Consolidated return on average equity was 7.93% for the quarter ended June 30, 2022 and 16.49% for the quarter ended June 30, 2021.
• Dividends declared during the quarter ended June 30, 2022 totaled $0.20 per common share.
• We repurchased approximately 1.4 million shares at a cost of $24.2 million, or $17.07 per share, during the quarter ended June 30, 2022.
• Nonperforming assets as percentage of total assets was 0.39% at June 30, 2022, 0.34% at March 31, 2022, and 0.20% at June 30, 2021.
• Past due loans as percentage of total loans was 0.60% at June 30, 2022, 0.53% at March 31, 2022, and 0.53% at June 30, 2021.

Community Banking Segment

• Pre-tax income totaled $8.0 million for the quarter ended June 30, 2022, which represents a $1.7 million, or 17.7%, decrease compared to $9.7 million for the quarter ended June 30, 2021.
• Net interest income totaled $13.7 million for the quarter ended June 30, 2022, which represents an $807,000, or 5.6%, decrease compared to $14.5 million for the quarter ended June 30, 2021.
• Average loans held for investment totaled $1.25 billion during the quarter ended June 30, 2022, which represents a decrease of $72.1 million, or 5.5%, compared to $1.32 billion for the quarter ended June 30, 2021. Average loans held for investment increased $42.5 million compared to $1.20 billion for the quarter ended March 31, 2022.
• Net interest margin increased 24 basis points to 3.02% for the quarter ended June 30, 2022 compared to 2.78% for the quarter ended June 30, 2021, which was a result of a decrease in the average balance of cash, as funds were utilized to purchase investment securities and pay down borrowings. In addition, yields increased on loans receivable, loans held for sale, mortgage related securities, debt securities, federal funds sold and short term investments category. Net interest margin increased 64 basis points compared to 2.38% for the quarter ended March 31, 2022, driven by an increase in average loan balance, weighted average yield on loans, and weighted average yield on average debt securities, federal funds sold and short term investments. In addition, excess cash was utilized to pay down borrowings.
• The segment had a negative provision for credit losses of $41,000 for the quarter ended June 30, 2022 compared to a negative provision for loan losses of $750,000 for the quarter ended June 30, 2021.
• Net recoveries totaled $107,000 for the quarter ended June 30, 2022, as one significant loan recovery payment was received during the quarter, compared to net recoveries of $378,000 for the quarter ended June 30, 2021. With the adoption of CECL, estimated recoveries may be accounted for within the calculation and do not impact the provision for credit losses line item when cash is received.
• The efficiency ratio was 48.43% for the quarter ended June 30, 2022, compared to 44.79% for the quarter ended June 30, 2021.
• Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended June 30, 2022, an increase of $1.2 million, or 0.1%, compared to $1.21 billion during the quarter ended June 30, 2021. Average deposits decreased $22.9 million, or 7.5% annualized compared to the $1.23 billion for the quarter ended March 31, 2022.

Mortgage Banking Segment

• Pre-tax income totaled $2.3 million for the quarter ended June 30, 2022, compared to $14.2 million for the quarter ended June 30, 2021.
• Loan originations decreased $286.4 million, or 26.9%, to $778.8 million during the quarter ended June 30, 2022, compared to $1.07 billion during the quarter ended June 30, 2021. Origination volume relative to purchase activity accounted for 90.4% of originations for the quarter ended June 30, 2022 compared to 75.4% of total originations for the quarter ended June 30, 2021.
• Mortgage banking non-interest income decreased $20.4 million, or 40.4%, to $30.1 million for the quarter ended June 30, 2022, compared to $50.6 million for the quarter ended June 30, 2021.
• Gross margin on loans sold decreased to 3.76% for the quarter ended June 30, 2022, compared to 4.81% for the quarter ended June 30, 2021.
• Total compensation, payroll taxes and other employee benefits decreased $7.9 million, or 26.9%, to $21.3 million during the quarter ended June 30, 2022 compared to $29.2 million during the quarter ended June 30, 2021. The decrease primarily related to decreased commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased.
• Other noninterest expense increased $55,000 to $2.7 million during the quarter ended June 30, 2022 compared to $2.7 million during the quarter ended June 30, 2021. The increase related to an increase in provision of loan sale losses offset by a decrease in mortgage servicing rights amortization expense.
• During the quarter ended June 30, 2022, the segment opened five new branches. Direct start up expenses related to these branches totaled approximately $510,000 for the quarter ended June 30, 2022.

About Waterstone Financial, Inc.Waterstone Financial, Inc. is the savings and loan holding company for WaterStone Bank. WaterStone Bank was established in 1921 and offers a full suite of personal and business banking products. The Bank has branches in Wauwatosa/State St, Brookfield, Fox Point/North Shore, Franklin/Hales Corners, Germantown/Menomonee Falls, Greenfield/Loomis Rd, Milwaukee/Oklahoma Ave, Oak Creek/27th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin. WaterStone Bank is the parent company to Waterstone Mortgage, which has the ability to lend in 48 states. For more information about WaterStone Bank, go to http://www.wsbonline.com.

Forward-Looking StatementsThis press release contains statements or information that may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements include, without limitation, statements regarding expected financial and operating activities and results that are preceded by, followed by, or that include words such as “may,” “expects,” “anticipates,” “estimates” or “believes.”  Any such statements are based upon current expectations that involve a number of risks and uncertainties and are subject to important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements.  Factors that might cause such a difference include changes in interest rates; demand for products and services; the degree of competition by traditional and nontraditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies, including significant disruption to financial market and other economic activity caused by the outbreak of COVID-19; and other factors, including risk factors referenced in Item 1A. Risk Factors in Waterstone’s most recent Annual Report on Form 10-K and as may be described from time to time in Waterstone’s subsequent SEC filings, which factors are incorporated herein by reference.  Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect only Waterstone’s belief as of the date of this press release.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2022			2021			2022			2021
	(In Thousands, except per share amounts)
Interest income:
Loans	$	14,546		$	16,480		$	28,046		$	33,083
Mortgage-related securities		821			486			1,423			977
Debt securities, federal funds sold and short-term investments		1,049			858			1,977			1,733
Total interest income		16,416			17,824			31,446			35,793
Interest expense:
Deposits		751			1,078			1,530			2,595
Borrowings		1,584			2,469			3,971			4,969
Total interest expense		2,335			3,547			5,501			7,564
Net interest income		14,081			14,277			25,945			28,229
Provision (credit) for credit losses(1)		48			(750	)		(28	)		(1,820	)
Net interest income after provision (credit) for credit losses		14,033			15,027			25,973			30,049
Noninterest income:
Service charges on loans and deposits		666			657			1,176			1,347
Increase in cash surrender value of life insurance		724			684			1,040			985
Mortgage banking income		29,410			49,649			57,685			104,040
Other		438			1,054			1,155			1,871
Total noninterest income		31,238			52,044			61,056			108,243
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		25,793			33,926			51,328			68,049
Occupancy, office furniture, and equipment		2,056			2,293			4,244			4,858
Advertising		962			911			1,867			1,735
Data processing		1,144			914			2,346			1,885
Communications		258			326			598			657
Professional fees		349			569			810			254
Real estate owned		-			-			5			(12	)
Loan processing expense		1,134			1,200			2,565			2,535
Other		3,354			3,158			6,221			6,336
Total noninterest expenses		35,050			43,297			69,984			86,297
Income before income taxes		10,221			23,774			17,045			51,995
Income tax expense		2,231			5,880			3,763			12,757
Net income	$	7,990		$	17,894		$	13,282		$	39,238
Income per share:
Basic	$	0.36		$	0.75		$	0.59		$	1.65
Diluted	$	0.36		$	0.74		$	0.58		$	1.64
Weighted average shares outstanding:
Basic		22,126			23,848			22,626			23,792
Diluted		22,229			24,029			22,768			23,996
(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amount presented is calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	June 30,			December 31,
	2022			2021
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	87,393		$	343,016
Federal funds sold		15,093			13,981
Interest-earning deposits in other financial institutions and other short term investments		19,707			19,725
Cash and cash equivalents		122,193			376,722
Securities available for sale (at fair value)		200,545			179,016
Loans held for sale (at fair value)		206,702			312,738
Loans receivable		1,276,560			1,205,785
Less: Allowance for credit losses(1)		17,271			15,778
Loans receivable, net		1,259,289			1,190,007
Office properties and equipment, net		21,781			22,273
Federal Home Loan Bank stock (at cost)		16,301			24,438
Cash surrender value of life insurance		65,745			65,368
Real estate owned, net		148			148
Prepaid expenses and other assets		48,393			45,148
Total assets	$	1,941,097		$	2,215,858
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	230,003		$	214,409
Money market and savings deposits		395,229			392,314
Time deposits		587,998			626,663
Total deposits		1,213,230			1,233,386
Borrowings		281,100			477,127
Advance payments by borrowers for taxes		17,302			4,094
Other liabilities		43,085			68,478
Total liabilities		1,554,717			1,783,085
Shareholders' equity:
Preferred stock		-			-
Common stock		227			248
Additional paid-in capital		137,547			174,505
Retained earnings		276,444			273,398
Unearned ESOP shares		(13,650	)		(14,243	)
Accumulated other comprehensive loss, net of taxes		(14,188	)		(1,135	)
Total shareholders' equity		386,380			432,773
Total liabilities and shareholders' equity	$	1,941,097		$	2,215,858
Share Information
Shares outstanding		22,734			24,795
Book value per share	$	17.00		$	17.45
(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amount presented is calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2022			2022			2021			2021			2021
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	14,081		$	11,864		$	13,172		$	14,114		$	14,277
Provision (credit) for credit losses(1)		48			(76	)		(1,470	)		(700	)		(750	)
Total noninterest income		31,238			29,818			42,016			52,936			52,044
Total noninterest expense		35,050			34,935			40,974			43,323			43,297
Income before income taxes		10,221			6,823			15,684			24,427			23,774
Income tax expense		2,231			1,532			3,131			5,427			5,880
Net income	$	7,990		$	5,291		$	12,553		$	19,000		$	17,894
Income per share - basic	$	0.36		$	0.23		$	0.53		$	0.80		$	0.75
Income per share - diluted	$	0.36		$	0.23		$	0.53		$	0.79		$	0.74
Dividends declared per share	$	0.20		$	0.20		$	0.70		$	0.20		$	0.70
Performance Ratios (annualized):
Return on average assets - QTD		1.61	%		1.00	%		2.22	%		3.38	%		3.25	%
Return on average equity - QTD		7.93	%		5.00	%		11.14	%		17.25	%		16.49	%
Net interest margin - QTD		3.02	%		2.38	%		2.47	%		2.68	%		2.78	%
Return on average assets - YTD		1.30	%		1.00	%		3.20	%		3.54	%		3.62	%
Return on average equity - YTD		6.42	%		5.00	%		16.38	%		18.08	%		18.49	%
Net interest margin - YTD		2.69	%		2.38	%		2.68	%		2.75	%		2.79	%
Asset Quality Ratios:
Past due loans to total loans		0.60	%		0.53	%		0.59	%		0.92	%		0.53	%
Nonaccrual loans to total loans		0.59	%		0.55	%		0.46	%		0.32	%		0.34	%
Nonperforming assets to total assets		0.39	%		0.34	%		0.26	%		0.18	%		0.20	%
Allowance for loan losses to loans receivable		1.35	%		1.40	%		1.31	%		1.37	%		1.34	%
(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2022			2022			2021			2021			2021
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,433,452		$	1,361,839		$	1,517,984		$	1,573,194		$	1,655,078
Mortgage related securities		168,000			138,863			119,709			108,743			100,056
Debt securities, federal funds sold and short term investments		269,823			519,116			475,574			409,559			308,105
Total interest-earning assets		1,871,275			2,019,818			2,113,267			2,091,496			2,063,239
Noninterest-earning assets		117,248			128,813			131,703			137,454			143,375
Total assets	$	1,988,523		$	2,148,631		$	2,244,970		$	2,228,950		$	2,206,614
Interest-bearing liabilities
Demand accounts	$	70,674		$	69,736		$	70,762		$	68,478		$	63,610
Money market, savings, and escrow accounts		412,321			404,413			398,210			391,599			350,270
Certificates of deposit		584,244			610,681			643,546			663,343			690,196
Total interest-bearing deposits		1,067,239			1,084,830			1,112,518			1,123,420			1,104,076
Borrowings		326,068			440,252			481,971			475,000			480,054
Total interest-bearing liabilities		1,393,307			1,525,082			1,594,489			1,598,420			1,584,130
Noninterest-bearing demand deposits		154,070			152,900			153,303			153,436			141,648
Noninterest-bearing liabilities		36,962			41,232			49,982			40,148			45,658
Total liabilities		1,584,339			1,719,214			1,797,774			1,792,004			1,771,436
Equity		404,184			429,417			447,196			436,946			435,178
Total liabilities and equity	$	1,988,523		$	2,148,631		$	2,244,970		$	2,228,950		$	2,206,614
Average Yield/Costs (annualized)
Loans receivable and held for sale		4.07	%		4.02	%		3.96	%		4.07	%		3.99	%
Mortgage related securities		1.96	%		1.76	%		1.68	%		1.72	%		1.95	%
Debt securities, federal funds sold and short term investments		1.56	%		0.72	%		0.77	%		0.88	%		1.12	%
Total interest-earning assets		3.52	%		3.02	%		3.11	%		3.32	%		3.47	%
Demand accounts		0.09	%		0.08	%		0.08	%		0.08	%		0.08	%
Money market and savings accounts		0.19	%		0.21	%		0.22	%		0.24	%		0.23	%
Certificates of deposit		0.37	%		0.37	%		0.40	%		0.42	%		0.50	%
Total interest-bearing deposits		0.28	%		0.29	%		0.31	%		0.33	%		0.39	%
Borrowings		1.95	%		2.20	%		2.09	%		2.04	%		2.06	%
Total interest-bearing liabilities		0.67	%		0.84	%		0.85	%		0.84	%		0.90	%

COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2022			2022			2021			2021			2021
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,710		$	11,652		$	13,197		$	14,090		$	14,517
Provision (credit) for credit losses(1)		(41	)		(140	)		(1,500	)		(750	)		(750	)
Total noninterest income		1,640			1,432			1,459			1,726			1,630
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		4,596			5,212			5,085			5,360			4,874
Occupancy, office furniture and equipment		876			937			960			909			887
Advertising		244			227			278			233			260
Data processing		531			608			531			531			466
Communications		63			94			100			122			86
Professional fees		118			114			151			130			198
Real estate owned		-			5			14			1			-
Loan processing expense		-			-			-			-			-
Other		1,006			600			651			422			461
Total noninterest expense		7,434			7,797			7,770			7,708			7,232
Income before income taxes		7,957			5,427			8,386			8,858			9,665
Income tax expense		1,658			1,167			1,690			2,092			2,128
Net income	$	6,299		$	4,260		$	6,696		$	6,766		$	7,537
Efficiency ratio - QTD		48.43	%		59.59	%		53.02	%		48.74	%		44.79	%
Efficiency ratio - YTD		53.57	%		59.59	%		48.58	%		47.21	%		46.44	%
(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.

        

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2022			2022			2021			2021			2021
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	370		$	183		$	(49	)	$	(2	)	$	(251	)
Provision for credit losses(2)		89			64			30			50			-
Total noninterest income		30,126			28,604			40,692			51,290			50,556
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		21,311			20,438			27,866			28,981			29,170
Occupancy, office furniture and equipment		1,180			1,251			1,306			1,579			1,406
Advertising		718			678			680			602			651
Data processing		613			588			542			450			443
Communications		195			246			221			209			240
Professional fees		222			338			306			421			361
Real estate owned		-			-			-			-			-
Loan processing expense		1,134			1,431			940			1,135			1,200
Other		2,733			2,309			1,445			2,270			2,678
Total noninterest expense		28,106			27,279			33,306			35,647			36,149
Income (loss) before income taxes		2,301			1,444			7,307			15,591			14,156
Income tax expense (benefit)		578			377			1,443			3,341			3,761
Net income (loss)	$	1,723		$	1,067		$	5,864		$	12,250		$	10,395
Efficiency ratio - QTD		92.16	%		94.76	%		81.95	%		69.50	%		71.86	%
Efficiency ratio - YTD		93.42	%		94.76	%		71.44	%		68.71	%		68.32	%
Loan originations	$	778,760		$	708,463		$	993,113		$	1,055,500		$	1,065,161
Purchase		90.4	%		77.3	%		73.8	%		73.8	%		75.4	%
Refinance		9.6	%		22.7	%		26.2	%		26.2	%		24.6	%
Gross margin on loans sold(1)		3.76	%		4.00	%		4.18	%		4.54	%		4.81	%
(1) Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations
(2) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.

Contact: Mark R. GerkeChief Financial Officer414-459-4012markgerke@wsbonline.com