WSBF Waterstone Financial Inc

Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $2.2 million, or $0.10 per diluted share for the quarter ended March 31, 2023, compared to $5.3 million, or $0.23 per diluted share for the quarter ended March 31, 2022. 

"The Community Banking segment achieved an 18% increase in year over year pre-tax income, while our Mortgage Banking segment, as well as the entire mortgage industry, continue to be challenged by higher mortgage rates and a nationwide housing inventory shortage,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “Despite the mortgage industry headwinds, we will continue to position our mortgage segment to take advantage of future improvements in the industry.”

Highlights of the Quarter Ended March 31, 2023

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $2.2 million for the quarter ended March 31, 2023, compared to $5.3 million for the quarter ended March 31, 2022.
• Consolidated return on average assets was 0.43% for the quarter ended March 31, 2023, compared to 1.00% for the quarter ended March 31, 2022.
• Consolidated return on average equity was 2.35% for the quarter ended March 31, 2023, and 5.00% for the quarter ended March 31, 2022.
• Dividends declared during the quarter ended March 31, 2023, totaled $0.20 per common share.
• We repurchased approximately 373,000 shares at a cost of $5.8 million, or $15.65 per share, during the quarter ended March 31, 2023.
• Nonperforming assets as percentage of total assets was 0.22% at March 31, 2023, 0.22% at December 31, 2022, and 0.34% at March 31, 2022.
• Past due loans as percentage of total loans was 0.64% at March 31, 2023, 0.41% at December 31, 2022, and 0.53% at March 31, 2022.
• Book value per share was $16.73 at March 31, 2023 and $16.71 at December 31, 2022.  

Community Banking Segment

• Pre-tax income totaled $6.4 million for the quarter ended March 31, 2023, which represents a $1.0 million, or 18.5%, increase compared to $5.4 million for the quarter ended March 31, 2022.
• Net interest income totaled $14.0 million for the quarter ended March 31, 2023, which represents a $2.4 million, or 20.2%, increase compared to $11.7 million for the quarter ended March 31, 2022.
• Average loans held for investment totaled $1.53 billion during the quarter ended March 31, 2023, which represents an increase of $326.6 million, or 27.1%, compared to $1.20 billion for the quarter ended March 31, 2022. The increase was primarily due to increases in the single-family and multi-family mortgages. Average loans held for investment increased $118.3 million compared to $1.41 billion for the quarter ended December 31, 2022. The increase was primarily due to increases in the single-family and multi-family mortgages.
• The community banking segment purchased $27.4 million adjustable-rate loans that were originated by the mortgage banking segment during the quarter ended March 31, 2023.    
• Net interest margin increased 50 basis points to 2.88% for the quarter ended March 31, 2023, compared to 2.38% for the quarter ended March 31, 2022, which was a result of a decrease in the average balance of cash, as funds were utilized to fund loans held for investment, and purchase investment securities. 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 decreased 41 basis points compared to 3.29% for the quarter ended December 31, 2022, driven by an increase in weighted average cost of deposits and borrowings as the federal funds rate increases resulted in increased funding rates.
• The segment had a negative provision for credit losses - loans of $96,000 for the quarter ended March 31, 2023, compared to a provision for credit losses - loans of $17,000 for the quarter ended March 31, 2022.  The current quarter decrease was primarily due to a decrease in loan loss rates. The provision for credit losses - unfunded commitments was $484,000 for the quarter ended March 31, 2023, compared to a negative provision for credit losses - unfunded commitments of $157,000 for the quarter ended March 31, 2022. The increase for the quarter ended March 31, 2023, was due primarily to three significant construction loans that have not funded.
• The efficiency ratio, a non-GAAP ratio, was 54.53% for the quarter ended March 31, 2023, compared to 59.59% for the quarter ended March 31, 2022.
• Average deposits (excluding escrow accounts) totaled $1.17 billion during the quarter ended March 31, 2023, a decrease of $56.9 million, or 4.6%, compared to $1.23 billion during the quarter ended March 31, 2022. Average deposits decreased $37.3 million, or 12.3% annualized, compared to the $1.21 billion for the quarter ended December 31, 2022.
• Other noninterest expense increased $296,000 to $896,000 during the quarter ended March 31, 2023, compared to $600,000 during the quarter ended March 31, 2022. The increase was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable-rate mortgage loans.  These fees totaled $383,000 during the quarter ended March 31, 2023, compared to $181,000 during the quarter ended March 31, 2022.

Mortgage Banking Segment

• Pre-tax loss totaled $3.7 million for the quarter ended March 31, 2023, compared to $1.4 million of pre-tax income for the quarter ended March 31, 2022.
• Loan originations decreased $265.8 million, or 37.5%, to $442.7 million during the quarter ended March 31, 2023, compared to $708.5 million during the quarter ended March 31, 2022. Origination volume relative to purchase activity accounted for 96.5% of originations for the quarter ended March 31, 2023, compared to 77.3% of total originations for the quarter ended March 31, 2022.
• Mortgage banking non-interest income decreased $10.7 million, or 37.2%, to $18.0 million for the quarter ended March 31, 2023, compared to $28.6 million for the quarter ended March 31, 2022.
• Gross margin on loans sold decreased to 3.78% for the quarter ended March 31, 2023, compared to 4.00% for the quarter ended March 31, 2022.
• During the quarter ended March 31, 2023, the Company sold mortgage servicing rights related to $318.3 million in loans receivable and with a book value of $2.8 million for $3.4 million resulting in a gain on sale of $601,000. There was no comparable sale during the quarter ended March 31, 2022. As of March 31, 2023, the Company maintained servicing rights related to $116.6 million in loans previously sold to third parties.
• Total compensation, payroll taxes and other employee benefits decreased $5.3 million, or 26.1%, to $15.1 million during the quarter ended March 31, 2023, compared to $20.4 million during the quarter ended March 31, 2022. The decrease primarily related to decreased commission expense and salary expense driven by decreased loan origination volume and reduced employee headcount.

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 Statements

This 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; 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.

Non-GAAP Financial Measures

Management uses non-GAAP financial information in its analysis of the Company's performance. Management believes that this non-GAAP measure provides a greater understanding of ongoing operations and enhance comparability of results of operations with prior periods. The Company’s management believes that investors may use this non-GAAP measure to analyze the Company's financial performance without the impact of unusual items or events that may obscure trends in the Company’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results.  Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in this measure and that different companies might calculate this measure differently. 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For The Three MonthsEnded March 31,
	2023				2022
	(In Thousands, except per share amounts)
Interest income:
Loans	$	19,885			$	13,500
Mortgage-related securities		943				602
Debt securities, federal funds sold and short-term investments		1,062				928
Total interest income		21,890				15,030
Interest expense:
Deposits		4,088				779
Borrowings		4,007				2,387
Total interest expense		8,095				3,166
Net interest income		13,795				11,864
Provision (credit) for credit losses		460				(76	)
Net interest income after provision for loan losses		13,335				11,940
Noninterest income:
Service charges on loans and deposits		430				510
Increase in cash surrender value of life insurance		325				316
Mortgage banking income		16,770				28,275
Other		1,029				717
Total noninterest income		18,554				29,818
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		20,052				25,535
Occupancy, office furniture, and equipment		2,263				2,188
Advertising		889				905
Data processing		1,122				1,202
Communications		251				340
Professional fees		416				461
Real estate owned		1				5
Loan processing expense		1,018				1,431
Other		3,095				2,868
Total noninterest expenses		29,107				34,935
Income before income taxes		2,782				6,823
Income tax expense		627				1,532
Net income	$	2,155			$	5,291
Income per share:
Basic	$	0.10			$	0.23
Diluted	$	0.10			$	0.23
Weighted average shares outstanding:
Basic		20,890				23,132
Diluted		20,980				23,311

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	March 31,				December 31,
	2023				2022
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	45,922			$	33,700
Federal funds sold		8,010				10,683
Interest-earning deposits in other financial institutions and other short-term investments		260				2,259
Cash and cash equivalents		54,192				46,642
Securities available for sale (at fair value)		200,440				196,588
Loans held for sale (at fair value)		161,325				131,188
Loans receivable		1,550,219				1,510,178
Less: Allowance for credit losses ("ACL") - loans		17,744				17,757
Loans receivable, net		1,532,475				1,492,421
Office properties and equipment, net		20,716				21,105
Federal Home Loan Bank stock (at cost)		23,873				17,357
Cash surrender value of life insurance		66,294				66,443
Real estate owned, net		145				145
Prepaid expenses and other assets		55,039				59,783
Total assets	$	2,114,499			$	2,031,672
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	205,930			$	230,596
Money market and savings deposits		301,089				326,145
Time deposits		675,866				642,271
Total deposits		1,182,885				1,199,012
Borrowings		501,696				386,784
Advance payments by borrowers for taxes		13,434				5,334
Other liabilities		50,677				70,056
Total liabilities		1,748,692				1,661,186
Shareholders' equity:
Preferred stock		-				-
Common stock		219				222
Additional paid-in capital		123,448				128,550
Retained earnings		272,269				274,246
Unearned ESOP shares		(12,760	)			(13,056	)
Accumulated other comprehensive loss, net of taxes		(17,369	)			(19,476	)
Total shareholders' equity		365,807				370,486
Total liabilities and shareholders' equity	$	2,114,499			$	2,031,672
Share Information
Shares outstanding		21,867				22,174
Book value per share	$	16.73			$	16.71

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2023				2022				2022				2022				2022
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	13,795			$	15,611			$	15,398			$	14,081			$	11,864
Provision (credit) for credit losses		460				664				332				48				(76	)
Total noninterest income		18,554				17,095				27,404				31,238				29,818
Total noninterest expense		29,107				31,384				35,694				35,050				34,935
Income before income taxes		2,782				658				6,776				10,221				6,823
Income tax (benefit) expense		627				(277	)			1,506				2,231				1,532
Net income	$	2,155			$	935			$	5,270			$	7,990			$	5,291
Income per share – basic	$	0.10			$	0.04			$	0.25			$	0.36			$	0.23
Income per share – diluted	$	0.10			$	0.04			$	0.25			$	0.36			$	0.23
Dividends declared per common share	$	0.20			$	0.20			$	0.20			$	0.20			$	0.20
Performance Ratios (annualized):
Return on average assets - QTD		0.43	%			0.19	%			1.08	%			1.61	%			1.00	%
Return on average equity - QTD		2.35	%			0.99	%			5.38	%			7.93	%			5.00	%
Net interest margin - QTD		2.88	%			3.29	%			3.34	%			3.02	%			2.38	%
Return on average assets - YTD		0.43	%			0.96	%			1.22	%			1.30	%			1.00	%
Return on average equity - YTD		2.35	%			4.91	%			6.09	%			6.42	%			5.00	%
Net interest margin - YTD		2.88	%			3.00	%			2.90	%			2.69	%			2.38	%
Asset Quality Ratios:
Past due loans to total loans		0.64	%			0.41	%			0.48	%			0.60	%			0.53	%
Nonaccrual loans to total loans		0.29	%			0.29	%			0.37	%			0.59	%			0.55	%
Nonperforming assets to total assets		0.22	%			0.22	%			0.27	%			0.39	%			0.34	%
Allowance for credit losses - loans to loans receivable		1.14	%			1.18	%			1.29	%			1.35	%			1.40	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2023				2022				2022				2022				2022
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,654,942			$	1,578,790			$	1,492,462			$	1,433,452			$	1,361,839
Mortgage related securities		170,218				170,209				172,807				168,000				138,863
Debt securities, federal funds sold and short-term investments		115,962				130,973				162,211				269,823				519,116
Total interest-earning assets		1,941,122				1,879,972				1,827,480				1,871,275				2,019,818
Noninterest-earning assets		107,009				122,643				114,274				117,248				128,813
Total assets	$	2,048,131			$	2,002,615			$	1,941,754			$	1,988,523			$	2,148,631
Interest-bearing liabilities
Demand accounts	$	68,564			$	75,449			$	75,058			$	70,674			$	69,736
Money market, savings, and escrow accounts		322,220				349,820				398,643				412,321				404,413
Certificates of deposit		648,531				628,375				586,012				584,244				610,681
Total interest-bearing deposits		1,039,315				1,053,644				1,059,713				1,067,239				1,084,830
Borrowings		441,716				333,249				296,111				326,068				440,252
Total interest-bearing liabilities		1,481,031				1,386,893				1,355,824				1,393,307				1,525,082
Noninterest-bearing demand deposits		143,296				177,217				153,591				154,070				152,900
Noninterest-bearing liabilities		51,840				63,866				43,683				36,962				41,232
Total liabilities		1,676,167				1,627,976				1,553,098				1,584,339				1,719,214
Equity		371,964				374,639				388,656				404,184				429,417
Total liabilities and equity	$	2,048,131			$	2,002,615			$	1,941,754			$	1,988,523			$	2,148,631
Average Yield/Costs (annualized)
Loans receivable and held for sale		4.87	%			4.69	%			4.32	%			4.07	%			4.02	%
Mortgage related securities		2.25	%			2.13	%			2.07	%			1.96	%			1.76	%
Debt securities, federal funds sold and short-term investments		3.71	%			3.35	%			2.41	%			1.56	%			0.72	%
Total interest-earning assets		4.57	%			4.36	%			3.93	%			3.52	%			3.02	%
Demand accounts		0.08	%			0.08	%			0.08	%			0.09	%			0.08	%
Money market and savings accounts		1.26	%			0.67	%			0.21	%			0.19	%			0.21	%
Certificates of deposit		1.92	%			1.10	%			0.51	%			0.37	%			0.37	%
Total interest-bearing deposits		1.60	%			0.89	%			0.37	%			0.28	%			0.29	%
Borrowings		3.68	%			3.23	%			2.34	%			1.95	%			2.20	%
Total interest-bearing liabilities		2.22	%			1.45	%			0.80	%			0.67	%			0.84	%

COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2023				2022				2022				2022				2022
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	14,008			$	15,737			$	15,507			$	13,710			$	11,652
Provision (credit) for credit losses		388				624				234				(41	)			(140	)
Total noninterest income		987				1,033				1,116				1,640				1,432
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		5,168				4,781				4,424				4,596				5,212
Occupancy, office furniture and equipment		1,031				877				955				876				937
Advertising		184				203				213				244				227
Data processing		601				551				539				531				608
Communications		78				92				108				63				94
Professional fees		218				153				123				118				114
Real estate owned		1				13				1				-				5
Loan processing expense		-				-				-				-				-
Other		896				2,468				1,477				1,006				600
Total noninterest expense		8,177				9,138				7,840				7,434				7,797
Income before income taxes		6,430				7,008				8,549				7,957				5,427
Income tax expense		1,600				1,308				1,983				1,658				1,167
Net income	$	4,830			$	5,700			$	6,566			$	6,299			$	4,260
Efficiency ratio - QTD (non-GAAP)		54.53	%			54.49	%			47.16	%			48.43	%			59.59	%
Efficiency ratio - YTD (non-GAAP)		54.53	%			52.10	%			51.20	%			53.57	%			59.59	%

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2023				2022				2022				2022				2022
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest (loss) income	$	(282	)		$	(241	)		$	(155	)		$	370			$	183
Provision for credit losses		72				40				98				89				64
Total noninterest income		17,951				18,066				27,305				30,126				28,604
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		15,099				17,397				21,864				21,311				20,438
Occupancy, office furniture and equipment		1,232				1,289				1,341				1,180				1,251
Advertising		705				769				924				718				678
Data processing		516				490				543				613				588
Communications		173				197				194				195				246
Professional fees		188				453				265				222				338
Real estate owned		-				-				-				-				-
Loan processing expense		1,018				1,059				1,120				1,134				1,431
Other		2,403				2,584				2,571				2,733				2,309
Total noninterest expense		21,334				24,238				28,822				28,106				27,279
(Loss) income before income taxes		(3,737	)			(6,453	)			(1,770	)			2,301				1,444
Income tax (benefit) expense		(1,002	)			(1,602	)			(470	)			578				377
Net (loss) income	$	(2,735	)		$	(4,851	)		$	(1,300	)		$	1,723			$	1,067
Efficiency ratio - QTD (non-GAAP)		120.74	%			135.98	%			106.16	%			92.16	%			94.76	%
Efficiency ratio - YTD (non-GAAP)		120.74	%			104.02	%			97.42	%			93.42	%			94.76	%
Loan originations	$	442,710			$	546,628			$	729,897			$	778,760			$	708,463
Purchase		96.5	%			95.6	%			94.2	%			90.4	%			77.3	%
Refinance		3.5	%			4.4	%			5.8	%			9.6	%			22.7	%
Gross margin on loans sold (1)		3.78	%			3.41	%			3.70	%			3.85	%			4.00	%

(1) Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations

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