WSBF Waterstone Financial Inc

Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported a net loss of $40,000, or less than $0.01 per diluted share, for the quarter ended December 31, 2023, compared to net income of $935,000, or $0.04 per diluted share for the quarter ended December 31, 2022. Net income per diluted share was $0.46 for the twelve months ended December 31, 2023, compared to net income per diluted share of $0.89 for the twelve months ended December 31, 2022.

“The current market dynamics continue to present challenges for both our Community Banking and Mortgage Banking segments,” said William Bruss, Chief Executive Officer of Waterstone Financial, Inc.  "The rapid rise in short-term interest rates and an inverted yield curve continue to create downward pressure on the net interest margin of the Community Banking segment.  In addition, the housing market continues to be adversely impacted by elevated interest rates, which have resulted in low levels of inventory and a decrease in housing affordability.  As is the case for the overall mortgage banking industry, the results of operations within our Mortgage Banking segment have been negatively impacted by declining mortgage origination volumes and compressed margins.  Despite these challenges, our strong asset quality and robust level of capital allowed us to continue to provide strong shareholder returns throughout 2023.  During the year ended December 31, 2023, we declared dividends of $0.70 per share and repurchased 1.9 million shares of our stock at an average price well below our current book value per share.”

Highlights of the Quarter Ended December 31, 2023

Waterstone Financial, Inc. (Consolidated)

• Consolidated net loss of Waterstone Financial, Inc. totaled $40,000 for the quarter ended December 31, 2023, compared to net income of $935,000 for the quarter ended December 31, 2022.
• Consolidated return on average assets was (0.01)% for the quarter ended December 31, 2023, compared to 0.19% for the quarter ended December 31, 2022.
• Consolidated return on average equity was (0.05)% for the quarter ended December 31, 2023, and 0.99% for the quarter ended December 31, 2022
• Dividends declared during the quarter ended December 31, 2023, totaled $0.15 per common share.
• During the quarter ended December 31, 2023, we repurchased approximately 545,000 shares at a cost (including the federal excise tax) of $6.2 million, or $11.36 per share.  This share repurchase activity was accretive to book value per share in the amount of $0.14 during the quarter ended December 31, 2023. 
• During the year ended December 31, 2023, we repurchased approximately 1.9 million shares at a cost (including the federal excise tax) of $26.0 million, or $13.38 per share. This share repurchase activity was accretive to book value per share in the $0.32 during the year ended December 31, 2023.
• Nonperforming assets as percentage of total assets was 0.23% at December 31, 2023, 0.20% at September 30, 2023, and 0.22% at December 31, 2022.  
• Past due loans as a percentage of total loans was 0.68% at December 31, 2023, 0.53% at September 30, 2023, and 0.41% at December 31, 2022. 
• Book value per share was $16.94 at December 31, 2023, and $16.71 at December 31, 2022. 

Community Banking Segment

• Pre-tax income totaled $5.3 million for the quarter ended December 31, 2023, which represents a $1.7 million, or 24.3%, decrease compared to $7.0 million for the quarter ended December 31, 2022.
• Past due loans at the community banking segment totaled $7.9 million at December 31, 2023, $6.7 million at September 30, 2023, and $4.8 million at December 31, 2022. 
• Net interest income totaled $12.1 million for the quarter ended December 31, 2023, which represents a $3.7 million, or 23.4%, decrease compared to $15.7 million for the quarter ended December 31, 2022.
• Average loans held for investment totaled $1.66 billion during the quarter ended December 31, 2023, which represents an increase of $247.2 million, or 17.5%, compared to $1.41 billion for the quarter ended December 31, 2022. The increase was primarily due to increases in the single-family, multi-family, and commercial real estate mortgages. Average loans held for investment increased $33.1 million compared to $1.63 billion for the quarter ended September 30, 2023. The increase was primarily due to an increase in single-family and commercial real estate mortgages.
• Net interest margin decreased 104 basis points to 2.25% for the quarter ended December 31, 2023, compared to 3.29% for the quarter ended December 31, 2022, which was a result of an increase in weighted average cost of deposits and borrowings as the federal funds rate increases resulted in increased funding rates. Net interest margin decreased one basis point compared to 2.26% for the quarter ended September 30, 2023, 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 related to funded loans of $17,000 for the quarter ended December 31, 2023, compared to a provision for credit losses related to funded loans of $290,000 for the quarter ended December 31, 2022.  The current quarter decrease was primarily due to historical loss rates continuing to decrease. The negative provision for credit losses related to unfunded loan commitments was $533,000 for the quarter ended December 31, 2023, compared to a provision for credit losses related to unfunded loan commitments of $334,000 for the quarter ended December 31, 2022. The decrease for the quarter ended December 31, 2023, was due primarily to a decrease of loans in the loan commitment pipeline as loan activity decreased during the quarter and loans from the prior quarter pipeline funded.  
• The efficiency ratio, a non-GAAP ratio, was 63.26% for the quarter ended December 31, 2023, compared to 54.49% for the quarter ended December 31, 2022.
• Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended December 31, 2023, a decrease of $1.7 million, or 0.1%, compared to $1.21 billion during the quarter ended December 31, 2022. Average deposits increased $10.4 million, or 3.5% annualized, compared to the $1.20 billion for the quarter ended September 30, 2023.  
• Other noninterest expense decreased $1.8 million to $628,000 during the quarter ended December 31, 2023, compared to $2.5 million during the quarter ended December 31, 2022. The decrease was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable-rate mortgage loans.  These fees totaled $44,000 during the quarter ended December 31, 2023, compared to $2.0 million during the quarter ended December 31, 2022.

Mortgage Banking Segment

• Pre-tax loss totaled $6.0 million for the quarter ended December 31, 2023, compared to $6.5 million of pre-tax loss for the quarter ended December 31, 2022.
• Loan originations decreased $88.3 million, or 16.1%, to $458.4 million during the quarter ended December 31, 2023, compared to $546.6 million during the quarter ended December 31, 2022. Origination volume relative to purchase activity accounted for 95.7% of originations for the quarter ended December 31, 2023, compared to 95.6% of total originations for the quarter ended December 31, 2022.
• Mortgage banking non-interest income decreased $2.0 million, or 11.3%, to $16.0 million for the quarter ended December 31, 2023, compared to $18.1 million for the quarter ended December 31, 2022.
• Gross margin on loans sold totaled 3.51% for the quarter ended December 31, 2023, compared to 3.41% for the quarter ended December 31, 2022. 
• Total compensation, payroll taxes and other employee benefits decreased $2.5 million, or 14.5%, to $14.9 million during the quarter ended December 31, 2023, compared to $17.4 million during the quarter ended December 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. 

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

 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)

		For The Three Months Ended December 31,								For The Twelve Months Ended December 31,
		2023				2022				2023				2022
		(In Thousands, except per share amounts)
Interest income:
Loans		$	24,288			$	18,654			$	90,148			$	62,935
Mortgage-related securities			1,081				915				4,053				3,241
Debt securities, federal funds sold and short-term investments			1,325				1,105				5,007				4,069
Total interest income			26,694				20,674				99,208				70,245
Interest expense:
Deposits			8,253				2,352				25,738				4,863
Borrowings			6,685				2,711				23,255				8,428
Total interest expense			14,938				5,063				48,993				13,291
Net interest income			11,756				15,611				50,215				56,954
Provision (credit) for credit losses			(435	)			664				656				968
Net interest income after provision (credit) for loan losses			12,191				14,947				49,559				55,986
Noninterest income:
Service charges on loans and deposits			328				497				1,819				2,202
Increase in cash surrender value of life insurance			337				344				1,710				1,738
Mortgage banking income			15,830				15,811				75,686				99,560
Other			381				443				1,970				2,055
Total noninterest income			16,876				17,095				81,185				105,555
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			20,061				22,063				84,096				99,565
Occupancy, office furniture, and equipment			2,021				2,166				8,323				8,706
Advertising			1,030				972				3,779				3,976
Data processing			1,212				1,040				4,653				4,470
Communications			269				289				988				1,189
Professional fees			907				612				2,686				1,815
Real estate owned			1				13				4				19
Loan processing expense			756				1,059				3,428				4,744
Other			3,405				3,170				11,755				12,578
Total noninterest expenses			29,662				31,384				119,712				137,062
(Loss) income before income taxes			(595	)			658				11,032				24,479
Income tax (benefit) expense			(555	)			(277	)			1,657				4,992
Net (loss) income		$	(40	)		$	935			$	9,375			$	19,487
(Loss) income per share:
Basic		$	(0.00	)		$	0.04			$	0.47			$	0.89
Diluted		$	(0.00	)		$	0.04			$	0.46			$	0.89
Weighted average shares outstanding:
Basic			19,380				20,966				20,158				21,884
Diluted			19,398				21,069				20,196				22,010

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		December 31,				December 31,
		2023				2022
		(Unaudited)
Assets		(In Thousands, except per share amounts)
Cash		$	30,667			$	33,700
Federal funds sold			5,493				10,683
Interest-earning deposits in other financial institutions and other short-term investments			261				2,259
Cash and cash equivalents			36,421				46,642
Securities available for sale (at fair value)			204,907				196,588
Loans held for sale (at fair value)			164,993				131,188
Loans receivable			1,664,215				1,510,178
Less: Allowance for credit losses ("ACL") - loans			18,549				17,757
Loans receivable, net			1,645,666				1,492,421
Office properties and equipment, net			19,995				21,105
Federal Home Loan Bank stock (at cost)			20,880				17,357
Cash surrender value of life insurance			67,859				66,443
Real estate owned, net			254				145
Prepaid expenses and other assets			52,414				59,783
Total assets		$	2,213,389			$	2,031,672
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits		$	187,107			$	230,596
Money market and savings deposits			273,233				326,145
Time deposits			730,284				642,271
Total deposits			1,190,624				1,199,012
Borrowings			611,054				386,784
Advance payments by borrowers for taxes			6,607				5,334
Other liabilities			61,048				70,056
Total liabilities			1,869,333				1,661,186
Shareholders' equity:
Preferred stock			-				-
Common stock			203				222
Additional paid-in capital			103,908				128,550
Retained earnings			269,606				274,246
Unearned ESOP shares			(11,869	)			(13,056	)
Accumulated other comprehensive loss, net of taxes			(17,792	)			(19,476	)
Total shareholders' equity			344,056				370,486
Total liabilities and shareholders' equity		$	2,213,389			$	2,031,672
Share Information
Shares outstanding			20,315				22,174
Book value per share		$	16.94			$	16.71

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

		At or For the Three Months Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2023				2023				2023				2023				2022
		(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income		$	11,756			$	11,989			$	12,675			$	13,795			$	15,611
Provision (credit) for credit losses			(435	)			445				186				460				664
Total noninterest income			16,876				22,230				23,525				18,554				17,095
Total noninterest expense			29,662				30,021				30,922				29,107				31,384
Income before income taxes			(595	)			3,753				5,092				2,782				658
Income tax (benefit) expense			(555	)			500				1,085				627				(277	)
Net (loss) income		$	(40	)		$	3,253			$	4,007			$	2,155			$	935
(Loss) income per share – basic		$	(0.00	)		$	0.16			$	0.20			$	0.10			$	0.04
(Loss) income per share – diluted		$	(0.00	)		$	0.16			$	0.20			$	0.10			$	0.04
Dividends declared per common share		$	0.15			$	0.15			$	0.20			$	0.20			$	0.20
Performance Ratios (annualized):
Return on average assets - QTD			(0.01	)%			0.58	%			0.74	%			0.43	%			0.19	%
Return on average equity - QTD			(0.05	)%			3.63	%			4.41	%			2.35	%			0.99	%
Net interest margin - QTD			2.25	%			2.26	%			2.47	%			2.88	%			3.29	%
Return on average assets - YTD			0.44	%			0.59	%			0.59	%			0.43	%			0.96	%
Return on average equity - YTD			2.62	%			3.46	%			3.37	%			2.35	%			4.91	%
Net interest margin - YTD			2.46	%			2.53	%			2.67	%			2.88	%			3.00	%
Asset Quality Ratios:
Past due loans to total loans			0.68	%			0.53	%			0.50	%			0.64	%			0.41	%
Nonaccrual loans to total loans			0.29	%			0.25	%			0.26	%			0.29	%			0.29	%
Nonperforming assets to total assets			0.23	%			0.20	%			0.19	%			0.22	%			0.22	%
Allowance for credit losses - loans to loans receivable			1.11	%			1.12	%			1.14	%			1.14	%			1.18	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS(Unaudited)

		At or For the Three Months Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2023				2023				2023				2023				2022
Average balances		(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale		$	1,797,988			$	1,797,233			$	1,759,001			$	1,654,942			$	1,578,790
Mortgage related securities			172,863				174,202				171,938				170,218				170,209
Debt securities, federal funds sold and short-term investments			106,504				132,935				123,195				115,962				130,973
Total interest-earning assets			2,077,355				2,104,370				2,054,134				1,941,122				1,879,972
Noninterest-earning assets			105,073				105,714				108,320				107,009				122,643
Total assets		$	2,182,428			$	2,210,084			$	2,162,454			$	2,048,131			$	2,002,615
Interest-bearing liabilities
Demand accounts		$	91,868			$	90,623			$	69,147			$	68,564			$	75,449
Money market, savings, and escrow accounts			302,121				306,806				305,576				322,220				349,820
Certificates of deposit			735,418				719,708				695,310				648,531				628,375
Total interest-bearing deposits			1,129,407				1,117,137				1,070,033				1,039,315				1,053,644
Borrowings			549,210				584,764				551,545				441,716				333,249
Total interest-bearing liabilities			1,678,617				1,701,901				1,621,578				1,481,031				1,386,893
Noninterest-bearing demand deposits			102,261				106,042				130,291				143,296				177,217
Noninterest-bearing liabilities			56,859				46,805				46,446				51,840				63,866
Total liabilities			1,837,737				1,854,748				1,798,315				1,676,167				1,627,976
Equity			344,691				355,336				364,139				371,964				374,639
Total liabilities and equity		$	2,182,428			$	2,210,084			$	2,162,454			$	2,048,131			$	2,002,615
Average Yield/Costs (annualized)
Loans receivable and held for sale			5.36	%			5.26	%			5.05	%			4.87	%			4.69	%
Mortgage related securities			2.48	%			2.41	%			2.26	%			2.25	%			2.13	%
Debt securities, federal funds sold and short-term investments			4.94	%			4.45	%			3.67	%			3.71	%			3.35	%
Total interest-earning assets			5.10	%			4.97	%			4.73	%			4.57	%			4.36	%
Demand accounts			0.11	%			0.11	%			0.09	%			0.08	%			0.08	%
Money market and savings accounts			1.64	%			1.54	%			1.42	%			1.26	%			0.67	%
Certificates of deposit			3.76	%			3.43	%			2.80	%			1.92	%			1.10	%
Total interest-bearing deposits			2.90	%			2.64	%			2.23	%			1.60	%			0.89	%
Borrowings			4.83	%			4.71	%			4.08	%			3.68	%			3.23	%
Total interest-bearing liabilities			3.53	%			3.35	%			2.86	%			2.22	%			1.45	%

COMMUNITY BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

		At or For the Three Months Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2023				2023				2023				2023				2022
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income		$	12,056			$	12,431			$	13,238			$	14,008			$	15,737
Provision (credit) for credit losses			(550	)			445				158				388				624
Total noninterest income			894				966				1,540				987				1,033
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			5,397				4,618				4,683				5,168				4,781
Occupancy, office furniture and equipment			916				852				873				1,031				877
Advertising			363				200				230				184				203
Data processing			626				672				602				601				551
Communications			75				70				72				78				92
Professional fees			186				176				146				218				153
Real estate owned			1				1				1				1				13
Loan processing expense			-				-				-				-				-
Other			628				703				1,641				896				2,468
Total noninterest expense			8,192				7,292				8,248				8,177				9,138
Income before income taxes			5,308				5,660				6,372				6,430				7,008
Income tax expense			1,234				1,121				1,182				1,600				1,308
Net income		$	4,074			$	4,539			$	5,190			$	4,830			$	5,700
Efficiency ratio - QTD (non-GAAP)			63.26	%			54.43	%			55.81	%			54.53	%			54.49	%
Efficiency ratio - YTD (non-GAAP)			56.86	%			54.94	%			55.17	%			54.53	%			52.10	%

MORTGAGE BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

		At or For the Three Months Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2023				2023				2023				2023				2022
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest loss		$	(367	)		$	(550	)		$	(622	)		$	(282	)		$	(241	)
Provision for credit losses			115				-				28				72				40
Total noninterest income			16,028				21,452				23,041				17,951				18,066
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			14,881				17,186				17,929				15,099				17,397
Occupancy, office furniture and equipment			1,105				1,141				1,173				1,232				1,289
Advertising			667				716				714				705				769
Data processing			583				551				480				516				490
Communications			194				173				153				173				197
Professional fees			704				564				466				188				453
Real estate owned			-				-				-				-				-
Loan processing expense			756				722				932				1,018				1,059
Other			2,701				1,935				1,914				2,403				2,584
Total noninterest expense			21,591				22,988				23,761				21,334				24,238
Loss before income taxes			(6,045	)			(2,086	)			(1,370	)			(3,737	)			(6,453	)
Income tax benefit			(1,827	)			(657	)			(126	)			(1,002	)			(1,602	)
Net loss		$	(4,218	)		$	(1,429	)		$	(1,244	)		$	(2,735	)		$	(4,851	)
Efficiency ratio - QTD (non-GAAP)			137.86	%			109.98	%			105.99	%			120.74	%			135.98	%
Efficiency ratio - YTD (non-GAAP)			116.99	%			111.63	%			112.49	%			120.74	%			104.02	%
Loan originations		$	458,363			$	597,562			$	623,342			$	442,710			$	546,628
Purchase			95.7	%			95.4	%			96.4	%			96.5	%			95.6	%
Refinance			4.3	%			4.6	%			3.6	%			3.5	%			4.4	%
Gross margin on loans sold(1)			3.51	%			3.62	%			3.73	%			3.78	%			3.41	%

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