Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2022

Wauwatosa, Wisconsin, UNITED STATES


WAUWATOSA, Wis., July 21, 2022 (GLOBE NEWSWIRE) -- 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 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, 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,
 20222021
 (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,
 20222022202120212021
 (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,
 20222022202120212021
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,
 20222022202120212021
 (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,
 20222022202120212021
 (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.
      



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