Waterstone Financial, Inc. Announces Results of Operations for the Quarter Ended March 31, 2022

Wauwatosa, Wisconsin, UNITED STATES


WAUWATOSA, Wis., April 21, 2022 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $5.3 million, or $0.23 per diluted share for the quarter ended March 31, 2022 compared to $21.3 million, or $0.89 per diluted share for the quarter ended March 31, 2021.

“We are pleased with the Company’s performance given the challenging economic conditions,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “While loan growth was modest during the quarter, we maintain a loan pipeline that is stronger than it has been over the past year. We continued to position ourselves for the future by reducing outstanding wholesale borrowings at the community banking segment, and growing our branch network at the mortgage banking segment, as we continued to focus on strategic opportunities to add talented loan originators. Additionally, we were able to continue returning shareholder value through quarterly dividends and stock buybacks.”

Highlights of the Quarter Ended March 31, 2022

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $5.3 million for the quarter ended March 31, 2022, compared to $21.3 million for the quarter ended March 31, 2021.
  • Consolidated return on average assets was 1.00% for the quarter ended March 31, 2022 compared to 3.99% for the quarter ended March 31, 2021.
  • Consolidated return on average equity was 5.00% for the quarter ended March 31, 2022 and 20.49% for the quarter ended March 31, 2021.
  • Dividends declared during the quarter ended March 31, 2022 totaled $0.20 per common share.
  • We repurchased approximately 681,000 shares at a cost of $13.8 million during the quarter ended March 31, 2022.

Community Banking Segment

  • Pre-tax income totaled $5.4 million for the quarter ended March 31, 2022, which represents a $3.7 million, or 40.6%, decrease compared to $9.1 million for the quarter ended March 31, 2021.
  • Net interest income totaled $11.7 million for the quarter ended March 31, 2022, which represents a $2.6 million, or 18.2%, decrease compared to $14.2 million for the quarter ended March 31, 2021.
  • Average loans held for investment totaled $1.20 billion during the quarter ended March 31, 2022, which represents a decrease of $142.2 million, or 10.6%, compared to $1.35 billion for the quarter ended March 31, 2021. Average loans held for investment decreased $6.3 million compared to $1.21 billion for the quarter ended December 31, 2021.
  • Net interest margin decreased 42 basis points to 2.38% for the quarter ended March 31, 2022 compared to 2.80% for the quarter ended March 31, 2021, which was a result of lower rates and average balance on loans and a higher average interest earnings cash balance within the debt securities, federal funds sold and short term investments category. Net interest margin decreased nine basis points compared to 2.47% for the quarter ended December 31, 2021, driven by a decrease in average loan balance and a higher average cash balance.
  • The segment had a negative provision for credit losses of $140,000 for the quarter ended March 31, 2022 compared to a negative provision for loan losses of $1.1 million for the quarter ended March 31, 2021.
  • We adopted the current expected credit losses (“CECL”) model on January 1, 2022, which resulted in an opening balance adjustment of $430,000 to increase the allowance for credit losses. Additionally, there was a $1.4 million opening balance adjustment to record an allowance for credit losses on unfunded loan commitments, which is presented in Other Liabilities on the Consolidated Statements of Financial Condition. Net of tax impact, the adoption of the CECL model resulted in a $1.4 million reduction to retained earnings.
  • Net recoveries totaled $616,000 for the quarter ended March 31, 2022, as one significant loan recovery payment was received during the quarter, compared to net charge-offs of $27,000 for the quarter ended March 31, 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 59.59% for the quarter ended March 31, 2022, compared to 48.17% for the quarter ended March 31, 2021.
  • Average deposits (excluding escrow accounts) totaled $1.23 billion during the quarter ended March 31, 2022, an increase of $24.2 million, or 2.0%, compared to $1.21 billion during the quarter ended March 31, 2021. Average deposits decreased $15.6 million, or 5.0% annualized compared to the $1.25 billion for the quarter ended December 31, 2021.
  • Nonperforming assets as percentage of total assets was 0.34% at March 31, 2022, 0.26% at December 31, 2021, and 0.20% at March 31, 2021.
  • Past due loans as percentage of total loans was 0.53% at March 31, 2022, 0.59% at December 31, 2021, and 0.52% at March 31, 2021.

Mortgage Banking Segment

  • Pre-tax income totaled $1.4 million for the quarter ended March 31, 2022, compared to $19.1 million for the quarter ended March 31, 2021.
  • Loan originations decreased $406.6 million, or 36.5%, to $708.5 million during the quarter ended March 31, 2022, compared to $1.12 billion during the quarter ended March 31, 2021. Origination volume relative to purchase activity accounted for 77.3% of originations for the quarter ended March 31, 2022 compared to 56.1% of total originations for the quarter ended March 31, 2021.
  • Mortgage banking non-interest income decreased $26.4 million, or 48.0%, to $28.6 million for the quarter ended March 31, 2022, compared to $55.0 million for the quarter ended March 31, 2021.
  • Gross margin on loans sold decreased to 4.00% for the quarter ended March 31, 2022, compared to 4.86% for the quarter ended March 31, 2021.
  • Total compensation, payroll taxes and other employee benefits decreased $8.8 million, or 30.2%, to $20.4 million during the quarter ended March 31, 2022 compared to $29.3 million during the quarter ended March 31, 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.
  • Professional fees increased $862,000 to $338,000 of expense during the quarter ended March 31, 2022 compared to $524,000 of income during the quarter ended March 31, 2021. The increase related to receiving a legal settlement award during the quarter ended March 31, 2021.
  • Other noninterest expense decreased $372,000 to $2.3 million during the quarter ended March 31, 2022 compared to $2.7 million during the quarter ended March 31, 2021. The decrease related to a decrease in the amortization expense on mortgage servicing rights due to the bulk sale of mortgage servicing rights during 2021.

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 March 31,
  2022  2021 
 (In Thousands, except per share amounts)
Interest income:  
Loans$13,500 $16,603 
Mortgage-related securities 602  491 
Debt securities, federal funds sold and short-term investments 928  875 
Total interest income 15,030  17,969 
Interest expense:  
Deposits 779  1,517 
Borrowings 2,387  2,500 
Total interest expense 3,166  4,017 
Net interest income 11,864  13,952 
Provision (credit) for credit losses (1) (76) (1,070)
Net interest income after provision (credit) for credit losses 11,940  15,022 
Noninterest income:  
Service charges on loans and deposits 510  690 
Increase in cash surrender value of life insurance 316  301 
Mortgage banking income 28,275  54,391 
Other 717  817 
Total noninterest income 29,818  56,199 
Noninterest expenses:  
Compensation, payroll taxes, and other employee benefits 25,535  34,123 
Occupancy, office furniture, and equipment 2,188  2,565 
Advertising 905  824 
Data processing 1,202  971 
Communications 340  331 
Professional fees 461  (315)
Real estate owned 5  (12)
Loan processing expense 1,431  1,335 
Other 2,868  3,178 
Total noninterest expenses 34,935  43,000 
Income before income taxes 6,823  28,221 
Income tax expense 1,532  6,877 
Net income$5,291 $21,344 
Income per share:  
Basic$0.23 $0.90 
Diluted$0.23 $0.89 
Weighted average shares outstanding:  
Basic 23,132  23,735 
Diluted 23,311  23,950 
   
(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
 March 31,December 31,
  2022  2021 
 (Unaudited) 
Assets(In Thousands, except per share amounts)
Cash$247,857 $343,016 
Federal funds sold 10,954  13,981 
Interest-earning deposits in other financial institutions and other short term investments 19,719  19,725 
Cash and cash equivalents 278,530  376,722 
Securities available for sale (at fair value) 201,953  179,016 
Loans held for sale (at fair value) 154,440  312,738 
Loans receivable 1,207,416  1,205,785 
Less: Allowance for credit losses (1) 16,905  15,778 
Loans receivable, net 1,190,511  1,190,007 
   
Office properties and equipment, net 21,932  22,273 
Federal Home Loan Bank stock (at cost) 24,438  24,438 
Cash surrender value of life insurance 65,315  65,368 
Real estate owned, net 148  148 
Prepaid expenses and other assets 67,347  45,148 
Total assets$2,004,614 $2,215,858 
   
Liabilities and Shareholders' Equity  
Liabilities:  
Demand deposits$218,119 $214,409 
Money market and savings deposits 400,710  392,314 
Time deposits 591,619  626,663 
Total deposits 1,210,448  1,233,386 
   
Borrowings 326,478  477,127 
Advance payments by borrowers for taxes 10,759  4,094 
Other liabilities 44,677  68,478 
Total liabilities 1,592,362  1,783,085 
   
Shareholders' equity:  
Preferred stock -  - 
Common stock 241  248 
Additional paid-in capital 161,354  174,505 
Retained earnings 272,740  273,398 
Unearned ESOP shares (13,946) (14,243)
Accumulated other comprehensive loss, net of taxes (8,137) (1,135)
Total shareholders' equity 412,252  432,773 
Total liabilities and shareholders' equity$2,004,614 $2,215,858 
   
Share Information   
Shares outstanding 24,147  24,795 
Book value per share$17.07 $17.45 
Closing market price$19.34 $21.86 
Price to book ratio 113.30% 125.27%
   
(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
 March 31,December 31,September 30,June 30,March 31,
  2022  2021  2021  2021  2021 
 (Dollars in Thousands, except per share amounts)
Condensed Results of Operations:     
Net interest income$11,864 $13,172 $14,114 $14,277 $13,952 
Provision (credit) for credit losses (1) (76) (1,470) (700) (750) (1,070)
Total noninterest income 29,818  42,016  52,936  52,044  56,199 
Total noninterest expense 34,935  40,974  43,323  43,297  43,000 
Income before income taxes 6,823  15,684  24,427  23,774  28,221 
Income tax expense 1,532  3,131  5,427  5,880  6,877 
Net income$5,291 $12,553 $19,000 $17,894 $21,344 
Income per share - basic$0.23 $0.53 $0.80 $0.75 $0.90 
Income per share - diluted$0.23 $0.53 $0.79 $0.74 $0.89 
Dividends declared per share$0.20 $0.70 $0.20 $0.70 $0.20 
      
Performance Ratios (annualized):     
Return on average assets - QTD 1.00% 2.22% 3.38% 3.25% 3.99%
Return on average equity - QTD 5.00% 11.14% 17.25% 16.49% 20.49%
Net interest margin - QTD 2.38% 2.47% 2.68% 2.78% 2.80%
      
Return on average assets - YTD 1.00% 3.20% 3.54% 3.62% 3.99%
Return on average equity - YTD 5.00% 16.38% 18.08% 18.49% 20.49%
Net interest margin - YTD 2.38% 2.68% 2.75% 2.79% 2.80%
      
Asset Quality Ratios:     
Past due loans to total loans 0.53% 0.59% 0.92% 0.53% 0.52%
Nonaccrual loans to total loans 0.55% 0.46% 0.32% 0.34% 0.31%
Nonperforming assets to total assets 0.34% 0.26% 0.18% 0.20% 0.20%
Allowance for loan losses to loans receivable 1.40% 1.31% 1.37% 1.34% 1.33%
      
(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
 March 31,December 31,September 30,June 30,March 31,
  2022  2021  2021  2021  2021 
Average balances(Dollars in Thousands)
Interest-earning assets     
Loans receivable and held for sale$1,361,839 $1,517,984 $1,573,194 $1,655,078 $1,657,260 
Mortgage related securities 138,863  119,709  108,743  100,056  90,457 
Debt securities, federal funds sold and short term investments 519,116  475,574  409,559  308,105  273,929 
Total interest-earning assets 2,019,818  2,113,267  2,091,496  2,063,239  2,021,646 
Noninterest-earning assets 128,813  131,703  137,454  143,375  147,781 
Total assets$2,148,631 $2,244,970 $2,228,950 $2,206,614 $2,169,427 
      
Interest-bearing liabilities     
Demand accounts$69,736 $70,762 $68,478 $63,610 $55,552 
Money market, savings, and escrow accounts 404,413  398,210  391,599  350,270  314,418 
Certificates of deposit 610,681  643,546  663,343  690,196  705,712 
Total interest-bearing deposits 1,084,830  1,112,518  1,123,420  1,104,076  1,075,682 
Borrowings 440,252  481,971  475,000  480,054  482,665 
Total interest-bearing liabilities 1,525,082  1,594,489  1,598,420  1,584,130  1,558,347 
                
Noninterest-bearing demand deposits 152,900  153,303  153,436  141,648  138,446 
Noninterest-bearing liabilities 41,232  49,982  40,148  45,658  50,188 
Total liabilities 1,719,214  1,797,774  1,792,004  1,771,436  1,746,981 
Equity 429,417  447,196  436,946  435,178  422,446 
Total liabilities and equity$2,148,631 $2,244,970 $2,228,950 $2,206,614 $2,169,427 
      
Average Yield/Costs (annualized)     
Loans receivable and held for sale 4.02% 3.96% 4.07% 3.99% 4.06%
Mortgage related securities 1.76% 1.68% 1.72% 1.95% 2.20%
Debt securities, federal funds sold and short term investments 0.72% 0.77% 0.88% 1.12% 1.30%
Total interest-earning assets 3.02% 3.11% 3.32% 3.47% 3.60%
      
Demand accounts 0.08% 0.08% 0.08% 0.08% 0.07%
Money market and savings accounts 0.21% 0.22% 0.24% 0.23% 0.32%
Certificates of deposit 0.37% 0.40% 0.42% 0.50% 0.72%
Total interest-bearing deposits 0.29% 0.31% 0.33% 0.39% 0.57%
Borrowings 2.20% 2.09% 2.04% 2.06% 2.10%
Total interest-bearing liabilities 0.84% 0.85% 0.84% 0.90% 1.05%
      


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,
  2022  2021  2021  2021  2021 
 (Dollars in Thousands)
Condensed Results of Operations:     
Net interest income$11,652 $13,197 $14,090 $14,517 $14,247 
Provision (credit) for credit losses (1) (140) (1,500) (750) (750) (1,100)
Total noninterest income 1,432  1,459  1,726  1,630  1,243 
Noninterest expenses:     
Compensation, payroll taxes, and other employee benefits 5,212  5,085  5,360  4,874  4,975 
Occupancy, office furniture and equipment 937  960  909  887  1,025 
Advertising 227  278  233  260  209 
Data processing 608  531  531  466  511 
Communications 94  100  122  86  119 
Professional fees 114  151  130  198  194 
Real estate owned 5  14  1  -  (12)
Loan processing expense -  -  -  -  - 
Other 600  651  422  461  440 
Total noninterest expense 7,797  7,770  7,708  7,232  7,461 
Income before income taxes 5,427  8,386  8,858  9,665  9,129 
Income tax expense 1,167  1,690  2,092  2,128  1,786 
Net income$4,260 $6,696 $6,766 $7,537 $7,343 
      
Efficiency ratio - QTD 59.59% 53.02% 48.74% 44.79% 48.17%
Efficiency ratio - YTD 59.59% 48.58% 47.21% 46.44% 48.17%
      
(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
 March 31,December 31,September 30,June 30,March 31,
  2022  2021  2021  2021  2021 
 (Dollars in Thousands)
Condensed Results of Operations:     
Net interest income (loss)$183 $(49)$(2)$(251)$(350)
Provision (credit) for credit losses (2) 64  30  50  -  30 
Total noninterest income 28,604  40,692  51,290  50,556  55,035 
Noninterest expenses:     
Compensation, payroll taxes, and other employee benefits 20,438  27,866  28,981  29,170  29,262 
Occupancy, office furniture and equipment 1,251  1,306  1,579  1,406  1,540 
Advertising 678  680  602  651  615 
Data processing 588  542  450  443  454 
Communications 246  221  209  240  212 
Professional fees 338  306  421  361  (524)
Real estate owned -  -  -  -  - 
Loan processing expense 1,431  940  1,135  1,200  1,335 
Other 2,309  1,445  2,270  2,678  2,681 
Total noninterest expense 27,279  33,306  35,647  36,149  35,575 
Income before income taxes 1,444  7,307  15,591  14,156  19,080 
Income tax expense 377  1,443  3,341  3,761  5,096 
Net income$1,067 $5,864 $12,250 $10,395 $13,984 
      
Efficiency ratio - QTD 94.76% 81.95% 69.50% 71.86% 65.05%
Efficiency ratio - YTD 94.76% 71.44% 68.71% 68.32% 65.05%
      
Loan originations$708,463 $993,113 $1,055,500 $1,065,161 $1,115,091 
Purchase 77.3% 73.8% 73.8% 75.4% 56.1%
Refinance 22.7% 26.2% 26.2% 24.6% 43.9%
Gross margin on loans sold(1) 4.00% 4.18% 4.54% 4.81% 4.86%
(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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