WSBF Waterstone Financial Inc

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.

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