WSBF Waterstone Financial Inc

Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $5.3 million, or $0.25 per diluted share for the quarter ended September 30, 2022 compared to $19.0 million, or $0.79 per diluted share for the quarter ended September 30, 2021. Net income per diluted share was $0.83 for the nine months ended September 30, 2022 compared to net income per diluted share of $2.43 for the nine months ended September 30, 2021.

"We were pleased with the execution of the community banking segment as loan growth remained strong through the quarter,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “We were able to grow our net interest income and expand margin at the community banking segment as we deployed our cash to fund loans. The results of the mortgage banking segment were disappointing and reflect the significant headwinds that the industry continues to face due to an increase in rates and resulting decline in demand. We continue to execute on cost containment measures, while we also seek opportunities to add production talent.”

Highlights of the Quarter Ended September 30, 2022

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $5.3 million for the quarter ended September 30, 2022, compared to $19.0 million for the quarter ended September 30, 2021.
• Consolidated return on average assets was 1.08% for the quarter ended September 30, 2022 compared to 3.38% for the quarter ended September 30, 2021.
• Consolidated return on average equity was 5.38% for the quarter ended September 30, 2022 and 17.25% for the quarter ended September 30, 2021.
• Dividends declared during the quarter ended September 30, 2022 totaled $0.20 per common share.
• We repurchased approximately 425,000 shares at a cost of $7.3 million, or $17.05 per share, during the quarter ended September 30, 2022.
• Nonperforming assets as percentage of total assets was 0.27% at September 30, 2022, 0.39% at June 30, 2022, and 0.18% at September 30, 2021.
• Past due loans as percentage of total loans was 0.48% at September 30, 2022, 0.60% at June 30, 2022, and 0.92% at September 30, 2021.
• Book value per share was $16.86 at September 30, 2022 and $17.45 at December 31, 2021.  The decrease reflects an $0.80 per share impact resulting from an increase in the unrealized loss on available for sale securities.

Community Banking Segment

• Pre-tax income totaled $8.5 million for the quarter ended September 30, 2022, which represents a $309,000, or 3.5%, decrease compared to $8.9 million for the quarter ended September 30, 2021.
• Net interest income totaled $15.5 million for the quarter ended September 30, 2022, which represents a $1.4 million, or 10.1%, increase compared to $14.1 million for the quarter ended September 30, 2021.
• Average loans held for investment totaled $1.31 billion during the quarter ended September 30, 2022, which represents an increase of $55.4 million, or 4.4%, compared to $1.26 billion for the quarter ended September 30, 2021. Average loans held for investment increased $63.7 million compared to $1.25 billion for the quarter ended June 30, 2022.
• Net interest margin increased 66 basis points to 3.34% for the quarter ended September 30, 2022 compared to 2.68% for the quarter ended September 30, 2021, which was a result of a decrease in the average balance of cash, as funds were utilized to fund loans held for investment, 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 32 basis points compared to 3.02% for the quarter ended June 30, 2022, driven by an increase in 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 fund loans held for investment and pay down borrowings.
• The segment had a provision for credit losses of $234,000 for the quarter ended September 30, 2022 compared to a negative provision for loan losses of $750,000 for the quarter ended September 30, 2021.  The increase was primarily due to an increase in loans held for investment during the quarter.
• The efficiency ratio was 47.16% for the quarter ended September 30, 2022, compared to 48.74% for the quarter ended September 30, 2021.
• Average deposits (excluding escrow accounts) totaled $1.19 billion during the quarter ended September 30, 2022, a decrease of $62.7 million, or 5.0%, compared to $1.25 billion during the quarter ended September 30, 2021. Average deposits decreased $14.9 million, or 4.9% annualized compared to the $1.21 billion for the quarter ended June 30, 2022.
• Other noninterest expense increased $1.1 million to $1.5 million during the quarter ended September 30, 2022 compared to $422,000 during the quarter ended September 30, 2021. The increase was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans. These fees are eliminated in the consolidated statements of income.

Mortgage Banking Segment

• Pre-tax loss totaled $1.8 million for the quarter ended September 30, 2022, compared to $15.6 million for the quarter ended September 30, 2021.
• There was a $4.0 million gain on sale of mortgage servicing rights during the three months ended September 30, 2021 compared to none during the three months ended September 30, 2022.
• Loan originations decreased $286.4 million, or 26.9%, to $778.8 million during the quarter ended September 30, 2022, compared to $1.06 billion during the quarter ended September 30, 2021. Origination volume relative to purchase activity accounted for 90.4% of originations for the quarter ended September 30, 2022 compared to 73.8% of total originations for the quarter ended September 30, 2021.
• Mortgage banking non-interest income decreased $24.0 million, or 46.8%, to $27.3 million for the quarter ended September 30, 2022, compared to $51.3 million for the quarter ended September 30, 2021.
• Gross margin on loans sold decreased to 3.80% for the quarter ended September 30, 2022, compared to 4.54% for the quarter ended September 30, 2021. 
• Total compensation, payroll taxes and other employee benefits decreased $7.1 million, or 24.6%, to $21.8 million during the quarter ended September 30, 2022 compared to $29.0 million during the quarter ended September 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 $301,000 to $2.6 million during the quarter ended September 30, 2022 compared to $2.3 million during the quarter ended September 30, 2021. The increase related to an increase in provision of loan sale losses.
• During the nine months ended September 30, 2022 the segment has added 11 branches and a total of 130 loan origination personnel.  Losses associated with these new branches totaled approximately $683,000 for the quarter ended September 30, 2022 and $1.2 million for the nine months ended September 30, 2022. These branch losses are net of corporate revenue of approximately $492,000 for the quarter ended September 30, 2022 and $599,000 for the nine months ended September 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)

		For The Three Months Ended September 30,								For The Nine Months Ended September 30,
		2022				2021				2022				2021
		(In Thousands, except per share amounts)
Interest income:
Loans		$	16,235			$	16,131			$	44,281			$	49,214
Mortgage-related securities			903				471				2,326				1,448
Debt securities, federal funds sold and short-term investments			987				904				2,964				2,637
Total interest income			18,125				17,506				49,571				53,299
Interest expense:
Deposits			981				947				2,511				3,542
Borrowings			1,746				2,445				5,717				7,414
Total interest expense			2,727				3,392				8,228				10,956
Net interest income			15,398				14,114				41,343				42,343
Provision (credit) for credit losses (1)			332				(700	)			304				(2,520	)
Net interest income after provision for loan losses			15,066				14,814				41,039				44,863
Noninterest income:
Service charges on loans and deposits			529				1,136				1,705				2,483
Increase in cash surrender value of life insurance			354				312				1,394				1,297
Mortgage banking income			26,064				46,547				83,749				150,587
Other			457				4,941				1,612				6,812
Total noninterest income			27,404				52,936				88,460				161,179
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			26,174				34,229				77,502				102,278
Occupancy, office furniture, and equipment			2,296				2,488				6,540				7,346
Advertising			1,137				835				3,004				2,570
Data processing			1,084				986				3,430				2,871
Communications			302				331				900				988
Professional fees			393				550				1,203				804
Real estate owned			1				1				6				(11	)
Loan processing expense			1,120				1,135				3,685				3,670
Other			3,187				2,768				9,408				9,104
Total noninterest expenses			35,694				43,323				105,678				129,620
Income before income taxes			6,776				24,427				23,821				76,422
Income tax expense			1,506				5,427				5,269				18,184
Net income		$	5,270			$	19,000			$	18,552			$	58,238
Income per share:
Basic		$	0.25			$	0.80			$	0.84			$	2.45
Diluted		$	0.25			$	0.79			$	0.83			$	2.43
Weighted average shares outstanding:
Basic			21,342				23,785				22,193				23,790
Diluted			21,454				23,960				22,323				23,987

(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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		September 30,				December 31,
		2022				2021
		(Unaudited)
Assets		(In Thousands, except per share amounts)
Cash		$	37,231			$	343,016
Federal funds sold			16,007				13,981
Interest-earning deposits in other financial institutions and other short term investments			19,703				19,725
Cash and cash equivalents			72,941				376,722
Securities available for sale (at fair value)			197,298				179,016
Loans held for sale (at fair value)			186,049				312,738
Loans receivable			1,354,465				1,205,785
Less: Allowance for credit losses ("ACL") - loans (1)			17,452				15,778
Loans receivable, net			1,337,013				1,190,007
Office properties and equipment, net			21,491				22,273
Federal Home Loan Bank stock (at cost)			15,750				24,438
Cash surrender value of life insurance			66,099				65,368
Real estate owned, net			148				148
Prepaid expenses and other assets			78,262				45,148
Total assets		$	1,975,051			$	2,215,858
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits		$	246,487			$	214,409
Money market and savings deposits			346,960				392,314
Time deposits			593,681				626,663
Total deposits			1,187,128				1,233,386
Borrowings			319,951				477,127
Advance payments by borrowers for taxes			24,084				4,094
Other liabilities			67,714				68,478
Total liabilities			1,598,877				1,783,085
Shareholders' equity:
Preferred stock			-				-
Common stock			223				248
Additional paid-in capital			130,731				174,505
Retained earnings			277,514				273,398
Unearned ESOP shares			(13,353	)			(14,243	)
Accumulated other comprehensive loss, net of taxes			(18,941	)			(1,135	)
Total shareholders' equity			376,174				432,773
Total liabilities and shareholders' equity		$	1,975,051			$	2,215,858
Share Information
Shares outstanding			22,318				24,795
Book value per share		$	16.86			$	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 SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

		At or For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2022				2022				2022				2021				2021
		(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income		$	15,398			$	14,081			$	11,864			$	13,172			$	14,114
Provision (credit) for credit losses (1)			332				48				(76	)			(1,470	)			(700	)
Total noninterest income			27,404				31,238				29,818				42,016				52,936
Total noninterest expense			35,694				35,050				34,935				40,974				43,323
Income before income taxes			6,776				10,221				6,823				15,684				24,427
Income tax expense			1,506				2,231				1,532				3,131				5,427
Net income		$	5,270			$	7,990			$	5,291			$	12,553			$	19,000
Income per share – basic		$	0.25			$	0.36			$	0.23			$	0.53			$	0.80
Income per share – diluted		$	0.25			$	0.36			$	0.23			$	0.53			$	0.79
Dividends declared per share		$	0.20			$	0.20			$	0.20			$	0.70			$	0.20
Performance Ratios (annualized):
Return on average assets - QTD			1.08	%			1.61	%			1.00	%			2.22	%			3.38	%
Return on average equity - QTD			5.38	%			7.93	%			5.00	%			11.14	%			17.25	%
Net interest margin - QTD			3.34	%			3.02	%			2.38	%			2.47	%			2.68	%
Return on average assets - YTD			1.22	%			1.30	%			1.00	%			3.20	%			3.54	%
Return on average equity - YTD			6.09	%			6.42	%			5.00	%			16.38	%			18.08	%
Net interest margin - YTD			2.90	%			2.69	%			2.38	%			2.68	%			2.75	%
Asset Quality Ratios:
Past due loans to total loans			0.48	%			0.60	%			0.53	%			0.59	%			0.92	%
Nonaccrual loans to total loans			0.37	%			0.59	%			0.55	%			0.46	%			0.32	%
Nonperforming assets to total assets			0.27	%			0.39	%			0.34	%			0.26	%			0.18	%
Allowance for credit losses to loans receivable (1)			1.29	%			1.35	%			1.40	%			1.31	%			1.37	%

(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 SUBSIDIARIESSUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS(Unaudited)

		At or For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2022				2022				2022				2021				2021
Average balances		(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale		$	1,492,462			$	1,433,452			$	1,361,839			$	1,517,984			$	1,573,194
Mortgage related securities			172,807				168,000				138,863				119,709				108,743
Debt securities, federal funds sold and short term investments			162,211				269,823				519,116				475,574				409,559
Total interest-earning assets			1,827,480				1,871,275				2,019,818				2,113,267				2,091,496
Noninterest-earning assets			114,274				117,248				128,813				131,703				137,454
Total assets		$	1,941,754			$	1,988,523			$	2,148,631			$	2,244,970			$	2,228,950
Interest-bearing liabilities
Demand accounts		$	75,058			$	70,674			$	69,736			$	70,762			$	68,478
Money market, savings, and escrow accounts			398,643				412,321				404,413				398,210				391,599
Certificates of deposit			586,012				584,244				610,681				643,546				663,343
Total interest-bearing deposits			1,059,713				1,067,239				1,084,830				1,112,518				1,123,420
Borrowings			296,111				326,068				440,252				481,971				475,000
Total interest-bearing liabilities			1,355,824				1,393,307				1,525,082				1,594,489				1,598,420
Noninterest-bearing demand deposits			153,591				154,070				152,900				153,303				153,436
Noninterest-bearing liabilities			43,683				36,962				41,232				49,982				40,148
Total liabilities			1,553,098				1,584,339				1,719,214				1,797,774				1,792,004
Equity			388,656				404,184				429,417				447,196				436,946
Total liabilities and equity		$	1,941,754			$	1,988,523			$	2,148,631			$	2,244,970			$	2,228,950
Average Yield/Costs (annualized)
Loans receivable and held for sale			4.32	%			4.07	%			4.02	%			3.96	%			4.07	%
Mortgage related securities			2.07	%			1.96	%			1.76	%			1.68	%			1.72	%
Debt securities, federal funds sold and short term investments			2.41	%			1.56	%			0.72	%			0.77	%			0.88	%
Total interest-earning assets			3.93	%			3.52	%			3.02	%			3.11	%			3.32	%
Demand accounts			0.08	%			0.09	%			0.08	%			0.08	%			0.08	%
Money market and savings accounts			0.21	%			0.19	%			0.21	%			0.22	%			0.24	%
Certificates of deposit			0.51	%			0.37	%			0.37	%			0.40	%			0.42	%
Total interest-bearing deposits			0.37	%			0.28	%			0.29	%			0.31	%			0.33	%
Borrowings			2.34	%			1.95	%			2.20	%			2.09	%			2.04	%
Total interest-bearing liabilities			0.80	%			0.67	%			0.84	%			0.85	%			0.84	%

COMMUNITY BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

		At or For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2022				2022				2022				2021				2021
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income		$	15,507			$	13,710			$	11,652			$	13,197			$	14,090
Provision (credit) for credit losses (1)			234				(41	)			(140	)			(1,500	)			(750	)
Total noninterest income			1,116				1,640				1,432				1,459				1,726
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			4,424				4,596				5,212				5,085				5,360
Occupancy, office furniture and equipment			955				876				937				960				909
Advertising			213				244				227				278				233
Data processing			539				531				608				531				531
Communications			108				63				94				100				122
Professional fees			123				118				114				151				130
Real estate owned			1				-				5				14				1
Loan processing expense			-				-				-				-				-
Other			1,477				1,006				600				651				422
Total noninterest expense			7,840				7,434				7,797				7,770				7,708
Income before income taxes			8,549				7,957				5,427				8,386				8,858
Income tax expense			1,983				1,658				1,167				1,690				2,092
Net income		$	6,566			$	6,299			$	4,260			$	6,696			$	6,766
Efficiency ratio - QTD			47.16	%			48.43	%			59.59	%			53.02	%			48.74	%
Efficiency ratio - YTD			51.20	%			53.57	%			59.59	%			48.58	%			47.21	%

(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 SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

		At or For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2022				2022				2022				2021				2021
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income		$	(155	)		$	370			$	183			$	(49	)		$	(2	)
Provision (credit) for credit losses (2)			98				89				64				30				50
Total noninterest income			27,305				30,126				28,604				40,692				51,290
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			21,864				21,311				20,438				27,866				28,981
Occupancy, office furniture and equipment			1,341				1,180				1,251				1,306				1,579
Advertising			924				718				678				680				602
Data processing			543				613				588				542				450
Communications			194				195				246				221				209
Professional fees			265				222				338				306				421
Real estate owned			-				-				-				-				-
Loan processing expense			1,120				1,134				1,431				940				1,135
Other			2,571				2,733				2,309				1,445				2,270
Total noninterest expense			28,822				28,106				27,279				33,306				35,647
(Loss) income before income taxes			(1,770	)			2,301				1,444				7,307				15,591
Income tax (benefit) expense			(470	)			578				377				1,443				3,341
Net (loss) income		$	(1,300	)		$	1,723			$	1,067			$	5,864			$	12,250
Efficiency ratio - QTD			106.16	%			92.16	%			94.76	%			81.95	%			69.50	%
Efficiency ratio - YTD			97.42	%			93.42	%			94.76	%			71.44	%			68.71	%
Loan originations		$	729,897			$	778,760			$	708,463			$	993,113			$	1,055,500
Purchase			94.2	%			90.4	%			77.3	%			73.8	%			73.8	%
Refinance			5.8	%			9.6	%			22.7	%			26.2	%			26.2	%
Gross margin on loans sold(1)			3.80	%			3.76	%			4.00	%			4.18	%			4.54	%

(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