WSBF Waterstone Financial Inc

Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $4.0 million, or $0.20 per diluted share for the quarter ended June 30, 2023 compared to $8.0 million, or $0.36 per diluted share for the quarter ended June 30, 2022. Net income per diluted share was $0.30 for the six months ended June 30, 2023 compared to net income per diluted share of $0.58 for the six months ended June 30, 2022.

“The Community Banking segment’s continued strong asset quality metrics and growing loan portfolio stand out as bring spots in an otherwise challenging environment,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “While we achieved marginally better performance compared to recent quarters, the Mortgage Banking segment loss continues to reflect an industry that is challenged by low levels of housing inventory and higher mortgage rates. Both dynamics have resulted in lower volumes and margins for the mortgage banking inventory.  In spite of the challenges in the market, we announced a 2,000,000 share repurchase program during the quarter, as we believe in the long-term success of the Company and providing a high level of total return to our shareholders.”

Highlights of the Quarter Ended June 30, 2023

Waterstone Financial, Inc. (Consolidated)

●	Consolidated net income of Waterstone Financial, Inc. totaled $4.0 million for the quarter ended June 30, 2023, compared to $8.0 million for the quarter ended June 30, 2022.
●	Consolidated return on average assets was 0.74% for the quarter ended June 30, 2023 compared to 1.61% for the quarter ended June 30, 2022.
●	Consolidated return on average equity was 4.41% for the quarter ended June 30, 2023 and 7.93% for the quarter ended June 30, 2022.
●	Dividends declared during the quarter ended June 30, 2023 totaled $0.20 per common share.
●	We repurchased approximately 511,000 shares at a cost (including the excise tax) of $7.3 million, or $14.32 per share, during the quarter ended June 30, 2023.
●	We authorized a new share repurchase program during the quarter that allows to repurchase up to 2,000,000 million shares issued and outstanding.
●	Nonperforming assets as percentage of total assets was 0.19% at June 30, 2023, 0.22% at March 31, 2023, and 0.39% at June 30, 2022.
●	Past due loans as a percentage of total loans was 0.50% at June 30, 2023, 0.64% at March 31, 2023, and 0.60% at June 30, 2022.
●	Book value per share was $16.64 at June 30, 2023 and $16.71 at December 31, 2022.

Community Banking Segment

●	Pre-tax income totaled $6.4 million for the quarter ended June 30, 2023, which represents a $1.6 million, or 19.9%, decrease compared to $8.0 million for the quarter ended June 30, 2022.
●	Past due loans at the community banking segment was $5.7 million at June 30, 2023, $7.5 million at March 31, 2023, and $5.8 million at June 30, 2022.
●	Net interest income totaled $13.2 million for the quarter ended June 30, 2023, which represents a $472,000, or 3.4%, decrease compared to $13.7 million for the quarter ended June 30, 2022.
●	Average loans held for investment totaled $1.59 billion during the quarter ended June 30, 2023, which represents an increase of $339.6 million, or 27.2%, compared to $1.25 billion for the quarter ended June 30, 2022. The increase was primarily due to increases in the single-family and multi-family mortgages. Average loans held for investment increased $55.5 million compared to $1.53 billion for the quarter ended March 31, 2023. The increase was primarily due to an increase in the single-family mortgages.
●	The community banking segment purchased $59.9 million adjustable-rate loans that were originated by the mortgage banking segment during the quarter ended June 30, 2023.
●	Net interest margin decreased 55 basis points to 2.47% for the quarter ended June 30, 2023 compared to 3.02% for the quarter ended June 30, 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 41 basis points compared to 2.88% for the quarter ended March 31, 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 provision for credit losses related to funded loans of $619,000 for the quarter ended June 30, 2023 compared to a provision for credit losses related to funded loans of $170,000 for the quarter ended June 30, 2022.  The current quarter increase was primarily due to an increase in originations and loan balance. The negative provision for credit losses related to unfunded loan commitments was $462,000 for the quarter ended June 30, 2023 compared to a negative provision for credit losses related to unfunded loan commitments of $211,000 for the quarter ended June 30, 2022. The decrease for the quarter ended June 30, 2023 was due primarily to a decrease of loans in the loan commitment pipeline as loan funding activity increased during the quarter.
●	The efficiency ratio, a non-GAAP ratio, was 55.81% for the quarter ended June 30, 2023, compared to 48.43% for the quarter ended June 30, 2022.
●	Average deposits (excluding escrow accounts) totaled $1.18 billion during the quarter ended June 30, 2023, a decrease of $24.3 million, or 2.0%, compared to $1.21 billion during the quarter ended June 30, 2022. Average deposits increased $9.7 million, or 3.3% annualized, compared to the $1.17 billion for the quarter ended March 31, 2023.
●	Other noninterest expense increased $635,000 to $1.6 million during the quarter ended June 30, 2023 compared to $1.0 million during the quarter ended June 30, 2022. The increase was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans.  These fees totaled $1.1 million during the quarter ended June 30, 2023 compared to $504,000 during the quarter ended June 30, 2022.

Mortgage Banking Segment

●	Pre-tax loss totaled $1.4 million for the quarter ended June 30, 2023, compared to $2.3 million of pre-tax income for the quarter ended June 30, 2022.
●	Loan originations decreased $155.4 million, or 20.0%, to $623.3 million during the quarter ended June 30, 2023, compared to $778.8 million during the quarter ended June 30, 2022. Origination volume relative to purchase activity accounted for 96.4% of originations for the quarter ended June 30, 2023 compared to 90.4% of total originations for the quarter ended June 30, 2022.
●	Mortgage banking non-interest income decreased $7.1 million, or 23.5%, to $23.0 million for the quarter ended June 30, 2023, compared to $30.1 million for the quarter ended June 30, 2022.
●	Gross margin on loans sold decreased to 3.73% for the quarter ended June 30, 2023, compared to 3.85% for the quarter ended June 30, 2022.
●	Total compensation, payroll taxes and other employee benefits decreased $3.4 million, or 15.9%, to $17.9 million during the quarter ended June 30, 2023 compared to $21.3 million during the quarter ended June 30, 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. 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
		For The Three Months Ended June 30,								For The Six Months Ended June 30,
		2023				2022				2023				2022
		(In Thousands, except per share amounts)
Interest income:
Loans		$	22,150			$	14,546			$	42,035			$	28,046
Mortgage-related securities			969				821				1,912				1,423
Debt securities, federal funds sold and short-term investments			1,128				1,049				2,190				1,977
Total interest income			24,247				16,416				46,137				31,446
Interest expense:
Deposits			5,955				751				10,043				1,530
Borrowings			5,617				1,584				9,624				3,971
Total interest expense			11,572				2,335				19,667				5,501
Net interest income			12,675				14,081				26,470				25,945
Provision (credit) for credit losses			186				48				646				(28	)
Net interest income after provision for loan losses			12,489				14,033				25,824				25,973
Noninterest income:
Service charges on loans and deposits			611				666				1,041				1,176
Increase in cash surrender value of life insurance			714				724				1,039				1,040
Mortgage banking income			21,914				29,410				38,684				57,685
Other			286				438				1,315				1,155
Total noninterest income			23,525				31,238				42,079				61,056
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			22,395				25,793				42,447				51,328
Occupancy, office furniture, and equipment			2,046				2,056				4,309				4,244
Advertising			944				962				1,833				1,867
Data processing			1,090				1,144				2,212				2,346
Communications			225				258				476				598
Professional fees			618				349				1,034				810
Real estate owned			1				-				2				5
Loan processing expense			932				1,134				1,950				2,565
Other			2,671				3,354				5,766				6,221
Total noninterest expenses			30,922				35,050				60,029				69,984
Income before income taxes			5,092				10,221				7,874				17,045
Income tax expense			1,085				2,231				1,712				3,763
Net income		$	4,007			$	7,990			$	6,162			$	13,282
Income per share:
Basic		$	0.20			$	0.36			$	0.30			$	0.59
Diluted		$	0.20			$	0.36			$	0.30			$	0.58
Weighted average shares outstanding:
Basic			20,384				22,126				20,635				22,626
Diluted			20,431				22,229				20,702				22,768

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		June 30, 2023				December 31, 2022
		(Unaudited)
Assets		(In Thousands, except per share amounts)
Cash		$	53,364			$	33,700
Federal funds sold			7,563				10,683
Interest-earning deposits in other financial institutions and other short-term inv.			263				2,259
Cash and cash equivalents			61,190				46,642
Securities available for sale (at fair value)			195,011				196,588
Loans held for sale (at fair value)			203,268				131,188
Loans receivable			1,614,684				1,510,178
Less: Allowance for credit losses ("ACL") - loans			18,374				17,757
Loans receivable, net			1,596,310				1,492,421
Office properties and equipment, net			20,335				21,105
Federal Home Loan Bank stock (at cost)			26,798				17,357
Cash surrender value of life insurance			67,188				66,443
Real estate owned, net			145				145
Prepaid expenses and other assets			59,580				59,783
Total assets		$	2,229,825			$	2,031,672
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits		$	197,102			$	230,596
Money market and savings deposits			280,758				326,145
Time deposits			709,108				642,271
Total deposits			1,186,968				1,199,012
Borrowings			614,877				386,784
Advance payments by borrowers for taxes			20,610				5,334
Other liabilities			51,607				70,056
Total liabilities			1,874,062				1,661,186
Shareholders' equity:
Preferred stock			-				-
Common stock			214				222
Additional paid-in capital			116,611				128,550
Retained earnings			272,229				274,246
Unearned ESOP shares			(12,463	)			(13,056		)
Accumulated other comprehensive loss, net of taxes			(20,828	)			(19,476		)
Total shareholders' equity			355,763				370,486
Total liabilities and shareholders' equity		$	2,229,825			$	2,031,672
Share Information
Shares outstanding			21,376				22,174
Book value per share		$	16.64			$	16.71

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,
		2023				2023				2022				2022				2022
		(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income		$	12,675			$	13,795			$	15,611			$	15,398			$	14,081
Provision for credit losses			186				460				664				332				48
Total noninterest income			23,525				18,554				17,095				27,404				31,238
Total noninterest expense			30,922				29,107				31,384				35,694				35,050
Income before income taxes			5,092				2,782				658				6,776				10,221
Income tax (benefit) expense			1,085				627				(277	)			1,506				2,231
Net income		$	4,007			$	2,155			$	935			$	5,270			$	7,990
Income per share – basic		$	0.20			$	0.10			$	0.04			$	0.25			$	0.36
Income per share – diluted		$	0.20			$	0.10			$	0.04			$	0.25			$	0.36
Dividends declared per common share		$	0.20			$	0.20			$	0.20			$	0.20			$	0.20
Performance Ratios (annualized):
Return on average assets - QTD			0.74	%			0.43	%			0.19	%			1.08	%			1.61	%
Return on average equity - QTD			4.41	%			2.35	%			0.99	%			5.38	%			7.93	%
Net interest margin - QTD			2.47	%			2.88	%			3.29	%			3.34	%			3.02	%
Return on average assets - YTD			0.59	%			0.43	%			0.96	%			1.22	%			1.30	%
Return on average equity - YTD			3.37	%			2.35	%			4.91	%			6.09	%			6.42	%
Net interest margin - YTD			2.67	%			2.88	%			3.00	%			2.90	%			2.69	%
Asset Quality Ratios:
Past due loans to total loans			0.50	%			0.64	%			0.41	%			0.48	%			0.60	%
Nonaccrual loans to total loans			0.26	%			0.29	%			0.29	%			0.37	%			0.59	%
Nonperforming assets to total assets			0.19	%			0.22	%			0.22	%			0.27	%			0.39	%
Allowance for credit losses - loans to loans receivable			1.14	%			1.14	%			1.18	%			1.29	%			1.35	%

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,
		2023				2023				2022				2022				2022
Average balances		(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale		$	1,759,001			$	1,654,942			$	1,578,790			$	1,492,462			$	1,433,452
Mortgage related securities			171,938				170,218				170,209				172,807				168,000
Debt securities, federal funds sold and short-term investments			123,195				115,962				130,973				162,211				269,823
Total interest-earning assets			2,054,134				1,941,122				1,879,972				1,827,480				1,871,275
Noninterest-earning assets			108,320				107,009				122,643				114,274				117,248
Total assets		$	2,162,454			$	2,048,131			$	2,002,615			$	1,941,754			$	1,988,523
Interest-bearing liabilities
Demand accounts		$	69,147			$	68,564			$	75,449			$	75,058			$	70,674
Money market, savings, and escrow accounts			305,576				322,220				349,820				398,643				412,321
Certificates of deposit			695,310				648,531				628,375				586,012				584,244
Total interest-bearing deposits			1,070,033				1,039,315				1,053,644				1,059,713				1,067,239
Borrowings			551,545				441,716				333,249				296,111				326,068
Total interest-bearing liabilities			1,621,578				1,481,031				1,386,893				1,355,824				1,393,307
Noninterest-bearing demand deposits			130,291				143,296				177,217				153,591				154,070
Noninterest-bearing liabilities			46,446				51,840				63,866				43,683				36,962
Total liabilities			1,798,315				1,676,167				1,627,976				1,553,098				1,584,339
Equity			364,139				371,964				374,639				388,656				404,184
Total liabilities and equity		$	2,162,454			$	2,048,131			$	2,002,615			$	1,941,754			$	1,988,523
Average Yield/Costs (annualized)
Loans receivable and held for sale			5.05	%			4.87	%			4.69	%			4.32	%			4.07	%
Mortgage related securities			2.26	%			2.25	%			2.13	%			2.07	%			1.96	%
Debt securities, federal funds sold and short-term investments			3.67	%			3.71	%			3.35	%			2.41	%			1.56	%
Total interest-earning assets			4.73	%			4.57	%			4.36	%			3.93	%			3.52	%
Demand accounts			0.09	%			0.08	%			0.08	%			0.08	%			0.09	%
Money market and savings accounts			1.42	%			1.26	%			0.67	%			0.21	%			0.19	%
Certificates of deposit			2.80	%			1.92	%			1.10	%			0.51	%			0.37	%
Total interest-bearing deposits			2.23	%			1.60	%			0.89	%			0.37	%			0.28	%
Borrowings			4.08	%			3.68	%			3.23	%			2.34	%			1.95	%
Total interest-bearing liabilities			2.86	%			2.22	%			1.45	%			0.80	%			0.67	%

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,
		2023				2023				2022				2022				2022
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income		$	13,238			$	14,008			$	15,737			$	15,507			$	13,710
Provision (credit) for credit losses			158				388				624				234				(41	)
Total noninterest income			1,540				987				1,033				1,116				1,640
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			4,683				5,168				4,781				4,424				4,596
Occupancy, office furniture and equipment			873				1,031				877				955				876
Advertising			230				184				203				213				244
Data processing			602				601				551				539				531
Communications			72				78				92				108				63
Professional fees			146				218				153				123				118
Real estate owned			1				1				13				1				-
Loan processing expense			-				-				-				-				-
Other			1,641				896				2,468				1,477				1,006
Total noninterest expense			8,248				8,177				9,138				7,840				7,434
Income before income taxes			6,372				6,430				7,008				8,549				7,957
Income tax expense			1,182				1,600				1,308				1,983				1,658
Net income		$	5,190			$	4,830			$	5,700			$	6,566			$	6,299
Efficiency ratio - QTD (non-GAAP)			55.81	%			54.53	%			54.49	%			47.16	%			48.43	%
Efficiency ratio - YTD (non-GAAP)			55.17	%			54.53	%			52.10	%			51.20	%			53.57	%

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,
		2023				2023				2022				2022				2022
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest (loss) income		$	(622	)		$	(282	)		$	(241	)		$	(155	)		$	370
Provision for credit losses			28				72				40				98				89
Total noninterest income			23,041				17,951				18,066				27,305				30,126
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			17,929				15,099				17,397				21,864				21,311
Occupancy, office furniture and equipment			1,173				1,232				1,289				1,341				1,180
Advertising			714				705				769				924				718
Data processing			480				516				490				543				613
Communications			153				173				197				194				195
Professional fees			466				188				453				265				222
Real estate owned			-				-				-				-				-
Loan processing expense			932				1,018				1,059				1,120				1,134
Other			1,914				2,403				2,584				2,571				2,733
Total noninterest expense			23,761				21,334				24,238				28,822				28,106
(Loss) income before income taxes			(1,370	)			(3,737	)			(6,453	)			(1,770	)			2,301
Income tax (benefit) expense			(126	)			(1,002	)			(1,602	)			(470	)			578
Net (loss) income		$	(1,244	)		$	(2,735	)		$	(4,851	)		$	(1,300	)		$	1,723
Efficiency ratio - QTD (non-GAAP)			105.99	%			120.74	%			135.98	%			106.16	%			92.16	%
Efficiency ratio - YTD (non-GAAP)			112.49	%			120.74	%			104.02	%			97.42	%			93.42	%
Loan originations		$	623,342			$	442,710			$	546,628			$	729,897			$	778,760
Purchase			96.4	%			96.5	%			95.6	%			94.2	%			90.4	%
Refinance			3.6	%			3.5	%			4.4	%			5.8	%			9.6	%
Gross margin on loans sold(1)			3.73	%			3.78	%			3.41	%			3.70	%			3.85	%

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

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