Waterstone Financial, Inc. Announces Results of Operations

WAUWATOSA, Wis, July 25, 2023 (GLOBE NEWSWIRE) -- 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. Gerke
Chief Financial Officer
414-459-4012
markgerke@wsbonline.com

Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2023

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