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

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 


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