Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2023
WAUWATOSA, Wis., Oct. 24, 2023 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $3.3 million, or $0.16 per diluted share for the quarter ended September 30, 2023, compared to $5.3 million, or $0.25 per diluted share for the quarter ended September 30, 2022. Net income per diluted share was $0.46 for the nine months ended September 30, 2023, compared to net income per diluted share of $0.83 for the nine months ended September 30, 2022.“We continue to navigate the challenges that have resulted from a rapid rise in interest rates and an inverted yield curve,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “The Community Banking Segment continues to maintain strong asset quality metrics and we achieved growth in both loans held for investment and deposits during the quarter. The Mortgage Banking segment results continue to be negatively impacted by a challenging industry as inventory, housing affordability, and escalating interest rates have slowed mortgage origination volumes and compressed margins. We continue to try and find efficiencies in this environment. During the quarter, we were pleased to return $9.6 million back to shareholders through share repurchases and dividends declared.”
Highlights of the Quarter Ended September 30, 2023
Waterstone Financial, Inc. (Consolidated)
· Consolidated net income of Waterstone Financial, Inc. totaled $3.3 million for the quarter ended September 30, 2023, compared to $5.3 million for the quarter ended September 30, 2022.
· Consolidated return on average assets was 0.58% for the quarter ended September 30, 2023, compared to 1.08% for the quarter ended September 30, 2022.
· Consolidated return on average equity was 3.63% for the quarter ended September 30, 2023, and 5.38% for the quarter ended September 30, 2022.
· Dividends declared during the quarter ended September 30, 2023, totaled $0.15 per common share.
· We repurchased approximately 516,000 shares at a cost (including the excise tax) of $6.7 million, or $12.94 per share, during the quarter ended September 30, 2023.
· Nonperforming assets as percentage of total assets was 0.20% at September 30, 2023, 0.19% at June 30, 2023, and 0.27% at September 30, 2022.
· Past due loans as a percentage of total loans were 0.53% at September 30, 2023, 0.50% at June 30, 2023, and 0.48% at September 30, 2022.
· Book value per share was $16.60 on September 30, 2023, and $16.71 at December 31, 2022. Book value per share increased approximately $0.10 during the quarter ended September 30, 2023, and approximately $0.18 during the year ended September 30, 2023, due to our share repurchase activity.
Community Banking Segment
· Pre-tax income totaled $5.7 million for the quarter ended September 30, 2023, which represents a $2.9 million, or 33.8%, decrease compared to $8.5 million for the quarter ended September 30, 2022.
· Past due loans at the community banking segment were $6.7 million at September 30, 2023, $5.7 million at June 30, 2023, and $4.6 million at September 30, 2022.
· Net interest income totaled $12.4 million for the quarter ended September 30, 2023, which represents a $3.1 million, or 19.8%, decrease compared to $15.5 million for the quarter ended September 30, 2022.
· Average loans held for investment totaled $1.63 billion during the quarter ended September 30, 2023, which represents an increase of $316.3 million, or 24.1%, compared to $1.31 billion for the quarter ended September 30, 2022. The increase was primarily due to increases in the single-family and multi-family mortgages. Average loans held for investment increased $40.3 million compared to $1.59 billion for the quarter ended June 30, 2023. The increase was primarily due to an increase in the single-family, multi-family, construction, and commercial real estate mortgages.
· Net interest margin decreased 108 basis points to 2.26% for the quarter ended September 30, 2023, compared to 3.34% for the quarter ended September 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 21 basis points compared to 2.47% for the quarter ended June 30, 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 $206,000 for the quarter ended September 30, 2023, compared to a provision for credit losses related to funded loans of $262,000 for the quarter ended September 30, 2022. The current quarter increase was primarily due to an increase in originations and loan balance. The provision for credit losses related to unfunded loan commitments was $239,000 for the quarter ended September 30, 2023, compared to a negative provision for credit losses related to unfunded loan commitments of $28,000 for the quarter ended September 30, 2022. The increase for the quarter ended September 30, 2023, was due primarily to an increase of loans in the loan commitment pipeline as loan activity increased during the quarter.
· The efficiency ratio, a non-GAAP ratio, was 54.43% for the quarter ended September 30, 2023, compared to 47.16% for the quarter ended September 30, 2022.
· Average deposits (excluding escrow accounts) totaled $1.20 billion during the quarter ended September 30, 2023, an increase of $6.0 million, or 0.5%, compared to $1.19 billion during the quarter ended September 30, 2022. Average deposits increased $15.4 million, or 5.2% annualized, compared to the $1.18 billion for the quarter ended June 30, 2023.
· Other noninterest expense decreased $774,000 to $703,000 during the quarter ended September 30, 2023, compared to $1.5 million during the quarter ended September 30, 2022. The decrease was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable-rate mortgage loans. These fees totaled $188,000 during the quarter ended September 30, 2023, compared to $1.0 million during the quarter ended September 30, 2022.
Mortgage Banking Segment
· Pre-tax loss totaled $2.1 million for the quarter ended September 30, 2023, compared to $1.8 million of pre-tax loss for the quarter ended September 30, 2022.
· Loan originations decreased $132.3 million, or 18.1%, to $597.6 million during the quarter ended September 30, 2023, compared to $729.9 million during the quarter ended September 30, 2022. Origination volume relative to purchase activity accounted for 95.4% of originations for the quarter ended September 30, 2023, compared to 94.2% of total originations for the quarter ended September 30, 2022.
· Mortgage banking non-interest income decreased $5.9 million, or 21.4%, to $21.5 million for the quarter ended September 30, 2023, compared to $27.3 million for the quarter ended September 30, 2022.
· Gross margin on loans sold decreased to 3.62% for the quarter ended September 30, 2023, compared to 3.70% for the quarter ended September 30, 2022.
· Total compensation, payroll taxes and other employee benefits decreased $4.7 million, or 21.4%, to $17.2 million during the quarter ended September 30, 2023, compared to $21.9 million during the quarter ended September 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 September 30,* *For The Nine Months Ended September 30,* *2023* *2022* *2023* *2022* (In Thousands, except per share amounts)
Interest income:
Loans $ 23,825 $ 16,235 $ 65,860 $ 44,281
Mortgage-related securities 1,060 903 2,972 2,326
Debt securities, federal funds sold and short-term investments 1,492 987 3,682 2,964
Total interest income 26,377 18,125 72,514 49,571
Interest expense:
Deposits 7,442 981 17,485 2,511
Borrowings 6,946 1,746 16,570 5,717
Total interest expense 14,388 2,727 34,055 8,228
Net interest income 11,989 15,398 38,459 41,343
Provision for credit losses 445 332 1,091 304
Net interest income after provision for loan losses 11,544 15,066 37,368 41,039
Noninterest income:
Service charges on loans and deposits 450 529 1,491 1,705
Increase in cash surrender value of life insurance 334 354 1,373 1,394
Mortgage banking income 21,172 26,064 59,856 83,749
Other 274 457 1,589 1,612
Total noninterest income 22,230 27,404 64,309 88,460
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits 21,588 26,174 64,035 77,502
Occupancy, office furniture, and equipment 1,993 2,296 6,302 6,540
Advertising 916 1,137 2,749 3,004
Data processing 1,229 1,084 3,441 3,430
Communications 243 302 719 900
Professional fees 745 393 1,779 1,203
Real estate owned 1 1 3 6
Loan processing expense 722 1,120 2,672 3,685
Other 2,584 3,187 8,350 9,408
Total noninterest expenses 30,021 35,694 90,050 105,678
Income before income taxes 3,753 6,776 11,627 23,821
Income tax expense 500 1,506 2,212 5,269
Net income $ 3,253 $ 5,270 $ 9,415 $ 18,552
Income per share:
Basic $ 0.16 $ 0.25 $ 0.46 $ 0.84
Diluted $ 0.16 $ 0.25 $ 0.46 $ 0.83
Weighted average shares outstanding:
Basic 19,998 21,342 20,420 22,193
Diluted 20,022 21,454 20,473 22,323 *WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES*
*CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION* *September 30,* *December 31,* *2023* *2022* *(Unaudited)*
*Assets* (In Thousands, except per share amounts)
Cash $ 55,796 $ 33,700
Federal funds sold 6,237 10,683
Interest-earning deposits in other financial institutions and other short-term investments 260 2,259
Cash and cash equivalents 62,293 46,642
Securities available for sale (at fair value) 194,499 196,588
Loans held for sale (at fair value) 157,421 131,188
Loans receivable 1,651,093 1,510,178
Less: Allowance for credit losses ("ACL") - loans 18,553 17,757
Loans receivable, net 1,632,540 1,492,421
Office properties and equipment, net 20,040 21,105
Federal Home Loan Bank stock (at cost) 23,414 17,357
Cash surrender value of life insurance 67,522 66,443
Real estate owned, net 372 145
Prepaid expenses and other assets 63,257 59,783
Total assets $ 2,221,358 $ 2,031,672
*Liabilities and Shareholders' Equity*
Liabilities:
Demand deposits $ 189,954 $ 230,596
Money market and savings deposits 281,958 326,145
Time deposits 733,250 642,271
Total deposits 1,205,162 1,199,012
Borrowings 587,917 386,784
Advance payments by borrowers for taxes 28,238 5,334
Other liabilities 53,715 70,056
Total liabilities 1,875,032 1,661,186
Shareholders' equity:
Preferred stock - -
Common stock 209 222
Additional paid-in capital 110,020 128,550
Retained earnings 272,535 274,246
Unearned ESOP shares (12,166 ) (13,056 )
Accumulated other comprehensive loss, net of taxes (24,272 ) (19,476 )
Total shareholders' equity 346,326 370,486
Total liabilities and shareholders' equity $ 2,221,358 $ 2,031,672
*Share Information*
Shares outstanding 20,860 22,174
Book value per share $ 16.60 $ 16.71
*WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES*
*SUMMARY OF KEY QUARTERLY FINANCIAL DATA*
*(Unaudited)* *At or For the Three Months Ended* *September 30,* *June 30,* *March 31,* *December 31,* *September 30,* *2023* *2023* *2023* *2022* *2022* (Dollars in Thousands, except per share amounts)
*Condensed Results of Operations:*
Net interest income $ 11,989 $ 12,675 $ 13,795 $ 15,611 $ 15,398
Provision for credit losses 445 186 460 664 332
Total noninterest income 22,230 23,525 18,554 17,095 27,404
Total noninterest expense 30,021 30,922 29,107 31,384 35,694
Income before income taxes 3,753 5,092 2,782 658 6,776
Income tax (benefit) expense 500 1,085 627 (277 ) 1,506
Net income $ 3,253 $ 4,007 $ 2,155 $ 935 $ 5,270
Income per share – basic $ 0.16 $ 0.20 $ 0.10 $ 0.04 $ 0.25
Income per share – diluted $ 0.16 $ 0.20 $ 0.10 $ 0.04 $ 0.25
Dividends declared per common share $ 0.15 $ 0.20 $ 0.20 $ 0.20 $ 0.20
*Performance Ratios (annualized):*
Return on average assets - QTD 0.58 % 0.74 % 0.43 % 0.19 % 1.08 %
Return on average equity - QTD 3.63 % 4.41 % 2.35 % 0.99 % 5.38 %
Net interest margin - QTD 2.26 % 2.47 % 2.88 % 3.29 % 3.34 %
Return on average assets - YTD 0.59 % 0.59 % 0.43 % 0.96 % 1.22 %
Return on average equity - YTD 3.46 % 3.37 % 2.35 % 4.91 % 6.09 %
Net interest margin - YTD 2.53 % 2.67 % 2.88 % 3.00 % 2.90 %
*Asset Quality Ratios:*
Past due loans to total loans 0.53 % 0.50 % 0.64 % 0.41 % 0.48 %
Nonaccrual loans to total loans 0.25 % 0.26 % 0.29 % 0.29 % 0.37 %
Nonperforming assets to total assets 0.20 % 0.19 % 0.22 % 0.22 % 0.27 %
Allowance for credit losses - loans to loans receivable 1.12 % 1.14 % 1.14 % 1.18 % 1.29 %*WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES*
*SUMMARY 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,* *2023* *2023* *2023* *2022* *2022*
*Average balances* (Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale $ 1,797,233 $ 1,759,001 $ 1,654,942 $ 1,578,790 $ 1,492,462
Mortgage related securities 174,202 171,938 170,218 170,209 172,807
Debt securities, federal funds sold and short-term investments 132,935 123,195 115,962 130,973 162,211
Total interest-earning assets 2,104,370 2,054,134 1,941,122 1,879,972 1,827,480
Noninterest-earning assets 105,714 108,320 107,009 122,643 114,274
Total assets $ 2,210,084 $ 2,162,454 $ 2,048,131 $ 2,002,615 $ 1,941,754
Interest-bearing liabilities
Demand accounts $ 90,623 $ 69,147 $ 68,564 $ 75,449 $ 75,058
Money market, savings, and escrow accounts 306,806 305,576 322,220 349,820 398,643
Certificates of deposit 719,708 695,310 648,531 628,375 586,012
Total interest-bearing deposits 1,117,137 1,070,033 1,039,315 1,053,644 1,059,713
Borrowings 584,764 551,545 441,716 333,249 296,111
Total interest-bearing liabilities 1,701,901 1,621,578 1,481,031 1,386,893 1,355,824
Noninterest-bearing demand deposits 106,042 130,291 143,296 177,217 153,591
Noninterest-bearing liabilities 46,805 46,446 51,840 63,866 43,683
Total liabilities 1,854,748 1,798,315 1,676,167 1,627,976 1,553,098
Equity 355,336 364,139 371,964 374,639 388,656
Total liabilities and equity $ 2,210,084 $ 2,162,454 $ 2,048,131 $ 2,002,615 $ 1,941,754
*Average Yield/Costs (annualized)*
Loans receivable and held for sale 5.26 % 5.05 % 4.87 % 4.69 % 4.32 %
Mortgage related securities 2.41 % 2.26 % 2.25 % 2.13 % 2.07 %
Debt securities, federal funds sold and short-term investments 4.45 % 3.67 % 3.71 % 3.35 % 2.41 %
Total interest-earning assets 4.97 % 4.73 % 4.57 % 4.36 % 3.93 %
Demand accounts 0.11 % 0.09 % 0.08 % 0.08 % 0.08 %
Money market and savings accounts 1.54 % 1.42 % 1.26 % 0.67 % 0.21 %
Certificates of deposit 3.43 % 2.80 % 1.92 % 1.10 % 0.51 %
Total interest-bearing deposits 2.64 % 2.23 % 1.60 % 0.89 % 0.37 %
Borrowings 4.71 % 4.08 % 3.68 % 3.23 % 2.34 %
Total interest-bearing liabilities 3.35 % 2.86 % 2.22 % 1.45 % 0.80 %*COMMUNITY BANKING SEGMENT*
*SUMMARY OF KEY QUARTERLY FINANCIAL DATA*
*(Unaudited)* *At or For the Three Months Ended* *September 30,* *June 30,* *March 31,* *December 31,* *September 30,* *2023* *2023* *2023* *2022* *2022* (Dollars in Thousands)
*Condensed Results of Operations:*
Net interest income $ 12,431 $ 13,238 $ 14,008 $ 15,737 $ 15,507
Provision for credit losses 445 158 388 624 234
Total noninterest income 966 1,540 987 1,033 1,116
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits 4,618 4,683 5,168 4,781 4,424
Occupancy, office furniture and equipment 852 873 1,031 877 955
Advertising 200 230 184 203 213
Data processing 672 602 601 551 539
Communications 70 72 78 92 108
Professional fees 176 146 218 153 123
Real estate owned 1 1 1 13 1
Loan processing expense - - - - -
Other 703 1,641 896 2,468 1,477
Total noninterest expense 7,292 8,248 8,177 9,138 7,840
Income before income taxes 5,660 6,372 6,430 7,008 8,549
Income tax expense 1,121 1,182 1,600 1,308 1,983
Net income $ 4,539 $ 5,190 $ 4,830 $ 5,700 $ 6,566
Efficiency ratio - QTD (non-GAAP) 54.43 % 55.81 % 54.53 % 54.49 % 47.16 %
Efficiency ratio - YTD (non-GAAP) 54.94 % 55.17 % 54.53 % 52.10 % 51.20 %
*MORTGAGE BANKING SEGMENT*
*SUMMARY OF KEY QUARTERLY FINANCIAL DATA*
*(Unaudited)* *At or For the Three Months Ended* *September 30,* *June 30,* *March 31,* *December 31,* *September 30,* *2023* *2023* *2023* *2022* *2022* (Dollars in Thousands)
*Condensed Results of Operations:*
Net interest loss $ (550 ) $ (622 ) $ (282 ) $ (241 ) $ (155 )
Provision for credit losses - 28 72 40 98
Total noninterest income 21,452 23,041 17,951 18,066 27,305
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits 17,186 17,929 15,099 17,397 21,864
Occupancy, office furniture and equipment 1,141 1,173 1,232 1,289 1,341
Advertising 716 714 705 769 924
Data processing 551 480 516 490 543
Communications 173 153 173 197 194
Professional fees 564 466 188 453 265
Real estate owned - - - - -
Loan processing expense 722 932 1,018 1,059 1,120
Other 1,935 1,914 2,403 2,584 2,571
Total noninterest expense 22,988 23,761 21,334 24,238 28,822
Loss before income taxes (2,086 ) (1,370 ) (3,737 ) (6,453 ) (1,770 )
Income tax benefit (657 ) (126 ) (1,002 ) (1,602 ) (470 )
Net loss $ (1,429 ) $ (1,244 ) $ (2,735 ) $ (4,851 ) $ (1,300 )
Efficiency ratio - QTD (non-GAAP) 109.98 % 105.99 % 120.74 % 135.98 % 106.16 %
Efficiency ratio - YTD (non-GAAP) 111.63 % 112.49 % 120.74 % 104.02 % 97.42 %
Loan originations $ 597,562 $ 623,342 $ 442,710 $ 546,628 $ 729,897
Purchase 95.4 % 96.4 % 96.5 % 95.6 % 94.2 %
Refinance 4.6 % 3.6 % 3.5 % 4.4 % 5.8 %
Gross margin on loans sold^(1) 3.62 % 3.73 % 3.78 % 3.41 % 3.70 %
^(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