WSBF Waterstone Financial Inc

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. GerkeChief Financial Officer414-459-4012markgerke@wsbonline.com