WSBF Waterstone Financial Inc

Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $3.0 million, or $0.16 per diluted share, for the quarter ended March 31, 2024 compared to net income of $2.2 million, or $0.10 per diluted share for the quarter ended March 31, 2023.  The current year reflects a $0.04 per share one-time charge related to a change in Wisconsin state tax law, as described below.

“We are pleased that the Mortgage Banking segment demonstrated improved performance, as volumes and margin have bounced off of the lows from the past two years,” said William Bruss, Chief Executive Officer of Waterstone Financial, Inc.  "While our results of operations have improved form the prior year, the Mortgage Banking segment continues to face industry-wide headwinds in the form of low levels of housing inventory and affordability constraints driven by elevated mortgage rates.  The Community Banking segment continues to contend with margin compression, driven by higher funding costs, as interest rates remain at recent high levels.  In spite of the challenging environment, we continue to maintain strong asset quality and remained focused on returning capital to our shareholders through our dividend and share repurchases." 

Highlights of the Quarter Ended March 31, 2024

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $3.0 million for the quarter ended March 31, 2024, compared to net income of $2.2 million for the quarter ended March 31, 2023.
• Consolidated return on average assets was 0.56% for the quarter ended March 31, 2024 compared to 0.43% for the quarter ended March 31, 2023.
• Consolidated return on average equity was 3.56% for the quarter ended March 31, 2024 and 2.35% for the quarter ended March 31, 2023.
• Dividends declared during the quarter ended March 31, 2024 totaled $0.15 per common share.
• During the quarter ended March 31, 2024, we repurchased approximately 417,000 shares at a cost (including the federal excise tax) of $5.3 million, or $12.65 per share.  This share repurchase activity was accretive to book value per share in the amount of $0.09 during the quarter ended March 31, 2024.
• Nonperforming assets as a percentage of total assets was 0.23% at March 31, 2024, 0.23% at December 31, 2023, and 0.22% at March 31, 2023.
• Past due loans as a percentage of total loans was 0.64% at March 31, 2024, 0.68% at December 31, 2023, and 0.64% at March 31, 2023.
• Book value per share was $16.98 at March 31, 2024 and $16.94 at December 31, 2023.
• In July 2023, Wisconsin’s Governor signed the Wisconsin state budget, retroactive to January 1, 2023, which included legislation that provides financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on loans to existing Wisconsin-based business or agriculture purpose loans that are $5.0 million or less in balance on January 1, 2023, and to new loans that meet the criteria. On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law.  This publication enabled us to estimate the impact on our Wisconsin state income tax expense.  The impact moving forward should result in no Wisconsin state income taxes being expensed, resulting in a lower estimated effective tax rate. The elimination of Wisconsin state income tax expense resulted in the establishment of a valuation allowance for Wisconsin state income deferred tax assets, resulting in a one-time $1.1 million charge to state income tax expense in the first quarter.  Partially offsetting the impact of the charge related to the valuation allowance the Company realized a one-time benefit of approximately $368,000 during the quarter to recognize a reduction in current state income tax provision.  The net amount of these two items resulted in a a $0.04 reduction of earnings per share during the quarter ended March 31, 2024.

Community Banking Segment

• Pre-tax income totaled $4.3 million for the quarter ended March 31, 2024, which represents a $2.2 million, or 33.5%, decrease compared to $6.4 million for the quarter ended March 31, 2023.
• Net interest income totaled $11.6 million for the quarter ended March 31, 2024, which represents a $2.4 million, or 17.2%, decrease compared to $14.0 million for the quarter ended March 31, 2023.
• Average loans held for investment totaled $1.66 billion during the quarter ended March 31, 2024, which represents an increase of $133.0 million, or 8.7%, compared to $1.53 billion for the quarter ended March 31, 2023. The increase was primarily due to increases in the single-family, construction, and commercial real estate mortgages. Average loans held for investment increased $4.1 million compared to $1.66 billion for the quarter ended December 31, 2023. The increase was primarily due to an increase in construction mortgages.
• Net interest margin decreased 73 basis points to 2.15% for the quarter ended March 31, 2024 compared to 2.88% for the quarter ended March 31, 2023, 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 10 basis points compared to 2.25% for the quarter ended December 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.
• Past due loans at the community banking segment totaled $8.1 million at March 31, 2024, $7.9 million at December 31, 2023, and $7.5 million at March 31, 2023.
• The segment had a provision for credit losses related to funded loans of $35,000 for the quarter ended March 31, 2024 compared to a negative provision for credit losses related to funded loans of $96,000 for the quarter ended March 31, 2023.  The current quarter increase was primarily due to adjustments in the qualitative factors related to increases in treasury interest rates during the quarter offset by a decrease to historical loss rates. The provision for credit losses related to unfunded loan commitments was $70,000 for the quarter ended March 31, 2024 compared to a provision for credit losses related to unfunded loan commitments of $484,000 for the quarter ended March 31, 2023. The provision for credit losses related to unfunded loan commitments for the quarter ended March 31, 2024 was due primarily to an increase of construction loans that are currently waiting to be funded compared to the prior quarter end.
• The efficiency ratio, a non-GAAP ratio, was 65.17% for the quarter ended March 31, 2024, compared to 54.53% for the quarter ended March 31, 2023.
• Average deposits (excluding escrow accounts) totaled $1.19 billion during the quarter ended March 31, 2024, an increase of $16.5 million, or 1.4%, compared to $1.17 billion during the quarter ended March 31, 2023. Average deposits decreased $19.0 million, or 6.3% annualized, compared to $1.21 billion for the quarter ended December 31, 2023.

Mortgage Banking Segment

• Pre-tax income totaled $369,000 for the quarter ended March 31, 2024, compared to $3.7 million of pre-tax loss for the quarter ended March 31, 2023.
• Loan originations increased $42.4 million, or 9.6%, to $485.1 million during the quarter ended March 31, 2024, compared to $442.7 million during the quarter ended March 31, 2023. Origination volume relative to purchase activity accounted for 93.0% of originations for the quarter ended March 31, 2024 compared to 96.5% of total originations for the quarter ended March 31, 2023.
• Mortgage banking non-interest income increased $2.4 million, or 13.2%, to $20.3 million for the quarter ended March 31, 2024, compared to $18.0 million for the quarter ended March 31, 2023.
• Gross margin on loans sold totaled 4.10% for the quarter ended March 31, 2024, compared to 3.78% for the quarter ended March 31, 2023.
• Total compensation, payroll taxes and other employee benefits decreased $343,000, or 2.3%, to $14.8 million during the quarter ended March 31, 2024 compared to $15.1 million during the quarter ended March 31, 2023. The decrease primarily related to decreased salary expense and health insurance expense driven by reduced employee headcount and lower claims to start the 2024 year.
• Total other noninterest expense decreased $1.8 million, or 74.4%, to $616,000 during the quarter ended March 31, 2024 compared to $2.4 million during the quarter ended March 31, 2023. The decrease primarily related to decreased provision for branch losses, branch overhead, provision for loan sale losses, and reversal of mortgage servicing rights impairment.

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.

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

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For The Three Months Ended March 31,
	2024				2023
	(In Thousands, except per share amounts)
Interest income:
Loans	$	24,484			$	19,885
Mortgage-related securities		1,098				943
Debt securities, federal funds sold and short-term investments		1,323				1,062
Total interest income		26,905				21,890
Interest expense:
Deposits		8,970				4,088
Borrowings		6,798				4,007
Total interest expense		15,768				8,095
Net interest income		11,137				13,795
Provision (credit) for credit losses		67				460
Net interest income after provision (credit) for loan losses		11,070				13,335
Noninterest income:
Service charges on loans and deposits		424				430
Increase in cash surrender value of life insurance		348				325
Mortgage banking income		20,068				16,770
Other		408				1,029
Total noninterest income		21,248				18,554
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		19,876				20,052
Occupancy, office furniture, and equipment		2,108				2,263
Advertising		914				889
Data processing		1,206				1,122
Communications		226				251
Professional fees		743				416
Real estate owned		13				1
Loan processing expense		1,046				1,018
Other		1,418				3,095
Total noninterest expenses		27,550				29,107
Income before income taxes		4,768				2,782
Income tax expense		1,730				627
Net income	$	3,038			$	2,155
Income per share:
Basic	$	0.16			$	0.10
Diluted	$	0.16			$	0.10
Weighted average shares outstanding:
Basic		19,021				20,890
Diluted		19,036				20,980

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	March 31,				December 31,
	2024				2023
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	41,325			$	30,667
Federal funds sold		4,123				5,493
Interest-earning deposits in other financial institutions and other short-term investments		266				261
Cash and cash equivalents		45,714				36,421
Securities available for sale (at fair value)		204,701				204,907
Loans held for sale (at fair value)		175,084				164,993
Loans receivable		1,664,817				1,664,215
Less: Allowance for credit losses ("ACL") - loans		18,549				18,549
Loans receivable, net		1,646,268				1,645,666
Office properties and equipment, net		19,936				19,995
Federal Home Loan Bank stock (at cost)		21,983				20,880
Cash surrender value of life insurance		68,207				67,859
Real estate owned, net		206				254
Prepaid expenses and other assets		52,625				52,414
Total assets	$	2,234,724			$	2,213,389
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	182,093			$	187,107
Money market and savings deposits		270,513				273,233
Time deposits		747,288				730,284
Total deposits		1,199,894				1,190,624
Borrowings		634,158				611,054
Advance payments by borrowers for taxes		14,051				6,607
Other liabilities		48,618				61,048
Total liabilities		1,896,721				1,869,333
Shareholders' equity:
Preferred stock		-				-
Common stock		199				203
Additional paid-in capital		98,610				103,908
Retained earnings		269,827				269,606
Unearned ESOP shares		(11,572	)			(11,869	)
Accumulated other comprehensive loss, net of taxes		(19,061	)			(17,792	)
Total shareholders' equity		338,003				344,056
Total liabilities and shareholders' equity	$	2,234,724			$	2,213,389
Share Information
Shares outstanding		19,910				20,315
Book value per share	$	16.98			$	16.94

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2024				2023				2023				2023				2023
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	11,137			$	11,756			$	11,989			$	12,675			$	13,795
Provision (credit) for credit losses		67				(435	)			445				186				460
Total noninterest income		21,248				16,876				22,230				23,525				18,554
Total noninterest expense		27,550				29,662				30,021				30,922				29,107
Income (loss) before income taxes (benefit)		4,768				(595	)			3,753				5,092				2,782
Income tax expense (benefit)		1,730				(555	)			500				1,085				627
Net income (loss)	$	3,038			$	(40	)		$	3,253			$	4,007			$	2,155
Income (loss) per share – basic	$	0.16			$	(0.00	)		$	0.16			$	0.20			$	0.10
Income (loss) per share – diluted	$	0.16			$	(0.00	)		$	0.16			$	0.20			$	0.10
Dividends declared per common share	$	0.15			$	0.15			$	0.15			$	0.20			$	0.20
Performance Ratios (annualized):
Return on average assets - QTD		0.56	%			(0.01	)%			0.58	%			0.74	%			0.43	%
Return on average equity - QTD		3.56	%			(0.05	)%			3.63	%			4.41	%			2.35	%
Net interest margin - QTD		2.15	%			2.25	%			2.26	%			2.47	%			2.88	%
Return on average assets - YTD		0.56	%			0.44	%			0.59	%			0.59	%			0.43	%
Return on average equity - YTD		3.56	%			2.62	%			3.46	%			3.37	%			2.35	%
Net interest margin - YTD		2.15	%			2.46	%			2.53	%			2.67	%			2.88	%
Asset Quality Ratios:
Past due loans to total loans		0.64	%			0.68	%			0.53	%			0.50	%			0.64	%
Nonaccrual loans to total loans		0.29	%			0.29	%			0.25	%			0.26	%			0.29	%
Nonperforming assets to total assets		0.23	%			0.23	%			0.20	%			0.19	%			0.22	%
Allowance for credit losses - loans to loans receivable		1.11	%			1.11	%			1.12	%			1.14	%			1.14	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2024				2023				2023				2023				2023
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,805,102			$	1,797,988			$	1,797,233			$	1,759,001			$	1,654,942
Mortgage related securities		172,077				172,863				174,202				171,938				170,218
Debt securities, federal funds sold and short-term investments		110,431				106,504				132,935				123,195				115,962
Total interest-earning assets		2,087,610				2,077,355				2,104,370				2,054,134				1,941,122
Noninterest-earning assets		103,815				105,073				105,714				108,320				107,009
Total assets	$	2,191,425			$	2,182,428			$	2,210,084			$	2,162,454			$	2,048,131
Interest-bearing liabilities
Demand accounts	$	87,393			$	91,868			$	90,623			$	69,147			$	68,564
Money market, savings, and escrow accounts		281,171				302,121				306,806				305,576				322,220
Certificates of deposit		739,543				735,418				719,708				695,310				648,531
Total interest-bearing deposits		1,108,107				1,129,407				1,117,137				1,070,033				1,039,315
Borrowings		602,724				549,210				584,764				551,545				441,716
Total interest-bearing liabilities		1,710,831				1,678,617				1,701,901				1,621,578				1,481,031
Noninterest-bearing demand deposits		92,129				102,261				106,042				130,291				143,296
Noninterest-bearing liabilities		45,484				56,859				46,805				46,446				51,840
Total liabilities		1,848,444				1,837,737				1,854,748				1,798,315				1,676,167
Equity		342,981				344,691				355,336				364,139				371,964
Total liabilities and equity	$	2,191,425			$	2,182,428			$	2,210,084			$	2,162,454			$	2,048,131
Average Yield/Costs (annualized)
Loans receivable and held for sale		5.46	%			5.36	%			5.26	%			5.05	%			4.87	%
Mortgage related securities		2.57	%			2.48	%			2.41	%			2.26	%			2.25	%
Debt securities, federal funds sold and short-term investments		4.82	%			4.94	%			4.45	%			3.67	%			3.71	%
Total interest-earning assets		5.18	%			5.10	%			4.97	%			4.73	%			4.57	%
Demand accounts		0.11	%			0.11	%			0.11	%			0.09	%			0.08	%
Money market and savings accounts		1.79	%			1.64	%			1.54	%			1.42	%			1.26	%
Certificates of deposit		4.19	%			3.76	%			3.43	%			2.80	%			1.92	%
Total interest-bearing deposits		3.26	%			2.90	%			2.64	%			2.23	%			1.60	%
Borrowings		4.54	%			4.83	%			4.71	%			4.08	%			3.68	%
Total interest-bearing liabilities		3.71	%			3.53	%			3.35	%			2.86	%			2.22	%

COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2024				2023				2023				2023				2023
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	11,598			$	12,056			$	12,431			$	13,238			$	14,008
Provision (credit) for credit losses		105				(550	)			445				158				388
Total noninterest income		990				894				966				1,540				987
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		5,360				5,397				4,618				4,683				5,168
Occupancy, office furniture and equipment		1,000				916				852				873				1,031
Advertising		174				363				200				230				184
Data processing		693				626				672				602				601
Communications		65				75				70				72				78
Professional fees		208				186				176				146				218
Real estate owned		13				1				1				1				1
Loan processing expense		-				-				-				-				-
Other		691				628				703				1,641				896
Total noninterest expense		8,204				8,192				7,292				8,248				8,177
Income before income taxes		4,279				5,308				5,660				6,372				6,430
Income tax expense		1,639				1,234				1,121				1,182				1,600
Net income	$	2,640			$	4,074			$	4,539			$	5,190			$	4,830
Efficiency ratio - QTD (non-GAAP)		65.17	%			63.26	%			54.43	%			55.81	%			54.53	%
Efficiency ratio - YTD (non-GAAP)		65.17	%			56.86	%			54.94	%			55.17	%			54.53	%

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,				December 31,				September 30,				June 30,				March 31,
	2024				2023				2023				2023				2023
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest loss	$	(541	)		$	(367	)		$	(550	)		$	(622	)		$	(282	)
Provision for credit losses		(38	)			115				-				28				72
Total noninterest income		20,328				16,028				21,452				23,041				17,951
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		14,756				14,881				17,186				17,929				15,099
Occupancy, office furniture and equipment		1,108				1,105				1,141				1,173				1,232
Advertising		740				667				716				714				705
Data processing		508				583				551				480				516
Communications		161				194				173				153				173
Professional fees		520				704				564				466				188
Real estate owned		-				-				-				-				-
Loan processing expense		1,046				756				722				932				1,018
Other		617				2,701				1,935				1,914				2,403
Total noninterest expense		19,456				21,591				22,988				23,761				21,334
Income (loss) before income taxes (benefit)		369				(6,045	)			(2,086	)			(1,370	)			(3,737	)
Income tax expense (benefit)		71				(1,827	)			(657	)			(126	)			(1,002	)
Net income (loss)	$	298			$	(4,218	)		$	(1,429	)		$	(1,244	)		$	(2,735	)
Efficiency ratio - QTD (non-GAAP)		98.33	%			137.86	%			109.98	%			105.99	%			120.74	%
Efficiency ratio - YTD (non-GAAP)		98.33	%			116.99	%			111.63	%			112.49	%			120.74	%
Loan originations	$	485,109			$	458,363			$	597,562			$	623,342			$	442,710
Purchase		93.0	%			95.7	%			95.4	%			96.4	%			96.5	%
Refinance		7.0	%			4.3	%			4.6	%			3.6	%			3.5	%
Gross margin on loans sold(1)		4.10	%			3.51	%			3.62	%			3.73	%			3.78	%

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