Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2022
Published
WAUWATOSA, Wis., Jan. 26, 2023 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $935,000, or $0.04 per diluted share for the quarter ended December 31, 2022 compared to $12.6 million, or $0.53 per diluted share for the quarter ended December 31, 2021. Net income per diluted share was $0.89 for the twelve months ended December 31, 2022 compared to net income per diluted share of $2.96 for the twelve months ended December 31, 2021.
“The quarter was mixed as the community banking segment continued to achieve excellent loan growth while the mortgage banking segment lagged with lower volumes and declining margins,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “Net interest income grew in the quarter as we added $156.0 million to the loan portfolio and efficiently used our cash as interest rates continued to rise. The mortgage banking segment continues to face significant challenges as a result of increases in mortgage rates year-over-year and the decline in affordable housing inventories. We are focused on controlling expenses and being prepared to capitalize when the mortgage market improves.”
Highlights of the Quarter Ended December 31, 2022
Waterstone Financial, Inc. (Consolidated)
● Consolidated net income of Waterstone Financial, Inc. totaled $935,000 for the quarter ended December 31, 2022, compared to $12.6 million for the quarter ended December 31, 2021.
● Consolidated return on average assets was 0.19% for the quarter ended December 31, 2022 compared to 2.22% for the quarter ended December 31, 2021.
● Consolidated return on average equity was 0.99% for the quarter ended December 31, 2022 and 11.14% for the quarter ended December 31, 2021.
● Dividends declared during the quarter ended December 31, 2022 totaled $0.20 per common share.
● We repurchased approximately 159,000 shares at a cost of $2.6 million, or $16.53 per share, during the quarter ended December 31, 2022.
● Nonperforming assets as percentage of total assets was 0.22% at December 31, 2022, 0.27% at September 30, 2022, and 0.26% at December 31, 2021.
● Past due loans as percentage of total loans was 0.41% at December 31, 2022, 0.48% at September 30, 2022, and 0.59% at December 31, 2021.
● Book value per share was $16.71 at December 31, 2022 and $17.45 at December 31, 2021. The decrease reflects an $0.79 per share impact resulting from an increase in the unrealized loss on available for sale securities.
Community Banking Segment
● Pre-tax income totaled $7.0 million for the quarter ended December 31, 2022, which represents a $1.4 million, or 16.4%, decrease compared to $8.4 million for the quarter ended December 31, 2021.
● Net interest income totaled $15.7 million for the quarter ended December 31, 2022, which represents a $2.5 million, or 19.2%, increase compared to $13.2 million for the quarter ended December 31, 2021.
● Average loans held for investment totaled $1.41 billion during the quarter ended December 31, 2022, which represents an increase of $201.9 million, or 16.7%, compared to $1.21 billion for the quarter ended December 31, 2021. Average loans held for investment increased $102.1 million compared to $1.31 billion for the quarter ended September 30, 2022.
● The community banking segment purchased $112.0 million adjustable-rate loans that were originated by the mortgage banking segment during the quarter ended December 31, 2022. Other noninterest expense includes fees totaling $2.0 million during the quarter ended December 31, 2022 which were paid to the mortgage banking segment and eliminated on a consolidated basis.
● Net interest margin increased 82 basis points to 3.29% for the quarter ended December 31, 2022 compared to 2.47% for the quarter ended December 31, 2021, which was a result of a decrease in the average balance of cash, as funds were utilized to fund loans held for investment, purchase investment securities and pay down borrowings. In addition, yields increased on loans receivable, loans held for sale, mortgage related securities, debt securities, federal funds sold and short term investments category. Net interest margin decreased five basis points compared to 3.34% for the quarter ended September 30, 2022, 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 - loans of $290,000 for the quarter ended December 31, 2022 compared to a negative provision for loan losses of $1.5 million for the quarter ended December 31, 2021. The current quarter increase was primarily due to an increase in loans held for investment during the quarter. The provision for credit losses - unfunded commitments was $334,000 as the loan pipeline increased from the prior quarter end.
● The efficiency ratio was 54.49% for the quarter ended December 31, 2022, compared to 53.02% for the quarter ended December 31, 2021.
● Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended December 31, 2022, a decrease of $35.3 million, or 2.8%, compared to $1.25 billion during the quarter ended December 31, 2021. Average deposits increased $18.1 million, or 6.1% annualized compared to the $1.19 billion for the quarter ended September 30, 2022 due to an increase in certificate of deposits rates attracting more customers.
● Other noninterest expense increased $1.8 million to $2.5 million during the quarter ended December 31, 2022 compared to $651,000 during the quarter ended December 31, 2021. The increase was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans. See the note on the loans purchased from the mortgage banking segment above. These fees are eliminated in the consolidated statements of income.
Mortgage Banking Segment
● Pre-tax loss totaled $6.5 million for the quarter ended December 31, 2022, compared to $7.3 million of pre-tax income for the quarter ended December 31, 2021.
● Loan originations decreased $446.5 million, or 45.0%, to $546.6 million during the quarter ended December 31, 2022, compared to $993.1 million during the quarter ended December 31, 2021. Origination volume relative to purchase activity accounted for 95.6% of originations for the quarter ended December 31, 2022 compared to 73.8% of total originations for the quarter ended December 31, 2021.
● Mortgage banking non-interest income decreased $22.6 million, or 55.6%, to $18.1 million for the quarter ended December 31, 2022, compared to $40.7 million for the quarter ended December 31, 2021.
● Gross margin on loans sold decreased to 3.41% for the quarter ended December 31, 2022, compared to 4.18% for the quarter ended December 31, 2021.
● Total compensation, payroll taxes and other employee benefits decreased $10.5 million, or 37.6%, to $17.4 million during the quarter ended December 31, 2022 compared to $27.9 million during the quarter ended December 31, 2021. The decrease primarily related to decreased commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased.
● Other noninterest expense increased $1.1 million to $2.6 million during the quarter ended December 31, 2022 compared to $1.4 million during the quarter ended December 31, 2021. The increase related to an increase in provision of loan sale losses.
● During the year ended December 31, 2022 the segment has added 11 branches and a total of 130 loan origination personnel. Losses associated with these new branches totaled approximately $725,000 for the quarter ended December 31, 2022 and $1.9 million for the year ended December 31, 2022. These branch losses are net of corporate revenue of approximately $641,000 for the quarter ended December 31, 2022 and $1.2 million for the year ended December 31, 2022.
*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, including significant disruption to financial market and other economic activity caused by the outbreak of COVID-19; 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.
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*WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES*
*CONSOLIDATED STATEMENTS OF INCOME*
*(Unaudited)*
*For The Three Months Ended December 31,* *For The Twelve Months Ended December 31,* *2022* *2021* *2022* *2021* (In Thousands, except per share amounts)
Interest income:
Loans $ 18,654 $ 15,152 $ 62,935 $ 64,366
Mortgage-related securities 915 506 3,241 1,954
Debt securities, federal funds sold and short-term investments 1,105 926 4,069 3,563
Total interest income 20,674 16,584 70,245 69,883
Interest expense:
Deposits 2,352 878 4,863 4,420
Borrowings 2,711 2,534 8,428 9,948
Total interest expense 5,063 3,412 13,291 14,368
Net interest income 15,611 13,172 56,954 55,515
Provision (credit) for credit losses (1) 664 (1,470 ) 968 (3,990 )
Net interest income after provision for loan losses 14,947 14,642 55,986 59,505
Noninterest income:
Service charges on loans and deposits 497 842 2,202 3,325
Increase in cash surrender value of life insurance 344 318 1,738 1,615
Mortgage banking income 15,811 40,448 99,560 191,035
Other 443 408 2,055 7,220
Total noninterest income 17,095 42,016 105,555 203,195
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits 22,063 32,837 99,565 135,115
Occupancy, office furniture, and equipment 2,166 2,266 8,706 9,612
Advertising 972 958 3,976 3,528
Data processing 1,040 1,079 4,470 3,950
Communications 289 321 1,189 1,309
Professional fees 612 471 1,815 1,275
Real estate owned 13 14 19 3
Loan processing expense 1,059 940 4,744 4,610
Other 3,170 2,088 12,578 11,192
Total noninterest expenses 31,384 40,974 137,062 170,594
Income before income taxes 658 15,684 24,479 92,106
Income tax (benefit) expense (277 ) 3,131 4,992 21,315
Net income $ 935 $ 12,553 $ 19,487 $ 70,791
Income per share:
Basic $ 0.04 $ 0.53 $ 0.89 $ 2.98
Diluted $ 0.04 $ 0.53 $ 0.89 $ 2.96
Weighted average shares outstanding:
Basic 20,966 23,598 21,884 23,741
Diluted 21,069 23,802 22,010 23,931
*December 31,* *December 31,* *2022* *2021* *(Unaudited)* * *
*Assets* (In Thousands, except per share amounts)
Cash $ 33,700 $ 343,016
Federal funds sold 10,683 13,981
Interest-earning deposits in other financial institutions and other short-term investments 2,259 19,725
Cash and cash equivalents 46,642 376,722
Securities available for sale (at fair value) 196,588 179,016
Loans held for sale (at fair value) 131,188 312,738
Loans receivable 1,510,178 1,205,785
Less: Allowance for credit losses ("ACL") - loans (1) 17,757 15,778
Loans receivable, net 1,492,421 1,190,007
Office properties and equipment, net 21,105 22,273
Federal Home Loan Bank stock (at cost) 17,357 24,438
Cash surrender value of life insurance 66,443 65,368
Real estate owned, net 145 148
Prepaid expenses and other assets 59,783 45,148
Total assets $ 2,031,672 $ 2,215,858
*Liabilities and Shareholders' Equity* * * * *
Liabilities:
Demand deposits $ 230,596 $ 214,409
Money market and savings deposits 326,145 392,314
Time deposits 642,271 626,663
Total deposits 1,199,012 1,233,386
Borrowings 386,784 477,127
Advance payments by borrowers for taxes 5,334 4,094
Other liabilities 70,056 68,478
Total liabilities 1,661,186 1,783,085
Shareholders' equity:
Preferred stock - -
Common stock 222 248
Additional paid-in capital 128,550 174,505
Retained earnings 274,246 273,398
Unearned ESOP shares (13,056 ) (14,243 )
Accumulated other comprehensive loss, net of taxes (19,476 ) (1,135 )
Total shareholders' equity 370,486 432,773
Total liabilities and shareholders' equity $ 2,031,672 $ 2,215,858
*Share Information* * * * *
Shares outstanding 22,174 24,795
Book value per share $ 16.71 $ 17.45
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*WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES*
*SUMMARY OF KEY QUARTERLY FINANCIAL DATA*
*(Unaudited)*
*At or For the Three Months Ended* *December 31,* *September 30,* *June 30,* *March 31,* *December 31,* *2022* *2022* *2022* *2022* *2021* (Dollars in Thousands, except per share amounts)
*Condensed Results of Operations:* * * * * * * * * * *
Net interest income $ 15,611 $ 15,398 $ 14,081 $ 11,864 $ 13,172
Provision (credit) for credit losses (1) 664 332 48 (76 ) (1,470 )
Total noninterest income 17,095 27,404 31,238 29,818 42,016
Total noninterest expense 31,384 35,694 35,050 34,935 40,974
Income before income taxes 658 6,776 10,221 6,823 15,684
Income tax (benefit) expense (277 ) 1,506 2,231 1,532 3,131
Net income $ 935 $ 5,270 $ 7,990 $ 5,291 $ 12,553
Income per share – basic $ 0.04 $ 0.25 $ 0.36 $ 0.23 $ 0.53
Income per share – diluted $ 0.04 $ 0.25 $ 0.36 $ 0.23 $ 0.53
Dividends declared per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.70
*Performance Ratios (annualized):* * * * * * * * * * *
Return on average assets - QTD 0.19 % 1.08 % 1.61 % 1.00 % 2.22 %
Return on average equity - QTD 0.99 % 5.38 % 7.93 % 5.00 % 11.14 %
Net interest margin - QTD 3.29 % 3.34 % 3.02 % 2.38 % 2.47 %
Return on average assets - YTD 0.96 % 1.22 % 1.30 % 1.00 % 3.20 %
Return on average equity - YTD 4.91 % 6.09 % 6.42 % 5.00 % 16.38 %
Net interest margin - YTD 3.00 % 2.90 % 2.69 % 2.38 % 2.68 %
*Asset Quality Ratios:* * * * * * * * * * *
Past due loans to total loans 0.41 % 0.48 % 0.60 % 0.53 % 0.59 %
Nonaccrual loans to total loans 0.29 % 0.37 % 0.59 % 0.55 % 0.46 %
Nonperforming assets to total assets 0.22 % 0.27 % 0.39 % 0.34 % 0.26 %
Allowance for credit losses to loans receivable (1) 1.18 % 1.29 % 1.35 % 1.40 % 1.31 %
(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.
*WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES*
*SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS*
*(Unaudited)*
*At or For the Three Months Ended* *December 31,* *September 30,* *June 30,* *March 31,* *December 31,* *2022* *2022* *2022* *2022* *2021*
*Average balances* (Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale $ 1,578,790 $ 1,492,462 $ 1,433,452 $ 1,361,839 $ 1,517,984
Mortgage related securities 170,209 172,807 168,000 138,863 119,709
Debt securities, federal funds sold and short term investments 130,973 162,211 269,823 519,116 475,574
Total interest-earning assets 1,879,972 1,827,480 1,871,275 2,019,818 2,113,267
Noninterest-earning assets 122,643 114,274 117,248 128,813 131,703
Total assets $ 2,002,615 $ 1,941,754 $ 1,988,523 $ 2,148,631 $ 2,244,970
Interest-bearing liabilities
Demand accounts $ 75,449 $ 75,058 $ 70,674 $ 69,736 $ 70,762
Money market, savings, and escrow accounts 349,820 398,643 412,321 404,413 398,210
Certificates of deposit 628,375 586,012 584,244 610,681 643,546
Total interest-bearing deposits 1,053,644 1,059,713 1,067,239 1,084,830 1,112,518
Borrowings 333,249 296,111 326,068 440,252 481,971
Total interest-bearing liabilities 1,386,893 1,355,824 1,393,307 1,525,082 1,594,489
Noninterest-bearing demand deposits 177,217 153,591 154,070 152,900 153,303
Noninterest-bearing liabilities 63,866 43,683 36,962 41,232 49,982
Total liabilities 1,627,976 1,553,098 1,584,339 1,719,214 1,797,774
Equity 374,639 388,656 404,184 429,417 447,196
Total liabilities and equity $ 2,002,615 $ 1,941,754 $ 1,988,523 $ 2,148,631 $ 2,244,970
*Average Yield/Costs (annualized)* * * * * * * * * * *
Loans receivable and held for sale 4.69 % 4.32 % 4.07 % 4.02 % 3.96 %
Mortgage related securities 2.13 % 2.07 % 1.96 % 1.76 % 1.68 %
Debt securities, federal funds sold and short term investments 3.35 % 2.41 % 1.56 % 0.72 % 0.77 %
Total interest-earning assets 4.36 % 3.93 % 3.52 % 3.02 % 3.11 %
Demand accounts 0.08 % 0.08 % 0.09 % 0.08 % 0.08 %
Money market and savings accounts 0.67 % 0.21 % 0.19 % 0.21 % 0.22 %
Certificates of deposit 1.10 % 0.51 % 0.37 % 0.37 % 0.40 %
Total interest-bearing deposits 0.89 % 0.37 % 0.28 % 0.29 % 0.31 %
Borrowings 3.23 % 2.34 % 1.95 % 2.20 % 2.09 %
Total interest-bearing liabilities 1.45 % 0.80 % 0.67 % 0.84 % 0.85 %
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*COMMUNITY BANKING SEGMENT*
*SUMMARY OF KEY QUARTERLY FINANCIAL DATA*
*(Unaudited)*
*At or For the Three Months Ended* *December 31,* *September 30,* *June 30,* *March 31,* *December 31,* *2022* *2022* *2022* *2022* *2021* (Dollars in Thousands)
*Condensed Results of Operations:* * * * * * * * * * *
Net interest income $ 15,737 $ 15,507 $ 13,710 $ 11,652 $ 13,197
Provision (credit) for credit losses (1) 624 234 (41 ) (140 ) (1,500 )
Total noninterest income 1,033 1,116 1,640 1,432 1,459
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits 4,781 4,424 4,596 5,212 5,085
Occupancy, office furniture and equipment 877 955 876 937 960
Advertising 203 213 244 227 278
Data processing 551 539 531 608 531
Communications 92 108 63 94 100
Professional fees 153 123 118 114 151
Real estate owned 13 1 - 5 14
Loan processing expense - - - - -
Other 2,468 1,477 1,006 600 651
Total noninterest expense 9,138 7,840 7,434 7,797 7,770
Income before income taxes 7,008 8,549 7,957 5,427 8,386
Income tax expense 1,308 1,983 1,658 1,167 1,690
Net income $ 5,700 $ 6,566 $ 6,299 $ 4,260 $ 6,696
Efficiency ratio - QTD 54.49 % 47.16 % 48.43 % 59.59 % 53.02 %
Efficiency ratio - YTD 52.10 % 51.20 % 53.57 % 59.59 % 48.58 %
(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.
*MORTGAGE BANKING SEGMENT*
*SUMMARY OF KEY QUARTERLY FINANCIAL DATA*
*(Unaudited)*
*At or For the Three Months Ended* *December 31,* *September 30,* *June 30,* *March 31,* *December 31,* *2022* *2022* *2022* *2022* *2021* (Dollars in Thousands)
*Condensed Results of Operations:* * * * * * * * * * *
Net interest (loss) income $ (241 ) $ (155 ) $ 370 $ 183 $ (49 )
Provision for credit losses (2) 40 98 89 64 30
Total noninterest income 18,066 27,305 30,126 28,604 40,692
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits 17,397 21,864 21,311 20,438 27,866
Occupancy, office furniture and equipment 1,289 1,341 1,180 1,251 1,306
Advertising 769 924 718 678 680
Data processing 490 543 613 588 542
Communications 197 194 195 246 221
Professional fees 453 265 222 338 306
Real estate owned - - - - -
Loan processing expense 1,059 1,120 1,134 1,431 940
Other 2,584 2,571 2,733 2,309 1,445
Total noninterest expense 24,238 28,822 28,106 27,279 33,306
(Loss) income before income taxes (6,453 ) (1,770 ) 2,301 1,444 7,307
Income tax (benefit) expense (1,602 ) (470 ) 578 377 1,443
Net (loss) income $ (4,851 ) $ (1,300 ) $ 1,723 $ 1,067 $ 5,864
Efficiency ratio - QTD 135.98 % 106.16 % 92.16 % 94.76 % 81.95 %
Efficiency ratio - YTD 104.02 % 97.42 % 93.42 % 94.76 % 71.44 %
Loan originations $ 546,628 $ 729,897 $ 778,760 $ 708,463 $ 993,113
Purchase 95.6 % 94.2 % 90.4 % 77.3 % 73.8 %
Refinance 4.4 % 5.8 % 9.6 % 22.7 % 26.2 %
Gross margin on loans sold(1) 3.41 % 3.70 % 3.85 % 4.00 % 4.18 %
(1) Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations
(2) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.
Contact: Mark R. Gerke
Chief Financial Officer
414-459-4012
markgerke@wsbonline.com