Waterstone Financial : Announces Results of Operations for the Quarter and Six Months Ended June 30, 2022 - Form 8-K

Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2022.

WAUWATOSA, WI - 7/21/2022 - Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $8.0 million, or $0.36 per diluted share for the quarter ended June 30, 2022 compared to $17.9 million, or $0.74 per diluted share for the quarter ended June 30, 2021. Net income per diluted share was $0.58 for the six months ended June 30, 2022 compared to net income per diluted share of $1.64 for the six months ended June 30, 2021.

"The community banking segment achieved strong loan growth, specifically in the commercial real estate market" said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. "We were able to reduce our borrowings and fund our loan growth through the deposits that we have raised over the past few years. The mortgage banking segment continues to focus on efficiencies to remain profitable, as origination volumes decreased in response to higher interest rates. Additionally, we were able to continue returning strong shareholder value through our largest quarterly stock buyback since 2015."

Highlights of the Quarter Ended June 30, 2022

Waterstone Financial, Inc. (Consolidated)

●	Consolidated net income of Waterstone Financial, Inc. totaled $8.0 million for the quarter ended June 30, 2022, compared to $17.9 million for the quarter ended June 30, 2021.
●	Consolidated return on average assets was 1.61% for the quarter ended June 30, 2022 compared to 3.25% for the quarter ended June 30, 2021.
●	Consolidated return on average equity was 7.93% for the quarter ended June 30, 2022 and 16.49% for the quarter ended June 30, 2021.
●	Dividends declared during the quarter ended June 30, 2022 totaled $0.20 per common share.
●	We repurchased approximately 1.4 million shares at a cost of $24.2 million, or $17.07 per share, during the quarter ended June 30, 2022.
●	Nonperforming assets as percentage of total assets was 0.39% at June 30, 2022, 0.34% at March 31, 2022, and 0.20% at June 30, 2021.
●	Past due loans as percentage of total loans was 0.60% at June 30, 2022, 0.59% at March 31, 2022, and 0.53% at June 30, 2021.

Community Banking Segment

●	Pre-tax income totaled $8.0 million for the quarter ended June 30, 2022, which represents a $1.7 million, or 17.7%, decrease compared to $9.7 million for the quarter ended June 30, 2021.
●	Net interest income totaled $13.7 million for the quarter ended June 30, 2022, which represents a $807,000, or 5.6%, decrease compared to $14.5 million for the quarter ended June 30, 2021.
●	Average loans held for investment totaled $1.25 billion during the quarter ended June 30, 2022, which represents a decrease of $72.1 million, or 5.5%, compared to $1.32 billion for the quarter ended June 30, 2021. Average loans held for investment increased $42.5 million compared to $1.20 billion for the quarter ended March 31, 2021.
●	Net interest margin increased 24 basis points to 3.02% for the quarter ended June 30, 2022 compared to 2.78% for the quarter ended June 30, 2021, which was a result of a decrease in the average balance of cash, as funds were utilized to 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 increased 64 basis points compared to 2.38% for the quarter ended March 31, 2022, driven by an increase in average loan balance, weighted average yield on loans, and weighted average yield on average debt securities, federal funds sold and short term investments. In addition, excess cash was utilized to pay down borrowings.

●	The segment had a negative provision for credit losses of $41,000 for the quarter ended June 30, 2022 compared to a negative provision for loan losses of $750,000 for the quarter ended June 30, 2021.
●	Net recoveries totaled $107,000 for the quarter ended June 30, 2022, as one significant loan recovery payment was received during the quarter, compared to net charge-offs of $378,000 for the quarter ended June 30, 2021. With the adoption of CECL, estimated recoveries may be accounted for within the calculation and do not impact the provision for credit losses line item when cash is received.
●	The efficiency ratio was 48.43% for the quarter ended June 30, 2022, compared to 44.79% for the quarter ended June 30, 2021.
●	Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended June 30, 2022, an increase of $1.2 million, or 0.1%, compared to $1.21 billion during the quarter ended June 30, 2021. Average deposits decreased $22.9 million, or 7.5% annualized compared to the $1.23 billion for the quarter ended March 31, 2022.

Mortgage Banking Segment

●	Pre-tax income totaled $2.3 million for the quarter ended June 30, 2022, compared to $14.2 million for the quarter ended June 30, 2021.
●	Loan originations decreased $286.4 million, or 26.9%, to $778.8 million during the quarter ended June 30, 2022, compared to $1.07 billion during the quarter ended June 30, 2021. Origination volume relative to purchase activity accounted for 90.4% of originations for the quarter ended June 30, 2022 compared to 75.4% of total originations for the quarter ended June 30, 2021.
●	Mortgage banking non-interest income decreased $20.4 million, or 40.4%, to $30.1 million for the quarter ended June 30, 2022, compared to $50.6 million for the quarter ended June 30, 2021.
●	Gross margin on loans sold decreased to 3.76% for the quarter ended June 30, 2022, compared to 4.81% for the quarter ended June 30, 2021.
●	Total compensation, payroll taxes and other employee benefits decreased $7.9 million, or 26.9%, to $21.3 million during the quarter ended June 30, 2022 compared to $29.2 million during the quarter ended June 30, 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 $55,000 to $2.7 million during the quarter ended June 30, 2022 compared to $2.7 million during the quarter ended June 30, 2021. The increase related to an increase in provision of loan sale losses offset by a decrease in mortgage servicing rights amortization expense.
●	During the quarter ended June 30, 2022, the segment opened five new branches. Direct start up expenses related to these branches totaled approximately $510,000 for the quarter ended June 30, 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.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		For The Three Months Ended June 30,			For The Six Months Ended June 30,
		2022			2021			2022			2021
		(In Thousands, except per share amounts)			(In Thousands, except per share amounts)
Interest income:
Loans		$	14,546			$	16,480			$	28,046			$	33,083
Mortgage-related securities			821				486				1,423				977
Debt securities, federal funds sold and short-term investments			1,049				858				1,977				1,733
Total interest income			16,416				17,824				31,446				35,793
Interest expense:
Deposits			751				1,078				1,530				2,595
Borrowings			1,584				2,469				3,971				4,969
Total interest expense			2,335				3,547				5,501				7,564
Net interest income			14,081				14,277				25,945				28,229
Provision (credit) for credit losses (1)			48				(750	)			(28	)			(1,820	)
Net interest income after provision (credit) for credit losses			14,033				15,027				25,973				30,049
Noninterest income:
Service charges on loans and deposits			666				657				1,176				1,347
Increase in cash surrender value of life insurance			724				684				1,040				985
Mortgage banking income			29,410				49,649				57,685				104,040
Other			438				1,054				1,155				1,871
Total noninterest income			31,238				52,044				61,056				108,243
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			25,793				33,926				51,328				68,049
Occupancy, office furniture, and equipment			2,056				2,293				4,244				4,858
Advertising			962				911				1,867				1,735
Data processing			1,144				914				2,346				1,885
Communications			258				326				598				657
Professional fees			349				569				810				254
Real estate owned			-				-				5				(12	)
Loan processing expense			1,134				1,200				2,565				2,535
Other			3,354				3,158				6,221				6,336
Total noninterest expenses			35,050				43,297				69,984				86,297
Income before income taxes			10,221				23,774				17,045				51,995
Income tax expense			2,231				5,880				3,763				12,757
Net income		$	7,990			$	17,894			$	13,282			$	39,238
Income per share:
Basic		$	0.36			$	0.75			$	0.59			$	1.65
Diluted		$	0.36			$	0.74			$	0.58			$	1.64
Weighted average shares outstanding:
Basic			22,126				23,848				22,626				23,792
Diluted			22,229				24,029				22,768				23,996

⁽¹⁾ The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amount presented is calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		June 30,			December 31,
		2022			2021
		(Unaudited)
Assets		(In Thousands, except per share amounts)
Cash		$	87,393			$	343,016
Federal funds sold			15,093				13,981
Interest-earning deposits in other financial institutions and other short term investments			19,707				19,725
Cash and cash equivalents			122,193				376,722
Securities available for sale (at fair value)			200,545				179,016
Loans held for sale (at fair value)			206,702				312,738
Loans receivable			1,276,560				1,205,785
Less: Allowance for credit losses (1)			17,271				15,778
Loans receivable, net			1,259,289				1,190,007
Office properties and equipment, net			21,781				22,273
Federal Home Loan Bank stock (at cost)			16,301				24,438
Cash surrender value of life insurance			65,745				65,368
Real estate owned, net			148				148
Prepaid expenses and other assets			48,393				45,148
Total assets		$	1,941,097			$	2,215,858
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits		$	230,003			$	214,409
Money market and savings deposits			395,229				392,314
Time deposits			587,998				626,663
Total deposits			1,213,230				1,233,386
Borrowings			281,100				477,127
Advance payments by borrowers for taxes			17,302				4,094
Other liabilities			43,085				68,478
Total liabilities			1,554,717				1,783,085
Shareholders' equity:
Preferred stock			-				-
Common stock			227				248
Additional paid-in capital			137,547				174,505
Retained earnings			276,444				273,398
Unearned ESOP shares			(13,650	)			(14,243	)
Accumulated other comprehensive loss, net of taxes			(14,188	)			(1,135	)
Total shareholders' equity			386,380				432,773
Total liabilities and shareholders' equity		$	1,941,097			$	2,215,858
Share Information
Shares outstanding			22,734				24,795
Book value per share		$	17.00			$	17.45

⁽¹⁾ The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amount presented is calculated under the prior accounting standard.

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,
		2022			2022			2021			2021			2021
		(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income		$	14,081			$	11,864			$	13,172			$	14,114			$	14,277
Provision credit for credit losses (1)			48				(76	)			(1,470	)			(700	)			(750	)
Total noninterest income			31,238				29,818				42,016				52,936				52,044
Total noninterest expense			35,050				34,935				40,974				43,323				43,297
Income before income taxes			10,221				6,823				15,684				24,427				23,774
Income tax expense			2,231				1,532				3,131				5,427				5,880
Net income		$	7,990			$	5,291			$	12,553			$	19,000			$	17,894
Income per share - basic		$	0.36			$	0.23			$	0.53			$	0.80			$	0.75
Income per share - diluted		$	0.36			$	0.23			$	0.53			$	0.79			$	0.74
Dividends declared per share		$	0.20			$	0.20			$	0.70			$	0.20			$	0.70
Performance Ratios (annualized):
Return on average assets - QTD			1.61	%			1.00	%			2.22	%			3.38	%			3.25	%
Return on average equity - QTD			7.93	%			5.00	%			11.14	%			17.25	%			16.49	%
Net interest margin - QTD			3.02	%			2.38	%			2.47	%			2.68	%			2.78	%
Return on average assets - YTD			1.30	%			1.00	%			3.20	%			3.54	%			3.62	%
Return on average equity - YTD			6.42	%			5.00	%			16.38	%			18.08	%			18.49	%
Net interest margin - YTD			2.69	%			2.38	%			2.68	%			2.75	%			2.79	%
Asset Quality Ratios:
Past due loans to total loans			0.60	%			0.53	%			0.59	%			0.92	%			0.53	%
Nonaccrual loans to total loans			0.59	%			0.55	%			0.46	%			0.32	%			0.34	%
Nonperforming assets to total assets			0.39	%			0.34	%			0.26	%			0.18	%			0.20	%
Allowance for loan losses to loans receivable			1.35	%			1.40	%			1.31	%			1.37	%			1.34	%

⁽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
		June 30,			March 31,			December 31,			September 30,			June 30,
		2022			2022			2021			2021			2021
Average balances		(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale		$	1,433,452			$	1,361,839			$	1,517,984			$	1,573,194			$	1,655,078
Mortgage related securities			168,000				138,863				119,709				108,743				100,056
Debt securities, federal funds sold and short term investments			269,823				519,116				475,574				409,559				308,105
Total interest-earning assets			1,871,275				2,019,818				2,113,267				2,091,496				2,063,239
Noninterest-earning assets			117,248				128,813				131,703				137,454				143,375
Total assets		$	1,988,523			$	2,148,631			$	2,244,970			$	2,228,950			$	2,206,614
Interest-bearing liabilities
Demand accounts		$	70,674			$	69,736			$	70,762			$	68,478			$	63,610
Money market, savings, and escrow accounts			412,321				404,413				398,210				391,599				350,270
Certificates of deposit			584,244				610,681				643,546				663,343				690,196
Total interest-bearing deposits			1,067,239				1,084,830				1,112,518				1,123,420				1,104,076
Borrowings			326,068				440,252				481,971				475,000				480,054
Total interest-bearing liabilities			1,393,307				1,525,082				1,594,489				1,598,420				1,584,130
Noninterest-bearing demand deposits			154,070				152,900				153,303				153,436				141,648
Noninterest-bearing liabilities			36,962				41,232				49,982				40,148				45,658
Total liabilities			1,584,339				1,719,214				1,797,774				1,792,004				1,771,436
Equity			404,184				429,417				447,196				436,946				435,178
Total liabilities and equity		$	1,988,523			$	2,148,631			$	2,244,970			$	2,228,950			$	2,206,614
Average Yield/Costs (annualized)
Loans receivable and held for sale			4.07	%			4.02	%			3.96	%			4.07	%			3.99	%
Mortgage related securities			1.96	%			1.76	%			1.68	%			1.72	%			1.95	%
Debt securities, federal funds sold and short term investments			1.56	%			0.72	%			0.77	%			0.88	%			1.12	%
Total interest-earning assets			3.52	%			3.02	%			3.11	%			3.32	%			3.47	%
Demand accounts			0.09	%			0.08	%			0.08	%			0.08	%			0.08	%
Money market and savings accounts			0.19	%			0.21	%			0.22	%			0.24	%			0.23	%
Certificates of deposit			0.37	%			0.37	%			0.40	%			0.42	%			0.50	%
Total interest-bearing deposits			0.28	%			0.29	%			0.31	%			0.33	%			0.39	%
Borrowings			1.95	%			2.20	%			2.09	%			2.04	%			2.06	%
Total interest-bearing liabilities			0.67	%			0.84	%			0.85	%			0.84	%			0.90	%

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,
		2022			2022			2021			2021			2021
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income		$	13,710			$	11,652			$	13,197			$	14,090			$	14,517
Provision (credit) for credit losses (1)			(41	)			(140	)			(1,500	)			(750	)			(750	)
Total noninterest income			1,640				1,432				1,459				1,726				1,630
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			4,596				5,212				5,085				5,360				4,874
Occupancy, office furniture and equipment			876				937				960				909				887
Advertising			244				227				278				233				260
Data processing			531				608				531				531				466
Communications			63				94				100				122				86
Professional fees			118				114				151				130				198
Real estate owned			-				5				14				1				-
Loan processing expense			-				-				-				-				-
Other			1,006				600				651				422				461
Total noninterest expense			7,434				7,797				7,770				7,708				7,232
Income before income taxes			7,957				5,427				8,386				8,858				9,665
Income tax expense			1,658				1,167				1,690				2,092				2,128
Net income		$	6,299			$	4,260			$	6,696			$	6,766			$	7,537
Efficiency ratio - QTD			48.43	%			59.59	%			53.02	%			48.74	%			44.79	%
Efficiency ratio - YTD			53.57	%			59.59	%			48.58	%			47.21	%			46.44	%

⁽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
		June 30,			March 31,			December 31,			September 30,			June 30,
		2022			2022			2021			2021			2021
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income		$	370			$	183			$	(49	)		$	(2	)		$	(251	)
Provision for credit losses (2)			89				64				30				50				-
Total noninterest income			30,126				28,604				40,692				51,290				50,556
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits			21,311				20,438				27,866				28,981				29,170
Occupancy, office furniture and equipment			1,180				1,251				1,306				1,579				1,406
Advertising			718				678				680				602				651
Data processing			613				588				542				450				443
Communications			195				246				221				209				240
Professional fees			222				338				306				421				361
Real estate owned			-				-				-				-				-
Loan processing expense			1,134				1,431				940				1,135				1,200
Other			2,733				2,309				1,445				2,270				2,678
Total noninterest expense			28,106				27,279				33,306				35,647				36,149
Income (loss) before income taxes			2,301				1,444				7,307				15,591				14,156
Income tax expense (benefit)			578				377				1,443				3,341				3,761
Net income (loss)		$	1,723			$	1,067			$	5,864			$	12,250			$	10,395
Efficiency ratio - QTD			92.16	%			94.76	%			81.95	%			69.50	%			71.86	%
Efficiency ratio - YTD			93.42	%			94.76	%			71.44	%			68.71	%			68.32	%
Loan originations		$	778,760			$	708,463			$	993,113			$	1,055,500			$	1,065,161
Purchase			90.4	%			77.3	%			73.8	%			73.8	%			75.4	%
Refinance			9.6	%			22.7	%			26.2	%			26.2	%			24.6	%
Gross margin on loans sold (1)			3.76	%			4.00	%			4.18	%			4.54	%			4.81	%

⁽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.