Waterstone Financial Inc.

07/25/2024 | Press release | Distributed by Public on 07/25/2024 14:01

Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2024 Form 8 K

Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six MonthsEnded June 30, 2024.

WAUWATOSA, WI - 7/25/2024 - Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $5.7 million, or $0.31 per diluted share, for the quarter ended June 30, 2024 compared to net income of $4.0 million, or $0.20 per diluted share for the quarter ended June 30, 2023. Net income per diluted share was $0.47 for the six months ended June 30, 2024 compared to net income per diluted share of $0.30 for the six months ended June 30, 2023.

"The results this quarter reflect our continued efforts over the past year to improve efficiencies at the Mortgage Banking segment." said William Bruss, Chief Executive Officer of Waterstone Financial, Inc. "While our results have improved, we continue to face many challenges within the Mortgage Banking segment, as the mortgage banking industry continues to face unknown variables driven by consumer demand, affordable inventory, and interest rates. The Community Banking segment continues to deal with margin pressure, as short-term funding rates remain elevated due to the restrictive monetary policy of the Federal Reserve. Throughout this challenging period, we have maintained a robust share repurchase program that continues to return strong value to shareholders through repurchase activity that is accretive to book value."

Highlights of the Quarter Ended June 30, 2024

Waterstone Financial, Inc. (Consolidated)

● Consolidated net income of Waterstone Financial, Inc. totaled $5.7 million for the quarter ended June 30, 2024, compared to net income of $4.0 million for the quarter ended June 30, 2023.
● Consolidated return on average assets was 1.02% for the quarter ended June 30, 2024 compared to 0.74% for the quarter ended June 30, 2023.
● Consolidated return on average equity was 6.84% for the quarter ended June 30, 2024 and 4.41% for the quarter ended June 30, 2023.
● Dividends declared during the quarter ended June 30, 2024 totaled $0.15 per common share.
● During the quarter ended June 30, 2024, we repurchased approximately 481,000 shares at a cost (including the federal excise tax) of $5.8 million, or $11.99 per share. This share repurchase activity was accretive to book value per share in the amount of $0.13 during the quarter ended June 30, 2024.
● Nonperforming assets as a percentage of total assets was 0.25% at June 30, 2024, 0.23% at March 31, 2024, and 0.19% at June 30, 2023.
●

Past due loans as a percentage of total loans was 0.76% at June 30, 2024, 0.64% at March 31, 2024, and 0.50% at June 30, 2023.

● Book value per share was $17.20 at June 30, 2024 and $16.94 at December 31, 2023.

Community Banking Segment

●

Pre-tax income totaled $5.1 million for the quarter ended June 30, 2024, which represents a $1.3 million, or 20.5%, decrease compared to $6.4 million for the quarter ended June 30, 2023.

● Net interest income totaled $11.2 million for the quarter ended June 30, 2024, which represents a $2.0 million, or 15.1%, decrease compared to $13.2 million for the quarter ended June 30, 2023.
● Average loans held for investment totaled $1.67 billion during the quarter ended June 30, 2024, which represents an increase of $81.6 million, or 5.1%, compared to $1.59 billion for the quarter ended June 30, 2023. The increase was primarily due to increases in the construction and commercial real estate mortgages. Average loans held for investment increased $4.1 million compared to $1.66 billion for the quarter ended March 31, 2024. The increase was primarily due to increases in construction and commercial real estate mortgages.
● Net interest margin decreased 46 basis points to 2.01% for the quarter ended June 30, 2024 compared to 2.47% for the quarter ended June 30, 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 14 basis points compared to 2.15% for the quarter ended March 31, 2024, driven by an increase in weighted average cost of deposits and borrowings as the short term borrowing rates increased resulted in increased funding rates.
● Past due loans at the community banking segment totaled $9.3 million at June 30, 2024, $8.1 million at March 31, 2024, and $5.7 million at June 30, 2023.
●

The segment had a negative provision for credit losses related to funded loans of $197,000 for the quarter ended June 30, 2024 compared to a provision for credit losses related to funded loans of $619,000 for the quarter ended June 30, 2023. The current quarter decrease was primarily due to decrease to historical loss rates and improvements in certain internal asset quality metrics offset by an adjustment in the qualitative factors primarily related to increases in economic risks related to commercial real estate loans during the quarter. The negative provision for credit losses related to unfunded loan commitments was $82,000 for the quarter ended June 30, 2024 compared to a negative provision for credit losses related to unfunded loan commitments of $462,000 for the quarter ended June 30, 2023. The negative provision for credit losses related to unfunded loan commitments for the quarter ended June 30, 2024 was due primarily to a decrease of loans that are currently waiting to be funded compared to the prior quarter end.

● The efficiency ratio, a non-GAAP ratio, was 62.37% for the quarter ended June 30, 2024, compared to 55.81% for the quarter ended June 30, 2023.
● Average deposits (excluding escrow accounts) totaled $1.22 billion during the quarter ended June 30, 2024, an increase of $35.7 million, or 3.0%, compared to $1.18 billion during the quarter ended June 30, 2023. Average deposits increased $28.8 million, or 9.7% annualized, compared to $1.19 billion for the quarter ended March 31, 2024.
Mortgage Banking Segment
●

Pre-tax income totaled $2.0 million for the quarter ended June 30, 2024, compared to $1.4 million of pre-tax loss for the quarter ended June 30, 2023.

● Loan originations increased $10.8 million, or 1.7%, to $634.1 million during the quarter ended June 30, 2024, compared to $623.3 million during the quarter ended June 30, 2023. Origination volume relative to purchase activity accounted for 92.7% of originations for the quarter ended June 30, 2024 compared to 96.4% of total originations for the quarter ended June 30, 2023.
● Mortgage banking non-interest income increased $2.0 million, or 8.9%, to $25.1 million for the quarter ended June 30, 2024, compared to $23.0 million for the quarter ended June 30, 2023.
● Gross margin on loans sold totaled 3.93% for the quarter ended June 30, 2024, compared to 3.73% for the quarter ended June 30, 2023.
● During the quarter ended June 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans receivable and with a book value of $2.0 million for $2.1 million resulting in a gain on sale of $152,000. There was no comparable sale during the quarter ended June 30, 2023.
● Total compensation, payroll taxes and other employee benefits decreased $1.0 million, or 5.8%, to $16.9 million during the quarter ended June 30, 2024 compared to $17.9 million during the quarter ended June 30, 2023. The decrease primarily related to decreased salary expense and health insurance expense driven by reduced employee headcount and lower claims.

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 June 30,

For The Six Months Ended June 30,

2024

2023

2024

2023

(In Thousands, except per share amounts)

Interest income:

Loans

$ 25,601 $ 22,150 $ 50,085 $ 42,035

Mortgage-related securities

1,125 969 2,223 1,912

Debt securities, federal funds sold and short-term investments

1,294 1,128 2,617 2,190

Total interest income

28,020 24,247 54,925 46,137

Interest expense:

Deposits

9,716 5,955 18,686 10,043

Borrowings

7,625 5,617 14,423 9,624

Total interest expense

17,341 11,572 33,109 19,667

Net interest income

10,679 12,675 21,816 26,470

Provision (credit) for credit losses

(225 ) 186 (158 ) 646

Net interest income after provision (credit) for loan losses

10,904 12,489 21,974 25,824

Noninterest income:

Service charges on loans and deposits

465 611 889 1,041

Increase in cash surrender value of life insurance

804 714 1,152 1,039

Mortgage banking income

24,838 21,914 44,906 38,684

Other

390 286 798 1,315

Total noninterest income

26,497 23,525 47,745 42,079

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

21,762 22,395 41,638 42,447

Occupancy, office furniture, and equipment

2,029 2,046 4,137 4,309

Advertising

987 944 1,901 1,833

Data processing

1,242 1,090 2,448 2,212

Communications

240 225 466 476

Professional fees

758 618 1,501 1,034

Real estate owned

1 1 14 2

Loan processing expense

861 932 1,907 1,950

Other

2,379 2,671 3,797 5,766

Total noninterest expenses

30,259 30,922 57,809 60,029

Income before income taxes

7,142 5,092 11,910 7,874

Income tax expense

1,430 1,085 3,160 1,712

Net income

$ 5,712 $ 4,007 $ 8,750 $ 6,162

Income per share:

Basic

$ 0.31 $ 0.20 $ 0.47 $ 0.30

Diluted

$ 0.31 $ 0.20 $ 0.47 $ 0.30

Weighted average shares outstanding:

Basic

18,524 20,384 18,772 20,635

Diluted

18,568 20,431 18,802 20,702

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

June 30,

December 31,

2024

2023

(Unaudited)

Assets

(In Thousands, except per share amounts)

Cash

$ 36,177 $ 30,667

Federal funds sold

4,873 5,493

Interest-earning deposits in other financial institutions and other short term investments

266 261

Cash and cash equivalents

41,316 36,421

Securities available for sale (at fair value)

204,835 204,907

Loans held for sale (at fair value)

222,756 164,993

Loans receivable

1,678,767 1,664,215

Less: Allowance for credit losses ("ACL") - loans

18,414 18,549

Loans receivable, net

1,660,353 1,645,666

Office properties and equipment, net

19,663 19,995

Federal Home Loan Bank stock (at cost)

23,220 20,880

Cash surrender value of life insurance

69,191 67,859

Real estate owned, net

145 254

Prepaid expenses and other assets

48,135 52,414

Total assets

$ 2,289,614 $ 2,213,389

Liabilities and Shareholders' Equity

Liabilities:

Demand deposits

$ 182,628 $ 187,107

Money market and savings deposits

274,685 273,233

Time deposits

766,610 730,284

Total deposits

1,223,923 1,190,624

Borrowings

660,824 611,054

Advance payments by borrowers for taxes

21,136 6,607

Other liabilities

48,785 61,048

Total liabilities

1,954,668 1,869,333

Shareholders' equity:

Preferred stock

- -

Common stock

195 203

Additional paid-in capital

92,964 103,908

Retained earnings

272,778 269,606

Unearned ESOP shares

(11,276 ) (11,869 )

Accumulated other comprehensive loss, net of taxes

(19,715 ) (17,792 )

Total shareholders' equity

334,946 344,056

Total liabilities and shareholders' equity

$ 2,289,614 $ 2,213,389

Share Information

Shares outstanding

19,479 20,315

Book value per share

$ 17.20 $ 16.94

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,

2024

2024

2023

2023

2023

(Dollars in Thousands, except per share amounts)

Condensed Results of Operations:

Net interest income

$ 10,679 $ 11,137 $ 11,756 $ 11,989 $ 12,675

Provision (credit) for credit losses

(225 ) 67 (435 ) 445 186

Total noninterest income

26,497 21,248 16,876 22,230 23,525

Total noninterest expense

30,259 27,550 29,662 30,021 30,922

Income (loss) before income taxes (benefit)

7,142 4,768 (595 ) 3,753 5,092

Income tax expense (benefit)

1,430 1,730 (555 ) 500 1,085

Net income (loss)

$ 5,712 $ 3,038 $ (40 ) $ 3,253 $ 4,007

Income (loss) per share - basic

$ 0.31 $ 0.16 $ (0.00 ) $ 0.16 $ 0.20

Income (loss) per share - diluted

$ 0.31 $ 0.16 $ (0.00 ) $ 0.16 $ 0.20

Dividends declared per common share

$ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.20

Performance Ratios (annualized):

Return on average assets - QTD

1.02 % 0.56 % (0.01 )% 0.58 % 0.74 %

Return on average equity - QTD

6.84 % 3.56 % (0.05 )% 3.63 % 4.41 %

Net interest margin - QTD

2.01 % 2.15 % 2.25 % 2.26 % 2.47 %

Return on average assets - YTD

0.79 % 0.56 % 0.44 % 0.59 % 0.59 %

Return on average equity - YTD

5.17 % 3.56 % 2.62 % 3.46 % 3.37 %

Net interest margin - YTD

2.08 % 2.15 % 2.46 % 2.53 % 2.67 %

Asset Quality Ratios:

Past due loans to total loans

0.76 % 0.64 % 0.68 % 0.53 % 0.50 %

Nonaccrual loans to total loans

0.33 % 0.29 % 0.29 % 0.25 % 0.26 %

Nonperforming assets to total assets

0.25 % 0.23 % 0.23 % 0.20 % 0.19 %

Allowance for credit losses - loans to loans receivable

1.10 % 1.11 % 1.11 % 1.12 % 1.14 %

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,

2024

2024

2023

2023

2023

Average balances

(Dollars in Thousands)

Interest-earning assets

Loans receivable and held for sale

$ 1,859,608 $ 1,805,102 $ 1,797,988 $ 1,797,233 $ 1,759,001

Mortgage related securities

171,895 172,077 172,863 174,202 171,938

Debt securities, federal funds sold and short term investments

107,992 110,431 106,504 132,935 123,195

Total interest-earning assets

2,139,495 2,087,610 2,077,355 2,104,370 2,054,134

Noninterest-earning assets

104,019 103,815 105,073 105,714 108,320

Total assets

$ 2,243,514 $ 2,191,425 $ 2,182,428 $ 2,210,084 $ 2,162,454

Interest-bearing liabilities

Demand accounts

$ 91,300 $ 87,393 $ 91,868 $ 90,623 $ 69,147

Money market, savings, and escrow accounts

293,483 281,171 302,121 306,806 305,576

Certificates of deposit

758,252 739,543 735,418 719,708 695,310

Total interest-bearing deposits

1,143,035 1,108,107 1,129,407 1,117,137 1,070,033

Borrowings

622,771 602,724 549,210 584,764 551,545

Total interest-bearing liabilities

1,765,806 1,710,831 1,678,617 1,701,901 1,621,578

Noninterest-bearing demand deposits

93,637 92,129 102,261 106,042 130,291

Noninterest-bearing liabilities

48,315 45,484 56,859 46,805 46,446

Total liabilities

1,907,758 1,848,444 1,837,737 1,854,748 1,798,315

Equity

335,756 342,981 344,691 355,336 364,139

Total liabilities and equity

$ 2,243,514 $ 2,191,425 $ 2,182,428 $ 2,210,084 $ 2,162,454

Average Yield/Costs (annualized)

Loans receivable and held for sale

5.54 % 5.46 % 5.36 % 5.26 % 5.05 %

Mortgage related securities

2.63 % 2.57 % 2.48 % 2.41 % 2.26 %

Debt securities, federal funds sold and short term investments

4.82 % 4.82 % 4.94 % 4.45 % 3.67 %

Total interest-earning assets

5.27 % 5.18 % 5.10 % 4.97 % 4.73 %

Demand accounts

0.11 % 0.11 % 0.11 % 0.11 % 0.09 %

Money market and savings accounts

1.89 % 1.79 % 1.64 % 1.54 % 1.42 %

Certificates of deposit

4.41 % 4.19 % 3.76 % 3.43 % 2.80 %

Total interest-bearing deposits

3.42 % 3.26 % 2.90 % 2.64 % 2.23 %

Borrowings

4.92 % 4.54 % 4.83 % 4.71 % 4.08 %

Total interest-bearing liabilities

3.95 % 3.71 % 3.53 % 3.35 % 2.86 %

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,

2024

2024

2023

2023

2023

(Dollars in Thousands)

Condensed Results of Operations:

Net interest income

$ 11,234 $ 11,598 $ 12,056 $ 12,431 $ 13,238

Provision (credit) for credit losses

(279 ) 105 (550 ) 445 158

Total noninterest income

1,491 990 894 966 1,540

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

5,116 5,360 5,397 4,618 4,683

Occupancy, office furniture and equipment

983 1,000 916 852 873

Advertising

229 174 363 200 230

Data processing

687 693 626 672 602

Communications

72 65 75 70 72

Professional fees

177 208 186 176 146

Real estate owned

1 13 1 1 1

Loan processing expense

- - - - -

Other

672 691 628 703 1,641

Total noninterest expense

7,937 8,204 8,192 7,292 8,248

Income before income taxes

5,067 4,279 5,308 5,660 6,372

Income tax expense

718 1,639 1,234 1,121 1,182

Net income

$ 4,349 $ 2,640 $ 4,074 $ 4,539 $ 5,190

Efficiency ratio - QTD (non-GAAP)

62.37 % 65.17 % 63.26 % 54.43 % 55.81 %

Efficiency ratio - YTD (non-GAAP)

63.77 % 65.17 % 56.86 % 54.94 % 55.17 %

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,

2024

2024

2023

2023

2023

(Dollars in Thousands)

Condensed Results of Operations:

Net interest loss

$ (552 ) $ (541 ) $ (367 ) $ (550 ) $ (622 )

Provision for credit losses

54 (38 ) 115 - 28

Total noninterest income

25,081 20,328 16,028 21,452 23,041

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

16,886 14,756 14,881 17,186 17,929

Occupancy, office furniture and equipment

1,046 1,108 1,105 1,141 1,173

Advertising

758 740 667 716 714

Data processing

549 508 583 551 480

Communications

168 161 194 173 153

Professional fees

569 520 704 564 466

Real estate owned

- - - - -

Loan processing expense

861 1,046 756 722 932

Other

1,641 617 2,701 1,935 1,914

Total noninterest expense

22,478 19,456 21,591 22,988 23,761

Income (loss) before income taxes (benefit)

1,997 369 (6,045 ) (2,086 ) (1,370 )

Income tax expense (benefit)

684 71 (1,827 ) (657 ) (126 )

Net income (loss)

$ 1,313 $ 298 $ (4,218 ) $ (1,429 ) $ (1,244 )

Efficiency ratio - QTD (non-GAAP)

91.64 % 98.33 % 137.86 % 109.98 % 105.99 %

Efficiency ratio - YTD (non-GAAP)

94.62 % 98.33 % 116.99 % 111.63 % 112.49 %

Loan originations

$ 634,109 $ 485,109 $ 458,363 $ 597,562 $ 623,342

Purchase

92.7 % 93.0 % 95.7 % 95.4 % 96.4 %

Refinance

7.3 % 7.0 % 4.3 % 4.6 % 3.6 %

Gross margin on loans sold(1)

3.93 % 4.10 % 3.51 % 3.62 % 3.73 %

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