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Waterstone Financial, Inc. Announces Results of Operations for the Quarter Ended March 31, 2024

WAUWATOSA, Wis., April 30, 2024 (GLOBE NEWSWIRE) -- 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. Gerke
Chief Financial Officer
414-459-4012
markgerke@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


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