Waterstone Financial Inc.

04/30/2024 | Press release | Distributed by Public on 04/30/2024 14:01

Waterstone Financial, Inc. Announces Results of Operations for the Quarter Ended March 31, 2024 - Form 8-K

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

WAUWATOSA, WI - 4/30/2024 - 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.

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