Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2022

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.

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

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	%

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