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Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2021

·19-min read

WAUWATOSA, Wis., Jan. 27, 2022 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $12.6 million, or $0.53 per diluted share for the quarter ended December 31, 2021 compared to $27.8 million, or $1.17 per diluted share for the quarter ended December 31, 2020. Net income per diluted share was $2.96 for the year ended December 31, 2021 compared to net income per diluted share of $3.30 for the year ended December 31, 2020.

“We achieved another quarter of strong financial results due to the continued dedication and efforts of our employees,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “We continue to execute and build a stronger financial position. Given the performance over the past two years, we were excited to announce a new 3.5 million share repurchase program and declare a $0.50 special dividend during the quarter as we continue to deliver for our valued shareholders.”

Highlights of the Quarter Ended December 31, 2021

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $12.6 million for the quarter ended December 31, 2021, compared to $27.8 million for the quarter ended December 31, 2020.

  • Consolidated return on average assets was 2.22% for the quarter ended December 31, 2021 compared to 4.96% for the quarter ended December 31, 2020.

  • Consolidated return on average equity was 11.14% for the quarter ended December 31, 2021 and 27.11% for the quarter ended December 31, 2020.

  • Dividends declared during the quarter ended December 31, 2021 totaled $0.70 per common share.

  • We authorized a new share repurchase program, under which we will seek to repurchase up to 3.5 million shares, representing approximately 14.1% of outstanding shares.

  • We repurchased approximately 264,000 shares at a cost of $5.5 million during the quarter ended December 31, 2021.

Community Banking Segment

  • Pre-tax income totaled $8.4 million for the quarter ended December 31, 2021, which represents a $338,000, or 3.9%, decrease compared to $8.7 million for the quarter ended December 31, 2020.

  • Net interest income totaled $13.2 million for the quarter ended December 31, 2021, which represents a $1.3 million, or 9.3%, decrease compared to $14.5 million for the quarter ended December 31, 2020.

  • Average loans held for investment totaled $1.21 billion during the quarter ended December 31, 2021, which represents a decrease of $191.8 million, or 13.7%, compared to $1.40 billion for the quarter ended December 31, 2020. Average loans held for investment decreased $44.4 million compared to $1.26 billion for the quarter ended September 30, 2021 as residential real estate loans continued to prepay at an accelerated rate.

  • Net interest margin decreased 26 basis points to 2.47% for the quarter ended December 31, 2021 compared to 2.73% for the quarter ended December 31, 2020, which was a result of lower rates and average balance on loans and a higher average interest earnings cash balance within the debt securities, federal funds sold and short term investments category. Net interest margin decreased 21 basis points compared to 2.68% for the quarter ended September 30, 2021, driven by a decrease in average loan balance and a higher average cash balance.

  • The segment had a negative provision for loan losses of $1.5M for the quarter ended December 31, 2021 compared to no provision for loan losses for the quarter ended December 31, 2020. Net recoveries totaled $458,000 for the quarter ended December 31, 2021, as one significant loan recovery payment was received during the quarter, compared to net charge-offs of $51,000 for the quarter ended December 31, 2020.

  • The efficiency ratio was 53.02% for the quarter ended December 31, 2021, compared to 46.15% for the quarter ended December 31, 2020.

  • Average deposits (excluding escrow accounts) totaled $1.25 billion during the quarter ended December 31, 2021, an increase of $65.5 million, or 5.6%, compared to $1.18 billion during the quarter ended December 31, 2020. Average deposits decreased $9.9 million, or 3.2% annualized compared to the $1.26 billion for the quarter ended September 30, 2021.

  • Nonperforming assets as percentage of total assets was 0.26% at December 31, 2021, 0.18% at September 30, 2021, and 0.27% at December 31, 2020.

  • Past due loans as percentage of total loans was 0.59% at December 31, 2021, 0.92% at September 30, 2021, and 0.57% at December 31, 2020.

  • PPP loans totaled $1.8 million as of December 31, 2021. The average balance for the quarter ended December 31, 2021 was $2.7 million. For the quarter ended December 31, 2021, PPP loan interest income recognized was approximately $7,000 and the amortization of fee income was approximately $101,000.

  • The Company held approximately $3.3 million in loans, representing 0.3% of the total loan portfolio as of December 31, 2021, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $3.3 million in loans, $405,000 qualify as modifications under the Coronavirus Aid, Relief and Economic Security (“CARES Act”). The remaining $2.9 million is composed of three loan relationships that are classified as troubled debt restructurings.

Mortgage Banking Segment

  • Pre-tax income totaled $7.3 million for the quarter ended December 31, 2021, compared to $28.3 million for the quarter ended December 31, 2020.

  • Loan originations decreased $289.2 million, or 22.6%, to $993.1 million during the quarter ended December 31, 2021, compared to $1.28 billion during the quarter ended December 31, 2020. Origination volume relative to purchase activity accounted for 73.8% of originations for the quarter ended December 31, 2021 compared to 59.2% of total originations for the quarter ended December 31, 2020.

  • Mortgage banking non-interest income decreased $27.8 million, or 40.6%, to $40.7 million for the quarter ended December 31, 2021, compared to $68.5 million for the quarter ended December 31, 2020. During the quarter ended December 31, 2020, the Company sold mortgage servicing rights related to $975.9 million in loans receivable and with a book value of $6.4 million for $7.0 million resulting in a gain on sale of $600,000. There was no comparable sale during the quarter ended December 31, 2021. As of December 31, 2021, the Company maintained servicing rights related to $160.8 million in loans previously sold to third parties.

  • Gross margin on loans sold decreased to 4.18% for the quarter ended December 31, 2021, compared to 5.40% for the quarter ended December 31, 2020.

  • Total compensation, payroll taxes and other employee benefits decreased $5.5 million, or 16.4%, to $27.9 million during the quarter ended December 31, 2021 compared to $33.3 million during the quarter ended December 31, 2020. 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 decreased $665,000 to $1.4 million during the quarter ended December 31, 2021 compared to $2.1 million during the quarter ended December 31, 2020. The decrease related to a decrease in the amortization expense on mortgage servicing rights due to the bulk sale of mortgage servicing rights during 2021 and a reduced provision for loan sale losses as origination volumes decreased.

Recent Developments:

COVID-19 Pandemic and the CARES Act

The CARES Act, signed into law at the end of March 2020, allowed for a temporary delay in the adoption of accounting guidance under Accounting Standards Codification Topic 326, “Financial Instruments – Credit Losses (“CECL”) until the earlier of December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. During the quarter ended June 30, 2020, pursuant to the CARES Act and guidance from the Securities and Exchange Commission (“SEC”) and Financial Accounting Standards Board (“FASB”), we elected to delay adoption of CECL. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. Among other provisions, this Act extended the temporary delay on the adoption of CECL until January 1, 2022. We have elected to continue to delay adoption of CECL. As a result, our financial statements for the quarter and year ended December 31, 2021 include an allowance for loan losses that was prepared under the existing incurred loss methodology.

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 Year Ended December 31,

2021

2020

2021

2020

(In Thousands, except per share amounts)

Interest income:

Loans

$

15,152

$

18,229

$

64,366

$

72,633

Mortgage-related securities

506

528

1,954

2,488

Debt securities, federal funds sold and short-term investments

926

870

3,563

3,363

Total interest income

16,584

19,627

69,883

78,484

Interest expense:

Deposits

878

2,605

4,420

14,365

Borrowings

2,534

2,706

9,948

10,619

Total interest expense

3,412

5,311

14,368

24,984

Net interest income

13,172

14,316

55,515

53,500

Provision (credit) for loan losses

(1,470

)

30

(3,990

)

6,340

Net interest income after provision (credit) for loan losses

14,642

14,286

59,505

47,160

Noninterest income:

Service charges on loans and deposits

842

1,078

3,325

4,462

Increase in cash surrender value of life insurance

318

318

1,615

1,905

Mortgage banking income

40,448

66,953

191,035

233,245

Other

408

1,537

7,220

4,405

Total noninterest income

42,016

69,886

203,195

244,017

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

32,837

38,351

135,115

139,046

Occupancy, office furniture, and equipment

2,266

2,479

9,612

10,223

Advertising

958

1,066

3,528

3,691

Data processing

1,079

918

3,950

3,941

Communications

321

335

1,309

1,329

Professional fees

471

471

1,275

8,118

Real estate owned

14

(63

)

3

(8

)

Loan processing expense

940

1,026

4,610

4,646

Other

2,088

2,580

11,192

12,075

Total noninterest expenses

40,974

47,163

170,594

183,061

Income before income taxes

15,684

37,009

92,106

108,116

Income tax expense

3,131

9,174

21,315

26,971

Net income

$

12,553

$

27,835

$

70,791

$

81,145

Income per share:

Basic

$

0.53

$

1.17

$

2.98

$

3.32

Diluted

$

0.53

$

1.17

$

2.96

$

3.30

Weighted average shares outstanding:

Basic

23,598

23,703

23,741

24,464

Diluted

23,802

23,877

23,931

24,607


WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31,

December 31,

2021

2020

(Unaudited)

Assets

(In Thousands, except per share amounts)

Cash

$

343,016

$

56,190

Federal funds sold

13,981

18,847

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

19,725

19,730

Cash and cash equivalents

376,722

94,767

Securities available for sale (at fair value)

179,016

159,619

Loans held for sale (at fair value)

312,738

402,003

Loans receivable

1,205,785

1,375,137

Less: Allowance for loan losses

15,778

18,823

Loans receivable, net

1,190,007

1,356,314

Office properties and equipment, net

22,273

23,722

Federal Home Loan Bank stock (at cost)

24,438

26,720

Cash surrender value of life insurance

65,368

63,573

Real estate owned, net

148

322

Prepaid expenses and other assets

45,148

57,547

Total assets

$

2,215,858

$

2,184,587

Liabilities and Shareholders' Equity

Liabilities:

Demand deposits

$

214,409

$

188,225

Money market and savings deposits

392,314

295,317

Time deposits

626,663

701,328

Total deposits

1,233,386

1,184,870

Borrowings

477,127

508,074

Advance payments by borrowers for taxes

4,094

3,522

Other liabilities

68,478

75,003

Total liabilities

1,783,085

1,771,469

Shareholders' equity:

Preferred stock

-

-

Common stock

248

251

Additional paid-in capital

174,505

180,684

Retained earnings

273,398

245,287

Unearned ESOP shares

(14,243

)

(15,430

)

Accumulated other comprehensive (loss) income, net of taxes

(1,135

)

2,326

Total shareholders' equity

432,773

413,118

Total liabilities and shareholders' equity

$

2,215,858

$

2,184,587

Share Information

Shares outstanding

24,795

25,088

Book value per share

$

17.45

$

16.47

Closing market price

$

21.86

$

18.82

Price to book ratio

125.27

%

114.27

%


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,

2021

2021

2021

2021

2020

(Dollars in Thousands, except per share amounts)

Condensed Results of Operations:

Net interest income

$

13,172

$

14,114

$

14,277

$

13,952

$

14,316

Provision (credit) for loan losses

(1,470

)

(700

)

(750

)

(1,070

)

30

Total noninterest income

42,016

52,936

52,044

56,199

69,886

Total noninterest expense

40,974

43,323

43,297

43,000

47,163

Income before income taxes

15,684

24,427

23,774

28,221

37,009

Income tax expense

3,131

5,427

5,880

6,877

9,174

Net income

$

12,553

$

19,000

$

17,894

$

21,344

$

27,835

Income per share - basic

$

0.53

$

0.80

$

0.75

$

0.90

$

1.17

Income per share - diluted

$

0.53

$

0.79

$

0.74

$

0.89

$

1.17

Dividends declared per share

$

0.70

$

0.20

$

0.70

$

0.20

$

0.50

Performance Ratios (annualized):

Return on average assets - QTD

2.22

%

3.38

%

3.25

%

3.99

%

4.96

%

Return on average equity - QTD

11.14

%

17.25

%

16.49

%

20.49

%

27.11

%

Net interest margin - QTD

2.47

%

2.68

%

2.78

%

2.80

%

2.73

%

Return on average assets - YTD

3.20

%

3.54

%

3.62

%

3.99

%

3.77

%

Return on average equity - YTD

16.38

%

18.08

%

18.49

%

20.49

%

20.18

%

Net interest margin - YTD

2.68

%

2.75

%

2.79

%

2.80

%

2.67

%

Asset Quality Ratios:

Past due loans to total loans

0.59

%

0.92

%

0.53

%

0.52

%

0.57

%

Nonaccrual loans to total loans

0.46

%

0.32

%

0.34

%

0.31

%

0.40

%

Nonperforming assets to total assets

0.26

%

0.18

%

0.20

%

0.20

%

0.27

%

Allowance for loan losses to loans receivable

1.31

%

1.37

%

1.34

%

1.33

%

1.37

%


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,

2021

2021

2021

2021

2020

Average balances

(Dollars in Thousands)

Interest-earning assets

Loans receivable and held for sale

$

1,517,984

$

1,573,194

$

1,655,078

$

1,657,260

$

1,775,455

Mortgage related securities

119,709

108,743

100,056

90,457

91,199

Debt securities, federal funds sold and short term investments

475,574

409,559

308,105

273,929

217,356

Total interest-earning assets

2,113,267

2,091,496

2,063,239

2,021,646

2,084,010

Noninterest-earning assets

131,703

137,454

143,375

147,781

147,573

Total assets

$

2,244,970

$

2,228,950

$

2,206,614

$

2,169,427

$

2,231,583

Interest-bearing liabilities

Demand accounts

$

70,762

$

68,478

$

63,610

$

55,552

$

53,771

Money market, savings, and escrow accounts

398,210

391,599

350,270

314,418

304,467

Certificates of deposit

643,546

663,343

690,196

705,712

726,132

Total interest-bearing deposits

1,112,518

1,123,420

1,104,076

1,075,682

1,084,370

Borrowings

481,971

475,000

480,054

482,665

546,070

Total interest-bearing liabilities

1,594,489

1,598,420

1,584,130

1,558,347

1,630,440

Noninterest-bearing demand deposits

153,303

153,436

141,648

138,446

128,665

Noninterest-bearing liabilities

49,982

40,148

45,658

50,188

64,001

Total liabilities

1,797,774

1,792,004

1,771,436

1,746,981

1,823,106

Equity

447,196

436,946

435,178

422,446

408,477

Total liabilities and equity

$

2,244,970

$

2,228,950

$

2,206,614

$

2,169,427

$

2,231,583

Average Yield/Costs (annualized)

Loans receivable and held for sale

3.96

%

4.07

%

3.99

%

4.06

%

4.08

%

Mortgage related securities

1.68

%

1.72

%

1.95

%

2.20

%

2.30

%

Debt securities, federal funds sold and short term investments

0.77

%

0.88

%

1.12

%

1.30

%

1.59

%

Total interest-earning assets

3.11

%

3.32

%

3.47

%

3.60

%

3.75

%

Demand accounts

0.08

%

0.08

%

0.08

%

0.07

%

0.07

%

Money market and savings accounts

0.22

%

0.24

%

0.23

%

0.32

%

0.53

%

Certificates of deposit

0.40

%

0.42

%

0.50

%

0.72

%

1.20

%

Total interest-bearing deposits

0.31

%

0.33

%

0.39

%

0.57

%

0.96

%

Borrowings

2.09

%

2.04

%

2.06

%

2.10

%

1.97

%

Total interest-bearing liabilities

0.85

%

0.84

%

0.90

%

1.05

%

1.30

%


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,

2021

2021

2021

2021

2020

(Dollars in Thousands)

Condensed Results of Operations:

Net interest income

$

13,197

$

14,090

$

14,517

$

14,247

$

14,546

Provision (credit) for loan losses

(1,500

)

(750

)

(750

)

(1,100

)

-

Total noninterest income

1,459

1,726

1,630

1,243

1,655

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

5,085

5,360

4,874

4,975

5,159

Occupancy, office furniture and equipment

960

909

887

1,025

934

Advertising

278

233

260

209

244

Data processing

531

531

466

511

511

Communications

100

122

86

119

110

Professional fees

151

130

198

194

5

Real estate owned

14

1

-

(12

)

(63

)

Loan processing expense

-

-

-

-

-

Other

651

422

461

440

577

Total noninterest expense

7,770

7,708

7,232

7,461

7,477

Income before income taxes

8,386

8,858

9,665

9,129

8,724

Income tax expense

1,690

2,092

2,128

1,786

1,926

Net income

$

6,696

$

6,766

$

7,537

$

7,343

$

6,798

Efficiency ratio - QTD

53.02

%

48.74

%

44.79

%

48.17

%

46.15

%

Efficiency ratio - YTD

48.58

%

47.21

%

46.44

%

48.17

%

48.71

%


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,

2021

2021

2021

2021

2020

(Dollars in Thousands)

Condensed Results of Operations:

Net interest income (loss)

$

(49

)

$

(2

)

$

(251

)

$

(350

)

$

(223

)

Provision for loan losses

30

50

-

30

30

Total noninterest income

40,692

51,290

50,556

55,035

68,500

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

27,866

28,981

29,170

29,262

33,347

Occupancy, office furniture and equipment

1,306

1,579

1,406

1,540

1,545

Advertising

680

602

651

615

822

Data processing

542

450

443

454

402

Communications

221

209

240

212

225

Professional fees

306

421

361

(524

)

441

Real estate owned

-

-

-

-

-

Loan processing expense

940

1,135

1,200

1,335

1,026

Other

1,445

2,270

2,678

2,681

2,110

Total noninterest expense

33,306

35,647

36,149

35,575

39,918

Income before income taxes

7,307

15,591

14,156

19,080

28,329

Income tax expense

1,443

3,341

3,761

5,096

7,252

Net income

$

5,864

$

12,250

$

10,395

$

13,984

$

21,077

Efficiency ratio - QTD

81.95

%

69.50

%

71.86

%

65.05

%

58.46

%

Efficiency ratio - YTD

71.44

%

68.71

%

68.32

%

65.05

%

65.20

%

Loan originations

$

993,113

$

1,055,500

$

1,065,161

$

1,115,091

$

1,282,321

Purchase

73.8

%

73.8

%

75.4

%

56.1

%

59.2

%

Refinance

26.2

%

26.2

%

24.6

%

43.9

%

40.8

%

Gross margin on loans sold(1)

4.18

%

4.54

%

4.81

%

4.86

%

5.40

%

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

Contact: Mark R. Gerke
Chief Financial Officer
414-459-4012
markgerke@wsbonline.com


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