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

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