New Waterstone(WSBF) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements present the company's financial position, results of operations, and cash flows, highlighting a decrease in assets and net income Consolidated Statements of Financial Condition - Total assets decreased to $1.94 billion as of June 30, 2022, from $2.22 billion at December 31, 2021, primarily due to a significant reduction in cash and cash equivalents and loans held for sale[11] Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $122,193 | $376,722 | | Loans held for sale | $206,702 | $312,738 | | Loans receivable, net | $1,259,289 | $1,190,007 | | Total Assets | $1,941,097 | $2,215,858 | | Liabilities & Equity | | | | Total deposits | $1,213,230 | $1,233,386 | | Borrowings | $281,100 | $477,127 | | Total Liabilities | $1,554,717 | $1,783,085 | | Total Shareholders' Equity | $386,380 | $432,773 | Consolidated Statements of Income - Net income for the second quarter of 2022 was $8.0 million, a significant decrease from $17.9 million in the same period of 2021, driven by a sharp reduction in mortgage banking income[13] Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $14,081 | $14,277 | $25,945 | $28,229 | | Mortgage Banking Income | $29,410 | $49,649 | $57,685 | $104,040 | | Total Noninterest Income | $31,238 | $52,044 | $61,056 | $108,243 | | Total Noninterest Expenses | $35,050 | $43,297 | $69,984 | $86,297 | | Net Income | $7,990 | $17,894 | $13,282 | $39,238 | | Diluted EPS | $0.36 | $0.74 | $0.58 | $1.64 | Consolidated Statements of Changes in Shareholders' Equity - Shareholders' equity decreased from $432.8 million at year-end 2021 to $386.4 million at June 30, 2022, driven by stock repurchases, comprehensive loss, and cash dividends[17] - The company repurchased 2,099,000 shares of common stock for $37.9 million during the first six months of 2022[17] Consolidated Statements of Cash Flows - Cash and cash equivalents decreased by $254.5 million in the first six months of 2022, compared to an increase of $134.0 million in the same period of 2021[22] - Significant financing activities in the first half of 2022 included the repayment of $195.0 million in long-term debt and the repurchase of $37.9 million in common stock[22] Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $118,163 | $76,913 | | Net cash (used in) provided by investing activities | ($100,752) | $64,108 | | Net cash used in financing activities | ($271,940) | ($7,049) | | (Decrease) increase in cash and cash equivalents | ($254,529) | $133,972 | Notes to Consolidated Financial Statements - The Company adopted ASC Topic 326 (CECL) on January 1, 2022, resulting in a $1.4 million after-tax decrease to retained earnings[35] - The company operates through two main subsidiaries: WaterStone Bank SSB, a community bank, and Waterstone Mortgage Corporation, a mortgage banking subsidiary[24][25][26] - Non-accrual loans increased to $7.5 million (0.59% of total loans) at June 30, 2022, from $5.6 million (0.46% of total loans) at December 31, 2021[80] - The company has two reportable segments: Community Banking and Mortgage Banking[155][156][158] Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | One- to four-family | $312,657 | $300,523 | | Multi-family | $597,304 | $537,956 | | Commercial real estate | $266,375 | $250,676 | | Construction and land | $70,075 | $82,588 | | Other | $29,149 | $34,042 | | Total | $1,276,560 | $1,205,785 | Management's Discussion and Analysis of Financial Condition and Results of Operations Profitability declined significantly due to the mortgage banking segment's performance amid rising interest rates, while total assets decreased from lower cash balances Results of Operations - The Mortgage Banking segment's net income plummeted to $1.7 million in Q2 2022 from $10.4 million in Q2 2021, caused by lower origination volume and compressed margins[179] - The Community Banking segment's Q2 2022 net income was $6.3 million, down from $7.5 million in Q2 2021, due to lower net interest income[174] - Consolidated noninterest income for Q2 2022 decreased 40.0% to $31.2 million, primarily due to a $20.2 million drop in mortgage banking income[195] - Consolidated noninterest expenses for Q2 2022 decreased 19.0% to $35.1 million, mainly from an $8.1 million reduction in compensation and benefits[197][200] Consolidated Results of Operations Summary | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $7,990 | $17,894 | $13,282 | $39,238 | | Diluted EPS | $0.36 | $0.74 | $0.58 | $1.64 | | Annualized ROA | 1.61% | 3.25% | 1.30% | 3.62% | | Annualized ROE | 7.93% | 16.49% | 6.42% | 18.49% | Financial Condition - Total assets decreased by $274.8 million (12.4%) to $1.94 billion at June 30, 2022, mainly due to a $254.5 million decrease in cash[225][226][228] - Loans receivable held for investment grew by $70.8 million to $1.28 billion, driven by increases in core real estate loan categories[228] - Total borrowings decreased by $196.0 million (41.1%) to $281.1 million, primarily due to the payoff of $200.0 million in FHLB borrowings[235] - Shareholders' equity declined by $46.4 million to $386.4 million, impacted by dividends, stock repurchases, and the adoption of CECL[238] Asset Quality - The allowance for credit losses on loans increased by $1.5 million to $17.3 million at June 30, 2022, due to the CECL adoption and provisions[231][259] - Total past due loans increased slightly to $7.7 million (0.60% of total loans) at June 30, 2022, from $7.1 million (0.59% of total loans) at year-end 2021[255] Nonperforming Assets (in thousands) | Category | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total non-accrual loans | $7,493 | $5,574 | | Real estate owned | $148 | $148 | | Total nonperforming assets | $7,641 | $5,722 | | Nonperforming assets to total assets | 0.39% | 0.26% | Liquidity and Capital Resources - Primary uses of cash in the first half of 2022 included $1.45 billion to fund loans, $195.0 million for debt payoffs, and $37.9 million for stock repurchases[268] - Primary sources of cash included $1.59 billion in proceeds from the sale of loans and $13.3 million in net income[269] - At June 30, 2022, WaterStone Bank exceeded all regulatory capital requirements and was considered "well capitalized"[278] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate sensitivity, with models showing a negative impact on net interest income from both rising and falling rates - The company's primary market risk is interest rate risk due to its asset/liability structure, which is managed by an Asset/Liability Committee[283] Net Interest Income Sensitivity Analysis (as of June 30, 2022) | Immediate Change in Rates | +300 bps | +200 bps | +100 bps | -100 bps | | :--- | :--- | :--- | :--- | :--- | | Percentage Change | (2.20)% | (0.95)% | (0.43)% | (1.97)% | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of June 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[290] - No material changes occurred during the fiscal quarter that have affected, or are reasonably likely to affect, the company's internal control over financial reporting[291] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings not expected to materially impact its consolidated financial statements - Information regarding legal proceedings is detailed in Note 9 of the financial statements[292] Risk Factors No material changes to the company's risk factors were identified since its 2021 Annual Report on Form 10-K - No material changes in risk factors were reported from the company's 2021 Annual Report on Form 10-K[293] Unregistered Sales of Equity Securities and Use of Proceeds The company continued its stock repurchase program, buying back over 1.4 million shares during the second quarter of 2022 - The current share repurchase plan allows for the repurchase of 3,500,000 shares; as of the end of the quarter, 1,350,513 shares may yet be purchased[294] Common Stock Repurchases in Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 417,700 | $18.08 | | May 2022 | 657,371 | $16.53 | | June 2022 | 342,333 | $16.87 | | Total | 1,417,404 | $17.07 | Exhibits This section lists filed exhibits, including required Sarbanes-Oxley certifications and financial statements in iXBRL format - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and financial statements in iXBRL format[298]