GlobeNewswire Inc | Oct 26, 2020 04:01PM EDT

October 26, 2020

WAUWATOSA, Wis., Oct. 26, 2020 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $26.3 million, or $1.08 per diluted share for the quarter ended September 30, 2020 compared to $10.9 million, or $0.42 per diluted share for the quarter ended September 30, 2019. Net income per diluted share was $2.15 for the nine months ended September 30, 2020 compared to net income per diluted share of $1.03 for the nine months ended September 30, 2019.

We are proud of the efforts from the entire team that resulted in a second consecutive record quarterly profits, said Douglas Gordon, CEO of Waterstone Financial, Inc. The ability to service and meet the demands of customers continues to show in our results. Our strong financial position has aided us in an environment that continues to present challenges.

Highlights of the Quarter Ended September 30, 2020

Waterstone Financial, Inc. (Consolidated)

-- Consolidated net income of Waterstone Financial, Inc. totaled $26.3 million for the quarter ended September 30, 2020, compared to $10.9 million for the quarter ended September 30, 2019. -- Consolidated return on average assets was 4.78% for the quarter ended September 30, 2020 compared to 2.17% for the quarter ended September 30, 2019. -- Consolidated return on average equity was 26.30% for the quarter ended September 30, 2020 and 11.15% for the quarter ended September 30, 2019. -- Dividends declared totaled $0.12 per share and we repurchased approximately 800,000 shares at a cost of $12.3 million during the quarter ended September 30, 2020 as a result of our strong financial position.

Community Banking Segment

-- Pre-tax income totaled $7.7 million for the quarter ended September 30, 2020, which represents a 11.3% decrease compared to $8.7 million for the quarter ended September 30, 2019. -- Net interest income totaled $13.5 million for the quarter ended September 30, 2020, which represents a 3.1% decrease compared to $13.9 million for the quarter ended September 30, 2019. -- Average loans held for investment totaled $1.43 billion during the quarter ended September 30, 2020, which represents an increase of $49.7 million, or 3.6%, compared to $1.38 billion for the quarter ended September 30, 2019. The $30.1 million of loans originated throughout the nine months ended September 30, 2020 for the Paycheck Protection Program (PPP) contributed to the growth. Average loans held for investment increased $8.5 million, or 2.4% annualized, compared to $1.42 billion for the quarter ended June 30, 2020. -- Net interest margin decreased 17 basis points to 2.63% for the quarter ended September 30, 2020 compared to 2.80% for the quarter ended September 30, 2019, which was a result of the decrease in yield of interest-earning assets as rates on loans, investments, and cash decreased. Net interest margin increased one basis point compared to 2.62% for the quarter ended June 30, 2020. -- The segment had a $1.0 million provision for loan losses for the quarter ended September 30, 2020 compared to a negative provision for loan losses of $150,000 for the quarter ended September 30, 2019. The provision expense recorded during the third quarter of 2020 was primarily due to an increase in the loan downgrades to our Watch category. Net recoveries totaled $85,000 for the quarter ended September 30, 2020, compared to net recoveries of $10,000 for the quarter ended September 30, 2019. -- Noninterest income increased $1.7 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, primarily due to a gain on death benefit as there were two death benefits received on bank-owned life insurance policies in the current quarter. -- Noninterest expense increased $1.1 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. Compensation, payroll taxes and other employee benefits expense increased $925,000 due to increases in health insurance claims, salaries related to the addition of two bank branch locations and annual merit increases, in addition to an increase in variable compensation expense as the company met certain performance incentives. Other noninterest expense increased $235,000 as we received a credit for FDIC premiums in 2019 but not in 2020. -- The efficiency ratio was 47.23% for the quarter ended September 30, 2020, compared to 43.97% for the quarter ended September 30, 2019. -- Average deposits (excluding escrow accounts) totaled $1.18 billion during the quarter ended September 30, 2020, an increase of $133.8 million, or 12.8%, compared to $1.05 billion during the quarter ended September 30, 2019. Average deposits increased $52.8 million, or 18.7% annualized compared to the $1.13 billion for the quarter ended June 30, 2020. -- Nonperforming assets as percentage of total assets was 0.31% at September 30, 2020, 0.28% at June 30, 2020, and 0.41% at September 30, 2019. -- Past due loans as percentage of total loans was 0.39% at September 30, 2020, 0.45% at June 30, 2020, and 0.62% at September 30, 2019. -- The PPP loans totaled $30.1 million as of September 30, 2020. -- The Company held approximately $8.9 million in loans, representing 0.6% of the total loan portfolio as of September 30, 2020, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $8.9 million in loans, $3.2 million qualify as modifications under the CARES Act. The remaining $5.7 million represents a loan that is classified as a troubled debt restructuring. As of June 30 2020, the Company held approximately $121.1 million in loans, representing 8.4% of the total loan portfolio at that date, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic and qualified as modifications under the CARES Act.

Mortgage Banking Segment

-- Pre-tax income totaled $27.4 million for the quarter ended September 30, 2020, compared to $5.7 million for the quarter ended September 30, 2019. -- Loan originations increased $445.4 million, or 52.3%, to $1.30 billion during the quarter ended September 30, 2020, compared to $851.3 million during the quarter ended September 30, 2019. Origination volume relative to purchase activity accounted for 64.1% of originations for the quarter ended September 30, 2020 compared to 79.0% of total originations for the quarter ended September 30, 2019. -- Mortgage banking income increased $36.6 million, or 100.2%, to $73.1 million for the quarter ended September 30, 2020, compared to $36.5 million for the quarter ended September 30, 2019. -- Gross margin on loans sold increased to 5.44% for the quarter ended September 30, 2020, compared to 4.30% for the quarter ended September 30, 2019. -- Total compensation, payroll taxes and other employee benefits increased $10.9 million, or 46.3%, to $34.6 million during the quarter ended September 30, 2020 compared to $23.6 million during the quarter ended September 30, 2019. The increase primarily related to increased commission expense and branch manager compensation driven by increased loan origination volume and branch profitability. -- Professional fees increased $3.8 million to $4.5 million primarily due to a tentative settlement agreement related to the Herrington litigation. -- Other noninterest expense increased $719,000, or 41.7%, to $2.4 million during the quarter ended September 30, 2020 compared to $1.7 million during the quarter ended September 30, 2019. The increase related to amortization of mortgage servicing rights as the value of the servicing portfolio has increased in 2020 compared to 2019.

About Waterstone Financial, Inc.

WaterStone Bank, established in 1921, offers a full suite of personal and business banking products. The community 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, West Allis/National Ave, Wisconsin along with a commercial lending branch in Minneapolis, Minnesota. 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. Follow WaterStone Bank on Facebook, Twitter, LinkedIn, YouTube, and Instagram.

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 Waterstones most recent Annual Report on Form 10-K and as may be described from time to time in Waterstones 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 Waterstones belief as of the date of this press release.

Contact: Mark R. GerkeChief Financial Officer414-459-4012markgerke@wsbonline.com



WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited) For The Three Months For The Nine Months Ended September 30, Ended September 30, 2020 2019 2020 2019 (In Thousands, except per share amounts)Interest income: Loans $ 18,224 $ 18,558 $ 54,404 $ 53,688 Mortgage-related 588 737 1,960 2,260 securitiesDebt securities, federalfunds sold and short-term 732 1,083 2,493 3,515 investmentsTotal interest income 19,544 20,378 58,857 59,463 Interest expense: Deposits 3,495 4,479 11,760 12,813 Borrowings 2,640 2,745 7,913 7,579 Total interest expense 6,135 7,224 19,673 20,392 Net interest income 13,409 13,154 39,184 39,071 Provision for loan losses 1,025 (80 ) 6,310 (730 )Net interest income after 12,384 13,234 32,874 39,801 provision for loan lossesNoninterest income: Service charges on loans 672 503 3,384 1,272 and depositsIncrease in cashsurrender value of life 714 728 1,587 1,579 insuranceMortgage banking income 72,112 36,062 166,292 93,526 Other 2,265 201 2,868 564 Total noninterest income 75,763 37,494 174,131 96,941 Noninterest expenses: Compensation, payrolltaxes, and other employee 39,405 27,514 100,695 75,227 benefitsOccupancy, office 2,469 2,629 7,744 8,085 furniture, and equipmentAdvertising 861 913 2,625 2,834 Data processing 922 1,003 3,023 2,641 Communications 339 358 994 1,039 Professional fees 4,738 954 7,647 2,438 Real estate owned 11 24 55 75 Loan processing expense 1,336 858 3,620 2,542 Other 2,920 1,979 9,495 6,055 Total noninterest 53,001 36,232 135,898 100,936 expensesIncome before income 35,146 14,496 71,107 35,806 taxesIncome tax expense 8,853 3,572 17,797 8,697 Net income $ 26,293 $ 10,924 $ 53,310 $ 27,109 Income per share: Basic $ 1.08 $ 0.42 $ 2.16 $ 1.04 Diluted $ 1.08 $ 0.42 $ 2.15 $ 1.03 Weighted average shares outstanding:Basic 24,297 25,772 24,720 26,168 Diluted 24,380 25,962 24,842 26,372



WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, December 31, 2020 2019 (Unaudited) Assets (InThousands,exceptper shareamounts)Cash $ 54,681 $ 52,814 Federal funds sold 21,151 12,704 Interest-earning deposits in other financial 10,730 8,782 institutions and other short term investmentsCash and cash equivalents 86,562 74,300 Securities available for sale (at fair value) 153,201 178,476 Loans held for sale (at fair value) 385,803 220,123 Loans receivable 1,434,132 1,388,031 Less: Allowance for loan losses 18,844 12,387 Loans receivable, net 1,415,288 1,375,644 Office properties and equipment, net 23,961 25,028 Federal Home Loan Bank stock (at cost) 26,720 21,150 Cash surrender value of life insurance 63,255 69,665 Real estate owned, net 772 748 Prepaid expenses and other assets 65,260 31,213 Total assets $ 2,220,822 $ 1,996,347 Liabilities and Shareholders' Equity Liabilities: Demand deposits $ 169,218 $ 130,063 Money market and savings deposits 271,283 197,942 Time deposits 744,150 739,771 Total deposits 1,184,651 1,067,776 Borrowings 552,126 483,562 Advance payments by borrowers for taxes 25,987 4,212 Other liabilities 58,629 47,111 Total liabilities 1,821,393 1,602,661 Shareholders' equity: Preferred stock - - Common stock 252 271 Additional paid-in capital 182,960 211,997 Retained earnings 229,289 197,393 Unearned ESOP shares (15,727 ) (16,617 )Accumulated other comprehensive income, net of 2,655 642 taxesTotal shareholders' equity 399,429 393,686 Total liabilities and shareholders' equity $ 2,220,822 $ 1,996,347 Share Information Shares outstanding 25,220 27,148 Book value per share $ 15.84 $ 14.50 Closing market price $ 15.49 $ 19.03 Price to book ratio 97.79 % 131.24 %

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended September June 30, March 31, December September 30, 31, 30, 2020 2020 2020 2019 2019 (Dollars in Thousands, except per share amounts)Condensed Results of Operations:Net interest income $ 13,409 $ 13,249 $ 12,526 $ 13,126 $ 13,154 Provision for loan losses 1,025 4,500 785 (170 ) (80 )Total noninterest income 75,763 66,904 31,464 33,809 37,494 Total noninterest expense 53,001 47,689 35,208 35,337 36,232 Income before income taxes 35,146 27,964 7,997 11,768 14,496 Income tax expense 8,853 7,016 1,928 2,974 3,572 Net income $ 26,293 $ 20,948 $ 6,069 $ 8,794 $ 10,924 Income per share ? basic $ 1.08 $ 0.86 $ 0.24 $ 0.34 $ 0.42 Income per share ? diluted $ 1.08 $ 0.85 $ 0.24 $ 0.34 $ 0.42 Dividends declared per $ 0.12 $ 0.12 $ 0.62 $ 0.12 $ 0.12 share Performance Ratios (annualized):Return on average assets - 4.78 % 3.87 % 1.21 % 1.75 % 2.17 %QTDReturn on average equity - 26.30 % 22.39 % 6.24 % 8.91 % 11.15 %QTDNet interest margin - QTD 2.63 % 2.62 % 2.68 % 2.79 % 2.80 % Return on average assets - 3.35 % 2.59 % 1.21 % 1.82 % 1.84 %YTDReturn on average equity - 18.02 % 14.03 % 6.24 % 9.14 % 9.21 %YTDNet interest margin - YTD 2.64 % 2.65 % 2.68 % 2.83 % 2.85 % Asset Quality Ratios: Past due loans to total 0.39 % 0.45 % 0.78 % 0.47 % 0.62 %loansNonaccrual loans to total 0.42 % 0.39 % 0.48 % 0.51 % 0.46 %loansNonperforming assets to 0.31 % 0.28 % 0.36 % 0.39 % 0.41 %total assetsAllowance for loan loss to 1.31 % 1.24 % 0.94 % 0.89 % 0.91 %loans receivable

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS(Unaudited) At or For the Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 Average balances (Dollars in Thousands)Interest-earning assetsLoans receivable $ 1,766,715 $ 1,759,970 $ 1,562,097 $ 1,573,190 $ 1,579,575 and held for saleMortgage related 96,529 105,727 112,089 110,426 114,051 securitiesDebt securities,federal funds sold 166,160 164,306 206,485 183,447 169,621 and short terminvestmentsTotalinterest-earning 2,029,404 2,030,003 1,880,671 1,867,063 1,863,247 assetsNoninterest-earning 160,526 147,342 132,283 125,904 137,723 assetsTotal assets $ 2,189,930 $ 2,177,345 $ 2,012,954 $ 1,992,967 $ 2,000,970 Interest-bearing liabilitiesDemand accounts $ 50,590 $ 45,289 $ 39,886 $ 38,650 $ 37,015 Money market,savings, and escrow 282,349 252,500 218,942 215,332 206,474 accountsCertificates of 741,265 730,573 734,147 737,726 739,544 depositTotalinterest-bearing 1,074,204 1,028,362 992,975 991,708 983,033 depositsBorrowings 531,588 609,863 495,595 485,482 509,099 Totalinterest-bearing 1,605,792 1,638,225 1,488,570 1,477,190 1,492,132 liabilities Noninterest-bearing 129,911 115,605 92,627 85,815 86,849 demand depositsNoninterest-bearing 56,451 47,140 40,609 38,580 33,130 liabilitiesTotal liabilities 1,792,154 1,800,970 1,621,806 1,601,585 1,612,111 Equity 397,776 376,375 391,148 391,382 388,859 Total liabilities $ 2,189,930 $ 2,177,345 $ 2,012,954 $ 1,992,967 $ 2,000,970 and equity Average Yield/Costs (annualized)Loans receivable 4.10 % 4.23 % 4.55 % 4.68 % 4.66 %and held for saleMortgage related 2.42 % 2.55 % 2.52 % 2.58 % 2.56 %securitiesDebt securities,federal funds sold 1.75 % 1.71 % 2.07 % 2.19 % 2.53 %and short terminvestmentsTotalinterest-earning 3.83 % 3.93 % 4.16 % 4.31 % 4.34 %assets Demand accounts 0.09 % 0.08 % 0.08 % 0.10 % 0.09 %Money market and 0.67 % 0.74 % 0.78 % 0.66 % 0.57 %savings accountsCertificates of 1.62 % 1.91 % 2.13 % 2.20 % 2.24 %depositTotalinterest-bearing 1.29 % 1.54 % 1.75 % 1.79 % 1.81 %depositsBorrowings 1.98 % 1.76 % 2.12 % 2.20 % 2.14 %Totalinterest-bearing 1.52 % 1.62 % 1.87 % 1.92 % 1.92 %liabilities

COMMUNITY BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended September June 30, March 31, December 31, September 30, 30, 2020 2020 2020 2019 2019 (Dollars in Thousands)CondensedResults of Operations:Net interest $ 13,461 $ 13,701 $ 12,908 $ 13,472 $ 13,885 incomeProvision for 1,000 4,325 750 (200 ) (150 )loan lossesTotalnoninterest 3,104 2,936 1,028 1,645 1,415 incomeNoninterest expenses:Compensation,payroll taxes,and other 5,000 4,906 5,168 4,693 4,075 employeebenefitsOccupancy,office 874 866 1,014 894 942 furniture andequipmentAdvertising 252 297 248 317 202 Data 490 678 605 583 588 processingCommunications 113 91 97 93 90 Professional 266 226 198 162 223 feesReal estate 11 33 11 (251 ) 24 ownedLoanprocessing - - - - - expenseOther 818 532 580 498 583 Totalnoninterest 7,824 7,629 7,921 6,989 6,727 expenseIncome before 7,741 4,683 5,265 8,328 8,723 income taxesIncome tax 1,565 574 1,154 2,033 1,982 expenseNet income $ 6,176 $ 4,109 $ 4,111 $ 6,295 $ 6,741 Efficiency 47.23 % 45.86 % 56.84 % 46.23 % 43.97 %ratio - QTDEfficiency 49.59 % 50.86 % 56.84 % 47.74 % 48.27 %ratio - YTD

MORTGAGE BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 (Dollars in Thousands)CondensedResults of Operations:Net interest $ (58 ) $ (511 ) $ (379 ) $ (399 ) $ (774 )incomeProvision for 25 175 35 30 70 loan lossesTotalnoninterest 73,143 64,218 30,798 32,440 36,535 incomeNoninterest expenses:Compensation,payroll taxes,and other 34,559 32,139 19,387 21,975 23,616 employeebenefitsOccupancy,office 1,595 1,668 1,727 1,627 1,687 furniture andequipmentAdvertising 609 567 652 734 711 Data 426 413 395 402 411 processingCommunications 226 226 241 227 268 Professional 4,465 850 1,620 1,000 688 feesReal estate - - - 30 - ownedLoanprocessing 1,336 1,208 1,076 746 858 expenseOther 2,444 3,239 2,552 1,918 1,725 Totalnoninterest 45,660 40,310 27,650 28,659 29,964 expenseIncome before 27,400 23,222 2,734 3,352 5,727 income taxesIncome tax 7,284 6,440 768 921 1,584 expenseNet income $ 20,116 $ 16,782 $ 1,966 $ 2,431 $ 4,143 Efficiency 62.48 % 63.27 % 90.90 % 89.44 % 83.79 %ratio - QTDEfficiency 67.95 % 72.70 % 90.90 % 87.47 % 86.79 %ratio - YTD Loan $ 1,296,725 $ 1,142,683 $ 708,840 $ 777,073 $ 851,297 originationsPurchase 64.1 % 55.5 % 68.3 % 72.1 % 79.0 %Refinance 35.9 % 44.5 % 31.7 % 27.9 % 21.0 %Gross marginon loans sold^ 5.44 % 5.45 % 4.08 % 4.27 % 4.30 %(1) (1) - Gross margin on loans sold equals mortgage banking income (excluding thechange in interest rate lock value) divided by total loan originations