GlobeNewswire Inc | Jul 27, 2020 04:01PM EDT

July 27, 2020

WAUWATOSA, Wis., July 27, 2020 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $20.9 million, or $0.85 per diluted share for the quarter ended June 30, 2020 compared to $9.6 million, or $0.37 per diluted share for the quarter ended June 30, 2019. Net income per diluted share was $1.08 for the six months ended June 30, 2020 compared to net income per diluted share of $0.61 for the six months ended June 30, 2019.

Our success this quarter exemplifies the synergies that exist between our community bank and its wholly owned independent mortgage subsidiary, said Douglas Gordon, CEO of Waterstone Financial, Inc. The funding and capital provided by the Bank, combined with the exceptional sales culture of the mortgage company resulted in record quarterly earnings. Waterstone Mortgage reached a new quarterly record, achieving more than $1.1 billion in loan originations, helping nearly 5,000 homeowners either purchase or refinance a residence. In the Community Bank segment, we successfully launched our new digital banking platform, which will provide our consumer and business customers with additional banking tools and an enhanced user experience. Our employees have embraced the challenges in this unprecedented environment and navigated through the turbulent times, exhibiting their continued hard work and dedication.

Highlights of the Quarter Ended June 30, 2020

Waterstone Financial, Inc. (Consolidated)

-- Consolidated net income of Waterstone Financial, Inc. totaled $20.9 million for the quarter ended June 30, 2020, compared to $9.6 million for the quarter ended June 30, 2019. -- Consolidated return on average assets was 3.87% for the quarter ended June 30, 2020 compared to 1.95% for the quarter ended June 30, 2019. -- Consolidated return on average equity was 22.39% for the quarter ended June 30, 2020 and 9.96% for the quarter ended June 30, 2019. -- Dividends declared totaled $0.12 per share and we repurchased $6.1 million of shares during the quarter ended June 30, 2020 as a result of our strong financial position.

Community Banking Segment

-- Pre-tax income totaled $4.7 million for the quarter ended June 30, 2020, which represents a 36.5% decrease compared to $7.4 million for the quarter ended June 30, 2019. -- Net interest income totaled $13.7 million for the quarter ended June 30, 2020, which represents a 1.3% increase compared to $13.5 million for the quarter ended June 30, 2019. -- Average loans held for investment totaled $1.42 billion during the quarter ended June 30, 2020, which represents an increase of $44.5 million, or 3.2%, compared to $1.38 billion for the quarter ended June 30, 2019. The $29.8 million of loans originated throughout the quarter ended June 30, 2020 for the Paycheck Protection Program (PPP) contributed to the growth. Average loans held for investment increased $27.5 million, or 7.9% annualized, compared to $1.39 billion for the quarter ended March 31, 2020. -- Net interest margin decreased 20 basis points to 2.62% for the quarter ended June 30, 2020 compared to 2.82% for the quarter ended June 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 decreased six basis points compared to 2.68% for the quarter ended March 31, 2020. -- The segment had a $4.3 million provision for loan losses for the quarter ended June 30, 2020 compared to no provision for loan losses for the quarter ended June 30, 2019. The provision expense recorded during the second quarter of 2020 primarily consisted of an increased allocation related to the economic qualitative factor, across all portfolio segments, driven by the pandemic and its significant impact on the economy and employment. Net recoveries totaled $8,000 for the quarter ended June 30, 2020, compared to net recoveries of $26,000 for the quarter ended June 30, 2019. -- Noninterest income increased $1.9 million for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019 as fees earned on swaps and prepayment penalty fees increased. -- Noninterest expense increased $394,000 for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. Compensation, payroll taxes and other employee benefits expense increased $235,000 as salaries increased due to annual merit increases and additional branches added in late 2019. In addition, the increase in total compensation reflects an increase in variable and incentive based awards. Data processing expense increased $185,000 as we transitioned to a new digital platform in the quarter. -- The efficiency ratio was 45.86% for the quarter ended June 30, 2020, compared to 49.52% for the quarter ended June 30, 2019. -- Average deposits (excluding escrow accounts) totaled $1.13 billion during the quarter ended June 30, 2020, an increase of $85.3 million, or 8.2%, compared to $1.04 billion during the quarter ended June 30, 2019. Average deposits increased $50.2 million, or 18.7% annualized compared to the $1.08 billion for the quarter ended March 31, 2020 as the average deposit account balance increased approximately 6.5%. -- Nonperforming assets as percentage of total assets was 0.28% at June 30, 2020, 0.36% at March 31, 2020, and 0.37% at June 30, 2019. -- Past due loans as percentage of total loans was 0.45% at June 30, 2020, 0.78% at March 31, 2020, and 0.61% at June 30, 2019. -- The PPP loans totaled $29.8 million as of June 30, 2020. -- The Company had modified 191 loans aggregating $113.9 million consisting of payment of interest (deferral of principal) for a period ranging from 90 to 180 days as of June 30, 2020. In addition, the Company had modified 16 loans aggregating $7.9 million consisting of the deferral of principal and interest for a period of three to eight months.

Mortgage Banking Segment

-- Pre-tax income totaled $23.2 million for the quarter ended June 30, 2020, compared to $5.4 million for the quarter ended June 30, 2019. -- Loan originations increased $349.4 million, or 44.1%, to $1.14 billion during the quarter ended June 30, 2020, compared to $793.3 million during the quarter ended June 30, 2019. Origination volume relative to purchase activity accounted for 55.5% of originations for the quarter ended June 30, 2020 compared to 87.6% of total originations for the quarter ended June 30, 2019. -- Mortgage banking income increased $29.9 million, or 86.9%, to $64.2 million for the quarter ended June 30, 2020, compared to $34.4 million for the quarter ended June 30, 2019. -- Gross margin on loans sold increased to 5.45% for the quarter ended June 30, 2020, compared to 4.29% for the quarter ended June 30, 2019. -- Total compensation, payroll taxes and other employee benefits increased $9.6 million, or 42.3%, to $32.1 million during the quarter ended June 30, 2020 compared to $22.6 million during the quarter ended June 30, 2019. The increase primarily related to increased commission expense and branch manager compensation driven by increased loan origination volume and branch profitability. -- Other noninterest expense increased $2.1 million, or 173.1%, to $3.2 million during the quarter ended June 30, 2020 compared to $1.2 million during the quarter ended June 30, 2019. The increase related to a $1.5 million increase in the provision for losses on loans sold to the secondary market in anticipation of increased losses that result from both early payoff and early default provisions with investors. If triggered, the default provisions require a return of servicing release premium or an obligation to repurchase the loan. The increased provision is driven by both an increase in the number and volume of loans sold, as well as expectations of increased defaults resulting from COVID-19 pandemic challenges faced by borrowers.

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, Oak Creek/27th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin along with a commercial lendingoffice 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.

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.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited) For The Three Months For The Six Months Ended June 30, Ended June 30, 2020 2019 2020 2019 (In Thousands, except per share amounts)Interest income: Loans $ $ $ $ 18,493 18,026 36,180 35,130Mortgage-related securities 670 764 1,372 1,523Debt securities, federal funds 698 1,123 sold and short-term investments 1,761 2,432Total interest income 19,861 19,913 39,313 39,085Interest expense: Deposits 3,947 4,344 8,265 8,334Borrowings 2,665 2,588 5,273 4,834Total interest expense 6,612 6,932 13,538 13,168Net interest income 13,249 12,981 25,775 25,917Provision for loan losses 4,500 30 ) 5,285 (650Net interest income after 8,749 provision for loan losses 12,951 20,490 26,567Noninterest income: Service charges on loans and 2,231 390 769 deposits 2,712Increase in cash surrender 520 507 873 851 value of life insuranceMortgage banking income 63,774 34,105 94,180 57,464Other 379 188 603 363Total noninterest income 66,904 35,190 98,368 59,447Noninterest expenses: Compensation, payroll taxes, and other employee benefits 36,889 27,074 61,290 47,713Occupancy, office furniture, 2,534 2,680 and equipment 5,275 5,456Advertising 864 963 1,764 1,921Data processing 1,095 869 2,101 1,638Communications 317 353 655 681 Professional fees 1,077 789 2,909 1,484Real estate owned 33 19 44 51 Loan processing expense 1,208 879 2,284 1,684Other 1,729 3,672 6,575 4,076Total noninterest expenses 47,689 35,355 82,897 64,704Income before income taxes 27,964 12,786 35,961 21,310Income tax expense 7,016 3,143 8,944 5,125Net income $ $ 9,643 $ $ 20,948 27,017 16,185Income per share: Basic $ 0.86 $ 0.37 $ 1.08 $ 0.61Diluted $ 0.85 $ 0.37 $ 1.08 $ 0.61Weighted average shares outstanding:Basic 24,464 26,242 24,934 26,370 Diluted 24,513 26,412 25,071 26,572

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

June 30, December 31, 2020 2019 (Unaudited) Assets (InThousands,exceptper shareamounts)Cash $ 63,636 $ 52,814 Federal funds sold 11,992 12,704 Interest-earning deposits in other financial 1,291 institutions and other short term investments 8,782Cash and cash equivalents 76,919 74,300 Securities available for sale (at fair value) 164,112 178,476Loans held for sale (at fair value) 383,389 220,123Loans receivable 1,433,803 1,388,031Less: Allowance for loan losses 17,734 12,387 Loans receivable, net 1,416,069 1,375,644 Office properties and equipment, net 24,183 25,028 Federal Home Loan Bank stock (at cost) 26,720 21,150 Cash surrender value of life insurance 70,718 69,665 Real estate owned, net 702 748 Prepaid expenses and other assets 54,761 31,213 Total assets $ $ 2,217,573 1,996,347 Liabilities and Shareholders' Equity Liabilities: Demand deposits $ $ 171,016 130,063Money market and savings deposits 247,233 197,942Time deposits 739,417 739,771Total deposits 1,157,666 1,067,776 Borrowings 599,102 483,562Advance payments by borrowers for taxes 20,828 4,212 Other liabilities 54,358 47,111 Total liabilities 1,831,954 1,602,661 Shareholders' equity: Preferred stock - - Common stock 258 271 Additional paid-in capital 192,762 211,997Retained earnings 205,863 197,393Unearned ESOP shares (16,023 ) ) (16,617Accumulated other comprehensive income, net 2,759 642 of taxesTotal shareholders' equity 385,619 393,686Total liabilities and shareholders' equity $ $ 2,217,573 1,996,347 Share Information Shares outstanding 25,843 27,148Book value per share $ 14.92 $ 14.50 Closing market price $ 14.83 $ 19.03 Price to book ratio 99.40 % 131.24 %

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended June 30, March 31, December September June 30, 31, 30, 2020 2020 2019 2019 2019 (Dollars in Thousands, except per share amounts)Condensed Results of Operations:Net interest income $ 13,249 $ 12,526 $ 13,126 $ 13,154 $ 12,981 Provision for loan 4,500 785 (170 ) (80 ) 30 lossesTotal noninterest 66,904 31,464 33,809 37,494 35,190 incomeTotal noninterest 47,689 35,208 35,337 36,232 35,355 expenseIncome before 27,964 7,997 11,768 14,496 12,786 income taxesIncome tax expense 7,016 1,928 2,974 3,572 3,143 Net income $ 20,948 $ 6,069 $ 8,794 $ 10,924 $ 9,643 Income per share ? $ 0.86 $ 0.24 $ 0.34 $ 0.42 $ 0.37 basicIncome per share ? $ 0.85 $ 0.24 $ 0.34 $ 0.42 $ 0.37 dilutedDividends declared $ 0.12 $ 0.62 $ 0.12 $ 0.12 $ 0.12 per share Performance Ratios (annualized):Return on average 3.87 % 1.21 % 1.75 % 2.17 % 1.95 %assets - QTDReturn on average 22.39 % 6.24 % 8.91 % 11.15 % 9.96 %equity - QTDNet interest margin 2.62 % 2.68 % 2.79 % 2.80 % 2.82 %- QTD Return on average 2.59 % 1.21 % 1.82 % 1.84 % 1.67 %assets - YTDReturn on average 14.03 % 6.24 % 9.14 % 9.21 % 8.28 %equity - YTDNet interest margin 2.65 % 2.68 % 2.83 % 2.85 % 2.88 %- YTD Asset Quality Ratios:Past due loans to 0.45 % 0.78 % 0.47 % 0.62 % 0.61 %total loansNonaccrual loans to 0.39 % 0.48 % 0.51 % 0.46 % 0.41 %total loansNonperformingassets to total 0.28 % 0.36 % 0.39 % 0.41 % 0.37 %assetsAllowance for loanloss to loans 1.24 % 0.94 % 0.89 % 0.91 % 0.92 %receivable

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS(Unaudited) At or For the Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Average balances (Dollars in Thousands) Interest-earning assetsLoans receivable $ $ $ $ $ and held for sale 1,759,970 1,562,097 1,573,190 1,579,575 1,552,199Mortgage related 105,727 114,537 securities 112,089 110,426 114,051Debt securities,federal funds sold 164,306 180,111 and short term 206,485 183,447 169,621investments Total interest-earning 2,030,003 1,880,671 1,867,063 1,863,247 1,846,847 assetsNoninterest-earning 147,342 136,263 assets 132,283 125,904 137,723 Total assets $ $ $ $ $ 2,177,345 2,012,954 1,992,967 2,000,970 1,983,110 Interest-bearing liabilitiesDemand accounts $ 45,289 $ 39,886 $ 38,650 $ 37,015 $ 35,744 Money market, savings, and escrow 252,500 218,942 215,332 206,474 193,542 accountsCertificates of 730,573 736,798 deposit 734,147 737,726 739,544 Total interest-bearing 1,028,362 992,975 991,708 983,033 966,084 depositsBorrowings 609,863 504,940 495,595 485,482 509,099 Total interest-bearing 1,638,225 1,488,570 1,477,190 1,492,132 1,471,024 liabilitiesNoninterest-bearing 115,605 92,627 85,815 86,849 91,545 demand depositsNoninterest-bearing 47,140 40,609 38,580 33,130 32,143 liabilities Total liabilities 1,800,970 1,621,806 1,601,585 1,612,111 1,594,712Equity 376,375 388,398 391,148 391,382 388,859 Total liabilities and $ 2,177,345 $ 2,012,954 $ 1,992,967 $ 2,000,970 $ 1,983,110 equity Average Yield/Costs (annualized)Loans receivable 4.23 % 4.55 % 4.68 % 4.66 % 4.66 %and held for saleMortgage related 2.55 % 2.52 % 2.58 % 2.56 % 2.68 %securitiesDebt securities,federal funds sold 1.71 % 2.07 % 2.19 % 2.53 % 2.50 %and short terminvestments Totalinterest-earning 3.93 % 4.16 % 4.31 % 4.34 % 4.32 %assets Demand accounts 0.08 % 0.08 % 0.10 % 0.09 % 0.09 %Money market and 0.74 % 0.78 % 0.66 % 0.57 % 0.66 %savings accountsCertificates of 1.91 % 2.13 % 2.20 % 2.24 % 2.19 %deposit Totalinterest-bearing 1.54 % 1.75 % 1.79 % 1.81 % 1.80 %depositsBorrowings 1.76 % 2.12 % 2.20 % 2.14 % 2.06 % Totalinterest-bearing 1.62 % 1.87 % 1.92 % 1.92 % 1.89 %liabilities

COMMUNITY BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 (Dollars in Thousands) CondensedResults of Operations:Net interest $ 13,701 $ 12,908 $ 13,472 $ 13,885 $ 13,530 incomeProvision for 4,325 750 (200 ) (150 ) - loan lossesTotalnoninterest 2,936 1,028 1,645 1,415 1,079 incomeNoninterest expenses:Compensation,payroll taxes,and other 4,906 5,168 4,693 4,075 4,671 employeebenefitsOccupancy,office 866 1,014 894 942 944 furniture andequipmentAdvertising 297 248 317 202 220 Data 678 605 583 588 493 processingCommunications 91 97 93 90 93 Professional 226 198 162 223 160 feesReal estate 33 11 (251 ) 24 19 ownedLoanprocessing - - - - - expenseOther 532 580 498 583 635 Totalnoninterest 7,629 7,921 6,989 6,727 7,235 expenseIncome before 4,683 5,265 8,328 8,723 7,374 income taxesIncome tax 574 1,154 2,033 1,982 1,594 expenseNet income $ 4,109 $ 4,111 $ 6,295 $ 6,741 $ 5,780 Efficiency 45.86 % 56.84 % 46.23 % 43.97 % 49.52 %ratio - QTDEfficiency 50.86 % 56.84 % 47.74 % 48.27 % 50.56 %ratio - YTD





MORTGAGE BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 (Dollars in Thousands) CondensedResults of Operations:Net interest $ (511 ) $ (379 ) $ (399 ) $ (774 ) $ (529 )incomeProvision for 175 35 30 70 30 loan lossesTotalnoninterest 64,218 30,798 32,440 36,535 34,364 incomeNoninterest expenses:Compensation,payroll taxes,and other 32,139 19,387 21,975 23,616 22,579 employeebenefitsOccupancy,office 1,668 1,727 1,627 1,687 1,736 furniture andequipmentAdvertising 567 652 734 711 743 Data 413 395 402 411 372 processingCommunications 226 241 227 268 260 Professional 850 1,620 1,000 688 620 feesReal estate - - 30 - - ownedLoanprocessing 1,208 1,076 746 858 879 expenseOther 3,239 2,552 1,918 1,725 1,186 Totalnoninterest 40,310 27,650 28,659 29,964 28,375 expenseIncome before 23,222 2,734 3,352 5,727 5,430 income taxesIncome tax 6,440 768 921 1,584 1,545 expenseNet income $ 16,782 $ 1,966 $ 2,431 $ 4,143 $ 3,885 Efficiency 63.27 % 90.90 % 89.44 % 83.79 % 83.86 %ratio - QTDEfficiency 72.20 % 90.90 % 87.47 % 86.79 % 88.66 %ratio - YTD Loan $ 1,142,683 $ 708,840 $ 777,073 $ 851,297 $ 793,254 originationsPurchase 55.5 % 68.3 % 72.1 % 79.0 % 87.6 %Refinance 44.5 % 31.7 % 27.9 % 21.0 % 12.4 %Gross marginon loans sold^ 5.45 % 4.08 % 4.27 % 4.30 % 4.29 %(1)(1) - Gross margin on loans sold equals mortgage banking income (excluding thechange in interest rate lock value) divided by total loan originations

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