GlobeNewswire Inc | Apr 26, 2021 04:01PM EDT

April 26, 2021

WAUWATOSA, Wis., April 26, 2021 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $21.3 million, or $0.89 per diluted share for the quarter ended March 31, 2021 compared to $6.1 million, or $0.24 per diluted share for the quarter ended March 31, 2020.

We've started the year strong with a record first quarter profit driven by continued strong mortgage origination volumes at the mortgage banking segment, said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. Our teams commitment to meeting the needs of our customers has continued to show through our results. I continue to be impressed with the efforts of all the employees from both the community banking and mortgage banking segments as we continue to deliver in a challenging environment.

Highlights of the Quarter Ended March 31, 2021

Waterstone Financial, Inc. (Consolidated)

-- Consolidated net income of Waterstone Financial, Inc. totaled $21.3 million for the quarter ended March 31, 2021, compared to $6.1 million for the quarter ended March 31, 2020. -- Consolidated return on average assets was 3.99% for the quarter ended March 31, 2021 compared to 1.21% for the quarter ended March 31, 2020. -- Consolidated return on average equity was 20.49% for the quarter ended March 31, 2021 and 6.24% for the quarter ended March 31, 2020. -- Dividends declared during the quarter ended March 31, 2021 totaled $0.20 per common share.

Community Banking Segment

-- Pre-tax income totaled $9.1 million for the quarter ended March 31, 2021, which represents a 73.4% increase compared to $5.3 million for the quarter ended March 31, 2020. -- Net interest income totaled $14.2 million for the quarter ended March 31, 2021, which represents a 10.4% increase compared to $12.9 million for the quarter ended March 31, 2020. -- Average loans held for investment totaled $1.35 billion during the quarter ended March 31, 2021, which represents a decrease of $46.5 million, or 3.3%, compared to $1.39 billion for the quarter ended March 31, 2020. Average loans held for investment decreased $55.8 million compared to $1.40 billion for the quarter ended December 31, 2020 as loans continue to prepay at an accelerated rate. -- Net interest margin increased 12 basis points to 2.80% for the quarter ended March 31, 2021 compared to 2.68% for the quarter ended March 31, 2020, which was a result of lower average rates on deposits, as certificate of deposits repriced at lower rates. Net interest margin increased seven basis points compared to 2.73% for the quarter ended December 31, 2020, driven by lower average rates on deposits, as certificate of deposits repriced at lower rates. -- The segment had a negative provision for loan losses of $1.1 million for the quarter ended March 31, 2021 compared to a $750,000 provision for loan losses for the quarter ended March 31, 2020. Net recoveries totaled $27,000 for the quarter ended March 31, 2021, compared to net recoveries of $54,000 for the quarter ended March 31, 2020. -- Noninterest income increased $215,000 for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020, due primarily to increases on service charges on loans as prepayments increased, partially offset by a decrease in income from cash surrender value of bank owned life insurance policies. -- Noninterest expense decreased $460,000 for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. Compensation, payroll taxes and other employee benefits expense decreased $193,000 due to decreases in health insurance claims. Data processing expense decreased $94,000 due to the implementation of a new digital banking platform in 2020. Other noninterest expense decreased $140,000 as certain loan-related expenses decreased offset by a decrease of credits received for FDIC premiums in 2020 but not in 2021. -- The efficiency ratio was 48.17% for the quarter ended March 31, 2021, compared to 56.84% for the quarter ended March 31, 2020. -- Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended March 31, 2021, an increase of $128.8 million, or 12.0%, compared to $1.08 billion during the quarter ended March 31, 2020. Average deposits increased $12.8 million, or 4.3% annualized compared to the $1.19 billion for the quarter ended December 31, 2020. -- Nonperforming assets as percentage of total assets was 0.20% at March 31, 2021, 0.27% at December 31, 2020, and 0.36% at March 31, 2020. -- Past due loans as percentage of total loans was 0.52% at March 31, 2021, 0.57% at December 31, 2020, and 0.78% at March 31, 2020. -- PPP loans totaled $19.4 million as of March 31, 2021. The average balance for the quarter ended March 31, 2021 was $18.0 million. PPP loan interest income recognized was approximately $44,000 and the amortization of fee income was approximately $354,000. Net interest margin, excluding the impact of the PPP loans, was 2.74%. Net interest margin for the quarter ended March 31, 2021, including the impact of the PPP loans, was 2.80%. -- The Company held approximately $9.5 million in loans, representing 0.7% of the total loan portfolio as of March 31, 2021, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $9.5 million in loans, $910,000 qualify as modifications under the Coronavirus Aid, Relief and Economic Security (CARES Act). The remaining $8.6 million is composed of three loan relationships that are classified as troubled debt restructurings.

Mortgage Banking Segment

-- Pre-tax income totaled $19.1 million for the quarter ended March 31, 2021, compared to $2.7 million for the quarter ended March 31, 2020. -- Loan originations increased $406.3 million, or 57.3%, to $1.12 billion during the quarter ended March 31, 2021, compared to $708.8 million during the quarter ended March 31, 2020. Origination volume relative to purchase activity accounted for 56.1% of originations for the quarter ended March 31, 2021 compared to 68.3% of total originations for the quarter ended March 31, 2020. -- Mortgage banking income increased $24.2 million, or 78.7%, to $55.0 million for the quarter ended March 31, 2021, compared to $30.8 million for the quarter ended March 31, 2020. -- Gross margin on loans sold increased to 4.86% for the quarter ended March 31, 2021, compared to 4.08% for the quarter ended March 31, 2020. -- Total compensation, payroll taxes and other employee benefits increased $9.9 million, or 50.9%, to $29.3 million during the quarter ended March 31, 2021 compared to $19.4 million during the quarter ended March 31, 2020. The increase primarily related to increased commission expense, performance bonuses, and branch manager compensation driven by increased loan origination volume and branch profitability. -- Professional fees decreased $2.1 million to $524,000 of income during the quarter ended March 31, 2021 compared to $1.6 million of expense during the quarter ended March 31, 2020. The decrease related to receiving a legal settlement during the quarter ended March 31, 2021, along with a decrease in litigation costs compared to the prior year, as the Herrington settlement was resolved.

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 60thday after the end of the COVID-19 national emergency. During the quarter ended March 31, 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, 2020 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 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 Ended March 31, 2021 2020 (In Thousands, except per share amounts)Interest income: Loans $ 16,603 $ 17,687Mortgage-related securities 491 702Debt securities, federal funds sold and 875 1,063short-term investmentsTotal interest income 17,969 19,452Interest expense: Deposits 1,517 4,318Borrowings 2,500 2,608Total interest expense 4,017 6,926Net interest income 13,952 12,526Provision for loan losses (1,070 ) 785Net interest income after provision for loan 15,022 11,741lossesNoninterest income: Service charges on loans and deposits 690 481Increase in cash surrender value of life 301 353insuranceMortgage banking income 54,391 30,406Other 817 224Total noninterest income 56,199 31,464Noninterest expenses: Compensation, payroll taxes, and other employee 34,123 24,401benefitsOccupancy, office furniture, and equipment 2,565 2,741Advertising 824 900Data processing 971 1,006Communications 331 338Professional fees (315 ) 1,832Real estate owned (12 ) 11Loan processing expense 1,335 1,076Other 3,178 2,903Total noninterest expenses 43,000 35,208Income before income taxes 28,221 7,997Income tax expense 6,877 1,928Net income $ 21,344 $ 6,069Income per share: Basic $ 0.90 $ 0.24Diluted $ 0.89 $ 0.24Weighted average shares outstanding: Basic 23,735 25,405Diluted 23,950 25,612

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION March 31, December 31, 2021 2020 (Unaudited) Assets (InThousands,exceptper shareamounts) Cash $ 160,144 $ 56,190 Federal funds 19,029 18,847 soldInterest-earningdeposits inother financial 19,228 19,730 institutions andother short terminvestmentsCash and cash 198,401 94,767 equivalentsSecuritiesavailable for 162,263 159,619 sale (at fairvalue)Loans held forsale (at fair 341,293 402,003 value)Loans receivable 1,335,423 1,375,137 Less: Allowance 17,780 18,823 for loan lossesLoans 1,317,643 1,356,314 receivable, net Officeproperties and 23,402 23,722 equipment, netFederal HomeLoan Bank stock 26,720 26,720 (at cost)Cash surrendervalue of life 63,874 63,573 insuranceReal estate 150 322 owned, netPrepaid expenses 64,265 57,547 and other assetsTotal assets $ 2,198,011 $ 2,184,587 Liabilities andShareholders' EquityLiabilities: Demand deposits $ 194,978 $ 188,225 Money market and 318,959 295,317 savings depositsTime deposits 705,754 701,328 Total deposits 1,219,691 1,184,870 Borrowings 490,505 508,074 Advance paymentsby borrowers for 12,048 3,522 taxesOther 45,086 75,003 liabilitiesTotal 1,767,330 1,771,469 liabilities Shareholders' equity:Preferred stock - -Common stock 252 251 Additional 182,533 180,684 paid-in capitalRetained 261,859 245,287 earningsUnearned ESOP (15,133 ) (15,430 )sharesAccumulatedothercomprehensive 1,170 2,326 income, net oftaxesTotalshareholders' 430,681 413,118 equityTotalliabilities and $ 2,198,011 $ 2,184,587 shareholders'equity Share InformationShares 25,230 25,088 outstandingBook value per $ 17.07 $ 16.47 shareClosing market $ 20.42 $ 18.82 pricePrice to book 119.63 % 114.27 %ratio

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended March 31, December September June 30, March 31, 31, 30, 2021 2020 2020 2020 2020 (Dollars in Thousands, except per share amounts)Condensed Results of Operations:Net interest income $ 13,952 $ 14,316 $ 13,409 $ 13,249 $ 12,526 Provision for loan (1,070 ) 30 1,025 4,500 785 lossesTotal noninterest 56,199 69,886 75,763 66,904 31,464 incomeTotal noninterest 43,000 47,163 53,001 47,689 35,208 expenseIncome before 28,221 37,009 35,146 27,964 7,997 income taxesIncome tax expense 6,877 9,174 8,853 7,016 1,928 Net income $ 21,344 $ 27,835 $ 26,293 $ 20,948 $ 6,069 Income per share ? $ 0.90 $ 1.17 $ 1.08 $ 0.86 $ 0.24 basicIncome per share ? $ 0.89 $ 1.17 $ 1.08 $ 0.85 $ 0.24 dilutedDividends declared $ 0.20 $ 0.50 $ 0.12 $ 0.12 $ 0.62 per share Performance Ratios (annualized):Return on average 3.99 % 4.96 % 4.78 % 3.87 % 1.21 %assets - QTDReturn on average 20.49 % 27.11 % 26.30 % 22.39 % 6.24 %equity - QTDNet interest margin 2.80 % 2.73 % 2.63 % 2.62 % 2.68 %- QTD Return on average 3.99 % 3.77 % 3.35 % 2.59 % 1.21 %assets - YTDReturn on average 20.49 % 20.18 % 18.02 % 14.03 % 6.24 %equity - YTDNet interest margin 2.80 % 2.67 % 2.64 % 2.65 % 2.68 %- YTD Asset Quality Ratios:Past due loans to 0.52 % 0.57 % 0.39 % 0.45 % 0.78 %total loansNonaccrual loans to 0.31 % 0.40 % 0.42 % 0.39 % 0.48 %total loansNonperformingassets to total 0.20 % 0.27 % 0.31 % 0.28 % 0.36 %assetsAllowance for loanlosses to loans 1.33 % 1.37 % 1.31 % 1.24 % 0.94 %receivable

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS(Unaudited)

At or For the Three Months Ended March 31, December September June 30, March 31, 31, 30, 2021 2020 2020 2020 2020 Average balances (Dollars in Thousands)Interest-earning assetsLoans receivable $ 1,657,260 $ 1,775,455 $ 1,766,715 $ 1,759,970 $ 1,562,097 and held for saleMortgage related 90,457 91,199 96,529 105,727 112,089 securitiesDebt securities,federal funds sold 273,929 217,356 166,160 164,306 206,485 and short terminvestmentsTotalinterest-earning 2,021,646 2,084,010 2,029,404 2,030,003 1,880,671 assetsNoninterest-earning 147,781 147,573 160,526 147,342 132,283 assetsTotal assets $ 2,169,427 $ 2,231,583 $ 2,189,930 $ 2,177,345 $ 2,012,954 Interest-bearing liabilitiesDemand accounts $ 55,552 $ 53,771 $ 50,590 $ 45,289 $ 39,886 Money market,savings, and escrow 314,418 304,467 282,349 252,500 218,942 accountsCertificates of 705,712 726,132 741,265 730,573 734,147 depositTotalinterest-bearing 1,075,682 1,084,370 1,074,204 1,028,362 992,975 depositsBorrowings 482,665 546,070 531,588 609,863 495,595 Totalinterest-bearing 1,558,347 1,630,440 1,605,792 1,638,225 1,488,570 liabilities Noninterest-bearing 138,446 128,665 129,911 115,605 92,627 demand depositsNoninterest-bearing 50,188 64,001 56,451 47,140 40,609 liabilitiesTotal liabilities 1,746,981 1,823,106 1,792,154 1,800,970 1,621,806 Equity 422,446 408,477 397,776 376,375 391,148 Total liabilities $ 2,169,427 $ 2,231,583 $ 2,189,930 $ 2,177,345 $ 2,012,954 and equity Average Yield/Costs (annualized)Loans receivable 4.06 % 4.08 % 4.10 % 4.23 % 4.55 %and held for saleMortgage related 2.20 % 2.30 % 2.42 % 2.55 % 2.52 %securitiesDebt securities,federal funds sold 1.30 % 1.59 % 1.75 % 1.71 % 2.07 %and short terminvestmentsTotalinterest-earning 3.60 % 3.75 % 3.83 % 3.93 % 4.16 %assets Demand accounts 0.07 % 0.07 % 0.09 % 0.08 % 0.08 %Money market and 0.32 % 0.53 % 0.67 % 0.74 % 0.78 %savings accountsCertificates of 0.72 % 1.20 % 1.62 % 1.91 % 2.13 %depositTotalinterest-bearing 0.57 % 0.96 % 1.29 % 1.54 % 1.75 %depositsBorrowings 2.10 % 1.97 % 1.98 % 1.76 % 2.12 %Totalinterest-bearing 1.05 % 1.30 % 1.52 % 1.62 % 1.87 %liabilities

COMMUNITY BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

At or For the Three Months Ended March December September June 30, March 31, 31, 30, 31, 2021 2020 2020 2020 2020 (Dollars in Thousands)Condensed Results of Operations:Net interest $ 14,247 $ 14,546 $ 13,461 $ 13,701 $ 12,908 incomeProvision for loan (1,100 ) - 1,000 4,325 750 lossesTotal noninterest 1,243 1,655 3,104 2,936 1,028 incomeNoninterest expenses:Compensation,payroll taxes, and 4,975 5,159 5,000 4,906 5,168 other employeebenefitsOccupancy, officefurniture and 1,025 934 874 866 1,014 equipmentAdvertising 209 244 252 297 248 Data processing 511 511 490 678 605 Communications 119 110 113 91 97 Professional fees 194 5 266 226 198 Real estate owned (12 ) (63 ) 11 33 11 Loan processing - - - - - expenseOther 440 577 818 532 580 Total noninterest 7,461 7,477 7,824 7,629 7,921 expenseIncome before 9,129 8,724 7,741 4,683 5,265 income taxesIncome tax expense 1,786 1,926 1,565 574 1,154 Net income $ 7,343 $ 6,798 $ 6,176 $ 4,109 $ 4,111 Efficiency ratio - 48.17 % 46.15 % 47.23 % 45.86 % 56.84 %QTDEfficiency ratio - 48.17 % 48.71 % 49.59 % 50.86 % 56.84 %YTD



MORTGAGE BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited)

At or For the Three Months Ended March 31, December September June 30, March 31, 31, 30, 2021 2020 2020 2020 2020 (Dollars in Thousands)CondensedResults of Operations:Net interest $ (350 ) $ (223 ) $ (58 ) $ (511 ) $ (379 )incomeProvision for 30 30 25 175 35 loan lossesTotalnoninterest 55,035 68,500 73,143 64,218 30,798 incomeNoninterest expenses:Compensation,payroll taxes,and other 29,262 33,347 34,559 32,139 19,387 employeebenefitsOccupancy,office 1,540 1,545 1,595 1,668 1,727 furniture andequipmentAdvertising 615 822 609 567 652 Data 454 402 426 413 395 processingCommunications 212 225 226 226 241 Professional (524 ) 441 4,465 850 1,620 feesReal estate - - - - - ownedLoanprocessing 1,335 1,026 1,336 1,208 1,076 expenseOther 2,681 2,110 2,444 3,239 2,552 Totalnoninterest 35,575 39,918 45,660 40,310 27,650 expenseIncome before 19,080 28,329 27,400 23,222 2,734 income taxesIncome tax 5,096 7,252 7,284 6,440 768 expenseNet income $ 13,984 $ 21,077 $ 20,116 $ 16,782 $ 1,966 Efficiency 65.05 % 58.46 % 62.48 % 63.27 % 90.90 %ratio - QTDEfficiency 65.05 % 65.20 % 67.95 % 72.70 % 90.90 %ratio - YTD Loan $ 1,115,091 $ 1,282,321 $ 1,296,725 $ 1,142,683 $ 708,840 originationsPurchase 56.1 % 59.2 % 64.1 % 55.5 % 68.3 %Refinance 43.9 % 40.8 % 35.9 % 44.5 % 31.7 %Gross marginon loans sold^ 4.86 % 5.40 % 5.44 % 5.45 % 4.08 %(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. GerkeChief Financial Officer414-459-4012markgerke@wsbonline.com