GlobeNewswire Inc | Jul 20, 2021 04:01PM EDT

July 20, 2021

WAUWATOSA, Wis., July 20, 2021 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $17.9 million, or $0.74 per diluted share for the quarter ended June 30, 2021 compared to $20.9 million, or $0.85 per diluted share for the quarter ended June 30, 2020. Net income per diluted share was $1.64 for the six months ended June 30, 2021 compared to net income per diluted share of $1.08 for the six months ended June 30, 2020.

Our Companys strong performance continued during the second quarter and we were excited to declare and pay a $0.50 special dividend during the quarter, said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. Our business model has allowed us to maximize the opportunity presented by the current market, return capital to our shareholders and continue to enhance our book value.

Highlights of the Quarter Ended June 30, 2021

Waterstone Financial, Inc. (Consolidated)

-- Consolidated net income of Waterstone Financial, Inc. totaled $17.9 million for the quarter ended June 30, 2021, compared to $20.9 million for the quarter ended June 30, 2020. -- Consolidated return on average assets was 3.25% for the quarter ended June 30, 2021 compared to 3.87% for the quarter ended June 30, 2020. -- Consolidated return on average equity was 16.49% for the quarter ended June 30, 2021 and 22.39% for the quarter ended June 30, 2020. -- Dividends declared during the quarter ended June 30, 2021 totaled $0.70 per common share, which included a quarterly dividend of $0.20 per share and a special dividend of $0.50 per share. -- We repurchased approximately 59,000 shares at a cost of $1.1 million during the quarter ended June 30, 2021.

Community Banking Segment

-- Pre-tax income totaled $9.7 million for the quarter ended June 30, 2021, which represents a 106.4% increase compared to $4.7 million for the quarter ended June 30, 2020. -- Net interest income totaled $14.5 million for the quarter ended June 30, 2021, which represents a 6.0% increase compared to $13.7 million for the quarter ended June 30, 2020. -- Average loans held for investment totaled $1.32 billion during the quarter ended June 30, 2021, which represents a decrease of $101.6 million, or 7.2%, compared to $1.42 billion for the quarter ended June 30, 2020. Average loans held for investment decreased $27.7 million compared to $1.35 billion for the quarter ended March 31, 2021 as residential real estate loans continue to prepay at an accelerated rate. -- Net interest margin increased 16 basis points to 2.78% for the quarter ended June 30, 2021 compared to 2.62% for the quarter ended June 30, 2020, which was a result of lower average rates on deposits, as certificate of deposits repriced at lower rates. Net interest margin decreased two basis points compared to 2.80% for the quarter ended March 31, 2021, driven by a decrease in PPP loan fees as the first round loan payoffs decreased. -- The segment had a negative provision for loan losses of $750,000 for the quarter ended June 30, 2021 compared to a $4.3 million provision for loan losses for the quarter ended June 30, 2020. Net recoveries totaled $378,000 for the quarter ended June 30, 2021 as one significant loan recovery payment was made in the quarter, compared to net recoveries of $8,000 for the quarter ended June 30, 2020. -- Noninterest income decreased $1.3 million for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, due primarily to decreases on service charges on loans from fees earned on swaps. -- Noninterest expense decreased $397,000 for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020. Compensation, payroll taxes and other employee benefits expense decreased $32,000 primarily due to a decrease in variable compensation offset by increases in health insurance and employee stock ownership plan expenses. Data processing expense decreased $212,000 due to the implementation of a new digital banking platform in 2020. Other noninterest expense decreased $71,000 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 44.79% for the quarter ended June 30, 2021, compared to 45.86% for the quarter ended June 30, 2020. -- Average deposits (excluding escrow accounts) totaled $1.23 billion during the quarter ended June 30, 2021, an increase of $103.4 million, or 9.2%, compared to $1.13 billion during the quarter ended June 30, 2020. Average deposits increased $24.8 million, or 8.2% annualized compared to the $1.21 billion for the quarter ended March 31, 2021. -- Nonperforming assets as percentage of total assets was 0.20% at June 30, 2021, 0.20% at March 31, 2021, and 0.28% at June 30, 2020. -- Past due loans as percentage of total loans was 0.53% at June 30, 2021, 0.52% at March 31, 2021, and 0.45% at June 30, 2020. -- PPP loans totaled $16.9 million as of June 30, 2021. The average balance for the quarter ended June 30, 2021 was $19.5 million. For the quarter ended June 30, 2021, PPP loan interest income recognized was approximately $49,000 and the amortization of fee income was approximately $286,000. Net interest margin, excluding the impact of the PPP loans, was 2.74%. Net interest margin for the quarter ended June 30, 2021, including the impact of the PPP loans, was 2.78%. -- The Company held approximately $3.5 million in loans, representing 0.3% of the total loan portfolio as of June 30, 2021, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $3.5 million in loans, $559,000 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 $14.2 million for the quarter ended June 30, 2021, compared to $23.2 million for the quarter ended June 30, 2020. -- Loan originations decreased $77.5 million, or 6.8%, to $1.07 billion during the quarter ended June 30, 2021, compared to $1.14 billion during the quarter ended June 30, 2020. Origination volume relative to purchase activity accounted for 75.4% of originations for the quarter ended June 30, 2021 compared to 55.5% of total originations for the quarter ended June 30, 2020. -- Mortgage banking non-interest income decreased $13.7 million, or 21.3%, to $50.6 million for the quarter ended June 30, 2021, compared to $64.2 million for the quarter ended June 30, 2020. -- Gross margin on loans sold decreased to 4.81% for the quarter ended June 30, 2021, compared to 5.45% for the quarter ended June 30, 2020. -- Total compensation, payroll taxes and other employee benefits decreased $3.0 million, or 9.2%, to $29.2 million during the quarter ended June 30, 2021 compared to $32.1 million during the quarter ended June 30, 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. -- Professional fees decreased $489,000 to $361,000 during the quarter ended June 30, 2021 compared to $850,000 of expense during the quarter ended June 30, 2020. The decrease related to a decrease in litigation costs compared to the prior year, as the Herrington settlement was resolved in 2020. -- Other noninterest expense decreased $561,000 to $2.7 million during the quarter ended June 30, 2021 compared to $3.2 million during the quarter ended June 30, 2020. The decrease related to a decrease in the provision for losses on loans sold to the secondary market that results from both early payoff and early default provisions with investors. The decreased provision is driven by both an decrease in the number and volume of loans sold, as well as actual default activity resulting from COVID-19 pandemic was lower than expected.

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 June 30, 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 StatementsThis 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, 2021 2020 2021 2020 (In Thousands, except per share amounts)Interest income: Loans $ 16,480 $ 18,493 $ 33,083 $ 36,180Mortgage-related securities 486 670 977 1,372Debt securities, federal funds 858 698 1,733 1,761sold and short-term investmentsTotal interest income 17,824 19,861 35,793 39,313Interest expense: Deposits 1,078 3,947 2,595 8,265Borrowings 2,469 2,665 4,969 5,273Total interest expense 3,547 6,612 7,564 13,538Net interest income 14,277 13,249 28,229 25,775Provision (credit) for loan (750 ) 4,500 (1,820 ) 5,285lossesNet interest income after 15,027 8,749 30,049 20,490provision for loan lossesNoninterest income: Service charges on loans and 657 2,231 1,347 2,712depositsIncrease in cash surrender value 684 520 985 873of life insuranceMortgage banking income 49,649 63,774 104,040 94,180Other 1,054 379 1,871 603Total noninterest income 52,044 66,904 108,243 98,368Noninterest expenses: Compensation, payroll taxes, and 33,926 36,889 68,049 61,290other employee benefitsOccupancy, office furniture, and 2,293 2,534 4,858 5,275equipmentAdvertising 911 864 1,735 1,764Data processing 914 1,095 1,885 2,101Communications 326 317 657 655Professional fees 569 1,077 254 2,909Real estate owned - 33 (12 ) 44Loan processing expense 1,200 1,208 2,535 2,284Other 3,158 3,672 6,336 6,575Total noninterest expenses 43,297 47,689 86,297 82,897Income before income taxes 23,774 27,964 51,995 35,961Income tax expense 5,880 7,016 12,757 8,944Net income $ 17,894 $ 20,948 $ 39,238 $ 27,017Income per share: Basic $ 0.75 $ 0.86 $ 1.65 $ 1.08Diluted $ 0.74 $ 0.85 $ 1.64 $ 1.08Weighted average shares outstanding:Basic 23,848 24,464 23,792 24,934Diluted 24,029 24,513 23,996 25,071

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, December 31, 2021 2020 (Unaudited) Assets (In Thousands, except per share amounts)Cash $ 197,981 $ 56,190 Federal funds sold 11,531 18,847 Interest-earning deposits in other financial 19,227 19,730 institutions and other short term investmentsCash and cash equivalents 228,739 94,767 Securities available for sale (at fair value) 172,224 159,619 Loans held for sale (at fair value) 352,627 402,003 Loans receivable 1,296,441 1,375,137 Less: Allowance for loan losses 17,410 18,823 Loans receivable, net 1,279,031 1,356,314 Office properties and equipment, net 23,186 23,722 Federal Home Loan Bank stock (at cost) 26,538 26,720 Cash surrender value of life insurance 64,738 63,573 Real estate owned, net 150 322 Prepaid expenses and other assets 54,720 57,547 Total assets $ 2,201,953 $ 2,184,587 Liabilities and Shareholders' Equity Liabilities: Demand deposits $ 208,523 $ 188,225 Money market and savings deposits 351,394 295,317 Time deposits 671,143 701,328 Total deposits 1,231,060 1,184,870 Borrowings 475,000 508,074 Advance payments by borrowers for taxes 17,657 3,522 Other liabilities 46,498 75,003 Total liabilities 1,770,215 1,771,469 Shareholders' equity: Preferred stock - - Common stock 252 251 Additional paid-in capital 182,346 180,684 Retained earnings 263,048 245,287 Unearned ESOP shares (14,837 ) (15,430 )Accumulated other comprehensive income, net of 929 2,326 taxesTotal shareholders' equity 431,738 413,118 Total liabilities and shareholders' equity $ 2,201,953 $ 2,184,587 Share Information Shares outstanding 25,213 25,088 Book value per share $ 17.12 $ 16.47 Closing market price $ 19.66 $ 18.82 Price to book ratio 114.84 % 114.27 %

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended June 30, March 31, December 31, September June 30, 30, 2021 2021 2020 2020 2020 (Dollars in Thousands, except per share amounts)CondensedResults of Operations:Net interest $ 14,277 $ 13,952 $ 14,316 $ 13,409 $ 13,249 incomeProvision(credit) for (750 ) (1,070 ) 30 1,025 4,500 loan lossesTotalnoninterest 52,044 56,199 69,886 75,763 66,904 incomeTotalnoninterest 43,297 43,000 47,163 53,001 47,689 expenseIncome before 23,774 28,221 37,009 35,146 27,964 income taxesIncome tax 5,880 6,877 9,174 8,853 7,016 expenseNet income $ 17,894 $ 21,344 $ 27,835 $ 26,293 $ 20,948 Income per $ 0.75 $ 0.90 $ 1.17 $ 1.08 $ 0.86 share basicIncome per $ 0.74 $ 0.89 $ 1.17 $ 1.08 $ 0.85 share dilutedDividendsdeclared per $ 0.70 $ 0.20 $ 0.50 $ 0.12 $ 0.12 share PerformanceRatios (annualized):Return onaverage assets 3.25 % 3.99 % 4.96 % 4.78 % 3.87 %- QTDReturn onaverage equity 16.49 % 20.49 % 27.11 % 26.30 % 22.39 %- QTDNet interest 2.78 % 2.80 % 2.73 % 2.63 % 2.62 %margin - QTD Return onaverage assets 3.62 % 3.99 % 3.77 % 3.35 % 2.59 %- YTDReturn onaverage equity 18.49 % 20.49 % 20.18 % 18.02 % 14.03 %- YTDNet interest 2.79 % 2.80 % 2.67 % 2.64 % 2.65 %margin - YTD Asset Quality Ratios:Past due loans 0.53 % 0.52 % 0.57 % 0.39 % 0.45 %to total loansNonaccrualloans to total 0.34 % 0.31 % 0.40 % 0.42 % 0.39 %loansNonperformingassets to 0.20 % 0.20 % 0.27 % 0.31 % 0.28 %total assetsAllowance forloan losses to 1.34 % 1.33 % 1.37 % 1.31 % 1.24 %loansreceivable

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, 2021 2021 2020 2020 2020 Average balances (Dollars in Thousands)Interest-earning assetsLoans receivable $ 1,655,078 $ 1,657,260 $ 1,775,455 $ 1,766,715 $ 1,759,970 and held for saleMortgage related 100,056 90,457 91,199 96,529 105,727 securitiesDebt securities,federal funds sold 308,105 273,929 217,356 166,160 164,306 and short terminvestmentsTotalinterest-earning 2,063,239 2,021,646 2,084,010 2,029,404 2,030,003 assetsNoninterest-earning 143,375 147,781 147,573 160,526 147,342 assetsTotal assets $ 2,206,614 $ 2,169,427 $ 2,231,583 $ 2,189,930 $ 2,177,345 Interest-bearing liabilitiesDemand accounts $ 63,610 $ 55,552 $ 53,771 $ 50,590 $ 45,289 Money market,savings, and escrow 350,270 314,418 304,467 282,349 252,500 accountsCertificates of 690,196 705,712 726,132 741,265 730,573 depositTotalinterest-bearing 1,104,076 1,075,682 1,084,370 1,074,204 1,028,362 depositsBorrowings 480,054 482,665 546,070 531,588 609,863 Totalinterest-bearing 1,584,130 1,558,347 1,630,440 1,605,792 1,638,225 liabilities Noninterest-bearing 141,648 138,446 128,665 129,911 115,605 demand depositsNoninterest-bearing 45,658 50,188 64,001 56,451 47,140 liabilitiesTotal liabilities 1,771,436 1,746,981 1,823,106 1,792,154 1,800,970 Equity 435,178 422,446 408,477 397,776 376,375 Total liabilities $ 2,206,614 $ 2,169,427 $ 2,231,583 $ 2,189,930 $ 2,177,345 and equity Average Yield/Costs (annualized)Loans receivable 3.99 % 4.06 % 4.08 % 4.10 % 4.23 %and held for saleMortgage related 1.95 % 2.20 % 2.30 % 2.42 % 2.55 %securitiesDebt securities,federal funds sold 1.12 % 1.30 % 1.59 % 1.75 % 1.71 %and short terminvestmentsTotalinterest-earning 3.47 % 3.60 % 3.75 % 3.83 % 3.93 %assets Demand accounts 0.08 % 0.07 % 0.07 % 0.09 % 0.08 %Money market and 0.23 % 0.32 % 0.53 % 0.67 % 0.74 %savings accountsCertificates of 0.50 % 0.72 % 1.20 % 1.62 % 1.91 %depositTotalinterest-bearing 0.39 % 0.57 % 0.96 % 1.29 % 1.54 %depositsBorrowings 2.06 % 2.10 % 1.97 % 1.98 % 1.76 %Totalinterest-bearing 0.90 % 1.05 % 1.30 % 1.52 % 1.62 %liabilities

COMMUNITY BANKING SEGMENTSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended June 30, March 31, December 31, September June 30, 30, 2021 2021 2020 2020 2020 (Dollars in Thousands)CondensedResults of Operations:Net interest $ 14,517 $ 14,247 $ 14,546 $ 13,461 $ 13,701 incomeProvision for (750 ) (1,100 ) - 1,000 4,325 loan lossesTotalnoninterest 1,630 1,243 1,655 3,104 2,936 incomeNoninterest expenses:Compensation,payroll taxes,and other 4,874 4,975 5,159 5,000 4,906 employeebenefitsOccupancy,office 887 1,025 934 874 866 furniture andequipmentAdvertising 260 209 244 252 297 Data 466 511 511 490 678 processingCommunications 86 119 110 113 91 Professional 198 194 5 266 226 feesReal estate - (12 ) (63 ) 11 33 ownedLoanprocessing - - - - - expenseOther 461 440 577 818 532 Totalnoninterest 7,232 7,461 7,477 7,824 7,629 expenseIncome before 9,665 9,129 8,724 7,741 4,683 income taxesIncome tax 2,128 1,786 1,926 1,565 574 expenseNet income $ 7,537 $ 7,343 $ 6,798 $ 6,176 $ 4,109 Efficiency 44.79 % 48.17 % 46.15 % 47.23 % 45.86 %ratio - QTDEfficiency 46.44 % 48.17 % 48.71 % 49.59 % 50.86 %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, 2021 2021 2020 2020 2020 (Dollars in Thousands)CondensedResults of Operations:Net interest $ (251 ) $ (350 ) $ (223 ) $ (58 ) $ (511 )incomeProvision for - 30 30 25 175 loan lossesTotalnoninterest 50,556 55,035 68,500 73,143 64,218 incomeNoninterest expenses:Compensation,payroll taxes,and other 29,170 29,262 33,347 34,559 32,139 employeebenefitsOccupancy,office 1,406 1,540 1,545 1,595 1,668 furniture andequipmentAdvertising 651 615 822 609 567 Data 443 454 402 426 413 processingCommunications 240 212 225 226 226 Professional 361 (524 ) 441 4,465 850 feesReal estate - - - - - ownedLoanprocessing 1,200 1,335 1,026 1,336 1,208 expenseOther 2,678 2,681 2,110 2,444 3,239 Totalnoninterest 36,149 35,575 39,918 45,660 40,310 expenseIncome before 14,156 19,080 28,329 27,400 23,222 income taxesIncome tax 3,761 5,096 7,252 7,284 6,440 expenseNet income $ 10,395 $ 13,984 $ 21,077 $ 20,116 $ 16,782 Efficiency 71.86 % 65.05 % 58.46 % 62.48 % 63.27 %ratio - QTDEfficiency 68.32 % 65.05 % 65.20 % 67.95 % 72.70 %ratio - YTD Loan $ 1,065,161 $ 1,115,091 $ 1,282,321 $ 1,296,725 $ 1,142,683 originationsPurchase 75.4 % 56.1 % 59.2 % 64.1 % 55.5 %Refinance 24.6 % 43.9 % 40.8 % 35.9 % 44.5 %Gross marginon loans sold^ 4.81 % 4.86 % 5.40 % 5.44 % 5.45 %(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