GlobeNewswire Inc | Oct 19, 2021 04:01PM EDT

October 19, 2021

WAUWATOSA, Wis., Oct. 19, 2021 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $19.0 million, or $0.79 per diluted share for the quarter ended September 30, 2021 compared to $26.3 million, or $1.08 per diluted share for the quarter ended September 30, 2020. Net income per diluted share was $2.43 for the nine months ended September 30, 2021 compared to net income per diluted share of $2.15 for the nine months ended September 30, 2020.

We are pleased with the Companys continued strong financial results during the third quarter, said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. We have the right team members to navigate market challenges, as we meet the ever changing demands for our customers. Our results validate the strategies we have implemented over the past years to grow our brands and deliver for our shareholders.

Highlights of the Quarter Ended September 30, 2021

Waterstone Financial, Inc. (Consolidated)

-- Consolidated net income of Waterstone Financial, Inc. totaled $19.0 million for the quarter ended September 30, 2021, compared to $26.3 million for the quarter ended September 30, 2020. -- Consolidated return on average assets was 3.38% for the quarter ended September 30, 2021 compared to 4.78% for the quarter ended September 30, 2020. -- Consolidated return on average equity was 17.25% for the quarter ended September 30, 2021 and 26.30% for the quarter ended September 30, 2020. -- Dividends declared during the quarter ended September 30, 2021 totaled $0.20 per common share. -- We repurchased approximately 178,000 shares at a cost of $3.5 million during the quarter ended September 30, 2021.

Community Banking Segment

-- Pre-tax income totaled $8.9 million for the quarter ended September 30, 2021, which represents a $1.1 million, or 14.4%, increase compared to $7.7 million for the quarter ended September 30, 2020. -- Net interest income totaled $14.1 million for the quarter ended September 30, 2021, which represents a 4.7% increase compared to $13.5 million for the quarter ended September 30, 2020. -- Average loans held for investment totaled $1.26 billion during the quarter ended September 30, 2021, which represents a decrease of $174.0 million, or 12.2%, compared to $1.43 billion for the quarter ended September 30, 2020. Average loans held for investment decreased $63.8 million compared to $1.32 billion for the quarter ended June 30, 2021 as residential real estate loans continue to prepay at an accelerated rate. -- Net interest margin increased five basis points to 2.68% for the quarter ended September 30, 2021 compared to 2.63% for the quarter ended September 30, 2020, which was a result of lower average rates on deposits, as certificate of deposits repriced at lower rates. Net interest margin decreased 10 basis points compared to 2.78% for the quarter ended June 30, 2021, driven by a decrease in average loan balance and a higher average cash balance. -- The segment had a negative provision for loan losses of $750,000 for the quarter ended September 30, 2021 compared to a $1.0 million provision for loan losses for the quarter ended September 30, 2020. Net recoveries totaled $100,000 for the quarter ended September 30, 2021, as one significant loan recovery payment was received during the quarter, compared to net recoveries of $85,000 for the quarter ended September 30, 2020. -- Noninterest income decreased $1.4 million for the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020, due primarily to a decrease in gains from death benefit received on two bank owned life insurance policies during the three months ended September 30, 2020. -- Noninterest expense decreased $116,000 for the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020. Other noninterest expense decreased $396,000 as certain loan-related expenses decreased. Compensation, payroll taxes and other employee benefits expense increased $360,000 primarily due to an increase in health insurance expense and Employee Stock Ownership Plan expense as the average stock price increased compared to the quarter ending September 30, 2020. -- The efficiency ratio was 48.74% for the quarter ended September 30, 2021, compared to 47.23% for the quarter ended September 30, 2020. -- Average deposits (excluding escrow accounts) totaled $1.25 billion during the quarter ended September 30, 2021, an increase of $74.9 million, or 6.3%, compared to $1.18 billion during the quarter ended September 30, 2020. Average deposits increased $24.3 million, or 7.9% annualized compared to the $1.23 billion for the quarter ended June 30, 2021. -- Nonperforming assets as percentage of total assets was 0.18% at September 30, 2021, 0.20% at June 30, 2021, and 0.31% at September 30, 2020. -- Past due loans as percentage of total loans was 0.92% at September 30, 2021, 0.53% at June 30, 2021, and 0.39% at September 30, 2020. -- PPP loans totaled $4.1 million as of September 30, 2021. The average balance for the quarter ended September 30, 2021 was $10.6 million. For the quarter ended September 30, 2021, PPP loan interest income recognized was approximately $26,000 and the amortization of fee income was approximately $464,000. Net interest margin, excluding the impact of the PPP loans, was 2.63%. Net interest margin for the quarter ended September 30, 2021, including the impact of the PPP loans, was 2.68%. -- The Company held approximately $3.5 million in loans, representing 0.3% of the total loan portfolio as of September 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 $15.6 million for the quarter ended September 30, 2021, compared to $27.4 million for the quarter ended September 30, 2020. -- Loan originations decreased $241.2 million, or 18.6%, to $1.06 billion during the quarter ended September 30, 2021, compared to $1.30 billion during the quarter ended September 30, 2020. Origination volume relative to purchase activity accounted for 73.8% of originations for the quarter ended September 30, 2021 compared to 64.1% of total originations for the quarter ended September 30, 2020. -- Mortgage banking non-interest income decreased $21.9 million, or 29.9%, to $51.3 million for the quarter ended September 30, 2021, compared to $73.1 million for the quarter ended September 30, 2020. During the quarter ended September 30, 2021, the Company sold mortgage servicing rights related to $1.24 billion in loans serviced for third parties. The sale generated $12.4 million in net proceeds and a $4.0 million gain. There was no comparable sale during the quarter ended September 30, 2020. As of September 30, 2021, the Company maintained servicing rights related to $160.8 million in loans previously sold to third parties. -- Gross margin on loans sold decreased to 4.54% for the quarter ended September 30, 2021, compared to 5.44% for the quarter ended September 30, 2020. -- Total compensation, payroll taxes and other employee benefits decreased $5.6 million, or 16.1%, to $29.0 million during the quarter ended September 30, 2021 compared to $34.6 million during the quarter ended September 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 $4.0 million to $421,000 during the quarter ended September 30, 2021 compared to $4.5 million of expense during the quarter ended September 30, 2020. The decrease related to a decrease in litigation costs compared to the prior year, as the Herrington settlement was resolved during the quarter ended September 30, 2020. -- Other noninterest expense decreased $174,000 to $2.3 million during the quarter ended September 30, 2021 compared to $2.4 million during the quarter ended September 30, 2020. The decrease related to a decrease in the servicing fees on mortgage servicing rights due to the sale during the quarter ended September 30, 2021.

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 June 30, 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 September 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 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. WATERSTONE BANK11200 W. PLANK CT. WAUWATOSA, WI 53226

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

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For The Three Months For The Nine Months Ended Ended September 30, September 30, 2021 2020 2021 2020 (In Thousands, except per share amounts) Interest income: Loans $ 16,131 $ 18,224 $ 49,214 $ 54,404 Mortgage-related 471 588 1,448 1,960 securitiesDebt securities,federal funds sold 904 732 2,637 2,493 and short-terminvestmentsTotal interest 17,506 19,544 53,299 58,857 incomeInterest expense: Deposits 947 3,495 3,542 11,760 Borrowings 2,445 2,640 7,414 7,913 Total interest 3,392 6,135 10,956 19,673 expenseNet interest income 14,114 13,409 42,343 39,184 Provision (credit) (700 ) 1,025 (2,520 ) 6,310 for loan lossesNet interest incomeafter provision for 14,814 12,384 44,863 32,874 loan lossesNoninterest income: Service charges on 1,136 672 2,483 3,384 loans and depositsIncrease in cashsurrender value of 312 714 1,297 1,587 life insuranceMortgage banking 46,547 72,112 150,587 166,292 incomeOther 4,941 2,265 6,812 2,868 Total noninterest 52,936 75,763 161,179 174,131 incomeNoninterest expenses:Compensation,payroll taxes, and 34,229 39,405 102,278 100,695 other employeebenefitsOccupancy, officefurniture, and 2,488 2,469 7,346 7,744 equipmentAdvertising 835 861 2,570 2,625 Data processing 986 922 2,871 3,023 Communications 331 339 988 994 Professional fees 550 4,738 804 7,647 Real estate owned 1 11 (11 ) 55 Loan processing 1,135 1,336 3,670 3,620 expenseOther 2,768 2,920 9,104 9,495 Total noninterest 43,323 53,001 129,620 135,898 expensesIncome before 24,427 35,146 76,422 71,107 income taxesIncome tax expense 5,427 8,853 18,184 17,797 Net income $ 19,000 $ 26,293 $ 58,238 $ 53,310 Income per share: Basic $ 0.80 $ 1.08 $ 2.45 $ 2.16 Diluted $ 0.79 $ 1.08 $ 2.43 $ 2.15 Weighted average shares outstanding:Basic 23,785 24,297 23,790 24,720 Diluted 23,960 24,380 23,987 24,842

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, December 31, 2021 2020 (Unaudited) Assets (In Thousands, except per share amounts)Cash $ 327,288 $ 56,190 Federal funds sold 12,097 18,847 Interest-earning deposits in other financial 19,229 19,730 institutions and other short term investmentsCash and cash equivalents 358,614 94,767 Securities available for sale (at fair value) 174,830 159,619 Loans held for sale (at fair value) 325,958 402,003 Loans receivable 1,226,834 1,375,137 Less: Allowance for loan losses 16,790 18,823 Loans receivable, net 1,210,044 1,356,314 Office properties and equipment, net 22,676 23,722 Federal Home Loan Bank stock (at cost) 24,438 26,720 Cash surrender value of life insurance 65,050 63,573 Real estate owned, net 148 322 Prepaid expenses and other assets 52,353 57,547 Total assets $ 2,234,111 $ 2,184,587 Liabilities and Shareholders' Equity Liabilities: Demand deposits $ 217,078 $ 188,225 Money market and savings deposits 371,719 295,317 Time deposits 657,767 701,328 Total deposits 1,246,564 1,184,870 Borrowings 475,000 508,074 Advance payments by borrowers for taxes 25,298 3,522 Other liabilities 44,678 75,003 Total liabilities 1,791,540 1,771,469 Shareholders' equity: Preferred stock - - Common stock 250 251 Additional paid-in capital 179,312 180,684 Retained earnings 277,316 245,287 Unearned ESOP shares (14,540 ) (15,430 )Accumulated other comprehensive income, net of 233 2,326 taxesTotal shareholders' equity 442,571 413,118 Total liabilities and shareholders' equity $ 2,234,111 $ 2,184,587 Share Information Shares outstanding 25,038 25,088 Book value per share $ 17.68 $ 16.47 Closing market price $ 20.49 $ 18.82 Price to book ratio 115.89 % 114.27 %

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIESSUMMARY OF KEY QUARTERLY FINANCIAL DATA(Unaudited) At or For the Three Months Ended September June 30, March 31, December 31, September 30, 30, 2021 2021 2021 2020 2020 (Dollars in Thousands, except per share amounts)CondensedResults of Operations:Net interest $ 14,114 $ 14,277 $ 13,952 $ 14,316 $ 13,409 incomeProvision(credit) for (700 ) (750 ) (1,070 ) 30 1,025 loan lossesTotalnoninterest 52,936 52,044 56,199 69,886 75,763 incomeTotalnoninterest 43,323 43,297 43,000 47,163 53,001 expenseIncome before 24,427 23,774 28,221 37,009 35,146 income taxesIncome tax 5,427 5,880 6,877 9,174 8,853 expenseNet income $ 19,000 $ 17,894 $ 21,344 $ 27,835 $ 26,293 Income per $ 0.80 $ 0.75 $ 0.90 $ 1.17 $ 1.08 share - basicIncome pershare - $ 0.79 $ 0.74 $ 0.89 $ 1.17 $ 1.08 dilutedDividendsdeclared per $ 0.20 $ 0.70 $ 0.20 $ 0.50 $ 0.12 share PerformanceRatios (annualized):Return onaverage 3.38 % 3.25 % 3.99 % 4.96 % 4.78 %assets - QTDReturn onaverage 17.25 % 16.49 % 20.49 % 27.11 % 26.30 %equity - QTDNet interest 2.68 % 2.78 % 2.80 % 2.73 % 2.63 %margin - QTD Return onaverage 3.54 % 3.62 % 3.99 % 3.77 % 3.35 %assets - YTDReturn onaverage 18.08 % 18.49 % 20.49 % 20.18 % 18.02 %equity - YTDNet interest 2.75 % 2.79 % 2.80 % 2.67 % 2.64 %margin - YTD Asset Quality Ratios:Past dueloans to 0.92 % 0.53 % 0.52 % 0.57 % 0.39 %total loansNonaccrualloans to 0.32 % 0.34 % 0.31 % 0.40 % 0.42 %total loansNonperformingassets to 0.18 % 0.20 % 0.20 % 0.27 % 0.31 %total assetsAllowance forloan losses 1.37 % 1.34 % 1.33 % 1.37 % 1.31 %to loansreceivable

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, 2021 2021 2021 2020 2020 Average balances (Dollars in Thousands)Interest-earning assetsLoans receivable $ 1,573,194 $ 1,655,078 $ 1,657,260 $ 1,775,455 $ 1,766,715 and held for saleMortgage related 108,743 100,056 90,457 91,199 96,529 securitiesDebt securities,federal funds sold 409,559 308,105 273,929 217,356 166,160 and short terminvestmentsTotalinterest-earning 2,091,496 2,063,239 2,021,646 2,084,010 2,029,404 assetsNoninterest-earning 137,454 143,375 147,781 147,573 160,526 assetsTotal $ 2,228,950 $ 2,206,614 $ 2,169,427 $ 2,231,583 $ 2,189,930 assets Interest-bearing liabilitiesDemand accounts $ 68,478 $ 63,610 $ 55,552 $ 53,771 $ 50,590 Money market,savings, and escrow 391,599 350,270 314,418 304,467 282,349 accountsCertificates of 663,343 690,196 705,712 726,132 741,265 depositTotalinterest-bearing 1,123,420 1,104,076 1,075,682 1,084,370 1,074,204 depositsBorrowings 475,000 480,054 482,665 546,070 531,588 Totalinterest-bearing 1,598,420 1,584,130 1,558,347 1,630,440 1,605,792 liabilitiesNoninterest-bearing 153,436 141,648 138,446 128,665 129,911 demand depositsNoninterest-bearing 40,148 45,658 50,188 64,001 56,451 liabilitiesTotal 1,792,004 1,771,436 1,746,981 1,823,106 1,792,154 liabilitiesEquity 436,946 435,178 422,446 408,477 397,776 Totalliabilities and $ 2,228,950 $ 2,206,614 $ 2,169,427 $ 2,231,583 $ 2,189,930 equity Average Yield/Costs (annualized)Loans receivable 4.07 % 3.99 % 4.06 % 4.08 % 4.10 %and held for saleMortgage related 1.72 % 1.95 % 2.20 % 2.30 % 2.42 %securitiesDebt securities,federal funds sold 0.88 % 1.12 % 1.30 % 1.59 % 1.75 %and short terminvestmentsTotalinterest-earning 3.32 % 3.47 % 3.60 % 3.75 % 3.83 %assets Demand accounts 0.08 % 0.08 % 0.07 % 0.07 % 0.09 %Money market and 0.24 % 0.23 % 0.32 % 0.53 % 0.67 %savings accountsCertificates of 0.42 % 0.50 % 0.72 % 1.20 % 1.62 %depositTotalinterest-bearing 0.33 % 0.39 % 0.57 % 0.96 % 1.29 %depositsBorrowings 2.04 % 2.06 % 2.10 % 1.97 % 1.98 %Totalinterest-bearing 0.84 % 0.90 % 1.05 % 1.30 % 1.52 %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, 2021 2021 2021 2020 2020 (Dollars in Thousands)CondensedResults of Operations:Net interest $ 14,090 $ 14,517 $ 14,247 $ 14,546 $ 13,461 incomeProvision for (750 ) (750 ) (1,100 ) - 1,000 loan lossesTotalnoninterest 1,726 1,630 1,243 1,655 3,104 incomeNoninterest expenses:Compensation,payroll taxes,and other 5,360 4,874 4,975 5,159 5,000 employeebenefitsOccupancy,office 909 887 1,025 934 874 furniture andequipmentAdvertising 233 260 209 244 252 Data 531 466 511 511 490 processingCommunications 122 86 119 110 113 Professional 130 198 194 5 266 feesReal estate 1 - (12 ) (63 ) 11 ownedLoanprocessing - - - - - expenseOther 422 461 440 577 818 Totalnoninterest 7,708 7,232 7,461 7,477 7,824 expenseIncome before 8,858 9,665 9,129 8,724 7,741 income taxesIncome tax 2,092 2,128 1,786 1,926 1,565 expenseNet income $ 6,766 $ 7,537 $ 7,343 $ 6,798 $ 6,176 Efficiency 48.74 % 44.79 % 48.17 % 46.15 % 47.23 %ratio - QTDEfficiency 47.21 % 46.44 % 48.17 % 48.71 % 49.59 %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, 2021 2021 2021 2020 2020 (Dollars in Thousands)CondensedResults of Operations:Net interest $ (2 ) $ (251 ) $ (350 ) $ (223 ) $ (58 )expenseProvision for 50 - 30 30 25 loan lossesTotalnoninterest 51,290 50,556 55,035 68,500 73,143 incomeNoninterest expenses:Compensation,payroll taxes,and other 28,981 29,170 29,262 33,347 34,559 employeebenefitsOccupancy,office 1,579 1,406 1,540 1,545 1,595 furniture andequipmentAdvertising 602 651 615 822 609 Data 450 443 454 402 426 processingCommunications 209 240 212 225 226 Professional 421 361 (524 ) 441 4,465 feesReal estate - - - - - ownedLoanprocessing 1,135 1,200 1,335 1,026 1,336 expenseOther 2,270 2,678 2,681 2,110 2,444 Totalnoninterest 35,647 36,149 35,575 39,918 45,660 expenseIncome before 15,591 14,156 19,080 28,329 27,400 income taxesIncome tax 3,341 3,761 5,096 7,252 7,284 expenseNet income $ 12,250 $ 10,395 $ 13,984 $ 21,077 $ 20,116 Efficiency 69.50 % 71.86 % 65.05 % 58.46 % 62.48 %ratio - QTDEfficiency 68.71 % 68.32 % 65.05 % 65.20 % 67.95 %ratio - YTD Loan $ 1,055,500 $ 1,065,161 $ 1,115,091 $ 1,282,321 $ 1,296,725 originationsPurchase 73.8 % 75.4 % 56.1 % 59.2 % 64.1 %Refinance 26.2 % 24.6 % 43.9 % 40.8 % 35.9 %Gross marginon loans sold^ 4.54 % 4.81 % 4.86 % 5.40 % 5.44 %(1)(1) - Gross margin on loans sold equals mortgage banking income (excluding thechange in interest rate lock value) divided by total loan originations