WAUWATOSA, Wis. – 10/26/2020 – 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 Waterstone’s most recent Annual Report on Form 10-K and as may be described from time to time in Waterstone’s 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 Waterstone’s belief as of the date of this press release.

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