WAUWATOSA, WI – 10/19/2021 – 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 Company’s 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 60th day 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 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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