WAUWATOSA, Wis. – 07/27/2020 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $20.9 million, or $0.85 per diluted share for the quarter ended June 30, 2020 compared to $9.6 million, or $0.37 per diluted share for the quarter ended June 30, 2019. Net income per diluted share was $1.08 for the six months ended June 30, 2020 compared to net income per diluted share of $0.61 for the six months ended June 30, 2019.

“Our success this quarter exemplifies the synergies that exist between our community bank and its wholly owned independent mortgage subsidiary”, said Douglas Gordon, CEO of Waterstone Financial, Inc. “The funding and capital provided by the Bank, combined with the exceptional sales culture of the mortgage company resulted in record quarterly earnings. Waterstone Mortgage reached a new quarterly record, achieving more than $1.1 billion in loan originations, helping nearly 5,000 homeowners either purchase or refinance a residence. In the Community Bank segment, we successfully launched our new digital banking platform, which will provide our consumer and business customers with additional banking tools and an enhanced user experience. Our employees have embraced the challenges in this unprecedented environment and navigated through the turbulent times, exhibiting their continued hard work and dedication.”

Highlights of the Quarter Ended June 30, 2020

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $20.9 million for the quarter ended June 30, 2020, compared to $9.6 million for the quarter ended June 30, 2019.
• Consolidated return on average assets was 3.87% for the quarter ended June 30, 2020 compared to 1.95% for the quarter ended June 30, 2019.
• Consolidated return on average equity was 22.39% for the quarter ended June 30, 2020 and 9.96% for the quarter ended June 30, 2019.
• Dividends declared totaled $0.12 per share and we repurchased $6.1 million of shares during the quarter ended June 30, 2020 as a result of our strong financial position.

Community Banking Segment

• Pre-tax income totaled $4.7 million for the quarter ended June 30, 2020, which represents a 36.5% decrease compared to $7.4 million for the quarter ended June 30, 2019.
• Net interest income totaled $13.7 million for the quarter ended June 30, 2020, which represents a 1.3% increase compared to $13.5 million for the quarter ended June 30, 2019.
• Average loans held for investment totaled $1.42 billion during the quarter ended June 30, 2020, which represents an increase of $44.5 million, or 3.2%, compared to $1.38 billion for the quarter ended June 30, 2019. The $29.8 million of loans originated throughout the quarter ended June 30, 2020 for the Paycheck Protection Program (PPP) contributed to the growth. Average loans held for investment increased $27.5 million, or 7.9% annualized, compared to $1.39 billion for the quarter ended March 31, 2020.
• Net interest margin decreased 20 basis points to 2.62% for the quarter ended June 30, 2020 compared to 2.82% for the quarter ended June 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 decreased six basis points compared to 2.68% for the quarter ended March 31, 2020.
• The segment had a $4.3 million provision for loan losses for the quarter ended June 30, 2020 compared to no provision for loan losses for the quarter ended June 30, 2019. The provision expense recorded during the second quarter of 2020 primarily consisted of an increased allocation related to the economic qualitative factor, across all portfolio segments, driven by the pandemic and its significant impact on the economy and employment. Net recoveries totaled $8,000 for the quarter ended June 30, 2020, compared to net recoveries of $26,000 for the quarter ended June 30, 2019. 
• Noninterest income increased $1.9 million for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019 as fees earned on swaps and prepayment penalty fees increased.
• Noninterest expense increased $394,000 for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. Compensation, payroll taxes and other employee benefits expense increased $235,000 as salaries increased due to annual merit increases and additional branches added in late 2019.  In addition, the increase in total compensation reflects an increase in variable and incentive based awards. Data processing expense increased $185,000 as we transitioned to a new digital platform in the quarter. 
• The efficiency ratio was 45.86% for the quarter ended June 30, 2020, compared to 49.52% for the quarter ended June 30, 2019.
• Average deposits (excluding escrow accounts) totaled $1.13 billion during the quarter ended June 30, 2020, an increase of $85.3 million, or 8.2%, compared to $1.04 billion during the quarter ended June 30, 2019. Average deposits increased $50.2 million, or 18.7% annualized compared to the $1.08 billion for the quarter ended March 31, 2020 as the average deposit account balance increased approximately 6.5%.
• Nonperforming assets as percentage of total assets was 0.28% at June 30, 2020, 0.36% at March 31, 2020, and 0.37% at June 30, 2019.
• Past due loans as percentage of total loans was 0.45% at June 30, 2020, 0.78% at March 31, 2020, and 0.61% at June 30, 2019.
• The PPP loans totaled $29.8 million as of June 30, 2020. 
• The Company had modified 191 loans aggregating $113.9 million consisting of payment of interest (deferral of principal) for a period ranging from 90 to 180 days as of June 30, 2020. In addition, the Company had modified 16 loans aggregating $7.9 million consisting of the deferral of principal and interest for a period of three to eight months. 

Mortgage Banking Segment

• Pre-tax income totaled $23.2 million for the quarter ended June 30, 2020, compared to $5.4 million for the quarter ended June 30, 2019.
• Loan originations increased $349.4 million, or 44.1%, to $1.14 billion during the quarter ended June 30, 2020, compared to $793.3 million during the quarter ended June 30, 2019. Origination volume relative to purchase activity accounted for 55.5% of originations for the quarter ended June 30, 2020 compared to 87.6% of total originations for the quarter ended June 30, 2019.
• Mortgage banking income increased $29.9 million, or 86.9%, to $64.2 million for the quarter ended June 30, 2020, compared to $34.4 million for the quarter ended June 30, 2019.
• Gross margin on loans sold increased to 5.45% for the quarter ended June 30, 2020, compared to 4.29% for the quarter ended June 30, 2019. 
• Total compensation, payroll taxes and other employee benefits increased $9.6 million, or 42.3%, to $32.1 million during the quarter ended June 30, 2020 compared to $22.6 million during the quarter ended June 30, 2019.  The increase primarily related to increased commission expense and branch manager compensation driven by increased loan origination volume and branch profitability.
• Other noninterest expense increased $2.1 million, or 173.1%, to $3.2 million during the quarter ended June 30, 2020 compared to $1.2 million during the quarter ended June 30, 2019.  The increase related to a $1.5 million increase in the provision for losses on loans sold to the secondary market in anticipation of increased losses that result from both early payoff and early default provisions with investors.  If triggered, the default provisions require a return of servicing release premium or an obligation to repurchase the loan.  The increased provision is driven by both an increase in the number and volume of loans sold, as well as expectations of increased defaults resulting from COVID-19 pandemic challenges faced by borrowers.

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, Oak Creek/27th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin along with a commercial lending office 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.

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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