WAUWATOSA, WI – 04/26/2021 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $21.3 million, or $0.89 per diluted share for the quarter ended March 31, 2021 compared to $6.1 million, or $0.24 per diluted share for the quarter ended March 31, 2020.

“We've started the year strong with a record first quarter profit driven by continued strong mortgage origination volumes at the mortgage banking segment”, said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “Our team’s commitment to meeting the needs of our customers has continued to show through our results. I continue to be impressed with the efforts of all the employees from both the community banking and mortgage banking segments as we continue to deliver in a challenging environment.”

Highlights of the Quarter Ended March 31, 2021

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $21.3 million for the quarter ended March 31, 2021, compared to $6.1 million for the quarter ended March 31, 2020.
• Consolidated return on average assets was 3.99% for the quarter ended March 31, 2021 compared to 1.21% for the quarter ended March 31, 2020.
• Consolidated return on average equity was 20.49% for the quarter ended March 31, 2021 and 6.24% for the quarter ended March 31, 2020.
• Dividends declared during the quarter ended March 31, 2021 totaled $0.20 per common share.

Community Banking Segment

• Pre-tax income totaled $9.1 million for the quarter ended March 31, 2021, which represents a 73.4% increase compared to $5.3 million for the quarter ended March 31, 2020.
• Net interest income totaled $14.2 million for the quarter ended March 31, 2021, which represents a 10.4% increase compared to $12.9 million for the quarter ended March 31, 2020.
• Average loans held for investment totaled $1.35 billion during the quarter ended March 31, 2021, which represents a decrease of $46.5 million, or 3.3%, compared to $1.39 billion for the quarter ended March 31, 2020. Average loans held for investment decreased $55.8 million compared to $1.40 billion for the quarter ended December 31, 2020 as loans continue to prepay at an accelerated rate.
• Net interest margin increased 12 basis points to 2.80% for the quarter ended March 31, 2021 compared to 2.68% for the quarter ended March 31, 2020, which was a result of lower average rates on deposits, as certificate of deposits repriced at lower rates. Net interest margin increased seven basis points compared to 2.73% for the quarter ended December 31, 2020, driven by lower average rates on deposits, as certificate of deposits repriced at lower rates.
• The segment had a negative provision for loan losses of $1.1 million for the quarter ended March 31, 2021 compared to a $750,000 provision for loan losses for the quarter ended March 31, 2020. Net recoveries totaled $27,000 for the quarter ended March 31, 2021, compared to net recoveries of $54,000 for the quarter ended March 31, 2020. 
• Noninterest income increased $215,000 for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020, due primarily to increases on service charges on loans as prepayments increased, partially offset by a decrease in income from cash surrender value of bank owned life insurance policies. 
• Noninterest expense decreased $460,000 for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. Compensation, payroll taxes and other employee benefits expense decreased $193,000 due to decreases in health insurance claims. Data processing expense decreased $94,000 due to the implementation of a new digital banking platform in 2020. Other noninterest expense decreased $140,000 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 48.17% for the quarter ended March 31, 2021, compared to 56.84% for the quarter ended March 31, 2020.
• Average deposits (excluding escrow accounts) totaled $1.21 billion during the quarter ended March 31, 2021, an increase of $128.8 million, or 12.0%, compared to $1.08 billion during the quarter ended March 31, 2020. Average deposits increased $12.8 million, or 4.3% annualized compared to the $1.19 billion for the quarter ended December 31, 2020.
• Nonperforming assets as percentage of total assets was 0.20% at March 31, 2021, 0.27% at December 31, 2020, and 0.36% at March 31, 2020.
• Past due loans as percentage of total loans was 0.52% at March 31, 2021, 0.57% at December 31, 2020, and 0.78% at March 31, 2020.
• PPP loans totaled $19.4 million as of March 31, 2021.  The average balance for the quarter ended March 31, 2021 was $18.0 million. PPP loan interest income recognized was approximately $44,000 and the amortization of fee income was approximately $354,000. Net interest margin, excluding the impact of the PPP loans, was 2.74%.  Net interest margin for the quarter ended March 31, 2021, including the impact of the PPP loans, was 2.80%.
• The Company held approximately $9.5 million in loans, representing 0.7% of the total loan portfolio as of March 31, 2021, which had been modified as either a deferment of principal or principal and interest since the beginning of the pandemic. Of the $9.5 million in loans, $910,000 qualify as modifications under the Coronavirus Aid, Relief and Economic Security (“CARES Act”). The remaining $8.6 million is composed of three loan relationships that are classified as troubled debt restructurings. 

Mortgage Banking Segment

• Pre-tax income totaled $19.1 million for the quarter ended March 31, 2021, compared to $2.7 million for the quarter ended March 31, 2020.
• Loan originations increased $406.3 million, or 57.3%, to $1.12 billion during the quarter ended March 31, 2021, compared to $708.8 million during the quarter ended March 31, 2020. Origination volume relative to purchase activity accounted for 56.1% of originations for the quarter ended March 31, 2021 compared to 68.3% of total originations for the quarter ended March 31, 2020.
• Mortgage banking income increased $24.2 million, or 78.7%, to $55.0 million for the quarter ended March 31, 2021, compared to $30.8 million for the quarter ended March 31, 2020.
• Gross margin on loans sold increased to 4.86% for the quarter ended March 31, 2021, compared to 4.08% for the quarter ended March 31, 2020. 
• Total compensation, payroll taxes and other employee benefits increased $9.9 million, or 50.9%, to $29.3 million during the quarter ended March 31, 2021 compared to $19.4 million during the quarter ended March 31, 2020. The increase primarily related to increased commission expense, performance bonuses, and branch manager compensation driven by increased loan origination volume and branch profitability.
• Professional fees decreased $2.1 million to $524,000 of income during the quarter ended March 31, 2021 compared to $1.6 million of expense during the quarter ended March 31, 2020.  The decrease related to receiving a legal settlement during the quarter ended March 31, 2021, along with a decrease in litigation costs compared to the prior year, as the Herrington settlement was resolved.

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 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 December 31, 2020 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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