WAUWATOSA, WI – 4/21/2022 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $5.3 million, or $0.23 per diluted share for the quarter ended March 31, 2022 compared to $21.3 million, or $0.89 per diluted share for the quarter ended March 31, 2021. “We are pleased with the Company’s performance given the challenging economic conditions,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “While loan growth was modest during the quarter, we maintain a loan pipeline that is stronger than it has been over the past year. We continued to position ourselves for the future by reducing outstanding wholesale borrowings at the community banking segment, and growing our branch network at the mortgage banking segment, as we continued to focus on strategic opportunities to add talented loan originators. Additionally, we were able to continue returning shareholder value through quarterly dividends and stock buybacks.”

Highlights of the Quarter Ended March 31, 2022

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $5.3 million for the quarter ended March 31, 2022, compared to $21.3 million for the quarter ended March 31, 2021.
• Consolidated return on average assets was 1.00% for the quarter ended March 31, 2022 compared to 3.99% for the quarter ended March 31, 2021.
• Consolidated return on average equity was 5.00% for the quarter ended March 31, 2022 and 20.49% for the quarter ended March 31, 2021.
• Dividends declared during the quarter ended March 31, 2022 totaled $0.20 per common share.
• We repurchased approximately 681,000 shares at a cost of $13.8 million during the quarter ended March 31, 2022.

Community Banking Segment

• Pre-tax income totaled $5.4 million for the quarter ended March 31, 2022, which represents a $3.7 million, or 40.6%, decrease compared to $9.1 million for the quarter ended March 31, 2021.
• Net interest income totaled $11.7 million for the quarter ended March 31, 2022, which represents a $2.6 million, or 18.2%, decrease compared to $14.2 million for the quarter ended March 31, 2021.
• Average loans held for investment totaled $1.20 billion during the quarter ended March 31, 2022, which represents a decrease of $142.2 million, or 10.6%, compared to $1.35 billion for the quarter ended March 31, 2021. Average loans held for investment decreased $6.3 million compared to $1.21 billion for the quarter ended December 31, 2021.
• Net interest margin decreased 42 basis points to 2.38% for the quarter ended March 31, 2022 compared to 2.80% for the quarter ended March 31, 2021, which was a result of lower rates and average balance on loans and a higher average interest earnings cash balance within the debt securities, federal funds sold and short term investments category. Net interest margin decreased nine basis points compared to 2.47% for the quarter ended December 31, 2021, driven by a decrease in average loan balance and a higher average cash balance.
• The segment had a negative provision for credit losses of $140,000 for the quarter ended March 31, 2022 compared to a negative provision for loan losses of $1.1 million for the quarter ended March 31, 2021.
• We adopted the current expected credit losses (“CECL”) model on January 1, 2022, which resulted in an opening balance adjustment of $430,000 to increase the allowance for credit losses. Additionally, there was a $1.4 million opening balance adjustment to record an allowance for credit losses on unfunded loan commitments, which is presented in Other Liabilities on the Consolidated Statements of Financial Condition. Net of tax impact, the adoption of the CECL model resulted in a $1.4 million reduction to retained earnings.
• Net recoveries totaled $616,000 for the quarter ended March 31, 2022, as one significant loan recovery payment was received during the quarter, compared to net charge-offs of $27,000 for the quarter ended March 31, 2021. With the adoption of CECL, estimated recoveries may be accounted for within the calculation and do not impact the provision for credit losses line item when cash is received.
• The efficiency ratio was 59.59% for the quarter ended March 31, 2022, compared to 48.17% for the quarter ended March 31, 2021.
• Average deposits (excluding escrow accounts) totaled $1.23 billion during the quarter ended March 31, 2022, an increase of $24.2 million, or 2.0%, compared to $1.21 billion during the quarter ended March 31, 2021. Average deposits decreased $15.6 million, or 5.0% annualized compared to the $1.25 billion for the quarter ended December 31, 2021.
• Nonperforming assets as percentage of total assets was 0.34% at March 31, 2022, 0.26% at December 31, 2021, and 0.20% at March 31, 2021.
• Past due loans as percentage of total loans was 0.53% at March 31, 2022, 0.59% at December 31, 2021, and 0.52% at March 31, 2021.

Mortgage Banking Segment

• Pre-tax income totaled $1.4 million for the quarter ended March 31, 2022, compared to $19.1 million for the quarter ended March 31, 2021.
• Loan originations decreased $406.6 million, or 36.5%, to $708.5 million during the quarter ended March 31, 2022, compared to $1.12 billion during the quarter ended March 31, 2021. Origination volume relative to purchase activity accounted for 77.3% of originations for the quarter ended March 31, 2022 compared to 56.1% of total originations for the quarter ended March 31, 2021.
• Mortgage banking non-interest income decreased $26.4 million, or 48.0%, to $28.6 million for the quarter ended March 31, 2022, compared to $55.0 million for the quarter ended March 31, 2021.
• Gross margin on loans sold decreased to 4.00% for the quarter ended March 31, 2022, compared to 4.86% for the quarter ended March 31, 2021. 
• Total compensation, payroll taxes and other employee benefits decreased $8.8 million, or 30.2%, to $20.4 million during the quarter ended March 31, 2022 compared to $29.3 million during the quarter ended March 31, 2021. 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 increased $862,000 to $338,000 of expense during the quarter ended March 31, 2022 compared to $524,000 of income during the quarter ended March 31, 2021. The increase related to receiving a legal settlement award during the quarter ended March 31, 2021.
• Other noninterest expense decreased $372,000 to $2.3 million during the quarter ended March 31, 2022 compared to $2.7 million during the quarter ended March 31, 2021. The decrease related to a decrease in the amortization expense on mortgage servicing rights due to the bulk sale of mortgage servicing rights during 2021. 

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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