Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2021

WAUWATOSA, Wis., Oct. 19, 2021 (GLOBE NEWSWIRE) -- 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.

WATERSTONE FINANCIAL INC.
WATERSTONE BANK
11200 W. PLANK CT.
WAUWATOSA, WI 53226

Contact: Mark R. Gerke
Chief Financial Officer
414-459-4012
markgerke@wsbonline.com

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
		2021				2020			2021				2020
	(In Thousands, except per share amounts)
Interest income:
Loans	$	16,131			$	18,224		$	49,214			$	54,404
Mortgage-related securities		471				588			1,448				1,960
Debt securities, federal funds sold and short-term investments		904				732			2,637				2,493
Total interest income		17,506				19,544			53,299				58,857
Interest expense:
Deposits		947				3,495			3,542				11,760
Borrowings		2,445				2,640			7,414				7,913
Total interest expense		3,392				6,135			10,956				19,673
Net interest income		14,114				13,409			42,343				39,184
Provision (credit) for loan losses		(700	)			1,025			(2,520	)			6,310
Net interest income after provision for loan losses		14,814				12,384			44,863				32,874
Noninterest income:
Service charges on loans and deposits		1,136				672			2,483				3,384
Increase in cash surrender value of life insurance		312				714			1,297				1,587
Mortgage banking income		46,547				72,112			150,587				166,292
Other		4,941				2,265			6,812				2,868
Total noninterest income		52,936				75,763			161,179				174,131
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		34,229				39,405			102,278				100,695
Occupancy, office furniture, and equipment		2,488				2,469			7,346				7,744
Advertising		835				861			2,570				2,625
Data processing		986				922			2,871				3,023
Communications		331				339			988				994
Professional fees		550				4,738			804				7,647
Real estate owned		1				11			(11	)			55
Loan processing expense		1,135				1,336			3,670				3,620
Other		2,768				2,920			9,104				9,495
Total noninterest expenses		43,323				53,001			129,620				135,898
Income before income taxes		24,427				35,146			76,422				71,107
Income tax expense		5,427				8,853			18,184				17,797
Net income	$	19,000			$	26,293		$	58,238			$	53,310
Income per share:
Basic	$	0.80			$	1.08		$	2.45			$	2.16
Diluted	$	0.79			$	1.08		$	2.43			$	2.15
Weighted average shares outstanding:
Basic		23,785				24,297			23,790				24,720
Diluted		23,960				24,380			23,987				24,842

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	September 30,			December 31,
		2021			2020
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	327,288		$	56,190
Federal funds sold		12,097			18,847
Interest-earning deposits in other financial institutions and other short term investments		19,229			19,730
Cash and cash equivalents		358,614			94,767
Securities available for sale (at fair value)		174,830			159,619
Loans held for sale (at fair value)		325,958			402,003
Loans receivable		1,226,834			1,375,137
Less: Allowance for loan losses		16,790			18,823
Loans receivable, net		1,210,044			1,356,314
Office properties and equipment, net		22,676			23,722
Federal Home Loan Bank stock (at cost)		24,438			26,720
Cash surrender value of life insurance		65,050			63,573
Real estate owned, net		148			322
Prepaid expenses and other assets		52,353			57,547
Total assets	$	2,234,111		$	2,184,587
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	217,078		$	188,225
Money market and savings deposits		371,719			295,317
Time deposits		657,767			701,328
Total deposits		1,246,564			1,184,870
Borrowings		475,000			508,074
Advance payments by borrowers for taxes		25,298			3,522
Other liabilities		44,678			75,003
Total liabilities		1,791,540			1,771,469
Shareholders' equity:
Preferred stock		-			-
Common stock		250			251
Additional paid-in capital		179,312			180,684
Retained earnings		277,316			245,287
Unearned ESOP shares		(14,540	)		(15,430	)
Accumulated other comprehensive income, net of taxes		233			2,326
Total shareholders' equity		442,571			413,118
Total liabilities and shareholders' equity	$	2,234,111		$	2,184,587
Share Information
Shares outstanding		25,038			25,088
Book value per share	$	17.68		$	16.47
Closing market price	$	20.49		$	18.82
Price to book ratio		115.89	%		114.27	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	September 30,				June 30,				March 31,				December 31,				September 30,
		2021				2021				2021				2020				2020
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	14,114			$	14,277			$	13,952			$	14,316			$	13,409
Provision (credit) for loan losses		(700	)			(750	)			(1,070	)			30				1,025
Total noninterest income		52,936				52,044				56,199				69,886				75,763
Total noninterest expense		43,323				43,297				43,000				47,163				53,001
Income before income taxes		24,427				23,774				28,221				37,009				35,146
Income tax expense		5,427				5,880				6,877				9,174				8,853
Net income	$	19,000			$	17,894			$	21,344			$	27,835			$	26,293
Income per share - basic	$	0.80			$	0.75			$	0.90			$	1.17			$	1.08
Income per share - diluted	$	0.79			$	0.74			$	0.89			$	1.17			$	1.08
Dividends declared per share	$	0.20			$	0.70			$	0.20			$	0.50			$	0.12
Performance Ratios (annualized):
Return on average assets - QTD		3.38	%			3.25	%			3.99	%			4.96	%			4.78	%
Return on average equity - QTD		17.25	%			16.49	%			20.49	%			27.11	%			26.30	%
Net interest margin - QTD		2.68	%			2.78	%			2.80	%			2.73	%			2.63	%
Return on average assets - YTD		3.54	%			3.62	%			3.99	%			3.77	%			3.35	%
Return on average equity - YTD		18.08	%			18.49	%			20.49	%			20.18	%			18.02	%
Net interest margin - YTD		2.75	%			2.79	%			2.80	%			2.67	%			2.64	%
Asset Quality Ratios:
Past due loans to total loans		0.92	%			0.53	%			0.52	%			0.57	%			0.39	%
Nonaccrual loans to total loans		0.32	%			0.34	%			0.31	%			0.40	%			0.42	%
Nonperforming assets to total assets		0.18	%			0.20	%			0.20	%			0.27	%			0.31	%
Allowance for loan losses to loans receivable		1.37	%			1.34	%			1.33	%			1.37	%			1.31	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
		2021			2021			2021			2020			2020
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,573,194		$	1,655,078		$	1,657,260		$	1,775,455		$	1,766,715
Mortgage related securities		108,743			100,056			90,457			91,199			96,529
Debt securities, federal funds sold and short term investments		409,559			308,105			273,929			217,356			166,160
Total interest-earning assets		2,091,496			2,063,239			2,021,646			2,084,010			2,029,404
Noninterest-earning assets		137,454			143,375			147,781			147,573			160,526
Total assets	$	2,228,950		$	2,206,614		$	2,169,427		$	2,231,583		$	2,189,930
Interest-bearing liabilities
Demand accounts	$	68,478		$	63,610		$	55,552		$	53,771		$	50,590
Money market, savings, and escrow accounts		391,599			350,270			314,418			304,467			282,349
Certificates of deposit		663,343			690,196			705,712			726,132			741,265
Total interest-bearing deposits		1,123,420			1,104,076			1,075,682			1,084,370			1,074,204
Borrowings		475,000			480,054			482,665			546,070			531,588
Total interest-bearing liabilities		1,598,420			1,584,130			1,558,347			1,630,440			1,605,792
Noninterest-bearing demand deposits		153,436			141,648			138,446			128,665			129,911
Noninterest-bearing liabilities		40,148			45,658			50,188			64,001			56,451
Total liabilities		1,792,004			1,771,436			1,746,981			1,823,106			1,792,154
Equity		436,946			435,178			422,446			408,477			397,776
Total liabilities and equity	$	2,228,950		$	2,206,614		$	2,169,427		$	2,231,583		$	2,189,930
Average Yield/Costs (annualized)
Loans receivable and held for sale		4.07	%		3.99	%		4.06	%		4.08	%		4.10	%
Mortgage related securities		1.72	%		1.95	%		2.20	%		2.30	%		2.42	%
Debt securities, federal funds sold and short term investments		0.88	%		1.12	%		1.30	%		1.59	%		1.75	%
Total interest-earning assets		3.32	%		3.47	%		3.60	%		3.75	%		3.83	%
Demand accounts		0.08	%		0.08	%		0.07	%		0.07	%		0.09	%
Money market and savings accounts		0.24	%		0.23	%		0.32	%		0.53	%		0.67	%
Certificates of deposit		0.42	%		0.50	%		0.72	%		1.20	%		1.62	%
Total interest-bearing deposits		0.33	%		0.39	%		0.57	%		0.96	%		1.29	%
Borrowings		2.04	%		2.06	%		2.10	%		1.97	%		1.98	%
Total interest-bearing liabilities		0.84	%		0.90	%		1.05	%		1.30	%		1.52	%

COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
		2021			2021			2021			2020			2020
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	14,090		$	14,517		$	14,247		$	14,546		$	13,461
Provision for loan losses		(750	)		(750	)		(1,100	)		-			1,000
Total noninterest income		1,726			1,630			1,243			1,655			3,104
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		5,360			4,874			4,975			5,159			5,000
Occupancy, office furniture and equipment		909			887			1,025			934			874
Advertising		233			260			209			244			252
Data processing		531			466			511			511			490
Communications		122			86			119			110			113
Professional fees		130			198			194			5			266
Real estate owned		1			-			(12	)		(63	)		11
Loan processing expense		-			-			-			-			-
Other		422			461			440			577			818
Total noninterest expense		7,708			7,232			7,461			7,477			7,824
Income before income taxes		8,858			9,665			9,129			8,724			7,741
Income tax expense		2,092			2,128			1,786			1,926			1,565
Net income	$	6,766		$	7,537		$	7,343		$	6,798		$	6,176
Efficiency ratio - QTD		48.74	%		44.79	%		48.17	%		46.15	%		47.23	%
Efficiency ratio - YTD		47.21	%		46.44	%		48.17	%		48.71	%		49.59	%

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
		2021			2021			2021			2020			2020
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest expense	$	(2	)	$	(251	)	$	(350	)	$	(223	)	$	(58	)
Provision for loan losses		50			-			30			30			25
Total noninterest income		51,290			50,556			55,035			68,500			73,143
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		28,981			29,170			29,262			33,347			34,559
Occupancy, office furniture and equipment		1,579			1,406			1,540			1,545			1,595
Advertising		602			651			615			822			609
Data processing		450			443			454			402			426
Communications		209			240			212			225			226
Professional fees		421			361			(524	)		441			4,465
Real estate owned		-			-			-			-			-
Loan processing expense		1,135			1,200			1,335			1,026			1,336
Other		2,270			2,678			2,681			2,110			2,444
Total noninterest expense		35,647			36,149			35,575			39,918			45,660
Income before income taxes		15,591			14,156			19,080			28,329			27,400
Income tax expense		3,341			3,761			5,096			7,252			7,284
Net income	$	12,250		$	10,395		$	13,984		$	21,077		$	20,116
Efficiency ratio - QTD		69.50	%		71.86	%		65.05	%		58.46	%		62.48	%
Efficiency ratio - YTD		68.71	%		68.32	%		65.05	%		65.20	%		67.95	%
Loan originations	$	1,055,500		$	1,065,161		$	1,115,091		$	1,282,321		$	1,296,725
Purchase		73.8	%		75.4	%		56.1	%		59.2	%		64.1	%
Refinance		26.2	%		24.6	%		43.9	%		40.8	%		35.9	%
Gross margin on loans sold(1)		4.54	%		4.81	%		4.86	%		5.40	%		5.44	%
(1) - Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations