Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2020

WAUWATOSA, Wis., July 27, 2020 (GLOBE NEWSWIRE) -- 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/27^th 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.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For The Three Months Ended June 30,				For The Six Months Ended June 30,
		2020		2019		2020		2019
	(In Thousands, except per share amounts)
Interest income:
Loans	$	18,493	$	18,026	$	36,180	$	35,130
Mortgage-related securities		670		764		1,372		1,523
Debt securities, federal funds sold and short-term investments		698		1,123		1,761		2,432
Total interest income		19,861		19,913		39,313		39,085
Interest expense:
Deposits		3,947		4,344		8,265		8,334
Borrowings		2,665		2,588		5,273		4,834
Total interest expense		6,612		6,932		13,538		13,168
Net interest income		13,249		12,981		25,775		25,917
Provision for loan losses		4,500		30		5,285		(650	)
Net interest income after provision for loan losses		8,749		12,951		20,490		26,567
Noninterest income:
Service charges on loans and deposits		2,231		390		2,712		769
Increase in cash surrender value of life insurance		520		507		873		851
Mortgage banking income		63,774		34,105		94,180		57,464
Other		379		188		603		363
Total noninterest income		66,904		35,190		98,368		59,447
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		36,889		27,074		61,290		47,713
Occupancy, office furniture, and equipment		2,534		2,680		5,275		5,456
Advertising		864		963		1,764		1,921
Data processing		1,095		869		2,101		1,638
Communications		317		353		655		681
Professional fees		1,077		789		2,909		1,484
Real estate owned		33		19		44		51
Loan processing expense		1,208		879		2,284		1,684
Other		3,672		1,729		6,575		4,076
Total noninterest expenses		47,689		35,355		82,897		64,704
Income before income taxes		27,964		12,786		35,961		21,310
Income tax expense		7,016		3,143		8,944		5,125
Net income	$	20,948	$	9,643	$	27,017	$	16,185
Income per share:
Basic	$	0.86	$	0.37	$	1.08	$	0.61
Diluted	$	0.85	$	0.37	$	1.08	$	0.61
Weighted average shares outstanding:
Basic		24,464		26,242		24,934		26,370
Diluted		24,513		26,412		25,071		26,572

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	June 30,			December 31,
		2020			2019
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	63,636		$	52,814
Federal funds sold		11,992			12,704
Interest-earning deposits in other financial institutions and other short term investments		1,291			8,782
Cash and cash equivalents		76,919			74,300
Securities available for sale (at fair value)		164,112			178,476
Loans held for sale (at fair value)		383,389			220,123
Loans receivable		1,433,803			1,388,031
Less: Allowance for loan losses		17,734			12,387
Loans receivable, net		1,416,069			1,375,644
Office properties and equipment, net		24,183			25,028
Federal Home Loan Bank stock (at cost)		26,720			21,150
Cash surrender value of life insurance		70,718			69,665
Real estate owned, net		702			748
Prepaid expenses and other assets		54,761			31,213
Total assets	$	2,217,573		$	1,996,347
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	171,016		$	130,063
Money market and savings deposits		247,233			197,942
Time deposits		739,417			739,771
Total deposits		1,157,666			1,067,776
Borrowings		599,102			483,562
Advance payments by borrowers for taxes		20,828			4,212
Other liabilities		54,358			47,111
Total liabilities		1,831,954			1,602,661
Shareholders' equity:
Preferred stock		-			-
Common stock		258			271
Additional paid-in capital		192,762			211,997
Retained earnings		205,863			197,393
Unearned ESOP shares		(16,023	)		(16,617	)
Accumulated other comprehensive income, net of taxes		2,759			642
Total shareholders' equity		385,619			393,686
Total liabilities and shareholders' equity	$	2,217,573		$	1,996,347
Share Information
Shares outstanding		25,843			27,148
Book value per share	$	14.92		$	14.50
Closing market price	$	14.83		$	19.03
Price to book ratio		99.40	%		131.24	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
		2020			2020			2019			2019			2019
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	13,249		$	12,526		$	13,126		$	13,154		$	12,981
Provision for loan losses		4,500			785			(170	)		(80	)		30
Total noninterest income		66,904			31,464			33,809			37,494			35,190
Total noninterest expense		47,689			35,208			35,337			36,232			35,355
Income before income taxes		27,964			7,997			11,768			14,496			12,786
Income tax expense		7,016			1,928			2,974			3,572			3,143
Net income	$	20,948		$	6,069		$	8,794		$	10,924		$	9,643
Income per share – basic	$	0.86		$	0.24		$	0.34		$	0.42		$	0.37
Income per share – diluted	$	0.85		$	0.24		$	0.34		$	0.42		$	0.37
Dividends declared per share	$	0.12		$	0.62		$	0.12		$	0.12		$	0.12
Performance Ratios (annualized):
Return on average assets - QTD		3.87	%		1.21	%		1.75	%		2.17	%		1.95	%
Return on average equity - QTD		22.39	%		6.24	%		8.91	%		11.15	%		9.96	%
Net interest margin - QTD		2.62	%		2.68	%		2.79	%		2.80	%		2.82	%
Return on average assets - YTD		2.59	%		1.21	%		1.82	%		1.84	%		1.67	%
Return on average equity - YTD		14.03	%		6.24	%		9.14	%		9.21	%		8.28	%
Net interest margin - YTD		2.65	%		2.68	%		2.83	%		2.85	%		2.88	%
Asset Quality Ratios:
Past due loans to total loans		0.45	%		0.78	%		0.47	%		0.62	%		0.61	%
Nonaccrual loans to total loans		0.39	%		0.48	%		0.51	%		0.46	%		0.41	%
Nonperforming assets to total assets		0.28	%		0.36	%		0.39	%		0.41	%		0.37	%
Allowance for loan loss to loans receivable		1.24	%		0.94	%		0.89	%		0.91	%		0.92	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
		2020			2020			2019			2019			2019
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,759,970		$	1,562,097		$	1,573,190		$	1,579,575		$	1,552,199
Mortgage related securities		105,727			112,089			110,426			114,051			114,537
Debt securities, federal funds sold and short term investments		164,306			206,485			183,447			169,621			180,111
Total interest-earning assets		2,030,003			1,880,671			1,867,063			1,863,247			1,846,847
Noninterest-earning assets		147,342			132,283			125,904			137,723			136,263
Total assets	$	2,177,345		$	2,012,954		$	1,992,967		$	2,000,970		$	1,983,110
Interest-bearing liabilities
Demand accounts	$	45,289		$	39,886		$	38,650		$	37,015		$	35,744
Money market, savings, and escrow accounts		252,500			218,942			215,332			206,474			193,542
Certificates of deposit		730,573			734,147			737,726			739,544			736,798
Total interest-bearing deposits		1,028,362			992,975			991,708			983,033			966,084
Borrowings		609,863			495,595			485,482			509,099			504,940
Total interest-bearing liabilities		1,638,225			1,488,570			1,477,190			1,492,132			1,471,024
Noninterest-bearing demand deposits		115,605			92,627			85,815			86,849			91,545
Noninterest-bearing liabilities		47,140			40,609			38,580			33,130			32,143
Total liabilities		1,800,970			1,621,806			1,601,585			1,612,111			1,594,712
Equity		376,375			391,148			391,382			388,859			388,398
Total liabilities and equity	$	2,177,345		$	2,012,954		$	1,992,967		$	2,000,970		$	1,983,110
Average Yield/Costs (annualized)
Loans receivable and held for sale		4.23	%		4.55	%		4.68	%		4.66	%		4.66	%
Mortgage related securities		2.55	%		2.52	%		2.58	%		2.56	%		2.68	%
Debt securities, federal funds sold and short term investments		1.71	%		2.07	%		2.19	%		2.53	%		2.50	%
Total interest-earning assets		3.93	%		4.16	%		4.31	%		4.34	%		4.32	%
Demand accounts		0.08	%		0.08	%		0.10	%		0.09	%		0.09	%
Money market and savings accounts		0.74	%		0.78	%		0.66	%		0.57	%		0.66	%
Certificates of deposit		1.91	%		2.13	%		2.20	%		2.24	%		2.19	%
Total interest-bearing deposits		1.54	%		1.75	%		1.79	%		1.81	%		1.80	%
Borrowings		1.76	%		2.12	%		2.20	%		2.14	%		2.06	%
Total interest-bearing liabilities		1.62	%		1.87	%		1.92	%		1.92	%		1.89	%

COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
		2020			2020			2019			2019			2019
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,701		$	12,908		$	13,472		$	13,885		$	13,530
Provision for loan losses		4,325			750			(200	)		(150	)		-
Total noninterest income		2,936			1,028			1,645			1,415			1,079
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		4,906			5,168			4,693			4,075			4,671
Occupancy, office furniture and equipment		866			1,014			894			942			944
Advertising		297			248			317			202			220
Data processing		678			605			583			588			493
Communications		91			97			93			90			93
Professional fees		226			198			162			223			160
Real estate owned		33			11			(251	)		24			19
Loan processing expense		-			-			-			-			-
Other		532			580			498			583			635
Total noninterest expense		7,629			7,921			6,989			6,727			7,235
Income before income taxes		4,683			5,265			8,328			8,723			7,374
Income tax expense		574			1,154			2,033			1,982			1,594
Net income	$	4,109		$	4,111		$	6,295		$	6,741		$	5,780
Efficiency ratio - QTD		45.86	%		56.84	%		46.23	%		43.97	%		49.52	%
Efficiency ratio - YTD		50.86	%		56.84	%		47.74	%		48.27	%		50.56	%

                                            

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
		2020			2020			2019			2019			2019
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	(511	)	$	(379	)	$	(399	)	$	(774	)	$	(529	)
Provision for loan losses		175			35			30			70			30
Total noninterest income		64,218			30,798			32,440			36,535			34,364
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		32,139			19,387			21,975			23,616			22,579
Occupancy, office furniture and equipment		1,668			1,727			1,627			1,687			1,736
Advertising		567			652			734			711			743
Data processing		413			395			402			411			372
Communications		226			241			227			268			260
Professional fees		850			1,620			1,000			688			620
Real estate owned		-			-			30			-			-
Loan processing expense		1,208			1,076			746			858			879
Other		3,239			2,552			1,918			1,725			1,186
Total noninterest expense		40,310			27,650			28,659			29,964			28,375
Income before income taxes		23,222			2,734			3,352			5,727			5,430
Income tax expense		6,440			768			921			1,584			1,545
Net income	$	16,782		$	1,966		$	2,431		$	4,143		$	3,885
Efficiency ratio - QTD		63.27	%		90.90	%		89.44	%		83.79	%		83.86	%
Efficiency ratio - YTD		72.20	%		90.90	%		87.47	%		86.79	%		88.66	%
Loan originations	$	1,142,683		$	708,840		$	777,073		$	851,297		$	793,254
Purchase		55.5	%		68.3	%		72.1	%		79.0	%		87.6	%
Refinance		44.5	%		31.7	%		27.9	%		21.0	%		12.4	%
Gross margin on loans sold(1)		5.45	%		4.08	%		4.27	%		4.30	%		4.29	%
(1) - Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations

Contact: Mark R. Gerke
Chief Financial Officer
414-459-4012
[e-mail]