Bay Street News

Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2018

Bay Street

WAUWATOSA, Wis., Jan. 30, 2019 (GLOBE NEWSWIRE) — Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $5.7 million, or $0.21 per diluted share for the quarter ended December 31, 2018 compared to $3.1 million, or $0.11 per diluted share for the quarter ended December 31, 2017. Net income per diluted share was $1.11 for the year ended December 31, 2018 compared to net income per diluted share of $0.93 for the year ended December 31, 2017. The results of operations for the quarter and year ended December 31, 2017 each include a $2.7 million charge to income tax expense related to the Company’s deferred tax asset revaluation that resulted from legislation that reduced the corporate federal income tax rate. Excluding the impact of this revaluation, net income per diluted share(1) for the quarter and year ended December 31, 2017 were $0.21 and $1.03, respectively.

“We are pleased with the performance of our Community Banking segment as we achieved our 12th consecutive comparative quarter with growth in pre-tax income,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “We have exhibited the ability to grow this segment while maintaining our culture for asset quality and expense management. As a result of our profitability and financial strength, we were able to deploy capital by rewarding our shareholders with $0.98 per share in dividends, while also repurchasing 1.1 million shares of stock during the year. Our Mortgage Banking segment’s performance has declined due to a challenging housing market causing margin compression, and the expenses related to closing unprofitable branches and rightsizing staff.”

Highlights of the Quarter Ended December 31, 2018

Waterstone Financial, Inc. (Consolidated)

(1) For notes on non-GAAP financial measures, see pages 4 and 11

Community Banking Segment

Mortgage Banking Segment

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, Brookfield, Fox Point/North Shore, Franklin/Hales Corners, Germantown/Menomonee Falls, Greenfield, Oak Creek, Oconomowoc/Lake Country, Pewaukee, Waukesha/Brookfield, and West Allis, Wisconsin and a commercial lending office in Minneapolis, Minnesota. WaterStone Bank is the parent company to Waterstone Mortgage, which has the ability to lend in 47 states. For more information about WaterStone Bank, go to http://www.wsbonline.com.

Forward-Looking Statements

This press release contains 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.”  Such statements are subject to important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements.  These factors include (i) exposure to the deterioration in the commercial and residential real estate markets which could result in increased charge-offs and increases in the allowance for loan losses,  (ii) various other factors, including changes in economic conditions affecting borrowers, new information regarding outstanding loans and identification of additional problem loans, which could require an increase in the allowance for loan losses, (iii) Waterstone’s ability to maintain required levels of capital and other current and future regulatory requirements, (iv) the impact of recent and future legislative initiatives on the financial markets, and (v) those 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.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP). The Company’s management uses these non-GAAP financial measures, including earnings per share excluding deferred tax revaluation, return on average assets excluding deferred tax revaluation, return on average assets excluding deferred tax revaluation, and return on average equity excluding deferred tax revaluation to provide meaningful supplemental information regarding our performance. These measures typically adjust GAAP performance measures to adjust for non-recurring transactions. Since the presentation of these GAAP performance measures and their impact differ between companies, management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core business. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.   

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
    For The Three Months Ended December 31, For The Year Ended December 31,
    2018 2017 2018 2017
    (In Thousands, except per share amounts)
Interest income:          
Loans $  17,468  15,746  66,966  60,824
Mortgage-related securities    723  625  2,648  2,646
Debt securities, federal funds sold and short-term investments    1,137  945  4,086  3,625
Total interest income    19,328  17,316  73,700  67,095
Interest expense:          
Deposits    3,540  2,125  11,627  7,739
Borrowings    2,322  1,867  7,896  8,623
Total interest expense    5,862  3,992  19,523  16,362
Net interest income    13,466  13,324  54,177  50,733
Provision for loan losses    –  –  (1,060)  (1,166)
Net interest income after provision for loan losses    13,466  13,324  55,237  51,899
Noninterest income:          
Service charges on loans and deposits    348  477  1,680  1,625
Increase in cash surrender value of life insurance    352  331  1,848  1,807
Loss on sale of available for sale securities    –  –  –  (107)
Mortgage banking income    24,221  27,270  113,151  120,044
Other    715  103  1,520  1,044
Total noninterest income    25,636  28,181  118,199  124,413
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits    23,114  23,352  97,784  97,084
Occupancy, office furniture, and equipment    2,860  2,591  10,855  10,178
Advertising    1,039  919  4,123  3,333
Data processing    735  585  2,792  2,439
Communications    382  390  1,611  1,560
Professional fees    397  703  2,327  2,656
Real estate owned    (62)  121  1  379
Loan processing expense    643  766  3,372  3,062
Other    2,738  2,891  10,291  11,188
Total noninterest expenses    31,846  32,318  133,156  131,879
Income before income taxes    7,256  9,187  40,280  44,433
Income tax expense    1,578  6,072  9,526  18,469
Net income $  5,678  3,115  30,754  25,964
Income per share:          
Basic $ 0.21 0.11 1.12 0.95
Diluted $ 0.21 0.11 1.11 0.93
Weighted average shares outstanding:          
Basic   26,994 27,522 27,363 27,467
Diluted   27,218 27,914 27,634 27,899
           

 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  December 31, December 31,
  2018 2017
  (Unaudited)  
Assets (In Thousands, except per share amounts)
Cash $  48,234 $  22,306
Federal funds sold  25,100  17,034
Interest-earning deposits in other financial institutions and other short term investments  12,767  9,267
Cash and cash equivalents  86,101  48,607
Securities available for sale (at fair value)  185,720  199,707
Loans held for sale (at fair value)  141,616  149,896
Loans receivable  1,379,148  1,291,814
Less: Allowance for loan losses  13,249  14,077
Loans receivable, net  1,365,899  1,277,737
     
Office properties and equipment, net  24,524  22,941
Federal Home Loan Bank stock (at cost)  19,350  16,875
Cash surrender value of life insurance  67,550  65,996
Real estate owned, net  2,152  4,558
Prepaid expenses and other assets  22,469  20,084
Total assets $  1,915,381 $  1,806,401
     
Liabilities and Shareholders’ Equity    
Liabilities:    
Demand deposits $  139,111 $  129,597
Money market and savings deposits  163,511  148,804
Time deposits  735,873  688,979
Total deposits  1,038,495  967,380
     
Borrowings  435,046  386,285
Advance payments by borrowers for taxes  4,371  4,876
Other liabilities  37,790  35,756
Total liabilities  1,515,702  1,394,297
     
Shareholders’ equity:    
Common stock  285  295
Additional paid-in capital  330,327  326,655
Retained earnings  187,153  183,358
Unearned ESOP shares  (17,804)  (18,991)
Accumulated other comprehensive loss, net of taxes  (2,361)  (477)
Cost of shares repurchased  (97,921)  (78,736)
Total shareholders’ equity  399,679  412,104
Total liabilities and shareholders’ equity $  1,915,381 $  1,806,401
     
Share Information    
Shares Outstanding  28,463  29,501
Book Value per share $  14.04 $  13.97
Closing market price $  16.76 $  17.05
Price to book ratio 119.37% 122.05%
     
     

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2018 2018 2018 2018 2017
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $  13,466  13,850  13,720  13,141  13,324
Provision for loan losses  –   40  (220)  (880)  – 
Total noninterest income  25,636  34,062  33,318  25,183  28,181
Total noninterest expense  31,846  36,426  34,737  30,147  32,318
Income before income taxes  7,256  11,446  12,521  9,057  9,187
Income tax expense  1,578  2,743  3,101  2,104  6,072
Net income $  5,678  8,703  9,420  6,953  3,115
Income per share – basic $  0.21  0.32  0.34  0.25  0.11
Income per share – diluted $  0.21  0.31  0.34  0.25  0.11
Dividends declared per share $  0.12  0.12  0.12  0.62  0.12
           
Performance Ratios:          
Return on average assets – QTD 1.18% 1.80% 2.02% 1.57% 0.67%
Return on average equity – QTD 5.58% 8.48% 9.40% 6.90% 2.98%
Net interest margin – QTD 2.99% 3.07% 3.14% 3.18% 3.08%
           
Return on average assets – YTD 1.64% 1.80% 1.80% 1.57% 1.43%
Return on average equity – YTD 7.60% 8.25% 8.13% 6.90% 6.32%
Net interest margin – YTD 3.09% 3.13% 3.16% 3.18% 3.00%
           
Asset Quality Ratios:          
Past due loans to total loans 0.50% 0.67% 0.54% 0.53% 0.45%
Non accrual loans to total loans 0.48% 0.48% 0.46% 0.50% 0.47%
Non performing assets to total assets 0.45% 0.45% 0.45% 0.54% 0.59%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2018 2018 2018 2018 2017
Average balances (Dollars in Thousands)
Interest earning assets          
Loans receivable and held for sale  1,496,125  1,507,632  1,451,507  1,398,043  1,402,271
Mortgage related securities  111,004  106,047  109,879  113,688  115,414
Debt securities, federal funds sold and short term investments  179,232  176,733  192,422  165,863  199,006
  Total interest earning assets  1,786,361  1,790,412  1,753,808  1,677,594  1,716,691
Non interest earning assets  119,715  122,575  119,291  113,317  120,943
  Total assets  1,906,076  1,912,987  1,873,099  1,790,911  1,837,634
           
Interest bearing liabilities          
Demand accounts  36,941  37,936  37,291  37,384  37,600
Money market and savings accounts  184,873  185,864  166,587  153,226  170,262
Certificates of deposit  722,774  707,970  707,758  697,644  686,266
  Total interest-bearing deposits  944,588  931,770  911,636  888,254  894,128
Borrowings  439,601  444,570  445,064  379,115  406,821
  Total interest-bearing liabilities  1,384,189  1,376,340  1,356,700  1,267,369  1,300,949
Noninterest bearing demand deposits  97,677  100,804  96,108  91,806  93,735
Noninterest bearing liabilities  20,219  28,632  18,266  22,828  28,188
  Total liabilities  1,502,085  1,505,776  1,471,074  1,382,003  1,422,872
Equity  403,991  407,211  402,025  408,908  414,762
  Total liabilities and equity  1,906,076  1,912,987  1,873,099  1,790,911  1,837,634
           
Average Yield/Costs          
Loans receivable and held for sale 4.63% 4.56% 4.61% 4.48% 4.45%
Mortgage related securities 2.58% 2.41% 2.35% 2.28% 2.15%
Debt securities, federal funds sold and short term investments 2.52% 2.39% 2.12% 2.12% 1.88%
  Total interest earning assets 4.29% 4.22% 4.20% 4.10% 4.00%
           
Demand accounts 0.09% 0.10% 0.09% 0.08% 0.08%
Money market and savings accounts 0.47% 0.35% 0.30% 0.24% 0.20%
Certificates of deposit 1.82% 1.62% 1.46% 1.29% 1.17%
  Total interest-bearing deposits 1.49% 1.30% 1.19% 1.06% 0.94%
Borrowings 2.10% 1.90% 1.74% 1.61% 1.82%
  Total interest-bearing liabilities 1.68% 1.50% 1.37% 1.22% 1.22%
           

 
COMMUNITY BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
 
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2018 2018 2018 2018 2017
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $  13,774  14,121  13,747  13,304  13,375
Provision for loan losses  –   –   (250)  (900)  – 
Total noninterest income  911  1,312  1,137  939  974
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits  4,761  4,435  4,301  4,888  4,531
Occupancy, office furniture and equipment  842  826  813  826  771
Advertising  185  183  241  140  144
Data processing  422  414  400  435  399
Communications  92  112  121  100  101
Professional fees  339  257  180  191  173
Real estate owned  (62)  (128)  (126)  317  121
Loan processing expense  –   –   –   –   – 
Other  571  701  658  785  699
Total noninterest expense  7,150  6,800  6,588  7,682  6,939
Income before income taxes  7,535  8,633  8,546  7,461  7,410
Income tax expense  1,632  2,003  1,970  1,668  5,570
Net income $  5,903  6,630  6,576  5,793  1,840
           
Efficiency ratio – QTD 48.69% 44.06% 44.27% 53.94% 48.36%
Efficiency ratio – YTD 47.63% 47.28% 49.00% 53.94% 49.98%
           

MORTGAGE BANKING SEGMENT
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
           
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2018 2018 2018 2018 2017
  (Dollars in Thousands)
Condensed Results of Operations:          
Net interest income $  (332)  (286)  (40)  (192)  (72)
Provision for loan losses  –   40  30  20  – 
Total noninterest income  24,986  33,165  32,547  24,731  27,645
Noninterest expenses:          
Compensation, payroll taxes, and other employee benefits  18,499  23,164  22,078  16,241  18,943
Occupancy, office furniture and equipment  2,018  1,925  1,792  1,813  1,820
Advertising  854  1,041  759  720  775
Data processing  309  386  224  186  182
Communications  290  300  314  282  289
Professional fees  52  319  458  514  512
Real estate owned  –   –   –   –   – 
Loan processing expense  643  837  904  988  766
Other  2,297  2,064  1,964  2,197  2,504
Total noninterest expense  24,962  30,036  28,493  22,941  25,791
Income before income taxes  (308)  2,803  3,984  1,578  1,782
Income tax expense  (62)  737  1,133  435  509
Net income $  (246)  2,066  2,851  1,143  1,273
             
Efficiency ratio – QTD   101.25% 91.35% 87.65% 93.49% 93.54%
Efficiency ratio – YTD   92.89% 90.60% 90.16% 93.49% 86.93%
             
Loan Originations    600,156 761,206 721,184 516,020 600,265
Purchase   91.1% 92.1% 92.6% 85.1% 86.7%
Refiance   8.9% 7.9% 7.4% 14.9% 13.3%

GAAP RECONCILIATION TO NON-GAAP
FINANCIAL MEASURES
(Unaudited)
  For the Three Months Ended For the Year Ended
  December 31, December 31,
  2017 2017
  (In thousands, except per share amounts)
Net income $  3,115  25,964
Deferred tax asset revaluation  2,718  2,718
Net income excluding deferred tax asset revaluation $  5,833 $  28,682
Diluted weighted average shares outstanding  27,914  27,899
     
Net income per diluted share $  0.11 $  0.93
Deferred tax asset revaluation adjustment $  0.10 $  0.10
Net income per diluted share excluding deferred tax asset revaluation $  0.21 $  1.03
     
Net income excluding deferred tax asset revaluation $  5,833 $  28,682
Average assets  1,837,634  1,810,234
     
Return on average assets 0.67% 1.43%
Deferred tax asset revaluation adjustment 0.59% 0.15%
Return on average assets excluding deferred tax asset revaluation 1.26% 1.58%
     
Net income excluding deferred tax asset revaluation $  5,833 $  28,682
Average equity  414,762  410,937
     
Return on average equity 2.98% 6.32%
Deferred tax asset revaluation adjustment 2.60% 0.66%
Return on average equity excluding deferred tax asset revaluation 5.58% 6.98%
     

Contact: Mark R. Gerke
Chief Financial Officer
414.459.4012
markgerke@wsbonline.com