Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2017


WAUWATOSA, Wis., Jan. 30, 2018 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ:WSBF), holding company for WaterStone Bank, reported net income of $3.1 million, or $0.11 per diluted share for the quarter ended December 31, 2017 compared to $6.4 million, or $0.23 per diluted share for the quarter ended December 31, 2016.  Net income for the year ended December 31, 2017 totaled $26.0 million, or $0.93 per diluted share compared to $25.5 million, or $0.93 per diluted share for the year ended December 31, 2016.  The fourth quarter and year to date 2017 results of operations each include a $2.7 million charge to income tax expense related to the Company’s deferred tax asset revaluation that resulted from recent 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 achieved record pre-tax earnings in 2017 fueled by a 36% increase in the pre-tax earnings of our Community Banking segment,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “Annual loan growth of 9.7%, combined with a 13.6% increase in our net interest margin drove the record profits.  Our Mortgage Banking segment, coming off record earnings in 2016, faced margin compression during 2017 as the lack of refinance business increased price competition within the industry.  Mortgage Banking segment earnings were also hampered by the expense associated with 11 new branches opened since the fourth quarter of 2016.  The strength of our consolidated earnings, and capital, gave us the ability to pay dividends totaling $0.98 per share to our shareholders during 2017”.     

Highlights of the Quarter and Year Ended December 31, 2017

Waterstone Financial, Inc. (Consolidated)

  • Consolidated pre-tax income of Waterstone Financial, Inc. totaled $9.2 million for the quarter ended December 31, 2017, compared to $10.6 million for the quarter ended December 31, 2016.
  • Consolidated pre-tax income of Waterstone Financial, Inc. totaled $44.4 million for the year ended December 31, 2017, compared to $42.0 million for the year ended December 31, 2016.
  • Consolidated return on average assets totaled 0.67% for the quarter ended December 31, 2017 compared to 1.44% for the quarter ended December 31, 2016. Adjusted for the deferred tax revaluation, consolidated return on average assets(1) totaled 1.26% for the quarter ended December 31, 2017.  
  • Consolidated return on average assets totaled 1.43% for the year ended December 31, 2017 compared to 1.45% for the year ended December 31, 2016. Adjusted for the deferred tax revaluation, consolidated return on average assets(1) totaled 1.58% for the year ended December 31, 2017.  
  • Dividends declared and paid totaled $0.98 per share during the year ended December 31, 2017.

(1)      For notes on non-GAAP financial measures, see pages 3 and 7 

Community Banking Segment

  • Pre-tax income of the segment totaled $7.4 million for the quarter ended December 31, 2017, which represents a 16.3% increase compared to $6.4 million for the quarter ended December 31, 2016.
  • Pre-tax income of the segment totaled $28.6 million for the year ended December 31, 2017, which represents a 36.1% increase compared to $21.0 million for the year ended December 31, 2016.
  • Net interest income of the segment totaled $13.4 million for the quarter ended December 31, 2017, which represents an 11.8% increase compared to $12.0 million for the quarter ended December 31, 2016.  The increase in net interest income, which was driven by loan growth along with a decrease in borrowing costs, drove our net interest margin to 3.08% for the quarter ended December 31, 2017 compared to 2.88% for the quarter ended December 31, 2016.  
  • Average loans held for investment totaled $1.27 billion during the quarter ended December 31, 2017, which represents an increase of $111.6 million, or 9.6% over the comparable quarter in the prior year. 
  • Total loans held for investment increased $30.7 million, or 2.4%, to $1.29 billion at December 31, 2017 compared to $1.26 billion at September 30, 2017. 
  • Total deposits increased $10.6 million, or 1.1%, to $967.4 million at December 31, 2017 compared to $956.8 million at September 30, 2017. 
  • Driven by margin expansion and continued cost control efforts, the efficiency ratio for the segment improved to 48.4% for the quarter ended December 31, 2017, compared to 51.0% for the quarter ended December 31, 2016.
  • Nonperforming assets as percentage of total assets decreased to 0.59% as of December 31, 2017, compared to 0.62% at September 30, 2017 and 0.89% at December 31, 2016.

Mortgage Banking Segment

  • Pre-tax income of the segment totaled $1.8 million for the quarter ended December 31, 2017, which represents a 58.1% decrease compared to $4.3 million for the quarter ended December 31, 2016.
  • Pre-tax income of the segment totaled $15.8 million for the year ended December 31, 2017, which represents a 24.2% decrease compared to $20.9 million for the year ended December 31, 2016.
  • Loans originated for the purpose of sale in the secondary market decreased $45.5 million, or 7.3%, to $577.0 million during the quarter ended December 31, 2017, compared to $622.5 million for the quarter ended December 31, 2016.  The decrease in originations was driven by a 45.6% decrease in the origination of loans made for the purpose of mortgage refinance.  Driven by an expansion of our branch network, origination volumes of loans made for the purpose of residential purchases increased 6.3% compared to the comparative quarter in the prior year.  Our origination efforts continue to be focused on loans made for the purpose of residential purchases, as opposed to mortgage refinance.  Origination volume relative to purchase activity accounted for 87% of originations for the quarter ended December 31, 2017 compared to 77% of total originations for the quarter ended December 31, 2016. Origination volume relative to purchase activity accounted for 89% and 83% of total originations for the year ended December 31, 2017 and 2016, respectively.
  • Year to date origination volume increased approximately 5% to $2.5 billion during 2017.    
  • Gross margins on loans sold decreased approximately 3% during the quarter ended December 31, 2017, compared to the quarter ended December 31, 2016. 

About Waterstone Financial, Inc.

Waterstone Financial, Inc. (NASDAQ:WSBF) 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 offers mortgage banking offices in 24 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 non-fundamental items, 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,
  2017 2016 2017 2016 
  (In Thousands, except per share amounts)
Interest income:        
Loans$  15,746   14,574   60,824   57,185 
Mortgage-related securities   625   677   2,646   3,048 
Debt securities, federal funds sold and short-term investments   945   811   3,625   3,503 
Total interest income   17,316   16,062   67,095   63,736 
Interest expense:        
Deposits   2,125   1,887   7,739   7,364 
Borrowings   1,867   2,204   8,623   12,928 
Total interest expense   3,992   4,091   16,362   20,292 
Net interest income   13,324   11,971   50,733   43,444 
Provision for loan losses   -   40   (1,166)  380 
          
Net interest income after provision for loan losses   13,324   11,931   51,899   43,064 
          
Noninterest income:        
Service charges on loans and deposits   477   490   1,625   2,232 
Increase in cash surrender value of life insurance   331   321   1,807   1,767 
Loss on sale of available for sale securities   -   -   (107)  - 
Mortgage banking income   27,270   29,923   120,044   121,069 
Other   103   423   1,044   1,297 
Total noninterest income   28,181   31,157   124,413   126,365 
Noninterest expenses:        
Compensation, payroll taxes, and other employee benefits   23,352   24,088   97,084   95,056 
Occupancy, office furniture, and equipment   2,591   2,273   10,178   9,347 
Advertising   919   769   3,333   2,743 
Data processing   585   623   2,439   2,520 
Communications   390   374   1,560   1,462 
Professional fees   703   649   2,656   2,135 
Real estate owned   121   55   379   399 
FDIC insurance premiums   133   115   499   615 
Other   3,524   3,495   13,751   13,158 
Total noninterest expenses   32,318   32,441   131,879   127,435 
Income before income taxes   9,187   10,647   44,433   41,994 
Income tax expense    6,072   4,248   18,469   16,462 
Net income $  3,115   6,399   25,964   25,532 
Income per share:        
Basic$0.11 0.23 0.95 0.94 
Diluted$0.11 0.23 0.93 0.93 
Weighted average shares outstanding:        
Basic 27,522 27,217 27,467 27,037 
Diluted 27,914 27,699 27,899 27,374 
         

 

 
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
  December 31,  December 31, 
  2017  2016 
 (Unaudited) 
Assets(In Thousands, except per share amounts)
Cash$  22,306 $  7,878 
Federal funds sold   17,034    26,828 
Interest-earning deposits in other financial institutions and other short term investments   9,267    12,511 
Cash and cash equivalents   48,607    47,217 
Securities available for sale (at fair value)   199,707    226,795 
Loans held for sale (at fair value)   149,896    225,248 
Loans receivable   1,291,814    1,177,884 
Less: Allowance for loan losses   14,077    16,029 
Loans receivable, net   1,277,737    1,161,855 
   
Office properties and equipment, net   22,941    23,655 
Federal Home Loan Bank stock (at cost)   16,875    13,275 
Cash surrender value of life insurance   65,996    61,509 
Real estate owned, net   4,558    6,118 
Prepaid expenses and other assets   20,084    24,947 
Total assets$  1,806,401 $  1,790,619 
   
Liabilities and Shareholders' Equity  
Liabilities:  
Demand deposits$  129,597 $  120,371 
Money market and savings deposits   148,804    162,456 
Time deposits   688,979    666,584 
Total deposits   967,380    949,411 
   
Borrowings   386,285    387,155 
Advance payments by borrowers for taxes   4,876    4,716 
Other liabilities   35,756    38,647 
Total liabilities   1,394,297    1,379,929 
   
Shareholders' equity:  
Common stock   295    294 
Additional paid-in capital   326,655    322,934 
Retained earnings   183,358    184,565 
Unearned ESOP shares   (18,991)   (20,178)
Accumulated other comprehensive loss, net of taxes   (477)   (378)
Cost of shares repurchased   (78,736)   (76,547)
Total shareholders' equity   412,104    410,690 
Total liabilities and shareholders' equity$  1,806,401 $  1,790,619 
   
Share Information   
Shares Outstanding   29,501    29,430 
Book Value per share$  13.97 $  13.95 
Closing market price$  17.05 $  18.40 
Price to book ratio 122.05% 131.85%
   

 

 
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,
  2017 2017 2017 2017 2016 
 (Dollars in Thousands)
Condensed Results of Operations:     
Net interest income$ 13,324  13,033  12,481  11,895  11,971 
Provision for loan losses  -   20  25  (1,211) 40 
Total noninterest income  28,181  33,054  37,241  25,937  31,157 
Total noninterest expense  32,318  34,316  36,187  29,058  32,441 
Income before income taxes  9,187  11,751  13,510  9,985  10,647 
Income tax expense  6,072  4,362  4,622  3,413  4,248 
Net income$ 3,115  7,389  8,888  6,572  6,399 
Income per share – basic$ 0.11  0.27  0.32  0.24  0.23 
Income per share – diluted $ 0.11  0.26  0.32  0.24  0.23 
Dividends declared per share$ 0.12  0.12  0.62  0.12  0.12 
      
Performance Ratios:     
Return on average assets - QTD 0.67%1.56%1.99%1.54%1.44%
Return on average equity - QTD 2.98%7.12%8.70%6.44%6.19%
Net interest margin - QTD 3.08%2.95%3.00%2.97%2.88%
Community Banking Segment     
    Efficiency ratio - QTD 48.36%47.78%48.76%55.69%51.00%
      
Return on average assets - YTD 1.43%1.70%1.77%1.54%1.45%
Return on average equity - YTD 6.32%7.42%7.56%6.44%6.33%
Net interest margin - YTD 3.00%2.97%2.98%2.97%2.64%
Community Banking Segment     
    Efficiency ratio - YTD 49.98%50.56%52.09%55.69%55.40%
      
Asset Quality Ratios:     
Past due loans to total loans 0.45%0.71%0.74%0.71%0.70%
Non accrual loans to total loans 0.47%0.56%0.70%0.67%0.84%
Non performing assets to total assets 0.59%0.62%0.71%0.76%0.89%
      

 

 
GAAP RECONCILIATION TO NON-GAAP 
FINANCIAL MEASURES
(Unaudited)
 
 For the Three Months EndedFor 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