Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2018


WAUWATOSA, Wis., Oct. 23, 2018 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $8.7 million, or $0.31 per diluted share for the quarter ended September 30, 2018 compared to $7.4 million, or $0.26 per diluted share for the quarter ended September 30, 2017. Net income per diluted share was $0.90 for the nine months ended September 30, 2018 compared to net income per diluted share of $0.82 for the nine months ended September 30, 2017.

"We executed a strong third quarter performance with net income of $8.7 million and earnings per share of $0.31," said Douglas Gordon, CEO of Waterstone Financial, Inc. "We followed up a record 2nd quarter net income with record net income for a 3rd quarter, based largely upon the strength of the Community Banking segment. The Community Banking segment had a 36.4% growth in net income which reflected continued net interest margin improvement and expense management. The Mortgage Banking segment underperformed last year's profitability due to margin compression in the third quarter of 2018 which resulted in greater branch losses. The industry continues to face pressures as market competition remains strong from lower refinancing activity and diminished levels of housing inventory. In an effort to improve profitability, we closed a number of underperforming branches which negatively impacted the bottom line for the quarter.  However, we achieved a record origination month in August due to the addition of the New Mexico branch at the end of the second quarter."

Highlights of the Quarter Ended September 30, 2018

Waterstone Financial, Inc. (Consolidated)

  • Consolidated net income of Waterstone Financial, Inc. totaled $8.7 million for the quarter ended September 30, 2018, compared to $7.4 million for the quarter ended September 30, 2017.
  • Consolidated return on average assets totaled 1.80% for the quarter ended September 30, 2018 compared to 1.56% for the quarter ended September 30, 2017.
  • Consolidated return on average equity increased 136 bps to 8.48% for the quarter ended September 30, 2018 compared to 7.12% for the quarter ended September 30, 2017.
  • The effective income tax rate amounted to 24.0% for the quarter ended September 30, 2018 compared to 37.1% for the quarter ended September 30, 2017 primarily as a result of the Tax Cuts and Jobs Act reducing the federal rate from 35% to 21%.
  • Dividends declared totaled $0.12 per share during the quarter ended September 30, 2018 amounting to a total of $0.86 in dividends declared per share during the nine months ended September 30, 2018.
  • Repurchased a total 321,900 shares on the open market during the quarter ended September 30, 2018 at an average price of $17.02 per share. For the nine months ended, repurchased a total of 527,500 shares at an average price of $17.06.

Community Banking Segment

  • Pre-tax income of the segment totaled $8.6 million for the quarter ended September 30, 2018, which represents a 15.8% increase compared to $7.5 million for the quarter ended September 30, 2017.
  • Net interest income of the segment totaled $14.1 million for the quarter ended September 30, 2018, which represents a 7.6% increase compared to $13.1 million for the quarter ended September 30, 2017. Our net interest margin increased 12 bps to 3.07% for the quarter ended September 30, 2018 compared to 2.95% for the quarter ended September 30, 2017, which was driven by loan growth along with a decrease in borrowing costs.
  • Noninterest income increased $151,000 million for the quarter ended September 30, 2018 compared to the quarter ended September 30, 2017 as fees earned on loans increased.
  • Noninterest expenses decreased for the quarter ended September 30, 2018 compared to the quarter ended September 30, 2017 as compensation and real estate owned expenses decreased.
  • Driven by net interest margin expansion and continued cost control efforts, the efficiency ratio for the community banking segment improved to 44.1% for the quarter ended September 30, 2018, compared to 47.8% for the quarter ended September 30, 2017. This was a quarterly record for the Community Banking Segment.
  • Average loans held for investment totaled $1.34 billion during the quarter ended September 30, 2018, which represents an increase of $91.3 million, or 7.3% over the comparable quarter in the prior year.
  • Average deposits totaled $1.01 billion during the quarter ended September 30, 2018, which represents an increase of $48.3 million, or 5.0%, over the comparable quarter in the prior year.
  • Nonperforming assets as percentage of total assets was 0.45% at September 30, 2018 and June 30, 2018 and 0.62% at September 30, 2017.

Mortgage Banking Segment

  • Pre-tax income of the segment totaled $2.8 million for the quarter ended September 30, 2018, which represents a 35.0% decrease compared to $4.3 million for the quarter ended September 30, 2017.
  • Loan originations increased $76.7 million, or 11.2%, to $761.2 million during the quarter ended September 30, 2018, compared to $684.5 million during the quarter ended September 30, 2017.  Origination volume relative to purchase activity accounted for 92.1% of originations for the quarter ended September 30, 2018 compared to 89.6% of total originations for the quarter ended September 30, 2017.
  • Gross margins on loans sold decreased approximately 10% during the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017.

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.

  
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF INCOME 
(Unaudited)          
  
 For The Three Months
Ended September 30,
  For The Nine Months
Ended September 30,
 
 2018  2017  2018  2017 
      
 (In Thousands, except per share amounts)    
Interest income:           
Loans$17,340   15,855   49,498   45,078 
Mortgage-related securities 643   647   1,925   2,021 
Debt securities, federal funds sold and short-term investments 1,063   951   2,949   2,680 
Total interest income 19,046   17,453   54,372   49,779 
Interest expense:               
Deposits 3,063   1,981   8,087   5,614 
Borrowings 2,133   2,439   5,574   6,756 
Total interest expense 5,196   4,420   13,661   12,370 
Net interest income 13,850   13,033   40,711   37,409 
Provision for loan losses 40   20   (1,060)  (1,166)
Net interest income after provision for loan losses 13,810   13,013   41,771   38,575 
Noninterest income:               
Service charges on loans and deposits 442   300   1,332   1,148 
Increase in cash surrender value of life insurance 695   688   1,496   1,476 
Loss on sale of available for sale securities -   -   -   (107)
Mortgage banking income 32,653   31,863   88,930   92,774 
Other 272   203   805   941 
Total noninterest income 34,062   33,054   92,563   96,232 
Noninterest expenses:               
Compensation, payroll taxes, and other employee benefits 27,453   26,153   74,670   73,732 
Occupancy, office furniture, and equipment 2,751   2,533   7,995   7,587 
Advertising 1,224   821   3,084   2,414 
Data processing 809   623   2,057   1,854 
Communications 412   394   1,229   1,170 
Professional fees 583   629   1,930   1,953 
Real estate owned (128)  (20)  63   258 
FDIC insurance premiums 131   129   361   366 
Other 3,191   3,054   9,921   10,227 
Total noninterest expenses 36,426   34,316   101,310   99,561 
Income before income taxes 11,446   11,751   33,024   35,246 
Income tax expense 2,743   4,362   7,948   12,397 
Net income$8,703   7,389   25,076   22,849 
Income per share:               
Basic$0.32   0.27   0.91   0.83 
Diluted$0.31   0.26   0.90   0.82 
Weighted average shares outstanding:               
Basic 27,451   27,532   27,488   27,449 
Diluted 27,680   27,953   27,765   27,927 
                


  
WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
  
 September 30,  December 31, 
 2018  2017 
 (Unaudited)    
Assets(In Thousands, except per share amounts) 
Cash$32,966  $22,306 
Federal funds sold 18,352   17,034 
Interest-earning deposits in other financial institutions and other short term investments 7,538   9,267 
Cash and cash equivalents 58,856   48,607 
Securities available for sale (at fair value) 179,076   199,707 
Loans held for sale (at fair value) 192,674   149,896 
Loans receivable 1,357,656   1,291,814 
Less: Allowance for loan losses 13,226   14,077 
Loans receivable, net 1,344,430   1,277,737 
        
Office properties and equipment, net 22,417   22,941 
Federal Home Loan Bank stock (at cost) 19,575   16,875 
Cash surrender value of life insurance 67,198   65,996 
Real estate owned, net 2,170   4,558 
Prepaid expenses and other assets 33,007   20,084 
Total assets$1,919,403  $1,806,401 
        
Liabilities and Shareholders' Equity       
Liabilities:       
Demand deposits$130,969  $129,597 
Money market and savings deposits 159,742   148,804 
Time deposits 713,739   688,979 
Total deposits 1,004,450   967,380 
        
Borrowings 451,132   386,285 
Advance payments by borrowers for taxes 30,460   4,876 
Other liabilities 28,717   35,756 
Total liabilities 1,514,759   1,394,297 
        
Shareholders' equity:       
Common stock 291   295 
Additional paid-in capital 329,743   326,655 
Retained earnings 184,697   183,358 
Unearned ESOP shares (18,101)  (18,991)
Accumulated other comprehensive loss, net of taxes (3,808)  (477)
Cost of shares repurchased (88,178)  (78,736)
Total shareholders' equity 404,644   412,104 
Total liabilities and shareholders' equity$1,919,403  $1,806,401 
        
Share Information       
Shares Outstanding 29,050   29,501 
Book Value per share$13.93  $13.97 
Closing market price$17.15  $17.05 
Price to book ratio 123.12%  122.05%
        


  
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, 
 2018  2018  2018  2017  2017 
 (Dollars in Thousands)          
Condensed Results of Operations:              
Net interest income$13,850  $13,720   13,141   13,324   13,033 
Provision for loan losses 40   (220)  (880)  -   20 
Total noninterest income 34,062   33,318   25,183   28,181   33,054 
Total noninterest expense 36,426   34,737   30,147   32,318   34,316 
Income before income taxes 11,446   12,521   9,057   9,187   11,751 
Income tax expense 2,743   3,101   2,104   6,072   4,362 
Net income$8,703  $9,420   6,953   3,115   7,389 
Income per share – basic$0.32  $0.34   0.25   0.11   0.27 
Income per share – diluted$0.31  $0.34   0.25   0.11   0.26 
Dividends declared per share$0.12  $0.12   0.62   0.12   0.12 
                    
Performance Ratios:                   
Return on average assets - QTD 1.80%  2.02%  1.57%  0.67%  1.56%
Return on average equity - QTD 8.48%  9.40%  6.90%  2.98%  7.12%
Net interest margin - QTD 3.07%  3.14%  3.18%  3.08%  2.95%
                    
Return on average assets - YTD 1.80%  1.80%  1.57%  1.43%  1.70%
Return on average equity - YTD 8.25%  8.13%  6.90%  6.32%  7.42%
Net interest margin - YTD 3.13%  3.16%  3.18%  3.00%  2.97%
                    
Asset Quality Ratios:                   
Past due loans to total loans 0.67%  0.54%  0.53%  0.45%  0.71%
Non accrual loans to total loans 0.48%  0.46%  0.50%  0.47%  0.56%
Non performing assets to total assets 0.45%  0.45%  0.54%  0.59%  0.62%
                    


  
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, 
 2018  2018  2018  2017  2017 
 (Dollars in Thousands) 
Condensed Results of Operations:              
Net interest income$14,121  $13,747   13,304   13,375   13,120 
Provision for loan losses -   (250)  (900)  -   - 
Total noninterest income 1,312   1,137   939   974   1,161 
Total noninterest expense 6,800   6,588   7,682   6,939   6,824 
Income before income taxes 8,633   8,546   7,461   7,410   7,457 
Income tax expense 2,003   1,970   1,668   5,570   2,597 
Net income$6,630  $6,576   5,793   1,840   4,860 
                    
Efficiency ratio - QTD 44.06%  44.27%  53.94%  48.36%  47.78%
Efficiency ratio - YTD 47.28%  49.00%  53.94%  49.98%  50.56%
                    


  
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, 
 2018  2018  2018  2017  2017 
 (Dollars in Thousands) 
Condensed Results of Operations:              
Net interest income$(286) $(40)  (192)  (72)  (102)
Provision for loan losses 40   30   20   -   20 
Total noninterest income 33,165   32,547   24,731   27,645   32,318 
Total noninterest expense 30,036   28,493   22,941   25,791   27,882 
Income before income taxes 2,803   3,984   1,578   1,782   4,314 
Income tax expense 737   1,133   435   509   1,767 
Net income$2,066  $2,851   1,143   1,273   2,547 
                    
Efficiency ratio - QTD 91.35%  87.65%  93.49%  93.54%  86.55%
Efficiency ratio - YTD 90.60%  90.16%  93.49%  86.93%  85.00%
                    
Loan Originations 761,206   721,184   516,020   600,265   684,500 
Purchase 92.1%  92.6%  85.1%  86.7%  89.6%
Refinance 7.9%  7.4%  14.9%  13.3%  10.4%
                    

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