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

WAUWATOSA, Wis., July 31, 2018 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ:WSBF), holding company for WaterStone Bank, reported net income of $9.4 million, or $0.34 per diluted share for the quarter ended June 30, 2018 compared to $8.9 million, or $0.32 per diluted share for the quarter ended June 30, 2017. Net income per diluted share was $0.59 for the six months ended June 30, 2018 compared to net income per diluted share of $0.55 for the six months ended June 30, 2017.  

“We are pleased to report a record second quarter net income of $9.4 million and earnings per share of $0.34,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “The Community Banking segment continued its momentum by achieving a year over year 24.2% increase in pre-tax earnings.  Our success stemmed from continued strong loan growth, margin expansion and expense management.  The Mortgage Banking segment continued to be negatively impacted by margin compression during the second quarter of 2018, as market competition remains strong within the industry due to lower refinancing activity and diminished levels of housing inventory.  While the current mortgage banking environment presents challenges, we believe that it will also present opportunities to acquire talent, such as the addition of our New Mexico branch during the second quarter.”     

Highlights of the Quarter Ended June 30, 2018

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $9.4 million for the quarter ended June 30, 2018, compared to $8.9 million for the quarter ended June 30, 2017.
• Consolidated return on average assets totaled 2.02% for the quarter ended June 30, 2018 compared to 1.99% for the quarter ended June 30, 2017.
• Consolidated return on average equity increased 70 bps to 9.40% for the quarter ended June 30, 2018 compared to 8.70% for the quarter ended June 30, 2017.
• The effective income tax rate amounted to 24.8% for the quarter ended June 30, 2018 compared to 34.3% for the quarter ended June 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 June 30, 2018 amounting to a total of $0.74 in dividends declared per share during the six months ended June 30, 2018.

Community Banking Segment

• Pre-tax income of the segment totaled $8.5 million for the quarter ended June 30, 2018, which represents a 24.2% increase compared to $6.9 million for the quarter ended June 30, 2017.
• Net interest income of the segment totaled $13.7 million for the quarter ended June 30, 2018, which represents a 10.6% increase compared to $12.4 million for the quarter ended June 30, 2017. Our net interest margin increased 14 bps to 3.14% for the quarter ended June 30, 2018 compared to 3.00% for the quarter ended June 30, 2017, which was driven by loan growth along with a decrease in borrowing costs.
• Continued improvement in the overall risk profile of our loan portfolio resulted in a negative provision for loan losses of $250,000 for the quarter ended June 30, 2018 compared to no provision for the quarter ended June 30, 2017. The negative provision reflects recoveries received along with continued sustained improvements in loan quality metrics including: non–accrual loans, loans classified as substandard or watch and loans past due.
• Average loans held for investment totaled $1.33 billion during the quarter ended June 30, 2018, which represents an increase of $124.0 million, or 10.3% over the comparable quarter in the prior year. 
• Average deposits totaled $991.4 million during the quarter ended June 30, 2018, which represents an increase of $46.4 million, or 5.1%, over the comparable quarter in the prior year. 
• Driven by net interest margin expansion and continued cost control efforts, the efficiency ratio for the community banking segment improved to 44.3% for the quarter ended June 30, 2018, compared to 48.8% for the quarter ended June 30, 2017.
• Nonperforming assets as percentage of total assets decreased to 0.47% as of June 30, 2018, compared to 0.54% at March 31, 2018 and 0.71% at June 30, 2017.

Mortgage Banking Segment

• Pre-tax income of the segment totaled $4.0 million for the quarter ended June 30, 2018, which represents a 40.2% decrease compared to $6.7 million for the quarter ended June 30, 2017.
• Loan originations decreased $45.6 million, or 5.9%, to $721.2 million during the quarter ended June 30, 2018, compared to $766.8 million during the quarter ended June 30, 2017.  Origination volume relative to purchase activity accounted for 92.6% of originations for the quarter ended June 30, 2018 compared to 91.7% of total originations for the quarter ended June 30, 2017.
• Gross margins on loans sold decreased approximately 10% during the quarter ended June 30, 2018, compared to the quarter ended June 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 June 30,				For The Six Months Ended June 30,
		2018		2017		2018		2017
		(In Thousands, except per share amounts)
Interest income:
Loans	$	16,700		14,985		32,158		29,223
Mortgage-related securities		644		678		1,282		1,374
Debt securities, federal funds sold and short-term investments		1,019		877		1,886		1,729
Total interest income		18,363		16,540		35,326		32,326
Interest expense:
Deposits		2,710		1,838		5,024		3,633
Borrowings		1,933		2,221		3,441		4,317
Total interest expense		4,643		4,059		8,465		7,950
Net interest income		13,720		12,481		26,861		24,376
Provision for loan losses		(220	)	25		(1,100	)	(1,186	)
Net interest income after provision for loan losses		13,940		12,456		27,961		25,562
Noninterest income:
Service charges on loans and deposits		491		481		890		848
Increase in cash surrender value of life insurance		473		470		801		788
Loss on sale of available for sale securities		-		(107	)	-		(107	)
Mortgage banking income		32,090		36,224		56,277		60,911
Other		264		173		533		738
Total noninterest income		33,318		37,241		58,501		63,178
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		26,234		27,584		47,217		47,579
Occupancy, office furniture, and equipment		2,605		2,527		5,244		5,054
Advertising		1,000		869		1,860		1,593
Data processing		623		633		1,248		1,231
Communications		435		397		817		776
Professional fees		647		717		1,347		1,324
Real estate owned		(126	)	(133	)	191		278
FDIC insurance premiums		105		117		230		237
Other		3,214		3,476		6,730		7,173
Total noninterest expenses		34,737		36,187		64,884		65,245
Income before income taxes		12,521		13,510		21,578		23,495
Income tax expense		3,101		4,622		5,205		8,035
Net income	$	9,420		8,888		16,373		15,460
Income per share:
Basic	$	0.34		0.32		0.60		0.56
Diluted	$	0.34		0.32		0.59		0.55
Weighted average shares outstanding:
Basic		27,504		27,487		27,506		27,406
Diluted		27,742		27,955		27,790		27,913

 

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	June 30,			December 31,
	2018			2017
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	61,995		$	22,306
Federal funds sold		9,332			17,034
Interest-earning deposits in other financial institutions and other short term investments		6,789			9,267
Cash and cash equivalents		78,116			48,607
Securities available for sale (at fair value)		185,018			199,707
Loans held for sale (at fair value)		142,954			149,896
Loans receivable		1,342,136			1,291,814
Less: Allowance for loan losses		13,124			14,077
Loans receivable, net		1,329,012			1,277,737
Office properties and equipment, net		22,770			22,941
Federal Home Loan Bank stock (at cost)		19,350			16,875
Cash surrender value of life insurance		66,977			65,996
Real estate owned, net		2,378			4,558
Prepaid expenses and other assets		30,655			20,084
Total assets	$	1,877,230		$	1,806,401
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	135,370		$	129,597
Money market and savings deposits		153,484			148,804
Time deposits		706,586			688,979
Total deposits		995,440			967,380
Borrowings		432,523			386,285
Advance payments by borrowers for taxes		22,721			4,876
Other liabilities		22,802			35,756
Total liabilities		1,473,486			1,394,297
Shareholders' equity:
Common stock		293			295
Additional paid-in capital		328,450			326,655
Retained earnings		179,267			183,358
Unearned ESOP shares		(18,397	)		(18,991	)
Accumulated other comprehensive loss, net of taxes		(3,168	)		(477	)
Cost of shares repurchased		(82,701	)		(78,736	)
Total shareholders' equity		403,744			412,104
Total liabilities and shareholders' equity	$	1,877,230		$	1,806,401
Share Information
Shares Outstanding		29,318			29,501
Book Value per share	$	13.77		$	13.97
Closing market price	$	17.05		$	17.05
Price to book ratio		123.82	%		122.05	%

 

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,
	2018			2018		2017		2017		2017
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,720		13,141		13,324		13,033		12,481
Provision for loan losses		(220	)	(880	)	-		20		25
Total noninterest income		33,318		25,183		28,181		33,054		37,241
Total noninterest expense		34,737		30,147		32,318		34,316		36,187
Income before income taxes		12,521		9,057		9,187		11,751		13,510
Income tax expense		3,101		2,104		6,072		4,362		4,622
Net income	$	9,420		6,953		3,115		7,389		8,888
Income per share – basic	$	0.34		0.25		0.11		0.27		0.32
Income per share – diluted	$	0.34		0.25		0.11		0.26		0.32
Dividends declared per share	$	0.12		0.62		0.12		0.12		0.62
Performance Ratios:
Return on average assets - QTD		2.02	%	1.57	%	0.67	%	1.56	%	1.99	%
Return on average equity - QTD		9.40	%	6.90	%	2.98	%	7.12	%	8.70	%
Net interest margin - QTD		3.14	%	3.18	%	3.08	%	2.95	%	3.00	%
Return on average assets - YTD		1.80	%	1.57	%	1.43	%	1.70	%	1.77	%
Return on average equity - YTD		8.13	%	6.90	%	6.32	%	7.42	%	7.56	%
Net interest margin - YTD		3.16	%	3.18	%	3.00	%	2.97	%	2.98	%
Asset Quality Ratios:
Past due loans to total loans		0.54	%	0.53	%	0.45	%	0.71	%	0.74	%
Non accrual loans to total loans		0.46	%	0.50	%	0.47	%	0.56	%	0.70	%
Non performing assets to total assets		0.45	%	0.54	%	0.59	%	0.62	%	0.71	%

 

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,
	2018			2018		2017		2017		2017
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,747		13,304		13,375		13,120		12,433
Provision for loan losses		(250	)	(900	)	-		-		-
Total noninterest income		1,137		939		974		1,161		995
Total noninterest expense		6,588		7,682		6,939		6,824		6,547
Income before income taxes		8,546		7,461		7,410		7,457		6,881
Income tax expense		1,970		1,668		5,570		2,597		1,902
Net income	$	6,576		5,793		1,840		4,860		4,979
Efficiency ratio - QTD		44.27	%	53.94	%	48.36	%	47.78	%	48.76	%
Efficiency ratio - YTD		49.00	%	53.94	%	49.98	%	50.56	%	52.09	%

 

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,
	2018			2018		2017		2017		2017
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	(40	)	(192	)	(72	)	(102	)	(1	)
Provision for loan losses		30		20		-		20		-
Total noninterest income		32,547		24,731		27,645		32,318		36,743
Total noninterest expense		28,493		22,941		25,791		27,882		30,080
Income before income taxes		3,984		1,578		1,782		4,314		6,662
Income tax expense		1,133		435		509		1,767		2,715
Net income	$	2,851		1,143		1,273		2,547		3,947
Efficiency ratio - QTD		87.65	%	93.49	%	93.54	%	86.55	%	81.87	%
Efficiency ratio - YTD		90.16	%	93.49	%	86.93	%	85.00	%	84.20	%
Loan Originations		721,184		516,020		600,265		684,500		766,759

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