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

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WAUWATOSA, Wis., Jan. 30, 2019 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (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)

  • Consolidated net income of Waterstone Financial, Inc. totaled $5.7 million for the quarter ended December 31, 2018, compared to $5.8 million(1) for the quarter ended December 31, 2017 adjusted for the deferred tax revaluation ($3.1 million on a GAAP basis).

  • Consolidated net income of Waterstone Financial, Inc. totaled $30.8 million for the year ended December 31, 2018, compared to $28.7 million(1) for the year ended December 31, 2017 adjusted for the deferred tax revaluation ($26.0 million on a GAAP basis).

  • Consolidated return on average assets totaled 1.18% for the quarter ended December 31, 2018 compared to 1.26%(1) for the quarter ended December 31, 2017 adjusted for the deferred tax revaluation (0.67% on a GAAP basis).

  • Consolidated return on average assets totaled 1.64% for the year ended December 31, 2018 compared to 1.58%(1) for the year ended December 31, 2017 adjusted for the deferred tax revaluation (1.43% on a GAAP basis).

  • Consolidated return on average equity totaled 5.58% for the quarter ended December 31, 2018 and 5.58%(1) for the quarter ended December 31, 2017 adjusted for the deferred tax revaluation (2.98% on a GAAP basis).

  • Consolidated return on average equity totaled 7.60% for the year ended December 31, 2018 compared to 6.98%(1) for the year ended December 31, 2017 adjusted for the deferred tax revaluation (6.32% on a GAAP basis).

  • Dividends declared totaled $0.12 per share during the quarter ended December 31, 2018 amounting to a total of $0.98 in dividends declared per share during the year ended December 31, 2018.

  • Repurchased a total 587,700 shares on the open market during the quarter ended December 31, 2018 at an average price of $16.59 per share. For the year ended, repurchased a total of 1.1 million shares at an average price of $16.81.

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

Community Banking Segment

  • Pre-tax income of the segment totaled $7.5 million for the quarter ended December 31, 2018 compared to $7.4 million for the quarter ended December 31, 2017.

  • Net interest income of the segment totaled $13.8 million for the quarter ended December 31, 2018 compared to $13.4 million for the quarter ended December 31, 2017.

  • Average loans held for investment totaled $1.37 billion during the quarter ended December 31, 2018, which represents an increase of $93.0 million, or 7.3% over the comparable quarter in the prior year. Average loans increased $23.2 million, or 6.9% annualized, compared to the quarter ended September 30, 2018.

  • Our net interest margin decreased nine bps to 2.99% for the quarter ended December 31, 2018 compared to 3.08% for the quarter ended December 31, 2017, which was a result of the increase in cost of deposits as certificates of deposit repriced at higher rates.

  • Noninterest income decreased $63,000 for the quarter ended December 31, 2018 compared to the quarter ended December 31, 2017 as fees earned on loans decreased.

  • Noninterest expenses increased $211,000 for the quarter ended December 31, 2018 compared to the quarter ended December 31, 2017 as compensation; occupancy, office furniture, and equipment; and other noninterest expenses increased.

  • The efficiency ratio for the community banking segment increased 33 bps to 48.69% for the quarter ended December 31, 2018, compared to 48.36% for the quarter ended December 31, 2017 as compensation expenses rose slightly.

  • Average deposits totaled $1.02 billion during the quarter ended December 31, 2018, which represents an increase of $61.8 million, or 6.5%, over the comparable quarter in the prior year. Average deposits increased $13.5 million, or 5.4% annualized, compared to the quarter ended September 30, 2018.

  • Nonperforming assets as percentage of total assets was 0.45% at December 31, 2018, 0.45% at September 30, 2018, and 0.59% at December 31, 2017.

  • Past due loans as percentage of total loans was 0.50% at December 31, 2018, 0.67% at September 30, 2018, and 0.45% at December 31, 2017.

  • Net recoveries were $232,000, or 0.02% as a percentage of average loans for the year ending December 31, 2018. Net charge-offs were $786,000, or 0.06% of average loans for the year ending December 31, 2017.

Mortgage Banking Segment

  • The Mortgage Banking segment totaled a pretax loss of $308,000 for the quarter ended December 31, 2018, compared to $1.8 million of pretax income for the quarter ended December 31, 2017.

  • Loan originations decreased approximately $109,000 to $600.2 million during the quarter ended December 31, 2018, compared to $600.3 million during the quarter ended December 31, 2017. Origination volume relative to purchase activity accounted for 91.1% of originations for the quarter ended December 31, 2018 compared to 86.7% of total originations for the quarter ended December 31, 2017.

  • Mortgage banking revenues decreased $2.7 million, or 9.6%, to $25.0 million for the quarter ended December 31, 2018, compared to $27.6 million for the quarter ended December 31, 2017.

  • Gross margin on loans sold decreased 11.4% to 4.2% during the quarter ended December 31, 2018, compared to the quarter ended December 31, 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.

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