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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

Source:Waterstone Financial, Inc.