Waterstone Financial, Inc. - FORM 8-K - EX-99.1

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8-K - Waterstone Financial, Inc.	form8k.htm

Exhibit 99.1

WATERSTONE FINANCIAL, INC.

WATERSTONE BANK

11200 W. PLANK CT.

WAUWATOSA, WI 53226

Contact: Mark R. Gerke

Chief Financial Officer

414.459.4012

markgerke@wsbonline.com

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

WAUWATOSA, WI – 01/30/2019 – Waterstone Financial, Inc. (NASDAQ: 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 12^th 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).

^{(1) For notes on non-GAAP financial measures, see pages 7 and 14}

·	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.

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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.

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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.

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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

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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	%

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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	%

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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	%

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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	%

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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	%

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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	%

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Waterstone Financial, Inc. - FORM 8-K - EX-99.1 - January 30, 2019

Attached files

Waterstone Financial, Inc. Reports