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