Waterstone Financial, Inc. Announces Results of Operations for the Quarter Ended March 31, 2018

WAUWATOSA, Wis., April 24, 2018 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ:WSBF), holding company for WaterStone Bank, reported net income of $7.0 million, or $0.25 per diluted share for the quarter ended March 31, 2018 compared to $6.6 million, or $0.24 per diluted share for the quarter ended March 31, 2017.    

“We accomplished a record first quarter net income led by a 23.9% increase in earnings of our Community Banking segment,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “The positive impact of continued strong loan growth and an increase in net interest margin were compounded by a reduction of the federal income tax rate, which lead to our first quarter success.  The Mortgage Banking segment faced continued margin compression into the first quarter of 2018, as competition remains strong within the industry to maintain market share.  As a result of our strong earnings and ample capital, we were able to declare dividends totaling $0.62 per share to our shareholders during the first quarter and provide liquidity to shareholders through stock repurchase activity.”     

Highlights of the Quarter Ended March 31, 2018

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $7.0 million for the quarter ended March 31, 2018, compared to $6.6 million for the quarter ended March 31, 2017.
• Consolidated return on average assets totaled 1.57% for the quarter ended March 31, 2018 compared to 1.54% for the quarter ended March 31, 2017.
• The effective income tax rate amounted to 23.2% for the quarter ended March 31, 2018 compared to 34.2% for the quarter ended March 31, 2017 primarily as a result of the Tax Cuts and Jobs Act reducing the federal rate from 35% to 21%.
• Dividends declared totaled $0.62 per share during the quarter ended March 31, 2018.
• Repurchased a total 192,800 shares on the open market during the quarter ended March 31, 2018 at an average price of $17.13 per share. 

Community Banking Segment

• Pre-tax income of the segment totaled $7.5 million for the quarter ended March 31, 2018, which represents a 9.2% increase compared to $6.8 million for the quarter ended March 31, 2017.
• Continued improvement in the overall risk profile of our loan portfolio resulted in a negative provision for loan losses of $900,000 for the quarter ended March 31, 2018 compared to a negative provision of $1.3 million for the quarter ended March 31, 2017.  
• Net interest income of the segment totaled $13.3 million for the quarter ended March 31, 2018, which represents a 13.9% increase compared to $11.7 million for the quarter ended March 31, 2017. 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 3.18% for the quarter ended March 31, 2018 compared to 2.97% for the quarter ended March 31, 2017.   
• Average loans held for investment totaled $1.30 billion during the quarter ended March 31, 2018, which represents an increase of $110.8 million, or 9.3% over the comparable quarter in the prior year. 
• Total loans held for investment increased $22.9 million, or 1.8%, to $1.31 billion at March 31, 2018 compared to $1.29 billion at December 31, 2017. 
• Total deposits increased $6.8 million, or 0.7%, to $974.2 million at March 31, 2018 compared to $967.4 million at December 31, 2017. 
• Driven by margin expansion and continued cost control efforts, the efficiency ratio for the community banking segment improved to 53.9% for the quarter ended March 31, 2018, compared to 55.7% for the quarter ended March 31, 2017.
• Nonperforming assets as percentage of total assets decreased to 0.54% as of March 31, 2018, compared to 0.59% at December 31, 2017 and 0.76% at March 31, 2017.

Mortgage Banking Segment

• Pre-tax income of the segment totaled $1.6 million for the quarter ended March 31, 2018, which represents a 48.4% decrease compared to $3.1 million for the quarter ended March 31, 2017.
• Loan originations increased $21.2 million, or 4.3%, to $516.0 million during the quarter ended March 31, 2018, compared to $494.9 million during the quarter ended March 31, 2017.  Origination volume relative to purchase activity accounted for 85% of originations for the quarter ended March 31, 2018 compared to 86% of total originations for the quarter ended March 31, 2017.
• Gross margins on loans sold decreased approximately 6% during the quarter ended March 31, 2018, compared to the quarter ended March 31, 2017. 

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 23 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 March 31,
		2018		2017
		(In Thousands, except per share amounts)
Interest income:
Loans	$	15,458		14,238
Mortgage-related securities		638		696
Debt securities, federal funds sold and short-term investments		867		852
Total interest income		16,963		15,786
Interest expense:
Deposits		2,314		1,795
Borrowings		1,508		2,096
Total interest expense		3,822		3,891
Net interest income		13,141		11,895
Provision for loan losses		(880	)	(1,211	)
Net interest income after provision for loan losses		14,021		13,106
Noninterest income:
Service charges on loans and deposits		399		367
Increase in cash surrender value of life insurance		328		318
Mortgage banking income		24,187		24,687
Other		269		565
Total noninterest income		25,183		25,937
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		20,983		19,995
Occupancy, office furniture, and equipment		2,639		2,527
Advertising		860		724
Data processing		625		598
Communications		382		379
Professional fees		700		607
Real estate owned		317		411
FDIC insurance premiums		125		120
Other		3,516		3,697
Total noninterest expenses		30,147		29,058
Income before income taxes		9,057		9,985
Income tax expense		2,104		3,413
Net income	$	6,953		6,572
Income per share:
Basic	$	0.25		0.24
Diluted	$	0.25		0.24
Weighted average shares outstanding:
Basic		27,509		27,323
Diluted		27,802		27,867

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	March 31,			December 31,
	2018			2017
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	53,000		$	22,306
Federal funds sold		27,143			17,034
Interest-earning deposits in other financial institutions and other short term investments		3,264			9,267
Cash and cash equivalents		83,407			48,607
Securities available for sale (at fair value)		186,983			199,707
Loans held for sale (at fair value)		127,638			149,896
Loans receivable		1,314,672			1,291,814
Less: Allowance for loan losses		13,190			14,077
Loans receivable, net		1,301,482			1,277,737
Office properties and equipment, net		22,592			22,941
Federal Home Loan Bank stock (at cost)		18,675			16,875
Cash surrender value of life insurance		66,324			65,996
Real estate owned, net		3,374			4,558
Prepaid expenses and other assets		28,789			20,084
Total assets	$	1,839,264		$	1,806,401
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	131,520		$	129,597
Money market and savings deposits		145,506			148,804
Time deposits		697,198			688,979
Total deposits		974,224			967,380
Borrowings		434,365			386,285
Advance payments by borrowers for taxes		12,004			4,876
Other liabilities		21,252			35,756
Total liabilities		1,441,845			1,394,297
Shareholders' equity:
Common stock		293			295
Additional paid-in capital		327,748			326,655
Retained earnings		173,163			183,358
Unearned ESOP shares		(18,694	)		(18,991	)
Accumulated other comprehensive loss, net of taxes		(2,631	)		(477	)
Cost of shares repurchased		(82,460	)		(78,736	)
Total shareholders' equity		397,419			412,104
Total liabilities and shareholders' equity	$	1,839,264		$	1,806,401
Share Information
Shares Outstanding		29,324			29,501
Book Value per share	$	13.55		$	13.97
Closing market price	$	17.30		$	17.05
Price to book ratio		127.68	%		122.05	%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF KEY QUARTERLY FINANCIAL DATA
(Unaudited)
	At or For the Three Months Ended
	March 31,			December 31,		September 30,		June 30,		March 31,
	2018			2017		2017		2017		2017
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,141		13,324		13,033		12,481		11,895
Provision for loan losses		(880	)	-		20		25		(1,211	)
Total noninterest income		25,183		28,181		33,054		37,241		25,937
Total noninterest expense		30,147		32,318		34,316		36,187		29,058
Income before income taxes		9,057		9,187		11,751		13,510		9,985
Income tax expense		2,104		6,072		4,362		4,622		3,413
Net income	$	6,953		3,115		7,389		8,888		6,572
Income per share – basic	$	0.25		0.11		0.27		0.32		0.24
Income per share – diluted	$	0.25		0.11		0.26		0.32		0.24
Dividends declared per share	$	0.62		0.12		0.12		0.62		0.12
Performance Ratios:
Return on average assets - QTD		1.57	%	0.67	%	1.56	%	1.99	%	1.54	%
Return on average equity - QTD		6.90	%	2.98	%	7.12	%	8.70	%	6.44	%
Net interest margin - QTD		3.18	%	3.08	%	2.95	%	3.00	%	2.97	%
Community Banking Segment
Efficiency ratio - QTD		53.94	%	48.36	%	47.78	%	48.76	%	55.69	%
Return on average assets - YTD		1.57	%	1.43	%	1.70	%	1.77	%	1.54	%
Return on average equity - YTD		6.90	%	6.32	%	7.42	%	7.56	%	6.44	%
Net interest margin - YTD		3.18	%	3.00	%	2.97	%	2.98	%	2.97	%
Community Banking Segment
Efficiency ratio - YTD		53.94	%	49.98	%	50.56	%	52.09	%	55.69	%
Asset Quality Ratios:
Past due loans to total loans		0.53	%	0.45	%	0.71	%	0.74	%	0.71	%
Non accrual loans to total loans		0.50	%	0.47	%	0.56	%	0.70	%	0.67	%
Non performing assets to total assets		0.54	%	0.59	%	0.62	%	0.71	%	0.76	%

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