Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Year Ended December 31, 2019

WAUWATOSA, Wis., Jan. 30, 2020 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $8.8 million, or $0.34 per diluted share for the quarter ended December 31, 2019 compared to $5.7 million, or $0.21 per diluted share for the quarter ended December 31, 2018. Net income per diluted share was $1.37 for the year ended December 31, 2019 compared to net income per diluted share of $1.11 for the year ended December 31, 2018.

“We finished a successful fiscal 2019 with a record pre-tax income for a 4^th quarter,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “The record $11.8 million in consolidated 4^th quarter pre-tax income represents a 62.2% increase over the prior year’s comparable quarter. The results are driven by a record pre-tax 4^th quarter from the Community Banking segment and another successful quarter from the Mortgage Banking segment. During the quarter, the Community Banking segment achieved loan and deposit growth, while continuing to invest in technology and additional branch locations for the convenience of our customers. The Mortgage Banking segment continued to benefit from increased production volumes of refinance products, while maintaining a continued focus on cost discipline throughout the organization.” 

Highlights of the Quarter and Year Ended December 31, 2019

Waterstone Financial, Inc. (Consolidated)

• Consolidated net income of Waterstone Financial, Inc. totaled $8.8 million for the quarter ended December 31, 2019, compared to $5.7 million for the quarter ended December 31, 2018.
• Consolidated net income of Waterstone Financial, Inc. totaled $35.9 million for the year ended December 31, 2019, compared to $30.8 million for the year ended December 31, 2018.
• Consolidated return on average assets was 1.75% for the quarter ended December 31, 2019 compared to 1.18% for the quarter ended December 31, 2018.
• Consolidated return on average assets was 1.82% for the year ended December 31, 2019 compared to 1.64% for the year ended December 31, 2018.
• Consolidated return on average equity was 8.91% for the quarter ended December 31, 2019 and 5.58% for the quarter ended December 31, 2018.
• Consolidated return on average equity was 9.14% for the year ended December 31, 2019 and 7.60% for the year ended December 31, 2018.  
• Dividends declared totaled $0.12 per share during the quarter ended December 31, 2019 amounting to a total of $0.98 in dividends declared per share during the year ended December 31, 2019.
• The Company returned a total of $48.4 million to shareholders through dividends declared and stock repurchases in 2019. 

Community Banking Segment

• Pre-tax income totaled $8.3 million for the quarter ended December 31, 2019, which represents a 10.5% increase compared to $7.5 million for the quarter ended December 31, 2018.
• Net interest income totaled $13.5 million for the quarter ended December 31, 2019, which represents a 2.2% decrease compared to $13.8 million for the quarter ended December 31, 2018.
• Average loans held for investment totaled $1.38 billion during the quarter ended December 31, 2019, which represents an increase of $15.0 million, or 1.1%, compared to the quarter ended December 31, 2018. Average loans held for investment increased $1.4 million, or 0.4% annualized, compared to $1.38 billion for the quarter ended September 30, 2019.
• Net interest margin decreased 20 basis points to 2.79% for the quarter ended December 31, 2019 compared to 2.99% for the quarter December 31, 2018, which was a result of the increase in cost of funding as money market accounts, certificates of deposit, and borrowings repriced at higher rates over the past year. Net interest margin decreased one basis point compared to 2.80% for the quarter ended September 30, 2019.
• The segment had $200,000 negative provision for loan losses for the quarter ended December 31, 2019 compared to no provision for loan losses for loan losses for the quarter ended December 31, 2018. Net recoveries totaled $10,000 for the quarter ended December 31, 2019, compared to net recoveries of $22,000 for the quarter ended December 31, 2018.
• Noninterest income increased $734,000 for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018 as loan prepayment penalties on existing loans increased. Additionally, the bank received fees for originating loan swaps which began in the current quarter.
• Noninterest expenses decreased $161,000 for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018. Compensation expenses decreased $68,000 as health insurance expense decreased offset by an increase in salaries. Advertising expense increased $132,000 as we increased efforts to attract new customers and data processing expense increased $161,000 as we continue to make investments in technology. Professional fees decreased $177,000 due to less consulting and net real estate owned expenses decreased $189,000 as gains on sales of real estate owned increased. Other noninterest expenses decreased $73,000 as FDIC insurance premiums decreased offset by increased losses on fixed asset disposals.
• The efficiency ratio was 46.23% for the quarter ended December 31, 2019, compared to 48.69% for the quarter ended December 31, 2018.
• Average deposits (excluding escrow accounts) totaled $1.06 billion during the quarter ended December 31, 2019, an increase of $36.4 million, or 3.6%, compared to $1.02 billion during the quarter ended December 31, 2018.  Average deposits increased $9.0 million, or 3.4% annualized, compared to the quarter ended September 30, 2019.
• Nonperforming assets as percentage of total assets was 0.39% at December 31, 2019, 0.41% at September 30, 2019, and 0.45% at December 31, 2018.
• Past due loans as percentage of total loans was 0.47% at December 31, 2019, 0.62% at September 30, 2019, and 0.50% at December 31, 2018.

Mortgage Banking Segment

• Pre-tax income totaled $3.4 million for the quarter ended December 31, 2019, compared to $308,000 of pre-tax loss for the quarter ended December 31, 2018.
• Loan originations increased approximately $176.9 million, or 29.5%, to $777.1 million during the quarter ended December 31, 2019, compared to $600.2 million during the quarter ended December 31, 2018. Origination volume relative to purchase activity accounted for 72.1% of originations for the quarter ended December 31, 2019 compared to 91.1% of total originations for the quarter ended December 31, 2018.
• Mortgage banking income increased $7.5 million, or 29.8%, to $32.4 million for the quarter ended December 31, 2019, compared to $25.0 million for the quarter ended December 31, 2018.
• Gross margin on loans sold increased to 4.27% for the quarter ended December 31, 2019, compared to 4.17% for the quarter ended December 31, 2018. 

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/State St, Brookfield, Fox Point/North Shore, Franklin/Hales Corners, Germantown/Menomonee Falls, Greenfield/Loomis Rd, Oak Creek/27^th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha/Brookfield, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin along with a commercial lending office in Minneapolis, Minnesota. WaterStone Bank is the parent company to Waterstone Mortgage, which has the ability to lend in 48 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 December 31,				For The Year Ended December 31,
		2019		2018		2019		2018
		(In Thousands, except per share amounts)
Interest income:
Loans	$	18,547		17,468		72,235		66,966
Mortgage-related securities		718		723		2,978		2,648
Debt securities, federal funds sold and short-term investments		1,013		1,137		4,528		4,086
Total interest income		20,278		19,328		79,741		73,700
Interest expense:
Deposits		4,465		3,540		17,278		11,627
Borrowings		2,687		2,322		10,266		7,896
Total interest expense		7,152		5,862		27,544		19,523
Net interest income		13,126		13,466		52,197		54,177
Provision for loan losses		(170	)	-		(900	)	(1,060	)
Net interest income after provision for loan losses		13,296		13,466		53,097		55,237
Noninterest income:
Service charges on loans and deposits		1,091		348		2,363		1,680
Increase in cash surrender value of life insurance		356		352		1,935		1,848
Mortgage banking income		32,140		24,221		125,666		113,151
Other		222		715		786		1,520
Total noninterest income		33,809		25,636		130,750		118,199
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		26,491		23,114		101,718		97,784
Occupancy, office furniture, and equipment		2,521		2,860		10,606		10,855
Advertising		1,051		1,039		3,885		4,123
Data processing		989		735		3,630		2,792
Communications		320		382		1,359		1,611
Professional fees		1,167		397		3,605		2,327
Real estate owned		(221	)	(62	)	(146	)	1
Loan processing expense		746		643		3,288		3,372
Other		2,273		2,738		8,328		10,291
Total noninterest expenses		35,337		31,846		136,273		133,156
Income before income taxes		11,768		7,256		47,574		40,280
Income tax expense		2,974		1,578		11,671		9,526
Net income	$	8,794		5,678		35,903		30,754
Income per share:
Basic	$	0.34		0.21		1.38		1.12
Diluted	$	0.34		0.21		1.37		1.11
Weighted average shares outstanding:
Basic		25,586		26,994		26,021		27,363
Diluted		25,852		27,218		26,247		27,634

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	December 31,			December 31,
		2019			2018
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	52,814		$	48,234
Federal funds sold		12,704			25,100
Interest-earning deposits in other financial institutions and other short term investments		8,782			12,767
Cash and cash equivalents		74,300			86,101
Securities available for sale (at fair value)		178,476			185,720
Loans held for sale (at fair value)		220,123			141,616
Loans receivable		1,388,031			1,379,148
Less: Allowance for loan losses		12,387			13,249
Loans receivable, net		1,375,644			1,365,899
Office properties and equipment, net		25,028			24,524
Federal Home Loan Bank stock (at cost)		21,150			19,350
Cash surrender value of life insurance		69,665			67,550
Real estate owned, net		748			2,152
Prepaid expenses and other assets		31,213			22,469
Total assets	$	1,996,347		$	1,915,381
Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	130,063		$	139,111
Money market and savings deposits		197,942			163,511
Time deposits		739,771			735,873
Total deposits		1,067,776			1,038,495
Borrowings		483,562			435,046
Advance payments by borrowers for taxes		4,212			4,371
Other liabilities		47,111			37,790
Total liabilities		1,602,661			1,515,702
Shareholders' equity:
Preferred stock		-			-
Common stock		271			285
Additional paid-in capital		211,997			232,406
Retained earnings		197,393			187,153
Unearned ESOP shares		(16,617	)		(17,804	)
Accumulated other comprehensive income (loss), net of taxes		642			(2,361	)
Total shareholders' equity		393,686			399,679
Total liabilities and shareholders' equity	$	1,996,347		$	1,915,381
Share Information
Shares outstanding		27,148			28,463
Book value per share	$	14.50		$	14.04
Closing market price	$	19.03		$	16.76
Price to book ratio		131.24	%		119.37	%

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,
		2019		2019		2019		2019		2018
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	13,126		13,154		12,981		12,936		13,466
Provision for loan losses		(170	)	(80	)	30		(680	)	-
Total noninterest income		33,809		37,494		35,190		24,257		25,636
Total noninterest expense		35,337		36,232		35,355		29,349		31,846
Income before income taxes		11,768		14,496		12,786		8,524		7,256
Income tax expense		2,974		3,572		3,143		1,982		1,578
Net income	$	8,794		10,924		9,643		6,542		5,678
Income per share – basic	$	0.34		0.42		0.37		0.25		0.21
Income per share – diluted	$	0.34		0.42		0.37		0.24		0.21
Dividends declared per share	$	0.12		0.12		0.12		0.62		0.12
Performance Ratios (annualized):
Return on average assets - QTD		1.75	%	2.17	%	1.95	%	1.39	%	1.18	%
Return on average equity - QTD		8.91	%	11.15	%	9.96	%	6.65	%	5.58	%
Net interest margin - QTD		2.79	%	2.80	%	2.82	%	2.93	%	2.99	%
Return on average assets - YTD		1.82	%	1.84	%	1.67	%	1.39	%	1.64	%
Return on average equity - YTD		9.14	%	9.21	%	8.28	%	6.65	%	7.60	%
Net interest margin - YTD		2.83	%	2.85	%	2.88	%	2.93	%	3.09	%
Asset Quality Ratios:
Past due loans to total loans		0.47	%	0.62	%	0.61	%	0.46	%	0.50	%
Nonaccrual loans to total loans		0.51	%	0.46	%	0.41	%	0.49	%	0.48	%
Nonperforming assets to total assets		0.39	%	0.41	%	0.37	%	0.44	%	0.45	%

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,
	2019		2019		2019		2019		2018
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	1,573,190		1,579,575		1,552,199		1,477,991		1,496,125
Mortgage related securities	110,426		114,051		114,537		115,674		111,004
Debt securities, federal funds sold and short term investments	183,447		169,621		180,111		194,669		179,232
Total interest-earning assets	1,867,063		1,863,247		1,846,847		1,788,334		1,786,361
Noninterest-earning assets	125,904		137,723		136,263		125,396		119,715
Total assets	1,992,967		2,000,970		1,983,110		1,913,730		1,906,076
Interest-bearing liabilities
Demand accounts	38,650		37,015		35,744		36,268		36,941
Money market, savings, and escrow accounts	215,332		206,474		193,542		176,237		184,873
Certificates of deposit	737,726		739,544		736,798		735,471		722,774
Total interest-bearing deposits	991,708		983,033		966,084		947,976		944,588
Borrowings	485,482		509,099		504,940		438,905		439,601
Total interest-bearing liabilities	1,477,190		1,492,132		1,471,024		1,386,881		1,384,189
Noninterest-bearing demand deposits	85,815		86,849		91,545		97,951		97,677
Noninterest-bearing liabilities	38,580		33,130		32,143		30,027		20,219
Total liabilities	1,601,585		1,612,111		1,594,712		1,514,859		1,502,085
Equity	391,382		388,859		388,398		398,871		403,991
Total liabilities and equity	1,992,967		2,000,970		1,983,110		1,913,730		1,906,076
Average Yield/Costs (annualized)
Loans receivable and held for sale	4.68	%	4.66	%	4.66	%	4.69	%	4.63	%
Mortgage related securities	2.58	%	2.56	%	2.68	%	2.66	%	2.58	%
Debt securities, federal funds sold and short term investments	2.19	%	2.53	%	2.50	%	2.73	%	2.52	%
Total interest-earning assets	4.31	%	4.34	%	4.32	%	4.35	%	4.29	%
Demand accounts	0.10	%	0.09	%	0.09	%	0.09	%	0.09	%
Money market and savings accounts	0.66	%	0.57	%	0.66	%	0.63	%	0.47	%
Certificates of deposit	2.20	%	2.24	%	2.19	%	2.04	%	1.82	%
Total interest-bearing deposits	1.79	%	1.81	%	1.80	%	1.71	%	1.49	%
Borrowings	2.20	%	2.14	%	2.06	%	2.08	%	2.10	%
Total interest-bearing liabilities	1.92	%	1.92	%	1.89	%	1.82	%	1.68	%

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,
		2019		2019		2019		2019		2018
		(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,472		13,885		13,530		13,132		13,774
Provision for loan losses		(200	)	(150	)	-		(700	)	-
Total noninterest income		1,645		1,415		1,079		881		911
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		4,693		4,075		4,671		4,756		4,761
Occupancy, office furniture and equipment		894		942		944		972		842
Advertising		317		202		220		181		185
Data processing		583		588		493		457		422
Communications		93		90		93		82		92
Professional fees		162		223		160		268		339
Real estate owned		(251	)	24		19		32		(62	)
Loan processing expense		-		-		-		-		-
Other		498		583		635		489		571
Total noninterest expense		6,989		6,727		7,235		7,237		7,150
Income before income taxes		8,328		8,723		7,374		7,476		7,535
Income tax expense		2,033		1,982		1,594		1,687		1,632
Net income	$	6,295		6,741		5,780		5,789		5,903
Efficiency ratio - QTD		46.23	%	43.97	%	49.52	%	51.64	%	48.69	%
Efficiency ratio - YTD		47.74	%	48.27	%	50.56	%	51.64	%	47.63	%

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,
		2019		2019		2019		2019		2018
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	(399	)	(774	)	(529	)	(208	)	(332	)
Provision for loan losses		30		70		30		20		-
Total noninterest income		32,440		36,535		34,364		23,571		24,986
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		21,975		23,616		22,579		16,060		18,499
Occupancy, office furniture and equipment		1,627		1,687		1,736		1,804		2,018
Advertising		734		711		743		777		854
Data processing		402		411		372		308		309
Communications		227		268		260		246		290
Professional fees		1,000		688		620		426		52
Real estate owned		30		-		-		-		-
Loan processing expense		746		858		879		805		643
Other		1,918		1,725		1,186		1,912		2,297
Total noninterest expense		28,659		29,964		28,375		22,338		24,962
Income (loss) before income taxes		3,352		5,727		5,430		1,005		(308	)
Income tax expense (benefit)		921		1,584		1,545		286		(62	)
Net income (loss)	$	2,431		4,143		3,885		719		(246	)
Efficiency ratio - QTD		89.44	%	83.79	%	83.86	%	95.61	%	101.25	%
Efficiency ratio - YTD		87.47	%	86.79	%	88.66	%	95.61	%	92.89	%
Loan originations	$	777,073		851,297		793,254		501,432		600,156
Purchase		72.1	%	79.0	%	87.6	%	89.9	%	91.1	%
Refinance		27.9	%	21.0	%	12.4	%	10.1	%	8.9	%
Gross margin on loans sold(1)		4.27	%	4.30	%	4.29	%	4.57	%	4.17	%
(1) - Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations

Contact: Mark R. Gerke
Chief Financial Officer
414-459-4012
[e-mail]