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Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2018

July 31, 2018

WAUWATOSA, Wis., July 31, 2018 (GLOBE NEWSWIRE) -- Waterstone Financial, Inc. (NASDAQ:WSBF), holding company for WaterStone Bank, reported net income of $9.4 million, or $0.34 per diluted share for the quarter ended June 30, 2018 compared to $8.9 million, or $0.32 per diluted share for the quarter ended June 30, 2017. Net income per diluted share was $0.59 for the six months ended June 30, 2018 compared to net income per diluted share of $0.55 for the six months ended June 30, 2017.

“We are pleased to report a record second quarter net income of $9.4 million and earnings per share of $0.34,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “The Community Banking segment continued its momentum by achieving a year over year 24.2% increase in pre-tax earnings. Our success stemmed from continued strong loan growth, margin expansion and expense management. The Mortgage Banking segment continued to be negatively impacted by margin compression during the second quarter of 2018, as market competition remains strong within the industry due to lower refinancing activity and diminished levels of housing inventory. While the current mortgage banking environment presents challenges, we believe that it will also present opportunities to acquire talent, such as the addition of our New Mexico branch during the second quarter.”

Highlights of the Quarter Ended June 30, 2018

Waterstone Financial, Inc. (Consolidated)

-- Consolidated net income of Waterstone Financial, Inc. totaled $9.4 million for the quarter ended June 30, 2018, compared to $8.9 million for the quarter ended June 30, 2017. -- Consolidated return on average assets totaled 2.02% for the quarter ended June 30, 2018 compared to 1.99% for the quarter ended June 30, 2017. -- Consolidated return on average equity increased 70 bps to 9.40% for the quarter ended June 30, 2018 compared to 8.70% for the quarter ended June 30, 2017. -- The effective income tax rate amounted to 24.8% for the quarter ended June 30, 2018 compared to 34.3% for the quarter ended June 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 June 30, 2018 amounting to a total of $0.74 in dividends declared per share during the six months ended June 30, 2018.

Community Banking Segment

-- Pre-tax income of the segment totaled $8.5 million for the quarter ended June 30, 2018, which represents a 24.2% increase compared to $6.9 million for the quarter ended June 30, 2017. -- Net interest income of the segment totaled $13.7 million for the quarter ended June 30, 2018, which represents a 10.6% increase compared to $12.4 million for the quarter ended June 30, 2017. Our net interest margin increased 14 bps to 3.14% for the quarter ended June 30, 2018 compared to 3.00% for the quarter ended June 30, 2017, which was driven by loan growth along with a decrease in borrowing costs. -- Continued improvement in the overall risk profile of our loan portfolio resulted in a negative provision for loan losses of $250,000 for the quarter ended June 30, 2018 compared to no provision for the quarter ended June 30, 2017. The negative provision reflects recoveries received along with continued sustained improvements in loan quality metrics including: non–accrual loans, loans classified as substandard or watch and loans past due. -- Average loans held for investment totaled $1.33 billion during the quarter ended June 30, 2018, which represents an increase of $124.0 million, or 10.3% over the comparable quarter in the prior year. -- Average deposits totaled $991.4 million during the quarter ended June 30, 2018, which represents an increase of $46.4 million, or 5.1%, over the comparable quarter in the prior year. -- Driven by net interest margin expansion and continued cost control efforts, the efficiency ratio for the community banking segment improved to 44.3% for the quarter ended June 30, 2018, compared to 48.8% for the quarter ended June 30, 2017. -- Nonperforming assets as percentage of total assets decreased to 0.47% as of June 30, 2018, compared to 0.54% at March 31, 2018 and 0.71% at June 30, 2017.

Mortgage Banking Segment

-- Pre-tax income of the segment totaled $4.0 million for the quarter ended June 30, 2018, which represents a 40.2% decrease compared to $6.7 million for the quarter ended June 30, 2017. -- Loan originations decreased $45.6 million, or 5.9%, to $721.2 million during the quarter ended June 30, 2018, compared to $766.8 million during the quarter ended June 30, 2017. Origination volume relative to purchase activity accounted for 92.6% of originations for the quarter ended June 30, 2018 compared to 91.7% of total originations for the quarter ended June 30, 2017. -- Gross margins on loans sold decreased approximately 10% during the quarter ended June 30, 2018, compared to the quarter ended June 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 For The Six Months Months Ended June 30, Ended June 30, 2018 2017 2018 2017 -------- -------- -------- -------- (In Thousands, except per share amounts) Interest income: Loans $ 16,700 14,985 32,158 29,223 Mortgage-related securities 644 678 1,282 1,374 Debt securities, federal funds sold and short-term investments 1,019 877 1,886 1,729 ------ - ------ - ------ - ------ - Total interest income 18,363 16,540 35,326 32,326 Interest expense: Deposits 2,710 1,838 5,024 3,633 Borrowings 1,933 2,221 3,441 4,317 ------ - ------ - ------ - ------ - Total interest expense 4,643 4,059 8,465 7,950 ------ - ------ - ------ - ------ - Net interest income 13,720 12,481 26,861 24,376 Provision for loan losses (220 ) 25 (1,100 ) (1,186 ) ------ - ------ - ------ - ------ - Net interest income after provision for loan losses 13,940 12,456 27,961 25,562 Noninterest income: Service charges on loans and deposits 491 481 890 848 Increase in cash surrender value of life insurance 473 470 801 788 Loss on sale of available for sale securities - (107 ) - (107 ) Mortgage banking income 32,090 36,224 56,277 60,911 Other 264 173 533 738 ------ - ------ - ------ - ------ - Total noninterest income 33,318 37,241 58,501 63,178 ------ - ------ - ------ - ------ - Noninterest expenses: Compensation, payroll taxes, and other employee benefits 26,234 27,584 47,217 47,579 Occupancy, office furniture, and equipment 2,605 2,527 5,244 5,054 Advertising 1,000 869 1,860 1,593 Data processing 623 633 1,248 1,231 Communications 435 397 817 776 Professional fees 647 717 1,347 1,324 Real estate owned (126 ) (133 ) 191 278 FDIC insurance premiums 105 117 230 237 Other 3,214 3,476 6,730 7,173 ------ - ------ - ------ - ------ - Total noninterest expenses 34,737 36,187 64,884 65,245 ------ - ------ - ------ - ------ - Income before income taxes 12,521 13,510 21,578 23,495 Income tax expense 3,101 4,622 5,205 8,035 Net income $ 9,420 8,888 16,373 15,460 ------ - ------ - ------ - ------ - Income per share: Basic $ 0.34 0.32 0.60 0.56 Diluted $ 0.34 0.32 0.59 0.55 Weighted average shares outstanding: Basic 27,504 27,487 27,506 27,406 Diluted 27,742 27,955 27,790 27,913

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, December 31, 2018 2017 ------------- ------------- (Unaudited) Assets (In Thousands, except per share amounts) Cash $ 61,995 $ 22,306 Federal funds sold 9,332 17,034 Interest-earning deposits in other financial institutions and other short term 6,789 9,267 investments - --------- - - --------- - Cash and cash equivalents 78,116 48,607 Securities available for sale (at fair value) 185,018 199,707 Loans held for sale (at fair value) 142,954 149,896 Loans receivable 1,342,136 1,291,814 Less: Allowance for loan losses 13,124 14,077 - --------- - - --------- - Loans receivable, net 1,329,012 1,277,737 Office properties and equipment, net 22,770 22,941 Federal Home Loan Bank stock (at cost) 19,350 16,875 Cash surrender value of life insurance 66,977 65,996 Real estate owned, net 2,378 4,558 Prepaid expenses and other assets 30,655 20,084 - --------- - - --------- - Total assets $ 1,877,230 $ 1,806,401 - --------- - - --------- - Liabilities and Shareholders’ Equity Liabilities: Demand deposits $ 135,370 $ 129,597 Money market and savings deposits 153,484 148,804 Time deposits 706,586 688,979 - --------- - - --------- - Total deposits 995,440 967,380 Borrowings 432,523 386,285 Advance payments by borrowers for taxes 22,721 4,876 Other liabilities 22,802 35,756 - --------- - - --------- - Total liabilities 1,473,486 1,394,297 Shareholders’ equity: Common stock 293 295 Additional paid-in capital 328,450 326,655 Retained earnings 179,267 183,358 Unearned ESOP shares (18,397 ) (18,991 ) Accumulated other comprehensive loss, net of taxes (3,168 ) (477 ) Cost of shares repurchased (82,701 ) (78,736 ) - --------- - - --------- - Total shareholders’ equity 403,744 412,104 - --------- - - --------- - Total liabilities and shareholders’ equity $ 1,877,230 $ 1,806,401 - --------- - - --------- - Share Information Shares Outstanding 29,318 29,501 Book Value per share $ 13.77 $ 13.97 Closing market price $ 17.05 $ 17.05 Price to book ratio 123.82 % 122.05 %

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES SUMMARY OF KEY QUARTERLY FINANCIAL DATA (Unaudited) At or For the Three Months Ended June 30, March December SeptemberJune 30, 31, 31, 30, 2018 2018 2017 2017 2017 ---------- -------- -------- -------- -------- (Dollars in Thousands) Condensed Results of Operations: Net interest income $ 13,720 13,141 13,324 13,033 12,481 Provision for loan losses (220 ) (880 ) - 20 25 Total noninterest income 33,318 25,183 28,181 33,054 37,241 Total noninterest expense 34,737 30,147 32,318 34,316 36,187 - ------ - ------ - ------ - ------ - ------ - Income before income taxes 12,521 9,057 9,187 11,751 13,510 Income tax expense 3,101 2,104 6,072 4,362 4,622 Net income $ 9,420 6,953 3,115 7,389 8,888 - ------ - ------ - ------ - ------ - ------ - Income per share – basic $ 0.34 0.25 0.11 0.27 0.32 Income per share – diluted $ 0.34 0.25 0.11 0.26 0.32 Dividends declared per share $ 0.12 0.62 0.12 0.12 0.62 Performance Ratios: Return on average assets - QTD 2.02 % 1.57 % 0.67 % 1.56 % 1.99 % Return on average equity - QTD 9.40 % 6.90 % 2.98 % 7.12 % 8.70 % Net interest margin - QTD 3.14 % 3.18 % 3.08 % 2.95 % 3.00 % Return on average assets - YTD 1.80 % 1.57 % 1.43 % 1.70 % 1.77 % Return on average equity - YTD 8.13 % 6.90 % 6.32 % 7.42 % 7.56 % Net interest margin - YTD 3.16 % 3.18 % 3.00 % 2.97 % 2.98 % Asset Quality Ratios: Past due loans to total loans 0.54 % 0.53 % 0.45 % 0.71 % 0.74 % Non accrual loans to total loans 0.46 % 0.50 % 0.47 % 0.56 % 0.70 % Non performing assets to total assets 0.45 % 0.54 % 0.59 % 0.62 % 0.71 %

COMMUNITY BANKING SEGMENT SUMMARY OF KEY QUARTERLY FINANCIAL DATA (Unaudited) At or For the Three Months Ended June 30, March December SeptemberJune 30, 31, 31, 30, 2018 2018 2017 2017 2017 ---------- -------- -------- -------- -------- (Dollars in Thousands) Condensed Results of Operations: Net interest income $ 13,747 13,304 13,375 13,120 12,433 Provision for loan losses (250 ) (900 ) - - - Total noninterest income 1,137 939 974 1,161 995 Total noninterest expense 6,588 7,682 6,939 6,824 6,547 - ------ - ------ - ------ - ------ - ------ - Income before income taxes 8,546 7,461 7,410 7,457 6,881 Income tax expense 1,970 1,668 5,570 2,597 1,902 Net income $ 6,576 5,793 1,840 4,860 4,979 - ------ - ------ - ------ - ------ - ------ - Efficiency ratio - QTD 44.27 % 53.94 % 48.36 % 47.78 % 48.76 % Efficiency ratio - YTD 49.00 % 53.94 % 49.98 % 50.56 % 52.09 %

MORTGAGE BANKING SEGMENT SUMMARY OF KEY QUARTERLY FINANCIAL DATA (Unaudited) At or For the Three Months Ended June 30, March 31, December September June 30, 31, 30, 2018 2018 2017 2017 2017 ----------- --------- --------- --------- --------- (Dollars in Thousands) Condensed Results of Operations: Net interest income $ (40 ) (192 ) (72 ) (102 ) (1 ) Provision for loan losses 30 20 - 20 - Total noninterest income 32,547 24,731 27,645 32,318 36,743 Total noninterest expense 28,493 22,941 25,791 27,882 30,080 - ------- - ------- - ------- - ------- - ------- - Income before income taxes 3,984 1,578 1,782 4,314 6,662 Income tax expense 1,133 435 509 1,767 2,715 Net income $ 2,851 1,143 1,273 2,547 3,947 - ------- - ------- - ------- - ------- - ------- - Efficiency ratio - QTD 87.65 % 93.49 % 93.54 % 86.55 % 81.87 % Efficiency ratio - YTD 90.16 % 93.49 % 86.93 % 85.00 % 84.20 % Loan Originations 721,184 516,020 600,265 684,500 766,759

Contact: Mark R. GerkeChief Financial Officer414.459.4012markgerke@wsbonline.com

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