AP NEWS

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

January 30, 2019

WAUWATOSA, Wis., Jan. 30, 2019 (GLOBE NEWSWIRE) -- 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 12th 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). -- 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.

(1) For notes on non-GAAP financial measures, see pages 4 and 11

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.

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.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For The Three For The Year Months Ended Ended December December 31, 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

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December December 31, 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 12,767 9,267 investments ----------- ----------- 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%

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES SUMMARY OF KEY QUARTERLY FINANCIAL DATA (Unaudited) At or For the Three Months Ended December September 30, June 30, March 31, December 31, 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%

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 179,232 176,733 192,422 165,863 199,006 investments ------------ ------------- --------- --------- ------------ 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 2.52% 2.39% 2.12% 2.12% 1.88% investments ------------ ------------- --------- --------- ------------ 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%

COMMUNITY BANKING SEGMENT SUMMARY OF KEY QUARTERLY FINANCIAL DATA (Unaudited) At or For the Three Months Ended December September 30, June 30, March 31, December 31, 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 4,761 4,435 4,301 4,888 4,531 benefits 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%

MORTGAGE BANKING SEGMENT SUMMARY OF KEY QUARTERLY FINANCIAL DATA (Unaudited) At or For the Three Months Ended December September 30, June 30, March 31, December 31, 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 18,499 23,164 22,078 16,241 18,943 benefits 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%

GAAP RECONCILIATION TO NON-GAAP FINANCIAL MEASURES (Unaudited) For the For the Three Year Months Ended Ended DecemberDecember 31, 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 1,837,631,810,234 4 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% ------- --------

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

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