Wauwatosa, Wis. – 1/30/2019 – 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 12^th 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.

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 https://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. 

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