WAUWATOSA, WI – 01/30/2018 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $3.1 million, or $0.11 per diluted share for the quarter ended December 31, 2017 compared to $6.4 million, or $0.23 per diluted share for the quarter ended December 31, 2016.  Net income for the year ended December 31, 2017 totaled $26.0 million, or $0.93 per diluted share compared to $25.5 million, or $0.93 per diluted share for the year ended December 31, 2016.  The fourth quarter and year to date 2017 results of operations each include a $2.7 million charge to income tax expense related to the Company’s deferred tax asset revaluation that resulted from recent 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 achieved record pre-tax earnings in 2017 fueled by a 36% increase in the pre-tax earnings of our Community Banking segment,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “Annual loan growth of 9.7%, combined with a 13.6% increase in our net interest margin drove the record profits.  Our Mortgage Banking segment, coming off record earnings in 2016, faced margin compression during 2017 as the lack of refinance business increased price competition within the industry.  Mortgage Banking segment earnings were also hampered by the expense associated with 11 new branches opened since the fourth quarter of 2016.  The strength of our consolidated earnings, and capital, gave us the ability to pay dividends totaling $0.98 per share to our shareholders during 2017”.     

Highlights of the Quarter and Year Ended December 31, 2017

Waterstone Financial, Inc. (Consolidated)

• Consolidated pre-tax income of Waterstone Financial, Inc. totaled $9.2 million for the quarter ended December 31, 2017, compared to $10.6 million for the quarter ended December 31, 2016.
• Consolidated pre-tax income of Waterstone Financial, Inc. totaled $44.4 million for the year ended December 31, 2017, compared to $42.0 million for the year ended December 31, 2016.
• Consolidated return on average assets totaled 0.67% for the quarter ended December 31, 2017 compared to 1.44% for the quarter ended December 31, 2016. Adjusted for the deferred tax revaluation, consolidated return on average assets(1) totaled 1.26% for the quarter ended December 31, 2017.  
• Consolidated return on average assets totaled 1.43% for the year ended December 31, 2017 compared to 1.45% for the year ended December 31, 2016. Adjusted for the deferred tax revaluation, consolidated return on average assets(1) totaled 1.58% for the year ended December 31, 2017.  
• Dividends declared and paid totaled $0.98 per share during the year ended December 31, 2017.

(1) For notes on non-GAAP financial measures, see pages 3 and 7

Community Banking Segment

• Pre-tax income of the segment totaled $7.4 million for the quarter ended December 31, 2017, which represents a 16.3% increase compared to $6.4 million for the quarter ended December 31, 2016.
• Pre-tax income of the segment totaled $28.6 million for the year ended December 31, 2017, which represents a 36.1% increase compared to $21.0 million for the year ended December 31, 2016.
• Net interest income of the segment totaled $13.4 million for the quarter ended December 31, 2017, which represents an 11.8% increase compared to $12.0 million for the quarter ended December 31, 2016.  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 3.08% for the quarter ended December 31, 2017 compared to 2.88% for the quarter ended December 31, 2016.  
• Average loans held for investment totaled $1.27 billion during the quarter ended December 31, 2017, which represents an increase of $111.6 million, or 9.6% over the comparable quarter in the prior year. 
• Total loans held for investment increased $30.7 million, or 2.4%, to $1.29 billion at December 31, 2017 compared to $1.26 billion at September 30, 2017. 
• Total deposits increased $10.6 million, or 1.1%, to $967.4 million at December 31, 2017 compared to $956.8 million at September 30, 2017. 
• Driven by margin expansion and continued cost control efforts, the efficiency ratio for the segment improved to 48.4% for the quarter ended December 31, 2017, compared to 51.0% for the quarter ended December 31, 2016.
• Nonperforming assets as percentage of total assets decreased to 0.59% as of December 31, 2017, compared to 0.62% at September 30, 2017 and 0.89% at December 31, 2016.

Mortgage Banking Segment

• Pre-tax income of the segment totaled $1.8 million for the quarter ended December 31, 2017, which represents a 58.1% decrease compared to $4.3 million for the quarter ended December 31, 2016.
• Pre-tax income of the segment totaled $15.8 million for the year ended December 31, 2017, which represents a 24.2% decrease compared to $20.9 million for the year ended December 31, 2016.
• Loans originated for the purpose of sale in the secondary market decreased $45.5 million, or 7.3%, to $577.0 million during the quarter ended December 31, 2017, compared to $622.5 million for the quarter ended December 31, 2016.  The decrease in originations was driven by a 45.6% decrease in the origination of loans made for the purpose of mortgage refinance.  Driven by an expansion of our branch network, origination volumes of loans made for the purpose of residential purchases increased 6.3% compared to the comparative quarter in the prior year.  Our origination efforts continue to be focused on loans made for the purpose of residential purchases, as opposed to mortgage refinance.  Origination volume relative to purchase activity accounted for 87% of originations for the quarter ended December 31, 2017 compared to 77% of total originations for the quarter ended December 31, 2016. Origination volume relative to purchase activity accounted for 89% and 83% of total originations for the year ended December 31, 2017 and 2016, respectively.
• Year to date origination volume increased approximately 5% to $2.5 billion during 2017.    
• Gross margins on loans sold decreased approximately 3% during the quarter ended December 31, 2017, compared to the quarter ended December 31, 2016. 

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 24 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 non-fundamental items, 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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