Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2022.

WAUWATOSA, WI – 10/26/2022 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $5.3 million, or $0.25 per diluted share for the quarter ended September 30, 2022 compared to $19.0 million, or $0.79 per diluted share for the quarter ended September 30, 2021. Net income per diluted share was $0.83 for the nine months ended September 30, 2022 compared to net income per diluted share of $2.43 for the nine months ended September 30, 2021.

"We were pleased with the execution of the community banking segment as loan growth remained strong through the quarter,” said Douglas Gordon, Chief Executive Officer of Waterstone Financial, Inc. “We were able to grow our net interest income and expand margin at the community banking segment as we deployed our cash to fund loans. The results of the mortgage banking segment were disappointing and reflect the significant headwinds that the industry continues to face due to an increase in rates and resulting decline in demand. We continue to execute on cost containment measures, while we also seek opportunities to add production talent.”

Highlights of the Quarter Ended September 30, 2022

Waterstone Financial, Inc. (Consolidated)

●	Consolidated net income of Waterstone Financial, Inc. totaled $5.3 million for the quarter ended September 30, 2022, compared to $19.0 million for the quarter ended September 30, 2021.
●	Consolidated return on average assets was 1.08% for the quarter ended September 30, 2022 compared to 3.38% for the quarter ended September 30, 2021.
●	Consolidated return on average equity was 5.38% for the quarter ended September 30, 2022 and 17.25% for the quarter ended September 30, 2021.
●	Dividends declared during the quarter ended September 30, 2022 totaled $0.20 per common share.
●	We repurchased approximately 425,000 shares at a cost of $7.3 million, or $17.05 per share, during the quarter ended September 30, 2022.
●	Nonperforming assets as percentage of total assets was 0.27% at September 30, 2022, 0.39% at June 30, 2022, and 0.18% at September 30, 2021.
●	Past due loans as percentage of total loans was 0.48% at September 30, 2022, 0.60% at June 30, 2022, and 0.92% at September 30, 2021.
●	Book value per share was $16.86 at September 30, 2022 and $17.45 at December 31, 2021. The decrease reflects an $0.80 per share impact resulting from an increase in the unrealized loss on available for sale securities.

Community Banking Segment

●	Pre-tax income totaled $8.5 million for the quarter ended September 30, 2022, which represents a $309,000, or 3.5%, decrease compared to $8.9 million for the quarter ended September 30, 2021.
●	Net interest income totaled $15.5 million for the quarter ended September 30, 2022, which represents a $1.4 million, or 10.1%, increase compared to $14.1 million for the quarter ended September 30, 2021.
●	Average loans held for investment totaled $1.31 billion during the quarter ended September 30, 2022, which represents an increase of $55.4 million, or 4.4%, compared to $1.26 billion for the quarter ended September 30, 2021. Average loans held for investment increased $63.7 million compared to $1.25 billion for the quarter ended June 30, 2022.
●	Net interest margin increased 66 basis points to 3.34% for the quarter ended September 30, 2022 compared to 2.68% for the quarter ended September 30, 2021, which was a result of a decrease in the average balance of cash, as funds were utilized to fund loans held for investment, purchase investment securities and pay down borrowings. In addition, yields increased on loans receivable, loans held for sale, mortgage related securities, debt securities, federal funds sold and short term investments category. Net interest margin increased 32 basis points compared to 3.02% for the quarter ended June 30, 2022, driven by an increase in weighted average yield on loans and weighted average yield on average debt securities, federal funds sold and short term investments. In addition, excess cash was utilized to fund loans held for investment and pay down borrowings.

●	The segment had a provision for credit losses of $234,000 for the quarter ended September 30, 2022 compared to a negative provision for loan losses of $750,000 for the quarter ended September 30, 2021. The increase was primarily due to an increase in loans held for investment during the quarter.
●	The efficiency ratio was 47.16% for the quarter ended September 30, 2022, compared to 48.74% for the quarter ended September 30, 2021.
●	Average deposits (excluding escrow accounts) totaled $1.19 billion during the quarter ended September 30, 2022, a decrease of $62.7 million, or 5.0%, compared to $1.25 billion during the quarter ended September 30, 2021. Average deposits decreased $14.9 million, or 4.9% annualized compared to the $1.21 billion for the quarter ended June 30, 2022.
●	Other noninterest expense increased $1.1 million to $1.5 million during the quarter ended September 30, 2022 compared to $422,000 during the quarter ended September 30, 2021. The increase was driven by fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans. These fees are eliminated in the consolidated statements of income.

Mortgage Banking Segment

●	Pre-tax loss totaled $1.8 million for the quarter ended September 30, 2022, compared to $15.6 million for the quarter ended September 30, 2021.
●	There was a $4.0 million gain on sale of mortgage servicing rights during the three months ended September 30, 2021 compared to none during the three months ended September 30, 2022.
●	Loan originations decreased $286.4 million, or 26.9%, to $778.8 million during the quarter ended September 30, 2022, compared to $1.06 billion during the quarter ended September 30, 2021. Origination volume relative to purchase activity accounted for 90.4% of originations for the quarter ended September 30, 2022 compared to 73.8% of total originations for the quarter ended September 30, 2021.
●	Mortgage banking non-interest income decreased $24.0 million, or 46.8%, to $27.3 million for the quarter ended September 30, 2022, compared to $51.3 million for the quarter ended September 30, 2021.
●	Gross margin on loans sold decreased to 3.80% for the quarter ended September 30, 2022, compared to 4.54% for the quarter ended September 30, 2021.
●	Total compensation, payroll taxes and other employee benefits decreased $7.1 million, or 24.6%, to $21.8 million during the quarter ended September 30, 2022 compared to $29.0 million during the quarter ended September 30, 2021. The decrease primarily related to decreased commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased.
●	Other noninterest expense increased $301,000 to $2.6 million during the quarter ended September 30, 2022 compared to $2.3 million during the quarter ended September 30, 2021. The increase related to an increase in provision of loan sale losses.
●	During the nine months ended September 30, 2022 the segment has added 11 branches and a total of 130 loan origination personnel. Losses associated with these new branches totaled approximately $683,000 for the quarter ended September 30, 2022 and $1.2 million for the nine months ended September 30, 2022. These branch losses are net of corporate revenue of approximately $492,000 for the quarter ended September 30, 2022 and $599,000 for the nine months ended September 30, 2022.

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, Milwaukee/Oklahoma Ave, Oak Creek/27th St, Oak Creek/Howell Ave, Oconomowoc/Lake Country, Pewaukee, Waukesha, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin. 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 statements or information that may constitute 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.” Any such statements are based upon current expectations that involve a number of risks and uncertainties and are subject to important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements. Factors that might cause such a difference include changes in interest rates; demand for products and services; the degree of competition by traditional and nontraditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies, including significant disruption to financial market and other economic activity caused by the outbreak of COVID-19; and other factors, including risk 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 September 30,					For The Nine Months Ended September 30,
	2022		2021			2022		2021
	(In Thousands, except per share amounts)
Interest income:
Loans	$	16,235	$	16,131		$	44,281	$	49,214
Mortgage-related securities		903		471			2,326		1,448
Debt securities, federal funds sold and short-term investments		987		904			2,964		2,637
Total interest income		18,125		17,506			49,571		53,299
Interest expense:
Deposits		981		947			2,511		3,542
Borrowings		1,746		2,445			5,717		7,414
Total interest expense		2,727		3,392			8,228		10,956
Net interest income		15,398		14,114			41,343		42,343
Provision (credit) for credit losses (1)		332		(700	)		304		(2,520	)
Net interest income after provision for loan losses		15,066		14,814			41,039		44,863
Noninterest income:
Service charges on loans and deposits		529		1,136			1,705		2,483
Increase in cash surrender value of life insurance		354		312			1,394		1,297
Mortgage banking income		26,064		46,547			83,749		150,587
Other		457		4,941			1,612		6,812
Total noninterest income		27,404		52,936			88,460		161,179
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		26,174		34,229			77,502		102,278
Occupancy, office furniture, and equipment		2,296		2,488			6,540		7,346
Advertising		1,137		835			3,004		2,570
Data processing		1,084		986			3,430		2,871
Communications		302		331			900		988
Professional fees		393		550			1,203		804
Real estate owned		1		1			6		(11	)
Loan processing expense		1,120		1,135			3,685		3,670
Other		3,187		2,768			9,408		9,104
Total noninterest expenses		35,694		43,323			105,678		129,620
Income before income taxes		6,776		24,427			23,821		76,422
Income tax expense		1,506		5,427			5,269		18,184
Net income	$	5,270	$	19,000		$	18,552	$	58,238
Income per share:
Basic	$	0.25	$	0.80		$	0.84	$	2.45
Diluted	$	0.25	$	0.79		$	0.83	$	2.43
Weighted average shares outstanding:
Basic		21,342		23,785			22,193		23,790
Diluted		21,454		23,960			22,323		23,987

(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amount presented is calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	September 30,			December 31,
	2022			2021
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	37,231		$	343,016
Federal funds sold		16,007			13,981
Interest-earning deposits in other financial institutions and other short term investments		19,703			19,725
Cash and cash equivalents		72,941			376,722
Securities available for sale (at fair value)		197,298			179,016
Loans held for sale (at fair value)		186,049			312,738
Loans receivable		1,354,465			1,205,785
Less: Allowance for credit losses ("ACL") - loans (1)		17,452			15,778
Loans receivable, net		1,337,013			1,190,007

Office properties and equipment, net		21,491			22,273
Federal Home Loan Bank stock (at cost)		15,750			24,438
Cash surrender value of life insurance		66,099			65,368
Real estate owned, net		148			148
Prepaid expenses and other assets		78,262			45,148
Total assets	$	1,975,051		$	2,215,858

Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	246,487		$	214,409
Money market and savings deposits		346,960			392,314
Time deposits		593,681			626,663
Total deposits		1,187,128			1,233,386

Borrowings		319,951			477,127
Advance payments by borrowers for taxes		24,084			4,094
Other liabilities		67,714			68,478
Total liabilities		1,598,877			1,783,085

Shareholders' equity:
Preferred stock		-			-
Common stock		223			248
Additional paid-in capital		130,731			174,505
Retained earnings		277,514			273,398
Unearned ESOP shares		(13,353	)		(14,243	)
Accumulated other comprehensive loss, net of taxes		(18,941	)		(1,135	)
Total shareholders' equity		376,174			432,773
Total liabilities and shareholders' equity	$	1,975,051		$	2,215,858

Share Information
Shares outstanding		22,318			24,795
Book value per share	$	16.86		$	17.45

(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amount presented is calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

SUMMARY OF KEY QUARTERLY FINANCIAL DATA

(Unaudited)

	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	15,398		$	14,081		$	11,864		$	13,172		$	14,114
Provision (credit) for credit losses (1)		332			48			(76	)		(1,470	)		(700	)
Total noninterest income		27,404			31,238			29,818			42,016			52,936
Total noninterest expense		35,694			35,050			34,935			40,974			43,323
Income before income taxes		6,776			10,221			6,823			15,684			24,427
Income tax expense		1,506			2,231			1,532			3,131			5,427
Net income	$	5,270		$	7,990		$	5,291		$	12,553		$	19,000
Income per share – basic	$	0.25		$	0.36		$	0.23		$	0.53		$	0.80
Income per share – diluted	$	0.25		$	0.36		$	0.23		$	0.53		$	0.79
Dividends declared per share	$	0.20		$	0.20		$	0.20		$	0.70		$	0.20

Performance Ratios (annualized):
Return on average assets - QTD		1.08	%		1.61	%		1.00	%		2.22	%		3.38	%
Return on average equity - QTD		5.38	%		7.93	%		5.00	%		11.14	%		17.25	%
Net interest margin - QTD		3.34	%		3.02	%		2.38	%		2.47	%		2.68	%

Return on average assets - YTD		1.22	%		1.30	%		1.00	%		3.20	%		3.54	%
Return on average equity - YTD		6.09	%		6.42	%		5.00	%		16.38	%		18.08	%
Net interest margin - YTD		2.90	%		2.69	%		2.38	%		2.68	%		2.75	%

Asset Quality Ratios:
Past due loans to total loans		0.48	%		0.60	%		0.53	%		0.59	%		0.92	%
Nonaccrual loans to total loans		0.37	%		0.59	%		0.55	%		0.46	%		0.32	%
Nonperforming assets to total assets		0.27	%		0.39	%		0.34	%		0.26	%		0.18	%
Allowance for credit losses to loans receivable (1)		1.29	%		1.35	%		1.40	%		1.31	%		1.37	%

(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.

WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES

SUMMARY OF QUARTERLY AVERAGE BALANCES AND YIELD/COSTS

(Unaudited)

	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,492,462		$	1,433,452		$	1,361,839		$	1,517,984		$	1,573,194
Mortgage related securities		172,807			168,000			138,863			119,709			108,743
Debt securities, federal funds sold and short term investments		162,211			269,823			519,116			475,574			409,559
Total interest-earning assets		1,827,480			1,871,275			2,019,818			2,113,267			2,091,496
Noninterest-earning assets		114,274			117,248			128,813			131,703			137,454
Total assets	$	1,941,754		$	1,988,523		$	2,148,631		$	2,244,970		$	2,228,950

Interest-bearing liabilities
Demand accounts	$	75,058		$	70,674		$	69,736		$	70,762		$	68,478
Money market, savings, and escrow accounts		398,643			412,321			404,413			398,210			391,599
Certificates of deposit		586,012			584,244			610,681			643,546			663,343
Total interest-bearing deposits		1,059,713			1,067,239			1,084,830			1,112,518			1,123,420
Borrowings		296,111			326,068			440,252			481,971			475,000
Total interest-bearing liabilities		1,355,824			1,393,307			1,525,082			1,594,489			1,598,420
Noninterest-bearing demand deposits		153,591			154,070			152,900			153,303			153,436
Noninterest-bearing liabilities		43,683			36,962			41,232			49,982			40,148
Total liabilities		1,553,098			1,584,339			1,719,214			1,797,774			1,792,004
Equity		388,656			404,184			429,417			447,196			436,946
Total liabilities and equity	$	1,941,754		$	1,988,523		$	2,148,631		$	2,244,970		$	2,228,950

Average Yield/Costs (annualized)
Loans receivable and held for sale		4.32	%		4.07	%		4.02	%		3.96	%		4.07	%
Mortgage related securities		2.07	%		1.96	%		1.76	%		1.68	%		1.72	%
Debt securities, federal funds sold and short term investments		2.41	%		1.56	%		0.72	%		0.77	%		0.88	%
Total interest-earning assets		3.93	%		3.52	%		3.02	%		3.11	%		3.32	%

Demand accounts		0.08	%		0.09	%		0.08	%		0.08	%		0.08	%
Money market and savings accounts		0.21	%		0.19	%		0.21	%		0.22	%		0.24	%
Certificates of deposit		0.51	%		0.37	%		0.37	%		0.40	%		0.42	%
Total interest-bearing deposits		0.37	%		0.28	%		0.29	%		0.31	%		0.33	%
Borrowings		2.34	%		1.95	%		2.20	%		2.09	%		2.04	%
Total interest-bearing liabilities		0.80	%		0.67	%		0.84	%		0.85	%		0.84	%

COMMUNITY BANKING SEGMENT

SUMMARY OF KEY QUARTERLY FINANCIAL DATA

(Unaudited)

	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	15,507		$	13,710		$	11,652		$	13,197		$	14,090
Provision (credit) for credit losses (1)		234			(41	)		(140	)		(1,500	)		(750	)
Total noninterest income		1,116			1,640			1,432			1,459			1,726
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		4,424			4,596			5,212			5,085			5,360
Occupancy, office furniture and equipment		955			876			937			960			909
Advertising		213			244			227			278			233
Data processing		539			531			608			531			531
Communications		108			63			94			100			122
Professional fees		123			118			114			151			130
Real estate owned		1			-			5			14			1
Loan processing expense		-			-			-			-			-
Other		1,477			1,006			600			651			422
Total noninterest expense		7,840			7,434			7,797			7,770			7,708
Income before income taxes		8,549			7,957			5,427			8,386			8,858
Income tax expense		1,983			1,658			1,167			1,690			2,092
Net income	$	6,566		$	6,299		$	4,260		$	6,696		$	6,766

Efficiency ratio - QTD		47.16	%		48.43	%		59.59	%		53.02	%		48.74	%
Efficiency ratio - YTD		51.20	%		53.57	%		59.59	%		48.58	%		47.21	%

(1) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.

MORTGAGE BANKING SEGMENT

SUMMARY OF KEY QUARTERLY FINANCIAL DATA

(Unaudited)

	At or For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	(155	)	$	370		$	183		$	(49	)	$	(2	)
Provision (credit) for credit losses (2)		98			89			64			30			50
Total noninterest income		27,305			30,126			28,604			40,692			51,290
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		21,864			21,311			20,438			27,866			28,981
Occupancy, office furniture and equipment		1,341			1,180			1,251			1,306			1,579
Advertising		924			718			678			680			602
Data processing		543			613			588			542			450
Communications		194			195			246			221			209
Professional fees		265			222			338			306			421
Real estate owned		-			-			-			-			-
Loan processing expense		1,120			1,134			1,431			940			1,135
Other		2,571			2,733			2,309			1,445			2,270
Total noninterest expense		28,822			28,106			27,279			33,306			35,647
(Loss) income before income taxes		(1,770	)		2,301			1,444			7,307			15,591
Income tax (benefit) expense		(470	)		578			377			1,443			3,341
Net (loss) income	$	(1,300	)	$	1,723		$	1,067		$	5,864		$	12,250

Efficiency ratio - QTD		106.16	%		92.16	%		94.76	%		81.95	%		69.50	%
Efficiency ratio - YTD		97.42	%		93.42	%		94.76	%		71.44	%		68.71	%

Loan originations	$	729,897		$	778,760		$	708,463		$	993,113		$	1,055,500
Purchase		94.2	%		90.4	%		77.3	%		73.8	%		73.8	%
Refinance		5.8	%		9.6	%		22.7	%		26.2	%		26.2	%
Gross margin on loans sold(1)		3.80	%		3.76	%		4.00	%		4.18	%		4.54	%

(1) Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations

(2) The Company adopted ASU 2016-13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard.

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Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2022.

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