Wauwatosa, WI – 4/30/2024 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $3.0 million, or $0.16 per diluted share, for the quarter ended March 31, 2024 compared to net income of $2.2 million, or $0.10 per diluted share for the quarter ended March 31, 2023. The current year reflects a $0.04 per share one-time charge related to a change in Wisconsin state tax law, as described below.

“We are pleased that the Mortgage Banking segment demonstrated improved performance, as volumes and margin have bounced off of the lows from the past two years.” said William Bruss, Chief Executive Officer of Waterstone Financial, Inc. "While our results of operations have improved form the prior year, the Mortgage Banking segment continues to face industry-wide headwinds in the form of low levels of housing inventory and affordability constraints driven by elevated mortgage rates. The Community Banking segment continues to contend with margin compression, driven by higher funding costs, as interest rates remain at recent high levels. In spite of the challenging environment, we continue to maintain strong asset quality and remained focused on returning capital to our shareholders through our dividend and share repurchases."

Highlights of the Quarter Ended March 31, 2024

Waterstone Financial, Inc. (Consolidated)

● Consolidated net income of Waterstone Financial, Inc. totaled $3.0 million for the quarter ended March 31, 2024, compared to net income of $2.2 million for the quarter ended March 31, 2023.

● Consolidated return on average assets was 0.56% for the quarter ended March 31, 2024 compared to 0.43% for the quarter ended March 31, 2023.

● Consolidated return on average equity was 3.56% for the quarter ended March 31, 2024 and 2.35% for the quarter ended March 31, 2023.

● Dividends declared during the quarter ended March 31, 2024 totaled $0.15 per common share.

● During the quarter ended March 31, 2024 , we repurchased approximately 417,000 shares at a cost (including the federal excise tax) of $5.3 million, or $12.65 per share. This share repurchase activity was accretive to book value per share in the amount of $0.09 during the quarter ended March 31, 2024.

● Nonperforming assets as a percentage of total assets was 0.23% at March 31, 2024, 0.23% at December 31, 2023, and 0.22% at March 31, 2023.

● Past due loans as a percentage of total loans was 0.64% at March 31, 2024, 0.68% at December 31, 2023, and 0.64% at March 31, 2023.

● Book value per share was $16.98 at March 31, 2024 and $16.94 at December 31, 2023.

● In July 2023, Wisconsin’s Governor signed the Wisconsin state budget, retroactive to January 1, 2023, which included legislation that provides financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on loans to existing Wisconsin-based business or agriculture purpose loans that are $5.0 million or less in balance on January 1, 2023, and to new loans that meet the criteria. On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law. This publication enabled us to estimate the impact on our Wisconsin state income tax expense. The impact moving forward should result in no Wisconsin state income taxes being expensed, resulting in a lower estimated effective tax rate. The elimination of Wisconsin state income tax expense resulted in the establishment of a valuation allowance for Wisconsin state income deferred tax assets, resulting in a one-time $1.1 million charge to state income tax expense in the first quarter. Partially offsetting the impact of the charge related to the valuation allowance the Company realized a one-time benefit of approximately $368,000 during the quarter to recognize a reduction in current state income tax provision. The net amount of these two items resulted in a a $0.04 reduction of earnings per share during the quarter ended March 31, 2024.

Community Banking Segment

● Pre-tax income totaled $4.3 million for the quarter ended March 31, 2024, which represents a $2.2 million, or 33.5%, decrease compared to $6.4 million for the quarter ended March 31, 2023.

● Net interest income totaled $11.6 million for the quarter ended March 31, 2024, which represents a $2.4 million, or 17.2%, decrease compared to $14.0 million for the quarter ended March 31, 2023.

● Average loans held for investment totaled $1.66 billion during the quarter ended March 31, 2024, which represents an increase of $133.0 million, or 8.7%, compared to $1.53 billion for the quarter ended March 31, 2023. The increase was primarily due to increases in the single-family, construction, and commercial real estate mortgages. Average loans held for investment increased $4.1 million compared to $1.66 billion for the quarter ended December 31, 2023. The increase was primarily due to an increase in construction mortgages.

● Net interest margin decreased 73 basis points to 2.15% for the quarter ended March 31, 2024 compared to 2.88% for the quarter ended March 31, 2023, which was a result of an increase in weighted average cost of deposits and borrowings as the federal funds rate increases resulted in increased funding rates. Net interest margin decreased 10 basis points compared to 2.25% for the quarter ended December 31, 2023, driven by an increase in weighted average cost of deposits and borrowings as the federal funds rate increases resulted in increased funding rates.

● Past due loans at the community banking segment totaled $8.1 million at March 31, 2024, $7.9 million at December 31, 2023, and $7.5 million at March 31, 2023.

● The segment had a provision for credit losses related to funded loans of $35,000 for the quarter ended March 31, 2024 compared to a negative provision for credit losses related to funded loans of $96,000 for the quarter ended March 31, 2023. The current quarter increase was primarily due to adjustments in the qualitative factors related to increases in treasury interest rates during the quarter offset by a decrease to historical loss rates. The provision for credit losses related to unfunded loan commitments was $70,000 for the quarter ended March 31, 2024 compared to a provision for credit losses related to unfunded loan commitments of $484,000 for the quarter ended March 31, 2023. The provision for credit losses related to unfunded loan commitments for the quarter ended March 31, 2024 was due primarily to an increase of construction loans that are currently waiting to be funded compared to the prior quarter end.

● The efficiency ratio, a non-GAAP ratio, was 65.17% for the quarter ended March 31, 2024, compared to 54.53% for the quarter ended March 31, 2023.

● Average deposits (excluding escrow accounts) totaled $1.19 billion during the quarter ended March 31, 2024, an increase of $16.5 million, or 1.4%, compared to $1.17 billion during the quarter ended March 31, 2023. Average deposits decreased $19.0 million, or 6.3% annualized, compared to $1.21 billion for the quarter ended December 31, 2023.

Mortgage Banking Segment

● Pre-tax income totaled $369,000 for the quarter ended March 31, 2024, compared to $3.7 million of pre-tax loss for the quarter ended March 31, 2023.

● Loan originations increased $42.4 million, or 9.6%, to $485.1 million during the quarter ended March 31, 2024, compared to $442.7 million during the quarter ended March 31, 2023. Origination volume relative to purchase activity accounted for 93.0% of originations for the quarter ended March 31, 2024 compared to 96.5% of total originations for the quarter ended March 31, 2023.

● Mortgage banking non-interest income increased $2.4 million, or 13.2%, to $20.3 million for the quarter ended March 31, 2024, compared to $18.0 million for the quarter ended March 31, 2023.

● Gross margin on loans sold totaled 4.10% for the quarter ended March 31, 2024, compared to 3.78% for the quarter ended March 31, 2023.

● Total compensation, payroll taxes and other employee benefits decreased $343,000, or 2.3%, to $14.8 million during the quarter ended March 31, 2024 compared to $15.1 million during the quarter ended March 31, 2023. The decrease primarily related to decreased salary expense and health insurance expense driven by reduced employee headcount and lower claims to start the 2024 year.

● Total other noninterest expense decreased $1.8 million, or 74.4%, to $616,000 during the quarter ended March 31, 2024 compared to $2.4 million during the quarter ended March 31, 2023. The decrease primarily related to decreased provision for branch losses, branch overhead, provision for loan sale losses, and reversal of mortgage servicing rights impairment.

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; 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.

Non-GAAP Financial Measures

Management uses non-GAAP financial information in its analysis of the Company's performance. Management believes that this non-GAAP measure provides a greater understanding of ongoing operations and enhance comparability of results of operations with prior periods. The Company’s management believes that investors may use this non-GAAP measure to analyze the Company's financial performance without the impact of unusual items or events that may obscure trends in the Company’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in this measure and that different companies might calculate this measure differently.

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