Waterstone Financial, Inc. Announces Results of Operations for the Quarter and Nine Months Ended September 30, 2019.

WAUWATOSA, WI – 10/23/2019 – Waterstone Financial, Inc. (NASDAQ: WSBF), holding company for WaterStone Bank, reported net income of $10.9 million, or $0.42 per diluted share for the quarter ended September 30, 2019 compared to $8.7 million, or $0.31 per diluted share for the quarter ended September 30, 2018. Net income per diluted share was $1.03 for the nine months ended September 30, 2019 compared to net income per diluted share of $0.90 for the nine months ended September 30, 2018.

“We are pleased with our strong results in the third quarter,” said Douglas Gordon, CEO of Waterstone Financial, Inc. “We generated a record $14.5 million in consolidated quarterly pre-tax income, which represents a 26.6% increase over the prior year’s comparable quarter. The results reflect a record pre-tax quarter from the Community Banking segment and a very strong Mortgage Banking segment performance. During the quarter, the Community Banking segment remained disciplined with respect to cost management, while continuing to focus on future growth and the customer experience through the opening of a new branch. The Mortgage Banking segment had a strong performance due to increased production volumes of refinance products and a continued focus on improved efficiencies at the branch and corporate levels.”

Highlights of the Quarter Ended September 30, 2019

Waterstone Financial, Inc. (Consolidated)

•	Consolidated net income of Waterstone Financial, Inc. totaled $10.9 million for the quarter ended September 30, 2019, compared to $8.7 million for the quarter ended September 30, 2018.

•	Consolidated return on average assets was 2.17% for the quarter ended September 30, 2019 compared to 1.80% for the quarter ended September 30, 2018.

•	Consolidated return on average equity was 11.15% for the quarter ended September 30, 2019 and 8.48% for the quarter ended September 30, 2018.

•	The Company repurchased a total 495,000 shares on the open market during the quarter ended September 30, 2019 at an average price of $16.77 per share and a total of 1,341,900 shares repurchased at an average price of $16.68 per share during the nine months ended September 30, 2019.

•	Dividends declared totaled $0.12 per share during the quarter ended September 30, 2019 amounting to a total of $0.86 in dividends declared per share during the nine months ended September 30, 2019.

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Community Banking Segment

•	Pre-tax income totaled $8.7 million for the quarter ended September 30, 2019, which represents a 1.0% increase compared to $8.6 million for the quarter ended September 30, 2018.

•	Net interest income totaled $13.9 million for the quarter ended September 30, 2019, which represents a 1.7% decrease compared to $14.1 million for the quarter ended September 30, 2018.

•

Average loans held for investment totaled $1.38 billion during the quarter ended September 30, 2019, which represents an increase of $36.7 million, or 2.7%, compared to the quarter ended September 30, 2018. Average loans held for investment increased $3.3 million, or 1.0% annualized, compared to $1.38 billion for the quarter ended June 30, 2019.

•

Net interest margin decreased 27 basis points to 2.80% for the quarter ended September 30, 2019 compared to 3.07% for the quarter September 30, 2018, which was a result of the increase in cost of funding as certificates of deposit and borrowings repriced at higher rates over the past year. Net interest margin decreased two basis points compared to 2.82% for the quarter ended June 30, 2019.

•

The segment had $150,000 negative provision for loan losses for the quarter ended September 30, 2019 compared to no provision for loan losses for loan losses for the quarter ended September 30, 2018. Net recoveries totaled $9,000 for the quarter ended September 30, 2019, compared to net recoveries of $63,000 for the quarter ended September 30, 2018.

•	Noninterest income increased $103,000 for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018 as loan prepayment fees and earnings on life insurance policies increased.

•

Noninterest expenses decreased $73,000 for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018. Compensation expenses decreased $360,000 as health insurance expense decreased. Other noninterest expenses decreased $118,000 as FDIC insurance premiums decreased. Offsetting the decreases, occupancy increased with the branch additions and real estate owned expenses increased due to lower gains on sale.

•	The efficiency ratio was 43.97% for the quarter ended September 30, 2019, compared to 44.06% for the quarter ended September 30, 2018.

•	Average deposits totaled $1.05 billion during the quarter ended September 30, 2019, an increase of $41.0 million, or 4.1%, compared to $1.01 billion during the quarter ended September 30, 2018. Average deposits increased $4.2 million, or 1.6% annualized, compared to the quarter ended June 30, 2019.

•	Nonperforming assets as percentage of total assets was 0.41% at September 30, 2019, 0.37% at June 30, 2019, and 0.45% at September 30, 2018.

•	Past due loans as percentage of total loans was 0.62% at September 30, 2019, 0.61% at June 30, 2019, and 0.67% at September 30, 2018.

Mortgage Banking Segment

•	Pre-tax income totaled $5.7 million for the quarter ended September 30, 2019, compared to $2.8 million of pre-tax income for the quarter ended September 30, 2018.

•

Loan originations increased approximately $90.1 million, or 11.8%, to $851.3 million during the quarter ended September 30, 2019, compared to $761.2 million during the quarter ended September 30, 2018. Origination volume relative to purchase activity accounted for 79.0% of originations for the quarter ended September 30, 2019 compared to 92.1% of total originations for the quarter ended September 30, 2018.

•	Mortgage banking income increased $3.4 million, or 10.2%, to $36.5 million for the quarter ended September 30, 2019, compared to $33.2 million for the quarter ended September 30, 2018.

•	Gross margin on loans sold decreased to 4.30% for the quarter ended September 30, 2019, compared to 4.39% for the quarter ended September 30, 2018.

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, Oak Creek/27^th St, Oconomowoc/Lake Country, Pewaukee, Waukesha/Brookfield, West Allis/Greenfield Ave, and West Allis/National Ave, Wisconsin along with a commercial lending office in Minneapolis, Minnesota. 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 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.

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WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2019			2018			2019			2018
	(In Thousands, except per share amounts)
Interest income:
Loans	$	18,558			17,340			53,688			49,498
Mortgage-related securities		737			643			2,260			1,925
Debt securities, federal funds sold and short-term investments		1,083			1,063			3,515			2,949
Total interest income		20,378			19,046			59,463			54,372
Interest expense:
Deposits		4,479			3,063			12,813			8,087
Borrowings		2,745			2,133			7,579			5,574
Total interest expense		7,224			5,196			20,392			13,661
Net interest income		13,154			13,850			39,071			40,711
Provision for loan losses		(80	)		40			(730	)		(1,060	)
Net interest income after provision for loan losses		13,234			13,810			39,801			41,771
Noninterest income:
Service charges on loans and deposits		503			442			1,272			1,332
Increase in cash surrender value of life insurance		728			695			1,579			1,496
Mortgage banking income		36,062			32,653			93,526			88,930
Other		201			272			564			805
Total noninterest income		37,494			34,062			96,941			92,563
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		27,514			27,453			75,227			74,670
Occupancy, office furniture, and equipment		2,629			2,751			8,085			7,995
Advertising		913			1,224			2,834			3,084
Data processing		1,003			809			2,641			2,057
Communications		358			412			1,039			1,229
Professional fees		954			583			2,438			1,930
Real estate owned		24			(128	)		75			63
Loan processing expense		858			837			2,542			2,729
Other		1,979			2,485			6,055			7,553
Total noninterest expenses		36,232			36,426			100,936			101,310
Income before income taxes		14,496			11,446			35,806			33,024
Income tax expense		3,572			2,743			8,697			7,948
Net income	$	10,924			8,703			27,109			25,076
Income per share:
Basic	$	0.42			0.32			1.04			0.91
Diluted	$	0.42			0.31			1.03			0.90
Weighted average shares outstanding:
Basic		25,772			27,451			26,168			27,488
Diluted		25,962			27,680			26,372			27,765

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WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	September 30,			December 31,
	2019			2018
	(Unaudited)
Assets	(In Thousands, except per share amounts)
Cash	$	45,366		$	48,234
Federal funds sold		11,268			25,100
Interest-earning deposits in other financial institutions and other short term investments		9,556			12,767
Cash and cash equivalents		66,190			86,101
Securities available for sale (at fair value)		178,056			185,720
Loans held for sale (at fair value)		237,772			141,616
Loans receivable		1,385,333			1,379,148
Less: Allowance for loan losses		12,547			13,249
Loans receivable, net		1,372,786			1,365,899

Office properties and equipment, net		24,889			24,524
Federal Home Loan Bank stock (at cost)		22,050			19,350
Cash surrender value of life insurance		69,309			67,550
Real estate owned, net		1,887			2,152
Prepaid expenses and other assets		32,490			22,469
Total assets	$	2,005,429		$	1,915,381

Liabilities and Shareholders' Equity
Liabilities:
Demand deposits	$	122,309		$	139,111
Money market and savings deposits		184,183			163,511
Time deposits		733,077			735,873
Total deposits		1,039,569			1,038,495

Borrowings		515,795			435,046
Advance payments by borrowers for taxes		26,385			4,371
Other liabilities		36,437			37,790
Total liabilities		1,618,186			1,515,702

Shareholders' equity:
Preferred stock		-			-
Common stock		271			285
Additional paid-in capital		211,557			232,406
Retained earnings		191,680			187,153
Unearned ESOP shares		(16,914	)		(17,804	)
Accumulated other comprehensive income (loss), net of taxes		649			(2,361	)
Total shareholders' equity		387,243			399,679
Total liabilities and shareholders' equity	$	2,005,429		$	1,915,381

Share Information
Shares outstanding		27,147			28,463
Book value per share	$	14.26		$	14.04
Closing market price	$	17.18		$	16.76
Price to book ratio		120.48	%		119.37	%

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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,
	2019			2019			2019			2018			2018
	(Dollars in Thousands, except per share amounts)
Condensed Results of Operations:
Net interest income	$	13,154			12,981			12,936			13,466			13,850
Provision for loan losses		(80	)		30			(680	)		-			40
Total noninterest income		37,494			35,190			24,257			25,636			34,062
Total noninterest expense		36,232			35,355			29,349			31,846			36,426
Income before income taxes		14,496			12,786			8,524			7,256			11,446
Income tax expense		3,572			3,143			1,982			1,578			2,743
Net income	$	10,924			9,643			6,542			5,678			8,703
Income per share – basic	$	0.42			0.37			0.25			0.21			0.32
Income per share – diluted	$	0.42			0.37			0.24			0.21			0.31
Dividends declared per share	$	0.12			0.12			0.62			0.12			0.12

Performance Ratios (annualized):
Return on average assets - QTD		2.17	%		1.95	%		1.39	%		1.18	%		1.80	%
Return on average equity - QTD		11.15	%		9.96	%		6.65	%		5.58	%		8.48	%
Net interest margin - QTD		2.80	%		2.82	%		2.93	%		2.99	%		3.07	%

Return on average assets - YTD		1.84	%		1.67	%		1.39	%		1.64	%		1.80	%
Return on average equity - YTD		9.21	%		8.28	%		6.65	%		7.60	%		8.25	%
Net interest margin - YTD		2.85	%		2.88	%		2.93	%		3.09	%		3.13	%

Asset Quality Ratios:
Past due loans to total loans		0.62	%		0.61	%		0.46	%		0.50	%		0.67	%
Nonaccrual loans to total loans		0.46	%		0.41	%		0.49	%		0.48	%		0.48	%
Nonperforming assets to total assets		0.41	%		0.37	%		0.44	%		0.45	%		0.45	%

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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,
	2019			2019			2019			2018			2018
Average balances	(Dollars in Thousands)
Interest-earning assets
Loans receivable and held for sale	$	1,579,575			1,552,199			1,477,991			1,496,125			1,507,632
Mortgage related securities		114,051			114,537			115,674			111,004			106,047
Debt securities, federal funds sold and short term investments		169,621			180,111			194,669			179,232			176,733
Total interest-earning assets		1,863,247			1,846,847			1,788,334			1,786,361			1,790,412
Noninterest-earning assets		137,723			136,263			125,396			119,715			122,575
Total assets	$	2,000,970			1,983,110			1,913,730			1,906,076			1,912,987

Interest-bearing liabilities
Demand accounts	$	37,015			35,744			36,268			36,941			37,936
Money market and savings accounts		206,474			193,542			176,237			184,873			185,864
Certificates of deposit		739,544			736,798			735,471			722,774			707,970
Total interest-bearing deposits		983,033			966,084			947,976			944,588			931,770
Borrowings		509,099			504,940			438,905			439,601			444,570
Total interest-bearing liabilities		1,492,132			1,471,024			1,386,881			1,384,189			1,376,340
Noninterest-bearing demand deposits		86,849			91,545			97,951			97,677			100,804
Noninterest-bearing liabilities		33,130			32,143			30,027			20,219			28,632
Total liabilities		1,612,111			1,594,712			1,514,859			1,502,085			1,505,776
Equity		388,859			388,398			398,871			403,991			407,211
Total liabilities and equity	$	2,000,970			1,983,110			1,913,730			1,906,076			1,912,987

Average Yield/Costs (annualized)
Loans receivable and held for sale		4.66	%		4.66	%		4.69	%		4.63	%		4.56	%
Mortgage related securities		2.56	%		2.68	%		2.66	%		2.58	%		2.41	%
Debt securities, federal funds sold and short term investments		2.53	%		2.50	%		2.73	%		2.52	%		2.39	%
Total interest-earning assets		4.34	%		4.32	%		4.35	%		4.29	%		4.22	%

Demand accounts		0.09	%		0.09	%		0.09	%		0.09	%		0.10	%
Money market and savings accounts		0.57	%		0.66	%		0.63	%		0.47	%		0.35	%
Certificates of deposit		2.24	%		2.19	%		2.04	%		1.82	%		1.62	%
Total interest-bearing deposits		1.81	%		1.80	%		1.71	%		1.49	%		1.30	%
Borrowings		2.14	%		2.06	%		2.08	%		2.10	%		1.90	%
Total interest-bearing liabilities		1.92	%		1.89	%		1.82	%		1.68	%		1.50	%

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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,
	2019			2019			2019			2018			2018
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	13,885			13,530			13,132			13,774			14,121
Provision for loan losses		(150	)		-			(700	)		-			-
Total noninterest income		1,415			1,079			881			911			1,312
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		4,075			4,671			4,756			4,761			4,435
Occupancy, office furniture and equipment		942			944			972			842			826
Advertising		202			220			181			185			183
Data processing		588			493			457			422			414
Communications		90			93			82			92			112
Professional fees		223			160			268			339			257
Real estate owned		24			19			32			(62	)		(128	)
Loan processing expense		-			-			-			-			-
Other		583			635			489			571			701
Total noninterest expense		6,727			7,235			7,237			7,150			6,800
Income before income taxes		8,723			7,374			7,476			7,535			8,633
Income tax expense		1,982			1,594			1,687			1,632			2,003
Net income	$	6,741			5,780			5,789			5,903			6,630

Efficiency ratio - QTD		43.97	%		49.52	%		51.64	%		48.69	%		44.06	%
Efficiency ratio - YTD		48.27	%		50.56	%		51.64	%		47.63	%		47.28	%

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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,
	2019			2019			2019			2018			2018
	(Dollars in Thousands)
Condensed Results of Operations:
Net interest income	$	(774	)		(529	)		(208	)		(332	)		(286	)
Provision for loan losses		70			30			20			-			40
Total noninterest income		36,535			34,364			23,571			24,986			33,165
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		23,616			22,579			16,060			18,499			23,164
Occupancy, office furniture and equipment		1,687			1,736			1,804			2,018			1,925
Advertising		711			743			777			854			1,041
Data processing		411			372			308			309			386
Communications		268			260			246			290			300
Professional fees		688			620			426			52			319
Real estate owned		-			-			-			-			-
Loan processing expense		858			879			805			643			837
Other		1,725			1,186			1,912			2,297			2,064
Total noninterest expense		29,964			28,375			22,338			24,962			30,036
Income before income taxes		5,727			5,430			1,005			(308	)		2,803
Income tax expense		1,584			1,545			286			(62	)		737
Net income	$	4,143			3,885			719			(246	)		2,066

Efficiency ratio - QTD		83.79	%		83.86	%		95.61	%		101.25	%		91.35	%
Efficiency ratio - YTD		86.79	%		88.66	%		95.61	%		92.89	%		90.60	%

Loan Originations	$	851,297			793,254			501,432			600,156			761,206
Purchase		79.0	%		87.6	%		89.9	%		91.1	%		92.1	%
Refinance		21.0	%		12.4	%		10.1	%		8.9	%		7.9	%
Gross margin on loans sold⁽¹⁾		4.30	%		4.29	%		4.57	%		4.17	%		4.39	%
(1) - Gross margin on loans sold equals mortgage banking income (excluding the change in interest rate lock value) divided by total loan originations