Waterstone Financial 8-K Results of Operations and Financial Condition

Exhibit 99.1

Waterstone Financial, Inc. Announces Results of Operations for the Third Quarter Ended September 30, 2008.

WAUWATOSA, WI – 11/07/2008– Waterstone Financial, Inc. (NASDAQ: WSBF) released 2008 third quarter unaudited financial highlights, consolidated statements of operations and consolidated statements of financial condition.  Waterstone reported a third quarter net loss of $28.2 million, or $0.92 per share, down from net income of $421,000, or $0.01 per share for the third quarter of 2007.

The third quarter loss was primarily attributable to a significant increase in the provision for loan losses.  Continued weakness in local real estate valuations prompted Waterstone to conduct a large scale review of the current value of collateral securing outstanding loan balances.  The result of the review helps ensure that the allowance for loan losses continues to be an accurate reflection of management’s best estimate of the amount needed to provide for probable future loan charge-offs.  In addition to the significant increase in the provision expense, income tax expense for the quarter reflects the effects of establishing deferred tax asset valuation allowances.

“During the third quarter we performed a comprehensive review of our loan portfolio, including obtaining current valuation data for all underlying collateral on over 500 at risk loans.  The increase in our loan loss provisions represents the prudent actions necessary to reflect our current asset quality and should strengthen our balance sheet while positioning Waterstone for a return to profitable operations in the future,” said Douglas S. Gordon, President and Chief Executive Officer.  “With sustained future profitability, we will be able to recapture $15 million of the third quarter loss by reversing a valuation allowance that was established with respect to our deferred tax assets.  Despite the turbulence in the financial industry, we maintain a strong capital position and liquidity as we continue to expand our business,” Mr. Gordon said.

The loan loss provision for the quarter ended September 30, 2008 was $23.3 million, up from $2.8 million for the quarter ended September 30, 2007.  Similarly, net loan charge-offs for the third quarter of 2008 were $16.7 million, up from $914,000 in the third quarter of 2007.  The allowance for loan losses increased to $26.2 million, or 1.69% of loans receivable at September 30, 2008 from $11.5 million, or 0.83% of loans receivable at September 30, 2007.

Income tax expense of $8.6 million was recorded on third quarter 2008 loss before income taxes of $19.6 million.  This compares to an income tax benefit of $55,000 recorded on third quarter 2007 income before income taxes of $366,000.  During the third quarter of 2008, Waterstone recorded income tax expense related to net deferred tax asset valuation allowances of $16.1 million.  The expense was recorded in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” which requires the need to assess whether a valuation allowance is necessary when there are cumulative losses.  To the extent that tax rules could potentially limit the ultimate realization of the deferred tax assets (generally through a carryback to prior year’s taxable income, future taxable income, including tax planning strategies), a valuation allowance against the deferred tax asset should be recorded.  The benefit may still be realized in the future, depending on a number of factors including future taxable income.

Waterstone loans receivable increased by $153.4 million, or 10.9% during the nine months ended September 30, 2008 while deposits increased by $181.2 million, or 18.2% during the same period.  Net interest income for the third quarter of 2008 was $12.3 million compared to $8.5 million for the third quarter of 2007.  The interest rate spread for the quarter ended September 30, 2008 was 2.04%, up from 1.75% in the third quarter of 2007.

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WATERSTONE FINANCIAL, INC.

FINANCIAL HIGHLIGHTS

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
	(In thousands, except per share data)
Operations Data:
Net interest income	$	12,331			8,507		$	30,575			26,262
Provision for loan losses		23,301			2,826			34,578			8,852
Noninterest income		597			1,863			4,576			5,178
Noninterest expense		9,236			7,178			24,891			20,974
Income (loss) before income taxes		(19,609	)		366			(24,318	)		1,614
Income tax expense (benefit)		8,578			(55	)		5,796			363
Net income (loss)		(28,187	)		421			(30,114	)		1,251
Selected Financial Ratios:
Yield on earning assets		6.13	%		6.08	%		5.98	%		6.12	%
Cost of funds		3.69			4.38			3.94			4.37
Interest rate spread		2.44			1.70			2.04			1.75
Return (loss) on average assets		(5.89	)		0.10			(2.21	)		0.10
Return (loss) on average equity		(56.14	)		0.82			(20.02	)		0.75
Capital ratio		8.93			12.04			8.93			12.04
Non-interest expense to average assets		1.93			1.71			1.64			1.53
Allowance for loan losses to total loans outstanding		1.69			0.83			1.69			0.83
Per Share:
Basic earnings (loss) per share	$	(0.92	)	$	0.01		$	(0.99	)	$	0.04
Diluted earnings (loss per share	$	(0.92	)	$	0.01		$	(0.99	)	$	0.04
Book value per share		5.42			6.44			5.42			6.44
Weighted average shares outstanding		30,564,179			30,797,083			30,545,245			31,912,040
Shares outstanding at September 30		31,250,897			31,418,902			31,250,897			31,418,902

	September 30, 2008		December 31, 2007		Percent Change
	(Unaudited)
	(Dollars in thousands
Financial Condition:
Total Assets	$	1,897,861	$	1,710,202		11.0	%
Loans receivable, net		1,529,256		1,389,209		10.1
Securities available for sale		184,243		172,137		7.0
Deposits		1,175,686		994,535		18.2
Borrowings		512,050		475,484		7.7
Total equity		169,393		201,819		(16.1	)
Allowance for loan losses		26,210		12,839		104.1
Non-performing assets		112,928		88,893		27.0

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WATERSTONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
	(In thousands, except per share data)
Interest income:
Loans	$	25,166			21,769			69,584			65,077
Mortgage-related securities		1,921			1,533			5,661			4,075
Debt securities, federal funds sold and
short-term investments		1,000			1,118			2,667			3,178
Total interest income		28,087			24,420			77,912			72,330
Interest expense:
Deposits		10,384			11,475			31,803			33,641
Borrowings		5,372			4,438			15,534			12,427
Total interest expense		15,756			15,913			47,337			46,068
Net interest income		12,331			8,507			30,575			26,262
Provision for loan losses		23,301			2,826			34,578			8,852
Net interest income (loss) after provision for loan losses		(10,970	)		5,681			(4,003	)		17,410
Noninterest income:
Service charges on loans and deposits		383			426			1,359			1,479
Increase in cash surrender value of life insurance		626			540			1,208			988
Loss on impairment of securities		(1,997	)		-			(1,997	)		-
Mortgage banking income		1,354			745			3,333			2,138
Other		231			152			673			573
Total noninterest income		597			1,863			4,576			5,178
Noninterest expenses:
Compensation, payroll taxes, and other employee benefits		4,493			3,859			12,787			11,778
Occupancy, office furniture and equipment		1,187			1,285			3,606			3,779
Advertising		421			315			953			870
Data processing		358			494			1,055			1,148
Communications		180			171			524			554
Professional fees		184			273			697			911
Real estate owned		1,518			192			2,758			199
Other		895			589			2,511			1,735
Total noninterest expenses		9,236			7,178			24,891			20,974
Income (loss) before income taxes		(19,609	)		366			(24,318	)		1,614
Income taxes expense (benefit)		8,578			(55	)		5,796			363
Net income (loss)	$	(28,187	)		421			(30,114	)		1,251
Earnings (loss) per share:
Basic		(0.92	)		0.01			(0.99	)		0.04
Diluted		(0.92	)		0.01			(0.99	)		0.04

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WATERSTONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	September 30,			December 31,
	2008			2007
	(Dollars in thousands
	(Unaudited)
Assets
Cash	$	41,152			5,492
Federal funds sold		10,954			11,833
Interest-earning deposits in other financial institutions
and other short term investments		—			559
Cash and cash equivalents		52,106			17,884
Securities available for sale (at fair value)		184,243			172,137
Securities held-to-maturity (at cost)		9,938			7,646
Loans held for sale		8,635			23,108
Loans receivable		1,555,466			1,402,048
Less: Allowance for loan losses		(26,210	)		(12,839	)
Loans receivable, net		1,529,256			1,389,209
Office properties and equipment, net		30,932			32,018
Federal Home Loan Bank stock, at cost		21,653			19,289
Cash surrender value of life insurance		32,163			25,649
Real estate owned		20,304			8,543
Prepaid expenses and other assets		8,631			14,719
Total assets	$	1,897,861			1,710,202
Liabilities and Shareholders’ Equity
Liabilities:
Demand deposits	$	52,357			53,210
Money market and savings deposits		110,548			115,135
Time deposits		1,012,781			826,190
Total deposits		1,175,686			994,535
Short term borrowings		25,050			53,484
Long term borrowings		487,000			422,000
Advance payments by borrowers for taxes		24,562			607
Other liabilities		16,170			37,757
Total liabilities		1,728,468			1,508,383
Shareholders’ equity:
Common stock (par value $.01 per share)		340			340
Authorized - 200,000,000 shares in 2008 and 2007
Issued - 33,975,250 shares in 2008 and in 2007
Outstanding - 31,250,897 shares in 2008 and in 2007
Additional paid-in capital		107,643			106,306
Accumulated other comprehensive income (loss) net of taxes		(4,245	)		44
Retained earnings, substantially restricted		116,253			146,367
Unearned ESOP shares		(5,337	)		(5,977	)
Treasury shares (2,724,353 shares), at cost		(45,261	)		(45,261	)
Total shareholders’ equity		169,393			201,819
Total liabilities and shareholders’ equity	$	1,897,861			1,710,202

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