What changed in this filing

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Item 1. Financial Statements

2023-08-02 compared with 2023-05-02 · 919 added, 387 removed, 1706 unchanged (43% of the section changed)

3 unchanged sentences

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

March 31, 2023

June 30, 2023

December 31, 2022

65 unchanged sentences

Shareholders’

Preferred stock (par value $ .01 per share) Authorized - 50,000,000 shares at March 31, 2023 and at December 31, 2022, no shares issued

Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at March 31, 2023 and at December 31, 2022, Issued and Outstanding - 21,867,233 at March 31, 2023 and 22,174,225 at December 31, 2022

Preferred stock (par value $ .01 per share) Authorized - 50,000,000 shares at June 30, 2023 and at December 31, 2022, no shares issued

Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at June 30, 2023 and at December 31, 2022, Issued and Outstanding - 21,375,876 at June 30, 2023 and 22,174,225 at December 31, 2022

Additional paid-in capital

18 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands, except per share amounts)

Interest income:

$ 22,150  

$ 14,546  

$ 42,035  

$ 28,046  

Mortgage-related securities

1 unchanged sentence

Total interest income

24,247  

16,416  

46,137  

31,446  

Interest expense:

10,043  

Total interest expense

11,572  

19,667  

Net interest income

12,675  

14,081  

26,470  

25,945  

Provision (credit) for credit losses

Net interest income after provision (credit) for credit losses

12,489  

14,033  

25,824  

25,973  

Noninterest income:

2 unchanged sentences

Mortgage banking income

21,914  

29,410  

38,684  

57,685  

Total noninterest income

23,525  

31,238  

42,079  

61,056  

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

22,395  

25,793  

42,447  

51,328  

Occupancy, office furniture, and equipment

5 unchanged sentences

Total noninterest expenses

30,922  

35,050  

60,029  

69,984  

Income before income taxes

10,221  

17,045  

Income tax expense

$ 4,007  

$ 7,990  

$ 6,162  

$ 13,282  

Income per share:

$ 0.20  

$ 0.36  

$ 0.30  

$ 0.59  

$ 0.20  

$ 0.36  

$ 0.30  

$ 0.58  

Weighted average shares outstanding:

20,384  

22,126  

20,635  

22,626  

20,431  

22,229  

20,702  

22,768  

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended March 31,

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended June 30,

Six months ended June 30,

(In Thousands)

1 unchanged sentence

$ 7,990  

Other comprehensive income (loss), net of tax:

Net unrealized holding gain (loss) on available for sale securities:

Net unrealized holding gain (loss) arising during the period, net of tax (expense) benefit of $( 790 ) and $ 2,623 , respectively

Total other comprehensive gain (loss)

Comprehensive income (loss)

$ 6,162  

$ 13,282  

Other comprehensive loss, net of tax:

Net unrealized holding loss on available for sale securities:

Net unrealized holding loss arising during the period, net of tax (expense) benefit of $ (174) , $ 2,266 , $ 616 , and $ 4,888 respectively

( 3,459 )  

( 6,051 )  

( 1,352 )  

Total other comprehensive loss

( 3,459 )  

( 6,051 )  

( 1,352 )  

Comprehensive income

$ 1,939  

$ 4,810  

See accompanying notes to unaudited consolidated financial statements.

6 unchanged sentences

(In Thousands, except per share amounts)

For the three months ended March 31, 2022

For the six months ended June 30, 2022

Balances at December 31, 2021

6 unchanged sentences

Comprehensive loss:

13,282  

Other comprehensive loss

( 13,053 )  

Total comprehensive loss

Total comprehensive income

Adoption of new accounting pronouncement (see Note 1)

8 unchanged sentences

( 21 )  

Balances at March 31, 2022

( 37,925 )  

Balances at June 30, 2022

22,734  

3 unchanged sentences

$ ( 14,188 )  

$ 386,380  

(In Thousands, except per share amounts)

For the three months ended March 31, 2023

For the six months ended June 30, 2023

Balances at December 31, 2022

6 unchanged sentences

Comprehensive income:

Other comprehensive income

Other comprehensive loss

( 1,352 )  

Total comprehensive income

2 unchanged sentences

( 8,179 )  

Proceeds from stock option exercises

Stock Compensation Activity, net of tax

Stock compensation expense

2 unchanged sentences

( 13,154 )  

Balances at June 30, 2023

21,376  

$ 116,611  

$ 272,229  

$ ( 12,463 )  

$ ( 20,828 )  

$ 355,763  

Comprehensive

Shareholders'

Income (Loss)

(In Thousands, except per share amounts)

For the three months ended June 30, 2022

Balances at March 31, 2022

5 unchanged sentences

$ 412,252  

Comprehensive income:

Other comprehensive loss

( 6,051 )  

Total comprehensive income

ESOP shares committed to be released to Plan participants

Cash dividend, $ 0.20 per share

( 4,286 )  

Stock compensation activity, net of tax

Stock compensation expense

Purchase of common stock returned to authorized but unissued

( 1,418 )  

( 14 )  

( 24,177 )  

Balances at June 30, 2022

22,734  

$ 137,547  

$ 276,444  

$ ( 13,650 )  

$ ( 14,188 )  

$ 386,380  

(In Thousands, except per share amounts)

For the three months ended June 30, 2023

Balances at March 31, 2023

21,867  

$ 123,448  

$ 272,268  

$ ( 12,759 )  

$ ( 17,369 )  

$ 365,807  

Comprehensive income:

Other comprehensive loss

( 3,459 )  

Total comprehensive income

ESOP shares committed to be released to Plan participants

Cash dividend, $ 0.20 per share

( 4,046 )  

Stock compensation activity, net of tax

Stock compensation expense

Purchase of common stock returned to authorized but unissued

( 511 )  

( 7,317 )  

Balances at June 30, 2023

21,376  

$ 116,611  

$ 272,229  

$ ( 12,463 )  

$ ( 20,828 )  

$ 355,763  

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended March 31,

Six months ended June 30,

(In Thousands)

Operating activities:

$ 2,155  

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Provision (credit) for credit losses

3 unchanged sentences

Origination of mortgage servicing rights

( 302 )  

Proceeds on sales of mortgage servicing rights

Gain on sale of mortgage servicing rights

Gain on sale of loans held for sale

( 14,915 )  

Loans originated for sale

( 415,742 )  

Proceeds on sales of loans originated for sale

400,520  

878,554  

Gain on death benefit on bank owned life insurance

Increase in accrued interest receivable

( 575 )  

Increase in cash surrender value of life insurance

( 325 )  

Decrease (increase) in derivative assets

Increase (decrease) in accrued interest on deposits and borrowings

Increase in prepaid tax expense

( 194 )  

Increase in accrued tax expense

(Decrease) increase in derivative liabilities

( 4,311 )  

Gain on sale of mortgage servicing rights

( 601 )  

Change in other assets and other liabilities, net

( 6,189 )  

Net cash (used in) provided by operating activities

( 31,384 )  

142,604  

Investing activities:

Net increase in loans receivable

( 40,029 )  

Purchases of:

Debt securities

( 601 )  

Mortgage related securities

( 5,705 )  

( 6,516 )  

Bank owned life insurance

Premises and equipment

( 52 )  

Proceeds from:

1 unchanged sentence

Maturities of debt securities

Sales of FHLB Stock

Death benefit on bank owned life insurance

Net cash used in investing activities

( 46,541 )  

Financing activities:

Net decrease in deposits

( 16,128 )  

Net change in short-term borrowings

24,912  

Repayment of long-term debt

( 25,000 )  

Proceeds from long-term debt

115,000  

Net change in advance payments by borrowers for taxes

( 3,772 )  

Cash dividends on common stock

( 4,197 )  

Purchase of common stock returned to authorized but unissued

( 5,841 )  

Proceeds from stock option exercises

Net cash provided by (used in) financing activities

85,475  

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

46,642  

376,722  

Cash and cash equivalents at end of period

$ 54,192  

$ 278,530  

Supplemental information:

1 unchanged sentence

Income tax payments

$ 2,135  

Interest payments

24 unchanged sentences

December 31, 2022 Annual Report on Form 10 -K.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 

2023   or for any other period.

4 unchanged sentences

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10 -Q were issued.

There were no significant subsequent events for the three months ended March 31, 2023 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.

There were no significant subsequent events for the three and six months ended June 30, 2023 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.

Accounting Standards Adopted in 2023

5 unchanged sentences

The amortized cost and fair values of the Company’s investment in securities available for sale follow:

March 31, 2023

June 30, 2023

(In Thousands)

68 unchanged sentences

The Company’s mortgage-backed securities and collateralized mortgage obligations issued by government sponsored enterprises are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

At March 31, 2023 , $ 239,000  of the Company’s mortgage related securities were pledged as collateral to secure mortgage banking related activities.

At June 30, 2023 , $ 216,000  of the Company’s mortgage related securities were pledged as collateral to secure mortgage banking related activities.

At December 31, 2022 , $ 259,000  of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities.

The amortized cost and fair values of investment securities by contractual maturity at March 31, 2023 are shown below.

The amortized cost and fair values of investment securities by contractual maturity at June 30, 2023 are shown below.

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

20 unchanged sentences

Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:

March 31, 2023

June 30, 2023

Less than 12 months

26 unchanged sentences

$ 27,232  

$ 23,845  

December 31, 2022

31 unchanged sentences

In making this evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

As of March 31, 2023 and December 31, 2022 , 

As of June 30, 2023 and December 31, 2022 , 

no  allowance for credit losses on securities was recognized.

2 unchanged sentences

During the 

three months ended March 31, 2023 and March 31, 2022 , there were no sales of securities.

three and six months ended June 30, 2023  and June 30, 2022 , there were no sales of securities.

Note 3 - Loans Receivable

Loans receivable at March 31, 2023 and December 31, 2022 are summarized as follows:

March 31, 2023

Loans receivable at June 30, 2023 and December 31, 2022 are summarized as follows:

June 30, 2023

December 31, 2022

24 unchanged sentences

While the real estate collateralizing these loans is primarily residential in nature, it ranges from owner-occupied single family homes to large apartment complexes.

Qualifying loans receivable totaling $ 1.14  billion and $ 976.7  million at March 31, 2023 and December 31, 2022 , respectively, were pledged as collateral against $ 500.5 million and $ 385.7  million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at March 31, 2023 and December 31, 2022 .

Qualifying loans receivable totaling $ 1.19  billion and $ 976.7  million at June 30, 2023 and December 31, 2022 , respectively, were pledged as collateral against $ 595.5 million and $ 385.7  million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at June 30, 2023 and December 31, 2022 .

Certain of the Company's executive officers, directors, employees, and their related interests have loans with the Bank.

Loans outstanding to such parties were approximately $ 3.1 million as of March 31, 2023  and $ 2.8  million as of December 31, 2022 . 

None of these loans were past due or considered impaired as of March 31, 2023 or December 31, 2022 .

An analysis of past due loans receivable as of March 31, 2023 and December 31, 2022 follows:

As of March 31, 2023

Loans outstanding to such parties were approximately $ 3.1 million as of June 30, 2023  and $ 2.8  million as of December 31, 2022 . 

None of these loans were past due or considered impaired as of June 30, 2023 or December 31, 2022 .

An analysis of past due loans receivable as of June 30, 2023 and December 31, 2022 follows:

As of June 30, 2023

1-59 Days Past Due (1)  

63 unchanged sentences

$ 1,510,178  

 Includes $ 40,000  and $ -  at March 31, 2023 and December 31, 2022 , respectively, which are on non-accrual status.

 Includes $ 32,000  and $ -  at June 30, 2023 and December 31, 2022 , respectively, which are on non-accrual status.

( 2 )   

Includes $ -  and $ -  at 

March 31, 2023 and December 31, 2022 , respectively, which are on non-accrual status.

June 30, 2023 and December 31, 2022 , respectively, which are on non-accrual status.

( 3 )   

Includes $ -  million and $ 624,000  at 

March 31, 2023 and December 31, 2022 , respectively, which are on non-accrual status.

Includes $ -  and $ 624,000  at 

June 30, 2023 and December 31, 2022 , respectively, which are on non-accrual status.

The following tables present the activity in the allowance for credit losses by portfolio segment for the 

three months ended March 31, 2023 and the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2022 :

three and six months ended June 30, 2023 and the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2022 :

One- to Four-Family

2 unchanged sentences

(In Thousands)

Three months ended March 31, 2023

Six months ended June 30, 2023

Balance at beginning of period

9 unchanged sentences

( 29 )  

( 26 )  

Balance at end of period

3 unchanged sentences

$ 2,600  

Three months ended March 31, 2022

$ 18,374  

Six months ended June 30, 2022

Balance at beginning of period

11 unchanged sentences

( 162 )  

( 65 )  

Balance at end of period

4 unchanged sentences

$ 17,271  

One to-Four- Family

Construction and Land

Commercial Real Estate

(In Thousands)

Three months ended June 30, 2023

Balance at beginning of period

$ 5,786  

$ 7,848  

$ 2,678  

$ 17,744  

Adoption of CECL

Provision (credit) for credit losses - loans

( 426 )  

( 78 )  

( 26 )  

Balance at end of period

$ 6,529  

$ 7,425  

$ 1,060  

$ 2,600  

$ 18,374  

Three months ended June 30, 2022

Balance at beginning of period

$ 4,415  

$ 6,562  

$ 1,831  

$ 3,631  

$ 16,905  

Provision for loan losses

( 27 )  

( 142 )  

( 472 )  

( 44 )  

( 65 )  

Balance at end of period

$ 4,629  

$ 7,391  

$ 1,690  

$ 3,160  

$ 17,271  

The Company utilized the Vintage Loss Rate method in determining expected future credit losses.

32 unchanged sentences

This reserve is maintained at a level that management believes is sufficient to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL-Loans.

The allowance for unfunded commitments at March 31, 2023 and December 31, 2022  was $ 1.8  million and $ 1.3  million.

The allowance for unfunded commitments at June 30, 2023 and December 31, 2022  was $ 1.4  million and $ 1.3  million.

Provision for Credit Losses :

2 unchanged sentences

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

(In Thousands)

Provision (credit) for credit losses on:

$ ( 25 )  

Unfunded commitments

( 462 )  

( 211 )  

Investment securities

2 unchanged sentences

For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following tables present collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation.

The following tables present collateral dependent loans by portfolio segment and collateral type as of March 31, 2023  and 

The following tables present collateral dependent loans by portfolio segment and collateral type as of June 30, 2023  and 

December 31, 2022 :

11 unchanged sentences

$ 2,600  

$ 18,374  

Collateral dependent loans

65 unchanged sentences

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of March 31, 2023 and December 31, 2022 :

The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of June 30, 2023 and December 31, 2022 :

One to Four-Family

2 unchanged sentences

(In Thousands)

At March 31, 2023

At June 30, 2023

$ 4,107  

16 unchanged sentences

$ 35,594  

$ 1,614,684  

At December 31, 2022

18 unchanged sentences

Credit Quality Information:

The following table presents total loans by risk categories and year of origination as of March 31, 2023 :

The following table presents total loans by risk categories and year of origination as of June 30, 2023 :

(In Thousands)

30 unchanged sentences

11,663  

11,463  

Construction and land

3 unchanged sentences

11,393  

24,638  

48,794  

Commercial Real Estate

91 unchanged sentences

The following presents data on restructurings of financing receivables whose borrowers are experiencing financial difficulty:

As of March 31, 2023

As of June 30, 2023

(Dollars in Thousands)

5 unchanged sentences

The following presents restructurings of financing receivables whose borrowers are experiencing financial difficulty by concession type:

As of March 31, 2023

As of June 30, 2023

Performing in accordance with modified terms

9 unchanged sentences

There were no  restructurings of financing receivables whose borrowers are experiencing financial difficulty during the 

three months ended March 31, 2023 .

 There were 

two loans modified as troubled debt restructurings with a total loan balance of $ 432,000 during the three months ended 

March 31, 2022 .

There were no restructurings of financing receivables whose borrowers are experiencing financial difficulty within the past twelve months of which there was a default during the three months ended March 31, 2023 . There were no troubled debt restructurings within the past twelve months of which there was a default during the three months ended March 31, 2022 .

The following table presents data on non-accrual loans as of March 31, 2023 and December 31, 2022 :

March 31, 2023

three or six months ended June 30, 2023 .

There were no loans modified as troubled debt restructurings during the three months ended June 30, 2022.

There were 

one -to four -family loans modified as troubled debt restructurings with a total loan balance of $ 424,000 during the 

six months ended 

June 30, 2022 . 

The following table presents data on non-accrual loans as of June 30, 2023 and December 31, 2022 :

June 30, 2023

December 31, 2022

13 unchanged sentences

0.19 %  

Residential one - to four -family mortgage loans that were in the process of foreclosure were $ 467,000  and $ 795,000   at March 31, 2023  and 

Residential one - to four -family mortgage loans that were in the process of foreclosure were $ 601,000  and $ 795,000   at June 30, 2023  and 

December 31, 2022 , respectively.

2 unchanged sentences

The following table presents the activity in the Company’s mortgage servicing rights:

Three months ended March 31,

Six months ended June 30,

(In Thousands)

Mortgage servicing rights at beginning of the period

$ 3,445  

$ 1,555  

( 123 )  

( 2,767 )  

Mortgage servicing rights at end of the period

1 unchanged sentence

Mortgage servicing rights at end of the period, net

During the three months ended March 31, 2023 , $ 415.7  million in residential loans were originated for sale on a consolidated basis generating mortgage banking income of $ 16.8  million.

During the same period in the prior year, sales of loans held for sale totaled $ 698.1  million, generating mortgage banking income of $ 28.3 million.

The unpaid principal balance of loans serviced for others was $ 116.6 million and $ 409.6  million at March 31, 2023 and December 31, 2022 , respectively.

$ 1,314  

$ 2,835  

During the six months ended June 30, 2023 , $ 977.8  million in residential loans were originated for sale on a consolidated basis generating mortgage banking income of $ 38.7  million.

During the same period in the prior year, sales of loans held for sale totaled $ 1.45  billion, generating mortgage banking income of $ 57.7 million.

The unpaid principal balance of loans serviced for others was $ 156.3 million and $ 409.6  million at June 30, 2023 and December 31, 2022 , respectively.

These loans are not reflected in the consolidated statements of financial condition.

The fair value of mortgage servicing rights were $ 1.2 million at March 31, 2023 and $ 5.0  million at 

December 31, 2022 .

The fair value of mortgage servicing rights was $ 1.7 million at June 30, 2023 and $ 5.0  million at 

December 31, 2022 , respectively.

During the 

three months ended March 31, 2023 , the Company sold mortgage servicing rights related to $ 318.4  million in loans receivable with a book value of $ 2.8  

million for $ 3.5  million resulting in a gain on sale of $ 601,000 .

During the three months ended 

March 31, 2022 , there were no sales of mortgage servicing rights.

six months ended June 30, 2023  the Company sold mortgage servicing rights related to $ 318.4  million in loans receivable with a book value of $ 2.9  million for $ 3.5  million resulting in a gain on sale of $ 583,000 .

During the three months ended June 30, 2023, there were no sales of mortgage servicing rights.

During the three and six  months ended 

June 30, 2022 , there were no sales of mortgage servicing rights.

The following table shows the estimated future amortization expense for mortgage servicing rights for the periods indicated:

1 unchanged sentence

Estimate for the annual period ending December 31:

$ 1,314  

Note 5  

At March 31, 2023 and December 31, 2022 , the aggregate balance of uninsured time deposits of $250,000 or more was $ 120.3 million and $ 115.5 million, respectively.

At June 30, 2023 and December 31, 2022 , the aggregate balance of uninsured time deposits of $250,000 or more was $ 122.8 million and $ 115.5 million, respectively.

The Company does not have uninsured deposits less than $250,000 in aggregate balance.

A summary of the contractual maturities of time deposits at March 31, 2023 is as follows:

A summary of the contractual maturities of time deposits at June 30, 2023 is as follows:

(In Thousands)

Within one year

$ 603,931  

More than one to two years

101,241  

More than two to three years

1 unchanged sentence

More than four through five years

Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are depositors of the Corporation.

Such deposits amounted to $ 7.8 million and $ 9.2 million at March 31, 2023 and December 31, 2022 , respectively.

As of March 31, 2023 , overdrawn deposit accounts totaling $ 1.2  million were reclassified as loan balances.

$ 709,108  

Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are depositors of the Bank.

Such deposits amounted to $ 7.6 million and $ 9.2 million at June 30, 2023 and December 31, 2022 , respectively.

Note 6  

Borrowings consist of the following:

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Repurchase agreements

$ 19,377  

8.45 %  

$ 1,084  

Federal Home Loan Bank, Chicago advances

400,500  

5.18 %  

185,700  

Federal Home Loan Bank, Chicago advances maturing:

The short-term repurchase agreement represents the outstanding portion of a total $ 50.0  million commitment with one unrelated bank as of March 31, 2023 . 

125,000  

3.83 %  

125,000  

50,000  

1.73 %  

50,000  

0.00 %  

25,000  

20,000  

2.38 %  

$ 614,877  

4.64 %  

$ 386,784  

The short-term repurchase agreement represents the outstanding portion of a total $ 50.0  million commitment with one unrelated bank as of June 30, 2023 . 

The short-term repurchase agreement is utilized by Waterstone Mortgage Corporation to finance loans originated for sale.

1 unchanged sentence

Related interest rates are based upon the note rate associated with the loans being financed.

The short-term repurchase agreement had a $ 1.2 million balance at March 31, 2023 and a $ 1.1 million balance at December 31, 2022 .

The short-term repurchase agreement had a $ 19.4 million balance at June 30, 2023 and a $ 1.1 million balance at December 31, 2022 .

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities.

6 unchanged sentences

Under the master netting agreement, the Company is entitled to set off the collateral placed with a single counterparty against obligations owed to that counterparty.

The $ 210.5 million FHLB short-term advances consist of a $ 35.0 million advance with a fixed rate of 

4.76 % and a maturity date of 

April 3, 2023, 

a $ 25.0  million advance with a fixed rate of 

4.86 % and a maturity date of 

April 3, 2023, 

a $ 25.0  million advance with a fixed rate of 

4.79 % and a maturity date of 

April 17, 2023, 

a $ 37.0  million advance with a fixed rate of 

4.77 % and a maturity date of April 21, 2023, 

a $ 25.0  million advance with a fixed rate of 

4.88 % and a maturity date of May 

1, 2023,  a $ 38.5 million advance with a fixed rate of 

4.85 % and a maturity date of May 

8, 2023,  and a $ 25.0  million advance with a fixed rate of 

The $ 400.5  million FHLB short-term advances consist of a $ 51.0 million advance with a fixed rate of 

5.21 % and a maturity date of 

June 1, 2023.

3, 2023,  a $ 15.0 million advance with a fixed rate of 5.19 % and a maturity date of July 5, 2023, a $ 41.0 million advance with a fixed rate of 5.17 % and a maturity date of July 12, 2023, a $ 42.0 million advance with a fixed rate of 5.17 % and a maturity date of July 13, 2023, a $ 30.0 million advance with a fixed rate of 5.25 % and a maturity date of July 14, 2023, a $ 7.0 million advance with a fixed rate of 5.11 % and a maturity date of July 18, 2023, a $ 43.0 million advance with a fixed rate of 5.22 % and a maturity date of July 19, 2023, a $ 25.0 million advance with a fixed rate of 5.21 % and a maturity date of July 20, 2023, a $ 45.0 million advance with a fixed rate of 5.21 % and a maturity date of July 24, 2023, a $ 20.0 million advance with a fixed rate of 5.19 % and a maturity date of July 24, 2023, a $ 16.5 million advance with a fixed rate of 5.12 % and a maturity date of July 26, 2023, a $ 44.5 million advance with a fixed rate of 5.12 % and a maturity date of July 26, 2023, and a $ 20.5 million advance with a fixed rate of 5.11 % and a maturity date of July 27, 2023.

The $ 125.0  million in advances due in 

10 unchanged sentences

one  $ 25.0  million advance with a fixed rate of 

3.82 % and a quarterly call option starting in 

3.82 % and a quarterly call option available to be exercised.

The $ 50.0  million advance due in 

4 unchanged sentences

2033  consists of 

one $ 20.0  million advance with a fixed rate of 2.38 % and a quarterly call option starting in 

April 2023, 

one  $ 20.0  million advance with a fixed rate of 

2.38 % and a monthly call option currently available, 

one  $ 25.0  million advance with a fixed rate of 

2.45 % and a monthly call option starting in 

April 2023, 

one  $ 25.0  million advance with a fixed rate of 

2.54 % and a monthly call option starting in 

April 2023, 

one  $ 25.0  million advance with a fixed rate of 

2.35 % and a quarterly call option starting in 

one $ 20.0  million advance with a fixed rate of 2.38 % and a quarterly call option available to be exercised.

At June 30, 2023 , the Company had approximately $ 184.7 million in unused borrowing capacity at the FHLB.

The Company selects loans that meet underwriting criteria established by the FHLB as collateral for outstanding advances.

The Company’s borrowings from the FHLB are limited to 78 % of the carrying value of unencumbered one - to four -family mortgage loans, 73 % of the carrying value of multi-family loans and 63 % of the carrying value of home equity loans.

In addition, these advances were collateralized by FHLB stock of $ 23.9  million at March 31, 2023 and $ 17.4  million at 

In addition, these advances were collateralized by FHLB stock of $ 26.8  million at June 30, 2023 and $ 17.4  million at 

December 31, 2022 , respectively.

23 unchanged sentences

The minimum capital conservation buffer is 2.5%.

As of March 31, 2023 , the Bank was well-capitalized, with all capital ratios exceeding the well-capitalized requirement.

As of June 30, 2023 , the Bank was well-capitalized, with all capital ratios exceeding the well-capitalized requirement.

There are no conditions or events that management believes have changed the Bank’s prompt corrective action capitalization category.

The Bank is subject to regulatory restrictions on the amount of dividends it may declare and pay to the Company without prior regulatory approval, and to regulatory notification requirements for dividends that do not require prior regulatory approval.

The actual and required capital amounts and ratios for the Bank as of March 31, 2023 and December 31, 2022 are presented in the tables below:

March 31, 2023

The actual and required capital amounts and ratios for the Bank as of June 30, 2023 and December 31, 2022 are presented in the tables below:

June 30, 2023

For Capital Adequacy Purposes

4 unchanged sentences

Consolidated Waterstone Financial, Inc.

$ 395,715  

22.43 %  

$ 141,140  

8.00 %  

$ 185,240  

10.50 %  

Waterstone Bank

356,550  

20.18 %  

141,350  

8.00 %  

185,520  

10.50 %  

176,685  

Tier I Capital (to risk-weighted assets)

Consolidated Waterstone Financial, Inc.

375,980  

21.31 %  

105,860  

6.00 %  

149,970  

8.50 %  

Waterstone Bank

336,815  

19.06 %  

106,030  

6.00 %  

150,210  

8.50 %  

141,370  

Common Equity Tier 1 Capital (to risk-weighted assets)

Consolidated Waterstone Financial, Inc.

375,980  

21.31 %  

79,400  

4.50 %  

123,500  

7.00 %  

Waterstone Bank

336,815  

19.06 %  

79,520  

4.50 %  

123,700  

7.00 %  

114,863  

Tier I Capital (to average assets)

Consolidated Waterstone Financial, Inc.

375,980  

17.39 %  

86,480  

4.00 %  

Waterstone Bank

336,815  

15.58 %  

86,470  

4.00 %  

108,092  

State of Wisconsin (to total assets)

Waterstone Bank

December 31, 2022

336,815  

15.13 %  

133,570  

6.00 %  

December 31, 2022  

For Capital Adequacy Purposes

4 unchanged sentences

Consolidated Waterstone Financial, Inc.

$ 407,099  

24.36 %  

$ 133,709  

8.00 %  

$ 175,493  

10.50 %  

Waterstone Bank

359,623  

21.52 %  

133,690  

8.00 %  

175,468  

10.50 %  

167,112  

Tier I capital (to risk-weighted assets)

Consolidated Waterstone Financial, Inc.

389,342  

23.29 %  

100,281  

6.00 %  

142,065  

8.50 %  

Waterstone Bank

341,866  

20.46 %  

100,267  

6.00 %  

142,045  

8.50 %  

133,690  

Common Equity Tier 1 Capital (to risk-weighted assets)

Consolidated Waterstone Financial, Inc.

389,342  

23.29 %  

75,211  

4.50 %  

116,995  

7.00 %  

Waterstone Bank

341,866  

20.46 %  

75,200  

4.50 %  

116,978  

7.00 %  

108,623  

Tier I Capital (to average assets)

Consolidated Waterstone Financial, Inc.

389,342  

19.45 %  

80,080  

4.00 %  

Waterstone Bank

341,866  

17.08 %  

80,080  

4.00 %  

100,100  

State of Wisconsin (to total assets)

Waterstone Bank

341,866  

16.87 %  

121,624  

6.00 %  

Note 8 –

4 unchanged sentences

The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

March 31, 2023

June 30, 2023

December 31, 2022

11 unchanged sentences

17,356  

Standby letters of credit

12 unchanged sentences

The Company has determined that there are no probable losses related to commitments to extend credit or the standby letters of credit as of 

March 31, 2023  and 

June 30, 2023  and 

December 31, 2022 . Please see Note 3 - Loans Receivable for discussion on the allowance for credit losses - unfunded commitments.  

7 unchanged sentences

historical experience has resulted in insignificant losses and repurchase activity.

The Company's reserve for losses related to these recourse provisions totaled $ 2.1  million and $ 2.0 million as of March 31, 2023 and December 31, 2022 , respectively.

The Company's reserve for losses related to these recourse provisions totaled $ 2.0  million as of June 30, 2023 and December 31, 2022 .

In the normal course of business, the Company, or its subsidiaries, are involved in various legal proceedings. 

3 unchanged sentences

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Company enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates.   Mortgage banking derivatives include interest rate lock commitments provided to customers to fund mortgage loans to be sold in the secondary market and forward commitments for the future delivery of such loans.  It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale.  The Company’s mortgage banking derivatives have not been designated as being a hedge relationship.  These instruments are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815.

  Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.  The Company does not use derivatives for speculative purposes.

25 unchanged sentences

The following tables presents the outstanding notional balances and fair values of outstanding derivative instruments:

March 31, 2023

June 30, 2023

Derivatives not designated as Hedging Instruments

35 unchanged sentences

Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements.

As of March 31, 2023  and December 31, 2022 , 

As of June 30, 2023  and December 31, 2022 , 

no  back-to-back swaps were in default. 

1 unchanged sentence

Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank. 

No  right of offset existed with dealer counterparty swaps as of March 31, 2023 and December 31, 2022 . 

No  right of offset existed with dealer counterparty swaps as of June 30, 2023 and December 31, 2022 . 

All changes in the fair value of these instruments are recorded in other non-interest income.

The Company pledged no cash at March 31, 2023 and at December 31, 2022 .

The Company pledged no cash at June 30, 2023 and at December 31, 2022 .

Note 10 –

5 unchanged sentences

194,000 and 

87,000 antidilutive shares of common stock for the three months ended March 31, 2023 and 2022 , respectively. 

186,000 antidilutive shares of common stock for the three months ended June 30, 2023 and 2022 , respectively.

There were 

181,000  and 

112,000  antidilutive shares of common stock for the six months ended 

June 30, 2023 and 2022 , respectively. 

Presented below are the calculations for basic and diluted earnings per share:

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands, except per share amounts)

$ 4,007  

$ 7,990  

$ 6,162  

$ 13,282  

Weighted average shares outstanding

20,384  

22,126  

20,635  

22,626  

Effect of dilutive potential common shares

Diluted weighted average shares outstanding

$ 20,431  

$ 22,229  

$ 20,702  

$ 22,768  

Basic earnings per share

$ 0.20  

$ 0.36  

$ 0.30  

$ 0.59  

Diluted earnings per share

$ 0.20  

$ 0.36  

$ 0.30  

$ 0.58  

Note 11 –

11 unchanged sentences

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table presents information about our assets recorded in the consolidated statements of financial condition at their fair value on a recurring basis as of March 31, 2023 and December 31, 2022 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

The following table presents information about our assets recorded in the consolidated statements of financial condition at their fair value on a recurring basis as of June 30, 2023 and December 31, 2022 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

Fair Value Measurements Using

March 31, 2023

June 30, 2023

(In Thousands)

1 unchanged sentence

Mortgage-backed securities

$ 12,787  

Collateralized mortgage obligations

Government sponsored enterprise issued

128,978  

Private-label issued

1 unchanged sentence

Municipal securities

37,219  

Other debt securities

11,104  

Other securities

Loans held for sale

161,325  

Mortgage banking derivative assets

Interest rate swap assets

12,291  

Mortgage banking derivative liabilities

Interest rate swap liabilities

12,291  

Fair Value Measurements Using

3 unchanged sentences

Mortgage-backed securities

$ 13,314  

Collateralized mortgage obligations

Government sponsored enterprise issued

124,765  

Private-label issued

1 unchanged sentence

Municipal securities

36,934  

Other debt securities

11,162  

Other securities

Loans held for sale

131,188  

Mortgage banking derivative assets

Interest rate swap assets

14,226  

Mortgage banking derivative liabilities

Interest rate swap liabilities

14,226  

The following summarizes the valuation techniques for assets recorded in the consolidated statements of financial condition at their fair value on a recurring basis:

30 unchanged sentences

2023 and 2022 .

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands)

Mortgage derivative, net balance at the beginning of the period

1 unchanged sentence

$ ( 994 )  

Mortgage derivative gain, net

$ 4,369  

Mortgage derivative gain (loss), net

( 5,716 )  

Mortgage derivative, net balance at the end of the period

$ 2,504  

$ ( 143 )  

$ 2,504  

There were no transfers in or out of Level 1, 2 or 3 measurements during the periods.

Assets Recorded at Fair Value on a Non-recurring Basis

The following tables present information about assets recorded in the consolidated statements of financial condition at their fair value on a non-recurring basis as of March 31, 2023 and December 31, 2022 , and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.

The following tables present information about assets recorded in the consolidated statements of financial condition at their fair value on a non-recurring basis as of June 30, 2023 and December 31, 2022 , and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.

Fair Value Measurements Using

March 31, 2023

June 30, 2023

(In Thousands)

16 unchanged sentences

The Company records the mortgage servicing rights at the lower of amortized cost or fair value. 

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2023  and 

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2023  and 

December 31, 2022 , the significant unobservable inputs used in the fair value measurements were as follows:

Significant Unobservable Input Value

Fair Value at  

(Dollars in Thousands)  

Fair Value at

(Dollars in Thousands)

Mortgage banking derivatives

1 unchanged sentence

Pull through rate

10.0 %  

99.7 %  

Real estate owned

1 unchanged sentence

Discount rates applied to appraisals

34.8 %  

December 31,  

Mortgage banking derivatives

1 unchanged sentence

Pull through rate

20.6 %  

100.0 %  

Real estate owned

1 unchanged sentence

Discount rates applied to appraisals

34.8 %  

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

6 unchanged sentences

The carrying amounts and fair values of the Company’s financial instruments consist of the following:

March 31, 2023

June 30, 2023

December 31, 2022

2 unchanged sentences

Cash and cash equivalents

$ 54,192  

$ 46,642  

Loans receivable

1,550,219  

1,377,660  

1,510,178  

1,403,429  

23,873  

17,357  

Accrued interest receivable

1 unchanged sentence

Financial Liabilities

1,182,884  

1,180,216  

507,018  

673,198  

1,199,012  

1,194,559  

556,741  

637,818  

Advance payments by borrowers for taxes

13,434  

501,696  

479,422  

386,784  

377,275  

Accrued interest payable

20 unchanged sentences

Fair values for the Company’s commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparty’s credit standing, and discounted cash flow analyses.

The fair value of the Company’s commitments to extend credit was not material at March 31, 2023 and December 31, 2022 .

The fair value of the Company’s commitments to extend credit was not material at June 30, 2023 and December 31, 2022 .

Note 12 –

21 unchanged sentences

Presented below is the segment information:

As of or for the three months ended March 31, 2023

As of or for the three months ended June 30, 2023

(In Thousands)

Net interest income (expense)

$ 13,238  

$ ( 622 )  

$ 12,675  

Provision for credit losses

Net interest income (expense) after provision for credit losses

13,080  

( 650 )  

12,489  

Noninterest income:

23,041  

( 1,056 )  

23,525  

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

17,929  

( 217 )  

22,395  

Occupancy, office furniture and equipment

4 unchanged sentences

Loan processing expense

( 884 )  

Total noninterest expenses

23,761  

( 1,087 )  

30,922  

Income (loss) before income taxes (benefit)

( 1,370 )  

Income tax expense (benefit)

( 126 )  

Net income (loss)

As of or for the three months ended March 31, 2022

$ 5,190  

$ ( 1,244 )  

$ 4,007  

$ 2,169,989  

$ 251,595  

$ ( 191,759 )  

$ 2,229,825  

As of or for the three months ended June 30, 2022

(In Thousands)

Net interest income (expense)

$ 13,710  

$ 14,081  

Provision (credit) for loan losses

( 41 )  

Net interest income (expense) after provision (credit) for loan losses

13,751  

14,033  

Noninterest income:

30,126  

( 528 )  

31,238  

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

21,311  

( 114 )  

25,793  

Occupancy, office furniture and equipment

4 unchanged sentences

Loan processing expense

( 385 )  

Total noninterest expenses

28,106  

( 490 )  

35,050  

Income (loss) before income taxes

( 37 )  

10,221  

Income tax expense (benefit)

Net income (loss)

$ 6,299  

$ 1,723  

$ ( 32 )  

$ 7,990  

$ 1,896,227  

$ 269,584  

$ ( 224,714 )  

$ 1,941,097  

As of or for the six months ended June 30, 2023

(In Thousands)

Net interest income

$ 27,246  

$ ( 904 )  

$ 26,470  

Provision for credit losses

Net interest income after provision for credit losses

26,700  

( 1,004 )  

25,824  

Noninterest income:

40,992  

( 1,440 )  

42,079  

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

33,028  

( 432 )  

42,447  

Occupancy, office furniture and equipment

Data processing

Communications

Professional fees

Real estate owned

Loan processing expense

( 1,088 )  

Total noninterest expenses

16,425  

45,095  

( 1,491 )  

60,029  

Income (loss) before income taxes (benefit)

12,802  

( 5,107 )  

Income tax expense (benefit)

( 1,128 )  

Net income (loss)

$ 10,020  

$ ( 3,979 )  

$ 6,162  

As of or for the six months ended June 30, 2022

(In Thousands)

Net interest income (expense)

$ 25,362  

$ 25,945  

Provision (credit) for loan losses

( 181 )  

Net interest income (expense) after provision (credit) for loan losses

25,543  

25,973  

Noninterest income:

58,730  

( 746 )  

61,056  

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

41,749  

( 229 )  

51,328  

Occupancy, office furniture and equipment

Data processing

Communications

Professional fees

Real estate owned

Loan processing expense

( 427 )  

Total noninterest expenses

15,231  

55,385  

( 632 )  

69,984  

Income (loss) before income taxes

13,384  

( 84 )  

17,045  

Income tax expense (benefit)

( 17 )  

Net income (loss)

$ 10,559  

$ 2,790  

$ ( 67 )  

$ 13,282  

Management ’

53 unchanged sentences

It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith.

The detailed discussion in the sections below focuses on the results of operations for the three months ended March 31, 2023 and 2022 and the financial condition as of March 31, 2023 compared to the financial condition as of December 31, 2022.

The detailed discussion in the sections below focuses on the results of operations for the three and six months ended June 30, 2023 and 2022 and the financial condition as of June 30, 2023 compared to the financial condition as of December 31, 2022.

As described in the notes to the unaudited consolidated financial statements, we have two reportable segments:

6 unchanged sentences

Our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses.

We have provided below a discussion of the material results of operations for each segment on a separate basis for the three months ended March 31, 2023 and 2022, which focuses on noninterest income and noninterest expenses.

We have provided below a discussion of the material results of operations for each segment on a separate basis for the three and six months ended June 30, 2023 and 2022, which focuses on noninterest income and noninterest expenses.

We have also provided a discussion of the consolidated operations of the Company, which includes the consolidated operations of the Bank and Waterstone Mortgage Corporation, for the same periods.

Recent Industry Developments

During the first quarter of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system.

During the first half of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system.

Despite these negative industry developments, the Company’s liquidity position and balance sheet remains stable.

The Company’s total deposits decreased by 1.3% as compared to December 31, 2022, to $1.18 billion at March 31, 2023 as we experienced minimal deposit outflow in the first quarter.

The Company also took a number of preemptive actions, which included proactive outreach to clients and actions to maximize its funding sources in response to these recent developments.

Furthermore, the Company’s capital remains well capitalized with a Total Capital ratio of 23.27% as of March 31, 2023.

The Company’s total deposits decreased by 1.0% as compared to December 31, 2022, to $1.19 billion at June 30, 2023 as we experienced minimal deposit outflow in the first half of the year.

Deposits increased $4.1 million during the three months ended June 30, 2023. The Company also took a number of preemptive actions, which included proactive outreach to clients and actions to maximize its funding sources in response to these recent developments.

Furthermore, the Company remains well capitalized for regulatory purposes with a Total Capital ratio of 22.43% as of June 30, 2023.

Significant Items

There were no significant items that impacted earnings for the three months ended March 31, 2023 and 2022. 

Comparison of Community Banking Segment Results of Operations for the Three Months Ended March 31, 2023 and 2022

Net income totaled $4.8 million for the three months ended March 31, 2023 compared to $4.3 million for the three months ended March 31, 2022.

Net interest income increased $2.4 million to $14.0 million for the three months ended March 31, 2023 compared to $11.7 million for the three months ended March 31, 2022. 

There were no significant items that impacted earnings for the three and six months ended June 30, 2023 and 2022. 

Comparison of Community Banking Segment Results of Operations for the Three Months Ended June 30, 2023 and 2022

Net income totaled $5.2 million for the three months ended June 30, 2023 compared to $6.3 million for the three months ended June 30, 2022.

Net interest income decreased $472,000 to $13.2 million for the three months ended June 30, 2023 compared to $13.7 million for the three months ended June 30, 2022. 

Interest expense on deposits and borrowings increased as replacement rates increased in the rising interest rate environment. Offsetting the increase in interest expense on deposit and borrowings, interest income on loans increased as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on mortgage-related securities increased due to the increase in the average balance and replacement rates.

There was a provision for credit losses of $158,000 for the three months ended June 30, 2023 compared to a $41,000 negative provision for credit losses for the three months ended June 30, 2022.

The provision for credit losses of $158,000 consisted of a $619,000 provision related to loans partially offset by a negative $462,000 provision related to unfunded commitments for the three months ended June 30, 2023.

During the three months ended June 30, 2023, the increase related to loans was primarily due to an increase in originations and loan balance and the decrease in provision related to unfunded commitments was primarily due to a decrease in the loan pipeline. We made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

The forecast factor remained unchanged as we monitor the economic environment going forward.  

Total noninterest income decreased $100,000 to $1.5 million during the three months ended June 30, 2023 due primarily to a decrease in prepayment penalties on loans during the three months ended June 30, 2023.

Compensation, payroll taxes, and other employee benefits expense increased $87,000 to $4.7 million compared to the quarter ending June 30, 2022 primarily due to an increase in salaries due to annual raises that took place at the beginning of the year.

Other noninterest expense increased $635,000 to $1.6 million as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans increased.

These fees are eliminated in the consolidated statements of income.

Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended June 30, 2023 and 2022

Net loss totaled $1.2 million for the three months ended June 30, 2023 compared to net income of $1.7 million for the three months ended June 30, 2022.

We originated $623.3 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended June 30, 2023, which represents a decrease of $155.4 million, or 20.0%, from the $778.8 million originated during the three months ended June 30, 2022.

The decrease in loan production volume was driven by a $52.3 million, or 70.0%, decrease in refinance products as mortgage rates have increased over the past year.

Mortgage purchase products decreased $103.1 million, or 14.6%, due to inventory constraints in the market, affordability, and interest rate increases.

Total mortgage banking noninterest income decreased $7.1 million, or 23.5%, to $23.0 million during the three months ended June 30, 2023 compared to $30.1 million during the three months ended June 30, 2022. 

The decrease in mortgage banking noninterest income was related to a 20.0% decrease in volume and a 3.0% decrease in gross margin on loans originated and sold for the three months ended June 30, 2023 compared to June 30, 2022. 

Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations.

The gross margin on loans originated and sold contraction reflects decreased industry demand due to the increased competition from mortgage originators.

We sell loans on both a servicing-released and a servicing-retained basis. 

Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing. 

Additionally, our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance). 

Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S.

Department of Agriculture loan. 

Loans originated for the purchase of a residential property, which generally yield a higher margin than loans originated for refinancing existing loans, comprised 96.4% of total originations during the three months ended June 30, 2023, compared to 90.4% of total originations during the three months ended June 30, 2022, respectively, as refinance demand decelerated due to an increase in interest rates over the past year. 

The mix of loan type trended towards more governmental loans and less conventional loans, with governmental loans and conventional loans comprising 38.7% and 61.3% of all loan originations, respectively, during the three months ended June 30, 2023, compared to 25.7% and 74.3% of all loan originations, respectively, during the three months ended June 30, 2022.

Total compensation, payroll taxes and other employee benefits decreased $3.4 million, or 15.9%, to $17.9 million for the three months ended June 30, 2023 compared to $21.3 million for the three months ended June 30, 2022. The decrease in compensation expense was primarily related to decreased commission expense and salaries driven by decreased loan origination volume and reduction in headcount.

Consolidated Waterstone Financial, Inc.

Results of Operations

Three months ended June 30,

(Dollars In Thousands, except per share amounts)

Earnings per share - basic

Earnings per share - diluted

Annualized return on average assets

Annualized return on average equity

Net Interest Income

Average Balance Sheets, Interest and Yields/Costs

The following table sets forth average balance sheets, annualized average yields and costs, and certain other information for the periods indicated.

Non-accrual loans are included in the computation of the average balances of loans receivable and held for sale.

The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

Yields on interest-earning assets are computed on a fully tax-equivalent yield, where applicable.

Three months ended June 30,

Average Balance

(Dollars in Thousands)

Interest-earning assets:

Loans receivable and held for sale (1)

Mortgage related securities (2)

Debt securities, federal funds sold and short-term investments(2) (3)

Total interest-earning assets

Noninterest-earning assets

Liabilities and equity

Interest-bearing liabilities:

Demand accounts

Money market and savings accounts

Time deposits

Total interest-bearing deposits

Total interest-bearing liabilities

Noninterest-bearing liabilities

Noninterest-bearing deposits

Other noninterest-bearing liabilities

Total noninterest-bearing liabilities

Total liabilities

Total liabilities and equity

Net interest income / Net interest rate spread (4)

taxable equivalent adjustment

Net interest income, as reported

Net interest-earning assets (5)

Net interest margin (6)

Tax equivalent effect

Net interest margin on a fully tax equivalent basis

Average interest-earning assets to average interest-bearing liabilities

Interest income includes net deferred loan fee amortization income of $143,000 and $187,000 for the three months ended June 30, 2023 and 2022, respectively.

Average balance of mortgage related and debt securities are based on amortized historical cost.

Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended June 30, 2023 and 2022.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 3.67% and 1.56% for the three months ended June 30, 2023 and 2022, respectively.

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities and is presented on a fully tax equivalent basis.

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income for the periods indicated. 

The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). 

The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).

The net column represents the sum of the prior columns.

For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

Three months ended June 30,

2023 versus 2022

Increase (Decrease) due to

(In Thousands)

Interest income:

Loans receivable and held for sale(1) (2)

Mortgage related securities (3)

Other earning assets(3) (4)

Total interest-earning assets

Interest expense:

Demand accounts

Money market and savings accounts

Time deposits

Total interest-bearing deposits

Total interest-bearing liabilities

Net change in net interest income

______________

Interest income includes net deferred loan fee amortization income of $143,000 and $187,000 for the three months ended June 30, 2023 and 2022, respectively.

Non-accrual loans have been included in average loans receivable balance.

Includes available for sale securities.

Average balance of available for sale securities is based on amortized historical cost.

Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended June 30, 2023 and June 30, 2022.

Net interest income decreased $1.4 million, or 10.0%, to $12.7 million during the three months ended June 30, 2023 compared to $14.1 million during the three months ended June 30, 2022 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Interest income on loans increased $7.6 million, or 52.3%, to $22.2 million due primarily to a 98 basis point increase in average yield on loans as interest rates continued to increase over the past year and an increase in average loan balance as loans held for investment increased. The increase in average loan balance was driven by an increase of a $339.6 million, or 27.2%, in the average balance of loans held for investment offset by a decrease of $14.0 million, or 7.5%, in average loans held for sale.

Interest expense on time deposits increased $4.3 million, or 794.3%, to $4.9 million primarily due to a 243 basis point increase in average cost of time deposits.

Additionally, the average balance of time deposits increased $111.1 million compared to the prior year period.

Interest expense on money market, savings, and escrow accounts increased $890,000, or 461.1%, to $1.1 million due primarily to a 123 basis point increase in average cost of money market, savings, and escrow accounts as the account mix shifted towards more savings accounts.

Partially offsetting the increase in average cost, the average balance decreased $106.7 million. 

Interest expense on borrowings increased $4.0 million, or 254.6%, to $5.6 million due to a 213 basis point increase in the cost of borrowings during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 as the federal funds rate increased over the past year.

Additionally, the average balance increased $225.5 million to $551.5 million during the three months ended June 30, 2023, compared to $326.1 million during the three months ended June 30, 2022.

Provision for Credit Losses

There was a provision for credit losses of $186,000 for the three months ended June 30, 2023 compared to a $48,000 negative provision for credit losses for the three months ended June 30, 2022.

The $186,000 provision for credit losses consisted of a $648,000 provision related to loans and a negative $462,000 provision related to unfunded commitments for the three months ended June 30, 2023.

During the three months ended June 30, 2023, the increase related to loans was primarily due to an increase in originations and loan balance and the decrease in provision related to unfunded commitments was primarily due to a dcrease in the loan pipeline. We made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

The forecast factor remained unchanged as we monitor the economic environment going forward. 

The provision is primarily a function of the Company's reserving methodology and assessments of certain quantitative and qualitative factors which are used to determine an appropriate allowance for credit losses for the period. 

See further discussion regarding the allowance for loan losses in the "Asset Quality" section for an analysis of charge-offs, nonperforming assets, specific reserves and additional provisions and the "Allowance for Credit Loss" section.

Noninterest Income

Three months ended June 30,

(Dollars In Thousands)

Service charges on loans and deposits

Increase in cash surrender value of life insurance

Mortgage banking income

Total noninterest income

Total noninterest income decreased $7.7 million, or 24.7%, to $23.5 million during the three months ended June 30, 2023 compared to $31.2 million during the three months ended June 30, 2022.

The decrease resulted primarily from decreases in mortgage banking noninterest income and other income.

The decrease in mortgage banking income was primarily the result of a decrease in loan origination volume and gross margin on loans originated and sold.

Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. Total loan origination volume on a consolidated basis decreased $185.6 million, or 24.8%, to $562.1 million during the three months ended June 30, 2023 compared to $747.7 million during the three months ended June 30, 2022. Gross margin on loans originated and sold decreased 3.0% at the mortgage banking segment.

See "Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended June 30, 2023 and 2022" above for additional discussion of the decrease in mortgage banking income.

The decrease in other noninterest income was due primarily to a decrease in mortgage servicing fee income.

During the quarter ended March 31, 2023, the Company sold mortgage servicing rights related to $318.4 million in loans serviced for third parties.

As of June 30, 2023 and June 30, 2022, the Company maintained servicing rights related to $156.3 million and $345.8 million, respectively, in loans previously sold to third parties. 

Three months ended June 30,

(Dollars In Thousands)

Compensation, payroll taxes, and other employee benefits

Occupancy, office furniture, and equipment

Data processing

Communications

Professional fees

Real estate owned

Loan processing expense

Total noninterest expenses

Total noninterest expenses decreased $4.1 million, or 11.8%, to $30.9 million during the three months ended June 30, 2023 compared to $35.1 million during the three months ended June 30, 2022.

Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $3.4 million, or 15.9%, to $17.9 million during the three months ended June 30, 2023.

The decrease in compensation expense was primarily related to decreased commission expense and salary expense driven by decreased loan origination volume and a reduction in headcount.

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $87,000, or 1.9%, to $4.7 million during the three months ended June 30, 2023.

The increase was due primarily to an increase in salaries from annual raises that took place at the beginning of the year.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $7,000 to $1.2 million during the three months ended June 30, 2023, primarily resulting from decreased computer equipment expenses.

Occupancy, office furniture and equipment expense at the community banking segment decreased $3,000 to $1.0 million during the three months ended June 30, 2023.

The decrease was due primarily to decreased depreciation expenses. 

Advertising expense decreased $18,000, or 1.9%, to $944,000 million during the three months ended June 30, 2023.

This was primarily due to advertising at the community banking segment decreasing as marketing campaigns started off slower compared to prior year. 

Data processing expense decreased $54,000, or 4.7%, to $1.1 million during the three months ended June 30, 2023. This was primarily due to a decrease at the mortgage banking segments related to decreased projects compared to prior year.

Offsetting the decrease at the mortgage banking segment, the community banking segment increased due to additional investments in technology.  

Professional fees increased $269,000 to $618,000 during the three months ended June 30, 2023.

The increase related to an increase in legal and consulting fees at the mortgage banking segment.  

Loan processing expense decreased $202,000 to $932,000 during the three months ended June 30, 2023. 

The decrease was primarily due to a decrease in loan applications and fundings.  

Other noninterest expense decreased $683,000, or 20.4%, to $2.7 million during the three months ended June 30, 2023. 

The decrease at the mortgage banking segment primarily related to decreases in provision for loan sale losses and provision for branch losses. 

Income tax expense totaled $1.1 million for the three months ended June 30, 2023 compared to $2.2 million during the three months ended June 30, 2022.

Income tax expense was recognized on the statement of income during the three months ended June 30, 2023 at an effective rate of 21.3% of pretax income and during the three months ended June 30, 2022 at an effective rate of 21.8% of pretax income. 

Comparison of Community Banking Segment Results of Operations for the Six Months Ended June 30, 2023 and 2022

Net income totaled $10.0 million for the six months ended June 30, 2023 compared to $10.6 million for the six months ended June 30, 2022.

Net interest income increased $1.9 million to $27.2 million for the six months ended June 30, 2023 compared to $25.4 million for the six months ended June 30, 2022. 

Interest income on loans increased as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on mortgage-related securities increased due to the increase in the average balance and replacement rates. Offsetting the increase in interest income on loans and mortgage-related securities, interest expense on deposits and borrowings increased as replacement rates increased.

There was a provision for credit losses of $388,000 for the three months ended March 31, 2023 compared to a $140,000 negative provision for credit losses for the three months ended March 31, 2022.

The provision for credit losses of $388,000 consisted of a $96,000 negative provision related to loans and a $484,000 of provision related to unfunded commitments for the three months ended March 31, 2023.

During the three months ended March 31, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

There was a provision for credit losses of $546,000 for the six months ended June 30, 2023 compared to a $181,000 negative provision for credit losses for the six months ended June 30, 2022.

The provision for credit losses of $546,000 consisted of a $523,000 provision related to loans and a $23,000 of provision related to unfunded commitments for the six months ended June 30, 2023.

The provision for credit losses related to loans increased primarily due to loan growth. 

During the six months ended June 30, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

The forecast factor remained unchanged as we monitor the economic environment going forward.  

Total noninterest income decreased $445,000 to $987,000 during the three months ended March 31, 2023 due primarily to a decrease in prepayment penalties on loans and gain from death benefit received on one bank-owned life insurance policy during the three months ended March 31, 2022.

Compensation, payroll taxes, and other employee benefits expense decreased $44,000 to $5.2 million primarily due to a decrease in Employee Stock Ownership Plan expense as the average stock price decreased compared to the quarter ending March 31, 2022.

Other noninterest expense increased $296,000 to $896,000 as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans increased.

Total noninterest income decreased $545,000 to $2.5 million during the six months ended June 30, 2023 due primarily to a decrease in prepayment penalties on loans and gain from death benefit received on one bank-owned life insurance policy during the six months ended June 30, 2022.

Compensation, payroll taxes, and other employee benefits expense increased $43,000 to $9.9 million primarily due to an increase in salaries due to annual raises that took place at the beginning of the year.

Other noninterest expense increased $931,000 to $2.5 million as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans increased.

These fees are eliminated in the consolidated statements of income.

Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended March 31, 2023 and 2022

Net loss totaled $2.7 million for the three months ended March 31, 2023 compared to net income of $1.1 million for the three months ended March 31, 2022.

We originated $442.7 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended March 31, 2023, which represents a decrease of $265.8 million, or 37.5%, from the $708.5 million originated during the three months ended March 31, 2022.

The decrease in loan production volume was driven by a $145.3 million, or 90.4%, decrease in refinance products as mortgage rates have increased over the past year.

Mortgage purchase products decreased $120.4 million, or 22.0%, due to inventory constraints in the market, affordability, and interest rate increases.

Total mortgage banking noninterest income decreased $10.7 million, or 37.2%, to $18.0 million during the three months ended March 31, 2023 compared to $28.6 million during the three months ended March 31, 2022. 

The decrease in mortgage banking noninterest income was related to a 37.5% decrease in volume and a 5.4% decrease in gross margin on loans originated and sold for the three months ended March 31, 2023 compared to March 31, 2022. 

Comparison of Mortgage Banking Segment Results of Operations for the Six Months Ended June 30, 2023 and 2022

Net loss totaled $4.0 million for the six months ended June 30, 2023 compared to net income of $2.8 million for the six months ended June 30, 2022.

We originated $1.07 billion in mortgage loans held for sale (including sales to the community banking segment) during the six months ended June 30, 2023, which represents a decrease of $421.2 million, or 28.3%, from the $1.49 billion originated during the six months ended June 30, 2022.

The decrease in loan production volume was driven by a $197.6 million, or 83.9%, decrease in refinance products as mortgage rates have increased over the past year.

Mortgage purchase products decreased $223.5 million, or 17.9%, due to inventory constraints in the market, affordability, and interest rate increases.

Total mortgage banking noninterest income decreased $17.7 million, or 30.2%, to $41.0 million during the six months ended June 30, 2023 compared to $58.7 million during the six months ended June 30, 2022. 

The decrease in mortgage banking noninterest income was related to a 30.2% decrease in volume and a 4.3% decrease in gross margin on loans originated and sold for the six months ended June 30, 2023 compared to June 30, 2022. 

Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations.

5 unchanged sentences

Department of Agriculture loan. 

Loans originated for the purchase of a residential property, which generally yield a higher margin than loans originated for refinancing existing loans, comprised 96.5% of total originations during the three months ended March 31, 2023, compared to 77.3% of total originations during the three months ended March 31, 2022, respectively, as refinance demand decelerated due to an increase in interest rates over the past year. 

The mix of loan type trended towards more governmental loans and less conventional loans, with governmental loans and conventional loans comprising 35.2% and 64.8% of all loan originations, respectively, during the three months ended March 31, 2023, compared to 24.5% and 75.5% of all loan originations, respectively, during the three months ended March 31, 2022.

Total compensation, payroll taxes and other employee benefits decreased $5.3 million, or 26.1%, to $15.1 million for the three months ended March 31, 2023 compared to $20.4 million for the three months ended March 31, 2022. The decrease in compensation expense was primarily related to decreased commission expense and salaries driven by decreased loan origination volume and reduction in headcount.

Loans originated for the purchase of a residential property, which generally yield a higher margin than loans originated for refinancing existing loans, comprised 96.5% of total originations during the six months ended June 30, 2023, compared to 84.1% of total originations during the six months ended June 30, 2022, respectively, as refinance demand decelerated due to an increase in interest rates over the past year. 

The mix of loan type trended towards more governmental loans and less conventional loans, with governmental loans and conventional loans comprising 37.2% and 62.8% of all loan originations, respectively, during the six months ended June 30, 2023, compared to 25.1% and 74.9% of all loan originations, respectively, during the six months ended June 30, 2022.

Total compensation, payroll taxes and other employee benefits decreased $8.7 million, or 20.9%, to $33.0 million for the six months ended June 30, 2023 compared to $41.7 million for the six months ended June 30, 2022. The decrease in compensation expense was primarily related to decreased commission expense and salaries driven by decreased loan origination volume and reduction in headcount.

Consolidated Waterstone Financial, Inc.

Results of Operations

Three months ended March 31,

Six months ended June 30,

(Dollars In Thousands, except per share amounts)

9 unchanged sentences

Yields on interest-earning assets are computed on a fully tax-equivalent yield, where applicable.

Three months ended March 31,

Six months ended June 30,

Average Balance

28 unchanged sentences

Average interest-earning assets to average interest-bearing liabilities

Interest income includes net deferred loan fee amortization income of $151,000 and $195,000 for the three months ended March 31, 2023 and 2022, respectively.

Interest income includes net deferred loan fee amortization income of $295,000 and $382,000 for the six months ended June 30, 2023 and 2022, respectively.

Average balance of mortgage related and debt securities are based on amortized historical cost.

Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended March 31, 2023 and 2022.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 3.71% and 0.72% for the three months ended March 31, 2023 and 2022, respectively.

Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the six months ended June 30, 2023 and 2022.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 3.69% and 1.01% for the six months ended June 30, 2023 and 2022, respectively.

7 unchanged sentences

Three months ended March 31,

Six months ended June 30,

2023 versus 2022

14 unchanged sentences

______________

Interest income includes net deferred loan fee amortization income of $151,000 and $195,000 for the three months ended March 31, 2023 and 2022, respectively.

Interest income includes net deferred loan fee amortization income of $295,000 and $382,000 for the six months ended June 30, 2023 and 2022, respectively.

Non-accrual loans have been included in average loans receivable balance.

1 unchanged sentence

Average balance of available for sale securities is based on amortized historical cost.

Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended March 31, 2023 and March 31, 2022.

Net interest income increased $1.9 million, or 16.3%, to $13.8 million during the three months ended March 31, 2023 compared to $11.9 million during the three months ended March 31, 2022.

Interest income on loans increased $6.4 million, or 47.3%, to $19.9 million due primarily to an 85 basis point increase in average yield on loans as interest rates continued to increase over the past year and an increase in average loan balance as loans held for investment increased. The increase in average loan balance was driven by an increase of a $326.6 million, or 27.1%, in the average balance of loans held for investment offset by a decrease of $33.5 million, or 213%, in average loans held for sale.

Interest expense on time deposits increased $2.5 million, or 453.0%, to $3.1 million primarily due to a 155 basis point increase in average cost of time deposits.

Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the six months ended June 30, 2023 and June 30, 2022.

Net interest income increased $525,000, or 2.0%, to $26.5 million during the six months ended June 30, 2023 compared to $25.9 million during the six months ended June 30, 2022.

Interest income on loans increased $14.0 million, or 49.9%, to $42.0 million due primarily to a 92 basis point increase in average yield on loans as interest rates continued to increase over the past year and an increase in average loan balance as loans held for investment increased. The increase in average loan balance was driven by an increase of a $333.1 million, or 27.2%, in the average balance of loans held for investment offset by a decrease of $23.7 million, or 13.8%, in average loans held for sale.

Interest expense on time deposits increased $6.8 million, or 621.8%, to $7.9 million primarily due to a 201 basis point increase in average cost of time deposits.

Additionally, the average balance of time deposits increased $74.7 million compared to the prior year period.

Interest expense on money market, savings, and escrow accounts increased $795,000, or 378.6%, to $1.0 million due primarily to a 105 basis point increase in average cost of money market, savings, and escrow accounts as the account mix shifted towards more savings accounts.

Interest expense on money market, savings, and escrow accounts increased $1.7 million, or 418.1%, to $2.1 million due primarily to a 114 basis point increase in average cost of money market, savings, and escrow accounts as the account mix shifted towards more savings accounts.

Partially offsetting the increase in average cost, the average balance decreased $94.5 million. 

Interest expense on borrowings increased $1.6 million, or 67.9%, to $4.0 million due to a 148 basis point increase in the cost of borrowings during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 as the federal funds rate increased over the past year.

Additionally, the average balance increased $1.5 million to $441.7 million during the three months ended March 31, 2023, compared to $440.3 million during the three months ended March 31, 2022.

Interest expense on borrowings increased $5.7 million, or 142.4%, to $9.6 million due to a 182 basis point increase in the cost of borrowings during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 as the federal funds rate increased over the past year.

Additionally, the average balance increased $114.1 million to $496.9 million during the six months ended June 30, 2023, compared to $382.8 million during the six months ended June 30, 2022.

Provision for Credit Losses

There was a provision for credit losses of $460,000 for the three months ended March 31, 2023 compared to a $76,000 negative provision for credit losses for the three months ended March 31, 2022.

The $460,000 provision for credit losses consisted of a $25,000 negative provision related to loans and a $485,000 provision related to unfunded commitments for the three months ended March 31, 2023.

During the three months ended March 31, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

There was a provision for credit losses of $646,000 for the six months ended June 30, 2023 compared to a $28,000 negative provision for credit losses for the six months ended June 30, 2022.

The $646,000 provision for credit losses consisted of a $623,000 provision related to loans and a $23,000 provision related to unfunded commitments for the six months ended June 30, 2023.

The provision for credit losses related to loans increased primarily due to loan growth.

During the six months ended June 30, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

The forecast factor remained unchanged as we monitor the economic environment going forward. 

3 unchanged sentences

Noninterest Income

Three months ended March 31,

Six months ended June 30,

(Dollars In Thousands)

3 unchanged sentences

Total noninterest income

Total noninterest income decreased $11.3 million, or 37.8%, to $18.6 million during the three months ended March 31, 2023 compared to $29.8 million during the three months ended March 31, 2022.

The decrease resulted primarily from decreases in mortgage banking noninterest income and other income.

Total noninterest income decreased $19.0 million, or 31.1%, to $42.1 million during the six months ended June 30, 2023 compared to $61.1 million during the six months ended June 30, 2022.

The decrease resulted primarily from decreases in mortgage banking noninterest income and service charges on loans and deposits.

The decrease in mortgage banking income was primarily the result of a decrease in loan origination volume and gross margin on loans originated and sold.

Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. Total loan origination volume on a consolidated basis decreased $282.4 million, or 40.4%, to $415.7 million during the three months ended March 31, 2023 compared to $698.1 million during the three months ended March 31, 2022. Gross margin on loans originated and sold decreased 5.4% at the mortgage banking segment.

See "Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended March 31, 2023 and 2022" above for additional discussion of the decrease in mortgage banking income.

Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. Total loan origination volume on a consolidated basis decreased $468.0 million, or 32.4%, to $977.8 million during the six months ended June 30, 2023 compared to $1.45 billion during the six months ended June 30, 2022. Gross margin on loans originated and sold decreased 4.3% at the mortgage banking segment.

See "Comparison of Mortgage Banking Segment Results of Operations for the Six Months Ended June 30, 2023 and 2022" above for additional discussion of the decrease in mortgage banking income.

The increase in other noninterest income was due primarily to an increase in gain on sale of mortgage serving rights and in mortgage servicing fee income.

During the quarter ended March 31, 2023, the Company sold mortgage servicing rights related to $318.4 million in loans serviced for third parties.

During the 

six months ended June 30, 2023, the Company sold mortgage servicing rights related to $318.4 million in loans serviced for third parties.

The sale generated $3.5 million in net proceeds and a $583,000 gain.

There were no comparable sales during the quarter ended March 31, 2022. As of March 31, 2023 and March 31, 2022, the Company maintained servicing rights related to $116.6 million and $409.6 million, respectively, in loans previously sold to third parties.

Offsetting the increase from the gain on sale of mortgage servicing rights, gain from death benefit decreased as there was a gain recorded on one bank owned life insurance policy during the three months ended March 31, 2022 compared to none during the three months ended March 31, 2023.

Three months ended March 31,

There were no comparable sales during the six months ended June 30, 2022. As of June 30, 2023 and June 30, 2022, the Company maintained servicing rights related to $156.3 million and $345.8 million, respectively, in loans previously sold to third parties.

Offsetting the increase from the gain on sale of mortgage servicing rights, gain from death benefit decreased as there was a gain recorded on one bank owned life insurance policy during the six months ended June 30, 2022 compared to none during the six months ended June 30, 2023.

Six months ended June 30,

(Dollars In Thousands)

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Total noninterest expenses

Total noninterest expenses decreased $5.8 million, or 16.7%, to $29.1 million during the three months ended March 31, 2023 compared to $34.9 million during the three months ended March 31, 2022.

Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $5.3 million, or 26.1%, to $15.1 million during the three months ended March 31, 2023.

Total noninterest expenses decreased $10.0 million, or 14.2%, to $60.0 million during the six months ended June 30, 2023 compared to $70.0 million during the six months ended June 30, 2022.

Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $8.7 million, or 20.9%, to $33.0 million during the six months ended June 30, 2023.

The decrease in compensation expense was primarily related to decreased commission expense and salary expense driven by decreased loan origination volume and a reduction in headcount.

Compensation, payroll taxes and other employee benefits expense at the community banking segment decreased $44,000, or 0.8%, to $5.2 million during the three months ended March 31, 2023.

The decrease was due primarily to a decrease in Employee Stock Ownership Plan expense as the average stock price decreased compared to the quarter ending March 31, 2022.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $19,000 to $1.2 million during the three months ended March 31, 2023, primarily resulting from decreased computer equipment expenses.

Occupancy, office furniture and equipment expense at the community banking segment increased $94,000 to $1.0 million during the three months ended March 31, 2023.

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $43,000, or 0.4%, to $9.9 million during the six months ended June 30, 2023.

The increase was due primarily to an increase in salaries from annual raises that took place at the beginning of the year.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $26,000 to $2.4 million during the six months ended June 30, 2023, primarily resulting from decreased computer equipment expenses.

Occupancy, office furniture and equipment expense at the community banking segment increased $91,000 to $1.9 million during the six months ended June 30, 2023.

The increase was due primarily to increased snow removal and repairs expense.

Advertising expense decreased $16,000, or 1.8%, to $889,000 million during the three months ended March 31, 2023.

This was primarily due to advertising at the community banking segment decreasing as marketing campaigns started off slower compared to prior year.

Advertising expense decreased $34,000, or 1.8%, to $1.8 million during the six months ended June 30, 2023.

This decrease was primarily due to advertising at the community banking segment decreasing as marketing campaigns started off slower compared to prior year and a shift to other cost effective advertising channels.

Offsetting the decrease at the community banking segment, the mortgage banking segment increased marketing to attract customers as rates are higher than in the prior year.  

Data processing expense decreased $80,000, or 6.7%, to $1.1 million during the three months ended March 31, 2023. This was primarily due to decreases at the community banking and mortgage banking segments related to decreased spending to start the year.

Professional fees decreased $45,000 to $416,000 during the three months ended March 31, 2023.

The decrease related to a decrease in legal and consulting fees at the mortgage banking segment. 

Offsetting the decreases at the mortgage banking segment, the community banking segment had an increase in audit and tax expense.

Loan processing expense decreased $413,000 to $1.0 million during the three months ended March 31, 2023. 

Data processing expense decreased $134,000, or 5.7%, to $2.2 million during the six months ended June 30, 2023. This was primarily due to a decrease at the mortgage banking segment related to less investments in technology during the year.

Professional fees increased $224,000 to $1.0 million during the six months ended June 30, 2023.

The increase related to an increase in legal fees at the mortgage banking segment.

Additionally, the community banking segment had an increase in audit and tax expense.

Loan processing expense decreased $615,000, or 24.0%, to $2.0 million during the six months ended June 30, 2023. 

The decrease was primarily due to a decrease in loan applications and fundings.  

Other noninterest expense increased $227,000, or 7.9%, to $3.1 million during the three months ended March 31, 2023. 

The increase at the mortgage banking segment related to an increase in provision of loan sale losses and provision for branch losses. 

Income tax expense totaled $627,000 for the three months ended March 31, 2023 compared to $1.5 million during the three months ended March 31, 2022.

Income tax expense was recognized on the statement of income during the three months ended March 31, 2023 and March 31, 2022 at an effective rate of 22.5% of pretax income. 

Comparison of Financial Condition at March 31, 2023 and December 31, 2022

Other noninterest expense decreased $455,000, or 7.3%, to $5.8 million during the six months ended June 30, 2023. 

The decrease at the mortgage banking segment related to a decrease in corporate meeting expenses and mortgage servicing rights amortization as the there was a bulk sale in the first quarter of 2023 and none during 2022. 

Income tax expense decreased $2.1 million, or 54.5%, to $1.7 million during the six months ended June 30, 2023 compared to $3.8 million during the six months ended June 30, 2022.

Income tax expense was recognized on the statement of income during the six months ended June 30, 2023 at an effective rate of 21.7% of pretax income compared to an effective rate of 22.1% of pretax income during the six months ended June 30, 2022. 

Comparison of Financial Condition at June 30, 2023 and December 31, 2022

Total Assets –

Total assets increased by $82.8 million, or 4.1%, to $2.11 billion at March 31, 2023 from $2.03 billion at December 31, 2022.

The increase in total assets primarily reflects an increase in loans held for investment and loans held for sale, partially offset by a decrease in other assets.

Total assets increased by $198.2 million, or 9.8%, to $2.23 billion at June 30, 2023 from $2.03 billion at December 31, 2022.

The increase in total assets primarily reflects an increase in loans held for investment and loans held for sale.

The increase in total assets reflects liability increases in borrowings.

Cash and Cash Equivalents –

Cash and cash equivalents increased $7.6 million, or 16.2%, to $54.2 million at March 31, 2023, compared to $46.6 million at December 31, 2022. The increase in cash and cash equivalents primarily reflects the increase of funding sources from borrowings and advance payments by borrowers for taxes.

Cash and cash equivalents increased $14.5 million, or 31.2%, to $61.2 million at June 30, 2023, compared to $46.6 million at December 31, 2022. The increase in cash and cash equivalents primarily reflects the increase of funding sources from borrowings and advance payments by borrowers for taxes.

Securities Available for Sale  –

Securities available for sale increased $3.9 million to $200.4 million at March 31, 2023.

The increase was primarily due to the increase in fair value as longer term interest rates decreased during the year. 

Loans Held for Sale - Loans held for sale increased $30.1 million to $161.3 million at March 31, 2023 due to the increase of purchase activity resulting from the usual seasonal activity seen during the spring. 

Loans Receivable - Loans receivable held for investment increased $40.0 million to $1.55 billion at March 31, 2023.

Securities available for sale decreased $1.6 million to $195.0 million at June 30, 2023.

The decrease was primarily due to the decrease in fair value as longer term interest rates increased during the year. 

Loans Held for Sale - Loans held for sale increased $72.1 million to $203.3 million at June 30, 2023 due to the increase of purchase activity resulting from the usual seasonal activity seen during the spring and summer seasons. 

Loans Receivable - Loans receivable held for investment increased $104.5 million to $1.61 billion at June 30, 2023.

The increase in total loans receivable was attributable to increases in each of the one- to four-family, multi-family, commercial real estate, and commercial loan categories.

The following table shows loan originations during the periods indicated.

Three months ended March 31,

Six months ended June 30,

(In Thousands)

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Total loans originated for investment

Allowance for Credit Losses - Loans - The allowance for credit losses decreased $13,000 to $17.7 million at March 31, 2023.  There was a negative provision for credit losses - loans of $25,000 for the three months ended March 31, 2023.

During the three months ended March 31, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

Allowance for Credit Losses - Loans - The allowance for credit losses increased $617,000 to $18.4 million at June 30, 2023.  There was a $623,000 provision for credit losses - loans for the six months ended June 30, 2023.

The provision for credit losses related to loans increased primarily due to loan growth.

During the six months ended June 30, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

See Note 3 - Loans Receivable of the notes to unaudited consolidated financial statements for further discussion on the allowance for credit losses.

Additionally, net recoveries totaled $12,000 for the three months ended March 31, 2023.

Additionally, net charge-offs totaled $6,000 for the six months ended June 30, 2023.  

Prepaid expenses and other assets  –

Total prepaid expenses and other assets decreased $4.7 million to $55.0 million at March 31, 2023.

The decrease was primarily due to a decrease in the fair value mark on derivatives as long term interest rates decreased and mortgage servicing rights as the Company sold $2.7 million of mortgage servicing rights during the period ended March 31, 2023.  

Total prepaid expenses and other assets decreased $203,000 to $59.6 million at June 30, 2023.

The decrease was primarily due to a decrease in 

mortgage servicing rights as the Company sold $2.7 million of mortgage servicing rights during the six months ended June 30, 2023. 

Offsetting the decrease, investor receivables increased as of June 30, 2023. 

Deposits –

Total deposits decreased $16.1 million to $1.18 billion at March 31, 2023. 

Total deposits decreased $12.0 million to $1.19 billion at June 30, 2023. 

The decrease was driven by a decrease of $45.4 million in money market and savings deposits and $33.5 million in demand deposits offset by an increase of $66.8 million in time deposits.

Borrowings –

Total borrowings increased $114.9 million, or 29.7%, to $501.7 million at March 31, 2023.

The community banking segment paid off $25.0 million in long-term FHLB borrowings, borrowing $115.0 million of new long-term FHLB borrowings, and $24.8 million in new short-term FHLB borrowings.

External short-term borrowings at the mortgage banking segment increased a total of $112,000 at March 31, 2023 from December 31, 2022.

Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $8.1 million to $13.4 million at March 31, 2023.

Total borrowings increased $228.1 million, or 59.0%, to $614.9 million at June 30, 2023.

The community banking segment paid off $120.0 million in long-term FHLB borrowings, borrowing $115.0 million of new long-term FHLB borrowings, and $214.8 million in new short-term FHLB borrowings.

External short-term borrowings at the mortgage banking segment increased a total of $18.3 million at June 30, 2023 from December 31, 2022.

Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $15.3 million to $20.6 million at June 30, 2023.

The increase was the result of payments received from borrowers for their real estate taxes and is seasonally normal, as balances increase during the course of the calendar year until real estate tax obligations are paid in the fourth quarter.

Other Liabilities - Other liabilities decreased $19.0 million to $50.7 million at March 31, 2023. Other liabilities decreased primarily due to a seasonal decrease in outstanding checks related to advance payments by borrowers for taxes. 

Other Liabilities - Other liabilities decreased $18.0 million to $51.6 million at June 30, 2023. Other liabilities decreased primarily due to a seasonal decrease in outstanding checks related to advance payments by borrowers for taxes. 

The Company receives payments from borrowers for their real estate taxes during the course of the calendar year until real estate tax obligations are paid in the fourth quarter.

At the time at which the disbursements are made, the outstanding checks are classified as other liabilities in the statements of financial condition, and these amounts remain classified as other liabilities until settled.

Additionally, other liabilities decreased due to the payment of the special dividend in the first quarter. 

Additionally, the fair value mark on derivative liabilities related to the loans held for sale and the back-to-back swaps decreased with the decrease in long term interest rates.  

Additionally, the fair value mark on derivative liabilities related to the loans held for sale decreased. 

Shareholders ’

Equity –

Shareholders' equity decreased $4.7 million to $365.8 million at March 31, 2023. 

Shareholders' equity decreased primarily due to the declaration of dividends and the repurchase of stock. Partially offsetting the decreases, there were increases due to the net income, an increase in the fair value of the security portfolio, additional paid-in capital as stock options were exercised and equity awards vested, and unearned ESOP shares vesting.

Shareholders' equity decreased $14.7 million to $355.8 million at June 30, 2023. 

Shareholders' equity decreased primarily due to the declaration of dividends, the repurchase of stock, and decrease in the fair value of the securities portfolio. Partially offsetting the decreases, there were increases due to the net income, additional paid-in capital as stock options were exercised, equity awards vested, and unearned ESOP shares vesting.

ASSET QUALITY

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The following table sets forth activity in our non-accrual loans for the periods indicated.

At or for the Three Months

Ended March 31,

At or for the Six Months

Ended June 30,

(In Thousands)

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Balance at end of period

Total non-accrual loans increased by $170,000, or 3.9%, to $4.5 million as of March 31, 2023 compared to $4.3 million as of December 31, 2022. 

The ratio of non-accrual loans to total loans receivable was 0.29% at March 31, 2023 and at December 31, 2022. 

During the three months ended March 31, 2023, $951,000 in loans were placed on non-accrual status.

Offsetting this activity, $749,000 in loans returned to accrual status and $32,000 in principal payments were received during the three months ended March 31, 2023.

Of the $4.5 million in total non-accrual loans as of March 31, 2023, $2.1 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary.

Total non-accrual loans decreased by $160,000, or 3.7%, to $4.1 million as of June 30, 2023 compared to $4.3 million as of December 31, 2022. 

The ratio of non-accrual loans to total loans receivable was 0.26% at June 30, 2023 and 0.29% at December 31, 2022. 

During the six months ended June 30, 2023, $1.2 million in loans were placed on non-accrual status.

Offsetting this activity, $749,000 in loans returned to accrual status and $575,000 in principal payments were received during the six months ended June 30, 2023.

Of the $4.1 million in total non-accrual loans as of June 30, 2023, $2.2 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary.

A specific valuation allowance is established for an amount equal to the impairment when the carrying value of the loan exceeds the present value of expected future cash flows, discounted at the loan's original effective interest rate or the fair value of the underlying collateral with an adjustment made for costs to dispose of the asset. 

Based upon these specific reviews, no charge-offs have been recorded over the life of these loans and there were no specific reserves as of March 31, 2023.  The remaining $2.4 million of non-accrual loans were reviewed on an aggregate basis as of March 31, 2023.  

The outstanding principal balance of our five largest non-accrual loans as of March 31, 2023 totaled $2.7 million, which represents 59.5% of total non-accrual loans as of that date. 

Based upon these specific reviews, no charge-offs have been recorded over the life of these loans and there were no specific reserves as of June 30, 2023.  The remaining $1.9 million of non-accrual loans were reviewed on an aggregate basis as of June 30, 2023.  

The outstanding principal balance of our five largest non-accrual loans as of June 30, 2023 totaled $2.7 million, which represents 64.4% of total non-accrual loans as of that date. 

Three of the loans was reviewed on an aggregate basis along with the other loans held for investment at the mortgage segment.  

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Determination as to the ultimate collectability of the remaining book value is supported by an updated credit department evaluation of the borrower's financial condition and prospects for repayment, including consideration of the borrower's sustained historical repayment performance and other relevant factors.

As of March 31, 2023 and December 31, 2022, there were no loans 90 or more days past due and still accruing interest. 

As of June 30, 2023 and December 31, 2022, there were no loans 90 or more days past due and still accruing interest. 

LOAN DELINQUENCY

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Total loans past due to total loans receivable

Past due loans increased by $3.6 million, or 57.6%, to $9.9 million at March 31, 2023 from $6.3 million at December 31, 2022. 

Past due loans increased by $1.8 million, or 28.2%, to $8.0 million at June 30, 2023 from $6.3 million at December 31, 2022. 

Loans past due less than 90 days increased by $1.3 million, or 51.8%, primarily in the one- to four-family category.

Loans past due 90 days or more increased by $754,000, or 20.5%, primarily in the one- to four-family loan category, during the three months ended March 31, 2023.

Loans past due 90 days or more increased by $432,000, or 11.7%, primarily in the one- to four-family loan category, during the six months ended June 30, 2023.

ALLOWANCE FOR CREDIT LOSSES - LOANS

At or for the Three Months

Ended March 31,

At or for the Six Months

Ended June 30,

(Dollars in Thousands)

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Total recoveries

Net recoveries

Allowance at end of period

Net charge-offs (recoveries)

Allowance for credit losses - loans at end of period

Allowance for credit losses to non-accrual loans at end of period

Allowance for credit losses to loans receivable at end of period

Net recoveries to average loans outstanding (annualized)

Net charge-offs (recoveries) to average loans outstanding (annualized)

Current year provision (credit) for credit losses - loans to net recoveries

Net recoveries (annualized) to beginning of the year allowance

Net charge-offs (recoveries) (annualized) to beginning of the year allowance

(1) The Company adopted ASU 2016-13 as of January 1, 2022. 

The allowance for credit losses - loans decreased $13,000 to $17.7 million at March 31, 2023 from $17.8 million at December 31, 2022. 

During the three months ended March 31, 2023, there was a $25,000 negative provision for credit losses.

Additionally, net recoveries totaled $12,000 for the three months ended March 31, 2023. 

We had net recoveries of $12,000, or less than 0.00% of average loans annualized, for the three months ended March 31, 2023, compared to net recoveries of $616,000, or 0.21% of average loans annualized, for the three months ended March 31, 2022. 

The allowance for credit losses - loans increased $617,000 to $18.4 million at June 30, 2023 from $17.8 million at December 31, 2022. 

During the six months ended June 30, 2023, there was a $623,000 provision for credit losses.

Additionally, net charge-offs totaled $6,000 for the six months ended June 30, 2023. 

We had net charge-offs of $6,000, or less than 0.00% of average loans annualized, for the six months ended June 30, 2023, compared to net recoveries of $723,000, or 0.21% of average loans annualized, for the six months ended June 30, 2022. 

Our underwriting policies and procedures emphasize that credit decisions must rely on both the credit quality of the borrower and the estimated value of the underlying collateral. 

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Additional sources of liquidity used for the purpose of managing long- and short-term cash flows include advances from the FHLB.

During the three months ended March 31, 2023, primary uses of cash and cash equivalents included:

$415.7 million in funding loans held for sale, $40.0 million to fund loans held for investment, $5.7 million for purchases of mortgage related securities, $6.5 million for FHLB stock, $25.0 million for payoffs of long-term borrowings, $4.2 million for cash dividends paid, $16.1 million for decrease in deposits, and $5.8 million for purchases of our common stock.

During the three months ended March 31, 2023, primary sources of cash and cash equivalents included:

$400.5 million in proceeds from the sale of loans held for sale, $115.0 million in long-term borrowings, $24.9 million in short-tern borrowings, $4.6 million in principal repayments on mortgage related securities, $1.3 million in maturities of debt securities, and $18.6 million in net income.

During the three months ended March 31, 2022, primary uses of cash and cash equivalents included:

$698.1 million in funding loans held for sale, $47.9 million for purchases of mortgage related securities, $155.0 million for payoffs of long-term borrowings, $17.2 million for cash dividends paid, $22.9 million for decrease in deposits, and $13.8 million for purchases of our common stock.

During the three months ended March 31, 2022, primary sources of cash and cash equivalents included:

$878.6 million in proceeds from the sale of loans held for sale, $9.0 million in principal repayments on mortgage related securities, $6.4 million in maturies of debt securities, and $5.3 million in net income.

During the six months ended June 30, 2023, primary uses of cash and cash equivalents included:

$977.8 million in funding loans held for sale, $104.5 million to fund loans held for investment, $11.2 million for purchases of mortgage related securities, $9.4 million for FHLB stock, $120.0 million for payoffs of long-term borrowings, $8.3 million for cash dividends paid, $12.0 million for decrease in deposits, and $13.2 million for purchases of our common stock.

During the six months ended June 30, 2023, primary sources of cash and cash equivalents included:

$941.5 million in proceeds from the sale of loans held for sale, $115.0 million in long-term borrowings, $233.1 million in short-tern borrowings, $10.3 million in principal repayments on mortgage related securities, $3.0 million in maturities of debt securities, $3.5 million in proceeds for mortgage servicing rights sale, and $6.2 million in net income.

During the six months ended June 30, 2022, primary uses of cash and cash equivalents included:

$1.45 billion in funding loans held for sale, $70.0 million to fund loans held for investment, $68.2 million for purchases of mortgage related securities, $195.0 million for payoffs of long-term borrowings, $21.8 million for cash dividends paid, $20.2 million for decrease in deposits, and $37.9 million for purchases of our common stock.

During the six months ended June 30, 2022, primary sources of cash and cash equivalents included:

$1.59 billion in proceeds from the sale of loans held for sale, $17.4 million in principal repayments on mortgage related securities, $11.4 million in maturities of debt securities, $8.1 million in sales of FHLB stock, and $13.3 million in net income.

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. 

At March 31, 2023 and 2022, respectively, $54.2 million and $278.5 million of our assets were invested in cash and cash equivalents. At March 31, 2023, cash and cash equivalents were comprised of the following:

$34.3 million in cash held at the Federal Reserve Bank and other depository institutions and $19.9 million in federal funds sold and short-term investments. 

At June 30, 2023 and 2022, respectively, $61.2 million and $122.2 million of our assets were invested in cash and cash equivalents. At June 30, 2023, cash and cash equivalents were comprised of the following:

$53.4 million in cash held at the Federal Reserve Bank and other depository institutions and $7.8 million in federal funds sold and short-term investments. 

Our primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of debt and mortgage-related securities, increases in deposit accounts, advances from the FHLB, and repurchase agreements from other institutions.

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If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB which provide an additional source of funds.

At March 31, 2023, we had $290.0 million in long term advances from the FHLB with contractual maturity dates in 2025, 2027, and 2033. 

At June 30, 2023, we had $195.0 million in long term advances from the FHLB with contractual maturity dates in 2025, 2027, and 2033. 

The 2025 advance has a contractual maturity date in September 2025 with a single call option in 2023.

1 unchanged sentence

The 2033 advance maturities have monthly and quarterly call options starting in 2023.

At March 31, 2023, we had outstanding commitments to originate loans receivable of $86.5 million. 

In addition, at March 31, 2023, we had unfunded commitments under construction loans of $67.7 million, unfunded commitments under business lines of credit of $17.1 million and unfunded commitments under home equity lines of credit and standby letters of credit of $11.8 million. 

At March 31, 2023, certificates of deposit scheduled to mature in one year or less totaled $498.3 million. 

The Company had approximately $262.5 million of uninsured deposits for approximately 1,125 customers as of June 30, 2023.

Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limits.

At June 30, 2023, we had outstanding commitments to originate loans receivable of $44.7 million. 

In addition, at June 30, 2023, we had unfunded commitments under construction loans of $61.3 million, unfunded commitments under business lines of credit of $8.7 million and unfunded commitments under home equity lines of credit and standby letters of credit of $10.8 million. 

At June 30, 2023, certificates of deposit scheduled to mature in one year or less totaled $603.9 million. 

Based on prior experience, management believes that, subject to the Bank’s funding needs, a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. 

3 unchanged sentences

In addition, the cost of such deposits may be significantly higher if market interest rates are higher or there is an increased amount of competition for deposits in our market area at the time of renewal.

The Federal Reserve Bank (“FRB”) created a new borrowing facility called the Bank Term Funding Program. 

This program allows a bank to borrow against its investment portfolio, at par value, with no reduction for unrealized losses. 

The term is for one year and interest rate is fixed at the time the advance is taken and there is no prepayment penalty. 

Allowable investments for pledge are those the FRB can own. 

This would include all of the Company’s investment securities except municipal securities, private label bonds, and corporate bonds. 

At June 30, 2023, the Company had no advances under this program and had $164.8 million in unused borrowing capacity under this program. 

The program expires on March 11, 2024.

Waterstone Financial, Inc.

3 unchanged sentences

The ability of WaterStone Bank to pay dividends is subject to regulatory restrictions.

At March 31, 2023, Waterstone Financial, Inc.

(on an unconsolidated basis) had liquid assets totaling $52.1 million.

Shareholders' equity decreased $4.7 million to $365.8 million at March 31, 2023. 

The Company's Board of Directors authorized a stock repurchase program in the fourth quarter of 2021.

As of March 31, 2023, the Company has 393,000 shares remaining in the plan.  

At June 30, 2023, Waterstone Financial, Inc.

(on an unconsolidated basis) had liquid assets totaling $41.7 million.

Shareholders' equity decreased $14.7 million to $355.8 million at June 30, 2023. 

Shareholders' equity decreased primarily due to the declaration of dividends, the repurchase of stock, and decrease in the fair value of the security portfolio. Partially offsetting the decreases, there were increases due to the net income, additional paid-in capital as stock options were exercised, and equity awards vested, and unearned ESOP shares vesting.

The Company's Board of Directors authorized a 2,000,000 share stock repurchase program in the second quarter of 2023.

As of June 30, 2023, the Company has 1,881,000 shares remaining in the plan.  

WaterStone Bank is subject to various regulatory capital requirements, including a risk-based capital measure.

The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning assets and off-balance sheet items to broad risk categories. 

At March 31, 2023, WaterStone Bank exceeded all regulatory capital requirements and is considered “well capitalized”

At June 30, 2023, WaterStone Bank exceeded all regulatory capital requirements and is considered “well capitalized”

under regulatory guidelines.

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Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements

During the three months ended March 31, 2023, we repaid $25.0 million in FHLB long-term debt, borrowed $115.0 million of FHLB long-term debt, and borrowed $24.8 million of additional short-term debt. During the three months ended March 31, 2022, we repaid $155.0 million in FHLB long-term debt. 

During the three months ended June 30, 2023, we repaid $95.0 million in FHLB long-term debt and entered into $400.5 million of new short-term debt at the end of the period. 

See Note 6 - Borrowings of the notes to unaudited consolidated financial statements for additional information about the remaining maturities of our FHLB long-term debt.

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At least quarterly we review the potential effect changes in interest rates may have on the repayment or repricing of rate sensitive assets and funding requirements of rate sensitive liabilities. 

Our most recent simulation uses projected repricing of assets and liabilities at March 31, 2023 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. 

Our most recent simulation uses projected repricing of assets and liabilities at June 30, 2023 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. 

Prepayment rate assumptions may have a significant impact on interest income simulation results. 

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Immediate Change in Rates

As of March 31, 2023

As of June 30, 2023

Dollar Change

Percentage Change

At March 31, 2023, a 100 basis point instantaneous increase in interest rates had the effect of decreasing forecast net interest income over the next 12 months by 2.37% while a 100 basis point decrease in rates had the effect of increasing net interest income by 0.52%.

At June 30, 2023, a 100 basis point instantaneous increase in interest rates had the effect of decreasing forecast net interest income over the next 12 months by 2.37% while a 100 basis point decrease in rates had the effect of increasing net interest income by 0.52%.

Controls and Procedures

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OTHER INFORMATION

Legal Proceedings

The information required by this item is set forth in Part I, Item 1, Note 9 - Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements