Waterstone Financial, Inc. 10-Q

wsbf20230930_10q.htm   Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   Form 10-Q   ☒     Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934   For the quarterly period ended September 30, 2023   OR   ☐      Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934   Commission File Number 001-36271   WATERSTONE FINANCIAL, INC. (Exact name of registrant as specified in its charter)   Maryland 90-1026709 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)     11200 W. Plank Court   Wauwatosa , Wisconsin 53226 (Address of principal executive offices) (Zip Code)   ( 414 ) 761-1000 (Registrant’s telephone number, including area code)   Securities registered pursuant to Section 12(b) of the Act:   Title of each class   Trading Symbol   Name of each exchange on which registered Common Stock, $0.01 Par Value   WSBF   The NASDAQ Stock Market LLC   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       ☒          No      ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       ☒            No      ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer ☐ Accelerated filer  ☒ Non-accelerated filer ☐ Smaller reporting company  ☐ Emerging growth company  ☐     If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐               Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       ☐             No      ☒   The number of shares outstanding of the issuer’s common stock, $0.01 par value per share, was 20,576,571 at October 31, 2023.     Table of Contents     WATERSTONE FINANCIAL, INC.   10-Q INDEX     Page   No.     PART I. FINANCIAL INFORMATION       Item l. Financial Statements   Consolidated Statements of Financial Condition as of September 30, 2023 (unaudited) and December 31, 2022 3 Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 (unaudited) 4 Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 (unaudited) 5 Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited) 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited) 8 Notes to Consolidated Financial Statements (unaudited) 9 - 38     Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation s 39 - 58 I tem 3. Quantitative and Qualitative Disclosures about Market Risk 59 Item 4. Controls and Procedures 60     PART II. OTHER INFORMATION       Item 1. Legal Proceedings 60 Item 1A. Risk Factors 60 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 61 Item 3. Defaults Upon Senior Securities 61 Item 4. Mine Safety Disclosures 61 Item 5. Other Information 62 Item 6. Exhibits 62 Signatures 62           2 Table of Contents     PART I — FINANCIAL INFORMATION   Item 1. Financial Statements   WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION       (Unaudited)               September 30, 2023     December 31, 2022       (Dollars In Thousands, except share and per share data)   Assets                 Cash   $ 55,796     $ 33,700   Federal funds sold     6,237       10,683   Interest-earning deposits in other financial institutions and other short term investments     260       2,259   Cash and cash equivalents     62,293       46,642   Securities available for sale, at fair value (cost: 2023—$ 225,857 ; 2022—$ 222,665 )     194,499       196,588   Loans held for sale, at fair value     157,421       131,188   Loans receivable     1,651,093       1,510,178   Less: Allowance for credit losses ("ACL") - loans     18,553       17,757   Loans receivable, net     1,632,540       1,492,421                     Office properties and equipment, net     20,040       21,105   Federal Home Loan Bank stock, at cost     23,414       17,357   Cash surrender value of life insurance     67,522       66,443   Real estate owned, net     372       145   Prepaid expenses and other assets     63,257       59,783   Total assets   $ 2,221,358     $ 2,031,672                     Liabilities and Shareholders’ Equity                 Liabilities:                 Demand deposits   $ 189,954     $ 230,596   Money market and savings deposits     281,958       326,145   Time deposits     733,250       642,271   Total deposits     1,205,162       1,199,012                     Borrowings     587,917       386,784   Advance payments by borrowers for taxes     28,238       5,334   Other liabilities     53,715       70,056   Total liabilities     1,875,032       1,661,186   Commitments and contingencies (Note 9)                                       Shareholders’ equity:                 Preferred stock (par value $ .01 per share) Authorized - 50,000,000 shares at September 30, 2023 and at December 31, 2022, no shares issued     -       -   Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at September 30, 2023 and at December 31, 2022, Issued and Outstanding - 20,859,649 at September 30, 2023 and 22,174,225 at December 31, 2022     209       222   Additional paid-in capital     110,020       128,550   Retained earnings     272,535       274,246   Unearned ESOP shares     ( 12,166 )     ( 13,056 ) Accumulated other comprehensive loss, net of taxes     ( 24,272 )     ( 19,476 ) Total shareholders’ equity     346,326       370,486   Total liabilities and shareholders’ equity   $ 2,221,358     $ 2,031,672     See accompanying notes to unaudited consolidated financial statements.   3 Table of Contents     WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)       Three months ended September 30,     Nine months ended September 30,       2023     2022     2023     2022       (In Thousands, except per share amounts)                                     Interest income:                                 Loans   $ 23,825     $ 16,235     $ 65,860     $ 44,281   Mortgage-related securities     1,060       903       2,972       2,326   Debt securities, federal funds sold and short-term investments     1,492       987       3,682       2,964   Total interest income     26,377       18,125       72,514       49,571   Interest expense:                                 Deposits     7,442       981       17,485       2,511   Borrowings     6,946       1,746       16,570       5,717   Total interest expense     14,388       2,727       34,055       8,228   Net interest income     11,989       15,398       38,459       41,343   Provision for credit losses     445       332       1,091       304   Net interest income after provision for credit losses     11,544       15,066       37,368       41,039   Noninterest income:                                 Service charges on loans and deposits     450       529       1,491       1,705   Increase in cash surrender value of life insurance     334       354       1,373       1,394   Mortgage banking income     21,172       26,064       59,856       83,749   Other     274       457       1,589       1,612   Total noninterest income     22,230       27,404       64,309       88,460   Noninterest expenses:                                 Compensation, payroll taxes, and other employee benefits     21,588       26,174       64,035       77,502   Occupancy, office furniture, and equipment     1,993       2,296       6,302       6,540   Advertising     916       1,137       2,749       3,004   Data processing     1,229       1,084       3,441       3,430   Communications     243       302       719       900   Professional fees     745       393       1,779       1,203   Real estate owned     1       1       3       6   Loan processing expense     722       1,120       2,672       3,685   Other     2,584       3,187       8,350       9,408   Total noninterest expenses     30,021       35,694       90,050       105,678   Income before income taxes     3,753       6,776       11,627       23,821   Income tax expense     500       1,506       2,212       5,269   Net income   $ 3,253     $ 5,270     $ 9,415     $ 18,552   Income per share:                                 Basic   $ 0.16     $ 0.25     $ 0.46     $ 0.84   Diluted   $ 0.16     $ 0.25     $ 0.46     $ 0.83   Weighted average shares outstanding:                                 Basic     19,998       21,342       20,420       22,193   Diluted     20,022       21,454       20,473       22,323     See accompanying notes to unaudited consolidated financial statements.   4 Table of Contents     WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)       Three months ended September 30,     Nine months ended September 30,       2023     2022     2023     2022       (In Thousands)   Net income   $ 3,253     $ 5,270     $ 9,415     $ 18,552                                     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 benefit of $ 1,101 , $ 1,779 , $ 485 , and $ 6,667 respectively     ( 3,444 )     ( 4,753 )     ( 4,796 )     ( 17,806 ) Total other comprehensive loss     ( 3,444 )     ( 4,753 )     ( 4,796 )     ( 17,806 ) Comprehensive (loss) income   $ ( 191 )   $ 517     $ 4,619     $ 746     See accompanying notes to unaudited consolidated financial statements.   5 Table of Contents     WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (Unaudited)                                               Accumulated                               Additional             Unearned     Other     Total       Common Stock     Paid-In     Retained     ESOP     Comprehensive     Shareholders'       Shares     Amount     Capital     Earnings     Shares     Income (Loss)     Equity       (In Thousands, except per share amounts)   For the nine months ended September 30, 2022                                                         Balances at December 31, 2021     24,795     $ 248     $ 174,505     $ 273,398     $ ( 14,243 )   $ ( 1,135 )   $ 432,773                                                             Comprehensive income:                                                         Net income     -       -       -       18,552       -       -       18,552   Other comprehensive loss     -       -       -       -       -       ( 17,806 )     ( 17,806 ) Total comprehensive income                                                     746                                                             Adoption of new accounting pronouncement (see Note 1)     -       -       -       ( 1,392 )     -       -       ( 1,392 ) ESOP shares committed to be released to plan participants     -       -       557       -       890       -       1,447   Cash dividend, $ 0.60 per share     -       -       -       ( 13,044 )     -       -       ( 13,044 ) Proceeds from stock option exercises     47       -       372       -       -       -       372   Stock compensation expense     -       -       468       -       -       -       468   Purchase of common stock returned to authorized but unissued     ( 2,524 )     ( 25 )     ( 45,171 )     -       -       -       ( 45,196 ) Balances at September 30, 2022     22,318     $ 223     $ 130,731     $ 277,514     $ ( 13,353 )   $ ( 18,941 )   $ 376,174                                                                 (In Thousands, except per share amounts)   For the nine months ended September 30, 2023                                                         Balances at December 31, 2022     22,174     $ 222     $ 128,550     $ 274,246     $ ( 13,056 )   $ ( 19,476 )   $ 370,486                                                             Comprehensive income:                                                         Net income     -       -       -       9,415       -       -       9,415   Other comprehensive loss     -       -       -       -       -       ( 4,796 )     ( 4,796 ) Total comprehensive income                                                     4,619                                                             ESOP shares committed to be released to plan participants     -       -       259       -       890       -       1,149   Cash dividend, $ 0.55 per share     -       -       -       ( 11,126 )     -       -       ( 11,126 ) Stock Compensation Activity, net of tax     86       1       818       -       -       -       819   Stock compensation expense     -       -       222       -       -       -       222   Purchase of common stock returned to authorized but unissued     ( 1,400 )     ( 14 )     ( 19,829 )     -       -       -       ( 19,843 ) Balances at September 30, 2023     20,860     $ 209     $ 110,020     $ 272,535     $ ( 12,166 )   $ ( 24,272 )   $ 346,326       6 Table of Contents                                               Accumulated                               Additional             Unearned     Other     Total       Common Stock     Paid-In     Retained     ESOP     Comprehensive     Shareholders'       Shares     Amount     Capital     Earnings     Shares     Income (Loss)     Equity       (In Thousands, except per share amounts)   For the three months ended September 30, 2022                                                         Balances at June 30, 2022     22,734     $ 227     $ 137,547     $ 276,444     $ ( 13,650 )   $ ( 14,188 )   $ 386,380   Comprehensive income:                                                         Net income     -       -       -       5,270       -       -       5,270   Other comprehensive loss     -       -       -       -       -       ( 4,753 )     ( 4,753 ) Total comprehensive income                                                     517                                                         -   ESOP shares committed to be released to Plan participants     -       -       166       -       297       -       463   Cash dividend, $ 0.20 per share     -       -       -       ( 4,200 )     -       -       ( 4,200 ) Stock compensation activity, net of tax     9       -       126       -       -       -       126   Stock compensation expense     -       -       138       -       -       -       138   Purchase of common stock returned to authorized but unissued     ( 425 )     ( 4 )     ( 7,246 )     -       -       -       ( 7,250 ) Balances at September 30, 2022     22,318     $ 223     $ 130,731     $ 277,514     $ ( 13,353 )   $ ( 18,941 )   $ 376,174                                                                 (In Thousands, except per share amounts)   For the three months ended September 30, 2023                                                         Balances at June 30, 2023     21,376     $ 214     $ 116,611     $ 272,229     $ ( 12,463 )   $ ( 20,828 )   $ 355,763   Comprehensive loss:                                                         Net income     -       -       -       3,253       -       -       3,253   Other comprehensive loss     -       -       -       -       -       ( 3,444 )     ( 3,444 ) Total comprehensive loss     -       -       -       -       -       -       ( 191 )                                                           ESOP shares committed to be released to Plan participants     -       -       50       -       297       -       347   Cash dividend, $ 0.15 per share     -       -       -       ( 2,947 )     -       -       ( 2,947 ) Stock compensation activity, net of tax     -       -       -       -       -       -       -   Stock compensation expense     -       -       34       -       -       -       34   Purchase of common stock returned to authorized but unissued     ( 516 )     ( 5 )     ( 6,675 )     -       -       -       ( 6,680 ) Balances at September 30, 2023     20,860     $ 209     $ 110,020     $ 272,535     $ ( 12,166 )   $ ( 24,272 )   $ 346,326     See accompanying notes to unaudited consolidated financial statements.   7 Table of Contents     WATERSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)       Nine months ended September 30,       2023     2022       (In Thousands)                     Operating activities:                 Net income   $ 9,415       18,552   Adjustments to reconcile net income to net cash (used in) provided by operating activities:                 Provision for credit losses     1,091       304   Depreciation, amortization, accretion     2,268       3,094   Deferred taxes     ( 583 )     ( 361 ) Stock based compensation     222       468   Origination of mortgage servicing rights     ( 1,515 )     ( 2,030 ) Gain on sale of mortgage servicing rights     ( 583 )     -   Gain on sale of loans held for sale     ( 55,221 )     ( 65,670 ) Loans originated for sale     ( 1,575,962 )     ( 2,117,010 ) Proceeds on sales of loans originated for sale     1,604,950       2,309,369   Gain on death benefit on bank owned life insurance     -       ( 340 ) Decrease in accrued interest receivable     ( 1,296 )     ( 907 ) Increase in cash surrender value of life insurance     ( 1,373 )     ( 1,394 ) Increase in derivative assets     ( 3,025 )     ( 24,248 ) Increase (decrease) in accrued interest on deposits and borrowings     1,725       ( 118 ) Increase in accrued tax expense     891       1,090   (Decrease) increase in derivative liabilities     ( 844 )     25,699   Change in other assets and other liabilities, net     ( 6,738 )     ( 11,301 ) Net cash (used in) provided by operating activities     ( 26,578 )     135,197                     Investing activities:                 Net increase in loans receivable     ( 140,949 )     ( 148,136 ) Purchases of:                 Debt securities     ( 1,888 )     ( 2,080 ) Mortgage related securities     ( 18,918 )     ( 77,388 ) Bank owned life insurance     ( 180 )     ( 180 ) FHLB stock     ( 9,441 )     -   Premises and equipment     ( 283 )     ( 641 ) Proceeds from:                 Principal repayments on mortgage-related securities     15,872       27,925   Maturities of debt securities     3,614       14,860   Sales of FHLB Stock     3,384       8,688   Proceeds on sales of mortgage servicing rights     3,530       -   Death benefit on bank owned life insurance     474       1,183   Net cash used in investing activities     ( 144,785 )     ( 175,769 )                   Financing activities:                 Net decrease in deposits     6,150       ( 46,258 ) Net change in short-term borrowings     242,133       62,824   Repayment of long-term debt     ( 215,000 )     ( 270,000 ) Proceeds from long-term debt     174,000       50,000   Net change in advance payments by borrowers for taxes     11,163       11,097   Cash dividends on common stock     ( 12,408 )     ( 26,048 ) Purchase of common stock returned to authorized but unissued     ( 19,843 )     ( 45,196 ) Proceeds from stock option exercises     819       372   Net cash provided by (used in) financing activities     187,014       ( 263,209 ) Increase (decrease) in cash and cash equivalents     15,651       ( 303,781 ) Cash and cash equivalents at beginning of period     46,642       376,722   Cash and cash equivalents at end of period   $ 62,293     $ 72,941                     Supplemental information:                 Cash paid or credited during the period for:                 Income tax payments   $ 1,903     $ 4,286   Interest payments     16,112       8,110   Noncash activities:                 Dividends declared but not paid in other liabilities     3,229       4,520     See accompanying notes to unaudited consolidated financial statements.   8 Table of Contents     Note 1 — Basis of Presentation   The unaudited interim consolidated financial statements include the accounts of Waterstone Financial, Inc. (the “Company”) and the Company’s subsidiaries.   WaterStone Bank SSB (the "Bank") is a community bank that has served the banking needs of its customers since 1921. WaterStone Bank also has an active mortgage banking subsidiary, Waterstone Mortgage Corporation.   WaterStone Bank conducts its community banking business from 14 banking offices located in Milwaukee, Washington and Waukesha Counties, Wisconsin. WaterStone Bank's principal lending activity is originating one - to four -family, multi-family residential real estate, and commercial real estate loans for retention in its portfolio. WaterStone Bank also offers home equity loans and lines of credit, construction and land loans, commercial business loans, and consumer loans. WaterStone Bank funds its loan production primarily with retail deposits and Federal Home Loan Bank advances. The Company's deposit offerings include: certificates of deposit, money market savings accounts, transaction deposit accounts, non-interest bearing demand accounts and individual retirement accounts. The investment securities portfolio is comprised principally of mortgage-backed securities, government-sponsored enterprise bonds and municipal obligations.   WaterStone Bank's mortgage banking operations are conducted through its wholly-owned subsidiary, Waterstone Mortgage Corporation.  Waterstone Mortgage Corporation originates single-family residential real estate loans for sale into the secondary market.  Waterstone Mortgage Corporation utilizes lines of credit provided by WaterStone Bank as a primary source of funds, and also utilizes a line of credit with another financial institution as needed.   The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, Rule 10 - 01 of Regulation S- X and the instructions to Form 10 -Q. The financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations, changes in shareholders’ equity, and cash flows of the Company for the periods presented.   The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s  December 31, 2022 Annual Report on Form 10 -K. Operating results for the three and nine months ended September 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.   The preparation of the unaudited consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the allowance for credit losses, income taxes, and fair value measurements. Actual results could differ from those estimates.   Subsequent Events   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 and nine months ended September 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   The Company adopted "Troubled Debt Restructurings and Vintage Disclosures" under ASC Topic 326 on January 1, 2023, and applied the standard’s provisions. The impact going forward will depend on the credit quality of the loan portfolio as well as the economic conditions at future reporting periods. See Note 3 - Loans Receivable for the new disclosures. Adoption of "Troubled Debt Restructurings and Vintage Disclosures" under ASC Topic 326 did not have a material impact on the Company's consolidated financial statements.   9 Table of Contents     Note 2   — Securities Available for Sale   The amortized cost and fair values of the Company’s investment in securities available for sale follow:       September 30, 2023               Gross     Gross               Amortized     unrealized     unrealized               cost     gains     losses     Fair value       (In Thousands)   Mortgage-backed securities   $ 13,009     $ -     $ ( 2,096 )   $ 10,913   Collateralized mortgage obligations:                                 Government sponsored enterprise issued     151,866       -       ( 24,515 )     127,351   Private-label issued     8,325       -       ( 1,025 )     7,300   Mortgage-related securities     173,200       -       ( 27,636 )     145,564                                     Government sponsored enterprise bonds     2,500       -       ( 211 )     2,289   Municipal securities     37,556       86       ( 2,229 )     35,413   Other debt securities     12,500       -       ( 1,368 )     11,132   Debt securities     52,556       86       ( 3,808 )     48,834   Other securities     101       -       -       101   Total   $ 225,857     $ 86     $ ( 31,444 )   $ 194,499         December 31, 2022               Gross     Gross               Amortized     unrealized     unrealized               cost     gains     losses     Fair value       (In Thousands)   Mortgage-backed securities   $ 15,134     $ 4     $ ( 1,824 )   $ 13,314   Collateralized mortgage obligations                                 Government sponsored enterprise issued     145,740       -       ( 20,975 )     124,765   Private-label issued     9,041       -       ( 935 )     8,106   Mortgage related securities     169,915       4       ( 23,734 )     146,185                                     Government sponsored enterprise bonds     2,500       -       ( 244 )     2,256   Municipal securities     37,699       428       ( 1,193 )     36,934   Other debt securities     12,500       -       ( 1,338 )     11,162   Debt securities     52,699       428       ( 2,775 )     50,352   Other securities     51       -       -       51   Total   $ 222,665     $ 432     $ ( 26,509 )   $ 196,588     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 September 30, 2023 , $ 94.7  million of the Company’s mortgage related securities were pledged as collateral to secure funding from the Federal Reserve Bank's new borrowing facility. Additionally at September 30, 2023 , $ 198,000  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 September 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.       Amortized     Fair       Cost     Value       (In Thousands)   Debt and other securities                 Due within one year   $ 7,296     $ 7,198   Due after one year through five years     10,986       10,751   Due after five years through ten years     20,145       18,467   Due after ten years     14,129       12,418   Mortgage-related securities     173,200       145,564   Other securities     101       101   Total   $ 225,857     $ 194,499     10 Table of Contents   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:       September 30, 2023       Less than 12 months     12 months or longer     Total       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized       value     loss     value     loss     value     loss       (In Thousands)   Mortgage-backed securities   $ 493     $ 21     $ 10,420     $ 2,075     $ 10,913     $ 2,096   Collateralized mortgage obligations:                                                 Government sponsored enterprise issued     19,941       529       107,410       23,986       127,351       24,515   Private-label issued     -       -       6,269       1,025       6,269       1,025   Government sponsored enterprise bonds     -       -       2,289       211       2,289       211   Municipal securities     24,407       896       5,237       1,333       29,644       2,229   Other debt securities     -       -       11,132       1,368       11,132       1,368   Total   $ 44,841     $ 1,446     $ 142,757     $ 29,998     $ 187,598     $ 31,444         December 31, 2022       Less than 12 months     12 months or longer     Total       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized       value     loss     value     loss     value     loss       (In Thousands)   Mortgage-backed securities   $ 8,383     $ 655     $ 4,573     $ 1,169     $ 12,956     $ 1,824   Collateralized mortgage obligations:                                                 Government sponsored enterprise issued     65,270       6,400       59,495       14,575       124,765       20,975   Private-label issued     7,012       935       -       -       7,012       935   Government sponsored enterprise bonds     2,256       244       -       -       2,256       244   Municipal securities     18,648       192       4,095       1,001       22,743       1,193   Other debt securities     2,362       138       8,800       1,200       11,162       1,338   Total   $ 103,931     $ 8,564     $ 76,963     $ 17,945     $ 180,894     $ 26,509     The Company reviews the investment securities portfolio on a quarterly basis to monitor securities in unrealized loss positions, which were comprised of  187  individual securities, to determine whether the impairment is due to credit-related factors or noncredit-related factors. 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 September 30, 2023 and December 31, 2022 ,  no  allowance for credit losses on securities was recognized. The Company does not consider its securities with unrealized losses to be attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. Furthermore, the Company does not have the intent to sell any of these securities and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost.   During the  three and nine months ended September 30, 2023  and September 30, 2022 , there were no sales of securities.   11 Table of Contents     Note 3 - Loans Receivable   Loans receivable at September 30, 2023 and December 31, 2022 are summarized as follows:       September 30, 2023     December 31, 2022       (In Thousands)   Mortgage loans:                 Residential real estate:                 One- to four-family   $ 550,055     $ 469,567   Multi-family     711,660       677,981   Home equity     11,719       11,455   Construction and land     62,409       62,494   Commercial real estate     278,441       262,973   Consumer     826       774   Commercial loans     35,983       24,934   Total   $ 1,651,093     $ 1,510,178     The Company provides several types of loans to its customers, including residential, construction, commercial and consumer loans. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to one borrower or to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. While the Company's credit risks are geographically concentrated in the Milwaukee metropolitan area, there are no concentrations with individual or groups of related borrowers. 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 $ 1.24  billion and $ 976.7  million at September 30, 2023 and December 31, 2022 , respectively, were pledged as collateral against $ 485.0 million and $ 385.7  million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at September 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 $ 3.2 million as of September 30, 2023  and $ 2.8  million as of December 31, 2022 .  None of these loans were past due or considered impaired as of September 30, 2023 or December 31, 2022 .   An analysis of past due loans receivable as of September 30, 2023 and December 31, 2022 follows:       As of September 30, 2023       1-59 Days Past Due (1)     60-89 Days Past Due (2)     90 Days or Greater     Total Past Due     Current (3)     Total Loans       (In Thousands)   Mortgage loans:                                                 Residential real estate:                                                 One- to four-family   $ 3,620     $ 141     $ 3,926     $ 7,687     $ 542,368     $ 550,055   Multi-family     732       -       -       732       710,928       711,660   Home equity     159       -       37       196       11,523       11,719   Construction and land     -       -       -       -       62,409       62,409   Commercial real estate     -       129       -       129       278,312       278,441   Consumer     -       -       -       -       826       826   Commercial loans     -       -       -       -       35,983       35,983   Total   $ 4,511     $ 270     $ 3,963     $ 8,744     $ 1,642,349     $ 1,651,093     12 Table of Contents       As of December 31, 2022       1-59 Days Past Due (1)     60-89 Days Past Due (2)     90 Days or Greater     Total Past Due     Current (3)     Total Loans       (In Thousands)   Mortgage loans:                                                 Residential real estate:                                                 One- to four-family   $ 2,328     $ -     $ 3,618     $ 5,946     $ 463,621     $ 469,567   Multi-family     -       -       -       -       677,981       677,981   Home equity     14       -       65       79       11,376       11,455   Construction and land     -       -       -       -       62,494       62,494   Commercial real estate     -       233       -       233       262,740       262,973   Consumer     -       -       -       -       774       774   Commercial loans     3       -       -       3       24,931       24,934   Total   $ 2,345     $ 233     $ 3,683     $ 6,261     $ 1,503,917     $ 1,510,178     ( 1 )    Includes $- and $- at September 30, 2023 and December 31, 2022 , respectively, which are on non-accrual status. ( 2 )    Includes $- and $- at  September 30, 2023 and December 31, 2022 , respectively, which are on non-accrual status. ( 3 )    Includes $ 119,000  and $ 624,000  at  September 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 and nine months ended September 30, 2023 and the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2022 :       One- to Four-Family     Multi-Family     Home Equity     Land and Construction     Commercial Real Estate     Consumer     Commercial     Total       (In Thousands)   Nine months ended September 30, 2023                                                                 Balance at beginning of period   $ 4,743     $ 7,975     $ 174     $ 1,352     $ 3,199     $ 47     $ 267     $ 17,757   Provision (credit) for credit losses - loans     1,412       ( 248 )     7       ( 189 )     ( 458 )     36       269       829   Charge-offs     ( 63 )     -       -       -       -       ( 29 )     -       ( 92 ) Recoveries     46       5       4       2       2       -       -       59   Balance at end of period   $ 6,138     $ 7,732     $ 185     $ 1,165     $ 2,743     $ 54     $ 536     $ 18,553                                                                     Nine months ended September 30, 2022                                                                 Balance at beginning of period   $ 3,963     $ 5,398     $ 89     $ 1,386     $ 4,482     $ 33     $ 427     $ 15,778   Adoption of CECL     88       100       58       886       ( 640 )     7       ( 69 )     430   Provision (credit) for credit losses - loans     644       1,338       29       ( 763 )     ( 417 )     19       ( 150 )     700   Charge-offs     ( 254 )     -       -       -       -       ( 12 )     -       ( 266 ) Recoveries     55       727       14       2       12       -       -       810   Balance at end of period   $ 4,496     $ 7,563     $ 190     $ 1,511     $ 3,437     $ 47     $ 208     $ 17,452         One to-Four- Family     Multi-Family     Home Equity     Construction and Land     Commercial Real Estate     Consumer     Commercial     Total       (In Thousands)   Three months ended September 30, 2023                                                                 Balance at beginning of period   $ 6,529     $ 7,425     $ 169     $ 1,060     $ 2,600     $ 53     $ 538     $ 18,374   Provision (credit) for credit losses - loans     ( 364 )     305       16       105       142       4       ( 2 )     206   Charge-offs     ( 34 )     -       -       -       -       ( 3 )     -       ( 37 ) Recoveries     7       2       -       -       1       -       -       10   Balance at end of period   $ 6,138     $ 7,732     $ 185     $ 1,165     $ 2,743     $ 54     $ 536     $ 18,553                                                                     Three months ended September 30, 2022                                                                 Balance at beginning of period   $ 4,629     $ 7,391     $ 163     $ 1,690     $ 3,160     $ 42     $ 196     $ 17,271   Provision (credit) for credit losses - loans     44       171       23       ( 179 )     277       12       12       360   Charge-offs     ( 189 )     -       -       -       -       ( 7 )     -       ( 196 ) Recoveries     12       1       4       -       -       -       -       17   Balance at end of period   $ 4,496     $ 7,563     $ 190     $ 1,511     $ 3,437     $ 47     $ 208     $ 17,452     13 Table of Contents   The Company utilized the Vintage Loss Rate method in determining expected future credit losses. This technique considers losses over the full life cycle of loan pools. A vintage is a group of loans originated in the same annual time period. The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a pool by loan segment and vintage and compares those loan losses to the original loan balance of that pool as of a similar vintage.   To estimate a CECL loss rate for the pool, management first identifies the loan losses recognized between the pool date and the reporting date for the pool and determines which loan losses were related to loans outstanding at the pool date. The loss rate method then divides the loan losses recognized on loans outstanding as of the pool date by the outstanding loan balance as of the pool date.   The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company's historical look–back period includes January 2012 through the current period, on an annual basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data.   Additionally, the weighted average remaining maturity ("WARM") method is used for the Construction and Consumer loan pools. The WARM method considers an estimate of expected credit losses over the remaining life of the financial assets and uses average annual charge-off rates to estimate the allowance for credit losses. For amortizing assets, the remaining contractual life is adjusted by the expected scheduled payments and prepayments. The average annual charge-off rate is applied to the amortization-adjusted remaining life to determine the unadjusted lifetime historical charge-off rate.   Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management. Management attempts to quantify qualitative reserves whenever possible. The CECL methodology applied focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonperforming loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing economic conditions; (ix) the fair value of underlying collateral; and ( x ) other qualitative and quantitative factors which could affect expected credit losses.   14 Table of Contents   The Company’s CECL estimate applies a forecast that incorporates macroeconomic trends and other environmental factors. Management utilized national, regional and local leading economic indexes, as well as management judgment, as the basis for the forecast period. The historical loss rate was utilized as the base rate, and qualitative adjustments and future forecast adjustments were applied.   The Company segments the loan portfolio into pools based on the following risk characteristics: collateral type, credit characteristics, loan origination balance, and outstanding loan balances.   Allowance for Credit Losses-Unfunded Commitments : In addition to the ACL-Loans, the Company has established an ACL-Unfunded commitments, classified in other liabilities on the consolidated statements of financial condition. 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 September 30, 2023 and December 31, 2022  was $ 1.6  million and $ 1.3  million.   Provision for Credit Losses : The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments including loans, investment securities, and off-balance sheet credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in management's judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. See Note 2 - Securities Available for Sale for additional information regarding the ACL related to investment securities. The following table presents the components of the provision for credit losses.       Three months ended     Nine months ended       September 30, 2023     September 30, 2022     September 30, 2023     September 30, 2022       (In Thousands)   Provision (credit) for credit losses on:                                 Loans   $ 206     $ 360     $ 829     $ 700   Unfunded commitments     239       ( 28 )     262       ( 396 ) Investment securities     -       -       -       -   Total   $ 445     $ 332     $ 1,091     $ 304     Collateral Dependent Loans : A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. 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.   15 Table of Contents   The following tables present collateral dependent loans by portfolio segment and collateral type as of September 30, 2023  and  December 31, 2022 :       One- to Four- Family     Multi-Family     Home Equity     Construction and Land     Commercial Real Estate     Consumer     Commercial     Total       (In Thousands)   Allowance related to collateral dependent loans   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -   Allowance related to pooled loans     6,138       7,732       185       1,165       2,743       54       536       18,553   Allowance at end of period   $ 6,138     $ 7,732     $ 185     $ 1,165     $ 2,743     $ 54     $ 536     $ 18,553                                                                     Collateral dependent loans   $ 1,527     $ -     $ 37     $ -     $ 5,368     $ -     $ 1,421     $ 8,353   Pooled loans     548,528       711,660       11,682       62,409       273,073       826       34,562       1,642,740   Total gross loans   $ 550,055     $ 711,660     $ 11,719     $ 62,409     $ 278,441     $ 826     $ 35,983     $ 1,651,093         One- to Four- Family     Multi-Family     Home Equity     Construction and Land     Commercial Real Estate     Consumer     Commercial     Total       (In Thousands)   Allowance related to collateral dependent loans   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -   Allowance related to pooled loans     4,743       7,975       174       1,352       3,199       47       267       17,757   Allowance at end of period   $ 4,743     $ 7,975     $ 174     $ 1,352     $ 3,199     $ 47     $ 267     $ 17,757                                                                     Collateral dependent loans   $ 2,584     $ -     $ 40     $ -     $ 5,455     $ -     $ -     $ 8,079   Pooled loans     466,983       677,981       11,415       62,494       257,518       774       24,934       1,502,099   Total gross loans   $ 469,567     $ 677,981     $ 11,455     $ 62,494     $ 262,973     $ 774     $ 24,934     $ 1,510,178     The Company's procedures dictate that an updated valuation must be obtained with respect to underlying collateral at the time a loan is deemed impaired. Updated valuations may also be obtained upon transfer from loans receivable to real estate owned based upon the age of the prior appraisal, changes in market conditions or known changes to the physical condition of the property.   Estimated fair values are reduced to account for sales commissions, broker fees, unpaid property taxes and additional selling expenses to arrive at an estimated net realizable value. The adjustment factor is based upon the Company's actual experience with respect to sales of real estate owned over the prior two years. In situations in which the Company is placing reliance on an appraisal that is more than one year old, an additional adjustment factor is applied to account for downward market pressure since the date of appraisal. The additional adjustment factor is based upon relevant sales data available for the Company's general operating market as well as company-specific historical net realizable values as compared to the most recent appraisal prior to disposition.   With respect to multi-family income-producing real estate, appraisals are reviewed and estimated collateral values are adjusted by updating significant appraisal assumptions to reflect current real estate market conditions. Significant assumptions reviewed and updated include the capitalization rate, rental income and operating expenses. These adjusted assumptions are based upon recent appraisals received on similar properties as well as on actual experience related to real estate owned and currently under Company management.   16 Table of Contents   Credit Quality Indicators   The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships.  For relationships over $ 1  million, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt.  Management also affirms the risk ratings for the loans in their respective portfolios on an annual basis.  The Company uses the following definitions for risk ratings:   Watch.  Loans classified as watch have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.  Watch assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.   Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and, additionally, the weakness or weaknesses to make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable. Substandard loans are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.   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 September 30, 2023 and December 31, 2022 :       One to Four-Family     Multi-Family     Home Equity     Construction and Land     Commercial Real Estate     Consumer     Commercial     Total       (In Thousands)   At September 30, 2023                                                                 Substandard   $ 3,958     $ -     $ 37     $ -     $ 5,367     $ -     $ 1,421     $ 10,783   Watch     10,277       380       142       -       269       -       -       11,068   Pass     535,820       711,280       11,540       62,409       272,805       826       34,562       1,629,242       $ 550,055     $ 711,660     $ 11,719     $ 62,409     $ 278,441     $ 826     $ 35,983     $ 1,651,093                                                                     At December 31, 2022                                                                 Substandard   $ 4,209     $ -     $ 98     $ -     $ 5,454     $ -     $ 61     $ 9,822   Watch     5,696       192       96       2,227       5,203       -       2,023       15,437   Pass     459,662       677,789       11,261       60,267       252,316       774       22,850       1,484,919       $ 469,567     $ 677,981     $ 11,455     $ 62,494     $ 262,973     $ 774     $ 24,934     $ 1,510,178     17 Table of Contents   Credit Quality Information:   The following table presents total loans by risk categories and year of origination as of September 30, 2023 :       2023     2022     2021     2020     2019     Prior     Revolving     Total       (In Thousands)   One- to four-family                                                                 Pass   $ 183,187     $ 170,153     $ 46,971     $ 34,576     $ 20,290     $ 79,596     $ 1,047     $ 535,820   Watch     8,327       -       -       -       -       1,950       -       10,277   Substandard     890       534       -       -       -       2,534       -       3,958   Total     192,404       170,687       46,971       34,576       20,290       84,080       1,047       550,055                                                                     Multi-family                                                                 Pass     102,253       221,619       141,033       131,394       39,533       74,011       1,437     $ 711,280   Watch     192       -       -       -       -       188       -       380   Substandard     -       -       -       -       -       -       -       -   Total     102,445       221,619       141,033       131,394       39,533       74,199       1,437       711,660                                                                     Home equity                                                                 Pass     1,012       259       78       151       88       397       9,555     $ 11,540   Watch     -       -       86       -       -       -       56       142   Substandard     -       19       18       -       -       -       -       37   Total     1,012       278       182       151       88       397       9,611       11,719                                                                     Construction and land                                                                 Pass     24,833       1,186       24,831       2,166       9,196       197       -     $ 62,409   Watch     -       -       -       -       -       -       -       -   Substandard     -       -       -       -       -       -       -       -   Total     24,833       1,186       24,831       2,166       9,196       197       -       62,409                                                                     Commercial Real Estate                                                                 Pass     57,221       76,878       48,433       35,508       19,810       33,750       1,205     $ 272,805   Watch     -       129       -       -       140       -       -       269   Substandard     5,279       -       -       88       -       -       -       5,367   Total     62,500       77,007       48,433       35,596       19,950       33,750       1,205       278,441                                                                     Consumer                                                                 Pass     -       -       -       -       -       -       826     $ 826   Watch     -       -       -       -       -       -       -       -   Substandard     -       -       -       -       -       -       -       -   Total     -       -       -       -       -       -       826       826                                                                     Commercial                                                                 Pass     16,274       1,775       986       2,798       106       5,569       7,054     $ 34,562   Watch     -       -       -       -       -       -       -       -   Substandard     -       52       -       -       19       -       1,350       1,421   Total     16,274       1,827       986       2,798       125       5,569       8,404       35,983                                                                     Total Loans   $ 399,468     $ 472,604     $ 262,436     $ 206,681     $ 89,182     $ 198,192     $ 22,530     $ 1,651,093                                                                     Gross charge-offs   $ 63     $ -     $ -     $ -     $ -     $ -     $ 29     $ 92     18 Table of Contents   The following table presents total loans by risk categories and year of origination as of December 31, 2022 :        2022     2021     2020     2019     2018     Prior     Revolving     Total       (In Thousands)   One- to four-family                                                                 Pass   $ 246,437     $ 55,494     $ 37,438     $ 21,813     $ 20,580     $ 76,568     $ 1,332     $ 459,662   Watch     4,823       -       -       -       -       873       -       5,696   Substandard     218       1,255       519       -       -       2,217       -       4,209   Total     251,478       56,749       37,957       21,813       20,580       79,658       1,332       469,567                                                                     Multi-family                                                                 Pass     255,100       144,731       139,386       44,221       22,689       70,905       757       677,789   Watch     -       -       -       -       -       192       -       192   Substandard     -       -       -       -       -       -       -       -   Total     255,100       144,731       139,386       44,221       22,689       71,097       757       677,981                                                                     Home equity                                                                 Pass     290       81       865       104       174       82       9,665       11,261   Watch     -       96       -       -       -       -       -       96   Substandard     22       18       -       -       -       -       58       98   Total     312       195       865       104       174       82       9,723       11,455                                                                     Construction and land                                                                 Pass     2,958       49,092       2,308       5,690       123       96       -       60,267   Watch     -       -       -       2,227       -       -       -       2,227   Substandard     -       -       -       -       -       -       -       -   Total     2,958       49,092       2,308       7,917       123       96       -       62,494                                                                     Commercial Real Estate                                                                 Pass     87,971       53,788       39,015       24,795       21,467       24,595       685       252,316   Watch     1,616       -       95       2,226       1,266       -       -       5,203   Substandard     -       -       -       -       5,454       -       -       5,454   Total     89,587       53,788       39,110       27,021       28,187       24,595       685       262,973                                                                     Consumer                                                                 Pass     19       -       -       -       -       -       755       774   Watch     -       -       -       -       -       -       -       -   Substandard     -       -       -       -       -       -       -       -   Total     19       -       -       -       -       -       755       774                                                                     Commercial                                                                 Pass     9,385       1,228       1,256       240       936       5,622       4,183       22,850   Watch     -       -       1,928       -       -       92       3       2,023   Substandard     61       -       -       -       -       -       -       61   Total     9,446       1,228       3,184       240       936       5,714       4,186       24,934                                                                     Total Loans   $ 608,900     $ 305,783     $ 222,810     $ 101,316     $ 72,689     $ 181,242     $ 17,438     $ 1,510,178      19 Table of Contents   The following presents data on restructurings of financing receivables whose borrowers are experiencing financial difficulty:       As of September 30, 2023       Accruing     Non-accruing     Total       Amount     Number     Amount     Number     Amount     Number       (Dollars in Thousands)                                                     One- to four-family   $ -       -     $ 309       1     $ 309       1       $ -       -     $ 309       1     $ 309       1     The following presents data on troubled debt restructurings:       As of December 31, 2022       Accruing     Non-accruing     Total       Amount     Number     Amount     Number     Amount     Number       (Dollars in Thousands)                                                     One- to four-family   $ -       -     $ 936       4     $ 936       4       $ -       -     $ 936       4     $ 936       4     20 Table of Contents   The following presents restructurings of financing receivables whose borrowers are experiencing financial difficulty by concession type:       As of September 30, 2023       Performing in accordance with modified terms     In Default     Total       Amount     Number     Amount     Number     Amount     Number       (Dollars in Thousands)   Interest reduction and principal forbearance   $ 309       1     $ -       -     $ 309       1       $ 309       1     $ -       -     $ 309       1     The following presents troubled debt restructurings by concession type:       As of December 31, 2022       Performing in accordance with modified terms     In Default     Total       Amount     Number     Amount     Number     Amount     Number       (Dollars in Thousands)   Interest reduction and principal forbearance   $ 399       2     $ -       -     $ 399       2   Interest reduction     18       1       -       -       18       1   Principal forbearance     519       1       -       -       519       1       $ 936       4     $ -       -     $ 936       4     There were no  restructurings of financing receivables whose borrowers are experiencing financial difficulty during the  three or nine months ended September 30, 2023 . There were  no  loans modified as troubled debt restructurings during the three months ended  September 30, 2022 . There were  two loans modified as troubled debt restructurings with a total balance of $ 424,000  during the  nine  months ended September 30, 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 or nine months ended September 30, 2023  or  September 30, 2022 .   The following table presents data on non-accrual loans as of September 30, 2023 and December 31, 2022 :       September 30, 2023     December 31, 2022       (Dollars in Thousands)   Non-accrual loans:                 Residential                 One- to four-family   $ 3,958     $ 4,209   Multi-family     -       -   Home equity     37       98   Construction and land     -       -   Commercial real estate     88       -   Commercial     -       -   Consumer     -       -   Total non-accrual loans   $ 4,083     $ 4,307   Total non-accrual loans to total loans receivable     0.25 %     0.29 % Total non-accrual loans to total assets     0.18 %     0.21 %   Residential one - to four -family mortgage loans that were in the process of foreclosure were $ 651,000  and $ 795,000   at September 30, 2023  and  December 31, 2022 , respectively.   21 Table of Contents     Note 4   — Mortgage Servicing Rights   The following table presents the activity in the Company’s mortgage servicing rights:       Nine months ended September 30,       2023     2022       (In Thousands)   Mortgage servicing rights at beginning of the period   $ 3,445     $ 1,555   Additions     1,515       2,030   Amortization     ( 208 )     ( 437 ) Sales     ( 2,767 )     -   Mortgage servicing rights at end of the period     1,985       3,148   Valuation allowance recovered during the period     -       7   Mortgage servicing rights at end of the period, net   $ 1,985     $ 3,155     During the nine months ended September 30, 2023 , $ 1.58  million in residential loans were originated for sale on a consolidated basis generating mortgage banking income of $ 59.9  million. During the same period in the prior year, sales of loans held for sale totaled $ 2.12  billion, generating mortgage banking income of $ 83.7 million. The unpaid principal balance of loans serviced for others was $ 220.0 million and $ 409.6  million at September 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 was $ 2.5 million at September 30, 2023 and $ 5.0  million at  December 31, 2022 , respectively.   During the  nine months ended September 30, 2023  the Company sold mortgage servicing rights related to $ 318.4  million of loans serviced for others 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 September 30, 2023, there were no sales of mortgage servicing rights. During the three and nine  months ended  September 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:       (In Thousands)   Estimate for the annual period ending December 31:         2023   $ 83   2024     346   2025     268   2026     250   2027     221   Thereafter     817   Total   $ 1,985     22 Table of Contents     Note 5   — Deposits   At September 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 September 30, 2023 is as follows:       (In Thousands)             Within one year   $ 663,438   More than one to two years     66,834   More than two to three years     1,651   More than three to four years     921   More than four through five years     406       $ 733,250     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 $ 7.9 million and $ 9.2 million at September 30, 2023 and December 31, 2022 , respectively.   23 Table of Contents     Note 6   — Borrowings   Borrowings consist of the following:   September 30, 2023                                                     Category Term   Amount     Maturity     Rate   Rate Type   Callable/Putable     Start Date     Frequency     (Dollars in Millions)                                                   FHLB advances                                                       Long-term   $ 25.0     November 3, 2025       4.09 % Fixed   Putable     November 1, 2023     Quarterly     Long-term     25.0     November 7, 2025       4.25 % Fixed   Putable     November 7, 2023     Quarterly     Long-term     50.0     December 14, 2027       1.73 % Fixed   Putable     December 16, 2019     Single     Long-term     25.0     July 24, 2028       3.48 % Fixed   Putable     November 24, 2023     Quarterly     Long-term     14.0     July 27, 2028       3.52 % Fixed   Putable     November 27, 2023     Quarterly     Long-term     10.0     August 7, 2028       3.51 % Fixed   Putable     December 7, 2023     Quarterly     Long-term     10.0     August 8, 2028       3.52 % Fixed   Putable     December 8, 2023     Quarterly   Total FHLB long-term advances     159.0               3.15 %                             Short-term     10.0     October 2, 2023       3.49 % Fixed     N/A       N/A       N/A     Short-term     20.0     October 2, 2023       5.45 % Fixed     N/A       N/A       N/A     Short-term     83.0     October 2, 2023       5.45 % Fixed     N/A       N/A       N/A     Short-term     20.0     October 5, 2023       5.37 % Fixed     N/A       N/A       N/A     Short-term     14.5     October 12, 2023       5.36 % Fixed     N/A       N/A       N/A     Short-term     27.5     October 16, 2023       5.38 % Fixed     N/A       N/A       N/A     Short-term     14.0     October 16, 2023       5.38 % Fixed     N/A       N/A       N/A     Short-term     27.5     October 18, 2023       5.36 % Fixed     N/A       N/A       N/A     Short-term     27.0     October 27, 2023       5.38 % Fixed     N/A       N/A       N/A     Short-term     29.5     November 3, 2023       5.43 % Fixed     N/A       N/A       N/A     Short-term     30.5     November 27, 2023       5.42 % Fixed     N/A       N/A       N/A     Short-term     22.5     December 5, 2023       5.46 % Fixed     N/A       N/A       N/A   Total FHLB short-term advances     326.0               5.36 %                           Total FHLB advances   $ 485.0               4.63 %                                                                                 Short-Term Borrowings                                                     Federal reserve bank Short-term   $ 50.0     July 18, 2024       5.36 % Fixed     N/A       N/A       N/A   Federal reserve bank Short-term     50.0     September 6, 2024       5.50 % Fixed     N/A       N/A       N/A   Total federal reserve bank     100.0               5.43 %                           Repurchase agreements Revolving     2.9       N/A       8.17 % Variable     N/A       N/A       N/A   Total short-term borrowings     102.9               5.51 %                           Total borrowings   $ 587.9               4.79 %                                                                                                                                       December 31, 2022                                                     Category Term   Amount     Maturity     Rate   Rate Type   Callable/Putable     Start Date     Frequency     (Dollars in Millions)                                                   FHLB advances                                                       Long-term   $ 50.0     September 22, 2025       3.50 % Fixed   Putable     September 20, 2023     Single     Long-term     50.0     December 14, 2027       1.73 % Fixed   Putable     December 16, 2019     Single     Long-term     25.0     November 3, 2025       4.09 % Fixed   Putable     November 1, 2023     Quarterly     Long-term     25.0     November 7, 2025       4.25 % Fixed   Putable     November 7, 2023     Quarterly     Long-term     25.0     November 24, 2025       3.82 % Fixed   Putable     May 22, 2023     Quarterly     Long-term     25.0     December 1, 2032       2.35 % Fixed   Putable     March 1, 2023     Quarterly   Total FHLB long-term advances     200.0               3.12 %                             Short-term     7.7     January 9, 2023       4.16 % Fixed     N/A       N/A       N/A     Short-term     25.0     January 23, 2023       4.23 % Fixed     N/A       N/A       N/A     Short-term     20.0     January 23, 2023       4.23 % Fixed     N/A       N/A       N/A     Short-term     48.0     January 30, 2023       4.25 % Fixed     N/A       N/A       N/A     Short-term     20.0     January 6, 2023       4.29 % Fixed     N/A       N/A       N/A     Short-term     50.0     January 6, 2023       4.29 % Fixed     N/A       N/A       N/A     Short-term     15.0     January 4, 2023       4.31 % Fixed     N/A       N/A       N/A   Total FHLB short-term advances     185.7               4.26 %                           Total FHLB advances   $ 385.7               3.67 %                           Short-Term Borrowings                                                     Repurchase agreements Revolving   $ 1.1       N/A       7.21 % Variable     N/A       N/A       N/A   Total short-term borrowings     1.1               7.21 %                           Total borrowings   $ 386.8               0.24 %                             The short-term repurchase agreement represents the outstanding portion of a total $ 50.0 million commitment with one unrelated bank as of September 30, 2023 .  The short-term repurchase agreement is utilized by Waterstone Mortgage Corporation to finance loans originated for sale. This agreement is secured by the underlying loans being financed.  Related interest rates are based upon the note rate associated with the loans being financed. The short-term repurchase agreement had a $ 2.9 million balance at September 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. In addition, the Company enters into agreements under which it sells loans held for sale subject to an obligation to repurchase the same loans. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of assets. The obligation to repurchase the assets is reflected as a liability in the Company's consolidated statements of financial condition, while the securities and loans held for sale underlying the repurchase agreements remain in the respective investment securities and loans held for sale asset accounts. In other words, there is no offsetting or netting of the investment securities or loans held for sale assets with the repurchase agreement liabilities. The Company's repurchase agreement is subject to master netting agreements, which sets forth the rights and obligations for repurchase and offset. 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 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 September 30, 2023 , the Company had $ 62.7 million in unused borrowing capacity under this program.  The program expires on March 11, 2024.   At September 30, 2023 , the Company had approximately $ 291.0 million in unused borrowing capacity at the FHLB.   24 Table of Contents   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 62 % of the carrying value of home equity loans. In addition, these advances were collateralized by FHLB stock of $ 23.4  million at September 30, 2023 and $ 17.4  million at  December 31, 2022 , respectively. In the event of prepayment, the Company is obligated to pay all remaining contractual interest on the advance.     Note 7   – Regulatory Capital   The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements, or overall financial performance deemed by the regulators to be inadequate, can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. The Company's and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.   As required by applicable legislation, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.  The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement.   The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. The Community Bank Leverage Ratio is currently  9%.   A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualified community bank, we elected to opt-out of this definition during the second quarter of 2020.   Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.   The minimum capital ratios set forth in the Regulatory Capital Plans will be increased and other minimum capital requirements will be established if and as necessary. In accordance with the Regulatory Capital Plans, the Bank will not pursue any acquisition or growth opportunity, declare any dividend or conduct any stock repurchase that would cause the Bank's total risk-based capital ratio and/or its Tier 1 leverage ratio to fall below the established minimum capital levels or the capital levels required for capital adequacy plus the capital conservation buffer. The minimum capital conservation buffer is 2.5%.   As of September 30, 2023 , the Bank was considered 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.   25 Table of Contents   The actual and required capital amounts and ratios for the Bank as of September 30, 2023 and December 31, 2022 are presented in the tables below:       September 30, 2023       Actual     For Capital Adequacy Purposes     Minimum Capital Adequacy with Capital Buffer     To Be Well-Capitalized Under Prompt Corrective Action Provisions       Amount     Ratio     Amount     Ratio     Amount     Ratio     Amount     Ratio       (Dollars In Thousands)   Total Capital (to risk-weighted assets)                                                                 Consolidated Waterstone Financial, Inc.   $ 389,638       21.72 %   $ 143,550       8.00 %   $ 188,400       10.50 %     N/A       N/A   Waterstone Bank     357,685       19.93 %     143,550       8.00 %     188,400       10.50 %     179,432       10.00 % Tier I Capital (to risk-weighted assets)                                                                 Consolidated Waterstone Financial, Inc.     369,484       20.59 %     107,660       6.00 %     152,520       8.50 %     N/A       N/A   Waterstone Bank     337,531       18.81 %     107,660       6.00 %     152,520       8.50 %     143,545       8.00 % Common Equity Tier 1 Capital (to risk-weighted assets)                                                                 Consolidated Waterstone Financial, Inc.     369,484       20.59 %     80,740       4.50 %     125,600       7.00 %     N/A       N/A   Waterstone Bank     337,531       18.81 %     80,740       4.50 %     125,600       7.00 %     116,631       6.50 % Tier I Capital (to average assets)                                                                 Consolidated Waterstone Financial, Inc.     369,484       16.72 %     88,380       4.00 %     N/A       N/A       N/A       N/A   Waterstone Bank     337,531       15.28 %     88,380       4.00 %     N/A       N/A       110,474       5.00 % State of Wisconsin (to total assets)                                                                 Waterstone Bank     337,531       15.22 %     133,020       6.00 %     N/A       N/A       N/A       N/A     26 Table of Contents       December 31, 2022       Actual     For Capital Adequacy Purposes     Minimum Capital Adequacy with Capital Buffer     To Be Well-Capitalized Under Prompt Corrective Action Provisions       Amount     Ratio     Amount     Ratio     Amount     Ratio     Amount     Ratio       (Dollars In Thousands)   Total capital (to risk-weighted assets)                                                                 Consolidated Waterstone Financial, Inc.   $ 407,099       24.36 %   $ 133,709       8.00 %   $ 175,493       10.50 %     N/A       N/A   Waterstone Bank     359,623       21.52 %     133,690       8.00 %     175,468       10.50 %     167,112       10.00 % Tier I capital (to risk-weighted assets)                                                                 Consolidated Waterstone Financial, Inc.     389,342       23.29 %     100,281       6.00 %     142,065       8.50 %     N/A       N/A   Waterstone Bank     341,866       20.46 %     100,267       6.00 %     142,045       8.50 %     133,690       8.00 % 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 %     N/A       N/A   Waterstone Bank     341,866       20.46 %     75,200       4.50 %     116,978       7.00 %     108,623       6.50 % Tier I Capital (to average assets)                                                                 Consolidated Waterstone Financial, Inc.     389,342       19.45 %     80,080       4.00 %     N/A       N/A       N/A       N/A   Waterstone Bank     341,866       17.08 %     80,080       4.00 %     N/A       N/A       100,100       5.00 % State of Wisconsin (to total assets)                                                                 Waterstone Bank     341,866       16.87 %     121,624       6.00 %     N/A       N/A       N/A       N/A     27 Table of Contents     Note 8 – Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities   The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.       September 30, 2023     December 31, 2022       (In Thousands)   Financial instruments whose contract amounts represent potential credit risk:                 Commitments to extend credit under amortizing loans (1)   $ 31,047     $ 61,223   Commitments to extend credit under home equity lines of credit (2)     11,219       9,550   Unused portion of construction loans (3)     91,291       48,530   Unused portion of business lines of credit     11,343       17,356   Standby letters of credit     688       1,516     ( 1 ) Commitments for loans are extended to customers for up to 90 days after which they expire. Excludes commitments to originate loans held for sale, which are discussed in the following footnote. ( 2 ) Unused portions of home equity loans are available to the borrower for up to 10 years. ( 3 ) Unused portions of construction loans are available to the borrower for up to one year.   Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counter-party. Collateral obtained generally consists of mortgages on the underlying real estate.   Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds mortgages on the underlying real estate as collateral supporting those commitments for which collateral is deemed necessary.   The Company has determined that there are no probable losses related to commitments to extend credit or the standby letters of credit as of  September 30, 2023  and  December 31, 2022 . Please see Note 3 - Loans Receivable for discussion on the allowance for credit losses - unfunded commitments.     Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages. The Company’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold related to credit information, loan documentation and collateral, which if subsequently are untrue or breached, could require the Company to repurchase certain loans affected. The Company has only been required to make insignificant repurchases as a result of breaches of these representations and warranties. The Company’s agreements to sell residential mortgage loans also contain limited recourse provisions. The recourse provisions are limited in that the recourse provision ends after certain payment criteria have been met. With respect to these loans, repurchase could be required if defined delinquency issues arose during the limited recourse period. Given that the underlying loans delivered to buyers are predominantly conventional first lien mortgages,  historical experience has resulted in insignificant losses and repurchase activity. The Company's reserve for losses related to these recourse provisions totaled $ 2.0  million as of September 30, 2023 and December 31, 2022 .   In the normal course of business, the Company, or its subsidiaries, are involved in various legal proceedings.  In the opinion of management, any liability resulting from pending proceedings would not be expected to have a material adverse effect on the Company's consolidated financial statements.   28 Table of Contents     Note 9 – Derivative Financial Instruments   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 Topic 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.   Derivative Loan Commitments   Mortgage loan commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock.   Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of a rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.   Forward Loan Sale Commitments   The Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.   With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the number of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.   With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower).   The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.   Interest Rate Swaps   The Company may offer derivative contracts to its customers in connection with their risk management needs. The Company manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third -party dealer through back-to-back swaps. These derivatives generally work together as an economic interest rate hedge, but the Company does not designate them for hedge accounting treatment.  Consequently, changes in fair value of the corresponding derivative financial asset or liability are recorded as either a charge or credit to current earnings during the period in which the changes occurred. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities on the Company's consolidated statement of financial condition, respectively, in equal amounts for these transactions.   29 Table of Contents   The following tables presents the outstanding notional balances and fair values of outstanding derivative instruments:   September 30, 2023                                       Assets   Liabilities   Derivatives not designated as Hedging Instruments   Notional Amount   Balance Sheet Location   Fair Value   Balance Sheet Location   Fair Value       (In Millions)   Forward commitments   $ 316.5   Other assets   $ 3.3   Other liabilities   $ 1.0   Interest rate locks     219.7   Other assets     0.6   Other liabilities     -   Interest rate swaps     88.8   Other assets     16.0   Other liabilities     16.0     December 31, 2022                                       Assets   Liabilities   Derivatives not designated as Hedging Instruments   Notional Amount   Balance Sheet Location   Fair Value   Balance Sheet Location   Fair Value       (In Millions)   Forward commitments   $ 296.0   Other assets   $ 1.9   Other liabilities   $ 3.6   Interest rate locks     203.1   Other assets     0.7   Other liabilities     -   Interest rate swaps     90.5   Other assets     14.2   Other liabilities     14.2     In determining the fair value of its derivative loan commitments, the Company considers the value that would be generated by the loan arising from exercise of the loan commitment when sold in the secondary mortgage market. That value includes the price that the loan is expected to be sold for in the secondary mortgage market. The fair value of these commitments is recorded on the consolidated statements of financial condition with the changes in fair value recorded as a component of mortgage banking income.   The significant unobservable input used in the fair value measurement of the Company's mortgage banking derivatives, including interest rate lock commitments, is the loan pull through rate. This represents the percentage of loans currently in a lock position which the Company estimates will ultimately close. Generally, the fair value of an interest rate lock commitment will be positively (negatively) impacted when the prevailing interest rate is lower (higher) than the interest rate lock commitment. Generally, an increase in the pull through rate will result in the fair value of the interest rate lock increasing when in a gain position, or decreasing when in a loss position. The pull through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The pull through rate is computed using historical data and the ratio is periodically reviewed by the Company.   Interest Rate Swaps   The back-to-back swaps mature in December 2029 to June 2037. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. As of September 30, 2023  and December 31, 2022 ,  no  back-to-back swaps were in default.  The Company pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties. 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 September 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 September 30, 2023 and at December 31, 2022 .   30 Table of Contents     Note 10 – Earnings Per Share   Earnings per share are computed using the two -class method. Basic earnings per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the applicable period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding adjusted for the dilutive effect of all potential common shares.   There were  199,000 and  158,000 antidilutive shares of common stock for the three months ended September 30, 2023 and 2022 , respectively. There were  162,000  and  127,000  antidilutive shares of common stock for the  nine  months ended  September 30, 2023 and 2022 , respectively.        Presented below are the calculations for basic and diluted earnings per share:       Three months ended September 30,     Nine months ended September 30,       2023     2022     2023     2022       (In Thousands, except per share amounts)                                     Net income   $ 3,253     $ 5,270     $ 9,415     $ 18,552                                     Weighted average shares outstanding     19,998       21,342       20,420       22,193   Effect of dilutive potential common shares     24       112       53       130   Diluted weighted average shares outstanding   $ 20,022     $ 21,454     $ 20,473     $ 22,323                                     Basic earnings per share   $ 0.16     $ 0.25     $ 0.46     $ 0.84   Diluted earnings per share   $ 0.16     $ 0.25     $ 0.46     $ 0.83       Note 11 – Fair Value Measurements   ASC Topic 820, "Fair Value Measurements and Disclosures" defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing the asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).   The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.   Level 1 inputs - In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that we have the ability to access.   Level 2 inputs - Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.   Level 3 inputs - Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.   In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. 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.   31 Table of Contents   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 September 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                                         September 30, 2023     Level 1     Level 2     Level 3       (In Thousands)   Assets                                 Available for sale securities                                 Mortgage-backed securities   $ 10,913     $ -     $ 10,913     $ -   Collateralized mortgage obligations                                 Government sponsored enterprise issued     127,351       -       127,351       -   Private-label issued     7,300       -       7,300       -   Government sponsored enterprise bonds     2,289       -       2,289       -   Municipal securities     35,413       -       35,413       -   Other debt securities     11,132       -       11,132       -   Other securities     101       -       101       -   Loans held for sale     157,421       -       157,421       -   Mortgage banking derivative assets     3,870       -       -       3,870   Interest rate swap assets     16,000       -       16,000       -   Liabilities                                 Mortgage banking derivative liabilities     994       -       -       994   Interest rate swap liabilities     16,000       -       16,000       -                 Fair Value Measurements Using                                         December 31, 2022     Level 1     Level 2     Level 3       (In Thousands)   Assets                                 Available for sale securities                                 Mortgage-backed securities   $ 13,314     $ -     $ 13,314     $ -   Collateralized mortgage obligations                                 Government sponsored enterprise issued     124,765       -       124,765       -   Private-label issued     8,106       -       8,106       -   Government sponsored enterprise bonds     2,256       -       2,256       -   Municipal securities     36,934       -       36,934       -   Other debt securities     11,162       -       11,162       -   Other securities     51       -       51       -   Loans held for sale     131,188       -       131,188       -   Mortgage banking derivative assets     2,619       -       -       2,619   Interest rate swap assets     14,226       -       14,226       -   Liabilities                                 Mortgage banking derivative liabilities     3,613       -       -       3,613   Interest rate swap liabilities     14,226       -       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:   Available-for-sale securities – The Company’s investment securities classified as available for sale include: mortgage-backed securities, collateralized mortgage obligations, government sponsored enterprise bonds, municipal securities and other debt securities. The fair value of mortgage-backed securities, collateralized mortgage obligations and government sponsored enterprise bonds are determined by a third party valuation source using observable market data utilizing a matrix or multi-dimensional relational pricing model. Standard inputs to these models include observable market data such as benchmark yields, reported trades, broker quotes, issuer spreads, benchmark securities, prepayment models and bid/offer market data. For securities with an early redemption feature, an option adjusted spread model is utilized to adjust the issuer spread. These model and matrix measurements are classified as Level 2 in the fair value hierarchy. The fair value of municipal and other debt securities is determined by a third party valuation source using observable market data utilizing a multi-dimensional relational pricing model. Standard inputs to this model include observable market data such as benchmark yields, reported trades, broker quotes, rating updates and issuer spreads. These model measurements are classified as Level 2 in the fair value hierarchy. The change in fair value is recorded through an adjustment to the statement of comprehensive income.   32 Table of Contents   Loans held for sale – The Company carries loans held for sale at fair value under the fair value option model. Fair value is generally determined by estimating a gross premium or discount, which is derived from pricing currently observable in the secondary market, principally from observable prices for forward sale commitments. Loans held-for-sale are considered to be Level 2 in the fair value hierarchy of valuation techniques. The change in fair value is recorded through an adjustment to the statement of income.   Mortgage banking derivatives - Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company utilizes a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment and then multiplying by quoted investor prices. The Company also utilizes a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. While there are Level 2 and 3 inputs used in the valuation models, the Company has determined that one or more of the inputs significant in the valuation of both of the mortgage banking derivatives fall within Level 3 of the fair value hierarchy. The change in fair value is recorded through an adjustment to the statement of income.   Interest rate swap assets/liabilities - The Company offers loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty. The fair values of derivatives are based on valuation models using observable market data as of the measurement date.  Our derivatives are traded in an over-the-counter market where quoted market prices are not always available.  Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs.  The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position.  The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third -party pricing services. Interest rate swap assets and liabilities are considered to be Level 2 in the fair value hierarchy of valuation techniques. The change in fair value is recorded through an adjustment to the statement of operations, within other income and other expense.   The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 ) during  2023 and 2022 .       Three months ended September 30,     Nine months ended September 30,       2023     2022     2023     2022       (In Thousands)     (In Thousands)                                     Mortgage derivative, net balance at the beginning of the period   $ 2,504     $ ( 143 )   $ ( 994 )   $ 4,369   Mortgage derivative gain (loss), net     372       3,062       3,870       ( 1,450 ) Mortgage derivative, net balance at the end of the period   $ 2,876     $ 2,919     $ 2,876     $ 2,919     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 September 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       September 30, 2023     Level 1     Level 2     Level 3       (In Thousands)   Real estate owned   $ 372     $ -     $ -     $ 372                 Fair Value Measurements Using       December 31, 2022     Level 1     Level 2     Level 3       (In Thousands)   Real estate owned   $ 145     $ -     $ -     $ 145     33 Table of Contents   Real estate owned – On a non-recurring basis, real estate owned is recorded in the consolidated statements of financial condition at the lower of cost or fair value. Fair value is determined based on third party appraisals and, if less than the carrying value of the foreclosed loan, the carrying value of the real estate owned is adjusted to the fair value. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. Given the significance of the adjustments made to appraised values necessary to estimate the fair value of the properties, real estate owned is considered to be Level 3 in the fair value hierarchy of valuation techniques.    Mortgage servicing rights – The Company utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of mortgage servicing rights.  The model utilizes prepayment assumptions to project cash flows related to the mortgage servicing rights based upon the current interest rate environment, which is then discounted to estimate an expected fair value of the mortgage servicing rights. The model considers characteristics specific to the underlying mortgage portfolio, such as: contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges and costs to service.  Given the significance of the unobservable inputs utilized in the estimation process, mortgage servicing rights are classified as Level 3 within the fair value hierarchy.  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 September 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       Significant                       September 30,   Valuation   Unobservable   Minimum     Maximum     Weighted       2023   Technique   Inputs   Value     Value     Average         (Dollars in Thousands)                                 Mortgage banking derivatives   $ 2,876   Pricing models   Pull through rate     30.8 %     100.0 %     90.0 % Real estate owned     372   Market approach   Discount rates applied to appraisals     34.8 %     81.8 %     63.0 %                                               December 31,                                       2022                                 Mortgage banking derivatives   $ ( 994 ) Pricing models   Pull through rate     20.6 %     100.0 %     89.2 % Real estate owned     145   Market approach   Discount rates applied to appraisals     34.8 %     34.8 %     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.   Fair value information about financial instruments follows, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.   34 Table of Contents   The carrying amounts and fair values of the Company’s financial instruments consist of the following:       September 30, 2023     December 31, 2022       Carrying     Fair Value     Carrying     Fair Value       amount     Total     Level 1     Level 2     Level 3     amount     Total     Level 1     Level 2     Level 3       (In Thousands)   Financial Assets                                                                                 Cash and cash equivalents   $ 62,293     $ 62,293     $ 62,293     $ -     $ -     $ 46,642     $ 46,642     $ 46,642     $ -     $ -   Loans receivable     1,651,093       1,499,165       -       -       1,499,165       1,510,178       1,403,429       -       -       1,403,429   FHLB stock     23,414       23,414       23,414       -       -       17,357       17,357       17,357       -       -   Accrued interest receivable     7,021       7,021       7,021       -       -       5,725       5,725       5,725       -       -   Mortgage servicing rights     1,985       2,462       -       -       2,462       3,444       5,001       -       -       5,001                                                                                     Financial Liabilities                                                                                 Deposits     1,205,162       1,203,809       471,912       731,897       -       1,199,012       1,194,559       556,741       637,818       -   Advance payments by borrowers for taxes     28,238       28,238       28,238       -       -       5,334       5,334       5,334       -       -   Borrowings     587,917       577,275       -       577,275       -       386,784       377,275       -       377,275       -   Accrued interest payable     3,082       3,082       3,082       -       -       1,358       1,358       1,358       -       -     The following methods and assumptions were used by the Company in determining its fair value disclosures for financial instruments.   Cash and Cash Equivalents   The carrying amount reported in the consolidated statements of financial condition for cash and cash equivalents is a reasonable estimate of fair value.   Loans Receivable   The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the marketplace. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as one - to four -family, multi-family, home equity, construction and land, commercial real estate, commercial, and other consumer. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.   FHLB Stock   For FHLB stock, the carrying amount is the amount at which shares can be redeemed with the FHLB and is a reasonable estimate of fair value.   Deposits and Advance Payments by Borrowers for Taxes   The fair values for interest-bearing and noninterest-bearing negotiable order of withdrawal accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar remaining maturities to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit. The advance payments by borrowers for taxes are equal to their carrying amounts at the reporting date.   Borrowings   Fair values for borrowings are estimated using a discounted cash flow calculation that applies current interest rates to estimated future cash flows of the borrowings.   Accrued Interest Payable and Accrued Interest Receivable   For accrued interest payable and accrued interest receivable, the carrying amount is a reasonable estimate of fair value.   Commitments to Extend Credit and Standby Letters of Credit   Commitments to extend credit and standby letters of credit are generally not marketable. Furthermore, interest rates on any amounts drawn under such commitments would be generally established at market rates at the time of the draw. 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 September 30, 2023 and December 31, 2022 .   35 Table of Contents     Note 12 – Segment Reporting   Selected financial and descriptive information is required to be provided about reportable operating segments, considering a "management approach" concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions, allocating resources, and assessing performance. Consequently, the segments are evident from the structure of the enterprise's internal organization, focusing on financial information that an enterprise's chief operating decision-makers use to make decisions about the enterprise's operating matters.   The Company has determined that it has two reportable segments: community banking and mortgage banking. The Company's operating segments are presented based on its management structure and management accounting practices. The structure and practices are specific to the Company and therefore, the financial results of the Company's business segments are not necessarily comparable with similar information for other financial institutions.   Community Banking   The community banking segment provides consumer and business banking products and services to customers primarily within Southeastern Wisconsin.  Within this segment, the following products and services are provided:  ( 1 ) lending solutions such as residential mortgages, home equity loans and lines of credit, personal and installment loans, real estate financing, business loans, and business lines of credit; ( 2 ) deposit and transactional solutions such as checking, credit, debit and pre-paid cards, online banking and bill pay, and money transfer services; ( 3 ) investable funds solutions such as savings, money market deposit accounts, IRA accounts, certificates of deposit, and ( 4 ) fixed and variable annuities, insurance as well as trust and investment management accounts.   Consumer products include loan and deposit products: mortgage, home equity loans and lines, personal term loans, demand deposit accounts, interest bearing transaction accounts and time deposits. Consumer products also include personal investment services. Business banking products include secured and unsecured lines and term loans for working capital, inventory and general corporate use, commercial real estate construction loans, demand deposit accounts, interest bearing transaction accounts and time deposits.   Mortgage Banking   The mortgage banking segment provides residential mortgage loans for the primary purpose of sale on the secondary market. Mortgage banking products and services are provided by offices in 26  states with the ability to lend in 48 states.   36 Table of Contents   Presented below is the segment information:       As of or for the three months ended September 30, 2023                       Holding               Community     Mortgage     Company and               Banking     Banking     Other     Consolidated       (In Thousands)                                     Net interest income (expense)   $ 12,431     $ ( 550 )   $ 108     $ 11,989   Provision for credit losses     445       -       -       445   Net interest income (expense) after provision for credit losses     11,986       ( 550 )     108       11,544                                     Noninterest income:     966       21,452       ( 188 )     22,230                                     Noninterest expenses:                                 Compensation, payroll taxes, and other employee benefits     4,618       17,186       ( 216 )     21,588   Occupancy, office furniture and equipment     852       1,141       -       1,993   Advertising     200       716       -       916   Data processing     672       551       6       1,229   Communications     70       173       -       243   Professional fees     176       564       5       745   Real estate owned     1       -       -       1   Loan processing expense     -       722       -       722   Other     703       1,935       ( 54 )     2,584   Total noninterest expenses     7,292       22,988       ( 259 )     30,021   Income (loss) before income tax expense (benefit)     5,660       ( 2,086 )     179       3,753   Income tax expense (benefit)     1,121       ( 657 )     36       500   Net income (loss)   $ 4,539     $ ( 1,429 )   $ 143     $ 3,253                                     Total Assets   $ 2,181,155     $ 202,785     $ ( 162,582 )   $ 2,221,358         As of or for the three months ended September 30, 2022                       Holding               Community     Mortgage     Company and               Banking     Banking     Other     Consolidated       (In Thousands)                                     Net interest income (expense)   $ 15,507     $ ( 155 )   $ 46     $ 15,398   Provision for credit losses     234       98       -       332   Net interest income (expense) after provision for credit losses     15,273       ( 253 )     46       15,066                                     Noninterest income:     1,116       27,305       ( 1,017 )     27,404                                     Noninterest expenses:                                 Compensation, payroll taxes, and other employee benefits     4,424       21,864       ( 114 )     26,174   Occupancy, office furniture and equipment     955       1,341       -       2,296   Advertising     213       924       -       1,137   Data processing     539       543       2       1,084   Communications     108       194       -       302   Professional fees     123       265       5       393   Real estate owned     1       -       -       1   Loan processing expense     -       1,120       -       1,120   Other     1,477       2,571       ( 861 )     3,187   Total noninterest expenses     7,840       28,822       ( 968 )     35,694   Income (loss) before income tax expense (benefit)     8,549       ( 1,770 )     ( 3 )     6,776   Income tax expense (benefit)     1,983       ( 470 )     ( 7 )     1,506   Net income (loss)   $ 6,566     $ ( 1,300 )   $ 4     $ 5,270                                     Total Assets   $ 1,904,785     $ 250,301     $ ( 180,035 )   $ 1,975,051     37 Table of Contents       As of or for the nine months ended September 30, 2023                       Holding               Community     Mortgage     Company and               Banking     Banking     Other     Consolidated       (In Thousands)                                     Net interest income (expense)   $ 39,677     $ ( 1,454 )   $ 236     $ 38,459   Provision for credit losses     991       100       -       1,091   Net interest income (expense) after provision for credit losses     38,686       ( 1,554 )     236       37,368                                     Noninterest income:     3,493       62,444       ( 1,628 )     64,309                                     Noninterest expenses:                                 Compensation, payroll taxes, and other employee benefits     14,469       50,214       ( 648 )     64,035   Occupancy, office furniture and equipment     2,756       3,546       -       6,302   Advertising     614       2,135       -       2,749   Data processing     1,875       1,547       19       3,441   Communications     220       499       -       719   Professional fees     540       1,218       21       1,779   Real estate owned     3       -       -       3   Loan processing expense     -       2,672       -       2,672   Other     3,240       6,252       ( 1,142 )     8,350   Total noninterest expenses     23,717       68,083       ( 1,750 )     90,050   Income (loss) before income tax expense (benefit)     18,462       ( 7,193 )     358       11,627   Income tax expense (benefit)     3,903       ( 1,785 )     94       2,212   Net income (loss)   $ 14,559     $ ( 5,408 )   $ 264     $ 9,415          As of or for the nine months ended September 30, 2022                       Holding               Community     Mortgage     Company and               Banking     Banking     Other     Consolidated       (In Thousands)                                     Net interest income   $ 40,869     $ 398     $ 76     $ 41,343   Provision for credit losses     53       251       -       304   Net interest income after provision for credit losses     40,816       147       76       41,039                                     Noninterest income:     4,188       86,035       ( 1,763 )     88,460                                     Noninterest expenses:                                 Compensation, payroll taxes, and other employee benefits     14,232       63,613       ( 343 )     77,502   Occupancy, office furniture and equipment     2,768       3,772       -       6,540   Advertising     684       2,320       -       3,004   Data processing     1,678       1,744       8       3,430   Communications     265       635       -       900   Professional fees     355       825       23       1,203   Real estate owned     6       -       -       6   Loan processing expense     -       3,685       -       3,685   Other     3,083       7,613       ( 1,288 )     9,408   Total noninterest expenses     23,071       84,207       ( 1,600 )     105,678   Income (loss) before income tax expense (benefit)     21,933       1,975       ( 87 )     23,821   Income tax expense (benefit)     4,808       485       ( 24 )     5,269   Net income (loss)   $ 17,125     $ 1,490     $ ( 63 )   $ 18,552      38 Table of Contents     Item 2.   Management ’ s Discussion and Analysis of Financial Condition and Results of Operations   Forward-Looking Information   This Quarterly Report on Form 10-Q may contain various forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and similar expressions and verbs in the future tense. These forward-looking statements include, but are not limited to:     ● Statements of our goals, intentions and expectations;   ● Statements regarding our business plans, prospects, growth and operating strategies;   ● Statements regarding the quality of our loan and investment portfolio; and   ● Estimates of our risks and future costs and benefits.   These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.   The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:     ● general economic conditions, either nationally or in our market area, including employment prospects, that are different than expected;   ● competition among depository and other financial institutions;   ● inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or the origination levels in our lending business, or increase the level of defaults, losses or prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;   ● adverse changes in the securities or secondary mortgage markets;   ● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;   ● changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;   ● our ability to manage market risk, credit risk and operational risk in the current economic conditions;   ● our ability to enter new markets successfully and capitalize on growth opportunities;   ● our ability to successfully integrate acquired entities;   ● decreased demand for our products and services;   ● changes in tax policies or assessment policies;   ● changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;   ● changes in consumer demand, spending, borrowing and savings habits;   ● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;   ● our ability to retain key employees;   ● cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;   ● technological changes that may be more difficult or expensive than expected;   ● the ability of third-party providers to perform their obligations to us;   ● the effects of any federal government shutdown;   ● the effects of global or national war, conflict or acts of terrorism;   ● the ability of the U.S. Government to manage federal debt limits;   ● significant increases in our loan losses; and   ● changes in the financial condition, results of operations or future prospects of issuers of securities that we own.   39 Table of Contents   See also the factors referred to in reports filed by the Company with the Securities and Exchange Commission (particularly those under the caption “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. as supplemented by the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023).   The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect our business and financial performance. New risks emerge from time to time and it is not possible for management to predict all such risks, nor can it assess the impact of all such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.   Overview   The following discussion and analysis is presented to assist the reader in understanding and evaluating the Company’s financial condition and results of operations. 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 and nine months ended September 30, 2023 and 2022 and the financial condition as of September 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: community banking and mortgage banking. The community banking segment provides consumer and business banking products and services to customers primarily within Southeastern Wisconsin. Consumer products include loan products, deposit products, and personal investment services. Business banking products include loans for working capital, inventory and general corporate use, commercial real estate construction loans, and deposit accounts.  The mortgage banking segment, which is conducted by offices in 26 states through Waterstone Mortgage Corporation, consists of originating residential mortgage loans primarily for sale in the secondary market.   Our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses. 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 and nine months ended September 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 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 increased by 0.5% as compared to December 31, 2022, to $1.21 billion at September 30, 2023. Deposits increased $18.2 million, or 1.5%, during the three months ended September 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 21.72% as of September 30, 2023.   On July 1, 2023, Wisconsin’s Governor signed the State Budget, retroactive to January 1, 2023, which included language that provides financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on business or agriculture purpose loans where the borrower resides, or is located, in the state of Wisconsin and that are $5 million or less. The Company is not able to calculate a reasonable estimate of the impact of this law until further information regarding the criteria is published from the Wisconsin Department of Revenue. If we are allowed to exclude current taxable income, we would expect to decrease our 2023 effective income tax rate and potentially reduce our deferred tax asset with a one-time charge to income tax expense to reflect the reduction in state income taxes.  The Company will calculate an estimate once more details are provided.    Significant Items   There were no significant items that impacted earnings for the three and nine months ended September 30, 2023 and 2022.    Comparison of Community Banking Segment Results of Operations for the Three Months Ended September 30, 2023 and 2022   Net income totaled $4.5 million for the three months ended September 30, 2023 compared to $6.6 million for the three months ended September 30, 2022. Net interest income decreased $3.1 million to $12.4 million for the three months ended September 30, 2023 compared to $15.5 million for the three months ended September 30, 2022.  Interest expense on deposits and borrowings increased $11.7 million 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 $8.0 million as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on debt securities, federal funds sold and short-term investments increased due to the increase in the average balance and replacement rates.   There was a provision for credit losses of $445,000 for the three months ended September 30, 2023 compared to a provision for credit losses of $234,000 for the three months ended September 30, 2022. The provision for credit losses of $445,000 consisted of a $206,000 provision related to loans and $239,000 provision related to unfunded commitments for the three months ended September 30, 2023. During the three months ended September 30, 2023, the increase related to loans was primarily due to an increase in originations and loan balance and the increase in provision related to unfunded commitments was primarily due to an increase 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.     40 Table of Contents   Compensation, payroll taxes, and other employee benefits expense increased $194,000 to $4.6 million compared to the quarter ending September 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 decreased $774,000 to $703,000 as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased. These fees are eliminated in the consolidated statements of income.   Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended September 30, 2023 and 2022   Net loss totaled $1.4 million for the three months ended September 30, 2023 compared to net loss of $1.3 million for the three months ended September 30, 2022. We originated $597.6 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended September 30, 2023, which represents a decrease of $132.3 million, or 18.1%, from the $729.9 million originated during the three months ended September 30, 2022. The decrease in loan production volume was driven by a $117.5 million, or 19.0%, decrease in purchase products and a $14.8 million decrease in refinance products as mortgage rates have increased over the past year along with inventory constraints in the market and housing affordability. Total mortgage banking noninterest income decreased $5.9 million, or 21.4%, to $21.5 million during the three months ended September 30, 2023 compared to $27.3 million during the three months ended September 30, 2022.  The decrease in mortgage banking noninterest income was related to a 18.1% decrease in volume and a 2.3% decrease in gross margin on loans originated and sold for the three months ended September 30, 2023 compared to September 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 95.4% of total originations during the three months ended September 30, 2023, compared to 94.2% of total originations during the three months ended September 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 39.2% and 60.8% of all loan originations, respectively, during the three months ended September 30, 2023, compared to 33.3% and 66.7% of all loan originations, respectively, during the three months ended September 30, 2022.   Total compensation, payroll taxes and other employee benefits decreased $4.7 million, or 21.4%, to $17.2 million for the three months ended September 30, 2023 compared to $21.9 million for the three months ended September 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 September 30,       2023     2022       (Dollars In Thousands, except per share amounts)                     Net income   $ 3,253     $ 5,270   Earnings per share - basic     0.16       0.25   Earnings per share - diluted     0.16       0.25   Annualized return on average assets     0.58 %     1.08 % Annualized return on average equity     3.63 %     5.38 %   41 Table of Contents   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 September 30,       2023     2022       Average Balance     Interest     Yield/Cost     Average Balance     Interest     Yield/Cost       (Dollars in Thousands)   Assets                                                 Interest-earning assets:                                                 Loans receivable and held for sale (1)   $ 1,797,233     $ 23,825       5.26 %   $ 1,492,462     $ 16,235       4.32 % Mortgage related securities (2)     174,202       1,060       2.41 %     172,807       903       2.07 % Debt securities, federal funds sold and short-term investments(2) (3)     132,935       1,570       4.69 %     162,211       1,027       2.51 % Total interest-earning assets     2,104,370       26,455       4.99 %     1,827,480       18,165       3.94 %                                                   Noninterest-earning assets     105,714                       114,274                   Total assets   $ 2,210,084                     $ 1,941,754                                                                     Liabilities and equity                                                 Interest-bearing liabilities:                                                 Demand accounts   $ 90,623       26       0.11 %   $ 75,058       16       0.08 % Money market and savings accounts     306,806       1,190       1.54 %     398,643       208       0.21 % Time deposits     719,708       6,226       3.43 %     586,012       757       0.51 % Total interest-bearing deposits     1,117,137       7,442       2.64 %     1,059,713       981       0.37 % Borrowings     584,764       6,946       4.71 %     296,111       1,746       2.34 % Total interest-bearing liabilities     1,701,901       14,388       3.35 %     1,355,824       2,727       0.80 %                                                   Noninterest-bearing liabilities                                                 Noninterest-bearing deposits     106,042                       153,591                   Other noninterest-bearing liabilities     46,805                       43,683                   Total noninterest-bearing liabilities     152,847                       197,274                   Total liabilities     1,854,748                       1,553,098                   Equity     355,336                       388,656                   Total liabilities and equity   $ 2,210,084                     $ 1,941,754                                                                     Net interest income / Net interest rate spread (4)             12,067       1.64 %             15,438       3.14 % Less: taxable equivalent adjustment             78       0.02 %             40       0.01 % Net interest income, as reported           $ 11,989       1.62 %           $ 15,398       3.13 % Net interest-earning assets (5)   $ 402,469                     $ 477,968                   Net interest margin (6)                     2.26 %                     3.34 % Tax equivalent effect                     0.02 %                     0.01 % Net interest margin on a fully tax equivalent basis                     2.28 %                     3.35 % Average interest-earning assets to average interest-bearing liabilities                     123.65 %                     134.79 % __________   (1) Interest income includes net deferred loan fee amortization income of $179,000 and $113,000 for the three months ended September 30, 2023 and 2022, respectively. (2) Average balance of mortgage related and debt securities are based on amortized historical cost. (3) Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended September 30, 2023 and 2022. The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 4.45% and 2.41% for the three months ended September 30, 2023 and 2022, respectively. (4) 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. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) Net interest margin represents net interest income divided by average total interest-earning assets.   42 Table of Contents   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 September 30,       2023 versus 2022       Increase (Decrease) due to       Volume     Rate     Net       (In Thousands)   Interest income:                         Loans receivable and held for sale(1) (2)   $ 3,675     $ 3,915     $ 7,590   Mortgage related securities (3)     7       150       157   Other earning assets(3) (4)     (211 )     754       543   Total interest-earning assets     3,471       4,819       8,290                             Interest expense:                         Demand accounts     3       7       10   Money market and savings accounts     (58 )     1,040       982   Time deposits     209       5,260       5,469   Total interest-bearing deposits     154       6,307       6,461   Borrowings     2,551       2,649       5,200   Total interest-bearing liabilities     2,705       8,956       11,661   Net change in net interest income   $ 766     $ (4,137 )   $ (3,371 ) ______________   (1) Interest income includes net deferred loan fee amortization income of $179,000 and $113,000 for the three months ended September 30, 2023 and 2022, respectively. (2) Non-accrual loans have been included in average loans receivable balance. (3) Includes available for sale securities. Average balance of available for sale securities is based on amortized historical cost. (4) Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended September 30, 2023 and September 30, 2022.   Net interest income decreased $3.4 million, or 22.1%, to $12.0 million during the three months ended September 30, 2023 compared to $15.4 million during the three months ended September 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 46.8%, to $23.8 million due primarily to a 94 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 $316.3 million, or 24.1%, in the average balance of loans held for investment offset by a decrease of $11.5 million, or 6.3%, in average loans held for sale. ● Interest expense on time deposits increased $5.5 million, or 722.5%, to $6.2 million primarily due to a 292 basis point increase in average cost of time deposits. Additionally, the average balance of time deposits increased $133.7 million compared to the prior year period. ● Interest expense on money market, savings, and escrow accounts increased $982,000, or 472.1%, to $1.2 million due primarily to a 133 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 $91.8 million.  ● Interest expense on borrowings increased $5.2 million, or 297.8%, to $6.9 million due to a 237 basis point increase in the cost of borrowings during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 as the federal funds rate increased over the past year. Additionally, the average balance increased $288.7 million to $584.8 million during the three months ended September 30, 2023, compared to $296.1 million during the three months ended September 30, 2022.   43 Table of Contents   Provision for Credit Losses   There was a provision for credit losses of $445,000 for the three months ended September 30, 2023 compared to a $332,000 provision for credit losses for the three months ended September 30, 2022. The $445,000 provision for credit losses consisted of a $206,000 provision related to loans and a provision related to unfunded commitments of $239,000 for the three months ended September 30, 2023. During the three months ended September 30, 2023, the increase related to loans was primarily due to an increase in originations and loan balance and the increase in provision related to unfunded commitments was primarily due to an increase 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 September 30,       2023     2022     $ Change     % Change       (Dollars In Thousands)   Service charges on loans and deposits   $ 450     $ 529     $ (79 )     (14.9 )% Increase in cash surrender value of life insurance     334       354       (20 )     (5.6 )% Mortgage banking income     21,172       26,064       (4,892 )     (18.8 )% Other     274       457       (183 )     (40.0 )% Total noninterest income   $ 22,230     $ 27,404     $ (5,174 )     (18.9 )%   Total noninterest income decreased $5.2 million, or 18.9%, to $22.2 million during the three months ended September 30, 2023 compared to $27.4 million during the three months ended September 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 $73.1 million, or 73.1%, to $598.1 million during the three months ended September 30, 2023 compared to $671.2 million during the three months ended September 30, 2022. Gross margin on loans originated and sold decreased 2.3% at the mortgage banking segment. See "Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended September 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 September 30, 2023 and September 30, 2022, the Company maintained servicing rights related to $220.0 million and $378.7 million, respectively, in loans previously sold to third parties.    44 Table of Contents       Three months ended September 30,       2023     2022     $ Change     % Change       (Dollars In Thousands)   Compensation, payroll taxes, and other employee benefits   $ 21,588     $ 26,174     $ (4,586 )     (17.5 )% Occupancy, office furniture, and equipment     1,993       2,296       (303 )     (13.2 )% Advertising     916       1,137       (221 )     (19.4 )% Data processing     1,229       1,084       145       13.4 % Communications     243       302       (59 )     (19.5 )% Professional fees     745       393       352       89.6 % Real estate owned     1       1       -       N/A   Loan processing expense     722       1,120       (398 )     (35.5 )% Other     2,584       3,187       (603 )     (18.9 )% Total noninterest expenses   $ 30,021     $ 35,694     $ (5,673 )     (15.9 )%   Total noninterest expenses decreased $5.7 million, or 15.9%, to $30.0 million during the three months ended September 30, 2023 compared to $35.7 million during the three months ended September 30, 2022.   ● Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $4.7 million, or 21.4%, to $17.2 million during the three months ended September 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 $194,000, or 4.4%, to $4.6 million during the three months ended September 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 $200,000 to $1.1 million during the three months ended September 30, 2023, primarily resulting from decreased computer equipment and rent expenses. ● Occupancy, office furniture and equipment expense at the community banking segment decreased $103,000 to $852,000 during the three months ended September 30, 2023. The decrease was due primarily to decreased computer expenses and maintenance costs.  ● Advertising expense decreased $221,000, or 19.4%, to $916,000 during the three months ended September 30, 2023. The decrease was primarily due to advertising expenses at the mortgage banking segment due to the decreased activity in the mortgage industry.  ● Data processing expense increased $145,000, or 13.4%, to $1.2 million during the three months ended September 30, 2023. The increases at the mortgage banking and the community banking segments were due to additional investments in technology.   ● Professional fees increased $352,000 to $745,000 during the three months ended September 30, 2023. The increase related to an increase in legal fees at the mortgage banking segment.  In July 2022, a complaint was filed by Mutual of Omaha Mortgage, Inc. asserting claims against Waterstone Mortgage Corporation relating to certain employees hired by Waterstone Mortgage Corporation who previously worked for Mutual.  The Company intends to continue to vigorously defend its interests in this matter and pursue all possible defenses against the claims.  Given the current stage of the litigation, the Company is not yet able to make a determination as to the likelihood of an unfavorable outcome in this matter, nor is it able to estimate the range of any possible loss. ● Loan processing expense decreased $398,000 to $722,000 during the three months ended September 30, 2023.  The decrease was primarily due to a decrease in loan applications and fundings.   ● Other noninterest expense decreased $603,000, or 18.9%, to $2.6 million during the three months ended September 30, 2023.  The decrease at the mortgage banking segment primarily related to decreases in mortgage servicing rights amortization, travel, and meeting expenses.    Income Taxes   Income tax expense totaled $500,000 for the three months ended September 30, 2023 compared to $1.5 million during the three months ended September 30, 2022. Income tax expense was recognized on the statement of income during the three months ended September 30, 2023 at an effective rate of 13.3% of pretax income and during the three months ended September 30, 2022 at an effective rate of 22.2% of pretax income. The decrease in the effective rate was primarily due to the permanent deductions being a greater percentage of pretax income as pretax income continues to decrease compared to prior year.    Comparison of Community Banking Segment Results of Operations for the Nine Months Ended September 30, 2023 and 2022   Net income totaled $14.6 million for the nine months ended September 30, 2023 compared to $17.1 million for the nine months ended September 30, 2022. Net interest income decreased $1.2 million to $39.7 million for the nine months ended September 30, 2023 compared to $40.9 million for the nine months ended September 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 and debt securities, federal funds sold and short-term investments increased due to the increase in the average balance and replacement rates. Offsetting the increases in interest income, interest expense on deposits and borrowings increased as replacement rates and average balances increased.   There was a provision for credit losses of $991,000 for the nine months ended September 30, 2023 compared to a $53,000 provision for credit losses for the nine months ended September 30, 2022. The provision for credit losses of $991,000 consisted of a $729,000 provision related to loans and a $262,000 of provision related to unfunded commitments for the nine months ended September 30, 2023. The provision for credit losses related to loans increased primarily due to loan growth in the portfolio and the pipeline.  During the nine months ended September 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 $695,000 to $3.5 million during the nine months ended September 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 nine months ended September 30, 2022.   45 Table of Contents   Compensation, payroll taxes, and other employee benefits expense increased $237,000 to $14.5 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 $157,000 to $3.2 million as the FDIC insurance premiums increased starting in 2023.   Comparison of Mortgage Banking Segment Results of Operations for the Nine Months Ended September 30, 2023 and 2022   Net loss totaled $5.4 million for the nine months ended September 30, 2023 compared to net income of $1.5 million for the nine months ended September 30, 2022. We originated $1.66 billion in mortgage loans held for sale (including sales to the community banking segment) during the nine months ended September 30, 2023, which represents a decrease of $553.5 million, or 25.0%, from the $2.22 billion originated during the nine months ended September 30, 2022. The decrease in loan production volume was driven by a $212.5 million, or 76.5%, decrease in refinance products as mortgage rates have increased over the past year. Mortgage purchase products decreased $341.0 million, or 17.6%, due to inventory constraints in the market, affordability, and interest rate increases. Total mortgage banking noninterest income decreased $23.6 million, or 27.4%, to $62.4 million during the nine months ended September 30, 2023 compared to $86.0 million during the nine months ended September 30, 2022.  The decrease in mortgage banking noninterest income was related to a 27.4% decrease in volume and a 3.7% decrease in gross margin on loans originated and sold for the nine months ended September 30, 2023 compared to September 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 96.1% of total originations during the nine months ended September 30, 2023, compared to 87.5% of total originations during the nine months ended September 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 37.9% and 62.1% of all loan originations, respectively, during the nine months ended September 30, 2023, compared to 27.8% and 72.2% of all loan originations, respectively, during the nine months ended September 30, 2022.   Total compensation, payroll taxes and other employee benefits decreased $13.4 million, or 21.1%, to $50.2 million for the nine months ended September 30, 2023 compared to $63.6 million for the nine months ended September 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       Nine months ended September 30,       2023     2022       (Dollars In Thousands, except per share amounts)                     Net income   $ 9,415     $ 18,552   Earnings per share - basic     0.46       0.84   Earnings per share - diluted     0.46       0.83   Annualized return on average assets     0.59 %     1.22 % Annualized return on average equity     3.46 %     6.09 %   46 Table of Contents   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.       Nine months ended September 30,       2023     2022       Average Balance     Interest     Yield/Cost     Average Balance     Interest     Yield/Cost       (Dollars in Thousands)   Assets                                                 Interest-earning assets:                                                 Loans receivable and held for sale (1)   $ 1,737,580     $ 65,860     5.07 %   $ 1,429,736     $ 44,281     4.14 % Mortgage related securities (2)     172,134       2,972     2.31 %     160,014       2,326     1.94 % Debt securities, federal funds sold and short-term investments (2) (3)     124,093       3,917     4.22 %     315,743       3,067     1.30 % Total interest-earning assets     2,033,807       72,749     4.78 %     1,905,493       49,674     3.49 %                                                   Noninterest-earning assets     107,009                       120,050                   Total assets   $ 2,140,816                     $ 2,025,543                                                                     Liabilities and equity                                                 Interest-bearing liabilities:                                                 Demand accounts   $ 76,192       56     0.10 %   $ 71,842       45     0.08 % Money market and savings accounts     311,478       3,278     1.41 %     405,105       611     0.20 % Time deposits     688,110       14,151     2.75 %     593,556       1,855     0.42 % Total interest-bearing deposits     1,075,780       17,485     2.17 %     1,070,503       2,511     0.31 % Borrowings     526,532       16,570     4.21 %     353,616       5,717     2.16 % Total interest-bearing liabilities     1,602,312       34,055     2.84 %     1,424,119       8,228     0.77 %                                                   Noninterest-bearing liabilities                                                 Noninterest-bearing deposits     126,407                       153,523                   Other noninterest-bearing liabilities     48,003                       40,685                   Total noninterest-bearing liabilities     174,410                       194,208                   Total liabilities     1,776,722                       1,618,327                   Equity     364,094                       407,216                   Total liabilities and equity   $ 2,140,816                     $ 2,025,543                                                                     Net interest income / Net interest rate spread (4)             38,694       1.94 %             41,446       2.72 % Less: taxable equivalent adjustment             235       0.01 %             103       0.01 % Net interest income, as reported           $ 38,459       1.93 %           $ 41,343       2.71 % Net interest-earning assets (5)   $ 431,495                     $ 477,968                   Net interest margin (6)                   2.53 %                   2.90 % Tax equivalent effect                   0.01 %                   0.01 % Net interest margin on a fully tax equivalent basis                   2.54 %                   2.91 % Average interest-earning assets to average interest-bearing liabilities                   126.93 %                   133.80 % __________   (1) Interest income includes net deferred loan fee amortization income of $474,000 and $495,000 for the nine months ended September 30, 2023 and 2022, respectively. (2) Average balance of mortgage related and debt securities are based on amortized historical cost. (3) Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the nine months ended September 30, 2023 and 2022. The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 3.97% and 1.26% for the nine months ended September 30, 2023 and 2022, respectively. (4) 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. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) Net interest margin represents net interest income divided by average total interest-earning assets.   47 Table of Contents   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.       Nine months ended September 30,       2023 versus 2022       Increase (Decrease) due to       Volume     Rate     Net       (In Thousands)   Interest income:                         Loans receivable and held for sale (1) (2)   $ 10,561     $ 11,018     $ 21,579   Mortgage related securities (3)     183       463       646   Other earning assets (3) (4)     (2,762 )     3,612       850   Total interest-earning assets     7,982       15,093       23,075                             Interest expense:                         Demand accounts     2       9       11   Money market and savings accounts     (172 )     2,839       2,667   Time deposits     343       11,953       12,296   Total interest-bearing deposits     173       14,801       14,974   Borrowings     3,690       7,163       10,853   Total interest-bearing liabilities     3,863       21,964       25,827   Net change in net interest income   $ 4,119     $ (6,871 )   $ (2,752 ) ______________   (1) Interest income includes net deferred loan fee amortization income of $474,000 and $495,000 for the nine months ended September 30, 2023 and 2022, respectively. (2) Non-accrual loans have been included in average loans receivable balance. (3) Includes available for sale securities. Average balance of available for sale securities is based on amortized historical cost. (4) Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the nine months ended September 30, 2023 and September 30, 2022.   Net interest income decreased $2.9 million, or 7.0%, to $38.5 million during the nine months ended September 30, 2023 compared to $41.3 million during the nine months ended September 30, 2022.   ● Interest income on loans increased $21.6 million, or 48.7%, to $65.9 million due primarily to a 93 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 $327.4 million, or 26.1%, in the average balance of loans held for investment offset by a decrease of $19.6 million, or 11.2%, in average loans held for sale. ● Interest expense on time deposits increased $12.3 million, or 662.9%, to $14.2 million primarily due to a 233 basis point increase in average cost of time deposits. Additionally, the average balance of time deposits increased $94.6 million compared to the prior year period. ● Interest expense on money market, savings, and escrow accounts increased $2.7 million, or 436.5%, to $3.3 million due primarily to a 121 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 $93.6 million.  ● Interest expense on borrowings increased $10.9 million, or 189.8%, to $16.6 million due to a 205 basis point increase in the cost of borrowings during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 as the federal funds rate increased over the past year. Additionally, the average balance increased $172.9 million to $526.5 million during the nine months ended September 30, 2023, compared to $353.6 million during the nine months ended September 30, 2022.   48 Table of Contents   Provision for Credit Losses   There was a provision for credit losses of $1.1 million for the nine months ended September 30, 2023 compared to a provision for credit losses of $304,000 for the nine months ended September 30, 2022. The $1.1 million provision for credit losses consisted of a $829,000 provision related to loans and a $262,000 provision related to unfunded commitments for the nine months ended September 30, 2023. The provision for credit losses related to loans and unfunded commitments increased primarily due to loan growth in the portfolio and pipeline. During the nine months ended September 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.  The increase on the unfunded commitments is due to the increase in unfunded commitments balance.     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       Nine months ended September 30,       2023     2022     $ Change     % Change       (Dollars In Thousands)   Service charges on loans and deposits   $ 1,491     $ 1,705     $ (214 )     (12.6 )% Increase in cash surrender value of life insurance     1,373       1,394       (21 )     (1.5 )% Mortgage banking income     59,856       83,749       (23,893 )     (28.5 )% Other     1,589       1,612       (23 )     (1.4 )% Total noninterest income   $ 64,309     $ 88,460     $ (24,151 )     (27.3 )%   Total noninterest income decreased $24.2 million, or 27.3%, to $64.3 million during the nine months ended September 30, 2023 compared to $88.5 million during the nine months ended September 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 $541.0 million, or 25.6%, to $1.58 billion during the nine months ended September 30, 2023 compared to $2.12 billion during the nine months ended September 30, 2022. Gross margin on loans originated and sold decreased 3.7% at the mortgage banking segment. See "Comparison of Mortgage Banking Segment Results of Operations for the Nine Months Ended September 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 an decrease in mortgage servicing fee income and gain from death benefit decreased as there was a gain recorded on one bank owned life insurance policy during the nine months ended September 30, 2022 compared to none during the nine months ended September 30, 2023. Offsetting the decreases, the Company sold mortgage servicing rights related to $318.4 million in loans serviced for third parties during the  nine months ended September 30, 2023. The sale generated $3.5 million in net proceeds and a $583,000 gain. There were no comparable sales during the nine months ended September 30, 2022. As of September 30, 2023 and September 30, 2022, the Company maintained servicing rights related to $220.0 million and $378.7 million, respectively, in loans previously sold to third parties.   49 Table of Contents       Nine months ended September 30,       2023     2022     $ Change     % Change       (Dollars In Thousands)   Compensation, payroll taxes, and other employee benefits   $ 64,035     $ 77,502     $ (13,467 )     (17.4 )% Occupancy, office furniture, and equipment     6,302       6,540       (238 )     (3.6 )% Advertising     2,749       3,004       (255 )     (8.5 )% Data processing     3,441       3,430       11       0.3 % Communications     719       900       (181 )     (20.1 )% Professional fees     1,779       1,203       576       47.9 % Real estate owned     3       6       (3 )     (50.0 )% Loan processing expense     2,672       3,685       (1,013 )     (27.5 )% Other     8,350       9,408       (1,058 )     (11.2 )% Total noninterest expenses   $ 90,050     $ 105,678     $ (15,628 )     (14.8 )%   Total noninterest expenses decreased $15.6 million, or 14.8%, to $90.1 million during the nine months ended September 30, 2023 compared to $105.7 million during the nine months ended September 30, 2022.   ● Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $13.4 million, or 21.1%, to $50.2 million during the nine months ended September 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 $237,000, or 1.7%, to $14.5 million during the nine months ended September 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 $226,000 to $3.5 million during the nine months ended September 30, 2023, primarily resulting from decreased computer equipment expenses. ● Occupancy, office furniture and equipment expense at the community banking segment increased $12,000 to $2.8 million during the nine months ended September 30, 2023. The increase was due primarily to increased snow removal expense offset by a decrease in depreciation expense. ● Advertising expense decreased $255,000, or 8.5%, to $2.7 million during the nine months ended September 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. Additionally, the mortgage banking segment decreased as the mortgage activity has decreased due to interest rates, housing affordability, and inventory constraints.   ● Professional fees increased $576,000 to $1.8 million during the nine months ended September 30, 2023. The increase related to an increase in legal fees at the mortgage banking segment. In July 2022, a complaint was filed by Mutual of Omaha Mortgage, Inc. asserting claims against Waterstone Mortgage Corporation relating to certain employees hired by Waterstone Mortgage Corporation who previously worked for Mutual.  The Company intends to continue to vigorously defend its interests in this matter and pursue all possible defenses against the claims.  Given the current stage of the litigation, the Company is not yet able to make a determination as to the likelihood of an unfavorable outcome in this matter, nor is it able to estimate the range of any possible loss. Additionally, the community banking segment had an increase in audit and tax expense. ● Loan processing expense decreased $1.0 million, or 27.5%, to $2.7 million during the nine months ended September 30, 2023.  The decrease was primarily due to a decrease in loan applications and fundings.   ● Other noninterest expense decreased $1.1 million, or 11.2%, to $8.4 million during the nine months ended September 30, 2023.  The decrease at the mortgage banking segment related to a decrease in corporate meeting expenses, travel expenses, meals expense, and mortgage servicing rights amortization as the there was a bulk sale in the first quarter of 2023 and none during 2022.  Offsetting the decreases, other noninterest expenses increased at the community banking segment as FDIC premiums increased starting in 2023.    Income Taxes   Income tax expense decreased $3.1 million, or 58.0%, to $2.2 million during the nine months ended September 30, 2023 compared to $5.3 million during the nine months ended September 30, 2022. Income tax expense was recognized on the statement of income during the nine months ended September 30, 2023 at an effective rate of 19.0% of pretax income compared to an effective rate of 22.1% of pretax income during the nine months ended September 30, 2022. The decrease in the effective rate was primarily due to the permanent deductions being a greater percentage of pretax income as pretax income continues to decrease compared to prior year.   50 Table of Contents   Comparison of Financial Condition at September 30, 2023 and December 31, 2022   Total Assets – Total assets increased by $189.7 million, or 9.3%, to $2.22 billion at September 30, 2023 from $2.03 billion at December 31, 2022. The increase in total assets primarily reflects an increase in loans held for investment, cash and cash equivalents, and loans held for sale. The increase in total assets reflects liability increases in borrowings.   Cash and Cash Equivalents – Cash and cash equivalents increased $15.7 million, or 33.6%, to $62.3 million at September 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 decreased $2.1 million to $194.5 million at September 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 $26.2 million to $157.4 million at September 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 $140.9 million to $1.65 billion at September 30, 2023. The increase in total loans receivable was primarily 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.       For the       Nine months ended September 30,       2023     2022       (In Thousands)   Real estate loans originated for investment:                 Residential                 One- to four-family   $ 192,404     $ 129,625   Multi-family     102,445       189,817   Home equity     1,012       311   Construction and land     24,833       3,174   Commercial real estate     62,500       77,437   Total real estate loans originated for investment     383,194       400,364   Consumer loans originated for investment     -       38   Commercial business loans originated for investment     16,274       4,016   Total loans originated for investment   $ 399,468     $ 404,418     51 Table of Contents   Allowance for Credit Losses - Loans - The allowance for credit losses increased $796,000 to $18.6 million at September 30, 2023.  There was a $829,000 provision for credit losses - loans for the nine months ended September 30, 2023. The provision for credit losses related to loans increased primarily due to loan growth. During the nine months ended September 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 charge-offs totaled $33,000 for the nine months ended September 30, 2023.     Prepaid expenses and other assets  – Total prepaid expenses and other assets increased $3.5 to $63.3 million at September 30, 2023. The increase was primarily due to an increase in derivative assets due to the interest rate changes.    Deposits – Total deposits increased $6.2 million to $1.21 billion at September 30, 2023.  The decrease was driven by an increase of $91.0 million in time deposits offset by a decrease of $44.2 million in money market and savings deposits and $40.6 million in demand deposits.   Borrowings – Total borrowings increased $201.1 million, or 52.0%, to $587.9 million at September 30, 2023. The community banking segment paid off $215.0 million in long-term FHLB borrowings, borrowing $174.0 million of new long-term FHLB borrowings, and $240.3 million in new short-term FHLB borrowings. External short-term borrowings at the mortgage banking segment increased a total of $1.8 million at September 30, 2023 from December 31, 2022.   Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $22.9 million to $28.2 million at September 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 $16.0 million to $53.7 million at September 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, the fair value mark on derivative liabilities related to the loans held for sale, dividends payable, and lease liability decreased    Shareholders ’ Equity – Shareholders' equity decreased $24.2 million to $346.3 million at September 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.   52 Table of Contents   ASSET QUALITY   NONPERFORMING ASSETS       At September 30,     At December 31,       2023     2022       (Dollars in Thousands)   Non-accrual loans:                 Residential                 One- to four-family   $ 3,958     $ 4,209   Over four-family     -       -   Home equity     37       98   Construction and land     -       -   Commercial real estate     88       -   Commercial     -       -   Consumer     -       -   Total non-accrual loans     4,083       4,307                     Real estate owned                 One- to four-family     227       -   Construction and land     145       145   Total real estate owned     372       145   Total nonperforming assets   $ 4,455     $ 4,452                     Total non-accrual loans to total loans, net     0.25 %     0.29 % Total non-accrual loans to total assets     0.18 %     0.21 % Total nonperforming assets to total assets     0.20 %     0.22 %   All loans that are 90 days or more past due with respect to principal and interest are recognized as non-accrual. Troubled debt restructurings that are non-accrual, either due to being past due greater than 90 days or which have not yet performed under the modified terms for a reasonable period of time, are included in the table above. In addition, loans that are past due less than 90 days are evaluated to determine the likelihood of collectability given other credit risk factors such as early stage delinquency, the nature of the collateral or the results of a borrower review. When the collection of all contractual principal and interest is determined to be unlikely, the loan is moved to non-accrual status and an updated appraisal of the underlying collateral is ordered.  This process generally takes place when a loan is contractually past due between 60 and 89 days.    A loan is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.  For all classes of loans and leases deemed collateral-dependent, the Company elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell.  In most cases, the Company records a specific valuation allowance or a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell.  Substantially all of the collateral consists of various types of real estate including residential and commercial properties.   53 Table of Contents   The following table sets forth activity in our non-accrual loans for the periods indicated.       At or for the Nine Months       Ended September 30,       2023     2022       (In Thousands)                     Balance at beginning of period   $ 4,307     $ 5,574   Additions     1,994       2,908   Transfers to real estate owned     (227 )     -   Charge-offs     -       -   Returned to accrual status     (751 )     (694 ) Principal paydowns and other     (1,467 )     (2,713 ) Balance at end of period   $ 4,083     $ 5,075     Total non-accrual loans decreased by $224,000, or 5.2%, to $4.1 million as of September 30, 2023 compared to $4.3 million as of December 31, 2022.  The ratio of non-accrual loans to total loans receivable was 0.25% at September 30, 2023 and 0.29% at December 31, 2022.  During the nine months ended September 30, 2023, $2.0 million in loans were placed on non-accrual status. Offsetting this activity, $227,000 in loans were transferred to real estate owned, $751,000 in loans returned to accrual status, and $575,000 in principal payments were received during the nine months ended September 30, 2023.   Of the $4.1 million in total non-accrual loans as of September 30, 2023, $1.7 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 September 30, 2023.  The remaining $2.4 million of non-accrual loans were reviewed on an aggregate basis as of September 30, 2023.   . The outstanding principal balance of our five largest non-accrual loans as of September 30, 2023 totaled $2.6 million, which represents 63.1% of total non-accrual loans as of that date.  Two of the loans was reviewed on an aggregate basis along with the other loans held for investment at the mortgage segment.     Interest payments received are treated as interest income on a cash basis as long as the remaining book value of the loan (i.e., after charge-off of all identified losses) is deemed to be fully collectible. If the remaining book value is not deemed to be fully collectible, all payments received are applied to unpaid principal. 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 September 30, 2023 and December 31, 2022, there were no loans 90 or more days past due and still accruing interest.    54 Table of Contents   LOAN DELINQUENCY   The following table summarizes loan delinquency in total dollars and as a percentage of the total loan portfolio:       At September 30,     At December 31,       2023     2022       (Dollars in Thousands)                     Loans past due less than 90 days   $ 4,781     $ 2,578   Loans past due 90 days or more     3,963       3,683   Total loans past due   $ 8,744     $ 6,261                     Total loans past due to total loans receivable     0.53 %     0.41 %   Past due loans increased by $2.5 million, or 39.7%, to $8.7 million at September 30, 2023 from $6.3 million at December 31, 2022.  Loans past due less than 90 days increased by $2.2 million, or 85.5%, primarily in the one- to four-family and multi-family categories. Loans past due 90 days or more increased by $280,000, or 7.6%, primarily in the one- to four-family loan category, during the nine months ended September 30, 2023.   55 Table of Contents   ALLOWANCE FOR CREDIT LOSSES - LOANS       At or for the Nine Months       Ended September 30,       2023     2022(1)       (Dollars in Thousands)                     Balance at beginning of period   $ 17,757     $ 15,778   Adoption of CECL (1)     -       430   Provision (credit) for credit losses - loans     829       700   Charge-offs:                 Mortgage                 One- to four-family     63       254   Multi family     -       -   Home Equity     -       -   Commercial real estate     -       -   Construction and land     -       -   Consumer     29       12   Commercial     -       -   Total charge-offs     92       266   Recoveries:                 Mortgage                 One- to four-family     46       55   Multi family     5       727   Home Equity     4       14   Commercial real estate     2       2   Construction and land     2       12   Consumer     -       -   Commercial     -       -   Total recoveries     59       810   Net charge-offs (recoveries)     33       (544 ) Allowance for credit losses - loans at end of period   $ 18,553     $ 17,452                     Ratios:                 Allowance for credit losses to non-accrual loans at end of period     454.40 %     343.88 % Allowance for credit losses to loans receivable at end of period     1.12 %     1.29 % Net charge-offs (recoveries) to average loans outstanding (annualized)     0.00 %     (0.06 )% Current year provision for credit losses - loans to net recoveries     (2,512.12 %)     (128.68 )% Net charge-offs (recoveries) (annualized) to beginning of the year allowance     0.25 %     (4.61 )%   (1) The Company adopted ASU 2016-13 as of January 1, 2022.    The allowance for credit losses - loans increased $796,000 to $18.6 million at September 30, 2023 from $17.8 million at December 31, 2022.  During the nine months ended September 30, 2023, there was a $829,000 provision for credit losses. Additionally, net charge-offs totaled $33,000 for the nine months ended September 30, 2023.    We had net charge-offs of $33,000, or less than 0.01% of average loans annualized, for the nine months ended September 30, 2023, compared to net recoveries of $544,000, or 0.06% of average loans annualized, for the nine months ended September 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.  Credit quality is assured only when the estimated value of the collateral is objectively determined and is not subject to significant fluctuation.   The allowance for credit losses - loans has been determined in accordance with GAAP. We are responsible for the timely and periodic determination of the amount of the allowance required. Any future provisions for loan losses will continue to be based upon our assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors. To the best of management’s knowledge, all probable losses have been provided for in the allowance for credit losses - loans.   56 Table of Contents   The establishment of the amount of the allowance for credit loss inherently involves judgments by management as to the appropriateness of the allowance, which ultimately may or may not be correct. Higher than anticipated rates of loan default would likely result in a need to increase provisions in future years.   Liquidity and Capital Resources   We maintain liquid assets at levels we consider adequate to meet our liquidity needs. We adjust our liquidity levels to fund loan commitments, repay our borrowings, fund deposit outflows and pay real estate taxes on mortgage loans. We also adjust liquidity as appropriate to meet asset and liability management objectives.  The level of our liquidity position at any point in time is dependent upon the judgment of the senior management as supported by the Asset/Liability Committee.  Liquidity is monitored on a daily, weekly and monthly basis using a variety of measurement tools and indicators.   Our primary sources of liquidity are deposits, amortization and repayment of loans, sales of loans held for sale, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan repayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competitors. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term, interest-earning assets, which provide liquidity to meet lending requirements. Additional sources of liquidity used for the purpose of managing long- and short-term cash flows include advances from the FHLB.   During the nine months ended September 30, 2023, primary uses of cash and cash equivalents included: $1.58 billion in funding loans held for sale, $140.9 million to fund loans held for investment, $18.9 million for purchases of mortgage related securities, $9.4 million for FHLB stock, $215.0 million for payoffs of long-term borrowings, $12.4 million for cash dividends paid, and $19.8 million for purchases of our common stock.   During the nine months ended September 30, 2023, primary sources of cash and cash equivalents included: $1.60 billion in proceeds from the sale of loans held for sale, $174.0 million in long-term borrowings, $242.1 million in short-tern borrowings, $15.9 million in principal repayments on mortgage related securities, $6.2 million for increase in deposits, $3.6 million in maturities of debt securities, $3.5 million in proceeds for mortgage servicing rights sale, and $9.4 million in net income.   During the nine months ended September 30, 2022, primary uses of cash and cash equivalents included: $2.12 billion in funding loans held for sale, $148.1 million to fund loans held for investment, $77.4 million for purchases of mortgage related securities, $270.0 million for payoffs of long-term borrowings, $26.0 million for cash dividends paid, $46.3 million for decrease in deposits, and $45.2 million for purchases of our common stock.   During the nine months ended September 30, 2022, primary sources of cash and cash equivalents included: $2.31 billion in proceeds from the sale of loans held for sale, $27.9 million in principal repayments on mortgage related securities, $14.9 million in maturities of debt securities, $8.7 million in sales of FHLB stock, and $18.6 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 September 30, 2023 and 2022, respectively, $62.3 million and $72.9 million of our assets were invested in cash and cash equivalents. At September 30, 2023, cash and cash equivalents were comprised of the following: $55.8 million in cash held at the Federal Reserve Bank and other depository institutions and $6.5 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.   Liquidity management is both a daily and longer-term function of business management.  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 September 30, 2023, we had $159.0 million in long term advances from the FHLB with contractual maturity dates in 2025, 2027, and 2028.  See Note 6 - Borrowings of the notes to unaudited consolidated financial statements for additional information about the remaining call option details of our FHLB long-term debt.   The Company had approximately $287.1 million of uninsured deposits for approximately 1,218 customers as of September 30, 2023. Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limits.   57 Table of Contents   At September 30, 2023, we had outstanding commitments to originate loans receivable of $31.0 million.  In addition, at September 30, 2023, we had unfunded commitments under construction loans of $91.3 million, unfunded commitments under business lines of credit of $11.3 million and unfunded commitments under home equity lines of credit and standby letters of credit of $11.9 million.  At September 30, 2023, certificates of deposit scheduled to mature in one year or less totaled $663.4 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.  In the event a significant portion of our deposits is not retained by us, we will have to utilize other funding sources, such as FHLB advances, in order to maintain our level of assets. However, we cannot assure that such borrowings would be available on attractive terms, or at all, if and when needed. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents and securities available-for-sale in order to meet funding needs. 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.   Waterstone Financial, Inc. is a separate legal entity from WaterStone Bank and must provide for its own liquidity to pay dividends to its shareholders, repurchase shares of its common stock, and for other corporate purposes. The primary source of liquidity for Waterstone Financial, Inc. is dividend payments from WaterStone Bank. The ability of WaterStone Bank to pay dividends is subject to regulatory restrictions. At September 30, 2023, Waterstone Financial, Inc. (on an unconsolidated basis) had liquid assets totaling $32.7 million.   Capital   Shareholders' equity decreased $24.2 million to $346.3 million at September 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 September 30, 2023, the Company has 1,365,000 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 September 30, 2023, WaterStone Bank exceeded all regulatory capital requirements and is considered “well capitalized” under regulatory guidelines. See “Notes to Unaudited Consolidated Financial Statements - Note 7 - Regulatory Capital.”   Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements   During the three months ended September 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.   Our commitments, contingent liabilities, and off-balance sheet arrangements have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2022.   See Note 9 - Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities of the notes to unaudited consolidated financial statements for additional information. 58 Table of Contents   Item   3. Quantitative and Qualitative Disclosures about Market Risk   Management of Market Risk   General .   The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, WaterStone Bank’s board of directors has established an Asset/Liability Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. Management monitors the level of interest rate risk on a regular basis and the Asset/Liability Committee meets at least weekly to review our asset/liability policies and interest rate risk position, which are evaluated quarterly.   We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk: (i) emphasizing variable rate loans including variable rate one- to four-family, and commercial real estate loans as well as three to five year commercial real estate balloon loans; (ii) reducing and shortening the expected average life of the investment portfolio; and (iii) whenever possible, lengthening the term structure of our deposit base and our borrowings from the FHLB. These measures should reduce the volatility of our net interest income in different interest rate environments.   Income Simulation .   Simulation analysis is an estimate of our interest rate risk exposure at a particular point in time.  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 September 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.  Because of the large percentage of loans and mortgage-backed securities we hold, rising or falling interest rates may have a significant impact on the actual prepayment speeds of our mortgage related assets that may in turn affect our interest rate sensitivity position.  When interest rates rise, prepayment speeds slow and the average expected lives of our assets would tend to lengthen more than the expected average lives of our liabilities and therefore would most likely have a positive impact on net interest income and earnings.   The following interest rate scenario displays the percentage change in net interest income over a one-year time horizon assuming increases of 100, 200 and 300 basis points and a decreases of 100 basis points.  The results incorporate actual cash flows and repricing characteristics for balance sheet accounts following an instantaneous parallel change in market rates based upon a static no growth, balance sheet.   Analysis of Net Interest Income Sensitivity       Immediate Change in Rates       +300     +200     +100     -100   As of September 30, 2023                                 Dollar Change   $ (10,491 )   $ (6,885 )   $ (3,596 )   $ 3,131   Percentage Change     (24.38 )%     (16.00 )%     (8.36 )%     7.28 %   At September 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%.   59 Table of Contents   Item   4. Controls and Procedures   Disclosure Controls and Procedures : Company management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.   Internal Control Over Financial Reporting : There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.   PART II. OTHER INFORMATION   Item 1. 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.   Item 1A. Risk Factors   Other than as described in Quarterly Reports on Form 10-Q filed during the year ending December 31, 2023, there have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.   60 Table of Contents   Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities   Following are the Company’s monthly common stock repurchases during the third quarter of 2023:   Period   Total Number of Shares Purchased     Average Price Paid per Share     Total Number of Shares Purchased as Part of Publicly Announced Plans     Maximum Number of Shares that May Yet Be Purchased Under the Plan(a)   July 1, 2023 - July 31, 2023     65,456     $ 14.31       65,456       1,815,966   August 1, 2023 - August 31, 2023     278,069       13.02       278,069       1,537,897   September 1, 2023 - September 30, 2023     172,702       11.91       172,702       1,365,195   Total     516,227     $ 12.81       516,227       1,365,195     (a) On May 24, 2023, the Board of Directors announced the termination of the then-existing stock repurchase plan and authorized the repurchase of 2,000,000 shares of common stock pursuant to a new share repurchase plan. This plan has no expiration date.   Item 3. Defaults Upon Senior Securities   Not applicable.   Item 4. Mine Safety Disclosures   Not applicable.   61 Table of Contents     Item 5. Other Information   During the three months ended September 30, 2023, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 - 1 (c) and/or any “Rule 10b5 - 1 trading arrangement.”      Item   6. Exhibits   Exhibit No.   Description   Filed Herewith   31.1   Sarbanes-Oxley Act Section 302 Certification signed by the Chief Executive Officer of Waterstone Financial, Inc.   X   31.2   Sarbanes-Oxley Act Section 302 Certification signed by the Chief Financial Officer of Waterstone Financial, Inc.   X   32.1   Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by the Chief Executive Officer of Waterstone Financial, Inc.   X   32.2   Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by the Chief Financial Officer of Waterstone Financial, Inc.   X   101   The following financial statements from Waterstone Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline Extensive Business Reporting Language (iXBRL): (i) consolidated statements of financial condition, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of changes in shareholders' equity, (v) consolidated statements of cash flows and (vi) the notes to consolidated financial statements.   X   104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   X   Signatures   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.         WATERSTONE FINANCIAL, INC. (Registrant) Date:  November 2, 2023     /s/ Douglas S. Gordon   Douglas S. Gordon   Chief Executive Officer Principal Executive Officer Date:  November 2, 2023     /s/  Mark R. Gerke   Mark R. Gerke   Chief Financial Officer Principal Financial Officer   62