What changed in this filing

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Item 1. Financial Statements

2024-08-06 compared with 2024-05-08 · 616 added, 302 removed, 1502 unchanged (38% of the section changed)

3 unchanged sentences

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

March 31, 2024

June 30, 2024

December 31, 2023

44 unchanged sentences

Shareholders’ equity:

Preferred stock (par value $ .01 per share) Authorized - 50,000,000 shares at March 31, 2024 and at December 31, 2023, no shares issued

Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at March 31, 2024 and at December 31, 2023, Issued and Outstanding - 19,909,643 at March 31, 2024 and 20,314,786 at December 31, 2023

Preferred stock (par value $ .01 per share) Authorized - 50,000,000 shares at June 30, 2024 and at December 31, 2023, no shares issued

Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at June 30, 2024 and at December 31, 2023, Issued and Outstanding - 19,478,625 at June 30, 2024 and 20,314,786 at December 31, 2023

Additional paid-in capital

14 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands, except per share amounts)

Interest income:

$ 25,601 $ 22,150 $ 50,085 $ 42,035

Mortgage-related securities

1,125 969 2,223 1,912

Debt securities, federal funds sold and short-term investments

1,294 1,128 2,617 2,190

Total interest income

28,020 24,247 54,925 46,137

Interest expense:

9,716 5,955 18,686 10,043

7,625 5,617 14,423 9,624

Total interest expense

17,341 11,572 33,109 19,667

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

10,679 12,675 21,816 26,470

Provision (credit) for credit losses

( 225 ) 186 ( 158 ) 646

Net interest income after provision (credit) for credit losses

10,904 12,489 21,974 25,824

Noninterest income:

Service charges on loans and deposits

465 611 889 1,041

Increase in cash surrender value of life insurance

804 714 1,152 1,039

Mortgage banking income

24,838 21,914 44,906 38,684

390 286 798 1,315

Total noninterest income

26,497 23,525 47,745 42,079

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

21,762 22,395 41,638 42,447

Occupancy, office furniture, and equipment

2,029 2,046 4,137 4,309

987 944 1,901 1,833

Data processing

1,242 1,090 2,448 2,212

Communications

240 225 466 476

Professional fees

758 618 1,501 1,034

Real estate owned

Loan processing expense

861 932 1,907 1,950

2,379 2,671 3,797 5,766

Total noninterest expenses

30,259 30,922 57,809 60,029

Income before income taxes

7,142 5,092 11,910 7,874

Income tax expense

1,430 1,085 3,160 1,712

$ 5,712 $ 4,007 $ 8,750 $ 6,162

Income per share:

$ 0.31 $ 0.20 $ 0.47 $ 0.30

Weighted average shares outstanding:

18,524 20,384 18,772 20,635

18,568 20,431 18,802 20,702

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands)

$ 5,712 $ 4,007 $ 8,750 $ 6,162

Other comprehensive income (loss), net of tax:

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

Net unrealized holding (loss) gain arising during the period, net of tax benefit (expense) of $ 405 and $( 790 ), respectively

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 (expense) of $ 134 , $( 174 ), $ 539 , and $ 616 , respectively

( 654 ) ( 3,459 ) ( 1,923 ) ( 1,352 )

Total other comprehensive (loss) income

Total other comprehensive loss

( 654 ) ( 3,459 ) ( 1,923 ) ( 1,352 )

9 unchanged sentences

(In Thousands, except per share amounts)

For the three months ended March 31, 2023

For the six months ended June 30, 2023

Balances at December 31, 2022

15 unchanged sentences

( 884 ) ( 9 ) ( 13,154 ) - - - ( 13,163 )

Balances at March 31, 2023

Balances at June 30, 2023

21,376 $ 214 $ 116,611 $ 272,229 $ ( 12,463 ) $ ( 20,828 ) $ 355,763

(In Thousands, except per share amounts)

For the three months ended March 31, 2024

For the six months ended June 30, 2024

Balances at December 31, 2023

15 unchanged sentences

( 903 ) ( 9 ) ( 11,107 ) - - - ( 11,116 )

Balances at June 30, 2024

19,479 $ 195 $ 92,964 $ 272,778 $ ( 11,276 ) $ ( 19,715 ) $ 334,946

Comprehensive

Shareholders'

Income (Loss)

(In Thousands, except per share amounts)

For the three months ended June 30, 2023

Balances at March 31, 2023

21,867 $ 219 $ 123,448 $ 272,268 $ ( 12,759 ) $ ( 17,369 ) $ 365,807

Comprehensive income:

- - - 4,007 - - 4,007

Other comprehensive loss

- - - - - ( 3,459 ) ( 3,459 )

Total comprehensive income

ESOP shares committed to be released to Plan participants

- - 80 - 296 - 376

Cash dividend, $ 0.20 per share

- - - ( 4,046 ) - - ( 4,046 )

Stock compensation activity, net of tax

20 - 318 - - - 318

Stock compensation expense

- - 82 - - - 82

Purchase of common stock returned to authorized but unissued

( 511 ) ( 5 ) ( 7,317 ) - - - ( 7,322 )

Balances at June 30, 2023

21,376 $ 214 $ 116,611 $ 272,229 $ ( 12,463 ) $ ( 20,828 ) $ 355,763

(In Thousands, except per share amounts)

For the three months ended June 30, 2024

Balances at March 31, 2024

19,910 199 98,610 269,827 ( 11,572 ) ( 19,061 ) 338,003

Comprehensive loss:

- - - 5,712 - - 5,712

Other comprehensive loss

- - - - - ( 654 ) ( 654 )

Total comprehensive income

ESOP shares committed to be released to Plan participants

- - 19 - 296 - 315

Cash dividend, $ 0.15 per share

- - - ( 2,761 ) - - ( 2,761 )

Stock compensation activity, net of tax

50 1 - - - - 1

Stock compensation expense

- - 100 - - - 100

Purchase of common stock returned to authorized but unissued

( 481 ) ( 5 ) ( 5,765 ) - - - ( 5,770 )

Balances at June 30, 2024

19,479 $ 195 $ 92,964 $ 272,778 $ ( 11,276 ) $ ( 19,715 ) $ 334,946

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended March 31,

Six months ended June 30,

(In Thousands)

1 unchanged sentence

Adjustments to reconcile net income to net cash used in operating activities:

Provision for credit losses

Provision (credit) for credit losses

Depreciation, amortization, accretion

5 unchanged sentences

Proceeds on sales of loans originated for sale

Decrease (increase) in accrued interest receivable

Increase in accrued interest receivable

Increase in cash surrender value of life insurance

(Increase) decrease in derivative assets

Increase in derivative assets

Increase in accrued interest on deposits and borrowings

Decrease (increase) in prepaid tax expense

Decrease in prepaid tax expense

Increase (decrease) in derivative liabilities

Gain on sale of mortgage servicing rights

Change in other assets and other liabilities, net

Increase in other assets

Decrease in other liabilities

Net cash used in operating activities

4 unchanged sentences

Mortgage related securities

Bank owned life insurance

Premises and equipment

44 unchanged sentences

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s December 31, 2023 Annual Report on Form 10 -K.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.

Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 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.

3 unchanged sentences

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

There were no significant subsequent events for the three months ended March 31, 2024 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.

There were no significant subsequent events for the three and six months ended June 30, 2024 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.

Certain immaterial revisions have been made to the interim consolidated financial statements to move cash flows stemming from sales of mortgage servicing rights from operating cash flows to investing cash flows.

These revisions did not have a significant impact on the financial statement line items impacted.

Impact of Recent Accounting Pronouncements

6 unchanged sentences

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

March 31, 2024

June 30, 2024

(In Thousands)

38 unchanged sentences

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

At March 31, 2024 , and December 31, 2023 , $ 123.3 million and $ 128.1 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 March 31, 2024 , $ 162,000 of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities.

At June 30, 2024 , and December 31, 2023 , $ 118.8 million and $ 128.1 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 June 30, 2024 , $ 143,000 of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities.

At December 31, 2023 , $ 183,000 of the Company's mortgage related securities were pledged as collateral to secure mortgage banking related activities.

The amortized cost and fair values of investment securities by contractual maturity at March 31, 2024 are shown below.

The amortized cost and fair values of investment securities by contractual maturity at June 30, 2024 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.

12 unchanged sentences

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

March 31, 2024

June 30, 2024

Less than 12 months

35 unchanged sentences

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

As of March 31, 2024 and December 31, 2023 , no allowance for credit losses on securities was recognized.

As of June 30, 2024 and December 31, 2023 , 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 months ended March 31, 2024 and March 31, 2023 , there were no sales of securities.

During the three and six months ended June 30, 2024 and June 30, 2023 , there were no sales of securities.

Note 3 - Loans Receivable

Loans receivable at March 31, 2024 and December 31, 2023 are summarized as follows:

March 31, 2024

Loans receivable at June 30, 2024 and December 31, 2023 are summarized as follows:

June 30, 2024

December 31, 2023

17 unchanged sentences

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

Qualifying loans receivable totaling $ 1.25 billion and $ 1.25 billion at March 31, 2024 and December 31, 2023 , respectively, were pledged as collateral against $ 488.5 million and $ 464.0 million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at March 31, 2024 and December 31, 2023 .

Qualifying loans receivable totaling $ 1.25 billion and $ 1.25 billion at June 30, 2024 and December 31, 2023 , respectively, were pledged as collateral against $ 516.0 million and $ 464.0 million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at June 30, 2024 and December 31, 2023 .

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

These loans to related parties are summarized below:

Three months ended

March 31, 2024

March 31, 2023

Six months ended

June 30, 2024

June 30, 2023

(In Thousands)

4 unchanged sentences

$ 3,038 $ 3,105

None of these loans were past due or considered impaired as of March 31, 2024 or December 31, 2023 .

An analysis of past due loans receivable as of March 31, 2024 and December 31, 2023 follows:

As of March 31, 2024

None of these loans were past due or considered impaired as of June 30, 2024 or December 31, 2023 .

An analysis of past due loans receivable as of June 30, 2024 and December 31, 2023 follows:

As of June 30, 2024

1-59 Days Past Due (1) 60-89 Days Past Due (2) 90 Days or Greater Total Past Due Current (3)

31 unchanged sentences

$ 5,528 $ 1,289 $ 4,433 $ 11,250 $ 1,652,965 $ 1,664,215

( 1 ) Includes $ 630,000 and $ 193,000 at March 31, 2024 and December 31, 2023 , respectively, which are on non-accrual status.

( 2 ) Includes $ - and $ 11,000 at March 31, 2024 and December 31, 2023 , respectively, which are on non-accrual status.

( 3 ) Includes $ 386,000 and $ 171,000 at March 31, 2024 and December 31, 2023 , respectively, which are on non-accrual status.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024 and the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023 :

( 1 ) Includes $ 667,000 and $ 193,000 at June 30, 2024 and December 31, 2023 , respectively, which are on non-accrual status.

( 2 ) Includes $ - and $ 11,000 at June 30, 2024 and December 31, 2023 , respectively, which are on non-accrual status.

( 3 ) Includes $ 1.0 million and $ 171,000 at June 30, 2024 and December 31, 2023 , 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 six months ended June 30, 2024 and the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2023 :

One- to Four-Family

Land and Construction

Commercial Real Estate

(In Thousands)

Six months ended June 30, 2024

Balance at beginning of period

$ 6,886 $ 7,318 $ 211 $ 983 $ 2,561 $ 56 $ 534 $ 18,549

Provision (credit) for credit losses - loans

( 1,062 ) ( 47 ) 62 243 664 20 ( 26 ) ( 146 )

( 3 ) - - - - ( 12 ) - ( 15 )

17 5 - 2 2 - - 26

Balance at end of period

$ 5,838 $ 7,276 $ 273 $ 1,228 $ 3,227 $ 64 $ 508 $ 18,414

Six months ended June 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

1,776 ( 553 ) ( 9 ) ( 294 ) ( 600 ) 32 271 623

( 29 ) - - - - ( 26 ) - ( 55 )

39 3 4 2 1 - - 49

Balance at end of period

$ 6,529 $ 7,425 $ 169 $ 1,060 $ 2,600 $ 53 $ 538 $ 18,374

One to-Four- Family

Construction and Land

1 unchanged sentence

(In Thousands)

Three months ended March 31, 2024

Three months ended June 30, 2024

Balance at beginning of period

6 unchanged sentences

$ 5,838 $ 7,276 $ 273 $ 1,228 $ 3,227 $ 64 $ 508 $ 18,414

Three months ended March 31, 2023

Three months ended June 30, 2023

Balance at beginning of period

41 unchanged sentences

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

The allowance for unfunded commitments at March 31, 2024 and December 31, 2023 was $ 1.1 million and $ 1.1 million.

The allowance for unfunded commitments at June 30, 2024 and December 31, 2023 was $ 1.1 million and $ 1.1 million.

Provision for Credit Losses :

3 unchanged sentences

Three months ended

March 31, 2024

March 31, 2023

Six months ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

(In Thousands)

2 unchanged sentences

Unfunded commitments

( 82 ) ( 462 ) ( 12 ) 23

Investment securities

$ ( 225 ) $ 186 $ ( 158 ) $ 646

Collateral Dependent Loans :

2 unchanged sentences

The following tables present collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation.

The following tables present collateral dependent loans by portfolio segment and collateral type as of March 31, 2024 and December 31, 2023 :

The following tables present collateral dependent loans by portfolio segment as of June 30, 2024 and December 31, 2023 :

One- to Four- Family

50 unchanged sentences

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

The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of March 31, 2024 and December 31, 2023 :

The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of June 30, 2024 and December 31, 2023 :

One to Four-Family

2 unchanged sentences

(In Thousands)

At March 31, 2024

At June 30, 2024

$ 5,033 $ - $ 320 $ - $ 5,358 $ - $ 1,319 $ 12,030

8 unchanged sentences

Credit Quality Information:

The following table presents total loans by risk categories and year of origination as of March 31, 2024 :

The following table presents total loans by risk categories and year of origination as of June 30, 2024 :

(In Thousands)

68 unchanged sentences

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

As of March 31, 2024

As of June 30, 2024

(Dollars in Thousands)

9 unchanged sentences

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

As of March 31, 2024

As of June 30, 2024

Performing in accordance with modified terms

12 unchanged sentences

$ 543 2 $ - - $ 543 2

There were no restructurings of financing receivables whose borrowers are experiencing financial difficulty during the three months ended March 31, 2024 .

There were no loans modified as troubled debt restructurings during the three months ended March 31, 2023 .

There were no restructurings of financing receivables whose borrowers are experiencing financial difficulty within the past twelve months of which there was a default during the three months ended March 31, 2024 or March 31, 2023 .

The following table presents data on non-accrual loans as of March 31, 2024 and December 31, 2023 :

March 31, 2024

There were no restructurings of financing receivables whose borrowers are experiencing financial difficulty during the three or six months ended June 30, 2024 .

There were no loans modified as troubled debt restructurings during the three or six months ended June 30, 2023 .

The following table presents data on non-accrual loans as of June 30, 2024 and December 31, 2023 :

June 30, 2024

December 31, 2023

11 unchanged sentences

0.24 % 0.22 %

Residential one - to four -family mortgage loans that were in the process of foreclosure were $ 235,000 and $ 250,000 at March 31, 2024 and December 31, 2023 , respectively.

Residential one - to four -family mortgage loans that were in the process of foreclosure were $ 633,000 and $ 250,000 at June 30, 2024 and December 31, 2023 , respectively.

Note 4 — Mortgage Servicing Rights

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

Three months ended March 31,

Six months ended June 30,

(In Thousands)

2 unchanged sentences

( 187 ) ( 123 )

( 1,958 ) ( 2,767 )

Mortgage servicing rights at end of the period

2 unchanged sentences

$ 405 $ 1,314

During the three months ended March 31, 2024 , $ 477.8 million in residential loans were originated for sale on a consolidated basis generating mortgage banking income of $ 20.1 million.

During the six months ended June 30, 2024 , $ 1.11 billion in residential loans were originated for sale on a consolidated basis generating mortgage banking income of $ 45.1 million.

During the same period in the prior year, sales of loans held for sale totaled $ 977.8 million, generating mortgage banking income of $ 40.1 million.

The unpaid principal balance of loans serviced for others was $ 257.1 million and $ 238.7 million at March 31, 2024 and December 31, 2023 , respectively.

The unpaid principal balance of loans serviced for others was $ 43.8 million and $ 238.7 million at June 30, 2024 and December 31, 2023 , 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 March 31, 2024 and $ 2.2 million at December 31, 2023 , respectively.

During the three months ended March 31, 2024 , there were no sales of mortgage servicing rights.

During the three months ended March 31, 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 $ 601,000 .

The fair value of mortgage servicing rights was $ 413,000 at June 30, 2024 and $ 2.2 million at December 31, 2023 , respectively.

During the three and six months ended June 30, 2024 , the Company sold mortgage servicing rights related to $ 233.0 million in loans receivable with a book value of $ 2.0 million for $ 2.1 million resulting in a gain on sale of $ 152,000 .

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

During the six months ended June 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 .

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

2 unchanged sentences

Note 5 — Deposits

At March 31, 2024 and December 31, 2023 , the aggregate balance of uninsured time deposits of $250,000 or more was $ 161.5 million and $ 131.4 million, respectively.

At June 30, 2024 and December 31, 2023 , the aggregate balance of uninsured time deposits of $250,000 or more was $ 147.3 million and $ 131.4 million, respectively.

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

A summary of the contractual maturities of time deposits at March 31, 2024 is as follows:

A summary of the contractual maturities of time deposits at June 30, 2024 is as follows:

(In Thousands)

5 unchanged sentences

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 $ 9.9 million and $ 9.0 million at March 31, 2024 and December 31, 2023 , respectively.

Such deposits amounted to $ 10.8 million and $ 9.0 million at June 30, 2024 and December 31, 2023 , respectively.

Note 6 — Borrowings

Borrowings consist of the following:

March 31, 2024

June 30, 2024

Callable/Putable

3 unchanged sentences

December 14, 2017

10,000 August 8, 2028

August 8, 2023

10,000 October 10, 2028

October 10, 2023

10,000 October 10, 2028

October 10, 2023

10,000 November 6, 2028

November 6, 2023

15,000 November 14, 2028

November 14, 2023

10,000 March 5, 2029

March 5, 2024

10,000 March 5, 2029

Putable March 5, 2024 Monthly

10,000 March 26, 2029

Putable March 26, 2024 Monthly

June 14, 2029

June 14, 2024

June 18, 2029

June 18, 2024

Total FHLB long-term advances

135,000 2.80 %

10,000 April 3, 2024

December 27, 2024

18,000 April 9, 2024

January 29, 2025

13,000 April 29, 2024

20,500 April 8, 2024

20,000 May 22, 2024

30,000 June 12, 2024

33,000 April 15, 2024

22,500 April 22, 2024

23,000 April 29, 2024 5.36 % Fixed

120,000 April 1, 2024 5.43 % Fixed

July 10, 2024

July 12, 2024

July 17, 2024

July 24, 2024

Total FHLB short-term advances

353,500 5.26 %

Total FHLB advances

$ 488,500 4.58 %

Short-Term Borrowings

2 unchanged sentences

Total federal reserve bank

$ 145,000 4.76 %

Repurchase agreements

$ 658 N/A 8.18 % Variable

Total short-term borrowings

$ 145,658 4.78 %

Total borrowings

$ 634,158 4.63 %

December 31, 2023

12 unchanged sentences

November 10, 2023

10,000 November 3, 2028 3.46 % Fixed

Putable December 4, 2023 Quarterly

10,000 November 6, 2028 3.47 % Fixed

Putable December 6, 2023 Quarterly

15,000 November 14, 2028 3.39 % Fixed

Putable December 14, 2023 Quarterly

10,000 November 29, 2028 3.38 % Fixed

Putable December 29, 2023 Quarterly

10,000 November 29, 2028 3.43 % Fixed

Putable January 29, 2024 Quarterly

November 3, 2028

December 4, 2023

November 6, 2028

December 6, 2023

November 14, 2028

December 14, 2023

November 29, 2028

December 29, 2023

November 29, 2028

January 29, 2024

December 4, 2028

January 4, 2023

Total FHLB long-term advances

155,000 2.89 %

January 2, 2024

4 unchanged sentences

January 16, 2024

21,000 January 22, 2024 5.36 % Fixed

33,000 January 29, 2024 5.36 % Fixed

27,500 February 20, 2024 5.41 % Fixed

27,000 February 27, 2024 5.42 % Fixed

24,500 March 13, 2024 5.39 % Fixed

January 22, 2024

January 29, 2024

February 20, 2024

February 27, 2024

March 13, 2024

December 29, 2024

Total FHLB short-term advances

309,000 5.37 %

Total FHLB advances

464,000 4.54 %

Short-Term Borrowings

Federal reserve bank

$ 145,000 December 31, 2024 4.83 % Fixed

December 31, 2024

Total Federal reserve bank

$ 145,000 4.83 %

Repurchase agreements

$ 2,054 N/A 8.20 % Variable

Total short-term borrowings

$ 147,054 4.88 %

Total borrowings

$ 611,054 4.62 %

The short-term repurchase agreement represents the outstanding portion of a total $ 30.0 million commitment with one unrelated bank as of March 31, 2024 .

The short-term repurchase agreement represents the outstanding portion of a total $ 80.0 million commitment with two unrelated banks as of June 30, 2024 .

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

1 unchanged sentence

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

The short-term repurchase agreement had a $ 658,000 balance at March 31, 2024 and a $ 2.1 million balance at December 31, 2023 .

The short-term repurchase agreement had a $ 3.1 million balance at June 30, 2024 and a $ 2.1 million balance at December 31, 2023 .

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

11 unchanged sentences

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

At March 31, 2024 , the Company had fully utilized its borrowing capacity under this program.

At June 30, 2024 , the Company had fully utilized its borrowing capacity under this program.

The program does not allow for additional funding capacity after March 11, 2024.

At March 31, 2024 , the Company had approximately $ 293.0 million in unused borrowing capacity at the FHLB.

At June 30, 2024 , the Company had approximately $ 285.4 million in unused borrowing capacity at the FHLB.

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

The Company’s borrowings from the FHLB are limited to 76 % 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 $ 22.0 million at March 31, 2024 and $ 20.9 million at December 31, 2023 , respectively.

In addition, these advances were collateralized by FHLB stock of $ 23.2 million at June 30, 2024 and $ 20.9 million at December 31, 2023 , respectively.

In the event of prepayment, the Company is obligated to pay all remaining contractual interest on the advance.

10 unchanged sentences

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.

As a qualified community bank, we elected to opt-out of this definition.

Prompt corrective action regulations provide five classifications:

5 unchanged sentences

The minimum capital conservation buffer is 2.5%.

As of March 31, 2024 , the Bank was considered well-capitalized, with all capital ratios exceeding the well-capitalized requirement.

As of June 30, 2024 , 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.

The actual and required capital amounts and ratios for the Bank as of March 31, 2024 and December 31, 2023 are presented in the tables below:

March 31, 2024

The actual and required capital amounts and ratios for the Bank as of June 30, 2024 and December 31, 2023 are presented in the tables below:

June 30, 2024

For Capital Adequacy Purposes

4 unchanged sentences

Consolidated Waterstone Financial, Inc.

$ 375,349 21.15 % $ 141,960 8.00 % $ 186,320 10.50 % N/A N/A

Waterstone Bank

358,238 20.19 % 141,960 8.00 % 186,320 10.50 % 177,449 10.00 %

Tier I Capital (to risk-weighted assets)

Consolidated Waterstone Financial, Inc.

355,662 20.04 % 106,470 6.00 % 150,830 8.50 % N/A N/A

Waterstone Bank

338,551 19.08 % 106,470 6.00 % 150,830 8.50 % 141,959 8.00 %

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

Consolidated Waterstone Financial, Inc.

355,662 20.04 % 79,850 4.50 % 124,210 7.00 % N/A N/A

Waterstone Bank

338,551 19.08 % 79,850 4.50 % 124,210 7.00 % 115,342 6.50 %

Tier I Capital (to average assets)

Consolidated Waterstone Financial, Inc.

355,662 16.24 % 87,620 4.00 % N/A N/A N/A N/A

Waterstone Bank

338,551 15.46 % 87,620 4.00 % N/A N/A 109,526 5.00 %

State of Wisconsin (to total assets)

Waterstone Bank

338,551 15.17 % 133,920 6.00 % N/A N/A N/A N/A

December 31, 2023

5 unchanged sentences

Consolidated Waterstone Financial, Inc.

$ 380,351 21.50 % $ 141,538 8.00 % $ 185,769 10.50 % N/A N/A

Waterstone Bank

355,476 20.10 % 141,515 8.00 % 185,738 10.50 % 176,893 10.00 %

Tier I capital (to risk-weighted assets)

Consolidated Waterstone Financial, Inc.

360,734 20.39 % 106,154 6.00 % 150,385 8.50 % N/A N/A

Waterstone Bank

335,859 18.99 % 106,117 6.00 % 150,332 8.50 % 141,489 8.00 %

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

Consolidated Waterstone Financial, Inc.

360,734 20.39 % 79,615 4.50 % 123,846 7.00 % N/A N/A

Waterstone Bank

335,859 18.99 % 79,587 4.50 % 123,803 7.00 % 114,960 6.50 %

Tier I Capital (to average assets)

Consolidated Waterstone Financial, Inc.

360,734 16.77 % 86,043 4.00 % N/A N/A N/A N/A

Waterstone Bank

335,859 15.62 % 86,007 4.00 % N/A N/A 107,509 5.00 %

State of Wisconsin (to total assets)

Waterstone Bank

335,859 15.20 % 132,576 6.00 % N/A N/A N/A N/A

Note 8 – Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities

3 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

22 unchanged sentences

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 March 31, 2024 and December 31, 2023 .

The Company has determined that there are no probable losses related to commitments to extend credit or the standby letters of credit as of June 30, 2024 and December 31, 2023 .

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

6 unchanged sentences

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 $ 1.9 million as of March 31, 2024 and $ 1.7 million as of December 31, 2023 .

The Company's reserve for losses related to these recourse provisions totaled $ 2.1 million as of June 30, 2024 and $ 1.7 million as of December 31, 2023 .

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

30 unchanged sentences

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

March 31, 2024

June 30, 2024

Derivatives not designated as Hedging Instruments

39 unchanged sentences

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

As of March 31, 2024 and December 31, 2023 , no back-to-back swaps were in default.

As of June 30, 2024 and December 31, 2023 , 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 March 31, 2024 and December 31, 2023 .

No right of offset existed with dealer counterparty swaps as of June 30, 2024 and December 31, 2023 .

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

The Company pledged no cash at March 31, 2024 and at December 31, 2023 .

The Company pledged no cash at June 30, 2024 and at December 31, 2023 .

Note 10 – Earnings Per Share

2 unchanged sentences

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 508,000 and 161,000 antidilutive shares of common stock for the three months ended March 31, 2024 and 2023 , respectively.

There were 539,000 and 194,000 antidilutive shares of common stock for the three months ended June 30, 2024 and 2023 , respectively.

There were 539,000 and 181,000 antidilutive shares of common stock for the six months ended June 30, 2024 and 2023 , respectively.

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

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands, except per share amounts)

$ 3,038 $ 2,155

Weighted average shares outstanding

19,021 20,890

Effect of dilutive potential common shares

Diluted weighted average shares outstanding

$ 19,036 $ 20,980

Basic earnings per share

$ 0.16 $ 0.10

Diluted earnings per share

$ 0.16 $ 0.10

Note 11 – Fair Value Measurements

10 unchanged sentences

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

The following table presents information about our assets recorded in the consolidated statements of financial condition at their fair value on a recurring basis as of March 31, 2024 and December 31, 2023 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

The following table presents information about our assets recorded in the consolidated statements of financial condition at their fair value on a recurring basis as of June 30, 2024 and December 31, 2023 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

Fair Value Measurements Using

March 31, 2024

June 30, 2024

(In Thousands)

76 unchanged sentences

The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 ) during 2024 and 2023 .

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In Thousands)

Mortgage derivative, net balance at the beginning of the period

$ 1,923 $ 79 $ ( 30 ) $ ( 994 )

Mortgage derivative gain, net

Mortgage derivative gain (loss), net

( 759 ) 2,425 1,194 3,498

Mortgage derivative, net balance at the end of the period

$ 1,164 $ 2,504 $ 1,164 $ 2,504

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

Assets Recorded at Fair Value on a Non-recurring Basis

The following tables present information about assets recorded in the consolidated statements of financial condition at their fair value on a non-recurring basis as of March 31, 2024 and December 31, 2023 , and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.

The following tables present information about assets recorded in the consolidated statements of financial condition at their fair value on a non-recurring basis as of June 30, 2024 and December 31, 2023 , and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.

Fair Value Measurements Using

March 31, 2024

June 30, 2024

(In Thousands)

18 unchanged sentences

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

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2024 and December 31, 2023 , the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2024 and December 31, 2023 , the significant unobservable inputs used in the fair value measurements were as follows:

Significant Unobservable Input Value

33 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

38 unchanged sentences

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

The fair value of the Company’s commitments to extend credit was not material at March 31, 2024 and December 31, 2023 .

The fair value of the Company’s commitments to extend credit was not material at June 30, 2024 and December 31, 2023 .

Note 12 – Segment Reporting

20 unchanged sentences

Presented below is the segment information:

As of or for the three months ended March 31, 2024

As of or for the three months ended June 30, 2024

(In Thousands)

21 unchanged sentences

672 1,641 66 2,379

691 617 110 1,418

Total noninterest expenses

6 unchanged sentences

$ 2,515,343 $ 262,326 $ ( 488,055 ) $ 2,289,614

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

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

(In Thousands)

20 unchanged sentences

1,641 1,914 ( 884 ) 2,671

896 2,403 ( 204 ) 3,095

Total noninterest expenses

7 unchanged sentences

$ 2,169,989 $ 251,595 $ ( 191,759 ) $ 2,229,825

As of or for the six months ended June 30, 2024

(In Thousands)

Net interest income (expense)

$ 22,832 $ ( 1,093 ) $ 77 $ 21,816

Provision (credit) for credit losses

( 174 ) 16 - ( 158 )

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

23,006 ( 1,109 ) 77 21,974

Noninterest income:

2,481 45,409 ( 145 ) 47,745

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

10,476 31,642 ( 480 ) 41,638

Occupancy, office furniture and equipment

1,983 2,154 - 4,137

403 1,498 - 1,901

Data processing

1,380 1,057 11 2,448

Communications

137 329 - 466

Professional fees

385 1,089 27 1,501

Real estate owned

Loan processing expense

- 1,907 - 1,907

1,363 2,258 176 3,797

Total noninterest expenses

16,141 41,934 ( 266 ) 57,809

Income before income tax expense

9,346 2,366 198 11,910

Income tax expense

2,357 755 48 3,160

$ 6,989 $ 1,611 $ 150 $ 8,750

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

(In Thousands)

Net interest income (loss)

$ 27,246 $ ( 904 ) $ 128 $ 26,470

Provision for credit losses

546 100 - 646

Net interest income (loss) after provision for credit losses

26,700 ( 1,004 ) 128 25,824

Noninterest income:

2,527 40,992 ( 1,440 ) 42,079

Noninterest expenses:

Compensation, payroll taxes, and other employee benefits

9,851 33,028 ( 432 ) 42,447

Occupancy, office furniture and equipment

1,904 2,405 - 4,309

414 1,419 - 1,833

Data processing

1,203 996 13 2,212

Communications

150 326 - 476

Professional fees

364 654 16 1,034

Real estate owned

Loan processing expense

- 1,950 - 1,950

2,537 4,317 ( 1,088 ) 5,766

Total noninterest expenses

16,425 45,095 ( 1,491 ) 60,029

Income (loss) before income tax expense (benefit)

12,802 ( 5,107 ) 179 7,874

Income tax expense (benefit)

2,782 ( 1,128 ) 58 1,712

Net income (loss)

$ 10,020 $ ( 3,979 ) $ 121 $ 6,162

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

44 unchanged sentences

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

The detailed discussion in the sections below focuses on the results of operations for the three months ended March 31, 2024 and 2023 and the financial condition as of March 31, 2024 compared to the financial condition as of December 31, 2023.

The detailed discussion in the sections below focuses on the results of operations for the three and six months ended June 30, 2024 and 2023 and the financial condition as of June 30, 2024 compared to the financial condition as of December 31, 2023.

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

6 unchanged sentences

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

We have provided below a discussion of the material results of operations for each segment on a separate basis for the three months ended March 31, 2024 and 2023, which focuses on noninterest income and noninterest expenses.

We have provided below a discussion of the material results of operations for each segment on a separate basis for the three and six months ended June 30, 2024 and 2023, 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.

Significant Items

There were no significant items that impacted earnings for the three months ended March 31, 2024 and 2023.

Comparison of Community Banking Segment Results of Operations for the Three Months Ended March 31, 2024 and 2023

Net income totaled $2.6 million for the three months ended March 31, 2024 compared to $4.8 million for the three months ended March 31, 2023.

Net interest income decreased $2.4 million to $11.6 million for the three months ended March 31, 2024 compared to $14.0 million for the three months ended March 31, 2023.

There were no significant items that impacted earnings for the three and six months ended June 30, 2024 and 2023.

Comparison of Community Banking Segment Results of Operations for the Three Months Ended June 30, 2024 and 2023

Net income totaled $4.3 million for the three months ended June 30, 2024 compared to $5.2 million for the three months ended June 30, 2023.

Net interest income decreased $2.0 million to $11.2 million for the three months ended June 30, 2024 compared to $13.2 million for the three months ended June 30, 2023.

Interest expense on deposits and borrowings increased $6.2 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 $4.2 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 $105,000 for the three months ended March 31, 2024 compared to a provision for credit losses of $388,000 for the three months ended March 31, 2023.

The provision for credit losses of $105,000 consisted of a $35,000 provision related to loans and $70,000 provision related to unfunded commitments for the three months ended March 31, 2024.

During the three months ended March 31, 2024, the increase related to loans was primarily due to adjustments in the qualitative factors related to increases in treasury interest rates during the quarter offset by a decreases to historical loss rates and the increase in provision related to unfunded commitments was primarily due to an increase in the construction loans that are currently waiting to be funded compared to the prior quarter end.

There was a negative provision for credit losses of $279,000 for the three months ended June 30, 2024 compared to a provision for credit losses of $158,000 for the three months ended June 30, 2023.

The negative provision for credit losses of $279,000 consisted of a $197,000 negative provision related to loans and $82,000 negative provision related to unfunded commitments for the three months ended June 30, 2024.

During the three months ended June 30, 2024, the decrease related to loans was primarily due to adjustments in the qualitative factors related to single-family loans during the quarter offset by an increases to qualitative factors in our commercial real estate portfolio and the decrease in provision related to unfunded commitments was primarily due to a decrease in the loans that are currently waiting to be funded compared to the prior quarter end.

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.

Compensation, payroll taxes, and other employee benefits expense increased $192,000 to $5.4 million compared to the quarter ending March 31, 2023 primarily due to an increase in salaries due to annual raises that took place at the beginning of the year and increase in health insurance expense as claims increased.

Compensation, payroll taxes, and other employee benefits expense increased $433,000 to $5.1 million compared to the quarter ending June 30, 2023 primarily due to an increase in health insurance expense as claims increased.

Other noninterest expense decreased $969,000 to $672,000 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 March 31, 2024 and 2023

Net income totaled $298,000 for the three months ended March 31, 2024 compared to net loss of $2.7 million for the three months ended March 31, 2023.

We originated $485.1 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended March 31, 2024, which represents an increase of $42.4 million, or 9.6%, from the $442.7 million originated during the three months ended March 31, 2023.

Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended June 30, 2024 and 2023

Net income totaled $1.3 million for the three months ended June 30, 2024 compared to net loss of $1.2 million for the three months ended June 30, 2023.

We originated $634.1 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended June 30, 2024, which represents an increase of $10.8 million, or 1.7%, from the $623.3 million originated during the three months ended June 30, 2023.

The increase in loan production volume was driven by a $23.9 million, or 106.3%, increase in refinance products and was offset by a $13.1 million decrease in purchase products as real estate inventory levels continue to be at low levels.

Total mortgage banking noninterest income increased $2.0 million, or 8.9%, to $25.1 million during the three months ended June 30, 2024 compared to $23.0 million during the three months ended June 30, 2023.

The increase in mortgage banking noninterest income was related to a 1.7% increase in volume and a 5.4% increase in gross margin on loans originated and sold for the three months ended June 30, 2024 compared to June 30, 2023.

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 comprised 92.7% of total originations during the three months ended June 30, 2024, compared to 96.4% of total originations during the three months ended June 30, 2023, respectively.

The mix of loan type trended towards more conventional loans and less governmental loans, with governmental loans and conventional loans comprising 35.4% and 64.6% of all loan originations, respectively, during the three months ended June 30, 2024, compared to 38.7% and 61.3% of all loan originations, respectively, during the three months ended June 30, 2023.

During the quarter ended June 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties.

The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the three months ended June 30, 2024.

There were no comparable sales during the three months ended June 30, 2023.

As of June 30, 2024 and June 30, 2023, the Company maintained servicing rights related to $43.8 million and $156.3 million, respectively, in loans previously sold to third parties.

Total compensation, payroll taxes and other employee benefits decreased $1.0 million, or 5.8%, to $16.9 million for the three months ended June 30, 2024 compared to $17.9 million for the three months ended June 30, 2023.

The decrease in compensation expense was primarily related to decreased salaries driven by a reduction in headcount and health insurance expense offset by loan production commissions and bonus accruals.

Consolidated Waterstone Financial, Inc.

Results of Operations

Three months ended June 30,

(Dollars In Thousands, except per share amounts)

Earnings per share - basic

Earnings per share - diluted

Annualized return on average assets

Annualized return on average equity

Net Interest Income

Average Balance Sheets, Interest and Yields/Costs

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

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

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

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

Three months ended June 30,

Average Balance

(Dollars in Thousands)

Interest-earning assets:

Loans receivable and held for sale (1)

Mortgage related securities (2)

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

Total interest-earning assets

Noninterest-earning assets

Liabilities and equity

Interest-bearing liabilities:

Demand accounts

Money market and savings accounts

Time deposits

Total interest-bearing deposits

Total interest-bearing liabilities

Noninterest-bearing liabilities

Noninterest-bearing deposits

Other noninterest-bearing liabilities

Total noninterest-bearing liabilities

Total liabilities

Total liabilities and equity

Net interest income / Net interest rate spread (4)

taxable equivalent adjustment

Net interest income, as reported

Net interest-earning assets (5)

Net interest margin (6)

Tax equivalent effect

Net interest margin on a fully tax equivalent basis

Average interest-earning assets to average interest-bearing liabilities

Interest income includes net deferred loan fee amortization income of $166,000 and $143,000 for the three months ended June 30, 2024 and 2023, respectively.

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

Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended June 30, 2024 and 2023.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 4.82% and 3.67% for the three months ended June 30, 2024 and 2023, respectively.

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

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

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

Rate/Volume Analysis

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

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

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

The net column represents the sum of the prior columns.

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

Three months ended June 30,

2024 versus 2023

Increase (Decrease) due to

(In Thousands)

Interest income:

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

Mortgage related securities (3)

Other earning assets(3) (4)

Total interest-earning assets

Interest expense:

Demand accounts

Money market and savings accounts

Time deposits

Total interest-bearing deposits

Total interest-bearing liabilities

Net change in net interest income

______________

Interest income includes net deferred loan fee amortization income of $166,000 and $143,000 for the three months ended June 30, 2024 and 2023, respectively.

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

Includes available for sale securities.

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

Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended June 30, 2024 and June 30, 2023.

Net interest income decreased $2.0 million, or 15.7%, to $10.7 million during the three months ended June 30, 2024 compared to $12.7 million during the three months ended June 30, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Interest income on loans increased $3.5 million, or 15.6%, to $25.6 million due primarily to a 49 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 $81.6 million, or 5.1%, in the average balance of loans held for investment and an increase of $19.0 million, or 11.1%, in average loans held for sale.

Interest expense on time deposits increased $3.5 million, or 71.1%, to $8.3 million primarily due to a 161 basis point increase in average cost of time deposits.

Additionally, the average balance of time deposits increased $62.9 million compared to the prior year period.

Interest expense on money market, savings, and escrow accounts increased $299,000, or 27.6%, to $1.4 million due primarily to a 47 basis point increase in average cost of money market, savings, and escrow accounts as rates increased to stay competitive in the market.

Partially offsetting the increase in average cost, the average balance decreased $12.1 million.

Interest expense on borrowings increased $2.0 million, or 35.7%, to $7.6 million due to a 84 basis point increase in the cost of borrowings during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 as we transitioned to more short-term fundings.

Additionally, the average balance increased $71.2 million to $622.8 million during the three months ended June 30, 2024, compared to $551.6 million during the three months ended June 30, 2023.

Provision for Credit Losses

There was a negative provision for credit losses of $225,000 for the three months ended June 30, 2024 compared to a $186,000 provision for credit losses for the three months ended June 30, 2023.

The $225,000 negative provision for credit losses consisted of a $143,000 negative provision related to loans and a negative provision related to unfunded commitments of $82,000 for the three months ended June 30, 2024.

During the three months ended June 30, 2024, the decrease related to loans was primarily due to a decrease in originations and historical losses used in the calculation and the decrease in provision related to unfunded commitments was primarily due to an decrease in the loans yet to be funded.

We made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

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

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

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

Noninterest Income

Three months ended June 30,

(Dollars In Thousands)

Service charges on loans and deposits

Increase in cash surrender value of life insurance

Mortgage banking income

Total noninterest income

Total noninterest income increased $3.0 million, or 12.6%, to $26.5 million during the three months ended June 30, 2024 compared to $23.5 million during the three months ended June 30, 2023.

The increase resulted primarily from increase in mortgage banking noninterest income.

The increase in mortgage banking income was primarily the result of a increase 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 increased $67.1 million, or 11.9%, to $629.2 million during the three months ended June 30, 2024 compared to $562.1 million during the three months ended June 30, 2023.

Gross margin on loans originated and sold increased 5.4% at the mortgage banking segment.

See "Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended June 30, 2024 and 2023" above for additional discussion of the decrease in mortgage banking income.

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

During the quarter ended June 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties.

The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the three months ended June 30, 2024.

There were no comparable sales during the three months ended June 30, 2023.

As of June 30, 2024 and June 30, 2023, the Company maintained servicing rights related to $43.8 million and $156.3 million, respectively, in loans previously sold to third parties.

Three months ended June 30,

(Dollars In Thousands)

Compensation, payroll taxes, and other employee benefits

Occupancy, office furniture, and equipment

Data processing

Communications

Professional fees

Real estate owned

Loan processing expense

Total noninterest expenses

Total noninterest expenses decreased $663,000, or 2.1%, to $30.3 million during the three months ended June 30, 2024 compared to $30.9 million during the three months ended June 30, 2023.

Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $1.0 million, or 5.8%, to $16.9 million during the three months ended June 30, 2024.

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $433,000, or 9.2%, to $5.1 million during the three months ended June 30, 2024.

The increase was primarily due to an increase in health insurance expense as claims increased.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $127,000 to $1.0 million during the three months ended June 30, 2024, primarily resulting from decreased rent expenses as underperforming branches were closed over the past year.

Occupancy, office furniture and equipment expense at the community banking segment increased $110,000 to $983,000 during the three months ended June 30, 2024.

The increase was due primarily to increases in repairs and maintenance expenses.

Advertising expense increased $43,000, or 4.6%, to $987,000 during the three months ended June 30, 2024.

The increase was primarily due to advertising expenses at the mortgage banking segment due to the increased activity in the mortgage industry.

Data processing expense increased $152,000, or 13.9%, to $1.2 million during the three months ended June 30, 2024.

The increases at the community banking and mortgage banking segments were due to additional investments in technology.

Professional fees increased $140,000 to $758,000 during the three months ended June 30, 2024.

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.

Other noninterest expense decreased $292,000, or 10.9%, to $2.4 million during the three months ended June 30, 2024.

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

Income tax expense totaled $1.4 million for the three months ended June 30, 2024 compared to $1.1 million during the three months ended June 30, 2023.

Income tax expense was recognized on the statement of income during the three months ended June 30, 2024 at an effective rate of 20.0% of pretax income and during the three months ended June 30, 2023 at an effective rate of 21.3% of pretax income.

Comparison of Community Banking Segment Results of Operations for the Six Months Ended June 30, 2024 and 2023

Net income totaled $7.0 million for the six months ended June 30, 2024 compared to $10.0 million for the six months ended June 30, 2023.

Net interest income decreased $4.4 million to $22.8 million for the six months ended June 30, 2024 compared to $27.2 million for the six months ended June 30, 2023.

Interest expense on deposits and borrowings increased $13.8 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 $8.6 million as replacement rates and average loans held for investment balances were higher than in the prior year.

There was a negative provision for credit losses of $174,000 for the six months ended June 30, 2024 compared to a provision for credit losses of $546,000 for the six months ended June 30, 2023.

The negative provision for credit losses of $174,000 consisted of a $162,000 negative provision related to loans and $12,000 negative provision related to unfunded commitments for the six months ended June 30, 2024.

During the six months ended June 30, 2024, the decrease related to loans was primarily due to decreases in historical loss rates and loan originations offset by adjustments in the qualitative factors related to increases in treasury interest rates during the quarter.

The decrease in provision related to unfunded commitments was primarily due to an decrease in the loans that are currently waiting to be funded compared to the prior quarter end.

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.

Compensation, payroll taxes, and other employee benefits expense increased $625,000 to $10.5 million compared to the quarter ending June 30, 2023 primarily due to an increase in health insurance expense as claims increased.

Other noninterest expense decreased $1.2 million to $1.4 million 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 Six Months Ended June 30, 2024 and 2023

Net income totaled $1.6 million for the six months ended June 30, 2024 compared to net loss of $4.0 million for the six months ended June 30, 2023.

We originated $1.12 billion in mortgage loans held for sale (including sales to the community banking segment) during the six months ended June 30, 2024, which represents an increase of $53.2 million, or 5.0%, from the $1.07 billion originated during the six months ended June 30, 2023.

The increase in loan production volume was driven by a $10.9 million, or 1.1%, increase in purchase products and a $33.8 million increase in refinance products as mortgage rates decreased to start the year and average inventory levels have increased.

Total mortgage banking noninterest income increased $2.4 million, or 13.2%, to $20.3 million during the three months ended March 31, 2024 compared to $18.0 million during the three months ended March 31, 2023.

The increase in mortgage banking noninterest income was related to a 9.6% increase in volume and a 8.5% increase in gross margin on loans originated and sold for the three months ended March 31, 2024 compared to March 31, 2023.

Total mortgage banking noninterest income increased $4.4 million, or 10.8%, to $45.4 million during the six months ended June 30, 2024 compared to $41.0 million during the six months ended June 30, 2023.

The increase in mortgage banking noninterest income was related to a 5.0% increase in volume and by a 6.8% increase in gross margin on loans originated and sold for the six months ended June 30, 2024 compared to June 30, 2023.

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.

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Department of Agriculture loan.

Loans originated for the purchase of a residential property comprised 93.0% of total originations during the three months ended March 31, 2024, compared to 96.5% of total originations during the three months ended March 31, 2023, respectively.

The mix of loan type trended towards more governmental loans and less conventional loans, with governmental loans and conventional loans comprising 39.1% and 60.9% of all loan originations, respectively, during the three months ended March 31, 2024, compared to 35.2% and 64.8% of all loan originations, respectively, during the three months ended March 31, 2023.

Total compensation, payroll taxes and other employee benefits decreased $343,000, or 2.3%, to $14.8 million for the three months ended March 31, 2024 compared to $15.1 million for the three months ended March 31, 2023.

The decrease in compensation expense was primarily related to decreased salaries driven by a reduction in headcount and health insurance expense offset by branch manager pay as branch profitability increased.

Loans originated for the purchase of a residential property comprised 91.8% of total originations during the six months ended June 30, 2024, compared to 96.5% of total originations during the six months ended June 30, 2023, respectively.

The mix of loan type trended towards less conventional loans and more governmental loans, with governmental loans and conventional loans comprising 36.7% and 63.3% of all loan originations, respectively, during the six months ended June 30, 2024, compared to 37.2% and 62.8% of all loan originations, respectively, during the six months ended June 30, 2023.

The decrease in other noninterest income was due primarily to a decrease in gain on sale of mortgage servicing rights.

During the six months ended June 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties.

The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the six months ended June 30, 2024.

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

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

Total compensation, payroll taxes and other employee benefits decreased $1.4 million, or 4.2%, to $31.6 million for the six months ended June 30, 2024 compared to $33.0 million for the six months ended June 30, 2023.

Consolidated Waterstone Financial, Inc.

Results of Operations

Three months ended March 31,

Six months ended June 30,

(Dollars In Thousands, except per share amounts)

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

Three months ended March 31,

Six months ended June 30,

Average Balance

28 unchanged sentences

Average interest-earning assets to average interest-bearing liabilities

Interest income includes net deferred loan fee amortization income of $152,000 and $151,000 for the three months ended March 31, 2024 and 2023, respectively.

Interest income includes net deferred loan fee amortization income of $317,000 and $295,000 for the six months ended June 30, 2024 and 2023, respectively.

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

Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended March 31, 2024 and 2023.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 4.82% and 3.71% for the three months ended March 31, 2024 and 2023, respectively.

Interest income from tax-exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the six months ended June 30, 2024 and 2023.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 4.82% and 3.69% for the six months ended June 30, 2024 and 2023, respectively.

7 unchanged sentences

Three months ended March 31,

Six months ended June 30,

2024 versus 2023

14 unchanged sentences

_____________

Interest income includes net deferred loan fee amortization income of $152,000 and $151,000 for the three months ended March 31, 2024 and 2023, respectively.

Interest income includes net deferred loan fee amortization income of $317,000 and $295,000 for the six months ended June 30, 2024 and 2023, respectively.

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

1 unchanged sentence

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

Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the three months ended March 31, 2024 and March 31, 2023.

Net interest income decreased $2.7 million, or 19.3%, to $11.1 million during the three months ended March 31, 2024 compared to $13.8 million during the three months ended March 31, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the six months ended June 30, 2024 and June 30, 2023.

Net interest income decreased $4.7 million, or 17.6%, to $21.8 million during the six months ended June 30, 2024 compared to $26.5 million during the six months ended June 30, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Interest income on loans increased $8.1 million, or 19.2%, to $50.1 million due primarily to a 53 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.

4 unchanged sentences

Partially offsetting the increase in average cost, the average balance decreased $26.5 million.

Interest expense on borrowings increased $2.8 million, or 69.7%, to $6.8 million due to a 86 basis point increase in the cost of borrowings during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 as we transitioned to more short-term fundings.

Additionally, the average balance increased $161.0 million to $602.7 million during the three months ended March 31, 2024, compared to $441.7 million during the three months ended March 31, 2023.

Interest expense on borrowings increased $4.8 million, or 49.9%, to $14.4 million due to a 82 basis point increase in the cost of borrowings during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 as we transitioned to more short-term fundings.

Additionally, the average balance increased $115.8 million to $612.7 million during the six months ended June 30, 2024, compared to $496.9 million during the six months ended June 30, 2023.

Provision for Credit Losses

There was a provision for credit losses of $67,000 for the three months ended March 31, 2024 compared to a $460,000 provision for credit losses for the three months ended March 31, 2023.

The $67,000 provision for credit losses consisted of a $3,000 negative provision related to loans and a provision related to unfunded commitments of $70,000 for the three months ended March 31, 2024.

During the three months ended March 31, 2024, the decrease related to loans was primarily due to a decrease in originations and historical losses used in the calculation and the increase in provision related to unfunded commitments was primarily due to an increase in the construction loans yet to be funded.

There was a negative provision for credit losses of $158,000 for the six months ended June 30, 2024 compared to a $646,000 provision for credit losses for the six months ended June 30, 2023.

The $158,000 negative provision for credit losses consisted of a $146,000 negative provision related to loans and a negative provision related to unfunded commitments of $12,000 for the six months ended June 30, 2024.

During the six months ended June 30, 2024, the decrease related to loans was primarily due to a decrease in originations and historical losses used in the calculation and the decrease in provision related to unfunded commitments was primarily due to a decrease in the loans yet to be funded.

We made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.

3 unchanged sentences

Noninterest Income

Three months ended March 31,

Six months ended June 30,

(Dollars In Thousands)

3 unchanged sentences

Total noninterest income

Total noninterest income increased $2.7 million, or 14.5%, to $21.2 million during the three months ended March 31, 2024 compared to $18.6 million during the three months ended March 31, 2023.

Total noninterest income increased $5.7 million, or 13.5% to $47.7 million during the six months ended June 30, 2024 compared to $42.1 million during the six months ended June 30, 2023.

The increase resulted primarily from increase in mortgage banking noninterest income offset by a decrease in other income.

1 unchanged sentence

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 increased $62.0 million, or 14.9%, to $477.8 million during the three months ended March 31, 2024 compared to $415.7 million during the three months ended March 31, 2023.

Total loan origination volume on a consolidated basis increased $129.1 million, or 13.2%, to $1.11 billion during the six months ended June 30, 2024 compared to $977.8 million during the six months ended June 30, 2023.

Gross margin on loans originated and sold increased 6.8% at the mortgage banking segment.

See "Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended March 31, 2024 and 2023" above for additional discussion of the decrease in mortgage banking income.

See "Comparison of Mortgage Banking Segment Results of Operations for the six months ended June 30, 2024 and 2023" above for additional discussion of the decrease in mortgage banking income.

The decrease in other noninterest income was due primarily to a decrease in gain on sale of mortgage servicing rights.

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

The sale generated $3.5 million in net proceeds on a mortgage servicing rights book value of $2.9 million and resulted in a $583,000 gain during the three months ended March 31, 2023.

There were no comparable sales during the three months ended March 31, 2024.

As of March 31, 2024 and March 31, 2023, the Company maintained servicing rights related to $257.1 million and $116.1 million, respectively, in loans previously sold to third parties.

Three months ended March 31,

During the six months ended June 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties.

The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the six months ended June 30, 2024.

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

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

As of June 30, 2024 and June 30, 2023, the Company maintained servicing rights related to $43.8 million and $156.3 million, respectively, in loans previously sold to third parties.

Six months ended June 30,

(Dollars In Thousands)

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Total noninterest expenses

Total noninterest expenses decreased $1.6 million, or 5.3%, to $27.6 million during the three months ended March 31, 2024 compared to $29.1 million during the three months ended March 31, 2023.

Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $343,000, or 2.3%, to $14.8 million during the three months ended March 31, 2024.

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $192,000, or 3.7%, to $5.4 million during the three months ended March 31, 2024.

The increase was primarily due to an increase in salaries due to annual raises that took place at the beginning of the year and increase in health insurance expense as claims increased.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $124,000 to $1.1 million during the three months ended March 31, 2024, primarily resulting from decreased rent expenses as underperforming branches were closed over the past year.

Occupancy, office furniture and equipment expense at the community banking segment decreased $31,000 to $1.0 million during the three months ended March 31, 2024.

The decrease was due primarily to decreased in snow removal and maintenance expenses.

Advertising expense increased $25,000, or 2.8%, to $914,000 during the three months ended March 31, 2024.

Total noninterest expenses decreased $2.2 million, or 3.7%, to $57.8 million during the six months ended June 30, 2024 compared to $60.0 million during the six months ended June 30, 2023.

Compensation, payroll taxes and other employee benefits expense at our mortgage banking segment decreased $1.4 million, or 4.2%, to $31.6 million during the six months ended June 30, 2024.

The decrease in compensation expense was primarily related to decreased salaries driven by a reduction in headcount and health insurance expense offset by branch manager pay and loan production commissions.

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $625,000, or 6.3%, to $10.5 million during the six months ended June 30, 2024.

The increase was primarily due to an increase in health insurance expense as claims increased.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $251,000 to $2.2 million during the six months ended June 30, 2024, primarily resulting from decreased rent expenses as underperforming branches were closed over the past year.

Occupancy, office furniture and equipment expense at the community banking segment increased $79,000 to $2.0 million during the six months ended June 30, 2024.

The increase was due primarily to increases in repairs and maintenance expenses.

Advertising expense increased $68,000, or 3.7%, to $1.9 million during the six months ended June 30, 2024.

The increase was primarily due to advertising expenses at the mortgage banking segment due to the increased activity in the mortgage industry.

Data processing expense increased $84,000, or 7.5%, to $1.2 million during the three months ended March 31, 2024.

The increases at the community banking segments were due to additional investments in technology.

Professional fees increased $327,000 to $743,000 during the three months ended March 31, 2024.

Data processing expense increased $236,000, or 10.7%, to $2.4 million during the six months ended June 30, 2024.

The increases at the community banking and mortgage banking segments were due to additional investments in technology.

Professional fees increased $467,000 to $1.5 million during the six months ended June 30, 2024.

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

3 unchanged sentences

Loan processing expense increased $28,000 to $1.0 million during the three months ended March 31, 2024.

The increase was primarily due to an increase in loan applications and fundings.

Other noninterest expense decreased $1.7 million, or 54.2%, to $1.4 million during the three months ended March 31, 2024.

Other noninterest expense decreased $2.0 million, or 34.1%, to $3.8 million during the six months ended June 30, 2024.

The decrease primarily related to decreased provision for branch losses, branch overhead, provision for loan sale losses, and reversal of mortgage servicing rights impairment at the mortgage banking segment.

Income tax expense totaled $1.7 million for the three months ended March 31, 2024 compared to $627,000 during the three months ended March 31, 2023.

Income tax expense was recognized on the statement of income during the three months ended March 31, 2024 at an effective rate of 36.3% of pretax income and during the three months ended March 31, 2023 at an effective rate of 22.5% of pretax income.

Income tax expense totaled $3.2 million for the six months ended June 30, 2024 compared to $1.7 million during the six months ended June 30, 2023.

Income tax expense was recognized on the statement of income during the six months ended June 30, 2024 at an effective rate of 26.5% of pretax income and during the six months ended June 30, 2023 at an effective rate of 21.7% of pretax income.

On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law.

3 unchanged sentences

Partially offsetting the impact of the charge related to the valuation allowance we realized a one-time benefit of approximately $368,000 during the quarter to recognize a reduction in current state income tax provision.

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 Financial Condition at March 31, 2024 and December 31, 2023

Total Assets – Total assets increased by $21.3 million, or 1.0%, to $2.23 billion at March 31, 2024 from $2.21 billion at December 31, 2023.

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

Comparison of Financial Condition at June 30, 2024 and December 31, 2023

Total Assets – Total assets increased by $76.2 million, or 3.4%, to $2.29 billion at June 30, 2024 from $2.21 billion at December 31, 2023.

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

The increase in total assets reflects liability increases in deposits and borrowings.

Cash and Cash Equivalents – Cash and cash equivalents increased $9.3 million, or 25.5%, to $45.7 million at March 31, 2024, compared to $36.4 million at December 31, 2023.

Cash and Cash Equivalents – Cash and cash equivalents increased $4.9 million, or 13.4%, to $41.3 million at June 30, 2024, compared to $36.4 million at December 31, 2023.

The increase in cash and cash equivalents primarily reflects the increase of funding sources from borrowings, deposits, and advance payments by borrowers for taxes.

Securities Available for Sale – Securities available for sale decreased $206,000 to $204.7 million at March 31, 2024.

Securities Available for Sale – Securities available for sale decreased $72,000 to $204.8 million at June 30, 2024.

The decrease was primarily due to the decrease in fair value as longer term interest rates increased at the end of the period.

Loans Held for Sale - Loans held for sale increased $10.1 million to $175.1 million at March 31, 2024 due to the increase of purchase and refinance activity resulting from a slight decrease in interest rates during the beginning of the period along with the usual seasonal activity increase seen during the spring season.

Loans Receivable - Loans receivable held for investment increased $602,000 to $1.66 billion at March 31, 2024.

The increase in total loans receivable was primarily attributable to increases in each of the construction loan category offset by decreases in the multi-family and commercial real estate loan categories.

Loans Held for Sale - Loans held for sale increased $57.8 million to $222.8 million at June 30, 2024 due to the increase of purchase and refinance activity resulting from the usual seasonal activity increase seen during the spring and summer seasons.

Loans Receivable - Loans receivable held for investment increased $14.6 million to $1.68 billion at June 30, 2024.

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

The following table shows loan originations during the periods indicated.

Three months ended March 31,

Six months ended June 30,

(In Thousands)

7 unchanged sentences

Total loans originated for investment

Allowance for Credit Losses - Loans - The allowance for credit losses remained at $18.5 million at March 31, 2024.

There was a $3,000 negative provision for credit losses - loans for the three months ended March 31, 2024.

The provision for credit losses related to loans decreased primarily due to a decrease in originations and historical losses used in the calculation offset by an increase in certain qualitative factors.

During the three months ended March 31, 2024, we made adjustments to our qualitative factors, primarily to account for the changes in interest rates, internal metrics, and external risk factors.

Allowance for Credit Losses - Loans - The allowance for credit losses decreased to $18.4 million at June 30, 2024.

There was a $146,000 negative provision for credit losses - loans for the six months ended June 30, 2024.

The negative provision for credit losses related to loans decreased primarily due to a decrease in originations and historical losses used in the calculation offset by an increase in certain qualitative factors.

During the six months ended June 30, 2024, we made adjustments to our qualitative factors, primarily to account for the changes in interest rates, internal metrics, and external risk factors.

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

Additionally, net recoveries totaled $3,000 for the three months ended March 31, 2024.

Prepaid expenses and other assets – Total prepaid expenses and other assets increased $211,000 to $52.6 million at March 31, 2024.

The increase was primarily due to an increase in derivative assets due to the interest rate changes offset by a decrease in deferred tax assets due to the WI state tax rate decrease.

Deposits – Total deposits increased $9.3 million to $1.20 billion at March 31, 2024.

The increase was driven by an increase of $17.0 million in time deposits offset by a decrease of $2.7 million in money market and savings deposits and $5.0 million in demand deposits.

Borrowings – Total borrowings increased $23.1 million, or 3.8%, to $634.2 million at March 31, 2024.

Additionally, net recoveries totaled $11,000 for the six months ended June 30, 2024.

Prepaid expenses and other assets – Total prepaid expenses and other assets decreased $4.3 million to $48.1 million at June 30, 2024.

The decrease was primarily due to decreases in prepaid income taxes, mortgage servicing rights due to the sale, and deferred tax assets due to the WI state tax rate decrease.

Deposits – Total deposits increased $33.3 million to $1.22 billion at June 30, 2024.

The increase was driven by increases of $36.3 million in time deposits and $1.5 million in money market and savings deposits offset by a decrease of $4.5 million in demand deposits.

Borrowings – Total borrowings increased $49.8 million, or 8.1%, to $660.8 million at June 30, 2024.

The community banking segment paid off $148.3 million in long-term FHLB borrowings, borrowing $90.0 million of new long-term FHLB borrowings, and $108.1 million in new short-term FHLB borrowings.

External short-term borrowings at the mortgage banking segment decreased a total of $1.4 million at March 31, 2024 from December 31, 2023.

Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $7.4 million to $14.1 million at March 31, 2024.

External short-term borrowings at the mortgage banking segment increased a total of $1.1 million at June 30, 2024 from December 31, 2023.

Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $14.5 million to $21.1 million at June 30, 2024.

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 $12.0 million to $48.6 million at March 31, 2024.

Other Liabilities - Other liabilities decreased $12.3 million to $48.8 million at June 30, 2024.

Other liabilities decreased primarily due to a seasonal decrease in outstanding checks related to advance payments by borrowers for taxes.

1 unchanged sentence

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.

Shareholders ’ Equity – Shareholders' equity decreased $6.1 million to $338.0 million at March 31, 2024.

Shareholders ’ Equity – Shareholders' equity decreased $9.1 million to $334.9 million at June 30, 2024.

Shareholders' equity decreased primarily due to the declaration of dividends, the repurchase of stock, and decrease in the fair value of the securities portfolio.

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

At or for the Three Months

Ended March 31,

At or for the Six Months

Ended June 30,

(In Thousands)

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Balance at end of period

Total non-accrual loans increased by $64,000, or 1.3%, to $4.9 million as of March 31, 2024 compared to $4.8 million as of December 31, 2023.

The ratio of non-accrual loans to total loans receivable was 0.29% at March 31, 2024 and 0.29% at December 31, 2023.

During the three months ended March 31, 2024, $745,000 in loans were placed on non-accrual status.

Offsetting this activity, $105,000 in loans returned to accrual status and $576,000 in principal payments were received during the three months ended March 31, 2024.

Of the $4.9 million in total non-accrual loans as of March 31, 2024, $2.5 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary.

Total non-accrual loans increased by $673,000, or 14.0%, to $5.5 million as of June 30, 2024 compared to $4.8 million as of December 31, 2023.

The ratio of non-accrual loans to total loans receivable was 0.33% at June 30, 2024 and 0.29% at December 31, 2023.

During the six months ended June 30, 2024, $1.8 million in loans were placed on non-accrual status.

Offsetting this activity, $343,000 in loans returned to accrual status and $788,000 in principal payments were received during the six months ended June 30, 2024.

Of the $5.5 million in total non-accrual loans as of June 30, 2024, $2.9 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary.

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

Based upon these specific reviews, no charge-offs have been recorded over the life of these loans and there were no specific reserves as of March 31, 2024.

The remaining $2.4 million of non-accrual loans were reviewed on an aggregate basis as of March 31, 2024.

The outstanding principal balance of our five largest non-accrual loans as of March 31, 2024 totaled $2.7 million, which represents 54.5% of total non-accrual loans as of that date.

Based upon these specific reviews, no charge-offs have been recorded over the life of these loans and there were no specific reserves as of June 30, 2024.

The remaining $2.6 million of non-accrual loans were reviewed on an aggregate basis as of June 30, 2024.

The outstanding principal balance of our five largest non-accrual loans as of June 30, 2024 totaled $2.5 million, which represents 44.8% of total non-accrual loans as of that date.

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

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

As of March 31, 2024 and December 31, 2023, there were no loans 90 or more days past due and still accruing interest.

As of June 30, 2024 and December 31, 2023, there were no loans 90 or more days past due and still accruing interest.

LOAN DELINQUENCY

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Total loans past due to total loans receivable

Past due loans decreased by $604,000, or 5.4%, to $10.6 million at March 31, 2024 from $11.3 million at December 31, 2023.

Loans past due less than 90 days increased by $26,000, or 0.4%.

Loans past due 90 days or more decreased by $578,000, or 13.0%, primarily in the one- to four-family loan category, during the three months ended March 31, 2024.

Past due loans increased by $1.6 million, or 13.9%, to $12.8 million at June 30, 2024 from $11.3 million at December 31, 2023.

Loans past due less than 90 days increased by $2.1 million, or 32.2%, primarily due to an increase in the one-to four-family loan category.

Loans past due 90 days or more decreased by $626,000, or 14.1%, primarily in the one- to four-family loan category, during the six months ended June 30, 2024.

ALLOWANCE FOR CREDIT LOSSES - LOANS

At or for the Three Months

Ended March 31,

At or for the Six Months

Ended June 30,

(Dollars in Thousands)

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Net recoveries (annualized) to beginning of the year allowance

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

The allowance for credit losses - loans was $18.5 million at March 31, 2024 and $18.5 million at December 31, 2023.

During the three months ended March 31, 2024, there was a $3,000 negative provision for credit losses.

Additionally, net recoveries totaled $3,000 for the three months ended March 31, 2024.

We had net recoveries of $3,000, or less than 0.01% of average loans annualized, for the three months ended March 31, 2024, compared to net recoveries of $12,000, or less than 0.01% of average loans annualized, for the three months ended March 31, 2023.

The allowance for credit losses - loans was $18.4 million at June 30, 2024 and $18.5 million at December 31, 2023.

During the six months ended June 30, 2024, there was a $146,000 negative provision for credit losses.

Additionally, net recoveries totaled $11,000 for the six months ended June 30, 2024.

We had net recoveries of $11,000, or less than 0.01% of average loans annualized, for the six months ended June 30, 2024, compared to net charge-offs of $12,000, or less than 0.01% of average loans annualized, for the six months ended June 30, 2023.

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

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

During the three months ended March 31, 2024, primary uses of cash and cash equivalents included:

$477.8 million in funding loans held for sale, $600,000 to fund loans held for investment, $2.4 million for purchases of mortgage related securities, $1.1 million for FHLB stock, $50.0 million for payoffs of long-term borrowings, $2.9 million for cash dividends paid, and $5.3 million for purchases of our common stock.

During the three months ended March 31, 2024, primary sources of cash and cash equivalents included:

$487.0 million in proceeds from the sale of loans held for sale, $30.0 million in long-term borrowings, $43.1 million in short-tern borrowings, $5.0 million in principal repayments on mortgage related securities, $9.3 million for increase in deposits, $290,000 in maturities of debt securities, and $3.0 million in net income.

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

During the six months ended June 30, 2024, primary uses of cash and cash equivalents included:

$1.11 billion in funding loans held for sale, $14.5 million to fund loans held for investment, $9.7 million for purchases of mortgage related securities, $2.3 million for FHLB stock, $148.3 million for payoffs of long-term borrowings, $5.8 million for cash dividends paid, and $11.1 million for purchases of our common stock.

During the six months ended June 30, 2024, primary sources of cash and cash equivalents included:

$1.09 billion in proceeds from the sale of loans held for sale, $90.0 million in long-term borrowings, $108.1 million in short-term borrowings, $10.7 million in principal repayments on mortgage related securities, $33.3 million for increase in deposits, $4.2 million in maturities of debt securities, $2.1 million in proceeds for mortgage servicing rights sale, and $8.8 million in net income.

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

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

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

$400.5 million in proceeds from the sale of loans held for sale, $115.0 million in long-term borrowings, $24.9 million in short-tern borrowings, $4.6 million in principal repayments on mortgage related securities, $1.3 million in maturities of debt securities, and $2.2 million in net income.

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

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

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

At March 31, 2024 and 2023, respectively, $45.7 million and $54.2 million of our assets were invested in cash and cash equivalents.

At March 31, 2024, cash and cash equivalents were comprised of the following:

At June 30, 2024 and 2023, respectively, $41.3 million and $61.2 million of our assets were invested in cash and cash equivalents.

At June 30, 2024, cash and cash equivalents were comprised of the following:

$36.2 million in cash held at the Federal Reserve Bank and other depository institutions and $5.1 million in federal funds sold and short-term investments.

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

At March 31, 2024, we had $135.0 million in long term advances from the FHLB with contractual maturity dates in 2027, and 2028.

At June 30, 2024, we had $100.0 million in long term advances from the FHLB with contractual maturity dates in 2027 and 2029.

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 $293.5 million of uninsured deposits for approximately 1,243 customers as of March 31, 2024.

The Company had approximately $339.2 million of uninsured deposits for approximately 1,281 customers as of June 30, 2024.

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

At March 31, 2024, we had outstanding commitments to originate loans receivable of $15.1 million.

In addition, at March 31, 2024, we had unfunded commitments under construction loans of $78.5 million, unfunded commitments under business lines of credit of $17.6 million and unfunded commitments under home equity lines of credit and standby letters of credit of $12.7 million.

At March 31, 2024, certificates of deposit scheduled to mature in one year or less totaled $639.4 million.

At June 30, 2024, we had outstanding commitments to originate loans receivable of $17.4 million.

In addition, at June 30, 2024, we had unfunded commitments under construction loans of $64.0 million, unfunded commitments under business lines of credit of $10.1 million and unfunded commitments under home equity lines of credit and standby letters of credit of $11.6 million.

At June 30, 2024, certificates of deposit scheduled to mature in one year or less totaled $711.6 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.

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

At March 31, 2024, Waterstone Financial, Inc.

At June 30, 2024, Waterstone Financial, Inc.

(on an unconsolidated basis) had liquid assets totaling $16.5 million.

Shareholders' equity decreased $6.1 million to $338.0 million at March 31, 2024.

Shareholders' equity decreased $9.1 million to $334.9 million at June 30, 2024.

Shareholders' equity decreased primarily due to the declaration of dividends, the repurchase of stock, and decrease in the fair value of the securities portfolio.

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The Company's Board of Directors authorized a 2,000,000 share stock repurchase program in the second quarter of 2024.

As of March 31, 2024, the Company has approximately 403,000 shares remaining in the plan.

As of June 30, 2024, the Company has approximately 1.9 million shares remaining in the plan.

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

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

At March 31, 2024, WaterStone Bank exceeded all regulatory capital requirements and is considered “well capitalized” under regulatory guidelines.

At June 30, 2024, 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 March 31, 2024, we repaid $50.0 million in FHLB long-term debt and entered into $30.0 million of new long-term debt and $43.1 million of new short-term debt at the end of the period.

During the three months ended June 30, 2024, we repaid $98.3 million in FHLB long-term debt and entered into $60.0 million of new long-term debt and $65.0 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.

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements