Waterstone Financial, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Management ’ s Annual Report on Internal Control Over Financial Reporting The management of Waterstone Financial, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(1) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of; our principal executive and principal financial officers and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that: Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control-Integrated Framework. Based on that assessment, we believe that, as of December 31, 2024, our internal control over financial reporting is effective based on those criteria. FORVIS, LLP has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, as stated in their report dated February 28, 2025. /s/ William F. Bruss /s/ Mark R. Gerke William F. Bruss Mark R. Gerke Chief Executive Officer Chief Financial Officer - 55 - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders, Board of Directors, and Audit Committee Waterstone Financial, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of Waterstone Financial, Inc. and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2024 and 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years ended December 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2025, expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. - 56 - Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses on Loans As described in Notes 1 and 3 to the consolidated financial statements, the Company’s loan portfolio and the associated allowance for credit losses (“ACL”) were $1.68 billion and $18.25 million as of December 31, 2024, respectively. The ACL considers historical loss rates, qualitative reserves and reasonable and supportable forecast adjustments. The ACL is estimated on a collective basis for groups of loans that share similar risk characteristics. Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. We identified the qualitative reserves component of the allowance for credit losses as a critical audit matter. The principal consideration for our determination is the subjectivity of the assumptions management utilized in determining and applying qualitative reserves within the model. This required a higher degree of judgment and subjectivity due to the nature and extent of audit evidence and effort required to address this matter. The primary audit procedures we performed to address this critical audit matter included: ● Evaluated the design and tested the operating effectiveness of key controls relating to the Company’s ACL, including controls over: o Management’s process for identification, basis for development and related adjustments, including reasonableness of the qualitative factor components of the ACL o Management’s review of reliability and accuracy of data used to calculate and estimate each component of the ACL, including accuracy of the qualitative calculation ● Assessed the reasonableness of the qualitative factor adjustments, including management’s identification of qualitative factors, the application of qualitative factor adjustments within the model, and; the completeness and accuracy of data utilized in development qualitative adjustments. ● Evaluated management’s judgments and assumptions related to the qualitative adjustments by assessing trends in relevant factors and evaluating the relationship of trends to the qualitative adjustments applied to the ACL. ● Evaluated the mathematical accuracy of the ACL, including the mathematical application of the qualitative adjustments on the loan segments. /s/ Forvis Mazars, LLP We have served as the Company’s auditor since 2023. Kansas City, Missouri February 28, 2025 - 57 - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders, Board of Directors, and Audit Committee Waterstone Financial, Inc. Opinion on the Internal Control over Financial Reporting We have audited Waterstone Financial, Inc. and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2024 and 2023, and for the years ended December 31, 2024 and 2023, and our report dated February 28, 2025, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitions and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. /s/ Forvis Mazars, LLP Kansas City, Missouri February 28, 2025 - 58 - Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Waterstone Financial, Inc. Wauwatosa, Wisconsin Opinion on the Financial Statements We have audited the accompanying consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows of Waterstone Financial, Inc. and Subsidiaries (the Company) for the year ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ CliftonLarsonAllen LLP CliftonLarsonAllen LLP We have served as the Company’s auditor from 2021 through 2022. Milwaukee, Wisconsin February 28, 2023 - 59 - Waterstone Financial, Inc. and Subsidiaries Consolidated Statements of Financial Condition December 31, 2024 and 2023 December 31, 2024 2023 Assets (In Thousands, except share data) Cash $ 35,182 $ 30,667 Federal funds sold 4,302 5,493 Interest-earning deposits in other financial institutions and other short term investments 277 261 Cash and cash equivalents 39,761 36,421 Securities available for sale, at fair value (cost: 2024-$ 232,630 ; 2023-$ 227,716 ) 208,549 204,907 Loans held for sale (at fair value) 135,909 164,993 Loans receivable 1,680,576 1,664,215 Less: Allowance for credit losses ("ACL") - loans 18,247 18,549 Loans receivable, net 1,662,329 1,645,666 Office properties and equipment, net 19,389 19,995 Federal Home Loan Bank stock (at cost) 20,295 20,880 Cash surrender value of life insurance 74,612 67,859 Real estate owned, net 505 254 Prepaid expenses and other assets 48,259 52,414 Total assets $ 2,209,608 $ 2,213,389 Liabilities and Shareholders' Equity Liabilities: Demand deposits $ 171,115 $ 187,107 Money market and savings deposits 283,243 273,233 Time deposits 905,539 730,284 Total deposits 1,359,897 1,190,624 Borrowings 446,519 611,054 Advance payments by borrowers for taxes 5,630 6,607 Other liabilities 58,427 61,048 Total liabilities 1,870,473 1,869,333 Commitments and contingencies (Note 13) Shareholders' equity: Preferred stock (par value $ 0.01 per share) Authorized - 50,000,000 shares in 2024 and 2023, no shares issued - - Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at December 31, 2024 and at December 31, 2023, Issued and Outstanding - 19,343,251 at December 31, 2024 and 20,314,786 at December 31, 2023 193 203 Additional paid-in capital 91,214 103,908 Retained earnings 277,196 269,606 Unearned ESOP shares ( 10,682 ) ( 11,869 ) Accumulated other comprehensive loss, net of taxes ( 18,786 ) ( 17,792 ) Total shareholders’ equity 339,135 344,056 Total liabilities and shareholders’ equity $ 2,209,608 $ 2,213,389 See accompanying notes to consolidated financial statements - 60 - Waterstone Financial, Inc. and Subsidiaries Consolidated Statements of Operations Years ended December 31, 2024, 2023 and 2022 Years ended December 31, 2024 2023 2022 (In Thousands, except per share amounts) Interest income: Loans $ 103,066 $ 90,148 $ 62,935 Mortgage-related securities 4,496 4,053 3,241 Debt securities, federal funds sold and short-term investments 5,606 5,007 4,069 Total interest income 113,168 99,208 70,245 Interest expense: Deposits 40,573 25,738 4,863 Borrowings 26,427 23,255 8,428 Total interest expense 67,000 48,993 13,291 Net interest income 46,168 50,215 56,954 Provision (credit) for credit losses ( 168 ) 656 968 Net interest income after provision (credit) for credit losses 46,336 49,559 55,986 Noninterest income: Service charges on loans and deposits 2,060 1,819 2,202 Increase in cash surrender value of life insurance 1,969 1,710 1,738 Mortgage banking income 83,565 75,686 99,560 Other 1,708 1,970 2,055 Total noninterest income 89,302 81,185 105,555 Noninterest expenses: Compensation, payroll taxes, and other employee benefits 81,078 84,096 99,565 Occupancy, office furniture, and equipment 7,573 8,323 8,706 Advertising 3,554 3,779 3,976 Data processing 4,978 4,653 4,470 Communications 922 988 1,189 Professional fees 3,184 2,686 1,815 Real estate owned 26 4 19 Loan processing expense 3,090 3,428 4,744 Other 7,231 11,755 12,578 Total noninterest expenses 111,636 119,712 137,062 Income before income taxes 24,002 11,032 24,479 Income tax expense 5,314 1,657 4,992 Net income $ 18,688 $ 9,375 $ 19,487 Income per share: Basic $ 1.01 $ 0.47 $ 0.89 Diluted $ 1.01 $ 0.46 $ 0.89 Weighted average shares outstanding: Basic 18,556 20,158 21,884 Diluted 18,589 20,196 22,010 See accompanying notes to consolidated financial statements - 61 - Waterstone Financial, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Years ended December 31, 2024, 2023 and 2022 Years ended December 31, 2024 2023 2022 (In Thousands) Net income $ 18,688 $ 9,375 $ 19,487 Other comprehensive (loss) income, net of tax: Net unrealized holding (loss) gain arising during the period, net of tax benefit (expense) of $ 279 , ($ 1,584 ),and $ 6,868 , respectively ( 994 ) 1,684 ( 18,341 ) Total other comprehensive (loss) income ( 994 ) 1,684 ( 18,341 ) Comprehensive income $ 17,694 $ 11,059 $ 1,146 See accompanying notes to consolidated financial statements - 62 - Waterstone Financial, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders ’ Equity Years Ended December 31, 2024, 2023 and 2022 Accumulated Additional Unearned Other Total Common Stock Paid-In Retained ESOP Comprehensive Shareholders' Shares Amount Capital Earnings Shares Loss Equity (In Thousands) Balances at December 31, 2021 24,795 $ 248 $ 174,505 $ 273,398 $ ( 14,243 ) $ ( 1,135 ) $ 432,773 Comprehensive income: Net income - - - $ 19,487 - - $ 19,487 Other comprehensive loss: - - - - - ( 18,341 ) ( 18,341 ) Total comprehensive income - - - - - - 1,146 Adoption of new accounting pronouncement (See Note 1) - - - ( 1,392 ) - - ( 1,392 ) ESOP shares committed to be released to Plan participants - - 702 - 1,187 - 1,889 Cash dividend, $ .80 per share - - - ( 17,247 ) - - ( 17,247 ) Stock compensation activity, net of tax 62 1 563 - - - 564 Stock based compensation expense - - 583 - - - 583 Purchase of common stock returned to authorized but unissued ( 2,683 ) ( 27 ) ( 47,803 ) - - - ( 47,830 ) Balances at December 31, 2022 22,174 $ 222 $ 128,550 $ 274,246 $ ( 13,056 ) $ ( 19,476 ) $ 370,486 Comprehensive income: Net income - $ - $ - $ 9,375 $ - $ - $ 9,375 Other comprehensive income: - - - - - 1,684 1,684 Total comprehensive income - - - - - - 11,059 ESOP shares committed to be released to Plan participants - - 274 - 1,187 - 1,461 Cash dividend, $ 0.70 per share - - - ( 14,015 ) - - ( 14,015 ) Stock compensation activity, net of tax 86 1 819 - - - 820 Stock based compensation expense - - 277 - - - 277 Purchase of common stock returned to authorized but unissued ( 1,945 ) ( 20 ) ( 26,012 ) - - - ( 26,032 ) Balances at December 31, 2023 20,315 $ 203 $ 103,908 $ 269,606 $ ( 11,869 ) $ ( 17,792 ) $ 344,056 Comprehensive income: Net income - $ - $ - $ 18,688 $ - $ - $ 18,688 Other comprehensive loss: - - - - - ( 994 ) ( 994 ) Total comprehensive income - - - - - - 17,694 ESOP shares committed to be released to Plan participants - - 233 - 1,187 - 1,420 Cash dividend, $ 0.60 per share - - - ( 11,098 ) - - ( 11,098 ) Stock compensation activity, net of tax 197 2 1,660 - - - 1,662 Stock based compensation expense - - 316 - - - 316 Purchase of common stock returned to authorized but unissued ( 1,169 ) ( 12 ) ( 14,903 ) - - - ( 14,915 ) Balances at December 31, 2024 19,343 $ 193 $ 91,214 $ 277,196 $ ( 10,682 ) $ ( 18,786 ) $ 339,135 See accompanying notes to consolidated financial statements - 63 - Waterstone Financial, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 2024, 2023 and 2022 Years ended December 31, 2024 2023 2022 (In Thousands) Operating activities: Net income $ 18,688 $ 9,375 $ 19,487 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision (credit) for credit losses ( 168 ) 656 968 Depreciation, amortization, accretion 2,474 3,301 4,033 (Recovery) impairment of mortgage servicing rights ( 320 ) 320 - Deferred taxes 980 ( 1,073 ) ( 484 ) Stock based compensation 316 277 583 Origination of mortgage servicing rights ( 850 ) ( 1,773 ) ( 2,462 ) Gain on sale of loans held for sale ( 83,808 ) ( 71,378 ) ( 76,156 ) Loans originated for sale ( 2,130,356 ) ( 2,024,014 ) ( 2,549,935 ) Proceeds on sales of loans originated for sale 2,243,248 2,061,587 2,807,641 Gain on death benefit on bank owned life insurance ( 266 ) - ( 340 ) Increase in accrued interest receivable ( 432 ) ( 1,696 ) ( 1,712 ) Increase in cash surrender value of life insurance ( 1,969 ) ( 1,710 ) ( 1,738 ) (Increase) decrease in derivative assets ( 1,094 ) 4,467 ( 10,897 ) Increase in accrued interest on deposits and borrowings 727 1,255 399 Decrease in prepaid tax expense 1,425 1,557 1,068 Increase (decrease) in derivative liabilities 213 ( 5,431 ) 16,260 Gain on sale of mortgage servicing rights ( 152 ) ( 583 ) - Decrease (increase) in other assets 2,971 ( 1,181 ) 3,345 Decrease in other liabilities ( 3,564 ) ( 1,533 ) ( 3,395 ) Net cash provided by (used in) operating activities 48,063 ( 27,577 ) 206,665 Investing activities: Net increase in loans receivable ( 16,692 ) ( 154,171 ) ( 303,874 ) Purchases of: FHLB Stock ( 2,340 ) ( 11,937 ) ( 5,005 ) Debt securities ( 15,966 ) ( 5,437 ) ( 9,732 ) Mortgage related securities ( 19,425 ) ( 24,068 ) ( 80,265 ) Bank owned life insurance ( 5,180 ) ( 180 ) ( 180 ) Premises and equipment ( 1,099 ) ( 700 ) ( 701 ) Proceeds from: Principal repayments on mortgage-related securities 23,572 20,885 33,191 Maturities of debt securities 7,470 3,966 17,555 Sales of FHLB stock 2,925 8,414 12,086 Proceeds on sales of mortgage servicing rights 2,110 3,530 - Death benefit from bank owned life insurance 662 474 1,183 Net cash used in by investing activities ( 23,963 ) ( 159,224 ) ( 335,742 ) Financing activities: Net increase (decrease) in deposits 169,273 ( 8,388 ) ( 34,374 ) Net change in short-term borrowings ( 159,535 ) 269,270 179,657 Repayment of long-term debt ( 175,000 ) ( 304,000 ) ( 470,000 ) Proceeds from long-term debt 170,000 259,000 200,000 Net change in advance payments by borrowers for taxes ( 977 ) 1,273 1,240 Cash dividends on common stock ( 11,268 ) ( 15,363 ) ( 30,260 ) Proceeds from stock option exercises 1,662 820 564 Purchase of common stock returned to authorized but unissued ( 14,915 ) ( 26,032 ) ( 47,830 ) Net cash (used in) provided by financing activities ( 20,760 ) 176,580 ( 201,003 ) Increase (decrease) in cash and cash equivalents 3,340 ( 10,221 ) ( 330,080 ) Cash and cash equivalents at beginning of period 36,421 46,642 376,722 Cash and cash equivalents at end of period $ 39,761 $ 36,421 $ 46,642 Supplemental information: Cash paid during the period for: Income tax (refunds) payments $ ( 881 ) $ 1,169 $ 4,090 Interest payments 66,273 47,738 12,892 Noncash investing activities: Dividends declared but not paid in other liabilities 2,994 3,164 4,511 See accompanying notes to consolidated financial statements - 64 - Waterstone Financial, Inc. and Subsidiaries Notes to Consolidated Financial Statements Years ended December 31, 2024, 2023 and 2022 1 ) Summary of Significant Accounting Policies The following significant accounting and reporting policies of Waterstone Financial, Inc. and subsidiaries (collectively, the “Company”), conform to U.S. generally accepted accounting principles, or (“GAAP”), and are used in preparing and presenting these consolidated financial statements. Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications did not result in any changes to previously reported net income. The Company reclassed certain line items in the Consolidated Statements of Cash Flows. a) Nature of Operations The Company is a one -bank holding company with two operating segments – community banking and mortgage banking. WaterStone Bank SSB (the "Bank" or "WaterStone Bank") is principally engaged in the business of attracting deposits from the general public and using such deposits to originate real estate, business and consumer loans. The Bank provides a full range of financial services to customers through branch locations in southeastern Wisconsin. The Bank is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Bank owns a mortgage banking subsidiary that originates residential real estate loans held for sale at various branch offices across the country. Mortgage banking volume fluctuates widely in connection with movements in interest rates. Mortgage banking income is reported as a single line item in the statements of operations while mortgage banking expense is distributed among the various noninterest expense lines. Compensation, payroll taxes and other employee benefits expense fluctuates in relation to fluctuations in mortgage banking income. b) Principles of Consolidation The consolidated financial statements include the accounts and operations of Waterstone Financial, Inc. and its wholly owned subsidiary, WaterStone Bank. The Bank has the following wholly owned subsidiaries: Wauwatosa Investments, Inc., Waterstone Mortgage Corporation, and Main Street Real Estate Holdings, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. c) Use of Estimates The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include: the allowance for credit losses, income taxes, and fair value measurements. d) Cash and Cash Equivalents The Company considers federal funds sold and highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. e) Securities Available for Sale Securities At the time of purchase, investment debt securities are classified as available for sale, as management has the intent and ability to hold such securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell investment securities available for sale would be based on various factors, including, but not limited to asset/liability management strategies, changes in interest rates or prepayment risks, liquidity needs, or regulatory capital considerations. Available for sale securities are carried at fair value, with the unrealized gains and losses, net of deferred tax, reported as a separate component of equity in accumulated other comprehensive income (loss). The amortized cost of securities available for sale is adjusted for accretion of discounts to maturity and amortization of premiums over the estimated life of each security or, in the case of callable securities, through the first call date, using the effective yield method. Such amortization and accretion is included in interest income. Interest income on securities is recognized using the interest method according to the terms of the security. Realized gains or losses on securities sales (using specific identification method) are included in noninterest income. - 65 - Federal Home Loan Bank Stock Federal Home Loan Bank ("FHLB") stock is carried at cost, which is the amount that the stock is redeemable by tendering to the FHLB or the amount at which shares can be sold to other FHLB members. f) Loans Held for Sale The origination of residential real estate loans is an integral component of the business of the Company. The Company generally sells its originations of long-term fixed interest rate mortgage loans in the secondary market, and on a selective basis, retains the rights to service the loans sold. Gains and losses on the sales of these loans are determined using the specific identification method. Mortgage loans originated for sale are generally sold within 45 days after closing. The Company has elected to carry loans held for sale at fair value. Fair value is generally determined by estimating a gross premium or discount, which is derived from pricing currently observable in the market. The amount by which cost differs from market value is accounted for as a valuation adjustment to the carrying value of the loans. Changes in value are included in mortgage banking income in the consolidated statements of operations. Costs to originate loans held for sale are expensed as incurred and are included on the appropriate noninterest expense lines of the statements of operations. Salaries, commissions and related payroll taxes are the primary costs to originate and comprised approximately 76.3% of total mortgage banking noninterest expense for 2024 . The value of mortgage loans held for sale and other residential mortgage loan commitments to customers are hedged by utilizing both best efforts and mandatory forward commitments to sell loans to investors in the secondary market. Such forward commitments are generally entered into at the time when applications are taken to protect the value of the mortgage loans from increases in market interest rates during the period held. The Company recognizes revenue associated with the expected future cash flows of servicing loans at the time a forward loan commitment is made. g) Loans Receivable and Related Interest Income Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans are carried at the principal amount outstanding, net of any unearned income, charge-offs and unamortized deferred fees and costs. Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of the related loan yield. Amortization is based on a level-yield method over the contractual life of the related loans or until the loan is paid in full. Loan interest income is recognized on the accrual basis. Accrual of interest is generally discontinued either when reasonable doubt exists as to the full, timely collection of interest or principal, or when a loan becomes contractually past due 90 days or more with respect to interest or principal. At that time, previously accrued and uncollected interest on such loans is reversed and additional income is recorded only to the extent that payments are received and the collection of principal is reasonably assured. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. A loan is accounted for as a financing receivable whose borrowers are experiencing financial difficulty if the Company, for economic reasons related to the borrower’s financial condition, grants a concession to the borrower that it would not otherwise consider. A financing receivable whose borrowers are experiencing financial difficulty typically involves a modification of terms such as a reduction of the stated interest rate, a deferral of principal payments or a combination of both for a temporary period of time. If the borrower was performing in accordance with the original contractual terms at the time of the restructuring, the restructured loan is accounted for on an accruing basis as long as the borrower continues to comply with the modified terms. If the loan was not accounted for on an accrual basis at the time of restructuring, the restructured loan remains in non-accrual status until the loan completes a minimum of six consecutive contractual payments. - 66 - h) Allowance for Credit Losses AFS Debt Securities The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL approach utilized by HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASC Topic 326 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. The Company reviews its AFS debt securities for credit loss impairment at the individual security level on at least a quarterly basis. A security is impaired if its fair value is less than its amortized cost basis. A decline in fair value below amortized cost basis represents a credit loss impairment to the extent the Company does not expect to recover the amortized cost basis of the security. Impairment related to credit losses is recorded through the ACL to the extent fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through the ACL are recorded through other comprehensive income, net of applicable taxes. In assessing whether an impairment is credit loss related, the Company compares the present value of cash flows expected to be collected to the security's amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an ACL is recorded. The Company discounts expected cash flows at the effective interest rate implicit in the security at the purchase date, adjusted for expected prepayments. For floating rate securities, the Company uses the floating rate as it changes over the life of the security. In developing estimates about cash flows expected to be collected and determining whether a credit loss exists, the Company considers information about past events, current conditions and reasonable and supportable forecasts. Factors and information that the Company uses in making its assessments include, but are not necessarily limited to, the following: •The extent to which fair value is less than amortized cost; •Adverse conditions specifically related to the security, an industry or geographic area; •Changes in the financial condition of the issuer or underlying loan obligors; •The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization; •Failure of the issuer to make scheduled payments; •Changes in credit ratings; •Relevant market data; •Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level. The relative importance assigned to each of these factors varies depending on the facts and circumstances pertinent to the individual security being evaluated. Timely payment of principal and interest on securities issued by the U.S. Government, U.S. government agencies and U.S. government sponsored entities is explicitly or implicitly guaranteed by the U. S. government. Therefore, the Company expects to recover the amortized cost basis of these securities. If the Company intends to sell a security in an unrealized loss position, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses will be written off and the amortized cost basis will be written down to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings. AFS securities will be charged off to the extent that there is no reasonable expectation of recovery of amortized cost basis. AFS securities will be placed on non-accrual status if the Company does not reasonably expect to receive interest payments in the future and interest accrued will be reversed against interest income. Securities will be returned to accrual status only when collection of interest is reasonably assured. Loans The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The ACL is adjusted through the provision for credit losses to the amount of amortized cost basis not expected to be collected at the balance sheet date. The Company made an accounting policy election to exclude accrued interest from the amortized cost basis of loans and the related measurement of the ACL. Accrued interest is reported as part of prepaid expenses and other assets on the consolidated balance sheets. The measurement of expected credit losses encompasses information about historical events, current conditions and reasonable and supportable forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Re-evaluation of the ACL estimate in future periods, in light of changes in composition and characteristics of the loan portfolio, changes in the reasonable and supportable forecast and other factors then prevailing may result in material changes in the amount of the ACL and credit loss expense in those future periods. Loans are charged off against the ACL in the period in which they are deemed uncollectible and recoveries are credited to the ACL when received. Expected recoveries on loans previously charged off and expected to be charged-off, not to exceed the aggregate of amounts previously charged-off and expected to be charged-off, are included in the ACL estimate. Once loans are downgraded to substandard, an assessment of collateral value is made; any outstanding loan balance in excess of fair value less cost to sell is charged off at no later than 180 days delinquency. Additionally, any outstanding balance in excess of fair value of collateral less cost to sell is charged off when the asset is taken back by the Company. Commercial and other consumer loans are charged off when, in management's judgment, they are considered to be uncollectible. Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. Factors that may be considered in aggregating loans for this purpose include but are not necessarily limited to, product or collateral type, geography, and internal risk ratings. For loans that do not share similar risk characteristics with other loans such as collateral dependent loans, expected credit losses are estimated on an individual basis. Expected credit losses are estimated over the contractual terms of the loans, adjusted for expected prepayments. Expected prepayments are estimated using a model that incorporates Company's prepayment data, calibrated to reflect the Company's experience. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a loan identified as a borrower experiencing financial difficulty will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. - 67 - The ACL estimate incorporates a reasonable and supportable economic forecast through the use of externally developed macroeconomic scenarios applied in the model. The model include both current and forecasted unemployment rates. Collateral dependent loans Collateral dependent loans are those for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. These loans do not typically share similar risk characteristics with other loans and expected credit losses are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. Estimates of expected credit losses for collateral dependent loans, whether or not foreclosure is probable, are based on the fair value of the collateral, adjusted for selling costs when repayment depends on sale of the collateral. Financing receivables whose borrowers are experiencing financial difficulty For financing receivables whose borrowers are experiencing financial difficulty or loans for which there is a reasonable expectation that a financing receivable whose borrowers are experiencing financial difficulty will be executed that are not collateral dependent, the credit loss estimate is determined by comparing the net present value of expected cash flows, discounted at the loan’s original effective interest rate, to the amortized cost basis of the loan. Unfunded commitments Expected credit losses related to off-balance sheet credit exposures are estimated over the contractual period for which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. Expected credit losses are estimated using essentially the same methodologies employed to estimate expected credit losses on the amortized cost basis of loans, taking into consideration the likelihood and amount of additional amounts expected to be funded over the terms of the commitments. The liability for credit losses on off-balance sheet credit exposures is presented within other liabilities on the consolidated statements of financial condition, distinct from the ACL. Adjustments to the liability are included in the provision for credit losses. i) Real Estate Owned Real estate owned consists of properties acquired through, or in lieu of, loan foreclosure. Real estate owned is transferred into the portfolio at estimated net realizable value, which includes selling costs. To the extent that the net carrying value of the loan exceeds the estimated fair value of the property at the date of transfer, the excess is charged to the allowance for loan losses within 90 days of being transferred. Subsequent write-downs to reflect current fair value, as well as gains and losses upon disposition and revenue and expenses incurred in maintaining such properties, are treated as period costs and included in real estate owned in the consolidated statements of operations. j) Mortgage Servicing Rights The Company sells residential mortgage loans in the secondary market and, on a selective basis, retains the right to service the loans sold. Upon sale, a mortgage servicing rights asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for performing servicing activities. Mortgage servicing rights, when purchased, are initially recorded at fair value. Mortgage servicing rights are amortized over the period of estimated net servicing income, and assessed for impairment at each reporting date. Mortgage servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value, and are included in other assets in the consolidated statements of financial condition. To the extent that the Company sells mortgage servicing rights, a gain is recognized for the amount of which sale proceeds exceed the remaining unamortized cost of the servicing rights that were sold. Gains on sale of mortgage servicing rights are included in other noninterest income in the consolidated statements of operations. - 68 - k) Cash Surrender Value of Life Insurance The Company purchases bank owned life insurance on the lives of certain employees. The Company is the beneficiary of the life insurance policies. The cash surrender value of life insurance is reported at the amount that would be received in cash if the polices were surrendered. Increases in the cash value of the policies and proceeds of death benefits received are recorded in noninterest income. The increase in cash surrender value of life insurance is not subject to income taxes, as long as the Company has the intent and ability to hold the policies until the death benefits are received. l) Office Properties and Equipment Office properties and equipment, including leasehold improvements and software, are stated at cost, net of depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lease term, if shorter than the estimated useful life. Maintenance and repairs are charged to expense as incurred, while additions or major improvements are capitalized and depreciated over their estimated useful lives. Estimated useful lives of the assets are 10 to 30 years for office properties, three years to 10 years for equipment, and three years for software. m) Income Taxes The Company and its subsidiaries file consolidated federal and combined state income tax returns. The provision for income taxes is based upon income in the consolidated financial statements, rather than amounts reported on the income tax returns. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management's evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. The benefit of uncertain tax positions are initially recognized in the consolidated financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statements of operations. n) Earnings Per Share Earnings per share (EPS) are computed using the two -class method. Stock compensation awards that contain rights to receive nonforfeitable dividends prior to the awards being vested are considered participating securities and, as such, included in the common shares outstanding. Basic earnings per share is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the applicable period, excluding outstanding participating securities. 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. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised. Shares of the Employee Stock Ownership Plan committed to be released are considered outstanding for both common and diluted EPS. o) Comprehensive Income (Loss) Comprehensive income (loss) is the total of reported net income and changes in unrealized gains or losses, net of tax (or benefit), on securities available for sale. p) Employee Stock Ownership Plan (ESOP) Compensation expense under the ESOP is equal to the fair value of common shares released or committed to be released to participants in the ESOP in each respective period. Common stock purchased by the ESOP and not committed to be released to participants is included in the consolidated statements of financial condition at cost as a reduction of shareholders’ equity. - 69 - q) Share Repurchases The Company has a share repurchase program. Repurchases under the repurchase program may be made in the open market, through block trades and other negotiated transactions. The share repurchase program transactions take place primarily in open market transactions, subject to market conditions. There is no fixed termination date for the repurchase program, and the program may be suspended. Under Maryland law, shares repurchased are constituted as authorized but unissued. The Company reduces the common stock at par value and to the extent the cost acquired exceeds par value, it is recorded through additional paid-in capital on the consolidated statements of financial condition and consolidated statements of changes in shareholders’ equity. r) Revenue Recognition ASC 606, Revenue from Contracts with Customers (“ASC 606” ), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, loans held for sale, investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company's disclosures. Descriptions of the Company's revenue-generating activities that are within the scope of ASC 606, which are presented in the consolidated income statements as components of non-interest income are as follows: Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a stop payment). Payments for these activities are generally received at the time the performance obligations are satisfied. Other non-interest income includes items such as bank owned life insurance income, dividends on FHLB stock and other general operating income, none of which are subject to the requirements of ASC 606. Also included in other-non-interest income are interchange fees earned when our debit and credit card clients process transactions through card networks. The Company's performance obligations are generally complete when the transactions generating the fees are processed. s) Impact of Recent Accounting Pronouncements Accounting Standards Adopted in 2024 The Company adopted "Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures" under ASU 2023 - 07 on January 1, 2024, and applied the standard's provisions. The impact expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s key metrics. ASU 2023 - 07 became effective for our annual financial statements in 2024 and will be effective for interim periods within fiscal years in 2025. Accounting Standards Adopted in 2023 The Company adopted "Troubled Debt Restructurings and Vintage Disclosures" under ASC Topic 326 on January 1, 2023, and applied the standard's provisions. The impact going forward will depend on the credit quality of the loan portfolio as well as the economic conditions at future reporting periods. See Note 3 - Loans Receivable for the new disclosures. Adoption of "Troubled Debt Restructurings and Vintage Disclosures" under ASC Topic 326 did not have a material impact on the Company's consolidated financial statements. Accounting Standards Adopted in 2022 The Company adopted ASC Topic 326 on January 1, 2022 , and applied the standard’s provisions as a cumulative-effect adjustment to retained earnings, as of January 1, 2022 ( i.e., modified retrospective approach). Upon adoption of the standard, the Company recorded a $ 430,000 increase to the allowance for credit losses and $ 1.4 million increase to the allowance for unfunded commitments, which resulted in a $ 1.4 million after-tax decrease to retained earnings as of January 1, 2022 . The tax effect resulted in a $ 439,000 increase to deferred tax assets. The Company did not record an allowance for AFS securities on January 1, 2022 as the investment portfolio consists primarily of debt securities explicitly or implicitly backed by the U.S. Government for which credit risk is deemed minimal. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios as well as the economic conditions at future reporting periods. See Note 2 - Securities Available for Sale and Note 3 - Loans Receivable for more information. - 70 - 2 ) Securities Securities Available for Sale The amortized cost and fair value of the Company’s investment in securities follow: December 31, 2024 Gross Gross Amortized unrealized unrealized cost gains losses Fair value (In Thousands) Mortgage-backed securities $ 11,285 $ - $ ( 1,674 ) $ 9,611 Collateralized mortgage obligations: Government sponsored enterprise issued 151,200 77 ( 19,541 ) 131,736 Private-label issued 7,122 - ( 722 ) 6,400 Mortgage-related securities 169,607 77 ( 21,937 ) 147,747 Government sponsored enterprise bonds 2,500 - ( 60 ) 2,440 Municipal securities 48,023 383 ( 1,330 ) 47,076 Other debt securities 12,500 - ( 1,214 ) 11,286 Debt securities 63,023 383 ( 2,604 ) 60,802 Total $ 232,630 $ 460 $ ( 24,541 ) $ 208,549 December 31, 2023 Gross Gross Amortized unrealized unrealized cost gains losses Fair value (In Thousands) Mortgage-backed securities $ 12,651 $ 5 $ ( 1,475 ) $ 11,181 Collateralized mortgage obligations: Government sponsored enterprise issued 152,700 212 ( 19,445 ) 133,467 Private-label issued 8,061 - ( 801 ) 7,260 Mortgage-related securities 173,412 217 ( 21,721 ) 151,908 Government sponsored enterprise bonds 2,500 - ( 152 ) 2,348 Municipal securities 39,304 980 ( 796 ) 39,488 Other debt securities 12,500 - ( 1,337 ) 11,163 Debt securities 54,304 980 ( 2,285 ) 52,999 Total $ 227,716 $ 1,197 $ ( 24,006 ) $ 204,907 The Company’s mortgage-backed securities and collateralized mortgage obligations issued by government sponsored enterprises are guaranteed by one of the following government sponsored enterprises: Fannie Mae, Freddie Mac or Ginnie Mae. At December 31, 2024 , $ 114,000 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 value of securities at December 31, 2024 , by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers or borrowers may have the right to prepay obligations with or without prepayment penalties. December 31, 2024 Amortized cost Fair value (In Thousands) Debt and other securities Due within one year $ 8,088 $ 8,034 Due after one year through five years 4,077 4,177 Due after five years through ten years 29,457 28,150 Due after ten years 21,401 20,441 Mortgage-related securities 169,607 147,747 Total $ 232,630 $ 208,549 - 71 - 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: December 31, 2024 Less than 12 months 12 months or longer Total Fair Unrealized Fair Unrealized Fair Unrealized value loss value loss value loss (In Thousands) Mortgage-backed securities $ 346 $ 9 $ 9,193 $ 1,665 $ 9,539 $ 1,674 Collateralized mortgage obligations: Government sponsored enterprise issued 21,145 330 95,587 19,211 116,732 19,541 Private-label issued - - 5,445 722 5,445 722 Government sponsored enterprise bonds - - 2,440 60 2,440 60 Municipal securities 20,005 334 5,063 996 25,068 1,330 Other debt securities - - 11,286 1,214 11,286 1,214 Total $ 41,496 $ 673 $ 129,014 $ 23,868 $ 170,510 $ 24,541 December 31, 2023 Less than 12 months 12 months or longer Total Fair Unrealized Fair Unrealized Fair Unrealized value loss value loss value loss (In Thousands) Mortgage-backed securities $ 215 $ 1 $ 10,682 $ 1,474 $ 10,897 $ 1,475 Collateralized mortgage obligations: Government sponsored enterprise issued 2,442 42 110,271 19,403 112,713 19,445 Private-label issued - - 6,250 801 6,250 801 Government sponsored enterprise bonds - - 2,348 152 2,348 152 Municipal securities 7,597 36 5,808 760 13,405 796 Other debt securities - - 11,163 1,337 11,163 1,337 Total $ 10,254 $ 79 $ 146,522 $ 23,927 $ 156,776 $ 24,006 The Company reviews the investment securities portfolio on a quarterly basis to monitor securities in unrealized loss positions, which were comprised of 182 individual securities, to determine whether the impairment is due to credit-related factors or noncredit-related factors. In making this evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. As of December 31, 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 years ended December 31, 2024 , 2023 , and 2022 , there were no sales of securities. - 72 - 3 ) Loans Receivable Loans receivable at December 31, 2024 and 2023 are summarized as follows: December 31, 2024 2023 (In Thousands) Mortgage loans: Residential real estate: One- to four-family $ 516,128 $ 551,190 Multi family 741,428 707,566 Home equity 13,188 13,228 Construction and land 61,427 53,371 Commercial real estate 313,494 300,892 Consumer 825 848 Commercial loans 34,086 37,120 Total loans receivable $ 1,680,576 $ 1,664,215 The Company provides several types of loans to its customers, including residential, construction, commercial and consumer loans. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to one borrower or to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. While credit risks tend to be geographically concentrated in the Company’s Milwaukee metropolitan area and while 75.6 % of the Company’s loan portfolio involves loans that are secured by residential real estate, there are no concentrations with individual or groups of related borrowers. While the real estate collateralizing these loans is primarily residential in nature, it ranges from owner-occupied single family homes to large apartment complexes. Qualifying loans receivable totaling $ 1.23 billion were pledged as collateral against $ 443.6 million and $ 1.25 billion were pledged as collateral against $ 464.0 million in outstanding Federal Home Loan Bank of Chicago advances under a blanket security agreement at December 31, 2024 and December 31, 2023 , respectively. - 73 - An analysis of past due loans receivable as of December 31, 2024 and 2023 follows: As of December 31, 2024 1-59 Days Past Due (1) 60-89 Days Past Due (2) 90 Days or Greater Past Due Total Past Due Current (3) Total Loans (In Thousands) Mortgage loans: Residential real estate: One- to four-family $ 9,107 $ 1,405 $ 3,955 $ 14,467 $ 501,661 $ 516,128 Multi family 183 - - 183 741,245 741,428 Home equity 194 - 30 224 12,964 13,188 Construction and land - - - - 61,427 61,427 Commercial real estate 248 - - 248 313,246 313,494 Consumer - - - - 825 825 Commercial loans - - - - 34,086 34,086 Total $ 9,732 $ 1,405 $ 3,985 $ 15,122 $ 1,665,454 $ 1,680,576 As of December 31, 2023 1-59 Days Past Due (1) 60-89 Days Past Due (2) 90 Days or Greater Past Due Total Past Due Current (3) Total Loans (In Thousands) Mortgage loans: Residential real estate: One- to four-family $ 5,265 $ 1,283 $ 4,270 $ 10,818 $ 540,372 $ 551,190 Multi family - 6 - 6 707,560 707,566 Home equity 209 - 34 243 12,985 13,228 Construction and land - - - - 53,371 53,371 Commercial real estate 54 - 129 183 300,709 300,892 Consumer - - - - 848 848 Commercial loans - - - - 37,120 37,120 Total $ 5,528 $ 1,289 $ 4,433 $ 11,250 $ 1,652,965 $ 1,664,215 ( 1 ) Includes $ 522,000 and $ 193,000 for December 31, 2024 and 2023 , respectively, which are on non-accrual status. ( 2 ) Includes $ 1.1 million and $ 11,000 for December 31, 2024 and 2023 , respectively, which are on non-accrual status. ( 3 ) Includes $ 28,000 and $ 171,000 for December 31, 2024 and 2023 , respectively, which are on non-accrual status. - 74 - The Company currently manages the loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments, which are levels at which we develop and document our systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows: One- to four -family residential mortgage loans – This residential real estate sub-segment contains permanent mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral values. Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral. Multi family residential real estate loans – Multi family real estate loans consist of multifamily rentals with a history of occupancy and cash flow. This segment includes both internally originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies, which can adversely impact cash flow. Home equity residential mortgage loans – This segment includes sub-segment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. Construction and land loans – Construction and land loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction lending generally involves a greater degree of risk than other residential mortgage lending. The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property within specified cost limits. The Company completes inspections during the construction phase prior to any disbursements. The Company limits its risk during the construction as disbursements are not made until the required work for each advance has been completed. Construction delays may further impair the borrower’s ability to repay the loan. Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, and office with a history of occupancy and cash flow. This segment includes both internally originated loans. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of commercial real estate loans makes them more difficult for management to monitor and evaluate. Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the nature of the underlying collateral. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower’s personal financial stability. As such, these loans are subject to a higher risk of default than the typical consumer loan. Commercial loans – Commercial loans are made to provide funds for equipment and general corporate needs, as well as to finance owner-occupied real estate. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both internally originated and purchased participation loans. Credit risk arises from the successful operation of the business, which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy. As of December 31, 2024 and December 31, 2023 , there were no loans that were 90 or more days past due and still accruing interest. - 75 - A summary of the activity for the years ended December 31, 2024, 2023 and 2022 in the allowance for credit losses - loans follows: One- to Four- Family Multi Family Home Equity Construction and Land Commercial Real Estate Consumer Commercial Total (In Thousands) Year ended December 31, 2024 Balance at beginning of period $ 6,886 $ 7,318 $ 211 $ 983 $ 2,561 $ 56 $ 534 $ 18,549 Provision (credit) for credit losses - loans ( 1,708 ) ( 249 ) 1 218 1,357 107 ( 68 ) ( 342 ) Charge-offs ( 3 ) - - - ( 1 ) ( 84 ) - ( 88 ) Recoveries 111 10 - 4 3 - - 128 Balance at end of period $ 5,286 $ 7,079 $ 212 $ 1,205 $ 3,920 $ 79 $ 466 $ 18,247 Year ended December 31, 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 $ 2,259 $ ( 665 ) $ 33 $ ( 372 ) $ ( 641 ) $ 46 $ 267 $ 927 Charge-offs ( 168 ) - - - - ( 37 ) - ( 205 ) Recoveries 52 8 4 3 3 - - 70 Balance at end of period 6,886 7,318 211 983 2,561 56 534 18,549 Year ended December 31, 2022 Balance at beginning of period 3,963 5,398 89 1,386 4,482 33 427 15,778 Adoption of CECL (1) $ 88 $ 100 $ 58 $ 886 $ ( 640 ) $ 7 $ ( 69 ) $ 430 Provision (credt) for loan losses 918 1,750 9 ( 923 ) ( 656 ) 23 ( 91 ) 1,030 Charge-offs ( 304 ) - - - - ( 16 ) - ( 320 ) Recoveries 78 727 18 3 13 - - 839 Balance at end of period $ 4,743 $ 7,975 $ 174 $ 1,352 $ 3,199 $ 47 $ 267 $ 17,757 ( 1 ) The Company adopted ASU 2016 - 13 as of January 1, 2022. The 2021 amounts presented are calculated under the prior accounting standard. The Company utilized the Vintage Loss Rate method in determining expected future credit losses for each of the loan categories except for the Construction and Consumer categories. This technique considers losses over the full life cycle of loan pools. A vintage is a group of loans originated in the same annual time period. The loss rate method measures the amount of loan charge–offs, net of recoveries, (“loan losses”) recognized over the life of a pool by loan segment and vintage and compares those loan losses to the original loan balance of that pool as of a similar vintage. Additionally, the weighted average remaining maturity ("WARM") method is used for the Construction and Consumer loan pools. The WARM method considers an estimate of expected credit losses over the remaining life of the financial assets and uses average annual charge-off rates to estimate the allowance for credit losses. For amortizing assets, the remaining contractual life is adjusted by the expected scheduled payments and prepayments. The average annual charge-off rate is applied to the amortization-adjusted remaining life to determine the unadjusted lifetime historical charge-off rate. To estimate a CECL loss rate for the pool, management first identifies the loan losses recognized between the pool date and the reporting date for the pool and determines which loan losses were related to loans outstanding at the pool date. The loss rate method then divides the loan losses recognized on loans outstanding as of the pool date by the outstanding loan balance as of the pool date. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company's historical look–back period includes 2012 through the current period, on an annual basis. When historical credit loss experience is not sufficient for a specific portfolio, the Company may supplement its own portfolio data with external models or data. Qualitative reserves reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration other analytics performed within the organization, such as enterprise and concentration management, along with other credit–related analytics as deemed appropriate. Management attempts to quantify qualitative reserves whenever possible. The CECL methodology applied focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonperforming loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing economic conditions; (ix) the fair value of underlying collateral; and ( x ) other qualitative and quantitative factors which could affect expected credit losses. The Company’s CECL estimate applies a forecast that incorporates macroeconomic trends and other environmental factors. Management utilized national, regional and local leading economic indexes, as well as management judgment, as the basis for the forecast period. The historical loss rate was utilized as the base rate, and qualitative adjustments were utilized to reflect the forecast and other relevant factors. The Company segments the loan portfolio into pools based on the following risk characteristics: collateral type, credit characteristics, loan origination balance, and outstanding loan balances. - 76 - Allowance for Credit Losses-Unfunded Commitments : In addition to the ACL-Loans, the Company has established an ACL-Unfunded commitments, classified in other liabilities on the consolidated statements of financial condition. This reserve is maintained at a level that management believes is sufficient to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL-Loans. The allowance for unfunded commitments at December 31, 2024 and December 31, 2023 was $ 1.2 million and $ 1.1 million. Provision for Credit Losses : The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments including loans, investment securities, and unfunded commitment credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in management's judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. See Note 2 - Securities Available for Sale for additional information regarding the ACL related to investment securities. The following table presents the components of the provision for credit losses. Years ended December 31, 2024 2023 2022 (In Thousands) Provision (credit) for credit losses - loans on: Loans $ ( 342 ) $ 927 $ 1,030 Unfunded commitments 174 ( 271 ) ( 62 ) Investment securities - - - Total $ ( 168 ) $ 656 $ 968 Collateral Dependent Loans : A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following tables present collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation as of the year ended December 31, 2024 and December 31, 2023 follows: December 31, 2024 2023 (In Thousands) Collateral dependent loans Residential real estate: One- to four-family 3,323 2,209 Multi family - - Home equity 150 90 Construction and land - - Commercial real estate 5,015 5,493 Consumer - - Commercial loans 1,605 1,536 Total loans receivable 10,093 9,328 The Company's procedures dictate that an updated valuation must be obtained with respect to underlying collateral at the time a loan is deemed impaired. Updated valuations may also be obtained upon transfer from loans receivable to real estate owned based upon the age of the prior appraisal, changes in market conditions or known changes to the physical condition of the property. Estimated fair values are reduced to account for sales commissions, broker fees, unpaid property taxes and additional selling expenses to arrive at an estimated net realizable value. The adjustment factor is based upon the Company's actual experience with respect to sales of real estate owned over the prior two years. In situations in which the Company is placing reliance on an appraisal that is more than one year old, an additional adjustment factor is applied to account for downward market pressure since the date of appraisal. The additional adjustment factor is based upon relevant sales data available for our general operating market as well as company-specific historical net realizable values as compared to the most recent appraisal prior to disposition. With respect to multi-family income-producing real estate, appraisals are reviewed and estimated collateral values are adjusted by updating significant appraisal assumptions to reflect current real estate market conditions. Significant assumptions reviewed and updated include the capitalization rate, rental income and operating expenses. These adjusted assumptions are based upon recent appraisals received on similar properties as well as on actual experience related to real estate owned and currently under Company management. - 77 - Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $1.0 million, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Factors that are important to managing overall credit quality include sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an allowance for credit losses, and sound non-accrual and charge-off policies. The Company's underwriting policies require an officers' loan committee review and approval of all loans in excess of $ 500,000 except for residential loans which has an approval limit in excess of $ 1.0 million. A member of the credit department, independent of the loan originator, performs a loan review for all loans. The Company's ability to manage credit risk depends in large part on the Company's ability to properly identify and manage problem loans. To do so, the Company maintains a loan review system under which the credit management personnel review non-owner occupied one - to four -family, multi-family, construction and land, and commercial real estate that individually, or as part of an overall borrower relationship exceed $ 1.0 million in potential exposure and review commercial loans that individually, or as part of an overall borrower relationship exceed $ 200,000 in potential exposure. Loans meeting these criteria are reviewed on an annual basis, or more frequently, if the loan renewal is less than one year. With respect to this review process, management has determined that pass loans include loans that exhibit acceptable financial statements, cash flow and leverage. The Company uses the following definitions for risk ratings: Watch. Loans classified as watch have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Watch assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and, additionally, the weakness or weaknesses to make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable. Substandard loans are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of December 31, 2024 and 2023 : One- to Four- Family Multi Family Home Equity Construction and Land Commercial Real Estate Consumer Commercial Total (In Thousands) At December 31, 2024 Substandard $ 5,515 $ - $ 150 $ - $ 11,721 $ - $ 1,605 $ 18,991 Watch 9,675 $ 183 $ - $ 143 $ 743 $ - $ 75 $ 10,819 Pass 500,938 741,245 13,038 61,284 301,030 825 32,406 1,650,766 Total $ 516,128 $ 741,428 $ 13,188 $ 61,427 $ 313,494 $ 825 $ 34,086 $ 1,680,576 At December 31, 2023 Substandard $ 4,503 $ - $ 90 $ - $ 5,492 $ - $ 1,536 $ 11,621 Watch 7,585 383 - - - - - 7,968 Pass 539,102 707,183 13,138 53,371 295,400 848 35,584 1,644,626 Total 551,190 707,566 13,228 53,371 300,892 848 37,120 1,664,215 - 78 - Credit Quality Information: The following table presents total loans by risk categories and year of origination as of December 31, 2024 . 2024 2023 2022 2021 2020 Prior Revolving Total (In Thousands) One- to four-family Pass $ 33,349 $ 172,934 $ 146,069 $ 41,704 $ 26,323 $ 79,948 $ 611 $ 500,938 Watch 7,504 106 1,286 - 72 707 - 9,675 Substandard 1,673 815 453 - - 2,574 - 5,515 Total 42,526 173,855 147,808 41,704 26,395 83,229 611 516,128 Multi-family Pass $ 81,119 $ 138,231 $ 196,939 $ 125,252 $ 108,779 $ 90,155 $ 770 $ 741,245 Watch - 183 - - - - - 183 Substandard - - - - - - - - Total 81,119 138,414 196,939 125,252 108,779 90,155 770 741,428 Home equity Pass $ 379 $ 478 $ 1,578 $ 149 $ 91 $ 226 $ 10,137 $ 13,038 Watch - - - - - - - - Substandard - - 16 14 - - 120 150 Total 379 478 1,594 163 91 226 10,257 13,188 Construction and land Pass $ 23,029 $ 25,384 $ - $ 9,144 $ 1,501 $ 2,226 $ - $ 61,284 Watch - - 143 - - - - 143 Substandard - - - - - - - - Total 23,029 25,384 143 9,144 1,501 2,226 - 61,427 Commercial Real Estate Pass $ 63,660 $ 66,980 $ 51,175 $ 58,574 $ 30,699 $ 29,289 $ 653 $ 301,030 Watch 208 - 407 - 128 - - 743 Substandard 11,484 237 - - - - - 11,721 Total 75,352 67,217 51,582 58,574 30,827 29,289 653 313,494 Consumer Pass $ - $ - $ - $ - $ - $ - $ 825 $ 825 Watch - - - - - - - - Substandard - - - - - - - - Total - - - - - - 825 825 Commercial Pass $ 948 $ 17,011 $ 1,240 $ 553 $ 2,062 $ 5,135 $ 5,457 $ 32,406 Watch - - - - - - 75 75 Substandard - - 30 - - - 1,575 1,605 Total 948 17,011 1,270 553 2,062 5,135 7,107 34,086 Total loans $ 223,353 $ 422,359 $ 399,336 $ 235,390 $ 169,655 $ 210,260 $ 20,223 $ 1,680,576 Gross charge-offs $ 3 $ - $ - $ - $ - $ 1 $ 84 $ 88 - 79 - The following table presents total loans by risk categories and year of origination as of December 31, 2023 . 2023 2022 2021 2020 2019 Prior Revolving Total (In Thousands) One- to four-family Pass $ 196,255 $ 166,555 $ 46,378 $ 33,295 $ 19,966 $ 75,726 $ 927 $ 539,102 Watch 5,093 713 - - - 1,779 - 7,585 Substandard 1,450 353 - - - 2,700 - 4,503 Total 202,798 167,621 46,378 33,295 19,966 80,205 927 551,190 Multi-family Pass 122,289 214,074 135,823 117,669 44,878 71,632 818 707,183 Watch 191 6 - - - 186 - 383 Substandard - - - - - - - - Total 122,480 214,080 135,823 117,669 44,878 71,818 818 707,566 Home equity Pass 1,084 255 161 98 87 342 11,111 13,138 Watch - - - - - - - - Substandard - 18 17 - - - 55 90 Total 1,084 273 178 98 87 342 11,166 13,228 Construction and land Pass 38,079 1,348 9,349 2,146 2,255 194 - 53,371 Watch - - - - - - - - Substandard - - - - - - - - Total 38,079 1,348 9,349 2,146 2,255 194 - 53,371 Commercial Real Estate Pass 70,677 76,067 62,922 33,436 19,250 31,673 1,375 295,400 Watch - - - - - - - - Substandard 5,277 129 - 86 - - - 5,492 Total 75,954 76,196 62,922 33,522 19,250 31,673 1,375 300,892 Consumer Pass - - - - - - 848 848 Watch - - - - - - - - Substandard - - - - - - - - Total - - - - - - 848 848 Commercial Pass 17,019 1,631 904 2,668 80 5,435 7,847 35,584 Watch - - - - - - - - Substandard - 48 - - 13 - 1,475 1,536 Total 17,019 1,679 904 2,668 93 5,435 9,322 37,120 Total Loans $ 457,414 $ 461,197 $ 255,554 $ 189,398 $ 86,529 $ 189,667 $ 24,456 $ 1,664,215 Gross charge-offs 168 0 0 0 0 0 37 205 - 80 - The following presents data on restructurings of financing receivables whose borrowers are experiencing financial difficulty: As of December 31, 2023 Accruing Non-accruing Total Amount Number Amount Number Amount Number (Dollars in Thousands) One- to four-family $ - - $ 543 2 $ 543 2 $ - - $ 543 2 $ 543 2 Financing receivables whose borrowers are experiencing financial difficulty involve granting concessions to a borrower experiencing financial difficulty by modifying the terms of the loan in an effort to avoid foreclosure. Typical restructured terms include six months to twelve months of principal forbearance, a reduction in interest rate or both. In no instances have the restructured terms included a reduction of outstanding principal balance. All loans that have been modified in a financing receivable whose borrowers are experiencing financial difficulty are considered to be impaired. As such, an analysis has been performed with respect to all of these loans to determine the need for an ACL. When a loan is expected to perform in accordance with the restructured terms and ultimately return to and perform under contract terms, a valuation allowance is established equal to the excess of the present value of the expected future cash flows under the original contract terms as compared with the modified terms, including an estimated default rate. When there is doubt as to the borrower’s ability to perform under the restructured terms or ultimately return to and perform under market terms, an ACL is established equal to the impairment when the carrying amount exceeds fair value of the underlying collateral. If an updated credit department review indicates no other evidence of elevated credit risk and the borrower completes a minimum of six consecutive contractual payments, the loan is returned to accrual status at that time. The following presents restructurings of financing receivables whose borrowers are experiencing financial difficulty by concession type: As of December 31, 2023 Performing in accordance with modified terms In Default Total Amount Number Amount Number Amount Number (Dollars in Thousands) Interest reduction and principal forebearance $ - - $ - - $ - - Interest reduction 15 1 - - 15 1 Principal forebearance 528 1 - - 528 1 Total $ 543 2 $ - - $ 543 2 - 81 - There were no restructuring of financing receivables whose borrowers are experiencing financial difficulty during the year ended December 31, 2024 . There was one restructuring for $ 528,000 of financing receivables whose borrowers are experiencing financial difficulty during the year ended December 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 years ended December 31, 2024 and 2023 . The following table presents data on non-accrual loans: As of December 31, 2024 2023 (Dollars in Thousands) Residential One- to four-family $ 5,515 $ 4,503 Multi family - - Home equity 150 90 Construction and land - - Commercial real estate - 215 Commercial - - Consumer - - Total non-accrual loans $ 5,665 $ 4,808 Total non-accrual loans to total loans 0.34 % 0.29 % Total non-accrual loans to total assets 0.26 % 0.22 % Residential one - to four -family mortgage loans that were in the process of foreclosure were $ 1.9 million and $ 250,000 at December 31, 2024 and December 31, 2023 , respectively. 4 ) Office Properties and Equipment Office properties and equipment are summarized as follows: December 31, 2024 2023 (In Thousands) Land $ 7,454 $ 7,454 Office buildings and improvements 33,468 34,275 Furniture and equipment 13,295 12,990 Total 54,217 54,719 Less accumulated depreciation ( 34,828 ) ( 34,724 ) Total, net $ 19,389 $ 19,995 Depreciation of premises and equipment totaled $ 1.6 million, $ 1.7 million and $ 1.8 million for the years ended December 31, 2024, 2023 and 2022 , respectively. - 82 - 5 ) Mortgage Servicing Rights The following table presents the activity related to the Company’s mortgage servicing rights included in prepaid expenses and other assets on the consolidated statement of financial condition: Year ended December 31, 2024 2023 (In Thousands) Mortgage servicing rights at beginning of the year $ 1,811 $ 3,444 Additions 850 1,773 Amortization ( 291 ) ( 319 ) Sales ( 1,958 ) ( 2,767 ) Mortgage servicing rights at end of the year 412 2,131 Valuation allowance recovered during the year 320 ( 320 ) Mortgage servicing rights at the end of the year, net $ 732 $ 1,811 The unpaid principal balance of loans serviced for others was $ 83.4 million and $ 238.7 million at December 31, 2024 and December 31, 2023 respectively. Loans serviced for others are not reflected in the consolidated statements of financial condition. The fair value of mortgage servicing rights was $ 807,000 at December 31, 2024 and $ 2.2 million at December 31, 2023 . During the year ended December 31, 2024 , the Company sold mortgage servicing rights related to $ 233.0 million in loans serviced for third parties which had a book value of $ 2.0 million. The sale generated $ 2.1 million in net proceeds and a $ 152,000 gain. During the year ended December 31, 2023 , the Company sold mortgage servicing rights related to $ 318.4 million in loans serviced for third parties which had a book value of $ 2.9 million. The sale generated $3.5 million in net proceeds and a $583,000 gain. . The following table shows the estimated future amortization expense for mortgage servicing rights at December 31, 2024 for the years ending December 31 periods as indicated: (In Thousands) 2025 $ 132 2026 120 2027 107 2028 93 2029 80 Thereafter 200 Total $ 732 - 83 - 6 ) Deposits The aggregate amount of time deposit accounts with the portion of the account balances that are greater than $250,000 at December 31, 2024 and 2023 amounted to $ 167.3 million and $ 131.4 million, respectively. A summary of interest expense on deposits is as follows: Years ended December 31, 2024 2023 2022 (In Thousands) Interest-bearing demand deposits $ 98 $ 82 $ 61 Money market and savings deposits 5,654 4,529 1,201 Time deposits 34,821 21,127 3,601 $ 40,573 $ 25,738 $ 4,863 A summary of the contractual maturities of time deposits at December 31, 2024 is as follows: (In Thousands) Within one year $ 842,390 More than one to two years 60,554 More than two to three years 1,906 More than three to four years 366 More than four through five years 323 $ 905,539 We held related party deposits of $ 11.3 million at December 31, 2024 and $ 9.0 million at December 31, 2023 . - 84 - 7 ) Borrowings Borrowings consist of the following: December 31, 2024 Category Term Amount Maturity Rate Rate Type Callable/Putable Settlement Date Frequency (Dollars in Thousands) FHLB advances Long-term $ 10,000 December 3, 2027 3.48 % Fixed Putable December 3, 2024 Monthly Long-term 10,000 December 6, 2027 3.47 % Fixed Putable December 4, 2024 Monthly Long-term 10,000 December 10, 2027 3.49 % Fixed Putable December 10, 2024 Monthly Long-term 50,000 December 14, 2027 1.73 % Fixed N/A December 14, 2017 N/A Long-term 10,000 May 15, 2029 3.54 % Fixed Putable May 15, 2024 Monthly Long-term 10,000 June 4, 2029 3.55 % Fixed Putable June 4, 2024 Monthly Long-term 10,000 June 5, 2029 3.48 % Fixed Putable June 5, 2024 Monthly Long-term 10,000 June 14, 2029 3.43 % Fixed Putable June 14, 2024 Monthly Long-term 10,000 June 18, 2029 3.47 % Fixed Putable June 18, 2024 Monthly Long-term 10,000 July 9, 2029 3.40 % Fixed Putable July 8, 2024 Monthly Long-term 10,000 July 12, 2029 3.35 % Fixed Putable July 12, 2024 Monthly Total FHLB long-term advances $ 150,000 2.89 % Short-Term 80,300 January 2, 2025 4.44 % Fixed N/A N/A N/A Short-Term 16,000 January 6, 2025 4.59 % Fixed N/A N/A N/A Short-Term 27,453 January 6, 2025 4.59 % Fixed N/A N/A N/A Short-Term 10,000 January 6, 2025 3.53 % Fixed N/A N/A N/A Short-Term 13,600 January 9, 2025 4.50 % Fixed N/A N/A N/A Short-Term 28,500 January 9, 2025 4.50 % Fixed N/A N/A N/A Short-Term 12,300 January 9, 2025 4.50 % Fixed N/A N/A N/A Short-Term 9,900 January 16, 2025 4.41 % Fixed N/A N/A N/A Short-Term 2,000 January 17, 2025 4.40 % Fixed N/A N/A N/A Short-Term 20,700 January 21, 2025 4.39 % Fixed N/A N/A N/A Short-Term 15,500 January 23, 2025 4.36 % Fixed N/A N/A N/A Short-Term 20,000 January 29, 2025 4.74 % Fixed N/A N/A N/A Short-Term 11,300 March 17, 2025 4.41 % Fixed N/A N/A N/A Short-Term 26,000 October 1, 2025 3.95 % Fixed N/A N/A N/A Total FHLB short-term advances $ 293,553 4.41 % Total FHLB advances $ 443,553 3.89 % Repurchase agreements Revolving $ 2,966 N/A 7.49 % Variable N/A N/A N/A Total borrowings $ 446,519 3.92 % - 85 - December 31, 2023 Category Term Amount Maturity Rate Rate Type Callable/Putable Settlement Date Frequency (Dollars in Thousands) FHLB advances Long-term $ 50,000 December 14, 2027 1.73 % Fixed N/A December 14, 2017 N/A Long-term 10,000 August 7, 2028 3.51 % Fixed Putable December 7, 2023 Quarterly Long-term 10,000 August 8, 2028 3.52 % Fixed Putable December 8, 2023 Quarterly Long-term 10,000 October 10, 2028 3.49 % Fixed Putable November 10, 2023 Quarterly Long-term 10,000 October 10, 2028 3.49 % Fixed Putable November 10, 2023 Quarterly Long-term 10,000 November 3, 2028 3.46 % Fixed Putable December 4, 2023 Quarterly Long-term 10,000 November 6, 2028 3.47 % Fixed Putable December 6, 2023 Quarterly Long-term 15,000 November 14, 2028 3.39 % Fixed Putable December 14, 2023 Quarterly Long-term 10,000 November 29, 2028 3.38 % Fixed Putable December 29, 2023 Quarterly Long-term 10,000 November 29, 2028 3.43 % Fixed Putable January 29, 2024 Quarterly Long-term 10,000 December 4, 2028 3.31 % Fixed Putable January 4, 2023 Quarterly Total FHLB long-term advances 155,000 2.89 % Short-term 60,000 January 2, 2024 5.44 % Fixed N/A N/A N/A Short-term 20,000 January 2, 2024 5.45 % Fixed N/A N/A N/A Short-term 20,000 January 5, 2024 5.48 % Fixed N/A N/A N/A Short-term 20,500 January 8, 2024 5.38 % Fixed N/A N/A N/A Short-term 18,000 January 8, 2024 5.38 % Fixed N/A N/A N/A Short-term 14,000 January 16, 2024 5.49 % Fixed N/A N/A N/A Short-term 21,000 January 22, 2024 5.36 % Fixed N/A N/A N/A Short-term 33,000 January 29, 2024 5.36 % Fixed N/A N/A N/A Short-term 27,500 February 20, 2024 5.41 % Fixed N/A N/A N/A Short-term 27,000 February 27, 2024 5.42 % Fixed N/A N/A N/A Short-term 24,500 March 13, 2024 5.39 % Fixed N/A N/A N/A Short-term 23,500 December 29, 2024 4.79 % Fixed N/A N/A N/A Total FHLB short-term advances 309,000 5.37 % Total FHLB advances 464,000 4.54 % Short-Term Borrowings Federal reserve bank Short-term $ 145,000 December 31, 2024 4.83 % Fixed N/A N/A N/A Total Federal reserve bank $ 145,000 4.83 % Repurchase agreements Revolving $ 2,054 N/A 8.20 % Variable N/A N/A N/A 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 $ 50.0 million commitment with one unrelated bank. The short-term repurchase agreement is utilized by Waterstone Mortgage Corporation to finance loans originated for sale. This agreement is secured by the underlying loans being financed. Related interest rates are based upon the note rate associated with the loans being financed. The short-term repurchase agreement had a $ 3.0 million balance at December 31, 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. In addition, the Company enters into agreements under which it sells loans held for sale subject to an obligation to repurchase the same loans. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of assets. The obligation to repurchase the assets is reflected as a liability in the Company's consolidated statements of financial condition, while the securities and loans held for sale underlying the repurchase agreements remain in the respective investment securities and loans held for sale asset accounts. In other words, there is no offsetting or netting of the investment securities or loans held for sale assets with the repurchase agreement liabilities. The Company's repurchase agreement is subject to master netting agreements, which sets forth the rights and obligations for repurchase and offset. Under the master netting agreement, the Company is entitled to set off the collateral placed with a single counterparty against obligations owed to that counterparty. - 86 - The Company selects loans that meet underwriting criteria established by the Federal Home Loan Bank Chicago (FHLBC) as collateral for outstanding advances. The Company’s borrowings at the FHLBC are limited to 76 % of the carrying value of unencumbered one - to four -family mortgage loans, 62 % of the carrying value of home equity loans and 73 % of the carrying value of over four -family loans. In addition, these advances are collateralized by FHLBC stock of $ 20.3 million at December 31, 2024 and $ 20.9 million at December 31, 2023 . In the event of prepayment, the Company is obligated to pay all remaining contractual interest on the advance. 8 ) Regulatory Capital The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements, or overall financial performance deemed by the regulators to be inadequate, can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. The Company's and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As required by applicable legislation, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. The Community Bank Leverage Ratio is currently 9%. A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualified community bank, we elected to opt-out of this definition during the second quarter of 2020. Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The minimum capital ratios set forth in the Regulatory Capital Plans will be increased and other minimum capital requirements will be established if and as necessary. In accordance with the Regulatory Capital Plans, the Bank will not pursue any acquisition or growth opportunity, declare any dividend or conduct any stock repurchase that would cause the Bank's total risk-based capital ratio and/or its Tier 1 leverage ratio to fall below the established minimum capital levels or the capital levels required for capital adequacy plus the capital conservation buffer. The minimum capital conservation buffer is 2.5%. As of December 31, 2024 , the Bank was well-capitalized, with all capital ratios exceeding the well-capitalized requirement. There are no conditions or events that management believes have changed the Bank’s prompt corrective action capitalization category. The Bank is subject to regulatory restrictions on the amount of dividends it may declare and pay to the Company without prior regulatory approval, and to regulatory notification requirements for dividends that do not require prior regulatory approval. - 87 - The actual and required capital amounts and ratios as of December 31, 2024 and 2023 are presented in the table below: December 31, 2024 Minimum Capital To Be Well-Capitalized For Capital Adequacy with Under Prompt Corrective Actual Adequacy Purposes Capital Buffer Action Provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio (Dollars In Thousands) Total Capital (to risk-weighted assets) Consolidated Waterstone Financial, Inc. 376,624 20.90 % 144,162 8.00 % 189,213 10.50 % N/A N/A Waterstone Bank 365,634 20.29 % 144,167 8.00 % 189,220 10.50 % 180,209 10.00 % Tier I Capital (to risk-weighted assets) Consolidated Waterstone Financial, Inc. 357,135 19.81 % 108,168 6.00 % 153,238 8.50 % N/A N/A Waterstone Bank 346,145 19.21 % 108,126 6.00 % 153,178 8.50 % 144,168 8.00 % Common Equity Tier 1 Capital (to risk-weighted assets) Consolidated Waterstone Financial, Inc. 357,135 19.81 % 81,126 4.50 % 126,196 7.00 % N/A N/A Waterstone Bank 346,145 19.21 % 81,094 4.50 % 126,147 7.00 % 117,136 6.50 % Tier I Capital (to average assets) Consolidated Waterstone Financial, Inc. 357,135 16.04 % 89,061 4.00 % N/A N/A N/A N/A Waterstone Bank 346,145 15.55 % 89,041 4.00 % N/A N/A 111,301 5.00 % State of Wisconsin (to total assets) Waterstone Bank 346,145 15.68 % 132,453 6.00 % N/A N/A N/A N/A December 31, 2023 (Dollars In Thousands) Total Capital (to risk-weighted assets) 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 - 88 - 9 ) Stock Based Compensation Stock-Based Compensation Plan In 2020, the 2020 Omnibus Incentive Plan was approved. All stock awards granted under this plan are required to be settled in shares of the Company’s common stock. The exercise price for all stock options granted was equal to the quoted NASDAQ market closing price on the date that the awards were granted and the stock options expire ten years after the grant date, if not exercised. All restricted stock grants are issued from previously unissued shares. A total of 750,000 stock options and 500,000 restricted shares were approved for award. A total of 605,000 stock options and 364,000 restricted stock were available to be issued as of December 31, 2024 . Accounting for Stock-Based Compensation Plan The fair value of stock options granted is estimated on the grant date using a Black-Scholes pricing model. The fair value of restricted shares is equal to the quoted NASDAQ market closing price on the date of grant. The fair value of stock grants is recognized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense is included in compensation, payroll taxes and other employee benefits in the consolidated statements of income. Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock options represents the period of time that the options are expected to be outstanding and is based on the historical results from the previous awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the actual volatility of Waterstone Financial, Inc. stock for the weighted average life time period prior to issuance date. The following assumptions were used in estimating the fair value of options granted in the years ended December 31, 2024 and 2023 . 2024 2023 Minimum Maximum Minimum Maximum Dividend yield 2.99 % 5.19 % 4.22 % 6.27 % Risk-free interest rate 3.58 % 4.63 % 3.52 % 4.62 % Expected volatility 26.67 % 27.81 % 23.81 % 25.42 % Weighted average expected life 5.1 5.7 5.1 5.7 Weighted average per share value of options 2.01 2.99 1.58 2.52 The Company's policy is to adjust compensation expense at the time of actual stock grant forfeiture. A summary of the Company’s stock option activity for the years ended December 31, 2024, 2023 and 2022 is presented below. Weighted Average Aggregate Weighted Average Years Remaining in Intrinsic Value Stock Options Shares Exercise Price Contractual Term (000's) Outstanding December 31, 2021 594,310 $ 14.20 4.33 $ 4,158 Options exercisable at December 31, 2021 352,310 13.70 3.78 $ 2,636 Granted 35,000 18.38 $ 2 Exercised ( 44,690 ) 12.62 198 Forfeited ( 29,001 ) 18.82 1 Outstanding December 31, 2022 555,619 14.35 3.41 $ 1,708 Options exercisable at December 31, 2022 409,119 13.76 2.59 $ 1,408 Granted 40,000 14.20 $ 15 Exercised ( 64,219 ) 12.75 93 Forfeited ( 21,000 ) 19.24 - Outstanding December 31, 2023 510,400 14.34 3.17 $ 473 Options exercisable at December 31, 2023 425,400 13.92 2.08 $ 454 Granted 55,000 12.66 $ 63 Exercised ( 129,868 ) 12.79 85 Forfeited ( 15,000 ) 13.66 11 Outstanding December 31, 2024 420,532 14.62 3.48 $ 188 Options exercisable at December 31, 2024 325,190 14.51 2.02 $ 141 - 89 - The following table summarizes information about the Company's stock options outstanding at December 31, 2024 . Options Outstanding Weighted Average Exercise Price Remaining Life (Years) Options Exercisable Weighted Average Exercise Price Remaining Life (Years) Range of Exercise Prices: $0.01 - $10.00 - $ - - - $ - - $10.01 - $15.00 290,532 13.00 2.81 226,190 12.94 1.05 $15.01 - $20.00 115,000 17.80 4.71 90,000 17.78 3.96 Over $20.01 15,000 21.50 6.89 9,000 21.50 6.89 Total 420,532 $ 14.62 3.48 325,190 $ 14.51 2.02 The following table summarizes information about the Company’s nonvested stock option activity for the years ended December 31, 2024 and 2023 : Weighted Average Stock Options Shares Grant Date Fair Value Nonvested at December 31, 2022 146,500 $ 2.90 Granted 40,000 1.82 Vested ( 88,500 ) 3.16 Forfeited ( 13,000 ) 2.55 Nonvested at December 31, 2023 85,000 2.17 Nonvested at December 31, 2023 85,000 2.17 Granted 55,000 2.33 Vested ( 30,658 ) 2.21 Forfeited ( 14,000 ) 2.20 Nonvested at December 31, 2024 95,342 2.35 The Company amortizes the expense related to stock options as compensation expense over the vesting period. Expense for the stock options granted of $ 75,000 , $ 107,000 and $ 342,000 was recognized during the years ended December 31, 2024, 2023 and 2022 , respectively. At December 31, 2024 , the Company had $ 193,000 in estimated unrecognized compensation costs related to outstanding stock options that is expected to be recognized over a weighted average period of 37 months. The following table summarizes information about the Company’s restricted stock shares activity for the years ended December 31, 2024 and 2023 : Weighted Average Restricted Stock Shares Grant Date Fair Value Nonvested at December 31, 2022 45,099 $ 19.84 Granted 21,982 16.02 Vested ( 1,288 ) 19.80 Forfeited - - Nonvested at December 31, 2023 65,793 18.56 Nonvested at December 31, 2023 65,793 18.56 Granted 69,302 12.33 Vested ( 38,231 ) 16.69 Forfeited ( 2,005 ) 20.75 Nonvested at December 31, 2024 94,859 14.72 The Company amortizes the expense related to restricted stock awards as compensation expense over the vesting period. Expense for the restricted stock awards of $ 240,000 , $ 170,000 and $ 242,000 was recorded for the years ended December 31, 2024, 2023 and 2022 , respectively. At December 31, 2024 , the Company had $ 563,000 of unrecognized compensation expense related to restricted stock shares that is expected to be recognized over a weighted average period of 24 months. - 90 - 10 ) Employee Benefit Plans The Company has two 401 (k) profit sharing plans and trusts covering substantially all employees. WaterStone Bank employees over 18 years of age are immediately eligible to participate in the Bank’s plan. Waterstone Mortgage employees over 18 years of age are eligible to participate in its plan as of the first of the month following their date of employment. Participating employees may annually contribute pretax compensation in accordance with IRS limits. The Company made matching contributions of $ 962,000 , $ 1.0 million, and $ 1.3 million to the plans during the years ended December 31, 2024, 2023 and 2022 , respectively. 11 ) Employee Stock Ownership Plan All WaterStone Bank employees are eligible to participate in the WaterStone Bank Employee Stock Ownership Plan (the “Plan”) after they attain 21 years of age and complete 12 consecutive months of service in which they work at least 1,000 hours of service. The Plan debt is secured by shares of the Company. The Company has committed to make annual contributions to the Plan necessary to repay the loan, including interest. During the year ended December 31, 2005, the Plan borrowed $ 8.5 million from the Company and purchased 835,610 shares of common stock of the Company in the open market. During the year ended December 31, 2014, the Plan borrowed an additional $ 23.8 million from the Company, refinanced the remaining 83,561 shares (related to the 2005 Plan purchase), and purchased an additional 2,024,000 shares of common stock of the Company in the open market. While the shares are not released and allocated to Plan participants until the loan payment is made, the shares are deemed to be earned and are therefore, committed to be released throughout the service period. As such, one - twentieth of the total 2,107,561 shares are scheduled to be released annually as shares are earned over a period of 20 years, beginning with the period ended December 31, 2014. As the debt is repaid, shares are released from collateral and allocated to active participant accounts. The shares pledged as collateral are reported as “Unearned ESOP shares” in the consolidated statement of financial condition. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average fair market price of the shares, and the shares become outstanding for earnings per share computations. Compensation expense attributed to the ESOP was $ 1.4 million, $ 1.5 million and $ 1.9 million, respectively, for the years ended December 31, 2024, 2023 and 2022 . The aggregate activity in the number of unearned ESOP shares, considering the allocation of those shares committed to be released as of December 31, 2024 and 2023 is as follows: 2024 2023 Beginning ESOP shares 1,053,781 1,159,159 Shares committed to be released ( 105,378 ) ( 105,378 ) Unreleased shares 948,403 1,053,781 Fair value of unreleased shares (in millions) $ 12.7 $ 15.0 12 ) Income Taxes The provision for income taxes for the year ended December 31, 2024, 2023 and 2022 consists of the following: Years ended December 31, 2024 2023 2022 (In Thousands) Current: Federal $ 3,866 $ 2,274 $ 4,731 State ( 49 ) 456 745 3,817 2,730 5,476 Deferred: Federal 215 ( 523 ) ( 460 ) State 765 ( 550 ) ( 24 ) 980 ( 1,073 ) ( 484 ) Valuation Allowance: Available for sale securities, net 517 - - Total $ 5,314 $ 1,657 $ 4,992 - 91 - The income tax provisions differ from that computed at the Federal statutory corporate tax rate for the years ended December 31, 2024, 2023 and 2022 as follows: Years ended December 31, 2024 2023 2022 (Dollars in Thousands) Income before income taxes $ 24,002 $ 11,032 $ 24,479 Tax at Federal statutory rate ( 21 %) 5,040 2,317 5,141 Add (deduct) effect of: State income taxes net of Federal income tax (benefit) expense ( 1,301 ) ( 74 ) 570 Cash surrender value of life insurance ( 413 ) ( 359 ) ( 365 ) Non-deductible ESOP and stock option expense 65 73 167 Tax-exempt interest income ( 245 ) ( 205 ) ( 159 ) Non-deductible compensation - 87 37 Death benefit on bank owned life insurance ( 57 ) ( 8 ) ( 71 ) Stock compensation ( 32 ) - ( 69 ) ESOP dividends ( 126 ) ( 168 ) ( 273 ) Valuation allowance - available for sale securities 517 - - Valuation allowance - other temporary differences 1,867 - - Other ( 1 ) ( 6 ) 14 Income tax provision $ 5,314 $ 1,657 $ 4,992 Effective tax rate 22.1 % 15.0 % 20.4 % The significant components of the Company’s net deferred tax assets (liabilities) included in prepaid expenses and other assets are as follows at December 31, 2024 and 2023 : December 31, 2024 2023 (In Thousands) Gross deferred tax assets: Depreciation $ 1,080 $ 1,054 Restricted stock and stock options 137 324 Allowance for credit losses 4,480 4,530 Allowance for unfunded commitments 305 261 Repurchase reserve for loans sold 335 446 Interest recognized for tax but not books 98 217 State net operating loss 1,368 280 Real estate owned 11 9 Lease liability 955 802 Unrealized loss on securities available for sale, net 5,798 5,520 Valuation allowance - available for sale securities ( 517 ) - Valuation allowance - other temporary differences ( 1,867 ) - Other 384 374 Total gross deferred tax assets 12,567 13,817 Gross deferred tax liabilities: Mortgage servicing rights ( 191 ) ( 467 ) FHLB stock dividends - ( 17 ) Lease Asset ( 968 ) ( 815 ) Deferred loan fees ( 466 ) ( 357 ) Deferred liabilities ( 1,625 ) ( 1,656 ) Net deferred tax assets $ 10,942 $ 12,161 The Company had a state net operating loss carry forward of $ 1.4 million at December 31, 2024 . The Company has no capital loss carryforwards as of December 31, 2024 . For the year ended December 31, 2024 , income tax expense was impacted by a change in Wisconsin state income taxes. On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law. This publication enabled us to estimate the impact on our Wisconsin state income tax expense. The impact moving forward should result in no Wisconsin state income taxes being expensed, resulting in a lower estimated effective tax rate. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. The valuation allowance as of December 31, 2024, of $ 2.4 million is the result of the valuation allowance for state related attributes, net of subsequent changes to those attributes along with the state related impact of changes to the unrealized losses on securities AFS disposed. Of the $ 1.4 million in state operating loss carry forward, there is a $ 1.3 million valuation allowance recorded against it. At December 31, 2023, no valuation allowance was determined to be necessary. Under the Internal Revenue Code and Wisconsin Statutes, the Company was permitted to deduct, for tax years beginning before 1988, an annual addition to a reserve for bad debts. This amount differs from the provision for credit losses recorded for financial accounting purposes. Under prior law, bad debt deductions for income tax purposes were included in taxable income of later years only if the bad debt reserves were used for purposes other than to absorb bad debt losses. Because the Company did not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes were provided. Retained earnings at December 31, 2024 include approximately $ 16.7 million for which no deferred Federal or state income taxes were provided. Deferred income taxes have been provided on certain additions to the tax reserve for bad debts. The Company and its subsidiaries file consolidated federal and combined state tax returns. One subsidiary also files separate state income tax returns in certain states. The Company is no longer subject to federal tax examinations for the years before 2021. The years open to examination by state and local government authorities varies by jurisdiction. - 92 - 13 ) Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. December 31, 2024 2023 (In Thousands) Financial instruments whose contract amounts represent potential credit risk: Commitments to extend credit under first mortgage loans (1) $ 19,052 $ 9,789 Commitments to extend credit under home equity lines of credit 11,531 11,722 Unused portion of construction loans 72,753 76,660 Unused portion of business lines of credit 15,061 15,378 Standby letters of credit 399 514 ( 1 ) Excludes commitments to originate loans held for sale, which are discussed in Footnote 14 - Derivative Financial Instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements of the Company. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter-party. Collateral obtained generally consists of mortgages on the underlying real estate. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds mortgages on the underlying real estate as collateral supporting those commitments for which collateral is deemed necessary. The Company has determined that there are no probable losses related to commitments to extend credit or the standby letters of credit as of December 31, 2024 and 2023 . See Note 3 - Loans Receivable for discussion on the allowance for credit losses - unfunded commitments. Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages. The Company’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold related to credit information, loan documentation and collateral, which if subsequently are untrue or breached, could require the Company to repurchase certain loans affected. The Company has only been required to make insignificant repurchases as a result of breaches of these representations and warranties. The Company’s agreements to sell residential mortgage loans also contain limited recourse provisions. The recourse provisions are limited in that the recourse provision ends after certain payment criteria have been met. With respect to these loans, repurchase could be required if defined delinquency issues arose during the limited recourse period. Given that the underlying loans delivered to buyers are predominantly conventional first lien mortgages, historical experience has resulted in insignificant losses and repurchase activity. The Company's reserve for losses related to these recourse provisions that is reported as a component of other liabilities on the Company's consolidated statement of financial condition totaled $ 1.3 million and $ 1.7 million as of December 31, 2024 and December 31, 2023 , respectively. In the normal course of business, the Company, or its subsidiaries are involved in various legal proceedings. The outcomes of these actions are not predictable, but we do not believe that the ultimate resolution of any pending or threatened actions of these types will have a material adverse effect on our financial position, results of operations, liquidity, or capital resources. The Company intends to continue to vigorously defend its interests in these matters and pursue all possible legal defenses against the claims. In relation to various legal matters, we had an accrued legal liability balance of $ 1.3 million and $ 125,000 included within accrued liabilities on the consolidated balance sheets as of December 31, 2024 and 2023, respectively. - 93 - 14 ) Derivative Financial Instruments Mortgage Banking Derivatives In connection with its mortgage banking activities, the Company enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates. Mortgage banking derivatives include interest rate lock commitments provided to customers to fund mortgage loans to be sold in the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being a hedge relationship. These instruments are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company does not use derivatives for speculative purposes. Derivative Loan Commitments Mortgage loan commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock. Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of a rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. Forward Loan Sale Commitments The Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the number of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall. With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments. Interest Rate Swaps The Company may offer derivative contracts to its customers in connection with their risk management needs. The Company manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third -party dealer through back-to-back swaps. These derivatives generally work together as an economic interest rate hedge, but the Company does not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability are recorded as either a charge or credit to current earnings during the period in which the changes occurred. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities on the Company's consolidated statement of financial condition, respectively, in equal amounts for these transactions. The following tables presents the outstanding notional balances and fair values of outstanding derivative instruments: December 31, 2024 Assets Liabilities Derivatives not designated as Hedging Instruments Notional Amount Balance Sheet Location Fair Value Balance Sheet Location Fair Value (Dollars in millions) Forward commitments $ 171.6 Prepaid expenses and Other assets $ 0.6 Other liabilities $ - Interest rate locks 136.2 Prepaid expenses and Other assets 0.3 Other liabilities - Interest rate swaps 140.4 Prepaid expenses and Other assets 12.6 Other liabilities 12.6 December 31, 2023 Assets Liabilities Derivatives not designated as Hedging Instruments Notional Amount Balance Sheet Location Fair Value Balance Sheet Location Fair Value (Dollars in millions) Forward commitments $ 268.8 Prepaid expenses and Other assets $ - Other liabilities $ 0.4 Interest rate locks 170.9 Prepaid expenses and Other assets 0.3 Other liabilities - Interest rate swaps 88.2 Prepaid expenses and Other assets 12.0 Other liabilities 12.0 - 94 - In determining the fair value of its derivative loan commitments, the Company considers the value that would be generated when the loan arising from exercise of the loan commitment is sold in the secondary mortgage market. That value includes the price that the loan is expected to be sold for in the secondary mortgage market. The fair value of these commitments is recorded on the consolidated statements of financial condition with the changes in fair value recorded as a component of mortgage banking income. The significant unobservable input used in the fair value measurement of the Company's mortgage banking derivatives, including interest rate lock commitments, is the loan pull through rate. This represents the percentage of loans currently in a lock position which the Company estimates will ultimately close. Generally, the fair value of an interest rate lock commitment will be positively (negatively) impacted when the prevailing interest rate is lower (higher) than the interest rate lock commitment. Generally, an increase in the pull through rate will result in the fair value of the interest rate lock increasing when in a gain position, or decreasing when in a loss position. The pull through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The pull through rate is computed using historical data and the ratio is periodically reviewed by the Company. The back-to-back swaps mature in December 2029 to June 2037. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. As of December 31, 2024 and December 31, 2023 , no back-to-back swaps were in default. The Company pays fixed rates and receives floating rates based upon SOFR 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 December 31, 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 collateral at December 31, 2024 and December 31, 2023 . 15 ) Fair Value Measurements ASC Topic 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing the asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels. Level 1 inputs - In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that we have the ability to access. - 95 - Level 2 inputs - Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs - Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The following table presents information about our assets and liabilities recorded in our consolidated statement of financial position at their fair value on a recurring basis as of December 31, 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 December 31, 2024 Level 1 Level 2 Level 3 (In Thousands) Assets Available for sale securities Mortgage-backed securities $ 9,611 $ - $ 9,611 $ - Collateralized mortgage obligations Government sponsored enterprise issued 131,736 - 131,736 - Private-label issued 6,400 - 6,400 - Government sponsored enterprise bonds 2,440 - 2,440 - Municipal securities 47,076 - 47,076 - Other debt securities 11,286 - 11,286 - Loans held for sale 135,909 - 135,909 - Mortgage banking derivative assets 897 - - 897 Interest rate swap assets 12,575 - 12,575 - Liabilities Mortgage banking derivative liabilities 46 - - 46 Interest rate swap liabilities 12,575 - 12,575 - Fair Value Measurements Using December 31, 2023 Level 1 Level 2 Level 3 (In Thousands) Assets Available for sale securities Mortgage-backed securities $ 11,181 $ - $ 11,181 $ - Collateralized mortgage obligations Government sponsored enterprise issued 133,467 - 133,467 - Private-label issued 7,260 - 7,260 - Government sponsored enterprise bonds 2,348 - 2,348 - Municipal securities 39,488 - 39,488 - Other debt securities 11,163 - 11,163 - Loans held for sale 164,993 - 164,993 - Mortgage banking derivative assets 334 - - 334 Interest rate swap assets 12,044 - 12,044 - Liabilities Mortgage banking derivative liabilities 364 - - 364 Interest rate swap liabilities 12,044 - 12,044 - - 96 - The following summarizes the valuation techniques for assets and liabilities recorded in our consolidated statements of financial condition at their fair value on a recurring basis: Available for sale securities – The Company's investment securities classified as available for sale include: mortgage-backed securities, collateralized mortgage obligations, government sponsored enterprise bonds, municipal securities and other debt securities. The fair values of mortgage-backed securities, collateralized mortgage obligations and government sponsored enterprise bonds are determined by a third party valuation source using observable market data utilizing a matrix or multi-dimensional relational pricing model. Standard inputs to these models include observable market data such as benchmark yields, reported trades, broker quotes, issuer spreads, benchmark securities, prepayment models and bid/offer market data. For securities with an early redemption feature, an option adjusted spread model is utilized to adjust the issuer spread. These model and matrix measurements are classified as Level 2 in the fair value hierarchy. The fair values of municipal and other debt securities are determined by a third party valuation source using observable market data utilizing a multi-dimensional relational pricing model. Standard inputs to this model include observable market data such as benchmark yields, reported trades, broker quotes, rating updates and issuer spreads. These model measurements are classified as Level 2 in the fair value hierarchy. The change in fair value is recorded through an adjustment to the statement of comprehensive income. Loans held for sale – The Company carries loans held for sale at fair value under the fair value option model. Fair value is generally determined by estimating a gross premium or discount, which is derived from pricing currently observable in the secondary market, principally from observable prices for forward sale commitments. Loans held-for-sale are considered to be Level 2 in the fair value hierarchy of valuation techniques. The change in fair value is recorded through an adjustment to the statement of income. Mortgage banking derivatives - Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company utilizes a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment and then multiplying by quoted investor prices. The Company also utilizes a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. While there are Level 2 and 3 inputs used in the valuation models, the Company has determined that one or more of the inputs significant in the valuation of both of the mortgage banking derivatives fall within Level 3 of the fair value hierarchy. The change in fair value is recorded through an adjustment to the statement of operations, within mortgage banking income. Interest rate swap assets/liabilities - The Company offers loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty. The fair values of derivatives are based on valuation models using observable market data as of the measurement date. Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third -party pricing services. Interest rate swap assets and liabilities are considered to be Level 2 in the fair value hierarchy of valuation techniques. The change in fair value is recorded through an adjustment to the statement of operations, within other income and other expense. The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 ) during 2024 and 2023 . Mortgage banking derivatives, net (In Thousands) Balance at December 31, 2022 $ ( 994 ) Mortgage derivative gain, net 964 Balance at December 31, 2023 ( 30 ) Mortgage derivative gain, net 881 Balance at December 31, 2024 $ 851 There were no transfers in or out of Level 1, 2 or 3 measurements during the periods. - 97 - Assets Recorded at Fair Value on a Non-recurring Basis The following table presents information about the Company's assets recorded in the consolidated statement of financial position at their fair value on a non-recurring basis as of December 31, 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 December 31, 2024 Level 1 Level 2 Level 3 (In Thousands) Real estate owned $ 505 $ - $ - $ 505 Fair Value Measurements Using December 31, 2023 Level 1 Level 2 Level 3 (In Thousands) Real estate owned $ 254 $ - $ - $ 254 Impaired mortgage servicing rights 1,063 - - 1,063 Real estate owned – On a non-recurring basis, real estate owned is recorded in the consolidated statements of financial condition at the lower of cost or fair value. Fair value is determined based on third party appraisals and, if less than the carrying value of the foreclosed loan, the carrying value of the real estate owned is adjusted to the fair value. Appraised values are adjusted to consider disposition costs and also to take into consideration the age of the most recent appraisal. Given the significance of the adjustments made to appraised values necessary to estimate the fair value of the properties, real estate owned is considered to be Level 3 in the fair value hierarchy of valuation techniques. Mortgage servicing rights - The Company utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of mortgage servicing rights. The model utilizes prepayment assumptions to project cash flows related to the mortgage servicing rights based upon the current interest rate environment, which is then discounted to estimate an expected fair value of the mortgage servicing rights. The model considers characteristics specific to the underlying mortgage portfolio, such as: contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges and costs to service. Given the significance of the unobservable inputs utilized in the estimation process, mortgage servicing rights are classified as Level 3 within the fair value hierarchy. The Company records the mortgage servicing rights at the lower of amortized cost or fair value. - 98 - For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis, the significant unobservable inputs used in the fair value measurements were as follows: Fair Value at Significant Significant Unobservable Input Value December 31, Valuation Unobservable Minimum Maximum Weighted 2024 Technique Inputs Value Value Average (Dollars in Thousands) Mortgage banking derivatives $ 851 Pricing models Pull through rate 13.7 % 100.0 % 66.3 % Real estate owned 505 Market approach Discount rates applied to appraisals 32.4 % 96.9 % 79.6 % December 31, 2023 Mortgage banking derivatives $ ( 30 ) Pricing models Pull through rate 20.5 % 99.9 % 69.8 % Real estate owned 254 Market approach Discount rates applied to appraisals 23.3 % 73.1 % 39.3 % Mortgage servicing rights 1,063 Pricing models Prepayment rate 6.7 % 23.9 % 14.6 % Discount rate 10.0 % 15.5 % 11.2 % Cost to service $ 77 $ 471 $ 107 A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Fair value information about financial instruments follows, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The carrying amounts and fair values of the Company’s financial instruments consist of the following at December 31, 2024 and December 31, 2023 : December 31, 2024 December 31, 2023 Carrying Carrying amount Fair Value amount Fair Value Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 (In Thousands) Financial Assets Cash and cash equivalents $ 39,761 $ 39,761 $ 39,761 $ - $ - $ 36,421 $ 36,421 $ 36,421 $ - $ - Loans receivable 1,680,576 1,603,437 - - 1,603,437 1,664,215 1,558,472 - - 1,558,472 FHLB stock 20,295 20,295 20,295 - - 20,880 20,880 20,880 - - Accrued interest receivable 7,853 7,853 7,853 - - 7,421 7,421 7,421 - - Mortgage servicing rights 732 807 - - 807 1,811 2,207 - - 2,207 - - Financial Liabilities Deposits 1,359,897 1,359,381 454,358 905,023 - 1,190,624 1,189,274 460,340 728,934 - Advance payments by borrowers for taxes 5,630 5,630 5,630 - - 6,607 6,607 6,607 - - Borrowings 446,519 439,455 - 439,455 - 611,054 602,948 - 602,948 - Accrued interest payable 3,340 3,340 3,340 - - 2,613 2,613 2,613 - - - 99 - The following methods and assumptions were used by the Company in determining its fair value disclosures for financial instruments. Cash and Cash Equivalents The carrying amount reported in the consolidated statements of financial condition for cash and cash equivalents is a reasonable estimate of fair value. The commercial paper instruments with a maturity of less than 90 days also approximates its fair value with its carrying value. Securities The fair value of securities is determined by a third party valuation source using observable market data utilizing a matrix or multi-dimensional relational pricing model. Standard inputs to these models include observable market data such as benchmark yields, reported trades, broker quotes, issuer spreads, benchmark securities and bid/offer market data. For securities with an early redemption feature, an option adjusted spread model is utilized to adjust the issuer spread. Prepayment models are used for mortgage related securities with prepayment features. Loans Held for Sale Fair value is estimated using the prices of the Company’s existing commitments to sell such loans and/or the quoted market price for commitments to sell similar loans. Loans Receivable The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the market place. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as one - to four -family, multi-family, home equity, construction and land, commercial real estate, commercial, and other consumer. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate. FHLB Stock For FHLB stock, the carrying amount is the amount at which shares can be redeemed with the FHLB and is a reasonable estimate of fair value. Deposits and Advance Payments by Borrowers for Taxes The fair values for interest-bearing and noninterest-bearing negotiable order of withdrawal accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar remaining maturities to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit. The advance payments by borrowers for taxes are equal to their carrying amounts at the reporting date. Borrowings Fair values for borrowings are estimated using a discounted cash flow calculation that applies current interest rates to estimated future cash flows of the borrowings. Accrued Interest Payable and Accrued Interest Receivable For accrued interest payable and accrued interest receivable, the carrying amount is a reasonable estimate of fair value. Commitments to Extend Credit and Standby Letters of Credit Commitments to extend credit and standby letters of credit are generally not marketable. Furthermore, interest rates on any amounts drawn under such commitments would be generally established at market rates at the time of the draw. Fair values for the Company's commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparty's credit standing, and discounted cash flow analyses. The fair value of the Company's commitments to extend credit was not material at December 31, 2024 and December 31, 2023 . - 100 - Mortgage Banking Derivative Assets and Liabilities Mortgage banking derivatives include interest rate lock commitments to originate residential loans held for sale to individual customers and forward commitments to sell residential mortgage loans to various investors. The Company relies on a valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale, which includes applying a pull through rate based upon historical experience and the current interest rate environment, and then multiplying by quoted investor prices. The Company also relies on a valuation model to estimate the fair value of its forward commitments to sell residential loans, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. On the Company's Consolidated Statements of Condition, instruments that have a positive fair value are included in prepaid expenses and other assets, and those instruments that have a negative fair value are included in other liabilities. Interest Rate Swap Assets and Liabilities The carrying value and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. 16 ) Earnings Per Share Earnings per share are computed using the two -class method. Basic earnings per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the applicable period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding adjusted for the dilutive effect of all potential common shares. There were 203,000 , 197,000 , and 128,000 antidilutive shares of common stock (where the exercise price exceeds the average price of common stock for the period) for the years ended December 31, 2024 , 2023 , and 2022 , respectively. Presented below are the calculations for basic and diluted earnings per share: For the year ended December 31, 2024 2023 2022 (In Thousands, except for per share amounts) Net income $ 18,688 $ 9,375 $ 19,487 Weighted average shares outstanding 18,556 20,158 21,884 Effect of dilutive potential common shares 33 38 126 Diluted weighted average shares outstanding $ 18,589 $ 20,196 $ 22,010 Basic income per share $ 1.01 $ 0.47 $ 0.89 Diluted income per share $ 1.01 $ 0.46 $ 0.89 - 101 - 17 ) Condensed Parent Company Only Statements Statements of Financial Condition December 31, 2024 2023 (In Thousands) Assets Cash and cash equivalents $ 13,873 $ 28,036 Investment in subsidiaries 328,145 319,181 Other assets 294 301 Total assets $ 342,312 $ 347,518 Liabilities and shareholders' equity Liabilities: Other liabilities 3,177 3,462 Shareholders' equity Preferred Stock (par value $ .01 per share), Authorized - 50,000,000 shares in 2024 and 2023, no shares issued - - Common stock (par value $ .01 per share) Authorized - 100,000,000 shares at December 31, 2024 and at December 31, 2023, Issued and Outstanding - 19,343,251 at December 31, 2024 and 20,314,786 at December 31, 2023 193 203 Additional paid-in-capital 91,214 103,908 Retained earnings 277,196 269,606 Unearned ESOP shares ( 10,682 ) ( 11,869 ) Accumulated other comprehensive loss, net of taxes ( 18,786 ) ( 17,792 ) Total shareholders' equity 339,135 344,056 Total liabilities and shareholders' equity $ 342,312 $ 347,518 Statements of Operations For the year ended December 31, 2024 2023 2022 (In Thousands) Interest income $ 1,105 $ 1,212 $ 607 Equity in income of subsidiaries 18,347 8,964 19,507 Total income 19,452 10,176 20,114 Professional fees $ 28 38 30 Other expense 640 631 603 Total expense 668 669 633 Income before income tax expense (benefit) 18,784 9,507 19,481 Income tax expense (benefit) 96 132 ( 6 ) Net income $ 18,688 $ 9,375 $ 19,487 - 102 - Statements of Cash Flows For the year ended December 31, 2024 2023 2022 (In Thousands) Cash flows from operating activities Net income $ 18,688 $ 9,375 $ 19,487 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of unearned ESOP 1,420 1,461 1,889 Stock based compensation 316 277 583 Equity in loss of subsidiaries ( 18,347 ) ( 8,964 ) ( 19,507 ) Change in other assets and liabilities ( 424 ) ( 59 ) 89 Net cash provided by operating activities 1,653 2,090 2,541 Net cash used in investing activities - - - Dividends received from subsidiary 8,705 14,754 55,594 Cash Dividends on Common Stock ( 11,268 ) ( 15,363 ) ( 30,260 ) Proceeds from stock option exercises 1,662 820 564 Purchase of common stock returned to authorized but unissued ( 14,915 ) ( 26,032 ) ( 47,830 ) Net cash used in financing activities ( 15,816 ) ( 25,821 ) ( 21,932 ) Net decrease in cash ( 14,163 ) ( 23,731 ) ( 19,391 ) Cash and cash equivalents at beginning of year 28,036 51,767 71,158 Cash and cash equivalents at end of year $ 13,873 $ 28,036 $ 51,767 18 ) Segment Reporting The Company has determined that it has two reportable segments: community banking and mortgage banking. The Company's operating segments are presented based on its management structure and management accounting practices. The structure and practices are specific to the Company and therefore, the financial results of the Company's business segments are not necessarily comparable with similar information for other financial institutions. Community Banking The Community Banking segment provides consumer and business banking products and services to customers primarily within Southeastern Wisconsin. Within this segment, the following products and services are provided: ( 1 ) lending solutions such as residential mortgages, home equity loans and lines of credit, personal and installment loans, real estate financing, business loans, and business lines of credit; ( 2 ) deposit and transactional solutions such as checking, credit, debit and pre-paid cards, online banking and bill pay, and money transfer services; ( 3 ) investable funds solutions such as savings, money market deposit accounts, IRA accounts, certificates of deposit, and ( 4 ) fixed and variable annuities, insurance as well as trust and investment management accounts. Consumer products include loan and deposit products: mortgage, home equity loans and lines, personal term loans, demand deposit accounts, interest bearing transaction accounts and time deposits. Consumer products also include personal investment services. Business banking products include secured and unsecured lines and term loans for working capital, inventory and general corporate use, commercial real estate construction loans, demand deposit accounts, interest bearing transaction accounts and time deposits. Mortgage Banking The Mortgage Banking segment provides residential mortgage loans for the primary purpose of sale in the secondary market. Mortgage banking products and services are provided by offices in 26 states with the ability to lend in 48 states. The Company’s chief executive officer has been identified as the chief operating decision maker (“CODM”). Selected financial and descriptive information is reported to the CODM. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM uses the Community Banking and Mortgage Banking segment's net interest income, non-interest income, non-interest expense, and pre-tax income for making operating decisions, allocating resources (including employees, financial, or capital resources), and assessing performance. Based on the reviews of these two segments and other company-wide initiatives, the CODM is informed about allocation of resources to the Holding Company and Other segment. - 103 - As of or for the Year ended December 31, 2024 Community Banking Mortgage Banking Holding Company and Other Consolidated (In Thousands) Net interest income $ 47,968 $ ( 1,945 ) $ 145 $ 46,168 Provision (credit) for credit losses ( 145 ) ( 23 ) - ( 168 ) Net interest income after provision (credit) for credit losses 48,113 ( 1,922 ) 145 46,336 Noninterest income 5,303 84,250 ( 251 ) 89,302 Noninterest expenses: Compensation, payroll taxes, and other employee benefits 20,685 61,353 ( 960 ) 81,078 Occupancy, office furniture and equipment 3,712 3,861 - 7,573 Advertising 918 2,636 - 3,554 Data processing 2,791 2,169 18 4,978 Communications 306 616 - 922 Professional fees 771 2,385 28 3,184 Real estate owned 26 - - 26 Loan processing expense - 3,090 - 3,090 Other 2,528 4,333 370 7,231 Total noninterest expenses 31,737 80,443 ( 544 ) 111,636 Income before income taxes 21,679 1,885 438 24,002 Income taxes 4,697 521 96 5,314 Net income $ 16,982 $ 1,364 $ 342 $ 18,688 Total assets $ 2,441,677 $ 177,875 $ ( 409,944 ) $ 2,209,608 As of or for the Year ended December 31, 2023 Community Banking Mortgage Banking Holding Company and Other Consolidated (In Thousands) Net interest income $ 51,733 $ ( 1,821 ) $ 303 $ 50,215 Provision for credit losses 441 215 - 656 Net interest income after provision for credit losses 51,292 ( 2,036 ) 303 49,559 Noninterest income 4,387 78,472 ( 1,674 ) 81,185 Noninterest expenses: Compensation, payroll taxes, and other employee benefits 19,866 65,095 ( 865 ) 84,096 Occupancy, office furniture and equipment 3,672 4,651 - 8,323 Advertising 977 2,802 - 3,779 Data processing 2,501 2,130 22 4,653 Communications 295 693 - 988 Professional fees 726 1,922 38 2,686 Real estate owned 4 - - 4 Loan processing expense - 3,428 - 3,428 Other 3,868 8,953 ( 1,066 ) 11,755 Total noninterest expenses 31,909 89,674 ( 1,871 ) 119,712 Income (loss) before income taxes (benefit) 23,770 ( 13,238 ) 500 11,032 Income taxes (benefit) 5,137 ( 3,612 ) 132 1,657 Net income (loss) $ 18,633 $ ( 9,626 ) $ 368 $ 9,375 Total assets $ 2,178,488 $ 206,452 $ ( 171,551 ) $ 2,213,389 - 104 - As of or for the Year ended December 31, 2022 Community Banking Mortgage Banking Holding Company and Other Consolidated (In Thousands) Net interest income $ 56,606 $ 157 $ 191 $ 56,954 Provision for credit losses 677 291 - 968 Net interest income after provision for credit losses 55,929 ( 134 ) 191 55,986 Noninterest income 5,221 104,101 ( 3,767 ) 105,555 Noninterest expenses: Compensation, payroll taxes, and other employee benefits 19,013 81,010 ( 458 ) 99,565 Occupancy, office furniture and equipment 3,645 5,061 - 8,706 Advertising 887 3,089 - 3,976 Data processing 2,229 2,234 7 4,470 Communications 357 832 - 1,189 Professional fees 508 1,278 29 1,815 Real estate owned 19 - - 19 Loan processing expense - 4,744 - 4,744 Other 5,551 10,197 ( 3,170 ) 12,578 Total noninterest expenses 32,209 108,445 ( 3,592 ) 137,062 Income (loss) before income taxes (benefit) 28,941 ( 4,478 ) 16 24,479 Income taxes (benefit) 6,116 ( 1,117 ) ( 7 ) 4,992 Net income (loss) $ 22,825 $ ( 3,361 ) $ 23 $ 19,487 Total assets $ 2,009,727 $ 198,625 $ ( 176,680 ) $ 2,031,672 - 105 - Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None