What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-26 compared with 2025-02-28 · 83 added, 95 removed, 357 unchanged (33% of the section changed)

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Efficiency ratio (3)

Average interest-earing assets to average interest-bearing liabilities

Average interest-earning assets to average interest-bearing liabilities

Dividend payout ratio (4)

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Total Assets.

Total assets decreased by $3.8 million, or 0.2%, to $2.21 billion at December 31, 2024 from $2.21 billion at December 31, 2023.

The decrease in total assets primarily reflects the decrease in loans held for sale, partially offset by increases in loans held for investment, cash surrender value of life insurance, and cash and cash equivalents.

Total assets increased by $49.9 million, or 2.3%, to $2.26 billion at December 31, 2025 from $2.21 billion at December 31, 2024.

The increase in total assets primarily reflects the increase in cash and cash equivalents, loans held for sale, and securities available for sale, partially offset by decreases in loans held for investment and prepaid expenses and other assets.

Cash and Cash Equivalents.

Cash and cash equivalents increased $31.3 million to $71.1 million at December 31, 2025 from $39.8 million at December 31, 2024.

The increase in cash and cash equivalents primarily reflects the decrease in funding of loans held for sale and increase in deposit liabilities.

The increase in cash and cash equivalents primarily reflects the decrease in funding of loans held for investment and increase in deposit liabilities.

Securities Available for Sale .

Securities available for sale increased by $22.3 million to $230.8 million at December 31, 2025 from $208.5 million at December 31, 2024.

The increase was primarily due to purchases of municipal bonds to take advantage of the increase in interest rates.

The increase was partially offset by an increase in unrealized losses on securities, as rising long-term rates put downward pressure on securities prices.

Purchases for the year exceeded the combination of security paydowns and maturities of debt securities.

The increase was primarily due to the purchases of securities exceeding paydowns and maturities and an increase in fair value as longer term interest rates decreased compared to the prior year period.

Loans Held for Sale .

Loans held for sale decreased $29.1 million, or 17.6%, to $135.9 million at December 31, 2024 from $165.0 million at December 31, 2023 due to an increase in mortgage rates at the end of the year.

Loans held for sale increased $9.1 million, or 6.7%, to $145.1 million at December 31, 2025 from $135.9 million at December 31, 2024 due to a decrease in mortgage rates at the end of the year.

Loans Receivable .

Loans receivable held for investment increased $16.4 million, or 1.0%, to $1.68 billion at December 31, 2024 from $1.66 billion at December 31, 2023.

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

Loans receivable held for investment decreased $5.0 million, or 0.3%, to $1.68 billion at December 31, 2025 from $1.68 billion at December 31, 2024.

The decrease in total loans receivable was primarily attributable to a decrease in the one-to-four family loan category and was partially offset by increases in the multi-family and commercial real estate categories.

Allowance for Credit Losses.

The allowance for credit losses decreased $769,000 to $17.5 million at December 31, 2025 from $18.2 million at December 31, 2024.

The decrease primarily resulted from a decrease in historical loss rates and changed in qualitative factors.

The decrease primarily resulted from a decrease in historical loss rates and decreases in certain qualitative factors.

Net recoveries totaled $122,000 for the year ended December 31, 2025.

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Total prepaid expenses and other assets decreased $10.3 million to $38.0 million at December 31, 2025 from $48.3 million at December 31, 2024.

The decrease was primarily due to a decrease in the mortgage servicing rights asset as well as decreases in receivables in the mortgage banking segment and a decrease in deferred tax assets due to a decrease in the Wisconsin state effective tax rate.

The decrease was primarily due to decreases in back-to-back loan swap fair value adjustment and the deferred tax asset for unrealized losses as long term interest rates decreased.

Deposits increased by $77.4 million to $1.44 billion at December 31, 2025, from $1.36 billion at December 31, 2024.

The increase was driven by $94.3 million in new brokered certificates of deposit, an increase of $81.0 million in non-brokered certificates of deposit, and an increase of $10.0 million in money market and savings deposits.

The increase as partially offset by a decrease of $16.0 million in demand deposits.

The increase in deposits was used to fund the increase in loans held for investment and replacing matured borrowings.

The increase was driven by a $45.8 million increase in money market & savings deposits, an increase of $16.0 million in brokered certificates of deposit, an increase of $11.1 million in non-brokered certificates of deposit, and an increase of $4.5 million in demand deposits.

The increase in deposits was used to fund the increase in loans held for sale, buy available-for-sale securities and replacing matured borrowings.

Total borrowings decreased $34.3 million to $412.3 million at December 31, 2025, from $446.5 million at December 31, 2024.

The community banking segment decreased its short-term FHLB borrowings by $15.4 million and its long-term FHLB borrowings by $5.0 million.

In addition, the $145.0 million short-term borrowing from the Federal Reserve Bank was paid down in the fourth quarter of 2024.

External short-term borrowings at the mortgage banking segment increased a total of $900,000 to $3.0 million at December 31, 2024 from $2.1 million at December 31, 2023.

The community banking segment decreased its short-term FHLB borrowings by $77.5 million and increased its long-term FHLB borrowings by $40.0 million.

External short-term borrowings at the mortgage banking segment increased a total of $3.2 million to $6.2 million at December 31, 2025 from $3.0 million at December 31, 2024.

The overall decrease in borrowings was primarily offset by the increase in deposits.

Other Liabilities.

Other liabilities decreased $2.6 million to $58.4 million at December 31, 2024 compared to $61.0 million at December 31, 2023.

Other liabilities decreased primarily due to decreases in loan sale liability and amounts payable to investors in the mortgage banking segment.

Other liabilities decreased $838,000 to $57.6 million at December 31, 2025 compared to $58.4 million at December 31, 2024.

Other liabilities decreased primarily due to the decrease in back-to-back loan swap fair value adjustment.

Shareholders ’ Equity.

Shareholders’ equity decreased by $4.9 million, or 1.4%, to $339.1 million at December 31, 2024 from $344.1 million at December 31, 2023.

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

Partially offsetting the decreases, there were increases due to the net income, additional paid-in capital as stock options were exercised and equity awards vested, and unearned ESOP shares vesting.

Shareholders’ equity increased by $10.3 million, or 3.0%, to $349.4 million at December 31, 2025 from $339.1 million at December 31, 2024.

Shareholders' equity increased primarily due to increases in net income and the fair value of the securities portfolio.

Comparison of Community Banking Segment Operations for the Years Ended December 31, 2025 and 2024

Net income from our community banking segment for the year ended December 31, 2025 totaled $24.8 million compared to $17.0 million for the year ended December 31, 2024.

Net interest income decreased $3.8 million to $48.0 million for the year ended December 31, 2024 compared to $51.7 million for the year ended December 31, 2023.

Net interest income increased $8.2 million to $56.2 million for the year ended December 31, 2025 compared to $48.0 million for the year ended December 31, 2024.

Interest income on loans increased as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on mortgage-related securities and debt securities, federal funds sold and short-term investments increased due to the increase in the average balance and replacement rates.

Offsetting the increases in interest income, interest expense on deposits and borrowings increased as replacement rates and average balances increased.

There was a negative provision for credit losses of $145,000 for the year ended December 31, 2024 compared to a provision for credit losses of $441,000 for the year ended December 31, 2023.

The negative provision for credit losses consisted of a $319,000 negative provision related to adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors and a $174,000 of provision related to unfunded commitments as the loan pipeline balance decreased for the year ended December 31, 2024.

Offsetting the increases in interest income, interest expense on deposits increased as average balances increased offset by a decrease in average cost of funds as there were fed funds rate cuts over the past year.

There was a negative provision for credit losses of $1.3 million for the year ended December 31, 2025 compared to a negative provision for credit losses of $145,000 for the year ended December 31, 2024.

The negative provision for credit losses consisted of a $891,000 negative provision related to adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors and a $503,000 negative provision related to unfunded commitments as the loan pipeline balance decreased for the year ended December 31, 2025.

The negative provision for credit losses related to loans was primarily due to a decrease in historical loss rates and certain qualitative factors.

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

Noninterest income increased $916,000 for the year ended December 31, 2024 due primarily to a $231,000 death benefit received in 2024, earnings on the bank owned life insurance, and loan swap fees.

Compensation, payroll taxes, and other employee benefits expense increased $819,000 to $20.7 million during the year ended December 31, 2024 primarily due to increased health insurance costs.

Noninterest income increased $395,000 for the year ended December 31, 2025 due primarily to earnings on the bank owned life insurance and loan swap fees.

Compensation, payroll taxes, and other employee benefits expense increased $236,000 to $20.9 million during the year ended December 31, 2025 primarily due to increased wages and variable compensation.

Other noninterest expense decreased $219,000 million to $2.3 million as certain loan-related expenses paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased compared to the prior year.

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Comparison of Mortgage Banking Segment Operations for the Years Ended December 31, 2025 and 2024

Net income totaled $1.4 million for the year ended December 31, 2024 compared to net loss of $9.6 million for the year ended December 31, 2023.

We originated $2.15 billion in mortgage loans held for sale (including sales to the community banking segment) during the year ended December 31, 2024, which represents an increase of $26.6 million, or 1.3%, from the $2.12 billion originated during the year ended December 31, 2023.

The increase in loan production volume was driven by a $109.4 million, or 128.5%, increase in refinance products due to a decrease in mortgage rates at various points throughout the year.

Mortgage purchase products decreased $82.8 million, or 4.1% as housing inventory remained low and interest rates remained relatively high.

Total mortgage banking noninterest income increased $5.8 million, or 7.4%, to $84.3 million during the year ended December 31, 2024 compared to $78.5 million during the year ended December 31, 2023.

The increase in mortgage banking noninterest income was related to a 1.3% increase in volume and a 6.6% increase in gross margin on loans originated and sold for the year ended December 31, 2024 compared to December 31, 2023.

Net income totaled $1.4 million for the year ended December 31, 2025 compared to net income of $1.4 million for the year ended December 31, 2024.

We originated $2.05 billion in mortgage loans held for sale (including sales to the community banking segment) during the year ended December 31, 2025, which represents a decrease of $98.0 million, or 4.6%, from the $2.15 billion originated during the year ended December 31, 2024.

The decrease in loan production volume was driven by a decrease in purchase products of $135.0 million, or 7.0%.

The decrease in purchase products was partially offset by a $37.0, or 16.4% increase in refinance products due to a decrease in mortgage rates at various points throughout the year.

Mortgage purchase products decreased $135.0 million, or 7.0% as housing inventory remained low and affordable housing inventory remains limited.

Total mortgage banking noninterest income decreased $4.7 million, or 5.6%, to $79.5 million during the year ended December 31, 2025 compared to $84.3 million during the year ended December 31, 2024.

The decrease in mortgage banking noninterest income was related to a 4.6% decrease in volume and a 1.0% decrease in gross margin on loans originated and sold for the year ended December 31, 2025 compared to December 31, 2024.

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

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Our origination efforts continue to be focused on loans made for the purpose of residential purchases, as opposed to mortgage refinance.

The percentage of origination volume related to purchase activity decreased to 88.9% from 96.0% of total originations for the year ended December 31, 2024 and 2023, respectively, as a year-over-year decrease in rates drove an increase in refinance activity, while low housing inventory and still relatively high interest rates suppressed purchase activity.

The mix of loan type trended towards more conventional loans and less government loans, with a mix of 63.8% and 36.2%, respectively of all loan originations, respectively, during the year ended December 31, 2024, compared to 59.0% and 41.0% of all originations, respectively, during the year ended December 31, 2023.

The percentage of origination volume related to purchase activity decreased from 88.9% to 87.1% of total originations for the year ended December 31, 2025 and 2024, respectively, as a year-over-year decrease in rates drove an increase in refinance activity, while low housing inventory and still relatively high interest rates suppressed purchase activity.

The mix of loan type trended towards more government loans and less conventional loans, with a mix of 38.7% and 61.3%, respectively of all loan originations, respectively, during the year ended December 31, 2025, compared to 36.2% and 63.8% of all originations, respectively, during the year ended December 31, 2024.

During the year ended December 31, 2025, the Company had no sales of mortgage servicing rights.

During the year ended December 31, 2024, the Company sold mortgage servicing rights related to $233.0 million in loans serviced for third parties.

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 services for third parties, which generated $3.5 million in net proceeds and a $583,000 gain.

Total compensation, payroll taxes and other employee benefits decreased $1.8 million, or 2.9%, to $59.6 million for the year ended December 31, 2025 compared to $61.4 million for the year ended December 31, 2024.

The decrease primarily related to decreased salary expense and incentives expense driven by reduced employee headcount and a decrease in new branches added over the past year.

The decrease primarily related to decreased salary expense and commissions expense driven by reduced employee headcount and a decrease in new branches added over the past year.

Comparison of Consolidated Waterstone Financial, Inc.

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Net interest income / Net interest rate spread (4)

taxable equivalent adjustment

Net interest income, as reported

Net interest-earning assets (5)

Net interest margin (6)

Tax equivalent effect

Net interest margin on a fully tax equivalent basis

Average interest-earning assets to average interest-bearing liabilities

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(3) Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the years ended December 31, 2025, 2024, and 2023.

The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 4.89%, 4.18%, and 1.51% for the years ended December 31, 2024, 2023, and 2022, respectively.

The yields on debt securities, federal funds sold and short-term investments after tax-equivalent adjustments were 4.94%, 5.11%, and 4.35% for the years ended December 31, 2025, 2024, and 2023, respectively.

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

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Net Interest Income

Net interest income decreased $4.0 million, or 8.1%, to $46.2 million during the year ended December 31, 2024 compared to $50.2 million during the year ended December 31, 2023.

Interest income on loans increased $12.9 million, or 14.3%, to $103.1 million during the year ended December 31, 2024 compared to $90.1 million during the year ended December 31, 2023 due primarily to a 47 basis point increase in average yield on loans as interest rates continued to increase over the past year and an increase in average loan balance as loans held for investment increased.

The increase in average loan balance was driven by an increase of a $93.6 million, or 5.9%, in the average balance of loans held for investment.

Net interest income increased $10.6 million, or 22.9%, to $56.7 million during the year ended December 31, 2025 compared to $46.2 million during the year ended December 31, 2024.

Interest income on loans increased $1.7 million, or 1.6%, to $104.8 million during the year ended December 31, 2025 compared to $103.1 million during the year ended December 31, 2024 due primarily to a 18 basis point increase in average yield on loans as interest rates continued to increase over the past year.

Additionally, the average balance of loans held for investment increased by 0.5%.

The increase in average loan balance was driven by an increase in the average balance of multi-family and commercial real estate loan categories.

Interest income from mortgage related securities increased $719,000, or 16.0%, primarily as the yield increased by 34 basis points.

Interest income from debt securities increased $599,000, or 12.0%, to $5.6 million, due primarily to a 71 basis point increase in yield.

The increased yield was partially offset by a decrease of $5.0 million in average balance.

Interest expense on time deposits increased $13.1 million, or 61.8%, primarily due to a 140 basis point increase in average cost of time deposits.

Additionally, the average balance of retail time deposits increased $73.6 million compared to the prior year period.

Including the new brokered time deposits, interest expense increased by $13.7 million.

The average balance of brokered time deposits was $15.0 million.

Interest expense on money market, savings, and escrow accounts increased $1.1 million, or 24.8%, due primarily to a 44 basis point increase in average cost of money market, savings, and escrow accounts as offering rates increased to match the Federal Funds Rate.

Partially offsetting the increase in average cost, the average balance decreased $12.8 million as more money moved to time deposits.

Interest expense on borrowings increased $3.2 million, or 13.6%, to $26.4 million due to a 25 basis point increase in the cost of borrowings during the year ended December 31, 2024 compared to the year ended December 31, 2023 as we transitioned to more short-term fundings for a majority of the year.

Additionally, the average balance increased $40.2 million to $572.5 million during the year ended December 31, 2024, compared to $532.3 million during the year ended December 31, 2023.

Interest income from debt securities increased $534,000, or 9.5%, to $6.1 million, due primarily to a $15.3 million increase in average balance.

The increased balance was partially offset by a decrease in yield of 16 basis points.

Interest expense on retail time deposits decreased $953,000, or 2.8%, primarily due to a 39 basis point decrease in average cost of retail time deposits.

Partially offsetting this increase was a $50.4 million, or 6.5%, increase in average balance.

Interest expense on brokered time deposits increased by $2.8 million.

The average balance of brokered time deposits for the year ended December 31, 2025 was $84.2 million compared to $15.0 million at December 31, 2024

Interest expense on money market, savings, and escrow accounts increased $1.1 million, or 18.9%, due primarily to a 17 basis point increase in average cost of money market, savings, and escrow accounts as rates increased to attract new account openings.

Additionally, the average balance increased $27.6 million.

Interest expense on borrowings decreased $10.6 million, or 40.0%, to $15.9 million due to a $148.6 million decrease in average balance during the year ended December 31, 2025 compared to the year ended December 31, 2024 as additional deposits lessened the need for borrowing.

Additionally, the average cost of funds decreased by 88 basis points during the year ended December 31, 2025.

Provision for Credit Losses

There was a negative provision for credit losses of $168,000 during the year ended December 31, 2024 compared to a $656,000 provision for loan losses for the year ended December 31, 2023.

The $168,000 negative provision for credit losses consisted of a $342,000 negative provision related to loans and $174,000 of provision related to unfunded commitments for the year ended December 31, 2024.

There was a negative provision for credit losses of $1.4 million during the year ended December 31, 2025 compared to a $168,000 negative provision for loan losses for the year ended December 31, 2024.

The $1.4 negative provision for credit losses consisted of a $893,000 negative provision related to loans and $503,000 of negative provision related to unfunded commitments for the year ended December 31, 2025.

The decrease in the loan portfolio provision is due to the decrease in historical loss factors and certain qualitative factors.

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

The negative provision for credit losses related to unfunded loan commitments for the year ended December 31, 2025 was due primarily to a decrease in construction loans waiting to be funded.

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

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

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

Noninterest Income

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Total noninterest income

Total noninterest income increased $8.1 million, or 10.0%, to $89.3 million during the year ended December 31, 2024 compared to $81.2 million during the year ended December 31, 2023.

The increase in mortgage banking income was primarily the result of an increase in loan origination volume and a decrease in noninterest expenses.

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

Total loan origination volume on a consolidated basis increased $106.3 million, or 5.3%, to $2.13 billion during the year ended December 31, 2024 compared to $2.02 billion during the year ended December 31, 2023.

Gross margin on loans originated and sold increased 6.6% at the mortgage banking segment.

Total noninterest income decreased $4.1 million, or 4.6%, to $85.2 million during the year ended December 31, 2025 compared to $89.3 million during the year ended December 31, 2024.

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

Total loan origination volume on a consolidated basis decreased $85.1 million, or 4.0%, to $2.05 billion during the year ended December 31, 2025 compared to $2.13 billion during the year ended December 31, 2024.

Gross margin on loans originated and sold decreased 1.0% at the mortgage banking segment.

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

See "Comparison of Mortgage Banking Segment Results of Operations for the Year December 31, 2025 and 2024" above, for additional discussion of the increase in mortgage banking income.

Service charges on loans and deposits increased primarily due to an increase in loan prepayment fees and other loan fees.

Service charges on loans and deposits increased primarily due to an increase in loan prepayment fees.

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

The Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties.

The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the year ended December 31, 2024.

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

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

During the year ended December 31, 2025, the Company had no sales of mortgage servicing rights.

During the year ended December 31, 2024, the Company sold mortgage servicing rights related to $233.0 million in loans serviced for third parties in 2024.

The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain.

Noninterest Expenses

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Compensation, payroll taxes and other employee benefit expense at our mortgage banking segment decreased $1.8 million, or 2.9%, to $59.6 million for the year ended December 31, 2025.

The decrease primarily related to decreased salary expense and incentives expense driven by reduced employee headcount and a decrease in new branches added over the past year.

The decrease primarily related to decreased salary expense and commission expense driven by reduced employee headcount and a decrease in new branches added over the past year.

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $236,000 or 1.1%, to $20.9 million during the year ended December 31, 2025.

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

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $789,000 to $3.9 million during the year ended December 31, 2024 primarily resulting from decreased rent and depreciation expenses and underperforming branches were closed over the past year.

The increase was primarily due to an increase in salaries and variable compensation.

Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $596,000 to $3.3 million during the year ended December 31, 2025 primarily resulting from decreased rent and depreciation expenses as underperforming branches were closed over the past year.

Occupancy, office furniture and equipment expense at the community banking segment increased $217,000 to $3.9 million during the year ended December 31, 2025 compared to the prior year.

The increase was due primarily to increases related to new equipment expenses.

The increase was due primarily to increases in equipment maintenance and repairs, as well as snow removal expenses.

Advertising expense decreased $677,000, or 19.0%, to $2.9 million during the year ended December 31, 2025.

This was primarily due to a decrease at the mortgage banking segment in an effort to control costs.

Data processing expense increased $325,000 or 7.0% to $5.0 million during the year ended December 31, 2024 This was primarily due to increases at the community banking segment for continued investments in technology, software, and security.

Professional fees increased $498,000, or 18.5%, to $3.2 million during the year ended December 31, 2024.

The increase was due to legal costs at the mortgage banking segment.

In July 2022, a complaint was filed by Mutual of Omaha Mortgage, Inc.

asserting claims against Waterstone Mortgage Corporation related to certain individuals hired by Waterstone Mortgage Corporation who previously worked for Mutual.

The Company intends to continue to vigorously defend its interests in this matter and intends to pursue all possible defenses against the claims.

In relation to this matter, we had an accrued legal liability balance of $1.3 million included within accrued liabilities on the consolidated balance sheets as of December 31, 2024.

Other noninterest expense decreased $4.5 million, or 38.5%, to $7.2 million during the year ended December 31, 2024.

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

Income tax expense increased $3.7 million to $5.3 million during the year ended December 31, 2024, compared to $1.7 million during the year ended December 31, 2023 as pretax income decreased $13.4 million.

This was primarily due to a decrease at the mortgage banking segment in an effort to control costs, as well as a lower overall branch count.

Data processing expense decreased $37,000 or 0.7% to $4.9 million during the year ended December 31, 2025 This was primarily due to decreases at the mortgage banking segment in an effort to control costs, and was offset by continued investments in technology in the community banking segment.

Professional fees decreased $349,000, or 11.0%, to $2.8 million during the year ended December 31, 2025.

The decrease was primarily related to a decrease in legal fees at the mortgage banking segment as a settlement related to a prior year dispute was finalized in the first quarter.

Other noninterest expense increased $1.5 million, or 21.0%, to $8.7 million during the year ended December 31, 2025.

The increase primarily related to increased provision for loan sale losses, provision for branch losses, mortgage servicing rights amortization, and branch overhead at the mortgage banking segment.

Income tax expense increased $1.7 million to $7.0 million during the year ended December 31, 2025, compared to $5.3 million during the year ended December 31, 2024 as pretax income increased by $9.4 million.

Income tax expense was recognized during the year ended December 31, 2025 at an effective rate of 21.1% compared to an effective rate of 22.1% during the year ended December 31, 2024.

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During the years ended December 31, 2025, and 2024, we originated on a consolidated basis $2.05 billion and $2.13 billion in loans for sale and sold loans on a consolidated basis of $2.11 billion and $2.24 billion.

During the years ended December 2024 and 2023, loan originations net of loan repayments resulted in a negative cash flows of $16.7 million and $154.2 million.

During the year ended December 2025, loan originations net of loan repayments resulted in a positive cash flow of $5.2 million.

During the year ended December 2024, loan originations net of loan repayments resulted in a negative cash flow $16.7 million.

Cash received from the principal repayments of debt and mortgage related securities and maturity and calls of debt securities totaled $36.9 million and $31.0 million for the years ended December 31, 2025 and 2024, respectively.

We purchased $50.0 million and $34.3 million in debt securities and mortgage related securities classified as available for sale during the years ended December 31, 2025 and 2024, respectively.

The net changes in deposits were a net increase of $169.3 million and a net decrease of $8.4 million for the year ending December 31, 2024 and 2023, respectively.

There was a decrease in net borrowings of $164.5 million for the year ended December 31, 2024 and a net increase in borrowings of $224.3 million for the year ended December 31, 2023.

The net changes in deposits were a net increase of $77.4 million and a net increase of $169.3 million for the year ending December 31, 2025 and 2024, respectively.

There was a decrease in net borrowings of $34.3 million for the year ended December 31, 2025 and a net decrease in borrowings of $164.5 million for the year ended December 31, 2024.

During the years ended December 31, 2025 and 2024, we repurchased common stock of $16.2 million and $14.9 million, respectively.

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Deposits increased by $77.4 million from December 31, 2024 to December 31, 2025.

The increase was driven by a $175.2 million increase in time deposits and a $10.0 million increase in money market & savings account, offset by an $16.0 million decrease in demand deposits.

Of the increase in time deposits, $94.3 million was due to the addition of brokered certificates of deposit.

The increase was driven by a $45.8 million increase in money market & savings accounts, a $27.1 million increase in time deposits, and a $4.5 million increase in demand deposits.

Of the increase in time deposits, $16.0 million was due to the increase of brokered certificates of deposit.

Deposit flows are generally affected by the level of interest rates, market conditions, products offered by local competitors, and other factors.

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

Shareholders’ equity decreased by $4.9 million, or 1.4%, to $339.1 million at December 31, 2024 from $344.1 million at December 31, 2023.

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

Partially offsetting the decreases, there were increases due to the net income, additional paid-in capital as stock options were exercised and equity awards vested, and unearned ESOP shares vesting.

Shareholders’ equity increased by $10.3 million, or 3.0%, to $349.4 million at December 31, 2025 from $339.1 million at December 31, 2024.

Shareholders' equity increased primarily due to increases in the fair value of the securities portfolio and an increase in net income.

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

As of December 31, 2024, the Company had approximately 1.7 million shares remaining in the plan.

As of December 31, 2025, the Company had approximately 468,000 shares remaining in the plan.

Waterstone Financial, Inc.

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

During the year ended December 31, 2024, our short-term debt decreased $159.5 million, of which $145.0 million was debt paid off from the Federal Reserve Bank through the borrowing facility called the Bank Term Funding Program.

During the year ended December 31, 2025, our short-term debt decreased $74.3 million.

In addition, we repaid $90.0 million in FHLB long-term debt and took on $130.0 million of new FHLB long-term debt.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis