Table of Contents For the quarterly period ended September 30, 2022 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 001-36271 WATERSTONE FINANCIAL, INC. (Exact name of registrant as specified in its charter) Maryland 90-1026709 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q ☒ Quarterly report pursuant to Secti ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%20l.%20Financial%20Statements) The financial statements present the company's financial position, results of operations, and cash flows, highlighting a decrease in assets and net income Consolidated Statements of Financial Condition - Total assets decreased to **$1.94 billion** as of June 30, 2022, from **$2.22 billion** at December 31, 2021, primarily due to a significant reduction in cash and cash equivalents and loans held for sale[11](index=11&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $122,193 | $376,722 | | Loans held for sale | $206,702 | $312,738 | | Loans receivable, net | $1,259,289 | $1,190,007 | | **Total Assets** | **$1,941,097** | **$2,215,858** | | **Liabilities & Equity** | | | | Total deposits | $1,213,230 | $1,233,386 | | Borrowings | $281,100 | $477,127 | | **Total Liabilities** | **$1,554,717** | **$1,783,085** | | **Total Shareholders' Equity** | **$386,380** | **$432,773** | Consolidated Statements of Income - Net income for the second quarter of 2022 was **$8.0 million**, a significant decrease from **$17.9 million** in the same period of 2021, driven by a sharp reduction in mortgage banking income[13](index=13&type=chunk) Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $14,081 | $14,277 | $25,945 | $28,229 | | Mortgage Banking Income | $29,410 | $49,649 | $57,685 | $104,040 | | Total Noninterest Income | $31,238 | $52,044 | $61,056 | $108,243 | | Total Noninterest Expenses | $35,050 | $43,297 | $69,984 | $86,297 | | **Net Income** | **$7,990** | **$17,894** | **$13,282** | **$39,238** | | Diluted EPS | $0.36 | $0.74 | $0.58 | $1.64 | Consolidated Statements of Changes in Shareholders' Equity - Shareholders' equity decreased from **$432.8 million** at year-end 2021 to **$386.4 million** at June 30, 2022, driven by stock repurchases, comprehensive loss, and cash dividends[17](index=17&type=chunk) - The company repurchased **2,099,000 shares** of common stock for **$37.9 million** during the first six months of 2022[17](index=17&type=chunk) Consolidated Statements of Cash Flows - Cash and cash equivalents decreased by **$254.5 million** in the first six months of 2022, compared to an increase of **$134.0 million** in the same period of 2021[22](index=22&type=chunk) - Significant financing activities in the first half of 2022 included the repayment of **$195.0 million** in long-term debt and the repurchase of **$37.9 million** in common stock[22](index=22&type=chunk) Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $118,163 | $76,913 | | Net cash (used in) provided by investing activities | ($100,752) | $64,108 | | Net cash used in financing activities | ($271,940) | ($7,049) | | **(Decrease) increase in cash and cash equivalents** | **($254,529)** | **$133,972** | Notes to Consolidated Financial Statements - The Company adopted ASC Topic 326 (CECL) on January 1, 2022, resulting in a **$1.4 million** after-tax decrease to retained earnings[35](index=35&type=chunk) - The company operates through two main subsidiaries: WaterStone Bank SSB, a community bank, and Waterstone Mortgage Corporation, a mortgage banking subsidiary[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - Non-accrual loans increased to **$7.5 million** (0.59% of total loans) at June 30, 2022, from **$5.6 million** (0.46% of total loans) at December 31, 2021[80](index=80&type=chunk) - The company has two reportable segments: Community Banking and Mortgage Banking[155](index=155&type=chunk)[156](index=156&type=chunk)[158](index=158&type=chunk) Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | One- to four-family | $312,657 | $300,523 | | Multi-family | $597,304 | $537,956 | | Commercial real estate | $266,375 | $250,676 | | Construction and land | $70,075 | $82,588 | | Other | $29,149 | $34,042 | | **Total** | **$1,276,560** | **$1,205,785** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Profitability declined significantly due to the mortgage banking segment's performance amid rising interest rates, while total assets decreased from lower cash balances Results of Operations - The Mortgage Banking segment's net income plummeted to **$1.7 million** in Q2 2022 from **$10.4 million** in Q2 2021, caused by lower origination volume and compressed margins[179](index=179&type=chunk) - The Community Banking segment's Q2 2022 net income was **$6.3 million**, down from **$7.5 million** in Q2 2021, due to lower net interest income[174](index=174&type=chunk) - Consolidated noninterest income for Q2 2022 decreased **40.0%** to **$31.2 million**, primarily due to a **$20.2 million** drop in mortgage banking income[195](index=195&type=chunk) - Consolidated noninterest expenses for Q2 2022 decreased **19.0%** to **$35.1 million**, mainly from an **$8.1 million** reduction in compensation and benefits[197](index=197&type=chunk)[200](index=200&type=chunk) Consolidated Results of Operations Summary | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $7,990 | $17,894 | $13,282 | $39,238 | | Diluted EPS | $0.36 | $0.74 | $0.58 | $1.64 | | Annualized ROA | 1.61% | 3.25% | 1.30% | 3.62% | | Annualized ROE | 7.93% | 16.49% | 6.42% | 18.49% | Financial Condition - Total assets decreased by **$274.8 million (12.4%)** to **$1.94 billion** at June 30, 2022, mainly due to a **$254.5 million** decrease in cash[225](index=225&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk) - Loans receivable held for investment grew by **$70.8 million** to **$1.28 billion**, driven by increases in core real estate loan categories[228](index=228&type=chunk) - Total borrowings decreased by **$196.0 million (41.1%)** to **$281.1 million**, primarily due to the payoff of **$200.0 million** in FHLB borrowings[235](index=235&type=chunk) - Shareholders' equity declined by **$46.4 million** to **$386.4 million**, impacted by dividends, stock repurchases, and the adoption of CECL[238](index=238&type=chunk) Asset Quality - The allowance for credit losses on loans increased by **$1.5 million** to **$17.3 million** at June 30, 2022, due to the CECL adoption and provisions[231](index=231&type=chunk)[259](index=259&type=chunk) - Total past due loans increased slightly to **$7.7 million** (0.60% of total loans) at June 30, 2022, from **$7.1 million** (0.59% of total loans) at year-end 2021[255](index=255&type=chunk) Nonperforming Assets (in thousands) | Category | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total non-accrual loans | $7,493 | $5,574 | | Real estate owned | $148 | $148 | | **Total nonperforming assets** | **$7,641** | **$5,722** | | Nonperforming assets to total assets | 0.39% | 0.26% | Liquidity and Capital Resources - Primary uses of cash in the first half of 2022 included **$1.45 billion** to fund loans, **$195.0 million** for debt payoffs, and **$37.9 million** for stock repurchases[268](index=268&type=chunk) - Primary sources of cash included **$1.59 billion** in proceeds from the sale of loans and **$13.3 million** in net income[269](index=269&type=chunk) - At June 30, 2022, WaterStone Bank **exceeded all regulatory capital requirements** and was considered "well capitalized"[278](index=278&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate sensitivity, with models showing a negative impact on net interest income from both rising and falling rates - The company's primary market risk is **interest rate risk** due to its asset/liability structure, which is managed by an Asset/Liability Committee[283](index=283&type=chunk) Net Interest Income Sensitivity Analysis (as of June 30, 2022) | Immediate Change in Rates | +300 bps | +200 bps | +100 bps | -100 bps | | :--- | :--- | :--- | :--- | :--- | | **Percentage Change** | **(2.20)%** | **(0.95)%** | **(0.43)%** | **(1.97)%** | [Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of June 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's **disclosure controls and procedures are effective**[290](index=290&type=chunk) - **No material changes** occurred during the fiscal quarter that have affected, or are reasonably likely to affect, the company's internal control over financial reporting[291](index=291&type=chunk) [PART II. OTHER INFORMATION](index=73&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=73&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings not expected to materially impact its consolidated financial statements - Information regarding legal proceedings is detailed in Note 9 of the financial statements[292](index=292&type=chunk) [Risk Factors](index=73&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors were identified since its 2021 Annual Report on Form 10-K - **No material changes** in risk factors were reported from the company's 2021 Annual Report on Form 10-K[293](index=293&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its stock repurchase program, buying back over 1.4 million shares during the second quarter of 2022 - The current share repurchase plan allows for the repurchase of 3,500,000 shares; as of the end of the quarter, **1,350,513 shares may yet be purchased**[294](index=294&type=chunk) Common Stock Repurchases in Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 417,700 | $18.08 | | May 2022 | 657,371 | $16.53 | | June 2022 | 342,333 | $16.87 | | **Total** | **1,417,404** | **$17.07** | [Exhibits](index=74&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including required Sarbanes-Oxley certifications and financial statements in iXBRL format - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and financial statements in iXBRL format[298](index=298&type=chunk)

OR Table of Contents ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 001-36271 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2022 (414) 761-1000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: WATERSTONE FINANCIAL, ...

Mortgage Banking - Waterstone Financial's mortgage banking subsidiary, Waterstone Mortgage Corporation, originated $4.20 billion in mortgage loans held for sale during the year ended December 31, 2021[18]. - Waterstone Mortgage Corporation originated $4.23 billion in mortgage loans held for sale during the year ended December 31, 2021, a decrease of $201.7 million, or 4.6%, from the previous year[95]. - Total mortgage banking income decreased by $39.1 million, or 16.5%, to $197.6 million during the year ended December 31, 2021, compared to $236.7 million in 2020[95]. - The gross margin on loans originated and sold decreased by 11.6% for the year ended December 31, 2021, compared to the previous year[95]. - Loans originated for the purchase of residential property comprised 69.5% of total originations during the year ended December 31, 2021, up from 61.1% in 2020[96]. Loan Portfolio - As of December 31, 2021, WaterStone Bank's loan portfolio comprised 24.9% in one- to four-family residential loans ($300.5 million), 44.6% in multi-family residential loans ($538.0 million), and 20.8% in commercial real estate loans ($250.7 million)[29]. - As of December 31, 2021, total loans amounted to $1,205.8 million, with a decrease from $1,375.1 million in 2020, representing a decline of approximately 12.3%[31]. - One- to four-family residential mortgage loans totaled $300.5 million, accounting for 24.9% of total loans, down from 31.0% in 2020[35]. - Multi-family loans reached $538.0 million, representing 44.6% of total loans, a slight decrease from 44.8% in 2020[38]. - Commercial real estate loans totaled $250.7 million, or 20.8% of total loans, with an average loan balance of approximately $946,000[46][47]. Loan Losses and Non-Performing Assets - The allowance for loan losses was $15.8 million, compared to $18.8 million in 2020, indicating a reduction of 16.3%[31]. - Total non-accrual loans increased to $5.6 million as of December 31, 2021, compared to $5.5 million at December 31, 2020, reflecting a 0.46% ratio of non-accrual loans to total loans receivable[64]. - The total non-performing assets amounted to $5.7 million as of December 31, 2021, compared to $5.9 million at December 31, 2020[64]. - The company recorded $12,000 in loan principal charge-offs during the year ended December 31, 2021[64]. - The provision for loan losses was a credit of $3.99 million for the year ended December 31, 2021, compared to a provision of $6.34 million in 2020[87]. Deposits and Market Position - WaterStone Bank had a market share of 1.5% of all deposits in the Milwaukee-Waukesha metropolitan area, ranking 10th out of 46 financial institutions as of June 30, 2021[26]. - Total deposits increased by $48.5 million, or 4.1%, from December 31, 2020 to December 31, 2021, driven by a 25.5% increase in total transaction accounts[117]. - Total deposits increased to $1,250.845 million in 2021, up from $1,161.936 million in 2020, representing a growth of 7.6%[120]. - Certificates of deposit comprised 50.8% of total customer deposits as of December 31, 2021, with a weighted average cost of 0.51%[113]. - The average balance of transaction accounts was $575.350 million in 2021, with a weighted average yield of 0.17%[120]. Regulatory Compliance and Capital - WaterStone Bank's capital to assets ratio was 17.08% as of December 31, 2021, significantly above the minimum requirement of 6%[152]. - As of December 31, 2021, WaterStone Bank was classified as well-capitalized with a common equity Tier 1 ratio of 24.50% and a total risk-based capital ratio of 25.52%[163]. - WaterStone Bank's Required Liquidity Ratio was 8.0% as of December 31, 2021, in compliance with Wisconsin regulations[167]. - WaterStone Bank must maintain a minimum common equity Tier 1 capital ratio of 4.5% and a Tier 1 leverage ratio of 4.0% under federal regulations[153]. - The Federal Deposit Insurance Corporation insures deposits at WaterStone Bank up to a maximum of $250,000[147]. Investment Portfolio - Waterstone Financial's investment subsidiary, Wauwatosa Investments, Inc., manages the majority of the consolidated investment portfolio[20]. - The investment portfolio is primarily comprised of securities classified as available for sale, with no investment securities sold during the years ended December 31, 2021, 2020, and 2019[99]. - As of December 31, 2021, the mortgage-backed securities portfolio totaled $19.5 million with a weighted average yield of 2.34% and a weighted average remaining life of 6.3 years[102]. - The collateralized mortgage obligations portfolio amounted to $99.3 million, yielding a weighted average of 1.54% and having a weighted average remaining life of 3.5 years[103]. - Private-label mortgage-backed securities totaled $2.9 million, with a weighted average yield of 2.80% and a weighted average remaining life of 0.8 years[104]. Employee and Corporate Governance - The company had 870 full-time equivalent employees as of December 31, 2021, with a focus on attracting and retaining top talent[123]. - The company offers comprehensive compensation and benefits packages, including a 401k Plan and Employee Stock Ownership Plan[124]. - WaterStone Bank was rated "satisfactory" in its Community Reinvestment Act compliance during its most recent regulatory examination[177]. - Waterstone Financial is subject to regulatory capital requirements that are equally stringent as those applicable to its subsidiary depository institutions[186]. - Regulation O requires that any proposed loan to an insider be approved in advance by a majority of the board of directors[172].

Financial Performance - Net income for the community banking segment increased to $6.8 million for Q3 2021, up from $6.2 million in Q3 2020, with net interest income rising by $629,000 to $14.1 million [192]. - The mortgage banking segment reported a net income of $12.3 million for Q3 2021, down from $20.1 million in Q3 2020, with mortgage loan originations decreasing by $241.2 million, or 18.6% [196]. - Net income for the three months ended September 30, 2021, was $19,000, a decrease from $26,293 in the same period of 2020 [199]. - Net income for the nine months ended September 30, 2021, increased by $7.3 million to $21.6 million compared to $14.4 million for the same period in 2020 [219]. - Earnings per share increased to $2.45 for the nine months ended September 30, 2021, compared to $2.16 for the same period in 2020 [227]. Income and Expenses - Total noninterest income in the mortgage banking segment decreased by $21.9 million, or 29.9%, to $51.3 million in Q3 2021 compared to $73.1 million in Q3 2020 [196]. - Total noninterest income decreased by $22.8 million, or 30.1%, to $52.9 million for the three months ended September 30, 2021, compared to $75.8 million for the same period in 2020 [214]. - Total noninterest expenses decreased by $9.7 million, or 18.3%, to $43.3 million for the three months ended September 30, 2021, compared to $53.0 million for the same period in 2020 [216]. - Total noninterest income decreased by $12.9 million, or 7.4%, to $161.2 million during the nine months ended September 30, 2021, primarily due to a decrease in mortgage banking income [239]. Loan Performance - The provision for loan losses was a negative $750,000 for Q3 2021, compared to a provision of $1.0 million in Q3 2020 [193]. - The provision for loan losses was a negative $2.5 million for the nine months ended September 30, 2021, compared to a provision of $6.3 million for the same period in 2020 [237]. - The allowance for loan losses decreased by $2.0 million to $16.8 million at September 30, 2021, reflecting improvements in economic factors [249]. - Total loans past due increased by $3.3 million, or 42.2%, to $11.2 million at September 30, 2021, from $7.9 million at December 31, 2020 [274]. Capital and Assets - The company maintained capital ratios above regulatory requirements as of September 30, 2021, despite potential adverse impacts from credit losses [190]. - Shareholders' equity increased by $29.5 million to $442.6 million at September 30, 2021, primarily due to net income and additional paid-in capital [256]. - Total assets increased by $49.5 million, or 2.3%, to $2.23 billion at September 30, 2021, driven by increases in cash and cash equivalents and securities available for sale [244]. - Total deposits increased by $61.7 million to $1.25 billion at September 30, 2021, primarily due to a $76.4 million increase in money market and savings deposits [252]. Interest Income and Expense - Net interest income increased by $705,000, or 5.3%, to $14.1 million compared to $13.4 million in the prior year [210]. - Interest income on loans decreased by $2.1 million due to an 11.0% decrease in average loans and a three basis point decrease in average yield [211]. - Interest expense on time deposits decreased by $2.3 million, or 76.7%, primarily due to a 120 basis point decrease in average cost [211]. - Total interest-earning assets amounted to $2,091,496, generating a net interest margin of 2.68% [202]. Market Conditions - The gross margin on loans originated and sold decreased by 16.4% in Q3 2021 compared to Q3 2020, reflecting increased competition in the mortgage market [196]. - The mix of loan types shifted towards conventional loans, which comprised 76.1% of total originations in Q3 2021, compared to 75.6% in Q3 2020 [197]. - The percentage of origination volume related to purchase activity increased to 68.2% from 61.9% for the nine months ended September 30, 2021, compared to the same period in 2020 [224]. Cash Flow and Liquidity - Cash and cash equivalents increased by $263.8 million, or 278.4%, to $358.6 million at September 30, 2021, primarily due to increased deposits and advance payments by borrowers for taxes [245]. - The company had $470.0 million in long-term advances from the FHLB with maturities in 2027, 2028, and 2029, providing additional liquidity [294]. - The company had outstanding commitments to originate loans receivable of $44.6 million and unfunded commitments under construction loans of $69.2 million as of September 30, 2021 [296]. Regulatory Compliance - The company exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines as of September 30, 2021 [299]. - A 100 basis point increase in interest rates is projected to increase net interest income by 8.08% over the next 12 months, while a decrease of the same magnitude would decrease it by 5.56% [313].

Financial Performance - Net income for the community banking segment increased to $7.5 million for Q2 2021, up from $4.1 million in Q2 2020, representing an increase of 82.9%[195] - Net income for the three months ended June 30, 2021, was $17.9 million, down from $20.9 million in 2020, resulting in a decrease in earnings per share from $0.86 to $0.75[203] - Net income for the six months ended June 30, 2021, increased by $6.7 million to $14.9 million compared to $8.2 million for the same period in 2020[220] - Earnings per share increased to $1.65 for the six months ended June 30, 2021, compared to $1.08 for the same period in 2020[228] Income and Expenses - Net interest income rose by $816,000 to $14.5 million in Q2 2021 compared to $13.7 million in Q2 2020[195] - Total noninterest income decreased by $14.9 million, or 22.2%, to $52.0 million for the three months ended June 30, 2021, compared to $66.9 million for the same period in 2020[215] - Total noninterest expenses decreased by $4.4 million, or 9.2%, to $43.3 million for the three months ended June 30, 2021, compared to $47.7 million for the same period in 2020[217] - Total noninterest income increased by $9.9 million, or 10.0%, to $108.2 million during the six months ended June 30, 2021, compared to $98.4 million in the same period of 2020[242] Loan Performance - The mortgage banking segment reported a net income of $10.4 million for Q2 2021, down from $16.8 million in Q2 2020, a decrease of 38.7%[199] - Mortgage loan originations decreased by $77.5 million, or 6.8%, to $1.07 billion in Q2 2021 compared to $1.14 billion in Q2 2020[199] - Total loans originated for investment decreased to $127.8 million for the six months ended June 30, 2021, down from $252.0 million for the same period in 2020[252] - Total loans past due decreased by $992,000, or 12.6%, to $6.9 million at June 30, 2021, compared to $7.9 million at December 31, 2020[280] Provisions and Allowances - The company reported a negative provision for loan losses of $750,000 for Q2 2021, compared to a provision of $4.3 million in Q2 2020[196] - The negative provision for loan losses was $750,000 for the three months ended June 30, 2021, compared to a provision of $4.5 million for the same period in 2020[213] - The company recorded a negative provision for loan losses of $1.9 million for the six months ended June 30, 2021, compared to a provision of $5.1 million for the same period in 2020[221] - The allowance for loan losses decreased by $1.4 million to $17.4 million at June 30, 2021, reflecting a negative provision for loan losses of $1.8 million[285] Capital and Assets - The company maintained all capital ratios in excess of regulatory requirements as of June 30, 2021, despite potential adverse impacts from credit losses[192] - Shareholders' equity increased by $18.6 million to $431.7 million at June 30, 2021, primarily due to net income and additional paid-in capital[261] - Total assets increased by $17.4 million, or 0.8%, to $2.20 billion at June 30, 2021, from $2.18 billion at December 31, 2020[247] - Cash and cash equivalents surged by $134.0 million, or 141.4%, to $228.7 million at June 30, 2021, compared to $94.8 million at December 31, 2020[248] Interest Rates and Margins - The net interest margin increased to 2.78% in Q2 2021 from 2.62% in Q2 2020[211] - A 100 basis point increase in interest rates is projected to increase net interest income by 8.08% over the next 12 months, while a decrease of 100 basis points would decrease it by 5.56%[318] - Interest expense on time deposits decreased by $2.6 million, or 75.2%, primarily due to a 141 basis point decrease in average cost[212] Mortgage Banking Segment - Total mortgage banking noninterest income decreased by $13.7 million, or 21.3%, to $50.6 million in Q2 2021 from $64.2 million in Q2 2020[199] - Mortgage banking income decreased by $14.1 million, or 22.1%, primarily due to a decrease in loan origination volume, which fell by $52.2 million, or 4.7%, to $1.06 billion[216] - The company originated $2.18 billion in mortgage loans during the six months ended June 30, 2021, an increase of $328.7 million, or 17.8%, from $1.85 billion in the same period in 2020[224] Liquidity and Commitments - The company maintains liquid assets to meet liquidity needs, adjusting levels based on loan commitments and deposit outflows[292] - The company had outstanding commitments to originate loans receivable of $55.6 million and unfunded commitments under construction loans of $57.5 million as of June 30, 2021[301] - Total contractual obligations as of June 30, 2021, amounted to $1.71 billion, with demand deposits at $208.5 million and time deposits at $671.1 million[306]

Financial Performance - Net income for the community banking segment increased to $7.3 million for Q1 2021, up from $4.1 million in Q1 2020, reflecting a significant improvement in financial performance [164]. - Total net income for the three months ended March 31, 2021, was $21.3 million, a significant increase from $6.1 million in the same period of 2020, representing a 251.5% growth [171]. - Earnings per share (EPS) increased to $0.90 for basic and $0.89 for diluted, compared to $0.24 for both in the prior year [171]. - Annualized return on average assets rose to 3.99% from 1.21%, and return on average equity increased to 20.49% from 6.24% [171]. Income Sources - Net interest income rose by $1.3 million to $14.2 million in Q1 2021 compared to $12.9 million in Q1 2020, driven by decreased interest expense [164]. - The mortgage banking segment reported net income of $14.0 million for Q1 2021, a substantial increase from $2.0 million in Q1 2020 [168]. - Total noninterest income rose by $24.7 million, or 78.6%, to $56.2 million, driven primarily by a 78.9% increase in mortgage banking income [183]. Loan Activity - Mortgage loan originations reached $1.12 billion in Q1 2021, representing a 57.3% increase from $708.8 million in Q1 2020, primarily due to a surge in refinance products [168]. - Total loan origination volume increased by $421.4 million, or 61.3%, to $1.11 billion during the three months ended March 31, 2021 [183]. - Average loans increased by $95.2 million, or 6.1%, while the average balance of loans held for sale surged by $141.6 million, or 84.0% [180]. Noninterest Expenses - Total noninterest expenses increased by $7.8 million, or 22.1%, to $43.0 million for the three months ended March 31, 2021, compared to $35.2 million for the same period in 2020 [184]. - Compensation, payroll taxes, and other employee benefits in the mortgage banking segment rose by $9.9 million, or 50.9%, to $29.3 million due to increased commission expenses and branch manager pay [184]. Asset and Deposit Growth - Total assets increased by $13.4 million, or 0.6%, to $2.20 billion at March 31, 2021, driven by higher cash and cash equivalents and prepaid expenses [186]. - Cash and cash equivalents surged by $103.6 million, or 109.4%, to $198.4 million at March 31, 2021, reflecting increased deposits and advance payments by borrowers for taxes [187]. - Total deposits rose by $34.8 million to $1.22 billion at March 31, 2021, with increases in money market, savings, demand, and time deposits [194]. Loan Losses and Recoveries - The provision for loan losses was a negative $1.1 million for the quarter, compared to a provision of $750,000 in the same quarter of 2020 [181]. - The allowance for loan losses decreased by $1.0 million to $17.8 million at March 31, 2021, due to improved economic factors reducing the required allowance [192]. - Net recoveries for the three months ended March 31, 2021, were $27,000, or 0.01% of average loans annualized, compared to net recoveries of $54,000, or less than 0.02% for the same period in 2020 [220]. Regulatory Compliance and Capital Position - The company maintained all capital ratios above regulatory requirements as of March 31, 2021, indicating a strong capital position despite potential credit losses [161]. - WaterStone Bank exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines as of March 31, 2021 [235]. - Shareholders' equity increased by $17.6 million to $430.7 million at March 31, 2021, primarily due to net income and additional paid-in capital from stock options exercised [198]. Interest Rate Management - Interest rate risk management strategies include emphasizing variable rate loans and reducing the expected average life of the investment portfolio [244]. - A 100 basis point increase in interest rates is projected to increase net interest income by 5.95%, while a decrease of the same magnitude would decrease it by 4.41% [248].

Mortgage Banking - Waterstone Financial's mortgage banking subsidiary, Waterstone Mortgage Corporation, originated approximately $4.33 billion in mortgage loans held for sale during the year ended December 31, 2020[19]. - Waterstone Mortgage Corporation had 59 offices in 22 states as of December 31, 2020[16]. - Waterstone Mortgage Corporation originated $4.43 billion in mortgage loans held for sale during the year ended December 31, 2020, a 51.6% increase from $2.92 billion in 2019[96]. - Total mortgage banking income rose to $236.7 million in 2020, an increase of 86.5% compared to $126.9 million in 2019, driven by higher loan production volume[96]. - The gross margin on loans originated and sold increased by 20.2% in 2020, reflecting improved profitability in mortgage banking activities[96]. - The mix of loan types shifted, with conventional loans comprising 75.8% of total originations in 2020, up from 69.5% in 2019, suggesting a strategic focus on higher-margin products[97]. Loan Portfolio Composition - As of December 31, 2020, one- to four-family residential mortgage loans comprised $426.8 million, or 31.0% of Waterstone Bank's total loan portfolio[30]. - Multi-family residential mortgage loans represented $571.9 million, or 41.6% of the total loan portfolio as of December 31, 2020[30]. - Commercial real estate loans accounted for $238.4 million, or 17.3% of the total loan portfolio at the same date[30]. - Total loans amounted to $1,375.1 million, with a slight decrease from $1,388.0 million in 2019[32]. - One- to four-family residential mortgage loans totaled $426.8 million, representing 31.0% of total loans, down from 34.6% in 2019[36]. - Multi-family loans accounted for $571.9 million, or 41.6% of total loans, a decrease from 42.1% in 2019[39]. - Commercial loans reached $45.4 million, or 3.3% of total loans, including $18.1 million in Paycheck Protection Program (PPP) loans[49][50]. Loan Performance and Risk - The allowance for loan losses was $18.8 million, an increase from $12.4 million in 2019, indicating a rise in potential credit risk[32]. - Total non-accrual loans decreased by $1.5 million, or 20.9%, to $5.6 million as of December 31, 2020, compared to $7.0 million as of December 31, 2019[64]. - The ratio of non-accrual loans to total loans receivable was 0.40% at December 31, 2020, down from 0.51% at December 31, 2019[64]. - Troubled debt restructurings totaled $11.6 million at December 31, 2020, compared to $4.0 million at December 31, 2019[70]. - The outstanding principal balance of the five largest non-accrual loans as of December 31, 2020, totaled $2.4 million, representing 43.8% of total non-accrual loans[66]. - Total loans past due increased by $1.4 million, or 22.1%, to $7.9 million at December 31, 2020, compared to $6.5 million at December 31, 2019[77]. Deposits and Funding - Total deposits increased by $117.1 million, or 11.0%, from December 31, 2019, driven by a $155.5 million increase in transaction accounts[117]. - As of December 31, 2020, total deposits amounted to $1,161.936 million, with a weighted average cost of 1.19%[120]. - Certificates of deposit comprised 59.2% of total customer deposits as of December 31, 2020, with a weighted average cost of 0.86%[113]. - The company funds its loan production primarily with retail deposits and Federal Home Loan Bank advances[17]. Capital and Regulatory Compliance - WaterStone Bank's capital to assets ratio was 17.13% as of December 31, 2020, significantly above the required minimum of 6%[152]. - The bank's common equity Tier 1 ratio was 21.44%, indicating strong capital adequacy[165]. - WaterStone Bank is classified as "well capitalized" under regulatory standards, meeting all required capital ratios[165]. - The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio to 1.35%, which was exceeded in November 2018[149]. - WaterStone Bank's Required Liquidity Ratio was 8.0% as of December 31, 2020, in compliance with WDFI regulations[171]. Employee and Corporate Governance - The company had approximately 812 full-time equivalent employees as of December 31, 2020, with a focus on attracting and retaining top talent[123]. - The company has implemented a culture of inclusion and diversity, which is integral to its talent retention strategy[123]. - Waterstone Financial complies with the Sarbanes-Oxley Act of 2002 to enhance corporate responsibility and improve disclosure accuracy[198].

Financial Performance - Net income for the community banking segment was $6.2 million for Q3 2020, down from $6.7 million in Q3 2019, with net interest income decreasing by $424,000 to $13.5 million [200]. - The mortgage banking segment reported net income of $20.1 million for Q3 2020, significantly up from $4.1 million in Q3 2019, driven by a 52.3% increase in mortgage loan originations to $1.30 billion [204]. - Net income for the three months ended September 30, 2020, was $26.3 million, up from $10.9 million in 2019, representing a significant increase [208]. - Earnings per share (basic and diluted) rose to $1.08 for the three months ended September 30, 2020, compared to $0.42 in 2019 [208]. - Net income for the nine months ended September 30, 2020, totaled $53.3 million, compared to $27.1 million for the same period in 2019 [235]. - Earnings per share increased to $2.16 for the nine months ended September 30, 2020, compared to $1.04 for the same period in 2019 [235]. Income and Expenses - Total noninterest income increased by $1.7 million, primarily due to gains from bank-owned life insurance policies [202]. - Total noninterest income increased by $38.3 million, or 102.1%, to $75.8 million for the three months ended September 30, 2020, compared to $37.5 million for the same period in 2019 [220]. - Total noninterest expenses increased by $16.8 million, or 46.3%, to $53.0 million for the three months ended September 30, 2020, compared to $36.2 million for the same period in 2019 [224]. - Total noninterest expenses increased by $35.0 million, or 34.6%, to $135.9 million for the nine months ended September 30, 2020, compared to $100.9 million for the same period in 2019 [251]. - Total mortgage banking noninterest income rose by $36.6 million, or 100.2%, to $73.1 million in Q3 2020 compared to $36.5 million in Q3 2019 [204]. Loan and Provision for Losses - Provision for loan losses was $1.0 million for Q3 2020, compared to a negative provision of $150,000 in Q3 2019, reflecting increased loan downgrades [201]. - The provision for loan losses was $6.1 million for the nine months ended September 30, 2020, compared to a negative provision of $850,000 for the same period in 2019 [228]. - The provision for loan losses was $6.3 million for the nine months ended September 30, 2020, compared to a negative provision of $730,000 for the same period in 2019 [246]. - The allowance for loan losses increased by $6.5 million to $18.8 million at September 30, 2020, due to increased economic uncertainty [260]. - The allowance for loan losses increased by $6.5 million to $18.8 million at September 30, 2020, reflecting a provision of $6.3 million due to economic conditions related to the COVID-19 pandemic [292]. Assets and Liabilities - Total assets increased by $224.5 million, or 11.2%, to $2.22 billion at September 30, 2020, from $2.00 billion at December 31, 2019 [254]. - Total deposits rose by $116.9 million to $1.18 billion at September 30, 2020, with increases in money market and savings deposits, demand deposits, and time deposits [263]. - Total borrowings increased by $68.6 million, or 14.2%, to $552.1 million at September 30, 2020 [264]. - Cash and cash equivalents increased by $12.3 million, or 16.5%, to $86.6 million at September 30, 2020, compared to $74.3 million at December 31, 2019 [255]. - Loans held for sale increased by $165.7 million to $385.8 million at September 30, 2020, driven by increased refinancing activity due to lower mortgage rates [256]. Capital and Equity - The company’s capital ratios were above all regulatory requirements as of September 30, 2020, but could be adversely affected by further credit losses [197]. - Shareholders' equity increased by $5.7 million to $399.4 million at September 30, 2020, primarily due to net income and additional paid-in capital [267]. - The company exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines as of September 30, 2020 [310]. Loan Modifications and Programs - The company modified eight loans totaling $3.2 million under the CARES Act as of September 30, 2020, which are not considered troubled debt restructurings [199]. - The company modified $3.2 million of loans under the CARES Act, consisting of principal and interest deferrals [283]. - The company funded 279 Paycheck Protection Program (PPP) loans totaling $30.1 million as of September 30, 2020, with a guaranteed interest rate of 1.0% [199]. Market and Economic Conditions - Interest income on loans increased due to volume, but overall interest income may be negatively impacted by deferred payments due to COVID-19 [196]. - A 100 basis point increase in interest rates is projected to increase net interest income by 1.71% over the next 12 months, while a decrease of 100 basis points would decrease net interest income by 3.48% [325]. - The mix of loan types shifted towards more conventional loans, which comprised 75.6% of total originations in Q3 2020, compared to 70.1% in Q3 2019 [205].

Financial Performance - Net income for the community banking segment was $4.1 million for Q2 2020, down from $5.8 million in Q2 2019, while net interest income increased to $13.7 million from $13.5 million [189]. - The mortgage banking segment reported a net income of $16.8 million for Q2 2020, significantly up from $3.9 million in Q2 2019, with mortgage loan originations increasing by 44.1% to $1.14 billion [193]. - Net income for the three months ended June 30, 2020, was $20.9 million, up from $9.6 million in 2019, representing a 117.5% increase [197]. - Net income for the six months ended June 30, 2020 was $27.0 million, compared to $16.2 million for the same period in 2019, representing a year-over-year increase of 66.8% [221]. - Net income in the mortgage banking segment totaled $18.7 million for the six months ended June 30, 2020, compared to $4.6 million for the same period in 2019 [218]. - Earnings per share (EPS) increased to $0.86 for basic and $0.85 for diluted, compared to $0.37 for both in the prior year [197]. - Earnings per share for the six months ended June 30, 2020 was $1.08, compared to $0.61 for the same period in 2019 [221]. Income and Expenses - Total noninterest income for the community banking segment rose by $1.9 million, primarily due to increased loan fees, including prepayment fees and fees from loan swaps [191]. - Total mortgage banking noninterest income increased by 86.9% to $64.2 million in Q2 2020, driven by higher loan volume and improved gross margins [193]. - Total noninterest income rose by $31.7 million, or 90.1%, to $66.9 million during the three months ended June 30, 2020, compared to $35.2 million in 2019 [208]. - Total noninterest expenses increased by $12.3 million, or 34.9%, to $47.7 million for the three months ended June 30, 2020 compared to $35.4 million for the same period in 2019 [210]. - Total noninterest expenses increased by $18.2 million, or 28.1%, to $82.9 million during the six months ended June 30, 2020 [236]. - Total compensation, payroll taxes, and other employee benefits increased by $9.6 million, or 42.3%, to $32.1 million for the three months ended June 30, 2020, compared to $22.6 million for the same period in 2019 [196]. - Compensation, payroll taxes, and other employee benefits increased by $12.9 million, or 33.4%, to $51.5 million for the six months ended June 30, 2020 compared to $38.6 million for the same period in 2019 [220]. Loan Performance - The provision for loan losses was $4.3 million for Q2 2020, compared to no provision in Q2 2019, reflecting adjustments for increased unemployment rates [190]. - The provision for loan losses was $4.5 million for the three months ended June 30, 2020, compared to $30,000 in the same period of 2019, reflecting economic challenges due to the COVID-19 pandemic [206]. - Provision for loan losses was $5.1 million for the six months ended June 30, 2020, compared to a negative provision of $700,000 for the same period in 2019 [213]. - The provision for loan losses recorded during the current year reflects an increased allocation related to the economic conditions due to the COVID-19 pandemic [278]. - The total loan modifications under the CARES Act amounted to $121.8 million, representing 8.49% of total loans receivable as of June 30, 2020 [268]. - The company modified 191 loans totaling $113.9 million under COVID-19 payment deferral programs, with modifications ranging from 90 to 180 days [182]. - The company modified $113.9 million of loans for a period ranging from 90 to 180 days, consisting of principal payment deferral as of June 30, 2020 [266]. Asset and Liability Management - Total assets increased by $221.2 million, or 11.1%, to $2.22 billion at June 30, 2020, from $2.00 billion at December 31, 2019 [238]. - Total deposits increased by $89.9 million to $1.16 billion at June 30, 2020, primarily from money market and savings deposits [247]. - Total borrowings increased by $115.5 million, or 23.9%, to $599.1 million at June 30, 2020, with significant short-term FHLB borrowings [248]. - The company had $727.9 million in certificates of deposit scheduled to mature in one year or less [291]. - Total contractual obligations as of June 30, 2020, amounted to $1.77 billion, with significant portions due within one year [297]. - The company is considered "well capitalized" under regulatory guidelines, exceeding all regulatory capital requirements [295]. Market and Economic Conditions - The company experienced a significant increase in refinance products, which rose by $410.3 million, or 417.0%, due to decreasing mortgage rates [193]. - The gross margin on loans originated and sold increased by 27.0% in Q2 2020, reflecting heightened industry demand due to low mortgage rates [193]. - A 100 basis point increase in interest rates is projected to increase net interest income by 1.90% over the next 12 months, while a decrease of 100 basis points would decrease it by 3.76% [308]. - The company has implemented strategies to manage interest rate risk, including emphasizing variable rate loans and shortening the expected average life of the investment portfolio [304]. Equity and Shareholder Information - Shareholders' equity decreased by $8.1 million to $385.6 million at June 30, 2020, primarily due to dividend declarations and stock repurchases [251]. - The company repurchased 9,727,753 shares at an average price of $14.25 under previously approved stock repurchase plans [294].