UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q T Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2019 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) (State or other jurisdiction of incorporation or organization) (IRS Employer Identific ...

Financial Performance - Net income for the community banking segment remained stable at $5.8 million for both Q1 2019 and Q1 2018, while net interest income decreased by $172,000 to $13.1 million [169]. - The mortgage banking segment reported a net income of $719,000 for Q1 2019, down from $1.1 million in Q1 2018, with mortgage loan originations decreasing by $14.6 million, or 2.8% [172]. - Total mortgage banking noninterest income decreased by $1.2 million, or 4.7%, to $23.6 million in Q1 2019 compared to $24.7 million in Q1 2018 [172]. - The overall net interest margin decreased to 2.93% in Q1 2019 from 3.18% in Q1 2018, reflecting increased interest expenses [178]. - The annualized return on average assets decreased to 1.39% in Q1 2019 from 1.57% in Q1 2018 [175]. - The annualized return on average equity decreased to 6.65% in Q1 2019 from 6.90% in Q1 2018 [175]. Income and Expenses - Compensation, payroll taxes, and other employee benefits expense decreased by $181,000, or 1.1%, to $16.1 million in Q1 2019 compared to Q1 2018 [174]. - Total noninterest income decreased by $926,000, or 3.7%, to $24.3 million during the three months ended March 31, 2019, primarily due to a decrease in mortgage banking income [189]. - Total noninterest expenses decreased by $798,000, or 2.6%, to $29.3 million during the three months ended March 31, 2019 [191]. Loan Loss Provisions - The provision for loan losses was a negative provision of $700,000 in Q1 2019, compared to a negative provision of $900,000 in Q1 2018 [169]. - Provision for loan losses amounted to a negative provision of $680,000 for the three months ended March 31, 2019, compared to a negative provision of $880,000 for the same period in 2018 [187]. - The allowance for loan losses decreased by $688,000 to $12.6 million at March 31, 2019, reflecting a negative provision due to an improved risk profile [227]. - Net charge-offs for the three months ended March 31, 2019, were $8,000, or less than 0.01% of average loans annualized [228]. Asset and Liability Management - Total assets increased by $13.3 million, or 0.7%, to $1.93 billion at March 31, 2019, from $1.92 billion at December 31, 2018 [193]. - Cash and cash equivalents increased by $18.7 million, or 21.8%, to $104.8 million at March 31, 2019, compared to $86.1 million at December 31, 2018 [194]. - Total deposits decreased by $1.2 million to $1.04 billion at March 31, 2019, primarily due to a decrease in demand and time deposits [201]. - Total borrowings increased by $13.4 million to $448.5 million at March 31, 2019, with external short-term borrowings at the mortgage banking segment increasing [202]. - Shareholders' equity decreased by $15.2 million to $384.5 million at March 31, 2019, primarily due to dividend declarations and stock repurchases [205]. Loan Portfolio and Quality - The mix of loan types shifted, with conventional loans comprising 68.4% of total originations in Q1 2019, down from 69.1% in Q1 2018 [173]. - Total non-accrual loans increased by $243,000, or 3.7%, to $6.8 million as of March 31, 2019 [210]. - Total loans past due decreased by $656,000, or 9.4%, to $6.3 million at March 31, 2019, compared to $7.0 million at December 31, 2018 [221]. - The allowance for loan losses to non-accrual loans ratio at the end of the period was 184.77% [227]. Capital Management - WaterStone Bank exceeded all regulatory capital requirements and is considered "well capitalized" as of March 31, 2019 [247]. - The company repurchased 7,497,453 shares at an average price of $13.80, with authorization to purchase an additional 230,300 shares [246]. - Total contractual obligations amounted to $1,497.4 million, with demand deposits at $128.5 million and time deposits at $733.5 million [249]. Interest Rate Risk - Interest rate risk management strategies include emphasizing variable rate loans and shortening the expected average life of the investment portfolio [258]. - A 100 basis point increase in interest rates is projected to decrease net interest income by 0.65%, while a decrease of 100 basis points would increase it by 2.18% [262].

Loan Portfolio - As of December 31, 2018, WaterStone Bank's loan portfolio comprised 35.5% one- to four-family residential loans, 43.3% multi-family residential loans, and 16.4% commercial real estate loans[37]. - Total loans reached $1,379.1 million, with a net loan amount of $1,365.9 million after accounting for an allowance for loan losses of $13.2 million[41]. - As of December 31, 2018, one- to four-family residential mortgage loans totaled $490.0 million, representing 35.5% of total loans[44]. - Multi-family loans amounted to $597.1 million, accounting for 43.3% of total loans at the same date[48]. - The total amount of commercial loans was $225.5 million, representing 16.4% of total loans[41]. - Outstanding home equity loans and lines of credit totaled $20.0 million, representing 1.5% of total loans outstanding[51]. - Construction and land loans amounted to $13.4 million, or 1.0% of total loans, with $66.3 million originated for investment during 2018, accounting for 17.2% of all loans originated for investment[52]. - Commercial real estate loans totaled $225.5 million, or 16.4% of total loans, with $58.2 million originated for investment during 2018, representing 15.1% of all loans originated for investment[57]. Loan Origination - Waterstone Financial's mortgage banking subsidiary, Waterstone Mortgage Corporation, originated approximately $2.51 billion in mortgage loans held for sale during the year ended December 31, 2018[25]. - Waterstone Mortgage Corporation originated $2.60 billion in mortgage loans held for sale during the year ended December 31, 2018, an increase of $52.2 million, or 2.0%, from the previous year[108]. - Total loans originated for investment in 2018 amounted to $385.1 million, compared to $315.2 million in 2017[63]. - Multi-family loans originated for investment during 2018 totaled $123.1 million, or 32.0% of all loans originated for investment[48]. Financial Performance - Total mortgage banking income decreased by $6.7 million, or 5.5%, to $115.4 million during the year ended December 31, 2018, compared to $122.1 million in 2017[109]. - The allowance for loan losses at the end of 2018 was $13.25 million, down from $14.08 million at the end of 2017, reflecting a provision (credit) for loan losses of $(1.06) million[99]. - The net charge-offs for the year ended December 31, 2018, were $(232,000), compared to $786,000 in 2017, indicating a significant reduction in charge-offs[99]. - The total charge-offs for the year ended December 31, 2018, were $84,000, significantly lower than $1.48 million in 2017[99]. Asset Quality - Total non-accrual loans increased by $487,000, or 8.0%, to $6.6 million as of December 31, 2018 compared to $6.1 million as of December 31, 2017[74]. - The ratio of non-accrual loans to total loans receivable was 0.48% at December 31, 2018, compared to 0.47% at December 31, 2017[74]. - Troubled debt restructurings totaled $6.7 million at December 31, 2018, compared to $5.1 million at December 31, 2017[80]. - Total non-performing assets amounted to $8.7 million as of December 31, 2018[74]. - Total loans past due increased by $1.1 million, or 18.8%, to $6.95 million at December 31, 2018, from $5.85 million at December 31, 2017[87]. Capital and Liquidity - As of December 31, 2018, WaterStone Bank had a capital to assets ratio of 20.01%, down from 21.44% in 2017[165]. - WaterStone Bank was classified as well-capitalized with a common equity Tier 1 ratio of 26.05% and a total risk-based capital ratio of 26.95%[177]. - The capital conservation buffer requirement was fully implemented at 2.5% on January 1, 2019, which is necessary for capital distributions and discretionary bonuses[170]. - WaterStone Bank's Required Liquidity Ratio was 8.0% as of December 31, 2018, and the bank was in compliance with this requirement[180]. Regulatory Environment - WaterStone Bank is subject to extensive regulation by the WDFI and the Federal Deposit Insurance Corporation, impacting its operational capabilities[140]. - The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio to 1.35% of estimated insured deposits, which was exceeded in November 2018[161]. - Loans to one borrower are limited to 20% of the savings bank's capital plus an additional 5% for fully secured loans, with a maximum of $500,000 for certain purposes[149]. - The Federal Deposit Insurance Corporation has the authority to increase insurance assessments, which could adversely affect WaterStone Bank's operating expenses[162]. Investment Portfolio - Waterstone Financial's investment subsidiary, Wauwatosa Investments, Inc., manages the majority of the consolidated investment portfolio[27]. - The mortgage-backed securities portfolio had a weighted average yield of 2.58% and a weighted average remaining life of 4.2 years at December 31, 2018[116]. - Total securities available for sale amounted to $188.272 million as of December 31, 2018, with a weighted average yield of 2.63%[125]. - The municipal obligations portfolio totaled $55.9 million at December 31, 2018, with a weighted average yield of 2.37% and a weighted average remaining life of 5.2 years[118].