New Waterstone(WSBF) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's analysis of financial performance Item 1. Financial Statements This section provides the unaudited consolidated financial statements and related notes for the quarter ended March 31, 2025 Consolidated Statements of Financial Condition This section presents the consolidated statements of financial condition as of March 31, 2025, and December 31, 2024 Consolidated Statements of Financial Condition (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Assets | $2,175,367 | $2,209,608 | $(34,241) | (1.55)% | | Total Liabilities | $1,834,007 | $1,870,473 | $(36,466) | (1.95)% | | Total Shareholders' Equity | $341,360 | $339,135 | $2,225 | 0.66% | Consolidated Statements of Income This section details the consolidated statements of income for the three months ended March 31, 2025, and 2024 Consolidated Statements of Income (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total Interest Income | $27,755 | $26,905 | $850 | 3.16% | | Total Interest Expense | $15,179 | $15,768 | $(589) | (3.74)% | | Net Interest Income | $12,576 | $11,137 | $1,439 | 12.92% | | Provision (credit) for credit losses | $(558) | $67 | $(625) | (932.84)% | | Total Noninterest Income | $17,097 | $21,248 | $(4,151) | (19.54)% | | Total Noninterest Expenses | $26,350 | $27,550 | $(1,200) | (4.36)% | | Income before income taxes | $3,881 | $4,768 | $(887) | (18.60)% | | Income tax expense | $845 | $1,730 | $(885) | (51.16)% | | Net Income | $3,036 | $3,038 | $(2) | (0.07)% | | Basic Income per share | $0.17 | $0.16 | $0.01 | 6.25% | | Diluted Income per share | $0.17 | $0.16 | $0.01 | 6.25% | Consolidated Statements of Comprehensive Income This section outlines the consolidated statements of comprehensive income for the three months ended March 31, 2025, and 2024 Consolidated Statements of Comprehensive Income (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :---------------------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net Income | $3,036 | $3,038 | $(2) | (0.07)% | | Net unrealized holding gain (loss) on available for sale securities | $2,348 | $(1,269) | $3,617 | (284.99)% | | Total Other Comprehensive Income (Loss) | $2,348 | $(1,269) | $3,617 | (284.99)% | | Comprehensive Income | $5,384 | $1,769 | $3,615 | 204.35% | Consolidated Statements of Changes in Shareholders' Equity This section presents changes in consolidated shareholders' equity for the three months ended March 31, 2025, and 2024 Consolidated Statements of Changes in Shareholders' Equity (Three months ended March 31, 2025 vs. 2024) | Metric | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | | Balances at beginning of period | $339,135 | $344,056 (Dec 31, 2023) | - | | Net income | $3,036 | $3,038 (Q1 2024) | - | | Other comprehensive income (loss) | $2,348 | $(1,269) (Q1 2024) | - | | Total comprehensive income | $5,384 | $1,769 (Q1 2024) | - | | Cash dividend, $0.15 per share | $(2,711) | $(2,817) (Q1 2024) | - | | Purchase of common stock | $(3,173) | $(5,346) (Q1 2024) | - | | Balances at end of period | $341,360 | $338,003 (March 31, 2024) | - | Consolidated Statements of Cash Flows This section provides the consolidated statements of cash flows for the three months ended March 31, 2025, and 2024 Consolidated Statements of Cash Flows (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net cash provided by (used in) operating activities | $26,743 | $(9,938) | $36,681 | | Net cash provided by (used in) investing activities | $16,857 | $(146) | $17,003 | | Net cash (used in) provided by financing activities | $(40,072) | $19,377 | $(59,449) | | Increase in cash and cash equivalents | $3,528 | $9,293 | $(5,765) | | Cash and cash equivalents at end of period | $43,289 | $45,714 | $(2,425) | Notes to Consolidated Financial Statements This section provides detailed notes explaining the basis of presentation, accounting policies, and specific financial items Note 1 — Basis of Presentation This note describes the organizational structure and primary business activities of Waterstone Financial, Inc. and its subsidiaries - Waterstone Financial, Inc. includes WaterStone Bank SSB (community banking), Wauwatosa Investments, Inc. (investment subsidiary), and Waterstone Mortgage Corporation (mortgage banking)[21] - WaterStone Bank operates 14 banking offices in Milwaukee, Washington, and Waukesha Counties, Wisconsin, focusing on real estate loans and funding primarily through retail deposits and Federal Home Loan Bank (FHLB) advances[22] - Waterstone Mortgage Corporation originates single-family residential real estate loans for sale into the secondary market, utilizing lines of credit from WaterStone Bank and another financial institution[24] Note 2 — Securities Available for Sale This note details the fair value of securities available for sale and the assessment of unrealized losses Securities Available for Sale (Fair Value) | Category | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Mortgage-backed securities | $9,498 | $9,611 | $(113) | (1.18)% | | Collateralized mortgage obligations | $145,659 | $138,136 | $7,523 | 5.45% | | Government sponsored enterprise bonds | $2,467 | $2,440 | $27 | 1.11% | | Municipal securities | $44,691 | $47,076 | $(2,385) | (5.07)% | | Other debt securities | $11,300 | $11,286 | $14 | 0.12% | | Total | $213,615 | $208,549 | $5,066 | 2.43% | - The Company reviews its investment securities quarterly for unrealized losses, which are primarily due to noncredit-related factors like changes in interest rates and market conditions. No allowance for credit losses on securities was recognized as of March 31, 2025, and December 31, 2024[33] Note 3 — Loans Receivable This note provides a breakdown of loans receivable by type and details the allowance for credit losses activity Loans Receivable by Type | Loan Type | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :---------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | One- to four-family | $519,393 | $516,128 | $3,265 | 0.63% | | Multi-family | $716,792 | $741,428 | $(24,636) | (3.32)% | | Home equity | $12,837 | $13,188 | $(351) | (2.66)% | | Construction and land | $57,221 | $61,427 | $(4,206) | (6.85)% | | Commercial real estate | $321,022 | $313,494 | $7,528 | 2.40% | | Consumer | $820 | $825 | $(5) | (0.61)% | | Commercial loans | $35,434 | $34,086 | $1,348 | 3.96% | | Total | $1,663,519 | $1,680,576 | $(17,057) | (1.01)% | Allowance for Credit Losses (ACL) - Loans Activity | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Balance at beginning of period | $18,247 | $18,549 | | Provision (credit) for credit losses | $(354) | $(3) | | Charge-offs | $(21) | $(11) | | Recoveries | $33 | $14 | | Balance at end of period | $17,905 | $18,549 | Non-accrual Loans | Metric | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total non-accrual loans | $7,423 | $5,665 | $1,758 | 31.03% | | Non-accrual loans to total loans receivable | 0.45% | 0.34% | 0.11% | 32.35% | | Non-accrual loans to total assets | 0.34% | 0.26% | 0.08% | 30.77% | Note 4 — Mortgage Servicing Rights This note outlines the activity and valuation of mortgage servicing rights, including unpaid principal balances Mortgage Servicing Rights Activity (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | MSR at beginning of period | $732 | $1,811 | $(1,079) | (59.58)% | | Additions | $148 | $207 | $(59) | (28.50)% | | Amortization | $(43) | $(170) | $127 | (74.71)% | | Valuation allowance (recorded) recovered | $(12) | $313 | $(325) | (103.83)% | | MSR at end of period, net | $825 | $2,161 | $(1,336) | (61.82)% | - The unpaid principal balance of loans serviced for others increased to $94.8 million at March 31, 2025, from $83.4 million at December 31, 2024[64] Note 5 — Deposits This note presents the contractual maturities of time deposits and details regarding uninsured and related-party deposits Time Deposits Contractual Maturities (March 31, 2025) | Maturity Period | Amount (In Thousands) | | :-------------------------- | :-------------------- | | Within one year | $845,730 | | More than one to two years | $66,291 | | More than two to three years | $2,164 | | More than three to four years | $368 | | More than four through five years | $261 | | Total | $914,814 | - Uninsured time deposits of $250,000 or more aggregated $173.7 million at March 31, 2025, up from $167.3 million at December 31, 2024[68] - Deposits from directors, executive officers, and their related entities increased to $21.2 million at March 31, 2025, from $11.3 million at December 31, 2024[69] Note 6 — Borrowings This note details the Company's borrowings by category, including FHLB advances and repurchase agreements Borrowings by Category (March 31, 2025 vs. December 31, 2024) | Category | March 31, 2025 Balance (In Thousands) | March 31, 2025 Weighted Average Rate | December 31, 2024 Balance (In Thousands) | December 31, 2024 Weighted Average Rate | | :------------------------ | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | FHLB short-term advances | $194,130 | 4.28% | $293,553 | 4.41% | | FHLB long-term advances | $190,000 | 3.29% (avg) | $150,000 | 2.93% (avg) | | Repurchase agreements | $11,722 | 7.49% | $2,966 | 7.49% | | Total borrowings | $395,852 | 3.74% | $446,519 | 3.92% | - Total borrowings decreased by $50.7 million (11.3%) to $395.9 million at March 31, 2025, primarily due to a $99.4 million decrease in short-term FHLB borrowings, partially offset by a $40.0 million increase in long-term FHLB borrowings and an $8.7 million increase in repurchase agreements[183] - The Company had approximately $377.2 million in unused borrowing capacity at the FHLB as of March 31, 2025[73] Note 7 – Regulatory Capital This note provides an overview of WaterStone Bank's regulatory capital ratios and its 'well-capitalized' status - As of March 31, 2025, WaterStone Bank was considered "well-capitalized," with all capital ratios exceeding the well-capitalized requirements[81] Waterstone Bank Capital Ratios (March 31, 2025) | Capital Ratio | Actual Ratio | Minimum for Capital Adequacy | Minimum for Well Capitalized | | :------------------------------------ | :----------- | :--------------------------- | :--------------------------- | | Total Capital (to risk-weighted assets) | 20.68% | 8.00% | 10.00% | | Tier I Capital (to risk-weighted assets) | 19.60% | 6.00% | 8.00% | | Common Equity Tier 1 Capital (to risk-weighted assets) | 19.60% | 4.50% | 6.50% | | Tier I Capital (to average assets) | 15.86% | 4.00% | 5.00% | Note 8 – Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities This note details financial instruments with potential credit risk, legal settlements, and other off-balance sheet items Financial Instruments with Potential Credit Risk (March 31, 2025 vs. December 31, 2024) | Commitment Type | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Commitments to extend credit under amortizing loans | $19,046 | $19,052 | $(6) | (0.03)% | | Commitments to extend credit under home equity lines | $11,300 | $11,531 | $(231) | (2.00)% | | Unused portion of construction loans | $64,499 | $72,753 | $(8,254) | (11.34)% | | Unused portion of business lines of credit | $13,199 | $15,061 | $(1,862) | (12.36)% | | Standby letters of credit | $1,504 | $399 | $1,105 | 276.94% | - The Company's reserve for losses related to recourse provisions on residential mortgage loans sold totaled $1.2 million as of March 31, 2025, a decrease from $1.3 million at December 31, 2024[88] - The Company finalized a legal settlement during Q1 2025, with an accrued legal liability of $1.7 million at March 31, 2025, up from $1.3 million at December 31, 2024[89] Note 9 – Derivative Financial Instruments This note describes the Company's use of mortgage banking derivatives and interest rate swaps to manage market exposure - The Company uses mortgage banking derivatives (interest rate lock commitments and forward commitments) to manage interest rate exposure on loans intended for sale in the secondary market, but these are not designated for hedge accounting[91] - The Company also offers interest rate swaps to customers, offsetting risk with back-to-back swaps with third-party dealers, which are not designated for hedge accounting[98] Outstanding Notional Balances and Fair Values of Derivatives (March 31, 2025) | Derivative Type | March 31, 2025 Notional Amount (In Millions) | March 31, 2025 Asset Fair Value (In Millions) | March 31, 2025 Liability Fair Value (In Millions) | | :------------------------ | :------------------------------------------ | :------------------------------------------ | :--------------------------------------------- | | Forward commitments | $264.0 | $0.6 | $- | | Interest rate locks | $212.0 | $- | $- | | Interest rate swaps | $147.5 | $10.5 | $10.5 | Note 10 – Earnings Per Share This note presents the calculation of basic and diluted earnings per share for the periods presented Earnings Per Share Calculation (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Net income (In Thousands) | $3,036 | $3,038 | $(2) | (0.07)% | | Basic earnings per share | $0.17 | $0.16 | $0.01 | 6.25% | | Diluted earnings per share | $0.17 | $0.16 | $0.01 | 6.25% | | Weighted average shares outstanding (Basic) | 18,267 | 19,021 | (754) | (3.96)% | | Weighted average shares outstanding (Diluted) | 18,280 | 19,036 | (756) | (3.97)% | Note 11 – Fair Value Measurements This note explains the fair value hierarchy and provides details on assets and liabilities measured at fair value - The Company categorizes fair value measurements into a three-level hierarchy: Level 1 (quoted prices in active markets for identical assets/liabilities), Level 2 (observable inputs other than Level 1 quoted prices), and Level 3 (unobservable inputs)[106][107][108] Assets Recorded at Fair Value on a Recurring Basis (March 31, 2025) | Asset Category | Total Fair Value (In Thousands) | Level 1 (In Thousands) | Level 2 (In Thousands) | Level 3 (In Thousands) | | :------------------------------------ | :----------------------------- | :--------------------- | :--------------------- | :--------------------- | | Available for sale securities | $213,615 | $- | $213,615 | $- | | Loans held for sale | $116,290 | $- | $116,290 | $- | | Mortgage banking derivative assets | $616 | $- | $- | $616 | | Interest rate swap assets | $10,525 | $- | $10,525 | $- | - The significant unobservable input for mortgage banking derivatives (Level 3) is the loan pull-through rate, which was 65.6% at March 31, 2025, and 66.3% at December 31, 2024[123] Note 12 – Segment Reporting This note outlines the financial performance and operations of the Community Banking and Mortgage Banking segments - The Company operates with two reportable segments: Community Banking and Mortgage Banking[135] - The Community Banking segment provides consumer and business banking products and services primarily in Southeastern Wisconsin, including various loans, deposits, and investment services[136][137] - The Mortgage Banking segment originates residential mortgage loans for sale on the secondary market, operating in 25 states[138] Segment Net Income (Three months ended March 31, 2025) | Segment | Net Income (Loss) (In Thousands) | | :---------------- | :----------------------------- | | Community Banking | $4,638 | | Mortgage Banking | $(1,625) | | Holding Company and Other | $23 | | Consolidated | $3,036 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results for Q1 2025 Forward-Looking Information This section highlights the forward-looking nature of certain statements and potential factors causing actual results to differ - The report contains forward-looking statements regarding goals, intentions, business plans, growth strategies, loan and investment portfolio quality, and estimates of risks and future costs/benefits[144][145] - Actual results could differ materially due to factors such as general economic conditions, competition, inflation, interest rate changes, regulatory changes, market risks, and technological risks[146] Overview This section provides a high-level summary of the contributions of the Community Banking and Mortgage Banking segments - The community banking segment generates most consolidated net interest income and requires the significant majority of the provision for loan losses[151] - The mortgage banking segment generates the significant majority of noninterest income and a majority of noninterest expenses[151] Comparison of Community Banking Segment Results of Operations This section analyzes the Community Banking segment's financial performance for Q1 2025 compared to Q1 2024 Community Banking Segment Key Financials (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net income | $4,638 | $2,640 | $1,998 | 75.61% | | Net interest income | $12,403 | $11,598 | $805 | 6.94% | | Provision (credit) for credit losses | $(518) | $105 | $(623) | (593.33)% | | Compensation, payroll taxes, and other employee benefits | $5,212 | $5,360 | $(148) | (2.76)% | - The negative provision for credit losses was primarily due to decreases in historical loss rates and loan portfolio balances, offset by an increase in commercial real estate loan qualitative factors related to economic and internal asset quality risks[154] Comparison of Mortgage Banking Segment Results of Operations This section analyzes the Mortgage Banking segment's financial performance for Q1 2025 compared to Q1 2024 Mortgage Banking Segment Key Financials (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net income (loss) | $(1,625) | $298 | $(1,923) | (645.64)% | | Mortgage loans originated for sale | $387,700 | $485,100 | $(97,400) | (20.08)% | | Total mortgage banking noninterest income | $15,731 | $20,328 | $(4,597) | (22.61)% | | Compensation, payroll taxes, and other employee benefits | $12,054 | $14,756 | $(2,702) | (18.31)% | | Professional fees | $1,373 | $520 | $853 | 164.04% | - The decrease in loan production volume was driven by a 24.8% decrease in purchase products, partially offset by a $14.5 million increase in refinance products[156] - Gross margin on loans originated and sold decreased by 3.1%, reflecting decreased industry demand and increased competition[156] Consolidated Waterstone Financial, Inc. Results of Operations This section presents the consolidated operational results and key performance metrics for Waterstone Financial, Inc. Consolidated Performance Metrics (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Net income (In Thousands) | $3,036 | $3,038 | $(2) | (0.07)% | | Basic Earnings per share | $0.17 | $0.16 | $0.01 | 6.25% | | Diluted Earnings per share | $0.17 | $0.16 | $0.01 | 6.25% | | Annualized return on average assets | 0.57% | 0.56% | 0.01% | 1.79% | | Annualized return on average equity | 3.61% | 3.56% | 0.05% | 1.40% | Net Interest Income This section analyzes net interest income and margin for Q1 2025 compared to Q1 2024 Net Interest Income and Margin (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Net interest income (In Thousands) | $12,576 | $11,137 | $1,439 | 12.92% | | Net interest rate spread | 1.84% | 1.49% | 0.35% | 23.49% | | Net interest margin | 2.47% | 2.15% | 0.32% | 14.88% | - Net interest income increased by $1.4 million (12.9%) due to increased yields on loan and securities portfolios and decreased cost of borrowings, as more investments were funded by deposits rather than borrowings[166] - Interest expense on borrowings decreased by $3.0 million (43.4%) due to a $205.6 million decrease in the average balance of borrowings and a 61 basis point decrease in the average cost of borrowings[167] Provision for Credit Losses This section details the provision for credit losses on loans and unfunded commitments for the periods presented Provision for Credit Losses (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total provision (credit) for credit losses | $(558) | $67 | $(625) | (932.84)% | | Provision (credit) for credit losses on loans | $(354) | $(3) | $(351) | (11700.00)% | | Provision (credit) for credit losses on unfunded commitments | $(204) | $70 | $(274) | (391.43)% | - The negative provision for credit losses on loans was primarily due to a decrease in historical losses used in the calculation, a decrease in loan balance, and an improvement in certain asset quality metrics[168] - The decrease in provision related to unfunded commitments was primarily due to a decrease in construction loans yet to be funded[168] Noninterest Income This section analyzes the components and changes in noninterest income for the three months ended March 31, 2025, and 2024 Noninterest Income (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total noninterest income | $17,097 | $21,248 | $(4,151) | (19.54)% | | Mortgage banking income | $15,728 | $20,068 | $(4,340) | (21.63)% | | Service charges on loans and deposits | $593 | $424 | $169 | 39.86% | | Increase in cash surrender value of life insurance | $481 | $348 | $133 | 38.22% | - The decrease in mortgage banking income was primarily due to a 3.1% decrease in gross margin on loans originated and sold and an 18.8% decrease in total loan origination volume[170] Noninterest Expenses This section analyzes the components and changes in noninterest expenses for the three months ended March 31, 2025, and 2024 Noninterest Expenses (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total noninterest expenses | $26,350 | $27,550 | $(1,200) | (4.36)% | | Compensation, payroll taxes, and other employee benefits | $17,047 | $19,876 | $(2,829) | (14.23)% | | Professional fees | $1,736 | $743 | $993 | 133.65% | | Other noninterest expense | $2,558 | $1,418 | $1,140 | 80.39% | - Compensation and benefits decreased due to reduced employee headcount, lower loan origination volumes, and decreased health insurance expense[173] - Professional fees increased significantly due to legal services and the finalization of a settlement related to a previously disclosed legal matter[173] Income Taxes This section details the income tax expense and effective tax rate for the three months ended March 31, 2025, and 2024 Income Tax Expense and Effective Rate (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Income tax expense | $845 | $1,730 | $(885) | (51.16)% | | Effective tax rate | 21.8% | 36.3% | (14.5)% | (39.94)% | - The decrease in the effective tax rate was related to a one-time charge to state income tax in 2024 for the establishment of a valuation allowance for a Wisconsin state income deferred tax asset[172] Comparison of Financial Condition at March 31, 2025 and December 31, 2024 This section compares the Company's financial condition at March 31, 2025, to December 31, 2024 - Total assets decreased by $34.2 million (1.5%) to $2.18 billion, primarily reflecting decreases in loans receivable and loans held for sale, and a decrease in borrowings[174] - Cash and cash equivalents increased by $3.5 million (8.9%) to $43.3 million, reflecting increased funding from deposits and advance payments by borrowers for taxes[175] - Loans held for sale decreased by $19.6 million due to a slowdown in purchase activity caused by interest rates and affordable housing inventory constraints[177] - Total deposits increased by $21.3 million to $1.38 billion, driven by increases in time deposits and money market/savings deposits[182] ASSET QUALITY This section provides an analysis of the Company's asset quality, including nonperforming assets and loan delinquency NONPERFORMING ASSETS This section details the Company's nonperforming assets, including non-accrual loans and real estate owned Nonperforming Assets (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total non-accrual loans | $7,423 | $5,665 | $1,758 | 31.03% | | Total real estate owned | $135 | $515 | $(380) | (73.79)% | | Total nonperforming assets | $7,558 | $6,180 | $1,378 | 22.30% | | Nonperforming assets to total assets | 0.35% | 0.28% | 0.07% | 25.00% | - Non-accrual loans increased by $1.8 million (31.0%) to $7.4 million, with $2.3 million in loans placed on non-accrual status during the quarter[191] LOAN DELINQUENCY This section presents an analysis of loan delinquency rates, categorized by days past due Loan Delinquency (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 (In Thousands) | December 31, 2024 (In Thousands) | Change (In Thousands) | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Loans past due less than 90 days | $5,116 | $11,137 | $(6,021) | (54.06)% | | Loans past due 90 days or more | $6,106 | $3,985 | $2,121 | 53.22% | | Total loans past due | $11,222 | $15,122 | $(3,900) | (25.79)% | | Total loans past due to total loans receivable | 0.67% | 0.90% | (0.23)% | (25.56)% | - Total past due loans decreased by $3.9 million (25.8%), primarily due to a significant decrease in loans past due less than 90 days, while loans past due 90 days or more increased[197] ALLOWANCE FOR CREDIT LOSSES - LOANS This section details the activity and ratios related to the allowance for credit losses on loans Allowance for Credit Losses - Loans Activity (Three months ended March 31, 2025 vs. 2024) | Metric | Three months ended March 31, 2025 (In Thousands) | Three months ended March 31, 2024 (In Thousands) | Change (In Thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Balance at beginning of period | $18,247 | $18,549 | $(302) | | Provision (credit) for credit losses - loans | $(354) | $(3) | $(351) | | Total charge-offs | $21 | $11 | $10 | | Total recoveries | $33 | $14 | $19 | | Net charge-offs (recoveries) | $(12) | $(3) | $(9) | | Balance at end of period | $17,905 | $18,549 | $(644) | Allowance for Credit Losses - Loans Ratios (March 31, 2025 vs. 2024) | Ratio | March 31, 2025 | March 31, 2024 | Change | | :------------------------------------ | :------------- | :------------- | :----- | | ACL to non-accrual loans | 241.21% | 380.73% | (139.52)% | | ACL to loans receivable | 1.08% | 1.11% | (0.03)% | | Net recoveries to average loans outstanding (annualized) | (0.00)% | 0.00% | (0.00)% | Liquidity and Capital Resources This section discusses the Company's primary sources and uses of liquidity and its capital management strategies - Primary sources of liquidity include deposits, loan repayments, sales of loans held for sale, investment maturities, and FHLB advances[207] - Key uses of cash during Q1 2025 included funding loans held for sale ($387.7 million), purchases of mortgage-related securities ($10.2 million), and payoffs of short-term ($90.7 million) and long-term ($40.0 million) borrowings[208] - Key sources of cash during Q1 2025 included proceeds from sale of loans held for sale ($422.9 million), long-term borrowings ($80.0 million), and an increase in deposits ($21.3 million)[209] - The Company had approximately $342.7 million of uninsured deposits from about 1,430 customers as of March 31, 2025[214] Capital This section provides an overview of the Company's capital position, including shareholders' equity and regulatory capital - Shareholders' equity increased by $2.2 million to $341.4 million, primarily due to an increase in the fair value of mortgage-related securities[186][217] - The Board authorized a 2,000,000 share stock repurchase program in Q2 2024, with approximately 1.4 million shares remaining as of March 31, 2025[217] - WaterStone Bank is considered "well capitalized" under regulatory guidelines, exceeding all requirements as of March 31, 2025[218] Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements This section outlines the Company's contractual obligations, commitments, and off-balance sheet arrangements - During Q1 2025, the Company entered into $80.0 million of new long-term debt, paid down $40.0 million in existing long-term debt, and repaid $90.1 million of short-term debt[219] - Commitments, contingent liabilities, and off-balance sheet arrangements have not materially changed since the 2024 Annual Report on Form 10-K[220] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section addresses the Company's exposure to market risk, primarily interest rate risk, and its management strategies Management of Market Risk This section describes the Company's approach to identifying, measuring, and managing market risk, particularly interest rate risk - The Company's most significant market risk is interest rate risk, which is evaluated and managed by an Asset/Liability Committee[221] - Strategies to manage interest rate risk include emphasizing variable-rate loans, reducing and shortening the expected average life of the investment portfolio, and lengthening the term structure of deposits and FHLB borrowings[222] Income Simulation This section presents an income simulation analysis, showing net interest income sensitivity to interest rate changes Net Interest Income Sensitivity (March 31, 2025) | Immediate Change in Rates | Dollar Change (In Thousands) | Percentage Change | | :------------------------ | :--------------------------- | :---------------- | | +300 basis points | $(7,954) | (15.11)% | | +200 basis points | $(4,481) | (8.51)% | | +100 basis points | $(2,345) | (4.46)% | | -100 basis points | $1,447 | 2.75% | Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and internal control over financial reporting Disclosure Controls and Procedures This section confirms the evaluation and effectiveness of the Company's disclosure controls and procedures - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025[227] Internal Control Over Financial Reporting This section states that no material changes occurred in internal control over financial reporting during the quarter - No material changes in the Company's internal control over financial reporting occurred during the fiscal quarter ended March 31, 2025[228] PART II. OTHER INFORMATION This part contains other required information, including legal proceedings, risk factors, and equity security repurchases Item 1. Legal Proceedings This section refers to Note 8 for information regarding the Company's legal proceedings and contingent liabilities - Information on legal proceedings is incorporated by reference from Note 8 - Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities[229] Item 1A. Risk Factors This section confirms no material changes to the risk factors previously disclosed in the Company's latest Annual Report on Form 10-K - No material changes in risk factors from those disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[230] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section details the Company's common stock repurchase activities during the first quarter of 2025 Common Stock Repurchases (Q1 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Shares Remaining Under Plan | | :------------------------------------ | :----------------------------- | :--------------------------- | :-------------------------- | | January 1, 2025 - January 31, 2025 | 140,071 | $13.05 | 1,517,023 | | February 1, 2025 - February 28, 2025 | 11,906 | $14.00 | 1,505,117 | | March 1, 2025 - March 31, 2025 | 85,299 | $13.81 | 1,419,818 | | Total (Q1 2025) | 237,276 | $13.37 | 1,419,818 | - The Board of Directors authorized a new 2,000,000 share repurchase plan on April 23, 2024, with no expiration date[232] Item 3. Defaults Upon Senior Securities This item is not applicable, indicating no defaults upon senior securities during the reporting period - This item is not applicable[233] Item 4. Mine Safety Disclosures This item is not applicable, indicating no mine safety disclosures are required for the Company - This item is not applicable[234] Item 5. Other Information This section confirms no Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers - No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during Q1 2025[235] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and financial statements in iXBRL format - Exhibits include Sarbanes-Oxley Act Section 302 and 906 certifications by the CEO and CFO, and financial statements in iXBRL format[235] Signatures This section provides the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed by William F. Bruss (CEO) and Mark R. Gerke (CFO) on May 8, 2025[238]