Waterstone Financial, Inc. (WSBF)

CIK: 0001569994. SIC: 6035 Savings Institution, Federally Chartered. Latest 10-K as of: 2026-02-26.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6035 Savings Institution, Federally Chartered

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1569994. Latest filing source: 0001437749-26-005853.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-26. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001569994.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-07. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001569994.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001437749-26-015566.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Confidence: high. Filing date: 2026-05-07. Report date: 2026-03-31.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This Quarterly Report on Form 10-Q may contain various forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and similar expressions and verbs in the future tense. These forward-looking statements include, but are not limited to:

●

Statements of our goals, intentions and expectations;

●

Statements regarding our business plans, prospects, growth and operating strategies;

●

Statements regarding the quality of our loan and investment portfolio; and

●

Estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

general economic conditions, either nationally or in our market area, including employment prospects, that are different than expected;

●

competition among depository and other financial institutions;

●

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or the origination levels in our lending business, or increase the level of defaults, losses or prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

●

adverse changes in the securities or secondary mortgage markets;

●

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

●

changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

●

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

our ability to successfully integrate acquired entities;

●

decreased demand for our products and services;

●

changes in tax policies or assessment policies;

●

changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;

●

changes in consumer demand, spending, borrowing and savings habits;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●

our ability to retain key employees;

●

cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;

●

technological changes that may be more difficult or expensive than expected;

●

the ability of third-party providers to perform their obligations to us;

●

the effects of any federal government shutdown;

●

the effects of global or national war, conflict or acts of terrorism;

●

the ability of the U.S. Government to manage federal debt limits;

●

the imposition of tariffs or other domestic or international governmental policies;

●

significant increases in our loan losses;

●

changes in the financial condition, results of operations or future prospects of issuers of securities that we own;

●

changes in our liquidity needs and access to wholesale funding; and

●

our ability to access low-cost funding.

33

Table of Contents

See also the factors referred to in reports filed by the Company with the Securities and Exchange Commission (particularly those under the caption “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, and as may be described from time to time in the Corporation’s subsequent SEC filings).

The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect our business and financial performance. New risks emerge from time to time and it is not possible for management to predict all such risks, nor can it assess the impact of all such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Overview

The following discussion and analysis is presented to assist the reader in understanding and evaluating the Company’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. The detailed discussion in the sections below focuses on the results of operations for the three months ended March 31, 2026 and 2025 and the financial condition as of March 31, 2026 compared to the financial condition as of December 31, 2025.

As described in the notes to the unaudited consolidated financial statements, we have two reportable segments: community banking and mortgage banking. The community banking segment provides consumer and business banking products and services to customers primarily within Southeastern Wisconsin. Consumer products include loan products, deposit products, and personal investment services. Business banking products include loans for working capital, inventory and general corporate use, commercial real estate construction loans, and deposit accounts.  The mortgage banking segment, which is conducted by offices in 28 states through Waterstone Mortgage Corporation, consists of originating residential mortgage loans primarily for sale in the secondary market.

Our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses. Our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses. We have provided below a discussion of the material results of operations for each segment on a separate basis for the three months ended March 31, 2026 and 2025, which focuses on noninterest income and noninterest expenses. We have also provided a discussion of the consolidated operations of the Company, which includes the consolidated operations of the Bank and Waterstone Mortgage Corporation, for the same periods.

Significant Items

There were no significant items that impacted earnings for the three months ended March 31, 2026 and 2025. 

Comparison of Community Banking Segment Results of Operations for the Three Months Ended March 31, 2026 and 2025

Net income totaled $6.0 million for the three months ended March 31, 2026 compared to $4.6 million for the three months ended March 31, 2025. Net interest income increased $2.8 million to $15.2 million for the three months ended March 31, 2026 compared to $12.4 million for the three months ended March 31, 2025.  Interest expense on borrowings decreased $742,000 as growth in time deposits allowed us to carry a lower average balance of FHLB advances and interest expense on deposits decreased  as accounts repriced at a lower rate and transitioned to more money market accounts. 

There was a provision for credit losses of $284,000 for the three months ended March 31, 2026 compared to a negative provision for credit losses of $518,000 for the three months ended March 31, 2025. The provision for credit losses of $284,000 consisted of a $240,000 provision related to loans and $44,000 provision related to unfunded commitments for the three months ended March 31, 2026. The current quarter increase was primarily due to increases in multi-family and construction loan balances along with an increase in multifamily external qualitative factors. The provision for credit losses related to unfunded loan commitments for the quarter ended March 31, 2026 was due primarily to an increase in the loan pipeline balance at quarter end.

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Table of Contents

Compensation, payroll taxes, and other employee benefits expense increased $363,000 to $5.6 million compared to the quarter ending March 31, 2025 primarily due to increases in health insurance, variable compensation, restricted stock expense due to new directors and executive grants, and ESOP compensation as average share price has risen year-over-year.

Comparison of Mortgage Banking Segment Results of Operations for the Three Months Ended March 31, 2026 and 2025

Net income totaled $12,000 for the three months ended March 31, 2026 compared to a net loss of $1.6 million for the three months ended March 31, 2025. We originated $508.3 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended March 31, 2026, which represents an increase of $120.6 million, or 31.1%, from the $387.7 million originated during the three months ended March 31, 2025. The increase in loan production volume was driven by a $36.4 million, or 10.7%, increase in purchase products and a $84.2 million, or 173.7%, increase in refinance products. Total mortgage banking noninterest income increased $3.4 million, or 21.5%, to $19.1 million during the three months ended March 31, 2026 compared to $15.7 million during the three months ended March 31, 2025.  The increase in mortgage banking noninterest income was related to a 31.1% increase in volume and was partially offset by a 8.3% decrease in gross margin on loans originated and sold for the three months ended March 31, 2026 compared to March 31, 2025.  Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations.  We sell loans on both a servicing-released and a servicing-retained basis. Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing. 

Additionally, our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance).  Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S. Department of Agriculture loan.  Loans originated for the purchase of a residential property comprised 73.9% of total originations during the three months ended March 31, 2026, compared to 87.5% of total originations during the three months ended March 31, 2025, respectively.  The mix of loan type trended towards more conventional loans and less governmental loans, with conventional loans and governmental loans comprising 65.1% and 34.9% of all loan originations, respectively, during the three months ended March 31, 2026, compared to 62.0% and 38.0% of all loan originations, respectively, during the three months ended March 31, 2025.

Total compensation, payroll taxes and other employee benefits increased $2.4 million, or 20.1%, to $14.5 million for the three months ended March 31, 2026 compared to $12.1 million for the three months ended March 31, 2025. The i

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high. Filing date: 2026-02-26. Report date: 2025-12-31.

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion and analysis is presented to assist the reader in understanding and evaluating the Company's financial condition and results of operations. It is intended to complement the consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Annual Report on Form 10-K and should be read in conjunction therewith. The detailed discussion in the sections below focuses on the results of operations for the year ended December 31, 2025, compared to the year ended December 31, 2024, and the financial condition as of December 31, 2025 compared to the financial condition as of December 31, 2024.

As described in the notes to consolidated financial statements, we have two reportable segments: community banking and mortgage banking. The community banking segment provides consumer and business banking products and services to customers. Consumer products include loan products, deposit products, and personal investment services. Business banking products include loans for working capital, inventory and general corporate use, commercial real estate construction loans, and deposit accounts.  The mortgage banking segment, which is conducted through Waterstone Mortgage Corporation, consists of originating residential mortgage loans primarily for sale in the secondary market.

Our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for credit losses.  Our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses.  We have provided below a discussion of the material results of operations for each segment on a separate basis for the year ended December 31, 2025, compared the year ended December 31, 2024, which focuses on noninterest income and noninterest expenses. We have also provided a discussion of the consolidated operations of Waterstone Financial, which includes the consolidated operations of WaterStone Bank and Waterstone Mortgage Corporation, for the same periods.

For a discussion of our results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, see “Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” Discussion of Results of Operations included in our 2024 Form 10-K, filed with the SEC on March 6, 2024.

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Significant Items

There were no Significant Items for the years ended December 31, 2025 and 2024. 

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity, subjectivity and sensitivity involved in their application.

See Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements contains a further discussion of our significant accounting policies.

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets.

Allowance for Credit Losses. The ACL represents management's estimate of current expected credit losses, or the amount of amortized cost basis not expected to be collected, on our loan portfolio and the amount of credit loss impairment on our AFS securities portfolio. Determining the amount of the ACL is considered a critical accounting estimate because of its complexity and because it requires extensive judgment and estimation. Estimates that are particularly susceptible to change that may have a material impact on the amount of the ACL include:

●

Our evaluation of current conditions;

●

Our assessment that the physical condition of the real estate has not significantly changed since the last valuation date;

●

Our determination of a reasonable and supportable economic forecast and selection of the reasonable and supportable forecast period;

●

Our evaluation of historical loss experience;

●

Our evaluation of changes in composition and characteristics of the loan portfolio, including internal risk ratings;

●

Our estimate of expected prepayments;

●

Our selection of models and modeling techniques may also have a material impact on the estimate;

●

The value of underlying collateral, which may impact loss severity and certain cash flow assumptions for collateral-dependent, criticized and classified loans;

●

Our selection and evaluation of qualitative factors; and

●

Our estimate of expected cash flows on AFS debt securities in unrealized loss positions.

The appropriateness of the allowance for credit losses is reviewed and approved quarterly by the WaterStone Bank Board of Directors. The allowance reflects management’s best estimate of the amount needed to provide for the future losses over the life of the loan portfolio, and is based on a loss model using a forecast and historical losses developed and implemented by management and approved by the WaterStone Bank Board of Directors.

Actual results could differ from this estimate, and future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions.  More specifically, if our future charge-off experience increases substantially from our past experience, or if the value of underlying loan collateral, in our case mostly real estate, declines in value by a substantial amount, or if unemployment in our primary market area increases significantly, our allowance for credit losses may be inadequate and we will incur higher provisions for loan losses and lower net income in the future.

See Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements describes the methodology used to determine the ACL.

In addition, state and federal regulators periodically review the WaterStone Bank allowance for credit losses. Such regulators have the authority to require WaterStone Bank to recognize additions to the allowance at the time of their examination.

Income Taxes.  The Company and its subsidiaries file consolidated federal, combined state income tax, and separate state income tax returns. The provision for income taxes is based upon income in the consolidated financial statements, rather than amounts reported on the income tax return.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for net operating loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.  

Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized.  The determination of the realizability of deferred tax assets is highly subjective and dependent upon judgment concerning management's evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Examples of positive evidence may include the existence of taxes paid in available carry-back years as well as the probability that taxable income will be generated in future periods.  Examples of negative evidence may include cumulative losses in a current year and prior two years and general business and economic trends.

Positions taken in the Company’s tax returns are subject to challenge by the taxing authorities upon examination. The benefit of uncertain tax positions are initially recognized in the financial statements only when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statements of operations.

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Fair Value Measurements.  The Company determines the fair value of its assets and liabilities in accordance with ASC 820. ASC 820 establishes a standard framework for measuring and disclosing fair value under generally accepted accounting principles. A number of valuation techniques are used to determine the fair value of assets and liabilities in the Company’s financial statements. The valuation techniques include quoted market prices for investment securities, appraisals of real estate from independent licensed appraisers and other valuation techniques. Fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates, and are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the valuation results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. Significant changes in the aggregate fair value of assets and liabilities required to be measured at fair value or for impairment are recognized in the consolidated statements of operations under the framework established by generally accepted accounting principles.

Recent Accounting Pronouncements.

Refer to Note 1- Summary of Significant Accounting Policies of our consolidated financial statements for a description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition.

Selected Financial Data

The summary financial information presented below is derived in part from the Company’s audited financial statements, although the table itself is not audited.

At or for the Year Ended December 31,

2025

2024

2023

(In Thousands, except per share amounts)

Selected Financial Condition Data:

Total assets

$

2,259,507

$

2,209,608

$

2,213,389

Cash and cash equivalents

71,107

39,761

36,421

Securities available for sale

230,848

208,549

204,907

Loans held for sale

145,057

135,909

164,993

Loans receivable

1,675,552

1,680,576

1,664,215

Allowance for credit losses

17,478

18,247

18,549

Loans receivable, net

1,658,074

1,662,329

1,645,666

Real estate owned, net

424

505

254

Deposits

1,437,272

1,359,897

1,190,624

Borrowings

412,258

446,519

611,054

Total shareholders' equity

349,392

339,135

344,056

Selected Operating Data:

Interest income

$

116,108

$

113,168

$

99,208

Interest expense

59,374

67,000

48,993

Net interest income

56,734

46,168

50,215

Provision (credit) for credit losses

(1,394

)

(168

)

656

Net interest income after provision for credit losses

58,128

46,336

49,559

Noninterest income

85,187

89,302

81,185

Noninterest expense

109,870

111,636

119,712

Income before income taxes

33,445

24,002

11,032

Provision for income taxes

7,043

5,314

1,657

Net income

$

26,402

$

18,688

$

9,375

Per common share:

Income per share - basic

$

1.48

$

1.01

$

0.47

Income per share - diluted

$

1.48

$

1.01

$

0.46

Book value

$

19.03

$

17.53

$

16.94

Dividends declared

$

0.60

$

0.60

$

0.70

- 40 -

At or for the Year Ended December 31,

2025

2024

2023

Selected Financial Ratios and Other Data:

Performance Ratios:

Return on average assets

1.19

%

0.84

%

0.44

%

Return on average equity

7.62

5.48

2.62

Interest rate spread (1)

2.09

1.51

1.83

Net interest margin (2)

2.68

2.17

2.46

Noninterest expense to average assets

4.95

5.01

5.56

Efficiency ratio (3)

77.42

82.41

91.11

Average interest-earning assets to average interest-bearing liabilities

121.09

121.54

126.10

Dividend payout ratio (4)

40.54

59.41

148.94

Capital Ratios:

Waterstone Financial, Inc.:

Equity to total assets at end of period

15.46

%

15.35

%

15.54

%

Average equity to average assets

15.60

15.30

16.64

Total capital to risk-weighted assets

21.13

20.90

21.50

Tier 1 capital to risk-weighted assets

20.11

19.81

20.39

Common equity tier 1 capital to risk-weighted assets

20.11

19.81

20.39

Tier 1 capital to average assets

15.94

16.04

16.77

WaterStone Bank:

Total capital to risk-weighted assets

20.49

20.29

20.10

Tier 1 capital to risk-weighted assets

19.47

19.21

18.99

Common equity tier 1 capital to risk-weighted assets

19.47

19.21

18.99

Tier 1 capital to average assets

15.43

15.55

15.62

Asset Quality Ratios:

Allowance for credit losses - loans as a percent of total loans

1.04

%

1.09

%

1.11

%

Allowance for credit losses - loans as a percent of non-performing loans

283.04

322.10

385.79

Net (recoveries) charge-offs to average outstanding loans during the period

(0.01

)

(0.00

)

0.01

Non-performing loans as a percent of total loans

0.37

0.34

0.29

Non-performing assets as a percent of total assets

0.29

0.28

0.23

Other Data:

Number of full-service banking offices

14

14

14

Number of full-time equivalent employees

593

600

698

(1)  Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)  Represents net interest income as a percent of average interest-earning assets.

(3)  Represents noninterest expense divided by the sum of net interest income and noninterest income.

(4)  Represents dividends paid per share divided by basic earnings per share.

Comparison of Consolidated Waterstone Financial, Inc. Financial Condition at December 31, 2025 and at December 31, 2024

Total Assets.  Total assets increased by $49.9 million, or 2.3%, to $2.26 billion at December 31, 2025 from $2.21 billion at December 31, 2024.  The increase in total assets primarily reflects the increase in cash and cash equivalents, loans held for sale, and securities available for sale, partially offset by decreases in loans held for investment and prepaid expenses and other assets.

Cash and Cash Equivalents.  Cash and cash equivalents increased $31.3 million to $71.1 million at December 31, 2025 from $39.8 million at December 31, 2024.  The increase in cash and cash equivalents primarily reflects the decrease in funding of loans held for investment and increase in deposit liabilities.

Securities Available for Sale. Securities available for sale increased by $22.3 million to $230.8 million at December 31, 2025 from $208.5 million at December 31, 2024. The increase was primarily due to the purchases of securities exceeding paydowns and maturities and an increase in fair value as longer term interest rates decreased compared to the prior year period.

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

- 41 -

Loans Receivable.  Loans receivable held for investment decreased $5.0 million, or 0.3%, to $1.68 billion at December 31, 2025 from $1.68 billion at December 31, 2024. The decrease in total loans receivable was primarily attributable to a decrease in the one-to-four family loan category and was partially offset by increases in the multi-family and commercial real estate categories.

Allowance for Credit Losses.  The allowance for credit losses decreased $769,000 to $17.5 million at December 31, 2025 from $18.2 million at December 31, 2024.  The decrease primarily resulted from a decrease in historical loss rates and decreases in certain qualitative factors. Net recoveries totaled $122,000 for the year ended December 31, 2025. During the year ended December 31, 2025, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors. See Note 3 - Loans Receivable of the notes to consolidated financial statements for further discussion on the allowance for credit losses. The forecast factor remained unchanged as we monitor the economic environment going forward. 

Prepaid Expenses and Other Assets.  Total prepaid expenses and other assets decreased $10.3 million to $38.0 million at December 31, 2025 from $48.3 million at December 31, 2024. The decrease was primarily due to decreases in back-to-back loan swap fair value adjustment and the deferred tax asset for unrealized losses as long term interest rates decreased.

Deposits.  Deposits increased by $77.4 million to $1.44 billion at December 31, 2025, from $1.36 billion at December 31, 2024. The increase was driven by a $45.8 million increase in money market & savings deposits, an increase of $16.0 million in brokered certificates of deposit, an increase of $11.1 million in non-brokered certificates of deposit, and an increase of $4.5 million in demand deposits. The increase in deposits was used to fund the increase in loans held for sale, buy available-for-sale securities and replacing matured borrowings.

Borrowings.  Total borrowings decreased $34.3 million to $412.3 million at December 31, 2025, from $446.5 million at December 31, 2024. The community banking segment decreased its short-term FHLB borrowings by $77.5 million and increased its long-term FHLB borrowings by $40.0 million. External short-term borrowings at the mortgage banking segment increased a total of $3.2 million to $6.2 million at December 31, 2025 from $3.0 million at December 31, 2024. The overall decrease in borrowings was primarily offset by the increase in deposits.

Other Liabilities.  Other liabilities decreased  $838,000  to $57.6 million at December 31, 2025 compared to $58.4 million at December 31, 2024. Other liabilities decreased primarily due to the decrease in back-to-back loan swap fair value adjustment.

Shareholders’ Equity.  Shareholders’ equity increased by $10.3 million, or 3.0%, to $349.4 million at December 31, 2025 from $339.1 million at December 31, 2024. Shareholders' equity increased primarily due to increases in net income and the fair value of the securities portfolio.

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

Net income from our community banking segment for the year ended December 31, 2025 totaled $24.8 million compared to $17.0 million for the year ended December 31, 2024.  Net interest income increased $8.2 million to $56.2 million for the year ended December 31, 2025 compared to $48.0 million for the year ended December 31, 2024. Interest income on loans increased as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on mortgage-related securities and debt securities, federal funds sold and short-term investments increased due to the increase in the average balance and replacement rates. Offsetting the increases in interest income, interest expense on deposits increased as average balances increased offset by a decrease in average cost of funds as there were fed funds rate cuts over the past year.

There was a negative provision for credit losses of $1.3 million for the year ended December 31, 2025 compared to a negative provision for credit losses of $145,000 for the year ended December 31, 2024. The negative provision for credit losses consisted of a $891,000 negative provision related to adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors and a $503,000 negative provision related to unfunded commitments as the loan pipeline balance decreased for the year ended December 31, 2025. The negative provision for credit losses related to loans was primarily due to a decrease in historical loss rates and certain qualitative factors. During the year ended December 31, 2025, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors. The forecast factor remained unchanged as we monitor the economic environment going forward. 

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

- 42 -

Compensation, payroll taxes, and other employee benefits expense increased $236,000 to $20.9 million during the year ended December 31, 2025 primarily due to increased wages and variable compensation.  Other noninterest expense decreased $219,000 million to $2.3 million as certain loan-related expenses paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased compared to the prior year. These fees are eliminated in the consolidated statements of income.

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

Net income totaled $1.4 million for the year ended December 31, 2025 compared to net income of $1.4 million for the year ended December 31, 2024. We originated $2.05 billion in mortgage loans held for sale (including sales to the community banking segment) during the year ended December 31, 2025, which represents a decrease of $98.0 million, or 4.6%, from the $2.15 billion originated during the year ended December 31, 2024. The decrease in loan production volume was driven by a decrease in purchase products of $135.0 million, or 7.0%. The decrease in purchase products was partially offset by a $37.0, or 16.4% increase in refinance products due to a decrease in mortgage rates at various points throughout the year. Mortgage purchase products decreased $135.0 million, or 7.0% as housing inventory remained low and affordable housing inventory remains limited. Total mortgage banking noninterest income decreased $4.7 million, or 5.6%, to $79.5 million during the year ended December 31, 2025 compared to $84.3 million during the year ended December 31, 2024. The decrease in mortgage banking noninterest income was related to a 4.6% decrease in volume and a 1.0% decrease in gross margin on loans originated and sold for the year ended December 31, 2025 compared to December 31, 2024.  Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. The gross margin on loans originated and sold contraction reflects decreased industry demand due to the increased competition from mortgage originators. We sell loans on both a servicing-released and a servicing-retained basis.  Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing. 

Our gross margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance).  Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S. Department of Agriculture loan. Our origination efforts continue to be focused on loans made for the purpose of residential purchases, as opposed to mortgage refinance. The percentage of origination volume related to purchase activity decreased from 88.9% to 87.1% of total originations for the year ended December 31, 2025 and 2024, respectively, as a year-over-year decrease in rates drove an increase in refinance activity, while low housing inventory and still relatively high interest rates suppressed purchase activity. The mix of loan type trended towards more government loans and less conventional loans, with a mix of  38.7% and 61.3%, respectively of all loan originations, respectively, during the year ended December 31, 2025, compared to 36.2% and 63.8% of all originations, respectively, during the year ended December 31, 2024.

During the year ended December 31, 2025, the Company had no sales of mortgage servicing rights. During the year ended December 31, 2024, the Company sold mortgage servicing rights related to $233.0 million in loans serviced for third parties. The sale generated $2.1 million in net proceeds and a $152,000 gain. 

Total compensation, payroll taxes and other employee benefits decreased $1.8 million, or 2.9%, to $59.6 million for the year ended December 31, 2025 compared to $61.4 million for the year ended December 31, 2024. The decrease primarily related to decreased salary expense and commissions expense driven by reduced employee headcount and a decrease in new branches added over the past year.

Comparison of Consolidated Waterstone Financial, Inc. Results of Operations for the Years Ended December 31, 2025 and 2024

Years Ended December 31,

2025

2024

(Dollars In Thousands, except per share amounts)

Net income

$

26,402

$

18,688

Earnings per share - basic

1.48

1.01

Earnings per share - diluted

1.48

1.01

Return on average assets

1.19

%

0.84

%

Return on average equity

7.62

%

5.48

%

- 43 -

Average Balance Sheets, Interest and Yields/Costs

The following table set forth average balance sheets, average yields and costs, and certain other information for the periods indicated.  Non-accrual loans were included in the computation of the average balances of loans receivable and held for sale.  The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.  Yields on interest-earning assets are computed on a fully tax-equivalent yield, where applicable.

Years Ended December 31,

2025

2024

2023

Average Balance

Interest

Average Rate

Average Balance

Interest

Average Rate

Average Balance

Interest

Average Rate

(Dollars in Thousands)

Assets

Interest-earning assets:

Loans receivable and held for sale (1)

$

1,808,505

104,753

5.79

%

$

1,838,761

103,066

5.61

%

$

1,752,806

90,148

5.14

%

Mortgage related securities (2)

175,698

5,215

2.97

%

170,671

4,496

2.63

%

172,318

4,053

2.35

%

Debt securities, federal funds sold and short-term investments (2)(3)

129,947

6,140

4.73

%

114,617

5,606

4.89

%

119,650

5,007

4.18

%

Total interest-earning assets

2,114,150

116,108

5.49

%

2,124,049

113,168

5.33

%

2,044,774

99,208

4.85

%

Noninterest-earning assets

105,272

103,284

106,532

Total assets

$

2,219,422

$

2,227,333

$

2,151,306

Liabilities and equity

Interest-bearing liabilities:

Demand accounts

$

89,826

95

0.11

%

90,068

98

0.11

%

80,143

82

0.10

%

Money market and savings accounts

323,950

6,724

2.08

%

296,361

5,654

1.91

%

309,119

4,529

1.47

%

Certificates of deposit

824,018

33,240

4.03

%

773,616

34,193

4.42

%

700,034

21,127

3.02

%

Certificates of deposit - brokered

84,197

3,460

4.11

%

15,004

628

4.19

%

-

-

0.00

%

Total interest-bearing deposits

1,321,991

43,519

3.29

%

1,175,049

40,573

3.45

%

1,089,296

25,738

2.36

%

Borrowings

423,945

15,855

3.74

%

572,539

26,427

4.62

%

532,248

23,255

4.37

%

Total interest-bearing liabilities

1,745,936

59,374

3.40

%

1,747,588

67,000

3.83

%

1,621,544

48,993

3.02

%

Noninterest-bearing liabilities

Non interest-bearing deposits

86,160

91,288

120,321

Other noninterest-bearing liabilities

41,069

47,680

51,439

Total noninterest-bearing liabilities

127,229

138,968

171,760

Total liabilities

1,873,165

1,886,556

1,793,304

Equity

346,257

340,777

358,002

Total liabilities and equity

$

2,219,422

$

2,227,333

$

2,151,306

Net interest income / Net interest rate spread (4)

56,734

2.09

%

46,168

1.50

%

50,215

1.83

%

Net interest-earning assets (5)

$

368,214

$

376,461

$

423,230

Net interest margin (6)

2.68

%

2.17

%

2.46

%

Average interest-earning assets to average interest-bearing liabilities

121.09

%

121.54

%

126.10

%

(1)   Includes net deferred loan fee amortization income of $565,000, $663,000, and $643,000 for the years ended December 31, 2025, 2024, and 2023, respectively.

(2)   Includes available for sale securities.

(3)   Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the years ended December 31, 2025, 2024, and 2023.  The yields on debt securities, federal funds sold and short-term investments after tax-equivalent adjustments were 4.94%, 5.11%, and 4.35% for the years ended December 31, 2025, 2024, and 2023, respectively.

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

(5)   Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6)   Net interest margin represents net interest income divided by average total interest-earning assets.

- 44 -

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments for any of the years presented.

Years Ended December 31,

Years Ended December 31,

2025 versus 2024

2024 versus 2023

Increase (Decrease) due to

Increase (Decrease) due to

Volume

Rate

Net

Volume

Rate

Net

(In Thousands)

Interest and dividend income:

Loans receivable and held for sale (1)(2)

$

(1,672

)

$

3,359

$

1,687

$

4,115

$

8,803

$

12,918

Mortgage related securities (3)

130

589

719

(39

)

482

443

Other interest-earning assets (3)(4)

723

(189

)

534

(230

)

816

586

Total interest-earning assets

(819

)

3,759

2,940

3,846

10,101

13,947

Interest expense:

Demand accounts

(3

)

-

(3

)

9

7

16

Money market and savings accounts

547

523

1,070

(180

)

1,305

1,125

Certificates of deposit - retail

2,691

(3,644

)

(953

)

2,415

10,651

13,066

Certificates of deposit - brokered

2,844

(12

)

2,832

628

-

628

Total interest-bearing deposits

6,079

(3,133

)

2,946

2,872

11,963

14,835

Borrowings

(6,097

)

(4,475

)

(10,572

)

1,807

1,365

3,172

Total interest-bearing liabilities

(18

)

(7,608

)

(7,626

)

4,679

13,328

18,007

Net change in net interest income

$

(801

)

$

11,367

$

10,566

$

(833

)

$

(3,227

)

$

(4,060

)

(1)

Includes net deferred loan fee amortization income of $565,000, $663,000, and $643,000 for the years ended December 31, 2025, 2024, and 2023, respectively.

(2)

Non-accrual loans have been included in average loans receivable balance.

(3)

Includes available for sale securities.

(4)

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

Net Interest Income

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

•

Interest income on loans increased $1.7 million, or 1.6%, to $104.8 million during the year ended December 31, 2025 compared to $103.1 million during the year ended December 31, 2024 due primarily to a 18 basis point increase in average yield on loans as interest rates continued to increase over the past year. Additionally, the average balance of loans held for investment increased by 0.5%. The increase in average loan balance was driven by an increase in the average balance of multi-family and commercial real estate loan categories. 

•

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

•

Interest income from debt securities increased $534,000, or 9.5%, to $6.1 million, due primarily to a $15.3 million increase in average balance. The increased balance was partially offset by a decrease in yield of 16 basis points.

•

Interest expense on retail time deposits decreased $953,000, or 2.8%, primarily due to a 39 basis point decrease in average cost of retail time deposits. Partially offsetting this increase was a $50.4 million, or 6.5%, increase in average balance. Interest expense on brokered time deposits increased by $2.8 million. The average balance of brokered time deposits for the year ended December 31, 2025 was $84.2 million compared to $15.0 million at December 31, 2024

•

Interest expense on money market, savings, and escrow accounts increased $1.1 million, or 18.9%, due primarily to a 17 basis point increase in average cost of money market, savings, and escrow accounts as rates increased to attract new account openings. Additionally, the average balance increased $27.6 million.

•

Interest expense on borrowings decreased $10.6 million, or 40.0%, to $15.9 million due to a $148.6 million decrease in average balance during the year ended December 31, 2025 compared to the year ended December 31, 2024 as additional deposits lessened the need for borrowing. Additionally, the average cost of funds decreased by 88 basis points during the year ended December 31, 2025.

- 45 -

Provision for Credit Losses

There was a negative provision for credit losses of $1.4 million during the year ended December 31, 2025 compared to a $168,000 negative provision for loan losses for the year ended December 31, 2024. The $1.4 negative provision for credit losses consisted of a $893,000 negative provision related to loans and $503,000 of negative provision related to unfunded commitments for the year ended December 31, 2025. The decrease in the loan portfolio provision is due to the decrease in historical loss factors and certain qualitative factors. During the year ended December 31, 2025, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors. The forecast factor remained unchanged as we monitor the economic environment going forward. The negative provision for credit losses related to unfunded loan commitments for the year ended December 31, 2025 was due primarily to a decrease in construction loans waiting to be funded. 

The provision is primarily a function of the Company's reserving methodology and assessments of certain quantitative and qualitative factors which are used to determine an appropriate allowance for credit losses for the period.  See further discussion regarding the allowance for credit losses in the "Asset Quality" section for an analysis of charge-offs, nonperforming assets, specific reserves and additional provisions and the "Allowance for Credit Loss" section.

Noninterest Income

Years Ended December 31,

2025

2024

$ Change

% Change

(Dollars in Thousands)

Service charges on loans and deposits

$

2,085

$

2,060

$

25

1.2

%

Increase in cash surrender value of life insurance

2,561

1,969

592

30.1

%

Mortgage banking income

79,225

83,565

(4,340

)

(5.2

%)

Other

1,316

1,708

(392

)

(23.0

%)

Total noninterest income

$

85,187

$

89,302

$

(4,115

)

(4.6

%)

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

•

The decrease in mortgage banking income was primarily the result of a decrease in loan origination volumes and a decrease in gross margin on loans originated. Total loan origination volume on a consolidated basis decreased $85.1 million, or 4.0%, to $2.05 billion during the year ended December 31, 2025 compared to $2.13 billion during the year ended December 31, 2024.  Gross margin on loans originated and sold decreased 1.0% at the mortgage banking segment. Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. See "Comparison of Mortgage Banking Segment Results of Operations for the Year December 31, 2025 and 2024" above, for additional discussion of the increase in mortgage banking income.

•

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

•

The decrease in other noninterest income was due primarily to an decrease in gain on sale of mortgage servicing rights. During the year ended December 31, 2025, the Company had no sales of mortgage servicing rights. During the year ended December 31, 2024, the Company sold mortgage servicing rights related to $233.0 million in loans serviced for third parties in 2024. The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain.

- 46 -

Noninterest Expenses

Years Ended December 31,

2025

2024

$ Change

% Change

(Dollars in Thousands)

Compensation, payroll taxes, and other employee benefits

$

79,619

$

81,078

$

(1,459

)

(1.8

%)

Occupancy, office furniture, and equipment

7,194

7,573

(379

)

(5.0

%)

Advertising

2,877

3,554

(677

)

(19.0

%)

Data processing

4,941

4,978

(37

)

(0.7

%)

Communications

973

922

51

5.5

%

Professional fees

2,835

3,184

(349

)

(11.0

%)

Real estate owned

(312

)

26

(338

)

(1,300.0

%)

Loan processing expense

2,996

3,090

(94

)

(3.0

%)

Other

8,747

7,231

1,516

21.0

%

Total noninterest expenses

$

109,870

$

111,636

$

(1,766

)

(1.6

%)

Total noninterest expenses decreased $1.8 million, or 1.6%, to $109.9 million during the year ended December 31, 2025 compared to $111.6 million during the year ended December 31, 2024.

•

Compensation, payroll taxes and other employee benefit expense at our mortgage banking segment decreased $1.8 million, or 2.9%, to $59.6 million for the year ended December 31, 2025. The decrease primarily related to decreased salary expense and commission expense driven by reduced employee headcount and a decrease in new branches added over the past year.

•

Compensation, payroll taxes and other employee benefits expense at the community banking segment increased $236,000 or 1.1%, to $20.9 million during the year ended December 31, 2025. The increase was primarily due to an increase in salaries and variable compensation.

•

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

•

Occupancy, office furniture and equipment expense at the community banking segment increased $217,000 to $3.9 million during the year ended December 31, 2025 compared to the prior year. The increase was due primarily to increases in equipment maintenance and repairs, as well as snow removal expenses.

•

Advertising expense decreased $677,000, or 19.0%, to $2.9 million during the year ended December 31, 2025. This was primarily due to a decrease at the mortgage banking segment in an effort to control costs, as well as a lower overall branch count.

•

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

•

Professional fees decreased $349,000, or 11.0%, to $2.8 million during the year ended December 31, 2025. The decrease was primarily related to a decrease in legal fees at the mortgage banking segment as a settlement related to a prior year dispute was finalized in the first quarter.

•

Other noninterest expense increased $1.5 million, or 21.0%, to $8.7 million during the year ended December 31, 2025. The increase primarily related to increased provision for loan sale losses, provision for branch losses, mortgage servicing rights amortization, and branch overhead at the mortgage banking segment.

- 47 -

Income Taxes

Income tax expense increased $1.7 million to $7.0 million during the year ended December 31, 2025, compared to $5.3 million during the year ended December 31, 2024 as pretax income increased by $9.4 million.  Income tax expense was recognized during the year ended December 31, 2025 at an effective rate of 21.1% compared to an effective rate of 22.1% during the year ended December 31, 2024. 

On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law. This publication enabled us to estimate the impact on our Wisconsin state income tax expense. The impact moving forward should result in no Wisconsin state income taxes being expensed, resulting in a lower estimated effective tax rate. The elimination of Wisconsin state income tax expense resulted in the establishment of a valuation allowance for Wisconsin state income deferred tax assets, resulting in a one-time $1.1 million charge to state income tax expense in the first quarter. Partially offsetting the impact of the charge related to the valuation allowance we realized a one-time benefit of approximately $368,000 during the year to recognize a reduction in current state income tax provision.

Liquidity and Capital Resources

We maintain liquid assets at levels we consider adequate to meet our liquidity needs. The liquidity ratio is equal to average daily cash and cash equivalents for the period divided by average total assets. We adjust our liquidity levels to fund loan commitments, repay our borrowings, fund deposit outflows and pay real estate taxes on mortgage loans. We also adjust liquidity as appropriate to meet asset and liability management objectives. The operational adequacy of our liquidity position at any point in time is dependent upon the judgment of the Chief Financial Officer as supported by the Asset/Liability Committee. Liquidity is monitored on a daily, weekly and monthly basis using a variety of measurement tools and indicators. Regulatory liquidity, as required by the WDFI, is based on current liquid assets as a percentage of the prior month’s average deposits and short-term borrowings. Minimum primary liquidity is equal to 4.0% of deposits and short-term borrowings and minimum total regulatory liquidity is equal to 8.0% of deposits and short-term borrowings. 

Our primary sources of liquidity are deposits, amortization and repayment of loans, sales of loans held for sale, maturities of investment securities and other short-term investments, and earnings and funds provided from operations.  While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan repayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competitors.  We set the interest rates on our deposits to maintain a desired level of total deposits.  In addition, we invest excess funds in short-term, interest-earning assets, which provide liquidity to meet lending requirements.  Additional sources of liquidity used to manage long- and short-term cash flows include advances from the FHLB.

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At December 31, 2025 and 2024, $71.1 million and $39.8 million, respectively, of our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of debt and mortgage related securities, increases in deposit accounts, Federal funds purchased and advances from the FHLB.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.

During the years ended December 31, 2025, and 2024, we originated on a consolidated basis $2.05 billion and $2.13 billion in loans for sale and sold loans on a consolidated basis of $2.11 billion and $2.24 billion.  During the year ended December 2025, loan originations net of loan repayments resulted in a positive cash flow of $5.2 million. During the year ended December 2024, loan originations net of loan repayments resulted in a negative cash flow $16.7 million.  Cash received from the principal repayments of debt and mortgage related securities and maturity and calls of debt securities totaled $36.9 million and $31.0 million for the years ended December 31, 2025 and 2024, respectively. We purchased $50.0 million and $34.3 million in debt securities and mortgage related securities classified as available for sale during the years ended December 31, 2025 and 2024, respectively. The net changes in deposits were a net increase of $77.4 million and a net increase of $169.3 million for the year ending December 31, 2025 and 2024, respectively.  There was a decrease in net borrowings of $34.3 million for the year ended December 31, 2025 and a net decrease in borrowings of $164.5 million for the year ended December 31, 2024.  During the years ended December 31, 2025 and 2024, we repurchased common stock of $16.2 million and $14.9 million, respectively.  During the years ended December 31, 2025 and 2024, we paid cash dividends on common stock of $10.8 million and $11.3 million, respectively.

Deposits increased by $77.4 million from December 31, 2024 to December 31, 2025. The increase was driven by a $45.8 million increase in money market & savings accounts, a $27.1 million increase in time deposits, and a $4.5 million increase in demand deposits. Of the increase in time deposits, $16.0 million was due to the increase of brokered certificates of deposit. Deposit flows are generally affected by the level of interest rates, market conditions, products offered by local competitors, and other factors.

Liquidity management is both a daily and longer-term function of business management.  If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB which provide an additional source of funds. At December 31, 2025, we had $190.0 million in long term advances from the FHLB with contractual maturity dates in 2027, 2028, 2029, and 2030.  See Note 7 - Borrowings of the notes to audited consolidated financial statements for additional information about the remaining call option details of our FHLB long-term debt.

The Company had approximately $378.5 million of uninsured deposits for approximately 1,487 customers as of December 31, 2025. Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limits.

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At December 31, 2025, we had outstanding commitments to originate loans receivable of $12.7 million.  In addition, at December 31, 2025, we had unfunded commitments under construction loans of $44.6 million, unfunded commitments under business lines of credit of $14.0 million and unfunded commitments under home equity lines of credit and standby letters of credit of $12.3 million. At December 31, 2025, certificates of deposit scheduled to mature in less than one year totaled $891.6 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as Federal Home Loan Bank of Chicago advances, Federal Reserve Discount Window or brokered deposits to maintain our level of assets. However, such borrowings may not be available on attractive terms, or at all, if and when needed. Alternatively, we would reduce our level of liquid assets, such as our cash and cash equivalents and securities available for sale in order to meet funding needs. In addition, the cost of such deposits may be significantly higher if market interest rates are higher or there is an increased amount of competition for deposits in our market area at the time of renewal.

Capital

Shareholders’ equity increased by $10.3 million, or 3.0%, to $349.4 million at December 31, 2025 from $339.1 million at December 31, 2024. Shareholders' equity increased primarily due to increases in the fair value of the securities portfolio and an increase in net income.

The Company's Board of Directors authorized a 2,000,000 share stock repurchase program in the second quarter of 2024. As of December 31, 2025, the Company had approximately 468,000 shares remaining in the plan.

Waterstone Financial, Inc. and WaterStone Bank are subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning assets and off-balance sheet items to broad risk categories. At December 31, 2025, Waterstone Financial, Inc. and WaterStone Bank exceeded all regulatory capital requirements and are considered “well capitalized” under regulatory guidelines. See “Supervision and Regulation—Capital Requirements” and Note 9 - Regulatory Capital of the notes to the consolidated financial statements.

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

During the year ended December 31, 2025, our short-term debt decreased $74.3 million. In addition, we repaid $90.0 million in FHLB long-term debt and took on $130.0 million of new FHLB long-term debt. 

See Note 7 - Borrowings of the notes to the consolidated financial statements for additional information about the remaining maturities of our FHLB long-term debt.

See Note 13 - Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities of the notes to the consolidated financial statements for additional information.

WaterStone Bank has various financial obligations, including contractual obligations and commitments that may require future cash payments. The following tables present information indicating various non-deposit contractual obligations and commitments of WaterStone Bank as of December 31, 2025 and the respective maturity dates.

Impact of Inflation and Changing Prices

The financial statements and accompanying notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than do the effects of inflation.

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